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Thursday, April 12, 2007
Market Close: Down but not out ! All eyes on Infy !
Tracking the global trends, Indian indices had weak session for the second day. Indices traded on a weak note since the start of the trade. Profit booking was seen across the board except selective stocks in Software, Pharma and Airlines where there was some buying interest. IT major Infosys firmed up further as every one awaits the giants results which is due tomorrow. The key economic data of February 2007 industrial production output rises to 11.1% VS 8.8%, which shows no signs of slowdown in the economy. Asian markets ended in mixed where as European markets currently trading in red.
Sensex closed down 69 points at 13113.81. Weighing on the Sensex were losses in ONGC (852.5,-3 percent), TISCO (495.95,-3 percent), Ranbaxy (335.15,-3 percent), HDFC (1536.95,-3 percent) and Maruti (759.8,-3 percent). Losses are restricted by gains in Bajaj Auto (2349.3501,+3 percent), Infosys (2043.65,+3 percent), Grasim (2258.6499,+2 percent), NTPC (159.9,+1 percent) and Satyam (446.1,+1 percent).
Infosys numbers are due tomorrow and a lot is being made of it. Guidance expected is about 22- 28% for bottomline growth next year. Valuations at 24 X FY 08 certainly not enthusing in the current environment. So better to be careful here. There are short positions and that may limit the downsides.
Jet Airways India Ltd and Sahara Airlines have settled their dispute with regard to the Share Purchase Agreement of January 18, 2006. Jet is set to acquire Sahara Airlines for a lump sum price of Rs 1450 cr. Rs 500 cr has already been paid. Rs 400 cr is payable immediately no later than April 20, 2007. The balance Rs 550 cr is payable in four interest free annual equal instalments commencing on or before March 30, 2008. Jet closed up by 2.83% and its peer Deccan Aviation ended up 10%.
Telecom stocks closed in red on profit taking . Sustaining its aggressive growth in subscriber additions, the GSM-based cellular industry has added over 61 lakh subscribers in March with Bharti Airtel capturing 30.59% of the market share. With this, the all-India GSM subscriber base has touched 12.14 crore at the end of March 2007 compared to 11.53 crore as on end of February 2007, reflecting a growth rate of five per cent. In March, the cellular subscriber base of Bharti touched 3.71 crore with additions of over 17 lakh users, followed by BSNL at 2.74 crore with a market share of 22.59 per cent and additions of over 19.84 lakh subscribers. Hutch-Essar has 2.64 crore subscribers, taking its market share to 21.78% and Idea with a market share of 11.54% has 1.4 crore subscribers in March. Bharti Airtel closed marginally down and its peer R Com, MTNL and VSNL ended in red. Idea closed positive.
Educomp Solutions closed at the upper limit. The company has acquired a Web based trailing company and also bagged some orders in Haryana. We have been bullish on this one and our stand has been vindicated. Do read our research note here. We had a research note on Esab as well. This one looks interesting. Do read the note. Its for our subscribers.. may be here is a hidden gem as well.
Technically Speaking: It was a weak session for the whole day before closing. Sensex touched intraday high of 13194 and low of 12904. Sensex has closed above its resistance at 13170. On the higher side it is looking to hit near 13400 whereas on the lower side major support likes at 12900. Resistance lies at 13289, 13386. Support lies at 13000, 12808. Market turnover stood at Rs 3075 cr. Overall breadth was in favor of Advancers where the Advancers stood at 1916, Decliners stood at 632.
Results anxiety, global weakness plague market
Caution before Infosys Technologies flags off the earnings season Friday (13 April) and a weak trend in global markets pulled domestic bourses lower today. Asian and European shares edged lower on concerns of a further rise in US interest rates. After an initial sharp fall, the market made a good intra-day rebound by early-afternoon trade. But the recovery was short-lived and the market failed to sustain higher level.
The 30-share BSE Sensex lost 69.43 points (0.53%), at 13,113.81. It had moved 129.28 points, between a low of 13,030.87 and a high of 13,160.15.
The S&P CNX Nifty dropped 32.80 points (0.85%), to settle at 3,829.85. The Nifty April futures were at 3,797.95.
As per provisional data, FIIs were net sellers to the tune of Rs 173.58 crore today
The market-breadth was weak. Against 1,466 shares had declined on BSE, 1,090 that rose. Also, 74 stocks remained unchanged. Losers outpaced gainers by a ratio of 1.34:1. The BSE Small-Cap Index shed 28.98 points (0.43%), to settle at 6,682.53. The BSE Mid-Cap Index shed 4.66 points (0.08%), to end at 5,512.40.
Asian and European stocks fell on Thursday (12 April), dented by concern about the economic outlook for the United States and a rise in oil prices. Minutes of the US Federal Reserve's March meeting, released on Wednesday, hinted at a need for further interest rate increases in the United States to fight inflation. Key benchmark indices in Japan, Hong Kong, Singapore, and Taiwan were down between 0.1 – 1.4%. In Europe, key benchmark indices in London, Germany and France were down between 0.4 - 0.6%.
Rising US interest rates do not bode well for emerging markets, since cash in emerging markets may become a casualty as a result.
US stocks fell on Wednesday, as markets faced up to reality that the Federal Reserve may raise interest rates again to quash inflation. The Dow Jones industrial average fell 89.23 points, or 0.71%, to 12,484.62. The Standard & Poor's 500 Index slid 9.52 points, or 0.66%, to 1,438.87. The Nasdaq Composite Index lost 18.30 points, or 0.74%, to 2,459.31.
The BSE clocked a turnover of Rs 3127 crore today compared to Wednesday’s Rs 3952 crore.
Except BSE IT index and the BSE Tech Index, all other sectoral indices of BSE ended in the red. The top-loser in percentage terms was the BSE Metal Index, which had lost 208.86 (2.2%), to end at 9,122.01. BSE FMCG index shed 23.21 points (1.28%), to finish at 1,788.37. BSE’s banking sector index, the Bankex, lost 82.60 points (1.26%), to settle at 6,470.32.
The BSE IT Index gained 71.51 points (1.49%), to end at 4,879.59. The BSE Tech, which is a free-float index comprising IT, telecom and media shares rose 22.01 points (0.63%), to finish at 3,525.65.
Infosys led the gain in IT shares ahead of the announcement of Q4 March 2007, results from the IT bellwether on Friday (13 April). Infosys gained 2.3% to Rs 2040, while Satyam Computer gained 1% to Rs 446.
