Bullish sentiment in new Samvat

The market continued to find new legs as it made net gains on strong volumes. The Nifty rose to new 2009 highs and closed at 5,142 points for week-on-week gains of 3.98 per cent. The Sensex behaved similarly, rising to 4.08 per cent to close 17,322 points. The Defty jumped 4.75 per cent as the rupee shot up.

Volumes were good all week and extraordinarily high on Friday. (This analysis is being written pre-Diwali session, where trading is usually token). Advances outnumbered declines and a large number of stocks were heavily traded. FIIs remained big net buyers while domestic institutions sold through most of the week. The BSE 500 rose 4.26 per cent while the Nifty Junior rose 6.4 per cent.

Outlook: The market reconfirmed its bullish status and the new upside targets would be in the range of Nifty 5,300. However, there could be another short-term correction next week pulling prices back till around the 4,950-5,000 level. Positive FII attitude remains a critical driver.

Rationale: The sequence of higher highs confirms that both the bullish long-term and bullish intermediate trends remain intact. However, the intermediate trend is now 13-weeks old and could reverse anytime. The market is overbought in the short-term. A fall below 4,900 would signal intermediate trend reversal with a target of 4,750.

Counter-view: High volumes and a series of new 2009 highs in pivotal stocks implies the market could continue to head North for an un-definable time. Balanced against that, this last burst of trading may have been triggered by traders exiting positions. Normally Indian operators ease off around Diwali and domestic institutions are also net-sellers at the moment. Hence, the FII attitude is vital to market direction – if they sell heavily, there will be no counter-parties at current prices.

Bulls & bears: A large number of pivotal stocks hit new 2009 highs last weeks and most were backed by strong volume expansions. Metals, for example, made a comeback with Sterlite, Sesa Goa both doing very well. Banks as a sector jumped over nine per cent with leaders like SBI and ICICI Bank both hitting new highs. Real estate also bounced up. Outside these sectors, there were scattered winners such as PTC, GVKPIL, Cairn, etc. This sort of pattern suggests further gains but it also sets up a tempting scenario for profit-booking and almost by definition, the market is overbought, with many individual stocks being over-extended and far ahead of reliable supports. Use trailing stop-losses to lock in profits, if there is a sharp reversal.

MICRO TECHNICALS

Bharti Airtel
Current Price: Rs 326
Target Price: Rs 345

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The stock may have seen a selling climax due to the intensifying competition, which has led to a tariff war among existing service providers. The stock fell on sustained hammering from Rs 435. On Thursday-Friday, there was volume multiplication without a further fall. This suggests all potential selling has been absorbed. Keep a stop at Rs 315 and go long since it could bounce till Rs 345.

Indiabulls Real Estate
Current Price: Rs 290.95
Target Price: Rs 270

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The stock has run into resistance between Rs 290-300, which has remained despite very high volumes. On a correction, it could fall till Rs 270 or lower. Keep a stop at Rs 295 and go short. If it does break Rs 295 and closes above Rs 300, reverse and go long with a stop at Rs 290 and a target of Rs 320.

Power Trading Corp
Current Price: Rs 103.8
Target Price: Rs 115

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The stock has made an extraordinary breakout on a big volume expansion. The formation's target would be about Rs 115. Keep a stop at Rs 101 and go long. Book 50 per cent profit at Rs 110 and move the stop up to Rs 106.

Sesa Goa
Current Price: Rs 354.7
Target Price: Rs 380

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Sesa Goa’s stock is making a sequence of successive record highs. Because of this, it is impossible to calculate a reliable target, however projections of Rs 380 appear to be reasonable. Traders are advised to keep a trailing stop at Rs 345 and go long at the counter. Raise the stop by 10-units for every 10-unit rise in the share price.

ICICI Bank
Current Price: Rs 959
Target Price: Rs 1,010

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The stock had a breakout to a 2009 high on strong volume expansion. It is difficult to calculate a target since anywhere between Rs 970 and Rs 1,010 is possible and there is no recent price history. Keep a stop at Rs 945 and go long. Raise the stop 10-units on every 10-unit rise.

BULL'S EYE: Rolta India, Tata Steel, Max, Cairn India, Aditya Birla Nuvo, Nestle

Rolta India

RESEARCH: BNP PARIBAS

RATING: BUY

CMP: Rs 127 BNP Paribas upgrades Rolta India to `Buy’ with a target price Rs 160. Management indicates that order inflow continues to improve and that the company is on track to meet its FY09 guidance. Rolta is in advanced stages of signing several new domestic infrastructure and defence-related orders, but these are unlikely to make the order book immediately with client go ahead still pending.

The international business will likely remain subdued, however, until oil capex and enterprise IT spending improves. BNP Paribas’ earlier margin assumptions were conservative - management expects flattish wage costs in FY10, while pricing could be better than the expectation on sales of newly launched solutions. Also note the current order book provides 65% revenue visibility for FY10E.

The target price rises on higher FY10/11E and medium-term projections, and implies FY10/FY11E P/Es of 11.4/10.0x. The latter is in line with the historical average and higher than the trough cycle of 6.8x P/E earlier. While the company may have missed the opportunity to buy back the FCCBs earlier in the year when the prices were much lower, any buyback at a discount is still positive as it reduces debt in the books and hence a likely heavy payback in 2012.

TATA STEEL

RESEARCH: JP MORGAN

RATING: NEUTRAL

CMP: Rs 438.30 JP Morgan recommends `Neutral’ rating on Tata Steel, but raises the price target to Rs. 415. While June and September 09 quarters should be weak, JP Morgan believes the worst is likely behind in terms of operational environment for Corus.

JP Morgan European steel analyst Jeffrey Largey expects European steel prices and demand to recover as inventory de-stocking comes to a close and believes European steel earnings are likely to improve from Q4CY09E with the real benefits flowing through in CY10E. While current capacity utilization at Corus remains at 50%, utilisation levels will gradually increase from here.

As the recent cancellation of the agreement by the buyers of slabs at the Teeside plant shows, FY08-level sales volumes are unlikely to come back for Corus any time soon. Indian operations should continue to do well and provide strong cash flow support over the next 12-18 months as Corus restructures. While deleveraging is expected to be limited over the next 18 months, it should pick up pace once Corus’ earnings normalise. JP Morgan does not rule out capital-raising to accelerate deleveraging, as net debt remains high.

