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Sunday, September 14, 2008

Market likely to open negative on Monday

The market opened with the gap on Monday due to waiver of NSG`s acceptance of the US proposal to drop the ban on nuclear trade, which will put the Indo-US nuclear deal on the fast track and enable the India to access the global nuclear market to meet the booming economy`s soaring energy needs, estimated to be worth billions of dollars. This led to the increase in stocks of capital goods sector engaged in manufacturing nuclear reactors and equipments and power sector though the sector is witnessing huge shortage of coal recently.

In the OPEC meeting, there is decision to cut production by 520,000 barrels per day keeping the output quota of 28.8 million barrels per day excluding The crude fall to $99.99 from a overall high of USD147.27. The Inflation came down to 12.1%, down consecutive for three weeks. The banking sector is hopeful of interest rates peaking out. The high interest rate has already affected interest sensitive sectors like auto and realty which now looking to RBI for a rate cut. The auto sector has witnessed slowdown seen with the August numbers.

The dollar strengthened more than 45.7 against rupee in this week due to offshore related dollar buying in line with the weaker regional stocks. But going forward Indian IT/ITES sector would not gain much from it as most of the big companies have their contract hedged out at Rs 43-44 level.

Regarding Sugar sector the Supreme court has fixed Rs 110/quintal price for cane for the 2007-08 crushing season (October-September) against a state advised price (SAP) of Rs 125 a quintal and Rs 81.8/quintal SMP (Statutory Minimum Price), positive for the sector. In Fertilizer segment the Government has laid ambitious plans of upto 20% blending of Bio-Feuls (Ethanol, Jatropa Diesel etc.) by 2017. In the Telecom sector, DoT and Telecom Ministry has decided to raise the license fee for 3G spectrum and changed the 3G-auction policy.

July Index of Industrial Production, IIP numbers came in at 7.1% as compared to 5.4% in June. The sectors performed are capital goods, mining, electricity production and consumer durables. IT and manufacturing growth declined. Customs and excise collections rose an annual 10.5 per cent in the first five months of this fiscal (till August) to Rs 93,856 crore. This year, the government has cut Customs duty to fight inflation and also reduced the central excise rate. The latter is expected to impact excise collections further this year. The market tumbled during this week due to week global cues which may persist in the week ahead.

Outlook For The Week

Nifty opened the week on a positive note and made a high of 4558. However, huge selling pressure was seen from resistance near 4545 and Nifty closed the week in red with 3.48% loss with higher volumes. Nifty has crucial support at 4,190. For weekly purpose trend deciding level is 4,190. If Nifty shows strength above 4,190 then we may see a rally to 4245/4295/4345. Upside crossover may take it to 4,385/4,445/4,490/4,545. If Nifty doesn`t sustain above 4,190, then we may see decline to 4125/4060/3990. Breakdown may take it to 3,925/3,875/3,845/3,760.

On Monday, Nifty may open on a negative note. For the daily purpose, trend deciding level is 4,225. If Nifty manages to trade above 4,225 then we may see a rally to 4,245/4,275/4,295. Breakout may take it to 4,325/4,245 and higher. On the other hand, if Nifty doesn`t sustain above 4,225, then we may see a decline to 4,190/4,160. Breakdown may take it to 4,125/4,095/4,060.

Reliance Industries, Reliance Petroleum, India Economy, India Telecom, Zee Entertainment, Dr Reddy's Labs

Reliance Industries, Reliance Petroleum, India Economy, India Telecom, Zee Entertainment, Dr Reddy's Labs

Cosmo Films

Cosmo Films

Reliance Industries

Reliance Industries

Zee Entertainment Ltd

Zee Entertainment Ltd

Educomp Solutions Ltd

Educomp Solutions Ltd

Kotak Mahindra Bank

Kotak Mahindra Bank

Inflation on downward trend ?

Inflation could well be on its way down as the Government on Sunday said seasonally adjusted monthly inflation for August fell drastically to 5.5 percent, the lowest since December 2007.

Even though annual inflation rate, as conventionally measured, fell for the third week in a row, it was quite high at 12.10 percent for the week ended August 30.

However, if seasonal factors are done away with, annual rate of inflation for August fell significantly to 5.5 per cent against the high of 12.7 percent in July and 29.5 per cent in June, 2008, according to a statement issued by the Finance Ministry today.

