Grasim — Buy, PT Rs2,930; Cotton prices have increased sharply :: UBS

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Grasim — Buy, PT Rs2,930

Cotton prices have increased sharply

Average cotton prices have risen ~45% QoQ in Q4FY11 (~132% YoY). In

FY11, cotton prices have increased ~58% YoY. With such strength in cotton

prices, we expect Grasim’s VSF realizations to also rise in the upcoming

quarters (VSF realizations for Grasim have a high correlation with cotton

prices).

Bonds end weak ahead of the Apr-Sep borrowing that begins next week:: Edelweiss

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Bonds end weak ahead of the Apr-Sep borrowing that begins next week
Government securities
 Sovereign bonds ended weak today as most investors preferred to book profits
ahead of the government’s market borrowing for April-September that begins next
week. GoI will start its Apr-Sep borrowing plan next week with INR 120bn auction
of dated securities (total borrowing for April is INR 360bn as per the calendar). The
7.80% 2020 benchmark bond closed 2bps higher at 8.00%. With the bond’s
outstanding reaching its notional ceiling of INR 600bn, the central bank is likely to
issue a new 10 year benchmark during the first auction
Non-SLR market
 Short term rates eased for a second day due to lower supply from banks as most
of the banks have already met their deposit requirements for the financial year
and the deals are now happening with value date in April. Three month CDs were
dealt at 9.65%-9.75% while one year CDs were dealt at 9.75%-9.85%
 Bank of India placed INR 5bn of thee month CD at 9.65% (March value) while L&T
Finance placed INR 1bn of three month CP at 8.36% (Apr value). IDBI placed INR
2.50bn of one year CD between 9.55%-9.65%. PNB also placed INR 6bn of three
month CD at 9.60% (Mar value).
Money markets
 Overnight rates could remain under pressure until next week as the demand from
banks may be strong due to the shortened fortnight due to a holiday on Friday and
Monday. The central bank infused INR 910bn compared to INR 878bn on Monday.
Call rates ended marginally lower at 7.26% while the CBLO rates closed at 6.81%

Rollover Analysis-Market-wide OI (D-2 Days): : Edelweiss

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Benchmark indices closed in the green for the sixth straight session. Rollovers on
D-2 have been on the higher side on both market wide as well as the Nifty front
compared to the previous expiry. On the market wide front, ~51% of the
positions have been rolled over to the April series (~41% on D-2 of February
series). Current market wide futures OI stands at ~INR 575 bn as against ~INR
560 bn on D-2 of February expiry. Roll cost levels in single stock futures stayed at
yesterday’s levels of ~75 bps (cost to the long rollers).
Around 50% of outstanding positions of Nifty have been rolled over to April series
as against the 34% positions that were rolled by D-2 of previous expiry. The
current Nifty OI stands at 675,794 contracts (INR 195 bn) compared to 616,355
contracts (INR 169 bn) on D-2 of February expiry. Around 23,827 Nifty contracts
got rolled today while ~36,843 contracts were added in the mid month. Nifty roll
cost to the long rollers averaged ~30 points during the day.


Sectors with strong rollovers were FMCG (61%), power (59%) and telecom (58% each). Prominent counters are Dabur
(61%), NTPC (66%) and Idea (59%). Counters where rolls have picked up are Jindal Saw (66%/31%), Bharti Airtel
(55%/31%) and HDIL (61%/37%). Pharmaceuticals (45%) and auto (41%) were the laggards on D-2.
Focus Stocks
􀂄 Jindal Saw (JSAW): The counter witnessed a rise in the rollovers with overall 66% of the futures positions
getting rolled into the next series as against 31% yesterday. It currently holds a total OI of ~4.32mn shares.
Roll cost levels are at ~54-56 bps (profit to short rollers).
􀂄 Bharti Airtel (BHARTI): Nearly 55% of the positions have got rolled into the next series as against 31%
yesterday. The open interest is currently ~14.68mn shares. Rollovers happened at a profit of ~54-56bps.
􀂄 HDIL (HDIL): As compared to previous session’s rollover of 37%, the counter witnessed pick up in rollover
activity in today’s session. Around 61% positions have been rolled over to the April series and it holds an OI of
~15mn shares. Rolls are happening at around ~80-85bps (profit to short rollers).

