Companies that may cook books!

After the Satyam debacle it would be better idea to stay away from markets for few days.

DLF:
DLFs non-DAL revenues declined 44% QoQ to Rs22.5bn and around 40% of sales have been to DAL, a group entity. 44% of debtors are DAL and of total debtors, the share of DAL has increased during the quarter with DAL receivables increasing by Rs14.5bn QoQ.
During 1QFY09, sales to DAL were Rs15.6bn, which is marginally higher than the increase in receivables from DAL. We would like to add that DLFs high level of transactions with group company DAL and high level of receivables has been a point of debate since it went public.
Dr Reddys Labs:Dr. Reddy's has adjusted mark to market losses on outstanding US$250m of hedges in balance sheet, while P&L reflects forex gains realised. The company also reclassified its contract manufacturing business (CPS) revenues into API and Formulations, which makes it difficult to analyse its segmental performance.

HCL Tech:
HCL Tech has normally had a very large hedge position compared to its revenue base. While the rupee was appreciating, the company reaped benefits of this and reported US$79.2m in Forex gains in FY07. The company has always maintained that it would prefer to lock-in a constant INR/US$ rate through hedging rather than suffer from the currency volatility.
However, the company unwound US$540m of hedges in Jun-08 and booked large Forex losses. We find this change in Forex policy surprising and the company has likely brought forward its potential FY09 FX losses to 4QFY08 through this change in policy.

JP Associates:

Jaiprakash Associates did not provide for FX losses on outstanding FCCBs of US$400m through its P&L and plans to provide for the FX losses/ gains at the end of the year.

Jet Airways:

Jet Airways changed its depreciation policy from WDV to SLM, and thereby wrote back Rs9.2bn into its P&L, which helped the company to report profits during the quarter. It also helped Jet to report higher net worth, which will help in keeping reported gearing low. This is a one-time exercise. Jet also capitalised Forex loss of Rs6.2bn on Forex debt and adjusted it against carrying value of fixed assets.

Prajay Engineers Syndicate:

Hyderabad based developer, reported a loss in its fourth quarter results against expectations of a profit. The company "lost" records for a project worth 40% of its annual revenues at the site office.
The company in its press release said - "After the year end, basic records relating to sale agreements / revenue and construction expenses of one of the Projects of property development were lost at the site office, Vishakhapatnam. The auditors in their report have stated that they were not able to verify the books and records relating to income of Rs1437.71m and relevant construction cost of Rs752.654m. Management is making all efforts to locate/ retrieve the lost records."

Ranbaxy:

Pharma major has mark to market losses of Rs9.09bn on forex derivative contracts, which have not been provided for because the company believes "the gain on fair valuation of underlying transactions against which the derivative transactions were undertaken amount to Rs10.3bn." This argument is against the principles of conservative accounting wherein mark to market losses are being offset against assumed future profit.

Reliance Communications:
Telecom Company has adjusted short term quarterly fluctuations in foreign exchange rates related to liabilities and borrowings to the carrying cost of fixed assets. The company adjusted Rs1.09bn of realized and Rs9.55bn of unrealized Forex losses in the above manner.
In addition, the company has not recognised Rs3.99bn of translation losses on FCCBs, since the FCCBs can potentially get converted, although the FCCBs are out of money. Adjusted for all the above, the company would have virtually no profits in 1QFY09.

Reliance Industries:
In continuance of its policy, adjusted "foreign currency exchange differences on amounts borrowed for acquisition of fixed assets, to the carrying cost of fixed assets…which is at variance to the treatment prescribed in AS11." Had AS11 been followed, profits for 1QFY09 would have been lower by Rs9.4bn (23% of reported net profits).

Sobha Developers:
South Indian developer changed its accounting norms in 1QFY09 for revenue recognition which facilitates revenue being recognized earlier in a project cycle. According to its press release, if the accounting policy had not been changed, the company's 1QFY09 PBT would have been lower by 20%.
Excerpts from the company's press release: "With effect from April 01, 2008 the Company has changed its accounting policy for revenue recognition for sale of undivided share of land (group housing) on the basis of certain minimum level of collection of dues from the customer and / or agreement for sale being executed rather than criteria relating to the project reaching a significant level of completion to align it with revenue recognition policy for sale of villa plots.
This has been resulted in additional revenue recognition and higher profit before taxes of Rs321m and Rs150m respectively during the quarter ended June 30, 2008.

