>HDFC {Housing Development Finance Corporation} (KR CHOKSEY)

INVESTMENT RATIONALE
HDFC reported net profit of Rs. 733.4 Crore during Q4FY09 in line with our expectations. During Q4FY09 bank reported a net profit of Rs. 733.4 Crore as compared to Rs.566.1 Crore in Q4FY08 a increase of 29.5% (y-o-y). Key triggers for banks are Net Interest Margins improved incrementally to 2.21% for FY09 from 2.19% for 9MFY09 on back of lower funding costs. CP rates, a proxy for wholesale funding costs in India, have been trending down on account of comfortable liquidity environment and decreasing risk aversion. HDFC has been incrementally shifting its borrowings to the wholesale markets from deposits to benefit from the declining rates. HDFC strategy continues to be to hold onto margins as it has not followed SBI’s aggressive pricing strategy in home loans.

Key Developments
• Interest Income increased 3.8% q-o-q and 31% y-o-y to Rs 2935 crores
• Interest Expense increased 1% q-o-q and 51.8% y-o-y to Rs 2064.1 crores
• Net Interest Income increased 10.9% q-o-q and decreased 1.1% y-o-y to Rs 870.9 crores driven by fees from real estate funds and the AMC business
• Disbursement growth was 17.5% YoY for Q4FY09 while approvals grew 16.8% YoY during Q4FY09.
• Corporate loan growth at 24.8% YoY was higher than individual loan growth of 13.5% as returns continue to be high in this segment
• HDFC sold loans worth Rs 4250 crores during the year to various institutions, primarily HDFC Bank.
• Non Interest Income increased 125.7% q-o-q to Rs 218.6 crores during Q4FY09
• Asset quality improved with gross NPAs declining from ~1.1% in Q3FY09 to ~0.8% in Q4FY09

Healthy Business Growth
The total business has grown by 20% to Rs. 96,993 crore in Q4FY09 as compared to Rs.81,099 Crore during Q4FY08. Advances have grown by 16% to Rs.85,198 crore in Q4FY09 as compared to Rs.73,328 Crore during Q4FY08 and deposits grew by 21% to Rs.83,856 Crore in Q4FY09 as compared to Rs.69,151 Crore during Q4FY08. Advances grew on the back of strong retail loan book which now constitute 73% of the banks advances while deposits grew on the back of huge demand for Term Deposits which stood at Rs.25,371 Crore in Q4FY09 as compared
to Rs. 21,200 Crore in Q4FY08.

Valuations
At current price of Rs 2345 the stock is trading at 4.33x FY10E BV of Rs. 541 and 26.05x FY10E EPS of Rs. 90. We believe that housing demand will improve in H209 due to better affordability,
leading to a 18 – 20% y-o-y pickup in disbursements (high loan approvals and disbursements in Q4FY09 demonstrates HDFCs ability to withstand stiff competitions from public sector banks); Net Interest Margins will improve as borrowing rates, especially in the wholesale markets, will remain low on account of benign liquidity conditions; income from real estate fund management fees and asset management (HDFC MF) will remain an earnings driver in FY10;strong asset
quality will reduce earnings pressure.

To see full report: HDFC

>ONGC (INDIABULLS)

Lower subsidy burden: a reason to cheer
For Q4’09, Oil and Natural Gas Corporation Ltd.'s (ONGC)’s net sales declined 12.3% yoy to Rs. 137 bn, triggered by lower crude oil prices (at around USD 40-45 per barrel), coupled with the Government of India’s (GoI's) subsidy-sharing arrangement that compensates the oil marketing
companies (OMCs) for their under-recoveries. However, going forward, we expect an improvement in the Company’s top-line, driven by a substantial reduction in the Company’s subsidy burden, a result of the recent price hike in auto fuel prices and the new subsidy-sharing regime. According to this regime, the GoI will absorb the entire subsidy burden of OMCs on the sale of cooking fuel. However, we believe that the current market price (CMP) of Rs. 999 factors in most of these positives. Hence, we give a Hold rating to the stock.

Waiver of the subsidy-sharing regime to add value: On July 1, 2009, the Oil Secretary RS Pandey announced the ruling that upstream oil companies will not be required to share the subsidy on LPG and kerosene. The underrecoveries on the sale of LPG and kerosene will be taken care of by the Government. ONGC contributes more than 30% of the total domestic production of natural gas, and such a move is clearly going to boost the Company’s top-line.

Fuel price hike to reduce subsidy burden on auto fuel sales: Further, the GoI announced an increase in the petrol and diesel prices by Rs. 4 per litre and Rs. 2 per litre, respectively, in an attempt to reduce the underrecoveries borne by the OMCs. ONGC, which shares a substantial portion of these under-recoveries, stands to benefit from this hike in the form of lower subsidy burden.

