Tuesday, May 5, 2009

>Daily Derivatives (ICICI Direct)

Derivative Comments

• The Nifty May series added 1.61 million shares in OI with rise in price by 5.31% suggesting formation of further long positions. The current May OI stands at 37.71 million shares

• In the May series the total addition of OI in Call was 58716 while the addition in Put was 77651 contracts. The maximum addition of OI was witnessed in the 3600 Put adding 27134 contracts followed by 17027 contracts addition in 3500 Put. On the other hand, nearly 12000 contracts got added in 3700 and 3800 Calls while 11160 and 17213 contracts got added in 3900 and 4000 Calls, respectively. The IVs of all these options has risen by 4-5 basis points since the overall
market IV has increased. The 3600 Put has seen some Put writing. Hence, we feel this level could act as a support for the Nifty in today’s session. One can look for buying opportunities if the market dips near 3600 intraday

• FII Index options witnessed a net buy of Rs 755 crore along with a rise in OI by 2.54%. The Index futures OI increased by 4.26% accompanied by a net buy of Rs 310 crore. We feel FIIs could have adopted the ‘Put Hedge’ strategy in yesterday’s market.

Technical Outlook

• The Nifty closed positive after a huge gap up opening posting 5.18% gain. Metals, IT and banking sector indices gained more than 8% each

• The Nifty formed a strong bull candle breaking above the 52 week moving average and short-term resistance at 3500 levels. We now expect the level of 3,500 to hold as good support in the short-term. Technically, the index appears over bought on the intra-day charts. Hence, we advise caution at higher levels. On the higher side, the Nifty is likely to target 3730-3750 in the short-term

• The Nifty spot has supports at 3630, 3595 and resistances at 3680, 3730

• FIIs were net buyers to the tune of Rs 1417 crore whereas DIIs were net sellers to the tune of Rs 92 crore in the cash segment.

To see full report: DERIVATIVES 050509

>Daily Calls (ICICI Direct)

Sensex: We said, "Trading above day's high of 11430 can encourage further bull effort to break the 3- week resistance." In a clear breakout from 3-week consolidation, Index gapped up above 11430 and soared to 12162. Against 6.4% gain of Sensex, Metal/IT/Bank indices moved nearly 8% higher. A/D ratio improved to 8:1.

The action formed a second strong bull candle, with gap-up area at 11430-11635 below its bottom. Index now moves closer to previous crucial levels of earlier years, all between 12316 and 12671, as marked. Strength continues if trades above 12162. However, profit-booking at higher levels closer to 12300 cannot be ruled out.

To see full report: CALLS 050509

>Daily Market & Technical Outlook (ICICI Direct)

Key points
■ Market outlook — Open flat to positive
■ Positive — FIIs buying
■ Negative — MFs selling, Crude oil @ $54/bbl

Market outlook

■ Indian markets are likely to open flat to positive, taking cues from Asian markets. Asian markets were higher in the morning, after positive economic data out of the US boosted investor hopes that the global recession was easing. Oil prices rose to their highest close of the year, encouraged by stronger equities markets and positive economic surveys in big fuel consumer nations China and India, showing their manufacturing sectors grew in April for the first time in

■ The Sensex has supports at 11900 and 11635 and resistances at 12285 and 12560. The Nifty has supports at 3630 and 3595 and resistances at 3680 and 3730

■ Asian stocks rose, extending a rally in which global equities have wiped out their 2009 losses, as better-than-expected US home sales added to signs that the worst of the global recession has passed

■ US stocks rallied on Monday, driving the S&P 500 into positive territory for the year as investors bet banks' capital shortfalls may be manageable and housing data fuelled hopes the recession is easing. The Dow Jones rose 214.33 points, or 2.61%, to 8,426.74. The S&P 500 gained 29.72 points, or 3.39%, to 907.24 -- its first close above the 900 level since early January. The Nasdaq climbed 44.36 points, or 2.58%, to 1,763.56

■ Stocks in news: ACC, Ambuja, Ultratech Cement, Grasim, Financial Technologies, GE shipping, Essar Oil, Polaris software, ONGC

To see full report: OPENING BELL 050509

>Bharti Airtel (CITI)

4Q – Robust Per Se, But a Notch Below Raised Expectations

Free mins slow down revenue growth — Bharti’s 4Q wireless revenue grew 3.6% qoq, higher than est. but lower than the raised hopes post Idea (9%qoq). Adjusting for the 2% EBITDA impact (~Rs2bn) on account of equity accounting of the 35k towers transferred to Indus, EBITDA was in-line. Net profit at Rs22.4bn came in ahead with lower forex losses (Rs2.3bn v/s Rs5bn est.).