MAX

RESEARCH: CLSA

RATING: BUY

CMP: Rs 206 CLSA maintains `Buy’ rating on Max India by raising the price target to Rs. 240. Max’s healthy growth in new business premiums of the insurance segment moderated towards Q4FY09, in line with the sector. But the high persistency rate of 82%, healthy margins on new policies and the cash breakeven of the healthcare business were encouraging. During FY10, Max New York Life (MNYL) will focus on expansion and targets to achieve breakeven by FY12.

MNYL's new business sales in Q4FY09 declined 13% y-o-y, compared to a 38% growth in the first nine months, reflecting industry-wide slowdown in sales, as weak equity markets led to a sharp fall in demand for unit-linked products. Revenue growth of 13% y-o-y was driven by sharp growth in outpatient revenues (32% y-o-y).

Average revenue per occupied bed day improved 3% y-o-y while utilisation remained flat at 65%. Max intends to expand total bed capacity from the current 770 to about 1,800 by FY12. CLSA values the healthcare segment at Rs27/share by ascribing 12x FY11CL EBITDA on current operational beds and adds net present value of replacement cost for rest of the beds.

CAIRN INDIA

RESEARCH: CITIGROUP

RATING: HOLD

CMP: Rs 230 Citigroup downgrades Cairn India to `Hold’ from `Buy’ with a revised target price of Rs 237. Citigroup’s long-term crude assumption (2012E onwards) remains unchanged at $65/bbl. For $65 long-term crude assumption, the stock is pricing in most of the quantitative and qualitative upsides.

Creation of surplus capacity (205k bpd plateau against Citi’s assumption of 185k bpd) exhibits confidence in terms of exploration potential and higher recovery. In addition, Citigroup now ascribes 5% premium to NAV to build in the exploration potential in other blocks as well as to factor in the potential for a positive surprise in project development targets.

In addition, Cairn’s positioning as the only hedge against crude for the “India-dedicated” money

ADITYA BIRLA NUVO

RESEARCH: UBS INVESTMENT

RATING: BUY

CMP: Rs 886 UBS Investment maintains ‘Buy’ rating on Aditya Birla Nuvo and raises price target to Rs 1,050 as UBS incorporates Idea’s revised valuation and lower holding company discount (10% from 30% earlier). ABNL has significantly appreciated (+126%) since 20 March ‘09 compared with a 59% rise in Sensex. UBS believes that Idea’s management’s strategy of investing in 1800 Mhz circles is sensible. Idea has gained excellent traction in revenue market share in the past few quarters due to its brand strength as well as excellent management. Idea’s 900 Mhz circles provide the company with a significant opportunity to create shareholder value. ABNL is likely to benefit from any increase in FDI/FII limits in insurance. Further triggers could be: 1) Any unlocking of value in insurance business, 2) Any stake sale in Idea or divestment of any non-core standalone businesses.

NESTLE

RESEARCH: HSBC

RATING: OVERWEIGHT

CMP: Rs 1975 The F&B industry in India is characterised by low penetration and low per capita consumption. The per capita consumption for some F&B categories in India is just 1-2 % of that in developed economies and is low even by emerging market standards. India’s income distribution pattern is changing, with the ‘deprived’ population set to decline from 50% of households in 2005 to 18% in 2025, resulting in a whole new consuming class. India has one of the youngest populations in the world, as well as a growing urban population, both of which are conducive to F&B growth.

With sales of Rs 4,320 crore in CY08, Nestlé is the largest processed food company in India and is poised for aggressive and sustainable growth. It has a robust milk supply chain enabling regular supply at an economical cost. The company drives new user recruitment through affordable priced packs and drives revenue and margins through brandsvariants/extensions; 76% of its sales growth is volume-led.

The company has excellent financials, marked by a net margin of 13%, a CY08-11 E EPS CAGR of 18.3%, negative working capital, and RoE of 125%-plus . HSBC values Nestlé at Rs 2,210 per share - 26x FY11E PE - as it deserves an about 8% premium to Hindustan Unilever (HUL), given its higher and better-quality growth in some categories and less competition in others. should support valuations. In addition, management’s track record in project execution adds a defensive shade to the stock despite the high leverage to crude prices. Cairn has adhered to its timelines, and readiness to start producing crude this month provides comfort on further milestones. Pricing seems to be settled with discount to Brent ranging between 10-15 %. The cess issue is likely to get resolved only in 2010, until which time Cairn is likely to pay at the present rate.

Bull's eye: Pantaloon Retail, NIIT, Glenmark Pharma, Sesa Goa, Parsvnath Developers, Voltas

Pantaloon Retail
Research: Morgan Stanley
Rating: Overweight
CMP: RS 323

Morgan Stanley reiterates 'Overweight' rating on Pantaloon Retail with a target price of Rs 422. It also maintains the investment thesis regarding improving business outlook and availability of capital to fund growth plans.

Consumer demand has picked up sharply in the last two weeks, and the company has various alternative funding plans to expand its business. The management has also expressed its intention to improve transparency through better communication with investors. According to the management, consumer spending in categories is nearly back to the peak witnessed in the last 18 months.

Home Retail had been particularly badly hit in this downturn; it is now witnessing a sharp reversal in growth trend, particularly in the furniture and furnishings segments. PRIL is also evaluating various plans that include private equity investments in subsidiary companies and/or restructuring the group to ensure that Pantaloon Retail does not need to fund non-retail, finance subsidiary companies.

NIIT
Research: Citigroup
Rating: Sell
CMP: RS 59

Citigroup recommends a 'Sell' rating for NIIT with a target price of Rs 50, given concerns of a US/global economic slowdown. NIIT, an acknowledged leader in IT and IT-enabled training, provides learning and knowledge solutions in more than 30 countries.

NIIT's business is not recession proof as: (1) NIIT feeds into the IT industry and hiring has slowed (particular in Tier-IIs ) due to cautious demand. (2) Corporate business is ~60% of revenue and ~80% of this is US exposure; training budgets

face pressure amid the slowdown . NIIT’s margins in individual businesses have expanded from 0% to ~20% in three years.

If revenue momentum slows, the high share of fixed cost in business will lead to a sharp erosion in profitability. Corporate business profitability will be affected by the appreciating rupee. Institutional and new businesses are too small to change the company’s prospects. Citigroup values NIIT at Rs 50 based on 10x average of FY10-11 E consolidated EPS.

