Tata Motors: Are current valuations inexpensive :Credit Suisse,

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● In our view, Tata Motors, post its recent rally (the stock has been
up 18% over the past three days), is trading at its fair value and
current valuations are by no means inexpensive.
● JLR currently trades at implied FY13 EV/EBITDA of 2.8x,
significantly  higher  than BMWís CY12 multiple of 1.6x despite
BMWís  superior  fundamentalsóbetter brand franchise, >5x
volumes, ~700 bp higher margins, net cash of US$10 bn.
● Low multiples for premium car markers globally are a reflection of
investor concerns on the sustainability of higher margins in China
and low cash flow generation given the high spend on powertrain
development  to comply with tough global emission norms and
product development to maintain the premium image.
● Given the fact that the capex cycle has not yet picked up, there
could be a downside risk to  our  15% M&HCV  volume  growth
estimate in FY13. Hence, we believe it is not prudent  to  give  a
higher  than  mid-cycle  multiple of 7x to the domestic business
which is also its average from 2002 to 2007.
JLR vs BMW, which one would you buy? Despite its far superior
fundamentals, BMW trades at 1.6x CY12E EV/EBITDA compared with
2.8x  FY13E EV/EBITDA for JLR. While on EV/sales, BMW and JLR
trade at similar multiples, we reckon  given  its  higher  level  of
profitability BMW should trade higher. We acknowledge the fact that
BMW has a large financing book, which could be under stress given
the macro situation in Europe but even  after  assuming  a  50%
writedown on book BMW trades at 2.2x EV/EBITDA, lower than JLR.
Better JLR August volumes not a positive surprise. The stock has
reacted very positively to August volume numbers but we reckon
~30% YoY growth is a one-off on a lower base. Usually August is a
weak month for despatches given that it is vacation season in the UK.
However, despatches were higher this August as  the  company  has
been producing the Evoque since 4 July, but despatched vehicles in
August as it goes on sale from 8 September in the UK. Given that it
goes on sale in most major markets in the next two to three months,
JLR volumes should remain robust for the next few months, but with a
higher base YoY growth should come down


Currency could provide positive surprise to estimates. In our
5 September 2011 initiation report on  Tata Motors, we highlighted
the impact of GBP depreciation against the USD in FY11 on JLR's
improved  realisations. We note the recent sharp appreciation of the
USD against the GBP (3% in September) is positive for the company
and if current levels of the currency sustain it could provide  150  bp
upside to our JLR margin estimates and would increase our value of
JLR by Rs12/share.

Buy Lupin : FDA approval of generic NOR-QD tablet marks OC foray:: Goldman Sachs,

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Lupin (LUPN.BO) Rs482.60
   Equity Research
FDA approval of  generic NOR-QD tablet marks OC foray
News
Lupin Pharma today announced the approval for its ANDA to market
generic version of .35 mg NOR-QD (norethindrone) tablet by the USFDA.
The company stated that it would begin shipping the product shortly. The
combined annual sales of NOR-QD and its generic equivalents is about
$52mn per the company’s press release. Today’s ANDA approval is first in
Lupin’s Oral Contraceptive segment.
Analysis
We believe Lupin is the best-positioned company (among Indian HCs) to
penetrate the Oral Contraceptive market with a portfolio of around 25-30
ANDAs awaiting approval from the USFDA (Jan 25, 2010 note; Identifying
value picks for 2010; add Piramal to C-Buy; Lupin to Buy). The company
plans to launch around 2-3 OC in 2H FY2012 with a full 15 plus product
offering by second half of FY13, as indicated on the 1Q FY 2012 conference
call.
The US oral contraceptive market is a US$3.7 bn opportunity. Branded
generics constituting around 65% (about US$2.4 bn) where Bayer and
Watson have a good portion of the market share (refer our note Apr 29,
2009, Fresh Focus on generic OC’s supports our growth thesis; Buy). The
generic oral contraceptive segment has relatively high barriers to entry and
as a result offers higher-than-average margins. Despite the limited market
size of this product, we view this approval positively, as oral contraceptives
could help improve Lupin’s product mix and growth profile.
Apart from it, Lupin’s ANDA portfolio has been gaining traction with a slew
of approvals by FDA (about 8) in the last 6 months with combined branded
sales of $5.3 bn going generic.
Implications
We maintain our Buy rating on Lupin with a 12-month Director’s Cut price
target of Rs518. Key risks include delayed product launches in the US.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
 
