Friday, October 9, 2009


Guidance positive: divergence negative

Markets on Oct 09, 2009: 4900 held again
Nifty opened in green on optimistic note from Infosys Technologies’ positive guidance but failed to sustain at higher levels and finally closed at the day’s low. The index is trading within in the range of 4900-5150 where 4900 remains a crucial support, as that’s been held for the third time now. Nifty is unable to move higher as the weakness continues in the momentum indicators, which are heading lower. With such a negative divergence the trend remains weak, so now 4900 will be important going forward, as a close below that will lead to further selling pressure.

On the daily chart, Nifty is trading between its 20 daily moving average (DMA) and 40DMA at 4954 and 4777 respectively, which are crucial supports in the near term.

The momentum indicator (KST) has given negative crossover and is above the zero line. The market breadth was negative with 371 advances and 879 declines on the NSE and 1,037 advances and 1,832 declines on the BSE.

On the hourly chart, Nifty is trading below its 20 hourly moving average (HMA) and 40HMA at 5005 and 5020 respectively, which are now resistances in the short term. The momentum indicator (KST) has given negative crossover and is trading below the zero line.

Nifty and Sensex closed marginally in red losing 57 and 201 points respectively. Of the 30 Stocks of the Sensex, Ranbaxy Laboratories (down 4.70%) and Tata Motors (down 6.66%) were the top losers, while Bharti Airtel (up 2.54%) and ONGC (up 1.40%) were the top gainers.

To see full report: EAGLE EYE 12/10/09

>Indian Fixed Income Market October 2009 (DSP BLACKROCK MUTUAL FUND)

The Benchmark 10-year government bond yield moved from 7.43% pa to 7.17% pa during the month of September due to a variety of factors such as the prospective hike in HTM category by the RBI, reduced supply of government bonds in the second half of the fiscal year and improvement in global sentiment on account of fall in global yields. The 1-year bond yield moved from 4.20% pa to 4.25% pa during the same period. The treasury yield curve (between 10-yr and 1-yr Government Bonds) moved down by 21 basis points (bps) m-o-m to 292 bps for the month of September.

Money Market rates after having inched up through the month, fell sharply towards the end of September in anticipation of mutual fund buying in early part of October. 3M Bank CD rates moved from 3.55% pa to 3.65% pa during the month while the 12M Bank CD rates moved from 5.90% pa to 5.95% pa during the same period.

Corporate bond spreads (between AAA bonds and government securities) for 10-year securities widened by 20 bps to 161 bps during September while narrowing by 56 bps to 131 bps for 1-year maturity bonds due to heavy supply and low demand.

Liquidity in the system continues to be healthy despite the advance tax outflows and month end redemption pressures due to healthy deposit growth and government spending. Currency in circulation (M1) is expected to go up on account of festival related spending.

To see full report: FIXED INCOME MARKET


Upgrade in volume growth assumptions likely: We expect ITC's cigarettes business to report 5% volume growth in 2QFY10 following a 5.5% volume growth in 1QFY10. We expect a 22% rise in net sales and 16.7% rise in PBIT in 2QFY10. The cigarettes business faced (1) increased VAT from 12.5% to 20% in Maharashtra, Delhi and Rajasthan (2) pictorial warnings on cigarette packets from 1 July 2009. These were partially neutralized by flat excise rates for FY10. Steady growth despite regulatory headwinds indicates huge demand potential. Our estimates factor in 4% volume growth for both FY10 and FY11 with positive bias for upgrades.

No major impact of Marlboro launch by Godfrey Phillips: Godfrey Phillips, in which Philip Morris owns 25% stake, has begun to market Philip Morris' Marlboro cigarettes (the world's No1 brand). Marlboro is priced at Rs90/20 sticks and will compete with ITC's Classic (Rs94/20 sticks), Benson & Hedges (Rs100/20 sticks) and State Express 555 (Rs100/20 sticks). We estimate this segment accounts for just 7b-8b sticks in the 100b-stick Indian market. Despite increased competition it is unlikely to impact ITC in the premium segment.

ITC set to cut FMCG losses by 20%; hotels under pressure: ITC's new FMCG businesses are on track to reduce losses at the PBIT level by 20% in FY10. The group's hotels business is expected to stay under pressure due to occupancy levels of 55-60% and 10-15% lower ARR (average revenue per room) YoY. The agri-business is expected to report another quarter of steady growth due to strong leaf-tobacco prices. We expect the paper business to gain from rising capacity utilization at new paper and pulp units. Mid teens PBIT growth in cigarettes and strong growth in both paper and agri businesses will enable ITC to post 17% PAT growth in 2QFY10.

