22 April 2012

Industrials: Investment cycle lumbers along; focus on margins amid stiff competition :: Kotak Securities PDF link


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Industrials
India
Investment cycle lumbers along; focus on margins amid stiff competition. Most
variables (steel, project announcements, credit) besides cement and company feedback
(Sanghvi, Voltamp, Voltas, consumer durable dealers) suggest a weak capex
environment. We present our 4QFY12 expectations but believe the focus would be on
margins incrementally, as intense competition persists in a weak environment. Retain
REDUCE on L&T, Thermax and Cummins; Sell on BHEL and ADD on CRG/Voltas.

HCL TECHNOLOGIES LTD (HCLT) : ACCUMULATE TARGET PRICE: RS.516 :: Kotak Securities PDF link

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HCL TECHNOLOGIES LTD (HCLT)
PRICE: RS.494 RECOMMENDATION: ACCUMULATE
TARGET  PRICE: RS.516 FY13E P/E: 13.1X
HCLT's operating results were almost in line with expectations. The 2.9%
(4.9% in 2Q) volume growth in Software Services was in line with
expectations and was better than the 1.9% de-growth reported by Infosys.
HCLT has achieved consistency in revenues, especially in Software Services,
over the past few quarters. However, de-growth in BFSI (4.1%) and US
geography (1.1%), in CC terms, is of some concern. Average realizations
were stable on a CC basis. EBIDTA margins were flat QoQ and in line with
estimates. There was a reduction in employee strength on a QoQ basis,
though.
Management has indicated continuing headwinds for the industry in the
form of an uncertain macro which is affecting decision-making. The
structural change in the US BFSI sector is leading to vendor churn and
squeeze on margins for incumbents, according to the management. HCLT's
focus on the churn market has yielded results with record wins of $1.5bn in
3Q and $2.5bn in past 6 months, mostly from F500 / G2000 companies. The
company intends to focus on execution over the next 1-2 quarters. It added
52 new clients, which is also encouraging.
The employee strength has reduced QoQ and this is of some concern. We
understand that, the company will be looking at more laterals to support
future growth. The potential reduction in utilization rates may restrict
margin expansion in the near future even as the company focuses on cost
optimization and higher off-shore content.
We have tweaked our earnings estimates for FY12 and FY13. Rupee is
expected to average 50 / USD in FY13. EPS is expected to be Rs.32.2 in FY12
(Rs.32.3 earlier) and Rs.37.8 in FY13 post ESOP-related charges. We value the
stock on FY13 earnings and accord valuations at a slight discount to those
of Infosys, due to the relatively lower margins. Consequently, we arrive at a
PT of Rs.516 (Rs.499). The stock has run up post our previous BUY rating and
we thus, downgrade the stock to ACCUMULATE. A sharp appreciation in the
rupee against various currencies and a delay in recovery in major user
economies remain the key concerns.

Ambuja Cements, Hold ; Target :Rs 162 ::ICICI Securities, PDF link

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http://content.icicidirect.com/mailimages/ICICIdirect_AmbujaCement_Q1CY12.pdf


M a r g i n   i m p r o v e s   s e q u e n t ia l l y   o n   c o s t   s a v i n g s …
Ambuja Cement reported its Q1CY12 results, which were in line with our
estimates on the revenue front as net sales surged 19.3% YoY to | 2633
crore (I-direct estimate: ~| 2781 crore). The EBITDA increased ~22%
YoY to | 744.5 crore (I-direct estimate: ~| 693.5 core) mainly due to
growth in cement sales volumes by 7.5% YoY to ~6.1 million tonnes
(MT) and realisation by 11% YoY to ~4327/tonne respectively. Total cost
increased by 10.1% YoY to | 3104/tonne, mainly due to P&F and raw
material cost, which rose 21% YoY and 19% YoY to
| 1030/tonne and | 305/tonne, respectively. However, it reported PAT of
| 312 crore mainly hit by exceptional item of | 279 crore raised due to a
change in the depreciation policy.  We expect volume growth of ~6%
CAGR over CY11-13E to 23.4 MT. We assume realisation growth of
~5-6% YoY each in CY12E and CY13E.
ƒ Cement volume up ~7.5% YoY, realisation up ~11% YoY
Sales volumes increased ~7.5% YoY (~16% QoQ) to ~6.1 MTPA in
Q1CY12 on account of a seasonal pick-up in demand from
construction activities. Realisation improved ~11% YoY to
| 4327/tonne due to a rise in cement prices during the quarter but
declined by ~2% on a QoQ basis.  
ƒ EBITDA/tonne up ~13% YoY (~53% QoQ)
EBITDA/tonne increased ~13% YoY to | 1223/tonne supported by a
rise in realisation. Sequentially, the EBITDA/tonne surged ~53%
YoY backed by ~14% dip in total cost/tonne.
V a l u a t i o n
At the CMP of | 165, the stock is trading at 17x and 16x its CY12E and
CY13E earnings, respectively. The stock is trading at an EV/EBITDA of
9.4x and 7.9x of CY12E and CY13E EBITDA, respectively. On an EV/tonne
basis, the stock is trading at $161 and $152 its CY12E and CY13E
capacities, respectively. We are maintaining our target price of
| 162 on the stock with a HOLD rating. We have arrived at the target price
on the basis of valuation of $150/tonne at CY13E capacity of 27 MTPA.

