Query Corner: BL

December 31, 2011:  

Please discuss the prospects of DLF.

Jyoti Majhi

DLF (Rs 180): DLF could not really recover from the bludgeoning received in the previous market crash when it fell from Rs 1,225 to Rs 124.

The recovery that followed retraced about one-third of the decline only. This structural decline resumed from the peak of Rs 520 recorded in October 2009.

Year 2011 was also pretty difficult with the stock losing 36 per cent this year. It has closed below the critical medium-term support at Rs 275. Next long-term support for the stock is at Rs 140 and Rs 124.

Investors need to divest their holding in this stock if it declines below Rs 170.

Resistances in the months ahead would be at Rs 310 and Rs 392. But long-term outlook will turn positive only on close above Rs 545.

Subsequent targets are Rs 673 and Rs 807. The stock could remain in the zone between Rs 125 and Rs 550 over the next two years.

I would like to buy Bank Nifty. At what price should I buy it?

Ramanuj Marda

Benchmark Bank BEES (Rs 802.1): Exchange traded fund (ETF) on bank stocks is the best way for investors to take an exposure to this sector.

Benchmark Bank BEES is moving down since last October when it recorded the peak of Rs 1,484. This decline has pulled the ETF close to its critical medium-term support at Rs 780.

There are a couple of supports just below at Rs 700 and Rs 650.

Investors can buy the fund in declines as long as it trades above Rs 650.

If this level is penetrated, the slide can accelerate to pull the ETF to March 2009 trough at Rs 335.

There can be a rally to Rs 1,050 or Rs 1,220 in the months ahead. Investors with short to medium-term perspective can divest their holding at either of these hurdles.

Long-term view will turn positive once the ETF moves above the second resistance.

I would like to buy shares of Larsen & Toubro. Please advise on the price range to buy it?

Vishwanath Hadli

Larsen & Toubro (Rs 995.1): Larsen & Toubro was devastated in the September quarter with the stock losing 36 per cent in this period.

The stock is trading well below the key medium-term support at Rs 1,200.

It has also closed the gap that was formed in May 2009.

That said, the stock has psychological support at Rs 1,000.

This is also the floor of the gap formed after the 2009 elections.

Investors with a greater penchant for risk can buy the stock at current levels or in declines with stop at Rs 870.

Breach of this level can drag the stock to the 2009 low at Rs 556.

The short- as well as medium-term trends in the stock are currently down and it is not displaying any inclination to reverse higher.

Should there be an upward reversal from these levels, short-term resistances will be at Rs 1,266 and then Rs 1,450.

Investors with short- to medium-term perspective can divest their holding if the stock reverses lower from either of these levels.

Medium-term view will turn positive only on close above Rs 1,450.

Subsequent resistances are Rs 1,600 and Rs 1,745.

I am holding shares of Phillips Carbon Black purchased at Rs 140 and 3i Infotech at Rs 45. Please advise on future course of action.

Siva Prasad

Phillips Carbon Black (Rs 86.4): This stock is dropping like a stone since mid-November. This decline has pulled the stock well below the medium-term trend deciding level at Rs 109.

Next support on the charts is at Rs 56 and this can now act as stop-loss for investors who are still holding the stock. Next long-term support is way off at Rs 24.

Investors with lower risk appetite can sell the stock at this juncture and consider re-entry once it closes above Rs 107.

Key medium-term hurdle is however at Rs 160. Next targets are Rs 180 and Rs 250.

3i Infotech (Rs 11.7): 3i Infotech also took it on the chin in 2011, collapsing from Rs 60 to Rs 12, loss of 80 per cent. The stock has also declined below its long-term trough at Rs 25.

It is difficult to tell where this downward spiral will halt. Any rally from hereon will face strong hurdle at Rs 25. Investors can switch out of this stock and consider buying it again only on a firm weekly close above Rs 25.

Medium-term view will turn positive only on a close above Rs 52.

I would like to know the prospects of Ramky Infrastructure.

Chandrasekkar

Ramky Infrastructure (Rs 205.9): This stock does not have sufficient history to enable us to come to a conclusion on its long-term prospects. But it is currently trading close to its life-time low.

That the stock is unable to break the sequence of lower troughs and peaks since its listing also implies that the stock is in a long-term down trend.

