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Monday, January 08, 2007

Motilal Oswal - India Strategy

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Emkay - Global Vectra Helicorp

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Bharti Airtel: Sharekhan Stock Idea dated January 08, 2007

Bharti Airtel
Cluster: Apple Green
Recommendation: Buy
Price target: Rs780
Current market price: Rs625

Ringing loud and clear

Key points

  • Leading explosive growth in wireless telephony: Bharti Airtel Ltd (BAL) has been in the forefront of the wireless telecom revolution and led the growth in this segment. Its total subscriber base has grown at a CAGR of 74.5% over FY2004-06, helping it further consolidate its leadership position in the segment. BAL is expected to continue with the growth momentum and show a 45.7% growth in its mobile subscriber base during FY2006-09E.
  • Most cost efficient player: BAL has managed to constantly improve its overall profitability through innovative and pioneering initiatives like the outsourcing of non-core activities (eg network expansion and management, billing and customer call centre), the introduction of high-margin low-denomination coupons and the cost saving electronic re-charging system for the pre-paid customers. Consequently, it has been able to continuously improve its overall profitability despite the competition-led pricing pressures.
  • Non-voice value-added services: Given its focus on value-added services and other non-voice revenue generating opportunities, the company has been able to report a healthy average revenue of around Rs1 per minute of usage, much higher than that of most of its peers. The contribution of the non-voice revenues has grown to 10.5% of the total mobile revenues in H1FY2007 and is expected to reach 13.5-14% by FY2009.
  • Attractive valuation: The consolidated revenues and earnings of BAL are estimated to grow at a CAGR of 35.1% and 45.7% respectively over FY2006-09. At the current market price the scrip trades at 21.6x FY2008E earnings and 17x FY2009E earnings. We recommend buying BAL with a one-year price target of Rs780 (24x rolling four quarters forward estimated earnings).
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Sensex sheds 208 points

The market witnessed a major correction on strong global bearish sentiments and a rise in the crude oil prices. The Sensex shed over 200 points in early trades and plunged sharply to touch the day's low of 13600. The weakness in information technology counters continued through the day and the Sensex ended the session at 13652, down 1.50%. The Nifty declined by 1.26% to close at 3933.

However the breadth of the market was positive. Of the 2,724 stocks traded on the BSE, 1,741 stocks advanced, 934 stocks declined and 49 stocks ended unchanged. Barring the BSE CD index the rest of the sectoral indices closed in negative territory. The BSE IT index shed 2.60% followed by the BSE Teck index (down 2.29%), the BSE Metal index (down 1.84%) and the BSE FMCG index (down 1.37%).

Among the major losers Maruti Udyog tumbled 4.09% at Rs897, Wipro declined 3.20% at Rs580, Infosys shed 3.03% at Rs2,206, Satyam Computers fell 3.01% at Rs486 and Reliance Communication slipped 2.64% at Rs435. Bajaj Auto, ACC, SBI, HDFC Bank, Bharti Airtel and Cipla were down around 2% each. Among the non-Sensex stocks Balaji Telefilms declined 4.09% at Rs133, Mphasis BFL dipped 3.80% at Rs290 and Jet Airways shed 3.67% at Rs615. However, ONGC advanced 1.66% at Rs911, Ranbaxy rose 1.33% at Rs419 and Dr Reddy’s was marginally up at Rs811.

Over 1.40 crore IFCI stocks changed hands on the BSE followed by Pentium (1.28 crore shares), Pyramid (81.53 lakh shares), Vishal Export (75.23 lakh shares) and JCT (47.45 lakh shares).

Value-wise Infosys registered a turnover of Rs148.02 crore on the BSE followed by Reliance Industries (Rs95.08 crore), ONGC (Rs53.79 crore), Reliance Communication (Rs51 crore) and TCS (Rs36.16 crore).

IT, telecom, auto shares pull Sensex down

Cautiousness ahead of the onset of the Q3 earnings season, weak Asian markets and fall in Indian ADRs on Friday pulled the market lower today. IT, telecom and auto shares led the fall. However select side-counters surged, and the market breadth remained quite strong.

The 30-share BSE Sensex lost 208.37 points or 1.5% to settle at 13,652.15. The barometer index came off the lower level after having lost as many as 260.65 points, to hit 13,599.87, at 12:01 IST. The S&P CNX Nifty shed 50 points or 1.2% to settle at 3,933.40.

Asian shares dropped on Monday, led lower by resources and financial stocks. Key benchmark indices in Hong Kong, South Korea, Singapore and Taiwan were down by between 0.9% to 1.2%. Tokyo's market was closed for a public holiday. There is widespread anticipation that the Bank of Japan will hike interest rates as early as next week.

US stocks closed lower on Friday (5 January) as a stronger-than-expected US job growth in December cast doubts on hopes for an early US interest rate cut. The Dow Jones industrial average fell 82.68 points, or 0.66%, to 12,398.01. The Standard & Poor's 500 Index was down 8.63 points, or 0.6%, at 1,409.71. The Nasdaq Composite Index ended down 19.18 points, or 0.78%, at 2,434.25.

