VIKAS PARSHURAM SAMWATSAE

Hold Ambuja Cement. For Target Rs.203

Robust Operating Performance

Ambuja Cement’s (ACL) 2QCY12 EBITDA/tn of Rs1,284 and EBITDA margin of 28.2% was better than our estimates, primarily driven by  igher realisation. EBITDA rose 24% and net profit rose 35%, which was 4%/3% and 5%/4% higher than our/Bloomberg estimates,  espectively. Despite the likely decline in cement prices and subdued demand in the monsoon season, we expect reduced prospects of  arnings downgrade in 2HCY12 following easing cost pressure and a sequential increase in realisation by 7%. Therefore, we retain our  arnings estimates for CY12 and CY13 and target price of Rs203, but downgrade the rating on the stock from Buy to Hold following the recent  run-up in its price.

Realisation beat estimates:

ACL’s net sales rose 18.1% YoY to Rs25.7bn, broadly in line with our and Bloomberg estimates. Cement realisation increased 11% YoY (7% QoQ) to Rs4,562/tn against our estimate of Rs4,474/tn. Cement sales volume (including clinker) grew 6.3% to 5.63mt (lower than our  stimate of 5.80mt). For 2QCY12, cement realisation was 4% higher than our than our estimate of Rs4,368/tn for CY12E. Thus, despite the  xpected price cut during the monsoon season, we don’t see the prospects of lower realisation compared to our estimate for CY12. 

EBITDA/tn at Rs1,284 near historical high:

EBITDA increased 24% YoY to Rs. 7.22bn (up 4%/3% than our/Bloomberg estimates, respectively). The company posted EBITDA/tn of  s1,284, which is near its historical high, and EBITDA margin improved 130bps to 28.2%, primarily driven by higher realisation. Freight costs  including internal raw material transfer) increased 10.9% to Rs 1,009/tn, primarily due to full impact of the increase in rail freight and higher  iesel prices. Power and fuel costs remained flat YoY. Overall total expenses rose 9% to Rs3,278/tn (up Rs271/tn versus rise in realisation by  s453/tn) which led to robust operating performance.

Net profit higher than estimates:

Net profit increased 34.9% to Rs. 4.68bn, (up 5% and 4%, respectively, compared to our/Bloomberg estimates), driven by robust operational  erformance and higher other income. The company reported EPS of Rs 6.4, which is 62% of the CY12 estimate. Therefore, we believe there  s lower probability of earnings downgrade in 2HCY12.

Valuation:

At the CMP of Rs 180, ACL trades at a PE multiple of 13x, EV/EBITDA multiple of 7.3x and EV/tn of US$169 on CY13E earnings. We have  etained our target price of Rs203 based on 8.5x EV/EBITDA, which is ~ACL's past 10 years’ average one-year forward EV/EBITDA multiple  which captures the upcycle/downcycle). However, we have downgraded our rating on the stock from Buy to Hold following the recent run-up  in the stock price.

2.  Buy Sterlite Industries India For Target Rs.138

Performance In Line; Maintain Buy

Sterlite Industries India’s (SIIL) 1QFY13 EBITDA was 5%/7% below our/street estimates, while PAT was 1%/5% above our/street estimates,  espectively, due to higher other income and lower tax despite being hit by forex loss. Power segment posted a strong performance, while  ther segments like aluminium, zinc and copper witnessed minor pressure. SIIL will witness multiple expansion projects getting  ommissioned in the next one year, which would ensure healthy growth. We retain our Buy rating, earning estimates as well as the TP on SIIL  of Rs138. Our  TP is based on the combined entity, Sesa-Sterlite’s valuation.

Power segment gives a positive surprise, aluminium and copper drags:

Driven by lower costs due to higher power generation and better coal availability, the power segment was able to post EBITDA margin of  7.6% versus 32.4% in 4QFY12 and 27.0% in 1QFY12. Power realisation per unit increased 1% QoQ, while costs/unit dropped 6% QoQ.  luminium segment, particularly BALCO, continued to witness high costs to the tune of 17% YoY and 7% QoQ in rupee terms due to tapering  f coal linkage and higher costs of alumina due to low grade of bauxite. Copper segment also disappointed due to lower Tc/Rc margin and  igher production costs.

