Religare Hichens puts 'accumulate' on Reliance Petro

Religare Hichens Harrison has said that Reliance Petroleum's (RPL) state-of-the-art refinery is slated for commencement by end-2008 with a
capacity of 29mtpa (~580,000bpd), making it the sixth largest plant in the world. The refinery has a Nelson complexity of 14 – much higher than 11.7 for Reliance Industries' existing plant – and can process heavy crude types up to APIs of 17.

However, the brokerage highlighted that about 8.8 million barrels per day of new refining capacities are expected to come on stream between 2008–2013, particularly in China, India and the Middle East.

Further, growing concerns of an economic slowdown are leading to lower demand for gasoline and petroleum products, which would keep refining margins under pressure.

Religare Hichens has a target price of Rs 97 for RPL, and has an ‘accumulate’ rating on the stock.

Source: EconomicTimes

Analysts' Picks: Lanco Infratech

Lanco Infratech
cmp: Rs 145.30
target price: 171

ICICI Securities has maintained its ‘buy’ rating on the stock. “We believe that the expected commissioning of Amarkantak I (300MW) by end-November 2008 would result in reducing execution risk/discount associated with Lanco’s power portfolio,” said ICICI Securities in a note to its clients. According to ICICI Securities, Lanco’s ongoing litigation with MPSEB to convert Amarkantak I from PPA (power purchase agreement) to merchant is expected to be resolved soon and even 50% conversion will provide upside of Rs 35/share.

“Lanco has emerged as the sole bidder for the 1,320 MW coal-based power plant at Rajpura, Punjab. We expect the tariff of the project to be lucrative, providing healthy upside along with Rs 70 billion EPC potential,” said the note. The NAV (net asset value) estimates for Lanco stand at Rs 65 billion or Rs 296 per share, the ICICI note said. “Based on our FY09E, FY10E & FY11E EPS estimates of Rs 16, Rs 19.3 & Rs 26.3, Lanco trades at P/E (price to earning) of 10.7 times, 8.8 times & 6.5 times, respectively,” the note added.

Source: EconomicTimes

Analysts' Picks: Jet Airways

Jet Airways
cmp: Rs 181.50
target price: Rs 167

Citi investment research has changed its rating on the stock to ‘sell/high risk’ from sell/medium risk with a revised target price of Rs 167 from Rs 440. “Jet merits a high risk rating, given the competitive scenario in the domestic market, unstability in its international operations and its highly leveraged balance sheet,” said Citi in a note to its clients.

Citi believes that Jet’s operating cash losses will continue into FY10 and expects the company will need to raise fresh funds to refinance debt repayment (around $280 million over FY09/10E). “Debt/equity ratios are rendered meaningless given the significantly affected net worth — debt-equity is forecast at seven times end FY10E (including asset revaluation reserves),” said the Citi note. According to Citi, the company will face recurring losses of over Rs 36 billion (earlier Rs 20 billion) over FY09-FY10 due to decelerating passenger traffic and escalating cost pressures (aided by depreciating rupee). It expects the yields to dip by 12% in FY10E as lower fuel prices will be passed on to the customers.

Source: EconomicTimes

Analysts Picks: Bharti Airtel

Bharti Airtel
cmp: Rs 650.15
target price: Rs 843

HSBC Global Research has assigned an ‘overweight’ rating to the stock saying the company’s strong balance sheet and infra-sharing models will allow it to consolidate its revenue market share leadership further. “We value the core business at 12.5 times FY10 (estimated) EPS (earnings per share) at Rs 660 per share and tower valuations of Rs 183 per share,” said HSBC Global Research in a note to its clients.

The research firm is positive on Bharti based on a combination of expected sharp growth in the Indian wireless market, execution of a low-leverage, low-cost business model with a high return on invested capital, and a close alignment of majority and minority shareholder interests. However, it views higher regulatory charges and aggressive international expansion as key downside risks.

Source: EconomicTimes

Merrill Lynch maintains 'buy' on Tech Mahindra

Merrill Lynch has maintained "buy" recommendation on Tech Mahindra forseeing minimal impact from British Telecom's (BT) plan to layoff about
6,000 people by March 2009 but finds the appreciating rupee versus the sterling pounds (GBP) as a key risk.

"We anticipate a maximum of 5 percent impact to revenues of Indian offshore vendors and expect minimal impact to TML given its strong strategic positioning within BT group", says their analyst report.

BT recently announced that it will reduce its total headcount by 10,000 as of March 09 and in Merrill Lynch's view, the maximum would be sub-contractors and agency staff. Meanwhile, 4,000 employees have already been cut and 6,000 more would be cut by the end of the fiscal.

However, there is currency risk, as the rupee has appreciated by 14 percent versus GBP during the quarter. "We see greater risk from the recent appreciation of the rupee against the GBP, given that TML derives nearly 70 percent revenues in GBP. Its USD/GBP hedge of 300 million pounds should help reduce impact at net profit levels. We factor in INR/GBP rate of Rs.79 and Rs.75 for FY10e and FY11e versus current exchange rate of Rs75," says the report.

