Wednesday, December 06, 2006
Wednesday Capita Telefolio Volume No 5, Issue No 24 dated Wednesday, 6th December 2006
The following recommendation is based on price as on Wednesday, 6th December
2006.
BUY: Gujarat Apollo Equipments at Rs 182
Now full details:
BUY : Gujarat Apollo Equipments at Rs 182
BSE Code : 522217
NSE Symbol : Not listed
Market Lot : 1
Sustained growth in investment in roads and highways ensure sustained growth
for this road construction equipment company.
Actual EPS for year ended March 2005 : Rs 7.6
Actual EPS for year ended March 2006 : Rs 15
Projected EPS for year ended March 2007 : Rs 22.3
End of Wednesday Capita Telefolio Volume No 5, Issue No 24 dated Wednesday,
6th December 2006.
Business Today - Who's Next
As blue-chip CEOs like K.V. Kamath, Deepak Parekh, and Shiv Nadar, among others, near retirement, the biggest challenge their companies face is to groom competent successors
On October 24, a week before its joint Managing Director Lalita Gupte retired this year, ICICI Bank put out a matter-of-fact press release announcing some key reshuffles in the top management team. Chanda Kochhar, deputy Managing Director, who led the bank's retail business, was given Gupte's portfolio of international banking; V. Vaidyanathan, a senior General Manager who had built ICICI's retail business alongside Kochhar, was elevated to the level of Executive Director, while Nachiket Mor, another deputy Managing Director, retained his oversight of the rural banking initiative and global principal investments and trading. At ICICI Prudential, the bank's life insurance joint venture led by Shikha Sharma, another senior General Manager, Bhargav Dasgupta, was moved into the Executive Director's position, possibly as part of a plan to free up Sharma for a call of duty at the parent company-when the time comes.
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Baba Kalyani's Invisible Wealth
Mention Baba Kalyani and the first (and in many cases, only) company that comes to mind is Bharat Forge, and for very good reasons, too. It is his flagship, accounts for almost 50 per cent of the group's turnover, and is the second-largest forgings company in the world. But the Kalyani Group also has four other listed companies-Kalyani Steels, Automotive Axles, Hikal and bf Utilities-with a combined turnover of Rs 1,500 crore and combined net profit of over Rs 175 crore. That's not all. The group's nine unlisted companies clock combined sales of Rs 1,796.3 crore and profits of Rs 143 crore (see The New Wealth Creators). Bharat Forge remains the fulcrum of the group's fortunes, but it is the smaller companies that are driving Kalyani's ambitions in the steel, auto ancillary and software and BPO sectors.
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Business Today - A Tall Story
Vijay Devarajan, 28, is worried. For the last several weeks, he has been using his weekly off to scout for a suitable place to buy. He visited Adyar, Thiruvanmiyur and Kottivakkam in Chennai. But, no luck. And, not because there is no supply of houses, but because they are well out of his range. A team leader at the Chennai office of Covansys, an it services company, he got a 15 per cent pay hike last year and wanted to use the equated monthly instalment (EMI) instead of the monthly rent to fund his acquisition of a house. Today, however, he is feeling priced out of the market.
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Business Today - Turning Dust to Gold
When I started out 23 years ago, I did not know anything about capital markets," says Pradeep Jain, 41, Chairman, Parsvnath Developers. Jain can no longer claim the same ignorance. His company raised Rs 1,000 crore from the equity markets in November, getting over-subscribed nearly 62 times. Jain, a devout Sai Baba follower-the caller tune on his mobile is a hymn in the praise of Baba-is more than happy. "I had expected a very good response, but this is phenomenal. The market has given far more than my expectations."
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Business Today - The Bulls in Real Estate
Globally, capital for real estate has never been as plentiful as it has been in the last year or so. Real estate firms are raising record amounts from institutional investors such as pension funds that are seeking higher returns than stocks and bonds. And the party is likely to continue. According to a study by PricewaterhouseCoopers, the fund flow is likely to strengthen in 2007.
But it is not just an India-specific phenomenon. Funds have been flowing into the Asia-Pacific region in the property sector by the planeloads. Some of the factors dictating these fund flows are purely global dynamics-the high realty prices in the US and Europe and correspondingly lower yields. Moreover, as all asset class prices have risen, international property funds over the last few years have found it useful to increase the real estate weightage in their portfolios.
In India specifically, the investment market received quite a fillip in early 2005 when the rules for foreign investment in Indian real estate were partly relaxed. There are significant clamps though that make speculation on land difficult. Foreign funds cannot invest directly in land and neither can they invest in existing properties. But market fundamentals make Indian real estate hot property for many cross-border investors and developers (see It's Raining Funds).
Though the number of actual deals may be fewer, the results have been immediately apparent. Foreign direct investment in the sector increased from 2.7 per cent of the total FDI flowing into the country in 2003-04 to 16 per cent in 2005-06. It is expected to rise to a quarter of the total flows in current year, according to assocham. "There is a lot of money waiting to be invested in the Indian market. Last when I spoke to overseas investors, this amount was pegged at $15 billion," says Ravi Ramu, Director, Puravankara Projects.
These fund flows come at an opportune time for the Indian developers. Rising interest rates coupled with RBI restrictions on funding land acquisition are creating a huge demand for raising funds through equity route (see Turning Dust to Gold on page 168). This is likely to continue. As India's economic growth sustains at over 8 per cent, the growth plans of the Indian developers are also becoming bigger. "Banks are insisting on lower debt-equity ratio while funding projects, and that will also create need for raising capital through the equity route," says Harsh Neotia, Managing Director, Ambuja Realty.
