[Investors Please Listen] Chemicals Sector Update ; Weakness in June'09, Is it temporary?

After an attractive recovery in prices and demand in Apr-May'09 period, June'09 witnessed weakness in prices. Products reporting fall in prices increased sharply to 14 in June'09 from 7 in May'09 with the average fall in prices at 16.4% (5.1% in May'09). Out of 33 products, only 5 products reported increase in prices with an average increase of 4.7%. Imports remained active in May-June'09 keeping the domestic prices under pressure. Sectors like textile and paints saw weak demand while agro chemicals and pharma sector saw boost in demand. Stocking at dealers level has come down due to uncertainty before the budget. Various industry players expect peak excise duty to increase from the present 8% to 12%. We expect demand from construction, paints etc to gain momentum from August'09 resulting in an improved price scenario.       

 

Company	CMP	TP	Reco
CFL	192	263	Buy
DFPCL	94	103	Hold
GNFC	88	76	Buy
GSFC	176	107	Hold
TCL	225	192	Reduce

Prices as on 29th June 2009

 

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[Investors Please Listen] Glenmark Pharma Q4FY09 Result Update ; Disappointing numbers, one offs impacted further ; Accumulate ; Target : Rs241

 

CMP: Rs230                  Target Price: Rs241

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Glenmark posted disappointing set of numbers, significantly below our/market estimates. Revenue fell by 14% to Rs 4911mn because of absence of NCE income (Rs609mn in Q4FY08) and a base business decline across all segment (decline by 4%), except its domestic formulation business (grew by 12%). Operating margins were affected because of a) Inventory write-down for the US and LatAm market (Rs700mn), b) Closure of operations in Australia and China (Rs600mn) and c) A charge back of Rs1.17bn on account of price erosion in Oxcarbazepine. This has resulted 21 percentage point contraction in EBIDTA margins to 17.7% in Q4FY09. Pressure in top-line and operating margins coupled with higher interest cost (up by 364%) has led to 96% decline in APAT to Rs91mn in Q4FY09. For FY09, Revenue was up by 6% to Rs20.9bn. excluding NCE income, revenue grew by 21%. Adjusted EBIDTA for FY09 de-grew by 27% to Rs5850mn. APAT de-grew by 55% to Rs2830mn. On the back of lower than expected performance, we have downgraded our FY10E earning estimates by 25% to Rs12.8 and introduced our FY11E earning estimates (EPS of Rs17.2 for base business). We are positive on the outcome of Melogliptin Phase IIb clinical data and have revised the NPV of R&D assets from Rs44 per share to Rs69 per share. However, we feel that monetizing of R&D opportunity in the near term will remain a key challenge for the company. Maintain Accumulate rating with a price target of Rs241 (10x FY11E EPS ex. R&D NPV). Positive data for Oglemilast and out-licensing deal for Melogliptin will be key upsides.

 

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L&T bags Rs12.3 bn worth Electrical Projects, we maintain our ‘Reduce’ rating on the stock with a target price of Rs1095.

L&T has bagged six small value orders in the domestic market totaling Rs12.3 bn from government and quasi-government bodies in the Power and Railways sector.  Rs5.0 bn turnkey order from Mahatransco – entailing construction of 220kV multi-circuit transmission system over 130 kms in Mumbai. Tenure of the project is 24 months. Rs2.5 bn order from Chattisgarh SEB – construction of 400kV double circuit transmission line across 224 kms from Korba West to Khedamara (Bhilai). Tenure of the project is 24 months. Rs1.0 bnorder from Power Grid Corporation – construction of 400kV transmission lines across 126 km under Northern Region System Strengthening Scheme (XIV) and Rampur Hydroelectric project. Tenure of the project is 25 months. Rs1.9 bn order from Rail Vikas Nigam – construction of 45 kms of railway line in West Bengal. Tenure of the project is 24 months. Another Rs0.7 bn EPC contract from Mahatransco – construction of 220/132/33kV sub-station at Tuljapur & Paranda in Maharashtra. Tenure of the project is 12 months. Rs1.3 bn order from Maharashtra State Electricity Distribution Co. – construction of 33kV sub-station in Akola & Washim, Maharashtra. Tenure of the project is 24 months.

With the above orders L&T has secured a total of Rs17.5 bn orders in Q1FY10 YTD (L&T had bagged orders worth Rs122 bn in Q1FY09 in comparison). The management in its earlier communication had guided for 25-35% growth in order inflows. We believe that revival in order inflows will be witnessed only from H2FY10E. At CMP the stock is trading at 27.5X FY10E and 23.2X FY11E consolidated earnings of Rs58.9 and Rs69.9 per share respectively. In view of current expensive valuations, we maintain our 'Reduce' rating on the stock with a target price of Rs1095.

