MAHINDRA & MAHINDRA
INR 600
On track
Buy
Mahindra & Mahindra’s (M&M) Q4FY08 revenues, at INR 31.5 bn, were slightly above our expectations, up 14.7% Y-o-Y and 7.1% Q-o-Q. EBITDA margins for the quarter, at 10.9%, were in-line with our expectations, down 40 bps Y-o-Y and Q-o Q. Adjusted profit for the quarter was down 13.8% Y-o-Y and 17.5% Q-o-Q to INR 2.06 bn. This was below our expectations due to substantial decrease in other income. The other income for the quarter stood at INR 273 mn, down 55.2% Y-o-Y and 50% Q-o-Q.
We are expecting the automotive sector to post a robust growth in volumes in FY09 on the back of the Ingenio launch and continued good performance of Bolero and Scorpio. After a year of sluggish growth, tractor sales are likely to grow moderately in the current year. The company has guided for 5% growth in tractor volumes in FY09. We value M&M’s investments at INR 360/share with a 40% holding company discount. Excluding this, the automobile business is available at 7.2x and 6.3x FY09E and FY10E core EPS, respectively. We maintain our ‘BUY’ recommendation on the stock.
Key highlights
Revenues slightly above expectations:
Revenues for the quarter, at INR 31.5 bn, were slightly above our expectations due tohigher-than-expected increase in average realisations. Average realisations for the quarter were up 10.7% Y-o-Y and 5.7% Q-o-Q. Total volumes for the previous quarter were up 3.6% Y-o-Y and 1.6% Q-o-Q, with incremental growth coming mainly from exports, which grew 79.3% Y-o-Y and 41.9% Q-o-Q.
EBITDA margins were in-line with expectations.
EBIDTA margins for the quarter, at 10.9%, were in-line with expectations, down 40bps Y-o-Y and Q-o-Q. Raw material costs were down 120bps Y-o-Y, while it went up significantly by 190 bps Q-o-Q. Other expenses for the quarter were up 60bps Y-o-Yand down 80bps Q-o-Q.
Net profits slightly below expectations.
Net profits for the quarter, at INR 2.07 bn, were slightly below our expectations, down 13.2% Y-o-Y and 17% Q-o-Q. This was due to lower-than-expected other income for the quarter, which was down 55.2% Y-o-Y and 50% Q-o-Q to INR 273 mn.
Outlook and valuation: Healthy auto sales to drive growth; maintain ‘BUY’.
We value M&M’s investments at INR 360/share with a 40% holding company discount. Excluding this, the automobile business is available at 7.2x and 6.3x FY09E and FY10E core EPS, respectively. We maintain our ‘BUY’ recommendation on the stock.
Greater visibility on value unlocking.
The company proposes to list its wholly-owned subsidiary Mahindra Holidays and Resorts (MHR) towards the end of 2008 and has placed 3% of its equity pre-IPO, valuing thecompany at ~INR 40 bn (~INR 140/share of M&M).
MatrixCap
Friday, May 30, 2008
Thursday, May 29, 2008
Intraday Trading Tips May 30, 2008
Our Calls for Today i.e. May 30, 2008
BUY CESC [BSE 500084] B/B 492-496 S/L 482 TARG 505-511
BUY BEL [ BSE 500049] B/B 1175-1182 S/L 1151 TARG 1204 +
BUY GWALCHEM [BSE 532764] B/B 89-91 S/L 84 TAG 94-99 +
BUY AOPLLO TYRE [BSE 500877] B/B 43 - 44 S/L 41 TARG 46-47 +
MatrixCap
BUY CESC [BSE 500084] B/B 492-496 S/L 482 TARG 505-511
BUY BEL [ BSE 500049] B/B 1175-1182 S/L 1151 TARG 1204 +
BUY GWALCHEM [BSE 532764] B/B 89-91 S/L 84 TAG 94-99 +
BUY AOPLLO TYRE [BSE 500877] B/B 43 - 44 S/L 41 TARG 46-47 +
MatrixCap
Wednesday, May 28, 2008
Intraday Tips for May 29, 2008
BUY PUNJAB CHEM [BSE 506618] B/B 238-242 S/L 230 TARG 252-257
BUY TATA STEEL [ BSE 500470] B/B 902- 906 SL 890 TARG 915-918 +
BUY NFL [BSE 532630] B/B 57-60 S/L 54 TAG 63 +
BUY GNFC [BSE 500670] B/B 159- 162 S/L 153 TARG 168 +
BUY MARKETER LINCE [BSE 526235] B/B 110-112 S/L 105 TARG 118 +
BUY IFCI [500106] B/B 58-60 S/L 55 TARG 63- 65
BUY TATA CHEM [ 500770] B/B 408-410 S/L 400 TARG 416
MatrixCap
BUY TATA STEEL [ BSE 500470] B/B 902- 906 SL 890 TARG 915-918 +
BUY NFL [BSE 532630] B/B 57-60 S/L 54 TAG 63 +
BUY GNFC [BSE 500670] B/B 159- 162 S/L 153 TARG 168 +
BUY MARKETER LINCE [BSE 526235] B/B 110-112 S/L 105 TARG 118 +
BUY IFCI [500106] B/B 58-60 S/L 55 TARG 63- 65
BUY TATA CHEM [ 500770] B/B 408-410 S/L 400 TARG 416
MatrixCap
Tuesday, May 27, 2008
Option Strategy
Profit has no place to hide!
Tips:
1. We assume that you have a Rs.500,000 account for the purpose of option trading. If you have a smaller or bigger account, adjust the numbers accordingly.
2. Money management plays a far greater role in successful trading than the ability to pick a good entry or exit point. It is very important not to invest more than Rs.60000 - Rs.70000 in any one position so that you have enough capital to spread over 7-8 trades. For bigger accounts we would reduce the share of funds invested in any one trade even further.
