RESEARCH REPORTS
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CEMENT SECTOR
■ Cement manufacturers in southern region intimate price hike of Rs30-35/bag effective Sept 7– Prices in other regions largely stable ■ Dealers confirm price hike – but skeptical about absorption capacity of market given sluggish offtake and ample supply – Dealers suggest net price could be Rs10-15/bag ■ Assuming best case effective price hike of Rs15/bag for south, H2FY11 entry prices could be higher than our est by Rs10/bag. Earnings of our coverage cos could get upgraded by 4-36%
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Mid-Quarter Monetary Policy Review: Inflation continues to be RBI’s priority
The Reserve Bank of India in its maiden mid quarter monetary policy review raised interest rates for the fifth time since mid March 2010 with an objective to control inflationary expectations. It raised the repo rate (the rate at which it lends to banks) and reverse repo (the rate at which it accepts surplus liquidity from banks) by 25bp and 50bp to 6.0% and 5.0%, respectively. Effectively, this reduced the Liquidity Adjustment Facility (LAF) corridor to 100bp after a reduction of 25bp in July 2010 policy as well. The Central Bank has maintained status quo on Cash Reserve Ratio (CRR) at 6.0%…
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PVR
Screen additions/movie pipeline to drive exhibition business: Management has guided for a robust 2Q/3QFY2011 for the exhibition business, aided by strong movie pipeline (both domestic and Hollywood), and substantial screen additions (PVR has added 28 screens and ~7,500 seats over the last six months). Management expects a pipeline of almost 14-15 3D English movies (most of them being sequels) to be released over the next 18-24 months, and contributing ~27-28% to top-line…
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ISPAT INDUSTRIES: Ispat’s share being 76mn tonnes.
Joint venture with Stemcor to set up a coke oven plant: Ispat has entered into a JV (Amba River Coke) with Stemcor for setting up a 1mn tonne coke oven plant at a cost of Rs1,124cr. Ispat holds 26% equity stake & the balance is held by Stemcor. The project will be funded through debt-equity ratio of 2:1 and is yet to achieve the financial closure. Ispat’s equity contribution will be Rs100cr (Rs50cr will be through land and infrastructure support and balance Rs50cr through cash infusion). Once commissioned, the plant will cater to 100% coke requirement of the company…
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SPECIAL ECONOMIC ANALYSIS: India and China: New Tigers of Asia
In our second report comparing India and China in 2006 (India and China: New Tigers of Asia, Part II dated May 29, 2006), we made a call that India had the potential to catch up with China in terms of GDP growth rates. That time has come, in our view. We believe that, over the next two years, India should start matching China’s GDP growth of around 8.5-9.5%, barring another global financial crisis. More importantly, we think that, by 2013-15, India will start outpacing China’s GDP growth notably. Morgan Stanley’s Chief Economist for China, Qing Wang, believes that China’s growth will move towards a more sustainable rate of 8% by 2015, following the remarkable 10% average over the past 30 years…
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INDIA STRATEGY: Identifying emerging winners for 2015
Are leaders born or made? It is clear that in the context of a dynamic, rapidly evolving stockmarket like India, both can be true. Some have indeed been born out of favourable social and regulatory changes, but most have been made from anticipating major themes and evolving strategies to take them well ahead of their peers. This report selects an Indian XI for 2015 – a set of 11 stocks that will become market or sector leaders in the next five years. Some will leap from being small/mid caps today to large caps. India is a true ‘emerging’ market and comparisons with developed economies like the USA, as well as some in Asia, underscore the contrasts in evolution…
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Why SOE Banks Remain Top Picks Among Asian Banks
Despite their run-up, we think Indian SOE banks still offer significant upside potential: When we look at historical multiples, SOE bank stocks are trading at close to all-time highs. However, in our view, that may not necessarily be the right metric for this group. Historically, they were growing at a much slower pace than system and underlying profitability (ex bonds) was very thin. However, things have changed. SOE banks have changed meaningfully over the last 4-5 years: The market share loss (in loans, deposits and fee income) has abated…
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RELIANCE INDUSTRIES LIMITED: Time for a relook, we see 24% upside from current levels
RIL has underperformed the Sensex by 19% since April of this year, which the steepest underperformance in the stock over the last six years. The under performance has been driven by i) KG D6 production stalling at ~60 mmscmd, ii) uncertainty around refining and petrochemical margins and iii) RIL’s foray into telecom and hotels. We believe however, that the bad news around the stock has been more than priced in and the stock should rally smartly from here, aided particularly by good news on the gas pricing front (overall domestic gas prices rising) and exploration business globally (more shale acquisitions)…
