07 July 2011

Exide Industries Ltd. Margin outlook improving 􀂄 BofA Merrill Lynch

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Exide Industries Ltd.
Margin outlook improving
􀂄 Margin expansion & capex peak off to drive re-rating
FY11 annual report illustrates (1) adverse impact of jump in lead cost on smelting,
and (2) adverse impact of capacity constraint on profit margin. These concerns
are likely to ease owing to stable lead prices and the addition of capacity, along
with an OEM slowdown. We expect Exide to re-rate owing to expansion of the
EBITDA margin by 130bp q-o-q, to 20%, in Q1FY12e. We also expect the stock to
re-rate on stronger cashflow from H2FY12e, owing to a decline in capex.
Stable lead price to ease cost pressure & boost smelters
EBITDA margin of Exide’s lead smelters declined to 5% in FY11 from 10% in
FY10, owing to a sharp jump in the cost of scraps. We expect the profit margin of
smelters to bounce back in FY12, driven by (1) a decline in cost of scrap relative
to lead, owing to the reduced volatility of lead price and higher in-house collection
(2) cost savings from proposed smelter modernization.
Stronger replacement sales to boost product mix & margin
Exide is seeing stronger replacement battery growth, as the current slowdown in
OEM demand on account of higher interest rates has freed up capacity. We
expect the ratio of replacement-to-OEM batteries to rise from 1.11 in Q4FY11 to
1.56x in Q1FY12e. This situation is temporary, but additional capacity will become
available in H2FY12 that will lead to a sustained rise in replacement battery mix.
Strong visibility for FY13e & FY14e earnings is compelling
While we expect Exide to benefit from expansion of market share in FY12, owing
to an easing of capacity constraints, the company should benefit from a stronger
replacement cycle in FY13 and FY14, which is linked to 25% car sales growth in
FY10 and FY11.

Oil & Gas Atlas Energy equities remain firm as oil slips ::Macquarie Research,

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Oil & Gas Atlas
Energy equities remain firm as oil slips
Energy Market Indices WoW Changes
⇒ S&P/TSX Energy Index: 4.5%
⇒ S&P 500 E&P Index: 4.5%
⇒ Oil Service Sector Index: -8.4%
⇒ UK FTSE Oil & Gas Producers Index: 6.3%
⇒ Asia Pacific Oil & Gas Producers Index: 3.5%
Weekly Market Recap
Equity markets were largely up last week as West Texas Intermediate (WTI) crude oil
prices increased by 5% and Henry Hub natural gas gained almost 2%. Oil markets were
supported by the weekly EIA report which showed greater than expected declines in
crude oil and gasoline stocks. Also providing optimism was positive news out of Greece
after its Parliament approved the austerity measures required to secure additional funding
from the EU.
In Canada, Petrobank increased its bitumen resource estimate to 624m barrels from
560m barrels. After factoring in the implied value of the company’s PetroBakken stake,
we estimate the implied value of Petrobank’s heavy oil assets to be $0.075/bbl. With
typical transaction values in the $0.50–1.00/bbl range we believe Petrobank shares offer
significant upside at current levels. Activity in the junior space was headlined by the
announcement of a farmout JV agreement by DeeThree in the Alberta Bakken. Under a
full earning scenario, DeeThree will participate in eight horizontal wells on these lands at
no cost. We view each JV agreement as a pragmatic way to delineate the extent of a big
resource with minimal outlay of capital and reduced risk to DeeThree.
In the US, we launched coverage on CVR Energy with an Outperform rating and a US$34
target price. CVR Energy is an independent refining and nitrogen fertilizer company
located in the US Mid-Continent region.
In Europe, we published an integrated sector update where we highlight that stocks
reflect a lower oil price than the commodity price strip and we see multiple stock re-rating
potential as the companies continue to post earnings and cashflows that validate the
“cheapness” of the stock. We have also increased our target price for BG Group to
£18.25 (from £16.50) and Galp to €19.50 (from €17.40) following BG’s upgrade to the
Santos Basin (Brazil) resource potential.
In the European E&P universe, we published an analysis on the Carin India-Vedanta deal
looking at different possible scenarios. Later during the week, the Government of India
gave conditional approval to the deal under the condition that Cairn India pays 20%
royalty on its share of production. We also issued a note on San Leon Energy, following
FY2010 results, where we provide a 12 months drilling programme and liquidity analysis.
Elsewhere in the Euro E&P space, Premier Oil announced disappointing results from
Gajah Laut Utara exploration well on the Tuna Sea Block, offshore Indonesia; while
Salamander reported a 35m net oil pay discovery on the East Terrace. Lundin
Petroleum's first appraisal well on the Avaldsness discovery confirmed the extension of
the Avaldsnes field 6.5km SE of the discovery well in PL501, offshore Norway.

