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Tuesday, November 21, 2006

Indiainfoline Updates

Biocon Limited: Not rated

Biocon Limited (Biocon), established in 1978, started as a manufacturer and exporter of enzyme. The company gradually shifted focus to a life science driven generic company with fermentation technology. Biocon is again going through a transition phase from being a generic company to a discovery led life science company. Statins sales to the US & Europe would be a major growth driver in the short term, while immunosuppresants, non-injectable insulin, Monoclonal Antibodies (MABs) and custom research will be Biocon’s drivers in the longer run.

However it will take some time for Biocon’s key growth drivers to start delivering. Sharp growth in immunosuppreants would be triggered when key patents expire in US/ Europe in FY08-10. Oral insulin is a big opportunity for Biocon but competition from established players may be higher than expected. Non-injectable insulin, a potential blockbuster is at least three years away from a potential launch. Biocon’s head & neck cancer molecule – BioMAB-EGFR has been launched successfully but it will take some time to realize the full potential of the market.

The only visibility in the near term is the continued growth momentum in the custom research space, which has witnessed revenue CAGR of 52% over FY01-06. Custom research projects are gaining increasing traction and are likely to maintain the current growth rate. At Rs358, the stock is trading at 20.9x H1 FY07 annualized earnings. We feel there is little downside to the stock from here but upsides could be capped unless key growth drivers start delivering earlier than expected.

Strides Arcolab Limited: Not rated

Strides Arcolab Limited (STAR) is one of India’s leading integrated manufacturers and exporter of finished pharmaceutical dosage forms with focus on niche molecules, which are difficult to manufacture or clinically difficult to prove efficacy. The company has significant presence in soft gels (18% of revenue) and sterile & immunosuppressant (32-35% of revenue). Semi-solids, another focus area, which could emerge as a significant growth driver for the company forms 10% of revenue. Finished dosage accounts for over 95% of the revenue for the company.

STAR has adopted a partnership model strategy for the regulated markets where it shares upsides and risks with its partners whereas it has set up its own front end for the semi regulated markets. STAR has 13 manufacturing facilities globally. The management has guided towards a 30% plus topline growth for CY06 and CY07 driven by increasing contribution from the regulated markets particularly America and Asia Pacific. Operating margins would start heading northwards as contribution from regulated markets increases. STAR is going through a consolidation phase post a series of acquisitions in 2006, full impact of which would be visible post H2 CY07. At Rs302, the stock is trading at 30.4x Q3 CY06 annualized EPS of Rs9.9.

Opto Circuits (India) Limited: Maintain BUY

Opto Circuits (India) Ltd (OCIL)’s operations for the core business and EuroCor are progressing in line with expectations. While the core business is expected to record 30% plus revenue CAGR to Rs2bn over FY06-08, EuroCor is on track to expand its geographical coverage to 36 countries by end 2006. However, net margins for EuroCor may be subdued in the short term on account of heavy advertising and promotional expenditure. OCIL has indicated that its products have started gaining preference with cardiologists who attended various seminars, conferences and live workshops conducted by the company. Appointment of Dr. O’Neill on board is likely to expedite the process for USFDA approval, but it is still 18-24 months away.

The management indicated that they would look at acquisitions, which could be a good strategic fit over the longer term and available at the right price. We believe OCIL would consolidate operations of EuroCor in the near term and focus on increasing penetration in key geographies. OCIL is also looking at conducting certain low-end manufacturing operations for EuroCor in India. As OCIL is under 100% EOU till 2009-10, tax outgo on those operations will be nil, which will again cut cost and boost margins.

We are confident that OCIL will witness revenue CAGR of 63% to Rs3.7bn over FY06-08. We estimate EuroCor to contribute at least 30% to the total revenue and profitability by FY08. The core business is also witnessing continuous demand for its products from the international markets. We firmly believe that the company is on track to witness earnings CAGR of 61.1% to Rs1bn over FY06-08. At Rs300, the stock is trading at 28.8x FY07E EPS of Rs10.4 and 18.4x FY08E EPS of Rs16.3. We maintain BUY with a target price of Rs326, from a 12-month perspective.

Bal Pharma Limited: Not rated

Bal Pharma Ltd. (BPL), a mid sized pharma company focused on the domestic and semi-regulated markets is jointly promoted by Mr. Ghevarchand Surana of Micro Labs Group, which has a turnover of over Rs.3bn, ranked No.20 in the Indian Pharma Industry and the Siroya family, a multi-million dollar non-resident group based in Dubai.

