Easun Reyrolle, Bharat Bijlee
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Wednesday, June 27, 2007
Spice IPO gets over subscribed 37 times
The initial public offer of mobile service provider Spice Communications has got subscribed over 37 times on its last day on Wednesday.
The IPO received bids for 425.38 crore shares against 11.3 crore shares on offer, latest data available on the stock exchanges show.
The QIB portion had received subscriptions of more than 5 times the reserved shares with major demand coming from foreign institutional investors till yesterday.
Spice Communications expects to raise up to Rs 520 crore through its maiden public offering at a price band of Rs 41- 46 per share.
The company is expected to use a major portion of the issue proceeds to get national and international long distance licences. The company, in which Telekom Malaysia holds 49 per cent stake, has received a non-exclusive letter of intent for providing STD and ISD services.
A part of the proceeds would also be used for repayment of debt and payment to vendors for network equipment.
Chidambaram - Easing inflation may cap interest rates
Finance Minister P.Chidambaram said on 27 June that central bank policy tightening and currency strength had helped to moderate inflation and more rate rises may not be needed if the trend continues.
“So far central bank actions have moderated inflation. The rupee rise has also helped moderate inflation to some extent,” Chidambaram told reporters on the sidelines of a conference in London.
“If inflation is contained at current levels and shows a decline, there is no reason why interest rates should go up.”
Last week, data showed India’s wholesale inflation fell to its lowest level in 14 months at 4.28% in the 12 months to 9 June. The signs of slowing price growth came finally after five interest rate rises in the past year to 7.75%.
The central bank has also largely kept out of the rupee’s way as the currency has surged to nine-year highs versus the dollar, rising about 9% so far this year.
India’s economy, the third largest in Asia, grew 9.4% in the fiscal year ending March, its highest rate in 18 years and second only to China among major economies.
Chidambaram said the intention for this year was to keep inflation at 4.0 to 4.5%. He earlier told the conference that inflation remained a concern for the economy but policies aimed to tackle this issue should not dampen growth.
“We have to strike a balance between growth and inflation. The politically tolerant level of inflation in India is 4-4.5% and we are aiming to keep it at that level,” he said, noting that factors such as oil prices would be key.
“But we will be alert and take fiscal as well as monetary steps (to curb inflation)”.
Chidambaram said it was hoped gross domestic product growth would be “close to 9%” in the current fiscal year, with an annual growth rate of 10% growth achievable by 2010.
He acknowledged that rupee appreciation was a headache for Indian exporters, but he said the rise was due to huge capital inflows into the country and no immediate steps were planned to curb the currency’s strength.
“We don’t believe in imposing capital controls on inflows. We will keep an eye on the rupee but our policy is a well regulated market determining the exchange rate,” he said. “The rupee will find its level, if it hurts any sector unduly, we will help that sector in other ways.”
Chidambaram forecast that foreign direct investment would exceed the $16.1 billion received in the 2006/2007 fiscal year.
One of the sectors that has experienced booming price growth has been real estate and most major Indian cities have seen property prices double in the past two years.
Foreign property funds have been flocking into India ever since rules on inward investment in the construction sector were relaxed.
Many analysts believe a property price correction of 10-40% is due in the short term. The last time a property bubble burst in India, prices fell as much afive interest rate r ises in the past year to 7.75%.
PwC - India to emerge 3rd largest credit market
he country could emerge as the third-largest domestic credit market in the world after United States and China by 2040, and, in the long run, could grow faster than China, said a PricewaterhouseCoopers (PwC) report on the banking sector by 2050.
While, India’s domestic credit is projected to grow from relatively low levels of $0.4 trillion in 2004 to $23 trillion in 2050, China’s credit market is set to expand from $2.8 trillion to $45 trillion over the same period, according to the report.
The total domestic credit in China could overtake the United Kingdom and Germany by 2010, Japan by 2025 and the US before 2050.
However, India is likely to be the fastest growing among the emerging economies (E7) of China, India, Brazil, Russia, Indonesia, Mexico and Turkey in the long-run.
“The model suggests that while China will continue to grow somewhat faster than India over the next 5-10 years but, after that, China's growth will be held back by its rapidly ageing population (due in large part to its one child policy) and diminishing returns to its investment-led strategy. In contrast, India and other emerging economies have much younger populations with faster-growing labour forces,” Jairaj Purandare, executive director, PwC, said
Short-term Trading Calls
Buy Birla Corp with stop loss of Rs 240 for a target of Rs 266/330
Buy Prism Cement with stop loss of Rs 35.50 for a target of Rs 43
Buy Ador Welding with stop loss of Rs 235 for a short-term target of Rs 276.
Market Close: weak and volatile as expected ahead of FNO expiry
Market saw selling pressure throughout the day. Sensex traded volatile swinging in both directions but was mostly in the red zone. Not much support was seen from global markets as all Asian and European markets were in negative zone except China which remained in the positive territory. Investors were cautious ahead of expiry of June 2007 derivatives contracts and the market may be volatile also tomorrow. Some buying was seen in the IT on the back of some Rupee weakness which traded at Rs 41 against the Dollar. Auto, Metal and PSU sectors were out of favor and attracted selling pressure. Mid and Small caps gained marginally as investors preferred to play safe while went on for profit booking in the heavyweights.
Sensex ended down by 70 points at 14431.06. Weighing on the Sensex were losses in NTPC (150.2,-2 percent), RCVL (514.95,-2 percent), Rel Energy (578.2,-2 percent), ACC (829.8,-2 percent) and Tata Motors (671.9,-2 percent). Losses were restricted by gains in Satyam (468.05,+3 percent), TCS (1133,+1 percent), Hero Honda (675.75,+1 percent), Infosys (1936.2,+1 percent) and Dr Reddys (653.65,+1 percent).
Tata Power jumped as it announced the acquisition of 30% equity stakes in major Indonesian thermal coal producers, PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia as well as related trading companies owned by PT Bumi Resources Tbk. Tata Power in order to complete the acquisition has taken a loan facility from a group of banks led by Barclays Bank for $ 950-million. As part of the purchase, Tata Power has signed an offtake agreement with KPC which entitles it to purchase about 10.1 million tonnes of coal per annum for an initial period upto 2021 which is extendable thereafter. This purchase supports the company's upcoming power projects on the West Coast of India comprising 7,000 mega watt (MW) which is to be developed over the next 5 years. These projects will require approximately 21 million tonnes of imported coal and these acquisitions would serve well.
Austin Engineering the manufacturer of specialty bearings reported good results. Ebidta margins up 400 bps despite higher exports (50% o f revenues). The rupee was strong and that would have hit into the margins as well. At the current market price of Rs 101, stock trades 6 times of FY 2006-07 earnings. Future seems to be good but the only risk in the business is slow down globally and an appreciating Rupee. We remain positive on this company The stock ended up by almost 2%. We had a research note here.. Do read.
KazStroyService PLC has made an open offer to the shareholders of Petron Engineering Construction Ltd to acquire 1,507,680 fully paid up equity shares of Rs 10 each or 20% of the share capital at Rs 180 per share. The offer opens on August 14 and closes on September 3 with the specified date being June 25. The shares ended the day marginally down.
Technical Speaking: Markets traded in a volatile manner as the F&O expires tomorrow. Sensex touched an intraday high of 14520 levels and low of 14407 levels. Volumes were good as the market churned almost Rs. 4685cr. Overall breadth was in favor of Declines, where the Declines were 1355 against of Advances 1266. Sensex held on to our support level of 14420 and closed slightly higher. We maintain that the level of 14400--14420 will play a crucial role in tomorrow's expiry, below which we might move, upto 14315 and 14170 levels.
Profit booking takes its toll
Weak global cues and choppy trading ahead of the expiry of the June F&O series ensured that the market remained in the red today. Despite weak Asian markets the Sensex opened on a positive note but soon slipped into the red on selling pressure in heavyweights and metal stocks. The Sensex fell sharply as investors sold for profits and touched the early low of 14433. However, buying at lower levels by the afternoon saw the Sensex pare most of its losses, but the benchmark index again tumbled on unabated selling in public sector, metal and auto stocks, touching the day's low of 14407. The Sensex finally closed the session at 14431, down 70 points. The Nifty ended the session down 21 points at 4264.
