Saturday, January 26, 2008
If the current marketwide rollover of 18.5% is an indicator, rollovers for the February series are heading for an all-time low.
Only four days remain for the expiry of the January month contracts, and futures worth only Rs 12,143 crore have been rolled over so far out of the total outstanding open interest of Rs 65,521 crore.
The rollovers in Nifty futures is at an all-time low of Rs 5,600 crore or 27.8% of the total open interest of Rs 20,158 crore. The rollovers in stocks futures are at a low of Rs 6,453 crore or 14.4% out of the total outstanding open position of Rs 44,831 crore.
The marketwide rollovers in the January futures contracts had been robust at 33% of the total outstanding open interest of Rs 98,273 crore before four trading days of the expiry of the December futures contracts. The rollovers in Nifty futures contracts was 40.95% or Rs 9,748 crore while stock futures had rollovers of Rs 22,585 crore or 30.5%.
The poor rollovers have been caused by the recent whiplash on Dalal Street that wiped out Rs 18.5 trillion market capitalisation of actively traded stocks. The market cap of 224 stocks traded on the futures and options segment declined steeply by Rs 12.50 trillion - forcing F&O players to heed margins calls or unwind their long calls. F&O players who lost heavily during the bloodbath could not make mark-to-market payments to carry-forward their longs.
The unwinding of long positions resulted in a sharp decline in open interest by over 42% from a high of Rs 110,000 crore on January 8 to Rs 63,000 crore on Thursday.
Retail investors who took leveraged positions in the derivatives segment saw their shares sold by brokers to meet margin calls. In the process, the F&O positions got pruned substantially. With most small brokers saying no to new positions, rollovers are just not happening.
Stocks hit by poor rollovers were mainly from the mid-cap segment, which have been hit in the current meltdown. Of the 224 stocks traded in the F&O segment, the rollover for 108 stocks has been less than 5%. It was between 5-10% for 75 stocks, between 10-20% for 36 stocks and over 20% for five stocks.
Cluster: Emerging Star
Price target: Rs180
Current market price: Rs130
Results ahead of expectations
- For Q3FY2008 3i Infotech has reported a revenue growth of 14.2% quarter on quarter (qoq) and 84.9% year on year (yoy) to Rs317.3 crore. The sequential growth was aided by incremental revenues of around Rs16 crore (or around a 6% sequential growth) from its recent acquisitions with the bulk contribution coming from J&B Software (around Rs15 crore).
- The operating profit margin (OPM) improved by 40 basis points qoq to 24.7%, despite the increase in the selling, general and administration (SG&A) cost as a percentage of the sales to 22.2% as compared with 21.9% in Q2FY2008. The margin improvement was largely driven by the 65-basis-point improvement in the gross margin due to a favourable revenue mix. The higher margin product business contributed 52% of the total revenues as compared with 46.7% in Q2FY2008. Consequently, the operating profit grew by 15.9% qoq and 83.9% yoy to Rs78.5 crore.
- Moreover, the steep sequential decline in the minority interest to Rs1.2 crore also aided the growth in the earnings. The consolidated earnings grew by 20.9% qoq and 75.5% yoy (after adjusting for the one-time items) to Rs48.5 crore, ahead of our expectations of around Rs45.5 crore.
- In terms of operational highlights, the order backlog continued to show a growth of 7.7% qoq to Rs784.5 crore which was largely contributed by a 13% sequential growth in the order backlog in the product business. The company added 150 employees (net of employee addition from acquisitions) in Q3, taking the total strength to around 6,500 employees. The revenues from the top ten clients (excluding ICICI Bank) declined sharply by 20.1% on a sequential basis.
- The company has maintained its revenue guidance at Rs1,150-1,250 crore and the earnings guidance at Rs165-175 crore. In terms of outlook, the company is not witnessing any change in the demand environment and has limited exposure to the US geography (around 30-32% billing in US Dollars) and banking sector. It exposure to the US banking sector is around 20% (largely due to the acquisition of J&B Software) that is largely related to cheque and payment processing, and would not be affected by the current uncertainties.