Glenmark Pharma
Research: Goldman Sachs
Rating: Neutral
CMP: RS 232

Goldman Sachs maintains 'Neutral' rating on Glenmark Pharma with a 12-month target price of Rs. 263. Glenmark announced that Melogliptin, its novel molecule for diabetes, is set to enter global Phase III trials by end- ’09.

It stated that Phase IIb trials were completed successfully and achieved 1% average HbA1c reduction and a positive safety profile. With implications in the patient group with higher baseline HbA1c, the study reported a reduction of 0.88% and 1.05% (at different doses) thus reducing HbA1c levels to the range of 7.5%-9 %.

Note that for glucose control, the Intl Diabetes Federation recommends HbA1c values below 6.5%. Goldman Sachs believes this increases the statistical likelihood of Melogliptin entering the market, in which case sales peak a $1 billion per annum. Note that treatment has progressed from monotherapy to combination therapy (with Metformin).

As a reference, Alogliptin (another DPP-IV ) has been delayed by two years as the FDA has asked for combination trials. This implies longer trials and increases the need for an outlicensing partner. Also, safety continues to be a key issue, as some DPP-IVs have seen significant adverse effects. The next pipeline milestone is Phase IIb results for GRC3886 from Forest Labs in July.

Sesa Goa
Research: BNP Paribas
Rating: Reduce
CMP: RS 192

BNP Paribas downgraded Sesa Goa to 'Reduce' as the stock runs ahead of the fundamentals. Sesa is currently trading at 13.1x FY10 PE and 6.5x FY10 EVEBITDA, a 151% and 110% premium to its eight-year average PE of 5.2x and EVEBITDA of 3.1x, respectively.

With the onset of the monsoon in India, the first two quarters of FY10 will be seasonally weak for Sesa due to lower sales volumes. Sesa sold 30.8% of its yearly sales volumes in 1HFY09 and it is to sell 6.0 million tonnes in 1HFY10, or 33% of FY10 target. Sesa has recently entered into an agreement to acquire the mining assets of Dempo Group for Rs 1,750 crore in an all cash deal.

The acquisition provides an additional 70 million tonnes to Sesa's existing reserves of about 240 million tonnes. BNP has increased the target price to Rs 147 from Rs 110 per share with Sesa being valued at Rs 123/share and Dempo at Rs 24/share. BNP expects the proportion of Karnataka and Orissa ore will increase to about 50% of sales volume in the later years in comparison to 30% now with expected new volume growth from these territories.

Parsvnath Developers
Research: Credit Suisse
Rating: Underperform
CMP: RS 84

Credit Suisse maintains 'Underperform' rating on Parsvnath Developers with a target price of Rs. 75. Credit Suisse revised the NAV estimate up by 83% to Rs 126 on the back of lowering weighted average cost of capital (WACC) and assumes a 5% p.a. hike in property prices from FY11 onwards.

They employ an average 40% discount to calculate the target price to reflect high gearing of 1x; its high concentration risk in tier III cities; focus on SEZ and commercial projects (47% of land bank); and unpaid land cost of Rs 1000 crore. With an EBIT/interest cover of 0.9x in FY09 and 0.6x in FY10, Parsvnath will find it difficult to meet its interest commitments let alone Rs 230 crore of debt repayments scheduled for FY10.

Further, Parsvnath's strategy to continue with its land acquisitions for the SEZ projects and not to exit from non-strategic land parcels will put considerable strain on its balance sheet. Parsvnath is looking to gain private equity investment in its projects.

Red Fort Capital, a private equity fund has recently invested Rs 90 crore ($18 mn) in a Delhi residential project. Credit Suisse estimates it needs at least a $170 million equity infusion to reach FY10 EBIT/interest cover of 1x.

We raise our revenue estimates for FY10 and FY11 by 15% and 13%, respectively , on the back of improved liquidity and a better macro environment. FY10E EPS is expected to decline 30% y-o-y to Rs 4.20 and thereafter increase to Rs 5.14 in FY11E. Parsvnath is trading at a 34% discount to forward NAV and 20x FY10E P/E and 16x FY11E P/E and 0.74x forward P/B.

Voltas
Research: Edelweiss
Rating: Buy
CMP: RS 132

Edelweiss maintains 'Buy' rating on Voltas. Voltas' engineering and agency services (EAS) and unitary cooling businesses (UCL) bore the biggest brunt of domestic slowdown, with 2% decline and 11.3% growth in revenues respectively. The UCL division is estimated to have a better FY10 compared with H2FY09 due to a severe summer and better realisation on high-end products.

But primary sales growth for Voltas has been slower than the industry due to its conservative stocking policy, leading to stock run-outs in a few models. Among the three segments, recovery in EAS is likely to be the slowest, despite improvement in mining and materials, and construction equipment segments. On current estimates, the stock is trading at a P/E of 16.6x and 13.9x for FY10E and FY11E respectively.

While upsides to current valuations may not be immediate, expectations of positive surprises on order wins could support valuations. Further valuation upsides could be driven by higher order accretion and faster execution, leading to higher FY11E estimates.

Even after the recent run-up in the stock price, Edelweiss advises investors to initiate fresh positions and build existing ones as triggers in the form of order wins and improved macro scenario are likely to support valuations.

Bull's Eye

INDIAN OIL CORPORATION
RESEARCH: ABN AMRO BANK RATING: SELL CMP: RS 556
ABN Amro Bank downgraded Indian Oil Corporation from 'Hold' to 'Sell' with a target price of Rs 490. IOC reported Q4FY09 net profit of Rs 6,620 crore, turning 9MFY09 losses of Rs 3,670 crore into full-year profit of Rs 2,950 crore. This was largely a result of the contribution from government bonds of Rs 40,370 crore and upstream sharing of Rs 18,200 crore in the full year. ABN Amro estimates prices of kerosene, LPG, petrol and diesel will need to rise 140%, 42%, 11% and 3% respectively, or crude price will need to fall below $54/bbl, to ensure no gross under-recovery. It expects refining margins to remain low. To maintain adequate profitability, the government, like in FY09, will ensure IOC has no net under-recoveries by contributing in the form of oil bonds and upstream sharing. As long as gross under-recoveries exist and earnings depend on government policy, IOC's core business should trade at a discount to book value. At the target price, the core business would trade at 0.9x FY10 price to book value, while IOC's holding in ONGC/Gail is worth Rs137/share.

