Trade news.: May 2010

Thursday, May 20, 2010

BULL’s EYE – INDUSIND BANK LIMITED

The present price is Rs.198. The returns from the present price is 26% Incorporated in the year 1994, IndusInd Bank is amongst the leading private sector banks in the country. The Bank has a network of 210 branches and 497 ATMs spread over 168 cities across the country. The Bank also has representative offices in Dubai and London.

Dramatic improvement seen over the last two years:

The new management, under the able leadership of Mr. Romesh Sobti ( CEO & MD), from ABN Amro Bank took the charge in early 2008. At the time of entry, the management team had set certain benchmarks for itself to be achieved over a three year time horizon. The management team identified the product and service offerings missing in the Bank’s portfolio and bridged the gap by offering the missing products and services. As a result, the operating ratios of the Bank have seen a phenomenal improvement over the last two years. Net Interest Margin of the Bank has improved from 1.37% in FY’08 to 2.88% in FY’10. The Cost-to-Income ratio has declined from 67.21% in FY’08 to 51.12%. Net NPAs have reduced from 2.27% to 0.50% in FY’10. To sum it up, during this period, the net profit of IndusInd Bank has increased from Rs.75.05 crore in FY’08 to Rs.350.31 crore in FY’10.

On a strong growth trajectory:

The Bank Management has targeted to scale up the branch network to 310 at the end of FY’11 and 700 at the end of three years from the present figure of 210. The management has set aside a sum of Rs.40 crore in FY’11 for ‘branding exercise’. The Bank is likely to take a new name – Partners Bank. These two initiatives are expected to scale up the CASA of the Bank from the present levels of 23.7% to around 30% in FY’11E.

Cost/Income Ratio to remain under check:

The Bank has recruited 2650 employees over the last two years and plans to hire another 1000 employees in FY’11. A significant portion of these employees would be having variable pay structure. As a result, inspite of the aggressive expansion plans, the management expects to reduce the Cost/Income Ratio by 200 basis points over the next one year (from the present levels of 51.12%).

Financials & Valuations:

In In FY’10, the Bank registered interest income of Rs.2706.99 crore, an increase of 17.2% on a y-o-y basis. Other Income registered an increase of 21.3% y-o-y to Rs.553.48 crore. The Bank registered a net profit of Rs.350.31 crore, y-o-y increase of 136.2%. EPS for 2009-10 was Rs.9.01 (2008-09 Rs.4.28). The Adjusted book value per share of IndusInd Bank increased from Rs.35.20 on 31-Mar-09 to Rs.50.27 as on 31-Mar-10. We expect the Bank to register interest income of Rs.3573.20 crore for FY’11E. Net profit for the corresponding year is expected to be Rs.464 crore. This translates into an EPS of Rs.11.3 and adjusted book value of around Rs.60. Considering the fact that the Bank is expanding its branch network, continuously adding new products and services to its existing portfolio, we recommend a “BUY” with a target price of Rs.250 over the next 6 to 9 months.