- At the current market price the stock trades at 13.7x FY2008 and 10.9x FY2009 earnings estimates. The stock has outperformed the tech index and the other tech stocks in the last quarter and we believe that it would continue to do so. That's because of the company's limited billing in US Dollars and exposure to the US banking sector. We maintain our Buy call on the stock with the price target of Rs180 (14x FY2009E earnings).
Shiv-Vani Oil & Gas Exploration Services
Cluster: Ugly Duckling
Price target: Rs670
Current market price: Rs611
Price target revised to Rs670
- Shiv-vani Oil & Gas Exploration Ltd (SOGEL) reported a healthy growth of 73.6% in its consolidated revenues to Rs126.7 crore in the quarter ended December 2007. In addition to an increased fleet base and higher realisations, the growth was partially contributed by incremental revenues of around Rs20 crore from the coal bed methane project.
- The operating profit margin (OPM) improved by 560 basis points to 41.5% primarily driven by the improvement in realisations and better utilisation of its fleet. The positive impact of the higher realisations is clearly reflected in the 390-basis-point decline in the drilling expenses (and other operational expenses) as a percentage of the sales. The operating profit grew by 100.8% to Rs52.6 crore.
- The decline in the depreciation charges as a percentage of the sales and the lower effective tax rate enabled the company to report a relatively higher growth of 178.7% in its earnings to Rs26.7 crore in Q3FY2008.
- In the first four quarters, the consolidated revenues and earnings have grown by 42.8% and 104% respectively. The OPM has improved by 350 basis points to 38.5% during the same period. The company was able to more than make up for the steep increase of 50% in the staff cost by scale benefits (savings of 120 basis points in the overheads cost as a percentage of the sales) and higher realisations (saving of 290 basis points in drilling expenses as a percentage of the sales).
- In term of operational highlights, the company bagged an order worth Rs261 crore to deploy four onshore rigs with Oil India for a period of two years. The average day rate works out to around $22,600, which is around 10-15% higher than the recent contracts with day rates in the range of $18,000-20,000. The contract has further boosted the company's existing order backlog of over Rs3,000 crore, thereby improving its revenue growth visibility.
- To factor in the higher than expected margins, we are revising upwards the earnings estimates for FY2009 and FY2010 by 5.4% and 8.6% respectively. At the current market price the stock trades at 16.9x FY2009 and 12.8x FY2010 estimated earnings. We maintain our Buy call on the stock with a revised price target of Rs670 (14x FY2010E earnings).
State Bank of India
Cluster: Apple Green
Price target: Rs2,680
Current market price: Rs2,405
Q3FY2008 results: First-cut analysis
- The public sector behemoth State Bank of India (SBI) reported a profit after tax (PAT) of Rs1,808.6 crore for Q3FY2008, beating our estimate of Rs1,413 crore. The PAT was up 69.8% year on year (yoy) and 12.3% quarter on quarter (qoq) on the back of a strong all-round growth. On a consolidated basis, the Q3FY2008 PAT stood at Rs2,442.3 crore, up 55.1% yoy and 10.8% qoq.
- The net interest income for the quarter stood at Rs4,256 crore, registering a robust growth of 23.8% yoy on the back of a strong growth in the advances and an improvement in the net interest margin (NIM).
- The NIM during the quarter improved by eight basis points sequentially on the back of an improvement in the yield on assets, which was partially offset by the higher cost of funds. On the year-on-year (y-o-y) basis, the NIM continued to remain under pressure. However, we expect the NIM to improve going forward as the high-cost bulk deposits raised earlier get repriced at lower rates.
