>Hindustan Unilever (EMKAY)

PRICING ACTION

HUL implemented price cut of 4%-20% on select brands and product categories. The price cuts are implemented either directly (20% price cut on Wheel Active Blue) or indirectly through weight changes (4.2% weight increase in Lifebuoy and 6.7% - 8.3% weight increase in Wheel Green). Considering above mentioned price cuts on select brands, total blended price reductions is approximately 1.2%. This translates into net cost saving of Rs5,301 mn compared to Rs7,637 mn earlier and additional EBITDA margin of 2.9% versus 4.1% earlier. Recent price reductions ratify our call that consumer staple companies will retain some savings to improve margin profile and intensify advertisement activities and utilize the balance for price reductions to benefit consumers. The recent price reduction on select brands is in-line with expectation. Despite adjusting the above price actions, HUL can implement incremental price reductions of 3.1% without impacting FY10E earnings estimates and intensify advertisement activities. Our earnings forecasts for CY09E remain unchanged at Rs11.7/Share. We maintain our BUY rating with target price of Rs305.

HUL implemented price cuts of 4%-20% on select brands and product categories
HUL, w.e.f April 2009 implemented price cut of 4%-20% on select brands and product categories. The price cuts are implemented either directly (Wheel Active Blue – Cake) or indirectly through weight changes (Lifebuoy, Wheel Green – Powder). The pricing action undertaken are – (1) 20% price cut in Wheel Active Blue – Detergent Cake (200 gm) from Rs10 to Rs8 (2) 4.2% price cut in Lifebuoy by increasing the weight from 115 gm earlier to 120 gm and keeping the retail price unchanged at Rs15 and (3) price cuts in range of 6.7%-8.3% in two SKU of Wheel Green – Detergent Powder by increasing the weight from 275 gm to 300 gm and 560 gm to 600 gm.

Safety cushion still exists, despite the above price reductions
Drawing reference to our earlier report ‘Material Gains’, HUL is riding on net savings of Rs7,637 mn or additional margins of 4.3%. The report highlighted the magnitude of savings and re-iterated our call on partial retention of savings and partial pass through to the consumers. Considering above mentioned price cuts on select brands, total blended price reductions is approximately 1.2%. This translates into net cost saving of Rs5,301 mn compared to Rs7,637 mn earlier and additional EBITDA margin of 2.9% versus 4.1% earlier. Despite adjusting the above price actions, HUL has enough safety cushions to introduce further pricing actions (upto 3.1% blended price reduction), make aggressive spends on advertisement and enough arsenal to combat price competition.

To see full report : HUL

>Crude down on firmer dollar; fundamentals weak

Singapore - Crude oil futures drifted lower Friday in Asia as the dollar strengthened, presenting a disincentive to stay long on contracts, while traders also opted to take profit as weak fundamentals continued to cast doubts over the market's outlook. While oil prices have held steady near the psychologically important $50-a-barrel mark in recent trading, with sentiment finding support from firming equity markets, analysts warned that downside risks persisted. "Overall, we continue to have difficulty building a bullish case," said Jim Ritterbusch, president at trading advisory firm Ritterbusch and Associates. "But, at the same time, we are recognizing the recent resiliency of the complex amidst seemingly bearish headlines, particularly in the form of mounting and burdensome crude supplies." On the New York Mercantile Exchange, light, sweet crude for delivery in May traded at $49.64 a barrel at 0635 GMT, down 34 cents or 0.7% in the Globex electronic session. June Brent crude on London's ICE Futures exchange lost 5 cents to $53.01 a barrel. The dollar earlier traded firmer against the euro and the yen, rising to Y99.52 from Y99.33 late in New York; the single currency traded at $1.3128, from $1.3175. Oil prices came under renewed pressure Wednesday following U.S. government oil data that showed the country's crude inventories rose a fifth straight week to 366.7 million barrels - the highest since September 1990. Stockpiles have climbed almost 17% on year despite efforts by the Organization of Petroleum Exporting Countries to aggressively cut output, suggesting demand has failed to keep pace.

Given the recent positive performance of equities - Asian shares traded higher ahead of the weekend - as well as some bright spots in the global economic growth picture, energy and precious metals markets may be "running out of favor" with investors, according to Barclays Capital. "The flow of investments into oil (exchange-traded products) has reversed sharply," analysts led by Gayle Berry said in an overnight report. "With the financial market environment now less positive for gold and oil inventory levels rising sharply, further investment outflows from these sectors look likely." At 0635 GMT, oil product futures also traded lower. Nymex heating oil for May fell 82 points to 141.36 cents a gallon, while May reformulated gasoline blendstock traded at 147.25 cents, down 18 points. ICE gasoil for May changed hands at $454.25 a metric ton, slipping $2.75 from Thursday's settlement.

Source : COMMODITIESCONTROL

>JSW Steel (KARVY)

Surpassing Tata Steel as the largest private sector steel player in India

JSW Steel has come back on track to deliver a healthy crude steel production performance in Q4FY2009 after the complete disappointment on production and sales volume front during Q3FY2009. Volumes have been showing an uptrend but we believe there could be negative surprise of lower steel price realization as compared to consensus estimates. On account of price performance and overhang of lower price realizations, we downgrade our rating from BUY to Market performer.

Production update for Q4FY2009 and outlook for FY2010E: After commissioning of new blast furnace capacity of 2.8 mn tonnes in February 2009, JSW Steel has now become India's largest private sector steel company with total steel making capacity of 7.8 mn tonnes. Earlier it was Tata Steel with steel making capacity of 6.8 mn tonnes. The 2.8 mn tonne expansion project has been commissioned in a record 31 months.

Indian and global steel price might correct further due to lower raw material prices: We expect iron ore contracts and coking coal contracts to be negotiated at ~ 50%-60% lower than the contract rates of FY2009. Iron ore contracts might be finalized at US$50 per tonne and coking coal at US$120 per tonne for FY2010E. This is likely to put further pressure on steel prices going forward.

Despite being largely non-integrated, JSW Steel is a low cost producer: JSW Steel's cost of production is lower than that of Tata Steel (India), which is remarkable considering that its level of integration is much lower than that of Tata Steel (India). While Tata Steel (India) is 100% integrated for iron ore supplies and 70% for coking coal supplies, JSW Steel is integrated for only 25% of iron ore. However, JSW's employee and other costs per tonne are
significantly lower than those of Tata Steel.

Domestic producers gain as imports reduce: Though there was a sharp jump in imports in November 2008 due to the wide differential between Indian domestic prices and the import price from CIS countries, Indian companies could counter the flow of imports by cutting HRC prices by US$100/t in December 2008. Going forward, we believe that the preference for domestic producers over imports could continue due to the benefits like less order to delivery time, no requirement of letter of credit, lack of any exchange rate risks, etc.

Valuation: For FY09E, we expect adjusted profit to decline by 36.5% to Rs 11,787 mn. Our EPS estimate for FY2009 comes to Rs 59. Our FY2010E EPS is Rs 82 based on sales volume of 6.2 mn tonnes in FY2010E. We maintain our target price of Rs 334 at which the stock would quote at P /E of 4.1x and EV / EBIDTA of 4.6x based on FY2010E. Due to the recent surge in the stock price, we change our rating from BUY to Marketperformer.

To see full report: JSW Steel

>Investor’s Eye (SHAREKHAN)

• Stock Update >> Larsen & Toubro

• Stock Update >> ITC

To see full report: INVESTOR”S EYE