Tuesday, March 17, 2009

>Daily Derivative (ICICI Direct)

Derivative Comments
• Formation of long positions was witnessed in the Nifty. The March series added 947550 shares whereas the April series added 1.18 million shares. The discount in April narrowed from 14 points to 10 points indicating fresh long build up in the next series

• Huge addition of OI was seen in the 2600, 2700 and 2800 Put options with maximum addition recorded in the 2700 Put with 22708 contracts followed by 2800 Put adding 14634 contracts and 2600 Put adding 12576 contracts. The IVs of these Put options has surged by 5-6% suggesting Put buying at higher spot levels in Nifty. On the other hand, significant short covering was witnessed by Call writers in 2600 and 2700 Call options. The maximum Call OI stands at 2800 with 5.48
million shares. We feel this level could act as a resistance for Nifty on closing basis in today’s session.

Technical Outlook
• The Nifty rallied for the third consecutive session to close in the green by 2.13%. The rally was propelled by realty and oil & gas stocks

• On the daily charts, the Nifty formed another strong bull candle, which is now testing the lower trend line of the joining lows of November 2008 and January 2009. After three consecutive sessions of the rally we remain cautious at higher levels as profit booking is likely. However, intraday dips can be considered an opportunity to buy

• The Nifty spot has supports at 2735, 2700 and resistances at 2785, 2805

To see full report: DERIVATIVES 17-03-09

>Opening Bell (ICICI Direct)

Indian markets are likely to open flat, taking cues from global markets. Asian markets were trading mixed in the morning after US markets ended flat to negative. US markets fell after American Express showed defaults in credit cards. Our markets need to sustain above 9200-9300 levels to trigger another round of short covering. We advise against taking aggressive trading positions at these levels

The Sensex has supports at 8800 and 8610 and resistances at 9115 and 9210. The Nifty has supports at 2750 and 2710 and resistances at 2805 and 2840

Asian markets were trading positive in the morning session. We will take cues from the Asian markets in the morning trade and look for cues from European markets in the afternoon

US stocks were trading strong in early trade but gave up all the gains during the close. We saw profit booking in all three indices after a bounce of almost 10% from the lows in three trading sessions mostly lead by short covering. Most of the global markets rallied after the US markets saw some sign of relief

Stocks in news: Videocon, Mercator Lines, HCL Tech

To see full report: OPENING BELL 17-03-09

>Opening Bell (ICICI Direct)

Indian markets are likely to open flat, taking cues from global markets. Asian markets were trading positive in the morning led by financial stocks. Investor sentiments lifted on bank’s stabilisation hopes after G20 finance ministers promised to use all available tools to fight the global recession. The meeting of G20 finance ministers held in the UK over the weekend promised help for troubled countries and said they would use all the fiscal and monetary tools they had to alleviate the economic downturn. We believe the sentiments would be positive on hopes of banks stabilisation.

The Sensex has supports at 8640 and 8560 and resistances at 8870 and 8980. The Nifty has supports at 2680 and 2650 and resistances at 2760 and 2780.

Asian stocks gained, led by financial companies and automakers, on heightened optimism government stimulus measures will help revive global economic growth. Nikkei gained 178.3 points, or 2.4%, to trade at 7,754.1. Hang Seng rose 241.8 points, or 1.9%, to trade at 12,767.6.

US stocks wrapped up their best week since November on Friday as Citigroup said it did not need any more government aid and a broker upgraded Merck & Co, saying its deal to buy a rival was shrewd. The Dow Jones gained 53.92 points, or 0.75%, to end at 7,223.98. The S&P
500 rose 5.81 points, or 0.77%, to 756.55. The Nasdaq added 5.40 points, or 0.38%, to 1,431.50.

Stocks in news: M&M, RIL, ONGC, Omaxe

To see full report: OPENING BELL 160309

>Spice Jet (KARVY)

● ATF prices no more a concern: Aviation turbine fuel (ATF) prices are down by ~60% from its peak in August 2008 providing a major relief to the aviation players. Fuel cost is the single largest cost accounting for around 40-50% of the overall operating cost for the aviation companies.

Currently, the average fuel price in the 4 metros (for March2009) is Rs30/ litre and we believe that the ATF prices have more or less bottomed out. We expect the ATF prices in FY10E to be around 25% higher from the current levels on account of positive movement in crude oil prices and weakening of rupee against the dollar.