The market-breadth showed strength. For 1,731 shares rising on BSE, 929 declined. Just 45 shares were unchanged. Gainers outpaced losers by a ratio of 1.86:1.

Select side-counters surged. Datamatics Tech (up 20% to Rs 64.80), HFCL Infotel (up 20% to Rs 22.50), KIC Metaliks (up 20% to Rs 62.40), Syngenta India (up 20% to Rs 398.25), JCT (up 15% to Rs 11.53), Elnet Tech (up 13% to Rs 141.30), Kinetic Motor (up 11.9% to Rs 44), TV Today Network (up 11.7% to Rs 93.60), Aksh Optifibre (up 11% to Rs 56), Ginni Filaments (up 10.8% to Rs 23.60), Mukta Arts (up 10% to Rs 57.50), and Zandu Pharma (up 10% to Rs 5905.30) advanced.

BSE Small-Cap index rose 59.09 points or 0.8% to settle at 7,250.64. BSE Mid-Cap index shed 24.66 points or 0.4% to 5,912.01. The much-awaited rally in small-cap and mid-cap shares has materiliased since late December 2006. Small-cap and mid-cap shares had underperformed the market after a sharp setback on the bourses in May-June 2006.

The BSE clocked Rs 3716 crore in turnover, compared to Friday’s Rs 4545 crore.

IT shares drifted lower on profit taking. Infosys shed 3% to Rs 2205. A block deal of 1.2 lakh shares was executed in the counter at Rs 2,215 per share. Infosys' BPO, the back-office unit, Monday announced a tie-up for offering hospitality industry outsourcing solutions. Infosys' BPO and New York-based HVS International, will jointly offer ways to improve productivity and optimise costs for global hospitality firms, the company said in a statement.

Satyam Computer shed 3% to Rs 486, while Wipro lost 2.8% to Rs 582. Satyam and Wipro are tracking a fall of 3% and 2.8%, respectively, in their ADRs.

Infosys flags off the earnings season on 11 Jan 2006. According to Citigroup’s Q3 IT sector preview, volume growth will remain strong for the IT sector in Q3, but an appreciation of the rupee against the US dollar will impact operating margins by 90 basis points. Citigroup expects a marginal uptick in pricing of the last few quarters to continue and opines that more clarity on price increases will be a key to the stocks' performance.

Another foreign brokerage Merrill Lynch expects another strong quarter for IT firms with a year on year 45% growth in combined net profit and 41% growth in combined revenue of the integrated IT services and BPO companies. `Despite almost 100 basis points margin erosion due to the rupee appreciation, we expect about 40 basis points EBITDA (earnings before interest, taxation, depreciation and amortisation) margin expansion for the sector overall, driven by scale economies, greater offshore mix, slight increase in pricing and absorption of wage hikes in previous quarter due the broadening of the employee mix’, it has stated in the Q3 earnings preview. `We see only limited upside to FY 2007 guidance given the rupee appreciation’, the report says.

A recovery in oil prices lifted ONGC. The stock gained 2.5% to Rs 919 and it was the top gainer from 30 Sensex stocks. US light crude rose 1 percent to $56.90 a barrel on Monday, stemming losses of up to 10 percent last week, as some OPEC members raised the prospect of deeper supply cuts by suggesting the group could meet as soon as next month. Oil prices were also lifted by supportive US jobs data, which eased fears of a sharp economic slowdown in the world's top consumer. The US Labour Dept. said a better than expected 1,67,000 jobs were created last month.

Auto shares drifted lower. Car major Maruti Udyog plunged 4% to Rs 896. The stock has lost 8% in the past three trading sessions from a recent high of Rs 974.55 on 3 January 2007. Bajaj Auto shed 2.6% to Rs 2709. Tata Motors shed 1% to Rs 923 in volatile trade. Tata Motors' ADR lost 3.4% on Friday to $20.86.

Cement maker ACC lost 3% to Rs 1022. A block deal of 2.06 lakh shares was struck in the counter on BSE at Rs 1036 per share.

Reliance Communications (down 2.8% to Rs 434.40) extended Friday’s 3.7% fall. Britain's Vodafone is to begin due diligence on Monday on Indian mobile phone firm Hutchison Essar, the Financial Times reported. The access to the books has been denied to Vodafone's Indian competitors, who are also bidding for the mobile teleservices operator. Bharti Airtel shed 2.2% to Rs 622.

Hindalco shed 2.4% to Rs 167 and Sterlite Industries dropped 2.4% to Rs 530. Metal prices remained under pressure on Monday, with copper extending last week’s fall as inventories continued to show signs of rising

State Bank of India lost nearly 3% to Rs 1210. State Bank of India said on Saturday that interest rates on domestic term deposits of Rs 15 lakh and above but less than Rs 1 crore, will be 8.25% across all maturities of 1 year and more. This rate will be on offer for a limited period, from Jan. 8 to March 31, the bank informed. At present, the deposit rates for amounts of Rs 15 lakh to less than Rs 1 crore, range between 7.75% for 1 - 3 years and 8.25% for 5 - 10 years.

