Kisan Ratilal Choksey Shares & Securities Pvt Ltd. 1102 Stock Exchange, Dalal Street, Fort, Mumbai-400001
Tel: 91-22- 66535000 Fax: 91-22-66338060

Date: 29/02/2008

1) Maintain GDP growth rate at 9% and above

2) Control inflation below 5%

3) Manage the Global threat of slowdown and its consequential impact on the Indian economy.

(1) To maintain GDP at 9%, agriculture growth of 4% was important.

a) The FM gives the thrust to agriculture by announcing the loan waiver scheme, amounting to Rs. 60,000 crore.

The farmer is absolved of paying outstanding loans; a feel good factor is created that will encourage farmers to invest in the sector and sustain the growth.

b) PSU banks were in trouble with outstanding loans of farmers that were otherwise Non-Performing Assets (NPA). The Budgetary Support would clean their Balance Sheet of these banks and provide them Rs. 60,000 crore over a period of 3 years. This would infuse sufficient liquidity in the system and accelerate core lending activity of banks in future and coming quarters.

c) An important measure is also taken to encourage Public Private Partnership (PPP) in irrigation by setting up Irrigation and Water Resources Finance Corporation (IWRFC) with initial capital of Rs.100 crore.

(2) Income Tax: FM attempts to boost consumption demand in the economy by increasing the disposable income of the tax payers. The FM had reduced the rates of tax in 1997; he has played with the base this time.

a) Threshold limit for all assesses is increased from Rs. 1.10 lakhs to Rs. 1.50 lakhs, with slabs being  charged as- between Rs 1.5 lakhs to Rs. 3 lakhs-10% , Rs. 3 lakhs to Rs 5 lakhs-20% and above Rs 5 lakhs-30%. He has also sweetened the tax proposals for women assesses and senior citizens.

b) The FM has made an attempt to decouple India’s growth story from global slowdown by giving this fiscal stimulus of lower taxes to boost the consumption demand in the economy.

(3) Indirect taxes: 2% across the board reduction in excise will go along way in

a) For controlling the cost of Production & inflation

b) Lower prices would also spur the consumption demand

Increase in Short Term Capital Gains Tax (STCG) to 15% from the current 10% and differential treatment of STT are sentiment dampeners. STT treatment will affect arbitrage players where as STCG increase will not affect long term investors.

STCG increase is probably to encourage long term investment and avoid crash situations of Jan 2008 in future by discouraging investors from day trading.

Budget has no apparent negatives. It has neither affected infrastructure thrust as it continues lay emphasis on infrastructure growth through policies implemented earlier. The power and road sector get special boost.

Union Budget 2008 – 09

Key Data

CMP Rs 1029

Sector Banking

Face Value Rs.10

BSE Code 532215

52 Week H/L Rs 1291/ 399

Market Cap Rs 36773 Cr

Investment Rationale

Results of the bank were ahead of our and market estimates, net profit of the bank showed whopping growth of 66.2 percent to Rs306.8 crore during the quarter. For the first nine months of the current fiscal, net profit of the bank grew by 58.7 percent to Rs709.6 crore. Main drivers of growth were stronger loan growth, margin expansion and robust growth in both fee and treasury income. Asset quality of the bank improved; Gross NPAs declined from 1.2 percent in Q3FY07 to 0.8 percent in Q3FY08 and Net NPAs from 0.7 percent to 0.4 percent for the same period. Margins too expanded during the quarter by more than 55 bps sequentially to 3.54 percent on the back of decline in the cost of funds. Going forward growth trajectory of the bank would continue; we expect the profits of the bank to grow by 55 percent to Rs1020 crore in FY08E and by 35 percent to Rs1377 crore in FY09E. Though capital raising exercise would decline the ROE of the bank but the bank has strong track record of leveraging on the enhanced capital and increasing ROE levels. Recent initiatives taken by the bank to foray into mutual fund, insurance and private equity will diversify its revenue stream and boost its other income. Axis Bank is not only a growth story but at the same time available cheaper as compare to other large private sector banks. We reiterate BUY rating on the stock.

