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Underweight
Banking Sector Update
Investment ideas
BUY
Sterlite Industries CMP Rs661
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We like Sterlite Industries (SIL), India’s largest and most
diversified non-ferrous metals player. Besides a host of factors
favoring investment (explained below), exercise of Balco and
Hindustan Zinc options are also key triggers. It recently planned
to acquire ASARCO, a US-based integrated copper producer.
Although, the deal still faces some headwinds, the current bid
of US$2.6bn seems to be reasonable and value accretive.
Expansion of non-ferrous asset portfolio to drive growth
SIL is undergoing a major expansion programme by increasing its
rich non-ferrous based asset portfolio, both organically and
inorganically. SIL is increasing its fully backward integrated zinc
capacity (reserves to meet ~19 years requirement) to 1.06mtpa, an
increase of 41% to the current capacity by June 2010. In aluminium,
SIL 29.5%-owned subsidiary Vedanta Alumina is doubling its alumina
capacity to 1.4mtpa and is building a 0.5mtpa aluminium smelter.
SIL has one of the lowest quartile for production cost in each of its
businesses.
Excellent track record
SIL has increased its zinc capacity by 3x (to 670ktpa) and aluminium
capacity by 2.4x (345ktpa) since it took over Hindustan zinc and
Balco. It has also doubled its copper smelting capacity to 400ktpa
over the last five years. The company has completed all major
expansion programmes ahead of its schedule date. SIL’s
advancement of the commission date for 0.25mtpa aluminium
smelter under Vedanta Alumina to Mid-2008 (from mid-2009) is
another display of its execution capability.
Power business adds substantial value
Sterlite plans to add 9.6GW of power generation capacity over FY08-
12 through its fully-owned subsidiary Sterlite Energy Ltd (SEL). SIL
has secured coal mines with reserves of 322m tons. We recommend
Buy with a price target of Rs760.
BSE Bankex nosedived by 47.4% from January 2008 till date
as compared to a 33.4% fall in Sensex. The heavy bout of selling
was driven by concerns over sustainability of NIMs, slowing
credit growth and rising levels of NPLs. We believe stocks are
yet to bottom out as economic headwinds continue to thwart
loan growth and asset quality.
Rising interest rates to hurt credit growth
Following spurt in inflation, RBI has hiked CRR by 125bps and repo
rate by 75 bps since April 2008. A rate hike in RBIs next meeting on
July 29, 2008 is a near certainty given inflation marching to 13% in
a week or two. This would continue to take toll on credit growth
which is expected to fall to 15% from 20-21% (30%+ last year).
NIMs are under serious threat as hike in lending rates have lagged
rise in deposit rates.
Q1 FY09 earnings under pressure
Bond yields are at 7-year high resulting in sharp correction in bond
prices. With government banks holding 30% of their bond portfolio
on an average in the AFS category, huge MTM losses will be reported
in their Q1 FY09 earnings. Similarly, high exposure to equities will
also result in MTM losses on portfolios following 16.1% and 18.7%
fall in the Sensex and the BSE Midcap index in Q1 FY09 respectively.
Serious asset quality concerns emerge
Many banks are guilty of aggressive loan portfolio build up during
the last few years resulting in higher levels of NPLs. Marketing of
exotic derivatives to small corporates is a case in point. Going ahead,
performance of core assets such as SME loans, vehicle loans and
housing loans would also be under threat as interest rates continue
to mount and demand slows down.
Share price chart
Source: Company, India Infoline Research
Shareholding pattern
Mar-08 (%)
Promoters 74.1
FIIs & institutions 16.5
Non promoter 2.3
Others 7.1
Financials
March (Rs cr) FY08 FY09E FY10E
Revenues 24,705 24,225 21,853
yoy growth (%) - (1.9) (9.8)
Operating profit 7,273 7,752 7,210
OPM (%) 29.4 32.0 33.0
PAT 4,393 5,278 4,625
yoy growth (%) - 20.1 (12.4)
EPS (Rs) 62.0 74.5 65.3
P/E (x) 10.7 8.9 10.1
Source: Company, India Infoline Research
July 14, 2008
Weekly Wrap
Company CMP (Rs) Target (Rs) Downside (%)
State Bank of India 1,221 1,160 (5.0)
ICICI Bank 592 554 (6.4)
HDFC Bank 1,067 1,020 (4.4)
Axis Bank 665 625 (6.0)
Kotak Mahi Bank 506 430 (15.0)
Indian Overseas Bank 79 69 (12.7)
Punjab Nat Bank 396 350 (11.6)
Canara Bank 167 145 (13.2)
Near term price targets
Top losers since Jan’08
Source: Company, India Infoline Research
Source: Company, India Infoline Research
Share price chart
Bank (%)
Kotak Mah Bk (60.8)
IOB (59.5)
ICICI Bank (51.9)
SBI (45.7)
PNB (41.2)
India Infoline Weekly Wrap
In an eventful week, Indian equities pared almost all its gains from FII & MF activity
the first half of the week to close marginally higher. Bulls had notched
up early gains after Left parties officially withdrew their support to
the UPA government. Congress, with the support of SP and other
smaller parties for the time being are confident of sailing through
the trust vote scheduled later this month. However, on Friday,
disappointing results from Infosys, rising inflation and a slower IIP
growth, dampened sentiment.