There is no semblance of reversal in either short- or medium-term time-frames. Investors with lower risk appetite can switch out of this stock and consider re-investment on a weekly close above Rs 250.

Next hurdles for the stock are at Rs 330 and Rs 360.

Please discuss the medium- and long-term out look of PTC and Selan Exploration.

A Parameswaran

PTC India (Rs 38.8): The long-term trading band for PTC is between Rs 40 and Rs 200. The stock is vacillating in this band since 2004. The stock is currently near the floor of this long-term trading zone.

Its life-time low of Rs 31 recorded in April 2004 should serve as the next long-term support and the stop-loss for investors.

Investors can continue to hold on to the stock since a reversal from here has the potential to take the stock all the way back to Rs 150 or even Rs 200. Medium-term targets on an upward reversal are Rs 80 and Rs 108.

The ceiling between Rs 150 and Rs 200 will continue to act as an obstacle for long-term uptrends.

Selan Exploration Technology (Rs 229): Selan Exploration is also southward bound since the beginning of this year. The stock is currently ruling at its 52-week low. That said, the long-term trend in the stock continues to be up.

It is still trading above its long-term trend deciding level of Rs 216. Investors can continue to hold the stock as long as it trades above this level.

Breach of this level will drag the stock to Rs 140, Rs 118 or Rs 90. Medium-term resistances will be at Rs 300 and Rs 350. Key long-term resistance is at Rs 425.

What does the technical chart say about CESC? Can I enter at current level of 204?

Shankar Mayuram

CESC (Rs 203.4): The long-term uptrend that began from January 2008 peak continues to be in force in CESC.

The stock is currently nearing its long-term base at Rs 165 recorded in October 2008. Investors can continue to hold the stock as long as it holds above this level.

Resistances for the medium-term will be at Rs 276 and Rs 375. Long-term trend will however turn positive only on close above Rs 500.

Reliance Industries: The second coming RIL: Secures pan-India spectrum for LTE ::Deutsche bank

Reliance Industries: The
second coming
RIL: Secures pan-India spectrum for LTE
In June 2010, RIL secured 2x20Mhz unpaired spectrum in the 2.3Ghz band at Rs120bn.
It has announced its intention to rollout LTE (FDD version). At this juncture, RIL has not
made any announcements about its key equipment vendors or its strategy to source
towers for the network rollout. We expect a service launch over the next 18 months.
Our assumptions for RIL’s telecom foray:
�� RIL would also need to provide voice services to build a viable business.
�� LTE is both a boon (for data) and bane (for voice) – standards for provisioning
voice over LTE have not crystallised.
�� Headroom for disruptive pricing, especially on voice, is limited. However, we
believe RIL would be impacted by data tariffs. RIL would be better placed than
the incumbents to offer higher data speeds, which it is likely to leverage to
drive down data pricing.
�� RIL could acquire/merge with another player to gain access to GSM spectrum.
The proposed M&A guidelines are favourable for such an outcome
We expect RIL to target and enter both voice and data markets
We believe it would be difficult to build a viable business only focussed on the data
market. Assuming the Indian data market scales up to 20% of the total telecom
revenues by FY16E, an optimistic estimate of the market size would be around Rs350-
400bn. Assuming RIL corners a 20% marketshare (an optimistic estimate), its top line
would be around Rs75-80bn. As a comparison, Idea’s current top line is around
Rs200bn. Given that RIL plans to invest around $5bn in telecom, a $1.6bn top line is
likely to fall short of its ambitions.
RIL’s ability to disrupt pricing, especially voice, would be limited
Our discussions with clients indicate that there is an expectation that RIL will focus on
data and offer cheap (or free) voice calls on VoIP technology as a loss leader strategy to
build a subscriber base. In addition, this would significantly impact the voice revenues
of the incumbents.
While RIL can offer on-net calls at any rate, off-net calls will need to be priced at a
minimum of the termination charge. As for VoIP calls, we note that they are not
'costless’. Hence we would surprised if RIL elects to provide free voice calls and use it
as a loss leader strategy for an extended period.
Incumbents’ strategies and tactics have evolved since RIL’s last foray
During its first foray into telecom (as RCOM in 2003), RIL entered the market with
disruptive voice pricing, which quickly helped build operating scale and volume of
minutes. Ironically, incumbents such as Bharti recognised the value of this 'minutes
factory' approach rather than their ARPU-based business model and re-jigged their
operating strategy and business processes.
We believe RIL's ability to succeed with a similar approach this time is limited due to
two factors: a) the headroom to cut prices is low as incumbents have significant scale
and low-cost structure and b) incumbents have demonstrated a willingness to sacrifice
margins to remain competitive on tariffs. In summary, we believe that RIL's entry could
trigger a round of competitive tariff cuts, but these are unlikely to be sustained in the
long run.
LTE – challenges abound
Deutsche Bank analyst Brian Modoff highlighted in a recent note (Signals to Noise –
LTE challenges, 2 October 2011) the key challenges confronting carriers building out a
LTE network. This includes: a) support for voice and legacy services and b) band
support in handset radios.
�� He notes that carriers are still struggling to find a way to support basis services
such as voice and SMS. Voice Over LTE (VoLTE) has emerged as a preferred
solution, but there are no clear-cut standards for designing VoLTE systems.
�� Band support: The proliferation of bands proposed for LTE is a major challenge.
Brian believes that there are around 44 different bands for LTE around the
world, which is too broad a range to be addressed in a single chip. He sees
radios in cell phones as major technical challenge for LTE. Put simply, RIL is
likely to be hamstrung with a poor device ecosystem, and it would be a
challenge to build a low-cost LTE ‘phone’.
Nevertheless, on a long-term basis RIL is well placed on its technology choice
Unlike the last time around when RIL was on a CDMA platform that had a truncated
upgrade path, its current choice of LTE is the next upgrade for WCDMA (i.e. 3G)
technologies being used by its key competitors. As the telecom market in India evolves
to an increasing share of data, RIL would be better placed than competitors on the
technology front.

