Prabhudas Lilladher - Gammon India

Prabhudas Lilladher report on Gammon India:

Result Snapshot

Gammon India reported Q4FY07 and FY07 results in line with expectations. Revenues (adjusting JV revenues) in Q4FY07 rose 54% y-oy to Rs 6268 million. However, due to higher tax on account withdrawal of 80IA benefits, net profit in the quarter was lower by 24% at Rs 220 million. For the full year (adjusting for JV revenues) was higher by 57% and net profit was higher by 20% at Rs 18.6 billion and Rs 984 million respectively. Given its strong order book of Rs 76 billion and a expected strong order inflows, we are projecting revenues of Rs 27.3 and Rs 35.7 billion for FY08E and FY09E. We have valued Gammon’s 82.5% stake in GIPL at Rs 114 per share. However, we believe that that there is an upside to this valuation and would look and revisiting this at a later date. Adjusted for GIPL and other subsidiaries value of Rs 124 per share, Gammon is currently trading at 21x and 16x FY08E and FY09E earnings respectively. While valuations do appear a bit on the higher side, given the strong order book and the likely value unlocking on account of GIPL we maintain our ‘OUTPERFORMER’ rating on Gammon.

Result Highlights

Revenues in Q4FY07 grew by 54% y-o-y and 65% sequentially to Rs 6.2 billion. Driven by strong EBIDTA margins of 9.6% for the quarter, EBIDTA increased 71% to Rs 603 million. EBIDTA margins were higher on account more projects reaching the profit-booking threshold. Gammon has provided for tax at 60% of PBT as adjustments for tax rates for the previous three quarters reflected in Q4FY07. As a result, net profit for the Q4FY07 fell by 27% y-o-y to Rs 220 million. For the full year gross revenue was at Rs 21 billion and net revenue (adjusted for JV income) grew by 57% to Rs 18.6 billion. Gammon now accounts for income from JV’s based on profit sharing, which implies that only the profits from the JV are included in the overall revenues. For the full year the revenues from the Oman JV was at Rs 2.4 billion and the profit from the JVs is at Rs 131 million. As EBIDTA margins for the year were lower at 9.9% as against 13% last year, EBIDTA for the full year grew at 20% to Rs 1.85 billion. The slower growth in EBIDTA is on account of the large base of last year, which also includes some claims that the company had received. Depreciation for the year grew at 19% to Rs 352 million on account of a total capex of Rs 1.7 billion during the year largely on new equipment. Gammon has provided for tax at 31% for the full year. In light of the clarifications on the applicability of 80IA benefits, Gammon has provided for income tax for previous years. This amounts to Rs 500.9 million and also includes the interest on the amount. As a result, for the full year, recurring net profit increased 20% to Rs 984 million. Adjusting for the short provision in tax, profit for the year was at Rs 445 million, which is lower by 47%.

Order Book

Gammon has an unexecuted order book position of Rs 76 billion of which a third each is distributed across the power and transportation segments and the balance within irrigation, water, industrial structures etc. While order inflows in the current year have been relatively slower, we expect this momentum to pick. Moreover, Gammon would also add to the order inflows once GIPL received the LoI for the Mumbai Offshore Port and the HEPs. Currently, approximately 20% of the total outstanding order book comprises projects awarded to the parent by GIPL. Going forward the management has indicated that this share should increase as more projects are awarded through the Public Private Partnership route. Moreover, order intake from the mega real estate developments should also likely provide momentum in overall order intake.

Gammon Infrastructure Projects

In March 2007 the Securities Appellate Tribunal (SAT) passed an interim order directing SEBI to process GIPL’s draft 'Red Herring Prospectus' expeditiously. SEBI has thereafter directed the company to refile the DRHP. The management has indicated that they are in the process of working out the fund raising format for GIPL and will make available the details shortly. Currently GIPL has 13 BOT projects totalling a project value of Rs 55 billion. Of this GIPL has yet to receive the formal LoIs for 3 of these projects, namely the Mumbai Offshore and the Hydel Power projects. GIPL currently has a networth of Rs 2.6 billion.

Real Estate

During the year, GIL incorporated Gammon Realty Ltd, as a subsidiary of the parent company, with the objective to carry on the business, developers, builders and construction of residential, commercial and industrial premises etc. However, the company has yet to formally announce its real estate development plans.

Valuations

Given its strong order book of Rs 76 billion and a strong order inflow pipeline, we are projecting revenues of Rs 27.3 and Rs 35.7 billion for FY08E and FY09E. We have valued Gammon’s 82.5% stake in GIPL at Rs 114 per share. However, we believe that there is an upside to this valuation and would look and revisiting this valuation at a later date. Adjusted for GIPL and other subsidiary valve of Rs 124 per share, Gammon is currently trading at 21x and 16x FY08E and FY09E earnings respectively. While valuations do appear a bit on the higher side, we believe that given the strong order book and the likely value unlocking on account of GIPL we maintain our ‘OUTPERFORMER’ rating on Gammon.

HDFC Sec - Jain Irrigation

HDFC Securities report on Jain Irrigation:

Continuing its acquisitions in the MIRS space, Jain Irrigation’s acquisition of NaanDan makes it the second largest player, next to Netafim of Israel ($325 mn revenue size). NaanDan gives Jain access to 50 countries in Europe and Latin America, apart from the US, Australia and Israel.

The PVC and PE pipes segments are both growing by 10-12%. With Reliance & GAIL as possible clients in the PE pipes segment, JISL is set to show consistent growth. The EBDITA margin is 6-8% in PVC pipes and 12-14% in PE pipes.

PVC Sheets: This segment has been growing 30% for the past 3 years and is expected to grow at 10%-14% in the next 2 years. The EBDITA margin is 18% in this segment.

Jain’s MIRS/SIS business is expected to grow by 70% next year and Pipes and sheets together are expected to grow by 30%. Hence overall, the company is expected to grow by 40% in the next 18 months. The fair price of the Equity Portion of the company comes to Rs533 per share, which discounts its FY08E EPS 23.2 times and FY09E EPS 16.9 times. The upside potential for the stock is 8.5% from the current levels.

IDBI Capital - Kohinoor Foods

IDBI Capital report on Kohinoor Foods:

FY07 revenues at Rs 5,892 million is up by 9% YoY on account of increase in branded sales. EBIDTA margin at 10% have increased by 138bps YoY leading to rise in PAT by 6% YoY to Rs 221 million.

FY07, PAT exceeding expectation

In FY07, KFL’s revenues increased by 9% YoY to Rs 5,892 million on account of 20% YoY increase in branded basmati rice revenues to Rs 3,292 million. Branded foods division contributed Rs 374 million to the topline, exhibiting an increase of 40% YoY. EBIDTA margins at 9.9% exceeded our expectation of 9.1% in FY07. This is on back of 24% YoY increase in branded sales that now contribute around 62% of total turnover. This lead to PAT rising by 6% YoY to Rs 221 million. Net profit margin stood at 3.7% inspite of increase in interest cost by 59% YoY and depreciation by 28% YoY.

Q4FY07, subdued quarter

For Q4FY07, revenue declined by 15% YoY to Rs 1,750 million on account of decline in commodity sales. However, operating profit increased by 17% YoY to Rs 172 million. EBIDTA margin at 9% increased by 237bps YoY on account of 20% increase in branded sales. PAT declined by 13% YoY to Rs 42 million. The decline was also lead by increase in depreciation cost by 31% YoY and interest cost by 32% YoY. Net profit margin increased by 8 bps YoY to 2.4%.

Valuation

KFL has reported excellent set of number exceeding our expectation. Going forward, we expect the company to post robust performance in FY08. The company's plans of ramping up rice milling capacity to 45 MTPH and RTE capacity to 100,000 pouches a day, are intact and expected to yield results by FY08. The current market price discounts FY08E EPS of Rs 18.7 by 3.3x. We reiterate ‘Buy’ with a target price of Rs 161.

