Anand Rathi - Daily Technical Note

Nifty and Sensex have exhibited a bearish candlestick.

Technically, one may use the level of 4250 (Nifty) and 14450 (Sensex) as the stop loss level.

Nifty faces resistance at 4340 and Sensex at 14600.

BSE Smallcap and BSE Midcap also exhibited bearish candlesticks.

CNX IT has lost ground.

In the Punter's zone we have a Buy in Federal Bank & Sell in Shri Renuka Sugars and M&M.

In the Technical call section, we have a Buy in Reliance Capital & Sell in ONGC and Reliance Industries.

Macquarie - Unitech, Citigroup - Cairn, India Market Watch

Macquarie on Unitech say,

Unitech announced a strong set of FY3/07 results, with top-line revenue rising 255% to Rs33.9bn from the FY3/06 level, and net profit up 15x at Rs13.05bn; implying an EPS of Rs16.09 for the full FY3/07.

Impact
We estimate that approximately half of EPS, ie Rs8, is from the sale of commercial assets to UCP, a vehicle listed on AIM, London in December 2006. Excluding this sale to UCP, remaining net profit is in line with or core business full year FY3/07 EPS estimate of Rs7.92.

Our estimate suggests that the company must have delivered ~8m sqf in FY3/07 in line with our expectation of 7.8m sqf. We believe the company is on track to achieve our strong development schedule forecasts (FY3/08 and FY3/09), and thereby reduce execution risk.
Operating margins are very strong at 62.0% against our expectation of 44% but the two numbers are strictly not comparable. The reported numbers include the sale of commercial assets to UCP where company has partly monetised its land at relatively higher margins.

UT is planning to hive-off 25¿30% of its hotel assets comprising 28 hotel sites, and press reports suggest this is likely to be valued at $2bn. Presently we have valued these hotel sites around $450m.

UT stated that it plans to spend $6bn over next four years to develop residential, commercial, retail properties and build hotels.

UT's board of directors has also announced 1:1 bonus shares. This is the second time the company has declared bonus shares in the last 12 months. The board also announced a 25% dividend for FY3/07.

Earnings revision
No change.

Price catalyst
12-month price target: Rs501.00 based on a Sum of Parts methodology.

Catalyst: Surging Residential Demand and Higher Realisations
Action and recommendation
We strongly reiterate our Outperform rating. We believe Unitech is a very good proxy for the Indian property sector as it is the most diversified property company both geographically and in terms of business segments. We also see Unitech getting re-rated with DLF soon looking to hit the capital markets. Our best-case scenario (which includes option value of future projects like the 38,000-acre Kolkata project) suggests a potential price of Rs750-800.


Citigroup in their report on Cairn India

Oil forecasts raised

After our global oil numbers were raised to US$63.5/b, US$60/b and US$55/b for 2007E, 2008E and long-term respectively, we adjusted our estimates for Cairn India. Our core NAV moved up to Rs160 from Rs146, with a target price of Rs185 reflecting a 15% premium to NAV. Cairn is highly leveraged to long-term oil price expectations.

Uncertainty over offtake should pass; Buy

The recent newsflow on new refinery and consequent changes to the ¿approved¿ production plan are overdone in our opinion. While the associated political overtones of recent developments could delay first oil, there is unlikely to be a complete overhaul. The sensitivity of NAV to a 6-month delay is a manageable 4%. The recent correction in the stock therefore, in our view, offers favorable risk-reward in the context of consensus oil moving up.

Core valuation support

At long-term Brent of US$55/bbl, the shares trade at 0.85x NAV. But potential bid interest raises the possibility that a higher oil price is used in the bid valuation. In this context, premium to NAV of 15% therefore imputes a long-term oil assumption of US$60/bbl.
Oil upgrade drivers

We remain of the view that a weak US$, rising costs and limited
visibility on new sources of long-term non-OPEC supply strengthen OPEC's ability to set a floor under prices facilitated by a creeping increase in market share


Citigroup in their report India Market Watch...

Spotlight on External Commercial Borrowings: Latest data on external borrowings (ECBs) indicates that corporates raised a record US$25.3bn during FY07, over 50% higher than the amount raised during FY06, and breaching the annual cap of US$22bn fixed by the Finance Ministry. ECBs during March 2007 totaled as much as US$5bn- the highest-ever borrowing in a single month. Over the past year, ECBs. which include loans, buyers/suppliers credit, securitized instruments and Foreign Currency Convertible Bonds (FCCBs) have been a growing source of funding for corporates and have a minimum average maturity of 3 years (for ECBs below US$20mn) and 5 years (for ECBs over US$20mn).

ECB uptrend has created a liquidity dilemma: Given the backdrop of an unfolding capex cycle and rising investment spend across industries such as infrastructure, telecom, cement and financial services; ECBs have emerged as a significantly cheaper corporate financing strategy especially under the current scenario of tighter domestic interest rates and a steady appreciation in the rupee. While overseas borrowings make commercial sense for most companies in the current backdrop, they have posed as a liquidity concern given that higher foreign inflows have resulted in more dollars coming into the system, thus creating inflationary worries.

