Tuesday, September 27, 2011
Research recommendations
IVRCL
Market price (September 23): Rs 37.65
Target price: Rs 62
Upside: 64.67%
Brokerage: Angel Broking
IVRCL Group has bagged orders aggregating to Rs 22.29 billion across various segments during 2QFY2012. IVRCL Assets and Holdings (IVRCLAH) have been awarded a road project in Arunachal Pradesh worth Rs 14.86 billion by MORTH. At the CMP of Rs 38, the stock is trading at P/E of 6.2x FY2013E EPS and 0.5x FY2013E P/BV on standalone basis and adjusting for its subsidiaries at P/E of 3.0x FY2013E EPS and 0.2x FY2013E P/BV, which it believe is attractive. Therefore, on the back of the company`s robust order book to sales ratio and attractive valuations, it maintain its Buy rating on the stock with a target price of Rs 62.
Bajaj Electricals
Market price (September 22): Rs 186
Target price: Rs 238
Upside: 27.96%
Brokerage: Nirmal Bang Securities
BEL reported a poor performance in Q1FY12 due to the consumer business facing poor market conditions for fan and room cooler (reported a moderate growth of 15.5%) and E&P (Engineering & Projects) business showcased just a meager 2.5% growth coupled with loss on account of increased cost incurred to close down the lingering projects. BEL prices corrected by 14% since Q1FY12 result. It expect BEL performance to improve in Q2FY12E and bounce back to normal level in second half of FY12E on the account of better performance by E&P business and normal growth in consumer durable business. At CMP of Rs 186, the stock is trading at a PE of 11.3 in FY12E and 9.4 in FY13E whereas on EV/EBITDA it is trading at 5.8 and 4.8 in FY12E and FY13E respectively. It recommend to ``BUY`` the stock with a target price of Rs 238 a share (12 on FY13E EPS), an upside of 28% for a long term view.
GVK Power & Infrastructure
Market price (September 21): Rs 17
Target price: Rs 32
Upside: 88.24%
Brokerage: ICICI Securities
GVK Coal Developers, a JV between GVK and GVK Natural Resources (a GVK group company), has entered into an agreement to acquire major coal resource aggregating 3.3 billion resources and infrastructure development projects [Abbot Point port with capacity of 60 million tons (MT) and 495 km rail line] from the Hancock Group. GVK will have 10% stake in the JV with an option to increase to 49% subsequently. The total acquisition cost is USD 1.26 billion for which it has tied up debt of USD 1billion. For this debt, GVK will provide corporate guarantee to 49% and is likely to pledge the shares of GVK Energy Ltd and GVK Transportation Ltd, which remain a cause for concern especially considering its leveraged balance sheet. To analyze the situation, it has built up bear case and bull case valuation for GVK from this project. It get bear case value of Rs 13/share and bull case valuation of Rs 48/share with high sensitivity to key variables (discussed in valuation section). It maintains its BUY recommendation with an SOTP price target of Rs 32. However, lack of clarity on project funding and GVK`s corporate guarantee remain key risks to its call.
Linc Pen & Plastics
Market price (September 20): Rs 61.65
Target price: Rs 81
Upside: 31.39%
Brokerage: SKP Securities
LPPL has successfully leveraged its strong brand image to reach to a wide consumer base in India. The company has invested Rs 227 million in branding and advertising in the last three years. The wide scale branding exercise undertaken by the company will further enhance the top line of the company going forward. LPPL is currently trading at a PE of 7.07 FY12E and 5.33 FY13E EPS. It recommend Buy rating on the stock with a 15 months target price of Rs 81, at 7 FY13E earnings, implying an upside of 31% from the current levels.
ITC
Market price (September 20): Rs 195
Target price: Rs 241
Upside: 23.59%
Brokerage: Shah Investor`s Home (SIHL)
ITC has levered on its large distribution network and has increasingly diversified its presence into other growth area like hotels, paper, stationery, agri-business, packaged foods, confectionery and branded apparels. In a short span of time ITC has built a portfolio of strong brands and is gaining market share in most of the categories. Improving operating efficiencies, strong balance sheet, high free cash flow and higher payout ratio makes ITC a lucrative investment opportunity in growing Indian consumer space. It has valued the stock on weighted average of stock price arrived based on two different valuation parameters. On EV/EBITDA it arrived at a value of Rs 243/share at 50% weight. On a PE basis we arrived at a value of Rs 238/share at 50% weight; based on the weighted average, target price for ITC stock comes at Rs 241/share. It recommend BUY on ITC with an investment horizon of 12 to 15 months, and an upside potential of 23%.
