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Friday, November 17, 2006

Sharekhan Investor's Eye - Nov 17


India-USA nuclear deal

Key points

  • On November 17, 2006 the US Senate passed the bill to implement civilian nuclear energy cooperation with India. During July 2005, India and the USA had reached an agreement on the separation of civil and military nuclear plants and technology transfer for civil nuclear plants.
  • The Indo-US nuke deal brings a reliable source of nuclear technology that can be exploited to set up nuclear power plants in India. This in turn could possibly go a long way in quenching India’s current and projected thirst for power. Needless to say that the companies like BHEL, Larsen & Toubro, KSB Pumps and Honeywell Automation that provide products and services for nuclear power plants would be the primary beneficiaries in this scenario.
  • India’s power generation today is approximately 15% below the actual consumption. As per the energy and resources institute (TERI) the projected economic growth of 7-8% over the next 20 years will quadruple India’s energy needs.
  • Coal, the main source of India’s energy needs today, is peaking its exploitation and the gas supply from Iran via a pipeline is unlikely to materialise due to the US opposition.
  • Hence if India’s power generation has to keep pace with the burgeoning economy, nuclear power has to provide a significant component of it, as opposed to its current contribution of 3%. A very plausible scenario to look at is the building of nuclear power plants with the help of the USA.

SHAREKHAN SECTOR SPECIAL

Real estate

Realty rules
In this report, we have also ranked some of the listed companies with reasonably large land banks based on quantitative as well as qualitative parameters. In terms of the overall ranking (on a scale of 1 to 10), Unitech (9) leads the pack followed by Ansal Properties & Infrastructure (8.3) and Anant Raj Industries (8). On the other hand, Prajay Engineers (4.5) and Arihant Foundation (5.5) trail at the lower end of the overall ranking.

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India-USA nuclear deal: Sharekhan Special dated November 17, 2006




India-USA nuclear deal

Key points

  • On November 17, 2006 the US Senate passed the bill to implement civilian nuclear energy cooperation with India. During July 2005, India and the USA had reached an agreement on the separation of civil and military nuclear plants and technology transfer for civil nuclear plants.
  • The Indo-US nuke deal brings a reliable source of nuclear technology that can be exploited to set up nuclear power plants in India. This in turn could possibly go a long way in quenching India's current and projected thirst for power. Needless to say that the companies like BHEL, Larsen & Toubro, KSB Pumps and Honeywell Automation that provide products and services for nuclear power plants would be the primary beneficiaries in this scenario.
  • India's power generation today is approximately 15% below the actual consumption. As per the energy and resources institute (TERI) the projected economic growth of 7-8% over the next 20 years will quadruple India's energy needs.
  • Coal, the main source of India's energy needs today, is peaking its exploitation and the gas supply from Iran via a pipeline is unlikely to materialise due to the US opposition.
  • Hence if India's power generation has to keep pace with the burgeoning economy, nuclear power has to provide a significant component of it, as opposed to its current contribution of 3%. A very plausible scenario to look at is the building of nuclear power plants with the help of the USA.
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IDBI Capital - Yes Bank


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IDBI Capital - Blue Bird IPO Note


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WEEK AHEAD - Profit booking to continue


Profit booking is likely to continue with Sensex hovering close to all time high level, having witnessed a sharp rally over the past few weeks. The BSE Sensex has advanced over 14% since the start of September, and has gained close to 43% for the calendar year 2006 so far.

FIIs have been the key drivers of the recent rally. Any slowdown in their inflow can trigger correction. They were net buyers to the tune of Rs 2,302 crore for the first two days of the week.

Mutual funds made an inflow of Rs 150.59 crore in the first three days of the week.

However, the recent sharp fall in crude oil prices will cap the downside. Crude oil price declined sharply by $2.50, or 4.3%, to $56.26 per barrel on Thursday, the lowest close since 18 November 2005.

In the near term, the market would take cue from as to what extent the ruling government is able to pass some of the financial sector reforms. The winter session will debate, among other things, the Banking Regulation (Amendment) Bill. The Bill proposes to increase the voting rights of foreign stakeholders in private banks, which is capped at 10% now. However, the Left parties are opposed to amendment to the Banking Regulation Act, fearing that increase in voting rights in private sector banks will lead to a takeover of these banks by foreign entities.

Apollo Hospitals Enterprise, Thomas Cook (India), BPL, Siemens and Precot Mills will announce their results in the coming week

THE WEEK THAT WAS - Sensex gains 147 points


The Sensex maintained its winning streak, as buying continued at higher levels. Strong FII-inflows and revision in earnings estimates by brokerages have fuelled the latest bull-run on the bourses.

For the week ended Friday (17 November), the Sensex gained 147 points (1.10%), to settle at 13,429.48

The S&P CNX Nifty advanced 18 points (0.47%) for the week ended Friday (17 November), to settle at 3,852.80.

On 13 November, the Sensex jumped 116.09 points to 13,399 as select blue-chips were in demand. It gained 26.50 points to 13,425.50 on 14 November, as buying continued. On 15 November 2006, the Sensex has gained 43.87 points, settling at 13,469.37 on demand for banks and cement makers.

On 16 November 2006, the Sensex finished 36.52 points higher, at 13,505.89, on buying interest for banking and cement stocks.