- The non-interest income witnessed a whooping growth of 48% yoy to Rs2,697 crore on the back of jump in treasury income and foreign exchange (forex) income. The treasury income was up 107% yoy to Rs644 crore while, the forex income tripled yoy to Rs431 crore. Meanwhile, the core fee income growth was robust at 19% yoy.
- The operating expenses during the quarter grew by 13.2% yoy to Rs3,294 crore. The growth was mainly due to a 25.2% y-o-y increase in the other operating expenses as the bank expanded the coverage of its core-banking solution (CBS) platform aggressively. Meanwhile, the staff expenses grew by a moderate 8% yoy. Going forward, we expect the other operating expenses to taper down as the bank has been able to bring ~95% of its branches under the CBS. The core operating profit for the quarter stood at Rs3,016 crore, up a strong 48% yoy and 32.4% qoq.
- During the quarter, the provisions increased significantly to Rs804 crore compared with Rs85 crore for the previous quarter. While the non-performing asset (NPA) provisions increased in line with the strong credit growth, the provisions on investments declined to Rs57.5 crore compared with Rs166.6 crore for the year-ago period.
- Net advances at the end of the quarter reached Rs390,312 crore indicating a growth of 26% yoy and 8.8% qoq. In line with the industry trend, the advances experienced an uptick during the quarter after a moderate growth in the previous quarter (6% qoq for SBI). The uptick in advances was mainly driven by a strong growth in corporate segment, while retail and other advances continued to clock a moderate growth. Meanwhile, the deposits at the end of the quarter stood at Rs510,132 crore, up 26.2% yoy primarily due to the high-cost deposits. The low-cost deposits (current & savings) reached Rs202,642 crore. Owing to a lower current account and saving account (CASA) growth relative to high-cost deposits, the CASA ratio declined to 39.7% from 42.3% a year ago.
- Asset quality continued to improve further during the quarter as evidenced by a sequential reduction of Rs220 crore in the net non-performing assets (NNPA), while the gross non-performing assets (GNPA) were largely stable at Rs10,641. In percentage terms, the GNPA as percentage of advances reached 2.7% compared with 3.3% for the year-ago period, while the NNPA as percentage of advances reached 1.4% compared with 1.6% for the year-ago period.
- The capital adequacy ratio at the end of December 2007 stood at a comfortable 12.3% compared with 12.8% for the previous quarter and 11.9% for the year-ago period. During the quarter, the bank raised Rs916 crore by issuing perpetual bonds to boost its Tier- I capital. In addition, the bank has lined up a mega rights issue to raise Rs16,730 crore, which would further boost the capital adequacy for the bank.
- Besides the strong stand alone performance, SBI's various subsidiaries and associate banks continued to clock a healthy growth. Notably, SBI Life, the life insurance arm of the bank, reported a PAT of Rs37.7 crore compared with a loss of Rs 33.5 crore for the year-ago period.
- Following the bank's announcement of its plans to merge the associate banks in itself, the labour unions for the public sector banks have declared their strong opposition against the merger plan. A recent meeting between the Indian Bankers Association and the labour unions on their demands has not yielded any results. Meanwhile, the proposed merger of the State Bank of Saurashtra has received a nod from the boards of both the banks.
- At current market price of Rs2,405, SBI trades at 22.5x its 2009E earnings per share, 8.9x its 2009E pre-provisioning profit and 2.6x its 2009E book value. Currently we are reviewing our earnings model following the significantly higher than expected results.
Cluster: Apple Green
Price target: Rs70
Current market price: Rs62
- Marico Industries Ltd's (Marico) sales growth in Q3FY2008 was in line with our expectations. The company posted a strong top line growth of 23.7% year on year (yoy) to Rs506.2 crore aided by an impressive performance across the businesses. The stirring top line growth was a result of a 19% organic growth and a 5% inorganic growth.
- Affected by a hefty 34% year-on-year (y-o-y) increase in the staff cost and a higher-than-expected increase in the other expenses (up 32.9% yoy to Rs81.2 crore) the operating profit margin (OPM) declined by 79 basis points to 12.68%. The operating profit thereby grew by 16.4% yoy to Rs64.2 crore.
