>TEXMACO

Long awaited consolidation in Texmaco has finally come to an end after prices continued their upward march to finally surpass the resistance of ‘ascending triangle’ with improved volumes. As the stock has hit a ‘double top’ formation in Feb 2010, prices have retraced back almost 38.2% of its earlier up move beginning from March 2009 and has shown quiet a bit of resilience to hold above the levels of Rs132.

Prices on the Medium chart resemble ‘inverted head and shoulder’ formation and breakout may accentuate buying momentum as volumes have started to react positively to price increase. The
neckline of ‘inverted head and shoulder’ corresponds at Rs141 which should now act as strong support zone. This move also corroborates the minimum downside risk and very high upside potential.

To be more precise, the correction after Dec 2009 unfolded in a classical ‘zig zag formation’ followed by prices crossing above the long term Fibonacci moving average of 161 days and have sustained above same for three consecutive trading sessions. Analyzing earlier price history indicates that such an early attempt has turned out to be a mere whipsaw for couple of times.

Studying MACD oscillator, a crossover above the reference line accompanied with breakout from falling resistance line supports the argument for decent upside. One can also see horizontal breakout in RSC chart with Nifty which indicates that the stock is likely to outperform the benchmark index in the near term.

Based on ‘inverted head and shoulder’, we project conservative target of Rs175 which is marginally higher than Dec 2009 peak of Rs170.5. However, in case prices are able to sustain above Rs175, next leg of rally can take prices all the way to its all time peak of Rs196.

We thus advise accumulating the stock in the range of Rs141- 147 with stop loss of Rs132 for target of Rs176.

To read the full report: TEXMACO

>BANK OF INDIA (INDIA INFOLINE)

Our recent interaction with the management of Bank of India BoI) has made us believe that the concerns over deterioration in asset quality are set to recede in the coming quarters. High levels of NPLs had been the key worry for the past few quarters. With stringent provisioning norms and strong recovery mechanism in place, the management has guided for limited accretion in NPL. Moreover, with renewed focus on increasing CASA proportion, improving margins, 400+ branch addition and diversification in loan portfolio, we see BoI entering the next league of growth. BUY

■ 23% CAGR in loans; favorable business mix to boost margins
After a decent 18%yoy growth in loan book during FY10 and a healthy 22% CAGR over FY08-10, we expect BoI to now witness sturdy 23% CAGR in loan book over FY10-12E. Lending towards SME and corporate segment have been the key growth areas. With intention to address its limited exposure towards mid-corporate segment, the bank has now opened 28 branches to cater solely to the needs of this segment. Over 75% of total domestic deposits
excluding CASA deposits) are at interest rate of less than 8%. This is relatively lower as against ~88% of advances at interest rate of over 8%. Increasing proportion of CASA deposits, healthy loan growth and improved loan mix, in our view, would enable the bank
to report improvement in margins.

■ Concerns over asset quality to fade in coming quarters
GNPL for the bank at Rs48.8bn were up 98%yoy and constituted 2.9% of total loans. Net NPLs too, were up 2.5xyoy to Rs22.1bn 1.3% of total loans) largely on account of significant rise in
slippages. We expect high level of slippages to recede with improving health of the economy and recovery mechanism in place. With pace of accretion towards restructured loans having slowed down, we expect minimal loans to come up for restructuring.

■ Valuation gap with peers has widened, BUY
With sturdy 23% CAGR in loans over FY10-12E, we expect the bank to witness 21% CAGR in balance sheet. Returns ratios too are set to improve with average RoE at ~18-19% levels and RoA at 0.8% over the said period. With concerns over deterioration in asset quality to fade in coming quarters, the valuation gap is expected to narrow down. We recommend BUY and assign a multiple of 1.35x FY12 P/Bx marginally lower than its peers) to arrive at value of Rs392.

