Tuesday, February 24, 2009

>Daily Market Preview (MARWADI FINANCIAL)


#Mayhem continues and world markets are sinking with increased volatility (VIX at 50+). We believe that there can still be more pain in Indian markets too as these are times of adjustments in the deteriorating economic scenario and hence lower P/E band.

#We feel Nifty may see some short covering at around 2650 level which is expected to be short lived. We therefore suggest being on cash and selling Index on bounce to hedge the portfolio.

To see full report: Market Preview 24-02-2009


To see report: F&O Report 24-02-2009

>Tech Mahindra - BUY (INDIABULLS)

Tech Mahindra Ltd. - BUY

Attractive valuation despite near-term headwinds

Tech Mahindra (TM) reported a disappointing performance for the quarter ended December 2008 as revenues went down 2.8% qoq to Rs. 11.3 bn, owing to a 3% decline in the sales volume. In USD terms, revenues declined substantially by 14% qoq due to a sharp depreciation in the GBP vis-à-vis the USD. The EBITDA margin improved slightly by 10 bps qoq to 28.1% after adjusting for a one-time tax reversal of Rs. 673 mn in the last quarter. Although we have cut our target price to Rs. 309 because of the deteriorating demand outlook and high revenue concentration, we maintain a Buy rating on the stock. This is attributed largely to TM’s large order book and strong balance sheet. Besides, we believe that the current price correction to the stock is overdone.

Strong revenue visibility: TM maintains a healthy order book of USD 2.5 bn over the next 3–4 years, including approximately USD 2 bn of deals from British Telecom (BT). This provides strong revenue visibility for the near-tomedium term. However, we remain concerned about the possible delays in the ramp-ups from BT due to the deteriorating performance of its various operating segments. Moreover, the new deals inflow is likely to remain poor, adversely affecting the volume growth.

To see full report : TECH MAHINDRA

>Union Bank of India - BUY (LKP SHARES)

Union Bank of India - BUY

Investment Rationale

# Strong profitability: UBI has reported operating profit at Rs.8.5bn, a growth of 34% yoy. NII increased to Rs.11bn, a strong growth of 50% yoy thus resulting in robust operating and net profits. PAT was reported at Rs.6.7bn growing by 84%. We are impressed by the NIMs reported at 3.22% vis-à-vis 2.7% a year ago, an increase of 52bps due to significant pricing power as well as credit growth.

# Asset quality: Looking at the trend over past five quarters for the company, the asset quality has consistently shown improvement which gives us further comfort as this would enable lower provision requirements going ahead. Currently, the provision coverage ratio stands at 92%, giving good strength to bank’s balance sheet. Higher provision coverage ratios in excess of 90 per cent and lower net NPA ratio at 0.14 per cent would keep it on strong footing in terms of
asset quality. The provision coverage ratio is expected to be in the range of 85-90 % going forward, which would help contain net NPAs at lower levels of ~ 0.3 %.

# Business Growth: UBI has been able to maintain an average pace of growth at 23% over past 5 quarters, in line with the industry growth. However, going forward with the prevailing slowdown, we expect the credit growth to slow down to ~ 20% for next two years. CASA, as a % of total business mix stood at 30% vis-à-vis 33% last year. We believe UBI shall be able to maintain this healthy CASA ratio, thus able to leverage NIMs at close to ~3% going forward.

# Ratios: This bank has been able to maintain robust return ratios on equity and assets. RoA stands at 1.92% up from 1.31% yoy. RoE has also significantly improved from 26.11% to 39.15% in Q309. We expect UBI to maintain healthy return ratios going forward as well.

To see full report : UBI

>Alstom Projects - HOLD (INDIABULLS)

ALSTOM Projects India Ltd. - Hold

# Revenue growth will decline in the near term:
APIL has not received any substantial new orders in FY09. Given that most of the orders for the 11th Five-Year plan have already been awarded, we expect the order book to decline in the upcoming quarters. As a result,
we have maintained our revenue contraction to the tune of 15–18% and 4–6% for FY10 and FY11, respectively. Thereafter, we expect revenues to surge, given the potential of the power sector in India.

# Non-conventional energy to act as a catalyst: India has always remained a power deficit country. There is a growing need to not only develop the conventional sources of energy but also develop nonconventional sources such as nuclear and hydro power. The country plans to increase its nuclear power generation from the current 4,100 MW to 52,000 MW by 2020 and APIL is expected to be a major beneficiary of this exercise. This is because we believe that the Company is well equipped to manufacture nuclear equipment by using its existing plant in Vadodara, Gujarat, which manufactures hydroelectric power generating components at present.

To see full report: ALSTOM PROJECTS