- The raw material cost was under check as copra prices during the quarter were lower by about 10-12% yoy. However, the input cost for edible oils continued to rise and was up by 20-30% across categories. Thereby the adjusted net profit grew by 57.1% to Rs 43.53 crore.
- The company changed its method of charging the depreciation on the factory building that led to a one-time charge of Rs4.29 crore. There was a one-time exchange rate gain of Rs 7.8 crore. After this the reported net profit stood at Rs45.9 crore, which was up 61.5% yoy.
- Marico continued to implement its three-pronged growth strategy of enhancing the existing products, introducing new products and achieving inorganic growth through acquisitions. During the quarter it entered the South African ethnic hair care and health care markets by acquiring the consumer division of Enaleni Pharmaceuticals, which has an annual turnover of ~Rs53 crore.
- We remain positive on Marico's businesses and maintain our Buy recommendation on the stock with a price target of Rs70. At the current market price of Rs62, the stock trades at 18.5x our FY2009E earnings per share (EPS) of Rs3.30.
Bharat Heavy Electricals
Cluster: Apple Green
Price target: Rs3,289
Current market price: Rs2,165
Q3FY2008 results: First-cut analysis
- For Q3FY2008, Bharat Heavy Electricals Ltd (BHEL) has reported a growth of 14.4% yoy in its net sales to Rs4,964.2 crore. The growth is below expectations.
- On segmental basis, the power business of the company has reported a growth of 18.8% in revenues to Rs4,204.6 crore. The revenues of the industry business have grown by 12.7% to Rs1,435.4 crore. A slowdown in the revenue growth was witnessed in both the businesses. The profit before interest and tax margin for the power business has declined by 340 basis points year on year (yoy) to 20.5% while that of the Industry business has expanded by 490 basis points yoy to 17.2%.
- The operating profit has grown by a meagre 7.4% to Rs997.6 crore as against Rs929.4 crore in Q3FY2007. The operating profit margin has declined by 130 basis points yoy to 20.1% mainly on account of a higher staff cost. The staff cost has been high due to the provisioning made by the company in anticipation of a wage hike in the Sixth Pay Commission. The operating performance has been largely in line with our expectation.
- The other income has grown by 42.8% to Rs264.9 crore vs Rs185.5 crore in the corresponding quarter of the last year.
- The interest cost has declined by 18.3% to Rs9.8 crore while, the depreciation charge has risen by 15.1% to Rs76.2 crore.
- The net profit has grown by 15.6% to Rs771.9 crore against our expectation of Rs859.2 crore. The lower than expected revenue growth has led to a lower profit growth.
- At the end of Q3FY2008 the unexecuted orders book of the company stood at Rs78,000 crore, that is a growth of a whopping 67% yoy. The order flows continue to be robust for the company.
- We shall bring to you a detailed analysis of the results and discuss the reasons for the dismal performance of the company subsequent to its analyst conference. However the growth outlook for the company is robust and we remain bullish on the stock.
Wall Street ended a tumultuous week with a sharp decline on Friday, backtracking following two days of stunning gains as investors turned cautious and cashed in some of their winnings. The Dow Jones industrial average still managed to record its first weekly advance of 2008, even as it fell more than 170 points on the day.
The week, which started with a 465-point drop in the Dow soon after the market opened on Tuesday, showed that the stock market is still fractious but may be going through healthy process of trying to establish a bottom following weeks of sharp declines.
Investors had an initial burst of enthusiasm Friday, sending each of the major indexes up more than 1 per cent, after upbeat profit reports from big names like Microsoft Corp. and word of a possible buyout of a trouble bond insurer. But the advance proved short-lived and the eventual decline wasn't surprising given that investors putting down bets ahead of the weekend were coming off two days of big gains - including 400 points in the Dow.