The breadth of the market was weak, with the losers outnumbering the gainers in a ratio of 1.06:1. Of the 2,647 stocks traded on the BSE, 1,338 stocks declined, 1,245 stocks advanced and 64 stocks ended unchanged. Most of the sectoral indices ended weak. The BSE PSU index slipped by 1.04% followed by the BSE Auto index (down 0.87%), the BSE Metal index (down 0.79%) and the BSE Bankex (down 0.64%).
Among the major losers, Tata Motors slipped 2.40% at Rs668, NTPC tumbled by 2.09% at Rs150, Reliance Communication declined by 2.05% at Rs515, Reliance Energy plunged by 1.97% at Rs578, ACC dropped 1.93% at Rs829, Bharti Airtel crumbled by 1.81% at Rs835, ONGC slumped 1.57% at Rs921 and Ranbaxy fell by 1.41% at Rs343. However, Satyam Computer gained 2.55% at Rs468 and Hero Honda moved up by 1.07% at Rs677 while TCS, Grasim, Infosys, Dr Reddy's Lab, HLL, Gujarat Ambuja, Wipro and Bajaj Auto ended with modest gains.
PSU stocks took a beating on the bourses. Bank of Baroda slipped by 2.92% at Rs259, Union Bank crashed by 2.36% at Rs128, SAIL shed 2.28% at Rs131, Mangalore Refineries lost 2.17% at Rs41 and Bharat Petroleum dropped 2.14% at Rs331.
Over 1.80 crore IFCI shares changed hands on the BSE followed by IKF Technologies (82.45 lakh shares), Reliance Petroleum (79.42 lakh shares), GV Films (62.22 lakh shares) and Nelcast (60.95 lakh shares).
Value-wise GMR Infrastructure clocked a turnover of Rs297 crore on the BSE followed by Indiainfoline (Rs138 crore), Nelcast (Rs131 crore), Suzlon Energy (Rs124 crore) and Entertainment Network (Rs116 crore).
Auto, metal stocks lead 70-point Sensex fall
The market drifted lower today as selling pressure continued throughout the day. Market may remain volatile tomorrow, 28 June 2007, ahead of the expiry of June 2007 derivatives contracts. All the Asian and European markets, with the exception of China, slipped today, 27 June 2007.
Buying was seen in consumer durables and IT stocks, while auto and metal stocks witnessed selling.
The BSE 30-share Sensex lost 70.02 points or 0.48% at 14,431.06. It had opened slightly higher at 14,520.19, but immediately started declining. It kept on striking fresh lows as the day progressed, with the last being 14,407.12 at 15:21 IST, which was a fall of 93.87 points for the day. It oscillated in a range of about 113 points for the day.
The S&P CNX Nifty declined 21.75 points or 0.51% at 4,263.95. The Nifty June 2007 futures were at 4254, a discount of 9.05 points to spot closing.
The total turnover on BSE amounted to Rs 4,685 crore as compared to Rs 4,706 crore on Wednesday, 26 June 2007. The NSE F&O turnover rose to Rs 56,258.84 crore as against Rs 52,571.16 crore on Wednesday, 26 June 2007.
The market breadth, which held positive till late afternoon trade, turned negative later as selling emerged in small and mid-cap stocks. On BSE with 1,355 shares declined as compared to 1,266 that advanced. 71 remained unchanged.
The BSE Mid-Cap Index struck all time high of 6,448.78, before settling 6.91 points or 0.11% higher at 6,424.81. The BSE Small-Cap index was up 0.12% to 7,613.84.
Among the Sensex pack, 19 declined while the rest advanced
IT stocks saw steady buying throughout the day. The BSE IT Index gained 0.9% to 4,843.47. Satyam Computers spurted 2.76% to Rs 469, on 4.48 lakh shares. It was the top gainer from the Sensex pack. Other stocks from the IT pack -- Wipro (up 0.10% to Rs 509.15), TCS (up 0.80% to Rs 1131.40) and Infosys Technologies (up 0.65% to Rs 1935) -- also gained.
Tata Consultancy Services (TCS) on Tuesday, 26 June 2007, said it had entered into an agreement with Scuderia Ferrari to provide the complete software to the Italian automaker’s Formula one (F1) cars. The two companies had in 2004 entered into an agreement to provide IT and engineering services and assist the development of F1 racing cars and Ferrari sports cars.
The rupee opened at its lowest in more than two weeks on Wednesday, 27 June 2007, as overseas investors' appetite for risk weakened and on strong dollar demand from oil companies for import payments. In early trade, the rupee was at 41.027/035 per dollar.
Housing finance major HDFC rose 0.80% to Rs 1,900, as buying emerged in the scrip at the fag end of the day. The stock recovered from intraday low of Rs 1850. As per recent reports, the housing finance major has cut floating rates for new home loans by 25 basis points as part of the monsoon offer
Auto stocks saw mixed trend. Tata Motors slumped 2.40% to Rs 668 on 1.53 lakh shares, and it was the top loser from the Sensex pack. Maruti Udyog lost 0.42% to Rs 754. Two wheeler makers Hero Honda Motors (up 1.07% to Rs 677) and Bajaj Auto (up 0.30% to Rs 2134), gained. The BSE Auto Index lost 0.87% to 4,746.24.
Index heavyweight Reliance Industries (RIL) lost 0.38% to Rs 1,697, on 4.21 lakh shares. It moved in a range of Rs 1692 to Rs 1710.25. As per reports, the Prime Minister's Office (PMO) has referred the issue of pricing natural gas found off the east coast to a committee of secretaries. The move comes in the wake of differences the petroleum ministry has with the power and fertiliser ministries over the methodology adopted for arriving at the gas price.
Reliance Communications (down 2.39% to Rs 513.20), Reliance Energy (down 2.02% to Rs 577.90) and NTPC (down 2.22% to Rs 150), were the other losers.
Aluminium and copper major Hindalco Industries lost 1.30% to Rs 168.90, on 31.81 lakh shares. Fall in global metal prices on Tuesday, 26 June 2007, weighed on the counter.
Pharma major Ranbaxy Laboratories lost 1.05% to Rs 343.50. Goldshield become the latest in a string of companies to pay millions of pounds in out-of-court settlements to the National Health System (NHS) for alleged drug price-fixing. Goldshield's settlement follows April's announcement from the UK's Serious Fraud Office that it intended to charge nine people and five companies with conspiracy to defraud the NHS over certain drug prices and supply. Ranbaxy is one of the five companies allegedly involved in a cartel that took place between 1996 and 2000.
GMR Infrastructure rose 1.02% to Rs 699, after striking a high of Rs 744.95, which is the lifetime high for the scrip. The stock surged in anticipation of good Q4 March 2007. The company will unveil results on 30 June 2007. The stock was the top traded counter on BSE with total turnover of Rs 296.59 crore
The BSE Consumer Durables (CD) index spurted for the second straight day, and struck an all-time high of 4,256.31 today, 27 June 2007. It settled 1.27% higher to 4,216.57, and was the top gainer among the sectoral indices on BSE. On Tuesday, 26 June 2007, the BSE CD index had surged 2.71% to 4,163.86. Titan Industries (up 3.81% to Rs 1,328), Lloyd Electric (up 3.35% to Rs 160.20), and Rajesh Exports (up 0.45% to Rs 527.50) were the major gainers from the BSE CD index.
Titan Industries, Rajesh Exports, Gitanjali Gems and Lloyd Electric have weightages of 34.01%, 8.14%, 5.03% and 4.03% respectively in BSE Consumer Durable index. The Consumer Durable index rose 7.28% in the past one month to 26 June 2007.
Nelcast settled at Rs 206.25 on BSE, a discount of 5.80% over the IPO price of Rs 219 per share. The scrip opened at Rs 252.05. It touched a high of Rs 284.70 and a low of Rs 203.10 during the day. The counter saw high volumes of 60.95 lakh shares.
The BSE Metal Index declined 0.80% to 10,685.59. Hindustan Zinc (down 2.40% to Rs 704), Sail (down 2.21% to Rs 130.60), Jindal Stainless (down 2.20% to Rs 142.10), and Tata Steel (down 1.93% to Rs 591.50) were among the losers.
Steel Authority of India (Sail) entered into a memorandum of understanding with Manganese Ore India for setting up of a joint venture to produce ferro-manganese and silico-manganese. Sail made this announcement after market hours on Tuesday, 26 June 2007.
Steel maker JSW Steel was down 0.68% to Rs 603.15 after the United Nations awarded more than 5.4 million carbon credits to two of its projects for reducing greenhouse gas emissions between 2001 and 2006.