Operating leverage should manifest in FY10E — Wireless margins remained stable as fuel price cut and lower distribution costs offset higher network opex. With 81% coverage done, network opex as % of revenues should also start moderating in the coming quarters. FY10E capex guidance at US$2.0-2.2bn (ex-towers) and maiden dividend (Rs2) are further indicators of reducing rollout intensity (read pure coverage capex).

KPIs were OK — MoU declined to 485 mins (4% qoq decline) though slightly higher than expectations. Rev/min remained stable in absence of any major tariff cuts to counter RCOM’s “trial offer”. These trends (though weaker than its listed GSM peer) continue to be encouraging given concerns on competition.

Non-mobile business was lackluster — Fixed line ARPU contracted; likely impact of economic slowdown and long distance volume growth slowed. “Other” EBITDA losses narrowed on lower DTH losses

Top pick — Our conservative FY10 wireless assumptions of 1) 2.3m net adds/month, 2) 50p rev/min, 3) usage elasticity of 0.13, 4) flat EBITDA margins and 5) tax rate of 16% leave room for upside.

To see full report: BHARTI AIRTEL


An election in the balance: Macro and market implications

Political outlook: An election in the balance
Markets are looking for a stable government that will push through incremental structural reforms after the election. But for now at least, the outcome of the election remains very much in the balance.

Economic outlook: Much rests on further reforms
The current slowdown notwithstanding, India’s economic fundamentals are in good shape. In our view, India’s potential structural economic take-off story, which was becoming evident before the global recession hit, still remains valid provided the new government continues with incremental reforms. Macro policies to revive the economy and instil investor confidence, fiscal prudence and pushing through reforms in what is likely to be another disparate coalition are the key challenges facing the incoming government.

Equity outlook: Curb your enthusiasm
Overall, we believe that the likelihood of a major post-election rally is small, save the possibility of a large single party in the driver’s seat. The only solace is that, given that uncertainty over its outcome is well-known, we do not expect to see any major post-election downside.

FX outlook: Post-election risk examined
Barring any pre- or post -election shock (at least immediately after the election) we expect INR to appreciate to 49.0 against USD by the end of 2Q09. Weighing on INR in the near-term is the abrupt deterioration in the risk backdrop, but we expect risk conditions to improve. We highlight support for a lower USD/INR from a weaker USD, favourable INR FX valuations, a raft of capital inflow liberalization policies and an improving current account position. But there are many post-election risks to INR that we address.

To see full report: INDIA ELECTIONS

>Balrampur Chini (CENTRUM)

Positive surprise on inventory gains

Results above expectations: Q2 adjusted profit stood at Rs662mn vs. our estimate of Rs405mn. PBIT margin in the sugar segment stood at 21.3% and in distillery at 36.6%.
Inventory gains on carry forward inventory of sugar and 39.1% rise in sugar prices led to improved performance.

Estimates/target price raised: We have raised earnings by 39.9% for FY09E and by 4.3% for FY10E, led by upward revision in sugar prices and reduction in interest cost (due to repayment of loan on higher cash flows). Accordingly, target price is raised to Rs81 from Rs78.

Inventory gains on carry-over stocks: Out of 124,000 tonnes of sugar sold, 110,000 tonnes was from carry-over stock, valued at Rs15,050/tonne vs average sugar price of Rs20,300. This accounted for Rs578mn out of total Rs625mn PBIT in sugar. The current cost of production is
much higher than last year’s inventory, the effect of which will be felt in the coming two quarters through lower PBIT margin in sugar on QoQ basis.

Retain Buy: At CMP, the stock trades at 8.6x FY09E and 8.4x FY10E. Reiterate Buy on the back of buoyant outlook for sugar prices with the upside potential of 24.6%.

To see full report: BALRAMPUR CHINI

>Asia spot gold up; thin trade, China buying

Sydney - Spot gold rose in Asia Monday in holiday-thinned trade, benefiting from some Chinese buying, but traders said low volumes likely exaggerated the price move.

Spot gold traded to an intraday high of $894.60 a troy ounce, up $8.80 on the New York close, before falling back to trade at $892.70/oz, up $6.90.

Japan's markets are closed for the Golden Week holidays until Wednesday, and the U.K. will be closed for a bank holiday Monday.

While gold was up Monday, bullion is likely to struggle against returning optimism in equity markets, and markets reacting strongly to economic data offering support for the much-talked about green shoots of recovery.

While equity markets are moving up, gold is going to struggle, said Darren Heathcote, head of trading at Investec.

However, the downside momentum should be tempered by physical buying ahead of the upcoming Indian wedding season, he added.

India's gold imports this year have ground to a near-halt due to high prices, and the weak rupee has made dollar-denominated gold all the more expensive.

However, there are signs of a turnaround from the world's largest consumer of gold.

Suresh Hundia, president of the Bombay Bullion Association, said Monday India imported around 30 metric tons of gold in April, compared with 24 tons in April 2008.

