Monday, March 9, 2009

>Market Perspective (RELIGARE)

Slide 7

ÆSlide 7
What to expect in March 09.....

#S&P has downgraded the outlook for India in light of rising fiscal deficit (targeted at 5.5% for 2009-10)

#Lowering GDP growth rate, falling farm output and exports have caused medium term concerns regarding the Indian economic prospects.

#But India is targeted to grow at 5.1% in 2009, a rate much higher than most other emerging and developed nations.

#Expectations of further rate cuts by the RBI and the stimulus packages announced by the government to support the Indian economy.

#Inflation at a 15-month low, augurs well in the present scheme of things and provides headroom for additional rate cuts.

#Large cap equity funds to outperform the other MF categories as volatility persists in the uncertain market conditions .

#Banking, Oil & Gas, Metals and IT are attractively valued, presently trading at lower forward PEs. These sectors can be viewed as long term investment avenues. Investors looking for high growth prospects, based on earnings visibility, may take exposure to Banking and construction sectors which have received an EBIDTAupgrade as per the Religare Equity researchview.

To see full report: Market Perspective March'09

>Daily Market Preview (MARWADI FINANCIAL)

# After massive sell off last week equities seem still to be a riskier asset and so we expect de-leveraging to continue. In absence of any major trigger in short term, we feel that Indian markets will trade in narrow range with upside capped.

# We might see some technical bounce back on the back of short covering, but it will be hard to sustain its recovery. We suggest staying away from taking any fresh position.

To see full report: Market Preview 090309

>Daily Technical Report (MARWADI FINANCIAL)


Wall street closed on flat, Asian market falls led by banks on capital concern. Last Friday we saw some sort of short covering from oversold territory. Again the inflation is at lower levels, is a good sign to Indian economy. Now onwards we have to seen the effects of the stimulus major and how effectively implement is a matter of concern. Macro economic picture is also played an important role for further market direction.

On Technical note market looks today open with marginal negative note and after negative opening it will take volatile mode. We continue to recommend to trade with caution approach, intraday trader have to wait in morning session and after conformation of the trend make fresh position.

Today Sensex trade in the range of 8485-8185 And Nifty in the range of 2670-2580

To see full report: Technical Report 090309


To see report: F&O Report 09-03-09

>Hindalco Industries (ICICI Securities)


Worst priced-in

* Novelis remains key concern. With raw material prices (including energy costs) that follow the LME with a lag, declining aluminium prices and falling fixed-price ceiling contract volumes have not released enough cashflows for Novelis. We expect Novelis to post losses till FY11E owing to: i) declining rolled products demand (and premium) across the US and EU and ii) high interest cost burden with annual interest outflow of ~US$180-190mn resulting in depressed acquisition RoIC (3-5%) and prolonged payback (>12 years). Novelis expects ~US$580mn cash outflows relating to settlement of derivatives instruments till FY10E, including US$260mn in Q4FY09. Also, Novelis is exposed to ~US$160mn cash outflows from hedging of exposures to metal price ceiling.

* Weak short-term aluminium price & demand outlook. We had trimmed our CY08/FY09E, CY09E/FY10E & CY10E/FY11E aluminium price assumptions 12%, 15% & 15% respectively on account of: i) reduced Cy09E & CY10E global demand estimates to 0.3% & 2.9% (from 2.5% and 5% respectively), ii) insufficient production cutbacks so far (9-10% of global aluminium production vis-à-vis 25-30% cutback in steel and 15% in zinc), iii) rising inventory, iv) China’s inability to increase demand due to weak internal consumption (with concomitant reduction in CY09E Chinese demand growth estimates to 4.5% from 7.1%).

* Valuations. Backended earnings outlook, increased leverage and the expensive Novelis acquisition dents short-term performance outlook for Hindalco. We expect FY10E EBITDA & EPS to decline 35% YoY each, with RoCE dipping to 3.6% in FY10E (cost of capital: 8.7%). We believe most downside risks are factored-in at current price of Rs39/share (at ~50% discount to replacement cost vis-à-vis 13% for NALCO). Upgrade to HOLD with target of Rs44/share (upside 13%; falls within the medium-risk category of the I-Sec universe).

