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Monday, July 16, 2007
FIIs exiting Sensex Stocks
Are foreign institutional investors beginning to lose interest in frontline companies? Though it may be early to draw an inference , latest shareholding data in 8 out of the 30 Sensex companies show a decline in FII holdings.
These companies include Gujarat Ambuja Cements (GACL), HDFC Bank, Hindalco, HDFC, Infosys Technologies, Larsen & Toubro, Maruti Udyog and Reliance Communications. “Foreign funds have been actively churning their portfolios in the past couple of quarters as outlook on many sectors has changed suddenly,” said an official at a foreign brokerage house. “Also, fund managers are restricting their bets to companies where they see a reasonably good chance of making money, as only few frontline companies have been participating in the rally,” he added.
In most of these companies, foreign fund houses have been trimming their holdings in the past two quarters. The fall in FII holdings in companies like Ambuja Cements, Hindalco, Maruti Udyog and HDFC Bank is significant, while that in Infosys Technologies, Reliance Communications , L&T and Housing Development Finance Corporation is less.
Market observers are not surprised that overseas fund managers have pared their exposure to stocks like Ambuja, Hindalco and Maruti. The proposal in the Union Budget to levy a dual excise duty on cement in a bid to tame prices, soured sentiment towards the sector. And while cement shares have been rising of late, they are still off highs seen in January this year. Hindalco’s expensive acquisition of Novalis did not go down well with the market, resulting in many investors exiting the stock. Growth in automobile sales has been slipping over the past few months, prompting a sour outlook for stocks in that sector.
A fall in FII holdings in L&T during the April-June quarter is a bit surprising . The stock has been the secondlargest contributor to the 1330-point rally in the Sensex since the beginning of 2007. Also, the stock enjoys favourable ratings by leading brokerage houses, given the bullish view on the capital goods sector. This is evident from the 65% rise in the stock price since the beginning of the year. This surge, without much support from foreign funds, shows that when a new set of overseas players bought into the stock, another set of existing FII shareholders have moved out.
A similar trend was witnessed in the case of HDFC. The stock has been among the best performers in the Sensex pack so far in 2007, despite many foreign funds pulling out.
ENAM, ADAG Portfolio
ENAM Portfolio
| Company Name | % stake |
| Bannari Amman | 3.4 |
| Champagne Indage | 1.4 |
| Educomp Solution | 5.9 |
| Elder Health | 2.8 |
| Elgi Equipment | 1.7 |
| Ess Dee Aluminiu | 7.2 |
| FDC | 1.5 |
| Greenply Inds. | 3.8 |
| Guj. Flourochem. | 1.3 |
| Helios Matheson | 1.0 |
| Hi-Tech Gears | 3.1 |
| IP Rings | 7.1 |
| Kar Mobiles | 4.3 |
| Kernex Microsyst | 1.1 |
| Khaitan Elect. | 4.4 |
| Lak. Mach. Works | 2.4 |
| Motherson Sumi | 1.4 |
| MRF | 5.1 |
| Munjal Showa | 7.1 |
| Pantaloon Retail | 1.0 |
| Plethico Pharmac | 1.3 |
| Polyplex Corpn | 3.6 |
| Prima Agro | 2.0 |
| Prithvi Info | 1.2 |
| Rane Engine Val. | 3.9 |
| Rane Holdings | 1.1 |
| Rico Auto Inds | 2.3 |
| Shree Ram Mills | 3.7 |
| SPL Polymers | 1.2 |
| Sterling Tools | 1.8 |
| Super Spinning | 1.4 |
| Taneja Aerospace | 2.6 |
| XL Telecom | 3.5 |
ADAG
| Company Name | % stake |
| Bhartiya Intl. | 2.8 |
| HBL Power System | 3.0 |
| Zodiac Cloth. Co | 6.4 |
| Anant Raj Inds. | 4.8 |
| Champagne Indage | 6.8 |
| Hitachi Home | 2.2 |
| ICSA (India) | 6.8 |
| KLG Systel | 3.7 |
| Magma Shrachi | 12.7 |
| Mercator Lines | 1.8 |
| NDTV | 1.6 |
| Network 18 | 2.5 |
| OCL India | 1.4 |
| Oswal Chem & Fer | 5.0 |
| PVR | 1.3 |
| Ramco Systems | 2.2 |
| Reliance Communi | 0.7 |
| Reliance Natural | 0.0 |
| Saregama India | 6.0 |
| Shri Lakshmi | 2.0 |
| TV 18 India | 2.6 |
| Venus Remedies | 2.5 |
| Viceroy Hotels | 3.1 |
| Hind.Dorr-Oliver | 1.1 |
SSKI Recommendations
SSKI has come out with its earning estimates on the construction sector for the quarter ended June' 07-08. According to the report Gammon India PAT is seen up 34.4% at Rs 21.4 crore (Rs 214 million) versus Rs 15.9 crore (Rs 159 million), YoY.
During the same quarters its net sales are seen up 25% at Rs 523.2crore (Rs 5232 million) as against Rs 418.5 crore (Rs 4185 million) in the corresponding quarter previous year. It's EBDITA stood at Rs 445 million as against Rs 317 million in the corresponding quarter previous year.
SSKI has come out with its earning estimates on the construction sector for the quarter ended June' 07. According to the report HCC PAT is seen up 9.3% at Rs 27.5 crore (Rs 275 million) versus Rs 25.1 crore (Rs251millionYoY
During the same quarters its net sales are seen up 18 % at Rs 677.6 crore (Rs 6776 million) as against Rs 574.3 crore (Rs 5743 million) in the corresponding quarter previous year.
It's EBDITA stood at Rs 610 million as against Rs 461 million in the corresponding quarter previous year.
SSKI has come out with its earning estimates on the auto sector for the quarter ended June' 07. According to the report Maruti Udyog's PAT is seen down 5.1% at Rs 350.8 crore (Rs 3508 million) versus Rs 369.6 crore (Rs 3696 million), YoY.
During the same quarters its net sales are seen up 23.4% at Rs 3855.4 crore (Rs 38554 million) as against Rs 3125.5 crore (Rs 31255 million) in the corresponding quarter previous year.