Infosys unveils Q4 results tomorrow. The rupee’s sharp surge in late-March 2007 - early April 2007, against the US dollar, as well as mixed reports from the US economy, have raised concerns that the FY 2008 guidance by Infosys may turn out conservative. Infosys unveils its full year guidance at the beginning of the financial year along with Q4 March results
According to analysts, an important factor IT companies must watch out for is the extent of equity dilution in the March 2007 quarter arising out of exercise of employee stock options (ESOPs). This is so in the backdrop of the Budget 2007-08 bringing ESOPs exercised on or after 1 April 2007 under fringe benefit tax. Analysts will also closely watch revenue guidance in dollar terms and expect wage hike for FY 2008 in Infosys’ FY 2008 outlook.
8 brokerages have forecast a between 3.1% to 6.9% sequential growth in Infosys’ Q4 March 2007 consolidated net profit to between Rs 1013.60 crore to Rs 1050.80 crore compared to net profit of Rs 983 crore in Q3 December 2006. They have forecast a between 4.8% to 7.2% sequential growth in revenue to between Rs 3830.60 crore to Rs 3917.30 crore compared to Rs 3655 crore in Q3 December 2006.
TCS rose 1.1% to Rs 1204. As per a report, Tata Sons is considering a $1 billion-plus overseas equity offering in Tata Consultancy Services to fund acquisitions. The offer may take place in six months and include the sale of new shares, a newspaper report said.
Oil exploration major ONGC plunged 3.4% to Rs 850. It was the top loser among 30 Sensex constituents. It will invest over Rs 6700 crore to raise oil and gas output, and set up the first large power plant, the state-run oil exploration company said on Wednesday.
Tata Steel lost 3.2% to Rs 495. As many as 22.1 lakh shares changed hands in the counter on BSE. Tata Steel said on Tuesday its board will meet on 17 April 2007, to consider proposals for raising equity funds to finance investment in a special purpose vehicle (SPV) for the acquisition of steel maker, Corus Group.
Ranbaxy shed 3% to Rs 334.45. Ranbaxy Laboratories said on Thursday, it had received approval from Canadian authorities to sell antibiotic cefprozil tablets and powder in Canada.
Auto shares drifted lower. Car major Maruti Udyog (MUL) shed 2.9% to Rs 759.05, Tata Motors lost 1.7% to Rs 709 and Hero Honda shed 1.4% to Rs 631.10. But Bajaj Auto rose nearly 3% to Rs 2345.
Selling was conspicuous in banking stocks. HDFC Bank lost 2.2% to Rs 958, State Bank of India (SBI) shed 1.3% to Rs 968.45 and ICICI Bank lost 1.1% to Rs 849. Banking credit growth decreased to 27% in 2006-07 from 29.6% growth a year earlier, as a result of stiffer monetary tightening since December 2006. The year-on-year growth in bank credit till 29 December 2006, was 30.1%.
Cellular services major, Bharti Airtel, was down 0.1% to Rs 772, off the session’s low of Rs 761.01. The company added 1.7 million new cellular customers in March 2007, taking their user base to 37.1 million.
Gujarat Ambuja Cements (GACL) shed 1.4% to Rs 106.30. GACL said on Wednesday, its March shipments fell 4.5% to 1.48 million tonnes from a year earlier.
Jet Airways gained 2.6% to Rs 625.15, after the company said it had agreed to buy Air Sahara for Rs 1450 crore. The price includes Rs 500 crore that Jet had paid to Air Sahara last year as a bank guarantee pending an acquisition, as well as Rs 400 crore that Jet will pay on or before 20 April 2007. The balance will be paid in equal, interest-free annual installments from March 2008 to 2011. The combined entity will have a market share of about 40%.
Sesa Goa lost 4.4% to Rs 1671.50, after a newspaper report said Aditya Birla group was leading the race with a bid for Mitsui's 51% stake in the company at Rs 1550 a share, 11.4% lower than Wednesday's closing price of Rs 1749.65.
IFCI rose 3.4% to Rs 38, on strong institutional interest. Volumes in the stock were a huge 1.99 crore shares on BSE.
Real estate developer Orbit Corporation settled at Rs 127.95, on BSE. The scrip today debuted at Rs 90 compared to the IPO price of Rs 110. It hit a low of Rs 90 and a high of Rs 137. As many as 1.44 crore shares changed hands in the counter on BSE.
UTV Software Communications rose 2.7% to Rs 309.75, after the company said it planned to sell a stake in a film production subsidiary and a possible listing of the unit in the Alternative Investment Market of the London Stock Exchange (LSE).
Reliance Capital dropped 2% to Rs 661.25. Reliance Capital on Wednesday announced its foray into the brokerage business through Reliance Money, which will offer ‘fixed’ flat-fee structure instead of the contemporary system, where investors pay brokerage fee for each transaction conducted in the stock market.
Lupin rose 1.5% to Rs 625.10, after the company got approval of the US Food and Drug Administration to sell cefixime, an antibiotic for children, the company said on Thursday. Commercial shipments of the product have already commenced, Lupin said.
Bharat Forge rose 0.3% to Rs 313.90. The company is reportedly foraying into manufacturing components for aerospace applications and marine engines by investing Rs 300 crore in a greenfield project at Baramati as the first step.
Hindustan Zinc dropped 3% to Rs 681.10, even as the company said on Thursday it had increased zinc prices by 8.3% (Rs 13400) a tonne to Rs 1,75,000 a tonne, with immediate effect. It also increased lead prices by 2.2% to Rs 99,100 a tonne.
The immediate trigger for the market is Q4 March 2007, results. Overall Q4 results are expected to remain strong. More important than Q4 results is what company managements say about the outlook for the current financial year (FY 2008). The Citigroup expects an overall corporate earnings growth to moderate to 15 - 16% in the current and next year, while FY 2007 (year ended 31 March 2007) could be the fifth straight year of 25 - 30% earnings growth.
Key important data due tomorrow is that on inflation. The wholesale price inflation rate is expected at 5.81% for the 12 months to 31 March 2007, falling from an annual rise of 6.39% a week earlier. The annual rate hit 6.73% on 3 February 2007, its highest in more than two years, but has moderated after the central bank tightened policy and the government cut duties on a range of items to rein in prices.
As per data released today, industrial production rose 11% in February 2007 from a year earlier, slightly lower than upwardly revised annual growth of 11.4% in January 2007. Manufacturing production, which represents more than 75% of industrial output, rose 12.3% in February from a year earlier, compared with a revised 12.1% annual growth in January.
