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Wednesday, January 17, 2007
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Business Today - Infrastructure - Mega Projects
Poweryourtrade.com Trading Calls
Ashwani Gujral
Buy India Cement with stop loss of Rs 220 for target of Rs 320
Buy Prism Cement with stop loss of Rs 37 for target of Rs 55
Rajat K Bose
Sell IPCL with stop loss above Rs 291 for target of Rs 279
Buy Engineers India with stop loss below Rs 562 for target of Rs 586.50
Close: consolidation process on as markets absorb the results !
Sensex opened buoyant note with Wipro posting decent numbers. However profit bookings at higher levels set in and the market shed gain early in the session session plunging into negative. Weak global cues also fuelled the profit taking as investors booked profits. However value buying and short covering had the markets back and it remained ranged and volatile. There were occasional spell of selling at higher levels but it kept the market in green. Selling was seen in selective stocks in cross the board but few selective stocks in Auto, Software and Energy sectors while Pharma, Banks and Power stocks were in favor. Buying interest was also seen in Mid and Small caps. Asian indices ended flat while the European indices witnessed a mixed trend.
Sensex ended up by 17 points at 14131.34. It was helped up by gains in RCVL (442.25,+3 percent), ICICI Bk (985.75,+3 percent), L & T (1553.15,+2 percent), NTPC (139.5,+1 percent) and SBI (1222.75,+1 percent). Restricting the gains were HDFC Bk (1060.2,-3 percent), ONGC (894.55,-3 percent), TCS (1305.9,-2 percent), ITC (169.3,-1 percent) and Hindalco (168.2,-1 percent).
Weak crude prices had its impact on ONGC which slipped. Cairns however was bouyant surprisingly despite weak crude numbers. Banking sector saw gains on talks that the RBI would get the power to cut SLR sooner
As per a leading business daily, ABB has won a contract for a turnkey project worth Rs 1.9 bn from the Karnataka Power Transmission Corporation Ltd (KPTCL). ABB will implement Supervisory Control and Data Acquisition, Energy and Distribution management System for KPTCL, with a scheduled completion time of 24 months. This is the second order that ABB has bagged in the recent times. It must be noted that the total order backlog stood at Rs 35.6 bn, which is almost 1.2 times the company's total sales in CY05. The stock closed up 1.67%.
According to a leading business daily, Mahindra and Mahindra (M&M) will set up a medium and heavy commercial vehicle plant in Pune with a 51:49 joint venture with US based International Truck and Engine Corporation (ITEC). The proposed Rs 2.5 bn plant will be spread over 700 acres with a total manufacturing capacity of 250,000 vehicles annually. The JV will produce 70,000 units of medium and heavy commercial vehicles per year, which will be sold in domestic and international markets. The vehicles will be designed and developed with in house capabilities. The company wishes to establish itself as a major player in the heavy commercial vehicles not just in India but also globally. However the stock was down by more than 2% while its peer Ashok Leyland, Tata Motors and Eicher Motor were all up.
Bajaj Auto results did excite much and the margin fall was largely the disappointing factor. The stock ended
Technically Speaking: Market traded in a ranged manner. Sensex rallied between the channels of 14089 - 14185 level. However, the breadth had been in the favor of Advances as they were 1.52 times the Decliners. Volumes were decent at 4719cr. As per now the market seems to be good to touch 14400 levels but we could see a dip till 14k before it touches the 14400 levels.
Sensex gains 17 points
In a listless trading session, the market displayed a range-bound trend amid bouts of buying and selling. After opening one point above its last close at 14116, the Sensex moved down to touch an intra-day low of 14090. The index remained steady around the 14100 mark for a major portion of the session. The Sensex pared some of its gains on buying towards the close and ended the session at 14185, up 17 points for the day. However the Nifty declined five points to close at 4076.
The market breadth was positive. Of the 2,685 stocks traded, 1,600 stocks advanced, 1,023 stocks declined and 62 stocks ended unchanged. Among the sectoral indices, the BSE Bankex, the BSE CD, the BSE CG, the BSE HC, and the BSE Teck indices gained slightly. On the other hand, the BSE Auto, FMCG, Metal and OIL & Gas indices finished lower.
Among the front-line stocks, Reliance Communication led the upmove and soared 2.75% at Rs442. ICICI Bank surged 2.71% at Rs989, L&T advanced 2.16% at Rs1,533, NTPC jumped 1.12% at Rs140 and SBI added 1.12% at Rs1,223. Dr Reddy’s, Tata Motors, Satyam Computers, BHEL, Reliance Energy, Grasim, HLL, and Tata Steel ended in positive territory. However, HDFC Bank dropped 3.26% at Rs1,060, ONGC fell 2.75% at Rs895, TCS dropped 1.65% at Rs1,306, ITC tumbled 1.34% at Rs1.03 and Hindalco was down 1.03% at Rs168.
The stocks which touched new all-time highs on the BSE were Bhushan Steel at Rs417.65, Crisil at Rs2,485, SAIL at Rs101.90, Titan India at Rs987, Flex Industries at Rs2,899, Grasim Industries at Rs2,899 and Nirlon at Rs72.60.
Over 4.39 crore IFCI shares changed hands on the BSE followed by Reliance Natural Resources (2.15 crore shares), Himadri Futures (1.74 crore shares) and Harig Cranks (1.27 crore shares).