Wind turbine maker Suzlon Energy jumped 4.58% to Rs 1,502 on reports that it along with Vestas India has signed agreements with the Kerala government for 15 mega watt (MW) wind power project.
Patni Computer Systems gained 1.40% to Rs 506 on announcing a partnership for collaborative research activities in the medical device domain.
IFCI spurted 4.20% to Rs 52 after the central bank once again allowed foreign investors to purchase shares in the company.
IndusInd Bank jumped 6.06% to Rs 51.65. On Monday, 25 June 2007 the bank had got a $50 million line of credit from US-based Wachovia Bank N.A. to expand its international business. The bank has an approval from its board to raise up to Rs 400 crore through debt this fiscal year, which began on 1 April 2007.
Motor Industries Company (Mico) slumped 4.28% to Rs 4,485 after its parent Robert Bosch GmBH raised the open offer price by 15% to Rs 4,600 a share. The market had expected the open price to be raised to at least Rs 5,000 per share. The news hit the market before trading hours today, 27 June 2007. Robert Bosch, the world's largest auto parts maker, holds 60.55% in Mico. The parent firm said it was buying the additional stake in Mico to realise greater operational synergies through closer cooperation and sharing of technology.
Apollo Hospitals Enterprise slipped 1.35% to Rs 518.30 after its net profit advanced 17.74% to Rs 14.60 crore in Q4 March 2007 as against Rs 12.40 crore in Q4 March 2006. Revenue rose 21.56% to Rs 233.40 crore (Rs 192 crore). The company’s net profit surged 66.28% to Rs 100.10 crore in FY 2007 as against Rs 60.20 crore in the year ended March 2006. Revenue increased 25.88% to Rs 891.00 crore (Rs 707.80 crore). The results were announced after market hours on Tuesday, 25 June 2007.
FDC dropped 4.22% to Rs 32.90 after it posted a 43.31% decline in net profit in Q4 March 2007 to Rs 4.32 crore as against Rs 7.62 crore in Q4 March 2006. Sales rose 18.49% to Rs 81.21 crore (Rs 68.54 crore). Net profit slipped 7.35% to Rs 64.33 crore in the year ended March 2007 as against Rs 69.43 crore in the previous year ended March 2006. Sales were up 25.04% to Rs 423.76 crore FY 2007 as against Rs 338.91 crore in FY 2006. . The results were announced after market hours on Tuesday, 26 June 2007
Gail (India) was down 0.35% to Rs 308.80, after the state-owned gas utility inked a pact with China Gas Holdings to jointly pursue gas sector business opportunities in China, India and other countries. Gail on Tuesday, 26 June 2007 signed a pact with China Gas Holdings to jointly pursue businesses in CNG (compressed natural gas), city gas distribution and coal bed methane extraction, besides pipeline and LNG (liquefied natural gas) projects in China, India and other countries.
Nagarjuna Construction Company was unchanged at Rs 171 after it secured Rs 334-crore contract to construct Rajeev Gandhi University of Health Science's administrative block, medical college block, 500 bedded hospital, 250 bedded super speciality hospital and allied colleges, hostels, quarters, and buildings in Ramanagara, Bangalore. The project is to be completed within 18 months.
All the Asian markets were trading lower today, 27 June 2007 led by Japan, as shares of exporters such as Toyota Motor Corp. and Canon Inc. were hurt by yen's strengthening against the US dollar. Japan's Nikkei was down 1.20% at 17,849.28. Hang Seng (down 0.45% to 21,705.56), Taiwan's Taiwan Weighted (down 0.24% at 8,844.22), South Korea’s Seoul Composite (down 0.94% at 1,733.10), and Singapore's Straits Times (down 0.56% at 3,505.50), all edged lower.
However, Shanghai Composite was an exception. It rose 2.65% to 4,078.59
All the European markets were trading lower
Wall Street finished an extremely erratic session with a modest decline on Tuesday, 26 June 2007, as investors parsed unimpressive data on home sales and consumer confidence and awaited the Federal Reserve's meeting on interest rates.
The Dow Jones fell 14.39 points, or 0.11%, to 13,337.66. Broader stock indicators also fell. The Standard & Poor's 500 index slipped 4.85 points, or 0.32%, to 1,492.89, and the Nasdaq Composite index fell 2.92 points, or 0.11%, to 2,574.16.
Oil prices were steady in Asia, on 27 June 2007, as traders awaited the release of a US government inventory report expected to show increases in supplies of crude, gasoline and distillates. Light, sweet crude for August delivery lost 6 cents to $67.71 a barrel in Asian electronic trading on the New York Mercantile Exchange.
As is the case at the time of expiry of near-month contracts, the extent of rollover to July 2007 contracts from June 2007 contracts will dictate the trend on the domestic bourses in the near term. A higher rollover indicates that the market players expect bourses to remain firm in the month ahead and vice versa.
Blackstone v ICICI Bank
Here are seven reasons why investing in ICICI Bank is better than investing in Blackstone.
1. ICICI Bank is managing assets of $79 billion, compared to Blackstone managing assets of about $88 billion. The major difference in these two asset bases is that ICICI has much larger customer base in the Indian middle class, whereas Blackstone is managing money for large institutions and rich people.
2. ICICI is biggest Indian bank by market cap (about $22 billion) and the second largest Indian bank in terms of assets. Even with this market cap, it is only about 1/11th that of Citibank and still far behind China construction bank, which has a market cap of more than $220 billion. This provides large upside and growth potential for ICICI. Compared to this, Blackstone's market cap (about $32 billion) is 1/3rd of its largest competitor, Goldman Sachs
3. ICICI has a very large presence in India's biggest metros and still offers tremendous growth opportunity in second tier cities.
4. Indian bank industry will be going through M&A activity and being the largest bank would be a tremendous opportunity for ICICI bank to get even bigger.
5. ICICI bank has wide variety of products ranging from retail banking to insurance to brokerage. Its stake inan insurance company alone would be billions of dollars.
6. Investing in ICICI bank is like investing in India's growth story since banks are best barometer ofa country's economy
7. Indian billionares like Azim Premji, Ambani and Bajaj are investing about $250 million each in this issue. In addition, large foreign investors like Temesek and Warburg Pincus are investing large amounts in this issue. All of these smart investors cannot be wrong at same time
Via SeekingAlpha
SKP Securities - La Opala RG
SKP Research report on La Opala RG:
La Opala RG’s net sales were up by 17.93% at Rs 13.81 crores in Q4FY07 over Q4FY06. Out of the total sales, Opalware contributed 74.65%, Crystalware contributed 20.44% and the rest of the sales came from some trading activities and sale of energy generated from windmill.
Operating Margins (OPM) of the company stood at 16.15% for Q4FY07 in comparision to 14.52% in the same period last year. The improvement came mainly due to higher realisations as the company increased their prices by 10-12% at the start of this fiscal, optimum utilisation of resources by lowering the weight per piece for some of their products and better product mix.
Profit After Tax (PAT) was down by 9.45% due to higher interest and depriciation costs. However, PAT for the whole year was up by 6.51% compared to last year.
Exports as a percentage of total sales increased to 24.38% in Q4FY07 in comparision to 17.86% in the same period last year. Contribution of Opalware & Crystalware to total exports was 37.92% and 62.08% respectively.
Owing to the established brand name and high quality products, the demand for La Opala's products is increasing. To meet the growing demand, the company is scaling up its capacity by 80% from the present levels with a capex of Rs. 37 crores, which is expected to be operational by September, 2007.
They will have a locational advantage as they will avail an exemption of excise duty for 10 years and income tax for 5 years for manufacturing in Uttaranchal. With the abundance of cheap electricity, Uttaranchal is considered to be the ideal location for the expansion. These will help in improving margins of the company.
Recently, the company tied-up with some retail chains like Reliance, Pantaloon, Metro, Shopper's Stop and Pyramid for supplying its products.
Outlook & Recommendation
We are reducing our FY08 sales and profit estimates by 23.00% and 37.89% respectively, due to the delay in expansion. It was scheduled to be operational by April ‘07, which will now be operational by September '07. Our revised estimates for sales and profit after tax in FY08 are Rs. 63.91 crores and Rs. 5.41 crores respectively. We have also incorporated the estimates for FY09. The company is expected to make net sales of Rs. 90.35 crores and profit after tax of Rs. 10.22 crores in FY09.
At current market price, the stock is currently trading at 6.02 x FY08E and 3.38 x FY09E EPS of Rs. 5.41 and Rs 9.64 respectively. We maintain our BUY recommendation on the stock with a price target of Rs 68 at 7 x FY09E EPS of Rs. 9.64.