3. It is very important to allocate an approximately equal share of funds for each trade.
4. Never maintain more than 2 or 3 positions at any given time. It is very difficult to monitor more than 2 or 3 positions simultaneously, especially if you have a full time job.
5. In some rare cases the position will open in the morning with a profit of several hundred percent; take it immediately, don't wait for our alert.
6. Do not place any orders before the market opens.
7. Do not try to chase the market. If you need to get out of a long option position, place the limit sell order at the bid price. If you need to get in, place the limit buy order at the ask price.
8.Do not use a market order except in an extreme situation. Be prepared to possibly get a much worse fill in this case.
9. If for some reason you did not get into a trade, do not get into it after the fact if it trades at a much higher price. Wait for the next trade.
10. When we enter a trade, we sometimes will place a mental stop at the 50% level. You may use actual stops but keep in mind that an option can lose or gain 50% in a matter of minutes or even seconds at times.
11. Option trading is very risky. You may lose all money invested in long calls and puts plus commissions. Consider your actions carefully. Past performance is not a guarantee of future results.
MatrixCap
Monday, May 26, 2008
Intraday Trading Tips (NSE/BSE)
Intra day trading tips for 27 may 2008
BUY EICHER MOTER [BSE 505200] B/B 384-389 S/L 365 TARG 416 +
BUY CAIRN B/B 310- 313 SL 302 TARG 320+
BUY SUN PHARMA [BSE 524715] B/B 1379- 1384 S/L 1351 TARG 1400 -1420
BUY SPICETEL [BSE 532863] B/B 48- 49.50 S/L 46 TARG 51.50 +
BUY MUNDRAPORT[BSE 532921] B/B 886 – 893 S/L 854 TARG 928
MatrixCap
BUY EICHER MOTER [BSE 505200] B/B 384-389 S/L 365 TARG 416 +
BUY CAIRN B/B 310- 313 SL 302 TARG 320+
BUY SUN PHARMA [BSE 524715] B/B 1379- 1384 S/L 1351 TARG 1400 -1420
BUY SPICETEL [BSE 532863] B/B 48- 49.50 S/L 46 TARG 51.50 +
BUY MUNDRAPORT[BSE 532921] B/B 886 – 893 S/L 854 TARG 928
MatrixCap
Company Report - BHEL (Bharat Heavy Electricals Limited)
Company Description:
BHEL is the largest engineering and manufacturing enterprise in India in the energyrelated/ infrastructure sector. It manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian economy viz., power generation and transmission, industry, transportation, telecommunication, and renewable energy. BHEL has a wide network with 14 manufacturing divisions, four power sector regional centers, over 100 project sites, eight service centers, and 18 regional offices across the country. An extensive network enables the company to promptly serve its customers and provide them with suitable products, systems, and services. It has acquired and adopted some of the best technologies from leading companies globally, besides developing technologies at its own.
BHEL’s FY08 results were below expectations, primarily due to lower-than expected revenue growth and higher wage provisioning in Q4FY08. Revenues grew ~12% Y-o-Y to INR 194 bn (lower than provisional results), while PAT grew ~18% Y-o-Y to INR 29 bn.
Order booking growth, which had been robust in FY08, continues to show strength. Order backlog as on date is ~INR 914 bn, against ~INR 854 bn at the end of FY08. In the near term, we, however, expect order intake growth to taper with Eleventh Plan ordering activity coming to an end and Twelfth Plan orders to be placed with a lag. Though order backlog looks healthy, we
lower our revenue growth estimates with rising concerns on execution. We also lower our EBITDA margin estimates, on account of an increase in raw material prices and higher wage provisioning. On our downgraded EPS estimates, the stock is trading at a P/E multiple of 22.4 and 16.6 for FY09E and FY10E, respectively. Despite a soft FY08, factors such as higher capacity utilisation, BHEL’s maiden supercritical project win, and a healthy order backlog of ~INR 914 bn (~5x FY08 revenues) lead us to maintain our ‘BUY’ recommendation on the stock.
Margin pressures: Higher commodity prices:
We believe margins are likely to be under pressure over the medium term due to an increase in commodity prices. Around 40-45% of BHEL’s order book is under fixed price contracts, which is likely to impact margins. However, the management highlighted that to protect margins, they book critical raw materials after they obtain the contract.
Outlook and valuations: Earnings growth strong, Maintain ‘BUY’:
While margins are likely to be under pressure, we believe, earnings growth remains strong at ~26% and ~35% for FY09E and FY10E, respectively. We remain positive on BHEL’s long-term outlook, given that the demand for power equipment players is likely to remain strong over the next few years. On our revised estimates, the stock is trading at a P/E multiple of 22.4 and 16.6 for FY09E and FY10E, respectively. We believe the stock is trading at the bottom end of its historic valuations and offers room for upside. We continue to maintain our ‘BUY’ recommendation on the stock.
MatrixCap
BHEL is the largest engineering and manufacturing enterprise in India in the energyrelated/ infrastructure sector. It manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian economy viz., power generation and transmission, industry, transportation, telecommunication, and renewable energy. BHEL has a wide network with 14 manufacturing divisions, four power sector regional centers, over 100 project sites, eight service centers, and 18 regional offices across the country. An extensive network enables the company to promptly serve its customers and provide them with suitable products, systems, and services. It has acquired and adopted some of the best technologies from leading companies globally, besides developing technologies at its own.
BHEL’s FY08 results were below expectations, primarily due to lower-than expected revenue growth and higher wage provisioning in Q4FY08. Revenues grew ~12% Y-o-Y to INR 194 bn (lower than provisional results), while PAT grew ~18% Y-o-Y to INR 29 bn.
