Please refer to important disclosures at the end of this report Weekly Review eekly Review eekly Review eekly Review eekly Review August 7, 2010 Markets bounce back The Indian stock market ended on a positive note during the week, amidst sessions marked by volatility, with the Sensex and Nifty ending higher by 1.5% and 1.3%, respectively. BSE mid-cap and BSE small-cap indices continued to outperform their large-cap counterparts and closed higher by 1.7% and 2.5%, respectively, during the week. The market opened the week on a positive note and mostly traded above the 18,000 mark during the week. Factors such as strong sales reported by auto firms for July 2010, decent set of numbers from banking stocks and revival of the monsoons kept the sentiment positive during the week. However, worries that the Central Bank might raise interest rate again in a mid-quarter policy review also weighed on investors' sentiment. On the sectoral front, most of the sectoral indices ended in green, with the BSE IT index and BSE Bankex gaining the maximum of 3.0% and 2.2%, respectively. BSE IT index up 3%, outperforms the Sensex The BSE IT index gained 3% over the previous week, outperforming the Sensex, which gained 1.5%. The weekly momentum of the BSE IT index gathered strength, with IT companies viz. Wipro, HCL Tech, Mphasis, TCS, Infosys and Tech Mahindra gaining 5.4%, 5.0%, 4.8%, 2.9%, 2.7% and 2.7%, respectively. This was despite the 0.8% appreciation in average INR v/s US Dollar during the week. The surge in the index can be attributed to strong operational results posted by some of these companies for the quarter ended June 2010, specifically TCS and Wipro amongst Indian IT companies, while the MNC IT company Cognizant delivered robust operational profitability for the quarter. Most of these companies have exhibited a positive IT demand environment and are witnessing a pick-up in discretionary IT spends, which would strongly drive their volume growth in the coming quarters. We remain positive on the sector e remain positive on the sector e remain positive on the sector e remain positive on the sector e remain positive on the sector. Inside This Weekly Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo (ABNL) is a diversified conglomerate and the holding company of several subsidiaries. We have valued ABNL on an SOTP basis and assigned 20% conglomerate discount. We recommend Buy on the stock with a Target Price of Rs1,166. ICICI Bank -1QFY2011 Result Update: ICICI Bank -1QFY2011 Result Update: ICICI Bank -1QFY2011 Result Update: ICICI Bank -1QFY2011 Result Update: ICICI Bank -1QFY2011 Result Update: ICICI Bank's net profit increased 16.8% yoy, which was in line with our estimates. The key positive of the results was a sharp declining trend in slippages from retail loans for the fifth consecutive quarter and a huge reduction in NPA provisioning burden. We maintain Buy on the stock with a T e maintain Buy on the stock with a T e maintain Buy on the stock with a T e maintain Buy on the stock with a T e maintain Buy on the stock with a Target P arget P arget P arget P arget Price of Rs1,163. rice of Rs1,163. rice of Rs1,163. rice of Rs1,163. rice of Rs1,163. Alembic -1QFY2011 Result Update: Alembic -1QFY2011 Result Update: Alembic -1QFY2011 Result Update: Alembic -1QFY2011 Result Update: Alembic -1QFY2011 Result Update: Alembic reported below expectation numbers for 1QFY2011, impacted by a decline in API exports. Domestic formulation sales grew by 5.5% yoy on the back of the restructuring exercise undertaken by the company over the last one year, which improved working capital management, resulting in lower debt levels. We maintain Buy on the e maintain Buy on the e maintain Buy on the e maintain Buy on the e maintain Buy on the stock with a T stock with a T stock with a T stock with a T stock with a Target P arget P arget P arget P arget Price of Rs74. rice of Rs74. rice of Rs74. rice of Rs74. rice of Rs74. Note: Stock Prices are as on Report release date; Refer all Detailed Reports on Angel website. Global Indices Indices July Aug. Weekly YTD 30, 10 6, 10 (% chg) BSE 30 17,868 18,144 1.5 3.9 NSE 5368 5439 1.3 4.6 Nasdaq 2,255 2,288 1.5 0.9 DOW 10,466 10,654 1.8 2.2 Nikkei 9,537 9,642 1.1 (8.6) HangSeng 21,030 21,679 3.1 (0.9) Straits Times 2,984 2,995 0.4 3.4 Shanghai Composite 2,638 2,658 0.8 (18.9) KLSE Composite 1,361 1,360 (0.0) 6.9 Jakarta Composite 3,069 3,061 (0.3) 20.8 KOSPI Composite 1,759 1,784 1.4 6.0 Indices July Aug. Weekly YTD 30, 10 6, 10 (% chg) BANKEX 11,540 11,793 2.2 17.6 BSE AUTO 8,424 8,533 1.3 14.7 BSE IT 5,475 5,639 3.0 8.7 BSE PSU 9,577 9,574 (0.0) 0.4 Sectoral Watch (Rs crore) Cash Futures Net As on (Equity) Activity Jul 30 1,040 (608) 433 Aug 02 864 1,007 1,871 Aug 03 677 656 1,333 Aug 04 742 149 891 Aug 05 167 (295) (128) Net Net Net Net Net 3,491 3,491 3,491 3,491 3,491 909 909 909 909 909 4,400 4,400 4,400 4,400 4,400 FII activity (Rs crore) As on Purchases Sales Net Activity Jul 29 702 875 (173) Jul 30 602 568 34 Aug 02 578 605 (27) Aug 03 574 701 (128) Aug 04 485 672 (187) Net Net Net Net Net 2,941 2,941 2,941 2,941 2,941 3,421 3,421 3,421 3,421 3,421 (480) (480) (480) (480) (480) Mutual Fund activity (Equity)
Transcript
Please refer to important disclosures at the end of this report
The Indian stock market ended on a positive note during the week, amidstsessions marked by volatility, with the Sensex and Nifty ending higher by1.5% and 1.3%, respectively. BSE mid-cap and BSE small-cap indicescontinued to outperform their large-cap counterparts and closed higher by1.7% and 2.5%, respectively, during the week. The market opened the weekon a positive note and mostly traded above the 18,000 mark during theweek. Factors such as strong sales reported by auto firms for July 2010,decent set of numbers from banking stocks and revival of the monsoonskept the sentiment positive during the week. However, worries that theCentral Bank might raise interest rate again in a mid-quarter policy reviewalso weighed on investors' sentiment. On the sectoral front, most of thesectoral indices ended in green, with the BSE IT index and BSE Bankex gainingthe maximum of 3.0% and 2.2%, respectively.
BSE IT index up 3%, outperforms the Sensex
The BSE IT index gained 3% over the previous week, outperforming theSensex, which gained 1.5%. The weekly momentum of the BSE IT indexgathered strength, with IT companies viz. Wipro, HCL Tech, Mphasis, TCS,Infosys and Tech Mahindra gaining 5.4%, 5.0%, 4.8%, 2.9%, 2.7% and2.7%, respectively. This was despite the 0.8% appreciation in averageINR v/s US Dollar during the week. The surge in the index can be attributedto strong operational results posted by some of these companies for thequarter ended June 2010, specifically TCS and Wipro amongst Indian ITcompanies, while the MNC IT company Cognizant delivered robustoperational profitability for the quarter. Most of these companies haveexhibited a positive IT demand environment and are witnessing a pick-up indiscretionary IT spends, which would strongly drive their volume growth inthe coming quarters. WWWWWe remain positive on the sectore remain positive on the sectore remain positive on the sectore remain positive on the sectore remain positive on the sector.....
Inside This Weekly
Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo - Quick take: Aditya Birla Nuvo (ABNL) is a diversifiedconglomerate and the holding company of several subsidiaries. We havevalued ABNL on an SOTP basis and assigned 20% conglomerate discount.We recommend Buy on the stock with a Target Price of Rs1,166.
ICICI Bank -1QFY2011 Result Update: ICICI Bank -1QFY2011 Result Update: ICICI Bank -1QFY2011 Result Update: ICICI Bank -1QFY2011 Result Update: ICICI Bank -1QFY2011 Result Update: ICICI Bank's net profit increased16.8% yoy, which was in line with our estimates. The key positive of theresults was a sharp declining trend in slippages from retail loans for the fifthconsecutive quarter and a huge reduction in NPA provisioning burden.WWWWWe maintain Buy on the stock with a Te maintain Buy on the stock with a Te maintain Buy on the stock with a Te maintain Buy on the stock with a Te maintain Buy on the stock with a Target Parget Parget Parget Parget Price of Rs1,163.rice of Rs1,163.rice of Rs1,163.rice of Rs1,163.rice of Rs1,163.
Alembic -1QFY2011 Result Update: Alembic -1QFY2011 Result Update: Alembic -1QFY2011 Result Update: Alembic -1QFY2011 Result Update: Alembic -1QFY2011 Result Update: Alembic reported below expectationnumbers for 1QFY2011, impacted by a decline in API exports. Domesticformulation sales grew by 5.5% yoy on the back of the restructuring exerciseundertaken by the company over the last one year, which improved workingcapital management, resulting in lower debt levels. WWWWWe maintain Buy on thee maintain Buy on thee maintain Buy on thee maintain Buy on thee maintain Buy on thestock with a Tstock with a Tstock with a Tstock with a Tstock with a Target Parget Parget Parget Parget Price of Rs74.rice of Rs74.rice of Rs74.rice of Rs74.rice of Rs74.
Note: Stock Prices are as on Report release date; Refer all Detailed Reports on Angel website.
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Aditya Birla Nuvo - Buy
Aditya Birla Nuvo (ABNL) is a diversified conglomerate and theholding company of several subsidiaries having businessinterests in insurance, asset management, financial services,garments, carbon black, insulators, rayon, fertilisers, IT andITeS businesses. The company also holds ~25% stake in IdeaCellular.
Quick take - Deep Value
Research Analyst - Viraj Nadkarni
On account of the diverse nature of ABNL's businesses, we haveadopted the sum-of-the-parts (SOTP) methodology to evaluatethe company.
Valuation Methodology
a) Manufacturing business: Manufacturing business: Manufacturing business: Manufacturing business: Manufacturing business: The company's manufacturingbusiness constitutes carbon black, fertilisers, insulators, rayonand textiles, which we have valued on EV/EBIDTA basis.
b) Garment:Garment:Garment:Garment:Garment: We have valued this segement on EV/Sales basis,as the company has yet to report profit at the EBIDTA level.
c) ITITITITIT-IT-IT-IT-IT-ITeSeSeSeSeS: : : : : We have valued the IT-ITeS segment (88.3%) holdingof ABNL) on Mcap/Sales basis, as the business is at thestabilisation stage.
d) Other FOther FOther FOther FOther Financial Services (excluding Birla Sunlife AMC):inancial Services (excluding Birla Sunlife AMC):inancial Services (excluding Birla Sunlife AMC):inancial Services (excluding Birla Sunlife AMC):inancial Services (excluding Birla Sunlife AMC): Thecompany's Other Financial Services (excluding Birla SunlifeAMC) comprise the NBFC, broking, private equity, wealthmanagement and general insurance advisory segments. Wehave valued this segment on P/E basis.
e) Life Insurance business: Life Insurance business: Life Insurance business: Life Insurance business: Life Insurance business: ABNL holds 74% stake in itsinsurance arm. We have valued the segment on the basis of'Embedded Value' and 'Value for New Business' declared by thecompany in 1QFY2011. We have assigned a holding companydiscount of 20% to ABNL's stake value.
f) Asset Management:Asset Management:Asset Management:Asset Management:Asset Management: ABNL holds 50% in Birla Sunlife AssetManagement Company (BSAMC). We have valued the AMC at3.5% of the assets under management (AUM) as declared bythe company in 1QFY2011.
g) TTTTTelecom: elecom: elecom: elecom: elecom: ABNL holds 25.4% stake in Idea Cellular (Idea).We have valued this stake on the basis of market cap of Idea atour target price of Rs55 and assigned 30% holding companydiscount to the same.
h) We have considered net debt, on a standalone basis, as wehave valued the standalone businesses on the EV parameter.
