>LIC HOUSING FINANCE LIMITED (FINQUEST)

We interacted with the management of LIC housing Finance. Key takeaways of the meetings are as under:

■ Demand for Housing Loan is picking up.
Post interest rate cuts and correction in property prices (especially in big cities), the demand for
housing loans is picking up. Last two months (March and April) the disbursements grew by
42% and 34% respectively for the company which indicates strong trend. Further correction in
property prices coupled with easing of interest rates will boost the demand. We expect
disbursements to grow at a CAGR of 22% for the company over FY09-11E.

■ Expanding geographical presence
LIC has ramped up its distribution network with increase in the number of branches and agent force. The company has opened 20 branches in the current fiscal which has increased the total branch count to 150 (targets 160 branches by FY10). Despite branch additions the employee numbers have remained almost same due to effective utilization of manpower.

■ Decline in interest rates to cushion margins
Management expects to maintain margins at the current levels (i-e 2.95%) despite offering loans at the competitive rates. With decline in overall interest rates, the incremental cost of funds will decline and the company expects to maintain spread of ~2% on incremental loans. The special rate of 8.75% offered by the company would not have any significant impact on margins as the offer is for limited period and would constitute small part (~10%) of the overall loan book.

■ Customer mix dominated by PSU/govt employees
LICHFL's customers mainly consist of salaried employees and self employed people. Among the salaried customers about 50% are government/PSU employees resulting in lower risk on loans. The company will continue to expand its customer base (PSU & govt.) which will benefit from the implementation of sixth pay commission.

■ Asset quality set to improve
Asset quality has shown marked improvement as gross NPAs and Net NPA have declined to 1.07% and 0.21% respectively at the end of FY09. Management targets to reduce net NPA to zero by the end of current fiscal.

■ Valuations attractive despite run up
We expect company's loan book to grow at CAGR% of 22% over FY09-FY11E led by drop in the interest rates and correction in property prices. Net interest margins are expected to remain stable at 3% despite lending rate cuts. Current valuations of 1.1x FY11 BV is attractive considering higher RoE's (26% & 27% for FY10, FY11), better asset quality and huge growth potential in the housing finance segment. We have a target price of INR 512 for the stock which is 1.3xFY11 BV. We recommend Buy on the stock.

To see full report: LIC HOUSING FINANCE LIMITED

>CEMENT SECTOR (EMKAY)

Apr 09 dispatch grow @13.1%, prices increase 2.91%

Key Highlights
■ The cement industry delivered yet another month of stellar performance with dispatches growing by 13.1% yoy to 16.65mnt. Cement dispatches have registered an average growth of 11% since Nov 08 mainly on account of strong demand from rural housing and higher demand on account of pre election spend.

■ Cumulatively dispatch growth of cement majors (ACC, Ambuja, Grasim & Ultratech) at 13.87%yoy was inline with industry growth. AV Birla Group companies Grasim and Ultratech witnessed high dispatch growth with Grasim registering dispatch growth of 20.83% yoy while the same for Ultratech stood at 22.40%. Ambuja dispatch growth for April stood at 10.74% yoy while ACC was the laggard in the pack registering growth of 4.05% yoy.

■ On a regional basis Northern region witnessed the highest dispatch growth of 19.6% while South, West and Central registered 12.8%, 11.2% and 10.5% respectively. Dispatch growth was lower in East at 8.8%.

■ Cement prices continued their upward trend during the month of April 09 registering a yoy growth of 2.91% to Rs245. Even on a m-o-m basis, cement prices were up by Re1. We believe that the price rise is the result of strong dispatch growth observed over the past 6 months aided by robust demand outlook at least till the onset of monsoon.

■ On a regional basis, the Central region continued to register the highest growth in prices with April 09 growth pegged at 13.32% yoy while on a m-o-m basis, prices increased by Rs2 to Rs249/bag. South and North witnessed price increase of 3.85% and 2.49% to Rs262 and Rs246/bag respectively while prices fell in Eastern and Western regions by 2.25% and 2.07% respectively.

■ During the month of Apr 09, International coal prices witnessed a yoy decline of 42.55% to USD62.4. International coal prices are now down 65% from peak levels witnessed in July 08. However on a m-o-m basis, international coal prices had risen by 6.76%. As on 15th May 09, international coal prices were ruling at USD 58.8/ton.

■ With the onset of monsoon, we expect cement dispatches and prices to witness some softening. Based on our cement demand growth assumption of 6.9% for FY10E, we expect cement dispatches to fall by around 10% qoq this monsoon (July September 22009) and cement prices to fall by 4.3% -5.3% i.e. Rs10-13/bag to Rs232-234 (for details refer our Sector update ‘Monsoon trends’ dated 11th May 2009). We further assume the prices to continue to decline to Rs220 by Mar 10. However even in this case the cement price for the year would average Rs230/bag for FY2010. In our earnings estimates for cement companies we have factored in FY2010 average cement prices of Rs230/bag. Consequently we see little risk of downside to our earnings estimates for cement companies. We maintain positive view on the sector and our top picks are ACC, Ambuja, Ultratech, India Cement and Shree Cement.