Banks/Financial Institutions: Sanction pipeline gets weaker :: Kotak Securities PDF link


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Banks/Financial Institutions
India
Sanction pipeline gets weaker. The loan growth environment continues to point to a
weak outlook for FY2013E as fresh sanctions seems to have declined by nearly 60% yoy
for 9MFY12 while the number of projects sanctioned declined 27% yoy. Government’s
inability to address the current impasse on many issues (telecom, mining, power, land
acquisition etc.) is leading to a non-conducive investment climate which has been further
accentuated by high interest rates. We may need to tweak our loan growth downwards
from our current estimates of 15-16% CAGR if the underlying environment prolongs.

Coal India: FSAs will be inked, with a 'penalty' of 0.01% :: Kotak Securities PDF link


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Coal India (COAL)
Metals & Mining
FSAs will be inked, with a ‘penalty’ of 0.01%. As per media reports, the board of
Coal India (CIL) has agreed to sign fuel supply agreements (FSAs) at 80% commitment,
though with a meager penalty of 0.01% (with no penalty in the first three years) of the
value of shortfall. As we highlighted previously, an insufficient penalty clause reduces
the efficacy of an FSA, making it lopsided in favor of CIL. We maintain our positive
stance on CIL and believe the board decision will augur well for investor sentiment
clouded by uncertainty surrounding committed fuel supply agreements.

Metals & Mining: A step closer to restart of mining in Karnataka, moderate positive for JSW :: Kotak Securities PDF link

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Metals & Mining: A step closer to restart of mining in Karnataka, moderate
positive for JSW
` SC provides "in-principle" approval to restart mining in Category 'A' mines
` Implications for companies: Modest positive for JSW Steel, negative for Sesa
Goa

Buy MindTree; Target : Rs 591 ::ICICI Securities, PDF link

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http://www.icicidirect.com/mailimages/ICICIdirect_MindTree_Q4FY12.pdf


G o o d   q u a r t e r ;   u p g r a d i n g   t o   B U Y … .
MindTree reported Q4 revenue/earnings in line/above our estimates,
respectively. US$ revenues grew 1.2% QoQ vs. our 0.9% QoQ growth
estimate while rupee revenues came in line with 1.2% QoQ growth
estimate. Sequentially, product engineering services revenues were flat led
by ramp-downs on discretionary spends for technology customers while
financial services dragged down IT services growth. Management expects
to beat FY13E industry average (11-14% Nasscom guidance) growth led by
discretionary services demand pick-up in back-half of the year. Noticeably,
Q1, Q2 could be muted led by decision making delays for financial services
customers & discretionary projects. This was precisely our argument for
HOLD rating earlier & likely gets priced in subsequent to management
commentary. Consequently, we raise MindTree to BUY applying 1x PE/G on
FY13E earnings growth of 10%.

Infosys: Disappointing; no apparent positives :: Kotak Securities PDF link

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Infosys: Disappointing; no apparent positives
` 4QFY12 - weak on all counts
` 'No guidance' may have been better than FY2013E guidance
` Infosys performance - a mix of company specific and broader industry
challenges
` Prepare for more volatility, ADD rating retained only on inexpensive
valuations

INFOTECH ENTERPRISES: : BUY TARGET PRICE: RS.183 :: Kotak Securities PDF link

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INFOTECH ENTERPRISES LTD (IEL)
PRICE: RS.167 RECOMMENDATION: BUY
TARGET  PRICE: RS.183 FY13E P/E: 8.7X
Infotech's results were marginally ahead of expectations. The fall in EBIDTA
was lower than expected, while revenues matched our estimates. The
average realisations were marginally higher QoQ in the ENGG business. The
management has indicated that, the order booking is robust, which should
support revenue growth in FY13. However, we believe that, the overall
uncertainties in the macro environment may restrict significant
improvement in revenue growth rates. We tweak our earnings estimates for
FY13. FY13E earnings now stand at Rs.19.2 per share (Rs.17.6 earlier). The
improvement is largely on the back of expectations of higher EBIDTA
margins and higher share of profits from associates. We tweak our PT to
Rs.183 (v/s Rs.163), based on FY13 estimates, in line with the higher
earnings estimates. At our target price, FY13 estimates will be discounted
by about 10x. We believe this discount to larger peers is justified due to the
lower margins. We are also concerned about the relatively high proportion
of project-based revenues (in N&CE) and the overall macro uncertainty. We
maintain BUY, purely based on valuations and continue to prefer the larger
peers. Expected cash of Rs.45 per share by FY13 end, may provide cushion to
the stock.

Technicals -Punj Lloyd, Sterling Biotech, Bajaj Auto, Zydus Wellness, Nakoda, Ganesh Housing :: Business Line

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Can I buy Punj Lloyd at current price? I can wait for three years from now on. Please advise.
Ramachandra
Punj Lloyd (Rs 55): Punj Lloyd is in the bear's stranglehold since January 2008. The stock hit a life-time low at Rs 37 in December 2011, and is currently in a nascent uptrend. This rally has not progressed sufficiently to infuse confidence.
The stock is likely to face resistance at Rs 77 and Rs 100 in the months ahead. The stock needs to move above Rs 100 to indicate that a sustainable medium-term uptrend is in progress.
Investors with a low risk-appetite can, therefore, wait for a strong weekly close above Rs 100 before buying the stock. The more adventurous can accumulate the stock at current levels with stop at Rs 40.
The stock faces strong long-term resistance at Rs 200 and then at Rs 250. It is quite likely that the stock vacillates in the range between Rs 50 and Rs 250 over the next couple of years.

