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Monday, March 26, 2007
Geojit - Advanta IPO Analysis
Investment Rationale
Ø AIL, associate (post IPO) of United Phosphorus Ltd. (UPL), is major international agri hybrid seeds company with principal operation in India, Australia, Thailand and Argentina and presence in 18 countries.
Ø Combination of factors like high population growth, limited availability of land have raised concerns world over on issues of food security & affordability making this industry attractive with high growth potential; company is well placed to capitalize this opportunity.
Ø Company has de-risked business by providing variety of hybrid seeds globally which shelters it from seasonal fluctuations in revenue and cyclical crop patterns, typical to agriculture industry.
Ø AIL has proprietary germplasm and strong R&D capabilities. It is developing SUNSAT (has healthy oils without complication / cost of genetic modification), holding huge business promise (expected launch-2009).
Ø Company can benefit from vast pool of agricultural knowledge and support of UPL.
Investment Concerns
Ø Agriculture runs risks of weather conditions, pests & diseases, despite pest / disease resistant seeds presence.
Ø Genetically modified seeds, on getting requisite approval, represent a major substitution risk.
Ø Competition in industry and effect on customers’ ability to pay from commodity prices volatility.
Recommendation
Ø AIL is offering shares at P/E of 23 - 25 times FY 2007 expected EPS of Rs. 26.2 and 16 - 18 times FY 2008 expected EPS of Rs. 36.6 on fully diluted equity.
Ø Excellent future prospects in view of rising focus on sustained agriculture growth, strong parent and R&D facilities. Hence, we recommend to “Subscribe” issue.
FII: + Rs. 678, MF –Rs. 168
FII Gross purchases Rs 2707 Cr, Gross Sellers Rs 2028 Cr, Net Buyers Rs 679 Cr.
MF Gross Purchases Rs 499 Cr, Gross Sellers Rs 667 Cr, Net Sellers Rs 168 Cr.
Our View:
Thats a big number for the FIIs however the selloff indicates that the confidence was missing.Markets continue to trade near the upper range of the Trading range. Global cues will remain important Near term however the FNO expiry will create the volatility.
Market slips 162 points
The market continued to move down for the second consecutive session. The Sensex opened in positive territory on firm Asian markets and buying interest in cement, sugar and banking stocks. The sugar stocks moved up on reports that the government plans to give export incentives to mills that export the sweetener. However the Sensex slipped into negative territory on selling in front-line and auto stocks. A surge in the crude oil prices on rising global political tensions over Iran's nuclear programme kept the auto stocks in the red. The selling in banking, auto and information technology stocks dragged the Sensex to an intra-day low of 13091, down 195 points. The Sensex finally ended the session at 13124, down 162 points. The Nifty closed at 3820, down 41 points.
The breadth of the market was negative. Of the 2,641 stocks traded on the BSE, 1,739 stocks declined, 837 stocks advanced and 65 stocks ended unchanged. All the sectoral indices ended in the red. The BSE Auto Index was the biggest loser and shed 1.78% at 4950 followed by the BSE Bankex (down 1.98% at 6687) and the BSE IT Index (down 1.15% at 5009).
Among the laggards Tata Motors was down 4.51% at Rs754, HDFC Bank declined 3.58% at Rs976, Maruti Udyog shed 2.48% at Rs819, Wipro dropped 2.45% at Rs586, TCS lost 2.19% at Rs1,261 and Reliance Energy fell 2.16% at Rs476. However, select heavyweights attracted some buying support. Satyam Computers gained 1.73% at Rs472 and ONGC rose 1.18% at Rs853. Tata Steel and Reliance Communications ended with the marginal gains.
Select auto and auto ancillary stocks witnessed considerable selling pressure. Kirloskar Oil Engineers dropped 2.97% at Rs231, Sundaram Fastners lost 2.53% at Rs66, Apollo Tyres declined 1.85% at Rs265, Bharat Forge slipped 1.78% at Rs317 and Hero Honda was down 1.72% at Rs668.
Over 49.37 lakh Reliance Petroleum shares changed hands on the BSE followed by Reliance Communications (30.50 lakh shares), Idea Cellular (15.76 lakh shares), Cairn India (12.17 lakh shares) and ITC (11.78 lakh shares).
Reliance Communications topped the value list with a turnover of Rs130 crore on the BSE followed by Infosys (Rs53 crore), Reliance Industries (Rs51 crore), Century Textiles (Rs50 crore) and TCS (Rs41 crore).
Auto, banks at forefront of the collapse
The market was weak throughout the day, due to selling especially in banking and auto shares. All sectoral indices on BSE settled with losses. But shares from sugar sector bucked the trend in an overall weak market.
The BSE Sensex, which turned weak in the early-afternoon, kept declining as investors exited long positions ahead of the March 2007 deriviative contracts expiry, due on Thursday (29 March 2007).
The 30-share BSE Sensex closed down 161.61 points (1.22%), at 13,124.32. It had opened higher, at 13,322.22, and surged to 13,330.41. But the benchmark index was unable to sustain the higher levels, and succumbed to pressure. Its low for the day was at 13,090.80.
The S&P CNX Nifty lost 41.10 points (1.06%), at 3,819.95.
Volatility is expected to remain high ahead of the expiry of March 2007 derivative contracts. With the market scheduled to remain closed tomorrow (27 March), only three trading sessions are left for expiry of the March 2007 contracts.
The BSE's turnover in the cash segment was Rs 3198.68 crore, while the total market-wide turnover was Rs 44396.43 crore compared to Rs 45,804.21 crore on Friday.
The market-breadth ended weak on BSE, with over two losers for every gainer, after a strong showing in opening trade. Against 1,746 shares that declined, 849 had advanced by the end. As many as 59 scrips also remained unchanged. The BSE Small-Cap Index closed at 6,425.74, down 31 points (0.48%), while the BSE Mid-Cap Index settled at 5,376.72, which is 24.6 points (0.46%) lower than the previous day's closing.
Among the 30-Sensex pack, 25 declined while only 5 of them managed to gain.