● Slowdown in passenger traffic: Domestic passenger traffic was down by 5% in 2008 as against 33% growth reported during 2007. Slowdown in passenger traffic in 2008 was on account of higher fares due to higher fuel prices and the general slowdown in the economy. Even though fuel price have come down, difficult economic condition still remain a matter of concern in FY10.

Slowdown in passenger traffic has negatively impacted the seat factor thereby leading to higher
fares. During January, air fares were brought down substantially through various promotional offers and discounts but that proved to be of little help in stimulating the demand. We expect the current airfares to prevail during FY10 and with all players cutting down capacities; seat factor is expected to show small improvement in FY10.

● Weakening rupee to put pressure: Weakening of rupee against the dollar over the past few weeks is expected to put some pressure on the aviation industry. Part of airlines expenses including lease rentals, expat salaries, spare parts and maintenance are dollar denominated and weakening of rupee against the dollar would increase the expenses for the airline players. SpiceJet is not expected to add capacity during 2009 and in May2010 it would be eligible to fly on international routes. Accordingly we expect the company's load factor to improve in FY10. In our FY10E, on account of lower fuel price estimate, we have already factored in a dip in average airfares over our FY09E and load factor of 67.8%. We continue to maintain our price target of Rs16 and rate the stock as Outperformer.

To see full report: SPICE JET

>Monday Morning Musings (CITI)

● Financials stage a rally, but for how long? Financial stocks rallied hard on news of better earnings trends in core businesses, along with speculation regarding changes to the uptick rule and possible mark-to-market accounting. Yet, the jury is out regarding the length and sustainability of the recent bounce. Most investors seem ambivalent, with many preferring to avoid the sector until more visibility emerges, especially on the value of illiquid assets.

● Financials market cap has tumbled from 23% to about 9% of the S&P 500. In almost dramatic fashion, the Financials sector has plummeted from its highs by more than tech stocks did after the 2000 peak, plunging roughly 84%. Credit trends have shifted from exceptionally easy terms to severely restrictive as fears continue to be in place with respect to toxic securities, credit card loans, renegotiated mortgages, future business models and equity dilution. Moreover, forward earnings remain under a cloud, given the high probability of lower leverage for many years relative to the past decade.

● No new leadership, but substantial outperformance seems plausible. It is fair to suggest that the Financials sector is unlikely to provide new equity market leadership since past leaders rarely repeat, but a sharp rebound is possible. Indeed, in 2003, technology names popped far more than the overall market recovery, with many stocks that were “priced-for-extinction” in late 2002 experiencing four- or five-fold moves in share prices over the course of a year. This kind of so-called “junk beta” rally could be repeated in the worst performing sector this time around as well.

To see full report: MONDAY MORNING MUSINGS

>Bharti Airtel Limited (JP MORGAN)

Cutting our estimates and PT due to increasing competition and MTC cut; Remain cautious

• We reduce our estimates and PT on Bharti given continued competition challenges, cut in Mobile Termination Charge (MTC) and more headwinds on regulatory side (3G, MNP): While Bharti continues to be a top tier player with strong management and our relative top pick in Indian Telecom sector, we believe that increasing competition and MTC cut would depress ARPMs and margins over the next 12-18 months. As a result, we expect a sharp fall in EBITDA/EPS CAGR to 7%/13% in FY09-11 (35%/31% growth in FY09) that we believe could keep valuation multiples depressed.

• We cut our FY10E/11E revenue/EBITDA/EPS by 4%/6%/8% and 3%/5%/7%: This is largely driven by reduction in our mobile ARPM/ARPU estimates by 3%/4% and 2%/4% for FY10E and FY11E respectively. As a result, we expect wireless EBITDA margins of 27%/25% in FY10/FY11, down from 28%/26% in FY08/FY09E. We now estimate ARPU decline of 12%/8% Y/Y in FY10/FY11. Our new FY10E/FY11E EPS of Rs49/Rs58 is below consensus by 5%/1%.

• Why the cut in ARPUs?: We believe the MTC cut from Rs0.30/min to Rs0.20/min would eventually force operators to cut tariffs. This is already been evinced in comments from operators like Tata Teleservices, which have expressed willingness to cut tariffs due to the MTC cut. We are also seeing more evidence of aggressive pricing strategies from the expansion of incumbent operators like RCOM and Idea. In fact, RCOM and Idea tariff plans offer call rates 40% below base tariff levels in Mumbai and few other circles as per our checks. We expect this competition pressure to increase pushing down ARPUs.

