>Asia spot gold up; thin trade, China buying

Sydney - Spot gold rose in Asia Monday in holiday-thinned trade, benefiting from some Chinese buying, but traders said low volumes likely exaggerated the price move.

Spot gold traded to an intraday high of $894.60 a troy ounce, up $8.80 on the New York close, before falling back to trade at $892.70/oz, up $6.90.

Japan's markets are closed for the Golden Week holidays until Wednesday, and the U.K. will be closed for a bank holiday Monday.

While gold was up Monday, bullion is likely to struggle against returning optimism in equity markets, and markets reacting strongly to economic data offering support for the much-talked about green shoots of recovery.

While equity markets are moving up, gold is going to struggle, said Darren Heathcote, head of trading at Investec.

However, the downside momentum should be tempered by physical buying ahead of the upcoming Indian wedding season, he added.

India's gold imports this year have ground to a near-halt due to high prices, and the weak rupee has made dollar-denominated gold all the more expensive.

However, there are signs of a turnaround from the world's largest consumer of gold.

Suresh Hundia, president of the Bombay Bullion Association, said Monday India imported around 30 metric tons of gold in April, compared with 24 tons in April 2008.

Looking ahead, the U.S. bank stress tests will now be announced May 7 instead of later Monday, but market attention has dissipated.

"It was much of a 'buy the rumor, sell the fact' kind of story. Concern really has waned," said Heathcote.

U.S. regulators have asked 19 U.S. financial institutions to provide details about their ability to withstand a prolonged economic downturn, with some banks potentially required to raise more capital.

At 0643 GMT, spot silver was up 14 cents on the New York close at $12.64/oz. Platinum was unchanged at $1,089.50/oz and palladium was down $4.00 at $211.00/oz.

Source: COMMODITIESCONTROL

>ICICI Bank (GOLDMAN SACHS)

Upgrade to Buy on improving fundamentals; add to Conviction list

Source of opportunity
We upgrade ICICIB to Buy from Neutral and add it to our Asia Pacific Conviction Buy list. We believe 1) reduced stress on funding position from lower wholesale costs domestically and globally, 2) improving visibility on growth returning back to sustainable growth path in 2010E, 3) cost controls sufficiently offsetting headwinds to revenue, 4) continued focus on profitability, and 5) a moderate valuation (0.9X 09E P/B vs historic median of 1.6X) despite the run-up in share price since March 2009 lows, would likely be key drivers of stock price. We believe upside risk could stem from sustained improvement in the bank’s fundamentals.

Catalyst
Successful execution of the bank’s strategy to be evidenced by sequential improvement in its fundamentals, stabilization of macro economic environment mitigating concerns of a severe downturn in asset quality cycle, and stabilization of asset markets leading to improved outlook for the growth of life insurance business would be key catalysts for the stock, in our view. We raise our EPS estimates 7% and 5% for 2009E and 2010E to reflect lower funding costs. We raise our 12-m TP by 29% to Rs530 based on our earnings upgrade as well as improving prospects on long-term profitability.

Valuation
Our 12-m TP of Rs530 (from Rs410) is derived using SOTP methodology. We value the banking business at the mid-point of GS CAMELOT-derived P/B multiples and ex-growth value. We value the strategic investments of ICICIB using multiple methodologies.

Key risks
Risks: a) significant deterioration in the asset quality of wholesale banking segment; b) any additional recap needs for the international subsidiaries leading to BVPS erosion; and c) execution risks in consumer banking.

To see full report: ICICI BANK

>Marico (EMKAY)

Marico reported a robust revenue growth of 23.0% yoy to Rs5.6 bn driven by (1) 10% volume-led and (2) 9% attributed to pricing benefit. – in line with our estimates. Operating Profit grew by 60.8% yoy to Rs733 mn driven by strong revenue growth coupled with lower advertising and sales promotion expenses. Adjusted net profit grew by 97.0% yoy to Rs594 mn - above our estimates. Nevertheless, the reported net profit grew by 8.9% yoy to Rs444.1 mn – in line with estimates. Management shared a promising outlook with continuation of growth momentum in FY10E - growth will be largely volume-led with negligible gains from pricing. We fine-tuned our earnings estimates for FY10E to Rs3.7/Share and introduce FY11E earnings estimates at Rs4.2/Share. The stock has rallied by 11.1% in last 15-days in anticipation of Q4FY09 performance and has been out-performer in last 6 months. In absence of near-term news flows and all positives factored in earnings estimates with low probability of earnings upgrades, we downgrade the rating from ACCUMULATE to REDUCE with target price of Rs60.

Adjusted net profit up 97% yoy to Rs564 mn, above estimates
During Q4FY09, Marico reported robust 20.0% yoy growth in revenues to Rs5.6 bn (10% was volume-led and 9% attributed to pricing benefits), in line with our estimates. Marico maintained its volume growth momentum, downplaying concerns of slowdown in growth momentum. The operating profit grew by 60.8% yoy to Rs733 mn, driven by strong revenue growth coupled with lower advertising and sales promotion expenses during the quarter. Consequently, the operating margins jumped 330 bps yoy to 13.1%. Marico reported 8.9% yoy increase in its reported net profit to Rs444.1 mn. Nevertheless, company’s adjusted net profit (excluding exceptional items) jumped higher at 97.0% yoy to Rs594.4 mn, ahead of our estimates.

