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Tuesday, July 03, 2007
Rumor Mill - DLF Grey Market Premium
We hear from reliable sources that DLF grey market premium is now around 30 rs (from the earlier 22)
Disclaimer: Don't blame us if it changes overnight
Citigroup - India Technicals
Citigroup in their daily technical report,
Nifty — The index opened on a positive note and moved toward 4347 in the morning trade, after which it retraced most of its day's gain toward the close. The index ended the day down 4 points.
Resistance — The index is facing resistance around the 4363 “All-Time High;” Intraday it posted a high at 4347 but retraced most of the day's gain toward the close. Intraday rise will face resistance around the 4347 level.
Support — The index has support around 4296, the breakout level of its previous mid-week consolidation band. Intraday dips should find support around 4296. Lower support is around the 10 dma at 4271.
Conclusion — Intraday dips should find support around the 4296 level.
Trading Calls
Buy IVRCL Infrastructure with stop loss of Rs 340 for a target of Rs 460.
Buy Dredging Corp with stop loss of Rs 500 for a short-term target of Rs 583.
Buy Era Construction with stop loss of Rs 370 for a target of Rs 475.
EXCLUSIVE - Equibrain Report - July 3 2007
EXCLUSIVE - Equibrain Report - July 3 2007
(Customize for your own stocks - Contact Aditya (details inside PDF)
Market may remain firm
The market is likely to extend gains tracking firm global equities. The barometer index BSE Sensex rose 14 points on Monday, 2 July 2007 to a record closing high of 14664.26. The sentiment has been lifted by data, on Friday 29 June 2007, showing fall in inflation to a 14-month low.
As per provisional data, FIIs were net buyers to the tune of Rs 95 crore on Monday, 2 July 2007. Domestic institutions were net sellers to the tune of Rs 87 crore on that day.
The next major trigger for the market is Q1 June 2007 result of IT bellwether Infosys which is on Wednesday, 11 July 2007. A Q1 results preview by Citigroup states that downward revision in EPS guidance for FY 2008 (year ending 31 March 2008) by Infosys cannot be ruled out given a surge in the rupee against the dollar in Q1 June 2007. Citigroup, however, expects an upward revision in revenue guidance in dollar terms from the IT bellwether.
Asian shares forged ahead on Tuesday, 3 July 2007, led higher by energy companies as oil and base metals rose, but the dollar sagged on expectations that US rates will remain steady while borrowing costs rise elsewhere.
US stocks rallied on Monday, 2 July 2007, on a fresh bout of takeover activity, as Canada's largest telephone company, BCE Inc. agreed to a US$32.6 billion buyout. On Wall Street, blue-chip stocks and the Nasdaq Composite Index both rose about 1%.
Outlook remains positive
After breaching the all time high and a close the market outlook remains positive. The strong overnight gains in US markets and firm Asian indices in current trades may keep the sentiment bullish. However, caution should be maintained as higher bouts of intra-day volatility is likely to persist on the back of the market's run-up to record peak in the last session. Key local indices, the Nifty could test higher levels around 4300 in the short term and has a key support at 4220. The Sensex is likely to test 14400 on the downside while it may face resistance at 14600.
US indices gained immense strength on Monday as investors cheered buyout news, falling treasury yields and a better-than-expected report on manufacturing activity, with the Dow Jones soaring by 0.95% or 127 points and the Nasdaq also ended firm with gains of 1.12% or 29 points at 2632.
Excluding Patni computers rest of the Indian ADRs witnessed decent to firm buying support. MTNL was the major gainer amongst the ADRs and gained 2.58%, while HDFC Bank added 2.07%. Infosys, Satyam, Wipro, Dr Reddy's, Tata Motors, Rediff, ICICI Bank and VSNL were up over 1% each.
Crude oil prices moved up marginally. While the Nymex light crude oil for August series went up by 41 cents at $71.09 a barrel. In the commodity segment, the Comex gold shot up by $8.30 to settle at $659.20 an ounce.
Investsmart - Morning Call
Market Grape Wine :
In House :
Nifty at a support of 4295 and 4265 levels with resistance at 4347 & 4392 levels .
Buy : DcmShriramCons
Buy : Suzlon
Buy : IndHotel
Buy : Sobha in F&O
Out House :
Markets at a support of 14565 & 14505 levels with resistance at 14737 & 14777 levels .