Sensex lost 76.41 points on 17 November to settle at 13,429.48 on profit booking. It had struck an all time high of 13,678.04 in opening trade on that day.

Reliance Industries lost 2.35% to Rs 1,258.10 for the week, after two brokerages downgraded the stock to `underperform’ from market performer citing stretched valuations and weakening fundamentals.

TCS rose 1.91% for the week to Rs 1,091, amid reports that it had bagged a $100 million contract in the US. On 14 November 2006, block deals for an aggregate 85.05 lakh shares were executed in the scrip on BSE, at an average Rs 1,059 in early trade, constituting 0.8% of TCS’ equity capital of Rs 97.86 crore (face value Re 1 per share). Foreign fund HSBC Global purchased the shares from promoters, who hold 84% in the company.

Cellular services major Bharti Airtel advanced 6.89% during the week, to Rs 582.20. It had hit Rs 586.95, an all-time high on 17 November. Bharti Airtel said on Monday it was roping in Microsoft Corporation, to offer software and other services to small and medium scale businesses in India. On 15 November, it replaced TCS as the fifth largest company in terms of market-cap.

Gujarat Ambuja Cements rose 1.37% for the week to Rs 135.65. On 16 November, two big deals of 2.5 crore shares each were struck in the counter, at an average Rs 138.75 per share. Swiss cement maker Holcim, which presently holds 15.6% in Gujarat Ambuja Cements, acquired an additional 3.6% stake from the promoter group. The block deals with a turnover of Rs 694 crore, constituted 3.6% (5 crore shares, 2.5 crore shares each) of its equity capital of Rs 272.02 crore (face value Rs 2 per share).

Bank shares surged on easing interest rate worries. RBI on Tuesday said the recent fall in global crude oil prices should help ease inflation pressures.

HDFC Bank gained 8% for the week, to Rs 1,122.10. On 16 November, it struck an all-time high of Rs 1,150. ICICI Bank rose 4.63% to Rs 877. On 16 November, it struck an all-time high of Rs 925 on Reserve Bank of India's permission for new branches and ATMs. SBI jumped 7.86% during the week to Rs 1,229. It had also surged to an all-time high of Rs 1,241 on 17 November.

Airliners rose on reports that they are to raise airfares between 3 - 5%. Reports also add that the number of low-priced tickets available on each flight is also likely to be reduced as a cost-cutting measure. Jet Airways rose 4.82% to Rs 652.10, while Deccan Aviation jumped 38.23% to Rs 149.35, during the week.

Thermax rose 5.15% to Rs 367 during the week following strong Q2 results. The company reported 38.6% growth in net profit for Q2 September 2006 to Rs 35.08 crore (Rs 25.31 crore). Total income has risen 57.6% to Rs 491.05 crore (Rs 311.43 crore). The company has a robust order-book position with a order backlog of Rs 2,973 crore on a consolidated basis as on 30 September 2006, which is 142% higher from that of last year.

FIIs have been the key drivers of the recent rally. They were net buyers to the tune of Rs 2,302 crore for the first two days of the week.

Mutual funds made an inflow of Rs 150.59 crore in the first three days of the week.

On 16 November, the Bank of Japan left its monetary policy unchanged on Thursday as widely expected.

India’s wholesale price index rose to 5.30% for 12 months ended 4 November, higher than the previous week's 5.09% due to an increase in the prices of food articles and manufactured products.

The blue-chip Dow average achieved its longest winning streak since August, rising 54.11 points on Thursday to finish at a record 12,305.82.

Sharekhan Eagle Eye (equities) for November 20, 2006


ABG Shipyard

MTNL

Mahindra Gesco

Gitanjali Gems

SRF

Hero Honda

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Sensex sheds 76 points on profit taking


The market’s initial optimism caused by US Senate’s nod for Indo-US nuclear deal and a sharp fall in global crude oil price, proved short lived as investors booked profit after a string of record highs registered over the past few days. Profit taking was partly triggered by interest rate worries after the latest data showed the wholesale price index rose 5.30% in 12 months to Nov. 4, higher than the previous week's 5.09 percent due to an increase in the prices of food articles and manufactured products.

Banking, metal, auto and cement shares edged lower. A number of small-cap and mid-cap stocks lost ground. But oil-marketing firms surged as crude oil price fell to one year low on Thursday. Crude oil price declined sharply by $2.50, or 4.3%, to $56.26 per barrel on Thursday, the lowest close since 18 November 2005.

The market breadth was quite weak. 1871 shares declined on BSE as compared to 657 shares that rose. 63 shares were unchanged. Losers outpaced gainers by a ratio of 2.8:1. The breadth weakened continuously during the course of the trading session today. Although the Sensex has been hitting a string of new highs, what has been lacking is participation from across the board. The market-breadth has remained weak on a number of occasions. Some upward spike is being witnessed in side counters on a selective basis.

The 30-share BSE Sensex lost 76.41 points or 0.5% to settle at 13,429.48. The S&P CNX Nifty lost 24.05 points or 0.6% to 3,852.80.

Volatility was high today as the Sensex moved between positive and negative territory throughout the day today. Sensex had opened with a huge upward gap of 172.15 points at a record high of 13,678.04 but it came off immediately after striking that high. It was index heavyweight Infosys Technologies that caused a spike in Sensex at open followed by its sharp fall from that record peak instantly. Infosys spurted over 9% at open on BSE due to a punching error. The stock has a near 12% weightage in Sensex.