Expansion update:

BALCO is likely to start metal tapping operations at its 325,000tn smelter from 3QFY13 onwards, while the first 300MW unit of its 1,200MW  ower plant is set for synchronisation in 2QFY13 (deferred by a quarter). SEL’s fourth unit is under trial run and the same is likely to start  ommercial power generation in 2QFY13. After getting environmental clearance, SIIL is looking at obtaining stage-II forest clearance for  11mt BALCO coal block, but we expect a major delay. Talwandi Sabo plant is progressing well and its first unit of 660MW is set to be synchronised   t the end of 4QFY13, although we expect a delay of 3-6 months. SIIL has indicated that the new expansion plan for HZL is being prepared and would be presented in due course.

Other highlights:

SIIL started an additional 700MW power transmission capacity in 1QFY13, while, it expects to commission another 1,000MW transmission  apacity by 4QFY13, taking the total capacity to 2,850MW. SIIL has responded to Coal India’s offer of supplying pit-stock inventory (logistics  rrangements have to be made by the buyer) at the administered price. It expects 2-3mt of additional coal from this route.

  

3.Buy Mrf Limited. For Target Rs.11582

* MRF Ltd is India’s largest tyre manufacturer and it is the first tyre company in India to reach a turnover of 5000 Crores.

* The Company engages  n the manufacture, distribution, and sale of tyres for various kinds of vehicles in India and internationally. MRF exports  its products to over 65 countries.

* The company also provides tubes, flaps, tread rubber, conveyor belts, specialty coatings, and sports goods.

* During the quarter, the robust  rowth of Net Profit is increased by 352.46% to Rs. 1445.60 million.

* MRF Ltd has approved the payment of interim dividend of Rs. 3/- per each equity share.

* Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 21% over 2010 to 2013E respectively.

* The prototypes for  erification and validation testing are manufactured in one of MRF's 6 factories all of this are TS 16949/ISO 9001 certified, and the national standards like BIS/JIS/ETRTO/T&RA.

Investment Highlights

Results updates- Q3 FY12

MRF Ltd a leader in the category holds the No.1 position is the top producers of tyres & Tubes in the world and in India, reported its financial  esults for the quarter ended 30th Jun, 2012. The third quarter witnesses a healthy increase in overall sales as well as profitability on ccount, nenhanced Dealers network and robust infrastructural Support system.

The company’s net profit spring to Rs.1445.60 million against Rs.319.50 million in the corresponding quarter ending of previous year, an  ncrease of 352.46%. Revenue for the quarter rose 16.91% to Rs.30082.70 million from Rs.25730.60 million, when compared with the prior  ear period. Reported earnings per share of the company stand at Rs.340.94 a share during the quarter, registering 352.46% increase over  revious year period. Profit before interest, depreciation and tax is Rs.3267.30 millions as against Rs.1647.60 millions in the corresponding  eriod of the previous year.

4.  Hold Gujarat Gas Company. For Target Rs.329

Quiet Quarter, But Early Sign Of Convalescence

Gujarat Gas Company (GGCL) reported net profit 10.5%/10.8% lower than Bloomberg consensus/our estimates, although sales were up 5.0%/4.7% higher than consensus/our estimates, respectively. The key reason for lower earnings are: (1) 5% QoQ fall in volume growth (2) 71% fall in other income on YoY basis, which led PAT/scm to drop to Rs1.83/scm from Rs2.14/scm in the previous quarter. We upgrade the stock to Hold from Sell with a revised target price of Rs329 from Rs315  earlier, following early signs of positive developments on company-specific issues and macro issues related to the city gas distribution (CGD) space in Gujarat.

Margins scenario improving:

EBITDA increased to Rs2.67/scm in 2QCY12 versus Rs2.20/scm in 1QCY12. EBITDA/scm has been perking up since the last three uarters
with the company being able to pass on higher gas costs to consumers, but is still lower than Rs2.91/scm in CY11 and Rs3.14/scm in CY10. With a rising proportion of RLNG in the gas basket, blended gas cost inched up to Rs21.94/scm (US$14.46/mmBtu) compared to Rs19.59/scm(US$13.46/mmBtu) in the previous quarter. Blended gas sale prices increased by 13% QoQ to Rs26.50/scm from Rs23.50/scm, though gas costs rose 12% QoQ. In the past two quarters, the company has seen a higher increase in blended realisation  ompared to increase in blended gas costs, which led to improvement in EBITDA/scm. We believe it is likely to maintain EBITDA/scm of  s2.74/Rs2.91 in CY12E/CY13E, respectively.

