Sharekhan Investor's Eye dated December 05, 2006

Marico
Cluster: Apple Green
Recommendation: Buy
Price target: Rs634
Current market price: Rs550

Plan to raise Rs151 crore approved

Key points

• The board of Marico Ltd (Marico) has approved a fresh issue of shares worth Rs151 crore to qualified institutional buyers (QIB). This is in addition to the net amount of Rs75 crore raised by the company through the issue of preference shares last month.
• The net equity infusion of Rs226 crore will bring down the debt/equity ratio of Marico from 0.95x currently to 0.40x. The leaner balance sheet would also allow Marico to raise debt quickly in case a value- and earning-accretive inorganic opportunity arises.
• We are revising our FY2007 and FY2008 earnings estimates to incorporate the Fiancée acquisition and the current equity dilution. Our FY2007 and FY2008 earnings estimate are higher by 0.5% each at Rs19.3 and Rs25.1 respectively.
• The stock is trading at attractive valuations of a price/earnings ratio (PER) of 22.0x FY2008E and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 12.4x FY2008E. We continue to remain bullish on Marico and reiterate a Buy on the stock with an unchanged price target of Rs634.

Aban Offshore
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs1,760
Current market price: Rs1,170

Open offer to hike stake in Sinvest

Key points

• Open offer for Sinvest: Aban Offshore Ltd (AOL) is likely to fund the open offer to acquire an additional stake in Sinvest through the placement of a 25-30% stake in its subsidiary Aban Singapore Pte Ltd (ASPL) for around $250 million, as per media reports. This essentially means that ASPL is valued in the range of $833-1,000 million and has an implied value of Rs656-844 per share for AOL’s remaining stake in ASPL. Adding this to the stand-alone value of AOL, the consolidated value per share works out to around Rs1,763-1,950.
• Earnings accretive: A successful acquisition of 100% stake in Sinvest through an open offer could strain the company’s consolidated balance sheet but the same would be earnings accretive. After accounting for the additional debt on the books, the incremental share from Sinvest’s earnings would add Rs35.4 to the earnings per share in FY2008 (and Rs45.6 in FY2009). Consequently, the acquisition of the additional stake would positively affect the valuation per share by Rs709 and Rs814 based on the incremental earnings in FY2008 and FY2009 respectively.

Sun Pharmaceutical Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,200
Current market price: Rs1,017

Awaiting demerger

Key points

• Sun Pharmaceutical Industries’ (Sun Pharma) domestic formulation business has been growing in line with the industry, clocking growth rates of around 15-17%. With approximately 30 new launches per year and a strong brand building capability, we believe Sun Pharma's domestic business will continue to grow by 16-17%.
• An abbreviated new drug application (ANDA) pipeline of 56 pending approvals combined with the 30+ filings per year is likely to translate into strong growth for Sun Pharma's US business. We anticipate Sun Pharma's US business to reach Rs515.6 crore and Rs688.1 crore in FY2007E and FY2008E respectively. Further, Sun Pharma has roughly seven Para IV litigations, a favourable outcome of which will result in further gains.
• Capitalising on the huge opportunity in the rest of the world (ROW) markets, Sun Pharma is replicating its successful domestic strategy of targeting niche and chronic segments in branded generic markets. Sun Pharma has 750 products registered and another 300+ products pending approval in these markets. We estimate Sun Pharma's formulation revenues in the ROW markets to grow at a compounded annual growth rate (CAGR) of 59.2% over FY2006-08E.
• The demerger of Sun Pharma's innovative research division is likely to be completed by the end of the current fiscal. Sun Pharma's innovative research and development (R&D) pipeline currently consists of one new chemical entity (NCE) and two novel drug delivery system (NDDS) products. The NCE is an anti-allergic molecule undergoing Phase II trials in the USA, whereas the NDDS products are waiting for the USFDA signal to commence the Phase III trials directly. Considering the reduced R&D expenses post-demerger and the implications of the same, we estimate the demerger to add Rs2.1 and Rs2.6 per share to the estimated FY2007 and FY2008 earnings respectively.
• At the current market price of Rs1,017, Sun Pharma is quoting at 22.2x its estimated FY2008 earnings. As per the sum-of-the-parts valuation, the base business is valued at Rs1,081 per share, the demerger would add Rs66 to Sun Pharma and the demerged R&D company would be valued at Rs54 per share. This gives us a fair value of Rs1,200 for Sun Pharma. Hence, we maintain our Buy recommendation on Sun Pharma with a revised price target of Rs1,200

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Sharekhan Eagle Eye (equities) & Derivatives Info Kit for December 06, 2006

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Asit C Mehta - Tantia Construction

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Angel - Bharti Shipyard

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IPO - Ess Dee Aluminium

Expensive packing

Ess Dee Aluminium, promoted by Sudip Dutta in February 2004, manufactures aluminium foils and polyvinyl film-based packaging products for the pharmaceutical sector. The company took over Atlanta Vinyl, which produces polyvinyl films, on 1 April 2005. It acquired the entire share capital of Flex Art Foil, churning out printing aluminium foil-based packaging products, on 31 March 2006. It is now a 100% subsidiary of Ess Dee Aluminium.

Ess Dee Aluminium converts cold rolling aluminium foil stock to aluminium foil, which is further converted into printers’ stock through lamination for strip pack or coating for blister pack. The company also manufactures thermoforming polyvinyl chloride films (rigid PVC films) as well as PVdC (polyvinylidene chloride)-coated PVC barrier thermoforming films for blister packaging. Along with subsidiary Flex Art Foil, it provides end-to-end packaging solutions to the pharmaceutical end users.

In the current fiscal, Ess Dee Aluminium has increased its foil rolling capacity from 3,600 tonnes per annum to 9,100 tonnes and will ramp it further to 18,000 tonnes by next year. To fund the expansion project, the company has lined up a public issue to raise Rs 139.20 crore – Rs 156.60 crore. In May/June 2006, it had raised Rs 21.70 crore through issue of 4,75,205 equity shares at Rs 160, and 19,05,500 equity shares at Rs 74 through private placement with a clutch of investors. The net proceeds are intended to set up additional manufacturing facilities for aluminium foil-based packaging products at Daman at Rs 114.79 crore, for general corporate purposes, and public issue expenses. The current consolidated gross block (investment in fixed assets) is only Rs 22.35 crore.

Strengths

• The growth of pharmaceutical packaging is directly linked to the growth of the pharmaceutical industry, where packing material cost is about 4-5% of sales. Ess Dee Aluminium is also planning to venture into flexible packaging by pursuing specialised aluminium foil-based packaging applications for the food and FMCG sectors, where growth will be driven by the spurt in demand for convenience and branded products.