ISEC - Deccan Chronicle
ICICI Securities report on Deccan Chronicle Holdings:
We recently appraised Odyssey, the retail business of Deccan Chronicle Holdings (DCHL), via store visits. Based on DCHL’s expansion plans and ‘Agreed upon procedures’ with KPMG, we are optimistic on Odyssey going forward. We value Odyssey at Rs 1.9 billion (Rs 7.50 per DCHL share) based on peer valuation. DCHL is the cheapest stock in print space and our top pick in the print sector. The stock is currently trading at FY09E P/E of 19.2x and EV/EBITDA of 10.6x.
Odyssey
DCHL acquired a 100% stake in Odyssey in September ’05 for Rs 612 million. The company is planning on expansion through an initial public offering (IPO) for Odyssey for raising Rs 770 million, post which, DCHL plans to de-merge the entity (Odyssey) from the print business. Odyssey’s business encompasses retailing of books, music, cards, stationery, gifts, toys, multimedia and magazines. Odyssey started in 1995 and has 17 national stores as of date, spanning 10 cities – Chennai, Hyderabad, Bangalore, Nagpur, Coimbatore, Trichy, Salem, Varanasi, Noida and Mumbai. The entity posted FY06 revenues of Rs 256 million. Books contribute to 40% of revenues whereas share of non-book items (gifts, toys, stationery and greeting cards) is 50% on an average.
Aggressive expansion plan by Odyssey through increasing number of stores to 44 and built-up area under operation to 527,296sqft by FY09.
Pan India presence.
Odyssey is targeting pan India presence to leverage on the consumption boom. At present, a large chunk of revenues are contributed by Chennai (six stores). Odyssey plans to capture A-class cities, extending operations to Delhi, Bangalore, Mumbai, etc.
Financials on the upswing.
The management expects Odyssey to register FY09E revenues at Rs 3.2 billion, up 12.5x from FY06 revenues at Rs 255 million on the back of an increase in number of stores to 44 from 17 at present.
Valuation
We value Odyssey at Rs 1.9 billion or Rs 7.50 per DCHL share based on the current store outlay and projected financials for FY07.
Odyssey
DCHL recently laid down its expansion plans for Odyssey, with a KPMG study of the ‘Agreed upon procedures’ for the expansion. Odyssey has outlined an aggressive pan India expansion plan, to increase its presence to 44 stores from 17 stores in 10 cities at present. DCHL acquired 100% stake in Odyssey in September ’05 for Rs 612 million. The company is planning on expansion through an IPO for Odyssey for raising Rs 770 million, post which, DCHL plans to de-merge Odyssey from the print business. However, the company has been planning the IPO for the past 15 months.
Takeaways from the KPMG study of ‘Agreed upon procedures’
Odyssey - The present state
Odyssey is in the business of retailing books, music, cards, stationery, gifts, toys, multimedia and magazines. It is the first branded leisure store in India, growing from one store in 1995 to 17 stores as on date, spanning 10 cities – Chennai, Hyderabad, Bangalore, Nagpur, Coimbatore, Trichy, Salem, Varanasi, Noida and Mumbai. Odyssey registered FY06 revenues of Rs256mn. Books contribute to 40% of revenues whereas share of non-book items (gifts, toys, stationery and greeting cards) is 50% on an average; other items including music & multimedia contribute 10%. Employee strength is 379, including store staff of 226.
Aggressive expansion plans
Odyssey plans aggressive expansion through increasing number of stores to 44 and built-up area under operation to 527,296sqft by FY09. Odyssey’s store model is similar to Landmark’s, stocking books, music CDs, gift items as well as lifestyle products such as perfumes and leather products.
Financials – To witness an upswing
Odyssey has given FY09E guidance of revenue and profitability. However, we estimate that there is a risk to performance on account of slower-than-estimated expansion owing to delay caused by mall developers. Further, the schedule is short of three stores, owing to delay in transfer of properties.
Key assumptions for projections, by the management
- Revenues from existing stores to increase 35%
- Gross margins are based on current average margins
- Employee costs are based on expected employee strength and a 10% yearly increment rate
- Lease rentals include selling, general and administration expenses, based on signed letters of intent
- Depreciation is calculated using the straight line method.
Valuing Odyssey
In our detailed report dated May 29, ’07 (India Media Sector: Triumph writ large), our FY09 valuations for Odyssey were Rs 612 million. We have revisited our valuations, post the built up of Odyssey’s new stores and peer multiples, attributing Rs 1.9 billion or Rs 7.5 per DCHL share. However, we believe that the DCHL management is planning to raise money at IPO valuations of Rs 4-5 billion for Odyssey.
Deccan Chronicle - Still the cheapest
DCHL is our top pick in the print sector and the cheapest stock in print space. The stock is currently trading at FY09E P/E of 19.2x and EV/EBITDA of 10.6x, even after moving up 20% in the past three weeks. We have not factored in any upside from the Odyssey’s stock dividend.
Market to see high volatility
Market is expected to see high volatility today, a day ahead of expiry of June 2007 derivatives contracts on Thursday, 28 June 2007. As is the case at the time of expiry of near-month contracts, the extent of rollover to July 2007 contracts from June 2007 contracts will dictate the trend in the near term. A higher rollover indicates that the market players expect bourses to remain firm in the month ahead and vice versa. Cues from global markets were not encouraging either.
The 30-shares BSE Sensex posted marginal gain of 13.36 points or 0.09% to 14,501.08 on Tuesday 26 June 2007.
Asian markets were trading lower today, 27 June 2007 led by Japan, as shares of exporters such as Toyota Motor Corp. and Canon Inc. were hurt by yen's strengthening against the US dollar. Japan's Nikkei was down 0.74% at 17,933.03. Hang Seng (down 0.11% to 21,780.32), Taiwan's Taiwan Weighted (down 0.26% at 8,842.67), South Korea’s Seoul Composite (down 0.52% at 1,740.42), and Singapore's Straits Times (down 0.16% at 3,519.61), all edged lower.
Wall Street finished an extremely erratic session with a modest decline on Tuesday, 26 June 2007 as investors parsed unimpressive data on home sales and consumer confidence and awaited the Federal Reserve's meeting on interest rates.
The Dow Jones fell 14.39 points, or 0.11%, to 13,337.66. Broader stock indicators also fell. The Standard & Poor's 500 index slipped 4.85 points, or 0.32%, to 1,492.89, and the Nasdaq Composite index fell 2.92 points, or 0.11%, to 2,574.16.
Futures & Options Strategy
Nifty futures gain OI to the tune of 1.89% with index closing positive. Market was range bound during today's session and given a strong close on the day's high. Market was moving in a range of 50 points during whole day. Today's closing has given a sign of strength in the market. At the end, Nifty closes positive and given a close above 4250 levels, which was very important levels for the market. Nifty futures close with a discount of 14 points, which indicates profit booking in the market. The FIIs bought index futures to the tune of Rs. 322.66 Crs and sold stock futures to the tune of Rs. 392.35 Crs. The PCR has come up from 1.41 to 1.44 levels, which indicate strength continuing in the market. The volatility has gone up from 32.40 to 36.25 levels indicating volatility expected by market participants.
Among the Big guns ONGC gains OI to the tune of 4.00% with prices going up during the day, indicating strength in the counter and strong buying at lower levels, at last counter has given strong support to the market to get sustain on higher levels. RELIANCE gains OI to the tune of 4.50% with prices closing negative indicating liquidation and profit booking in the counter, however counter witnessed liquidation by bulls in the counter on higher levels during today's session.
On the TECH front, TCS, INFOSYSTCH & WIPRO gains OI with decline in price indicating profit booking and liquidation in the counters. Counters have given a weak close that is almost on day's low indicating further weakness in the counters. Counters have shown strength in the early morning as the Dollar comes up but later on investors has liquidated their positions indicating that the uncertainty prevailing in the market regarding the Exchange rate. SATYAMCOMP gains OI with gain in price indicating strength in the counter, counter has seen strong buying on lower levels and can outperform the sector.
On the Metal front, TATASTEEL, SAIL, HINDALCO & NATIONALUM gains OI with rise in price indicating strength in the counters. At the end of the all, the counters closed positive. Counters have shown strong buying on lower levels. Counters have also witnessed short covering by bears on higher levels and given a strong close during today's session.