KEC International
Market price (September 19): Rs 71
Target price: Rs 58
Upside: 22.41%
Brokerage: Way2Wealth
KEC strategically acquired 100% stake in US based subsidiary SAE Towers, in Sept. 2010 to tap the growing markets of North and South America. In Q1FY12, SAE Towers ended the quarter with a strong order book of Rs 9.82 billion comprising 12% of its total order book position. It has also acquired Jay Railway Signaling. Company to make further inroads in the Railways business. At the CMP of Rs 58, the stock quotes a PE of 5 and 4.2 its FY13E and FY14EEPS of Rs 11.8 and Rs 13.9 a share respectively. It initiate coverage with a BUY Rating on the stock, with a price target of Rs 71 a share based on its PE of 6 FY13E EPS of Rs 11.8 a share.
Bajaj Auto - Overweight
Price (Rs) Sep. 16: 1,625
Mcap (USD bn): 10
Avg 3MT/O (USD Mn): 3
Relative to MSCI India
YTD Perf: 29%
12 months Perf: 31%
Cox & Kings - Overweight
Price (Rs) Sep. 16: 213
Mcap (USD bn): 1
Avg 3MT/O (USD Mn): 4
Relative to MSCI India
YTD Perf: 0%
12 months Perf: -19%
M&M - Overweight
Price (Rs) Sep. 16: 798
Mcap (USD bn): 10
Avg 3MT/O (USD Mn): 30
Relative to MSCI India
YTD Perf: 26%
12 months Perf: 39%
ICICI Bank - Overweight
Price (Rs) Sep. 16: 881
Mcap (USD bn): 21
Avg 3MT/O (USD Mn): 30
Relative to MSCI India
YTD Perf: 79%
12 months Perf: -6%
Oberoi Realty - Overweight
Price (Rs) Sep. 16: 223
Mcap (USD bn): 2
Avg 3MT/O (USD Mn): 0
Relative to MSCI India
YTD Perf: 7%
12 months Perf: 7%
Dr Reddy`s - Overweight
Price (Rs) Sep. 16: 1,522
Mcap (USD bn): 5
Avg 3MT/O (USD Mn): 15
Relative to MSCI India
YTD Perf: 12%
12 months Perf: 22%
Adani Ent - Overweight
Price (Rs) Sep. 16: 598
Mcap (USD bn): 14
Avg 3MT/O (USD Mn): 11
Relative to MSCI India
YTD Perf: 13%
12 months Perf: 3%
IRB Infra - Overweight
Price (Rs) Sep. 16: 173
Mcap (USD bn): 1
Avg 3MT/O (USD Mn): 6
Relative to MSCI India
YTD Perf: -6%
12 months Perf: -26%
Jain Irrigation - Overweight
Price (Rs) Sep. 16: 171
Mcap (USD bn): 1
Avg 3MT/O (USD Mn): 7
Relative to MSCI India
YTD Perf: -1%
12 months Perf: -19%
Tata Steel - Overweight
Price (Rs) Sep. 16: 460
Mcap (USD bn): 9
Avg 3MT/O (USD Mn): 49
Relative to MSCI India
YTD Perf: -17%
12 months Perf: -9%
Infosys - Overweight
Price (Rs) Sep. 16: 2,393
Mcap (USD bn): 29
Avg 3MT/O (USD Mn): 75
Relative to MSCI India
YTD Perf: -15%
12 months Perf: -5%
Bharti - Overweight
Price (Rs) Sep. 16: 386
Mcap (USD bn): 31
Avg 3MT/O (USD Mn): 49
Relative to MSCI India
YTD Perf: 32%
12 months Perf: 30%
GAIL - Overweight
Price (Rs) Sep. 16: 425
Mcap (USD bn): 12
Avg 3MT/O (USD Mn): 9
Relative to MSCI India
YTD Perf: 2%
12 months Perf: 6%
Stocks to Avoid
Ashok Leyland - Underweight
Share price Sep. 19, 2011: 27
Market Cap (USD Mn): 1,499
Average Daily Volumes (3 months USDMN): 4.4
F2011PB: 1.8
F2011PE: 11.3
12 months Perf: -26%
5 year CACGR in Share Price: 6%
Bank of Baroda - Underweight
Share price Sep. 19, 2011: 760
Market Cap (USD Mn): 6,377
Average Daily Volumes (3 months USDMN): 7.1
F2011PB: 1.4
F2011PE: 7.1
12 months Perf: -12%
5 year CACGR in Share Price: 26%
Bank of India - Underweight
Share price Sep. 19, 2011: 313
Market Cap (USD Mn): 3,761
Average Daily Volumes (3 months USDMN): 6.5
F2011PB: 1
F2011PE: 7.2
12 months Perf: -37%
5 year CACGR in Share Price: 17%
Canara Bank - Underweight
Share price Sep. 19, 2011: 427
Market Cap (USD Mn): 4,066
Average Daily Volumes (3 months USDMN): 8
F2011PB: 1
F2011PE: 4.8
12 months Perf: -25%
5 year CACGR in Share Price: 14%
IDBI - Underweight
Share price Sep. 19, 2011: 107