Sensex sheds 69 points
In line with the weakness in the global indices the domestic market slipped in early trades, as the investors were cautious ahead of the announcement of key results. The Sensex opened with a negative gap of 55 points at 13128. The index tumbled 152 points in early trades on heavy selling in banking and auto stocks. The market managed to pare some losses as buying emerged at lower levels but remained in negative territory. The market steadily lost momentum as the trading session progressed and slipped on selling in heavyweight, metal, banking, fast moving consumer goods and public sector unit stocks. The Sensex finally ended the session with losses of 69 points at 13114, while the Nifty shed 33 points and closed at 3830.
The market breadth was weak. Of the 2,628 stocks traded on the BSE, 1,090 stocks advanced, 1,464 stocks declined and 74 stocks ended unchanged. Most of the sectoral indices ended in the red. The BSE Metal Index led the slump and closed weaker by 2.24% at 9122 followed by the BSE PSU Index (down 1.31% at 6023), the BSE FMCG Index (down 1.28% at 1788) and the BSE Bankex (down 1.26% at 6470).
Among the Sensex stocks nine stocks advanced and 21 stocks declined during the day. ONGC slumped 3.13% at Rs853, Tata Steel shed 3.11% at Rs496, Ranbaxy declined 2.94% at Rs335, HDFC lost 2.92% at Rs1,537, Maruti Udyog shed 2.86% at Rs760, ITC fell 2.74% at Rs156, HDFC Bank slipped 2.26% at Rs958, Hero Honda plunged 1.89% at Rs629 and Tata Motors was down 1.63% at Rs710. Among the select gainers Bajaj Auto added 3.03% at Rs2,349, Infosys advanced 2.57% at Rs2,044 and Grasim gained 1.70% at Rs2,259.
Among the metal stocks Sesa Goa tanked 4.94% at Rs1,663, Jindal Steel slumped 4.01% at Rs2,501, Tata Steel dropped 3.11% at Rs496, Hindustan Zinc shed 2.54% at Rs684 and Nalco was down 2.29% at Rs241.
IFCI was the most actively traded counter with volumes of over two crore shares on the BSE followed by Orbit Corporation (1.44 crore shares), Reliance Natural Resources (53.53 lakh shares), Gremach Infrastructure (39.88 lakh shares) and Idea Cellular (39.57 lakh shares).
Value-wise Orbit Corporation clocked a turnover of Rs185 crore on the BSE followed by India Bulls Real Estate (Rs115 crore), Tata Steel (Rs112 crore), Mind Tree (Rs91 crore) and India Bulls (Rs90 crore).
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Ashwani Gujral
Buy Sterlite Industries with stop loss of Rs 475 for target of Rs 600. Calls valid for maximum 1 week
Buy Nalco with stop loss of Rs 230 for target of Rs 310. Calls valid for maximum 1 week.
Deepak Mohoni
Buy Gujarat NRE Coke below Rs 50.50 with stop loss of Rs 49. This is a day-trading recommendation.
Short sell Bajaj Auto above Rs 2272 with stop loss of Rs 2300. This is a day-trading recommendation.
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Sell Maruti with stop loss above Rs 792 for target of Rs Rs 772-765. This is a day-trading recommendation.
Sell M&M with stop loss above Rs 741 for target of Rs 707-693. This is a day-trading recommendation.
Edelweiss - Polymedicure
At the CMP of INR 126 the stock trades at 6x our FY08E EPS of INR 21.2. We belive that current valuations are very attractive and we maintain our Buy recommendation on the stock.
Medical device manufacturer Polymed Medicure is eyeing the US market, making it the first Indian company to do so. Once the company’s plant in Faridabad gets USFDA approval, it will start exporting four medical devices to the US, which accounts for 25% of the global $70-80 billion medical device market.
Medical devices are intermediate products used for drug delivery or suction and generally made from plastics. Common medical devices include syringes, blood bags, catheter, cannula, infusion sets and fluid management products among others.
Currently, the Indian medical device market is about Rs 1,500 crore while about Rs 300-400 crore worth of medical devices are exported, mostly in unregulated markets. The sector is highly dominated by unorganised sector. Currently, Polymed exports its products to over 50 countries.
Polymed Medicure managing director Himanshu Baid told ET, “We expect to get USFDA nod by June or July. By 2010, our revenues from US is expected to be about $7-8 million which will be about 15% of our total revenue. For marketing our products in the US, we are also looking at partnerships.”
The company is also exploring strategic partnership with global MNCs, to manufacture medical devices in the country. The company has appointed consultants who are scouting for suitable global companies who could partner with the company, he added.
With the expansion of hospitals, primarily by the corporate hospitals in the country, medical devices sector is expected to grow by about 18% from the current 10-15 % by 2010. Polymed has entered into a JV with a local company in Egypt to capture the North African market and is looking for a similar JV in Europe and South America also.
Polymed is also putting up another facility in Haridwar to cater to the domestic market. Mr Baid said, “We are investing about Rs 30 crore for the Haridwar facility and the first phase will be operational by May. Polymed is also planning to set up another facility in Jaipur.” The company plans to fund the expansion through internal accruals and debt.
Edelweiss Daily Market Outlook 12th April, 07
Market Snapshot
The Sensex opened on a positive note with a gap of 33 points at 13,222 after a subdued day of trade on tuesday. Late in the day, the index slipped into red to touch a low of 13,161 - down 134 points from the day's high. The Sensex eventually ended nearly flat at 13,183 - down six points. Nifty closed 14 points higher at 3862.
The NSE and BSE cash volumes were lower compared to the previous day at INR 79 bn and INR 40 bn respectively. The F&O volumes were higher at INR 229 bn.
Sentiment Indicators
The Implied Volatility (IV) across Nifty strikes has decreased to 25-27% levels. The WPCR of Nifty Options has increased to 1.11 compared to the previous 5 day average which is 0.92.
Outlook
The markets are expected to open soft as the selling pressure seen in the last trading session yesterday can continue. The global markets were also marginally in red and the Nifty will continue to be in a range bound session with intra-day volatility within this range.
Over the last few days we have seen the market rally on low volumes due to lack of a clear direction. In the absence of any trigger from global markets, traders will look at Infosys guidance numbers to make some fresh bets. Prior to that, we recommend exercising restraint.
Banking sector will be market underperformer after the proposed RBI’s announcement to increase risk weight ages to unrated loans. With car sales numbers tumbling to 13 month low, the Auto sector should remain under pressure coupled with it’s sensitivity to interest rate hikes.
The Nifty has a resistance at 3877 followed by 3892 and the support levels are at 3842 followed by 3819. The Nifty has been rising for six consecutive days now and some correction can be expected at these levels. The momentum in the rise is decreasing and patterns such as the Doji which represents uncertainty has been formed a couple of days before and continue to prevail.