``People may be looking to take some profits off the table in this volatile market. And there's a lot of activity that's coming up next week,'' Scott Fullman, director of investment strategy for I A Englander & Co, said during the day's back-and-forth trading.
President George W Bush scheduled to deliver his State of the Union address Monday. Meanwhile, the Federal Reserve is expected to hold its first regularly scheduled meeting of the year on Tuesday and Wednesday, and then the Labor Department will weigh in on the state of the job market on Friday.
Despite the pullback, Wall Street's tone Friday stood in sharp contrast to the intensely dour mood that hung over the market when the week began. While US markets were closed Monday for Martin Luther King Jr Day, stocks in Asia and Europe plunged amid fears of a precipitous slowdown in the US economy. To stave off a similar sell-off in the US over recession fears, the Fed stepped in before the opening bell Tuesday with an emergency interest rate cut.
The central bank's move to lower rates by a big 0.75 percentage point to 3.5 per cent helped shore up investors' confidence and led stocks to end the day well off their lows, although they still closed down. A day later, on Tuesday, Wall Street had an astonishing about-face, with the Dow swinging more than 630 points and turning a sharp sell-off into huge gains. Stocks then extended their advance Thursday.
The Fed is widely expected to cut rates again at next week's meeting; many analysts expect a half-point cut.
With Friday's decline, the market might well be following the pattern of past corrections, when huge gains were often followed by some retrenchment. Many market watchers consider such backing and filling a sign of health. However, with much economic uncertainty ahead, investors may need months before they can decide whether to take the market solidly higher.
The Dow fell 171.44, or 1.38 per cent, to 12,207.17. The Dow had been up more than 100 points in the early going.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 21.46, or 1.59 per cent, to 1,330.61. The technology-heavy NASDAQ composite index fell 34.72, or 1.47 per cent, to 2,326.20.
Despite the huge moves seen during the week, stocks finished not far beyond where they began, with the Dow adding 108 points, or 0.89 per cent. The S&P 500 ended the week up 0.41 percent and the NASDAQ lost 0.59 per cent.
Declining issues outpaced advancers by about 3 to 2 Friday on the New York Stock Exchange. Consolidated volume came to 4.78 billion shares, down from 5.48 billion shares traded on Thursday.
Government bond prices jumped as stocks declined. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.56 per cent from 3.71 per cent on late Thursday.
The dollar was mixed against other major currencies, while gold prices rose. Light, sweet crude oil advanced $1.30 to settle at $90.71 a barrel on the New York Mercantile Exchange.
Investors are looking for clues about whether the market is due to add to its gains after a brief hiatus or whether another pullback is in the offing. Despite the increases logged this week, stocks are still down sharply in the new year.
``The market is extremely sensitive to any news that's out there. A year ago, it brushed off a lot of stuff. Now, it's just the opposite, and we're seeing reactions nearly immediately when things come out,'' Fullman said.
Despite giving up the early gains, Wall Street still appeared pleased by reports from UK newspapers that billionaire Wilbur Ross was in talks to acquire bond insurer Ambac Financial Group Inc. Financial woes at many US bond insurers have caused headaches in recent weeks for investors worldwide who have worried that tightness in the credit markets could worsen should one of the companies buckle under an inability to draw new business.
Ambac rose 21 cents to $11.54. Word of Ross' interest follows comments this week by New York State regulators that indicated they would consider lending support to shore up the struggling bond insurance industry. While uncertainty remains over what role regulators might play, the comments initially helped reassure Wall Street and made room for stocks to rally.
Other corporate news appeared to offer investors mixed readings on the economy.
Microsoft finished down 31 cents at $32.94 after spending much of the session higher. The company raised its forecast for the rest of its fiscal year, which ends in June, and said its quarterly earnings jumped 79 per cent. Microsoft cited the growing importance of its sales outside the US.