Medium-term outlook positive; maintain Buy: We remain positive on ITC in the medium term. Continued traction in the cigarettes business and improved profitability in the agri and paper business is positive. The recovery of the hotels business is delayed but the outlook is likely to improve. Increased cigarettes volume growth can result in subsequent upgrades. We maintain Buy.

To see full report: ITC


……….Good Long Term Pick

Company Background:
GDL, a leading provider of port related logistics support services in India, promoted by three business groups based in Singapore and a business group in India. It operates container freight station (CFS) on a pan India basis with strategic locations at Jawaharlal Nehru Port Trust (JNPT), Chennai, Vizag and Kochi.

Investment Rationale:
With pan India presence, the Company caters to the West coast traffic, demand from the Northern hinterlands as well as the east coast traffic

The customer base of the Company includes large FMCG companies like HUL, ITC etc and large organized retail chains like Pizza Hut, KFC etc

The top line and profitability of the rail business are likely to improve with improvement in the utilization level of rakes, lower operating expenses, opening of two additional Inland Container Depots(ICDs) and strong growth of rail logistics

The Company has strong track record of dividend payment

Key Risks:
Transport and handling costs could increase with the spike in fuel costs

Any delay in setting up of dedicated rail freight corridors in Mumbai-Delhi, Delhi-Kolkata sectors, would dilute the attraction in its rail business.

The Bombay port (JNPT) accounts for around 75% of GDL’s business. Thus, any downturn or regulatory changes at JNPT could be detrimental to the Company’s growth prospects.

Increase in container traffic vis-à-vis creation of capacity at the ports could lead to congestion at ports which would result in decline / delay in the through put handled by the Company.

To see full report: GDL


Think regionally, act locally: Four steps to reaching the Asian consumer

The most successful global consumer enterprises are radically reshaping their organizations and business models to suit the region’s rapidly evolving high-growth markets.

Asia’s emerging economies are leading the world out of recession, and the region’s consumers are taking the baton from their overextended counterparts in developed countries. Are the largest
global consumer enterprises ready for this momentous shift? McKinsey’s experience suggests that even the most sophisticated multinationals must change significantly to realize Asia’s growth potential. The region is as diverse as it is vast. Its markets come in a bewildering assortment of sizes and development stages, and its customers hail from a multitude of ethnic and cultural backgrounds. Their tastes and preferences evolve constantly. The speed and scale
of change in Asian consumer markets can surprise even experienced executives. To meet the challenge, global companies will have to organize themselves regionally to coordinate strategy and use resources in the most efficient way while at the same time targeting the tastes of consumers on a very local level.

In Asia’s high-growth markets, these companies face intense competition from low-cost local players; customers with modest incomes, disparate preferences, and minimal brand loyalties; and fragmented distribution channels. Some of the problems will recede as the region’s economies mature. For now, though, the savviest players are trading their old management practice —including largely independent country operations and centralized administrative structures—for leaner, faster, more flexible, and regionally collaborative ones. They are strengthening their in-country operations while creating small, fast, and entrepreneurial regional leadership teams, which at their most successful adeptly allocate resources across markets, leverage scarce executive talent, drive innovations from one market to another, and relentlessly cut costs.

To see full report: ASIAN CONSUMER

>3i Infotech (RR FINANCIAL)

Business Profile
3i Infotech is a global IT company which offers a comprehensive range of software and IT solutions, including packaged applications, for the banking, financial services & insurance (BFSI), manufacturing, contracting, and retail & distribution industries. In addition, it offers a broad range of software services such as custom software development, IT consulting, IS and IT security consulting, enterprise application integration (EAI), and specialized services such as product reengineering, compliance consultancy, application rehabilitation and egovernance, among others.

Technical Analysis
The Stock has been trading in a consolidation phase for the past few sessions. In the last 3 sessions the stock has perform showing decent gains. A clear breakout above the level of 90 has occurred and it is expected to trade in the uptrend for the coming sessions.

Technical History
After bottoming out at 26 in march09 the stock has made a high of 105. All the trends are giving bullish indication (Long term, Short term, Immediate term).The volumes are important aspect. Increasing volumes are confirming the uptrend.

The Ascending triangle formation on the daily chart with rising trend line gives the immediate target of 117..The RSI on the weekly chart trading at 64 .The stock is trading above its 200EMA. The resistance is seen at 118-120.At these levels some correction is expected .Strategy for short term traders would be to book profit at these levels while long term investors can stay invested for the next target of 136.

