The Finance ministry has no evidence of manipulation in stock market and SEBI has not informed the government on any market manipulation, reports the NW 18, quoting an aide. Finance Ministry says stock market movement are in order.
Earlier today, the ET had reported that the capital market regulator SEBI is keeping tabs on the activity of several players in both primary and secondary market following leads that some of the market manipulators may be operating through front outfits.
The dizzying rise in stock prices over the past few weeks has only fuelled suspicion that some of the old hands who were indicted for their violations in the securities markets may be back at their game.
Sources told ET that one of the central security agencies has alerted the finance ministry on the matter. It has also furnished a list of names of such operators who it feels are active through firms in which they are not directly connected.
Manish Marwah, Nirmal Kotecha and even Ketan Parekh are included in the list. The agency suspects that these operators were active in IPOs of Indowind Energy, Alpa Labs and Puravankara Projects, besides a few other issues. Both Marwah and Kotecha were indicted by SEBI for the manipulation in shares of real estate firm Atlanta.
It’s learnt that SEBI is also tracking the surge in the prices of stocks like IFCI and a few index heavyweights which have contributed to the recent bull run.
Government officials said that the country’s intelligence agencies have been on an overdrive naming several players with suspect credentials or who have a track record of manipulating stocks as being active now.
However, it’s been hard for the regulator as well as the security agencies to establish a direct link between cases of stock price manipulation and some of these operators.
In the past, there have been cases where such agencies have suspected that entities blacklisted by the regulator are playing the market, not just in stocks but also in commodity futures.
However, there have been times when they were off-target. Given the nature of surrogate ownership, financial layering and benami transactions, any investigation of this nature is painstaking and a strain on the regulatory resources.
Sunday, September 30, 2007
Brokerage Recomendations
Buy Subex Azure, target Rs 583: Way2Wealth
Strong growth in Revenues and earnings: Subex Azure has been growingat a CAGR of 71% & 62% over FY2005-07 in terms of Revenue and PAT.We expect company to grow at a CAGR of 53% & 68% over FY2007-09 interms of Revenue & PAT. Valuation: Considering the company's niche product business model,strong order pipeline, marquee customer base and an expected toplineand bottomline CAGR growth of 53% and 68% over FY2007-09E wediscount the FY2009E EPS at a P/Ex of 15 which yields a target price of Rs 583, an upside of about 38% from the current price, in 12 months. Weinitiate coverage on stock with Buy recommendation.
Buy Pantaloon, target Rs 615: UBS Investment
UBS Investment is bullish on Pantaloon and has maintained buy rating on the stock with target price of Rs 615.
Buy Action Constrction Equipment, tgt Rs 443: ULJK Group
ULJK Group is bullish on Action Construction Equipment and has maintained buy rating on the stock with target price of Rs 443.
ACE commands ~ 85% market share in their core offerings of mobile cranes, mobile tower cranes and fixed tower cranes. The new foray in Forklift trucks and loaders are also promising segments and offer good margins. As the company derives 50-60% of their business through repeat orders and robust investments in infrastructure sector the revenue of the company will show a sustained growth rate of ~ 44% annually for the next couple of years. The company has expanded its turnover at 87% CAGR and has outperformed its sector growth rate of 30% (2002-07). The emphasis of the Indian Government for rapid infrastructure development to achieve a GDP growth of 8.5% in real terms has underlined good prospects for the infrastructure & construction equipment sector. We believe that the company has potential to absorb the opportunities provided by the industry and will grow at 44% annually for the next couple of years. We estimate the earnings of the company to grow at 53.3% CAGR till FY 2009E registering EPS of 17.5 and 26.1 in FY 2008E and FY 2009E respectively.
Credit Suisse neutral on Tata Power
We value the company on a sum-of-the-parts valuation to arrive at a fair value of Rs 777. This is close to the current market price of the company and hence we initiate with a NEUTRAL rating.
Buy Reliance Capital, target Rs 1850: Merrill Lynch
Valuing consumer on “free book” while comparing with other NBFCs. The valuations we have assigned to R-Cap for its consumer foray are based on a multiple of 1.5x FY10E “free” net worth (or 2.0x FY09E). In contrast, other players (NBFCs) are trading at 2-2.5x ‘forecast’ book – even if they are required to raise capital. Our target valuations for R-Cap represent a target multiple of 1.6x FY09E ‘forecast’ BV and 1.0x FY10E ‘forecast’ book. Hence, there is still some buffer in these valuations if the company continues to deliver on the growth momentum. The upper end of the valuation for R-Cap could extend to Rs2157 if we were to: a) capture the additional Rs73/share arising from the book value of its investments as detailed above; and b) assign a value of 1.8x “free” book or 1.2x forecast FY10E book which is more comparable to valuations commanded by many other NBFCs (though still at a 15-20% discount to them).
Hold Dena Bank: KJMC
Dena bank has posted decent financials during F.Y 06-07 with decent credit and deposit growth along with significant improvement in asset quality. FII limit in the stock is still 15% (below permissible limit of 20%). At CMP of Rs.65, stock is trading at P/E of 9.5x on FY07 EPS and P/Adj B.V of 2.2x on FY07 Adj BVPS. Dena Bank's stock has outperformed Bankex since past 3 months and registered a stock return of 94% (12m). Considering the growth momentum, improved financial performance and banking sector outlook, we believe that bank will continue generating decent returns for the shareholders riding on higher growth trajectory. We recommend "Hold" on the stock for long term investors and "accumulate" on any fall.
HDFC Sec maintains buy on KEC International
Despite a strong movement in the stock price of 69%+ since our coverage on Dec’06, we continue to remain positive on KEC due to better visibility of order inflows, impressive earnings momentum, and aggressive business policy. Strong capex pipeline of PGCIL and buoyant T&D capex in key markets including Kazakhstan, Afghanistan and some African nations, has provided immense business opportunities for KEC, which we expect to continue.
KEC currently trades at a PE multiple of 17X & 13X its FY08E & FY09 earnings, respectively. We continue to maintain our BUY rating for KEC with a Price Objective of Rs 705 (+21%), at which the stock trades at 20X & 15X its FY08E & FY09E earnings. KEC is currently trading at 10-15% discount when compared to its close peers, Jyoti & Kalpataru.
Buy Kirloskar Electric, target Rs 361: India Infoline
Demand arising out of investments planned by government and corporates over the next five years, should reap benefits for the company. Improving realizations leading to margin expansion should help bottom line witness 53.3% CAGR over FY07-09E. At the current price the stock trades at 14.6x and 10.9x FY08E and FY09E EPS of Rs18 and Rs24.1 respectively. We recommend BUY with a one-year price target of Rs361, an upside of 38%.
Buy Indo Tech; target of Rs 730: P-Sec
Indo Tech transformer is currently trading at a discount to its peers (11.4x FY09P earnings). With the company expected to witness robust growth, the discount will narrow down going forward. Transmission companies are trading at a premium to transformer companies, we expect transformer companies to command higher P/E multiple going ahead.
With more than 115,000 MVA capacity to be added annually in transformer, we believe Indo Tech is well placed to take advantage of the opportunity. At Rs 524 the stock is trading at 15.5x FY08P and 11.4x FY09P. We recommend Buy with a one-year price target of Rs 730 (x 16 FY09P). An upside of 39% from current levels.
Buy Hindustan Unilever, target Rs 280: Sharekhan
This is not the first time in the year that HUL has increased its prices. The price increase vindicates our view that the company is regaining its pricing power which coupled with the strong volume growth should help it report a good growth in its earnings. At the current market price of Rs218, the stock is quoting at 25.6x its CY2007E EPS of Rs 8.5 and 22.8x its CY2008E EPS of Rs9.6. We maintain our Buy recommendation on the stock with a price target of Rs 280.
Buy Bank of India, target Rs 325: Sharekhan
At the current market price of Rs260, the stock is quoting at 7.8x its FY2009E earnings per share, 3.8x pre-provisioning profit and 1.5x FY2009E book value. Considering the strong interest of investors in the domestic financial sector, PSBs remain very attractive mainly due to their low valuations and high RoE. We continue to like BOI for the above-mentioned reasons, and the fact that it is the only top performing mid sized PSB bank where foreign institutional investment (FII) headroom is still available (BoI's current FII holding is around 17%, whereas the RBI ceiling for FII holding is 20%). We maintain our Buy recommendation on the stock with a revised price target of Rs325.
Buy BL Kashyap, target Rs 2850: Sharekhan
BLK's stand-alone earnings are estimated to grow at a CAGR of over 48% over the three-year period FY2007-10. Given its business model (no exposure to capital intensive infrastructure projects, hence strong cash inflows), there is limited risk of equity dilution and the growth in its earnings would get fully reflected in its earnings per share. At the current market price the stock trades at attractive valuations of 12.8x FY2009 and 9.3x FY2010 estimated earnings (after adjusting for the value of its subsidiary Rs554 per share). We recommend a Buy call on BLK with a price target of Rs2,850 (15x FY2010 estimated earnings discounted backwards by one year plus the value of its real estate subsidiary).
Buy Lloyd Electric & Engg, target Rs 238: Angel Broking
At the CMP of Rs184, the stock trades at 10.9x and 7.7x FY2008E and FY2009E EPS of Rs16.9 and Rs23.8. The stock is available at 1.1x FY2009E P/BV. We expect RoEs of the company to be at 18% in FY2008 and 16.3% in FY2009, the latter appearing depressed on account of the cash infusion by the promoters in lieu of the conversion of warrants into equity. We initiate coverage on the stock with a Buy recommendation and 12-month Target Price of Rs238, at which the stock would trade at 10x FY2009E earnings. Based on our DCF valuation, wherein we have discounted the future cash flows by 13.2% (WACC), assumed Cost of Equity at 14.8% and assigned a terminal multiple of 4x FY2012 FCF, we have arrived at a value of Rs243 per share.
Buy Tata Elxsi, target Rs 387: Networth
At the current market price of Rs 293, the stock is trading at a PE of 17.3x its FY07 EPS of Rs 16.82 and 14.1x its FY08 EPS of Rs 20.68 and 9.9x its FY09 EPS of Rs.29.4. The company has fuelled its growth organically out of its own internal accruals. The company has no plans to dilute its equity. We have observed that the company is trading at a discount to its peers by a reasonable margin and we expect a re-rating of the valuations for its niche space offerings. We maintain a buy with one year price target of Rs 387, an upside of 33% from the current levels.
Glaxo Smithkline a market performer: Prabhudas Lilladher
We expect the operating margin to improve further to 33.9% in CY09, as the company will have only pharma business. We expect GSK’s net profit (before EO) items to grow by 14% CAGR over next 3 years due to the improvement in the operating margins. We have revised our estimates downwards by 3% and 6% for CY07 and CY08 respectively in view of the divestment of fine chemicals business. Our revised EPS estimates for CY07 and CY08 are Rs 50.4 and Rs 55.9 respectively (against our earlier estimates of Rs 52.0 and Rs 59.7). GSK occupies the leading position in the domestic pharma market.
However, it is likely to have lower sales growth in CY07 and CY08 due to the divestment of its AHC and Fine chemicals businesses. The sales growth is likely to pick up from CY09 onwards due to the in-licensing opportunities and the introduction of new products. The company’s net profit is likely to grow by 14% CAGR over next three years. At the CMP of Rs 1,123, the stock trades at 22.3x CY07 and 20.1x CY08 earnings respectively. We have revised our rating from outperformer to market performer for the scrip due to lower growth.
Union Bank an outperformer, target Rs 185: Karvy
Downward pressure on margin due to the particular event would be negligible. We expect that in FY2008-09, the bank would report RoAA and RoAE of 1.0% and 22% respectively. We have valued the bank on Gordon growth model (GGM) assuming 7.0% of growth and cost of equity of 14.6%, we determine that the bank's intrinsic worth is Rs 185 per share (1.6x FY2009 adjusted book value). We reiterate our Out Performer rating on the stock with a target price of Rs 185.
UBS Investment neutral on Wipro, target Rs 550
While we see this as a reflection of strong demand scenario for offshore services sector, its margin profile (lower than IT Services average), makes us cautious on Wipro. Our price target of Rs550 is based on medium-term growth of 22%, terminal growth of 3% and WACC of 13%.
Maintains equal weight rating on Pantaloon Retail:M Stanley
While we believe the longterm structural growth story in PRIL is intact, increased capital requirements driven by organizational build up costs and subsequent higher financial costs in an increasing interest rate scenario are likely to adversely impact the company in the near term.
Buy HUL, target Rs 235: CLSA
CLSA is bullish on HUL and has maintained outperformer rating on the stock with target price of Rs 235.
Strong growth in Revenues and earnings: Subex Azure has been growingat a CAGR of 71% & 62% over FY2005-07 in terms of Revenue and PAT.We expect company to grow at a CAGR of 53% & 68% over FY2007-09 interms of Revenue & PAT. Valuation: Considering the company's niche product business model,strong order pipeline, marquee customer base and an expected toplineand bottomline CAGR growth of 53% and 68% over FY2007-09E wediscount the FY2009E EPS at a P/Ex of 15 which yields a target price of Rs 583, an upside of about 38% from the current price, in 12 months. Weinitiate coverage on stock with Buy recommendation.
Buy Pantaloon, target Rs 615: UBS Investment
UBS Investment is bullish on Pantaloon and has maintained buy rating on the stock with target price of Rs 615.
Buy Action Constrction Equipment, tgt Rs 443: ULJK Group
ULJK Group is bullish on Action Construction Equipment and has maintained buy rating on the stock with target price of Rs 443.
ACE commands ~ 85% market share in their core offerings of mobile cranes, mobile tower cranes and fixed tower cranes. The new foray in Forklift trucks and loaders are also promising segments and offer good margins. As the company derives 50-60% of their business through repeat orders and robust investments in infrastructure sector the revenue of the company will show a sustained growth rate of ~ 44% annually for the next couple of years. The company has expanded its turnover at 87% CAGR and has outperformed its sector growth rate of 30% (2002-07). The emphasis of the Indian Government for rapid infrastructure development to achieve a GDP growth of 8.5% in real terms has underlined good prospects for the infrastructure & construction equipment sector. We believe that the company has potential to absorb the opportunities provided by the industry and will grow at 44% annually for the next couple of years. We estimate the earnings of the company to grow at 53.3% CAGR till FY 2009E registering EPS of 17.5 and 26.1 in FY 2008E and FY 2009E respectively.
Credit Suisse neutral on Tata Power
We value the company on a sum-of-the-parts valuation to arrive at a fair value of Rs 777. This is close to the current market price of the company and hence we initiate with a NEUTRAL rating.
Buy Reliance Capital, target Rs 1850: Merrill Lynch
Valuing consumer on “free book” while comparing with other NBFCs. The valuations we have assigned to R-Cap for its consumer foray are based on a multiple of 1.5x FY10E “free” net worth (or 2.0x FY09E). In contrast, other players (NBFCs) are trading at 2-2.5x ‘forecast’ book – even if they are required to raise capital. Our target valuations for R-Cap represent a target multiple of 1.6x FY09E ‘forecast’ BV and 1.0x FY10E ‘forecast’ book. Hence, there is still some buffer in these valuations if the company continues to deliver on the growth momentum. The upper end of the valuation for R-Cap could extend to Rs2157 if we were to: a) capture the additional Rs73/share arising from the book value of its investments as detailed above; and b) assign a value of 1.8x “free” book or 1.2x forecast FY10E book which is more comparable to valuations commanded by many other NBFCs (though still at a 15-20% discount to them).
