Wednesday, December 10, 2008

>INDIA Outlook(UBS)

􀂄 Summary
We believe markets are close to historical trough valuations, with the Sensex
trading at 9.8x and 2.36x trailing PE and P/BV. However, we think markets are
unlikely to rally in the next six months due to the absence of positive triggers,
although we remain bullish on a medium-term view. We recommend the following
stock-picking strategies: 1) quality companies with reasonable valuation;
2) companies likely to generate free cash flow; 3) stocks trading at attractive levels
on a PVGO/PB basis.
􀂄 What are the likely key themes for 2009?
We believe the election in India, to be held by May 2009, will be the key theme
investors are likely to focus on in H109. Indian markets have generally rallied preelection
and we expect a similar pattern in 2009. Other investment themes are
likely to revolve around the performance of perceived high quality versus low
quality companies, and whether outperformance of defensives will continue.
􀂄 What may surprise on the upside or downside?
We believe the election, crude oil prices, inflation, global credit and economic
scenarios could be the key variables to watch out for as they could surprise either
way. Markets are likely to be more stable once there is more clarity on these issues.
􀂄 Market valuation & targets and highlighted stocks
We factor in 5%/0% EPS growth for FY09/FY10E and assume a trailing 12-month
recovery PE of 15x to arrive at our Sensex target of 13,500. Our most preferred
stocks are Infosys, Bharti, Hero Honda, ICICI Bank, Punjab National Bank, and Idea,
each based on one of the investment strategies we recommend. Our least preferred
stocks are HCL Technologies, HDFC Bank, State Bank of India, Reliance Power,
and Tata Motors, and reflect our view of deteriorating fundamentals in 2009E.

To read full report INDIA Outlook(UBS)

>Tata Steel(UBS)

�� Q209 results better than UBSe
Tata Steel Q209 consolidated revenues grew 36% yoy to Rs442.0bn (UBSe
Rs331.9bn), despite flat volume growth driven by improved realizations (36% yoy)
and mix improvements. EBITDA grew 79% yoy to Rs82.5bn (UBSe Rs65.4bn)
and margins improved 450bps yoy to 18.7%. Net profit grew 42% yoy to Rs47.0bn
(UBSe Rs34.4bn). Tata Steel has achieved 124% of total consolidated FY09E PAT
in 1HFY09. Corus has achieved 99% of our FY09E EBITDA estimate in 1HFY09.
�� Key takeaways from the conference call
(1) Indian volumes in 2H09 to be higher than 1H09 (2) Capex expected to be
Rs10bn in 2H09 and Rs30bn in FY10E incl. Orissa and Jamshedpur expansions (3)
Working capital will decline in 2H09 as Tata Steel will not purchase raw material
and will liquidate its inventory. (4) Tata Steel is in compliance with all covenants
in India and UK.
�� Pension funds surplus at UK increases
Tata Steel UK pension fund surplus increased by £127mn during the quarter to
£819mn. Tata Steel has reduced its pension assets’ exposure in equity markets
marginally from 26% in Mar08 to 25% in Sep08, while increased its exposure to
bonds by 4% to 69%. We believe that pension surplus/deficits can be volatile; and
are not reflective of the underlying operations.
�� Valuation: Rate Neutral with a PT of Rs230
We rate Tata Steel Neutral with a DCF-based PT of Rs230 assuming WACC of
13.5%, medium term growth rate of 10.0% and terminal growth of 5.0%.

Read full report here Tata Steel(UBS)