Kotak Sec, News Round-up March 29, 2011

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Economy News
4 In what must have come as some relief for the Government, bidding for
oil and gas blocks on offer under NELP-IX (which closed yesterday) met
with a better response than that seen under NELP-VIII. Out of the 34
blocks on offer in this latest and possibly last round of NELP (before the
open acreage licensing policy comes into play), 74 bids were received for
33 blocks. Only one offshore block did not receive any bid
4 The Micro Finance (Development and Regulation) Bill proposes to cover all
types of microfinance institutions (MFIs). The Bill’s 2007 version covered
only MFIs not regulated by the Reserve Bank of India (RBI). As a result,
banks and a few categories of non-banking finance companies (NBFCs)
were outside its purview. (ET)
4 A key committee of secretaries that met on Monday has agreed "in
principle" to bring urea under the nutrient based subsidy regime, or NBS,
allowing for a hike up to 10% in the farm gate price of urea in the first
year. The CoS has also "tentatively" agreed to provide a flat subsidy of Rs
4000/tonne to all gas-based plants. (ET)
Corporate News
4 With three drug recalls in about two years after Pfizer Inc tied up with
Indian partners Aurobindo Pharma and Claris Lifesciences, the USbased
drug-maker is taking up its concerns with these suppliers. “We are
discussing these concerns with our suppliers and will take whatever steps
are necessary to ensure the safety of patients and the quality of the
products we provide,” Pfizer Inc's spokesperson told Business Line, in an
e-mailed response from New York. (BL)
4 Voltas Ltd on Monday informed the stock exchanges that the board of
directors of Voltas Oman LLC, its joint venture company in Oman, has
allotted shares amounting to Omani Riyal 500,000 to the two partners.
Voltas Oman LLC is 65 per cent owned by Voltas and 35 per cent by the
Mustafa Sultan Group. The joint venture would be in the business of
executing electro-mechanical projects in Oman. (BL)
4 Promoters of the Ahmedabad-based Electrotherm Group today
announced a joint venture with Immodo Solar S A, a Spanish company, for
the promotion and development of solar photovoltaic projects for solar
farms and other grid and non-grid applications. In its first year, the JV is
expecting to execute 30 MW of projects with revenues of Rs 3.5 bn in
2011-12. (BL)
4 Natco Pharma's novel anti-cancer drug has received ‘Orphan drug
designation', from the US Food and Drug Administration (USFDA). It is
the first Indian company's drug to get such a designation for three
indication. (BL)
4 Oil and Natural Gas Corporation (ONGC) has emerged the provisional
winner for close to 10 out of the 29 blocks it has bid for in the ninth round
of the New Exploration Licensing Policy (Nelp). It had won nearly twothirds
of the blocks offered in the previous rounds. (BS)
4 Axis Bank has withdrawn its proposal to induct Vallabh Bhansali, cofounder
and chairman of Enam Securities, on the board, following the
Reserve Bank of India’s (RBI’s) discomfort. In November last year, Enam
sold its investment banking, institutional and retail equity businesses to
the bank. Bhansali’s induction on the board as an independent director
was part of the deal. (BS)

Shoppers Stop - Capitalising on the consumption story…ICICI Securities,

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Shoppers Stop - Capitalising on the consumption story…


We recently met the management of Shoppers Stop to understand the
company’s business and future plans. Shoppers Stop Ltd (SSL),
promoted by the K Raheja Corp Group, was established in 1991. The
company operates through a chain of 33 departmental stores (as on
September 30, 2010) across 13 cities covering a total area of ~1.99 mn sq
ft. Besides its departmental store, SSL has promoted several speciality
retail formats including Home Stop (home furnishing), Crossword (books,
music and stationery), Mothercare (parenting products), M.A.C, Clinique
and Estee Lauder (cosmetics), and  Arcelia (cosmetics, jewellery and
accessories). SSL’s total retail space (excluding Hypercity) as on Q2FY11
stands at 2.24 mn sq ft spread over a network of 126 stores. In June 2010,
SSL increased its stake in Hypercity from 19% to 51% for a consideration
of ~| 97 crore, making the company its subsidiary. As on September
2010, Hypercity operates 8 hypermarket stores covering a total retail area
of 9 lakh sq ft.
Increased space to spearhead growth
SSL has doubled its space during FY06-10 from 0.91 mn sq ft to 1.80 mn
sq ft. It further plans to add ~21 stores during FY11-13E and increase the
space under operation to ~3.07 mn sq ft. On the Hypercity front too the
company plans to triple the no of stores from the 7 in FY10 to 21 stores in
FY13E.
Cost rationalisation to aid margin expansion
In an endeavour to reduce costs, SSL has moved from paying fixed lease
rentals to a revenue sharing model which will lead to cost savings. Also, it
has reduced the capex per store from | 1600-1800 per sq ft to | 1200-
1400 per sq ft.
Better working capital management
In the last 2-3 years SSL has shown  increasing preference towards the
consignment model (where the vendor bears the inventory risk and
payment is made post sales) for sourcing merchandise thereby reducing
working capital needs.  
V i e w
Considering the improving consumer sentiment, space expansion plans,
cost rationalisation efforts, scalability of Hypercity’s business we are
positive on the long term prospects of the company.

India strategy, West doesn't meet East : BNP Paribas

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West doesn't meet East
􀂃 Across Asia and Europe we met 49 long only and 8 hedge fund clients
􀂃 Asian investors by and large bearish, Europeans turning positive
􀂃 Investors positive on banks, IT, auto; turning positive on energy, property
􀂃 Oil prices, margin pressure, capex slowdown - biggest areas for concern
Significant divergence between Asian and European investors
We met Asian investors just before the Indian Budget - in the last week of February, and we
met European investors a week or so after the budget was passed. While the bearishness of
Asian investors was at its peak (barring a few large long only funds), European investors,
particularly those focused on GEM, don't seem particularly negative on India. Most LO
investors are underweight India, though GEM investors are getting incrementally positive.
What are the main concerns and questions of investors?
The biggest concern is the combination of persistent high inflation, potentially high fiscal
deficit and their effect on interest rates and the possibility of it crowding out private
borrowing. The second most often asked question was about downside risk to earnings
estimates and which sectors could contribute to such downgrades. We believe metals,
cement, consumer staples and construction - contributing to 25-30% of market's earnings –
could face downgrades.
What are the causes of investors' confusion?
Simply put - 2 questions: (i) Why is the Indian market so resilient in the wake of sharply
increasing oil prices and political scandals? And (ii) Why is the Indian Rupee so strong in a
scenario of increasing oil prices and declining capital flows? Expectation of potential
moderation in global growth - which could lead to moderation in commodity prices could
explain the first issue. A recent decline in trade deficit and foreign institutional investors
(FIIs) buying Indian debt (neutralising equity outflows) possibly explains the second issue.
Strongest agreements and disagreements
Our underweight on second tier PSU banks, absence and BHEL and Hero Honda from our
portfolio and our underweight on pharmaceuticals were the strongest areas of disagreement.
Overweight on IT and automobiles and overweight on some frontline engineering companies
(e.g. L&T) met with most acceptance among investors.