"Annualised seasonally adjusted inflation in August 2008 has been the lowest since December 2007," the statement said. Seasonal factors play an important role in build-up of inflation. De-seasonalised index, therefore, is commonly used in assessing price build up, the statement added.

Sources in the finance ministry said this indicates a possible beginning of the fall in inflation.

This could be significant since many analysts expect inflation to rise again to 13.5 percent in November before easing to 9 percent in March.

Even if annual rate of inflation, as is conventionally measured, is taken into account, inflation for primary food items, which is a main concern for the common man, has declined for the week ended August 30.

According to the statement, inflation remained low for some of the important consumer items.

"The inflation for primary food articles at 4.6 percent on August 30, 2008 was lower compared to the inflation of 7.1 percent, a year earlier," the statement said.

In manufactured products also, inflation for cement (at 2.0 percent in the current year compared to 12.9 percent, a year earlier) and machinery items (at 5.5 percent in the current year compared to 8.7 percent, a year earlier) remained lower, according to the statement.

To a question as to why the finance ministry statement released on Thursday said inflation for 30-essential items increased to 7.52 percent during the week ended August 30 from 6.90 percent a week ago, the sources said the rise was mainly caused by sugar inflation, which had declined during the same period a year ago.

Sugar falls in the category of manufactured food item and not primary food item.

Shree Cement

The sharp de-rating of cement stocks, due to concerns about limited pricing power, has trimmed valuations for producers such as Shree Cement.

Investors who bought the stock on our earlier recommendation should hold on, given the prospect of upside linked to better valuations. The stock can be accumulated by investors willing to hold on for a 3-year time frame.

At the current market price of Rs 576, the stock trades at eight times its trailing earnings and about five times its expected FY-09 earnings. While this is at a discount to peers, it appears cheap on a replacement cost basis. Shree Cements’ enterprise value now stands at about Rs.3137/tonne, attractive when compared to the average enterprise value of leading players in the North, at Rs 5,550/tonne.

Shree Cement’s ability to tackle supply-side pressures and increases in input costs has helped the company hold its profit margins at levels superior to the industry average in recent times.

An operating profit margin of 35 per cent during a period (June quarter), strained by cost pressures, shows the company’s resilience to pressures in the business.

Timely commissioning of expanded capacities, healthy cash flows and forays overseas to tackle a situation of surplus in the domestic market are other key advantages.

Surfacing as a major player

Shree Cement is exploring the overseas markets(Libya, Israel and Sudan) to expand its reach and offload excesses at times of surplus in the domestic market. It also plans to cater to the rural markets of Punjab, Rajasthan and Haryana on a larger scale to improve volumes and retain profit margins. The path embarked does appear promising. Establishing links in the rural markets may not be difficult, given its established brand and strong network. Poor infrastructure in ports could pose a challenge for exports.

On the volume front, the company is adding another one-million tonne to its 9.1 million tonne capacity through an investment of Rs 550 crore this fiscal. Shree Cement has in the past, managed to tap opportunities created by the commodity cycle through timely capacity enhancement.

With robust operating cash flows of Rs 663 crore (March ’08), the company may be partly funding its capex through internal accruals and rest through debt. The company’s high credit rating helps it to secure funds at relatively lower costs.
Cost efficiency

The company’s initiatives on cost-cutting through captive power plants, effective logistics management and waste heat recovery system make it a cost-efficient player.

Shree Cement is also using chemical gypsum and resorting to higher blended cement production through use of fly ash. To fight currency-related risks, it has swapped its floating rate ECBs for fixed coupon borrowings. Shree Cement’s high debt rating fetches it funds through MIBOR linked instruments for working-capital requirement at reduced cost.

Shree Cement’s sizeable capacities and efficient operations also render it an attractive consolidation play in the cement sector. The business is now valued at about Rs 3,187/tonne (enterprise value). This is considerably lower than the price at which some of the smaller acquisitions in the cement space have recently been made.

For instance, CRH paid Rs 5,692/tonne for My Home Industries while Vicat paid Rs 4,214/tonne for acquisition of stake in Sagar Cements. At the macro level, the price and demand scenario does not appear dire. Part of the slowdown in cement offtake in the northern markets is linked to the monsoon, suggesting a possible pickup in the coming months.