Tata Motors:

Company has transferred 24% stake in Tata Automotive Components (TACO), a company with revenue of US$675 in FY07, to Tata Capital, a group company, and booked profit of Rs1.1bn in 1QFY09. Management has declined to disclose the valuation methodology.
Senior management of Tata Motors, in a conference call with analysts, said, "I would not be able to share with you the specific valuation methodology, except to say that the things are done by an independent reputed firm and based on the company's track record and the future business opportunity."
Tata Motors has also changed its methodology for calculating provisions for doubtful receivables, which resulted in higher reported EBITDA to the extent of Rs507m (10% of EBITDA).

TCS:

The software major increased its depreciation policy on computers from 2 years to 4 years. As a result, 1QFY09 PBT was higher by an estimated Rs500m (c.4% of net profit in 1QFY09). TCS follows cash-flow hedge accounting and till FY08, it used to recognise hedging gains on effective hedges in its revenue line, thus boosting the reported revenue growth and EBIT margin.
In FY08, TCS had Rs4.21bn from hedging gains, of which, Rs1.37bn was included in the revenue line. However, from 1QFY09, TCS will report all Forex losses/gains below the EBIT line in other income. Thus the losses it had on its hedge position will no longer be booked in the operating line.

Zee Entertainment:

Media company withdrew its buyback offer "for the time being" without assigning any other reason. This happened after SEBI made it mandatory that companies will have to complete the entire buy back within the stipulated time, if the stock is trading below the maximum buy back price at the end of the buyback period and the buyback amount has not been completed.



DP DISCLAIMER: This is a individual opinion - please do your own research. This was a forwarded message with a intention to spread panic :-)

Top Losers - 2008

Top Stock Losers in 2008 (NSE, above Rs 20)

Ratnamani Metals wins !

Asian Electronics is no.2

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Multibagger picks for the bear market

We are in a short term bear market (atleast we would like to assume so)

Let us know what your picks in this type of markets are and which could become multibaggers once the market recovers

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These were the Stock Picks of 2008 - If you had listed few picks there - let people know how they have been performing :)

India Buys

India Buys

Themes for 2008

Themes for 2008

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We asked you to give your picks for 2008

Out of the over 60 recommendations by you! Here are we think are the best justified picks


Recommendations of Lowkey


1) PSTL: The company is a value buy on FY09E EPS basis(@Rs 530) and the growth story gives strength to that. It is the largest Multiplex chain in the world and OPM are comparable to other multiplxes even though it operates mainly in Tier1 and Tier2 cities simply because of the digital transmission technology. The overall structure of the company involving dimple advertising, the digital transmission, international footprint, production, distribution and Food malls only strengthen the strong growth being seen in the bottom line.

The current EV of PSTL is less than its US, Malaysia and Singapore subsidiaries.

2) Williamson Magor and Company Ltd:
The group has other listed companies like Eveready and Williamson Tea Assam Ltd(which is the largest tea estate in India). The company has just concluded a tie up with D1 Oils. The company is involved with Jatropha plantation and bio fuel production. The idea of securing loans to the farmer and supplying them Jatropha seeds and then buying them at a gauranteed price means that even if the margin is considered at Re 1 per Litre, the bottom line should increase by 20x times in the next 3-4 years. The promoters are good and business plan and excution more transparent than IKF Technologies(the other listed company in this space). The company has a big promoter holding (67%) unline IKF(4%), however, this reduces the free float of the stock and so the price will remain range bound until the stock is split or restructured. Keep a lookout for Crude prices and liquidate your holdings in this company if crude hits $60 per barrel since then price of bio diesel becomes unviable.

3) Adani Enterprises: should show a steady growth over a period of next two years. The group has good plans and management has shown strong execution.


Recommendations of Sridhar Kondoji


My picks for the year 2008 and for next few years are

1) Dish and WWIL (wire & wireless)
2) Rajesh exports
3) IGL (indraprastha gas)
4) Educomp

1) Dish and WWIL: I am assuming that households will continue to spend money on home entertainment and can't cut down on expenses even if India enters slow growth era. There is still huge subscriber base to go after. Even though DISH and WWIL belong to same parent and are competing with each other i see room for both these companies to survive and leave a possibility of merger going ahead for the benefit of shareholders and bring value to their investments.