Emami Limited (Emami) is the flagship company of the Kolkata based Emami Group

Emami Limited (Emami) is the flagship company of the Kolkata based Emami Group. Apart from the FMCG space, Emami Group also has interests in paper, construction, cement and real estate. Emami Limited is engaged in the manufacture of personal and health care products. The company’s top four brands, namely, Navratna, Boroplus, Zandu and Fair and Handsome contribute about 60 per cent to Emami’s topline. All the brands did well in Q3FY’10. Brands like Navratna oil, Boroplus antiseptic cream, Fair and Handsome and Menthoplus Balm reported revenue growth of 25%, 15%, 10% and 13% respectively (y-o-y), in Q3FY’10. Emami is focusing on smaller variants of Navratna Extra Thanda oil and Navratna Lite oil. Navratna hair oil constitutes approximately 24 per cent of the company’s standalone sales. Recently, the company launched a Rs.10 SKU of Navratna oil, thus filling in the vacuum it had at this price point. The company is also looking at increasing the distribution of Navratna oil in men’s parlours, where the oil is used for head massages. At present, this distribution channel contributes only 5 per cent of sales, however, we feel that this is an important brand awareness initiative taken by the company. Post the acquisition of Zandu, Emami Limited has achieved the operating efficiencies it was looking for. This includes the savings in production and cost of goods sold (COGS) along with reduction in trade margins. In FY’09, the COGS was 34 per cent of sales. Going forward, the management feels that the COGS could reach a normalized level of 37 per cent from FY’11. The company shifted its Zandu balm production from Gujarat to an excise free location in Pantnagar, in May 2009, thus helping in higher realizations and margin expansion. Due to some mold issues in the manufacture of Rs.2 Zandu balm SKU’s, the launch of the Rs.2 pack had been postponed. However, with the issues being resolved, the company plans to launch the new Rs.2 SKU of Zandu Balm, going forward from Q1FY’11. The company has plans to set up manufacturing plants in Egypt and Bangladesh, over the next two years. Each plant would incur a capex of Rs.10-12 cr (approximately). The company management plans to have at least three manufacturing units in Africa in the next three years and is closing in on an acquisition in Egypt as part of its strategy to expand in the continent. Going forward, the company plans to strengthen its presence in international markets like US, CIS and UK. At the current market price of Rs.646 the stock is trading at 28.30x its FY’10E earnings and 20.92x its FY’11E earnings. Emami is one of the fastest growing FMCG companies in India, in the ayurvedic space. The company’s dominant presence in niche categories and low penetration and minimal presence of MNC’s in the space it operates in, augurs well for the company. The synergies of Zandu’s brands with Emami’s brands are strengthening, with continuous launch of new products under these bands. Going forward, the company will focus on products offering high margins, thus ensuring superior profitability. Taking all this into consideration, we recommend a “BUY” on the stock with a target price of Rs.780 over the next 12 months.

Credit-default swaps soared on German Chancellor Angela Merkel’s plan to ban speculation on European government bonds

The euro slid to a four-year low against the dollar, and stocks and copper tumbled after Germany banned certain bearish investments, fueling speculation that European debt crisis will worsen. Australian consumer confidence tumbled by the most in 19 months after the central bank boosted borrowing costs for the sixth time since October and concern about European debt triggered turmoil on financial markets.
Hewlett-Packard, the world's largest technology company, used its heft to push sales and income higher last quarter as both consumers and businesses upped their spending on HP's computers and printers. HP (HPQ, Fortune 500)'s net income rose 28% in its second fiscal quarter, ended April 30, to $2.2 billion, or 91 cents per share. That's up from $1.7 billion a year ago. The Securities and Exchange Commission proposed new rules that would pause trading in certain stocks that experience extreme swings. The move is in response to the brief but historic stock market crash of May 6, in which the Dow Jones industrial average fell nearly 1,000 points, its biggest intra-day drop on record, before the index rebounded within a matter of minutes. The Telecom Regulatory Authority of India (TRAI) has told the telecom ministry that two key recommendations are still in progress and that the ministry should wait for the finished article before taking any decision. The Cabinet Committee on Economic Affairs is likely to consider raising the price of natural gas sold under administered pricing mechanism at its next meeting later this week. An empowered group of ministers headed by finance minister Pranab Mukherjee is likely to meet on June 7, 2010 to look into the recommendations of the Kirit Parekh Committee on raising fuel prices. The Government is expected to launch NELP- IX in July. Bank of Rajasthan will merge with ICICI Bank. The share swap ratio has been set at 25 shares of ICICI Bank for every 118 shares of Bank of Rajasthan. Vodafone Group has cut the value of its Indian arm, Vodafone Essar, by USD3.2 billion because of a price war triggered by stiff competition and future payments for spectrum. RIL and RNRL have started final talk on gas pricing. Kumar Mangalam Birla will convert preferential warrants into equity shares in Aditya Birla Nuvo. Maruti Suzuki is pressing its vendors to speed up their capex plans.Godrej Consumer Products may raise as much as USD150 million from selling shares to fund its purchase of Sara Lee’s stake in an Indian venture and other acquisitions. MindTree has announced a partnership with the Carlyle Group for its global data centres. L&T is not happy with Mahindra Satyam for keeping its investors in the dark over detailsof its performance. Chennai Petroleum is planning 9 million tonne expansion at a cost of Rs.10000 crore. Nifty May contracts ends the Day marginally up by 5.35 points a discount of 2.80 points in May contracts and paring OI by 0.80% across all active Nifty contracts. Nifty VIX at 26.54% compared to 27.17% previous Day. Nifty OI PCR at 1.084 compared to 1.102 the previous Day. Nifty call options adds 14.40 Lakh and put option adds 2.81 Lakh over the Day. Highest OI in Nifty calls seen at 5300 May strike and puts at 5000 May strike. Long build up seen in TITAN, FEDERALBNK, GAIL, LT, ASIANPAINT, OPTOCIRCUI, CUMMINSIND, PETRONET, BEML, GRASIM & AMBUJACEM etc. Short build up seen in SUNTV, ROLTA, AUROPHARMA, TATAMOTORS, GODREJIND, JINDALSTEL, PRAJIND, SESAGOA, JSWSTEEL, HDIL, HINDZINC, ZEEL, EDUCOMP & MUNDRAPORT etc. FII side saw short covering in Nifty, long build up in stock futures and Nifty options is seen to be sold with a rise in OI with indications of Options writing over the day. Nifty: (5066). The index opened a negative note and witnessed range bound movement throughout the day’s trading session. It ended the day with gain of 6 points. Falling Channel & 10 dma: The index is in downtrend and is in a falling channel formation. Resistance can be expected around the upper end of the channel around 5100 level. Till the index is sustaining below the upper end of the channel on a closing basis the near term volatility is likely to continue. Index is facing resistance around the 10 dma level around 5111.Close above the 5111 level with rise in volumes will see index inch higher towards 5200 mark. Support: Index has critical support around the 200 dma level around 4987, higher support is around 5018. Resistance : Index faces resistance around 5100-5111 range. Conclusion: Expect intra day choppy movement with resistance around 5111.

