>ASTEC LIFESCIENCES LIMITED (ANAND RATHI)

Astec Life sciences is engaged in manufacturing and sale ofintermediates, active ingredients and formulations in the off patent [generics] category, with main focus on agrochemical [85%] and rest from Pharma segment. It ishaving full backward integration for its key products,which helps in maintaining better control over costs. It has a strong and experienced management team.

Company is working on contract manufacturing basis and is in negotiations with a couple of large players for long term contracts for its products. It is expected to clinch sizeable deals – which can lead to significant upside in revenue generation from FY 11 onwards.

Increasing registration activities indicates that the company likely to get increasing business from global players,particularly in regulated markets, which will boost margins. Currently Astec has pipeline of 70 registrations in 30 countries. With its strong R&D, it is targeting more & more registrations across the world.

Astec has good clientele network domestically and internationally with world’s top 20 agrochemicals companies which gives them the opportunity to expand theirproduct portfolio based on their demands.

[Domestic clients include Syngenta India, Indofil chemicals, Atul Ltd, Krishi rasayan exports and international clientele includes Irvita Plant Protection, Nufarm UK ltd, AnNong Co., handelsgesellschaft, Detlef Von Appen etc.]

The company is doing extremely well and has reportedaround Rs 8 EPS in FY 10, while estimates for FY 11 EPS are much better around Rs 12. Looking to this, this quality stock, available at below 5X of FY11 earnings appears good for investment. BUY with target of Rs 80 in 3-4 months.

To read the full report: ASTEC LIFESCIENCES

>AXIS BANK LIMITED (ASIT C MEHTA)

Axis Bank is the third largest private bank with a network of 1,027 branches across India. Axis Bank has established a track record of expanding its loan book at a faster pace than the industry. We expect Axis Bank to maintain its growth momentum and expand its loan book in FY 2010-FY 2012 at a CAGR of 25%. We expect the net profit to grow at a CAGR of 27.6% over the same period. We have estimated RoA of 1.5% and 1.6% and RoE of 17.5% and 20.7% in FY11 and FY12 respectively, driven by loan growth and higher Net Interest Margins (NIM). Given the robust loan growth and relatively superior return ratios, we assign a multiple of 13.5x to FY12 EPS of INR100.1 to arrive at a target price of INR1,350. We thus initiate coverage with a “BUY AT DECLINES” rating on the stock. At CMP of INR1,228 the stock trades at 2.4x FY12E ABVPS and 12.3x FY12E EPS.

Recommendation Rationale
■ Strengthening Liability Franchise
As on FY 2010, the bank had a network of 1,027 branches. Axis Bank plans to add another 200 branches in FY 2011, which would help the bank to increase its CASA base and support CASA ratio. This we believe will help lower cost of funds and, support Net Interest Margin (NIM). As on FY 2010, the bank’s NIM stood at 3.75%. We expect NIM to grow in long term as rising interest rates will improve yields on advances and higher CASA ratio will lower the cost of funds.

■ Loan growth momentum to continue
Axis Bank has established a track record of expanding its loan book at a faster pace than the industry. Its loan book has grown at a CAGR of 46.2% over FY 2005-FY 2010 compared to industry growth of 24.7% over the same period. The bank has a
Capital Adequacy Ratio (CAR) of 15.8% and tier 1 capital of 11.2%, which provides enough headroom to grow its loans & advances. We expect higher CAR, strengthening branch network, acquisition of new customers along with improving macro-economic conditions will support loan growth going forward.

■ Core fee income to support revenues
Axis Bank derives its fee income from Corporate segment, Retail segment, Treasury, Agri & SME Banking, Business Banking and Capital Markets segment. Core fee income as a percent of non-interest income has been around at an average of 75% from FY 2006 - FY 2010, reflecting the stability of non-interest income. We expect core fee income to grow at a CAGR of 29% over FY 2010-FY 2012.

■ Adequately capitalized
Axis Bank has been raising sufficient capital at regular intervals to ensure growth in its balance sheet. In Q2 FY10, the bank had undertaken a Qualified Institutional Placement (QIP) and preferential allotment to raise capital amounting to INR37.6 bn. Consequently as on FY 2010, the bank has a Capital Adequacy Ratio (CAR) of 15.8% with tier 1 capital at 11.2%. Also infusion of tier 1 capital would provide enough room to raise tier 2 capital in future, which will further reinforce CAR and give enough headroom for the bank to grow its loan book and capitalize on emerging growth opportunities.