BSE clocked a turnover of Rs 4472 crore today compared to Thursday’s Rs 6125.73 crore.

Revision in earnings estimates by brokerages for companies following strong Q2 results and strong FII inflow has boosted the bourses in the past few weeks. Sensex is up 42.8% in calendar 2006 so far.

FII inflow for calendar 2006 has reached $7.8 billion (till 14 November) compared to a record inflow of $10.7 billion in 2005. A combination of buying by long term US pension funds and insurance companies and hedge funds has boosted FII inflows. A strong global liquidity, too, has aided the fund flow. There are new FIIs registering with Sebi. Since January this year, there has been an addition of over 150 FIIs, and the aggregate now stands at 985.

Oil marketing firms surged as crude oil price fell to one year low on Thursday. BPCL (Rs 378.90), Indian Oil Corporation (Rs 511.05) and HPCL (Rs 319.90) rose between 4.7% 6.3%.

NTPC jumped nearly 4% to Rs 140.30. The company said on Friday it planned to invest Rs 3425 crore to set up a 520-megawatt hydro power project.

Housing finance major HDFC rose 3.3% to Rs 1608 on the reckoning that the housing loan demand may remain strong. The stock hit a high of Rs 1616 which is a lifetime high for the scrip.

Dr Reddy’s Lab lost nearly 5% to Rs 738 after it raised $200 million in an issue of American Depositary Receipts, below market estimates of up to $260 million. It priced the issue at $16 per ADS.

Infosys shed 0.1% to Rs 2190. The stock had surged over 9% in opening trade to Rs 2401 due to a punching error.

Sterlite Industries plunged 6% to Rs 510 as fall in world copper prices accelerated, amid emerging signs of a supply overhang, with Chinese speculators again offloading future positions. But Hindalco fell only marginally by 0.5% to Rs 174.75. Sterlite had on Thursday filed for a mega $2 billion ADR issue.

The latest data showing a rise in inflation pulled shares of private sector banks lower ICICI Bank lost 1.2% to Rs 877 and HDFC dropped 1.9% to Rs 1122. But State Bank of India (up 0.7% to Rs 1229) ended in the positive zone after a block deal in FII segment was executed in the scrip at 19% premium to the market price.

The sharp fall in oil price weighed down oil exploration major ONGC. The stock lost 2.3% to Rs 850.20.

Reliance Industries lost 0.4% to Rs 1258.10. Reliance Industries has bagged an offshore exploration block in Timor Leste. RIL will have a majority interest and operator-ship in that block, RIL said today. Reports on Thursday said Reliance Industries has raised the gas production estimate of its D-6 block in the Krishna Godavari basin to 120 mmscmd from the initial development plan of 40 mmscmd

Zee Telefilms rose 0.4% to Rs 334.50. Zee Telefilms today said the Bombay High Court has approved its demerger scheme which paves the way for setting the record date for the demerger of the cable and distribution and news and regional broadcasting businesses of Zee into Wire & Wireless India Ltd (WWIL) and Zee News Ltd (ZNL) respectively. The Record Date is likely to fall in the latter half of December. The shareholders of the company as on the record date will be allotted shares in WWIL & Zee. The company expects this process to be completed by February 2007

Cement shares dropped. Gujarat Ambuja Cements shed 2.3% to Rs 135.65, Grasim shed 1.3% to Rs 2680 and UltraTech Cement shed 2.4% to Rs 883. ACC ended flat at Rs 1087.95. Swiss cement major Holcim on Thursday acquired additional 3.6% stake in Gujarat Ambuja Cements raising its holding to 18.4%, for Rs 685 crore. This has raised expectations that the consolidation in the cement sector may gather further pace in the coming months.

Auto shares dropped. Hero Honda lost 1.9% to Rs 692.50, Bajaj Auto shed 0.9% to Rs 2564, Maruti Udyog lost 0.4% to Rs 889.30 and Tata Motors dropped 0.6% to Rs 808.40.

Chennai Petroleum Corporation jumped 5.9% to Rs 222.50 on reports the bottomline of stand-alone refiners will get a boost as they have discontinued offering discount to oil marketing companies on sale of kerosene and diesel.

Thermax rose 3% to Rs 367 extending Thursday’s rally triggered by strong Q2 results. But the stock came off the higher level after it had spurted as much as 17.2% at one point of time to Rs 417. Volumes in the scrip were substantial of 14 lakh shares.

Zandu Pharmaceutical Works rose 2.3% to Rs 4753 after its board approved a bonus share issue of one share for every three held.

Areva T&D India rose 2.6% to Rs 834 on strong business prospects after the US Senate on Thursday approved the Indo-US nuclear deal.

Infrastructure Development Finance Company (IDFC) dropped after early rise. The stock shed 2.2% to Rs 76.85. RBI has raised FII investment ceiling in the scrip to 49%.

