Wednesday, December 16, 2009


• The recovery in Asia has so far proved exceptionally strong. In most Asian countries with Japan as the main exception industrial activity is now back at pre-crisis level and the output gap has closed much faster than expected.

• Looking ahead, GDP growth in Asia should remain strong in Q4 09. With the output gap closing fast, growth will inevitably slow next year as some of the accommodative fiscal and monetary policy is removed and the recovery in global trade and industrial activity loses some momentum. Besides Japan, deflation is no longer a major threat in Asia.

• With the output gap closing fast, monetary policy in Asia is expected to be tightened earlier and more than in Europe and the US. Only in Japan do we expect monetary policy to be on hold in 2010. In China the central bank is expected to start to tighten monetary policy in Q1 10 and resume the gradual appreciation of CNY.

It looks like a V
The recovery in the wake of the global financial crisis has proved strong so far. Asia is currently witnessing the strongest recovery in industrial activity in modern times, albeit from very depressed levels. With Japan as the main exception, industrial activity in most Asian countries is now back at pre-crisis levels. For Asia as whole, industrial activity is up about 25% from the trough reached earlier in 2009. So far the recovery been just as strong as the downturn and it appears that the output gap is closing fast in Asia, again with Japan as the main exception.

In Asia as a whole, growth in industrial activity slowed to 4.5% q/q in Q3 09 from 6.8% q/q in Q2, mainly because growth in industrial production in China slowed substantially as domestic investment demand levelled off. Momentum in Asian industrial activity in Q3 was strongest outside China, with industrial production in emerging markets excluding China up 4.5% q/q and industrial activity in Japan up a whopping 7.5% q/q. The recovery in industrial production is being underpinned by a strong improvement in global trade. Volume merchandise in exports for Asia as a whole soared 10% q/q in Q3 with few signs of a slowdown compared with Q2. Lower growth in China’s imports appears to have been largely offset by improved import volumes from Japan, Europe and the US.

To read the full report: RESEARCH ASIA


Overall cement sector despatches for November ’09 (including ACC and Ambuja Cement-ACEM) registered a healthy 8.6% YoY growth at 15.68mnte (10.9% growth YTDFY10). We believe this is ahead of Street expectations as: i) despatches growth dropped to 6.3-7.5% over September-October ’09, ii) despatches growth of 8.6% in November ’09 is on a high base of 12% growth registered in November ’08 and iii) this is despite continued sluggishness in demand growth in the South. Post the price hike of Rs10-15 per 50-kg bag in Andhra Pradesh effective December 1, ’09, our channel checks indicate further hike of Rs5 effective December 10, ’09. We believe the sector is entering a seasonally strong demand period post the monsoons and festival season and, hence, should witness minimal pricing pressure. We reiterate our positive stance on the sector and Grasim and ACEM remain our top picks.

Aditya Birla Group – Leading the pack; but ACC still lags. The Aditya Birla Group (Grasim and UTCL) reported despatches growth of 15.3% for November ’09. ACEM despatches were up 4.8%, while ACC posted 3% decline. Amongst others, Jaiprakash Associates, India Cements, Madras Cements and Shree Cements registered despatches growth of 46.3%, 25.6%, 18.1% and 15.2% respectively.

Despatches pick-up in West; South remains sluggish; rest of India sustains strength. Despatches from the West were up 10.6% YoY; Central, North & East registered YoY growth of 13%, 9.8% & 8.9% respectively. However, South remains sluggish, with muted growth of 4.6% YoY. All India utilisations (excluding ACC and ACEM), as per the CMA, improved to 80% vis-à-vis 78% reported in September ’09. Utilisations for November ’09 in the Central, North & East remained strong at 106%, 87% & 85%, while those of the West & South stood at 77% & 68% respectively.


