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Showing posts from August, 2009

Reliance Industries Update

Reliance Industries - RIL is not the best Indian play on global economic recovery theme.
RIL stock offers low leverage to the global economic recovery theme compared to other commodity plays given (1) the ‘converter’ nature of its business as opposed to pure resource plays in India and (2) large incremental supply in the case of both chemicals and refining that will well- exceed even higher demand arising from stronger-than-expected global GDP growth. Also, the current stock price is already discounting new discoveries of ~55 tcf of additional gas reserves over the next six years (see Exhibits 2 and 3). This is hard to justify despite the reported high prospectivity of several RIL blocks in various stages of exploration.
Limited scope for upward revision to margin assumptions given generous assumptions.
FY2010E and FY2011E earnings assumptions are based on (1) refining margins of US$7.8/bbl and US$9.8/bbl, (2) strong chemical margins of US$550-600/ton and US$450-500/ton and (3) gas produ…

Indian IT Stocks Update

Indian IT stocks have moved from strong value plays three months back to momentum stocks, banking on consistent upgrades in earnings estimates to sustain prices. One can expect revenue upgrades will consistently accrue over the next 12-months; 1QFY10 results were a good starting point. The Tier 1 plays for the IT recovery story and it is better to stay away from Tier 2 names as revenue recovery is unlikely to materialize; cost rationalization is already played out and reflected in results.
1QFY10 performance—a good starting point. The Indian IT companies, with only a few exceptions, beat the Street’s (low) expectations on revenues as well as margins quite comfortably. More importantly, volume/pricing stability seen across companies also provided comfort on the worst being over. Expectations of sequential growth from the next quarter appear firmly set in, despite the companies’ commentary tending on the cautious side. In addition, sharp margin expansion seen across companies also cheere…