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Saturday, February 24, 2007
14K Gone: Sensex plunges 389pts
The Sensex opened with a positive gap of 50 points at 14,071, but could go no higher as selling pressure forced the index into negative zone.
Unabated selling, mainly in bank, cement and pharma stocks, saw the index drift to lower levels as the day progressed. The index tumbled to a low of 13,568 - down 503 points from the day's open.
The Sensex finally ended with a loss of 389 points at 13,633. The index ended the week with a huge loss of 723 points (5%).
The index dropped the 14K for the first time since January 11, 2007 when the index closed at 13,631.
Losers beat gainers 5:1, i.e there were five declining stocks for a single advancing share - out of 2,653 stocks traded, 2,211 declined, 404 advanced and the rest were unchanged today.
NO GAINERS, ONLY LOSERS
Grasim slumped 6% to Rs 2,271. ACC plunged 5% to Rs 916, and Gujarat Ambuja dropped 3% to Rs 123.
Bharti Airtel tumbled nearly 6% to Rs 756. Wipro and ITC shed around 4.5% each to Rs 623 and Rs 166, respectively.
ICICI Bank, Dr.Reddy's and Reliance Communications slipped over 4% each to Rs 908, Rs 682 and Rs 432, respectively.
HDFC and Hindalco declined 3.5% each to Rs 1,605 and Rs 144, respectively.
'POWER'FUL DEBUT
Power Finance Corporation (PFC) today listed at Rs 104 as against its issue price of Rs 85. The stock slipped a wee bit to touch a low of Rs 103.50, and then rallied to a high of Rs 117. Despite all-round bearishness, the stock ended with a sizzling gain of 31% (Rs 26.55) at Rs 111.55 on Day 1.
MOST ACTIVE COUNTERS
PFC topped the value chart with a turnover of Rs 450.80 crore followed by Reliance (Rs 180.40 crore), Tata Steel (Rs 114.30 crore), Globla Broadcast (Rs 102.50 crore) and Firstsource (Rs 89.25 crore).
PFC also led the volume chart with trades of around 4.07 crore shares followed by IFCI (1.67 crore), Firstsource (1.11 crore), Zee News (5.24 lakh) and Alchemist (4.35 lakh).
KR Choksey - Parsvnath Developers Ltd
Investment Rationale
Diversified Portfolio: PDL has a diversified business model in terms of development projects, client profile and geographical spread. In addition to integrated township, residential complexes, DMRC projects, PDL is keen to undertake projects for developing hotels, SEZ's and IT Parks.
Sustainable revenue growth: In 9MFY07, PDL reported robust net sales growth of 105.8%. Company is now intends to undertake projects for the development of hotels, IT parks and integrated townships. We expect the good revenue growth from all these initiatives by the company.
Real estate boom: Indian real estate market is growing at a rapid pace on the back of improved real estate prices and sustained demand from end users as well as investors. High economic growth, favorable demographic and socio-economic factors have led to a sharp rise in demand for housing and commercial real estate. Huge investments are lined up in infrastructure, IT/ITES sector and SEZ's leads to real estate boom.
Focus on non-metro cities: Company main focus area is non metro cities in India. With an increase of economic activities in non-metro cities in India will result to increase in demand for real estate projects in those cities and towns. In FY06, 99.6% of revenues came from non-metro cities.
Key Developments
Company has established their presence in 45 cities and 16 states across India. Going ahead, PDL is aggressively expanding their developing base by entering new verticals such as SEZ, hospitality business and retail space.
Financial Performance
Net sales up by 106% due to diverse revenue stream
For 9Months'FY07, PLD has reported net sales of Rs. 836 crore as compared to Rs. 406 crore, an increase of 105.8 percent. PDL has completed several projects in last 9 months resulted to increase in net sales of company, which mainly includes housing projects, hotels, integrated township projects etc.
Valuations
The annualized FY07 EPS of Rs10.1 discounts the current market price by 28.3x respectively. While it may seem expensive, we believe that such a business cannot be valued on the basis of the P/E multiple or other such conventional valuation methods. We value this company on the basis of there present land bank, long term revenue visibility from the projects, an established brand name and above all the positive potential of the infrastructure segment in the country. We recommend a Strong Buy recommendation to investors.
Industry Scenario
Indian real estate market is growing at a rapid pace on the back of improved real estate prices and sustained demand from end users as well as investors. High economic growth, favorable demographic and socio-economic factors have led to a sharp rise in demand for housing and commercial real estate. We estimate India to experience a demand supply gap of 17.9mn housing units by 2010. This apart, commercial real estate demand is expected to be around 350mn sq ft out of which IT/ITES and organized retailing sector should contribute around 300mn sq ft. Sensing this huge opportunity, the market has seen increased interest following the FDI relaxation and government's SEZ policy.
