23 May 2011

US 1Q11 Reporting Season Wrap – Recovery still exceeding expectations.:Macquarie Research

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US 1Q11 Reporting Season Wrap –
Recovery still exceeding expectations
Event
 We update our outlook for US equity market following the completion of 1Q11
US reporting season and analyse profit results and key trends for the market.
Impact
 1Q11 underlying profits were delivered +6.8% ahead of pre reporting
season expectations. This strong earnings performance has driven
CY11 forecast profits 2.3% higher, and as a result, the consensus CY11
EPSg forecast has been upgraded 2.6ppts to now stand at +15.1%. This
stronger earnings momentum is reflected in the CY11 earnings revision
ratio (1.9x) with all major industries seeing net upgrades.
 Of the 421 S&P 500 companies to report March quarter results, 201 exceeded
consensus EPS expectations by >+5%, while only 62 disappointed by >-5%.
Outlook
 The 1Q11 profit results again exceeded market expectations, suggesting the
US recovery continues to build. Notably, the gap between the earnings
forecast and those delivered widened again in 1Q11 (+6.8%), contrasting the
narrowing over each quarter in CY10 (+14.6% in 1Q10 to +3.4% in 4Q10).
 Standout sectors delivering a positive earnings and revenue surprise in 1Q11
include IT, Healthcare, Energy, Auto, Industrials, Materials, REITs and
Mining sectors. Key stocks beating expectations from these sectors include:
 Exxon, Apple, Intel, GE, Ford, Caterpillar, Merck, Chevron,
Unitedhealth, Johnson & Johnson, Freeport McMoran.
 Most notable for downgrades (although still a net upgrade) was Financials,
with Morgan Stanley, BoA, and Goldman Sachs seeing the most significant
downgrades. Key tech stock Amazon was also a notable downgrade..
Upgrades to CY11 seen throughout 1Q11 reporting season – Earnings
revisions close to 2x – indicate broad upgrade momentum

Asean Macro Weekly Looking for a lift 􀂃Macquarie Research,

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Asean Macro Weekly
Looking for a lift
􀂃 With most of Asean taking Tuesday off to celebrate the birth, enlightenment
and passing of Buddha, the coming week is fairly light on macro cues. The
data release of importance will be Malaysia’s 1Q11 GDP on Wednesday.
􀂃 Malaysia’s economy remains, in our view, on a strong growth path and should
register 1Q11 GDP growth of 5.0% YoY. Supply-side indicators suggest
momentum in the manufacturing sector remains supportive despite relatively
poor industrial production readings in recent months. Service sector activity
should also register a reasonable expansion on the back of strong consumer
demand and a gradual global economic recovery. That said, a less favourable
statistical base hints there may be some moderation in services expansion
from 4Q10. On the demand side, a favourable statistical base hints at a
further surge in investment spending, which should be re-enforced by the
positive signs suggested by capital goods imports. Additionally, the
persistence of a low interest rate environment, combined with strong real
income growth in 2010 suggests consumer spending will also prove
supportive of sequential and annual GDP expansion.
􀂃 Malaysia will also report April CPI data shortly before the GDP data on
Wednesday. Macquarie expects a reading of 3.3% YoY, led primarily by
further increases in food prices. Food price increase will remain a combination
of weather-related factors and higher global oil prices pushing up transport
costs along the supply-chain. Non-food inflation is also expected to quicken
on the back of further increases in RON 97 petrol prices but, as RON 95
prices remain stable, domestic pass through to food prices and other index
components is likely to be limited. Despite this, Malaysia’s core CPI has
accelerated sharply in recent months, supporting the recent rate hike. As this
appears likely to remain elevated in the months ahead, we suspect this will
support our view for a further 50bp of rate hikes by end-2011.
􀂃 Philippine remittances will be reported on Monday and should hint at
supportive private consumption spending in GDP data due at the end of the
month. The absolute value should prove to be a monthly record and should
also see a seasonal surge from February’s US$ 1.5bn reading.

Global IP Scorecard-- Less Synchronised, More Sustainable:: Credit Suisse

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Global IP Scorecard--------------------------------------------------------------------------------------------
Less Synchronised, More Sustainable


● Activity has started to moderate in the US and Europe after the
strongest and most synchronous G3 rebound in 35 years. At the
global level, however, April was likely the short-term low in output
momentum. Japanese production fell 15% in March. We now
expect a few strong months of rebound.
● And the slowdown in Chinese production has already been very
sharp; we look for stabilization and some reacceleration in coming
months. We also expect sustained growth in global final demand
through the summer – especially after the recent correction in oil
prices – meaning that that by late this year, global growth
momentum is set to be growing well above trend.
● Global IP Momentum peaked in January at 9% and has fallen
sharply to 3% in April. The pick-up from here should be swift and
strong. We expect a summer peak around 9%. Global final
demand slowed somewhat at the start of this year but we see no
evidence of persisting weakness.
● Global Risk Appetite has dropped back towards its long-term
average as G3 rates have fallen below their post-earthquake lows
while equities have been volatile but range-bound.

MUST READ:: Indian stocks Experts Own (Rakesh Jhunjhunwala, Goldman Sachs)

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What Indian stocks to Experts Like Rakesh Jhunjhunwala and Goldman Sachs OWN?

Follow the experts and gain!!


Rakesh Jhunjhunwala- Click to see What stocks he owns! 




Jubilant Food: 4QFY11 results ::CLSA

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4QFY11 results
Jubilant reported in-line 4Q results with sales growth of 56% YoY and net
profit growth of 86% YoY. Same store growth was better than expected
at 33% despite the tough base of 38% in 4Q10. Ebitda margins were up
150bps YoY but down 30bps QoQ, supported by flat QoQ gross margins
despite food inflation pressures. The company is targeting 80 store
openings in FY12 in Domino’s alongside 20% same store sales growth
and at least flat margins. We have made modest upgrades to our
forecasts and increased our target price to Rs750, 6% upside. However,
the 29% rise in the stock since our initiation drives a downgrade to O-PF.
Healthy top line growth; cost pressures under control
Jubilant’s 56% YoY sales growth in 4QFY11 was underpinned by 33% same
store sales growth. This was delivered against a base of 68% sales growth
and 38% same store sales in 4QFY10. Jubilant added 14 stores during the
quarter, taking the base to 378, and is now present in 90 cities. Ebitda grew
72% YoY while PBT grew 147%. Net profit growth was a more modest 86%
due to taxes. Gross margins were down 40bps YoY at 74.5% and were flat
QoQ despite the inflationary trend in food prices. Whilst rent and other costs
grew slower than sales on a YoY basis, staff cost increases were higher at
61% YoY. On a QoQ basis, overall operating costs grew faster than sales and
drove an Ebitda margin decline of 30bps. Looking ahead, the ~5.5% price
hike taken in April should ease the cost pressures. The company is guiding for
20% same store sales growth and at least flat Ebitda margins in FY12.
Accelerating expansion plans; balance sheet healthy
Jubilant is targeting 80 new stores for FY12 in the Domino’s format against
the 70 in FY10 and 72 in FY11, signalling acceleration in store growth. The
company is targeting the “all day part food” segment through the Dunkin’
Donuts format. Whilst Jubilant is targeting 80-100 openings over five years,
expansion will be phased with the first store expected to open only in
4QFY12. Jubilant’s balance sheet and underlying cash generation is strong
enough to support this. The company had no debt, Rs89m of cash and
Rs216m of investments at the year end. Worryingly, the company did lend out
~Rs310m of inter-corporate deposits to an undisclosed recipient.
Earnings upgrades from extra stores
Given the higher store openings, we have upgraded our revenue, Ebitda and
net profit estimates for FY12-13 by 1-3%. This also drives a 3% increase in
our DCF based target price to Rs750 (FY13 PE of 34x and EV/Ebitda of
18.6x). Over FY11-14, we expect revenue to become 2.6x and PBT 3.1x.
Whilst we remain firmly convinced about the long term potential of the
business, the 29% share price run up since our initiation in March limits near
term upside. We downgrade Jubilant Foods to O-PF from BUY earlier.

