BSE / NSE Weekly Review Feb 11, 2012

Key benchmark indices rose in the week ended 11th February 2012, as inflows from foreign
institutional investors (FIIs) remained robust. This was the 6th consecutive weekly gain. Trading
remained upbeat throughout the week. However, some profit booking emerged on Friday (10
February 2012) after disappointing industrial production data for the month of December 2011
dampened investor sentiment.

Industrial production rose a slower-than-expected 1.8% in December 2011, government data
showed on Friday, 10 February 2011. The growth in December 2011 was sharply lower than
5.9% growth in November 2011. Manufacturing output, which constitutes about 76% of industrial
production, rose 1.8% from a year earlier, the federal statistics office said.

India's January exports rose 10.1% to $25.4 billion while imports rose 20.3% to $40.1 billion,
leaving a trade deficit of $14.7 billion, Trade Secretary Rahul Khullar said on Thursday. India's
exports reached $242.8 billion between April and January, Khullar said, citing provisional data.
The BSE Sensex rose 0.8% to 17,749 in the week ended Friday, 10th February 2012 while the
S&P CNX Nifty rose 1.1% to 5,382. The rise in the broader indices was amplified. The BSE MidCap index rose 3.3% to 6,247 while the BSE Small-Cap index rose 3.1% to 6,891. The sectoral
indices sentiments were extremely positive with the Healthcare index being the only loser. BSE
Realty, BSE CD and BSE Metal were the largest gainers.

Realty: 
The BSE Realty index rose 5.8% to close at 1,887 levels. Among the heavyweights, DLF rose
marginally (0.2%) while Unitech and HDIL jumped significantly (12.9% and 18.0% respectively)
in the week. Shares in real estate companies were up on expectations of a pick-up in deal flows
and a fall in interest rates, which would benefit both builders and real estate buyers. Unitech
rose on account of pressure from the Norwegian government to survive Uninor, a venture by
Telenor and Unitech Ltd. Telenor, in which the Norwegian government has a ~54% stake, owns
nearly two-thirds of Uninor with infrastructure provider Unitech holding  the rest. Norway’s IT
minister, Rigmor Aasrud, met her Indian counterpart, Kapil Sibal, to discuss the Supreme Court’s
cancellation of licenses of telecom operator Uninor.


Consumer Durables (CD): 
The BSE CD index rose 5.8% to close at 6,169 levels. Among the heavyweights, Titan, Rajesh Exports and Gitanjali rose 5.3%, 2.4% and 5.5% respectively while Videocon fell 1.1%. TTK Prestige rose a whamming 38.9% in the week, establishing its spot among the large companies by market cap within the CD space. The company  clarified that it did not intend to exit the modular kitchen business but plans to expand it slowly after gaining experience. The company also has a plant coming up in Gujarat, which will add to the topline significantly.



Metals:  
The BSE Metals index rose 4.1% to close at 12,364 levels. All the industry majors were gainers. Tata Steel and Coal India rose 1.7% each while Jindal Steel, Hindalco and Sterlite rose 8.5%, 0.2% and 5.1% respectively. Tata Steel issued an encouraging future outlook after reporting 3rd quarter consolidated net loss of Rs 603 cr as  against net profit of Rs 1003 cr in Q3FY11. Turnover rose 13.79% to Rs 33103 cr in Q3FY12 over Q3FY11. With regard to future outlook, Tata Steel said softening raw material prices is expected to ease product-costing pressures from Q4FY12 onwards. Tata Steel expects steel demand in India to improve with RBI indicating progrowth monetary policy. Steel prices remain firm and with traditionally strong volumes in the fourth quarter and the company's profitability is  expected to improve.

The outlook for steel demand in Europe remains stable. Strengthening  steel prices in Europe and restocking will result in better margins of Tata Steel’s European operations in the coming quarters. Tata Steel’s South East Asian operations are expected to perform better with activities in Thailand coming back to normal. Reconstruction activities  will boost long products demand. Jindal Steel and Power plans to spend $300 million in developing new and existing mines in Africa. The move is part of the company's strategy to source coal assets abroad to meet raw material demand of its steel and power plants at home.

Bankex: 
The BSE Bankex index rose 3.0% in the week to close at 11,987 levels. All the large players, namely ICICI Bank, HDFC Bank, SBI and Axis Bank, were gainers, rising 1.5%, 1.9%, 3.3% and 1.6% respectively. SBI recently said that the Government of India has agreed to inject approximately Rs 7900 crore into bank by way of preferential allotment of equity shares to help SBI achieve minimum 8% Tier I CAR by 31  March 2012. The government currently owns 59.40% of SBI. HDFC Bank hit a record high on Friday. A unit of Singapore state investment company Temasek Holdings Pte sold 1.59 crore shares of ICICI Bank through bulk deals on NSE for Rs 1472 crore during the week. Allamanda Investments Pte sold the shares in India's
largest private-sector lender by assets at an average Rs 924.05 per share in the week. Goldman Sachs Investments Mauritius mopped up 64.65 lakh shares in the bulk deal at a price of Rs 924 per share.

PSU: 
The BSE PSU index rose 2.5% in the week to 7,673 levels. ONGC, Coal India, NTPC and SBI rose 0.3%, 1.7%, 2.0% and 3.3%. As mentioned previously, the Government of India has agreed to inject money into SBI. NTPC paid an interim dividend of Rs 2,885.92 cr for the current fiscal. Net profit of the company rose 10% to Rs 2,130.39 crore for the quarter ended December 31,
2011 due to increase in coal prices.

Healthcare (HC): 
The BSE Healthcare (HC) index was the only loser in the week, falling 1.0% to close at 6,347. Among the giants, Sun Pharma, Dr. Reddy’s and Lupin were losers, falling 2.7%, 3.0% and 4.1% respectively while Cipla rose 1.2%. Lupin Limited is planning to invest $20 million in setting up a new manufacturing facility in Pune. Lupin will also launch a cancer drug, which is yet to go through the third clinical trial. It is expected to hit the market during the next financial year.






Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor
Like us www.facebook.com/ingeniousinvestor

FIIs - Reduced exposure on BSE Sensex in July - Sept 2011

Overseas investors have scaled down their exposure in 19 Sensex companies, including RIL, Tata Motors and SBI, during the second quarter amid rising concerns of economic slowdown and weakening of the rupee.