Anand Rathi - Alembic

Anand Rathi Research report on Alembic:

Company is fully integrated player in Antiinfective segment which is largest segment for this company accounting for over 60% of sales. In this segment company's sales is growing at higher pace compared to industry rate. Apart from this company is also in to - Cough [OTC], Nutraceuticals, Pain management, CV, Diabetese and Gestro-intestinal segments. Company manufactures - bulk drugs, formulations with 4- Brands falling under top selling 300 pharma brands. Company has OTC brands like - Glycodin & Zero, in cough and sugar free sweetner segments.

Company has large fermentation facility to manufacture basic antibiotic - Penicillin. But mostly this is used for captive consumption only. Company is in to Contract manufacturing and has filed around 10 DMFs also and planning to file 6-8 DMFs every year going forward. Company also have a 36 Bed, Clinical Research facility, for Bio-Equivalence trials. So company is capable of offering - Pre-Clinical / Clinical Research and CRAMS to global players.After setting up unit in tax heaven - HP, the company's margins improved significantly for domestic business. Company's Panelav unit in Gujarat, is making both - bulk drugs and formulations. The bulk drug facility is US FDA approved, but formulation unit is approved by - MCC, MHRA; while FDA inspection is due in Current quarter and final approval is expected in last quarter. Right now the major sales is from domestic formulations [69%], but going forward with more approvals from regulated markets, the share of Formulation exports to regulated markets will grow, leading to improved margins.

Company has very recently in April'07, acquired Formulation unit of Dabur Pharma at a cost of Rs 1.59 billion. This will further boost the revenue and profits in the current and coming quarters. With this acquisition, company will be able to increase market share in CV, diabetes and Gynecology segments.

Last quarter of '07 was affected by final settlement with ONGC dues also. But going forward with growth from new acquisitions, new launches and supplies to new regulated markets; will boost the revenue and profits significantly. We expect the company to report EPS of Rs 8.30 and 9.39 for 08 & 09 respectively. So at current price of Rs 73, stock discounts '09 earnings by less then 8 times, which looks quite attractive. Buy for medium term gains.

Container Corp, ENIL

Container Corp, ENIL

DLF shares rise 11% on debut

Shares in Indian real estate firm DLF Ltd. debuted 11% higher than their issue price of Rs525 on 5 July, after the company raised Rs91.88 billion ($2.25 billion) in India’s biggest-ever IPO.

At 0426 GMT, DLF shares were up 6.7% at Rs560.00 on the Bombay Stock Exchange. The benchmark index was up 0.5%.

Analysts had expected the shares to rise 7-12%, with gains limited by concerns over falling property prices, which have eased about 10% in the last four months.

DLF, which received subscriptions for about three times the shares on offer, last month sold 10.27% of the company, or 175 million shares, in an offering heavily bid by large funds, but which just managed full subscription for the 52.2 million shares reserved for small retail investors.

Last year, DLF dropped its plans for what would have been India’s biggest IPO due to a sharp market fall in May and June.

DLF, which built much of the outsourcing hub of Gurgaon on the outskirts of Delhi, plans to spend nearly Rs70 billion to buy and develop property.

Kotak Mahindra and DSP Merrill Lynch were the lead arrangers for the issue, with Citigroup, Deutsche Bank, ICICI Securities, Lehman Brothers, UBS and SBI Capital Markets.

Oil surges above $74

Oil surged above $74 to another 10-month high on 5 July ahead of US data that is expected to show refiners are processing more crude to meet robust gasoline demand in the world’s top consumer.

London Brent crude, now seen as more representative of the global market, hit $74.06 a barrel, the highest since 25 August 2006, after kicking through the previous 10-month high. At 10:47 GMT it was up 89 cents at $73.94.
US crude was up 56 cents to $71.97.

“Demand is leading the way. It is set to increase steadily year on year. Global GDP growth is very robust and even if it slows, it is still growing,” said Mark Mathias, fund manager at hedge fund Dawnay Day Quantum.

“The market for refined product will remain tight and we see upside for gasoline and for heating oil out to December/January,” he added.

Analysts polled by Reuters forecast a dip in US crude stocks week on week and a rise in stocks of refined oil products. They also noted strong gasoline sales ahead of the 4 July holiday when millions of Americans take to the roads.

Oil prices have risen to a series of 10-month highs over the past week as investors focus on prospects that the rise in crude oil demand from US refiners could rapidly deplete inventories that are at a nine-year high.

OPEC has resisted calls from the International Energy Agency, representing 26 industrialised consumer nations, to increase production in a pre-emptive move.
The exporter club, supplier of over a third of the world’s oil, agreed at two meetings towards the end of 2006 to cut 1.7 million barrels a day from supplies, roughly 6%. It next meets on 11 September.

“Event risks give crude upside near-term, but the fourth quarter is likely to bring a downward correction which extends into 2008. We forecast average WTI (US crude) prices of $67 a barrel in Q3 and $60 a barrel in Q4,” JP Morgan analysts said in a report.

Dawnay Day Quantum’s Mathias said technical factors pointed to higher prices.
“At a technical level, oil prices have positive momentum and the trend is up. I am looking for oil to test $80 again this year,” he explained.

Focus on refineries

The weekly US data, due at 14:30 GMT, is expected to show a 100,000 barrels rise in distillate stocks and a 300,000 barrels increase in gasoline, according to the Reuters survey.

Crude stocks were expected to have fallen by 300,000 barrels. Analysts will focus on refinery utilisation rates, which were expected to have risen by 0.9 percentage points from exceptionally low levels.

“We will be keeping an eye on refinery production figures, as any indication of higher run rates would signal a drawdown on crude stocks,” said Tobin Gorey, a commodities strategist with Australia’s Commonwealth Bank.

“Traders are looking further ahead to the winter fuel season, because these next few months is when refiners will be buying their crude to meet the demand ahead,” Gorey said.

In Nigeria a rebel group responsible for a large number of the attacks on the country’s oil industry ended a month-long truce, while an attack on a Shell oil rig in the delta served as a reminder of the supply risks there.

DLF at No 9 in M-cap, Singh 4th in billionaire list

DLF has entered the league of the top 10 market-cap companies in India.

With a market capitalisation of Rs 97,183 crore at the Day 1 stock price of Rs 570, the company will be ranked ninth in the list.

ICICI Bank, though ranked 8th with a market cap of Rs 88,960 crore, will remain at that position or can move up after the listing of shares of its Rs 20,000 crore follow-on public offer.

Reliance continues to be the leader with a market cap of Rs 2,40,000
crore. ONGC is at number two followed by Bharti, NTPC, Reliance Communications, Infosys, TCS and ICICI Bank. BHEL, with a market cap of over Rs 75,000 crore, rounds off the top ten ranking.

DLF has become the first real estate firm to enter the list of the top 10 market-cap companies. As the promoter holding in DLF is a huge 87.43%, the net worth of K P Singh and his family will be around Rs 84,968 crore.

The DFL promoters, however, will still be only the fourth richest Indian after Mukesh Ambani, Sunil Mittal and Anil Ambani. Azim Premji, the promoter of Wipro, will slip to number five in the new billionaire list.

Mukesh Ambani with a net worth of over Rs 1,50,000 crore is the undisputed leader of the billionaire club. Sunil Mittal who hold 60.95% in Bharti is worth Rs 1,00,000 crore. Anil Ambani will be at number three with a net worth of Rs 85,600 crore followed by K P Singh and Azim Premji with a net worth of Rs 61,600 crore.

IPO Note : Everonn: Going the Educomp way - Look for listing gains !

India is one of the largest markets for School Education in the World. India currently has around 1.18 million schools in both Government and Private segment providing education. About 5 mn teachers across India need support in training in IT and other subjects so that they in turn can teach others.