Gateway Distriparks rose 1% to Rs 166.30 after RBI raised FII investment ceiling in the company to 100% of its equity capital

Market ends on a bearish note


he market took a sharp dip after an initial surge and continued moving southwards through the day as shares across sectors came under the grip of relentless selling pressure. The trading session witnessed extreme volatility. After a firm open at a new intra-day high of 13678, 172 points above its previous close, the market failed to hold on to its early gains and drifted into negative territory and touched the day's low of 13383. Along with the selling in heavyweights, there was a major correction in healthcare, metal, FMCG, banking and auto stocks. The Sensex finally wrapped up the session with losses of 76 points at 13429, while the Nifty fell 24 points to close at 3853.

The market breadth was negative, with the losers outpacing the gainers in the ratio of 1:0.34. Of the 2,582 stocks traded on the BSE, 641 stocks advanced, 1,887 stocks declined and 54 stocks ended unchanged. All the sectoral indices ended with steep losses with the BSE HC index shedding 1.84% at 3707. The BSE Metal index was down 1.63% at 8790, the BSE FMCG index slipped 1.44% at 2006, the BSE Bankex shed 1.21% at 7125 and the BSE Auto index closed weaker by 1.14% at 5211.

Among the losers Dr Reddy’s was the major loser and dropped 5.01% at Rs736. ONGC fell 2.49% at Rs849, Gujarat Ambuja Cements lost 2.05% at Rs136, Cipla shed 1.85% at Rs260, Ranbaxy slipped 1.82% at Rs390, Hero Honda tanked 1.76% at Rs694, ITC dropped 1.76% at Rs182, HDFC was down 1.63% at Rs1,126, Grasim slipped 1.57% at Rs2,675, ICICI Bank fell 1.46% at Rs875, REL lost 1.43% at Rs514, HLL dropped 1.30% at Rs240 and Tata Steel closed weaker by 1.24% at Rs476. Bajaj Auto, BHEL and Satyam were down 1% each. Wipro, Maruti, Hindalco, Tata Motors, Infosys and RIL also ended the day in negative territory. However, HDFC gained 3.32% at Rs1,608 and NTPC soared 3% at Rs139. ACC, Reliance Communication, Bharti Airtel and TCS were up around 1% each. SBI and L&T also ended the day in positive territory.

Over 54.11 lakh Deccan Aviation shares changed hands on the BSE followed by NTPC (46.58 lakh shares), Silverline Technologies (39.85 lakh shares), Hindalco (29.24 lakh shares) and Development Credit Bank (25.14 lakh shares).

Value-wise Tech Mahindra registered a turnover of Rs172.57 crore on the BSE followed by Mahindra Gesco (Rs168.98 crore), SBI (Rs125.22 crore), Glenmark Pharma (Rs90.35 crore) and Hindustan Zinc (Rs83.66 crore).

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Sensex snaps six-day winning streak


The market snapped 6 sessions’ winning streak as investors booked profit. Banking, metal, auto and cement shares edged lower. A number of small-cap and mid-cap stocks lost ground.

But oil-marketing firms surged as crude oil price fell to one year low on Thursday.

The market breadth was quite weak. 1871 shares declined on BSE as compared to 657 shares that rose. 63 shares were unchanged. Losers outpaced gainers by a ratio of 2.8:1. The breadth weakened continuously during the course of the trading sessions.

The 30-share BSE Sensex lost 76.41 points or 0.5% to settle at 13,429.48

The market was volatile.

Sensex had opened with a huge upward gap of 172.15 points at a record high of 13,678.04 but it came off immediately after striking that high. It was index heavyweight Infosys Technologies that caused a spike in Sensex at open followed by its sharp fall from that record peak instantly.

Rise in each of the past 6 trading sessions had taken Sensex to lifetime closing high of 13,505.89 on Thursday 16 November from 13,072.51 on 8 November.

BSE clocked a turnover of Rs 4472 crore today compared to Thursday’s Rs 6125.73 crore.

Oil marketing firms surged as crude oil price fell to one year low on Thursday. BPCL (Rs 378.90), Indian Oil Corporation (Rs 511.05) and HPCL (Rs 319.90) rose between 4.7% 6.3%.

NTPC jumped nearly 4% to Rs 140.30. The company said on Friday it planned to invest Rs 3425 crore to set up a 520-megawatt hydro power project.

Housing finance major HDFC rose 3.3% to Rs 1608 on the reckoning that the housing loan demand may remain strong. The stock hit a high of Rs 1616 which is a lifetime high for the scrip.

Dr Reddy’s Lab lost nearly 5% to Rs 738. The pricing of its ADR issue at $16 per ADR was below market expectation which hit the counter.

Infosys shed 0.1% to Rs 2190. The stock had surged over 9% in opening trade to Rs 2401 due to a punching error.

Sterlite Industries plunged 6% to Rs 510 as fall in word copper prices accelerated, amid emerging signs of a supply overhang, with Chinese speculators again offloading future positions. But Hindalco fell only marginally by 0.8% to Rs 174.25. Sterlite had on Thursday filed for a mega $2 billion ADR issue.

The latest data showing a rise in inflation pulled shares of private sector banks lower ICICI Bank lost 1.2% to Rs 877 and HDFC dropped 1.9% to Rs 1122. But State Bank of India (up 0.7% to Rs 1229) ended in the positive zone after a block deal in FII segment was executed in the scrip at 19% premium to the market price.

