>Real Estate (CITI)

INDIAN REAL ESTATE

Construction Cos Suggest Payment Delays, Lower Visibility on
Execution, Focus Shifting from Real Estate to Infra Orders

* Developers delaying payments — Our channel checks with key construction companies B.L.Kashyap, Ahluwalia Contracts, Simplex Infra, with ~18-78% of their order books in property development, show the liquidity crunch facing developers resulted in significant payment delays to construction companies. The situation was worrying in 3QFY09 but a few saw improvement in Jan-Feb’09 after lower rates/new restr norms for real estate loans; outlook still tough.

* Slowing execution, particularly comm projects — Most construction companies have taken a conscious decision to slow execution of projects where they face sizeable payment delays. For projects, particularly IT SEZ/retail, that are in early construction stages/yet to be leased, developers have asked contractors to go slow due to weak demand. Most believe near-term recovery is unlikely.

* Focus shifting from real estate to infra orders — With incremental order flows from real estate sector slowing as most new launches have been put on hold and payment delays are a worry, some construction contractors are focusing on raising the proportion of government and infra orders where visibility is better.

To see full report: Real Estate

>Market Insight (RELIGARE)

MARKET OUTLOOK

Dow closed in the positive but Asian markets are mixed. Our quarterly GDP numbers are likely to come out tomorrow, which will play a crucial role in determining the short-term trend of the market. Market expectation for GDP growth is 6.1% against 7.6% last quarter. We believe that our market is in the consolidation phase, but the situation globally continues to remain bad. We therefore continue to remain bearish on the market. For the day, we expect market to open flat to positive and expect some profit booking at higher levels.

• Dow : Negative
• Asia: Mixed
• Day’s view: Negative

To see full report: Market Insight 26-02-2009

>Nestle Ltd - Buy (INDIA INFOLINE)

NESTLE Ltd. - BUY
CMP 1480 Target 1816

Best play on the India consumersiation story
india is witnessing a major shift in consumer taste in favour of packaged foods aided by increased oenetration of organized retail. Nestle with its among brand equity, well diversified product portfolio and aggresive low price strategy is well poised to be a major beneficiary from India's consumerisation story. Despite the current weakening economic environment, Nestle has managed to record over 20% growth for consecutive seven quarters. We believe, the growth momentum would continue as pricing power and continuous innovation would enable Nestle to increase its market share in the near term. We expect the company to witness revenue CAGR of 16% over
F12/08-10E.

Enjoys pricing power
Nestle's well-diversified product portfolio includes some of the best-knowns brands globally. Its major brands - Maggi, Nestle, Nescafe and Kit Kat are amongst the top brands in India. Compared to other FMCG players, Nestle is less exposed to regional competition as the manufacturing process in most of its product categories is technology intensive. We believe, Nestle's strategy of increasing premium priced brand variants coupled with selective price hikes would fuel margin expansion.

To see full report: Nestle

>Sugar Sector Update (LKP SHARES)

….sweet gains on shortage

INVESTMENT ARGUMENT

• Steep drop in sugar production this season in India: Given the opening inventory of 8mt and production of 16.5mt we believe that India would need to import 2mt of sugar given the consumption of 23mt if there has to be a closing inventory of at least 3.5mt which is a stock to use of 15% - a steep drop from the levels of 45% witnessed in FY'07 and 35% seen in FY'08.

• Even a production of 20mt next fiscal would not help: With this opening inventory of 3.5mt even if production next season were to touch 20mt the scenario would just about match our consumption and India would still need to import at least 2.5mt to maintain a minimum closing inventory of 3.5mt and the stock to use ratio of 15%.

• Sugar gets sweeter: Lower cane cultivation owing to attractiveness of alternate crops and poor recovery of 9% in the state of UP has led to diversion of cane to gud and khandsari leading to firming up of sugar prices. Yields have declined in both the ratoon crop as well as the plant crop and the lower sucrose content in the cane has impacted recovery as well.

• Sugarcane prices driven politically: Given the fact that mills in UP have to pay significantly higher prices for cane compared to peers in southern parts of the country, we expect UP based mills to face a double whammy of higher cane costs and shortage of cane.

• South based sugar mills would benefit : South based mills crush longer and pay less for the cane and the cane availability is not as bad as that in UP, AP and Maharashtra.

To see full report: Sugar Sector