SSKI has come out with its earning estimates on the construction sector for the quarter ended June' 07-08. According to the report L&T PAT is seen up 20.7% at Rs 244 crore (Rs 2440 million) versus Rs 202.1 crore (Rs 2021 million), YoY.
During the same quarters its net sales are seen up 22% at Rs 4241.8crore (Rs 42418 million) as against Rs 3476.9 crore (Rs 34769 million) in the corresponding quarter previous year.
It's EBDITA stood at Rs 3606 million as against Rs 2890 million in the corresponding quarter previous year.
SSKI has come out with its earning estimates on the auto sector for the quarter ended June' 07. According to the report Mahindra and Mahindra's PAT is seen up 0.1% at Rs 205.9 crore (Rs 2059 million) versus Rs 205.7 crore (Rs 2057 million), YoY.
During the same quarters its net sales are seen up 11.7% at Rs 2498.3 crore (Rs 24983 million) as against Rs 2236.3 crore (Rs 22363 million) in the corresponding quarter previous year.
SSKI Securities has come out with its earning estimates on the Textiles sector for the quarter ended June' 07. According to the report Vardhman Textiles PAT is seen down 9.6% at Rs 33.8 crore (Rs 338 million) versus Rs 37.4 crore (Rs 374 million), YoY.
During the same quarters its net sales are seen up 14.3% at Rs 543.5 crore (Rs 5435 million) as against Rs 475.5 crore (Rs 4755 million) in the corresponding quarter previous year.
SSKI Securities has come out with its earning estimates on the Textiles sector for the quarter ended June' 07. According to the report Gokaldas Exports PAT is seen up 14.1% at Rs 15.4 crore (Rs 154 million) versus Rs 13.5 crore (Rs 135 million), YoY.
During the same quarters its net sales are seen up 21% at Rs 268.2 crore (Rs 2682 million) as against Rs 221.6 crore (Rs 2216 million) in the corresponding quarter previous year.
SSKI has come out with its earning estimates on the auto sector for the quarter ended June' 07. According to the report Hero Honda Motors PAT is seen down 25.1% at Rs 178.1 crore (Rs 1781 million) versus Rs 237.7 crore (Rs 2377 million), YoY.
During the same quarters its net sales are seen up 4% at Rs 2458.6 crore (Rs million) as against Rs 2364.4 crore (Rs 23644 million) in the corresponding quarter previous year.
Wild Picks - Thirumalai Chemicals
One of the operators is very very bullish on Thirumalai Chemicals, targets of 300
Disclaimer: Operator might get caught by SEBI and you could go kaput!
Rediff, Sify madly priced!
Amid speculations the US-listed Indian portal Rediff.com was on takeover radar of giants like Yahoo and Google, a leading business publication said shares of India's internet firms were too expensive.
"In a world mad for internet stocks, some of the maddest valuations have gone to two Internet companies in India that trade on Nasdaq -- India's third largest portal Rediff.com and Sify, the country's largest non-government owned provider of broadband access," Barron's reported in its latest edition.
Shares of Rediff.com India dropped four per cent or by $1.05 to $25.41 at the Nasdaq on Friday, while that of Sify rose by 2.15 per cent to $10.47.
Yahoo shares were down 1.4 per cent to $26.58, while Google rose by 1.25 per cent to $552.16. With a market-cap of $740 million, Rediff trades at 115 times trailing earnings and 88 times of the forward earnings, while Sify, with a market value of $440 million, sells at a trailing price-to-earnings of 205 and a forward multiple of 60, the publication noted.
This compares with a modest price-to-earnings ratio of 29 times for Google. Besides, Rediff seems to be losing its grip in Indian market as global giants like Google and Yahoo are expanding their presence, the report said.
Noting the speculations about Rediff being a takeover target for Google and Yahoo might be true, the magazine said the Indian portal's management has recently hinted towards an IPO rather than any plans to sell out.
"Bulls contend Rediff is a takeover target of both Google and Yahoo, which may be true, but CEO Ajit Balakrishnan recently said he was considering an India IPO at some stage -- apparently hinting he had no plans of selling out," the report said.
The shares of Rediff as well as Sify have gone to sky high levels riding high on the the growth potential in the country as just 18 of 1,000 Indians have internet access, Barron's said.
Shares of both the Nasdaq-listed companies were up last week on news that Rediff may list its shares in India and that Sify would train members of its cybercafes in Microsoft Office.
"But in contrast to steadily growing Chinese portal Baidu.com, Rediff (9.7 million unique users in April) is losing its grip in India to Google (13.6 million) and Yahoo (14.6 million), and has seen its market share drop from 34.1 per cent to 25.5 per cent over the past one and half years," Barron's report said.
Besides, more than half of Rediff's 2007 pre-tax profit of $7 million was from interest on cash from its IPO proceeds, and another one-fifth came from a separate newspaper operation, it added.
Indian businessmen most optimistic in world
Indian entrepreneurs have retained their place as the world's most optimistic business owners for the fourth year in a row on the back of continuing economic reforms, global business advisory firm Grant Thornton said in a new report.
Business owners have taken full advantage of economic reforms and liberalisation of international trade and remain confident this would continue to drive the economy, Grant Thorton's International Business Report (IBR) said.
"Reforms since the early 1990s have helped unlock India's economic potential and positioned India as one of the fastest growing economies in the world. Growth is accelerating, boosted by a dynamic, knowledge-based service sector and expanding manufacturing sector.
"No wonder, for the fourth successive year, Indian businesses continue to be the most optimistic in IBR about economic prospects," Grant Thornton India's Vishesh Chandiok said.
The outlook for the Indian economy over the next one year remains extremely optimistic. India was followed by the Philippines and mainland China. Business owners in Japan and Taiwan remained generally downbeat about economic prospects over the next 12 months.
The optimism/pessimism balance in India has reached over 97 per cent as compared to 93 per cent last year, an exceptionally high balance reflecting the rapid progress achieved by Indian economy in recent years, the report said.
Three other Asian economies - Philippines, China and Singapore - also display strong optimism, with balances over 80 per cent as they made rapid progress.
Reliance Comm buys U.S. ethernet firm Yipes
Reliance Communications Ltd., India's second-biggest mobile services provider, said on Monday it was buying U.S.-based Yipes Holdings Inc. for $300 million cash, the latest in a wave of foreign buys by Indian firms.