Redington India
Redington India is promoted by Redington (Mauritius), an investment holding company, which in turn, is a subsidiary of Kewalram Chanrai Holdings (a company incorporated in Jersey).
Redington distributes IT products in India, Middle East and Africa. Recently, the company started distributing mobile handsets and accessories in Nigeria and in limited territories of India. Besides distribution, it also provides support services for IT hardware and mobile phones. Domestic business contributed 54.4% and international business 45.6% to its revenue in FY 2006.
Redington started with distribution of HP peripherals and continued adding new products/brands to its portfolio, growing from five employees, three branches and 25 dealers in 1994 to over 30 global brands and a few local brands, more than 750 permanent employees (only for distribution business), 35 branches and 10,474 channel partners. In 2003, GTL (formerly Global Telesystems) announced its intention to acquire the Redington group. However post-due-diligence, the takeover was abandoned.
Strengths
- IDC 2006 estimates for demand for IT products outlines that PC shipments (units) in 2005-10 are expected to show a CAGR of 23%. Revenue from the datacom and peripherals markets is expected to grow at 20% and 19%, respectively, in 2005-2010. Packaged software revenue is expected to grow at a 21% CAGR in the same period. India’s domestic IT market is projected to be the fastest growing market in the Asia-Pacific region over the period 2005 – 2010 with a CAGR of 17.5% to Rs 74,657 crore.
- Redington has relationship with over 30 vendors, and with many for more than 10 years. Over the years, the company has serviced vendors including HP, Microsoft, Intel, IBM, Samsung, Canon, Cisco, and Acer. Its ability to provide a host of services such as logistics, after-sales support, and demand generation has helped in building such a diverse vendor base.
Weaknesses
- Redington had negative cash flows of Rs 124.38 crore from operating activities in FY 2005 and Rs 137.70 crore in FY 2006 mainly due to higher debtors and inventory.
- As a result of intense price competition in the IT products industry, Redington has a very low operating profit margin of 1.9% and a lower net operating profit margin of around 1%. The company expects them to continue to be low in the future. Increased competition arising from industry consolidation and low demand for certain IT products may hinder its ability to maintain or improve margin. Low gross margin magnifies the impact of variations in revenue, operating costs and bad debts on operating results.
Valuation
Between FY 2002 to FY 2006, consolidated sales registered a CAGR of 49.1% and net profit a CAGR of 63.4%. The consolidated FY 2006 EPS on the post-equity works out to Rs 9.2. At the price band of Rs 95 - 113, PE is 10.3 – 12.2. The first-half annualised consolidated EPS stands at Rs 10.2, and PE 9.3 – 11.1. The nearest comparable company, HCL Infosystems, is trading at consolidated TTM PE of 9.4.
Sensex at new peak
The market ended with marginal gains. Shares from the banking and capital goods sector were in demand. The 30-shares BSE Sensex rose 16.61 points, to end at 14,131.34, an all-time closing high. It had opened higher, at 14,133.78, after Wipro announced fantastic results. The benchmark index also struck a high of 14,185.12, its low being 14,089.63.
The S&P CNX Nifty was down 4.15 points, to settle at 4,076.35.
The market-breadth was strong on BSE, with over 1.5 gainers for every single loser. Analysts expect buying to shift to the small-cap and mid-cap space, anticipating robust results for the December quarter. Against 1,608 shares advancing, 1,054 declined, and 56 remained unchanged.
The total turnover on BSE amounted to Rs 4719 crore, compared to Rs 4068 crore on Tuesday.
Among the 30-Sensex pack, 15 advanced while the rest declined.
Shares from the banking sector witnessed renewed buying, with the BSE Bankex gaining the most from among sectoral indices, by 86.68 points (1.17%), to 7,505.68.
Private sector banking major ICICI Bank was the top gainer, up 2.74% to Rs 986, on a volume of 2.21 lakh shares.
India’s largest commercial bank SBI advanced 1.14% to Rs 1223, on 3.44 lakh shares.
Other banking stocks - Bank of India (up 0.12% to Rs 202.30), Punjab National Bank (up 1.50% to Rs 526), Kotak Mahindra Bank (up 1.98% to Rs 431), Oriental Bank of Commerce (up 3.94% to Rs 230), Vijaya Bank (up 0.51% to Rs 49.45) and Canara Bank (up 0.73% to Rs 270.60) also advanced.
Reliance Communications gained 2.63% to Rs 441.70, on a volume of 15.70 lakh shares. The scrip also struck an intra-day high of Rs 445.45.
Engineering and construction major L&T rose 2.29% to Rs 1555. The company has convened a board meeting on 29 January 2007, to consider financial results for the third quarter ended December 2006.
NTPC (up 1.25% to Rs 139.60), Dr Reddy’s (up 0.98% to Rs 817) and REL (up 0.66% to Rs 536) were the other gainers from the Sensex pack.
Wipro slipped from its high of Rs 651, and finished 0.82% lower at Rs 631.60. The company reported 40% year-on-year rise in net profit in December 2006 quarter as per US accounting standards, to Rs 745 crore in December 2006 quarter. Total revenue surged 43% to Rs 3964 crore. Global IT services and products revenue was Rs 2867 crore, an increase of 35% over the same period last year.
Global IT services and products earnings before interest and tax (EBIT) was Rs 683 crore, an increase of 32% over the same period last year. Global IT services and products added 37 new clients during the quarter. Wipro expects revenue from its global IT services & products business to be approximately $685 million in March 2007 quarter. The segment had grossed $640.5 million in the December 2006 quarter.