Bal Pharma clocked revenue of Rs746mn and PAT of Rs29mn for FY06. The management aims to clock revenue of Rs3-3.5bn over the next 4-5 years. For FY07 & FY08, the management has given a revenue guidance of Rs1bn and Rs1.35bn and profitability guidance of Rs60mn and Rs110mn respectively. At Rs39, the stock is trading at 6.8x FY07E and 3.7x FY08E.

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Anagrams' Investment Call - Cochin Minerals & Rutiles

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Anagram's Cement Sector Update

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Anagram's Investment Call - Gateway Distriparks Ltd

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Dawnay Day AV Financial Services - Pricol

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Ruchira Paper: Sharekhan IPO Flash dated November 21, 2006

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BRICS PCG - Unitech

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Sensex gains 186 points in a breath-taking session

Renewed buying in blue-chips hoisted the market to a record high closing today. In contrast to the recent trend, the participation in the rally was broad-based, which was evident in the strong market breadth, and an advance-decline ratio of 2.4:1 on BSE. The market-sentiment was bright following a strong debut of Internet firm Info Edge (India), and due to a steady-to-firm trend in Asian stocks.

The BSE Sensex jumped 186.06 points (1.3%), to a lifetime closing high of 13,616.77. The S&P CNX Nifty rose 62.10 points (1.6%), to a lifetime closing high of 3,918.25. The market held firm throughout the day. The key indices took off in the second half of the trading session.

BSE Small Cap Index rose 118.12 points (1.8%), to 6,416.61. The BSE Mid Cap Index added 92.43 points (1.6%), to 5,546.86. The small-cap and mid-cap indices have underperformed the Nifty and Sensex in the last few weeks.

The BSE clocked a turnover of Rs 4,041 crore, compared to Monday’s Rs 4,260 crore.

Select small-caps and mid-caps surged today. Top gainers in the small-cap and mid-cap space were Sika Interplant Systems (up 20% to Rs 103.90), Shrachi Securities (up 20% to Rs 63.70), Development Credit Bank (up 20% to Rs 63.20), Mount Shivalik Industries (up 20% to Rs 56), HOV Services (up 13.9% to Rs 161.60), DMC Vaults (up 14% to Rs 17.95), Yuken India (up 13.6% to Rs 166) and Vaibhav Gemes (up 13% to Rs 267).

Stronger-than-expected Q2 September 2006 results, and sustained FII-inflows have boosted the bourses of late. The BSE Sensex is up 44.8% in calendar 2006, so far.

FIIs have stepped up buying notwithstanding apprehension of stretched valuations. FII-inflows in 2006 have reached $8.1 billion (till 20 November). Most of the money streaming in belongs to long-term pension funds and insurance firms. Funds are also pouring in from hedge funds. Strong global liquidity has aided the fund flow.

Another factor that has contributed to the surge in foreign investment is the ever growing number of FIIs getting registered with Sebi everyday. In this calendar year, there has been an addition of over 170 FIIs, the aggregate now standing at 993. There are expectations that foreign funds will buy more in December 2006, as allocations are made for the New Year.

However, foreign brokerage Merrill Lynch expects a slowdown in earnings growth of Sensex firms in FY 2008 (year ending 31 March 2008). `Excluding Reliance Communications, earnings in FY 2008 should rise only 11.2% versus the 27.5% forecast for FY 2007 (year ending 31 March 2007). If so, it would be the slowest earnings growth since FY 2002’, the brokerage stated in a Q2 earnings review released early this month. It, however, expects strong earnings growth to continue in Q3 December 2006.

Volatility is likely in the near term as traders square off, or carry forward, their outstanding contracts for November futures ahead of the expiry of contracts next Thursday (30 November).

The market staged a solid intra-day rebound on Monday (20 November) after the Sensex had plunged over 200 points at one point of time scared by an RBI circular on Friday (17 November), which capped banks’ exposure to the capital market.

In today’s trade, Bharti Airtel rose nearly 3% to Rs 622.35. The stock hit a lifetime high of Rs 625.70. Rival Reliance Communications rose 1.8% to Rs 416.70. The stock also attained a lifetime high of Rs 418. Both cellular services providers turned bullish amid reports that the Department of Telecom (DoT) will make available, additional radio frequency for cellular service providers.

IT pivotals were in demand for the second day in a row today, following reports that top Indian IT firms were chasing over a dozen deals on an average, the sizes of which range between $50 - $100 million. Satyam Computer gained 3.2% to Rs 455, HCL Tech rose 3% to Rs 647, TCS rose 2.8% to Rs 1,148 and Wipro added 2.6% to Rs 569.

