J Street Volume 265

Index MarketView 1CompanyUpdate 2AroundtheEconomy 3KnowledgeCorner 3MutualFund 4CommodityCorner5ForexCorner 6ReportCard 7 Editor&ContributorMargiShahSpecialContributorsAsheshTrivediAdityaNaharForsuggestions,[email protected]

Market View: Nifty Reclaims 8200

Last time we have discussed about the importance of Q2 results for continued up move in the market. The results are a mixed bag in the sense that the result of TCS is flat while the Q2 numbers of Reliance Industries have surprised the market with record profit of Rs. 6720 Crore and record levels of EBITDA. It has beaten the consensus convincingly and one of the most under owned stock by large cap funds. The data coming out of USA has added to the uncertainty around the rate hike in December. If we go by the statements made by Mr. Ber-nanke, the rate hike will be delayed and will be discussed in the year 2016, paving the way for easy liquidity in the system. Considering this scenario and continued softness in commodity prices, India is logically a preferred investment destination. The negative spiral for WPI seems to have ended and may come into positive territory very soon. The IIP data has supported the market but a decline in September exports is a cause of concern going ahead. Some decisions taken by the government in last week are worth mentioning. Those road projects which are completed more than 50% but stalled for want of funds will get financial support from the government. This step will go a long way in addressing the real problem of the sector. The international market is stable with positive bias and supporting the Indian market to stay above 8100 level. Weather the market can reclaim 200 dma at 8390 will be totally dependent on the Q2 results. The indirect tax collection data are encouraging and moving steadily on the path of good growth. Even with this positivity, one should remain cautious at higher level as the easy liquidity is one of the main reasons for the stability at international level. Any withdrawal of easy liquidity may affect the ongoing rally from short to medium term. Considering the total scenario, it is advisable to invest with capacity to invest more at every decline. Technically any sustained rise above 8225-8250 range will take the market to 8400. Kamal Jhaveri MD- Jhaveri Securities

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Vol.: 265 19th 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 SRFs 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-134as 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.


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Weekly Market Recap :

Inflation based on the consumer price index (CPI) increased to 4.4% in September 2015 from with 3.7% in August 2015. The data announced on 14 October 2015, showed that the annual rate of inflation based on monthly wholesale price

index (WPI) stood at negative 4.54% (provisional) for September 2015 as compared to negative 4.95% (provisional) in August 2015.

Meanwhile, data released by the government on 15 October 2015, showed that India's merchandise exports declined for tenth straight month in September 2015. Merchandise exports dropped 24.3% to $21.85 billion in September 2015 over September 2014. Imports dipped 25.4% to $32.32 billion. The trade deficit narrowed 27.6% to $10.5 billion in September 2015 from $14.47 billion in September 2014.

Market Eye Week ahead : On political front, Assembly elections in the state of Bihar are being held in five phases. Voting for the first phase of the election held

on 12 October and the second on 16 October. Among global news, a preliminary reading of manufacturing PMI indices of Japan, Euro zone and the US for October 2015, indicating

health of manufacturing activity of respective regions for that month will be announced on Friday, 23 October 2015. Governing Council of the European Central Bank (ECB) will announce the policy decision after a monetary policy meeting in Malta on

Thursday, 22 October 2015. KEY EVENTS/FACTORS TO WATCH 1. Mon: Gruh Finance, Gati, HCL technology, Hind zinc, Kitex garments,UltraTech Cement ,Petronet LNG, SKS microfinance

earnings 2. Tue: ACC, BASF India, Bajaj Finance, Biocon, DHFL, Federal Bank, Hero MotoCorp, Zee media earnings 3. Wed: Bajaj Auto, Blue Dart, HDFC Bank, Idea cellular, Wipro, Tata Coffee, JSW steel, M&M Financial Services earnings. 4. Fri : Asian Paints, Bharti Infratel, GSFC, Rallis India, Inox Leisure, Omkar Speciality chemicals earnings 5. Sat : L&T finance, Godrej consumer products earnings