Buy : RIL & RelCap
Buy : WelGuj & 3I bullet break out with stop loss
Buy : Bhel & Divis
Buy : Kesoram & ACC
Buy : IDBI & IFCI
Buy : MoserBaer & PunjLLoyd
Buy : Century & Praj
Buy : IBulls & IBReal
Dark Horse : BajajHind , IDBI , 3I , Kesoram , ACC , , IBulls , IFCI & IBullsReal
Bullet for the Day : 3I , PunjLLoyd & IDBI with stop loss
Indiainfoline - Intraday Stock Ideas
NIFTY (4314) Supp 4293 Res 4334
BUY Patni (514) SL 509
Target 524, 527
BUY Akruti (335) SL 331
Target 343, 346
BUY Cent Textile (676) SL 671 Target 686, 688
SELL IPCL (336) SL 341
Target 328, 326
SELL HCL Infosys (185) SL 189 Target 177, 175
A short visit to a new peak!
Life is supposed to be a series of peaks and valleys. The secret is to keep the valleys from becoming grand Canyons.”
We've seen the peak and fears of visiting a valley are bound to worry investors. The fact that the Sensex took five months to make a new high is a clear signal that making money will not be easy after a four-year rally. After flirting with a new high, the bulls look set to romance a little more this morning. The global market rally will strengthen the mood at start. The Dow has managed a triple-digit gain and the Nasdaq hit a fresh six-year high. Asian markets are also up this morning. Major European benchmarks declined but Markets in Brazil and Mexico ended higher. However, higher crude oil prices might just spook the bullish trend though a stronger rupee mitigates some of the impact from increased energy costs. We expect a higher opening and a volatile day. Be sure of some pressure at higher levels.
Though the Sensex finally breached its earlier all-time high and scaled a new peak, the key indices lost altitude and the Nifty actually ended in the red. The Sensex too gave up a lot of ground. Has the market peaked out and could it face resistance going ahead? This is one question that is uppermost on the minds of all investors. We might get the answer in the next few days as corporate earnings start rolling in. Watch out for the IT sector results, as the rupee's appreciation is likely to have a bearing on their bottomline.
The recent rallies have been driven by select sectors and select index shares. This time too its the same story. Banking and Capital Goods were among the top gainers while Cement, IT and Auto were the laggards. This trend is likely to continue as the market is at historic high and concerns about valuations will start playing themselves out. Select stock picking is the way to go as the market will remain choppy. In short, a strong open and choppiness lay in store for the day.
FIIs were net buyers of Rs945.7mn (provisional) in the cash segment yesterday. Domestic institutions offloaded stocks worth Rs867.1mn.
On Friday, FIIs pumped in Rs5.84bn ($1.43bn) in the cash segment. However, a major chunk of this inflow includes proceeds towards the ICICI Bank's mega follow-on public offering and its ADR issue.
L&T will declare a special dividend today.
US stocks rallied on Monday as investors cheered more M&A news, falling Treasury yields and a better-than-expected report on manufacturing.
Costco Wholesale climbed to a record and helped lead the Nasdaq Composite Index to a six-year high after Goldman Sachs upgraded the wholesaler. Caterpillar, United Technologies and Honeywell International lifted the Dow Jones Industrial Average and the S&P 500 Index to their first gain in three days.
The S&P 500 added 16.08 points, or 1.1%, to 1519.43. The Dow gained 126.81 points, or 1%, to 13,535.43. The Nasdaq rose 29.07 points, or 1.1%, to 2632.3.
US markets are set to close early on Tuesday and are closed Wednesday for the July 4 holiday.
On the economic front, the Institute of Supply Management's monthly index came in at 56 in the month, after a 55 reading in May. Any reading above 50 indicates growth in the sector. Economists had expected the index to remain unchanged at 55.
Treasury prices rose, pushing the yield on the 10-year note down to 4.99% from 5.02% late on Friday. It was the first time the yield on the 10-year note fell below 5% since June 7.
Oil prices rebounded after slipping below $70 per barrel in early trading. US light crude rose 41 cents to close at $71.09 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 8 cents lower at $71.01 a barrel.
COMEX gold for August delivery added $8.30 to $659.20 an ounce. The dollar declined across the board, hitting a 26-year low against British pound and falling sharply against the euro and the yen.
European shares started the third quarter on a downbeat note. The UK's FTSE 100 closed down 0.3% at 6,590.60, while the German DAX fell 0.6% to 7,958.24 and the French CAC-40 shed 0.5% to 6,026.95. The pan-European Dow Jones Stoxx 600 index declined 0.3% to 391.65.
