Saturday, June 5, 2010

>WORLD WATER MARKETS:High investment requirements mixed with institutional risks (DEUTSCHE BANK)

The world’s water markets are confronted with major challenges. The growth of the global population goes hand in hand with a rise in demand for food, energy and other goods. This means the demand for water will increase accordingly – in the face of a limited supply of this vital resource. Usage conflicts are inevitable, and will become more acute on account of wasteful use and pollution. Scarcity of water is a humanitarian problem and it can curb economic growth. Climate change will amplify many water-related problems and create new ones.

We put the annual investment required in the global water sector at about EUR 400-500 bn. Measured by this yardstick the sector is a picture of underinvestment, especially because water prices in many areas are subsidised and thus too low. As a result, there is a lack of incentives for necessary investments. The prices do not reflect the scarcity of water as a resource; wastage is encouraged. Corruption and the absence of ownership rights compound the problems. To turn the tide, water prices in many countries would have to be boosted. The need to incorporate social considerations in the process greatly reduces the scope for making such increases in practice.

Governments will not be able to raise the funding needed to cope with the upcoming tasks on their own. While there is considerable disquiet about private firms investing in the water sector, the public sector is simply unable to meet all the challenges single-handedly. For this reason, we believe it makes sense for governments and the private sector to cooperate more closely.
Makers of “water technologies” stand to benefit from huge sales potential over the next few decades – despite the risks cited. There is likely to be a particularly sharp increase in the demand for efficient irrigation technologies, seawater desalination and sewage treatment facilities, technical equipment (e.g. pumps, compressors and fittings), filter systems and disinfection procedures.

We have used a scoring model to rank the attractiveness of various countries for investments in the water industry. The Top 20 include many countries from the Middle East that are rich due to their oil deposits, located in very dry regions and relatively stable politically. Two big industrial countries, Germany and the US, and the world’s two most populous nations, India and China, are also among the Top 20 in our ranking. In principle, though, all countries require a substantial amount of investment in the water sector.

To read the full report: WATER MARKETS

>Is Hungary the next Greece? (DANSKE MARKETS)

• Today, the Hungarian markets came under pressure after Lajos Kosa, Deputy Head of the ruling Fidesz party compared the situation in Hungary with Greece and said the economy was in a much worse state than expected.

• Adding to the negative sentiment were negative comments regarding the budget situation from Prime Minister Orban and State Secretary, Mihaly Varga. Varga said that he expected a budget deficit 7-7½% of GDP in 2010.

• Overall, Hungarian newsflow is quite concerning and even if the negative rhetoric is ‘just politics’ we advise that more bad news might well be in the pipeline. The comparison with Greece might be ‘overdone’, but one can hardly say that public finances are in good shape in Hungary.

Kosa: “Only a slim chance of avoiding a Greek-style scenario”
This afternoon market participants shocked when Lajos Kosa, Deputy Head of the ruling Fidesz party, said that the state of public finances in Hungary was such that Hungary only had a slim chance of avoiding a Greek-style scenario.

It shouldn’t be a surprise to anyone that such comments spook the markets, especially taking into account that Hungarian policy makers do not have a strong track record of being fiscally conservative. However, the key question from our perspective is whether Kosa’s comments were intended to spur the Hungarian electorate into accepting the Fidesz plans to renege on their election promises to loosen fiscal policy, or whether it was just a politician displaying honesty. From a market perspective, neither option is positive. The conclusions are that either Hungary is dangerously close to default, or that Hungarian policy makers fail to realise that political game-playing can have a seriously negative impact on the market. That said, if this is “just” politics, then the impact for Hungarian markets should be fairly limited in the longer run.

So which of the two is it? The answer is that we simply don’t know. The only established fact is that Hungary is in a very fragile economic situation and public debt levels could veer in a clearly unsustainable direction if measures to improve the budget situation are not passed.

Our view is that this clearly has the potential to develop into a very critical situation for the Hungarian markets – especially if Hungarian policy makers do not take more care in terms of their communication. In that regard, it should be noted that we have been concerned about the new Hungarian government’s verbal attacks on the Hungarian central bank management recently. Such outbursts surely also have the potential to spook investors.

To read the full report: HUNGARY & GREECE


To generate income and capital appreciation from a diversified portfolio predominantly investing in Indian equities and equity related securities of companies which are not part of the top 100 stocks by market capitalization and have market capitalization of at least Rs.100 Cr. at the time of investment. From time to time, the fund manager may also seek participation in other Indian equity and equity related securities to achieve optimal Portfolio construction.

The scheme will invest between 65-100% of funds available predominantly in Indian Equities and Equity Related Securities of companies, which are not part of the top 100 stocks by market capitalization and have market capitalization of at east Rs.100 Cr. Fund Manager also has a liberty to invest 0-35% of its net asset other Indian Equities and Equity Related Securities and 0-35% of its net asset will be invested in Debt securities and Money Market Instruments.