Hold Dena Bank: KJMC
Dena bank has posted decent financials during F.Y 06-07 with decent credit and deposit growth along with significant improvement in asset quality. FII limit in the stock is still 15% (below permissible limit of 20%). At CMP of Rs.65, stock is trading at P/E of 9.5x on FY07 EPS and P/Adj B.V of 2.2x on FY07 Adj BVPS. Dena Bank's stock has outperformed Bankex since past 3 months and registered a stock return of 94% (12m). Considering the growth momentum, improved financial performance and banking sector outlook, we believe that bank will continue generating decent returns for the shareholders riding on higher growth trajectory. We recommend "Hold" on the stock for long term investors and "accumulate" on any fall.
HDFC Sec maintains buy on KEC International
Despite a strong movement in the stock price of 69%+ since our coverage on Dec’06, we continue to remain positive on KEC due to better visibility of order inflows, impressive earnings momentum, and aggressive business policy. Strong capex pipeline of PGCIL and buoyant T&D capex in key markets including Kazakhstan, Afghanistan and some African nations, has provided immense business opportunities for KEC, which we expect to continue.
KEC currently trades at a PE multiple of 17X & 13X its FY08E & FY09 earnings, respectively. We continue to maintain our BUY rating for KEC with a Price Objective of Rs 705 (+21%), at which the stock trades at 20X & 15X its FY08E & FY09E earnings. KEC is currently trading at 10-15% discount when compared to its close peers, Jyoti & Kalpataru.
Buy Kirloskar Electric, target Rs 361: India Infoline
Demand arising out of investments planned by government and corporates over the next five years, should reap benefits for the company. Improving realizations leading to margin expansion should help bottom line witness 53.3% CAGR over FY07-09E. At the current price the stock trades at 14.6x and 10.9x FY08E and FY09E EPS of Rs18 and Rs24.1 respectively. We recommend BUY with a one-year price target of Rs361, an upside of 38%.
Buy Indo Tech; target of Rs 730: P-Sec
Indo Tech transformer is currently trading at a discount to its peers (11.4x FY09P earnings). With the company expected to witness robust growth, the discount will narrow down going forward. Transmission companies are trading at a premium to transformer companies, we expect transformer companies to command higher P/E multiple going ahead.
With more than 115,000 MVA capacity to be added annually in transformer, we believe Indo Tech is well placed to take advantage of the opportunity. At Rs 524 the stock is trading at 15.5x FY08P and 11.4x FY09P. We recommend Buy with a one-year price target of Rs 730 (x 16 FY09P). An upside of 39% from current levels.
Buy Hindustan Unilever, target Rs 280: Sharekhan
This is not the first time in the year that HUL has increased its prices. The price increase vindicates our view that the company is regaining its pricing power which coupled with the strong volume growth should help it report a good growth in its earnings. At the current market price of Rs218, the stock is quoting at 25.6x its CY2007E EPS of Rs 8.5 and 22.8x its CY2008E EPS of Rs9.6. We maintain our Buy recommendation on the stock with a price target of Rs 280.
Buy Bank of India, target Rs 325: Sharekhan
At the current market price of Rs260, the stock is quoting at 7.8x its FY2009E earnings per share, 3.8x pre-provisioning profit and 1.5x FY2009E book value. Considering the strong interest of investors in the domestic financial sector, PSBs remain very attractive mainly due to their low valuations and high RoE. We continue to like BOI for the above-mentioned reasons, and the fact that it is the only top performing mid sized PSB bank where foreign institutional investment (FII) headroom is still available (BoI's current FII holding is around 17%, whereas the RBI ceiling for FII holding is 20%). We maintain our Buy recommendation on the stock with a revised price target of Rs325.
Buy BL Kashyap, target Rs 2850: Sharekhan
BLK's stand-alone earnings are estimated to grow at a CAGR of over 48% over the three-year period FY2007-10. Given its business model (no exposure to capital intensive infrastructure projects, hence strong cash inflows), there is limited risk of equity dilution and the growth in its earnings would get fully reflected in its earnings per share. At the current market price the stock trades at attractive valuations of 12.8x FY2009 and 9.3x FY2010 estimated earnings (after adjusting for the value of its subsidiary Rs554 per share). We recommend a Buy call on BLK with a price target of Rs2,850 (15x FY2010 estimated earnings discounted backwards by one year plus the value of its real estate subsidiary).
Buy Lloyd Electric & Engg, target Rs 238: Angel Broking
At the CMP of Rs184, the stock trades at 10.9x and 7.7x FY2008E and FY2009E EPS of Rs16.9 and Rs23.8. The stock is available at 1.1x FY2009E P/BV. We expect RoEs of the company to be at 18% in FY2008 and 16.3% in FY2009, the latter appearing depressed on account of the cash infusion by the promoters in lieu of the conversion of warrants into equity. We initiate coverage on the stock with a Buy recommendation and 12-month Target Price of Rs238, at which the stock would trade at 10x FY2009E earnings. Based on our DCF valuation, wherein we have discounted the future cash flows by 13.2% (WACC), assumed Cost of Equity at 14.8% and assigned a terminal multiple of 4x FY2012 FCF, we have arrived at a value of Rs243 per share.
Buy Tata Elxsi, target Rs 387: Networth
At the current market price of Rs 293, the stock is trading at a PE of 17.3x its FY07 EPS of Rs 16.82 and 14.1x its FY08 EPS of Rs 20.68 and 9.9x its FY09 EPS of Rs.29.4. The company has fuelled its growth organically out of its own internal accruals. The company has no plans to dilute its equity. We have observed that the company is trading at a discount to its peers by a reasonable margin and we expect a re-rating of the valuations for its niche space offerings. We maintain a buy with one year price target of Rs 387, an upside of 33% from the current levels.
Glaxo Smithkline a market performer: Prabhudas Lilladher
We expect the operating margin to improve further to 33.9% in CY09, as the company will have only pharma business. We expect GSK’s net profit (before EO) items to grow by 14% CAGR over next 3 years due to the improvement in the operating margins. We have revised our estimates downwards by 3% and 6% for CY07 and CY08 respectively in view of the divestment of fine chemicals business. Our revised EPS estimates for CY07 and CY08 are Rs 50.4 and Rs 55.9 respectively (against our earlier estimates of Rs 52.0 and Rs 59.7). GSK occupies the leading position in the domestic pharma market.
However, it is likely to have lower sales growth in CY07 and CY08 due to the divestment of its AHC and Fine chemicals businesses. The sales growth is likely to pick up from CY09 onwards due to the in-licensing opportunities and the introduction of new products. The company’s net profit is likely to grow by 14% CAGR over next three years. At the CMP of Rs 1,123, the stock trades at 22.3x CY07 and 20.1x CY08 earnings respectively. We have revised our rating from outperformer to market performer for the scrip due to lower growth.
Union Bank an outperformer, target Rs 185: Karvy
Downward pressure on margin due to the particular event would be negligible. We expect that in FY2008-09, the bank would report RoAA and RoAE of 1.0% and 22% respectively. We have valued the bank on Gordon growth model (GGM) assuming 7.0% of growth and cost of equity of 14.6%, we determine that the bank's intrinsic worth is Rs 185 per share (1.6x FY2009 adjusted book value). We reiterate our Out Performer rating on the stock with a target price of Rs 185.
UBS Investment neutral on Wipro, target Rs 550
While we see this as a reflection of strong demand scenario for offshore services sector, its margin profile (lower than IT Services average), makes us cautious on Wipro. Our price target of Rs550 is based on medium-term growth of 22%, terminal growth of 3% and WACC of 13%.
Maintains equal weight rating on Pantaloon Retail:M Stanley
While we believe the longterm structural growth story in PRIL is intact, increased capital requirements driven by organizational build up costs and subsequent higher financial costs in an increasing interest rate scenario are likely to adversely impact the company in the near term.
Buy HUL, target Rs 235: CLSA
CLSA is bullish on HUL and has maintained outperformer rating on the stock with target price of Rs 235.
Saturday, September 29, 2007
Cairn India discovers oil in Ravva
Cairn India Ltd has discovered oil find in one of its exploration wells in the Ravva field off India's east coast, a company official said on Friday.
The initial flow is around 1,500 barrels per day, said the official, who did not wish to be named, adding Cairn is yet to inform the upstream regulator of the find. Cairn India, which owns a 22.5 percent stake in the block, is also the operator. India's Oil and Natural Gas Corp, Videocon Industries and Japanese firm Marubeni are the other stakeholders.
The initial flow is around 1,500 barrels per day, said the official, who did not wish to be named, adding Cairn is yet to inform the upstream regulator of the find. Cairn India, which owns a 22.5 percent stake in the block, is also the operator. India's Oil and Natural Gas Corp, Videocon Industries and Japanese firm Marubeni are the other stakeholders.
IFCI shortlists 8 bidders for stake sale
IFCI has shortlisted eight bidders for the sale of its 26% stake including consortia led by Wilbur L Ross and Shinsei Bank, reports ET. No official communications has yet reached the bidders, according to industry sources. As many as 10 bidders had applied earlier this month. The identity of the bidders that have been left out of the race is not known. Other members of the consortium led by Wilbur Ross include Standard Chartered Bank, HDFC and Goldman Sachs. Punjab National Bank and JC Flowers are part of the consortium led by Shinsei Bank.
“Official communication is yet to reach us. Shinsei Bank is a long term player. JC Flowers is one of the biggest private equity groups investing in stressed assets. And Punjab National Bank is a domestic institution, so there is a natural synergy,” a member of the consortium said. Sources at Blackstone and IDFC refused to comment on the matters.
Among others who had submitted EoIs include Kotak Mahindra Bank, GE Capital, Cargill (FS), Newbridge Asia, French bank Natixis and a consortium between Sterlite and Morgan Stanley. Officials at IFCI refused to divulge the names of the shortlisted bidders, but maintained that at this stage, it would not make sense to reduce the number significantly and therefore impact the competitive pricing of the valuation. The markets have been abuzz with the IFCI scrip touching Rs 105 earlier this week. It closed at Rs 92.65 on Thursday, on the NSE.
Asked if speculative stock prices would impact valuation of the 26% stake, sources at IFCI said, “it is possible that there could be wide variation on the valuation amongst the shortlisted bidders.” Market sources peg the 26% stake in IFCI between $ 500 million and $ 800 million. Financial bids submitted will need to factor in the second quarter results of IFCI.
Analysts say that valuation of IFCI may suffer, if the share price climbs up because of speculation. “If the bidders feel that the IFCI share price is overvalued, they might not arrive at an optimum value for the 26% stake. This is one of the reasons why Barclays did not finally submit the bid for IFCI,” an analyst said. A source at Barclays said, “We found IFCI to be overvalued. Besides, there is only a 26% window. Hence, Barclays decided against submitting the bid after considering it initially.”
The bidders will be informed latest by October 1. A pre-bid conference is scheduled for October 3. Thereafter, the shortlisted entities would be asked to undertake due diligence. Request for proposal (RFP) would be issued a week later. By November, financial bids will be submitted. The board would then finalise the name of the strategic investor.
According to conditions set by IFCI, there is a lock-in period of three years for the entity or the consortium which would be selected. IFCI has said that the bidder should be in the business of financial services with a long-term interest in the institution.
“Official communication is yet to reach us. Shinsei Bank is a long term player. JC Flowers is one of the biggest private equity groups investing in stressed assets. And Punjab National Bank is a domestic institution, so there is a natural synergy,” a member of the consortium said. Sources at Blackstone and IDFC refused to comment on the matters.
Among others who had submitted EoIs include Kotak Mahindra Bank, GE Capital, Cargill (FS), Newbridge Asia, French bank Natixis and a consortium between Sterlite and Morgan Stanley. Officials at IFCI refused to divulge the names of the shortlisted bidders, but maintained that at this stage, it would not make sense to reduce the number significantly and therefore impact the competitive pricing of the valuation. The markets have been abuzz with the IFCI scrip touching Rs 105 earlier this week. It closed at Rs 92.65 on Thursday, on the NSE.
Asked if speculative stock prices would impact valuation of the 26% stake, sources at IFCI said, “it is possible that there could be wide variation on the valuation amongst the shortlisted bidders.” Market sources peg the 26% stake in IFCI between $ 500 million and $ 800 million. Financial bids submitted will need to factor in the second quarter results of IFCI.
Analysts say that valuation of IFCI may suffer, if the share price climbs up because of speculation. “If the bidders feel that the IFCI share price is overvalued, they might not arrive at an optimum value for the 26% stake. This is one of the reasons why Barclays did not finally submit the bid for IFCI,” an analyst said. A source at Barclays said, “We found IFCI to be overvalued. Besides, there is only a 26% window. Hence, Barclays decided against submitting the bid after considering it initially.”
The bidders will be informed latest by October 1. A pre-bid conference is scheduled for October 3. Thereafter, the shortlisted entities would be asked to undertake due diligence. Request for proposal (RFP) would be issued a week later. By November, financial bids will be submitted. The board would then finalise the name of the strategic investor.
According to conditions set by IFCI, there is a lock-in period of three years for the entity or the consortium which would be selected. IFCI has said that the bidder should be in the business of financial services with a long-term interest in the institution.
ADAG eyeing cement business, company to use ash generated from power projects as inputs, can set up 45 Mn tn capacity
Power-to-telecom business house Reliance Anil Dhirubhai Ambani Group (R-ADAG) plans to enter cement manufacturing by setting up a plant near its 4,000MW coal-fired power project proposed at Sasan in east Madhya Pradesh, reports Mint. The cement plant proposed by R-ADAG will use millions of tonnes of fly ash generated at the power station, billed ultra mega power project for its large capacity, to produce cement. Fly ash is generated while burning coal. Not only is the cost of cement production using fly ash 5-10% lower than the cost using the traditional clinker-based method, it also saves on transportation and disposal of a material seen as environment-unfriendly.
“R-ADAG plan to set up a cement plant near the newly bagged power project at Sasan to utilize the fly ash generated from the project,” said a senior government official, who did not wish to be identified.
An R-ADAG executive declined details of the cement project. J.P. Chalasani, director, business development, Reliance Energy Ltd, said, “Our company keeps on evaluating various proposals from time to time.” Reliance Energy is the parent of Reliance Power, the company in charge of the Sasan project. Ultra mega power projects are expected to see a major expansion of cement manufacturing capacity in India with cement companies such as Grasim Industries Ltd, Ultratech Ltd, Sanghi Cement Ltd, The India Cements Ltd, Zuari Cements Ltd and My Home Industries Ltd already evincing interest in setting up greenfield cement plants in the vicinity of such power stations.
The size of the R-ADAG cement plant was not immediately known. Going by the amount of fly ash, some 9 million tonnes a year, the 4,000MW power project will generate, the cement plant capacity could be huge. One tonne of cement needs an input of 0.2 tonne of fly ash. “Depending on the amount of fly ash the projected is expected to produce, R-ADAG can put up a capacity of 45 million tonnes per annum (mtpa). But nobody would want to put up such a huge capacity. The impact of R-ADAG’s move will depend on the size of the unit,” Rupesh Sankhe, an analyst tracking the commodity for ICICI Direct, said. The cost of setting up a 1mtpa cement capacity is up to Rs 400 crore.