Major Latin American stock markets closed higher, paced by a rally on Wall Street and aided by an upbeat outlook of Mexico's credit from Standard & Poor's.
In Sao Paulo, the Bovespa jumped 979 points, or 1.8%, to set a record high at 55,371.21. At the same time, the IPC in Mexico City climbed 270 points, or 0.9%, to end at 31,420.69.
Most Asian stocks were up this morning following encouraging economic reports from the US and Europe and prices of metals and crude oil climbed.
The Morgan Stanley Capital International Asia-Pacific Index added 0.4% to 155.19 at 10:39 a.m. in Tokyo, extending a three-day, 2.4% rally. All 10 industry groups advanced.
Japan's Nikkei 225 Stock Average gained 0.3% to 18,204.57, after rising 1.7% in the previous three sessions. Benchmarks rose elsewhere, except in New Zealand. The Hang Seng in Hong Kong was up 189 points at 21,961.
Markets closed on a flat note despite a strong opening. The benchmark Sensex pierced its life time high defying global weakness. The index heavy weights like L&T, Reliance Communication, Infosys and Tata Motors were among the leading movers lifting the benchmark Sensex to hit its new peak of 14745.97.
However, Reliance Industries, ICICI Bank and TCS were among the leading draggers. The BSE Auto index shined on back of better than expected monthly sales figures. The Infrastructure and Mid-Cap stocks also gained momentum, however metal stocks slightly corrected. Finally, the 30-share Sensex gained 13 points to close at 14664. NSE-50 Nifty closed flat at 4313.
Maruti surged by over 3.5% to Rs770 after the company announced its June sales at 59917 units (up 23%). The scrip touched intra-day high of Rs786 and a low of Rs745 and recorded volumes of over 10,00,000 shares on NSE.
M&M advanced by 1.7% to Rs731 after the company announced its June sales at 17816 units (up 52%). The scrip touched intra-day high of Rs744 and a low of Rs720 and recorded volumes of over 6,00,000 shares on NSE.
Reliance Industries slipped by 1% to Rs1685 according to reports the company has appealed against Court order. The scrip touched intra-day high of Rs1712 and a low of Rs1685 and recorded volumes of over 22,00,000 shares on NSE.
Gujarat Alkalies spurred by over 5% to Rs152 after the company announced that they have tied up with Dow Europe GMBH. The scrip touched intra-day high of Rs156 and a low of Rs144 and recorded volumes of over 7,00,000 shares on NSE.
Aban Offshore advanced by 3% to Rs3091 after the company announced that they have secures order from Cairn Energy. The scrip touched intra-day high of Rs3154 and a low of Rs3012 and recorded volumes of over 2,00,000 shares on NSE.
Pharma stocks were in good health. Nicholas Piramal surged by over 5% to Rs316, Ranbaxy advanced 2.5% to Rs364; Wockhardt gained by 2.5% to Rs393 and Divi’s lab added 7% to Rs6235.
Select Auto stocks paced ahead on back of better than expected monthly sales figures. Maruti advanced by 3.6% to Rs770, Tata Motors gained by 1.8% to Rs682, M&M was up by 1.3% to Rs731. However, TVS Motors slipped by 1% to Rs60.
Capital Good stock recorded smart gains led by gains in the heavy weight L&T advanced by 1.8% to Rs2235, ABB surged by 2.9% to Rs1124, BHEL is up by 1.7% to Rs1563 and Punj Lloyd rallied by over 7% to Rs276
Metal stocks pared their gains on back of selling pressure. Hindalco was down by 1.2% to Rs158, Tata Steel slipped by 0.7% to Rs593. However Sterlite Industries gained 2.3% to Rs598.
Results Today:
Binani Cement, Bombay Rayon Fashions and Prism Cement.
Insider Trades:
Hinduja TMT Limited: Reliance Media & Entertainment Fund - Schemes of Reliance mutual Fund has purchased from open market 25000 equity shares of Hinduja TMT Limited on 27th June, 2007.
Major Bulk Deals:
UBS has sold Automotive Stampings; Merrill Lynch has picked up IID Forgings; Kotak PMS has sold Shringar Cinemas and Morgan Stanley has purchased Vimta Labs.