In line with the Asia Pacific trends, most of the funds aimed at Indian real estate are coming from both multinational developers and financial institutions or venture capitalists. Pure play financial investors (largely us and European) are investing as strategic investors in projects or companies via private equity or real estate funds. Consider Morgan Stanley, which invested $68 million in Bangalore-based Mantri Developers and another $65 million in Delhi-based Alpha G:Corp Development. Multinational developers (largely from South East and Central Asia), on the other hand, are finding it convenient to invest through joint ventures or joint development agreements with Indian developers. For instance, there is Singapore Realty, a JV between Singapore-based Lee Kim Tah Enterprises and an Indian partner, BP Ventures. Occasionally there are investors such as Vancouver-based Royal Raj International Corp., which is said to be mulling a massive township in Bangalore at a cost of $8.9 billion, as a wholly-owned subsidiary.
Giving the foreign funds stiff competition are local players. "They can offer heavyweight competition to foreign funds in any number of ways: their experience in getting deals done in cultures that are quite alien to the newly-arrived westerners, their ability to assess and defray risk in their own markets, their political and commercial connections..." says the PwC report. For these reasons, perhaps, foreign investors are much more comfortable sharing risks with Indian partners, according to E&Y's Ganesh Raj. Availability of land, viable pricing, and clarity of land title are some of the key constraints for foreign funds. And these are areas where local funds have an edge. "Partner selection is very important in an emerging market like India, since we like to do projects in multiple locations with the same developer," says Rak Chugh of Trikona Capital
However, this abundance of riches has made deals difficult, especially in prime locations. "Quite often there may be a valuation mismatch, with the present valuations not matching the kind of returns that foreign funds are seeking," says Vivek Mehra, Executive Director, PwC. Although, as ICICI Ventures' Kishore Gotety assures, "The deals that we are able to pursue, we are able to close despite competition. In another two-three years, the market will become more sensible."
Given the attractiveness of the sector, both foreign and domestic investors are looking at project internal rate of returns (IRRs) between 20 and 30 per cent. Are they being ambitious? "Not at all," assures Kurt Roeloffs, Head, RREEF Asia Pacific-the real estate arm of Deutsche Bank. "Escalating land prices do mean that future speculation is more risky. We hope some of the hot money will recognise that and step away from the market. Nevertheless, we think the current prices permit acceptable return on equity for those participants who have good execution skills." Shishir Baijal of Kshitij Investment Advisory Co., which is targeting 30 per cent-plus IRRs, also believes that the returns "look quite achievable at this point".
While money is surely a reason why Indian builders are shaking hands with foreign investors, it is not the only thing. As PwC's Mehra points out, the foreign funds also bring development experience to the table. That may well be one of the most critical assets in the next few years as India gets built up.
Market ends flat amid volatility
The market saw high volatility as stocks gyrated between zones throughout the trading session with the Sensex witnessing an intra-day swing of 187 points. The Sensex began the trading session with a positive gap of 13 points at 13951 and rallied sharply above the 14000 level to touch an intra-day high of 14035. Selling pressure at higher levels saw the index plunge deep into the red and slip below the 13850 mark to a low of 13848. The Sensex managed to erase its losses and closed with gains of 11 points at 13949. The Nifty ended flat at 4016.
The breadth of the market was negative. Of the 2,644 stocks traded on the BSE 1,638 stocks declined, 945 stocks advanced and 61 stocks ended unchanged.
Among the sectoral indices the BSE CD index shed 2.47%, the BSE HC index declined 0.72% and the BSE Auto index was down 0.69%. The BSE FMCG index, the BSE PSU index, the BSE CG index, the BSE Oil & Gas index and the BSE Metal index closed with losses.
Selective buying helped the index overcome its losses. Ranbaxy gained 1.58% at Rs391, BHEL advanced 1.46% at Rs2,621 and Bharti Airtel added 1.25% at Rs647. ICICI Bank, Reliance Communications, ONGC, TCS, Satyam and HDFC Bank notched up steady gains.
Selling was evident in select heavyweights. Reliance Energy dropped 2.34% at Rs540, Cipla declined 1.76% at Rs248, ACC tumbled 1.67% at Rs1145, ITC shed 1.45% at Rs188, Gujarat Ambuja dipped 1.16% at Rs140, Dr Reddy’s was down 1.14% at Rs757 and NTPC shed 1% at Rs148. Rajesh Exports dipped 5.91% at Rs267, Gitanjali dropped 4.08% at Rs221 and Blue Star declined 3.63% at Rs176. Titan Industries, Videocon Industries and Goldiam were down 0.50-2% each.
Over 36.88 lakh Parsvanath shares changed hands on the BSE followed by SAIL (27.39 lakh shares), Adani Enterprises (24.70 lakh shares), Lanco (21.01 lakh shares) and Ispat Industries (19.97 lakh shares).
Value-wise Parsvanath clocked a turnover of Rs192.15 crore on the BSE followed by Reliance Industries (Rs123.74 crore), Century Textiles (Rs87.93 crore), Tata Steel (Rs76.83 crore) and Reliance Communication (Rs60.84 crore).
Sensex ends with marginal gain
Sensex managed to end with marginal gains after witnessing high volatility throughout the day’s trading session.
It rose 11.35 points, at 13,937.65. It had opened firm at 13,951.09, and surged to an all-time high of 14,035.30. Its intra-day low was at 13,847.67. It witnessed high volatility, oscillating 187.63 points between the day’s low and high.
Sensex’ previous all-time high was 14,028.47, touched on Tuesday (5 December).