Mindtree: Steady quarter; re-rating round the corner :: Kotak Securities PDF link


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Mindtree (MTCL)
Technology
Steady quarter; re-rating round the corner. MindTree delivered yet another steady
quarter; even as revenue growth was modest, solid margin expansion drove doubledigit qoq net income growth. The quarter was not a blowout by any means but a stock
trading at ~8X 12-month forward PE does not need one. We remain confident of the
company sustaining steady performance and expect re-rating to follow soon. We
increase our FY2013E EPS estimate to Rs59 and raise our TP to Rs590/share.
Conservative assumptions lend a lot of comfort to our estimates and ADD rating.

Buy Development Credit Bank (DCB) Target :Rs 60 ::ICICI Securities, PDF link

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http://www.icicidirect.com/mailimages/ICICIdirect_DevelopmentCreditBank_Q4FY12.pdf


A   p o s i t i v e   s u r p r i s e …
DCB’s Q4FY12 profit at | 17.3 crore (grew 52% YoY, 11% QoQ) was 9%
above our estimates mainly due to lower provisioning expenses (down by
18% YoY) and higher-than-expected loan growth of 24% YoY to | 5284
crore. However, NII at | 57 crore declined 4% QoQ owing to a 25 bps
sequential fall in NIM. Stable yield and a 41 bps rise in cost of funds led to
a decline in NIM during the quarter. The bank raised | 94 crore through
QIP and | 98.75 crore through preferential allotment, which resulted into
Tier 1 capital rising to 13.8% from 11.2% in Q3FY12. Total CAR stands at
15.4% as on Q4FY12.
We have revised business growth higher to 22% in FY13E from 17%
earlier and expect PAT to grow at 29% CAGR over FY12-14E.
ƒ Credit growth surprises positively
After plunging sharply from 23.5% YoY growth in FY11 to 8.9% YoY
growth in Q3FY12, advances increased by | 978 crore to | 5284
crore in Q4FY12 recording growth of 24% YoY. Meeting the priority
sector target was the major reason for such a sharp rise in loans
during Q4FY12. The agricultural loan book rose strongly by 92%
QoQ to | 801 crore. The corporate book also witnessed healthy 34%
QoQ growth to | 1194 crore. However, the retail portfolio grew by a
moderate 8% QoQ to | 1853 crore. We are revising our FY13E credit
growth target from 20% to 22%.
ƒ Asset quality improves sharply
Asset quality witnessed a sharp improvement with absolute GNPA
declining by | 14.6 crore sequentially to | 242 crore and NNPA
declining by | 14.1 crore to | 30 crore. The NNPA ratio at 0.6% was
the lowest in the last few quarters. The provision coverage ratio
stands at 91% as against 87% in Q3FY12 and Q4FY11.
V a l u a t i o n
At the CMP of | 50, the stock is trading at 1.3x its FY14E ABV. With an
improvement in loan growth and asset quality and margins of ~3.0-3.1%,
we expect NII and profit to grow at 22% and 29% CAGR to | 342 crore
and | 93 crore, respectively, over FY12-14E. We maintain our target price
of | 60 (1.6x FY14E ABV) from a 12-15 months perspective

Will the repo rate cut bring down your EMI? :: Business Line

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If you have been stalling your asset purchases only because the interest rates were too high, the stars are aligning in your favour!
“Not even hardcore economists would follow the Reserve Bank (RBI) as keenly as me,” quipped my friend, a home loan borrower.
She is employed with a retail multi-national company, but would always say she worked for a bank.
That was because the bank (from which she got her loan) would take away a chunk of her salary towards EMIs each month!
“Did you know that in the past two years, the RBI has hiked repo rates 13 times?” she asked.
The pain of having serviced increasing EMIs for the last couple of years was obvious in her eyes. The story of every home loan borrower's life, I thought!
But with the larger-than-expected 50 basis point cut in the repo rate last week, my friend is hopeful that her EMI would come down. Will the benefits be made available only to new borrowers or will it be passed on to existing customers?
Here's a quick lowdown on what you can expect if you already are a borrower or plan on becoming one soon.

EXISTING BORROWERS

For starters, RBI's decision to cut rates is a definite positive if you are already servicing a floating rate loan. But just how much of a ‘positive' it is, remains to be seen.
For one, most loans are pegged to banks' base rate . So, your EMIs will come down only when banks reduce their base rate.
And that could take a while , as most banks will look at reducing their deposit rates first to bring down the cost of funds.
So, while you can expect your EMIs to get cheaper, you will have to wait. Even then, there's a possibility that banks would initially lower the rates only on certain loan products.
When and by how much you benefit will depend on which bank you borrowed from.
While the SBI Chairman has gone on record saying that his bank would do a comprehensive cut in lending rates, others such as Vijaya Bank and Indian Overseas Bank have said that they could take some time to follow suit.
IDBI Bank, on the other hand, became the first lender to actually announce a cut in its rates. The bank has announced a 25 basis points cut in its base rate to 10.50 per cent effective from April 20.
ICICI Bank, a day later, announced a 25 basis points reduction in its base rate (effective April 23). PNB and Bank of Maharashtra too have reduced their base rates by 25 bps and 10 bps respectively. Most banks will have to huddle over an asset-liability committee before they decide on their future moves. So, whichever bank you have borrowed from, look out for announcements in this regard for more clarity.