Weaknesses

• As the major portion of the funds of Ess Dee Aluminium are blocked in inventories and debtors. The company has negative cash flow at the operating level for all the periods for which financials are available. The negative cash flow at the operating level in FY 2006 and H1 FY 2007 stood at Rs 6.05 crore and Rs 2.59 crore, respectively.

• Aluminium foil stock (aluminium sheets) is the major raw material for Ess Dee Aluminium’s packaging products. Aluminium prices have been quite volatile. If the company is not able to pass on any increase in the cost of aluminium to its customers, profit will be affected. The company imports aluminium sheets, the largest component of raw material cost, So it is exposed to foreign currency risk.

Valuation

The annualised (consolidated) EPS for half-year ended September 2006 on post-issue equity works out to Rs 9.1 and PE 22.0 - 24.8 at the price band of Rs 200– Rs 225. Ess Dee Aluminium converts aluminium foils with some value addition as packaging material for pharmaceutical products. TTM PE of Aluminium- Sheets/Coils/Wires/Others industry is 5.2.

IPO - XL Telecom

Promoted by Dinesh Kumar, a commerce graduate, XL Telecom assembles CDMA mobile handsets and manufactures switch mode power systems (SMPS), solar photovoltaic systems (SPV) and ethanol. Established in 1985, the company has strategic partnership with international technology companies including Corning (for cable jointing kits and accessories), Kyocera Wireless Corporation (for CDMA handsets) and Axesstel (for CDMA fixed wireless phones). It has a capacity to assemble 10,000 CDMA mobile and fixed wireless sets per day, 600 amps per day of SMPS, 1,667 jointing kits and accessories per day, 1,50,000 liters of ethanol per day, and 3.3 KW of SPV systems per day.

XL Telecom has lined up a public issue to raise Rs 49.46 crore at the lower band (Rs 125) and Rs 59.35 crore at the upper band (Rs 150). The net proceeds from the issue (including internal accruals) comprising Rs 8 crore are to be used for expansion of capacity to make SPV modules from the existing 1 MW per annum to 24 MW per annum, Rs 20.40 crore for creation of SMT line to produce PCBs for CDMA mobile and FWP (fixed wireless phones), repayment of Rs 9-crore IDBI term loan, Rs 20 crore for long-term working capital requirement for FWP business (due to deferred payment model of BSNL), and for issue expenses.

Strengths

• A couple of countries in Europe has made 160 watt to 200 watt solar power generation for every home mandatory. Thus, there is export potential for SPV systems. To tap this opportunity, the company has established an MOU with a Spanish supplier of SPV systems Forta Im Ex SL in Europe with an immediate US 13-million order for 3 MW SPV systems. The minimum commitment by European customers is for 12 MW over three years, which works out to Rs 220 crore at current prices.

Weaknesses

• Competitors like LG and Samsung have established their own units in India to manufacture CDMA handsets. These are the preferred original equipment suppliers of Reliance Communication and Tata Telecom. These companies are cost efficient due to high volume and would compete in the tough, price-sensitive market in India.
• XL Telecom is substantially increasing its SPV capacity from existing 1 MW per annum to 24 MW per annum. This has an inherent a risk of sudden fall in global demand, resulting in underutilisation of capacity.

Valuation

EPS for the year ended June 2006 on post-issue equity works out to Rs 7.4. At the price band of Rs 125 – Rs 150, PE works out to 17.0 to 20.4. There is no comparable listed company. In a normal market, companies with such diverse businesses get discounted poorly due to the unpredictability of their financials.

Prabhudas Lilladher - Nestle India

At the CMP of Rs 1,114, Nestle India trades at 31.6x CY06E earnings and 25.6x CY07E earnings. At current levels, we maintain a Market Performer rating on it."

According to brokerage house, the sales growth of Nestle as it has a product portfolio that is expected to grow with rising income levels and urbanization. However, they believe that the company’s plans of growing its fresh dairy business will face intense competition from players like Amul, which are aggressively expanding operations.

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Prabhudas Lilladher: Outperformer - KEI Industries

According to the brokerage house, KEI Industries is trading at 9.9x FY07E and 8.1x FY08E earnings estimates at the CMP. Given the recent rise in the stock price and current valuations we revise our rating on the stock to Outperformer with a 12-month price target of Rs.530.

"Both RoE and RoCE are expected to drop sharply in FY08E due to high debt and equity infusion but will bounce back in FY09E once benefits from the new capacity start flowing in."

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Dalal Street - Gateway Distripaks

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Citigroup - Indian Home Textiles

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Sensex, Nifty strike record closing highs

Market extended its rally for the fifth straight day as buying continued. Metal and IT stocks were in demand.

The 30-share BSE Sensex settled 63.32 points higher at 13,937.65, a lifetime closing high. It came off the higher level after opening with an upward gap of 154.14 points at 14,028.47, which is also its all time high. Sensex touched an intra-day low of 13905.65. It took 26 sessions for the Sensex to reach 14,000 mark from its close of 13,024.26 points on 30 October.

The S&P CNX Nifty also settled at lifetime closing high at 4015.35, up 14.35 points from its previous close. It had surged to an all time high of 4033.20.

The market breadth stayed positive with 1307 shares advancing on BSE as compared to 1263 that declined. 68 shares were unchanged. The BSE Small-Cap index rose 23 points or 0.34% to 6,799.99 while the BSE Mid-Cap index gained 10.5 points or 0.2% to 5,829.47

The total turnover on BSE amounted to Rs 4743 crore as compared to Rs 4836 crore on Monday (4 December)

Among the Sensex pack, 18 declined while the rest advanced.

Tata Steel was the top gainer, up 5.60% to Rs 494.25 on 16.75 lakh shares. It moved in range of Rs 470.65- 494.90. The company said on Monday, it had signed an agreement with Nippon Yasen Kabushiki Kaisha to form a 50:50 shipping joint venture. The JV will cater to both dry and bulk cargo.

Index heavyweight Reliance Industries (RIL) rose 1.50% to Rs 1279 on 9 lakh shares. The stock had opened with huge upward gap at Rs 1350, which is also its 52-week high. The company said on 1 December, that its hydrotreater plant at Jamnagar refinery, which was partially damaged in a fire on 25 October, has been refurbished and has started functioning. Also there are unconfirmed reports that it is set to acquire Adani Retail, the Gujarat based retail chain controlled by the Adani Group. The acquisition of Adani Retail will provide RIL with a readymade retail infrastructure and real estate to begin operations in Gujarat.

