>Impact of higher Brent prices- Why Brent crude prices soaring??

INCREASING BRENT………HAMPERING GROWTH

The ICE Brent Crude futures contract is a deliverable contract based on Exchange of Futures for Physical (EFP) delivery with an option to cash settle. Introduced in 1988, the ICE Brent Crude futures contract is the leading benchmark for light sweet crude oil, including grades in Africa, the Middle East and Asia. Brent crude is actually a combination of crude oil from fifteen different oil fields located in the North Sea. It contains about 0.37 percent of sulfur making it slightly less "sweet" than WTI. It is primarily used in the Northwestern European market and its price is leading global price benchmark in Asia and Europe and two thirds of the worlds internationally traded crude oil supplies. The Brent crude had touched $128.40 on March 1, 2012, its highest level since July 2008.


Why Brent crude prices soaring??
■ Escalating tensionwith Iran,which have resulted in sanctions by the US and a deferred oil embargo until July 1 imposed by the European Union and shutdown of three Petroplus refineries in Belgium, France and Switzerland, leading to a loss in European capacity of around 300,000 bpd has resulted in higher Brent premium.


■ Iran has threatened to block shipments through the Strait of Hormuz in the Persian Gulf, transit route for about 20 percent of the world's globally traded oil.


■ Iran's decision to stop selling oil to Britain and France sent Brent crude prices soaring. Europe uses about 500,000 barrels a day of Iranian oil.


■ Recently the news of approval of bailout package to Greece supported Brent prices.


■ Due to increasing tension between the West and Iran the major Asian oil consumers are looking anxiously at their meagre strategic oil stocks. The world's second-largest oil importer China has a lot less emergency oil is increasing its strategic oil stockpile capacity.


■ The production of Brent crude in North Sea is declining. North Sea oil and gas output passed its peak at the start of the last decade as the larger and easier-to-tap deposits were pumped out.


Impact of higher Brent prices
•Recently high Brent prices are fast threatening the biggest danger to growth in Asia as taking a knife to exports and reigniting inflation.


•Increasing Brent prices is also a headache for central banks as it makes it harder to use easy monetary policy to cushion growth.


•And any threat to Asia is a danger to all, as world market considers that the region's growth can offset the recession in Europe and a fitful recovery in the United States.


•Asia is the largest consumer of the commodity with an account ofmore than 31% of world demand.Asia is a home to four of the world's 10 largest oil-consuming countries in China, Japan, India and South Korea. So increasing Brent prices can hamper the growth of region
and demand for commodity as well as.


•Any increase in Brent would add up more burdens on region's; higher import bill indeed. Excluding Japan, Asia spent a net USD 447 billion on imports of oil and petroleum last year, up from USD 329 billion in 2010.


•China has cut its growth target to 7.5 per cent in 2012, a third straight reduction as the world's number two economy is buffeted by ongoing troubles in the West and high oil prices. India's growth is also tottering.


•Higher oil prices are also threatening the inflation and thus process of monetary easing in developing countries. If prices stabilize at current level, the inflation would be relatively modest and should not trouble monetary policy too much. But if prices spike to USD 150 a barrel then inflation could become much more of a restraint to monetary easing in China, India, South Korea and Taiwan.


RISH TRADER

>OUTLOOK ON FERROUS AND NON-FERROUS METALS

Base metals may remain on volatile path as movement of Greenback,q concerns about euro zone, easing Chinese growth and inflation figures will give keep the sentiment cautious. China's annual inflation is seen decelerating to a 1-1/2-year low of 3.4 percent in February, and coupled with expectations that factory output for January-February would be at the lowest since August 2009, should give Beijing more scope to loosen monetary policy to spur growth. Copper prices may trade in range of 410-430 in MCX while nickel may trade in range of 900-980. The world's No. 3 copper mine, Chile's Collahuasi expects output this year to beat the 453,000 tonnes produced in 2011. China's copper demand will growby at least 6 percent in 2012 given the power sector's unflagging appetite for the metal.Aluminum prices can trade in range of 108-113 in near term while lead can trade in range of 103-110. Chinese Premier Wen Jiabao cut his nation's growth target to 7.5 percent for 2012 to give the economy more room to slowdown if neededwhile the government carries out promised economic and welfare reforms ahead of a looming leadership transition. Production at the Zambian flagship copper mine of Canada's First Quantum Minerals has ground to a halt because of a strike over wages. Increasing cost of raw material is expected to support the steel long prices as it can test 35500 per tonnes in NCDEX soon.


RISH TRADER

>OUTLOOK ON ENERGY COMPLEX

Iran tensions coupled with hope of amicable resolution of Greece crises have given support to the crude oil prices. Oil has climbed this year amid concern that sanctions against Iran will lead to military conflict in the Middle East, where more than half of the world's crude reserves are located. Oil may get support from a reduction in OPEC supplies. The Organization of Petroleum Exporting Countries will reduce crude exports by 0.6 percent this month as seasonal refinery maintenance in Asia erodes demand, according to tanker-tracker Oil Movements. Also crude oil prices are susceptible to profit booking at higher levels as negotiations between nuclear powers and Iran can reduce tension. Iran's Supreme Leader Ayatollah Ali Khamenei welcomed the comments by President Barack Obama that there is room for diplomacy in the international community's standoff. Crude oil can trade in range of 5100-5500 in MCX. Natural gas prices continue to register fresh lows in MCX and are expected to trade in range of 110-125 in near term. Forecasts for mild March weather that was expected to limit demand and concerns over record high U.S. inventory levels continue to keep the natural gas prices on back foot. The weather forecaster added that it sees no change to a "super-warm" outlook for the next 11-to-15-days, with the entire continental U.S. except for the west coast expecting much higher than- normal temperatures.