Kharif crop is expected to see a shift to cash crops.

ABB announced an open offer to shareholders of ABB India to acquire 22.89 per cent stake in it at Rs.900 a share. Tata Steel and Steel Authority of India Limited have initiated discussions to float a joint venture to produce steel. GAIL has registered a 45 per cent increase in net profit in Q4FY’10. Axis Bank has received bids from six suitors for its private equity arm. DLF confirmed that it had decided to sell its stake in ultra-luxury hotel group Aman Resorts. Shree Renuka Sugar’s Rs.1530 crore deal to acquire Brazilian sugar and ethanol maker Equipav may be called off. Tata Steel is keen on forming a JV with Steel Authority of India to set up a steel plant.
L&T recorded a 44% growth in fourth quarter net profit on better sales. The management has given a guidance of 20% revenue growth in FY’11. Aban Offshore may see its revenues fall by 15% on account of the loss of the rig. GAIL India has posted Rs.3140 crore net profit in FY’10, an increase of 12% y-o-y. Patel Engineering has emerged as the lowest bidder for contracts worth Rs.3000 crore. NTPC Ltd. is planning to float a tender to supply super critical equipment valued at Rs.19200 crore. Nifty May contracts ends the Day down by 25.60 points a discount of 9.85 points in May contracts and adding OI by 3.3% across all active Nifty contracts with indications of significant short covering. Nifty VIX at 27.17% compared to 26.53% previous Day. Nifty OI PCR at 1.102 compared to 1.118 the previous Day. Nifty call options adds 19.13 Lakh and put option adds 11.13 Lakh over the Day. Highest OI in Nifty calls seen at 5300 May strike and puts at 5000 May strike. Long build up seen in DENABANK, BGRENERGY, TATATEA, UCOBANK, LT, ABB, VIJAYABANK, DABUR, SIEMENS, LITL & KOTAKBANK etc. Short build up seen in DLF, IVRCLINFRA, POWERGRID, RELINFRA, JPASSOCIAT, PUNJLLOYD, WIPRO, CHENNPETRO, RELIANCE, BHUSANSTL, ROLTA, TATAMOTORS, HDIL, KFA, MTNL & ACC etc. Long liquidation seen in BALRAMCHIN, BHARATFORG, ZEEL, AREVAT&D, HINDUNILVR, MCLEODRUSS, ALBK, GSPL, AUROPHARMA, IBREALEST & PRAJIND etc. FII side saw short build up in Nifty and stock futures and Nifty options is seen to be bought over the day Bounces from 200 dma.Bias Down Nifty: (5060). The index opened a panic note and witnessed recovery post after noon trades. It ended the day with loss of 34 points. 200 dma: The index witnessed support around the 200 dma @ 4984 and saw intraday pullback. The level of 200 dma is critical support level. The index faces resistance around 10 dma level around 5117, intra day bounce will face resistance around this level. Pattern: Falling Channel: The index is in downtrend and is in a falling channel formation. Resistance can be expected around the upper end of the channel. Till the index is sustaining below the upper end of the channel on a closing basis the short term downtrend is likely to continue. The upper end of the channel is around 5112 level. Support: Index has critical support around the 200 dma level around 4984, break below 4984 can see index testing lower levels around 4900. Conclusion: Sell intraday rise towards 5120 levels.