Infosys edged slightly lower in volatile trade. The scrip shed 0.3% to Rs 2,246. The software giant today priced its sponsored ADR issue at $53.30 per ADR, a 3.2% discount to Monday’s closing price of $55.2. The company said the aggregate size of the ADR offer exceeds $1.6 billion. As part of this offering, 5,000,000 ADRs representing 5,000,000 equity shares, will be placed with Japanese investors through a public offer without listing (POWL).

Cigarette maker ITC gained 3.3% to Rs 184.35, and giant Hindustan Lever advanced 2.2% to Rs 248.35.

Tata Steel gained nearly 3% to Rs 476.85. Tata Steel has reportedly called an unscheduled board meeting on Thursday, to discuss the fallout of CSN’s 475 pence per share counter-bid for Anglo-Dutch steelmaker Corus. Tata Steel had bid at 455 pence per share for Corus. Tata Steel's board is likely to discuss various options including the possibility of a revised offer for Corus. Media reports also indicated that Tata Steel might win the takeover battle if it matched CSN's bid, given that Corus' management approved the Indian firm's bid last month. Tata Steel may, however, be reluctant to get involved in a hostile bid.

Shares in Info Edge (India), which runs web sites for job search and matrimony, closed at Rs 593.20, a premium of 85.3% over the IPO price (Rs 320). The scrip clocked a massive volume of 78 lakh shares on BSE.

ICICI Bank rose 1.4% to Rs 872, on reports that the largest private sector bank is slated to raise $1 billion through an issue of yen-denominated bonds. Other bank shares rose after RBI Deputy Governor, Rakesh Mohan, said on Tuesday that greater price stability will make it possible to have lower interest rates in the medium term. State Bank of India gained 2% to Rs 1,233. 30, Bank of India rose 1.6% to Rs 190, and Bank of Baroda rose 1% to Rs 258.20.

Auto shares gained while trying to keep themselves abreast of the market. Car major Maruti Udyog rose 1.7% to Rs 885.25, Tata Motors gained 2% to Rs 819, Ashok Leyland rose 3% to Rs 43.45 and Bajaj Auto gained 0.4% to Rs 2,576. Auto shares were underperformers in the recent market surge.

Cement shares rose on firm cement prices. ACC gained 1.3% to Rs 1,071, Gujarat Ambuja Cements gained 1.9% to Rs 136, and UltraTech Cement rose 1.3% to Rs 895.25.

Construction and real estate firms were in demand on reports that the finance ministry is expected to come out with enhanced limits for bank exposure to corporate groups, projects and sectors, to boost credit flow to the infrastructure sector. L&T gained 1.7% to Rs 1,350, IVRCL Infrastructures rose 8% to Rs 379, Madhucon Projects advanced 6.8% to Rs 310, Jaiprakash Associates rose 11% to Rs 675, Simplex Infrastructure rose 6% to Rs 393 and Unitech gained 5% to Rs 485.75.

MTNL rose nearly 3% to Rs 134.20, after the company launched pre-paid services on its Garuda mobile offering.

Mahindra & Mahindra gained 2.7% to Rs 841, after the company said on Monday it had signed a deal with Global Vehicles, US, to distribute Mahindra's sports utility vehicle and a pick-up in the US.

Balmer Lawrie & Company rose 2.7% to Rs 394.90, amid reports that Ministry of Petroleum & Natural Gas has upgraded the status of the public sector firm to Mini Ratna Category 1, which will enable the company to enjoy greater managerial and commercial autonomy in respect of capital expenditure, join ventures, creating subsidiaries, merger and acquisitions.

Aditya Birla Nuvo rose 3.7% to Rs 1,107, after the company said a meeting of the special committee constituted by the board will be held on 23 November 2006, for deciding various matters in connection with the proposed rights issue.

Mercator Lines gained 4% to Rs 37.50, after the company said on Tuesday it had executed an agreement to buy a double-hulled tanker of 1,10,000 dead-weight tonnage. The tanker is expected to join the company's fleet next month.

BPL rose 5% to Rs 58.45, after it said its board will meet on 23 Nov 2006, to consider transfer/leasing of its alkaline battery business, to an equal joint venture. The board will also consider investing in the venture.

Development Credit Bank jumped 20% to Rs 63.20, on a high volume of 1.55 crore shares on BSE. On Monday, the company’s board approved an increase in FII-ceiling substantially; from 24% to 49%. The board also approved up to Rs 225 crore placement to qualified institutional buyers.

i-flex solutions rose nearly 5% to Rs 1,593.70, after Interbank, one of Peru’s leading commercial banks, opted for Reveleus Operational Risk as its enterprise-wide operational risk management platform.