To read the full report: BOI

>TATA STEEL : Result Update Q4 FY10 (INDIA INFOLINE)

■ Consolidated Q4 FY10 revenue jumped 8.7% qoq in dollar terms to US$6.1bn led by higher steel realisations

■ Standalone revenue of 73.3bn, 12.2% higher on a qoq basis and higher than our estimate on account of a 8.3% increase in realisations

■ Volume growth remained flat at 2.1% qoq as the company had announced the mothballing of Teeside plant and had taken maintenance shutdown at one of its blast furnace

■ EBIDTA/ton at Corus increased from US$37 to US$94, higher than street expectations

■ The expansion in EBIDTA was led by an increase in realisations as manufacturing costs largely remained flat on a qoq basis

■ Q4 FY10 adjusted PAT stood at Rs27.9bn, 3x on a qoq basis

■ Standalone profit stood at Rs20bn higher than our estimate of Rs13.5bn

■ We believe that the 26% correction in stock over the last one month is overdone; Upgrade to BUY with a target price of Rs548

To read the full report: TATA STEEL

>BHEL (INDIA INFOLINE)

■ Robust 29% yoy revenue growth aided by 30% growth in power division.

■ Continues to benefit from lower raw material cost, operating margin expands by 225bps yoy to 18.3%

■ Higher depreciation, due to commissioning of the enhanced capacity, partially offset operating profit growth – thus resulting into 42% PAT growth during the quarter

■ Order book continues to remain strong at Rs1.4trn, provides earnings visibility for the next 3 years

■ Maintain BUY, but reduce target marginally to Rs2,709/share to reflect higher competition in FY12.

To read the full report: BHEL

>TATA POWER (INDIA INFOLINE)

■ Generation grows by 6.3% yoy to 3.8BU during Q4 FY10 against 3.6BU last year, average realizations jump 13.7% yoy

■ Revenues in Q4 FY10 for the (consolidated entity) coal and power divisions increased by 27.2% and 9.7% yoy respectively

■ Coal division’s EBIT margin doubles to 22% from 11% last year

■ Better operational efficiency and higher merchant sale translate into 93.7% yoy growth in adjusted PAT during the quarter

■ Reduce target price to Rs1,536 on account of marginally lower than expected FY10 earnings, maintain BUY

To read the full report: TATA POWER

>Information Technology – ‘Margin headwinds’ (INDIA INFOLINE)

■ Exemplary margin performance over the past two years despite multiple headwinds
Operating margin of the Top 3 IT companies (Infosys, TCS and Wipro) has been resilient over the past two years despite multiple structural headwinds such as flattish volume growth, sharp
correction in pricing and rupee appreciation. Over the past seven quarters, TCS, Infosys and Wipro have improved their margin by 6ppt, 3.5ppt and 1.2ppt respectively, which is commendable. Infosys and TCS recorded their multi-quarter-high margin in Q3 FY10 and Q4
FY10 respectively. Wipro’s margin management has been relatively weaker though.

■ Offshoring, fixed priced project shift and utilization improvement were the key operational levers
Offshoring driven by both vendors and clients played a pivotal role in supporting margin. It was handsomely utilized by TCS whose offshore revenue contribution increased by 10ppt, significantly higher than Wipro (4.5ppt) and Infosys (1.2ppt). The large IT players also leveraged their experience and expertise in timely execution of projects by taking-on more engagements on fixed priced basis and they were successful in deriving higher productivity/efficiency. Wipro was the most active with a substantial 14ppt fixed price revenue
shift while Infosys and TCS improved their fixed priced revenues by 7ppt and 6ppt respectively. Employee utilization improvement was another key operational lever that enabled margin expansion as companies reduced their bench size and hired cautiously.

■ Organization-wide cost control also supported margin with SG&A% remaining flat over the past two years.
Margins have peaked-off for the Top 3; adverse currency and wage inflation are key headwinds
After surprising the street on margin performance over the past many quarters, the Top 3 Indian IT vendors face a tough margin scenario ahead. Margin in the short-term would be impacted materially by significant headcount addition in the past two quarters, wage hike implementation (offshore 8-12% & onsite 2-4%) and annual promotions, rupee appreciation and adverse cross currency movements (strengthening of US$ v/s GBP and Euro) and significant
investments in S&M to exploit the improved business scenario. Though revenue growth is expected to get stronger, employee utilization would likely correct for Wipro and TCS as it is currently above trend. A further increase in attrition, which has jumped recently, could also start impacting the profitability. On the other hand, margin support may only come from further fixed priced project shift and offshoring though these may not continue at the pace seen in the past few quarters. Over FY10-12E, we expect a margin decline of 100-250bps for the Top 3, the lowest for Infosys due to its benign employee utilization and superior margin management track-record.