Order booking growth, which had been robust in FY08, continues to show strength. Order backlog as on date is ~INR 914 bn, against ~INR 854 bn at the end of FY08. In the near term, we, however, expect order intake growth to taper with Eleventh Plan ordering activity coming to an end and Twelfth Plan orders to be placed with a lag. Though order backlog looks healthy, we
lower our revenue growth estimates with rising concerns on execution. We also lower our EBITDA margin estimates, on account of an increase in raw material prices and higher wage provisioning. On our downgraded EPS estimates, the stock is trading at a P/E multiple of 22.4 and 16.6 for FY09E and FY10E, respectively. Despite a soft FY08, factors such as higher capacity utilisation, BHEL’s maiden supercritical project win, and a healthy order backlog of ~INR 914 bn (~5x FY08 revenues) lead us to maintain our ‘BUY’ recommendation on the stock.
Margin pressures: Higher commodity prices:
We believe margins are likely to be under pressure over the medium term due to an increase in commodity prices. Around 40-45% of BHEL’s order book is under fixed price contracts, which is likely to impact margins. However, the management highlighted that to protect margins, they book critical raw materials after they obtain the contract.
Outlook and valuations: Earnings growth strong, Maintain ‘BUY’:
While margins are likely to be under pressure, we believe, earnings growth remains strong at ~26% and ~35% for FY09E and FY10E, respectively. We remain positive on BHEL’s long-term outlook, given that the demand for power equipment players is likely to remain strong over the next few years. On our revised estimates, the stock is trading at a P/E multiple of 22.4 and 16.6 for FY09E and FY10E, respectively. We believe the stock is trading at the bottom end of its historic valuations and offers room for upside. We continue to maintain our ‘BUY’ recommendation on the stock.
MatrixCap
Sunday, May 25, 2008
Intraday Trading Tips May 26, 2008
Intra day trading tips for 26 may 2008
SELL DLF S/B 607 S/L 619 TARG 590-580
SELL AXIS BANK S/B 796 S/L 814 Targ. 770
SELL ANSAL INFRA S/B 149 S/L 153 Targ. 144
SELL AUROBINDO PHARMA S/B 318 S/L 325 Targ. 307
SELL ACC S/B 664 S/L 680 Targ. 640
BUY WELL PACK [BSE 531249] B/B 68-70 S/L 64.50 Targ.74
NOW THAT SENSEX HAS NOT BEEN ABLE TO CLOSE ABOVE 200 DMA ,AND WITH CRUDE RISING EVERY DAY AND INFLATION NOT COMING DOWN,WE ARE SURELY HEADING FOR BAD DAYS..BEFORE THE RAINS GAME STARTS,I THINK MKTS WILL CORRECT BY AROUND 1500 POINTS.AND TEST 15300...UNLESS INFLATION COMES DOWN AND THAT CAN HAPPEN ONLY ONCE CRUDE EASES AND COMMODITY PRICES COME DOWN,WE CANNOT SEE MKTS HEADING FOR UP-SIDE.RUPEE IS ALSO WEAKNING,AND THAT WILL EFFECT OUR FISCAL AND TRADE DEFICIT.....HOPE FOR GOOD RAINS..THAT'S THE MAIN TRIGGER NOW......
(S/B=Sell Below, S/L=Stop Loss, B/B=Buy Below, Targ.=Target)
SELL DLF S/B 607 S/L 619 TARG 590-580
SELL AXIS BANK S/B 796 S/L 814 Targ. 770
SELL ANSAL INFRA S/B 149 S/L 153 Targ. 144
SELL AUROBINDO PHARMA S/B 318 S/L 325 Targ. 307
SELL ACC S/B 664 S/L 680 Targ. 640
BUY WELL PACK [BSE 531249] B/B 68-70 S/L 64.50 Targ.74
NOW THAT SENSEX HAS NOT BEEN ABLE TO CLOSE ABOVE 200 DMA ,AND WITH CRUDE RISING EVERY DAY AND INFLATION NOT COMING DOWN,WE ARE SURELY HEADING FOR BAD DAYS..BEFORE THE RAINS GAME STARTS,I THINK MKTS WILL CORRECT BY AROUND 1500 POINTS.AND TEST 15300...UNLESS INFLATION COMES DOWN AND THAT CAN HAPPEN ONLY ONCE CRUDE EASES AND COMMODITY PRICES COME DOWN,WE CANNOT SEE MKTS HEADING FOR UP-SIDE.RUPEE IS ALSO WEAKNING,AND THAT WILL EFFECT OUR FISCAL AND TRADE DEFICIT.....HOPE FOR GOOD RAINS..THAT'S THE MAIN TRIGGER NOW......
(S/B=Sell Below, S/L=Stop Loss, B/B=Buy Below, Targ.=Target)
Thursday, May 22, 2008
DAILY TRADING NOTE May 23, 2008
MARKET OUTLOOK
Indian markets opened on a negative note amidst global jitters and faced selling pressure throughout the day. Nifty bounced back from the days low with sharp intraday volatility but closed in the negative territory. Nifty has strong support around 5000-4980 level and is expected to sustain this critical support level and bounce back to test its resistance level of 5125-5150. Nifty Futures shed 13.98 lacs shares (-5.10%) in May series OI while simultaneously added 19.85 lacs Shares (+25.030%) in June series OI. Nifty PCR combined for the month of May and June marginally declined to 1.28 while the basis on Nifty Futures was trading at 7 points discount. We recommend traders to keep a cautious approach ahead of the inflation data to be released in noon today.
STOCK ALERTS:
WIPRO FUT (CMP 486.45 /- 1.55%)
The stock has returned from i ts strong resistance level around 505 and is depicting negative divergence on the daily chart. The stock has declined along with increase in combined OI (May and June ser ies) and is set to decline fur ther. Short posi tions can be initiated on the stock for price target of 470 / 459 with a stop loss placed at 505.75.