Global Property Insight -Drifting into summer:: Macquarie Research,

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Global real estate underperforms in June
Following a good performance in May, Global real estate securities
underperformed the global equity market over the last month, with both posting
negative total returns of -2.5% and -1.6% respectively. The only region ending in
positive territory was the South Africa market, up +2.0% in US$. Of the leading
markets, only the UK managed to see a positive return as investors sought
defensive plays against a background of concerns regarding Greek sovereign
debt default (page 33).
Capital market issuance
Activity slowed down this month, with a total of £3.5bn raised, compared to
£7.3bn in May, of which £1.9bn was for secondary issues (£1.8bn) with North
America yet again dominating, £0.2bn was for IPOs (£0.3bn) and the bond
market only saw £1.4bn (£4.1bn) of new issuance.
Recommended weightings (Summary p5-9, Details p21 )
Key Overweight markets – China, Hong Kong Landlords, Singapore Landlords,
US and Canada
Key Underweight markets – Japan, Australia, Hong Kong Developers,
Singapore Developers and New Zealand
Current global valuations suggest 6.4% upside to TP

Macquarie Research, Alert: cotton price halved in 4 months

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Alert: cotton price halved in 4 months
The cotton price has halved in four months from 243.7 UC/lb on 8 March 2011 to
132.6 UC/lb on 5 July 2011 as supply is catching up with demand. As discussed
in the 24 May 2011 Pan-Asian Hunting Stocks: Thematic developments
quarterly, we expect cotton prices to eventually stabilise around 100 UC/lb
through much of 2011/2012. However, compared with the 2005-2009 average of
61.8 UC/lb, the current price of cotton is historically high.


Raw material input cost pressures are dissipated through the cotton supply
chain. Both this and the ongoing rapid decline in spot cotton prices should allow
investors to look with more confidence at apparel retailers. As showcased in the
24 May 2011 report, we recommend Fast Retailing (9983 JP, ¥12,770,
Outperform, TP: ¥15,000, Toby Williams) for the next 2-3 years. A short-term
decline in the cotton price would benefit its competitor, but Fast’s long-term
contract style for input remains competitive at historically high cotton prices.
Please see Toby William’s latest report, the 18 April 2011 Fast Retailing: The
best and the rest.


For more on cotton fundamentals, please see Kona Haque’s latest report, the 30
June 2011: Macquarie Agri-view: A closer look at the Brazilian cane harvest.
According to the June USDA report, US cotton acres for 2011/12 are estimated
at 13.7m acres, versus the March estimate of 12.57m. This is 25.1% above the
last year level (actual). Together with weak US export sales data, the December
2011 contract cotton price is now lower at 115.52 UC/lb (5 July 2011 price).