Sterlite Optical Technologies jumped 8% to Rs 211.50, after the company bagged a contract worth $ 5 million from Qatar's Q-Tel, for manufacturing and supply of copper telecom cables. The deliveries, to be spread over the next three years, will start in December 2006.

Hindustan Zinc rose 2.4% to Rs 865, after zinc closed 3% higher on Monday, on the London Metal Exchange. Zinc, for delivery in three months, ended at $4,169 a tonne, up 3.4%.

Garware Wall Ropes dropped 0.5% to Rs 65.30. The company said on Tuesday it will raise up to $10 million through various means including a possible overseas issue.

Gitanjali Gems gained nearly 1% to Rs 213.55, after the company today said it has entered into a Memorandum of Understanding (MOU) to form a 50:50 joint venture with Sulieman Al Othaim of Saudi Arabia, one of the leading retail chains in the Middle East. The venture will help Gitanjali's entry into mainstream retail in Saudi Arabia, the company said in a statement.

Birla VXL was trading at Rs 48.30, against Monday’s closing at Rs 63.35. The stock today turned ex-rights. The company’s rights issue is in the ratio of 4:7, and was priced at par.

India and China will work to raise their bilateral trade to $40 billion by 2010, Prime Minister Manmohan Singh said on Tuesday after talks with visiting Chinese President Hu Jintao. Bilateral trade has climbed from just $260 million in 1990 to a projected $20 billion in 2006/07.

On Monday, Commerce and Industry Minister Kamal Nath said New Delhi was seeking comprehensive economic cooperation with China but a free-trade agreement with Beijing was not on the cards.

FMCG and metal stocks lift Sensex

After exhibiting a sluggish trend yesterday, the Sensex held firm above 13500 for a major portion of the afternoon and closed at 13617, up 186 points. There was strong buying in metal and FMCG stocks that lifted the Sensex to an intra-day high of 13630. The Nifty touched an all-time high of 3922 and closed at 3918, up 62 points.

Among the Sensex stocks Reliance Energy was up Rs17 at Rs533, Bharti Airtel advanced Rs19 at Rs624, ITC soared Rs6 at Rs184, TCS surged Rs33 at Rs1,148, Satyam Computers gained Rs13 at Rs453, Tata Steel rose Rs12 at Rs475 and Wipro advanced Rs14 at Rs569. Gujarat Ambuja Cements, Hindustan Lever, Hindalco, NTPC, Tata Motors, Maruti Udyog and Reliance Communication gained 1-2% each. SBI hit an all-time high of Rs1,244 and closed at Rs1,234, up Rs25.

The market breadth was positive. Of the 2,583 stocks traded on the BSE, 1,794 stocks advanced, 719 stocks declined and 70 stocks remained unchanged. Most of the sectoral indices ended in positive territory. The BSE Metal index surged 199 points at 8585 and the BSE FMCG index advanced 44 points at 2034.

Among the metal stocks, Hindustan Zinc surged Rs26 at Rs870 and Hindalco Industries was up Rs4 at Rs175. However Jindal Saw, Jindal Steel and Nalco ended in negative territory.

JP Morgan - Reports

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ABN Amro Reports


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Citigroup Reports


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Gitanjali Gems taps Saudi retail market

Gitanjali Gems has entered into a MOU for a 50:50 joint venture with Sulieman Al Othaim of Saudi Arabia, one of the leading retail chains in the Middle East. The joint venture will facilitate the entry of the company into the mainstream retail segment in Saudi Arabia leveraging Sulieman Al Othaim's chain of specialty stores across the region.

The company will market and distribute new jewellery brands such as Rayana, La Baguette and Hart to Hart for the local market and Indian brands like Nakshatra, Asmi and Sangini. Apart from this, these brands would also be marketed through other independent retail chains.

The stock has gained 0.61% at Rs213 on volumes of over 1,474,000 shares on the BSE.

Kotak Reports - Nov 21

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Sharekhan Commodities Buzz dated November 21, 2006

The weak base metals and lower energy prices have capped the upside in bullion. European Central Bank (ECB) President Jean-Claude Trichet yesterday suggested the ECB might push for higher interest rates. On the other hand, a slowing US economy and easing inflation might force the Federal Reserve to maintain the status quo. In any case, this is a win-win scenario for the yellow metal. A weak greenback is supporting the yellow metal and amid the consolidation the prices are likely to move up ahead of the year-end demand. Gold should be bought on dips.