The S&P CNX Nifty was up marginally by 0.20 points to 4015.95
The total turnover on BSE amounted to Rs 4545.28 crore as compared to Rs 4779 crore on Tuesday (5 December)
The market-breadth was extremely weak on BSE, with close to 1.75 losers for every gainer. For 1,642 shares that declined, only 929 advanced. 57 shares remained unchanged.
Among the 30-Sensex pack, 16 advanced while the rest declined.
Reliance Energy was the top loser, down 2.34% to Rs 540.30, on a volume of 1.31 lakh shares. It witnessed high volatility, and moved in a broad range of Rs 478 – 557.95.
ACC (down 1.51% to Rs 1147), HDFC (down 2.10% to Rs 1570.50) and Cipla (down 1.43% to Rs 249) were other others from Sensex pack.
Index heavyweight Reliance Industries (RIL) slipped 0.23% to Rs 1277.10 on 9.65 lakh shares. As per reports, RIL has bagged 2 onshore oil blocks in Yemen.
Ranbaxy Laboratories was the top gainer, up 1.61% to Rs 391.20, on a volume of 2.70 lakh shares.
ICICI Bank rose 1.23% to Rs 873, after the private sector bank on Tuesday said offices had been opened in Bangkok, Jakarta and Kuala Lumpur, to capitalise on a rise in cross-border deals. With the new offices, ICICI Bank will have a presence in 17 countries.
Bhel rose 1.13% to Rs 2613 while Bharti Airtel advanced 1.13% to Rs 646.
Satyam Computer rose 0.40% to Rs 463, on 6.74 lakh shares, following a 3.4% surge in ADR on Tuesday to $24.42. The stock came off an intra-day high of Rs 469, reached in opening trade.
The Nikkei average rose 0.65% or 105.52 points at 16,371.28 on Wednesday with investors buying Bridgestone Corp. on news it would buy U.S. firm Bandag Inc.
Hang Seng index rose 0.43% or 82.17 points to 19026.36
Oil prices were nearly flat Wednesday ahead of the release of weekly US petroleum inventory data. Light, sweet crude for January delivery rose 9 cents to $62.52 a barrel on the New York Mercantile Exchange.
As per provisional data, FIIs were net buyers to the tune of Rs 302 crore on Tuesday (5 December), the day when the Sensex rose 63 points. The cumulative FII-inflow has reached $8.3 billion in 2006, compared to a record inflow of $10.7 billion in 2005.
US stocks rose on Tuesday as a report showing unexpected strength in the key services sector suggested earnings growth will weather the housing slowdown. The Dow Jones industrial average rose 47.75 points, or 0.39%, to end at 12,331.60. The Standard & Poor's 500 Index was up 5.64 points, or 0.40%, at 1,414.76. The Nasdaq Composite Index was up 3.99 points, or 0.16%, to close at 2,452.38.
Sharekhan Commodities Buzz dated December 06, 2006
Soybean: Back on track
Soybean futures witnessed a major turnaround yesterday after several subdued sessions. The off take in the spot markets was good as the players are still bullish in the medium to long term. The CBOT prices also closed in the green. Processors have been procuring soybean directly from the farmers and choupals in Madhya Pradesh.
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Poweryourtrade.com Trading Calls
Buy Bharti Airtel with stop loss of Rs 610 for target of Rs 730
Buy Reliance Communication with stop loss of Rs 425 for target of Rs 520
Short sell Orchid Chem above Rs 210 with stop loss of Rs 213.50; This is a day-trading recommendation.
Buy REI Agro below Rs 185 with stop loss of Rs 181; Its a day-trading recommendation.
Buy Gateway Distripark with a stop loss below Rs 178 for target of Rs 197
Buy Adlabs Films with a stop loss below Rs 399 for target of Rs 444–449
Buy Unity Infrastructure at Rs 535-528. Stop Loss at Rs 514 (Intra-Day Call)
Buy Gateway Distriparks at Rs 195. Stop Loss at Rs 180 Target of Rs 217 and 255 (Delivery-based Call)
Buy Apollo Hospital at around Rs 450.15 with stop loss of Rs 440. (Intra-day call)
Buy Tech Mahindra at around Rs 1167.25 with stop loss of Rs 1145. (Intra-day call)
Buy Polaris at around Rs 131.35 with stop loss of Rs 128. (Intra-day call)
5 Intra-day Stock Ideas
NIFTY (4015) SUP 3999 RES 4026
BUY VOLTAS (114.70)
SL 110 T 122, 124
BUY KLGSYSTEL (276.20)
SL 271 T 286, 289
BUY SESAGOA (1,287.15)
SL 1,275 T 1,315, 1,320
SELL KTKBANK (128.40)
@ 130 SL 134 T 121, 119
SELL CUMMINSIND (276.10)
@ 279 SL 283 T 271, 269
Indiainfoline - Hindustan Construction Company Ltd.
BUY
CMP: Rs168
Hindustan Construction Company Ltd (HCC) expected to witness a CAGR of 42.2% between FY06 and FY08 backed by a burgeoning order book position, which leaped by 79.7% yoy in FY06 and is presently at Rs91.4bn, 4.6x its FY06 turnover. The average execution period stands at 3.5 years. The order intake at 2.9x its execution in FY06 has been the highest in the last five years, giving an indication of higher growth to come. HCC’s track record and proven capabilities leaves little room for concerns on the execution front. Further, HCC’s strategy of executing fewer contracts (25 odd currently) and focusing on large ticket orders will help timely completion and
leaves resources in hand for further scale up.