Out of the 30-Sensex firms, 19 companies have witnessed a decline in their respective Foreign Institutional Investors (FIIs) holding, while in the remaining 11 stocks, foreign fund house have consolidated their stakes during the July-September quarter of current fiscal compared to preceding (April—June) quarter, according to data available with the BSE.

However, FIIs have increased their stakes marginally in 16 Sensex firms during the June quarter this fiscal and reduced exposure in the remaining 14 companies.

Market analysts attributed the decline in FII holding to challenging macro economic conditions and weakening rupee. “FIIs are shying away from the Indian firms on concerns of macro economic conditions and depreciating rupee,” said Mr Kishor Ostwal, CMD, CNI Research.

Metal companies such as Hindalco Industries, Tata Steel and Jindal Steel & Power Ltd (JSPL), country’s largest lender State Bank of India (SBI) and drug firm Cipla have witnessed maximum reduction in their FII holdings.

In contrast, FIIs increased their holding in auto stocks such as Mahindra & Mahindra, Maruti Suzuki, Hero MotorCorp and Bajaj Auto. However, Tata Motors was an exception to this category.

The FII holding in Hindalco Industries fell from 30.83 per cent to 28.24 per cent at the end of the July-September quarter and during the same period, FII shareholding in Tata Steel declined from 17.06 per cent to 14.61 per cent.

In addition, foreign fund houses stake in JSPL fell from 23.03 per cent to 21.88 per cent. Besides, SBI has seen a plunge of overseas investors stake by 2.23 percentage points to 8.65 per cent during the second quarter of financial year 2010—11.

Pharma major Cipla saw a fall of 1.16 percentage points to 13.57 per cent and FII stake in Tata Motors dropped by 1.1 percentage points to 21.88 per cent.

On the other hand, overseas investors have consolidated their stake in Mahindra & Mahindra by 2.8 percentage points Hero MotoCorp by 1.13 percentage points, Maruti Suzuki by 0.54 percentage points and Bajaj Auto by 0.13 percentage points.

FIIs shed its holding in country’s most valued firm Reliance Industries by marginally 0.05 percentage points to 17.32 per cent in the second quarter of current fiscal.

Mirroring the volatility in the global economy, FIIs were not very consistent while investing in the Indian market. In July, they invested a hefty sum of Rs 8,030.10 crore in the equity market and again infused Rs 485.40 crore in August. In September, they pulled out Rs 158.30 crore, according to the data of the stock market regulator Sebi.

Bought to you by

Soumya
Equity Analyst

Ingenious Investor
Equity Research Division

Ravina Consulting
No.24 Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

Maruti - Avoid

Shares of Maruti Suzuki Ltd slipped to their 52-week low of Rs 1022.10 on Friday as investors are concerned of ongoing strikes at various plants which may weigh on production targets and profitability.

Maruti Suzuki has suspended production at its factory in Gurgoan for two days from Friday in view of the strike at its component supplying plant in Manesar.

Workers at Maruti Suzuki's Manesar plant went on strike demanding reinstatement of 44 suspended co-workers who were not taken back after an earlier 33-day impasse with the management ended Oct 1.

Goldman Sachs in a recent report has cut production estimates for Maruti Suzuki Ltd and maintained a 'Neutral' rating with a 12-month price target of Rs 1071, a cut from Rs 1173 target earlier.   The brokerage report says, "Owing to persistent labour strikes at Maruti Suzuki's Manesar plant and supplier Suzuki Power Train, we cut our volume estimates for Maruti Suzuki to 1.2mn units for FY12E (from 1.35mn) with further potential downside should the current impasse continues."

Also, the company might not be in a position to take advantage of new capacity at the Manesar plant in the face of demand uptick driven by seasonally strong festive demand, launch of new Swift model in Aug'11.

According to a report, continued labour unrest at Maruti Suzuki Ltd has alarmed auto companies, as both the carmaker giant and vendors have reported a combined loss of around Rs 3,000 crore since the start of the standoff earlier in June this year.   The government has suffered an excise revenue loss to the tune of Rs 350 cr, while the company has already taken a hit of over Rs 1500 crores.

According to estimates, since the first round of strike in June this year to over 30 days-long standoff from August 29-October 1, and the fresh strike at the Manesar plant from October 7, Maruti Suzuki has suffered a total production loss of over 51,000 units.

Any worsening in labour disputes could potentially drive structural downside risk to Maruti Suzuki's margins from higher staff costs in the long run.  Maruti Suzuki's current staff cost as a percentage of revenue is one of the lowest among peers in India and Asia.

The strike could not come at a more crucial time for the car manufacturer as it is the festive season, which typically generates huge demand -- something the automobile giant is in need of given the sluggish sales witnessed in recent months.

According to recent data, domestic passenger car sales declined for the third consecutive month in September with a fall of 1.8%, mainly due to the severe impact of labour issues on Maruti Suzuki India's production.

According to figures released by the Society of Indian Automobile Manufacturers (SIAM) today, domestic passenger car sales stood 1,65,925 units in September against 1,68,959 units in the same month last year.

Maruti Suzuki Ltd might not be able to take advantage of the festive season, which typically generates huge demand for automakers, on the back of ongoing strike at Maruti's plant which has halted production.

In September, the company's sales declined by 17.76% to 66,667 units from 81,060 units in the same month last year, while rival Tata Motors reported a 2.19% jump in sales to 21,011 units in September this year from 20,560 units in the same period last year.

Car sales in India are expected to rise just 2 to 4 percent this fiscal year to next March, down from an earlier forecast of 10 to 12 percent, industry body Society of Indian Automobile Manufacturers (SIAM) said earlier in the week.

Analyst Call:

Shares of Maruti Suzuki closed 2.65% lower at Rs 1028.45. The stock has touched its 52-week low of Rs 1022.10 earlier in trade today.

"Today the stock has made a new 52 week low, and is inching towards breaking the 1,000 mark on the downside," said Kunal Bothra, Senior Technical Analyst, Manager Advisory, LKP Securities.

The stock has plunged over 15% since June 2011 and over 27% so far this year.

"Technically, the stock has broken down out of a one month consolidation, and if it sustains below Rs 1050 on closing basis today, we should see more selling pressure in this stock," added Kunal.

"If we look at the weekly chart of Maruti Suzuki Ltd, it is clear that the stock is in a consolidation mode since Sep 2009 peak. However if it manages to hold its key retracement levels (61.8%) of Rs 896, on a longer term (2 or more years) basis, the uptrend would still remain intact," said Kunal.

