>CHAMBAL FERTILISERS & CHEMICALS (PRABHUDAS LILLADHER)

Results as per expectation

■ Standalone Q4FY09 results: Chambal Fertilisers and Chemicals’ (Chambal’s)
Q4FY09 net sales grew by 43.4% YoY to Rs8,708m (our expectation was Rs7,773m), on the back of higher trading sales and other income. Chambal’s adjusted PAT grew by 107.9% to Rs593m (Our expectation was Rs618m).

■ Q4FY09 highlights: Net sales of urea business grew by mere 8.8% to Rs4,853m since Chambal had shut down Gadepan-1 plant for 36 days during the quarter due to hook-up activities for de-bottlenecking of plant. Trading sales have grown by 831% to Rs1,535m (Our expectation was Rs1,175m). Company has added three ships in H1FY09, which resulted in a YoY growth of 61.7% in the shipping business revenue to Rs1,211m in Q4FY09. EBIT margins of all the segments were as per our expectation, except trading business. During the quarter, the company has changed the accounting treatment for interest to trading creditors by charging into operating cost instead of finance cost as earlier. Hence, Chambal has charged full year interest in Q4FY09 that resulted in lower finance cost and loss in trading business during the quarter.

■ Balance sheet position: Chambal holds a fertiliser bond of Rs3,671.5m as on March 31, 2009. The company has booked MTM losses of Rs281m in Q4FY09. Chambal has consolidated gross debt of about Rs20,000m and cash of Rs7,000m as on the balance sheet date.

■ Valuation: Chambal’s 90% of the urea business is on cost plus 12% post tax ROE (i.e. fixed earning) basis and shipping business is on time contract till FY10. Hence, we believe that a downward pressure on earnings would be less. We expect PAT to grow at two year’s CAGR (FY09-11E) of 9.5%. While on the basis of historical rolling band chart of last ten years, Chambal has traded in the range of 4x-16x. We maintain our ‘Accumulate’ rating on the stock, on the basis of 9x at FY10E earnings.

To see full report: CHAMBAL FERTILISERS & CHEMICALS

>INDIAN PORTS (MOTILAL OSWAL)

April 2009 cargo decline by 1.2% YoY, FY09 cargo up 2.1% YoY, coal cargo registers highest increase of 39.8% YoY in April 2009

■ Cargo volumes down 1.2% YoY in April 2009 vs. 1.2% YoY increase in March 2009: In April 2009, cargo traffic at major ports in India declined by 1.2% YoY to 45.4m tons (vs 46m tons YoY). This compares with an increase of 1.2% in March 2009 and decline of 1.8% during 2HFY09. For FY09, cargo traffic grew just 2.1% YoY to 530.4m tons, 8% below targets of Indian Ports Association.

■ Coal and Fertilizer traffic increase by 39.8% and 12.4% YoY respectively in April 2009, Iron ore cargo decline 12.3% YoY: During April 2009, coal and fertilizer traffic increased by 39.8% and 12.4% YoY respectively; while Iron ore cargo reported decline of 12.3% YoY to 8.6m tons (vs.9.8m tons YoY). The strong growth in coal volumes was mainly due to increased coal imports by power utilities, which had led to increased PLF of 82.5% for the month of April 2009 (up 260bp YoY). During FY09, fertilizer volumes grew by 9.9% YoY to 18.3m ton (vs 16.6m ton), coal cargo grew by 9.6% YoY, while container cargo volumes were flat at up 0.9% YoY.

■ Container Cargo de-grew by 9.3% YoY in April 2009: During April 2009, the all India container cargo traffic declined by 9.3% YoY to 7.6m tons (vs. 8.4m tons YoY). This is on back of 4.8% YoY de-growth in total cargo traffic at JNPT terminal, where container traffic forms 87% of the total traffic. However, on the other hand, the total cargo traffic at the Kolkata and Tuticorin port increased by 13.7% and 11.2% YoY, of which the container cargo forms 57% and 33% of the total cargo respectively.