Lipitor: if approval is delayed, is Ranbaxy better-off relinquishing its exclusivity?Credit Suisse,

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Lipitor represents an event risk for Ranbaxy and we analyse the
options Ranbaxy has to monetise its exclusivity. The best case for
Ranbaxy is approval by 30 Nov 2011, which is our base case and
we value it at Rs60/share.
● The next option depends on how much delay Ranbaxy expects in
its approval beyond 30 Nov 2011. If a significant delay is
expected, then Ranbaxy may relinquish exclusivity, strike a deal
with Teva and Mylan – allowing them to launch six months earlier.
● However, if the delay expected is not significant, then Ranbaxy
should launch on its own as it can push other products with
Lipitor. Though upside may be reduced significantly as Watson
would launch on 30 Nov 2011, irrespective of Ranbaxy’s approval.
● We see a low probability of Ranbaxy licensing its exclusivity to
another generic player as it requires Ranbaxy to first launch its
generic version and then transfer its exclusivity.
● Ranbaxy/FDA has not disclosed the current status of Lipitor
ANDA. Thus it is difficult to assign probabilities to the above
scenarios. In the worst case, Ranbaxy’s ANDA may not clear AIP.

INDIA DAILY March 29, 2011: Kotak Sec

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News Round-up
􀁠 The ninth round of oil & gas block auctions saw 10 new players making their entry.
ONGC (ONGC IN) emerged as the front-runner in 10 of the 26 blocks it bid. (THBL)
􀁠 ONGC (ONGC IN) set to bag 10 blocks in NELP-IX. RIL (RIL IN) front-runner in two; big
oil skips this round too. (BSTD)
􀁠 Reliance Industries (RIL IN) fails to meet gas commitment. Was to drill 22 gas wells &
produce 53.4 mscmd till April; combined output so far 42 mscmd. (BSTD)
􀁠 Reliance Infrastructure (RELI IN) buyback of its equity shares will start from April 5. It
plans to buy back shares for an aggregate amount of up to USD 222 mn. (BSTD)
􀁠 Pfizer (PFIZ IN) recalls two drugs in US on labeling error. (BSTD)
􀁠 IFCI Ltd (IFCI IN) picks up 2.7% stake in Murli Industries (MRLI IN). (BSTD)
􀁠 Natco Pharma's (NTCPH IN) anti-cancer drug, NRC-AN-019, has received 'Orphan
Drug' designation from the USFDA for three indications - glioma (brain tumour),
pancreatic cancer and chronic myelogenous leukemia. (BSTD)
􀁠 Even as talks with unions at Shell's Stanlow refinery progress, Essar Energy and Royal
Dutch Shell are planning to sign an agreement that would see the Indian group take
control of the refinery near Ellesmere Port, Cheshire, UK. (BSTD)
􀁠 Irked by slow pace of current JV, US co. Walmart is in talks to pick up stake in Big
Bazaar. (ECNT)
􀁠 JSW group & GVK group could join hands with a third Indian co. to offer a combined
bid for the coal assets of Australia's Hancock Coal, which is valued at more than USD
2.7bn. (ECNT)
Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.

Buy GAIL -Not willing to commit to higher near term volumes; Credit Suisse,

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GAIL ------------------------------------------------------------------------------ Maintain OUTPERFORM
Not willing to commit to higher near term volumes; yet volumes can grow despite flat D6


● GAIL recently signed an MoU with the govt. outlining FY12
volume targets. Natural gas transmission is estimated at 118
mmscmd, down from 3QFY11 and lower than our estimate of 129
mmscmd.
● Given GAIL will be evaluated on these numbers, it is likely to have
been conservative in its forecast (as it was in FY11). Uncertainty
on KG gas volumes would lead to additional caution. Yet GAIL
should be able to grow volumes on the back of additional LNG.
● We reduce our FY12 volume forecast to 123 mmscmd, higher
than GAIL’s estimates, leaving average transmission tariffs at
3QFY11 levels. GAIL should commission its new pipelines soon.
While these can lead to higher depreciation charges, weighted
average tariffs can also increase as a result.
● Indian gas availability should grow long term, securing growth/
returns for GAIL – and its capex programme. At 2.5x fwd book
and 19% RoE, valuations have room to absorb near-term issues.
Higher subsidy payment is the larger near term risk. Our FY12/13
EPS fall 3%/1% to Rs33.3/36.5. TP increases from Rs541 to
Rs.557, principally on rolling forward the DCF. OUTPERFORM.