ICICI Bank ended flat at Rs 910. ICICI Bank’s dollar-denominated, three-tranche debt offering has reportedly received strong response from investors. The transaction, expected to raise at least $300 million, has attracted orders worth over $2 billion and is likely to price on Tuesday during New York trading hours, reports suggest.

Reliance Industries shed 1% to Rs 1274.50. 7.4 lakh shares changed hands in the counter on BSE.

Ranbaxy gained 1.2% to Rs 418.80, extending its rally on expectations of strong Q4 December 2006 results. Ranbaxy’s board meets on 18 January 2007 to consider Q4 outcome. Dr Reddy’s Lab (up 0.1% to Rs 810.05), too, continued scoring on expectations of strong Q3 December 2006 results.

Triven Engineering dropped 1.7% to Rs 54.60. Triveni Engineering reportedly plans to export 20,000 tonnes of refined sugar soon to meet its obligations under a raw sugar import scheme.

Indiabulls Financial Services plunged 8% to Rs 277. As many as 11.5 lakh shares changed hands in the counter on BSE.

Dabur Pharma (up 2.5% to Rs 83.10) rose for the second day in a row after the company last Thursday launched its new nano technology based chemotherapy agent, Nanoxel, in the country.

Eicher Motors dropped 2.6% to Rs 357.80. The company said Monday its December sales of commercial vehicles were up by 6% at 2,419 units compared to the same month a year ago.

Eastern Silk Industries rose 0.3% to Rs 336.05. The company today reported a net profit of Rs 18.40 crore for the quarter ended December 2006 as compared to a net profit of Rs 10.93 crore for the quarter ended December 2005. Net sales rose 5.2% to Rs 125.14 crore from Rs 118.87 crore.

KLG Systel dropped 4% to Rs 363.95. The company’s net profit jumped 407.8% for the quarter ended December 2006 to Rs 7.11 crore from Rs 1.40 crore. Net sales rose 234% to Rs 40.99 crore from Rs 12.27 crore. The results hit the market during trading hours today.

Exide Industries gained 2.3% to Rs 39.85. A block deal of 5.03 lakh shares was registered in the scrip on BSE at Rs 39.90.

Zandu Pharma jumped 10% to Rs 5805.30 after the company fixed 20 January 2007 as record date for 1:3 bonus issue.

Television broadcaster TV Today rose 10.5% to Rs 92.50 after 7,80,325 shares changed hands in a block deal on the BSE.

Jewellery maker Gitanjali Gems rose by its maximum daily limit of 10 percent to Rs 245.70 after its board approved a preferential issue of 1.55 million equity shares on a private placement basis.

Gujarat Ambuja Exports jumped 9.2% to Rs 30.40 after it said its board would meet on Jan. 16 to consider a buyback of shares for up to 10 percent of the paid-up capital and free reserves.

Ashok Leyland dropped 2.2% to Rs 44.15. A block deal of 7,00,050 shares was executed in the counter on BSE at Rs 44.20 on BSE.

IPCA Labs rose 1.4% to Rs 625. A block deal of 1 lakh shares was executed at Rs 610 on BSE.

Manappuram General Finance & Leasing jumped 10% to Rs 56.15 after the company scheduled a board meeting on 15 Jan 2006, to consider a 1:1 bonus issue.

Software services provider SQL Star International gained 4% to Rs 46.20. The company's board will meet on 23 Jan to consider raising up to $15 million through an issue of securities in the domestic or global markets. The board will also consider acquiring an IT staffing company in the US, SQL said in a statement.

IFCI rose nearly 8% to Rs 14.10 after a block deal of 5.05 lakh shares was executed in the counter on BSE at Rs 13.99.

Textile firm Ritesh Industries jumped 5% to Rs 77.05, after the company said on Monday it had set up a joint venture with Ansal Properties and Infrastructure for a Rs 800 crore real estate project in Ludhiana.

Textile firm Spentex Industries rose 2.5% to Rs 70.50. The company will issue nine shares for every 10 held in Indo Rama Textiles, in which Spentex acquired 84.02% stake last year. Indo Rama Textiles rose nearly 7% to Rs 60.50.

Cairn India lists on BSE and NSE tomorrow. The issue had managed to scrape through in a volatile market in December 2006. The company had priced the IPO at lower end of the Rs 160 to Rs 190-price band.

In the near term, Q3 December 2006 results and budget expectations will dictate trend on the bourses. Market men expect tax cuts in the budget due to government’s comfortable position with its finances. India has to make its tax regime more liberal, phase out exemptions and switch over to a goods and services tax (GST), Prime Minister Manmohan Singh said on Monday. Singh added the cash-strapped government needed to maintain fiscal discipline, while taking steps to promote growth.

