CESC (Favourable risk reward, ADD): IIFL

CESC (Favourable risk reward, ADD): 

Monthly cash losses in CESC’s subsidiary Spencer Retail have halved, from the average of Rs250m in FY09 to ~Rs120m in 1HFY11. Moreover, it has achieved EBITDA breakeven at store level. CESC plans to invest Rs1.5bn over the next 18-24 months in large-format stores to achieve turnaround in Spencer’s. The core power business continues to deliver value, and milestone achievement in Chandrapur and Haldia (1.2GW) projects indicates that CESC is well-placed to double its generation capacity by FY15.

Havells India (On course, BUY): IIFL

Havells India (On course, BUY): 

Electrical consumer-goods major Havells is a beneficiary of robust demand growth based on upgrading consumer preferences and increased construction activity in its key verticals—switchgears, lighting fixtures, consumer durables (fans) and cables/wires. Consolidated leverage is set to decline, with its European lighting-fixtures acquisition Sylvania looking to break even in FY12, post restructuring. The stock’s current P/E multiple of 12.0x on FY12ii is reasonably attractive, given an EPS CAGR of 17.2% over FY10-13ii, and our TP of Rs475 (ascribing zero equity value to Sylvania) indicates 19% upside. We reiterate our BUY recommendation.

Economy & Corporate Front Page: IIFL; 12/07/10

Corporate Front Page:

- The government has agreed in principle to ensure a minimum 10% return on investment to ONGC in Cairn India’s Rajasthan blocks, boosting the firm’s valuation ahead of its follow-on public offering. (ET)

- JSW Steel has received shareholders’ nod to issue ~1mn shares on a preferential basis to Japanese steelmaker JFE Steel. (ET)

- Suzlon Energy to merge its infrastructure and tower business divisions with itself. (ET)

- Coal India Ltd (CIL) has officially expressed interest in Kenya's Mui Basin. (BS)

- ONGC Videsh Ltd (OVL) will sign a formal agreement for taking a 25% stake in Kazakhstan’s Satpayev oilfield by the end of February 2011. (BS)

- Religare Enterprises is close to buying 85% of the Ajay Piramal Group promoted real estate fund Indiareit Fund Advisors, valuing the entire fund at around Rs2.5bn. (ET)

- Areva is likely to sign a framework agreement with NPCIL to build the first two of the six planned nuclear power reactors in Maharashtra. (ET)

- Glenmark along with its US-based partner has received US health regulator's nod to manufacture and market two oxycodone products, used for treating moderate to severe pain, in the American market. (ET)

- BPCL will file an execution petition against Kingfisher Airlines (KFA) to claim jet fuel dues. (BS)

- Opto Circuits has completed the acquisition of US-based Cardiac Science Corporation. (FE)

- SBI has raised its deposit rates by up to 150 bps across various maturities, a move that will provide better returns to people with fixed deposits in the bank. (ET)

- Mahindra & Mahindra Financial Services plans to raise up to Rs5.7bn through institutional placement by mid-January. (ET)

- Bharat Forge plans to invest Rs19bn through a joint venture with NTPC. (ET)

- Toyota Motor Corporation (TMC) is looking at developing a small car to be positioned below its hatchback, Liva, to drive up volumes in emerging economies. (BS)

Economy Front Page:

- Mobile phone companies have rejected TRAI proposal to make cell phone tariffs more transparent. They have asked the regulator not to intervene on tariff, saying this should be left to market forces, and have also opposed the proposal to have at least one standard tariff plan across all operators. (ET)

- Aviation regulators DGCA has directed all Indian carriers to show route-wise and date-wise airfares on their websites and ensure transparency so that flyers do not feel cheated by high ticket prices. (ET)

- Introduction of a Goods and Services Tax (GST) could be delayed further with the Centre and the states failing to reach common ground at the meeting of the Empowered Committee of state finance ministers. (BS)

- France signed deals with India worth euro 13.3bn in the nuclear power, civil aviation and defense sectors. (BS)

India – Strategy (Where is the money?): IIFL

India – Strategy (Where is the money?): 

Year to date in FY11, FII inflows, at US$25bn, have already crossed last year’s record US$23bn. Not surprisingly, FII shareholding of India’s market has increased 250bps to ~16% (for BSE200) since the lows of March last year. FIIs now own US$227bn worth of stocks in BSE 500. FIIs are currently underweight large domestic growth sectors—Consumer Discretionary, Staples, and Industrials. They are overweight only Financials (+930bps compared to index), and 36.1% of FII holding is concentrated in Financials. We recommend an Overweight on both IT and Metals. Both these sectors (especially IT) are currently under-owned in institutional portfolios. Fundamentally, the IT sector currently has business momentum, and with the rupee unlikely to appreciate materially, earnings could surprise on the upside. The Metals sector offers a strong hedge to our overweight domestic consumer-focussed portfolio against a sharp rise in global commodities on the back of a deluge of QE2 liquidity.

Biocon (More milestones ahead, BUY): IIFL

Biocon (More milestones ahead, BUY): 


We came out more positive from our meeting with Biocon’s management. Licence fees from the recent insulin deal with Pfizer will start getting recognised from this quarter; the upfront payment of US$200m is significantly more than the development expense, ensuring good margin on the revenue recognised, and emerging market ramp-up of the partnership will come soon (India launch expected in 2011). Listing of CRAMS subsidiaries and progress in monoclonal antibodies partnership with Mylan could be medium-term upsides. We raise our FY11-12 core earnings estimate by 10–11%, as revenue from the Pfizer deal will more than offset high R&D expense of EU insulin trials. We upgrade Biocon to BUY and raise our price target to Rs492.