Outlook and Valuation
ABNL has started delivering improved performance in itsmanufacturing businesses. The BPO and garments businesseshave been profitable since the last two quarters. The insurancebusiness and the AMC are also well geared to benefit from thesignificant market opportunity lying ahead. We have valuedABNL on SOTP basis and assigned 20% conglomerate discount.WWWWWe recommend a Buy on the stock, with a Te recommend a Buy on the stock, with a Te recommend a Buy on the stock, with a Te recommend a Buy on the stock, with a Te recommend a Buy on the stock, with a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice ofRs1,166.Rs1,166.Rs1,166.Rs1,166.Rs1,166.
ABNL's Business Structure
Source: Company, Angel Research
Price - Rs811Target Price - Rs1,166
SOTP valuation
August 7, 2010
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3i Infotech - Buy
Performance Highlights
3i Infotech reported subdued results, with the top line witnessingminiscule growth of 1.4% qoq. Despite slight EBITDA margindip, the company reported net profit in 1QFY2011 v/s net losswitnessed in 4QFY2010.
3i Infotech recorded subdued 1QFY2011 performance:3i Infotech recorded subdued 1QFY2011 performance:3i Infotech recorded subdued 1QFY2011 performance:3i Infotech recorded subdued 1QFY2011 performance:3i Infotech recorded subdued 1QFY2011 performance: 3iInfotech's top line grew by 1.4% qoq (6.6% yoy) to Rs637cr, ledby 2.6% qoq growth in IT solutions business (the erstwhileproducts segment and the IT services segment will be clubbedunder the IT solutions business segment from 1QFY2011).Despite a 10% wage hike effective in 1QFY2011, 3i Infotechwas able to maintain EBITDA margin at 19.5%, therebywitnessing a slight dip of 26bp qoq (46bp yoy). Depreciationcosts increased on a sequential basis, while the tax rate increasedto 7.5% in 1QFY2011 from 5.9% in 4QFY2010. Thus, thebottom line excluding one-time exceptional income andexpenses declined by 25.7% qoq (up 3.9% yoy) to Rs61cr, whilethe bottom line including one-time exceptional income andexpenses stood at Rs61cr in 1QFY2011 compared to a net lossof Rs167cr in 4QFY2010 (on account of write-off related tothe Kiosk business), but was down by 29.5% yoy.
ReReReReRe-----defining business to derive better value proposition: defining business to derive better value proposition: defining business to derive better value proposition: defining business to derive better value proposition: defining business to derive better value proposition: Theclubbing of the erstwhile products segment and the IT servicessegment under the IT solutions business segment would help 3iInfotech to meet the upcoming demand for the bundled offeringsof IT products and services. Further, through the company'sglobal delivery centres, these integrated offerings are expectedto get a boost in demand, which will enhance the valueproposition in the IT solutions business by undertaking severalcross-selling and up-selling opportunities.
Management's FY2011E guidance maintained: Management's FY2011E guidance maintained: Management's FY2011E guidance maintained: Management's FY2011E guidance maintained: Management's FY2011E guidance maintained: Managementcontinued to maintain its top-line growth guidance in the rangeof Rs2,740cr-2,814cr for FY2011E, a yoy increase of 11-14%.This is represented by a strong pipeline with a pending order
Price - Rs64Target Price - Rs100
1QFY2011 Result Update
Research Analyst - Vibha Salvi
Source: Company, Angel Research; Price as on August 3, 2010
Key Financials (Consolidated)
Net salesNet salesNet salesNet salesNet sales 2,2862,2862,2862,2862,286 2,4492,4492,4492,4492,449 2,7562,7562,7562,7562,756 3,2003,2003,2003,2003,200
% chg 89.6 7.1 12.6 16.1
Net profitNet profitNet profitNet profitNet profit 282282282282282 3333333333 291291291291291 333333333333333
book position (representing assured revenue stream for the nextseven months), which currently stands at Rs1,730cr, comprising60% of IT solutions business revenue and the remaining oftransaction services business.
Outlook and valuation
3i Infotech maintained its top-line guidance in the range ofRs2,740cr-2,814cr for FY2011E, growth of 11-14% yoy. This isrepresented by a strong pipeline with a pending order bookposition, which currently stands at Rs1,730cr. We believe theclubbing of the erstwhile products segment and the IT servicessegment under the IT solutions business segment would helpthe company to meet the upcoming demand for the bundledofferings of IT products and services, thus enhancing the valueproposition in the IT solutions business. Thus, we expect 3iInfotech to post a 14% CAGR in revenue over FY2010-12E.However, the ongoing operational and growth-related initiativesare expected to exert pressure on margins, thereby resulting ina 6.4% CAGR in the bottom line over FY2010-12E. Hence, wewewewewehave revised our Thave revised our Thave revised our Thave revised our Thave revised our Target Parget Parget Parget Parget Price downwards to Rs100 (Rs129),rice downwards to Rs100 (Rs129),rice downwards to Rs100 (Rs129),rice downwards to Rs100 (Rs129),rice downwards to Rs100 (Rs129),implying a P/E multiple of 6x FY2012E earnings and continueimplying a P/E multiple of 6x FY2012E earnings and continueimplying a P/E multiple of 6x FY2012E earnings and continueimplying a P/E multiple of 6x FY2012E earnings and continueimplying a P/E multiple of 6x FY2012E earnings and continueto maintain a Buy recommendation on the stock.to maintain a Buy recommendation on the stock.to maintain a Buy recommendation on the stock.to maintain a Buy recommendation on the stock.to maintain a Buy recommendation on the stock.
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Anant Raj Industries - Buy
Performance Highlights
Anant Raj Industries' (ARIL) 1QFY2011 results were in line withour expectations. ARIL's net sales grew by 203.4% qoq (down1.5% yoy) to Rs103cr. During the quarter, ARIL changed itsaccounting method for booking revenue to gross-sales methodfrom net-of-costs method, which resulted in lower OPM (55%).Thus, PAT grew by 48.1% qoq to Rs45.8cr. We maintain a Buyview on the stock.
1QFY2011 revenue driven by new residential launches:1QFY2011 revenue driven by new residential launches:1QFY2011 revenue driven by new residential launches:1QFY2011 revenue driven by new residential launches:1QFY2011 revenue driven by new residential launches: During1QFY2011, ARIL launched two residential projects in NCR,Kapashera (0.28mn sq. ft.) and Manesar (1mn sq. ft.) forRs5,000/sq. ft. and Rs2,500/sq. ft., respectively. The Kapasheraproperty has been entirely sold (112 flats) and ~50% of theManesar property (500 flats) has been sold out so far. Duringthe quarter, ARIL booked Rs82cr of revenue from its Kapasheraproperty.
Change in accounting method and revenue mix impactChange in accounting method and revenue mix impactChange in accounting method and revenue mix impactChange in accounting method and revenue mix impactChange in accounting method and revenue mix impactmargins:margins:margins:margins:margins: Historically, ARIL's revenue has been driven by land/FSI sale and rental income, where it booked revenue on netsales basis, excluding land cost. In 1QFY2011, ARIL changedits accounting method to gross sales, resulting in lower OPM at55%, from its high of 85-95%. We expect OPM to remain at thecurrent level, with increasing share of residential projects.
Improving visibility in rental income:Improving visibility in rental income:Improving visibility in rental income:Improving visibility in rental income:Improving visibility in rental income: ARIL's rental revenue grewby 20.7% qoq to Rs18cr. The company earned Rs4.5cr fromthe Manesar IT Park project, Rs8.1cr from three hotels, Rs1.2crfrom Karol Bagh Mall and Rs3.6cr from Jhandewalan and FaizRoad. Further, we expect ARIL's Manesar and Kirti Nagarproperties to reach their peak occupancy levels in 6-9 months,as leasing activity improves. Management has indicated thatits Kirti Nagar property (0.75mn sq. ft.) has been pre-leased tothe extent of 0.3mn sq. ft. at Rs100/sq. ft. and expects tenantsto move in by October 2010. Rentals at the Kirti Nagar Mallhave been renegotiated from Rs150/sq. ft., as indicated earlierby the management.
Price - Rs120Target Price - Rs178
1QFY2011 Result Update
Source: Company, Angel Research; Price as on August 5, 2010
During the quarter, ARIL acquired 15.5 acres (FSI of 2) of landfor Rs85cr (Rs531/sq. ft.) at Gurgaon Sec 91. The companyintends to launch it as a mid-income residential project overthe next six months. This is in line with the company's strategyto acquire land at a cheaper cost.
Outlook
ARIL is trading at 42% discount to our one-year forward NAV,which gives a margin of safety, given its low-cost land banksituated at prime locations and a well-capitalised balance sheet.WWWWWe maintain Buy on the stock with a Te maintain Buy on the stock with a Te maintain Buy on the stock with a Te maintain Buy on the stock with a Te maintain Buy on the stock with a Target Parget Parget Parget Parget Price of Rs178,rice of Rs178,rice of Rs178,rice of Rs178,rice of Rs178,which is at 15% discount to our onewhich is at 15% discount to our onewhich is at 15% discount to our onewhich is at 15% discount to our onewhich is at 15% discount to our one-year forward NA-year forward NA-year forward NA-year forward NA-year forward NAVVVVV.....
August 7, 2010
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Alembic - Buy
Performance Highlights
Alembic reported below expectation numbers for 1QFY2011impacted by de-growth on the export API front. The domesticformulation sales grew by 5.5% yoy on the back of therestructuring exercise undertaken by the company over the lastone year, which improved working capital managementresulting in lower debt levels.
Revenues below estimates, impacted by export API segment:Revenues below estimates, impacted by export API segment:Revenues below estimates, impacted by export API segment:Revenues below estimates, impacted by export API segment:Revenues below estimates, impacted by export API segment:Alembic reported revenues of Rs279.1cr (Rs290.6cr), down4.0% yoy on the back of subdued performance by the exportAPI segment. The domestic formulation sales grew by a mere5.5% to Rs145.0cr (Rs137.4cr) on account of the restructuringexercise undertaken by the company last year. As a result, debtordays of the segment fell from 80 days last year to 40 dayscurrently. The company expects the domestic formulation salesto grow in line with the industry average from next quarteronwards. During the quarter, the domestic API sales grew by astrong 76.3% yoy to Rs37.2cr (Rs21.1cr).