FINANCIAL TECHNOLOGIES
RESEARCH: IDFC RATING: OUTPERFORMER CMP: RS 1352
IDFC-SSKI initiates coverage on Financial Technologies (FTIL) with `Outperformer' rating and target price of Rs 2,000. Vision, execution and ability to reinvest capital have prompted the evolution of Financial Technologies from India's leading exchange solutions provider to Asia's largest exchange conglomerate. The 'only' gateway to the potential $10-trillion Indian exchanges space, FTIL has captured 87% of the commodity markets through MCX and given taut competition to equity incumbent NSE in currencies through MCX-SX. Besides pioneering niche models in power and spot, five international exchanges have been set up in potentially under-penetrated regions.

BIOCON
RESEARCH: DEUTSCHE BANK RATING: SELL CMP: RS 214
Deutsche Bank maintains Biocon's estimates and target price of Rs 135, however, it downgrades the rating to `Sell'. Biocon has a poor track record - lacklustre revenue, falling margins and PAT (6%). This is aggravated by increasing working capital and large capex, resulting in higher gearing and low ROCEs. Thus, it has the lowest asset turn and ROCEs amongst peers. Axicorp's acquisition will add value only in the medium to long term. Biocon expects to supply mycophenolate and tacrolimus in US for generic launch. Generics are not able to snatch significant market share immediately on patent expiry in immunosuppressants. Moreover, there is a large number of API fillings for both. Also, the patent holder has been able to delay generic companies for tacrolimus for over a year. And there is a possibility of a rebound in licensing fees for Biocon.

ONGC
RESEARCH: MERRILL LYNCH
RATING: BUY
CMP: RS 1127
Merrill Lynch retains its `Buy' rating on ONGC with a target price of Rs 1,261. Since the May 16 election results, there is expectation that auto fuel pricing may be freed up to oil price of $75/bbl. Current auto fuel prices reflect $55/bbl of Brent price. Auto fuel pricing freedom up to $75/bbl of Brent price implies a over 20% hike in diesel and gasoline prices. Merrill Lynch, therefore, assumes 8-10% diesel and gasoline price hike, which has boosted the target price by Rs 111/share. Earlier, auto fuel subsidy hit of Rs 1,400 crore in FY10E and Rs 5,700 crore in FY11E was assumed. Assuming a 8-10% price hike in diesel and gasoline has meant no auto fuel subsidy for ONGC up to Brent price of $62/bbl. Thus, now no auto fuel subsidy is assumed in FY10-FY11E, which has boosted FY10- FY11E EPS by 5-18%. FY12E EPS is also boosted 15% due to lower auto fuel subsidy.

BATA INDIA
RESEARCH: STANDARD CHARTERED BANK
RATING: BUY
CMP: RS 161
Standard Chartered Bank initiates coverage on Bata India with `Buy' rating and a target price at Rs 202. Bata is planning to aggressively expand its retail network of 1,200 stores by 60 stores annually for the next three years. With restructuring of its retail network over the past couple of years, Bata is on a strong wicket to successfully achieve its expansion plans. During 2004-08, Bata's revenue compounded 9% annually and EBITDA expanded by 1,600 bps to 9%. During the same period, its debt on balance sheet dropped to Rs 44.6 crore from Rs 122.1 crore . Bata is very well-placed to carry out its expansion plans with improved revenue and profitability growth rate and virtually a debt-free balance sheet. At this target price of Rs. 202, Bata will quote at a PE of 25.9x and EV/EBITDA of 13.7x 2009E financials. Consistent growth in revenue and PAT of 12% and 15% respectively during 2008-12 may result in re-rating of the stock from the current level. Any disturbance in the cordial relations between the management and their employees and relaxation of retail FDI regulations that may increase competition are the key risks to the call.

CADILA HEALTHCARE
RESEARCH: CITIGROUP
RATING: SELL
CMP: RS 340
Citigroup maintains `Sell' rating on Cadila Healthcare with a higher target price of Rs 320. It remains concerned over a potential hole in earnings on expiry of Protonix patents and Cadila's ability to effectively fill the hole. That apart, given the limited differentiation in the company's biz model, the stock is to continue trading at a discount to its peers. Cadila's FY09 results had sales and PAT of Rs 99.9 crore and Rs 68.2 crore from the JV with Nycomed. This is likely to be a finite opportunity given the imminent patent expiry of Protonix. The company also has hedging positions worth about $70 million at an average rate of about Rs45.5/$ and forex debt of about $140 million on its books which provides some cushion against rupee appreciation in the short term. Things to watch out for: (1) Scale up of the Hospira JV: Cadila has guided to three product launches in FY10 and six launches in FY11, and indicated that this could make up for the patent expiry of Protonix; (2) Domestic formulations growth trend: FY09 growth was lacklustre at 9% y-oy. Given that this accounts for about 43% of Cadila's sales, it would be difficult for Cadila to achieve its guidance of $1bn sales by FY11, without a dramatic pick up in growth.

MPHASIS
RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: RS 354
HSBC initiates coverage on MphasiS with an `Overweight' rating and a target price of Rs 430, valuing the stock at an about 25% discount to its largecap peers, in line with the historic range. A mid-tier Indian IT services company of which Hewlett-Packard owns 61%, MphasiS' top-line growth has outperformed peers over the last few quarters due to strong traction in its HP/EDS accounts. HSBC finds further scope for inroads in the HP/EDS accounts, as HP's cost-saving targets warrant further offshoring of about 10-12K employees by end-FY10. With EDS' focus on large deals and a high proportion of 'offshorable' services, there is potential to offshore 60% of commercial outsourcing work. HSBC estimates 2% top-line growth here, which could expand MphasiS' top line by about 16% in FY10E. HSBC forecasts growth in cost of goods sold to be in line with headcount growth and factors in only a modest decline in pricing, as a large proportion of revenue is offshore, where pricing is already at a 15-20% discount to sector leaders.

Bull's Eye

PUNJAB NATIONAL BANK
RESEARCH: GOLDMAN SACHS
RATING: BUY
CMP: RS 642
Goldman Sachs upgrades PNB to `Buy' from `Sell' with a target price of Rs. 730 due to earnings upgrade and higher long-term growth expectations. The key argument for the change in rating is pro-cyclical environment contributing to strong rebound in earnings from 2010E. Barring unforeseen factors such as setbacks in non-performing loan/credit costs, PNB has compelling growth at reasonable price ideas. Goldman Sachs upgrades the earnings forecast for PNB by 57%-71% during 2009E-2011E mainly due to lower credit cost assumptions, well below mid-cycle levels. PNB is currently trading at 1.0x 2010E P/B, much lower than its historical median of 1.3x. PNB's share price rose 22% since we added it to our `Sell' list on September 9, '08 versus the BSE Sensex which was flat as our concerns over a significant deterioration in credit costs did not materialise.