Looking ahead, the U.S. bank stress tests will now be announced May 7 instead of later Monday, but market attention has dissipated.

"It was much of a 'buy the rumor, sell the fact' kind of story. Concern really has waned," said Heathcote.

U.S. regulators have asked 19 U.S. financial institutions to provide details about their ability to withstand a prolonged economic downturn, with some banks potentially required to raise more capital.

At 0643 GMT, spot silver was up 14 cents on the New York close at $12.64/oz. Platinum was unchanged at $1,089.50/oz and palladium was down $4.00 at $211.00/oz.



Upgrade to Buy on improving fundamentals; add to Conviction list

Source of opportunity
We upgrade ICICIB to Buy from Neutral and add it to our Asia Pacific Conviction Buy list. We believe 1) reduced stress on funding position from lower wholesale costs domestically and globally, 2) improving visibility on growth returning back to sustainable growth path in 2010E, 3) cost controls sufficiently offsetting headwinds to revenue, 4) continued focus on profitability, and 5) a moderate valuation (0.9X 09E P/B vs historic median of 1.6X) despite the run-up in share price since March 2009 lows, would likely be key drivers of stock price. We believe upside risk could stem from sustained improvement in the bank’s fundamentals.

Successful execution of the bank’s strategy to be evidenced by sequential improvement in its fundamentals, stabilization of macro economic environment mitigating concerns of a severe downturn in asset quality cycle, and stabilization of asset markets leading to improved outlook for the growth of life insurance business would be key catalysts for the stock, in our view. We raise our EPS estimates 7% and 5% for 2009E and 2010E to reflect lower funding costs. We raise our 12-m TP by 29% to Rs530 based on our earnings upgrade as well as improving prospects on long-term profitability.

Our 12-m TP of Rs530 (from Rs410) is derived using SOTP methodology. We value the banking business at the mid-point of GS CAMELOT-derived P/B multiples and ex-growth value. We value the strategic investments of ICICIB using multiple methodologies.

Key risks
Risks: a) significant deterioration in the asset quality of wholesale banking segment; b) any additional recap needs for the international subsidiaries leading to BVPS erosion; and c) execution risks in consumer banking.

To see full report: ICICI BANK

>Marico (EMKAY)

Marico reported a robust revenue growth of 23.0% yoy to Rs5.6 bn driven by (1) 10% volume-led and (2) 9% attributed to pricing benefit. – in line with our estimates. Operating Profit grew by 60.8% yoy to Rs733 mn driven by strong revenue growth coupled with lower advertising and sales promotion expenses. Adjusted net profit grew by 97.0% yoy to Rs594 mn - above our estimates. Nevertheless, the reported net profit grew by 8.9% yoy to Rs444.1 mn – in line with estimates. Management shared a promising outlook with continuation of growth momentum in FY10E - growth will be largely volume-led with negligible gains from pricing. We fine-tuned our earnings estimates for FY10E to Rs3.7/Share and introduce FY11E earnings estimates at Rs4.2/Share. The stock has rallied by 11.1% in last 15-days in anticipation of Q4FY09 performance and has been out-performer in last 6 months. In absence of near-term news flows and all positives factored in earnings estimates with low probability of earnings upgrades, we downgrade the rating from ACCUMULATE to REDUCE with target price of Rs60.

Adjusted net profit up 97% yoy to Rs564 mn, above estimates
During Q4FY09, Marico reported robust 20.0% yoy growth in revenues to Rs5.6 bn (10% was volume-led and 9% attributed to pricing benefits), in line with our estimates. Marico maintained its volume growth momentum, downplaying concerns of slowdown in growth momentum. The operating profit grew by 60.8% yoy to Rs733 mn, driven by strong revenue growth coupled with lower advertising and sales promotion expenses during the quarter. Consequently, the operating margins jumped 330 bps yoy to 13.1%. Marico reported 8.9% yoy increase in its reported net profit to Rs444.1 mn. Nevertheless, company’s adjusted net profit (excluding exceptional items) jumped higher at 97.0% yoy to Rs594.4 mn, ahead of our estimates.

Robust growth in adjusted net profit is primarily attributed to strong operational performance and lower tax provisioning at Rs0.1 mn compared to Rs39 mn in Q408. Lower tax outgo is on account of provisions for liabilities of Sundari LLC, which was treated as business loss in the quarter. Marico made provisions of Rs150.3 mn towards the liabilities of Sundari LLC in Q409 (exceptional charge) versus a gain of Rs106.1 mn on sale of Sil business in Q408.