CLSA also maintains "underperform' rating on Maruti Suzuki Ltd with a target price of Rs 1075, a cut from Rs 1210.

Our Recommendation

We expect the share to slide further 25% in the upcoming months due toe the following

- loss of market share
- sedate car market Oct-Dec will be worst
- Continuing labour unrest
- launch of new models by rivals

Below 1000 mark the stock could sink to 800 levels by end december.  Long term investors can enter the stock post Jan 2012 and hold for a period 2-3 years for a 100% gain by way of capital appreciation.


Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

Indian IT Sector to post muted growth

Nomura Financial Advisory and Securities has assigned `Buy` and `Neutral` rating on the following 5 IT stocks. The rationale for the rating is as follows:

HCL Technologies - Buy
CMP: Rs 409
Target Price: Rs 530
Upside 29.5%

Revenue growth of 5.4%, margin decline of 140 bps in 1QFY12 expected:

We expect HCL Tech to deliver US dollar revenue growth of 5.4% q-q in 1Q FY12F along with a 140bp decline in EBITDA margin from wage hikes and fresher recruitment, cushioned by rupee depreciation. Management commentary on the deal pipeline and win-rates will be keenly watched.

Top pick in IT for highest absolute return potential:

HCL Tech`s market share gain focus and lower margin expectations should aid in competing better in a growth slowdown scenario, in our view. We derive comfort from revenue surety on strong deal wins/pipeline exhibited by: 1) USD 2.7 billion worth of TCV signed in BFSI/manufacturing in FY11; 2) about USD 2 billion worth of deals in BFSI in the pipeline; and 3) anticipated strong deal decision making in the December 2011 quarter with a record-high pipeline. Valuations seem to be building in a worst-case scenario of severe pricing cuts, which we believe is unlikely. In our view, its valuations and best-in-class earnings growth provide comfort for implied upside of 30% from current levels. HCL Tech remains our top pick in IT.

Catalyst: Decision making on deals in line with expectations in the December 2011 quarter and an absence of pricing cuts.

Reiterate `Buy` and target price of Rs 530 based on 15x FY13F:

We expect a USD revenue CAGR of 19% and EPS CAGR of 24% over FY11-13F. Our estimates are marginally revised upwards for rupee depreciation. We retain our target price of Rs 530, based on 15x FY13F earnings.

Infosys - Buy
CMP: Rs 2,533
Target Price: Rs 2,900
Upside 15%

Possible negative reaction to guidance cut; accumulate on declines:

We expect 2QFY12 results to be in line with guidance on USD revenues (4.9% q-q), to surprise positively on EBITDA margins (est +110 bps q-q) and come in ahead of guidance on EPS (est Rs 35.7 vs guidance of INR 30.2) driven by rupee depreciation. We see disappointments on a cut in FY12F revenue guidance, which we think is highly probable given: 1) project delays/deferrals and discretionary spending curtailments; and 2) adverse cross-currency movements. Infosys has significant operational scope to tide over demand moderation and we find comfort in valuations which are already factoring in a possibility of guidance downgrade and growth moderation to the low-teen levels in FY13F. Reiterate `Buy`.

Expect FY12F revenue guidance cut and EPS guidance raise:

We expect a cut in USD revenue growth guidance from 18-20% to 16-18% on: 1) growth moderation; and 2) cross-currency impacts. We think EPS guidance is likely to be raised to around Rs 135 from Rs 128-130 earlier on: 1) rupee depreciation; and 2) cost curtailments in a growth moderation environment. Expect 3QFY12F revenue growth to be guided at 3-4% q-q.

Catalyst: Keeping revenue growth guidance unchanged would be a positive trigger.

Raise target price to Rs 2,900, reiterate `Buy`:

We raise our target price to Rs 2,900 (vs Rs 2,800 earlier) based on 18x FY13F earnings on a marginal improvement in earnings on rupee depreciation. Maintain `Buy` on better operational scope and comfort on valuations.

Patni Computer Systems - Neutral
CMP: Rs 289
Target Price: Rs 300
Upside 3.8%

 Weak revenue outlook in the price; upgrade to `Neutral`:

Patni has corrected by 39% (vs 19% correction for the Nifty) YTD and is now trading at 10x FY12F EPS. Post this correction, we see limited downside given: 1) likely sequential margin and EPS improvement for the next few quarters primarily on the back of G&A savings; 2) a cash balance of Rs 130 a share (45% of market cap); and 3) Igate`s expressed preference for a delisting, which could result in shares being acquired at a premium to current prices. Upgrade Patni to Neutral.

Not a `Buy` yet, as revenue and governance concerns remain:

Patni`s revenue growth will be sluggish, in our view, (we model 6.6% CAGR over FY10-12F) as margin improvement seems to be the primary focus of management. Also, we still have concerns on allocation of costs and revenues to Patni under a common Igate-Patni front-end.

Catalyst: Change in delisting plans, improvement in revenue growth

An Igate decision to cut its stake instead of delisting could lead to valuation multiple de-rating. Any sign of Patni breaking out from the sub-4% sequential revenue growth pattern could lead to a re-rating in the stock.

Raise target price to Rs 300 based on 10x 1-yr forward earnings:

Our diluted EPS estimates are higher by 6%/3% to Rs 25.4/28.3 in FY11/12F on 1) rupee depreciation; and 2) higher G&A savings, despite cut in FY13F revenue estimates.

Tata Consultancy Services - Neutral
CMP: Rs 1,037
Target Price: Rs 1,070
Upside 3.18%

2QFY12F - 5%+ revenue growth; forex losses to weigh on earnings:

We expect TCS to report USD revenue growth of 5.4% q-q in 2Q FY12F. EBTIDA margins are likely to improve by 80bps q-q on better rupee realisation and SG&A leverage. Forex losses could depress the positive impact of rupee depreciation on earnings. Management commentary on demand and pipeline will be key things to watch for, as we sense some moderation in management optimism over the past few quarters.

High BFSI/Europe exposure a risk; remain `Neutral`:

We see the key risk at TCS being its high banking, financial services and insurance (BFSI) and Europe exposure. These were the first segments to be hit in the previous downturn, and we expect a repeat of the same scenario. Valuations still appear to build in higher-than-peer-group optimism on future growth given strong management commentary and superior results of late, which could be at risk in a growth moderation scenario. We maintain our Neutral rating, despite continuation of growth momentum in the near term. Amongst Tier-1 stocks, we prefer Infosys and HCL Tech.