In the BANKING arena, SBIN & HDFCBANK loses OI with increase in prices, indicating strength in the counters. Counters have seen short covering by bears on higher levels. ICICIBANK & BANKBARODA loses OI with gain in price indicating liquidation of long positions in the counters.
During today's session Nifty futures has seen strong buying on lower levels near 4250 levels and given a strong close above the important level of 4250. Overall nifty has strong support around 4250 levels. If Nifty given a close below 4200 than we can see fresh short position in the market. One should take hedged positions in the market to minimize the risk.
Daily Technical Note - June 27 2007
Nifty and Sensex have exhibited a bullish candlestick.
Technically, one may use the level of 4250 (Nifty) and 14400 (Sensex) as the stop loss level.
Nifty faces resistance at 4380 and Sensex at 14800.
BSE Smallcap and BSE Midcap exhibited a bullish candlestick.
CNX IT has lost ground.
In the Punter's zone we have a BUY in Praj Industries , Reliance Capital & Suzlon.
In the Technical call section, we have a BUY in Infosys Technologies , Reliance Industries & Tata Steel.
Daily Technical Analysis Report - June 27 2007
Trade with caution
The market is likely to remain volatile ahead of derivatives expiry for June series and weak global markets may put pressure on domestic indices in early trades. However, presence of strong bullish sentiment and FIIs remaining net buyers in equities for last couple of sessions may help the market to turn positive. The Nifty could test higher levels at 4350 and may dip around 4233, while the Sensex has a likely support at 14400 and may face resistance at 14600.
US indices ended weak for the second straight session on Tuesday, with the Nasdaq slipping by three points to close at 2574 amid selling in technology stocks. Other factors like subprime mortgage sector concerns saw the the broader Dow Jones end 14 points lower at 13338.
Indian ADRs ended in the green on the US bourses. Infosys, Satyam, Tata Motors, VSNL, Wipro, ICICI Bank, Patni Computers, MTNL and Rediff were up around 1% each. However, HDFC Bank slipped and ended in the red with marginal losses.
The Nymex light crude oil for August delivery shed $1.41 at $67.77 a barrel. In the commodity segment, the Comex gold for August series tumbled by $9.40 to settle at $645.30 an ounce.
Indiainfoline - Intraday Stock Ideas
NIFTY (4285) SUP 4264 RES 4309
Buy Idea (120) SL 116
Target 127, 129
Buy Jubilant Organics (318) SL 314 Target 326, 329
Buy Indibulls Real (437) SL 432
Target 447, 450
Sell Nicolas Piramal (287) SL 292
Target 279, 276
Sell HPCL (261) SL 265
Target 254, 251
Stroll over before rollover
“A good opening and a good ending make for a good film provide they come close together.”
The trading screens these days neither have a good opening or ending. The snail pace movement of the market in recent times would actually give time to catch up on a movie in between. The bulls and the bears seem to be just strolling over even as rollover is a day away. Weakness in global markets and high oil prices have not dented the domestic bourses so far. But, today could be another day. FII inflows have slackened this month. The bulls continue to lack confidence with the Sensex within striking distance of registering a new historic peak. There are no major catalysts to drive the market sharply higher from these levels though the bias still remains slightly up.
Global cues are not having any major bearing on the local sentiment. Things appear to have come to a standstill and the market is awaiting some sort of trigger, either up or down. That may come from the outcome of the two-day Fed meeting that starts today. Though the consensus says the US central bank will hold its key rate steady, global markets are more interested in the Fed's stance on inflation and interest rates in the world's largest economy. We also have the F&O expiry tomorrow. So, expect the choppiness to continue for a few more days before the quarterly results take centerstage. Today, we see the key indices opening on a cautious to lower note on the back of a fall in US and Asian markets.
US stocks fell on Tuesday as lingering concerns over subprime mortgage and its impact on the economy hurt sentiment for the third straight day, even as oil prices fell by more than $1 a barrel.
Worries about the larger impact of losses by Bear Stearns hedge funds invested in securities backed by subprime mortgages, which erased the Dow's 100-plus point gain on Monday, again weighed on the markets.
A number of high profile individuals spoke out on the Bear Stearns mess Tuesday, including PIMCO founder Bill Gross, who predicted that recent subprime mortgage woes will spread, and prompt the Fed to cut interest rates.
The S&P 500 lost 4.85, or 0.3%, to 1492.89. The index is down 2.5% this month. The Dow Jones Industrial Average fell 14.39, or 0.1%, to 13,337.66. The Nasdaq Composite Index slipped 2.92, or 0.1%, to 2574.16.
Crude oil for August delivery retreated 2% to $67.77 per barrel in New York on forecasts that a government report tomorrow will show an increase in US oil and fuel inventories.
Treasury prices barely budged, leaving the yield on the benchmark 10-year note at 5.08%, unchanged from late on Monday. The dollar climbed against the euro and moved lower versus the yen. COMEX gold for August fell $9.40 to $645.30 an ounce.
European shares ended down as well. The pan-European Dow Jones Stoxx 600 index dropped 0.5% to 389.87. The UK's FTSE 100 index closed down 0.4% at 6,559.30, the German DAX 30 index declined 0.9% to 7,860.52 and the French CAC-40 index lost 0.8% at 5,953.36.
In the emerging markets, the Bovespa in Brazil shed 0.35% to 53,851 while the IPC index in Mexico slumped 1.8% to 30,744 and the RTS index in Russia jumped 1.2% to 1897.
Most Asian markets were down this morning. The Nikkei was down 163 points at 17,902 while the Hang Seng in Hong Kong slid 127 points to 21,675. The Kospi in Seoul was down 20 points at 1728 and the Straits Times in Singapore fell by 23 points to 3501.
Markets continued it flat run for third consecutive trading session. However the domestic bourses managed to close in positive territory despite the weakness in the international markets. The BSE Capital Good, Consumer Durable and Auto index were the major gainers; however Banking and IT index were the major laggards. Even the Mid-Cap and the small cap index added 0.5% each. Finally, the 30-share Sensex gained 13 points to close at 14501. NSE-50 Nifty was up 26 points to close at 4285.
Mindtree gained 0.8% to Rs774 after the company would set up software centre with CIT. The scrip touched intra-day high of Rs792 and a low of Rs768 and recorded volumes of over 2,00,000 shares on NSE.
Jet Airways surged 2% to Rs808 after the Board of Directors of the company approved to raise as much as $400mn. The company also announced its Q4 result with net Profit at Rs880.1mn (down 61%), and sales at Rs90.78bn (up 21%). The scrip touched intra-day high of Rs814 and a low of Rs792 and recorded volumes of over 3,00,000 shares on NSE.
GE Shipping dropped by 3.3% to Rs336 after the company announced that they would convert warrants at Rs312.75 a piece. The scrip touched intra-day high of Rs350 and a low of Rs331 and recorded volumes of over 4,00,00 shares on NSE.
Jay Shree Tea surged by over 2% to Rs108 after the company announced that they would consider absorbing Units Birla Tea, Mariobar. The scrip touched intra-day high of Rs112 and a low of Rs105 and recorded volumes of over 83,000 shares on NSE.
Praj Industries surged by over 4% to Rs488 after the company won UK Bioethanol Plant contract with Aker Kvaerner. The scrip touched intra-day high of Rs490 and a low of Rs461 and recorded volumes of over 26,00,000 shares on NSE.
Natco Pharma rallied nearly by 7% to Rs146 after the company received USFDA approval for Ondansetron Drug. The scrip touched intra-day high of Rs152 and a low of Rs137 and recorded volumes of over 2,00,000 shares on NSE.
Consumer Durable stocks were in the lime light as the index gained 2.71%. Titan was the top gainer as the scrip was up by over 8.5% to Rs1279, Videocon Industries gained 0.2% to Rs424 and Rajesh Exports added 0.6% to Rs525.
Select Banking stocks were on the receiving end. ICICI Bank slipped by 0.7% to Rs945, Canara bank was down by 3.6% to Rs255 and Union Bank declined by 1.5% to Rs131. However, SBI added by 0.7% to Rs1457.
Metal stocks perked up smart gains led by gains in the heavy weight Tata Steel as the scrip gained 1% to Rs604, SAIL was by 1% to Rs133, Nalco edged higher by 0.3% to Rs261 after the Board of Directors of the company recommended 75% dividend.
Results Today:
Asahi Songwon, Ashapura Minechem, Autolite, Bannari Amman, BEL, Global Vectra, Man Industries, National Fertilizers, Nirma and Zee Entertainment.