New Regulations make ECBs less attractive. In order to manage capital flows, the RBI recently imposed several regulations that would make ECBs less attractive. These include (1) lowering interest rate ceilings on ECBs under the automatic route1 thus making it difficult for companies with lower credit quality to access overseas markets. (2) Banning ECBs for integrated townships for100 acres or more thereby further tightening funding towards real estate. While the new norms will help limit borrowings, given the uptrend in FDI, we are maintaining our full year balance of payments estimates of a reserve accretion to the tune of US$21.5 and our rupee appreciation view.

Citigroup - India Technicals

Citigroup in their daily technical report,

Nifty — The index opened on a positive note and posted an intra-day high of 4,363 in opening trades, after which it drifted down for the rest of the day’s trading session. The index closed with a loss of 40 points.

Perfect Downward Bar Reversal — The index has posted a perfect downward bar reversal on the daily bar chart (i.e. the index traded above the previous day’s high and closed below the previous day’s low and close), which suggests the index can decline from current levels.

Resistance — The index is facing stiff resistance around 4,307 levels; it is unable to hold above 4,307 on a closing basis.

Support — The index has support around 4,235 (lower end of the channel) and 4,202 (20dma). Expect test of support during the day’s trading.

Conclusion — Expect an intra-day decline towards 4,235.

Sharekhan Investor's Eye dated June 04, 2007

International Combustion (India)
Cluster: Cannonball
Recommendation: Buy
Price target: Rs519
Current market price: Rs320

Results meet expectations

Result highlights

• The revenues of International Combustion India Ltd (ICIL) grew by 15.6% year on year (yoy) to Rs24.1 crore in Q4FY2007, in line with our estimates.
• The revenues of the heavy engineering division (HED) grew by 24.8% yoy to Rs18.4 crore while that of the geared motor and geared box division (GMGBD) declined by 5.1% yoy to Rs5.9 crore. However, on a sequential basis the GMGBD's top line grew by 61.2%.
• The operating profit margin (OPM) of the company improved by 280 basis points yoy to 20.3% in Q4FY2007, in line with our estimates. The margin expansion was driven by a lower raw material cost as the raw material cost as a percentage of sales ratio declined to 51% from 56.3% yoy. Consequently, the operating profit grew by 34.6% to Rs4.9 crore.
• The margin of the HED improved by a whopping 1,340 basis points yoy to 32.6% while that of the GMGBD declined by 1,800 basis points to 14.7%. The GMGBD's margin declined largely because the company started manufacturing the B2000 series of geared motors and gear boxes in this year. It has made huge investments in the B2000 series project the results of which will get reflected in its FY2008 numbers.
• The interest cost declined by 7.7% yoy to Rs0.1 crore as the company repaid its entire debt and became a debt-free company in this year. Consequently, the net profit grew by a strong 47.4% yoy to Rs2.8 crore.
• The outstanding order book stood at Rs56 crore out of which the HED's order book stood at Rs48 crore with the GMGBD accounting for the balance Rs8 crore.
• ICIL is currently trading at a price/earnings ratio (PER) of 6.8x its FY2008E earnings and 4.2x its FY2008E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). Considering the strong order backlog and the expansion plans of its key user industries such as steel, sugar and cement, we maintain our Buy recommendation on the stock with a price target of Rs519.

Madras Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs3,500
Current market price: Rs2,746

Price target revised to Rs3,500

Result highlights

• Cement volumes of Madras Cement Ltd (MCL) grew at a slower rate of 10.1% in Q4FY2007 compared the previous quarters to 1.48MMT as the plant at Alathiyur witnessed a maintenance shutdown for 15 days. The realisation growth was strong at 27% year on year (yoy) to Rs2,923 per tonne which resulted in a robust top line growth of 45.1% yoy to Rs435 crore.
• The operating expenditure increased by 29.4% yoy to Rs301.8 crore as the power and fuel cost increased by 25% yoy to Rs85 crore on the back of higher international coal prices and freight cost, which increased by 35% yoy to Rs72.8 crore. The employee cost too jumped substantially to Rs18 crore as against Rs12 crore in the previous quarter on account of the bonuses given to employees.
• The operating profit doubled yoy to Rs133 crore whereas the operating profit margin (OPM) improved by 800 basis points yoy to 30%; though on a sequential basis, the OPM dropped by 270 basis points.
• The interest cost reduced by Rs3 crore yoy to Rs6 crore, thanks to the repayment of debt in the quarter. The depreciation provision remained more or less flat sequentially at Rs18.2 crore.
• With the tax provision growing at a marginal rate, the net profit jumped by 117% yoy to Rs71 crore.
• Thanks to the additional capacity of 4MMT that kicked in during the fourth quarter, we expect the company to clock a healthy volume growth of 12% in FY2008 and 26% in FY2009 yoy. The accompanying captive power plants (CPPs) will help the company to keep its power cost under control.
• We are reducing our FY2008 earnings per share (EPS) estimate by 6.6% to Rs313 from Rs334 earlier as we expect the cement prices to remain firm for the next one year. We are also introducing our FY2009 estimate of Rs359.
• We expect the company to clock a 40% compounded annual growth in its earnings over FY2007-09. At the current market price of Rs2,746, the stock trades at 7.7x its FY2009 estimates and an enterprise value (EV) per tonne of USD77. Considering the positive outlook, we maintain our Buy recommendation on the stock with a reduced price target of Rs3,500 per share.

