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RPL + ACC + Maruti – Out of Favor

September 4, 2008

According to a report by Merrill, Reliance Petroleum, ACC and Maruti are out of favor stocks.

RPL:
RPL’s refinery achieved 94% overall progress by end-June 2008. The main bureaucrat in the Indian petroleum ministry has been quoted as saying that it will start in September 2008. The first 3-4 months of operations (at least two months according to management), when the refinery uses light and sweet crude, are likely to be treated as trial production. Consequently it is likely that RPL will report only three months of commercial operations in FY09E.The government is considering the imposition of a minimum alternate tax (MAT) on units in SEZ like RPL. MAT would mean an 8-9% cut in RPL’s FY09-FY11E earnings and 4% (Rs6/share) cut in its PO.

Maruti Suzuki:
Slowing sales on the back of loss in market share. Maruti does not have a mass-market model launch planned in 2008, while players like Hyundai and General Motors are gaining share with new launches and aggressive discounts. Tata Motors and Honda are also expected to introduce new models in 2HFY09. Expect YoY declines in 1HFY09, with a slight recovery only toward the end of the fiscal year.

ACC:
Owing to forecast further capacity additions across the industry and low likelihood of any strong demand revival, industry utilization at about 77% in March 2009. Overcapacity will likely hurt cement prices from 1Q09 onward. Note that the industry’s capacity utilization has already eased to about 86% for July 2008 and about 89% for YTD FY09 (Apr-July) vs. about 97% utilization in FY08 (Apr 2007-March 2008).

ACC’s BITDA and earnings to be flat-to lower YoY.

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