To see full report: BHARTI AIRTEL

>Multi Strategy Banks | Asia (NOMURA)

● Government help needed to overcome bunker mentality: Risk aversion and capital preservation are driving the psychology in the boardroom for most Asian banks. Fear dominates. Banks with rich parents will grow, in our view, while family-owned banks may (wisely) hold off to maintain value in the event of future M&A.

● The leverage gap between West and East should narrow: We estimate that Western banks’ leverage should drop substantially over a multi-year period, while Asian banks’ leverage will rise. A 1pp drop in leverage for them requires a drop of US$1.5tn in assets. Asian banks can create US$2tn in assets if they increase leverage to 20x, on our estimates.

● Consolidation needed to replace damaged: Western banks Weaker Asian players will likely be weeded out or merge. Bigger banks should emerge to offer quality, size and scale of financial services.

● Government spending programmes will buoy banks: In the meantime, governments in Asia are trying to fill the void in the short term by embarking on fiscal spending programmes in excess of US$750bn over the next two years. This should act as a tailwind for bank profitability throughout 2009, especially in China.

● Personalities will drive decisions: We believe the personalities to watch are Liu Mingkang (CBRC), Ben Hung (Standard Chartered), Hwang Young-Key (BK Financial), Richard
Stanley (DBS), Nazir Tun Abdul Razak (CIMB) and Jeffrey Koo (Chinatrust)

To see full report: ASIA BANKS

>Aban Offshore (GOLDMAN SACHS)

What's changed: We are terminating coverage of Aban Offshore (Aban) to better focus our resources. Our estimates and target price are unchanged and our final rating on Aban is Neutral.

Aban needs to re-finance about US$169mn of existing debt in FY10E, and US$148mn out of that before December 2009 in order to honour the bullet payments of Norwegian Kroner bonds (from Sinvest) due December 22, 2009. This has become the key issue for Aban since it has limited options to raise finance by any other means in the current environment, in our view. Moreover, four of Aban’s assets are currently lying idle owing to major cutbacks in E&P capex globally. Contracts to another four of Aban’s assets will conclude over the next six months, increasing the risk of even lower asset utilization and pushing up the amount of re-financing needed.

Our final earnings estimates for FY09E/FY10E/FY11E are Rs180.6/Rs267.2/Rs221.4. We have observed compression of EBITDA margins in 3QFY09 primarily due to a rise in costs and lower utilization.

Implications: We believe Aban’s stock is now effectively a binary option, with part of the street believing Aban’s cash flows will weaken to a point where refinancing will look difficult. We, however, believe it is possible for Aban to secure refinancing, although this could be expensive given the current environment. News-flow on this remains critical for a re-rating of the stock, in our view.

Valuation: Our final rating on the stock is Neutral with a P/B-based 12-month target price of Rs475, implying upside potential of 100%.

To see full report: ABAN


Recommendation: ICSA India Limited has registered a robust growth rate over past few years. The company has a strong order book position of more than INR 700 Crores which provides a strong visibility to the revenues. The company is trading at a very low PE of around 1.5X. We expect the company to outperform in the future and we reiterate “BUY” on the stock with a Target of INR 348.00.

Highlights/Recent Updates

ICSA to acquire US power company
ICSA India Limited is keen on acquiring a power firm in the US with an investment of $20-30 million. The company is planning to acquire a power sector player with front-end marketing capabilities to tap the $16 billion power transmission and distribution infrastructure spends being planned by the US government in the coming years.

ICSA India Limited got approval to set up Wind Project
ICSA India Limited has been permitted by the Board of Non-Conventional Energy Development Corporation of Andhra Pradesh Limited (NEDCAP) to set up a 20 MW Capacity Wind power project in Andhra Pradesh.

ICRA assigns LA+, A1 to fund based, non-fund based limits

ICRA assigns the ratings of LA+ and A1 for INR 2,300 million funds based and non fund based limits of ICSA India Limited. ICRA has also assigned rating of A1 to the short term non fund based limits indicating lowest credit risk in the short term.

To see full report: ICSA

>UTV Software Communications (CITI)

● Revising earnings — We pare our EBIT estimates by ~15-66% over FY09-11E, driven by cuts in TV content and movie verticals. We reduce our EPS estimates by ~12-15% over FY10/11E, but increase FY09E EPS by ~41% due to the increase in other income and interest income from the last quarter. Our SOTP based TP comes to Rs190 (Rs250 earlier), with the revised earnings and EV/EBIT multiples. Post a disappointing FY09 YTD, we maintain Sell/High Risk (3H) as subdued return ratios should prevent re-rating in the near term.

