Thursday, February 15, 2007
Sharekhan Commodities Buzz dated February 15, 2007
NIFTY (4047) SUP 4011 RES 4093
BUY WOCKPHARMA (340)
SL 335 T 350, 353
BUY NATIONALUM (233.75)
SL 228 T 241 ,243
BUY SEAMACLTD (204.45)
SL 199 T 215,218
SELL GTC (210.25)
@ 212 SL 216 T 202,200
SELL ICICIBANK (914.4)
@ 918 SL 923 T 905,902
Pendulum likely to swing towards bulls
The pendulum of the mind alternates between sense and nonsense, not between right and wrong.
As expected, it has been a see-saw session this shortened week. Can we see some resurrection after the correction? That's the big question on everybody's minds. Going by the firm trend in global markets coupled with encouraging comments on the US economy from Fed chief Ben Bernanke, the local bulls are all set for a comeback. Some of that resurgence was evident in mid-afternoon trades, when the key indices rose from the abyss to end only marginally down. The recovery effort by the bulls is likely to spillover into today's trade. Plus, the F&O cues are a little bit better with the Nifty February Futures trading at a premium to the Spot Nifty and Put-to-Call ratio falling slightly.
Having said that, with interest rates rising faster than earlier and inflation at two-year peak, we are in for a bumpy ride at least in the near term. Despite the sudden and sharp fall, valuations are still pretty high. Foreign capital inflows remain volatile. In fact, a Merrill Lynch report says that fund managers are cutting exposure to China and India, where monetary tightening concerns are rising, and are instead looking at Taiwan, Korea and Thailand. The budget won't have much of an impact on the market either. So, once should brace for a much tougher time after a nearly four-year bull run.
Shares of House of Pearl Fashions and Redington India will list today on BSE and NSE. The IPO of Idea Cellular has been subscribed over 7 times so far. The issue closes today. The MindTree Consulting issue has closed and has been subscribed by 103 times.
FIIs were net sellers to the tune of Rs1.65bn (provisional) in the cash segment yesterday. From the F&O segment, they pulled out Rs7.31bn. Foreign funds offloaded shares worth Rs2.4bn in the cash segment on Tuesday. On the other hand, Mutual Funds pumped in Rs248.7mn on the same day.
US stocks closed firm on Wednesday, pushing the Dow Jones Industrial Average to a new all-time record, as investors cheered soothing comments on inflation from Bernanke. The market also welcomed upbeat earnings from Applied Materials and growing talk of a restructuring at DaimlerChrysler.
Citigroup and JPMorgan led the rally, helping send the Dow to its highest close and the Standard & Poor's 500 Index to a six-year high. The Nasdaq Composite Index rose the most in a month after Applied Materials reported increasing orders.
The Dow average climbed 87.01, or 0.7 percent, to 12,741.86. The S&P 500 added 11.04, or 0.8 percent, to 1455.30, completing its best two-day advance since Sept. 26. The Nasdaq advanced 28.50, or 1.2 percent, to 2488.38.
US light crude oil for March delivery slumped $1.06 to $58 a barrel on the New York Mercantile Exchange after a mixed weekly inventory report.
Treasury prices rallied, lowering the yield on the benchmark 10-year note to 4.73 percent from 4.81 percent late Tuesday. In currency trading, the dollar fell versus the euro and yen.
In Asia this morning, most markets are on firm footing. Stocks climbed to a record after Japan's economy grew at the fastest pace in three years and Fed chairman doused concerns that interest rates will rise in the region's biggest export market.
Key European markets too finished higher. The FTSE 100 in London rose 39.4 points or 0.6% to 6,421.2. Germany's DAX advanced 65.84 points or 0.95% to 6,961.18. France's CAC climbed 43.15 points or 0.76% to 5,725.84.
Emerging markets like Brazil and Russia also gained overnight.
SREI Infrastructure Finance Limited: T. Rowe Price Associates, Inc.& its affiliates acting in concert with the T. Rowe Price New Asia Fund has acquired from open market 2938720 equity shares of SREI Infrastructure Finance Limited on 9th Feb 2007.
The turnover on NSE was down by 12% to Rs88.79bn. BSE Metal Index was the biggest gainer and gained 1.56%. BSE Oil & Gas index (up 0.73%) and BSE Tech (up 0.66%) were among the other major gainers. However, BSE Bank index lost 3.99% and BSE Auto index fell by 1.09%.
IFCI, IDBI, Hindalco, SAIL, HFCL, Nagarjuna Fertilizers, R Com, IDFC, IVRCL Infrastructures, Tata Steel, Aftek, Cairn India, Ashok Leyland, HCC and Satyam.