Reliance Communications: Cashflows are crucial and growth is the only option:: Deutsche Bank

Stabilising operations but debt burden constrains valuations
RCOM’s key challenge is to build momentum in its wireless business and
generate sufficient cashflows to reduce its debt burden (current net debt to
EBITDA 4.7x). Over the last six quarters, revenue/min has been stable, but
mobile EBITDA has stagnated. Weak cashflows have forced RCOM to
constrain capex to generate sufficient cash to repay around $1.2bn in FCCBs
maturing in March 2012. We are reducing our FY13E EPS and target price by
c.50% to reflect RCOM’s operating and financial challenges. Maintaining Hold
(target price Rs80).
Wireless business – growth is critical, but could be harder to achieve
Over the last ten quarters, RCOM’s wireless revenue-share fell from 12% to
8%. We believe it could be challenging for RCOM to maintain market share;
we forecast FY13/14 revenue growth of 13%/11% (below sector growth of
15% p.a.). Margins should improve by 200bps to 29% by FY14 as RCOM has
also raised tariffs following hikes by incumbents. Unlike in the past, we believe
RCOM’s ability to precipitate a tariff war is limited due to its leveraged balance
sheet.
Debt burden a key concern, economic cost of debt difficult to estimate
At end-2QFY12, RCOM’s net debt stood at Rs319bn, which includes a recent
drawdown of $1.3bn out of a $1.93bn loan facility extended by a consortium
of Chinese banks. Cash flows in 1HFY12 have also been weak, likely on
account of payments to capex creditors. While we forecast cumulative FCF
(FY12-14) of Rs88bn, our FY14 net debt to EBITDA remains at an elevated level
of 3x. RCOM’s interest costs are hard to fathom from its quarterly disclosures.
However, we note that its convertible, due in March 2012, is trading at YTM of
around 27%.
High leverage relative to peers results in a valuation discount
Our DCF-based target price for RCOM is Rs80/share, implying 6.3x FY13E
EV/EBITDA (20% discount to Bharti’s implied valuation). Our DCF
assumptions: RFR of 6%, risk premium of 8.5%, CoE of 17%, Kd of 10.5%,
WACC of 13.1% and terminal growth rate of 2%. A reversal in market share
losses would be a key upside risk. A resumption of the tariff war would be a
downside risk.

High dividend yield stock should look in 2012: ET

The BSE Sensex has slipped over 20% so far in 2011 mimicking the fall in global markets. However, the burgeoning fiscal deficit situation, high inflation rate scenario and slowdown in corporate earnings growth have stalled India's growth story to some extent in 2011.