 
Coverage View:  Neutral

Buy Opto Circuits - Healthy organic growth aided by acquisitions ::Standard Chartered Research

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 We initiate coverage on Opto Circuits with an Outperform
rating and price target of Rs310.
 Acquisition is a key to business strategy given single digit
growth in key segments; managed and turned-around six
acquisitions in past five years contributing Rs16bn of
sales.
 Unique presence in medical equipment as well as
interventional devices segment; cost management,
geographical expansion, new product introductions and
clinical trials to further the growth of the company.
 We expect 22% sales CAGR (17% organic growth) led by
interventional sales growth and inorganic initiatives of
FY11.


Successful acquisition-led strategy in mature segments.
OPTC’s acquisition-led strategy (6 acquisitions in the past 5
years) in mature segments (medical equipment and
intervention devices) has been successful, generating Rs16bn
of revenue (37% of sales in FY07-11) and Rs2.9bn of profit in
the past five years with improvement in sales and profitability.
Ex FY11 acquisitions, we expect organic revenue growth of
17% over FY11-14E, against industry growth of 3-8%.
Product differentiation to drive interventional sales.
Geographical expansion, higher penetration of existing doctors
through clinical trials, new product introductions and ramp-up in
value added segments including DIOR are likely to drive 28%
CAGR in the segment (25% of FY11 sales) over FY11-14E.
Higher interventional growth aids OPTC’s margins given higher
margins in the segment.
Inorganic initiatives drive medical equipment segment. The
medical device segment (73% of FY11 sales) is likely to post
20% CAGR (11% organic growth) over FY11-14E, led by
recent acquisition of Cardiac Science. Focus on consolidation
with cost reduction, expansion in non-US markets and
improved profitability in Cardiac Science remain short-term
goals for OPTC.
Valuation. 12-month PT of Rs310, valuing OPTC at 10x
forward P/E, the lower range of FY09-11. 19% earnings CAGR
over FY11-14 support our valuations. Potential acquisitions are
not in our estimates. Proposed listing of Eurocor Healthcare is
aimed at unlocking value in intervention business, but not
currently built in given low visibility on timing and price.
Key risks. R&D volatility has margin impact; high earnings
sensitivity to US/EU markets; potential intangibles write-offs for
prior capitalized R&D; high working capital requirements.

ICICI Bank meeting takeaways - cautiously optimistic:: Deutsche bank,

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SBI doubles overseas borrowing target to $10 bn
State Bank of India (SBI), the country's top lender, said on Thursday it had doubled
its overseas borrowings target to $10 billion. It had earlier planned to raise $5
billion, it said in a statement, without giving further details.  In May, the bank's
Chairman Pratip Chaudhuri had said it would borrow $3 billion to $4 billion
overseas this year. (Business Standard)
Interest rate hikes may increase bank NPAs: Crisil
Significant increase in interest rates over the past 18 months will adversely impact
the asset quality and profitability of banks in India, according to credit rating
agency Crisil. Banks’ gross non-performing assets (NPAs) ratio is expected to
increase to nearly 3 per cent by March 31, 2012, from 2.3 per cent a year ago. The
pressure on asset quality is expected to arise primarily because of weakening debt
servicing ability of the corporate sector, especially the small and medium
enterprises (SME) segment. The banks’ migration to system-based recognition of
NPAs will also result in higher NPAs over the near term, the agency said. (The
Hindu Business Line)
Wait for bancassurance norms gets longer
The much-awaited bancassurance guidelines might take some more time to come
out. The regulator is considering the reaction to certain issues, such as protests
from bank-backed insurance companies and the Life Insurance Corporation of
India (LIC). The bancassurance report, which came out in June, recommended that
banks be allowed to tie-up with two types of insurance companies (life and nonlife) for distributing insurance products. Bank-backed insurance companies are
protesting against the opening up of the channel, allowing banks to sell products
of more than one insurance company. Some feel the channel, if at all, should be
opened for only two companies. New entrants opine that banks should be allowed
to sell products of multiple insurance companies. (Business Standard)
DB RESEARCH
ICICI Bank company meeting takeaways: cautiously optimistic
In our recent meeting ICICI Bank management was cautiously optimistic. While
the bank appreciates RBI's hawkish imperative on account of inflation, it believes
that further rate hikes could hurt loan growth -- retail loan momentum is already
moderating. Fee income growth is likely to be moderate on account of a
slowdown in fresh sanctions. The bank is confident of improving NIM in 2HFY12
and does not see any immediate risks to asset quality. We maintain Hold rating.


