IPO Grey Market premium : Vaswani, PG Electroplast, Prakash Constrowell, RDB Rasayan, Tijaria Polypiles: 9/23/11:

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Company Name	Offer Price (Rs)	Expected Listing Price Premium
Vaswani Ind.	52	Discount
PG Electroplast Limited	210	Discount
Prakash Constrowell	130 to 138	Discount
RDB Rasayan	72 to 79	Discount
TijariaPolypiles	60	Discount
Religare Bond	1000	Discount

Semi: GF Tech Conference:: Macquarie Research,

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Semi: GF Tech Conference
Event
 We attended the GlobalFoundries (GF) Technology Conference today in Hsinchu,
Taiwan. Here are the key takeaways and our thoughts.
Impact
 32nm Gate-First HKMG in volume shipment. GF stated that it has finally
overcome its technical hurdles regarding 32nm Gate-First HKMG and become
the first foundry to start volume shipments. However, we find this statement
partly misleading as GF’s 32nm Gate-First HKMG shipments are all for AMD,
which is using SOI (silicon on insulator), a technology that is not applicable to
general foundry customers. 28nm HKMG is GF’s offering for its general
foundry customers, which won’t be ready until 2H12.
 28nm Gate-First HKMG volume production in 2H12. GF has three
offerings for its 28nm HKMG: 1) SLP (super-low power, aimed for wireless
and mobile computing), 2) HPP (high performance-plus, aimed for highperformance
computing) and 3) LPH (low power, high performance, aimed for
mobile, high-performance computing). The management indicated that 28nm
risk production is scheduled for 1H12 with volume production in 2H12. This
echoes our view that GF’s 28nm is about one year behind TSMC’s and its
capacity won’t become effective until next year end at the earliest; hence
TSMC should dominate the 28nm market in 2012.
 Fab sync with Samsung on 28nm SLP & LPH. The company has extended
its collaboration with Samsung to 28nm SLP and LPH offerings, to provide a
synchronized platform of technologies (ie IPs, cell libraries) so customers can
have one design and be able to manufacture at any one of the four fabs of GF
(Germany and New York) and Samsung (Korea and Texas) without redesign,
in order to mitigate supply chain risks. We believe this strategy works well in
theory but less effective in reality as switching between fabs would take time,
from months to up to one-two quarters to reach desired yield, depending on
product design, foundry/customer resources and experiences.
Recommendations
 While GF is aggressively expanding its capacity, we believe execution
remains the key to the company’s potential success given its poor track
record from Chartered Semi and AMD, not to mention the challenges it faces
with business and culture integration. More importantly, as we highlighted
previously, GF’s switch to Gate-Last HKMG at 20nm from Gate-First at 28nm
due to scalability issues, could deter strong commitment from customers,
thereby making TSMC the primary foundry for 28nm for most customers.
 Bears on the street recently have highlighted the risk of TSMC not winning
Apple’s A6 biz in 2012 due to lack of capacity and lower margins. Our industry
checks indicate that TSMC is still working on the project but due to issues in
system integration (ie memory integration, TSV, logistics planning and
development collaboration with memory vendors) the progress/yield rate is
not meeting expectations and hence is unlikely to receive a meaningful
allocation of A6 in 2012 due to timing. Nonetheless, we believe the potential
downside risks to revenue/earnings should be manageable as most street
analysts have either not factored in the A6 contribution or incorporated only a
small contribution estimate (2-3% of 2012 revenue). We believe TSMC (2330
TT, NT$67.20, Outperform, TP: NT$83.00) is one of the key beneficiaries of
the smartphone volume trend and the rise of ARM in computing, which should
provide healthy, above-industry secular growth in 2012-13, thanks to its lead
in cutting edge technology and execution. Maintain Outperform.

Director’s Cut - China can scale great income wall :: Macquarie Research,

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Director’s Cut
China can scale great income wall
In the latest China Diviner Paul Cavey looks at the structural outlook for China’s
economy. He includes the translation of a report originally published by Liu
Shinjin, a leading economist from a Chinese government think tank.
The report compares the history of industrialisation of countries around the world
to identify the differences between countries that fall into a middle income trap,
and those that surpass the high income “great wall” and go on to become one of
the world’s technology leaders. The good news is that with GDP per capita near
Int$8,000 in 2010, Paul suggests that China has already avoided the middle
income trap that typically occurs in the Int$4-6,000 range.
That said, after 3-5 years, China’s GDP will reach Int$11,000 per capita, the
level achieved by successful catch-up countries when they scaled the “great
wall”. On this basis, China’s economic growth would be expected to slow around
2015. Paul also notes the degree of slowing depends on policy reforms in
China, such as improving healthcare and education, ending discrimination
against farmers, promoting merit based employment and financial reforms.
Paul argues that implementing some of these reforms will be difficult. But China
policy makers have a clear incentive to act, as the conclusions of the think tank
suggest the risk of sharp growth slowdown that would be hard to reverse. For
anyone invested in an asset exposed to China’s growth – a very long list – the
latest China Diviner is definitely a report worth reading.