Macquarie Research, Semiconductors: At the cycle bottom

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Semiconductors: At the cycle bottom
Event
 We provide a roadmap of how we believe the semiconductor industry cycle
will play out and its implications for stocks. We recommend a positive stance.
Impact
 The end of the downcycle: The semiconductor industry has been in a
downcycle in terms of YoY growth since March 2010. We believe YoY growth
will trough by July, then reaccelerate. As we highlight in this report, this has
historically been associated with an uptrend in semiconductor share prices.
 We note that typical signs of a cycle bottom are occurring, including:
(1) Expectational cuts in the chip sector affecting production and capex plans;
(2) “Lack of visibility” cited – a consequence of order caution that typically
anticipates subsequent order rushes and positive surprises; and (3) Moderation
in sell-side consensus expectations and ratings (which typically coincide with
or lag the share price correction, rather than serve as a lead indicator).
 The worldwide electronics supply chain was rocked earlier this year by fears
of disruptions due to the Japan earthquake in March. This led to precautionary
inventory build-up in certain areas, causing a front-loading of parts demand.
These concerns soon eased, resulting in moderated procurement as the June
quarter wore on. Worries about the macro outlook then curbed chip inventory
accumulation, eg, at non-Japanese chip vendors late in the quarter – as
signalled by cuts to foundry shipment expectations for CY3Q (eg, at TSMC).
 As a result, we expect semiconductor supply-chain inventories to become
lean in CY3Q ahead of the seasonal pick-up in electronics production. We
think this will prime the supply-chain for upside surprises and perceptions of
tighter conditions, backing a return of confidence. Elimination of remaining
supply bottlenecks (eg, of MCUs out of Renesas) and post-earthquake
production recoveries (eg, of cars) would be positive factors for chip demand.
 Expect near-term chip sector capex adjustments: Given the adjustments
to foundry production plans in CY3Q, foundry capex budgets may be trimmed.
Michael Liu suggests a 10-15% cut to TSMC’s 2011 capex budget to
~US$6.5-7.0bn from US$7.8bn. While this will be a sentiment headwind in the
near term, we believe this will pave the way for easier 2012 comparisons,
where we see sustained SPE sales growth of ~5% following ~10% growth in
2011 – backed by sustained chip industry long-term growth of ~6%.
 We expect SPE orders to bottom by CY3Q, and the sector book-to-bill ratio
to climb back above 1.0 by CY4Q. These developments should be favourable
for SPE sector share prices. Worldwide SPE orders previously peaked in 4Q
2010, then slipped 9% QoQ in the March quarter. Front-end SPE orders look
set to fall by 20-30% QoQ in the June quarter before beginning to recover.
Outlook
 We are positive on chip sector shares, and believe the correction since
February should provide attractive entry points for shares in CY3Q. We are
positive on bellwethers such as TSMC, ASE, SPIL, Tokyo Electron, Toshiba,
Samsung and Hynix. Sector valuations do not seem challenging. TSMC for
one is at 12x PER on current year estimates vs the 2005-11 mean of ~14.5x.
 We also expect DRAM spot prices to bottom soon. For an industry analysis,
kindly refer to MacqTech Thematic – Mini-correction in DRAM price (

July 7 to 11:: Forthcoming Results

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July 7, 2011
Company
Aksharchem-$
Avantel
Company
Gandhimathi App
ROCKON FIN
Company
Silver Oak India
Urja Glob
Company
Company
July 8, 2011
Company
Chowgule Steam
Goa Carbon-$
Company
HDFC
Indusind Bank
Company
Mafatlal Fin
Priyadarshini Spn
Company
Company
July 9, 2011
Company
Jolly Board
Company
Mohit Paper
Company
Pioneer Embr-$
Company
RICHIRICH
Company
Sanghi Corp
July 11, 2011
Company
Agro Dutch
ASM Tech
Bilcare-$
Company
Chemfab Alk
CMC
Essar Oil
Company
Interlink Petro
Jamna Auto
Kavveri Telecom-$
Company
Nalin Lease
Shanthi Gears
Sintex Inds
Company
SRM Ener
Suryachakra Pow

FII & DII trading activity on NSE and BSE as on 07-Jul-2011

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FII trading activity on NSE and BSE on Capital Market Segment
The following is combined FII trading data across NSE and BSE collated on the basis of trades executed by FIIs on 07-Jul-2011.
FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
CategoryDateBuy ValueSell ValueNet Value
FII07-Jul-20113034.332165.62868.71
 
Domestic Institutional Investors trading activity on NSE and BSE on Capital Market Segment
The following is combined Domestic Institutional Investors trading data across NSE and BSE collated on the basis of trades executed by Banks, DFIs, Insurance, MFs and New Pension System on 07-Jul-2011.
DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
CategoryDateBuy ValueSell ValueNet Value
DII07-Jul-20111420.571581.6-161.03
 
 
 


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FII DERIVATIVES STATISTICS FOR 07-Jul-2011

