Goldman, Morgan Stanley profits fall

The two largest US investment banks, Goldman Sachs Group Inc and Morgan Stanley, reported lower quarterly profits, but beat expectations on Tuesday even as the worst market slump in decades rattled Wall Street.

Goldman Sachs, the largest securities firm, said third quarter earnings fell 70 percent on weaker-than-expected revenues, knocking its shares to nearly three-year lows.

Later, No 2 Morgan Stanley, which reported a day ahead of schedule after US markets closed, trounced expectations paced by one-time gains, robust equity and commodities trading results and record prime brokerage fees.

Morgan's earnings fell 3 percent even as the year-old credit crunch slowed deal activity and created one of the toughest trading environments in decades. Its shares fell 11 percent on Tuesday in regular trading, though they pared most of those losses in electronic trading after New York markets closed.

Goldman shares also climbed after the bell, up 4 percent.

"Between Goldman Sachs and Morgan Stanley, we are getting some modest positive news in what has been an otherwise dark five-day period," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management.

Tough Times

The results come a day after No 4 investment bank Lehman Brothers Holdings Inc filed for bankruptcy, swamped by mortgage losses. No 3 broker Merrill Lynch & Co Inc meanwhile rushed into the arms of Bank of America Corp to avoid a similar fate.

These moves had prompted questions about the viability of investment banks. Several analysts predicted these firms would merge with commercial banks, which can tap pools of deposits.

Yet Morgan Stanley and Goldman dismissed those concerns.

"It's not the business model. It's performance that matters," said Goldman chief financial officer David Viniar. "We've been able to compete just fine."

Morgan Stanley CFO Colm Kelleher also played down the need to merge with a deposit-taking bank: "I'm very confident about the business model, said in a phone interview.

Goldman

Goldman's quarter was marked by sharply lower banking, trading and investment results. It was the investment bank's biggest earnings decline since it went public in 1999.

Still it beat expectations, despite USD 1.1 billion in write-downs and losses from principal investments. Some investors said Goldman deserved credit for reporting any profit at all when rivals go bust or bleed red ink.

"For them to perform in this manner, in this environment, is nothing short of heroic," said Holland & Co Chairman Michael Holland.

Goldman's investment banking revenue dropped 40 percent amid a dearth of deals. Debt trading revenue fell by two-thirds, primarily on weak credit and mortgage markets, while equities trading revenue fell by one-half.

The latest quarter included USD 1.1 billion in losses on corporate loans, residential and commercial mortgages, and USD 453 million of principal investment losses, showing the downside of making aggressive bets with house money. Asset management revenue fell 6 percent as clients withdrew a net USD 7 billion.

"People were hoping for some good news in a sea of gloom and I don't think they got it," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel.

Analysts said Goldman beat expectations because it paid unusually low taxes, an effective rate of 12 percent compared with 34 percent last year.

Morgan Results

Morgan easily out-earned its archrival and generated a higher return on equity.

"This is great news for the whole financial sector," said Marshall Front, chairman at Front Barnett Associates. "I think the key to this whole thing was that they looked better than Goldman Sachs' earnings earlier in the day."

The results included a USD 745 million one-time gain from its sales of MSCI Inc stock and USD 1.4 billion of gains recorded because the credit spreads on its own debt widened.

And while the banking and trading division posted strong results, wealth management results and asset management results both fell. The ranks of brokers grew, rising 2 percent to 8,500.

Morgan also absorbed nearly USD 1.1 billion of losses and charges from mortgage trades, investments, leveraged buyout loans and repurchase of illiquid auction rate securities.

Over the past year banks and brokers have recorded more than USD 500 billion in write-downs as the mortgage crunch expanded into a sprawling crisis that continues to claim new and larger victims.

Goldman acknowledged its earnings follow the global economy and that conditions will remain challenging. The company said it is increasing capital and cash while shedding risky assets.

"We've become even more cautious in our approach," Viniar told reporters. "There's a lot of fear in the marketplace."