Robust growth in adjusted net profit is primarily attributed to strong operational performance and lower tax provisioning at Rs0.1 mn compared to Rs39 mn in Q408. Lower tax outgo is on account of provisions for liabilities of Sundari LLC, which was treated as business loss in the quarter. Marico made provisions of Rs150.3 mn towards the liabilities of Sundari LLC in Q409 (exceptional charge) versus a gain of Rs106.1 mn on sale of Sil business in Q408.

Improvement in ‘Saffola’ volumes; Kaya continue the growth pace
After disappointing volume performance in Q309 ‘Saffola’ has shown improvement on qoq basis. Saffola reported 5% yoy growth compared to mere 3% in Q3FY09. Also, the recent drop in Safflower prices and reduction in premium pricing versus competition in few ‘Saffola’ blend is likely to revive the growth momentum in coming quarters. Kaya continues to maintain its high growth momentum and reported 57% growth in FY09 to Rs1.6 bn. ‘Kaya’ downplayed any fears of slowdown in business momentum with (1) revenue growth at 33% yoy to Rs400 mn and (2) same store growth at 13% yoy, purely attributed to higher footfalls. Kaya continued its expansion with addition of 11 clinics in the quarter.

Promising outlook for FY10E, growth momentum to continue
In the analyst meet, management shared a promising outlook with continuation of growth momentum in FY10E. Company believes that FY10E growth will be largely volume-led with negligible gains from pricing. Consequently, Marico is eyeing promising volume growth in key brands and product segments like (1) 8-9% volume growth in ‘Parachute’ (2) 10-12% volume growth for ‘Saffola’ and (3) 12- 14% volume growth in Hair Oil business. Marico continues to remain optimistic on the growth momentum of Kaya business and expects to turn it profitable in FY10. Management has highlighted the softening of raw material costs especially Copra and Safflower – strong probability of margin expansion in FY10E.

We downgrade our rating from ACCUMULATE to REDUCE
We give thumbs up to Marico’s Q409 performance marked by (1) robust volume growth in ‘Parachute’ and ‘Hair Oils’ coupled with (2) above expected performance of ‘Kaya’ fully downplaying the fears of slowdown in growth momentum. Further, Marico has hinted at promising growth outlook coupled with gains at operational level with drop in input costs. Consequently, we fine-tune our earnings estimates for FY10E to Rs3.7/Share and introduce FY11E earnings estimates at Rs4.2/Share. The stock has rallied by 11.1% in last 15-days in anticipation of Q4FY09 performance and has outperformed in last 6 months. In absence of near-term news flows and all positives factored in earnings estimates with low probability of earnings upgrades, we downgrade the rating from ACCUMULATE to REDUCE with target price of Rs60.

To see full report: MAIRCO

>Idea Cellular (ICICI Securities)

Margins look up

Idea Cellular (Idea) displayed a strong operating performance in Q4FY09, registering in-line consolidated revenues of Rs29.4bn (I-Sec: Rs30bn) including 16% share of Indus Towers (Indus) and 41.09% of Spice. The company positively surprised on the EBITDA margin front owing to savings in subscriber acquisition and SG&A costs as well as Indus consolidation. Idea posted consolidated PAT of Rs2.7bn, which was partly boosted by capitalisation of Rs223mn of forex losses. However, we expect margins to be pressured in FY10 as the company expands into new circles – Orissa, Tamil Nadu and West Bengal. We have revised our FY10E & FY11E estimates upwards 5.8% & 10.5% respectively. The stock currently trades at FY10E P/E of 21.1x and EV/EBITDA of 5.8x. We maintain our HOLD recommendation with revised target price of Rs55.5/share (Rs48.4/share earlier) based on sum-of-the-parts (SOTP) valuations. Though Idea reported impressive results owing to tighter cost control, we recommend investors to wait-&-watch for sustained improvement in operating performance and further clarity on Indus’ financials.

■ In-line revenue growth. Driven by strong net adds of 4.7mn, Idea’s standalone revenues were up 44.2% YoY and 9.2% QoQ to Rs28.6bn. Standalone ARPUs of Rs254 (down 4.5% QoQ) and MoUs of 402 minutes (down 3.3% QoQ) were fairly inline with our estimates.

■ EBITDA margin surprises positively. Despite higher network operating costs due to rise in number of rented sites, standalone EBITDA margin was flat QoQ at 25.9% (I-Sec: 24.2%) on account of savings in other costs. Idea was able to curtail the losses in Mumbai & Bihar to Rs654mn. Consolidated EBITDA margin rose 210bps QoQ to 27.6%, (I-Sec: 23.3%) due to improvement in EBITDA margin of Spice and netting of Indus’ indefeasible right of use (IRU) income from Idea’s share of Indus’ expenses.

■ Indus has >95,000 towers at end-FY09, of which ~75,000 were transferred by its three JV partners and the remaining built by Indus over FY09. Idea’s 16% share of Indus’ revenues and EBITDA amounted to Rs1,870mn and Rs358mn respectively, implying Indus’ Q4FY09 revenues to be Rs11.7bn, Rs2.2bn EBITDA and 19.1% EBITDA margin.

■ Maintain HOLD. The stock currently trades at FY10E P/E of 21.1x and EV/EBITDA of 5.8x. We maintain our HOLD recommendation with revised target price of Rs55.5/share (earlier Rs48.4/share) based on SOTP valuations.

To see full report: IDEA CELLULAR