Kotak - Q3F07 - Software

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Morgan Stanley India Sector & Earnings Reports : IT , Pharma , FMCG

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Thanks Yash


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Morning Call 08/01/07

In House :

Intraday Nifty 3949 & 3902 as support with resistance at 4030 & 4050

Markets to be very choppy & volatile with negetive Bias as 4050 acting as
huge resistance for the Nifty
.25% Increase in CRR to be implemented from today by RBI with BOJapan
likely to Hike rate .

Buy : Centextile above 748 target 763 s/l 741

Buy : Telco above 941 s/l 930 target 965

Buy : AsahiIndia buy at dips

Buy : DSKulkarni & Cummins medium term

Buy : in F&O HP & BP

Out House :

Markets at a support of 13786 & 13743 levels with resistance at 13919 &
13949 levels .

Buy : RIL & ONGC

Buy : M&M & Maruti

Buy : Sbin & IciciBank

Buy : Titan & CenturyTex

Buy : Aban & SesaGoa

Buy : TechM , Voltam , Ace , EKC & Vakrangee

Buy : DewanHsng & Hitachi

Buy : GMR , LITL & Ivrcl

Dark Horse: Mphasis , TechM , Centextile , SesaGoa , Voltam ,Gitanjali ,

Bullet for the day : Titan & IciciBank with stop loss

Thanks Yash

PowerYourTrade Trading Calls

Ashwani Gujral

Buy Northgate Technologies with stop loss of Rs 922 for a target of Rs 1125

Buy Sobha Developers with stop loss of Rs 1030 for target of Rs 1180, medium term target of Rs 1460

Deepak Mohoni

Buy Hanung Toys and Textiles below Rs 128 with a stop loss of Rs 126. This is a day-trading recommendation.

Short Sell Balrampur Chini above Rs 81 with a stop loss of Rs 82.5. This is a day-trading recommendation.

Rajat K Bose

Sell Lupin around the last closing price with stop loss above Rs 607.25 for a target of Rs 582

Sell Jet Airways around the last closing price with stop loss above Rs 646.50 for a target of Rs 625

5 Intra-day Stock Ideas

NIFTY (3983) SUP 3962 RES 4005

Buy JYOTISTRUC (137.55)
SL 133 T 147, 149

Buy GAIL (275.95)
SL 271 T 285, 287

Buy PBAINFRA (136.9)
SL 133 T 145, 147

@ 224 SL 228 T 215, 213

SELL BRFL (229.5)
@ 233 SL 236 T 223, 221


Monday morning blues

Before you can really start setting financial goals, you need to determine where you stand financially.

For those standing tall with their investments, its concern time right now. Though the bulls began the new year with a bang, pushing the Sensex past 14k yet again, things started to cool down towards the end of the week. We expect a cautious to weak opening and another day of high volatility. The market will remain choppy ahead of Infosys results. It would be wise to wait for a while and take a call after the key IT earnings are out of the way. Also don't forget the old economy as the Indian economy remains on strong footing.

All eyes this week will be on Infosys' results on Thursday. Analysts are looking at some moderation in technology results due to a stronger rupee, high base effect and lesser billing days during the quarter. Wipro and Satyam will be under some pressure owing to salary hike. However, history suggests that more often than not, companies like Infosys have managed to beat most forecasts, even its own guidance. The bulls will surely want an encore from Infosys and others like TCS. The results from the IT majors and the tone of their management would set the pace for other software companies and for the market this month.

Other big event to watch out for will happen tomorrow. The beleaguered Cairn India will make its stock market debut. The stock will come under pressure as the company had a really tough time getting its issue subscribed. FII inflows will also be a key factor. Right now, they seem to be in a sell mode. Global cues are not so encouraging. Stock markets it US, Europe and Latin America ended down on Friday and Asian markets are also weak this morning.

FIIs were net buyers of Rs554.9mn (provisional) in the cash segment on Friday. However, in the F&O segment they offloaded securities worth Rs2.65bn. On Thursday, foreign funds were net sellers to the tune of Rs2.62bn. Mutual funds too were net sellers at Rs214.2mn on the same day.

HFCL could gain amid reports that a US-based private equity firm is planning to pick up a stake in its subsidiary, HFCL Infotel. Himatsingka Seide is also likely to rise as a financial daily has reported that the Bangalore-based textile company is eyeing Italian home furnishing firm Bellora. Gammon India might advance as the Mumbai Port Trust has reportedly zeroed in on a consortium, led by the company for its Rs12.28bn offshore container terminal.

Cambridge Technology Enterprise IPO closes tomorrow. Investors can consider putting in some money in this. The IPO of Autoline Industries Ltd. opens today.

Results Today: Eastern Silk, IG Petro, KLG Systel, RM Mohite Textiles and Rama Newsprint.

Keep an eye on Aurionpro Solutions, as its Board meets today to consider and approve merger between the Company and Aurionpro Services Pvt. Ltd., the promoter company.