Goldman Sachs - India Holdings

GTC Industries Ltd	Goldman Sachs Investment (Mauritius)	2.73	458782
Hero Honda Motors Ltd	Goldman Sachs Investment (Mauritius)	1.13	2249763
Hero Honda Motors Ltd	Goldman Sachs Investment (Mauritius)	1.29	2579428
Hero Honda Motors Ltd	Goldman Sachs Investment (Mauritius)	1.36	2716268
Hero Honda Motors Ltd	Goldman Sachs Investment (Mauritius)	1.5	3002349
Hero Honda Motors Ltd	Goldman Sachs Investment (Mauritius)	1.6	3196574
Hero Honda Motors Ltd	Goldman Sachs Investment (Mauritius)	1.69	3376435
Lloyd Electric & Engineering Ltd	Goldman Sachs Investment (Mauritius)	3.93	700000
Punjab National Bank	Goldman Sachs Investment (Mauritius)	4.42	13942761
Punjab National Bank	Goldman Sachs Investment (Mauritius)	4.63	14606923
Shasun Chemicals & Drugs Ltd	Goldman Sachs Investment (Mauritius)	2.2	201226
Shasun Chemicals & Drugs Ltd	Goldman Sachs Investment (Mauritius)	2.24	204376
Shasun Chemicals & Drugs Ltd	Goldman Sachs Investment (Mauritius)	2.28	209026
Shasun Chemicals & Drugs Ltd	Goldman Sachs Investment (Mauritius)	2.28	209116
Shasun Chemicals & Drugs Ltd	Goldman Sachs Investment (Mauritius)	2.39	218460
Shasun Chemicals & Drugs Ltd	Goldman Sachs Investment (Mauritius)	2.66	1216570
Aftek Ltd	Goldman Sachs Investment	1.63	1410531
Champagne Indage Ltd	Goldman Sachs Investment	2.47	300000
Wanbury Ltd	Goldman Sachs Investment	1.88	239900
McNally Bharat Engineering Company Ltd	Goldman Sachs Investements Mauritius I	1.19	317902
Gujarat State Fertilizers & Chemicals Ltd	Goldman Sachs Invest Mauritius Ltd	1.09	872039
Gujarat State Fertilizers & Chemicals Ltd	Goldman Sachs Invest Mauritius Ltd	1.16	923158
United Phosphorus Ltd	Goldman Sachs Invest Mauritius India Ltd	1.09	2043577
United Phosphorus Ltd	Goldman Sachs Invest Mauritius India Ltd	1.64	3070654
Zicom Electronic Security Systems Ltd	Goldman Sachs Invesments (Mauritius) I	4.06	379686
Geodesic Information Systems Ltd	Goldman Sachs Inv Mauritius I Ltd	6.43	3775708
Geodesic Information Systems Ltd	Goldman Sachs Inv Mauritius I Ltd	6.71	3939897
Valecha Engineering Ltd	Goldman Sachs Inv Mauritius I Ltd	1.45	100324
Visa Steel Ltd	Goldman Sachs Inv Mauritius I Ltd	4.18	4600648
K Sera Sera Productions Ltd	Goldman Sachs Inv Mauritius	2.39	466713
Gitanjali Gems Ltd	Goldman Sachs Inv Mau India Ltd	1.33	804178
Gitanjali Gems Ltd	Goldman Sachs Inv Mau India Ltd	4.83	2849619
Shree Renuka Sugars Ltd	Goldman Sachs Funds	1.75	471918
Ruchi Soya Industries Ltd	Goldman Sach Investments(Mauritius) I Ltd	1.51	552547
