>INDIAN ORGANIZED RETAIL (IDFC SSKI)

THRIFTY FOR PROSPERITY!!!

Indian Organized Retail (IOR) was in the fast forward mode over the last few years. While scaling up 3x in just three years to USD18bn (40%+ CAGR), caution was thrown to the winds when it came to business economics. However, the first round of casualties (Subhiksha, Indiabulls Retail, etc), and poor profitability as also leveraged balance sheets – exacerbated by growth slowdown – for survivors have forced them to focus on operational efficiency. Importantly, cost pressures have receded with lower competitive intensity and measures are being adopted to enhance capital efficiency. Pace of scale-up has been redefined to align with internal cash accruals as there is no recourse to external capital. This, we believe, would converge to gradual (25% 3-year CAGR) but profitable growth and healthier balance sheets. It is re-rating time for the sector and we bet on Shoppers Stop, Pantaloon Retail and Provogue.

Mad rush for scale at any cost…: IOR, in the rush to capitalize on under-penetration and gain critical mass before influx of foreign competition, took to the path of rapid scale-up over the last few years. However, even as the sector grew 3x in size over FY06-09, profits were elusive. While costs doubled as everyone chased the limited resources, disproportionately higher scale-up of front-ends ahead of back-ends led to capital inefficiency. Leveraged growth became more a norm than an exception.

…giving way to prudent growth: As external capital taps dried up, players have woken up to the imperative of raising capital within to fund future growth. IOR is now in the course correction mode and while the competitive landscape is more settled, employee costs are trending down and lease rentals have corrected 30-50% from the peak. Players are focusing on efficient manning, inventory management, space rightsizing, etc. These initiatives, we believe, would drive margin expansion for retailers even as same store sales are picking up.

Re-rating ahead; we are Overweight: We see significant profitability improvement and healthier balance sheets ahead as retailers adopt a calibrated growth stance using internal capital. This, we believe, would drive a re-rating in sector valuations. Shoppers Stop stands to be the key beneficiary of easing cost structures (570bp margins expansion over FY09- 11E) while Pantaloon Retail, the largest Indian retailer, too would be attractive as its balance sheet gets deleveraged. We maintain our bullish stance on Provogue given Prozone’s value unlock potential. We are Neutral on Titan due to its rich valuations.

To see full report: INDIAN RETAIL

>YES BANK(INDIA BULLS)

Yes Bank’s net profit for Q1’10 surged 84.2% yoy to Rs. 1.0bn, driven by
a robust rise in non-interest income, which in turn increased primarily
because of higher treasury income of Rs. 850mn. During the quarter, the
Bank’s advances increased 2.2% q-o-q while deposits decreased by
5.1%. Our outlook for the next few quarter is negative for the Bank due to
heavy dependence on non-interest income (a key driver of the stock
price), a portfolio skewed towards corporate banking, and a volatile
deposits base with a low CASA ratio. Our DECF valuation suggests a fair
value of Rs. 177, indicating a potential downside of 9.9% over the current
stock price. Moreover, the stock is trading around its 52 week high with
the P/B ratio of around ~3.3x, which we believe is high given the volatile
nature of income and the growth prospects. Thus, we downgrade the
stock from Hold to Sell.
NPAs likely to continue trending upwards: At the close of Q1’10, the
Bank’s Gross NPA ratio stood at 0.48% and restructured advances worth
Rs. 1.2bn (0.94% of gross advances). However, being conservative, the
Bank increased its total provisioning by more than 4 times yoy to
Rs 455.3 mn leading to an increase in the coverage ratio from 18.2% in
Q1’09 to 50.5% in Q1’10. Our expectation regarding NPAs remains
unchanged as the Bank has high exposure to the corporate segment
(constitutes 64.7% of wholesale banking), thereby increasing the chances
of slippages where the probability of a sharp spike in NPAs is greater due
to large-ticket loans.

To read full report :- YES BANK(INDIA BULLS)

>ABB Limited(INDIA BULLS)

For Q2’09, ABB Limited (India)’s revenue declined by 7.1% yoy to
Rs. 15.1 bn. EBITDA declined by 32.5% yoy to Rs. 1.4 bn due to an
increase in employee costs and other expenditures. In the
near-to-medium term, we expect the Company to benefit from the
increasing Infrastructure investments, expansion plans in the Power sector,
and a revival of corporate capex cycle, which should give a boost to the
Company’s order book.
Order book to improve: In Q2’09, ABB secured Rs. 21.1 bn worth of new
orders. Most of these orders have been placed by government utilities. At
the end of Q2’09, the Company had an outstanding order book of
Rs. 76.2 bn, which represents 1.1x of FY08 revenue. Going forward, we
expect the Power segment of the Company to get a boost from the
investments in the Power sector by the Government of India (GoI). GoI has
envisaged a capacity addition of more than 78,000 MW in XIth five year
plan, and around 100,000 MW in XIIth five year plan to address the current
power deficit and increasing demand for power in the country. Accordingly,
we expect robust order inflows for the Company in the
near-to-medium term.

To read full report :-ABB Limited(INDIA BULLS)

>INDIA STRATEGY(The next Asian Tiger)(UBS)

India—the next Asian tiger
􀂄 India provides significant potential for investors
1) We believe India’s economy could be entering a golden period—we expect real
GDP growth of 8-9% pa for the next 10-20 years. 2) The stock market is relatively
liquid (US$5bn average traded value) with several diversified sectors.
3) Penetration levels for most products and services are relatively low, implying
ample room for high-growth investment ideas. 4) Attractive demographics and a
high savings rate imply that demand for equity stocks and mutual funds is likely to
multiply in the next 10-15 years.
􀂄 Four themes: consumption; leverage; infrastructure; equity investment
We have identified four investment themes: 1) the consumption boom, driven by
low penetration, attractive demographics, and strong economic growth; 2) low
household leverage, which is likely to change and translate to higher demand for
financial services; 3) higher infrastructure investment—we estimate infrastructure
investment of US$2.5trn in the next 15 years; and 4) greater potential demand for
equities, as India’s relatively high household savings could be channelled into the
equity markets.
􀂄 March 2011 Sensex target of 20,000
Our March 2011 Sensex target of 20,000 is based on a forward PE multiple of
14.9x on FY12E EPS. We forecast a Sensex earnings CAGR of 12% in the next
15-20 years. Assuming a long-term average PE multiple of 15x, the Sensex could
reach a level of 100,000 by FY25 (it is 16,741 currently). Key overweight positions
in our model portfolio are: Maruti Suzuki India, public sector banks (Bank of
Baroda, Punjab National Bank and Union Bank), Unitech, Indiabulls Real Estate,
Infosys Technologies, Tata Consultancy Services, Tata Power, ACC and JSW
Steel.

To read full report:- INDIA STRATEGY(The next Asian Tiger)(UBS)