San Francisco-based Yipes, a provider of managed ethernet and application delivery services, offered Reliance an opportunity to tap a fast-growing market, Chairman Anil Ambani told a news conference.
"Yipes will accelerate Reliance's entry into the $90 billion global market for enterprise and institutional data services," he said.
The ethernet market alone was valued at $10 billion, Ambani said, adding it was forecast to grow at a compounded annual rate of about 30 percent to more than $25 billion by 2010.
Reliance Communications bought Yipes from a group of investors including JP Morgan and venture capital firms Norwest Venture Partners, Sprout Group and Crosslink Capital.
The acquisition is the latest in a wave of non-domestic M&A deals by Indian companies, aiming to penetrate new markets and access the latest technology by acquiring foreign firms.
Outbound Indian M&A deals this year total $15.1 billion from 99 deals, not including Monday's deal, according to data from Dealogic. That compares with $5.8 billion from 85 deals in the same period last year, and $21.7 billion from 167 deals in the whole of 2006.
Deals this year include Hindalco Industries purchase of Canada's Novelis Inc in February, and several purchases by drug makers such as Ranbaxy Laboratories and Dr. Reddy's Laboratories.
India's biggest foreign takeover, Tata Steel's $12 billion acquisition of the Corus Group, is counted in the 2006 figures because it was announced in October 2006, although the deal was not completed until 2007.
Shares in Reliance Communications hit a record high of 577.40 rupees on Monday, and closed up 3.5 percent at 574.05 in a Mumbai market that rose 0.25 percent.
Yipes will become a wholly owned subsidiary of Reliance Communication's undersea cable unit, Flag Telecom, which it bought in 2003 for about $209 million.
Reliance said it would expand Yipes' coverage to 30 metro cities in the United States, from 14 at present, and would also take it to Asia, Europe, Africa and the Middle East.
"Even if we take a conservative 5 percent of the overall global market, it will be a high margin business over the next few years," Ambani said.
Reliance Communications competes with top mobile firm Bharti Airtel and Vodafone-controlled Hutchison Essar in India, the world's fastest growing mobile market. It has more than 35 million subscribers, including fixed-line and Internet.
The company said in April it would take a decision in the next six months on "unlocking value" in its Reliance Telecom Infrastructure unit, and a potential listing of Flag Telecom.
"As far as unlocking of value (in Flag) is concerned ... it will happen during the course of this year," Ambani said on Monday. On Reliance Telecom Infrastructure, he said: "Sooner than later."
In April, Ambani said strategic partnerships or private equity investment in the two units were also being considered.
Bajaj Allianz - a success story
The secret behind early profits of Bajaj Allianz Life Insurance is out. The company has managed to avoid losses on new unit-linked policies through a product that allows it to front-end charges and show higher first-year allocations at the same time.
While nearly all new insurance companies continue to be in the red, Bajaj Allianz Life Insurance has reported a net profit of Rs 63 crore last year, which was followed by a Rs 30-crore profit in Q1 of 2007-08. The company has managed the profit despite a growth in annualised premium of 86%. The profit has surprised the industry since companies typically lose money in the first year of a new policy. As long as premium from new policies outstrip renewal premium, it is difficult for a life insurance company to break even.
Bajaj Allianz’s Capital Unit Gain has placed IRDA in a dilemma as insurers feel that it violates the spirit of regulations, which require insurers to provide for the first year expenses upfront
A similar product is also being sold by Aviva India. IRDA has received proposals to launch similar products. Sources said IRDA may set up a team of actuaries from the life insurance industry to look at the product.
Capital Unit Gain was introduced by Bajaj Allianz last year. The difference between this and other unit-linked products is that in Capital Unit Gain, the first year premium is used to allocate capital units and the regular premium payable thereafter will be used to allocate accumulation units. In other words, while units are allocated to policyholders in the first year, only a part of the investment happens in the first year, the
rest of the units are credited to the policyholders account, but are not available to them. In the long run (after six-seven years), this may
not make any difference to them, but this feature reduces the surrender value. Speaking to ET, Sam Ghosh, MD, Bajaj Allianz Life, said: “IRDA does not allow any unit-linked policy with less than a three-year tenure, so the surrender value in the first three years are not of relevance to the policyholder.” He added that for those who hold the policy until maturity, the returns are in line with other unit-linked policies. While unit-linked insurance plans by themselves are complex products, the capital unit gain takes the complexity even higher. It requires different software to calculate separately the net asset value of capital and accumulation units. The product details disclose this feature.
According to the product brochure, if the regular premium is not paid in three years and the policy has lapsed, the surrender value would be 100% of the capital units. Immediately upon completing the third year, the insured would lose a big chunk of the premium because of the product structure. However, as years move on, the surrender value would converge with
the regular unit-linked policies.
Stocks you can pick up this week
Infosys Technologies
Research: Ask
Rating: Buy
CMP: Rs 1,940
Infosys Technologies’ Q1 FY08 results were above the Street’s expectations. But the company has missed its topline guidance for the second time in a row (though it has outdone its EPS guidance in both quarters). Revenues, at Rs 3,773 crore, were flat sequentially (against ASK’s expectation of Rs 3,885 crore) and PAT was also flat at Rs 1,028 crore (against ASK’s expectation of Rs 945 crore). The guidance in rupee terms for FY08E has been revised downwards (-5.1% at the higher end), while the dollar guidance has been increased marginally. Though demand looks robust, the rupee seems to have taken the fizz out of the growth story. ASK has revised its FY08E EPS downwards to Rs 80 (-1.7%) and FY09E EPS to Rs 97.4 (-2.7%). It has also revised the exit P/E multiple from 25x to 24x as earnings growth has slowed considerably. ASK anticipates an EPS CAGR of 20.6% over FY07-09E (vis-Ã -vis 39.3% over FY05-07E). But ASK remains positive on the company’s fundamentals and believes that most of the bad news has been factored into the current market price. It maintains ‘buy’ recommendation on the stock.