The removal of the curb on selling prices of cement by the Government may also provide leeway for cement manufacturers to raise prices, once demand starts picking up on increased activity in the real estate and infrastructure sectors, post-monsoon

Bannari Amman Sugars

The sugar cycle is on the verge of an upturn, with the sharp contraction in sugarcane acreage pointing to lower sugar output and tighter supply over the next couple of years. With sugar prices already beginning their ascent, producers can look forward to a sharp improvement in realisations and profitability over the next couple of years.

The stock of Bannari Amman Sugars (Rs.824), offers a good investment opportunity for those looking to take advantage of the likely earnings momentum in the sugar sector. Facilities located mainly in Karnataka and Tamil Nadu and a history of good relations with farmers ensure that Bannari Amman Sugars enjoys access to adequate quantities of cane even in a deficit year.

The location of its mills in the southern States also ensures procurement of cane at more competitive prices compared to players in UP — for whom rising State ‘advised’ cane prices present a key risk. Bannari Amman’s integrated manufacturing model, with capabilities to produce power from baggase, refine imported sugar and process molasses into spirit and ethanol, make for better utilisation of capacities and a longer crushing season.

Despite these advantages, the stock (PE of about 8 times estimated FY-09 earnings, without factoring in contributions from capex) is trading at a discount to frontline sugar companies such as Balrampur Chini Mills and Shree Renuka Sugars.

Bannari Amman’s cane crushing capacities, which stood at 9,000 tcd (tonnes crushed per day) in 2007 rose to 11,500 tcd in the 2007-08 season with the acquisition of Maheshwara Sugars at a nominal cost to the company.

The acquisition was financed through an issue of preference shares worth Rs 18.5 crore, with an additional issue of equity shares worth Rs 1.9 crore, resulting in a marginal dilution of equity base to Rs 11.4 crore.

With statutory approvals received in June 2008 for relocation of this unit, plans are on the anvil to expand the facility to 6,000 tcd and add a 28.3 MW power cogeneration unit. Bannari Amman also proposes to set up a 5,000 tcd integrated sugar plant with cogeneration, distillery and bio-fertiliser units at Tamil Nadu, for which the command area has recently been demarcated.

Together, these expansion plans have the potential to scale up crushing capacities by 70 per cent. Assuming it takes two years for these units to be commissioned and for cane supplies to stabilise, a 20 per cent addition to crushing volumes should be possible by the next sugar season, commencing October 2009.
Realisations may drive margins

Even without factoring in volume increases, Bannari Amman’s profitability and earnings may improve over the next couple of years, thanks to rising sugar prices.

Current forecasts suggest a 17 per cent decline in domestic sugar output to 220 lakh tonnes in 2008-09 and a further decline to 187 lakh tonnes in 2009-10. Opening stocks for the coming season stand at a fairly tight 90 lakh tonnes. This puts the stocks-to-use ratio at 2004 levels, when sugar prices began their march during the previous upward cycle.

Reflecting the prospect of tighter supplies, domestic sugar prices have already climbed 22 per cent from their January levels and are now ruling 25 per cent higher than the same time last year; further increases are expected over the next few months.

Improving realisations on sugar are already reflected in Bannari Amman’s June quarter results, which showed a 25 per cent expansion in sales, with a three-fold expansion in per share earnings to Rs 18.1 for the quarter, compared to 2007.

Operating profit margins rose to 16.8 per cent (10.7 per cent), as losses from sugar operations shrunk sharply and power and distillery operations made positive contributions.

Though the September quarter may not be noteworthy, a sharp expansion in sales, profitability and earnings is likely from the December quarter with the commencement of the new crushing season.

While improvement in the profitability of the sugar business will be the key earnings driver, contributions from by-products — power and ethanol — may provide stability to the company’s earnings, even if sugar price increases are capped at a particular level.
Policy risks limited

Delays in contributions from expanded capacities and inadequate cane availability are the key company-specific risks to Bannari Amman’s earnings at this juncture. The risk of policy intervention to cap any runaway rise in sugar prices is a live one, given that the commodity is a key contributor to the inflation index. Going by history, these policy measures may take the form of additional releases of free sale sugar or buffer stock, ban or removal of incentives to exports or moves to facilitate imports, to moderate domestic prices.

