Markets succumb to selling pressure

Stocks across sectors witnessed selling pressure today.

The market had surged in opening trade, tracking rally in Asian markets. But in a reversal of the trend, it slipped into the red in afternoon trade. As at 15:20 IST the BSE Sensex was down 378.16 points or 2.15% at 17,215.91.

The BSE Metal index was down 6.01% at 14,175.09. It underperformed the Sensex.

The BSE Power index was down 5.18% at 3,739.12. It underperformed the Sensex.

The BSE Capital Goods index was down 4.81% at 16,393.16. It underperformed the Sensex.

The BSE Realty index was down 4.38% at 10,145.16. It underperformed the Sensex.

The SBE Oil & Gas index was down 3.20% at 10,498.95. It underperformed the Sensex.

The BSE Auto index was down 2.61% at 4,553.47. It underperformed the Sensex.

The BSE's banking sector index Bankex was down 1.59% at 10,560.76. It outperformed the Sensex

Post Market Commentary - Jan 24 2008

The market closed in deep red territory on the back of heavy selling across the counters. The market opened on a firm note backed by favoring cues from the global markets and inched up further but was unable to sustain at higher levels and fell to pare all its initial gains. The market lost the grip few hours after the start of the session and drift down as the profit booking across the sectoral indices prevailed. Heavy selling was also seen from the Small Caps and Mid Caps baskets as they also joined the benchmark indices to close on a weak note. The BSE Sensex closed lower by 372.33 points at 17,221.74 and NSE Nifty fell by 169.95 points to close at 5,033.45. The BSE Mid Cap and Small Cap fell by 251.41 points and 411.38 points to close at 7,537.90 and 10,013.96 respectively.

BSE Metal index slipped by 860.32 points to close at 14,220.68 as Hind Zinc (10.32%), Jindal Steel (10.17%), JSW Steel (8.60%), Nalco (6.72%), Hindalco (5.47%) and Sterlite inds (6.69%) closed in red.

BSE Capital Goods index closed lower by 838.65 points to close at 16,382.48. Scrips that fell are Suzlon Ener (8.67%), Alstom Projects (8.47%), Havells Ind (8.45%) and Praj Inds (8.17%).

BSE Realty index decreased by 467.85 points to close at 10,141.82 as Indbul Real (8.12%), Akruti City (7.55%), Penland (6.83%), Parsvnath (5.98%), Omaxe (5.50%) and Unitech (5.23%) closed lower.

BSE Oil & Gas index dropped by 347.63 points to close at 10,497.95. Scrips that slipped are Gail India (8.23%), Aban Offshore (6.96%), RNRL (5.67%), ONGC (4.70%), RPL (4.64%) and Cairn India (3.16%).

BSE Bankex index fell by 148.36 points to close at 10,582.88. Scrips that dropped are BOI (10.77%), Andhra bank (6.48%), Kotak bank (5.12%), Oriental bank (4.66%) and Allahabad bank (3.61%).

BSE IT index slipped by 43.59 points to close at 3,587.78 as NIIT Tech (10.42%), I-Flex (8.55%), Educomp Soln (5.73%), Financ Tech (4.36%), Wipro (4.55%), Tech Mahindra (3.79%) closed lower.

Latest Grey Market Premiums

Future Capital Holding 765 400 to 415


Reliance Power 450 210 to 220


Emaar MGF 610 to 690 280 to 290


J. Kumar Infraprojects 110 to 120 7 to 10


Cords Cable Ind. 125 to 135 15 to 17


Bang Overseas 200 to 207 32 to 35

Market loses ground in volatile trade

The market tumbled today as selling pressure emerged for index pivotals in the second half of the day. Nonetheless, it recovered some ground after a massive fall in afternoon trade. Earlier today, the market had surged in opening trade tracking rally in Asian markets. The market breadth was quite weak.

European markets opened on a strong note today while majority of Asian markets were trading higher.

The BSE Sensex was down 383.06 points or 2.18% to 17,211.01, as per provisional closing. Sensex hit a low of 17,070.05, in afternoon trade. At the day's low, Sensex had lost 524.02 points. Sensex had opened with an upward gap of 300 points at 17,920.98 and surged further to hit a high of 18,185.10 in early trade. At the day's high, Sensex rose 591.03 points. Sensex oscillated in a wide range of 1115.05 points.

