Tuesday, August 25, 2009

VARIOUS Research Reports

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We continue to await the arrival of the new mega power policy. Amongs conjecture by the press on possibilities under consideration in the new mega power policy, the government stated that it is not looking at either capping spot power tariffs or rolling back duty concessions on setting up 1,000MW power projects.

The discussion above leads us to conclude that both industry and consumers will gain on
account of reduced effective tax rates. A classical question which arises is how will it be funded?
Will it be out of government’s pocket?

Cement stock valuations are attractive. We prefer companies with cost-saving potential that are ahead of the curve in adding capacity. Among large cap stocks, Grasim and UltraTech are our top picks and we prefer Shree Cement, Birla Corp and India Cement among mid-caps.

Indian companies continue to grow faster than MNCs. Among the top 50 companies, Indian companies continued to grow faster than multinational companies (MNCs), recording growth of 19.9% y-y in June compared to 14.1% y.y for MNCs. For MAT June 2009, Indian companies growth was 13.1%, compared to MNCs 8.7%. The relatively slower growth for MNCs is due
primarily to lower new product introductions by MNCs, in our view. New product introductions contributed just 21% of MNCs MAT sales growth compared to 62% for Indian companies.

A close analysis of the results shows us that the companies that dared to expand and produce from the newly expanded capacity despite the shadows of demand destruction were rewarded by rise in sales viz. JSW Steel and Tata Steel (to some extent). Secondly, those companies that are more exposed to external raw material procurement esp. coking coal were larger losers (SAIL & JSW Steel).

We expect the tempo of project awards to gather speed in H2FY10 as developer interest revives on the back of an improving economic environment, stable governance, softening interest rates and commodity prices, and positive policy shifts with respect to number of bidders and land acquisition norms.

We do not expect Bharti to significantly increase its bid price. Given the lukewarm response we have gauged from MTN shareholders, we believe there is a good chance that this transaction may not happen.

We believe despite the strain on spending, if the changes in the revenue metrics of Indian IT companies are taken into account, further earnings expansion in the near term cannot be ruled out. Further, we believe the sector could outperform in near term due to the flexibility and, fiscal and operational discipline of the IT companies to combat the current downturn.

We continue to like RCOM as a beta play, primarily based on improving traction in the new GSM business (no more price discounting and a focus on revenues rather than low-yielding subs), the new revenue stream emerging from 3G EVDO-led wireless broadband, the new mega towers deal with Etisalat DB and attractive valuations. RCOM has corrected 9% in the past month, and we think investors should use this opportunity to accumulate the stock.

We remain Overweight on Sterlite due to its strong volume growth prospects, higher chances on balance stake purchases in HZL and Balco, and likelihood of higher valuations as we come close to the commissioning of its power plant.

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All opinions are based on my technical study; however, I do not vouch for the accuracy or the completeness of the matter. I am not liable for any potential damages that may be incurred while acting upon any information mentioned in this report. The views expressed are not of binding nature. The report is intended for a restricted audience & I am not soliciting any action based on it. Please exercise discretion and due diligence in making your decisions. Investments in Capital Markets are not my obligation or guarantee and are subject to investment risks. In no event will I be liable for any damages, including without limitation direct or indirect, special, incidental or consequential damages, losses or expenses arising in connection with this report or use thereof or inability to use by any party, or in connection with any failure of performance, error, omission, interruption, defect, delay in operation even if I am thereof, advised of the possibility of such damages, losses or expenses.