Market Cap (USD Mn): 2,255
Average Daily Volumes (3 months USDMN): 5.2
F2011PB: 0.8
F2011PE: 6.5
12 months Perf: -29%
5 year CACGR in Share Price: 11%
Punjab National Bank - Underweight
Share price Sep. 19, 2011: 976
Market Cap (USD Mn): 6,462
Average Daily Volumes (3 months USDMN): 6.5
F2011PB: 1.4
F2011PE: 6.9
12 months Perf: -25%
5 year CACGR in Share Price: 16%
State Bank of India - Underweight
Share price Sep. 19, 2011: 1,917
Market Cap (USD Mn): 25,346
Average Daily Volumes (3 months USDMN): 105.8
F2011PB: 1.5
F2011PE: 11.3
12 months Perf: -41%
5 year CACGR in Share Price: 17%
Educomp Solutions - Underweight
Share price Sep. 19, 2011: 232
Market Cap (USD Mn): 479
Average Daily Volumes (3 months USDMN): 2.3
F2011PB: 1
F2011PE: 6.8
12 months Perf: -62%
5 year CACGR in Share Price: 17%
Colgate-Palmolive India - Underweight
Share price Sep. 19, 2011: 988
Market Cap (USD Mn): 2,856
Average Daily Volumes (3 months USDMN): 2.2
F2011PB: 33.7
F2011PE: 33.7
12 months Perf: 14%
5 year CACGR in Share Price: 22%
Hindustan Unilever - Underweight
Share price Sep. 19, 2011: 338
Market Cap (USD Mn): 15,862
Average Daily Volumes (3 months USDMN): 17.3
F2011PB: 28.6
F2011PE: 35.1
12 months Perf: 13%
5 year CACGR in Share Price: 8%
Marico - Underweight
Share price Sep. 19, 2011: 141
Market Cap (USD Mn): 1,848
Average Daily Volumes (3 months USDMN): 1.3
F2011PB: 9.6
F2011PE: 32.7
12 months Perf: 13%
5 year CACGR in Share Price: 22%
GMR Infrastructure - Underweight
Share price Sep. 19, 2011: 29
Market Cap (USD Mn): 2,345
Average Daily Volumes (3 months USDMN): 2.4
F2011PB: 1.4
12 months Perf: -49%
5 year CACGR in Share Price: 5%
Hindalco - Underweight
Share price Sep. 19, 2011: 144
Market Cap (USD Mn): 5,819
Average Daily Volumes (3 months USDMN): 28.1
F2011PB: 1
F2011PE: 11.3
12 months Perf: -27%
5 year CACGR in Share Price: -2%
Mphasis - Underweight
Share price Sep. 19, 2011: 339
Market Cap (USD Mn): 1,512
Average Daily Volumes (3 months USDMN): 3.7
F2011PB: 2.2
F2011PE: 6.6
12 months Perf: -45%
5 year CACGR in Share Price: 13%
Tec Mahindra - Underweight
Share price Sep. 19, 2011: 636
Market Cap (USD Mn): 1,675
Average Daily Volumes (3 months USDMN): 3.6
F2011PB: 2.4
F2011PE: 9.2
12 months Perf: -16%
5 year CACGR in Share Price: 3%
Mahanagar Telephone - Underweight
Share price Sep. 19, 2011: 35
Market Cap (USD Mn): 466
Average Daily Volumes (3 months USDMN): 0.8
12 months Perf: -43%
5 year CACGR in Share Price: -26%
Tata Communications - Underweight
Share price Sep. 19, 2011: 203
Market Cap (USD Mn): 1,230
Average Daily Volumes (3 months USDMN): 1.5
12 months Perf: -33%
5 year CACGR in Share Price: 13%
Tata Power - Underweight
Share price Sep. 19, 2011: 986
Market Cap (USD Mn): 4,784
Average Daily Volumes (3 months USDMN): 7.5
F2011PB: 2
F2011PE: 22.5
12 months Perf: -29%
5 year CACGR in Share Price: 13%
Adani Power - Underweight
Share price Sep. 19, 2011: 86
Market Cap (USD Mn): 3,920
Average Daily Volumes (3 months USDMN): 3.7
F2011PB: 3
F2011PE: 36.3
12 months Perf: -36%
Indiabulls Power - Underweight
Share price Sep. 19, 2011: 15
Market Cap (USD Mn): 626
Average Daily Volumes (3 months USDMN): 0.2
F2011PB: 0.7
F2011PE: 544.6
12 months Perf: -49%
JSW Energy - Underweight
Share price Sep. 19, 2011: 62
Market Cap (USD Mn): 2,055
Average Daily Volumes (3 months USDMN): 1.7
F2011PB: 1.8
F2011PE: 12.1
12 months Perf: -50%
Wednesday, September 21, 2011
Rupee slide continues
India's rupee slid to a two-year low against the dollar on Tuesday on worries over the EU debt crisis.
