HOT! - Reliance Value Unlocking :-)

Reliance- Value Unlocking !!!!!

As per company sources Value unlocking and demergers that may happen in Reliance group
companies over the next 1- 2 years .

Companies to be demerged from Reliance Energy:

-Reliance Power

-Reliance Cables

-Reliance Transmissions Line Towers

-Reliance Electric

-Reliance Bijlee

-Reliance Billing Systems (client billing IT company)

-Reliance Home Power (powering residential units)

-Reliance Industrial Power Supply

Companies to be demerged from Reliance Communication:

-Reliance Handsets

-Reliance Handset Accessories

-Reliance Mobile Batteries

-Reliance SIM Cards

-Reliance Mobile Marketing

-Reliance Tower With Power

-Reliance Tower (without power)

Companies to be demerged from Reliance Capital:

-Reliance Equity Investment

-Reliance Debt

-Reliance Gilts

-Reliance Bank

-Reliance Finance

-Reliance Mutual Fund

-Reliance Life Insurance

-Reliance General Insurance

Poll - Reliance Stocks you own ?

RIL 270 (44%)

RPL 402 (65%)

RNRL 247 (40%)

RELCAPITAL 138 (22%)

RIIL 100 (16%)

RCOM 263 (42%)

OTHER 96 (15%)

OVERALL - 612 votes

Each vote could select multiple options

WOW, 65% of you own RPL ! Hope most of you got it at IPO and made huge returns

RIL and RCOM have got 42% ownership, RNRL is equally owned at 40%

Thanks for the overwhelming response!

Fair gains for indices

The stock markets exhibited high volatility last week albeit in a narrow range as the bulls and the bears tried to get the upper hand. The eventual result, however, remained inconclusive despite the major indices finishing with decent gains.

The Sensex dipped below the psychological 14,000-mark to touch a low of 13,947, but bounced back smartly and rallied to a high of 14,327 — a recovery of 380 points — before settling with a gain of 99 points at 14,163. Last week, we mentioned that the key support for the index was in the 13,900-14,000 range. On the positive side, the index did not close below the 14,000-mark during the week.

Going forward, one needs to carefully watch the support zone for change in the trend. If the support zone is violated, one may witness a steep fall of another 800-900 points. In case of an upmove, the Sensex is likely to face resistance around 14,300, above which, the index can rally up to 14,540.

The Nifty also managed to hold its key support level of 4085. The index touched a low of 4,101, and then bounced back to a high of 4209 — a swing of 108 points. The index finally ended with a gain of 26 points at 4171. The Nifty is likely to face stiff resistance around 4,225 levels, above which, the index can rally to 4,300. On the downside, the 4,085-4,100 zone will be the key support area for the index.

A break of this level can see the index shedding another 250 points.

Among stocks, Infosys not only managed to cross the Rs 2,000-mark but was also successful in closing above it at Rs 2,009. This week, the stock may move in the range of Rs 1,965-2,045.

ITC also managed to hold the support level of Rs 150. If the stock continues to hold the support zone, and manages to clear the resistance zone of Rs 155-158, it can move up to Rs 165 in the near term.

Reliance continues to face selling pressure above the Rs 1,700-mark. One may see further weakness in the stock below Rs 1,670. Major support for the stocks exists around Rs 1,500.

Reliance and IPCL: A plastic merger

The proposal to merge Indian Petrochemicals Corporation Ltd (IPCL) with Reliance Industries, now that it has been announced, appears a natural and obvious move, given that both operate in the same industry. More so, if you consider the Reliance track record of merging group companies with the flagship.

The Reliance Industries that we know today is an amalgam of Reliance Petrochemicals Ltd (which implemented a part of the Hazira complex), Reliance Polyethylene Ltd, Reliance Polypropylene Ltd (these two were floated to implement another part of the Hazira complex) and Reliance Petroleum Ltd (the original entity that was floated to implement the Jamnagar refinery).

Yet, the proposal seems to have caught the market by surprise for two reasons. First, the Reliance Industries and IPCL Chairman, Mr Mukesh Ambani, while speaking at the IPCL AGM barely 20 months ago in June 2005, had ruled out any move to merge the two companies.

Second, the IPCL-Reliance merger is unlike any of the other instances quoted above in that it is not something that will bring in significant synergies more than what has already been achieved by the two in their independent avatars.

Operational synergies achieved

The core function of marketing and sales was combined within a year of the acquisition of IPCL by Reliance in 2002, with agents selling both brands of polymers and fibre/fibre intermediates. Synergies have also been achieved in product exchanges between the two — Reliance supplies naphtha for the Vadodara cracker of IPCL and also minor quantities of ethylene to the Gandhar complex.

