Monday, February 23, 2009

>Bombay Rayon Fashions Ltd - BUY (MERRILL LYNCH)

Strong growth despite unfavorable macro

Earnings, PO cut on worsening macro outlook:
We have cut FY10E EPS by 5% and FY11E by 14%, primarily to factor-in lower
Guru sales, as management has stalled its growth plans, following global
slowdown. We keep FY09E EPS unchanged, given the in-line 3Q results. PO is
reduced to Rs225 (from Rs270) to reflect both earnings cut and higher risks
(implied FY10E PE of 7x vs 8x earlier). The stock has corrected sharply in last
few months and valuations look attractive at 3x FY10E PE. Maintain Buy.

EPS growth still strong led by new capacities:
We expect EPS growth of 32% in FY10 helped by new capacities coming onstream
by March’09. These capacities would enjoy several fiscal benefits making
them globally cost competitive, which should help BRFL gain market share.
Management had aggressive plans for expansion of Guru operations which have
now been put in the back burner. After the sharp cut in Guru’s estimates, it now
accounts for less than 5% of BRFL’s consolidated EBIDTA versus 9% earlier.

To see full report: Bombay Rayon



Extremely tight liquidity conditions affected loan book growth in Q3 FY09
Yes Bank, a new generation indian private bank, has delievered robust growth in its loan book (100% + yoy) over the past three years. The exceptional growth was driven by its aggressive stance and focused knowledge-based corporate banking strategy. However, over the past few quarters, the loan book growth has decelerated significantly (base effect catching up). In Q3 FY09, there was a marked slowdown with the loan book growing by a mere 27% yoy - against average 75% yoy in previous six quarters. More importantly, the loan book declined by 5% qoq. Bank attributed Q3 FY09 performance to exceptional liquidity conditions during Oc--Nov '08. Primarily wholesale funded (with CASA at just ~9 %), Yes bank was more affected than other banks with depositis declining by 6% qoq.

Qoq growth in loan book to resume from Q4 FY09.
Bank expects loan book to grow sequentially in Q4 FY09 but accedes that growth may not reach earlier levels given the deterioration in credit environment and waning credit demand. Loan book growth would be driven by new clients acquired during Q3 FY09. The bank was successful in breaking into some large corporate clients during the tight liquidity period of Oct-Nov '08. Going forward, it intends to churn its loan portfolio and prioritize funds towards those clients where the opportunity for cross-selling is maximum. We reckon that loan book could increase by 6-7% qoq in Q4 and therefore full-year growth could be in the range of 23-25% yoy.

To see full report: YES BANK

>TCS (ICICI Securities)


# Non-discretionary volume under some pressure. TCS is witnessing ramp-down
requests from some clients in Auto and Telecom verticals, with lower number of
support hours for maintaining systems. Though such requests are limited, it can be
inferred that the demand downside is not behind us. However, project cancellations
have not increased versus that in Q3FY09, with the start of new deals won in
Q3FY09. Retail vertical has been showing better signs of outsourcing.

# Delay in ’09 IT budget with increased discussion on pricing. TCS expects ’09 IT
budget finalisation to be delayed by two months versus the earlier expectation of
January ’09. The company is witnessing increased requests for rate decline, which
may result in like-to-like billing rate cut as the upside to non-linear execution model
may be limited (fixed price contribution at 45.5%, the highest among peers).

To see full report: TCS



Core transmission business to witness robust growth

India's gas demand is expected to register a strong growth driven by current under utilization of gas-based capacities in the power, fertilizer and other industries. Additional gas-based capacities in these sectors will only shore up demand. The demand-supply gap is set to reduce the commencement of production from fields of ONGC and GSPC would further reduce the gap. This would need higher transmission capacity. Gail, being the nodal tansmission agency in the country would be the key beneficiary as its capacity would double over the next five years.

CGD and E&P businesses to be value accretive
GAIL is planning to set up city gas distribution projects in 20 cities over the next two years. Despite price cuts of petrol abd diesel, economics still favor CNG as an auto fuel. We believe, this venture would be margin accretive for GAIL.To further extend its value chain, GAIL has increased its presence in exploration and production sector. It currently has 30 E&P and three CBM blocks. Few discoveries have been made, but it will take couple of years before they achieve any scale. On a longer term perspective, this business would be value accretive for GAIL.

To see full report: GAIL