Lower Circuit Filters:
Ansal Infrastructure, GMR Industries, Shree Precoated, Ansal Housing, Dawn Mills, Heritage Foods, KS Oils, Nirlon, Silverline, BF Utilities and Tanla.
Allahabad Bank, ACC, Bajaj Hindustan, CESC, Cummins, GNFC, India Infoline, IDBI, Jyoti Structures, Matrix Laboratories, ONGC, Praj Industries, Reliance Industries, Satyam Computer, Sesa Goa, Tata Power and Wipro.
R Com – Buy from Motilal Oswal
Hindalco – Outperform from Macquaire Research.
Long Term Investment:
Major News Headlines:
Bharti Airtel cuts roaming rates, waives rentals, deposits
Bank of Baroda signs MOU with Pioneer Global to form asset management JV
ONGC, ENI agree to exchange Oil Exploration areas
Tata Motors, Iveco to explore manufacture of trucks, buses
Gitanjali Gems buys Majority stake in Tri-Star Worldwide LLC
PNB raised its prime lending rate to 12.25% from 11.75%
Some stability likely
The bulls managed to overcome huge volatility in the market to close flat and with benchmark Sensex closing above the 14k mark on back of short covering in derivatives segment. NSE Nifty reversed its loss and closed 3 points higher after the wild intra-day gyrations for the fourth straight trading session kept the bulls under control for most part of the day. Value buying was also seen in metal and Power stocks aiding the recovery in the market. Wipro, REL and Hindalco were the major gainers among the 50 Nifty scrips. While, Bajaj Auto, HDFC bank and Maruti were among the major losers.
Banking and Real Estate stocks were in line of fire after RBI raised the amount of cash lenders must set aside to cover deposits for the second time in as many months to curb inflation. In a surprising move RBI last evening hiked the CRR currently at 5.5% by 50bps effective in two stages from 17th February and 3rd March 2007. This is likely to suck out Rs140bn liquidity from the market. The move seems to emanate from RBI’s concern on rising inflation and sustained high credit growth. Finally, NSE Nifty closed higher by 3 points at 4047 and BSE 30-share Sensex closed down by 81 points at 14010 after hitting a low of 13805 and a high of 14036.61.
Among the Banking stocks, ICICI Bank was down by 4% to Rs914, SBI was down by 6% to Rs1102, Canara Bank was down by 5% to Rs210 and Bank of India lost over 4% to Rs169.
Even the Real Estate stocks fell sharply, Bombay Dyeing was down by over 4% to Rs581, Parsvnath Developers fell by over 1% to Rs294 and Akruti Nirman was down by over 6% to Rs420.
Short covering was also seen among the FMCG stocks. Britannia was up by over 6% to Rs1268, McDowell was up by 4% to Rs816 and ITC added 0.5% to Rs174. Others like Dabur and Marico gained by over 1% each.
Auto stocks tumbled sharply under pressure. Tata Motors lost 2% to Rs850; Maruti slipped by 4% to Rs857and Bajaj Auto was down by 1% to Rs3014.
The market may take a break from its consecutive 3-session losses. Yesterday's turnaround after a steep fall and overnight gains in global markets coupled with strong Asian markets in the morning trades signals positive outlook. Also a further decline in global crude oil prices could help the sentiment remain positive. However, caution should be maintained as the market could exhibit volatility during intra-day trades. Among the domestic indices, the Nifty may slip to 4025, while on the upside it could edge higher in the range 4100-4210. The Sensex has a likely support at 13950 and may face resistance at 14250.
US indices ended in the green on Wednesday. While the Dow Jones jumped by 87 points to close at 12741, the Nasdaq ended 29 points higher at 2488.
All Indian ADRs ended in the green on the US bourses. MTNL rose sharply and gained 4% while, ICICI Bank, Satyam, VSNL, Tata Motors, Rediff, Patni Computers, Infosys and Dr Reddy's move up over 1-3% each.
Crude oil prices declined after moving up for the last few sessions. The Nymex light crude oil for March delivery slipped $1.06 to close at $59.06. In the commodity space, the Comex gold for April series moved up $3.50 to settle at $672 a troy ounce.
Hindalco: Novelis deal roll out Hindalco?says CLSA
Broking House - CLSA Emerging Markets
Recommendation - Underperformer
No meaningful synergy in near term to Hindalco...
In its Report Dated 13th February 2007, CLSA initiates ''Underperform'' on Hindalco at CMP Rs 149.40 with a Target of Rs 140 for 12 month.