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India takes on the World - Time Magazine

Big companies beware: that elephant in the room may be An Indian competitor looking to Buy you out

You have probably never heard of Essel Propack but there's a fair chance you have squeezed one of its products. The Bombay company is the largest manufacturer of laminated tubes in the world. Most toothpaste these days is packaged in such tubes and one-third of global supply comes from Essel Propack's 20 factories in 13 countries across Africa, Asia, Europe, and North and South America. The company also churns out tubes for cosmetics, pharmaceutical creams, hair-care products and food. It may not be the sexiest industry, but the business is growing fast and Essel is determined to be its biggest player. "We definitely see an opportunity to move further into the global space," says R. Chandrasekhar, Essel Propack's president. "India always had a global outlook in the past but we became very inward-looking after independence. Now we're back."

Glance through the business news these days and it quickly becomes apparent Chandrasekhar is right. As international business leaders prepare to arrive in New Delhi for the World Economic Forum's annual India Economic Summit, India is ending decades of isolation. Indian companies have returned to global commerce. Indian-born business executives are climbing the corporate ladders at well-known multinationals, some to the highest rungs. Meanwhile, Indian companies, flush with cash from a booming domestic economy, are prowling for overseas acquisitions to expand their footprints. The most recent headline grabber was last month's $8.1 billion bid by Tata Steel for Anglo-Dutch steel manufacturer Corus, and there have been many smaller deals as well. In February, Hyderabad-based drugmaker Dr. Reddy's acquired German-based rival Betapharm for $572 million. A few months later, construction major Punj Lloyd bought Singapore-based SembCorp Engineers and Constructors for $22.5 million. And now electronics manufacturer Videocon is the lead player in a consortium that has offered more than $700 million to buy Korean electronics giant Daewoo Electronics.

In the first 10 months of 2006, Indian companies cut more than $10 billion worth of cross-border deals, up from about $1 billion in all of 2000. According to Dealogic, which tracks global M&A activity, Indian companies this year have spent twice as much on overseas acquisitions as foreign companies have invested in India. "There is a real bullishness" among the leaders of Indian industry, says Sabeer Bhatia, the Indian-born co-founder of Hotmail, the Web-based e-mail system acquired by Microsoft in 1997. "Every single Indian CEO is looking outwards to see how he or she can expand their own base and expand into newer markets."

One reason Indian companies are suddenly going abroad is that they can. For years, government controls and restrictions?the infamous "license Raj"?shielded Indian businesses from foreign competition, isolating them and stifling innovation. But in the early 1990s, the government began to slowly open up the economy. Anticipating an eventual onslaught from outsiders, the country's more far-sighted industrialists decided to modernize their operations. As a result, the most efficient businesses were able to reap outsized profits as India's economic growth began to accelerate, explains Delphine Cavalier, a Paris-based economist at BNP Paribas, which has advised Indian companies on M&A activity in Europe. "Today, with competition now mounting in India, those same groups are seeking to protect that profitability by taking their activity abroad, knowing that continued economic growth in India will provide a strong base for years to come," Cavalier says.

New Delhi also helped clear the way for the recent buying spree. Last year, the government doubled the cap on how much Indian companies can annually invest abroad to 200% of a company's net worth. Thanks to the boom at home?India's GDP growth has averaged 8% a year over the past three years?many companies are financially stronger than ever before. Net profits are up nearly 40% this year, according to a recent report from Motilal Oswal Securities, which surveyed 127 publicly traded companies from various sectors. Besides having deep pockets, many Indian companies have been around for decades; they've got experienced managers who are confident in their ability to run large, complex organizations. "They're not like start-ups," says Bhatia, "so they say, 'you know, our balance sheet is actually stronger than some of our counterparts in London, or Europe, or America. We might as well buy these brands and make use of our low-cost manufacturing base to branch out into other markets outside of India.'"

That's certainly the logic behind many of the recent deals. "[Economic] liberalization made Indian companies a lot more competitive globally, especially when it comes to price," says Ranjit Pandit, a director at consultancy firm McKinsey & Company in Bombay. "The two things missing were customer access and certain advanced technologies." It's much faster to buy what you need than spend years building it up yourself. By purchasing Corus, for example, low-cost steel producer Tata Steel hopes to get access to technology to make more sophisticated products, as well as a European client base. By bidding for Daewoo, Videocon seeks a foothold in East Asian markets and an extended global marketing-and-sales network. There are other compelling reasons to go abroad. International exposure may be essential for Indian companies to maintain high sales-growth rates. Because of a host of problems at home, such as pervasive poverty and obsolete, overtaxed transportation and power networks, India's most successful companies have in some ways already outrun the Indian economy and are now simply spreading their bets. "I will apply my money where my judgment thinks it can make the maximum return," says Videocon chairman Venugopal Dhoot. "Business is business everywhere."