The broader CNX S&P Nifty slipped 168.45 points or 3.24% to 5,034.95, as per provisional closing. It hit a high of 5,357.20 and low of 4,995.80.

The BSE Mid-Cap index was down 3.03% to 7,553.37 while the BSE Small-Cap index was down 3.85% to 10,024.42. Both these indices underperformed the Sensex

The market breadth was weak on BSE: 2328 shares declined as compared to 400 that advanced. 16 shares remained unchanged. 23 out of 30 stocks from the Sensex pack declined.

The total turnover on BSE amounted to Rs 6364 crore as compared to Rs 5224 crore by 14:30 IST.

Finance Minister P Chidambaram today said that some more measures would be taken to moderate capital inflows. He said there was a need to moderate some capital inflows without hurting the flow of capital that stimulates the economy.

Reliance Energy, the country’s largest power utility in terms of net profit declined 9.29% to Rs 1805. It was the top loser from Sensex pack. The stock moved in a wide range of Rs 1751.10 to Rs 2095.

India’s largest generation company in terms of net profit National Thermal Power Corporation (NTPC) slumped 8.81% to Rs 204 on profit booking. The stock had hit a high of Rs 229.90 in early trade. NTPC had surged 13.73% yesterday, 23 January 2008 on reports the company plans to invest Rs 1,729 crore for development of the Jharkhand coal mine.

India’a largest private sector firm by market capitalization and oil refiner Reliance Industries declined 2.75% to Rs 2484.70, off its early high of Rs 2640. 12.41 lakh shares changed hands on the counter on BSE

Hindalco (down 6.71% to Rs 150.05), Oil & Natural Gas Corporation (down 5.53% to Rs 937) and Wipro (down 6.05% to Rs 405) were the other losers from Sensex pack.

India’s largest dedicated housing finance company in terms of revenue Housing Development Finance Corporation gained 3.13% to Rs 2611. The stock swung wildly in band of Rs 2521 and Rs 2729. It was the top gainer from Sensex pack.

Satyam Computer Services (up 2.01% to Rs 401), ACC (up 1.56% to Rs 762), and Reliance Communications (up 1.10% to Rs 621.25),were the other gainers from Sensex pack

ICICI Bank, the country’s largest private sector bank in terms of net profit was down 1.37% to Rs 1135.05, off day’s high of Rs 1246. As pere reports, ICICI Securities, the investment banking and broking unit of ICICI Bank reportedly aims to raise up to $1 billion through a pre-IPO placement of shares.

India's biggest commercial bank State Bank of India rose 0.90% to Rs 2345. The bank unveils its Q3 December 2007 results today.

India’s largest FMCG company in terms of revenue Hindustan Unilever declined 3% to Rs 183.90. It was strong throughout the day, but slipped in late trade. It had touched high of Rs 202.90 during the day

There is a liquidity crunch in the secondary market at the moment with a lot of money tied up to the recently concluded mega Rs 11000-crore IPO of Reliance Power which was massively oversubscribed. The IPO was closed on Friday, 18 January 2008.

European markets were trading strong today. Key benchmark indices in United Kingdom (up 2.80% to 5,766.50), Germany (up 4.58% to 6,734) and France (up 4.34% to 4,838.18) surged

Most Asian markets were trading higher today 24 January 2008. Japan's Nikkei (up 2.06% at 13,092.78), Singapore's Straits Times (up 2.23% at 3,050.09), Taiwan's Taiwan Weighted (up 1.47% at 7,517.05), South Korea's Seoul Composite (up 2.12% at 1,663) and China’s Shanghai Composite (up 0.31% to 4,717.34) registered gains.

However Hong Kong slipped 2.29% to 23,539.27 after initial spurt.

China expects a mild slowdown in growth this year, the head of the National Bureau of Statistics said on Thursday, 24 January 2008, after reporting that annual GDP growth eased to 11.2% in the fourth quarter of 2007 from 11.5% in the third.

US stocks snapped a five-day losing streak on Wednesday on optimism that a government plan to rescue ailing bond insurers is taking shape and could prevent billions more in credit losses. The market also drew support from growing confidence that aggressive interest-rate cuts by the Federal Reserve could help stabilize the economy and support the beleaguered banking sector. The Dow Jones industrial average surged 298.98 points, or 2.5% at 12,270.17, after plunging almost 350 points in early trade. The Standard & Poor's 500 index advanced 28.10 points, or 2.14%, to 1,338.60, while the Nasdaq Composite index shot up 24.14 points, or 1.05%, to 2,316.41.