HCC FUT (CMP 123.75 / - 5.17%)
The stock was unable to clear the strong resistance level of 140 and now has declined below its critical level of 127. The stock witnessed sharp d ecline in past 2 trading sessions and now is generating strong negative divergence on the daily chart . Short posit ions can be init iated for price target o f 118 / 112 with a stop loss placed at 128 on initiat ion.
CAIRN FUT(CMP 319.45 / - 1.65%)
The stock has cooled off after testing its all time level of 342 and is now showing initial signs of correction on the daily char ts. The stock is expected to decline further and test its support level of 302 / 291. We recommend to exi t all long posi tions as well as initiate short position in the range of 315 - 325 for the above mentioned price targets with a stop loss placed at 333 on initiation.
HDFCBANK FUT (CMP 1387.10 / - 2.08%)
The stock has violated its critical support level of 1413 being the 200 EMA and is generating strong negative signals o n the daily chart. The stock is expected to decl ine further and test level of 1325 /1300 on downside. We recommend t raders to initiat e short posit ions at current level as well as use bounce back up to 1400 as an opportunity to add short posi tions for said target with a stop loss placed at 1441 on init iation.
MatrixCap
Indian markets opened on a negative note amidst global jitters and faced selling pressure throughout the day. Nifty bounced back from the days low with sharp intraday volatility but closed in the negative territory. Nifty has strong support around 5000-4980 level and is expected to sustain this critical support level and bounce back to test its resistance level of 5125-5150. Nifty Futures shed 13.98 lacs shares (-5.10%) in May series OI while simultaneously added 19.85 lacs Shares (+25.030%) in June series OI. Nifty PCR combined for the month of May and June marginally declined to 1.28 while the basis on Nifty Futures was trading at 7 points discount. We recommend traders to keep a cautious approach ahead of the inflation data to be released in noon today.
STOCK ALERTS:
WIPRO FUT (CMP 486.45 /- 1.55%)
The stock has returned from i ts strong resistance level around 505 and is depicting negative divergence on the daily chart. The stock has declined along with increase in combined OI (May and June ser ies) and is set to decline fur ther. Short posi tions can be initiated on the stock for price target of 470 / 459 with a stop loss placed at 505.75.
HCC FUT (CMP 123.75 / - 5.17%)
The stock was unable to clear the strong resistance level of 140 and now has declined below its critical level of 127. The stock witnessed sharp d ecline in past 2 trading sessions and now is generating strong negative divergence on the daily chart . Short posit ions can be init iated for price target o f 118 / 112 with a stop loss placed at 128 on initiat ion.
CAIRN FUT(CMP 319.45 / - 1.65%)
The stock has cooled off after testing its all time level of 342 and is now showing initial signs of correction on the daily char ts. The stock is expected to decline further and test its support level of 302 / 291. We recommend to exi t all long posi tions as well as initiate short position in the range of 315 - 325 for the above mentioned price targets with a stop loss placed at 333 on initiation.
HDFCBANK FUT (CMP 1387.10 / - 2.08%)
The stock has violated its critical support level of 1413 being the 200 EMA and is generating strong negative signals o n the daily chart. The stock is expected to decl ine further and test level of 1325 /1300 on downside. We recommend t raders to initiat e short posit ions at current level as well as use bounce back up to 1400 as an opportunity to add short posi tions for said target with a stop loss placed at 1441 on init iation.
MatrixCap
Wednesday, May 21, 2008
DAILY TRADING NOTE - May 22, 2008 (F&O)
MARKET OUTLOOK:
Indices opened with a neative gap in line with expectation but staged good intraday bounceback and closed with modest gains. The surprise rally signified the underlying support at lower levels. Nifty has strong support at 5060 / 5020. We expect indices to remain rangebound, with upside resistance of 5250. Nifty Futures shed 11.93 lacs shares (-4.17%) in May series OI while simultaneously added 21.67 lacs Shares (+37.60%) in June series OI. Nifty PCR combined for the month of May and June stands at 1.39 while the basis on Nifty Futures was trading at 9 points premium. We had recommended hedging long position yesterday. Traders may book part profit in morning on their short positions.
STOCK ALERTS:
TATATEA FUTURE
(CMP 945)
The scr ip has moved up gradually with accumulation in cash and future segment. We expect the scrip to consolidate further and test resistance level of 1000 / 1025. Traders may accumulate the scr ip in range of 945 to 920, with Stop loss of 895.
RELCAPITAL FUT
(CMP 1415.35 / + 3.84%)
The scrip is moving out of trading zone and is set to gather momentum. Traders may accumulate the scrip in range of 1400 / 1370 for target of 1470 /1500 / 1530 with a stop loss placed below 1332.
Indices opened with a neative gap in line with expectation but staged good intraday bounceback and closed with modest gains. The surprise rally signified the underlying support at lower levels. Nifty has strong support at 5060 / 5020. We expect indices to remain rangebound, with upside resistance of 5250. Nifty Futures shed 11.93 lacs shares (-4.17%) in May series OI while simultaneously added 21.67 lacs Shares (+37.60%) in June series OI. Nifty PCR combined for the month of May and June stands at 1.39 while the basis on Nifty Futures was trading at 9 points premium. We had recommended hedging long position yesterday. Traders may book part profit in morning on their short positions.
STOCK ALERTS:
TATATEA FUTURE
(CMP 945)
The scr ip has moved up gradually with accumulation in cash and future segment. We expect the scrip to consolidate further and test resistance level of 1000 / 1025. Traders may accumulate the scr ip in range of 945 to 920, with Stop loss of 895.
RELCAPITAL FUT
(CMP 1415.35 / + 3.84%)
The scrip is moving out of trading zone and is set to gather momentum. Traders may accumulate the scrip in range of 1400 / 1370 for target of 1470 /1500 / 1530 with a stop loss placed below 1332.