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Market may drift lower on subdued to weak trend in global equities
The market is likely to edge lower tracking subdued to weak global markets. In recent months, domestic bourses have closely tracked global equities. The key economic data that will be released today is February 2007 industrial production. Though the market may drift lower today, stock-specific buying may continue based on Q4 results expectations.
Asian stocks fell on Thursday (12 April), with Japan's Nikkei nursing one of the biggest declines as technology shares slid, dented by concern about the economic outlook for the United States and a rise in oil prices. Minutes of the US Federal Reserve's March meeting, released on Wednesday, hinted at the need for further interest rate increases in the United States to fight inflation. Japan’s Nikkei was down 1.09%. Key benchmark indices in Hong Kong, Singapore, and Taiwan were down by between 0.02% to 0.55%.
US stocks fell on Wednesday as markets faced up to the reality that the Federal Reserve might raise interest rates again to quash inflation. The Dow Jones industrial average fell 89.23 points, or 0.71 percent, to 12,484.62. The Standard & Poor's 500 Index slid 9.52 points, or 0.66 percent, to 1,438.87. The Nasdaq Composite Index lost 18.30 points, or 0.74 percent, to 2,459.31.
Rising US interest rates do not bode well for emerging markets as higher US rates may lure cash out of emerging markets.
Meanwhile, market estimates of India’s February 2007 industrial production growth range from 9% to nearly 14%. Industrial production had risen 10.9% in January 2007, lower than a 12.5% growth in December 2006. The data is expected at about 12:00 IST today.
The immediate trigger for the market is Q4 March 2007 results. Overall Q4 results are expected to be strong. More important that Q4 results is what the company managements say about the outlook for the current financial year (FY 2008). Citigroup expects overall corporate earnings growth to moderate to 15-16 percent in the current and next year, while FY 2007 (year ended 31 March 2007) could be the fifth straight year of 25-30 percent earnings growth.
IT bellwether Infosys kickstarts the earnings season on Friday 13 April. The rupee’s sharp surge in late-March 2007 - early April 2007 against the US dollar and mixed reports from the US economy, have raised concerns that the FY 2008 guidance by Infosys may turn out conservative. Infosys unveils full year guidance at the beginning of the financial year along with Q4 March results
FIIs have resumed buying ahead of the corporate earnings season. Their net inflow totaled Rs 1539.50 crore three trading sessions from 5 April to 10 April. As per provisional data, FIIs were net sellers to the tune of Rs 70 crore on Wednesday 11 April.
FIIs were net buyers to the tune of Rs 149 crore in index-based futures on Wednesday. They were net buyers to the tune of Rs 91 crore in individual stock futures on that day.
NYMEX crude for May delivery was down 14 cents at $61.87 in Asian trading on Thursday amid lingering concern of a potential supply crunch this summer. The rising concern over fuel stocks came against the backdrop of tensions between the United States and oil exporter Iran, and production cuts by OPEC.
US Stocks end lower with Dow sinking 102 points at one point as Fed minutes highlight inflation and slims rate cuts hopes
It was a dismal day on Wall Street today and US Market had to be satisfied with its eight-straight day gains as US stocks were slammed today by minutes from the 20-21 March FOMC meeting. It slashed all hopes of a rate cut in the summer and on the contrary, spoke of tightening policies to curb inflation. The Dow was down as much as 102 points before recovering partly before going to close. IMF cutting the economic forecast for US economic growth and National Association of Realtors saying that existing home prices are down in 2007 just added further salt to injury.
25 out of 30 stocks closed lower on Wednesday. For the day (11 April, Wednesday) the Dow Jones Industrial Average closed lower by 89.23 points at 12484.62, Nasdaq lower by 18.3 points at 2459.31 and S&P 500 lower by 9.52 points at 1438.87. Citigroup, IBM, Honeywell and Boeing were the main Dow laggards. Alcoa, Mc Donalds and Johnson & Johnson were some of the few stocks that closed higher for the day.
All 10 economic sectors closed lower for the day paced by a 1% decline in Telecom. But market was more influentially impacted by a pullback in the rate-sensitive and heavily-weighted Financials sector. The weekly energy inventory report saying gasoline supplies fell for 9th consecutive week and drop was more than expectation also took its toll on broader market.
While most of the nine-page report of the 20-21 March FOMC meeting brought few surprises, the minutes stating that "further policy firming might be necessary," even if offset by economic concerns, showed that there was no chance of a rate cut.
Prior to that, market tried to find some comfort from remarks from Fed Chairman Ben Bernanke. Even though Bernanke recently made no comments on current economic conditions or monetary policy, he said that a "light regulatory touch'' on hedge funds is largely justified and seems to have "worked well" and this appeared to please investors.
NAR sees median U.S. existing home prices down in 2007; Citigroup falters on job cut report; IMF cuts US growth forecast
When market opened in the morning, stocks opened under pressure after the International Monetary Fund cut its outlook for global growth, while a drop in gasoline supplies briefly boosted crude oil prices. International Monetary Fund cut its forecast for U.S. economic growth this year by almost a full percentage point to 2.2%, the weakest in five years, citing a weaker housing market than previously estimated.
Alcoa’s better-than-expected report was not having a broad impact on the market. The absence of leadership from Financials and Tech, the two most heavily-weighted economic sectors, also acted as an overhanging factor. Sellers remained in complete control of the morning's action with all 10 sectors trading lower.
On top of it, National Association of Realtors said it sees median U.S. existing home prices down 0.7% in 2007, the first decline in nearly 40 years, versus a 1% rise in 2006 worsened situation further. This led to homebuilding stocks plunging. Situation worsened as KB Home CEO said that he sees housing market getting worse before better.
Market toiled for entire day slipping by 102 points both in morning and afternoon sessions. Stocks were succumbing to selling efforts before the 2:00 ET release of the FOMC minutes.
Among major blue chips, Citigroup fell 1.2% to $51.8 after the bank said it was cutting 17,000 jobs worldwide in a bid to save $4.6 billion a year by 2009. Alcoa shares rose 0.5% after it beat Wall Street expectations after market closed yesterday.
In the broad market for equities, 1.569 billion shares traded on the New York Stock Exchange while 1.976 billion shares exchanged hands on the Nasdaq stock market. Declining issues outpaced gainers by 11 to 5 on the NYSE and by 19 to 10 on the Nasdaq.
Crude-oil futures for light sweet crude for May delivery closed at $62.01/barrel (higher by $0.12/barrel or 0.2%) on the New York Mercantile Exchange. Crude prices were almost steady throughout the day today. Prices eked up marginally after today’s Energy Dept Inventory report showed that gasoline stockpiles plunged 5.5 million barrels to 199.7 million barrels last week, much more than expected drawdown (1.5 million) and also the biggest drop since 22 Aug, 2003.