Reliance Communications rose 3.67% to Rs 459.10 after reports suggested the company has invited bids for 90-100 million cellular lines valued at $7-8 billion.

Gujarat Ambuja was the top loser, down 1.66% to Rs 142 on 13.08 lakh shares. Its November 2006 cement despatches increased 9% to 1.31 million tonnes. The stock had hit a intra-day high of Rs 147.45

HDFC (down 1.48% to Rs 1600), Grasim (down 1.45% to Rs 2745) and HDFC Bank (down 1.41% to Rs 1085) were the other losers.

Metal stocks advanced on the back of renewed buying interest, with the BSE metal index rising the most among the sectoral indices by 2.01% or 180.28 points to 9148.25. Major gainers from the sector were Ispat Industries (up 1.82% to Rs 11.20), Hindustan Copper (up 5% to Rs 102.25), Maharashtra Seamless (up 3.43% to Rs 482.15), Sesa Goa (up 2.22% to Rs 1288), Hindalco (up 1.33% to Rs 175.70), Jindal Stainless (up 3.67% to Rs 124.40) and SAIL (up 2.45% to Rs 87.90) moved higher.

IT stocks were in demand as buying interest resumed in the sector, with the BSE IT index rising 1.19% or 61 points to 5197.44. IT bellwether Infosys Technologies gained 1.39% to Rs 2236 after its ADR rose 2.7% on Monday to $54.42. Other IT stocks Wipro (up 0.42% to Rs 592.80), i-flex (up 4% to Rs 1768), HCL Technologies (up 1.92% to Rs 635) and Satyam Computers (up 0.38% to Rs 460) moved higher.

Select sugar stocks surged for the second straight day on speculation that export ban may be lifted shortly. Bajaj Hindustan (up 4.51% to Rs 258.45), Balrampur Chini Mills (up 3.10% to Rs 91.75), Bannari Amman Sugars (up 2.62% to Rs 842), Dhampur Sugar Mills (up 1.21% to Rs 96.10), KM Sugar Mills (up 2.05% to Rs 54.70), Shree Renuka Sugar (up 1.20% to Rs 535) and Sakthi Sugar (up 1.69% to Rs 117) advanced.

Eicher Motors lost 2.87% to Rs 391 despite reporting 38% rise in November 2006 sales to 2201 units.

MSK Projects rose 3.52% to Rs 94.10 after the company bagged an order worth Rs 21.20 crore from Pimpri Chinchwada Municipal Corporation, Pune for improvement, maintenance and repairs of roads.

Bharat Earth Movers lost 1.21% to Rs 1023.55. There are reports that it has signed a deal with US-based Terex Mining to manufacture and sell mining haul trucks in India and overseas.

Readymade apparel major Pearl Global jumped 10% to Rs 137.55 after the company bagged an order H & M of Sweden and Netherlands for supply of knitted T-shirts, valued at about Rs 2.25 crore.

Era Constructions slipped 0.18% to Rs 516.30 on volumes of 15 lakh shares. The company was awarded contract by National Highways Authority of India (NHAI) for design, construction, development, finance, operation and maintenance of new 4 lane Gwalior Bypass of on BOT Annuity Basis (the 'project') in consortium with other members. The contract shall be executed by the company over a period of two and a half years and the total annuity per annum is Rs 53.06 crore during the concession period of Seventeen and half years.

Mysore Cements rose 1.06% to Rs 66.65 after reports that Sebi may ask Heidelberg to hike open offer price to Rs 72.50 per share.

Essar Steel advanced 3.22% to Rs 36.90 on reports that it is likely to buy an integrated steel company in Eastern Europe.

Bharat Bijlee rose 1.21% to Rs 1204 after a block deal of 1.45 lakh shares was struck on the counter at Rs 1180 per share on BSE by 10:23 IST. The stock had surged to intra-day high of Rs 1275 just after the block deal was executed.

J&K Bank gained 1.39% to Rs 548 after RBI allowed FIIs to purchase up to 40% in the bank.

Plywood maker Greenply Industries jumped 7.59% to Rs 102.05 after the firm said it had signed a deal to sell carbon credits worth $5 million. The deal would add 500,000 euros annually to its revenues from FY 2007 to till 2012.

Market sentiment remains strong due to strong FII inflow, continued strong economic data and robust corporate earnings. Firmness is likely to prevail in the near term, as traders will build positions on expectations of strong Q3 December 2006 results.

The Nikkei average lost 37.83 points or 0.23% to 16,265.76 while the Hang Seng advanced 241.46 points or 1.29% to 18,944.19

Oil prices rose slightly Tuesday as traders watched US winter weather and anticipated further production cuts by OPEC nations. On Tuesday, light sweet crude for January delivery was up 16 cents to $62.60 a barrel in Asian electronic trading on the New York Mercantile Exchange.

US stocks rose on Monday as a string of corporate takeovers and lower oil prices boosted optimism about the outlook for profits. The Dow Jones industrial average rose 89.72 points, or 0.74%, to 12,283.85. The Standard & Poor's 500 Index gained 12.41 points, or 0.89%, to 1,409.12. The Nasdaq Composite Index added 35.18 points, or 1.46%, to 2,448.39. The S&P 500 soared to a six-year high during the session, while the Nasdaq recorded its biggest one-day percentage gain in nearly a month, snapping a two-session losing streak.

On 1 December 2006, FIIs were net buyers of stocks to the tune of Rs 349.30 crore (gross purchases worth Rs 1,872.30 crore and gross sales of Rs 1,523.10 crore) while domestic mutual funds were net buyers of stocks to the tune of Rs 304.33 crore (gross purchases worth Rs 666.34 crore and gross sales of Rs 362.01 crore).

FII: - Rs 2813 Cr & Mf +Rs 43 Cr

FII Gross purchases Rs 2552 Cr Gross Sellers Rs 5366 Cr Net sellers Rs 2813.8 Cr
MF Gross Purchases Rs 484.4 Cr Gross Sellers Rs 441 Cr Net buyers Rs 43 Cr

Our View:

Really very bad numbers…but one must not get driven by this numbers as this includes Infosys ADS sale of Rs.2840 cr. But one should also keep in mind that markets are hovering at its all time high so time to book profits and play safe.