Sterlite Industries: Value at discount  Motilal Oswal

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Sterlite Industries- Value at discount
 We expect Sterlite Industries to post earnings CAGR of 36% over FY11-13, driven
by volume growth in zinc, lead and silver, and merchant power sales by Sterlite
Energy and Balco. As the company has used some of its cash to acquire zinc
assets from Anglo, the gap between RoIC and RoE is narrowing.
Zinc, lead and silver - inorganic and organic growth to pay off
 We expect the attributable zinc, lead and silver volumes to grow at a rapid CAGR
of 37%, 51% and 45%, respectively to 837k tons, 120k tons and 211 tons over
FY11-FY13 on account of organic growth at Hindustan Zinc and addition of Anglo's
business. The growth momentum is likely to be maintained, as full ramp-up of
capacity progresses.
 The Rampur Agucha mine has been expanded by 20% to 6mtpa and the Sindesar
Kurd (SK) mine is being expanded from 0.5mtpa to 1.5mtpa.
 Production at Lisheen, Skorpion and Black mountain is likely to be maintained.
The Gamsberg project has the potential to add ~400ktpa capacity over 3-4 years
at a capex of ~US$1b.
 The outlook for zinc prices remains bullish due to expected depletion of few largescale
mines. We expect segmental attributable EBITDA to grow at a CAGR of
26% over FY11-FY13 to Rs58b. The international zinc business will add Rs14b-
17b to the Rs58b EBITDA, while other income will be lower by Rs4b.
Power sales to deliver growth; aluminum expansions on hold
 The company is looking to cash in on the merchant sale of power post the
commissioning of Sterlite Energy's 2,400MW and Balco's 1,200MW projects over
the next 12-15 months. Aluminum expansions at both Vedanta Aluminum (VAL)
and Balco have been put on hold.
 Sterlite Industries will be selling an attributable 3,111MW to third parties as against
~140MW in FY11. Power sales will add Rs30b to EBITDA over FY11-FY13.
 Given the shortage in the country, sourcing coal is a bit challenging. We factor
average coal cost of Rs1,600/ton. Balco's captive coal mines, expected to be
operational in six months subject to stage-2 forest clearances, will reduce fuel
costs significantly.
Trades at significant discount to SOTP value; Buy
Sterlite has underperformed due to a trail of setbacks - bauxite mining, minority buyouts,
Tuticorin smelter, etc. Yet, earnings growth remains intact. The stock now trades at a
significant discount to its intrinsic valuation of Rs221 (based on SOTP), implying that
negatives are factored in. We believe the stock will get re-rated once projects get
delivered. Maintain Buy.

Credit Suisse, Bharti Airtel: pricing power to return soon

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Bharti Airtel Ltd. -------------------------------------------------------------- Maintain OUTPERFORM
Notes from the AIC: pricing power to return soon


● We hosted Bharti group CFO Mr. Manik Jhangiani and corporate
treasurer Mr. Harjeet Kohli over a series of investor meetings at
our Asian Investment Conference in Hong Kong last week.
● Management explained that the pricing environment has remained
stable over the last 2-3 quarters. Continued stability should help in
margin improvement. Management expects pricing power to
return over the next 12-18 months, leading to RPM increase.
● Initial response to 3G launch has been encouraging, with 30%
3G-enabled phones already accessing 3G services in the
company’s subscriber base. Management expects US$3-4 ARPU
uplift from 3G services based on the initial usage patterns.
● African operations are moving towards meeting the CEO’s FY3/13
targets. Bharti has regained 1% revenue market share over the
last nine months. Various outsourcing contracts are progressing.
● We expect Bharti Airtel to benefit from stable fundamentals in
India and improving operations in Africa. Retain OUTPERFORM.

Buy Hindalco -Delaying projects : Motilal Oswal

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Delaying projects
 Hindalco is investing US$5b in greenfield projects to raise aluminum capacity 3x
to 1.6m tons and alumina capacity 2x to 3mtpa. Progress on the projects had
picked up momentum in the last 1-2 years and timelines were being maintained.
However, the projects are now delayed.
 Alumina capacity is likely to double. Though the Uktal Alumina project has been
delayed by six months, we expect it to ramp-up production in FY13. Statutory
clearances for the captive bauxite mines are in place. Hence, margins in alumina
production are likely to be robust.
 Primary aluminum production will dip a bit in FY11 due to breakdown at the Hirakud
smelter following torrential rain and lightning during the monsoon season. Over
FY11-FY13, the production is likely to increase at a CAGR of 19% to 750k tons
due to expansion of Hirakud and commissioning of the 359ktpa Mahan smelter.
 The Mahan smelter has been allotted a coal block, but statutory clearances are
pending due to new classification of "Go/No Go" zone introduced by the Ministry
of Environment and Forest (MoEF). In the absence of coal linkages, the profitability
of the smelter has become questionable.
 Gains on account of stronger LME prices are getting eroded by persisting cost
pressure for aluminum smelter in India. Hindalco has a strong pipeline of aluminum
and alumina projects, but execution delays remain a risk to our volume assumption.
Though the Mahan smelter's captive power plant has been allotted captive coal
mines, delays in operating the coal block or alternative coal linkages can adversely
impact margins.
 Novelis has already surpassed its guidance of US$1b EBITDA on trailing 12-
month basis. However, margin pressure was seen in European business in 3QFY11.
Demand for FRP products remains strong. Novelis continues to focus on cost
reduction and increase in volumes through de-bottlenecking and capacity
expansion. We expect volumes to increase 20% over 3-4 years. We model EBITDA
of US$1.14b for FY12 and US$1.2b for FY13.
 Novelis has returned US$1.7b (as return of capital) to Hindalco, which has been
utilized to repay acquisition debt. Consolidated interest expense for FY12 has
increased by Rs3.7b due to increase of debt at Novelis level. The benefit of reduction
in interest expense on receipt of US$650m will be going to capital account rather
than revenue account because the proceeds will be utilized for greenfield projects.
 We recently cut our FY11E EPS by 9% to model lower than expected 3QFY11
results for both standalone and Novelis. We have cut our volume assumptions of
alumina and metal for FY12 and FY13 to incorporate delays in commissioning of
projects. Our FY12 alumina production estimate is cut from 1.8m tons to 1.5m
tons. Similarly, our FY13 metal production estimate is cut from 0.8m tons to
0.75m tons. We have cut our EPS estimates by 3% to Rs17.7 for FY12 and by
4% to Rs20 for FY13. The stock trades at 11.8x FY12E EPS and an EV of 6.5x
FY12E EBITDA. Maintain Buy.