Index heavyweight Reliance Industries (RIL) rose 0.26% to Rs 1350.45, on a volume of 5.89 lakh shares. It will announce the December quarter results on Thursday (18 January). Promoters have raised their stake by 1.6%, to 50.62%. India's top private oil refiner is expected to report 26% rise in quarterly earnings due to strong margins in petrochemicals. Analysts estimated Reliance's petrochemical margins in October-December to increase by more than 35% from a year earlier. Analysts forecast 39.5% rise in net sales to Rs 25300.40 crore.
IT bellwether, Infosys Technologies, slipped 0.62% to Rs 2203.15 and was the second highest grosser, notching up Rs 144.50 crore in turnover, boosted by a block deal of 5 lakh shares in the counter at Rs 2218 per share at 10:22 IST.
HDFC Bank was the top loser, down 3.52% to Rs 1057.30, on a volume of 71,338 shares. It had recovered from a low of Rs 1053, the high being at Rs 1095.
ONGC (down 2.92% to Rs 893), TCS (down 1.72% to Rs 1305) and ITC (down 1.52% to Rs 169) were the other eminent losers.
Dabur India rose 0.71% to Rs 155, as 27.55 lakh shares changed hands, which also included a deal for 25.55 lakh shares at Rs 156 per share.
The BSE Capital Goods index rose 77.56 points ( 0.83%), to 9,438.66. Siemens (up 2.69% to Rs 1224.85), Bharat Electronics (up 1.97% to Rs 1305.85), Praj Industries (up 3.30% to Rs 279) and Alstom Projects (up 3.91% to Rs 498.70) advanced anticipating a strong set of December quarter results.
Refinery stocks surged following a sharp decline in global crude oil prices, which dived to a 19-month low on Tuesday as warmer-than-normal temperatures prevailed in the Northeast US, and after Saudi Arabia said further production cut was unnecessary. New York's main oil futures contract, light sweet crude for delivery in February, fell 1.78 dollars to close at 51.21 dollars a barrel. In London, Brent North Sea crude for delivery in February lost 86 cents to settle at 52.26 dollars a barrel.
State-run oil marketers were upbeat as a result. HPCL (up 5.55% to Rs 315), BPCL (up 3.11% to Rs 358) and IOC (up 3.26% to Rs 476.90) had posted considerable gains.
Shares from the aviation sector also got a boost from falling crude. Jet Airways jumped 5.33% to Rs 704, Deccan Aviation rose 3.20% to Rs 158.20 and SpiceJet rose 2.56% to Rs 60.20.
CMC jumped 17.52% to Rs 1227.35, extending its stupendous surge after Q3 results. It had surged to an all-time of Rs 1245. Analysts say re-rating is what the counter is experiencing. Earlier this Tata group firm was perceived as a hardware company focussed on domestic business, but is now seen as a services company with its heart set on the international market.
CMC’s consolidated net profit jumped 69% in December 2006 quarter, to Rs 20.40 crore (Rs 12.07 crore). Consolidated sales jumped 44% to Rs 298.63 crore (Rs 207.25 crore). For 9-months April-September 2006, CMC’s net profit rose 26% to Rs 48.50 crore (Rs 38.59 crore). Consolidated revenue rose 30% to Rs 790.69 crore (Rs 609.24 crore).
Mid-cap software stocks surged sharply on high volumes, on expectations of strong results. 3i Infotech jumped 9.20% to Rs 276.90 on a volume of 41.90 lakh shares, Tech Mahindra advanced 8.80% to Rs 1967 and Rolta India surged 9.20% to Rs 305.90 on 15.89 lakh shares. Rolta unveils December quarter results on 24 January 2007.
i-flex solutions advanced 6% to Rs 2152.75, after the company announced that People’s Bank (Bridgeport, Connecticut) has selected the company's core banking solution, Flexcube, for its core deposits system replacement. It was the fourth biggest gainer from BSE’s A group. i-flex unveils its December quarter results on 19 January 2007.
NIIT Technologies jumped 9.5% to Rs 341, after it reported 92% y-o-y rise in net profit for the December 2006 quarter. NIIT Technologies’ consolidated net profit rose 92% in December 2006 quarter to Rs 34.60 crore (Rs 18 crore). Topline growth was led by a corresponding growth in bottomline. Consolidated revenue rose 46% to Rs 231.50 crore from Rs 157.40 crore.
RNRL gained 0.55% to Rs 27.55, on a huge volume of 2.14 crore shares. It had surged to a high of Rs 29.50, in early trade.
ABG Shipyard jumped 20% to Rs 376.70, after the firm said it had received an order valued at Rs 1030.50 crore from Singapore's Pacific First Shipping for building 12 vessels. With the latest win, the company’s order-book rises to about Rs 3475.50 crore. ABG Shipyard builds a wide range of ships for bulk goods transport, coast guard and the oil industry.
Kirloskar Oil Engines (KOEL) plunged 6% to Rs 263, as Q3 bottomline was boosted by huge extraordinary income during the quarter. The company’s net profit rose sharply to Rs 35.38 crore from Rs 21.28 crore in December 2005 quarter. Data on BSE website showed that there was a huge extra-ordindary income of Rs 14.04 crore in December 2006 quarter. The extra-ordinary income was the profit KOEL made by selling shares of G G Dandekar Machine Works. Sales rose 32.9% to Rs 456.42 crore (Rs 343.28 crore).