CLSA mentions that Hindalco has entered into a definitive agreement with the Canada based Novelis to buy out the company for US$3.6bn in equity in an all cash deal. With this acquisition Hindalco is effectively making an investment worth 80% of its market cap in an asset that is likely to yield negative/low returns in near to medium term. CLSA further adds that Novelis also has US$2.4bn of debt on books, implying EV of US$6bn.
CLSA makes us aware that the deal will require the approval of 66.66% of the votes cast by shareholders of Novelis Inc. at a special meeting to be called to consider the arrangement followed by court approval.
CLSA states that acquisition price for Novelis is at 100% premium to Novelis'' 2006 average price and at 57% premium to last three month average price. As per news paper reports Hindalco will buy Novelis through a SPV. Hindalco will invest US$750mn of equity in that SPV (US$450mn own money and US$300mn borrowed from Essel Mining) says CLSA.
CLSA highlights the SPV will take debt of US$2.8bn. Unlike Tata-Corus deal, lenders for all of this debt will have recourse to Hindalco.
CLSA informs us that since Novelis has made a loss in 9m2006 and is unlikely to have significant surplus cash flows in the coming years, it would be difficult to raise non-recourse debt for Hindalco in the SPV.
CLSA do not see any meaningful synergy gains in near to medium term and acquisition is likely to result in over 15% EPS decline for FY08. Hindalco''s net gearing will go up from 0.1x to 1.1x. Until there is more visibility to returns from this transaction, CLSA believes the stock will underperform and have cut on its recommendation to reflect this view. CLSA quotes new target price of Rs140.
The market may edge higher today tracking firm Asian and US stocks. However, the upside may be capped by data showing FII outflow after a recent surge in their inflow. Strong Japanese economic growth data has also lifted expectations for a rate increase at the Bank of Japan’s policy meeting on 21 February 2007.
The market witnessed a sharp correction amid immensely volatile trade over the past four days due to worries of rising interest rates and due to a large number of IPOs lined up in the coming weeks.
Nifty has found support at its crucial level of 4000-4040. It is currently at 4047.10. Nifty also has strong resistance at 4,135 and will turn bullish for a short-term only if it breaks 4,135. In that case, Nifty can again test its all-time high of 4,245, according to technical analysts.
FIIs were net sellers to the tune of Rs 240 crore on Tuesday 13 February 2007, the day when Sensex had lost 100 points. As per provisional data they were net sellers to the tune of Rs 165 crore on Wednesday 14 February, the day when Sensex had lost 81 points.
FIIs were net sellers to the tune of Rs 247 crore in index-based futures on 14 February. In the recent market correction, there were heavy FII sales in index-based futures. FIIs net sellers to the tune of Rs 451 crore in individual stock futures on 14 February. Volatility may continue in the near term ahead of expiry of February 2006 contracts next Thursday 22 February 2007. The market remains closed tomorrow on account of Mahashivratri.
Asian shares were firm on Thursday. Key benchmark indices in Hong Kong, Japan, South Korea and Singapore were up by between 0.7% to 1.8%.
US stocks and bonds surged on Wednesday, with the Dow climbing to an intraday record, after Federal Reserve Chairman Ben Bernanke said the economy is growing and inflation pressures were starting to ease. The Dow Jones industrial average rose 87.01 points, or 0.69 percent, to end at 12,741.86. The Standard & Poor's 500 Index gained 11.04 points, or 0.76 percent, to finish at 1,455.30. The Nasdaq Composite Index advanced 28.50 points, or 1.16 percent, to close at 2,488.38, off its session high at 2,494.51.
Emkay pcr has kept buy rating on on FAG Bearing.
Networth has kept buy rating on India Cement; with a target of Rs 285
Karvy has kept buy rating on Aegis Logistic; with a target of Rs 206.
Brics pcg has kept buy rating on PVR; with a target of Rs 342.
DSP Merrill Lynch has kept buy rating on Reliance Communications; with a target of Rs 580.
CLSA has kept underperformer rating on Suzlon Energy; with a target of Rs 1220.
