Government new capex picks up as private sector remains elusive: Goldman Sachs

Government new capex picks up as private sector remains elusive
Government new project starts showing signs of revival…
The CMIE Dec ’13 update on capex investment shows average four quarterly
new project starts at Rs1064bn, increasing by 29% qoq. The investment for
the quarter itself is the highest recorded in 6 quarters. While new projects
announced by the private sector continued to decline (down to c.Rs200bn
for the quarter vs. average of Rs1.5tn since 2004), government capex
showed a sharp increase to Rs710bn in the quarter (+73% qoq, +89% yoy)
driven by announcements of new solar power capacity.
This is the third consecutive quarter where government capex is higher
than private (after 40 quarters), and the second consecutive qoq increase in
government capex. With the government reform measures and the Cabinet
Committee on Investments (CCI) working on fast-tracking clearances for
infrastructure projects, we believe further downside in new investments
would be limited and we could potentially be past the bottom.
...completion still lackluster + stalled/shelved projects increased
The average four quarterly project completions declined 25% yoy, and
various major projects saw implementation stall in the quarter (reaching
5.1% of total projects outstanding). We believe this will reflect in the
upcoming earnings season (3QFY14) in the form of muted order book and
revenue growth. The uptick in government new investment will likely take
a few quarters to start reflecting in execution, and we remain concerned
about limited private sector announcements of new projects. With 31% of
the projects accepted having been fully addressed by the CCI, real
implementation of those will be key to re-start the capex cycle in our view.
Prefer quality with better visibility on growth
Given our expectation of a gradual capex recovery, we prefer structural
winners having quality execution and growth visibility. Our preferred pick
in the Infrastructure space is L&T (CL-Buy, 12-month TP Rs1064). We like
L&T because of its high order book coverage, execution ability and strong
balance sheet. We believe L&T is best positioned to benefit from a
potential recovery in the domestic investment cycle. We retain a Sell on
BHEL (Sell, 12-month TP Rs110) given lack of growth and our expectation
of declining returns for the stock due to negative operating leverage. Key
risks: Downside: Continued slowdown and high interest rates; Upside: Pickup
in capex and faster interest rate cuts.

Goldman Sachs -China Portfolio Strategy :: PDF link

http://www.docstoc.com/docs/162350931/Goldman-Sachs--China-Portfolio-Strategy

Goldman Sachs - The China credit conundrum :: PDF link

http://www.docstoc.com/docs/162350943/Goldman-Sachs---The-China-credit-conundrum

Goldman Sachs -CEEMEA Economics Analyst:: PDF link

http://www.docstoc.com/docs/160664853/Goldman-Sachs--CEEMEA-Economics-Analyst

Goldman Sachs - Global Chartbook:: PDF link

http://www.docstoc.com/docs/160683991/Goldman-Sachs----Global-Chartbook

Goldman Sachs -Where to Invest Now :: PDF link

http://www.docstoc.com/docs/160684845/Goldman-Sachs--Where-to-Invest-Now

Goldman Sachs -Behind the numbers- ahead of the market :: PDF link

http://www.docstoc.com/docs/160664856/Goldman-Sachs---Behind-the-numbers_-ahead-of-the-market

Goldman Sachs - The Mortgage Analyst :: PDF link

http://www.docstoc.com/docs/160664849/Goldman-Sachs---The-Mortgage-Analyst

Goldman Sachs -Market views

http://www.docstoc.com/docs/160615205/Goldman-Sachs----Market-views

Goldman Sachs - The rally needs earnings

http://www.docstoc.com/docs/160615177/Goldman-Sachs----The-rally-needs-earnings

Goldman Sachs -The consequences of China’s actions :PDF link

http://www.docstoc.com/docs/160572427/Goldman-Sachs--The-consequences-of-China%E2%80%99s

Goldman Sachs -Down but not out :PDF link

http://www.docstoc.com/docs/160572426/Goldman-Sachs--Down-but-not-out

India: Downgrading our GDP and INR forecasts; more near-term momentum in China ::Goldman Sachs