It's important to keep the country's acquisitiveness in perspective. Companies in other rapidly developing nations such as China and Brazil are also heading overseas. From 2002 to 2006, for example, India made 176 investments in Europe, according to Invest in France Agency, a government-backed investment-promotion group. China wasn't far behind with 114 deals over the same period. And last week, a Brazilian steel group?Companhia SiderĂșrgica Nacional?challenged Tata Steel's bid for Corus by making a preliminary $8.5 billion offer, 4.4% more than Tata's buyout proposal. Says Rajat Gupta, former global managing director of McKinsey & Company and the first Indian-born CEO of a large U.S. multinational: "It's a gathering trend, but to say that we are somehow uniquely terrific at globalizing, I don't think the evidence supports that. There is no track record yet of Indian companies."

Still, Indian businessmen are proving to be unusually adept in the international arena. It helps that millions of them already speak English, the global language of commerce. India is also a free-market democracy with a legal system that, though frustratingly slow, is easy for Westerners to understand. The country has longstanding cultural and trade ties with the rest of the world, which adds "a comfort factor" to its business dealings overseas, says Andrew Cahn, chief executive of UK Trade & Investment, a government body that supports foreign companies looking to invest in Britain. To be sure, Indian companies occasionally run into xenophobia and protectionism. Earlier this year, Indian-born Lakshmi Mittal's $33.5 billion purchase of Arcelor, Europe's top steel producer, was initially opposed by CEO Guy Dollé, who said Mittal's company?Mittal Steel, the largest steel producer in the world?was "eau de cologne" compared with the "perfume" of Arcelor. But India's forays abroad have so far proved less controversial than those launched from that other emerging economic superpower, China. According to Sanjaya Baru, an adviser to Indian Prime Minister Manmohan Singh, that's because major Chinese companies are usually partly or wholly owned by government entities, which can raise doubts about their management's motives. "Private companies in India are private," Baru says. "They are not an extension of the government."

Being annexed by India Inc. might also be more palatable to some because individual managers and entrepreneurs from the subcontinent are familiar faces overseas. Driven in the past by lack of opportunity at home, India's best and brightest have long studied and worked in the U.S. and Europe. America's high-tech sector in particular has an unusual concentration of Indian workers. Some 13% of all private, venture-backed start-up companies in the U.S. are founded by Indian immigrants, according to a study released this month by the National Venture Capital Association. Many of Silicon Valley's high-tech leaders are of Indian origin, among them Prabhakar Raghavan, 45, head of Yahoo!'s research division. After finishing college in India, Raghavan migrated to the U.S. and earned a Ph.D. in computer science at the University of California, Berkeley, before joining IBM. "Indians are looked upon not only as technical wizards but, beyond that, as people who can make things happen," he says.

The diaspora has spread beyond Silicon Valley. Indian-born executives have in recent years taken the reins at some of the world's biggest companies. Arun Sarin, a native of Madhya Pradesh in central India, is CEO of Britain's Vodafone. Three months ago, Indra Nooyi was named CEO of PepsiCo after serving five years as the U.S. beverage giant's CFO. Indians have credibility as managers, says Hemant Luthra, head of the Systems & Automotive Technologies division at Indian car-and-tractor manufacturer Mahindra & Mahindra. This was not always so. Luthra remembers visiting Hong Kong in 1991 when India's government was close to bankruptcy. "I had $100 in my pocket and if I went into a watch shop the salesmen would instantly show me the cheapest watches just because I was Indian," he says. Three years ago, Mahindra tried to buy Finland's biggest tractor company. Luthra says Finnish newspapers ran stories "asking how dare an Indian look at buying Finland's crown jewels?" But those things don't happen to him anymore, he says. "When we go and talk to these people in Germany or the U.K., it's a given that we're professional managers capable of running a huge business," says Luthra, who last month was juggling the final details of four separate acquisitions. "My biggest problem is finding the bandwidth to look at all the opportunities that come across my desk every day."