Since the onset of the European debt crisis, global markets have been plagued with uncertainty and slowdown in growth.

Brokerage firm CLSA has also lowered its 12-month target for the benchmark index, BSE Sensex, to 17,000 from 18,200, citing earnings cuts for FY12 and FY13.

The research house has reduced its earnings estimates for the Sensex by 1-3 percent over the last month and now forecasts 14 percent earnings growth in FY12 and 10 percent earnings growth in FY13.

The economy grew at its slowest in more than two years in the July-September quarter as the impact of rising interest rates, surging inflation, policy delays and a weak global economy hurt expansion plans, dragging growth to sub 7% levels.

For investors spooked by the slide in equities during better part of the year, it may not be a bad idea to consider high dividend yielding stocks. Here's our pick of stocks which have consistently given a dividend yield of 4% or more over the past three years.

Top fund managers pick for 2012 : ET

NIRMAL JAIN, CMD, IIFL

CIPLA: Cipla has largely completed a strong investment cycle and its meaningful impact will flow in the next 2-3 years. The stock underperformed over the past two years largely due to its lower-than-market growth and margin pressure. We believe with the operating leverage looming in and improvement in margin and return ratio, Cipla would trade at its high multiple. We expect a revenue CAGR of 14% over FY11-FY13E as against 8% over FY09-FY11. In a volatile market, we expect Cipla to offer a defensive play with a lower risk and high rewards.

ICICI BANK: Over FY08-11, ICICI Bank underwent a landmark transformation elevating its profitability matrix significantly. Over the past two years, its NIM has been steady in the range of 2.5-2.7% aided by structural improvement in CASA. Asset quality has held up well so far and the bank recently upgraded its credit cost guidance for the year implying a sanguine outlook. Negligible restructured assets and robust capitalization provide a lot of comfort. Current valuation is extremely attractive in the light of potential 1.3% RoA delivery. 

MOTILAL OSWAL, CMD, Motilal Oswal Fin. Services

STATE BANK OF INDIA: SBI has a strong liability franchise of over 18,500 branches at the group level, leading to a robust growth in CASA, fee income and core PPP growth. Led by repricing of assets and control over cost of funds, NIMs have improved sharply to 3.8% ( one of the best in the industry), and we expect it to remain superior at over 3.5%, a key driver for profitability. Higher focus on asset quality versus growth and proactive recognition of stressed assets will lead to lower slippages and higher recoveries going forward.

INFOSYS: Infosys has positioned itself as a high value player in ITeS. We expect it to consolidate its positioning across Europe and emerging markets. Its strategy of moving up the value chain while aggressively targetting new markets will help hold margins in a narrow band. Infosys is also better placed to drive productivity post the restructuring undertaken earlier this year. The company also has a prudent hedging policy, better than its peers in our view-a key positive in the current environment. We expect earnings to grow by 15% in FY13. 

D KANNAN, MD, Kotak Securities

INFOSYS: The company's management has reiterated its long-term commitment to increase the proportion of non-linear revenues. We concur with the management's view that this is necessary to ensure profitable growth, while providing more value to customers. We remain positive on the medium-to- long term strategy of the company.

HDFC BANK: HDFC Bank is best positioned vis-a-vis its peers in the prevailing uncertain macro-economic environment with better loan profile in the form of higher exposure to retail and working capital loans, strong liability franchise aiding superior net interest margins and high coverage ratio, in our view. We are modeling earnings to grow at 27.9% CAGR during FY11-13E.

GAGAN RANDEV, CEO, Religare Securities

ACC: The demand in rural areas is set to improve as a good monsoon will lead to better earnings for farmers. Awarding of road projects and construction activity of metros will further boost cement demand. A sharp rise in cement prices was attributed to demand from large dealers who were stocking up in anticipation of a pickup in demand during the festive season.

GODREJ INDUSTRIES: The diversified business provides it a hedge against adverse developments in any industry. It is planning a major expansion in its agri and chemical businesses at an investment of around `300 crore. The group owns about 5,000 acres in Vikhroli; a part of which has been used for residential and commercial purposes. The company holds 69.51% stake in Godrej Properties

 

SIVASUBRAMANIAN KN, Chief Investment Officer, Franklin Templeton Investments

There is likely to be increased volatility over the shortterm, but investors should focus on the long-term return potential, as it is difficult to time the market. One of the key triggers could be substantial progress on key reforms that are required to address structural issues in India, reduce inflation levels and lay the ground for future growth.

