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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
Alpha Bet
Booking profits and losses. We are closing two trades and initiating a new alpha
trade in the metals sector. The Long HDFC Bank, Short HDFC trade has returned 8.2%
since its inception; we are also booking a loss in our Long Maruti, Short Hero Honda call
which is currently 13.6% below initiation levels. We recommend going Long Sterlite,
Short Hindalco based on the following—(1) STLT’s cheaper valuations versus Hindalco’s,
(2) likely correction in aluminum prices, (3) stronger volume growth in STLT that
provides more visibility to its short-term earnings, and (4) recent Street activity shows a
large number of EPS and target price upgrades for STLT as compared to Hindalco.
Closing Long Maruti, Short Hero Honda trade booking a loss of 13.6%
This trade has lost 13.6% since April 15, 2011. While Maruti corrected 5.3%, Hero Honda gained
8.3% during the same period. We expect this trade to reverse in the future but the large loss in
the past few days forces us to close the trade. HH is trading at 16.6X FY2012E EPS compared to
MSIL’s 12.8X.
Booking profits on Long HDFC Bank, Short HDFC with 8.2% gross return
HDFC Bank gained 2.1% since inception of the trade on March 9, 2011 and HDFC corrected 6.1%
during the same period giving us a gross return of 8.2%.
Long Crompton, Short Siemens: Trade open currently, 5.8% out of the money
Siemens posted stronger-than-expected 2QFY11 (September-ending) results but CRG reported
weaker-than-expected 4QFY11 results (revenues were 3% below estimates). CRG has corrected
7.1% since initiation of the trade on March 9, 2011 but Siemens has lost only 1.3%. In our view,
CRG’s consumer business (around 33% of standalone revenues) and large order inflows in
overseas business (`14.5 bn in 4QFY11, close to peak levels of `15.2 bn in 1QFY09) provide better
revenue visibility compared to SIEM’s excessive reliance on the power segment (about 50% of
overall revenues), which makes us wary about its future revenues.
Long Ultratech, Short ACC: Trade open currently, up 2.4% since initiation
Ultratech has gained 1.9% and ACC has corrected 0.5% since March 9, 2011. We keep the trade
open as ACC is still trading at a significant premium (~30% on FY2012E EV/EBITDA basis) to
Ultratech. We expect the premium to gradually wind down as the market takes cognizance of
likely lower purchases by Holcim (ACC’s major shareholder) in the open market in the next few
months.
Initiating Long Sterlite Industries, Short Hindalco
We recommend going Long Sterlite, Short Hindalco based on the following—(1) STLT’s cheaper
valuations versus Hindalco’s, (2) likely correction in aluminum prices, (3) stronger volume growth in
STLT that provides more visibility to its short-term earnings, and (4) recent Street activity shows a
large number of EPS and target price upgrades for STLT as compared to Hindalco.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
Alpha Bet
Booking profits and losses. We are closing two trades and initiating a new alpha
trade in the metals sector. The Long HDFC Bank, Short HDFC trade has returned 8.2%
since its inception; we are also booking a loss in our Long Maruti, Short Hero Honda call
which is currently 13.6% below initiation levels. We recommend going Long Sterlite,
Short Hindalco based on the following—(1) STLT’s cheaper valuations versus Hindalco’s,
(2) likely correction in aluminum prices, (3) stronger volume growth in STLT that
provides more visibility to its short-term earnings, and (4) recent Street activity shows a
large number of EPS and target price upgrades for STLT as compared to Hindalco.
Closing Long Maruti, Short Hero Honda trade booking a loss of 13.6%
This trade has lost 13.6% since April 15, 2011. While Maruti corrected 5.3%, Hero Honda gained
8.3% during the same period. We expect this trade to reverse in the future but the large loss in
the past few days forces us to close the trade. HH is trading at 16.6X FY2012E EPS compared to
MSIL’s 12.8X.
Booking profits on Long HDFC Bank, Short HDFC with 8.2% gross return
HDFC Bank gained 2.1% since inception of the trade on March 9, 2011 and HDFC corrected 6.1%
during the same period giving us a gross return of 8.2%.
Long Crompton, Short Siemens: Trade open currently, 5.8% out of the money
Siemens posted stronger-than-expected 2QFY11 (September-ending) results but CRG reported
weaker-than-expected 4QFY11 results (revenues were 3% below estimates). CRG has corrected
7.1% since initiation of the trade on March 9, 2011 but Siemens has lost only 1.3%. In our view,
CRG’s consumer business (around 33% of standalone revenues) and large order inflows in
overseas business (`14.5 bn in 4QFY11, close to peak levels of `15.2 bn in 1QFY09) provide better
revenue visibility compared to SIEM’s excessive reliance on the power segment (about 50% of
overall revenues), which makes us wary about its future revenues.
Long Ultratech, Short ACC: Trade open currently, up 2.4% since initiation
Ultratech has gained 1.9% and ACC has corrected 0.5% since March 9, 2011. We keep the trade
open as ACC is still trading at a significant premium (~30% on FY2012E EV/EBITDA basis) to
Ultratech. We expect the premium to gradually wind down as the market takes cognizance of
likely lower purchases by Holcim (ACC’s major shareholder) in the open market in the next few
months.
Initiating Long Sterlite Industries, Short Hindalco
We recommend going Long Sterlite, Short Hindalco based on the following—(1) STLT’s cheaper
valuations versus Hindalco’s, (2) likely correction in aluminum prices, (3) stronger volume growth in
STLT that provides more visibility to its short-term earnings, and (4) recent Street activity shows a
large number of EPS and target price upgrades for STLT as compared to Hindalco.
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