The Rs 20,000 crore Sasan project was awarded to Reliance Power after it matched the winning bid for the project after the original winning consortium of Lanco Infratech and Globeleq Singapore was disqualified by a government panel on 25 July for violating terms of the deal. Analysts said by the time the Sasan project goes online, cement capacity in the country may be less beneficial to cement producers, who have enjoyed a 30-34% price rise in different regions in the past year alone. India, the world’s second largest cement market with Rs 55,000 crore estimated demand, has a cement manufacturing capacity of 148mtpa. “The power project is expected to come up only after 2012, when the cement supply is expected to outstrip demand,” Sankhe said.
E.N. Murthy, secretary general of trade body Cement Manufacturers Association, welcomed the capacity addition. “Around 60% of the cement produced in India uses fly ash. In a situation of supply-side constraint, any additional capacity is good news for the industry,” he said.
The government had planned nine ultra mega power projects. While those at Sasan, Mundra in Gujarat, Tilaiya in Jharkhand, Krishnapattnam in Andhra Pradesh, Tamil Nadu’s Cheyyur and Orissa’s Jharsuguda are on track, others at Girye in Maharashtra, Tadri in Karnataka and Chhattisgarh’s Akaltara are yet to take off. Sasan, Tilaiya and Jharsuguda are coal pithead projects and those at Mundra, Krishnapattnam and Cheyyur are based on imported coal.
“R-ADAG plan to set up a cement plant near the newly bagged power project at Sasan to utilize the fly ash generated from the project,” said a senior government official, who did not wish to be identified.
An R-ADAG executive declined details of the cement project. J.P. Chalasani, director, business development, Reliance Energy Ltd, said, “Our company keeps on evaluating various proposals from time to time.” Reliance Energy is the parent of Reliance Power, the company in charge of the Sasan project. Ultra mega power projects are expected to see a major expansion of cement manufacturing capacity in India with cement companies such as Grasim Industries Ltd, Ultratech Ltd, Sanghi Cement Ltd, The India Cements Ltd, Zuari Cements Ltd and My Home Industries Ltd already evincing interest in setting up greenfield cement plants in the vicinity of such power stations.
The size of the R-ADAG cement plant was not immediately known. Going by the amount of fly ash, some 9 million tonnes a year, the 4,000MW power project will generate, the cement plant capacity could be huge. One tonne of cement needs an input of 0.2 tonne of fly ash. “Depending on the amount of fly ash the projected is expected to produce, R-ADAG can put up a capacity of 45 million tonnes per annum (mtpa). But nobody would want to put up such a huge capacity. The impact of R-ADAG’s move will depend on the size of the unit,” Rupesh Sankhe, an analyst tracking the commodity for ICICI Direct, said. The cost of setting up a 1mtpa cement capacity is up to Rs 400 crore.
The Rs 20,000 crore Sasan project was awarded to Reliance Power after it matched the winning bid for the project after the original winning consortium of Lanco Infratech and Globeleq Singapore was disqualified by a government panel on 25 July for violating terms of the deal. Analysts said by the time the Sasan project goes online, cement capacity in the country may be less beneficial to cement producers, who have enjoyed a 30-34% price rise in different regions in the past year alone. India, the world’s second largest cement market with Rs 55,000 crore estimated demand, has a cement manufacturing capacity of 148mtpa. “The power project is expected to come up only after 2012, when the cement supply is expected to outstrip demand,” Sankhe said.
E.N. Murthy, secretary general of trade body Cement Manufacturers Association, welcomed the capacity addition. “Around 60% of the cement produced in India uses fly ash. In a situation of supply-side constraint, any additional capacity is good news for the industry,” he said.
The government had planned nine ultra mega power projects. While those at Sasan, Mundra in Gujarat, Tilaiya in Jharkhand, Krishnapattnam in Andhra Pradesh, Tamil Nadu’s Cheyyur and Orissa’s Jharsuguda are on track, others at Girye in Maharashtra, Tadri in Karnataka and Chhattisgarh’s Akaltara are yet to take off. Sasan, Tilaiya and Jharsuguda are coal pithead projects and those at Mundra, Krishnapattnam and Cheyyur are based on imported coal.
Reliance Energy Transmission, the arm of Reliance Energy plunges into interstate transmission
Reliance Energy Transmission Ltd (RETL), the transmission arm of Reliance Energy, is set to become an inter-state transmission licensee, with the approval of the PowerGrid Corporation of India (PGCIL) board, reports DNA.
PGCIL selected Reliance Energy as a joint venture partner through international competitive bidding for setting up the transmission lines for the Parbati and Koldam hydro-electric projects in Himachal Pradesh and two projects under the Western Region System Strengthening Scheme-II (WRSS-II) in Maharashtra and Gujarat on a build, own, operate (BOO) basis. These projects would entail an investment of about Rs 3,500 crore. The two companies would sign a letter of intent for the WRSS-II project and a shareholder agreement for a joint venture for the Parbati and Koldam projects soon.
The approval for WRSS-II project, for which RTIL was selected in January 2007, was delayed since there were differences with the provisions and transfer clauses between REL and the government. “Though it was initially conceived to be on a build, own, operate and transfer (BOOT) basis for 25 years, it would now be on a BOO basis,” said a source. This implies that the project might not be transferred at the end of 25 years, though RETL would have to seek a fresh licence.
The change was made since PGCIL objected to taking on the liability of buying out the private partner in case of a payment default or any other problem during the construction or developmental stage. “With REL agreeing to execute the projects without any buyout commitments and transfer clauses, the way for the projects was cleared,” said a REL executive. PGCIL had selected REL as its partner in December 2005 for the 1,600 MW Parbati-Koldam project.
NTPC Ltd and National Hydro-electric Power Corporation (NHPC) are setting up the projects. Parbati-Koldam Transmission Company would transfer electricity through a 300-km line from Parbati-Koldam to Ludhiana. The project is worth Rs 800 crore. The project is scheduled for completion, matching with the associated generation projects. The power-starved states of the northern region, including the National Capital, would benefit from the transmission system.
The WRSS-II project, scheduled to be commissioned by March 2010, would benefit Maharashtra, Gujarat, Madhya Pradesh, Chattisgarh, Daman & Diu, Goa and Dadar & Nagar Haveli.
The Rs 2,000-2,500 crore system-strengthening project covers a length of 1,500 km in Maharashtra, Gujarat and parts of Madhya Pradesh and will handle 4,000 MW of power.
PGCIL selected Reliance Energy as a joint venture partner through international competitive bidding for setting up the transmission lines for the Parbati and Koldam hydro-electric projects in Himachal Pradesh and two projects under the Western Region System Strengthening Scheme-II (WRSS-II) in Maharashtra and Gujarat on a build, own, operate (BOO) basis. These projects would entail an investment of about Rs 3,500 crore. The two companies would sign a letter of intent for the WRSS-II project and a shareholder agreement for a joint venture for the Parbati and Koldam projects soon.
The approval for WRSS-II project, for which RTIL was selected in January 2007, was delayed since there were differences with the provisions and transfer clauses between REL and the government. “Though it was initially conceived to be on a build, own, operate and transfer (BOOT) basis for 25 years, it would now be on a BOO basis,” said a source. This implies that the project might not be transferred at the end of 25 years, though RETL would have to seek a fresh licence.
The change was made since PGCIL objected to taking on the liability of buying out the private partner in case of a payment default or any other problem during the construction or developmental stage. “With REL agreeing to execute the projects without any buyout commitments and transfer clauses, the way for the projects was cleared,” said a REL executive. PGCIL had selected REL as its partner in December 2005 for the 1,600 MW Parbati-Koldam project.
NTPC Ltd and National Hydro-electric Power Corporation (NHPC) are setting up the projects. Parbati-Koldam Transmission Company would transfer electricity through a 300-km line from Parbati-Koldam to Ludhiana. The project is worth Rs 800 crore. The project is scheduled for completion, matching with the associated generation projects. The power-starved states of the northern region, including the National Capital, would benefit from the transmission system.
The WRSS-II project, scheduled to be commissioned by March 2010, would benefit Maharashtra, Gujarat, Madhya Pradesh, Chattisgarh, Daman & Diu, Goa and Dadar & Nagar Haveli.
The Rs 2,000-2,500 crore system-strengthening project covers a length of 1,500 km in Maharashtra, Gujarat and parts of Madhya Pradesh and will handle 4,000 MW of power.
FDI in retail just a matter of time: FM
The government may open the retail sector to foreign investment after convincing stakeholders like small shop owners that their setups are not at threat from big players. "In course of time, their fears will be allayed and it is only a matter of time before the policy is tweaked to allow FDI in retail," Finance Minister P Chidambaram said during an interaction with students of Wharton School of the University of Pennsylvania here, reports ET. Mr Chidambaram’s statement comes even as large domestic retail chains are facing opposition from mom-and-pop stores in some states.
Opposition to the opening up of $ 330-billion retail sector has come from various political quarters, and more vehemently from the key UPA ally, the Left parties. In fact, even Congress president Sonia Gandhi had expressed reservations against opening up of the sector. "Experience tells us (organised) retail does not drive them (small retailers) out. They will reorganise themselves and thrive. However, there is genuine fear that has to be allayed," Mr Chidambaram said.
The finance minister added, “We will patiently educate them (mom-and-pop store owners) before they accept retail chains. This (opening retail to FDI) will take a little time."
The government allows 100% foreign direct investment in cash-and-carry and wholesale operations and 51% in single-brand retail. It may be noted that some multinational players like Wal-Mart, who had for long waited for the sector to be opened up, have since joined hands with domestic companies as their cash-and-carry partners.
India has been ranked World No, 1 in the AT Kearney Global Retail Index, 2006, and according to industry estimates, the organized and unorganized retail market will grow to $ 427 billion by 2010 and $ 637 billion by 2015.
"Competition is driving growth in many other sectors: steel, textiles, pharmaceuticals, automobiles, home appliances, packaged food, computer hardware and software, banking and insurance. It is axiomatic that more openness and more competition will benefit the sectors that remain closed or restricted as a matter of policy, and that is the direction in which we would like to move," he said speaking at the Peterson Institute.
India’s manufacturing and services sectors face increasing competition from overseas manufacturers and service providers. Far from being overawed or vanquished, Indian business has boldly ventured into other countries and has opened offices abroad, acquired factories and established new facilities, he pointed. "Foreign direct investment has become a two-way street. In 2006-07. While foreign direct investment flows into India were $ 19.5 billion, the outflow of capital amounted to $ 11.9 billion," he said.
Noting the India story is now well known, he said the outlook for the medium term remained extremely positive. "We believe it is possible to sustain the factors that are driving economic growth and consolidate the gains," he said. India’s GDP has been growing, on average, at the rate of 8.6% since 2003-04. In particular, 2006-07 was a splendid year that returned a growth rate of 9.4%.
He said corporate balance sheets were now much larger and corporate profits higher, giving Indian businesses the financial muscle to take on new challenges. "Valuations have soared, enabling companies to raise large amounts of equity capital," he said driving home the point on India growth story.
However, he said inflation, particularly in food articles, was a concern. "3.32 % is perfectly acceptable, tolerable. But one component of WPI, primary articles’ inflation, was 7.5%. Within primary articles, food is 5.8%. This is a worrying inflation," he said.
Opposition to the opening up of $ 330-billion retail sector has come from various political quarters, and more vehemently from the key UPA ally, the Left parties. In fact, even Congress president Sonia Gandhi had expressed reservations against opening up of the sector. "Experience tells us (organised) retail does not drive them (small retailers) out. They will reorganise themselves and thrive. However, there is genuine fear that has to be allayed," Mr Chidambaram said.
The finance minister added, “We will patiently educate them (mom-and-pop store owners) before they accept retail chains. This (opening retail to FDI) will take a little time."
The government allows 100% foreign direct investment in cash-and-carry and wholesale operations and 51% in single-brand retail. It may be noted that some multinational players like Wal-Mart, who had for long waited for the sector to be opened up, have since joined hands with domestic companies as their cash-and-carry partners.
India has been ranked World No, 1 in the AT Kearney Global Retail Index, 2006, and according to industry estimates, the organized and unorganized retail market will grow to $ 427 billion by 2010 and $ 637 billion by 2015.
"Competition is driving growth in many other sectors: steel, textiles, pharmaceuticals, automobiles, home appliances, packaged food, computer hardware and software, banking and insurance. It is axiomatic that more openness and more competition will benefit the sectors that remain closed or restricted as a matter of policy, and that is the direction in which we would like to move," he said speaking at the Peterson Institute.
India’s manufacturing and services sectors face increasing competition from overseas manufacturers and service providers. Far from being overawed or vanquished, Indian business has boldly ventured into other countries and has opened offices abroad, acquired factories and established new facilities, he pointed. "Foreign direct investment has become a two-way street. In 2006-07. While foreign direct investment flows into India were $ 19.5 billion, the outflow of capital amounted to $ 11.9 billion," he said.
Noting the India story is now well known, he said the outlook for the medium term remained extremely positive. "We believe it is possible to sustain the factors that are driving economic growth and consolidate the gains," he said. India’s GDP has been growing, on average, at the rate of 8.6% since 2003-04. In particular, 2006-07 was a splendid year that returned a growth rate of 9.4%.
He said corporate balance sheets were now much larger and corporate profits higher, giving Indian businesses the financial muscle to take on new challenges. "Valuations have soared, enabling companies to raise large amounts of equity capital," he said driving home the point on India growth story.
However, he said inflation, particularly in food articles, was a concern. "3.32 % is perfectly acceptable, tolerable. But one component of WPI, primary articles’ inflation, was 7.5%. Within primary articles, food is 5.8%. This is a worrying inflation," he said.
US stocks advance as recession fears ease
US stocks advanced on Thursday after a government report cast positive light on the labor market and helped offset recessionary worries. The initial jobless claims indicate the labor market is still okay. This is an economy that is in a soft landing that is not going to deteriorate into a recession,analysts said. But new-homes sales tumbled in August to the lowest level in seven years, a stark sign that the credit crunch is aggravating an already painful housing slump.
Sales of new homes dropped 8.3% in August from July, the Commerce Department reported Thursday, driving down sales to a seasonally adjusted annual rate of 795,000. That was the lowest level since June 2000. The home sales report came on the same day that the government reported a relatively brisk business growth rate in revised figures for the second quarter. But the 3.8% pace was less than previously estimated and it occurred before the credit crisis and its repercussions across the broad spectrum of the economy had taken hold. Home prices tanked.
The median sales price in August fell by 7.5% from a year earlier to $ 225,700. That was the biggest drop in percentage terms in nearly 37 years. The median price is the middle point at which half sell for more and half for less. The average sales price dropped by 8% in August from a year earlier to $ 292,000. That was the biggest decline in 17 years.
The Dow Jones Industrial Average advanced 34.8 points to 13,912.9, after rising as high as 13,920.4 earlier on. The S&P 500 rose 5.96 points to 1,531.38, while the Nasdaq Composite gained 10.56 points to 2,709.59. On the New York Stock Exchange, trading volume neared 1.2 billion, with advancing stocks ahead of decliners 2 to 1, while more than 1.7 billion shares were exchanged on the Nasdaq, with advancing stocks outpacing decliners by 4 to 3.
