>THE MOST BEATEN DOWN STOCKS (ULJK SECURITIES)

For the past fifteen months, we all have seen the market sentiment turning from irrationally exuberant mode, during late 2007, to extremely pessimistic mode, during October 2008 and March 2009.

In March 2009 when NIFTY was trading at 2600 levels, we did a study on long term valuations trend in Indian stock markets and recommended that markets will see strong recovery (Refer to our report "NIFTY to see strong recovery" on Bloomberg. Since then NIFTY has recovered strongly, and is likely to cross 4100 level today.

We have again done a study on the same lines and are sending you a list of stocks which are likely to outperform the markets during next three months. In the present situation, we like stocks in sectors like Banking, Capital goods, Infra and education.

During initial phase of a bull market , the stock prices are mainly driven by the expansion in valuation parameters P/E, P/B and contraction in Yield and our list includes all those stocks which have seen huge contraction in P/E, P/B and expansion in Yield during last Fifteen months.

This report contains information on:

• Fifty Stocks which have seen huge contraction in P/E during last Fifteen months
• Fifty Stocks which have seen huge contraction in P/B during last Fifteen months
• Fifty Stocks which have seen huge expansion in Yield during last Fifteen months

To see full report: THE MOST BEATEN DOWN STOCKS

>TELECOM SECTOR (EDELWEISS)

Telecom – Can VAS salvage falling ARPUs for Indian telecos?

Indian telecos are facing a peculiar situation whereby subscribers are growing at an exponential pace, but incremental subscribers (primarily prepaid) are contributing significantly lower ARPUs. This has raised concerns on future revenue growth and profitability of operators, particularly given increasing competitive intensity and falling tariffs. Value-added services (VAS) are increasingly being considered critical to boost ARPUs as voice services get progressively commoditized. In this context, operators are counting on the introduction of 3G services to enhance data usage, while also enabling to ease the spectrum crunch by shifting voice traffic from congested 2G networks at a lower cost structure.

Our study of the experience in various telecom markets globally, however, indicates that VAS have largely failed to stem ARPU decline, though the share of ARPU has increased substantially. We have studied the trend in ARPUs of top operators in various telecom markets (the US, Japan and Europe). While data ARPU continues to be on an uptrend, blended ARPUs have been declining or at best remained stable owing to a sharply falling voice ARPU component that continues to dominate the customer spend. In our sample universe, over the last 12 quarters, voice ARPUs have declined at ~0.7-4.3% CQGR, while data ARPUs have improved at ~0.6-2.2% CQGR, with aberrations like the US (where data component has grown at ~10% CQGR) and some European countries (where data component has declined Q-o-Q). In our sample universe, only AT&T and Verizon have shown an improvement in ARPUs owing to increasing data ARPUs.

In India, data services still comprise a small proportion of ARPUs at sub-10% levels, and this proportion for the top Indian telecos has barely improved over the last several quarters. At present, given the low telecom spend by incremental customers, absolute data ARPU is also on the decline. We acknowledge that 3G services are yet not available in India, and could drive data usage among subscribers in future. In other telecom markets, despite higher income levels, overall customer spend on telecom has largely remained steady over time, with VAS at best providing stability to ARPUs. For Indian telecos, keeping in view the market conditions, customer profile (large base of prepaid customers) and demographic profile, a deviation from the trend seems unlikely. India, being a price-sensitive market, one can also not rule out the possible commoditisation of VAS services as operators resort to lower price points to drive volumes.


To see full report: TELECOM SECTOR

>ASHOK LEYLAND (MERRILL LYNCH)

Expensive on muted prospects

Raise forecasts, but retain rating
Q4 results were ahead of expectations, thanks to control over key expense items. Still, operational EBITDA, declined 70% to Rs908mn (BAS-MLe Rs648mn), and high interest outgo restricted recurring net profit to Rs269mn (Rs476mn). As a result, FY09 EBITDA declined 40% to Rs4.69bn (BAS-MLe Rs3.90bn), and net profit Rs2.02bn (Rs1.50bn). We raise forecasts to reflect this surprise. However, re-iterate Underperform on weak prospects, and expensive valuations.

Margin surprise
Q4 margins at 7.5% (down 450bps yoy) was driven by strict control over staff (down 26%), and overheads (down 32%, after adjusting for forex gains included under this item). As a result, the company ended the year with margins at 7.8% (down 240bps). We believe margins will hold up as commodity prices remain soft.