To read the full report: AXIS BANK

>WORLD WATER MARKETS:High investment requirements mixed with institutional risks (DEUTSCHE BANK)

The world’s water markets are confronted with major challenges. The growth of the global population goes hand in hand with a rise in demand for food, energy and other goods. This means the demand for water will increase accordingly – in the face of a limited supply of this vital resource. Usage conflicts are inevitable, and will become more acute on account of wasteful use and pollution. Scarcity of water is a humanitarian problem and it can curb economic growth. Climate change will amplify many water-related problems and create new ones.

We put the annual investment required in the global water sector at about EUR 400-500 bn. Measured by this yardstick the sector is a picture of underinvestment, especially because water prices in many areas are subsidised and thus too low. As a result, there is a lack of incentives for necessary investments. The prices do not reflect the scarcity of water as a resource; wastage is encouraged. Corruption and the absence of ownership rights compound the problems. To turn the tide, water prices in many countries would have to be boosted. The need to incorporate social considerations in the process greatly reduces the scope for making such increases in practice.

Governments will not be able to raise the funding needed to cope with the upcoming tasks on their own. While there is considerable disquiet about private firms investing in the water sector, the public sector is simply unable to meet all the challenges single-handedly. For this reason, we believe it makes sense for governments and the private sector to cooperate more closely.
Makers of “water technologies” stand to benefit from huge sales potential over the next few decades – despite the risks cited. There is likely to be a particularly sharp increase in the demand for efficient irrigation technologies, seawater desalination and sewage treatment facilities, technical equipment (e.g. pumps, compressors and fittings), filter systems and disinfection procedures.

We have used a scoring model to rank the attractiveness of various countries for investments in the water industry. The Top 20 include many countries from the Middle East that are rich due to their oil deposits, located in very dry regions and relatively stable politically. Two big industrial countries, Germany and the US, and the world’s two most populous nations, India and China, are also among the Top 20 in our ranking. In principle, though, all countries require a substantial amount of investment in the water sector.

To read the full report: WATER MARKETS

>Is Hungary the next Greece? (DANSKE MARKETS)

• Today, the Hungarian markets came under pressure after Lajos Kosa, Deputy Head of the ruling Fidesz party compared the situation in Hungary with Greece and said the economy was in a much worse state than expected.

• Adding to the negative sentiment were negative comments regarding the budget situation from Prime Minister Orban and State Secretary, Mihaly Varga. Varga said that he expected a budget deficit 7-7½% of GDP in 2010.

• Overall, Hungarian newsflow is quite concerning and even if the negative rhetoric is ‘just politics’ we advise that more bad news might well be in the pipeline. The comparison with Greece might be ‘overdone’, but one can hardly say that public finances are in good shape in Hungary.

Kosa: “Only a slim chance of avoiding a Greek-style scenario”
This afternoon market participants shocked when Lajos Kosa, Deputy Head of the ruling Fidesz party, said that the state of public finances in Hungary was such that Hungary only had a slim chance of avoiding a Greek-style scenario.

It shouldn’t be a surprise to anyone that such comments spook the markets, especially taking into account that Hungarian policy makers do not have a strong track record of being fiscally conservative. However, the key question from our perspective is whether Kosa’s comments were intended to spur the Hungarian electorate into accepting the Fidesz plans to renege on their election promises to loosen fiscal policy, or whether it was just a politician displaying honesty. From a market perspective, neither option is positive. The conclusions are that either Hungary is dangerously close to default, or that Hungarian policy makers fail to realise that political game-playing can have a seriously negative impact on the market. That said, if this is “just” politics, then the impact for Hungarian markets should be fairly limited in the longer run.

So which of the two is it? The answer is that we simply don’t know. The only established fact is that Hungary is in a very fragile economic situation and public debt levels could veer in a clearly unsustainable direction if measures to improve the budget situation are not passed.

Our view is that this clearly has the potential to develop into a very critical situation for the Hungarian markets – especially if Hungarian policy makers do not take more care in terms of their communication. In that regard, it should be noted that we have been concerned about the new Hungarian government’s verbal attacks on the Hungarian central bank management recently. Such outbursts surely also have the potential to spook investors.

To read the full report: HUNGARY & GREECE