>HIGH BETA (NETWORTH CAPITAL)

Tracking the Price Performance of BSE500 stocks in major down & up move between
Sept 08 and June 09.

To see report: HIGH BETA

>BAJAJ AUTO (HSBC)

Upgrade to OW(V): Launch & margin increase to drive growth

• Sales should be boosted by new launch on 18 July; expect it to focus on mileage, a concept with which buyers connect
• Forex loss reduction and cheaper input costs to drive margins; EBITDA margin to increase by 530bp in FY10e
• Upgrade to OW(V) from UW(V), raise TP to INR1,220 from INR412; roll forward our DCF to July 2009 from Jan 2009

Banking on the forthcoming launch. With bank financing drying up for consumers, Bajaj Auto has been losing market share to Hero Honda, as the profile of buyers who typically pay cash focus on mileage and resale value over power and styling. We believe Bajaj’s new motorcycle launch later this month will be focused on mileage, to which buyers can better connect. The company’s sales volume should also benefit from a low base. In ‘three- wheelers’, Bajaj is benefiting from replacement demand.

Margin expansion in FY10e. We believe EBITDA margin should expand from 12% in FY09 to 17.3% in FY11e. The reduction in top forex losses should contribute 3%, and the rest should come from raw material benefits and change in product mix. Accordingly, we raise our FY10e and FY11e EPS by 79% and 89% to INR91.4 and INR102.6 respectively.

Upgrade to OW(V). We raise our DCF-based one-year target price to INR1,220 from INR412 and upgrade our rating from Underweight (V) to Overweight (V). At our target price, the stock trades at 13.3x FY10e EPS of INR91.4 and 11.8x FY11e EPS of INR102.6, a 20% discount to its peers. Earlier, our target price implied a one-year forward PE multiple of 7x, which was a historical trough multiple. With the improvement in market sentiment, business prospects and profitability, we believe there is no longer a case for a historical trough valuation.

Catalyst and risks. We believe the launch of the new motorcycle should act as a trigger for the stock. Key risks are lower than expected performance of the new bike and exports, non-availability of bank financing and higher-than-expected input costs.

To see full report: BAJAJ AUTO

>EAGLE EYE ON 13/07/09 (SHAREKHAN)

PUNTER'S CALL

Drown in red

Markets on July 10, 2009: Final hour selling
Massive selling during the final trading hour drowned the indices deep into the red. The Sensex ended 253 points lower, while Nifty closed 77 points down. BSE MIDCAP and BSE SMLCAP closed the day around 1.85% down. Since Nifty has accomplished the conservative target of head
and shoulders pattern, it is now expected to march towards its aggressive target. On upside, 4130 is a good resistance around which traders should look for initiating fresh shorts. The overall decline to advance ratio stood at 3.5 to 1 on the NSE.

The hourly momentum cycle is about to turn negative. Our short-term bias is revised down for the target of 3850 with reversal pegged at 4130. Also, our mid-term bias is still intact on the downside for the target of 3870 with reversal placed at 4700.

Bar information technology stocks, all other sectors saw selling with energy, power and realty stocks at forefront. From the 30 stocks of Sensex, Wipro (up 3%) and Sterlite Industries (up 3%) led the pack of gainers, while Reliance Infrastructure (down 6%), Jaiprakash Associates (down 6%) and Reliance Communications (down 5%) were hit the most.

To see full report: EAGLE EYE

>INDIA EARNINGS PREVIEW (MACQUARIE RESEARCH)

Decreasing earnings stress

Event
■ We preview 1Q FY3/10E earnings for our coverage universe. Although earnings growth remains negative, we expect profits for the firms in our coverage, ex the oil and gas companies, to contract by 8% YoY vs -20% YoY in 4Q FY3/09; we see some signs of improvement in individual sectors.

Impact
■ Domestic cyclicals: not great, but looking better. The domestic cyclicals’ earnings, while not great, are starting to look better. Auto sales volumes have increased sequentially, with better financing from state-owned banks and higher rural sales the key drivers. Infrastructure should also see continued moderate growth due to the robust order backlog, with stable margins.

■ Banks to show robust growth. We expect banks to be the standout performers this quarter, with aggregate earnings forecast to increase by 34% YoY, after 24% growth in 4Q09. This is partly due to the lower base in 1Q FY09, with earnings in that quarter hit by large one-off bond provisions.
However, even on a pre-provision level, growth is expected to be a healthy 25% YoY.

■ Operating margins to improve sequentially. We expect aggregate operating margins to improve sequentially by more than 150bp as the lower costs kick in. The key sectors here would be auto – based on lower input costs – and cement and metals – due to a combination of lower costs and higher prices.

■ Commodities still under pressure. Commodities remain under pressure, primarily from the high base effect. We expect this to continue in the next quarter as well. Metal earnings are expected to contract. However, the sector should benefit from higher prices and aggressive cost cutting by the companies. The oil and gas sector’s earnings continue to fluctuate subject to the government’s subsidy policy, and we have therefore excluded them from our analysis.

Outlook
■ We believe that the recovery in the economy is still in its early stages and that it may be too early for a significant pass through to corporate earnings. However, the foundation for the recovery has been set, both by the policy measures carried out in late-2008 and by the further reforms expected to be carried out by the new government.

■ We continue to be positive on the Indian market and advise investors to stick with quality growth names and/or stocks with strong prospects for earnings upgrades, particularly in commodities and properties. We are replacing JSW Steel as one of our top picks with Tata Steel, in line with the views of our sector analyst Rakesh Arora. Our remaining top picks are Axis Bank, BHEL, Reliance and Unitech. Our key Underperforms are GMR Infra, Zee Entertainment and Idea Cellular.

To see full report: EARNINGS PREVIEW