Volume stuck in a tight range:

Gas sold during 2QCY12 in volume terms dropped 5.0%QoQ/4.3% YoY to 3.18mmscmd (289 mmscm). The volume growth in 2QCY12 was the lowest in the past 10 quarters, despite the fact that more than 5,800 vehicles were converted to natural gas during the quarter and  10,700 households connected to gas supply, taking the total number of households to more than 352,000. We expect the volume to remain  t 3.3mmscm/3.45mmscm in CY12E/CY13E, respectively. The key upside risk to our volume growth - impact of recent Gujarat High Court’s  erdict on mandatory conversion to natural gas for all cars with an assured allocation from lowpriced APM (administered price mechanism)  as.

Outlook and valuation:

We upgrade the stock to Hold from Sell to reflect: (1) Slim chances of aggressive bidding war on pressure emerging from Gujarat overnment, (2) Gujarat High Court’s verdict to compulsorily convert all cars to natural gas could bring in the much desired volume growth  ven with existing geographies, (3) Improving margin profile with EBITDA/scm since the past three quarters. We have valued GGCL on DCF basis (WACC 13.75%, terminal growth 1%) with a revised TP of Rs329 from our earlier TP of Rs315.

5. Buy Tata Motors. For Target Rs.245 

 

TATAMOTORS (TTMT IS EQUITY) – WEEKLY
Given below is the weekly chart of TATAMOTORS. The stock has taken support at the Long term Trendline joining the lows of July 2009 and September 2011. In addition, the stock held the 61.85 retracement level (207.5) of the rise from September 2011 to April 2012. In the previous uptrend the weekly RSI broke above the 60 levels establishing a Bullish Range therefore the current RSI level of 40 should also act as a  upport. We initiate a Buy call on TATAMOTORS with a Target of Rs 245. Traders can keep a stop loss at Rs 200 on a closing basis.

6.  Hold Bharat Heavy Electricals. For Target Rs.221

Performance Likely To Moderate

Bharat Heavy Electricals (BHEL) reported revenue of Rs83.3bn for 1QFY13, up 16.9% YoY and 9.5%/6.4% higher than our/Bloomberg consensus estimates, respectively. However, we believe the pace of order execution may not sustain in the coming quarters with a declining order book, subdued order placement  activity and possible delay from the clients’ side owing to structural issues in the power sector. Consequently, we maintain our revenue estimates for FY13E/FY14E. Driven by higher revenue, EBITDA/PAT were higher than our estimates by 7.9%/8.6%, respectively, but margins were largely in line with our estimates. EBITDA grew 17.8% YoY to Rs10.9bn, translating to an operating margin of 13.1%, 20bps lower than our estimate of 13.3%. PAT registered 12.9% YoY growth at Rs9.2bn, resulting in a net profit margin of 11.1%, in line with our estimate. Consequently, we maintain our view of sharp erosion in profitability for BHEL over FY12-14E. We retain our Hold rating on the stock with a target price of Rs221 based on 9xFY14E EPS.

Order intake to remain weak:

Procedural delays on account of land acquisition, fuel linkage and environment/forest clearance continued to hamper order placement activity in the power sector. For the quarter, BHEL reported order inflow of only Rs56bn (weak order intake in four out of the past five quarters) leading to order backlog of Rs1,329bn,  13.3% lower YoY. BHEL is yet to be awarded orders worth Rs93.8bn by NTPC through its bulk tenders. Although the management reiterated its order inflow guidance of Rs600bn for FY13E, we are factoring in order inflow assumption of Rs450bn as we expect the policy paralysis in the power sector to continue.

Margin compression likely:

We expect a sharp erosion in profitability for BHEL over FY12-14E due to pricing pressure in the BTG (boiler, turbine and generator) space
owing to dual impact of oversupply and weak demand. The industry segment is also beginning to witness softening margins as it registered a 160bps YoY decline in operating margin to 21% for the quarter. Consequently, we expect BHEL’s operating margin to fall 160bps/150bps YoY in FY13E/FY14E to 17.7%/16.2%, respectively.

Outlook and Valuation:

BHEL is unlikely to sustain its revenue growth traction on such a high base, considering the subdued order placement activity. Also, ompression in operating margin is likely to lead to earnings CAGR decline of 7.9% over FY12-14E. However, we believe the recent correction in its stock price factors in these negatives. At Rs212, BHEL trades at 8.0x/8.6x FY13E/FY14E earnings, respectively, compared to average PE of 16x over the past 10 years and least PE of 7.9x/6.5x over the past 6/10 years, respectively. We value the stock at 9xFY14E EPS of s24.6 with a target price of Rs221 and retain our Hold rating on it.