MARICO
RESEARCH: BNP PARIBAS
RATING: BUY
CMP: RS 72
BNP Paribas raises the 12-month price target of Marico to Rs 89, based on 20x FY11 EPS. The meeting with Marico's management confirmed that the core Parachute coconut oil has remained immune in the current slowdown, and the company has not had to cut prices, despite fall in copra prices. Growth in Saffola is back on track following price cuts to partially pass on the input cost benefit. BNP Paribas expects a 20.3% y-o-y growth in FY10 driven by a 10% domestic volume growth and margin expansion on lower input costs. Kaya clinics, which have now attained critical mass, will add zing to earnings growth. The fall in input costs combined with relatively stable endproduct pricing gives us confidence that Marico will gain back at least 200 bps (basis points) out of the 300 bps it lost in FY09 (excluding Kaya) on the raw materials line. Even if the company increases its advertising spend to 12% of revenue to support new products, we are confident of a 70-bp EBITDA margin expansion in FY10. An additional 100-bp margin expansion can provide a 10.6% upside to the FY10 EPS estimate.


ICICI BANK
RESEARCH: CREDIT SUISSE
RATING: NEUTRAL
CMP: RS 714
Credit Suisse maintains `Neutral' rating on ICICI Bank with a target price of Rs. 661. The bank management reiterated that the bank is still not pursuing asset growth, as it is keen to first consolidate its balance sheet. While the bank is now more active in some segments like mortgages and infrastructure lending, with continued shrinkage in other retail segments and international loans, overall asset growth will be muted this year. Credit Suisse expects stronger loan growth from FY11 and forecast a 40% growth in total assets over FY09-12. The management, presumably looking to manage expectations, is guiding only to modest net interest margin improvements for now. The bank had pulled back from this segment five quarters ago and with a 360-day write-off policy on these non performing loans. Provisions on account of these will not have large P&L (profit and loss) impact from FY11. Credit Suisse forecasts core bank RoEs recovering only to about 10-13% in the next three years despite the more aggressive margin outlook on account of lower share of fees and elevated credit costs. It expects credit cost at 1.4% of loans even in FY12 as the bank is carrying little provisions on its restructured assets.

INDIAN HOTELS
RESEARCH: CITIGROUP
RATING: SELL
CMP: RS 65
Citigroup has downgraded Indian Hotels to `Sell' with a target price of Rs 62 on a higher multiple of 14x (vs.10x) at five-year trough valuations and 20% discount to Sensex on higher flows and a preference for asset plays. With continued fall in occupancy and average room rents in Q1, Citigroup sees growing risks for the domestic business; with little visibility on recovery of overseas losses, very weak 4Q and the stock's 23% outperformance over the last 3 months. Consolidated PAT was down 84% y-o-y due to mounting losses from international properties and higher staff/overhead costs (largely one-offs) even as it recognized a Rs 85.5 crore insurance claim and forex translation losses of Rs 46.5 crore. However, Citigroup expects some occupancy pick-up in 2H and the reopening of 'The Pierre' in August '09 to lower losses; but expects muted ARR (average room rent) and high debt to increase pressures. We revise our estimates slightly for FY10-11. While Indian Hotels is Citigroup's best hotel play, with revenue per available room across 10 key cities down an average. 42% in April '09 (vs a 35% fall in March '09), it expects dismal earnings over the next two quarters to weigh on stock performance.

TRIVENI ENGINEERING
RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: RS 93
HSBC initiates coverage on Triveni Engineering with an `Overweight' rating and target price of Rs. 120. India's third-largest sugar company is likely to see 69% y-o-y earnings growth in the next four quarters based on: 1) sugar prices rising 67% in the last year; 2) sale of low-cost inventory - about 48% of total sales volume - in FY09E. High-margin and low-capital engineering business gave Triveni stable cash flows and better return ratios than peers in the last sugar cycle downturn. HSBC expects its average return ratios (FY09E-10E RoE of 20%, RoIC (return on invested capital of 17%) to be better than Bajaj Hindusthan (5% and 6%) and Balrampur Chini Mills (17% and 13%). Triveni (PE of 13x, PB (price to book value) of 2.1x and EV/EBITDA of 6.4x) is trading cheaper than its peers, Bajaj Hindusthan (PE of 57x; PB of 3.3x; EV/EBITDA of 10.8x) and Balrampur Chini (PE of 14.8x; PB of 2x; EV/EBITDA of 7.3x) on FY10E multiples. The risk on the downside is lower than forecast sugar prices.

GUJARAT NRE COKE
RESEARCH: MACQUARIE
RATING: OUTPERFORM
CMP: RS 45
Macquarie maintains `Outperform' rating on Gujarat NRE Coke (GNC) and increases the target price to Rs 87. Macquarie global team has raised its coking coal price forecast by 17% for FY11, buoyed by China turning a net importer of coking coal and a possible restart of steel capacity globally. The recent settlement of coking coal at $129/t was surprisingly strong, as the expectation was for around $100-110. More so, the remainder of coking coal quantities left from last year's contract at $300 has not been waived off. GNC owns two coking coal mines in Australia, with 580-million tonne reserves and a current mine coal production of 1 million tonnes. GNC has augmented its coke capacity by 25% to 1.25 million tonnes. GNC remains the best stock in which to invest to take advantage of the upturn in the coking coal cycle. GNC has good quality reserves, an excellent location and is well on its way to become one of the world's top-ten producers of prime hard coking coal in the next three years.

Bull's Eye: Omaxe, HPCL, IVRCL Infra, Sobha Developers, Tata Motors, Sun Pharma

RESEARCH: CITIGROUP

RATING: SELL

CMP: RS 121 Citigroup maintains ‘Sell’ rating on Omaxe with a target price of Rs. 68. Omaxe’s debt to equity ratio remains high at 1.13x with gross debt amounting to Rs 1,700 crore, of which Rs 99 crore is payable to Indiabulls Financial. The company is working on restructuring substantial portion of its debt.

Average interest cost is down to 14%; however, Citigroup sees high debt levels adversely impacting earnings, with overall profitability under pressure. Omaxe’s over-dependence on North India raises risks of a pre-sales slowdown with sluggish demand environment and tight liquidity conditions resulting in significant execution delays. With a move in the right direction, response to these projects will be crucial.