To see full report: CEMENT SECTOR

>GODREJ CONSUMER PRODUCTS (MOTILAL OSWAL)

■ GCPL's 4QFY09 results above estimates: Net sales grew 26% YoY to Rs3.4b (v/s our estimate of Rs3.1b). Gross margin declined 850bp YoY to 49.1% (up 760bp QoQ). However, lower ad-spend (510bp) pushed EBITDA margin up to 19.3% (14.1% in 3QFY09) v/s our estimate of 18.3%. Adjusted PAT grew 45% YoY to Rs594m (v/s our estimate of Rs473m) on higher interest income and lower tax rate (290bp).

■ 34% volume growth in toilet soaps: Toilet soap volumes grew ~34% YoY (17% in 3QFY09), while realizations increased 12%; Godrej No 1 has been key growth driver. We believe competitive intensity could increase in the category, as the market leader HUL tries to regain market share.

■ Hair color sales reflect revival post multiple initiatives in 3QFY09: Hair care sales increased 20% (volume growth ~13%), as benefits of the trade push and price increases got reflected. In 3QFY09, the company had increased prices by 11%, of which 6-7% was passed on to the trade as additional margins. The management aims at increasing market share in Hair Color through new launches (in premium segment) and increasing its distribution reach.

■ Keyline and Rapidol sales de-grow; Kinky reports Rs23m loss during 4QFY09: Keyline (15% of consolidated sales) reported sales de-growth of 8% YoY to Rs435m and adjusted PAT growth of 6% YoY to Rs35m. Rapidol reported sales of Rs109m (down 3% YoY) and adjusted PAT of Rs17m. Kinky operations continued to disappoint, with net sales of Rs107m (v/s Rs407m in 9MFY09) and loss of Rs230m.

■ Revising EPS estimates by 14%; maintain Buy: The company plans to expand its distribution and exploit synergies with other FMCG companies of Godrej Group which will enable it to accelerate growth in coming years. The management is confident of margin expansion in 1HFY10 (low cost forward cover for palm oil) although international operations are likely to remain under pressure. We are revising our EPS estimates by 14% for FY10 and 11% for FY11 to factor in stronger volume growth. The stock trades at 17.5x FY10E EPS and 15.1xFY11E EPS. Buy.

To see full report: GODREJ CONSUMER PRODUCTS

>MULTI STRATEGY | ASIA (NOMURA)

Our view
Since mid-March, we have had a 50% solvency/50% reflation model portfolio. We stay focused on HK/China banks, property, plantations and coal for the summer. The summer sweet spot we believe lies in overlooked ‘Bad’ stocks – adequate solvency and inexpensive. We highlight our best ideas in this report.

Anchor themes
The default risk reduction rally (brought to you by governments) is over. A muted sequential recovery rally is now to come, in our view. Unlevered Asia will receive Western liquidity. Differentiation will be prominent.

We highlight leveraged plays which have run up – we would take profit. We think it is time to take profit in the ‘Ugly’ stocks as phase 1 of the rally is over (QE I). QE II is ahead. The only bear case is when CBs tighten. This is premature, in our view.

Good, Bad and Ugly
May 2009

■ Themes: Good, Bad and Ugly since 9 March
Asia ex-JP: Least expensive region globally; should it trade at a premium?
Australia: Run-up in expensive market. Now priciest market in Asia. SELL.
China: ‘Ugly’ has same value as ‘Bad’. So, SELL the ‘Ugly’. BUY the ‘Bad’.
Hong Kong: Least difference between the three groups: SELL the ‘Ugly’.
India: Poor value in ‘Good’ stocks. Good value in the ‘Bad’. BUY the ‘Bad’.
Indonesia: Tremendous run. Isolated pockets of value. TAKE PROFIT.
Korea: Little differentiation between ‘Ugly’ and ‘Bad’. BUY ‘Bad’. SELL ‘Ugly’.
Malaysia: Plantations are still inexpensive. Small caps are good value.
Singapore: Rational market. Difference smartly exploited. Resources inexpensive.
Taiwan: Only market with no difference between Bad & Ugly. BUY ‘Bad’.
Thailand: Great run. Market still inexpensive. BUY the oils.

■ Also inside
Doing a sector-wise analysis of the ‘Good, Bad and Ugly’, we find value by searching out the most attractive sectors throughout Asia. We see Telecoms as the most interesting sector in Asia for value (page 5).

We compile a list of ‘Ugly’ stocks that have run the fastest and are now expensive. These would be our candidates for taking profit (page 5).

■ Global signals for equities: Bullish, Neutral or Bearish?


To see full report: MULTI STRATEGY