Dalal Street

Jai Prakash Associates [JPA] proposes to merge the following companies with itself wef April 1, 2008.

Jaypee Hotels Ltd (existing 72% stake, owns Jaypee Palace Hotel (Agra), Jaypee Vasant Continental and Jaypee Siddharth Hotel (New Delhi))

Jaypee Cement Ltd (existing 100% stake)

Gujarat Anjan Cement Ltd (existing 100% stake, setting up ~ 2.4 mtpa cement capacity in Gujarat by FY10)

Jaiprakash Enterprises Ltd (owns 15% stake in Jaypee Power Ventures. Jaypee Power Ventures in turn owns power assets of Vishnuprayag hydro, Siddhie and Karcham Wangtoo (55%)). (Outstanding share capital and stake held by JPA is not known)

The impact of merging three subsidiaries Jaypee Hotels, Jaypee Cements and Gujarat Anjan Cement with JPA is negligible. Equity share capital is diluted by 1.3%, JPA’s standalone PAT increases by 0.8%. We await details of the outstanding share capital and stake held by JPA in Jaiprakash Enterprises to assess its impact on JPA.

Morgan Stanley recommendations are following the Indian market but not lading it ;-). Morgan has upgraded India to Equal weight from Underweight.

India’s quant model ranking has improved from #19 to #13 making it the biggest gainer in rank on the month. India has had a major jump in its relative EPS growth (#6 to #2) indicating a less severe deterioration on these metrics over the last month than other EM markets. On the trailing P/E (#17 to #11) and P/CE metrics (#13 to #10) India has also improved significantly.

However, India remains locked at the bottom of the asset class on the dividend yield metric. The market’s technical ranking has also improved (#14 to #9).

You can recall, Morgan Stanley has got many forecasts about India wrong. Former Morgan Analyst Andy Xie had told India will slip into Bear Phase in 2006 but it made an all time high in Jan-08.

For the week ending 6 Dec ’08, headline (wholesale price index, WPI) inflation fell to 6.84%, beating our and street estimates by large margins.

For the first time, Primary prices fell, backed by easing in food articles (food grains, fruits, vegetables and condiment and spices). Non-food articles also witnessed a fall. We expect the current trend to continue, further easing primary price inflation.

Except food products, all the major components witnessed a fall. Basic metals, alloy, chemicals and transport equipment fell. The week under review saw cuts in the administered fuel (petrol and diesel) as well as non-administered fuel.

Going forward, Inflation is softening ahead of our expectations. The cut in cenvat, a stronger rupee and the pass-through of falling international commodity prices now indicate that India might slide into a technical deflation much sooner than our earlier forecast.