Citigroup has downgraded Tata Power to hold rating; with a target of Rs 648
In an industry where 30 per cent net profit margins are pretty much the norm-at least amongst the first tier of Indian it services firms-a margin of 2.6 per cent at the net level is difficult to reconcile with. That explains to a large extent why the stock of Polaris Software Labs has been treated with disdain for the past three-four years, during which the stock price hit an all-time low of Rs 51.8 in June 2006. But just when industry pundits and analysts were poised to give up on Polaris, the company has begun showing signs of a revival. After a miserable 2005-06, when the company posted revenues of Rs 825 crore and a profit after tax (pat) of Rs 21.3 crore-as against a pat of Rs 58 crore in the previous year-the Chennai-headquartered company has bounced back in the current fiscal with revenues for the nine-month period ended December 2006 of Rs 761.59 crore and net profits of Rs 79.6 crore. That's a net margin of 10.5 per cent-still not up there with the best, but a huge improvement nevertheless. By the close of the year, the company is confident of crossing Rs 1,000 crore in turnover and Rs 100 crore in net profit. The stock markets have been quick to sense a turnaround, with the scrip galloping a little over four-fold since last June.
Polaris' problem has always been profitability, right from when the Citigroup company OrbiTech was merged into it in 2002-03. Revenues got a huge leg-up no doubt (from Rs 293 crore to Rs 431 crore post-merger), but pat margins were confined to single digits. Arun Jain, Chairman & CEO, Polaris, has an explanation for the bottom line woes. "Our investments peaked in 2005-06. Companies in the growth phase do have one bad year when they invest for growth. I have always believed in the product and services combination model for a mid-cap company like Polaris-it takes time but that is the only way we can hold our own against the biggies," he says.
The Polaris top brass feels that strategy is getting validated. "At best there has been a delay of a couple of years when we made mistakes, which have only made us wiser,'' says Ashok Korwar, a long time management consultant and advisor to Polaris. Prior to the acquisition of OrbiTech, Polaris was having difficulty selling its banking expertise overseas; its credentials of having developed robust products for Citibank were clearly inadequate. Clients raised issues of intellectual property rights (IPR). The Polaris management thought that by acquiring IPRs through OrbiTech it could fix that problem.
But that wasn't the only issue clients had. Many of them did not want the 'monolithic product platform' that Polaris offered-which may be modern and even futuristic but entailed shutting down banking operations during implementation. By 2003-04, Polaris had learnt its lessons and changes were made in the product to make it flexible enough to sit on any existing platform. This way banks could implement modules they desired without any major hiccup in operations. But the reorientation, the branding of the new product from Orbisuite to Intellect and, finally the selling, took time.
"We had to make massive investments, of at least Rs 100 crore just for products post merger, but for 2005-06 we did not capitalise product expenses. If we did not follow conservative accounting practices, we would have shown a better bottom line," says Jain. Currently, the core team that works on product development consists of 150-the remaining 650 have been shifted to product implementation, maintenance and support onsite.
By 2005-06 Polaris, as one company official puts it, had a lot of things to sell but not enough feet to do the selling. Enter Arup Gupta from TCS as Chief Operating Officer. His immediate priority was to streamline operations. Marketing, sales, delivery were integrated. "We are doing top-end work with 11 of the top 25 banks globally and 11 more are talking to us," says Jain. Adds Gupta: "The average size of a deal has now grown from $1 million (Rs 4.5 crore) to $5 million (Rs 22.5 crore) and we will be taking this to $10 million (Rs 45 crore) in 12-18 months.''
A recent J.P. Morgan report says: "Polaris is our top pick in the mid-cap India it space." However, as the gap between the Tier-I and Tier-II of Indian it services keeps widening every quarter, Polaris has to scale up fast-and profitably.
It's difficult to find an equity analyst tracking his company, but that doesn't faze K. Padmanabhan, whose dream for his group led by flagship Teledata Informatics is to be as big as TCS some day soon. He's got some way to go. For the first nine months of the year ending March 2007, Teledata had revenues of Rs 2,229 crore and profits of Rs 282.6 crore-TCS' corresponding numbers were Rs 11,034 crore and Rs 2,678.5 crore, respectively. What's impressive though is Teledata's growth rate during that period, against the previous year's corresponding nine months: 273 per cent in revenues, and 159 per cent at the net level. Over three years, its compounded annual growth is 200 per cent in profits and 112 per cent in sales.
Why then are brokerage houses not researching the stock-despite which the price has shot up 424 per cent over five months (until recently the stock was trading even below its earnings per share)? Teledata Informatics is debt-free, and has 27 software solution companies, which provide ERP and CRM solutions. It derives 95 per cent of its revenue from exports and, for good measure, is also the fourth largest ship-owner in India with 14 ships, and a global leader in providing ship management solutions. Says K. Padmanabhan, Managing Director, Teledata Informatics: "We haven't been able to generate confidence among investors. Therefore, we are increasing our stake in the company." As on December 31, 2006, the promoters' holding in the company was 14.34 per cent (till June it was below 5 per cent). Plans are to increase it to 25 per cent.