RISH TRADER

>OUTLOOK ON BULLIONS

Optimism regarding bond swap deal of Greece capped the downside in bullion counter but the events taking place in Greece and the movement of dollar index will continue to guide the movement in near term. A group of 30 banks and funds representing 40.8% of Greece's 206 billion Euros of outstanding debt said that they would take part in the deal, joining other Greek and foreign banks and pension funds which have already pledged to accept the offer. Gold can trade in range of 27500-28400 in MCX while COMEX gold can trade in range of $1610-1750 in near term. White metal silver can trade in range of 57000-61500. Next week US retail sales, US and EU industrial production data will be keenly watched, which gauge the risk sentiment in the market. Meanwhile stronger local currency Rupee will continue to support prices. The gold silver ratio continue to hover around the 50 level as it recently dipped below 48. The Greek government's deadline for the biggest sovereign restructuring in history passed with a majority of investors signaling their readiness to participate in the debt swap. While Greece would prefer a voluntary deal, the government has said it will use so called collective action clauses to force holders of Greek law bonds into the swap, if the private sector involvement falls short and it gets approval from investors to change the bonds' terms.


RISH TRADER

>OUTLOOK ON OILSEEDS

Domestic oilseeds may trade higher taking advantage of the gap between the global oilseeds production and consumption which is expected to remain tight in days to come.Moreover, tracking the domestic scenario, persistent wedding have led demand for edible oils which in turn has improved the oilseeds buying. Soybean futures may continue to post gains as the solvent extractors are seen keen on buying the seeds even at higher quotes to meet the improved oil demand during the period.Adding to the bullishness, the oil meal prices are seen to remain strong due to the good domestic demand from poultry feed industry. Mustard futures may show some decent upside moves due to surge in edible oil demand owing to auspicious Hindu wedding dates. Moreover, the Solvent Extractors Association of India, in its latest report, has estimated India's RM seed 2011/12 crop at 62.65 lakh tonnes as compared to 68.5 previous season, a fall of about 8.5 per cent due to lower sown area this season. On the international platform, U.S soybean futures are expected to maintain their upside moves boosted by the export demand, including China, and expectations for a smaller South American crop due to drought. Investors would be eyeing the World Agricultural Supply and Demand Estimates to be
released by USDA. CPO futures (Mar) may touch 585 levels supported by heightened Malaysian prices on the basis that slowing production growth in Indonesia and Malaysia is likely to tighten global supplies.


RISH TRADER

>OUTLOOK ON SPICES

Pepper futures may consolidate near their all time high price levels as exchange has imposed additional margin of 10% on both sides. The April futures contract may remain above 40,000 levels supported by the bullish fundamentals.The growers are holding back the stocks & squeezing supplies at a time when the output is expected to be lower. There are estimates that the domestic production may be around 43,000-45,000 tonnes, compared with 49,000 tonnes last year. Cardamom futures (Apr) is expected to maintain its consolidation with upside being capped owing to the special margin of 10% being levied on buy side & sluggish exporters demand at higher levels. Any large downside may remain arrested as harvesting for the current season crop is nearing its end. Moreover, arrival of the next crop will be in July, four months to go. Jeera futures (Apr) may trade in range bound carrying a weak bias. The counter may touch 13260 level in days to come as new crop arrivals of 15,000-20,000 bags of 60 kg have started which is reported to be good due to favourable weather conditions. Turmeric futures (Apr) is expected to show some bounce back owing to some lower level buying & exporters demand from Europe, US, West Asia and Japan. Chilli futures (Apr) may remain below 6300 levels on account of peak arrivals, which have started in M.P.


RISH TRADER

>PERSISTENT SYSTEMS LIMITED (SMC)

Company Profile
Incorporated in 1990, Persistent Systems Ltd is in the business of outsourced software product development (OPD) services for Independent Software Vendors (ISV's). The Company design, develop and maintains software systems and solutions, create new applications and enhance the functionality of existing software products. Some of the customers of the company include software manufacturers such as - Microsoft, Agilent, Intel, Openwave, IBM, i2, Critical Path, Oblix.

The company's business operations are:
■ Outsourced Product Development
■ Database and Directory Integration Products
■ Engineering and Technology Consultancy Services

Areas of expertise:
■ Database technologies
■ Identity management
■ Telecom and wireless
■ Life sciences
■ Security and provisioning
v Email and messaging

The Company has around 200 customers, of which the top 10 customers account for around 41 per cent of its revenues. As of November 30, 2009, Persistent Systems employed around 4,400 employees (including those under contractual employment with the Company and its subsidiaries as well as trainees).The Company has nine development centers in Europe, America and Asia. In India, the company operates from Pune with most of its development centers being owned by them.

The Company provides services both on time and material basis, where charges are based on the number of people dedicated and the effort invested in the project, and on a fixed price basis, where it provides services for a fixed price and agrees to complete the project in a fixed time. For 2008-09, its revenue on time and material basis dominated the revenue share with 81 per cent contribution, followed by fixed price contracts with 14 percent, while the balance revenues came from licenses and royalty.