MORE POWER IN YOUR HANDS

But what happens if your EMIs do not come down?
Fret not, for, without having to pay any penalty to your bank, you can now borrow from another bank offering a lower interest rate.
RBI has disallowed banks from levying foreclosure charges or pre-payment penalties on home loans on a floating interest rate. You can also consider a loan conversion option with your bank.
However, do note that you will stand to gain from the repo rate cut only if your loan is floating. Fixed loans wouldn't see any drop in their EMIs by the virtue of their fixed nature.

NEW BORROWERS

If you have been stalling your asset purchases (home, car, etc) only because the interest rates were too high, the stars are aligning in your favour! New borrowers will definitely stand to benefit from this move. A fortnight before the repo rate cut, IDBI Bank and Canara Bank had slashed floating home loan rates by 25-175 basis points for new sanction across slabs.
Look out for more such competitive loan products in the months to come. Needless to say, it will make a lot more sense to opt for a floating rate loan now.

April 23: Pivotals - Infosys, SBI, Reliance Industries, Tata Steel:: Business Line

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Reliance Industries (Rs 731.4)  

The stock fell 2.6 per cent for the week and is hovering just above its immediate key support at Rs 723 with a negative bias. Short-term trend is down and will remain so as long as the stock trades below the crucial level of Rs 800. RIL is hovering way below its 50 and 200-day moving averages. Short-term traders can initiate fresh short positions once the stock declines below 723 levels while maintaining a stop at this level. Downside targets will be Rs 700 and Rs 690. Next important medium-term support is at Rs 675.
Resistance for the week ahead is pegged at Rs 755. A move above this level will take the stock higher to Rs 770. Subsequent resistances are at Rs 783 and Rs 800
Infosys (Rs 2,406.2)
Last week the stock was choppy. After testing its long-term support band between Rs 2,360 and Rs 2,380 it bounced up to close on a flat note. The stock's daily indicators are still featuring in the oversold levels. It is testing the lower boundary of the daily Bollinger Bands which implies that it could be oversold. We restate our prior view that short-term traders can initiate fresh long positions with stop at Rs 2,360. Targets are Rs 2,480 and Rs 2,540. Key resistances above Rs 2,540 are at Rs 2,580 and Rs 2,670.
Conversely, an emphatic decline below Rs 2,360 will strengthen the medium-term bearish trend. A decline to Rs 2,270 and Rs 2,200 is possible in the medium-term.
State Bank of India (Rs 2,260.4)
In line with our expectation, the stock climbed higher and added 2 per cent last week. As long as the stock trades above Rs 2,195, short-term traders can consider holding their long positions with stop at the same level. The stock can rally to Rs 2,323 and Rs 2,370. However, decline below Rs 2,195 will diminish the near-term bullish momentum and pull the stock down to Rs 2,130. A further fall below Rs 2,130 will drag the stock down to Rs 2,050 and Rs 2,000.
On the upside, the stock has significant long-term resistance in the band between Rs 2,450 and Rs 2,500. Break through of this band will reinforce its medium-term uptrend. The stock can then trend to Rs 2,600 and Rs 2,700 levels.
Tata Steel (Rs 470.4)
Tata Steel gradually rallied 4.6 per cent last week. It is currently testing a key resistance at Rs 470. Short-term traders can initiate fresh long positions on a strong jump above Rs 470 with stop-loss at the same level. Upside targets are Rs 490 and Rs 500. Conclusive break out above Rs 500 is needed to accelerate the stock higher to Rs 520 and Rs 540 in the medium-term. Immediate key supports are pegged at Rs 454 and Rs 440. A tumble below Rs 440 can drag the stock down to Rs 420 or Rs 400 in the medium-term.

Pockets of outperformance in automobile sales :: Business Line

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After two successive years of 26 per cent year-on-year volume growth in each, growth in the domestic auto industry has moderated in 2011-12. Thanks to high interest rates and the general economic slowdown, the industry (passenger vehicles, commercial vehicles, three- and two-wheelers put together) has grown only by 12 per cent.
But few sub-segments such as utility vehicles (UVs), light commercial vehicles (LCV goods carriers) and scooters have put up a better-than-industry performance. While utility vehicle sales in the domestic market have grown by 16.5 per cent, LCV goods carriers and scooters have shown a Y-o-Y volume growth of 30 per cent and 24 per cent respectively in the April 2011-March 2012 period.
What has triggered the out-performance in these segments?

DIESEL MODELS DRIVE UV GROWTH

With the gap between petrol and diesel prices widening during the year, customer preference clearly shifted to diesel vehicles. This is evident from the fact that even as demand for cars slowed considerably, diesel models, among cars, continued to do well. Hence, the availability of many diesel models among UVs could have been a contributing factor. Mahindra and Mahindra (Bolero, Scorpio, Xylo, XUV 500), the market leader in the UV segment, saw a healthy 19.5 per cent in volume growth last year. The company ‘s market share improved from 53.5 per cent in 2010-11 to 55 per cent.
Another reason for healthy growth in this segment has been launches/new arrivals. Force One from Force Motors, Aria from Tata Motors, Santa Fe from Hyundai as well as the XUV 500 were launched during this period. Other models that saw good off takes include the Tavera from General Motors, Toyota Innova, Tata Sumo and the Skoda Yeti.