Exports were subdued during the quarter with sales coming inat Rs98.5cr (Rs132.0cr), down 25.4% impacted by the APIsegment. The export API segment de-grew by 37.6% to Rs65.0cr(Rs104.1cr) on the back of pricing pressure and slower volumeoff-take in the regulated markets. However, formulation salesgrew by a healthy 20.0% to Rs33.6cr (Rs28.0cr) driven by theregulated markets. The company filed 3 ANDAs during thequarter taking its cumulative filings to 31 ANDAs with 9approvals in the US.
OPM impacted by lower sales:OPM impacted by lower sales:OPM impacted by lower sales:OPM impacted by lower sales:OPM impacted by lower sales: Alembic reported OPM of 9.9%(10.3%), which was lower than estimated due tolower-than-expected sales on the domestic formulation front.The company clocked gross margins of 47.4% (46.5%) on theback of lower raw material cost (including purchase of tradedgoods), while employee expenses increased by 6.7% yoy to
Price - Rs57Target Price - Rs74
1QFY2011 Result Update
Source: Company, Angel Research; Price as on August 2, 2010
Net profit down 6%: Net profit down 6%: Net profit down 6%: Net profit down 6%: Net profit down 6%: Alembic reported net profit of Rs11.5cr(Rs 12.3cr), down 6.4% yoy on the back of lower sales duringthe quarter. On the positive front, interest cost decreased by45.4% yoy to Rs4.4cr (Rs8.1cr) as debt levels have reduced toRs360cr from Rs408cr in FY2010 following improvement inworking capital management.
Outlook and Valuation
We have valued Alembic on SOTP basis, with a Target Price ofRs74 valuing Alembic Pharma at Rs47 per share. Alembic's30% stake in Alembic Pharma has been taken at Rs11 per shareand the loss-making API business at Rs5 per share. We haveconservatively valued the land asset of 70 acre at Rs500/sq. ftresulting in Rs11 per share. WWWWWe maintain a Buy on the stock ase maintain a Buy on the stock ase maintain a Buy on the stock ase maintain a Buy on the stock ase maintain a Buy on the stock asdedededede-merger of the company into - Alembic and Alembic Pharma-merger of the company into - Alembic and Alembic Pharma-merger of the company into - Alembic and Alembic Pharma-merger of the company into - Alembic and Alembic Pharma-merger of the company into - Alembic and Alembic Pharma- is a long- is a long- is a long- is a long- is a long-term positive as it will unlock value for both the-term positive as it will unlock value for both the-term positive as it will unlock value for both the-term positive as it will unlock value for both the-term positive as it will unlock value for both thebusinesses and pave the way to rope in future investors.businesses and pave the way to rope in future investors.businesses and pave the way to rope in future investors.businesses and pave the way to rope in future investors.businesses and pave the way to rope in future investors.
August 7, 2010
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Bhushan Steel - Buy
Performance Highlights
Result highlights
Muted topMuted topMuted topMuted topMuted top-line performance led by lower sales volume:-line performance led by lower sales volume:-line performance led by lower sales volume:-line performance led by lower sales volume:-line performance led by lower sales volume: BSL'ssales volume declined by 14.4% yoy and 21.2% qoq to 309,333tonnes, of which flat sales accounted for 215,808 tonnes andlong products sales stood at 93,525 tonnes. However, on thepositive side, average gross realisation increased by 23.9% yoyand 9.3% qoq to Rs47,879/tonne. Consequently, net revenuegrew by 5.2% yoy but fell by 14.7% qoq to Rs1,373cr. The1.9mn tonne hot strip mill is under trial runs and BSL produced62,789 tonnes of hot rolled steel during the quarter. The mill isexpected to be commissioned in 2QFY2011.
EBITDEBITDEBITDEBITDEBITDA margin expands by 696bp yoy: A margin expands by 696bp yoy: A margin expands by 696bp yoy: A margin expands by 696bp yoy: A margin expands by 696bp yoy: Despite muted top-line performance, EBITDA margin expanded by 696bp yoyand 366bp qoq to 29.7% mainly on account of lowerraw-material cost. Raw-material cost as a percentage of revenuefell to 54.6% in 1QFY2011 as compared to 66.1% in 1QFY2010and 60.8% in 4QFY2010. Consequently, EBITDA grew by 37.4%yoy to Rs408cr. EBITDA/tonne increased to US $289 from US$232 in 4QFY2010 and US $169 in 1QFY2010.
Net profit came in at Rs206cr: Net profit came in at Rs206cr: Net profit came in at Rs206cr: Net profit came in at Rs206cr: Net profit came in at Rs206cr: While interest expense increasedby 60.4% yoy and 43.0% qoq to Rs79cr, interest income fell by82.8% yoy and 88.9% qoq to Rs6cr. Consequently, net profitincreased by 19.7% yoy to Rs206cr but declined 14.6% qoq.
Investment rationale
Entering a new orbit: Entering a new orbit: Entering a new orbit: Entering a new orbit: Entering a new orbit: BSL has undertaken an expansion planin Orissa to increase its foothold in the industry. With thecommissioning of its new HR plant in 2QFY2011E, BSL is movingfrom being a steel converter to a leading primary producer ofsteel, extending its presence in the steel value chain. Phase-IIIis currently under execution and is expected to come on streamby 3QFY2013E.
Net profit 206 172 19.7 241 (14.6)Source: Company, Angel Research
Research Analyst - Paresh Jain/Pooja Jain
VVVVVolume growth sweetened by increasing EBITDolume growth sweetened by increasing EBITDolume growth sweetened by increasing EBITDolume growth sweetened by increasing EBITDolume growth sweetened by increasing EBITDA/tonne:A/tonne:A/tonne:A/tonne:A/tonne: Withthe commissioning of BSL's Phase-III expansion plan, we expectsales volume to grow at a 26.2% CAGR over FY2010-15E,much higher than its peers. Despite BSL not being integrated,cost of production is expected to be low due to a) its uniquecombination of BF-EAF technology to produce steel and b) lowerconversion costs. The usage of BF-EAF technology will result inlower coal costs. Hence, we expect EBITDA to register a 42.3%CAGR over FY2010-12E through a combination of BF-EAFtechnology and low conversion cost. Thus, BSL is expected toearn EBITDA/tonne of US $331 in FY2011E and US $345 inFY2012E.
Outlook and valuation
At Rs1,559, the stock is trading at 7.3x FY2011E and 6.0xFY2012E EV/EBITDA. We expect BSL to post a 26.2% CAGR involumes over FY2010-15E on completion of its Phase-IIIexpansion plan by October 2012E along with EBITDA/tonneincreasing to US $331 in FY2011E. Moreover, with debt/equityexpected to decline from 3.3x in FY2009 to 2.0x in FY2012E,we maintain our Buy rating on the stock with a Twe maintain our Buy rating on the stock with a Twe maintain our Buy rating on the stock with a Twe maintain our Buy rating on the stock with a Twe maintain our Buy rating on the stock with a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice ofRs1,979, valuing the stock at 6.5x FY2012E EV/EBITDRs1,979, valuing the stock at 6.5x FY2012E EV/EBITDRs1,979, valuing the stock at 6.5x FY2012E EV/EBITDRs1,979, valuing the stock at 6.5x FY2012E EV/EBITDRs1,979, valuing the stock at 6.5x FY2012E EV/EBITDAAAAA.....
Source: Company, Angel Research; Price as on August 2, 2010
Key Financials
Net salesNet salesNet salesNet salesNet sales 4,9434,9434,9434,9434,943 5,6415,6415,6415,6415,641 6,2906,2906,2906,2906,290 7,1317,1317,1317,1317,131
% chg 18.3 14.1 11.5 13.4
Net profitNet profitNet profitNet profitNet profit 421421421421421 829829829829829 968968968968968 1,2591,2591,2591,2591,259
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Godawari Power & Ispat - Buy
Performance Highlights
Mediocre 1QFY2011: Mediocre 1QFY2011: Mediocre 1QFY2011: Mediocre 1QFY2011: Mediocre 1QFY2011: GPIL's net revenue fell by 9.6% yoy toRs196cr on account of: a) reduced production of sponge irondue to technical issues (61,535 tonnes v/s 69,808 tonnes in1QFY2010 and 80,359 tonnes in 4QFY2010), and b) lowersales of billets and ferro alloys as GPIL had temporarily shutdown the steel plant and sold power at attractive realisations ofRs 5.12/unit. Sponge iron realisation increased by 22.5% yoy(flat sequentially) to Rs15,365/tonne. Pellet production movedup to 55,396 tonnes from 48,305 tonnes in 4QFY2010.Average pellet realisation stood at Rs7,252/tonne.
EBITDEBITDEBITDEBITDEBITDA margins disappointA margins disappointA margins disappointA margins disappointA margins disappoint: Although EBITDA margins grewby 383bp to 18.4% yoy, sequentially margins dipped by 119bp.This was mainly on account of: a) increase in coal cost toRs3,000/tonne from Rs2,800/tonne in 4QFY2010, andb) usage of high-priced iron ore from NMDC (32,000 tonnes),which resulted in incremental costs of ~Rs10cr. Consequently,EBITDA increased 14.1% yoy to Rs36cr, but fell by 22.8% qoq.Net income came in lower by 12.8% yoy to Rs13cr.
Key result Highlights
Production of sponge iron was low during the quarter dueto technical problems. Management is trying to resolve the issueand production is expected to be on similar lines in 2QFY2011.
Pellet production in 2QFY2011 is expected to be at samelevels as in 1QFY2011.
During the quarter the company sold ~10,000 tonnes ofiron ore purchased from NMDC to third parties, which isexpected to have contributed ~Rs1.0cr to the operating profit.
The sponge iron plant is expected to use high-priced ironore (~10,000 tonnes) in 2QFY2011 also. This is mainly onaccount of high magnetic content in the iron ore from its AriDongri mines. We expect the usage to decrease as pelletproduction stabilises.
Price - Rs236Target Price - Rs313
1QFY2011 Result Update
Research Analyst - Paresh Jain/Pooja Jain
Source: Company, Angel Research, Price as on August 4, 2010
In the current quarter (2QFY2011), the company hasrestarted the billet and ferro alloy plant. Consequently, powersales volumes are expected to dip in 2QFY2011.
The sponge iron prices have increased by ~Rs1,000 andare currently at Rs16,000/tonne.
The 0.6mn tonne pellet plant at Ardent Steel startedcommercial production from August 01, 2010.
Outlook and Valuation
At Rs236, the stock is trading at 3.9x FY2011E and 2.2xFY2012E EV/EBITDA. On a P/BV basis, it is trading at 1.0xFY2011E and 0.8x FY2012E estimates. We expect GPIL'searnings to log in 93.6% CAGR over FY2010-12E, given rampup in iron ore mining capacity and the starting up of commercialproduction of pellets at Ardent Steel. WWWWWe maintain a Buy on thee maintain a Buy on thee maintain a Buy on thee maintain a Buy on thee maintain a Buy on thestock, with a revised Tstock, with a revised Tstock, with a revised Tstock, with a revised Tstock, with a revised Target Parget Parget Parget Parget Price of Rs313 (Rs322), valuing therice of Rs313 (Rs322), valuing therice of Rs313 (Rs322), valuing therice of Rs313 (Rs322), valuing therice of Rs313 (Rs322), valuing thestock at 3.5x FY2012E EV/EBITDstock at 3.5x FY2012E EV/EBITDstock at 3.5x FY2012E EV/EBITDstock at 3.5x FY2012E EV/EBITDstock at 3.5x FY2012E EV/EBITDAAAAA.....