HT Media: In-line 4QFY11 but disappointment elsewhere􀁠 Kotak Sec

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HT Media (HTML)
Media
In-line 4QFY11 but disappointment elsewhere. HTML reported robust consolidated
4QFY11 EBITDA at Rs844 mn (+5% yoy, -3% qoq), in line with expectations. Strong
20% yoy advertising growth and 25% yoy revenue growth (Fever FM and HT-Burda)
were negated by a 43% yoy increase in newsprint costs (unfavorable base given bottom
of newsprint cycle in 4QFY10). Consolidated tax rate remained low at 24%, resulting in
10% yoy growth in consolidated PAT. We retain our ADD rating with a 12-month
SOTP-based TP of Rs170 given fair 9X FY2012E EV/EBITDA valuations but FY2011
dividend of Rs0.36/share disappointed (Rs19/share net cash on books).

Credit Suisse,::Jaiprakash Associates - Construction margins disappointed but 4Q11 results in line

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Jaiprakash Associates Ltd.----------------------------------------------- Maintain OUTPERFORM
Construction margins disappointed but 4Q11 results in line


Abhishek Bansal / Research Analyst / 91 22 6777 3968 / abhishek.bansal@credit-suisse.com
● JPA’s 4Q11 cement business performance was robust, mainly led
by an 11% QoQ increase in cement realisation, higher than the
industry average of 8.4%, as northern and western India
(accounting for most of JPA’s cement sales) saw higher price
increases during 4Q. This, coupled with ongoing cost optimisation,
led to cement EBIT of Rs2.2 bn being 25% higher than our
estimate.
● But construction margins of 12.3% (down 785 bp YoY) were weak
and were affected on account of JPA executing a high share of
low-margin real estate projects of Jaypee Infratech in Noida
during 4Q. Its construction EBIT declined 46% YoY and was 24%
below CS estimate.
● Overall, operating results were lower than our estimates. But, led
by lower-than-expected depreciation and interest costs, recurring
PAT of Rs2.9 bn (up 17% YoY) was in line with our estimate.
● We cut our FY12E-13E EPS by 4-13%, led by our expectation of
further increase in coal cost (to impact cement business), lower
construction margins and higher interest rates. We lower our
target price to Rs123 on our lower cement and construction
business valuation and the reduced value of its treasury shares.
We maintain our OUTPERFORM rating.
Cement surprises, construction margins weak
Cement prices for the industry in general increased 8.4% QoQ during
4Q11. Price increases in western and northern India, which account for
majority of JPA’s sales, were higher than the industry average. This
benefited JPA as underscored by its 11% QoQ increase in cement
realisation.
Figure 1: JPA – cement business performance summary
4QFY10 3QFY11 4QFY11 % QoQ % YoY
Sales (mn tonnes) 3.6 3.7 4.2 14% 16%
Net Sales (Rs mn) 12,334 12,374 15,685 27% 27%
Realisation (Rs / tonne) 3,407 3,363 3,734 11% 10%
Ebit/ tonne (Rs /tonne) 828 386 531 37% -36%
Source: Company data, Credit Suisse estimates
Higher cement realisation combined with ongoing cost optimisation at
its cement business led to cement operating margin of 14.2% vs our
expectation of 10.5%. This resulted in cement profit of Rs2.2 bn, 25%
ahead of our estimate. But, construction profit of Rs2.2 bn was down
46% YoY and 24% below our estimate. Despite stronger-thanexpected
construction sales, this was led by weak margins that fell to
12.3% (down 785 bp YoY), led by JPA executing a high share of lowmargin
real estate projects of Jaypee Infratech in Noida.
Figure 2: JPA – Key business segment performance summary
4Q FY10 4Q FY11 % YoY 4Q FY11E % difference
Revenues
Cement 12,334 15,685 27% 16,926 -7%
Construction 19,958 17,806 -11% 15,500 15%
Real Estate 1,244 5,968 380% 3,500 71%
EBIT
Cement 2,997 2,229 -26% 1,777 25%
Construction 4,015 2,185 -46% 2,868 -24%
Real Estate 388 2,855 635% 1,575 81%
EBIT Margin
Cement 24.3% 14.2% (1,009) 10.5% 371
Construction 20.1% 12.3% (785) 18.5% (623)
Real Estate 31.2% 47.8% 1,661 45.0% 284
Source: Company data, Credit Suisse estimates
Overall, operating results were lower than our estimates, mainly led by
weak construction margins. However, led by lower-than-expected
depreciation and interest costs, recurring PAT of Rs2.9b n (up 17% YoY)
was in line with our estimate. Reported PAT included prior period
adjustment of Rs3.4 mn and writeback of excess tax provided earlier of
Rs140.9 mn.
Figure 3: JPA – 4Q FY11 standalone results summary
(Rs mn) 4QFY10 4QFY11 % YoY 4QFY11E % difference
Sales 32,804 39,053 19 35,144 11
Operating expenses (24,915) (31,313) 26 (26,324) 19
EBITDA 7,889 7,740 (2) 8,820 (12)
EBITDA Margin (%) 24.0% 19.8% (423) 25.1% (528)
Depreciation (1,334) (1,507) 13 (1,750) (14)
EBIT 6,555 6,234 (5) 7,070 (12)
EBIT Margin (%) 20.0% 16.0% (402) 20.1% (415)
Net Interest expenses (2,209) (2,355) 7 (3,232) (27)
PBT 4,346 3,879 (11) 3,838 1
PBT Margin (%) 13.2% 9.9% (331) 10.9% (99)
Total Tax (1,890) (997) (47) (959) 4
Tax rate (%) 43.5% 25.7% (1,778) 25.0% 71
Recurring PAT 2,456 2,882 17 2,878 0
Recurring PAT margin (%) 7.5% 7.4% (11) 8.2% (81)
Exceptional Items (16) 138 (965) 0 N.A.
PAT 2,440 3,020 24 2,878 5
Source: Company data, Credit Suisse estimates
Cut FY12E-13E EPS by 4-13%; maintain OUTPERFORM
We cut our FY12-13 earnings estimate by 4-13%, mainly led by our
expectation of increase in coal cost (to impact cement business), lower
construction business margins and higher interest rates. Consequently,
we cut our price target to Rs123 (from Rs140) on our lower cement and
construction business valuation, and the reduced value of its treasury
shares. We maintain our OUTPERFORM rating for the stock.

JPMorgan:: Jaiprakash Associates : Cement pricing and construction margins disappoint in 4Q

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Jaiprakash Associates Ltd
Neutral
JAIA.BO, JPA IN
Cement pricing and construction margins disappoint in
4Q


• JPA 4Q standalone results came in below expectations: JPA
reported PAT Rs3B up 23.8% yoy; however, margins declined by
~460bps yoy: (1) Cement: Volumes were in line with expectations at
4.2mtpa, but pricing was flat. With rising cost, EBITDA/ton declined
by 36% yoy to Rs850/ton (2) Construction: Margin of 12.3% was
well below our estimate of 19.2% as mainly group projects got
executed in 4Q (3) Real estate: Revenues surprised on the upside due
to better realizations, but margins dipped to 48% vs. 69% in 3Q (which
was an exceptional quarter due to bulk bookings). Additionally interest
costs were higher than estimated.
• Estimate changes. We are reducing our consolidated FY12/13
estimates by 14%/ 11% on account of: 1) Parent estimate changes:
23%/ 21% decrease in PAT driven by reduced sustainable real estate
margins (44-48%) and reduced cement EBITDA (by 5-6% to
Rs860/900 per ton). We also trim our real estate volume estimates in
FY12 and expect some moderation in realization given greater mix of
bookings from Noida and the political unrest surrounding the Yamuna
expressway (booking value to decline by 20% yoy). Our sustainable
margin estimate for the construction segment ranges between 16-17%
compared to mgt. guidance of 18%. 2) JPIN estimate changes: 3.4%
reduction in estimates in FY13, for which estimates could be at further
risk to due to the ~Rs20B increase in project cost for Yamuna
expressway. 3) JPVL estimate change: 3% decline in FY12 estimate
due to 1 month delay in CoD of Karcham Wangtoo.
• JPA has underperformed markets, given concerns on the company’s
high leverage (due to ramp up in power and cement capacities) and
hence bottomline vulnerability due to operational and pricing risks. In
addition the recent political unrest surrounding the Yamuna
expressway and the run-up to UP state elections has impacted
sentiment as well. We believe these concerns would persist in the nearterm,
and maintain Neutral with PT of Rs100. Sharp dip in RE prices is
key downside risk to PT.