Kale Consultants surged 9.39% to Rs 137.50, after a multinational logistics provider asked the company to automate its ocean, air and multi-modal freight operations. Direct Logistics, a multinational freight-forwarding & logistics group, selected Kale Consultants to develop a web-enabled solution to facilitate automisation of operations.
Engineering firm Batliboi jumped 10.90% to Rs 125.65, on reporting 133.7% surge in net profit for December 2006. Batliboi’s net profit jumped 133.7% to Rs 3.95 crore (Rs 1.69 crore). Net sales rose 42.9% to Rs 36.23 crore (Rs 25.36 crore).
Agro-processor Gujarat Ambuja Exports surged 4.5% to Rs 33.70, after the company reported an 84% surge in net profit to Rs 14.21 crore (Rs 7.71 crore) for December 2006 quarter. Net sales went up to Rs 393.86 crore from Rs 343.90 crore. The company’s board approved a buyback of equity shares aggregating to Rs 26.25 crore, and not exceeding 10% of the paid-up share capital and free reserves, at a maximum of Rs 38 per share, through the open market.
Krebs Biochemicals jumped 5% to Rs 99.05, amid reports that Ranbaxy had acquired 14.95% stake in the company.
Madhucon Projects rose 1.88% to Rs 313.90, after its unit achieved financial closure for a road project in south India, valued at Rs 920 crore.
The Nikkei average gained 0.34% on Wednesday, as real estate firms including Mitsubishi Estate Co, advanced on fading expectations of any imminent interest rate hike, offsetting losses in banking stocks. The Nikkei ended 58.89 points higher, at 17,261.35.
FIIs resumed selling after being net buyers on 11 January and 12 January. Foreign funds were net sellers to the tune of Rs 238.90 crore on Monday (15 January), the day when the Sensex gained 73 points. Before their two-day purchases worth Rs 366 crore (on 11 January and 12 January), FIIs had been offloading heavily causing a sharp fall in the market.
As per provisional data, FIIs were net buyers to the tune of Rs 190 crore on Tuesday (16 January), the day when the Sensex lost 15 points. They were net buyers to the tune of Rs 102 crore in index-based futures and net sellers to the tune of Rs 134 crore in individual stock futures.
Mutual funds are buying. They were net buyers to the tune of Rs 103.51 crore on 15 January. On 12 January they made whopping purchases, to the tune of Rs 637 crore.
US blue-chips rose on Tuesday on earnings optimism, while the broader market ended little changed as gains were offset by a sharp drop in oil prices that hurt energy shares. The Dow Jones industrial average was up 26.51 points, or 0.21%, at 12,582.59. The Standard & Poor's 500 Index was up 1.17 points, or 0.08%, at 1,431.90. But the Nasdaq Composite Index was down 5.04 points, or 0.20%, at 2,497.78.
Crude oil in New York plunged to the lowest price in more than 19 months after Saudi Arabia's oil minister rejected calls for more production cuts. The Organization of Petroleum Exporting Countries (OPEC) must wait to assess the effect of supply curbs that start 1 February.
Crude price has plunged 16% this year. Venezuela and Algeria want OPEC to restrain output. Crude oil for February delivery fell $1.78, or 3.4%, to $51.21 a barrel on the New York Mercantile Exchange, the lowest close since 26 May 2005. Futures touched $50.53, the lowest intraday price since 25 May 2005. Prices are down 23% from a year ago.
Strong Wipro results may boost market at open
The market may edge higher with Wipro reporting strong Q3 December 2006 results just a few minutes back. But cautiousness may set in after ratings agency Moody's Investors Service said on Tuesday that India's economy is showing signs of overheating and capacity constraints may come in the way of sustaining an annual growth rate of 9%.
Wipro has reported a 40% year on year rise in December 2006 quarter net profit as per US accounting standards to Rs 745 crore from Rs 532 crore in December 2005 quarter.
FIIs resumed sales after they had turned net buyers in two trading sessions on 11 January and 12 January. FIIs were net sellers to the tune of Rs 238.90 crore on Monday 15 January, the day when Sensex had risen 73 points. Before their two-day purchases worth Rs 366 crore (on 11 January and 12 January), FIIs had pressed heavy sales that had caused a sharp market fall.
As per provisional data, FIIs were net buyers to the tune of Rs 190 crore on Tuesday 16 January, the day when Sensex had lost 15 points. They were net buyers to the tune of Rs 102 crore in index-based futures. They were net sellers to the tune of Rs 134 crore in individual stock futures.
Mutual funds are in buying mode. They were net buyers to the tune of Rs 103.51 crore on 15 January. On 12 January, they were net buyers to the tune of a whopping Rs 637 crore.
Q3 results and the management guidance about the outlook will dictate the near-term trend on the bourses. After results, the focus is likely to shift to the Union Budget 2007-08. Market players are likely to start building fresh positions expecting a favourable policy for businesses in the budget.
Asian markets were mixed on Wednesday. Key benchmark indices in Hong Kong, Japan, and South Korea were down by between 0.2% to 1%. Key benchmark indices in Singapore and Taiwan were up by between 0.2% to 0.5%.