August 7, 2010
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GIPCL - Buy
Performance Highlights
GIPCL posted 42.3% yoy improvement in net profit to Rs42crfor 1QFY2011, despite a flat performance on the top-line front.Bottom-line grew on the back of lower tax expense resultingfrom the tax refunds received for the earlier years and bookedduring the quarter. The company had a net tax credit of Rs2.5crduring 1QFY2011 as against Rs6.3cr of tax expenses recordedin 1QFY2010. The recently set up 250MW Surat lignite powerplant (SLPP) expansion is currently at the trial phase and didnot contribute to top-line during 1QFY2011.
Bottom-line up 42.3% aided by lower tax expenses: Bottom-line up 42.3% aided by lower tax expenses: Bottom-line up 42.3% aided by lower tax expenses: Bottom-line up 42.3% aided by lower tax expenses: Bottom-line up 42.3% aided by lower tax expenses: GIPCL's1QFY2011 top-line remained flat at Rs253cr despite the 5%reduction in sales volume to 786MU. De-growth in sales volumewas off-set by the 5% improvement in realisations. Operatingprofit grew 3.2% yoy to Rs64cr on better realisations. OPM forthe quarter stood at 25.4%, up 82bp yoy. Net profit increased42.3% yoy to Rs42cr.
Operational Highlights: Operational Highlights: Operational Highlights: Operational Highlights: Operational Highlights: In 1QFY2011, GIPCL's total powergeneration stood at 786MU. Power generation at the Vadodarastations I and II stood at 303MU and 277MU, respectively. Thecompany's 250MW Surat lignite power plant-I (SLPP-I) generated509MU during the quarter. PLF of the 145MW Vadodara-I facilityremained flat at 95.5% (95.0%), while PLF of the 165MWVadodara-II declined by 349bp to 76.8% (80.3%). PLF of the250MW SLPP-I fell by 578bp to 93.2% (99.0%) during thequarter.
Outlook and Valuation
We remain positive on the domestic power industry, as we expectit to grow in line with the country's GDP growth. India's peakpower demand (in excess of 11%) gives substantial opportunityto players like GIPCL. Moreover, in the last few years, there hasbeen significant improvement in GEB's financial position, whichwill indirectly benefit GIPCL, as it sells around 80% of its power
Price - Rs113Target Price - Rs135
1QFY2011 Result Update
Research Analyst - Rupesh Sankhe/V Srinivasan
Source: Company, Angel Research, Price as on August 6, 2010
to GEB, - it is GIPCL's single largest customer. The company'sexpansion plans are also on track, which we believe will help itcontinue on growth path.
We expect the company's to register CAGR of 32.5% and 28.3%in top-line and bottom-line respectively, over FY2010E-12E.We expect RoE to improve from 8.8% in FY2010 to 12.4% inFY2012E following commissioning of new plants. At the CMPof Rs113, the stock is trading at 1.2x P/BV and EV/MW of Rs3.5cron its FY2012E estimates, which we believe is attractivecompared to its peers. WWWWWe maintain a Buy on the stock, with ae maintain a Buy on the stock, with ae maintain a Buy on the stock, with ae maintain a Buy on the stock, with ae maintain a Buy on the stock, with aTTTTTarget Parget Parget Parget Parget Price of Rs135.rice of Rs135.rice of Rs135.rice of Rs135.rice of Rs135.
August 7, 2010
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ICICI Bank - Buy
Performance Highlights
ICICI Bank's net profit increased 16.8% yoy, which was in linewith our estimates. The key positive of the results was a sharpdeclining trend in slippages from retail loans for the fifthconsecutive quarter and a huge reduction in NPA provisioningburden. We maintain a Buy on the stock.
Advances deAdvances deAdvances deAdvances deAdvances de-grow yoy:-grow yoy:-grow yoy:-grow yoy:-grow yoy: The advances increased by 1.8% qoq(however, declined by 6.9% yoy) to Rs1,84,378cr, while thedeposits declined marginally by 0.5% qoq (fell by 4.4% yoy) toRs2,00,913cr during 1QFY2011. The drop in the advancesbook was attributed to the repayments from retail, andshort-term corporate loans. Partly due to this, NII growthremained muted at 0.3% yoy.
However, an important reason for the bank's lack of NIMimprovement on a yoy basis in spite of substantially improvedCASA ratio is the lower risk profile of the bank's loan book. Weexpect this reduction in risk (and consequent lower yield onadvances), to result in a 72bp decline in NPA provisioning costsby 2012E eventually reflecting in an improvement in RoA from1.0% to 1.4% over FY10-12E, commensurate with theimprovement in CASA ratio.
Non-interest income growth low due to loan book deNon-interest income growth low due to loan book deNon-interest income growth low due to loan book deNon-interest income growth low due to loan book deNon-interest income growth low due to loan book de-growth:-growth:-growth:-growth:-growth:Non-interest income was down 11.1% qoq and 19.6% yoy toRs1,681cr on account of 77.2% yoy decline in treasury gains atRs163cr (from Rs714cr in 1QFY2010 and Rs196cr in4QFY2010). Core fee income grew by 7.1% yoy to Rs1,413cr.We expect non-interest income, excluding treasury, to grow inline with loan growth during FY2011E.
Asset quality stabilising; lower provisioning cost, going forward:Asset quality stabilising; lower provisioning cost, going forward:Asset quality stabilising; lower provisioning cost, going forward:Asset quality stabilising; lower provisioning cost, going forward:Asset quality stabilising; lower provisioning cost, going forward:The bank's asset quality showed signs of stabilising, with a sharpdeclining trend in slippages in retail loans, which fell fromRs1,300cr in 1QFY2010 to Rs500cr in 4QFY2010 and Rs200crin 1QFY2011. The bank's gross NPA ratio was stablesequentially at 5.1%. The provision coverage ratio improved to64.8% in 1QFY2011 (59.5% in 4QFY2010). The RBI hasextended the deadline to meet the coverage ratio requirement
Price - Rs940Target Price - Rs1,163
1QFY2011 Result Update
Research Analyst - Vaibhav Agrawal/Amit Rane/Shrinivas Bhutda
Source: Company, Angel Research, Price as on August 2, 2010
of 70% from September 30, 2010 to March 31, 2011. Thebank's restructured loans stood at Rs3,737cr, down 29.6%sequentially. It may be noted here that cummulative restructuringof the bank is one of the lowest in the sector at 2.0% of totalloans and 7.1% of net worth, indicating relatively comfortableasset quality, going forward. As a result, we have factored inNPA provisions to decline by 37.7% in FY2011E and 16.3% inFY2012E.
Strong capital adequacy: Strong capital adequacy: Strong capital adequacy: Strong capital adequacy: Strong capital adequacy: Driven by its large net worth, capitaladequacy continued to be strong at 20.2%, comprisingsubstantial Tier-1 component of 14.0%.
Outlook and Valuation
The result of the bank's strategies over the last eighteen monthshas been a substantially improved ratio of branches to networththat will ensure a far more favourable cost of funds. Moreover,a lower risk balance sheet is expected to drive down NPAprovisioning costs that will enable RoE of 15.5% by FY2012E(with further upside from financial leverage). At the CMP, thebank's core banking business (after adjusting Rs307 per sharetowards value of the subsidiaries) is trading at 1.7x FY2012EABV of Rs381 (including subsidiaries, the stock is trading at1.8x FY2012E ABV of Rs520). We value the bank's subsidiariesat Rs307 per share and the core Bank at Rs856 (2.25x FY2012EABV). WWWWWe maintain a Buy on the stock, with a Te maintain a Buy on the stock, with a Te maintain a Buy on the stock, with a Te maintain a Buy on the stock, with a Te maintain a Buy on the stock, with a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice ofRs1,163, implying an upside of 23.8% from current levels.Rs1,163, implying an upside of 23.8% from current levels.Rs1,163, implying an upside of 23.8% from current levels.Rs1,163, implying an upside of 23.8% from current levels.Rs1,163, implying an upside of 23.8% from current levels.
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India Cements - Buy
1QFY2011 Result Update
Price - Rs105Target Price - Rs139
Research Analyst - Rupesh Sankhe/V Srinivasan
India Cements' net sales de-grew by 8.1% yoy during 1QFY2011on account of the substantial decline in prices in Andhra Pradesh,which contributes around 45% of the company's overallrevenues. The net plant realisation (NPR) for the quarter stoodat Rs2,501/tonne, down 21% yoy. The management indicatedthat it is looking at increasing the proportion of its sales volumefrom Tamil Nadu and Kerala to 60% (from the current 50%) toachieve better realisation.
Operating profit down 71.2%:Operating profit down 71.2%:Operating profit down 71.2%:Operating profit down 71.2%:Operating profit down 71.2%: On the operating front, thecompany's margins fell by 2,244bp yoy to 10.3% (32.7%) onaccount of the fall in realisations and increase in raw materialand freight costs. The company's operating profit stood atRs91cr, down 71.2% yoy. Net profit dropped 82.7% yoy toRs25cr primarily due to the poor operating performance.Bottom-line was however, bolstered by the Rs26.4cr of profitbooked from the stake sale in Bharati Cement. Adjusting theforeign exchange translation loss of Rs11.6cr (Rs21cr gain in1QFY2010) and exceptional income from stake sale, net profitstood at Rs Rs10.2cr.
Operating performance: Operating performance: Operating performance: Operating performance: Operating performance: During the quarter, India Cementsdispatched 2.65mt of cement, up 11% yoy. While the company'snet plant realisation declined by 21.2% yoy to Rs2,501/tonne,raw material and freight costs per tonne also increased by 27.8%and 30.3% yoy to Rs439 and Rs693 respectively, during thequarter. Freight costs rose due to the increased lead distanceas the company recorded higher dispatches to the Tamil Nadumarket. Power costs also increased due to higher use ofgenerators on account of the power shortage in Andhra Pradesh.Operating profit per tonne of cement stood at Rs393, down bya whopping 68.1% yoy.
Capacity expansions well on track:Capacity expansions well on track:Capacity expansions well on track:Capacity expansions well on track:Capacity expansions well on track: The company is currentlysetting up a 1.5mtpa green-field plant at Rajasthan, throughits subsidiary, Indo Zinc. The plant is at an advanced stage of Source: Company, Angel Research; Price as on August 4, 2010
Key Financials (Standalone)
Net SalesNet SalesNet SalesNet SalesNet Sales 3,4273,4273,4273,4273,427 3,7713,7713,7713,7713,771 3,6803,6803,6803,6803,680 4,1674,1674,1674,1674,167
% chg 12.1 10.1 (2.4) 13.2
Net PNet PNet PNet PNet Profitrofitrofitrofitrofit 432432432432432 354354354354354 8787878787 130130130130130
completion and is expected to be commissioned in 2QFY2011.The company is also in the process of setting up two captivepower plants (CPPs) of 50MW each in Tamil Nadu and AndhraPradesh. While the Tamil Nadu plant is expected to beoperational in 1QFY2012, the Andhra Pradesh plant is expectedto be operational in 4QFY2012. The company has alsocompleted the formalities for obtaining the coal mining rightsin Indonesia to meet its coal requirements for power generationand cement manufacturing. India Cements plans to incur totalcapex of Rs1,100cr over the next three years towards capacityexpansion.