US blue chip shares fell in the first trading week of 2007 as a surprisingly strong jobs report fueled fears that the Federal Reserve may not rush to cut its benchmark interest rates this year. But, technology shares managed modest gains on the back of a strong rally on Thursday.

The Dow Jones Industrial Average lost 0.5% in the three-day trading week to end at 12,398.01 while the S&P 500 index dropped 0.6% to close at 1,409.71. The Nasdaq on the other hand, gained 0.8% to finish at 2,434.25.

Asian stocks were down sharply this morning. The Hang Seng in Hong Kong was down 257 points at 19,980 while Tokyo financial markets are closed for a public holiday. The Kospi in Seoul was down 12 points at 1372 while the Taiex in Taiwan declined 71 points to 7764.

European shares closed lower on Friday. The pan-European Dow Jones Stoxx 600 index dipped 0.6% to 366.53. The UK-based FTSE 100 declined 1.1% to 6,222.10, while the Germany's DAX Xetra 30 lost 1.2% to 6,593.09 and the French CAC-40 slipped 1% to 5,517.35.

In the emerging markets, the Bovespa in Brazil tumbled by 4% to 42,245 while the IPC index in Mexico shed 1.6% to 26,135 and the RTS index in Russia rose 0.6% to 1921.

The February crude oil contract rose as much as 25 cents a barrel to $56.56 in after-hours electronics trading in Asia. On Friday, the contract was up 72 cents at at $56.31 a barrel, recovering from an earlier intraday decline to $55.10.

The dollar rallied to a six-week high against the euro on Friday, after a government report showed a surprisingly strong job growth in the US last month, dashing hopes that the Federal Reserve will lower interest rates soon.

Insider Trades:
BASF India Ltd: Reliance Capital Asset Management Limited has purchased from open market 31930 equity shares of BASF India Ltd on 3rd January, 2007.

Kirloskar Oil Engines Ltd: Vikram Shreekant Kirloskar, Director has sold in open market 20000 equity shares of Kirloskar Oil Engines Ltd on 3rd January, 2007.

Major Bulk Deals:
Birla Sunlife MF has picked up Apar Industries; Morgan Stanley and Citigroup have bought Asian Electronics; Deutsche Securities has purchased Atlanta; ABN AMRO Bank has sold Bajaj Hindusthan; UTI Bank has bought Gayatri Projects; Blackstone has picked up Indo Tech Transformers; DSP Merrill Lynch has purchased KS Oil; Emerging Capital has bought KEI Industries; Bear Stearns has purchased Micro Technologies; Kotak Mahindra Bank has sold NK Industries; Merrill Lynch has picked up Pioneer Embroideries and Pyramid Saimira; Bank of New York has sold Pyramid Saimira; Merrill Lynch, Prudential ICICI MF, ABN AMRO Bank and Citigroup have bought Tanla Solutions.

Market Volumes:
The turnover on NSE was up by 2.5% to Rs87.72bn. BSE Auto index was the major loser and lost 1.51%. BSE Capital Good index (down 0.79%), BSE Technology index (down 0.74%), BSE Pharma index (down 0.68%) and BSE FMCG index (down 0.645) were among the major losers. However, BSE Oil & Gas index gained 1.30%.

Volume Toppers:
Tata Teleservices, DCB, ITC, Ashok Leyland, Tanla Solutions, HLL, HCC, Mercator Lines, Rain Calcining, Bajaj Auto, Polaris, Sobha Developers, Reliance Industries, Tata Steel, Satyam, Welspun Gujarat and MTNL.

Delivery Delight:
Adlabs, APIL, Asian Electronics, BHEL, Grasim, HDFC Bank, HEG, HPCL, Kesoram Industries, MTNL, NTPC, Reliance Capital, Sun TV and Tisco.

Upper Circuit Filters:
Flex Industries, Zandu Pharma, KLG Systel, Goldstone Technology, Nesco Ltd, Champagne Industries, Ganesh Housing, McNally Bharat and Rajesh Exports.

Brokers Recommendations:
IDFC – Buy from Motilal Oswal with price target of Rs95

Long Term Investment:
Nagarjuna Construction

Major News Headlines:
Inflation at 5.48% for the week ended Dec 23 vs 5.43%
Biocon ties up with Abu Dhabi company
Ashok Leyland Dec sales rise 30% to 5890 units
Unity Infra in 50:50 JV with BSEL
BRFL approves hike in FII investment limit to 40%
Hindustan Zinc cuts prices by Rs800 to Rs211400 per ton
Prajay Engineers forms JV with Sunway City for Hyderabad residential project
Micro Tech gets approval for its product in UAE
S. Kumar Nationwide to acquire Brandhouse Retail for Rs129.5mn
Mefcom Agro to consider bonus on Jan 12
SBI raises interest rate on bulk deposits
HCC ropes in Starwood to manage hotels at Lavasa
Sesa Goa stock on fire on reports of stake sale by Japan's Mitsui & Co

From Research Desk - Gayatri Projects

Gayatri Projects Ltd. CMP: Rs342 BUY with a target price of Rs517

With an order book/FY06 sales of 6.4x on account of a tall order intake of Rs10.9bn during FY06, Gayatri Projects Ltd (GPL) is set to execute higher value of contracts in the next four years, than that completed in last 25 years. The oldest construction group in Hyderabad has an order book of Rs23.9bn, primarily in roads and irrigation verticals with an average gestation period of 2.5 years, expected to drive topline CAGR of 41.7% during FY06-08. Furthermore, most equipment ordered through IPO proceeds will be in possession by January 2007, accelerating growth going forward.