Cutting growth forecasts for South and Southeast Asia; more near-term momentum in China
We are cutting our growth forecasts for India and most of Southeast Asia,
reflecting more difficult external funding conditions for the region as
markets increasingly anticipate US Fed “tapering” and eventual exit from
unconventional monetary policies. The largest downward revisions are in
India, followed by Indonesia, then Thailand and Malaysia. This reflects the
principle that countries with larger macro imbalances (particularly external
deficits) have faced greater financing pressures and consequently more
growth headwinds.
In India, we have cut our FY14 real GDP growth forecast to 4.0%, from 6.0%
previously, and our FY15 forecast to 5.4%, from 6.8% previously. Inflation
is likely to be temporarily higher given the effects of a weaker currency on
domestic prices. We expect the rupee to reach 72 per US dollar in 6
months’ time, recovering to 70 over a 12-month horizon.
In Southeast Asia, we have cut growth forecasts for Indonesia, Thailand,
and Malaysia between 40-70 bp each in 2013 and 2014, with a smaller
adjustment in Singapore. We reflect a stronger trajectory for the
Philippines in the first half of 2013, but also expect it to slow somewhat
next year.
Given external pressures and high inflation, we expect a further 75 bp of
policy rate hikes by Bank Indonesia before the end of the year. Inflation
and funding pressures look significantly milder outside Indonesia, and
should allow other central banks in the region to wait until mid-2014 before
hiking rates.
In contrast, the near-term outlook for China has brightened somewhat.
Growth appears to have accelerated in Q3, with signs of a pickup in
external demand and supportive domestic policies (as government policy
announcements help boost sentiment and investment) combining to drive
a turn in the inventory cycle. We now expect sequential growth of over 8%
in the second half of the year, pushing full-year growth just above the
government’s policy target.

Goldman Sachs, Buy Tata Motors: JLR’s product cycle roars towards inflection; add to Conviction List

Buy
Tata Motors (TAMO.BO)
Return Potential: 27% Equity Research
JLR’s product cycle roars towards inflection; add to Conviction List
Source of opportunity
We add Tata Motors to our Conviction Buy List with a revised 12-m TP of
Rs368. We believe JLR is in a decisive phase of its multi-year product cycle,
as its average model age converges with European rivals over FY14E-FY15E
(currently 40% older), and its strongest brands get repositioned on an
innovative new aluminum platform. Our recent visit to its plants further
reinforced our view of a company which is rapidly transforming its
operations to support the step up in its product cycle. We revise our FY14EFY16E EPS by -6% to +2% (mainly driven by weakness in India earnings)
and are about 20% above Bloomberg consensus on FY14E-FY15E EPS.
Catalyst
We see three key catalysts – 1) Improving market confidence on cash flow
and EBIT margin sustainability over the next few quarters, as JLR reaps the
benefits of new models and an improving mix. We forecast consolidated
PBT to see a 30% CAGR over FY13-FY15E. 2) New product introductions or
announcements over next 12 months, such as new aluminum Discovery
and new variants of Range Rover and Evoque. 3) Significant phase of
annual product restocking in 2HFY14E, with improving deliveries to key
markets such UK and China, with the ramp-up in new Range Rover Sport.
Valuation
We raise our 12-m SOTP-based TP to Rs368 (from Rs361) based on revised
earnings and rolling forward to FY15E. Tata Motors is trading at over 20%
discount to global peers on Director’s Cut, and appears to be close to the
historical trough on BMW’s EV/DACF trading range. We also believe that the
current stock price arguably reflects the worst case for the parent India
business. Further, we note that its DVRs are currently trading at 48%
discount to the common stock.
Key risks
1) Higher cyclical pressure on the Indian truck demand front; 2) Higher fixed
costs from product launches; and 3) Stricter environmental regulations.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List

Goldman Sachs, Reliance Industries - Above expectation on other income; E&P, Capex outlook positive