---

SECTOR UPDATE

Automobiles

Weakness across
The weakness in automobile sales continued across segments in May, with utility vehicles (uv) being the only exception. The two-wheeler segment witnessed a decline in sales across players, confirming fears of a slow-down in the segment. The passenger car segment managed to show a small growth due to new product launches. The commercial vehicle (CV) segment, particularly the medium and heavy commercial vehicle (M&HCV) segment, continues to decline due to rising interest rates. The light commercial vehicle (LCV) segment has also managed to report a nominal growth that too due to the growth of ACE. Mahindra and Mahindra (M&M) was the exception in the month with strong sales being reported by Scorpio as well as non-Scorpio UVs, good response to Logan with the exception of high base effect restricting the growth in the tractor segment.

Sharekhan Investor's Eye dated June 04, 2007

Religare - Meghmani Organics

Religare - Meghmani Organics

Post Market Commentary

The BSE Sensex ended the session on a negative note as it fell by 74.98 points to close at 14,495.77 while Nifty closed at 4,267.05 down by 30 points. Of the 2,654 stocks actively traded on BSE, 1,385 stocks declined while 1,184 stocks advanced. The BSE Mid cap and Small cap closed lower by 30.70 points and 7.10 points at 6,233.58 and 7,466.77 respectively.

BSE Capital goods index closed lower by 138.89 points at 11,102.87 as BHEL (3.01%) and L&T (1.65%) closed in negative while Siemens (1.20%) and ABB (0.52%) closed in positive.

BSE bank index closed higher by 58.92 points at 7,741.56 as SBI (2.07%), HDFC bank (1.05%), IDBI bank (0.87%), BOI (0.85%) and ICICI bank (0.58%) closed in green.

BSE Metal index closed at 10,634.17 surged by 166 points as Hindalco (3.97%) and Tata Steel (0.34%) closed higher.

BSE IT index closed at 4,846.50 declined by 61.88 points as Satyam (2.33%), Infosys (1.22%), Wipro (1.87%), HCL Tech (1.63%) and TCS (0.84%) closed in red.

BSE Auto Index closed in negative at 4,948.37 down by 81.83 points as Tata Motors (4.78%), Hero Honda (0.61%) and Maruti Udyog (0.55%) closed in red while M&M (1.48%) and Bajaj Auto (0.71%) closed in green.

BSE Health Care Index closed lower by 11.84 points at 3,840.59 as Cipla (2.99%) and Sun pharma (1.55%) closed lower while Glaxosmithkline (1.24%) and Dr. Reddy lab (0.96%) closed higher.

BSE FMCG index closed at 1,893.91 marginally up by 3.38 points as Dabur (3.27%), ITC (2.04%) closed in green while HLL (2.39%) closed in red.

BSE oil & gas index closed lower by 88.42 points at 7,691.14 as GAIL (4.87%), HPCL (3.40%), Reliance petroleum (1.62%), BPCL (1.14%) and ONGC (1.07%) closed in red.

CLSA - DLF IPO Analysis

CLSA thinks that DLF might be a attractive issue at lower end of the IPO price band. They believe it is Unitech which is trading at 25% premium. However, they feel it might be expensive at the higher end of the price band because of the risk of the property prices weakening

AllSec Tech, India Economy, Market Strategy,Deccan Aviation, Mahindra &Mahindra , Maruti Udyog, Automobiles, Banks,

JP Morgan in their daily report,

Economy: India: Full-year fiscal deficit below forecast

· The central government's fiscal deficit came in at 3.5% of GDP for 2006-07 (year-end Mar-31), lower than official revised estimate of 3.7% of GDP given by the government when it announced the budget for 2007-08 in Feb. Impressive revenues owing to the ongoing economic boom along with spending that was largely in line with expectations caused the fiscal deficit to print INR1,427.93 billion, or 6.3% lower than the revised estimate.
· In 2006-07, gross tax revenue surged 29.3%oya due to exceptional gains in corporate (+41.4%) and personal income (+35.4%) tax collections. Indeed, corporate tax revenue increased its share in gross tax revenue to 30.3% in 2006-07 from 27.7% in the prior year. In contrast, the share of personal income taxes in gross tax intake increased to 16.0% from 15.3% over the same period.
· The government forecasts the fiscal deficit to narrow to 3.3% of GDP in 2007-08. Overall, it appears on track to cut the fiscal deficit to 3.0% of GDP by 2008-09 as envisaged in the Fiscal Responsibility and Budget Management Act. However, it is unlikely that the government will be able to spring another positive surprise on the outcome for the fiscal deficit in the current year. Overall economic growth is poised to be slower this year, and corporate taxes will be impacted by slower top-line growth and increased pressure on margins. On the expenditure side, the government will be under pressure to increase populist spending ahead of the general election to be held by May 2009.