What the merger will help achieve is to rationalise the other functions of finance, secretarial and HR where there could be some synergies to be achieved. But the cost-savings and efficiency improvement here cannot be significant enough to justify a merger of the two companies.

The combined entity will produce more of the same products such as polypropylene and polyethylene and a couple of new products in polybutadiene rubber and acrylic fibre, products that Reliance does not produce now.

The merger will also diversify the feedstock profile of Reliance, which now runs its cracker — the mother unit of a petrochemical complex — on naphtha. IPCL's crackers at Nagothane (Maharashtra) and Gandhar (Gujarat) use natural gas as feedstock.

There are other aspects being discussed as providing the rationale for the merger such as the use of Krishna-Godavari Basin gas in IPCL's crackers and the fact that the merger would add Rs 11,000 crore to Reliance's balance-sheet helping it to raise further resources.

Nothing prevented Reliance from supplying K-G Basin gas to IPCL when it remained an independent entity and, again, the character of the K-G Basin gas is not known yet. For use in a petrochemical cracker, the gas has to have molecules of ethane and propane apart from methane itself.

The swell on the Reliance balance-sheet, post-merger, will be nothing noticeable, given that it is already about Rs 1,00,000 crore in size; adding Rs 11,000 crore to it will make but a marginal difference.

Again, Reliance has traditionally taken the equity route to growth which is why it has a very low debt-equity ratio. There is enough elbowroom for Reliance to borrow more and adding IPCL's balance-sheet is not really going to make an impact there.

So what is the rationale for the merger now? One factor motivating the merger could be the losses accumulated by Gujarat Chemical Port Terminal Company Ltd (GCPTCL), a company where IPCL is a joint promoter with a few other Gujarat government-owned companies. GCPTCL operates a chemical port terminal with a jetty at Dahej and is deeply in the red. A merger of GCPTCL with IPCL, before the latter's merger with Reliance, could bring in a significant tax shelter for Reliance.

But, again, this is still in the speculative domain and requires the consent of the joint venture partners of IPCL. Reliance could also be seeking to capitalise on the run-up in its stock value in recent times which will enable a relatively more favourable share exchange ratio.

Petrochem monolith

Speculation on the rationale for the merger aside, what it will achieve is in creating a monolith petrochemical company that will hold approximately half the polymer market in the country; in some specific products such as polypropylene, the Reliance-IPCL entity will hold more than three-quarters share of the market. Some rationalisation of capacity and product lines will probably materialise to unlock value from the merger.

There is the question of what to do with the Vadodara complex of IPCL, which is about four decades old with capacities that do not help in deriving scale economies.

Scaling up the capacity is a problem because, with the city expanding around the complex, questions of environmental pollution and safety arise.

The cracker now runs on naphtha supplied by Reliance from its Jamnagar refinery. Capacities of the other two crackers of IPCL at Nagothane and Gandhar may also have to be scaled up, but the critical factor here will be availability of the feedstock — natural gas rich in ethane and propane.

Reliance has already announced plans for a new two-million tonnes per annum mother cracker with downstream units at Jamnagar and it remains to be seen how IPCL's expansion plans are married to this.

Valuation issues

Between the shareholders of Reliance Industries and IPCL, the merger appears more favourable to the latter. IPCL is a pure petrochem play with its revenue and earnings subject to commodity price cycles. Reliance, though still largely a commodity play, is better balanced between oil refining and petrochemicals.

About two-thirds of its revenues comes from oil refining and the restfrom petrochemicals, but when it comes to earnings, both businesses contribute in almost equal measure.

The presence in businesses such as retail, oil exploration and production (E&P), and life-sciences also lends better balance to the revenue and earnings streams. Of course, this picture could change if the company were to hive off its E&P and/or retail businesses.

For Reliance shareholders, the merger does not bring in anything extraordinary, even as it dilutes the equity capital by about 4 per cent from Rs 1,393 crore now to Rs 1453 crore, post-merger.

The merger would add about 12 per cent each to Reliance's revenues and earnings this fiscal (extrapolated latest nine-month earnings).

The stock price movement in the two days of trading since the first announcement of the merger reflects this clearly.

While the IPCL stock is up 16 per cent from Rs 231.65 to Rs 268.6, the Reliance stock is up by just 2.2 per cent in the same period. The share exchange ratio of one Reliance share for every five IPCL shares appears balanced in relation to the prevailing market prices of the two stocks, though from a book-value perspective it appears weighted heavily in favour of Reliance.

As of March 31, 2006, the book value of a Reliance share is Rs 324 and Rs 198 per share of IPCL.

An interesting aspect to take note is that the government holds 10.40 lakh shares accounting for 0.35 per cent of IPCL's equity capital as per the filing to the stock exchanges in January 2006.