7.  Buy Acc. For Target Rs.1,469

ACC’s 2QCY12 results are above our expectations, with EBITDA at Rs6.5bn (up 6.2% than our/Bloomberg estimates), EBITDA margin at 23.4% (90bps higher than our estimate) and EBITDA/tn of Rs1,076 (Rs70/tn higher than our estimate) driven by 8% QoQ improvement in realisation (Rs122/tn higher than our estimate). Net sales rose 15.6% to Rs27.8bn (up 2%/1% than our and Bloomberg estimates) and net profit increased 24.2% to Rs4.17bn (up 8.2%/11% than our and Bloomberg estimates). Despite the likely decline in cement prices and subdued demand during the monsoon season, we see strong prospects of earnings upgrade in 2HCY12 following easing cost pressure and a sequential increase in realisation by 8%. Therefore, we retain our Buy rating on the stock with a target price of Rs1,469.

Net sales broadly in line with estimates:

ACC’s 2QCY12 net sales increased 15.6% YoY to Rs27.8bn, primarily driven by a 13.3% YoY (~8% QoQ) improvement in realisation and a 2% YoY cement sales volume growth. For 2QCY12, cement realisation was 4,591/tn, which is 3% higher than our estimate of Rs4,460/tn for CY12E.

Improvement in EBITDA/ tn by Rs148:

EBITDA increased 18.3% YoY to Rs6.5bn (up 6.2% than our/Bloomberg estimates).Despite the rise in overall costs/tn by 11%, EBITDA/tn increased by Rs148/tn to Rs1,076 and EBITDA margin rose by 50bps to 23.4% driven by the increase in realisation by 13.3%. Freight and forwarding costs increased by 19.2% to Rs 949/tn, primarily due to the full impact of increase in rail freight from March’12. Other expenses rose 9.3% YoY to Rs846/tn, but as a percentage of sales declined by 70bps. Power and fuel costs rose 4% YoY to Rs998/tn, but remained flat on a sequential basis.

Net profits beat estimates:

Net profit rose 24.2% to Rs4.17bn, (up 8.2% and 11.2%, respectively, compared to our/Bloomberg estimates), driven by robust      operational performance and higher other income. Other income increased 50% to Rs1.15bn. The company reported an EPS of Rs43 for 1HCY12, which is 55% of the CY12E estimate. Therefore, we believe there are lower prospects of earnings downgrade in 2HCY12.

Valuation:

We maintain our Buy rating on ACC with a target price of Rs1,469 based on EV/EBITDA multiple of 8.5x (~10% discount to past 10 years’ average trading multiple which captures the upcycle/downcycle of cement industry) and implied EV/tn of US$143 (discount of ~5% on  eplacement cost). We believe the EV/EBITDA multiple of 8.5x and replacement cost of US$143 is justified, given the company’s strong  alance sheet and improved profitability on the back of better efficiency.

8.  Hold Bata India. For Target Rs.1,008

Sales Growth Below Estimate;

Downgrade To Hold Revenue growth of Bata India (BIL) slowed to 17% in 2QCY12 compared to 30.6%/22.6% in 1QCY12/CY11, respectively, at Rs5,065mn, 4.1% lower than our estimate. It seems BIL was geared up for slower growth, which is visible from
the fact that inventory days reduced to 96 in 2QCY12 from 102/108 in 2QCY11/CY11, respectively. Following buoyant performance in CY11/1QCY12, the stock price increased 42.9% over the past six months. Third quarter isgenerally a weak quarter for BIL due to the monsoon season. In such a scenario further re-rating seems difficult until BIL resumes its earlier growth trajectory.
Following limited upside from current levels, we downgrade the stock to Hold from Buy. We maintain our estimates and the TP of Rs1,008 based on 16x CY13 EV/EBITDA.

Slower pace of growth:

BIL opened 108/145/61 stores in CY10/CY11/1QCY12, which drove its revenue up by 22.6%/30.6% in CY11/1QCY12, respectively. Compared to 68/145 new outlets in 1HCY11/CY11, BIL has opened over 100 outlets in 1HCY12. However, with high base and lower demand, tentatively due to the monsoon season as per the management, revenue growth moderated to 17% in 2QCY12. Inventory days
increased to 108 in CY11 from 99 in CY10 on account of lower demand and aggressive expansion in 4QCY11. However, BIL appears to be prepared for lower growth which can be seen from the fact that inventory days reduced to 96 in 2QCY12
from 102/108 in 2QCY11/CY11, respectively. We expect the valuation to be capped until BIL resumes its high-growth trajectory. BIL incurred a capex of Rs34mn in 1HCY12, mainly to increase retail outlets.