Major bulk Deals:
Citigroup has sold Gayatri Projects; Passport India Mauritius Fund has bought Pantaloon Retail from Goldman Sachs.
Insider Trades:
Man Industries (India) Ltd: ICICI Securities Primary Dealership Ltd has sold in open market 688986 of Man Industries (India) Ltd on 18th June, 2007.
Lower Circuit:
Max India, Triton Corp, Sudarshan Chemical, Panasonic and Hindustan SPG.
Upper Circuit:
GMR Industries, Deep Industries, Teledata Informatics, Shasun Chemicals, Saregama Industries, United Breweries, PBA Infrastructure, 3MIndia, Amara Raja, Crisil, GV Films, Dollex Industries, Bank of Rajasthan and Bilcare.
Delivery Delight (Rising Price & Rising Delivery):
ABB, AIA Engineering, Apollo Tyres, Asian Hotels, Bata India, BRFL, Cadila Healthcare, CESC, Colgate, Container Corporation, Eveready Industries, EKC, HCL Infosystems, IOC, Lloyd Electric and United Breweries.
Abnormal Delivery:
AIA Engineering, Mercator Lines, Lupin , Havells India , Greaves Cotton , Ballarpur Industries Dabur Pharma and Gujarat NRE Coke.
Major News & Announcement:
SAIL signs agreement with Manganese Ore India
Praj Industries wins UK Bioethanol Plant contract with Aker Kvaerner
GE Shipping to convert warrants at Rs312.75 apiece
Suraj Stainless approves bonus issue in the ratio of 2:1
Jay Shree tea to consider absorbing Units Birla Tea, Mariobar on 28th June
Jet Airways Q4 Profit at Rs880.1mn (down 61%), and sales at Rs90.78bn (up 21%) and approves to raise as much as $400mn
Natco Pharma gets USFDA nod for Ondansetron Drug
Dollex secures $5mn Liquor order from Africa
Aurobindo Pharma gets US approval for Quinapril tablets
Pratibha Industries secures contract worth Rs260mn
Investsmart - Morning Call
Market Grape Wine :
In House :
Nifty at a support of 4270 & 4250 levels with resistance at 4330 & 4390 levels .
Buy : Intraday : Crompton Greaves buy above 250 target of 260 s/l of 245
Buy : Intraday : Sterlite above 587 target 600 s/l of 580.5
Buy : in F&O BirlaCorp above 262 target 271 s/l 258
Buy : Intraday in F&O : Bharti above 858 target 872 s/l of 853
Out House :
Markets at a support of 14282 & 14352 levels with resistance at 14565 & 14595 levels .
Buy : RIL & RelCap
Buy : IndiaInf & IBulls
Buy : UTV & EssdEe Alum
Buy : IbullsReal
Buy : IDBI & IFCI
Buy : Centextile & AuroPharma
Buy : Divis & Titan
Buy : Contrarian call : 3 to 6 months delivery call : TNPL , SesaSahee papaer , BILT & StarPaper
Buy : Contrarian call : 3 to 6 months delivery call : Nicco Corp , RPGcable , Univeraslcable & KEI
Dark Horse : IBullsReal , IDBI , Centextile , IBulls , IndiaInfo , Titan & Siemens
Bullet : MountEverest ( BSE ) & NiccoCorp with strict stop loss .
Grey Market Premiums
Roman Tarmat
Price Band: 150 to 175
Grey Market: 110 to 115
Celestial Labs
60
8.50 to 9
Ankit Metal
30 to 36
3 to 3.50
Meghmani
19
11 to 12
Nelcast
219
55 to 60
DLF
525
20 to 22
Vishal Retail Ltd.
230 to 270
365 to 370
Spice Communication
41 to 46
11 to 12
Crude has a sharp fall
Crude futures lose ground as traders eye substantial build in crude and fuel inventories
Crude oil futures witnessed substantial fall today after traders speculated that tomorrow’s weekly inventory report by Energy Department report will show U.S. oil and fuel inventories have registered substantial rise for the week ended 22 June.
For the day ending Tuesday, 26 June, 2007 crude-oil futures for light sweet crude for August delivery closed at $67.77/barrel (lower by $1.41/barrel or 2.04%) on the New York Mercantile Exchange. Prices are down 5.6% from a year ago.
Brent crude oil for August settlement declined $1.19 (1.7%) to close at $70.17 on the ICE Futures exchange in London.
Traders are speculating that tomorrow’s weekly report will show that crude oil supply surged by 1-1.5 million barrels for the week ended 15 June. A climb of 2.2 million barrel for gasoline and a 250,000 barrel increase in distillates is also expected. Refineries are expected to have operated at 88.4% of capacity, up 0.8 percentage point from the week before.
As per latest reports, ConocoPhillips and Exxon Mobil will quit Venezuela where they invested billions of dollars in oil and natural gas projects, after talks about ownership failed.
July natural gas finished lower today, down 6.3 cents at $6.877 per million British thermal units, its lowest level since mid-January.
Against this backdrop, July reformulated gasoline fell 5.56 cents (2.4%) to close at $2.2469 a gallon and July heating oil fell 4.91 cents to end at $1.9933 a gallon.
Oil demand will rise to 118 million barrels per day by 2030 - OPEC
Concern that the dispute over Iran's nuclear program might disrupt shipments from the country has supported prices over the past year. Attacks on oil facilities in Nigeria have curtailed shipments and tight supplies from OPEC have also bolstered prices.
OPEC currently said that high prices alone aren't enough to warrant an increase in production because there's ample supply of crude oil for refiners. The group is due to meet in Vienna on 11 September to review its production ceiling for the winter season, when consumption of heating fuel increases in the Northern Hemisphere.
IEA has revised its outlook for worldwide demand of oil products, citing new data it's received from Nigeria, Indonesia and other countries. Global demand is expected to increase by 2% to 86.1 million barrels a day from a revised 84.5 million barrels a day in 2006. That's 420,000 barrels more than the IEA projected in May. In May, it had predicted a 1.8% rise in 2007.
Today, OPEC came out with its latest world oil outlook report. The report predicts that global oil demand will rise to 118 million barrels per day by 2030, from 83 million in 2005.
OPEC also said in its report that "demand for energy is set to continue to grow and oil is expected to maintain its leading position in meeting the world's growing energy needs for the foreseeable future." The cartel expects OPEC's benchmark crude price to remain in the $50-$60 range for much of the projection period to 2030.
Another disappointing day for US Market
Mid-day rally fizzles out as stocks turn volatile after consumer confidence and housing data
Weaker consumer confidence and subprime concerns took a toll on US market today and another rally fizzled out after it was stopped mid-way. A slightly better than expected housing data coupled with deal news failed to offset the nervous sentiment among investors who continued to be affected by interest rates and hedge fund woes.
For the second consecutive day, Dow rallied in the morning hours but gave up all of of its gains in the final hours of trading. Making situations worse, the Securities and Exchange Commission said it has opened 12 investigations into "issues such as" collateralized loans. Crude prices slipping by more than 2% also could not rescue the indices.
Seventeen out of 30 Dow stocks retreated into the red at the day’s close. The Dow Jones Industrials lost 14.39 points to close at 13337.66. Tech heavy Nasdaq shed 2.92 points to close at 2574.16. S&P 500 closed lower by 4.85 points at 1492.89.
Merck, Altria, J&J and Honeywell were the main Dow winners. Du-Pont, Alcoa, United Tech and Boeing were the major Dow laggards today. Google once again hit an all time high today.
The Conference Board's index of consumer confidence fell to 103.9 in June from 108.5 in April. The reading was the lowest since August; economists had been expecting a drop to 105.
New home sales for 1.6% in May
When market opened in the morning, stocks opened higher as investors tried to get back in buying mode following last week's sell-off. Resurgence in M&A activity, another pullback in interest rates and falling oil prices contributed to the market's positive bias.
As per the Commerce Department, U.S. new home sales fell 1.6% in May to a seasonally adjusted annual rate of 915,000 units. Sales have declined in four out of the five months of 2007. The sales pace in February, March and April was revised lower by a total of 84,000 units.
But all the three indices were off their session highs giving up most of their gains around lunch hours. But turnarounds in the S&P 500's two most heavily weighted sectors Financials and Technology helped market to turn around and these two sectors were the biggest contributors to the market's improved stance.
Stocks entered the afternoon session still sporting modest gains but were pulling back from their highs with higher interest rates acting as the biggest hindrance. But just like yesterday's action, late-day sentiment continued to weaken as investors grew increasingly defensive.