Allsec Technologies Ltd, ALLS.BO, Overweight Muted 4Q FY07; outlook remains robust

· Allsec reported a mixed 4Q FY07, largely below expectations. While demand remains robust, Allsec continues to face supply-side issues leading to lower-than-expected headcount addition in 4Q FY07. Combined with Rupee/US$ appreciation, supply issues led to muted 1% Q/Q revenue growth in 4Q FY07. However, margins were better than we expected due to continued control on costs. Overall, net profit was in line with our estimate.
· Demand remains sound: Allsec continues to see a robust business pipeline in line with strong momentum in offshore BPO business. Further, Allsec is already speaking to few Carlyle investee companies that could lead to significant business in our view over the coming 12-24 months.
· Allsec is making gradual improvements on supply issues: 1) 4Q FY07 attrition dropped to 17% from 20% in 3Q FY07; 2) Allsec plans to open a center in Trichi in 1Q FY08 that should have lower attrition. In fact, management expects to double voice-services headcount to ~4,000 people in FY08.
· Estimate changes: Strong headcount increase should lead to robust 42% revenue and 35% net profit CAGR over FY07-09E in our view. We highlight that our estimates have been reduced (12% for revenues and 17% for EPS in FY08) largely due to sharp Rupee appreciation and partially due to muted 4Q FY07.
· Investment view: We are reducing our DCF-based Dec-07 target price by ~6% to Rs400/share due to reduction in our FY08-09 estimates. With the stock having corrected in the past 2-3 months, we would recommend buying at the current level. Further, Allsec remains an attractive two-year investment story in our view given significant business potential from Carlyle investee companies.




Economy: India: Merchandise trade deficit surges

· India's international trade deficit in April jumped to a record high of US$7.06 billion (JPMorgan: US$5.3 billion). Merchandise exports increased an impressive 23.1%oya in April, while imports surged 40.7%. In the import details, oil imports gained 1.4%oya, but non-oil imports rose 54.3%.
· The over-year-ago growth rates for both exports and imports are much stronger than expected, but it is not clear how much of the increase owes to the underlying trend. This is because the relevant organization that announces the international trade data has adopted an "improved methodology" for estimating the provisional trade data reported today. However, it has chosen not to offer any details about the new methodology and how it is different from the old one.
· Unexplained changes in India's international trade data are not new and typically make meaningful analysis more challenging. Still, we'll attempt for more insightful comments after figuring out the impact of the new methodology.
· We maintain that India's current account deficit will widen to US$17 billion (1.5% of GDP) in 2007-08 (year that began on April 1) from an estimated US$10.5 billion (1.2% of GDP) in the last fiscal year. However, financing the wider deficit will not be a problem (see Tracking the shifts in India's balance of payments, GDW, May 11). The recent appreciation of INR should also cause the trade deficit to widen in the coming months.


Market Strategy
India Monthly Wrap: May 2007: Inflation and liquidity boost

· The MSCI India (US$) index gained 6.9% over May, and the market significantly outperformed the MSCI emerging markets (US$) index, which gained 4.6%. The US$ index gain has been aided by a 1.4% rupee appreciation over the period. Financials, industrials and energy companies are relative outperformers, while IT and consumer discretionary sectors underperformed.
· The index gain has been supported by market expectations of an easier interest rate outlook on the back of lower headline inflation and continued higher risk appetite among global investors.
· 4Q FY07 GDP increased 9.1%oya, below JPMorgan's (+10.0%) expectations, but the shortfall is mainly on account of significant upward revisions for the previous three quarters. The growth is driven by strong gains in industry and services.
· Institutional buying support continued for Indian equities. Domestic mutual funds and FIIs net invested US$ 430 million and US$ 942 million respectively, over the month.
· Among other developments:
1. Coca Cola bought Glaceau for US$ 4.1 billion and Tata Tea's sold its 25% stake in the company.
2. Industrial production unexpectedly surged in March and is up 12.9%oya (JPMorgan expectation-10.4%).


Deccan Aviation Limited, DECA.BO, Underweight
Kingfisher takes the driving seat - ALERT

· Deccan has confirmed that it has placed 35m new share to UB Holdings (the parent of Kingfisher Airlines) at Rs155 per share - equivalent to a 26% equity stake. UB will also bid for a further 20% of Deccan Aviation at the same price.
· UB gets 6 board seats, along with 6 existing directors. Capt Gopinath becomes Exec Chaiman and Vijay Mallya becomes Vice Chairman. Warwick Brady is leaving with a replacement to be appointed. Deccan's CFO remains in situ, but also assumes the acting CEO/COO role until further hires are made.
· Conclusion: The structure of the deal (between two Bangalore based carriers operating identical equipment) looks like a rescue on one hand. On the other, it looks like Vijay is well positioned to move equipment between the two airline brands. At a later stage, a back door listing looks likely.
· We maintain our view that this consolidation marks the bottom of the earnings cycle for the profit starved sector. We believe JAIL offers the best, most liquid play on this rebound. We would look to sell Deccan shares to UB and for Deccan shares to decline thereafter as we do not expect profits to flow easily to Deccan.