■ Continue to prefer Infosys amongst the large players
With Infosys offering more resilient margin and superior revenue growth over FY10-12E, we continue to prefer the stock over TCS and Wipro. Absolute returns from these stocks could be capped in the near-term given their significant outperformance v/s broader market in the past 12 months and fundamental overhang from margin headwind and Europe crisis.

To read the full report: INFORMATION TECHNOLOGY

>GRASIM INDUSTRIES LIMITED (INDIA INFOLINE)

■ Strong VSF performance drives 16.9% yoy revenue growth; beats expectations

■ OPM surges 360bps yoy despite weak operational performance by the cement division

■ PAT grows by 56.7% backed by higher margins and lower tax outgo

To read the full report: GRASIM INDUSTRIES

>REC (INDIA INFOLINE)

■ Loan assets were up 30% yoy; exposure towards private sector entities has increased to 6.5%.

■ Sanctions grew at a modest 11% yoy rate; disbursements, however, remained healthy at 23% yoy.

■ Margins improved on account of lower cost of funds. Higher pricing power and increasing private sector exposure would enable maintain margins at current levels.

■ Net interest income was up 48% yoy, net profit too reported a sturdy 45% yoy growth.

■ Infra-financing nomenclature to enable increase exposure limits. Maintain BUY.

To read the full report: REC

>SUZLON (INDIA INFOLINE)

■ Repricing of bonds will result into 9.8% dilution
Suzlon announced the reduction in conversion price of its US$211mn and US$121mn FCCB’s to Rs97.26/share from Rs359.68/share and Rs371.55/share respectively. The company also revised the floor price to Rs74/share for both these bonds. In addition it has agreed to pay ~US$6mn as incentive fee to the bondholders and has asked for the removal of financial covenants and waiver of any existing or prior breaches. Post conversion of these bonds, Suzlon’s equity will dilute by 9.8%. However, it will enable the company to improve its balance sheet as it could potentially reduce debt by ~Rs15bn.

■ Restructuring provides room to breathe
Suzlon recently completed refinancing its rupee facilities of ~Rs100bn. Under the restructuring, it will be allowed a two year moratorium for principal payments, thus providing interim cash
flows. The re-pricing of its FCCB’s, conversion of promoter loans into equity and sale of its remaining 26% stake in Hansen will enable it to further reduce its debt.

■ Steep correction in price makes valuations attractive, upgrade to BUY
Over the last one month, Suzlon’s market cap reduced by ~11%. We believe the current market price factors all negatives. Our estimates do not factor in this dilution but build in weak performance in FY11 – a repeat of FY10 – due to weak demand. We also reduce our gross margin estimates to reflect stiff competition. We believe Suzlon will continue to face pressure in the near term with order inflow and execution remaining muted. Revival in the global environment and a pick up in the financing activity will enable healthy growth in FY12. The recent correction in the price has made valuations attractive, hence we upgrade to BUY with a target price of Rs80/share.

To read the full report: SUZLON

>CHENNAI PETROLEUM CORPORATION LIMITED (INDIA INFOLINE)

■ Revenues rise 13.6%, substantially below expectations on account of lower throughout.

■ GRMs were at US$4.3/bbl as against US$6.6/bbl in Q4 FY09 and US$3.4/bbl in Q3 FY10.

■ Sequential increase in GRMs was on account of higher spreads of gasoline and diesel.

■ With recovery in demand expected from CY10, GRMs could sustain at current levels.

■ We maintain our BUY with a revised target price of Rs309.