Catalysts: Economic uncertainty shifting to individual clients and management commentary turning less upbeat on demand.

Raising target price to Rs 1,070; remain `Neutral`:

We have raised our EPS estimates marginally on rupee depreciation. This leads to our TP being raised to Rs 1,070 (from Rs 1,050), based on 18x FY13F earnings. We remain cautious on TCS on its high BFSI/Europe and client concentration, coupled with lesser comfort on valuations.

Wipro - Neutral
CMP: Rs 341
Target Price: Rs 340
Downside 0.3%

2QFY12 - 3% revenue growth, 200 bp margin decline expected:

We expect Wipro`s IT Services business to post USD revenue growth of 3.4% q-q (1.3% organic growth), which would be near the higher end of its guidance (2-4%). EBIT margins in IT services are likely to dip by 200 bps q-q on the partial impact of wage hikes and the SAIC acquisition. We think there could be disappointment if Wipro guides for less than 3% q-q growth in 3Q.

Downturn a setback to revival efforts; maintain `Neutral`:

We believe the economic uncertainty and impending growth moderation have come at the wrong time for Wipro, which is trying to restructure and close the growth gap with its peers. We see economic uncertainty setting back Wipro`s revival efforts, adding to the high risks to growth in FY13F on account of: 1) weak near-term deal flow; and 2) slow decision-making reducing the possibility of a near-term revival. Wipro remains our least preferred tier-1 Indian IT stock, as we believe it has the slowest earnings and revenue growth outlook among peers and lacks immediate triggers.

Catalysts: Continued underperformance on growth and pricing cuts.

Raise TP to Rs 340 based on 14x FY13F EPS:

We expect Wipro to deliver a CAGR of 11% in revenue growth and 6% in EPS over FY11-13F. The 14x multiple is a 20% discount to our target multiple for Infosys and TCS, justified given the lag in revenue revival and below par earnings growth.
Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

BSE / NSE Sectoral Analysis for Q2 results 2012

Angel Broking, in its latest research report, gave the following outlook on key sectors:

Automobile

Considering the near-term macroeconomic challenges, it expects the auto industry to register moderate volume growth of 12-13% for FY2012. However, it believe low penetration levels coupled with a healthy and sustainable economic environment and favourable demographics supported by increasing per capita income levels will drive long-term growth of the Indian auto industry. As such, it prefers stocks that have strong fundamentals, ability to deliver strong top-line performance and are available at attractive valuations. It continues to prefer companies in the auto sector with a strong pricing power and high exposure to rural and exports markets. Among auto heavyweights, it maintains our positive outlook on Maruti and M&M.

Banking

To overcome liquidity concerns and high inflation, the RBI has increased the key policy rates by 350bp over the past 15 months, which in turn has resulted in bankers raising their deposit rates by 250bp over the same period. As most of these deposit rate hikes were undertaken by banks during 2HFY2011 (215bp), upward deposit repricing is likely to be nearly over for most banks. Hence, it expects relatively lesser contraction in NIMs going forward (average NIM contraction of 21bp in 1QFY2012).

Also, with deposit mobilisation gaining traction over the past six months, liquidity conditions have improved immensely. Hence, unlike six months ago, when tight liquidity conditions were a major factor in pushing up lending rates, at present it see the upward bias to lending rates arising only from the monetary policy front, which too it believe is close to peak levels. However, it believes the key parameter monitorable over the next few quarters would be the asset quality. While the leftover pain of switchover to system-based NPA recognition for PSU banks is expected to be over in 2QFY2012 (unless there is an extension by the RBI for some accounts), it remain wary of the incremental asset-quality pressures that could arise due to the increase in lending rate hikes over the past one year. Hence, it prefers banks with a more conservative asset-quality profile, especially amongst mid caps (i.e., relatively lower yield on advances and switchover to system-based recognition system nearly complete) - this includes banks such as Syndicate Bank, Bank of Maharashtra and United Bank of India. Also, from a medium-term perspective, it continues to prefer large private banks with a strong structural investment case (within which it prefer Axis Bank and ICICI Bank from a valuation perspective).

Capital Goods

All companies in our CG universe have corrected sharply, justified by concerns brewing in the power sector. On the back of this backdrop, it prefers companies with strong growth visibility and diversified revenue streams. It follows a stock-specific approach, with Jyoti Structures and KEC being among our preferred picks. In the BTG space, it continues to maintain our negative stance, owing to concerns of heightened competition and slowdown in order inflows.

Cement

It expects cement demand to witness a considerable momentum going ahead and expect 2HFY2012 dispatch growth to be higher than 3.3% growth in 5MFY2012. However, excess capacity and other macro issues such as rising interest rates and policy inaction remain causes of concern. Most cement stocks under our coverage are fairly valued and, hence, it remains Neutral on them. However, it maintains our Buy recommendation on JK Lakshmi, which is available at attractive valuations of USD 32 on EV/tonne basis, based on FY2013 estimates.

FMCG

FMCG stocks have been volatile and have showed a mix performance during 2QFY2012. It highlight that FMCG companies have outperformed the Sensex and there is still a wide gap in the premium valuations. Though valuations show a breather from their peak levels.

While the long-term consumption story for the FMCG industry remains intact, any further re-rating from current valuations seems less likely given near-term concerns over 1) high inflationary scenario, 2) possible rise in inflation post the fuel price hike and 3) spike in input costs. Hence, it maintains our Underweight stance on the FMCG sector, as it does not expect any near-term positive triggers for the companies. Amongst heavyweights, it remains Neutral on ITC, HUL and Asian Paints. In mid caps, it has a Neutral stance on GSKCH and Marico. It maintains our Reduce rating on Nestle and Colgate due to their stretched valuations and waits for better entry opportunities. It maintains Accumulate on Britannia, Dabur and GCPL.

Infrastructure

Dry spell of project awarding, across sectors, to continue...: Since the last few quarters, there has been a significant slowdown in award activity across sectors. This is a major concern for the sector, given its direct correlation to revenue visibility. Against this backdrop, given the current policy paralysis and gloomy macro environment, which is expected to stay for the next few quarters, it is expecting subdued performance for our coverage universe in the near-to-medium term on the order inflow front.