Indian ADRs rise; Satyam spurts more than 4%
Indian ADRs had a good session yesterday and majority of them ended in the green. Satyam led the way rising more than 4%. Among the other major gainers were Sterlite and Infosys. In the technology pack, Infosys Technologies was up 2.71 at $ 48.58, Patni Computers was down 1.34% at $ 23.64, Satyam Computers was up 4.39% at $ 26.18, while Wipro ended the day 3.07% higher at $ 14.75.
In the non-technology pack, HDFC Bank was up 1.78% at $ 105.65, VSNL was up 0.27% at $ 22.70, ICICI Bank was up 0.65% at $ 52.49, MTNL was up 1.08% at $ 8.41, Tata Motors was up 0.32% at $ 18.74, Dr Reddy's Lab was down 0.91% at $ 16.38 and Sterlite was up 3.22% at $ 18.57.
Sales of new homes dropped 8.3% in August from July, the Commerce Department reported Thursday, driving down sales to a seasonally adjusted annual rate of 795,000. That was the lowest level since June 2000. The home sales report came on the same day that the government reported a relatively brisk business growth rate in revised figures for the second quarter. But the 3.8% pace was less than previously estimated and it occurred before the credit crisis and its repercussions across the broad spectrum of the economy had taken hold. Home prices tanked.
The median sales price in August fell by 7.5% from a year earlier to $ 225,700. That was the biggest drop in percentage terms in nearly 37 years. The median price is the middle point at which half sell for more and half for less. The average sales price dropped by 8% in August from a year earlier to $ 292,000. That was the biggest decline in 17 years.
The Dow Jones Industrial Average advanced 34.8 points to 13,912.9, after rising as high as 13,920.4 earlier on. The S&P 500 rose 5.96 points to 1,531.38, while the Nasdaq Composite gained 10.56 points to 2,709.59. On the New York Stock Exchange, trading volume neared 1.2 billion, with advancing stocks ahead of decliners 2 to 1, while more than 1.7 billion shares were exchanged on the Nasdaq, with advancing stocks outpacing decliners by 4 to 3.
Indian ADRs rise; Satyam spurts more than 4%
Indian ADRs had a good session yesterday and majority of them ended in the green. Satyam led the way rising more than 4%. Among the other major gainers were Sterlite and Infosys. In the technology pack, Infosys Technologies was up 2.71 at $ 48.58, Patni Computers was down 1.34% at $ 23.64, Satyam Computers was up 4.39% at $ 26.18, while Wipro ended the day 3.07% higher at $ 14.75.
In the non-technology pack, HDFC Bank was up 1.78% at $ 105.65, VSNL was up 0.27% at $ 22.70, ICICI Bank was up 0.65% at $ 52.49, MTNL was up 1.08% at $ 8.41, Tata Motors was up 0.32% at $ 18.74, Dr Reddy's Lab was down 0.91% at $ 16.38 and Sterlite was up 3.22% at $ 18.57.
Fund Action
Sintex Ind
HSBC-Mother Fund buys 14.4 lakh shares @ Rs 350/sh (1.3% stake)
HSBC Global Inv buys 33.12 lakh shares @ Rs 350/sh (2.96% stake)
Lehman Brothers buys 11.1 lakh shares @ Rs 350/sh (1% stake)
Merrill Lynch Investment buys 9.27 lakh shares @ Rs 350/sh (0.8% stake)
The Master Trust Bank of Japan buys 8.48 lakh shares @ Rs 350/sh (0.76% stake)
Batterymarch Financial buys 6.7 lakh shares @ Rs 350/sh (0.6% stake)
Lightwood Inv sells 1.6 cr shares @ Rs 350/sh (14.3% stake) (Reduces stake from 26.42% to 12.1% stake)
Deccan Aviation
Money Matters buys 23.6 lakh shares @ Rs 150/sh (1.74% stake)
Money Matters Advisory buys 44 lakh shares @ Rs 150/sh (3.25% stake)
ICICI Bank sells 12.39 lakh shares @ Rs 150/sh (0.9% stake)
The Western India Trust sells 31.32 lakh shares @ Rs 150/sh (2.3% stake)
UBS Sec sells 24.34 lakh shares @ Rs 150/sh (1.8% stake)
Praj Ind
Merrill Lynch Capital sells 14.52 lakh shares @ Rs 239/sh (1.6% stake)
Recent Fund Action:
Merrill Lynch Capital sells 10 lakh shares @ Rs 248.7/sh (1% stake) on 26th Sept
Merrill Lynch Capital buys 22.2 lakh shares @ Rs 214.85/sh (2.4% stake) on 7th Sept
Morgan Stanley Dean Witter bought 14.4 lakh shares @ Rs 193/sh (1.6% stake) on 14th Aug
IFCI
Lehman Brothers Asia sells 36.93 lakh shares @ Rs 92.5/sh (0.6% stake)
Shree Renuka Sugars
Fidelity Management buys 1.86 lakh shares @ Rs 690.6/sh (0.8% stake)
Arvind Mills.
Morgan Stanley Dean Witter buys 10.62 lakh shares @ Rs 59.7/sh
Recent Fund Action:
Citigroup Global bought 27 lakh shares @ Rs 52.7/sh (1.29% stake) on 4th Sept
Gitanjali Gems
Merrill Lynch Capital buys 13 lakh shares @ Rs 288/sh (NSE/BSE) (2.15% stake)
Recent Fund Action:
Morgan Stanley bought 10 lakh shares @ Rs 298/sh (1.65% stake) on 3rd Sept
Citigroup Global sold10 lakh shares @ Rs 298/sh (Reduces stake from 4.91% to 3.26%) on 3rd Sept
Himachal Futuristic Comm
Transglobal Sec buys 31.63 lakh shares @ Rs 30/sh
Merrill Lynch Capital Markets sells 28 lakh shares @ Rs 30/sh
Hinduja TMT
Morgan Stanley Dean Witter buys 1.5 lakh shares @ Rs 435.6/sh
HTMT Global Solutions
Morgan Stanley And Co buys 1.18 lakh shares @ Rs 427/sh
Rajesh Exports
Mavi Investment Fund buys 4 lakh shares @ Rs 971.75/sh
Kohinoor Foods
Bear Sterns sells 1 lakh shares @ Rs 56.3/sh
Magnum Ventures
SPS Capital & Money Managements sells 4.4 lakh shares @ Rs 34.8/sh
Mangalam Cement
SMIFS Capital Markets sells 1.5 lakh shares @ Rs 223.2/sh
Jayaswals Neco Limited
IDBI sells 5 lakh shares @ Rs 28/sh
Shyam Telecom Limited
Melchior Indian Opportunities sells 1.9 lakh shares @ Rs 116.3/sh
TVS Motor Company Limited
Merrill Lynch Capital sells 15 lakh shares @ Rs 71.6/sh
Welspun Gujarat
Citigroup Global Markets sells 12.52 lakh shares @ Rs 296.5/sh
Kashyap Tech
Mavi Inv sells 5 lakh shares @ Rs 5.93/sh
P G Foils
Religare Sec buys 40 thousand shares @ Rs 96/sh
Satnam Overseas
Bear Sterns sells 1.13 lakh shares @ Rs 56.33/sh
Tera Software
Kotak Mahindra buys 50 thousand shares @ Rs 91.7/sh
Vakran Software
Morgan Stanley buys 3.24 lakh shares @ Rs 190/sh
Vishnu Chem
BNP Paribas buys 91 thousand shares @ Rs 108/sh
HSBC-Mother Fund buys 14.4 lakh shares @ Rs 350/sh (1.3% stake)
HSBC Global Inv buys 33.12 lakh shares @ Rs 350/sh (2.96% stake)
Lehman Brothers buys 11.1 lakh shares @ Rs 350/sh (1% stake)
Merrill Lynch Investment buys 9.27 lakh shares @ Rs 350/sh (0.8% stake)
The Master Trust Bank of Japan buys 8.48 lakh shares @ Rs 350/sh (0.76% stake)
Batterymarch Financial buys 6.7 lakh shares @ Rs 350/sh (0.6% stake)
Lightwood Inv sells 1.6 cr shares @ Rs 350/sh (14.3% stake) (Reduces stake from 26.42% to 12.1% stake)
Deccan Aviation
Money Matters buys 23.6 lakh shares @ Rs 150/sh (1.74% stake)
Money Matters Advisory buys 44 lakh shares @ Rs 150/sh (3.25% stake)
ICICI Bank sells 12.39 lakh shares @ Rs 150/sh (0.9% stake)
The Western India Trust sells 31.32 lakh shares @ Rs 150/sh (2.3% stake)
UBS Sec sells 24.34 lakh shares @ Rs 150/sh (1.8% stake)
Praj Ind
Merrill Lynch Capital sells 14.52 lakh shares @ Rs 239/sh (1.6% stake)
Recent Fund Action:
Merrill Lynch Capital sells 10 lakh shares @ Rs 248.7/sh (1% stake) on 26th Sept
Merrill Lynch Capital buys 22.2 lakh shares @ Rs 214.85/sh (2.4% stake) on 7th Sept
Morgan Stanley Dean Witter bought 14.4 lakh shares @ Rs 193/sh (1.6% stake) on 14th Aug
IFCI
Lehman Brothers Asia sells 36.93 lakh shares @ Rs 92.5/sh (0.6% stake)
Shree Renuka Sugars
Fidelity Management buys 1.86 lakh shares @ Rs 690.6/sh (0.8% stake)
Arvind Mills.
Morgan Stanley Dean Witter buys 10.62 lakh shares @ Rs 59.7/sh
Recent Fund Action:
Citigroup Global bought 27 lakh shares @ Rs 52.7/sh (1.29% stake) on 4th Sept
Gitanjali Gems
Merrill Lynch Capital buys 13 lakh shares @ Rs 288/sh (NSE/BSE) (2.15% stake)
Recent Fund Action:
Morgan Stanley bought 10 lakh shares @ Rs 298/sh (1.65% stake) on 3rd Sept
Citigroup Global sold10 lakh shares @ Rs 298/sh (Reduces stake from 4.91% to 3.26%) on 3rd Sept
Himachal Futuristic Comm
Transglobal Sec buys 31.63 lakh shares @ Rs 30/sh
Merrill Lynch Capital Markets sells 28 lakh shares @ Rs 30/sh
Hinduja TMT
Morgan Stanley Dean Witter buys 1.5 lakh shares @ Rs 435.6/sh
HTMT Global Solutions
Morgan Stanley And Co buys 1.18 lakh shares @ Rs 427/sh
Rajesh Exports
Mavi Investment Fund buys 4 lakh shares @ Rs 971.75/sh
Kohinoor Foods
Bear Sterns sells 1 lakh shares @ Rs 56.3/sh
Magnum Ventures
SPS Capital & Money Managements sells 4.4 lakh shares @ Rs 34.8/sh
Mangalam Cement
SMIFS Capital Markets sells 1.5 lakh shares @ Rs 223.2/sh
Jayaswals Neco Limited
IDBI sells 5 lakh shares @ Rs 28/sh
Shyam Telecom Limited
Melchior Indian Opportunities sells 1.9 lakh shares @ Rs 116.3/sh
TVS Motor Company Limited
Merrill Lynch Capital sells 15 lakh shares @ Rs 71.6/sh
Welspun Gujarat
Citigroup Global Markets sells 12.52 lakh shares @ Rs 296.5/sh
Kashyap Tech
Mavi Inv sells 5 lakh shares @ Rs 5.93/sh
P G Foils
Religare Sec buys 40 thousand shares @ Rs 96/sh
Satnam Overseas
Bear Sterns sells 1.13 lakh shares @ Rs 56.33/sh
Tera Software
Kotak Mahindra buys 50 thousand shares @ Rs 91.7/sh
Vakran Software
Morgan Stanley buys 3.24 lakh shares @ Rs 190/sh
Vishnu Chem
BNP Paribas buys 91 thousand shares @ Rs 108/sh
Market rallies for ninth straight trading session
The market continued a winning streak and extended a string of record highs that it had hit over the past few days. Strong rollover from September 2007 futures to October 2007 futures boosted bourses today. Turnover on BSE was high, just under Rs 8,000 crore mark.
Despite the market holding positive zone, market breadth, which indicates overall health of the market, was negative on BSE. With today’s rally, the market has posted gains for ninth consecutive day, boosted by step-up of FII inflows. Metal, banking, FMCG and pharma stocks were in forefornt of today’s rally. However profit booking was witnessed in select oil & gas and IT pivotals.
European markets were weak and Asian markets were mixed today. US markets were steady overnight.
The wholesale price index rose 3.23% in the 12 months to 15 September 2007, lower than previous week's 3.32%, due to a fall in some food prices, government data released at about 12:00 IST today showed.
The 30-shares BSE Sensex was up 140.54 points or 0.82% at 17,291.10. It opened higher at 17,152.31 and advanced further to hit an all-time high of 17,361.47.
At the day’s high of 17,361.47, the Sensex had gained 210.91 points for the day.
From a recent low of 13,989.11 on 21 August 2007, Sensex surged 3,301.99 points or 23.60% in 28 trading sessions to 17,291.10 on 28 September 2007. FII buying boosted the bourses in this period.
The S&P CNX Nifty rose 20.80 points or 0.42% at 5,021.35. It struck an all time high of 5055.80. The Nifty October 2007 futures settled at 5,038, a premium of 16.65 points as compare to spot closing of 5,021.35.
The market had opened on a firm note and extended early gains to hit record high in early afternoon trade as following a healthy rollover of derivatives positions from September 2007 contracts to October 2007 contracts. It had come sharply off higher level in early afternoon trade, before bouncing back again later.
The breadth was slightly negative on BSE. 1392 shares declined as compared to 1362 that advanced on BSE. 58 remained unchanged. It was strong in morning trade. Interestingly in the past six trading days when the market has surged, the market breadth in contrast to the firm trend was negative in five sessions.
The BSE Mid-Cap index was up 1.23% to 7,422.43. The BSE Small-Cap index rose 0.59% to 9,099.93. It hit an all time high of 9,136.32 in intra-day trade.
The total turnover on BSE amounted to Rs 7915 crore as compared to Rs 7,750.07 crore yesterday, 27 September 2007
The NSE F&O turnover was Rs 56,998.5 crore today as compared to a record Rs 86,226.41 crore on Thursday, 27 September 2007
Sectoral indices on BSE displayed mixed trend. BSE Metal Index (up 3.28% at 13,944.83), BSE Health Care Index (up 1.72% at 3,784.21), BSE Auto Index (up 1.17% at 5,332.26), BSE Realty index (up 1.63% to 9,178.53) and BSE FMCG Index (up 1.94% at 2,161.35) outperformed the Sensex.
However BSE Capital Goods Index (down 0.08% at 14,679.84), BSE TecK index (down 0.49% to 3,766.00), BSE IT Index (down 0.34% at 4,627.83), BSE Oil and Gas Index (down 0.81% at 9,561.95), BSE Consumer Durables index (up 0.07% to 4,804.24), BSE PSU index (up 0.77% to 8,202.07), were underperformers.
Among the 30-member Sensex pack, 20 advanced while the rest declined.
India’s second largest power utility company in terms of revenue Reliance Energy (REL) extended early surge. It jumped 8.82% to Rs 1215.80 on 35.31 lakh shares. It hit an all time high of Rs 1220 on BSE in late trade. As per reports REL is believed to be restructuring its businesses under three verticals — utility, infrastructure and real estate. It was the top gainer from Sensex pack.