In the first week of December, Teledata made a demerger announcement, after which the stock with a Rs 10 face value took off-from under par to around Rs 50 at the time of writing. For every 100 shares of Teledata Informatics, shareholders will get 100 more shares plus 50 shares each of Teledata Marine Solutions and Teledata Technology Solutions. However, the face value of all the three companies will come down to Rs 2 per share. That may not be the most attractive demerger scheme in recent times. Says Amit Rathi, Director, Anand Rathi Securities: "Worldwide entities with multiple businesses suffer from conglomerate discount, as investors like to give premium to standalone business. However, companies with lower credentials demerge their businesses just to come in spotlight." Padmanabhan, meantime, is aiming for $7.5 billion (Rs 33,750 crore) in revenues by 2010. Should TCS watch out?
- AMD Metplast Ltd. (AMD) was originally incorporated as Ashoka Metal Décor Private Ltd in December 1983; the company was changed to AMD Metplast Pvt Ltd. in August 2004. The Company subsequently became a public limited company on 2nd June 2006. It operates in the beverage packaging industry.
- AMD’s products are used in packaging for carbonated soft drinks (CSD), mineral waters, beer and other alcoholic beverages, juices, sauces, ready-to-drink milk products etc. Other sectors where specific products of AMD can be used are pharmaceuticals, personal care products and non-alcoholic items like edible oils etc.
- AMD has four plants with an installed capacity of 2661.12 Million per annum (mnpa) (184800 cases) of crown caps, 4620 MTPA of resin processing to make PET perform and 288 mnpa of CSD closures.
- Company is having a strong technical base with advanced Plant & Machinery. The crown caps manufacturing machines are imported from Sacmi, Italy, and, imported the key plant from Krauss Maffei, Germany to manufacture PET PREFORMS.
- Upon completion of the issue, promoter’s holding will get reduced to approximately 52.53% of the post issue equity share capital from current 99.9%.
- To set up a new PET Preform Line at its existing plant at Neemrana, Rajasthan
- To part finance long term working capital requirements of the company
- To prepay/repay the Debt
- To meet the issue expenses & general corporate purposes
- It is an approved supplier by PepsiCo and The Coca Cola Company for Crown Caps. It also caters to brands like catering to brands like Gold Spot, Limca, Bisleri-Soda, Thumps-Up, Double-7, etc.
- Company has been consistent profit making company for the last 20 years. The Company was incorporated since 1983 and since then, it has not posted any losses.
- AMD enjoys number of tax benefits like sales tax benefit for Unit 1 in UP where company pays only 1.875% instead of 2.5% tax & 1% exemption in CST. Also, The Company is allowed CST exemption on the central sales outside Rajasthan subject to investment of Rs 30 Crores in Fixed assets. Quantum of benefit on this account is around Rs10 mnpa for 10 years.
- Debtors to sales ratio have shown a declining trend in last 5 years from 45% in FY02 to 23% in FY06.
- For past three years company has been generating positive cash flows from operations.
- OPM of the company has increased from 14.1% in FY02 to 19.3% in FY06. NPM in FY06 was 6.3% compared to 1.9% in FY05.
- AMD will be using Rs.120mn to repay its high interest cost debt. This will help company to rationalize its interest cost approx. by Rs.12.9mn.
- The Company is largely dependent on a single customer i.e. M/s Hindustan Coca Cola Beverages Pvt. Ltd. (HCCBL) which constitutes more than 80% of the total revenues in case of crown caps and more than 72% in case of pet preforms & closures.
- The main consumers of AMD’s products are soft drink manufacturers and beer industry, whose business is largely seasonal in nature. Any adverse change in the demand in the season may affect the operations of the Company.
- AMD is in a business, which has low entry barrier because of which the competition is intense.
Financial information of the company relates to beverage packaging operations and as there are no other listed companies in the Indian beverage packaging industry.
- AMD’s sales, EBIDTA & NPM have grown at a CAGR of 9.3%, 11.8% & 6.5% respectively for last 5 years. AMD’s sales as on 31 st March 2006 stood at Rs.658mn.
- The company’s net worth as on 31 st March 2006 is Rs.324.6mn and book value per share at Rs.36.1 per share (pre equity issue).
- AMD’s RONW & ROCE stood at 13.1% & 12% & Debt to Equity ratio at 1.6 times respectively for FY06.
- Post issue annualized EPS based on 31 st October 2006 earnings is Rs.1.8 per share. The shares are being offered in the price band of Rs. 65-75 at P/E range of 36-41.
