Money Makes Life Delightful

Tata Motors Ltd. has changed the rate of Interest on Fixed Deposit offered by them w.e.f. April 16, 2009… (Check out their earlier scheme here)

SCHEME A - QUARTERLY INCOME PLAN*

* Monthly interest option available in case of deposits of Rs.1 lakh & above

SCHEME B - CUMULATIVE DEPOSIT PLAN

* Compounded quarterly

SO INVEST NOW to get the benefits of HIGHER INTEREST RATES…

Business growth has been declining: After three quarters of robust business growth, the fourth quarter of FY2009 witnessed significant cooling in the credit offtake. As per the latest data by RBI, the credit growth as on March 13, 2009 stood at 18.3%, down from the ~24% growth for Q3FY2009 and the ~22% growth in the fourth quarter a year ago. Clearly, the moderation in economic activity and the deterioration in business and consumer sentiment are finally catching up with the demand for credit. Meanwhile, the deposits continued to grow at a healthy rate.

Margins under pressure: The net interest margin for most of the banks is likely to come under pressure as the impact of the PLR cuts would outweigh the benefit of the lower cost of funds. During the second half of FY2009, many banks had lowered their PLR by ~200 basis points (75 basis points in Q3FY2009) following aggressive cuts in the key rates by the RBI. Since the end of Q3FY2009, the bond yields have hardened: The ten-year G-Sec yield is up ~175 basis points and the five-year G-Sec yield is up ~135 basis points. This implies a relatively weaker outlook for treasury gains in Q4FY2009, after the robust treasury profits in the previous quarter.

Already the Q3FY2009 results have started to reflect the deterioration in asset quality. For Q4FY2009, while the deterioration in the asset quality is likely to continue, the revised restructuring norms may keep the pace contained in the reported numbers. In addition to the rise at the gross level, the recent clarification issued by the RBI regarding the treatment of floating provisions is expected to push up the net NPA for some of the banks under our coverage. For the quarter ended March 31, 2009, according to my estimates, Bank of Baroda, Punjab National Bank, and HDFC Bank would outperform their peers.

I am glad to present to you a new & exciting investment opportunity: Bhavishya Nirman Bonds issued by NABARD. These Bonds present an excellent opportunity to those investors with a long term horizon, looking for the highest safety of their capital.

Bhavishya Nirman Bonds are Zero Coupon Bonds which have a price of Rs 8,750^** and on maturity, the investor receives an amount of Rs 20,000. This works out to a compound yield of 8.62% p.a.!

Highlights:

** - Price and Yield are subject to change. Please refer to www.nabard.org for the latest price

UPDATE: TATA Motors FD rates to be reduced after April 15. CLICK HERE to know more…

The details of the scheme are as follows:

SCHEME A - QUARTERLY INCOME PLAN*

* Monthly interest option available in case of deposits of Rs.1 lakh & above

SCHEME B - CUMULATIVE DEPOSIT PLAN

* Compounded quarterly

HIGHLIGHTS:

• Additional amount of deposits will be accepted in multiples of Rs. 10,000/-
• Interest and maturity value payments are subject to deduction of tax at source, wherever applicable

Recommendation: Buy

Current price: Rs 545 (at the time of publishing this tip)

Price target: Rs 850

Key points:

• With tea volumes growing moderately in the domestic and international markets, Tata Tea (a strong player in the branded tea markets, both domestic and international) is expanding its domestic as well as international beverage portfolio beyond tea and coffee, which could be a future revenue driver for the company. In line with its strategy, Tata Tea has launched T!ON, a tea and fruit based cold beverage in three variants in a 400 ml pet bottle strategically priced at Rs 22. The launch is an attempt to capitalise on the emerging health and convenience food and beverages trend in India.
• The demand for carbonated drinks in India is softening, as more and more consumers (especially the youth) are opting for healthier beverages such as fruit juices and fruit-based drinks. Consequently, non-carbonated beverages are gaining good acceptance and the segment is growing at a healthy rate of 35-40% per year in the domestic market. Tata Tea’s entry into this segment could be the much-needed revenue driver for the company.
• The company’s profit margins have been under pressure in FY2009 and are likely to remain so with higher raw material prices, especially tea prices staying firm on account of tight demand-supply situation in the domestic and international markets. However, I believe it will be able to sustain the margins in FY2010. Its focus on new geographies and new initiatives (such as green and herbal tea, fruit-based beverages and mineral water) augur well to sustain the growth at a consolidated level.
• At the current market price of Rs 545, the stock trades at 8.7x its FY2010 earnings estimate and an EV / EBITDA of 3.2x.
• I would recommend a Buy call with a price target of Rs 850 over next 8-9 months.

Recommendation: Hold

Current price: Rs 371 (at the time of publishing this tip)

Price target: Rs 400

Key points:

• The outlook continues to be challenging for Mahindra’s automobile as well as farm-equipment segment. Apart from the ongoing economic downturn, the tightening of credit by banks and financial institutions has been negatively affecting the growth. Its Xylo car has been well received in the market, with sales of 4,100 vehicles up till February, while bookings remain strong.
• The roll-out of the new products from the M&M stable is likely to continue, with the company planning to launch the successor to Scorpio towards the end of FY2010. This is likely to be followed by the launch of another global SUV. In the tractor segment, Punjab Tractor Ltd’s volumes have been extremely good and driven the company’s overall tractor sales in the recent times. The growth of rural economy and the availability of credit remain the key to the future performance of the tractor segment.
• M&M has slightly reduced its capex plan to be implemented over FY2009-12 to Rs 8,500 crore; of this Rs 1,500 crore has already been spent. Also, out of this amount, Rs 5,000 crore has been earmarked for the automobile business while the balance has been set aside for investments in various other segments. In future the company’s margins will depend mainly on the volume behaviour. Though the company has been able to arrest the steep decline in volumes witnessed in Q3FY2009, the volumes remain subdued.
• I expect M&M to generate stand-alone earnings of Rs 32.8 in FY2009 and that of Rs 34.9 in FY2010. At the current market price of Rs 371, the stock is trading at 10.6x its stand-alone FY2010E earnings and an enterprise value/earnings before interest, depreciation, tax and amortisation of 6.6x.
• I still remain positive about M&M’s performance and hence would advise Hold option on it with a price target fof Rs 400 over next 7-8 months.

(Continued from PART 1) Find below a selective list of TOP 30 companies that have a decent dividend yield history and also have not seen significant erosion in their profitability in the current challenging business environment. The dividends are paid no matter what direction the stocks move and can provide a higher yield on investment in a weak market.