2) Rajesh exports: This is one of my favorite pick. Being a goldsmith, i know how time consuming the process of buying gold and making ornaments. Going forward consumers will be reluctant to wait that long to wear the ornamnets and just head to jewellery retail outlets to buy their ornaments. Whether Gold price goes up or down, the margins of retail outlets like Rajesh exports will be maintained. Also with a large and innovative design gallery, they will continue to lure customers away from traditional jewellers like our family.

3) IGL (indraprastha gas)
I like their PNG and CNG business. However i see huge money in PNG segment going forward for the convenience it brings to consumers who are used to cylinders. They are leaders in this segment and have first mover advantage and they are set up to take advantage of this position.

4) Educomp: More and More schools will adopt Educomp and they will reap the benefits of their hardwork they put in all these years. They are moving in the right direction. This will be a true multibagger in next few years.

Smart Picks 2008

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20 Picks for 2008

Adlabs Films With a strong presence across the entertainment industry value chain of content production, distribution, and exhibition, Adlabs becomes the choicest pick.

Domestic consumption and leisure spends will remain buoyant as disposable incomes rise across the country fuelling growth at Adlabs.

Adlabs produces and distributes films, and is a dominant player in the multiplex segment. It has also acquired 51 per cent stake in television content producer Synergy Communications, the maker of Jhalak Dikhhla Jaa and Kaun Banega Crorepati.

In the FM radio business, its subsidiary, which runs Big FM has 44 FM licenses across India. This could also become a value unlocking opportunity going forward.

Over the past three years, Adlabs has impeccably delivered a top line growth of over 100 per cent y-o-y, along with high profitability. In the September 2007 quarter, it raked in a whopping 69 per cent operating profit margin.

But going by the past numbers, operating margins have remained in excess of 50 per cent consistently, with net profit margins at over 22 per cent. The stock has appreciated three-fold since January 2007 and should do well.

Bank of Baroda Bank of Baroda has a strong presence in western India —a key zone for retail and industrial growth—with equally good rural network.

Further, the bank is one of the few banks having a substantial international presence, which contributes 18-20 per cent to total business and 30 per cent to profits. This business is expected to rise further with the bank growing its global presence.

The bank has improved its fundamentals over the past several years on key parameters such as net interest margins (NIMs) and asset quality despite growing at a robust pace (asset growth CAGR of 19 per cent in FY04-07). Going ahead, the bank's focus on NIMs backed by moderate growth augurs well.

Besides, its initiatives such as online trading services, and joint ventures in insurance and asset management, will help it create value for its shareholders.

Additional triggers could be in the form of consolidation within the public sector bank space. All this put together makes this stock, which is reasonably valued at 1.4 times its FY09 estimated book value, an attractive investment opportunity.

Bharat Bijlee Though Bharat Bijlee has risen by a whopping 228.5 per cent in the last one year, even at current levels, it is inexpensive.

Consider this: The company has investment in various companies including Siemens, HDFC and ICICI Bank.

At current rates, their combined value works out to Rs 317 crore, or about Rs 560 per share. Excluding this, the core business is valued at attractive valuations of 20 times FY08 earnings and 15 times FY09 estimated earnings.

The company is capitalising on the emerging opportunities in the power transformer sector, which accounts for 65 per cent of its total revenues with the balance from motors.

In the Eleventh Five Year Plan, a total power generation capacity of 78,000 mw is planned. This augurs well for transformer manufacturers such as Bharat Bijlee.

The company on its part has recently expanded its transformer capacity to 11,000 MVA from 8,000 MVA. The motors business is also witnessing 25 per cent growth and Bharat Bijlee has forayed into higher frame motors of up to 400 kw. All this put together make Bharat Bijlee a good pick.

Bharati Shipyard Stocks of shipbuilding companies have been re-rated on the back of rising order book-to-sales to over seven times. The stock price of ABG Shipyard has gone up 267 per cent, while Bharati Shipyard is up 107 per cent over the last one year.

The gain has been higher in the case of ABG Shipyard, thus stretching its valuation at 33 times its FY08 estimated earnings. Bharati Shipyard is still trading at a comfortable 18 times estimated FY08 EPS and 13 times FY09 EPS.