Outlook and Valuation
We expect the pricing pressure in the southern region to continueover the next few quarters on the back of excess capacity andlack of demand particularly in Andhra Pradesh due to reducedgovernment spending on infrastructure and housing projects.WWWWWe maintain a Buy on the stock with the SOe maintain a Buy on the stock with the SOe maintain a Buy on the stock with the SOe maintain a Buy on the stock with the SOe maintain a Buy on the stock with the SOTPTPTPTPTP-based T-based T-based T-based T-based TargetargetargetargetargetPPPPPrice of Rs139.rice of Rs139.rice of Rs139.rice of Rs139.rice of Rs139.
August 7, 2010
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KEC International - Buy
1QFY2011 Result Update
Price - Rs488Target Price - Rs648
Research Analyst - Hemang Thaker
KEC's 1QFY2011 performance was significantly impacted bythe inclusion of erstwhile RPG Cables operations. Notably, thenumbers are not directly comparable on account of the mergerof RPG cables with KEC during March 2010. Post the merger,the company reported 16.4% yoy increase in revenues, whileEBDITA margins dipped to 10% and PAT dropped by 32.6% for1QFY2011.
Merger hangover impacts profitability: Merger hangover impacts profitability: Merger hangover impacts profitability: Merger hangover impacts profitability: Merger hangover impacts profitability: Revenue growth of16.4% yoy to Rs 846cr (Rs727cr) during 1QFY2011 was in linewith our expectations. It may be noted that 1QFY2011 revenuesalso include Rs88cr from the erstwhile RPG Cables. Thecompany reported the 190bp dip in EBDITA margins due to ofinclusion of the low-margin cable business. Interest costincreased by 21.4% yoy to Rs26cr (Rs22cr) for 1QFY2011,reflecting the takeover of debts related to RPG Cables. Similarreasons may also be attributed to the increase in depreciationby 47.5% yoy to ~Rs9cr (Rs6cr). Tax expenses also includedRs8.1cr relating to the prior period tax liabilities on theinternational projects. The cumulative impact of the above ledto PAT dropping by 32.6% yoy to Rs26cr (Rs39cr) for 1QFY2011.Excluding the impact of the additional tax expense, PAT fell12.5% yoy to Rs34cr.
Order backlog: Order backlog: Order backlog: Order backlog: Order backlog: The company's order intake for the quarterwas ~Rs1,000cr. Order backlog at the end of 1QFY2011 stoodat Rs5,650cr equally split across the reporting geographies ofInternational and South Asia. Of the total order backlog,transmission accounted for 76%, distribution & substation 18%,railways 4% and cables 2%.
Capex guidance: Capex guidance: Capex guidance: Capex guidance: Capex guidance: KEC intends to spend ~ Rs100cr on its towerbusiness in the current fiscal. Capex planned for the cable plantat Vadodara is ~Rs120cr over the next two years. Managementexpects the Vadodara facility to commence production fromFY2012E generating ~Rs400cr in revenues with EBDITA marginsof ~7-8%
Source: Company, Angel Research; Price as on August 4, 2010
The transmission EPC companies have been riding high onback of the ongoing investments in the domestic power sector.As on date, India's largest power transmission utility, PGCIL,has spent ~ 46% of its planned capex of Rs55,000cr duringthe first three years of the Eleventh Plan. We expect PGCIL toaccelerate its capex schedule over the next two years, leadingto higher order inflows for transmission EPC companies likeKEC. Improving order visibility from PGCIL and other stateutilities is expected to help KEC boost its existing Rs5,650crorder book. At the CMP, the stock trades at 11.6x and 9.8xFY2011E and FY2012E EPS, respectively. WWWWWe maintain a Buye maintain a Buye maintain a Buye maintain a Buye maintain a Buyon the stock, with a Ton the stock, with a Ton the stock, with a Ton the stock, with a Ton the stock, with a Target Parget Parget Parget Parget Price of Rs648.rice of Rs648.rice of Rs648.rice of Rs648.rice of Rs648.
Key financials (Consolidated)
Net SalesNet SalesNet SalesNet SalesNet Sales 3,4273,4273,4273,4273,427 3,8773,8773,8773,8773,877 4,5634,5634,5634,5634,563 5,2235,2235,2235,2235,223
% chg 21.8 13.1 17.7 14.5
Net PNet PNet PNet PNet Profitrofitrofitrofitrofit 116116116116116 171171171171171 216216216216216 256256256256256
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PVR - Buy
1QFY2011 Result Update
Price - Rs154Target Price - Rs199
Research Analyst - Anand Shah/Chitrangda Kapur
We highlight that this quarter's results are not comparable yoyas multiplex revenues in 1QFY2010 were disrupted by theproducers/distributors' strike.
LLLLLow base and better movie pipeline aid topow base and better movie pipeline aid topow base and better movie pipeline aid topow base and better movie pipeline aid topow base and better movie pipeline aid top-line growth:-line growth:-line growth:-line growth:-line growth: PVRreported a robust top-line growth of 134% yoy (17% qoq) forits consolidated 1QFY2011 results to Rs102cr (Rs43.6cr). Thecore exhibition business of the company registered a growth of141% yoy (21% qoq) to Rs93.9cr (Rs39cr/Rs77.6cr), aided bya 142 yoy/18% qoq increase in the net ticket sales to Rs57cr(Rs23.5cr/ Rs48.5cr) as the ATP increased by a substantial Rs25yoy to Rs157 (impacted positively by the increase in the ticketpricing across various properties and key films like Raajneeti,Housefull, Toy Story-3, Shrek-3 and Prince of Persia). Increasein occupancy level by 940bp yoy (160bp qoq) to 29.3% (19.9%/27.7%) and 9% yoy (3% qoq) increase in the average F&Brealization to Rs40.9 (Rs37.6/Rs39.9), aided top-line. For thelast two quarters, the bowling business of the company, PVRBlu-O has been registering flat income of Rs3.8cr. While thisquarter saw no production income, the company registereddistribution income of Rs5.3cr. Going forward, Aisha and KheleHum Jee Jaan se are two movies scheduled to be released fromPVR Pictures.
Strong earnings aided by margin expansion and higher otherStrong earnings aided by margin expansion and higher otherStrong earnings aided by margin expansion and higher otherStrong earnings aided by margin expansion and higher otherStrong earnings aided by margin expansion and higher otherincome:income:income:income:income: In terms of earnings, for 1QFY2011, PVR registered aprofit of Rs5.1cr (loss of Rs12.9cr last year and profit of 0.4crin 4QFY2010), primarily aided by significant revenue tractionand margin expansion. Moreover, depreciation chargesdeclined 7% qoq to Rs7.6cr (Rs8.2cr), despite screen additionson account of high base of distribution income, and otherincome increased by 59% yoy (155% qoq) to Rs4.1cr (Rs2.6cr/Rs1.6cr), further aiding earnings.
Robust topRobust topRobust topRobust topRobust top-line and operating leverage expands operating-line and operating leverage expands operating-line and operating leverage expands operating-line and operating leverage expands operating-line and operating leverage expands operatingmarginsmarginsmarginsmarginsmargins: On the operating front, consolidated operatingmargins expanded by 220bp qoq to 14% (11.9%), as rentexpense (down 53bp qoq), other expenditure (down by 497bpqoq) and movie distribution and production cost (down by 12bpqoq) decreased, while F&B expense and staff cost, as apercentage of revenues, were maintained at the same levelqoq. However, film distributior’s expense registered a spike of254bp qoq on account of new revenue sharing model betweenthe film distributors and producers.
Outlook and Valuation
For FY2010-12E, we expect PVR to register ~33% CAGR intop-line primarily on account of screen additions (PVR Picturesand Blu-O to grow at 70% and 34% CAGR) as we factor inonly 4-5% improvements in ATP and F&B spends. Earnings areexpected to register CAGR of 403% over the same period on alow base. At Rs154, the stock is trading at attractive valuationsof 11.6x FY2012E EPS. WWWWWe maintain a Buy on the stock, with ae maintain a Buy on the stock, with ae maintain a Buy on the stock, with ae maintain a Buy on the stock, with ae maintain a Buy on the stock, with arevised Trevised Trevised Trevised Trevised Target Parget Parget Parget Parget Price of Rs199 (Rs192) based on 15x FY2012Erice of Rs199 (Rs192) based on 15x FY2012Erice of Rs199 (Rs192) based on 15x FY2012Erice of Rs199 (Rs192) based on 15x FY2012Erice of Rs199 (Rs192) based on 15x FY2012EEPS of Rs13.3.EPS of Rs13.3.EPS of Rs13.3.EPS of Rs13.3.EPS of Rs13.3. Downside risks to our estimates include higherrental expense and weak movie pipeline.
Source: Company, Angel Research; Price as on July 30, 2010
Key Financials (Consolidated)
Net SalesNet SalesNet SalesNet SalesNet Sales 352.1352.1352.1352.1352.1 334.1334.1334.1334.1334.1 497.6497.6497.6497.6497.6 594.1594.1594.1594.1594.1
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Auto Sector Update - July 2010
Robust demand continues…
Auto sales continued to grow on a fast track in July 2010 onthe back of positive consumer sentiment and buoyant economicactivity. All two-wheeler and four-wheeler majors continued toperform impressively, recording strong monthly sales growth.Robust growth across the segment continued with demandsurpassing supply in few segments, with vendors' capacity beingstretched out. This is despite the fact that most auto majorsincreased their prices, passing on the cost impact to consumers,because of high commodity prices, changes in emission normsand hike in excise duty. Further pre-festive season buying atdealers’ desk supported the robust increase in volumes duringthe month.
Tata Motors
Tata Motors registered 41.1% yoy growth in total sales to67,799 units (48,054 units) in July 2010.
The CV segment recorded robust 30% yoy growth, aided bythe M&HCV segment registering substantial yoy growth of58.7%.
Indica sales stood at 8,606 units, reporting flat yoy growth;Indigo recorded sales of 7,007 units, registering growth of100.3% yoy.
The Sumo/Safari/Xenon XT range reported sales of 3,251units, up 23.2% yoy.
The PV segment reported growth of 60% yoy, with 9,000units of Nano sold during the month.
Maruti SuzukiMaruti registered sales growth of 29.2% yoy to 100,857units (78,074 units).
The A2 segment grew by 33.2% yoy; C segment’s salesgrew by 86.5% yoy, driven by sales of its new offering Eeco,which was launched in January 2010.
Maruti reported marginal 1.9% yoy increase in exports to10,743 units (10,546 units).
The company registered 33.4% yoy increase in the domesticmarket.
Ashok Leyland
Ashok Leyland’s total sales grew by 66% to 6,747 units(4,065 units), with domestic sales increasing by 69.2% to6,022 units (3,560 units).
The bus segment (M&HCV passenger) grew 59.9% yoy,whereas the truck segment (M&HCV goods) grew by 71.4%yoy. Overall exports grew by 43.6% yoy during the month.
Source: Company, Angel Research
FFFFFundamental Fundamental Fundamental Fundamental Fundamental Focus |ocus |ocus |ocus |ocus |
Exhibit 2: Ashok Leyland - Sales trend
Source: Company, Angel Research
Segment July YTDSegment July YTDSegment July YTDSegment July YTDSegment July YTD
M&M’s monthly sales grew 20.4% yoy to 42,641 units(35,413 units).