Hindustan Media Ventures: Focusing on regional opportunity…ICICI Securities,

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Tier II and Tier III markets would drive growth in the print media with
increasing consumption, shifting focus of advertisers, narrowing
discount to English ad rates and rising penetration on the back of
increasing literacy levels. Hindustan Media Ventures (HMVL), being a
regional player and with dominance in the fast growing states of Bihar,
Jharkhand (14.4% CAGR in FY04-09) is well poised to capitalise on this
growth. We expect short-term concerns arising from the launch of DB
Corp in its key markets to subside in due course with expanding
markets. We see the topline growing at 16.1% CAGR (FY10-13E) to  |
686.1 crore while EPS would grow by 31.4% to | 13.9, on the back of a
better operational performance and negligible interest cost due to debt
repayment.
Under-penetrated Industry
The print industry remains highly under-penetrated with rural reach as
low as 21%. Rising income, consumption in smaller towns and closing
gap in ad rates with English peers would fuel advertisement growth while
increasing literacy and penetration would aid circulation growth.  The
industry is expected to grow at 9.0% CAGR over CY10-14E to | 268
billion, led by 11.6% CAGR in advertisement revenue to | 176 billion and
6.3% CAGR in circulation revenue to | 92 billion. Being a regional pure
play, HMVL would grow faster than the industry at 16.1% over FY10-13E.
Third largest Hindi daily
Hindustan, the third most read daily, is the only newspaper to show
improvement in readership in IRS Q210 data. It continues to enjoy strong
leadership in its key markets with  74.3% & 58.0% readership share in
Bihar & Jharkhand, respectively. It is the fastest growing Hindi daily in
biggest Hindi ad market of UP (market share up from 16% in R2 2007 to
21% Q110). Due to higher yields and improving literacy rates, we expect
20.2% & 6.1% CAGR (FY10-13E) in ad & circulation revenue, respectively.
Valuations
Higher focus towards regional advertising on back of increasing income
levels and rising consumption in smaller towns and villages would aid
ad revenue growth while rising literacy levels and deeper penetration in
Tier II and III cities would aid circulation growth. Players like HMVL,
which cater to regional demand, would continue to grow faster than
national peers. At the CMP of | 132, the stock is trading at 12.4x FY12E
EPS of | 10.6 and 9.5x FY13E EPS of | 13.9.

UBS; Adani Power -Meeting with management—key takeaways

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UBS Investment Research
Adani Power
Meeting with management—key takeaways
􀂄 We met with Adani Power on Saturday in Ahmedabad
We met with Adani Power to get an update on the company. We also discussed the
outlook for the power generation sector in the country and the key related issues, 1)
coal availability, 2) the financial health of state electricity boards (SEB), and 3)
execution challenges. We remain confident on the capacity addition outlook for the
company after our meeting.

Godrej Consumer Products - Growth story remains intact and promising… ACCUMULATE ::Emkay

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Godrej Consumer Products

Growth story remains intact and promising…

ACCUMULATE

CMP: Rs 370                                       Target Price: Rs 420

---

n     We met the management of Godrej Consumer (GCPL) – remain positive with continuation of growth momentum – no change in our assumptions and earnings forecasts

n     While domestic household insecticide (HI) segment will continue to drive earnings growth, a 4% price hike in soaps would drive value growth in ensuing quarters

n     Strong traction sustains in the Indonesian and LatAM business; however, the UK and South Africa business would continue their modest performance

n     We re-iterate our ACCUMULATE rating on the stock with a target price of Rs 420, providing 14% upside from current levels

Buy Hindustan Zinc: Silver and lead to grow faster  Motilal Oswal

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Silver and lead to grow faster
 We expect zinc production to grow at a CAGR of 6.2% to 800k tons over FY11-
FY13 due to recent expansion of zinc refining capacity. The company had expanded
its smelting capacity to 879ktpa in mid-2010. In 3QFY11, its smelters achieved
highest production of 178k tons, implying annualized production of 713k tons.
 Lead production will grow at a CAGR of 41% to 120k tons over FY11-FY13. A new
lead smelter, with capacity of 100ktpa is expected to be commissioned in 4QFY11.
Since incremental internal requirement will rise at just 6%, more lead will be available
for third party sales.
 Silver production will grow at a CAGR of 44% to 324 tons over FY11-FY13. Silver
capacity will be expanded to 500tpa along with the lead smelter. Sindesur Kurd
(SK) mine is rich in silver. SK mine produced 0.7m tons in FY11, while the current
production rate has already reached 1.2mtpa. In FY12, SK mine is expected to
produce 1.5m tons and 2m tons in FY13. Silver production is expected to more
than double to 400 tons in FY12, which is ahead of 270 tons in our estimates.
 Mine production too is being ramped up to match the refining capacity. Post
expansion of Rampur Agucha mines, the total mine capacity has been increased
to 8.6mtpa. During FY10, the ore production was 7.1m tons. SK mine will be
further expanded to 1.2mtpa. Sale of zinc and lead concentrates has been
discontinued but for exceptional situations.
 The cost of production remains one of the lowest in world. Including royalties, the
cost of production of zinc has been US$800-1,000/ton in the last five years.
 Although its 100ktpa lead smelter is delayed again by a quarter, second unit of
80MW (in 160MW CPP) has commenced trail runs in 3QFY11.
 The company has recently announced addition of 150MW capacity to its existing
123.2MW power generation capacity, with an additional capex of Rs8.65b in two
phases. The first phase of 50MW will be commissioned by 1QFY12 while the
balance 50MW will be commissioned by 3QFY12.
 Cash and equivalents stand at Rs131b, of which Rs6.6b is invested in debt mutual
funds. Recently, the company announced a bonus of 1:1 and stock split of 1:5.
 We remain positive on Hindustan Zinc due to strong volume growth of zinc metal
and sharper growth in lead and silver production over the next few years. The stock
trades at 10.3x FY12E EPS and an EV of 5.8x FY12E EBITDA, assuming zinc
and lead prices of US$2,200/ton. Every US$100/ton change in LME prices impacts
EPS by 5-6%. Maintain Buy.