The Russell 2000 index of smaller companies fell 4.12, or 0.59 per cent, to 688.60.
The Dow Jones industrial average ended the week up 107.87, or 0.89 percent, at 12,207.17. The Standard & Poor's 500 index finished up 5.42, or 0.41 per cent, at 1,330.61. The NASDAQ composite index ended down 13.82, or 0.59 per cent, at 2,326.20.
The Russell 2000 index finished the week up 15.42, or 2.29 per cent, at 688.60.
The Dow Jones Wilshire 5000 Composite Index - a free-float weighted index that measures 5,000 US based companies - ended on Friday at 13,423.62, up 115.17 points, or 0.87 per cent, for the week. A year ago, the index was at 14,358.67
Date,Symbol,Security Name,Client Name,Buy/Sell,Quantity Traded,Trade Price / Wght. Avg. Price,Remarks
25-JAN-2008,ADLABSFILM,Adlabs Films Limited,BSMA LIMITED,BUY,349471,1082.00,-
25-JAN-2008,AUROPHARMA,Aurobindo Pharma Ltd.,MIRAE ASSET INVESTMENT MANAGEMENT CO. LTD A/C MIRAE ASSET AS,BUY,286804,363.80,-
25-JAN-2008,HINDOILEXP,Hind. Oil Exploration ,MATHERTHORN ADVISORY SINGAPORE TE LTD,BUY,600000,106.16,-
25-JAN-2008,RAJESHEXPO,Rajesh Exports Ltd.,GOLDMAN SACHS INVESTMENTS MAURITIUS I LTD,BUY,225000,720.00,-
25-JAN-2008,REIAGRO,Rei Agro Limited,BLACKSTONE ASIA ADVISORS L.L.C. A/C BLACKSTONE ASIA ADVISORS,BUY,321000,920.00,-
25-JAN-2008,REIAGRO,Rei Agro Limited,DEUTSCHE SECURITIES MAURITIUS LIMITED,BUY,336361,920.00,-
25-JAN-2008,SELMCL,SEL Manufacturing Company,CHITRA JITENDRA MAYEKAR,BUY,100165,174.99,-
25-JAN-2008,SHREEASHTA,Shree Ashtavinayak Cine V,PEACOCK SHARES STOCKS LTD,BUY,50279,268.36,-
25-JAN-2008,VESUVIUS,Vesuvius India Ltd,HDFC LONG TERM ADVANTAGE FUND,BUY,143627,220.00,-
25-JAN-2008,ADLABSFILM,Adlabs Films Limited,BSMA LIMITED,SELL,349471,1082.00,-
25-JAN-2008,AUROPHARMA,Aurobindo Pharma Ltd.,BSMA LIMITED,SELL,295000,361.99,-
25-JAN-2008,EDUCOMP,Educomp Solutions Limited,DEUTSCHE SECURITIES MAURITIUS LIMITED,SELL,89150,4087.61,-
25-JAN-2008,REIAGRO,Rei Agro Limited,SHIV LAL SAT PARKASH,SELL,315000,920.00,-
25-JAN-2008,ROLTA,Rolta India Ltd.,GOLDMAN SACHS INVESTMENTS MAURITIUS I LTD,SELL,424623,280.75,-
25-JAN-2008,SASKEN,Sasken Commu Techno Ltd,MERILL LYNCH CAPITAL MARKETS ESPANA,SELL,166000,149.69,-
25-JAN-2008,SELMCL,SEL Manufacturing Company,MAVI INVESTMENT FUND LTD DEUTSCHE BANK,SELL,100000,175.00,-
25-JAN-2008,SHRINGAR,Shringar Cinemas Limited,EMERALD SQUARE PVT LTD,SELL,200000,80.50,-
25-JAN-2008,VESUVIUS,Vesuvius India Ltd,TEMPLETON MUTUAL FUND A/C FRANKLIN INDIA PRIMA FUND,SELL,146164,220.01,-