GSS America Infotech IPO Review

Incorporated in 2003 and promoted by first generation entrepreneurs and technocrats Bhargav Marepally and Ramesh Yerramsetti, GSS America Infotech (GSI) is a total IT solution provider spanning consulting, enterprise application integration and infrastructure management/managed services. Its web-based business service management product Control-M gives administrators and users an intuitive and easy way to control and manage the business environment. Almost 100% of the revenue are housed under its 100% subsidiary GSS America Inc. Currently, all the revenue is derived from the US market.

Enterprise Application Integration (EAI) contributed 39% of the revenues; infrastructure management services (IMS) 42%, and products 10% in the nine months ended December 2007. The Top 5 clients contributed 14.89% and top 10 clients 21.90% of the total revenue.

GSI has four delivery centres: two offshore centres in Hyderabad, with capacity of 270 employees; and two nearshore centres in Chicago, US, with capacity of 150 employees. The employee strength is 717. Of this, 400 are onsite. The average offshore experience is about six years. The onsite/offshore mix by revenue stands at 75:25 and by efforts 50:50.

Since incorporation, GSI has made three acquisitions. US-based consulting company Infospectrum Consulting Inc. was taken over from 1 April 2006. Infospectrum Consulting reported revenue of Rs 75.95 crore with net profit of Rs 12.45 crore in the nine months ended December 2007. All the shares of US-based System Dynamix Corporation was acquired through 100% subsidiary GSS America Inc. in December 2007 for US$ 6 million in cash and US$ 6 million in net current assets along with an earn-out of maximum US$ 6 million over three years. System Dynamix clocked revenues of US$ 23 million with net income of US$ 2.75 million in calendar year 2007.

The net proceeds of the initial public offering (IPO) would be utilised to set up Global Delivery Centre (GDC), with a capacity of 1,000 employees, at a cost of Rs 66.10 crore in Hyderabad by March 2009; to set uo overseas offices in Europe, Middle East and Far East at a cost of Rs 9.81 crore; to meet working capital requirement (Rs 25 crore); and the balance for acquisitions and issue expenses.

Strengths

• Margin has been continuously increasing despite the pressures of rupee appreciation, proving operational efficiencies and high billing rates. Operating profit margin went up from 17.7% in the year ending March 2006 (FY 2006) to 25.8% in the nine months ended December 2007.

Weaknesses

• All the revenue accrues from the US. Thus, prone to the fallout of US recession and dollar depreciation.

• Operations are project based and are mainly time and material contracts, increasing the risk of termination of contracts. This could impact revenue and profit.

Valuation

At the price band of Rs 400-Rs 440, P/E works out to 9.1-10 times on annualised nine-month EPS of Rs 43.9. The IT sector has been suffering severely from adverse market sentiments. Most IT stocks including majors have been beaten down substantially. Comparable IT companies with high onsite contribution are Zylog Systems (trading at 6.4 times its trailing 12-month EPS of Rs 45.7) and Prithvi Information Solutions (trading at 5.9 times its TTM EPS of Rs 55.5).

LIC Housing Finance, Rolta India, IOB, ACC, Bank of India, NTPC

LIC Housing FinanceRolta IndiaIndian Overseas BankACC LtdBank Of IndiaNTPC

Steel Sector Outlook

Steel Sector Outlook

India Real Estate Developers

Goldman Sachs in their real estate report...

India: Real Estate Developers

Cause for pause: Downgrade coverage view; Ansal off Conv. Buy list

Downgrade coverage view to Neutral from Attractive

We are downgrading our coverage view on India Property to Neutral from Attractive, principally on valuation grounds. We see only aggregate 9% potential upside (mkt cap weighted) for our coverage universe that now
includes DLF, based on new target prices rolled forward to FY2009E.
Although we believe residential prices have risen in some major markets over the past year, Gurgaon, which is an important market for our coverage, appears to have experienced a correction in some pockets. Any
prolonged weakness in Gurgaon could present downside risk to our RNAV projections. We rate both DLF and Unitech as Neutral.
We are removing Ansal Properties from the Conviction Buy list.
Neutral on DLF and Unitech
DLF is better placed than most peers to execute on its pipeline given its strong management team, scale and strategic tie ups, in our view.
However, we are Neutral as valuation appears full and our 12-month FY2009E potential RNAV-based target price of Rs923 implies only 6% potential upside. We maintain Neutral on Unitech, but revise our 12-month
FY2009E potential RNAV-based target price to Rs409 from Rs330, implying 12% potential upside. We believe the stock is not pricing in land acquisitions that are currently in progress.
Ansal Properties: Taking off Conviction list; retain Buy
We are removing Ansal Properties from the Conviction Buy list as we have limited visibility on when option value on its Hi-Tech City project in Greater Noida is likely to be realised. The stock could remain on the sidelines until
the market gets greater confidence on the group’s execution capability. We still rate the stock Buy and our revised 12-month potential RNAV based target price of Rs367 (from Rs410), implies 48% potential upside.
Key risks to our coverage view
Upside risks: Land acquisitions, cap rate compression and technical factors such as liquidity and the inclusion of DLF and Unitech in major indices.
Downside risks: Execution, prolonged slowdown in residential demand.

Post Session Commentary - Feb 8 2008

The Sensex opened with a positive gap of 83 points at 17,610. After initial nervousness, the index rallied to a high of 17,689 in early deals.

Considerable weakness in financial heavyweights like HDFC and ICICI Bank saw the index drop to a low of 17,203 - down 486 points from the day's high - in noon deals.

Renewed buying in FMCG and technology stocks helped the index recover all losses and rebound into positive zone in mid-noon trades. The index, however, could not hold gains and slipped into negative zone in late trades. The Sensex finally ended with a loss of 62 points at 17,465.

The NSE Nifty was down 13 points at 5,120.

The BSE market breadth was significantly negative - out of 2,801 stocks traded, 2,248 declined today.

INDEX MOVERS...

Hindustan Unilever (HUL) zoomed 6% to Rs 212. ITC gained 2.5% at Rs 197.

Satyam and Infosys advanced nearly 5% each to Rs 410 and Rs 1,551, respectively. Wipro gained 3% to Rs 422, and TCS added 2% to Rs 900.

Ranbaxy and Bharti Airtel advanced 2.3% each to Rs 382 and Rs 882, respectively. SBI was up 1.7% to Rs 2,191.

...AND THE SHAKERS

HDFC plunged 4.5% to Rs 2,796. DLF and ICICI Bank tumbled around 3.5% each to Rs 817 and Rs 1,067, respectively.

HDFC Bank and Larsen & Toubro dropped around 3% each to Rs 1,446 and Rs 3,527, respectively.

Tata Steel and Bajaj Auto shed 2.7% each at Rs 750 and Rs 2,217, respectively.

Mahindra & Mahindra slipped over 2% to Rs 645. Hindalco declined 1.7% to Rs 161.


VALUE & VOLUME TOPPERS

Reliance Natural Resources topped the value chart with a turnover of Rs 574 crore followed by Reliance Energy (Rs 408 crore), Reliance (Rs 268 crore), Reliance Petroleum (Rs 212 crore) and Reliance Communications (Rs 181.70 crore).