India's economic and business bandwidth is likely to continue growing. Take Essel Propack. The toothpaste-tube maker has begun to diversify in more profitable markets by buying a British company that makes packaging for upscale cosmetics and toiletries, and a U.S. company that makes medical products like catheters and esophageal balloons. "We'll keep looking for the right opportunities," says Essel Propack's managing director Ashok Goel. "And when we see something we like, we'll go for it." As Indian companies following that same script continue to expand overseas, in the future we'll be buying more than toothpaste tubes stamped "Made in India."

Info Edge India impresses on debut

Info Edge India was trading at Rs 574.45, a massive premium of 79.5 over the IPO price of Rs 320.

The company priced the IPO at the upper end of the Rs 290 - Rs 320 band. The public offer had received strong investor response. Post issue FII-holding in the stock is 7.9% wheread promoters own 54.6%. The company has a paid-up equity of Rs 27.29 crore.

The current price of Rs 574.45 discounts its Q1 June 2006 annualised EPS of Rs 7.70 (based on consolidated financials), by a PE multiple of a whopping 74.6.

Info Edge (India) is a leading provider of online recruitment and matrimonial classified and related services in India. Its online recruitment portal is currently India’s number one website for online recruitment services and its matrimonial portal is presently India’s number third for online matrimonial classified services, in terms of number of unique visitors to the website, as per data provided by Comscore.

The online advertising market has grown from Rs 42 crore in FY 2004 to Rs 107 crore in FY 2005. This is expected to grow to Rs 162 crore in FY 2006 and reach Rs 218 crore in FY 2007 (Source: Internet and Mobile Association of India, IAMAI).

For Q1 June 2006, Info Edge reported a consolidated net profit of Rs 5.22 crore on revenue of Rs 27.92 crore. For FY 2006 (year ended 31 March 2006), it earned a net profit of Rs 13.29 crore on revenue of Rs 82.41 crore.

Info Edge (India) is currently over-dependant on recruitment services. contributed 93.47% (94.6% in FY 2006) of the operating revenue in the quarter ended June 2006.

Market may remain edgy

A sharp rise in several Asian indices in the early trades may help the domestic indices rebound from lower levels. However, lack of clarity in the market and higher volatility may drag down the market. Among the indices, the Nifty could test higher levels at 3870 and has a supports at 3840 and 3792. The Sensex has a likely support at 13330 and may face resistance at 13500.

Indian ADRs were largely mixed on the US bourses. Rediff jumped nearly 9.64%, Satyam, ICICI Bank, Dr Reddy's and Patni Computers ended with modest gains. while VSNL, MTNL, Tata Motors, and Wipro ended with loss of around 1%. However, HDFC Bank slipped marginally.

Crude oil prices in the US market was marginally down, with the Nymex Light Crude oil for December delivery losing 45 cents to close at $55.81 a barrel. However, in the Commodity space, the Comex gold for December series dropped 40 cents to settle at $622.10.

FII activity to dictate the trend

The market staged a solid intra-day rebound on Monday (20 November) after Sensex had plunged over 200 points at one point of time. The market sentiment turned cautious following RBI’s circular on Friday (17 November) which capped banks’ exposure to capital market.

Given that built up of positions in futures & options segment is substantial, high volatility may take place in the next few days in the run up to the expiry of October 2006 derivatives contracts on 30 November. There were heavy FII sales in the futures segment on 20 November. FIIs were net sellers to the tune of Rs 1051 crore in index based futures on that day. They were net sellers to the tune of Rs 249 crore in individual stock futures. As per provisional data, FIIs were net sellers to the tune of Rs 300 crore in the cash segment on that day.

FII inflow has boosted the bourses over the past few days. The Sensex is up 43% in calendar 2006 so far. FII inflow in 2006 has reached $7.8 billion (till 14 November). The inflow of funds from foreign institutional investors may pick up further in December 2006 following new allocations.

Asian markets were in the green on Tuesday (21 November). Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.08% to 1.1%.

US blue chips ended lower on Monday as investors sold stocks after a series of record-high closes and a drop in oil prices hit energy shares. The Dow Jones industrial average was down 26.02 points, or 0.21 percent, to end at 12,316.54. The Standard & Poor's 500 Index closed down 0.70 point, or 0.05 percent, at 1,400.50. The Nasdaq Composite Index edged up 6.86 points, or 0.28 percent, to end at 2,452.72. A brokerage upgrade of Microsoft Corp. helped the Nasdaq end slightly higher.

Oil for January delivery ended down 19 cents a barrel at $58.78 a barrel on ample supplies and concern about demand.