COMPANY UPDATE
Reliance Industries (RELI.BO)
Buy Equity Research
Above expectation on other income; E&P, Capex outlook positive
What's changed
Reliance Industries (RIL) reported 1QFY14 PAT of Rs53.5bn, slightly higher than
Bloomberg consensus/GSe of Rs52.7/52.9bn, primarily due to higher than
expected other income (Rs25bn vs GSe of Rs22bn). Gross refining margin at
US$8.4/bbl was in line with our estimate, while petchem margins were slightly
lower than our estimates. Our key takeaways from the earnings meeting are: 1)
RIL management sounded more positive on the E&P outlook and regulatory
environment and is expecting the approvals for R Series fields in the next few
weeks. 2) Management indicated that all the major expansion projects are on
track with the two major projects - Petcoke gasification and refinery off gas
cracker (ROGC) – and expects them to be completed by mid-2015 as planned,
which is earlier than our expectation of 2HFY16. 3) Forex loss was Rs3.3bn on
interest expense and Rs53bn related to project-related LT debt was capitalized.
Implications
With the gas price hike announcement, faster E&P project approvals by govt
and the recent MJ-1 discovery, we think RIL management’s confidence in its
E&P business is increasing. We believe the effective implementation of the gas
price hike decision could help RIL ramp up KG-D6 gas production to a peak level
of about 50 mmscmd by FY17-18. Also, the new ventures of US Shale and
Domestic Retail are growing faster than we expected with US Shale EBITDA at
more than 10% of total and Retail revenues growing at more than 50% yoy. As
discussed in our August 16, 2012 report “Core capex to lift returns, rerate stock;
roadmap to US$100bn mkt cap. Buy”, we continue to believe that RIL’s major
capex in core segments will lead to a structural rise in its margins and cash
returns (+200 bps) over the medium term. This should re-rate the stock, in our
view, and pave the way for a near-doubling of earnings by FY17.
Valuation
We maintain our Buy rating and 12-month SOTP-based TP of Rs1,085.
Key risks
Low refining margin; further weakness in petchem margins.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral

Goldman Sachs, maintain our Buy rating on Bajaj Auto

Bajaj (BJAUT IN, Buy, off Conviction List)
What happened
We maintain our Buy rating on Bajaj Auto and continue to remain positive on
company fundamentals. However, we remove the stock from our conviction
list and replace it with Tata Motors where we see higher relative upside on
account of the strong product cycle at JLR (currently at its inflection point).
Since we placed Bajaj Auto on our conviction list on Feb 15 2012, the stock is
up 14.7% vs. Sensex/BSE Auto Index up 8.8%/10.3% respectively.
Current view
Structurally, we remain positive on the global 2-wheeler space, due to
relatively consolidated nature of the industry, and growing base of consumers
at the bottom of the global economic pyramid. (See India Auto:
Deconstructing the 2-wheeler value creation engine; Buy Bajaj Auto, Feb. 15
2012. However, we cut our FY14E-16E EPS estimates by 9% to 14% on
account of the weak domestic 2-wheeler demand outlook given the backdrop
of continued weak consumer sentiment due to persistently high inflation
(especially CPI) and interest rates in the economy. We now see flattish 2-
wheeler domestic demand growth forecast for FY14 vs. prior assumptions of
11% growth with pick up in FY15/16 to 14%/12%.
We continue to maintain our positive stance on Bajaj Auto and maintain our
Buy rating as we still prefer the relatively more defensive 2-wheeler segment
when compared to rate sensitive pockets like passenger cars and trucks. Bajaj
Auto continues to deliver top quartile CROCI and industry leading EBITDA
margins on account of: 1) premium segment exposure in 2Ws, 2) first mover
advantage in exports, 3) FX benefits on account of INR depreciation as 33% of
its sales (in FY13) is derived from exports, and 4) exposure to higher margin
3-wheeler segment expected to get boost in the near term especially in
domestic markets with sanction of new permits in Hyderabad (~20K) and
Maharashtra (~30K). The stock is also on the GS SUSTAIN Focus List. Our cut
to EPS estimates are driven by sluggish domestic 2W demand but we still
remain positive on export growth outlook both for 2Ws and 3Ws. We raise
our 12-month P/E-based target price by 6% to Rs2,390 from Rs2,260 as we roll
forward to FY15E based target price. We now assign a higher target multiple
of 16.5X vs. prior 16X due to improved export growth and margin outlook as
well as relatively defensive nature of Bajaj Auto’s earnings, in our view.
Risks: 1) Longer-than-expected resolution of ongoing labor strike at Chakan
plant and any potential spill-over to other plants leading to loss of retail sales
and market share, 2) better-than-expected success of competitors such as
Honda and Yamaha, 3) higher raw material costs, 4) lower demand in India or
overseas markets, and 5) lower-than-expected consumer confidence.