Reliance Industries lost 0.4% to Rs 1258.10. Reliance Industries has bagged an offshore exploration block in Timor Leste. RIL will have a majority interest and operator-ship in that block, RIL said today. Reports on Thursday said Reliance Industries has raised the gas production estimate of its D-6 block in the Krishna Godavari basin to 120 mmscmd from the initial development plan of 40 mmscmd

Zee Telefilms rose 0.4% to Rs 334.50. Zee Telefilms today said the Bombay High Court has approved its demerger scheme which paves the way for setting the record date for the demerger of the cable and distribution and news and regional broadcasting businesses of Zee into Wire & Wireless India Ltd (WWIL) and Zee News Ltd (ZNL) respectively. The Record Date is likely to fall in the latter half of December. The shareholders of the company as on the record date will be allotted shares in WWIL & Zee. The company expects this process to be completed by February 2007.

Glenmark Pharma - batch of crofelemer API


Glenmark Pharmaceuticals has reported the successful production of crofelemer active pharmaceutical ingredient (API). The product is for use in pivotal Phase III trials by Napo Pharmaceuticals, Inc in the USA. The company is manufacturing this API at a dedicated unit at its US FDA approved facility in Ankleshwar.

However, the company is also working on a development plan for the indications of AIDS related diarrhoea and pediatric diarrhoea. The company recently received approval from the Drug Controller General of India (DGCI) to initiate Phase II trials for acute infectious diarrhoea.

However the shares of Glenmark Pharma are down by 3% at Rs526 on volumes of 1,405,000 shares on the BSE.

Sharekhan High Noon - Nov 17


Featuring .. Jet Airways, VSNL updates.

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JM MORGAN STANLEY - Reliance Communications


According to the brokerage house, Reliance Communication (RCL) released its key operating and financial data for the quarter ended F2Q07 in its quarterly report. The company had earlier announced its F2Q07 quarterly results on Oct 30, 2006. They re-iterate their overweight recommendation on it, with a target price of Rs 421.

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Prabhudas Lilladher - KPIT Cummins


According to the brokerage house, at the current market price KPIT Cummins trades at 17.1x and 11.6x our expectations of its FY07 and FY08 earnings. We re-iterate our outperformer recommendation on it, with a target price of Rs 650 (13x FY08 expected earnings).

"Overall, we expect the future scenario for the company to be fairly strong and expect its revenue and PAT from FY06 to FY08 to have CAGRs of 39% and 52%, respectively."

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Motilal Oswal - PNB


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Citigroup - MTNL


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NTPC to invest $763 mln in hydro project


Indian state-run power generator NTPC Ltd. said on Friday it planned to invest 34.25 billion rupees ($763 million) to set up a 520-megawatt hydro power project. ($1 = 44.9 Indian rupees)

Daily trend of FII/MF investment in equities


On Nov 15 2006, Mutual Fund were net buyers of stocks to the tune of Rs206.53 crore (purchases worth Rs851.57 crore and sales of Rs645.04 crore).

Way2Wealth - Jagran Prakashan


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Blue Bird (India) Ltd. IPO - Indiainfoline


Issue price – Rs90-105
AVOID

Blue Bird (India) Ltd. (BBIL) is a leading manufacturer of paper-based notebook and stationery products with the highest market share of 48% amongst large, organized players in India.

BBIL also manufactures other stationary products like files, perforated pads, registers, filler papers and provides commercial printing services. From FY05, BBIL has commenced exports to Ghana, Kenya and South Africa and plans to initiate exports to the developed countries including in Europe and North America.

BBIL registered a strong 21% yoy growth in net sales at Rs4bn and 57% yoy rise in net profit at Rs251mn during FY06. During H1 FY07, the company recorded revenues of Rs2.4bn and a net profit of Rs151mn.

Almost 97% of the company’s total revenues are generated from the
western India (including Maharashtra). The company is also present in southern India and is in the process of further expanding its presence to Andhra Pradesh, Karnataka, Kerala and Tamil Nadu.

BBIL plans to set up new manufacturing facilities for making
student/exercise books in southern India and increase the capacity of its Pune plant. It also plans to repay its long-term debt of Rs192mn.

In the printing and stationery industry, Navneet Publications and
Sundaram Multi Pap Ltd are the closest competitors of BBIL. However, we cannot strictly compare BBIL with Navneet, which is more of a content and publication company than just a notebook and stationery products manufacturer. We recommend investors to wait for some correction post listing and then take position in the company.

Market may advance amid volatility


After displaying a lacklustre trend in yesterday's trades, the market may trade in positive territory with a mixed bias and could witness a rally, as the overall sentiment remains bullish on strong FII inflows, firm international indices and no rise in interest rate by Fed. The market may be under pressure in early trades as most of Asian indices have eased in morning trades. On the technical front, the Nifty could target higher levels of 3900 and 3950 and on the downside there is a support at 3830, while the Sensex has a likely support at 13330 and may face resistance at 13588.

US indices moved up on Thursday amid inflation data which boosted hopes that the Fed won't have to raise interest rates and may even cut them early next year. While the Nasdaq added six points to close at 2449, the Dow Jones added 54 points to close at 12306.

Majority of the Indian floats ended in the red. Dr Reddy's was the biggest losses and lost over 5% followed by MTNL which was down 3%. Patni Computers, ICICI Bank and Tata Motors were down 1% each while Infosys, ended with steady losses. However, HDFC Bank moved up over 3%. Rediff and VSNL gained over 2% each. Wipro and Satyam moved up marginally.