Sectors: From a medium- to long-term perspective, sectors benefiting from structural growth drivers, that is, consumption and infrastructure development are likely to fare well in our view. However, in volatile market conditions such as those seen in recent times, historical data suggests that, typically, defensive sectors such as FMCG and healthcare relatively outperform markets, while cyclical stocks are rather severely hit during periods of high volatility.

SANKARAN NAREN,Chief Investment Officer, ICICI Prudential Asset Management

The market will remain volatile in 2012 unless the government is able to handle the rising fiscal deficit, which is keeping interest rates high.

Sectors: We are bullish on exporters in 2012, as the rupee has weakened by almost 20% against competitor China's yuan. This is a real opportunity for exports to pick up. Among exporting sectors, we are optimistic about textiles, dyes and chemicals, and engineering goods. We like the technology space too, but the sector is not showing any significant improvement in volumes.

 

SUNIL SINGHANIA,Head - Equity Investments, Reliance Capital Asset Management

Year 2012 starts with a lot of uncertainty and challenges. Right from action on reforms and policies by the Indian government to the inflation, interest rates and currency scenario, and also global concerns; there is uncertainty on every front. Thus the outlook as we start the year is one of confusion. We expect 2012 to throw a challenge in the first half and a possible big surprise in the second half.

Sectors: Companies having dollar assets and revenues should do well. In case interest rates fall towards the second half, there is a possibility of capital expenditure reviving the ailing engineering and capital goods sector.

ANUP MAHESHWARI, EVP & Head - Equities, DSP BlackRock Investment Managers

Global markets will remain volatile and continue to negatively impact market sentiment and growth. During volatile market conditions, investors will benefit more from large cap companies.The performance of large- cap companies may potentially provide for a 15% CAGR over the long-term although these returns may not be linear.

Sectors: Interest rate sensitive sectors will appear attractive as there may be a pause in interest rate hikes. There are opportunities in pharma, IT, auto & auto-ancillaries. Infrastructure will remain under pressure. 

 

 

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Top 20 large cap & mid cap stocks to buy in 2012 :ET

The year begins on a rather gloomy note with the overhang of the European debt crisis, and closer home, a slowing economy, an earnings downgrade, and a government failing to get going. Though these factors are bound to impact the economy and growth, there are a handful of companies that hold out promise. The ET Intelligence Group has shortlisted 10 stocks each from the large cap as well as mid cap categories for 2012. It also tells you why your bets may not be fully misplaced.

Band of Big Boys You can Place Your Bets On...

1. ADANI PORT & SPECIAL ECONOMIC ZONE

While the major ports of the country are operating at near capacity, Mundra Port & Special Economic Zone will be able to handle incremental trade, given its large capacity.

The proximity of MPSEZ to north western states makes it attractive for handling volumes for these states. MPSEZ continued to outperform all major ports in cargo volume with 27% volume growth in total cargo handled compared to 3% growth in total volumes at the major ports in the first half of this financial year. 
 

MPSEZ has acquired 50mtpa bulk-handling capacity from Abbot Point port in Australia. The stock trades at a trailing P/E of 23.3 which is justified, given its growth potential.

2. APOLLO HOSPITAL ENTERPRISES

(AHEL)

Healthcare is one of the sectors to get least affected from the economic slowdown. AHEL is the best contender in this segment having presence in hospitals, pharmacies and insurance. The company owns a chain of 52 hospitals having a total of 8513 beds.

Over the past four fiscals, the company has logged a steady rise in in-patient admissions and average revenue per occupied bed.

Its occupancy rates have remained high above 70% with gradual reduction in the patient's average length of stay in its hospitals. It also has a network of 1,257 pharmacies across India and also runs a health BPO and health insurance service. 

4. IDEA CELLULAR

A pan-India reach, higher concentration of active users, and a strong brand recall augur well for Idea Cellular during the year which is likely to see a full-fledged roll-out of data based 3G services.

Though the company's near-term financials will be under pressure due to higher interest costs and losses in new telecom circles, it looks well poised over the long-run to take advantage of data-driven growth in the Indian telecom sector.