US blue-chip stocks rose on Tuesday on optimism about the earnings reporting season under way, while the broader market ended little changed as gains were offset by a sharp drop in oil prices that hurt energy shares. The Dow Jones industrial average was up 26.51 points, or 0.21 percent, at 12,582.59. The Standard & Poor's 500 Index was up 1.17 points, or 0.08 percent, at 1,431.90. But the Nasdaq Composite Index was down 5.04 points, or 0.20 percent, at 2,497.78.
Oil price declined sharply on Tuesday after Saudi Arabia said OPEC production cuts were working well and there was no need for an emergency meeting of the producer group. US crude for February delivery fell $1.78 to settle at $51.21 a barrel, after hitting a session low at $50.55 on the New York Mercantile Exchange.
Emkay Morning Notes
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Ashok Leyland,
Emkay,
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5 Intra-day Stock Ideas
NIFTY (4077) SUP 4057 RES 4097
BUY BIRLAJUTE (358.8)
SL 355 T 369, 371
BUY CENTURYTEX (770.8)
SL 765 T 780, 783
BUY HOVS (233.75)
SL 229 T 240, 242
SELL MOSERBAER (325.3)
@ 329 SL 333 T 319, 317
SELL GESHIP (220.2)
@223 SL 226 T 215, 213
STRATEGY INPUTS FOR THE DAY
Wipro wonder...can bulls cash on it?
There is no safety in numbers, or in anything else.
The Wipro numbers are here and there is a reason to cheer. But the bulls may find it difficult to take the overall market higher as they are on a consolidation phase after last week's rapid rise. Globally, things are not very encouraging today, though oil prices have cooled off further. Markets across the world are pretty mixed. Our market could open on a cautious note given the weakness in Asia. The trend will remain volatile for a while as the key indices are trading in unchartered territories. Though the sentiment remains upbeat over the medium to long term, one has to be careful in the near term.
Wipro's Q3 net profit was up over 9% QoQ at Rs7.65bn (Rs7bn). Total Revenues are up 12% QoQ at Rs39.79bn (Rs35.46bn). Global IT Revenues were Rs28.76bn ($645.5mn). The company sees Q4 Global IT Revenues at $685mn.
Other Results Today: 3i Infotech, Alembic, Lupin, NIIT Tech, Sutlej Textiles, Alps Industries, Infotech Enterprises, Kirloskar Oil Engines, NDTV,
FIIs were net buyers at Rs1.9bn (provisional) in the cash segment yesterday. In the F&O segment, they were net buyers of Rs2.18bn. On Monday, foreign funds pulled out stocks worth Rs2.39bn from the cash segment. On the other hand, Mutual Funds pumped in Rs1.04bn on the same day.
The IPO of Akruti Nirman was subscribed 1.6 times while that of Global Broadcast News was subscribed nearly 1 times. The House of Pearl issue got a very lukewarm response, with subscription amounting to just 0.08 times.
US shares closed mixed on Tuesday. The Dow Jones Industrial Average ended at a record high for the third straight session, following a steep drop in oil prices, but the Nasdaq Composite declined, as investors bailed out of select technology shares.
The Dow was up 26.51 points at 12,582.59 while the Nasdaq was down 5.04 points at 2,497.78 and the S&P 500 closed nearly unchanged at 1,431.90.
After the close, Intel reported quarterly earnings of 26 cents per share, down from 40 cents a year earlier but a penny more than consensus estimates. Shares of the chip giant fell sharply in extended-hours trading.
US light crude for February delivery declined $1.78 to $51.21 a barrel in New York. Prices fell after Saudi Arabia's oil minister said that OPEC production cuts were effective and there was no need for an emergency meeting of the oil cartel. The contract was up 14 cents at $51.35 in extended trading in Asia.
COMEX gold fell $1 to settle at $625.90 an ounce. Treasury prices rose, lowering the yield on the benchmark 10-year note to 4.75% from 4.77% late on Friday. In currency trading, the dollar rose versus the yen and euro.
Among the Indian ADRs, Patni was down 1%; VSNL surged by 8.3%, Infy dropped 1.2%, Wipro added 1.5%, Satyam rose 2.2%, Tata Motors advanced 3.2%, ICICI Bank shed 1.7% and MTNL slumped 3%.
European shares ended lower. The London-based FTSE 100 closed down 0.8% at 6,215.70. The German DAX Xetra 30 slipped 0.2% to 6,716.82 while the French CAC-40 eased 0.7% to 5,591.54. The pan-European Dow Jones Stoxx 600 index lost 0.6% to 371.97.
In the emerging markets, the Bovespa in Brazil was down 0.7% at 42,624 while the IPC index in Mexico was flat at 26,480 and the RTS index in Russia was up 0.08% at 1851.
Asian stocks fell on Wednesday after LG.Philips LCD and Samsung SDI reported losses and Intel said that fourth-quarter profit slumped from a year ago. Samsung Electronics and Elpida Memory paced the declines.
In Japan, Mizuho Financial Group led a drop among banks after the Nikkei newspaper and Kyodo News said that the Bank of Japan will refrain from raising interest rates tomorrow. BHP Billiton and PetroChina fell after oil and copper prices declined.
The Morgan Stanley Capital International Asia-Pacific Index lost 0.6% to 139.19 at 11:25 a.m. in Tokyo, set for the biggest slide since Jan. 10. Stock benchmarks also slid in South Korea, Hong Kong, Australia and the Philippines. They rose elsewhere in the region.