The approved outlay for education in the 10th Plan is around Rs. 30,000 crores while for secondary education and higher (including vocational training is Rs. 13825 crores. The Government of India has spent over Rs.10,000 crores (USD 2.2 billion) on Elementary Education in the country during 2005-06 and around Rs 2563 crores on Higher/Secondary Education. Education in the country is funded through a 2% Education Cess and other Budgetary Allocations.

Despite the steps taken by the Government to improve the education and see that the literacy rate improves only 15,000 schools in the country have access to IT Infrastructure and Education. This represents less than 2% of the Schools in the Government Segment.

Everonn Systems India Limited (Everonn) is in the field of education and training. The company is fully integrated offering a range of services like creating knowledge resources, designing and delivering the learning and training programs through the medium of computers and other resources. The company also sets up infrastructure and delivery platform for enabling the same.

The company gets its revenue from two sources i.e. Education and training which contributes almost 95% of the total revenue while the rest is from sale of hardware which is very small. Governments of various states are its key clients as almost 70% comes from them while the rest 30% are from private schools and colleges.

Everonn has two Strategic Business Units (SBUs) which are; the Institutional Education and Infrastructure services (IEIS) and Virtual and Technology Enabled Learning Solutions (ViTELS). The IEIS division mainly looks for setting up the IT Education Infrastructure in Schools & colleges and also delivers IT education in them. The division also offers Turnkey Education and software Solutions. Currently the company has a presence in over 1900 schools spread over 8 states. Under this division the company employs more than 2000 people.

The second units that is ViTELS focuses more on providing specialized content trough a computer or a LCD monitor which is the latest mode of education. In virtual learning the students are in one area while the teacher is sitting some where else and teaches the student virtually through the computer. The company mainly targets the colleges, schools, working professionals, corporate and also the retail segment. The company also provides Management Education from Premier Institutes like IIM?s, MICA and many more on Direcway Platform from more than ten centers across India. The company has also software called Zebra Kross through which virtual learning is taught in more than 115 centers currently.

Zebra Kross provides solutions to Institutions, Retails and Corporate. In the Institutional side the company conducts different programmes and courses for curriculum and extracurricular activities also. Job oriented courses, preparatory and entrance exam coaching, etc. are also provided in the schools and colleges. The Corporate side is further divided into two sub divisions as Training Department and Placement Department. The company has recently started these services and sees good potential here in the future. The Training Department has different programmes which include training in corporate products, value adds, diplomas, Management Development Programmes (MDP's) etc while the Placement Department direct access to more than 1,00,000 employable students in the colleges. Everonn's campus training would make them employable in the job market.

Everonn has entered into an agreement with Hughes Escorts Communication Ltd (HECL), earlier called Hughes Escorts Communication Ltd as a lead partner to help it in developing business for remote education and training through satellite broad band technologies. Management courses are offered through Hughes Net (Direcway) Interactive learning.

Everonn Systems public issue of Rs 50 crore has been fixed with a price band of Rs 125 and Rs 140 per share. The current paid up capital is 10.28 million shares and the company will increase it by almost 35.71 lakh shares at the upper end and approx 40 lakh shares at the lower end of the IPO. Out of the total IPO proceeds Rs 30 crore would be utilized for IT infrastructure services. The company plans to expand their operations close to 1000 schools every year. Rs 17.25 crore towards capital expenditure for virtual and tech-enabled learning solutions and Rs 8 crore has been earmarked for mergers and acquisitions of contents during 2007-08. Part of the funds would be also utilized towards brand building.

The company recently announced a Rs 30 crore order from Gujarat for computer education in 1256 government schools. The total schools will exceed 3000 in numbers with this order. The company also intends to tap foreign markets starting with the Middle East and Singapore.

There is huge opportunity for the company as the market is really huge and there are few players. About 95% of the market still remains untapped with almost 10 lakh schools and about 17,500 colleges which is a huge market. Competition is from the biggie Educomp Solution which has had a fiery track record of late and NIIT. (Interestingly NIIT is opting out of this Govermnent business saying that its unviable and not exciting.

The company has a huge receivables from the government which affects the company's balance sheet and cash flows. Payment from the government usually gets delayed. For example, in a state like Delhi, the contract period is normally six months and so you have 180 plus 30 days and so it is a 210-day working capital needed. Everonn gets 70% of revenues from the government. The company targets to change this ratio to 50 - 50 in favour of revenues from the private school segment.

Everonn Systems has seen revenue growth of 22% (CAGR) and profit after tax at a CAGR of 64%. For the year ended March 31, 2007, the company recorded a turnover of Rs 43 crore while the net profit stood at Rs 4.86 crore.

Having said all the good things about valuations and the potential in the industry we would add that we are not convinced on the business model. The company has content for 9th 10th , 11th and 12th. It is in the process of developing content for 5h 6th 7th and 8th. The model of tranmitting its lectures through satelite does not gel with us. The audience is likely to be limited. What is exciting about Educomp model is that the content facilitates the teaching. However in this case Everonn attempts to replace the Teachers. The reistance to this model is certainly likely to be high. The fees charged per student is higher in the case of Everon ( the school does not need to spend on teachers).

Valuation may appear attractive as compared with Educomp. EPS post issue stands at 3.5 times while the P/E comes around 40 at the upper end of the price range on trailing earnings. Compared with Educomp, which is 124 X its trailing earnings. The stock is bound to draw in interest as comparison with Educomp will keep the buyers interested. Of course this company is closest in capability to switch to an Educomp model driven by content. They have some content which could be refined.. or they could buy tie up for content from other providers. This possibility could bring in the valuatoin. We suggest that in this euphoria... of the huge education market and that created by Educomp.. one could look for Listing gains here ! As a long term investment Educomp remains the preferred pick given its highly refined content driven business model

Market snaps five-day rally

The market settled with nominal losses, after swinging sharply during the day. It staged a strong intra-day rebound. The market opened on a strong note tracking firm global equities, but immediately slipped sharply into the red after striking an all-time high. It later recovering on value buying and on short covering. Auto and capital goods shares were in demand, while IT pivotals were offloaded. Realty major DFL ended at 8.5% premium over IPO price.

The BSE 30-share Sensex settled with a decline of 18.35 points or 0.12% at 14861.89. The barometer index had opened higher at 14,932.53 and surged to strike a record high of 14,963.26 at 09:58 IST as buying momentum intensified. But it had faltered later to touch a low of 14,731.22 by 11:35 IST --- a fall of 149.02 points for the day. Sensex later made a strong intra-day rebound.

The Sensex oscillated 242 points in the day in volatile trade.

The barometer index had gained 449 points, or 3.11%, in five trading sessions to 14,880.24 on Wednesday, 4 July 2007, from its close of 14,431.06 on 27 June 2007.

The S&P CNX Nifty lost 5.35 points or 0.12% today to settle at 4,353.95. The Nifty July 2007 futures were at 4355, a marginal premium of 1.05 points as compared to spot closing

Real-estate major DLF settled at Rs 570.05, a premium of 8.57% over the IPO price of Rs 525 per share. The scrip debuted at Rs 582, and touched a high of Rs 714.25 and a low of Rs 505.60 during the day on BSE. The counter saw high volumes of 3.42 crore shares on BSE.

The DLF IPO was subscribed 3.47 times. The IPO received total bids for 60.70 crore shares compared to issue size of 17.50 crore shares. Post-issue promoter holding in the company is 88.24%. The post-issue FII holding was 5.92%.

The market breadth remained weak on BSE: 1,656 shares declined as compared to 997 shares that advanced, while 71 remained unchanged. The breadth turned negative from positive in mid-morning trade.