Major News & Announcements:
Maruti June sales 59917 units (up 23%)
TVS Motor June Motorcycle sales 47380 units (down 36%)
M&M June sales at 17816 units (up 52%)
Hero Honda June sales at 255200 units (down 8.4%)
Tata Motors June sales 44317 units (down 2%)
Valecha Engineering Board to consider Bonus issue on July 30
Centurion Bank to raise capital up to Rs5bn
XL Telecom gets phone order worth Rs468mn
Aban Offshore secures order from Cairn Energy
Gujarat Alkalies ties up with Dow Europe GMBH
SAIL cuts prices of flat products by Rs500 to Rs1000 per ton
IOC raised jet fuel prices for July as much as 1.7%
Pratibha Industries secures two contracts worth Rs978nm
Glenmark gets USFDA approval for its ANDA for Topiramte tablet
Lupin gets MHRA approval for Lisinopril UK
Lower Circuit:
Tripex Overseas, GV Films, Yashraj Securities, Teledata informatics and GMR Industries.
Upper Circuit:
Carol Info, Godrej Industries, Radha Madhav, Goldstone Technologies, Pratibha Industries, TCI Finance, DS Kulkarni, McNally Bharat, Texmaco, ION Exchange and Genus Overseas.
Delivery Delight (Rising Price & Rising Delivery):
Arvind Mills, BILCARE, BRFL, Crompton Greaves, Dena Bank, Era Constructions, Gujarat Alkalies, Gujarat NRE, GVK Power, HLL, IOC, Ipca Lab, MTNL, MLL, Petronet LNG , Rolta and Tata Motors.
Abnormal Delivery:
HMT Ltd, NIIT LTD, ITC Ltd, KEC International Ltd, Pfizer Ltd, Havells India Ltd, Lupin Ltd Patni Computer Systems Limited and Prism Cement Ltd.
A strong third quarter start for US Market
Plethora of deal news, lower bond yield and strong ISM report provide good fuel to stocks
US Market was off to a good start for the third quarter after a strong manufacturing report and a spate of merger news lifted the stocks across the board today, Monday, 2 July, 2007. All 10 economic sectors finished sharply higher with the Dow, S&P 500, and Nasdaq rising more than 1% on average. Stocks rallied in spite of crude topping $71/bbl.
The Dow Jones Industrials ended the session with a gain of 126.81 points to close at 13535.43. Tech heavy Nasdaq gained 29.07 points to close at 2632.3 and S&P 500 closed higher by 16.08 points at 1519.43.
Caterpillar, United Tech, Du-Pont, 3M and Exxon Mobil were the main Dow winners for the day while IBM, Merck and GM were the main laggards.
Among the biggest of all deal news today, the parent of Bell Canada agreed to be taken private for a total of $48.5 bln. It included nearly $16 bln in debt and marked the largest private equity buyout ever.
Just after market opened today, it was reported that the ISM Index for June rose to 56.0 (consensus 55.0) as against 55.0 in May, the highest level in 14 months. Since any number above 50 denotes expansion, such strength contributed to the belief that economic activity will pick up.
Utilities lead the way among sectors as materials benefit from weak dollar
When market opened in the morning, the indices were at their highs as all 10 economic sectors remained positive. The indices were extending their reach to the upside following the stronger than expected ISM report.
Of the 10 sectors trading higher, Utilities led the charge, followed by a gain in Materials. Materials benefitted both from a weaker dollar and renewed takeover speculation.
Post lunch, a renewed wave of buying interest left the major averages hitting fresh session highs. With everything from rising interest rates to subprime concerns made the Financials sector the quarter’s culprit, speculation about consolidation in the brokerage sector gave the sector a nice lift lift.
Among other deals that garnered attention today included a $6.3 bln takeover of Manor Care, AT&T's $2.8 bln cash bid for Dobson Communications and various reports that Virgin Media is in talks to be acquired for as much as $20 bln.
The yield on the 10-year note closed below the psychologically important 5.0% level for the first time since the start of June. A downturn in the ISM Index's prices paid component offered some relief on the inflation front.
Volume remains light; market to close half-day tomorrow
Crude oil futures crossed $71/bbl today on speculation that inventories will decline as demand increases later in the year. Terrorist related uncertainty in UK also added to the tension. It was a 10 month high price for the crude. Oil fell earlier in the session on concern that a refinery shutdown would cut demand.
Crude-oil futures for light sweet crude for August delivery closed at $71.09/barrel (higher by $0.41/barrel or 0.6%) on the New York Mercantile Exchange. Prices recovered from an earlier low of $69.60 to reach a high of $71.25.