We raise forecasts to reflect the surprise
We raise margin expectations by 180bps to 8.1% for FY10 and 110bps to 8.5% in FY11, and thereby EBITDA forecasts by 33% and 17% in FY10 & FY11 resp. We retain truck volume assumptions of 5% decline in FY10, and 10% growth in FY11.

Business outlook muted
Our CV outlook is muted, on slowing economy and infrastructure related investments. We however are positive on buses (~39% of volumes), as well as light vehicles (Nissan JV operational only in CY11). By FY11, we expect new entrants in CVs. We therefore expect company to lose share in CVs.

Reiterate Underperform with higher PO
Our revised PO of Rs13.4 (earlier Rs11.2), is based on 5x FY10E EV/EBITDA, in line with mid-cycle valuations.

To see full report: ASHOK LEYLAND

>INDIA POLITICS (ULJK SECURITIES)

India Votes for Stability
Singh is still the King

Indians have done it. The result of the 2009 election, which came as a positive surprise to the market, is a clear mandate for stability, growth and progress for the Indian economy. The mandate for the congress led UPA coalition is better than what most psephologists would have expected. The new UPA is now more cohesive and substantially stronger than the earlier one. Having won in nearly 200 seats, about 55 seats more than the previous Parliament, the Congress itself has moved into a position of strength within UPA and need no Left parties for support.

We expect a re‐rating of the Indian equities on the basis of improvement in the fundamentals of the economy. We, in our report “Investment Ideas for 2009” dated 19th Jan’09, clearly cited a positive outlook for the Indian economy and expected a revival post election. We expect the new government to give priority to revive the economy from the global slowdown by way of more public investment.

The prime focus of the government will be to reduce the fiscal deficit to the FRBM limit without compromising on the need of more government investment in the social and infrastructure sector. India needs more FDI in key infrastructure sectors for growth and we expect the present UPA government to relax FDI cap in aviation and other non strategic sectors.

BULLS EYE
We have hit the bull’s eye with our Investment Ideas for 2009 report. All the 13 stocks we have recommended achieved the target (though the target was full year target for FY09). On an average the stocks have moved 34% within a span of 4 months. Our model portfolio (based on investment on our recommended stocks) has outperformed the BSE 200 index by 5 percentage pts. We still remain positive over the performance of our recommended stocks and believe them to outperform the broader market.

INVESTMENT IDEAS FOR 2009 OF FOLLOWING STOCKS ALONG WITH TARGETS ARE RECOMMENDED IN THIS REPORT:

• NTPC
• L&T
• SUN PHARMA
• AXIS BANK
• RELIANCE INFRA
• SUN TV
• GLENMARK PHARMA
• EDUCOMP
• YES BANK
• WELSPUN GUJARAT
• SHREE CEMENT
• GUJARAT NRE COKE
• BRFL

Sensex target revised:
On the back of the changed socio‐economic condition, we revised our Sensex target for FY10 to 16905. We expect that the world revive from the current slowdown and demand to pick up. We expect a 15% increase in the Sensex EPS and implies a PE of 20x. We are confident of the EPS revision unless there some unforeseen event hampers this growth.

Sectors likely to get more emphasis

Banking‐ Reform in Indian banking sector. More merger or amalgamation among PSU banks likely in line of BASEL II norms and opening up of the Indian Banking sector.

Infrastructure‐ Increase public investment in infrastructure in order to churn up the economy. India needs US$ 500 bn of investment in the infrastructure sector in the next 5 years to maintain the 8% GDP growth rate. We expect government to step‐up spending on key infrastructure e.g. roads, bridges and port development.

Telecom‐ 3G and Wimax licensing and better spectrum allocation along with broad band connectivity to villages will be on the top of the new UPA governments agenda. Allocation of frequency for telecom service providers and new rules for subscribers to switch operators using the same telephone numbers are among the policy initiatives for the sector expected to be on top of the agenda for the new government. The new government is also expected to take the real first step towards listing the state‐run Bharat Sanchar Nigam Ltd (BSNL) on stock exchanges. The industry also expects some rationalization of the revenue‐sharing regime from the present 25‐ 30% of the revenues with the government.

Power‐ Thrust on UMPPs and rural electrification program. We expect the total production to grow to 180,000 MW by 2012 with more thrust on Nuclear and alternative source of power generation.

Textile‐ Tax benefit and other subsidy to revive the sector

Agro industries‐ Buzz around of a second Green Revolution.


To see full report: INDIA POLITICS