>DLF (CLSA)

With no sign of a real recovery in the property market in 2009, DLF’s debt will remain high due to weak project-development cashflow. With stock down 85% from its January-2008 peak, the question is: when to buy? Factoring in lingering risks but also recognising the sizeable value of the firm’s assets, we see Rs104 as an attractive entry point, which implies 41% downside. However, on a 12-month view, we project 26% downsideas the PB multiple adjusts to reflect low ROE.

Safe entry point still 41% away
A Rs104 valuation only gives credit to DLF’s landbank and cashflow from projects under execution; it fully discounts the weak outlook for new-project launches. Using history as a guide, a sustainable upturn in property stocks appears to be another one-to-two years away. In the interim, we expect DLF to derate as the market recognises its severe ROE deterioration. We base our 12-month target price of Rs130 on a blend of NAV and PB multiples.

Residential not as lucrative
DLF’s strategy of leading price cuts in the residential segment has helped revive volumes, but we believe the initial positive response will peter out as buyers look for further price cuts. The double-whammy of narrower margins and elongated working-capital cycles will translate into an 82% fall in housing profits in 2008-10.

Steep fall in non-residential earnings
Representing about 75% of FY08 earnings, non-residential sales will fall 43% in FY09CL and a further 94% in FY10CL, given the severe slowdown in office and retail space. DLF has already stopped the sale of office assets to group company DLF Asset (DAL) given weak demand for leased space in special economic zones (SEZs). Rental income will provide support but, here too,
renegotiation risks exist. Consensus has built in a 32% earnings recovery from 3QFY09 forecasts which we believe is too optimistic.

Extended-balance-sheet stress
DLF’s balance sheet has geared up substantially due to large land payments and capital-intensive developments. Debt has risen 16x since June 2007 to Rs148bn. While the company has no major debt repayments until end-FY11 thanks to its recent refinancing, the squeeze on profit means that operating cashflow largely will be spent meeting annual interest payments of Rs18bn. Potential financial restructuring of DAL will further aggravate the cashflow issue as one of its investors needs to exit.

To see full report: DLF

>India Steel Sector (UBS)

Compelling valuations and fundamentals

■ Regression analysis used to estimate fair value of companies
We believe Tata Steel and SAIL are undervalued based on valuation multiplier through our regression analysis. According to our regression analysis, there is a linear relationship between: 1) EV/t and EBITDA/t; and 2) EV/IC and ROIC. Based on our analysis, we conclude that Tata Steel and SAIL are undervalued.

■ Indian stocks offer value
We lower our India capacity estimates to 70mt (73mt earlier) for FY10E and expect utilisation to remain at around 80% in our base estimates for steel demand to FY12E. We expect Indian consumption to be 52.5mt (up 2.9%) in FY10E. We believe Indian steel companies have been beaten down to 0.3-1x P/BV levels and valuations should correct up given our stable steel price outlook and lower material costs. Stocks have priced in worst-case earnings and consensus estimates should increase, in our view.

■ Steel sector—close to inflexion point
UBS Basic materials strategist, Peter Hickson, expects cyclical opportunity, which could see a potential re-stocking in the space. With steel prices down 12-15% over the past one month in India, we believe there is limited downside from here given further production cutbacks in surplus markets, a moderate pick-up in demand driven by the cyclicality, and infrastructure-led demand growth in India.

■ Valuation: Buy on Tata Steel, SAIL; upgrade JSW to Neutral
We upgrade Tata Steel to a Buy, maintain our Buy rating on SAIL, and upgrade JSW to a Neutral rating. We use DCF to derive our price targets for Tata (Rs275), SAIL (Rs125) and JSW (Rs225), but given weak sentiment we cross-check on EV/tn and EV/IC regression analysis.

To see full report: INDIA STEEL SECTOR

>India Mobile Sector (UBS)

India adds 13.7m subs in February 2009

■ Detailed analysis of India mobile subscriber data
In this note, we present a detailed outlook on the Indian mobile subscriber base from an operator-wise and a service area-wise perspective. We have also the analysed Bharti, RCOM and Idea subscriber base, and subscriber market share.

■ Subscriber growth momentum continues in February 2009
India added 13.7m mobile subs in February vs 15.4m in January. Bharti leads the subscriber market with a share of 25%, followed by RCOM at 19% and Vodafone at 18%. RCOM continued to gain a significant incremental market share of 25% in February (compared with 32% in January), driven by its attractive GSM prepaid plan offering. Bharti, Vodafone and Idea captured incremental market share of 20%, 19% and 11%, respectively, last month.

■ Reiterate 12-month Buy, Short-term Sell on Bharti; Buy on Idea, RCOM
India is an ultra-competitive mobile market, and we have already factored in an increase in competitive intensity following RCOM's GSM launch (ie, our estimates take into account lower revenue per minute realizations leading to lower margins and returns). We maintain a 12-month Buy rating on Bharti, RCOM and Idea. We introduced Short-term Sell ratings on Bharti, Idea and RCOM on 15 January 2009 as we expected: (1) negative newsflow on pricing moves post RCOM GSM launch; and (2) consensus earnings downgrades. The consensus FY10 net profit estimate has declined 20% for Idea and 24% for RCOM since 15 January. Therefore we dropped our Short-term Sell ratings on these two effective 13 March 2009. Since the FY10 net profit consensus earnings estimate for Bharti has declined by only 4%, we expect more downgrades and hence maintain our Short-term Sell rating.

To see full report: INDIA MOBILE SECTOR

>India Market Strategy (UBS)

Maintain bullish stance on Indian an market.....

■ Launch of UBS India model portfolio; 12-month Sensex target of 13,500
In this report, we launch the UBS India model portfolio. Our base-case scenario is for the Indian economy and corporate earnings to bottom by H2 FY10 and for a full recovery to occur in FY11. We are positive on the Indian stock market on a 12- month view and set a March 2010 Sensex target of 13,500.

■ Overweight: Autos; Banks; and Metals
Auto demand is likely to improve based on the low interest rate environment. We believe banks will benefit from an economic recovery, as the focus moves away from NPLs into growth. Globally, UBS believes Basic Materials are poised for a turnaround; hence our positive stance on Metals.

■ Underweight: Consumer Staples; IT Services; and Oil & Gas
We are Underweight the Consumer sector, as we believe sector outperformance will not continue. We also believe IT Services face strong headwinds and an imminent recovery looks unlikely. We are Underweight the Oil & Gas sector, as ONGC is unlikely to outperform in a recovery and could be affected by government intervention.

■ Top Buys: ICICI Bank; BHEL; Maruti; Reliance Infra; ITC; Tata; ABNL
ICICI Bank is a UBS Key Call; valuations are compelling as it trades at 0.5x adjusted P/BV (standalone). Bharat Heavy Electricals (BHEL) has a strong order book and hence earnings visibility. We believe Maruti is a good way to play the cyclical recovery in passenger car demand. Tata Steel, ITC, Reliance Infra, Infosys and Aditya Birla Nuvo (ABNL) are our other key Overweights.

To see full report: INDIA MARKET STRATEGY