Volume of shares was light today ahead of the Independence Day holiday on Wednesday, 4 July. There were 1.051 billion shares traded on the New York Stock Exchange, with 25 rising shares for every 7 under pressure. There were 1.458 billion shares traded in the Nasdaq market, with 9 stocks posting gains for every 5 declining.
Tomorrow, the Department of Commerce will report May Factory Orders at 10:00 ET, while Pending Home Sales and Auto/Truck Sales will hit the wires at 10:00 ET and 17:00 ET, respectively. The bond market will close at 2:00 ET tomorrow, while the New York Stock Exchange, Nasdaq, and American Stock Exchange will close at 1:00 ET.
Daily Technical Note
Nifty and Sensex have exhibited a flat candlestick.
Technically, one may use the level of 4270 (Nifty) and 14520 (Sensex) as the stop loss level.
Nifty faces resistance at 4380 and Sensex at 14850.
Nifty Range 4280 to 4380.
BSE Smallcap and BSE Midcap also exhibited bullish candlesticks.
CNX IT has closed bearish.
In the Punter's zone we have a Buy in KTK Bank, Punj Llyod and IVRCL.
In the Technical call section, we have a Buy in 3Infotech, Nagar const and Maruti.
Daily Technical Analysis Note - July 3 2007
Orient Paper and Industries, TFCI
Orient Paper and Industries
Cluster: Vulture’s Pick
Recommendation: Buy
Price target: Rs680
Current market price: Rs427
Price target revised to Rs680
Result highlights
- In Q4FY2007 the cement revenues of Orient Paper and Industries (Orient Paper) grew by a robust 33% year on year (yoy) to Rs166.7 crore, helping the overall business to grow by a healthy 22% yoy to Rs340.3 crore. Backed by the stellar performance of the cement division, the company's net profit for FY2007 doubled to Rs59.6 crore.
- For the full year, the company registered a robust top line growth of 28.5% yoy to Rs1,102 crore backed by a 100% growth in its cement revenues to Rs591 crore. The fan business grew by 26% yoy to Rs242 crore whereas the paper revenues were flat at Rs262 crore over the same period.
- With the realisations growing by 25-30% in FY2007, the earnings before interest and tax (EBIT) of the cement division grew by a mammoth 431% yoy to Rs226 crore whereas its margin expanded by a whopping 2,380 basis points to 38% in FY2007. On the back of the superb performance of the cement division the EBIT of the company grew by 235% yoy to Rs252 crore whereas the margin expanded by 1,100 basis points to 22% in FY2007. The margin could have been higher but for the margin pressure faced by the paper and fan businesses during the fiscal.
- With the company not adding any asset during the year, the depreciation provision stood flat at Rs26 crore whereas the interest cost reduced by Rs9 crore to Rs32.7 crore in FY2007, as the company repaid debt to the tune of Rs111 crore during the year.
- The company received Rs6.4 crore as the estimated net realisable value of Certified Emission Reduction (CER) units received during the quarter ended March 2007 at its cement plant. The other income component for the fiscal stood at Rs14 crore. Backed by the stupendous performance at the operating level, the adjusted net profit grew six fold to Rs130 crore.
- The company has planned capital expenditure (capex) of Rs640 crore for the next three years (it has already spent about Rs60 crore of the same) to augment its cement capacity by 2.6 million metric tonne (MMT) including a captive power plant (CPP) of 50 megawatt. It is also augmenting its tissue paper capacity by 20,000 tonne and has already increased its fan capacity.
- As mentioned in our earlier reports, the company is raising Rs160 crore through a rights issue at a price of Rs360 per share. This will result in additional capital of Rs4.44 crore, thereby diluting the equity share capital by 30%. The company will use the proceeds to part finance its capex drive.
- The incremental volumes from the augmented cement capacity, higher blending and savings from power costs will drive the company's earnings in the next three years at a compounded annual growth rate (CAGR) of 15%. We believe that the company will be willing to sell its investment in Century Textiles, if need be, to fund its capital requirements. Thus we have considered it as part of liquid investments which provides a cushion of Rs54 per share to the stock. At the current market price of Rs427 the stock trades at 4.6x its FY2009 earnings per share (EPS) estimate whereas the cement business trades at a valuation of USD24.