"We retain our Buy rating on the stock given its attractive valuation of 4x FY10e and strong visibility from BT group" the report says.

Source: EconomicTimes

World's major economies in recession

Policymakers' worst fears have finally come true. The worst financial crisis in 80 years has weakened the world's major economies, with many of them heading for recession.

Apart from the US and Japan, the 15-nation eurozone has also officially fell into recession for the first time ever, as their economies shrank for a second straight quarter because of the world financial crisis and sinking demand.

France narrowly escaped, growing just 0.1 per cent in the third quarter after shrinking in the second quarter, and so have some other countries. But nobody knows how long can they be that lucky.

Here we take a look at some of the world's major economies in recession:


The US has finally slipped into recession and the economy is estimated to shrink 2.6 per cent in the fourth quarter, primarily stoked by worsening credit conditions.

Moreover, the unemployment rate in the country is expected to reach 7.5 per cent by the end of 2009, says a survey of 50 professional forecasters, conducted by US-based professional group National Association for Business Economics between October 28 and November 7.

According to 96 per cent of those surveyed, a recession has already begun. About half the forecasters estimate that recession - two consecutive quarters of contraction - started in the fourth quarter of 2007 or in the first quarter of 2008.

In the third quarter, the American economy shrunk 0.1 per cent and is widely anticipated to witness contraction in the coming months due to rising job losses, declining consumer spending and lack of credit availability, among others.

Japan's economy shrank 0.1 per cent in the third quarter, sending the world's second-biggest economy into recession for the first time in seven years and lagging market expectations for anaemic 0.1 per cent growth.

The contraction confirmed the global financial crisis has sabotaged growth in yet another major economy, with the euro zone already in recession, using the most common definition of two consecutive quarters of contraction.

The government also revised the second-quarter contraction to a larger 0.9 per cent slide, the biggest quarterly drop for Japan's economy in seven years, and Taro Saito, a senior economist at NLI Research, saw more dark days ahead for the Japanese economy.

Japan's gross domestic product figure translated into an annualised fall of 0.4 per cent, lagging a consensus market forecast for a 0.3 per cent expansion, government data showed. In a sign the global economic slowdown was dealing a blow to Japanese companies, capital expenditure fell 1.7 per cent in July-September.

It's official now. Britain is also in recession. A forecast published by the Ernst & Young Item Club claims that Britain is now in a recession that will last for 12 months, with only a weak recovery in 2010.

Peter Spencer, the chief economist at Ernst & Young, said the economy fell sharply in the previous quarter and will shrink for three more quarters before bottoming out in the latter half of 2009. Meanwhile, GDP will drop by 1 per cent next year (the first negative growth for 16 years) and will grow by just 1 per cent in 2010.

Meanwhile, the British Chambers of Commerce has also said that it is pretty dismal and there is going to be a recession. Britain has been on the brink of recession since the end of June, when the economy came to a standstill with official growth at zero.

As the government struggles to avoid a recession, economist Roger Bootle believes that interest rates in the UK could fall below the 2 per cent mark, the lowest figure since the Bank of England was established in 1694.

Hong Kong slipped into recession in the third quarter as exports were hit by weakening global demand and consumption was hurt by a drop in asset prices and concern about the economic outlook.

Third-quarter gross domestic product shrank 0.5 per cent, seasonally adjusted, from the previous quarter.

Compared with a year earlier, GDP grew 1.7 per cent, well below an expected 2.6 per cent increase, and the government slashed its full-year growth forecast to between 3 and 3.5 per cent from a range of 4 per cent to 5 per cent.

The economy's performance in July-September was the weakest since the SARS outbreak hammered consumer and business confidence in the spring of 2003 and highlights Asia's vulnerability to a global economic downturn.

Singapore officially slid into recession in October after falling consumer demand from the US and Europe hammered its manufacturing exports.

Its economy contracted by 6.3 per cent in the third quarter, on an annualised seasonally adjusted basis, having shrunk by 5.7 per cent in the second quarter of 2008.

This forced the government to cut its growth forecast for this year from 4-5 per cent to 3 per cent.

Singapore's economy, which is heavily dependent on exports to the developed world, was one of the first in Asia to be hit by a global economic slowdown.

Germany, the largest euro economy, shrank 0.5 per cent in the third quarter as its main source of growth - exports - dropped and it could no longer rely on household demand to power the economy.

The Federal Statistics Office reported that German gross domestic product contracted 0.5 per cent in the third quarter - more than the 0.2 per cent decline that had been anticipated. That follows a decline in the second quarter of 0.4 per cent, a slight revision from the 0.5 per cent drop previously announced.