Factoring in easing liquidity, lower cost of capital of 14% and roll-forward to March-10 E, Citigroup has raised the target price to Rs 68 on a lower discount of 35%. It believes the company’s fundamentals are still weak, with the stock up 71% over the last one month.

HPCL

RESEARCH: MERRILL LYNCH

RATING: UNDERPERFORM

CMP : RS 350 HPCL’s share price is up 40% since the election results on 16 May on hopes that auto fuel pricing may be freed up. Even as investors turn bullish , the FY10E earnings outlook has deteriorated. Auto fuel marketing margins were at supernormal levels until March ‘09, but have collapsed and turned negative. Even if auto fuel prices are freed up, only a normal auto fuel margin is likely in FY10E. HPCL’s new target price of Rs 291, based on base-case FY10E EPS, implies 19% potential downside. Thus, Merrill Lynch downgrades HPCL from `Buy’ to `Underperform’ .

It has already assumed weak refining margins and significant LPG and kerosene subsidies in FY10E and was earlier assuming a supernormal auto fuel margin of Rs 2/l (US$7/bbl) in FY10E. A lower auto fuel margin would have meant an EPS of just Rs1.3.

Assuming Rs 1360 crore of oil bonds, limits our FY10E EPS cut to 20% to Rs29. Target price based on base and worst-case EPS implies 19-81 % potential downside. Target price based on best-case EPS implies 18% potential upside. However, the best-case EPS, which assumes a supernormal auto fuel margin of Rs 2/l and Brent at US$50/bbl, is improbable.

IVRCL INFRASTRUCTURE

RESEARCH: HSBC

RATING: NEUTRAL

CMP: RS 366 HSBC upgrades IVRCL Infrastructure’s rating to `Neutral’ with a target price of Rs 347. IVRCL reported sales of Rs 1,630 crore in Q4 against the expectation of Rs 1,600 crore. Net profit was Rs 79.9 crore, higher than the estimate of Rs 68.8 crore owing to falling interest costs and a lower effective tax rate. Order book reported flat growth q-o-q to Rs 14500 crore (3x FY09 sales).

While HSBC expects the company to report an about 26% top line growth, margin guidance of 9.75-10 .25% in FY10 seems stretched given its historical margin movement in its order book mix. With net debt to equity comfortable at 0.7x, IVRCL is to achieve an about 34% profit CAGR over FY09-11 .

HSBC’s expectations of a positive change in business conditions has led it to change the valuation methodology to a standalone PE approach. It values the core construction business at 15x one-year forward earnings and value subsidiaries at Rs 61 leading to a target price of Rs 347.

SOBHA DEVELOPERS

RESEARCH: DEUTSCHE BANK

RATING: SELL

CMP: RS 243 Deutsche Bank maintains `Sell’ rating on Sobha Developers with a target price of Rs. 119. As of 31 March ‘09, Sobha’s net debt is Rs 1900 crore and current market cap is Rs 1500 crore. Hence, significant equity dilution is necessary to improve its balance sheet. Unlike peers, its a laggard in raising equity and probably does not have assets that are monetisable in these liquid markets. Its major markets are yet to show demand buoyancy. While Sobha has been able to reschedule its debt and sell stake of project; its ability to raise equity at parent level has yet to bear fruit.

It has proposed to raise a Rs 1,500-crore funding compared to its net debt of Rs 1900 crore as on 31 March ‘09 and current market cap of Rs 1500 crore. Deutsche Bank maintains the major assumptions and estimates. With improving liquidity, Deutsche Bank reduces weighted average cost of capital by 100 bps to 17.5 and reduces the discount to gross asset value from 55% to 50%. It then excludes liabilities to arrive at the revised target price of Rs 90 for its real estate business. By adding Rs 29 for its other businesses, the target price results in Rs. 119.

TATA MOTORS

RESEARCH: MORGAN STANLEY

RATING: UNDERWEIGHT

CMP: RS 389 Morgan Stanley retains `Underweight’ rating on Tata Motors as the stock is trading at the high end of the valuation curve. While the improving macro environment appears to augur well for the commercial vehicle business, the balance sheet issues in terms of JLR debt repayment appear to be behind us.

Morgan Stanley believes high debt and volatile non-core business, mainly JLR, will keep overall consolidated earnings subdued. Tata Motors posted standalone operating profit of Rs 440 crore, down 442% y-o-y , but 13% above the estimates. Operating margin came in at 6.6%, up from the December ‘09 low of 1.9%, primarily because of savings on raw material costs, down 230 bps q-o-q at 73% of sales. High depreciation and interest costs drove adjusted income down to a loss of Rs 110 crore.

The depreciation charge at Rs 0.29 crore was up 63% y-o-y as the company added capacity at Pantnagar and Dharwad (15K), and interest expense came in at Rs240 crore, up 17x y-o-y . The company should report consolidated earnings including JLR by June-end . The trend in auto volumes remains weak, and in addition, all benefits from scrappage incentives elude luxury car makers like JLR.

SUN PHARMA

RESEARCH: STANDARD CHARTERED

RATING: SELL

CMP : RS 1342 Standard Chartered maintains the EPS estimate for FY10 at Rs 52.4 and reiterates `Sell’ rating on the stock with a target price of Rs 810. Sun Pharmaceuticals has reported 10% degrowth in net sales for Q4FY09 and 27% y-o-y growth in sales for FY09, which is above the estimate. The reported net profit is down 45% in Q4FY09 and increased by 22% in FY09. The company has experienced a stupendous growth of 81% in domestic formulation sales in Q4FY09 and 33% in FY09.

Growth in domestic sales is untenable and raises a possibility of inventory pile-up at distributors’ level. The US subsidiary of the company, Caraco Pharmaceutical, has reported a dismal performance both in topline and bottomline. While the company has given a guidance of 13-15 % growth in net sales for FY10, StanChart believe this is largely unachievable as there is a nonrecurring business of $120-140 million in Caraco Pharma in FY09. However, it continues to observe the performance of the domestic business following the introduction of the changed distribution policy.

A weak US dollar against currencies in the emerging markets, further USFDA action, and deterioration of macroeconomic fundamentals in global markets including India are the key risks.