Reliance Natural Resources led the volume chart with trades of around 3.80 crore shares followed by Ispat Industries (1.54 crore), Reliance Petroleum (1.29 crore), Nagarjuna Fertilisers (1.24 crore) and IFCI (1.10 crore).

NSE Bulk Deal Watch - Feb 8 2008

Date,Symbol,Security Name,Client Name,Buy/Sell,Quantity Traded,Trade Price / Wght. Avg. Price,Remarks
08-FEB-2008,EMCO,Emco Limited,JM MUTUAL FUND A/C JM EMERGING LEADERSHIP FUND,BUY,64587,1238.92,-
08-FEB-2008,HORIZONBAT,HORIZON BATTERY TECH. LTD,KOTAK MAHINDRA (UK) LTD. A/C VOYAGER FUND MAURITIUS LTD.,BUY,200000,324.50,-
08-FEB-2008,HORIZONBAT,HORIZON BATTERY TECH. LTD,MERRILL LYNCH CAPITAL MARKETS ESPANA S.A. SVB,BUY,230000,330.00,-
08-FEB-2008,NETWORK18,Network 18 Fincap Limited,ACACIA INSTITUTIONAL PARTNERS L P,BUY,1362433,599.79,-
08-FEB-2008,NIITLTD,NIIT Limited,FID FDS MAURITIUS LTD,BUY,4000000,112.50,-
08-FEB-2008,TATASPONGE,Tata Sponge Iron Ltd.,KALIMATI INVESTMENT COMPANY LIMITED,BUY,92500,261.74,-
08-FEB-2008,HORIZONBAT,HORIZON BATTERY TECH. LTD,GANDHI NEHA NIKHIL,SELL,91335,344.05,-
08-FEB-2008,HORIZONBAT,HORIZON BATTERY TECH. LTD,GANDHI RUPALI,SELL,92000,344.05,-
08-FEB-2008,HORIZONBAT,HORIZON BATTERY TECH. LTD,KROSSLINK INFRASTRUCTURE LTD,SELL,430100,327.45,-
08-FEB-2008,NETWORK18,Network 18 Fincap Limited,QUANTUM M LIMITED,SELL,1347433,600.00,-
08-FEB-2008,NIITLTD,NIIT Limited,CLSA MAURITIUS LIMITED,SELL,4754344,112.73,-

BSE Bulk Deals to Watch - Feb 8 2008

Deal Date Scrip Code Scrip Name Client Name Deal Type * Quantity Price **
8/2/2008 505506 AXON INFOTEC G B SECURITIES S 10000 55.00
8/2/2008 532363 COMP-U-LEARN SRECKO INDHAN LIMITED B 64525 22.14
8/2/2008 526550 COUNTRY CLUB MACQUARIE BANK LIMITED S 170584 675.00
8/2/2008 526033 CRYSTAL SOFT RICHLINE FINVEST PRIVATE LTD S 38400 10.23
8/2/2008 532544 INDIABULLS SAMEER GEHLAUT B 1800189 665.71
8/2/2008 532544 INDIABULLS SONATA CAPITAL PVT LTD S 1426885 665.79
8/2/2008 530985 JPTSECURITII J P TOTLA HUF B 308400 16.20
8/2/2008 530985 JPTSECURITII SEWA RAM TOTLA HUF S 85000 16.20
8/2/2008 530985 JPTSECURITII OM PRAKASH TOTLA HUF S 134500 16.20
8/2/2008 530985 JPTSECURITII AMIT TOTLA S 87300 16.20
8/2/2008 512413 KHAITAN WVG VINAY SUDERSHAN GUPTA B 10000 60.47
8/2/2008 512413 KHAITAN WVG SURAJ STOCK BROKING LTD S 5000 60.24
8/2/2008 515093 MADHAV MAR G MEENAKSHI JATIA S 48415 66.00
8/2/2008 523221 MCS LIMITD HITESH SHASHIKANT JHAVERI B 25000 68.25
8/2/2008 523221 MCS LIMITD HITESH SHASHIKANT JHAVERI S 25000 68.25
8/2/2008 531996 ODYSSEY CORP VINAY SUDERSHAN GUPTA S 25000 36.23
8/2/2008 532606 PAREKH ALUM HALCYON TRADING PVT LTD B 80000 193.61
8/2/2008 532606 PAREKH ALUM KAMLESH M KANUNGO S 47659 195.00
8/2/2008 523710 SAYAJ HOTELS RUANE CUNNIFF GOLDFARB INC AC ACACIA INSTITUTIONAL PARTNERS LP B 208000 120.00
8/2/2008 523710 SAYAJ HOTELS CLEARWATER CAPITAL PARTNERS CYPRUS LTD S 248000 120.00
8/2/2008 526049 SHRILAKSHMI NAV NIRMAN MERCANTILES LTD B 79300 152.90
8/2/2008 526049 SHRILAKSHMI ASIAN PACIFIC CONTINENTAL P LIMITED B 83000 150.58
8/2/2008 530155 TONIRA PHARM IPCA LABORATORIES LIMITED B 44939 27.00
8/2/2008 531703 TRIBHVAN HSG SKYLINE TRACOM PVT LTD S 31993 29.00
8/2/2008 590048 TYCHE PERIPH RNA BUILDERS NG B 72000 88.49

Banking, Metal, IT Sector

Banking, Metal, IT Sector

GDP to slow in FY08; but FM sees better days

The Indian economy is expected to slow in the current fiscal year as a series of monetary tightening steps coupled with the rupee's appreciation has hurt consumer and industrial demand in Asia's fourth-largest economy. The GDP for the year ending March 31 is estimated to grow at 8.7%, the Central Statistical Organisation (CSO) said. This is much lower compared to the 9.6% growth rate of the previous financial year. The advance estimate for FY08 is in line with average forecast of economists, but is a little higher than the 8.5% projected by the Reserve Bank of India (RBI).

The manufacturing sector is expected to grow by 9.4% versus 12% in the previous fiscal year. The construction sector is also likely to witness a drop in its growth rate at 9.6% as against 12% last year. Growth in electricity, gas and water supply is likely to be higher at 7.8% compared to 6% last year. Trade, hotels, transport & communication will grow by 12.1% as against 11.8% in FY07. Finance, insurance, real estate & business services' growth will slow to 11.7% from 13.9% in the previous fiscal year. The agriculture sector is likely to show a growth rate of 2.6% in its GDP during 2007-08 as against 3.8% in the previous fiscal year.

Reacting to the advance estimates of national income, Finance Minister P. Chidambaram said he was confident that the Indian economy will grow at close to 9% rate this fiscal. "I am reasonably confident that figures may be revised and economy will grow at close to nine per cent," Chidambaram said. "The CSO figures are lower than what I had anticipated. We are disappointed but not despondent," he said. Poor figures are mainly because of projected low rate in the agriculture sector, Chidambaram said, adding that like all estimates, these will also be revised upwards.