Also, its current order book of about Rs 4,639 crore (11 times its FY07 revenue) is strong enough for maintaining 50 per cent growth for the next three years.

Bharati is building a greenfield shipyard which will enable it to build six vessels up to 60,000 dwt (dead weight tonne) against 15,000 dwt currently by December 2008. This will enable Bharati to improve its execution speed and bid for more projects.

Besides, it is planning to invest Rs 2,000 crore along with Apeejay Shipping to set up a shipbuilding yard on the eastern coast, which will be commissioned in FY 2011. A relatively lower valuation and strong earnings visibility makes this stock an attractive investment.

Bhel Today, the biggest constraint in the power sector is the supply of equipment, especially the critical power equipment required for the larger projects.

But, for Bhel, which commands about 65 per cent market share in the domestic power equipment industry, this provides long-term earnings visibility.

While competition is rising with new players like L&T and Chinese companies vying for a share, Bhel's order book of Rs 62,400 crore, almost 3.6 times its FY07 revenues, instils confidence. The successful acquisition of orders for super critical boilers and high technology gas turbines required for the bigger projects would only improve its order book further.

Considering the huge order backlog and the orders in pipeline, Bhel is expanding its capacities by 67 per cent to 10,000 mw by January 2008, which will further increase to 15,000 mw by December 2009.

Bhel is also expanding its forging and casting capacities and a new fabrication plant to help reduce its dependence on imports. These should also help lower costs in the years to come. Overall, a better industry outlook, strong order book and expansion of existing capacities will drive the stock from the current levels.

Bharti Airtel With a mobile subscriber base of 51 million, Bharti Airtel is India's largest mobile service provider. While it has added an average of 2 million subscribers a month in Q2, it is expected to crack the 100 million subscriber mark by FY10.

While the company has experienced good growth, its ARPU has fallen by 10 per cent over the last three quarters, much ahead of the 4 per cent decline experienced by Reliance Communications. Even then, operating margins have improved, on the back of higher margin in broadband business and cost reduction.

Going forward, increase in scale of operations will keep costs in check. Capital and operating expenditure is also likely to come down after the formation of Indus, a tower infrastructure company, which will manage the tower infrastructure of Bharti, Vodafone and Idea.

A trigger for the stock could be the listing of Bharti Infratel, the tower division and which holds 42 per cent in Indus. Bharti Infratel already has 20,000 towers and plans to set up more.

RCOM will be the biggest threat for the company if it manages to soon roll out its GSM services across 15 circles. Additionally, any unfavourable outcome over the spectrum issue will have its impact; it could lead to increased investments in upgradation of existing equipment.

To conclude, Bharti's revenues should grow by 35 per cent in the next two years on the back of subscriber expansion, start of Sri Lankan operations by March 2008, and launch of IPTV and DTH. A sum-of-parts valuation puts the per share value of Bharti at Rs 1,200, a 27 per cent upside from the current levels.

Blue Star The central air conditioning major, Blue Star, is a key beneficiary of the economic boom in the country across sectors like IT/ITES, retail and telecom.

This is reflected in the strong CAGR of 32 per cent and 40 per cent in sales and operating profit respectively in the past three years.

Notably, such strong growth traction is expected to continue as the company is sitting on a strong order book position, which is at Rs 1,030 crore as on September 2007. It is likely to get repeat orders from its existing customers as they expand operations.

It is expanding its capacities by investing about Rs 60-70 crore, which will lead to economies of scale and rationalisation of costs leading to margin expansion. Its return on equity and return on capital employed, which were at 34 per cent and 26 per cent respectively in FY07, will only improve.

However, the full benefits will be reflected only from the next financial year. The macro factors too continue to be robust, with huge investments planned in all the above mentioned sectors.

Dishman Pharmaceuticals Dishman, a pharma outsourcing player, is moving up the value chain from being a commoditised chemicals supplier to a research partner for innovator companies.

Its acquisition of Swiss-based Carbogen-Amcis (CA), which offers drug development and commercialisation services, has helped it tap into the client base of CA that includes seven of the top ten US drug companies.

With three projects in phase-III development, and likely to hit commercial production in two years, CA's revenues are expected to grow 15 per cent annually to Rs 400 crore by December 2008.