Goldman Sachs, Federal Bank (FED.BO)err group Below expectations on higher provisions and lower top line

Federal Bank (FED.BO)
Buy Equity Research
Below expectations on higher provisions and lower top line
What surprised us
FED reported 1QFY14 PAT of Rs1.1bn, -44% yoy and 56%/50% below
Gse/Bloomberg on higher loan loss provisioning and lower top line,
although asset quality showed an improvement. Key highlights: 1) Asset
quality improved as GNPLs declined 5% qoq on fresh slippages that
moderated to 3.2% from 3.8% in 4QFY13. Even the fresh stress loan
formation (fresh slippages + fresh restructuring – slippages from
restructuring) was much lower at 2.5%; 2) Credit costs came in much
higher at 2.3% vs GSe 0.6%, as the bank chose to fully provide against one
large account, NAFED, an Indian govt. entity; 3) Coverage ratio improved
c.200bps to 83%, though the bank aggressively wrote off NPLs during the
quarter; 4) NIM expansion of 6bps qoq was limited as credit-deposit (CD)
ratio dropped to 72.4%, 414bps lower sequentially; 5) The drop in CD ratio
was triggered by strong growth in NRE deposits (13% qoq vs -1% qoq for
total deposits) and moderation in loan growth across all segments as the
bank turned cautious due to a challenging macro environment; 6) Savings
deposits grew 8% qoq, primarily led by higher growth in NRE savings
deposits (+14% qoq). The SA ratio moved up to 24.2%, +210bps vs
4QFY13; 7) Growth in mortgage continued (+5% yoy and 2% qoq), though
the volatility in gold loan prices has led to a sequential contraction in the
bank’s gold loan book.
What to do with the stock
We lower our FY14-16E EPS by 3-13% to factor in higher provisions and
lower NII. Consequently, we lower our 12-m RIM-based TP to Rs510 (from
Rs530), but maintain Buy. Key risks: Higher slippages, lower loan growth,
and missteps in execution of strategy.

Goldman Sachs, ACC (ACC.BO) err group 2QCY13 earnings in line; overshadowed by group restructuring

ACC (ACC.BO)
Neutral Equity Research
2QCY13 earnings in line; overshadowed by group restructuring
What surprised us
ACC reported 2QCY13 pre-exceptionals PAT of Rs2.62bn (-6% qoq, -37%
yoy), largely in line with GSe of Rs2.65bn. Key takeaways: 1) EBITDA at
Rs4.34bn (-5% qoq,-33% yoy) was largely in line with GSe of Rs4.27bn; 2)
net sales declined 4% qoq/yoy to Rs27.95bn (GSe Rs27.79bn; 3) cement
volumes increased 1%yoy to 6.12mt (-5% qoq) while cement ASP
increased 1% qoq to Rs4,298/t (-4% yoy). 4) Cement EBITDA/T remained
flat qoq at Rs703/t (-34% yoy); 4) overall EBITDA margin remained flat qoq
at 16%; 5) cement EBITDA declined 5% qoq to Rs4.3bn (-33%yoy) while
RMC EBITDA declined 20% qoq to Rs40mn (-33% yoy).
We believe the group restructuring announced yesterday is likely to
overshadow the 2QCY13 results.
What to do with the stock
We remain Neutral on ACC with a 12-month Director's Cut-based target
price of Rs1,250. Holcim plans to sell its 50.03% stake in ACC to Ambuja at
approx. US112/t – see ‘Ambuja to acquire 50% stake in ACC from Holcim’
dated July 25, 2013. We see limited upside for ACC as it is trading at 9.2X
FY14E EV/EBITDA (at higher end of historical range). We reiterate our
cautious view on large cap cement stocks due to expensive valuations.
ACC’s capacity expansion of 5mt is back-ended and scheduled to come onstream only by CY15. We believe cement demand and prices are likely to
remain weak in the near term, which could be an overhang on cement
stocks. Key risks – Upside: Cement demand and prices rising significantly;
Downside: Margins declining due to continued weak cement demand.
ACC’s 2QCY13 earnings were largely in line with our estimates