World’s sixth largest steel manufacturer Tata Steel surged 7% to Rs 850. It hit a 52-week high of Rs 868.10 on BSE today. The stock was boosted after Mr Ratan Tata, Tata Group Chairman at the UK - India conference Said that the group expects to earn nearly 60% of its revenue this year (38% last year) from its overseas operations following the acquisition of Corus Steel in UK.
Tata Motors, the nation’s top truck and bus maker in terms of sales rose 1% to Rs 758. Deutsche Bank is bullish on the stock and has maintained buy rating with target price of Rs 920.
Hindalco (up 4.81% to Rs 172), and Cipla (up 3.95% to Rs 183.15), were the other gainers from Sensex pack
India's largest private sector bank by assets ICICI Bank gained 2.99% to Rs 1060 after it raised $2 billion through a bond issue abroad through a 5-year fixed rate note. The stock struck an all time high of Rs 1070.80 today.
The notes have been priced at 237 basis points (bps) over US Libor or at Libor plus 172 bps. The six-month Libor is currently at 5.14%.
State Bank of India, the country’s largest bank in terms of net profit jumped 4.19% to Rs 1965. The stock hit a record high of Rs 1969.80 today.
Other banking shares - Bank of India (up 7.78% to Rs 280.40), Canara Bank (up 3.38% to Rs 278), Union Bank of India (up 4.45% to Rs 164.25), Kotak Mahindra Bank (up 3.30% to Rs 924.50) and Federal Bank (up 2.77% to Rs 375), edged higher.
India’s largest private sector mortgage financer in terms of market share Housign Development Corporation (HDFC) gained 0.82% to Rs 2517. It hit an all time high of Rs 2544.
Bharat Heavy Electricals (Bhel), the country’s largest power equipment maker by sales was down 0.67% to Rs 2,027, off its all time high of Rs 2089.20. As per recent reports Bhel has won a Rs 765 crore turnkey order from Steel Authority of India (SAIL) to set up a 62.2 mega watt captive power plant in Burnpur, West Bengal.
IT pivotals snapped two-day rally. India’s third largest software services exporter Wipro rose 0.09% to Rs 460.75 off its day’s high of Rs 469. It acquired Oki Techno Centre (Singapore) in an all cash deal over a period of one year. Oki Techno Centre (OTCS) is based in Singapore and is focused on wireless design in the areas of RF (radio frequency) and baseband design.
Other IT pivotals, Infosys (down 1.03% to Rs 1892, off its day’s high of Rs 1950), TCS (down 1.08 % to Rs 1050.25, off its day’s high of Rs 1077), slipped. Satyam Computers (up 0.03% to Rs 442.50), off its day’s high of Rs 452.90 held positive zone.
IT pivotals had started the day firm, but pared gains on selling pressure later.
India’s largest cellular services provider by market capitalistation Bharti Airtel lost 2.33% to Rs 938 on 1.83 lakh shares. It was the top loser from Sensex pack.
Ambuja Cements (down 1.41% to Rs 143.10), and Larsen & Toubro (down 0.67% to Rs 2818), were the other losers from Sensex pack
India’s largest company in terms of market capitalisation and operator of world's third largest refinery at Jamnagar, Gujarat, Reliance Industries (RIL) saw volatile movement. It was now down 0.78% at Rs 2302.25 on 7.55 lakh shares. The stock moved between a high of Rs 2349 and low of Rs 2268. RIL is reportedly laying off 1,000 staff in the country's most populous state of Uttar Pradesh after failed attempts to reopen Western-style supermarkets, which closed after protests from small traders.
Among side counters, Whirlpool India (up 20% to Rs 47.10), Mirza Internatonal (up 20% to Rs 28.50), Dynemic Products (up 20% to Rs 23.10), Braddy & Morris (up 20% to Rs 191.20) and Ashiana Housing (up 20 to Rs 320.60 were the top gainers.
Among stocks with high volumes, Reliance Natural Resources surged 3.30% to Rs 89.55 on 4.32 crore shares. Himachal Futuristic Communications plunged 8.23% to Rs 26.75 on 2.90 crore shares. Ispat Industries rose 1.86% to Rs 27.45 on 2.33 crore shares and Tata Teleservices (Maharashtra) (TTML) slipped 0.11% to Rs 43.45 on 1.94 crore shares.
Fertiliser shares rallied on renewed buying. Chambal Fertilisers & Chemicals (up 7.10% to Rs 58.80), Coromandel Fertilisers (up 13.29% to Rs 122.35), Gujarat State Fertilisers & Chemicals (up 4.97% to Rs 242), National Fertilizers (up 4% to Rs 48), Rashtriya Chemicals & Fertilisers (up 2.17% to Rs 61.30) and Nagarjuna Fertilizers (up 11.19% to Rs 60.60) surged.
India’s largest private sector iron ore exporter in terms of revenue Sesa Goa jumped 8.15% to Rs 2548. It had surged 7.14% to Rs 2388.20 yesterday, 27 September 2007 on reports that Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton, the world's three largest iron-ore exporters, may increase prices by 30% next year as demand driven by steelmakers in China outpaces growth in supply
Watch and jewellery maker Titan Industries rose 1.10% to Rs 1470. The company expects FY 2008 profit to rise by at least 50%. Revenue is expected at Rs 3150 crore as compared with March 2007 revenue of Rs 2140 crore. Titan expects to sell 10 million watches this fiscal year with nine million of them in India
NIIT Technologies gained 5.77% to Rs 353 on reports that the company is in preliminary discussions with private equity players Carlyle and TPG to sell a majority stake. Promoters currently hold 40% stake in NIIT Technologies.
IFCI soared 7.70% to Rs 99.90 on reports that it has shortlisted eight bidders for the sale of its 26% stake including consortia led by Wilbur L Ross and Shinsei Bank. As many as 10 bidders had applied earlier this month. The identity of the bidders that have been left out of the race is not known.
DLF gained 2.89% to Rs 763. As per reports it will apply for telecom licence by today, 28 September 2007, to become the fourth real estate company to have applied for the same purpose. IndiaBulls Real Estate, Unitech and Parsvnath Developers are the others.
Emkay Share & Stock Brokers jumped 10% to Rs 145.60 after its 100% subsidiary - Emkay Insurance Brokers received licence from the Insurance Regulatory and Development Authority (IRDA) in terms of sub section (1) of Section 42 D of the Insurance Act, 1938 to act as a direct insurance broker. The company made this announcement after market hours on 27 September 2007.
Brady & Morris Engineering Company surged 20% to Rs 191.20 after its board of directors of at its meeting held on 27 September 2007 decided to issue bonus shares in the ratio of 1 bonus share for every 2 shares held. The company made this announcement after market hours on 27 September 2007.
WH Brady & Company jumped 10% to Rs 159.70 after is board of directors at its meeting held on 27 September 2007 decided to issue bonus shares in the ratio of 1 bonus share for every 2 shares held. The company made this announcement after market hours on 27 September 2007.
United Breweries was up 0.58% to Rs 382. Its board approved raising upto Rs 425 crore by issuing equity shares to the existing equity shareholders of the company on rights basis. The other terms regarding rights issues will be decided by a committee of directors.
Arvind Mills galloped 5.67% to Rs 61.50 after its board approved issue of 5.06 crore convertible warrants to the founders of the company at Rs 52 per share. Post issue, the shareholding of the promoters in the company will increase to 46.77% from 33.90% at present.
Cairn India rose 3% to Rs 181.40 on reports that it made new oil find in one of its exploration wells in the Ravva field off India's east coast.
Deccan Aviation declined 1.78% to Rs 146 after it announced today, 28 September 2007, that it has reported a net loss for the quarter to June 2007.
State Trading Corporation of India plunged 5% to Rs 341.90. It had lost 5% to Rs 359.85 yesterday, 27 September 2007 after its board of directors at its meeting held on 26 September 2007 deferred recommendation of bonus shares to the next board meeting. The company made this announcement after market hours on 26 September 2007.
Stone India jumped 6.59% to Rs 148 after it executed a technical collaboration agreement for producing 180 kilovolt-amps auxiliary power converter for Indian Railways.
Atlanta galloped 10% at Rs 346.70 after Sebi allowed the firm to restructure its capital to raise funds for expansion. Securities and Exchange Board of India (Sebi) has allowed the company conversion of warrants and listing of shares issued on conversion. Earlier in February 2007, Sebi had asked the promoter group, which comprises 16 entities, of Atlanta, not to deal in Atlanta scrip.
Centurion Bank of Punjab moved up 3.12% to Rs 44.65 after Reserve Bank of India allowed foreign investors to buy further shares in the bank as their holding went below the caution limit.
Virat Crane Industries jumped 10% at Rs 21.85 after its subsidiary Durga Dairy tied-up with Walmart to supply branded ghee to retail stores. So far, Durga Dairy has entered into similar alliances with major retail players like Reliance Retail, Trinetra, Gaint, Spencers, Foodworld, Subhiksha and Metro.
Rallis India surged 5.12% to Rs 415 after it sold 31 acres of land to R R Mega Property Developers.
Hinduja TMT rose 1.60% to Rs 437 after company said it is actively considering to apply for unified telecom license. It is in process of changing its name to Hinduja Ventures
Core Projects & Technologies rose 0.84% to Rs 190.40. Its board approved acquisition of virtual learning of Azzuri Communications, UK. The board has also approved acquisition of 100% equity stake in Hamlet Computer Group, UK. Also the company has decided to sign share purchase agreement for acquisition of 100% equity stake in KC Management Group, US.
Financial Technologies India galloped 6.06% to Rs 2760 after Merrill Lynch and Citigroup acquired a 5% stake each in its unit, Multi Commodity Exchange of India.
As per market data, marketwide rollover from September 2007 derivatives contracts to October 2007 contracts was 84% as compared to rollover of 82.30% from August 2007 contracts to September 2007 contracts. Nifty rollover from stood at 71% as compared to rollover of 70% from August 2007 contracts to September 2007 contracts.
European markets, which opened after Indian market were trading lower today, 28 September 2007. France’s CAC (down 0.39% to 5,711.11), Germany’s DAX (down 0.11% to 7,844.94) and UK’s FTSE 100 (down 0.84% to 6,431.90) edged lower.
Asian markets, which opened before Indian market were trading mixed today, 28 September 2007. South Korea's Seoul Composite (up 0.06% at 1,946.80), Shanghai Composite (up 2.64% to 5,552.30), and Hong Kong's Hang Seng (up 0.29% to 27,142.47) rose.
Singapore's Straits Times (down 0.22% at 3,706.77), Japan's Nikkei (down 0.28% at 16,785.69) and Taiwan's Taiwan Weighted (down 0.02% at 9,411.95) slipped.
US stocks extended their gains yesterday, 27 September 2007 with a moderate advance as investors weighed fresh economic data, including a sharp drop in new home sales, for clues to whether more interest rate cuts are in the offing. The Dow Jones industrial average rose 34.79 points, or 0.25%, to 13,912.94. It is now 87 points below its record close of 14,000.41 set on 19 July 2007. Broader indexes also advanced. The Standard & Poor's 500 index rose 5.96 points, or 0.39%, to 1,531.38, and the technology-heavy Nasdaq Composite index rose 10.56 points, or 0.39%, to 2,709.59.
Crude oil extended gains for a third day on Friday, 28 September 2007 to above $83 a barrel, nearing its record high as a weak dollar and pre-winter supply worries fuelled fund buying. US crude for November delivery rose 30 cents to $83.18 a barrel Oil is recovering from a profit-taking dip earlier this week that pulled prices off their $83.90 peak. London Brent crude rose 30 cents to $80.33 a barrel.
Friday, September 28, 2007
SEBI: MFs can now invest in IPOs, FPOs to be listed on foreign bourses; Can also invest in short term deposits in foreign banks
Indian investors looking to invest in overseas markets may soon be spoilt for choice with RBI raising the cap on mutual funds' overseas investment from 4 billion to 5 billion dollars, fund houses like SBI, ABN Amro, Fidelity, Deutsche and HSBC plan to launch global funds soon. They say these funds will invest across various assets abroad.
While RBI has raised the overall cap, SEBI has enhanced the limit on overseas investment for individual fund houses from 200 million to 300 million dollars. There are 9 such funds available to Indian investors, of which 1 NFO is under way. Most of them invest up to 65% in Indian markets. But five NFOs that recently closed, collected 500 million dollars.
SEBI yesterday also said that MFs can invest in derivatives listed on recognised bourses. MFs can also now invest in short term deposits in foreign banks and REITs listed on foreign bourses. The overall cap for foreign ETF investment will be $ 1 billion.
SEBI added that MFs can now invest in IPOs, FPOs to be listed on foreign bourses. MFs can also invest in money market instruments not below investment grade amd also in GSecs not below investment grade.
While RBI has raised the overall cap, SEBI has enhanced the limit on overseas investment for individual fund houses from 200 million to 300 million dollars. There are 9 such funds available to Indian investors, of which 1 NFO is under way. Most of them invest up to 65% in Indian markets. But five NFOs that recently closed, collected 500 million dollars.
SEBI yesterday also said that MFs can invest in derivatives listed on recognised bourses. MFs can also now invest in short term deposits in foreign banks and REITs listed on foreign bourses. The overall cap for foreign ETF investment will be $ 1 billion.
SEBI added that MFs can now invest in IPOs, FPOs to be listed on foreign bourses. MFs can also invest in money market instruments not below investment grade amd also in GSecs not below investment grade.
Brokerage Calls
Buy Axis Bank; target of Rs 835: Kotak Sec
At the current market price of Rs.755, the stock is trading at 20.1x its FY09E earnings and 2.9x its FY09E ABV. We expect net profit for FY08E and FY09E to be Rs.9.68 bn and Rs.13.10 bn, respectively. This will result into an EPS of Rs.27.70 and Rs.37.47 for FY08E and FY09E, respectively. The adjusted book value for FY08E and FY09E are forecast at Rs.230.95 and Rs.260.85, respectively.
We are maintaining a valuation gap of about 30% from HDFC Bank. However, we believe that the valuation gap between HDFC Bank and Axis Bank would come down. This would be due to the improvement in its balance sheet profile, clearance of a cloud of uncertainty about the top management and consistency in its earning growth (grown over 30% YoY in 28 out of the last 30 quarters)
We recommend BUY on the stock with a target price of Rs.835 based on a P/E ratio of 22x its FY09E earnings and P/ABV of 3.2x its FY09E adjusted book value for the bank, which could provide 11% upside from current levels.
Credit Suisse neutral on Unitech, target price of Rs 320.
Our target price of Rs320 is based on a sum-of-the-parts valuation, comprising Rs306 (a 10% premium to 12-month fwd NAV) for the real estate business and Rs14 for its other businesses. A 10% premium to NAV is justified based on: 1) scale and execution track record, 2) strong cash flow generation improving gearing and 3) potential upside from SEZ projects not in our valuations.
Sobha Developer an outperformer, target Rs 1080: Credit Suisse
Sobha.s twin businesses, backward integration and scalable business model, provide the right platform for growth, in our opinion. We expect significant volume growth in real estate business as the company expands out of Bangalore on the strength of a landbank of 3,574 acres across 8 cities.
Contractual business not only offers diversity and visibility to Sobha.s earnings, but also has favourable synergies with its real estate development plans.