...with the road sector being the only exception: NHAI has
invited bids of 4,600km up to August 2011, which includes 1,400km already awarded, 1,800km in the awarding process and bids for the balance 1,400km yet to be opened. However, the fact that the activity has only been witnessed at NHAI`s end has led to enhanced competition, which is evident from the huge difference in bidding prices amongst players. This is affecting project IRR and is leading to delays in achieving financial closure. However, NHAI is emerging as the winner in this highly competitive environment, with bidders offering a premium much higher than the expectations of NHAI.

Metals

Although base metal prices are likely to remain under pressure in the near term due to concerns on growth, high cost of production should lend support to prices. While the copper market is struggling with supply constraints, downside for aluminium prices is capped due to high energy cost. Zinc and lead prices are unlikely to see any major upside as the market remains in surplus.

It expects non-ferrous companies to register positive top-line growth of 4-61% yoy, owing to a surge in LME prices. However, while Hindalco and Sterlite are expected to report margin expansion of 145bp and 340bp yoy, respectively, Nalco and HZL are expected to witness a margin contraction by 122bp and 200bp yoy, respectively, on account of higher raw-material prices. It remains positive on Sterlite, HZL and Hindalco.

Pharmaceutical

With the expected earnings CAGR of 21% over FY2011-13E for our universe of stocks, it remains overweight on the sector, maintaining a positive future outlook and earnings growth. In the generic segment, it prefers Cipla, Lupin, Cadila Healthcare, Aurobindo Pharma and Indoco Remedies. In CRAMS, though the segment is currently witnessing some pressure, there have been indications of a gradual recovery and ramp up from most CRAMS players. Thus, with valuations rendering attractive, it recommend Dishman Pharma in this segment.

Power

With the power sector currently facing many headwinds such as fuel shortage, increasing fuel prices, falling merchant tariffs and poor SEB financial position, it believe players with cost-plus return models and assured fuel are better placed than others. It maintains our Buy view on NTPC, GIPCL and CESC.

Real Estate

The BSE Realty Index (down 12.7% yoy) is currently ruling near its life-time low seen in 2008. Short-term prospects for the sector look bleak due to project delays, low cash flow generation, high debt and rising interest costs. Further, refinancing of loans from banks has become difficult with rising interest cost and the banks having a cautious view on the sector. Having said that, it believes absorption and not price appreciation will drive residential growth over the next six quarters. Given the scenario, new launches have been launched at 10-15% discount to prevailing market rates, which would help developers to achieve higher booking, thereby generating higher cash flows. Further, high inventory is still hampering commercial recovery, though there has been an uptick in absorption levels. It expects rentals to remain firm at current levels with an uptick likely over the next 12-15 months. It believes stock performances are related to macro factors interspersed with company-specific issues such as the CCI penalty on DLF. It is positive on the long-term outlook of the realty sector, taking into account growing disposable income, shortage of 25mn houses in India and reasonable affordability. Given the current scenario, it expect modest correction in residential prices with the exception of certain micro markets, where prices are not overheated, and expect an uptick in the commercial segment over the next 12-15 months.

It prefers companies with visibility in cash flow, low leverage and strong project pipeline with attractive valuations. Our top picks are HDIL and ARIL, which are trading at 50% and 54% discount to their NAVs, respectively. It maintain our Neutral view on DLF, owing to concerns of weak operating cash flow, increasing gearing and just 12% discount to our one-year forward NAV.

Software

For CY2011, clients allocated 2-3% higher budgets for IT spending. Also, S&P 500 profits are expected to grow by 16% yoy for CY2011. Moreover, as per TPI`s recent report, deal pipelines of IT companies are expected to be higher in 2HCY2011, as indicated by the managements of selective companies such as HCL Tech and Infosys. This is also in tandem with the licence sales data from enterprise leader Oracle as well as higher number of deals expected to begin to resurface for vendor churn.

However, the global macro data is pointing towards a bleak outlook for future global corporate profits. Further, there is a huge amount of disconnect in terms of macro landscape and client behaviour. Thus, it expect tier-I IT companies (except Wipro) to replicate growth of 20% plus in FY2012. Further, it expects moderation in volumes to sub 15% only in FY2013. Moderate volumes and stable pricing (assumed) have resulted into FY2013 EBITDA margins moving down marginally by 0-65bp yoy for tier-I IT companies. However, EPS cuts have been of 5-9% for tier-I companies and 4-12% for tier-II companies (excluding Hexaware and MindTree) for FY2013. Thus, it has downgraded our one-year forward PE (x) targets of IT phoenixes by 10% to 20x (22x earlier) and 18x (20x earlier) for TCS and Infosys, respectively. It has now turned cautious from cautiously optimistic (during results of 1QFY2012) and prefers diversified players such as Infosys, TCS and HCL Tech (top pick) in tier-I IT companies. In case of tier-II IT companies, it likes Mahindra Satyam and Hexaware Technologies.

Telecom

For 2QFY2012, it expects revenue growth to be muted due to moderating growth in subscriber base, flat voice ARPM and declining MOU. Amongst the top three operators, it expects Bharti and Idea to post revenue growth of 0.6% and 0.3% qoq, respectively. RCom is expected to post a revenue decline of 0.6% qoq. On the EBITDA margin front, it expects margins to remain weak for Bharti, Idea as well as RCom, with margins declining by 88bp, 62bp and 21bp qoq to 32.7%, 26.0% and 32.2%, respectively. Players in the sector (especially RCom and Etisalat) continue to be haunted by issues related to the 2G scam. It believe industry dynamics point towards a possible consolidation in the long run and expect only select few operators, including Bharti, Vodafone, RCom, Idea, BSNL, Aircel and Uninor, to be the survivors out of the current 15 operators. Bharti continues to be our preferred pick amongst telcos due to its low-cost integrated model (owned tower infrastructure), potential opportunity to scale up in Africa, established leadership in revenue and subscriber market share, and relatively better KPIs. However, overall it remains Neutral on the sector.

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

TCS - Fundamental Pick - Buy

The shares of the country's largest IT services firm have witnessed a sell-off recently due to fears of a possible double-dip recession in the US and Europe. However, these concerns seem to be overblown as the company has seen a healthy flow of deals from these regions.

In the previous quarter, the software giant clocked 10 new deals across geographies (led by US & Europe, followed by emerging markets) and registered a robust growth across verticals (hi-tech, telecom, retail, BFSI). The company management expects the demand environment and pricing to remain stable in the coming quarters. Given the volume growth, improvement in productivity and high utilisation levels, TCS is likely to outperform its peers in the industry for the rest of the year.