Wockhardt Hospitals, Emaar MGF withdraw IPOs

Wockhardt Hospitals Ltd. decided not to proceed with its proposed initial public offering (IPO) due to lack of interest from all category of investors amid weak market sentiment. The decision not to proceed with the IPO was made in light of continued global and domestic market volatility and poor market sentiment and the resultant effect on the subscription levels in the primary market, Wockhardt Hospitals said. All refunds will be completed within 15 days of the issue closing Date, Feb 7. Wockhardt Hospitals also received a lukewarm response due to concerns on its high valuations vis-a-vis its listed peers like Apollo Hospitals and Fortis Healthcare. The issue appeared be doomed right from the start as the company slashed its price band on the eve of the IPO. Then, the IPO got delayed by one day due to lack of adequate regulatory approvals. Wockhardt Hospitals later extended the issue by to days, hoping to attract some subscriptions. But, despite all efforts on the part of the company's promoters, there were just no takers for the shares given its expensive pricing and tough market conditions.

A couple of other IPOs - Emaar MGF and SVEC Constructions - were also facing much difficulty in getting subscriptions. Emaar MGF cut its price band twice. First, from Rs610-690 per share to Rs540-630 a share, and then by trimmed the lower end of the price band by another Rs10, to Rs530 a share. The real estate firm also extended the time period of the public issue by five days to Feb. 11. It was initially slated to close on Feb. 7. Emaar MGF did receive better response, but eventually withdrew the issue on Friday, saying it will consider an IPO once the market stabilises. The company also said it will consider other funding options and that the failure of the IPO won't affect its proposed and current projects. Meanwhile, SVEC Constructions extended the time period for its public issue, till Feb. 13.

The events of the past couple of weeks in the primary market raises some serious questions. One, about the efficacy, transparency and fairness of the entire regulatory IPO process, especially for retail investors. Secondly, about the involvement of merchant bankers and promoters, some of who tend to demand valuations that are out of sync with market realities and pragmatism. Having said that, public memory is short, and a rising market all excesses are brushed under the carpet and people just go with the current trend. So, when the markets recover and start rallying again, we will once again have greedy promoters and their partners in crime - the i-bankers - to sell juicy stories to gullible investors.

Modulate FII inflows to stem rupee appreciation

PHD Chamber has called for fine tuning the policy relating to Foreign Institutional Investors (FIIs) to insulate the economy from extreme speculative swings and concomitant distortions in the economy.

This radical suggestion of the Chamber has come at a time, when FIIs exposures in the country has reached high proportions and the perceived view that such inflows are causing, to a very great extent, rupee appreciation against major currencies, particularly the greenback.

"We are not against FII inflow into the country, which is a barometer of the degree of maturity of the economy. But when there is a huge jump - US$22bn during April-November 2007 as against US$3.8bn in the corresponding period last year-we have to sit up and take stock of the situation. Such an exercise is not meant for putting stumbling blocs on the inflow but to gauge the quality of inflows to discern how much has been channelized to productive sectors," says Dr L K Malhotra, President, PHD Chamber.

According to PHD Chamber three pivotal segments of the industry-textiles, information technology and gems and jewellery -are reeling under heavy pressure on account of rupee appreciation since these industries’ fortunes are directly linked to exports.

Soon the negative spin-offs of the rupee appreciation would affect other segments as well. The common perception that rupee appreciation would lead to easing of cost of imports and help the domestic industry is an overstated fact in the long run. A holistic view has to be taken in such circumstances. Weak dollar or Euro would lead to surge in imports of goods at reduced prices, which can erode the price competitiveness of the domestic industry.

Dr Malhotra said that the Chamber has catalogued a few case studies, where the project reports for the Greenfield projects have gone haywire on account of the rupee appreciation. These projects were drawn up on the basis of a stable or slightly appreciating rupee.

"But on the ground, we are having a steadily appreciating rupee, a higher interest rate regime and a plethora of infrastructure bottlenecks, which can square off the marginal benefits on imports on account of rupee appreciation and can erode the price competitiveness of the goods in the domestic market," says Dr Malhotra.

PHD Chamber feels that the perceived looming recession in the US and slowdown in the growth rates in the manufacturing sectors in Europe coupled with recent steps that are taken or are being contemplated by these countries to curb the hedge funds’ operation in the aftermath of sub prime mortgage crisis in US, would compel many FIIs to park their funds in India for a safe return. This might lead to further firming up of rupee.

The Chamber feels that there are ways in which the FII flows into the country can be modulated, without pressing the panic button. These include a minimum lock in period, say for one year and more imaginative policies to check the inflow through Participatory Note (PN) route. "The recent high level meeting called by SEBI has discussed these issues threadbare and some positive decisions should be put in place as early as possible," adds Dr Malhotra.

PHD Chamber said that there is a worldwide consensus for modulating the capital flows. European countries are inclined towards imposition of additional taxes for capital flows and compulsory registration of hedge funds. Some Governments have already imposed the additional taxes-known as Tobin Tax, (named after Robert Tobin who propounded the tax). "India also has to think in that direction, sooner or later," says Dr Malhotra.

Weekly Positional Calls - Feb 8 2008

RIL

IOC

BHEL

L&T

Axis Bank

Post Market Commentary - Feb 8 2008

The market closed in the negative territory on the back of selling pressures across the counters. The market keeps on moving in the positive and negative region throughout the trading session. The market opened with marginal gains but unable to sustain at the higher levels and fell as the profit booking prevailed. The annual inflation that rose 4.11% in the week ended 26 January 2008 from 3.93% last week also add to the negative sentiment. From the sectoral point, IT scrips remained in the limelight as they reported most buying from the counters, however Metal, Realty, CG and Bankex scrips fell to attract investor''s confidence as most selling was seen from these baskets. The Mid Caps and Small Caps underperformed the benchmark indices as they faced heavy selling pressures. The BSE Sensex closed lower by 62.04 points at 17,464.89 and NSE Nifty fell by 12.9 points to close at 5,120.35. The BSE Mid Cap and Small Cap indices closed lower by 147.85 points and 282.28 points at 7,633.27 and 9,920.35 respectively.

BSE IT index closed higher by 138.04 points at 3,843.34 as NIIT (6.30%), Rolta India (6.05%), HCL Tech (5.57%), Satyam (4.90%), Infosys (4.76%), Wipro (3.07%).

BSE Metal index closed lower by 414 points at 15,114.84. Scrips that fell are Jindal Stainless (6.15%), Welspun Guj (5.93%), Bhushan Steel (4.95%), SAIL (4.61%).

BSE CG plunged by 261.51 points to close at 15,859.11. Losers are Jyoti Structures (6.53%), Praj Inds (5.93%), Punj Lloyd (4.92%), Thermax (4.73%), Kalpataru Power (3.40%).

BSE Bankex index closed lower by 225.35 points at 10,159.42. Scrips that fell are Axis bank (5.12%), Kotak bank (4.82%), Yes bank (4.49%), Canara bank (3.77%).

BSE Realty index dropped by 246.48 points to close at 10,030.33. Losers are Purvankara (5.66%), Akruti City (3.52%), Omaxe (3.41%), DLF (3.33%), HDIL (2.79%).

BSE Oil & Gas index slipped by 30.22 points to close at 10,638.44. Scrips that dropped are Cairn India (3.04%), Essar Oil (2.74%), RPL (2.16%), RNRL (1.62%).