Asia stocks fell the most in a week after Sony Corp.

Approximately 444,000 Americans filed new claims for unemployment last week, according to the weekly jobless claims report from the Labor Department, the lowest number since late March. Claims stood at a revised 448,000 the previous week. Economists surveyed by Briefing.com expected claims to fall to 440,000. It was the fourth consecutive week of declining claims, but the improvement hasn't been sufficient to drive real job growth. Continuing claims, a measure of Americans who have been receiving benefits for a week or more, rose to 4,627,000 from 4,615,000 the previous week. Economists expected 4,570,000 on average. The Government plans to create a Rs.50000 crore dedicated fund to set right the country’s creaking infrastructure and could raise 40% of the corpus from overseas investors. Passenger traffic vaults 26% in the month of April, 2010. The Greek debt crisis will not force the Reserve Bankvof India to give up its hawkish monetary policy as per the RBI Dy Governor. Aban Offshore’s gas platform sank on the coast of Venezuela. This was one of Aban’s biggest money-spinning rigs, earning USD358000 a day. RIL may join ONGC consortium in Venezuala. This consortium is expected to bag another hydrocarbon block in the oil-rich Orinocobetl of Venezuela. Standard Chartered is likely to raise around USD600 million through India listing. Tata Power reiterated its stand no to supply electricity to Reliance Infra at regulated rate from Monday. IndusInd Bank is planning to change the name to Partners Bank. RJ Corp, the diversified firm with interests across food, beverages and retail, will dilute 10-12% equity in one of its subsidiaries to fund expansion. MRF is planning to raise debt to part-fund its capex this year. Kingfisher Airlines has appointed SBI Caps to restructure its debt. REC is planning to borrow Rs.21000 crore in FY’11. Godrej Consumer shall pay Rs.1050 crore to buy SaraLee’s 51% stake in joint venture. Birla Corp is planning to Rs.4000 crore capex to increase its capacity. Resistance around 5200 Nifty: (5179). The index opened on a positive note and exhibited range bound trading. It closed on a positive note with a gain of 22 points. Moving Average: The index is facing resistance around the short term averages.10 dma = 5155; 20 dma = 5208 and 50 dma = 5218.Index is facing resistance around the short term averages. Consolidation: The index is for the last three trading sessions is consolidating in a band of 5212 on the upside and 5098 on the downside. Breakout from this consolidation will see index exhibit strength and test higher levels. Support: Index has support around 5140-5100. Resistance: Index faces resistance around 5200-5218. Conclusion: Buy intraday declines wit stop loss below 5140 Nifty May contracts ends the Day up by 27.95 points a discount of 0.75 points in May contracts and paring OI by 2.2% across all active Nifty contracts. Nifty VIX at 24.16% compared to 25.82% previous Day. Nifty OI PCR at 1.181 compared to 1.181 the previous Day. Nifty call options adds 25.16 Lakh and put option adds 26.72 Lakhs over the Day. Highest OI in Nifty calls seen at 5400 May strike and puts at 5000 May strike. Long build up seen in PFC, PIRHEALTH, EKC, PATELENG, GLAXO, TRIVENI, TITAN, LICHSGFIN, ACC, ICSA, JSWSTEEL, FEDERALBNK, HOTELEELA, MLL, INDHOTEL, IBREALEST & CROMPGREAV etc. Short build up seen in POLARIS, NAGARCONST, ONMOBILE, DENABANK, ABAN, ORIENTBANK, SESAGOA & MCLEODRUSS etc.
FII side saw short covering in Nifty & stock futures and Nifty options was seen to be bought