We expect the Lavasa project to add significantly to HCC’s valuations post
completion of phase-I, expected by March 2007. We value HCC’s equity holding of 60.5% at Rs24.1 per share (18.9% of CMP), based on the market price of the recent sale of land (Rs4mn per acre), post a 25% discount. As part of its other real estate plans, the company has development plans for its nine acres land (TDR at Rs400mn) in Vikhroli (W), Mumbai and is scouting for land bank to acquire 1,000 acres by March 2007.
HCC is awarded its maiden annuity and toll based projects in roads for Rs2,720mn and Rs280mn respectively, helping it test waters in the BOT format. The company
is prepared to pitch for more BOTs in future. HCC is also planning a foray into the EPC space in the hydropower segment, which commands high margins. It has received intimation for 1,200 MW valued at Rs43.1bn; HCC’s share being Rs19.4bn.
STRATEGY INPUTS FOR THE DAY
Bumble bull, tumble bear!
According to classical aerodynamics, it is impossible for a bumblebee to fly.
Six months ago it was probably impossible for the bulls to recover and get the Sensex back to its previous high. Rewind back and you will realize that the nearly 60% rally in the Sensex has come in less than six months after hitting 8800 in the middle of June. Tuesday's subject line of " 14K, Fuel is efficiency" was taken up over enthusiastically by the bulls who managed to lift the Sensex past the milestone. And yes Reliance fueled the same by starting on top gear. Today, we expect another positive opening, buoyed by firm trend in global markets. Short term investors, don't wait for a correction to lighten your position. Instead, lighten your position and wait for a correction.
The sharp turnaround has been powered by almost non-stop inflow of money from the foreign funds. They have pumped in more than $5bn in the past five months, taking the total for the year to over $8bn. Stronger than expected strength in the Indian economy and robust corporate earnings are keeping the bulls in high spirits. Lower crude oil prices coupled with the halt to aggressive monetary tightening in key economies like the US and Japan have also played its part in fueling the advance. Also, emerging markets across the world have done well. In fact, quite a few of them such as China and Russia have done even better than India. Still, their market P/E is much lower vis-a-vis ours. Valuations is one of the main concerns right now.
Another worry is that though the key benchmarks have surged past new milestones the broader market has not kept pace with them. Even within the indexes, quite a few stocks have delivered negative returns since May 11. One needs to keep this in mind. The market is divided about the road ahead. Some say the bullish trend is here to stay while another school of thought (mostly foreign broking houses) are advocating caution. Who will emerge the winners only time will tell. We feel that as long as the liquidity factor is strong, the key indices will rise. Only a sudden slowdown in FII inflows can stop the bulls in their tracks. One may see some softening in overseas inflows due to the Christmas holidays. The anxiety over the budget may prompt FIIs to remain on the sidelines early next year. Results and the budget are going to be two major triggers for the market movement on either side.
FIIs were net buyers to the tune of Rs3.02bn (provisional) yesterday in the cash segment. In the F&O segment, they pumped in Rs1.67bn. On Monday, they pulled out Rs28.14bn from the cash segment. This includes the outflows towards the Infosys' sponsored ADS issue. Mutual Funds were net buyers of Rs431.5mn on the same day.
US stocks closed higher on Tuesday, with the S&P 500 index a fresh six-year high and the Dow Jones moving closer to a new record close. A surprising strength in the service industry, the biggest part of the US economy, signaled that companies are likely to deliver on their promised growth in earnings.
The S&P 500 added 5.64, or 0.4%, to 1414.76, the highest since November 2000. Coca-Cola paced a gain in the Dow Jones Industrial Average after Merrill Lynch raised its earnings forecast. The Dow increased 47.75, or 0.4%, to 12,331.60. The Nasdaq added 3.99, or 0.2%, to 2452.38, aided by advances in Applied Materials and other semiconductor-equipment makers after an industry group forecast higher sales.
The Institute for Supply Management's index of non- manufacturing businesses, which account for almost 90% of the US economy, climbed to 58.9 last month from 57.1 in October. A reading above 50 indicates expansion. The index was expected to decline to 55.5, according to average forecast by economists.
A separate government report showed that labor costs rose less than forecast, giving the Federal Reserve more elbow room to cut interest rates as the world's largest economy slows. Unit labor costs in a separate report on worker productivity rose 2.3% in the third quarter, down from the initial estimate of 3.8%. Costs were also lower compared to the projection of a gain of 3.2%.
US light crude oil prices for January delivery fell a penny to settle at $62.43 a barrel on the New York Mercantile Exchange in a volatile session. Prices rose in early trading then tumbled before midday, only to rebound in the afternoon. The front-month contract was quoting 3 cents higher at $62.46 per barrel in extended trading in Asia this morning.
Treasury prices slipped, raising the yield on the benchmark 10-year note to 4.44% from 4.42% late on Monday. In currency trading, the dollar gained versus the euro and trimmed losses versus the yen. COMEX gold fell $3 to settle at $647.90 an ounce.
Among the Indian ADRs, Patni was down 2.2%, VSNL gained 1.1%, Infy added 1.3%, Wipro advanced 1.6%, Satyam climbed 3.5%, Tata Motors added 0.8%, Dr. Reddy's lost marginally, HDFC Bank gained 0.4%, ICICI Bank was almost unchanged and MTNL jumped 1.5%.
European shares ended with gains. The UK-based FTSE 100 ended up 0.6% at 6,086.40. The French CAC-40 finished 1.2% higher at 5,359.69 and Germany's DAX Xetra 30 to end 1.2% higher at 6,372.80. The pan-European Dow Jones Stoxx 600 index ended the day up 0.7% at 354.13.