German economic activity had got off to a good start in 2008, expanding by 1.4 per cent in the three months to March. But the country has been hit by slumping activity in its major export markets while domestic consumption has remained at low levels. Corporate investment has suffered as well from a sharp decline in the business outlook.

In October, German business confidence hit its lowest point in more than five years, a widely-watched survey by the Ifo research institute showed.

Italy has officially slid into a recession as the euro zone's third biggest economy shrank 0.5 per cent in the third quarter from the previous three months, its sharpest quarterly decline since the end of 1998 and the same rate of decline reported by Germany, Europe's biggest economy.

Italy's economy has been hit by slowing consumer spending in the face of rising fuel and food prices.

The Rome-based ISTAT said consumer prices are up 4.1 per cent and that consumer spending for the year would grow just 0.1 per cent if it is assumed to remain unchanged for the rest of the year.

Before the release of the official data, Italy's main business lobby Confindustria had already declared Italy in a recession.

Estonia's economy shrank again in the third quarter - by an annual 3.3 per cent, thus clocking up the second-worst performance (after Latvia) in the 27-nation European Union.

Estonia and Latvia now lead the Eastern European slowdown, following repeated warnings over the past year of about the risks of an economic 'hard landing', warnings which were not unfortunately headed due to hopes that the eurozone itself would hold out against the US downturn.

Estonia's economy is contracting the second fastest, since Latvia's economy shrank 4.2 per cent in the third quarter, and currently has the worst growth rate in the EU.

Latvia's economy shrank 4.2 per cent in the third quarter, and currently has the worst growth rate in the EU.

Its economy has entered a period of deep recession after three years of stellar growth, when it led all EU members in gross domestic product growth.

Latvia's Prime Minister Ivars Godmanis has also said that the once vibrant 2004 European Union newcomer will fall into sharp recession next year, saying he expected the economy to contract by 1 per cent.

The International Monetary Fund expects the Latvian economy to shrink by 2.2 per cent in 2009 from its prediction of 0.9 per cent negative growth this year.

Ireland officially fell into recession in September itself. According to the Central Statistics Office, its once-aggressive economy contracted by 1 per cent in the first six months of the year. Dubbed the Celtic Tiger during massive growth in the late 1990s, the business sector is now facing its most difficult period since high unemployment and emigration hit the 1980s.

The Department of Finance recently pointed to the crumbling property market and the international credit crunch for the alarming figures. A government spokesman said: "As expected, lower levels of new house building had a major restraining influence on growth in the second quarter, as is evident from the very weak investment figures.

Other factors at work include higher commodity prices, global financial market problems, weak demand in our major trading partners and adverse exchange rate movements."

Source: EconomicTimes

US govt buys $159 bn worth shares in 30 American banks

NEW YORK (PTI): The US government, under its $ 700-billion bailout plan, has purchased shares in 30 American banks for a total of over $ 150 billion, half of which have gone into Citigroup, JPMorgan Chase and Wells Fargo.

According to the latest transaction report of the Capital Purchase Program, the US Treasury Department has purchased preferred stocks worth $ 25 billion each in Citigroup, JPMorgan Chase and Wells Fargo - three of the biggest banks hit by the worsening financial turmoil.

The government spent $ 158.56 billion for purchasing shares in the 30 banks, which included Bank of America getting $ 15 billion, while Goldman Sachs, Morgan Stanley and Merrill Lynch got $ 10 billion each.

Other major recipients of the funds under this program include Bank of New York Mellon ($ 3 billion), State Street Corp ($ 2 billion), Sun Trust Bank ($ 3.5 billion), BB&T Corp ($ 3.13 billion), Comerica ($ 2.25 billion), Regions Financial Corp ($ 3.5 billion), Capital One ($ 3.55 billion), KeyCorp ($ 2.5 billion) and US Bancorp (about $ 6.6 billion).

In the first round of the program, the Treasury injected $ 125 billion for shares in nine banks - namely, Citigroup, BoA, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, State Street, Merrill Lynch and Bank of New York Mellon Corp.

The government has also purchased preferred stocks in banks like Bank of Commerce Holdings, 1st FS Corp, UCBH Holding, Northern Trust, Broadway Financial, Washington Federal, Provident Bancshares, Umpqua Holdings, First Horizon National Corp, Huntington Bancshares, Valley National Bancorp, Zions Bancorporation, Marshall & Ilsley and TCF Financial.

After the two rounds of capital purchase program for publicly traded banks, the government said privately held banks can apply for assistance under the $ 700-billion bailout plan till December 8. A total of about 3,600 private banks are said to be eligible under this program.

The Treasury said the institutions that have applied for a bank or thrift holding company status on or before December 8 are eligible to apply to the TARP (Troubled Asset Relief Program) on a conditional basis.

Last week, Treasury Secretary Henry Paulson said, they would not be buying toxic mortgage assets from financial institutions as envisaged earlier in the mega rescue plan. PTI