Avaya Globalconnect - Niru Mehta

'Trend of captive BPOs is leading to consolidation in third party BPOs'

Even as the Indian ITES (BPO) sector continues to grow from strength to strength, it is the emergence of the domestic industry which is making the sector vibrant, says Niru Mehta, vice-chairman and managing director of Avaya GlobalConnect Ltd (formerly known as Tata Telecom). "The growth of Indian call centre and BPO players focused on the domestic market will make us less vulnerable to international developments. Indian vendors continue to expand their service offerings and there is a distinct shift towards high-value services," Mr Mehta says. In an interview with Sudhir Chowdhary of FE, he analyses the drivers of Indian ITES growth. Excerpts:

Is your decision to revise accounting norms for income recognition part of a bigger evolution plan?

If you look at the way Tata Telecom evolved from 1999 to the last year, we have consciously made an attempt to reengineer every aspect of our business. The idea has been to emerge as a complete communications solutions provider. From a mere PABX company, we have transformed into a communications solutions firm, offering a comprehensive suite of converged solutions.

In doing so, it's not just about changing the product portfolio. We have changed every aspect of the business, whether it's about the service offerings, best practices, marketing campaigns, or the overall engagement we have with our customers.

When we started doing more complex work, it became imperative for us to consciously change our accounting method. It was challenging from an internal perspective because earlier, it was easier to do the billing and invoicing when you sell the product. Now, our accounting method is based on completion of the project. This has made the organisation strong because now we have processes which ensure that billing not only happens at the right time and in the right manner, but also project execution is taking place in line with the customer's requirements.

What are the recent trends you are witnessing in the contact centre industry?

I feel different trends are developing in the contact centre industry. A major trend we are witnessing is that more US and European companies are setting up their captive centres in the country as opposed to relying on third party outsourcers. So the growth for captive centres is stronger than those for third party outsourcers. The side effect of this trend is that there is some kind of consolidation happening among third party outsourcers.

Another trend is that BPOs are moving up the value chain in the kind of services they are offering. As a result, they are not only expanding their infrastructure, but are adding more value per seat both for themselves as well as the customer. Lastly, the domestic call centre and BPO market is growing at a healthier rate now. In 2003, size of the domestic market was 14-15% compared to the total market in India. This market has now grown to 18-19% last year. This is a healthy trend we have been witnessing for the growth of the domestic call centre industry. So, we will become less vulnerable to the global developments.

Have recent incidents of cyber crime slowed down the momentum in overall growth of the contact centre industry here?

Not really. On the contrary, we are beginning to attract some high-end BPO work from international customers.

What kind of increased investment in telecom equipment and solutions is required for offering high-end BPO services?

Various reports are available doing this kind of analysis. It would be inappropriate for me to comment. But, we see an emerging trend of BPOs moving up the value chain to provide specialised services.

Globally, there are organisations from varied sectors using IP (internet protocol) telephony services. Do you see this trend emerging in India, going beyond the IT and ITES companies?

I feel the telecom environment is changing very fast and it's getting very competitive from a service provider's perspective also. In the wake of these developments, I think the appeal of IP telephony as a cost reduction vehicle is not going to be very high. Customers might see the cost difference today in deploying IP telephony solutions but they are not sure whether this advantage will remain in future as service providers are constantly reducing telecom costs.

However, what is more important is how committed are organisations to change the way they run their businesses. It's not just about saving telecom costs. It's about business transformation. There's no better vehicle available than deploying IP as a way to communicate across the business processes with the right set of applications riding on top of the IP network, for business transformation and perform at a different level, as opposed to simply using IP as a cost reduction vehicle.

Who would go for such business transformation in India?

Businesses who are well engrained have an opportunity to deploy IP. Then, there are those which are fairly new and looking at global expansion of their operations. MNCs setting up operations in India or even Indian IT and ITES companies are potential customers as well. Overall, IP will benefit those who are looking to significantly transform their businesses.

Motilal Oswal - Birla Corporation

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Holdings By Rakesh Jhunjhunwala

Praj Industries 12.33%
Agro tech foods 4.31%
Beml 2.81%
Crisil 14%
Geometric Software 6.54%
Jb chemicals and Pharma 1.06%
Kpit Info systems 2.94%
Lupin 1.42%
Pantaloon Retail 1.07%
Relaxo Footwear 2.5%
Schlafhost 1.03%
Titan Industries 6.52%
Transport Corporation Of India 3.36%
Matrix Labs 1.59%
Nagarjuna Constructions 8.51%
Hindistan Oil exploration Ltd 2.84%
Federal Bank 1.91%
Karur Vaysa 2.9%
Ramco Systems 2.23%
Futura Poly 3%
Mid day Multimedia 5.29%
Balaji Amines Ltd 3.33%
Geojit 13%
Bilcare 9.1%
Infomedia India 6.56%

Source : smallcaptracker

Equitymaster - TCS - StockSelect

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Nectar Lifesciences: Invest at cut-off

Source : Hindu Business Line

AN INVESTMENT in the initial public offer of the Chandigarh-based Nectar Lifesciences can be considered. Investors may subscribe to the issue at the cut-off price; this would entail paying Rs 240 per share on application (which represents the upper end of the price band).

Nectar is a Rs 230-crore bulk drug company with a presence in the anti-infective therapeutic category. Its product portfolio comprises semi-synthetic penicillin and cephalosporins in both the oral and sterile forms. Nectar is in the midst of an expansion programme that involves setting up another cephalosporin unit and one to make non-antibiotic active pharmaceutical ingredients.

Nectar also has a wholly-owned subsidiary, Chempharma, which is based in Sri Lanka. The unit enjoys Customs and income-tax benefits and its product (API intermediates) is consumed almost wholly by Nectar. The facility, which led to cost-savings for Nectar, also contributes significantly to the profitability of the consolidated entity.

The proceeds from this issue are to fund the construction of a formulations facility at Baddi in Himachal Pradesh, and to set up a sterile cephalosporin unit and an R&D centre near the company's existing facility at Derabassi in Punjab.

Business prospects

The therapeutic space in which Nectar operates has such established players as Aurobindo Pharma, Lupin and Orchid. Success in this business is a function of scale, a tight control over costs and an integrated business model. Pricing is driven by global trends and the market is highly competitive.

In the cephalosporin segment, a presence in new-generation products is preferred, as this is an area showing higher growth compared to older-generation products. Further, within this market, realisations for sterile forms tend to be generally higher as they call for a greater degree of expertise in manufacturing. Considering Nectar's long-standing presence in this therapy area, we believe that the company can capitalise on the emerging growth opportunities in this space.

To diversify, Nectar plans to focus on a portfolio of non-antibiotics that comprise cardiovasculars (statins and prils) and anti-histamines (fexofenadine). Though the effect of the expansion programme is likely to manifest only in FY-07, these categories still present opportunities for Nectar even if a few other players have a headstart.

The facility coming up at Baddi is for cephalosporin-based formulations. With Baddi enjoying a tax holiday, it opens the possibility of contract manufacturing in the domestic market. As Nectar intends to supply formulations to its customers from this facility, we believe it would impart an upward bias to margins compared to the supply of only APIs.

Nectar's Sri Lanka facility has led to considerable savings on costs and, as a result, pushed up operating margins to 17.5 per cent in FY-05 compared to 13.5 per cent in FY-04.