The tractor segment grew by 13.6% yoy on account of an11.6% yoy increase in domestic tractor sales.
The automotive segment grew by 24.3% yoy, led by 105.6%yoy growth in the domestic three-wheeler segment and188.1% yoy growth in the auto-export segment.
The UV segment (including Xylo, Bolero and pick-ups)reported flat yoy growth, while the LCV segment reported a1.2% yoy decline in sales.
The company continues to suffer sales losses on theautomotive and tractor vehicle fronts, owing to componentsupply constraints.
Exhibit 1: Tata Motors - Sales trend
Segment July YTDSegment July YTDSegment July YTDSegment July YTDSegment July YTD
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Research Analyst - Vaishali Jajoo/Yaresh Kothari
Auto Sector Update - July 2010
Bajaj Auto
Bajaj Auto reported overall sales growth of 65.1% yoy to 318,415units (192,835 units).
The motorcycle segment grew 66.4%, led by two of its majorbrands, Pulsar and Discover.
The three-wheeler segment posted substantial 60.3% yoy growthto 38,634 units (24,104 units).
As per management, production constraints at the facilitiesrestricted overall sales growth.
With new capacity additions for motorcycles having gone onstream during July 2010, the management is targeting to registersales of ~3 lakh motorcycles in August 2010.
Outlook
We remain positive on the Indian auto sector. We estimate overallauto volumes to register a CAGR of around 14% yoy overFY2010–12E, aided by the improved economic environmentfor the sector. Over the longer term, comparatively lowpenetration levels, a healthy economic environment andfavourable demographics, supported by higher per-capitaincome levels, are likely to help auto companies to sustain theirtop-line growth. However, increased input costs and interestrates are anticipated headwinds for the sector’s volume andearnings growth. We expect rising input costs to restrictprofitability, despite a positive view on demand. We believe, ahigher-than-expected increase in input and emission-relatedcosts will impact margins in FY2011E. Among the pack, weAmong the pack, weAmong the pack, weAmong the pack, weAmong the pack, wecontinue to maintain a Buy rating on M&M.continue to maintain a Buy rating on M&M.continue to maintain a Buy rating on M&M.continue to maintain a Buy rating on M&M.continue to maintain a Buy rating on M&M.
Exhibit 7: TVS Motor - Sales trend
Source: Company, Angel Research
Segment July YTDSegment July YTDSegment July YTDSegment July YTDSegment July YTD
In our previous Weekly report, we had mentioned that the indicesare likely to witness some range - bound activity between 17400to 18200 / 5350 to 5450 levels OR a correction to the tune of17700 - 17450 / 5320 - 5240 levels. Further, we had alsomentioned that the strong upward momentum would resumeonly if the indices trade and close above 18315 / 5480 levels.The week began on a positive note and rallied marginallybeyond 18315 / 5480 levels, but was unable to close above it.The Sensex ended with net gains of 1.50%, whereas the Niftygained 1.30% vis-à-vis the previous week.
Pattern Formation
On the WWWWWeekly charteekly charteekly charteekly charteekly chart, the prices are very close to the upper
trendline of the channel where some résistance is likely to
emerge. Further, we are observing that the indices are close to
the 78.6% retracement levels of the preceding down-move that
started from 21000 to 7697 / 6357 to 2252 levels, as
mentioned in previous reports. These levels of 18315 / 5480
may act as a temporary resistance. Any close above 18315 /
5480 levels would warrant further up-move (refer Exhibit 1).
Future Outlook
Broadly speaking for the past four weeks, indices has been
trading sideways in the range of 17840 / 5350 on the downside,
and 18300 / 5480 on the upside. Any breakout or breakdown
from the mentioned levels would dictate the direction of the
trend. Presently, there is no weakness on the chart as the
intermediate trend is up. We maintain our view that a strong
upward momentum would resume only once the indices trade
and close above 18315 / 5480 levels. On the upside, the indices
could test 18360 to 18600 / 5500 to 5600 levels. On the
downside, 17840 / 5350 remains crucial support levels for the
coming week. Any breach of this level would mean loss of upside
momentum and we could witness further weakness.
TTTTTraders holding long positions should maintain the stopraders holding long positions should maintain the stopraders holding long positions should maintain the stopraders holding long positions should maintain the stopraders holding long positions should maintain the stop-loss-loss-loss-loss-loss
at 5340 levels and trade with a positive bias as long as theat 5340 levels and trade with a positive bias as long as theat 5340 levels and trade with a positive bias as long as theat 5340 levels and trade with a positive bias as long as theat 5340 levels and trade with a positive bias as long as the
markets hold 5350 levels.markets hold 5350 levels.markets hold 5350 levels.markets hold 5350 levels.markets hold 5350 levels.
Source: Falcon
Exhibit 1: Sensex Weekly chartChannel
August 7, 2010
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IVs too low to sustain at these levels; buy Puts to hedge
Nifty spot has closed at 54395439543954395439 this week, against a close of 53685368536853685368 last week. The Put-Call Ratio has increased from 1.251.251.251.251.25 to 1.371.371.371.371.37 levelsand the annualized Cost of Carry (CoC) is positive 1.071.071.071.071.07%. The Open Interest of Nifty Futures has increased by 13.5413.5413.5413.5413.54%.
The Nifty Aug Future closed at a premium of 3.20 points asagainst a premium of 6.70 points last week and Sep futureclosed at a premium of 7.35 points. Few liquid counters whereCoC turned from negative to positive are TATAGLOBAL,ORIENTBANK, ADANIENT and VOLTAS. Stocks where CoCturned from positive to negative are ACC, IOB, INDIANB, BHELand BHARTIARTL.
The total Open Interest of the market is Rs1,47,025cr, as againstRs1,21,108cr last week, and the Stock Futures' open interestincreased from Rs39,012cr to Rs43,218cr. After very low rolloverin ONGC, the stock has shown build-up around 56% over theweek. Some liquid stocks where open interest has increasedsignificantly are TATACHEM, ALBK, PETRONET, GAIL andTATAMOTORS. Stocks where open interest has decreasedsignificantly are BRFL, CHENNPETRO, FORTIS, BALRAMCHINand INDIAINFO.
Open Interest Analysis Cost-of-Carry Analysis
The Nifty PCR has increased from 1.25 to 1.37 levels. In thefirst week of new series, build up in most of the call and putoptions has taken place, though addition of open interest inputs at 5300 and 5400 strikes is substantial. In the week goneby, we have observed some buying in out of the money, mainly5100 and 5200, Put options. Aggressive buying at current levelsin Nifty is not advisable. Positional traders are advised to bookprofit and continue to be stock specific.
Put-Call Ratio Analysis Futures Annual Volatility Analysis
The Historical Volatility of the Nifty has decreased from 15.25%to 14.03%. IV of at the money options has further decreasedfrom 17.00% to 14.75%. Some liquid counters where HV hasincreased significantly are VIDEOIND, MLL, PUNJLLOYD,GESHIP and BANKINDIA. Stocks where HV has decreased areMARUTI, TATAPOWER, STERLINBIO, WELCORP andJPASSOCIAT.
If RELIANCE closes on or below Rs1000 on expiry. If RELIANCE continues to trade above BEP.Note:Note:Note:Note:Note: Profit can be booked before expiry, if stock moves in a favorable direction.
HBEPHBEPHBEPHBEPHBEP::::: Rs. 936.00/-LBEPLBEPLBEPLBEPLBEP::::: Rs. 864.00/-Max. Risk:Max. Risk:Max. Risk:Max. Risk:Max. Risk: Unlimited Max. PMax. PMax. PMax. PMax. Profit:rofit:rofit:rofit:rofit: Rs. 9,000.00/-If ICICIBANK continues to trade below LBEP. If ICICIBANK closes at Rs.900 on expiry.Note:Note:Note:Note:Note: Profit can be booked before expiry, if Stock moves in a favorable direction and time value decay.
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Mutual FMutual FMutual FMutual FMutual Fund Fund Fund Fund Fund Focus |ocus |ocus |ocus |ocus |
Disclaimer: Angel Broking Ltd is not responsible for any error or inaccuracy or any losses suffered on account of information contained in this report. Data source is from MFI Explorer. Mutual Fund investmentsare subjected to market risk. Please read the Statement of Additional Information and Scheme Information document carefully before investing.
Recommended Schemes in Equity Diversified - Large Cap
Scheme SnapshotInception: Inception: Inception: Inception: Inception: 1st January 1995TTTTType: ype: ype: ype: ype: Open Ended SchemeCorpus:Corpus:Corpus:Corpus:Corpus: 6734.63 crores (30th June 2010)FFFFFund Manager:und Manager:und Manager:und Manager:und Manager: Mr. Prashant Jain / Mr. Anand LaddhaBenchmark Index:Benchmark Index:Benchmark Index:Benchmark Index:Benchmark Index: CNX500Minimum Investment:Minimum Investment:Minimum Investment:Minimum Investment:Minimum Investment: Rs. 5000Entry / Exit LEntry / Exit LEntry / Exit LEntry / Exit LEntry / Exit Load:oad:oad:oad:oad: NIL / Max. 1%LLLLLatest NAatest NAatest NAatest NAatest NAVVVVV::::: 267.05 (4th August 2010)52 W52 W52 W52 W52 Week High / Leek High / Leek High / Leek High / Leek High / Low:ow:ow:ow:ow: 267.07 (3rd August 2010) /179 (10th August 2009)
Market Capitalisation (% of Net Asset)Market Capitalisation (% of Net Asset)Market Capitalisation (% of Net Asset)Market Capitalisation (% of Net Asset)Market Capitalisation (% of Net Asset)LLLLLarge Cap Stocks:arge Cap Stocks:arge Cap Stocks:arge Cap Stocks:arge Cap Stocks:79.45%Mid / Small Cap Stocks:Mid / Small Cap Stocks:Mid / Small Cap Stocks:Mid / Small Cap Stocks:Mid / Small Cap Stocks: 16.18% / 3.39%
Key Fund AnalysisMarket Cap FMarket Cap FMarket Cap FMarket Cap FMarket Cap Focus:ocus:ocus:ocus:ocus: Over the past one year the fund managerhas increased the exposure to large cap stocks (70.15%) &small cap stocks (2.98%) and reduced the exposure to midcaps stocks (23.9%).Sector FSector FSector FSector FSector Focus: ocus: ocus: ocus: ocus: Fund Manager has maintained high exposure aswell as reduced the exposure in sectors like Banks 18.89%,Pharma 13.23% and Software & Consultancy Services 9.33%over past 1 year.Company FCompany FCompany FCompany FCompany Focus:ocus:ocus:ocus:ocus: Fund Manager has maintained exposure of6.81% in ICICI Bank, 4.62% in SBI and 4.07% in ONGC overlast 1 year.Cash & Cash EquivalentCash & Cash EquivalentCash & Cash EquivalentCash & Cash EquivalentCash & Cash Equivalent exposure has reduced considerablyfrom 2.97% over last 1 year.