Market maimed amid sharp volatility

The market recorded its third straight loss as players resorted to heavy selling on lack of liquidity support from FIIs, which have been offloading equities sharply in the past few sessions. Positive international indices also failed to lift the sentiment, as the Sensex drifted into negative territory in late morning trades after gaining 162 points in early trades to touch the day's high of 17,689. The sentiment turned extremely bearish in noon trades as sustained selling in heavyweights, CD, metal, realty and bankex stocks dragged the index below to an intra-day low of 17,203. The Sensex, which gyrated 486 points during intra-day trades, finally ended the session with losses of 62 points at 17,465, while the Nifty dropped 13 points to close at 5,120.

The market breadth was exceedingly negative. Of the 2,807 stocks traded on the BSE, 2,245 stocks declined, 515 stocks advanced and 41 stocks ended unchanged. All the sectoral indices ended in the red. The BSE CD index dropped 3.20% at 4,737 followed by the BSE Metal index (down 2.67% at 15,115), the BSE Realty index (down 2.46% at 9,784), the BSE Bankex index (down 2.17% at 10,159) and the BSE CG index (down 1.62% at 15,859).

Out of 30 Sensex stocks, only 14 stocks managed to end in positive territory. Among the major laggards, HDFC slumped 4.47% at Rs2,796, ICICI Bank tumbled 3.49% at Rs1,066.70, DLF plunged 3.33% at Rs816.70, HDFC Bank declined 3.06% at Rs1,445.95, L&T dipped 2.84% at Rs3,527, Tisco crumbled 2.72% at Rs750.40, Bajaj Auto lost 2.70% at Rs2,217, M&M shed 2.08% at Rs644.95, Hindalco fell 1.71% at Rs160.50 and NTPC was down 1.50% at Rs203.30. Hind Utilities, however, bucked the downtrend and advanced 6.09% at Rs211.75, Infosys ended with steady gains at Rs1,551.35, Satyam moved up at Rs410, Wipro soared at Rs422.45, ITC, Ranbaxy, Bharti Airtel, TCS, SBI, ONGC, ACC and Maruti traded with decent gains.

Over 2.90 crore Ispat Industries shares changed hands on the BSE followed by RPL (1.69 crore shares), Chambal Fertilisers (57.04 crore shares), Arvind Mills (43.65 lakh shares) and Ashok Leyland (42.26 lakh shares).

EMAAR MGF - All over, money in 15 days!

Money to be refunded to investors in 10 to 15 days

Emaar MGF Land became the second victim in the last two days of depressed secondary market conditions as it today withdraw its initial pubic offer (IPO) following poor response to the issue. The company will now look at private placement and private equity deals at the special purpose vehicle (SPV) level.

Wockhardt Hospitals, late on Thursday, 7 February 2008 withdrew its initial public offer (IPO) due to poor investor response.

Emaar MGF Land would refund the money to investors in 10 to 15 days. The Emaar MGF Land IPO was subscribed 0.83 times as at 16:00 IST on its fourth day of issue on 7 February 2008. However, most investors might have pulled-out their bids today, 8 February 2008, as indicated by the fall in subscription figures. As a result the issue was subscribed just 0.43 times as of 15:00 IST today, 8 February 2008.

The company had cut the price band of its initial public offer for the second time on Wednesday, 6 February 2008 and also extended the date of closing of the issue to Monday, 11 February 2008, due to poor response to the issue. The price band was revised from Rs.540 to Rs 630 per share to Rs 530 to Rs.630 per share.

The price band for the issue was initially pegged at Rs 610 to 690 per equity share. The IPO had opened for subscription on 4 February 2008.

Real estate major Emaar MGF Land is a joint venture between Emaar Properties PJSC of Dubai and MGF of India. Emaar group holds 41.9% stake in the JV while MGF holds 53.3% stake.

The proceeds of the IPO were to be used for part payment towards the acquisition of land and land development rights and related approvals for its ongoing and planned projects; development and construction costs for project Palm Drive in Gurgaon; and repayment of loans; and general corporate purposes (GCP).

We recommended this

Midcapmania Short Term Calls - Feb 8 2008

Buy Reliance Energy in qty near 2000 levels with a strict stoloss of 1950 on a closing basis for a target of 2400-2500 in 3-4 weeks.

by Uttam Saraf

Disclaimer: DP doesn't vouch for these calls. Please do your own research

Grey Market - Rural Electrification, GSS America Infotech

Reliance Power 450 130 to 140


Emaar MGF 530 to 630 8 to 10


J. Kumar Infraprojects 110 Discount


Cords Cable Ind. 135 3 to 5


KNR Construction 170 Discount


Onmobile Global 440 10 to 12


Bang Overseas 207 7 to 10





Shriram EPC 290 to 330 Discount


IRB Infra 185 22 to 25


Manjushree Extrusion 45 Discount


Tulsi Extrusions 80 to 85 8 to 10


SVEC Construction 85 to 95 Discount


Globus Spirit 140 to 160 No Trades


GSS America Infotech 400 to 440 No Trades


Rural Electrification 90 to 105 22 to 25

Morning Call - Feb 8 2008

Market Grape Wine :

In House :

Nifty at a supp of 5070 and 4985 with resis at 5197 and 5257

Cash: Buy Indiacement above 205 with a TGT of 218 and a SL of 199

F&O: Sell Axis Bank below 1015 with a TGT of 985 and a SL of 1033

Sell PFC below 180.50 with a TGT of 170 and a SL of 185

Your Ad Here

Out House :

Markets at a support of 17373 & 17171 levels with resistance at 17786 & 18018 levels .

Buy : RIL & REL at dips

Buy : Tisco at dips

Buy : SBIN at dips

Buy : JPASSO

Buy : IBullsReal

Buy : SKumar

Buy : Geship

Buy : BajaHind & Balrampur

Buy : RPL & RNRL

Dark Horse : IBullreal ,Geship , RIL , Sbin , & GujNreCoke

TGIF : Thank God Its Friday : Markets very uncertain buy with a long or medium term prespective or stay out .

Market may recover

The market may edge higher tracking gains in the Wall Street overnight. Most of the Asian markets are closed today for the Lunar New Year holiday.

The 30-share BSE Sensex slumped 612.56 points or 3.38% at 17,526.93 on Thursday, 7 February 2008, weighed down by weak sentiment in global markets. Sensex has lost 3,679.84 points or 17.35% from a record high hit on 10 January 2008, due to heavy selling by FIIs amid credit crisis in the United State and fears of a US recession. Huge unwinding of positions in the futures & options segment was another key trigger for the fall.

The current setback on the bourses has materialized despite a boost in liquidity in the secondary markets as investors have started getting refund of excess application money in the heavily subscribed Rs 11000-crore Reliance Power IPO. It, however, remains to be seen how much money from Reliance Power IPO refunds actually comes to the secondary market in the light of immense volatility witnessed on the bourses last month.

Reliance Power, which raised a record $3 billion in its initial share sale in January 2008, said on Friday, 1 February 2008, it had begun refunding excess application money to investors. The initial public offer had received bids for $190 billion.