Auto shares slipped under pressure. The BSE Auto Index slid 1.78% to 4,950.03, hit by reports that fresh car loans were suffering due to prevailing high interest rates. The sentiment for auto shares was also affected by a surge in global crude oil price, which rose to the highest in three months on news of Iran's detention of 15 British sailors and the United Nation's decision to tighten sanctions against the country, heightening concern that Middle East supplies may be disrupted.
Crude oil for May delivery climbed 51 cents, or 0.8%, to $62.79 a barrel, in after-hours electronic trading on the New York Mercantile Exchange, the highest since 26 December 2007.
Tata Motors was the top-loser, down 4.31% to Rs 755.45, as 2.66 lakh shares changed hands in the counter, after slipping to a low of Rs 749.35. Maruti Udyog (MUL) lost 2.83% to Rs 816, while Hero Honda lost 1.71% to Rs 668.
Bajaj Auto was down 0.34% to Rs 2525. Chairman Rahul Bajaj reportedly said the company may build cars to ward off the prospective threat Tatas' Rs 1 lakh car poses to the two-wheeler market. Tata Motors’ Rs 1 lakh 'people's car' will hit the roads in 2008, denting top-end motorcycle sales, provided the firm gets the product right.
Bajaj's statement was the first confirmation that the country's top three-wheeler and second-largest motorcycle maker was interested in developing a low-cost car. Bajaj Auto had earlier announced it was developing a four-wheeler goods carrier, which is scheduled for launch in 2009.
HDFC Bank (down 2.95% to Rs 982), HDFC (down 2.03% to Rs 1562) and Reliance Energy (down 2.30% to Rs 475) were the other losers.
Banking stocks ended weak, with the BSE Bankex declining 1.98%. It was the top-loser among BSE sectoral indices. Union Bank (down 3.44%), Centurion BoP (down 4.10%), Andhra Bank (down 2.62%), UTI Bank (down 2.58%), and IOB (down 1.97%) had moved downwards.
ICICI Bank slipped 1.80% to Rs 878.50, after it announced its Singapore branch, successfully priced the Euro 500 million Reg S Floating Rate Note under its Medium Term Note Programme (MTN). The Bank is the first Indian one to offer a benchmark sized two-year floating rate note in the Euro market. The offering had an Euro 862 million order-book with a total of 71 investors. New investors accounted for more than 50% of the deal size. The two-year floating rate notes of Euro 500 million were priced at a spread of 40 basis points over the three-month LIBOR.
IT major Satyam Computers was the top-gainer, up 1.65% to Rs 471.80, on a volume of 5.15 lakh shares.
However, other IT stocks succumbed to profit-booking. The BSE IT Index declined 1.2%. Tata Consultancy Services (TCS) was down 2.06% to Rs 1263, on reports that it may get a stake of up to 10% in Deutsche Telekom unit T-Systems for executing $1 billion worth of orders.
Infosys Technologies lost 1.63% to Rs 2062.50, while Wipro declined 2.68% to Rs 584.80 on concerns arising from the rupee’s recent surge against the US dollar. The IT industry derives up to 60 - 70% of its export revenue from the US market. Hence, any strengthening of the rupee impacts the revenue and profits of IT firms. The US and the Europe, together, account for about 80% of India's high-tech export basket.
The rupee rose to a 20-month high against the dollar on Monday, as banks sold dollar holdings to tide over tight cash conditions in the banking system. At 9:55 IST the rupee was at 43.35 per dollar, its highest since 22 July 2005. It had ended at 43.56/57 on Friday (23 March 2007). A week back, the rupee was at 44.11/12 per dollar (rupee closing on 16 March). The IT industry is eyeing an export turnover of $31 billion in the fiscal ending March 2007.
State-run oil exploration major ONGC was up 0.95% to Rs 851.15, as crude oil prices moved north globally.
Private sector steelmaker Tata Steel (up 1.10% to Rs 443.50) and FMCG major Hindustan Lever (up 1.10% to Rs 200.50) advanced.
Reliance Communication (RCom) gained 1% to Rs 429.80, after it decided to start an overseas public offer for its international communication subsidiary, FLAG Telecom, for which the ADAG-group firm has shortlisted Goldman Sachs, Deutsche Bank, Morgan Stanley and UBS as merchant bankers for the process, which will see RCom divesting 10 - 15% equity. FLAG Telecom will be listed on the London Stock Exchange.
FLAG Telecom is a 100% subsidiary of Reliance Communication. The proceeds raised from the IPO will be used to part finance expansion plans announced last year, which include laying 50,000 km fresh undersea cable in regions where there is dearth of international bandwidth. The expansion plan could entail an investment of about 1.5 billion dollar (nearly Rs 7000 crore).
Index heavyweight Reliance Industries (RIL) was down 0.74% to Rs 1369, on a volume of 3.70 lakh shares. It had moved in a narrow range between Rs 1383.35 and Rs 1361. Reliance Industries (RIL) informed BSE that a separate meeting of equity shareholders, secured creditors (including debenture-holders) & unsecured creditors, will be held on 21 April 2007, for approving the scheme of amalgamation of Indian Petrochemicals Corporation (IPCL) with itself.
Private sector Yes Bank was down 1.94% to Rs 146.60, and off its high of Rs 157.90 on BSE. A block deal for 48.80 lakh shares was struck in the Yes Bank counter at Rs 151.25 per share, on NSE.
Sparsh BPO Services settled at Rs 104.75 on volumes of 48.97 lakh shares on BSE. The stock hit a low of Rs 104.75 and a high of Rs 157.05. Sparsh BPO Services’ listing on BSE followed a restructuring scheme of Spanco Telesystems and Solutions. A day ahead of its listing, BSE had set Rs 130.90 as base price for Sparsh, with 20% daily circuit filters.
As per the scheme of arrangement between Spanco Telesystems and Solutions (Spanco) and Sparsh BPO Services (Sparsh), formerly known as Intelenet BPO Services, the domestic call center division of Spanco was demerged and vested into Sparsh on a going concern basis. As a part of the scheme, Sparsh allotted 79,12,275 equity shares of Rs 10 each to shareholders of Spanco in the ratio of an equity share of Rs 10 each for every three equity shares of Rs 10 each held by the shareholders in Spanco on the record date. The equity capital of Sparsh is Rs 16.14 crore and the face value per share Rs 10.