To see full report: 3I INFOTECH


One-time trading gain to indirectly benefit margins

To book trading gain of Rs 155mn: Recently, Dhampur Sugar sold its last raw sugar import assignment of 60,000 tonnes (import price $500 per tonne) in the open market at US$ 555/tonne. The one-time gain of Rs 155mn from this sale (assuming exchange rate of US$ 47) would be booked in Q1SY10. The company now intends to purchase raw sugar, if global prices correct in the near term.

Cost of remaining imports drops to $400/tonne: Sale of the last import assignment at US$ 500/tonne has lowered the cost of remaining imports (0.21mn tonnes) to US$ 400/tonne. Lower procurement cost is likely to expand EBITDA margins by 180bps to 21.8% in SY10, as against 20% estimated earlier.

Sales volume estimates lowered 6.2%: Contrary to our expectations, Dhampur Sugar was not able to process any raw sugar in September ’09; the same would now be processed in SY10. Incremental volumes are likely to partly offset the drop in overall sugar volumes in SY10. Correspondingly, we lower our sugar sales volume estimates for SY10 by 6.2% to 0.46mn tonnes (vis-à-vis 0.49mn tonnes earlier). This translates into a downward revision of 5.8% in revenue
estimates for SY10.

Net profit estimates revised upwards: Given the improvement in EBITDA margins, we revise our net profit estimates for SY10 upwards by 3.4% to Rs 1.62bn (excluding one-time trading gain of Rs 155mn). However, on including this one-time gain, the revised net profit for SY10 would stand at Rs 1.74bn, as against our earlier estimate of Rs 1.6bn.

To see full report: DHAMPUR SUGAR

>AMUL - The taste of India


Formed in 1946, is a dairy cooperative movement in India with 250 liters of milk per day with name KAIRA DISTRICT CO-OPERATIVE MILK PRODUCERS’ UNION

A brand name AMUL is managed by Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF).

The brand name Amul means “AMULYA” (suggested by a quality control expert in Anand). This word derived form the Sanskrit word “AMULYA” which means “PRICELESS”

Amul has spurred the white revolution of India, which has made India the largest producer of milk and milk products in the world and the White Revolution has finally created a billion-dollor brand.

Today Amul dairy is No. 1 dairy in Asia and No. 2 in the world, which is matter of proud for Gujarat and whole India.

Amul has more than 150 chilling centers in various villages.

Dr. Verghese Kurien, former chairman of the GCMMF – the man behind the success of Amul.


  • Robust supply chain
  • Low cost strategy
  • Diverse Product Mix
  • Strong Distribution Network
  • Technology and e-initiatives
To see full report: AMUL


Downgrade to UW(V): RCOM gets defensive
  • RCOM has cut its outgoing call tariffs by c35%, a move driven by recent sector-wide tariff cuts
  • We do not expect the price cut to be offset by elasticity and subscriber growth: we reduce FY11e EPS by c5%
  • Downgrade to UW(V) from N(V); cut TP to INR227 (INR280)
Event: RCOM’s move to cut tariffs by c35% is significantly negative; we view it as an acknowledgement of the risk of CDMA market share loss. We believe the move is not in isolation, but rather a response to meet internal growth targets and reflects rapidly deteriorating industry pricing dynamics. The read-across for Bharti Airtel and Vodafone is negative, in our view, as they may have to respond with cuts in roaming rates to retain their high-end subscriber and revenue market shares. We think the tariff war will continue across the sector, and expect headline rates to stabilise at c10% lower (ie, local call tariff: INR0.4; STD: INR0.5) over the next six months.

Impact: After assuming a part-offset from usage elasticity and a higher rate of subscriber additions, we have cut our FY11e EPS estimates by c5%. Our numbers do not capture the shift to a per-second billing regime, which would imply c12% exposure to FY11e revenues and 20% exposure to FY11e earnings. Given its new entrant status in the GSM space and structural constraints with spectrum in the 1800 MHz band, we believe RCOM had little choice after the recent price cuts by new entrants and market share gains by Tata-DoCoMo. Besides, upsides are limited for RCOM, as these rates are likely to be matched by the new entrants soon.

RCOM needs higher capex:
We maintain that RCOM’s ability to capture subscriber growth from rural and semi-urban centres will be constrained by its low tower base (currently 50,000). Thus, we do not believe RCOM is best placed to cut capex and generate growth. We do not think RCOM is well placed to weather the increasing competitive intensity, given its stretched balance sheet, thin tower base and sub-optimal 1800 MHz spectrum in 15 new GSM markets.

Downgrade to UW(V): We cut our target price to INR227, which implies 11.3x FY11e PE (c50% discount to Sensex) and 6.7x EV/EBITDA. We downgrade our rating, given the pricing pressure and structural limitations to weather the competitive intensity.