Market review
In US, sentiment was hit by renewed worries that banks could suffer
substantial further write-downs. Fannie Mae and Freddie Mac led
financial shares down after Fannie's borrowing costs surged on
concerns that it won't be able to fund its business.
IT stocks were among the major losers after Infosys announced
disappointing quarterly numbers. Infosys failed to revise its US$
guidance for FY09 citing continuation of challenging business
outlook. Metal stocks emerged as one of the biggest winner led by
gains in Hindalco and NALCO after China’s top 20 smelters said
they would cut output by up to 10%, increasing expectations that
supply excess will ease. Banking, auto and realty were the other
major gainers.
Company Name B/S Qty (‘000)
GDL Kripa Ram Vij B 5.0
Sakthi Sugars M Manickam B 15.5
I-Flex Deepak Ghaises S 15.0
I-Flex Sajal Mukherjee S 5.0
Insider trades
Date Institution Scrip name B/S Qty (lacs) Price
7-Jul Fidelity Apollo Hospital S 26.0 500
7-Jul Merrill Lynch Nitco Tiles S 6.0 100
8-Jul Morgan Stanley Shriram Trans S 31.3 290
8-Jul Morgan Stanley Trent Ltd. S 1.0 452
10-Jul HSBC Fin Subhash Proj S 5.0 202
Bulk deals
BSE Sensex BSE 200
CMP % CMP %
Company (Rs) Chg Company (Rs) Chg
Tata Power 976 (11.7) i-flex 1,333 (11.8)
TCS 799 (5.4) Moser Baer 109 (10.3)
Infosys 1,677 (4.5) Bajaj Hind 158 (9.3)
Reliance Inds 2,016 (3.9) GTL 213 (9.0)
Satyam Comp 444 (3.8) Marico 50 (7.9)
BSE Sensex & BSE 200 Five Top Losers
BSE Sensex BSE 200
CMP % CMP %
Company (Rs) Chg Company (Rs) Chg
ACC 545 14.1 Spice Jet 32 29.6
Hindalco 155 12.2 BF Utilities 1,385 26.1
State Bank 1,221 8.5 Dabur 95 21.7
Ambuja Cem 80 7.6 Sun TV 286 12.9
HDFC Bank 1,068 6.7 Kotak Bank 507 12.3
BSE Sensex & BSE 200 Five Top Gainers
(Rs cr)
FII MF
Date Net Investment Net Investment
3-Jul (702) 241
4-Jul 532 (66)
7-Jul (319) 44
8-Jul 168 182
9-Jul (287) 205
Total 2008 (28,731) 10,172
2
Stocks in no delivery period
Company From To
JK Tyre 7-Jul-08 11-Jul-08
Apollo Sindh 11-Jul-08 17-Jul-08
Madras Alum 17-Jul-08 23-Jul-08
Sesa Goa 8-Aug-08 14-Aug-08
India Infoline Weekly Wrap
Technical ideas
SELL
Tata Power CMP Rs976
SELL
TCS CMP Rs799
Reliance Industries in talks to acquire downstream assets of
Chevron.
MTN Group may issue 20% fresh equity to Reliance
Communications as part of multi-stage merger deal.
Buzz on the street
Technically strong
The stock has seen a sharp correction from a high of Rs1,510 in
May 2008 to a low of Rs950 in early July 2008. Thereon, it rallied
from the low of Rs950 to a high of Rs1,148 in the recent market
wide pullback.
The rally in prices from lows appears to be a pullback rally. The
stock still appears to be weak on the Weekly and Monthly charts.
The current Pullback has seen the stock failing to close past its 8-
day EMA which is a sign of weakness.
The daily charts indicate a breakdown from a Small sideways
consolidation. The current breakdown is set to take the stock to
levels of Rs900 and/or Rs835.
We recommend traders to sell at current levels and on any rallies to
resistance levels of Rs1,000-1,010 level. A stop loss of Rs1,026 is
recommended on all short positions.
The stock rallied smartly from a low of Rs755 in March 2008 to a
high of Rs1,054 in June 2008. Since then, it corrected sharply to
touch a low of Rs787 on Friday.