Japan's Nikkei fell 124 points to 17,078.12 while the Hang Seng in Hong Kong slipped 33 points to 19,994. The Kospi in Seoul slipped 17 points to 1372 and the Straits Times in Singapore added 4 points at 3042.
Investors continued to favor emerging markets in their early 2007 asset allocation decisions in the second week of January, pouring another $2.1bn into EPFR-tracked emerging markets equity and bond funds that had received $2.3bn during the first week of the New Year, says EmergingPortfolio Fund Research (EPFR).
But some of those returns evaporated as lower commodity prices and unwelcome news from several major markets triggered a broad correction that trimmed 5% off the value of the average emerging market equity fund’s portfolio, EPFR adds. Emerging market bond funds returned -0.6% for the week.
Insider Trades:
GlaxoSmithKline Consumer Healthcare Limited: HDFC Trustee Company Limited A/c - HDFC Prudence Fund has purchased from open market 508220 equity shares of GlaxoSmithKline Consumer Healthcare Limited on 8th January, 2007.
Market Volumes:
The turnover on NSE was down by 1.6% to Rs83.43bn. BSE Metal index was the major loser and lost 1.17%. BSE Oil & Gas index (down 0.68%), BSE PSU index (down 0.34%) and BSE FMCG index (up 0.32%) were among the other major losers. However, BSE Capital Good index gained 1.02%.
Volume Toppers:
IFCI, IDBI, Nagarjuna Fertilizers, Aftek Ltd, SAIL, Ispat Industries, TTML, DCB, IDFC, Cairn India, Polaris, India Cements, Prism Cement, R Com, Indiabulls, HLL, ITC and Vijaya Bank.
Upper Circuit Filters:
Flex Industries, Prism Cement, Texmaco, Heritage Food, Dhanlaxmi Bank, Tanla, HOV Services, Rajesh Exports, BPL Ltd, Crest Animation, Ganesh Housing, KS Oils and Nirlon.
Delivery Delight:
3i Infotech, Arvind Mills, Bajaj Auto, Bharti Airtel, BRFL, Century Textiles, CESC, Era Constructions, Gateway Distriparks, Grasim, ICICI Bank, India Cements, Infotech Enterprises, Jaiprakash Associates, Kesoram, M&M, Mercator Lines, Patni Computer, Polaris, Strides Arcolab and Wipro.
Brokers Recommendations:
TCS - Buy from Man Financial with target of Rs1499
IPCL - Buy from Enam Securities with target of Rs375.
Long Term Investment:
Bata India
Major News Headlines:
i-flex bags FLEXCUBE order from US bank
Pantaloon unit buys Internet company Officedge
Patel Engineering Q3 profit at Rs294.6mn (up 16%), revenue at Rs2.84bn (up 21.7%)
Mahindra to build new factory for CVs
Bajaj Auto Q3 profit at Rs3.45bn (up 23%), sales at Rs25.68bn (up 27%)
BPCL to sell shares in Bina refinery, to raise Rs10bn through IPO
Govt issues export permits for 37,000 tons of sugar
Aztecsoft Q3 profit at Rs111.5mn (up 12%) sales at Rs713.4mn (up 35%)
Indoco Remedies to consider buying SPA Pharma's drug business
How Market Fared
Bulls pause for breath
The markets ended slightly lower, after two consecutive sessions of gains. The markets lost ground as heavy weights like HDFC, ABB, Reliance Industries, SBI, Infosys and HLL witnessed profit booking. Profit booking was also seen in Metal, FMCG and Oil & Gas stocks, dragging the benchmark Sensex to hit a low of 14070.65. Metal index was the major loser and lost 1.17%. However, M&M, BHEL, Wipro, ACC, L&T and Bharti Airtel held the choppy markets from a major fall. Finally, the BSE benchmark Sensex slipped 14 points to close at 14114. NSE Nifty closed flat at 4081.
ABB slipped 2% to Rs3577. The company won Rs1.8bn contract from Indian Electricity Co. The scrip touched an intra-day high of Rs3699 and a low of Rs3560 and has recorded volumes of over 1,00,000 shares on NSE.
Bajaj Auto edged higher by 0.2% to Rs2774 after the company announced Q3 result with net profit at Rs3.45bn (up 23%) and sales at Rs25.68bn (up 27%). The scrip touched an intra-day high of Rs2850 and a low of Rs2715 and recorded volumes of over 7,00,000 shares on NSE.
M&M advanced 3.7% to Rs986 amid reports that the Romanian authorities are in talks with the company for selling Tractorul assets. The scrip was top gainer among the 50-scrip’s of NSE Nifty touching an intra-day high of Rs1001 and a low of Rs948 and recorded volumes of over 15,00,000 shares on NSE.
BHEL gained 1.8% to Rs2261 as the company signed a deal with Alstom for the transfer of technology for super critical power plants. The scrip touched an intra-day high of Rs2284 and a low of Rs2176 and recorded volumes of over 4,00,000 shares on NSE.
Metal stocks were among the major losers after rising in recent trading session. SAIL, Hindalco, Tata Steel and Sterlite Industries were among the major losers.
Telecom stocks witnessed fresh buying towards the end. Bharti Airtel advanced 1.3% to Rs669, Reliance Communication gained 0.3% to Rs430, VSNL was up 1.8% to Rs473 and MTNL added 0.3% to Rs160.