JPMorgan:: Tulip Telecom- Another good quarter with positive indications for FY12; reiterate Overweight

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Tulip Telecom Limited
Overweight
TULP.BO, TTSL IN
Another good quarter with positive indications for
FY12; reiterate Overweight


• Business strength continues: Tulip Telecom in 4Q delivered sustained
revenue growth (+20% Y/Y) and expanding margins once again (+80bp
Q/Q) as the contribution from fiber ramped up nicely to 80% of new
orders. With incremental revenue streams (R-APDRP projects,
International connectivity, data centre) expected to kick in, we expect
these trends to continue, and we forecast 23% revenue growth and 1pp
margin expansion to 29.2%. Management expects the 20% revenue
growth rate of FY11 to continue in FY12, which we view as slightly
conservative.
• Watching debt and leverage: TTSL saw debt increase by Rs3.3B Q/Q
and leverage (debt/EBITDA) increase to 2.7x (from 2.1x). While this
was due to the well flagged data center investment the company made,
we would be encouraged to see an indication of effort/steps taken to
bring down leverage and debt, which will be a key focus in FY12,
according to management.
• Forecast changes: We reduce our FY12/FY13 revenue estimates by
2.9%/3.4% but increase our margin estimates by 0.9/1.0pp on account of
the beat in 4Q, resulting in no change in our absolute EBITDA estimates
of Rs8.4/Rs10.7B. However, higher interest costs drive a Rs2.5/Rs2.4
reduction is our FY12/13 EPS estimates to Rs20/28.
• New Mar-12 PT of Rs230 (40% upside): As a result of our estimate
changes and rolling forward our timeframe from Dec-11 to Mar-12, our
PT falls slightly to Rs230. Announcements of clients or an investor for
the data centre business should be key positive catalysts. The core
business continues to show improvement in both revenue growth and
margin expansion. TTSL trades at 8.2x FY12E P/E, a 12% discount to its
three-year average, and at 5.1x FY12E EV/EBITDA, a 21% discount.
Key risks: stiffer-than-expected price competition in TTSL’s core
business, and a slower-than-expected ramp-up of its data center business.



JPMorgan:: India: inflation stays uncomfortably high in April

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India: inflation stays uncomfortably high in April


 
  • Inflation prints at 8.7 % oya in April despite benefiting from a high base effect from the previous year
  • February inflation revised up a whopping 120 bps to 9.5 % from an initial print of 8.3%
  • Food inflation moderates again but global commodity prices cause energy and non-food primary article inflation to accelerate further
  • Monthly momentum of non-food manufacturing (core) inflation abates after two consecutive surges, but core is still running in double digits on a sequential basis
  • Petrol prices finally hiked by 8% and administered prices of other petroleum products expected to be increased over the next week
  • While the impact of the petrol price hike on inflation is expected to be limited (8-9 bps), the impact of a commensurate hike in diesel prices on inflation will be far more material
April inflation stays uncomfortably high
Inflation continued to remain uncomfortably high in April printing at 8.7 % oya, in line with our expectations but higher than that expected by the market (JP Morgan: 8.7 %, Consensus: 8.5 %). Even though the headline print moderated compared to March’s 9% print, it is important to recognize that (i) the April print benefited from a high base effect from the previous year (the headline index rose sharply in April 2010), and (ii) March headline inflation was boosted by a sharp upward revision in coal prices (which are typically adjusted only once or twice a year) that contributed about 30 bps to the headline rate.
Furthermore, the year-on-year growth rates seem to be understating the sequential momentum of inflation, with the headline print running in double digits (10.4 % q/q, saar) and likely to be revised up further when the revised March and April numbers are released.
More alarmingly, but not unexpectedly, February inflation was revised up a whopping 120 bps, from 8.3 % oya to 9.5%. Large, retrospective upward revisions (80-120 bps) have become a regularity with the release of each month’s data and therefore the revision to February was not surprising. What this suggests, however, is that when the March and April numbers are revised, the final print will likely be closer to 10% than 9%.
[image]
Food inflation moderates further; other primary articles and energy inflation accelerates
Primary food inflation continued its moderating trend, printing at 8.7 % oya from 9.5 % the months before. This was largely expected given that the idiosyncratic shocks that caused food price inflation to spike a few months ago (unseasonal rains, supply disruptions) have been largely reversed. While food inflation can be expected to moderate even further, we expect that it will remain in the 6-7 % range, which it has averaged over the last 5 years for structural reasons.
In contrast, non-food primarily article (e.g. raw rubber, raw cotton) inflation continued to accelerate and printed at 27.3 % oya compared to 25.9 % the month before, as global commodity prices continued to stay elevated in April. Similarly, fuel and power inflation accelerated to 13.3 % from 12.9% the month before, even without taking into account the impact of the recent increase in petrol prices and the expected increase in diesel, LPG and kerosene prices (see below).
Non-food manufacturing running in double digits on sequential basis even as monthly momentum slows
A key rationale underpinning the RBI’s decision to raise rates by 50 bps and adopt a more aggressive monetary stance was the fact that non-food manufacturing (RBI’s proxy for core inflation) had surged for two successive months in February and March. While the monthly momentum of non-food manufacturing prices slowed in April (0.3 % m/m, sa compared to 1.4 % m/m, sa in February) a moderation was largely expected after two consecutive surges. While the year-on-year growth rate of non-food manufacturing moderated to 6.3 % from 7.4 % in March this was, in part, on account of the high base from April 2010 when manufacturing prices surged. On a sequential basis, however, non-food manufacturing is still running in double digits (10.4 % q/q, saar) and will likely be revised up significantly when the revised estimates for March and April inflation are released.
[image]
Petrol prices hiked by Rs. 5 per liter, diesel and LPG likely to follow
Consistent with expectations, the government raised petrol prices by 8 % (Rs. 5 per litre) on the weekend, once the provincial election voting was over and results were revealed. This move was long-overdue since there has been no change in petrol prices from January (even though these pieces are technically “deregulated”) even as crude prices have surged 25 % during that time. Even after this hike, though, the current under-recovery on petrol is still about Rs 3 per litre and media reports suggest that, unless crude prices moderate sharply over the next few weeks, another petrol price hike may be on the cards next month. Given the small weight of petrol in the WPI basket, the impact on headline inflation from the current hike is expected to be only about 8-9 bps (only half of which will be captured in the May print given that the price hike occurred in mid May)
More importantly, however, authorities are expected to increase the administered prices of diesel, kerosene and liquefied petroleum gas (LPG) over the next week. These products account for the vast majority of the under-recoveries faced by oil marketing companies and the oil subsidies on the central government budget. This is because the current administered prices of these products are significantly below those warranted by current crude prices. For example, current diesel prices would need to be increased by about 37 % to wipe out the under-recoveries. However, the increase in prices over the next fortnight is expected to be far more muted. Diesel prices, for example, are expected to be hiked by about 10 percent (Rs 4/liter), but the impact on inflation from even such a limited hike will be material. For example, a 10 percent increase in diesel prices will have a 45 bps direct impact on headline inflation and another 25-30 bps second-round impact on the headline rate.
[image]


JPMorgan : India Telecoms April GSM net adds dip but Idea delivers a strong month

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India Telecoms
April GSM net adds dip but Idea delivers a strong
month


• India’s April GSM net adds came in at 11.1m as per data from
COAI. This is a 23% M/M decline and in-line with trends seen in
April of prior years where M/M declines have ranged from -15% to -
27% over the past 5 years. Of the 3.4m fewer net adds in the month,
Vodafone, Bharti and BSNL contributed the sharpest declines.
• Idea delivers strong net adds: Idea Cellular saw 2.45m net adds in
April, which while down 9% M/M was slightly ahead of both Bharti
and Vodafone’s net adds numbers in April of 2.41m each. Idea’s net
adds have tracked well for the past few months with the run rate in the
quarter to March and furthermore according to the VLR data (active
subs) for March, Idea is at 93%. Vodafone’s net adds declined 34%
M/M while Bharti’s are down 25%. BSNL’s net adds halved M/M to
below 700K vs. 1.4m in March. More details in the table below.
• “New” telcos at ~15-20% of net adds driven by Uninor: Grouping
Uninor, Videocon, S Tel and Etisalat as the “new” players, we note that
they account for 18% of net adds. They contributed 6.1% of India’s
GSM sub base up from 4.3% six months ago. However it is important
to note that the VLR ratios (active data) for these telcos range from
34% (Etisalat) to a maximum of 53% (Uninor), well below the industry
average of 71%.