Meanwhile, a poor response to the IPO due to depressed secondary market conditions caused Wockhardt Hospitals to withdraw its IPO on Thursday, 7 February 2008. The IPO was subscribed just 20% by Thursday, the last day of the issue. Recently, volatility in the secondary market conditions had forced property developer Emaar MGF Land to extend its initial public offer until 11 February 2008 and lower its indicated price for a second time.

It remains to be seen if the strong domestic liquidity will offset selling by FIIs. FIIs sold shares worth a huge Rs 13035.70 crore last month amid ongoing credit crisis in the US and in the backdrop of US recession fears looming large.

As per provisional data, FIIs sold shares worth a net Rs 860.35 crore on Thursday, 7 February 2008. Domestic funds bought shares worth a net Rs 230.70 crore on that day.

FIIs were net sellers to the tune of Rs 266.56 crore in the futures & options segment on Thursday. According to data released by the NSE, FIIs were net sellers of index futures to the tune of Rs 512.28 crore and bought index options worth Rs 45.92 crore. They were net sellers of stock futures to the tune of Rs 206.73 crore and sold stock options worth Rs 6.92 crore.

The Bank of England on Thursday, 7 February 2008, cut its key interest rate by a quarter percentage point to 5.25% to help shore up the economy but policymakers remained worries about inflation, dampening hopes of rapid-fire rate cuts. The European Central Bank kept euro-zone rates unchanged at 4% on the same day.

Markets in China, Hong Kong, South Korea, Singapore, and Taiwan were closed today for the Lunar New Year holiday. Japan’s Nikkei 225 average was down 0.88%.

US stocks rose on Thursday, as relatively cheap valuations tempted investors back to Wall Street after a three-day losing streak. The Dow Jones industrial average was up 46.90 points, or 0.38%, at 12,247.00. The Standard & Poor's 500 Index was up 10.46 points, or 0.79%, at 1,336.91. The Nasdaq Composite Index rose 14.28 points, or 0.63%, at 2,293.03.

Even if the US goes into the recession, it may not impact India’s economic growth in a big way given that domestic demand is a key driver of the Indian economy. India’s economy is expected to post strong growth for a long period due to favourable demographics. Moreover a healthy investment cycle will continue to support India’s growth through a self-perpetuating cycle of income creation, savings and investment.

India's economy is expected to expand at 8.7% in fiscal 2007/08, slower than 9.6% growth in 2006/07, which was its strongest pace in 18 years, government's central statistics office (CSO) said on Thursday, 7 February 2008. CSO has pegged manufacturing output growth at an annual 9.4% this fiscal compared with 12% growth in the previous year.

Farm output growth is estimated at 2.6% for the full year 2007/08 compared with 3.8% growth in 2006/07. Services sector growth is estimated at 10.7% for the year against 11.1% growth in 2006/07.

Corporate earnings growth remains decent. Deutsche Bank expects 20% compounded annual growth rate in earnings of 30-Sensex firms during the period from FY 2007 (year ended 31 March 2007) to FY 2009 (year ending 31 March 2009).

Trading Calls - Feb 8 2008

Nifty (5133) Supp 5050 Ress 5200

Buy ICSA (512)
SL 507 Target 522, 525

Buy Can Bank (307)
SL 302 Target 317, 321

Sell Idea (115)
SL 119 Target 105, 103

Sell Sun TV (331)
SL 336 Target 321, 318

Sell PFC (185)
SL 189 Target 175, 171

Pre Market Watch - Feb 8 2008

The Indian Market is likely to have a positive opening as the US market closed in green. On Tuesday, The market tumbled and closed on a deep red note. Heavy selling pressures across all the sectoral indices was witnessed after the mid session on the back of the reports by the government, which cited that the economy is likely to grow at a reasonable rate of 8.7% during the current fiscal as against 9.6% last year. The estimation of growth was slightly higher than then RBI''s projection of 8.5%, which led o the negative sentiments in the market. The Small Caps and Mid Caps also did not survive from the bloodbath as they also faced heavy selling pressures across the counters. The BSE Sensex closed lower by 612.56 points at 17,526.93 while NSE Nifty fell by 189.3 points to close at 5,133.25. We expect that the market may remain volatile during the trading session and the declaration of inflation figures by the government in the afternoon will give further direction to the market.

On Thursday, the US market closed in positive territory. The Dow Jones Industrial Average (DJIA) closed higher by 46.90 points at 12,247. S&P 500 index grew by 10.46 points to close at 1,336.91 and NASDAQ closed up by 14.28 points at 2,293.03.

Indian ADRS ended in mixed. In technology sector, Patni Comp grew by (2.36%) along with Satyam by (1.14%) and Infosys by (0.33%). In banking sector, HDFC increased by (1.73%). VSNL fell by (2.69%).

Today, From the Asian markets, Nikkei is trading lower by 104.34 points at 13,102.81. The markets in China, Hong Kong, South Korea, Indonesia, Malaysia, Singapore, Taiwan and Vietnam were closed for the Chinese Lunar New Year holidays.

The FIIs on Thursday stood as net seller in equity. The gross equity purchased was Rs2,224.70 Crore while the gross equity sold stood at Rs2,752.90 Crore. Therefore, the net investment of equity reported was (Rs528.20 Crore).

Today, Nifty has support at 5,041 and resistance at 5,243 and BSE Sensex has support at 17,134 and resistance at 18,137.

US Market shrugs off weak retail sales data

Market closes higher for the first time in this week with the help of retail stocks

US Market closed higher for the first time this week today, Thursday, 07 February, 2008 after stocks made a comeback after a disappointing retail sales data hit the wires in the morning. After being in the red for the entire mornings session, indices rallied in the post lunch hours and ended modestly up, going into close.

Disappointing guidance from Cisco Systems also weighed on sentiments in the morning hours. But surprisingly, with help of retail stocks, market managed to make a modest turnaround. At the end, eight out of the ten economic sectors ended the day in positive territory. The technology and utilities sectors posted declines.

The Dow Jones industrial Average ended the day with a gain of 46.9 points at 12,247. The Nasdaq Composite Index, finished higher by 14.28 points at 2,293.03. S&P 500 finished higher by 10.46 points at 1,336.91. Twenty-one out of thirty Dow stocks ended in the green today. Home-Depot and JP Morgan Chase were a couple of main Dow winners while Merck and H-P led the team of Dow laggards.

Early morning, Cisco reported earnings came out that met expectations, but its stock came under pressure after the company provided a cautious outlook. But the stock ended more than 1% higher for the day.

Then came out the retail same-store sales data. Though Wal-Mart reported a 0.5% increase in January sales in stores opened at least a year back, it was way below from what market was expecting. Others, like, Target, JC Penny all reported drop in January sales. Wal-Mart stock closed higher for the day.

Housing and initial claims data disappoint market

Elsewhere, The Bank of England today cut its benchmark lending rate for the second time since December.

On the economic front, there were 356,000 initial jobless claims for the week ended 2 February, lower than the previous reading of 378,000. However, there were more claims than the 342,000 that market was expecting.

