Friday, March 13, 2009


US markets closed in the positive but all other Asian markets are positive. Yesterday’s, IIP data was better-than-expected as predicted by us. IIP came in at -0.5% against an expectation of -0.9%
contraction. The situation in the US continues to remain serious and we believe that this year will be marked as a year of consolidation for our markets, but any sharp fall in the markets from current levels must be used as an opportunity to enter into the market from a long term view. For the day, we are positive on the market.

  • Dow : Positive
  • Asia: Positive
  • Day’s view: Positive

To see full report: MARKET INSIGHT 13-03-09


To see report: HFF 12 March'09

>Ultra Tech Cement (ICICI Securities)

*Delay in production ramp-up in Tadipatri. UTCL’s 4.9mnte Tadipatri expansion was announced in March ’08. However, while the clinkerisation unit was operational, grinding units took longer to get operational. The spit grinding unit at Karnataka has already been commissioned in Q2FY09 and the grinding unit at the mother plant is likely to be commissioned as of end-Q4FY09. Consequently, we have reduced our FY09E volume estimates from 17.3mnte to 15.9mnte.

*Higher net realisations from excise cut. In FY09, so far UTCL has witnessed
higher-than-expected realisations, mainly due to better prices in the South. While, we expect FY10E average gross realisations to decline 5%, the Government’s decision to cut excise rate from 12% to 8% would help offset the impact of pricing pressure during the year.

* Sharp rise in fuel costs. UTCL relies on imported coal for ~40% of its fuel requirement. Imported coal prices peaked in Q2FY09 to ~US$190/te, after which they have softened. However, the benefit from coal price correction would accrue only Q4FY09 onwards. Hence, we have assumed 65% rise in coal costs for FY09E versus 40% earlier. For FY10E, we have assumed 22% decline in coal costs versus 5% earlier.

* Valuations: The stock has already exceeded our target price of Rs475. At the current EV/te of ~US$73, we believe the stock is fairly valued given that the sectoral fundamentals remain weak. Consequently, we downgrade UTCL to HOLD from Buy with a target price of Rs509/share.

To see full report: Ultra Tech Cement

>Power Grid Corporation (CENTRUM)

* 86% of 11th Plan investment target to be met: We believe, fears that PGCIL would fall short of its proposed Rs550bn investment target in the 11th Five-Year Plan are overdone. The company is expected to spend around Rs409bn on capex during FY09-12E, taking the total
investment to Rs475bn, which is 86% of the target.

* 42% of projects are system-strengthening or national grid projects; no major delays expected: Further, about 42% of the proposed capex is for system- strengthening and national grid projects. We believe these projects would be commissioned on schedule and don’t foresee any major delays.

* Execution capabilities better in transmission sector compared to generation: During the last 3 Five-Year plans, the transmission sector has achieved more than 90% of its capex targets, whereas the generation sector fared poorly with only about 50% execution level.

* Comfortably leveraged to meet capex requirements: PGCIL is comfortably placed in terms of debt-equity ratio to meet the capex needs. We expect the D/E ratio to increase from 1.7x in FY08 to about 2.4x in FY12E close to regulated D/E ratio.

* New CERC norms to impact positively: We believe the new CERC norms would positively impact PGCIL with ROE increasing 200bp from 14% to 16% and allowance of grossing up at MAT rate of 11.33% for new projects with 80IA benefits.

* Buy with target price of Rs115: We initiate coverage with a Buy and target price of Rs115. We believe PGCIL’s ideal one-year forward P/BV should be 3x, a 20% premium to the base multiple of 2.6x, considering better leveraging and high capex growth. Further possibilities of interest rate fall in the economy would make annuity based revenue models more valuable.

* Key Risks: Upside risk to the price target will be a higher Capex (more than Rs409bn estimated) for the period FY09-12E. Downside risk can arise from changes in the current regulatory framework of availability based tariff

To see full report: POWER GRID

>Bombay Dyeing (ANGEL BROKING)

Bombay Dyeing (BD) in its attempt to prune operational costs has shifted its Home Textile operations from Mumbai to Ranjangaon and Patalganga. Post this shifting, the company proposes to capitalise on its prime land thus available. We believe its foray into the Real Estate business will drive its future revenues. BD has also forward integrated into polyester staple fibre (PSF) by setting up a plant of 1,65,000 tonnes capacity. In CY2008, the company's business was adversely affected by rising crude prices and its inability to pass on the same. However, now with crude correcting, its PSF plant fully operational and decent performance by its Real Estate Division, BD is a good bet at current valuations.

* Good play on Mumbai's Real Estate Sector: BD has a huge land bank at the prime locations of Worli (20 acres) and Dadar (40 acres) in Mumbai, which is being developed. We have valued BD's existing Real Estate business at Rs196/share on NAV basis. We have assumed that the projects would be completed over the next six-seven years as against our earlier estimate of four years and management's estimate of two-three years in wake of current slowdown in the Real Estate sector. Nonethless, we believe that BD is a safe bet on Mumbai's Real Estate Sector.

* Textile Business to turn-around: BD has shifted two of its textile mills out of Mumbai to Ranjangaon and Patalganga as part of its restructuring exercise, consolidate its manufacturing facilities and prune operational costs. Post shifting of these textile mills, BD proposes to exploit the land thus available at prime locations in Mumbai. We have valued the company's Textile business at 3x FY2010E EV/EBIDTA translating into Rs34/share.

* Maintain a Buy… 1.We see underlying value in BD's assets and believe that these would be Earnings accretive in the long run. 2. We believe Mumbai is one of the better Real Estate markets in the country, and if there is any revival in the Sector it would first happen in Mumbai. 3. BD is placed in an advantageous position as it has historically owned land.

To see full report: Bombay Dyeing

>The Azhar Syndrome (FIRST GLOBAL)

Sometimes we get what we wish for, and then we get the rest of our lives to repent.
This is precisely what has happened to India.

This country has craved a bull market since the day a few Gujus got together and formed the Bombay Stock Exchange under a tree (actually, that’s probably a charitable description. More likely, they formed it in a slum). Since then, this country has lived on in the hope that it will get a secular bull market, akin to what the US got between 1982 and 2000. And intermittently, it did get bull markets…short, sharp ones, that enriched no one but the brokers. But nothing ever got even close to the US bull market. All of us sell-side low lives sold the mythical India story to dumb foreigners through the ‘90s, gobbled up their dollars at Rs.31.37/$, got them to buy loads of rubbish that miraculously turned more illiquid than molasses come a mini-bear market so that the foreigners could never take back the dollars they had brought in. But the broad bull market never came.

Then came the 2003-2007 bull run. And that ruined the country.

This bull market inflated dumb promoters to God-like status. It made mediocre fund managers become stars. It made below-mediocre sell-siders become ace stock-identifiers. It made the fiscal deficit nearly go away, however illusorily. It made even lowly back office clerks become Bloomberg operators at JP Morgan’s outsourcing units, getting in a month what they were getting in a year, so tight was the market for Bloomberg operators.

To see full report: The Azhar Syndrome