To read the full report: PERSISTENT SYSTEMS LIMITED

>DQ ENTERTAINMENT (INERNATIONAL) LTD: IPO NOTE (SMC)

Company Profile
Incorporated in 2007, DQ Entertainment (International) Limited is one of the leading producers of animation, visual effects, game art and entertainment content for the Indian as well as global media and entertainment industry. The company is a producer, co-producer and global distributor of TV series, direct-to-home videos and feature films. DQ Entertainment also creates art games for online, mobile and next-generation consoles. The company has also forayed into production and distribution of live action television and feature films & recently moved from a pure outsourcing service model to one where it does most of its projects on a co-production model along with large animation studios, as well as developing their own Intellectual Property (IP) content.

DQ Entertainment with its Production, Sales, Licensing and Distribution centers in India & abroad has a work force of 3500+(2788 permanent employees and 712 freelancers and trainees).

Strengths
■ Low-risk business model
The strength of DQE lies in its low risk business model i.e entering into intellectual property ownership & distribution. The model not only helps the company in generating production margins but also helps in acquiring rights to earn licenses revenues.

■ Robust Order Book
DQE has a strong order book worth USD 95.07 million (Rs. 4,567.16 million approx.), providing high levels of earning visibility. More than 80% of FY10 revenues are identified with over 40% of the order book already in various stages of production & balance to commence during the year.

■ Diversified client base
The company has a client base of over 90 companies which includes internationally recognized brands such as, the Disney Group, Nickelodeon, American Greetings, BBC, Moonscoop Group, ZDF-Germany, Australian Broadcasting Corporation and NBC Universal to name a few.

■ Innovative in-house animation techniques
DQE has developed several in-house animation techniques and technologies, which the company believes have given it an advantage over its competitors.

Strategies
■ Capitalize on the growth of the animation industry
At an estimated size of USD 494 million in 2008, the Indian animation industry is miniscule as compared to the global animation industry with estimated revenues of USD 68 billion in 2008.This leaves huge growth potential for the Indian animation industry which is likely to reach a size of about USD 1095 million by 2012. The company intends to capitalize on such growth factors by leveraging its international experience and expertise in this sector to the domestic animation industry.

■ Continued focus on co-production business model
The company intends to continue entering into co-production agreements to obtain larger percentages of the global, cross platform intellectual property and distribution rights in its productions

■ Acquisitions, strategic investments and joint ventures
DQE plans to grow through acquisitions of, strategic investments in and joint ventures with creative companies to ensure co-development of global intellectual property on a partnership basis.

To read the full report: DQ ENTERTAINMENT

>KEY FEATURES OF BUDGET 2010-2011 (SMC)

CHALLENGES
■ To quickly revert to the high GDP growth path of 9 per cent and then find the means to cross the ‘double digit growth barrier’.
■ To harness economic growth to consolidate the recent gains in making development more inclusive.
■ To address the weaknesses in government systems, structures and institutions at different levels of governance.

OVERVIEW OF THE ECONOMY
■ India among the first few countries in the world to implement a broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown.
■ The Advance Estimates for Gross Domestic Product (GDP) growth for 2009-10 pegged at 7.2 per cent. The final figure expected to be higher when the third and fourth quarter GDP estimates for 2009-10 become available.
■ The growth rate in manufacturing sector in December 2009 was 18.5 per cent - the highest in the past two decades.
■ A major concern during the second half of 2009-10 has been the emergence of double digit food inflation. Government has set in motion steps, in consultation with the State Chief Ministers, which should bring down the inflation in the next few months and ensure that there is better management of food security in the
country.

CONSOLIDATING GROWTH
Fiscal Consolidation
■ With recovery taking root, there is a need to review public spending, mobilise resources and gear them towards building the productivity of the economy.
■ Fiscal policy shaped with reference to the recommendations of the Thirteenth Finance Commission, which has recommended a calibrated exit strategy from the expansionary fiscal stance of last two years.
■ It would be for the first time that the Government would target an explicit reduction in its domestic public debt-GDP ratio.

Tax reforms
■ On the Direct Tax Code (DTC) the wide-ranging discussions with stakeholders have been concluded - Government will be in a position to implement the DTC from April 1, 2011.
■ Centre actively engaged with the Empowered Committee of State Finance Ministers to finalise the structure of Goods and Services Tax (GST) as well as the modalities of its expeditious implementation. Endeavour to introduce GST by April, 2011 People’s ownership of PSUs
■ Ownership has been broad based in Oil India Limited, NHPC, NTPC and Rural Electrification Corporation while the process is on for National Mineral Development Corporation and Satluj Jal Vidyut Nigam. This will raise about Rs 25,000 crore during the current year.
■ Higher amount proposed to be raised during the year 2010-11.

Fertiliser subsidy
■ A Nutrient Based Subsidy policy for the fertiliser sector has been approved by the Government and will become effective from April 1, 2010.
■ This will lead to an increase in agricultural productivity and better returns for the farmers, and overtime reduce the volatility in demand for fertiliser subsidy and contain the subsidy bill.

Petroleum and Diesel pricing policy
■ Expert Group to advise the Government on a viable and sustainable system of pricing of petroleum products has submitted its recommendations.
■ Decision on these recommendations will be taken in due course.