Ruchi Soya Industries Ltd	Goldman Sach Investments(Mauritius) I Ltd	1.55	564396
Ruchi Soya Industries Ltd	Goldman Sach Investments(Mauritius) I Ltd	1.82	3327410
Indiabulls Financial Services Ltd	Goldman Sach Investments Mauritius Ltd	4.76	8716176
Indiabulls Financial Services Ltd	Goldman Sach Investments Mauritius Ltd	4.81	8114365
Lloyd Electric & Engineering Ltd	Goldman Sach Investments Mauritius Ltd	4.2	1134446
Lloyd Electric & Engineering Ltd	Goldman Sach Investments Mauritius Ltd	5.17	1397790
Lloyd Electric & Engineering Ltd	Goldman Sach Investments Mauritius Ltd	7.57	2346066
Lloyd Electric & Engineering Ltd	Goldman Sach Investments Mauritius Ltd	8.65	2335566
Indiabulls Financial Services Ltd	Goldman Sach Investments Mauritius I Ltd	3.86	8601227
Anant Raj Industries Ltd	Goldman Sach Investments Ltd	1.23	422782
Anant Raj Industries Ltd	Goldman Sach Investments I Ltd	1.17	420400
Intellvisions Software Ltd	Goldman Sach Investments (Maurtius)	5.97	350000
Intellvisions Software Ltd	Goldman Sach Investments (Maurtius)	9.5	665000
Mastek Ltd	Goldman Sach Investments (Mauritius) Ltd	4.99	694709
Mastek Ltd	Goldman Sach Investments (Mauritius) Ltd	6.06	851872
Tata Steel Ltd	Goldman Sach Investments (Mauritius) Ltd	1.58	9598961
Webel Sl Energy Systems Ltd	Goldman Sach Investments (Mauritius) Ltd	1.93	125548
Intellvisions Software Ltd	Goldman Sach Investments (Mauritius)	10	700000
Provogue (India) Ltd	Goldman Sach Investments (Mauritius)	1.28	243681
Provogue (India) Ltd	Goldman Sach Investments (Mauritius)	1.34	256480
Provogue (India) Ltd	Goldman Sach Investments (Mauritius)	1.87	356806
Provogue (India) Ltd	Goldman Sach Investments (Mauritius)	2.11	403751
Crompton Greaves Ltd	Goldman Sach Investments	1.08	3973951
Federal Bank Ltd	Goldman Sach Investments	2.35	2008900
Federal Bank Ltd	Goldman Sach Investments	2.36	2020975
Federal Bank Ltd	Goldman Sach Investments	3.05	2000000
Intellvisions Software Ltd	Goldman Sach Investments	9.5	665000
Carnation Nutra-Analogue Foods Ltd	Goldman Sach Investment Mauritius	1.39	77565
Anant Raj Industries Ltd	Goldman Sach Investment I Ltd	1.01	418700
Shah Alloys Ltd	Goldman Financial Investors	1.25	246480
Ajanta Pharma Ltd	Goldman Commodity Pvt Ltd	2.25	263335
Paramount Communications Ltd	Goldman Cachs Investments Mauritius India Ltd	1.29	183420
Paramount Communications Ltd	Goldman Cachs Investments Mauritius India Ltd	1.53	217200
Tata Teleservices (Maharashtra) Ltd	Goldman Agent Pvt Ltd	8.72	122561358
Champagne Indage Ltd	Goldman Sachs Investment	2.36	300000