After today’s close, Genentech and RIMM came out with earnings report. While Genetech surpassed expectation, RIMM missed on both topline and bottomline fronts. For tomorrow, other than a few earnings report, on the economic front, Initial Claims and Import/Export Prices will be released at 8:30 ET
Intra-day Stock Ideas
NIFTY (3862.65) SUP 3846 RES 3878
BUY SCI (167.70)
SL 163 T 175, 177
BUY GSFC (178)
SL 174 T 186, 188
BUY TATACHEM (209.65)
SL 205 T 216, 218
SELL RANBAXY (345.70)
@ 348 SL 352 T 336, 333
SELL CAIRN (125)
@ 127 SL 130 T 119, 117
STRATEGY INPUTS FOR THE DAY
Anxiety could weaken sentiment
A crust eaten in peace is better than a banquet partaken in anxiety.
Looks like its time to give up some of the gains made in the past three days. The reason. A slowing US economy and the Federal Reserve that's still reluctant to cut interest rates saying that inflation is still a threat to the world's largest economy. Wall Street isn't happy about the disappointing reports and Asian markets too are down in the red this morning. Oil prices are hovering around the $62 per barrel mark. FIIs were net sellers yesterday as per the provisional figures from the NSE. Add the anxiety over tomorrow's Infosys results and we have a perfect recipe for a weaker opening than what we've seen in the last few days. The intra-day gyrations may continue, as investors are likely to remain cautious before the Big Friday. At best, the main indices may end up on a flat note. The worst case scenario is a slight fall. A big crash is unlikely unless global indicators crack a bit more.
Among the big results today include BILT and Rallis India. Orbit Corporation is going to be listed today. TCS could be in action amid reports that it is looking at an overseas listing. Sesa Goa is also expected to attract attention. A financial daily says that the Aditya Birla Group is the frontrunner for Mitsui's majority stake in the iron ore producer. Great Offshore may hog some limelight amid report of a fresh feud among the Seth brothers over the control of the company. Polymed Medicure may gain amid reports that it is looking to launch its products in the US. JSW Steel could be in action as a financial daily reports it is in the race for Canadian steel maker Algoma Steel. Jet Airways and other airlines will remain in the spotlight ahead of the outcome on the controversial Jet-Sahara deal.
The Government will release the latest industrial production data at noon.
US stocks posted their first decline this month after the minutes from the last Fed policy meeting seemed to suggest that the central bank is unlikely to cut interest rates anytime soon.
General Motors, Wal-Mart and IBM led the Dow Jones Industrial Average to end its longest streak of gains since 2003. Citigroup and Bank of America sent financial shares lower.
Minutes from the Fed's last policy meeting added to concern after the IMF said that the US economy will expand at its slowest pace in five years. Fed officials said that higher borrowing costs may prove necessary as inflation remains a threat and gave no hint of a rate cut.
The Dow lost 89.23 points, or 0.7%, to 12,484.62, its first drop since March 28. The Standard & Poor's 500 Index slid 9.52 points, or 0.7%, to 1438.87. The Nasdaq Composite Index decreased 18.30 points, or 0.7%, to 2459.31.
US light crude oil for May delivery rose 11 cents to settle at $62 per barrel on the New York Mercantile Exchange, giving back bigger gains accrued after the government reported a big drop in gasoline supplies. The front-month contract was quoting 7 cents down at $61.94 a barrel in extended trading in Asia.
COMEX gold for June delivery rose 20 cents to $681.70 an ounce. Treasury prices fell, raising the yield on the 10-year note to 4.73% from 4.72% late on Tuesday. In currency trading, the dollar fell versus the euro and the yen.
European shares turned lower, after the IMF lowered its global growth forecasts and investors waited from a speech by Federal Reserve Chairman Ben Bernanke. The pan-European Dow Jones Stoxx 600 index closed down 0.1% at 382.19. Earlier in the day the index hit a high not seen since November 2000, of 384.47, as the oil and gas sector set the pace by rising 1.1%. Among other indexes, the UK's FTSE 100 closed down 0.1% at 6,413.30, the German DAX Xetra 30 lost 0.2% at 7,152.83 and the French CAC-40 fell 0.3% to 5,751.92.
Asian stocks fell this morning from a six-week high following the release of the minutes from the last Fed meeting. Toyota and BHP Billiton led declines among companies that rely on US sales. The Nikkei in Tokyo was down 143 points at 17,526 while the Hang Seng in Hong Kong was down 24 points at 20,425. But, the Kospi gained 7 points at 1520.
HOW MARKET FAREDCautious opening likely
Markets ended on a flat note for second consecutive trading session ahead of IT major Infosys on Friday. After strong opening markets were unable to sustain their gains as low volumes were witnessed on D-Street. The Sectoral indices were mixed today as BSE Metal and Capital Good index ended with gains however, BSE Bank, Pharma and Technology index were on the receiving end. Cement stocks also were down today. Yet again the Mid-Cap and small cap indexes outperformed the frontline indices aiding the key indices to close flat with a positive bias. Finally, the 30-share benchmark Sensex was flat at 13183. NSE Nifty was up 15points to close at 3862.
PNB fell 1% to Rs446. The Bank announced that they have raised prime lending rates by 75 basis points to 13%. The scrip touched an intra-day high of Rs458 and a low of Rs445 and recorded volumes of over 2,00,000 shares on NSE.
Bharti Airtel advanced by 1.1% to Rs774 following reports that the company may invest in wireless-service providers in other emerging markets including Bangladesh and Sri Lanka, and bid for licenses in Africa. The scrip touched an intra-day high of Rs779 and a low of Rs763 and recorded volumes of over 7,00,000 shares on NSE.
Deccan Chronicle was locked at 10% upper circuit to Rs163.50 after the company increased advertisement Tariff by 30%. The scrip touched an intra-day high of Rs163.50 and a low of Rs151 and recorded volumes of over 1,00,000 shares on NSE.
Simplex Infrastructure jumped nearly by 8% to Rs381 after the company secured orders worth Rs7.08bn. The scrip touched an intra-day high of Rs384 and a low of Rs343 and recorded volumes of over 70,000 shares on NSE.
Mid-Cap stocks were the star performers of the day as the index gained %. Info Edge, Inox Leisure, Nagarjuna Construction and Polaris were gained over 4% each.