Goldman Sachs, HDFC- Below expectations on lower top line/spreads; Retain Sell

EARNINGS REVIEW
Housing Development Finance Corporation
Sell Equity Research
Below expectations on lower top line/spreads; Retain Sell
What surprised us
HDFC reported 1QFY14 PAT of Rs11.7bn (+17% yoy), 6% below GSe and
2% below Bloomberg consensus. Adjusting for dividends, PAT grew 13.5%
yoy and missed our estimates by 11%. Key highlights: 1) NII came in at
Rs15.2bn (+17% yoy), 10% below Gse as cost of funds (calculated) came in
higher than our estimates. 2) Lending spreads (calculated) declined 34bp
yoy on higher cost of funds and lower yields as high yield developer book
grew at a modest pace of 11% yoy. 3) Non-interest income was 6% ahead
of Gse on higher dividend (Rs 2.2bn, +28% vs Gse) and fee income (+4% vs
Gse, +12% yoy) while capital gains booked during the quarter were nil. 4)
Disbursements grew a healthy 17% yoy, 2% above GSe, driven by the
individuals segment. Loan book grew 19% yoy, led by loans to individuals,
which grew a strong 24% yoy (+6% qoq). 5) Asset quality remained stable
as gross NPLs were at 0.8% of loans but NPLs on the non-individual loan
book have now moved up to 1.1% (+17bps qoq and +8bps yoy). HDFC
booked provisions of Rs300mn (33% below GSe) vs. GSe of Rs448mn.
Going forward, with the interest rate shifting upwards (1Y/10Y yields up
40-140bps respectively), lending spreads could remain under pressure in
the coming quarters.
What to do with the stock
We fine tune our FY14E-FY16E EPS estimates to incorporate trends seen in
1QFY13 but retain our 12m SOTP-based TP of Rs740. HDFC is currently
trading at 3.5X FY14E core mortgage book and 18X standalone FY14E EPS,
valuations which are at a premium and not reflective of the rising
competition in the housing finance space which could put pressure on
profitability. Risks: higher spreads, lower-than-estimated competition

Goldman Sachs, Yes Bank - In line with expectations on core, growth at attractive valuations; Buy

EARNINGS REVIEW
Yes Bank (YESB.BO)
Buy Equity Research
In line with expectations on core, growth at attractive valuations; Buy
What surprised us
YESB reported 1QFY14 PAT of Rs4bn (+38% yoy), which is 9% above GSe and
6% above Bloomberg consensus. Core was inline. Key highlights: 1) NII grew
40% yoy to Rs6.6bn (2% below GSe) driven by 24% yoy growth in advances and
20bps yoy improvement in NIMs to 3% (flat qoq). We believe the spike in shortterm borrowing costs will be offset by higher CASA and lending rates. 2) CASA
ratio increased 130bps qoq to 20.2% driven by 10% qoq growth in savings
deposits while total deposits declined 3% qoq. We expect CASA to improve to
30% by FY16 vs. management guidance of 30% by FY15. 3)Non-interest
income saw robust growth of 53% yoy (28% above GSe) led by financial market
income that grew 84% yoy due to MTM gains on investments. However, given
recent rise in bond prices, YESB will likely not have any gains to book. Income
excluding treasury grew 37% yoy. 4)Operatingexpenses rose sharply (+40%
yoy, 9% above GSe) as the bank added 45 branches and over 430 employees in
1QFY14. 5) Asset quality remained stable with gross/net NPLs at 0.2%/0.03% of
loans. YESB made provisions of Rs971mn (GSe Rs687mn) or 0.8% of loans,
most of it towards floating provisions. While PCR dropped to 88.5% from 92.6%
in 4QFY13, the bank’s general and floating provisions stood at 1% of loans. Tier
1 ratio (Basel III) stands at 9.5%, comfortable to grow book modestly.
What to do with the stock
We tweak FY14E-16E EPS on 1QFY14 trends and retain our 12m RIM-based TP
of Rs600. Recent RBI moves to reduce liquidity in the system have led the stock
to fall 13% in the last 1M. While cyclical pressures exist, we think the market has
overreacted and is ignoring YESB’s growth potential as it expands its branch
presence, CASA ratio and market share. YESB is trading at 2X FY14E BV vs. EPS
CAGR of 23% (FY13-FY16E) and avg. ROA of 1.6% (FY14E-16E). We find
valuations compelling; still Buy. Risks: higher interest rates, slower growth