Sarda Energy & Minerals - Execution disappointing : Motilal Oswal

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Execution disappointing
 Sarda Energy (SEML) is a Raipur-based ferroalloy cum steel producer, with a rich
mineral portfolio. It uses the DRI route to produce steel and has capacities of
360ktpa sponge, 240ktpa steel and 72ktpa of ferroalloys. It also has rich reserves
of coal, iron and manganese ore allotted across India. However, it currently sources
only coal from its captive mines.
 Its captive iron ore mine in the Rajnandgaon district has not been operational for
the last two years, as the area is impacted by naxalite operations. Though material
and labor movement in the area began in early 2QFY11, its mines are still closed
due to operational difficulties. The hardening iron ore prices in the last two years
have dented SEML's performance.
 To utilize its captive iron ore fines, SEML commissioned its 0.6mtpa pellet plant in
FY10. However, the pellet plant continues to operate at low capacity utilization
even after undergoing various technical modifications in the recent quarters. The
ramp up of pellet production is not likely to happen in the next few months. SEML
has paid dearly by the way of lost opportunity over the last few quarters. The
spread between cost of pellet and market price is too large to ignore operational
failure for such a long period. We model in slower ramp-up of the pellet plant in our
estimates (300k tons in FY12 and 360k tons in FY13).
 The captive coal mine at Karwahi, Raigarh continues to operate satisfactorily, with
298k tons of coal production in 9MFY11.
 SEML has recently received consent to operate the third FBC boiler installed at
Raipur, which has taken its captive power generating capacity to 81.5MW. We
expect faster ramp-up of the power unit, enabling captive power for full operations.
Power generation is expected to grow at a CAGR of 14% to 516MU over FY11-13.
 SEML is setting up a greenfield ferroalloy project (125ktpa with 2x33MVA
submerged arc furnace and 80MW CPP) at Vizag at a capex of Rs5.5b. This
project is progressing on schedule to get commissioned by 1QFY13. The company
has already tied up entire debt for the project and has invested Rs1b in terms of
equity (out of Rs1.37b). BTG orders for the 80MW CPP have been placed and
equipment has started arriving at the site.
 SEML is working on numerous projects such as manganese ore mining in Goa,
over 1,800MW of hydro and thermal power projects in Chhattisgarh, and 1.1mtpa
steel project at Raipur, which are in different stages. We expect these projects to
contribute significantly to the consolidated earnings over the next 5-10 years.
 Leverage is likely to remain on the higher side, as the company is investing Rs1.5b-
2b every year on a number of projects that it has undertaken.
 SEML has received Rs920m of preferential equity investment from Asia Minerals,
Hong Kong. This will be invested in its ongoing expansion projects. SEML has
allotted 1.8m shares (at a premium of Rs500/share), diluting equity by 5.3% to
358m in 3QFY11.
 Faster ramp-up of pellet production, re-starting of iron ore mine and timely
completion of Vizag ferro project will drive earnings and help to reduce leverage.
However, in the near term, execution risk remains. Though it has a very rich mineral
portfolio, raw material integration is likely to be lower in the near term. The stock
is trading at 7.7x FY12E EPS and an EV of 8.2x FY12E EBITDA. Maintain Neutral.

JP Morgan; Global low cost iron ore supply plans see further increase

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• Headwinds ahead for metals? Seems so: JPM global metals analyst Michael
Jansen highlights that ‘solid headwinds are in place for base metals in
particular for the coming 2-3 months and this warrants a very cautious
outlook’. JPM Economists have revised down their global growth
assumptions for 3 weeks in a row and. Secondly Michael highlights that the
tighter credit conditions in China are here to stay and this has negative
implications for base metals in the short term. Net imports of copper by China
in Feb-11 were at the lowest level since Oct-08 and de-stocking of copper by
China could continue for the next couple of months (for further details please
refer to - Base and Precious Metals Daily dated March 21st). While Indian
metal and mining equities do not have copper exposure, any sell-off in the
LME tends to have a negative impact in the short term for Indian names.
• Steel price down move continues even as iron ore prices see some
rebound: Spot steel prices weakened in most markets though Chinese export
HRC prices saw a rebound from $690 to $720/MT. We do not find this
surprising given the temporary tightness post Japan's earth quake. However,
CIS export prices for April have been settled lower at $720-750/MT compared
to earlier offers of $820-835/MT. Also Chinese CRC export offers have come
off sharply (as the earthquake has impacted auto production), and pressure on
Indian domestic CRC prices is also increasing because of this. We expect
Indian steel companies to further increase their discounts/cut list prices across
HRC/CRC over the coming weeks. Spot iron prices have seen a small rebound
over the last week, but given the weakness in Chinese steel prices and level of
port iron ore inventories remain elevated at 83MT, a sharp rally for spot iron
ore looks difficult from here. Global steel production increased 1.6% y/y with
ex-China production up 7.6% y/y. JPM European Steel analyst Alessandro
Abate expects temporary correction in European steel prices with the
spread between Chinese and European steel prices spread at c$180/MT,
significantly above export incentive ($100-120/t). We believe India also
remains at risk from potentially elevated Chinese HRC exports from here
and domestic prices would need to remain at a discount to avoid last
year's situation when imports increased sharply.
• Iron ore- Long term over supply risks: Post BHP’s announcement of
$12.8bn capex across iron ore and coal expansions, in a detailed report
(‘Fortescue Metals- Is there a danger of oversupplying the iron ore market’
dated 25th March, 2011) JPM Australia resource analyst Mark Busuttil
highlights that BHP, RIO, FMG and Vale combined iron ore production would
increase by 11% p.a. for the next 10 years while global consumption of iron
ore increased by 6% p.a over the last 10 years. Assuming BF prod growth of
5.5% till 2015 and 4% from 2015-2020, would result in 74% of global prod
being supplied by the above 4 majors with operating costs of ~$30/MT. Mark
believes that the growth in production could be negative for iron ore prices,
given the steepness at the high end of the cost curve for iron ore.