During the quarter, the bank redeemed the bulk deposits and went slow on the growth of term deposits which reduced the cost of funds of the bank by 40 bps on sequential basis. During the quarter, margins of the bank surged by 55 bps and by 77 bps on sequential and yoy basis to 3.54 percent mainly due to reduction in the cost of funds.

Axis Bank is one of the most aggressive banks in the private banking space; it showed net profit growth of 66.2 percent to Rs306.8 crore during the quarter. Main drivers of growth were stronger loan growth, margin expansion and robust growth in both fee and treasury income. For the first nine months of the current fiscal, net profit showed a growth of 58.7 percent to Rs710 crore.

At the CMP of Rs1029, the bank is trading at 35.8x TTM Dec’07 earnings and 4.4x TTM Dec’07 book value. Going forward growth trajectory of the bank would continue; we expect the profits of the bank to grow by 55 percent to Rs1020 crore in FY08E and by 35 percent to Rs1377 crore in FY09E. Though capital raising exercise would decline the ROE of the bank but the bank has strong track record of leveraging on the enhanced capital and increasing ROE levels. Recent initiatives taken by the bank to foray into mutual fund, insurance and private equity will diversify its revenue stream and boost its other income. Axis Bank is not only a growth story but at the same time available cheaper as compare to other large private sector banks.

We reiterate BUY rating on the stock.

Click here to view the complete K R Choksey Ltd research report of Axis Bank Ltd, target price, and stock recommendation report.

Key Data

CMP Rs 802

Sector Retail

Face Value Rs.10

BSE Code 532867

52 Week H/L Rs 1001/ 423

Market Cap Rs 1796 Cr

Investment Rationale

Vishal Retail is a value retail chain targeting middle and lower middle-income class consumers with a focus on non-metros. The company markets Apparel, Non-apparel and Fast Moving Consumer Goods (FMCG) through its hypermarket chain “Vishal Mega Mart”. It has apparel manufacturing plants at Gurgaon and Dehradun and 29 warehouses located in eight cities across India. The Company operates 90 stores spread over 1.978 million sq.ft of area in 56 cities across India. It plans to increase its coverage to 10 million sq.ft by FY2011. Vishal Retail has differentiated itself with its strong focus on private labels manufactured inhouse, and quasi-private labels sourced from low-cost manufacturers. Backward integration has enabled the company to control is operating cost and thereby pass the benefit to customers in form of reduced prices. The company intends to increase its in-house manufacture, design and  development of products whereby it would manufacture at least 25% of its apparel requirement. Vishal Retail has been growing rapidly by ramping up its presence across Tier I, Tier II and Tier III cities. Besides, Vishal Retail is also increasing the share of Non Apparel and FMCG sales in order to attract more footfalls to its stores as also to reduce the risk associated with seasonality of apparel business. Share of Non Apparel and FMCG sales stood at 38.4% in 9MFY2008 as compared to 36.7% in FY2007. The company would directly  procure FMCG goods from the manufacturers to reduce cost, drive volume growth and boost profit margins. We believe that the company with its value retail model and a first mover’s advantage in non-metros and Tier II & Tier III cities would continue to grow rapidly at the top and bottom-line for the next couple of years.

Vishal Retail has opened eight new stores in the first two months of CY2008 taking the total number of stores to 90 and total area of 1.978 million sq.ft. Besides, the company is planning to raise fresh capital through preferential allotment route.