Chennai Petroleum
Research: Citigroup
Rating: Buy
CMP: Rs 300
Citigroup has raised Chennai Petroleum Corporation (CPCL)’s FY08-09 estimates by 19-25% on the back of sustained strength in the refining cycle and reduced subsidy burden. Dividend yield of 5.6% provides downside support. The company reported PAT of Rs 323 crore (EPS Rs 21.7) during the quarter, which was slightly higher than expected due to strong gross refining margins (GRM). Reported GRM of $8.8/bbl was in line with Singapore complex GRM of $9.6/bbl. Adjusting for subsidy payouts, CPCL has broadly tracked Singapore GRMs, apart from certain one-off quarters. New estimates are based on GRMs of $6.5/bbl in FY08E and $6.0/bl in FY09E, though gains are partially offset by a stronger rupee. Citigroup does not expect pure refiners to be included in the subsidy net as duty protection has fallen to 1% and a major contribution from RIL’s refinery is unlikely, given its EOU status. Replacement cost analysis suggests further hidden value. On a conservative EV/complexity bbl of $1500 (against replacement cost of $2,000 and RIL/RPL’s current multiples of $1,900-2,200), CPCL could be worth Rs 490. The steep discount to replacement cost offsets the risks from a potential merger with IOC.
HDFC Bank
Research: Edelweiss Securities
Rating: Buy
CMP: Rs 1,231
HDFC Bank’s Q1 FY08 numbers were in line with Edelweiss Securities’ estimates. Net profit grew 34% YoY to Rs 320 crore, while net interest income grew 28% YoY. Net interest margins improved YoY to 4.2%, while non-interest income increased by 46%. The proportion of low-cost deposit declined slightly to 52%. The bank’s operating expenses increased 40% YoY due to expansion in its branches. Higher general provisioning led to overall provision growth of 50% YoY, while the balance sheet grew by 32% YoY. Edelweiss maintains its EPS estimate for FY08 at Rs 43 and reduces EPS estimate for FY09 by 2.15% to Rs 56.6. Edelweiss is incorporating actual FY07 numbers, reducing its margin expectations and increasing fee income growth expectations to 30% from 27.5% in FY08E. Edelweiss likes the bank for its liability franchise and asset quality. It believes the bank is a safe bet compared to its peers due to its stable and predictable growth. The stock trades at 3.1x FY09E book and 20x FY09E EPS. Edelweiss Securities’ maintains its ‘buy’ recommendation.
DLF
Research: Motilal Oswal
Rating: Buy
CMP: Rs 600
Motilal Oswal’s target net asset value (NAV) premium for DLF is higher than the target average it would apply for other property development companies. Motilal Oswal believes that DLF, India’s largest real estate company, is the best proxy for the promising domestic real estate opportunity. It is excited about DLF’s dominant presence in emerging segments of premium apartments, commercial offices and retail, which are highly profitable businesses with strong entry barriers. Thus, DLF is relatively better-placed to face the challenging macro environment, which will encourage lower risk premiums, going forward.
JP Associates
Research: DSP Merrill Lynch
Rating: Buy
CMP: Rs 870
DSP Merrill Lynch initiates coverage on JP Associates (JPA) with a ‘buy’ recommendation. JPA offers a blend of asset play (hydro power, real estate and expressway) and 20% CAGR in parent EPS over FY07-09E. Key rationales for DSP Merrill Lynch’s bullish stance are asset accretion led by infrastructure concessions, acquisition/monetisation of 6,250 acres of real estate in Noida. NAV may get a boost following rise in the value of land bank, with the likely transformation of the Delhi-Agra region led by the expressway, and the proposed Greater Noida airport. Other NAV kickers are a three-fold rise in power capacity by FY12E and new infra concessions. DSP Merrill Lynch believes JPA’s aggressive management will be able to leverage potential for growth as India builds infrastructure on the purchasing power parity (PPP) model.
Tata Motors
Research: Enam
Rating: Buy
CMP: Rs 767
Medium and heavy commercial vehicles (M&HCV) volumes are key to short-term profitability. Tata Motors’ product portfolio is highly leveraged towards M&HCV (~32% of volumes and >60% of EBITDA), making it vulnerable to a slowdown in the segment. M&HCV volumes remain uncertain for FY08 due to increase in lending rates and risk to fleet operator economics. But long-term drivers are in place. Tata Motors is undertaking structural changes to mitigate product cyclicality and reduce its dependence on M&HCVs from 60% of EBITDA to less than 50% over the next 2-3 years. The reasons for this are: an agreement with FIAT to jointly manufacture and distribute FIAT cars in India by end FY08, quantum of exports to increase from 18% to 25% in the next 2-3 years and substantial potential value in five key subsidiaries, especially Tata Technologies.
HDFC
Research: Goldman Sachs
Rating: Buy
CMP: Rs 1,981
Goldman Sachs believes stable macro economic conditions, a favourable growth outlook for the mortgage business and unlocking value of strategic investments are likely to be the key drivers of HDFC’s stock performance. It reiterates ‘buy’ rating on the stock, which has a total return potential of 20%. Goldman Sachs sees HDFC as a play on opportunities in the mortgage market and one that offers investors value due to growth in other areas of financial services. Over time, the value accruing from these investments, particularly life insurance, will grow faster than the value of the mortgage business. Key catalysts for the stock include signals of stable monetary conditions, a less volatile interest rate environment, earnings delivery in line with consensus expectations and clear visibility on the sell-down of some of HDFC’s strategic investments in FY08.
Trading Calls
Buy Hindustan Zinc with a stop loss of Rs 740 for a target of Rs 950.
Buy Cinemax with a stop loss of Rs 151 for a short-term (3 months) target of Rs 185
Buy Hanung Toys with a stop loss of Rs 133 for a short-term (3 months) target of Rs 175.
Buy Sail with a stop loss of Rs 135 for a target of Rs 210.
DLF - the painful journey
All's well that that ends well. The cliche holds true for what is now India's biggest real estate company DLF, which listed on the bourses last week.
Soon after listing, the company became the eighth most valuable in the country and its promoters, KP Singh and family are now the fourth wealthiest Indians behind the Ambani brothers and Sunil Mittal.
But people who followed the issue carefully know it was one of the most tumultuous IPOs in recent times. Right from the time the issue was conceived in Q1 of 2006, it was plagued by controversy. There was intense speculation that a company with significant interests in real estate did not want DLF to get big money from the stock markets. An executive from the rival's camp reportedly told close associates, "The DLF issue in its current form will happen over my dead body."