Emerging markets too closed sharply higher. The Bovespa in Brazil was up 1.2% at 43,157 while the IPC index in Mexico climbed 1.5% to 25,593 and the RTS index in Russia was up 1.7% at 1821. Markets were also up in Chile and Peru.
Asian stocks rose to a more than six-month high on Wednesday, led by BHP Billiton and Jiangxi Copper, after copper, nickel and aluminum climbed.
The Morgan Stanley Capital International Asia-Pacific Index gained 0.6 percent to 137.53 at 11:15 a.m. in Tokyo, set for the highest since May 15. Stock indexes also rose in Hong Kong, Taiwan, Australia, China and Malaysia. They fell elsewhere.
Japan's Nikkei 225 Stock Average added 44 points to 16,309 while the Hang Seng in Hong Kong advanced 120 points to 19,064. The Straits Times in Singapore lost 4 points to 2897.
The Kospi in Seoul was down 11 points to 1408. Samsung Electronics and Hyundai Heavy Industries led the decline on concern that the won's climb to a nine-year high against the dollar will lower the value of exporters' overseas sales.
Major Bulk Deals:
Citigroup has picked up Asian Electronics; Birla Sunlife MF has picked up Bharat Bijli from Kotak; Blackstone Asia and Morgan Stanley have purchased Eastern Silk; Federal Bank has bought Lakshmi Vilas Bank; HSBC Financial has picked up Lok Housing.
Insider Trades:
Century Textiles & Industries Ltd: a) Reliance Vision Fund - Scheme of Reliance Mutual Fund, (b) Reliance Tax Saver Fund (ELSS) - Scheme of Reliance Mutual Fund has sold in open market 234000 equity shares of Century Textiles & Industries Ltd on 28th November, 2006.
Elecon Engineering Co Ltd: HDFC Mutual Fund - HDFC Prudence Fund has purchased from open market 100000 equity shares of HDFC Asset Management Company Limited on 4th December, 2006.
Market Volumes:
The turnover on NSE was down by 0.6% to Rs87.99bn.BSE Metal index was the major gainer and gained 2.01%. BSE Technology index (1.09%), BSE Oil & Gas index (1.02%), BSE Capital Good index (0.80%) and BSE FMCG index (up 0.26%) were among the other major gainers. However, BSE Bank index lost 0.87%.
Volume Toppers:
Parsvnath Developers, Balrampur Chini, ITC, R Com, SAIL, Voltas, Tata Steel, Indiabulls, Reliance Industries, GTL Infrastructure, Hindustan Construction, Essar Oil, Action Construction, Satyam Computer, GMR Infrastructure and Hindalco.
Delivery Delight:
Ashok Leyland, Bharti Airtel, Century Textiles, Colgate, Federal Bank, Gateway Distriparks, GNFC, HCL Technologies, HCC, I-Flex Solutions, IOC, ITC, Jet Airways, L&T, MTNL, Maharashtra Seamless, Mysore Cements, Polaris Software, Reliance Communications, Reliance Industries, SAIL and VSNL
Upper Circuit Filters:
Ansal Infrastructures, Ambalal Sarabhai, Flex Industries, LMW, Orient Paper, NRC, Sical Logistics, Nirlon Ltd, Lyka Labs and UB Engineering.
Brokers Recommendations:
Voltamp Transformers - Buy from Batlivala & Karani
Reliance Industries – Outperform from CLSA
Long Term Investment:
BHEL
Major News Headlines:
L&T and Tata Power seek special status to bid for defence contracts
RIL wins 2 exploration blocks in Yemen: Reports
Greenply signs Carbon Emission Purchase agreement with private fund
ICICI Bank opens offices in Thailand, Indonesia & Malaysia
Gujarat Ambuja Cement’s Nov shipment up 9% yoy at 1.31mn tons
MSK Projects wins orders worth Rs212mn
Eicher Motors CV sales rose 38% to 2,201 units
Era Construction bags Rs3bn order from NHAI
How Market Fared
RIL, Infy keep Sensex afloat
The markets maintained its upward trend for fifth trading session as bulls’ anchored benchmark Sensex to close at a new peak of 13937.65. Bulls again had an upper hand over the bears as global cues played a major role. Blue chips like Reliance Industries, L&T, Tisco, Infosys and Bharti Airtel led from the front aiding NSE Nifty to close above the 4000 mark. Metal stocks were the star performers followed by Technology and Oil & gas stocks. However Banking stocks were on the receiving end, losing 0.87%. Finally, the BSE benchmark Sensex closed at lifetime high of 13937, adding 63 points. NSE Nifty also closed at an all time high of 4015, adding 14 points.
Tisco surged 5.2% to Rs493; the scrip was the top gainer among the 50-scrips of NSE Nifty as the company entered into a JV agreement with Nippon Yasen Kabushiki Kaisha for setting up a shipping company to cater to dry bulk and break bulk cargo. The scrip touched an intra-day high of Rs495 and a low of Rs471 and recorded volumes of over 39,00,000 shares on NSE.
Action Construction spurred 2% to Rs393 after the company announced that they would set up subsidiary in Cyprus. The scrip touched an intra-day high of Rs407 and a low of Rs389 and recorded volumes of over 27,00,000 shares on NSE.
Subex Azure climbed 3.7% to Rs640 after the company announced that they would consider 'sponsored sale' of overseas shares. The scrip touched an intra-day high of Rs650 and a low of Rs617 and recorded volumes of over 60,000 shares on NSE.
Metal stocks were in the limelight. Tisco surged 5.5% to Rs494, SAIL gained 1.9% to Rs87, Hindalco was up 1.7% to Rs176 and JSW Steel added 1.4% to Rs335.