LCVS NON-CYCLICAL

Among CVs, LCV goods carriers have yet again proved to defy the cyclicality witnessed in the sales of heavier trucks (30 per cent vis-à-visthe 8.8 per cent growth ). One reason for the good show could be that, given their lower cost, these vehicles may not be as sensitive to interest rate hikes as larger trucks and the proportion of financed purchases too may be less. Also, the demand for small CVs such as the Ace, Ape, Gio, Genio , Maxximo and Dost have been strong. This stands testimony to the catching on of the ‘hub and spoke model' of transportation in India, where such small vehicles are used for last mile connectivity within the cities and towns.

SCOOTERS GET POPULAR

Although motor cycles still remain the largest sub-segment in terms of volumes among two-wheelers (consisting scooters, motorcycles, mopeds), scooters have clearly been gaining popularity in the last few years. The 2011-12 performance is a continuation of this trend. From about 79.5 per cent in 2007-08, the share of motorcycles in total two-wheeler volumes has steadily declined to 75 per cent now. On the other hand, the share of scooters has increased from 14.5 per cent to 19 per cent during this period. Expansion of product portfolio with the entry of the Mahindras ( Duro, Rodeo, Flyte, Kine) in the last few years, coupled with a deepening of footprint by Honda, has been the reason for the same.

Sizzling Stocks - Aurobindo Pharma, Jamna Auto Industries :: Business Line

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Sizzling Stocks - Aurobindo Pharma (Rs 133.1)


Aurobindo Pharma conclusively broke out of a key resistance level at Rs 120 by surging 8 per cent on April 16, which it was testing from early February this year. This up move has also penetrated the stock's 50 and 200-day moving averages. The stock's bullish momentum prolongs and it gained 14 per cent for the week. It has been on a medium-term uptrend from its December 2011 low of Rs 83. The daily relative strength index is hovering in the bullish zone and the weekly RSI is on the brink of entering in to this zone from the neutral region, which implies bullish momentum.
The stock is likely to face resistance at Rs 136 in the near future. A decisive break through after testing this resistance will take the stock higher to Rs 150 and to Rs 165 in the medium-term. Immediate support is at Rs 120 and the subsequent one is placed at Rs 109. A fall below the second support will mar the stock's medium-term uptrend and pull it lower to Rs 97.

  
Jamna Auto Industries (Rs 171.5)
The stock skyrocketed 38 per cent, breaking through key resistances. But it is currently testing key long-term resistance at Rs 174. Its daily as well as weekly indicators are featuring in the overbought territory, signalling a potential near-term correction in the stock price. A downward reversal from the long-term resistance level will pull the stock down to Rs 156 and then to Rs 140.
The stock's medium-term uptrend that has been in place since last December's low of Rs 75 will stay in place as long as the stock trades above Rs 130. A fall below this level will mitigate the uptrend and pull the stock down to Rs 115 or Rs 100 in the medium-term. On the upside, an emphatic rally above Rs 174 will take the stock to Rs 181 and to new highs in the ensuing weeks.

Oberoi Realty : High visibility, low-cost land bank: Prabhudas Lilladher,

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 High visibility, low-cost land bank: With 82% of its gross NAV emanating from
premium land parcels of Goregaon and Worli in Mumbai, Oberoi Realty is set
apart, firstly, on account of high visibility of its land bank and secondly on
account of its low cost, with a large majority of acquisitions having taken place
pre-2005. Nearly 50% of the company’s ~20 msf land bank is currently in the
execution stage. For majority of the remaining land bank too, development
visibility is fairly high on account of strong project locations.
 Picture-perfect balance sheet, strong cash generation: Generating positive cash
flows consistently since FY08, coupled with a prudent land acquisition strategy,
has resulted in a picture-perfect, zero-debt balance sheet with a cash balance of
~Rs14.4bn (PLe) as on March 2012. Further, we expect strong cash flow
generation for Oberoi in the next few years, given the company’s lucrative
residential land bank, large part of which is expected to be monetized in the
next five years.
 Project acquisitions & new launches – A trigger: On account of the company’s
strong cash position, coupled with a limited development pipeline of 5-6 years,
project acquisitions at attractive valuations will be an important trigger for the
stock. Besides, the awaited launches of Oberoi’s Worli & Mulund project will
also prove to be positive on sentiments.
 Valuations: Two premium locations i.e. Goregaon and Worli, account for ~82%
of the company’s NAV. High visiblity at both these locations, coupled with a
strong balance sheet, gives us greater confidence in our NAV estimates. While
Residential contributes ~44% of the gross NAV, the annuity portfolio (albeit
small currently), is expected to scale up significantly in the next few years and
contribute to the rest of ~54% of our Gross NAV estimates. We recommend
‘Accumulate’, with a target price of Rs309, at no dicsount to our NAV of Rs309.

