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Market View: Corporate India is cautiously optimistic

The much awaited rate cut decision by RBI is materialized on 29th September, 2015 and RBI has moved aggressively with 0.50% repo rate cut to kick start the stagnating economy. The expectation of RBI on inflation front is also moderated going forward. The reactions to this much awaited move, was mixed to positive from corporate India. Today the elite group of corporate giants like Dilip Sanghvi, Shikha Sharma, Uday Kotak, and others have expressed their opinion on the current state of economy and the road ahead. All most all are cautiously optimistic and agreed on following points:

• The Government is taking the steps in right direction. • The various schemes formulated by the government and the initiative taken to project a highly

positive picture of India to the world is commendable and can change the view of the world about India with regard to taxation issues, ease of doing business and opportunities of doing business in India.

• This is rightly reflected in the quantum of FDI received by India in 2nd quarter. India is No. 1 in the world in getting the FDI in July – Sept quarter.

• They expressed that there is need for greater co-ordination to address the regulatory issues amongst ministries, regulatory and the business community to get desired result in expected time.

• All of them firmly believe that the Government needs to be given time to prove its policies and commitments.

• The ‘connect’ and “togetherness” they are feeling with the Government is unprecedented and that is the great thing ever happened in India.

The conclusion of the discussion is that “the launching pad is ready; the real jump can happen within 18 to 24 months”. Kamal Jhaveri MD- Jhaveri Securities

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Vol.: 2635th October,2015

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Company Basics

BSE Code 503806

NSE Symbol SRF

EQUITY (` in Cr.) 57.42

MKT.CAP (` in Cr.) 6582.92

Financial Basics FV (`) 10.00 EPS (`) 52.74 P/E (x) 21.74 P/BV (x) 2.90 BETA 1.3170 RONW (%) 10.52

Share Holding Pattern Holder's Name % Holding Foreign 16.04 Institutions 12.59 Promoters 52.38 Non Prom. 0.00 Public & Others 15.17 Government 3.82

Company overview SRF Limited is multi-product, multi-business organization and industrial intermediate segment. The company was incorporated in 1970. The business divisions of the company include Technical Textile Business, Chemical Business, Packaging Films Business and Engineering Plastics Business. The company has 12 production plant across the globe. Out of 12 nine in India and the remaining in Dubai, South Africa, Thailand. It is market leader in majority of its product. SRF has strong presence in international market with exporting around 75 countries. Investment Rational SRF is one of the leading and sole domestic supplier of HFC –134 a and growth in passenger vehicles spur sales

This elements contributed 23% of SRF’s fluorochemicals revenues. The market-size of HFC-134a in India is 8.0KTPA, which is expected to rise with the rise of automobile and refrigerator sales. We estimate HFC-134a’s consumption to clock 10.1% CAGR till FY20 as sales of passenger vehicles pick up from FY17 (HFC-134a gas is used as refrigerants in cars). With a capacity of 17.5KTPA, SRF is the sole domestic producer of R-134a and its market share increased to 41% in FY15. Imports have broadly remained flat at ~4,700 MT during the past 5 years.

Specialty Chemical is on strong footing

SRF is on a strong footing in Specialty Chemicals, as it is knowledge driven and has high entry barriers. We expect the business to grow at a CAGR of 28% over FY15-17 to `1005.40 Cr. Given that it is a niche business, we believe it will continue to enjoy PBIT margin of 35%.

Packaging Business has a good strength The total demand for films in India is 360,000 MT/year and is growing at 10%. Capacity utilization swings between 73% and 86%. Currently, the industry is operating at peak utilization of ~86%. With higher capacity utilization, film manufacturers have begun enjoying higher margins.

Valuation : SRF Ltd. is currently trading at 15.74x FY16E EPS of Rs.72.80 and 12.51x FY17E EPS ofRs. 91.60, valued the stock at 15xFY17E (three year average) with the target price of Rs. 1374.

Company Update : SRF Ltd.

Vol.: 2635th October,2015

 

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Weekly Market Recap :

• The market edged higher last week after the Reserve Bank of India (RBI) surprised financial markets by announcing a steeper-than-expected 50 basis points reduction in its benchmark lending rate viz. the repo rate after a regular monetary policy review on Tuesday, 29 September 2015.

• The RBI marked down slightly the FY16 gross domestic product (GDP) growth target to 7.4% from 7.6% earlier as global growth and trade were slower than initial expectations, a continuing lack of appetite for new investment in the private sector, the constraint imposed by stressed assets on bank lending and waning business confidence.