Capital Good stocks extended their gains. Index heavy weight, L&T further gained 1.5% to Rs1444, Punj Lloyd edged higher 0.2% to Rs1089 and Gammon risen 2.5% to Rs482.
Technology stocks were back in action after falling on back of profit booking in the previous trading sessions. Mid-Cap stocks led the way Polaris, i-Flex and Mastek were among the major gainers. While among the heavy weights Infosys advanced 1.5% to Rs2239, Wipro edged higher 0.4% to Rs563 and Satyam Computer added 0.8% to Rs451.
Auto stocks were in reverse gear as selling pressure dragged them down. Bajaj Auto slipped 1.2% to Rs2719, Four-wheeler major Maruti lost 1.2% to Rs949 and TVS Motors dropped over 1.4% to Rs97.
Profit booking also dragged the Pharma stocks down. Cadila slipped 1.8% to Rs327, Sun Pharma lost 1.7% to Rs1016 and Cipla declined 0.9% to Rs252.
NEWS ROUND UP
SEBI has reportedly asked HeidelbergCement AG to increase its offer for buying an additional 20% stake in Mysore Cements Ltd. by 25% to Rs 72.50 per share. According to reports the capital market regulator wants HeidelbergCement to raise the open offer because the German company paid non-compete fees to the promoters of Mysore Cements, effectively raising the offer price.
Hutchison Essar Ltd., the joint venture between the Essar Group and Hutchison Telecommunications International Ltd has added a record one million subscribers in November. The New Delhi-based company's number of users rose to 23.3mn last month. The company gained users as call rates for cellular phones fell by between 5% and 7% in the past year.
Reliance Retail, the wholly-owned subsidiary of Reliance Industries Ltd., has reportedly acquired Gujarat-based Adani Retail for about Rs1-1.1bn. According to a financial daily, the Mukesh Ambani-controlled company will access to 54 retail locations across nine cities in Gujarat through the acquisition.
The Tata Group is reportedly close to acquiring a 26% stake in the Nagarjuna Group's upcoming oil refinery project at Cuddalore in Tamil Nadu for about Rs40bn. The 6-mn-tones-a-year refinery is estimated to cost Rs4bn. Of this, the equity portion is Rs15bn.
Fortis Healthcare Ltd. will be raising up to US$33.33mn by issuing equity shares to Quantum (M) Ltd. and Blue Ridge Ltd. Partnership and Blue Ridge Offshore Master Ltd. Partnership (Blue Ridge) in a pre-Initial Public Offer (IPO) placement. A maximum of 5.96mn shares will be issued to each of the two investors at a price equal to the IPO price.
The Government may allow foreign investors to own a larger stake in cargo airlines to help ensure optimum freight capacity. Overseas investors may be able to own as much as 74% of Indian cargo airlines compared with 49% now, Praful Patel, the Union Civil Aviation Minister has said.
Maruti Udyog Ltd. (MUL) on Tuesday announced the launch of an all-new Zen Estilo to keep rivals at bay in the highly competitive B segment. Zen Estilo is roomier than the original Zen, comes with a bigger engine (1061 cc). The cheapest version of the car will have a showroom price of Rs 319,403 in New Delhi.
Power Finance Corp. (PFC) hopes to come out with an Initial Public Offering (IPO) of equity shares by the end of March 2007. Cabinet approval has been obtained and as soon as SEBI gives permission the company will come up with an IPO, hopefully by end of this fiscal year," he said. The book value of the shares will be Rs 62 and the premium will be decided by the market.Firmness may persist
Market may remain steady to firm today following overnight gain in US stocks. But profit taking may cap upside with Sensex having risen sharply over the past one month. From 12,623.28 on 23 October, the barometer index has risen 10.4%.
The market sentiment remains firm due to strong FII inflow, continued strong economic growth data and healthy corporate earnings. In the near term, the downside on the bourses will be capped by Q3 results expectations. Market men expect Q3 December 2006 to be another strong quarter in terms of earnings growth. After Q3 results season, budget expectations may keep market firm till end of February 2007.
As per provisional data, FIIs were net buyers to the tune of Rs 302 crore on Tuesday 5 December, the day when Sensex had risen 63 points. The cumulative FII inflow has reached $8.3 billion in 2006 compared to a record inflow of $10.7 billion in 2005.
Asian markets were mixed on Wednesday. Key benchmark indices in Hong Kong, Japan and Taiwan were up by between 0.2% to 0.8%. Key benchmark indices in Singapore and South Korea were down by between 0.3% to 0.9%.
US stocks rose on Tuesday as a report showing unexpected strength in the key services sector suggested earnings growth would weather the housing slowdown. The Dow Jones industrial average rose 47.75 points, or 0.39 percent, to end at 12,331.60. The Standard & Poor's 500 Index was up 5.64 points, or 0.40 percent, at 1,414.76. The Nasdaq Composite Index was up 3.99 points, or 0.16 percent, to close at 2,452.38.
Oil prices stalled around $62.50 on Wednesday as caution set in ahead of the release of US inventory data, which is seen as likely to show a fall in heating fuel stocks. US crude was trading 18 cents higher at $62.61 a barrel.
Tech View: Dec 6 2006
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Sensex closed in green ( as compared with yesterdays close ) up by 63 points at 13937 levels with decent volume of Rs 4748 cr.
Sensex has formed a Empty ( Bearish ) candle which indicates weakness in the trend. It seems to be a profit booking on higher levels on 2nd day of the session as Sensex opened with hudge upside gap and closed up only by 63 points by forming a Empty candle. To nuliffy the importance of candle this candle Sensex must hold above 13990 levels. If it does then 14180 level could be seen or else correction could be witness to 13760 level.