Firm metal prices on LME boosted the metal stocks. Index heavy weights Tata Steel surged by over 3% to Rs511, Hindalco spurred over 4% to Rs142, SAIL jumped by over 4% to Rs122 and Sterlite Industries zoomed over 6% to Rs506.
Banking stocks pared their intra-day gains towards the fag end of the session. Index heavy weight HDFC Bank lost 1.3% to Rs979 and SBI was down 1% to Rs981. Bank of India, Union Bank and PNB were among the major losers.
Pharma stocks were in poor health. Ranbaxy lost by over 3.5% to Rs345, Dr Reddy’s Lab declined 3% to Rs699, Sun Pharma was down 0.8% to Rs1089 and Wockhardt fell 1.7% to Rs404Market Watch
Market Volumes:
The turnover on NSE was down by 5.4% to Rs79.84bn. BSE Bank index was the major loser and lost 0.69%. BSE Pharma index (down 0.65%), BSE Technology index (down 0.14%) and BSE FMCG index (down 0.06%) were among the other major losers. However, BSE Metal index gained 3.68%.
Volume Toppers:
SAIL, IB Real Estate, Tata Steel, TTML, ITC, Hindalco, NTPC, Ashok Leyland, Arvind Mills, Idea, Nagarjuna Fertilizer, Rana Sugar, Satyam Computer, SRF, Punj Lloyd, Deccan Aviation and PFC
Upper Circuit:
Marksons, Nirlon, Swan Mills, Shree Precoated, Country Club, Garware Offshore, HOV Services, PBA Infrastructure, Marg Construction, Maxwell, Vakran Software and Atlanta
Results Today:
Ballarpur Industries and Rallis India
Delivery Delight:
ABB, Bajaj Hindustan, Bata India, BHEL, Bharti Airtel, Bombay Dyeing, Colgate, Cummins, DCHL, Gammon, HT Media, KPIT Cummins, ONGC, Orchid Chemicals, Reliance Capital, SAIL, Titan and Sterlite Industries.
Stock Futures with Largest Increases in OI:
UTI Bank, Voltas, Crompton Greaves, Kotak Mahindra Bank, Jet Air, HDFC Bank, SAIL and Dr Reddy's Laboratories.
Stock Futures with Largest Decreases in OI:
Federal Bank, Chennai Petroleum, Bajaj Hind, Sobha Developers, Indian Bank, Bata India, Tata Chem, Bombay Dyeing and Escorts
Brokers Recommendations:
Infosys, TCS – Buy from Goldman Sachs
Reliance Industries – Outperform from Macquarie
Long Term investment:
NDTV
Major News Headlines
Bharti Airtel adds 1.7mn mobile users in March
Gujarat Ambuja cement March sales at 1.48mn tons (down 4.5%)
Mastek Q3 profit at Rs235mn (up 28%), revenues at Rs2.14bn
ONGC approves Rs7.95bn additional spending on Gas fields
Elecon Engineering secures contract worth Rs2.29bn
Simplex Infra secures orders worth Rs7.08bn
Prithvi Info to consider interim dividend on 18th April
PNB, OBC, Syndicate Bank and Union Bank raise prime lending rates
Deccan Chronicle increases Ad Rates by 30%
GAIL, Indian Oil sign accord to sell Natural gas in West Bengal
SSKI - Earnings preview (Q4FY07): 'Interest'ing times
Sensex earnings are estimated to register a 29.7% yoy increase in Q4FY07. Though lowest within FY07, we believe growth is still robust. Notably, an apparent slowdown in earnings growth of commodity stocks to 30.5% yoy in Q4FY07E – read oil & gas, due to lopsided subsidy sharing across quarters – has impacted reported earnings for both Sensex and the SSKI universe. While the reported earnings growth for the SSKI universe would be just 10.6% yoy, earnings ex-oil & gas would still grow at a healthy 29%. For non-commodity stocks, we expect earnings growth to stay largely on track (28.2% yoy), despite a slowdown for 2-wheeler stocks due to lower volumes. Our key result picks are Tata Steel, Maruti, Infosys, TCS, JP Associates, BHEL and KEC.
Over FY07-09, we expect 15.7% CAGR in Sensex earnings – significantly slower than in the past few years. While we continue to advocate a major slowdown in commodity stock earnings to 2.8% CAGR, we maintain a robust outlook for non-commodity earnings (23.2% CAGR). We maintain our Sensex target range at 14000-14600, which builds in a higher cost of capital. At 15x FY09E earnings, Sensex valuations still offer upside. We have revisited our model portfolio to reflect caution on "interest rate-sensitive stocks" as we believe the RBI would maintain its hawkish stance in the near term. While inflation and credit growth are likely to be reined in, the overhang of high core inflation and strong capital flows leading to liquidity beyond the RBI's tolerance level remains. However, there is significant valuation comfort in rate-sensitive stocks, primarily banks. We, therefore, have a Neutral stance on the sector with a preference for private banks. Our large cap top picks are BHEL, ONGC, Tata Motors, Infosys and Bharti.
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Market may open on a weak note
After consecutive two flat closes it seems market is waiting for a trigger to move either side of the zone. Most of the participants remained on the sidelines ahead of corporate result, beginning with Infosys announcing its forth quarter results tomorrow. For the last one month market is moving in tune with international markets and local indices may witness caution following the weak global indices. However, for the last few sessions FII have turned buyers of equities in the domestic market may help the sentiment turn positive. Among the domestic indices, the Nifty could test 3825 and below this level may slip to 3800, while on the upside it could edge higher to 3900. The Sensex has a likely support at 13050 and may face resistance at 13250.
US indices ended weak on Wednesday as minutes from last month's Federal Reserve meeting hinted at the need for more rate hikes. While the Dow Jones dropped by 89 points to close at 12485, the Nasdaq ended 18 points lower at 2459.
All the Indian ADRs ended in the red on US bourses. Wipro and Satyam Computers fell sharply and tumbled over 2% each, while Tata Motors, Infosys, HDFC Bank, Patni Computers and Rediff closed with the marginal losses.
The Nymex light crude oil for May delivery rose 12 cents to close at $62.01. In the commodity space, the Comex gold for June series rose by 20 cents to settle at $681.70 a troy ounce.
Anand Rathi - Daily Technical Note & Anand Rathi Daily Strategist
Nifty and Sensex have exhibited narrow candlesticks.
Technically, one may use the level of 3745 (Nifty) and 12900 (Sensex) as the stop loss level.
Nifty faces resistance at 3900 and Sensex at 13400.
BSE Smallcap and BSE Midcap Indices have exhibited a bullish candlestick.
CNX IT has lost ground.