At the lower end of the price band of Rs 200, the stock would trade at a multiple of about 15 times its FY-05 per share earnings on an expanded equity base; at the upper end of the band, it would trade at price-earnings multiple of 18. This valuation is low compared to those commanded by its peers in the domestic market. The return on net worth has been on a steady climb since FY03; that figure stands at an attractive 31 per cent for FY05.

Risks

Weakening price trends in some of the key products manufactured by Nectar, a downward revision of product prices effected by the National Pharmaceutical Pricing Authority in the domestic market, and the political and currency risks of operating in Sri Lanka are the key downside possibilities to our recommendation.

Offer details

On offer are 38.7 lakh shares in the Rs 200-240 price band. The offer, which opened on June 22, closes on June 28. ICICI Securities is the lead manager

Hindu Businessline Recommendations

BUY     >> Sesa Goa
HOLD  >>  Century Textiles, Balrampur Chini,
                 Geometric Software, Reliance Capital

Aventis - Motilal Oswal Report

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Are you benchmarking the Sensex?

The 'Sensitive' index as it is very rightly called is currently at its palpable best. The economic buoyancy, growth potentials and positive upsides have all been emancipated to the hilt and the index is racing northwards at a scorching pace.

When we asked our investors whether they considered the Sensex as the lead indicator of their investment decisions a majority 50% opined in the positive, while the number of those who negated were a close 46%. While we do not deny the significance of strength in the indices as indicators of the rejuvenating India Inc, mishappenings like the Black Monday (11th May 2004) and tech bubble burst continue to linger in the memory.

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Rakesh Jhunjhunwala - The sage of Mumbai

Source : Asiamoney

India's answer to Warren Buffett is catching the eye of some of the region's biggest investor. Meet the renowned Indian investor Rakesh Jhunjhunwala.

Renowned Indian investor Rakesh Jhunjhunwala has been credited with single-handedly turning the fortunes of a company simply by buying its stock. Likened to Warren Buffett, the canny stock-picker with an eye on macroeconomics has profited handsomely in the country's market upswing. Only time will tell if his style is sustainable. Yassir A. Pitalwalla reports.

Rakesh Jhunjhunwala, stockbroker, punter, long-term investor and the latest darling of India's investing classes, is a reluctant hero. For any large foreign institutional investor making an exploratory trip to India, Jhunjhunwala is the man to see. Rumour has it that regional heavyweights such as the Government of Singapore Investment Corporation call him for his views on where the market is headed. "Rakesh's major strength in the last 15 years has been his ability to identify the turning point of the markets," says one hedge fund manager. "By leveraging his own capital he has made a packet of money. Correctly calling the major trends in the market enables him to reduce leverage as the market moves in his favour, rather than assume leverage once a move has begun."

For the son of a tax commissioner who claims to have started 20 years ago with just Rs6,000 (US$138) in borrowed money, Jhunjhunwala has done well for himself. According to data sourced from the Centre for Monitoring of the Indian Economy, his investment portfolio includes as many as 25 companies with an estimated value of Rs6.3 billion.

His friends describe him as a man who dreams big and turned bullish at the right time, making the right calls. "Everything that he has bought since the time that he has come into the limelight has doubled," says Abhay Aima, country head of equities and private banking at HDFC Bank.

Sitting at his desk on the top floor of a swanky building in Mumbai's prime commercial district in Nariman Point, the betelnut-chewing, cigarette-smoking Jhunjhunwala is focused on a slew of trading screens. He constantly calls his traders to direct them to buy index futures or stock futures in big Indian names such as Reliance Industries. While his style may seem that of a day trader, he says he only derives value from his investments over time, rather than overnight. And, typically, only 10% of his wealth is deployed in trading operations. "I want to ensure that if something like September 11 happens I will not lose more than 2-3% of my wealth," he claims.

Small beginnings

Jhunjhunwala's first investment, in Tata Tea, the world's largest producer of branded tea, tripled in just four months. Such immediate success explains why he has never worked for anyone—except during a compulsory period of articleship while studying chartered accounting.

"I wanted to make a career in stocks, which I have found fascinating since childhood, but everybody was apprehensive that I wouldn't make it," he says. That probably explains why his investing commandments include: 'Absolute returns – a passion; safety of capital – a religion; and never forget risk, the four-letter word.'

His strategy of taking large stakes in mid-cap stocks has paid off. A pick such as Bharat Earth Movers, which he first purchased at Rs20 a share, is now worth Rs602 a share; while software outsourcer KPIT, purchased at Rs60 per share, is now worth Rs323.95. Other investments include a stake of 1.4 million shares in medical packaging supplier Bilcare, first acquired at Rs108 apiece and now worth Rs380.6 each. Similarly his stake in Nagarjuna Construction, purchased at around Rs134 apiece, is worth almost Rs729 per share now. Hindustan Oil Exploration has almost doubled in the past two months, while the stock market index has fallen by almost 200 points "Rakesh is a hard worker who knows everything about a company he invests in," says the former head of a domestic mutual fund. "Combine that with the huge pile-on effect of others buying after his name gets associated with a company, and you can understand why his picks are doing quite well on the bourses." Analysts say that with his track record of identifying fundamental stories, Jhunjhunwala has developed a huge following of fans, who emulate his buying and selling habits in the hopes of riding his calls. Thanks to this bandwagon effect, Jhunjhunwala's picks soon begin to look overvalued, says one head of portfolio management at a leading domestic brokerage.

A close look at his investment style reveals a concentration of interest amongst mid-cap stocks that are typically under-researched and, usually, where there is the likelihood of some sort of a corporate action, such as a trade sale, a buy-out or a major turnaround in fortunes. "Rakesh is very good at identifying value stocks that have major event-driven possibilities like Standard & Poor's acquisition of a majority stake in India's leading credit rating firm, Crisil," says the head of a leading investment bank.

By catching companies early, Jhunjhunwala is not deterred by low liquidity. "We are very clear that liquidity follows quality; quality does not follow liquidity," he says. "When I bought into Bharat Earth Movers, the daily traded volume was 25,000 shares. Now it's 15 lakh ( 1.5 million) shares."

Jhunjhunwala's simple investment philosophies are based mainly around the beliefs of successful investors John Bogle and Warren Buffett—to buy stocks that afford a significant margin of safety. The difference is that he also looks to buy the stocks before the market discovers them—companies that are sitting at the cusp of a major opportunity. " India, with its under-penetrated markets for goods and services, is a good place to start most new businesses," says the head of a value investing fund manager in India. "Thus the chance of getting mid-cap companies which will do well is itself quite high. Now, if you can compare the business model of such companies with the performance of companies and sectors globally, you can increase your chances of success."

Another of Jhunjhunwala's quirks is that few of his stocks are institutional favourites. "Most of his stock picks are not investible for us to start with," says a leading mutual fund manager in India. "You need a private equity fund that doesn't have to proactively manage liquidity, rather than an open-end mutual fund, to invest in the kind of stocks he picks." Most of Jhunjhunwala's picks tend to have extremely low trading volumes and he acquires a stake. To ensure he doesn't get stuck with a dog, his team maintains close contact with the company concerned.

While he has earned the majority of his wealth from his investments, it's Jhunjhunwala's ability to make trading profits that provided the seed capital in the first place. "I look at trends and try to play them. I track micro and macro trends and follow corporate performance," he says. "My positions are built in consonance with market liquidity, in liquid stocks and derivatives, so that my transactions have the least effect on the market."

Midas touch or just plain lucky?