Call it coincidence if you will. But soon after DLF filed its draft red herring prospectus (DRHP), reports that the company had short changed its shareholders on an earlier rights issue of debentures in November 2005 surfaced.
A public interest litigation was filed and the firm received over 500 complaints from shareholders. It eventually allotted 1.9 million shares with retrospective effect.
Around the same time, real estate stocks started to crash on the markets. Of course, valuations of companies like Unitech and Ansal Housing had run up rather quickly. But this crash shaved off nearly a third of their stock prices.
Suddenly, DLF started to look expensive and its merchant bankers began to get the jitters. They advised against going to the market with an IPO.
Even as all of this was happening, Sebi issued a new directive. It said that real estate companies could get land banks valued, only if a clear title deed existed. The move, on Sebi's part, was a well thought and fair plan to rein in errant real estate companies milking the primary markets. For DLF though, the order took the wind out of its sails. Sources said, this directive shaved off Rs 100-150 from the proposed issue price.
The reason being that when DLF's IPO was first mooted, analysts rated it highly for the land bank it held. This land bank though, was held using smaller firms under different names as a front. This was because DLF reckoned that smaller firms could negotiate a better price for land than what DLF could. They had realised that often sellers quoted higher than market prices if DLF was the buyer.
Even as this drama was unfolding, a cabinet minister intervened on DLF's part and warned the rival camp that some of the permissions it was seeking from his ministry would be delayed inordinately if they didn't back off.
They did and the issue went through. But like the rival had sworn, not in the form it was originally planned in.
Though company sources would never confirm, DLF had plans to issue shares in the region of Rs 900-1,100, when it first filed DRHP. It eventually issued stock at Rs 525 and reduced the shares on offer.
TCS consolidated net up 36% in Q1
Tata Consultancy Services (TCS) has posted a 36% increase in consolidated net profit at Rs 1,202.93 crore for the first quarter ended June 30, 2007(Q1FY08), as against Rs 882.66 crore in Q1FY07.
According to the release issued by the company to the BSE today, total income for the quarter stood at Rs 5,364.67 crore, where as it was at Rs 4,225.62 crore in Q1FY07.
On a stand-alone basis, the company posted a 35% rise in profit after tax at Rs 1,073.85 crore for Q1FY08, as compared to Rs 796.69 crore in Q1FY07. Total income rose to Rs 4,335.74 crore from Rs 3,432.85 crore in Q1FY07.
Meanwhile, the board of directors of the company, which met today, declared an interim dividend of 300%, that is, Rs 3/- per equity share of Re 1/- each.
Highlights for Quarter Ended June 30, 2007 (Indian GAAP)
·Q-o-Q: Rupee Revenues up 0.8%; Dollar Revenues up 8%
·Q-on-Q: Rupee Net Profits up 0.7%; Dollar Net Profits up 8%
·EPS at Rs 12.29 in Q1
·54 new clients added in Q1
·8,706 employees joined the company in Q1
·Attrition at 11.5% LTM (including BPO)
· Dividend of Rs 3 per share announced
·TCS Financial Solutions – SBU for financial products - launched
·New GDC in Mexico launched
S. Ramadorai, CEO and MD of TCS said: "This quarter has validated the strength of our business model and our ability to respond to the external financial environment and drive growth under challenging circumstances. Despite factoring in wage hikes and an appreciating rupee, we have maintained profitability by great execution, demand creation and strong financial management.”
Market Close: Consolidation or.. ?
After new high Indices witnessed some level of Profit booking. Market remained rangebound throughout the Session with buying and selling across which created a tag of war, pushing Indices on either side of the Region. Selling was seen in the mid session in IT, Pharma, FMCG and capital good while Realty, Banking, Consumer durable and Metal space managed to attract decent buying interest to close in green. Midcaps & Smallcap their winning streak as they kept investors busy. Market was in line with Asian markets which ended mixed while Europe is trading weak. IT major TCS results are expected after the market hours..
Sensex ended up by 38 points at 15311.22. It was helped up by gains in Rel Energy (705.9,+5 percent), SBI (1613.5,+4 percent), Bajaj Auto (2255.3,+4 percent), RCVL (574.05,+3 percent) and Guj Ambuja (133.3,+3 percent). Restricting the gains were Wipro (500.7,-2 percent), Satyam (482.05,-2 percent), HLL (198.15,-2 percent), Ranbaxy (345.65,-2 percent) and BHEL (1659,-1 percent).
Software Company Mastek Ltd was on the peak after it reported of acquired 90 % stake in US-based Vector Insurance Services LLC for nearly Rs 40 Cr ($ 9 Mn), about 50% in cash and 50% in earn out. The acquired company had revenue of USD 4.2 mn last year. This was strategic Acquisition which wil reinforces the solutions-driven offerings in the high opportunity US insurance market. Vector fits very well with Mastek's overall strategy to be a leader in providing end-to-end IT solutions within the insurance vertical. As per the agreement Mastek's wholly-owned US subsidiary MajescoMastek would buy 90 % equity stake in Vector. Mastek's presence in US will get a boosted and operations in the US insurance vertical also will enable greater value for its shareholders over the long-term. Mastek expects it to be profitable, as it will bring in synergies in terms of costs. Mastek Surged to trade at its all time high level.
Reliance Communications has announced that it has acquired US based Yipes Communications in a Rs. 1200 crore ($300 million) all cash deal. With this acquisition RCom will enter the enterprise and institutional data services market in the US. Yipes is operational in 14 cities in the US with over 22,000 route km of optic fibre. It has around 1000 enterprise customers including Verizon and is cash positive with operating margins of 55 percent. Reliance plans to take the Yipes franchise global in association with Reliance Communication owned FLAG Telecom. FLAG telecom has turned profitable for the first time in its history. Reliance has invested Rs. 2000 crore in FLAG since its acquisition, and all investment has been done financed internally by cash flows generated from FLAG operations. Rcpm managed to see some level of Buying to close up by 3.5%.