[Investors Please Listen] Sensex could trade at 30,000 in 3-4 yrs: JP Morgan AMC

Edward Pulling, Fund Manager at JP Morgan AMC managing $6 billion (Rs. 29,100 cr) in India, said that when he first started investing in India, about 15-16 years ago, the Sensex was around 3000-4000 and now we are at 14,000-15000. And according to him in 3-4 years time market will be at 30,000. So by almost any measurement that is a bull market. This being India, there are going to be plenty of bumps along the road and that is part of the fun and challenge of investing in Emerging Markets. But there is tremendous amount of money, profit to be made in the longer-term if you stick with it and you know what you are doing. If I think that the market can double from here in 3-4 years then that is no matter what your definition is that is a bull market. But it's not going to be a linear 14-15000 to 30000.

 

What happened last year -was that there was too much exuberance going into 2008 and no one could have predicted those events.

Where are we right now -14,200 on the Sensex; in March 2009 EPS is going to come in at around Rs 850 and once the earnings upgrades kick, you will see March 2011 EPS at around a Rs 1000.

So over a 30-month period I think earnings can double. Why?- A lot of capital intensive long gestation projects, ports, roads, steel mills, airports, etc. all these big ticket items which are under construction right now, are still finalizing their linkages, power stations etc, these will start to come on around 2012 or through 2014-15. They will change the complexion of earnings in India. But it is important that they all start coming on towards those three years. Then of course you will also have quite strong growth from financial services sector.  I can't guarantee that in March 2013 the denominators double, it could be September but you will see a significant ramp up in earnings.

Commenting on the Indian economy, Pulling said he was positive that India would once again see a GDP growth of 7% and 8%. He said that earnings growth would be primarily driven by the infrastructure space.

However, he said that the Indian real estate sector was not attractive right now as there was more transparency required.

He said that the market will trade back to its long-term average multiple of 14-15 times forward earnings. Also market is not over extended right now, in valuation terms and it will really ramp north from 2011 to 2013.
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Systematic Investing (SIP) improves the 'Consistency of Returns'

Systematic Investing (SIP) improves the 'Consistency of Returns'
The following is the comparative data of Monthly SIPs (on the 1st of every month) vs lumpsum investment. You would observe that:
1. SIP investment has generated positive returns even in those periods where the lumpsum investment has generated negative returns
2. The returns from SIP investment are much consistent than the returns form lumpsum investment..
3. SIP invetsing elimates the need (and the accompanying worry) for timing the markets
	Annualised Returns Over different period of time (as on 1st June 2009)
Investment (years)	Reliance Growth Fund		HDFC Top 200 Fund		SBI Contra Fund		Birla SunLife Midcap Fund		Birla SunLife Frontline Equity Fund		DSP BR Top 100 Equity Fund		Reliance Regular Savings Fund - Equity Fund
	SIP	Lumpsum	SIP	Lumpsum	SIP	Lumpsum	SIP	Lumpsum	SIP	Lumpsum	SIP	Lumpsum	SIP	Lumpsum
1	73.52%	12.92%	87.35%	30.31%	76.67%	21.12%	87.90%	17.48%	77.56%	24.42%	60.83%	19.29%	89.63%	22.89%
2	12.53%	3.48%	21.06%	10.10%	13.40%	3.52%	12.61%	-0.17%	15.90%	6.03%	12.97%	6.52%	20.06%	12.37%
3	12.35%	18.22%	17.21%	19.37%	11.70%	15.82%	10.61%	15.94%	14.12%	19.23%	13.48%	19.33%	18.92%	25.40%
4	15.24%	24.79%	18.97%	26.26%	15.12%	25.96%	12.74%	21.34%	17.36%	25.48%	17.45%	26.49%	20.88%	21.51%
5	22.58%	36.28%	23.71%	31.84%	23.44%	38.11%	18.12%	28.70%	21.90%	29.86%	22.43%	30.26%	--	--
6	28.64%	42.83%	26.71%	36.04%	30.86%	44.22%	22.77%	33.83%	24.30%	31.73%	25.33%	34.99%	--	--
7	36.45%	40.30%	32.45%	36.56%	37.32%	39.03%	21.83%	25.31%	--	--	--	--	--	--
8	40.00%	42.18%	33.97%	34.53%	38.90%	39.55%	--	--	--	--	--	--	--	--
9	38.60%	31.21%	32.76%	27.02%	37.77%	33.18%	--	--	--	--	--	--	--	--
10	35.83%	33.64%	30.35%	26.02%	--	--	--	--	--	--	--	--	--	--
11	35.49%	35.15%	29.35%	27.09%	--	--	--	--	--	--	--	--	--	--
12	34.49%	31.61%	28.34%	24.80%	--	--	--	--	--	--	--	--	--	--
13	33.67%	30.02%	--	--	--	--	--	--	--	--	--	--	--	--
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