>Asian Tech Strategy (MACQUARIE RESEARCH)

● Asian brands gain shares – from strength to strength. The market share gains of LGE and Samsung are not new news, but the significant weakening of Won further powers up their advantage (Figure 1). Michael and Dohoon estimate that LGE and Samsung are likely to beat their 1Q09 handset shipment guidance by 5–10%. They believe that both are likely to see double-digit QoQ shipment growth in 2Q, with multiple new models. LGE is introducing four to five new models, while Samsung is gunning for 30 models. Importantly, our checks indicate that, with US telecom operators’ handset inventory depleted to as low as one week, it is likely that they will rebuild some inventory. They may have reduced inventory to six weeks in mid-2008 and to just one week in late 2008. LGE and Samsung have strong relationships with operators.

For the smartphone, Chialin estimates that HTC is shipping five new models in 2Q and expanding its Google phones to six operators from two in 1Q. At the lowcost side, the strength from Mediatek is well documented (Figure 3). Importantly, the Chinese government’s subsidy program on electronic goods is critical. Of the 250–300 hand models qualified by this program, 75% is powered by Mediatek’s solution, we estimate. Both smartphone and low-cost handsets are the areas of expected positive unit growth in 2009.

● The semi and electronic components are benefiting. Our channels across Asia show that component suppliers are seeing a material pickup in order patterns to support new models to be launched in 2Q09 and inventory restock. Utilisation at semiconductors is picking up materially in March on the back of higher orders from 2G/3G basebands, application processors, CMOS sensors and RF. The former two are expected to lead to an increase of 300mm fab utilisation to 70–80% in April in TSMC and Chartered, while the latter could lead to improvement in the 200mm fab run rate (50%; Figure 5). Samsung’s System LSI fab is experiencing a similar trend. Japanese electronics suppliers such as Hirose and Murate are experiencing sequential improvement in their monthly order patterns (Figures 7 and 8), and George expects double-digit QoQ growth for the June quarter. Murata controls 30% of global MLCC handset market, while Hirose has significant exposure to Tier 1 and low-cost handset vendors.

To see full report: ASIAN TECH STRATEGY

>India Retail Sector (CLSA)

Pantaloon’s Feb-09 update: Marginal SSS growth in value and lifestyle, 10% SSS decline in Home Solutions. See inside for details

Subhiksha and Vishal: Feeling the heat of tight liquidity; Pantaloon also scores low on debt coverage and gearing. See inside for details

Reliance Retail: Aggressive ramp-up, but still running 18 months behind schedule. See inside for details

Rating agency downgrades Vishal Retail; financial position remains tight.

• Sharp deterioration in profitability and high gearing levels (c.2.4x for FY09CL) has impacted Vishal Retail’s ability to service debt obligations forcing rating agencies to downgrade its short and long-term credit ratings.
  

• While the company was recently able to roll-over Rs500m of short-term debt, albeit with some delay, management’s next task is to rollover Rs900m of additional short-term debt.
  

• While some of the top level employees have recently resigned, more are, reportedly, expected to submit resignation.

• While the management recently stated that Vishal has not been able to generate positive cash flows from operations in the first two months of 4QFY09, it is important to note that as on Dec-08, Vishal had debt of Rs7.6bn and inventory of nearly an equal amount.
  

Bharti Retail plans to close 4-5 of its 28 stores.

• Bharat Retail, the retail arm of Bharti Enterprises, which operates a chain of 28 ‘Easyday’ supermarket stores in the North India (Punjab, Haryana), plans to close 4-5 of its non-performing stores.
  

• In an interview to media group Chairman Sunil Mittal has said, “All of us have to go through that. Pantaloon closed its stores, Reliance closed its stores, we are going to close stores despite having 28. The more you have the bigger the problem you have obviously.”
  

Spencer’s plans to re-focus on new store opening.

• Spencer’s Retail, CESC’s 94% subsidiary, plans to re-focus on opening new stores after having closed 50-60 loss making stores over the last six months which has reduced its store count to 310.
  

• Spencer's currently has 35 large-format stores under the brand name of Spencer’s Hyper and plans to open 15 new stores in 2009.

• During FY08, Spencer’s Retail reported sales of Rs8.5bn, pre-tax loss of Rs1.5bn and net loss of Rs0.9bn.

• In Dec-08, the management of CESC had announced that the group will focus on achieving break-even for the retail business by Dec-09 and if Spencer’sis unable to achieve the desired performance, CESC may even look to exit the retail business.
  

Sodexo to acquire Radhakrishna Hospitality Services for US$100m

• Sodexo has signed an agreement to acquire the Radhakrishna Hospitality Services Group (RKHS), one of the leading providers of Food and Facilities Management services in India. The deal is likely to be closed in the next 3-6 months.
  

• Promoters of RKHS also own Foodland Fresh, Mumbai-centric chain of convenience stores. The group had recently closed nearly all of its 42 stores in the city.
  

To see full report: INDIA RETAIL SECTOR

>Reliance Infrastructure (UBS)

● CRISIL places Reliance Infrastructure ratings on Negative Watch The credit rating agency, CRISIL, has placed its ‘AAA’ ratings on the Rs10bn and Rs3bn bond of RELI on ‘Rating watch with negative implications’. This reflects the fact that RELI is yet to finalise details of de-merger, proposal for which was announced in Feb’09. This follows similar downgrades by Fitch in 2008 - Fitch downgraded RELI’s rating, to AA+ in July 2008 and to AA in Dec 2008 which were more related to business diversification, and not corporate reorganisation.

● Cost of funds could increase but don’t see any more downgrade risks: Cost of funds could increase 50-100bps if downgraded but given the disclosed net cash levels (excluding Reliance Power), we do not expect further credit downgrades this year. We also believe that the downgrade by itself was to have been anticipated given diversification from being a pure utility business.

● Financial closure for Sasan has not been announced yet: Reliance Power’s 4,000MW UMPP in Sasan requires debt of ~Rs145bn, of which as per our channel checks, Rs120bn has been approved. We do not rule out the possibility of any rating downgrade holding up the financial closure in addition to well-known issues related to land acquisition. Nevertheless, once the business reorganisation is approved, we expect the holding company discounts could widen.

To see full report: RELIANCE INFRASTRUCTURE

>Indian Power Sector (HEM SECURITIES)

Power is a critical component of any economy’s infrastructure without which its development and growth is a big hindrance. An economy’s growth, development and ability to handle global com-petition, all depends on the availability, reliability and quality of the power sector.
The demand for power is growing exponentially so the scope of growth of this sector is immense. This sector is dominated primarily by Public Sector Undertakings (PSU). The State and Central Government account for 58% and 32% of the generation capac-ity respectively while the private sector accounts for a mere 10%. A major part of the transmission and distribution factors are han-dled by the state utilities. The private sector is gradually making its presence felt in the power sector in distribution and is making a foray into transmission. Power sector is mainly funded through budgetary support and external borrowings were opened to private sector in 1991.

Segments of the industry

• Power Generation
• Power Transmission
•Power Distribution

To see full report: INDIAN POWER SECTOR