Back home the markets reversed seven straight days of fall to register gains on Wednesday boosted by an emergency 75 basis points cut announced by the US Federal Reserve on Tuesday, 22 January 2008. Short covering propelled the markets further during the day. BSE Sensex surged 864.13 points or 5.17% to 17,594.07.

The broader CNX S&P Nifty surged 304.10 points or 6.21% at 5,203.40 on Wednesday, 23 January 2008.

The BSE Sensex had lost 4,097.51 points or 19.67% in just seven consecutive sessions to 16729.94 on 22 January 2008 from a recent high of 20,827.45 on 11 January 2008. Margin calls, weak global markets and heavy selling from FIIs had triggered the sharp fall.

As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 3021.54 crore on Wednesday, 23 January 2008. Domestic institutional investors (DIIs) were net buyers of shares worth Rs 1291.76 crore on Wednesday, 23 January 2008.

FIIs were net buyers to the tune of Rs 4,040.22 crore in the futures & options segment on Wednesday, 23 January 2008. They were net buyers of index futures to the tune of Rs 1,758.19 crore and sold index options worth Rs 30.93 crore. They were net buyers of stock futures to the tune of Rs 2,249.31 crore and bought stock options worth Rs 1.79 crore.

BSE Bulk Deals to Watch - Jan 23 2008

Deal Date Scrip Code Scrip Name Client Name Deal Type * Quantity Price **
23/1/2008 523269 ADVANI HOT R PENINSULAR SOUTH ASIA INVT CO LTD SOUTH ASIA ACCESS FUND B 290693 74.42
23/1/2008 532919 ALLIED COMP PRAVINCHANDRA A SHAH B 300000 38.94
23/1/2008 532919 ALLIED COMP JIGNESH VAGHJIBHAI SHAH S 206666 38.65
23/1/2008 532919 ALLIED COMP ACCORD CAPITAL MARKETS LTD S 325204 39.86
23/1/2008 505506 AXON INFOTEC BANSAL VINIMOY PVT. LTD. B 20000 58.05
23/1/2008 505506 AXON INFOTEC AGRAWAL BROKERAGE PVT. LTD. B 20000 58.50
23/1/2008 505506 AXON INFOTEC SAFEAID FINANCE CO. PVT LTD S 20000 58.05
23/1/2008 505506 AXON INFOTEC HARVARD TRADING PVT. LTD. S 4000 58.50
23/1/2008 505506 AXON INFOTEC BINOD RESOURCES PVT. LTD. S 14000 58.50
23/1/2008 505506 AXON INFOTEC VIKRAM MOONDHARA S 4000 60.00
23/1/2008 532380 BABA ARTS CHAVANDE SUSHANT ABHIMANYU S 59000 29.10
23/1/2008 532380 BABA ARTS DHANESH KASHINATH BHANDURGE S 94650 29.40
23/1/2008 590059 BIHAR TUBES MAVI INVESTMENT FUND LTD S 100000 150.00
23/1/2008 511628 BRESCON CORP JDP SHARES AND FINANCE P. LTD B 34000 243.96
23/1/2008 505052 CLUTCH AUTO AVISHEK BAJORIA B 145000 92.16
23/1/2008 530843 CUPID LTD SHILPA R SIDHWANI S 40000 20.84
23/1/2008 500183 HIM FUTR COM JMP SECURITIES PVT. LTD. B 2373000 34.70
23/1/2008 531025 INCA FINLEAS RASHEL AGROTECH LTD. B 18000 140.99
23/1/2008 508807 IST LIMITED EDGETECH SOLUTIONS PVT LIMITED B 82500 285.00
23/1/2008 508807 IST LIMITED GPC TECHNOLOGI LIMITED S 82500 285.00
23/1/2008 530955 KAILASH FICO TUTIS TECHNOLOGIES LIMITED B 64000 44.14
23/1/2008 500257 LUPIN LTD HSBC GLOBAL INVESTMENT FUND MAURITIUS LTD S 420000 518.06
23/1/2008 519494 N K INDUSTR PRAVINKUMAR D THAKKAR B 32215 43.10
23/1/2008 531273 RADHE DEVELO SHYAMBHAI RAMBHAI PATEL B 100000 116.65
23/1/2008 500357 RAMA PAPER GEOMETRIC SEC AND ADV P LTD B 107001 21.82
23/1/2008 500357 RAMA PAPER MAHENDRAPAL R BAHL S 141330 21.77
23/1/2008 531898 SANGUINE MD CHAMPHAR SEC AND ADV P LTD B 84355 21.86
23/1/2008 531898 SANGUINE MD KARAN RAJAN BAHL S 50000 22.00
23/1/2008 531898 SANGUINE MD RENU BAHL S 50000 19.87
23/1/2008 504614 SARDA ENMIN M S SUNDARAM MF CAPEX OPPO DIV B 84801 449.96
23/1/2008 504614 SARDA ENMIN WINSTAR INDIA INV CO LTD A/C WINSTAR TECHNOLO GY CELL S 84007 450.00
23/1/2008 532886 SEL MANUF MAVI INVESTMENT FUND LTD S 200000 180.00
23/1/2008 532887 SUJANATOWER JM MUTUAL FUND .... B 486725 174.00
23/1/2008 503310 SWAN MILLS JRL MARKETING PVT LTD B 600000 110.00
23/1/2008 503310 SWAN MILLS SWISS FINANCE CORP LTD S 3149672 110.00
23/1/2008 531703 TRIBHVAN HSG JOHN VAS B 50000 26.55
23/1/2008 509243 TVS SRICHAKR GAGANDEEP CREDIT CAPITAL PVT. LTD B 297120 120.00
23/1/2008 509243 TVS SRICHAKR PRESCIENT SECURITIES PVT. LTD S 297120 120.00
23/1/2008 590048 TYCHE PERIPH RNA BUILDERS N G B 94437 89.10
23/1/2008 532765 USHER AGRO MAVI INVESTMENT FUND LTD B 400000 201.20
23/1/2008 530477 VIKRAM THERM RAMESH CHIMANLAL SHAH B 15939 28.66
22/1/2008 500820 ASIAN PAINTS OJASVI TRADING PRIVATE LIMITED B 880210 1044.84
22/1/2008 532380 BABA ARTS SUNRISE INVESTMENT S 63754 28.30
22/1/2008 512493 GARNET INTL MAXWELL MANAGEMENT SER PVT LTD B 24000 87.75
22/1/2008 532636 IND INFOLINE ORIENT GLOBAL TAMARIND MAURITIUS LIMITED B 341994 1057.02
21/1/2008 532887 SUJANATOWER THE GMO EMERGING ILLIQUID MAURITIUS FUN S 332930 172.15