Food inflation falls to 8.84%
Food inflation fell to 8.84% in the week ended September 10 from 9.47% in the previous
week, but provided no relief to the common man as prices of key commodities continued to
rule high. Prices of most commodities, barring wheat, continued to remain firm on an annual
basis, as per Wholesale Price Index (WPI) data released by the government today. According
to experts, the fall in inflation on a weekly basis is on account of statistical reasons, called as
"high base effect". Food inflation was above 16% in the corresponding period last year.
(Business Standard)
RBI tightens return filing format for NBFCs
The Reserve Bank of India (RBI) today tightened the return filing format for non-banking
financial companies (NBFCs) under which they would have to make disclosures about their
deposit and lending activities to the central bank more frequently. As per the new regulation,
deposit taking NBFCs would have to submit reports on deposits and prudential norms to the
RBI on quarterly basis, as against annual and  half-yearly basis respectively earlier. Similarly,
the apex bank asked non-deposit taking NBFCs  to file statements on capital funds, risk
weighted assets, risk asset ratio, among others on quarterly basis. (Business Standard)
Arcil revises profit after RBI questions accounting policy
India's largest stressed assets buyout firm, Arcil - promoted by the country's top lenders -
has slashed its earnings and restated its profits for FY11 besides shelving a proposal to pay
dividend to its shareholders, after the Reserve Bank of India raised questions relating to the
company's accounting practices. Arcil has now  restated its net profits for 2010-11 to Rs 33
mn, from Rs 510 mn which was approved by the Arcil board on May 3. This restatement of
accounts comes after the RBI  questioned the asset reconstruction company's accounting
policy in its annual inspection report. (Economic Times)
RBI liberalises Forex Facilities for Individuals
NRIs can be Joint Holders in Resident's SB/EEFC/RFC Accounts; Residents can be Joint
Holders in NRE/FCNR Accounts; Residents can  gift Shares/Debentures up to USD 50,000
Value; Sale Proceeds of FDIs can be credited to NRE/FCNR (B) Account; Gifts to NRIs can be
credited to NRO Accounts in Rupees; Loans to NRI Close Relatives can be given in Rupees
(RBI press release)
RBI warns banks on poor customers
In the name of financial inclusion, banks  should not blindly follow a policy of customer
acquisition, providing new access to new customers. Instead, they must address the issues
faced by poor customers properly, for it might  otherwise lead to a long term mistrust and
loss of confidence in the banking system. According to Reserve Bank of India (RBI) Deputy
Governor K C Chakrabarty, financial inclusion is an important tool for economic development,
but it might also impact the poor adversely by increasing their indebtedness and wiping out
their savings and assets. (Business Standard)
RBI asks banks to beef up security for e-transactions
The Reserve Bank of India (RBI) has asked banks to strengthen their payment infrastructure
for safety in automated teller machines (ATM) and point of sale terminals. It has set a twoyear timeline for banks to upgrade the systems beginning with implementation of fraud risk
management services by September 30, 2012. In accordance with the suggestions by the
working group appointed by the regulator in March this year, RBI has also asked for better
sourcing and monitoring process at the merchant level by the same time frame. The regulator
has directed banks to migrate to EMV chip cards and PIN-based cards by June 30, 2013.
(Business Standard)

Larsen & Toubro- Guidance at risk; NTPC order lost on poor MHI TG specs ::BofA Merrill Lynch,

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Larsen & Toubro Ltd.
   