Improving Investment Environment
Foreign Direct Investment
■ Number of steps taken to simplify the FDI regime.
■ Methodology for calculation of indirect foreign investment in Indian companies has been clearly defined.
■ Complete liberalisation of pricing and payment of technology transfer fee and trademark, brand name and royalty payments.

Financial Stability and Development Council
■ An apex level Financial Stability and Development Council to be set up with a view to strengthen and institutionalise the mechanism for maintaining financial stability.

■ This Council would monitor macro-prudential supervision of the economy, including the functioning of large financial conglomerates, and address interregulatory coordination issues.

To read the full report: BUDGET 2010-2011

>TEXMO PIPES & PRODUCTS LIMITED: IPO NOTE (SMC)

Company Profile
Texmo Pipes and Products Limited(TPPL) started its business as a partnership firm under the name Shree Mohit Industries on May 13, 1999. It was converted into a Public Limited Company under the name on July 3, 2008 and received the Certificate of commencement of business on July 28, 2008 under the promoters Mr.Sanjay Agarwal and his wife Ms.Rashmidevi Agarwal. Presently, TPPL is engaged into manufacturing of range of PVC and HDPE pipes. The manufacturing activities are carried out at its two Units viz. Unit 1 and Unit 2 in Burhanpur, Madhya Pradesh .

Strengths
■ Diversified product mix
TPPL's product offerings include suction & delivery hose pipe, rigid PVC pipes, elastomeric sealing ring fit PVC Pipe (Gasket Pipe), PVC casing and screen pipes, SWR Pipe, riser and plumbing pipe, conduit Pipe, Caping casing strips, column pipe, HDPE plain Pipe, sprinkler pipe, PLB HDPE cable duct and drip irrigation system. These products are used in irrigation, telecommunication, industrial, infrastructure and housing sector. Marketing and distribution network Direct and indirect sales channel are accessed for marketing of the products. Under direct sales, the marketing team approach directly to large end users whereas under indirect sales channel, it has dealers for marketing of its products. Presently, its array of dealers includes 169 exclusive dealers covering 6 states viz.Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh, Andhra Pradesh and Gujarat.

■ Accredited quality
TPPL is permitted by “The Bureau of Indian Standard” to use the standard mark i.e. 'ISI' vide licenses IS 4985/2000 for PVC pipes for potable water supplies, IS12818 for ribbed screen casing and plain casing pipes for bore / tubewell and IS9537 (part 3) for conduits of electric installation. In the year 2009, The Bureau of Indian Standard permitted it to use the standard mark IS: 13592: 1992 for PVC pipes for inside and outside buildings including vebtilation and rain water system.

Business Strategy
■ Expansion of manufacturing capacities
The company started its operations in the financial year 1999-2000 with manufacturing of PVC pipes with total installed capacity of 2928 MTPA and the present installed capacity is 12211 and 12883MTPA for PVC pipes and 8095 and 2928 MTPA for HDPE pipes at its Unit 1 and Unit 2 respectively.The total installed capacity after the proposed expansion would be 41674 MTPA for PVC pipes and 11023 MTPA for HDPE pipes.
Diversification of business operations TPPL proposes to diversify its business operations by manufacturing woven sacks and injection mouldings. Manufacturing of CVPC pipes, Drip Inline and DWC pipes is also under the proposal plan of expansion, by which the company would be in a position to cater to customers in macro-irrigation sector, sprinkler irrigation, lift irrigation and construction sector.

■ Expand customer base with increase geographical reach
It plans to increase its customer base in the existing domestic markets by enhancing customer satisfaction and by timely delivery of orders. The company also plans to expand its business to new geographic locations viz. Southern India, Bihar, Jharkhand, West Bengal etc. with the help of efficient marketing team.

To read the full report: TEXMO PIPES

>ARSS INFRASTRUCTURE PROJECTS LTD (SMC)

Company Profile: Incorporated in 2000, ARSS Infrastructure Projects Ltd is engaged in construction of railway infrastructure, roads, highways, bridges and irrigation projects in India. ARSS has business activities in the zonal jurisdictions of East Coast Railway, South Eastern Railway, South East Central Railway, Southern Railway and North Western Railway. ARSS effort in the railway construction projects include earthwork, major and minor bridges construction, supply of ballast, sleepers, laying of sleepers and rails, linking of tracks etc. ARSS has completed around 200 km rail line and about 300 km of roads and highways.

ARSS Infrastructure has significant presence in Eastern India, particularly in the state of Orissa. However, in recent years it has pursued opportunities in other parts of India including states of Chhatisgarh, Rajasthan, Jharkhand, Haryana , Kerla, Andhra Pradesh, Assam, Maharastra and Tamil Nadu.

Strengths
■ Strong and diversified Order Book
Company's order book as on January 10, 2010 stood at Rs.2877.53 Cr. The composition of Order Book is well diversified over various segments such as railways, roads and highways and Road Over Bridges (ROB). Diversification into new areas of construction projects helps the company to mitigate the risk of slowdown in revenues from any segment due to unforeseen circumstances.

■ Client centric approach
Company's client centric approach enables it to develop long term relationship with its clients & receive repeat orders from them. Majority of company's clients include Government, Public Sector Undertakings and other Government agencies, which reduces the risk of default and delayed payment. As on January 10, 2010, 73.11 % of Order Book of Rs. 2877.53 Cr comprised of the repeated order works from Government and Government authorities.