Technically speaking: Volatility plagued the markets today and traded ranged to make intraday high of 15341 and low of 15217 levels. Through out the day the Advance outnumbered the Decliners as the Advances stood at 1481 against Declines of 1224. Market turnover was good at Rs 5270 Cr. Sensex support is seen at 15120 levels while resistance at 15500 levels. Sensex has broken into a new zone and trending up with gap up open. This is a very bullish sign and signifies more new highs to come. The trend remains up, avoid shorts.
Market ends steady amid sharp volatility
The stock market witnessed volatile moves and swung 102 points during the intra-day trades, as shares gyrated sharply between zones through the trading session. Taking its cue from the firm global indices, the Sensex started on a positive note at 15295 but failed to sustain its gains as a sharp bout of profit-taking pulled the index below the 15300 mark to an intra-day low of 15239. While the market remained lacklustre with a negative bias, the Sensex rolled back to the green by mid-noon trades on renewed buying support and surged to an intra-day high of 15341. However, a fresh round of profit-taking towards the fag end saw the Sensex pare its gains and end at 15311, up 39 points, while the Nifty added ten points to close at 4515.
The breadth of the market was positive. Of the 2,750 stocks traded on the BSE 1,219 stocks declined, 1,476 stocks advanced and 55 stocks remained unchanged. Among the sectoral indices, the BSE IT index dropped 1.01% at 4848 while the BSE FMCG index, the BSE HC index, the BSE CG index and the BSE Teck index also ended at lower levels. The BSE Reality index, the BSE Bankex and the BSE PSU index gained around 1% each.
Select heavyweights edged higher on decent buying support. Reliance Energy on favourable ruling from the Norwegian court rose 4.54% at Rs706, SBI jumped 3.83% at Rs1,614, Bajaj Auto advanced 3.71% at Rs2,255, Reliance Communication added 3.49% at Rs574, Ambuja Cement gained 3.41% at Rs133 and Hindalco gained 3.41% at Rs180.30. However, select front-line stocks came under selling pressure. Wipro was the major loser and dropped 2.32% at Rs500.70. Other draggers Satyam Computer declined 2.26% at Rs482, Hindustan Unilever dropped 2.22% at Rs198 and Ranbaxy shed 2.17% at Rs345.
Over 1.93 crore Bellary Steel shares changed hands on the BSE followed by IFCI (71.77 lakh shares), Sujana Metal (65.59 lakh shares), Naga Fertilizers (57.36 lakh shares) and RNRL (56.11 lakh shares).
Sensex, Nifty strike new highs
Intense volatility characterised trading today, 16 July 2007, as the market swung between the positive and negative territories to eventually settle in the green as buying continued in index pivotals for the third straight session. Shares from the banking, real estate, and cement sectors advanced, while IT, FMCG and pharma stocks declined.
The 30-share BSE Sensex gained 38.50 points, or 0.25%, to 15,311.22, an all time closing high. It opened higher at 15,295.03, and rallied to strike a lifetime high of 15,341.38 at the onset of the trading session. The index slipped to a low of 15,239.41 at 10:20 IST. It moved in a range of about 98 points in the day.
The S&P CNX Nifty rose 7.60 points, or 0.17%, to 4,512.15, an all-time closing high. The index had struck a record high of 4,521.85 earlier in the day. The Nifty July 2007 futures settled at 4,500, a discount of 12.15 points compared to spot closing
The market breadth was positive on BSE, with 1,481 shares advancing as compared to 1,224 that declined, while 59 remained unchanged
The BSE Mid-Cap index rose 39.25 points, or 0.6%, to settle at 6,834.55. The BSE Small-Cap index rose 64.44 points, or 0.80%, to 8,280.58.
The total turnover on BSE amounted to Rs 5,270 crore as against Rs 6,752.31 crore on Friday, 13 July 2007
The NSE F&O turnover was Rs 38,884.18 crore as compared to Rs 48,879.76 crore on Friday, 13 July 2007
Among the Sensex pack, 18 scrips declined while the rest advanced.
Reliance Energy gained 4.85% to Rs 708, on 7.70 lakh shares. The Anil Ambani-controlled Reliance Energy (REL) has set a target to bag at least two ultra mega power projects (UMPPs) of 4,000 MW each with an investment outlay of nearly Rs 40,000 crore. It was the top gainer from the Sensex pack.
State-run banking major State Bank of India (SBI) surged 4.15% to Rs 1,618.50. SBI Mutual Fund on Thursday, 12 July 2007, said it collected Rs 2,536 crore from Infrastructure Fund Series-I, which closed for subscription in June 2007. The scheme got good response from retail investors, and received an overwhelming 6.7 lakh applications during the new fund offer (NFO) period.
Led by SBI, the BSE Bankex surged 1.27% to 8,386.65, after hitting an all time high of 8,398.59 in intra-day trade. PSU bank shares extended recent gains on a view that interest rates have peaked for the time being. Indian Bank (up 7.81% to Rs 163.60), Bank of Baroda (up 5.95% to Rs 300), Union Bank of India (up 6.15% to Rs 156.20), Oriental Bank of Commerce (up 3.19% to Rs 259), and Punjab National Bank (up 3.76% to Rs 573.95) gained from the banking pack.
State-run Central Bank of India on Friday, 13 July 2007, set Rs 85-Rs 102 per share price band for its IPO.
Allahabad Bank jumped 9.32% to Rs 100.25 on posting a 56.26% growth in net profit in Q1 June 2007 to Rs 200.40 crore as against Rs 128.25 crore in Q1 June 2006. Total operating income was up 38.63% to Rs 1,440.45 crore (Rs 1,039.05 crore). The results were announced during market hours today, 16 July 2007.
Auto major Bajaj Auto jumped 4.11% to Rs 2,264 on reports the two-wheeler maker is looking for an acquisition in the European motorcycle market. As per reports, ace bike makers Ducati Motor Holding of Italy and Triumph Motorcycles of the UK are among the possible targets for acquisition.
Telecom services provider Reliance Communication moved up 3.44% to Rs 573.80 on reports that it had signed an agreement to acquire US-based Yipes for $300 million. The stock also struck an all-time high of Rs 572.70. Yipes Enterprise Services, Inc, the leading provider of managed, end-to-end gigabit ethernet solutions, is a privately held company backed by top tier investors.
