BULL'S EYE

CASTROL INDIA 
RESEARCH: RBS 
RATING: BUY 
CMP: RS 458 
RBS is maintaining `Buy' rating on Castrol India. Q2CY09 net profit of Rs 128 crore was 10% above expectation due to higher than expected margins resulting from favourable product mix, higher realisation and low base oil prices. RBS expects margins to remain high and volume loss to recover. Castrol's gross margins stood at 56.8% in Q209 versus 45.9% in Q109. Higher advertising spend continues to help brand image and maintain premium pricing. Interim dividend of Rs 10 (up 67%) indicates the management's confidence on the sustainability of its profitability. Base-oil prices bottomed in Q2 and RBS expects these to rise in the coming quarter, as crude oil has risen back to $66/bbl levels. While margins will drop versus Q2, Castrol will be able to maintain them at a high level, due to its superior product quality and ability to command premium prices. RBS raises the '09 EPS growth estimate to 61% on the above expectations. 
JAIPRAKASH ASSOCIATES 
RESEARCH: CREDIT SUISSE 
RATING: OUTPERFORM 
CMP: RS 218 
Credit Suisse upgrades Jaiprakash Associates to an `Outperform' rating and increases the target price to Rs 281. JPA's Q1FY10 sales were 17% ahead of the expectations on higher than expected revenue bookings for its real estate business and strong cement realisations. Including the impact of posttax gains on the sale of 2.5 crore treasury shares and the write-off of accrued interest related to an Iraq project, reported PAT at Rs 490 crore was up 292% y-o-y. Credit Suisse believes its financing concerns are mostly alleviated now led by the treasury shares and improved liquidity. This would allow JPA to achieve its planned capacity expansion in the cement and power businesses. Besides, its real estate business has met with reasonable success with the launch of three projects in the affordable housing segment recently led by: 1) a pick-up in construction activity for its key projects over the past two quarters, 2) higher-than-expected cement realisation and 3) increased visibility for JPA to achieve higher cement volumes, The revised target price of Rs 281 incorporates assumptions of: 1) higher cement realisations and volumes, 2) higher volumes at Noida real estate, 3) faster execution of key projects, 4) the roll-forward of DCF valuation and raised mutlipes 
HINDUSTAN ZINC 
RESEARCH: GOLDMAN SACHS 
RATING: NEUTRAL 
CMP: RS 739 
Goldman Sachs maintains `Neutral' rating on Hindustan Zinc. Hindustan Zinc is one of the top five (in terms of production) and among the lowest cost producers of zinc in the world. Goldman Sachs believes its competitive edge will be further strengthened when it hikes its existing capacity by 40%, in phases, from June '10. High quality zinc reserves, long mine life, economies of scale and a strong balance sheet are added advantages. Goldman Sachs believes that the current high inventory level would act as a dampener for any potential significant price recovery in zinc over the medium term. It revises the FY10E-FY12E EPS by 13%/6%/8% respectively; on account of higher LME zinc/lead price assumptions. Further, Goldman Sachs revises their 12-month P/B-based price target to Rs 770. This increase is driven by: (1) rolling forward valuations to FY11E basis; and (2) increasing the target P/B multiple to 1.7X (from 1X earlier) based on sector relative valuation framework. 
ONGC 
RESEARCH: CITIGROUP 
RATING: SELL 
CMP: RS 1138 
Citigroup recommends `Sell' rating on ONGC with a target price of Rs. 1,192. The government has announced plans to constitute a committee to fix the subsidy mechanism. A telescopic sharing structure on auto fuels could be one of the options, where upstream share increases progressively with crude price. Citigroup builds various workable scenarios with the upstream share rising gradually to as much as 100% of incremental losses at crude more than $85/bbl. Such scenarios could lead to ONGC's FY10E EPS peaking at ~Rs135 according to the analysis, without factoring in meaningful downside risks from higher diesel cracks and/or possible review of LPG/SKO exemption. In this scenario, upstream bears a lower (25%) share of auto fuel losses at lower crude prices($60-75/bbl), a higher (50%) share between $75-85/bbl, and 100% at more than $85/bbl. Citigroup estimates this could lead to FY10E EPS of ~Rs125-139 and resultant net realisations of $58-62. ONGC's FY10E EPS could be ~Rs115-125 if upstream bears 50% of auto fuel losses at crude less than $85/bbl (net realisation of $55-57). Citigroup assumes flat diesel cracks, i.e. a $1 increase in diesel for every $1 of crude. This is rather simplistic especially if a further rise in crude is led by a pick up in distillate demand.