Daily Technicals, Futures - Jan 24 2008

Daily Technicals, Futures - Jan 24 2008

US Market turns its head, bounces

It started with another stomach-turning drop at the open, and a loss of more than 300 points by midday. Then stocks changed course, raced higher and closed with a dramatic gain of nearly 300.

This wasn't just volatility. This was Wall Street whiplash.

Amid tumbling housing prices, an ongoing credit crisis and growing fears of a recession, turbulence has become a hallmark of Wall Street in recent weeks. And after five straight days of pullbacks, analysts saw some positive signs in Wednesday's trading.

Investors certainly found a reason to buy, perhaps encouraged by the Federal Reserve's unprecedented 0.75-point interest rate cut a day earlier and a widely held bet on another half-point cut next week.

By day's end, the Dow had swung 631.86 points from its low point to its high -- the largest single-day turnaround in more than five years.

Nifty January 2008 futures at discount

Turnover in F&O segment declines

Nifty January 2008 futures were at 5164, a discount of 39.40 points as compared to spot closing of 5203.40.

The NSE's futures & options (F&O) segment turnover was Rs 36,073.86 crore, which was lower than Rs 44,307.58 crore on Tuesday, 22 January 2008.

Reliance Natural Resources January 2008 futures were at premium, at 140.50, compared to the spot closing of 139.40.

NTPC January 2008 futures were at discount, at 220, compared to the spot closing of 221.60.

State Bank of India January 2008 futures were at premium, at 2350.20, compared to the spot closing of 2323.75.

In the cash market, the S&P CNX Nifty gained 304.10 points or 6.21% at 5203.40.

Growth concerns hit bullion metals

Gold and silver prices drop as demand likely to get hit in coming months

Rising concerns about growth in the US economy pressured bullion metals today, Wednesday, 23 January, 2008. Traders speculated that demand for the yellow metal will reduce if growth slows down in the coming months. US stock market also witnessed some rollercoaster ride today. Silver prices also dropped today.

Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.

Comex Gold for February delivery fell $7.2 (0.8%) to close at $883.1 an ounce on the New York Mercantile Exchange. Earlier in the day, it hit an intraday low price of $877 an ounce. This year, prices have gained 6.8% till date. Last week, gold suffered a loss of 1.8%.

Comex Silver futures for March delivery fell 13.5 cents (0.8%) to $15.97 an ounce. Silver has gained 8% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

Yesterday, Federal Reserve slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Federal Reserve’s decision came as a surprise to everyone but Fed took the same as stocks markets worldwide, had been plunging on fear that US economy would be hitting a recession soon.

Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Gold prices had closed above the $900 mark for the first time on Monday, 14 January, 2008. Since then it has dropped by more than $12.

Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.

In the currency markets today, the dollar gained on the euro and pound on growing concerns about U.K. and euroz one growth prospects but slipped against Japan's yen. The dollar index, which tracks the performance of the greenback against six other major currencies, was up at 76.429.

In the energy market today, crude oil fell for the second consecutive day on recession concerns and oil closed lower by more than $2/barrel today at $86.99 barrel.

Gold had climbed 31% in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. The Fed reduced federal funds rate three times in FY 2007.

At the MCX, gold prices for February delivery closed lower by Rs 59 (0.5%) at Rs 11,260 per 10 grams. Prices rose to a high of Rs 11,390 per 10 grams and fell to a low of Rs 11,176 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 101 (0.5%) lower at Rs 20,687/Kg. Prices opened at Rs 20,715/kg and fell to a low of Rs 20,481/Kg during the day’s trading.

Crude oil once again ends lower despite rate cut

Prices end more than $2 down as traders fail to overcome recession fears

Crude prices once fell today for the second consecutive day today, Wednesday, 23 January, 2008 after Federal Reserve cut rates by 75 basis points yesterday. Price slipped by more than $2/barrel today as traders speculated that cut in interest rates by Federal Reserve will not prevent the US economy from entering a recession. Recession, in turn lower the demand for crude oil.

Crude-oil futures for light sweet crude for February delivery today closed at $86.99/barrel (lower by $2.22/barrel or 2.5%) on the New York Mercantile Exchange. Futures touched $85.42 after the Fed announcement yesterday during intraday trading. Prices are 58% higher than a year ago.

Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.

Yesterday, Federal Reserve slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Federal Reserve’s decision came as a surprise to everyone but Fed took the same as stocks markets worldwide, had been plunging on fear that US economy would be hitting a recession soon.

Brent crude oil for March settlement today fell $1.83 (2.1%) to $86.62 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.

Natural gas drops for sixth consecutive day

Natural gas fell for sixth day amid speculation an emergency interest rate cut by the Federal Reserve won't be enough to prevent the U.S. economy from sliding into recession, paring demand for gas. Gas for February delivery fell 4.9 cents (0.6%) to settle at $7.621 per million British thermal units.

Against this backdrop, February reformulated gasoline dropped 2.98 cents to $2.2508 a gallon and February heating oil fell 4.95 cents to $2.4231 a gallon.

In the currency markets today, the dollar gained on the euro and pound on growing concerns about U.K. and euroz one growth prospects but slipped against Japan's yen. The dollar index, which tracks the performance of the greenback against six other major currencies, was up at 76.429.

Members of the OPEC left production targets unchanged at the 5 December meeting in Abu Dhabi. The group, which produces 40% of the world's oil, will review output at a 1 February, 2008 meeting in Vienna.

At the MCX, crude oil for February delivery closed at Rs 3,449/barrel, lower by Rs 62 (1.77%) against previous day’s close. Natural gas for January delivery closed at Rs 300.2/mmtbu, lower by Rs 3.9/mmtbu (1.3%).

The Energy Department is scheduled to release its weekly report on inventories tomorrow at 10:30 a.m. in Washington, a day later than usual because of the Martin Luther King Day holiday on 21 January.

KNR Constructions

Promoted by K Narasimha Reddy, KNR Construction (KNR) designs, engineers, constructs and maintains roads. The company diversified into construction of irrigation and urban water supply projects in 2005.