Demand Drivers:
IT/ITES growth : India is an emerging leading hub of IT and ITES/BPO activities, these sectors will continue to be the main drivers of suburban office demand. The IT and ITES sectors accounted for 80% of the 25m sqf of office space absorbed in 2005. Estimated requirement is about 50-70m sqf from the IT and ITES sectors over the next two to three years. As noted, the suburban fringe of the main cities has emerged as the primary growth market for offices, with 75% of office development in these areas. This sub-sector will continue to be fuelled by a 30% + annual growth forecast for the IT and ITES sectors.
SEZ: The government created SEZs to promote global trade and greenfield development. These zones, regarded as foreign territory for the purpose of duties and taxes, operate outside the domain of custom authorities and provide businesses located within their borders with exemption from customs duty on imported and exported goods and services. Favorable government policies and fiscal incentives have lured corporates to develop SEZs. 150 proposals have received formal approval, while 117 other proposals have received in principle approvals.
FDI Inflow: Key sectors have been in the radar of FDI like IT, telecoms, electronics, pharmaceuticals, automobiles and financial sectors. While growth has been strong, nonetheless FDI is still well below its full potential, and low by global standards, estimated at less than 1% of GDP (compared to 2.4% in China and 1.8% in Brazil ). However FDI flows are far behind those entering China. In 2005, China experienced US$60.6bn of FDI in flows versus India 's US$5.3bn. The government has opted for a gradual opening of the sector to foreign players by relaxing norms for single brand outlets and through the cash and carry model.
REIT's : REITs aim to provide stable, sustainable cash flows from primarily rental property. Globally a huge portion of real estate investment is routed through the Real Estate Investment Trusts (REIT). These essentially act as mutual funds to garner public money for investing in real estate assets and typically have a 5-6 year time horizon. The institutional real estate investment universe for such funds at end December 2004 was to the tune of US$5.9tn. We have witnessed a sluggish growth in REIT industry. With the huge investments lined up in the India Real Estate market helps to attract the investors.
Developments and Impact
¨ In Q3FY07, company issued 3.32 crore shares through an IPO, this has resulted in the post issue share capital of Rs 184.69 crore.
¨ Company has established their presence in 45 cities and 16 states across India. Going ahead, PDL is aggressively expanding their developing base by entering new verticals such as SEZ, hospitality business and retail space.
¨ In Q3FY07, company has also acquired land with developable area of 14.09 million sq ft of land. PDL now has a total land bank of 122.41 million sq ft of developable area to be developed at a total cost of approximately Rs 16,000 crore (including cost of land, construction and development).
¨ PDL has scaled up its projects and entered into concession agreements to develop shopping malls on 11 stations owned by Delhi Metro Rail Corporation on a BOT basis. The company has already executed 5 of these projects and they are expected to yield rental income for a period of either 12 to 30 years These malls also include strong brands like Big Bazaar, Spencers, McDonalds, Pizza Hut Levi's, Reebok, Adidas, Archies, Koutons, etc. as anchors.
inancial Analysis
Net sales up by 106% due to diverse revenue stream
For 9Months'FY07, PLD has reported net sales of Rs. 836 crore as compared to Rs. 406 crore, an increase of 105.8 percent. PDL has completed several projects in last 9 months resulted to increase in net sales of company, which mainly includes housing projects, hotels, integrated township projects etc.
Expansion of Operating Margins
During 9 months Fy07, operating profit jumped 140.2 percent to Rs 230 crore as compared to Rs 96 crore in 9 months FY06. The growth has largely been driven by buoyancy in the real estate activities in India as well as infrastructure development. Operating margins for Q3FY07 grew to 30.6% as compared to 23% (9mFY06). In FY06, EBITDA margins fell by 153 basis points to 22.4 per cent and it was mainly due to higher selling and administration expenses incurred during the year.
Net profit at Rs 139 crores for 9MFY07
In 9MFY07, company witnessed the sharp increase in the Net profit by 102.8 percent to Rs 139 from Rs 69 crores. The Interest cost and depreciation charges were at Rs 14 crores and at Rs 9 crores respectively. We have calculated the EPS on restated equity of 184.69 crore. The EPS for Q3FY07 was Rs 2.9 and Rs 7.5 for 9MFY07 as against Rs 3.7 in 9MFY06.