To see full report: ONGC

>ORIENTAL CARBON & CHEMICALS LTD (GEPL)

OVERVIEW
The radial tyre has lead to the development of insoluble sulphur. The reason is that for the adhesion of the rubber compound to the steel cord a high level of sulphur is required. With normal sulphur this high level would lead to blooming during storage in the unvulcanized state. This bloom destroys the desired tackiness of the compound. Therefore instead of normal sulphur, polymeric sulphur is used. This is insoluble and hence cannot bloom. Insoluble sulphur, is thus a non-blooming vulcanizing agent used almost exclusively in rubber compounding, mainly in components requiring a high degree of stickiness or tack, including radial tires, belting, and hoses. World wide there are only a few manufacturers of Insoluble Sulphur and the Pick of this Week is the sole manufacturer in the country namely Oriental Carbon and Chemicals Limited (OCCL). This J P Goenka group company has its plant located at Dharuhera in Haryana is also engaged in manufacture of sulphuric acid and oleum which contributed around 18% of the total turnover in FY '09.

INVESTMENT RATIONALE
With its prospects tied inextricably to the motor vehicle and tyre industries, the insoluble sulfur industry currently faces its most challenging conditions in 25 years. Even prior to the emergence of the global financial crisis in the fourth quarter of 2008, the tyre industry - and, by extension, the insoluble sulfur market was facing a difficult 2008, as a sharp spike in oil prices over the first eight months of the year raised raw material costs nearly across the board, reduced miles driven (and thus decrease in replacement tyre demand), prompted both consumers and businesses to put off new vehicle purchases. The economic crisis has greatly exacerbated these factors, hitting the motor vehicle industry particularly hard. Insoluble sulphur suppliers have responded to these difficulties by idling under-utilized capacity, postponing planned expansions, and reducing their operating costs. The current difficulties follow five years of unusually strong volume growth during the 2002 to 2007 period as insoluble sulphur demand benefited from rising production of radial passenger and truck tyres, particularly in China, as well as in India, Thailand, Brazil, and Russia. In line with the above scenario OCCL also saw its exports drop by 5% to 6483 MT and the local off take was also lower by 11% at 3339 Mt. This impact was more evident in the second half but this was to some extent cushioned by supplying to new customers plants. The second half also saw drop in the raw material prices and the selling prices also got adjusted in line with this though the margins were maintained. The growth rate for insoluble sulphur in the country is twice the growth rate of the tyre industry the primary reason for this is the ever rising share of radial tyres as consumes a higher level of insoluble sulphur. The company is virtually the second preferred supplier of the product to America, Europe and African markets. On the domestic front the demand has turned for the better in the last qtr of FY '09 and this is expected to improve further in the current year.

Internationally there has been a slow and steady shift towards value added insoluble sulphur grades (HS, HD) which are easy to handle and gives more production flexibility to its users. OCCL has also developed these grades and has started supply of High Stable grade to a few tyre companies. This development has given the company an edge over the Chinese suppliers who have yet develop them and it also enables OCCL to get better realization for its product. Seeing the ever increasing future demand, the company has taken up debottlenecking of its plant and this shall increase its capacity by 15% and this expanded capacity is expected to be operational by July '09. The company also has plans to put up a new plant at a SEZ, land for which has been acquired. More details in future on this project.

Investment Concerns
Demand linked to auto industry and increase in crude price can affect margins

Valuation
At the CMP of Rs. 33, OCCL trades 3x its FY10E earnings of Rs. 9.7. Long term investors can add OCCL to their portfolio.

To see full report: OCCL

>INDIAN INDUSTRIAL PRODUCTION (MORGAN STANLEY)

Industrial Production Recovers in May

• Industrial production (IP) growth recovers to 2.7%YoY in May: This compares with growth of 1.2%YoY (revised downwards from 1.4% earlier) in April and a decline of 0.8% in March 2009. The growth in May was higher than the market’s and our expectations.

• Growth in the manufacturing segment rebounds: Growth in the manufacturing segment picked up to 2.5%YoY in May, compared with 0.4% registered in the previous month. The key contributors to this improvement were food products, other manufacturing industries, rubber, plastic, petroleum & coal products, and basic chemicals & chemical products. Mining segment growth decelerated slightly to 3.7%YoY (vs. 3.9% in the previous month). Growth in the electricity segment decelerated to 3.3%YoY, compared to 7.1% in April.

• Growth in consumer goods improves; capital goods turns less bad: On use-based classification, growth in the consumer goods segment accelerated to 1.2%YoY in May after declining 3.6%YoY in April. Within consumer goods, while the durables segment growth decelerated to 12.4%YoY (vs. 17.2% in April), the YoY decline in the non-durables segment narrowed to -2.3%YoY (vs. -9.1% in April). Capital goods declined 3.6%YoY, compared with a decline of 7.3% in the previous month, helped partly by the low base effect. Growth in basic and intermediate goods decelerated to 3.8%YoY and 6.1%YoY, respectively, in May (vs. 4.7% and 7.3% in April).

• IP growth to stay on the recovery path: Most domestic demand indicators, such as passenger car sales (18.1%YoY in June vs. 8.7% earlier), commercial vehicle sales (-15.1%YoY vs. -18.9% earlier), two-wheeler sales (14.9%YoY vs. 11.5% earlier), and cement dispatches (13.2%YoY estimated vs. 10.8% earlier), are indicating improvement in industrial activity in June.

To see full report: IIP