Daily strategy : - If opens up and hold below 14030 levels then sell for the T1 of 13820 for the second half.
With Sl of 13940 levels.
Support 1) 13830 2) 13780 3) 13720 4) 13660
Resistance 1) 13990 2) 14040 imp 3) 14180 4) 14260
Close: 14k breached?whats next !
Market started firm with a positive gap of 120 points. Sensex not only touched 14K mark but it is also the first time that the market was able to achieve 5 milestones in a year. Though market traded in the positive zone through out the day but some alternative bouts of profit booking was witnessed which shows the nervousness in the minds of the investors. Steel stocks traded firm while the news from the Buying was witnessed in index heavyweights across different sectors mostly in steel, software and petrochemicals while stocks from cement, FMCG and Telecom witnessed selling pressure. European markets are trading positive while asian markets ended mixed.
Crude was at US $ 62 down by $1.This happened despite the news that the oil supply is going to be further reduce the oil production by 5,00,000 to 10,00,000 bpd. Rupee was trading at Rs 44.57 a Dollar and it is further expected to go down.
Sensex ended 63 points up at 13937. It is helped up by gains in TISCO (492.9,+5 percent), RCVL (458.05,+3 percent), L & T (1462.25,+3 percent), RIL (1280,+2 percent) and Infosys (2239.05,+2 percent). Restricting the gains are Guj Ambuja (141.65,-2 percent), HDFC Bk (1083.65,-2 percent), HDFC (1604.1,-1 percent), Maruti (949.3,-1 percent) and Grasim (2753.3999,-1 percent).
Reliance industries is going to acquire Adani Retail, a retail major in Gujarat which has a top line of 200 Crores. Adani Retail has 54 stores across the state of all formats like neighborhood stores, supermarkets, Hypermarkets. The company is planning to expand and have another 65 stores by the year end. The valuations and the price is not disclosed. This will help reliance retail a lot as it will have access to ready made infrastructure and real estate to begin its operations in Gujarat. The stock ended the day up by 1.6%.
TATA's are planning to enter the refining Business. The group is close to buying around 25% of 1500 Crore equity base for Rs 400 Crores. The deal will be helpful for Nagarjuna Oil Corporation which is a subsidiary of Nagarjuna Fertilizers and Chemicals (NFCL) which holds 51% in the venture. The project was expected to start in 2002 but was not started due to the problems in the raising of funds. The group is also in talks with the Russian and Middle East companies for the funding of the remaining part of the Project.
Technically Speaking: Sensex touched intraday high of 14028 and low of13905. Market churned a good turnover of Rs 4748 cr. Overall breadth favored Advances. The Resistance level was at 14005-14078 while Support at 13882-13832 levels.
IPO - Cairn India
Packs solid energy
Cairn is an independent oil and gas exploration and production company. Listed on the London Stock Exchange since 1988, with the company’s head office in Edinburgh. Its core area of focus is South Asia: it holds material exploration and production rights in India, Bangladesh and Nepal.
Cairn India (CIL) was incorporated on 21 August 2006 to consolidate Cairn’s business and interests in India. CIL is acquiring its assets and business through acquisition of Cairn’s subsidiaries: Cairn Energy Australia Pvt Ltd (CEA), Cairn Energy hydrocarbons (CEH) and Cairn Energy India Holdings B.V.(CEIH).
In the first six months to June 2006, CIL’s gross production from existing oil assets Ravva, Lakshmi and Gauri was 87,500 barrels of oil equivalent per day (boepd). Of this, CIL had a working interest in 24,000 boepd. (22.5% working interest in Ravva field in Andhra Pradesh and 40% in Lakshmi and Gauri fields in Gujarat).
Out of the proceeds from the IPO, Rs 5525 crore will be utilised to develop the Rajasthan block and for additional drilling in Ravva and Cambay (Gujarat) blocks, Rs 691 crore for exploration and appraisal activities including funding minimum work program for capital commitments and expenditure towards any additional blocks to be awarded in NELP 6 round (2), Rs 460 crore for corporate purpose and contingencies, and the rest to be paid to Cairn UK as consideration for acquisition of its business in India.
In developing the Rajasthan field, CIL will have 70% working interest, and the rest with ONGC. In January 2004, the Mangala oil field discovery in Rajasthan by CIL was the largest oil discovery by any company in India since 1985. Mangala is the core of CIL’s future development. The other fields in Rajasthan include Aishwariya, Saraswati and Raageshwari. Cairn Plc has invested $500 million in Rajasthan.
CIL is positive of commencing production in the Mangala field in 2009. But it will take some years for it to reach the plateau rate of 1,50,000 bpd.
Strengths
- The existing cost of producing oil from Ravva field is lower than US$1 per barrel of oil. CIL is continuously producing 50,000 barrels of oil per day (bopd) on an approximate basis at this cost since 2002.
- The cost of producing oil from the Mangala field of Rajasthan will be around US $ 3.5- $ 4 (bopd). The company has targeted 1,50,000 bpd from the Mangala field at plateau rate.
- The total gross proved plus probable (2P) reserves attributable to the fields in production and under development in which CIL has interest is 754 million barrels of oil equivalent (mmboe). Its networking interest in these reserves is estimated at 472 mmboe. Most of these 2P reserves are estimated to be in the Rajasthan Block and remains to be tapped.
Negatives
- The Ravva field was expected to come off its plateau rate of 50,000 bopd in late 2007. So the production of crude will come down from its existing plateau rate. Future production to reach its plateau rate will depend upon new discoveries in the Ravva field, which the company has initiated.