Movers & Shakers

• Pearl Global hit the upper circuit breaker of 10% on receiving an order valued at $0.5 million from H&M of Sweden and Netherlands for the supply of knitted T-shirts.
• MSK Projects India gained on the receipt of an order worth Rs21.20 crore from the Pimpri Chinchwada Municipal Corporation, Pune.
• Era Constructions gained marginally on bagging a construction contract for the Gwalior bypass.
• Cyber Media slipped despite acquiring a 49% stake in the US-based content services company Publication Services, Inc.
• Greenply Industries notched up significant gains on signing a $5 million deal for carbon emission purchase with a private investment fund.

Market retreats after testing 14000

Sensex Open:14028 High:14028 Low:13916

The Sensex touched an all-time of 14028 with gains of 154 points in early trades. However the market lost some of its initial momentum and was range-bound with a positive bias for the rest of the session. The index witnessed profit taking in the afternoon and touched an intra-day low of 13906. The Sensex ended the trading session with gains of 63 points at 13938, while the Nifty advanced 15 points to close at 4016.

The breadth of the market was marginally positive. Of the 2,653 stocks traded on the BSE, 1,321 stocks advanced, 1,265 stocks declined and 67 stocks ended unchanged. The BSE Metal index led the sectoral indices chart with gains of 2.01% followed by the BSE Oil & Gas index (up 1.02%), the BSE IT index (up 1.00%), the BSE CG index (up 0.80%) and the BSE FMCG index (up 0.26%).

Leading the rally, Tata Steel surged 5.30% at Rs493. Reliance Communication gained 3.43% at Rs458, L&T added 2.83% at Rs1,462, Reliance Industries advanced 1.58% at Rs1,280 and Infosys was up 1.52% at Rs2,239. Among the other gainers Parsvanath surged 5.37% at Rs522, Polaris soared 5.04% at Rs131 and Ingersoll Rand rose 4.59% at Rs382. IndusInd Bank, Jet Airways, i-flex, Nestle, Federal Bank, Castrol, IPCL and MRPL advanced 3-4% each.

Metal stocks had a good run on the bourses. Maharashtra Seamless vaulted 2.50% at Rs478, Sesa Goa gained 2.31% at Rs1289, SAIL added 1.98% at Rs88, Jindal Steel advanced 1.83% at Rs2,182 and Hindalco was up 1.12% at Rs175. However, Jindal Saw declined 2.16% at Rs412 and Sterlite Industries dropped 1.90% at Rs578.

Parsvnath was the most actively traded counter on the BSE with trades of over 49.25 lakh shares followed by Lanco Infratech (18.73 lakh shares), Tata Steel (16.77 lakh shares), Reliance Communication (15.65 lakh shares) and ITC (14.09 lakh shares).

Sensex gains 63 points

Sensex extended its rally for the fifth straight day as buying continued. Metal and IT stocks were in demand.

The 30-share BSE Sensex settled 63.32 points higher at 13,937.65, a lifetime closing high. It came off the higher level after opening with an upward gap of 154.14 points at 14,028.47, which is also its all time high. Sensex touched an intra-day low of 13905.65

The S&P CNX Nifty also settled at lifetime closing high at 4015.35, up 14.35 points from its previous close. It had surged to an all time high of 4033.20

The market breadth stayed positive with 1307 shares advancing on BSE as compared to 1263 that declined. 68 shares were unchanged.

The total turnover on BSE amounted to Rs 4743 crore as compared to Rs 4836 crore on Monday (4 December)

Among the Sensex pack, 18 declined while the rest advanced.

Tata Steel was the top gainer, up 5.60% to Rs 494.25 on 16.75 lakh shares. It moved in range of Rs 470.65- 494.90. The company said on Monday, it had signed an agreement with Nippon Yasen Kabushiki Kaisha to form a 50:50 shipping joint venture. The JV will cater to both dry and bulk cargo.

Index heavyweight Reliance Industries (RIL) rose 1.50% to Rs 1279 on 9 lakh shares. The stock had opened with huge upward gap at Rs 1350, which is also its 52-week high. The company said on 1 December, that its hydrotreater plant at Jamnagar refinery, which was partially damaged in a fire on 25 October, has been refurbished and has started functioning. Also there are unconfirmed reports that it is set to acquire Adani Retail, the Gujarat based retail chain controlled by the Adani Group. The acquisition of Adani Retail will provide RIL with a readymade retail infrastructure and real estate to begin operations in Gujarat.

Reliance Communications (up 3.67% to Rs 459.10), L&T (up 2.61% to Rs 1459.10) and Infosys (up 1.39% to Rs 2236) were the other gainers.

Gujarat Ambuja was the top loser, down 1.66% to Rs 142 on 13.08 lakh shares. Its November 2006 cement despatches increased 9% to 1.31 million tonnes. The stock had hit a intra-day high of Rs 147.45

HDFC (down 1.48% to Rs 1600), Grasim (down 1.45% to Rs 2745) and HDFC Bank (down 1.41% to Rs 1085) were the other losers.

The Nikkei average lost 37.83 points or 0.23% to 16,265.76 while the Hang Seng advanced 241.46 points or 1.29% to 18,944.19

US stocks rose on Monday as a string of corporate takeovers and lower oil prices boosted optimism about the outlook for profits. The Dow Jones industrial average rose 89.72 points, or 0.74%, to 12,283.85. The Standard & Poor's 500 Index gained 12.41 points, or 0.89%, to 1,409.12. The Nasdaq Composite Index added 35.18 points, or 1.46%, to 2,448.39. The S&P 500 soared to a six-year high during the session, while the Nasdaq recorded its biggest one-day percentage gain in nearly a month, snapping a two-session losing streak.

On 1 December 2006, FIIs were net buyers of stocks to the tune of Rs 349.30 crore (gross purchases worth Rs 1,872.30 crore and gross sales of Rs 1,523.10 crore) while domestic mutual funds were net buyers of stocks to the tune of Rs 304.33 crore (gross purchases worth Rs 666.34 crore and gross sales of Rs 362.01 crore).

Morgan Stanley - Cairn IPO

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Strong market breadth

The market breadth was strong on BSE as buying was spread across small-cap and mid-cap stocks.

At 12:33 IST, Sensex was up 106.51 points at 13,980.84. It came off the higher level after opening with an upward gap of 154.14 points at 14,028.47, which is also its all time high. Sensex had touched an intra-day low of 13916.18

The market breadth was strong with over 1.5 gainers for every loser on BSE. 1461 shares advanced on BSE as compared to 932 that declined. 86 shares were unchanged. The BSE Mid-Cap index rose 0.58% while the BSE Small-Cap index gained 0.83%.

The total turnover on BSE amounted to Rs 2419 crore.

Among the Sensex pack, 25 advanced while the rest declined.