Crisil advanced 5% to Rs 2614.80, on reports that around 20 companies were currently in talks with it for IPO gradings. Credit rating agencies are gearing up for increased activity following market regulator Sebi's decision to make grading of initial public offerings (IPOs) mandatory. Reports add that Crisil will charge 10 basis points of the amount proposed to be raised, with a ceiling of about Rs 10 - 15 lakh. Thus, even a mega-IPO will have a cap on fees.
Glenmark Pharma rose 4.41% to Rs 618.50, after deciding to buy 90% stake in Czech firm Medicamenta, for an undisclosed amount.
Construction firm Atlanta tanked 5% to Rs 315.15, extending a bearish phase ever since Sebi in late-February 2007, clamped down on alleged price manipulation in the counter. There were outstanding sale orders for 2.17 lakh shares at the 5% lower limit of the counter on BSE. Just 832 shares of Atlanta changed hands on BSE. From Rs 1080.75 on 22 February 2007 – the day when the market watchdog levelled allegations of price manipulation in the scrip, the stock of Atlanta has tumbled 70.9% in a little over a month, to the ruling Rs 314.15. In each of these trading sessions, the Atlanta stock had opened and ended at the lower circuit of 5%.
On 22 February 2007, Sebi asked the promoter group, which comprises 16 entities, of Atlanta, and entities/persons associated with them (14 entities) not to deal in Atlanta's scrip. Rajoo Barot, Managing Director, and Sachin Jain, Company Secretary, also featured on the list. The share price of Atlanta rose abnormally after listing at Rs 170 on 25 September 2006. The scrip had surged in a short while, to reach Rs 1264.20 by 11 December 2006.
Shares from the sugar sector had spurted in an otherwise weak market, on reports that the Centre had approved creating a 20-lakh tonne sugar buffer, besides providing export incentives of Rs 1,350 - Rs 1,450 per tonne to sugar mills. The bailout package — aimed at tiding over the present sugar glut and piling up of payment arrears to cane farmers, especially in Uttar Pradesh (UP) — was reportedly cleared by the Cabinet Committee on Economic Affairs (CCEA) at a late evening meeting on Saturday. No official confirmation for the reported development was available though, and the food ministry is expected to issue a statement only later today.
The 20-lakh tonne buffer would be maintained by the factories themselves, even though it is the Centre that will foot the cost of interest, storage and insurance payable on this sequestered sugar. The total buffer quantity will be allocated among mills on a pro-rata basis, linked to the stocks individually held by them. The annual outgo from the exchequer on the 20-lakh-tonne buffer is expected at around Rs 400 crore, depending on how the stock pledged with banks is valued (at three months average or prevailing ex-factory price, whichever is lower) and interest payable on it.
The food ministry is believed to have further recommended an additional Rs 440 per tonne support for raw sugar exports. The confirmation in this regard is also awaited. Given that the market for white sugar is not as promising as raw sugar — particularly with huge refining capacities coming up in neighbouring countries such as Bangladesh (15 lakh tonne), Indonesia (12 lakh tonne), Dubai (15 lakh tonne), Saudi Arabia (10 lakh tonne) and Egypt (7.50 lakh tonne) — a case has been made for giving extra incentives to raw sugar exports.
Shares of Bajaj Hindusthan (up 4.12% to Rs 175.50), Sakthi Sugars (up 7.47% to Rs 68.35), Balrampur Chini Mills (up 3.86% to Rs 64.50), and Shree Renuka Sugars (up 11.41% to Rs 440) had surged.
Godrej Consumer rose 3.55% to Rs 148.95, after announcing the formation of an equal joint venture with a Swedish firm to make sanitary napkins and diapers. The Indian consumer products giant has roped in Sweden's SCA Hygiene Products for the joint venture. The new firm, Godrej SCA Hygiene, will have an equity investment of Rs 20 crore ($4.6 million), which will be equally shared by both firms.
Television content provider Balaji Telefilms surged 5.45% to Rs 123.45 on hopes that general entertainment channels will regain viewership from sports channels as India failed to enter the next round of the cricket world cup.
Gas and petroleum distributor Aegis Logistics slipped 1.20% to Rs 115.10, after its board approved a proposal to acquire Kochi-based Konkan Storage Systems.
Batliboi jumped 8.85% to Rs 102.65, after it informed buying Quickmill, a Canadian machine tools company, for Rs 22 crore in an all-cash deal.
Bayer Diagnostics India surged 7.16% to Rs 604, on news Siemens AG would pay an interest of Rs 38.63 per share to public shareholders as part of a takeover deal with Bayer AG. Siemens will pay the interest over the original offer of Rs 629.45 per share to compensate for the delay in implementing the open offer, which was scheduled to be completed by September 2006. Thus, Siemens will effectively shell out Rs 668.08 per share of Bayer Diagnostics India.
Goodyear India rose 9.98 % to Rs 175.20, after reporting 200.8% growth in net profit in Q4 December 2006. Goodyear India has posted a net profit of Rs 10.20 crore in the quarter ended December 2006 as compared to a net profit of Rs 3.39 crore in the December 2005 quarter. Net sales for the December 2006 quarter rose to Rs 237.68 crore from Rs 190.96 crore in the December 2005 quarter.
Diversified firm DCM Shriram Consolidated surged 9.76% to Rs 94.50, after the company said it was considering the transfer or sale of its retailing business. DCM Shiram Consolidated (DSCL) said on Monday its board approved the transfer or sale of its rural retail division 'Hariyali Kisaan Bazaar.' The board also approved developing or selling the company's land holdings in five places including in Delhi.
A majority of Asian markets settled with gains, while European markets were trading mixed. The Nikkei average rose 0.24% to a one-month closing high on Monday, after gains in exporters including Fanuc were partly offset by losses in property shares such as Sumitomo Realty & Development Co. The Nikkei closed up 41.35 points, at 17,521.96, its highest closing since 28 February 2007. The broad TOPIX Index dipped 0.03% to 1,741.37.