Buffer stock releases can only temporarily quell prices, as sugar prices in the medium term will continue to be dictated by the actual supply equation.

A ban on exports or removal of export subsidy will curtail opportunities on this front for South-based players such as Bannari Amman But these are not a major concern in a deficit year, when better realisations are possible from domestic sales. A firm trend in global sugar prices and a depreciating rupee, also increase the shelter for domestic sugar producers against imports.

As the stock has thin trading volumes and is subject to large intra-day spikes, purchases should be carefully timed to obtain a good price.

Educomp Solutions

Shareholders in Educomp Solutions, an education solutions provider, can stay invested with a one-two year horizon considering the company’s strong growth prospects in digital content and product licensing to private schools and strong government order-book for IT enablement of schools.

At Rs 3,591 the stock discounts its likely 2008-09 earnings by about 60 times. This is explained by triple-digit growth rates in its revenues and net profits over the past couple of years and superior margins that Educomp enjoys.

The earnings before tax, interest, tax, depreciation and amortisation (EBITDA) margin of the company for 2007-08 was 47.6 per cent while the net profit margin stood at 26.7 per cent, well above peers. The stock’s valuation is also at a premium to peers such as Everonn Systems and NIIT.

The prospects for Educomp’s key revenue-generating divisions of Smart Class — a high-margin business — and information communication and technology (ICT) — a volumes play — are very promising.

The private schools looking at innovative and effective methods of pedagogical delivery and the government initiative in its schools for increasing ICT infrastructure are key drivers for growth. A recent CLSA report suggests that there are 75,000 private schools accounting for 90 million students. The training and education market size is estimated to be $40 billion currently and is expected to grow at 16 percent annually over the next five years.

Further, wired classrooms are estimated to have a potential of $800 million over the next few years. The union budget has allocated Rs 650 crore towards establishing 6000 model schools in 2008-09.

Together, these statistics indicate that the Smart Class segment and the ICT segment have considerable addressable market and even if a part of it were tapped, would enable Educomp to grow at high rates over the next few years. The professional development division and retail foray that delivers online content to students in India, the US and select countries in the Asia-Pacific region, also hold potential over the medium term.
Smart Class, a key segment

This segment contributes 49 per cent of its revenues (2007-08) and enjoys a whopping 58 per cent PBIT margin. More impressive is the 174 per cent growth in revenues in 2007-08 over the previous year.

This is on the back of triple digit growth in 2006-07. This segment envisages the company building the entire IT infrastructure for its private school clients and design of the digital software content based on curriculum requirements of these schools.

The software content is licensed to the school, which is charged on a per student basis periodically. With content spanning kindergarten to Class 12 across subjects and boards of education, the digital content developed by Educomp caters to a wider category of students, thus keeping more schools interested . So far, the company has managed to win 1,093 schools covering 1.1 million students. This represents a 182 per cent growth in the number of schools over the past year. Most of the deals, which span a five-year period, are based on the BOOT (build-operate-own-transfer) model.

A digital content library has also been developed and, along with IP licences given out to these schools, a sustainable revenue stream is generated, over and above pure IT hardware sales.

With private schools trying to make pedagogy student-friendly and effective, the potential for Educomp’s solutions in this segment continues to be promising over the next few years.
ICT, a volume play

The ICT segment caters to government-run schools and works towards IT-enablement. This segment contributed 36 per cent of its annual revenues last fiscal and has grown 209 per cent over 2006-07.

What drives this segment are the State and Central Government initiatives towards IT infrastructure establishment in schools.

Educomp works with 13 State governments, covering 1,285 schools. The deals are more of the nature of IT-enablement rather than complete solutions. This makes the business more of a volume play for Educomp. With the Budget indicating increased spends on computerising government schools, Educomp, with its existing relationship, may be well-placed to tap into opportunities.
Other forays and inorganic growth

The company also delivers content online to several countries abroad. Here again, the content is tailored to a vast set of students across classes. The online content seeks to simplify content for students. Online tutoring for competitive exams such as the IIT-JEE and PMT has also been started.

The company has formed JVs and acquired majority stakes in several online curriculum and content developers in the US, Singapore and other APAC countries such as Indonesia, Vietnam and Brunei.

JVs have been formed with reputed organisations such as Raffles in Singapore to start model schools in India. The company has acquired a 51 per cent stake in, to provide e-learning services to students in the US.