Movies segment key to profitability — Filmed entertainment is inherently volatile; but remains key driver of earnings. FY09 has been below expectations – release of some movies (including 2 large budget films) slated this year were delayed. We take a more conservative stance for FY10E from management guidance, factoring release of 4 big films and take 14 movies overall. Upside potential from The Happening would be captured in next year's estimate.

● TV to remain lackluster — TV margins declined drastically, from ~18% in FY08 to 3-5.5% this year. Management cautioned that EBIT margins would remain in the sub 6% range. We expect muted revenue and profit growth from this segment, going forward - trim TV segment EBIT by ~50-60% over FY09-11E.

● Gaming has a high return potential; but only from FY11E — We view gaming vertical as a 'High Risk - High Return' segment. The three Ignition IPs - Reich, Wardevil, and Angelic - are expected to be released in Jul/Aug 2010, Dec 2010 and Jan 2011 respectively, and thus any uptick in margins from these would only be visible from FY11E. There is an exposure of US$15-20m on each game and break even would occur with 0.8-1m units, according to management.

To see full report: UTV

>Sintex (CENTRUM)

Company Background: Incorporated in 1931, Sintex Industries Limited is a dominant player in the plastic and textile segments. The company manufactures a wide range of building materials and composites across India. Sintex is expanding its capabilities in the composite market, (composite market in India worth $1 billion) through M&A activities. This provides the company access to technologies and large OEMs that are crucial for technology adoption. Subsequent to several strategic acquisitions, the company possesses a global footprint, spread across the USA and Europe. In the textile segment, the company is focused on niche offerings, specialization in men’s shirting, catering to premium fashion brands like Burberry, Armani, Hugo Boss and Arrow, among others.

Revenue visibility: The monolithic business has an order book of Rs.1,200 cr (approximately), to be executed by the end of FY’10E. Taking into consideration India’s housing shortage at 24.7 mn units and the Government’s focus on the housing sector in the 11th Five year plan, there exists a huge opportunity of growth for the company, going forward.

Monolithic segment – Key growth driver: Monolithic construction has emerged as a preferred substitute for traditional concrete construction, on account of its superiority on various parameters like construction time, cost, etc. A monolithic project can be completed within a timeframe of six months as compared to 18 to 24 months, taken by a concrete structure. Sintex has bagged orders for its monolithics segment from various Governments, including Gujarat, Delhi, Rajasthan and Madhya Pradesh, among others. The present order position is to the tune of Rs.1200 cr (approximately), to be executed by FY’10E.

Entry barriers in the pre-fabricated segment: A key entry barrier in the pre-fabricated segment is getting approval, for every product, from the designated authority of the respective State Government. Even a variant of the existing product requires approval from the authority. Sintex has received approvals from 16 states for all its key products in the prefabricated segment. On an average, an experienced five member team can set up a classroom weighing 1000 kilograms within a span of three days, in addition to the traveling time of two days, from the manufacturing facility to the site.

Financials: In 9MFY’09, the net sales increased by 65.94% to Rs.2,233.26 cr and PAT increased 55.50% to Rs.211.1 cr, compared to 9MFY’08. For FY’09E, the company is expected to achieve a net sales of Rs.2,953 cr and PAT of Rs.281 cr. On an equity of Rs.27.3 cr, the EPS for FY’09E works out to around Rs.20.59. Net Sales and PAT for FY’10E could be around Rs.2,510 cr and Rs.220 cr respectively. This translates into an EPS of 15.02 for FY’10E.

Valuations: At the present market price of Rs.72, the stock is trading at 3.50x its FY’09E earnings and 4.79x its FY’10E earnings. Sintex has a strong balance sheet with cash in hand of about Rs.1,600 cr. On account of the global slowdown, two of the company’s subsidiaries, Wausaukee Composites and Bright Auto would be negatively impacted. However, at the present price of Rs.72, we feel that all the negatives have been factored into the price. Consequent to today’s announcement by General Motors that they do not require the $2 billion loan, the overall sentiments of the auto sector, a key customer to which subsidiaries of Sintex cater to, has improved. Taking all this into consideration, we recommend a “BUY” on the stock with a target price of Rs.97 over a span of nine months.

To see full report: SINTEX