Cement stocks attracted buying interest. Frontline stock ACC advanced 1.5% to Rs1101, Prism Cement was frozen at 10% upper circuit to Rs41 ahead of its result, Grasim was up 0.9% to Rs2865 and Mangalam Cement added 0.5% to Rs250.
Capital Good stocks were the major gainers. Heavy weight BHEL gained 1.7% to Rs2261, L&T gained 1.4% to Rs1521, Siemens advanced 0.9% to Rs1195 and Punj Lloyd edged higher 0.2% to Rs1065.
Mid-Cap Technology stocks recorded smart gains. Visual Software jumped over by 5.3% to Rs89, Polaris surged 4.4% to Rs219, Rolta advanced 4.8% to Rs279 and HCL Tech was up 1.6% to Rs639. However, heavy weights Wipro and Satyam Computer also ended with smart gains.
Pre-budget rally good for booking profits
Without FII buying, the market cannot rise higher. FIIs have been net sellers in this month. They were net sellers last month as well. I expect a Sensex EPS between Rs 675 and Rs 725 in FY 2007. It will go up to Rs 775 - Rs 800 in FY 2008, slowing down earnings growth.
There has been relatively lackluster FII response to the three IPOs, which had opened for subscription on Monday, an indication that the FII appetite is waning.
The market may see a correction after the four-year solid bull run. The correction will be slow but painful.
In the near term, the market may firm up ahead of the budget due to market expectation of tax cuts in the budget. Any rise in the market in the run up to the budget should be used to book profit.
Small-cap and mid-cap stocks look attractive as mutual funds have raised a good amount of money in new fund offers dedicated for small-cap and mid-cap stocks.
The structural and secular long term India growth story remains intact.
- Ajit Sanghvi, director, MSS Securities
WOW - Man Financial - ITC
Broking House - Refco-Sify Securities
Recommendation - Neutral
VAT to impact margins by 11-12% in no hike scenario...
In its report dated 10th Jan, 2007 Man Financial (Man) upgrades ITC to Neutral at a CMP of Rs. 163 with a 12 month target price of Rs.185.
Based on Man''s various probabilistic scenarios, without offsetting price hike the expected impact of VAT on ITC''s earnings could be 11%-12% but the actual impact would depend upon the price hike that ITC can take to offset this.
Man states that the expectations treadmill has also slowed down with better appreciation of increasing challenges in agri-retailing and inflationary concerns on NCFMCG.
Man points out that after a significant re-reacting over the past couple of years, valuation stretch has reduced significantly. 1-year forward PE and EV/EBITA have declined by 30% and 32%, respectively from their highs in May ''06.
Man believes that after the recent price under performance, the stock is trading at closer to fair valuations. It trades at 18.6XFY08E one year forward EPS. According to Man''s expectations 20.2% EPS CAGR for FY07E-FY09E, the stock is trading at a PEG of 1.1x. Man believes that this reflects the risks and rewards of the Business composition quite fairly and initiates a coverage with Neutral rating.
Thanks HK
WOW India - Tanla Solutions - Emkay
Broking House - Enam Securities (P) Ltd
Recommendation - Buy
Provider of integrated telecom infrastructure solutions; mainly targets exponentially growing non-voice mobile messaging and Data Services market
In its report dated 10th Jan 2007 Emkay Private Client Research (Emkay) initiates Buy on Tanla Solutions Ltd (TSL) at a CMP of Rs. 395 with a target price of Rs. 613.
Emkay informs us that TSL is the provider of integrated telecom infrastructure solutions and products space. According to Emkay TSL''s main growth comes from the Aggregator Services (messaging applications & billing services), which accounted for around 68% of its revenue for H1FY07.
Emkay highlights that TSL has got strong domain expertise in the non-voice Mobile telephony industry; the company business is mainly targeted at exponentially growing non-voice mobile messaging and Data Services market. Emkay further points that in FY06, Aggregators business constitutes 53% of the revenue and for H1FY07 it constitutes 68% of the revenue, whereas Telecom Signaling Solutions and offshore Development Services contributed 35% and 12% in FY06 and for H1FY07, 21% and 11% respectively.
Emkay states that over the years, with TSL''s strong domain focus and enriching client''s relationships has reflected in the impressive financials and operational performance. Emkay believes that TSL enjoys a impressive business model coupled with robust industry environment and also with its future plans to enter newer geographies and extending the services and product offering, would reflect in a CAGR of 92% in revenue to Rs 443 cr over FY06A- 09E, with net profits to grow at a CAGR of 79% to Rs 172.05 cr in the same period.
At the current valuation of 16x FY08E and 11.5x FY09E earning and 9.4 xFY08E and 6.3xFY09E EV/EBIDTA, Emkay rates TSL stock a BUY with a target price of Rs 613.
Thanks HK
Sharekhan Investor's Eye dated January 16, 2007
Tata Consultancy Services
Cluster: Evergreen
Recommendation: Buy
Price target: Rs1,508
Current market price: Rs1,342
Results ahead of expectations
Result highlights
- Tata Consultancy Services (TCS) has reported a growth of 8.4% quarter on quarter (qoq) and of 40.8% year on year (yoy) in its consolidated revenues to Rs4,860.5 crore. The sequential revenue growth was driven largely by a 7.87% growth in the volumes, a 2% improvement in the billing rates and productivity gains of 2.6% on the fixed price projects. On the other hand, the revenue growth was dented by the appreciation of the rupee (to an extent of 2.46%) and an increase in the offshore contribution (to an extent of 1.56%).