Attractive valuations. We believe cement is a structurally strong domestic growth story over the medium-to-long term and any short-term cyclicality weakness should be used as a buying opportunity. We expect supply to be managed/staggered, while demand would regain strength, reducing supply-demand mismatch. We reiterate our positive stance on the sector. Concerns about oversupply are already reflected in current prices and any uptick in cement prices should positively surprise the market. Cement stocks have outperformed the Sensex 3-15% over the past month.

Top picks – Grasim and ACEM. We prefer North-based companies as well as players with capacity additions in the North as these would see better incremental realisations (Grasim and ACEM), early capacity additions (Grasim and UTCL) and higher cost savings (Grasim, UTCL and ACEM). Also, we recommend BUY on UTCL (on reduction in valuation discount post the proposed restructuring) and ACC (on attractive valuations and diversified presence).

To read the full report: CEMENT SECTOR


• The market may open lower tracking weak Asian stocks. Investors will keenly watch the
inflation data for the month of November 2009 due to be announced by the government
today. The annual rate of inflation, based on monthly wholesale price index (WPI), stood at
1.34 % for the month of October 2009 over October 2008.
• A finance ministry official said on Friday 11 December 2009 the government was taking
steps to moderate the rise in food prices, a day after data showed the food price index
whish is released weekly jumped an annual 19.05 % on 28 November 2009.
• Industrial output jumped 10.3% in October 2009 from a year earlier, helped by stimulus
measures and robust domestic demand, data released bythe government on Friday
showed. Manufacturing production rose 11.1% in October 2009 from a decline of 0.6% a
year earlier. September's annual industrial growth rate was revised upward to 9.6% from
9.1% previously. Industrial output rose 2.6% in the 2008/09 fiscal year (April-March),
slower than 8.5% in 2007/08.
• Investors fear that a recovery in the economy and a likely surge in wholesale price inflation
will add pressure on the central bank to raise interest rates. The Reserve Bank of India
holds a quarterly policy review in late January 2010.
• Meanwhile, DB Corp, India's second largest regional newspaper, was subscribed 2.02
times on the first day of issue on Friday 11 December 2009. The company has set a price
band of Rs 185-212 a share.
• Mumbai based realty firm Godrej Properties' initial public offering (IPO) was subscribed 4
times on last day of the issue on 11 December 2009.
• Asian stocks fell on Monday led by banks and commodity producers, as a measure of
Japanese business confidence showed companies are scaling back the investment plans
and oil prices dropped.

To read full report :- APIL(RR)

>Pratibha Industries(QUANTUM)

Pratibha Industries Ltd (PIL) is one of the leading
companies in the field of design, engineering,
execution/construction of complex & integrated water
transmission & distribution projects, mass housing projects,
commercial complexes, pre-cast design & construction and road

Investment Highlights
Robust order book provides revenue visibility over the next
two - three years:PIL’s order book to bill ratio stands at 4.7x its
FY09 sales, which gives a clear visibility for the next two-three
years. It has an orders worth Rs 35.43 bn, L1 orders of Rs 9 bn
and it is expecting an order book close to Rs 45 bn by the end of
current fiscal. Therefore with the buoyancy in the order book and
the growth in the infrastructure sector we believe will bring good
growth in the company.

Niche in the higher margin segment:PIL started as a water
supply and management company (margins in water segment are
in the range of 12-13%) and has developed inherent expertise in
it. At present water contributes more than 62.3% of its order
book. Besides this, to develop competitive edge overs others
company entered into mechanical division .i.e. manufacturing of
saw pipes, which is the major raw material for the water supply
segment. At present almost 90% of its production is utilized for
the captive purpose and the balance is sold.

Government focus on infrastructure spending: The increased
infrastructure spending in various schemes like Accelerated
Irrigation Benefit Programme (AIBP), Rajiv Gandhi Drinking Water
Mission, Jawaharlal Nehru National Urban Renewal Mission
(JNNURM), etc; in the Union Budget 2009-10 will unfolds huge
opportunities for the infrastructure players like PIL.

Read full report:- Pratibha Industries(QUANTUM)