- Taking cognisance of the positive outlook for the company as well as the stock's attractive valuations we maintain our Buy recommendation on the stock with a reduced price target of Rs680.
Tourism Finance Corporation of India
Cluster: Cannonball
Recommendation: Buy
Price target: Rs30
Current market price: Rs22.7
Strong demand from hotels to benefit TFCI
Result highlights
- For Q4FY2007 Tourism Finance Corporation of India (TFCI) has reported a 33.1% year-on-year (y-o-y) growth in its profit after tax (PAT) to Rs9.6 crore, which is ahead of our estimate of Rs8.6 crore. The quarter-on-quarter (q-o-q) PAT growth stood at 281.3% but since the earnings of the company are back-ended, the q-o-q PAT figure is not relevant.
- TFCI has managed to register a healthy y-o-y growth of 81% in sanctions to Rs240 crore and of 36% in disbursements to Rs120 crore. The revival in the demand from the hotel and tourism sectors has helped TFCI register an 81% y-o-y growth in sanctions for FY2007 compared with a 20% sanction growth in FY2006.
- The net interest income (NII) was up by 8.2% to Rs15.4 crore for Q4FY2007 and by 1.2% to Rs28.9 crore for FY2007. The substantial y-o-y growth in the other income to Rs0.45 crore from Rs0.01 crore in Q4FY2006 was achieved due to the consultancy services provided by the company.
- The operating profit was up by 6.3% to Rs13.7 crore for Q4FY2007 but down 3% to Rs24.9 crore for FY2007.
- Provisions and contingencies declined by 43.4% for Q4FY2007 and by 27.5% for FY2007, reflecting the lower provisioning requirement as the incremental non-performing assets (NPAs) remained very low. The net NPA was almost nil in March 2007.
- We have made changes to our initial provisioning assumptions based on the significant improvement in the company's asset quality during FY2007. This has resulted in 12.3% and 14.2% increase in our PAT estimates to Rs20.2 crore and Rs27.5 crore for FY2008 and FY2009 respectively.
- We expect TFCI's earnings to grow at a 32% compounded annual growth rate over the period FY2006-09. The business fundamentals of the company have improved significantly on the back of the capacity expansion in the hotel and tourism sectors planned for the next three to four years. Higher sanctions and significant improvement in the company's asset quality are testimonies to this fact. Again as per our expectations, the company has resumed dividend payment and declared a 5% dividend, which gives a 2.2% dividend yield. At the current market price of Rs22.7 the stock is quoting at 5.6x its FY2009E earnings and 0.6x FY2009E book value. We maintain our Buy recommendation on the stock with the price target of Rs30.
Everonn Systems India IPO Analysis
Incorporated in 2000, Everonn Systems India is promoted by P Kishore, who was closely involved in implementing computer literacy projects in the Nilgiri district of Tamil Nadu since 1987. The company won its first contract for computer education in 332 schools in Tamil Nadu in 2000.
Everonn is now a fully integrated knowledge management, education and training company offering a range of services including creating knowledge resources, designing and delivering learning and training programs and setting up infrastructure and delivery platform.
One of the two strategic business units (SBUs) of Everonn is institutional education. The SBU sets up IT education infrastructure in institutions (schools and colleges), delivers IT education under the build-own-operate-and-transfer (BOOT) model and offers turnkey education and software solutions. Currently, the company has a presence in eight states, over 1,300 computer labs and 1,900 schools, and trained 1.2 million students. The SBU contributed 68% of the revenue in the year ending March 2007 (FY 2007) with earning before interest, tax, depreciation and amortisation (EBITDA) margin of 42.8%.
The second SBU is a virtual-and-technology-enabled learning solution (Vitels) SBU. It provides specialised content through an interactive remote delivery mechanism to institutions, specially colleges and schools and working professionals. The company has built its virtual learning brand, Zebra Cross, V-Schools, V-Colleges and V-Placement, and operates through 197 delivery centers covering 101 colleges, 83 schools, three retail and 10 Hughes Net (Direcway) centres. The SBU contributed 32% of the revenue in FY 2007, with EBITDA margin of 37.1%.
The proceeds of the present issue along with the funds raised through preferential allotment to India China Pre-IPO Equity (Mauritius) are to be utilised to support the two SBUs’ working capital requirement, mergers & acquisitions, investment in subsidiary set up to retail educational aids, tools and other products, and brand building
Strengths
- Of the 1,900 schools under operation in the institutional education and Infrastructure services SBU, the contract for 183 schools is set to expire in FY 2008. The balance contracts are to go through FY 2010.
