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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
Alpha Bet
Market volatility due to European concerns hurts our inter-sector trades. We are
closing two of our trades initiated on July 29, 2011—(1) Long AXSB, Short LT with a
gross return of 12.4% and (2) Long HDFC, Short ACC which is down 19.2% since
initiation. We keep the following trades open—(3) Long ITC, Short APNT currently 2%
in the money and (4) Long Cadila, Short Ranbaxy which is down 10.6% since initiation.
Book profits for Long AXSB, Short LT trade at 12.4%
The trade has returned 12.4% since initiation on July 29, 2011 as LT corrected more than AXSB
during the period. While AXSB has fallen ~12.6%, LT saw a sharper correction falling ~25% in the
same duration. Axis Bank recorded a strong 2QFY12 as NIMs expanded by 50 bps qoq and NII
grew 24% yoy. In comparison, LT saw in-line revenues and margins for 2QFY12 with EBITDA
margin of 10.4% and a standalone sales growth of 21% yoy. The major worries for LT revolve
around reduced order inflow guidance for FY2012E (to 5% from 15-20% earlier).
Long ITC, Short APNT—trade currently 2% in the money
We expect ITC to outperform Asian Paints (APNT) based on the following factors—(1) ITC’s
relatively cheaper valuations versus APNT’s, (2) likely stronger performance of ITC in terms of
earnings growth as strong underlying demand could assist cigarette volumes (5% in FY2012E),
(3) likely slowdown in paints volumes due to high inflation and extended weakness in real estate
demand and (4) pressure on APNT’s FY2012E EBITDA on the back of rising input costs and
competitive intensity. 2QFY11 results strengthen our view as APNT’s gross margin declined 390
bps yoy to 40.8% as price increases lagged cost inflation. Domestic volume growth in the three
quarters of CY2011 was 12%, 11% and 8% clearly depicting deceleration in volume growth.
Comparatively, ITC’s net profit of Rs15.1 bn beat Street estimates (of Rs14.7 bn) growing 21%
yoy. In accordance with our view, cigarette volumes showed strong growth (~16% yoy).
Long HDFC, Short ACC—booking loss of 19.2%
We close the trade 19.2% out of the money. Contrary to our expectations, ACC outperformed the
broader market (up 12.1%) while HDFC corrected (down 7%) along with the rest of the Indian
financial space reflecting (1) lower global risk appetite, (2) increased competition in mortgage
segment and (3) negative impact of new NHB regulations. HDFC’s 2QFY11 results showed in-line
performance (20% earnings growth) but loan growth declined to 19% yoy (from 22% in
1QFY11). This highlighted the risks of increased competition and slowdown in the housing sector.
On the other hand, cement prices continue to hold up despite large supply-demand balance
possibly due to coordinated supply management by cement players.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
Alpha Bet
Market volatility due to European concerns hurts our inter-sector trades. We are
closing two of our trades initiated on July 29, 2011—(1) Long AXSB, Short LT with a
gross return of 12.4% and (2) Long HDFC, Short ACC which is down 19.2% since
initiation. We keep the following trades open—(3) Long ITC, Short APNT currently 2%
in the money and (4) Long Cadila, Short Ranbaxy which is down 10.6% since initiation.
Book profits for Long AXSB, Short LT trade at 12.4%
The trade has returned 12.4% since initiation on July 29, 2011 as LT corrected more than AXSB
during the period. While AXSB has fallen ~12.6%, LT saw a sharper correction falling ~25% in the
same duration. Axis Bank recorded a strong 2QFY12 as NIMs expanded by 50 bps qoq and NII
grew 24% yoy. In comparison, LT saw in-line revenues and margins for 2QFY12 with EBITDA
margin of 10.4% and a standalone sales growth of 21% yoy. The major worries for LT revolve
around reduced order inflow guidance for FY2012E (to 5% from 15-20% earlier).
Long ITC, Short APNT—trade currently 2% in the money
We expect ITC to outperform Asian Paints (APNT) based on the following factors—(1) ITC’s
relatively cheaper valuations versus APNT’s, (2) likely stronger performance of ITC in terms of
earnings growth as strong underlying demand could assist cigarette volumes (5% in FY2012E),
(3) likely slowdown in paints volumes due to high inflation and extended weakness in real estate
demand and (4) pressure on APNT’s FY2012E EBITDA on the back of rising input costs and
competitive intensity. 2QFY11 results strengthen our view as APNT’s gross margin declined 390
bps yoy to 40.8% as price increases lagged cost inflation. Domestic volume growth in the three
quarters of CY2011 was 12%, 11% and 8% clearly depicting deceleration in volume growth.
Comparatively, ITC’s net profit of Rs15.1 bn beat Street estimates (of Rs14.7 bn) growing 21%
yoy. In accordance with our view, cigarette volumes showed strong growth (~16% yoy).
Long HDFC, Short ACC—booking loss of 19.2%
We close the trade 19.2% out of the money. Contrary to our expectations, ACC outperformed the
broader market (up 12.1%) while HDFC corrected (down 7%) along with the rest of the Indian
financial space reflecting (1) lower global risk appetite, (2) increased competition in mortgage
segment and (3) negative impact of new NHB regulations. HDFC’s 2QFY11 results showed in-line
performance (20% earnings growth) but loan growth declined to 19% yoy (from 22% in
1QFY11). This highlighted the risks of increased competition and slowdown in the housing sector.
On the other hand, cement prices continue to hold up despite large supply-demand balance
possibly due to coordinated supply management by cement players.
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