Mirae Asset Global Investments (India) Pvt. Ltd. is a wholly owned subsidiary of Mirae Asset Financial Group head quartered in Seoul, South Korea. Globally, the diversified businesses of Mirae Asset Financial Group offer a range of services including asset management, life insurance, securities and capital & venture investments. Mirae Asset Mutual Fund was established by Mirae Asset Investment Management Company Limited, as a Trust under the Indian Trusts Act, 1882, in terms of the Trust Deed dated October 11, 2007 and is registered under Indian Registration Act, 1908. The Sponsor of Mirae Asset Mutual Fund (MAMF) is Mirae Asset Investment Management Company Limited, a company incorporated in South Korea. Mirae Asset Investment Management Company (MAIM) is a part of Mirae Asset Financial Group (Mirae Asset). It was established in 1997 and is South Korea's leading independent financial services provider. The Sponsor holds 83.28% of the paid up equity capital of the AMC, where as Mirae Asset MAPS Investment Management Co. Ltd holds the balance 16.72%.

Mirae AMC had average Assets Under Management of Rs. 245 cr. as on 30th April 2010 and holds thirty-fourth positions among the thirty-eight members fund family in terms of average AUM.

The fund aims to invest primarily in mid cap stocks. Since such stocks offer high growth potential with higher volatility and offer high returns combined with high risk. This fund is suitable for those aggressive investors who have the appetite to bear high risk with view to gain high returns than any equity diversified fund or may like to have an exposure to mid cap stocks.

To read the full report: MIRAE ASSET BLUECHIP FUND


Unity Infraprojects’ (Unity) operating performance in Q4FY10 was largely in line with our expectation. The bottomline, however, came below our expectation due to one-time loss booking in JV. Unity’s current order book stands at Rs 3,477 crore, 2.4x FY10 revenues. Going forward, the management has given a healthy growth guidance of 30- 35% in order inflow and 20-25% in the topline. We have fine-tuned our earning estimates marginally and upgraded it to STRONG BUY recommendation with a price target of Rs 125.

Order book stands at Rs 3477 crore, 2.4x order book to bill ratio Unity’s order book stood at Rs 3,477 crore, 2.4x order book to bill (on FY10 revenues). The order book provides revenues visibility over the next couple of years. Additionally, the company is L1 bidder for projects worth ~Rs 800 crore, largely in water and irrigation. In terms of vertical wise break up, water & irrigation projects account for 55% followed by civil construction (35%) and road & transportation (10%).

Healthy order inflow & revenues guidance for FY11 Unity’s management has guided for strong order inflow growth of 30-35% and revenue growth of 20-25% in FY11.

Net income dragged down by one-time loss in JV. Revenues grew strongly by 28.6% YoY to Rs 493 crore on the back of strong order book execution. The EBIDTA margin was, however,
down 30 bps YoY and flat sequentially at 12.6%. The net profit margin declined 10 bps YoY and 50 bps sequentially to 5.6% due to a JV loss of Rs 2.4 crore.

Given the recent correction, the stock is trading at an attractive valuation of 6.7x FY12 earning estimates and 1x FY12 P/BV at the current level. Given the strong order book ensuring earning CAGR of 15% during FY10- 12E, we remain positive on the stock and upgrade it to STRONG BUY with a price target of Rs 125.

To read the full report: UNITY INFRAPROJECTS


Berger Paints was incorporated in 1923; is the third largest paint manufacturer and second largest manufacturer in decorative paints. It has distribution network of 75
stock points and 12,000 paint retailers.

The company’s manufacturing facilities is located in West Bengal, Uttar Pradesh, Pondicherry, Goa, and Jammu and Kashmir.

The Company has technical license agreement with DuPont Performance in the area of automotive coating, Nippon paints for new generation automotive coating, Orica Australia Pty for protective coating and TIGERWERK Lacku.Farbenfabrik GmbH, Australia for specialised powder coating.

The Company has acquired 100% stake of Motor and Industrial paints business of ICI India. The company has joint ventured with Nippon Bee Chemical for manufacturing of coatings for plastic substrates used in automobiles and mobile phones.

Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 25% over 2009 to 2012E respectively.

To read the full report: BERGER PAINTS


Subros manufactures and supplies automotive air-conditioning systems and heaters & blowers and is a market leader with ~ 40% market share in the PV ac market. The volumes growth for FY10 is approximately 20%+. We expect the company to grow topline at 15%+ over the next two years driven by healthy volumes growth on account of diversification of segments and launch of new models.

The company has in all 5 manufacturing plants – 3 in Noida and 1 each in Pune and Manesar. In FY09 the capacity was at 750,000 AC kits. The company’s new plant at Sanand Gujarat is expected to go on stream to supply AC kits for the prestigious Tata Nano. With this along with
brownfield expansion the company is ramping up capacity to 1,000,000 AC kits. The new capacity is expected to be operational from FY11. Volumes have grown at 20%+ for the last two years. We expect the volumes growth to be in the range of 15%+ over the next two years on the back of a slew of new model launches as well as the company’s efforts to increase presence in other Auto segment’s. Subros is dependent primarily on the domestic OEM’s and is hence resilient on the demand side when it comes to the global crisis.

We believe that as the domestic auto industry saw a shift from two-wheelers to four wheeler, similarly the heavy and medium commercial segment will see a tilt toward more luxury amenities such as airconditioning. In-line with developed nations trends India’s road public transport as well as heavy goods carrier are seeing large shift of preference for air-conditioning. Starbuses are one such example. Tata Motors & Ashok Leyland are working on concepts of air-conditioned CV’s which is expected to be commercialized over the next 2-3 years.

To read the full report: SUBROS