The Hang Seng Index was up 73.21 points (0.73%), at 19,765.85.
US blue-chip stocks crept higher on Friday, as tension in the Middle East lifted oil prices and hence shares of energy companies. The Dow Jones industrial average rose 19.87 points, or 0.16%, to end at 12,481.01. The Standard & Poor's 500 Index inched up 1.57 points, or 0.11%, to finish at 1,436.11. But the Nasdaq Composite Index slipped 2.81 points, or 0.11%, to close at 2,448.93.
Most Indian ADRs closed in negative territory on Friday. In the technology space, Infosys dropped 1.25%, while Wipro advanced 0.78% and Satyam improved 0.04%. Tata Motors declined 1.63%. Among banking ADRs, HDFC Bank lost 0.16% and ICICI Bank gained 1.09%. In the telecom sector, Videsh Sanchar Nigam fell 3.52% and Mahanagar Telephone Nigam eased 0.15%.
FIIs were net buyers to the tune of Rs 678.50 crore on Friday (23 March 2007). As per provisional figures, FIIs were net buyers to the tune of Rs 58 crore today.
The next major trigger for the domestic bourses is Q4 March 2007 earnings, reports of which by corporates will start next month. Analysts expect Q4 results to be strong. Market men will closely watch what company managements have to say about the outlook for FY 2008.
The Indian bourses last week recorded their first weekly gain after five consecutive weekly losses till the week ended 16 March 2007, partly due to short-covering in derivatives and partly due to firm global markets.
Thank God, India's out of Cup
There's a brighter side to India's exit from the World Cup. Something that can cheer up disappointed fans and angry advertisers. Sri Lanka has done a great favour to Indian economy by ousting the cricket team from the World Cup. There are about 80 million cable and satellite viewing homes in India.
According to TAM ratings, the average viewership of all World Cup matches held till now stands at about 3%, with India vs Bangladesh touching a high of 7.25%. To reach the finals, India would have played at least seven more matches.
Considering a TV Rating of 7.25%, at least 5.8 million people would have watched the match. This would have resulted in a productivity loss of 371.2 million man hours (5.8 million x 8 hours x 8 matches), apart from stress faced by mothers during exams.
About 3% of 81 million TV viewers (2.4 million) were ardent cricket fans and would have sat through all eight hours in the remaining 28 matches. Thus overall, Indian team's ouster would result in a productivity gain of 481 million man hours of work (28x2.4x8 man hours), if put to use.
The Sri Lankans have given a boost to the Indian economy by saving 54,902 man years of work (one year = 8,761 hours). Indians can build seven phases of the Golden Quadrilateral connecting Delhi, Mumbai, Kolkata and Chennai spread over 5,846 kilometres all over again, with this time saved.
A daily wage skilled labourer in Delhi earns Rs 17 per hour. If put to productive use, the 481 million man hours can produce Rs 817 crore of GDP, which is 63% more than BCCI's annual revenues of Rs 500 crore, last year. It's 401% more than the Rs 163 crore losses, corporate India has predicted to incur due India's ouster.
The state electricity boards are also thanking Sri Lanka for the great favour. A TV consumes 45 watts per hour. Assuming a viewer will now switch off his TV by 12 midnight, it will save Rs 135 watts at least per viewer (not considering the electricity consumed by other appliances running simultaneously.)
This will save the electricity boards 324 million watts of electricity ( 3.24 lakh kilowatts) in just 28 days. According to estimates, SEB losses in India will touch Rs 1 lakh crore by 2008.
If disappointed viewers completely switch off their TVs for eight hours, it will save the government at least 8,64,000 kilowatts, along with many more lives — at least three Indian citizens have been reported to die due to cardiac arrest or suicide after India's defeat at the hands of Sri Lanka
Edelweiss - Daily Market Outlook 26th March, 07
Market Snapshot
Yesterday, the Sensex opened with a positive gap 35 points at 13,343, but slipped to a low of 13,197. The index, thereafter, exhibited a range-bound movement with a negative bias for most part of the trading session. Some volatility towards the end saw the index rebound and rally to a high of 13,387. The Sensex finally ended with a marginal loss of 22 points at 13,286.The index has now broken its five-week losing streak, and finished the week with a gain of 856 points.
The NSE and BSE cash volumes were higher compared to the previous day at INR 82 bn and INR 40 bn respectively. The F&O volumes were lower at INR 337 bn.
Sentiment Indicators
The Implied Volatility (IV) across Nifty strikes has decreased to 24-30% levels. The WPCR of Nifty Options increased to 1.03 compared to the previous day while the 5 day average is 1.08.
Outlook
The markets are expected to remain positive and move in a range in the absence of negative global cues. Nifty is expected to inch upwards on back of long rollers coming into the market more aggressively and expected buying by domestic mutual funds to prop their NAVs towards the year end. Nifty has an immediate resistance of 3900 which is 50% retracement level of the recent fall.
Nifty rolls have not yet picked up and are at 26% levels compared to 36% levels. We suggest short rollers to aggressively participate at -4/-5 levels. On the long roll side, we expect the levels to further contract. The IVs also saw a fall indicating easing concerns of fall in the immediate term.
In shorter term the Nifty has a support at 3824 followed by 3792 while the resistance is at 3900 followed by 3950.
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ICICIDrect - Pick of the Week - Dena Bank (Buy: Rs 34, Target: Rs 41)
Dena Bank (DENBAN)
Current Price: Rs 34 Target Price: Rs 41
Dena Bank, a leading mid-size public sector bank, has witnessed a
significant improvement in asset quality. This coupled with a good resource
profile, should help it maintain earnings growth.
At the current price of Rs 34, the stock trades at attractive valuations of
1.0x its FY07E ABV and 0.9x its FY08E. We expect the bank to continue with
steady earnings growth in future and show further improvement in RoA.
The bank has substantially de-risked its investment portfolio by shifting
securities to held-to-maturity (HTM) category. Currently, securities held in
the available-for-sale (AFS) category account for less than 35% of total
investment book. It has also modified the duration of AFS portfolio to less
than 2 years. For 9MFY07, the bank has an annualized return on net worth of
22%.