UTI Securities - Sterlite Industries

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IL&FS - South Indian Bank

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Edelweiss - HLL

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Man Financial - Goetze

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Morgan Staley - ENIL

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BRICS PCG Research - Asian Electronics

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Bullion: Weak commodity prices cap upside

Gold may rebound on speculation that the Federal Reserve (Fed) will not increase the interest rates anytime soon, thus eroding the value of the dollar and boosting the appeal of the precious metal as an alternative investment. The slumping housing market and the falling PPI numbers would prevent the Fed from raising the rates. Further, the recent WGC demand trends indicate that the investment demand has moved up amid speculators increasing their bets on gold as the net long positions increased by 9.5% in the week ended November 14.

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Motilal Oswal - RIL, PNB, RCOM, BHARTI

Reliance Industries

Punjab National Bank

Reliance Communications

Bharti Airtel

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Sobha Developers: Sharekhan IPO Flash

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Sharekhan Eagle Eye (equities) & Derivatives Info Kit for November 21, 2006

The Nifty opened in negative territory and exhibited weakness for a major part of the day...

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Sharekhan Investor's Eye dated November 20, 2006

Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,020
Current market price: Rs860

Life insurance—the key driver

Key points

  • We have raised our price target for ICICI Bank to Rs1,020 primarily due to the improved valuations commanded by its life insurance subsidiary and the expected improvement in the return on equity (RoE) post-FY2008, which should help the core banking business get better valuations.
  • We expect ICICI Bank to generate a 13-15% RoE and a 24% earnings per share (EPS) compounded annual growth rate (CAGR) over FY2006-08E. Considering its unique positioning as the largest Indian bank with a leadership or second spot across all the financial services business verticals, we believe the stock is trading at attractive valuations. Based on the current market price of Rs860 the stock trades at 19.5x its FY2008E EPS, 9.8x its FY2008E pre-provisioning profit and 2.8x its FY2008E book value. The valuation of all its subsidiaries, joint ventures etc works out to Rs297 per share of which the life insurance subsidiary alone contributes Rs252 per share. We maintain our Buy recommendation on the stock with a price target of Rs1,020.



CME base to increase for banks
The Reserve Bank of India (RBI) in its FY2006 mid-term review of annual policy statement had announced that the prudential norms prescribed for capital market exposure (CME) of banks would be rationalised in terms of base and coverage. The RBI has tried to address the following key issues in its revised draft guidelines on the banks' CME applicable with effect from January 1, 2007.

  • RBI wants to shift the risk arising from CME: Currently, the banks' CME is restricted to 5% of their total outstanding advances as on March 31 of the previous year. With the revised guidelines coming into effect the CME can go up to 40% of the net worth as on March 31 of the previous year. By adopting this approach we feel the RBI wants to shift the risk exposure of the banks from being a function of loan growth to the one that is linked to their profitability. As is evident from the table provided below, all leading private banks stand to gain from the new guidelines. The banks which have sound internal controls and a robust risk management system have been provided further leeway with the option of a higher exposure.
  • RBI wants to curb unwanted leverage in the capital market: The RBI has tried to plug some loopholes from where it feels the money is slowly but  surely trickling down to the secondary and primary markets. The banks have been asked to be more vigilant before granting loans against capital market instruments and ensure that people are not borrowing from multiple banks. RBI has also asked banks to make borrowers submit a declaration about their overall borrowings against capital market instruments.
  • Retail IPO finance market to be hit: The move from the RBI looks more likely to curb the huge over-subscriptions in the recent initial public offerings (IPOs). Retail IPO finance market would be affected but it would also lead to better allotments in the retail category. It also tries to address the problem of a steep and significant correction, as witnessed in May-June 2006, partially aggravated by a cascading effect caused when the banks start liquidating securities to reduce the leveraged position of the borrower.
  • Monitoring of intra-day exposures: Currently there are no explicit guidelines for monitoring banks' intra-day exposure to the capital markets. However, the RBI wants that the respective boards of the banks should have fixed intra-day limits and should monitor the same on an ongoing basis.


Matrix Laboratories

Investor should avail of the open offer
DSP Merrill Lynch Ltd (on behalf of MP Laboratories [Mauritius] Ltd and Mylan Laboratories Inc—the acquirer of Matrix Laboratories Ltd) has announced the revised schedule for the open offer for Matrix Laboratories Ltd shares. The open offer starts on November 22, 2006 and closes on December 11, 2006.

Maylan Laboratories Inc (Mylan), subsequent to its acquisition of the 51.5% stake in Matrix from the private equity players, has already proposed to buy up to 3.08 crore voting equity shares of Rs2 each of Matrix Laboratories, constituting 20% of the equity, at a price of Rs306 a share payable in cash.

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