Guidance at risk; NTPC order
lost on poor MHI TG specs
„Lost opportunity in bulk tender on poor MHI TG specifications
L&T group lost power orders worth Rs82-106bn from NTPC’s bulk tender for
9x800MW. Key trouble for L&T was not only the price but the poor technical
specifications (heat rate, Aux consumption) of Mitsubishi TG, which helped Toshiba
emerge L2 and L&T-MHI lost the order as in this bid only 2 bidders apart from BHEL
could win an order. This big order loss and its disqualification in 660MW TG bulk
tender could not only cause L&T to miss its FY12 inflow guidance but also make its
BTG JVs struggle to break-even. Despite this we maintain our Buy at 13x FY13E
EPS on EPS CAGR of 23% (FY11-13E) driven by backlog +26%YoY and the stock
under-performance (1 year -4%). Capex in lower RoE infra assets – Rajpura Power,
Hyderabad metro etc. are risks.
Group lost Rs82-106bn order in NTPC 800MW bulk tender
L&T (Parent) lost orders of ~Rs16bn / Rs41bn (2% / 4% of its FY12E inflows) on
poor MHI TG specifications. L&T-MHI bid @ Rs17.1mn/MW (+4% L1 bid) in boiler
and Rs10.4mn/MW (+2% L1 bid). While in boilers, its price was high, in TG it was
just Rs1mn higher vs Toshiba at Rs71.5bn. However, due to higher Aux power
consumption of MHI turbines vs Toshiba (6426kW vs 6316) and its poor heat rate
(1823 kCal/kWh vs 1819), L&T's bid faced with higher loading and lost to Toshiba.
Strategic observations from NTPC 9x800MW bulk tender
In boiler bid: a) BGR-Hitachi (lost last 2 bids vs BHEL) and Thermax-Babcock (1st
bid loss) may re-think their presence in India on lack of competitiveness, while
Doosan makes an entry and b) healthy ASP from new competition (Doosan) leading
to sustained margins and improving visibility for BHEL. In TG bid: a) Lower profits /
higher losses in the TG sector on fragmentation / low utilization ex-BHEL. The
winner of 1st bulk tender of 660MW - BF-Alstom (5 sets), didn't win any sets in 2nd
bulk tender of 800MW and BGRH won 5 sets, and b) Increase in competition on
entry of BGRH in India and aggressive bids by BGRH, L&T and Toshiba.

Goldman Sachs:: Oil - Refining :: Slower demand and project delays; cut ‘12E margins but raise ‘13E

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Oil - Refining
Equity Research
Slower demand and project delays; cut ‘12E margins but raise ‘13E
Lower demand but lower supply forecasts; weak 2012E to be
followed by a better 2013E as refining cycle extends by a year
Our updated global refining model reflects inter-play of lower oil demand
forecasts for 2011E-12E and supply side changes with some projects for
2011E-13E running behind schedule. We find these delays offsetting a part
of the demand weakness. Overall, utilisation rate has weakened for 2012E
vs. earlier but improved for 2013E, with the cycle going down in 2014E.
Lower oil demand growth forecasts in line with lower GDP growth
Our lower oil demand growth forecasts of 1.0 mn b/d for 2011E and 1.3 mn
b/d for 2012E, vs. 1.7/1.6 mn b/d for 2011E/12E earlier, reflect a weaker
economic outlook for the OECD countries, particularly the US, with stable
emerging market demand. Given the global nature of products trade and
Asia being a net exporter to the west, we believe it is unlikely for Asian
refining margin to completely ignore the global utilisation trends.
Project delays could play a key role in supporting the refining cycle
While demand weakness would be a concern, we believe slippage in new
projects is becoming common and is likely to support the refining cycle till
2013E. We find more than half of about 750 K b/d of capacity delays each
for ’11E-‘12E are in Asia, owing to logistics, delays in acquiring land,
obtaining clearances/permits and some tightness in engineering chain.
This effectively delays the end of the current cycle to 2014E, in our view.
Reduce ‘12E margins, push up ‘13E; 12E cracks now below 11E
level; Formosa scheduled to return in 4Q11; some from Japan too
In line with changes in utilisation rates, we have cut our product crack and
margin forecasts for 2012E, while pushing them up for 2013E. We have
nudged up 2011E forecasts slightly. We expect cracks to correct in 4Q11E
as Formosa’s 540K b/d capacity comes back and also expect about 300K
b/d of time-weighted capacity in Japan to come back in 2012E. However,
we believe extension of the refining cycle till 2013E potentially leading to
higher multiples for 2012E and some price correction have improved riskreward for some of the Asian refinery stocks, at current valuations.
HPCL, SK Innovation are top picks; Neutral on RIL, Sell on Thai Oil
HPCL (Conviction Buy) and SK Innovation are top picks. Keep Neutral on
RIL and reiterate Sell on Thai Oil. Weak demand, capacity delays are risks.

