Thursday, March 12, 2009

>Daily Market Insight (RELIGARE SECURITIES)

Dow closed marginally in the positive and all other Asian markets are mixed. Our IIP data is slated to come today and we believe that the number will not disappoint the market. Market expectation is - 0.9% contraction against -2% last month. Asian markets have rallied since last 2 days and we believe that our market could do some catching up today .Hence we expect a gap up opening for the market and expect market to rally for the day. We continue to believe that any sharp decline in the market should be used as an opportunity to build a long-term portfolio.

  • Dow : Positive
  • Asia: Mixed
  • Day’s view: Positive

To see full report: Market Insight 12-03-09

>F&O Daily Open Interest Report (MARWADI FINANCIAL)

To see report: OPEN INTEREST REPORT 12-03-09


To see report: F&O Report 12-03-09

>Sterlite Industries (ICICI Securities)

* Though long-term strategy in place… ASARCO’s operations are fully integrated with current production of 237,000tpa, which includes 37,000te tolling and mine production of 200,000tpa (cash cost for refining at US$1.4/lb). The current mine life is 25 years, which SIL expects to increase to 40 years through further exploration. Given SIL’s proven track record of cost optimisation, the management expects to reduce costs further by US¢10-15/lb in ASARCO. We believe the acquisition is driven by long-term management philosophy of acquiring distressed assets and turning them around irrespective of short-term financial pressure.

* …short-term concerns persist. The acquisition is marginally earnings-dilutive in the short term. With US$1.1bn of upfront cash payment being financed from SIL’s books, we expect SIL’s consolidated and standalone earnings to decrease 9% and 5% respectively in FY10E provided the deal goes through. We estimate the acquisition to generate 12.7% IRR vis-à-vis 16% as guided by the management.

* Valuations. Given long-term EBITDA estimate of US$188mn for ASARCO, the
EV/EBITDA of ~9x at US$1,700mn looks expensive considering the current global EV/EBITDA average of 5-6x (of Teck Cominco and Xstrata). We estimate SIL’s new sum-of-the-parts (SOTP) fair value to be Rs306/share (vis-à-vis earlier price target of Rs317/share) with 25% upside from the current levels provided the deal goes through. Reiterate BUY.

To see full report: STERLITE

>Nestle India (CITI)

*4QCY08 was above expectations... — Reported PAT growth of 29% Y/Y, driven by strong revenue growth of 22% Y/Y (in line with expectations) and c2% expansion in EBITDA margins (to 19.5%, benefiting from a benign base effect).

*...But we reckon the outlook is challenging — Nestlé India's growth is predicated off urban consumption spends – which contract in an economic downturn. Revenue growth over CY07/08 of ~23% CAGR, above the ~15% CAGR witnessed over the last 5 years, benefited from strong pricing. We reckon an encore performance over CY09/10e will be difficult as pricing action moderates.

* History depicts Nestlé's business model as robust, not bullet proof — Revenue growth decelerates to is less than 10% in economic downturns – as urban consumption decelerates. The steady growth milk foods / nutrition business stays the course; prepared and processed foods growth contracts dramatically. We expect revenue growth to decelerate to 11%-12% over CY09/10e, before accelerating in CY11e.

* Cut target price to Rs1,395, maintain Sell — We cut earnings by 2%-14% over CY09/10e (driven by 3%-10% reduction in revenues over CY09/10e). We revise our target multiple to 21x Mar10e P/E, cut from 25x, as we roll forward from Sept09e, revise downward in line with the peers and also the broader market.

* Key risks — Upside risks stem from stronger revenue growth, margin expansion driven by lower commodity costs.

To see full report: NESTLE

>GE SHPPING (KR Choksey)

Investment Rationale: GE Shipping is India's largest private sector shipping service provider enjoying a formidable presence in the international maritime industry. The company has two main businesses: shipping and offshore. The shipping business is involved in transportation of crude oil, petroleum products, gas and dry bulk commodities. The offshore business services to the oil companies in carrying out offshore exploration and production activities, through its wholly owned subsidiary Greatship (India) Limited. Backed by an enviable clientele comprising industry leaders, international oil companies and governments who vouch for its services, the division has earned the status of being the most preferred shipping service provider. With a pulse on the global market and a thorough understanding of the ever-evolving market needs, the division is well-equipped to anticipate the demands of its clients and to deliver on its commitments, successfully and satisfactorily.

Key Developments: Great Eastern shipping to trim its $600-mn order book Great Eastern (GE) Shipping, India’s largest private sector shipping company is negotiating with shipyards to cut a part of its order book of 10 ships worth about $600 million (Rs 3,000 crore) to overcome the downturn in the freight rate for dry bulk carriers and tankers. It has sold five bulk carriers and one tanker since November. Besides, it has cancelled the order of two dry bulk carriers worth $76 million (Rs380 crore) with the Chinese shipyards. The company is negotiating with more shipyards to cancel some of their existing orders. Of the remaining order for 10 ships, most of the orders are with European yards where the contract clauses are stringent.

Financial Performance: Fall in dry bulk time charter hit sales Despite a decrease in revenue operating days by 12.8% to 3,627, net sales of the company increased 16.1% y-o-y and decreased 18.8% q-o-q to Rs 701.7 crore in Q3FY09. The sales were driven by 60% and 19% y-o-y increase in average time charter yield (TCY) of tankers and product carriers respectively. Further, increase in the proportion of spot vessels to 58% from 38% y-o-y aided the company’s sales.

To see full report: GE SHIPPING