To see full report: HINDALCO



Short term headwinds; long term growth intact
In January 2009, Siemens India Limited (SIEM) decided to sell its wholly owned subsidiary Siemens Information System (SISL) to its parent company Siemens AG. We believe SIEM stands to lose from this deal as it received less-than-adequate consideration in exchange for SISL; the deal valued at an EV/Sales of 0.5x, much below the industry average of 1.4x, resulting in a potential loss of value for the investors. Though our near-term outlook for SIEM has weakened following the SISL deal, we believe that the current market price (CMP) of SIEM’s stock more than factors the negatives. However, given its technological advantage, a diversified business model, and the strong financial position, we believe the Company is well poised to grow in the long run. Hence, we reiterate our Hold rating on the stock.

Top line to remain muted in the near term: We expect net sales to fall ~20% in FY09; excluding SISL, we expect the fall to be in the range of 15-18%. We expect the major segments - Industrial and Power to show a negative growth of ~7% and ~25%, respectively. The Power segment’s revenue is likely to fall due to the completion of several big-ticket projects in FY08, and we do not expect any mega order inflows in the near term. Meanwhile, we believe that strong growth in small segments such as Transportation, Healthcare, and BPO will help in cushioning the downside in revenue. However, we expect revenue to grow substantially post FY10 once the orders in the Power segment start coming in from the 12th Five Year plan.

To see full report: SIEMENS

>Wipro (ICICI Securities)


In the era of tumult....

* Key takeaways from Telecom vertical are:
i) though OEMs are not in a bad shape, they are increasingly cautious on incremental spending, ii) cost structure of OEMs is significantly higher, implying more pressure to outsource/offshore, iii) Nortel has released a new purchase order to Wipro and the company is confident of receivables, iv) with the merger of IT and R&D, the combined offering is now available to clients and v) top eight OEMs form 95% of the vertical’s revenues (~10% of IT services revenues) – Negotiations/renegotiations with six clients are already over with the remaining two under consideration.

* No visible demand uptick. The demand environment remains weak, though enquiries/client interactions have increased. Deteriorating macro was accounted for in Wipro’s Q4FY09 guidance of 6.8% QoQ organic IT services revenue decline (in constant currency) with assumption of pressure on pricing and volume.

* Pricing pressure. With volume pressure, increased competition and vendor consolidation, pricing pressure has intensified. However, the management believes that pricing pressure could be eased via the use of different pricing models such as sharing risk-reward, especially in product engineering and higher fixed-price contracts.

*Higher OCI, but increased tenure to cap notional loss realisation. OCI of Rs15bn is likely to rise with the recent rupee depreciation, but as the maturity of the contract is spread over more than two years, realisation of notional losses will be capped.

* Maintain HOLD. Given the continued uncertainty in demand outlook, we reiterate our cautious stance on IT in the short-to-medium term. With no BUYs recommended within large-caps, we maintain HOLD on Wipro.

To see full report: WIPRO



Raise to Buy, worst likely over

New CEO in place; upgrade to Buy
We raise our rating on Patni from Underperform to Buy with a PO of Rs115 (vs Rs235), on a fair-value 2009 P/E of 6x, as it should be rerated after strengthening management. P/E reflects historic average 30-50% discount to larger peers. It completed its CEO search in February, to catalyze investment initiatives and up management effectiveness. Cash per share of Rs115 offers comfort in our view.

Succession planning complete; upping management efficacy
Patni completed its CEO search with Jeya Kumar, ex-MphasiS CEO and member of the executive management group of Sun Microsystems, coming on board in February 2009. Soon after, it also strengthened its European management, appointing four key members, ex-global vendors. A strengthened management should help strategy planning, win clients and tighten operations.

Sharp earnings drop in 2009, but 1Q likely to mark bottom
We forecast around a 27% decline in 2009 EPS on a 12% decline in US-dollar revenues and 300bp drop in EBIT margins (ex forex), offset by share buy backs. It is likely to face stiff bill rate pressure from top client, GE (which makes up 10% of revenue) and in discretionary IT-based services (over 50% of revenue). We believe Patni’s 1Q guidance for 12% QoQ revenue fall and 51% PAT decline, reflects bill rate cuts, visa costs & higher taxes, and should mark the bottom.

Strong balance sheet; trading below cash per share
Patni is debt free with 40% of its 2008 balance sheet in cash. It trades below cash per share. We think it is likely to conserve or use cash for EPS accretive M&A.

To see full report: PATNI