Better gross margin drove operating margin:

BIL witnessed a drop in gross margin from 3QCY11 to 1QCY12, and even after that it was able to report better operating
margin due to lower employee costs. However, with a better product mix, BIL was able to improve its gross margin by 99bps to 51.5% in 2QCY12, which led to a 86bps increase in operating margin. Following aggressive expansion, lease rent as a
percentage of sales increased by 213/186bps to 10.6%/9.1% in 1QCY12/1HCY12, respectively. It would be difficult for BIL to improve operating margin from the current levels if the pace of revenue growth moderates in 2HCY12.

Valuation:

We expect the valuation of BIL, which trades at CY13E P/E of 23.5x and EV/EBITDA of 14.3x, to be capped until revenue growth resumes its earlier trajectory.

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COPYRIGHT VIKAS PARSHURAM SAMWATSARE 7/12 

vikas parshuram samwatsare

Ignoring concerns, FIIs pumps Rs 8,400 crore in stocks in July

 Foreign investors have poured a little over Rs 8,400 crore into the Indian equity market this month so far sidelining concerns over weak monsoon, slowing economic growth and a high interest rate regime.

After three consecutive months (April-June) of selling, overseas investors infused Rs 8,424 crore into the equity market till July 27, according to the data available with the Securities and Exchange Board of India.

Market experts said foreign investors have sidelined concerns over weak monsoon, slowing economic growth and a high interest rate regime, mainly on hopes that government would initiate fresh reforms initiatives as Prime Minister Manmohan Singh had taken the additional charge of the finance portfolio.

 

Sebi fears small brokers used as front in midcap crash

 

 ome little-known brokers have come under the scanner of market watchdog Sebi for suspected manipulative activities in stocks by spreading rumours about certain listed companies, including a few mid-cap entities whose share prices fell like nine-pins last week.

The regulator is now looking into the possibility of these brokers, whose trading activities have not been material in the past, being used as front entities by some foreign investors, HNI financiers and even company promoters.

According to sources familiar with the matter, Sebi's preliminary investigations into the last week's sharp plunge in some mid-cap stocks have thrown forward certain interesting facts and it could be possible that the rumours could have been spread with an aim to beat down the stocks.

VIKAS PARSHURAM SAMWATSARE

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Market is going into consolidation after 10% rally

 The market is going into some kind of consolidation after the 10% rally, couple of 100 points down should be expected as long as we hold on to 5180-5200. Investors need to buy into weakness, once the weakness ends and you take out say 5270 on the upside, which has been the high for the last two or three days, till that does not happen there are individual stocks that you can play with. Basically, ivestors will have to find things to do in this kind of a market, where exposure remains low and one does not lose money.

There are periods when you make money and there are periods when you lose money in the markets. If you do not lose in those losing periods then on a net basis you can come out ahead. This is the time when like the markets, you just back off and take it easy and whenever the markets pick up momentum again, on the upside or on the downside, that would be the time to come in and again participate.

Earlier, bank Nifty was outperforming. I do not think it is doing that so again in the market. 10550 is a support from where it bounces back but overall that is also in a 200 point range not worthwhile trying to trade. Now, today broadly we should have been in telecom and pharmas on the upside and on the downside, commodities and may be real estate etc. Since I have been giving telecom and pharmas all day, so I have a couple of sell calls in JSPL with a stop of about 430, target of 395. Bombay Dyeing is a sell with a stop of about 536, target of 510. Titan is a buy with a stop of about 216, target of 2341.BY VIKAS PARSHURAM SAMWATSARE 

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India's FDI policy regime is investor-friendly

 Commerce and industry minister Anand Sharma rebuffed Barak Obama's scathing comments on India's 'deteriorating investment climate,' stressing that the American president's perception is far removed from reality, and India remains top investment destination. 

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US stocks close lower after consumer spending slides

 

Stocks closed lower for the seventh day out of the last eight on Monday after the government reported that US consumers cut their spending last month.

The news pushed stocks down from the start of the trading day. Though they recovered a bit around midday, all three major indexes closed down. The Dow Jones industrial average dropped 49.88 points, or 0.4 percent, to 12,727.21.

Before trading opened, the Commerce Department said retail sales fell 0.5 percent in June from the month before as Americans spent less on autos, furniture and appliances. It was the third straight month of declining sales, a worrisome trend. The last time sales slumped for so long was in the fall of 2008, at the worst point of the global financial crisis.

``The summer soft patch is here, and it could be here a while,'' said Randy Frederick, a managing director at Charles Schwab, the stock brokerage firm. ``Consumers are belt-tightening.''