His exit strategy is earnings-based, rather than price-based. "We sell our investments dispassionately if we have made a wrong call. Otherwise we exit if we find a better opportunity elsewhere; or [if] earnings have peaked, markets' expectation of earnings from that stock peak or [if there is] a frenzy where valuations peak resulting in unsustainable price-earnings ratios," says Jhunjhunwala. That means instead of setting a price target for the company, Jhunjhunwala sells if earnings are lower than expectations or if the market valuation implies earnings that are far higher than what he expects the company to deliver. "We invest in the realm of possibilities and we have to be prepared to accept that, at times, an anticipated event or growth may not materialize," he says. " Opportunity cost of capital becomes a paramount consideration then."

Not everyone agrees that Jhunjhunwala can be compared with Warren Buffett. Chetan Sehgal, senior vice-president at Templeton Emerging Markets Group, says: "In 2001, 90% of Indian stocks were almost 90% from their all-time highs. So, in a sense, the tough game starts now."

This could explain the change in Jhunjhunwala's investment style, moving from passive investor to a more active investment role. For example, he acquired a 6% stake in Provogue India Ltd before it went public. The company is seeking to create an Indian fashion retail brand and retails through a combination of chain stores, multi-brand dealer outlets and its own exclusive studios. That move marked a clear change in his strategy from listed companies to investing in unlisted ones as well. While the underlying theme of a company poised for exponential growth is there in Provogue's case too, Jhunjhunwala has also been active as an investor influencing the company's strategic direction.

But his detractors say he lacks a cogent investment thesis; and the link between his macroeconomic outlook and how it feeds into his investment operations is tenuous. There are also suggestions that some of the stockbroking firms in which he has large stakes market his picks and sectors to fund managers and investment advisers looking for good ideas. Jhunjhunwala dismisses such claims. "Time will tell," is the curt reply he gives.

In the end, Jhunjhunwala's continued success may come from his ability to focus on one stock at a time, helping him to identify when the up-move has ended. Or it may be a function of the environment, which has seen a period of unprecedented change with commodity prices going from all-time lows to all-time highs. "My luck has changed," says Jhunjhunwala. He has also learned the hard way to not be easily lured by business plans and to challenge businesses' scalability. "I have learned the importance of size," he says. If he can sustain his success, Jhunjhunwala will have single-handedly broken the love-hate relationship cycle that the Indian stock market has habitually had with its heroes.

Expect some volatility

The Nifty continued its upmove. On the upside the index could test the 2200-2220 range, which is the upper end of its channel. Intra-day profit taking could be expected around the 2200-2220 range. On the downside the Nifty has a support at 2175. Intra-day volatility could take place on a break below 2175. Below 2175 the index has a support at 2140. Intra-day the Nifty has a crucial support at 2175 and the intra-day bias is up above 2175. TCS has a support at Rs1,300 and on the upside the stock could test Rs1,360. Union Bank has a support at Rs100 and on the upside the stock has a resistance at Rs112. IPCL has a support at Rs163 and on any intraday dips the stock should find support around Rs163. Satyam has a support at Rs500 and on the upside the stock could test Rs525.

Sharekhan

Reliance - Motilal Oswal Report

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Motilal Oswal - Reliance Industries - BUY

Motilal Oswal recommends BUY On Reliance Industries @ 630

Target >>  713

Motilal Oswal - Matrix Laboratories

Motilal Oswal recommends BUY on Matrix Laboratories.

Target >> 250

Sharekhan Stock Update

Tube Investments of India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs480
Current market price: Rs334

TII to unlock value in CIFCL
Tube Investments of India (TII), which holds 48.81% in Cholamandalam Investment & Finance Company Ltd (CIFCL), has approved the sale of a 15.1% stake in favour of DBS Bank Ltd, Singapore at a negotiated price of Rs150 per share. Singapore-based DBS Bank is looking to acquire a total of 37.5% stake in the Murugappa group-controlled CIFCL.

 
Deepak Fertilisers and Petrochemicals Corporation
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs126
Current market price: Rs64

Alteration of AOA
Deepak Fertilisers and Petrochemicals Corporation (DFPCL) has informed the stock exchanges regarding the resolutions to be passed at its annual general meeting (AGM) on July 19, 2005. The resolutions to be passed at the AGM also include a special resolution to alter the object clause in the articles of association (AoA) of DFPCL. The object clause defines the businesses that can be carried out by DFP.

IVRCL - Interview - Businessline

THE stock of IVRCL Infrastructures & Projects has been one of the star performers in the bull market of the past two years as construction sector stocks started to attract investor fancy on a scale never seen in the past. The Hyderabad-based IVRCL offers engineering, procurement and construction services as well as lump-sum turnkey construction projects. Its focus area has been water solution. It has diversified its operations and won major contracts for road projects from the National Highways Authority of India over the past year. IVRCL has been one of the prime beneficiaries from the Government's commitment to boost infrastructure spending. Mr. R. Balarami Reddy, Director of Finance, shared his views on the prospects for the industry and IVRCL in a wide- ranging interview with Business Line.

Excerpts from the interview.

What are the factors that have led to the sharp re-rating of the construction sector stocks, which have risen manifold over the past couple of years?

The construction business has been traditionally looked upon as a cash business. The outlook has now changed. We have become more transparent in its transactions and the government has recognised it as an industry; banks are viewing the sector as a good business to support.

I believe IVRCL has also contributed to this re-rating. The process started after IVRCL announced that two FIIs — ChrysCapital and Citicorp — were investing in the company. The recognition of this sector by foreign investors bolstered positive sentiment. The realisation by the government and others that the country's development rests on the growth of this sector has also contributed to re-rating of stocks from this sector.

How does the acquisition of Hindustan Dorr Oliver fit into IVRCL's growth strategy?

Sixty-five per cent of our turnover is from water-related projects. Hind Dorr Oliver possesses high technical capability in designing water projects and also manufacturing capability for equipment required for these projects.

These were not our strengths. Hind Dorr Oliver was, however not in a position to grow due to lack of execution capability in engineering, procurement and construction and lump sum turnkey projects. We have expertise in these areas. he acquisition would help bring the skill-sets together.

Is the company looking for acquisitions in overseas markets or comfortable with strategic alliances?

We are not desperate to tap overseas immediately. We are comfortable here at present with each construction company having about Rs 3,000 crore worth of orders in hand.

We are familiar with the rules and regulations here. Hind Dorr Oliver and its associate firms, however, have a presence in about 15 countries. This will help us in our foray into other markets.

What is the size of your order book now?

It is Rs 3,400 crore as on date.

Would call the current phase a boom for the infrastructure sector in India? What additional incentives would further boost the infrastructure sector?

The industry has been in a boom phase for the last five years and the same trend can be expected for at least another five years. After that it will be maintenance and revisiting. The industry will not be cyclical and will continue to grow in a steady manner. Several incentives have been put in place. The Government has recognised construction as an industry. But the definition for this industry is still not clear in the Income Tax Act.

Similarly, some government organisations do not accept guarantees from scheduled banks and insist on securing them from PSU banks. These aspects need a re-look.

Do you think the government's budget allocation for infrastructure will help ease the funding situation in the sector?

Definitely, for example, the requirement in Andhra Pradesh for the next 5 years is Rs 46,000 crore and orders have already been issued for Rs 27,000 crore to be completed in the next 2.5-3 years.

For the balance Rs 19,000 crore, some commitments are on from London EXIM Bank and World Bank.