Credit Suisse,::Lupin - Margins continue to be subdued despite strong sales

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Lupin ----------------------------------------------------------------------------- Maintain OUTPERFORM
Margins continue to be subdued despite strong sales


● We liked strong sales growth across regions and adjusted for oneoffs,
sales beat was 4%. Sequential increase in US sales was due
to (1) seasonally strong quarter for Suprax, (2) end of channel destocking
of Dec quarter, (3) Antara sales start growing and (4)
benefit of pick-up in Cephs sales due to reduced competition.
● India sales growth was tepid at 16% as Lupin has been shifting
focus from anti-infectives to chronics and expects FY12 growth of
20% with launch of more than 40 products.
● Margins continue to be subdued. Gross margins declined QoQ by
180 bp as Lotrel pricing reduced further with the entry of Par
Pharma in Jan 2011. EBITDA margin was impacted by (1) high
R&D cost at 9.7% of sales versus 8.1% for 9MFY11; (2) expenses
for the newly commissioned Indore SEZ. However, margins were
weak as it benefitted from (1) forex gain of Rs130 mn (other
expenses) & (2) benefit of Salix upfront payment included in sales.
● We maintain OUTPERFORM as FY13 EPS growth of 27% is
significant and not yet priced in. FY12 EPS reduces by 4% as
upfront payment from Salix has been factored in FY11.
Figure 1: Sales split for 4Q11 versus CS estimates
Rs mn 4Q11A 4Q11E Diff (%) 4Q10A YoY %
Formulations 12,144 11,517 5% 10,729 13%
Developed markets 7,853 7,290 8% 7,136 10%
EU+US 6,235 5,826 7% 5,874 6%
Japan 1,618 1,464 11% 1,262 28%
Domestic 3,071 3,128 -2% 2,651 16%
Developing markets 1,220 1,099 11% 941 30%
API 2,489 2,493 0% 2,226 12%
Source: Company data, Credit Suisse estimates
Healthy sales trend across geographies
Overall sales were 9% higher than expected but benefitted from
upfront payment from Salix. Adjusted for one-offs, sales beat was 4%.
● Sequential improvement in US sales was driven by (1) seasonally
strong quarter for Suprax, (2) end of channel de-stocking in Dec
quarter, (3) Antara sales have started growing and (4) benefit of
pick-up in cephs sales as a competitor had manufacturing issues.
The latter benefit should ramp up further in the June quarter.
● India sales growth was tepid at 16% as Lupin has been shifting
focus from anti-infectives to chronics. However, the company
expects to grow at 20% in FY12 with launch of more than 40
products. The secondary sales has been strong at 24% in March
2011 (AIOCD) and offers comfort on the guidance.
● Japanese sales growth of 28% was higher than expected. This
growth was partly helped by Yen appreciation and new product
introduction. Lupin introduced five new products in Japan in FY11
and plans to launch seven new products in FY12.
● Reconciliation of geographical sales split with the reported sales
leaves a gap of Rs581 mn, which, we believe, includes the upfront
payment from Salix.
Margins weaker than expected
Both gross and EBITDA margins were below our expectation. Gross
margin declined sequentially by 180 bp as the pricing pressure on
Lotrel, with the entry of Par Pharma in Jan 2011, has been significant.
EBITDA margin was impacted by (1) high R&D cost which was higher
at 9.7% of sales compared to 8.1% for first nine months (2) expenses
related to Indore SEZ which has just been commissioned. However,
margins benefitted from (1) forex gain of Rs130 mn included in other
expenses and (2) benefit of Salix upfront payment has been included
in sales. Overall, EBITDA margins were weaker than expected.
Figure 2: 4Q11 consolidated result versus CS estimates
Rs mn 4Q11A 4Q11E Diff (%) 4Q10A YoY %
Net sales 15,115 13,921 9% 12,848 18%
EBITDA 2,687 2,631 2% 2,491 8%
EBITDA margin 17.8% 18.9% -1% 19.4% -1.6%
Depreciation 463 414 12% 407 14%
Other income 453 334 36% 539 -16%
Interest cost 78 81 -4% 78 0%
Income taxes 312 346 -10% 293 6%
Minority interest 16 38 -58% 45 -64%
Net income 2,272 2,086 9% 2,207 3%
Source: Company data, Credit Suisse estimates
Key takeaways from the conference call
● Allernaze: The management confidence appeared low for the
launch of Allernaze in FY12.
● FY12 ANDA filing target is more than 30 (versus 21 ANDAs filed
in FY11) and FY12 launch target is 10 products in the US.
● Lupin has made an upfront payment to Abbott in settlement on
fenofibrate patents and there will not be recurring royalty
payments.
● FY12 capex is US$100 mn, similar to FY11. Lupin has already
spent more than US$20 mn on biosimilars. Lupin has six products
in the pipeline, of which two are entering clinics this month. One of
them is a bio-better.

JPMorgan:: Pantaloon Retail Q3FY11: SSS growth moderates; balance sheet concerns remain

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Pantaloon Retail (India) Ltd
Overweight
PART.BO, PF IN
Q3FY11: SSS growth moderates; balance sheet
concerns remain


• Subdued operational performance. Pantaloon reported net sales,
EBITDA, PAT and EPS growth of 18%, 14%, 35% and 28% respectively
during Q3FY11. While earnings came in 3% below our estimates, we are
more disappointed on account of slower-than-expected topline growth
which missed our estimates by 4%.
• SSS growth rates moderated to 10.2% and 9.1% respectively for lifestyle
and home retailing business. This was on account of subdued offtake for
apparel (affected also by supply disruption on account of steep 16% price
hike iin Mar’11) and poor sales for electronics. Value segment registered
steady 10.3% SSS growth, though affected by weak growth for apparels.
Management noted that sales offtake has been better in April-May and price
hike of 16% for apparel should support better SSS growth rates in coming
quarters.
• EBITDA margins at 8.8% (+20bp q/q, -30bp y/y), though better than
estimates were affected by lower sales growth in fashion/electronics
business and significant retail space expansion during the quarter..
• Space addition on track. Pantaloon added 0.68mn sq ft during Q3 and has
added another 0.5mn sq ft during April'11 taking overall space addition
YTDFY11 to2.2x mn sq ft. Management intends to end FY11 with c2.5mn
sq ft of incremental space y/y.
• Balance sheet concerns remain. Core retail gross debt stood at Rs38bn as
of Mar’11 rising by Rs2.5bn q/q. The increase was on account of capex and
increase in working capital with aggressive space addition during the qtr.
Inventory levels saw no improvement, remaining at c100 days of sales.
• Delay/Uncertainity in monetisation of non-core retail investments to
delay PRIL’s plans to de-leverage its balance sheet. High leverage (we
estimate debt/equity would be close to 1.1x for core retail), not much
improvement on working capital front and no progress on divestment of
non-core operations will likely weigh on stock’s earnings and share price
performance in near term, in our view.

JPMorgan:: State Bank of India - 4Q11: multiple stress points

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State Bank of India
Overweight
SBI.BO, SBIN IN
4Q11: multiple stress points


SBI reported near zero profits for 4Q12 (Rs200mn), a huge negative
surprise vs. our expectation of 16% qoq growth to PAT of Rs32.7bn.
This was compounded by Rs79.3bn direct charge to reserves on
pensions. Everything that could go wrong did – a hike in pensions,
margin pressure, and worsening delinquencies. Conservative accounting
compounded the problem, especially for taxes.
• Stress on multiple fronts: SBI showed stress on multiple fronts. A)
Margins fell~50bps qoq, partly from margin pressure but also due to an
unexplained qoq fall in loan yields (we think due to the large
delinquencies). B) Delinquencies accelerated from Rs40bn to Rs56bn,
partly due to bunching from system recognised NPLs. C) pensions got
benchmarked to the latest salary hikes, leading to a Rs117bn charge that
was spread over the P&L and the reserves.
• Turnaround likely in FY12E: We think SBI should improve the key
metrics in FY12E, with margins improving (though management
guidance of 3.5% is probably optimistic), delinquencies slowing as the
bunching effect wanes, and the pension hits are all taken. The effective
tax rate is likely to revert to normal; we are not capturing writebacks yet.
We note that SBI still needs an additional Rs25bn of provisions (in
1H12) to meet the new RBI norms.
• Revise earnings estimates and PT: We revise our earnings estimates
up 9-12% for FY12-13E mainly due to lower employee costs as Rs79bn
of pension liability was charged through reserves. This has impacted
book value by 13% but ROEs would look significantly improved at ~18-
19% in FY12-13E vs. 15-16%. Given the book impact, we cut our
Gordon growth-based Mar-12 PT to Rs3000/share (Rs3200/share
earlier).
• Maintain Overweight: We maintain our OW on SBI but continue to
prefer the private banks. SBI's likely turnaround in FY12 makes it
attractive, but significant challenges remain on controlling delinquencies.
Also with the current tier-1 ratio at ~7.8%, a rights issue looks inevitable.