Assuming that the government has already not sold this stake, it would become a shareholder in Reliance as a consequence of the merger, holding 2.08 lakh shares!

Why global cos are keen on Hutch Essar

No other acquisition in the Indian telecom space has managed to get so much interest as Hutchison Essar has. And one does not have to go too far to know the reason for at least three large telecom majors lining up to pick up Hutchison's Indian mobile operations.

As per the number available with the Cellular Operators Association of India (COAI), Hutchison Essar's ARPU (average revenue per user) is among the highest in the Indian industry at Rs 373, compared to Rs 348 for Bharti.

It also has the highest revenues per minute, beating rivals Bharti and Reliance Communications.

The minutes of usage per subscriber per month for Hutch are also higher compared to other operators.

No wonder that Vodafone, the world's second largest mobile company in terms of subscribers, is willing to bet nearly 10 per cent of its market capitalisation in acquiring Hutch Essar.

At $15 billion, which is what industry sources believe that Vodafone is willing to fork out to acquire 74 per cent stake in Hutch Essar, the British telecom company would pay about $682 for each of 22 million Hutch Essar subscribers.

In contrast, Cingular bought AT&T Wireless for $41 billion, acquiring 21.98 million subscribers at $1,891 a subscriber.

If Vodafone gets the deal, it will get a direct foothold into the largest growing market in the world at a lower price.

The company has had to face severe losses in the recent past and this may be its last chance to get into a rapidly growing market.

On the other hand, for Reliance Communications, acquiring Hutch Essar would fast-forward its plans to foray into the GSM cellular space.

The company is already the largest CDMA operator in the country with 25 million users and adding 20 million more subscribers would catapult it to the largest telecom operator in the country.

For Malaysia-based Maxis, Hutch Essar would give it a pan-Indian presence, which it has been looking to do ever since it acquired Chennai-based Aircel.

While Aircel has cellular services in the North-East and Tamil Nadu, Hutch Essar covers the other circles in the country.

Though Maxis has applied for fresh licences, it will have to wait for spectrum before it can roll out a network. Acquiring Hutch Essar would save the company a lot of time in investing in a new network.

Motilal Oswal - RIL, PNB, RCOM, BHARTI

Reliance Industries

Punjab National Bank

Reliance Communications

Bharti Airtel

Thanks Ramesh :)

Stocks you can pick up this week

Reliance Industries
Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 1,286.25 (Face Value Rs 10)
12-Month Price Target: Rs 1,400

Reliance Industries (RIL) has filed a revised development plan with the Director General of Hydrocarbon (DGH) for the key KG-D6 block. In the amended plan, RIL has sought approval for 80mmscmd of gas production and has proposed proportionate increase in the capex.

Based on independent assessment, RIL expects the P2 (proved + probable) reserves at 11.3 TCF. This represents an almost 100% increase over earlier estimates. The management has not indicated the quantum of P1 reserves as of now, but it is expected to be around 6TCF (as per the filings of Niko Resources- RIL’s JV partner).

The management is likely to share details once the revised plan is approved by DGH. Enam believes the filing of revised development plan for KG-D6 is a significant event and strengthens the outlook on RIL’s new business initiative. Going ahead, improving policy outlook on gas pricing and achievement of project milestones will align RIL’s E&P valuation multiples to its regional peers.

Mangalam Cement
Research: India Infoline
Recommendation: Buy
CMP: Rs 204 (Face Value Rs 10)
12-Month Price Target: Rs 297

Mangalam Cement (MCL) has performed strongly, wiping out its accumulated losses in FY06. The strong demand for cement in the domestic market coupled with firm cement prices is expected to bring rich rewards for the company in the next 18 months. MCL is putting up a 17.5-mw captive power plant, which is expected to go on steam by June ’07.

MCL is also adding 0.5 million tonnes of new cement capacity to take its total production capacity to 2 mt by September ’07. The stock is trading at EV/tonne of $70 of its FY08 capacity of 2 mt. On EV/EBIDTA basis, it is quoting at 3.9 times, while on an EPS basis, it is trading at 5.6 times.

With improvement in the balance sheet and operational efficiencies, India Infoline feels the stock is undervalued and recommends a ‘buy’, with a target of Rs 297 within a year. The target price discounts estimated FY08 earnings by 8.0x and EV/EBIDTA by 5.5x.

KEI Industries
Research: ULJK Securities
Recommendation: Buy
CMP: Rs 361 (Face Value Rs 10)
12-Month Price Target: Rs 403

Kei’s revenue growth is strong for FY07, with an overall sales growth of 85%. Cables sales are expected to grow by 90%, stainless steel wire by 48%, winding flexible and house wire by 80% and others by 25%. Last year, KEI generated revenues worth Rs 23.5 crore through exports, of which Rs 10 crore accrued from the Gulf region.