What has been IVRCL's experience in the public-private sector partnership with models such as Build Operate Transfer (BOT), Build Own Operate Transfer (BOOT).

Are these models potential revenue boosters?

These new models have been successful in roads and power sector. However it has not taken off in sewerage/effluent treatment projects. Several aspects still lack clarity.

Toll roads are normally used by high net worth individuals (the rest pay indirectly through buses that they use) who analyse the net benefit derived in terms of time and fuel saved and lesser wear and tear and are prepared to pay the toll. In areas where toll collections are low, Government now supports infrastructure companies with grants (a subsidy-based model), which was not earlier built into these models.

These models are definitely revenue boosters as a regular cash contract has an effective return of 15 per cent; a premium of about 5 per cent is built into such projects to compensate for the higher risk.

What is your geographical spread?

We have covered the southern and western regions and a few areas in the north and east such as Uttar Pradesh, Bihar and Assam. We have no hesitation in taking up projects in any region.

Some projects require you to bid jointly with another entity to qualify. Is the company comfortable with sharing profits in an industry that operates on small margins?

We view joint bids as the cost of qualification. Depending on the requirements of the client we go for joint bids in areas that are not our forte.

What is your view on the trends in steel prices? How are you trying to protect your profitability levels even as material costs continue to be at high levels?

I believe a plus or minus 10 per cent variation in steel prices will continue. Most of our orders, barring a few dated ones for about Rs 250-300 crore, are covered by price escalation contracts. Going forward, there will be no contracts without this clause.

Do price escalation clauses augur well in a competitive bidding environment?

As all companies in case of long-term contracts adopt this rule, no individual company is affected in the bidding process.

Does the company have plans to further increase its equity base?

Not unless we have big BOT projects. Our present debt-equity ratio is a comfortable 0.45 and we have several options to raise funds.

Hindu Businessline Recommendations

BUY   >> Reliance Industries, GIC Housing, Satyam Computers

SELL  >> Tata Coffee

HOLD >> Gujarat Ambuja

Motilal Oswal - Ranbaxy - SELL

Motilal Oswal recommends SELL on Ranbaxy - Target - 770

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Nectar Lifesciences IPO - AVOID

Way2Wealth recommends AVOID on Nectar Lifesciences IPO.

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YES Bank - Capital Markets

Lacks track record

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4YES Bank : Issue Highlights
YES Bank (YB) is tapping the primary market to increase its paid-up capital base, meet its long-term capital requirement for growth and diversify the equity-holding structure. Knowledge banking is the bank's USP. The bank will focus on, develop and leverage knowledge in specific, high-growth sectors to win and expand client relationships in them.

The bank has already commenced knowledge banking with respect to food and agri-business, life sciences, TMT, and infrastructure. It is also in the process of instituting the knowledge banking in sectors like textiles, select engineering and retailing. It intends to be a significant player in agri-business sector. Already this sector accounts for 18.1% of its advance portfolio.

YB has two operational branches in Mumbai and Delhi, the financial hubs of the country. It plans to open another 30 branches by the end of FY 2006 in major cities, which would lay the foundation for business expansion and brand building.

Strengths

Experienced promoters are the YB's main strength. Its two promoters, Rana Kapoor (MD and CEO) and Ashok Kapur (non-executive chairman) are two highly experienced bankers who have held leadership positions in some of the world's prominent banks in India. In addition, the two promoters have a proven track record as professional entrepreneurs in establishing and managing Rabo India Finance Private Limited (RIFL), a joint venture with Rabobank, Moreover, the three private equity investors (CVC of Citigroup, Chrys Capital and AIF Capital) have prior successful ventures in India.

YB enjoys potential cost and time advantages due to its technology outsourcing arrangement with Wipro, which allows it to arrange just-in-time hardware facilities and human resource for starting branch operations.

Weaknesses

YB will initially focus on corporate and institutional business, which yields lower margin.

Almost 100% of the deposit portfolio consist of term deposits, which raises the cost of deposits and lowers the spread. It will take some time for the bank to significantly lower its cost of deposit.

The focus on emerging sectors can increase its risk profile as failure rates and scope for shakeouts are high in these sectors.

The Indian banking industry is very competitive and established foreign and private banks with equally efficient business plans are bound to give YB a good run for its money.

Valuation

YB has a limited operational history with two fully completed operational quarters and only two branches. For the FY 2005, it has reported an operating loss of Rs 3.64 crore and a net loss of Rs 3.76 crore. Pre-issue book value is Rs 10.6. However, the bank is offering its shares in the price band of Rs 38 to Rs 45. The logic given is that the post-issue book value will be around Rs 20, based on the upper limit of the price band, giving a price-to-book-value ratio of 2.25, which is considered to be in line with the industry standards keeping in mind the growth prospects of the bank. Some smart begging the question, indeed. Price the shares even higher and the post-issue book value will look even more attractive!

Holdings of promoters and certain foreign investors are above the prescribed limit for ownership in private banks specified by the Reserve Bank of India. However, 49% of the shareholding, held by the promoter group and Rabo International Holding (RIH), has a five-year lock-in (of which four years still remain) and the three private equity investors have a three-year lock-in period (of which two years are still to go). During the lock-in period, there will not be any impact of these guidelines. Hence, no offloading of shares by these groups in this period is expected

RIH has shown considerable intent in maintaining its holding in YB at 20%, which will come down to 14.81% on post-issue equity based on current RIH holding of 4 crore equity shares. RBI has given RIH the required approval to maintain 20% post-issue holding. YB has allocated 3.5 crore, equity shares (50% of current IPO) to qualified institutional buyers (QIB) segment and RIH needs to buy further 1.4 crore shares by subscribing to the issue and subsequently through open- market purchases to maintain its post-issue stake at 20%. This could provide post-issue support to the scrip, provided RIH does not get hefty allotment in IPO.

YB offers a good business plan and financial strength of some major global investors to back it up. But that's the only thing it can offer at this point of time. When dealing with a bank for any purpose, track record is one of the very important criteria, which YB cannot offer.

YES Bank - IPO Analysis - Equitymaster Report

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Geometric - Equitymaster Report

As per an analyst note sent by Geometric Software, the management has estimated the company¿s 1QFY06 consolidated revenues to show a decline on a QoQ basis. This, the management has indicated taking into consideration that several projects, which were scheduled to commence in the first quarter, have now been shifted to the next quarter, i.e., 2QFY06. The revenue and profit growth guidance has been, thus, revised downwards by 5% to 8% each.

In the recent analyst meet held after the company had announced its FY05 results, while the management had projected some kind of weakness in 1QFY06 due to an adjustment in resource requirements by one of its major customers, it had anticipated a pick up in other activities. However, now with the postponement of some projects to the next quarter, and a delay in completing a major fixed price contract, the company is likely to report a decline in revenues during this quarter, on a sequential basis.

Investors should note that this kind of problem is duly visible with small companies like Geometric that have a resource crunch and follow a project-based model whereby it requires new projects to fill up the completed space as and when a contract gets over. If this does not happen, i.e., when a project gets over and there is no other project in the pipeline, the utilisation reduces thus, impacting the company on the margins front. In another case, as is being seen now, if the company delays the execution of an ongoing project, it has to leave some revenues on the table, as there is then an employee scarcity to meet requirements of a new project. In our recent interaction with the management, it had indicated that the company has initiated several annuity-based contracts of late and that this will provide them with a better visibility on the revenues front. However, annuity based contracts will still take some time to provide sustainable contribution to the company¿s topline and, to that extent, investors will have to bear the quarterly volatility on Geometric¿s performance.