Mahindra & Mahindra, MAHM.BO, Overweight
May '07 Sales - Unit sales growth of 17% led by UV's - ALERT

· M&M reported robust unit sales growth of 17% yoy for May. Growth was driven entirely by the automotive segment (+27% yoy) while the tractor segment reported a flattish trend (up 2% yoy).
· In the Auto segment, UV sales grew 25% yoy with Scorpio sales growing 28% yoy while other UV's (semi urban segment and pick up vehicles) grew 24% yoy. The recently launched stripped down Bolero and the Maxi truck are boosting sales for Mahindra's UV's. Low value 3 wheeler sales grew 22% yoy.
· The relative weak trend in tractor sales continues (up only +2% yoy). Apart from a more demanding base effect, tractor sales have likely been impacted by a) pipeline inventories and b) tightening of lending norms by banks for this segment.
· Mahindra launched the Renault Logan (in both petrol and diesel versions) in April in the entry level C segment at a competitive price point of Rs.428,000. In May, the Logan has sold 2,786 units across 11 cities.
· In the recent analyst meet, management has guided to Auto sales growth of 8-12% and tractor sales growth of 6-8% for FY08.
· To drive growth over the future M&M has the following plans: launch a new UV - the Ingenio (in about 12 months), followed by another UV (in 2010) and enter the CV market (in 2010). A new facility at Chennai is expected to be commissioned in 2010 for manufacturing cars and at Pune for trucks.
· Over March, M&M marginally underperformed the market - down 3% vs a gain of 5% for the BSE Sensex. Slowing growth rates in tractors along with concerns on interest rates have resulted in the underperformance. While we remain underweight the auto sector, M&M remains amongst our preferred picks on a relative basis as we expect lower volatility in sales for key product segments and due to the substantial value of investments in high growth areas (account for 40% of the SOTP valuation).


Maruti Udyog, MRTI.BO, Overweight
May '07 unit sales: Sales growth (11% yoy) led by SX4 launch and exports - ALERT

· Maruti reported unit sales growth of 11% yoy for May. Local sales rose 10% yoy, while exports (typically lumpy) increased 38% yoy.
· The A1 segment continued to decline (down 19%) and growth in the A2 segment moderated to 8% - an indication that rising interest rates are beginning to impact demand.
· Growth in the A3 segment was however boosted significantly (up 104%) due to the launch of the new SX4 model. Reviews for the model have been encouraging. The local content in the SX4 is 79%, which has helped price the product competitively at Rs. 618,000 (ex showroom Delhi). Management expects to further bolster its presence in the mid to premium segments over the current fiscal by launching a new SUV model.
· Maruti has had the best product momentum in the Indian passenger car market over the last 2 years. Prominent launches have included the Swift, Wagon R Duo, Zen Estillo, Swift Diesel and the SX4.
· But competition is attempting to play catch up. The month of April has seen 4 new model launched by competition (GM Spark, Hyundai Getz, Fiat Palio & Renault Logan). We see the passenger car space getting increasingly crowded over the next 12 - 24 months, with several competitors setting up additional/ new capacity.
· The Government sold its residual 10% stake in Maruti at Rs.797/ share (a 5% premium to the floor price of Rs.760). The shares were sold to 32 local institutions. The sale price represents an 18% premium to the previous sale price of Rs.678, which was effected in Jan'06.
· Over the month, the stock delivered a positive return of 2% vs. 4% for the broad market. While sales growth and product momentum remain healthy so far, investor sentiment remains cautious due to rising competition and the potential impact of rising interest rates on growth.



Banks
Indian Financial Services: On Bank Street -Vol 85

· Inflation at 5.06 % -in line with expectations - 21 bps lower than last week's release. Inflation likely to moderate below 5% by end June given favorable base effect.
· Stock Movement - Neutral: SOE and private banks up 2.2% and 2.5% respectively - in line with the market. Star stock performers - HDFC up 6.6%, HDFC Bank up 4.6% and SBI up 5.3%. DEVB and CBOP see profit booking after solid runup.
· HDFC to raise Rs31.1 bn via preference issue
· India Infoline to raise Rs. 4.84 bn; Ropes in key CLSA personnel
· PNB chairman retires
· Indian Bank to offload Rs.15 bn bad loan portfolio
· Indiabulls to foray into Life Insurance business


Automobile Manufacture
India Two Wheeler: May'07 unit sales decline further - ALERT