Improvement in ‘Saffola’ volumes; Kaya continue the growth pace
After disappointing volume performance in Q309 ‘Saffola’ has shown improvement on qoq basis. Saffola reported 5% yoy growth compared to mere 3% in Q3FY09. Also, the recent drop in Safflower prices and reduction in premium pricing versus competition in few ‘Saffola’ blend is likely to revive the growth momentum in coming quarters. Kaya continues to maintain its high growth momentum and reported 57% growth in FY09 to Rs1.6 bn. ‘Kaya’ downplayed any fears of slowdown in business momentum with (1) revenue growth at 33% yoy to Rs400 mn and (2) same store growth at 13% yoy, purely attributed to higher footfalls. Kaya continued its expansion with addition of 11 clinics in the quarter.

Promising outlook for FY10E, growth momentum to continue
In the analyst meet, management shared a promising outlook with continuation of growth momentum in FY10E. Company believes that FY10E growth will be largely volume-led with negligible gains from pricing. Consequently, Marico is eyeing promising volume growth in key brands and product segments like (1) 8-9% volume growth in ‘Parachute’ (2) 10-12% volume growth for ‘Saffola’ and (3) 12- 14% volume growth in Hair Oil business. Marico continues to remain optimistic on the growth momentum of Kaya business and expects to turn it profitable in FY10. Management has highlighted the softening of raw material costs especially Copra and Safflower – strong probability of margin expansion in FY10E.

We downgrade our rating from ACCUMULATE to REDUCE
We give thumbs up to Marico’s Q409 performance marked by (1) robust volume growth in ‘Parachute’ and ‘Hair Oils’ coupled with (2) above expected performance of ‘Kaya’ fully downplaying the fears of slowdown in growth momentum. Further, Marico has hinted at promising growth outlook coupled with gains at operational level with drop in input costs. Consequently, we fine-tune our earnings estimates for FY10E to Rs3.7/Share and introduce FY11E earnings estimates at Rs4.2/Share. The stock has rallied by 11.1% in last 15-days in anticipation of Q4FY09 performance and has outperformed in last 6 months. In absence of near-term news flows and all positives factored in earnings estimates with low probability of earnings upgrades, we downgrade the rating from ACCUMULATE to REDUCE with target price of Rs60.

To see full report: MAIRCO

>Idea Cellular (ICICI Securities)

Margins look up

Idea Cellular (Idea) displayed a strong operating performance in Q4FY09, registering in-line consolidated revenues of Rs29.4bn (I-Sec: Rs30bn) including 16% share of Indus Towers (Indus) and 41.09% of Spice. The company positively surprised on the EBITDA margin front owing to savings in subscriber acquisition and SG&A costs as well as Indus consolidation. Idea posted consolidated PAT of Rs2.7bn, which was partly boosted by capitalisation of Rs223mn of forex losses. However, we expect margins to be pressured in FY10 as the company expands into new circles – Orissa, Tamil Nadu and West Bengal. We have revised our FY10E & FY11E estimates upwards 5.8% & 10.5% respectively. The stock currently trades at FY10E P/E of 21.1x and EV/EBITDA of 5.8x. We maintain our HOLD recommendation with revised target price of Rs55.5/share (Rs48.4/share earlier) based on sum-of-the-parts (SOTP) valuations. Though Idea reported impressive results owing to tighter cost control, we recommend investors to wait-&-watch for sustained improvement in operating performance and further clarity on Indus’ financials.

In-line revenue growth. Driven by strong net adds of 4.7mn, Idea’s standalone revenues were up 44.2% YoY and 9.2% QoQ to Rs28.6bn. Standalone ARPUs of Rs254 (down 4.5% QoQ) and MoUs of 402 minutes (down 3.3% QoQ) were fairly inline with our estimates.

EBITDA margin surprises positively. Despite higher network operating costs due to rise in number of rented sites, standalone EBITDA margin was flat QoQ at 25.9% (I-Sec: 24.2%) on account of savings in other costs. Idea was able to curtail the losses in Mumbai & Bihar to Rs654mn. Consolidated EBITDA margin rose 210bps QoQ to 27.6%, (I-Sec: 23.3%) due to improvement in EBITDA margin of Spice and netting of Indus’ indefeasible right of use (IRU) income from Idea’s share of Indus’ expenses.

Indus has >95,000 towers at end-FY09, of which ~75,000 were transferred by its three JV partners and the remaining built by Indus over FY09. Idea’s 16% share of Indus’ revenues and EBITDA amounted to Rs1,870mn and Rs358mn respectively, implying Indus’ Q4FY09 revenues to be Rs11.7bn, Rs2.2bn EBITDA and 19.1% EBITDA margin.

Maintain HOLD. The stock currently trades at FY10E P/E of 21.1x and EV/EBITDA of 5.8x. We maintain our HOLD recommendation with revised target price of Rs55.5/share (earlier Rs48.4/share) based on SOTP valuations.

To see full report: IDEA CELLULAR