- The earnings before interest and tax (EBIT) margin improved by 79 basis points to 26.1% on a sequential basis. The steep appreciation of the rupee dented the margin by 1.37% but the dip in the margin was more than made up by the positive impact of the higher billing rates (1.74%), the shift towards the high-margin offshore business (0.28%) and the cost efficiencies (0.14%). The company maintained its broad guidance of sustaining the full year margin at close to 25.8%, as reported in FY2006. However, we have factored in a decline of 60 basis points in the margin on a full year basis.
- The other income stood at Rs30 crore (includes foreign exchange fluctuation gain of around Rs3.6 crore), up from Rs7.7 crore in Q2FY2007. Consequently, the earnings grew at a relatively higher rate of 11.4% qoq and 47.2% yoy to Rs1,104.7 crore, which is much higher than the consensus estimate of around Rs1,086 crore.
- In terms of operational highlights, the company added 5,562 employees and 55 new clients during the quarter. It also bagged five large deals, including two deals of over $100 million and three deals of over $50 million. The management also indicated that it is currently pursuing around ten large deals of over $50 million each.
- Given the better than expected performance, we are revising upward the earnings estimates by 3.8% for FY2007 and by 5.6% for FY2008. We maintain the Buy call on the stock with a price target of Rs1,508.
Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs3,300
Current market price: Rs2,775
Profit margins disappoint, other income perks up
Result highlights
- Bajaj Auto's Q3FY2007 results have perked up due to the other income component while the operating margins continued to be under pressure during the quarter.
- The net sales rose by 28.4% to Rs2,568.2 crore, which is slightly ahead of our estimates, led by a 22.9% growth in the volumes and a 4.5% growth in the realisations.
- Higher sales of the entry-level bikes, high raw material costs and intensified competition leading to higher selling costs exerted pressure on the margins. The operating margins declined by 370 basis points year on year (yoy) and by about 80 basis points sequentially to 14.2%. Consequently, the operating profit rose by just 1.5% to Rs363.6 crore.
- Higher other income of Rs161 crore and lower interest costs helped the company to pst a 22.8% growth in its net profit at Rs357.1 crore. The profit after tax (PAT) after extraordinary items rose by 23.3% to Rs345.2 crore.
- Our view is that Bajaj Auto is the best pick in the two-wheeler space with its strong brand equity and product mix in comparison to its peers. The operating profit margins should improve going forward. We maintain our positive stance on the stock on back of the company's strong position in the two-wheeler industry and continued growth in the insurance segment. A possible demerger of its investment portfolio may act as a further trigger for the stock in the coming times.
- At the current market price of Rs2,775 , the stock discounts its FY2008E earnings by 18.3x and quotes at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 10.7x. We maintain our Buy recommendation on the stock with a sum-of-parts price target of Rs3,300.
Sun Pharmaceutical Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,341
Current market price: Rs1,038
Price target revised to Rs1,341
Key points
- Sun Pharmaceuticals Industries (Sun Pharma) recently received the approval for the 100-milligram capsules of the anti-convulsant drug, Phenytoin, used to treat seizures related to epilepsy and neurosurgery. Anticipating a 20% market share for Caraco Pharmaceuticals (Caraco) at 50% price erosion, we believe this approval is likely to add revenue worth $20 million to the FY2008 revenues.
- In view of the recent launches like Phenytoin, Ondansetron and Glipizide, and the potential revenue flowing from the tentative approvals (eg Zolpidem Tartarate and Carvedilol), we expect Caraco's revenues to grow by 44.1% and 48.9% to Rs537.1 crore and Rs799.6 crore in FY2007 and FY2008 respectively.
- The rest-of-the-world market is likely to maintain the CAGR at 53% for the next two years. Hence, our revised export estimates stand at Rs1,026.8 crore and Rs1,484.2 crore for FY2007 and FY2008 respectively. That is a CAGR of 49.4%.
- On the domestic formulations front, the evolution index of Sun Pharma is 106% whereas the industry grew at above 17% in the last couple of quarters. Hence, we have revised our growth estimates for the business from the earlier 16% to 18%. As a result, our revised top line estimates for the company stand at Rs2,145.8 crore and Rs2,791.2 crore for FY2007 (up 31.1%) and FY2008 (up 30.1%) respectively.
- With more and more revenues flowing from the high-margin US market, the OPM is likely to expand by 390 basis points to 33.9% in FY2008. As per our revised estimate, the net profit would grow at over 27% CAGR to Rs712.2 crore n FY2007 and to Rs927.2 crore in FY2008.
- The demerger of the innovative research unit is expected to be completed by the end of FY2007. Post-demerger, the R&D expenses would reduce by ~35%, leading to the accretion of Rs2.1 and Rs2.7 to the FY2007E and FY2008E EPS respectively.
- Our revised EPS estimates stand at Rs36.7 (up 7.5%) and Rs47.5 (up 3.5%) for FY2007 and FY2008 respectively. As per our revised estimates, we have valued the base business at Rs1,287 and the demerged R&D entity at Rs54 per share (as per our previous estimate). This gives us a fair value of Rs1,341 for Sun Pharma. Hence, we maintain our Buy recommendation on Sun Pharma with a revised price target of Rs1,341
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