Tuesday, May 20, 2008
DAILY TRADING NOTES (Futures & Options), 21.05.2008
BHEL FUT (CMP 1741.90 /- 3.45%)
The stock has declined along with increase in OI as well as del ivery volumes in yesterdays session. The stock is generating negative divergence on the daily chart and indicates further decline to it s recent lows. We recommend traders to initiate short positions on the sto ck for target of 1685 /1625 with a stop loss placed at 1779.
SASKEN FUT (CMP 172.85 / + 8.00%)
The stock has moved out of consol idation zone and witnessed strong price advances in yesterdays trading session. The pr ice adv ance was well supported by increase in OI as well as sharp spurt in delivery volumes . Long positions can be initiated on the stock in the range if 168-172 for price targets of 182 / 194 wi th a stop lo ss placed at 159 on initiation.
GAIL FUT (CMP 392.25 / - 2.30%)
The stock is facing st rong supply around 400 level and is not able to sust ain above this level since past few t rading sessions. The stock is generating negative divergence and is expected to test level of 345. Short positions can be initiated on the stock for the above ment ioned targets with a stop loss placed at 406 on initiation.
MatrixCap
The stock has declined along with increase in OI as well as del ivery volumes in yesterdays session. The stock is generating negative divergence on the daily chart and indicates further decline to it s recent lows. We recommend traders to initiate short positions on the sto ck for target of 1685 /1625 with a stop loss placed at 1779.
SASKEN FUT (CMP 172.85 / + 8.00%)
The stock has moved out of consol idation zone and witnessed strong price advances in yesterdays trading session. The pr ice adv ance was well supported by increase in OI as well as sharp spurt in delivery volumes . Long positions can be initiated on the stock in the range if 168-172 for price targets of 182 / 194 wi th a stop lo ss placed at 159 on initiation.
GAIL FUT (CMP 392.25 / - 2.30%)
The stock is facing st rong supply around 400 level and is not able to sust ain above this level since past few t rading sessions. The stock is generating negative divergence and is expected to test level of 345. Short positions can be initiated on the stock for the above ment ioned targets with a stop loss placed at 406 on initiation.
MatrixCap
Sunday, May 18, 2008
Company Report - Punjab National Bank ( INR 571, Maintain Accumulate)
Punjab National Bank (PNB) delivered Q4FY08 results that were ahead of expectations, driven by robust advances growth, lower operating expenses, and a strong turnaround in asset quality. On a Y-o-Y basis, PAT more-than–doubled to INR 5.4 bn, while it remained flat on a Q-o-Q basis. NII for Q4FY08 grew 6.6% Q-o-Q and 6.5% Y-o-Y to INR 15.1 bn.
In FY08, NII grew 7% to INR 56 bn, while strong treasury profits, lower operating expenses, and lower provisions supported 33% net profit growth to INR 20 bn.
We are revising our earnings estimates upwards by 2-3% for FY09-10. The stock is currently trading at 1.4x FY09 and 1.2x FY10E book. We expect EPS to grow at 15% CAGR and deliver RoE’s of ~20% over FY08-10E. However, we remain cautious on stateowned banks (SoB) as we believe headwinds in the form of effect of farm loan waiver on asset quality, continued government intervention, and tight monetary conditions will limit stock performance. We maintain ‘ACCUMULATE’.
Key highlights of the quarter:
Advances grew 18% Q-o-Q and 24% Y-o-Y to INR 1,195 bn, while deposit growth was lower at 9% Q-o-Q and 19% Y-o-Y to INR 1,665.
CD ratio improved to 72% sequentially from 67% in Q3FY08, while CASA improved to 43% from 41% in Q3FY08.
Quality of assets improved sequentially with gross NPAs declining 22% (absolute basis) to INR 33 bn from INR 43 bn. Gross NPA is currently at 2.8% compared with 4.1% in Q3FY08. Net NPA declined 44% Q-o-Q to INR 7.5 bn and is at 0.67%. bn.
Fee-based income grew 34% Q-o-Q and 30% Y-o-Y to INR 4.7 bn. Profit on sale of investments was INR 685 mn.
Tax rate was higher, at 49%, compared to 12% in Q4FY07 and 35% in Q3FY08 mainly due to INR 1.8 bn of tax provision, which is not related to the current year’s income. Adjusting for this, PAT growth was higher, at 204% Y-o-Y and 34% Q-o-Q to INR 7.2 bn.
Key Risks :
Any downturn in agricultural growth will hurt the banks asset quality
Post loan waiver announcement asset quality risk has increased
Given the pace of expansion delinquencies can rise faster than expected
In FY08, NII grew 7% to INR 56 bn, while strong treasury profits, lower operating expenses, and lower provisions supported 33% net profit growth to INR 20 bn.
We are revising our earnings estimates upwards by 2-3% for FY09-10. The stock is currently trading at 1.4x FY09 and 1.2x FY10E book. We expect EPS to grow at 15% CAGR and deliver RoE’s of ~20% over FY08-10E. However, we remain cautious on stateowned banks (SoB) as we believe headwinds in the form of effect of farm loan waiver on asset quality, continued government intervention, and tight monetary conditions will limit stock performance. We maintain ‘ACCUMULATE’.
Key highlights of the quarter:
Advances grew 18% Q-o-Q and 24% Y-o-Y to INR 1,195 bn, while deposit growth was lower at 9% Q-o-Q and 19% Y-o-Y to INR 1,665.
CD ratio improved to 72% sequentially from 67% in Q3FY08, while CASA improved to 43% from 41% in Q3FY08.
Quality of assets improved sequentially with gross NPAs declining 22% (absolute basis) to INR 33 bn from INR 43 bn. Gross NPA is currently at 2.8% compared with 4.1% in Q3FY08. Net NPA declined 44% Q-o-Q to INR 7.5 bn and is at 0.67%. bn.