The above daily Candlestick Chart of TCS shows the stock to be on
the verge of breakdown from the sideway consolidation between
the Rs800-850 levels.
The daily RSI a well as the MACD are suggesting that the stock is
set for a fresh round of decline.
We expect the stock to break below the March lows of Rs755 as
well as the January 2008 low of Rs730 levels in the coming weeks.
Traders should look to sell at the current levels as also on rallies to
resistance levels of Rs815-820 levels. A break below the Rs730
levels will open downside to the Rs650-600 range. A stop loss of
Rs835 is recommended on all short positions.
Whyte & Mackay, a subsidiary of United spirits may takeover Glen
Moray, the Elgin-based distillery.
Tata Power may divest assets, holdings to part-finance capex.
10 days Total 10 days
Moving Traded Average
Company CMP Average Qty Traded Qty
(Rs) (Rs) (Lacs) (Lacs)
Lupin 699 680 5.3 1.1
Glenmark 628 616 7.5 4.1
Petronet LNG 56 56 1.3 16.8
TTML 25 24 2.6 97.7
EIH 126 124 5.6 4.0
Technically weak
10 days Total 10 days
Moving Traded Average
Company CMP Average Qty Traded Qty
(Rs) (Rs) (Lacs) (Lacs)
Alok Inds 38 39 5.2 14.7
Sun Pharma 1,317 1,349 1.3 3.2
Reliance Petro 168 170 164.1 373.9
Divis Labs 1,334 1,344 0.4 1.0
Zee Ent 194 196 5.4 12.0
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India Infoline Weekly Wrap
4
Mutual funds round-up
Fund this week: HSBC Equity Fund
NFO update Dividend update
India Infoline picks
India Infoline Ltd, 15th Floor, P.J.Tower, Dalal Street, Mumbai -01. Tel 91-22-67491700.
The information in this newsletter is generally provided from the press reports, electronic media, research, websites and other media. The information also includes information from interviews conducted,
analysis, views expressed by our research team. Investors should not rely solely on the information contained in this publication and must make their own investment decisions based on their specific
investment objectives and financial position and using such independent advisors as they believe necessary. The materials and information provided by this newsletter are not, and should not be construed
as an advice to buy or sell any of the securities named in this newsletter. India Infoline may or may not hold positions in any of the securities named in this newsletter as a part of its business. Past performance
is not necessarily an indication of future performance. India Infoline does not assure for accuracy or correctness of information or reports in the newsletter.
Fund Name Close Type Class
JM FMP – Sr X- Qrtly Plan 3 16-Jul CE Debt-FMP
ING Latin America Eq Fund 18-Jul OE Hybrid
Mirae Asset Global Commdty Stck 23-Jul OE Eq - Thm
Mutual Fund Dividend % Record date Class
UTI MIP II 100.0 14-Jul Debt- FMP
HDFC Qrtrly Intval Plan B 100.0 14-Jul Debt- FMP
Reliance MIP– Sr- I 100.0 14-Jul Debt- FMP
Equity - Diversified Assets NAV Absolute return (%) as on July 10, 2008
(Rs Cr) (Rs) 1wk 1mth 3mth 6mth 1yr 2yr 3yr 5yr
HSBC Equity Fund (G) 1,096 81.4 2.5 (6.6) (9.1) (29.6) 3.9 48.6 110.8 476.4
IDFC Premier Equity (G) 785 18.4 2.5 (7.0) (10.0) (33.9) 5.0 92.0 - -
Kotak 30 (G) 632 76.3 3.0 (6.9) (10.9) (33.3) (0.8) 42.5 114.2 425.7
SBI Magnum Comma Fund (G) 541 18.6 4.8 (9.0) (11.7) (35.6) 2.5 46.7 86.4 -
Sundaram Select Focus - RP (G) 864 70.2 2.2 (6.1) (7.9) (34.3) 6.6 50.2 135.6 427.8
Asset allocation (%)
Equity 79.9
Debt 5.1
Cash/ Call 15.0
Top 10 holdings (%)
CBLO 9.1
Reliance Inds. 6.4
Reverse Repo 6.0
Infosys Tech. 5.5
Bharti Airtel 4.7
ITC 4.4
Other Equities 4.1
L&T 3.3
HDFC 3.0
Reliance Petroleum 3.0
Fund snapshot
Fund manager Jitendra Sriram/ Mihir Vora
NAV - July 10, 08 Rs81.4
NAV 52 high/low Rs118/73
AUM - June 30, 08 Rs1,096crs
Type Open-ended
Class Equity-diversified
Options Growth & dividend
Min investment Rs10,000
Entry load 2.25%<Rs5crs
Exit load 1.00%<6mths
Registrar CAMS
Benchmark BSE200
No. of stocks 32
Expense ratio 2.0%
Commodity, debt and currency graphs

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