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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
Alpha Bet
Quick-fire returns amid result surprise. We recommend booking profits at ~9% in
our recently-initiated trade—Long Mahindra & Mahindra Financials, Short Shriram
Transport after the latter reported weaker-than-expected 2QFY12 results. We currently
have two open trades in Long Tata Steel, Short Jindal Steel & Power and Long
Ultratech, Short ACC initiated on November 4, 2011.
Book profits for Long MMFS, Short STFC at 8.7%
The trade has returned 8.7% since initiation as STFC has corrected sharply (down 8.4%) since
commencement of the trade due to weaker-than-expected results. Net profits for STFC
disappointed in 2QFY12 at Rs3 bn compared to our estimate of Rs3.6 bn (17% below estimates).
While loan book grew 20% yoy, PAT was flat as NPL provision shot up 87% for the period. In
comparison, MMFS stock was flat (up 0.3%) during the ‘trade’ period with MMFS having already
posted strong 2QFY12 results earlier.
Long Ultratech, Short ACC—currently 2.5% in the money
UTCEM has outperformed ACC by 2.5% since initiation of the trade. UTCEM has gained 2% but
ACC has corrected slightly (down 0.5%) during the same period. We expect UTCEM to
outperform ACC driven by (1) Ultratech’s cheaper valuations versus ACC‘s, (2) relative
underperformance of UTCEM compared to ACC in the last three months and (3) ACC’s EBITDA
miss of 21% in the recent quarter on the back of higher-than-estimated raw material and
overhead costs.
Long Tata Steel, Short Jindal Steel & Power—currently 6.1% out of the money
The trade is currently ~6% out of the money as Tata Steel has corrected ~11.7% since initiation.
JSPL has fallen 5.6% ‘only’ in the same period. Tata Steel’s underperformance has been on the
back of weak 2QFY12 results as net income registered a fall of 89.3% yoy (almost 66% below our
estimates) and concerns about weak 3QFY12E results. The miss in earnings was largely due to a
PBT loss of `12.3 bn in its international operations. Standalone net income of `14.9 bn was 9.6%
ahead of our estimates. We maintain our trade based on the following—(1) valuations favor Tata
Steel over JSPL on a risk-reward basis, (2) concerns regarding JSPL’s earnings growth due to the
slow execution of expansion projects even as Tata Steel will see full benefits from commissioning
of additional 2.9 mtpa domestic capacity in FY2013E and (3) JSPL’s low likelihood of meeting its
aggressive schedule for its ongoing power projects.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
Alpha Bet
Quick-fire returns amid result surprise. We recommend booking profits at ~9% in
our recently-initiated trade—Long Mahindra & Mahindra Financials, Short Shriram
Transport after the latter reported weaker-than-expected 2QFY12 results. We currently
have two open trades in Long Tata Steel, Short Jindal Steel & Power and Long
Ultratech, Short ACC initiated on November 4, 2011.
Book profits for Long MMFS, Short STFC at 8.7%
The trade has returned 8.7% since initiation as STFC has corrected sharply (down 8.4%) since
commencement of the trade due to weaker-than-expected results. Net profits for STFC
disappointed in 2QFY12 at Rs3 bn compared to our estimate of Rs3.6 bn (17% below estimates).
While loan book grew 20% yoy, PAT was flat as NPL provision shot up 87% for the period. In
comparison, MMFS stock was flat (up 0.3%) during the ‘trade’ period with MMFS having already
posted strong 2QFY12 results earlier.
Long Ultratech, Short ACC—currently 2.5% in the money
UTCEM has outperformed ACC by 2.5% since initiation of the trade. UTCEM has gained 2% but
ACC has corrected slightly (down 0.5%) during the same period. We expect UTCEM to
outperform ACC driven by (1) Ultratech’s cheaper valuations versus ACC‘s, (2) relative
underperformance of UTCEM compared to ACC in the last three months and (3) ACC’s EBITDA
miss of 21% in the recent quarter on the back of higher-than-estimated raw material and
overhead costs.
Long Tata Steel, Short Jindal Steel & Power—currently 6.1% out of the money
The trade is currently ~6% out of the money as Tata Steel has corrected ~11.7% since initiation.
JSPL has fallen 5.6% ‘only’ in the same period. Tata Steel’s underperformance has been on the
back of weak 2QFY12 results as net income registered a fall of 89.3% yoy (almost 66% below our
estimates) and concerns about weak 3QFY12E results. The miss in earnings was largely due to a
PBT loss of `12.3 bn in its international operations. Standalone net income of `14.9 bn was 9.6%
ahead of our estimates. We maintain our trade based on the following—(1) valuations favor Tata
Steel over JSPL on a risk-reward basis, (2) concerns regarding JSPL’s earnings growth due to the
slow execution of expansion projects even as Tata Steel will see full benefits from commissioning
of additional 2.9 mtpa domestic capacity in FY2013E and (3) JSPL’s low likelihood of meeting its
aggressive schedule for its ongoing power projects.
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