As part of the National Highway Authority of India’s (NHAI) national highway development NHDP) program, KNR has a seven-year relationship with Patel Engineering as a joint venture (JV) partner. The KNR-Patel JV has won 10 road construction projects including two build-operate-transfer (BOT) annuity projects as a part of NHDP Phase II. Their combined value is Rs 960 crore. Primarily focused on road projects, the company is a late entrant into irrigation and water-supply projects. It won its first irrigation project, in JV with Backbone Projects (51% stake), in 2005. Another irrigation project with a majority stake is in JV with Srilaxmi Engineering Company (49%). The JV with Patel Engineering and others facilitate KNR to move up the value chain with either higher ticket orders or complex projects or new construction verticals by acquiring the much-needed pre-qualification capabilities.

Unexecuted orders spread over 25 projects in various states were Rs 1733.83 crore end November 2007. Clients included NHAI, state government projects funded by multilateral financial institutions such as the World Bank and ADB. The order-mix is heavily skewed towards low-margin roads with about 89.3% of the orders made up of road-sector projects. Irrigation and water-supply projects account for 8.4% and urban-water-infrastructure-management projects 2.3%.

KNR has 90-acre freehold land with significant portion in adjacent districts of Hyderabad in Andhra Pradesh, about nine acres in Karnataka, and 56 cents (about half acre) near Chennai in Tamilnadu.

The IPO proceeds will be used to infuse equity in the SPVs that executes BOT projects, contribute towards unsecured loans taken for the BOT project in Andhra Pradesh, and meet capital expenses for purchase of capital equipment and working capital requirement.

Strengths

Significant successful execution track record and repeat quality orders on continuous basis from reputed clients such as NHAI.

Unexecuted order book, at Rs 1733.82 crore end November 2007, translates into about 5.4 times the operational income of the year ending March 2007 (FY 2007), providing strong revenue visibility.

Weakness

Contribution of low-margin road projects stood at about 95% of consolidated income in FY 2007 and half year ended September 2007. The share of road projects in the unexecuted order book too stood a staggering 89.3%.

About 11 of the current 25 projects that form part of the current order book were won on JV or subcontracted to it by the special purpose vehicle (SPV) or JV partner, with majority coming from JV partner Patel Engineering (PEL).

Valuation

Operational income posted a growth of 116% to Rs 324.42 crore and a 154% jump in restated profit to Rs 13.56 crore in FY 2007 The EPS on adjusted net profit works out Rs 7.3 for FY 2007. The offer price discounts FY 2007 earning by 23.3 times at the lower price band of 170 and 24.7 times at the upper price band of Rs 180. Industry peers such as JMC Projects, C&C Constructions and PBA Infrastructure quote at a PE of 23.9 times, 14.7 times, 12 times of their FY 2007 earning. MSK Projects quotes at a PE of 38.5 times FY 2007 earning

Onmobile Global IPO Analysis

OnMobile Global (OnMobile) was promoted in September 2000 by OnMobile Systems, Inc (OMSI) and Arvind Rao, a B Tech from IIT Mumbai and management graduate from Wharton school, University of Pennsylvania, and Chandramouli Janakiraman, a B Tech and a former Infosys Technologies employee, to develop telecommunication software platforms and applications for the mobile telecommunications industry. Initially, it was incorporated as Onscan Technologies India The name was changed to OnMobile Asia Pacific in April 2001 and to OnMobile Global in August 2007.

OnMobile provides value-added services (VAS) in the telecommunications space and software products in India with an expanding international presence, particularly in the emerging markets in Asia. It has a broad range of applications delivered by its carrier customers (telecom service providers) to their end-user subscribers. These products include ringback tones, voice portals, ringtone downloads, subscription manager, contests, music messaging, on-device client software, mobile radio, dynamic voicemail, voice SMS, and missed call alerts. The company sources content for its applications from over 65 content owners and content suppliers and delivers to its customers through its delivery platforms.

Besides delivering interactive media solutions such as tele-voting, interactive programming and mobile auditioning to leading media companies, OnMobile provides a range of mobile commerce solutions, enabling subscribers to buy movie tickets, railway tickets, refill their pre-paid mobile phone cards and pay bills using their mobile phones. It provides end-to-end turnkey solutions to its carrier customers and manages those for them on an outsourced service basis through long-term contracts and receives a share in the revenue generated by the carriers from their end-user subscribers. Most of the company’s applications are not network- or handset-specific and deployable across major networks regardless of the technical capabilities of the mobile device. OnMobile earned about 67% of its net revenue from its ringback tones and music-related services in the financial year ended March 2007 (FY 2007) and half year (H1) of FY 2008. The number of permanent and contracted employees has grown from 58 is FY 2004 to 819 by end December 2007.