Dishman caters to 50 per cent of Dutch pharma major Solvay Pharma's requirement of eposartan mesylate, an anti-hypertension medication. Its acquisition of Solvay's Vitamin-D business will boost revenues. Its foray into China to manufacture Quats, a catalyst, is also seen positively.

All these should help reduce Solvay's share of 25 per cent in Dishman's revenues going forward. With earnings expected to grow between 25-30 per cent in the next two years (Rs 12 in FY08, Rs 15 in FY09 and Rs 20 in FY10), the stock can deliver 28-30 per cent returns in one year.

Educomp Solutions Educomp, the market leader in Kindergarten-12 education products, is a successful niche player. It has made some smart acquisitions, entered new areas. and garnered a client base of almost 6,000 schools across India besides, a small presence in Singapore and the US. Its first mover advantage makes it difficult for competition to catch up anytime soon.

Besides, the company has so far acquired and built the abilities to design and create content for schools, learning and school infrastructure management solutions, online teaching solutions, community building solutions and more recently into setting up its own schools.

Financially, Educomp's top line has almost doubled every year and operating margins have been maintained above 50 per cent.

Considering the growth potential in the Indian education industry, Educomp is likely to keep its juggernaut rolling for the coming few years. In FY09, Educomp will double its top line again and grow its earnings by 75 per cent. Although there has been a concern over valuations, the consistent earnings growth justify the same.

HDFC HDFC is an ideal play on the gamut of financial services. Besides market dominance in housing finance, it provides huge potential for value unlocking from its investment in banking, insurance and mutual fund subsidiaries.

The proposed UTI Mutual Fund IPO, stake sale by Reliance Capital in its mutual fund entity and the probability of listing of insurance companies though in the long term, should provide triggers. Moreover, there is a possibility of a merger with HDFC Bank.

Its core business--housing finance will continue to do well. Its loan book is expected to witness a CAGR of 25 per cent over the next two years. Its net interest margins are expected to remain stable at around 3 per cent.

And, HDFC is known for its asset quality. HDFC's stock trades at about 5 times FY09 estimated book value (adjusted for the value of its subsidiaries, which is about 30 per cent of HDFC's market capitalisation), and is a worthy pick.

India Infoline India Infoline is another company representing financial services, except the lending business.

Its stock price has grown more than fourfold in the last one year amid many positive triggers like capital raising for expansions, tie-up with strategic investors for investments in subsidiaries and restructuring of its various businesses.

Besides equity broking, it has expanded its product basket to include institutional equities broking, commodities broking, margin finance, investment banking and, distribution of life insurance, mutual fund and loans products.

It is investing towards building a strong distribution network (596 branches in 345 cities) and customer base (5 lakh clients) for its various services. Accordingly, the share of its traditional broking business of about 56 per cent in FY07 revenues is expected to come down over the years.

The stock trades at 51 times and 44 times estimated earnings for FY08 and FY09 respectively. While it looks cheaper than Edelweiss, in terms of market capitalisation to revenues, it trades at a higher P/E than Indiabulls.

However, it has the most de-risked business model compared to other players. Given India Infoline's aggressive growth strategy, the stock is ideal for long term investors.

Jain Irrigation Jain Irrigation, which is in the businesses of micro irrigation systems, food processing and plastic pipes and sheets, is a direct play on the growing emphasis on agriculture. Irrigation systems account for 30 per cent of its revenue. It’s revenues from micro irrigation have grown at 70 per cent annually.

Growth will be maintained on the back of its plans to launch new irrigation systems, higher replacement demand, focus on geographical diversification.

Jain's five overseas acquisitions, including a 50 per cent stake in NaanDan of Israel, the world's fifth largest micro-irrigation company, will help in terms of access to technology and access to large markets such as South Africa, US, and Europe.

In food processing, which accounts for 14 per cent of total income and grew by 74 per cent in FY07, Jain produces juices and dehydrated vegetables for companies like Coco Cola, Nestle, etc. This business to grow at healthy from hereon.

In plastic pipes and sheets, its products find application in agriculture (30 per cent market share) and telecom (70% share) among others and, should continue to grow at a healthy pace.

To sum up, Jain is operating in high growth areas, while exports too are expected to grow rapidly, which makes it a good investment case.

Jindal Saw Jindal Saw, the most diversified Indian pipe manufacturer, makes submerged arc welded (Saw), seamless and ductile iron spun pipes, which are used in diverse applications like oil & gas and water-based infrastructure.