Highlights
 After conducting an in-depth survey of around 2,200 people, Gary Pinge
believes Sands China (1928 HK) is the most preferred Macau casino.
 Kieran Calder has upgraded two Malaysian beer stocks, Guinness Anchor
(GUIN MK) and Carlsberg Malaysia (CAB MK) to Outperform.

Crompton Greaves - London Bridge is falling down? Maintain UW:: JPMorgan,

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The J.P. Morgan European Capital Goods Team has cut earnings estimates
for its coverage universe by 20% for CY12 after incorporating lower global
GDP growth expectations and analyzing a host of leading macro indicators.
The team, led by Andreas Willi, expects the earning risk to remain on the
downside. See the detailed note "Cutting Estimates, near term downside risks
remain". Drawing inputs from a bleaker outlook for DM growth, we cut CG's
overseas power segment revenue estimate (with 30% exposure to DM) for
FY13 by another 5.5%. Our revised FY13 EPS of Rs11.75 (down 2.4%)
remains well below Bloomberg consensus (Rs14.5). We recommend a sell on
rallies.
 Weak macro and deteriorating lead-indicators in DM. Our European Cap
Goods team assumes a global GDP growth scenario of ~2%, Europe growth of
0% and US growth of 1% over next 12-18 months. European manufacturing
indicators contracted in August (the lowest in two years), extending their
moderation since Apr-11. The Euro area and US PMI for new orders has also
tapered down sharply. Another leading indicator, the US ISM index, is
precariously close to the onset of recession. See charts reproduced from our
European team's research inside this report.
 Industrialists’ confidence tumbling again? A quarterly survey by our
European Cap Goods team to analyze the level of confidence of 300 industrial
companies shows that- (a) Companies have recovered only half the decline in
confidence level since the 2007 peak, (b) Companies with a 'high' confidence
level saw a dip in 2QCY11.
 Maintain UW. Our Mar-12 DCF revised PT of Rs125 (vs.Rs135 earlier),
implies ~14x FY12E EPS (Rs9/share, unchanged). Besides a FY13E EPS cut of
2.4%, we have reduced our terminal growth rate post FY18 to 5.5% (down
50bps). Over the last 1-3 months CG has underperformed the Sensex by 3.5%-
35%. We recommend a switch to Siemens India (SIEM IN, Rs860, OW) within
the T&D space. Healthy domestic order inflows are a key upside risk to
estimates and PT. We believe open-market stock purchases by the promoter
since 18th Aug (0.225% of shares outstanding) has led to the rally from Rs139
levels (~10%), but this may not be sustainable.

Chinese activity indicators – key sectors steady while inflation falls ::Macquarie Research,

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Chinese activity indicators – key
sectors steady while inflation falls
Feature article
 The latest round of Chinese macroeconomic data showed a favourable
combination of steady growth in key sectors and weaker inflation.
Latest news
 Base metals finished the week poorly as markets sold off heavily on Friday as
concern grows about the state of further funding for Greece and what that
might mean for broader European sovereign debt markets. Copper and
aluminium both fell 2.8% WoW. Precious metals were also weaker over the
week, with intra-day volatility in gold rising sharply. A stronger USD has also
not helped both base and precious metals.
 Indices of physically delivered coal prices rose over the week, with Newcastle
up 1.5% WoW to $124.32/t. Low CV coal pricing also rose, in line with the
more bullish sentiment seen at Chinese coal conferences during the week.
The McCloskey Sub-bit marker (4,900 NAR) settled at $90.30/t, up 0.7%
WoW. Paper markets sold off heavily in line with other financial markets on
Friday, with Cal‟12 currently pricing at $127.25/t for API#2 and $122.25/t for
API#4.
 The Indonesian government has moved to dispel concerns about the
imminent release of potential ban on low-grade coal with government officials
suggesting any policy would be delayed until technology to lift low rank coal to
a minimum heating value of 5,600 kcal/kg was commercially available. With
the technology currently a long way from commercial feasibility, we think any
implementation of this kind of policy is unlikely in the foreseeable future.
 Data from shipping sources suggested Australian coal exports improved in
August. Coking coal shipments rose to 157mt annualised from a weak 128mt
in July and was the second best month seen this year. Steam coal has been
strong in the last 3 months, averaging 152mt annualised, with shipments from
the NCIG appearing to improve from a slow start to the year.
 Feedback from our sources in China indicates that nickel import demand is
currently surging due to an ongoing shortage of nickel pig iron (reflected in the
nickel pig iron price exceeding that of primary nickel). Imports of all forms of
primary nickel as well as stainless steel scrap are said to be very strong.
Metal Bulletin reports that Baosteel started reducing its use of nickel pig iron
in favour of primary nickel from late July. There are also reports that imports
are surging due to a large Chinese trading company building nickel stocks
ahead of the launch of a nickel ETF (exchange traded fund) in early 2012 with
reports of the size of this ETF varying from 10-30,000t. These factors make
us more bullish about the nickel price outlook in the short run, even though we
maintain a forecast of a large 2012 surplus between supply and demand.