We expect the stock to trade at least 1x its FY08E ABV, giving us a target
price of Rs 41, an upside of 20% over the next 6 months.
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Investsmart - Morning Call
Market Grape Wine :
In House :
Mkt. Outlook: A crossover above 3900 ~3906 would take Nifty to
3982
On an intraday basis Nifty has a supp. at 3825 and
3790.
with resis. at 3880 and 3906
Intra day calls: Buy Dr. Reddy above 693 with aTGT of 705 and a SL
of 687
Buy Orchidchem abive 245.50with a TGT of 253 and a SL
of 241.50
Positional Calls: Buy CMC above 1364 witha TGT of 1500 and a SL of
1305
F&O: Sell JET Airways below 600 with a TGT of 590 and a SL
of 621
Buy Sterlite above 494.50 with aTGT of 516 and a SL of
483
Out House :
Sensex at a support of 13113 & 13031 levels with resistance at 13345 &
13393 levels .
Buy : RIL & RelCap
Buy : Ongc
Buy : Bharti & IciciBank
Buy : Praj & SesaGoa
Buy : Sail & JSW
Buy : Centextile & Voltam
Buy : INFY & Satyam at dips
Dark Horse : Skumar , Aban , Sail , SesaGoa , ONGC , RIL & ACC
Intra-day Stock Ideas
NIFTY (3861) RES 3877 SUP 3823
BUY PFC (111.20)
SL 107 T 118, 121
BUY JKCEMENT (132.25)
SL 128 T 140, 142
BUY TATAELXSI (295.65)
SL 290 T 305, 308
SELL CEAT (104.60)
@ 106 SL 109 T 98, 96
SELL PARSVNATH (275.65)
@ 278 SL 282 T 268, 265
Market Watch & Insider Trades
Insider Trades:
BSEL Infrastructure Realty Limited: Blackmore Investment and Trading Company Private Limited has purchased from open market 26000 equity shares of BSEL Infrastructure Realty Limited on 20th March, 2007.
Housing Development Finance Corporation Ltd: Shirish B. Patel, Director has sold in open market 4600 equity shares of Housing Development Finance Corporation Ltd. on 16th March, 2007.
Market Volumes:
The turnover on NSE was up by 4.1% to Rs82.03bn. The BSE FMCG index was the major loser and lost 1.20%. BSE Technology index (down 0.46%), BSE PSU index (down 0.41%) and BSE Oil & Gas index (down 0.16%) were among the other major losers. However, BSE Capita Good index gained 1.75%.
Volume Toppers:
IFCI, SAIL, ITC, Yes Bank, Gujarat Ambuja, Idea Cellular, TTML, R Com, India Cement, Bank of India, IDFC, IPCL, Century Textile, HLL, Dabur, Hindalco, Ashok Leyland, Indiabulls and Balrampur Chini.
Lower Circuit:
GMR Industries, Max India, Nahar Exports, Atlanta, McLeod Russel, Indiabulls Reality and Mefcom Agro.
Delivery Delight:
Century Textiles, Corporation Bank, Crompton Greaves, Cummins India, Dabur India, Divi's Laboratories, Escorts, HCL Technologies, HDFC, IFCI, IPCL, Jaiprakash Associates, L&T, Maruti, Sterlite Industries, Sun TV, Tata Elxsi, UTI Bank, Wipro and Yes Bank.
Brokers Recommendations:
Hindalco – Sell from Citigroup with target of Rs142
Yes Bank – Outperformer from ICICIdirect.com with target of Rs170
Long Term investment:
Punj Lloyd
Market may remain uncertain
The market may remain uncertain owing to lack of clarity and may witness sideways movement on the back of presence of intra-day volatility. Mixed fund inflows into domestic equities and global market trend will weigh on the local indices. Among the domestic indices, the Nifty has likely support at 3800 and may face resistance at 3900. The Sensex has a likely support at 13000 and may face resistance at 13400.
US indices ended mixed on Friday amid fresh rise in crude oil prices. While the Dow Jones moved up by 20 points to close at 12481, the Nasdaq ended three points lower at 2449.
Indian ADR losers pipped gainers on the US bourses. VSNL fell sharply and tumbled over 3% and Tata Motors and Infosys declined over 1% each while Patni Computers, Rediff, MTNL, HDFC Bank, Dr Reddiy's lab lost marginally. ICICI Bank rose over 1% while Satyam, Wipro ended with steady gains.
The Nymex light crude oil for May delivery rose 59 cents to close at $62.28. In the commodity space, the Comex gold for April series declined $6.90 to settle at $664.20 a troy ounce.
Oil price rise may cap upside
A surge in crude oil price may weigh on the bourses ahead of the expiry of March 2007 derivative contracts on Thursday (29 March). However, a resumption in FII-buying as well as steady-to-firm Asian markets may cap the downside.
Asian markets were mostly in the green on today, as a 3.9% rise in sales of existing US homes in February, the largest in three years, helped ease worries about a broader US economic slowdown. However, gains across the region were muted. Key benchmark indices in Hong Kong, China, South Korea, Singapore and Taiwan were up between 0.01 - 0.71%.
US blue-chip stocks crept higher on Friday, as tension in the Middle East lifted oil prices and hence shares of energy companies. The Dow Jones industrial average rose 19.87 points, or 0.16%, to end at 12,481.01. The Standard & Poor's 500 Index inched up 1.57 points, or 0.11%, to finish at 1,436.11. But the Nasdaq Composite Index slipped 2.81 points, or 0.11%, to close at 2,448.93.
US crude oil futures reached their best level of the year so far at $62.79 barrel amid rising global political tension over Iran's nuclear programme. Iran, the world's fourth-largest oil exporter, said on Sunday it would not stop its atomic programme, which it says is only for peaceful purposes, and that it will limit cooperation with the UN's nuclear watchdog in retaliation for new financial and arms sanctions. The West fears the programme can be used to develop nuclear weapons.
The UN Security Council unanimously approved the sanctions on Saturday for Tehran's refusal to suspend its programme, but major powers also offered new talks and renewed an economic and technological incentive package offer. The developments have renewed market concerns that Iran could one day cut oil exports to strike back at the West.
