>INDIAN FINANCIALS (IDFC SSKI)

PSU Banks – strong outperformance ahead

• G-Sec yields headed south…Time for PSU banks
• PSU banks gyrate in tune with G-Sec yields
• G-Sec yields –current forces at play
• Ample liquidity fails to inspire confidence in G-Sec yields
• Now, incremental pressure of Govt borrowings to ease...
• …and favorable regulatory posture to sustain

To see full report: INDIAN FINANCIALS

>RELIANCE POWER (GOLDMAN SACHS)

Some progress made, but key risks still exist; off Conv list, still Sell

What happened
We remove Reliance Power (RPWR) from our Conviction Sell list and raise our TP to Rs128 (from Rs105) primarily to reflect financial closures of Rosa, Sasan & Butibori over last 3 months. Though we believe financial risk has been mitigated to some extent, we think risks relating to fuel, land and offtake of output still exist for several RPWR key projects. Retain Sell with 22% potential downside, as valuations do not reflect risks for its key projects, in our view. The stock is up 26% since we added it to Conv list on May 13, 2009 vs. 35% for Sensex; the stock rose after the election outcome in May. Last 12 months: -3% vs. Sensex +16%.

Current view
While the execution of the Sasan, Butibori and Rosa projects has improved, uncertainty related to fuel, land and off-take of output for RPWR key projects such as Krishnapatnam, Chitrangi, Dadri and Shahapur remains. Krishnapatnam (4GW): No visibility on time frame and pricing of
coal supplies from its mines in Indonesia. Chitrangi (3.9GW): The acquisition of land is still not complete and the off-take is not tied up. Dadri and Shahapur (10.3GW): Progress on these projects hinges on the resolution of the court dispute between RIL and RNRL.

Based on our scenario analysis of the RIL-RNRL court case, we see 48% potential downside to RPWR’s share price in the event it does not receive gas supplies. (For details see our Sept 16 Reliance Infrastructure note, Balance sheet leverage to drive future growth; initiate with a Buy.)

We derive our new NAV-based 12-m TP for RPWR after quantifying the risk associated with the projects by assigning a 10% discount for six individual milestones yet to be achieved. With just 3.1% ROE for FY11E, the stock is trading at 2.7X FY11E P/B, vs. peers’ 2.5X but average ROE of 13%. Note that we lower FY10E-12E EPS by 1%-6% on higher minimum alternate tax of 16% vs. 11% previously. Key risks: 1) Resolution of court case in favor of RPWR; 2) completion of project milestones ahead of our estimated timelines.

To see full report: RELIANCE POWER

>EAGLE EYE ON 29/09/09

Week ends negative

Markets on Sep 25, 2009: Volatility continues
Nifty opened negative after its sharp recovery from its yesterday’s low and continued its zigzag movement throughout the day in 4930-5000 range. Today also, Nifty failed to close above 5000-mark but it held on to its crucial support of 4900. Nifty continues to trade in an upward
parallel channel-- the upper end of the channel is at 5100 and the lower end at 4900. So, going forward its crucial for Nifty to close above 5000 level to gain further momentum on upside.

On daily chart, Nifty is trading above its 20 daily moving average (DMA) and 40DMA i.e. 4823 and 4691 respectively, which are crucial supports going forward. The momentum indicator (KST) has given negative crossover and is above zero line. Market breadth was positive with 761 advances and 505 declines on NSE and 1,676 advances and 1,188 declines on BSE.

On hourly chart, Nifty is trading below its 20HMA and 40HMA i.e. 4983 and 4971 respectively, which are now resistances in short term. The momentum indicator (KST) has given a positive crossover but is trading below zero line.

Nifty and Sensex closed in red, lower 28 and 88 points respectively. Of the 30 Sensex stocks, Dr Reddy’s Laboratories (up 10.50 %) and Ranbaxy Laboratories (up 4.08%) were the top gainers, whereas Tata Steel (down 2.85%) and ICICI Bank (down 2.50%) were the top losers.

To see full report: EAGLE EYE 290909

>ZEE NEWS (EDELWEISS)

Good show continues

■ Growth in revenues from ads on regional channels
ZNL expects growth in ad revenues from regional GEC channels. However, ad revenues from news channels are likely to be flat in Q2FY10. Also, increasing adoption of DTH and incremental revenues from analogue are expected to boost subscription revenues.

■ Growing traction in new channels
Till now, ZNL had 3 strong driver channels – Zee News, Zee Bangla and Zee Marathi. Zee Telugu competes closely with Eenadu and Maa Telugu for the second spot in viewership share. Zee UP, launched in April 2009, too is performing well. Zee Kannada is also close to breaking even. Zee Business is likely to benefit from the strong IPO ad pipeline. Going forward, we expect Zee Telugu, Zee Kannada and Zee Business channels to become the other growth drivers for ZNL.

■ Zee Bangla’s strategy is more sustainable
Unlike its competitor Star Jolsha, which is resorting to disruptive programming, Zee Bangla has continued with its strategy of gaining sticky viewership through low cost programming, which is likely to be a more sustainable strategy (as seen in Hindi GEC).

■ Outlook and valuations: Regional play; maintain ‘BUY’
We continue to like ZNL as it is one of the best picks in the buoyant regional market. It has multiple drivers-strong bouquet of news and regional channels, improving viewership, likely overall improvement in ad industry from H2FY10, successful new shows, and strong management in place. We expect it to be one of the key beneficiaries of the likely revival in ad spends in H2FY10, and hence, maintain our ‘BUY’ recommendation on the stock. On relative return basis, the stock is rated ‘Sector Outperformer’ (refer rating page for details).

To see full report: ZEE NEWS