Buy TVS Srichakra:: Target Price `468 ::Angel Broking,

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TVS Srichakra Ltd. (TVSSL), a part of TVS Group, is a leading manufacturer of two
and three-wheeler tyres with a 25% market share. Two-wheeler demand growth
(~16% yoy YTD) continues to be insulated from the current slowdown in the
automobile sector. Given this growth and increased installed capacity of
automotive tyres by 170% to 3.3cr units over FY2009-11, TVSSL’s volume is
expected to grow at a CAGR of 11% over FY2011-13E. Also, the promoters have
increased their stake in the company from 39.5% in June 2007 to 44.4% in June
2011, demonstrating their confidence in the company’s future growth outlook.
We recommend Buy on TVSSL with a target price of `468, based on a target PE of
5x for FY2013E.
Investment rationale
Better performance of two-wheeler sales to drive the company’s volume
Two-wheeler domestic sales have witnessed growth of ~16% yoy YTD. Being into
the manufacturing of two and three-wheeler tyres, TVSSL is not much exposed to
the risks of demand slowdown, as the two-wheeler segment continues to be
insulated from the current slowdown in the automobile sector and is expected to
grow at a CAGR of 13% over FY2011-13E. Backed by this and increased capacity
utilisation, we expect the company’s volume to grow at a CAGR of 11% over
FY2011-13.
Increase in capacity utilisation to drive operating leverage
TVSSL has increased its installed capacity of automotive tyres by 170% to 3.3cr
units over FY2009-11. This capacity increase is expected to drive the operating
leverage for the company. However, capacity utilisation is only 48% (as of March
2011), which is expected to increase to 59% over FY2011–13E.
Increase in promoters’ stake – A positive for the company
The company’s promoters have increased their share from 39.5% in June 2007 to
44.4% in June 2011. This consistent increase in their share in the company is a
good signal for investors, as it demonstrates the confidence of promoters in the
company’s future growth outlook.
Outlook and valuation
At `355, the stock is trading at 4.8x and 3.8x its FY2012E and FY2013E earnings,
respectively. We expect the company’s revenue and profit to witness CAGRs of
22% and 35%, respectively, on the back of the expected increase in capacity
utilisation, which will result in an 11% CAGR in volumes over FY2011–13E.
We recommend Buy on TVSSL with a target PE of 5x for FY2013E and a target
price of `468 for an investment period of 12 months

Marico -- Company affirmed our key concerns ::Macquarie Research,

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Marico
Company affirmed our key concerns
Event
 Marico has today released an investor update outlining risks to their near-term
earnings on account of slower consumer spending and continued raw material
(RM) pressure, primarily copra (40% of Marico’s RM costs). In our last note on
Marico, we had highlighted these risks and mentioned that the streets’
earnings expectations were very high. We maintain our contrarian UP rating
with a revised TP of Rs130 from Rs138 earlier.
Impact
 Volume growth sustainability at risk. Marico has reported strong 14%
organic volume growth in 1QFY12 (10% in Parachute rigid packs and 32% in
light hair oils) on account of high promotional schemes in light hair oil. We
think this promotion-led volume growth is unsustainable in a relatively mature
category like hair oil (>90% penetration) where future growth is at great risk
due to changing consumer behaviour and preferences. Volume growth is also
getting impacted due to stress on consumers’ budgets given high inflation.
 Copra prices didn’t fall as much as was expected by the street. Marico
has indicated that there could be a structural shift in Copra prices (up 80%
YoY) as it is increasingly getting linked with fuel oil prices. This is inline with
our argument that the strength in copra prices is not due to a supply-demand
imbalance and there was no apparent reason for copra prices to fall, unless
there is a sharp drop in global fuel oil prices.
 International business yet to see stability. Marico’s international business,
particularly the MENA region, is likely to remain under pressure due to a
volatile political environment in the region and local governments restricting
companies taking price increases. International business contributes ~25%
(half of this from the MENA region) to consolidated sales.
 Margins to remain under pressure. Over the last five quarters, Marico has
been cutting advertising and promotional (A&P) expenses to offset the RM
cost pressures. We believe there is little scope for any further cut in A&P, as
their A&P expense is already the lowest in the industry and any further cut is
likely to impact growth. Given the challenging growth environment, Marico is
unlikely to take any further price increases over the next two quarters.
Earnings and target price revision
 We cut FY12E/FY13E EPS forecast by 10% and 5% respectively. Our EPS
estimate for FY12E is 5% below consensus. We cut TP to Rs130 from Rs138.
Price catalyst
 12-month price target: Rs130.00 based on a DCF methodology.
 Catalyst: 1) Quarterly earnings, and 2) slower volume growth
Action and recommendation
 We believe uncertainties on raw material inflation and a challenging Middle
East business environment will weigh on Marico’s performance in FY12E.