Market Eye Week ahead : • The Institute of Supply Management in the US will unveil its non-manufacturing purchasing managers index figures for

September 2015 on Monday, 5 October 2015. The index is calculated as an indicator of the overall economic condition forthe non-manufacturing sector.

• The Reserve Bank of Australia (RBA) will hold its interest rate meeting on Monday, 5 October 2015. • Nikkei India Services PMI for September 2015 is due on Tuesday, 6 October 2015. The seasonally adjusted Nikkei

Services Business Activity index rose to 51.8 in August 2015, from 50.8 in July 2015.

Securities-Based Lending • The practice of making loans using securities as collateral. Securities-based lending (SBL) provides ready access to capital that can

be used for almost any purpose such as buying real estate, purchasing personal property like jewelry or a sports car, or investing in a business. The only restrictions are other securities-based transactions like buying shares or repaying a margin loan.

• Also known as "securities-based borrowing" or "non purpose lending," • SBL is separate and distinct from "securities lending." Securities-based lending became increasingly popular with U.S. broker-dealers

and banks from 2011 onwards as an additional revenue stream, facilitated by the steady rise in equities and record-low interest rates.

Around The World

Vol.: 2635th October,2015

Knowledge Corner :

Mutual Fund Corner

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Source : - www.valueresearchonline.com

Fund Name Scheme Name Axis Focused 25 Fund

AMC Axis Asset Management Company Ltd

Type Multi Cap

Category Open-ended and Equity

Launch Date June 2012

Fund Manager Sudhanshu Asthana

Net Assets (` In crore ) Rs. 304.8 crore as on Aug 31, 2015

Top 10 Sector Break-Ups Fund (%)

Financial 28.94 Services 17.09 Technology 11.24 Automobile 10.91 Diversified 9.79 Engineering 8.48 Healthcare 5.99 Textiles 3.96 Metals 2.38

Fund Style

Investment Style Growth Blend Value

Large

Medium

Small

Capitalization

Composition (%) Equity 98.78

Debt 0.07

Cash 1.15

Risk Analysis Volatility Measures Standard Deviation 13.73 Sharpe Ratio 0.69 Beta - R-Squared - Alpha -

Vol.: 20418th August, 2014Vol.: 2635th October,2015

History 2012 2013 2014 2015 NAV (Rs)   11.51 12.18 16.90 17.39

Total Return (%)   - 5.82 38.75 2.90

+/‐CNX  Nifty   - - - -

+/‐ CNX MNC   - -0.94 7.36 6.91

Rank (Fund/Category)   - 34/74 87/119 71/187

52 Week High (Rs)   - 12.24 17.15 18.82

52 Week Low (Rs)   - 10.27 11.49 16.56

Net Assets (Rs.Cr)   147.41 116.94 180.29 -

Expense Ratio (%)   2.36 3.13 3.16 -

Commodity Corner

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Vol.: 20418th August, 2014Vol.: 2635th October,2015

