>DEEPAK FERTILIZERS & PETROCHEMICALS CORPORATION LIMITED (INDSEC SECURITIES)

We are initiating coverage on DFPCL, which has traditionally been perceived as a fertilizer company. However, DFPCL, which was incorporated in 1979 as an ammonia manufacturer and is today a multiproduct company with 2 major business segments, viz. Industrial Chemicals & Fertilizers. DFPCL is a dominant player in the industrial chemical segment which drives almost 70% of its revenues. With further Ammonium Nitrate capacity additions, DFPCL will undergo a re-rating from being a fertilizer company to an integrated industrial chemical manufacturer.

Investment Rationale:
• Of DFPCL’s total natural gas requirement of 0.8 mmscmd for the enhanced capacities, about 0.728 mmscmd (90%) has already been contracted at a landed cost of $ 6.1 per mmbtu. For the balance 10% the company plans to buy gas in the spot market, which will meet DFPCL’s entire gas requirement and help the company streamline its manufacturing activity and keep the volatile raw material cost under control. DFPCL has also set up a new 15,000 MT Ammonia storage tank at JNPT to ensure a steady supply of Ammonia.

• Recently, DFPCL augmented capacities at most of its plants, anticipating higher demand for -
Ammonia (90,000 TPA to 125,400 TPA), Ammonium Nitrate (90,000 TPA to 132,000 TPA) and DNA (297,000 TPA to 445,500 TPA). DFPCL will further increase its Ammonium Nitrate capacity by 300,000 TPA by Q3-FY11, at an investment of Rs. 6550 mn. with a view of fulfilling the rising demand from the infrastructure and mining sectors, which will drive future growth.

• Strong technology tie-ups with international players have enabled DFPCL in controlling production costs, leading to steady increase in margins.

• On the retailing front, the company has successfully leased out about 55% of the entire 550,000 sq. ft. of area at rentals of Rs. 35 per sq. ft. per month and plans to increase the rental to about Rs. 40 per sq. ft. per month by the end of this fiscal, targeting a revenue of Rs. 120 to 140 mn. in the current fiscal.

Valuation:
Based on DCF valuation with a terminal growth rate of 1%, risk free rate at 8% and WACC of 14.6% we arrive at a fair value of Rs. 156 per share resulting into 64% upside form the CMP of Rs. 90.85 per share. Hence, we recommend a BUY on DFPCL.

To see full report: DFPCL

>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

>AXIS BANK (SBICAP SECURITIES)

Strong CASA growth stands out amidst growth slowdown and asset quality concerns
CASA growth of 12% QoQ and 19.4% YoY stood out in a quarter marked by slowdown in asset growth (19%), credit growth (17.7%) and asset quality concerns - Gross NPA at 1.21% and Net NPA at 0.45%. We expect NII, Operating Profit and PAT to grow by 30.2%, 39.9% and 28.1%
respectively for FY10E. At the current market price, the stock trades at 2.7X FY10E and 2.3X FY11E ABV. Raise target to Rs.910. Maintain Underperform.

Retail leads slowdown in advances
Retail loans grew by just 7% YoY and their share in total advances reduced to 22% from 24% a year ago. Large and midcorporate loans grew by 19%, SME loans grew by 21% while agricultural loans grew by 38%. Overall advances grew by 17.7% while total assets grew by 19% YoY.

CASA growth at 19.4%
Current Deposits grew by 7.4% YoY and savings deposits grew 30.5% YoY. Share of CASA improved to 43% even as aggregate deposits grew by 12.4%. NIM for the quarter was at 3.52% as against 3.51% in Q2FY09 and 3.34% in Q1FY09.

Fee income growth slowing down, treasury gains surprise positively
Other Income grew by 53.5% YoY primarily driven by growth in treasury gains which were at Rs.2.2 bn. as against 0.4 bn. in Q1FY09. Fee income growth moderated to 11.7% while forex income continued to grow strongly at 35.2%.

Asset quality concerns evident
Despite higher provisioning at 1.4% of average assets for the quarter as against the usual trend of 0.6-0.9% of average assets, Gross NPA and Net NPA moved up to 1.2% and 0.5% respectively. During the quarter, the bank restructured assets amounting to Rs.3.9 bn (0.5% of
advances). Outstanding restructured assets stood at 2.9% of advances at the end of the quarter.

Outlook and valuation
We have upgraded our estimates to account for the higher than expected treasury gains that the bank has posted in this quarter. We expect NII, Operating profit and Net Profit to grow by 30.2%, 39.9% and 28.1% respectively. We are moving over to FY11E for valuing the bank and are upgrading our target price to Rs. 910. At our target price, the stock would trade at 2.4X FY10E and 2.0 FY11E ABV. We have raised our target price primarily on account of dilution at a higher than expected price and lower then expected equity dilution. Maintain Underperform.

To see full report: AXIS BANK

>MAHURAT PICKS (ICICI DIRECT)

Mahurat Picks 2009

With equity indices making new yearly highs, our equity strategy will be to buy on any significant declines in the markets as we are cautiously optimistic as the velocity of markets is surely exceeding the earnings expectation. Also, in October 2009, the markets will get sensitised by the earnings reported by Corporate India. So, any positive/negative surprises will have a corresponding impact on the markets. At best, investors should hold on to long positions while aggressive buying is not advisable at current market levels.

To see full report: MAHURAT PICKS 2009