In the Punter's zone we have a buy in IVRCL & sell in INFOSYS TECHNOLOGY and CENTURY TEXTILES.
In the technical zone we have a buy in GRASIM and ORCHID CHEMICALS &sell in ESCORTS.
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The NIFTY futures saw a rise in OI to the tune 0.87% with prices in a very narrow range indicating that market participants are not building aggressive positions in the market and waiting for INFOSYSTCH result .Market remained in a range of 3820 to 3850 levels showing that breach of any of these levels may result in aggressive built up in positions. If market goes below 3750 levels we may see aggressive fresh short positions being built up in the market. The FIIs bought index futures marginally to the tune of 149crs indicating the activity on their part has also come down. The PCR has come up form 0.97 to 1.00 levels indicating some buying support may emerge in the market. The volatility has come up from 26.50 to 26.80 levels indicating volatile trading sessions ahead as historical volatility is also on higher side.
Among the Big guns, ONGC saw rise in OI to the tune of 7.01% with prices up indicating long positions being built up in the counter indicating strength in the counter whereas RELIANCE saw drop in OI with prices almost flat indicating liquidation of positions by both bulls and bears.
In the TECH front, INFOSYSTCH, TCS, SATYAMCOMP, WIPRO saw significant rise in OI with prices flat to negative indicating aggressive built up in positions by both bulls and bears.
In the BANKING counters, SBIN saw rise in OI with prices coming down indicating built up of short positions in this counter indicating weakness in the counter. HDFCBANK saw significant built up in OI with prices coming down indicating built up of short positions in the counter. ICICIBANK saw drop in OI with prices almost flat indicating liquidation of positions by both long and short positions.
In the metal pack TATASTEEL, SAIL saw flat OI with prices coming up indicating short covering and built up of fresh long positions indicating strength in the counter whereas SAIL saw significant built up in OI to the tune of 17.17% with prices up 4.20% indicating heavy buying coming in this counter indicating further strength in the counter .HINDALCO, NALCO & STER saw built up in OI with prices coming up significantly indicating fresh money coming in these counters indicating further strength in these counters.
Considering the overall scenario and the markets behavior the market may show some volatility before taking any sharp and directional movement .If it goes below 3800 levels we may see fresh short positions being built up in the market. Traders are advised not to go aggressively short on the market unless important support level of 3750 is breached and any position taken today should be with strict stop losses to be adhered too.
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Fortis Healthcare IPO
Fiercely costly
Fortis Healthcare (FHL), promoted by the Ranbaxy Laboratories group, opened its first hospital in Mohali in 2001.Since then, FHL has expanded its operations by opening multi-specialty hospitals (including some with super-specialty `centers of excellence’), a boutique-style hospital and various satellite and heart command centers.
The multi-specialty `spoke’ hospitals in the network provide comprehensive general healthcare to patients in their local communities, and super-specialty "hub" hospitals provide more advanced care to patients, including patients from `spoke’ hospitals and other hospitals in the surrounding area. Six of FHL’s hospitals are owned or majority-owned by the company, which also operates Escorts Heart Centre at Raipur (EHCR) in collaboration with the government of Chhattisgarh. The remaining four with the satellite and heart command centers are operated and managed by FHL but owned by trusts or societies or other corporate owners, except for Fortis La Femme, in which the company currently own a 5% interest. In February 2007, the company acquired 100% interest in Hiranandani Healthcare (HHPL) from its then existing shareholders in Navi Mumbai.
FHL has approximately 1,490 inpatient beds in use across the network of 11 hospitals, with capacity to increase inpatient beds to approximately 1,790. In the nine months ended December 2006, the hospitals performed over 4,500 heart surgeries, 4,000 angioplasties and 12,500 angiographies. During Fiscal 2006, it performed over 5,000 heart surgeries, 5,000 angioplasties and 15,000 angiographies.
FHL has raised around Rs 153.69 crore through the pre-IPO placements and further plans to raise around Rs 423 crore-Rs 505 crore, depending on the price band. About Rs 100 crore are to be raised through debt. Nearly Rs 200 crore are to be spent on construction and development of the planned hospital to be located at Shalimar Bagh in New Delhi by Oscar Biotech (the company’s subsidiary). There are plans to refinance Rs 560 crore raised to acquire Escorts Heart Institute Research Centre (EHIRC) in New Delhi and to prepay a short-term loan of Rs 70 crore.
Strengths
- FHL has a good brand image in North India and can capitalise on it to attract patients as well as skilled and reputed doctors while expanding in the rest of the country.
- Increasing incidence of lifestyle diseases, medical insurance penetration, medical travel from other countries are growth drivers for the healthcare sector.
Weakness
- FHL is in the midst of significant litigations related to its acquisition of EHIRC and its subsidiaries comprising among other things EHIRC’s corporate existence, tax payments, and land rights.
- In the nine months ended December 2006, the average occupancy rate at its main hospitals---Fortis Hospital at Mohali, EHIRC in New Delhi, Fortis Hospital at Noida and EHRC at Rajpur in Chhattisgarh were 75%, 81%, 82% and 91%, respectively, which are reasonably high (there are limits beyond which occupancy rate cannot be increased). Yet, the company is making operating losses. All of them are well established and have run through their gestation periods.
- The company has not accounted for Delhi High Court’s direction for free treatment to indigent patients. It has preferred to appeal to the Supreme Court. In the nine months ended December 2006, there would have been an additional expense of Rs 6 crore, which has not been provided. If the high court’s direction is upheld, the company may have to provide for substantial sums from retrospective effect.
- Higher real-estate prices/lease rentals and interest rates will add to its fixed costs. The company has aggressive expansion/acquisition plans (though the IPO is mainly to refinance the existing debt), which can make it debt heavy, require constant infusion of fresh capital and make the turnaround difficult and lengthy.
Valuations
FHL has done pre-IPO placements with various investors at an average price of Rs 145 per share. However, that’s the only comforting factor about valuation.
FHL acquired 90% in EHIRC in September 2005 for Rs 585 crore (valuing EHIRC at Rs 650 crore). EHIRC presently contributes around 60% of the consolidated revenue. Thus, the total value of the company would be around Rs 1100 crore. But at the offer price band of Rs 92- Rs 110, it is valued at around Rs 2100-2500 crore. On the other hand, Apollo Hospitals Enterprises, which is about 1.7 times larger than FHL, is currently available at a market cap of around Rs 2500 crore! Moreover debt on the books of FHL will be much higher than that on the books of Apollo Hospitals. Thus enterprise value of FHL will be much higher than that of Apollo Hospitals.