■ Large fleet of construction equipment
ARSS Infrastructure currently holds large fleet of equipments that enables it to mobilize its equipment to projects sites as & when needs arise.

■ Successful project execution track record
In a span of nine years, the company has successfully executed over 86 projects involving construction of over 300 km of roads and highways, 200 km of rail tracks, 10 minor and major bridges and other general civil engineering works .The company is known for its timely completion of projects in the eastern part of India.

Strategy
■ Forging alliances with established Indian and international strategic partners
The company intends to develop and continue to establish strategic alliances with companies, whose resources, skills and strategies are complementary to its business, which would enhance its business opportunities to achieve competitive bidding advantage.

■ Enhancement of profitability and capital efficiency
Focusing and structuring on optimum capital utilization will be the strategy of the company going forward. The company believes that actively analyzing and identifying projects yielding higher margins will enhance its returns.

■ Building a pan-India presence
The company intends to continue to bid for contracts funded by Central & State Government or other recognized development organizations in order to build a pan India presence.

Risks
■ One of the Promoters involved in criminal proceeding
A charge sheet has been filed on January 11, 2006 by CBI wherein Mr. Subash Agarwal, Promoter and Director of the company has been accused in the murder case. Imprisonment of the promoter could have a serious impact on company's reputation & thereby affecting its financials.

■ Defaulted on payment of interest and repayment of loan
ARSS has defaulted in making payment of interest & repayment of loans in the past. However, the company has cleared all its dues before filing the prospects .In case the company defaults in making payment in the future it could pose a serious setback to company's financial position.

■ Power supply at one of the units has been disconnected
Due to default in payment of electricity bills by the company to Central Electricity Supply Company of Orissa Limited (CESCO), power supply to its crusher unit at Nityanandpur, Orissa plant has been disconnected. The power requirement at this plant is presently being met by the D.G. Set owned by our Company.

■ Conflict of interest between group companies
Some of entities owned/promoted by the promoters are in the same line of business as its company. This may result in conflict of interest between the promoters and the business strategies of the Company.

To read the full report: ARSS INFRASTRUCTURE

>HINDALCO (SMC)

Performance for the quarter ended December 2009
For Q3 FY10, the standalone net revenue of Hindalco increased 29% Y-o-Y and 8% sequentially on the back of higher metal volumes and better copper realisation. The capacity increases through the brown-field expansion have resulted in higher production as well as lower costs. However, the OPM was down 480 bps to 14.1% and the operating profit was down 4% Y-o-Y mainly on account of lower by-product credit in the copper business of Rs 100 crore and higher coal cost of Rs 50 crore. However, sequentially the operating profit was up 23%.

The revenue in aluminium business was lower 5% Y-o-Y at Rs 1885 crore with 17% lower PBIT at Rs 438 crore. The benefits of higher volume, improved geographic/ product mix and higher LME were partially offset by impact of stronger Rupee and increase in coal prices. The purchase cost of coal has increased steeply, impacting the margin.

In the copper business, revenues increased by 60% to Rs 3432 crore mainly on account of higher copper LME. The benefits of the marked improvement in operational efficiencies including energy efficiency were partially offset by lower by-product credit due to lower sulphuric acid realisation and fertilizer subsidy. These factors led to a PBIT of Rs 159 crore, 38% higher Y-o-Y.

With lower other income at Rs 50 crore on account of lower treasury corpus post repayment of the bridge loan taken for acquisition of the Novelis against Rs 150 crore in Q3 FY09, along with 22% lower interest cost at Rs 72.94 crore and higher effective tax rate (increased 400 bps to 23.3% while absolute tax expenses were flat at Rs 129.52 crore), the PAT ended 22% lower Yo- Y at Rs 427.10 crore. However, sequentially the PAT was up 24%.

With adoption of AS-30 on financial instruments relating to derivatives accounting, net gain / (loss) Rs (159) crore, Rs 110 crore and Rs (8) crore for the quarter ended December 2009 has been included under Net Sales, Consumption of Raw Materials and Other Expenditure, respectively.

To read the full report: HINDALCO

>STATE BANK OF INDIA (SMC)

Performance of Quarter Ended, December 2009
For the quarter ended December 09, SBI – India's largest bank has reported subdued results with Consolidated Net Profit slipping by 8% to Rs 3304.59 crore on the back of 9% increase in the Net Interest Income to Rs 8781.70 crore. Despite 51% increase in the other income to Rs 7283 crore, 49% increase in the Operating expenses to Rs 9572.66 crore and whopping increase in the provision for taxation to Rs 1454.01 crore has resulted in Net going down.

The core fee income of the bank was up by 36% in the quarter under review. The other income of the bank was marginally up by 4% to Rs 3365.71 crore, while the cost to income ratio has expanded by 220 bps to 52.3% restricting Operating Profits up by just 3% to Rs 4618.14 crore.

The operating expenses were mainly driven by opening 1091 new branches and 6842 ATMs over the year. Further 7% increase in the total provisions including taxation has paved Net Profit flat for the quarter ended December 09.

Asset Quality
Net NPA of the bank has increased by 62% on y-o-y basis and 14% on q-o-q basis to Rs
11270.79 crore.
The % of GNPA of the bank stood at 3.11% in Q3FY10 as against 2.99% in Q2FY10 and 2.50% in Q3FY09. The % of NNPA was at 1.88% as against 1.73% in Q2FY10 and 1.39% in Q3FY09. The provision coverage ratio including Assets under correction was 56.19%.