Cost-income ratio was on the lower side, at 40%, compared to the 49% average in the previous three quarters, mainly due to lower staff expenses. Transitional liability pertaining to pension, gratuity, and leave encashment (INR 9.3 bn) has been adjusted to revenue reserves, while transitional liability pertaining to other long-term benefits is amortized in the P/L. Provisions of INR 1 bn have been made for wage revision.
Fee-based income grew 34% Q-o-Q and 30% Y-o-Y to INR 4.7 bn. Profit on sale of investments was INR 685 mn.
Tax rate was higher, at 49%, compared to 12% in Q4FY07 and 35% in Q3FY08 mainly due to INR 1.8 bn of tax provision, which is not related to the current year’s income. Adjusting for this, PAT growth was higher, at 204% Y-o-Y and 34% Q-o-Q to INR 7.2 bn.
Key Risks :
Any downturn in agricultural growth will hurt the banks asset quality
Post loan waiver announcement asset quality risk has increased
Given the pace of expansion delinquencies can rise faster than expected
MatrixCap
Saturday, May 17, 2008
Company Report : Chennai Petroleum
Chennai Petroleum
Highest ever profits
INR 350
Buy
Chennai Petroleum Corporation’s (CPCL’s) Q4FY08 profits, at INR 3.44 bn (highest-ever) were higher than our estimates of INR 2.6 bn due to higher-than-expected refining margins, which were marginally offset by lower other income. Refining margins, at USD 9.59/bbl, were assisted by highest-ever inventory gains and regional refining margins. Throughput, at 2.72 mmtpa was also highest ever. Other income was negative due to exchange fluctuation difference of INR 453.4 mn. CPCL reported full year (FY08) PAT of INR 11.23 bn and EPS of INR 75.4. CPCL announced final dividend of INR 12, bringing full year output to INR 17/share. This implies a dividend payout of 25.6%, which is lower than our estimates of 30%.
We are maintaining CPCL’s FY09E and FY10E EBITDA and EPS (with minor modeling changes). We will be revisiting refining margin assumptions in a few weeks to incorporate the recent increase in refining margins. At current margins, CPCL is estimated to report Q1FY09E GRMs of more than USD 10/bbl and EPS of more than INR 30/share.
At CMP of INR 350, the stock trades at 6.6x and 9.4x our FY09E and FY10E EPS, respectively, with a FY09E dividend yield of 4.6%. On an EV/EBITDA basis, CPCL is trading at 4.9x and 6.8x our FY09 and FY10 estimates, respectively, at a marginal discount to the international refining and marketing companies’ median of ~5x one-year forward consensus estimates (considering the possible increase in EPS). We maintain our ‘BUY’ recommendation on the stock.
MatrixCap
Wednesday, May 14, 2008
F&O Calls for the day (15.05.2008)
1. HCLTECH FUT
(CMP 307.65)
The stock has given a break out on the daily chart s and advanced along with increase in OI as well sharp surge in delivery volumes. The stock is expected to advance further and test its resistance levelss of 315 / 322 / 328. Long positions can be initiat ed on the stock for the said targets with a stop loss placed at 298.50 on ini tiation.
IFCI FUT
(CMP 61.90 /
+ 1.85%)
The stock has been consolidat ing in the range of 58 - 62 since past few trading sessions and is now trading close to the higher end of the range. The stock has advanced along wi th substantial increase in OI in yesterdays trading session and closed at the high of the day. We recommend
traders to init iate long positions on the stock for target of 68 / 70 / 72 with a sto p loss placed at
56.75 on initiation.
STER FUT
(CMP 857.85 /
+ 4.51%)
The stock bounced back from its strong support around 820 (being 200 DMA) and witnessed smart recovery in yesterdays trading session. The stock advanced along with sharp surge in delivery volumes indicat ing strong accumulation in cash segment. Unwinding of short positions was also witnessed in futures segment. Long positions can be initiated on the st ock for p rice target of 898 / 920 with a stop loss placed at 819 on initiation.
(CMP 307.65)
The stock has given a break out on the daily chart s and advanced along with increase in OI as well sharp surge in delivery volumes. The stock is expected to advance further and test its resistance levelss of 315 / 322 / 328. Long positions can be initiat ed on the stock for the said targets with a stop loss placed at 298.50 on ini tiation.
IFCI FUT
(CMP 61.90 /
+ 1.85%)
The stock has been consolidat ing in the range of 58 - 62 since past few trading sessions and is now trading close to the higher end of the range. The stock has advanced along wi th substantial increase in OI in yesterdays trading session and closed at the high of the day. We recommend
traders to init iate long positions on the stock for target of 68 / 70 / 72 with a sto p loss placed at
56.75 on initiation.
STER FUT
(CMP 857.85 /
+ 4.51%)
The stock bounced back from its strong support around 820 (being 200 DMA) and witnessed smart recovery in yesterdays trading session. The stock advanced along with sharp surge in delivery volumes indicat ing strong accumulation in cash segment. Unwinding of short positions was also witnessed in futures segment. Long positions can be initiated on the st ock for p rice target of 898 / 920 with a stop loss placed at 819 on initiation.
Stock tips of the day (15.5.2008)
BUYGEMINI COMM [BSE 532318] B/B 254-258 S/L 298 T 263 +
BUY NIITTECH [BSE 532541] B/B 146-149 S/L 140 T 151 +
BUY AIRDECAN [BSE 532747] B/B 139-141 S/L 135 T 144 +
BUY ALOK IND [BSE 521070] B/B 68-69.80 S/L 65.20 T72.50 +
BUY EKC [BSE 532684] B/B 344-347 S/L3335 T 157 +
BUY HCLTECH [BSE532281] B/B 306-310 S/L 298 T 318 +
BUYLAAKSMIO[BSE 519570] B/B 241-245 S/L 233 T 253 +.