The company has also acquired a 50 per cent (to be raised to 74 per cent later) stake in Eurokids, a preschool chain. All these divisions are in the nascent stage and it may be a few years before they significantly contribute to revenues and margins.

Educomp is required to build the entire IT infrastructure upfront, which requires considerable capital. In a high interest environment, the borrowing costs may increase substantially. With a substantial government clientele, the payment cycles may be longer, expanding working-capital requirements.

India Real Estate Sector Outlook

If there is one sector that has been incessantly beaten down by the stock market for every macro-economic concern in the country over the past year, it has to be real estate. And not without reason. Be it rising inflation, increased costs of borrowing, tightening liquidity, increase in defaults by retail borrowers, slowdown in the IT industry or the controversies surrounding land grab — you name it, and it has a direct impact on the realty sector’s prospects.

The BSE Realty Index, flagged off only in 2007, has slumped by 34 per cent over the last year, taking a much harder knock than the Sensex (6 per cent down); it has the dubious distinction of being the worst performing sector index.

Are all the macro concerns linked to the sector justified? If so, are they likely to affect the performance of the sector and, as a result, listed stocks as well? The answer is a ‘yes’, with developers themselves now starting to acknowledge the challenges ahead. The financial results of realty companies in the listed space are also beginning to show signs of yielding to these macro pressures.

However, going beyond the near-term concerns and getting to the crux of the matter: Is the sector suffering from excess supply, and has demand peaked? The answer appears to be a ‘no’. While it cannot be denied that there are a few pockets of excess supply, this could be the fallout of the above macro concerns, as individuals and corporates have chosen to postpone their buying.

The realty needs of the Indian market as a whole, nevertheless remain largely unaddressed. For instance, the demand for housing or office space is still unfulfilled in a good part of the country. Yet, the problem at the business level appears to be lack of proper pricing and a faulty product mix. The inability of developers to quickly shift gears to offer the right properties at affordable prices, has been the key reason for the snowballing problems.

Let’s look at the impact of recent economic developments on the financials and business of key listed players in the sector. We also look at companies that appear better placed to ride out the difficult times either through their unique business model or through tactical strategy shifts.

Slowing sales growth

Concern: Growth in the home loan segment is reported to be slowing, indicating slower offtake of residential space, the reason cited being the increase in rates and the reluctance on the part of developers to slash the list price.

Simultaneously, offtake of commercial space, earlier aggressively bought by IT companies, is also said to be slowing, posing another challenge for the developers.

Impact: Quarterly numbers for realty companies are expected to be lumpy due to the uneven flow of revenues from projects. But with a good number of listed players following the ‘percentage completion’ method for accounting earnings (wherein revenues are accounted based on percentage of work completed), an increase in projects under execution should have translated into healthy growth for companies at least on an annual basis. However, 2007-08 witnessed slower sales growth for a number of companies. For instance, Parsvnath reported a 17 per cent growth in revenues in FY 08 as against 135 per cent in FY07.

Unitech witnessed a subdued 26 per cent growth in sales in FY 08 after a whopping 253 per cent in the previous year. Smaller companies such as Ansal Housing or Peninsula Land have slipped to single-digit growth in sales. The slowdown in the top line could point either towards a slowdown in offtake or longer execution cycles for projects (such as SEZs), which have not started yielding revenue. The former appears more probable for a good number of players as most of them are focussed on the residential or commercial space.
Margin pressure

Concern: The spike in commodity prices and the resultant surge in inflation have led to increased cost of construction for realty companies.

Impact: Increasing cost of key raw materials — steel and cement and inability on the part of developers to command higher realisations does present a risk to margins. While bigger players such as DLF have started to witness a mild dip in their lucrative margins, not much damage has been done to realty companies’ operating margins so far. This again, could be partly due to the accounting method followed by them.

Most realty companies follow the percentage completion method for booking sale, with costs booked based on estimates until the project is over.

A revision in these cost estimates due to a steep escalation in raw material costs, does pose a risk to future profits. This risk is already evident in Omaxe’s fourth quarter results.

The risk of more companies taking note of higher costs over the next few quarters, does pose a threat to the OPMs. However, for some companies, a land bank accumulated at low cost, may still ensure that margins remain superior to most other sectors.
Mounting debt and interest costs

Concern: Higher interest rates, tightening liquidity and higher norms for lending to the sector have resulted in fewer economical borrowing options for developers.