Business Highlights

• The total business of the bank grew by 15% to Rs 1378139 crore for the quarter ended December 09 as against Rs 1202495 crore in the corresponding previous year.
• The Aggregate deposits of the bank rose by 11% to Rs 770985 crore in the quarter ended December 09 as against Rs 692922 crore in the corresponding previous quarter.

Performance of Associates and Subsidiaries:

• Associate Banks' net profit increased by 9.85% from Rs.2015 crore to Rs 2213 crore in nine months ended December 09.
• SBI Funds Management Average Assets under management (AUM) have increased from Rs 24104 crore as on Dec 2008 to Rs 37900 crore as on Dec 09, a growth of 57% on y-o-y basis.
• SBI Factors: Net profit has grown by 43% to Rs 38.20 crore in nine months ended December 09 compared to Rs 26.79 crore in corresponding previous year.
• SBI Card has reported Net loss of Rs 123 crore during nine months ended December 09

To read the full report: SBI

>MBL INFRASTRUCTURE LIMITED- IPO NOTE (SMC)

Business Overview
Incorporated in 1995, MBL Infrastructures Ltd is engaged in the construction and maintenance of roads and highways, industrial infrastructure projects and other civil engineering projects for various government bodies and other clients.

The company has a pan India presence and executed a number of projects in the states of West Bengal, Madhya Pradesh, Uttarakhand, Orissa, Maharashtra, Rajasthan, Assam, Uttar Pradesh, Bihar, Delhi etc.

The company is focused on the following sectors:
1. Highway Construction
2. Road Maintenance
3. Industrial Infrastructure Projects
4. Other Civil Engineering Projects
5. BOT (Build Operate Transfer) Projects

The company is engaged in steel trading and waste management (ferrous scrap and slag recycling) at major steel plants. Moreover, the company has ready mix concrete (“RMC”) and bitumen divisions to ensure adequate and timely supply of high quality of RMC and bitumen mixes.

MBL has completed the execution of BOT project of 114 kms. of Seoni- Balaghat- Rajegaon State Highway under the Public Private Partnership (PPP) arrangements. Company also completed the work of construction of additional length of service road and side drains from 146-156Km including 2-lane flyover on Guwahati Bypass section of NH 37 in the state of Assam.

MBL owns a fleet of equipment, including hot mix plants, sensor pavers, tandom rollers, soil compactors, stone crushers, tippers, loaders, excavators, motorgraders, concrete batching plants, transit mixers, concrete pumps, reversible drum mixers, dozers and cranes.

MBL has bagged five contracts relating to the Common Wealth Games which are mentioned below:
1.Construction of Road under bridge on Auchandi road, connecting to G.T. road to Badli Industrial area (on Delhi – Ambala Line) for Municipal Corporation of Delhi (MCD)

2. Construction of Road under Bridge on existing railway line level crossing on Narela Lampur road at Narela for MCD

3. Street Scaping & beautification of MCD roads around Tyagraj Sports Complex, Siri Fort complex and RK Khanna Tennis Stadium

4. Street Scaping & Beautification of MCD Roads around Dr. Karni Singh Shooting Range and JLN Sports complex

5. Street Scaping & Beautification of Various roads around IGI Stadium under PWD Zone M-1

Competitive Strengths
■Integrated business model
The integrated structure enables the company to bid for BOT projects,- from tendering for the project to the collection of tolls, and operate the project on a profitable basis.

■Own fleet of construction equipment
The company owns most of the construction equipments like hot mix plants, sensor pavers, tandom rollers, soil compactors, stone crushers, tippers, loaders, excavators, motorgraders, concrete batching plants, transit mixers, concrete pumps, reversible drum mixers, dozers, cranes etc and shuttering and centering plates. This gives the company competitive advantage like lower cost & rapid mobilization.

■Pan India presence
The company has a national presence and is currently executing projects in 9 states across India. The capability to simultaneously execute projects at geographically diversified locations, gives the company the ability to wider market access.

■Availability of raw material at cheaper cost
Having captive capability ensures availability of the bulk raw material at a cheaper cost & enables the company to control and ensure the quality and timely delivery required for the projects.

■Operational BOT project
The operational BOT project is providing steady cash flows to the company. The toll revenue for the fiscal ended March 2009 was Rs 7.80 crore and in August 2009 the monthly revenue stood around Rs 66.72 lakh.

Business Strategy
■High potential projects
MBL intends to concentrate on projects where there is high potential growth and competitive advantage. The company intends to be associated with larger, technically more complex projects by leveraging their prior experience in infrastructure projects and equipment base. The company believes that high entry barriers for bidding of large order size projects make this an attractive sector to participate in.

■Joint Venture with other infrastructure companies
The company continues to develop and maintain strategic alliance and form project specific joint ventures with regional players whose resources, skills and strategies are complementary to the company's business.

■ Operate BOT and Annuity projects
The company intends to take up annuity projects or contracts on BOT as they provide higher revenue & operating margins due to the added overall control of the project costs that can be exerted by the contractor. MBL believes that such projects will become increasingly more prevalent in the coming years because of the government's reliance on the public-private partnership (PPP) model.

■Mining of minerals
The company may enter into mining of minerals such as iron ore, coal etc in the future.