Also dampening spirits, the International Monetary Fund said it now forecasts the global economy to grow 3.9 percent in 2013, down from an earlier estimate of 4.1 percent.

The Standard & Poor's 500 index fell 3.14 points, or 0.23 percent, to 1,353.64. The Nasdaq composite index fell 11.53 points, or 0.4 percent, to 2,896.94.

Companies that rely heavily on consumer spending were among the weakest on the New York Stock Exchange. Home Depot fell 64 cents, or 1.2 percent, to $51.45. Lowe's Cos. lost 92 cents, or 3.4 percent, to $25.80.

Industrial stocks also fell sharply. General Electric and Caterpillar, a heavy equipment maker, each fell about 1 percent. GE lost 18 cents to $19.59. Caterpillar lost 92 cents to $81.15, one of the biggest losses among the 30 stocks that make up the Dow average.

Comments from Chinese Premier Wen Jiabao over the weekend also weighed on the market. Wen said his country's economy has not yet entered a recovery and ``economic difficulties may continue for some time.'' Some of the weakness in China comes from the debt crisis in Europe, which has crippled spending on imported goods.

In the Treasury market, the yield on the benchmark 10-year Treasury fell to 1.45 percent from 1.49 percent late Friday as investors sought the relative safety of government debt.

In Europe, borrowing rates for Italy and Spain rose again, the latest signal that bond investors are leery of the finances of those countries. Stocks fell 2 percent in Spain and 0.4 percent in Italy. Benchmark indexes in Germany and France were flat.

Stocks closed lower for the seventh day out of the last eight on Monday after the government reported that US consumers cut their spending last month.
The news pushed stocks down from the start of the trading day. Though they recovered a bit around midday, all three major indexes closed down. The Dow Jones industrial average dropped 49.88 points, or 0.4 percent, to 12,727.21.
Before trading opened, the Commerce Department said retail sales fell 0.5 percent in June from the month before as Americans spent less on autos, furniture and appliances. It was the third straight month of declining sales, a worrisome trend. The last time sales slumped for so long was in the fall of 2008, at the worst point of the global financial crisis.
``The summer soft patch is here, and it could be here a while,'' said Randy Frederick, a managing director at Charles Schwab, the stock brokerage firm. ``Consumers are belt-tightening.''
Also dampening spirits, the International Monetary Fund said it now forecasts the global economy to grow 3.9 percent in 2013, down from an earlier estimate of 4.1 percent.
The Standard & Poor's 500 index fell 3.14 points, or 0.23 percent, to 1,353.64. The Nasdaq composite index fell 11.53 points, or 0.4 percent, to 2,896.94.
Companies that rely heavily on consumer spending were among the weakest on the New York Stock Exchange. Home Depot fell 64 cents, or 1.2 percent, to $51.45. Lowe's Cos. lost 92 cents, or 3.4 percent, to $25.80.
Industrial stocks also fell sharply. General Electric and Caterpillar, a heavy equipment maker, each fell about 1 percent. GE lost 18 cents to $19.59. Caterpillar lost 92 cents to $81.15, one of the biggest losses among the 30 stocks that make up the Dow average.
Comments from Chinese Premier Wen Jiabao over the weekend also weighed on the market. Wen said his country's economy has not yet entered a recovery and ``economic difficulties may continue for some time.'' Some of the weakness in China comes from the debt crisis in Europe, which has crippled spending on imported goods.
In the Treasury market, the yield on the benchmark 10-year Treasury fell to 1.45 percent from 1.49 percent late Friday as investors sought the relative safety of government debt.
In Europe, borrowing rates for Italy and Spain rose again, the latest signal that bond investors are leery of the finances of those countries. Stocks fell 2 percent in Spain and 0.4 percent in Italy. Benchmark indexes in Germany and France were flat.VIKAS PARSHURAM SAMWATSARE 

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Buy Tata Motors on decline for long term

 : Tata Motors will continue to face competition but the manner in which the company is positioned, they are absolutely in good shape to really face this onslaught of competition locally as well as internationally. Despite the kind of problems that China is facing, Jaguar continues to do very well out there and what is stunning turn around by this company. Locally too, the company will have aggressive plans to ensure that cars like nano, Indigo start moving and a comeback in terms of the sales. As far as, the LCV and HCV are concerned, especially the HCV segment, with the falling interest rate regime you will see HCV coming back into the lime light. So, Tata Motors on a decline anything around Rs. 200 or slightly below that looks very fascinating buy and I would definitely go and buy it for the long term. VIKAS PARSHURAM SAMWATSARE