Our price target of Rs1,080 is on a sum-of-the-parts basis, with Rs963 (15% discount to 12-month fwd. NAV) for the real estate business and Rs117 (8x 1-y.r fwd. earnings) for its contractual business.
Parsvnath Dev an outperformer; tgt Rs 425: Credit Suisse
We initiate coverage of Parsvnath Developers with an OUTPERFORM rating and a Rs425 target price. Parsvnath is our preferred stock for investors looking to invest in the growth story across Tier III locations. Parsvnath has a pan-Indian presence across 48 cities in 17 states and a developable landbank of 160 mn sq ft. Its landbank is relatively low risk, as a majority of the land is already in possession.
We estimate that close to 88% of FY08E revenue, 48% of FY09E, and 20% of FY10E revenue have already been secured, thereby giving strong visibility to our estimates. The company has the highest development-to-landbank ratio in our coverage universe, with ongoing developments on 74 mn sq ft. out of a total of 160 mn sq ft.
Credit Suisse neutral on Indiabulls Real, tgt Rs 585.
We initiate coverage with a NEUTRAL rating and price target of Rs585 - we believe that the stock is currently fairly valued. IBREL is a relatively new entrant into the real estate market, but has displayed strong project identification and acquisition capability, giving rise to strong potential for NAV expansion. IBREL has built a landbank of approx 4,358 acres across Tier I cities and SEZ projects and believes in taking large concentrated stances either in size or value. The current financials of the company are not reflective of its potential, as its projects are still in the development phase. We expect a multifold jump in revenues as the company commences development on its other projects.
Credit Suisse neutral on DLF, target price of Rs 770
We initiate coverage on DLF Ltd. with a NEUTRAL rating and a price target of Rs770 and continue to look for suitable entry points into the stock.
DLF has the largest landbank and is one of few developers to have demonstrated execution capabilities on large-scale projects, with 29 msf (224 msf including plots) of completed developments and 49 msf of projects under execution.
The landbank, acquired at a low historical cost, should support EBITDA margins of 65-67% for the next few years even as revenues grow at an 85% CAGR over FY07-10E. The company has a comfortable liquidity position after the recent IPO (gearing of 0.28x in FY08E, net cash by FY10E), which puts it in a position to invest in larger, longer gestation projects.
Buy Great Offshore, target Rs 996: IDBI Capital
Great Offshore Ltd. (GOL), is attaining burgeoning size with its well-planned inorganic growth strategy. The company has increased its fleet strength from 32 vessels in FY06 to 40 vessels at present, which will be further expanded to 42 by FY10. Going forward, we expect, increased fleet strength coupled with diversified revenue stream to drive growth for GOL. Topline is expected to post 24% CAGR over the next 3-years. EBIDTA margin is expected to surge to 60%. Boosting topline and surging margin is expected to lead to robust bottom line performance. PAT is expected to showcase CAGR of 41% in the next 3-years. The current market price is 13.1x the fully diluted FY09EPS of Rs.62.3 and 8.4x the fully diluted FY10EPS of Rs.97.1. We recommend ‘Buy’ with target price of Rs.996
Buy Tata Motors, target Rs 920: Deutsche Bank
Deutsche Bank is bullish on Tata Motors and has maintained buy rating on the stock with target price of Rs 920.
Sell Maruti Suzuki, target Rs 820: Deutsche Bank
We maintain our Sell on Maruti with a new target price of Rs 820. The stock has had a good run in the last 3 months (price performance of c30%). The drivers were strong monthly sales figures (21% YoY in Apr-Aug’07) in the backdrop of slow industry growth and a strong 1QFY08. Our view is based on four factors: 1) stretched valuations at current price, 2) rising capex intensity due to underinvestment in the past four years, 3) limited scope of further cost-reduction, and 4) competition in the compact car segment.
Buy ITC, target Rs 200: Sharekhan
We have always liked the way ITC has channelised the strong cash flows generated from its cigarette business into its other businesses of FMCG, hotels, paperboards and now e-Choupals. In our past reports we had always opined that the implementation of VAT might have a dampening effect on the stock price of ITC but the same would likely be a temporary aberration. We continue to be bullish on the stock with a long-term perspective. At the current market price of Rs184, the stock is attractively quoting at 23.2x its FY2008E earnings per share and 14.8x FY2008E EV/EBIDTA. We maintain our Buy recommendation on ITC with a price target of Rs200.
At the current market price of Rs.755, the stock is trading at 20.1x its FY09E earnings and 2.9x its FY09E ABV. We expect net profit for FY08E and FY09E to be Rs.9.68 bn and Rs.13.10 bn, respectively. This will result into an EPS of Rs.27.70 and Rs.37.47 for FY08E and FY09E, respectively. The adjusted book value for FY08E and FY09E are forecast at Rs.230.95 and Rs.260.85, respectively.
We are maintaining a valuation gap of about 30% from HDFC Bank. However, we believe that the valuation gap between HDFC Bank and Axis Bank would come down. This would be due to the improvement in its balance sheet profile, clearance of a cloud of uncertainty about the top management and consistency in its earning growth (grown over 30% YoY in 28 out of the last 30 quarters)
We recommend BUY on the stock with a target price of Rs.835 based on a P/E ratio of 22x its FY09E earnings and P/ABV of 3.2x its FY09E adjusted book value for the bank, which could provide 11% upside from current levels.
Credit Suisse neutral on Unitech, target price of Rs 320.
Our target price of Rs320 is based on a sum-of-the-parts valuation, comprising Rs306 (a 10% premium to 12-month fwd NAV) for the real estate business and Rs14 for its other businesses. A 10% premium to NAV is justified based on: 1) scale and execution track record, 2) strong cash flow generation improving gearing and 3) potential upside from SEZ projects not in our valuations.
Sobha Developer an outperformer, target Rs 1080: Credit Suisse
Sobha.s twin businesses, backward integration and scalable business model, provide the right platform for growth, in our opinion. We expect significant volume growth in real estate business as the company expands out of Bangalore on the strength of a landbank of 3,574 acres across 8 cities.
Contractual business not only offers diversity and visibility to Sobha.s earnings, but also has favourable synergies with its real estate development plans.
Our price target of Rs1,080 is on a sum-of-the-parts basis, with Rs963 (15% discount to 12-month fwd. NAV) for the real estate business and Rs117 (8x 1-y.r fwd. earnings) for its contractual business.
Parsvnath Dev an outperformer; tgt Rs 425: Credit Suisse
We initiate coverage of Parsvnath Developers with an OUTPERFORM rating and a Rs425 target price. Parsvnath is our preferred stock for investors looking to invest in the growth story across Tier III locations. Parsvnath has a pan-Indian presence across 48 cities in 17 states and a developable landbank of 160 mn sq ft. Its landbank is relatively low risk, as a majority of the land is already in possession.
We estimate that close to 88% of FY08E revenue, 48% of FY09E, and 20% of FY10E revenue have already been secured, thereby giving strong visibility to our estimates. The company has the highest development-to-landbank ratio in our coverage universe, with ongoing developments on 74 mn sq ft. out of a total of 160 mn sq ft.
Credit Suisse neutral on Indiabulls Real, tgt Rs 585.
We initiate coverage with a NEUTRAL rating and price target of Rs585 - we believe that the stock is currently fairly valued. IBREL is a relatively new entrant into the real estate market, but has displayed strong project identification and acquisition capability, giving rise to strong potential for NAV expansion. IBREL has built a landbank of approx 4,358 acres across Tier I cities and SEZ projects and believes in taking large concentrated stances either in size or value. The current financials of the company are not reflective of its potential, as its projects are still in the development phase. We expect a multifold jump in revenues as the company commences development on its other projects.
Credit Suisse neutral on DLF, target price of Rs 770
We initiate coverage on DLF Ltd. with a NEUTRAL rating and a price target of Rs770 and continue to look for suitable entry points into the stock.
DLF has the largest landbank and is one of few developers to have demonstrated execution capabilities on large-scale projects, with 29 msf (224 msf including plots) of completed developments and 49 msf of projects under execution.
The landbank, acquired at a low historical cost, should support EBITDA margins of 65-67% for the next few years even as revenues grow at an 85% CAGR over FY07-10E. The company has a comfortable liquidity position after the recent IPO (gearing of 0.28x in FY08E, net cash by FY10E), which puts it in a position to invest in larger, longer gestation projects.
Buy Great Offshore, target Rs 996: IDBI Capital
Great Offshore Ltd. (GOL), is attaining burgeoning size with its well-planned inorganic growth strategy. The company has increased its fleet strength from 32 vessels in FY06 to 40 vessels at present, which will be further expanded to 42 by FY10. Going forward, we expect, increased fleet strength coupled with diversified revenue stream to drive growth for GOL. Topline is expected to post 24% CAGR over the next 3-years. EBIDTA margin is expected to surge to 60%. Boosting topline and surging margin is expected to lead to robust bottom line performance. PAT is expected to showcase CAGR of 41% in the next 3-years. The current market price is 13.1x the fully diluted FY09EPS of Rs.62.3 and 8.4x the fully diluted FY10EPS of Rs.97.1. We recommend ‘Buy’ with target price of Rs.996
Buy Tata Motors, target Rs 920: Deutsche Bank
Deutsche Bank is bullish on Tata Motors and has maintained buy rating on the stock with target price of Rs 920.
Sell Maruti Suzuki, target Rs 820: Deutsche Bank
We maintain our Sell on Maruti with a new target price of Rs 820. The stock has had a good run in the last 3 months (price performance of c30%). The drivers were strong monthly sales figures (21% YoY in Apr-Aug’07) in the backdrop of slow industry growth and a strong 1QFY08. Our view is based on four factors: 1) stretched valuations at current price, 2) rising capex intensity due to underinvestment in the past four years, 3) limited scope of further cost-reduction, and 4) competition in the compact car segment.
Buy ITC, target Rs 200: Sharekhan
We have always liked the way ITC has channelised the strong cash flows generated from its cigarette business into its other businesses of FMCG, hotels, paperboards and now e-Choupals. In our past reports we had always opined that the implementation of VAT might have a dampening effect on the stock price of ITC but the same would likely be a temporary aberration. We continue to be bullish on the stock with a long-term perspective. At the current market price of Rs184, the stock is attractively quoting at 23.2x its FY2008E earnings per share and 14.8x FY2008E EV/EBIDTA. We maintain our Buy recommendation on ITC with a price target of Rs200.
Thursday, September 27, 2007
MIRC Electronics leads gainers in 'A' group
Small-cap consumer durables maker MIRC Electronics surged 19.83% to Rs 21.75 and it topped gainers in the BSE’s A group shares.
Ready-to-wear apparel maker Arvind Mills jumped 14.46% to Rs 59.75. It was the second biggest gainer in A group. Its board will meet on 28 September 2007 to consider raising funds through various means.
ONGC’s subsidiary Mangalore Refinery & Petrochemicals spurted 13.75% to Rs 74.20 and came third among top gainers in A group. Earlier on 5 September 2007, the company had signed a 4-year product supply pact with Shell India Marketing.
Public sector undertaking HMT moved up 7.69% to Rs 69.30. It came fourth among top gainers in A group. Earlier this month, the company launched a 2 cylinder, 25 horse power (HP) tractor. The tractor model was designed exclusively, keeping the requirements of Andhra Pradesh farmers in view.
Gujarat-based power generation firm Gujarat Industries Power Company gained 7.02% to Rs 89.15 and came fifth among top gainers in A group.
Maytas Infra - IPO Note
Promoted by B.Teja Raju (son of chairman of Satyam Computer Services), Maytas Infra (formerly Satyam Construction private limited) is a Hyderabad-based construction and infrastructure development company. Its business is divided into two parts: Construction contractor undertaking projects on a contract basis and infrastructure development involving identifying, sourcing, developing, and operating projects in infrastructure sectors.
In the construction business, the focus is on irrigation, roads and bridges, and buildings infrastructure sectors. Recently, the construction portfolio has been diversified to include civil construction in the power, industrial structures, oil and gas infrastructure, and railway sectors.
Maytas Infra is identifying suitable partners and positioning to exploit the expected opportunities in water and waste-water management, special economic zones, urban infrastructure, ports and airport sectors.
The current IPO is to fund purchase of construction equipment, invest in associate companies and meet other project-related investment commitment.
Strengths
- End June 2007, the order book was Rs 3589.32 crore. This is about 4.6 times consolidated revenue in the year ending March 2007 (FY 2007). The execution period for the order book is 18-36 months. The pending orders are for constructing roads (31%), buildings (13%), railways (5%), high-margin projects comprising irrigation (37%), power (5%) and oil and gas (9%).
- Of the pending orders, about 70%-80% of the contracts provide for price escalation. Thus, margin is to a great extent cushioned against variations in input costs.
- Infrastructure development business has equity interest in 11 projects ranging from 19.5% to 50%. Of these projects, six are road, four power and one port.
Weaknesses
- Although the first stage of the Gautami power station project in Andhra Pradesh with equity interest of 19.5%, has been completed substantially in September 2006, it has not commenced commercial operations due to the unavailability of natural gas.
- Maytas Holdings, a promoter group company, has applied for the registration of the Maytas trademark and service mark. Has not permitted the use of the trademark for real-estate development. One of the related companies has exclusive rights to use the Maytas trademark for real-estate development. The promoter group has about 41 companies.
- For the KVK Nilachal power station project in Orissa, with equity interest of 50%, the current coal supply is not sufficient to operate the plant at its contracted capacity. The project consists of 2 x 300 MW coal-based thermal power plant. KVK Nilachal Power currently estimates that a 300-MW power station will require 1.59 million tonnes of low grade thermal coal to maintain 80% plant-load factor (PLF). Till date, coal linkage of only 1.2 million tonnes has been obtained.
Valuation
Between FY 2003 – FY 2007, unconsolidated revenue has shot up from Rs 118.13 crore to Rs 601.01 crore. In the same period, operating profit margin OPM has improved from 5.1% to 16.1% due to increase in investment in equipment and manpower, leading to reduction in subcontracting of jobs. Thus, unconsolidated net profit has increased at much faster pace: from Rs 0.32 crore to Rs 55.01 crore. This growth has also been boosted due to increase in profit from participation in unincorporated joint ventures undertaking larger contracts.
There are two sets of consolidated financial statements: one as per tow accounting standards (AS). As per AS-23 (which is intended to be followed), consolidated profit is lower and debt/equity ratio is 1.9:1. As per AS-27 (which the auditors want to adopt), consolidated profit is higher and so also the debt/equity ratio. As per AS-27, consolidated net profit is Rs 52.9 crore and EPS Rs 9. According to AS- 23, consolidated net profit works out to Rs 48.77 crore and EPS Rs 8.3. However, since the intention is to follow AS-23, we have used EPS of Rs 8.3 for valuation. At the offer price band of Rs 320-Rs 370, the P/E range is 38.6-44.6, respectively. The TTM P/E of Construction - Civil / Turnkey – Large is 44.2.