Gold rout intensifies; prices plunge more than USD100/oz HSBC Research,

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Gold rout intensifies; prices plunge more than USD100/oz
 Gold posts biggest one-day loss ever under hedge funds’
pressure; economic fears lead to a plunge in silver and PGM
prices; margin increases may help steady bullion prices
 Near-term momentum may take precious metals lower, but
long-term buyers, including the official sector, emerging
markets, and industrial users will likely enter the market
 Commitments of Traders data compiled by the Commodity
Futures Trading Commission show heavy long liquidation,
which may leave prices well-placed to recover


Market focus, emerging trends
A decline in precious metals prices turned into a full-scale rout, with silver falling by
USD7/oz at one point and gold falling by more than USD100/oz, its biggest one-day drop
on record. The PGMs also racked up big losses. With almost no letup in selling in the
early part of the trading session, heavy selling by hedge funds pushed prices lower. We
detected no obvious event in the financial markets or economic releases to explain the
slide by gold and the other precious metals. Rather, we believe the selling was a
continuation of the trend established the previous day, with momentum players seeking to
capitalize on the price declines and willing to press the bullion markets lower.
The momentum in the bullion markets may take prices even lower in the near term. It is
our view that gold, silver, and the PGMs have been caught in a maelstrom of financialasset selling. Investor liquidation, notably but not exclusively in equities, spilled over to
gold. Also, declines in the broader commodity sector have had negative consequences for

gold. Gold and silver have weightings of 3-6% in the major commodity indices, and the steep declines
across the commodity complex trigged heavy selling of gold and silver by commodity index managers.
The slide in gold prices may lead some investors to question gold’s utility as a safe haven, but in our
view, bullion is fulfilling this function by providing cash in times of financial stress.
The driving force behind the long-term gold rally has been declining investor confidence in the economy
and the ability of government and institutions to influence economic events favorably. Growing
government debt levels, a paucity of alternative safe havens, and sinking bond yields have created a
climate conducive to the gold rally. To our knowledge, this has not changed, and the same set of
circumstances that propelled gold higher, including the euro-zone sovereign debt crisis and rising US debt
levels, remains unchanged. This leads us to believe that the gold rally is still intact.
The gold and precious metals markets may need a development to bring them out of their tailspin. We
believe that some combination of emerging-market buying, bottom-picking by investors, and possibly the
entry of longer-term, strategic players looking to acquire gold, such as pension funds or sovereign wealth
funds, could stem and then reverse the slide. In the case of the PGMs, we believe that current prices are
attractive levels for automakers and other industrial users to acquire material. Chinese demand for
platinum jewelry has been strong all year, and we expect it to get an additional boost from the drop in
platinum prices. A deterioration in the macroeconomic climate could shift investors back to gold.
Following a meeting of finance ministers of Brazil, Russia, India, China, and South Africa – the BRICS –
China’s finance ministry recently said that major developed countries should maintain financial stability
and handle their sovereign debt problems properly. This may mean that China is not ready to come to the
aid of the peripheral euro-zone nations. IMF Managing Director Christine Lagarde said risks have
increased sharply amidst a weak and uneven recovery. Thus, the climate still appears positive for gold
longer-term. The near-term selling, however, might not be exhausted just yet. On 23 September, the
Chicago Mercantile Exchange announced higher margins on gold and silver futures trading, which we
believe may help steady prices.
Based on the past 40 years of data, the drop in gold prices on 23 September represented a 3 standard
deviation event as prices fell more than 4% in a single day, which has occurred only 65 times since 1970.
According to the data, daily movements in gold tend to trade in a range of +/-1%. The market has stayed
within this range roughly 70% of the time since 1970. A movement of the magnitude on 23 September
was evidence of a pronounced change in daily volatility for gold, representing a left tail event, as shown
in the chart overleaf. Price movements of this magnitude are rare, and when they happen, volatility tends
to remain high for the short term. Based on the recent price action, we believe that heightened volatility in
the near term is likely.
Commitments of Traders data compiled by the Commodity Futures Trading Commission as of 20
September showed a drop in net long speculative positions for gold, silver, platinum, and palladium. For
gold, net long positions fell by 1.28moz to 19.76moz, marking the first time long positions have been
below 20moz since the end of January this year. For silver, net long speculative positions dropped by a
substantial 23.39moz to 203.54moz. For platinum, net long speculative positions fell by 164,800oz to
1.508moz, and for palladium, net long positions fell by 102,000oz to 1.051moz. The steep declines in net
long speculative positions in all the precious metals in the past two weeks may mean that short-term longs have closed positions