Index heavyweight Reliance Industries (RIL) was the top gainer, up 2.40% to Rs 1290.50 on 5.92 lakh shares. The stock had opened with huge upward gap at Rs 1350 which is also its 52-week high. The company said on 1 December, that its hydrotreater plant at Jamnagar refinery, which was partially damaged in a fire on 25 October, has been refurbished and has started functioning. Also there are unconfirmed reports that it is set to acquire Adani Retail, the Gujarat based retail chain controlled by the Adani Group. The acquisition of Adani Retail will provide RIL with a readymade retail infrastructure and real estate to begin operations in Gujarat.

Tata Steel gained 2.01% to Rs 477.50 on 3.62 lakh shares. The company said on Monday, it had signed an agreement with Nippon Yasen Kabushiki Kaisha to form a 50:50 shipping joint venture. The JV will cater to both dry and bulk cargo.

Gujarat Ambuja rose 0.90% to Rs 145.70 after its November 2006 cement despatches increased 9% to 1.31 million tonnes

Hindalco (up 1.67% to Rs 176.30), L&T (up 1.27% to Rs 1440) and Infosys (up 1.11% to Rs 2230) were the other gainers.

HDFC was the top loser, down 1.02% to Rs 1607.50 on 1.50 lakh shares.

Cipla (down 0.39% to Rs 252.70) and Bharti Airtel (down 0.18% to Rs 630) were the other losers.

Era Constructions rose 2.81% to Rs 531.80 after the company was awarded contract by National Highways Authority of India (NHAI) for design, construction, development, finance, operation and maintenance of new 4 lane Gwalior Bypass of on BOT Annuity Basis (the 'project') in consortium with other members. The contract shall be executed by the company over a period of two and a half years and the total annuity per annum is Rs 53.06 crore during the concession period of Seventeen and half years.

Mysore Cements rose 3.11% to Rs 68 after reports that Sebi may ask Heidelberg to hike open offer price to Rs 72.50 per share.

Essar Steel advanced 2.80% to Rs 36.75 on reports that it is likely to buy an integrated steel company in Eastern Europe.

Oil prices rose slightly Tuesday as traders watched US winter weather and anticipated further production cuts by OPEC nations. On Tuesday, light sweet crude for January delivery was up 16 cents to $62.60 a barrel in Asian electronic trading on the New York Mercantile Exchange.

US stocks rose on Monday as a string of corporate takeovers and lower oil prices boosted optimism about the outlook for profits. The Dow Jones industrial average rose 89.72 points, or 0.74%, to 12,283.85. The Standard & Poor's 500 Index gained 12.41 points, or 0.89%, to 1,409.12. The Nasdaq Composite Index added 35.18 points, or 1.46%, to 2,448.39. The S&P 500 soared to a six-year high during the session, while the Nasdaq recorded its biggest one-day percentage gain in nearly a month, snapping a two-session losing streak.

On 1 December 2006, FIIs were net buyers of stocks to the tune of Rs 349.30 crore (gross purchases worth Rs 1,872.30 crore and gross sales of Rs 1,523.10 crore) while domestic mutual funds were net buyers of stocks to the tune of Rs 304.33 crore (gross purchases worth Rs 666.34 crore and gross sales of Rs 362.01 crore).

Sharekhan Highnoon dated December 05, 2006

The Nifty traded firm in the first hour of the session and the initial target of 4050 is within striking distance...

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Poweryourtrade.com Trading Calls

Hitendra Vasudeo

Buy Voltamp Transformers at Rs 637-628. Stop Loss at Rs 622 (Intra-day Call)

Buy Tata Steel at Rs 478 -475. Stop Loss at Rs 470 (Intra-day Call)

Buy Air Deccan at Rs 140.50-135. Stop Loss at Rs 133 (Intra-day Call)

Karvy - Container Corp

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PowerYourTrade Trading Calls

Ashwani Gujral

Buy Punjab National Bank with a stop loss of Rs 500 for target of Rs 700

Buy Unitech with a stop loss of Rs 478 for target of Rs 550/620

Deepak Mohoni

Buy Nagarjuna Construction below Rs 215 with stop loss of Rs 214. Its a day-trading recommendation.

Buy Action Construc below Rs 388 with stop loss of Rs 382. Its a day-trading recommendation.

Rajat K Bose

Buy GMR Infra with a stop loss below Rs 387 for target of Rs 408

Buy Titan Industries with a stop loss below Rs 808 for target of Rs 839

Poweryourtrade.com Trading Calls

Buy IDFC at around Rs 81.55 with stop loss of Rs 80. (Intra-day call)

Buy Jammu Kashmir Bank at around Rs 540.50 with stop loss of Rs 536. (Intra-day call)

Buy L&T at around Rs 1422 with stop loss of Rs 1400. (Intra-day call)

IPO : IDBI Capital - Nissan Copper

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IPO : IDBI Capital - Ess Dee Aluminium

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IDBI Capital - Sterlite Optical

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IDBI Capital - Morning Alert

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Upmove likely to continue

The market is likely to stay upbeat on the back of a strong domestic fundamentals and healthy FII buying support. Buoyancy in the Asian and US markets could also weigh positively on the sentiment. The Nifty should test 4020 on the upside while it has likely supports at 3980 and 3954 on the downside. The Sensex has a likely support at 13800 and could test higher levels at 13912.

US indices posted significant gains on Monday as investors' cheered the strong consumer confidence report. As a result, the Dow Jones scaled up by 90 points at 12284, the Nasdaq gained 35 points to close at 2448.

Barring Dr Reddy with the marginal lose at $17.11, rest of the Indian ADRs finished on a strong note. Tata Motors led the pack with gains of 4.71% followed by Rediff (up 3.43%), Infosys (up 2.70%) and Wipro (up 1.94%). Satyam, ICICI Bank, HDFC Bank, VSNL and Patni Computers gained around 0.50-1% each.

In the crude oil front, the Nymex light crude oil for January delivery declined by 99 cents to close at $62.44 per barrel, while the London Brent crude was up 62 cents at $59.46 a barrel. The commodity segment saw the Comex gold for February series flare up 30 cents to settle at $650.90 an ounce.

Indiainfoline - Trading Calls

NIFTY (4001) SUP 3989 RES 4012

BUY GNFC (103.25)
SL 100 T 106, 108

BUY HEXAWARE (186.8)
SL 182 T 194, 196

BUY THERMAX (390.60)
SL 385 T 400, 403

SELL BHARATFORG (357.85)
@ 361 SL 365 T 350, 347

SELL ZEETELE (371.20)
@ 374 SL 378 T 364, 361

Sensex may hit 14,000

The barometer index BSE Sensex may test 14,000 level tracking firm global markets and drop in crude oil prices. It is just about 125 points away from that psychologically important level. Nifty has already achieved the psychological 4,000 level. For the first time, it settled above that level on Monday 4 December.