Impact: Despite recent fund-raising through IPOs, companies such as Orbit Corporation have reported a 15-fold increase in their secured loans in FY08 compared to FY07.

Listed realty players have witnessed at least a 3-4 percentage point increase in the borrowing costs in the last few quarters. For smaller companies such as Ansal Housing and Prajay Engineers, interest costs now account for 11 per cent and 12 per cent of their respective sales as against 3-4 per cent a year ago.

Akruti City’s interest cost is as much as 12 per cent of sales. However, the difference between the first-mentioned companies and Akruti is that while the former firms have been witnessing a slowdown in revenue growth, Akruti City continues to see healthy growth in revenues and profits to comfortably service its interest obligations. Thus, while Akruti managed to improve its net profit margins, the other two have seen a dip.
Impact on balance sheet

Even as developers find it difficult to raise fresh funds, can they tide over these difficulties through internal resources such as advances received from customers? The latest balance sheets of companies do not indicate this. Customer advance is a key source of working capital required for executing realty projects.

While customers, even a year ago, may have been willing to pay huge advances upfront to secure property at prevailing prices, increasing borrowing costs appear to be dissuading customers from paying large upfront advances.

For instance, advance from customers in the books of Orbit Corporation has dwindled to Rs 21 crore in FY08 from Rs 110 crore a year ago. Puravankara, Sobha Developers and Unitech too have witnessed a decline in advances received despite increase in projects under execution.

While customer advances as a percentage of capital employed has been dwindling, the other indicator of crunch in working capital for realty companies, is the increase in debtor days (the number of days taken to realise cash from debtors). Parsvnath Developers for instance has seen its receivable collection days double in 2008 from 135 days a year ago.

While most players have witnessed this crunch in working capital, Puravankara and Unitech are notable for their relatively low debtor days in absolute terms (despite seeing an increase in the collection period).

Lower customer advances and increasing debtor days are likely to force players to borrow more to meet capital rotation.
Positive vibes?

While the above business and funding challenges continue to trouble the developers would the recent mild decline in inflation provide hope for revival? Could this mean that there would be no need to take up stringent monetary measures?

If so, are interest rates — which appear to be the key trigger for a revival from the developer’s funding perspective as well as customer’s borrowing capacity, likely to soften?

Even, if all these hopes turn true, it could take a good year for the effect to percolate into the home loan segment to revive demand. Until then, developers have to find ways to sell, even if it comes at the cost of their profit margins.

The accompanying article addresses a few strategies adopted by developers to tackle the present concerns.

Apple introduces new iPods

Apple unveiled the latest editions of iPod portable music and video players, cutting the prices of the iPod touch and launching a redesigned iPod nano to capitalise on the holiday shopping season. Apple cut the price of its touch-screen iPod touch, which is similar to the iPhone, but doesn't allow one to make voice calls. Until Tuesday, the iPod touch carried a higher price than comparable iPhone models. The price of the 8GB version of the iPod touch was dropped to US $229 from US $299. It is still slightly above the US $199 price point of a 3G iPhone with comparable memory. The prices for the 16GB and 32GB versions of the iPod touch were cut by US $100 each, to US $299 and US $399, respectively. CEO Steve Jobs also showed off an iPod nano that will now come in an 8GB version for US$149. The 16GB version is slated to sell at US $199. The iPod nano will come in nine different colors and has also been redesigned to be narrower than its predecessor. It is the first major remodeling of the iPod nano in two years. In addition, Apple consolidated its iPod classic line into one version with 120GB of memory. The price of that device remains US $249.

Washington Mutual troubles mount

Washington Mutual shares tumbled after the largest US savings and loan company projected another big write-down for soured loans and was downgraded to "junk" status by leading credit rating agency Moody's. At least four analysts cut their price targets for the thrift, though Goldman Sachs raised its rating to "neutral" from "sell." Washington Mutual released third-quarter projections six weeks early and said it had ample liquidity. The thrift has said losses from home loans could reach US $19bn through 2011. But Moody's lowered Washington Mutual to below investment-grade status, citing reduced financial flexibility, deteriorating asset quality, and expected franchise erosion. Fitch also downgraded the thrift. Washington Mutual ousted CEO Kerry Killinger, who failed to halt losses on home loans that already total US$6.3bn. New CEO Alan Fishman may have to shed 2,300 branches that hold US$143bn in deposits.