Price hikes to rein in India subsidies.:Macquarie Research

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Price hikes to rein in India subsidies
Refining and petrochemicals update
 Rebound in petrochemical margins; GRMs remain strong: GRMs fell 6%
WoW but continued to be strong, maintaining US$10/bbl+ levels amid a
backdrop of crude prices pulling back slightly. Petrochemical margins, on the
other hand, rebounded across the board after a sustained fall for the past few
weeks, primarily due to Naphtha prices declining 4% WoW.
Theme of the week
 In India, an Empowered Group of Ministers (EGoM) is likely to meet this week
to discuss subsidized pricing of products. The projected FY12 subsidy has
bloated to US$36bn (>2x FY11, and 2% of GDP). Following the gasoline price
hike of Rs5/lt over the weekend, we expect announcement of Diesel/LPG
price hikes possibly accompanied by duty cuts on auto-fuels. A structural shift
to a targeted cash-based subsidy on cooking fuels may be on the cards.
While we believe that all oil PSUs (upstream & downstream) would gain from
a reduction in subsidies, downstream marketers would benefit the most. We
would recommend BPCL as the best play on this theme.
Country-specific developments and views
 Korea: We remain positive on the Korean oil refining and petrochemical
sector, but remain cautious on near term earnings visibility due to price cuts in
local gasoline and diesel prices. With strong 1Q11 earnings results coming to
an end, LG Chem and S-Oil are our preferred picks as near term earnings
downside should be offset by company-specific factors - I&E business
turnaround for LG Chem and PX capacity expansion for S-Oil.
 China: PetroChina management clarified that they had not heard from the
government or other official sources regarding a potential resource tax rate
hike, and believes that China will not introduce nationwide resource tax reform
in the near future. Further, the current 5% resource tax would continue to be
levied in the 12 western provinces in order to boost the local economies and
social development. Currently, China's windfall tax threshold on crude oil is
US$40/bbl. PetroChina is proactively lobbying the central government to raise
the threshold or combine it with other resource levies. If China does introduce
resource tax reform for the whole country, management believes the central
government would be very likely to lift the windfall tax threshold on crude oil to
offset companies' potential losses.
 Taiwan: Last Thursday a fire broke out at Formosa Group's 6th Naphtha
cracker complex. Only the utility pipes were affected while the plants did
not suffer physical damage. Though FPCC's Olefin #1 plant and FCFC's
Aromatic #1 plant were shut for safety reasons, the companies guided
that they should restart soon (within 1-2 weeks); hence we expect very
limited earnings impact. Given strong GRMs and recovering petrochem
spreads, investors could start to look for buying opportunities after another
5% pullback, or by end of June, whichever comes first.
Outlook and Strategy
 Among Asian stocks, we like PetroChina, PTTCH, Nan Ya Plastics, and RIL

Agriculture Prices closer to peaking out, but upside weather risks prevail ::Macquarie Research

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Agricultural Forecasts
Prices closer to peaking out, but
upside weather risks prevail
Key Highlights
 As we forecasted in our last update on 19 January (Agricultural Forecasts:
The return of “agflation”), prices across all agricultural commodities have
continued to strengthen into 2011, following tightening fundamentals,
triggering widespread agflation around the world. The grain and oilseeds
complex outbid each other in the battle for acreage for the 2011/12 northern
hemisphere spring planting, driving prices higher, whilst simultaneously trying
to ration demand. Soft commodities reached new multi-year highs in the first
quarter on the back of extremely low stock cover, adverse weather and (in the
case of cocoa) political unrest. Looking ahead, we have diverging views
across the agri commodities, although a recurring theme we foresee is that
even if prices drift lower they will not fall sharply, due to historically low
inventories. The combined effect of our forecasts suggest that the intensity
of agflation will likely ease by next quarter, but it may take a lag of six
months before they filter down to food retail levels.
 Corn still remains our top short-term bullish call, given that stocks are
perilously low and the upcoming crop in the US looks vulnerable to yield
losses given adverse weather conditions. With still resilient demand from the
livestock and ethanol sectors, there is very little margin for error. Corn prices
may need to shoot higher still in order to ration demand before we even get to
harvest stage. And the 11/12 crop may still not be large enough. While the
wheat global market is not as tight as corn, we are particularly concerned
on the European developing wheat crop, where the drought has already
caused irreversible damage. Depleted inventories there mean that European
exports may fall by 12% y/y in 2011/12; prices could follow corn higher. We
are short-term bearish for soybeans, due to ample South American
supplies and softening Chinese imports. However, into 2011/12, the global
soybean market has the potential to tighten as large-scale Chinese buying
resumes and the potential for a lower US crop as soy acres lose out to corn.
 For some of the softs, we believe that prices reached their peaked early in
Q1, and the short-term outlook is neutral to moderately bearish. For sugar,
larger-than-expected Thai output and the start of the Brazilian harvest will keep
prices at bay for a while. The market is no longer in deficit, and will likely be in a
comfortable surplus in 2011/12. A similar scenario is expected for cotton,
where high prices have cut demand and encouraged production, leading
speculators to take profit ahead of a more comfortable 11/12 season. However,
prices are unlikely to collapse too much given that stock build will be minimal at
best, with the US in particular unlikely to see much of a supply recovery.
Another of our top calls last update, coffee prices reached 34-yr highs in
May. Although they have fallen sharply recently (due mainly to macro and
currency factors), we remain short-term bullish. Given our expectations of a
deficit this season, this represents a good buying opportunity, as coffee prices
could easily shoot back up. Cocoa prices will also recover from Q3 as the
global market tightens in line with lower West African production in 2011/12, as
this year’s political chaos takes it toll on Ivorian crops.

Ashok Leyland – 4Q result and management contact ::RBS

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Ashok Leyland, in a seasonally strong 4Q quarter, surprised us by 20% on EBITDA through
better sales (11%) and margins (100bp). Net D:E of 0.6 and dividend yield of 4% cushion the
stock. However, the pending diesel price hike in a fast rising interest rate environment puts risk to
our EPS estimate.

Buy eClerx: 4QFY11 results ::CLSA

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4QFY11 results
4QFY11 continued a series of robust quarters from eClerx. Revenue at
US$21.1m was up 7.7%QQ and is the best revenue performance in the
Indian IT/BPO space in Mar-11 quarter. Margin improvement of over
250bpsQQ (ex one-time benefits in Dec-10) was a positive surprise and
driven by reducing per capita salary cost. With external demand
environment happily favourable and a more benign supply-side situation,
we expect eClerx to build-on to these gains in FY12 and expect. Premium
valuation to sector peers should sustain. Maintain BUY.
Another strong quarter delivered; 60% dividend pay-out in FY11
7.7%QQ growth in $-revenues in 4QFY11 came at the top end of all
companies in the Indian IT-BPO space and comprehensively beat street
expectations. Ebitda margin of 42% was up 20bpsQQ and aided by reduced
per capita salary costs. Note that 3QFY11 had some one-time provision
reversals and adjusted for those, 4QFY11 margins are up ~250bpsQQ.
Rs103m of goodwill write-off from its Igentica acquisition (made in 2007) did
impair net profit. However, despite this hit, net margin remained above 30%.
For FY11, eClerx reported a solid 37.3%YY growth in $-revenues and QQ
trends suggest that this momentum is likely to continue in FY12 as well.
Dividend pay-out of Rs22.5 (60% pay-out for FY11) is reflective of eClerx’s
discipline in channelling excess cash back to shareholders.
The year ahead
The year ahead holds a lot of promise for eClerx. We expect the current
revenue momentum to sustain and are building in a 33% growth in $-
revenues for FY12. eClerx already has excess capacity of around 1,000 seats
which should be sufficient to service this growth. 11-12% offshore wage hikes
and increased investment in sales and marketing could hurt margins a tad in
FY12 but YY decline should be contained within 100bps. eClerx’s hedging
policy has ensured that it has locked in a US$/INR rate of 47.92 and EUR/INR
rate of 61.86 for FY12. This keeps it well-positioned to handle any currency
volatility. Imposition of MAT on SEZ (62% of revenues) profits will push the
tax rate to 20% in FY12 but we expect net margin of over 30% to sustain.
Reiterate our BUY stance, Target price of Rs880
eClerx faces risks from high client concentration (87% revenues from top-5
clients) which could cause volatility in earnings. But its steady financial
performance extracts a benefit of doubt on this front. An industry-leading
operating margin, 50%+ ROE and high dividend pay-out justifies its valuation
premium to sector peers. With these standards of fiscal discipline, we believe
its acquisition plans (if any) should not hold back stock performance.