Market sentiment remains strong due to strong FII inflow, continued strong economic data and robust corporate earnings. Firmness is likely to prevail in the near term as traders will build positions on expectations of strong Q3 December 2006 results.

FIIs bought shares worth a net Rs 349.30 crore on Friday 1 December as compared to an inflow of Rs 258.10 crore on Thursday 30 November. The cumulative FII inflow in 2006 has reached $8.9 billion compared to a record inflow of $10.7 billion in 2005.

Meanwhile, a sudden sharp surge was witnessed in inflow from mutual funds as they bought shares worth a net Rs 304 crore on 1 December.

Asian markets were steady to firm on Tuesday following gains on Wall Street on Monday. Key benchmark indices in Hong Kong, Japan, South Korea and Singapore were up by between 0.1% to 0.98%.

US stocks rose on Monday as a string of corporate takeovers and lower oil prices boosted optimism about the outlook for profits. The Dow Jones industrial average rose 89.72 points, or 0.74 percent, to 12,283.85. The Standard & Poor's 500 Index gained 12.41 points, or 0.89 percent, to 1,409.12. The Nasdaq Composite Index added 35.18 points, or 1.46 percent, to 2,448.39. The S&P 500 soared to a six-year high during the session, while the Nasdaq recorded its biggest one-day percentage gain in nearly a month, snapping a two-session losing streak.

NYMEX crude for January delivery ended down $1.08 a barrel at $62.35 amid forecasts of warmer weather in the United States and doubts among traders of another OPEC production cut.

Indiainfoline - Indotech Transformers

Indo Tech Transformers Ltd.

BUY

CMP Rs233

Indo Tech Transformers Ltd is in the process of more than doubling its existing capacity from 2,450MVA to 7,450MVA, including both planned and unplanned expansions. This will enable it to expand its reach coupled with newer and wider range of products.

We expect the company to benefit from the ongoing investments in the power generation and transmission and distribution space by public and private sector. This should translate into stronger demand for transformers which will help the company's bottomline grow at 37.8% CAGR over FY06-08E.

The company recently announced a tie up with DUPONT India Pvt. Ltd. for technical, marketing analytical and business assistance in respect of its Dry Type Transformers.

The stock is currently trading at 15.9x and 11.8x FY07E and FY08E earnings of Rs14.6 and Rs19.8 respectively. We maintain a BUY on the stock with a long term perspective.

Indiainfoline - STRATEGY INPUTS FOR THE DAY

14K milestone…Fuel is efficiency

Is fuel efficiency really what we need most desperately? I say that what we really need is a car that can be shot when it breaks down.

If there is plenty of fuel at your disposal, chances are, you will ignore the fuel efficiency factor for some time. For today, we see another positive opening, owing to firm global markets . The bulls have been running for quite some now without taking any major breaks. If they've shifted to reverse gear for a day, they are back on top gear the next day overall zooming in one direction, which is north. The closer target for the driver is the 14K mark. Remember, its just a milestone on the way and not a destination. The bulls have managed to do this simply because of the relentless inflows from foreign funds. Cumulative FII investment into the equity market has crossed $50bn since their entry back in early 1990s . This year, FIIs have pumped in close to $8.8bn, with $2bn coming in the month of November. Last year, overseas investors had poured in $10.7bn, with $2bn coming in December. So, if the bulls are to carve out yet another record, foreign funds will have to bring in another $2bn this month.

That may be asking for too much, with the Sensex trading at 18 times one-year forward earnings. Valuations are not cheap, not at least in the large caps. But then, stock market is all about future expectations of earnings growth. From that perspective, India appears to be on a strong wicket. The GDP numbers have been pretty robust, so have been the corporate earnings. No foreign investor of repute can afford to ignore India, given the growth dynamics for the next few years. There may be a few blips here and there. But, on the whole the India story is still too compelling to be overlooked.

The market rise, as long as it happens, would be purely on the back of the strong liquidity factor. Also, equity markets across the world have done well this year as commodity prices have softened and monetary tightening in key markets has not been too harsh. The trend may continue for a while. The only concern is on the weakness of the dollar and the volatile oil prices.

The month of December has been quite positive for the Indian bulls. The Sensex has given negative returns only five times since 1979 in the last month of a calendar year. Another interesting trend has been that the key indices rise in the first half of December, only to give up some of the gains in the second half due to the holiday factor, and anxiety over the upcoming quarterly results in January. The same trend may continue this year as well. The market will advance in the next couple of weeks and will turn a little bit cautious ahead of the Christmas, quarterly results and of course the Union Budget.

Tata Motors should continue to attract attention due to the Singur controversy. One thing to note is that its ADR has gone up sharply in the last couple of days. Adani Enterprise could gain amid reports that Reliance Industries is acquiring Adani Retail, which has a major presence in Gujarat. Nagarjuna Fertilizers is another stock to watch out for, as the Tatas are reportedly eyeing a stake in its subsidiary, Nagarjuna Oil Corp. One should also keep an eye on Maruti as it launches the new Zen today.

US shares closed higher on Monday as a spate of merger and acquisitions offset the weakness surrounding Pfizer. The S&P 500 hit a fresh six-year high, as investors welcomed a fall in oil prices.

The tech-fueled Nasdaq jumped by 35 points or nearly 1.5% to 2,448.39. The Dow Jones rose by 89 points or 0.7% to 12,283.85. It could have been higher were it not for Pfizer. The drop in Pfizer stock cut almost 24 points off of the blue chip index's advance. The S &P 500 gained 12 points or 0.9% to 1,409.12, closing at its highest point since Nov. 7, 2000.

The rally came despite a big drop in Pfizer, one of 30 stocks in the Dow industrials. The No. 1 drugmaker's stock slumped on news that it had abruptly halted development of a key new drug meant to treat heart disease because a study resulted in an unexpected number of deaths.

US light crude oil for January delivery fell 99 cents to settle at $62.44 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 22 cents higher at $62.66 per barrel in extended trading in Asia this morning.

The dollar recovered some after hitting a 20-month low versus the euro last week. The greenback also inched higher versus the yen. Treasury prices crept higher, lowering the yield on the benchmark 10-year note to 4.42% from 4.43% late on Friday. COMEX gold rose 30 cents to settle at $650.90 an ounce.