GPL enjoys one of the highest operating margins among construction peers. OPM of 17.5% during FY06 is on account of its policy to own nearly 100% of equipments and refrain from subcontracting. The company also benefited from better pricing power for certain Andhra Pradesh irrigation projects as it was one of the few to prequalify. However, market cap/sales remains one of the lowest at 0.8x when most peers trade at 2x to 3x market cap/sales. We foresee this anomaly correcting over a period of time.

GPL has a good BOT presence for its size of operations. It has one Meerut-Muzzafarnagar toll based project, which has achieved financial closure and two annuity projects in Uttar Pradesh to be constructed by 2009. We assign a value of Rs81.8 per share of GPL to these three BOTs; basis 1x P/BV of GPL’s equity infused for the toll project and 0.8x and 0.9x for the two annuities.

Cost management, availing lower cost debt and lower tax rate, as indicated by the GPL management, is estimated to result in bottomline CAGR of 7 1.8% during FY06-08. GPL plans to claim section 80(A)I taxation benefits and effective tax rates are likely to fall to the region of 12-15% of PBT during FY07 and FY08 from 35% in FY06.

Adjusted for assigned BOT value, the stock trades at 8.2x FY07E and 4.6x FY08E EPS, making it one of the most attractive construction counters. Similarly, adjusted EV/EBIDTA of 4.6x FY08E earnings, suggests that valuations are attractive. We recommend BUY with one-year target price of Rs517. We expect a re-rating to take place and the GPL stock will still trade at discount to most peers at 9.9x FY08E EPS at our target price.

How Market Fared

All eyes on Infy results

The bulls marked second straight day of losses on Friday ahead of announcement of quarterly result of Infosys. Early losses were recovered as buying in the Oil & Gas, Banking and Metal stocks lifted the markets in green. However, after hitting an intra-day high of 13971.82 the benchmark BSE Sensex ended flat losing marginally by 11 points as selling pressure in the later half of the session in the Auto, Technology and FMCG stocks dragged the key indices down. Finally, the BSE benchmark Sensex was down 11 points to close at 13860. NSE Nifty was down 5 points to close at 3983.

Tanla Solutions had a strong debut on the bourses as the scrip ended its day on upper circuit atRs379.80 on BSE compared to its IPO price of Rs265. The scrip opened at Rs379.80. The scrip touched an intra-day high of Rs379.80 and a low of Rs365and recorded volumes of over 32,00,000 shares on BSE.

HDFC surged 2.5% to Rs1618 as according to reports the company raised the lending rate on its loans by 50 basis points to pass on rising costs. The company raised its prime lending rate to 12.75%. The scrip touched an intra-day high of Rs1638 and a low of Rs1553 and recorded volumes of over 4,00,000 shares on NSE.

Mefcom Agro locked 5% upper circuit at Rs187 after they announced that Board of Directors of the Company would meet on January 12, 2007 to consider bonus issue. The scrip touched an intra-day high of Rs187 and a low of Rs185 and recorded volumes of over 2,00,000 shares on NSE.

Oil & Gas stocks recorded smart gains. ONGC advanced 2.4% to Rs895 and Reliance Industries was up by 0.7% to Rs1288. Refinery stocks were also on limelight as Oil dropped below $56 a barrel, the lowest in 18 months. Crude oil tumbled 8.9% in the last two days. HPCL surged over 4% to Rs297, BPCL spurred 2% to Rs352 and IOC advanced 1% to Rs476.

Cement stocks were a mixed bag, Grasim advanced 1.3% to Rs2831 and Mangalam Cement rallied over 4.5% to Rs226. However, Frontline stock ACC lost 1.6% to Rs1054 and Gujarat Ambuja slipped 3% to Rs138.

Banking stocks pared their intra-day gains on back of profit booking. The Mid-Cap stocks witnessed heavy profit booking, Bank of India declined 2.8% to Rs204, Bank of Baroda was down 1.2% to Rs241 and Syndicate Bank dropped 1% to Rs74. However, Index heavy weight ICICI Bank mopped up 2.2% to Rs910.

Select Capital Good stocks ended lower on back of selling pressure. L&T lost 1.5% to Rs1470; Punj Lloyd declined 2.1% to Rs1027. However, Siemens was up 0.2% to Rs1120 and BHEL added 0.6% to Rs2289.