- Everonn has plans to add at least 1,000 schools in a year by using the IPO proceeds. Recently, it won a Rs 30-crore contract for 1,256 schools in Gujarat. As per the management, the order book of Rs 110 crore is to be executed over three-3.5 years.
- The Vitels SBU has the first mover advantage and has plans to add another 250 virtual classrooms in FY2008. It has also tied up with PMC School of Logistics, Singapore, to tap the South-East Asian market. The revenue from the Singapore tie-up would start only in FY 2009.
Weaknesses
- The BOOT model involves heavy upfront investment to build school projects. This can put pressure on profit in the initial periods and the working capital requirement would also be high.
- The business is seasonal in nature and the maximum revenue and profit are usually registered in the second and fourth quarters of the financial year.
- The operating profit margin has fallen by 550bps to 41% in FY 2007 over FY 2006 (compared with FY 2005, OPM is down almost 1,000 points). The main reasons for the fall in FY 2007 were the infrastructure-deployment expenses at the 216 schools under the Karnataka government contract, which started only in February 2007 with no addition to revenue. Also, expenses on new initiatives taken by the Vitels division impacted margin. Though the revenue grew 39% to Rs 43.04 crore, net profit fell 1% to Rs 4.86 crore in FY 2007.
- Everonn had entered into an agreement with Hughes Escorts Communication (HECL), now Hughes Communication India, on 20 March 2002 for five years as a lead partner to help HECL in developing remote education and training through satellite broadband technologies. The contract has expired and HECL is yet to renew it. Failure to renew the contract could have a negative impact on Everonn’s revenue and profit.
Valuation
At the price band of Rs 125-140, FY 2007 EPS on post-issue equity works out to Rs 3.4 – Rs 3.5 and P/E 36.8 – 39.9. The sector is currently enjoying very high market fancy due to expectation of high growth rates. Educomp Solutions is trading at P/E of 129 times and NIIT at 37 times.
Rupee - the new Asian currency
The rupee has arrived. Long before the domestic currency gets the `convertible’ tag, it’s being freely accepted and exchanged in Singapore, Malaysia, Indonesia, Hong Kong, Sri Lanka and other countries. Till now, such transactions were confined to select departmental stores which are favourite of Indian tourists; now more and more shops, hotels and even money changers are willing to accept the local legal tender.
This means no double conversions, and therefore, extra cost while exchanging Indian rupees. This may not be quite legal since in the international money market, the rupee is still not a deliverable currency. Nonetheless, its acceptance is on the rise, thanks to growing trade with India and a surge in tourist inflows.
It has certainly made things easier for the Indian tourists who can simply carry rupees, and do away with travellers cheques. In most Asian countries, the nearest `money exchange’ shop will give them the local currency against rupees. Many feel the trend has picked with hints that convertibility may be matter of time.
Travel agents, in India, say that since many Indians are travelling abroad, especially to Asian countries, many banks and foreign exchange agents abroad have started accepting Indian rupees. Tarmo Wong, a manager with `money exchange’ shop in one of the biggest hotels in Singapore, said, “We have orders to accept the Rs 500 and Rs 1,000 bills. We have been doing this for almost 6-8 months now.” Some of the `money changers’ in Singapore have a similar view.
Interestingly, in the small, but growing parallel market, the conversion rates have become finer for the Indian traveller or the business tourist. Earlier, a handful of outfits accepted the Indian rupee and usually the buy/sell spread was high.
Most travellers (even today) convert their rupees in US dollars in India and then exchange them again in local currencies of countries they visit. The cost of such double conversion could be as high as 5%. Prakash Dagia, a regular business traveller to countries like Indonesia, Bangladesh and Malaysia, said, “In the past few months, the rupee has gained acceptance in almost all countries in Asia. The best part is you can exchange it back to Indian rupees when you’re flying back to India.”
Full currency convertibility of the Indian rupee means that you can travel abroad and buy dollars you need over the counter. Partial currency convertibility already exists in the system. For instance, you can spend through your credit card and pay the money spent in foreign currency back in India in Indian rupees. Currency convertibility refers to the absence of any restriction on the holding of foreign currencies by residents and of the national currency by foreigners, and on free conversion between currencies. It does not preclude restrictions on the type and quantity of non-currency assets that residents can hold abroad or foreigners can hold in the country.
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