India real estate sector Selection via elimination:: ::Macquarie Research

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India real estate sector
Selection via elimination
A selective approach is required to pick stocks
The property sector has underperformed for so long (36 months) that we are
often tempted to finally throw away our bearish hat. We however maintain our
view from our initiation report (Tread carefully... and carry a big stick dated 25
November 2010). We don’t think this is a broad-based buying opportunity. Since
stocks are generally cheap (trading at 40-50% NAV discounts), we believe stock
picking can be done by ‘elimination’ of obvious risks. We would avoid high debtlow
cashflow yield companies and stick to players facing limited ‘news flow’ risk
with operations in ‘sane’ markets (Bangalore/ IT commercial/ retail). We
recommend buying Prestige and Sobha followed by HDIL and Phoenix.

Oberoi Realty ::UW(V): Sales volumes likely to disappoint HSBC research

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Oberoi Realty (OBER)
Initiate UW(V): Sales volumes likely to disappoint
 Volume growth could stagnate over FY12-14 as new
launches cannibalise old inventory. We estimate expensive
new land bank will carry 30% lower EBITDA margin
 We are very bearish relative to the street; our EPS forecasts
are 16% below consensus for FY12 and 30% lower for FY13
 Initiate UW(V) with target price of INR200

ITC Earnings visibility remains strong ::RBS

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ITC
Earnings visibility remains strong
ITC's 16.2% EBITDA growth was in line with expectations. Cigarette business has
recorded flat volumes y.o.y, but our channel checks suggest that on consumer
demand basis, it has already returned to positive growth. Dividend payout of over
80% is another key positive. Buy.
Strong underlying performance continues
! ITC recorded a 16% revenue growth which was driven by 13% growth in its cigarette
business, 17% growth in other FMCG business, 18% growth in its hotels business, and 15%
growth in paper business. Since the agri business recorded a lower revenue growth at 9.5%,
the overall growth has slightly weaker than expected.
! EBITDA growth at 16.2% was driven by 17.5% growth in cigarette business, 27% growth its
hotel business, 15% growth in its paper business. The other FMCG business recorded a y.o.y
and q.o.q drop in EBIT loses, its EBIT loss to net sales at 5.2% is lowest since ITC's entry into
other FMCG segments and compares with -16% in FY09 and -9.6% in FY10.
Growth drivers intact across its key business segments.
! The return of the cigarette business to flat/ positive volume growth momentum in 4QFY11
ensures sustaining momentum in its core cigarette business in FY12 and beyond.
! ITC has put in place strong investment plans in both its hotels and paper business to sustain
the growth momemtum. The company's paper manufacturing division plans to increase its
0.5mmt pa capacity by 0.1mmt within 12-18 months and to add an incremental 0.2mmt pa of
green field capacity to its existing facility in Andhra Pradesh. Meanwhile, the hotel division is
working to increase its number of five-star rooms from 3,000 to 4,000 via the launch of the
Grand Chola property in Chennai by end-FY12 and the Kolkata expansion by end-FY13. ITC
is also working to launch new hotels in Hyderabad, Ahmadabad, Gurgaon and Delhi.
! Its other FMCG business is clearly seeing EBIT losses reducing, and we believe the company

is on course to achieve a overall break-even in FY13.
Earnings visibility remains strong & dividend payouts at 80.4%
! ITC has delivered a strong 21% EPS growth in FY11 despite facing #2% decline in cigarette
volumes. We expect volume growth to turn positive in FY12, and with the Union Budget not
raising excise duties, ITC can judiciously alter pricing in non-demand elastic segments to
stimulate the volume momemtum. ITC's cigarette earnings would continue to grow, and would
be largely immune to the inflation/ rising interest rates induced margin pressures.
! ITC has declared a DPS of Rs4.45/share ( which includes Rs2.8/share of special dividend to
mark its 100th AGM), which is another key positive. In the last 2 years ITC has paid its share
holders $1.9bn of dividends ( from a reported PAT of $2bn), which indicates a structural shift
in its payout strategy

Larsen & Toubro - Weak 4Q; Not to divest E&E; EPS / PO Cut::BofA Merrill Lynch,

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Larsen & Toubro Ltd.
   
Weak 4Q; Not to divest E&E;
EPS / PO Cut
„4Q execution disappoints while inflows surprise; PO cut
L&T 4Q11 Rec PAT +12%YoY (12% below BofAMLe) on weak execution (sales
+13%YoY). Tough macro and intense competition caused L&T to miss its FY11
guidance – inflows +15%YoY (vs 25%) despite 4Q +29%YoY. We cut FY12-13E
parent EPS by 7-12% on weak 4Q, delay in orders and likely slow execution of
4Q11 orders. We cut our PO to Rs2070 (Rs2280) to factor in EPS & multiple cut.
Mgt said it has no plans to sell the electrical business. Buy on inexpensive
valuation (13x FY13E) post the stock's underperformance (8% v/s market/BHEL
after stock fell 20% YTD) and EPS CAGR of 23% (FY11-13E) driven by backlog
+30%YoY. Creation of growth vehicles in power equipment, shipyard, defense,
nuke, aerospace domains and concession wins support Buy. Capex in lower RoE
infra assts – Rajpura Power, Hyderabad metro etc. are risks.
Captive/private orders led Inflows +27%; Quality an issue  
4Q inflows grew 27% YoY driven by 10x rise in captive orders – Hyd. Metro (Rs59bn)
and Seawoods (Rs9.8bn). External orders fell 2% on a 59%YoY fall in Public orders,
which was partly offset by a 95% growth in Private orders. Quality of orders was weak,
with its largest pvt. order – Rs58bn (19% of 4Q inflow) blast furnace order – from a
2nd tier steel mill without “customary advance” and it is yet to close funding. Mgt.
guided for FY12 inflow +15-20% and sales +25%YoY, which is in line with BofAMLe.
L&T IT PAT was flat on 651bps decline in PAT margin.
Mgt. address concerns on new orders; Guide for 15-20%
At the analyst meeting, L&T assured that it will be able to grow FY12 inflows at 15-
20% YoY on a) pick-up in delayed hydrocarbon orders in 1QFY12 from India & abroad
(Thailand/Middle East), b) its own coal-based/external gas power project orders and
balance of plant should drive power orders, c) pick-up in Infra orders led by roads,
building and factories, and d) steady minerals and metals orders. We cut our FY12E
inflows by 2%, implying a 15% growth on weak capex environment.

