Monday, February 15, 2010

>HANG SENG BEES: An Open Ended Listed Index Scheme Exchange Traded Fund (BENCHMARK)

An Open Ended Listed Index Scheme
Exchange Traded Fund

New Fund Offer Opens On: February 15, 2010. Closes On: February 24, 2010

Hang Seng Index (“HSI”) was launched on Nov 24, 1969 and is one of the earliest stock market indices in Hong Kong

Hang Seng Indexes Company Ltd. compiles and publishes the HSI

Widely recognised as the barometer of the Hong Kong Stock market

HSI measures the performance of largest and most liquid companies listed in Hong Kong

HSI adopts free float-adjusted market capitalisation weighted methodology with 15% cap on each constituent weightage

It currently comprises of 42 stocks* which are representative of the Hong Kong stock market

Represents about 59.74% of total market capitalisation of Hong Kong stock exchange$ as on Jan 29, 2010

HSI – Selection Criteria

To be eligible for selection, a company in the stock universe:
Must be among those companies that constitute the top 90% of the total market value of all primary listed shares on the Main Board of the stock exchange of Hong Kong (“SEHK”) (market value is expressed as an average of the past 12 months)

Must be among those companies that constitute the top 90% of the total turnover of all primary listed shares on the SEHK (turnover is aggregated and individually assessed for eight quarterly sub-periods for the past 24 months)

Should normally have a listing history of 24 months on the SEHK or meet the requirements of few guidelines for handling Large-Cap stocks listed for less than 24 months

From the many eligible candidates, final selections are based on the following
The market value and turnover ranking of the company
The representation of the relevant sub-sector within the HSI directly reflecting that of the market
The financial performance of the company

To read the full report: HANG SENG BEES

>Changes in the global economic equilibrium after the crisis (NATIXIS)

The crisis is having very clear effects on the global economic equilibrium:
- fall in domestic demand in OECD countries due to private-sector deleveraging;

- continuing rapid increase in the supply of goods and services in emerging countries, especially in China, due to the high level of investment and the improvement in human capital;

- real undervaluation of the currencies of emerging countries (China), in order to sustain demand even though production capacity is excessive.

These changes are resulting in:
- a situation of huge excess global production capacity and underemployment, hence disinflation and a slowdown in wage growth;

- an increase in the surpluses of emerging countries (China) with OECD countries if the excess supply and the currency undervaluation in emerging countries outweigh the fall in demand in OECD countries, thereby aggravating "global imbalances";

- in addition, a fall in relative prices in emerging countries, due to excess supply which prevents cost convergence between emerging countries and OECD countries;

- a sharp decline in employment in OECD countries, where there is both a fall in demand and market share losses.

To read the full report: ECONOMIC EQUILIBRIUM


Investment conclusion: We raise our industry view to Attractive, because we believe valuation for the overall sector looks reasonable; most of the companies’ execution risks are behind them and the government is taking the right steps towards total decontrol of petroleum products. Our three top Overweight rated
stocks are Reliance Industries (RIL), Cairn and BPCL.

The pace of decontrol is difficult to ascertain; however, implementation of the Kirit Parikh recommendations could lead to a re-rating of the entire sector; with earnings moving to our bull case.

Key changes suggested are: 1) decontrol of petrol and diesel; 2) partial increase of kerosene prices by Rs6/litre and LPG by Rs100/cylinder; 3) provide some leverage to upstream players (ONGC) on crude oil, however tax 80% of incremental prices above US$90/bbl. Even partial implementation would improve earnings visibility for the government-owned oil companies and hence a P/E re-rating; earnings too could rise by 30% to 50%.

Execution risks in RIL’s two big projects are behind us: The 580 kbpd refinery and its KG D6 gas project are
both commissioned and we expect the company’s profits to growth at a CAGR of 28% p.a. F2009-11.

Cairn is in the midst of commissioning its pipeline as well as two of its trains during 1H2010, and moving
towards generating free cash flows. Post attaining full production in F2012, based on US$85/bbl, we estimate
the company will have YoY cash flows of US$2.3bn p.a., i.e. 20% of its market cap.

BPCL gains on three counts: 1) refinery capacity addition at Kochi and Bina; 2) balance sheet has improved due to oil bonds and cash received; 3) decontrol would improve visibility of cash flows.