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Market still looks range-bound

 

That is quite possible. 5180-5200 is what I have been maintaining and the index will eventually go and test. We are very close to those levels. I am still not sure, whether we will see a breakdown happening below 5180 and therefore, my bias is slightly on the long side. I would possibly look at some kind of buying signals to arrive at those levels, especially in stocks, which have shown very strong breakouts. What is important is that the gap on Thursday, 5270, was the high on Friday. You are broadly not able to get pass those levels, 5270-5300 is the capped level. As long as, that has been captured you will possibly see supply emerges at higher levels and it still looks like range bound market, given the fact that we still do not have signals that market will have strength to get pass those significant gap.

In the last few days, we have basically shifted the range. So, instead of 5350 to about 5280, it will be possibly 5270 to about 5300 on the upside and 5180 on the downside. That is the only change, which I have made in my trading strategy but otherwise, we are trading with slightly lesser qualities. This is a period not to lose money, when you are not getting a trend. It does not make sense going full throttle over here. I have a sell on Bank of India with a stop at 343 for a price target of 320. I have a buy on Bharti with a stop at 314 with a price target of 327, which could be tested in a day or two.VIKAS PARSHURAM SAMWATSARE 

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 Buy Power Grid Corporation of India For Target Rs.132

 

Grid Of Growth And Permanence

Augmenting capex followed by higher capitalisation (superior project execution run rate) of power transmission assets would boost core earnings of Power Grid Corporation of India (PGCIL). We believe PGCIL remains the safest bet among power transmission companies due to its annuity-based business model (15.5% post-tax regulated RoE) despite the sector’s structural issues. Core demand, higher inter-regional capacity to limit regional deficits and reforms in the distribution space (state electricity boards’ losses, open access) are expected to
increase the need for transmission corridors. We believe PGCIL is attractively positioned at the beginning of 12th Five Year Plan (FY13-17), considering the huge capex outlay planned, driving up its regulated equity. We assign a Buy rating to PGCIL with a SOTP-based target price of Rs132, up 18% from the CMP.

Higher capex to ensure growth:

With an increased emphasis on integrating India’s T&D network, PGCIL has planned capex outlay of Rs1trn under the 12th Five Year Plan
(FY13-17), 82% higher compared to Rs550bn capex incurred under the 11th Plan (FY08-12). Considering its strong track record of project execution and the fact that 76% of planned capex of Rs1trn has already received investment approval, we forecast total capex outlay of Rs924bn until FY17E. This would lead to robust growth for PGCIL, as its earnings are linked to capex and the rate of capitalisation of transmission assets. 

Rising capitalisation to enhance RoE:

We expect capex under the 12th Plan to be front-ended (higher quantum in the initial years) based on planned transmission capacity addition over FY13-15E. Consequently, we expect capitalisation of transmission assets worth Rs170bn/Rs172bn in FY13E/FY14E, respectively, resulting in a 23.2% CAGR in regulated equity over FY12-15E compared to 17.6% CAGR achieved over FY08-11. Higher capitalisation leads to higher regulated equity (eligible for earning regulated returns) driving up the reported RoE from 13.9% in FY12 to
14.5%/15.7% in FY13E/FY14E, respectively.

Augmentation of inter-regional capacity to reduce deficits:

The intent to create a national grid to enhance connectivity among the regions will result in inter-regional capacity growing by 37GW in the 12th Plan period, as per the Central Electricity Authority (CEA). It will help in capping the deficits among the regions via inter-regional
energy exchange (21% CAGR in FY09-12) further aiding PGCIL’s transmission growth.

Valuation:

We assign a Buy rating to PGCIL with a target price of Rs132, providing 18% upside from the CMP. We have valued the stock on SOTP basis, assuming cost of equity of 12%, RoE of 17% and growth of 7% in regulated equity. The target price comprises core transmission valuation of Rs127/share (based on 2.1x P/BV multiple on FY14E book value) and cash and investments valued at Rs5/share.

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 Accumulate HDFC BANK For Target RS.590

Q1FY13: Core performance largely in line; CASA mix dipped marginally to 46%. However, NIM and asset quality remained one of
the best in the industry.

* HDFC bank reported strong net interest income (22.3% YoY), mainly aided by healthy loan growth (21.5% YoY) along with 10bps improvement in NIM (both YoY & QoQ). Net profit rose 30.6% YoY on back of robust non-interest income (36.6% YoY) along with modest growth in provisions & contingencies (9.8%).