This change warrants us to re-look at our projections for the full-year. Our current estimates indicate a profit growth of 59% in FY06, which would now have to be revised downwards. At this growth, the EPS for FY06 stands at Rs 39 per share. Thus, at the current price of Rs 570, the stock¿s price to earnings multiple is at 14.5 times FY06E earnings, which is at the higher end of the valuation spectrum. However, considering the strong growth in FY07, the price to earnings ratio works out to 10 times, which is still attractive.

In January 2005, we had recommended a buy on the stock with a target price of Rs 750 in the long term. The stock has witnessed a rise of 46% since then. While we believe that the valuations are rich from a short-term perspective, long-term investors can continue holding on to the stock, as we maintain our recommendation. There is, in fact, no need to panic from this one quarter of downward revision in the guidance.

Motilal Oswal - Tata Tea - BUY - 708

Motilal Oswal is recommending Buy On Tata Tea @ 581 With Target Price 708

Download the report here

Motilal Oswal - YES Bank - IPO

Motilal Oswal recommends SUBSCRIBE on YES Bank

Download the report here

Geometric Software - Motilal Oswal - BUY

Geometric Software - Motilal Oswal - BUY -

Target >> 670 in 12 months

Exide Industries - Indiainfoline - BUY

Indiainfoline puts a BUY on Exide Industries. Download the report here

Equitymaster - YES Bank IPO - Snippet

We believe that the bank holds potential for effectively catering to a niche corporate segment (especially due its novel strategy) and utilising the low operating overhead approach (by not focusing too much on retail) to bolster its operating margins. Besides given the credibility of its management and commitment of Rabo Bank (which has one the highest credit ratings in the world), Yes Bank seems to have a lot coming its way. All said, it would be a matter of time before the bank's credentials are established. Also, despite catering to the high-end customers, inability to garner low cost deposits has dampened the bank's business per employee ratio as compared to that of its peers. The valuations of the bank (at the higher end of the band) look attractive when compared to its peers in the private banking space. But for long-term investment we would put it in the high-risk category.

Subex Systems - HOLD

Subex Systems - HOLD - Way2Wealth - Download here

LIC Housing Finance - Equitymaster StockSelect Report

LIC Housing Finance - SELL - EquityMaster - Download here

Weekly Technicals - Hindu Business Line

SBI (Rs 680.4): The stock failed to close above the resistance level of Rs 690. This resulted in a sharp drop on Friday. The recent price patterns suggest that the downward move witnessed on Friday could continue. A decline to the Rs 655-660 range appears likely. Holders of long position may consider dilution of holdings while short positions may be considered on intra-day rally, with a stop-loss at Rs 696. A close below Rs 650 would impart further weakness and would push the stock to the Rs 620-625 range.

Reliance Ind (Rs 566.8): The stock ruled firm as anticipated last week. It managed to move closer to the target zone of Rs 575-580. The share price appears on course to move to this target zone. Hold with a stop-loss at Rs 540 for a portion of the holding and at Rs 520 for the balance. Partial profit booking may be considered on a move to the Rs 575-580 range. Fresh exposures may be avoided for the moment. A close below Rs 540 would be an early sign of weakness and a drop below Rs 520 would impart weakness.

Tata Steel (Rs 334.4): The share price ruled weak in line with the view outlined last week. It dropped below the negative trigger level of Rs 343, which has imparted weakness. The short-term outlook remains bearish and a drop to the Rs 305-310 range appears likely. Short positions may be considered with a price target of Rs 305-310 and a stop-loss at Rs 345. The weak outlook would be negated on a close above Rs 345. A close above this level would warrant liquidation of short positions.

Satyam Computer (Rs 463.8): The price movement last week was marked by a high degree of volatility. The price action was devoid of any significant momentum during the week. The near-term outlook would depend on the price movement in the next few days. A close above Rs 478 would impart bullishness and would help the stock move to the Rs 485-490 band. A drop below Rs 455 would have negative implications that would push the stock down to the Rs 430-435 range.

Infosys (Rs 2213.3): Except for a sharp upward move on Wednesday, the stock did not display any significant momentum during the week. The near-term outlook is bearish and a drop to the Rs 2160-2170 range appears likely. Long positions may be considered on price weakness, with a stop-loss at Rs 2170. Shareholders may remain invested with a stop-loss at Rs 2120. The positive view would be negated if the share price closes below Rs 2100.

Nicholas Piramal (Rs 254.1): Contrary to expectations, the stock ruled weak and also moved closer to the stop-loss level of Rs 249. Investors may remain invested with a stop-loss at Rs 249 (on closing basis) as the stock appears to have the potential to bounce back to the target zone of Rs 315-320.

The positive long-term view would be negated if the stock closes below the stop-loss level at Rs 249. A weekly close below this level would indicate that the stock could drop further to the Rs 220-225 band. Fresh exposures may also be considered on close above Rs 278, with a stop-loss at Rs 254. Exposures may be enhanced on a close above Rs 295.

Aztec Software (Rs 123.2): After a sharp upward move on Monday, the stock failed to make any headway on either direction. The outlook remains bullish and the stock appears on course to move to the target zone of the Rs 145-150 range. Long positions may be considered on weakness, with a stop-loss at Rs 100.

Investors who have entered at fairly lower levels may hold with a stop-loss at Rs 100. Exposures may also be enhanced on a close above Rs 131, with a stop-loss at Rs 115. While a close below Rs 115 would an early sign of weakness, a close below Rs 100 would almost negate the positive outlook.

Hindu Businessline Recommendations

Buy  >> Amar Raja Batteries, Bharti Shipyard
Hold >> Gateway Distripaks

Jindal Polyfilms - Way2Wealth - Avoid

Way2Wealth recommends AVOID on Jindal Polyfilms

Download here

If India were a stock...

…would you buy? This is indeed a grueling question. However, to answer this in a clear manner is even perplexing. We have tried, in this article, to put forth the reasons to buy and not to buy India, if it were listed as a stock on a stock exchange. The points mentioned hereunder are only illustrative and not exhaustive.

Note: Hereunder, 'India ' will be used to refer to as a diversified company and a listed stock.

More >> here

Motilal Oswal - Provogue IPO

Motilal Oswal's Provogue Report - Download here

Motilal Oswal - Sesa Goa

Motilal Oswal Report on Sesa Goa

Provogue - Equitymaster - Snippet

We are enthused by the industry in which Provogue operates, owing to the huge growth potential in RTW and of organised retailing in India. Each Provogue store has an average of 1,800 customers per day with a 50% conversion ratio and an average transaction size of Rs 1,600, which is above the industry average. Also, the time to market from ramp to rack is around 45 days, as compared to 100 days even for International major GAP, which is a big positive. Currently, the company outsources 50% of its work and going forward, plans to manufacture only 15% in house, which is a good strategy, as it will make it a focused designer house. Provogue contributes 1.5% to Shoppers Stop's revenues on 0.25% of retail space, which shows the company's brand strength. Also, inspite of roping in Bollywood stars, the advertising to sales ratio is a decent 8%, which is quite sedate, considering the industry the company operates in.