Credit Suisse, IT services -Accenture results indicate continued strength in demand environment

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Indian IT services -------------------------------------------------------- Maintain MARKET WEIGHT
Accenture results indicate continued strength in demand environment


● Accenture reported its Feb-11 quarter results overnight. Revenue
growth of 18% YoY (constant currency) was 7% ahead of CS
estimates.
● Management was bullish on the call and raised the outlook for
FY8/11 revenue growth to 11-14% from its previous 8-11%.
● Management commented that growth is being driven by key
secular trends including globalisation, a focus on higher
productivity, increasing regulation and innovation.
● Strong results from Accenture and positive comments from Indian
IT companies indicate a strong demand environment. We are
currently forecasting 30% YoY revenue growth for top-tier
companies in FY3/12. We are also confident in their ability to
maintain margins, leading to strong bottomline growth.
● Given the strong demand environment, we believe valuations are
not demanding. We thus maintain our positive view on the sector
and believe that Infosys and TCS could be best placed from a
longer term perspective.

Edelweiss Technical Reflection (ETR) March 29, 2011

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Edelweiss Technical Reflection (ETR)

§  Coming from a strong weekly performance, the index did not disappoint the bulls on the first day of the week as it traded with strength in the first half. The second half was awash with volatility as Nifty’s attempt to stay above 5700 was faced with strong supply. However the choppy day ended with gains, and the index closed a shade below its 200-DMA (5691). The hourly charts indicate that oscillators have reached overbought levels, showing initial signs of negative divergence developing. Even the market breadth slid in favour of declining stocks; despite the Nifty 50 A/D ratio closing at 2:1. In the immediate short-term Nifty can consolidate (sideways / corrective activity) between 5700-5620 under a weakening momentum setup; but the Short / Medium term trend is firmly in favour of further upside after breaking out of the consolidation pattern.

§  Sectoral trends were seen mixed, with Autos and Cap Goods leading the pack. Banking stocks closely followed the leaders. Healthcare shares came in for a correction, and Realty shares shed gains after a strong move in the previous week. BSE Midcap index is trading a shade below its downward sloping trend line resistance of 6800. A break and close above will result in a bullish breakout will propel it towards 7175.

§  Bullish Setups: RIL, BOB, Voltas (VOLT), Power Grid (PWGR), DLF, IFCI

§  Bearish Setups: Maruti (MSIL), Tech Mahindra (TECHM), GAIL

§  US markets took a breather after a strong upmove in the previous week. The near-term outlook has improved with the SPX closing above 1300 (DJIA above 12000) and should likely extend to test the year’s highs. DXY has formed a ‘Piercing Line’ candlestick pattern on the weekly chart indicating upside risks in the near-term. Commodities have seen corrective action in the past 2-3 trading sessions against an improving USD scenario.

Buzzing Stocks - Keynote Capitals (March-29-'11)

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Buzzing Stocks

·      ONGC has bagged 10 of the 33 oil and gas exploration blocks that received bids at the close of the ninth licensing round.

·      Reliance Infrastructure has announced Rs10bnshare buy-back implying 8.34% shares from public shareholders.

·      Reliance Industries has bid for two deep sea blocks in the Andaman Basin in the Bay of Bengal and four onshore blocks in Rajasthan and Gujarat.

·      Dr Reddy laboratories has launched levocetirizine tablets, a generic version of Belgian drug maker UCB's allergy drug Xyzal, in the US.

·      TCS has bagged an order from Australian financial institution CUA for deployment of its banking solution.

·      Idea would invest Rs42bn in 3G network infrastructure, including erecting around 16,000 towers by March, 2012.

·      Power Grid Corp has sought sectoral regulator CERC's permission to utilise existing electricity transmission infrastructure for telecommunication purposes.

·      ITC Hotels, the hotels division of the tobacco-to hospitality major ITC, is foraying into retail mall and service apartments.

·      SREI Infrastructure Finance has been classified as Infrastructure Finance Company by the RBI.

Stocks in News- Edelweiss, 29 March 2011

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Stocks in News

§  Another Director Resigns from DB Realtys Board (ET)

§  Unitech,Telenor Lock Horns Over Uninor Rights Issue (ET)

§  RInfras.1k-cr Share Buyback from April 5 (ET)

§  Cadila gets US FDA nod (DNA)

§  TCS bags order from Credit Union Australia (DNA)

§  ONGC set to bag 10 blocks in Nelp-IX (BS)

§  RIL fails to meet gas commitment (BS)

§  Tata Steel eyes Canada to secure iron ore supplies (Mint)

9am with Emkay 28 March, 2011

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9am with Emkay

28 March, 2011

Contents

n        Research Views

Marico- Event update

Event:

Marico has divested its Sweekar brand (sunflower oil) to Cargill India for an undisclosed amount.

Our View:

n    Sweekar is a non-focus brand and contributes approximately 3% to consolidated revenues.

n    According to us, potential transaction value could range between 1.5-2x of Sweekar sales, i.e. Rs 1.5-2 bn (No financial details disclosed).

n    Hence, potential earnings upgrade could range between 2-3% for FY11E.

n    However, currently we maintain our FY11E earnings estimates of Rs 4.7 per share.