* Although CASA mix dipped marginally to 46.0% at the end of Q1FY13, largely due to subdued current account deposit mobilization, it still remains one of the best in the industry. NIM saw 10bps QoQ improvement mainly due to 360bps improvement in LDR (loan deposit ratio) on back of strong built-up in wholesale book (~15% QoQ).

* Asset quality remained stable - gross and net NPAs stand at 1.0% and 0.2%, respectively. Its provision coverage ratio is also healthy at 81% at the end of Q1FY13, which provides cushion to its future earnings with any unforeseen deterioration in its asset quality. Lower stressed assets (gross NPA: 1%, restructured book: 0.3%), further reduces the risk of any big negative surprise in the future.

* At the CMP of Rs.587, the stock is trading at 20.8x its FY13E earnings and 4.0x its FY13E ABV. In our view, HDFC bank would continue to enjoy the valuation premium vis-à-vis its peers as it fares better at majority of the operational parameters - liability franchise, asset quality and NIM. With limited upside from current level, we maintain ACCUMULATE rating on the stock with unchanged TP of Rs.590 based on 4.0x of its FY13E ABV. However, we would advice our clients to enter into the stock with any decline in the stock price.

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 Buy V-Guard Industries Ltd.For Target Rs.329

Investment Rationale

Comprehensive product portfolio and new products to drive growth

V-Guard Industries (VGI) has a wide array of products which cater the requirements of consumer durable industry (stabilizers, heaters, fans and UPS), agriculture (pumps) and construction (cables) sectors of the country. The Indian household appliance market has grown at CAGR of 11% between FY04-FY12. We expect the growth pattern to continue till FY14E on the back of a) power deficiency in India, b) strong GDP growth in India, c) growth in middle class population and rising urbansisation, d) rising income levels and e) Growth of consumer electronics led by low penetration levels. Give the fact that VGI's product portfolio caters to the mass market and meets the basic requirements, demand for these products is expected to remain strong.

The company has strategically introduced new products over the last two decades. This has enabled the company to register a 37% CAGR in revenues from FY07-12. VGI also added new products like a) switch gear and b) induction cooker in FY12 which are expected to gain traction
in the current fiscal. As VGI has a good market share in the house wiring segment, domestic switch gears can be conveniently marketed and has been launched in the southern markets. Also with a view to offer more products in the home segment, Induction Cooker were launched with different models.

Growth aided by increasing geographical presence

VGI earlier focused mainly in the Southern parts of India where it has built a strong brand name as well as distribution network. 97% of its sales (FY07) came from southern market concentrated in 4 Southern States of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu.

However, over the past few years it has expanded its geographical area of operations pan-India. Over the years, the company has made a strong distribution channel in the southern region. We believe the traditional products like stabilizers, water heaters, and pump has reached a near maturity level in the south. Hence, the company has rightly ventured into the non south market. We hence expect a strong brand equity and extensive distribution network to help VGI roll out its consumer durables products and gain strong foothold going forward in Rest of India (ROI) market and expect the market share of ROI to rise to 40% by FY14E from 22% in FY12.

Mix of manufacturing and outsourcing to be beneficial in the long run

VGI adopts a manufacturing as well as outsourcing model for its product portfolio. In FY12, it operated with ~41% of its products being manufactured while the remaining 59% being outsourced. The company has tie-ups with various SSI/self-help group units in the southern
states to manufacture products to meet its needs. Depending on the purchase order, which is normally given one month in advance, the products are manufactured in these units. This enables to keep control over its cost and meet the increased demand without undertaking
significant capital expenditure. While VGI assists these units to purchase the raw material and places its quality assurance team at the units.

Extensive investment in distribution network

VGI has created a wide distribution network with over 9,500 retailers, 208 distributors and 353 service centers spread across all states in India except North East and Jammu & Kashmir. In India, the dealer plays a vital role in the sales pitch of consumer products which is highly
fragmented by nature. Of the total 28 branches owned by VGI, 18 are located in ROI which is expected to aid growth with greater brand visibility in the coming years.

Valuation

At CMP of `272, the stock is trading at a PE of 11.6x in FY13E and 8.4x in FY14E. We are optimistic on VGI’s growth story and believe it can replicate its success story of southern market in other parts of India. We recommend a BUY rating on the stock with a target price of `329 per
share (PE of 10.2x in FY14E), an upside of 21% for a long term view.

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 VIKAS PARSHURAM SAMWATSARE BIG BOSS ALL RIGHT 17/7/12