Fund AnalysisThe scheme has 99.47% Equity exposure and 0.53% Cash &Equivalent exposure.It has the highest exposure to sectors like Banks, Petroleum,Gas & Petrochemical products and Pharmaceuticals.The Top 3 holdings in sector, account for 43% of the total netassets.The Top 10 holdings account for 39.17% of the total net assets,with highest exposure to SBI and ONGC 7.52% and 6.67%respectively.The scheme has consistently outperformed its benchmark indexsince inception.Being a large cap scheme, it has the highest exposure in largecap but at the same time it has exposure to mid and small capcreating a good balance of risk and return.High risk adjusted returns which are indicated from the positiveSharpe RatioPositive Jensen Ratio shows Superior Stock Instruments Selectionby Fund Manager
Top 10 Sectors as on 30th June 2010Sector NameSector NameSector NameSector NameSector Name % Net Assets% Net Assets% Net Assets% Net Assets% Net Assets
State Bank of India 7.52
Oil & Natural Gas Corp. Ltd. 6.67
Titan Industries Ltd. 3.79
Bank of Baroda 3.75
ICICI Bank Ltd. 3.21
Infosys Technologies Ltd. 2.90
NTPC Ltd. 2.89
Larsen & Toubro Ltd. 2.88
Gas Authority of India Ltd. 2.79
Zee Entertainment Enterprises Ltd. 2.76
Performance Analysis (% Returns)
*Note: Returns are as on 5th August, 2010 for <1 year returns are absolute, >1 year returns are CAGR.
Top 10 Holdings as on 30th June 2010Company NameCompany NameCompany NameCompany NameCompany Name % Net Assets% Net Assets% Net Assets% Net Assets% Net Assets
Banks 17.78
Petroleum, Gas and Petrochemical products 15.32
Pharmaceuticals & Biotechnology 9.91
Software and Consultancy Services 7.34
Auto & Auto Ancillaries 6.18
Media and Entertainment 6.02
Engineering and Capital Goods 5.06
FMCG 4.88
HFC 3.83
Consumer Durables and Electronics 3.79
HDFC Equity Fund - GrowthScheme ObjectiveThe scheme aims at providing capital appreciation throughinvestments predominantly in equity oriented securities.
Investment Analysis** (As on 5th August 2010)TTTTTotalotalotalotalotal SIPSIPSIPSIPSIP LLLLLump sumump sumump sumump sumump sum
Ideal for InvestorsInvestors looking for diversificationInvestors looking for diversificationInvestors looking for diversificationInvestors looking for diversificationInvestors looking for diversificationInvestment Horizon:Investment Horizon:Investment Horizon:Investment Horizon:Investment Horizon: Long TermRisk Appetite:Risk Appetite:Risk Appetite:Risk Appetite:Risk Appetite: Medium to High
42.35
31.07
16.41
26.2623.44
19.59
13.54
7.25
16.91
9.92
0
5
10
15
20
25
30
35
40
45
1 year 2 years 3 years 5years Since Inception
HDFC Equity Fund - Growth CNX500
August 7, 2010
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Mutual FMutual FMutual FMutual FMutual Fund Fund Fund Fund Fund Focus |ocus |ocus |ocus |ocus |
Disclaimer: Angel Broking Ltd is not responsible for any error or inaccuracy or any losses suffered on account of information contained in this report. Data source is from MFI Explorer. Mutual Fund investmentsare subjected to market risk. Please read the Statement of Additional Information and Scheme Information document carefully before investing.
Market Capitalisation (% of Net Asset)LLLLLarge / Small Cap Stocks:arge / Small Cap Stocks:arge / Small Cap Stocks:arge / Small Cap Stocks:arge / Small Cap Stocks: 63.12%Mid / Small Cap Stocks:Mid / Small Cap Stocks:Mid / Small Cap Stocks:Mid / Small Cap Stocks:Mid / Small Cap Stocks: 30.86% / 0.63%
Key Fund AnalysisMarket Cap FMarket Cap FMarket Cap FMarket Cap FMarket Cap Focus: ocus: ocus: ocus: ocus: Over the past one year the fund managerhas kept exposure to large cap stocks (63.83%) & small capstocks (0.77%) more or less constant and increased the exposureto mid caps stocks (26.72%).Sector FSector FSector FSector FSector Focus:ocus:ocus:ocus:ocus: Fund Manager has maintained high exposure aswell as reduced the exposure in sectors like Petroleum, Gas &Petrochemical products 17.11%, Software & ConsultancyServices 9.66% and Banks 9.46% over past 1 year.Company FCompany FCompany FCompany FCompany Focus:ocus:ocus:ocus:ocus: Fund Manager has maintained exposure of4.64% in SBI, 4.01% in IOC and 3.79% in Glaxo SmithklinePharmaceuticals over last 1 year.Cash & Cash EquivalentCash & Cash EquivalentCash & Cash EquivalentCash & Cash EquivalentCash & Cash Equivalent exposure has reduced from 7.12%over last 1 year.
Fund AnalysisThe scheme has 94.81% Equity exposure and 5.19% Cash &Equivalent exposure.It has the highest exposure to sectors like Petroleum, Gas &Petrochemical products, Banks and Pharmaceuticals.The Top 3 holdings in sector, account for 33.73% of the totalnet assets.The Top 10 holdings account for 26.61% of the total net assets,with highest exposure to RIL, SBI and CBLO 5.46%, 4.56% and4.48% respectively.The scheme has consistently outperformed its benchmark index.Being a large cap scheme, it has the highest exposure in largecap but at the same time it has exposure to mid and small capcreating a good balance of risk and return.Positive Sharpe's ratio indicates High risk adjusted returns.Positive Jensen Ratio shows Superior Stock Instruments Selectionby Fund Manager
Scheme ObjectiveThe scheme aims to provide long term capital appreciation from aportfolio substantially constituted of equity and equity relatedsecurities.
Top 10 Sectors as on 30th June 2010Sector NameSector NameSector NameSector NameSector Name % Net Assets% Net Assets% Net Assets% Net Assets% Net Assets
Petroleum, Gas and petrochemical products 12.56Banks 11.28Pharmaceuticals & Biotechnology 9.89Software and Consultancy Services 6.92Engineering and Capital Goods 6.25Current Assets 4.48Fertilizers, Pesticides & Agrochemicals 4.32Food & Food Processing, Beverages 4.1Utilities - Gas, Power 3.68Auto & Auto Ancillaries 3.65
Top 10 Holdings as on 30th June 2010Company NameCompany NameCompany NameCompany NameCompany Name % Net Assets% Net Assets% Net Assets% Net Assets% Net AssetsReliance Industries Ltd. 5.46State Bank of India 4.56CBLO 4.48Infosys Technologies Ltd. 3.99Glaxo Smithkline Pharmaceuticals Ltd. 1.94Jubilant Organosys Ltd. 1.87Torrent Pharmaceuticals Ltd. 1.82Bharat Petroleum Corporation Ltd. 1.79Larsen & Toubro Ltd. 1.79Oil & Natural Gas Corpn Ltd. 1.71
Investment Analysis** (As on 5th August 2010)TTTTTotalotalotalotalotal SIPSIPSIPSIPSIP LLLLLump sumump sumump sumump sumump sum
Ideal for InvestorsInvestors looking for diversificationInvestors looking for diversificationInvestors looking for diversificationInvestors looking for diversificationInvestors looking for diversificationInvestment Horizon:Investment Horizon:Investment Horizon:Investment Horizon:Investment Horizon: Long TermRisk Appetite:Risk Appetite:Risk Appetite:Risk Appetite:Risk Appetite: Medium to High
Performance Analysis (% Returns)
*Note: Returns are as on 29th July, 2010 for <1 year returns are absolute, >1 year returns are CAGR.
34.19
23.41
15.73 16.5416.82
11.54
7.49
15.95
0
5
10
15
20
25
30
35
40
1 year 2 years 3 years Since Inception
DSP BlackRock Equity Fund - Growth S&P Nifty
August 7, 2010
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Commodities Center |Commodities Center |Commodities Center |Commodities Center |Commodities Center |
International Perspective
The commodities segment made substantial gains in the lastweek, with natural gas prices being the exception. Base metalprices continued to lead the rally in the commodities segment,whereas gold prices also rebounded after falling drastically inthe earlier weeks.
Zinc Zinc Zinc Zinc Zinc prices were the top performers in the base metals pack,gaining more than 4.5% on the MCX in the last week. Themetal prices were supported by improving inventory scenarioon the LME coupled with decline in zinc output in China. Zincexperienced the sharpest production decrease among all thebase metals in June, posting a drop of 26,000 tonnes from theprevious month. LME zinc inventories declined in all the sessionsof the last week.
LLLLLeadeadeadeadead prices continued to post strong gains for a third consecutiveweek, gaining more than 4% in the last week. Lead pricestouched a 14-week high of Rs 102.80/kg, mainly helped bythe weakness in the US dollar index (DX). However, long-termfundamentals for lead continue to remain mixed. China's Junelead output rose by 14.29 percent from the previous month.Estimates from International Lead and Zinc Study Group (ILZSG)suggest that the lead mine production will total 4.2 million tonsin 2010; 5% greater than the previous year.
Natural gasNatural gasNatural gasNatural gasNatural gas prices lost more than 8% in the last week on reportsthat natural gas drilling rigs rose by 11 rigs to 983 rigs in thelast week. Despite expectations of hot weather increasingdemand for the commodity, the ample supplies in the US storageseem sufficient to meet the needs. Natural gas storage increasedby 29 bcf as against the previous of 28 bcf in the w/e July 30th.
Agri Perspective:
Soybean Soybean Soybean Soybean Soybean and refined soy oil gains substantially in agriculturalcommodities in the last week. Soybean prices surged sharplyon account of continuous rise in overseas market due to dryand hot weather in USA and US Department of Agriculture'sweekly export sales figures of soybean was well above tradeexpectation. As per Solvent Extractors Association of India (SEAI),India's oil meal exports in July 2010 increased 39% to 241,182metric tonnes from 173,329 tons a year earlier also providedsupport to the bulls.
Refined soyRefined soyRefined soyRefined soyRefined soy oil surged in tandem with overseas market. CrudePalm Oil (CPO) futures at Bursa Malaysia Derivative Exchangesurged due to increased demand of edible oil from Muslimcountries ahead of Ramadan (fasting month). Also, cheaperprices of CPO compared to other edible oils, added bullishmarket sentiments as India is a major importer of Palm oil.India is likely to import 5.5 to 6 lakh tone of Palm Oil for August.India is the world's second-largest vegetable oils consumer afterChina, may purchase more palm oil in the next two monthsthan soy oil, as palm oil discount has widened.
Maximum fall was witnessed in NCDEX TTTTTurmeric, Jeera, Purmeric, Jeera, Purmeric, Jeera, Purmeric, Jeera, Purmeric, Jeera, Pepperepperepperepperepper,,,,,Chana and Guar Seed.Chana and Guar Seed.Chana and Guar Seed.Chana and Guar Seed.Chana and Guar Seed.
Turmeric Prices slipped more than 4 % due to higher productionestimates for 2010-11 and poor demand from overseas market.
Jeera pricesJeera pricesJeera pricesJeera pricesJeera prices witnessed downtrend due to lower quotes offeredby Syria in international markets. Syria is one of the majorproducing nations of Jeera.
Black PBlack PBlack PBlack PBlack Pepperepperepperepperepper prices prices prices prices prices closed in red in last week due to harvestingprogress and fresh arrivals in Indonesia. Lower quotes byIndonesia in international market are also pressurizing pricesin the domestic market. Indonesian origin was being offered at$3,950-$4,000/tonne whereas Indian origin was offered at$4,400-$4,450/tone.