Bull's Eye: Everest Kanto Cylinder, Blue Star, Godrej Consumer, Maruti Suzuki, UB, L&T, Thermax

Everest Kanto Cylinder
RESEARCH: Citigroup

RATING: Buy
CMP: RS 187

Citigroup retains its positive fundamental bias and `Buy’ rating on Everest Kanto Cylinder (EKC) for investors looking at key long-term beneficiaries of the gas theme in India. However, it reduces the target price to Rs 175. EKC’s Q4 PAT of Rs 27.8 crore was flat y-o-y and well below estimates.

The slowdown in demand from OEMs, though cyclical in nature, has taken its toll on revenues and margins. With Q4 weakness likely to spill over into the next couple of quarters, combined with delays in the jumbo (1Q), billet (2Q), and Kandla (3Q) plants, Citigroup cuts the FY10-11 E earnings by 33-35 %.

While these issues may constrain near-term stock performance, the cycle should correct in H2 as economic activity improves and domestic demand from gas distribution companies picks up. Q4 EBITDA margin of 21% was down from 34% in 9M due to: (i) higher proportion of industrial sales (45% in 9M versus 62% in Q4) as CNG sales to OEMs were impacted and (ii) price cuts on CNG cylinders due to rising competition despite RM (raw material) costs not declining.

Blue Star
RESEARCH: Standard Chartered
RATING: Sell
CMP: RS 273

Standard Chartered maintains `Sell’ rating on Blue Star, however, it raises the target price to Rs 135. During the quarter, Blue Star’s order inflows witnessed the steepest fall in seven quarters and reached a low of Rs 226 crore.

For FY09, order inflows were flat at Rs 2,601 crore. StanChart estimates order inflows during FY10 to fall 46% y-o-y to Rs 1,395.9 crore. StanChart revises the revenue estimate for FY10 onwards on the back of higher-than-estimated revenue during FY09. However, it continues with its earlier EBITDA margin estimates. There is a marginal increase in estimated EPS for FY10 to Rs 13 from Rs 12.5 on the back of a higher revenue estimate.


Godrej Consumer
RESEARCH: Merrill Lynch
RATING: Buy
CMP: RS 161

Merrill Lynch retains the `Buy’ rating on Godrej Consumer with a revised price target of Rs 175. It estimates EPS growth of 37% in FY10 to Rs 9.2 and 12% in FY11 to Rs 10.3 driven by modest sales growth and sharp margin expansion due to lower input costs. An expected dividend yield of 4% in FY10 further improves risk/reward balance.

Double-digit volume growth is to be sustained, driven by strong rural demand where Godrej is expanding its reach with appropriate price points. However, risk of increased competitive activity from HUL is to revive its sagging soaps market share. This could force price cuts or higher ad spends from Godrej. But lower input costs should still support strong margin expansion.

Maruti Suzuki
RESEARCH: Morgan Stanley
RATING: Overweight
CMP: RS 960

On the back of an improving outlook for the macro environment and earnings for auto financing, Morgan Stanley raises the domestic market volume growth estimates for Maruti from 7% in FY10 to 11%. It raises its FY2010-11 earnings estimates by 10% and 9%, respectively.

The Rs 980 price target is based on the weighted average of scenario values, and implies 16% upside potential. A premium of 8% to the index, as implied by the price target , is justified. Even on an absolute basis, the stock does not look expensive and trades at 13.5x one-year forward earnings, a 4-5 % discount to the historical average.

Given its pan India presence and strong brand loyalty, Maruti has benefited from strong demand from the semi-urban segment, and over the last four months, it has gained 290-bps share in the domestic car category. The company has launched a new hatchback, Ritz, with both petrol and diesel options. Given better fuel efficiency and competitive pricing , Ritz will consolidate

United Breweries
RESEARCH: Indiabulls Securities
RATING: Sell
CMP: RS 124

Indiabulls Securities maintains `Sell’ rating on United Breweries (UBL) by revising the target price to Rs. 78 from Rs. 70. UBL’s Q409 net sales grew 20.9% y-o-y , above the expectation, to Rs. 460 crore primarily on the back of improved market share. Besides, EBITDA margin improved by 526 bps y-o-y to 18.6% in Q409.

The improvement was largely due to a fall in employee cost and advertisement cost as percentage of sales. Considering the improved operating performance, Indiabulls has revised revenue growth, margin estimates and target price. However, due to high leverage levels and expensive valuation, it maintains `Sell’ rating. The stock appears expensive at the current market price considering UBL’s low RoE (return on equity) of 12% with a current P/E of 54x when compared to FMCG companies, which command RoE of 60-65 % and trade at relatively lower P/E of 20-22 x.

Moreover, UBL’s free cash flow per share is likely to remain low at Rs. 1.8 in FY10 on account of heavy capex plans, which represents a tiny FCF (free cash flow) yield of 1.5%.

Larsen & Toubro
RESEARCH: Goldman Sachs
RATING: Neutral
CMP: RS 1301

Goldman Sachs initiates coverage on Larsen & Toubro with a `Neutral’ rating and the 12-month target price of Rs 1,327 implies a potential upside of 4% from current levels. L&T is India’s largest engineering and construction (E&C ) firm with an exposure to core manufacturing and infrastructure sectors . The company’s growth has a high leverage to the rollout of around $500-billion infrastructure spend planned over the Eleventh Five Year Plan.

The recent tough credit environment and slowdown in demand have affected order inflows, especially in the metals and oil and gas segments over the previous two quarters. However, strong inflows in the power and infrastructure segments are offsetting this weakness. The 12-month target price of Rs 1,327 is based on a 1-year forward target P/B (price to book) multiple of 4.1x for L&T’s standalone business, which is the mean P/B multiple over the past five years.

Thermax
RESEARCH: Edelweiss
RATING: Accumulate
CMP: RS 372

Edelweiss maintains ‘Accumulate’ recommendation on Thermax. The company’s Q4FY09 results were significantly above expectations, both on revenue growth and profitability fronts. For the quarter, standalone revenues grew 2.8% y-o-y to Rs 950 crore, driven by higher-than-expected growth in the energy segment.

For the quarter, standalone PAT grew 17.1% y-o-y to Rs 94.3 crore. While depreciation expenses increased 64.5% y-o-y to Rs 10 crore, effective tax rate was lower by ~1,000 bps y-oy at 30.3%. Edelweiss revises up its estimates for FY10 and FY11 for the company on the back of an increase in order accretion assumptions for FY10. In spite of the upward revision, we are still projecting a 7% y-o-y decline in order accretion in FY10. Subsidiaries contributed Rs 0.25 to consolidated EPS in FY09. If Thermax bags a few orders in the utility segment in FY10, its order backlog at FY10-end could be higher than expectations.