Crude oil prices continued to drift with the Nymex Light Crude oil for December delivery declined by $2.50 at $56.26 a barrel while the London Brent crude added 62 cents to close at $59.46 per barrel. In the Commodity space, the Comex gold for December series dropped $2.10 to settle at $621.70 a troy ounce.

On Nov 15 2006, Mutual Fund were net buyers of stocks to the tune of Rs206.53 crore (purchases worth Rs851.57 crore and sales of Rs645.04 crore).

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Firmness to prevail


Tame US inflation data, fall in oil price to one-year low and news that US Senate had approved the Indo-US nuclear deal would trigger firm opening on the bourses. However, the upside on the bourses may be capped by profit taking with the Sensex hitting a string of record highs over the past few days.

In the near term, the market would take cue from as to what extent the ruling government is able to pass some of the financial sector reforms. The winter session will debate, among other things, the Banking Regulation (Amendment) Bill. The Bill proposes to increase the voting rights of foreign stakeholders in private banks, which is capped at 10% now. However, the Left parties are opposed to amendment to the Banking Regulation Act, fearing that increase in voting rights in private sector banks will lead to a takeover of these banks by foreign entities.

US crude fell 13 cents to $56.13 a barrel after plumbing a low of $55.99, following a $2.50 drop on Thursday as swelling US crude stockpiles and forecasts of a mild winter in the world's top consumer weighed on the market.

US Senate on Thursday approved the Indo-US nuclear deal. The deal now needs to be voted jointly by the two houses of the US Congress after they reconcile the separate legislations they have approved, followed by approvals from the International Atomic Energy Agency and the 45-nation Nuclear Suppliers Group. The nuclear deal has become symbolic of the new friendship between the two countries. The deal is critical for India to help it allow buy US nuclear fuel and equipment to boost its nuclear programme and meet its soaring energy needs.

US stocks rose for a fifth straight day on Thursday as investors bet that a slide in crude oil prices and tamer consumer price data would prompt the Federal Reserve to cut interest rates starting sometime next year. The blue-chip Dow average achieved its longest winning streak since August, rising 54.11 points, or 0.44 percent, to end at a record 12,305.82. The Standard & Poor's 500 Index gained 3.19 points, or 0.23 percent, to finish at 1,399.76, and during the session it jumped to a six-year intraday peak of 1,403.76.

Most Asian markets were in the green on Friday. Key benchmark indices in Hong Kong, South Korea, Singapore and Taiwan were up by between 0.14% to 0.3%. Japan’s Nikkei was down 0.2%.

As per provisional data, FIIs were net sellers for the second day in a row on Thursday. FIIs were net sellers to the tune of Rs 33.56 crore on Thursday. Their provisional outflow was Rs 84 crore on Wednesday.

Turning Indian Outsourcing Units into Cash


Companies from British Airways to GE have spun off their Indian outsourcing units in favor of using outside contractors. Is HP next?

Earlier this decade, one of the biggest fads in global management was to set up offshore business processing outsourcing (or "BPO" in industry jargon) in India to handle a myriad of tasks, from payroll and in-house technical support to sourcing procurement, in the name of saving cash. Along the way, big multinationals built up sizable and profitable units. Now there's a new fad: A number of them are divesting their outsourcing units, cashing out while maintaining their outsourcing relationships or hooking up with bigger firms in the field.

British Airways (BAB) might have been the first to do it in 2002 when it spun off its Indian outsourcing unit, today known as WNS Holdings (WNS). The company offers comprehensive data, voice, and analytical services, and its stock is listed on the New York Stock Exchange. Two years ago, General Electric (GE) sold off its Indian outsourcing operation to two private equity firms for $500 million.

Investment bankers see more deals in the offing. And the names being touted range from Hewlett-Packard's (HPQ) Global e-Business to German publisher Springer Science + Business Media's outsourcing operation. There is even talk of ICICI Bank divesting ICICI One Source. "Everybody is finding that they have an asset that they can monetize," says Raman Roy, the father of BPO operations in India, who sold his Spectramind BPO to Wipro (WIP) two years ago. Roy now says that he is talking to a host of captive BPOs for a possible buyout.
Scale is Everything

What's clear is that BPO has emerged into a huge business. A report by McKinsey and Indian trade association Nasscom says India's BPO export revenues will surge 37% by 2010, to touch $25 billion, from the current $7.5 billion. According to Sourabh Kaushal, who leads the ICT Practice at research firm Frost & Sullivan, of the 600 BPO companies in India, 65% are captive and 35% are third-party vendors.

One incentive for multinationals to sell is that there are big global outsourcing firms that can now easily handle their needs, so maintaining an in-house unit makes little business sense. "Businesses are looking to the scale, scope, and experience of global BPO providers, rather than operating as in-house units," says Baru Rao, chief executive officer of Capgemini India, the French computer service and outsourcing provider.

Last July Capgemini bought out Unilever's majority stake in Indigo, a captive finance and accounting services BPO, for an undisclosed sum. And on Oct. 27 it bought out a pure-play IT services outfit called Kanbay for $1.25 billion, in one of the largest deals to date in India.
Tough to Retain Talent

Why are captives increasingly being put on the block? The offshore delivery model pioneered by Roy in India in the 1980s was taken forward by British Airways and General Electric. "First and foremost, captives were set up at a time when there were no third-party service providers," says Neeraj Bhargava, group CEO of WNS Holdings.