Also, The National Association of Realtors announced that sales of previously owned homes fell 1.5% in December, as the housing market continues to slump. The decline followed a revised 3% drop in November and was worse than the 1% decline expected by the market.

Indian ADRs ended mixed today. Barring Satyam Computers, HDFC Bank, tata Motors and Patni Computers, all others ended in the red. VSNL was the topmost loser shedding 2.7%. HDFC Bank and Patni Computers gained 1.7% and 2.4% respectively.

Crude prices rose today after dropping in the previous two sessions. Natural gas and fuel product prices also rose today after EIA reported another drop in natural gas inventories. Crude-oil futures for light sweet crude for March delivery today closed at $88.11/barrel (higher by $0.97/barrel or 1.1%) on the New York Mercantile Exchange. Earlier it fell to a low of $86.24/barrel. Crude prices rose today after Royal Dutch Shell said that a disruption at a Nigerian terminal will last through March.

Volume on the New York Stock Exchange topped 1.7 billion shares, with advancing stocks edging ahead of those declining almost 2 to 1. On the Nasdaq, nearly 3 billion shares exchanged hands, and advancing stocks topped decliners roughly 8 to 5.

Market Outlook - Feb 8 2008

Market Outlook - Feb 8 2008

Chilled bulls look for warmth

Hot heads and cold hearts never solved anything.

The mercury dipping over the past few days in India is akin to drop in market sentiment, which is sending chills down the bulls' spine. Where’s the bull Power? Was among the questions we received following the sell off yesterday. While the key indices had managed to remain calm till about noon, a sudden bout of sell-off took the bulls by surprise. The deep cut coincided with the release of FY08 GDP data, which showed that the Indian economy is likely to slow this fiscal.

Coming to today's market, we expect a much better start and perhaps even an improved closing. Don’t get carried away by a day's rally as the uncertainty is likely to continue for some time. Next trigger (for lack of reasons) would be the budget and perhaps a rate cut somewhere down the line. Don’t be surprised if both happen neck to neck. And of course, the resumption of FII inflows would quench the thirst for liquidity.

Back to the GDP, it is likely to grow by 8.7% from last year's expansion of 9.6%. Though the fall is substantial enough, the growth rate is still amongst the highest in the world. In fact, the Finance Minister appeared confident about attaining a 9% GDP growth. Despite the slowdown, the RBI says it doesn't see any need to change its monetary policy stance. Having said that, we maintain that rates will eventually have to moderate over the course of the year.

Sentiment may take a hit due to the grim conditions prevailing in the primary market as well. Wockhardt Hospitals has withdrawn its beleaguered IPO due to complete lack of investor interest in the issue amid tough market conditions. Emaar MGF IPO is also struggling to stay afloat, but may find enough takers. It will close on Feb. 11, which is also the day when the blockbuster Reliance Power will make its historic debut. The premium on this stock has also been hit hard due to the market correction. Listed power stocks will hog the limelight along with Reliance Power. Expectations are the stock may still hit Rs800-900 levels. But can it sustain would be known on Monday itself.

FIIs were net sellers of Rs8.6bn (provisional) in the cash segment on Thursday. At the same time, local institutions were net buyers of Rs2.31bn. In the F&O segment, they were net sellers of Rs2.67bn. On Wednesday, foreign funds pulled out Rs5.28bn from the cash segment. Mutual Funds were net sellers of Rs2.12bn in the cash segment on Wednesday.

In Asia this morning, the Nikkei 225 Average in Tokyo was down 104 points or 0.8% at 13,102. All the other key markets in Hong Kong, Singapore, Korea, Taiwan and China are shut for the Lunar New Year.

The MSCI Asia Pacific Index was down 0.6% at 141.24 as of 11:10 a.m. in Tokyo. Australia's S&P/ASX 200 Index advanced 0.9%, snapping a three-day drop.

US stocks ended marginally up after a fairly choppy session, breaking a three-day losing streak. Investors snapped up battered shares despite Cisco's lower sales outlook and some weak January retail sales.

JPMorgan Chase led the Dow Jones Industrial Average higher after CEO Jamie Dimon said bank profits will withstand downgrades of bond insurers. JC Penney and Gap helped retailers snap a three-day losing streak by forecasting earnings above analysts' estimates.

The S&P 500 Index erased a loss of as much as 0.7%, which was sparked by a sales projection at Cisco that disappointed investors. It finally gained 10.46 points, or 0.8%, to close at 1,336.91. The Dow rose 46.9 points, or 0.4%, to 12,247. The Nasdaq Composite advanced 14.28 points, or 0.6%, to 2,293.03.

Market breadth was positive. About nine stocks gained for every four that declined on the New York Stock Exchange.

US stocks had declined in the morning amid ongoing worries about business and consumer spending, and Fed policy. But the tone improved in the afternoon. The big question going forward is whether Wall Street can continue to rise in the face of regular flow of bad news.

Mostly weaker January retail sales from Wal-Mart and others added to concerns about slowing consumer spending. Dallas Fed Bank President Richard Fisher became the third central bank official this week to hint that rising inflation could limit the central bank's ability to keep cutting rates aggressively.

In corporate news, Delta Air Lines and Northwest Airlines were believed to be moving closer towards a merger that would create the largest US carrier, according to reports.

Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.77% from 3.6%. The dollar gained versus the yen and the euro after the Bank of England cut interest rates. The European Central Bank kept rates steady but hinted it may need to cut them later in the year.

US light crude oil for March delivery rose 97 cents to settle at $88.11 a barrel on the New York Mercantile Exchange. COMEX gold for April delivery added $5 to settle at $910 an ounce.

Stocks in London ended sharply down on the back of Bank of England's cautious outlook on inflation and poor earnings from GlaxoSmithKline, BT and Yell Group. The FTSE 100 index slumped 2.6%, or 151 points, to 5,724.10.

Other European markets too fell heavily. The pan-European Dow Jones Stoxx 600 index ended 1.9% lower at 314.14. Germany's DAX 30 fell 1.7% to 6,733.72, while the French CAC-40 fell 1.9% to 4,723.80.

Among the emerging markets, the Bovespa in Brazil was flat at 58,965 while the IPC index in Mexico rose 0.6% to 28,088. The RTS index in Russia tumbled 3% to close at 1887 and the ISE National-30 index in Turkey plunged 3.7% to 51,954.

Global markets to dictate trend

The worst is far from over for the bulls. Just when sentiment started to feel better, jitters from US market continues to haunt Dalal Street. Markets opened on a cautious note and remained lackluster in the morning trades on lack of cues from Asian markets, as most of the m were closed on account of Chinese New Year, barring Nikkei. However, in the afternoon trades, bears again made their presence felt dragging the benchmark Sensex lower by over 600 points and Nifty down by nearly 200 points. Lower GDP estimates for FY08 dampened the spirits of the bulls.

Selling was seen across the board with Index heavyweights bearing the burnt of the sharp fall. RIL, ICICI Bank, SBI, Bharti Airtel and L&T were among the major losers dragging the Sensex lower by 626 points to close at 17513. Nifty closed at 5132, down by 191 points. With markets across the world sinking in line with the weak US trend, the local sentiment has once again taken a beating today.