UNVERIFIED

Goldman Sachs - Recession in 2008

Goldman Sachs on Wednesday said it expects the U.S. economy to drop into recession this year, prompting the Federal Reserve to slash benchmark lending rates to 2.5 percent by the third quarter.

In a note to clients, Goldman said real gross domestic product would contract by 1 percent on an annualized basis in both the second and third quarters. For all of 2008, the investment bank said GDP would rise by 0.8 percent.

The unemployment rate will rise to 6.5 percent in 2009 from the current 5 percent, it said.

The weakening economy will force the Fed to lower policy rates by an additional 1.75 percentage points from the current 4.25 percent. Starting in September, the Fed cut rates at the last three meetings of the Federal Open Market Committee, reducing the target rate on loans between banks by 1 percentage point from 5.25 percent.

Via Reuters

Goldman Sachs - subprime crisis

For more than three months, as turmoil in the credit market has swept wildly through Wall Street, one mighty investment bank after another has been brought to its knees, levelled by multibillion-dollar blows to their profits.
And then there is Goldman Sachs Group Inc.
Rarely on Wall Street, where money tends to travel in a thundering herd, has one firm gotten it so right when nearly all its peers were getting it so wrong. Three banking chief executives have already been forced to resign because of the debacle and the pay for nearly all the survivors is expected to be deeply cut.
But for Goldman’s chief executive, Lloyd Blankfein, this is turning out to be a very good year. He will surely earn more than the $54.3 million (Rs213 crore) he made last year. If he gets a 20% raise—in line with the growth of Goldman’s compensation pool—he will take home at least $65 million.
Many expect his pay, which is tied directly to the firm’s performance, to reach as high as $75 million. Goldman’s good fortune is not due simply to good luck. Late last year, with the markets roaring along, David Viniar, Goldman’s chief financial officer, called a “mortgage risk” meeting in his meticulous 30th floor office in the firm’s New York headquarters. At that point, Goldman’s mortgage desk was down somewhat but the notoriously nervous Viniar was worried about bigger problems. After reviewing the full portfolio, his message was clear: the bank should reduce its stockpile of mortgages and mortgage-related securities and buy expensive insurance as protection against further losses, a person briefed on the meeting said.
With its mix of swagger and contrary thinking, it was just the kind of bet that has long defined Goldman’s hard-nosed, go-it-alone, risk-taking style. Meanwhile, most of the firm’s competitors, with the exception of the smaller and more specialized Lehman Brothers, appeared to barrel headlong into the mortgage markets. They kept packaging and trading complex securities for high fees and more market share without hedging, or protecting themselves against the positions they were buying.
When the credit markets seized up in late July, Goldman was in the enviable if not quite believable position of having offloaded the toxic products that Merrill Lynch & Co. Inc., Citigroup Inc., UBS, Bear Stearns Cos. Inc. and Morgan Stanley, among others, had kept right on buying until it was too late.
“If you look at their profitability through a period of intense credit and mortgage market turmoil,” said Guy Moszkowski, an analyst at Merrill Lynch who covers the investment banks, “you’d have to give them an A-plus.”
This stark contrast in performance has been a struggle for competitors to swallow. The bank that seems to be in every corner, with a hand in so many deals and products and regions, made more money in the boom and—at least so far— managed to go right on making money in the bust.

via Mint

Stocks you can pick up this week

Motherson Sumi System
Research: Merrill Lynch
Rating: Buy
CMP: Rs 96

Merrill Lynch initiates coverage on Motherson Sumi Systems (MSSL) with a ‘buy’ rating due to the following reasons: (1) 23%+ compounded annual growth rate (CAGR) in EPS during FY07-FY10E and sustainability of 20%+ earnings growth over a longer period; (2) 560 bps expansion in return on equity capital (RoCE); and (3) new business ventures.

Expansion of the rubber components business following the recent acquisition of Empire Rubber in Australia and beginning of commercial production of mobile phone plastics parts business in H2 FY08 are the key growth drivers, apart from the 22% CAGR in wiring harness revenues. There is significant possibility of earnings surprise on account of: (1) management guidance of 43% CAGR in earnings being significantly higher than expectations; and (2) likely benefit of 18% fall in copper prices in the next six quarters, compared to Merrill Lynch’s assumption of flat prices. The stock is trading at 11.97x FY09E EV/EBITDA — a discount of 15% and 31%, respectively, compared to Mico and Cummins India, despite better growth prospects and good track record. At management-guided EPS of Rs 9.8 in FY10E, the stock trades at 9.7x earnings.

Sesa Goa
Research: Buy
Rating: Goldman Sachs
CMP: Rs 2,111

GOLDMAN Sachs initiates coverage on Sesa Goa with a ‘buy’ rating. Sesa Goa is India’s largest exporter of iron ore in the private sector and is a direct play on iron ore price negotiations. With sustained tightness in the iron ore market, it will be a direct beneficiary of higher iron ore prices. High margins, attractive returns, debt-free balance sheet, strong free cash flow generation and cash pile of Rs 220 per share are added positives. The non-iron ore businesses will benefit due to a robust outlook on pig iron and met coke prices. Reining in logistics costs will remain a key focus area. Additionally, after the completion of the ongoing open offer, the new promoters, Vedanta Resources, may deploy surplus cash reserves. Sesa Goa is likely to deliver 40% earnings CAGR over FY07-FY09E on the back of a bullish iron ore price outlook and modest volume growth. Potential announcements on strategic use of the cash pile or expansion plans, post completion of the open offer by Vedanta Resources, can provide upside triggers. At 2.8x one-year forward EV/EBITDA — which is at a 50% discount to global mining companies — the stock is attractively valued.

Tata Motors
Research: Citigroup
Rating: Buy
CMP: Rs 694

Citigroup has put a ‘buy’ recommended on Tata Motors. The management guidance points to a modest revival in truck sales in H2 FY08E, which implies that overall sales for FY08 will be flat or may register modest growth. Truck operators’ profitability remains healthy, despite rise in interest rates. Freight rates continue to remain stable. The company will deploy Rs 8,000 crore over the next three years to launch new platforms in passenger cars and trucks.

