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Monday, April 23, 2007
Market Close: a breather ahead of the RBI policy
After the strong run up seen last Friday markets opened positive in line with its Asian peers in green. Profit taking set in and the markets slipped into red but saw some renewed buying support. Markets were volatile throughout the day finally settled with modest gains. Market also chose to be cautious ahed of the monetary policy due tomorrow. Sensex has gained over 8% in the past two weeks on the back of strong earnings and firm global markets. Only Power and Metal stocks garnered investors' interest and selected stocks in the Banking, Auto, Pharma and Telecom sectors succumbed to selling pressure. The Asian markets ended flat in green. Shanghai Composite was up 3.5% while European market trading in mix.
As per provisional data, FIIs were net sellers to the tune of Rs 142.49 crore today. Domestic institutional investors were net buyers to the tune of Rs 258 crore. Overall sentiment is positive on a stable global environment
Sensex ended up 13930 help up by gains in TATA STEEL (556.5,+4 percent), Rel Energy (522.95,+2 percent), RCom (464.95,+2 percent), SATYAM (481.9,+1 percent) and RELIANCE (1558,+1 percent). Restricting the gains were ITC (156.4,-3 percent), HLL (202.2,-2 percent), SBI (1060,-1 percent), Bajaj Auto (2408.95,-1 percent) and Maruti (767.4,-1 percent).
ZEE reported subdued results for the 4th quarter and full year ended March 2007. The numbers were indicative of a mixed performance as the topline for the quarter reported a decline of 3.4% as compared to the same period last year. However operating profits and net profits for the quarter rose 25% YoY and 19% YoY respectively. The full year numbers for FY07 were also subdued as the topline showed a YoY decline of over 2%. The operating profits over the same period rose by 20% YoY and the net profits climbed up by 3% YoY during the same period. The stock ended up by 2.5% and Sun TV ended up by 1%.
Ceat Ltd ended the day lower by 4% post Q4 results. The top line of the company for the year surged by 22% on yearly comparison. The top line for the year stood at Rs. 2,135 cr against Rs. 1,747 cr. The EBIDTA margins were 6% for the year at Rs. 128 cr against Rs. 69 cr in FY 06. The bottom line was at Rs. 39 cr against Rs. 52 lakh in the previous year. The top line for the quarter stood at Rs. 563 cr against Rs. 485 cr in the same quarter previous year. The EBIDTA margins for the quarter were at 8%. The bottom line for the quarter was at Rs. 22 cr against Rs. 5 cr in the same quarter year. The improvement in the bottom line was on a better pricing environment. However the stock closed down on profit taking.
Technically Speaking: It was a Yo-Yo session for the whole day before the markets closed flat. Sensex touched an intraday high of 14046 levels and low of 13879 levels. Over all market was in the hands of Declines as Declines were 1387 against the advances of 1177. The turnover stood good at Rs 4107 Cr. Sensex remains in an uptrend. And we maintain our immediate target of 14275. Supports are at 13845 and 13760 level. Resistance is at 14002 and 14280 level. Expect the market hold the rally and can cross the 14000 benchmarks.
Eagle Eye & Motilal Oswal Reports
Sharekhan Eagle Eye (equities) & Derivatives Info Kit for April 24, 2007
Motilal Oswal - Derivatives, Daily Margin, Corporate News, Market Diary, Market Action - Apr 23
Morgan Stanley - Reliance Energy, Angel - Infotech Enterprises , Angel - ACC, Geojit - Tata Elxsi , Geojit - Batliboi , IISL - Clutch Auto
Morgan Stanley - Reliance Energy
Angel - Infotech Enterprises
Angel - ACC
Geojit - Tata Elxsi
Geojit - Batliboi
IISL - Clutch Auto
Satyam Computer Services - back on track after a strong quarter; result update Q4FY07; maintain Buy
Satyam Computer Services (SCS IN, INR 448, maintain Buy)
Satyam's Q4FY07 results were ahead of our expectations. Revenues, came in at INR 17.8 bn, up 7.1% Q-o-Q and 35.4% Y-o-Y while net profit, at INR 3.9 bn, was up 16.7% Q-o-Q and 38.3% Y-o-Y. Higher other income and lower depreciation have contributed to the better-than-expected profits. EBITDA margins at 23.1% (down by 160 bps Q-o-Q) resulted in a flat EBITDA over Q3FY07.
A steady pace of client addition over the past several quarters with an increasing number of clients being migrated in the USD 1-5 mn category augurs well for the company. The company has increased its million dollar client base by over 20% and its USD 10 mn plus client base by 30% in FY07 over FY06. Though the growth rate in the top 5-client category has been slightly volatile over the past three-four quarters, the top 6-10 client category has been ramping up well for the company. The company's focus on consulting and enterprise business solutions and engineering solutions is paying off, with both registering double-digit growth.
Satyam has issued positive guidance for FY08 for revenues and EPS growth of 28-30 and 27-29% respectively in USD terms as per US GAAP, revenues and EPS growth of 20-22% and 18-20% respectively as per consolidated Indian GAAP. The difference is due to the assumption of a 6% Rupee assumption factored in.
At INR 448, the stock trades at a P/E of 16.9x and 13.6x on our FY08E and FY09E earnings respectively. We maintain our 'BUY' recommendation.
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Kotak - Sobha Developers, Wipro, Satyam, Gujarat Ambuja, Ultratech Cement, India Cement, Reliance Industries, FY08 Policy
Sobha Developers
Wipro
Satyam
Gujarat Ambuja
Ultratech Cement
India Cements
Reliance Industries
FY08 Policy
Sensex gains amid lacklustre trades
The market closed with marginal gains amid worries about another interest rate hike and liquidity tightening measures from the RBI.
It appeared that investors preferred to remain on the sidelines ahead of the announcement of the monetary policy by the Reserve Bank of India (RBI).
The market opened on a positive note at 13973, up 76 points, and surged to touch the day's high of 14047, gaining 150 points on sustained buying in front-line stocks in tandem with firm global markets. However, after regaining the 14,000 level in the early trades the Sensex eased on profit booking in the heavyweights as well as pharma and fast moving consumer goods stocks, and touched the intra-day low of 13879. The market remained range-bound in the afternoon with marginal gains on account of selective buying in metal and technology stocks. The Sensex finally closed the session with gains of 31 points at 13928. The Nifty ended the session at 4085, up two points.
The breadth of the market was negative. Of the 2,630 stocks traded on the BSE, 1,384 stocks declined, 1,163 stocks advanced and 83 stocks ended unchanged. Among the sectoral indices, except for the BSE Metal Index, the BSE Oil & Gas Index and the BSE Teck Index, all closed in the red. The BSE CD Index slipped by 2.36% at 3740 followed by the BSE FMCG Index (down 1.62% at 1782) and the BSE HC (down 1.40% at 3740).
However, select blue chips notched up significant gains. Tata Steel rose 4.35% at Rs558, Reliance Energy advanced 2.33% at Rs523, Reliance Communication climbed 1.87% at Rs465, ONGC surged 1.27% at Rs933, HDFC scaled up 1.18% at Rs1,670, while Satyam Computer, Hindalco, Reliance Industries, Hero Honda and ACC closed with marginal gains. Among the laggards, ITC tumbled by 2.62% at Rs156, HLL dropped 1.61% at Rs202, Bajaj Auto slipped 1.36% at Rs2,409, SBI was down 1.36% at Rs1,060 and Maruti Udyog dipped 1.15% at Rs767. TCS, HDFC Bank, Tata Motors, Wipro and Bharti Airtel ended with marginal losses.
Metal stocks were in the limelight. Maharashtra Seamless soared 5.92% at Rs563, Jindal Steel jumped 5.43% at Rs2,785, Shree Precoated scaled up 4.99% at Rs363, Tata Steel advanced 4.35% at Rs558 and Jindal Saw gained 2.25% at Rs558. SAIL, Hindalco, Jindal Stainless, Hindustan Zinc and Nalco were up around 1% each.
Over 3.03 crore Gujarat Ambuja Cement shares changed hands on the BSE followed by Reliance Natural Resources (1.78 crore shares), GV Films (91.70 lakh shares), FSL (89.43 lakh shares) and Tata Teleservices (76.55 lakh shares).
Value-wise Gujarat Ambuja Cement registered a turnover of Rs349 crore on the BSE followed by Tata Steel (Rs126 crore), Unitech (Rs121 crore), Phoenix Mills (Rs120 crore) and Advanta (Rs97 crore).
Market holds cards close to the chest ahead of RBI meeting
The market chose to remain cautious on the first day of the week, ahead of key events that are to unfold. The outcome of these events have the potential to swing the market either ways.
The first and the most significant of events is the Reserve Bank of India (RBI)’s monetary policy, which will be announced by noon tomorrow. The central bank is expected to hold interest rates steady at its policy review on Tuesday (24 April), although analysts say tightening is not over yet and the central bank may decide to take steps to curb capital inflows that have been driving up the rupee. The central bank will also set out its forecasts for the year, including that on inflation and growth.
Prior to this, it has already raised the reserve requirement for banks three times since December 2006 and raised its main lending rate five times since early-June 2006, to try and curb credit growth as well as inflation.
Also, intense volatility is expected ahead of the expiry of the April 2007 derivative contracts on Thursday (26 April 2007).
The market, which was highly volatile throughout the day, finally settled with modest gains. The benchmark Sensex was in great nick at the start of the session, but pared gains in the second half of trading, as profit-booking set in at the higher levels.
The 30-share BSE Sensex gained 30.92 points, to end at 13,928.33. It had opened firm, at 13,972.81, and vaulted to a high of 14,046.52, as buying continued. Its low for the day is 13,879.39.
The S&P CNX Nifty was up 1.55 points (0.04%), to finish at 4,085.10.
As per provisional data, FIIs were net sellers to the tune of Rs 142.49 crore today. Domestic institutional investors were net buyers to the tune of Rs 258 crore today.
The Sensex had last hit the 14,000 mark on 23 February 2007 and had closed above the coveted mark for the last time on 22 February 2007. The Sensex’s all-time peak is of 14,723.88, which was attained on 9 February 2007. The benchmark Sensex's all-time closing high is 14,652.09, of 8 February 2007.
The market-breadth, which measures the overall health of the market, ended negative, as selling of smallcap and mid-cap shares began. On BSE, 1,387 scrips declined compared to 1,177 that advanced. A total of 83 stocks remained unchanged. The BSE Mid-Cap Index ended at 5,702.44, a gain of 3 points (0.06%), while the BSE Small-Cap Index settled at 6,970.92, down 3 points (0.05%) from its previous close.
The total turnover on BSE was unusually high compared to that in the previous few sessions, thanks to a number of block deals that were executed in a lot of counters.
Three massive block deals of 93.21 lakh shares each (amounting roughly 1.8% of stake), struck in the Gujarat Ambuja Cements (GACL) counter, at an average Rs 116.05 per share on BSE were a salient feature of opening trade. The stock was down 0.61% to Rs 114.75, on total volumes of 3.03 crore shares. Undoubtedly, it was the top-traded counter on BSE with a turnover of Rs 352.55 crore. As per reports, Holcim, the world's second-biggest cement maker, raised its stake in the Indian cement major to nearly 30% in a deal worth $78 million.
Phoenix Mills was the fourth most-traded counter on BSE with a turnover of Rs 119.95 crore. Two block deals of 2.43 lakh shares were executed in the counter on BSE, at an average Rs 1581 per share in early trade.
A block deal of 10.20 lakh shares was struck in the Cairn India counter, at Rs 132 per share, by 14:25 IST.
As a result of the block deals, the total turnover clocked a neat Rs 4111.37 crore on BSE while the total market-wide turnover was at Rs 45203.74 crore.
Among the 30-Sensex pack, 16 declined while the rest advanced.
Shares from the metal pack, bucked the sluggish trend. The BSE Metal Index closed at 9,896.84, up 2%, and was the top-gainer among the sectoral indices.
Tata Steel surged 4.71% to Rs 559.50, on a high volume of 22.96 lakh shares, and was the top-gainer. It had advanced to a high of Rs 560, in intra-day trade.
Maharashtra Seamless (up 5.92%), Jindal Steel (up 5.08%), Sail (up 0.20%), and Jindal Saw (up 2.25%) were the other gainers from the metal space.
REL (up 2.10% to Rs 521.75), Hindalco (up 0.80% to Rs 147.85) and Satyam Computers (up 0.85% to Rs 480.50) were the other gainers.
Reliance Communications advanced 1.62% to Rs 463.80, on expectations of strong earnings growth, driven by a robust rise in the subscriber base and an increased penetration of value-added services. Reliance Communications will announce its results on 30 April 2007.
Bharti Airtel, however, was down 0.95% to Rs 837.55, after striking an all-time high of Rs 867.80. Bharti Airtel unveils its Q4 results on 27 April 2007.
Index heavyweight Reliance Industries (RIL) was up 1.10% to Rs 1558, on a volume of 6.24 shares. It had advanced to a high of Rs 1560, while its low was at Rs 1527.
Drug major Ranbaxy Laboratories lost 0.37% to Rs 342.05, after investing more than $20 million (over Rs 83 crore) in the Romanian subsidiary, Terapia Ranbaxy. The move is a part of the company’s strategy to make the subsidiary its hub for Europe and Commonwealth of Independent States (CIS).
Terapia SA, an 86-year-old company, was acquired by Ranbaxy for $324 million (Rs 1,347 crore) in June, last year. The combined operations of Terapia and Ranbaxy established the largest Romanian generics company, with more than 1,200 employees, of which 350 form the largest professional field force in the Romanian pharmaceutical market. Terapia has a manufacturing plant in Romania, which Ranbaxy is now in the process of upgrading.
Ranbaxy had invested about $10 million (over Rs 40 crore) last year in Terapia and was looking at a similar investment in the same, post-acquisition, a Romanian news paper, Ziarul Financier, had said yesterday quoting Peter Burema, President of Ranbaxy’s global pharmaceutical division.
Cigarette major ITC was the top-loser, down 2.49% to Rs 156.60, on volumes of 17.18 lakh shares. It had also sunk to a low of Rs 154.85.
Banking stocks settled lower, ahead of the Reserve Bank of India (RBI)’s monetary policy meeting tomorrow. SBI (down 1.80% to Rs 1055.40), HDFC Bank (down 0.87% to Rs 986) and ICICI Bank (down 0.15% to Rs 913) declined.
Tata Power Company surged 4% to Rs 568, after it acquired Coastal Gujarat Power, a special purpose vehicle (SPV) formed for Mundra Ultra Mega Power Project (UMPP). A formal execution of the documents took place between Power Finance Corporation (PFC) and Tata Power, under the guidance of the Ministry of Power, Delhi. A performance bank guarantee of Rs 300 crore was provided by the company in favour of PFC. Coastal Gujarat Power has also signed power purchase agreements (PPAs) with seven procurers (distribution licensees) for the sale of contracted capacity and supply of 4000 MW electricity to these licensees but it delineates responsibility of procurers and company for the next important milestone. It also nominates Gujarat Distribution Company as the lead procurer on behalf of all procurers.
ABB gained 2.10% to Rs 3932, on continued buying, expecting a strong set of Q1 March 2007 results. ABB unveils Q1 results on 26 April 2007. Six brokerages expect 26.8 - 50.7% growth in ABB’s Q1 net profit, between Rs 65 crore and Rs 77.30 crore, compared to a net profit of Rs 51.30 crore in Q1 March 2006. Sales are seen rising 25 - 49.2%, between Rs 1003.60 crore and Rs 1198.20 crore, from Rs 802.91 crore in the March 2006 quarter.
Titan Industries plunged 6.20% to Rs 948, after the company reported a 18.5% decline in net profit in the March 2007 quarter. Titan Industries has reported a 18.50% decline in its net profit in the March 2007 quarter at Rs 30.32 crore (Rs 37.21 crore). Net sales surged 39.5% to Rs 605.83 crore from Rs 434.15 crore.
Sun Pharmaceutical Industries plunged 10.61% to Rs 1055, after the stock began trading ex-demerger of its R&D division into a separate company. On 5 April 2007, Sun Pharmaceutical Industries announced that its shareholders will get a share of Sun Pharma Advanced Research Company, which is being spun off for every share they held in Sun Pharmeceuticals. The company has fixed 30 April 2007, as the record-date for this purpose. Sun Pharma Advanced Research Company will be seperately listed on the bourses in due course.
Syngenta India rose by its maximum daily limit of 20% to Rs 625.20, after its parent set an exit price of Rs 730-per-share to delist the company.
Lead acid batteries maker Exide Industries gained 6.48% to Rs 48.50. On Friday (20 April), the company reported strong Q4 March 2007 results. The net profit jumped 49% to Rs 38.51 crore, on 38% growth in sales to Rs 528.89 crore.
IT services firm iGate Global Solutions gained 6.1% to Rs 356.50. Earlier during the month, iGate reported 42% sequential growth in net profit for Q4 March 2007 at Rs 22.65 crore from Rs 15.95 crore in the December 2006 quarter. The software developer had at the time of unveiling Q4 results said, the US subprime mortgage woes were hitting its revenues.
Alfa Laval rose 5.94% to Rs 999. It was the fourth-biggest gainer from the 'A' group scrips of BSE. The company holds a board meeting on 25 April 2007, to consider March 2007 quarter results.
Maharashtra Seamless gained 5.92% to Rs 562.50, ahead of its March 2007 quarter results scheduled on 25 April 2007.
Zee Entertainment Enterprises rose 2.19% to Rs 272.25, on reporting strong Q4 March 2007 results. ZEEL recorded 13% growth in consolidated net profit on a like-to-like basis, giving effect to restructuring in the March 2007 quarter to Rs 60.30 crore (Rs 53.50 crore). Operating revenue rose 11% on a consolidated basis to Rs 384.40 crore (Rs 347.60 crore). For the year ended 31 March 2007, ZEEL clocked 8% growth in net profit to Rs 219.40 crore, on 31% growth in operating revenue to Rs 1441.10 crore.
UltraTech Cement slipped 4.65% to Rs 803, despite the company reporting strong results for the March 2007 quarter. The scrip of Ultratech Cement had opened at Rs 860, a 2.11% rise to yesterday’s closing of Rs 842.15. UltraTech Cement posted a surge in net profit in the March 2007 quarter to Rs 231.54 crore (Rs 132.11 crore). Net sales surged 38.2% to Rs 1465.52 crore (Rs 1060.35 crore).
DTH service provider Dish TV India slumped 4.92% to Rs 104.35, after the Reserve Bank of India (RBI) barred fresh FII-buying in the counter. According to the central bank, the ceiling of 49% for such investment had already been reached in the counter.
The Nikkei average was little changed, giving up some of its earlier gains on Monday, as caution ahead of the earnings announcements put Yahoo Japan Corp and others under pressure. Hoya Corporation extended losses to fall more than 3% after posting a weaker-than-expected gain in the fourth-quarter profit on Monday.
The Nikkei inched up 2.75 points, or 0.02%, to 17,455.37.
Oil prices dropped in Asian trading on Monday after no major disruptions to production were reported around the weekend presidential election in Nigeria. An overseas monitor, however, said the electoral process failed to meet international standards.
Light, sweet crude for June delivery dropped 16 cents to $63.95 a barrel in electronic trading on the New York Mercantile Exchange midmorning in Singapore. The May contract on Friday rose $1.55 to settle at $63.38 a barrel before expiring, while the June contract settled at $64.11, up 79 cents.
FIIs have stepped up buying after Infosys gave a strong guidance for FY 2008 in dollar terms, putting to rest concerns about the impact of a slowdown in the US on India's IT sector. Their inflow for April 2007, till Friday (20 April 2007), aggregated Rs 5120 crore.
US stocks jumped on Friday (20 April), with the Dow closing at a record high after stopping short just 35 points from the 13,000 mark, as Google Inc., and Caterpillar Inc., joined the list of companies reporting stronger-than-expected quarterly results. The Dow Jones industrial average rose 153.35 points, or 1.20%, to end at 12,961.98, its third straight record close. The Standard & Poor's 500 Index was up 13.62 points, or 0.93%, at 1,484.35. The Nasdaq Composite Index was up 21.04 points, or 0.84%, at 2,526.39.
Intraday Stock Ideas
NIFTY (4084) S 4065 R 4116
Buy ICICI Bank (914) SL 908 target 924, 929
Buy HCL Tech (335) SL 331 target 343, 346
Buy Dr Reddy's (715) SL 709 target 725, 729
Buy Kotak Bank (504) SL 499 target 512, 515
Sell Maruti (779) SL 785 target 768, 764
STRATEGY INPUTS FOR THE DAY
Investors wonder what RBI will do
Some people make things happen, some watch while things happen, and some wonder 'What happened?'
Though there are many factors to consider, one individual called Dr. Y.V. Reddy will probably decide whether the bulls will be able to score a hat-trick in terms of weekly gains or not. The RBI Governor has managed to spring many surprises since he took over from Dr. Bimal Jalan in September 2003. Will he pull another rabbit out of the bag tomorrow is a million-dollar question. Some have also criticised him saying he has been a bit behind the curve and is trying to make amends for past lapses. India Inc. is certainly not happy with the central bank's recent measures, nor are the consumers. After having taken so many tightening steps over the past few months it may be time for him to take a pause. But, will Dr. Reddy be able to meet market expectations only time will tell.
This perhaps will remain an overriding theme in the market today. Among the other issues to be weary of include inflation, monsoon, earnings outlook for FY08, global commodity prices (especially that of crude), state of economies in the US and China, and the currency fluctuations. Having said that, the bulls can take heart from the fact that FII inflows this month have been quite strong this month. Global markets are in a healthy state though there will be intermittent bouts of selloff every now and then that one needs to watch out for.
We see a positive opening today on the back of strong cues coming from the US and Asian markets. But, there could be some cooling as the key indices have gained more than 8% in the last two weeks. We will also have the F&O expiry on Thursday. So, expect more volatility. Even if the RBI holds rates steady, the stance will remain hawkish considering that inflation still remains above its comfort levels.
FIIs were net buyers to the tune of Rs6.23bn (provisional) in the cash segment on Friday. At the same time, domestic institutional investors pumped in Rs1.3bn. In the F&O segment, FIIs were net buyers at Rs14.01bn. FIIs were net sellers of Rs734mn on Thursday. Mutual Funds too offloaded stocks worth Rs258mn.
OK Play India, a maker of moulded plastic products, has staged a turned around. It has received a rehabilitation package from the BIFR and is entering the telecom sector as well. It is on a growth path. But, there's only one issue. The counter is extremely dry in terms of traded volume.
Kalindee Rail Nirman is likely to gain amid reports that is may bag fresh orders from the Indian Railways. Shree Renuka Sugars could be a stock one can look at from a medium to long-term perspective on strong fundamentals and government's incentives on exports. HCL Tech and Tata Steel are good value picks.
Maruti is expected to be in the limelight. It has slashed prices by Rs 3,000 to Rs 5,000 following a reduction in the concessional central state tax (CST) offered by the Haryana government. It is also likely to launch a new mid-sized car to replace the Baleno next month. M&M might see some action as it is reportedly eyeing the control of Swaraj Mazda along with private equity firm Actis.
On Wall Street, the Dow Jones Industrial Average closed at a new record on Friday, spurred by a string of strong earnings reports that also propelled the broader stock market.
The Dow rallied 153.35 points or 1.2% to 12,961.98, a new closing high. Shortly before the close, the Dow hit a new intraday high of 12,966.29. The Dow finished the week up about 2.8%.
The S&P 500 advanced 13.62 points nearly 1% to 1,484.35 and hit a fresh six and a half year high. For the week, the broader index gained 2.2%. The Nasdaq Composite index climbed by about 0.8% and hit a fresh six-year peak. For the week, the Nasdaq rose about 1.4%.
US light crude oil for May delivery rose $1.88 to settle at $63.38 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 23 cents lower at $63.88 a barrel in extended trading in Asia.
COMEX gold for June delivery rose $7.50 to settle at $695.80 an ounce. Treasury prices were little changed, with yields on the ten-year note hovering around 4.67%, roughly in line with Thursday levels. In currency trading, the dollar recovered a bit after hitting a two-year low versus the euro and inched higher versus the yen.
European shares gained ground on Friday. The pan-European Dow Jones Stoxx 600 index increased 1.2% to 388.95, a level not seen since November 2000. The UK's FTSE 100 closed up 0.7% at 6,486.80, the German DAX Xetra 30 advanced 1.4% to 7,342.54, and the French CAC-40 rose 1.9% to 5,938.90, a level not seen since February 2001.
Asian stocks rose this morning after earnings reports from US companies boosted confidence in the global economy and helped drive the Dow Jones Industrial Average to a record. Toyota and Samsung Electronics advanced. The Nikkei in Tokyo was up 164 points to 17,617 while the Hang Seng advanced 131 points to 20,698 and the Kospi in Seoul added 20 points to 1553.
HOW MARKET FARED
Bulls set sights on 14k
Bulls made a come back as better than expected quarterly results from IT major like Satyam Computer and Wipro lifted the key indices to surge higher. Strong Asian markets also compelled the key indices to rise at open. Inflation figures played a spoil sport as Inflation for the week ended April 7 is at 6.09% against expectation of 5.80% dragging the markets a bit. However, frontline stocks like Tata Steel, Bharti Airtel, Reliance Industries and ONGC held the markets and strengthened the markets to close on a strong note.
BSE Metal index led from front others like Technology, Oil & Gas and Capital Good indexes followed suit. Even the Mid-Cap and the small cap indexes ended higher. Finally, the 30-share benchmark Sensex surged 277 points to close at 13897. NSE Nifty was up 85 points to close at 4083.
Satyam Computer spurred by over 6% to Rs476 after the company announced its Q4 result with net Profit (up 17%) to Rs3.94bn and Revenues (up 7%) at Rs17.79bn. The scrip touched an intra-day high of Rs478 and a low of Rs460 and recorded volumes of over 72,00,000 shares on NSE.
Wipro pared its gains on back of profit booking, the scrip was down 0.8% to Rs571. The company announced its Q4 result with net profit of Rs8.56bn, (up 11.9%) and revenues (up 8.9%) over the previous quarter at Rs43.33bn. The scrip touched an intra-day high of Rs604 and a low of Rs561 and recorded volumes of over 32,00,000 shares on NSE.
India Cement pared its gains the scrip closed 0.2% lower to Rs170. The company announced its Q4 result with net profit at Rs1.39bn (up 479%) and sales at Rs6.73bn (up 34.8%). The scrip touched an intra-day high of Rs176 and a low of Rs169 and recorded volumes of over 27,00,000 shares on NSE.
Gujarat Ambuja gained by 1.7% to Rs113 after the company announced its Q1 result with net profit at 5.9bn (up 42.8%) and net sales at Rs14.34bn (up 33.5%). The scrip touched an intra-day high of Rs116 and a low of Rs114 and recorded volumes of over 45,00,000 shares on NSE.
M&M gained by 1.4% to Rs743 after the company approved raising upto 300mn overseas. The scrip has touched an intra-day high of Rs752 and a low of Rs735 and has recorded volumes of over 5,00,000 shares on NSE.
Metal index was the leading from front the index rose over 3%. Tata Steel spurred by over 5.5% to Rs533, Nalco was up by 3% to Rs243, SAIL surged by over 6.5% to Rs134 and Sterlite Industries added 1.6% to Rs523.
Mid-Cap Technology stocks were among the major gainers. Rolta surged by 5% to Rs370, Ploaris was up by 4% to Rs202 and Mphasis BFL gained by 4.7% to Rs319. Satyam Computer, Infosys and Wipro were major gainers among the heavy weights.
Sugar stocks were back in action after government announced that they would give incentives for Sugar exporters until April 2008. Bajaj Hindusthan, Renuka Sugar, Balrampur Chini and Sakhti Sugar were among the major gainers.
Auto stocks slightly pared its gains after trading strong for major part of the session. Tata Motors advanced by 1.4% to Rs722, M&M gained by 1.4% to Rs743, Maruti was marginally up by 0.2% to Rs776 and Bajaj Auto was flat at Rs2442.
Capital Good stocks also ended with smart gains. BHEL was up 1.3% to Rs2536, L&T gained 2% to Rs1694, Punj Lloyd edged higher 0.2% to Rs185 and Siemens added 1.8% to Rs1068.
Market Volumes:
The turnover on NSE was up by 8% to Rs88.58bn. BSE Metal index was the major gainer and gained 3.51%. BSE Oil & Gas index (up 2.74%), BSE Technology index (up 2.18%) and BSE PSU index (up 1.77%) were among the other major gainers.
Volume Toppers:
IFCI, Idea, TTML, SAIL, Dish TV, Satyam Computer, Tata Steel, IDFC, R Com, IB Real Estate, ITI, Parsvnath, Wipro, Orbit Corp, Hindalco, MTNL, Voltas and Indiabulls.
Upper Circuit:
Aurionpro Sol, Atlanta, Tanla, Shree Ashtavinyak, Saksoft, Indiainfoline, Sujana Metal, Shree Precoated, Ganesh Housing, Diamond Cable, HOV Services and Nirlon
Results Today:
Bajaj Hindusthan, Bata India, Bank of India, Rolta, Siemens, CEAT, Bihar Tubes, Diamond Cables, IOB, KEC Intl, Reliance Capital, GVK Power, ANG Auto, Cosmo Films, Indian Bank, Power Finance Corp, Macmillan India, South India Bank, Taj GVK Hotel, Uttam Galva and Unity Infra.
Delivery Delight:
ABB, Balaji Telefilms, Bata India, BHEL, Bharti Airtel, Dr Reddys Laboratories, HDFC, HCL Technologies, India Infoline, IPCL, IDFC, ITC, Jet Airways, NDTV, Praj Industries, Reliance Capital, Reliance Communications, Rolta India, Satyam Computer, SAIL and Tisco.
Abnormal Delivery:
Century Textiles, Kotak Mahindra Bank, Moser Baer, MTNL, Wockhardt, BEL and Bank of Baroda.
Stock Futures with Largest Increases in OI:
IDEA Cellular, NDTV, Zee Tele, Patni, Jindal Stainless, Tata Chemicals, Crompton Greaves, Indian Bank, IVRCL Infrastructure and Reliance Capital.
Stock Futures with Largest Decreases in OI:
Satyam Computer, Parsvnath, IOB, TCS, Praj Industries, Ashok Leyland, HPCL, HCL Tech and JP Associates.
Results Corner:
Gujarat Ambuja Cements Q1 profit at 5.9bn (up 42.8%), net sales at Rs14.34bn (up 33.5%)
Satyam Q4 Profit up 17% to Rs3.94bn and Revenues up 7% at Rs17.79bn
Wipro Q4 net profit of Rs8.56bn, (up 11.9%), Revenues are up 8.9% at Rs43.33bn
Renuka Sugars Q2 profit (down 50%) to Rs229mn and sales (up 29.5%) to Rs3.03bn.
Brokers Recommendations:
Satyam – Buy from ASK RJ with target of Rs582
Wipro – Buy from Citigroup with target of Rs730
Long Term investment:
Mphasis BFL
Major News Headlines
Chidambaram expects inflation to slow down on wheat supply
Govt to give incentives for sugar exporters until April 2008 under open General License
SBI to raise Rs100bn in FY08 to boost capital
Cadila gets initial US nod for Losartan Potassium tablets
M&M approves raising of up to US$300mn overseas
Balaji Telefilms to invest Rs600mn in Venture with STAR.
ACC Ltd. Q1CY07 Results
CMP: Rs790
Rating: SELL
Target: Rs769
Net Sales increases by 24.8% yoy to Rs16.7bn
Operating profit increases by 55.3% yoy to Rs5.1bn
OPM increases by 600 bps to 30.3%
Cement realization per ton increases by 26% to Rs3432
Net Profit increases by 51.9% to Rs3.4bn
We expect cement realization to remain flat over next one year with a negative bias, due to continuous activeness by the Government to bring down the prices. There are signs of housing growth tapering which may lead to demand growth slowdown and put additional pressure for slowdown in prices. We expect margin pressure from Q2CY07 on qoq basis for ACC as cost growth outpaces realization growth. ACC's CMP of Rs788 discounts our estimated EPS of Rs69.9 and Rs64.1 for CY07 and CY08 by 11.3x and 12.3x. We value ACC at 12x of CY08 EPS of Rs64.1 which gives a fair value of Rs769. Maintain SELL.
Sensex to test 14000
The market is likely to edge higher and it may test the psychologically important 14000 level tracking firm global markets. After Friday (20 April)’s 278 points surge to 13897.41, Sensex is just about 100 points away from 14000 level. However, volatility may rise ahead of expiry of April 2007 derivatives contracts on Thursday (26 April). FII inflow remains strong.
FIIs stepped up buying after Infosys gave a strong guidance for FY 2008 in dollar terms, putting to rest concerns about the impact of a slowdown in the US on India's IT sector. Their net inflow in three trading sessions, between 16 April and 18 April, aggregated Rs 2076.90 crore. However, foreign funds pulled out a net Rs 73.40 crore on 19 April. Their inflow for April 2007, till Thursday 19 April 2007, totaled Rs 4371 crore.
As per provisional data, FIIs were net buyers to the tune of Rs 622.51 crore on Friday 20 April, the day when Sensex had surged 278 points on the back of strong guidance for FY 2008 by IT bigwig Satyam Computer and on firm global markets. Domestic institutional investors were net buyers to the tune of Rs 130 crore on Friday.
The Reserve Bank of India is expected to hold interest rates steady at its policy review on Tuesday (24 April). The central bank will also set out its forecasts for the year, including inflation and growth.
Monday (23 April) is the fourth of seven stages in the ongoing assembly election in Uttar Pradesh. The vote is seen as a barometer of national political trends. Some opinion polls show the opposition Bharatiya Janata Party could emerge second in the race, adding further to the woes of the ruling Congress which is battling rising prices.
Asian shares rose on Monday (23 April), with benchmark indexes in South Korea and China hitting records, after stronger-than-expected US corporate earnings boosted optimism about the outlook for the region's top export market. China's benchmark index roared up 1.7 percent, racing past its previous all-time high, as inflation worries receded.
US stocks jumped on Friday (20 April), with the Dow closing at a record high after coming within 35 points of 13,000, as Google Inc. and Caterpillar Inc. joined the list of companies reporting stronger-than-expected quarterly results. The Dow Jones industrial average rose 153.35 points, or 1.20 percent, to end at 12,961.98, its third straight record close. The Standard & Poor's 500 Index > was up 13.62 points, or 0.93 percent, at 1,484.35. The Nasdaq Composite Index was up 21.04 points, or 0.84 percent, at 2,526.39.
The dollar sat near a two-year low against the euro, staying weak on the view the Federal Reserve may cut US interest rates at least once this year, while rates in the euro zone are expected to climb.
Oil prices were steady after weekend elections in OPEC member Nigeria were condemned by monitors but did not appear to have worsened disruption to the country's crude exports. London's Brent crude edged up 5 cents to $66.54, pausing after gaining 55 cents on Friday.
Stocks you can pick up this week
Matrix Laboratories
Research: Merrill Lynch (April 18, ’07)
Ratings: Buy
CMP: Rs 192 (Face Value Rs 2)
Matrix’s significant 53% and 37% relative underperformance over the past year and six months respectively reflects the likely 55% earning de-growth in FY07E due to write-offs in the European generics business, revenue loss from certain contracts in European generics business (DocPharma), sharp increase in R&D spend, and rising interest cost.
Merrill Lynch estimate Q4 net profit of Rs 13 crore, a sharp 63% decline over the previous corresponding quarter largely due to high R&D spend and lower margin in the DocPharma business. Based on the refreshed estimates Matrix is trading at 20x FY08 and 14x FY09 earnings. This is in line with the pharmaceutical sector average on FY08E earnings and about 15% discount to the sector average on FY09E EPS.
On EV/EBITDA, Matrix trades at 15% discount to the sector average on FY08E estimates. The price target of Rs 229/share is based on 18x FY09E EPS, nearly in line with the stock’s six-month historical average, which reflects the period post announcement of acquisition by Mylan. Further, the stock’s current 40% discount to Mylan’s acquisition cost makes it an attractive candidate for a possible complete buyout by Mylan.
Cairn India
Research: Goldman Sachs
Ratings: Neutral
CMP: Rs 131 (Face Value Rs 10)
Cairn India was formed in August ’06 by the acquisition of Indian assets from Cairn Energy Plc. It is a pure E&P play, the assets of which could be bifurcated into a development block and 12 exploration blocks. Prior to the initial public offering in ’06, Cairn India acquired the Indian upstream assets from Cairn UK Holdings (100% subsidiary of Cairn Energy Plc.) with consideration of cash and shares amounting to $6 billion.
In the absence of information on the fair value of the assets acquired by Cairn India, Goldman Sachs have assigned book value to these assets based on consolidation of the statements of the three unlisted subsidiaries of Cairn Energy Plc which were holding them. The book value thus calculated works out to $213 million. This is low compared with $6 billion that Cairn India paid for these assets because the book value does not reflect the full reserve potential.
Notably, Petronas Malaysia has taken 10% stake in Cairn India at Rs 160/share — in line with the $6 billion valuation. Cairn India’s valuation multiples in the near term appear stretched as benefits from monetization of the Rajasthan block will impact earnings only ’09E onwards. However, the current share price has value built in for the Rajasthan asset, as the company has announced the reserve size and production targets.
UTI Bank
Research: Macquarie (April 17 ’07)
Ratings: Outperform
CMP: Rs 465 (Face Value Rs 10)
UTI Bank announced its 4QFY3/07 results. PAT was up 39% YoY to Rs 220 crore (20% ahead of the estimates) and NII was up 48% YoY to Rs460 crore. The key surprises were lower NPA provisions and lower tax rates. NPA provision was a major surprise and reduced 61% YoY to Rs 8.2 crore for the quarter (which was 40% below the estimates). According to the management, this reflects a dramatically improved performance on additional slippages in the current quarter.
Additional general provision of Rs 45 crore in the current quarter was marginally below the estimates of Rs 52 crore. Another surprise was the effective tax rate which, adjusted for general provision, stood at 29% for Q4 compared to our estimate of 33.5%. Finally, wage costs were 11% below Q4 estimates due to a 22% QoQ fall. There seems to have been one-offs in Q3 on which we have not received details.
Results for Q4 were a positive surprise to us. Over the long term, Macquarie continues to like the stock, as UTI Bank continues to ride deepening penetration to make rapid market share gains. As the branch network continues to expand rapidly, high growth is expected to be the key driver for the bank’s stock price performance and continue to retain the Outperform rating on the stock with a target price of Rs 621.
ACC
Research: Citigroup (April 19, ’07)
Ratings: Buy
CMP: Rs 791 (Face Value Rs 10)
ACC’S net sales grew 25% YoY to Rs 1,670 crore, in line with expectations. However, both EBITDA and PAT came in about 10% below expectations at Rs 510 crore (+55% YoY) and Rs 360 crore (+55% YoY) due to higher costs than anticipated. Sales volumes declined 2% YoY to 4.9 million tonnes.
ACC expects to add over 7 million tpa of capacity with 3.1 millio expected in CY07, 1.4 million in CY08 and the balance 3 million tpa in CY09. Around 130MW of captive power is also being added. ACC’s board has approved the transfer of its ready mix business (sales Rs 300 crore in CY06) to a new wholly owned subsidiary. On its own and along with its group company, Gujarat Ambuja Cements, it enjoys a strong market presence in several key markets.
Most of its capacity creation in ’06-08 is at a low capex. ACC has come a long way from its high debt equity of 1.64x in FY02. The combination of low-cost capex and strong cash flows in CY06 has resulted in ACC becoming a net cash company. Citigroup believe that EV/EBITDA is a better valuation parameter than P/E to get a proper perspective on valuation of Indian cement companies.
Additionally, P/E is not so useful in ACC’s case, because in the past 12 years, ACC has made minimal profits or even losses on three occasions. ACC’s average EV/EBITDA over the past 11 years, which encompasses three cement cycles, has been 13x. Using a shorter time frame (seven years) gives an average of 11x. At the target price of Rs ,260 EV/EBITDA would trade at 10x, a discount to its 10-year average EV/EBITDA, justified keeping in mind the historic high in valuations.
Ashok Leyland
Research: HSBC (April 19, ’07)
Ratings: Underweight
CMP: Rs 38 (Face Value Re 1)
Ashok Leyland is the second largest manufacturer of medium and commercial vehicles in India, with 28% market share in FY07. In addition, it also manufactures engines for industrial, generator sets and marine applications. Its products range from 18-seater to 82-seater double-decker buses, to 7.5 tonnes to 49 tonnes haulage vehicles, to special application vehicles.
Ashok Leyland’s earnings to remain flat in FY08e and decline by 15% in FY09e, following declines in volume and profit margin. The company is likely to benefit from reductions in tax paid on raw materials and components following the introduction of the value added tax regime and removal of turnover tax from January 2007 in the state of Tamil Nadu, where Ashok Leyland has its vehicle production units.
It would also get tax benefits once it starts production in Uttaranchal, in April 2008. However, rising fixed costs as a percentage of sales following our forecast decline in sales is likely to lead to a decline in net profit margin in FY08e and FY09e. The fair value of Rs 30 is below the share price of Rs 38 on April 16, hence HSBC initiate coverage on Ashok Leyland with an Underweight rating.
At the target price, the stock would trade at 5.8x FY08e EV/EBITDA, which is marginally lower than the last five year average of 6.0x one-year forward EV/EBITDA. Also, the FY08e price-to-book ratio of Ashok Leyland at the target price is likely to be 1.7x compared to the five-year average price to book ratio of 1.9x, based on actual book value per share of the last five years.
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