Unfortunately, there is no other listed company, whose business model is exactly same to that of Provogue's. In our view, the company is likely to clock over 25% revenue CAGR growth over the next two years, with revenues increasing to over 1.5 times its current size. This will be primarily led by its expansion plans. Also, as the company plans to increase its own stores, where it reaps higher margins, this is likely to reflect in atleast maintaining current profitability. The stock trades at a market cap/sales of 2x currently and based on our assumption, we anticipate it to be between 1x to 1.3x on FY07E revenues. In contrast, other retail companies are trading higher, which means that there is room for the stock to appreciate.

We believe organised retail is the future and going forward policy decisions like a central uniform VAT and allowing FDI in retail space will fasten the industry momentum. In our view as the issue is steeply valued based on current earnings, the company has left little on the table for the investors. Thus in totality, if one is looking for listing gains, there might me some, but fundamentally too, the stock looks good from a 2 year investment horizon. However, the company's business format is too dependent on up-market clients' and hence may get affected in an economic downturn. Thus, if you have a high-risk appetite, the issue is worthwhile to invest.

Satyam Computers - Equitymaster Report

Equitymaster puts a BUY on Satyam Computers. Download the report here

Retirement Planning - Business Today

...And They Lived Happily Ever After Life after retirement can be blissful or miserable, depending on how well you plan for it. Here's what you need to do.

Elderly models are suddenly the flavour of the season. Pick up any newspaper or magazine or switch on any TV channel; chances are you'll find grandfatherly and grandmotherly figures lounging by poolsides, paragliding across exotic beaches and generally enjoying lifestyles that seem like straight lifts from the lives of the rich and famous. All the ads are hawking variations of the same product: retirement solutions. Indians, it seems, are planning for retirement like never before. And feeding this demand frenzy is a slew of financial products-from practically every financial institution in the country-"tailored to suit every individual's unique needs". These ads address a very real fear all of us have: of an abrupt descent into hardship after retirement.

And standing between those two old-age extremes is one eight-letter word: planning. As the Americans say, there's no free lunch. After all, for post-retirement life to be comfortable, you'll need money; and with your regular income drying up, you'll have to depend on what-and how well-you have prepared for it. Most people opt for the easy way out: they stash away a part of their income every month in a bank. In an age when practically everything (house, car, furniture, electronic gadgets and even personal accessories) can be-and are-bought through EMIs (equated monthly instalments), tucking away a fixed amount every month works like just another EMI. However, there are other options as well. Here's a detailed look at some of them.

Planning For Retirement

First, you need to know how much money you'll need every month after retirement. For this, sit with your investment planner and work out an estimate; issues such as your age, salary, lifestyle, inflation and expenditure on dependents have to be factored into this equation. The next step is deciding what investments you need to make to generate that amount after you retire.

Most retirement planners advise you to save 30-35 per cent of your annual income. The first priority for investments, according to Nilesh Shah, President, Kotak Asset Management, should be life insurance. It offers two benefits: it ensures that you get an assured amount after a given time period; and it also ensures that your dependents are financially covered in case of your accidental demise. The next investment option is a mix of public provident fund (PPF), employee provident fund (EPF), post-office schemes, ULIPs (unit-linked insurance plans, which have a combination of equity and insurance components) and mutual funds or stocks.

How you allocate your resources between debt and equity depends entirely on your risk appetite. Investments in equities give average annual returns of about 15 per cent, but carry huge downside risks. Debt instruments are safer but give only 7-9 per cent annual returns. It's your call, and you have to weigh the pros and cons carefully before deciding. The thumb rule says younger people can afford to lean towards equity, simply because they have more time to recover in case an investment goes horribly wrong. Women are increasingly joining the workforce and, consequently, adding to the family income. Says Kapil Mehta, Vice President (Strategic Intiatives and Business Development) at Max New York Life: "I see the intent (in planning for retirement) in women. They are also more aggressive while saving, but need to be more savvy." Women have more or less the same savings options as their male counterparts, give or take some. For instance, life insurance is cheaper for women than men (because women on average live longer and need to pay less premia), but pension plans are more expensive for them (because companies have to pay out money over a longer period of time). So, a working couple can optimise returns if the wife invests in insurance and the husband in pension plans.

Investing in property (second house or commercial property) is arguably the best option, though. Real estate, typically, gives 15-20 per cent annualised returns over a 10-15 year horizon. The rental income can be used to pay off the EMIs (if you've taken a loan to buy the property), during the term of the loan and provide additional cash flows thereafter. Alternatively, you can sell the property after a few years and invest the lump sum you receive elsewhere. But even here, Mehta of Max New York Life offers a word of caution. "People should be very careful about where they invest, because property prices in several areas are artificially inflated and, therefore, bound to fall," he warns.

Now, let us analyse the retirement plans of three individuals who belong to different age groups, and determine what they need to do. These can then serve as benchmarks for your own retirement plans.

Age-group Analysis

It's never too early to start planning for retirement; experts say the best time to start is in your late 20s or early 30s, when most people have settled down in their careers. John James, 30, belongs to this category. James, a senior training manager with BPO firm Vertex India in Gurgaon, lives with his wife Monisha, 29, an hr consultant with Aviva Life Insurance, son Joshua, 5, and daughter Myra, 2. His annual family income is Rs 15.5 lakh, and his investments include a Rs 20-lakh retirement policy, and a Rs 25-lakh life insurance policy, both from Life Insurance Corporation (LIC). He has also bought a Rs 28-lakh property in Gurgaon, which is likely to give him handsome returns in future.

V. Rajagopalan, Chief Actuary, ICICI Prudential Life Insurance, feels that given James' lifestyle and a 5 per cent rate of inflation, he will need at least Rs 1 lakh per month after retirement in 2030. To achieve this, James needs to save 25-30 per cent of his income every month for the next 25 years. The insurance policies are not hefty enough, feels Rajagopalan; they should be ramped up by another Rs 80-90 lakh. James also needs to increase his risk appetite and invest in stocks or ULIPs. And finally, he should review his financial status every three years.

The next age group we consider is 40-49, when you need to increase the tempo of your retirement planning. Some of your earlier investments should be maturing by this time. You can use this to pay for your children's education, for any big ticket items you might want to purchase, or you can re-invest this amount. At this stage in life, health insurance is also a must. Nitin Asthana, 43, Manager (Industry Affairs) at ITC in Bangalore, fits the bill. Asthana-who lives with his wife Seema, 42, a housewife, and teenage sons Shavang and Sharang, and has an annual family income of Rs 12 lakh (plus Rs 5 lakh in perks)-appears more inclined towards equity than James, and has invested in stocks that are now worth a neat Rs 22 lakh. He also has an insurance policy from LIC worth Rs 5 lakh, and has accumulated Rs 17 lakh in EPF and PPF. Further, he's bought a plot of land in Bangalore that's now worth Rs 12 lakh.

Asthana, according to ICICI's Rajagopalan, will require around Rs 70,000 per month after retirement in 2017. For this, he needs to save 30-35 per cent of his income, increase insurance investments to Rs 25 lakh, and scale down his exposure to equity now when the going is good. He also needs to choose a balanced ULIP with appropriate life cover, go in for health insurance, and review his financial status every two years.