Markets fell sharply after the latest Government report showed that India’s economy is estimated to expand 8.7% to March 31, the weakest pace since 2005. The growth was at 9.6% in the last financial year.

Interestingly, mid caps and small caps which were holding steady from last two days also succumbed to profit booking. Jindal Steel, Neyveli Lignite, MRPL and Rolta were among the notable losers from the midcap space.

Among the key Sectoral indices, BSE Metal index (down 4%), BSE Realty index (down 4%), BSE BANKEX index (down 4%), BSE IT index (down 3%) and BSE Auto index (down 2%).

It was again one of those days, when technical charts went for a toss and the crucial support levels for Nifty were broken, and markets plummeted deep into red in the afternoon trades. For Friday, a lot will again depend on the US markets. However, weak opening will give investors an opportunity to pick up sound stocks at cheap prices. Instead of trying to trade for the day, enhance your portfolio with a few frontline counters with a long term perspective. Invest (not trade) a small part of your cash holding and take an extended weekend.

News Snippets:

Mcnally Bharat plans to invest Rs2bn over next 15 months for heavy engineering and forging unit in West Bengal. (Mint)
Nicholas Piramal to sell hypertension device in India manufactured by Israel’s InterCure. (Mint)
ArcelorMittal applies for iron ore mines in Orissa and Jharkhand. (BL)
NTPC forms JV with Bharat Forge for manufacturing castings and forgings for power plants at an investment of Rs30bn. (BL)
Ennore Foundries to invest Rs3.5bn for doubling capacity to 220,000tpa by 2010-11. (BL)
Sintex Industries plans to invest Rs2bn in pre-fabricated segment. (BL)
Reliance Infratel to erect 56,600 towers by 2010. (BS)
Ispat Industries to spend US$115mn on African blocks. (BS)
Vakrangee Software to invest Rs2bn in setting up digital printing centres in 10 cities by 2010. (BS)
Indiabulls Real Estate buys out DLF’s stake in Kenneth Builders. (BS)
Kingfisher Airlines plans to float its own dedicated cargo airline through tie-up with foreign company. (BS)
ONGC’s helium unit in Tamil Nadu to go on stream soon. (BS)
PNB Housing cuts home loan rates by 50bps. (BS)
NTPC revises plans to develop wind power project with generation capacity of 100MW from original 50MW. (FE)
Tata Chemical plans to raise up to Rs3.25bn by offloading investment in Tata Investment Corp. (TICL) to Tata Sons. (FE)
Suzlon Energy’s wholly owned subsidiary, SE Drive Technik Gmbh, forms JV with Re Power Systems AG, Germany. (FE)
Reliance Retail plans to set up 1,200 ‘Reliance Wellness’ stores in India at an investment of over Rs30bn in 2-3 years. (FE)
George Soros picks up 3% stake in Reliance Entertainment for $100mn. (FE)
UTV Toons, animation division of UTV Software to be merged with the UTV Motion Business. (FE)
Sujana Metals to invest Rs16bn to treble its capacity to 1mn tons till 2010. (FE)
Bharti Airtel and VSNL seek a ‘crisis observance code’ to ensure that operators access each others' infrastructure in crisis situation. (ET)
ADAG hikes its stake in Deccan Aviation to 10.76%. (ET)
Indiabulls Real Estate picks up stake of DLF in Tehkhand residential project at South India. (ET)
Tata Motors officials to meet JLR union unite on Friday to discuss Pension, Job security and other concerns. (ET)

Economic Front Page:

Cabinet clears railway line electrification along 801kms network in east Bihar and North East India by 2012. (Mint)
Union Cabinet approves Rs437bn outlay for national projects under Accelerated Irrigation Benefits Programmes during the 11th Plan (BS)
Losses of PSU oil marketing companies double in three years on account of under-recoveries. (BS)
SEBI signs agreement with French (AMF) Autorite des Marches Financiers for mutual regulatory understanding and exchange of information. (FE)
A parliamentary panel on Petroleum & Natural Gas to discuss the issue of fuel price hike today. (FE)
Government plans to increase the corpus of the Rural Infrastructure Development Fund (RIDF) by Rs20bn to Rs140bn. (FE)
Government to consider cutting down land requirement of UMPP by up to 40% in a phased manner. (ET)
Steel Minister to meet with all intergraded steel producers on Feb 11 to discuss downward revision of prices. (ET)

Today's Pick - EKC

We recommend a buy in Everest Kanto Cylinder from a short-term perspective. It is evident for the charts of Everest Kanto Cylinder that it has been on steady and gradual long-term uptrend since July 2005 low of Rs 54. Recently, the stock resumed the long-term uptrend, following a short-term correction from its life high of Rs 385 to a low of Rs 238. The stock’s resumption of the uptrend has been backed with bullish divergence in the daily momentum indicator. The dail y momentum indicator is rising in the neutral region and the weekly momentum indicator is on the edge of entering the bullish region. We also note that the 200-day moving average line has provided support for the stock recently. Moreover, the long-term uptrend is still in place. We are bullish on the stock in the short-term. We expect the stock to move up to our target level of Rs 375 in the short-term. The investors with short-term perspective can buy the stock with stop loss at Rs 279.


Via Businessline

Social Picks Results - Infosys is a

Infosys is a ..

BUY 186 (50%)

SELL 91 (24.5%)

HOLD 91 (24.5%)

Total VOTES >> 368

Here we have it, our social pick - Infosys is mostly a BUY!

EMAAR MGF - Countdown to full subscription!

ISSUE CLOSES on Feb 11 2008

Sr.No.	Category			No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)			0.9923
1(a)	Foreign Institutional Investors (FIIs)
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1(c)	Mutual Funds
1(d)	Others
2	Non Institutional Investors			0.9811
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)			0.4693
3(a)	Cut Off
3(b)	Price Bids

Indian Overseas Bank - HOLD; Bajaj Auto, Jubilant Organosys, Bihar Tubes - BUY

Indian Overseas Bank - HOLD; Bajaj Auto, Jubilant Organosys, Bihar Tubes - BUY

Daily Technicals, Futures - Feb 8 2008

Daily Technicals, Futures - Feb 8 2008

Bank of Baroda, Ahemednagar Forgings, Ranbaxy,Deepak Fertilizers

Bank of Baroda
Cluster: Apple Green
Recommendation: Buy
Price target: Rs500
Current market price: Rs393