Buzz from Deal Street

Reliance Big Entertainment announced that it has acquired a majority stake in US based Willow TV. In a statement the company mentioned that Willow TV is the world's largest portal for live internet streaming of all major cricket events from across the world. Willow TV, headquartered in Sunnyvale, CA, is a pioneer in live streaming of major international cricket, a global sport very popular with most South Asians, Australians, South Africans and English Cricket fans. It already has more than a million registered users worldwide, predominantly in the US, Canada, Australia and Europe.

Gammon India announced that its offshore step-down subsidiary has acquired a 50% stake in Sofinter SpA. Sofinter has its registered office at Corso Italia 6, Milan, Italy, which is the holding company of Ansaldo Caldaie SpA, Italy, and it is engaged in the manufacture of super critical boilers for power utilities. Though Gammon did not disclose the deal size, a business daily reported that it was around US $70mn.

Educomp Solutions said that it has entered into a 50-50 strategic partnership with EuroKids International Pvt. Ltd. (EIPL). The agreement includes the purchase of existing company shares as well as an infusion of additional capital into EuroKids for future expansion, Educomp said. The agreement also has a provision for the company to increase its stake in EIPL in stages to 74% over a period of time, Educomp said.

Infotech Enterprises said that its subsidiary will acquire California-based Time To Market Inc., which provides design services. Separately, Infotech Enterprises will also acquire TTM India Pvt. Ltd. Infotech Enterprises has recently set up a marketing and liaison office in Japan. On August 21, the company had said that it will commence full fledged operations in Japan shortly. Last month, the company also signed a contract with IHS Inc., marking its entry into the oil and gas industry. That contract is for an initial period of three years.

Weekly Stock Picks - Sep 14 2008

Buy Hindustan Unilever


Buy Jindal Saw


Buy L&T

Weekly Newsletter - Sep 12 2008

After losing over 3% this week, major indices will look for some revival. Despite inflation falling and IIP numbers beating expectations the bears managed to remain in control. While FIIs offloaded stocks worth Rs24.34bn during the week, domestic institutional investors were net buyers of around a mere Rs370mn. Bulls may hope that some positive developments on Lehman Brothers over the weekend spares them the Monday morning blues. International reports state that the Treasury Department and Federal Reserve have been working with Lehman to help solve its problems, including helping to find potential buyers. Meanwhile, Hurricane Ike is expected to hit the Texas coast early on Saturday. This could lead to some rise in oil prices which are around US$102. The local indices are at the mercy of foreign cues and foreign institutional investors for now. A sun outage later this month may only worsen sentiment. Use dips to take trading positions. For investment, you could perhaps wait….there may be lower levels in the coming weeks.

Industrial output picks up in July

India's industrial production grew at a much faster pace than anticipated in July, as improved performance of the manufacturing and mining segments offset a decline in electricity generation, the Government said. The index of industrial production (IIP) rose to 273 in July from 255 in the same month a year ago, data released by the Commerce Ministry showed. This translates into a growth of 7.1% as against 8.3% in July 2007. July's IIP figures are better than June, when the industrial output had expanded by 5.4%. The data was also higher than average estimates that ranged between 6-6.5%.

Growth in the manufacturing sector, which accounts for the majority of the IIP, stood at 7.5% in July versus 8.8% in the year-ago period. The mining sector grew at 5% in July as against 3.2% in the same month a year earlier. Electricity was a big disappointment, as its growth slipped to 4.5% in July from 7.5% in July 2007.

Industrial output rose by 5.7% in the first four months of the current fiscal year compared with 9.7% in 2007-08.

Growth in Capital Goods jumped sharply in July to 21.9% versus 12.3% in the same month last year. Consumer Goods sub-segment grew by 7.3% in July as against 7.1% in the year-ago period. Consumer Durables rebounded to register an impressive growth of 11.2% versus a contraction of 2.7% in July 2007. Consumer Non-durables sub-segment witnessed a sharp drop, to 6.1% from 10.5% in the same month last year.