FUNDAMENTAL: Bullion prices last week seen under pressure after data pointing to strong gains in U.S. private sector jobs growth last month underlined expectations for higher interest rates from the Federal Reserve. The upbeat data indicated that the recovery in the labor mar-ket is continuing to gain momentum. The U.S. Department of Labor's Bureau of Labor Statistics said non-farm payrolls for the month of September increased by 142,000, significantly below consensus estimates from analysts of a 203,000 gain. The figure also fell well below low end of estimates of an 180,000 increase. Severe declines in manufacturing and mining employment restrained overall job gains as the sectors lost 9,000 and 13,000 positions respectively. A month earlier, the manufacturing industry lost 18,000 jobs in August, while mining positions nationwide decreased by 22,000. There were other signs of weakness within the dreary report. After surging by 0.3% on a monthly basis in August, hourly wages remained unchanged in September. On a yearly basis, hourly wages were only up 2.2% over the last 12 months. The labor participation rate also fell by 0.2% to 62.4%, providing indications that that the labor market is shrinking. The Fed held off from raising rates at its September meeting amid concerns over the outlook for global growth. However, Fed Chair Janet Yellen has since indicated that the bank remains on track for a rate lift-off this year. Gold prices in India continued to trade at a discount for a fourth straight week, while premiums in China fell before it went on a week-long national holiday, in signs of sluggish demand in top consuming region Asia. Persistent weakness in India and China, which together account for about half of global demand, could add more pressure on gold prices, already reeling from a looming U.S. interest rate hike. In India, retail demand dwindled due to the start of Shradh, a two-week period considered an inauspicious time to buy gold, property or any big purchases The U.S. Mint sold 14.26 million ounces of American Eagle silver coins in the third quarter, the highest on records going back to 1986. RECOMMENDATION : BUY GOLD @ 26100 SL 25750 TGT 26550-26800.BUY SILVER @ 34500 SL 34000 TGT 35200-36000. FUNDAMENTAL: Bullion prices last week seen under pressure after data pointing to strong gains in U.S. private sector jobs growth last month under-lined expectations for higher interest rates from the Federal Reserve. The upbeat data indicated that the recovery in the labor market is continuing to gain momentum. The U.S. Department of Labor's Bureau of Labor Statistics said non-farm payrolls for the month of September increased by 142,000, significantly below consensus estimates from analysts of a 203,000 gain. The figure also fell well below low end of estimates of an 180,000 increase. Severe declines in manufacturing and mining employment restrained overall job gains as the sectors lost 9,000 and 13,000 positions respectively. A month earlier, the manufacturing industry lost 18,000 jobs in August, while mining positions nationwide decreased by 22,000. There were other signs of weakness within the dreary report. After surging by 0.3% on a monthly basis in August, hourly wages remained unchanged in September. On a yearly basis, hourly wages were only up 2.2% over the last 12 months. The labor participation rate also fell by 0.2% to 62.4%, providing indications that that the labor market is shrinking. The Fed held off from raising rates at its September meeting amid concerns over the outlook for global growth. However, Fed Chair Janet Yellen has since indicated that the bank remains on track for a rate lift-off this year. Gold prices in India continued to trade at a discount for a fourth straight week, while premiums in China fell before it went on a week-long national holiday, in signs of sluggish demand in top consuming region Asia. Persistent weakness in India and China, which together account for about half of global demand, could add more pressure on gold prices, already reeling from a looming U.S. interest rate hike. In India, retail demand dwindled due to the start of Shradh, a two-week period considered an inauspicious time to buy gold, property or any big purchases. The global silver-coin market is in the grips of an unprecedented supply squeeze, forcing some mints to ration sales and step up overtime while sending U.S. buyers racing abroad to fulfill a sudden surge in demand. The U.S. Mint began setting weekly sales quotas for its flagship American Eagle silver coins in July because it can't meet demand, and the Canadian mint followed suit after record monthly sales in July. RECOMMENDATION : SELL COPPER @ 345 SL 356 TGT 336-328.SELL ZINC @ 112 SL 115 TGT 109-105.SELL NICKEL @ 690 SL 710 TGT 650-630.SELL ALUMINIUM @ 104 SL 106.50 TGT 101-99.SELL LEAD @ 111 SL 114 TGT 108-104. FUNDAMENTAL: Crude oil prices dropped as the government's storm monitor altered forecasts for the path of the latest U.S. hurricane. Pressure also seen on prices after crude inventories rose considerably last week adding to the glut of oversupply in domestic energy markets. U.S. energy compa-nies this week cut the number of rigs drilling for oil by 26, a weekly survey by oil services company Baker Hughes showed. In its Weekly Petro-leum Status Report, the U.S. Energy Information Administration (EIA) said U.S. crude stockpiles rose by 4.0 million barrels for the week ending on Sept.25, significantly above estimates for a 0.5 million draw. It halts a two week streak of draws of at least 1.9 million barrels. At 457.9 million bar-rels, U.S. crude inventories remain near its highest level at this time of the year in at least 80 years. U.S. production, meanwhile, fell sharply by 40,000 barrels per day last week, dropping below 9.1 million bpd for the first time since last November. Crashing oil prices have forced U.S. shale producers to slow output dramatically from its levels over the summer when it surged to 40-year highs. In a reminder that a supply glut persists, U.S. crude invento-ries rose by 4 million barrels to 457.9 million in the week to Sept. 25, more than expected, a government report said. Naturalgas last week dropped by more than seven percent as mild U.S. weather forecasts for the first half of October dashed hopes of early heating demand despite data showed that U.S. natural gas supplies increased less than expected last week. In its weekly report the Energy Information Administration said natural gas storage in the week ended September 25 rose 98 billion cubic feet, compared to expectations for an increase of 100 bcf. Total U.S. natural gas storage stood at 3,538 bcf the EIA said. Stocks were 454 Bcf higher than last year at this time and 152 Bcf above the 5-year average of 3,386 Bcf. EIA data shows that power plants account for approximately 32% of gas demand in the U.S. Gas production from Pennsylvania, the second-largest producing state by volume, rose 3.4 percent in July to 12.727 billion cubic feet a day from the previous month, the EIA said Sept. 30 in its monthly EIA-914 production report. Gross gas output in the U.S. fell 0.3 percent in July to 89.460 billion cubic feet a day, EIA data show. RECOMMENDATION : BUY CRUDE OIL @ 2940 SL 2850 TGT 3080-3200.SELL NATURAL GAS @ 170 SL 178 TGT 164-156.