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


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

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 -

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

TotalReturn(%) - 5.82 38.75 2.90

+/CNXNifty - - - -

+/CNXMNC - -0.94 7.36 6.91

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

52WeekHigh(Rs) - 12.24 17.15 18.82

52WeekLow(Rs) - 10.27 11.49 16.56

NetAssets(Rs.Cr) 147.41 116.94 180.29 -

ExpenseRatio(%) 2.36 3.13 3.16 -

Fund Style

Investment Style Growth Blend Value

Large

Medium

Small

Capitalization


Commodity Corner

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FUNDAMENTAL: Bullion prices last week ended with gains where gold by around two percent and silver by 1.50% on bets against a U.S. interest rate hike. Not many are confident it will rise much further due to conflicting bets that the Federal Reserve will only raise rates next year, versus expec-tations among some that a hike was still possible by December. Investors have flocked to prices this month as deteriorating U.S. economic data fanned hopes that the Federal Reserve would delay raising interest rates till 2016. Gold is holding near its 200-day moving average, a level it broke this week for the first time since May. Not many are confident it will rise much further due to conflicting bets that the Federal Reserve will only raise rates next year, versus expectations among some that a hike was still possible by December. China increased its gold holdings by nearly 1 percent in September even as total foreign exchange reserves dipped, central bank data showed. Gold reserves rose by 480,000 fine troy ounces, or 14.9 tonnes, to 54.93 million ounces, or 1,708.5 tonnes at the end of September, the People's Bank of China (PBOC) said. The central bank added 16.2 tonnes in August and nearly 19 tonnes in July. The rise in China's gold holdings comes at a time when its total foreign exchange reserves are falling as the central bank steps up intervention to stabilise the yuan currency. China should increase its gold holdings to around 5 percent of its total reserves to help diversify currency risks, a WGC official said earlier this year. In recent days, data showing low inflation, weak retail sales and contracting manufacturing activity helped prices march higher. The dollar remained relatively steady, following the release of mixed data in the U.S. The University of Michigan's Consumer Survey Center reported strong results from its semi-monthly index, confirming robust weekly figures on consumer sentiment earlier in the month. The university's Consumer Sentiment Index surged more than five points to 92.1 for October, falling in the high end of a consensus range between 87.5 and 93.0. RECOMMENDATION : SELL GOLD @ 27400 SL 27850 TGT 26850-26400. SELL SILVER @ 37600 SL 38500 TGT 36800-36000 FUNDAMENTAL: Base metals prices last week ended with mixed node where lead prices gained by around 1.5% whereas other base metals seen under pressure as a stronger dollar weighed on the market and planned output cuts by miners failed to ease concerns over ample supplies. Prices also seen under pressure as better-than-expected U.S. data on industrial output and consumer sentiment lifted the dollar, making metals denominated in the currency more expensive for non-U.S. buyers. Copper market was also pressured by renewed oversupply concerns, as copper inventories in ware-houses monitored by the Shanghai Futures Exchange rose 11.4 percent. LME-approved warehouse inventories, meanwhile, dropped to a new eight-month low of 292,950 tonnes, down more than 20 percent since a peak in late August. But they have still risen nearly 66 percent this year, suggesting robust global inventories. Ample stocks offset previous upbeat sentiment on the back of output reductions, even as Chile's Antofagasta Plc became the latest producer to cut back its copper exploration activities. In September, China imported 1.21 million tonnes of copper concentrate, up 58,000 tonnes or 5.0% month-onmonth, but down 6.2% year-on-year, according to China Customs. Imports of copper concentrate from January to September totaled 9.33 million tonnes, up 9.3% year-on-year, a big drop from the 17.4% growth during the same period of last year. The world primary nickel production had totaled 1.994 Mt during the calendar year 2014. The production during 2015 is expected to fall to 1.954 Mt. The 2016 production will further fall to around 1.942 Mt, INSG said. The world primary nickel usage is expected to grow further in 2015 and 2016. The usage which had totaled 1.863 Mt in 2014 is likely to increase to 1.905 Mt in 2015 and to 1.965 Mt in 2016. According to ILZSG forecasts, global demand for refined lead metal will see a decline of 0.7% to 10.82 million tonnes in 2015. On the other hand, ILZSG predicts a demand growth of 2.6% to 11.11 million tonnes in 2016. The slow-down in e-bike production in China will lead to 0.6% decline in refined lead metal usage by that country in 2015. The Chinese usage is expected to rise by 2.6% in 2016 in the wake of increased usage by the automotive and industrial battery sectors. RECOMMENDATION : BUY COPPER @ 340 SL 334 TGT 348-356. BUY ZINC @ 114 SL 110 TGT 118-124. BUY NICKEL @ 670 SL 650 TGT 690-710.BUY LEAD @ 113 SL 109 TGT 118-122. FUNDAMENTAL: Crude oil prices last week ended with more than 4.50% losses after the U.S. government reported a larger-than-expected crude stockpile build. The Energy Information Administration said crude inventories rose by 7.6 million barrels for the week ended Oct 9. The crude build comes amid lower processing of oil in the United States as refiners shut for seasonal maintenance after the peak summer driving season. The IEA is-sued a bleak outlook for the next year with forecasts of minimal reductions from record-levels of global oversupply. The EIA said gasoline stockpiles fell by 2.6 million barrels as less of the motor fuel was turned out last week. That helped cushion some of the bearish impact on crude prices. Thursday's slide, however, extended this week's pressure on prices of U.S. crude and global benchmark Brent, both down since Monday on worries of record OPEC production. Crude oil prices saw some support earlier on Thursday from Chinese crude imports data, which showed a near 9 percent hike from January through September. While relentless OPEC supply was weighing on the market, some trader think oil may be headed higher in the near-to- medium term due to lagging U.S. shale oil output. Natural gas last week ended with more than the percent losses as healthy stockpiles and warm weather keep up the pressure to sell. The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended October 9 rose by 100 billion cubic feet, above expectations for an increase of 93 billion. That compared with builds of 95 billion cubic feet in the prior week, 105 billion cubic feet in the same week last year, while the five-year average change for the week is an in-crease of 87 billion cubic feet. Total U.S. natural gas storage stood at 3.733 trillion cubic feet. Stocks were 447 billion cubic feet higher than last year at this time and 168 billion cubic feet above the five-year average of 3.565 trillion cubic feet for this time of year. A day earlier, natural gas prices tacked on 2.0 cents, or 0.8%, as investors bet that chilly weather across the eastern U.S. will boost early-winter demand for the heating fuel. Updated weather-forecasting models called for unusually cold temperatures across the eastern half of the U.S. through October 21. RECOMMENDATION : BUY CRUDE OIL @ 2980 SL 2900 TGT 3080-3160. SELL NAT.GAS @ 165 SL 174 TGT 155-148.