Valuations
At CMP of Rs. 288, Parsvnath Developers is quoting at P/E multiple of 28.3x based on its ttm basis. The stock currently quotes at EV/EBITDA of 44.0x and Mcap to sales of 4.7x. The company is expected to grow on account of diversified revenue stream, aggressive land acquisition plans and strong revenue growth. We believe PDL can command premium to other real estate companies with more stability in earnings and leadership position in North India. We recommend a Strong Buy on the stock
Risks: The risks that could hinder the earnings growth of Parsvnath Developers in time to come are as under:
- PDL's future growth is highly influenced by various macroeconomic factors. Today various tax benefits are available for real estate developers. Any change in tax policy in recent budget could affect the earnings of PDL.
- PDL main focus is in to Tier two to Tier three cities. PDL faces stiff competition from various organized and unorganized players in market. It will be very difficult for PDL to procure new projects and could adverse impact on future earnings of company.
- PDL has entered in various DMRC projects. Any termination of project may lead to adverse impact on earnings.
Growth: The growth for the company in the coming years is likely to be fueled by the following factors:
· Parsvnath Developers has a diversified portfolio with projects varying from residential complexes to commercial/shopping centers, multiplexes, from metro malls at DMRC stations to Hotels and IT Parks, and integrated townships. These projects are also well-diversified and spread across India in 45 cities and 16 states.
· PDL has scaled up its projects and entered into concession agreements to develop shopping malls on 11 stations owned by Delhi Metro Rail Corporation on a BOT basis. These projects would secure the future earnings of the company.
Currently PDL has a land bank of 122.4 mn sq. ft. whereas the comparable peer, Unitech Limited has a land bank of four times its size. Margin at PAT level of PDL is better at 16.7% in comparison to any other real estate developer. PDL operates in a highly exciting real estate space, it is available at cheap price as compared to peer companies like 'Unitech' and 'Mahindra Gesco'. Looking at the fanciness for the realty sector, strong revenue growth and diversified business model of PDL, we envision a bright prospect lies ahead for PDL. We recommend investors to buy for long term. Technicals Last Price: 285.80 13 day EMA 316.30 50 day EMA 344.01 200 day EMA 227.15 The stock is at downwards . The support for the stock exists at around 276 levels. The MACD indicator for the stock is moving sideways in negative zone. Investors can buy the stock at declines Recommendation & Investment View Recommendation : Market Out Performer Investment View : Strong Buy
Sharekhan Investor's Eye dated February 23, 2007
Unichem Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs360
Current market price: Rs265
Gearing up
Key points
- The domestic formulation business of Unichem Laboratories (Unichem) contributes 65% of its consolidated revenues. With a therapy-focused field force, expanding reach in semi-urban and rural areas, a steady stream of new product launches and a strong brand building ability, we believe, this business will organically grow at a CAGR of 12.8% over FY2006-08E.
- Niche Generics (Niche), which has recently become a wholly owned subsidiary of Unichem, will be used to expand into the European market. With the shift of Niche's manufacturing base to India, Unichem will also derive cost synergies. Against the current turnover of GBP12.3 million, we expect Niche to record sales of GBP12 million in FY2007E and of GBP13 million in FY2008E. Further, Niche is expected to report losses to the tune of GBP1-1.5 million in FY2007 and break even in FY2008.
- For the USA Unichem plans to develop a portfolio of 25-30 products over the next two to three years. These products will be sold through its marketing partners in the USA. Unichem has already filed two ANDAs, and plans to file another two to three in the current fiscal and eight to ten per year from FY2008 onwards. Even though the US revenues will start flowing in towards the second half of FY2008, the full potential of the US business will be realised only from FY2009 onwards.
- Unichem has set up wholly owned subsidiaries in South Africa, Brazil, the UK (Niche) and the USA in order to carry out its operations in those markets. The subsidiaries have not started generating revenues as yet. With increasing product registrations, the management expects the subsidiaries in South Africa and Brazil to start generating revenues in FY2008 and break even in FY2009.
- We expect Unichem's margin to improve by 70 basis points over FY2006-08. While the rising R&D cost due to a ramp-up in filings will put pressure on the margin, the improving product mix, the rising share of exports and excise savings arising from the shift of domestic manufacturing to the Baddi plant will aid the margin growth.
- In view of the M9FY2007 financial performance of Unichem, we are revising our estimates for the company. We are downgrading our FY2007 sales projections by 3.2%, and the profit and EPS projections by around 3.8% each. We are also marginally upgrading our FY2008 estimates. Our revised earnings estimates now stand at Rs23.8 per share for FY2007 and Rs28.5 per share for FY2008. At the current market price of Rs265, the stock is trading at 11.1x its FY2007E earnings and 9.3x its FY2008E earnings, on a stand-alone basis. We maintain our Buy recommendation on Unichem with a price target of Rs360.
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