The company is in the process of integrating backwards by setting up an aluminum properzi and PVC compounding plant, which is likely to be operational in six months at a capex of Rs 7-10 crore. This will strengthen the operating margins by reducing the cost of the company by Rs. 4-5 crore.

KEI plans to undertake a greenfield expansion with capex of Rs 180 crore in Uttaranchal in FY08. With the management’s above plan for capacity expansion and backward integration, KEI is set to enter higher growth orbit. ULJK estimates the fair value of the company at Rs 403 and expects the company will trade at a P/E of 7.9 times within 12 months.

KRBL
Research: BRICS PCG
Recommendation: Buy
CMP: Rs 143 (Face Value Rs 10)
12-Month Price Target: Rs 267

KRBL has posted a revenue growth of 28.4% y-o-y to Rs 230 crore during Q2 FY07 due to better volumes and higher realisations on both domestic and export sales. Higher sales led a 52.5% y-o-y rise in operating profit to Rs 31.46 crore, which expanded the operating margin to 13.8% compared to 11.6% in Q2 FY06.

Net profit stood at Rs 15.12 crore, registering 88% growth. The company plans to launch its own brand of rice bran oil in consumer packs by December ’07. It commissioned a 12.5-mw wind farm in August ‘06 at Dhulia, Maharashtra, and is planning a 3.5-mw power plant in Ghaziabad for captive consumption.

This will lead to power cost savings of around Rs 5 crore each year. BRICS maintains a ‘buy’ call on the scrip, but lowers its target price to Rs 267 from Rs 301 earlier, considering that the company’s integrated milling plant in Dhuri, Punjab commenced operations only in October ’06.

Taj GVK
Research: Pioneer Intermediaries
Recommendation: Buy
CMP: Rs 241 (Face Value Rs 2)
12-Month Price Target: Rs 325

Taj GVK Hotels & Resorts (TAJGVK) reported a jump of 38% in revenues to Rs 57.9 crore in Q2 FY07, on the back of higher average room realisations (ARR) and steady occupancy rates (OR) in Hyderabad. The average ARR across the three hotels of the group in Hyderabad at Rs 7,635 was higher by 41% y-o-y, while ARR in Chandigarh was ~Rs 6,000.

TAJGVK’s capital charges in Q2 FY07 remained stable y-o-y. While the interest burden stood at Rs 1crore in the quarter, against Rs 90 lakh last year, depreciation was static at Rs 3.2 crore. Net profit for the quarter rose to Rs 15.2 crore from Rs 9.4 crore in Q2 FY06 (+62% y-o-y). TAJGVK has commenced work on its 200-room, greenfield property in Begumpet in Hyderabad and is set to commission its 215-room property in Chennai by June ’07.

At the current market price, the stock is trading at a P/E of 19.1x its FY08 EPS of Rs 12.7. Pioneer Intermediaries makes its case for investment on the back of stability and visibility in the company’s earnings over the next 18-24 months, due to absence of significant room addition in Hyderabad and on account of potential upside in revenues from the Chandigarh property.

Spanco Telesystems
Research: Emkay Share
Recommendation: Buy
CMP: Rs 171 (Face Value Rs 10)
12-Month Price Target: Rs 217

Spanco Telesystems announced a robust set of independent results after the demerger of Sparsh — its domestic call centre business. The results are not comparable as Sparsh was not part of company in Q207. The total revenues of the company in Q207 were Rs 121.7 crore.

Telecom network integration business has surprised with total revenue of Rs 113.1 crore in Q207 compared to Rs 20.5 crore in Q206. EBIDTA for the quarter stood at Rs 16.6 crore, up 85% over the preceding quarter and PAT stood at Rs 9 crore. EPS for Q207 and H107 stands at Rs 5.7 and Rs 8.6, respectively.

Emkay Share expects the company’s PAT to be Rs 37.4 crore for FY07 and Rs 66.7 crore for FY08. Emkay values the listed entity at 9x FY07E EPS of Rs 24 or 5.2x FY08E EPS of Rs 42 and put target of Rs 217. Sparsh will be listed in due course with an expected target of Rs 47 (12x FY07E EPS of Rs 4).

Indian Retailing - JP Morgan

Reliance Retail - Confident Debut

Download here

Thanks Vishesh

ET - Reliance Money brokerage fees

Brokerage rates for stock market transactions are yet to bottom out. Reliance Money, the financial services division of the Anil Dhirubhai Ambani Group-promoted Reliance Capital, is set to unleash yet another round of price war in this segment.

According to an email sent by a Reliance Money franchisee to a prospective client, the company is offering a brokerage charge of 7.4 paise on every Rs 100 worth of delivery-based trades, and 2 paise on non-delivery trades, which some rival brokers admit is the lowest in the industry so far.