- Raj Television Network Ltd. (RTL) was incorporated on 3 rd June, 1994.The company is a regional satellite television broadcaster in Tamil Nadu, running entertainment and media channel ‘Raj TV’ and ‘Raj Digital Plus’. It is regional pay channel network in Tamil Nadu.
- The Raj TV network provides programs like films, serials, game shows, classical concerts, discourses by spiritual gurus and programs related to spiritual tourism.
- The company utilizes its most resources in producing their own serials, films/non-film based programs.
- The revenue stream consists of Advertisement Revenue, Pay Channel Subscription Income, Air Time Sales and Content Syndication.
- Advertisement Income accounted for 47 % and 45 % of total income, export revenues accounted for 2 % and 5% of total income, content syndication accounted for 14 %and 13 % of our total income during the period ended 31 st December 2006 and the Financial Year ended March 2006 respectively.
- Subscription revenues accounted for 37 % of our total income during the period ended 31 st December 2006.
- As there is no published data on viewership numbers, considering the revenues earned from the pay channel subscriptions received in December 2006 the subscription numbers is 10.22 Lakhs as on December 2006.
- Post issue shareholding of the promoters will reduce to 72.5% from 100%.
- Strengthen production facilities, enhancing content and content acquisition.
- Launching a new television channel.
- Broadcast of existing channels in the international market.
- To produce short-films/tele-films.
- Acquisitions and export of films in international market.
- To construct new studio premises.
- To finance general corporate purposes.
- To meet issue expenses.
- India is the third largest television market in the world today. There are over 119 million television households, which comprise only about 60 per cent of the total households in the country. Of these 119 million television households, about 50 million receive cable television services, leading to a penetration of only about 42 per cent cable TV households to total TV households and 25 per cent cable TV households to total households in India. As can be seen from these low penetration percentages, there exists a huge untapped potential for growth in this industry.
- Most of the serials and other programmes are produced by RTL, therefore, they also hold the proprietary rights for the most of the content produced by us.
- RTL is able to increase revenues due to their model of producing our own content by way of cost control and higher margins in advertising revenues.
- RTL has predominantly positioned themselves as a regional player. They enjoy good brand value and positioned us as one of the leading Tamil satellite regional television network, primarily due to their focus on the Tamil speaking population.
- Currently the company holds the broadcast rights for spiritual programs of more than 1000 hrs and the rights for approximately 1300 tamil films that are shown in the prime slot.
- Revenue from advertisement is a major source for RTL.Being a regional channel in Tami nadu, it may not be able to attract large national & international advertisers.
- RTL holds a small portion of the market in Tamil nadu and has tough competition from Sun TV, which holds major share, K TV and Jaya TV.
- The revenue of the company has grown to Rs 33.79 cr at CAGR of 6.9% over the period FY 2002 to FY 2006. The revenue for the nine-months ended December 31, 2006 was Rs 30.72 cr.
- The net profit has grown to Rs 3.56 cr at CAGR of 4.24% over the period of FY 2002 to FY 2006.The net profit for the nine-months ended December 31, 2006 is Rs 9.87 cr.
- The RONW in March 31, 2002 was 15.39% that reduced to 10.27% in March 31, 2006. The RONW in December 31, 2006 was 22.19%.
- Debt-equity ratio of the company stood at 6.96 for FY 2002 that reduced to 0.73 for the nine months ended December 31, 2006 on account of issuance of bonus shares in September 2006 in the ratio of 5:1.
- The book value per share on March 2006 was Rs 194.41 and Rs 41.54 on December 1, 2006 due to issuance of bonus shares in the ratio of 5:1.
- EPS as on March 31, 2006 was Rs 3.33 and on December 31, 2006 was Rs 9.21. Post issue annualized EPS is Rs 10.14.
- Pot issue PE is Rs 21.8 at the lower end of the price and Rs 25.34 at the upper end of the price. Industry average is 45.30.
- Astral Polytechnik Ltd. (APL) was established in the year 1996 and subsequently became a Public Ltd. company in the year 2006.
- APL is a manufacturer and provider of CPVC piping and plumbing systems in India since 1999. APL acquired licensee of Noveon, USA to manufacture and market CPVC piping and plumbing system in India. Company also entered into a techno-financial joint venture with Specialty Process LLC of USA, which provides APL the required technical expertise for manufacturing CPVC pipes and fittings for home and industrial application.
- APL is equipped with state of art production facilities at Ahmedabad and Himachal Pradesh to manufacture plumbing systems from ½” to 6” with all kinds of necessary fittings.