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BILCARE LIMITED (ANAND RATHI)
■ Investment Theme Innovation driven by R&D is key driver for the growth of all the business segments of this company.The major contributor is and will remain the Pharma packaging solutions, which accounts for 85% of sales ■ Company offers comprehensive range of innovative packaging solutions, consisting of – blister films, aluminumfoils, cold formed blisters and wrap systems. ■ Apart form domestic demand, major growth will come from US markets, where shifting from bottles to Blister packaging will boost demand for its products…
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INFRA BEESInfrastructure Benchmark Exchange Traded Scheme
The investment objective of the Scheme is to provide returns that, before expenses, closely correspond to the total returns of the securities as represented by the CNX Infrastructure Index by investing in the securities in the same proportion as in the Index. However, the performance of Scheme may differ from that of the Underlying Index due to tracking error. There can be no assurance or guarantee that the investment objective of the Scheme will be achieved…
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RELIANCE CAPITAL: Q1 FY 11 result performance
During the quarter ended June 2010 reliance Capital posted a consolidated total Income of Rs 12.6 billion which was down by 13.7% on Y –o- Y basis and down by 26% on Q –o- Q basis. The total income was down due to lower capital gains and reduction in topline of general insurance business. The company posted a net profit of Rs 770 million which is drastically down by 49% on Y –o- Y basis but is up by 19.4% on Q –o- Q basis. The profit was down due to fall in AUM and loss in insurance business…
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Is it all over for the global wind markets?
Weak electricity demand resulting from energy efficiency measures and recessionary forces have made national wind installation targets easier to achieve. We have therefore cut our five year wind industry global demand CAGR to 7.0% from 7.5% previously and our 10-year CAGR to 5.5% from 6.7%. We remain cautious on the wind OEMs, and see few near term catalysts for share price performance. Our favourite part of the value chain remains the wind farm developers as we feel that that the developers offer a more compelling combination of earnings visibility and valuation and our preference for this part of the value chain has now increased. Acciona and EDP R, both rated OW(V), are our highest conviction investment ideas…
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IT SERVICES: Earnings Expectations and Ownership – A Closer Look
Earnings beat/upgrades to drive stock prices — Given current valuations, EPS beat/upgrades remain the key catalyst for the sector, in our view. For example, post 1Q results, TCS was the only stock that witnessed meaningful operational upgrades – after which, TCS outperformed its peers. In that context, we take a closer look at expectations as they can limit or result in surprises/upgrades. Expectations for Infosys are the highest; Wipro the lowest — Our analysis (Fig. 1) highlights that consensus (IBES) expectations for Infosys are the highest…
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Hindusthan National Glass & Industries Limited
Hindusthan National Glass & Industries Ltd (HNGIL) registered stable revenue growth of 10.8% y-o-y to Rs 3.6 bn in Q1FY11 primarily on account of volume growth. However, PAT dipped 45% y-o-y to Rs 313 mn primarily on account of lower EBITDA margins, which declined to 20.9% as against 28.3% in Q1FY10 due to higher fuel costs. Although the company has the bargaining power to pass on any increase in costs, there is a time lag in doing so and, hence, there is a temporary impact on margins.
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FX Alert – QE2 as USD end-game
A second round of QE will likely put sharp downward pressure on the USD, to some degree versus the euro and other G10 currencies, with potential for a broader USD sell-off. Foreign investors are likely to view the renewed direct intervention as indicating that the Fed’s balance sheet expansion and implicit monetization of fiscal expenditures are first line approaches to dealing with disappointing recovery prospects, rather than the exceptional measures they were meant to be initially. This could have severe implications for foreign perceptions of the quality of the US assets that they are accumulating in private and official portfolios, and may lead them to draw the conclusion that USD weakness is less a by-product than a desired outcome of these measures…
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SOVEREIGN SUBJECTS: Ask Not Whether Governments Will Default, but How
This is the first issue of Sovereign Subjects, a new Morgan Stanley publication focusing on sovereign risk in advanced economies. In this first installment, we take a broad perspective on government balance sheets and raise several themes to which we will return in more depth in subsequent issues. We encourage clients to provide us with feedback on this new publication. Debt/GDP ratios are too backward-looking and considerably underestimate the fiscal challenge faced by advanced economies’ governments. On the basis of current policies, most governments are deep in negative equity…
