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Strategy
AlphaBet
Auto trades. We initiate a Long Maruti, Short Hero Honda (HH) trade to benefit from
likely under-performance of HH due to the following factors—(1) cheaper valuations of
MSIL versus HH, (2) likely stronger growth in volumes and revenues of MSIL versus
those of HH and (3) likely pressure on HH’s margins relative to MSIL’s due to cost
increases in re-branding, R&D and infrastructure; also, aggressive growth targets by
several 2-wheeler players may result in price competition.
Initiating Long MSIL, Short HH trade
We initiate a Long Maruti, Short Hero Honda (HH) trade to benefit from likely underperformance
of HH due to the following factors—(1) cheaper valuations of MSIL versus HH, (2) likely higher
growth in volumes and revenues of MSIL versus those of HH and (3) likely pressure on HH’s
margins relative to MSIL’s due to increase in re-branding, R&D and infrastructure costs.
Long Crompton, Short Siemens; trade currently 5.3% in the money
Crompton Greaves has gained 9.2% since initiation of the trade on March 9, 2011 (outperforming
the broader market); Siemens has gained 3.9%. However, we would clarify that SIEM’s
underperformance reflects completion of the ongoing open-offer for 19.8% of SIEM’s shares
by SIEM’s parent. We will consider the acceptance ratio while computing the actual return from
the trade.
Long HDFC Bank, Short HDFC; liability franchise will eventually matter
HDFC Bank has gained 7.4% compared to a 6.7% rise for HDFC since initiation of the trade.
We reiterate that HDFCB’s strong liability franchise will help protect NIMs even as HDFC’s margins
will likely face pressure from higher borrowing costs. In our view, HDFC’s expensive valuation does
not factor in risks to its business model; increasing competition in the mortgage segment will also
impact HDFC’s margins and market share.
Long ONGC, Short GAIL; market is yet to take cognizance of risks to GAIL’s earnings
ONGC and GAIL have both gained 6.5% and 7.7% since initiation of the trade. We see downside
risks to GAIL’s earnings from (1) high crude oil prices, (2) unfavorable subsidy-sharing arrangement
and (3) lower-than-expected gas supply in India. GAIL’s earnings may suffer from (1) higher
subsidy burden due to a sharp increase in crude oil prices over the past 3-4 months and (2) modest
increase in LPG and polyethylene prices over the same period.
Long Ultratech, Short ACC; down 4.7% since inception
Ultratech has gained 6.5% while ACC has gone up 11.2% since March 9, 2011 with the market
getting excited by the increase in cement prices over the past few months. UTCEM is far cheaper
to ACC at 6.6X FY2012E EBITDA compared to ACC’s 8.8X CY2011E EBITDA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
AlphaBet
Auto trades. We initiate a Long Maruti, Short Hero Honda (HH) trade to benefit from
likely under-performance of HH due to the following factors—(1) cheaper valuations of
MSIL versus HH, (2) likely stronger growth in volumes and revenues of MSIL versus
those of HH and (3) likely pressure on HH’s margins relative to MSIL’s due to cost
increases in re-branding, R&D and infrastructure; also, aggressive growth targets by
several 2-wheeler players may result in price competition.
Initiating Long MSIL, Short HH trade
We initiate a Long Maruti, Short Hero Honda (HH) trade to benefit from likely underperformance
of HH due to the following factors—(1) cheaper valuations of MSIL versus HH, (2) likely higher
growth in volumes and revenues of MSIL versus those of HH and (3) likely pressure on HH’s
margins relative to MSIL’s due to increase in re-branding, R&D and infrastructure costs.
Long Crompton, Short Siemens; trade currently 5.3% in the money
Crompton Greaves has gained 9.2% since initiation of the trade on March 9, 2011 (outperforming
the broader market); Siemens has gained 3.9%. However, we would clarify that SIEM’s
underperformance reflects completion of the ongoing open-offer for 19.8% of SIEM’s shares
by SIEM’s parent. We will consider the acceptance ratio while computing the actual return from
the trade.
Long HDFC Bank, Short HDFC; liability franchise will eventually matter
HDFC Bank has gained 7.4% compared to a 6.7% rise for HDFC since initiation of the trade.
We reiterate that HDFCB’s strong liability franchise will help protect NIMs even as HDFC’s margins
will likely face pressure from higher borrowing costs. In our view, HDFC’s expensive valuation does
not factor in risks to its business model; increasing competition in the mortgage segment will also
impact HDFC’s margins and market share.
Long ONGC, Short GAIL; market is yet to take cognizance of risks to GAIL’s earnings
ONGC and GAIL have both gained 6.5% and 7.7% since initiation of the trade. We see downside
risks to GAIL’s earnings from (1) high crude oil prices, (2) unfavorable subsidy-sharing arrangement
and (3) lower-than-expected gas supply in India. GAIL’s earnings may suffer from (1) higher
subsidy burden due to a sharp increase in crude oil prices over the past 3-4 months and (2) modest
increase in LPG and polyethylene prices over the same period.
Long Ultratech, Short ACC; down 4.7% since inception
Ultratech has gained 6.5% while ACC has gone up 11.2% since March 9, 2011 with the market
getting excited by the increase in cement prices over the past few months. UTCEM is far cheaper
to ACC at 6.6X FY2012E EBITDA compared to ACC’s 8.8X CY2011E EBITDA.
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