Power stocks pared their intra-day gains towards the end as profit booking dragged them down. Suzlon slipped 0.5% to Rs1293, Reliance Energy lost 1% to Rs524 and Tata power was flat at Rs560.

Market may drift lower tracking weak Asian equities

The market may edge lower tracking weak Asian markets. Institutional investors may be on the sidelines awaiting companies’ guidance for Q4 March 2007 and FY 2007. IT bellwether Infosys kickstarts earnings reporting season on Thursday 11 January 2007. `I feel the market would trade flat for a couple of trading sessions before the Infosys results’, says Nehal Shah, research analyst at Ventura Securities

According to Citigroup’s Q3 IT sector preview, volume growth will remain strong for the IT sector in Q3 but appreciation of rupee against the US dollar will have 90 basis points impact on operating profit margins. It expects marginal uptick in pricing witnessed over last few quarters to continue and it reckons that more clarity on price increases will be key to stock price performance.

FIIs were net sellers to the tune of Rs 262 crore on Thursday 4 January, the day when Sensex had lost 143 points. As per provisional data, FIIs were net buyers to the tune of Rs 55 crore on 5 January, the day when Sensex had declined 11 points in volatile trade. FIIs were net sellers to the tune of Rs 139 crore in index-based futures on 5 January. They were net sellers to the tune of Rs 177 crore in individual stock futures on that day.

Asian shares dropped on Monday, led lower by resources and financial stocks, while the yen climbed amid growing expectations the Bank of Japan could raise interest rates as early as next week. Key benchmark indices in Hong Kong, South Korea, Singapore and Taiwan were down by between 0.9% to 1.3%. Tokyo's market was closed for a public holiday

US stocks closed lower on Friday (5 January) as a stronger-than-expected US job growth in December cast doubt on hopes for an early US interest rate cut. The Dow Jones industrial average fell 82.68 points, or 0.66 percent, to 12,398.01. The Standard & Poor's 500 Index was down 8.63 points, or 0.6 percent, at 1,409.71. The Nasdaq Composite Index ended down 19.18 points, or 0.78 percent, at 2,434.25.

Oil hovered above $56 a barrel on Monday (8 January) after last week's steep drop to its lowest since mid-2005.

Further correction likely

The market may witness downfall, with concerns over foreign funds pulling out money from the domestic market and weak asian indices may resume market in red. While the Nifty could test 3975-3960 on the downside and 4020-4050 on the upside, the Sensex is likely to face a resistance at 13920 and has support at 13800 levels.

US indices ended weaker on Friday, with the Dow Jones declining 83 points to close at 12398, and Nasdaq ended 19 points lower at 2434.

Indian ADRs were hammered on the US bourses. Tata Motors led the fall with a slump of 3.43% followed by Satyam and Patni, which dropped 3% each. Other draggers Infosys, Wipro, Dr Reddy's, ICICI Bank, VSNL, Rediff and HDFC Bank plunged nearly 0-2% each. MTNL however, gains marginally.

Crude oil prices moved up, with the Nymex US light crude oil for February delivery rising by 72 cents to close at $56.31 a barrel. In the commodity segment, the Comex gold declines $19.30 to settle at $606.90 an ounce.

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Stocks you can pick up this week

Tech Mahindra
Research: Enam Securities
Rating: Neutral
CMP:RS 1,640 (Face Value Rs 10)
12-Month Price Target: RS 1,721-1,748

Tech Mahindra’s (TML) recent $1-billion 5-year deal propels it into a high growth orbit. The order involves servicing the global external client base of BT Global Services (BTGS), a key business unit of British Telecom (BT).

The quantum of deal was higher than expected. The first year will entail investments and transition pains, which may result in lower margins. Revenues will scale up from the second year onwards. Based on the revised FDEPS estimate of Rs 65.5 for FY08E, Enam has assigned a higher P/E multiple of 25 times, largely to factor in the higher than industry average growth and better earnings visibility.

Material contribution from the present deal is expected from FY09 onwards. Given the recent outperformance and 3-5% price upside, Enam initiates coverage with sector ‘neutral’ rating. TML currently trades at 25.5 x FY08E FDEPS of Rs 65.5 and 17.1x FY08E EV/EBITDA.

Aventis Pharma
Research: Kotak Securities
Rating: Buy
CMP:RS 1,477 (Face Value RS 10)
12-Month Price Target: RS 1,643

Aventis’ focus on its strategic brands, successful mapping with its parent’s portfolio, strong presence in certain therapeutic areas, high brand recall among the medical fraternity and increasing outsourcing by the parent company continue to be the key determinants of its future valuation.

The company’s performance in its strategic brands is enviable. Kotak Securities expects earnings growth of 17% CAGR for the next two years. From ’08, Aventis is likely to launch patented drugs from its parent’s portfolio. However, more clarity on this is likely to emerge this year.