- The necessary pipeline infrastructure from the Mangala field needs to be developed in time for the commencement of crude oil production in 2009. MRPL is the nominee appointed by the government of India. CIL is not satisfied with the progress of the pipeline made by MRPL. Hence, the company is considering other options like negotiating with private players and even entering such mid-stream activities. This will increase the cost to the company. Moreover, its UK parent does not have experience in mid-stream activities so far. Any delay in setting up pipeline will affect production from the Mangala field.
Valuation
The offer price band is Rs 160-Rs 190. Based on the consolidated financials of CEA, CEH and CEIH for the year ended December 2005, profit after tax (PAT) stands at Rs 92 crore, including one-time income of Rs 230 crore. Also the financials for the six months ended June 2006 are not exciting as they include a write-off of the unsuccessful exploration cost of Rs 236.73 crore on 15 wells digged in Rajasthan block prior to the successful discovery of the Mangala oil field.
Based on existing financials, there is no significant EPS. However, companies like CIL are valued based on projected earning and cash flow from the discovered reserves. Hence, the current PE ratio is irrelevant. However, it is not possible to do such valuation based on data and information available in the prospectus, nor does the company share the underlying data and assumptions behind the working of the offer price.
Parent Cairn has been allotted post-IPO stake of 20.11% at the issue price, or Rs 186, whichever is higher. However, this money will be essentially paid back to Cairn as compensation for acquisition of its subsidiaries. More relevant is the pre-IPO private placement of post-IPO stake of 11.55% at Rs 176.48 with Petronas, Malaysia, as the lead investor.
Only long-term investors should consider the issue. Fluctuations in oil prices and news flow on the progress of the Rajasthan project and other discoveries and winnings of new exploratory blocks will drive the share price post-listing. Earning will matter only after 2009.
IPO - Tanla Solutions
Tunes well
Uday Kumar and Tanuja Reddy took control of Prism Foods (dubbed vanishing company under the original promoters) in 2000 and renamed it Tanla Solutions. The company commenced commercial production of telecom signaling solutions in 2000. It specialises in providing SS7 (Signaling System 7) messaging infrastructure software products including short messaging service centres (SMSCs), high density media servers (HDMSs), optimal routing solutions, welcome roamers, voice mail servers and caller ring back tone servers. It also offers messaging applications and billing services (aggregator services) and offshore services including software development, infrastructure management services and technical support services. Tanla Solutions provides telecom-signaling products to operators of mobile communications networks and aggregator services to content providers in connecting mobile operators.
The head office and delivery centres of Tanla Solutions are in Hyderabad, India. Its UK offices lead international marketing. The company’s subsidiary Tanla Solutions (UK) has a wholly owned subsidiary Tanla Mobile (previously known as Mobizar ) which provides aggregator services to all the major mobile network operators in the UK.
Strengths
- More than 50% of the revenue of Tanla Solutions come from the aggregator segment. As per Strategy Analytics (an international Research and consultancy firm), the non-voice market segment including SMS, EMS, MMS, e-mail, information, entertainment and corporate content is slated to grow from US$ 61 billion in 2004 to US$ 189 billion in 2009. According to Frost & Sullivan, US, the number of subscribers participating in short-code SMS services is likely to increase from nine million in 2003 to 35.9 million in 2007. According to Mobile Messaging, 2005 Edition (brought out by Informa Telecoms and Media), the global SMS market will account for $70 billion in revenue out of the total messaging market of $120 billion by 2010. Highlighting the importance of mobile messaging, IDC (International Data Corporation) estimates this segment of the market, which includes a variety of services such as SMS and MMS, will be worth more than $15.4 billion in revenue in Western Europe by 2010.
- In the UK, Tanla Solutions caters to telecom operators like Vodafone, O2 and Hutchison with a global presence. This will benefit the company to expand geographically.
- Tanla Solutions has a high operating profit margin (OPM) and net margin. The company reported an OPM of 55.7% and net margin of 48% in FY 2006, and OPM of 51.3% and net margin of 41% in the first half of FY 2007.
- On a standalone basis, Tanla Solutions has been able to report a quarter-on-quarter (q-o-q) revenue, profit before interest, depreciation and tax (PBIDT) and net profit growth consecutively for the past eight, seven and three quarters, respectively. In the September 2006 quarter, sales and net profit were up 10% and 20% over the June 2006 quarter, and 97% and 81% over the September 2005 quarter. On a consolidated basis, the September 2006 quarter showed around 19% sales and 22% net profit growth over the June 2006 quarter.
Weaknesses
- Top 5 clients contributed about 49% of the consolidated revenue in the first half of FY 2007. There is a risk of weak performance (especially on a q-o-q basis) if any major client’s business slows down. However, this is common for all small and niche companies. But one should bear this in mind, specially in an IT industry, where q-o-q growth is more important than y-o-y growth.
- The industry in which Tanla Solutions operates is highly competitive and fragmented, specially in the aggregator segment. The company estimates there are about 10-12 players in the UK, and its market share is about 2%, with the largest player controlling about 17% of the market. Tanla Solutions faces competition in telecom products and products business from several participants in the global markets in which it operates.
Valuation
Tanla Solutions’s shares are listed on the Hyderabad, Madras and Ahmedabad stock exchanges but are infrequently traded. The half yearly-annualised EPS for the six months ended September 2006 on post-issue equity works out to Rs 14.3. At the price band of Rs 230 – Rs 265, PE is 16.1 to 18.6. Though there are no strictly comparable listed companies, TTM PE of the Computer Software Medium/Small Industry is 24.
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