The third age group we'll consider is the 50s. When you're in your 50s, all the planning should have been done already. Some really big-ticket expenses, such as children's marriage, or their education abroad, may be around the corner. Here, we'll analyse the investment profile of Ravi Grover, 53, Vice President (Sales), Eveready Industries, who's based in Kolkata. Grover has an annual family income of Rs 16 lakh plus perks, and his family consists of wife Vrinda, 52, a housewife, and son Dhruv, who's pursuing a PhD from the University of Southern California. Grover's investments-a life insurance policy from LIC worth Rs 1.5 lakh (an amount he has already received), stocks worth Rs 5 lakh, and Rs 10 lakh accumulated in PPF-look inadequate. The only plus is a plot he's bought in Gurgaon that's now worth Rs 35 lakh; its value is likely to escalate further by the time he retires. Rajagopalan reckons Grover will require around Rs 40,000 per month after retirement, assuming he does so at 58. To tide over the shortfall he's likely to face, Grover has to invest around 60 per cent of his savings in ULIPs that have high debt content, invest in post-office schemes, government bonds, and go in for medical insurance with a critical illness rider.

These examples should help you get a fix on what you need to do to ensure a comfortable retired life. Remember, starting early is the key. If you haven't done that already, you can't afford to delay any further.

Motilal Oswal - Bharat Forge

Bharat Forge Report - Download here

Steel: The orphaned lot!

Have you heard of Tata Steel (or Tisco) lately on the bourses? Or for that matter Steel Authority of India (SAIL)? Well, largely, the possibility is that you haven't heard of these in recent times and even if you have, the chances are that the voices advocating an investment into these are rather subdued.

More here

Biotech's Allure - Business Today

The AV Birla Group is reportedly considering a foray in biotech. What is it about the sector that's drawing India's big industrial houses like the Tatas, Reliance, and now the Birlas?

Reliance and Tatas are already going the whole hog at it. And it is only time before the AV Birla Group comes out with a concrete plan to enter the sunrise biotechnology sector. However, indications are that the Rs 30,000-crore conglomerate is looking for acquisitions in the biotech industry both in India and in the US.

Kumar Mangalam Birla, Chairman of the Aditya Vikram Birla Group, has been quoted as saying that the group is on the lookout for an opportunity in the biotech space. "India has an enormous competitive advantage and a resource pool in intellectual property," he had said.

Reports indicate that the AV Birla group has been in talks with two Hyderabad-based biotech companies, Bharat Biotech and Shantha Biotechnics. It's also talking to two US-based companies, Biosyn Biotech and Fortuna. Bharat Biotech and Shantha Biotechnics are closely-held companies, and have apparently been looking at various options to raise funds.

Recently, Tata Group Chairman Ratan Tata had said that his group is interested in the biotech sector. "In the area of biotech applications in the pharmaceuticals industry and in the area of drug research, there is considerable opportunity for us, which we are indeed looking at today," Tata had said.

In the biotechnology field, Tata Industries now has a small stake in the Bangalore-based Avestha Gengraine, a biotech firm founded by Villoo Morawala Patell. In fact, last year, when an Indian company developed the world's first recombinant human insulin, the Indian government sanctioned a flurry of biotechnology parks, and several research and development agreements were announced. With a new national biotechnology policy on the way, India has begun to look beyond the software and IT enabled services sectors at a new growth point for the country's economy: biotechnology and pharmaceuticals.

India's biotechnology sector is currently made of four major segments: bio-industrial products such as enzymes and bio fuel; bio-agricultural products such as genetically modified seeds, bio-fertilisers and bio-pesticides; bio-services such as contract research, contract manufacturing and clinical trials; and bio-pharmaceuticals. Bio-pharma covers vaccines, therapeutics, diagnostics and animal health care, and has emerged as the largest segment, thanks in part to strong clinical and research capabilities developed through bio-services.

In October, plans to set up special economic zones (SEZs) for biotechnology, including biotechnology parks and free trade warehouse zones, were announced. Biotech parks sanctioned include a Rs 100-crore venture in West Bengal, which will include a research centre for traditional medicine. Having identified IT solutions for the life sciences sector as another big opportunity for the country, the government has also sanctioned a bio-IT park, aimed as a geographic hub for bioinformatics, bioengineering, and pharmaco-genomics companies and research institutes.

LIC Housing Finance

LIC Housing Finance Research Report - Read here

Positive outlook for Infosys, Satyam

SBI (Rs 663.9): The expected short-term weakness in the stock materialised during the week. After dropping to a low of Rs 653, the stock closed marginally higher on Saturday. A close above Rs 690 would have positive implications and would help the stock move to the target zone of Rs 725-730. A close below Rs 640 would have negative implications. Hold with a stop-loss at Rs 640 and fresh exposures may be considered on a close above Rs 686. A close below Rs 640 would warrant dilution of holdings.

Reliance Ind (Rs 555): The stock managed to comfortably hold above the bearish trigger level of Rs 520 and also closed above the positive trigger level of Rs 540. This imparted strength and helped the stock post a sharp gain on Friday. The near-term outlook remains bullish and the stock appears on course to move to the target zone of Rs 575-580 that was mentioned last week. Hold with a stop-loss at Rs 530 for a portion of the holding and at Rs 520 for the balance. Partial profit-booking may be considered on a move to the Rs 575-580 range.

Tata Steel (Rs 353.3): The stock dropped to the first support zone at the Rs 340-345 range. Though it did breach the stop-loss level of Rs 348 during the intra-day trading on Friday, it managed to close above this level. The short-term outlook appears bearish and a close below Rs 343 would be a sign of weakness. Short positions may be considered on a close below Rs 343, with a price target of Rs 305-310. Stop-loss for short positions may be placed at Rs 358. A close above Rs 359 would impart strength and the stock could rally to the Rs 370-372 range subsequently.

Satyam Computer (Rs 465): The share price was confined to a narrow trading range last week. It, however, managed to hold above the stop-loss level at Rs 423. The near-term trend is bullish and the share price appears on course to move to the target zone of Rs 485-490. Remain invested with a stop-loss at Rs 423. Fresh long positions may be considered on a close above Rs 470, with a stop-loss at Rs 440.

Infosys (Rs 2237.2): The outlook is bullish and the share price could move to the Rs 2380-2400 band in the near term. Long positions may be considered on price weakness, with a stop-loss at Rs 2170. Shareholders may remain invested with a stop-loss at Rs 2120. Exposures may be enhanced on a close above Rs 2300, with a close stop-loss in place. The positive view would be negated if the share price closes below Rs 2100.

Follow-up

Cipla (Rs 288): The stock managed to hold ground and recorded a modest gain for the week. The near-term outlook remains bullish. The stock appears on course to move to the target zone of Rs 300-305. The positive view would be valid as long as the stock holds above Rs 270.

Investors may hold with a stop-loss at Rs 270 while fresh exposures may be considered on a move above Rs 296, with a stop-loss at Rs 280. A close below Rs 269 would blunt the positive outlook and would warrant dilution of holdings. A close above Rs 325 would confirm that the stock is in a long-term uptrend and exposures may be enhanced subsequently.

Arvind Mills (Rs 139.1): The stock was confined to a narrow trading range during the week. The long-term uptrend would resume on the completion of this corrective phase. As observed last week, investors who are comfortable with a "buy-and-hold" investment strategy may get opportunities to exit at the Rs 190-200 range.

Existing shareholders may remain invested with a stop-loss at Rs 120. Fresh exposures may be considered on price weakness, with a stop-loss at Rs 120. A close below Rs 120 would be a sign of weakness and would warrant dilution of holdings. Exposures may also be enhanced on a close above Rs 145, with a close stop-loss in place.