To read the full report: OIL & GAS


Company Profile
Texmo Pipes and Products Limited(TPPL) started its business as a partnership firm under the name Shree Mohit Industries on May 13, 1999. It was converted into a Public Limited Company under the name on July 3, 2008 and received the Certificate of commencement of business on July 28, 2008 under the promoters Mr.Sanjay Agarwal and his wife Ms.Rashmidevi Agarwal. Presently, TPPL is engaged into manufacturing of range of PVC and HDPE pipes. The manufacturing activities are carried out at its two Units viz. Unit 1 and Unit 2 in Burhanpur, Madhya Pradesh .

Diversified product mix
TPPL's product offerings include suction & delivery hose pipe, rigid PVC pipes, elastomeric sealing ring fit PVC Pipe (Gasket Pipe), PVC casing and screen pipes, SWR Pipe, riser and plumbing pipe, conduit Pipe, Caping casing strips, column pipe, HDPE plain Pipe, sprinkler pipe, PLB HDPE cable duct and drip irrigation system. These products are used in irrigation, telecommunication, industrial, infrastructure and housing sector. Marketing and distribution network Direct and indirect sales channel are accessed for marketing of the products. Under direct sales, the marketing team approach directly to large end users whereas under indirect sales channel, it has dealers for marketing of its products. Presently, its array of dealers includes 169 exclusive dealers covering 6 states viz.Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh, Andhra Pradesh and Gujarat.

Accredited quality
TPPL is permitted by “The Bureau of Indian Standard” to use the standard mark i.e. 'ISI' vide licenses IS 4985/2000 for PVC pipes for potable water supplies, IS12818 for ribbed screen casing and plain casing pipes for bore / tubewell and IS9537 (part 3) for conduits of electric installation. In the year 2009, The Bureau of Indian Standard permitted it to use the standard mark IS: 13592: 1992 for PVC pipes for inside and outside buildings including vebtilation and rain water system.

Business Strategy
Expansion of manufacturing capacities
The company started its operations in the financial year 1999-2000 with manufacturing of PVC pipes with total installed capacity of 2928 MTPA and the present installed capacity is 12211 and 12883MTPA for PVC pipes and 8095 and 2928 MTPA for HDPE pipes at its Unit 1 and Unit 2 respectively.The total installed capacity after the proposed expansion would be 41674 MTPA for PVC pipes and 11023 MTPA for HDPE pipes.
Diversification of business operations TPPL proposes to diversify its business operations by manufacturing woven sacks and injection mouldings. Manufacturing of CVPC pipes, Drip Inline and DWC pipes is also under the proposal plan of expansion, by which the company would be in a position to cater to customers in macro-irrigation sector, sprinkler irrigation, lift irrigation and construction sector.

Expand customer base with increase geographical reach
It plans to increase its customer base in the existing domestic markets by enhancing customer satisfaction and by timely delivery of orders. The company also plans to expand its business to new geographic locations viz. Southern India, Bihar, Jharkhand, West Bengal etc. with the help of efficient marketing team.

To read the full report: TEXMO PIPES


‘4C’ position bank for future growth: Progress on the ‘4C’ strategy (CASA, capital conservation, cost control and credit charges) over 9MFY10 has been good. As of 3QFY10, CASA rose to 40% from 29% in FY09, the bank was well-capitalised with total CAR of 19.4%, operating cost declined to 1.6% of average assets (from 1.8% in FY09) and gross NPL declined 7% YoY. Management has now set its sights on achieving the RoE target of 14% by FY12.

Traction in 4C strategy, broad-based growth

Growth to be broad-based: Whereas growth in the past has been mainly retail-driven, the bank is now looking to grow its large corporate and SME segment loan book as well. Management indicated that a large part of the credit demand is from the infrastructure sector, primarily from power and road sectors. However, since these are project finance loans, the draw-down would happen over 2-3 years. These are typically 7-10-year loans with three-year reset clauses. However, there is not much fee-generating opportunity in
infrastructure lending.

Focusing on secured retail loans: Within the retail segment, which still constitutes 45% of the loan book, the bank expects home loans, auto loans, and CV loans to drive consumer loans. However, the bank is no longer a price leader in any of these segments. Also, about Rs350bn of retail loans—Rs30bn per month—are up for repayment in FY09. So, growing the retail loan book remains a challenge.

To read the full report: ICICI BANK