The BSE Mid-Cap Index settled or 0.60% lower at 6,605.85, while the BSE Small-Cap Index lost 0.80% to 7,796.02

The total turnover on BSE amounted to Rs 4583 crore as against Rs 5624 crore on Wednesday, 4 July 2007. The NSE F&O turnover was Rs 41,247.62 crore as compared to Rs 34125.16 on Wednesday, 4 July 2007.

Among the Sensex pack, 18 declined while the rest advanced.

Private sector banking major ICICI Bank rose 1.80% to Rs 1003, on 11.77 lakh shares, after striking an all time high of Rs 1009.90 in intra-day trade. The stock rose for the second day in a row following reports that the department of industrial policy and promotion has approved ICICI Bank's plan to sell a 24% stake in ICICI Financial Services. ICICI Bank had recently said that its plant to sell stake in ICICI Financial Services to foreign investors was unlikely to get go ahead from the Foreign Investment Promotion Board (FIPB). It was the top gainer from the Sensex pack

Other banking stocks, UTI Bank (up 1.97% to Rs 630), Indian Bank (up 6.88% to Rs 140.50), Union Bank (up 0.40% to Rs 130.15), rose. The BSE Bankex was up 0.4% at 7,427.55.

Engineering and construction major L&T advanced 1.46% to Rs 2,325, on 3.26 lakh shares after striking an all-time high of Rs 2364. L&T will float five new companies to ensure better corporate governance as well as attracting talent. The companies will operate in L&T’s new business areas of power projects, boilers, turbines, water and shipbuilding.

State run engineering major Bhel rose 1.28% to Rs 1564.95. The BSE Capital Goods Index was up 0.37% at 12,618.94.

Auto stocks extended recent gains on hopes that interest rates may soften. The BSE Auto Index gained 0.92% to 4,881.94, and was the top gainer among the sectoral indices on BSE. Car major Maruti Udyog advanced 1.74% to Rs 805, as buying continued after it recorded a 24% rise in sales in June 2007 on demand for its Swift hatchback and the new SX4 sedan. Maruti sold 59,917 cars, vans and sport-utility vehicles in India and overseas last month compared with 48,425 a year earlier.

Tata Motors rose 1.48% to Rs 708. The country's biggest truck and bus maker recorded 2% decline in sales in June 2007 as demand for commercial vehicles and cars fell. Tata Motors sold 44,317 commercial and passenger vehicles in India and overseas in June 2007.

Hero Honda Motors added 0.42% to Rs 688.50. TVS Motors Company jumped 3.39% to Rs 62.60. TVS Motors’ sales in June 2007 declined 15.2% to 1,07,117 units compared to 1,26,290 units in June 2006.

Index heavyweight Reliance Industries (RIL) recovered from a low of Rs 1,680.50, to settle at Rs 1710, on 5.90 lakh shares. The stock lost 0.33% for the day. The Committee of Secretaries (CoS), which met on 2 July 2007 to decide on the issue of gas pricing from RIL’s D6 fields in the Krishna-Godavari (K-G) basin, has asked the power and fertiliser ministries to present their views before the committee on 5 July 2007. No decision was taken in the meeting even as the petroleum ministry pitched for a market-determined price of gas produced from NELP blocks.

Reliance Energy was the top loser from the Sensex pack. It shed 3.25% to Rs 591.50, on volumes of 9.10 lakh shares. The stock slipped on profit booking.

Ranbaxy (down 2.28% to Rs 359.30), HDFC (down 1.93% to Rs 1941.50) and Hindlaco (down 1.25% to Rs 154.65) were the other losers

IT stocks remained subdued, with the BSE IT Index declining the most among the sectoral indices on BSE, by 1.03% at 4,791.99. Infosys Technologies (down 1.11% to Rs 1911.50), TCS (down 0.73% to Rs 1109.10), Satyam Computers (down 1.52% to Rs 464), and Wipro (down 0.95% to Rs 504.10) edged lower.

The rupee remained stable at 40.45/46 on Thursday, 5 July 2007, against the US currency on the back of suspected intervention by the Reserve Bank. On Wednesday, 4 July 2007, the rupee had closed at fresh nine-year closing peak of 40.45/46 a dollar

NTPC lost 1.51% to Rs 153 after large block deal of 39.19 lakh shares was executed in the counter on BSE at Rs 157.25 per share in opening trade.

Cement shares made a good intra-day rebound though many of them ended in the red. ACC (down 0.03% to Rs 1022.25), Ambuja Cements (down 1.12% to Rs 128.50), UltraTech Cement Company (down 4.37% to Rs 899) and India Cements (down 0.70% to Rs 213.60) edged lower while Grasim rose 0.34% to Rs 2749. Cement shares had surged recently on reports that cement firms have hiked prices by Rs 3-Rs 5 per 50-kilogram bag across India effective from Wednesday, 4 July 2007.

Shares of construction firms and property developers were hammered today on profit booking after the recent surge. Era Construction (down 5.48% to Rs 428), Ansal Infrastructures (down 5.19% to Rs 294.10), Unitech (down 5.64% to Rs 522.10), Madhucon Projects (down 4.66% to Rs 228.90), Parsvnath Developers (down 4.61% to Rs 360.90), and Sobha Developers (down 4.46% to Rs 901.80) all edged lower.

Asian Electronics was locked at the 5% upper limit of Rs 953.40 after posting a 146% rise in net profit Q4 March 2007 to Rs 31.55 crore as against Rs 12.83 crore in Q4 March 2006. Sales surged 162.15% to Rs 150.21 crore in Q4 March 2007 (Rs 57.30 crore). Net profit spurted 164.93% to Rs 66.63 crore in the year ended March 2007 as against Rs 25.15 crore in FY 2006. Sales rose 134.72% to Rs 367.45 crore in FY 2007 (Rs 156.55 crore). The company’s board also approved a 2-for-1 stock-split.

Sadbhav Engineering rose 1.43% to Rs 605 after its joint venture with JMC Projects (India), received a Rs 328-crore road development order. The share of Sadbhav Engineering in the joint venture is 49.50%.

Indus Fila soared 5.49% to Rs 222 after the textile firm said it bought a 51% stake in Indus Garments (India) for Rs 9.35 crore. The company made the announcement during trading hours today, 5 June 2007.

Arvind Mills declined 4.73% to Rs 46.40 after NSE banned fresh derivatives contracts on the counter as they have crossed 95% of the market-wide position limit.

Pidilite Industries rose 3.30% to Rs 128.40 after its Brazilian unit acquired shares in an adhesive and sealant maker in that country. The company made the announcement after market hours on Wednesday, 4 July 2007. The company did not disclose any financial details about the acqusition.

Zensar Technologies gained 4.26% to Rs 350 on reports that the Pune-based IT service provider is looking at acquiring a company in Europe to gain access to the non-English speaking market. The size of the acquisition would be in the range of $4-5 million.

Britannia Industries spurted 4.97% to Rs 1703.90. French food company Danone announced plans on Tuesday, 3 July 2007, to sell its biscuit and cereal snack unit to Kraft Foods Inc., excluding its stakes in its Indian and Latin American businesses. Danone is an equal partner with Wadia Group in top biscuits maker Britannia Industries

Vadilal Industries rose 2.58% to Rs 43.70 even as it reported a 12.77% fall in net profit in Q4 March 2007 to Rs 1.64 crore as against Rs 1.88 crore in Q4 March 2006. Sales rose 0.73% to Rs 26.11 crore in Q4 March 2007 as against Rs 25.92 crore in Q4 March 2006. The results were announced after market hours on Wednesday, 4 July 2007.

Khaitan Electricals was down 2% to Rs 137.10 despite reporting a rise of 57.83% in net profit in Q4 March 2007 to Rs 7.86 crore as against Rs 4.98 crore in Q4 March 2006. Sales rose 27.03% to Rs 110.77 crore in Q4 March 2007 as against Rs 87.20 crore in Q4 March 2006. The results were announced after market hours on 4 July 2007.