Idea is fuelling the growth of smartphones by introducing low-cost handsets. The operator enjoys a higher active user base coupled with a firm trend in user additions. This should help the company reap benefits from new services.

5. LUPIN

Lupin is the fifth largest generics company in the US. It has a growing and promising presence in Japan and emerging markets like South Africa.

A pipeline of limited competition drugs and the recent foray into oral contraceptives is likely to be the growth driver for the company' s business in the US. Through its recent acquisition of I'rom Pharma in Japan, the company has forayed into the hospital generics segment.

Lupin has been among the few outperformers in the Indian domestic market with enhanced market shares across therapies. Average growth of over 20% in sales and profits, strong cashflows from operations and low debt make it a classic defensive stock.

6. POWER GRID

It has an extremely low-risk business model. With almost a monopoly in the central power transmission business, the company will benefit from the huge demand for transmission lines from the upcoming capacity addition.

It has a strong balance sheet to support its capex plan and a strong execution record. It has a fixed return on equity of 15.5%.

The company has hardly any variable cost post the capex, except maintenance cost. It has an operating margin at a high 90%. All this gives a strong future earnings visibility and hence the stock has outperformed the broader market in the last one year and the outlook continues to remain positive.

7. PNB

Punjab National Bank is one of the fastest growing public sector banks. Second only to State Bank of India, it has a competitive funding cost structure, a huge network in North India and strong capitalisation levels.

It has shown a sharp improvement in asset quality and has invested heavily in technology upgradation giving it an advantage over its peers in the public sector.

Despite a relatively high increase in restructured loans, this is helping it to decrease its exposure to the troubled power sector. Given all these factors, the bank is expected to maintain NIMs higher than its peers.

8. SHRIRAM TRANSPORT FINANCE

Shriram Transport Finance is the largest commercial vehicle financer in the country with a network of 488 branches. It has a presence in financing pre-owned trucks where it garners one fourth of the market.

Despite the concerns in the lending business, Shriram Transport Finance still lends to small truck owners which are less leveraged as compared with companies. This lessens the chances of borrower defaults compared with other NBFCs.

The company's recent performance has been under pressure on account of higher provision for nonperforming assets. But this is not expected to persist over the longer-term.

9. SUN TV NETWORK

Sun TV Network would continue its growth momentum in revenues in 2012, thanks to its robust business model. The company's domination in the southern broadcast industry helps it secure over 71% of operating profit margin consistently. Sun TV Network enjoys discretionary powers over its content, giving it a distinct edge over other media companies.

Recently, the company launched highdefinition version of its four channels. With these channels the company has 25 channels.

These channels would be offered at a price higher than plain vanilla on its DTH services. Company's alleged involvement in the 2G scam may not have an impact on its earnings. 

10. TITAN INDUSTRIES

Titan operates in the jewellery segment through its retail brand Tanishq which contributes almost three-fourths to its total net sales.

Despite an unfavourable macro environment, it has aggressive expansion plans. And this will not require much capital expenditure as the company mainly operates on an asset-light franchisee model.

Despite degrowth in the jewellery market, the company's volume has increased in the last few quarters. It has a 5% market share in the jewellery market which will continue to grow with the space addition and with a strong brand equity allowing the company to grow at a rapid pace.

...And a Middle Order that Promises to Deliver

11. ALLCARGO

Over the next year, the high-margin container freight stations (CFS) business would be the main driver for AllCargo Global Logistics' (Allcargo) earnings. It is doubling its CFS capacity at JNPT by March 2012.

AllCargo books space for container volumes in shipping firms for its multimodal transport operations (MTO). During a downturn there is usually a tendency to shift to less-thancontainer-load to reduce cost.

This augurs well for the company as Europe is now facing a slowdown. On a trailing 12-month basis, AllCargo's stock is trading at a price-to-earnings (P/E) valuation of 8 which is one of the lowest among its peers.

12. COX & KINGS

In 2012, Cox & Kings India will begin to reap the benefits of its acquisition of UK's Holidaybreak, which offers travel facilities to local students. The acquisition provides revenues round the year as vacation for students in the UK does not coincide with school breaks in India, thereby supporting the topline.

The company can tap into the large base of students in India, Japan, Australia, New Zealand and China for their educational travels to various destinations in Europe.