At home, volatility may remain ahead of next week’s expiry of March 2007 derivative contracts. With the market scheduled to remain closed tomorrow (27 March) for a public holiday, only three trading sessions are left for the expiry of the March 2007 contracts.
FIIs substantially stepped up buying of Indian equities on Thursday (22 March), the day when the domestic bourses had surged in a rally across global bourses triggered by hopes of a cut in interest rates in the US. FIIs were net buyers to the tune of Rs 713.10 crore on Thursday compared to an inflow between Rs 136 crore and Rs 165 crore in the earlier two trading sessions, on Tuesday (20 March) and Wednesday (21 March). As per provisional data, FIIs were net buyers to the tune of Rs 127 crore on Friday (23 March 2007).
The next major trigger for the domestic bourses is Q4 March 2007 earnings, reports of which by corporates will start next month. Analysts expect Q4 results to be strong. Market men will closely watch what company managements have to say about the outlook for FY 2008.
The Indian bourses last week recorded its first weekly gain after five consecutive weekly losses till the week ended 16 March 2007, partly due to short-covering in derivatives and partly due to firm global markets.
STRATEGY INPUTS FOR THE DAY
Defer your decision
When it is not necessary to make a decision, it is necessary not to make a decision.
After a successful week the bulls would like to consolidate their hold over the market. However, a public holiday on Tuesday and F&O expiry on Thursday may lead to extra volatility. Last week's rally, which came after five weeks of losses, was on lower volume. The market breadth was also negative on most days. It would be safer deferring to investment decisions by a couple of days. And if you are more or less fully invested, lock in some gains at every rise as a fresh fall is possible.
Expectations are this week will sail through with gains. For today, we expect a cautious to higher opening given the mixed closing on Wall Street on Friday and a similar trend in Asian markets this morning. Some short covering is likely to help lift the key indices, with some help from the foreign funds.
A combination of local and global factors will continue to drive sentiment in the near term, though the long-term outlook remains bullish. Inflation and interest rates will also continue to cast a spell on the markets. In a few days time, the quarterly earnings will start to flow in. Though most good news on corporate earnings is in the price, companies that exceed expectations will see some positive movement. Looks like we may not have a spectacular year of gains as has been the case in the past four years. At best one can expect good to moderate returns. Having said that, there are lots of opportunities in the small and mid-cap space if one hunts for them carefully.
FIIs were net buyers of Rs1.27bn (provisional) in the cash segment on Friday. In the F&O segment, they were net sellers to the tune of Rs1.68bn. On Thursday, FIIs poured in Rs7.13bn in the cash segment. Mutual Funds too were net buyers of Rs869mn on the same day.
Shares of Sparsh BPO Services Ltd. (formerly Intelenet BPO Services Ltd.) will be listed and permitted for trading with effect from Monday, March 26.
US stocks were mixed on Friday, but all the three major indices had their best weekly advance in eight months. The Dow Jones Industrial Average was up 19.87 points or 0.2% at 12,481.01 and managed to move back into the plus column for the year. The blue-chip average's weekly point gain of more than 370 was the best since March 2003, when it gained more than 660 points in a week. The broader S&P 500 gained 1.57 points to 1,436.11 and the Nasdaq was down 2.81 points at 2,448.93. All three major gauges rose at least 3% last week.
A strong housing market report and strength in auto stocks gave a boost to blue chip stocks. But broader gains were prevented by reports that 15 British marines were taken hostage by Iranian naval vessels. The news revived worries about instability in the Middle-East, and sent oil prices higher, with US light crude oil for May delivery adding 59 cents to settle at $62.28 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 23 cents higher at $62.51 a barrel in extended trading in Asia.
COMEX gold for April delivery fell $6.90 to settle at $657.30 an ounce. Treasury prices slumped, raising the yield on the 10-year note to about 4.61% from 4.58% late on Thursday. In currency trading, the dollar gained versus the euro and was little changed versus the yen.
European stocks closed higher on Friday. The pan-European Dow Jones Stoxx 600 index rose 0.5% to 375.98. The German DAX Xetra 30 advanced 0.6% to 6,899.06, the French CAC-40 gained 0.7% to 5,634.75 and the UK's FTSE 100 added 0.3% to 6,339.40.
Asian stocks are mixed this morning. Markets in China, Taiwan and Hong Kong are in the green. The rest are marginally down. The Morgan Stanley Capital International Asia-Pacific Index slid 0.2% to 145.71 as of 10:49 a.m. in Tokyo, sliding from its highest since Feb. 27.
In the emerging markets, the Bovespa in Brazil rose 0.2% to 45,532 while the IPC index in Mexico added 0.05% to 28,272 and the RTS index in Russia surged 1.3% to 1914.
HOW MARKET FARED
Bulls take a breather
Bulls took a breather on Friday as four days of winning streak came to an end. However, markets finally recorded first week of gains after falling for five consecutive week’s. The markets lost some steam as profit booking was witnessed in the FMCG, Technology, Auto and PSU indices. Today again the Mid-Cap and small cap index ended almost flat. However, buying interest in the heavy weights like BHEL, HDFC, HLL and Bharti Airtel lifted the NSE Nifty above the 3900 mark. Finally, the 30-share benchmark Sensex fell 22 points to close at 13285. NSE Nifty was down 14 points to close at 3861.
ITC declined by over 3.5% to Rs144 as Maharashtra also decided to impose a 12.5% VAT on all tobacco products except bidis. The scrip touched an intra-day high of Rs150 and a low of Rs143 and recorded volumes of over 1, 0,00,000 shares on NSE.
IFCI rallied by over 7% to Rs31 after the state-run term lender said it has appointed Ernst & Young, for advising the company on the induction of a strategic investor. The scrip touched an intra-day high of Rs32.20 and a low of Rs29.50 and recorded volumes of over 15,00,00,000 shares on NSE.
Torrent Pharma lost by over 3% to Rs197. According to reports the Ahmedabad-based company along with Israel's Teva is the only ones left in the race for the generic business of Germany's Merck. The scrip touched an intra-day high of Rs203 and a low of Rs195 recording volumes of over 19,000 shares on BSE.