Treasury bonds, which had been worrying investors since last week, gave back some of their gains. The benchmark 10-year note finished down 5/32 at 95-12/32, lifting its yield to 5.101%.
Altria helps to support Dow but fails
Altria’s 1.8% helped Dow gain 10 points today though market gave that up also going into close. The stock was up today after the company said it plans to shut down its 2,500 employee Philip Morris cigarette factory in Cabarrus, N.C, by 2010 in a move to cut costs.
Crude oil futures witnessed substantial fall today after traders speculated that tomorrow’s weekly inventory report by Energy Department report will show U.S. oil and fuel inventories have registered substantial rise for the week ended 22 June. Crude oil futures for light sweet crude for August delivery closed at $67.77/barrel (lower by $1.41/barrel or 2.04%) on the New York Mercantile Exchange. Prices are down 5.6% from a year ago.
Also today, OPEC came out with its latest world oil outlook report. The report predicts that global oil demand will rise to 118 million barrels per day by 2030, from 83 million in 2005.
Trading volumes showed 1.7 billion shares trading on the New York Stock Exchange and 2.0 billion on the Nasdaq stock market. Declining shares topped gainers by 20 to 11 on the NYSE and by 16 to 13 on the Nasdaq.
With the two-day FOMC meeting beginning tomorrow, investors will likely look for economic data to help set the tone of trading for tomorrow. Durable Orders will kick come out at 8:30 ET followed by The Energy Dept.'s weekly inventories report at 10:30 ET.
Housing Development and Infrastructure IPO Analysis
Housing Development and Infrastructure (HDIL), part of the Wadhwan group (formally known as the Dheeraj group), develops real estate mainly in the Mumbai Metropolitan Region. Since its incorporation in 1996, the company has developed 23 projects covering approximately 11 million square feet of saleable area, including about 5.7 million square feet of land sold to other builders after the development. It also have constructed an additional two million square feet of rehabilitation housing area under the slum rehabilitation schemes. Dewan Housing Finance Corporation, a listed company is part of the promoter group.
To fund acquisition of land or land development rights for its ongoing and planned projects and construction of its ongoing and planned projects, and to meet general corporate purposes, HDIL is coming out with an IPO.The price band is Rs 430- Rs 500 The issue opens on 28 June and closes on 3 July 2007.
Strengths
- HDIL has land reserves of approximately 112.1 million square feet of saleable area to be developed through 32 ongoing or planned projects. The company has 21 ongoing projects under construction and development, aggregating to approximately 45.5 million square feet of saleable area, and has 11 planned projects aggregating approximately 66.6 million square feet of saleable area. Of the land reserves, about 73.4% is actually owned by the company; and 15.7% of it is to be acquired under memoranda of understanding (MoU) and agreements. But these MoUs do not have any revocation clauses. Another 10.9% of the land reserve is under joint venture with partners. The execution, however, rests with HDIL.
- Has received in-principle approval from the Ministry of Commerce and Industry to develop, operate and maintain multi-services special economic zones (SEZs) in its name. However, given the uncertainty in SEZ regulations, HDIL has still not decided whether it would develop them on its own or in collaboration with others.
- Land bank has been built historically at a weighted average cost of Rs 200 per square feet.
- Advances from customers are Rs 512.1 crore end March 2007, representing amounts that have been received from customers but not booked by the company as sales. As and when the projects are completed, this amount will percolate to the top line. This represents 43% of the reported FY 2007 revenue. There was an inventory of Rs 1324.48 crore (approximately 98% constitutes work in progress) end March 2007.
- Under Section 80-IB (10) of the Income-Tax Act, 1961, real-estate companies are eligible for 100% deduction of the profit derived from development and building of housing projects for middle-income small families approved before end March 2007 by a local authority. The company has approved tax-exemption projects with estimated sales value of Rs 5000 crore.
- On account of the presence in the slum rehabilitation scheme, HDIL is partly hedged against fluctuation in land prices as the contraction cost does not vary significantly. Also, the company is not required to pay one-off land purchase costs at the beginning of each project.
Weaknesses
- Of the total land bank, 82% is in Mumbai Metropolitan Region, with a significant proportion in the Vasai-Virar region and in residential projects. The currently benchmark rates in Vasai-Virar region are in the range of only Rs 1000-1800 per square feet.
- The Union government has recently decided to completely ban the real-estate players and township developers from accessing external commercial borrowings (ECBs) to fund projects. The Reserve Bank of India (RBI) also earlier raised risk weights on housing loan, followed by an interest-rate hike, to curb the demand for the real-estate sector. Thus, real-estate companies are likely to face difficulties in funding the projects (particularly for buying land) and their interest burden is likely to increase.
- In the year ending March 2007, 69% of reported revenue was derived from selling of development rights/floor space index (FSI). Thus, one of the factors that would determine sustainability of revenue is likely to be the number of slum rehabilitation projects that will be bagged. Currently, the slum rehabilitation projects in the kitty will entitle it salable area of 64,26,222 square feet.
- About 22% of the revenue was derived from sale of land. In future, sustainability of profit is likely to depend on movement in land prices.
- As HDIL follows complete contract method of accounting, its earnings are likely to fluctuate significantly from year to year and quarterly results will be highly volatile. As other companies follow percentage completion method, comparisons will be difficult and may lead to wrong conclusions.
- Over the past couple of years, there has been a significant increase in interest rate and real-estate prices. This has increased the equated monthly instalment (EMI) on housing loans. The increase in EMI as a proportion to disposable income of household has raised concern regarding affordability of properties. Real-estate prices are already showing signs of softening. A drop in prices could also result in customers adopting a wait-and-watch approach before booking new properties, and existing customers deferring payments or canceling bookings made earlier when prices were high. This would impact cash flows and could lead to a cash crunch, which could significantly impact the company’s ability to complete existing/start new projects.
Valuation
Knight Frank had valued HDIL’s land reserves at Rs 21,095.10 crore on 15 December 2006 using the discounted cash flow (DCF) method. The per share value works out to Rs 984. Cushman & Wakefield has worked out the net present value (NPV) of the company’s projects at Rs 22039.40 crore on 22 January 2007. Per share value works out to Rs 1028. However, this valuation is about six months old and the real-estate market condition has changed after that.
Consolidated FY 2007 EPS on post-issue equity, assuming green shoe option is exercised, works out to Rs 25.3. At the offer price band of Rs 430 – Rs 500, the P/E range is 17-19.8, respectively. Comparable companies location-wise (focused on Mumbai) are: Akruti Nirman (mainly into slum rehabilitation) and Orbit Corporation (mainly into redeveloping projects) are trading at P/E of 31.5 and 16, respectively. However both these companies are much smaller compared with HDIL. Comparable listed player in terms of size, Parsvnath Developers (with development rights of approximately 151 million square feet), is currently trading at 22 times its FY 2007 earning.
Tarun Khanna - Indian M&A deals are bite-sized
Via Mint
Jorge Paulo Lemann professor of strategy at Harvard Business School, Tarun Khanna, says some Indian firms are born ‘global’ and that their global acquisitions will gain further momentum. Khanna was in Mumbai for the launch of Going Global Initiative, an effort by industry lobby Confederation of Indian Industry to launch a support group and knowledge bank for Indian companies seeking a global presence. Khanna, who has written extensively on the rise of India and China, is creating an index of globalization that companies can use to benchmark themselves. In an interview with Mint, Khanna discussed the globalization efforts of Indian companies. Edited excerpts:
Academicians initially thought global acquisitions would happen only in IT and other such sectors. But acquisitions have come in manufacturing, metals etc. Is this a surprise?
It has been a little bit (of a) pleasant surprise. With the benefit of hindsight we can cite two reasons for it. One is that the intangible assets industries—whether it is media, software or biotechnology—have served a demonstration effect. These are the industries with a natural strength for (thriving in) the Indian economy for various reasons and having seen them succeed (globally), other companies have realized that this is not impossible.
Secondly, India is a very large economy. So, even though manufacturing and agriculture lag services quite substantially, in a large economy, you would expect some ‘outlier’ sorts of companies whether it is Bharat Forge or Mahindra and Mahindra or the Tata Group. I guess in that sense it should not have been surprising. It is just that the weight of our attention was on services. Now one hopes that the success of these manufacturing companies will trigger more aspiration from others.
Is it unusual for Indian companies to be making acquisitions abroad while the domestic market is doing as well as it is?