This document has been prepared by MatrixCap. MatrixCap and its holding company and associate companies are a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. MatrixCap or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not besuitable for all investors.
BUY NIITTECH [BSE 532541] B/B 146-149 S/L 140 T 151 +
BUY AIRDECAN [BSE 532747] B/B 139-141 S/L 135 T 144 +
BUY ALOK IND [BSE 521070] B/B 68-69.80 S/L 65.20 T72.50 +
BUY EKC [BSE 532684] B/B 344-347 S/L3335 T 157 +
BUY HCLTECH [BSE532281] B/B 306-310 S/L 298 T 318 +
BUYLAAKSMIO[BSE 519570] B/B 241-245 S/L 233 T 253 +.
This document has been prepared by MatrixCap. MatrixCap and its holding company and associate companies are a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. MatrixCap or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not besuitable for all investors.
Tuesday, May 13, 2008
Company Report : Kotak Mahindra Bank ( INR 743, maintain Buy)
Kotak Mahindra Bank’s Q4FY08 results reflect a mix of the non-conducive capital market environment and unfavorable treasury/forex operations, being partially offset by continued traction in the commercial and investment banking (IB) businesses. Consolidated PAT (excluding life insurance) declined 37% Q-o-Q (34% growth Y-o-Y) to INR 2.4 bn (in-line with estimates). Profitability (standalone) declined 32% Q-o-Q, despite 12% Q-o-Q growth in NII, due to lower treasury income and provisions for MTM losses. Sharp correction in the equity markets led to a plunge in the profits of the broking and asset management businesses; however, IB reported better–than-expected profits of INR 254 mn.
Key highlights
Consolidated NIMs sustained at 5.5% plus levels in Q4FY08; bank’s CASA ratio improved to 27%. However, advance growth relatively slowed down to 42% Y-o-Y (from 50% plus levels) and consolidated net interest income grew 31% Q-o-Q to INR 6.4 bn.
Other income (standalone) stood at INR 394 mn in Q4FY08, compared to INR 4.2 bn in 9m FY08, due to absence of treasury gains and MTM bond losses of ~INR 400 mn.
It provided INR 860 mn towards stressed cases in forex derivatives; the bank’s customers incurred MTM losses of INR 6.1 bn on forex derivatives transaction.
Average daily trading volume declined sharply by 40% to ~INR 44 bn in Q4FY08, implying a market
share of ~6%, compared to 7.8% in 9mFY08. Consolidated AUMs declined 24% Q-o-Q to USD 8.9 bn, led by a correction of 40% in offshore AUMs, 26% in PMS, and 23% in domestic MFs.
The life insurance business witnessed significant traction with its market share (among private players) improving significantly from 3.2% in 9mFY08 to 4.1% in Q4FY08
Outlook and valuations: Attractive on SOTP basis; maintain ‘BUY’
The management has expressed its intent of not sacrificing spreads/returns for growth; lowering loan growth estimates to 30% for FY09. It also identified a few focus areas for FY09—deepening presence in wealth management, continued traction in alternate asset management, value unlocking in distressed assets, leveraging the bank assurance platform to source premium, and targeting the inancial advisory aspects of IB. We also remain wary of the highly-volatile and uncertain equity conditions, macro concerns on interest rates, rising global oil prices, and near-term headwinds surrounding the stock, with its growth and earnings being correlated to these conditions. Our revised consolidated EPS (excluding insurance) now stands at INR 31.9 for FY09E and INR 39.1 for FY10E. The stock (adjusted for the value of life insurance) is trading at 15x FY10E earnings and 2.3x FY10E book. Our SOTP fair value for the stock, based on FY10 estimates, is INR 1003 per share. We maintain our ‘BUY’ recommendation.
MatrixCap
Key highlights
Consolidated NIMs sustained at 5.5% plus levels in Q4FY08; bank’s CASA ratio improved to 27%. However, advance growth relatively slowed down to 42% Y-o-Y (from 50% plus levels) and consolidated net interest income grew 31% Q-o-Q to INR 6.4 bn.
Other income (standalone) stood at INR 394 mn in Q4FY08, compared to INR 4.2 bn in 9m FY08, due to absence of treasury gains and MTM bond losses of ~INR 400 mn.
It provided INR 860 mn towards stressed cases in forex derivatives; the bank’s customers incurred MTM losses of INR 6.1 bn on forex derivatives transaction.
Average daily trading volume declined sharply by 40% to ~INR 44 bn in Q4FY08, implying a market
share of ~6%, compared to 7.8% in 9mFY08. Consolidated AUMs declined 24% Q-o-Q to USD 8.9 bn, led by a correction of 40% in offshore AUMs, 26% in PMS, and 23% in domestic MFs.
The life insurance business witnessed significant traction with its market share (among private players) improving significantly from 3.2% in 9mFY08 to 4.1% in Q4FY08
Outlook and valuations: Attractive on SOTP basis; maintain ‘BUY’
The management has expressed its intent of not sacrificing spreads/returns for growth; lowering loan growth estimates to 30% for FY09. It also identified a few focus areas for FY09—deepening presence in wealth management, continued traction in alternate asset management, value unlocking in distressed assets, leveraging the bank assurance platform to source premium, and targeting the inancial advisory aspects of IB. We also remain wary of the highly-volatile and uncertain equity conditions, macro concerns on interest rates, rising global oil prices, and near-term headwinds surrounding the stock, with its growth and earnings being correlated to these conditions. Our revised consolidated EPS (excluding insurance) now stands at INR 31.9 for FY09E and INR 39.1 for FY10E. The stock (adjusted for the value of life insurance) is trading at 15x FY10E earnings and 2.3x FY10E book. Our SOTP fair value for the stock, based on FY10 estimates, is INR 1003 per share. We maintain our ‘BUY’ recommendation.