Oil, Gas : FY11 upstream subsidy burden- 38.9% ::RBS

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Oil, Gas & Cons Fuels
FY11 upstream subsidy burden- 38.9%
GOI has increased upstream share in gross under recoveries to 38.9% for FY11.
This leads to sharp cuts in our 4QFY11 PAT estimates for upstream companies. It
also highlights our concerns on the adhoc subsidy sharing mechanism which
makes upstream vulnerable to higher burden in the event of higher crude prices
GOI has intimated that upstream companies would contribute Rs303bn or 38.9% to the FY11
gross under recoveries estimated at Rs778bn. The upstream share was earlier estimated at
Rs260bn based on the assumption that upstream would bear 1/3rd of the gross under
recoveries. GOI has already announced its own contribution of Rs410bn (52.7%) for FY11.
Within upstream, ONGC would contribute Rs249bn, Oil India- Rs33bn & GAIL-Rs21bn i.e. in
the proportion of 82.2%: 10.9% :7% for FY11.
Consequently based on actual under recoveries borne during 9FY11 (upstream share was
33.3%), 4QFY11 upstream contribution would be 42.5% higher than our 4QFY11 estimates
which were based on the assumption that upstream would bear 1/3rd of gross under
recoveries.
Since upstream companies would also absorb the incremental contribution for first nine
months (38.9% vs 33.3%) in the fourth quarter, the impact on our earlier 4QFY11 net profit
estimates would be significant. We expect 4QFY11 net realisation for ONGC to drop to
US$56.5/bbl (our earlier estimate was US$71.6/bbl) and US$52.1/bbl (US$67.5/bbl) for Oil
India. Adjusting for the revised subsidy burden, our new 4QFY11 PAT estimates are: ONGC-
Rs38.3bn (Rs59.7bn earlier), Oil India-Rs7.7bn (Rs9.4bn) and GAIL-Rs 5.2bn (Rs8.9bn)
We note that the full year gross under recovery estimate of Rs778bn doesn't include under
recoveries on petrol. While it hasn't been explicitly announced, we believe GOI has increased
upstream contribution to account for under recoveries on petrol. We had earlier highlighted
the risk of higher upstream contribution due to petrol under recoveries (refer our report
'Upstream to share petrol subsidy?' dated 6 May 2011). The net under recoveries to OMCs
for FY11 are now estimated at Rs65bn as compared to 9MFY11 figure of Rs103bn. We
believe the revised net under recoveries would ensure adequate profitability to OMCs (11-
12% ROE to HPCL) including under recoveries on petrol.
More importantly, this validates our scepticism on the whole subsidy sharing framework . Our
DCF valuation of ONGC & OIL India is based on the net realisation price cap of US$60/bbl as
upstream companies are vulnerable to bearing higher under recoveries in the event of higher
oil prices/higher under recoveries. Thus their leverage to high oil prices isn't clear.
Also, the focus would now shift to FY12 in which under-recoveries are likely to be around
double of FY11 if current oil prices sustain and if domestic price hikes are in line with past

trends (maximum Rs2-3/litre for diesel).
Given the negative impact of higher subsidy burden on the upstream companies' valuation,
we believe GOI would have to offer ONGC shares at substantial discount to current prices in
the upcoming FPO. As an aside, there are media reports speculating that the FPO has now
been deferred which was earlier reportedly scheduled for July 2011.

Oil, Gas & Cons Fuels FY11 upstream subsidy burden- 38.9% ::RBS

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Oil, Gas & Cons Fuels
FY11 upstream subsidy burden- 38.9%
GOI has increased upstream share in gross under recoveries to 38.9% for FY11.
This leads to sharp cuts in our 4QFY11 PAT estimates for upstream companies. It
also highlights our concerns on the adhoc subsidy sharing mechanism which
makes upstream vulnerable to higher burden in the event of higher crude prices
GOI has intimated that upstream companies would contribute Rs303bn or 38.9% to the FY11
gross under recoveries estimated at Rs778bn. The upstream share was earlier estimated at
Rs260bn based on the assumption that upstream would bear 1/3rd of the gross under
recoveries. GOI has already announced its own contribution of Rs410bn (52.7%) for FY11.
Within upstream, ONGC would contribute Rs249bn, Oil India- Rs33bn & GAIL-Rs21bn i.e. in
the proportion of 82.2%: 10.9% :7% for FY11.
Consequently based on actual under recoveries borne during 9FY11 (upstream share was
33.3%), 4QFY11 upstream contribution would be 42.5% higher than our 4QFY11 estimates
which were based on the assumption that upstream would bear 1/3rd of gross under
recoveries.
Since upstream companies would also absorb the incremental contribution for first nine
months (38.9% vs 33.3%) in the fourth quarter, the impact on our earlier 4QFY11 net profit
estimates would be significant. We expect 4QFY11 net realisation for ONGC to drop to
US$56.5/bbl (our earlier estimate was US$71.6/bbl) and US$52.1/bbl (US$67.5/bbl) for Oil
India. Adjusting for the revised subsidy burden, our new 4QFY11 PAT estimates are: ONGC-
Rs38.3bn (Rs59.7bn earlier), Oil India-Rs7.7bn (Rs9.4bn) and GAIL-Rs 5.2bn (Rs8.9bn)
We note that the full year gross under recovery estimate of Rs778bn doesn't include under
recoveries on petrol. While it hasn't been explicitly announced, we believe GOI has increased
upstream contribution to account for under recoveries on petrol. We had earlier highlighted
the risk of higher upstream contribution due to petrol under recoveries (refer our report
'Upstream to share petrol subsidy?' dated 6 May 2011). The net under recoveries to OMCs
for FY11 are now estimated at Rs65bn as compared to 9MFY11 figure of Rs103bn. We
believe the revised net under recoveries would ensure adequate profitability to OMCs (11-
12% ROE to HPCL) including under recoveries on petrol.
More importantly, this validates our scepticism on the whole subsidy sharing framework . Our
DCF valuation of ONGC & OIL India is based on the net realisation price cap of US$60/bbl as
upstream companies are vulnerable to bearing higher under recoveries in the event of higher
oil prices/higher under recoveries. Thus their leverage to high oil prices isn't clear.
Also, the focus would now shift to FY12 in which under-recoveries are likely to be around
double of FY11 if current oil prices sustain and if domestic price hikes are in line with past

ITC Ltd. F4Q11: Cigarette Volumes Disappoint; Strong Quarter for Other Businesses ::Morgan Stanley Research,

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ITC Ltd.
F4Q11: Cigarette Volumes
Disappoint; Strong Quarter
for Other Businesses
Quick Comment – F4Q11 earnings ~5% below
estimates: ITC reported F4Q11 revenue, EBITDA, and
PAT of Rs58.4bn, Rs19.1bn and Rs12.8bn, respectively,
vs. our estimates of Rs61bn, Rs20.7bn, and Rs13.5bn.
Cigarette volume decline of ~2% YoY was the key
disappointment for the quarter. However, our
understanding is that retail demand remains strong and
the disappointment in primary sales is likely a phasing
issue. Putting numbers into perspective, lower cigarette
volumes during the quarter represents ~three days of
sales for ITC. Performance across other business
segments continues to improve with ~300bp
improvement in RoE for the non-cigarette businesses.
Market expectations for cigarette volumes for F4Q was
~4%, in our view. The disappointment notwithstanding,
results were inline with Bloomberg reported consensus
expectations. Said differently, non-cigarette business
beat consensus expectations during the quarter.
Key Positives: 1) Strong operating performance in the
hotels business with margins at 30.7%, the highest in
eight quarters. 2) Strong cigarette EBIT growth of 18%
drove over 100bp of segment margin expansion. 3) Agri
business continues to surprise with revenue and
operating profit growth of 9% (base impact) and 43%,
respectively. 4) Non-tobacco FMCG losses reduced by
14% in F4Q. We estimates that volume market share for
ITC in the soaps business is stable at ~6%. 5) Capital
employed in the cigarette business is down 10% QoQ.
5) ITC declared a special dividend of Rs1.65 per share,
implying a total payout of 82% for F2011, higher than our
expectation of ~60%.
Key Negatives: 1) Cigarette volume fell ~2% YoY. We
view this as a phasing issue and remain confident of 7%
growth for F2012. 2) Reported operating margin was
~100bp lower than expected driven by a combination of
lower cigarette business revenues and roll out costs for
personal care products, we believe

ITC Ltd. F4Q11: Cigarette Volumes Disappoint; Strong Quarter for Other Businesses ::Morgan Stanley Research,

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ITC Ltd.
F4Q11: Cigarette Volumes
Disappoint; Strong Quarter
for Other Businesses
Quick Comment – F4Q11 earnings ~5% below
estimates: ITC reported F4Q11 revenue, EBITDA, and
PAT of Rs58.4bn, Rs19.1bn and Rs12.8bn, respectively,
vs. our estimates of Rs61bn, Rs20.7bn, and Rs13.5bn.
Cigarette volume decline of ~2% YoY was the key
disappointment for the quarter. However, our
understanding is that retail demand remains strong and
the disappointment in primary sales is likely a phasing
issue. Putting numbers into perspective, lower cigarette
volumes during the quarter represents ~three days of
sales for ITC. Performance across other business
segments continues to improve with ~300bp
improvement in RoE for the non-cigarette businesses.
Market expectations for cigarette volumes for F4Q was
~4%, in our view. The disappointment notwithstanding,
results were inline with Bloomberg reported consensus
expectations. Said differently, non-cigarette business
beat consensus expectations during the quarter.
Key Positives: 1) Strong operating performance in the
hotels business with margins at 30.7%, the highest in
eight quarters. 2) Strong cigarette EBIT growth of 18%
drove over 100bp of segment margin expansion. 3) Agri
business continues to surprise with revenue and
operating profit growth of 9% (base impact) and 43%,
respectively. 4) Non-tobacco FMCG losses reduced by
14% in F4Q. We estimates that volume market share for
ITC in the soaps business is stable at ~6%. 5) Capital
employed in the cigarette business is down 10% QoQ.
5) ITC declared a special dividend of Rs1.65 per share,
implying a total payout of 82% for F2011, higher than our
expectation of ~60%.
Key Negatives: 1) Cigarette volume fell ~2% YoY. We
view this as a phasing issue and remain confident of 7%
growth for F2012. 2) Reported operating margin was
~100bp lower than expected driven by a combination of
lower cigarette business revenues and roll out costs for
personal care products, we believe