■ Five ports register cargo traffic growth in April 2009; Paradip, New Mangalore volumes up 29.2% and 23.4% YoY driven by coal imports: During April 2009, Paradip and New Mangalore ports registered highest growth 29.2% and 23.4% YoY respectively driven by liquid cargo (22% and 61% of the total cargo respectively). The surprise has been the cargo volume growth of 16.8% YoY at Mormugao port, which has largely been driven by Iron ore cargo (82% of the total cargo), which is up 11% YoY at 4.5m tons (vs 4.1m tons YoY). This is compared with the overall decline of 12.3% YoY in the Iron ore cargo in April 2009.

To see full report: INDIAN PORTS

>INDIA EQUITY STRATEGY (DEUTSCHE BANK)

Return of the "Feel good factor"

Electoral verdict: a big positive surprise; Raising Sensex target to 14,500
The surprise electoral verdict where the incumbent UPA was returned to power with a far more decisive mandate (relative to 2004) has come as a huge surprise – surpassing the most optimistic forecast. The political platform thus delivered to the Congress party now raises huge expectations on the roadmap and velocity of economic reform – disinvestment, increasing foreign direct investments, pension and insurance sector reforms etc – which had come to a virtual standstill under the UPA’s previous administration. We believe the verdict is one of those rare instances which justify a re-rating of the Indian equity market. Consequently we are raising our Sensex target to 14,500.

Buy beta with added focus on large cap domestic cyclicals
We see the return of a ‘feel good factor’ in India after a long gap. The return of the feel good factor coupled with our earlier assessment of an economic rebound in 2HFY2010 leads us to recommend investors to seek an aggressive portfolio with growth focused, high beta, domestic plays. Our top picks – DLF, Unitech, Larsen and Toubro, BHEL, HDFC Bank and Mahindra and Mahindra. Investors may also want to look at companies in search of balance sheet restructuring (Tata Steel,
Hindalco), which should be able to raise funds relatively more easily and sharply reduce balance sheet related risks.

Move away from the classical defensives.
We recommend investors to lighten up on the classical defensives and go underweight pharmaceuticals, telecom and consumer staples: Underweight Bharti, Sun Pharma, Dr Reddy’s and Hindustan Lever.

Runaway expectations from union budget, increasing equity issuance are key risks for market
The union budget (expected in July), is likely to be the next key milestone for the markets. We confess that this is going to be one of those budgets where expectations will run very high as the market will look to the government to deliver on the lost years of its earlier administration. Political realities (state election calendar, etc) may not allow government to be too nimble on reforms in its first budget, despite positive intent. We also remain cautious on a spate of new issues supply (private placements, equity raising) which could soak up liquidity from the secondary markets.

To see full report: INDIA EQUITY STRATEGY

>ASIA ECONOMICS FLASH (GOLDMAN SACHS)

India: Voter stimulus to markets

■ The Congress-led UPA alliance unexpectedly won a big victory in the Parliamentary elections, ensuring that they will form the next government, which will not include the Left or other large regional parties.

■ We think the decisive result is a big positive for markets as it will lead to a stable government, removes months of uncertainty, and will allow the Congress the space to pursue reforms. We think pension, insurance, banking reforms and disinvestment may be back on the agenda.

■ The election’s positive impact on business confidence is the final tenor in the chorus of evidence arguing for a pickup in activity and investment demand in 2HFY10. Recent evidence from the PMI and demand indicators, a large easing of financial conditions, historical peak-to-trough declines, and a huge pent-up demand for infrastructure and affordable housing sing to the same tune.

■ These election results may help India “decouple” further from the global economy by giving a fillip to domestic demand, and there are now upside risks to our GDP growth forecast of 5.8% for FY10.

■ We think the equity market will react positively to the result, with sectors that will benefit including cyclical sectors as the investment cycle turns, and those that play on rural demand—a continuing priority for the UPA. We think that the positive impact on capital inflows will help buoy the INR and we reiterate our 3, 6 and 12-month USD/INR targets of 49.2, 47.3, and 46.0.


To see full report: ASIA ECONOMICS FLASH