BULLION

BASE METALS

ENERGY

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Commodity Corner

USD/INR

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Forex Corner

EUR/INR

GBP/INR

JPY/INR

Market Eye Week ahead : • The USD INR pair though inched up little higher from 66.45 to 66.80 but overall moved whole week in line with our expectations and

ended at 65.77 as lack of confidence among the bulls was seen in last week.The rupee continued to show strength and appreciated to a six-week high against the US dollar in Thursday's session, holding on to early gains, helped by strong custodian inflows in the holiday shortened week and improved global risk appetite.

• The dollar slumped on Friday, stung by a September U.S. jobs report depicting slower hiring that added to doubts the economy wasstrong enough for the Federal Reserve to raise U.S. interest rates later this year. We expect USDINR is likely to trade negative on the back of weaker than expected US employment data.

Level S2 S1 CP R1 R2 High Low Close

USD/INR 65.46 65.10 66.13 66.49 67.16 66.80 65.77 65.82

Level S2 S1 CP R1 R2 High Low Close

JPY/INR 54.42 53.95 55.17 55.64 56.39 55.91 54.69 54.90

Level S2 S1 CP R1 R2 High Low Close

GBP/INR 98.88 98.07 100.24 101.05 102.40 101.60 99.43 99.69

Level S2 S1 CP R1 R2 High Low Close EUR/INR 72.70 72.02 73.96 74.64 75.90 75.21 73.27 73.39

Market Recap :

Vol.: 2635th October,2015

• The Indian rupee commenced sharply higher on Monday, 05 October 2015 on persistent selling of the greenback by banks and exporters amid weak-ness in the American currency overseas and higher domestic equity market.

• The Indian unit opened at seven weeks high at

65.25 per dollar. The domestic unit registered an intraday high and low of 65.21 and 65.34 respectively so far during the day and is currently quoting at 65.30 as against previous closing level of 65.51.

• The dollar index, which measures the US currency’s

strength against major currencies, was trading at 95.693, down 0.14% from its previous close of 95.83.

• A pullback is currently being witnessed and higher range of 8018 - 8100 - 8160 can be tested. The weekly gap is at 8091-8225.Traders long in index and index related stocks need to take profits as the Nifty hits the gap of 8091-8225 range. Further rally can happen on rise and close above 8225. On downside, immediate Support will be at 8025-7900-7830. Traders can form short position on fall and close below 8000 as downside momentum will be restored.

• Trend in global markets, investment by foreign portfolio investors (FPIs), the movement of rupee against the dollar and crude oil price movement will dictate trend on the bourses in the trading week ahead. Amongst lack of any triggers in the domestic market, major focus will be on the global cues next week.

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J Street Recommendations Report Card

Top Fundamental Stocks

Stocks Rec. Date CMP on Rec. CMP Target Absolute Return @

CMP Status

Sun Pharma  03/07/2015  831 898 1041 8% Buy

Infinite Computer Sol.   20/07/2015  190 186 255 -2% Buy

Nitin Spinners Ltd.  06/07/2015  79 62 94 -22% Buy

Bank of Baroda  01/06/2015  163 187 217 14% Buy

Ambika Cotton Mills  18/05/2015  880 849 1149 -3% Buy Sadbhav Engineering Ltd. 

04/05/2015  298 299 430 0% Buy

CARE Ltd.  20/04/2015  1666 1160 2250 -30% Buy

Setco Automotive Ltd.  30/03/2015  242 235 304 -3% Buy Omkar speciality Chemicals 

16/03/2015  152 202 251 33% Buy

DHFL   16/02/2015  252 219 368 -13% Buy

TV Today Network  27/01/2015  222 280 337 26% Buy

M&M   12/1/2015  1238 1270 1452 3% Buy

Havells India  27/10/2014  274 259 346 -6% Buy

All Cargo Logistics  05/08/2014  260 300 342 15% Buy

PTC India Fin. Ser.  07/07/2014  39 47 45 20% Exit

Adani Port  05/07/2014  280 317 347 13% Buy

Ahluwalia contracts  24/08/2015  235 270 368 15% Buy

L & T  05/07/2014  1750 1551 1866 -11% Buy

SRF Ltd.  21/09/2015  1140 1187 1374 4% Buy

   It's not important whether you are right or wrong, It’s about how much money you make when you're right and how        much you lose when you're wrong.” 

Vol.: 2635th October,2015

Vol.: 2635th October,2015