Sunday, April 25, 2010

>GLOBAL MARKETS: Risky assets retain their appeal

Despite a temporary blip, economic data has again begun to surprise consistently to the upside, and risky asset returns are trumping uncertainty for investors in 2010.

The current point in the cycle is a swwet spot, with output gaps that can accomodate above trend growth, yet inflation that keeps central banks on the sidelines.

Whereas global central bank rates fell roughly in unison as the financial crisi struck, there is an obvious divergence on the way back up, with the emerging markets and commodity players moving before the major advanced economies.

The publication also includes quarterly interest rate and exchange rate forecasts for the U.S., Canada, Australia, and New Zealand and also offers additional exchange rate forecasts for the Japenese yen, the euro, the U.K. pound and the Swiss franc.

To read the full report: GLOBAL MARKETS

>Analysis of Equity Moves by Mutual Funds in March 2010 (HDFC SECURITIES)

This note analyses the equity moves in March 2010 by Mutual Funds having month-end equity corpuses of more than Rs. 2,000 cr (except Fidelity Mutual Fund whose portfolio for February 2010 was not available). The source of data for this analysis is NAV INDIA, who in turn takes into account the monthly-declared portfolios of the respective schemes wherever available (excluding offshore funds, FMPs and new fund offers). NAV INDIA at times revises data for past periods depending on the need thereof.

AMFI disseminates the data about mutual funds on a monthly basis based on the monthly average AUMs declared by the Mutual Funds while NAV India calculates the data based on month end AUMs. Hence the analysis and findings based on these two may not match.

Summary: Total AUM fell 15.5% in March 2010 over February 2010 to Rs. 6,41,866 cr. This fall is mainly on account of massive outflows (in terms of percentage) in the bond funds, liquid funds, index funds and FOF segments. Only 8 of the 36 fund houses that have disclosed their assets under management (AUM) figures for March 2010 have seen a rise in assets compared with the previous month. Even though the benchmark indices saw a growth of over 6% during March 2010, the AUMs fell as banks and corporates withdrew mainly from fixed income funds to pay off their advance tax payments. Banks also withdrew funds from mutual funds to shore up their year-end credit growth numbers. This happens during every fiscal year-end. Another reason for the decline has been the large dividend payouts by the mutual funds during the month. The Bond Funds saw a fall of 26% and Liquid Funds and Index funds, fell by -14% and 12% respectively. FOF fell by 13% in March 2010 after a 10% rise in February 2010. According to figures released by the Reserve Bank of India in its weekly statistical supplement, banks' investments in mutual funds stood at Rs 55,503 crs in the last fortnight of March 2010 as against Rs 1,09,453 crs as on February 26, 2010 as against Rs 1,47,279 crs on December 18, 2009.

The Equity Diversified funds showed a marginal rise of 1% in their corpus for the month of March 2010 mainly due to the increase seen in the benchmark indices during the month. Gilt Funds rose the maximum by 7% followed by Tax Planning Funds, which rose by 5% during March 2010 (to benefit out of the tax reliefs by investing before the fiscal year end). As per SEBI data, mutual funds were net sellers of Rs 3, 809 crs worth equity shares during the month of March 2010 in the secondary markets.

To read the full report: STOCK ANALYSER

>AXIS BANK: Low cost of funds propels bottomline (ICICI DIRECT)

Axis Bank declared its Q4FY10 earnings, which were above our expectations. The PAT grew 32% YoY to Rs 765 crore (we estimated Rs 716 crore). A drop in the cost of funds, primarily driven by repricing of bulk deposits, growth in demand deposits and QIP proceeds, helped the
bank to inch up its NIM to 4.1% (3.4% in Q4FY09).

Strong business growth leads to NIM improvement YoY, QoQ
The bank witnessed 23% YoY and 24% YoY growth in advances and deposits to Rs 1,04,343 crore and Rs 1,41,300 crore, respectively. This resulted in 23% YoY growth in total business of the bank. The key highlight for Q4FY10 was sequential 39 bps improvement in cost of funds, which helped the NIM to be at 4.1% levels. On the other hand, CASA was stable at 46%. We expect NIM to stabilise around 3.5% by FY12E.

Non-interest income
The non-interest income of the bank grew moderately by 10% YoY in Q4FY10 to Rs 934 crore. This was lower than our estimate of Rs 1,010 crore. Going forward, we expect 37% CAGR in non-interest income over FY09-12E to Rs 5,403 crore.