Holidaybreak is present in over 150 destinations where Cox & Kings India operates. It gives an opportunity for both companies to cross-sell services. This should boost sales for Cox & Kings India.

13. CRISIL

The pioneer in credit ratings in India, CRISIL still controls the largest market share in the country with the largest number of rated entities and products.

Global ratings agency Standard and Poor's holds a majority stake in the company. After buying back shares in January 2011, the promoters recently made another offer to buy back shares.

This is a reflection of the confidence that they have in the company. The slowdown in the economy and a marked fall in debt-raising by local firms is a concern as revenues are bound to be hit but the stock may continue to do well because its core business of ratings will flourish despite a slowdown.

14. ENGINEERS INDIA

Despite the current slump, the company is better placed than most others in the capital goods sector. EIL has a strong balance sheet - zero debt, cash surplus, improving debtor's turnover ratio and an impressive RoCE. It also has a healthy order backlog giving it revenue visibility for the next two years.

However, while this ensures top line growth, operating margins may continue to be under pressure, at least for another year, due to pricing pressures in the turnkey project business.

But, EIL's stock has already lost 40% of its value over the past one year. EIL's strong fundamentals and current valuations make it a preferred buy

15. GUJARAT STATE PETRONET

The performance of Gujarat State Petronet was hardly a stand-out one in 2011 due to stagnating gas volumes and uncertainty relating to its tariffs.

However, it enjoys a strong cash-generating business model that will earn greater currency once availability of natural gas improves in the country. The strong profit growth in 2011 was mainly owing to the changes in depreciation policy.

This apart from the correction in its stock price has reduced its price-to-earnings valuation to 8.3 - the lowest among its peers. In 2012, the company is expected to report some growth in its gas volumes, thereby boosting investor sentiment.

16. HAVELLS INDIA

Havells India has performed quite well in the first half of the current fiscal. This is expected to continue in the coming quarters as well.

Its major products - switch gears, cables and wires, lightings and fixtures - are growing at the rate of over 20%, and will likely show decent growth in the coming quarters.

Its European subsidiary, Sylvannia which accounts for nearly half of the company's revenues, is profitable now. Sylvania's revenues will remain stable in the coming quarters, but profitability will be on the upswing as more of its manufacturing will be outsourced.

17. KEMROCK INDUSTRIES

The increasing demand for Kemrock's fibrereinforced plastics (FRP) and its successful foray into carbon fibre will prove to be the key growth drivers in 2012.

In FY12, it plans to double its current carbon fibre capacity to 800 tonnes. It also acquired 80% in the Italy-based Top Glass, which manufactures composite profiles.

It also tied up with the Netherlands-based DSM Composite Resins AG for production of specialty composite resins in India. All these initiatives will support the company's growth going ahead. The company's stock price has been steady during the recent market volatility, which reflects its strength.

18. MAHINDRA HOLIDAYS & RESORTS

The company enjoys a wide reach and a growing base of subscribers with 36 retail outlets, 126 franchisees and 19 branch offices. In the past five years, its vacation ownerships have risen more than three times to over one lakh.

The company's strategy to explore the unknown but scenic destinations has worked well. Recently, the company added Osian, Navalgarh and Swamimalai (in Rajasthan and Tamil Nadu, respectively) to its portfolio of 49 locations in 14 states.

The holiday resort firm has an occupancy level of over 80% which is higher than most budget hotels. This business model will continue to drive its revenues even in 2012.

19. PAGE INDUSTRIES

Page Industries manufactures and sells inner wear under the brand Jockey. In 2011, the company got a licence extension to manufacture and distribute the Jockey brand till 2030.

Brand Jockey commands premium pricing among inner wear brands for men. This extension of licence for close to 20 years indicates strong revenue visibility for the company.

Page Industries has a market share of 24% in the men's category and 12% in the women's inner wear market. A formidable presence in the premium category, where the average market price for each item is anything between Rs 100 and Rs 150, will be an advantage for Page Industries

20. V-GUARD INDS

The company has a strong presence in the south for its pumps, voltage stabilisers and wires. Now, it is diversifying into water heaters, electric fans and inverters.

It is looking to expand geographically. It is aggressively marketing its products in nonsouthern markets and has increased its ad spend in the past few quarters, the impact of which will be reflected in the coming quarters.