I think it is a mistake for all of us to focus only on the averages. There is a lot of variation. There are some companies for whom selling and sourcing talent overseas is not going to make sense in the foreseeable future.
They should focus on India as a home country. On the other side, there are companies that are entirely predicated on using India as a cheaper talent base to serve global markets.
They should be born global. Then you have the entire continuum in between. One is seeing and should expect to see the entire spectrum of experience playing out.
Even in the US, just a third of all listed companies say they have a meaningful global footprint.
You have previously said that Indian firms are better placed to manage acquisitions than Chinese companies because of their command over English and better accounting and corporate governance.
There are two or three differences between outbound M&A activity of Indian and Chinese companies. A lot more foreign outbound M&As from India are being driven by decentralized entrepreneurial action as opposed to the state-led top-down action in China. That is not to say that there are no entrepreneurial initiatives by Chinese companies. I can think of a handful, whereas in India’s case it is hard to keep track at this point, which is the good news.
Secondly, the Indian deals—with Tata-Corus and a couple of others as exceptions—are bite-sized deals as opposed to the Chinese deals. I think that is significant because my feeling is that the smaller deals built up over a longer period of time are much more of a foundation for a robust global footprint.
So, one should take this idea of big with a grain of salt and aspire to market-based, decentralized, individual company-led actions as opposed to some mandate from a ministry. So, there are some sustained differences. My own bet is on the decentralized actions, but that is just my intuition.
As Indian companies create a growing global footprint, do we have some sense of what the Indian multinational will look like?
In some ways it is going to be different but in many ways it is not going to be very different from (multinationals from) many other countries. I think we should not be arrogant. There is a hint of arrogance in the air and I think we should suspend that as quickly as possible in our own interest. We should freely copy, beg, borrow and steal from the experiences of many other countries that have gone before us and try to improve upon it. That should be our contribution.
Lots of countries have a lot to teach us and I think what they tell us is that the likely contours of an Indian MNC will still be heavily anchored in India.
I would expect that the board would primarily be Indian, if not exclusively Indian, and there are reasons for this. There has to be a glue that holds together the company.
A bricks & mortar economy
It is almost impossible to live in an Indian city right now and miss the obvious signs of the construction mania that has gripped the country.
There is a profusion of new residential towers, malls, office blocks and IT parks sprouting from the urban soil, like wild grass after the first rain. Our cityscapes are changing dramatically, thanks to the new piles of brick and mortar all around us. But do we realize that the building craze is altering our economic landscape as well?
Let’s start with the stock market. The DLF share will be open for trading soon—and that listing will change the very nature of the Indian stock market, perhaps making it more vulnerable to the inevitable cyclical swings in real estate prices, but also making its composition more reflective of the underlying economy.
Assuming that it commences trading at around its issue price, it is likely that DLF will command a market capitalization of Rs90,000 crore. There are already many other real estate developers listed in the stock market and there is a long line of wannabes who are planning to follow in DLF’s footsteps. It’s pretty clear that real estate, which was an investment minnow till just a couple of years ago, will now be one of the big blue whales in our stock market. Perhaps only oil and software will be bigger in terms of market value. Brokerage house CLSA was prescient when it said in an April 2006 research report that the DLF IPO would make India a property-driven stock market, like Hong Kong and Japan.
A few back-of-the-envelope calculations show that real estate and construction could account for around 5% of India’s total market capitalization a few months down the line, despite the recent cooling off of land prices and lower valuations of real-estate developers. Surprised? Actually, there is no need to be. It merely reflects a broader economic fact.
The Asia Development Outlook 2007 published by the Asian Development Bank (ADB) tips its hat, so to say, at the growing importance of construction in the Indian economy. The ADB has actually divided India’s GDP into four sectors, with construction joining the regular three (industry, agriculture and services). This is the first time that I have seen construction given independent billing in GDP data. ADB has also suggested that the construction boom has stimulated credit growth and demand for consumer durables. People borrow to buy houses and then borrow once again to buy televisions and washing machines for their new homes.
The fortunes of many other sectors—from banks to consumer durables to some capital goods—are now inexorably linked with those of the construction business.
Good news? Perhaps. But this also brings a new type of risk in the Indian economy—the risk of asset deflation.
To understand why, look at Hong Kong. This island city is woefully short of land, a fact that has made it an economy heavily dependent on the vagaries of land prices. They power a huge part of the city’s government revenue, personal wealth and bank credit. A sharp drop in land prices inevitably sends the island’s economy hurtling towards recession. Government tax revenues drop, people feel poorer because of lower home prices and cut back on spending, mortgage defaults create cracks in the banking system.
Sure, India is no Hong Kong. Our economy is far more varied. But a strong real estate component in our economy, stock markets and banking system does expose us to a milder version of Hong Kong’s problem.
Many Asian countries such as Thailand and Indonesia did suffer from asset deflation after the financial crisis of 1997, even though their economies were not as dependent on real estate as Hong Kong is. A fall in real estate prices in these countries sent stock markets on a tumble, piled up bad loans in banks and squeezed personal wealth and spending.
In short: while the construction mania we see around us is part of the very welcome attempt to rebuild India’s tattered infrastructure, it would be foolish to forget that real estate can be a macroeconomic risk. Remember: The International Monetary Fund has included it as one parameter in the financial soundness indicators that it launched in 2003.
Citigroup - India Technicals
Citigroup in their technical daily say,
Nifty — The index opened on a flat note and and traded sideways in the opening hour after which it saw a rise towards 4296.The index ended the day up 27 points.
15 Minutes Chart — The index posted a double bottom at 4272 on the 15-minute chart. It traded around the breakout level at 4289 and closed around 4286. The index could see a rise towards 4300 levels intra-day.
Support — Index has intra day support at 4272,break of support at 4272 can see intra day volatility and index can decline towards next support at 4236 (low of 25 June 07).
Conclusion — Expect a rise towards 4300.Break of support at 4272 can see intraday
volatility.
Ratnamani Metals, Cadila Healthcare
Ratnamani Metals and Tubes
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,215
Current market price: Rs917
Price target revised to Rs1,215
Result highlights
- The Q4FY2007 results of Ratnamani Metals & Tubes Ltd (RMTL) are above our expectations.
- The company reported strong quarterly results. Its revenues for the quarter grew by 95.3% to Rs172.6 crore.
- The operating profit for the quarter grew by 78.3% to Rs34 crore. The operating profit margin (OPM) for the quarter declined by 240 basis points to 22.3% from 24.7% in Q4FY2006. The OPM declined due to a higher raw material cost as a percentage of sales. The raw material cost went up by 310 basis points to 62.9% from 59.8% in Q4FY2006. Other expenses as a percentage of sales also went up by 110 basis points to 12.4%.
- The interest expense for the quarter increased by 111.4% to Rs4.9 crore, while the depreciation cost for the quarter increased by 309.6% to Rs6.2 crore.
- The profit before tax grew by 80% to Rs27.7 crore. The net profit for the quarter grew by 39.4% to Rs17.6 crore due to a higher tax rate of 36.7% in this quarter compared with 17.8% in Q4FY2006.
- For the full year, the net sales grew by 79% to Rs571 crore and the net profit grew by 91% to Rs64.2 crore.
- The order book at the end of the quarter stood at Rs500 crore.
Cadila Healthcare
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs425
Current market price: Rs395
Cadila acquires Brazilian firm Nikkho
Key points
- Cadila Healthcare (Cadila) has signed an agreement to acquire 100% stake in Quimica e Farmaceutica Nikkho do Brasil Ltda. (Nikkho) for a consideration of around $26 million (ie about 1x of Cadila's annual sales).
- Nikkho had posted sales of US$ 26 million for CY2006. It currently markets 22 products under 13 different brands. It also has nearly 50 registered brands that are yet to be launched.
- The acquisition is a strategic one for Cadila, as it would help the company to foray into the high-margin branded generic market of Brazil.
- Anticipating 18% and 15% growth for Nikkho in FY2008 and FY2009 respectively, we estimate the latest acquisition would contribute about 5-6% of our estimated revenue in FY2009. Our back-of-the-envelop calculation shows that the acquisition would have a marginal positive impact on the earnings of Cadila during FY2008.
- At the current market price of Rs395, Cadila is trading at 17.9x its estimated FY2008 earnings and 14.8x its estimated FY2009 earnings. Considering the strong growth momentum of the company, we maintain our Buy recommendation on the stock with a price target of Rs425.
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