Metal stocks saw mixed trend today, after gaining in the past two sessions. Rio Tinto Group’s $38-billion bid on Thursday, 12 July 2007, for Alcan has sparked speculation of more takeovers across the globe in metal space. The BSE Metal Index rose 0.75% to 12,090.98. Hindalco Industries surged 4% to Rs 181.35. Maharashtra Seamless (up 1.07% to Rs 666), Jindal Saw (up 1.47% to Rs 692.50) and Nalco (up 3.40% to Rs 298) advanced.
However Tata Steel (down 0.18% to Rs 693.50), Hindustan Zinc (down 1.61% to Rs 785.10),and Sail (down 0.75% to Rs 158.40), edged lower
Cement stocks gained on expectations of good Q1 June 2007 earnings. ACC (up 2.30% to Rs 1,121), Ambuja Cements (up 3.65% to Rs 133.60), Birla Corporation (up 1.45% to Rs 295), UltraTech Cement Company (up 3.71% to Rs 963) and Shree Cements (up 9.64% to Rs 1,500) edged higher
State-run oil exploration major Oil and Natural Gas Corporation (ONGC) gained 1.60% to Rs 915 on its plans to expand its presence in the power sector by adding about 2,700 MW of gas-based generation capacity, for both captive and commercial use, through three plants. The plant at the company's special economic zone at Dahej in Gujarat is touted to be biggest among the, 1,000-MW gas-based plants.
Index heavyweight Reliance Industries (RIL) was up 0.20% to Rs 1,772, on 3.80 lakh shares. The stock is eyeing an all-time high of Rs 1,786.40, which was hit on Friday, 13 July 2007.
Engineering & construction major Larsen & Toubro (L&T) rose 0.30% to Rs 2407 after it secured contracts worth $177.75 million for different projects in the hydrocarbon sector in the Gulf region. L&T-led consortium also bagged orders worth Rs 1,070 crore for supply and installation of sinter plant and other packages from Tata Steel.
FMCG major Hindustan Unilever slumped 2.66% to Rs 197.25, on high volumes of 26.58 lakh shares. A block deal of 12.04 lakh shares was struck on the counter on BSE at Rs 201.85 per share by 10:08 IST. It was the top loser from the Sensex pack. The BSE FMCG Index lost 0.97% to 1,846.03
Pharma shares slipped on profit booking. Cipla (down 1.63% to Rs 207.90), Ranbaxy Laboratories (down 2.05% to Rs 346), and Dr. Reddy’s Laboratories (down 1.17% to Rs 660.50) slipped. A strong rupee impacts the margin of pharma companies. The BSE Healthcare index was down 0.9% to 3,814.80.
IT pivotals remained subdued throughout the day. The BSE IT Index lost 1.01% at 4,848.27, and was the top loser among the sectoral indices on BSE.
Satyam Computer (down 2.58% to Rs 480.50), Wipro (down 2.46% to Rs 500), TCS (down 0.87% to Rs 1127) and Infosys (down 0.01% to Rs 1940) edged lower.
The rupee rallied further against the US currency and breached 40.40 level during morning trading, buoyed by dollar selling by exporters and banks coupled with the sliding dollar in the overseas markets. The local currency resumed higher at 40.40/42 per dollar against Friday's (13 July 2007) close of 40.42/4250 per dollar and later rose to 40.37/38 a dollar in late morning deals
Shares of mid-cap IT stocks tumbled on intense selling pressure on concerns of slowdown in growth rates as the Indian rupee firmed up against the US dollar. CMC (down 5.54% to Rs 1227), iGate Global Solutions (down 3.35% to Rs 268), i-flex Solutions (down 1.45% to Rs 2475), Polaris Software (down 1.03% to Rs 148.50), MphasiS BFL (down 5% to Rs 285), and NIIT Technologies (down 2.76% to Rs 493), were offloaded from the mid-cap IT pack.
Shares from the real-estate sector surged in the belief that interest rates have peaked and the Reserve Bank of India may not raise them further in its monetary policy review on 31 July 2007. Orbit Corporation (up 7.41% to Rs 348.55), Indiabulls Real Estate (up 9.63% to Rs 560) and DLF (up 1.75% to Rs 610) advanced. The BSE Realty index, launched recently by BSE on 10 July 2007, jumped 1.80% at 7,917.93, and was the top gainer among the sectoral indices on BSE.
Mastek surged 16.75% to Rs 332.80 after it announced today, 16 July 2007, before market hours the acquisition of Vector Insurance Services LLC (Vector), a technology solutions provider and third party administrator that focuses on the North American life & annuity insurance industry. Under the terms of the agreement, the Mastek’s wholly owned US subsidiary MajescoMastek will hold 90% equity stake in Vector. The consideration for this acquisition will be paid partly in cash and partly by way of future cash earn outs. The acquisition is being funded through internal accruals.
Power Finance Corporation jumped 14.07% to Rs 199.85 after its net profit soared 103.18% to Rs 308.64 crore in Q1 June 2007 as against Rs 151.90 crore in Q1 June 2006. Total income flared up 35.57% to Rs 1,145.80 crore in Q1 June 2007 (Rs 845.13 crore).
Eicher Motors rose 0.86% to Rs 346 on reports that South Korea's Hyundai Motor Company may acquire a stake in the Indian automobile maker. As per report, Korea’s automotive giant Hyundai Motor is planning to start commercial vehicle business in India and, therefore, is said to have initiated talks with Eicher group with an intention to acquire a stake in Eicher Motors.
Modern Steels galloped 20% to Rs 66.10 after it said its board will consider a bonus issue on 24 July 2007.
Jaiprakash Associates slumped 3.69% to Rs 838 despite reporting a 54.34% rise in net profit in Q1 June 2007 to Rs 140 crore compared to Rs 92 crore in Q1 June 2006. Total income increased 8.76% to Rs 1,005 crore (Rs 924 crore). The results were announced before market hours today, 16 July 2007.
Idea Cellular gained 3.22% to Rs 125. Idea Cellular added 8.59 lakh users in June 2007 as compared to 7.03 lakh users in previous month
Real-estate developer Parsvnath Developers was up 0.01% to Rs 378.15. Its subsidiary got government nod for the development of a bio-technology and pharma special economic zone (SEZ) in Andhra Pradesh. It will cover 25 acres at Genome Valley Biotech Park, Phase-III, Hyderabad (Andhra Pradesh). This state-of-the art SEZ envisages a developable area of 21.5 lakh squre feet with an investment of Rs 400 crore.
