>Spice Jet (KARVY)

● ATF prices no more a concern: Aviation turbine fuel (ATF) prices are down by ~60% from its peak in August 2008 providing a major relief to the aviation players. Fuel cost is the single largest cost accounting for around 40-50% of the overall operating cost for the aviation companies.

Currently, the average fuel price in the 4 metros (for March2009) is Rs30/ litre and we believe that the ATF prices have more or less bottomed out. We expect the ATF prices in FY10E to be around 25% higher from the current levels on account of positive movement in crude oil prices and weakening of rupee against the dollar.

● Slowdown in passenger traffic: Domestic passenger traffic was down by 5% in 2008 as against 33% growth reported during 2007. Slowdown in passenger traffic in 2008 was on account of higher fares due to higher fuel prices and the general slowdown in the economy. Even though fuel price have come down, difficult economic condition still remain a matter of concern in FY10.

Slowdown in passenger traffic has negatively impacted the seat factor thereby leading to higher
fares. During January, air fares were brought down substantially through various promotional offers and discounts but that proved to be of little help in stimulating the demand. We expect the current airfares to prevail during FY10 and with all players cutting down capacities; seat factor is expected to show small improvement in FY10.

● Weakening rupee to put pressure: Weakening of rupee against the dollar over the past few weeks is expected to put some pressure on the aviation industry. Part of airlines expenses including lease rentals, expat salaries, spare parts and maintenance are dollar denominated and weakening of rupee against the dollar would increase the expenses for the airline players. SpiceJet is not expected to add capacity during 2009 and in May2010 it would be eligible to fly on international routes. Accordingly we expect the company's load factor to improve in FY10. In our FY10E, on account of lower fuel price estimate, we have already factored in a dip in average airfares over our FY09E and load factor of 67.8%. We continue to maintain our price target of Rs16 and rate the stock as Outperformer.

To see full report: SPICE JET

>Monday Morning Musings (CITI)

● Financials stage a rally, but for how long? Financial stocks rallied hard on news of better earnings trends in core businesses, along with speculation regarding changes to the uptick rule and possible mark-to-market accounting. Yet, the jury is out regarding the length and sustainability of the recent bounce. Most investors seem ambivalent, with many preferring to avoid the sector until more visibility emerges, especially on the value of illiquid assets.

● Financials market cap has tumbled from 23% to about 9% of the S&P 500. In almost dramatic fashion, the Financials sector has plummeted from its highs by more than tech stocks did after the 2000 peak, plunging roughly 84%. Credit trends have shifted from exceptionally easy terms to severely restrictive as fears continue to be in place with respect to toxic securities, credit card loans, renegotiated mortgages, future business models and equity dilution. Moreover, forward earnings remain under a cloud, given the high probability of lower leverage for many years relative to the past decade.

● No new leadership, but substantial outperformance seems plausible. It is fair to suggest that the Financials sector is unlikely to provide new equity market leadership since past leaders rarely repeat, but a sharp rebound is possible. Indeed, in 2003, technology names popped far more than the overall market recovery, with many stocks that were “priced-for-extinction” in late 2002 experiencing four- or five-fold moves in share prices over the course of a year. This kind of so-called “junk beta” rally could be repeated in the worst performing sector this time around as well.

To see full report: MONDAY MORNING MUSINGS

>Bharti Airtel Limited (JP MORGAN)

Cutting our estimates and PT due to increasing competition and MTC cut; Remain cautious

• We reduce our estimates and PT on Bharti given continued competition challenges, cut in Mobile Termination Charge (MTC) and more headwinds on regulatory side (3G, MNP): While Bharti continues to be a top tier player with strong management and our relative top pick in Indian Telecom sector, we believe that increasing competition and MTC cut would depress ARPMs and margins over the next 12-18 months. As a result, we expect a sharp fall in EBITDA/EPS CAGR to 7%/13% in FY09-11 (35%/31% growth in FY09) that we believe could keep valuation multiples depressed.

• We cut our FY10E/11E revenue/EBITDA/EPS by 4%/6%/8% and 3%/5%/7%: This is largely driven by reduction in our mobile ARPM/ARPU estimates by 3%/4% and 2%/4% for FY10E and FY11E respectively. As a result, we expect wireless EBITDA margins of 27%/25% in FY10/FY11, down from 28%/26% in FY08/FY09E. We now estimate ARPU decline of 12%/8% Y/Y in FY10/FY11. Our new FY10E/FY11E EPS of Rs49/Rs58 is below consensus by 5%/1%.

• Why the cut in ARPUs?: We believe the MTC cut from Rs0.30/min to Rs0.20/min would eventually force operators to cut tariffs. This is already been evinced in comments from operators like Tata Teleservices, which have expressed willingness to cut tariffs due to the MTC cut. We are also seeing more evidence of aggressive pricing strategies from the expansion of incumbent operators like RCOM and Idea. In fact, RCOM and Idea tariff plans offer call rates 40% below base tariff levels in Mumbai and few other circles as per our checks. We expect this competition pressure to increase pushing down ARPUs.

To see full report: BHARTI AIRTEL

>Multi Strategy Banks | Asia (NOMURA)

● Government help needed to overcome bunker mentality: Risk aversion and capital preservation are driving the psychology in the boardroom for most Asian banks. Fear dominates. Banks with rich parents will grow, in our view, while family-owned banks may (wisely) hold off to maintain value in the event of future M&A.

● The leverage gap between West and East should narrow: We estimate that Western banks’ leverage should drop substantially over a multi-year period, while Asian banks’ leverage will rise. A 1pp drop in leverage for them requires a drop of US$1.5tn in assets. Asian banks can create US$2tn in assets if they increase leverage to 20x, on our estimates.

● Consolidation needed to replace damaged: Western banks Weaker Asian players will likely be weeded out or merge. Bigger banks should emerge to offer quality, size and scale of financial services.

● Government spending programmes will buoy banks: In the meantime, governments in Asia are trying to fill the void in the short term by embarking on fiscal spending programmes in excess of US$750bn over the next two years. This should act as a tailwind for bank profitability throughout 2009, especially in China.

● Personalities will drive decisions: We believe the personalities to watch are Liu Mingkang (CBRC), Ben Hung (Standard Chartered), Hwang Young-Key (BK Financial), Richard
Stanley (DBS), Nazir Tun Abdul Razak (CIMB) and Jeffrey Koo (Chinatrust)

To see full report: ASIA BANKS