>EAGLE EYE ON 01/06/09 (SHAREKHAN)

Optimism continues

Markets on May 29: Bulls pilot

Buoyed by better-than-expected GDP readings for March 2009, the market saw good buying all through the day. Sensex ended 329 points up, while Nifty 111 points higher. Mid caps and small caps also ended the day on a strong note with the BSE MIDCAP and BSE SML CAP ending 2.46% and 3.01% higher respectively. Though the move in Nifty has extended significantly, in the current scenario, the risk/reward is heavily tipped in the favour of bears. Also, Nifty is near a good resistance of 4509, where the probability of double top is very high. On the other hand, the daily momentum indicator KST has just turned positive with a positive crossover of the hourly averages. The market breadth was positive with 957 advances and 317 declines on the NSE.

The hourly momentum cycle is still positive. Our shortterm bias is down for the target of 3900 with trend reversal pegged at 4510. However, our mid-term bias is up for the target of 4550 with trend reversal placed at 3700.

Buying was witnessed across almost all the counters with realty, capital goods and consumer durables remaining at forefront. However, stocks from healthcare sector were at receiving end. From the 30 stocks of Sensex, ACC (up 9%), DLF (up 8%) and Jaiprakash Associates (up 8%) led
the pack of gainers, while Sun pharmaceutical Industries (down 8%), Grasim Industries (down 4%) and Tata Power (down 2%) led the bunch of losers.

To see full report: EAGLE EYE 010609

>QE MARCH 2009 GDP GROWTH HIGHER THAN EXPECTATIONS (MORGAN STANLEY)

• GDP growth was at 5.8% in QE March 2009: The Central Statistical Organization (CSO) announced that GDP growth in the quarter ended March 2009 (QE March 2009) was at 5.8%. This compares with 5.8% registered in QE December 2008 (revised upwards from 5.3% earlier) and 7.7% (revised upwards from 7.6% earlier) in QE September 2008. The growth was above our and consensus expectation (as per Bloomberg survey) of 5%. The full-year F2009 (12 months ended March 2009) GDP growth stands at 6.7% YoY, compared to 9% growth registered in F2008.

• Agriculture growth rebounded; manufacturing segment contracted: The agriculture and allied activities segment accelerated 2.6% in QE March 2009 after declining 0.4% in the previous quarter. Within this, the agriculture sector rebounded 2.7% (vs. -0.8% earlier). Mining and quarrying, on the other hand, decelerated to 1.6% (vs. 4.9% earlier). The industry segment growth decelerated to 1.4% compared to 2.1% in the previous quarter. Within industry, while the
manufacturing segment declined 1.4% (the first time since the 1997-1998 crisis) vs. +0.9% earlier, growth in the electricity, gas & water supply, and construction segments accelerated to 3.6% and 6.8%, respectively, (vs. 3.5% and 4.2% earlier).

• Services segment growth decelerated: Growth in the services sector decelerated to 8.6% in QE March 2009, compared with 10.2% in the previous quarter. Within services, while growth in the community, social & personal services segment decelerated to 12.5% vs. 22.5% earlier, it remained strong, underpinned by fiscal stimulus measures undertaken by the government during QE March 2009. Growth in the other segments accelerated in QE March 2009 – financing, insurance, real estate & business services (9.5% vs. 8.3% earlier) and trade, hotels, transport & communication (6.3% vs. 5.9% earlier).

To see full report: INDIA ECONOMICS

>INFRASTRUCTURE (IDFC SSKI)

1. Clear case for increasing infra investments…

■ Grossly inadequate capacity

• 15-16% peak power deficits
• 100%+ capacity utilization at ports
• Only 17% of entire national highway network 4-laned

■ A growing economy will only drive up demand for infrastructure services

2. …but rising concerns on funding of private infra spend

■ Access to capital constrained
■ Complete drying up of equity funding as risk aversion took over
■ Global slump in debt markets – aggravated by severe liquidity crunch in India
■ The impact of increasing debt cost on IRRs keeping away pvt. sector from new projects

3. Government to be the saviour

■ Political will strong to push infra capex - consensus across parties on need for infra investments
■ Low inflation regime providing room for pursuing high growth despite risks of a rising deficit
■ Robust financial health of key PSUs/govt. bodies, to ensure implementation of stated plans

To see full report: INFRASTRUCTURE

>ROLLOVER ANALYSIS MAY 09 (ANAGRAM)

NIFTY UP 25% IN MAY SERIES; HIGHEST GAIN EVER IN ANY SERIES.
Nifty surged 25% in May series, the highest ever gain witnessed in any series in the history of derivative market in India. Before this, the highest gain was witnessed way back in Oct 2007, where nifty rose by 13%. Nifty continued its upward journey during the entire series without any significant correction and finally closed the series at the highest level on a closing basis at 4337. This gain of 25% came on the back of a rise of 12,7% witnessed in the April series,

OVERALL ROLLOVER - 77% IN LINE WITH LAST THREE MONTHS AVERAGE ROLLOVER OF 76%
Rollover for the May series STOOD AT 77%, the same as that of April series. This is also in line with the last three months' average rollover of 76%. Although in percentage terms rollover is same, in absolute terms picture is different. We are starting the June series with a higher OI of 111Cr shares as against 106 Cr shares with which we had started May series.

