Weekly Review: January 30, 2010

Markets continue profit-taking

Markets continued to witness profit booking during the week, with both the BSE Sensex and the NSE Nifty, ending lower by 3.0% and 3.1%, respectively. The BSE Mid-Cap and Small- Cap indices also fell by 4.0% and 4.9%, respectively. Notably, the RBI in its Monetary Policy Review raised CRR by 75 bps to suck out excess liquidity from the banking system. However, other key rates were left unchanged. On the sectoral front, all the major sectoral indices ended in the red, with the BSE Metal index losing the maximum of 7.8%, followed by the BSE Realty and the BSE Auto indices.

3QFY2010 Monetary Policy Review:

RBI hiked CRR by 75 bps to 5.75% in its 3QFY2010 Monetary Policy, to drain out excess liquidity in the system. RBI also raised GDP projection for the year to 7.5%. We believe low interest rates and reducing leverage in borrowers' balance sheets (due to equity raising and rising earnings), will revive credit demand 4QFY2010E onwards.

Tyre-Sector Update:

With the sector set for a structural shift (higher investment needs in Radialisation) and apparent pricing flexibility, improvement in the RoCE and RoE of Tyre manufacturers is expected, going forward. With 12-month view, JK Tyre offers better risk-reward, and we rate it a Buy. However, we prefer Apollo Tyres in the long term for its comprehensive business strategy. We also recommend a Buy on CEAT, owing to attractive valuations.

Greenply Industries (GIL):

GIL is well placed to service future wood panel demand, as it has largest production capacity and distribution network in India. Owing to strong RoE profile and substantial expansion in lucrative organised markets of MDF and laminates, we assign a target multiple of 8x FY2012E EPS of Rs 36.4. We recommend a Buy, with a 15-month target price of Rs 291, implying an upside of around 57%.

DB Realty (DBRL) - IPO Note:

DBRL has launched an IPO (~30.9mn shares) in the Price Band of Rs 468-486/share to raise approx Rs 1,500 cr. DBRL has firmed up development plans for 100 mn sq ft with a total saleable area of 60.9 mn sq ft. We have assumed average realisation of Rs 6,000/sq ft, which gives us a Fair NAV of Rs 412/share. Hence, we believe that the IPO is expensive and recommend an Avoid.