Maruti’s position in the high realisation diesel segment .

Bull's Eye - May'2009

State Bank of India
Research: HSBC
Rating: Overweight
CMP: Rs 1312

HSBC raises the target price of State Bank of India to Rs 1,540 on lower cost of equity (COE) and revised estimates and multiples. the bank''s net profit was up 46% y-o-y at Rs 2,740 crore in Q4, primarily because of the surge in treasury profit, up 125% q-o-q. Net interest income stayed flat y-o-y due to the high cost of funds, as SBI had mobilised large amounts of funds under the 1,000-day deposit scheme. As a result, net interest margin declined 20 bps y-o-y to 2.93% for FY09. Management has guided that margins are likely to recover, as the bank goes slow on term deposit mobilisation and deposits get re-priced downwards. At end-March, gross NPA was up 21% y-o-y, at Rs 15,500 crore. The increase comes from the Rs 160-lakh loan to the Ratnagiri Power Project getting classified as an NPA. SBI also restructured loans worth Rs 8,400 crore during FY09, taking the share to 1.8% of advances at end-March; pending applications are guided at not more than Rs 800 crore for restructuring. HSBC lowers the cost of equity assumption to 14% from 15.5%, given the softening benchmark sovereign yield in the past 12 months.

BHEL
Research: Credit Suisse
Rating: Neutral
CMP: Rs 1707

Credit Suisse maintains `Neutral'' rating on Bhel. Bhel''s stated plan is to expand capacity from 10 GW to 15 GW by December ''09. However, this has been met by a healthy dose of scepticism centered on the supply chain''s ability to match the pace of capacity expansion. A fragmented supply chain ensures that there is very limited data available about vendor plans, which is critical as Bhel outsources a significant portion of its capacity. Higher volumes, the supply chain''s low bargaining power and a highly competitive environment has helped Bhel to sharply reduce costs this year. Falling costs are good for Bhel, as it provides room to cut prices to ward off competitive pressures and pocket a portion of the gains into better margins next year. The entire supply chain has been built over the past 25-30 years and it would be difficult for industry peers to replicate the degree of perfection achieved by any new entrant in only a few years. Credit Suisse views Bhel as a strong story with most near-term positives already reflected in its stock price.

NTPC
Research: Goldman Sachs
Rating: Sell
CMP: Rs 188

Goldman Sachs downgrades NTPC to `Sell'' from `Buy'' as NTPC''s premium valuations on the back of its financial strength are unjustified as NTPC is likely to miss its Eleventh Plan target of about 22 GW primarily due to fuel, water and power equipment issues. The EPS CAGR over FY09-12E is to be muted at 6.3%. NTPC is currently trading at FY10E price to book value of 2.5x at a premium to its emerging market peers (1.6x) and to its historical average of 2.1x. Goldman Sachs forecasts NTPC''s RoE (return on equity) to decline from 14.8% in FY09E to 13.6% in FY11E primarily due to an increase in capital work in progress on account of delays in commissioning of its projects. Investors will now focus more on NTPC''s timely execution of power projects rather than the defensive nature of its earnings. Over the past 12 months, NTPC has fallen 2.0% versus a 30.2% drop in the BSE30-Sensex. The revised 12-month target price for NTPC is Rs 154 with a potential downside of 18%. Goldman Sachs'' FY10E P/B and P/E analyses imply a downside of 17% and 19%, respectively.

Asian Paints
Research: Citigroup
Rating: Buy
CMP: Rs 955

Citigroup upgrades Asian Paints to `Buy'' from `Sell'' with a revised target price of Rs 1,090. The company''s consolidated PAT rose 7% y-o-y, driven by a strong 25% y-o-y revenue growth. This was in contrast to the expectation of a 20% profit decline. During the analyst meeting, the management indicated that: a) demand in the key decorative paints business continues to remain firm, b) growth in the international business remains steady and c) cost pressures are abating. Citigroup increases target price to Rs 1,090 from Rs 801 based on 20x September FY10E EPS. It also raises target multiple to 20x from 18x, in line with the average multiple of the past five years. Over the last year, Asian Paints has underperformed the FMCG index by 10%; more recently year to date (YTD), it has underperformed the broad market and peers by 22% and 4% respectively.

Jain Irrigation
Research: Merrill Lynch
Rating: Buy
CMP: Rs 468

Merrill Lynch reiterates `Buy'' rating on Jain Irrigation with a price target of Rs 575 pegged at 17x FY10E and 0.5x PEG (price earnings to growth). The company posted a better quality of earnings in Q4 and higher revenue visibility, and Merrill Lynch has raised FY10 and FY11 estimates by 1% and 5% respectively factoring in higher margin in the micro irrigation system (MIS) business. Merrill Lynch expects 36% EPS CAGR driven by 70-bps margin improvement over FY09-11. Revenue visibility has improved given: i) strong order flow and inquiries in pipes, ii) current order book in onion dehydration forms ~60% of FY10 segmental estimate, and iii) continuing strong performance in MIS. Domestic MIS remains the main earnings driver for the company. The company''s strategy of growing in new states is succeeding given strong growth in Tamil Nadu (260% y-o-y), Madhya Pradesh (80% y-o-y) and Karnataka (44% y-o-y). Also, it is consistently deriving better than expected margins given its pricing power and declining raw material prices.

Bank of India
Research: Deutsche Bank
Rating: Hold
CMP: Rs 246

Deutsche Bank recommends `Hold'' rating on Bank of India with a target price of Rs 250. Loan growth is likely to moderate in the present sluggish environment and margins may remain under pressure even if they do not fall much. Low-cost deposit ratio has failed to pick up for a long time and asset quality headwinds are increasing. The management is targeting a 22% loan growth and 20% deposit growth for FY10. Though the medium term NIM target is 3%, they admit that there is pressure on spreads due to high cost of funds and yields dropping sharply. They believe that it could take still another two quarters for the high-cost deposits to run off. They also have the tough task of taking the low-cost deposit ratio of current account and savings account (CASA) from 31% to 35% in FY10 - CASA had fallen in FY09 due to strong growth, high term deposit rates and an over-aggressive deposit mobilisation campaign. BoI''s slippages have been rising both on a basic and lagged basis, and Q4FY09 NPL formation was high compared to historical trends.