The management's positive growth outlook is also reflected in its hiring trend. After recruiting around 12,000 people in the first quarter of 2011-12, the company (largest private sector employer) is likely to meet its target of 60,000 people for the entire fiscal year. The company has also planned a capital expenditure of Rs 2,300 crore for 2011-12 to help increase its market share in Latin America, the Middle East and Asia.



Performance :

the stock has corrected sharply since the last 1 month and any recovery will depend on the signs of higher IT spend and US economy showing signs of buoyancy.

Time Span	Price	Change	%Change
Today	1,006.50	57.35	6.04
Week	929.80	19.35	2.08
Month	1,146.05	-196.90	-17.18
Three Months	1,141.45	-192.30	-16.84
Six Months	1,111.20	-162.05	-14.58
One Year	874.10	75.05	8.58

Keep away from this stock. Any sharp declines to the levels of Rs.800 should be taken as an opportunity to add to ones portfolio and hold for 2-3 years time frame for a target price of Rs.1500/-

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

BHEL - Buy

This public-sector power equipment behemoth is currently facing some challenges. Apart from the high interest rates, the power sector has been hit by bottlenecks in the form of slow-paced reforms, difficulty in getting environmental clearances and establishing coal linkages. Increased competition from Chinese players also seems to be playing spoilsport for many power sector companies in India.

However, Bhel is well-placed to tide over these challenges and appears most attractive from the valuation perspective. With the sheer scale of its operations and high research and development (R&D) capabilities, Bhel is in a position to thwart any competitive pressures. It will also benefit from the recent government clause that prevents companies with no domestic manufacturing facilities from placing bids for super-critical equipment.

The comfortable debt on its books also ensures that it is not adversely impacted by high interest rates. Its impressive order book (around Rs1,640 billion at the end of 2010-11) provides a strong visibility on future earnings. Order inflows are expected to pick up further when the interest rates soften. Bhel is also planning to ramp up its capacity, with plans to increase its equipment manufacturing capacity from the current 15,000MW to 20,000 MW by the end of 2011-12.



Performance :

The scrip has under performed in line with the Capital Goods Index and is likely to move side ways in the near term.

Time Span	Price	Change	%Change
Today	1,746.20	9.70	0.55
Week	1,683.25	53.25	3.16
Month	1,824.90	-88.40	-4.84
Three Months	1,936.00	-199.50	-10.30
Six Months	1,975.00	-238.50	-12.07
One Year	2,478.50	-742.00	-29.93

Our Recommendation :
Buy on steep declines to around 1600 and hold for a period of 2-3 years for a decent returns, long term investors should hold the stock with a strict stop loss of 1600/-

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

ONGC - Buy

Latest Quotes | News/Announcements | Quarterly Results | P&L |Price History The state-owned oil and gas major remains a safe bet in the current turbulent times, thanks to its robust balance sheet, inexpensive valuations and attractive dividend yield despite the compulsory subsidy sharing that's eroding profits. In the past one month, it has hardly fallen although the Sensex has lost 13.7%. If global oil prices fall due to another recession, ONGC stands to benefit as realisations will go up.

The stock has been under performing during the last 1 year as evidenced by the prices given below during the last 1 year

Time Span	Price	Change	%Change
Today	278.00	-4.20	-1.48
Week	275.75	6.45	2.33
Month	276.40	5.80	2.09
Three Months	283.00	-0.80	-0.28
Six Months	262.95	19.25	7.32
One Year	320.24	-38.04	-11.87

Investors with long term horizon should buy the stock on steep declines to Rs.250 levels and hold for a good return over a period of 1 year. With the fall in crude prices the scrip will gain and the reduction on subsidy burden on petrol and diesel will a positive trigger for the scrip.

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

ITC - Buy on declines

An established cigarette major, 60% of ITC's revenues are contributed by other businesses such as FMCG, hotels, paper, stationery and agriculture. Nevertheless, ITC relies heavily on the cigarette business as it generates 80% of net profit. Consistent growth, strong cash flows and high dividend payout of more than 45% make the company a safe haven for investors in these uncertain times.

Time Span	Price	Change	%Change
Today	196.85	-5.50	-2.71
Week	198.85	3.50	1.76
Month	200.80	1.55	0.77
Three Months	189.10	13.25	7.00
Six Months	156.15	46.20	29.58
One Year	163.15	39.20	24.02

Our recommendation -

ITC is a defensive stock and will give a decent return over a long term. Investors should utilize any sharp correction to buy this stock and hold for a period of 18-24 months for a good return on investment. Buy around 180 levels on a weak day !

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

BHEL - Portfolio Buy

Latest Quotes | News/Announcements | Quarterly Results | P&L |Price History The company's stock trades at a P/E of less than 14, the lowest since March 2005. The current price makes the stock an attractive buy, given its strong balance sheet and sound financials. It has been logging a double-digit revenue growth, consistently since the past five years. However, order inflows and growing competition from Chinese manufacturers are some near-term concerns.

The scrip gave negative returns in the past year

Time Span	Price	Change	%Change
Today	1,736.50	-15.10	-0.86
Week	1,683.25	68.35	4.06
Month	1,824.90	-73.30	-4.01
Three Months	1,936.00	-184.40	-9.52
Six Months	1,975.00	-223.40	-11.31
One Year	2,478.50	-726.90	-29.32

The scrip has under performed during the last 1 year and is likely to be subdued going forward. Long term portfolio investors can buy around Rs.1500 levels for a target price of Rs.2,500 holding period of 12-15 months.


Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

Bharti Airtel

Recent tariff hikes have put the telecom sector back on the investor's radar. And, of all players, Bharti Airtel looks to be the safest bet, considering its global presence. Apart from India, it is present in Sri Lanka, Bangladesh and 16 African nations. This insulates it from onemarket dependence. It is among the few players with more than 90% active user base, which should help new service launches. Time Span Price Change %Change Today 398.75 -3.05 -0.75 Week 383.50 18.30 4.77 Month 429.75 -27.95 -6.50 Three Months 372.25 29.55 7.93 Six Months 329.20 72.60 22.05 One Year 320.90 80.90 25.21 The scrip has been consolidating and investors should look at buying around Rs.375 levels for a target price of Rs.500 holding period of 1 year Bought to you by Ingenious Investor Equity Research Division Ravina Consulting Pattamal Plaza 3rd Cross Kamanahalli BANGALORE 560084 For Free Stock Advise + Ideas sowmya@ravinaconsulting.com Talk / SMS 08105737966 Read - www.ingeniousinvestor.blogspot.com Follow us - www.twitter.com/smartinvestor

Tata Motors - Buy on further declines

Investors with a long-term perspective can buy the Tata Motors stock. At the current market price of Rs 801 it trades at a PE of about 5.5 times its trailing twelve month consolidated earnings. Improved cost structure, product and market mix at JLR (Jaguar Land Rover), a low debt-to-equity ratio and focus on the less cyclical domestic LCV ( light commercial vehicle) market strengthen the case for investment. Unease about moderation in the domestic auto industry and a slowdown in JLR’s key markets of US and Europe coupled with broader market volatility has seen the stock hit its 52-week low of Rs 785 earlier this month. The first quarter results too have been sedate , with the consolidated year on year net profit growth at less than one percent.

With the steep correction in the stock price, the apprehensions seem to have been factored in. Moreover, JLR has continued to do well operationally with a top line growth of 20 per cent year on year and EBITDA margins, at around the same 15 per cent recorded in the June 2010 quarter. Retail sales grew by 7 per cent, in volume terms during this period. JLR’s 3 per cent year on year drop in profits has been due to an unfavorable revaluation of foreign currency denominated assets and liabilities and higher taxes. One-time costs such as expenses incurred on the issue of bonds and pre-payment charges on high-cost debt repaid have also capped profit growth.

Better product, market mix

Going forward, questions on the financial stability of some countries in Europe and concerns on the raising of the debt ceiling in the US might slowdown the volume growth for JLR in these regions. Both UK and Europe has seen demand soften in the first quarter While the first quarter volumes have been partly affected by the impending launch of the MY12 (model year 12) products and engine constraints for Jaguar, the company hopes to mitigate the risk of a slowdown by rebalancing its product and market mix. September 2011 would see the launch of the Range Rover Evoque, a compact SUV, and an entirely new segment for JLR. The Evoque already has about 18000 booking worldwide. The 2012 Jaguar XF will also be launched shortly along with other refreshed JLR products. In terms of markets, the company is focusing on emerging markets like Russia and China. Having grown at 55 per cent and 48 per cent respectively in the first quarter, these emerging markets currently bring in about 22 per cent of the total volumes. On the operating front too, the company is better equipped to handle a slowdown than last time having brought about variety reduction in materials, standardisation of parts across models and platforms, improved sourcing from low cost destinations (at over 20 per cent currently) and setting up assembly plants in countries like India . The consolidated net debt to equity in the core automotive business (excluding the finance arm) has also been brought down to 0.69 as on June 30.

Domestic initiatives

Back home, the company has grown better than the industry in both the Medium Heavy Commercial Vehicles (MHCVs) and the S&LCV ( Small and Light Commercial Vehicles) segments in the first quarter, growing by 5.5 per cent and 19 per cent. Considering the high interest rates, slow industrial output and the flat freight rates, a further moderation in the CV industry is on the cards. But infrastructure spending and the catching on of the hub and spoke model may keep demand for tippers and trailers going. It is also banking on the strong demand for the less cyclical SCVs to bring in volumes. Capacity expansions for Ace/Magic, and the ramp up of Ace Zip and Magic IRIS is expected to provide further impetus to growth. Competitive pressures on the passenger car segment, however, remain. The company hopes regain lost market share by expanding dealer networks to semi-urban/rural areas, by more focused promotion efforts and through launches such as the Aria two-wheel drive, Vista refresh, new Safari and Manza limited edition. The softening of commodity prices also indicates

The company gave negative returns for the last 1 year and is likely to perform better from here on.

Time Span	Price	Change	%Change
Today	801.10	-44.50	-5.26
Week	889.50	-43.90	-4.93
Month	1,043.65	-198.05	-18.97
Three Months	1,210.90	-365.30	-30.16
Six Months	1,144.65	-299.05	-26.12
One Year	1,024.00	-178.40	-17.42

Investors with long term horizon should start accumulate the scrip from Rs.750 levels and hold for a period 2-3 years for a super gains and target price of Rs.1500

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

Jaiprakash Associates - Buy on steep falls !

In Q4FY2011, Jaiprakash Associates Ltd (JAL) on a standalone basis posted a net profit of Rs302 crore (increased by 23.8% on a year-on-year [y-o-y] basis), which is below our expectation on account of a lower than expected profitability in the construction and real estate division. However, the performance of its cement division was in line with our estimates and partially negated the impact of the poor performance of the construction division.

JAL’s revenues grew by 21.4%y-o-y to Rs 3,982 crore in Q4FY2011 which is ahead of our estimates. The impressive revenue growth has been largely driven by a strong revenue growth posted by its cement division (of 28.8%; supported by volume growth) and the stupendous revenue growth in its real estate division (of 379.8%). However, the performance of the construction division suffered during the quarter and declined by 10.8% y-o-y to Rs1,761 crore due to the completion of the Karcham Wangtoo project and on slow execution of the Yamuna Expressway project, both of which are key projects for the company.

The operating profit margin (OPM) contracted by 267 basis points y-o-y to 21.4% in Q4FY2011 on account of a sharp decline in the construction divisions earnings before interest and tax (EBIT) margin (declined by 8 percentage points to 12.4%) which was due to the completion of the relatively high margin Karcham Wangtoo project. Further, the profitability of the cement division also contracted by around 10 percentage pointsy-o-y to 14%. However, a sharp increase in the EBIT of the real estate division to 47.9% in the current quarter as compared to 31.2% in Q4FY2010 has restricted the overall OPM contraction to 267 basis points. Consequently the operating profit grew by 7.9% (as compared to a 21.4% growth in the revenue) to Rs 851 crore.

The interest and depreciation outgo were higher by 35.4% and 13.1% respectively on a y-o-y basis on account of capacity addition in the cement division and installation of captive power plants. However, on account of the higher than expected other income (increased by 18.5% y-o-y) due to dividend received by Jaypee Infratech and lower than expected effective tax rate of 22.1% as compared to 43.7% in Q4FY2010, the company managed to register a 23.8% earnings growth.

For the full year FY2011 the company has delivered a net sales growth of 28.5% to Rs 12,966 crore. However, on account of margin contraction and a surge in the interest and depreciation charges, the adjusted standalone earnings of the company have declined by 7.5% to Rs 653 crore.