His travel and financial services company evolved from a third-party provider to a successful, publicly traded company in July. An outgrowth of British Airways, WNS was set up as a captive in 1996 and has since upgraded to knowledge-process outsourcing. In 2002, private-equity firm Warburg Pincus picked up a majority stake. "As captives evolve, you have a hard time holding on to people," adds Bhargava.

With no exciting growth opportunities, these captive service-providers are increasingly finding it tough to retain talent, particularly top management.

Attrition rates run from 60% to 80%, and third-party providers are growing faster (over 25%) than captive ones.
General Electric Spin-off

Take the case of Genpact, another captive turned third-party company, which is sprucing itself up for a possible U.S. listing. Set up by General Electric at Gurgaon outside New Delhi, it was divested in December, 2004. Today, GE owns a 33% stake, with private equity firms General Atlantic and Oakhill holding 30% each, while Wachovia (WB) has a 7% interest.

So how has life changed for Genpact? "As a standalone company, we can now pursue third-party business, make acquisitions, build products and services, and expand our geographical presence faster than we were doing earlier," says Pramod Bhasin, CEO of Genpact. He claims that as India moves up the value chain the "outflow of knowledge vested in the top-level professionals will have to be retained."

Computer maker Hewlett-Packard set up its captive BPO Global e-Business Operations in Bangalore three years ago. With 60% of its revenues from captive business, it began transforming into a high-value provider of outsourcing services some 15 months ago. Today, despite market speculation, those close to the company deny a spin off is being considered. Instead, they say, HP is ramping up headcount from the current 6,000 to 8,000 in the next 18 months.

The Future of Captives

So is it the end of the road for Indian BPOs? Not really. "It is an acknowledgement of the maturity of the industry," says Sunil Mehta, vice-president of Nasscom. Even as many captives are being spun off, other sectors like insurance and publishing are setting up in-house outsourcing units. Frost & Sullivan's Kaushal says that more than 30 companies including Fidelity, Reuters (RTRSF), AIG (AIG), and Prudential (PRU), have set up captive centers in India since 2003.

Moreover, captives abound in the banking and financial services sector. "When the growth of the bank is robust, you need to scale up and cater to internal demands," says Sreeram Iyer, CEO of Scope International, Standard Chartered Bank's (SCBFF) BPO. With 5,000 people on its payroll, it added 1,000 more slots this year. But Iyer is realistic about the fact that the model could become challenging in the coming years. "The business will depend less on people and more on efficiency and scale," he says.

Businessweek - India Wants to Build Your Small Car


Maruti Suzuki's managing director talks about the need for small cars, global players expanding in India, and why his company will prosper

At a time when most of his colleagues are leading a life of leisurely retirement, Jagdish Khattar, 63, is facing the managerial challenge of a lifetime. The former India bureaucrat is managing director of Maruti Suzuki, the Indian subsidiary of Suzuki Motor, the Japanese automaker's biggest operation outside of its domestic market.

The Indian unit now faces an onslaught from global competitors rushing into the country with ambitious expansion plans. Honda (HMC), Toyota (TM), Hyundai (HYMZY), General Motors (GM), and others have announced plans to make small cars in India.

Maruti has 65% of India's one-million-unit car market and 11 brands, but is hardly sitting still. It will spend more than $650 million to make diesel cars and set up two new plants in Manesar in the northern state of Haryana, one of which was to be with Nissan Motor (NSANF).

However, Nissan recently scrapped talks with Suzuki and Maruti about a new car-making facility and instead will work through a joint venture between India automaker Mahindra and Renault (RNSDY) of France, which owns a 44% stake in Nissan.

Such are the current competitive dynamics facing Maruti Suzuki in one of the fastest-growing auto markets in the world. Khattar spoke to BusinessWeek.com correspondent Nandini Lakshman in New Delhi about the Indian car market and strategy. Edited excerpts of the conversation follow:

Now that the Nissan deal has fallen through, what does it mean for Maruti Suzuki?

When (Suzuki chairman Osamu) Suzuki was in India in September, he had made it clear that there were two parts to the Nissan deal. We were going to invest $2 billion in Manesar to produce 100,000 small cars for export to Europe. Nissan said it would pick up 50,000 cars from us for export, and that deal still stands. The second aspect about setting up a plant to manufacture 200,000 cars for Nissan's export markets was still under discussion, but that won't happen.

Today 80% of your revenues come from compacts and small cars at a time when there is a lot of action in the luxury car segment.

This segment is down 1%. It has grown with big companies and big launches, but where are the numbers to talk about? It is still the small car for the rest of the country.

Will India emerge as a global hub for small-car production?

India cannot be a major player in automobiles for quite some time. As a country we produce one million cars, but there are stand-alone companies globally who produce more than one million each. The biggest compact car player in Japan builds 1.5 million cars a year. The industry in Brazil makes 800,000 and then there is India with 650,000. China has all big cars, and only now do they make small ones.