The IPO to rise Rs 490.52 crore –Rs 463.27 crore comprises 109 lakh shares in the price band of Rs 425 – Rs 450 per share, including fresh issue of 86.13 lakh shares and offer for sale of 22.87 lakh shares. Of the net proceeds of the issue (Rs 387.60 crore- Rs 366.07 crore), Rs 180.52 crore will be used to purchase equipment for OnMobile’s offices in Bangalore, Mumbai and Delhi and various customers, Rs 5 crore for working capital requirement, Rs 35 crore for repayment of loan, and the balance for acquisition of companies, expansion of facilities, strategic initiatives and general corporate purposes.

Strengths

l The customer base includes all the major telecom operators in India and more than 10 international telecom operators in over eight countries including Optus in Australia, Banglalink in Bangladesh, Maxis in Malaysia, and BTEL and Indosat in Indonesia. In addition, markets products and services to media companies such as AOL, Disney, ESPN, India Today Group digital, Star India and Nokia.

l Due to competitive industry dynamics, mobile tariffs have been falling and there has been pressure on the average revenue per subscriber (ARPU) of telecom operators. Thus, telecom operators would be looking for more VAS revenue at very little incremental capital expenditure. This is a potential lever to counter the trend of falling ARPUs. It will result in decent growth opportunity for OnMobile as VAS will have higher growth trajectory on lower base and increasing acceptability.

l Reaches about 95% of India’s telecom subscribers as all the leading telecom operators are customers. According to Cygnus Business Consulting & Research, India is one of the fastest emerging markets in the world for mobile VAS. Over the years, the VAS revenue in India has been growing at a rapid pace of 70%-90%. The VAS market in India is expected to be about 10% of the service providers’ revenue. The fast-grow telecom subscriber base in India will turn in more customers for VAS.

l Enjoys long-term relationship with customers. Has not lost any major customer since its inception and consistently achieved a year-on-year revenue growth with each of them. Hardware systems and software applications are embedded deeply into carriers’ network infrastructure and integrated into their core network systems. This works as an entry barrier for new players.

Weaknesses

l More than 80% of the revenue from just five largest customers (major telecom service providers), constituting less than 10% of total customers, in the six months ended September 2007. The loss of any major customer or decrease in the volume of work from them or dip in revenue sharing may adversely impact revenue and profitability.

l Substantial portion of the revenue — more than 90% in the first half (H1) of FY 2008, FY 2007 and FY 2006 — was through revenue-sharing agreement with customers. Revenue is earned as a percentage of the retail price that telecom companies charge to their end-user for the use of applications or content. Revenue may be adversely affected on the pricing decisions of telecom companies and competitive scenario.

l VAS would be the next focus area for telecom players. In an attempt to improve the profitability by rationalising costs, telecom service providers may develop some or all of the carrier application services in-house. This could result in significant loss of revenue and may have a material adverse impact on future business as over 90% of the net revenue is derived from carrier-application services.

Infosys Technologies, (17.9% stake in OMSI), issued a letter to the board of directors of OMSI on 1 October 2007 stating Infosys was not consulted when OMSI decided to sell its holding in OnMobile. It indicated the only option was to refer the matter to the appropriate authorities to protect its interests and get relief, including opposing the current IPO.

Valuation

Revenue grew at a CAGR of 99% and net profit at a CAGR of over 100% over the three-year period ended March 2007. However, operating profit margin has been declining over the couple of years though is still decent at above 40%. Performance improved significantly in the six months ended September 2007, achieving revenue of Rs 112.51 crore (82% of the revenue in FY 2007) and net profit of Rs 30.52 crore (87% of net profit realised in FY 2007). Share of revenue with telecom operators is about 20% on an average ranging between 15%-40%. Overseas revenue was about 9.1% of total revenue in H1 of FY 2008 as against 5.1% in FY 2007.

On annualised EPS of Rs 10.2 in the six months ended September 2007 on post-issue equity capital of Rs 60.09 crore, the P/E works out to 41.8 – 44.3 at the price band of Rs 425 – Rs 450. The trailing 12-month (TTM) P/E of Tanla Solutions (broadly providing similar services outside India) is 20.5.