Most of the Asian indices settled higher on Thursday, 5 July 2007. Japan's Nikkei 225 index advanced as shares of exporters such as Sony Corp. and machinery makers such as Komatsu extended gains, while stocks in South Korea and Taiwan extended their record run from Wednesday. Nikkei gained 0.29% at 18,221.48.

Hang Seng (up 0.16% at 22,252.99), South Korea's Seoul Composite (up 0.51% at 1,847.79), and Taiwan's Taiwan Weighted (up 0.88% at 9,148.78) all edged higher.

But China’s Shanghai Composite plunged 5.25% to 3,615.87

All the European indices which had opened higher, slipped in the red later. The Bank of England (BoE) monetary committee today, 5 July 2007, lifted bank rate by 25 basis points to 5.75%. Earlier the bank had increased rate by 25 basis points to 5.5% on 10 May 2007. The BoE announcement hit the market after the Indian markets had closed.

US markets were closed on Wednesday, 4 July 2007 for the Independence Day holiday.

Oil surged above $74 to another 10-month high on Thursday, 5 July 2007, ahead of U.S. data that is expected to show refiners are processing more crude to meet robust gasoline demand in the world's top consumer. London Brent crude, now seen as more representative of the global market, hit $74.06 a barrel, the highest since 25 August 2006, after kicking through the previous 10-month high.

Market overcomes early blues but drops 18 points

Despite opening at record high level of 14933 the Sensex gave up its gains as selling across the board assured that the index remained in the red. The market opened firm tracking positive Asian markets and touched its new all-time high for the third consecutive session at 14963. However, strong bouts of selling in front-line and cement stocks dragged the Sensex to the negative territory by mid-morning trades. The index slipped further in the afternoon and touched the day's low of 14731. While the market remained subdued thereafter, the buying at lower levels helped the Sensex to pare most of its losses towards the close and wrap up the session at 14862, down 18 points. The broad based Nifty closed the session at 4354, down five points.

The breadth of the market was negative, with the losers outpacing the gainers in the ratio of nearly 1.71:1 on the BSE. Of the 2,637 stocks traded on the BSE, 1,627 stocks declined, 949 stocks advanced and 61 stocks remained unchanged. The sectoral indices closed in the mix. The BSE IT index slipped 1.03% at 4792 followed by the BSE Teck index (down 0.78% at 3725) and the BSE HC index (down 0.66% at 3839). However, the BSE Auto index gained 0.92% at 4882, the BSE CD index added 0.52% at 4214 and the BSE CG index moved up by 0.37% at 12619.

Most of the index stocks slipped on heavy selling. Reliance Energy led the slump and fell 3.27% at Rs591. Among the other major laggards Ranbaxy tumbled by 2.07% at Rs360, HDFC dropped 1.93% at Rs1942, HDFC Bank slumped 1.65% at Rs1130, NTPC fell 1.64% at Rs153, Satyam Computers declined by 1.49% at Rs468 and Hindalco lost 1.15% at Rs155. The other major front-line stocks shed 1% each. However, few bucked the downtrend. ICICI bank surged 2.03% at Rs1005, Maruti Udyog added 1.77% at Rs805, Tata Steel moved up 1.74% at Rs627, L&T gained 1.73% at Rs2331 and Dr Reddy's Lab rose 1.46% at Rs673.

IT stocks lost significantly on relentless selling. Four Soft dropped 4.43% at Rs56, Teledata Informatics shed 4.07% at Rs64, Aptech tumbled by 3.76% at Rs306, Accel Frontline declined by 3.29% at Rs60 and Patni Computer slipped by 3.27% at Rs493.

Over 3.42 crore DLF shares changed hands on the BSE followed by IFCI (2.57 crore shares), Reliance Natural Resources (97.63 lakh shares), NTPC (45.65 lakh shares) and Bellary Steel (44.33 lakh shares).

Value-wise DLF registered a turnover of Rs1,905 crore on the BSE followed by Vishal Retail (Rs251 crore), Indiabulls Real Estate (Rs160 crore), IFCI (Rs155 crore) and ICICI Bank (Rs117crore).

DLF shares rise 11 percent on debut

Shares in real estate firm DLF Ltd. debuted 11 percent higher than their issue price of 525 rupees on Thursday, after the company raised 91.88 billion rupees in India's biggest-ever IPO.

At 0426 GMT, DLF shares were up 6.7 percent at 560.00 rupees on the Bombay Stock Exchange. The benchmark index was up 0.5 percent.

Analysts had expected the shares to rise 7-12 percent, with gains limited by concerns over falling property prices, which have eased about 10 percent in the last four months.

DLF, which received subscriptions for about three times the shares on offer, last month sold 10.27 percent of the company, or 175 million shares, in an offering heavily bid by large funds, but which just managed full subscription for the 52.2 million shares reserved for small retail investors.

Last year, DLF dropped its plans for what would have been India's biggest IPO due to a sharp market fall in May and June.

DLF, which built much of the outsourcing hub of Gurgaon on the outskirts of Delhi, plans to spend nearly 70 billion rupees to buy and develop property.

Kotak Mahindra and DSP Merrill Lynch were the lead arrangers for the issue, with Citigroup, Deutsche Bank, ICICI Securities, Lehman Brothers, UBS and SBI Capital Markets.

Kotak - Sun Pharma

Sun Pharma plans to raise Rs35 bn (US$850 mn) by issue of equity/convertible bonds. This will imply a 16.5% dilution, assuming an issuance at market price. With a cash-chest of US$850 mn, Sun will likely continue its prowl for under-utilized assets. Thus far, the acquisition strategy seems to have been value accretive.
Clearly with two events (closure of Taro acquisition and fund raising) outstanding, the
stock is un-likely to move up in the short-term. However, the long-term growth strategy seems to be getting stronger.
Sun recently announced its intent of acquiring Taro Pharma at an EV of Rs22.5 bn (not factored into our estimates). Only the deal price of US$454 mn will reduce our FY2008 net profit estimate by 8% (loss of interest income). In CY2005, Taro had sales of US$298 mn sales and net profit of US$6 mn (65% gross margin and 14% operating margin). However numbers have significantly deteriorated in CY2006, with sales of US$180-200 mn and net loss of US$95-120 mn. This will likely be skewed towards non-recurring charges in our opinion. This deal will be negative to EPS for FY2008, and as per the management be accretive in FY2009.

We have fine-tuned our model. For FY2008, we estimate revenue growth of 23% and EPS growth of 16% to Rs43.4. Despite assuming 280bps margin expansion, our EPS growth is constrained by sharp drop in other income. Our EPS will likely drop by another 8%, if we were to assume the fund outflow for the Taro acquisition. For FY2009, we have modeled 21% revenue growth and 25% EPS growth to Rs54.2

DLF to list today

The market is likely to stay firm as fund inflows into the domestic equities continue to remain robust and players are maintaining their high bets on almost all the sectors. The Asian indices which are trading higher in current trades may drive the market further. Investors will also be keenly following the high profile DLF listing today. Among the key local indices, the Nifty could test higher levels around 4440 in the short term and the downside it has a key support at 4285. The Sensex has a likely support at 14600 and may face resistance at 14900.

Sensex may strike 15,000

The Sensex may strike the psychologically important 15,000 mark today, as buying is expected to continue for the sixth straight session. The barometer index is now just 119.76 points away from the 15,000 mark.

Sensex rose 73.73 points or 0.50% at 14,880.24, an all time closing high, on Wednesday, 4 July 2007. Sensex has gained 449 points or 3.11% in 5 trading sessions to 14,880.24, from its close of 14,431.06 on 27 June 2007.

Firm global markets, steady progress of monsoon, fresh build-up of long positions in derivatives and lower inflation, were some of the factors contributing to the recent rally. Annual inflation fell to a 14-month low of 4.03% in mid-June 2007, well below a two-year high of 6.69% in January 2007.