The company is expanding its capacities in phases which will bring economies of scale– longitudinal Saw pipes (by 25 per cent), helical Saw pipes (233 per cent) and seamless pipes (150 per cent) -- by FY09. These expansions are well-timed due to strong demand for pipes on account of surging demand for oil and gas globally.

Over the next three-four years, global demand (including India), for Saw pipes is estimated at 200,000 km involving an investment of $60 billion.

Jindal Saw is likely to gain due to restructuring of the investment holdings in Jindal Group companies, wherein it has substantial investments in Nalwa Sons, Jindal Stainless, JSW Steel and Jindal Steel & Power, are worth about Rs 2,200 crore. Excluding the value of investments, the stock trades at 9 times its FY09 estimated earnings, which is attractive as compared with 17 times for Welspun Gujarat.

Larsen & Toubro Reinventing itself and successfully developing new businesses are among L&T's key strengths. That, along with the domestic infrastructure and global hydrocarbon investments, is responsible for the rising revenues and order book. It is now targeting a turnover of Rs 30,000 crore by FY10 as compared with Rs 18,363 crore in FY07.

Going forward, there is more business to come, as the government has estimated an infrastructure investment of $500 billion during the Eleventh Five Year Plan. Besides, a lot of money will also be spent by domestic players in the metal, oil and gas, power and other industries.

Little wonder, L&T's order book has been rising. As of September 2007, the engineering and construction division had an order book of Rs 42,000 crore.

Going forward, L&T is also focusing on the overseas markets and has targeted exports to increase to 25 per cent of 2010 sales. It is entering shipbuilding, railway locomotives, power generation and power equipment as well.

While all these investments in different businesses will help sustain future growth, the medium term continues to be robust. Some of it is already rubbing off positively on the share price. Although the stock seems richly valued, it can fetch good returns.

Maruti Suzuki On the back of a sound foundation of existing products (13 models priced between Rs 2 lakh and Rs 15 lakh), strong distribution, efficient service network and new product launches, Maruti Suzuki will maintain its dominant position.

The company has 52 per cent market share by volume of the Indian car market and 62.5 per cent of the small car segment, which is commendable given the stiff competition from global majors.

Maruti grew at a scorching 18 per cent, compared with the 13 per cent recorded by passenger car market in H1 FY08. For eight months ended November 2007, sales volume was up 19.7 per cent to 500,108 vehicles led by 49 per cent growth in exports. Notably, exports are expected to grow 40 per cent annually for the next two years; its share in total sales is likely to move up to 12 per cent in 2010 from 7 per cent in FY07.

Maruti is already augmenting capacities by 3 lakh in a phased manner by FY10 to a million units. Besides, it has lined up Splash (A2 segment) and the concept car A-Star (A1 segment), while a Swift sedan is on the cards. These will help earnings grow by 20 per cent annually in the next two years. Aggressive pricing, enhanced margins on the back of improved product mix, indigenisation and scale benefits, will help Maruti do well.

ONGC Oil exploration companies are set to benefit from the current high oil prices and firm outlook. India's largest oil exploration company, ONGC is the best bet in this space. ONGC with interest in 85 domestic blocks including 52 offshore fields, has made 28 discoveries in the past two years, of which, 14 were made in FY08 itself.

Further, its 100 per cent subsidiary, ONGC Videsh has stakes in 26 blocks across 15 countries and is expected to be the key growth driver with its share in ONGC's consolidated revenues and profits expected to rise to 20 per cent (14 per cent now) and 14 per cent (9 per cent now) respectively.

ONGC's substantial interests in MRPL, Petronet LNG, GAIL and Indian Oil Corporation are the topping. Moreover, the IPO of Oil India in the next few months could provide further triggers.

What also makes ONGC attractive is that it is the cheapest among its Asian peers trading at 10.1 times estimated FY09 earnings and enterprise value per barrel oil equivalent of about 7.5 times for FY09.

Going ahead, exploration successes especially in the KG basin and favourable announcement on various issues like sharing of subsidy burden, cess and deregulation in gas prices will be big positives.

Patel Engineering Patel Engineering, which is having an order book of Rs 5,400 crore almost 4.8 times its FY07 revenues, would be the key beneficiary of the boom in the construction, power and real estate sectors.