LOWER ROLLOVER IN NIFTY(63%) - LOWEST SINCE OCTOBER'08
In case of Nifty, lower rollover is seen, where only 63% positions got rolled over to June series as against 74% last month and last six months' average rollover of 70%. Even in terms of no. of shares, we are starting June series with Nifty futures OI of only 2.75 Cr shares (Lower by 27%) as against 3.76Cr last month and last three month average OI of 3.47 Cr shares at the beginning on new series.

OUTLOOK FOR THE JUNE SERIES - BE BEARISH ONLY BELOW 4200 LEVEL ON CLOSING BASIS

BOOK PROFIT IN NIFTY AROUND 4500-4600 LEVEL
In a nutshell, considering aggresive put writing at 4200 and 4300 level, long rollover in stock future suggested by the higher COC and FIIs investment in cash market we believe there is a higher possibility of upward momentum to continue for the first couple of week in the new series. There fore our advice would be to remain bullish till 4200 level gets broken on the downside, the level at which we have seen aggressive put writing.

This report includes data on following stocks:

• HIGHEST ROLLOVER STOCKS
• LOWEST ROLLOVER STOCKS
• PERFORMANCE OF THE MAY SERIES
• F&O (STOCKS+INDICES) ROLLOVER DETAILS

To see full report: ROLLOVER ANALYSIS

WEEKLY WATCH (ANAGRAM)

UNLUCKY 13?

Indian markets had a dream run for the past 12 consecutive weeks. India was amongst top gainers in the world indices and the move was fairly broad based. Realty and metal stocks continue to sizzle on the street. India's market capitalization has increased by a massive 70% or 9 lakh crore in just 12 weeks time. Momentum indicators are still showing strength. It is natural for a prudent financial investor to remain cautious and keep one foot on the door.

To see full report: WEEKLY WATCH

LARSEN & TOUBRO LIMITED (ANAGRAM)

REVENUE & PROFITABILITY RISE LED BY EFFICIENT EXECUTION OF LARGE PROJECTS.

During FY09, company reported a revenue of Rs. 40187 crore as against Rs.29198 Crore and Net Profit increase by 63% to Rs 3756 crore (incl extraordinary income)

Core EBIDTA margin stood at 11.6% V/s 11.8. Adj. NPM stood at 9.35% v/s 7.88% due to institutionalized risk management processes, efficient cost management and speedy execution.

SEGMENTAL PERFORMANCES

ENGINEERING & CONSTRUCTION (E&C) SEGMENT

Bucking the current industry down turn:- The core infrastructure and industrial sectors have attracted sizeable investment in the recemt times, driven by sound fiscal and economic policies of the government. The E&C segment reported a significant growth in its Order Inflows during FY09 at Rs 45418 crore, a growth of 28% on YoY basis. Share of internatinal order stood at 14.5% of the segment order inflow.

Electrical & Electronics Segment:- Electrical & Electronics segment reported a muted growth in its sales. The segment reported revenues at Rs 2778 crore for the year, a growth of 4% compared to the previous year. Revenue growth was impacted by slowdown & industrial segment. EBIDTA Margin took a cut & was down at 13.3% v/s 16.9%, lower by 360 bps.

Machinery & Industrial Products Segment:- Overall slow down in Industrial & real estate sector in H209 has adversely revenue and profitability were muted during the year. The segment posted Net revenues of Rs.2397 crore, registering a growth of 3%. EBIDTA margin increase to 20% v/s 18.9%, increase by 110 bps. Improvement in margin due to rupee depreciation.

To see full report: LARSEN & TOUBRO

>GODAWARI POWER & ISPAT LIMITED (INVESTSMART)

Background
GPIL is a steel producer located in Siltara, Chattisgarh which has achieved significant backward integration through its iron ore assets, pellet plant and captive power plant. Also, as part of a consortium, GPIL has also been allotted a captive non-coking coal block in which GPIL’s share of reserves is about 63mn tonnes. Its product portfolio includes sponge iron, steel billets, steel wires and ferro alloys.

Key Highlights
■ Iron ore mines to drive margin expansion and earnings growth, and also de-risk the business model: Godawari Power & Ispat Ltd. (GPIL) has 2 iron ore mines in Chattisgarh with combined reserves of 15mn tonnes. Ari Dongri Mine has recently been commissioned in May’09 whereas Boria Tibu is expected to get commissioned in Q4FY10. We estimate that GPIL’s iron ore assets will contribute about Rs540mn and Rs1.35bn to its operating profit in FY10 and FY11 respectively. Thus, GPIL’s mining assets will be the key driver of margin expansion and earnings growth over FY10-11 and will also de-risk the company’s business from the fluctuations in availability and prices of raw material.