Most of the Asian indices were trading higher on Thursday, 5 July 2007. Japan's Nikkei 225 index advanced as shares of exporters such as Sony Corp. and machinery makers such as Komatsu extended gains, while stocks in South Korea and Taiwan extended their record run from Wednesday. Nikkei gained 0.55% at 18,268.83.

Hang Seng (up 0.15% at 22,250.98), South Korea's Seoul Composite (up 1.18% at 1,860.09), Taiwan's Taiwan Weighted (up 0.21% at 9,087.96) and Singapore's Straits Times (up 0.35% at 3,567.45), all edged higher.

US markets were closed on Wednesday, 4 July 2007 for the Independence Day holiday.

As per provisional data, FIIs were net buyers of equities worth Rs 723.85-crore on Wednesday, 4 July 2007 while domestic institutional investors (DIIs) were net sellers of equities to the tune of Rs 397.14 crore on that day.

Indiainfoline - Intraday Stock Ideas

NIFTY (4358) Supp 4339 Res 4284

BUY ICICI Bank (985) SL 878 Target 998, 1003

BUY L&T (2291) SL 2277
Target 2320, 2330

BUY SRF ((180) SL 176
Target 187, 189

SELL Wipro (509) SL 514
Target 500, 498

SELL Chennai Petro (266) SL 270 Target 258, 256

Morning Call

Market Grape Wine :

In House :

Nifty at a resistance of 4390 & 4424 and support of 4327 & 4292 levels .

Sell : Praj below 476 target 465 s/l of 482

Buy : Auropharma above 775 target 793 s/l of 758

DLF to list around 560 to 575 profit booking at 600 levels and Institutional buying at 500 levels .

Buy : JSW & Tisco in F&O

Out House :

Markets at a support of 14787 & 14678  levels with resistance at 14949 & 15015 levels .

Buy : RIL & RelCap

Buy :   Century & JPAsso

Buy :   PunjLLoyd & MoserBaer

Buy :   Kesoram  & ACC

Buy :  IDBI  & IFCI

Buy :   M&M & Maruti

Buy :   Sail & Tisco

Buy : IBulls & IBReal   & Unitech

Dark Horse :   MoserBaer , Kesoram , ACC , BajajHind , IBulls , IDBI , Unitech , IbullReal & Century

Bullet : IOLBroad on BSE  , Skumar & AsianElec ( 1400 target 6 months s/l of 757 )

Construction and conviction

“The construction of life is at present in the power of facts far more than convictions.”

The Sensex just needs to construct 120-odd points to scale point 15k. Given the recent conviction, bulls will hope the milestone is breached today itself. All eyes will be real estate stocks as industry bellwether DLF makes its much-awaited debut on the bourses today. The company has set an issue price of Rs525 per share. The stock may cross Rs600 on opening but expect some cooling (if grey market prices are any indication). Buzz on the street is that DLF could skyrocket in the coming days after initial selling pressure.

There are no cues from Wall Street owing to the Independence Day holiday but Asian markets are smiling. FIIs also appears to have stepped up their buying of late. Today, we expect the market to open firm. However, yesterday's negative market breadth coupled with the rise in the Put-Call-Ratio (PCR) are cause of concern. Also worrisome is the steep increase in crude oil prices, with the Brent crude oil having crossed the $73 per barrel mark overnight. We advocate cautious optimism. One should avoid aggressive buying at this stage and hold existing ones with strict stop losses.

Inflation has cooled off substantially from the two-year peak struck in January. Unless there is a fuel price hike, there is no big threat as far inflationary expectations is concerned. A good monsoon may also have a soothing effect on prices of essential commodities. Investors will also be looking out for this month's RBI policy review for indications on the movement in interest rates.

But before that we will have an even bigger event. The quarterly results that is. The most keenly followed results will be that of the IT companies following the sharp spike in the rupee versus the dollar in the last quarter. In fact, yesterday the Indian currency touched a nine-year peak of 40.45. We may have some correction if there is a bigger than expected negative surprise from any of the software majors.

The old economy companies, except Auto and Sugar, is likely to post strong bottomline growth. Watch for the Capital Goods, Engineering, Construction and Infrastructure companies. They are expected to announce strong results. Banking, Cement, Metals and even Oil & Gas companies are likely to do well. Auto will surely be a laggard due to the slowdown in sales and increasing input costs.

BEML's Board will determine the issue price for the company's follow-on public issue today. Bihar Tubes' Board will meet today to allot 31,75,000 warrants on a preferential basis to the entities belonging to the promoter group and other strategic investors.

Hero Honda will attract attention amid reports that the company has deferred the starting of operations at its new Haridwar plant due to the slowdown in demand and tax considerations. Country Club India may also gain as a financial daily reports that it is scouting for acquisitions abroad. Bombay Rayon Fashions has come out with its Q4 and FY07 results. The garment firm has reported strong growth in topline as well as bottomline.

MNCs such as Hindustan Unilever, Nestle, Colgate and GSK Consumer Healthcare may rise after the Delhi Income-Tax Appellate Tribunal ruled that advertisement expenditure can be fully deducted for income tax calculations.

IT companies may come under fresh pressure as the rupee has hit a nine-year high against the dollar. Cement stocks will remain in the limelight following reports of a countrywide price hike. Select metal shares like Sterlite could do well as copper prices touched a seven-week peak on the LME overnight.

European shares edged higher. But trading was listless because of the US Independence Day holiday. European hotel stocks like InterContinental and Accor stood out after Blackstone said it will buy Hilton Hotels.

The pan-European Dow Jones Stoxx 600 index rose 0.4% to 397.36. The UK's FTSE 100 closed up 0.5% at 6,673.10, while the German DAX increased 0.3% to 8,075.26 and the French CAC-40 advanced 0.5% to 6,098.08.

In the emerging markets, the Bovespa in Brazil closed flat at 55,696 while the IPC index in Mexico rose 0.3% to 32,201 and the RTS index in Russia added 0.2% to 1943.

Most Asian stock markets are up this morning, with some hitting new record. The Nikkei in Tokyo was up 100 points at 18,268 while the Hang Seng in Hong Kong rose 25 points to 22,243. The Kospi in Seoul advanced 19 points to 1857 and the Straits Times in Singapore added 12 points to 3567.

Samsung jumped after a brokerage report raised speculation that prices for dynamic random access memory, or DRAM, will climb, boosting profit. BHP Billiton Ltd. and Rio Tinto Group advanced on higher metals prices.

The Morgan Stanley Capital International Asia-Pacific Index gained 0.5% to 156.69 at 10:39 a.m. in Tokyo. Markets open for trading advanced, except in China and Malaysia.

Markets ended on a flat note after rallying for four trading sessions NSE Nifty index closed almost from where it started, however benchmark Sensex managed to add 73 points in volatile session. The benchmark Sensex yet again managed to settle on a new peak as even the Cement and the Sugar stocks gained momentum. The index heavy weights like ICICI Bank, ACC, L&T, Reliance Industries and Gujarat Ambuja aided the key indices from slipping in to red. Finally, the 30-share Sensex gained 73 points to close at 14880. NSE-50 Nifty added 1 point to close at 4359.

Bharti Airtel slipped 1% to Rs858. Temasek picked up a 4.99% stake in the company. Also yesterday it announced that they have signed a pact with Nokia Siemens for a US$900mn. The scrip touched intra-day high of Rs882 and a low of Rs867 and recorded volumes of over 7,00,000 shares on NSE.

Vishal Retails shoots up at its debut on the bourses the scrip opened at Rs472.5 and ended up by over 180% at Rs758 against the issue price of Rs270 per share. The scrip has touched intra-day high of Rs784 and a low of Rs472 and has recorded volumes of over 1,00,00,000 shares on NSE. The company had come out with an initial public offering, of equity shares aggregating Rs110crore at the price band between Rs230 - Rs270 per equity share of Rs10 each.