The small car remains on schedule and will be launched in mid-CY08 (H1 FY09E). The management has said Tata Motors will start the process of demerging its subsidiaries by end FY08E, but this is still at a nascent stage. Brand, technology and markets are the key decision variables. Cost pressures (steel accounts for 45% of input costs) will continue to affect margins. Cost reduction exercise is nearly complete — the company has achieved Rs 970 crore of its stated Rs 1,000-crore cost-cutting exercise. Hikes in CV prices (~1-1.5%) undertaken in early FY08 will mitigate (but not offset) the impact of cost pressures.
Binani Cement
Research: JP Morgan
Rating: Overweight
CMP: Rs 79

JP Morgan initiates coverage on Binani Cement (BCL) with an ‘overweight’ rating. BCL appears to be at the cusp of aggressive volume growth. Cement production is likely to witness a CAGR of 44% over FY07-09. Increasing volumes, coupled with robust prices (in the current year) should drive 44% EBITDA growth and 40% EPS growth in FY08, as per JP Morgan’s estimates. In FY09, aggressive volume growth is likely to help offset the negative impact of an estimated 6% YoY decline in cement prices. A near 10% CAGR in domestic demand and benefits of consolidation should provide a higher floor to domestic prices, relative to previous cycles. BCL’s valuation looks compelling — the stock is trading at a near 40% valuation discount to mainstream cement players.

IDBI Bank
Research: ICICI Direct
Rating: Outperformer
CMP: Rs 131

ICICI Direct initiates coverage on IDBI Bank with an outperformer rating. IDBI Bank has transformed itself from a development financial institution (DFI) to an active participant in the booming banking and financial services space.

The amalgamation of United Western Bank with IDBI Bank has given the latter the much-needed branch network to enhance its retail presence. This, coupled with unlocking of value in its investments, is expected to lead to a surge in earnings. ICICI Direct expects earnings to witness a CAGR of 19% over FY07-09E to Rs 885 crore. IDBI Bank has a huge investment portfolio of quoted and unquoted equity stocks. It can unlock the value from these stocks and boost its profitability.

The value of the quoted and unquoted equity book is Rs 52 per share of IDBI Bank. The bank is expected to improve its core business gradually with net interest margins (NIMs) expanding from 0.48% in FY06 to 0.74% in FY07 and further to 1.07% by FY09E. At the current price around of Rs 130, the stock is trading at 1.3 its FY09E adjusted book value (ABV) and 10.6x its FY09E EPS of Rs 12.2. Based on a theoretical book value multiple of 0.9x its FY09E ABV, the value of its core banking business comes to Rs 87 per share. Its huge investment portfolio is valued at Rs 52 per share and subsidiaries at Rs 17 per share.

Godavari Chemicals & Fert
Research: IDBI Capital
Rating: Buy
CMP: Rs 129

Godavari Chemicals and Fertilizers — promoted jointly by Andhra Pradesh State Co-operatives (APSC) and the Indian Farm and Fertilizer Co-operative (IFFCO) — is one of the frontline players in the fertiliser segment in the South. It is now a part of Chennai-based Murugappa group, which acquired the stake of the Andhra Pradesh government in the process of disinvestment through Coromandel Fertilizers. Godavari is one of the leading producers of DAP and has a market share of 9% across India, while it has a 73% share in Andhra Pradesh.

During FY07, it increased the sale of traded products like water-soluble fertilisers, micronutrients and G-Sulphur. It has an approximate capacity of 1.2 million metric tones (mt), with a proximity to seaport and good infrastructure. Production during FY07 was highest at 11.35 lakh tonnes, when the average output increased to 72 mt per hour against 65 mt per hour. However, production was hit due to constraints of phosphoric acid supply. The company will expand its capacity by 4.25 lakh mt by June ’09. It has also completed construction of 10,000 mt atmospheric ammonia at Kakinada. Godavari Chemicals has put up a good show for Q1 FY08 with regard to operating and net profits. Its revenue, at Rs 17.3 crore, was down by 35% YoY. PAT was Rs 1.3 crore, against a loss of Rs 40 lakh in the year-ago period. The stock is currently trading at 6x its trailing 12 months EPS of Rs 20.65.