Aventis has about 60% of its total assets in liquid cash, which can be utilised for inorganic growth or acquisition of brands. Kotak Securities initiates coverage with a ‘buy’ recommendation with ’07 DCF-based price target of Rs 1,643. This implies an upside of 22% from the current level.

Info Edge
Research: Citigroup
Rating: Buy
CMP:RS 689 (Face Value RS 10)
12-Month Price Target:RS 750

Info Edge is poised to become one of India’s dominant internet companies. Its is India’s leading online recruitment site; the company also owns the No 3 matrimonial site and an online real estate site.

Indo Edge is likely to be a key sector consolidator. dominates India’s online job market and has more than 20,000 corporate clients, over 7.5 million resumes and 120 million page views per month (twice that of its nearest competitor). India’s internet users have tripled since ’03 and should surpass 100 million by CY09.

Citigroup expects Info Edge’s revenues and profits to grow at CAGRs of 46% and 62% from FY06-09E, respectively. At 27x FY09E estimates, Info Edge is pricier than its regional peer group, which reflects a scarcity premium. However, it looks undervalued compared to its closest Indian peer, Nasdaq-listed portal Rediff, which trades at 52x consensus FY09E earnings.

Bajaj Hindusthan
Research: Karvy Stock Broking
Rating: Market Performer
CMP:RS 205 (Face Value RS 1)
12-Month Price Target:RS 235

For Q4 FY06 (standalone), Bajaj Hindusthan (BHL) reported a healthy revenue growth of 30.5% y-o-y to Rs 360 crore on the back of 81% increase in cane-crushing capacity. Revenues in the sugar segment grew by 30% to Rs 340 crore, while revenues from the distillery division grew by 100% to Rs 43 crore.

The total revenues were in line with Karvy’s estimates of Rs 360 crore. Operating margins declined by 495 bps to 14.6% due to higher raw material cost and increase in other expenditure. Overall, adjusted net profit declined by 31.5% y-o-y to Rs 38.2 crore, translating into an EPS of Rs 2.5 on diluted equity, against Karvy’s estimates of Rs 4.6.

For consolidated FY06, revenues increased by 77.2% to Rs 1,480 crore, while net profit grew by 31% to Rs 180 crore. At current levels, the scrip is trading at a P/E of 12.1x FY07 and 10.4x FY08 earnings.

Karvy Broking expects revenues to grow at a CAGR of 55% to Rs 3,560 crore and adjusted net profit to grow at a CAGR of 32% to Rs 320 crore in FY08. It is maintaining valuation at 11x FY08 and revising target price from Rs 305 to Rs 235.

Jindal Saw
Research: Anand Rathi
Rating: Outperformer
CMP:RS 382 (Face Value RS 10)
12-Month Price Target: RS 440

JSL is part of the $5-billion Jindal group and is the first company in India to manufacture saw pipes. It has two wholly-owned subsidiaries — HexaSecurities & Finance Company and Jindal Enterprises, USA.

The third subsidiary, IUP Jindal Metals and Alloys, is a joint venture between Jindal Saw and Imphy Ugine Precision, a division of Arcelor, France with 73% and 27% shareholding, respectively.

JSL plans to add about 200,000 MTPA of spiral pipe capacity to cater to the burgeoning oil & gas and water transportation sectors. It also plans to increase its seamless pipe capacity from about 100,000 MTPA to 250,000 MTPA by Q2 CY08.

As a result, the company will incur a total capex of about Rs 700 crore, including other projects during FY07E and FY08E. JSL’s strong order book position and its presence across all segments are expected to drive its topline.

The company’s earnings are expected to grow at a CAGR of 30% during FY06-08E. It is trading at a PER of 8.7x FY07E earnings and 7x FY08E. In terms of EV/EBITDA, it trades at 5.4x FY07E and 4.5x FY08E.

State Bank Of India
Research: Ask-Raymond James
Ratings: Sell
CMP:RS 1,244 (Face Value RS 10)
12-Month Price Target: RS 1,217

The net profit of State Bank of India (SBI) is expected to grow at a modest 11% CAGR over FY06-09E, led by net interest income (NII) growth of 8% CAGR and advances growth of 19% CAGR over the period.

Margin pressures may ensue from mid-FY08E on exhaustion of excess SLR and accelerated increases in deposit costs. SBI’s capital requirements are expected to increase on account of higher proportion of advances to total assets (shift from SLR) and Basel-II requirements, with risk weighted assets growing at 33% CAGR over FY06-08E (compared to 21% CAGR over FY03-06).

ASK-Raymond James values SBI’s parent bank at Rs 872 per share (1.65x core adjusted book value for FY08E) and the subsidiaries at Rs 345 per share (post-discount of 10%). Its return ratios are expected to remain lower than that of its peer banks due to slower earnings growth and accentuated capital requirements.

Citigroup - Everest Kanto

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Citigroup - Ashok Leyland

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Anand Rathi -Weekly Strategist Note

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Thanks YASH