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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
AlphaBet
Tread cautiously but do tread/trade. We initiate a few long-short trades to take
advantage of mispricing between stocks within sectors. Uncertainty about (1) crude oil
prices and (2) ongoing corruption cases precludes a strong view of the Indian market
either way; hence, we avoid inter-sector trades.
Trade #1: Switch to Crompton Greaves (CRG) from Siemens (SIEM)
We expect CRG to outperform Siemens given (1) limited upside for Siemens even on successful
completion of the ongoing open offer, (2) SIEM’s expensive valuations and (3) weak outlook for
SIEM’s mainstay industrials segment. On the other hand, CRG’s diversified business model, its
strong balance sheet and solid FY2012E guidance offer a better risk-reward balance.
Trade #2: Long PNB; Short Bank of India (BOI); similar valuations, different upsides
We recommend a Long PNB, Short BOI trade due to (1) higher potential upside to our 12-month
fair valuation in the case of PNB versus BOI’s despite their similar valuations, (2) PNB’s stronger
loan growth, better asset quality and higher NIMs, and (3) PNB’s higher CASA ratio in a rising
interest rate scenario.
Trade #3: Long HDFC Bank; Short HDFC; liability franchise over wholesale borrowing
We expect HDFCB to outperform HDFC for the following reasons—(1) HDFC’s expensive
valuations even as spreads between lending and G-Sec rates converge and competition eats into
its mortgage market share and (2) HDFCB’s strong liability franchise that will help protect its NIMs
even as HDFC’s margins may face pressure from higher wholesale borrowing costs.
Trade #4: Long ONGC; Short GAIL; subsidy sharing will favor ONGC relative to GAIL
We recommend increasing exposure to ONGC while reducing exposure to GAIL given (1) ONGC’s
relatively cheaper valuations and (2) ONGC’s better positioning versus GAIL’s in a high crude oil
price scenario under the current subsidy-sharing arrangement. We see potential negative triggers
for GAIL on account of (1) slower-than-expected ramp-up in gas transmission volumes arising from
lower-than-expected gas supply in India and (2) unfavorable share of subsidies for GAIL among the
government-owned upstream companies.
Trade #5: Long Ultratech; Short ACC; it’s all cement
We recommend a Long Ultratech Cement, Short ACC trade to benefit from (1) Ultratech’s cheaper
valuations versus ACC’s, (2) likely pan-India price hikes in the near term, which will benefit
Ultratech more than ACC and (3) relative underperformance of Ultratech compared to ACC in the
past three months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
AlphaBet
Tread cautiously but do tread/trade. We initiate a few long-short trades to take
advantage of mispricing between stocks within sectors. Uncertainty about (1) crude oil
prices and (2) ongoing corruption cases precludes a strong view of the Indian market
either way; hence, we avoid inter-sector trades.
Trade #1: Switch to Crompton Greaves (CRG) from Siemens (SIEM)
We expect CRG to outperform Siemens given (1) limited upside for Siemens even on successful
completion of the ongoing open offer, (2) SIEM’s expensive valuations and (3) weak outlook for
SIEM’s mainstay industrials segment. On the other hand, CRG’s diversified business model, its
strong balance sheet and solid FY2012E guidance offer a better risk-reward balance.
Trade #2: Long PNB; Short Bank of India (BOI); similar valuations, different upsides
We recommend a Long PNB, Short BOI trade due to (1) higher potential upside to our 12-month
fair valuation in the case of PNB versus BOI’s despite their similar valuations, (2) PNB’s stronger
loan growth, better asset quality and higher NIMs, and (3) PNB’s higher CASA ratio in a rising
interest rate scenario.
Trade #3: Long HDFC Bank; Short HDFC; liability franchise over wholesale borrowing
We expect HDFCB to outperform HDFC for the following reasons—(1) HDFC’s expensive
valuations even as spreads between lending and G-Sec rates converge and competition eats into
its mortgage market share and (2) HDFCB’s strong liability franchise that will help protect its NIMs
even as HDFC’s margins may face pressure from higher wholesale borrowing costs.
Trade #4: Long ONGC; Short GAIL; subsidy sharing will favor ONGC relative to GAIL
We recommend increasing exposure to ONGC while reducing exposure to GAIL given (1) ONGC’s
relatively cheaper valuations and (2) ONGC’s better positioning versus GAIL’s in a high crude oil
price scenario under the current subsidy-sharing arrangement. We see potential negative triggers
for GAIL on account of (1) slower-than-expected ramp-up in gas transmission volumes arising from
lower-than-expected gas supply in India and (2) unfavorable share of subsidies for GAIL among the
government-owned upstream companies.
Trade #5: Long Ultratech; Short ACC; it’s all cement
We recommend a Long Ultratech Cement, Short ACC trade to benefit from (1) Ultratech’s cheaper
valuations versus ACC’s, (2) likely pan-India price hikes in the near term, which will benefit
Ultratech more than ACC and (3) relative underperformance of Ultratech compared to ACC in the
past three months.
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