We have re-visited our earnings estimates for FY2012 and FY2013 mainly to factor in the delay in the execution of the Yamuna Expressway project and the overall margin pressure. Consequently the revised earning per share (EPS) estimate for FY2012 and FY2013 works out to Rs 4.4 and Rs 5.7 respectively.

We continue to like JP Associates due to its diversified business model and aggressive expansion plan. In terms of valuation, we continue to value the stock using the sum-of-the parts (SOTP) valuation methodology and arrive at a value of Rs130 per share. We maintain our BUY recommendation on the stock with a revised price target of Rs130. At the current market price, the stock is trading at a price earning (PE) of 18.7x FY2012E and 14.6x FY2013E earnings.

Our Recommendation :

The way the scrip has been falling looks like it will reach Rs.50 levels sooner than later. The following chart shows results of this scrip for the last 1 year.

Time Span	Price	Change	%Change
Today	63.85	2.45	3.99
Week	64.45	-3.05	-4.73
Month	79.65	-18.25	-22.91
Three Months	86.85	-25.45	-29.30
Six Months	76.15	-14.75	-19.36
One Year	118.40	-57.00	-48.14
Two Years	145.44	-84.04	-84.04
Three Years	122.34	-60.94	-49.81

Our Recommendation :

Long term investors should look to buy the scrip around Rs.50 levels and hold for a period of 2-3 years for a target price of Rs.90 giving a bumper profit of 80% on investment. A staggered buying strategy should bring down the acquisition costs in this high beta stock which can swing wildly both on the up and down sides !

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor

BHEL - Sell

More competition, falling new orders should keep things tight in the medium term.

The impact of rising competition and the slow pace of new power projects has started to reflect on Bharat Heavy Electricals’ (BHEL) financials, judging by its results for the June quarter. Revenue growth reported by BHEL, big daddy of the Indian power equipment industry, was the lowest in the past 13 quarters. Order inflows dived 75 per cent year-on-year to Rs 2,500 crore — again, the lowest ever, amid subdued activity in the power sector and industrial capex.

While the order book is still robust at Rs 1,59,600 crore or four times the company’s 2010-11 sales, it has slipped marginally by three per cent sequentially; year-on-year growth at eight per cent touched a new four-year low.

Not surprisingly, the stock fell close to nine per cent in the past two trading sessions and could correct further, as the outlook appears subdued. Analysts believe order inflows, order book, sales growth and margins are on the way down.

MUTED GROWTH
Rs crore	FY11	Q1FY12
Total operating income	42,496	7,271
% chg y-o-y	27.0	10.0
Operating profit	8,963	1,113
% chg y-o-y	43.0	15.4
OPM (%)	21.0	15.3
Chg y-o-y (bps)	245	69
Net profit	6,011	816
% chg y-o-y	39.4	22.2
NPM (%)	14.1	11.2
Chg y-o-y (bps)	130	110
Source: Company

Say Arun Kumar Singh and Murtuza Zakiuddin, analysts, HSBC Global Research, in their July 27 report, “Earnings growth should be flat in FY13-14 versus a CAGR (compounded annual growth rate) of 30 per cent in the past five years." Analysts at Emkay Global expect BHEL’s earnings growth to range five to nine per cent in FY12 and FY13. Most analysts believe the risk-reward equation is currently not favourable, despite the stock’s underperformance in recent months.

OTHER INCOME BOOST
BHEL’s revenues, or total operating income, grew just 10 per cent year-on-year in the quarter, half the pace as compared to analysts’ expectations. Execution was weak due to delay in clearances at the ports (thereby impacting the company’s plant commissioning) in particular and delays in progress of power projects in general. The company’s power segment, which accounts for 80 per cent of total sales, reported a mere eight per cent growth in top line.

On the other hand, BHEL’s industry division did better than expected, wherein profits jumped 120 per cent. This and operating leverage helped the company maintain its operating profit margin at around 15 per cent. Net profit margin improved despite a higher base and a surge in depreciation, thanks to the 52 per cent jump in other income (to Rs 249 crore).

MUTED OUTLOOK
In 2011-12, the company expects growth in revenues and order inflows to be 15-20 per cent and 10 per cent (Rs 66,000 crore or 1,600 Mw), respectively. Says B P Rao, chairman and managing director of the company, “We expect execution to pick up in coming quarters and thus maintain our revenue booking target of Rs 50,000 crore in FY12."

However, analysts expect things to remain tight in the medium term. They believe the impact of competitive pressures will become increasingly visible. Ordering activity is likely to be muted, as 90 per cent of 12th Plan projects have been awarded and Chinese players have already garnered a sizeable share (above 50 per cent). Analysts expect the order book to remain flat in the current financial year after a 26 per cent CAGR between 2006-11. This will affect sales growth beyond 2012-13.

Margins, which peaked in 2010-11, are also expected to eventually come off the current levels due to competition and higher imported components for super-critical equipments initially. Emkay’s analysts, in their July 26 report, estimate BHEL to report Ebitda (earnings before interest, taxes, depreciation and amortisation) margins of 19.7 per cent in 2011-12 and 18.6 per cent in 2012-13, as compared to 21 per cent in 2010-11l. Consequently, the return profile will deteriorate.

The stock currently trades at Rs 1,825 levels. Even after correcting 25 per cent in the past year, touching a 52-week low in June, and trading at five-year trough valuation of 14 times 2011-12 estimated earnings (below industry multiple of 16), analysts feel BHEL’s stock will de-rate further, given the weak fundamental outlook of the power equipment sector.

Says Misal Singh of Religare Institutional Research in a July 6 report, “Valuation multiples are likely to trend lower, as the growth profile normalises beyond FY12." The upcoming follow-on public offer is also likely to put pressure on the stock.

The stock has been a big under performer over a 1 year horizon. The following details give the kind of returns the scrip gave

Time Span	Price	Change	%Change
Today	1,716.00	-72.05	-4.02
Week	1,838.35	-50.30	-2.73
Month	1,952.40	-164.35	-8.41
Three Months	2,057.70	-269.65	-13.10
Six Months	2,188.10	-400.05	-18.28
One Year	2,517.40	-729.35	-28.97

Our Recommendation :

Sell on every rise. For portfolio investors start buying the scrip around Rs.1200 levels on a deep corrections, only after Jan 2012. the out look for the next 6 months is dismal and it could drop further from current levels.

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor