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Sunday, June 17, 2007

Analysts' corner

Tayo Rolls
Current Price: Rs 186
Target: Rs 300

Antique Stock Broking has given a strong buy for this Tata group company which is the largest integrated (makes its own pig iron) manufacturer of rolls in India. With steel industry estimated to grow at 10% till 2012, TRL's revenues are expected to grow at a CAGR of 25- 30% till FY10.

The company has been regularly increasing its capacities and plans to take it up to 18,000 TPA by 2010 from the current 13500 TPA. Exports will get a further boost post TISCO's acquisition of Corus as it plans to supply rolls to all nine plants of Corus across Europe.

BASF India
Current price: Rs 269
Target: Rs 300

Sharekhan has put a buy on BASF India with a price target of Rs 300 from the current price of Rs 273. On the back of decent numbers in Q4, 2007, the company is expanding its capacities in key products like expandable polystyrene and polymer dispersion to cater to the consumption boom in its user sectors of white goods, home furnishings, paper and construction.

Further, it also has access to the wide product portfolio of its parent company to add to its existing line up in its three divisions—agriculture, performance products and plastics. Considering its growth prospects, the research firm believes that the company is trading at attractive valuations of 13.3x FY2007 earnings and 9.5x FY2008E earnings.

JK Lakshmi Cement
Current Price: Rs 107
Target: Rs 129

SBICAP Securities is bullish on JK Lakshmi Cement (JKL) and believes that at current levels there is an upside of 20%. The recommendation is based on the robust growth in the earnings driven by savings in power cost and various other initiatives, cheaper valuations and an improved balance sheet.

The stock, research firm believes, is trading at hefty discount to its peers and deserves a rerating. The company is expanding cement production capacity by 1.2mn tonnes by the Oct'08 including split grinding unit of 1.1mn tonnes capacity which will result in savings of Rs 24mn on PAT level or addition of Rs 0.4 in the EPS for FY09E.

Dabur India
Current Price: Rs 100.85
Target: Rs 120

Macquarie Research recommends a “buy” on Dabur India, at a price of Rs 99.60, with a 12-month target of Rs 120, denoting an upside of 20 per cent. Dabur India has achieved a niche positioning of being a premium player in herbal personal care products. Its brand portfolio includes ayurvedic hair care, oral care, and health supplement products, which deliver high margins to the company.

The company has delivered a consistent earnings growth of 20-50 per cent over the past five years. Macquarie expects Dabur India to maintain its sales momentum at a compounded rate of 17 per cent annually over the next three years. The stock is valued at 17 times its estimated FY08 earnings, which is at a 20 per cent discount to its Indian consumer goods sector peers.

Price Rs 56
Target Price Rs 69

Emkay Share and Stock Brokers has recommended a buy on stock of Marico on the the back of growth in its well established core business, increasing presence in the broader “wellness and beauty” platform, rising international business and continued pursuit of newer avenues for growth-both organic and inorganic.

Emkay expects revenue growth to be at a CAGR of 17.5 per cent in FY2007-09E period and earnings growth at CAGR of 26.5 per cent, which is higher than industry earnings growth. At a recommonded price Marico is trading at PER of 18.9 times FY2009E earnings and EV/ EBIDTA of 11.7X FY2009E.

Dishman Pharma
Current Price: Rs 291
Target: Rs 360

Karvy Stock Broking puts a “buy” recommendation on Dishman Pharma at the price of Rs 288, with a target price of Rs 360. The company had acquired Carbogen Amcis of Switzerland in August 2006, for $74.5 million.

Further, it has set up a QUATs facility in China. Add to this, its diverse customer base, the technology transfer model, and strengthening international presence is expected to boost the company’s performance with greater revenue and earnings momentum. The stock is valued at 15 times its expected FY09 earnings.

Taking stock of market valuations

Is the stock market overheated? Should I brace myself for a correction? Such investor concerns are often addressed by drawing attention to the "market" valuations, as reflected in the current price-earnings multiple (PE) of the Sensex or the Nifty.

The current Sensex PE of about 20.5 times, may, for instance, appear quite reasonable if one considers that India Inc.'s earnings grew over 40 per cent for the just-concluded quarter.

But investors may need to treat such numbers with caution. For one, the published PE multiples of the Sensex and the Nifty indices tend to be understated, because of the method adopted for their calculation.

Second, given that so much of the market action in the Indian context, takes place outside of the index stocks, PE multiples for broader market indices such as the BSE-500 may be a better gauge of "market" valuations.

An analysis of "market valuations" after accounting for these two factors clearly shows that the price-earnings multiples have expanded sharply over the past year.

This suggests that last year's stock price gains have been driven as much by a "re-rating" of company earnings (that is, the markets' willingness to pay more for every rupee of current earnings), as by the scorching pace of earnings growth.

Restating the Sensex PE

Published PE numbers for market indices such as the Sensex or the Nifty may be understating the actual multiples enjoyed by India's frontline companies.

This is because the published PE numbers are calculated by dividing the total market capitalisation of the index by the total profits of the index constituents.

But using the aggregate numbers bestows select companies with a large earnings base, such as ONGC or Tata Steel, with a huge influence on the index valuations.

Loss-making companies in the basket (though there were none in 2006-07) may further distort the picture, as they would not have any meaningful PE, but would drag down the aggregate profits for the Sensex basket.

A re-computation of the Sensex PE multiple based on the average multiples actually enjoyed by individual stocks (using market cap to "weight" these numbers) places the Sensex PE at about 23 times trailing 12-month earnings.

A similar computation for the Nifty places its valuation at about 24 times earnings. Neither is a modest valuation.

In fact, current market valuations require the earnings of the index constituents to grow at 23-25 per cent compounded over the next five years.

PEs expand

Trends in the PE multiple over the past year also raise flags of caution. Between June 2006 and now, the Sensex PE multiple has widened from about 16 times historical earnings to over 23 times.

While stock prices of the Sensex companies appreciated by an average 48 per cent over this period, per share earnings of the companies in it expanded at an average 33 per cent.

Clearly, if stock prices gained so sharply over the past year, this is not only because companies delivered strong earnings growth, but also because investors are now willing to pay a higher price for each rupee of earnings delivered by the company. Such a "re-rating" suggests that investors are now factoring in a significant acceleration in earnings growth for companies from current levels.

A disappointment, in the form of slower earnings growth or fewer companies that are able deliver on expectations, could lead to a de-rating of valuations and a significant downside to stock prices.

Investors should also note that, apart from the average multiple moving up, over the past year, more Sensex companies have moved into the "expensive" zone.

While 21 of the 30 Sensex companies traded at a PE multiple of less than 20 times in June 2006, more than half the Sensex stocks are currently traded at a multiple of over 20 times their historical earnings.

Mid-cap stocks

Granted, the PE multiples for the bellwether indices have widened significantly over the past year. But would the stocks in the investment portfolios of individual investors have witnessed similar trends? Maybe not.

Individual investors, as well as mutual fund managers, tend to liberally pepper their portfolios with mid-cap stocks; but the PE multiples for the Sensex or the Nifty capture trends only for the highly visible frontline companies in India Inc.

But if you expected the PE multiple for the broader market to be much lower than that for the Sensex, you might be in for disappointment.

The PE computation for a broad market index, such as the BSE-500 (which captures a wide cross-section of mid-cap as well as large cap stocks), shows that the PE for this index is actually higher than that for the Sensex or the Nifty, at this juncture.

The weighted average PE for the BSE-500 is currently at a lofty 26 times trailing earnings, up from about 19 times a year ago.

If this is taken as a more accurate gauge of broad market valuations than the Sensex or Nifty, investors may have to tread cautiously indeed, as the earnings expectations factored into these multiples are quite high.

But when it comes to mid-cap companies, investors have greater leeway to reduce the overall risk to their portfolio through stock selection.

For one, unlike Sensex companies, earnings growth for the BSE-500 companies has largely outpaced stock price growth.

This suggests that the higher valuations of mid-cap stocks have been underpinned by better earnings growth.

Second, given the considerable divergence in earnings performance across companies, there continue to be opportunities for stock selection.

Companies such as Jagran Prakashan, UTV Software and Shree Cement have, for instance, witnessed a manifold expansion in earnings over the past year, reducing their historic price-earnings multiples. On the other hand, earnings growth for companies such as Apollo Hospitals or IndiaBulls Financial Services has significantly lagged the extent of stock price appreciation.

Third, mid-cap companies show greater divergence in valuations than frontline companies.

While the companies at the top end (Max India Financial Technologies, Reliance Natural Resources) enjoy three-digit PE multiples based on trailing earnings, the other end of the spectrum features companies such as Graphite India and Gujarat Gas, which trade at a multiple of less than 10.

Therefore, despite an average multiple of 26 times for the BSE-500 stocks, a good number of stocks in this basket continue to be available at a single-digit PE.

About 103 stocks, or roughly one in five in the BSE-500, are currently at PE multiples of less than 10 times their historic earnings.

This suggests that investors wary of current market valuations are more likely to locate winners while sifting through the mid-cap universe, rather than chasing frontline stocks.

SSKI - Nicholas Piramal

Nicholas Piramal India's (NPIL) growth strategy involves partnering with global Innovators for providing Contract Research and Manufacturing (CRAMS) services. NPIL has built unique capabilities across the formulations development value chain with manufacturing assets in UK and India. After the initial hiccups, we believe the CMS business is on track with CMS revenues exceeding US $200m in FY07. We see accelerated growth ahead, well supported by steady domestic sales and strong discovery R&D capabilities. We estimate 17% CAGR in NPIL's consolidated revenues and 26% CAGR in earnings over FY07-09. Reiterate Outperformer with a price target of Rs353 (24.1x FY08E and 20x FY09E earnings).

FII interest in DLF outsmarts net inflow

The initial public offer of realty major DLF Ltd may have failed to hit the right cord with the Indian retail investors, but the interest shown by overseas investors has exceeded the total net inflow into the country's equity market so far in 2007.

The country's largest real estate player, which has raised Rs 9,187.5 crore from the IPO, received bids worth about Rs 25,500 crore from the foreign institutional investors alone, which is higher than about Rs 17,000 crore net FII inflow into Indian equities this year.

According to data available with market regulator SEBI, total FII inflow into equities since the beginning of 2007 stands at Rs 17,432 crore.

The FII demand for DLF public offer was nearly 80 per cent of the total demand of about Rs 32,000 crore recorded by the issue, which is the largest ever IPO so far in India.

However, the total demand for the DLF issue pales in comparison to other major IPOs that have hit the Indian equity market in the recent past.

The demand is, in fact, less than issues which were much less in size, including those from peer firms in the real estate space such as Parsvnath and Sobha Developers.

Public offerings of Mukesh Ambani group company Reliance Petroleum Ltd (RPL), Birla Group telecom firm Idea Cellular, and Mahindra Group company Tech Mahindra have also witnessed higher demand in value terms than DLF.

Incidentally, the capital raised by all these IPOs was less than DLF.

Parsvnath and Sobha Developers issues, which raised between Rs 500-1,000 crore, saw demand worth over Rs 60,000 crore -- nearly double of that for DLF IPO.

Parsvnath IPO was subscribed over 60 times, while that of Sobha received bids for about 114 times of the total issue size.

Besides, Idea Cellular recorded demand for shares worth about Rs 1,42,500 crore against issue size of about Rs 2,500 crore, an oversubscription of about 57 times.

RPL saw demand worth about Rs 1,38,500 crore for its Rs 2,700 crore issue with an oversubscription of about 52 times.

Telecom technology services provider Tech Mahindra also recorded demand worth about Rs 33,500 crore, which was higher than DLF, even though its issue size was less than Rs 500 crore.

However, DLF has garnered higher demand than a number of recent issues such as Maran family promoted Sun TV, hypermarket chain Vishal Retail and the Indian subsidiary of British energy giant Cairn Plc and credit rating agency ICRA.

Sun TV got bids worth about Rs 28,300 crore as against its issue size of about Rs 600 crore, while demand for Vishal, ICRA and Cairn India were below Rs 10,000 crore.

Among other major issues, those of GMR Infrastructure and Global Broadcasting Network (GBN) also received bids worth between Rs 5,000-6000 crore.

Like DLF, the public issue of Cairn India, which gained immense popularity before it hit the capital market, could garner only 1.1 times oversubscription for the Rs 5,260 crore offer.

DLF IPO was subscribed 3.47 times of the size, while the company offered to sell 17.5 crore shares representing a 10.27 per cent of its post-issue capital.

The company has fixed its issue price at Rs 525 a share, at the middle of its price band of Rs 500-550 per share, based on which it would outsmart Unitech Ltd as the country's most valued real estate firm

Chamky Multibaggers

15 Jun 2007 590041 Kaveri Telecom 71
3 Month
14 Jun 2007 520071 Japapabolic Springs 31.40
12 Month
14 Jun 2007 HLL 187
1 Month
11 Jun 2007 522285 Jayaswal Nicco 19.60
12 Month
11 Jun 2007 IDBI 103
6 Month
8 Jun 2007 530369 Vamshi Rubber 12.40(avg)
12 Month
8 Jun 2007 504966 Tinplate 60
12 Month
7 Jun 2007 504918 Sandur Mangenese 73
12 Month
7 Jun 2007 504629 Anil Spl Steel 24(avg)
12 Month
7 Jun 2007 526727 Garnet 65
12 Month
6 Jun 2007 509069 Infomedia 230
6 Month
6 Jun 2007 532809 FSL 87.50
12 Month
5 Jun 2007 532797 Autoline Ind 247
12 Month
1 Jun 2007 526381 Patel Logistic 68
3 Month
1 Jun 2007 532155 GAIL 304
3 Month

Auto components in reverse gear

The rumble of the slow-down in vehicles sales has begun to find an echo among the makers of automobile parts.

Several top executives of auto component companies that supply diverse products — needle bearings and gear shafts to starter motors and electrical equipment — said the demand from vehicles makers had fallen 5-10 per cent over the last couple of months.

Some said they would be compelled to consider cutting production if the situation continued.

While vehicles sales have been showing signs of a slow-down, the last month was particular bad with two-wheeler sales falling 9.8 per cent. The sales of passenger vehicles, including cars, dropped 3 per cent while those of commercial vehicles declined 1.06 per cent.

“We are seeing some signs of weak demand from the auto industry,” said Amit Kalyani, executive-director of Bharat Forge, the world’s second-largest forging company after Thyssen Krupp.

Coupled with this, the component makers have had to absorb some rise in the cost of raw materials like steel and non-ferrous metals.

An executive of Amtek Auto confirmed the slow-down, especially from the two-wheeler companies and said he anticipated a drop in demand from four-wheeler makers as well. To offset this, the company is focusing on increasing its exports.

Pune-based engineering and component manufacturing company RSB Transmission has witnessed a drop of about 10 per cent in the last couple of months. Said its chairman R K Behera: “We are seeing a slow-down in demand from our clients including Tata Motors and other players which have already announced productions cuts for the current period. If the situation does not improve before September, even the second quarter net profit will come under pressure and the component industry as a whole will suffer badly”, he further added.

Investors vote out govt stocks, lap up pvt sector ones

Via ET

Investors seem to be moving away from sarkari stocks, as most of these companies have been under-performing their private sector peers on the bourses.

Shares of companies in highly regulated sectors such as banking, oil & gas, cement, fertilisers and to some extent sugar (not PSUs, but where government intervention is high) have failed their investors in recent times to the extent that there is a clear demarcation between PSU and private sector stocks among investors.

"Sectors with lesser government intervention do well. There is an increasing and clear demarcation between PSU stocks and shares of private sector companies. The general perception among investor is that growth will not be that great in PSUs," said Unitis Tower Wealth Advisors CEO Nipun Mehta.

Across the world, stocks of government companies face "prejudicial absolutions" from investors. Investors in Israel are apprehensive of investing in companies like National Electric Company, Bank Leumi and National Telephone Company for fear of government over-intervention, powerful labour unions and bossy bureaucrats.

In order to attract investor interest into divested companies, the UK government resorted to underpricing of privatisation issues. This situation is no different in the over-staffed Indian public sector or government-regulated companies, where bureaucratic interference is curtailing its efficiencies vis-a-vis its private sector peers.

"The prime motive of private sector companies is enhancement of shareholder value. Government-held companies have to meet several social objectives. Many a time, social objectives of these companies conflict with the profit motive of the company. Though meeting social responsibilities can better corporate performance, it can, at times, be purely political," said Edelweiss Capital research head Shriram Iyer.

Being the third year of the UPA government, investors are not expecting any major reforms or changes in policy in terms of managing PSUs. Marketwatchers feel key PSUs and companies in regulated sectors like oil & gas, fertilisers, sugar and cement would be impacted by "politically-driven" decisions, as the nation moves towards general election in the first half of 2009.

"Most PSUs are in the epicentre of inefficiency, thanks to the backseat driving by the Left parties. Although there is great potential for growth, PSUs would never come anywhere near private companies with regards to performance," said an institutional head of a leading broking house.

However, some feel PSU stocks are ideal to invest in volatile markets as they have low beta levels. Moreover, if investors prefer safer investments to quickfire returns, PSU stocks are able to generate decent returns over a longer term.

It is felt that these companies have the potential for steady growth, despite these issues. Government-held companies have the scale to bid for international projects and are preferred more over private participants in several huge infrastructure projects.

The tight clasp of the ruling over companies in China seems to be working well in that country. Some of its mega IPOs in recent times have received huge response from foreign investors. The government holds about two thirds of the total market capitalisation in China.

Emkay - Weekly Technical Perspective, Weekly Derivative Perspective - June 16 2007

Emkay - Weekly Technical Perspective, Weekly Derivative Perspective - June 16 2007



Anand Rathi - Weekly Technicals

Anand Rathi - Weekly Technicals

Amazing story of how Munjal built Hero Honda

The forties were turbulent times, but in the midst of all the uncertainty, four young restless brothers in undivided Punjab were marking time for an opportunity to explode upon the Indian corporate scenario. They were the Munjal brothers: Dayanand, Satyanand, Brij and Om.

This is the story of Brijmohan Lal Munjal, chairman and managing director of Hero Honda Motors
Born in a rather nondescript tehsil called Kamalia in Lalpur district of undivided Punjab, the Munjal brothers always looked at life beyond their traditional business of vegetable trading. Brijmohan Lal had barely stepped out of his teens when his older brothers decided to set up their new business -- trading in bicycle components.

In 1943, unconsciously preempting the inevitable partition of India and its frightening consequences, they decided to shift base from Lahore to Amritsar.

Brijmohan Lal Munjal told CNBC-TV18, "There was nothing available but bicycles on the road. But there was nothing to repair them with. Some artisans in Sialkot, Amritsar and Lahore, started making some components in a very crude way. People like us, our family and another family in Amritsar, started getting those parts from the market, wherever we could get some imported parts and bring it to those artisans. We gave them some money to start making these parts."

Four years after the business shifted to Amritsar, a sudden turn of events hit the Munjals very hard. India was now a free country and the turbulent political climate in Amritsar frightened them into putting the brakes on the fledgling bicycle components business. The Munjals had little choice but to shift base yet again -- this time to Ludhiana.

Munjal recalls, "In Ludhiana, there is this community called Ramgarhias. They are born artisans. There they had already started manufacturing certain parts and when some people like us, who had the capability of bringing them the samples and the possibility of selling them -- it became a very beautiful combination -- their technology and our commercial strength."

India's independence brought with it a new determination: one of self-reliance. The entire nation was on the move and the Munjals would provide the wheels for it.

Managing Editor, The Smart Manager, Gita Piramal explains, "Picture for yourself, India at that moment in time, a country racked by famines and droughts, its industrial machinery devastated by the demands made on it by World War II, no friends in the world, no foreign exchange, no reserves. So, naturally, Nehru and the administration of the time invited entrepreneurs to build the new temples, which would create wealth for the country."

"Many entrepreneurs took the opportunity, amongst them were bicycle makers, bicycles were in big demand at that time. . . groups like the Birlas with Hind Cycles, TI in the south, they all jumped on to this bandwagon. The Munjals were one of them, in fact, they knew the business better than most and their centre of operation would be Ludhiana."

Ludhiana in the early 1950s was the melting pot of pathbreaking business ideas, a place steaming with entrepreneurs. This one sleepy little town evolved into a buzzing business hub and captured the spirit of an emerging new India.

This was just the right place for young entrepreneurs like Munjals to pump their bicycle components manufacturing business to greater heights, but as always, wheels turned within wheels.

Those were difficult times and it didn't turn out as easy for the brothers to take off as they had anticipated. There were plenty of challenges, the foremost among which was to procure a manufacturing licence.

Munjal recalls: "Manubhai Shah was the industry and commence minister between 1950 and 1954. He somehow got convinced that if you have to get these people settled and provide them with employment, then you have to allow people to manufacture something, allow people to import something. He created the National Small Industries Corporation, NSIC. "

"A Ford Foundation team had come from the United States to advise and guide because at that time, everything was so fluid, nobody knew where to go. I had to travel along with them to Madras (now Chennai), Bangalore and several places. They made a blueprint for the NSIC."

What set the Munjal brothers apart from their contemporaries was their gumption and the ability to swing tides in their favour. While, government regulations may have stifled their growth, Brijmohan Lal started travelling across the length and breadth of India, scouting for new possibilities.

It was during one such trip that he got the idea to manufacture bicycles. Fortuitously, this time, the government would give him the much-needed encouragement and the thrust that he needed to scale up.

Immediately after the launch of Hero Cycles, the youngest of the four brothers Omprakash was given the crucial task of putting a dealer network in place. This was a very significant step that gave Hero Cycles an edge over existing competition like Raleigh and Atlas Cycles.

While the brothers worked hard to sell their stuff, Brijmohan Lal straddled the globe to source world-class components and machines. In 1959, he made his first trip beyond Indian shores to Germany -- again a move that would leave this competition miles behind.

Munjal recalls, "I went first to Germany for some years and then to Japan and I started bringing in the modern equipment for manufacturing bicycle components. I think I can claim that I took bicycle making to a different level than it was being done then. Germany, at that time, was really bagging business. I bought a complete chain-making plant for Rs 3 lakh (Rs 300,000)."

While Brijmohan Lal travelled across the world to explore new opportunities, his brothers concentrated on consolidating the business and just when it seemed that the good times had finally arrived; tragedy struck.

While Hero Cycles was trying to find a foothold in the industry and had almost got even with its competition - a tragedy hit the Munjals. In 1968, the eldest of the Munjals brothers, Dayanand, died. He was the omnipresent father figure who had guided and protected his brothers from all the evils of the big bad world of business. This loss left a vacuum that would be very difficult to fill.

Dayanand's sudden demise came as a huge blow for the Munjals, but the brothers were determined not to let his dreams die. The Munjals bounced back from the tragedy with a more focussed look at their long-term expansion strategy.

By 1971, the Munjals had set up a rim-making division for Hero Cycles and launched another company called Highway Cycles that would make freewheels -- it was then that Brijmohan Lal restructured and streamlined Heros rapidly expanding business.

Within a span of 6-7 years, production at the Hero Cycles plant doubled and in 1975 it became the largest manufacturer of bicycles in India. In the late 70s, the Indian government was slowly stirred into doling out licenses for Indian companies to venture into mopeds and Brijmohan Lal, who had seen mopeds on the roads in Western countries, quickly snapped up the opportunity. Hero Cycles' two-wheeler business would now reach its next level.

But to start manufacturing mopeds, Hero Cycles would need a partner. Munjals approached a French two-wheeler giant Peugeot for a tie-up, but in spite of drawing initial interest, the dream ticket eluded the Munjals. The talks broke down and Hero went on to make its own mopeds modeled on the Peugeot machine but designed in India and it was called Majestic Auto [Get Quote].

By 1983, Majestic Auto had captured almost 35% of the Indian moped market.

The ambitious drive of the 70s culminated on a high note in 1979. The company had just reached the production mark of 1 million bicycles. In that same year, Hero ventured into unknown business territories.

Piramal explains, "In the 1950s, there were just four Munjal brothers in the business. At the turn of the 21st century, there were 21 active members. BM Munjal's handling of the situation is perhaps a classic illustration of how to manage growth and a growing family."

"He worked on two premises; first that all four brothers, the original four brothers, had an equal stake in all the Munjal companies. The second premise was that any Munjal who wanted to work, had to have a business to run. Now what did that mean? That meant that between the 1980s, 1990s and 2000, the business began to expand and to diversify -- they went into textile spinning, they went into financial services. . . although not all of these succeeded."

She adds, "They had also integrated vertically right up to a cold-rolling steel mill. But the biggest and the most important factor in all this was their continuous growth in the auto components' segment, and this would become perhaps the Munjal's key competitive strength."

After the curtain raiser of the 70s and the successful launch of Munjal Casting in 1981, the stage had been set for a quantum leap that would take India's corporate world by surprise -- in fact, they might never know what hit them, until it was too late.

With an enviable slew of successes behind them, the Hero Group emerged a bigger, bolder player in the world of two-wheelers in the early 80s. The first mega milestone of the decade was the decision to join hands with the Japanese automobile giant, Honda. And thus Hero Honda was born. Overnight, it redefined the rules of the game in the two-wheeler industry.

Two-wheelers in India were then synonymous with scooters and the scooter market was the monopoly of a lone player -- Bajaj Auto [Get Quote] Limited. At a time, when scooters had a waiting period of 12 years or even longer, Hero's tie-up with Honda changed it all. Although, it was Munjal's long cherished desire to produce scooters, destiny had other plans. It was a blessing in disguise.

India's preferred vehicle, scooters, would amazingly be relegated into oblivion. India had wanted to break free and choked by the malaise of the Licence Raj, it craved for more choices and the sleek motorcycles that rolled out of the Hero Honda assembly line, were just such a welcome sight.

But just when things were looking promising for the new joint venture, the clouds of misfortune had gathered over Punjab and cast an ominous shadow over Hero Honda. This time an unexpected political event would rattle it: Operation Blue Star [Get Quote].

Armoured tanks rolled into the Golden Temple in Amritsar, and in their wake, the country was plunged into a state of unprecedented confusion and cruelty. Sikhism was the target of xenophobia. The Munjals' business based out of Punjab bore the brunt of irrational hatred. For the Munjals, these were difficult times. But Brijmohan Lal Mumnjal was determined not to leave Punjab, not ever, not even after Indira Gandhi's assassination.

Piramal recalls, "The summer of 1984 was a tumultuous period for India and it was a watershed moment for the Munjals in their corporate saga. That month, Indian troops were storming the Golden Temple at Amritsar and on the other hand, the Munjals were inking their pact with Honda to begin motorcycle production in India. A few months later, Hero Honda made its first public offering."

Hero Honda had set up its first assembly line in Dharuhera, Haryana. The Munjals had for the first time, set foot outside Ludhiana to build a manufacturing facility. Thus, the first 100 cc Hero Honda motorcycle came off the assembly line in April 1985 and with it Hero Honda kick started its journey to unimaginable success.

Fill it, shut it, forget it. Slick and unforgettable slogans for a never before kind of launch and a new icon in the two-wheeler industry was born.

The same year that Hero Honda launched its first bike, Hero struck pay dirt with another Japanese collaboration, with Showa to make shock absorbers. The new company was called Munjal Showa [Get Quote]. But at the very same time, returns from Hero Honda had the Munjals disturbed. A falling yen-rupee exchange rate suddenly left the Munjals on the losing end. Ironically, fortunes had reversed and with the sale of each bike, the Munjals now actually lost money.

Piramal explains, "The yen was rising and they were actually losing money on every bike. Honda on the other hand, wanted the components sourced from Japan. They were not sure of the quality and they insisted on it." Behind this, also lay the fact that who is going to make how much money -- will it be Honda or will it be the Munjal Group companies, which made the components. It was a delicate balancing act, a transfer of pricing gain.

But good times were right around the corner and soon enough the Munjals got a pleasant surprise. After three decades of non-stop rigour, Hero Cycles emerged right on top of the pile, not just in India, but also in the world, as the largest bicycle manufacturer. The seal of approval came from none other than the Guinness Book of World Records.

Piramal says, "When the Guinness Book of World Recordssent out a press release that Hero Cycles was the world's biggest single bicycle maker, it really came as a bolt from the blue and it became a source of pride. There were very few world class companies in India at the time, and this became like a beacon of hope - that it was possible for Indian companies to be world class."

Despite the hassles that came with it, the 80s were eventful for the Munjals -- with new partnerships, new milestones and new horizons.

In the 90s, Hero Honda had already emerged as the number one manufacturer in India and compelled competitors like Bajaj Auto to reinvent their strategy from scooters to motorcycles. The rupee yen exchange had taken a healthy turn. In 1990, Hero Honda Motors made Rs 1,000 for every bike it sold and that lead to an annual profit of $10 million. But silver clouds are often followed by dark ones.

Raman Kant Munjal, Brijmohan's elder son, who had shouldered the responsibility of setting up Hero Honda and had been instrumental in translating his father Brijmohan Lal's dream into reality, died quite suddenly in June 1991.

Piramal says, "When he died suddenly it was a massive shock for the family. BM Munjal had actually retired by then and the sad man got back into business and set about grooming his younger son, Pawan. Under Pawan's leadership, Hero Honda actually managed to overtake Bajaj Auto."

One personal loss after the another hit Brijmohan Lal Munjal. First his mentor -- elder brother Dayanand -- and then his son Raman Kant passed away, but neither political unrest nor personal losses shook his determination; he was made of sterner stuff.

Putting these tragedies behind him, Brijmohan moved on with Hero's expansion plans. In the first lap of the 90s, the group diversified its portfolio. In 1991, it set-up Hero Honda Finlease to finance its customers. Two years later, in 1993, the Group launched Hero Exports, which emerged as India's largest exporter of two-wheelers.

And a year later, the Japanese firm reaffirmed its partnership with Hero for the next ten years, and Hero Honda drove all the way, laughing into a brand-new sunrise.

This time, Honda finally allowed Hero to move into a domain that was until then, the absolute monopoly of another two-wheeler manufacturer, Kinetic [Get Quote]. Hero now got the nod from Honda to manufacture scooters with Honda's technology, but for the Munjals the offer came just a wee bit too late.

Hero Honda Motors CEO Pawan Munjal says, "We were very focussed on motorcycles, so they decided to set up a separate company -- a subsidiary of theirs and we decided they would make scooters and we would make motorcycles for the first couple of years. Thereafter, both of us would be free to make all kinds of two-wheelers."

Piramal says, "Though outwardly, the partners presented an amicable front. . . that everything is hunky-dory. . . below the surface there were many tensions. Some of these tensions were, for instance, which model should be introduced in the second round, actually delayed the building of the Gurgaon plant. It's a beautiful plant, spanking new, well laid out and spotless but because of these underlying tensions, growth got stymied so much so that, Bajaj Auto once again took the leadership. It brought out its four-stoke engine and had a very cheeky ad -- 'Kyon Hero?"

The ambition for growth and to break new ground took the Hero Group from one milestone to the next. Hero tehn tied up with the German automobile giant, BMW. It announced its plans to produce the three-series in India. But neither the partnership not the plan worked. The BMW aspiration remained a pie in the sky and left the Munjals poorer but wiser.

Not all dreams come true, not all decisions lead to profit nor all opportunities to success, but in business, what matters is the ability to have the courage to think big. Those who can't, lead nondescript lives but those who dare, become legends. That, in a way, is also the essence of Hero Group's corporate success and by the end of the 90s, they were ready to reap the harvest of the seeds, they had sown on unexplored soil.

Young Turks of the Munjal family had taken over the mantel from the patriarch Brijmohan Munjal. Under them, the Hero Group diversified into IT and IT-enabled services and Hero Honda emerged as the market leader with sales of over a million motorcycles. In 2002, Hero Cycles tied up with National Bicycle Industries, a part of the Matsushita Group to manufacture high-end bicycles.

The same year, they launched Easy Bills to offer utility bill collection and retail services and then in 2004, they went ahead with a tie-up that would make all the difference to the Hero Group's portfolio. But with this Hero had a little lesson to learn.

In 2004, Hero Motors tied up with Aprilia Scooters of Italy. They also worked out an export channel to European market for its two-wheelers and two-wheeler engine through Aprilia. But the demand for two-wheelers in India was only a functional one and they were trying too hard to position high-end motorcycles in the consumer mindspace that couldn't comprehend the need for them.

The Aprilia bubble burst but there was still reason to sell it. The Munjals had, with their ambition of making scooters, finally entered the market with the launch of its 100 cc Pleasure in 2006.

Piramal explains, "The Munjals knew, by this time, that they could not forever hang on to Honda Scooters. Right in the beginning, they had been disappointed that they wanted to make scooters but had not been allowed to. Of course, the motorcycle business today is much larger than scooters. Then when Honda thought that it would bring cars to India, they did not come to the Munjals, they went to the Shrirams. All this, gave the Munjals food for thought."

Despite a long drawn track record of multiple tie-ups and expansion, the Hero Group has always relied on technologies developed by international companies. A strategy that has held the Munjals in good stead for 50 years in this business.

So, from the bylanes of Ludhiana to the highways of international renown, 83-year-old Brijmohan Munjal is steady in his dedication towards his work. He built it all with his hard work, nurtured his dreams and fulfilled tehm.

With the widespread network of 5,000 dealers across the country, the Hero Group today is a conglomerate with an annual turnover of Rs 10,000 crore. Highs and lows, rewards and backlashes have all been a part of the Hero Group's corporate story, but downfalls didn't discourage them, nor did losses kill their spirit of entrepreneurship.

India Real Estate - Spiral or Plunge

With property becoming unaffordable to many, is it time for a correction in the realty market? Or, with an estimated shortfall of 48 million housing units in India by 2012, will the intrinsic demand for property sustain the current boom?

Property prices have been racing skywards across the country over the past two years. Most cities and towns are witnessing construction frenzy. From metros to tier II and III cities, real estate prices have seen phenomenal hikes ranging from a 30 to 100 % appreciation. Experts believe that this spiralling up of property prices has not only been triggered by pure demand for housing but also the rising stock market which has made people look at property as an attractive asset class.

So is the present upswing in the market here to stay?

Nalin Kumar, Head - private equity and real estate, India, JM Morgan Stanley, “I think the demand in tier I, II, III cities will continue to grow - the question is have the prices gone up too much and out of control? The affordability for the consumers and the reality will be tested over a period of time. If the consumers can't pay for those properties then you will see a lot of bad debt and closed down properties - like we saw in East Asia in 1997.”

“This is a cycle where you are seeing the demand side coming up in the form of capital chasing real estate but you will see the supply coming up in the next 1 - 1.5 years time and at that time you will be able to determine whether there is an equilibrium in the market or not - the prices at that time will be real prices, the speculators will be out and the consumers will have the choice to walk into ready apartments. Today most of the people can't walk into ready flats - the price is frankly hypothetical,” feels Kumar.

Experts are unanimous in the opinion that the current scenario of the property market is no bubble, though a minor correction is expected in certain over-heated pockets.

“While there has been an appreciation in asset values - its not true across the board - there are certain parts of the country which are very speculative in nature and these areas we do expect a correction and there are parts not so speculative and over the last few years - the supply has not really caught up with the demand. So that's part of the reason why prices have gone up, but as it comes in there will be some stabilisation, but our view is that we are not headed for a crash,” state sources from kotak Real Estate fund.

Niranjan Hiranandani seconds the thought. “I don't think we are in any bubble. The demand for real estate is really shooting up the roof. Unless we get the supply in terms of housing into the market you are not going to see any fall in prices so we need a substantial delivery of goods in the housing, rental, commercial and it markets. In all these markets the demand is growing much faster than the supply. So we need to work hard to ensure that the supply comes in, so that we can see stabilization in prices,” he states.

But there is still some indication that speculators are cornering apartments at the time of bookings, and selling at a later stage nearer completion. And this could get in the way of attaining a more mature level in the property market.

Ali Lokhandwala, of Lokhandwala Builders says, “Yes, there are investors - HNIs who are still approaching developers like us with offers like ‘we want to buy the entire project and the entire sale component at one go right at the beginning’. So we look at who the investors are and then make a decision, though we always prefer actual users moving into our property and if we do one off such deals - its a rare case when we give the entire building to one investor and they sell it later on.

Ashish Raheja - MD, Raheja Universal has another opinion, “In many cities, particularly in the north you have integrated townships which is not really group housing - there are actually no condominiums coming up there - developer just buys 100 acres - puts out some roads, gardens and 500 sub plotting schemes and trades it to a wholesaler. He in turn sells it to some investor and it never reaches the end user. The house or bungalow that is to come up may be built in 5-7 years, maybe in Gurgaon and Noida in the NCR. The fundamentals are strong but outside cities in tier II and III, how many thousands of these plots will actually be sustained? Ultimately the bubble will burst - land cannot keep going up 4-5- fold - a reversion in the cycle will happen.

Industry watchers also observe that with many city based developers wanting to establish a pan India presence, they are willing to go to smaller cities and pay higher prices for land there as it is comparatively lower than the bigger cities they come from. This is also driving up land values beyond market prices. The demand take up of the end product is yet to be seen. However, experts are quick to add that this construction boom is being driven up by end users.

“As compared to last times' slow down, I don't see that kind of a crack, because the last time we saw a lot of NRIs who did not understand the market but this time there is more thought out money - the economy is far more matured - so even if there is a correction, I don't think the bottoms are going to fall out. I don't predict any doomsday,” foresees Arun Nanda of Mahindra Gesco.

And in spite of property prices reaching all time highs in most areas across the country, industry players feel the Indian real estate market has potential for further growth. While the RBI has tightened the screws on banks lending to developers, fund flows into India from foreign investors have only just begun and this is expected to keep prices firm.

“As a rational investor I would think they should come down, but given the amount of liquidity there is in the market place, I don't see that happening any time soon just because there is too much money that is flowing into the country as far as real estate is concerned,” says Sameer Nayar, MD – real estate finance, credit Suisse Ssecurities.

Subodh Runwal of Runwal Group also feels that there is a lot more opportunity and that is the reason why the investors are coming into the market at this stage.

“There is some concern on the property values but again we have seen cycles and we are not afraid of them - its not going be static - but will have ups and downs - so we will look at it on a project to project basis. Some of the markets are overheated but we will still consider them as we are here for the long term,” Stan Erwin - Senior MD, Trammell Crow Company.

Experts say the property market is going to look very different in about 18 months from now when substantial supply comes in.

Keep watch on 4170 mark

The market must cross the 4170 level decisively and sustain above it, to maintain the uptrend. Failure to do so could lead to a deeper correction, according to analysts.

The Nifty has a support at 4140 and 4100. The operators exited all long positions on Friday, well before 4,190 was broken as the markets became weak technically.

As expected, the market failed to sustain above 4200 as call writing at 4200 and 4300 accounted for almost 50 per cent of the total open interest in call options.

There was an addition of 25.6 million shares in Nifty calls OI and 21.87 million shares in put options. The put call ratio went further down to 1.24 from 1.31, indicating more short positions.

There are indications that Nifty may break 4200 next week and go up to 4250-4300 levels. The open interest in several Sensex and Nifty stocks was seen moving up, with a rise in prices. Reliance added OI of 21.81 lakh shares, with stock moving up by 1.25 per cent, indicating long positions. The OI in Larsen & Toubro has increased by 3.10 lakh shares, while the stock moved up by 3.10 per cent. ICICI Bank (+20.63 lakh) and ONGC (+16.29 lakh) witnessed an increase in the OI, with a rise in the price.

Fair gains for indices

The stock markets exhibited high volatility last week albeit in a narrow range as the bulls and the bears tried to get the upper hand. The eventual result, however, remained inconclusive despite the major indices finishing with decent gains.

The Sensex dipped below the psychological 14,000-mark to touch a low of 13,947, but bounced back smartly and rallied to a high of 14,327 — a recovery of 380 points — before settling with a gain of 99 points at 14,163. Last week, we mentioned that the key support for the index was in the 13,900-14,000 range. On the positive side, the index did not close below the 14,000-mark during the week.

Going forward, one needs to carefully watch the support zone for change in the trend. If the support zone is violated, one may witness a steep fall of another 800-900 points. In case of an upmove, the Sensex is likely to face resistance around 14,300, above which, the index can rally up to 14,540.

The Nifty also managed to hold its key support level of 4085. The index touched a low of 4,101, and then bounced back to a high of 4209 — a swing of 108 points. The index finally ended with a gain of 26 points at 4171. The Nifty is likely to face stiff resistance around 4,225 levels, above which, the index can rally to 4,300. On the downside, the 4,085-4,100 zone will be the key support area for the index.

A break of this level can see the index shedding another 250 points.

Among stocks, Infosys not only managed to cross the Rs 2,000-mark but was also successful in closing above it at Rs 2,009. This week, the stock may move in the range of Rs 1,965-2,045.

ITC also managed to hold the support level of Rs 150. If the stock continues to hold the support zone, and manages to clear the resistance zone of Rs 155-158, it can move up to Rs 165 in the near term.

Reliance continues to face selling pressure above the Rs 1,700-mark. One may see further weakness in the stock below Rs 1,670. Major support for the stocks exists around Rs 1,500.

Trader's Corner

Many a time, during the trading day, one comes across the perfect break out in a chart accompanied by buy signals in the momentum indicators. But we do not act upon it. A stray news item we had read in the morning or a conversation we had with a friend a few days back holds us back. It is at times such as these that we wish we could transform ourselves into a robot, whilst trading!

Unfortunately, we have not progressed sufficiently to switch off our thinking abilities at the press of a button. But after spending many years mulling over the subject, traders have developed the mechanical trading style.

The mechanical trading style requires minimum human intrusion and ensures that emotional influences are divorced from trading decisions. Mechanical traders employ trading systems.

A trading system is a group of rules or parameters that can help one identify the entry and exit point in a stock. The success of the mechanical trading style depends on two factors — primarily on the accuracy of the trading system that is being used and secondarily, on the diligence with which the signals generated by the trading system are followed.

The trading system can be created by the trader himself or he can use a system made by others. A discretionary trader who has been in the field for many years and is conversant with the use of technical analysis would have no difficulty in devising a trading system.

He would need to take a combination of technical indicators such as moving averages, Bollinger bands, oscillators etc. and clearly define the entry and exit rules based on the signals generated by these indicators.

For example, a trader may identify the entry point when the 9-day RSI average moves above the 14-day RSI line and when the price bounces up from the lower end of the Bollinger band. The exit point would be when the average moves below the RSI line and the price turns down from the upper boundary of the Bollinger band.

Needless to say that there would be false signals and noises. So stop losses are an important part of trading systems.

Index Outlook

Sensex (14162.7)

Sensex steadied itself around the 14000-level though attempts at moving higher were stymied by the mammoth DLF issue. With yet another colossal issue scheduled next week, the secondary market has to be content with waiting for its turn on the sides.

The dwindling turnover recorded in the cash and derivative segment could be partly attributed to the wary attitude adopted by the market participants after the turbulence witnessed in the second week of June. Such a stance is immensely preferable to the smugness that was pervading our markets.

Net FII inflow in the cash segment is decelerating after the deluge witnessed in May. Mutual funds have also been net sellers in June. Capital goods, consumer durables and metals took the market forward last week while the other sectors languished.

It was mentioned last week that Sensex had already met the minimum retracement requirement of the move from 12425. Since, the 13820 support in Sensex remained unchallenged last week, the medium-term outlook stays positive. Investors can hold on to their short-term positions till Sensex stays above this level.

The index could spend the next two weeks moving sideways between 13800 and 14400 before making another attempt to conquer the 15000-peak. Fresh positions should be avoided below 13820, as such a move will portend a sharp slide to 13287.

The short-term trend in Sensex stays down. The 10-day ROC slipping in to the negative zone implies that selling pressure will be felt in the short-term. The resistance for the week ahead would be at 14400. Inability to move above this level will drag the index lower to 13969 or 13870. A rally past 14400 will take Sensex to 14683 again.

Nifty rebounded from an intra-week low of 4101. A short-term recovery is currently underway. This recovery has the targets of 4200 and then 4263. Since the first target has already been achieved, we can have a reversal that takes Nifty to 4100 or 4048. The 50 DMA at 4112 is an important support for the short term. The short-term outlook will stay negative till the index is below 4263. A move past 4263 will mean that Nifty is heading towards 4335 and then 4482. The medium-term outlook will stay positive till the index is above 4078. Position traders can hold their long positions with a stop at 4070. Trading is expected to be an ordeal over the next couple of weeks. Traders are advised to reduce leveraged positions and to trade with tight stops.

Global Cues

The surge witnessed in the later half of last week has taken most global markets towards their record highs again. The DJIA moved past 13530 on Thursday and is on the verge of a new peak. The Shanghai Composite has moved beyond 4000 and has made the immediate outlook neutral. Some markets such as Korea, Brazil, Chile etc., have soared well above the peaks made prior to the June correction.

Oil was back in the limelight as low output from US refineries and escalating tension in West Asia pushed the prices towards $68. Another step forward would indicate that the C wave from the January low of $49.9 is in motion. The targets in this case would be $73 and then $80. Time to be long in crude with a stop at $64.

Though Comex copper recovered towards weekend, the pullback seems to be a part of a corrective phase before the resumption of the down-move. Comex gold is halting in the important support zone between $635 and $645.

Roman Tarmat: Avoid

Investors can avoid the initial public offer (IPO) made by construction company Roman Tarmat as the pricing appears steep in relation to the size and nature of its business. In the price band of Rs 150-175, the company is valued at a price-earnings multiple of 15-18 times its nine-month annualised earnings for FY-07 on a diluted basis. Small-cap companies such as PBA Infrastructure or Tantia Construction, which have a wider portfolio of business, now trade at a discount to Roman Tarmat.

Profile and offer details

Roman Tarmat is in the business of constructing highways and runways. The company plans to raise Rs 43-50 crore for procuring capital equipment and for long-term working-capital requirements.

No niche business

Roman Tarmat's business is concentrated in the road segment. Highways and roads now account for 83 per cent of the company's order backlog of Rs 337 crore. While this segment yields low profit margins, a good number of infrastructure players have nevertheless benefited from the volume flowing from the Government's spending on roads.

Roman Tarmat's completed projects and order-book reflect that the company has been undertaking maintenance works and small projects from Public Works Departments or corporates. It has not so far participated in any of the National Highways Authority of India (NHAI) projects — the prime means of order flow for most infrastructure companies that operate in the segment. Companies that spotted the opportunity early have not only benefited from volumes but also achieved forward integration by graduating to EPC (Engineer-Procure-Construct) projects, thus improving margins and gaining bidding qualification.

Roman Tarmat has, however, remained a regular `contractor' and not so far made any significant move to diversify its services. This might cap opportunities to garner EPC contracts. The company's revenue grew at a compounded annual rate of 27 per cent over the three years to Rs 87 crore in FY-06 (Rs 83 crore for the nine months ended December 2006). Roman Tarmat's size, in terms of revenues, does not, however, compare well even with those of other small-cap companies. This raises concerns over the company's ability to scale up operations.

Roman Tarmat has stated in the prospectus that it would look to bid for large-scale projects and contracts on a build-operate-transfer (BOT) or annuity basis. Even assuming that its expanded equity base would provide some financial qualification to bid, the company may have to compete with bigger players which are already established in the space. This would require the company to not only bid aggressively but showcase superior technical qualification.

Further, the company has entered into joint ventures for four of its road projects. While this strategy would help bid for projects, it would reduce profitability for Roman Tarmat, given the small size of the projects.

Roman Tarmat has managed to maintain its operating profit margin in the 12 per cent range for the past two years. This may have come about as a result of increased contribution from airside works, which accounted for 25 per cent and 18 per cent of the total contract receipts over 2006 and 2005 respectively. With runway projects down to 13 per cent of the order backlog, the company's ability to maintain its OPMs would determine whether it can manage superior margins in an otherwise low-margin segment such as roads.

Roman Tarmat has so far enjoyed income-tax benefits under Section 80 IA. However, post-Budget proposal, the company may lose this, as contractors are no longer eligible for the same.

Road contracts awarded by Special Economic Zones and success in bagging large projects may provide upside to the company and remain key risks to our recommendation.

The infrastructure-listed space now appears to be clearly making a distinction between large integrated players and small players, some with niche business. The disparity in valuations for these companies is proof of this. Hence, we believe that valuations may be a greater deciding factor for middle-of-the-road companies such as Roman Tarmat.

The Roman Tarmat IPO that opened on June 12 will close on June 19.

DLF & Nitin Fire Protection

DLF IPO: On expected grounds

With DLF fixing its share price at Rs 525, the stage is set for the company to join the real-estate listed place. Institutional investors (such as overseas corporates, mutual funds, and insurance and banking companies) together bid for five times the shares earmarked for them.

DLF has stated that almost 90 per cent of the above came from global investors across Europe as also the US. This overwhelming interest of overseas players may be out of their perception of the Indian real-estate, in general, and DLF's business model, in particular.

For one, it is difficult for any global real-estate investor to invest across India, as most of the developers offer limited regional exposure. DLF, which also laid its foundation in the National Capital Region, has now spread its wings, by investing in land across 31 cities in India. For the overseas investors, this offers a single window to play the `Indian real-estate' theme with relatively low concentration.

Two, in the short to medium term, DLF's plans a number of retail and commercial projects. This fits well with the international model, wherein real-estate investors typically derive income mainly from the business of leasing. With the Securities and Exchange Board of India mooting the idea of real-estate funds, DLF, with its scale of operations and relatively superior disclosure of land and projects, may well be an ideal investment candidate for such funds to consider. These two factors may well be reasons for the high institutional interest in this IPO.

That the retail portion of the offer was not fully subscribed does not come as a surprise. Given the stiff pricing, short-term investors looking for listing gains probably perceived the offer as one that left very little money on the table.

What retail investors can expect on DLF's listing, however, is some direction on the valuation levels for large- and mid-size realty stocks, based on their business models. With IPOs of Omaxe, HDIL Puravankara Projects and IVR Prime set to hit the market, clarity on valuations may emerge sooner than it would have otherwise taken.

Nitin Fire Protection: Well-insulated

The stock of Nitin Fire Protection Industries (NFPIL) more than satisfied the street expectations with its strong listing at Rs 332.50 on the BSE, attracting a 75 per cent premium over its issue price of Rs 190. After more than doubling the investors' booty, the stock now trades at about 23 times its likely FY-08 earnings per share.

While valuations appear stiff at the current market price, investors' fancy for the stock may be underpinned by a completely different set of factors. While some part of the optimism could be linked to the company's high growth prospects, a chunk of it is likely to stem from investors' expectations of riding another growth story such as that of Everest Kanto Cylinders (EKC). EKC, a leading player in the CNG cylinder space, has returned more than six times after its listing in December 2005.

Shringar Cinemas: Buy

An investment can be considered in the stock of Shringar Cinemas, which runs the Fame chain of multiplexes. The stock is at a deep discount to its peers at about 18 times its financial year 07 per-share earnings; industry leader PVR Cinemas trades at 48 times financial year 07 earnings. Stocks of multiplex majors have been under pressure in recent months. The year, so far, has been a lacklustre one for Indian films, raising concerns about occupancy rates even as markets get overcrowded in some pockets. This, coupled with the growing power of distributors, who are demanding a higher share of ticket revenues, has resulted in a more subdued outlook for multiplexes.

In this backdrop, we tend to view a stock such as Shringar, with its more reasonable valuations, in a favourable light. Investors who wish to capitalise on the long-term potential arising from a growing preference for multiplexes could consider exposure to the stock. The company has about a 10 per cent market share of the multiplex industry (in terms of number of screens) as against that of PVR Cinemas at 20 per cent. About 23 screens are likely to come up in financial year 08 with the properties already handed over to the multiplex operator. With Shringar now firmly in the black, the fundamental picture is looking brighter. Strong revenue growth is likely to continue on the back of screen additions, as new multiplexes tend to draw footfalls. If the second half turns out to be a better period for tinsel town, occupancy rates for Shringar could be much stronger than the current 30 per cent levels. This, in turn, could lead to a strong uptick in earnings. We believe that Shringar's own presence in distribution, which accounts for about 30 per cent of its consolidated revenues, will make it better placed than operators of comparable size in securing good content at reasonable prices.

The stock however is suitable only for those with an appetite for higher risk. The dependence on good content aside, issues such as high rentals (as it continues its expansion in cities such as Mumbai and Bangalore), the need to constantly refurbish theatres to ward off competition and overcrowding in some locations are risks to our recommendation.