Among the Indian ADRs, VSNL rose 1.6%, Infy climbed 2.7%, Wipro was up 1.9%, Satyam advanced 1.7%, Tata Motors surged 4.7% and MTNL added 1.2%.

European shares advanced. The German DAX Xetra 30 closed 0.9% higher at 6,295.23. The French CAC 40 rose 0.8% to 5,296.08, while the UK's FTSE 100 advanced 0.5% to 6,050.40 and the pan-European Dow Jones Stoxx 600 climbed 0.7% to 351.59.

Emerging markets too closed higher. The Bovespa in Brazil soared 3.2% to 42,654 while the IPC index in Mexico rose by nearly 1% to 25,207 and the RTS index of Russia climbed 0.6% to 1791.

Asian stocks rose this morning after oil prices slid the most in two weeks. Exports such as Samsung Electronics led the gains. Energy-related shares, including Inpex Holdings declined along with crude prices.

The Morgan Stanley Capital International Asia Pacific Index gained 0.2% to 136.79 at 10:55 a.m. in Tokyo. All markets open for trading in Asia rose. Thailand is shut for a holiday.

Japan's Nikkei 225 Stock Average rose 34 points to 16,337 while the Hang Seng in Hong Kong surged by 231 points to 18,934. The Kospi in Seoul was almost flat at 1429, the Straits Times in Singapore advanced 24 points to 2875 and the Taiex in Taiwan gained 21 points to 7668.

Market Volumes:
The turnover on NSE was up by 7.9% to Rs88.55bn. BSE Capital Good index was the major gainer and gained 2.17%. BSE Consumer Durable index (1.86%), BSE Auto index ( 0.79%) and BSE Metal index (0.61%) were among the major gainers. However, Bank index (0.53%) was among the major losers.

Volume Toppers:
Balrampur Chini, IVRCL Infrastructure, IDBI, Lanco Infrastructure, R Com, ITC, NTPC, Unitech, Tata motors, Arvind Mills, Dhampur Sugar, Indian Hotel, SAIL, Hindalco, Torrent Power and Ashok Leyland.

Delivery Delight:
ABB, AIA Engineering, ACC, Bajaj Hindustan, Balrampur Chini, Bata India, BEML, Dr Reddys Laboratories, Dwarikesh Sugar, Era Constructions, GTC Industries, Larsen & Toubro, Maharashtra Seamless, NTPC, Patni Computer, Punjab National Bank, Reliance Capital, Sterlite Industries, Tata Motors, Tata Power, Tata Tea, Titan Industries, Welspun Gujarat and Uttam Sugar.

Brokers Recommendations:
ICICI Bank – Hold from ASK RJ

Long Term Investment:
L&T

Major News Headlines:

Tata Steel sets up JV with NYK Line for a shipping company
Marico to sell 2.9mn shares to some investors at Rs522
Opto Circuit to buy medical Equipment company in Europe
Pratibha Industries secures Rs245mn contract
Rajesh Exports in equal venture with Fossil INC.
ICSA India Board to consider plan to start unit in Singapore
JSW Steel cuts hot rolled steel prices by Rs500per ton to Rs26,000 a ton
Ganesh Housing signs MoU with Gujarat Govt for development of IT and ITES SEZs
Action Construction to set up subsidiary in Cyprus

How Market Fared

Rally loses steam

The benchmark BSE Sensex rose for fourth straight day led by gains in Auto, Cement and Capital Goods stocks. The bulls seem to get habitual to defy weak global cues. The Capital Good index was the out performer it rose 2.17% against benchmark Sensex which rose 0.21%. The BSE Auto, Metal and Pharma index followed suit. Impressive monthly Auto sales figures and cement dispatch numbers aided benchmark Sensex to hit a lifetime high of 13912.54 and aided NSE Nifty to close above the 4000 mark. Finally, the Sensex closed at 13874, adding 30 points and NSE Nifty closed at 4001 up 3 points.

Tata Motors surged 4.7% to Rs882 after the company's November total vehicle sales was up 43% to 49061 units. The scrip touched an intra-day high of Rs889 and a low of Rs845 and recorded volumes of over 35,00,000 shares on NSE.

Maruti gained 1% to Rs961 after the company's November sales rose 16% to 55033 units. The scrip touched an intra-day high of Rs973 and a low of Rs754 and recorded volumes of over 5,00,000 shares on NSE.

ICSA India jumped 9.1% to Rs960 after the Board of Directors of the company announced that it would consider plans to start unit in Singapore. The scrip touched an intra-day high of Rs967 and a low of Rs894 and has recorded volumes of over 57,000 shares on NSE.

Opto Circuit pared its intra-day gains, the scrip fell by over 1.4% to Rs322. The Company announced that they would buy medical Equipment Company in Europe for Rs720mn. The scrip touched an intra-day high of Rs338 and a low of Rs328 and recorded volumes of over 1,00,000 shares on NSE.

Thomas Cook jumped 3.1% to Rs571 after the company announced that they are acquiring Travel Corporation India in an all cash deal for Rs1.82bn. The scrip touched an intra-day high of Rs613 and a low of Rs557 and recorded volumes of over 29,000 shares on NSE.

Capital Good stocks were in the limelight as they extended their gains. L&T gained 3.1% to Rs1423, BHEL advanced, 2.9% to Rs2590, ABB surged 2.4% to Rs3773 and Siemens added 1.3% to Rs1194.

Metal stocks shined brightly during the trading session day. Sterlite Industries surged by over 5.6% to Rs589, Hindalco was up 1% to Rs173 and Tisco edged higher 0.2% to Rs468.

Sugar stocks recorded smart gains on reports that Indonesia will buy sugar from India by March to ensure supplies to keep a check on prices and control inflation. Bajaj Hind, Balrampur Chini, Sakhti Sugar and Dhampur Sugar were among the major gainers.

FMCG stocks ended with smart gains. The Mid-Cap stocks led from front, McDowell rose 4.5% to Rs847, Tata Tea advanced 3.8% to Rs754, Marico gained 2.4% to Rs544 after the company has planned to sell 2.9mn shares to some investors at Rs522 and cigarette major ITC added 0.8% to Rs189.

Pharma stocks were in momentum. Lupin surged 3.4% to Rs558, Cadila spurred 4.6% to Rs338, Glaxo rose 1.9% to Rs1202 and Ranbaxy was up 0.3% to Rs383.

IL&FS - Gateway Distripaks

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Technicals - Dec 5 2006

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Sensex closed in green marginally up by 29 points at 13874 levels with decent volume of Rs 4808 cr..
A range bond market seen on the 1st session of the week as it traded in range of 13920 and 13830 levels.