Wednesday, September 26, 2007
Buy TCS, target Rs 1248: IDBI Capital
Investment highlights ! Building global competency TCS is India’s largest IT company, with global ambitions to be among the top 10 global IT players by 2010. The company has a three-pronged strategy to achieve the same – strong delivery capability through Global Network Delivery Model (GNDM), changing business mix (full services play) and inorganic growth through strategic acquisitions. Ability to win and address large engagements The strong business model has helped the company win and address large complex global engagements. The company won 12 USD 50 million plus deals in FY07 alone, which supports the large volume player strategy of TCS. Some of the large ongoing projects include Bank of China (USD 100 million, 5-years) and Bank of Pichincha (USD 140million, 7-years). Recently, TCS won a USD 140 million deal (2 year development, 7-8 years maintenance) from BSNL, India’s largest state owned telecom service provider and a USD 35 million multi year outsourcing contract from healthcare major Roche. Increasing focus on products division Product services division – TCS Financial Solutions has shown considerable growth (>50% YoY) in the last 2-years driven by strong customer addition across geographies. Management expects a revenue contribution in high single digits within next 3-years driven by growing business traction enhanced by inorganic growth momentum. Strong demand environment with growth across geographies TCS has witnessed robust growth across geographies especially established markets (US and Europe – 46% YoY FY07) and emerging markets Middle East Asia (MEA), Latin America and Asia Pacific – 79% YoY FY07). This continued growth has been propelled by leveraging global support capability, changing business mix and acquisition leading to significant customer additions and deal wins Balance sheet analysis " Cash and cash equivalents stood at healthy Rs.8,021m which we believe could be further used for acquisitions. " TCS has consistently maintained a strong Return on Net Worth (RoNW) of greater than 50% in the last 3-years. The RoNW stood at 51% as on 30 June, 2007. Valuation TCS currently trades at 18.6x and 15.3x FY08E and FY09E earnings which is lower than its closest competitor Infosys. We expect TCS to trade at a premium to its close peers bolstered by strong revenue growth, GNDM, full services play and continued acquisitions. Furthermore, there is strong IT demand environment with IT exports expected to cross US$ 60bn by 2010 and TCS’s global ambitions, we believe a revenue growth of 25%+ is achievable on a long term basis. This is further supported by healthy pipeline, strong employee metrics, recent large deal wins and a strong domestic presence, which adds value to our recommendation. We assume 26% revenue and 21% EPS CAGR through FY10. Moreover possible inorganic growth and continued large deal wins, add to protracted revenue growth over a long period with sustainable margins. We argue that the stock should trade 20-25% higher than the current level at Rs.1,248/share within 12-months. |
| Buy HCL Technologies: Edelweiss Posted: 25 Sep 2007 07:57 AM GMT-06:00 How will the appreciating RS bear down on earnings? We believe that hedging has protected EPS for FY08E but FY09E is still vulnerable to the appreciating RS. Our FY09E EPS assumes a base-case RS-USD equation of 40.5. We have laid out the scenario table outlining our estimated impact on FY09 EPS for various RS-USD exchange rates. We can see that if the RS were to strengthen to 39.0 vis-Ã vis the USD, the downside to our FY09E EPS estimates from the base case is the range of 8%. This does not include hedging income which we cannot forecast and therefore an upside risk is inherently present. In such an appreciating RS environment there will likely be an accompanying de-rating of our FY09E target P-E by at about 3-4%. So taken together, there could be a downside of about 11-12% to our appraised return of near-30% over a 12-month horizon on account of the appreciating RS. In other words, a 12 month price target of RS 350-355 stands reduced to about RS 315-320. We must be cognizant of the risk to earnings and our target price of an appreciable strengthening of the RS. This should a constant watch point for the investor. HCLT has strengthen its execution capability by aggressively recruiting quality middle-tosenior management talent One of the company’s success factors in the recent past has been its improved execution and a good reason for that has been its ability to aggressively hire senior managers from firms such as TCS, Satyam and Infosys (Indian peers) and IBM among the global names. This has helped HCLT close the gap between peers with respect to the enterprise application portfolio. HCLT unveils its progress on its innovation initiatives but it is premature to predict success yet. HCLT has focused its mindshare in the last couple of years to move towards a business model driven by IP. It has commercial offerings to address areas such as SOA, MDM, WIMAX etc. These emerging services have not yet turned mainstream but the company is betting on their taking off in the near future. We believe that while such initiatives serve to differentiate HCLT from the Indian IT pack, it is far too early to declare success here. To impact a company of HCLT’s size positively in a meaningful manner, we believe that we will have to wait till FY10E. What’s noteworthy is that clients have already been signed up for HCLT’s proprietary offering in SOA (called Penstock) and this quickens the pace with which HCLT signs up transformation deals. HCLT is striving to bring differentiation to its pricing model to delink revenues and manpower As part of its efforts to drive an increasing proportion of incremental revenues from outputbased measures as opposed to input-based measures, the company has begun to deploy several pricing models such as risk-reward, outcome-based pricing, gain sharing mechanisms etc. We believe that these still largely remain in the paradigm phase and HCLT’s largest peers such as Infosys and TCS are also articulating such possibilities equally seriously. HCLT is winning its fair share of large deals on the back of its three-pronged business model The company is increasingly on the final stage shortlist in deals that other Indian vendors do not make it to. In those instances it faces Indian vendor competition at the final stage; the most common player it runs into is TCS. We believe that this is due to the fact that apart from HCLT, the only other Indian vendor with comparable maturity on the Infrastructure Management Space (specifically, remote infrastructure management) and bundling it with application management/optimization is TCS. This strength enables HCLT to win a good proportion of multi-service client deals and the frequency of such client wins is on the rise. Is HCLT diversifying its growth sufficiently and quickly enough? Yes, we believe so. Growth is deriving from investments already made in emerging sub-verticals such as media & entertainment, Consumer Products Group, life sciences and healthcare and telecoms. The company has been following a micro-vertical strategy identifying pockets where it should dominate versus those pockets where it should differentiate. Many of these sub-verticals will grow at least 50% in FY08 over FY07 in USD (admittedly over a smaller base). In addition, there is low-hanging fruit to be profitably captured in these less penetrated verticals being in the initial stages of the adoption curve. In our view, HCLT’s broad-based multi-service existing model with its top 30 clients (most of them USD 10 mn plus clients) gives the company further flexibility in managing its order books and ensuring that its q-o-q revenue momentum can absorb the impact of incremental investments. Our outlook on valuations From the chart below, we see that excluding that quick aberration in May 2006, HCLT’s valuations are reaching near 2 year-lows. HCLT has lost much of the P-E gains that it has accomplished over the past 20-24 months. We believe that stock prices will continue to be volatile in the short-term. Observers are trying to assess the multiplier impacts of developments in the US. We believe that HCLT’s valuations have become fairly reasonable for investors at this point in time within the Re contained within 39.5 to the USD. It currently trades at 14.5x FY08E and 11.3x FY09E, and we maintain our ‘BUY’ rating on the stock. |
| Buy Indoco Remedies, target Rs 350: Almondz Posted: 25 Sep 2007 07:55 AM GMT-06:00 Investment Rationale * Indoco has reorganized its business in order to add strength by bringing all the manufacturing units of the group under its fold. * During the first nine months ending March 2007, Indoco’s net sales were up 38% and the net profits increased by 28%. * Indoco’s top 10 products are ranked within the first five in the segment. * Indoco’s research team is working on 9 molecules mainly in the ophthalmic segment. * Indoco’s facility for manufacturing sterile eye drops is US FDA approved and is in a segment that has 5-6 players in the world. • The company has its manufacturing facilities approved by USFDA, UKMHRA, GMP, etc... * Indoco has received the ANDA approval for Ciprofloxacin, used in sterile eye drops. * The company has growth plans in the semi regulated markets and has filed dossiers in CIS, South Africa, Australia and New Zealand. * IMS ORG ranks Indoco 21st in the Prescription Audit and 33rd in the Retail Audit for July 2007. Financials and Valuation Indoco is currently trading at 7.1x FY07E and 5.6x FY08E EPS of Rs. 35.4 and Rs. 45.1 respectively. Given the reorganization of business, the growth in both domestic business and exports, the rankings of the company’s products and the business strategy for growth, we estimate the revenues to grow at 33% CAGR from FY06-08E. We initiate our coverage with a ‘BUY’ rating with a 12 month target of Rs. 350. |
BHEL, Bharti, Grasim the most preferred stocks: ML
Merrill Lynch recently came out with a report wherein thee have updated their most and least preferred stock list .
According to the report, "In this note we update our most- and least-preferred stock list, consistent with our fundamental 12-month opinions but intended to appeal to investors with a shorter-term time horizon, with potential short-term price catalysts."
This month’s stock list:
With the monsoon season at an end, we expect cement producers to hike prices, especially since no new major supply is expected till 4QFY08. Earnings of cement companies are highly sensitive to cement prices. We add Grasim, our top cement pick, to our most preferred list. We are correspondingly removing TCS where valuations are looking attractive but strong rupee poses earnings risk.
Most preferred:
BHEL: 1) We expect 30% growth in order book in FY08E led by key customers NTPC, APGenco etc 2) Potential success at super-critical tenders & gas-based projects 3) BHEL’s capacity expansion plans are running on time to meet backlog.
Bharti Airtel: 1) Continued strong subscriber growth. 2) Solid revenue growth and strong margins in FY08E despite continued competitive pressures. 3) Visibility on tower portfolio in terms of build-out & tenancy.
Grasim Industries: (1) Strong cement prices in the upcoming construction season (Oct ’07 onwards) (2) No major new supplies till 4Q FY08E (3) strong quarterly earnings
Least preferred:
Hindalco: 1) September quarter results likely to disappoint owing to lower Aluminum prices and rupee appreciation. 2) Copper smelting business sharply affected by falling TCRCs.
Tata Motors: 1) Expect volumes to decline (YoY) over the next 2 quarters. 2) Earnings will disappoint led by slowing volumes and margin contraction.
Pantaloon: 1) Same store sales growth data has been choppy in the last few months and has been slowing down; 2) Margin pressure is likely to intensify with rising salary costs and 3) likely inventory write-off in the full year results due late Sept may have implications for gross margin going forward.
According to the report, "In this note we update our most- and least-preferred stock list, consistent with our fundamental 12-month opinions but intended to appeal to investors with a shorter-term time horizon, with potential short-term price catalysts."
This month’s stock list:
With the monsoon season at an end, we expect cement producers to hike prices, especially since no new major supply is expected till 4QFY08. Earnings of cement companies are highly sensitive to cement prices. We add Grasim, our top cement pick, to our most preferred list. We are correspondingly removing TCS where valuations are looking attractive but strong rupee poses earnings risk.
Most preferred:
BHEL: 1) We expect 30% growth in order book in FY08E led by key customers NTPC, APGenco etc 2) Potential success at super-critical tenders & gas-based projects 3) BHEL’s capacity expansion plans are running on time to meet backlog.
Bharti Airtel: 1) Continued strong subscriber growth. 2) Solid revenue growth and strong margins in FY08E despite continued competitive pressures. 3) Visibility on tower portfolio in terms of build-out & tenancy.
Grasim Industries: (1) Strong cement prices in the upcoming construction season (Oct ’07 onwards) (2) No major new supplies till 4Q FY08E (3) strong quarterly earnings
Least preferred:
Hindalco: 1) September quarter results likely to disappoint owing to lower Aluminum prices and rupee appreciation. 2) Copper smelting business sharply affected by falling TCRCs.
Tata Motors: 1) Expect volumes to decline (YoY) over the next 2 quarters. 2) Earnings will disappoint led by slowing volumes and margin contraction.
Pantaloon: 1) Same store sales growth data has been choppy in the last few months and has been slowing down; 2) Margin pressure is likely to intensify with rising salary costs and 3) likely inventory write-off in the full year results due late Sept may have implications for gross margin going forward.
Citigroup is bearish on Reliance Energy and has maintained sell rating on the stock with target price of Rs 510 implying downside potential of 54%.
Stock up 118% in the past 5 months
RELE shares have rallied up 118% over the past 5 months on expectations of blue-sky scenarios through capacity additions, EPC order wins and the value of CBM blocks.
The deepest shade of blue
Even our extreme blue-sky scenario of (1) additional 25,000MW capacity in 7 years, (2) execution of EPC orders of Rs800 billion to be executed over 7 years with EBITDA margins of 15%, (3) no fuel supply risks, (4) no execution risks, (5) generous multiples for valuations, (6) and 20% premium to our existing value of RELE (ex-cash) yields only Rs1,183/share. We reiterate our Sell/Low Risk rating.
Execution risks are real
RELE has re-rated every time a project has been announced. It was expected that RELE would capitalize on the opportunities thrown up by the passing of the Electricity Act 2003 (EA03). Projects were announced from time to time, but 4 years have passed and RELE continues to have only 941MW of generation capacity and distribution licenses in Mumbai and Delhi.
Some progress but....
RELE has made strides in terms of the (1) implementation of the Rosa project, (2) winning the Sasan UMPP, (3) clearance for the 3 transmission projects, and (4) winning a real estate project in Hyderabad. But the current stock price does not appear to factor in any execution risk and at Rs1,106.50 the implicit value of net cash/share is 3.5x book value.
Reiterate Sell/Low Risk
RELE has been re-rating every time a project has been announced. It was expected that RELE would capitalize on opportunities that the passing of the Electricity Act 2003 (EA03) would throw up. Numerous projects have been announced from time to time but 4 years have passed and RELE continues to have only 941MW of generation capacity and distribution licenses in Mumbai and Delhi. The only major difference has been the substantial build-up of cash and cash equivalents and the decent ramp-up of the EPC business.
Historical execution risks of course cannot be extrapolated to the future. The company has made strides in terms of the (1) implementation of the Rosa projects, (2) winning the Sasan project, (3) getting clearance for the 3 transmission projects, and (4) winning a real estate project in Hyderabad. However, even our extreme blue-sky scenario yields a value of Rs1,183 and the stock is at Rs1,106.50 (up 118% from May 16, 2007). Further, at Rs1,106.50 the implicit value of net cash/share is 3.5x book value, which in our view completely ignores execution risks. Reiterate our Sell/Low Risk rating on the company.
Investment strategy
We rate Reliance Energy Sell/ Low Risk (3L) with a target price of Rs510. Despite huge expectations about the company’s ability to capitalize on opportunities post the passing of the Electricity Act 2003 the company continues to have only 941MW of generation capacity and distribution licenses in Mumbai and Delhi. Most of Reliance Energy’s projects have hit regulatory, land clearance or fuel supply snags. The only major difference in the past 4 years has been the substantial buildup of cash and cash equivalents and the ramp-up of the EPC business.
Even our extreme blue-sky scenario yields a value of only Rs1,183 and the stock is at Rs1106.50 (up 118% from May 16, 2007). Further, at Rs1106.50 the implicit value of net cash/share is 3.5x book value, which in our view completely ignores execution risks. We reiterate our Sell/Low Risk rating on the company. Long-term steady state earnings growth in the 13-15% range and low RoCE of 2-4% (which is the lowest in our Indian Electric Utilities Universe as a result of 74% of the assets being cash) indicate inefficient capital deployment, in our view.
Valuation
Our 12-month target price for Reliance Energy of Rs510 is based on RELE (ex net cash) value of Rs229 and net cash value of Rs281 (1.1x FY07E Net Cash/FD Share). RELE (ex net cash) would comprise Mumbai business value of Rs117, other power assets value of Rs27, EPC Business value of Rs65 and Delhi distribution value of Rs20. At our target price of Rs510, RELE (ex Delhi) would trade at a P/E multiple of 10.1x FY09E.