Total revenues at Rs692.64crore for 9MFY2008 (114.5% of FY2007 revenues) were driven by addition in retail space & increased footfalls. The sales per sq. ft. were Rs5023 during this period. The Q3FY08 revenues at Rs304.2crore were 44% of the 9MFY2008 revenues. 9MFY2008 EBITDA stood at Rs91.04crore (131.1% of FY2007 EBIDTA of Rs69.43crore). The EBITDA margin increased to 13.1% during the period from 11.5% in FY2007 with increase in private labels sales from 9.6% of FY2007 sales to 15% of 9MFY2008 sales as well as economies of scale. Q3FY2008 witnessed a smart improvement in EBIDTA margins to 14.3%. Net Profits for the nine months stood at Rs30.28crore, which is 120.8% of FY2007 and NPM was up to 4.4% in 9MFY2008 from 4.1% in FY2007 with enhanced profitability and 2.4x increase in other income.

At CMP of Rs802, Vishal Retail is quoting at a P/E multiple of 58.6, EV/Sales of 3.4x and EV/EBIDTA of 29.1x.

Click here to view the complete K R Choksey Ltd research report, target price, and complete stock recommendation report of Vishal Retail Ltd or log on to www.krchoksey.com

Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.
1102, Stock Exchange Tower, Dalal Street,
Mumbai 400 001. Phone : 91-22-56338050 Fax : 5633 8060
Members: BSE & NSE

Gujarat Gas Company Ltd
Q4CY07 Update

Key Data

CMP Rs 314.95

Date February 27th 2008

Sector Gas Distribution

Face Value Rs.2

BSE Code 523477

52 Week H/L Rs 379/244

Market Cap Rs 2020 Cr

Investment Rationale

Sales volumes in Q4CY07 stood at 328 mmscm, driven by strong growth across all customer segments especially CNG which increased by 30 per cent to 19 mmscm in the quarter. For the full year, volumes grew by 8 per cent to 1177 mmscm. GGCL is the only gas distribution company in India to buy gas from multiple sources and to sell it at competitive rates at market plus margins. The long term gas contracts are at a fixed price and hence volatility in natural gas prices does not impact the company. Consequently, the operating margins continue to remain stable for the company. GGCL has a wide pipeline network of more than 2200 km in Gujarat. The company has a monopoly in Surat, Bharuch, Ankleshwar, Jhagadia and Kim-Karanj. The company is the only one running CNG stations in South Gujarat and generating high margins in this business coupled with higher growth. The company has also developed an application called ‘Co-generation’ which is a combination of power and heat. To sustain the momentum in future, the company continues to invest in infrastructure. Late CY06, the company had entered into two contracts of 1.65 mmscmd and 0.7 mmscmd to procure additional gas from the Panna-Mukti-Tapti (PMT) consortium. The gas from the Tapti field has started flowing from September 2007 and an average of 1.43 mmscmd of gas from Tapti was received during the quarter. Recently, the Jhagadia operations have started adding to the revenues from Q2CY07. The Vapi operations are expected to commence by Q1CY08.

Healthy volumes continued During the quarter, the company drew additional natural gas supply of 1.43 million standard cubic metres per day (mmscmd) from Tapti gas field to take the total volume of gas sold to 3.65 MMSCMD. These gas volumes were nearly 7 per cent higher as against the corresponding quarter of previous year and 27 per cent higher from the September 2007 quarter.

Revenue up by 27 per cent Revenue increased by 27 per cent to Rs 338 crore as against Rs 266 crore in the previous quarter, driven by strong growth across all segments especially CNG. CNG sales increased by 30 percent to 19 mmscm in the said quarter. GGCL has converted 5791 vehicles to CNG in its own areas of operations.

Valuations

At current market price of Rs 314.95, GGCL is quoting at a PER of 14.59x. On EV/Sales and EV/ EBIDTA basis it is quoting at 1.72x and 7.70x respectively.

Kisan Ratilal Choksey Shares and Securities
Pvt. Ltd. 1102, Stock Exchange Tower, Dalal
Street, Mumbai 400 001. Phone : 91-22-
56338050 Fax : 5633 8060
Members: BSE & NSE
www.krchoksey.com