· The slowdown in the two-wheeler sector continued over May with sales declining (10% yoy) for the top three manufacturers - Hero Honda (-6% yoy), TVS Motor (-13% yoy), and Bajaj Auto (-15% yoy).
· The 6% decline in Hero Honda's sales comes off a high base. Sales had crossed the 300,000 mark in May last year as the company had pumped inventory in the system.
· Bajaj Auto's bike sales declined 15% yoy, with sales of entry level Platina taking a hit. We believe the success of Hero Honda's CD Deluxe as well as Bajaj cleaning up channel inventories in preparation for the launch of a new platform in August led to the fall. High-margin three-wheeler sales were flat yoy. Strong export growth for Bajaj (+53%) partially mitigated the effect of the sharp fall in domestic sales (-24% yoy).
· TVS Motors continued to struggle with bike sales (-37% yoy). Hero Honda continued to gain market share at the expense of the other manufacturers.
· Over the month, Hero Honda launched an upgraded variant of the Splendor-- Splendor NXG (100cc) priced at Rs.40,990 (ex-showroom Delhi). This follows the prices of the Splendor Plus being reduced by Rs.1,200 last month.
· We expect competitive intensity in the two-wheeler sector to remain sedate over the next two months until Bajaj launches its new platform in August.
· Over the month, Bajaj Auto announced the re-structuring of the company by creating two new entities for its automotive and financial services business; at the same time the holding company has retained 30% stake in these two companies, thus ensuring control.
· Over the month, the two-wheeler sector performance was a mixed bag. Hero Honda was up 5%, TVS was up 7% while Bajaj Auto was down 9% for the month vs the broad market return of +5%. While Bajaj was beaten down due to concerns on the demerger, Hero Honda rose on the company gaining market share and TVS rose on beaten down valuations. We remain underweight on the sector.

Karvy - Cinemax India

Karvy - Cinemax India

Buy Marico; target of Rs 71: Khandwala Sec

Khandwala Securities is bullish on Marico and has recommended a buy rating on the stock with a target price of Rs 71.

Khandwala Securities report on Marico:

Investments Positives:

Brand portfolio consists of ingrained & naval growth drivers:

Marico’s portfolio consist of well recognized ingrained brands or growth drivers like Parachute, Saffola, Nihar, Hair & care and naval growth drivers like Kaya, Parachute cream, Camellia, Aromatic, Silk n Shine, Fiancée and Hair code. We believe Marico’s strategies to strengthen & further leverage the ingrained brands, keep focusing & coming up with new brands would fuel its growth in faster space.

Broadening wings Inorganically:

Marico is expanding its brand portfolio inorganically. In FY07 it has acquired Fiancée and Hair code in Egypt. Prior to this in 2006 it has acquired four brands, two in domestic market (Nihar & Manjal) and two in Bangladesh (Camellia & Aromatic). We believe in future also Marico will take inorganic route to grow fast.

Scaling up services:

During the FY2007 Marico’s skin care solutions business Kaya broke even. During Q4FY07, Kaya recorded a turnover of Rs 220 million, a growth of 52% over Q4FY06 and a growth of 10% overQ3FY07. Kaya’s revenue for FY07 was Rs 750 million. Kaya Skin Clinic now reaches its customers through 43 clinics in India and 5 in the Middle East. The Kaya consumer base has increased to over 200,000. The management has given guidance of opening 15-20 Kaya skin clinics in FY2008. We believe Kaya’s revenue to grow at CAGR of 40% in the next three years.

Moving up in value chain:

Though Marico Industries has traditionally derived bulk of its revenues from hair oils and edible oils, it has transformed its product portfolio in recent years with the help of higher margin product launches and new category forays. Marico’s strategy to focus more on higher margin products and moving up in value chain helps in improving the margins.

Valuation:
Marico currently trades at P/E multiple of 24X & 19X on 2008 (E) &2009 (E) earnings respectively. We believe its revenue to grow at CAGR16% during FY2007-2009 (E) and profits to grow at CAGR of 28%during the same periods. We initiate our coverage on Marico with price target of INR 71 based on our DCF valuation (WACC 10.5% and Terminal growth of 4%), an upside of ~20%. The stocks would quote at 22x FY09 earnings on our target price.

Edelweiss - TV Today

Edelweiss Research is bearish on TV Today Network and has maintained sell rating on the stock.

Edelweiss Research report on TV Today Network:

TV Today’s Q4FY07 results were in line with our expectations. Revenues for the quarter grew 20% Y-o-Y and 2.5% Q-o-Q to Rs 585 million. The growth in revenues was largely driven by the ad rate hike that the company had taken earlier this year and better utilizations on account of the World Cup and elections in UP. Subscription revenues from international markets and contribution from Dilli Aaj Tak also contributed to the revenue growth. As expected, EBITDA margins declined 394 bps Y-o-Y and 292 bps Q-o-Q due to higher employee expenses and higher carriage fee paid to the cable operators to carry the channel in the prime band. PAT margins correspondingly dropped 167 bps Y-o-Y and 368 bps Q-o-Q. For the full year, revenues grew 18.4% while EBITDA and PAT margins declined by 524bps and 94 bps, respectively.