Delhi-based retail house, Vishal Retail is eyeing to set up around 150 to 200 of its Vishal Mega Mart stores by 2010. The company is looking to set up 32 more stores across the country. The company has also announced its debut into capital market with a public issue of equity aggregating Rs1.1bn to fund 22 of its upcoming stores.

Indiabulls Real Estate surged by over 3.5% to Rs441 after the company announced that it would sell $360mn GDR’s at $10.32. The scrip touched intra-day high of Rs455 and a low of Rs428 and recorded volumes of over 60,00,000 shares on NSE.

Patel Engineering edged over 0.8% to Rs450 after the company announced that they have secured Algerian order worth $153mn. The scrip touched intra-day high of Rs458and a low of Rs440 and recorded volumes of over 6,00,000 shares on NSE.

Cement stocks recorded smart gains after reports stated that cement companies have hiked prices by Rs3-5 per bag. ACC surged by over 9% to Rs1027, Gujarat Ambuja was up by over 4% to Rs130, Kesoram Industries spurred by over 5.5% to Rs476 and Grasim added 1.2% to Rs2740.

Sugar stocks also gained momentum ion back of fresh buying interest. Renuka Sugar advanced by 1.7% to Rs651, Bajaj Hindustan gained by 1.8% to Rs167, Sakhti Sugar was up by 2.8% to Rs87 and Dhampur Sugar added 1.8% to Rs68.

Select Banking stocks witnessed selling pressure SBI was down by 1.1% to Rs1563, Union Bnk slipped 3.3% to Rs129, PNB dropped by 1.8% to Rs533. However, HDFC Bank gained 0.2% to Rs1150, ICICI Bank surged 2% to Rs985.

Select Auto stocks recorded smart gains. Tata Motors gained by 2.3% to Rs701, M&M was up by 1.8% to Rs748, Maruti advanced 1% to Rs791 and Bajaj Auto added 0.9% to Rs2119.

Consumer Durable stocks were on the receiving end. Blue Star was down by 0.8% to Rs239, Titan dropped by 4% to Rs1288, Rajesh Exports declined by 0.6% to Rs540 and Videocon edged lower by 0.3% to Rs417.

Fund Activity:

FIIs were net buyers of Rs7.24bn (provisional) in the cash segment yesterday while the local institutions pulled out money to tune of Rs3.97bn. In the F&O segment, foreign funds pumped in Rs7.26bn yesterday. On Tuesday, FIIs were net buyers of Rs4.1bn in the cash segment. Mutual Funds were net buyers at Rs547mn on the same day.

Results Today:

Asian Electronics, Hikal, MMTC, Network 18 Fincap and TV 18.

Major bulk Deals:

Merrill Lynch has picked up Allianz Securities; Goldman Sachs has bought Gayatri Projects; Citigroup Global has purchased Prime Securities and Goldman Sachs has bought Prithvi Information Solutions.

Insider Trades:

Kirloskar Oil Engines Ltd: Mr. RR Deshpande, Director has purchased from open market 5000 equity shares of the
company on 2nd July, 2007.

Lower Circuit:

GV Film, GMR Industries and Swan Mills.

Upper Circuit:

Zenith Infotech, Aurionpro Solutions, Prism Cement, Heritage Foods, Agro Tech, IID Forgings, Shree Precoated, GTC Industries, Vakran Software, Bilcare and Maxwell Industries.

Delivery Delight (Rising Price & Rising Delivery):

Arvind Mills, Asian Hotels, Bajaj Auto, BILT, BPCL, Cipla, Dhampur Sugar, Gujarat Ambuja, Hindustan Oil, K Cements, JK Lakshmi Cement, Jyoti Structures, NIIT, Prism Cement, Ranbaxy Laboratories, Unitech and Welspun India.

Abnormal Delivery:

IOC, Titan, United Phosphorous, PTC, DS Kulkarni, Bombay Dyeing, Max India, Matrix Labs and Bharat Forge.

Major News & Announcements:

Indiabulls Real Estate sells $360mn GDR’s at $10.32

Dollex Industries gets Rs200mn order for IMFL from Angola

Patel Engineering secures Algerian order worth $153mn

JSW says second Furnace to start operations later this month

ESS DEE Aluminum to raise $150mn selling securities overseas

Ansal Properties signs accord with Fortis

Philips Carbon to set up Carbon Black Plant at Vietnam

GAIL India & China Gas to form Joint Venture company

Daily Technical Note

Nifty and Sensex have exhibited Doji candlestick.

Technically, one may use the level of 4300 (Nifty) and 14700 (Sensex) as the stop loss level.

Nifty faces resistance at 4410 and Sensex at 15050.

Nifty Range 4320 to 4410.

BSE Smallcap and BSE Midcap also exhibited reversal candlesticks.

CNX IT has closed Negative.

In the Punter's zone we have a Sell in Tata power, Sulzon and PNB.

In the Technical call section, we have a Buy in Wockhard, Hind lever and Tatasteel.

Citigroup - India Technicals

Nifty — The index opened on a positive note and tested 4,386 in the morning trade, after which it tested a low of around 4,342 and traded in a narrow range .It ended the day up 1 point.

Tests all-time high — The index tested 4,363, an all-time high, in the morning trade. It opened towards 4,385 in the morning trade. The support levels are around 4,340 (lower end of yesterday’s consolidation band ) and 4,326 (5dma). Intra-day dips should find support around these levels. On the upside, intra-day strength can be seen on Nifty sustaining above 4,363 and index can move towards 4,385 levels. [dma=daily simple moving average].

Conclusion — Expect intra-day strength of above 4,363.

Ceat, Nucleus Software, IT Preview

Q1FY2008 IT earnings preview

Against all possible odds
It couldn't have been worse for the information technology (IT) service companies. During the first quarter, the margins of the front-line IT companies are generally dented by the cumulative impact of the incremental cost of visa charges (the visa window opens only during Q1 every year), the inflow of fresh engineers (they are put under training and are non-billable) and the annual salary hikes. (The annual salary hikes are fully reflected in Q1 in case of Infosys Technologies [Infosys] and Tata Consultancy Services [TCS]; the other front-line IT companies provide for the same in either Q2 or spread it out over a number of quarters.) In addition to all this, the steep appreciation in the rupee against all major currencies in Q1 added to the pressure on the margins.

---

SECTOR UPDATE

Automobiles

June numbers—a mixed bag
Auto sales numbers continue to be a mixed bag. Two-wheeler sales continued to decline in June owing to higher interest rates and stringent checks by financiers. On the other hand, cars sales outperformed the sector in the same month despite it being the slack season on account of the monsoon. The growth in cars was largely led by a flurry of new launches in the recent times, such as SX4, Swift Diesel, Logan and Spark. The commercial vehicle (CV) sales continued to reel under the monsoon, hardening interest rates and tightened liquidity. Maruti Udyog Ltd (MUL) and Mahindra and Mahindra (M&M) were clear winners of June, as their growth was fuelled by their recent launches.