"We would not like to comment on this at this point in time. The details of the offering are still being worked out," a Reliance spokesperson said.

Reliance Money is to offer a common platform for investors to invest in all equity products, commodities, forex, IPOs, insurance and other financial products.

While the company has not formally announced the launch of its operations, many traders said they have been approached by Reliance Money franchisees . Retail brokerage houses fear that Reliance Money may rewrite the rules of the broking business, distorting business dynamics in the short term, the way the Reliance group had done when it forayed into the telecom sector some four years ago.

"Broking has completely become a balance-sheet game as there is very little to distinguish between the services offered by various firms," said the head of a retail brokerage house. "A large player like Reliance has the capacity to absorb losses for a couple of years, making life difficult for rivals," he added.

DELIVERY TRADES

In a Rs 500 card, an investor gets a maximum delivery limit of Rs 10 lakh; so, the initial fixed cost is 5 paise. The investor will be charged Rs 12 per trade if he purchases through a series of trades. If he buys shares worth Rs 10 lakh in 20 trades, at an average of Rs 50,000 per transaction, the total brokerage charge will be Rs 740 (500+240), which works out to 7.4 paise per Rs 100 worth of transaction

INTRA-DAY TRADES

For non-delivery trades, an investor can take exposure up to Rs 90 lakh on a Rs 500 card. Suppose the investor uses up his limit in 90 trades of Rs 1 lakh each, at Rs 12 per trade, his total charge will be Rs 1,580 (1,080+500)

Reliance Money Details

Reliance Money - the online brokerage from Reliance ADAG has started offering online trading accounts

Visit at Reliance Money

To open an account - Fill in your details here

Expect them to create quite a flutter like the days when Reliance Communications (then Reliance Infocomm) came in with those Rs 500 connections

Thanks Vishesh for the pointer

Citigroup - Reliance

Download here

Thanks Vishesh

Merrill Lynch - Reliance Industries

Strong operating performance but modest 2Q earnings rise

Reliance (RIL) has achieved yet another strong operating performance in 2Q as reflected in the 23% YoY jump in EBITDA and 18% YoY rise in EBIT. The strong operating performance has been driven mainly by a 38% YoY jump in petrochemical EBIT. Strong petrochemical margins and volume growth boosted EBIT. Despite strong operating performance, 2Q net profit was up just 9% YoY due to a steep decline in other income and a sharp rise in depreciation, interest and income tax.

2Q earnings higher than MLe; surprise mainly in refining

RIL’s 2Q net profit growth at 9% YoY is higher than MLe and consensus by 5%. The earnings surprise is mainly attributable to refining EBIT being higher than expected. RIL has not accounted discount on sale of LPG and kerosene to oil PSUs of Rs2.0bn in 2Q as expected by us, which explains the higher EBIT.

Download here

Sharekhan Investor's Eye - Oct 20

Reliance Industries
Cluster: Evergreen
Recommendation: Buy
Price target: Rs1,250
Current market price: Rs1,215

Results ahead of expectations

Result highlight

• Reliance Industries (RIL) has positively surprised on its Q2FY2007 results by reporting a 9.6% year-on-year (y-o-y) growth in its earnings, much ahead of our estimates.
• The net revenues for the quarter grew by 37.4% driven by a strong 33.1% y-o-y growth in the revenues from the petrochemicals business and a 25% y-o-y growth in the revenues from the refining business.
• In the petrochemicals business the impact of the shut down at the Hazira plant was more than compensated for by the increased capacities as the revenues grew by 33.1% year on year (yoy).
• The profit before tax and interest (PBIT) from the petrochemicals business grew by 38% yoy driven by a 57-basis-point expansion in the profit before interest and tax (PBIT) margins.
• The refining and marketing (R&M) business reported a 24.8% y-o-y growth in revenues driven by a higher throughput and better prices. The PBIT declined by just 3% despite a steep fall in the regional Singapore gross refining margins (GRM). RIL's GRM outperformed Singapore GRM by 90%.
• With extraordinary expenses of Rs34 crore, a higher tax rate and a lower other income the net profit increased by 9.2% yoy. However, the same was ahead of our expectations by 6%.
• We like the way RIL has been diversifying into new areas of growth like upstream oil and gas activity, organised retailing and construction of Special Economic Zones (SEZs). However, these areas of business would entail a lot of investment for RIL going forward, and we expect them to generate tremendous shareholders' value.
• We expect that in near future a substantial upside can come from the higher-than-reported gas find in the KGD6 block owned by RIL (see our report 'It is solid, not gas' dated September 22, 2006). However, we would like to see an official confirmation of the same before taking it into our numbers. We maintain our Buy recommendation on the stock with a price target of Rs1,250.
  