- APL had introduced a new product range in lead free PVC pressure pipes and fittings with a concept of providing a one-stop source for all the plastic piping systems. Company also began trading in products such as CPVC and PVC fittings, flanges and valves.
- Company has received an ISO 9001:2000 certificate in respect of manufacture and supply of CPVC and PVC pipes and fittings for plumbing systems and industrial piping system. APL’s raw material for manufacturing CPVC products is certified by National Sanitary Foundation (NSF).
- To part finance the expansion project of existing line of business.
- To part finance incremental working capital requirements for existing and upcoming line of activity.
- Total income of the company has been growing at a CAGR of 60.36% from Rs. 8.12 crores in FY 02 to Rs. 53.72 crores in FY 06. PAT of the company has been growing at a CAGR of 51.12% from Rs. 1.13 crores in FY 03 to Rs. 3.9 crores in FY 06. While for the month ended 30 th September 2006 APL reported a profit Rs 5.87 crores.
- Company’s net worth as on December 31, 2006 stood at Rs. 25.5 crores. As on December 31, 2006 Book value per share is Rs. 32.44 per equity share.
- Post issue annualized EPS on the basis of December earnings is Rs. 6.96. Shares are being offered at a price of Rs.115. At P/E multiple of 16.51.
- Evinix Accessories Ltd. (EAL) was incorporated in the year 1996 as Evinix Fashion Accessories Private Ltd. Name of the company was changed to Evinix Accessories Private Ltd. in the year 2003. It became a public limited company on 3rd February 2006.
- EAL is in manufacturing and designing of fashion accessories and garments. It is also engaged in trading of fabrics.
- The company’s current manufacturing facility is located in Faridabad district of Haryana. This facility has an installed capacity to manufacture 20lakh fashion accessories/garments per year. Current plant capacity utilization is 80%.
- EAL is serving both in domestic and foreign markets.
- Upon completion of the issue, promoter’s holding will get reduced to 29.91%of the post issue equity share capital from current 44.44%.
- Acquisition of a garment-manufacturing unit.
- Expansion at the acquired NSEZ, Noida unit and at Faridabad unit.
- Setting up retail business activities.
- Long-term working capital requirement.
- In a span of last four years (2002-2006), the total sales have grown at a CAGR of 24.72% while its net profit increased at CAGR of 69.39%.
- Earning Before Depreciation, Interest and Tax (EBDIT) for the fiscal year 2006 was Rs. 805.44 Lakh, which increased by 81% in comparison to the last fiscal, which was Rs. 446 Lakh.
- EPS for FY06 is Rs.8.7. Post issue EPS is Rs.5.87. Post issue P/E will be in the range from 4.89-5.87 for the price band of Rs.100/- to Rs.120/-
- Idea Cellular Limited (ICL) was incorporated as Birla Communications Ltd. in the year 1995.The name of the company was changed to Birla AT&T Communications Ltd. and then subsequently to Birla Tata AT&T Ltd. in the year 2001and finally in the year 2002 name was changed to present.
- ICL is the fifth largest GSM mobile services operator, has licenses to operate in 11 circles. It has more than 13 mn subscribers and is adding almost 800,000 more a month.
- ICL has made a pre-ipo placement of Rs 375 crore to its promoters, at the top end of the price band.
- The Birla group has 65.8% equity stake in Idea. Birla has invested Rs13.73 bn in IDEA in this financial year.
- The company also proposes a green shoe option not exceeding Rs3.19bn in excess of the equity shares that are included in the IPO.
- Idea Cellular was awarded a National Long Distance (NLD) licence by the Department of Telecommunications. It will set up the NLD network by March 2008.
- Building, strengthening and expanding its network and related services in the new circles.
- Entry fee and capital expenditure for NLD operations.
- Rollout of services in Mumbai circle.
- Redemption of preference shares.
- Cellular subscribers are growing at a y-o-y CAGR of 94% in last 10 years, adding nearly six mn subscribers a month. Mobile subscribers are estimated to increase to approximately 210 mn by FY 2008.
- Three drivers like falling handset costs, lowest tariff as compared to other parts of the world and extensive reach have reduced the entry barriers for new subscribers and thus expanded the market available to telecom service providers .
- Its subscriber base increased from 10.36 mn to 12.4 mn during the last quarter, while revenues rose by 49.9% to Rs11.48 bn.
- ICL has 8% market share in the country where less than one in seven people own a cell phone.
- In a span of last five years, the total subscriber base has increased at a CAGR of 86%.