Ceat
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs190
Current market price: Rs171

Still on a fast track

Key points

• The slowdown in the sales of commercial vehicles in the country has been greater than the company's expectations which is feared to take its toll on the company's original equipment manufacturer (OEM) sales. Consequently, Ceat's management expects the sales revenues from the OEM segment to be lower at Rs500 crore in FY2008 vs Rs600 crore in FY2007. However, to counter the situation the company is trying to realign its strategies and boost its replacement sales and exports.
• The company expects the slowdown to continue for the next few months and the demand to revive with the onset of the festive season, ie by September or October. For FY2008, the company expects a volume growth of about 10%, with the growth in the second half likely to be better than that in the first half.
• Some positive developments regarding the industry are also expected in the coming days. For instance, the government might tighten the anti-dumping laws. It might also raise the reference price for import of cross-ply tyres to $130 from $100 at present. Also, China is reducing the incentives on export of tyres and lowering the freight subsidy to India for cross-ply tyres by 5%. All this would be positive for the entire tyre industry and help it combat the cheaper Chinese tyre imports. However, the same would affect only the cross-ply imports. Hence, the radial tyre imports from China are expected to continue at the same speed in the medium term.
• The rubber prices have softened significantly in the past couple of weeks. The prices have come down to about Rs73 per kilogram levels from the average level of Rs95 per kilogram. The rubber prices are expected to remain soft in the coming months. At the same time, we believe there will be pressure from the OEM customers for price reductions. Even if the prices are lowered for the OEM customers, the replacement market may not see any price cuts. Since the replacement market constitutes about 65% of a tyre company's total sales, this is a huge positive for both Ceat and the industry.
• The company expects to improve its margins in the current year, mainly due to lower raw material prices and improved efficiencies.
• The land sale at their Bhandup plant site has got delayed due to a delay in obtaining certain legal approvals. The company expects to finalise the deal by the third quarter of the current fiscal.
• Spotting great potential in the off-the-road market, the company is raising its capacity in the segment from 25 tonne a day to 45 tonne a day by November 2007. The location for the greenfield plant is still under consideration and is expected to be finalised soon.
• The de-merger of its investment business into a separate investment and finance company in order to optimise the operational efficiencies and improve the performance of its core business is expected to take place in FY2008.
• The financial restructuring entails the conversion of one share of Ceat out of every four held into a share of the investment and finance company. Thus, the equity capital of Ceat (ie the core tyre business) will reduce by 25% which will improve the earnings per share.
• We maintain our positive outlook on the company in view of its smart turn-around and brilliant performance. At the current levels, the stock trades at 10.8x its FY2008E and an enterprise value/earnings before interest, depreciation, tax and amortisation of 5.0. We maintain our Buy recommendation on the stock with a price target of Rs190.
  

Nucleus Software Exports
Cluster: Emerging Star
Recommendation: Hold
Price target: Rs1,020
Current market price: Rs993

Annual report review

Key points

• Nucleus Software Exports has further built on the growth momentum of FY2006 and reported another year of robust performance. The quality of its revenues has also improved with the high-margin product business contributing 54% of the total turnover.
• It was an exceptionally good year in terms of order inflows as the company added 21 new clients for 74 modules of the FinnOne product suite. The order backlog of Rs330 crore provides strong growth visibility in the coming quarters.
• The balance sheet continues to be strong with Rs81.9 crore of cash and cash equivalents and healthy return ratios. However, the jump in the account receivables to 91 days is a worrying factor.
• The current valuations of the stock factor in most of the positives and any re-rating would depend on a higher than expected ramp-up in the business. We maintain Hold on the stock.

Allied Digital Services IPO Analysis

Allied Digital appears expensive compared to its peers, based on various factors.

The Indian information technology (IT) and IT enabled services (ITES) industry has definitely worked wonders, contributing about 5 per cent to the nation’s gross domestic product (GDP).

However, a vast majority of this was ploughed in from exports of IT-ITES services. Riding on this export boom, the domestic IT market too, is growing leaps and bounds.

International Data Corporation (IDC) has estimated the Indian domestic IT market to grow by over 22.4 per cent in 2006. NASSCOM pegged this market at over Rs 3,600 crore in FY06, and expects it to grow to Rs 8,000 crore by FY10.

To take advantage of this rising tide, India-focused companies like Allied Digital are on an expansion drive. Allied Digital is out in the market to aggregate about Rs 77-86 crore from the public via an IPO.

The issue comprises of 45.2 million shares of face value Rs 10 each. The price band is fixed at Rs 170-190 for the issue.

Allied Digital is an IT systems integrator, providing services and solutions in IT infrastructure management, technical business process outsourcing, remote management services for servers and networks, information security and enterprise computing.

The company boasts of a pan-India presence across 92 locations with more than 1,250 employees. Its clientele includes the who’s who of the banking, financial services and insurance (BFSI), telecommunications, retail, aviation, manufacturing, energy, e-governance and hospitality industries.

With the issue proceeds, Allied Digital intends to set up a global service delivery centre, setting up new strategic business units including a network and security operating centre each, a technical BPO outfit and to carry out strategic acquisitions.

“We have already identified the targets for the acquisitions. Two of them are domestic, and one is a Canada-based technical BPO company,” says Bimal Raj, chief executive officer, Allied Digital. “We aim to complete these acquisitions by September 2007,” he adds.

Allied Digital has grown its top line at a compounded annual rate of 58 per cent since 1995. The company has maintained its operating margins at around 21-22 per cent, which is slightly lower in the IT pack owing to its domestic focus and a project-based solutions approach.

It is now looking to increase the revenue contribution from its service offerings and outsourcing, which entail higher operating margins. On the flipside, the more than 90 per cent India-centric business saves the company from the vagaries of rupee appreciation.

From a valuation perspective, the issue pricing appears stretched in spite of better price-earnings ratios compared to its closest peers.

The segments that the company operates in, pose very few entry barriers to new entrants as well as unorganised competition.

Add to this, Allied Digital has been in this business for the past 12 years and still has not been able to scale the business to gain any critical mass. Investors may be better off, exploring other avenues

Everonn Systems India IPO Analysis

The IPO of technology-based education provider Everonn is priced attractively.

Investors have developed a keen interest in technology-enabled education providers ever since Educomp’s performance after its listing.

The IPO which hit the markets a year and half ago was priced at Rs 125 and currently trades at an astonishing Rs 2,200 levels. Will the market continue to be as positive to companies that wish to enter this space? Promoters of Chennai-based Everonn Systems would surely be hoping for it.

The business of e-teaching There is nothing extraordinary about the business model of Everonn Systems. The 10 lakh schools and 17,500 colleges in the country need cost-effective interactive solutions to meet the demand of a diverse course curriculum.

By creating content once and distributing the same across many schools, colleges and corporates which follow the same syllabus and processes from a central location, Everonn is trying to eliminate the replication of content, infrastructure and teaching professionals.

While the logic is sound, is there money in putting up expensive IT infrastructure and convincing people to switch to a different mode of imparting education?

The government will provide Everonn’s MD P Kishore believes that the 6 per cent of GDP target in the current Five Year Plan for education and computerisation of private schools will boost its revenues (70 per cent comes from government schools) and take care of funding needs of its customers.

However, its dependence on government is also a cause for concern. The bidding, implementation and recovery takes a year and has been causing a problem in the company’s cash flow and contributing to the higher interest and finance charges.

Funding growth To finance some of its ongoing projects, develop infrastructure for high margin segments and fund acquisitions, the company is raising resources to the tune of Rs 66 crore.

A part of this, Rs 14 crore, was raised from the Temasek arm, IndoChina Pre-IPO Equity (Mauritius). Nearly 60 per cent of the Rs 50 crore public issue will be used to fund the ongoing West Bengal project where the company is providing IT solutions to 459 schools.

Valuations While the company has had a 40 per cent plus sales growth and 40 per cent operating margin, at the net level, higher interest costs and depreciation (write-offs based on project period) have dented the net margins to 12 per cent.

Analysts say that margins will stay at these levels for the next two years as the proportion of government projects will continue to be the bread-and-butter for Everonn.

At the higher end (Rs 140) of the price band the stock is priced 27 times its estimated FY08 earnings while at the lower end (Rs 125) the discounting is 23 times. While Educomp has had an impressive record of consistent growth, its current P/E at 128 indicates the scope for appreciation for its smaller rival.

India SEZ

India SEZ

EXCLUSIVE - Equibrain Report - July 5 2007

EXCLUSIVE - Equibrain Report - July 5 2007