MotoGaze–April, 2012 ::ICICI Securities, PDF link

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http://content.icicidirect.com/mailimages/ICICIdirect_Motogaze_April2012.pdf


Marching ahead in March!!!
PVs end year on a high; two-wheelers cooling off…
March witnessed strong volumes for most OEMs like Tata Motors (up
20.5%YoY), M&M (up 25.3% YoY) and Ashok Leyland (up 17.4% YoY).
The PV segment rebounded after a tough couple of quarters clocking
16.8% YoY growth with market leader Maruti and Tata Motors clocking
highest ever sales at ~1.25 lakh and ~38,000 units, respectively. However,
these include some amount of dealer inventory push as well. Two-wheeler
sales increased 10.3% YoY but volumes for listed players like Hero
MotoCorp, Bajaj Auto and TVS remained subdued at 2.4%, 9.6% and -
5.7%, respectively. Commercial vehicles (up 13.5% YoY) continued to be
driven by strong LCV sales (up 27.6% YoY). The M&HCV segment
witnessed marginal de-growth of 0.8% YoY on a high base of March FY11
with Tata Motors witnessing 7.5% YoY de-growth and Ashok Leyland
sales remaining flat YoY. We expect probable interest cuts coupled with a
lower base to result in higher growth for the PV segment in FY13E (~14-
16%) while the two wheeler space would be impacted by higher base
effect (I-direct estimate: 10-12%) and growth in the segment would be
primarily led by unlisted players like HMSI.
SIAM forecast for FY13E…
The Society of Indian Automobile Manufacturers (SIAM) has projected 10-
12% growth for the automobile industry in FY13E. The passenger vehicle
segment, which posted sluggish 6.1% YoY growth in FY12, is expected to
return to double-digit growth (10-12%). However, the two wheeler space,
which registered buoyant 15.7% growth  in  the current  fiscal, is  forecasted
to grow lower at 11-13%. The three-wheeler space is projected to grow at
5-7%. In the commercial space, growth is expected to be 9-11% for FY13E
primarily led by LCV growth of 14-16%. The M&HCV segment is expected
to grow at 5-7%.
Global commodities outlook…
The global commodity basket has witnessed a mixed trend with
commodities like steel and natural rubber (RSS-4) moving up 4.6% MoM
and 3.0% MoM, respectively, while aluminium has remained flat
sequentially. Natural rubber prices, which had remained above | 200/kg
for most of FY12, have shown signs of cooling off and are currently at
~| 193/kg. The season of tapping is generally slow in Q4 so prices should
remain at these levels and should later trend downwards with fresh
supplies kicking in. In our view, we believe global commodity basket
prices will remain at similar levels or even trend downwards for some
commodities going forward. However, a surge in crude oil prices to
~$120/barrel remains a concern.
Industry outlook
We maintain our view of ~11-13% volume growth in FY13E and remain
optimistic on the growth prospects of the sector. Moreover, on the
commodity  front, we  expect  global  commodity  prices  to  remain  at  similar
levels although some commodities like natural rubber could trend
downwards, going ahead. The surge in crude oil prices to ~$120/barrel
level could result in further hikes in petrol prices. On an index
performance basis, the BSE Auto index has heavily outperformed the BSE
Sensex  with  YoY  return  of  8.5%  vs. -10.5% during the same period.
Among our I-direct auto-coverage, we remain bullish on our ancillary
coverage universe as the OEM coverage universe seems to have rallied
significantly. We find favourable valuation in Amara Raja Batteries,
Balkrishna Industries and Bharat Forge.

HCL Technologies: Buy :: Business Line

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Strong deal momentum, healthy large-client additions and a broad-based growth across segments are key positives for the company.
Top tier IT companies have delivered very different growth rates in the last 12-18 months.
HCL Technologies (HCL) has been a consistent performer in this period, outpacing peers such as Infosys and Wipro in a variety of aspects.
Investors with a one-two year perspective can consider buying the stock as it enjoys potentially sound business prospects and is still available at attractive valuation levels.
Strong deal momentum, healthy large-client additions, robust performance in key operating factors and a broad-based growth across segments over the past couple of years are key positives for the company.
A tight rein over costs has also helped the company maintain margins. HCL has also been a beneficiary of vendor rationalisation undertaken by large clients overseas.
At Rs 504, the share trades at 14 times its likely per share earnings for FY13. This is at a discount to peers such as Infosys and TCS, making for a reasonably attractive entry point.
In the nine months of FY-12, the company saw its revenues rise by 28.8 per cent over the same period in FY-11 to Rs 15112.4 crore, while net profits increased by 41.5 per cent to Rs 1672.1 crore.
On both counts, the growth rates are among the highest in the industry.

HEALTHY DEAL PIPELINE

HCL has a healthy pipeline of deals, won over the past couple of quarters. In the last six months, the company has won deals worth $2.5 billion, giving it substantial revenue visibility in a tough macroeconomic scenario.
Large-client additions have come at a steady pace for the company. Over the past one year, three customers have been added in the $100 million category, two in the $50 million band and 10 in the $30-40 million buckets.
This clearly indicates that the company has been able to win a fair share of large deals on offer and is even getting past Indian peers in the process. Also, in cases of vendor consolidation by large clients, HCL has more often than not been the winner.
The company's repeat business percentage too has been rising steadily over the past four quarters and is now at 94.9 per cent. This means that HCL has been able to mine existing clients quite well.
The company's largest vertical — manufacturing (29 per cent of revenues), has been growing at a pace that is faster than the company's revenue growth rate over the past year.