Italy’s rating was lowered on concern that weakening economic growth and a “fragile” government
mean the nation will struggle to reduce the euro- region’s second-largest debt burden. Italy was
lowered to A from A+ with a negative outlook four months after the company warned the country
risked a downgrade. Italian banks including Intesa Sanpaolo SpA and state-controlled companies such
as Enel SpA may have their credit ratings lowered by Standard & Poor’s in coming days.
The partially convertible rupee weakened to 48.23 rupees to the dollar on increasing demand for the
greenback from banks and importers. The Indian rupee outlook is turning bearish and USDNR may
approach 50 mark soon. Inflation in India is the worst among the BRIC nations. Current account deficit
is a concern. Fiscal deficit is a worry. Fresh investments are stalled despite creaky infrastructure. The
ongoing EU problem is going to have a huge impact on both current and capital account of the country
to pressure the INR. In futures USDINR Sep futures closed at 48.09 levels on Tuesday, up by 23 paisa.
The EURINR Sep gained 43 paisa on stable EURUSD along with firm USDINR. The GBPINR Sep future
advanced 27 paisa. The EURUSD is currently trading firm in Asia after a modest recovery from 1.3590
yesterday. The pair is currently quoting at 1.3715 with immediate resistance at 1.3744. Break above
may pull rates higher towards 1.38 or so. This may push the EURINR higher today in India. The GBPINR
is also looking a bit positive tracking the Euro. However, the BoE minutes will be critical for the British
currency.
Today US FOMC will announce its monetary policy decision. The market is expecting the Fed to
maintain its zero-0.25% interest rate target, but the focus will be on new unconventional policies
aimed at supporting the US recovery. The primary expectation there is that the Fed will announce a
plan to lengthen the maturity of its portfolio of US Treasuries by selling shorter dated notes and buying
longer dated debt to push consumer lending rates down. If such a policy is adopted, and there is no
change to the overall size of the Fed’s balance sheet, the impact on the USD may be slightly positive.
Saturday, September 17, 2011
Tax Saving ELSS vs NSC and PPF
Equity linked saving schemes are a kind of mutual funds like diversified equity funds with Tax benefits. It is just like other tax saving instruments like National Savings Certificate and Public Provident Fund. Main advantage with ELSS is lock-in period is only 3 years while for NSC it is 6 years and for PPF it is 15 years. At the same time risk factor is high in ELSS.
As per Income Tax act 80c investment up to Rs 1,00,000 are eligible for deduction from the gross total income hence reducing the total taxable income. For example if your total annual income is Rs 3,00,000 and you invest Rs 1,00,000 in ELSS then your taxable income will become Rs 2,00,000.
Previously there was an upper limit for investing in tax saving instruments like ELSS of 5,00,000. Only individuals with less than 5,00,000 annual income are allowed to invest in tax saving instruments. But last year financial budget removed this restriction and now any individual can invest in ELSS irrespective of their income level.
Advantages of ELSS over NSC and PPF
- 1. Main advantage of ELSS is its short lock-in period. Maturity period of NSC is 6 years and PPF is 15 years.
- 2. Since it is an equity linked scheme earning potential is very high.
- 3. Investor can opt for dividend option and get some gains during the lock-in period
- 4. Investor can opt for Systematic Investment Plan
- 5. Some ELSS schemes also offer personal accident death cover insurance
- 6. Provides 30 to 40% returns compared to 8% in NSC and PPF
Disadvantages of ELSS
- 1. Risk factor is high compared to NSC and PPF
- 2. Premature withdrawal is not allowed but it is allowed in other instruments in some specific conditions.
Diversified Equity Schemes and ELSS
Both Equity linked saving scheme and diversified equity scheme operates in same way. Both are high return and high risk schemes. But there is a 3 year lock in period of ELSS and it provides tax benefits too.
Systematic Investment Plan
Best way to invest in ELSS is through Systematic Investment Plan(SIP). With SIP you can invest a small amount every month for a specific time period. With SIP investor can take advantage of fluctuations in the stock market. So investor will get more units when the market is down and get less units when the market is up. For eg if you are investing Rs 1000 every month and you will get 100 units for when Net Asset Value (NAV) is 10 and will get 50 units when NAV is 20. So investing a fixed sum regularly helps to cover the market fluctuations by rupee costs averaging. Also most of the Asset Management Companies (AMC) charges less entry load for SIP compared to normal purchase.
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