Satyam Computer Services
Cluster: Apple Green
Recommendation: Buy
Price target: Rs480
Current market price: Rs428

Growth continues to be robust

Result highlight

• Satyam Computers Services (Satyam) reported a robust revenue growth of 11% quarter on quarter (qoq) and of 38.7% year on year (yoy) to Rs1,601.9 crore during the second quarter ended September 2006. The sequential growth was contributed by a 10.9% quarter-on-quarter (q-o-q) growth in the stand-alone revenues and a sequential growth of 14.5% in the revenues from its various subsidiaries. The sequential growth of 9.5% in the volume on a consolidated basis was higher than that seen in the previous three quarters.
• The operating profit margin (OPM) declined sharply by 200 basis points to 22.6% on a sequential basis, largely due to the aggressive annual salary hikes given with effect from July to its entire workforce (a negative impact of 420 basis points) and lower employee utilisation (offshore utilisation declined by 80 basis points sequentially). On the other hand, the lower visa cost (down 125 basis points), foreign exchange (forex) gains (up 30 basis points), improvement in profitability of subsidiaries (30 basis points) and the savings in the selling, general and administration (SG&A) expenses positively affected the margins.
• The other income component plummeted 62.1% qoq to Rs28.2 crore (sharply down from Rs74.5 crore in Q1FY2007). However, the lower tax rate limited the decline in the net profit to 9.7% qoq at Rs319.8 crore (better than the guidance of over 18% q-o-q decline and consensus estimates of 14-15% q-o-q drop in the earnings).
• For the full year, the management has revised upwards the annual growth guidance for the revenues and earnings by 3.6% and 6% respectively. As per the revised guidance, the revenues are guided to grow by 34.6-35.1% (Rs6,452-6,476 crore) and the earnings per share (EPS; including the non-cash charges related to the restricted stock options) are guided in the range of Rs20.73-20.81 (35.9-36.4% growth over FY2006).
• For Q3, the consolidated revenues and earnings are guided to grow by 4-4.5% sequentially. The management has factored in the appreciation of the rupee, as the revenue growth guidance in US dollar terms is higher at 5.6-6.1%.
• At the current price the stock trades at 20.4x FY2007 and 17x FY2008 estimated earnings (including the non-cash charges for the stock options). We maintain our Buy call on the stock with a price target of Rs480.

Canara Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs320
Current market price: Rs277

Operationally strong results

Result highlight

• Canara Bank's net profit at Rs362.0 crore was in line with expectations driven by a strong growth in the net interest income (NII) and lower-than-expected operating expenditure.
• During the quarter the bank's NII grew by 21.6% year on year (yoy) to Rs981.1 crore compared to our expectations of a 16.6% year-on-year (y-o-y) growth.
• The better growth could be attributed to a 26.8% y-o-y growth in the advances. A sharp improvement in the yields on advances helped the net interest margin (NIM) remain stable despite the cost of deposits moving up.
• The other income at Rs313.3 crore was lower than our expectations as the same decreased by 20.3% yoy. The fall in the other income could be a result of lower recoveries in Q2FY2007 compared to Q2FY2006.
• The operating expenses reported a sedate 9.8% y-o-y growth, slightly below our expectations.
• As a result, the operating profit grew by 5.9% yoy to Rs615.2 crore broadly in line with our expectations as higher NII and lower operating expenses compensated for the higher unanticipated fall in the other income. The operating profit excluding the treasury income grew by 5.6% yoy.
• The decline in the bond yields has helped the bank to write back provisions on the investment book. The bank has used the opportunity to provide higher provisions on its advances book. Despite higher provisions for non-performing assets (NPAs), the total provisions have declined by 24.3%.
• With the operating performance in line with expectations and a decline in the provisions, the net profit at Rs362 crore was in line with our expectations.
• Canara Bank is planning to go for raising hybrid tier I capital funds to the tune of Rs300 crore soon to shore up its Tier I capital adequacy ratio.
• We have revised our earnings per share (EPS) estimates for FY2007 and FY2008 from Rs32 and Rs39 to Rs36 and Rs47 respectively to take into account the lower provisioning requirement.
• At the current market price of Rs277, the stock is quoting at 6.0x its FY2008E EPS, 3.2x pre-provision profits (PPP) and 1.2x book value. The stock is available at attractive valuations looking at its strong average return on equity (RoE) of 20.2% over FY2006-08E. We reiterate our Buy call on the stock with a revised price target of Rs320.
  