To read the full report: CHENNAI PETROLEUM

>ICICI Bank to merge Bank of Rajasthan with itself (INDIA INFOLINE)

■ ICICI Bank to merge Bank of Rajasthan with itself; share swap ratio at 25:118shares.
ICICI Bank has received in-principle board approval to merge the controversial Bank of Rajasthan (BoR) with itself, subject to due diligence and valuations by an independent valuer. With increasing conflict over promoter Tayal’s stake, BoR board too approved the said amalgamation. The bank has been on the watchlist of both SEBI and RBI due to uncertainness over promoter’s stake and string of violations. The share swap deal has been agreed upon at 25 shares of ICICI Bank for each 118 shares of Bank of Rajasthan.

■ Equity dilution at meager 3.1%; high level of NPL’s remain the key challenge area
While BoR balance sheet size remains limited at Rs173bn (4.8% of ICICI Bank balance sheet), deposit book at Rs152bn and advance book at Rs78bn would constitutes 7.5% and 4.3% of ICICI Bank respectively. The merger in our view, is expected to enable ICICI bank to increase its balance sheet size, which declined by 4% during the period FY09-10. Equity dilution for ICICI Bank, however, is expected to remain at a meager 3.1% as at end FY10 (see table 2). Increasing levels of NPLs for both banks, however, have remained the key concern. Gross NPL for ICICI Bank stood at 4.4%, while that for BoR was at 2.0%. Substantial decline in unsecured portfolio, improvement in asset quality and secured lending would enable the bank to weather through this concern.

■ Acquisition to expand branch reach, particularly in North India
BoR with 463 branches as at end FY09, constituted ~23% of the branch network for ICICI Bank. With ~60% of these branches located in the state of Rajasthan, the merger would enable ICICI
Bank to increase its foothold in the state and North India. Earlier, while the acquisition of Bank of Madura (2000-01) had enabled ICICI Bank to increase its presence in South India, the merger of Sangli Bank (2006-07) had enabled the bank to mark a strong footprint in West India, particularly Maharashtra. With CASA ratio for BoR at healthy ~40%levels, (in-line with ICICI Bank), the merged entity would continue to focus on garnering low-cost deposits. The acquisition price at ~Rs30.4bn translates into Rs65mn per branch of BoR as against Rs260mn paid by HDFC Bank for acquiring branches of CBoP in February, 2008.

To read the full report: ICICI BANK

>Gas Price Hike – Impact Analysis (INDIA INFOLINE)

The Government of India has approved hike in APM gas price from Rs3,200/scm to Rs6,818/scm. The revised price is close to US$4.2/mmbtu, the price approved by Empowered Group of Ministers (EGOM) for Reliance Industries’ KG-D6 gas. The decision comes as a big trigger for ONGC and Oil India, as it substantially improves profitability for both companies. For
ONGC, we estimate an increase of Rs14 in FY11E EPS and for Oil India, we expect an increase of Rs10 in FY11E EPS. One of the key reasons for the steep valuation discount for ONGC and Oil India, when compared with regional peers has been lower gas prices. We believe, the price hike, is the first step towards a market determined pricing mechanism for natural gas in the longer term. We maintain our BUY rating on ONGC and Market Performer on Oil India.

ONGC: Major beneficiary on account of price hike
ONGC’s average realization for sale of natural gas from its own fields was Rs3.2/scm or US$1.7/mmbtu as against average price of US$5/mmbtu for sale of gas from PMT fields and US$4.2/mmbtu decided by EGoM for RIL’s KG-D6 field. The current price hike in administered prices of natural gas would result into 14% increase in FY11E EPS of ONGC. We maintain our BUY rating on the stock with a target price of Rs1,327. Our target does not change as we value the stock on EV/Boe basis. Considering a very high probability of a gas price hike we had raised our target EV/Boe for ONGC by US$0.5 in November 2009, when the government was contemplating a 31% hike in gas prices.