BROAD-BASED GROWTH

Financial services (24 per cent of revenues) has expanded at or marginally lower than the overall rate. Smaller verticals such as healthcare, energy and utilities too have grown at a faster pace than the overall rate.
From a service-mix point of view, applications and infrastructure services and, to some extent, engineering-services have grown at a fair pace.
Taken together, these points suggest that HCL's growth has a good blend to it.
But the company has not made significant strides in tapping into discretionary spends of clients in high-margin areas such as enterprise applications that are growing at a pace slower than the overall rate. In the recent quarter, HCL has made a start and it remains to be seen if the momentum will be sustained as it is important from a margin expansion point of view.

OPERATIONAL POSITIVES

HCL has reduced the proportion of revenues spent as direct cost (including wages) from 68.3 per cent in the nine months ended FY-11 to 67.6 per cent so far this fiscal.
Also, selling expenses, as a proportion of sales, have reduced from 15.7 percent to 14.7 percent.
The company's proportion of revenues from offshore locations has risen steadily to 43.8 percent, thus optimising cost. This, together with a consistently higher utilisation of over 80 percent, has enabled the company to increase its operating margins.
Attrition in the company, though reducing, is still high at 15 per cent. Any wage hikes to stem this would hamper margins.
HCL's BPO division has returned to profitability at the operational level. Being a low-margin business, it remains to be seen if this will be sustained.

52-WEEK FLOP: BHEL :: Business Line

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The stock of power equipment maker BHEL was among the worst hit in the large-cap space, in the last one year. Falling 41 per cent over this period, BHEL had a tough time dealing with poor order inflows. This was the key factor affecting stock's performance.
In 2009, BHEL's almost-monopoly status was put to serious test by active participation by Chinese players in the Indian boiler, turbine and power equipment space. This was a result of a sharp pick-up in private participation in the power utility space.
Private power producers such as Lanco Infratech, Reliance Power and Adani Power preferred foreign players who offered cheaper equipments. Soon local players also entered the field. This resulted in BHEL conceding market share.
Robust order activity by both private players and state utilities still ensured that BHEL got a pie of the order inflows. But post 2011, concerns such as availability and pricing of coal and not-so-favourable power purchase agreement clauses resulted in a dip in new power projects. This was the key reason behind BHEL's poor order inflow status in FY12.
BHEL ended FY-12 with a 14 per cent increase in net profits. Order inflows at Rs 22,100 crore, stood reduced to a third of previous year's inflows.

JK Tyre: Buy :: Business Line

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Good replacement demand and improving sale of truck and bus radials promise good prospects for the company.
Softening natural rubber prices, expected pick-up in replacement demand and improving sale of truck and bus radials promise good prospects for JK Tyre and Industries (JKT), a company with about 20 per cent market share in the Indian tyre industry.
Investors with a two-to-three year perspective can buy the stock. At Rs 89, it trades at a price to earnings ratio of about 5 times its estimated FY13 earnings. This is at a discount to bigger players such as Apollo Tyres and MRF.

RAW MATERIAL PRICES EASE

Raw material costs account for 70 per cent of the turnover for tyre companies. Of this, 45-50 per cent is natural rubber cost. Beginning December 2009, domestic rubber prices marched upwards.
By April 2011 prices of RSS 4 variety used by the tyre industry had peaked at around Rs 240 a kg.
While international prices at certain times during this period were relatively attractive, companies were not able to take advantage due to high import duties as well as rupee depreciation.
Price of crude oil from which raw materials such as synthetic rubber and nylon tyre cord fabric are derived too had moved up last year.
The tough times are now seen changing for the better. Rubber prices have fallen off its peak in the last few months and is hovering around Rs 190-200 a kg currently.
With the lag effect of previously high input prices beginning to fade away, operating margins, which had taken a hit so far, will expand.
Already, operating margins for JKT in the third quarter (October-December 2011) have improved to 5 per cent from 2 per cent in the second quarter.

REPLACEMENT DEMAND

Considering that tyres are replaced every two years, robust auto sales in 2009-10 and 2010-11 will lead to replacement demand for those vehicles now. Higher margin-yielding replacement market sales bring in more than half the revenues for any tyre manufacturer.
Hence, the expected pick-up in replacement demand is a positive for JKT. Softening of interest rates is likely to spur new vehicle sales as well.
So, top-line growth will also be supported by higher volume growth in the current year .
The company has recently added Bharat Benz (Daimler India CVs) to its clientele. Daimler will launch its trucks in mid-2012.
JKT will benefit from the rapidly improving radialisation levels for CVs in addition. From about 14 per cent two years ago, radialisation in CVs stands at 20-25 per cent currently.
With fast improving highway infrastructure, ban on overloading of vehicles and the move towards a hub and spoke model that will encourage use of radial tyres, this is expected to go up further.
These tyres offer better fuel efficiency, have longer life and turn out to be cheaper in the long run. Its Chennai plant for radial tyres has gone on-stream in February 2012 and is expected to reach maximum capacity in six months time.
The additional volumes from this plant will help absorb costs better and will lower the impact of the high interest cost (on borrowings for setting up the same) on its profitability.