Nicholas Piramal India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs325
Current market price: Rs243

Q2 results in line with expectations

Result highlight

• Nicholas Piramal India Ltd (NIPL) reported an 18.6% quarter-on-quarter (q-o-q) and 29.8% year-on-year (y-o-y) growth in its earnings to Rs63.89 crore for the second quarter ended September 2006.
• The revenues were up by 21.9% quarter on quarter (qoq) and 74.4% year on year (yoy) to Rs636.86 crore. The 393% jump in the international sales (largely due to the incremental revenue of Rs260 crore flowing from the new acquisitions of Pfizer's Morpeth facility, UK and Avecia) supported by a 22% rise in the domestic formulation business contributed to the revenue growth.
• The operating profit margin (OPM) declined by 250 basis points yoy to 15.1% largely due to a substantial 650-basis-point jump in the staff cost driven by the integration of the acquired businesses like Pfizer's Morpeth facility, UK and Avecia.
• During the quarter, NPIL acquired the balance 51% equity stake in its 49:51 joint venture company, Boots Piramal Healthcare Pvt. Ltd (BHPL). In the process it got a one-time income of Rs17.8 crore as compensation for losing three brands, Strepsils, Clearasil and Sweetex.
• Due to the acquisitions, the depreciation and interest costs were higher by 31% and 58% at Rs7.64 crore and Rs24.36 crore respectively.
• In terms of valuation, at Rs243 the stock trades at 15.9x FY2008 estimated earnings. We maintain our Buy call on the stock. Considering the recent acquisitions of Pfizer's Morpeth facility, the acquisition of the 51% stake in BHPL etc, we are evaluating the financials and are likely to revise our estimates soon.

Associated Cement Companies
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs978

Results ahead of expectations

Result highlight

• In Q2FY2007 the pre-exceptional net profit of Associated Cement Companies (ACC) grew by 228% year on year (yoy) to Rs243 crore, ahead of our expectations.
• The net revenues grew by a healthy 36.7% yoy to Rs1,373.5 crore driven by a 41% growth in the realisations (bolstered by the reduction in the excise duty) and a 5.6% growth in the volumes.
• The operating cost jumped by 18.3% yoy on account of a 12% increase in the power and fuel cost, and a sharp jump of 43% in the other expenditure, which included a one-time maintenance & shutdown expenditure of Rs18-20 crore. But this was overshadowed by the steep revenue growth that caused the company's operating profit to increase sharply by 139.2% yoy to Rs366 crore and the operating profit margin (OPM) to expand by a massive 1,150 basis points to 26.7%.
• The reduction in the interest expense was partially offset by a decline in the other income whereas the depreciation charge increased by 21% on account of the commissioning of the Chaibasa plant and expansion at the Gagal plant.
• A lower tax provision of 22.5% as against 32.4% in the same quarter last year boosted the pre-exceptional net profit by 228% to Rs243.5 crore.

Lupin
Cluster: Apple Green
Recommendation: Buy
Price target: Rs565
Current market price: Rs510

A mixed bag

Result highlight

• Lupin's net sales increased by 21.1% year on year (yoy) to Rs491.1 crore in Q2FY2007. The growth in the top line is in line with our expectations. The sales growth was driven by a healthy growth of 25% in the domestic business to Rs288.6 crore and a 17% increase in the exports to Rs218 crore.
• The formulation sales advanced by 48.6% to Rs298.9 crore, with a strong growth in both the domestic business and exports. However, the sales of active pharmaceutical ingredients (APIs) rose by a meagre 6.9% to Rs195 crore in the quarter. The subdued growth in the API sales was on account of lower sales of Ceftriaxone bulk drug to Baxter (due to one-time production constraints) and a strategic change of focus from the Lisinopril API to Lisinopril formulations.
• Lupin's operating profit margins (OPMs) took a hit of 60 basis points to 17.0% in Q2FY2007 mainly on account of a 38% rise in the research and development (R&D) expenditure and a 34.5% increase in the other expenses. Consequently, the operating profit grew by only 17.2% to Rs83.4 crore in the quarter.
• A substantially higher tax outgo impacted Lupin's net profit, which nevertheless grew by 29% to Rs58.3 crore in the quarter. At the profit before tax (PBT) level, Lupin reported a 32% rise in its profits to Rs79.2 crore.
• Lupin's R&D expenses for the quarter stood at Rs31.8 crore or 6.5% of sales. This is in line with the company's plans to accelerate the spend on R&D, which it believes will yield results in the future.
• At the current market price of Rs510, Lupin is quoting at 13.5x its FY2008E earnings estimate. In view of the strong growth potential lined up for the company�a pick-up in the sales of Suprax, a healthy growth in the domestic market and new product launches arising out of the aggressive R&D efforts�we reiterate our Buy recommendation on Lupin, with a price target of Rs565.
  