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 ended flat last week at 64.94 and is likely to trade in range of 64.50-65.50 for the coming week. Upticks will attract selling interest from exporters as they hedge their future receivables.On the lower side it is most likely that we see dollar buying interest come in from local government banks on account of their regular demand. The dollar rose broadly on Fridaylast week but The greenback's gain was limited by Friday's mixed U.S. data on industrial output, job openings and consumer sentiment. USDINR is likely to trade negative on the back of raised bets the Federal Reserve would not raise U.S. interest rates until 2016.

Level S2 S1 CP R1 R2 High Low Close

USD/INR 64.72 64.49 65.04 65.27 65.59 65.37 64.82 64.94


JPY/INR 54.00 53.46 54.48 55.02 55.50 54.96 53.94 54.54


GBP/INR 99.55 98.79 100.14 100.90 101.49 100.74 99.39 99.62

Level S2 S1 CP R1 R2 High Low Close EUR/INR 73.39 73.05 74.02 74.36 74.99 74.64 73.67 73.74

Market Recap :

The Indian rupee on Monday strengthened for the fourth consecutive session against the US dollar from its previous close tracking the gains in local equity markets.

The domestic currency opened at Rs 64.765 against the dollar and registered an intraday high and low of 64.73 and 64.85 so far during the day.

In the spot currency market, the Indian unit was last seen trading at 64.80.

The rupee had ended marginally higher at 64.81 against the US dollar by gaining one paisa on Friday due to fag-end selling pressure on the greenback from banks and exporters.

The dollar index, which measures the US currencys strength against major currencies, was trading at 94.657, up 0.13% from its previous close of 94.54.


The macroeconomic data, next batch of Q2 results of India Inc., trend in global markets, investment by foreign portfolio investors (FPIs), the movement of rupee against the dollar, Bihar elections Phase 3rd ,4th,& 5th) and crude oil price movement will dictate trend on the bourses in the coming week.

Nifty has formed a long legged doji cross last week. The Doji is a powerful Candlestick formation, signifying indecision between bulls and bears. Expect the resistance to be tested at 8250-8300-8330. Further sustained up move and close above 8337 can lead to a rally to 8420-8500. Hold long position with a stop loss of 8088. Weakness can re-sume on fall and close below 8090.

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J Street Recommendations Report Card

Top Fundamental Stocks

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

CMP Status

SunPharma 03/07/2015 831 905 1041 9% Buy

InfiniteComputerSol. 20/07/2015 190 189 255 -1% Buy

NitinSpinnersLtd. 06/07/2015 79 64 94 -19% Buy

BankofBaroda 01/06/2015 163 175 217 8% Buy

AmbikaCottonMills 18/05/2015 880 875 1149 -1% Buy

SadbhavEngineering 04/05/2015 298 310 430 4% Buy

CARELtd. 20/04/2015 1666 1341 2250 -20% Buy

SetcoAutomotiveLtd. 30/03/2015 242 225 304 -7% Buy OmkarspecialityChemicals

16/03/2015 152 219 251 44% Buy

DHFL 16/02/2015 252 237 368 -6% Buy

TVTodayNetwork 27/01/2015 222 267 337 20% Buy

M&M 12/1/2015 1238 1280 1452 3% Buy

HavellsIndia 27/10/2014 274 260 346 -5% Buy

AllCargoLogistics 05/08/2014 260 318 342 22% Buy

PTCIndiaFin.Ser. 07/07/2014 39 49 45 26% Buy

AdaniPort 05/07/2014 280 318 347 13% Hold

Ahluwaliacontracts 24/08/2015 235 269 368 14% Buy

L&T 05/07/2014 1750 1581 1866 -10% Buy

SRFLtd. 21/09/2015 1140 1328 1374 16% Buy

It'snotimportantwhetheryouarerightorwrong,Itsabouthowmuchmoneyyoumakewhenyou'rerightandhowmuchyoulosewhenyou'rewrong.


J Street Volume 265

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