Portfolio of Motilal Oswal

During the last month we have made four changes in the investment
portfolios. We added BHEL and PNB whereas we removed Cairn India
and BRFL from the investment portfolios.

The rationale behind adding PNB was the spectacular results the
bank declared for FY08. The bank had a NIM of 3.5%, Gross NPAs at

1.6% of advances and a net profit of Rs.2050cr crores translating

into an EPS of Rs.66 for the financial year ended 2008. The bank has
floating provisions in excess of Rs.1000 crs to meet any unforeseen
contingencies by way of NPAs. The management has also exuded
confidence that they would maintain earnings growth of 20% going
forward, net interest margin of 3.5% during the current year; maintain
delinquencies within 2% of gross advances .The company is expected
to report an earnings of Rs.2500cr for FY09 and Rs.3000 c r for FY10
translating into an EPS of ~ 80 and 96 for FY09 and FY10 respectively.
BHEL has seen significant correction post its 4QFY08 results on
fears that execution of projects would face delays on account of
shortages in key critical components like forgings and castings. We
understand that Bhel is taking pre-emptive steps in anticipation of
winning fresh orders going forward. The company is having a capacity
of 10000MW, an order book of Rs.93000cr. We assume that inspite
of some execution delays; the company would clock a revenue growth
of 35% and 25% for FY09 and FY10 translating into an EPS growth
of 30% for FY09 and FY10 respectively.

We have booked profit in Cairn India, inspite of the fact that the
company is highly leveraged to crude prices and that crude prices are
rising. Basically, we believe that these high prices of crude may not be
sustainable in the long term. On an estimated price of $75 on brent,
we forecast an earnings of Rs. 8.20 for FY09 and Rs.27 for FY10 which
to our mind fairly valued the company at around the Rs.340 levels.
We think that BRFL is fairly valued at 18x FY09 and 11xFY10 EPS and
hence the reason for booking profits at around Rs.350 levels.
Our aggressive, moderate and defensive portfolios have given a
return of (6.3%), (4.2%) and (3.3)% vis-à-vis (5.0%) and (5.7%)
return on the sensex and nifty respectively.




(Motilal Oswal)