Saturday, February 21, 2009

>Weekly Market Recap (RELIGARE)

Indian Bourses remained turbulent this week mirroring weak
global sentiments. Disappointment from the interim general
budget for 2009-10 pulled the market sharply as there were no
sector specific benefits for the industry hit by the global economic
slowdown. The BSE Sensex registered a loss of 8.2% whereas the
Nifty registered a loss of 7.2%. The Foreign Institutional Investors
(FIIs) were net sellers to the tune of Rs. 1,349 crore and the
Mutual Funds were net sellers to the tune of Rs. 675 crore.
The annual wholesale price index (WPI) based inflation rate fell to
a 13 month low, dipping below the 4% mark mainly on account
of declining global crude oil prices. The year on year WPI inflation
rose to 3.92% for week ended February 7 down from the previous
week's annual rise of 4.39%.

To see full report: Weekly Market Review

>India Infrastructure (JP MORGAN)

Actual spend lagging target

# Capex in key infrastructure sectors seems to be lagging 11th Plan targetsonly~
25% has been allocated till FY09: From the budget documents of FY08
and 09, we compiled capex for key central government infrastructure projects.
So far, actual spends have been ~10-20% lower than budgeted, with the
underachievement more pronounced in FY09. The government plans step up
spends by ~33% in FY10, but execution and funding would be key.

# Power sector: 20% slippage in 11th Plan target of 78GW likely, in our
view: From a separate document released by the power ministry, we believe it is
realistic to expect 63GW power capacity addition during the 11th Plan. The
document points to potential slippage of 2GW for NTPC (OW) and 1.3GW for
Reliance Power (UW). The document gives a relatively clean chit to BHEL,
which is responsible only for 13% of the slippage, whereas delayed ordering
of balance of plants accounts for 54% of the slippage in thermal capacity

To see full report: India Infrastructure

>Reliance Communications (MERRILL LYNCH)

Good news, but not enough

# Strong sub additions in Jan; pace likely to continue in Feb
Reliance Com reported 5mn new subscriber additions in Jan ’09, the first
subscriber reporting since the Co’s nationwide launch of GSM services. While the
CDMA-GSM split of RCom’s Jan additions is not yet available, the numbers mark
a strong improvement vs the Co’s ~1.8mn net adds (CDMA & GSM) in Dec ’08.

# No visible impact on adds of other operators – a surprise

From an industry standpoint, a key surprise to us is that none of the other
operators have reported any slowdown in their net adds for Jan '09 despite
stronger growth by RCom. While exact numbers for the industry are awaited, it
seems like the wireless industry added ~15mn subs in Jan '09 vs ~11mn in Dec
'08. This market expansion is surprising to us given that RCom’s early stage GSM
coverage would be mostly in towns where other operators already have coverage.

RCom revises up prices; coverage expansion to help
RCom has reportedly revised up the price points of its promotional GSM offer
from Rs25/subscription to Rs49/subscription plus a mandatory recharge voucher
of ~Rs50-60. The promotional/free talk-time has also been cut to ~Rs4 per day
versus Rs5-10/day earlier. The upward price revisions will likely taper RCom’s
subscriber additions over next 3-4 months but any immediate impact on Feb net
adds is unlikely due to the Co’s expanding network coverage on GSM. By end-
Jan, RCom offered GSM services in ~14000 towns vs ~11000 towns at the start.

To see full report: RCOM

>Hexaware Technologies Ltd. (MERRILL LYNCH)

Dismal outlook; Underperform

# Dismal 1Q guidance, Retain Underperform
Though results were in line we were surprised by very sharp revenue decline
guided for 1Q at a negative 16% QoQ with outlook being the weakest announced
so far. This likely reflects high exposure to discretionary spends such as ERP
(~29% revs, -18% QoQ). We cut estimates by 5% to factor 17% cut in USD
revenues as reflected by weak 1Q revenue guidance and offset by higher margins
due to rupee depreciation. Cut PO by 5% to Rs21 at 5x CY09E, downside risk of
28%. Cash & equivalents of Rs19/share could provide support to the stock.

# Bleak outlook; 4Q margin expansion unsustainable
Management highlighted that macro environment has worsened in 4Q; with
clients across board rationalizing IT spends. Expects 1Q revenues to decline 14-
17% QoQ in constant currency terms. We expect margins to decline by at least
600bps during 1Q. Also MTM losses in balance sheet increased to Rs1.2bn from
Rs1bn QoQ and likely to impact CY09/10e profits if weak rupee persists.

Inline 4Q results ; Margin expands ~464bps
Revenues grew 4% QoQ to US$64.4mn in constant currency terms inline with its
guidance. EBITDA margins expanded by 464bps, partly driven by rupee
depreciation, SG&A efficiencies and targeted improvement in utilization levels.
Profit growth of 49% QoQ was lower than expected and was impacted by higher
forex loss during the quarter.

To see full report : Hexaware Technologies