Inability to build another growth driver other than Aaj Tak and consequent volatility in earnings remain a concern. Even though Aaj Tak has been able to maintain its leadership position, it has been consistently losing market share and is vulnerable to losing its leadership position. This, in turn, will adversely affect the revenue growth of TV Today. The plan to make Aaj Tak a pay channel has been deferred because of intense competition in the Hindi news space, especially given that most channels are free-to-air. Headlines Today has still been lagging behind in the English news genre even though the newcomers, CNN-IBN and Times Now, have surged ahead. So even though the stock trades at relatively cheaper valuations of 23.2x FY08E and 19.8x FY09E, we remain negative on the outlook of TV Today. We maintain our ‘SELL’ recommendation.

Highlights:

Excessive dependence on Aaj Tak due to inability to build a second growth driver remains a concern:

Inability to build another growth driver other than Aaj Tak and consequent volatility in earnings remain a concern. Even though Aaj Tak has been able to maintain its No. 1 position, it has been consistently losing market share and is vulnerable to losing its leadership position. This, in turn, will adversely affect the revenue growth of TV Today. The plan to make Aaj Tak a pay channel has been deferred because of intense competition in the Hindi news space, especially given that most channels are free-to-air. Headlines Today has still been lagging behind in the English news genre even though the newcomers, CNN-IBN and Times Now, have surged ahead in terms of viewership share. This excessive dependence on Aaj Tak has resulted in volatility in earnings in the past and puts at risk the future earnings as well.

Maintain ‘SELL' :

’We estimate that TV Today will make EPS of Rs 6.6 and Rs 7.7 in FY08 and FY09, respectively. The stock currently trades at P/E of 23.2x FY08E and 19.8x FY09E. While the stock is less expensively priced as compared to its peers, lack of growth drivers and volatility in earnings make it unattractive. We maintain our ‘SELL’ recommendation on the stock."

Macquarie - India Earnings

Macquarie in their India Earnings report,

Event
The 4Q FY3/07 GDP growth of 9.1% has obviously fed into corporate earnings for Indian companies. Our coverage universe continues to post strong profit growth, above expectations.

Impact
Most sectors were very strong. Most sectors showed very strong growth.Profit growth rates varied between 23% and 107%, barring a few outliers. Not surprisingly, sectors with close linkage to the economy – banks, cement, construction, metals and telecoms – turned in exceptional numbers.

We were surprised. Most of the high-growth sectors surprised us. The average extent of earnings surprise was 13%. The largest upsides to our forecasts came from pharmaceuticals, banks and construction. Suzlon, the only company we cover in utilities, also posted results significantly above expectations.

Margins the key driver. The earnings surprise came primarily from margins. Sales growth was almost exactly in line for the high-growth sectors. Margin improvements were the strongest in pharma, cement, metals and telecom.

Top sectors: pharma, telecom, cement. Pharma, telecom and cement were the top sectors in terms of YoY profit growth. While pharma was boosted by one-off income in Dr Reddy’s Labs, telecom continued to ride the strong wave of subscriber additions, which also drives operating leverage. Cement was boosted by a strong pricing environment.

Laggards: oil and gas, textiles, retail. The laggards from 3Q continue to disappoint. All three sectors showed declining profits. Oil and gas suffered from a lack of pricing freedom and from being forced to absorb high global oil prices. Textiles, on the other hand, continue to be affected by soft global prices. Retail was affected by dramatic margin pressures.

Outlook
We think that the India growth story is still very much intact. There may be near-term pressures from rising rates, especially if the Reserve Bank of India pushes through with the next rate hike, as we expect it to do. But we do not think that longer-term growth is at risk, and we maintain our bullish view of the markets. The recent run-up has increased the risk of a correction, but that is likely to be temporary.

Our top picks are Reliance Communications (RCOM IN, Outperform, Rs506, TP: Rs650), HDFC Bank (HDFCB IN, Outperform, Rs1153, TP: Rs1270), Tata Steel (TATA IN, Outperform, Rs635, TP: Rs800), Dr Reddy’s Labs (DRRD IN, Outperform, Rs649, TP: Rs838), Reliance Industries (RIL IN, Outperform, Rs1750, TP: Rs1775) and Tata Consultancy Services (TCS IN, Outperform, Rs1219, TP: Rs1654). Our key Underperform calls are Bank of Baroda (BOB IN, Underperform, Rs271, TP: Rs250) and ONGC (ONGC IN, Underperform, Rs910, TP: Rs695).

Citigroup - Indian Sugar

Citigroup in their report on Indian Sugar Companies

UP sugar incentives withdrawn — UP govt. has withdrawn the sugar incentives provided by the previous govt. to sugar mills for investments in capacity, and is looking to replace this with a new incentive scheme. Until details of the new scheme are known, it is difficult to ascertain the impact on sugar mills. UP sugar policy entailed subsidies for companies investing above Rs3.5bn in sugar assets. Subsidies added up to about Rs1.4 /kg for sugar produced from new assets.

