BULL'S EYE

ADANI ENTERPRISES 
RESEARCH: CITIGROUP 
RATING: BUY 
CMP: RS 720 
Citigroup initiate coverage of Adani Enterprises (AEL) with a Buy rating on the following reasons: (1) it is the platform for entrepreneurial and execution abilities of the Adani Group; (2) it is a play on India's persistent power deficit and on the country's merchant power markets; (3) it is the only listed play on the Indian coal mining theme; and (4) new entrepreneurial efforts of the group are likely to be housed in AEL. AEL is leveraging on its star trading house experience and execution record of building mega projects (MPSEZ) to embark on an asset-backed diversification plan to exploit opportunities in infrastructure – power (54% of value), coal mining (18% of value), trading (13% of value), real estate (8% of value) and others (7% of value). Strong growth and substantial increase in return ratios — (1) Net fixed assets 4x; (2) sales CAGR of 18%; (3) EBITDA CAGR of 102%; (3) PAT CAGR of 81%; and (5) RoCE expanding from 7% to 16% over FY09 to FY12E. AEL is already a highly geared entity, a condition that is unlikely to change given the high gearing of its individual businesses. Fund raising and execution are the key determining factors for the company. 
BAJAJ AUTO 
RESEARCH: MACQUARIE 
RATING: UNDERPERFORM 
CMP: RS 1469 
Macquarie maintain their Underperform rating on Bajaj Auto but increase the target price to Rs 1,225 from Rs 950 to reflect increased volumes and higher margin assumptions. While the demand outlook has improved and the company's new bike has done well in the first couple of months, they do not think that Bajaj Auto will be able to increase its market share on a sustainable basis. Bajaj Auto reported 2Q FY3/10 results that were ahead of estimates by approximately 8%. Bajaj Auto recorded its highest ever operating margin of 22% for the quarter. The numbers were supported by better product mix (higher three wheelers, record exports and higher proportion of high margin bikes), lower material costs and positive impact of operating leverage. Macquarie believe that the current quarter's margin of 22% will be the peak for the company. Margins will likely come down mainly due to increasing raw material prices and as the proportion of new volume bikes increase in total sales. Bajaj Auto has contracted for approximately 60% of the steel requirements until December 2009. Thus, 40% of steel will be re-priced from October and margins will be affected by increases in prices of other key raw materials – eg, aluminium and tyres – from the coming quarter. However, some of this impact is likely to be offset by leveraging of fixed costs on the back of higher volumes. 
HERO HONDA 
RESEARCH: CLSA 
RATING: OUTPERFORM 
CMP: RS 1586 
CLSA maintain Outperoform rating on Hero Honda but they see limited potential for absolute returns. Hero Honda reported 2Q PAT of Rs5.97 bn – up 95% YoY and 13% ahead of the estimates. Margins are also likely to come off from 3Q levels due to rising steel and aluminium prices as well as due to indirect impact from the current labour problems at its suppliers. These factors are likely to constrain Hero Honda's multiples and the stock staying range-bound in the Rs1500-1700 range. With HH having got the full benefits of lower input prices in 1Q, raw materials per vehicle as well as RM/sales were flat QoQ in 2Q. With production rising at the Haridwar plant where HH enjoys tax benefits, effective tax rates dropped 100 bps QoQ and resulted in PAT growth outpacing EBITDA growth. HH's dominant 80% market share in 100cc bikes is under threat from competitive launches. CLSA maintain their estimates for HH but note some downside risks if the new launches by Bajaj and HMSIL meet a sustained strong response. This is likely to constrain any further expansion in HH's multiples and we expect the stock to remain range bound in the Rs1500-1700 range for the next two quarters. 
ASIAN PAINTS 
RESEARCH: HSBC 
RATING: OVERWEIGHT 
CMP: RS 1676 
Asian Paints reported sales growth of 17% for the quarter. Given that on a yoy basis the unit selling price has gone down, HSBC estimate volume growth at c20-25%, with a fair bit of up-trading, which is very encouraging in terms of consumer sentiment rebound and hints at market share gains. This also means that it is unlikely that there could be further price cuts this year. Gross margins expanded 425 bps yoy, vs. estimate of 300 bps, indicating commodity prices were more benign than expected, and although the recent price increases leaves scope for upward revision to the full year profit figure. HSBC revise their EPS estimates by 10% for FY10e mainly on account of gross margin expansion on back of benign commodity costs on a yoy basis. HSBC value Asian Paints at a PE multiple of 22x on October 2011 EPS, a 5% premium to historical average, justified by higher earnings growth estimates. On this basis, the target price is now Rs 1,850 per share. HSBC believe that these results and possible EPS upgrades by the Street will act as a catalyst for the stock. 
YES BANK 
RESEARCH: 
RATING: INDIA INFOLINE 
CMP: RS 256 
India Infoline reiterate BUY rating on Yes Bank as Yes Bank put up a strong well-rounded performance in 2QFY10, with net profit growing by 76% YoY to Rs1.1bn, ahead of the estimate. This was driven in equal measure by robust growth in net interest income and non-interest income. Asset quality concerns have abated as Gross Non Performing Loans (GNPL) declined and NPL coverage improved. Annualised ROA of 1.9% and ROE of 25% in 2Q are among the highest in the sector. The bank needs to raise new equity in the near future, as Tier-I CAR fell 90bps QoQ to 9.4%. The bank plans to raise US$150m-250m through new equity issuance by March 2010. It needs to augment its Tier-1 CAR, which declined 90bps QoQ to 9.4% in 2QFY10. Assuming US$150m of new capital raising in 3QFY10, India Infoline raise our net profit estimate for FY10 by 13% and FY11 by 28 
Assuming US$150m of new equity capital issuance this year at CMP, IIFL upgrade their earnings estimate for FY10 by 13% and for FY11 by 28% and also raise their fair-value estimate to Rs294, based on blended fair P/Bx and P/Ex.