Risks
We rate Reliance Energy Low Risk which is different from the High Risk rating that our quantitative risk-rating system accords. Our Low Risk rating is in-line with that of other rated Electric Utility stocks NTPC, Tata Power and CESC given: Stable and regulated earnings and cash flows from operations, with fuel costs being a pass-through.
Secular growth prospects for the power sector in India, given current shortages and low usage and penetration levels. The upside risks to our target price include: (1) Announcement of new projects, which leads to short term re-rating of the stock; (2) The company finishing any of its announced projects way before scheduled commissioning; and (3) Better than expected order wins and order execution in the EPC Business.
RELE shares have rallied up 118% over the past 5 months on expectations of blue-sky scenarios through capacity additions, EPC order wins and the value of CBM blocks.
The deepest shade of blue
Even our extreme blue-sky scenario of (1) additional 25,000MW capacity in 7 years, (2) execution of EPC orders of Rs800 billion to be executed over 7 years with EBITDA margins of 15%, (3) no fuel supply risks, (4) no execution risks, (5) generous multiples for valuations, (6) and 20% premium to our existing value of RELE (ex-cash) yields only Rs1,183/share. We reiterate our Sell/Low Risk rating.
Execution risks are real
RELE has re-rated every time a project has been announced. It was expected that RELE would capitalize on the opportunities thrown up by the passing of the Electricity Act 2003 (EA03). Projects were announced from time to time, but 4 years have passed and RELE continues to have only 941MW of generation capacity and distribution licenses in Mumbai and Delhi.
Some progress but....
RELE has made strides in terms of the (1) implementation of the Rosa project, (2) winning the Sasan UMPP, (3) clearance for the 3 transmission projects, and (4) winning a real estate project in Hyderabad. But the current stock price does not appear to factor in any execution risk and at Rs1,106.50 the implicit value of net cash/share is 3.5x book value.
Reiterate Sell/Low Risk
RELE has been re-rating every time a project has been announced. It was expected that RELE would capitalize on opportunities that the passing of the Electricity Act 2003 (EA03) would throw up. Numerous projects have been announced from time to time but 4 years have passed and RELE continues to have only 941MW of generation capacity and distribution licenses in Mumbai and Delhi. The only major difference has been the substantial build-up of cash and cash equivalents and the decent ramp-up of the EPC business.
Historical execution risks of course cannot be extrapolated to the future. The company has made strides in terms of the (1) implementation of the Rosa projects, (2) winning the Sasan project, (3) getting clearance for the 3 transmission projects, and (4) winning a real estate project in Hyderabad. However, even our extreme blue-sky scenario yields a value of Rs1,183 and the stock is at Rs1,106.50 (up 118% from May 16, 2007). Further, at Rs1,106.50 the implicit value of net cash/share is 3.5x book value, which in our view completely ignores execution risks. Reiterate our Sell/Low Risk rating on the company.
Investment strategy
We rate Reliance Energy Sell/ Low Risk (3L) with a target price of Rs510. Despite huge expectations about the company’s ability to capitalize on opportunities post the passing of the Electricity Act 2003 the company continues to have only 941MW of generation capacity and distribution licenses in Mumbai and Delhi. Most of Reliance Energy’s projects have hit regulatory, land clearance or fuel supply snags. The only major difference in the past 4 years has been the substantial buildup of cash and cash equivalents and the ramp-up of the EPC business.
Even our extreme blue-sky scenario yields a value of only Rs1,183 and the stock is at Rs1106.50 (up 118% from May 16, 2007). Further, at Rs1106.50 the implicit value of net cash/share is 3.5x book value, which in our view completely ignores execution risks. We reiterate our Sell/Low Risk rating on the company. Long-term steady state earnings growth in the 13-15% range and low RoCE of 2-4% (which is the lowest in our Indian Electric Utilities Universe as a result of 74% of the assets being cash) indicate inefficient capital deployment, in our view.
Valuation
Our 12-month target price for Reliance Energy of Rs510 is based on RELE (ex net cash) value of Rs229 and net cash value of Rs281 (1.1x FY07E Net Cash/FD Share). RELE (ex net cash) would comprise Mumbai business value of Rs117, other power assets value of Rs27, EPC Business value of Rs65 and Delhi distribution value of Rs20. At our target price of Rs510, RELE (ex Delhi) would trade at a P/E multiple of 10.1x FY09E.
Risks
We rate Reliance Energy Low Risk which is different from the High Risk rating that our quantitative risk-rating system accords. Our Low Risk rating is in-line with that of other rated Electric Utility stocks NTPC, Tata Power and CESC given: Stable and regulated earnings and cash flows from operations, with fuel costs being a pass-through.
Secular growth prospects for the power sector in India, given current shortages and low usage and penetration levels. The upside risks to our target price include: (1) Announcement of new projects, which leads to short term re-rating of the stock; (2) The company finishing any of its announced projects way before scheduled commissioning; and (3) Better than expected order wins and order execution in the EPC Business.
Hold Karur Vysya Bank: KJMC
Financial Performance Quarter ended June 07
Karur Vysya Bank (KVB) has reported a net profit growth of 24.93% to Rs 48 cr in the Q1 FY08 compared with Rs 38 cr in the corresponding period of the previous year. Total income rose by 34% to Rs 292 cr (Rs 218cr). Net Interest income increased by 20%, whereas, other income registered a jump of 40%. Interest on advances touched Rs 194 cr (Rs 131 cr), up 47.25 %. Net NPA stood low at 0.25% and Capital adequacy ratio (CAR) at 15.8%.
Year ended Mar 07
For the year ended Mar'07, bank recorded 23% increase in Net interest income to Rs 347 cr and mere 2% increase in other income. Bank reported 18% increase in PAT to Rs.160 cr. NIM's too improved by 8 bps to 3.6%. Advances registered growth of 27% at Rs.7040 cr and deposits grew by 23% to reach Rs.9340 cr; Creditdeposit ratio improved to 75% from 73% during previous year. Despite robust credit growth asset quality improved with Net NPA's lowering down to 0.23% of advances as compared to 0.81% last year. The bank has set a business target of Rs 21,000 cr during F.Y 08 up from Rs.16380 cr during F.Y 07. CAR declined slightly to 14.5% from 14.8% as on March 31, 06.
Company Outlook
Bank has reported decent financials during F.Y 07 and during Q1 FY 08 with robust business growth, good asset quality and satisfactory profitability. Bank is operating on 100% CBS platform. Furthermore bank has shown aggression to grow. We believe that bank has potential to continue registering robust financial performance in line with its peers and could be potential acquisition target post 2009. At CMP of Rs.337, bank's stock is trading at P/E of 11.1x and P/Adj BV of 1.7x on FY 07 EPS and Adj BV respectively.
Bank has outperformed Nifty as well as Bankex. Bank has robust dividend history in the range of 100%-120% since past 4 years and has generated stock return of 56%. Further bank has declared issued bonus during 1995, 2002 and 2006, which indicates banks intention to reward their shareholders. Considering bank's robust financial performance, investor friendly approach and potential acquisition target, we recommend, "Hold" for existing shareholders and accumulate at lower levels.
Karur Vysya Bank (KVB) has reported a net profit growth of 24.93% to Rs 48 cr in the Q1 FY08 compared with Rs 38 cr in the corresponding period of the previous year. Total income rose by 34% to Rs 292 cr (Rs 218cr). Net Interest income increased by 20%, whereas, other income registered a jump of 40%. Interest on advances touched Rs 194 cr (Rs 131 cr), up 47.25 %. Net NPA stood low at 0.25% and Capital adequacy ratio (CAR) at 15.8%.
Year ended Mar 07
For the year ended Mar'07, bank recorded 23% increase in Net interest income to Rs 347 cr and mere 2% increase in other income. Bank reported 18% increase in PAT to Rs.160 cr. NIM's too improved by 8 bps to 3.6%. Advances registered growth of 27% at Rs.7040 cr and deposits grew by 23% to reach Rs.9340 cr; Creditdeposit ratio improved to 75% from 73% during previous year. Despite robust credit growth asset quality improved with Net NPA's lowering down to 0.23% of advances as compared to 0.81% last year. The bank has set a business target of Rs 21,000 cr during F.Y 08 up from Rs.16380 cr during F.Y 07. CAR declined slightly to 14.5% from 14.8% as on March 31, 06.
Company Outlook
Bank has reported decent financials during F.Y 07 and during Q1 FY 08 with robust business growth, good asset quality and satisfactory profitability. Bank is operating on 100% CBS platform. Furthermore bank has shown aggression to grow. We believe that bank has potential to continue registering robust financial performance in line with its peers and could be potential acquisition target post 2009. At CMP of Rs.337, bank's stock is trading at P/E of 11.1x and P/Adj BV of 1.7x on FY 07 EPS and Adj BV respectively.
Bank has outperformed Nifty as well as Bankex. Bank has robust dividend history in the range of 100%-120% since past 4 years and has generated stock return of 56%. Further bank has declared issued bonus during 1995, 2002 and 2006, which indicates banks intention to reward their shareholders. Considering bank's robust financial performance, investor friendly approach and potential acquisition target, we recommend, "Hold" for existing shareholders and accumulate at lower levels.
Buy MIC Electronics, target Rs 525: Pioneer
MIC Electronics Ltd. ( MIC) is a Hyderabad, Andhra Pradesh based manufacturer of LED displays, electronic & telecom (ICT) equipment and also offers software services for the telecom segment.
The ICT segment accounted for approx 67% of its FY07 revenues. However, MIC aims to leverage its expertise in design, development and manufacturing of LED display systems and boost its share in revenues in the coming years.
To capitalise on the changing demand dynamics of the Media industry , MIC is scaling its display LED display module manufacturing capacity from 6,000 p.a. to 15,000 p.a. by end - CY08.
In Oct’06, it acquired an InfoSTEP Inc., a US based software services outfit catering to the ICT sector. This gives it access to the lucrative North American market. ô€‚„ MIC raised Rs 765 million via its IPO in Apr’07. The proceeds are proposed to be utilised for manufacturing capacity enhancement and beefing up its R&D and marketing initiatives .
It’s order book in the media segment is approx Rs 1.5 billion executable over 12 to 18 months. In telecom segment, the same is approx Rs 650 million to be executed by H1FY08. Backed by strong growth in both its business segments, MIC reported a 130% increase in net sales to Rs 2.4 billion for FY07, with a 108% growth in net profits to Rs 322 million.
At the CMP of Rs 436, the stock trades at a P/E and EV/EBIDTA of 13.1x and 10.1x FY09E earnings. Considering its product range, technical competence and operational scale up, we initiate coverage with a ‘BUY’ recommendation, with a price target of Rs 525, on an investment perspective of 12-months.
The ICT segment accounted for approx 67% of its FY07 revenues. However, MIC aims to leverage its expertise in design, development and manufacturing of LED display systems and boost its share in revenues in the coming years.
To capitalise on the changing demand dynamics of the Media industry , MIC is scaling its display LED display module manufacturing capacity from 6,000 p.a. to 15,000 p.a. by end - CY08.
In Oct’06, it acquired an InfoSTEP Inc., a US based software services outfit catering to the ICT sector. This gives it access to the lucrative North American market. ô€‚„ MIC raised Rs 765 million via its IPO in Apr’07. The proceeds are proposed to be utilised for manufacturing capacity enhancement and beefing up its R&D and marketing initiatives .
It’s order book in the media segment is approx Rs 1.5 billion executable over 12 to 18 months. In telecom segment, the same is approx Rs 650 million to be executed by H1FY08. Backed by strong growth in both its business segments, MIC reported a 130% increase in net sales to Rs 2.4 billion for FY07, with a 108% growth in net profits to Rs 322 million.
At the CMP of Rs 436, the stock trades at a P/E and EV/EBIDTA of 13.1x and 10.1x FY09E earnings. Considering its product range, technical competence and operational scale up, we initiate coverage with a ‘BUY’ recommendation, with a price target of Rs 525, on an investment perspective of 12-months.
Buy Balmer Lawire & Co, target Rs 630: Bajaj Capital
Balmer Lawrie is a Government of India company that operates as a diversified conglomerate with interests in logistics, industrial packaging, greases & lubricants, travel & tourism, leather chemicals, tea exports and turnkey projects. It enjoys market leadership in most of its core business segments capturing a high share of government and PSU businesses.
In the recent years, the company’s focus on the logistics division has led to a strong growth in its profitability. Though logistics contributes approx. 24% to the company’s total revenues, it delivers approx. 61% of its total EBIT. The company plans to focus on its core business and expand via organic and inorganic routes. Based on the organic route, the management is targeting Rs. 2000 cr. & Rs. 200 cr. in Revenues & Net Profits respectively by FY10E, implying a CAGR of 41.7% in earnings during FY07-10.
To attain market leadership in its core businesses, Balmer Lawrie plans to exit some of its non-core businesses such as tea blending and specialty containers. The company also plans to expand its offerings in key businesses to tap potential clients. Further, Balmer Lawrie’s nearly debt free status, comparatively cheap valuations and the possibility of divestment of Government’s stake make it an attractive value play.
Key Investment Arguments
Balmer Lawrie has a market cap of Rs. 754.4cr, average daily volume of 7433 shares for the last six months and net sales of Rs. 1338cr for the trailing twelve months ended 30th June 2007.
Its Operating profit and Net profit margins are at 9.5% and 5.5% resp. in FY07. The company has achieved a 5-year CAGR of 14.1% in net sales, 21.6% in EBITDA and 54.4% in net profits. Balmer Lawrie presently trades at a PE multiple of 10.4, Price to Book ratio of 2.8 and Price to Sales ratio of 0.6. Debt-equity ratio is virtually NIL at 0.4 for FY07.
Conclusion
On the basis of our research, we feel that this is a good stock to buy at the current market price of Rs. 463.10. If everything goes well, the price is likely to appreciate to Rs. 630.0, within a year or so, translating into a gain of about 36%.
In the recent years, the company’s focus on the logistics division has led to a strong growth in its profitability. Though logistics contributes approx. 24% to the company’s total revenues, it delivers approx. 61% of its total EBIT. The company plans to focus on its core business and expand via organic and inorganic routes. Based on the organic route, the management is targeting Rs. 2000 cr. & Rs. 200 cr. in Revenues & Net Profits respectively by FY10E, implying a CAGR of 41.7% in earnings during FY07-10.
To attain market leadership in its core businesses, Balmer Lawrie plans to exit some of its non-core businesses such as tea blending and specialty containers. The company also plans to expand its offerings in key businesses to tap potential clients. Further, Balmer Lawrie’s nearly debt free status, comparatively cheap valuations and the possibility of divestment of Government’s stake make it an attractive value play.
Key Investment Arguments
Balmer Lawrie has a market cap of Rs. 754.4cr, average daily volume of 7433 shares for the last six months and net sales of Rs. 1338cr for the trailing twelve months ended 30th June 2007.
Its Operating profit and Net profit margins are at 9.5% and 5.5% resp. in FY07. The company has achieved a 5-year CAGR of 14.1% in net sales, 21.6% in EBITDA and 54.4% in net profits. Balmer Lawrie presently trades at a PE multiple of 10.4, Price to Book ratio of 2.8 and Price to Sales ratio of 0.6. Debt-equity ratio is virtually NIL at 0.4 for FY07.
Conclusion
On the basis of our research, we feel that this is a good stock to buy at the current market price of Rs. 463.10. If everything goes well, the price is likely to appreciate to Rs. 630.0, within a year or so, translating into a gain of about 36%.
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