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FII DERIVATIVES STATISTICS FOR 07-Jul-2011 
 BUYSELLOPEN INTEREST AT THE END OF THE DAY 
 No. of contractsAmt in CroresNo. of contractsAmt in CroresNo. of contractsAmt in Crores 
INDEX FUTURES792372220.85571261619.8044366612683.60601.05
INDEX OPTIONS2502437118.002071555854.97117894733770.031263.03
STOCK FUTURES410261214.75429201231.41108433131151.00-16.66
STOCK OPTIONS11496336.4113003372.4425668714.73-36.03
      Total1811.38

 


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BSE, Bulk deals, 7/7/2011

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Deal DateScrip CodeCompanyClient NameDeal Type *QuantityPrice **
7/7/2011533412Aanjaneya LifecareTRISONS AGENCIESS100000365.01
7/7/2011524412Aarey DrugsSPAN TRADELINK PRIVATE LIMITEDB4800021.86
7/7/2011524412Aarey DrugsTHAORLAL ATMARAM MODIS4500021.90
7/7/2011533330ACROPET TECINDRAVARUN TRADE IMPEX PVT LTDS25154517.07
7/7/2011531761Amulya LeasRAJESH GUPTAB5875743.45
7/7/2011512535Asahi InfraPREMIER CORPORATE SECURITIES & FINVEST PVT. LTD.B7406216.55
7/7/2011512535Asahi InfraPREMIER CORPORATE SECURITIES & FINVEST PVT. LTD.S7406216.06

NSE, Bulk deals, 07-Jul-2011

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DateSymbolSecurity NameClient NameBuy / SellQuantity TradedTrade Price /
Wght. Avg.
Price
Remarks
07-Jul-2011AANJANEYAAanjaneya Lifecare LtdTRISONS AGENCIES PROP - KAMLESH MANOHAR KANUNGOSELL1,00,000365.00-
07-Jul-2011ACROPETALAcropetal Tech LtdINDRAVARUN TRADE IMPEX PVT LTDBUY1,14,70017.18-
07-Jul-2011ACROPETALAcropetal Tech LtdINDRAVARUN TRADE IMPEX PVT LTDSELL2,17,92217.06-
07-Jul-2011DELTACORPDelta Corp LimitedCROSSEAS CAPITAL SERVICES PVT. LTD.BUY12,74,072107.54-
07-Jul-2011DELTACORPDelta Corp LimitedCROSSEAS CAPITAL SERVICES PVT. LTD.SELL12,74,072107.51-
07-Jul-2011DELTACORPDelta Corp LimitedMORGAN STANLEY MAURITIUS COMPANY LIMITEDBUY27,10,000108.00-
07-Jul-2011JAGRANJagran Prakashan LimitedJAGRAN MEDIA NETWORK INVESTMENT PRIVATE LIMITEDBUY186,08,362120.95-

7/7/11 Categories Turnover (Rs. crore) Clients NRI Proprietary Trade

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Categories Turnover
(Rs. crore)
ClientsNRIProprietary
Trade DateBuySalesNetBuySalesNetBuySalesNet
7/7/112,168.622,293.06-124.441.150.780.36739.32691.8247.51
6/7/111,746.471,737.249.230.840.650.20548.87547.001.86
5/7/111,768.061,750.7617.300.730.83-0.10559.64559.71-0.06
Jul , 119,191.199,709.45-518.264.4818.11-13.633,030.072,963.9966.08
Since 1/1/11279,744.06284,987.21-5,243.15153.41144.878.5580,464.0279,876.09587.93
 

FII & DII Turnover (BSE + NSE) (Rs. crore) 7/7/11

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FII & DII Turnover (BSE + NSE)
(Rs. crore)
FIIDII
Trade DateBuySalesNetBuySalesNet
7/7/113,034.332,165.62868.711,420.571,581.60-161.03
6/7/112,076.041,855.59220.45991.951,072.18-80.23
5/7/112,666.561,841.04825.52984.371,882.86-898.49
Jul , 1113,200.519,554.463,646.055,423.697,388.08-1,964.39
Since 1/1/11   *339,431.74344,755.02-5,323.28153,116.53140,569.7012,546.83