The organic growth in this sector cannot be high and the high capital-intensive nature ensures low ROCEs/RONWs. Besides, the sector is subject to government regulations. Hence, corporate hospitals should not get high P/Es (valuations). However, Apollo Hospitals, which is the only listed major hospital chain, commands a high TTM P/E of 35. This is partly due to scarcity premium arising from funds seeking exposure to the Indian healthcare sector. Apollo Hospitals is the only available stock.
One other reason is Apollo Hospitals’ aggressive expansion in pharmacy business, which is a high return-high growth sector, commanding the high valuations of retail business. However, Ranbaxy group’s pharmacy business is steered through promoter group company Fortis HealthWorld. Many pharmacies in FHL’s hospitals are run by Fortis HealthWorld.
Moreover, while Apollo Hospitals has a long track record of profitable growth, FHL has mounting losses to report.
Thus, by all accounts, FHL should get much lower valuation than Apollo Hospitals, whose valuation itself looks high.
Q4FY2007 earnings preview: Sharekhan Special dated April 11, 2007
Q4FY2007 earnings preview
Key points
- The Sensex earnings are expected to grow by 37% year on year (yoy) for Q4FY2007. However, excluding oil the earnings are expected to grow by 34% driven by the earnings in the software, cement and banking sectors. These three sectors are expected to contribute 42% of the Q4FY2007 Sensex earnings excluding oil. On a quarter-on-quarter (q-o-q) basis the expected growth is only 1.2%, which indicates expectations of some slowdown in the earnings momentum.
- Strong earnings growth is expected in the pharma sector mainly due to a very low base. On the other hand information technology (IT) earnings will be affected due to the sharp appreciation in the rupee. Auto numbers are not expected to be great due to margin pressure and a slowdown in the volumes.
- Strong year-on-year (y-o-y) earnings growth is expected from Reliance Communications, Bharti Tele, Ranbaxy, Dr Reddy’s Laboratories, Grasim and Tata Steel.
- Two-wheeler majors Hero Honda and Bajaj Auto are expected to report a y-o-y decline in the profits.
- Some of the non-Sensex companies where high growth is expected are Dabur Pharma, Syndicate Bank, Polaris and India Cements.
- In the absence of any major surprises, the fourth quarter results of the Indian companies may not be a trigger for the market, but the market will keenly await the guidance on the FY2008 prospects of the corporate sectors, especially automobiles, banks and the other interest rate sensitive sectors.
Sharekhan Investor's Eye dated April 11, 2007
SHAREKHAN SPECIAL
Q4FY2007 earnings preview
Key points
- The Sensex earnings are expected to grow by 37% year on year (yoy) for Q4FY2007. However, excluding oil the earnings are expected to grow by 34% driven by the earnings in the software, cement and banking sectors. These three sectors are expected to contribute 42% of the Q4FY2007 Sensex earnings excluding oil. On a quarter-on-quarter (q-o-q) basis the expected growth is only 1.2%, which indicates expectations of some slowdown in the earnings momentum.
- Strong earnings growth is expected in the pharma sector mainly due to a very low base. On the other hand information technology (IT) earnings will be affected due to the sharp appreciation in the rupee. Auto numbers are not expected to be great due to margin pressure and a slowdown in the volumes.
- Strong year-on-year (y-o-y) earnings growth is expected from Reliance Communications, Bharti Tele, Ranbaxy, Dr Reddy’s Laboratories, Grasim and Tata Steel.
- Two-wheeler majors Hero Honda and Bajaj Auto are expected to report a y-o-y decline in the profits.
- Some of the non-Sensex companies where high growth is expected are Dabur Pharma, Syndicate Bank, Polaris and India Cements.
- In the absence of any major surprises, the fourth quarter results of the Indian companies may not be a trigger for the market, but the market will keenly await the guidance on the FY2008 prospects of the corporate sectors, especially automobiles, banks and the other interest rate sensitive sectors.
Q4FY2007 Auto earnings preview
Automobile companies reported a mixed performance in terms of sales volumes for Q4FY2007, maintaining the trend of the past two quarters. The growth in four-wheelers has outpaced that in two-wheelers. Rising interest rates and tightening liquidity have taken their toll on the automobile sector, as the growth rates are beginning to slow down. Competitive pressures continue in the two-wheeler segment even as volume growth has slowed down. Among the heavyweights, Bajaj Auto Ltd (BAL) has reported a sales growth of a meagre 1% whereas Hero Honda Motors has reported a rise of 10.8% in its sales for the fourth quarter. The four-wheeler segment has continued on its growth path, with the commercial vehicle (CV) segment reporting a growth of 25% for the quarter (with the exception of March). The passenger car segment has grown by 20% in the quarter. The segment is expected to see a flurry of activity with a number of new launches planned in this fiscal. Maruti Udyog's car sales have grown by a strong 29.6%; the overall sales of Mahindra & Mahindra (M&M) are up by 18.8% and Tata Motors' commercial vehicle sales have increased by 22.4%.
The operating profit margins (OPMs) are expected to have been under pressure for the whole sector considering the high raw material prices. The margin pressure would be most evident in the two-wheeler segment due to the intensified competition as well as various sales promotion activities and discounts being offered by the major players during the period.
We expect M&M, Tata Motors, Ceat, Ahmednagar Forgings and SKF India to be among the lead performers in the sector for Q4FY2007.
STOCK UPDATE
Hyderabad Industries
Cluster: Apple Green
Recommendation: Book Profit
Current market price: Rs230
Book profit
Result highlight
- Hyderabad Industries Ltd (HIL) has delivered a disappointing performance yet again in Q3FY2007. Lower than expected sales, the company's inability to pass on the costs to the consumers and higher raw material costs affected its performance during the quarter.
- In Q3FY2007, the net sales rose by 4.7% to Rs100 crore. Not only was the company unable to pass on the higher costs to the consumers, but it also faced a lot of competitive pressures, leading to a loss in its market share. The operating margins have come down drastically from 11.7% to 3.5% due to the very high cement prices, as cement is the key raw material. Consequently, the operating profit for the quarter declined by 69% to Rs3.46 crore.
- With all the asbestos majors adding capacity, there is overcapacity in the industry, leading to more competitiveness. This has capped the pricing power of the companies, and they are unable to pass on the impact of the higher raw material costs to the consumers. We expect this scenario would continue to adversely affect the company going forward, and expect the margin pressure to continue as all the players gun for a higher market share.
- At the current levels, the stock discounts its FY2008E earnings by 10x and quotes at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6x. At these levels, the stock does not look attractive and hence we are closing our recommendation on the stock. We had initiated the stock at a price of Rs163, and the stock has given a return of 41%.
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