Friday, October 1, 2010


Satyam – FAQs and what to expect on 29th Sep?

Satyam will report its financials on 29th September, 21 months after the fraud was
discovered. The impending result report and the 27% stock move in the last 1
month have generated considerable investor interest. This note attempts to answer
a few key investor queries.

#1: Financials for what period will be reported?

#2: Why is FY10 reported revenue not representative of current business status at Satyam?

#3: Can Satyam report YY growth in revenues in FY11?

#4: What is happening on the supply-side at Satyam?

#5: What could be Satyam’s margin trajectory in FY11?

To read the full report: SATYAM


■ Dearth of absolute low valuation ideas

■ Infrastructure and domestic consumption dominate the list

To read the full report: INDIA STRATEGY


To read the full report: ECI STRATEGY

>CRISIL: Putting cash to good use - acquires Pipal Research

■ CRISIL to by Pipal Research, for a sum of USD12.75mn. The
acquisition is at 1.6-3.2x EV/ Sales (assuming 50-100%
stake), which is lower than 2.2x it gave for Irevna in 2005

■ Looking at CRISIL’s history of acquiring smaller companies

and then quick scale up it will be able to scale up Pipal’s
business significantly leveraging their existing capabilities

■ The acquisition of Pipal alongwith recent buy back program,
we expect CRISIL’s ROEs to improve, which till date were not
optimized due to high cash on book

■ At CMP of Rs6,169, the stock trades at 26.6x CY10E EPS of
Rs232 and 21.7x CY11E EPS of Rs284. We will review our
numbers and rating after having more details on Pipal

To read the full report: CRISIL

>INDIA: Financial Services

Banking Sector – In good shape
We recently hosted an Indian Financials road trip, where investors hadextensive interaction with 25 corporates. Our key takeaways:

(1) Credit growth will likely accelerate and will be more broad based in 2H as corporates start drawing down on approvals,

(2) Deposit growth which has been sluggish so far (not indicted to be a concern) will improve as banks have raised deposit rates,

(3) Banks remain optimistic on CASA targets despite a rising rate environment,

(4) Not all banks were confident of margin improvement given less pricing power, which they expect to return with credit growth,

(5) Banks expect NPLs to rise in FY2011 on account of agri debt, and end of moratorium period for restructured assets, both of which could lead to some more slippage, though remain manageable and improve in FY2012,

(6) HR issues seem to be the major concern for PSU banks as they see a large number of senior staff retiring as well as debate about compensation packages to retain and attract talent. Branch expansion and shorter branch breakeven seem to be key drivers of growth for private banks to increase profitability.

Insurance Sector – Jury will be out for some time
Insurance industry interactions were more tepid in tone with the jury still likely to be out for some time on how recent regulations would impact growth and margins. Companies are currently in the process of calibrating strategies – product mix, and focus on cost, productivity and persistency to minimize impact.

From our interactions it emerged that insurance companies expect volume growth to be lower in 2H given a higher base, lower commissions and retraining of agency force to sell new products. Most companies we interacted with indicated a potential shift in product focus to traditional
products from ULIP, though these traditional products along with distributors may potentially be the next target area for the regulator.

We expect margins to fall to 12-15% from 19-20% pre-regulatory changes even despite the potential significant cost cuts planned by companies.

Most companies seem comfortable on capital at least for FY2011. Potential equity issuances are now not on the horizon.

To read the full report: FINANCIAL SERVICES