UP sugar mills new demands — UP sugar mills have demanded sops from the new govt. entailing reduction in cane price, tax exemptions and export subsidies. We estimate that the subsidies demanded add up to over Rs3 per kg of sugar. If the govt. accepts these demands, mills would be net beneficiaries.

Price outlook remains bleak — Latest ISMA estimates have raised FY07 Indian sugar output to 27.2m tons, up from 23m tons estimated at the beginning of the season. This would significantly add to inventories and is likely to delay price recovery. Current average realizations in UP are about Rs14/kg

Incorporating worst case scenario — Cutting FY07-FY09 EPS estimates for BJH by 15%-104% and for BRCM by 11%-94% as we 1) cut realizations to Rs14.25/kg and 2) remove the UP sugar policy subsidies. We also shift our valuations to replacement cost, which we believe will form the base for sugar stocks given the current uncertainty. Reducing price targets – BJH to Rs229 from Rs300 and BRCM to Rs88 from Rs107. Maintain Buy on BJH, while cut BRCM to Hold from Buy

Near term upside risk — A beneficial new sugar policy / subsidy by the UP govt.

Sharekhan Eagle Eye (equities) & Derivatives Info Kit for June 05, 2007

Sharekhan Eagle Eye (equities) & Derivatives Info Kit for June 05, 2007

Chinese Stocks Take Big Fall

Chinese stocks plunged Monday following government efforts to cool a market boom, recording their biggest one-day fall since a February drop that triggered a global sell-off.

The benchmark Shanghai Composite Index tumbled 8.3 percent to 3,670.40, falling for the third time in four sessions since the government raised a tax on trading last week. The index had dropped 2.7 percent Friday. The Shenzhen Composite Index for China's smaller second market fell 7.9 percent to 1,039.90.

It was Shanghai's biggest decline since Feb. 27, when the main-market composite index slid 8.8 percent, triggering selloffs in Hong Kong, New York and London.

"There is the risk that this snowballs into a crash. Sentiment is so fevered that a bubble could burst," said Claire Innes, an economist in London with the consulting firm Global Insight.

But most other Asian markets shrugged off Monday's plunge. Five markets -- Australia, Indonesia, Singapore, South Korea and the Philippines -- rose to record highs. Tokyo's Nikkei 225 index edged up 0.08 percent, while Hong Kong's benchmark index rose 0.6 percent.

The impact of the Chinese decline on markets abroad was expected to be limited because Beijing keeps its markets largely isolated from global financial flows. Most Chinese shares are off-limits to foreign investors and financial controls prevent most Chinese from investing abroad.

The Chinese currency, the yuan, fell slightly against the dollar on Monday after rising throughout May.

Beijing is trying to cool a boom that by last week had pushed up Chinese stocks more than 50 percent since the start of the year. The rally has attracted millions of first-time investors who are pouring their savings into the market.

Government financial newspapers tried to reassure investors with front-page editorials Monday that said the tax hike on stock trades -- from 0.1 percent to 0.3 percent -- would be good for the market by encouraging longer-term investment in better stocks.

But blue chips were hammered as shares in about 1,000 of the 1,400 companies on the main "A"-share market fell by the maximum daily limit of 10 percent. They included Tsingtao Brewery and China Petroleum & Chemical Corp., also known as Sinopec, two of China's most prominent companies.

Beijing has given no sign how much it wants prices to fall, but economists say Chinese leaders might consider 20 to 25 percent the right level to restore order to the market.

Drops in Chinese prices last week caused brief declines in markets in Tokyo, Hong Kong and elsewhere.

Analysts have been warning of a possible Chinese correction for weeks, reducing the element of surprise for investors abroad.

Philippine shares appeared to be benefiting from the sell-off in China as some foreign investors shift funds to elsewhere in the region, said Lawrence de Leon, an analyst at Accord Capital Equities Inc. in Manila.

"A lot of money is going out of the China equities and are moving into other Asian markets, among them the Philippines," he said.

Even with the declines since last week, the Shanghai index is still up more than 37 percent since the start of the year, after rising more than 130 percent in 2006. It has dropped 15 percent since last Tuesday's all-time high of 4,334.92.

The surge has been driven by strong corporate profits and an influx of money from Chinese investors, who have opened millions of new trading accounts and are dipping into theirs savings and mortgaging homes to buy stocks.

Authorities have warned that the new money could be fueling a bubble and they say novices could be hurt by a sharp fall in prices.

Regulators are facing conflicting pressures as they try to develop China's markets into a source of financing for economic reform while also trying to discourage speculation, said Global Insight's Innes.

To create a more stable market, Beijing will have to encourage more pension funds and other institutional investors to get into the market and ease barriers to foreigners owning shares, she said.

Otherwise, she said, "you're going to keep seeing these cycles because it's fueled by all this cheap cash flooding around."