Sensex has formed a Bullish candle with higher shadow pattern which indicates a temporary intraday weakness in the trend. It seems to be a profit booking on higher levels as Sensex does not sustain above 13900 levels. Sensex is trading in a channel for the last couple of days and still maintained the importance of the channel. As long as Sensex maintaines the channel the bias seems to be positive and 14000 levels could be witnessed. Failure of this could lead to 13180 or more lower levels.

Daily strategy: - If opens up and hold below 13930 levels then sell for the T1

of 13780 With Sl of 13940 levels.

Support 1) 13830 2) 13780 3) 13720 4) 13660

Resistance 1) 13890 2) 13930 imp 3) 13980 4) 14020

FII: + Rs 349 Cr & MF + Rs 304 Cr

FII Gross purchases Rs 1872 Cr Gross Sellers Rs 1523 Cr Net buyers Rs 349.33 Cr
MF Gross Purchases Rs 666 Cr Gross Sellers Rs 362 Cr Net buyers Rs 304.33 Cr

FIIs were buyers on Friday and the markets had shown strength. Provisional figures are not too positive and that is a cause for concern however market is in momentum and that really be the positive. Markets seem to be set for some pullback but the reason for the same is likely to be only global issues.

Close: Lacklustre day with no clear direction

Lackluster session with selective heavyweights supporting today?s session. With nothing exciting stuff from the global indices. Selective midcaps and small caps too showed some strength with good volume like Tricom, Karuturi, Austin Eng and many more. Stocks across the board traded mixed but Auto and Sugar stocks rallied for the day.

Crude trading high over $63 a barrel which is bit negative for oil refining and marketing companies. As the Govt has also has reduced the fuels prices thinking crude is slipping but OPEC hand and winter hitting the US market has fuelled Crude prices. The Dollar is trading weak against its peers and against Rupee its at Rs 44.61 which would hit the tech sectors and there is an expectation that the earnings in the 2nd half to slow down.

Sensex ended up by 30 points at 13874.33. It is helped up by gains in Tata Motors (879.25,+4 percent), ACC (1172.6,+4 percent), L & T (1422,+3 percent), Rel Energy (556.35,+3 percent) and BHEL (2586.5,+3 percent). Restricting the gains are Satyam (458.25,-2 percent), HDFC Bk (1100.55,-2 percent), Wipro (590.35,-2 percent), HDFC (1624,-1 percent) and ONGC (857.3,-1 percent.

Pharma stocks ended mixed. Ranbaxy has acquired the South African B-Tabs Pharmaceuticals for a total consideration for US$ 70 m. With revenues pegged at US$ 30 m, Be-Tabs is the fifth largest generic company in South Africa. The acquisition will be funded through Ranbaxy's FCCB proceeds. Be-Tabs has a strong presence in the OTC (over the counter) segment and is also the largest manufacturer of 'penicillin' formulations in South Africa, which is expected to complement Ranbaxy's OTC and anti-infectives product portfolio going forward. Besides this, South Africa is the largest pharmaceutical market in the African continent valued at US$ 2 bn. Revenues from South Africa, at present, accounts for around 2% of Ranbaxy's revenues and this acquisition will ramp up the company's operations in the country going forward. Ranbaxy ended marginally in green while Nicholas Piramal (4%) and Dabur Pharma (2%) managed to clse with good gains and Sun Pharma went for profit booking.

The hospitality and travel industry is booming in India. In one such case, tourism and travel major, Thomas Cook India, has acquired 100% stake in Travel Corporation India (TCI) for a total consideration of Rs 180 Cr. This acquisition comes close on heels of Thomas Cook's acquisition of LKP Forex, which was concluded in July this year. Now, with the acquisition of TCI, Thomas Cook has become the largest tour operator in the country in terms of distribution capability (200 service outlets). Considering this India's inbound tourist numbers are expected to shot up in the future considering the country's increasing importance on the global economic and business map.

Technically Speaking: Ranged and yoyo session as sensex witnessed mixed reactions from the Investors. Sensex touched intraday high of 13912 and low of 13828. Market churned a good turnover of Rs 4808 cr. Overall breadth favored Advances. The Resistance level was at 13955 -13914 while Support at 13831 -13788 levels.

Sharekhan Investor's Eye dated December 04, 2006

Welspun Gujarat Stahl Rohren
Cluster: Emerging Star
Recommendation: Book Profit
Current market price: Rs92

Book profit
We had recommended a Buy on Welspun Gujarat Stahl Rohren on April 1, 2004 at a price of Rs31.7 per share and set a revised price target of Rs84. Since then the stock has appreciated by 190% and well surpassed our price target. We recommend investors to book profit in the same.

Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs384

Be-Tabs to be earnings accretive

Key points

• Ranbaxy Laboratories Limited (Ranbaxy) has acquired a 100% stake in Be-Tabs Pharmaceuticals Limited (Be-Tabs) of South Africa, for a total consideration of $70 million (500 million ZAR).
• Be-Tabs is the fifth largest generic company in South Africa. It is the largest manufacturer of penicillin formulations and markets and manufactures a portfolio of ethical and over-the-counter (OTC) solid-oral and liquid formulations in South Africa. Be-Tabs has annual sales of approximately $30 million, with earnings before interest, tax, depreciation and amortisation (EBITDA) margin of about 13%.
• The acquisition of Be-tabs will complement Ranbaxy's existing business in South Africa. Ranbaxy currently derives $20-25 million of revenues from South Africa. The acquisition of Be-tabs will double Ranbaxy's South African business. With a combined turnover of $50-55 million, Ranbaxy will now enjoy a market share of 1.6% in South Africa.
• At $70 million, the deal is valued at 2.2x sales and 7.7x EBIDTA. Even though the deal appears cheap when compared to other acquisitions, the price seems fair when viewed in light of the relatively lower EBIDTA margin and growth rate of Be-Tabs.
• Based on the back-of-the-envelope calculations, we believe that Be-Tabs would add $2.4 million (approximately Rs11 crore) to Ranbaxy's bottom line in CY2007E. Due to Ranbaxy's large equity base, we believe that the impact on the earnings per share would be marginal.
• At the current market price of Rs384, Ranbaxy is quoting at 20.8x its CY2007E estimated earnings, on a fully diluted basis. We maintain our Buy recommendation on Ranbaxy with a price target of Rs558.

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SECTOR UPDATE

Automobiles

The party continues!
Tata Motors has reported better-than-expected sales for November 2006. Its vehicle sales for the month have grown by 43.1% to 49,061 units.

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