Treasury gains drive strong PAT

Result highlights

• For Q3FY2008, Bank of Baroda (BoB) reported a profit after tax (PAT) of Rs501 crore, beating our estimate of Rs402.6 crore and the consensus estimate of Rs378.3 crore. The PAT indicates a growth of 52.3% year on year (yoy) and 53.1% quarter on quarter (qoq) primarily driven by a strong growth in the non-interest income.
• The net interest income (NII) growth was moderate at 9.8% yoy to Rs997.5 crore. The NII growth was largely due to the continued pressure on the net interest margin (NIM) and a relatively slower credit growth of 23% compared with that of 27.1% during H1FY2008.
• During the quarter, the deposits grew by 22% yoy to Rs136,900 crore, while the advances rose by 23% yoy to Rs 95,518 crore. With the advances growth outpacing the deposit growth, the credit-deposit (CD) ratio improved to 69.8% for the quarter from 68.7% for the previous quarter and 69.2% for the year-ago period.
• The non-interest income spiked up 85.2% yoy to Rs618 crore on the back of strong treasury gains, thereby supporting the bottom line. The treasury gains for the quarter came in around Rs194.4 crore, about five times the gain in the year ago period.
• The operating expenses growth was contained at 7.1% yoy to Rs683 crore, while on quarter-on-quarter (q-o-q) basis it declined by 14.4%. This was largely due to a 8.5% year-on-year (y-o-y) decline in the staff expenses, partially offset by 40% y-o-y jump in the other operating expenses.
• The asset quality remained healthy with the gross non-performing assets (GNPA) declining by 14.6% yoy to Rs2,040.3 crore, while the net non-performing assets (NNPA) were largely flat yoy at Rs517.2 crore. However, the provisioning coverage declined to 75% for the quarter from 77% for the previous quarter and 78% for the year ago period.
• The bank remains well capitalised with a capital adequacy ratio (CAR) of 13.5% at the end of December 2007 compared with 12.9% at the end of September 2007 and 12.2% at the end of December 2006.
• In short term, the proposed initial public offering (IPO) of the UTI Mutual Fund should act as a trigger for BoB, as the bank holds 25% stake in the fund. Recent media reports suggest a valuation of about Rs6,500 crore for the UTI Mutual Fund compared with our valuation of Rs4,000 crore.
• At the current market price of Rs393 the stock is quoting at 8.2x its FY2009E earnings per share (EPS), 4.3x its pre-provision profit (PPP) and 1.3x FY2009E book value (BV). We maintain our Buy recommendation on the stock with a price target of Rs500.

Deepak Fertilisers & Petrochemicals Corporation
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs169
Current market price: Rs132

JV with Yara International

Key points

• Deepak Fertilisers & Petrochemical Corporation Ltd (DFPCL) has agreed to form a joint venture (JV) company with Yara International ASA (Yara International) to produce and market ammonium nitrate and specialty fertilisers in India.
• DFPCL will own 51% stake in the JV, while the Norway-based Yara International will own the balance 49% stake. The current heads of agreement will be converted into final agreement after due diligence and necessary company and regulatory approvals.
• The JV will provide DFPCL stability and flexibility in its operations in ammonium nitrate and specialty fertilisers segments through Yara International's leadership in the ammonia value chain and a large-scale ammonia/urea production base in the low-cost natural gas regions. The JV will also invest in the company's Paradip project of setting up a 300,000 million tonne per annum (MTPA) ammonium nitrate plant.
• Indian technical ammonium nitrate (TAN) consumption is growing at about 5-6% per annum on the back of high coal demand for power generation. DFPCL is the only major domestic producer of TAN, with the balance being met through imports.
• DFPCL has already increased its ammonia capacity to 130,000 tonne per annum (TPA) from 90,000TPA during the second quarter. This along with increased natural gas availability and additional ammonia storage tank would benefit the company in reducing the raw material cost and enhancing its nitric acid production.
• For FY2009, we expect the company to post a revenue growth of 18.8%.
• At the current market price of Rs132, the stock is trading at 8.5x its FY2009E earnings and at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.2x. We maintain our Buy recommendation on the stock with a price target of Rs169.

Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs374

Generic Nexium—a potential exclusivity opportunity

Key points

• Ranbaxy Laboratories (Ranbaxy) has received tentative approval from the US Food and Drug Administration (US FDA) for generic Esomeprazole Magnesium Delayed-Release Capsules, 20 mg (base) and 40 mg (base), the generic version of Astra Zeneca's blockbuster drug Nexium. Annual sales of Nexium is around $5.5 billion (IMS - MAT: December 2007).
• Ranbaxy was the first to file a Para IV abbreviated new drug application (ANDA) with the US FDA, seeking approval to market Nexium in the USA. It will thus gain from being awarded a 180-day period to exclusively market the product in the USA upon final approval from the USFDA. We expect the final approval for Ranbaxy's version of generic Nexium to come by April 2008, when the 30-month stay expires, thus allowing Ranbaxy to launch the product 'at-risk' in the USA with 180-day exclusivity.
• Based on our calculations, we believe the Nexium opportunity could yield $550 million in revenues and $220 million in profits for Ranbaxy during the 180-day exclusivity. This will translate into incremental earnings of Rs21 per share for Ranbaxy. However, we do not believe Ranbaxy would launch the product 'at-risk' in the USA before the outcome of the litigation. In such a case, Ranbaxy could attempt to enter into an out-of-court settlement with Astra Zeneca for the launch of generic Nexium.
• Ranbaxy has already announced four exclusivity opportunities until 2010, collectively valued at Rs68 per share. Further, Ranbaxy has in its kitty, 18 more Para IV filings with potential first to file (FTF) status, representing a market size of about $27 billion. The company expects to monetise at least one FTF opportunity every year. We expect the news flow on Para IV challenges and associated exclusivity opportunities to continue.
• We expect the announcements on de-merger of the new drug discovery research (NDDR) division, clarity on the Lipitor launch in Canada and other countries across the world and news flow on potential FTF opportunities to act as positive triggers for the stock. At the current market price of Rs374, Ranbaxy is trading at 17.5x its estimated CY2008E and 15.3x its estimated CY2009E earnings. We maintain our Buy recommendation on the stock with a sum-of-the-parts price target of Rs558 (20x CY2009E earnings of base business plus Rs68 for exclusivity opportunities).

Ahmednagar Forgings
Cluster: Ugly Duckling
Recommendation: Book Out
Current market price: Rs203

Book out

Result highlights

• The Q2FY2008 results of Ahmednagar Forgings Ltd (AFL) are below our estimates.
• The company's sales for the quarter grew by only 8.8% to Rs165.8 crore. The domestic sales remained flat at Rs111 crore and the export sales grew by 30% to Rs54 crore. The export revenues were flat on a quarter-on-quarter (q-o-q) basis.
• The operating profit margin (OPM) has been maintained at 20.6%. As a result, the operating profit grew by 8.5% to Rs34.2 crore. Higher interest and depreciation costs led the profit after tax (PAT) to remain flat at Rs17.7 crore.
• The ramp up in exports is not happening, as expected. There has been a delay in product approvals for exports. The domestic revenues are also not growing due to a slowdown in the domestic market.
• AFL is making preferential allotment of 17 lakh shares and 38 lakh warrants to its promoters at a price of Rs240, thereby raising Rs132 crore. The funds will be used in buying assets such as forging lines. The preferential allotment would lead to an equity dilution of 16%. The resolution to raise money through debt of Rs2,000 crore has also been cleared.
• Slow ramp up in exports, slow down in domestic market and 16% equity dilution would be a dampener on AFL's performance. We downgrade our earning estimates for FY2008 and FY2009 by 25% to Rs16.3 and Rs20.6 respectively. At the current market price of Rs203, the stock is trading at 9.9x its FY2009E earnings and is available at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.0x. We advise investors to Book out of the stock.