Subros jumped 8.90% to Rs 241.70 after the company said its board will meet on 30 July 2007 to consider a stock split. The company’s equity capital is Rs 12 crore, with 1.2 crore outstanding shares of a face value of Rs 10 each.
Ashok Leyland rose 1.02% to Rs 39.45 on forming a joint venture with automotive supplier Siemens VDO Automotive AG, Germany to design, develop and adapt infotronics products and services for the transportation sector. The equity of the JV Company will be held at a ratio of 50:50 between the company & Siemens VDO. The JV is subject to certain corporate and statutory approvals from both sides.
Asian markets were trading on a mixed note today, 16 July 2007, with shares in Singapore setting a record intra-day high after US blue chips' record performance on Friday, 13 July 2007. South Korea's Kospi was volatile as investors booked profits in shipbuilding shares.
Hong Kong's Hang Seng (down 0.63% at 22,953.94), South Korea's Seoul Composite (down 0.68% at 1,949.51), Taiwan's Taiwan Weighted (down 0.57% at 9,415.31), Singapore's Straits Times (down 0.04% at 3,653.23) and Shanghai Composite (down 2.36% to 3,821.96) slipped.
Japanese market is closed today for public holiday.
Most of the European markets were trading higher
US stocks rose further into record territory on Friday, 13 July 2007, and posted strong weekly gains as investors continued the previous session's record rally after in-line earnings from General Electric Co. and a jump in a consumer-confidence survey. The Dow Jones Industrial Average rose 45.52 points to a record 13,907.25, while the Standard & Poor's 500 Index gained 4.80 points to a record finish of 1552.50.
Oil prices inched up Monday, 16 July 2007, amid concerns over production in the North Sea. Light, sweet crude for August delivery gained 5 cents to $73.98 a barrel in Asian electronic trading on the New York Mercantile Exchange, midmorning in Singapore.
Telecom Towers - unlocking value
Physical assets are rarely core to the business, unless you are in the commodity business. For businesses where intellectual property assets or brands are key to success, physical assets need not be the focus of company resources or management attention. The point here is — what’s non-core can be carved out, and thus unlock value for the company and its shareholders.
This process is currently on in the telecom industry, where cellular companies are increasingly saying – Do I really need to put up cell towers on my own? This minor question has led to a multi-billion , value unlocking process, and a large deal-making opportunity for investment bankers and PE players.
The business opportunity here is at two levels – there is scope for standalone tower companies to build and operate towers for one or more telecom companies; some telecom companies may even hive off their tower assets completely or partially. In fact, all of this is happening, and the size of the opportunity is rather large. Both options have room for strategic and private equity investors.
India had around 110,000 telecom towers at the end of March 2007. Industry will add around 90,000 towers each in FY08 and FY09. At an average estimated cost of about Rs 20 lakh per passive tower (not including electronics), the investment required is Rs 18,000 crore each year. Active elements like electronics cost a similar amount. So the total investment planned is around Rs 36,000 crore, or almost $10 billion, per year. If each telecom company continues setting up its own towers, then this investment will not be very efficient. A tower, alteast the passive elements, can be shared and this will improve returns on investment.
Looking at the increasing size of investments, telecom companies have come around to the view that going it alone in a non-core activity isn’t a good idea. So far, most of the tower assets are owned by telecom companies themselves. Analysts believe the market value of a tower could be around Rs 1 crore on an average. That is if you treat a tower as an annuity asset, and don’t factor in growth in number of towers. So the existing asset base as on March 2007 could be valued at over Rs 1 lakh crore, or $27 billion. Now, what happens if you price in growth? The best answer for this perhaps comes from the valuations telecom companies are asking for their tower subsidiaries. And this seems to be as high as Rs 3 crore per tower on the existing tower base.
For example, Reliance Communications (RCL) hived off its tower assets into a company called Reliance Telecom Infrastructure (RTIL). The company is believed to have had around 14,000 towers at the end of FY07. RTIL will invest in additional 20,000 towers in FY08. According to industry sources, RTIL has appointed JP Morgan to raise $500 million through minor equity dilution. JP Morgan is believed to be asking for a valuation of $8-10 billion for RTIL. This seems to be somewhat more than Rs 2 crore per tower. Earlier this month, Tata Teleservices (TTSL) announced plans to unlock value from its tower assets.
TTSL reportedly has 6,000 towers. Media reports suggest the value of its tower subsidiary could be around Rs 12,000 crore, or $3 billion. This suggests a value close to Rs 3 crore per tower. There are also benchmarks available from global independent tower companies. According to a report by Kotak Securities, American Towers owns 22,000 towers and has a market cap of $17.5 billion, or a valuation of Rs 3.3 crore per tower. Crown Castle owns 23,660 towers and has a market cap of $10.3 billion, or a valuation of Rs 1.8 crore per tower.
SBA Communications owns 5,550 towers and is valued at Rs 2.6 crore per tower. The telecom tower business could thus be a $60 billion opportunity at a valuation of say Rs 2 crore per tower. Even if you take 10% dilution, you have space for $6 billion of external capital. Given that, an investment of $20-billion is required over the next two years, $6 billion seems a reasonable number. “This could come from a combination of PE and strategic investors,” says a fund manager of a big-ticket PE fund currently looking at this space. Both American Tower and Crown Castle are reportedly interested in an India presence.
So expect some big deals in this space. Bharti hived off its tower business and related infrastructure into a wholly- owned subsidiary called Bharti Infratel in January 2007. Bharti currently has around 40,000 towers and is expanding furiously. Looking at the valuations that is being talked about, Bharti Infratel could even be a $20-billion company.
A 10% deal here can easily be India’s largest PE deal. Standalone tower companies could also offer space for deals. Quipo Telecom Infrastructure, a standalone tower company, already has three external investors – IFC, Washington, FMO and Swedfund. GTL Infrastructure and Essar Telecom Infrastructure, independent tower companies, could also raise equity at some point. Xcel Telecom, another standalone company, claims to have a $500 million equity commitment from Q investments, a Texas-based investment firm.
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