Valuation:

Trading at 21.7x FY12E EPS of Rs6.0. Maintain Accumulate. Target price of Rs 142.

Govt borrowing programme suprises positively at Rs1.9tn

The government borrowing programme announced for H1FY12 at Rs1.9tn (net) was lower than ours as well as consensus expectations of Rs2.1-2.3tn (net). The gross government borrowings are kept at Rs2.5tn. The lower than expected borrowing programme is positive for the bond yields in the short term. We expect the short end of the yield curve to come down a bit as the liquidity pressure eases in the first half due to seasonality. However, in medium term the yields are more likely to be in tandem with inflation which may keep the yields higher.

n        Research Update Included

Elecon Engineering Management Meet Update; Sustained momentum; Retain BUY; Target: Rs 89

n    We retain our positive bias on EEL post meeting management – Reiterate that tide has turned and EEL is poised to witness sharp recovery in earnings in FY10-12E period

n    MHE division – expected to grow at 15-20% in FY12E with sustained order inflow momentum. Current order book of Rs13.5 bn lends full revenue visibility for FY12E

n    TE division to witness sustained growth momentum – expect to grow at 17-18% in FY12E. Progress on recently acquired David Brown Gear Systems on track

n    Retain FY11E earnings estimates of Rs6.9 and fine tune FY12E estimates by -5% to Rs8.9. Maintain our Buy rating with revised price target of Rs89

Gujarat Gas Company Analyst Meet Update; Re-charged for growth; Buy; Target: Rs 481

n    Shifting focus from Bulk to Industrial retail and CNG segment

n    Management guided volume growth of 8-10% for CY11

n    Due to higher cost of RLNG, another round of price revision expected within short span, mainly in CNG segment 

n    Given its monopoly in cities of Gujarat, expected volume growth plus Zero debt and robust business model with no commodity risk, We maintain BUY rating with TP of Rs.481

n        Technical Comments

Nifty

Nifty started the day with a bullish gap and continued its winning streak for the fourth consecutive session. Moreover, with the weekly close above 5600 mark, Nifty has successfully broken the upper band of the falling channel. Also it has started forming rising troughs on daily chart, which is a clear sign of trend reversal according to the Dow Theory system. Now the next key pivot to watch out for is the resistance of 200-DSMA, which is currently placed at 5688. However, after witnessing such a strong move in today’s session, we feel that Nifty will easily break the barrier of 200-DSMA and will rise upto 5800 level, which is our revised target going forward.

Titan Industries Ltd Retain Forecasts, Maintain ACCUMULATE :: Emkay

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Titan Industries Ltd

Retain Forecasts, Maintain ACCUMULATE

ACCUMULATE

CMP: Rs 3,431                                        Target Price: Rs 3,762

---

n     We interacted with the management of Titan Industries – though being in discretionary product- there is no evident signs for let-off in consumer demand

n     Watches business status quo – no pressure of input costs, no signs of down trading and eyeing faster then market growth rate

n     Jewellery business promises continuation of momentum – no signs of inventory build-up, no case for abnormal hedging gain/loss and share of studded jewellery rising continuously

n     Retain earnings estimates of Rs87.0/Share and Rs116.2/Share for FY11E and FY12E respectively. Maintain ‘ACCUMULATE’ rating with target price of Rs3762/Share

Edelweiss, Sales Traders Commentary: 29 March 2011

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Sales Traders Commentary

§  On Monday, Indian equity benchmarks closed at a fresh two-month high and touched other important psychological levels. Indices continued their uptrend for the fifth consecutive session, led by financial, capital goods, auto and FMCG companies' shares.

§  The Sensex closed at 18943, up 128 points, while the Nifty gained 33 points to 5687.

§  Major gainers were Tata Motors (3.25%), Bharti Airtel (2.57%), Larsen & Toubro (2.56%), Reliance Energy (1.76%), Maruti Suzuki India (1.69%), and Hindustan Unilever (1.57%).

§  Major losers were Jaiprakash Associates (2.16%), Reliance Communications (1.50%), Sterlite Industries (India) (0.89%), Infosys Technologies (0.71%), D L F (0.66%), and Hindalco Industries (0.44%).

§  The Auto index was up 1.52%. Major gainers were Apollo Tyres (1.39%), Bajaj Auto (1.35%), Ashok Leyland (0.71%), Hero Honda Motors (0.7%), and Exide Industries (0.41%).

§  The Capital Goods index was up 1.27%. Major gainers were Alstom Projects India (2.25%), A B B (1.28%), BGR Energy Systems (0.59%), Bharat Heavy Electricals (0.4%), and Bharat Electronics (0.17%).

§  The Bankex jumped 1.21%. Major gainers were Federal Bank (2.59%), Bank Of Baroda (2.01%), H D F C Bank (1.3%), Bank Of India (1.02%), and Canara Bank (0.85%).

§  The HC index was down 1.17%. Major losers were Aurobindo Pharma (5.84%), Cadila Healthcare (2.68%), Apollo Hospitals Enterprise (1.48%), Fortis Healthcare (India) (0.27%), and Cipla (0.23%).

§  Major gainers in the mid cap space were Andhra Bank(2.37%), Alstom Projects India (2.25%), A I A Engineering (1.59%), Apollo Tyres (1.39%), and A B G Shipyard (0.27%). Major gainers among small caps were Action Construction Equipment (7.54%), A K Capital Services (4.16%), INEOS ABS (India) (1.38%), Reliance MediaWorks (0.2%), and A B G Infralogistics (0.18%).

§  Globally, Asian indices ended in the red, while European indices traded in the green.