As many as 10 of the 17 industry groups showed a positive growth during July compared to the year-ago period. 'Beverages, Tobacco & Related Products’ showed the highest growth of 28.6%, followed by 18.7% in ‘Transport Equipment & Parts’ and 16% in ‘Machinery & Equipment’. On the other hand, 'Wool, Silk & Man-made Fibre Textiles’ showed a negative growth of 9.2% followed by a decline of 9.1% in ‘Wood and Wood Products’ and a drop of 4.9% in ‘Leather and Fur Products‘.

Rupee weakens to nearly two-year low

The rupee fell to the lowest in almost two years against the dollar after the US currency rose to the highest in a year versus the euro amid worsening outlook for some key European economies. The rupee slid in tandem with other Asian currencies outside Japan on concerns that widening credit-market losses will hit global economic growth. Continued selling of Indian stocks by overseas investors coupled with nagging concerns over widening current account deficit too hurt sentiment towards the partially convertible local currency. Persistent dollar demand from corporates, especially oil refining companies, as well as offshore-related dollar demand among foreign banks also put pressure on the rupee through the week. The rupee lost 2.4% during the week to close at 45.75 per dollar, off a low of 45.80, its weakest since Oct. 11, 2006. It has shed nearly 4% in September, taking its losses in 2008 to 13.85%. It had gained 12.2% last year, the most in more than three decades. The currency touched almost a decade high of 39.1850 per dollar on November 7, 2007, as overseas investors bought a net US$17bn of Indian stocks.

N-deal...Massive investment expected in power sector

Venugopal N. Dhoot, immediate past president of ASSOCHAM and Chairman and MD of the Videocon Group on Monday announced that with the country's nuclear civil agreement with the US approved by the NSG, a minimum of Rs2 trillion investment is expected to go towards nuclear power generation. Forty domestic companies have already started negotiations with their foreign counterparts for nuclear power generation, Dhoot said.

Releasing the ASSOCHAM study on 'Indian Manufacturing: Aiming to Achieve 15% Sustainable Growth’ with ASSOCHAM Secretary General, D.S. Rawat, Dhoot said that among the leading corporates that are negotiating nuclear power joint venture include Videocon, JSW, Tatas and others.

With nuclear civil power agreement becoming a reality said that Dhoot, the power generation would be to an extent of 40,000 megawatt (MW) in the next 15 years and the cost of power will be much cheaper. The ASSOCHAM would shortly submit a detailed blue-print to the Prime Minister.

The ASSOCHAM study has brought out a 20-point approach paper for achieving 15% manufacturing growth with focused attention to improve logistics, port operations, trade policy approach, relaxation in borrowing costs and tax exemptions for India Inc.

The other point include reforms in infrastructure sector, diversification in existing export structure, emphasis on R&D, partnership between policy makers and captains of Indian industry, liberalise reforms in labour and engineering sector and special concession for agriculture products as well as processing of perishable products including reliable power supply.

Infosys sinks on profit warning

Shares of Infosys slid by as much as 6.5% to Rs1,637 after media reports stated that the company's Q2 earnings might be affected by the dollar's gain versus the UK pound over the past few days. An Infosys executive was quoted as saying that it was too early to revise FY09 US GAAP earnings forecast. Infosys lost 4% on the week to close at Rs1,644. The stock had touched a 52-week high of Rs2,141 on October 10, 2007 and a 52-week low of Rs1212 on January 22, 2008.

Infosys is most likely to miss its US Dollar revenue guidance for both, the July-September quarter and the full fiscal year, said the brokerage in a note after a day long meetings at Bangalore. About 28% of Infosys' invoices are denominated in pound, euro and Australian dollar, according to the brokerage. The adverse movement of these currencies against the US dollar is creating a cross-currency headwind, it said. The 19-21% YoY FY09 US dollar revenue growth guidance will need to be revised down to 17-19%, the brokerage said.

Meanwhile, Infosys CFO V. Balakrishnan was quoted as saying that its dollar numbers for the latest quarter could be impacted. "It is too early to speculate whether we will miss the US dollar revenue guidance numbers," he told a business news channel. The Indian rupee's depreciation against the US dollar will offset any impact on margins, Balakrishnan said, adding that the pricing environment was still fine. Around 30% of the company's revenues come from non-dollar currencies, which have fallen versus the greenback, Balakrishnan said.