■ Pellet plant – A perfect complement to its iron ore mines: GPIL’s 600000 tonnes p.a. pellet plant along with crushing and beneficiation plants are expected to be operational by October 2009 onwards. The iron ore mines are expected to generate iron ore fines at an average of 50% of the total mined output. The fines thus generated will be utilized for making pellets for captive use instead of selling it. This would translate into cost savings in terms of reduced sized ore requirement. We estimate that GPIL’s pellet plant at Siltara, Chattisgarh will contribute about Rs151mn and Rs281mn to its operating profit in FY10 and FY11 respectively.

■ Captive Power to be a major source of revenue in FY10: GPIL, which has a captive power capacity of 53MW, had shut down its ferro alloys and steel billets plant during Q3FY09 due to a depressed market and started selling most of its power on spot basis. Selling power on spot basis is proving to be more lucrative than producing ferro alloys and billets currently. Thus, GPIL’s captive power facilities are not only serving as a means of reduced cost of production but also as an additional revenue stream.

■ Good Volume Growth in FY11: In H1FY08, GPIL had commissioned its phase-II expansion which had almost doubled its capacities. The full benefits of the expansion will be seen in FY11 as production has been curtailed over FY09-10 on account of better profitability from selling power on spot basis. Volume growth will be one of the key drivers of earnings growth in FY11.

■ Captive Coal mine- As part of a consortium, GPIL has been allotted acaptive non-coking coal block of 243mn tonnes in which GPIL’s share of reserves is about 63 tonnes. This is expected to be commissioned in FY11-12. This will lead to cost savings in the long term.

■ Attractive Valuations: GPIL is currently trading at a consensus P/E and EV/EBITDA of 3.9x and 3.5x FY10E respectively. Going forward, cost savings from its iron ore mines and pellet plant, and volume growth in FY11 will drive earnings growth over FY10-11. Also the iron ore mines will de-risk the company’s business from the fluctuations in availability and prices of raw material. We believe that GPIL’s valuations are quite attractive. Applying a 40% discount to the average of the consensus FY10 P/E of major domestic steel companies, we value GPIL at about Rs162.9 per share. This implies a potential return of about 44.2% from CMP. We are positive on GPIL’s prospects and recommend taking exposure in it.

To see full report: GODAWARI POWER & ISPAT LIMITED

>CEMENT FACT SHEET (EDELWEISS)

In April 2009, our cement Index underperformed the Sensex. The BSE Sensex was up by 17.5% against a rise of 11.2% in our cement index. The top outperformers were Jaiprakash Associates and OCL India up by 64.8% and 54.1% respectively. The top underperformers were UltraTech and Century textiles up by 3.0% and 4.6% respectively.

To see report: CEMENT FACT SHEET

>CAIRN INDIA LIMITED (INDIA INFOLINE)

Sales plummet on account of lower realizations
Cairn India Ltd. (Cairn) registered a net sales fall of 42.5% yoy and 13.8% qoq to Rs1.8bn. The fall was on account of 53% yoy decline in crude oil realizations and 2% yoy lower gas realizations. Rupee depreciation helped offset the impact partially, Net working interest was down 12.2% yoy to 15,824 boepd as both Cambay and Ravva fields are on a natural decline. On a qoq basis, volumes were lower by 4.6%.

OPM declines 25ppts yoy but rises 266bps qoq.
During Q5 FY09, Cairn reported 62% yoy decline in operating profit and 25 ppts yoy decline in OPM. This was primarily on account of doubling of administration expense. As a percentage of sales, personnel costs and operating expenses also rose. Th fall in OPM was despite was despite 37% yoy fall in operating costs per barrel.

To see full report: CAIRN INDIA

>DISHMAN PHARMACEUTICALS (KR CHOKSEY)

Robust segmental growth led the numbers to improve!!

Topline below our expectation: The Q4FY09 numbers of Dishman Pharma was below our expectation whereas the FY09 numbers were in line with our expectation. The company reported a sales growth of 21.4% to Rs 293.7 crore against Rs 241.9 crore during the same quarter last year. The growth in the revenue was mainly driven by good performance recorded in its segments. The CRAMs segment which contributes most of the company’s revenue grew by nearly 29% y-o-y whereas marketable molecule which constitutes around 25% of its revenue showed an impressive growth of 56%.

Healthy performance at the Operating level: The company carried forward its impressive topline performance to its operating level also. The operating profit of the company grew by nearly 66% to Rs 74.8 crore against Rs 45.0 crore during the same quarter last year. The growth in operating profit is mainly driven by decrease in other expenses and good performance across its segment. The operating margin of the company has seen a spurt of 684 bps y-o-y.

Bottom Line below our expectation: The net profit of the company for the quarter has increased by 21.7% y-o-y to Rs48.7 crore whereas on q-o-q basis the company has recorded a growth of 40%. The net profit margin of the company has shown a marginal growth of 5 bps y-o-y and 421 bps q-o-q.

To see full report: DISHMAN PHARMACEUTICALS