Asset quality showing early signs of stress
GNPA inched up QoQ by Rs 144 crore whereas NNPA improved by Rs 11 crore to Rs 419 crore. The GNPA slipped from 0.9% in FY09 to 1.1% in FY10, while NNPA stayed stable at 0.36%. The silver lining for asset quality remains the fact that provision coverage has improved sequentially from 69% in Q3FY10 to over 72% in Q4FY10. We have built in higher provisioning for the bank till FY12E to absorb any shock on asset quality.

We expect the bank to generate a business CAGR of 22% over FY09- FY12E with NIM hovering around 3.5% levels. We expect the bank to deliver healthy return ratios with improvement in credit offtake. We expect RoA of 1.7% and RoE of 19% for FY12E. We are rolling over our target price on FY12E estimated ABV of Rs 544 and valuing the bank at Rs 1302 (2.4x ABV).

To read the full report: AXIS BANK


I-Sec FMCG universe is expected to post steady sales growth of 14.3% YoY on the back of strong underlying volume growth. Despite a high base, ITC is expected to register volume growth of 8.5% in Cigarettes. On a low base, HUL will deliver volume growth of 9%; but, because of price cuts, sales growth will be restricted to 6.3% YoY. Operating margins for our universe will expand 100bps YoY, albeit decline 160bps QoQ. Increase in input costs and rollback of excise duty will arrest any further margin expansion. We expect paint companies to post >60% PAT growth, while profits of Britannia and HUL are expected to decline. Valuations are high as most stocks are trading at 10-15% premium to historical valuations. We maintain ITC and Asian Paints as our top picks. We drop Marico from our list of top picks as the recent spurt in its stock price leaves limited room for upside.

Steady double-digit sales growth to continue. We expect I-Sec FMCG universe to post steady sales growth of 14.3% YoY in Q4FY10E, in line with the 15% YoY growth achieved in Q3FY10. Volume growth is expected to be strong across companies. According to Nielsen retail audit data, 40% of the categories have grown >10% over January-February ’10. ITC will continue to register strong volume growth in Cigarettes – we expect ITC cigarettes volumes to grow 8.5% YoY. On a low base and on the back of aggressive advertising spends, HUL will deliver volume growth of 9% YoY; however, price cuts will keep sales growth at 6.3% YoY.

■ Margin expansion reduces as material cost benefits wither away.
Operating margins for the I-Sec FMCG universe are expected at 22.1% in Q4FY10E, implying only 100-bps YoY expansion versus YoY expansion of 260bps, 330bps and 181bps in the first three quarters of FY10. The quantum of margin expansion has come down owing to unfavourable base and increase in prices of raw materials. On a YoY basis, Asian Paints will witness the highest margin expansion (up 528bps), followed by Procter & Gamble Hygiene & Health Care (up 465bps), Kansai Nerolac (up 279bps) and ITC (up 214bps). Britannia’s margins will suffer the most (down 264bps YoY), followed by HUL (down 106bps YoY). As prices of raw materials rise and benefits of old contracts fade away, we expect input costs-to-sales to increase going forward.

Robust PAT growth of 19% YoY. We expect I-Sec FMCG universe to register robust PAT growth of 19% YoY. Asian Paints and Kansai Nerolac are expected to post highest growth, of 73% and 62% respectively; Marico, ITC, GSKCH, GCPL and Colgate are expected to witness PAT growth within the 20-25% range. Britannia and HUL will disappoint this quarter, with PAT decline of 11% and 2% respectively.

■ Valuations expensive but not stretched. The BSE FMCG index has outperformed the broader indices by ~35% since the market peaked in January ’08. This performance is despite HUL’s sluggish performance, who is a key constituent in the FMCG index. Most companies are trading at 10-15% premium to historical valuations. We maintain ITC and Asian Paints as our top picks. Marico was our top mid-cap pick in FY10 (over which it outperformed the BSE Sensex by 10% and BSE FMCG Index by 50%); however, post the recent spurt in Marico’s stock price, we drop Marico from our list of top picks owing to limited upside.

To read the full report: FMCG


UNSP Q4 standalone volume up 16% ypy; supported a 23% jump in revenues on a like to like basis

OPM declines 193bps on higher RM, advt expenses

Q4 profit impacted by 81% surge in intesrest cost

W&M FY10 revenues remained flat at GBP177mn while PBT dropped 8.5% due to restructuring cost

Margin improvement, healthy volumes key poitives but valuations no longer appear cheap at ~14x FY12 EV/E; downgrade to MO but maintain TP of Rs 1,384

To read the full report: UNITED SPIRITS