To read the full report: MBL INFRASTRUCTURE

>RALLIS INDIA LIMITED (SMC)

2Q FY 2010 results: Rallis India Ltd. (Rallis) 2Q FY 10 net sales were in line with our estimates, while profitability was above our estimates. The company reported robust growth in net sales despite deficient monsoons and decline in product prices. The company's net sales growth was driven by strong domestic volumes growth on account of realignment of product mix. However, decline in realizations coupled with poor demand internationally muted the margin growth.

Outlook and valuations: Despite a tough environment during 2Q FY 10, Rallis reported better-than-expected results on account of proactive management and focus on cost reduction. Looking ahead, the early October rains have been heavy in many areas in the country which has resulted in increase in reservoir levels in India. This is expected to benefit Rallis as it will result in higher sales of pesticides during rabi season. Hence, we have revised our FY 2010 net sales and profitability estimates upwards. Over the long-to-medium term, we expect Rallis' revenue growth to be driven by its International business and domestic volume growth. Margins are expected to improve given that Rallis continues to optimize its cost structure coupled with declining input costs. Rallis also has significant excess land bank. As a part of ongoing restructuring programme, the company may sell some of its non-core assets which may pose an upside risk upside to our target price estimate.

At the current market price of Rs. 975, the stock is currently trading at 10.2x FY 11E EPS of Rs. 95.18. We maintain our positive outlook on the stock and maintain a BUY. Using the discounted cash flow-based model, we derive a target price of Rs. 1,195.

Financial highlights:
■ Net sales grew 13.2% y-o-y in 2Q FY 10 on the back of strong domestic volumes growth. The company recorded increase in net sales despite deficient & erratic monsoon, low pest incidence and poor international demand. Timely and proactive realignment of product portfolio drove its domestic volume growth. Pre-monsoon (March-May 2009) rains were deficient by 29%, and hence kharif acreage was lower by 6-7%. Export business was a drag during 2Q FY 10 as realizations declined on the back of high inventory levels internationally.

■ EBITDA margins declined 174 bps y-o-y mainly due to decline in realizations in domestic as well as international markets.

■ PAT (excluding extra-ordinary items) declined 2.0% y-o-y.

Key updates:
■ The company redeemed preference share capital of Rs. 880 mn during 2Q FY 10. Rallis aims to raise approximately Rs. 900 mn via share sale to upto 98 mn on a preferential basis to Tata Chemicals Limited.

■ The company has launched a fungicide ERGON, which not only protects the crop but also enhances the yield. The company will have three years of exclusivity for ERGON as it has registered it earlier than others in India. The company expects significant contribution from ERGON over the medium term.

■ The company expects Dahej plant to be operational from June 2010. The company continues to target Rs. 5,000 mn of net sales from this plant over the next three years.

■ The company has appointed a professional who is working on a long-term business development plans for Rallis.

Valuation: At the current market price of Rs. 975, the stock is currently trading at 10.3x FY 11E EPS of Rs. 95.18. Using the DCF valuation method, our revised target price is Rs. 1,195 per share for the Rallis common stock.

To see the full report: RALLIS INDIA

>Gold: The currency of last resort (SMC)

Gold is rapidly becoming the only welcoming port in a sea of uncertainties as worries rise over the traditional safe heaven, specially like US dollar. Despite increasing signs that the world's worst economic crisis is close to bottoming out, investors are continuously pumping money into gold-backed securities as insurance against the outcome of massive cash injection and ultra-low interest rates by global central banks. Due to mounting risk appetite, Gold prices have already surpassed $1050/oz mark in New York last week and is standing to gain the most of all assets classes on its unlikely quality – neutrality. Gold has a unique dual quality of acting as a currency and as an asset which is making it utmost irresistible to buy in current scenario.

While no major currency is likely to replace the dollar anytime soon, the need for an alternative is clear, and growing. China among others is considering how to diversify its more than $2 trillion in foreign exchange reserves; talk of using other currencies to trade oil or commodities continues to circulate. Supply constraints mean there is no chance of a full revival of the gold standard era, when currencies were pegged directly to gold. The textbook reference of Gold as a currency has been given life post Lehman shock. The dollar index, a measure against six major currencies, fell about 14 percent since March this year while gold rose about 13 percent during the same period. Gold's bullish picture is also painted by specter of inflation for the remainder part of this year as well as for next year as well. Moreover, record high Investments demand and speculative positions in New York have quickened the velocity of Gold prices in past few weeks. SPDR Gold
Trust, the world's largest Gold-backed exchange-traded fund saw its holding rise to a record 1134.03 tonnes on June 1, a 44 percent rise in the year that contributed to gold's 16 percent rise in the same period.

This growing number of investors means price action could also add to further gold's volatility and is also sparking fresh interest in Gold as alternative assets. We have analyzed Gold's performance for coming 2010 from Macro and Micro point of view. The raining bucket of cheap money into major economies, Dollar weakness, Inflation concerns and need for alternative currency have resulted in our confidence to forecast Gold prices at $1100/oz as our first target and then $1200/oz as the most likely in 2010.

To see full report: GOLD

>EXCEL INFOWAYS LIMITED (SMC)

OVERVIEW
Incorporated in 2003, Excel Infoways is a BPO and Customer Contact Centre based in India. The company is a provider of offshore BPO services to Clients primarily in Telecommunications and Financial Sector. The BPO service is provided mostly to clients in the US and UK. Initially the company commenced its operations with the capacity of 50 seats as compared to the current 150 seats. Company’s present manufacturing facility is at Andheri (W) in Mumbai and it further proposes to set up a 300 seat facility in Mumbai at Borivali (W ) and Kandivali- Charkop in Financial Year 2010-2011.