Continue...
August 7, 2010
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Commodities Center |Commodities Center |Commodities Center |Commodities Center |Commodities Center |
Exhibit 2: Major Economic Data Releases this weekDateDateDateDateDate CountryCountryCountryCountryCountry IndicatorIndicatorIndicatorIndicatorIndicator FFFFForecastorecastorecastorecastorecast PPPPPreviousreviousreviousreviousrevious
10-Aug US Federal Funds Rate <0.25% <0.25%
10-Aug US FOMC Statement - -
13-Aug US Core Retail Sales 0.3% -0.1%
13-Aug US UoM Consumer Sentiment 69.4 67.8
13-Aug US Core CPI 0.1% 0.2%
Chana prices Chana prices Chana prices Chana prices Chana prices traded bearish in the last week due to betterexisting carry over stock and higher sowing acreage of kharifpulses this year as compared to last year till date also addedbearish market sentiments. Pulses have been sown in 57.23lakh hectare till 22nd July 2010 as compared to 50.54 lakhhectare during the last year in the same period.
Guar PGuar PGuar PGuar PGuar Prices rices rices rices rices slipped on account of higher sowing acreage ofguar seed in Haryana and Punjab amid favorable weather.Anotehr factor contributed to the bearishness is the fall indemand for Churi and Korma, a widely used cattle feed.
Outlook
In this week, we expect the DX to weaken as uncertain financialmarket scenario coupled with poor economic data from the UShas reduced the appeal of the currency. Interest rates in the USare expected to remain low in the near-term and this factor willadditionally reduce demand for the DX. On the back ofweakness in the DX we expect base metal and crude oil pricesto receive downside support. But selling pressure at higher levelsis expected as prices had gained sharply in the last few days.Gold prices are expected to rise in this week as a weaker DXcoupled with reduced demand for riskier assets will drive theyellow metal prices higher.
In the agri segment this week, we expect the further weaknessin Chana, Guar Seed, Turmeric, Jeera and Pepper. Furtheradvancement of rains into the interior parts of India may providesupport to bears.
Research Analyst (Commodity) - Badruddin/Reena Walia
August 7, 2010
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Base Metals Performance in July
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Base metal prices delivered strong performance in the monthof July. A rise in risk appetite in the global financial marketswas a major reason that triggered an upside in prices. Weaknessin the US Dollar Index (DX) also made base metal prices lookattractive for holders of other currencies. Lead was theoutperformer amongst the base metals pack as the metal gainedalmost 19% on the LME in July. The Euro zone bank stress testsannounced in July were fairly positive. As per the results, sevenout of the 91 banks tested, failed to pass the test. This helpedto ease concerns over the Euro zone banking system and easedfears over the impact of the same on the global economy.
But manufacturing data from China was not satisfactory. Despiteslowdown in manufacturing in China, base metal prices racedhigher as investor sentiment remained bullish. Chinesemanufacturing growth slowed down in June on the back ofcurb in lending by the central bank. The manufacturing indexreported figures of 51.2 in June as against 52.1 in the previousmonth. Slow manufacturing data from China did not have anegative impact as markets have already factored in the slowgrowth. Moreover, the Asian tiger has surpassed Japan tobecome the second largest economy of the world. Hence,investors expect that the demand for metals would rise in thecoming days.
Monthly Price Performance on the LME ($/tonne)JuneJuneJuneJuneJune JulyJulyJulyJulyJuly ChangeChangeChangeChangeChange % Chg% Chg% Chg% Chg% Chg
Copper 6,440 7,295 855 13.3
Aluminum 1,960 2,155 195 9.9
Nickel 19,600 21,000 1,400 7.1
Zinc 1,760 2,005 245 13.9
Lead 1,740 2,065 325 18.7
Tin 17,350 19,500 2,150 12.4
LME Inventories
In the month of July, only Zinc inventories witnessed a rise. Butthe rise in inventories was marginal by 0.5%. On a year-to-date basis, zinc inventories on the LME have increased 27%.Lead is also witnessing a situation of rising inventories on theLME as they are up almost 26% on a year-to-date basis. Copperinventories on the LME slumped sharply in the month of July bymore than 8%. This factor provided upside support to the redmetal amid a rise in risk appetite. For the year, copper inventorieson the LME are down almost 18%.
All in all, the inventory scenario has been supportive to thebase metals pack except in the case of zinc. Although lead alsoremains in a difficult position as its inventories have been risingsharply since the beginning of this year.
LME Inventory Scenario (Tonnes) Metal Metal Metal Metal Metal July ChgJuly ChgJuly ChgJuly ChgJuly Chg Chg YTDChg YTDChg YTDChg YTDChg YTD July % ChgJuly % ChgJuly % ChgJuly % ChgJuly % Chg % Chg YTD% Chg YTD% Chg YTD% Chg YTD% Chg YTD
Copper -37,600 -89250 -8.3 -17.8
Aluminum -42,775 -247,800 -1.0 -5.4
Nickel -6,528 -39,630 -5.3 -25.1
Zinc +3,300 +131,750 +0.5 +27.0
Lead -5,800 +37,450 -3.1 +25.6
The DX weakens 5% in July
The DX weakened in the month of July as strong appetite in thefinancial markets reduced demand for the low-yielding dollar.Market sentiments have stabilized as the impact of pooreconomic data has been factored in. The European debt crisisis not a major negative factor anymore as the negative effectsof the same have already been factored in. Poor economicfrom the US has been another factor that led to a downside inthe DX.
This led to concern over low interest rates in the US and theyield on the currency continues to remain low. The US FederalReserve is not expected to raise interest rates in this year andthis factor too is negative for the DX. The world's largest economyis still recovering and the central bank is not raising interestrates as it is not confident about the strength of the recovery.Fed Chairman Ben Bernanke's latest testimony before theCongress continued to raise concerns over the unemploymentscenario as well as the economic growth.
August 7, 2010
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Copper
In the month of July, copper prices gained a whopping 13.3%on the LME as weakness in the US Dollar Index (DX) coupledwith a rise in risk appetite among the investors led to higherprices. The DX weakened 5.2% in the month of July as riskappetite led to subdued demand for the low-yielding currencyas investors flocked to higher-yielding and riskier investmentassets. Despite poor economic data from the US and aslowdown in China, financial markets are currently witnessingdemand for risky investments. Copper prices on the LME toucheda high of $7,329/tonne and prices on the MCX clocked a highof Rs338/kg. Copper prices have gone too far too fast as theprice rise has run ahead of the fundamentals.
Copper LME Monthly Price Chart
The red metal market has been witnessing shortages in scrapwhich has led to a rise in demand for copper concentrates andrefined copper mainly from China. The State Reserve Bureau(SRB) in China has also been aggressive buyers in copper. Thisfactor also supported a rise in copper prices. Additionally fundbuying and overall rise in risk sentiments added as an additionaladvantage.
Scrap imports in China during the first five months of the yeardeclined 40%, while concentrate imports increased 6.7% andrefined imports jumped 130% to 1.403 million tonnes. But theSRB has purchased around 300,000 to 400,000 tonnes of themetal and this data indicates that Chinese buying in coppermay not necessarily translate into fabrication but is also a partof strategic building up of reserves.
But the demand scenario on an overall basis continues to remainbleak. The International Copper Study Group (ICSG) dataindicated that first-quarter consumption declined by 27% in theUS, 25% in the EU, and 15% in Japan. Global usage of coppershowed a decline of 4% after taking into account the Chinesecopper imports.
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Inventory Scenario
Copper inventories on the LME have been another supportivefactor. On a year-to-date basis, copper inventories on the LMEhave slipped almost 18%. In the month of July itself, inventoriesdeclined by more than 8%, providing support to the red metal.Copper inventories on the LME stood at 413,075 tonnes as onJuly 30th.
Fundamental Outlook
Base metal prices are expected to trade with a positive bias inthe short-term as re-emergence of risk appetite in the financialmarkets and a weaker DX will support an upside in prices. Incase of certain metals like Copper and Nickel the situation of adecline in inventories is also a positive factor. Concern over theEuro Zone sovereign debt crisis has currently taken a backseat.Business conditions seem to be improving, although at a slowerpace. Hence, demand for base metals is expected to rise andpush prices higher.
China has now become the world's second-largest economyand this factor is very bullish for the base metals space. Thecountry is the major consumer of base metals and hence is themajor driver of prices. With this latest development of thecountry taking over Japan as the world's second-largesteconomy, we expect sentiments over China's growth to becomemore positive. Despite their monetary policy tightening, weexpect the country to accumulate base metals for their strategicbuild-up of reserves.
For this week, we expect base metal prices to come underpressure. In the last few days prices have gained sharply andprofit-booking at higher levels is inevitable.
Technical Levels for this weekMetalMetalMetalMetalMetal RangeRangeRangeRangeRange TTTTTrendrendrendrendrend
Copper 334 - 350 Sideways
Zinc 91-101.50 Sideways
Nickel 965- 1055 Sideways
Lead 92.50 - 106.50 Sideways
Aluminum 98 - 104.80 Sideways
Research Analyst (Commodity) - Reena Walia Nair
August 7, 2010
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Last week, Gold prices opened the week at Rs.17,925 per 10 grams,initially moved lower and as expected found support at Rs.17,820.Later prices rallied sharply higher breaking the initial resistance at18160 levels and made a high of 18230 and Gold prices finallyclosed the week at Rs.18,197 up by Rs 260 as compared withprevious week's close of Rs.17,937.
Last week, Silver prices opened higher on its low at Rs.28,721 perkg initially moved sharply higher breaking both the resistances,but finally found strong resistance at Rs.29,394 levels. Later Silverprices corrected towards Rs. 28,776 levels and finally ended theweek with a gain of Rs.484 to close at Rs.29120 as compared withprevious week's close of Rs.28636.
MCX August Crude
Last week Crude prices opened the week on its low at Rs.3659levels initially moved sharply higher breaking both the resistances,but found strong resistance at 3825. Later prices corrected sharplytowards Rs. 3703 levels and Crude finally ended the week atRs.3732 with a gain of Rs.78 as compared with previous week'sclose of Rs.3654.
Last week Copper prices opened the week at Rs.338.60 per kginitially moved higher but found resistance at 346.40 levels. Laterprices fell sharply lower and made a low of 338.45 levels andcopper finally ended the week at Rs.342.20 with a gain of Rs.3.85as compared with previous week's close of Rs.338.35.
Recommended Strategy: Recommended Strategy: Recommended Strategy: Recommended Strategy: Recommended Strategy: Buy MCX Gold October in the range of18100-18070 with strict stop-loss below 17900 Targeting initially18340 and then 18500.
Recommended Strategy: Recommended Strategy: Recommended Strategy: Recommended Strategy: Recommended Strategy: Buy MCX Silver September in the rangeof 28950-28900 with strict stop-loss below 28600 Targeting initially29450 and then 29650.
Recommended Strategy:Recommended Strategy:Recommended Strategy:Recommended Strategy:Recommended Strategy: Sell MCX Copper August in the range of343-346 with strict stop-loss above 353 Targeting initially 332 andthen 327.
Weekly Review
Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
Ratings (Returns) :
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