Stocks you can pick up this week

Infosys Technologies
Research: Ask
Rating: Buy
CMP: Rs 1,940

Infosys Technologies’ Q1 FY08 results were above the Street’s expectations. But the company has missed its topline guidance for the second time in a row (though it has outdone its EPS guidance in both quarters). Revenues, at Rs 3,773 crore, were flat sequentially (against ASK’s expectation of Rs 3,885 crore) and PAT was also flat at Rs 1,028 crore (against ASK’s expectation of Rs 945 crore). The guidance in rupee terms for FY08E has been revised downwards (-5.1% at the higher end), while the dollar guidance has been increased marginally. Though demand looks robust, the rupee seems to have taken the fizz out of the growth story. ASK has revised its FY08E EPS downwards to Rs 80 (-1.7%) and FY09E EPS to Rs 97.4 (-2.7%). It has also revised the exit P/E multiple from 25x to 24x as earnings growth has slowed considerably. ASK anticipates an EPS CAGR of 20.6% over FY07-09E (vis-à-vis 39.3% over FY05-07E). But ASK remains positive on the company’s fundamentals and believes that most of the bad news has been factored into the current market price. It maintains ‘buy’ recommendation on the stock.


Chennai Petroleum
Research: Citigroup
Rating: Buy
CMP: Rs 300

Citigroup has raised Chennai Petroleum Corporation (CPCL)’s FY08-09 estimates by 19-25% on the back of sustained strength in the refining cycle and reduced subsidy burden. Dividend yield of 5.6% provides downside support. The company reported PAT of Rs 323 crore (EPS Rs 21.7) during the quarter, which was slightly higher than expected due to strong gross refining margins (GRM). Reported GRM of $8.8/bbl was in line with Singapore complex GRM of $9.6/bbl. Adjusting for subsidy payouts, CPCL has broadly tracked Singapore GRMs, apart from certain one-off quarters. New estimates are based on GRMs of $6.5/bbl in FY08E and $6.0/bl in FY09E, though gains are partially offset by a stronger rupee. Citigroup does not expect pure refiners to be included in the subsidy net as duty protection has fallen to 1% and a major contribution from RIL’s refinery is unlikely, given its EOU status. Replacement cost analysis suggests further hidden value. On a conservative EV/complexity bbl of $1500 (against replacement cost of $2,000 and RIL/RPL’s current multiples of $1,900-2,200), CPCL could be worth Rs 490. The steep discount to replacement cost offsets the risks from a potential merger with IOC.


HDFC Bank
Research: Edelweiss Securities
Rating: Buy
CMP: Rs 1,231

HDFC Bank’s Q1 FY08 numbers were in line with Edelweiss Securities’ estimates. Net profit grew 34% YoY to Rs 320 crore, while net interest income grew 28% YoY. Net interest margins improved YoY to 4.2%, while non-interest income increased by 46%. The proportion of low-cost deposit declined slightly to 52%. The bank’s operating expenses increased 40% YoY due to expansion in its branches. Higher general provisioning led to overall provision growth of 50% YoY, while the balance sheet grew by 32% YoY. Edelweiss maintains its EPS estimate for FY08 at Rs 43 and reduces EPS estimate for FY09 by 2.15% to Rs 56.6. Edelweiss is incorporating actual FY07 numbers, reducing its margin expectations and increasing fee income growth expectations to 30% from 27.5% in FY08E. Edelweiss likes the bank for its liability franchise and asset quality. It believes the bank is a safe bet compared to its peers due to its stable and predictable growth. The stock trades at 3.1x FY09E book and 20x FY09E EPS. Edelweiss Securities’ maintains its ‘buy’ recommendation.


DLF
Research: Motilal Oswal
Rating: Buy
CMP: Rs 600

Motilal Oswal’s target net asset value (NAV) premium for DLF is higher than the target average it would apply for other property development companies. Motilal Oswal believes that DLF, India’s largest real estate company, is the best proxy for the promising domestic real estate opportunity. It is excited about DLF’s dominant presence in emerging segments of premium apartments, commercial offices and retail, which are highly profitable businesses with strong entry barriers. Thus, DLF is relatively better-placed to face the challenging macro environment, which will encourage lower risk premiums, going forward.