Source : B. Krishnakumar http://www.thehindubusinessline.com/

Hindu Businessline Recommendations

Buy  >> Nilkamal Plastics, Vesuvius India, Union Bank Of India
Sell  >> EIH, Bajaj Auto
Hold >> Tata Power

Weekly Technical Analysis

Markets are really in extremely overbought territory and also have been relatively stagnant, this last week. Still, with lot of bullishness in the air, though.

Positives

• All indicators maintaining their uptrend.

Negatives

• None in particular. Still extremely Overbought.
• MACD threatening to move down.

Analysis

Last week was an indecisive week. With a few down and few up days. But we did close the week near the high of the week, which is very encouraging. Markets have had Only upside for nearly 3-4 weeks now. And for any healthy upside, a good Correction to the downside Must exist. Always remember, the demand and supply curve has to go up and then come down. It cannot go up all the time.

Theory is, where would you get the buyers from. After a point, the buyers are exhausted and sellers take control. If not for long, at least for sometime. And hence, we would not get too excited about going long at this point. Better to wait for a day or two to see what the market thinks should be the direction for the rest of the week. Before jumping into any of the stocks. Also if you notice, a flat Week means, losing steam. Hence, it adds to the cautious attitude one must possess in the following week.

Outlook

We would still hold our stance from last week. We are bullish and it is Only advisable to trade from the Long side. Definitely Short, if we break couple of major supports. One being the Trend-line(Lower), which is where we are hanging right now. And the other being a major support around 6630. As long as these critical levels are intact, go LONG.

ITC & Mid-Day Multimedia

ITC 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,854
Current market price: Rs1,557.70

Price target revised

ITC reported an exciting growth of 18% in its revenues for FY2005 to Rs7,635 crore on the back of a strong growth in all its businesses. The revenues from the hotel business were up 124% year on year (yoy), that from the paperboard business was up 25% yoy and the revenue from the fast moving consumer goods (FMCG) business excluding that of cigarettes grew by 85% yoy. The cigarette revenue grew by 8.4% while the revenue from the agri-division grew at 4.2%. At 37% the operating profit margin (OPM) was stable for FY2005 while the post-tax profit (pre-exceptional) grew by 15.3% yoy to Rs1,837 crore. The reported numbers include Rs354 crore of exceptional items (profits) relating to the resolution of certain past litigations in favour of ITC.

We believe that all the non-FMCG businesses of ITC are gathering momentum and poised for a robust growth. The issues relating to excise and luxury taxes are now solved and the future litigation risks are at the bare minimum. ITC has announced a bonus/stock split and a dividend of 310% (40% pay-out). At 15x FY2007E earnings and an 18% compounded annual growth in the profit over the next three years, the stock's valuations are attractive vis-à-vis that of its peers. We are maintaining our Buy recommendation on ITC with a revised price target of Rs1,854.

 

Mid-Day Multimedia 
Cluster: Ugly Duckling
Recommendation: Book Profit
Current market price: Rs65.7

Book out 

One of the triggers for the stock in the near future could have been the new rate card that was expected in the month of May. However, the delay in the release of the new national readership survey has resulted in the delay in the release of the new rate card. The new rate card may also get delayed further looking at the head-on competition from "Mumbai-Mirror" in terms of the invitational price (Rs2 per copy as compared to Rs3 per copy for Mid-Day) and invitational advertisement rates.

As there are no positive triggers for the stock in the near term (the only one being the new FM radio policy expected at the end of June), we recommend investors to book out of the stock.

The Rs 1,20,000-crore Telecom Revolution

Read about the Indian Telecom Sector - Business Today Article

Taking Stock - Equitymaster

This is inarguably not a good time for an investor who is sitting on cash waiting to enter the stockmarkets, as they trade near their all-time highs, or for one who is already fully invested and doesn't know when to sell, as they remain unaware of what's in store for India Inc. going forward. However, while we wouldn't be throwing light on how to time the markets (simply because we don't believe in this theory), we can say one thing for sure that India Inc. has once again proved its mettle, going by its FY05 performance, and continues to roar and march ahead in the face of adversities thrown up against it. We take a look at the likely possible scenario going forward and gauge whether this performance can atleast be sustained, if not improved upon.

As mentioned previously, robust YoY performance of about 300 companies (approx. 170 in 4QFY05) from our Quantum universe in the four quarters of the previous fiscal. Both, sales and net profit growth have been pretty strong in the period under consideration. Thus, for the full year (FY05), the consolidated YoY net profit growth was at 26% on the back of an 18% YoY topline growth. Another indication of the improving performance is the fact that the net profit margins have improved from about 8% in 1QFY05 to about 12% in 4QFY05. Further, our numbers reveal that for the full year, these have improved by about 70 basis points in FY05. This is commendable considering the fact that Indian companies (like other corporates around the globe) have had to face the odds in terms of high commodity and energy prices.

However, this performance is now a thing of the past and investments are made on the expected future performance of the market/stock. And there is more than one factor that goes into judging what the future course would be. Some of the factors that would determine the future performance of companies are reforms, monsoons, domestic interest rates and commodity & energy prices.

Reforms: There has been increasing positive intent being displayed by the government regarding the continuation of the reforms process. This was, in recent times, depicted by the FDI enhancement and divestment moves announced by it. Going forward, we believe that while the reforms process would by and large continue, one can expect hurdles on the way considering the coalition nature of the government.

Monsoons: This is being touted as the next 'big' trigger for the Indian stockmarkets. The relevance of monsoons can be gauged from the fact that almost 65% to 70% of the Indian population is dependant on agriculture for its livelihood. Thus, scanty/low and/or unevenly spread rainfall would affect crops and consequently the spending power of rural India, which is the key source of demand for many goods manufactured by Indian companies. Going forward, while the government has initiated plans pertaining to improving the irrigation facilities so as to decrease the dependence on rain Gods, the fact remains that this is a long drawn process and much of it depends on the government's will to implement the same, successfully. Till then, monsoons would continue to play an important role in determining the fate of the country's growth prospects.

Domestic interest rates: Though interest rates have been on the rise, the quantum of it has seemingly not stalled economic growth as yet. And considering that the government has time and again made public its intentions of maintaining a soft interest rate regime, Indian corporates would continue to benefit from the same. With demand and profit growth being strong, most of the companies have cleaned their balance sheets by reducing their debt flab. Thus, with debt servicing obligations being much lower than what it was 2-3 years ago, it augurs well for the shareholders.

Commodity & energy prices: The world has been witnessing a period of high commodity (ferrous and non-ferrous metals) and energy prices. However, most of the Indian companies have managed to tackle the situation well by taking concrete efforts at controlling other expenditure heads so as to mitigate the negative impact of rising input costs. Thus, going forward, with the operational efficiencies now having been achieved, any cool-off in commodity and energy prices, which is already being witnessed, would only aid margin growth for companies.

After considering all of the above, with monsoons being the only grey area, we believe that Indian equities would continue to deliver decent returns over the long term, as the above factors seem to be largely favoring continued growth for Indian companies, though the growth rates could stabilise at lower levels. Further, from the stock market perspective, it must be noted that at the current juncture, the P/E valuation of the Sensex is at about 15x trailing 12-month earnings and considering the past performance, it is very much possible that the average growth rate of Indian companies would be maintained above 15% per annum over the next 2-3 years. Thus, while the markets remain fairly attractive from the long-term perspective, considering the huge run up stock prices over the last couple of years, investors will have to work harder to identify a viable investment option.

Motilal Oswal - Colgate

Motilal Oswal puts a BUY on Colgate. Download the report here