Within power sector, the 11th Five Year Plan has an outlay of Rs 70,000 crore, adding another 18,000 mw in hydropower generation. Patel Engineering has 22 per cent market share in the domestic hydropower construction, which accounts for 60 per cent of its current order book.

Also, the company has pre-qualified for new projects worth over Rs 6,000 crore as on September 30, 2007.

Besides, its entry into own power generation setting up of 1,200 mw thermal power plant at an investment of Rs 5,000 crore are positive triggers. Meanwhile, its core businesses including construction of dams, transportation and micro-tunneling are growing at a faster pace thus providing sustainable earnings growth.

The immediate trigger would come from its real estate business. Patel Engineering has transferred a land bank of about 1,000 acres spread across Bangalore, Chennai, Hyderabad and Mumbai to Patel Realty India, a 100 per cent subsidiary.

According to estimates, the real estate business is valued between Rs 500-520 per share. All of these make Patel Engineering an attractive investment.

Reliance Communications Reliance Communications (RCOM) has a mobile telephony market share of 18 per cent and subscriber base of 38 million, which is rising by a million every month. And this should continue to rise as RCOM penetrates into smaller towns.

What's more interesting is that despite concerns over declining, operating margins have improved to 42.2 per cent in Q2 FY08, thanks to the benefits of larger scale.

This is expected to improve further if RCOM gets the go-ahead to operate an additional 15 GSM circles as 65 per cent of passive infrastructure such as telecom towers, is common to both GSM and CDMA technologies and the investments in its existing networks will be incremental.

Additionally, it is the value unlocking in its subsidiaries that are likely to provide further triggers.

In 2008, RCOM is likely to announce a stake sale and subsequently list its tower subsidiary, Reliance Telecom Infrastructure, list its submarine cable subsidiary, FLAG Telecom, hive off of its SEZ and BPO businesses and the launch IPTV and DTH services by the first quarter of 2008.

Analysts estimate that a conservative sum-of-parts valuation based on FY09 numbers for RCOM comes to Rs 850-Rs 900 per share, which indicates an appreciation of 17-24 per cent from current levels.

Reliance Industries In 2008, Reliance Industries' (RIL) exploration and production (E&P) division, which accounts for 50 per cent of its sum-of-parts valuation, will start selling gas from the KG Basin. The only ambiguous aspect here seems to be the pricing of gas and settlement with the ADA group and NTPC.

Within a few months, Reliance Petroleum will also start operations, all of which should lead to a jump in RIL's profits.

Also, the bids for NELP VII will be awarded by July 2008. While further wins will add to reserves, new discoveries at existing reserves should further add to valuations and the possible de-merger of RIL's E&P division would unlock value.

While the company is yet to prove its mettle in its retail and SEZ initiatives, given its track record managing mammoth projects, one can hope to see positive results here as well.

Notably, analysts maintain their bullish outlook on the core businesses. Refining margins for RIL, already the best among global players, should remain firm until FY11, while petrochemical margins are expected to be stable with good growth in volumes. At a P/E of under 12 times FY09 estimated core earnings, RIL is a worthy investment.

State Bank of India SBI’s move to merge State Bank of Saurashtra with itself has the potential to trigger the re-rating of public sector banking stocks by pushing the much needed consolidation process.

To further expedite consolidation, the boards of SBI and its other six associate banks are meeting in January to consider merger. Should that happen, SBI's standalone balance sheet size will grow 1.5 times to Rs 8.20 lakh crore, almost double the size of ICICI Bank's.

Also, its branch network will jump 50 per cent to 14,400 branches. But, the improvement in valuations (re-rating) should get a boost when the merged entity is able to rationalise costs and extract benefits from the merger.

SBI will raise Rs 17,000 crore through a rights issue that should provide fuel for future growth. In a competitive Indian banking business, it is important for banks to achieve size and scale to be globally competitive.

And for investors, it is more important to find such banks at reasonable valuations. SBI meets both these criteria. SBI's stock trades at 2.2 times and 2 times its estimated consolidated book value for FY08 and FY09 respectively.

Further, SBI has investments in mutual fund and life insurance subsidiaries, which make valuations more compelling. Via Business Standard

India Strategy Outlook 2008

India Strategy Outlook 2008