FINANCIALS

For the quarter ended December 2011, net sales grew by 21 per cent year-on-year to Rs 1418 crore. JKT recorded a loss of Rs 21 crore in the third quarter.
In addition to high input and interest costs, its profitability took a hit due to marked to market loss on foreign currency transactions. Adjusting for this, profits grew by 44 per cent to Rs 17 crore. Its debt/equity is about two times.

Online insurance: Important dos to buy the RIGHT policy

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Carefully observe these important steps before you hit 'buy' to buy an online term insurance policy.
A fast paced lifestyle, juggling work and life across multiple time zones, availability of various products online including life insurance is being perceived as a boon. This concept has caught the attention of the young generation due to the convenience it offers and not to forget the pricing which is almost 30 per cent cheaper due to the absence of agent's commission.
Does that mean identifying the right insurance product online is as simple as signing the policy document suggested by your insurance agent? An online term policy of Rs 1 crore for a 30-year-old male with similar features may be offered at a premium ranging between approximately Rs 7,000 to Rs 20,000. Which one would you opt for?
The first instinct would be to go with the cheapest plan but is that all that needs to be taken into consideration while identifying the right plan? There are certain key factors that need to be kept in mind, and with a little online research it should be a breeze.

52-WEEK BLOCKBUSTER: STRIDES ARCOLAB :: Business Line

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Indraprastha Gas: Buy:: Business Line

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The company may have leeway to adjust marketing margin to mitigate potential dip in network tariff and compression charge.
Investors with a high-risk appetite can consider taking exposure to the stock of Indraprastha Gas, the monopoly city gas distributor in Delhi. The stock took a deep cut (around 40 per cent) on April 9-10 and has slipped further since then. This followed the downstream regulator PNGRB's directive to the company to slash network tariff and compression charge by around 60 per cent — with retrospective effect from April 2008.
The market reaction was on expected lines. The proposed cuts would result in the company potentially facing losses on its operations. The retrospective effect would entail payout of around Rs 1,500 crore and erode its net worth. Indraprastha Gas has sought relief from the Delhi High Court. Till the case reaches conclusion, it will be business-as-usual for the company, and tariff and rates will not be cut.
Much hinges on the outcome of the legal process. If PNGRB's directive is upheld by the Courts, there could be more pain in store for the Indraprastha Gas stock. A positive verdict for the company, on the other hand, could see the stock bounce back and recoup losses.
Our buy recommendation on Indraprastha Gas is based on the prevailing attractive valuation of the stock, and optimism about at least partial relief to the company.
Indraprastha Gas currently seems to have leeway to adjust marketing margin to mitigate potential dip in network tariff and compression charge. But for recent regulatory troubles, the company is a solid franchise with good business prospects, strong competitive position and robust financials. At its current price of Rs 225, the stock discounts its present trailing twelve month earnings by around 11 times.

CASE STRENGTHS

Indraprastha Gas was set up in the late 1990s on the directions of the Supreme Court of India to combat air pollution in the national capital region. Today, its pipeline network caters to a wide range of compressed natural gas (CNG) and piped natural gas (PNG) customers in Delhi and surrounding regions. The company is integral to the fuel security of the national capital and this may work in its favour on the pricing issue.
Indraprastha Gas after the order has questioned the power of PNGRB to determine its tariffs, but it did submit its proposed tariffs to the regulator. The company has also questioned PNGRB's assumptions used to arrive at the tariffs and charges.

MARKETING MARGIN SHIELD

For instance, the regulator has calculated the ratio of the company's actual capex spend to that proposed in 2009 and 2010, and applied this metric to extrapolate capex spend until 2025. Indraprastha Gas could argue that its higher actual capex spend in 2011 and 2012 should be considered to make projections. Likewise, in other areas of contention such as variable costs and volumes, there could be room to tweak the assumptions.
The possibility of an increase in marketing margin could also provide respite to Indraprastha Gas. The company earns its revenue from three sources — network tariff, compression charge, and marketing margin. Marketing margin is not yet within PNGRB's purview.
In the event of an unfavourable outcome in the case, Indraprastha Gas could adjust marketing margin to set off the negative impact.
The risk arises if marketing margin also comes under the ambit of the regulator. News in January 2012 about proposed caps on marketing margins of gas entities had taken a toll on many gas company stocks. Indraprastha Gas believes that the cap, if and when implemented, would not apply to it since it incurs expenses on the sourcing and marketing of gas. In any case, the process is likely to be long-drawn.
Also, given that so far, marketing margin was not regulated, Indraprastha Gas could possibly take this shelter to ward off the retrospective effect on network tariff and compression charge.

ROBUST BUSINESS

Except the regulatory overhang, the company's business inspires confidence. Demand for natural gas is growing, given its cost advantages. The company has been raising prices to offset rising cost pressure due to costlier imported gas in its supply mix. This should help avoid a repeat of the December 2011 quarter when profits dipped 10.5 per cent. The company plans to spend Rs 2,200 crore in the FY-12 to FY-15 period to expand its network.
If Indraprastha Gas wins its bids for setting up city gas networks in Ludhiana and Jalandhar, it will be an added boost. The company's financial position before this development was robust with debt-to-equity of 0.45 (as on September 2011), providing room for leverage to fund expansion plans.