- ICL subscriber numbers have increased by approximately 68.8% in the last nine months to 12.44 mn as at December 31, 2006 from 7.37 mn subscribers as at March 31, 2006.
- In the absence of whole India presence like other integrated operators, Idea Cellular is unable to provide seamless roaming services and is forced to share its revenue with other operators.
- Company is dependent on a number of relevant fixed-line, NLD, ILD and other mobile operators for its interconnection arrangements and leased-line arrangements.
- Average monthly churn rate is increasing at 6.2%, 7.3% and 6.2% for financial years 2004, 2005 and 2006 respectively.
- ICL had negative cash flows in the financial years 2002, 2003 and 2006. Any negative cash flows in the future could have an adverse effect on its operations.
- Total revenues increased 31.1% to Rs. 29,733.83 mn for the financial year 2006 from Rs. 22,674.56 mn for the financial year 2005. This increase was mainly due to increase in its subscriber base.
- ARPU declined by 5.5% to Rs. 391 for the financial year 2006 from Rs. 414 for the financial year 2005 per subscriber per month.
- Other income decreased by 32.8% to Rs. 78.97 mn for the financial year 2006 from Rs. 117.43 mn for the financial year 2005. This decrease resulted from reduced interest income.
- Post issue EPS work out to be Rs.0.78 (on upper price band) and Rs. 0.77(on lower price band). Post issue P/E will be in the range from 84 to 96 for the price band of Rs.65/- to Rs.75/-.
- Profit after Tax (PAT) for the fiscal year 2006 was Rs. 2030.43 mn, which increased by 197% in comparison to the last fiscal, which was Rs.682.73 mn.
South East Asia Marine Engineering & Construction
Cluster: Ugly Duckling
Price target: Rs300
Current market price: Rs206
Price target revised to Rs300
- South East Asia Marine Engineering & Construction (SEAMEC) has reported a robust growth of 124.6% in its revenues to Rs61.6 crore for the fourth quarter of CY2006. The revenue growth was largely contributed by the firming up of the charter (day) rates and the incremental revenue from an additional vessel (SEAMEC Princess) acquired recently.
- The operating profit margin (OPM) at 49.3% was lower than 65.1% reported in Q4CY2005 as the fourth vessel (SEAMEC Princess) was operational only for a 25-day contract during the quarter.
- The earnings grew by 64.8% to Rs25.9 crore in Q4CY2006, ahead of our expectations of around Rs19.2 crore.
- On a full year basis, the revenue and earnings have grown at a healthy rate of 93.6% and 202.4% to Rs159.3 crore and Rs58.7 crore respectively. The OPM improved significantly to 44.5% (up from 33.2% in CY2005) in spite of the one-time expense of Rs8 incurred on mobilisation and repairs of its recently acquired vessel in Q3CY2006.
- We have revised the estimates for CY2007 to factor in the appreciation of the rupee, better than expected charter (day) rates and delay in the conversion of the newly acquired vessel into a multi service vessel (MSV). The new vessel, SEAMEC Princess, is expected to be operational for around 200 days in CY2007 (as compared with around 300 days anticipated by us earlier). Consequently, the revenue and earnings estimates for CY2007 are being revised downward by 5% and 16.3% respectively. The estimates for CY2008 have also been introduced in this note.
- At the current market price the stock is trading at 8.4x CY2007 and 5.8x CY2008 estimated earnings. We continue to maintain our Buy call on the stock with a revised price target of Rs300 (8.5x rolling four quarter earnings).
CRR hike—negative for banks
The Reserve Bank of India (RBI) has surprised the market by hiking the cash reserve ratio (CRR) by another 50 basis points to 6% from 5.5% at present. The CRR is a percentage of the net demand and time liabilities (NDTL; read deposits) that the banks need to maintain in the form of cash balance with the apex bank. The hike would be implemented in two stages. The CRR would be first hiked by 25 basis points to 5.75% on February 17, 2007. One more hike of 25 basis points would be effected on March 3, 2007 which will take the CRR to 6%. The latest round of hikes is expected to absorb Rs14,000 crore of liquidity from the banking system. This would be in addition to the Rs13,500 crore already sucked in by the 50-basis-point increase announced in December 2006.
MUTUAL FUNDS: WHAT’S IN—WHAT’S OUT
Fund Analysis: February 2007
An analysis has been undertaken on equity and mid-cap funds’ portfolios, indicating the favourite picks of fund managers for the month of January 2007. Equity funds comprise of all diversified, index, sector and tax planning funds, whereas mid-cap funds include a universe of 18 funds such as Reliance Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla Mid-cap Fund etc.Download here