INVESTMENT ARGUMENTS

Diversified business model
The Company’s income is diversified across a range of geographies and industries. Diversified income is a competitive strength, as it provides a hedge against cyclicality or other adverse developments (including changes in laws or regulations) within any particular industry sector or geography or affecting any client. The diversified business model will result in relatively less volatility in the income, profits and cash flows, which will allow more effective planning and investing in the growth of the business. In telecom, the company provides the clients with a broad range of services, including customer acquisition, provisioning and fulfillment support, customer service, billing support and collections. In Financial services, Excel provides broad range of services including Customer acquisition, customer service, funds management and overseas property management, Business & Financial Transcription, e-media Transcription.

In technical services, the company provides the clients with Network Management and Monitoring, Solution of complex connectivity problems to increase bandwidth, improve response times, maximize performance, and support global operations. In the healthcare industry, Excel provides with a broad range of services, including Insurance Claim Processing, Medical Billing and Coding.

Proven delivery model
Excel is recognized for its service delivery. The company efficiently designs and implements outsourced solutions to suit customer’s requirements. Such solutions are measured, monitored and audited by the company on an on-going basis.

Excel has leveraged its experience in the telecom fulfillment solutions, Financial Services, Technical Services and healthcare industries and its operational expertise to expand the service offerings to new areas within those industries, as well as to clients in other industries. The strategic positioning within the key target industries is a significant competitive strength that will provide key growth opportunities to the company.

Extension of exemption under the Software Technology Parks of India (STPI) scheme
Excel benefits from certain tax incentives provided by the Government of India. Further, 100% Income Tax holiday as per the provisions of Section 10B of the Income Tax Act, 1961 in respect of profits derived by its undertaking/s from the IT Enabled services was available only upto Fiscal year 2010. However, Benefit of tax holiday to export oriented units (EoUs) under Section 10A and Section 10B has been extended by one year as announced in the Union Budget 2009-2010. It would now be available up to assessment year 2011-12.

To see full report: EXCEL INFOWAYS LIMITED

>BUDGET EXPECTATION (SMC)

Finance Minister is expected to present the union budget on 6th July 2009.

Expected Key Highlights of the Union Budget :
1) Listing, Divesting of Government holdings in public sector undertakings (PSUs).
2) Investment- friendly regulatory and legal framework for public private partnership.
3) Recapitalise banks to boost their financial position.
4) Post offices will be leveraged to deliver more services.
5) Focus on small enterprises, textiles, export etc.
6) At least 13,000 MW additions every year envisaged.
7) Rural health institutions are expected to be recognised.
8) Autonomy in education through an independent regulatory authority.
9) SEZs: Land Acquisition and Resettlement and rehabilitation (R&R) bills to be reintroduced.
10) Infrastructure spending to be centerpiece of growth.
11) There will be an additional spending of Rs. 500 bn in social sector in rural and urban area.
12) Reform will be introduced in insurance, Special economic zone (SEZ), disinvesment, power and education sector.
13) The tax stimulus will have to come through a reduction in excise duties.
14) Tax Reform - Implementation of the goods and service tax (GST) will be pushed forward.
14) Reforms in Coal sector - PSU dilution.
15) Policy changes to reorient subsidies.
16) Reforms to empower panchayats.

The budget is expected to focus on the following sectors:

• Infrastructure sector
• Agriculture sector
• Commercial vehicles sector
• Textile industry

Following are the sectors where government is expected to take reformist path:

Disinvestments in PSUs

• Publicly listed PSUs saw a revival of interest after the 2009 election as disinvestments may unlock hidden wealth in those PSUs. The UPA Government is expected to sell its stake in central PSUs. Divestment is expected to improve the fiscal deficit.
  

• IPOs from government owned companies could also help revive the IPO market and boost the stock market. PSUs, where the government stake is much higher than 51%, may be the first where stake sales will be pushed through.

Banking sector

• Reduce the long-term deposit's tenure from 5 years to 3 years, in order to bring the investments at par with ELSS. Loans against these fixed deposits should also be allowed.
  

• Interest income of overseas lenders on external commercial borrowings should be made tax-free. The banks get loans at higher rates of interest, as foreign lenders gross up the tax liability to the interest rate.
  

• Inter bank transactions of purchase and sale of foreign currency should be made tax-free.

• Banks should be allowed to claim full deduction on the interest earned on long term lending to the infrastructure sector.
  

• Banks are expected to be guided to lend at lower rates.

• Process of consolidation of banks will be hastened.

Infrastructure Industry

• The government is expected to give highest priority for infrastructure spending. The Government of India has planned infrastructure spending of US $550 billion during 11th five-year plan. Project like Bharat Nirman scheme aimed at strengthening the country's rural infrastructure including water supply, power, housing and roads, and proposed a `specific financing window' for Rs 1,740 bn programme, to provide a boost to the infrastructure sector.
  

• ·Road projects are expected to launch on annuity-based BOT schemes rather than tollbased BOT schemes to a certain extent.
  

• ·Part guarantee of debt for major infrastructure projects is expected.

To see full report: BUDGET EXPECTATION