Secondly, as we have seen in the U.S., big SUVs are going out of fashion, and fuel-efficient cars are important. In Europe, green models are coming where a company has to give you certain carbon emission performance. All the seven major manufacturers in Europe produce only 500,000 compact cars. We produce more small cars than them. If these major manufacturers have to get the carbon emission averages lower, they have to produce small cars. So they will come to us.

What is the India car industry's export potential?

The domestic market is growing. But in small cars, many people from outside will also try to source from India. And those who are big-volume players in India will be able to do it.

You are building Suzuki's new Asian car. Is this a challenge?

Why? We have been producing cars for some time. Suzuki has decided that the car will be produced here, and we will export the model to their overseas markets. Suzuki exports bigger cars from Japan, medium cars from Hungary, and small cars from India. Maruti already contributes 10% of Suzuki's revenues, the largest outside of Japan.

Today, with every foreign auto major talking of making small cars in India, isn't Maruti's 55% market share reign under threat?

We've had competition for the past 15 to 20 years. If there are more small cars, it is good for the country where the market is growing. Yes, it has been tough, but we have been able to maintain our share for the past five years, and we've had a dozen manufacturers in India for the last 12 years.

How will Maruti differentiate itself from the pack?

At the end of the day, it comes down to the customer's confidence in the manufacturer. And there, I think, Maruti has been doing pretty well. We have led in customer satisfaction rankings in the J.D. Power (MHP) annual quality surveys for the last six years. Our products again score high on quality. If you look after your existing customers, new ones will come. And that's what 40% to 50% of our new customers say: that they are buying it on the recommendation of their friends and relatives who already own a Maruti Suzuki.

Has the lack of diesel models been a handicap?

Yes, it has. Diesel has become 20% of the total market, and we are not there. We are present in only 80% of the market. That's why in the next four to five months, we should have our first diesel vehicle.

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Sharekhan Investor's Eye - Nov 16 2006


Thermax
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs425
Current market price: Rs355

Price target revised to Rs425

Result highlights

  • The consolidated revenues of Thermax grew by 23.0% year on year (yoy) to Rs520.2 crore in Q2FY2007, in line with our expectation. The energy segment grew by a robust 20.9% yoy to Rs433.4 crore whereas the environment segment grew by 17.8% yoy to Rs118.7 crore.
  • The company's operating profit margin grew by 240 basis points yoy and 350 basis points sequentially to 13.9% in the quarter, way above our expectation. The margin growth was attributed to the strong order booking, lower material cost and a shift in the product mix towards the high-margin energy segment. Consequently, the operating profit grew by 48.5% yoy to Rs72.1 crore, again ahead of our expectation.
  • The energy segment continued its robust performance with a revenue growth of 20.9% yoy to Rs433.4 crore and a 430-basis-point expansion in the profit before interest and tax (PBIT) margin to 15.0%. The environment segment too bounced back with a 17.8% year-on-year growth in the revenues to Rs118.7 crore. The margins bounced back in this quarter after remaining subdued in Q1FY2007. The PBIT margin improved by 330 basis points sequentially.
  • The net profit grew by 76.4% yoy to Rs53.7 crore in Q2FY2007, ahead of our expectation. The robust margin expansion, higher other income and lower effective tax rate are attributable to the jump in the net profit.
  • The order backlog maintained its growth momentum during the quarter, recording a strong growth of 11.5% sequentially and of 142% yoy to Rs2,973 crore. The order backlog is equivalent to 1.8x FY2006 consolidated revenues, imparting a very strong visibility to the revenues.
  • Another development during the quarter was that ME Engineering, UK, its loss making wholly-owned subsidiary was referred to the administrator in the UK as its performance was mediocre and it continued to make losses. Due to this event Thermax has provided for Rs23.1 crore as extraordinary expenses in the stand-alone financials. However, the net impact of the above provisions in the consolidated accounts was Rs2.0 crore only. The positive of this event is that in H2FY2007 the performance of ME Engineering won't be a drag on the company's results.
  • In light of the continued growth traction over the last few quarters, the blow-out H1FY2007 performance, expected margin expansion in H2FY2007 and reiterated guidance of 30% growth in the top line, we are revising our FY2007 and FY2008 earnings upwards by 22.8% and 17.8% respectively. We are also revising our one-year price target upwards to Rs425 (an upside of 19.6%) discounting its FY2008 earnings per share (EPS) by 18.9x. The Rs34 per share of cash and cash equivalent on the company's books provides amargin of safety to our price target. We maintain a BUY on the stock with a revised price target of Rs425.

SECTOR UPDATE

Pharmaceuticals

R&D tax sops in pharma policy
In a recent conference of the Indian pharma companies organised by Assocham, the minister for chemicals and fertilisers, Ram Vilas Paswan, hinted at certain growth boosters for the Indian pharma industry in the forthcoming new drug policy. The boosters are likely to include fiscal benefits on research and development (R&D) spending and higher public healthcare allocation. The new drug policy is expected to be released by the end of November 2006. According to Mr Paswan, the drug policy has been devised to not only boost the growth of the sector but also benefit the common people in India.

On behalf of the government, Mr Paswan has made a commitment to take the healthcare spending from 0.9% to 2-3% of the gross domestic product (GDP) in the next five years and help the industry grow from $12 billion to $20-25 billion in the same period. That translates into a compounded annual growth rate (CAGR) of 14% and seems reasonable considering the global growth rate of 7-8%.

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