Dabur surged by over 3.5% to Rs94 amid reports that it is to acquire Singapore's Unza Holdings. The scrip touched an intra-day high of Rs94.60 and a low of Rs90 and recorded volumes of over 31,00,000 shares on NSE.
Deccan Aviation slipped by 2% to Rs97 as yesterday the company announced that it was open to a search by the nation's airline regulator on an allegation that it overbooked passengers. The scrip touched an intra-day high of Rs99 and a low of Rs95 and recorded volumes of over 1,00,000 shares on NSE.
Auto stocks were in reverse gear. Tata Motors slipped by 2% to Rs789, Bajaj Auto has declined by 1.5% to Rs2529, TVS Motors was down by 0.8% to Rs62 and Ashok Leyland lodt 1.2% to Rs40.95.
Metal stocks shined brightly as metal prices on LME were firm. Sterlite Industries surged by over 5% to Rs486, JSW Steel gained 2% to Rs471 and SAIL added 0.9% to Rs112 and Hindustan Zinc was flat at Rs550.
Cement stocks also lost their gains towards the end on back of profit booking. ACC lost 1.2% to Rs744, Gujarat Ambuja was down 2.2% to Rs105, Grasim fell by 0.3% to Rs2080 and India Cement declined 0.7% to Rs164.
FMCG index was the major loser among all the sectoral indexes slipping by 1.20%. ITC fell over 3.5% to Rs144, Nirma was down by 1.9% to Rs163 and Tata Tea edged lower by 0.2% to Rs625. However HLL nearly rose by 1% to Rs198.
Stocks you can pick up this week
MOST OF THESE REPORTS ALREADY AVAILABLE ON DP.
Hindalco
Research: Citigroup (March 22, ’07)
Rating: Sell
CMP: Rs 136 (Face Value Rs 1)
12-Month Price Target: Rs 142
Hindalco is a low-cost integrated aluminium producer with access to captive power and bauxite. It paid a high valuation for Novelis, whose profits are not expected to improve substantially over the next couple of years. Hence, the profits will not be able to compensate for Hindalco’s high interest outgo, resulting in earnings dilution.
In copper, TC/RC margins averaged US37c/lb in H1 FY07, benefiting from high copper prices and price participation. But these are already trending down and are expected to average US15c/lb in FY08 and FY09. For a copper smelter like Hindalco, profits are determined largely by TC/RCs rather than copper prices.
For aluminium, average prices are likely to decline 7% YoY in FY08 to $2,480/tonne and remain around that level in FY09. The target price of Rs 142 is based on: (1) 7x FY08E earnings (Rs 128); and (2) adding the value of Hindalco’s investment holding in associate companies and discounting it by 25. The proposed acquisition of Novelis raises its risk profile, increases gearing and reduces consolidated margins.
Based on consensus earnings and preliminary analysis, Citigroup sees no substantial improvement in Novelis’ earnings in ’07 and ’08. Additionally, Citigroup does not see any upside trigger to the stock price based on its outlook of falling global aluminium prices and substantial decline in copper TC/RCs.
Canara Bank
Research: HSBC (March 21, ’07)
Rating: Overweight
CMP: Rs 202 (Face Value Rs 10)
12-Month Price Target: Rs 312
As for most Indian banks, the first three quarters of FY07 saw a fall in the net interest margin (NIM) of Canara Bank. Yield on loans rose by 56 bps YoY, but interest expense grew faster than interest income. The bank reported a 22 bps fall in NIM, relative to FY06. The weakness in NIM is partly due to slow growth in low-cost deposits compared to new private banks.
HSBC lower its forecast for Canara Bank’s FY07 net profit by 8.5% to Rs 1,308 crore (-2.6% YoY). The revision is driven by decrease in forecast of net interest income and non interest income. For the nine-month period ended December ’06, the latter decreased by 9.6% YoY.
This revision pulls down HSBC’s DCF-based target value from Rs 327 to Rs 311. During ’06, the bank’s P/E ranged between 5.7x and 10.7x with a mean of 8.3x. Its P/B ranged between 1.0x and 1.7x with a mean of 1.4x. Applying the mean P/E and P/B to the forecasts for FY08 results in target prices of Rs 324 and Rs 300, respectively.
The blended target price of Rs 312 is a weighted average, where the DCF is assigned a weight of 50% and the P/E and P/B derived forecasts are assigned weights of 25% each. It values the stock at 8x FY08f EPS and 1.5x March ’08f book. The stock has underperformed the Sensex over the past quarter. The discount in the P/E of Canara Bank, relative to the Sensex P/E, has deepened to 65% — near a two-year low.
VSNL
Research: Merrill Lynch (March 22, ’07)
Rating: Neutral
CMP: Rs 407 (Face Value Rs 10)
12-Month Price Target: NA
VSNL carries ~3.6bn incoming ILD minutes annually on a standalone basis. Assuming one quarter of full ADC savings on incoming ILD, Merrill Lynch estimates VSNL’s FY08E earnings upside at ~13% (i.e. ~Rs 54 crore). Over the medium term, however, VSNL may pass the entire ADC cut to customers via lower tariffs.
Trai has announced cuts in ADC across services — for incoming ILD, ADC from April ’07 has been lowered to Re 1/min, compared to Rs 1.6/min currently. Media reports suggest the government is reviewing its options with regard to surplus real estate of ~773 acres that it controls in VSNL. Reports suggest that the revenue department has recommended auction of the land.
Merrill Lynch recognises that there have been several false starts with regard to value unlocking of real estate and believes its valuation is conservative. Pricing pressures in VSNL’s core business of wholesale carriage (data & voice) and low visibility on cost synergies from Tyco & Teleglobe drive Merrill Lynch’s 12-month ‘neutral’ rating.
National Aluminium
Research: Citigroup (March 22, ’07)
Rating: Sell
CMP: Rs 231 (Face Value Rs 10)
12-Month Price Target: Rs 241
Nalco has a smelter capacity of 345,000 tpa in eastern India. It has enough deposits of bauxite to meet more than 50 years’ requirements of its expanded alumina capacity (2.1m tpa from 1.58m tpa by end-’08). Good quality bauxite, open cast mines and low bauxite transport costs make Nalco one of the lowest-cost producers of alumina in the world.
