04 June 2016

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Strategy (The case for PSU banks – alternate perspective): Public sector banks (PSU banks) have significantly under- performed the market given the large overhang of NPAs. Price-to-book ratio of these banks has declined to the levels seen during 2002-03. We believe that price-to-book ratio is a flawed measure of valuation, especially in current times, since return ratios are depressed. Investors should focus their attention to estimating the underlying durable earnings power and value the banks accordingly. Our calculations suggest that PSU banks could be undervalued based on moderately benign set of assumptions.

Cement (Positive pricing trend):
- Cement prices increased in the southern, eastern, and central regions for May month led by improvement in discipline. Prices declined in the western and northern regions due to weak demand.
- Demand was weak until the third week of May in most regions due to a severe summer and continuing sluggishness in housing segment; dealers stated that demand has improved in last one week with urgency seen to complete construction before the onset of monsoon.
- Price increase in the south mainly comprised Rs50-80 per 50 kg bag (~25% increase) in Andhra Pradesh and Telangana. In the eastern region price, the price increase was largely in West Bengal and Bihar markets whereas prices declined in Odisha. Dealers in a few northern and western markets expect another price increase from the current week.
- All-India average price is up 2% YoY for end-May and 1% MoM. Current prices are marginally above our expectation.
- Although costs are increasing for the industry with increase in petcoke and diesel prices, we expect profitability to be higher than our initial expectation for the June 2016 quarter if the current prices sustain for June 2016.
- We are positive on the sector as we expect likely improvement in pricing power for the industry led by recovery in utilisation due to low capacity adds in FY17 to FY19.

Corporate Front Page:
- M&M expanded its zero emission electric vehicle range with the launch of eVerito, its first electric sedan. (BS)
- Yes Bank is likely to raise USD1bn from overseas investors in the current financial year as it has recently got government approval for increasing foreign investment to 74%. (BS)
- Tech Mahindra has bagged US$75m contract from Department of Motor Vehicles (DMV) of the State of Nevada to be the prime system integrator for the System Modernization (BS)
- Hindustan Unilever Ltd said it will split its Foods and Refreshments (F&R) business into two separate units in line with its global category structure. (ET)
- Jet Airways has slashed fares by 20% in a five day discount offer. (BS)
- Bank of Maharashtra said it will raise capital of Rs10bn by various modes. (ET)
- In the wake of loan default worth Rs7bn, Power Finance Corp has acquired over 23% stake in Shree Maheshwar Hydel Power Corp by invoking pledged shares and partially converting debt into equity. (BL)
- Maruti Suzuki India (MSIL) has advanced the dates of its bi-annual maintenance for this year. Its manufacturing plants will shut down from June 6-11 against earlier schedule from June 27 to July 2. (BL)
- Kwality Ltd said it has successfully come out of a branding-related legal dispute after Graviss holding withdrew its case on May 31. (BS)

Economy Front Page:
- The India Meteorological Department (IMD) has retained its earlier ‘above normal’ forecast for the June to September 2016 period at 106% of the Long Period Average (LPA) (BS)
- An investment of Rs39bn would flow into Raipur, the capital city of Chhattisgarh, under the central government’s smart cities mission. (BS)
- Alternative Investment Funds (AIFs) have made investments of more than Rs180bn during January-March quarter, a surge of 30% from the preceding three months. (BS)


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