The company has a very strong balance sheet, a wide range of products and a strong hold over its existing market, giving it an edge over its rivals. With the recent correction in its stock price, V-Guard looks attractive as a long-term investment.

.

Reliance Industries - Cut to Neutral on worsening refining margins outlook BofA Merrill Lynch,

Reliance Industries Ltd.
Cut to Neutral on worsening
refining margins outlook
�� Cut FY12-14 EPS by 4-9% and PO by 9% to Rs860
Global oil demand growth was weak in 2Q (lowest in 7 quarters) and 3Q 2011.
We had concerns that refining margin (GRM) would weaken if demand weakness
coincides with large refining capacity addition in 2012 (Reliance Industries Ltd., 22
August 2011). In November 2011, Reuters’ Singapore GRM has collapsed. We
have cut Asian GRM (Oil Industry, 01 December 2011) and FY12-14 GRM of
Reliance Industries (RIL) by 6-11% to US$8-9/bbl. This has led to cut of 4-9% in
FY12-14 EPS and 9% in PO to Rs860. We now expect flat EPS in FY13. Revised
PO implies 8% potential upside. We therefore cut RIL to Neutral from Buy.
Singapore GRM weakens in November 2011; lowest in 2011
Reuters' Singapore GRM, which has been strong at US$8.7/bbl to date in FY12,
has slumped to US$6.6/bbl in November 2011 (lowest monthly GRM in 2011).
Singapore GRM for week ending 25 Nov is down to US$5.2/bbl (US$4.5/bbl in the
current week). We expect Singapore GRM to be US$4.2-4.3/bbl in 2012-13.
Neutral due to inexpensive P/E and strong balance sheet
RIL is not expensive. Its P/E on FY13 EPS is 11.4x, which is much lower than its
5-year average forward P/E of 16.8x. RIL will turn net cash in FY12, which will
boost its other income (main factor preventing FY13 earnings decline).
What would make us bullish or bearish on RIL?
We would turn more bearish on RIL if its FY13 GRM is lower (if oil demand
weaker) than assumed by us and/or rupee is stronger (Rs50 assumed). We would
turn bullish if GRM are higher (higher than expected refinery closure), RIL makes
significant oil or gas discovery and/or a value accretive acquisition.

Reliance Equity Opportunities: Invest :: Business Line

The current market condition offers a good investment universe for ‘go anywhere' multi-cap funds such as Reliance Equity Opportunities.

Investors with some risk appetite can consider phased exposure in the fund through systematic investment plans.

Investors who opted for three-year SIPs during the peak of 2008 and continued to stay invested in the fund will have earned an absolute return of 33 per cent against minus 1 per cent clocked by lump sum investors. The SIP return vis-à-vis the lumpsum performance is an indicator that the fund is subject to high volatility.

Despite a decline of 18 per cent in its NAV over a one-year period, the fund's asset under management grew by 12 per cent, implying that the fund has witnessed higher inflows. Markets such as the present one may provide ample opportunities for fund manager to deploy such funds in stocks at attractive valuations.

SUITABILITY

Although Reliance Equity Opportunities is benchmarked against the BSE 100, it takes substantial exposure to mid and small-cap stocks.

The fund is suitable for investors who can assume risks that come with the above market-cap segment. An active profit-booking strategy will help cash in on extraordinary rallies.

PERFORMANCE

The fund's high SIP returns indicate that its NAV is subject to massive swings. For instance, between January 2008 and March 2009, the fund's NAV swung between Rs 31 and Rs 11.8.

But that also means higher opportunities to average rupee costs and make superior returns during a market pullback. The fund proved its mettle in the 2008-09 pullback and amply rewarded it investors.

The fund, over three- and five-year periods, clocked compounded annualised returns of 30 per cent and 7.6 per cent, respectively, against 16.2 per cent and 3.1 per cent returns by its benchmark BSE 100.

Its performance over a three-year period placed it at the top of multi-cap peers. Higher exposure to interest-rate sensitive sectors such as banks and auto, however, resulted in a sharp correction in the last six months.

The fund's top ten stocks accounted for 40 per cent of its assets. Its preferred sectors such as software, pharma, banks, auto and auto ancillaries accounted for 53 per cent of the portfolio.

The fund appeared to be contrarian in its outlook on FMCG. It has held less than a per cent of its assets in the FMCG sector for more than a year now.