The company sells its surplus alumina (27% of FY06 sales) in international markets and it is India’s largest alumina exporter. In the power-intensive business of producing aluminium, Nalco’s 960-mw thermal power capacity meets all its in-house requirements at 33% of the grid cost, and surplus power is sold to the state grid.
Low costs for power, alumina and labour make Nalco one of the lowest-cost aluminium producers in the world. Prices have recovered in recent weeks due to a strike and martial law in Guinea, the world’s second-largest bauxite producer. Nalco is already operating at full capacity and there is limited scope for volume growth until FY10. In the past six years, the stock has traded at a P/E range of 6-8x.
During this period, it has decisively crossed 8x only three times. Merrill Lynch has valued Nalco at 8x, the top end of its historical P/E band, which gives a target price of Rs 241. This appears justified based on Nalco’s position among the lowest-cost producers of alumina globally.
Hotel Leelaventure
Research: Macquarie Research (March 21, ’07)
Rating: Buy
CMP: Rs 57 (Face Value Rs 2)
12-Month Price Target: Rs 79.9
The analysis of average room rates (ARR), occupancy and revenue per available room (RevPAR) of the company’s hotels from April 1, ’06 to March 15, ’07 shows that the company’s average RevPAR is likely to rise 16.6% YoY to Rs 8,794 for FY3-07. Its ARR is likely to improve by 17% YoY, while occupancy is likely to remain at 77%, the same as last year.
Leela’s Mumbai hotel is likely to be the star performer, with RevPAR up 43.2% YoY to Rs 7,454. Leela’s Bangalore hotel is likely to show only 6.8% YoY growth in RevPAR to Rs 13,481 because occupancy may decline by 5.7% to 74%. The company is sacrificing occupancy at the expense of higher ARR for its Bangalore hotel.
Hotel Leelaventure’s capacity is set to rise from four luxury hotels with 1,015 rooms to nine luxury hotels with 2,565 rooms in the next two years. Macquarie expects its 81-room Udaipur hotel to come on stream by January ’08; the 419-room hotel-cum-service apartment in Gurgaon is expected to come on stream by October ’07; the 300-room Hyderabad hotel, 380-room Chennai hotel and 260-room Pune hotel are expected to come on stream around April ’09.
Leelaventure trades at 12.1x its FY3-08E earnings, versus the hotel industry consensus average of 16.9x FY08E earnings.
Research Calls
SAIL
| KR Choksey Research recommends a �buy� on Steel Authority of India (SAIL) at a price of Rs 103, as it expects that rise in prices of steel internationally will lead to improved realisations for the company. |
| Globally, steel prices have risen about 7-8 per cent over the last couple of months and are expected to remain strong following healthy demand in Asia, Europe and the US. |
| SAIL is the largest integrated steel company in India, with a hot metal production of about 15 million ton and a market share of 25 per cent. It operates four integrated steel plants and three special steel plants in the country. |
| Further, it also has its own captive iron ore, dolomite and limestone miles. It now plans to increase its hot metal production capacity from the existing 14.6 million ton to 23 million ton a year by 2012. |
| In addition, to meet the increased power requirement due to augmented capacity, it plans to set up two power plants of 500 mw each in two separate joint ventures with NTPC at Bhilai and with Damodar Valley in Jharkhand. At the price of Rs 103, the stock is valued at about 8 times its trailing twelve month earnings. |
| Shasun Chemicals |
| Angel Broking recommends a �buy� on Shasun Chemicals at a price of Rs 101, with an 18-month target of Rs 145. Shasun Chemicals is a generic drug-maker with a small foray in active pharmaceutical ingredients (APIs) and plans to enter the formulations exports, especially in regulated markets of Europe and the US. |
| The company has forged an alliance to market 22 products of Glenmark Pharmaceuticals and Alpharma, and expects a United States Food and Drug Administration (USFDA) approval of its facilities in order to launch its products by the first half of FY08. |
| In FY07, the company acquired assets of Rhodia�s custom synthesis business along with some proprietary technologies. The assets included USFDA and Medicines and Healthcare Regulatory Agency, UK (MHRA) approved contract manufacturing and custom synthesis manufacturing units, and technologies like hydrolytic kinetic resolution (HKR), aromatic bond formation (ABF) and trifluoro methylation. |
| This business clocks sales of �40 million (approximately Rs 343 crore) and has a pipeline of around 14 products in advanced stages of clinical trials and about 20 products in the preclinical phase. |
| The company is expected to grow at a compound rate of 45.1 per cent and 24.3 per cent in sales and net profit over FY06-FY09. At Rs 101, the stock is valued at 8.8 times and 7 times its expected FY08 and FY09 earnings respectively. |
| KPIT Cummins Infosystems Emkay Private Client Research recommends a hold on KPIT Cummins Infosystems at a price of Rs 114 with a target price of Rs 144. |
| Despite the negative impact of the appreciating rupee and lower billing days, EBITDA (earnings before interest, tax and depreciation) margin for the quarter has marginally declined by 30 basis points to 15.2 per cent. |
| On the other hand, lower effective tax rate of 3.2 per cent, on accounts of deferred tax assets, resulted a 10 per cent growth in the net profit to Rs 137.23 million. |
| Overall the December quarter proved to be quite a mixed bag. In revenue terms there was decent growth, however rupee appreciation and lower number of billing hours dampened the growth in the rupee term. |
| However a strong positive has been the company's ability to maintain its margins. Going forward strong medium term growth drivers are discerned from the strong ramp up in the non-Cummins Star customers accounts and improved performance from the acquired companies. |
| Emkay expects KPIT Cummins revenue and profit to grow at a CAGR of 37 per cent and 46 per cent to Rs 4,682 million and Rs 6006 million and Rs 535 million and Rs 698 million respectively. |
| KPIT Cummins trades at a P/E of 14.6 times estimated FY08 earnings. Adjusted for the recently concluded bonus issue and stock split, at the target price of Rs 144, the stock is valued at 15.5 times for estimated FY08 earnings. |
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