Oil India: dual gains of lower cost and higher realizations
OIL India bears the same risks when compared with ONGC in terms of subsidy sharing and lower gas prices. However, with the company planning to double its gas production over the next five years and most of its production being in low cost onshore regions, we feel price hike if any would translate into robust earnings growth for Oil India in the longer term. The current gas price hike, we believe, will increase Oil India’s FY11E EPS will increase by 10%. We maintain our
Market Performer rating with a target price of Rs1,237.

To read the full report: GAS PRICE HIKE

>EVERONN SYSTEMS INDIA LIMITED (INDIA INFOLINE)

■ Revenue growth significantly beats estimate driven by outperformance in all business segments

■ ViTELS revenue growth was driven by robust school and college additions

■ Strong revenue growth in ICT business despite no schools additions; Edures and Toppers also post robust growth.

■ Consolidated OPM contract by 430bps qoq to 30.6% due to sharp margin fall in ViTELS

■ Everonn turns OCF positive in FY10; upgrade revenue estimates but lower margin assumptions

To read the full report: EVERONN SYSTEMS

>EDUCOMP SOLUTIONS (INDIA INFOLINE)

■ Smart Class revenues below estimate in Q4 FY10; company guides for healthy 32-40% growth in FY11

■ Margin in the K-12 segment contract sharply while revenue performance was strong; HLS segment continues to be in investment mode

■ Overall consolidated performance below expectations; Management guides for modest 25-30% revenue growth and 22-25% earnings growth in FY11

■ Downgrade earnings estimates but maintain BUY on recent stock price correction

To read the full report: EDUCOMP SOLUTIONS

>RELIANCE COMMUNICATIONS (INDIA INFOLINE)

To read report: RCOM

>RADICO KHAITAN - MP (INDIA INFOLINE)

■ Q4 revenues rise 22% yoy on the back of an estimated 12-14% growth in volumes.

■ Lower RM, staff and SG&A expenses support margin expansion of over 11ppts.

■ Co posts a profit on a pre-exceptional basis vs loss of Rs169mn a year ago.

■ QIP proceeds of rs 3.4bn to be utilized to repay debt; we factor in a 27% reduction in interest cost in FY11 but retain MP with a revised TP of Rs 138.

To read the full report: RADICO KHAITAN

>EXIDE INDUSTRIES (INDIA INFOLINE)

■ Revenues increase by 28.9% yoy on back of strong volume growth in the automobile and industrial segments

■ OPM jumps 434bps yoy and NPM nearly doubles on yoy basis owing to sharp fall in raw material cost which was on back of higher consumption of recycled lead.

■ However, on sequential basis company registered a fall of 280bps and 147 bps in NPM and OPm respectively.

■ We maintain BUY with a revised target price of Rs 137.

To read the full report: EXIDE INDUSTRIES

>Satluj Jal Vidyut Nigam Ltd.(SJVN) (INDIA INFOLINE)

Satluj Jal Vidyut Nigam Ltd.(SJVN) a mid-sized hydroelectric power generator has 1,500 MW of operational assets. Over the past three years, it has maintained high efficiency which has allowed it to earn incentives. Against the normative 85% PAF, it operated its plants at 92.4%, 96.7% and 96.1% in FY07, FY08 & FY09 respectively. In order to grow, it plans to expand its installed capacity to 5.5GW over the next decade. Since there is slow progress on majority of the projects (except 412MW Rampur project), we believe most of them will come up only after FY14.

To read the full report: SJVN

>UNITED SPIRITS (INDIA INFOLINE)

■ 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

>HERO HONDA MOTORS: Q4FY10 (INDIA INFOLINE)

■ Revenues rise 20.4% yoy due to 18.9% growth in volumes and 1.3% higher realizations.

■ Lower raw material costs owing to higher degree of ancillarisation at Uttaranchal plant led to 122 bps yoy rise in OPM.

■ Higher production from Uttaranchal plant drives 10 ppts decrease in effective tax rate.

■ Rising raw material prices a key concern, however, further increase in ancillarisation to cushion the impact

■ Upgrade to BUY, with a revised price target of Rs 2,112.

To read the full report: HERO HONDA