Wednesday, February 4, 2009

>Thermax (CITI)

Outlook Remains Challenging. Cutting TP to Rs211

# Better than expected results - Standalone PAT up 9% YoY – Revenues declined
by 6%YoY, led by a decline of 9%YoY in the energy segment. Environment
segment grew by 14%YoY. Margins (adjusted for forex loss) have improved by
137bps, driven by cost cutting initiatives. Order book of Rs41bn is up 40%YoY;
however, the pace of order book growth has moderated.

# Pushback in investments to hurt order inflows – Management suggested there
is "substantial resistance" from clients to finalize orders, especially large sized
projects. Some clients have cancelled/slowed execution. According to
Thermax, cement and metals sector capex is expected to slow down while the
power sector will continue to invest, albeit at a lower level than before.

# But there are some positives – 1) While risks to order inflows remain, we
believe increased power sector exposure should help provide some support to
growth. 2) Mgmt has been ahead of the curve and seems geared to handle the
downturn; ~293bps margin improvement for 9MFY09 is commendable, esp.
since it was in the back-drop of rising input costs & no pass through clauses.

# The company has no debt and one of the highest RoEs in the sector.
 Cutting ests by 23%-31% for FY10-11E, TP to Rs211. Maintain Buy – We cut
our rev assumptions to factor in moderating growth trajectory. We cut our TP to
Rs211 (from Rs480) based on 8x FY10E (15x Dec09E earlier). We value
Thermax at 50% discount to BHEL given its lower visibility and earnings
growth. Historically Thermax has traded on par with BHEL, but in recent past,
has been trading at widening discount. We raise our risk rating to Medium from
Low reflecting the difficult environment for private sector capex.

To see full report: Thermax

>Market Preview (Marwadi Financial)

# The Global equities are witnessing bounce from lower levels as there was a bit
of positive data on pending Home Sales in the US. However any recovery is
limited as worries continue on Economy & Businesses. Back home markets
are facing an unique and very sensitive issues like corporate governance and
compliance of accounting standard.

# We therefore recommend playing pure Domestic demand stories where
margin of safety is higher. We suggest buying on dips with strict stop loss of
2750 on Nifty and portfolio must be hedged with puts at these times.

To see full report: Market Preview 04-02-2009


Key Events of the day

# Yesterday’s trading session remained volatile, with markets making new intraday lows and high. Domestic markets gave a strong opening on back
of positive Asian markets. Though the gain was short lived and markets
plunged to make intraday low, only to recover smartly and made intraday
high thereafter. In the last one hour markets gave up all its gain on back of
negative Dow Jones future and negative European markets. At the end of
the day markets close 82 points plus on Sensex and 17 points plus on Nifty.

# Sector wise, Realty again was a spoil sport and plunged 6.64%, Consumer
Durables dropped 1.96%, while Oil & Gas rose 2.47% and FMCG was up

# The Sensex ended the day with a gain of 82 points and closed at 9149 the
broad-based NSE Nifty gained 17 points, and ended the day at 2783.9.
Whereas the BSE Midcap and Smallcap ended the day down by 0.29% and
0.17% respectively. Market breadth at 1060: 1220 remained negative in spite
of markets closing positive.

To see full report: Market Review 3-02-2009

>Interest Rates (MERRILL LYNCH)

Interest rates: Roadmap through the storm

Deposit/lending rates to soften, yields to bottom by June:
We try to time macro catalysts for rate movements through the down cycle ahead.
The first of our six phases – falling yields, high deposit/lending rates – is obviously
over. We are, in our view, in the second phase in which weakening credit offtake
is pulling down lending rates. We expect June to usher in the third phase as yields
bottom, with a high fiscal deficit dampening support from RBI easing/deflation.

Gilts: Bullish near-term on RBI cuts, fiscal risks looming:
Ashish Agrawal, our Asia rates strategist, find bonds caught between RBI easing
and rising issuance. The OIS curve is trading below the government bond curve
expecting easy liquidity/ rate cuts. The latter is steepening over rising issuance.

To see full report: Interest Rates

>RBI, Trade credit.... (MERRILL LYNCH)

RBI, trade credit, SME, inflation, US

RBI: On hold; 50bp rate, 100bp CRR/SLR cuts ahead:
The RBI expectedly stressed a soft policy stance today to combat the global
recession. Policy rates were left unchanged in line with our (/ consensus)
expectations: we expect a final 50bp cut by April. The RBI did not, contrary to our
expectations, cut CRR 50bp to fund additional government borrowing, although it
appears to share our growing fiscal concerns. It has, however, extended sectorspecific
refinance facilities to September from June. In the event, we continue to
expect 100bp CRR/SLR cuts in FY10. Finally, the RBI expectedly cut FY09 real
growth to ~7% (from 7.5-8%, 7.1% MLe) and inflation to ~3% (from 7%, 2% MLe).

BoP risks overdone: US$28.1/43.2bn trade credit repaid:
The big news is really outside of policy action, or the lack of it. The RBI revealed
that US$28.1bn of the US$43.2bn of trade credit due FY09 has already been
disbursed by November. This buttresses our standing view of BoP risks overdone
here. This also supports our expected INR consolidation: read Steve and me
here. Incidentally, profit booking by FIIs (US$700mn in January) is expectedly
counter-balanced by a turn in trade seasonality in favor of exports over imports.
Note, merchandise trade turnover has been inching up suggesting a pick up in
trade. December exports reportedly fell 1% after ~10% October-November drops.

To see full report: RBI & Inflation