MatrixCap
Monday, May 12, 2008
RPL ratio spread Strategy:
Strategy:
Buy 1 Lot 180 CA RPL (May) @ INR 9.
Sell 1 lot 190 CA RPL (May) @ INR 5.4.
Sell 1 lot 200 CA RPL (May) @ INR 2.9.
This would result in a Net Outflow of INR .7 in premium or INR 1172 (.7 * 1675 being the lot size) per set of the strategy deployed.
The RISK:
If RPL moves below our break-even limits of 180.7 it would result in a loss of INR .7 in premium or INR 1172 (.7 * 1675 being the lot size) per set. If RPL moves above 209.3 it would result in a loss of INR 1675 per rupee gain the stock per set.
The reward:
The strategy would make money in the range when RPL remains in a range of INR 180.7 – 209.3 with maximum profits coming in at price Range of 190 to 199.3. The maximum profit here is INR 15575 per set
MatrixCap
Buy 1 Lot 180 CA RPL (May) @ INR 9.
Sell 1 lot 190 CA RPL (May) @ INR 5.4.
Sell 1 lot 200 CA RPL (May) @ INR 2.9.
This would result in a Net Outflow of INR .7 in premium or INR 1172 (.7 * 1675 being the lot size) per set of the strategy deployed.
The RISK:
If RPL moves below our break-even limits of 180.7 it would result in a loss of INR .7 in premium or INR 1172 (.7 * 1675 being the lot size) per set. If RPL moves above 209.3 it would result in a loss of INR 1675 per rupee gain the stock per set.
The reward:
The strategy would make money in the range when RPL remains in a range of INR 180.7 – 209.3 with maximum profits coming in at price Range of 190 to 199.3. The maximum profit here is INR 15575 per set
MatrixCap
Sunday, May 11, 2008
High Inflation here to stay
Inflation remains stubborn
Inflation for the week ended April 26 stood at 7.61% Y-o-Y; marginally below MatrixCap
and consensus estimate of 7.65% and slightly above the previous week’s number of
7.57%.This rise is primarily on account of rising food prices and partly on account of base
effect.
Food articles fueling prices
A 22bps rise in primary articles inflation came in on account of rise in both, food and nonfood articles inflation. High prices of certain beverages, fruits and vegetables and condiments and spices triggered the rise in food articles inflation. Manufactured products inflation and fuel group inflation remained unchanged.
Policy measures to combat inflation
The government and the RBI have already adopted several fiscal and monetary measures to rein in rising domestic prices. The Government has imposed several restrictions on exports and sharp reduction in import duties of several items. During April, the RBI announced a total of 75 bps hike in CRR primarily to arrest higher inflationary expectations
and to absorb excess liquidity of ~280 bn. The ministry has been explicit to mention that they may adopt further fiscal and administrative steps to curb inflation, if required. Some of the relatively recent measures are as follows:
India’s Forward Markets Commission has suspended futures trading in four commodities; soybean oil, rubber, chickpeas and potatoes for four months. The four commodities banned have a daily traded value of about INR12bn on the Multi Commodity Exchange of India Ltd. (MCX) and the National Commodities & Derivatives Exchange Ltd (NCDEX).
The import duty on edible oils, maize, pig iron and some steel products has been scrapped. Earlier during March-April, ban was imposed on exports of rice, pulses and cement.
The government is having continuous discussions with various industries (eg, steel, cement) to explore possibilities of price reductions. Some of the major steel producing companies have already reduced their prices.
Outlook
With the wearing off of base effects and skyrocketing global commodities (including food, metals and energy) prices, inflationary pressures will remain strong in the near term. In our view, even by a conservative estimate, inflation will hover at least around 8% in mid-june
MatrixCap
It doesn't take rocket science to see a recession coming, despite the so-called experts' happy talk several months back. The economy's offering plenty of things to fret about, from the housing market's spectacular bust and ensuing credit crunch to the possibility that increasing inflation (stagflation, even) will further pinch consumers.
As utterly terrifying as bear markets are to the average investor, the truth is, they happen. They're inevitable. And many of the smartest investors in the world will tell you that bear markets are the best time to invest in stocks.
Here's something to think about: The Leuthold Group, a Minneapolis-based money manager, did the research and concluded that we're in the jaws of a bear market 34% of the time. The rest of the time -- 66%! -- we're in a bull market. There's no such thing as a permanent bull market, but they do last longer than bear markets!
It stands to reason that those long, comfortable bull markets can get us into the mind-set that the good times will never end. Then we panic when things look bad, forgetting that they'll eventually recover. So let's all get a grip.
Run for cover in 2008?Stocks across the board have been knocked down by ills both real and imagined. The macroeconomic environment is undeniably scary, but while many companies have reported slowdowns owing to slower, less-confident consumers, the market's dramatic drubbings have helped push many stocks to prices far below the point of any logic.
Super-saver special SALE!Everybody knows to buy low and sell high, but that's easier said than done. We've all fallen victim to thinking we were "wrong" about one of our stocks because of a double-digit decline, even when the strong fundamentals hadn't changed. Bull markets tend to make us feel like investing geniuses; bear markets can make us feel like we can do nothing right.
But remember: When the market's taking a licking, everything sounds all doom and gloom. Few headlines mention that, because of the gloomy market, many excellent stocks are on sale. It's your opportunity to go against the conventional wisdom and embrace the bear market.
Don't sweat the short termWhen the short term is looking a little overcast, it's a great time to concentrate on (1) the long term and (2) owning great businesses.
As tough as things may seem right now, the prevailing pessimism means that opportunity abounds. If you hold your ground and buy quality stocks with solid long-term growth stories at sale prices, the future for your portfolio is very bright indeed. If you're feeling uncertain, or if your list of great companies seems a bit thin, you could always check out.
We also offer our another great product ; Pair Strategy for those brave hearts who still want to deal in Futures & Options in this market.
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