Oil & Gas Upstream FY11E EPS up YoY despite higher share in subsidy:: BofA Merrill Lynch,

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Oil & Gas
   
Upstream FY11E EPS up YoY
despite higher share in subsidy
„Rise in subsidy share a concern but still prefer upstream
The government today finalized sharing of FY11 subsidy. The negative surprise
was increase in share of upstream companies in FY11 subsidy to 38.7% as
against the usual 33%. We therefore had to cut FY11 EPS of GAIL and Oil India
(OIL) by 7-8% but still their FY11 EPS is expected to be YoY higher. R&M
companies have gained from the rise in upstream share in subsidy but their
subsidy hit is still higher than our optimistic assumption. We therefore had to cut
even R&M companies’ earnings by 1-11%. Rise in subsidy share from the usual
33% is negative for upstream but we still prefer upstream OIL to R&M companies.
FY11 subsidy sharing: upstream 38.7% and R&M 8.8%
FY11 subsidy of Rs782bn (US$17.2bn) will be shared as follows – government
Rs410bn (52.4%), upstream Rs303bn (38.7%), and R&M companies Rs69bn
(8.8%). However R&M companies also have to bear the entire subsidy on petrol
from July 2010 to March 2012, which we estimate at over Rs40bn.
GAIL and OIL FY11 EPS cut by 7-8% due to higher subsidy
Upstream companies have had to bear 38.7% of FY11 subsidy as against the
expected 33.3%. Upstream companies thus had to bear higher subsidy than
expected of Rs42bn. We therefore cut FY11E EPS of GAIL and OIL by 7-8%.
GAIL & OIL FY11 EPS up 12-13% YoY despite higher subsidy
Despite a higher share in subsidy OIL’s FY11 EPS at Rs122.3 is expected to be
13% YoY higher. If upstream share in subsidy was 33% in FY11, OIL’s EPS
would have been 8% higher at Rs132.5. GAIL’s FY11 EPS at Rs27.7 is also
expected to be 12% YoY higher. GAIL’s FY11 EPS would have been 5% higher
Rs29.1 if upstream share in subsidy was 33% instead of 38.7%.
R&M FY11 EPS cut 1-11% as subsidy higher than estimate
Our FY11 EPS estimates for R&M companies were based on optimistic
assumption of subsidy hit of just Rs45bn. Their subsidy hit would have been as
high as Rs111bn if upstream share was 33%. However, with upstream share up
to 38.7% R&M companies’ subsidy will be just Rs69bn, which is still higher than
our assumption.  We therefore have cut BPCL and HPCL’s FY11 EPS by 1-11%.
R&M FY11 EPS up on reported basis; down recurring basis
We now estimate FY11E EPS of HPCL and BPCL at Rs40.1-51.0 (Rs22.8-36.5 if
upstream share in subsidy was 33%). Their FY11 EPS is expected to be YoY
higher than FY10 reported EPS but YoY lower than FY10 recurring EPS. FY10
reported EPS was hit by hefty provision for mark to market on oil bonds.

BUY HDFC Bank - Strong earnings trajectory to continue ::BofA Merrill Lynch,

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HDFC Bank
   
Strong earnings trajectory to
continue
Having met with management today at our 2011 Asian Stars Conference in
Singapore, these are some of our takeaways...
Very comfortable on asset quality for the bank. Management also feels that
slippage at the sector level is not very substantial and manageable.
Expects sector loan growth of around 19% even assuming some moderation in
macro. Bank to grow at least a few percentage points higher to 22-24%.  
Expects GDP growth to still be at between 7.7% and 8%. Expects more visible
reforms over next few months. Consumer and rural remain key growth drivers.  
Expects margins to be broadly stable at +4% levels.

SELL Tata Power Co (TTPW.BO) Research Tactical Idea :Morgan Stanley

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Tata Power Co (TTPW.BO)
Research Tactical Idea
We believe the share price will fall relative to the country index over the next 30 days.
This is because of an earnings release. Tata Power reported F2011 consolidated profit (adjusted for extraordinary items)
of Rs15.4bn, which was 7% lower than our estimate and 20% lower than consensus estimates. The stock is trading at
12.3x F2012E consensus P/E, which is at a premium to its peers. Also, YTD, the stock has outperformed its peers and so
we believe it could give away some of this performance.
We estimate that there is about a 70% to 80% or "very likely" probability for the scenario.
Estimated probabilities are illustrative and assigned subjectively based on our assessment of the likelihood of the
scenario.
Stock Rating: Equal-weight
Industry View: In-Line

Aditya Birla Retail- plans to push on private label sales :CLSA

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Aditya Birla Retail- Unlisted
Business description:
In January 2007, Aditya Birla group announced plans
to enter the retail sector with the acquisition of south
India based Trinethra Super Retail
Trinethra group operated 170 stores across 0.5m sf
retailing food and grocery in Andhra Pradesh, Kerala,
Karnataka and Tamil Nadu
Retail franchise:
Currently: 540 More supermarket store and nine
hypermarket stores totalling 1.7mn sq ft
Store size: Super markets average 2,500-3000 sf
and hypermarket stores 55,000 sf
Expansion plans : 100 supermarkets and 8
hypermarkets this year; 14 hypermarkets next
year
ABRLs merchandise mix is 15% fresh food, fruits
& vegetables, 50% grocery food & staples, 25-
30% FMCG and 5-10% general merchandise
Its loyalty program ‘Clubmore’ has 2.6m
customers, of which 0.4m are currently active
News and updates
Aditya Birla Retail’s growth plans are focused on South
India for supermarkets but pan-India for the
hypermarkets format
The company plans to have 1600 supermarkets and
65 hypermarkets by 2016
The company expects to break even at the PAT level
by FY15 and Ebitda level by FY13
ABRL plans to open 130 supermarkets and 12
hypermarkets in FY12. It also plans to push on private
label sales

UBS :: IRB Infrastructure Developers Q4FY11: Construction margins at 21%, PT of Rs225.

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UBS Investment Research
IRB Infrastructure Developers
Q4FY11: Construction margins at 21%,
Mumbai-Pune traffic growth at 5.4%
 
„ Misses estimates led by higher interest costs and lower EBIDTA in BOT
IRB reported Q4FY11 revenues of Rs7.7bn (+53% y/y), operating profit of
Rs3.1bn (+36% y/y, UBS-e Rs3.3bn) and PAT of Rs910m (+19.7% y/y, adjusted
for MAT credit in Q4; UBS and consensus estimate of Rs1.4bn). Results were
below UBS-e led by higher interest costs and lower EBITDA in the BOT segment.
The interest cost of Rs1.4bn in Q4 is significantly higher than our expectation of
Rs864m and Q3FY11 outgo of Rs820m. We expect to get details regarding interest
costs in the conference call scheduled on Wednesday, 25 May 2011.

BUY Larsen & Toubro (LART.BO) Research Tactical Idea:: Morgan Stanley Research,

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Larsen & Toubro (LART.BO)
Research Tactical Idea
We believe the share price will rise relative to the country index over the next 45 days.
This is because of an earnings release. L&T positively surprised us and the street on two out of three counts - order
inflows and margins for F4Q11.  The market has been concerned on L&T's order inflows for F2011.  The impressive
growth in F4Q11 order inflows (27% YoY) resulted in F2011 order inflow growth of 15% YoY, beating our and street
estimates of 13% YoY.  
We estimate that there is about an 80%+ or "highly likely" probability for the scenario.
Estimated probabilities are illustrative and assigned subjectively based on our assessment of the likelihood of the
scenario.
Stock Rating: Overweight
Industry View: Attractive