JP Associates
Research: DSP Merrill Lynch
Rating: Buy
CMP: Rs 870

DSP Merrill Lynch initiates coverage on JP Associates (JPA) with a ‘buy’ recommendation. JPA offers a blend of asset play (hydro power, real estate and expressway) and 20% CAGR in parent EPS over FY07-09E. Key rationales for DSP Merrill Lynch’s bullish stance are asset accretion led by infrastructure concessions, acquisition/monetisation of 6,250 acres of real estate in Noida. NAV may get a boost following rise in the value of land bank, with the likely transformation of the Delhi-Agra region led by the expressway, and the proposed Greater Noida airport. Other NAV kickers are a three-fold rise in power capacity by FY12E and new infra concessions. DSP Merrill Lynch believes JPA’s aggressive management will be able to leverage potential for growth as India builds infrastructure on the purchasing power parity (PPP) model.


Tata Motors
Research: Enam
Rating: Buy
CMP: Rs 767

Medium and heavy commercial vehicles (M&HCV) volumes are key to short-term profitability. Tata Motors’ product portfolio is highly leveraged towards M&HCV (~32% of volumes and >60% of EBITDA), making it vulnerable to a slowdown in the segment. M&HCV volumes remain uncertain for FY08 due to increase in lending rates and risk to fleet operator economics. But long-term drivers are in place. Tata Motors is undertaking structural changes to mitigate product cyclicality and reduce its dependence on M&HCVs from 60% of EBITDA to less than 50% over the next 2-3 years. The reasons for this are: an agreement with FIAT to jointly manufacture and distribute FIAT cars in India by end FY08, quantum of exports to increase from 18% to 25% in the next 2-3 years and substantial potential value in five key subsidiaries, especially Tata Technologies.


HDFC
Research: Goldman Sachs
Rating: Buy
CMP: Rs 1,981

Goldman Sachs believes stable macro economic conditions, a favourable growth outlook for the mortgage business and unlocking value of strategic investments are likely to be the key drivers of HDFC’s stock performance. It reiterates ‘buy’ rating on the stock, which has a total return potential of 20%. Goldman Sachs sees HDFC as a play on opportunities in the mortgage market and one that offers investors value due to growth in other areas of financial services. Over time, the value accruing from these investments, particularly life insurance, will grow faster than the value of the mortgage business. Key catalysts for the stock include signals of stable monetary conditions, a less volatile interest rate environment, earnings delivery in line with consensus expectations and clear visibility on the sell-down of some of HDFC’s strategic investments in FY08.

Goldman Sachs, Morgan Stanley and SSKI Strategy

Goldman Sachs believes recent appreciation in the INR has been unprecedented in its scaleand timing. The INR has appreciated by 8.7% in the last 9 weeks. Goldman Sachs says, the more recent run in the currency shows symptoms of over-shooting. The weight of reasons supporting a weaker INR appears to outweigh those arguing for a stronger currency and expect the INR to weaken from these levels, albeit gradually. Goldmach Sachs is revising the 3-month, 6-month and 12-month USD/INR targets to 41.3, 42.1 and 42.4 respectively.

Morgan Stanley thinks that Corporate psychology in India is strongly positive, as evidenced by booming activity on both the asset and liability sides of balance sheets. Thus capex, M&A, debt issuances and equity issuances are all in new territory. Underpinning this frame of mind are soaring and record profits, high cash balances, low financial gearing and more than four years of strong share prices. The resulting sweet spot seems to give corporations too many options to tackle any mishap, with the risk that they may start to feel infallible.

SSKI expects Sensex earnings growth to slowdown (12.6% CAGR over FY07-09), primarily due to our negative bias on prices of global commodities. However, non-commodity stocks (primarily domestic cyclicals) will continue witnessing a robust 22.7% CAGR over FY07-09; strong margins and topline expansion will keep return ratios strong

Goldman Sachs - Reliance Petroleum/RPL - Simple story about a complex refinery

Goldman Sachs - Reliance Petroleum/RPL - Simple story about a complex refinery hot!

HSBC - Credit Policy Review, Goldman Sachs - Cairn India

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Goldman Sachs - Cairn India

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