3i Infotech
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs244
Current market price: Rs187

Robust operating performance

Result highlight

• 3i Infotech reported a growth of 12.9% quarter on quarter (qoq) and of 49% year on year (yoy) to Rs145 crore during the second quarter. The two acquisitions (Delta Tech and G4 Software) contributed incremental revenues of Rs4.5 crore during the quarter.
• The operating profit margin (OPM) improved by 70 basis points to 23.5% on a sequential basis. The sequential improvement in the OPM was largely contributed by the 250-basis-point improvement in the gross margins of the product business to 55% (due to better revenue mix). On the other hand, the gross margins of the service business declined by 100 basis points sequentially to 38.3%. On an annual comparison basis, the OPM has improved sharply by 300 basis points largely due to increased contribution from the high-margin product business.
• The other income component stood at Rs3.9 crore as compared with Rs4.8 crore in Q1FY2007. The other income declined due to lower gains from the foreign exchange (forex) fluctuations during the quarter (the company had reported Rs1.1 crore of forex gain in Q1).
• The lower other income, and higher interest and depreciation charges limited the sequential growth in the earnings to 5.6% at Rs22.5 crore (exactly in line with our estimates).
• The order backlog has grown by 9.9% qoq to Rs322.3 crore, with the product order book growing by 9.8% qoq to Rs160.9 crore and service backlog rising by 10% qoq to Rs161.4 crore. This is the third consecutive quarter of a double-digit sequential growth in the order backlog.
• Along with the quarterly results, the company announced the acquisition of a 100% stake in a UK-based product company, Rhyme Systems. The acquired company has annual revenues of around $28 million and has OPM of over 20%. The acquisition has been made at consideration of $52 million, which works out to 1.9x its annual revenues.
• The management has revised the annual revenue growth guidance to Rs620-640 crore (48-53% growth). The diluted earnings are guided in the range of Rs16-17 per share (net of dividend on preference share capital) in FY2007, which amounts to a growth of 69-79% over the earnings of Rs9.5 reported in FY2006. The guidance factors in the impact of the acquisitions already made in the current year.
• At the current market price the stock trades at 14.4x FY2007 and 9.6x FY2008 revised earning estimates(On the fully diluted equity base of Rs69 crore). We maintain our Buy call with a price target of Rs244.
  

NIIT Technologies
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs296
Current market price: Rs207

First-cut analysis of Q2FY2007 results

Result highlight

• NIIT Technologies (NIIT) reported a growth of 15.1% quarter on quarter (qoq) and of 39.9% year on year (yoy) in its consolidated revenues to Rs219.9 crore during the second quarter of FY2007. Excluding the incremental contribution from Room Solutions (acquired in May 2006), the organic revenues grew at a healthy rate of 10.6% sequentially. The strong sequential growth of 14.9% (as compared with that of 4.3% in Q1) in the BPO business also aided the overall growth in the consolidated revenues.
• The operating profit margin declined marginally by ten basis points qoq but improved by 120 basis points yoy as compared with 17.7% reported in Q2FY2006. The sequential decline was largely contributed by the one-time transition cost related to the integration of Room Solutions (around Rs1 crore). The adverse impact of the same was mitigated by the savings in the selling, general and administration expenses as a percentage of sales.
• The other income declined to Rs2.4 crore as compared with Rs3.5 crore in Q1FY2007, largely due to the lower gains from the foreign exchange (forex) fluctuations during the quarter (forex gains of Rs0.4 crore as compared with Rs1.7 crore in Q1). However, the lower depreciation charges and minority interest enabled the company to post an impressive earnings growth of 23.9% qoq and of 79.1% yoy to Rs27 crore (much ahead of expectations).
• In terms of the outlook, the growth in the organic business is likely to remain robust on the back of healthy fresh order intake of $42 million in Q2, one of the highest in any quarter. The pending order backlog of $87 million is executable over the next one year.
• At the current market price the stock trades at 9.5x FY2007 and 7.8x FY2008 estimated earnings. However, we would be revising our earning estimates to factor in the higher-than-expected Q2 performance and robust net addition of employees in the first half of FY2007. We maintain our Buy call on the stock with the price target of Rs296.

Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs412

Q3CY2006 results below expectations

Result highlight

• Ranbaxy Laboratories (Ranbaxy) reported a 15.0% quarter-on-quarter (q-o-q) in its earnings to Rs139.3 crore for the third quarter ended September 2006; the earnings saw a six-fold jump on a year-on-year (y-o-y) basis. Though the net profit seems higher, the same is much below the expected earnings of Rs193.2 crore.
• The revenues are up 26.8% to Rs1,627.10 crore, largely driven by a 25% jump in the US sales, a 39% rise in sales in the European and CIS markets, and a 49% increase in the sales in the Asia-Pacific and Middle-East markets.
• The operating profit margin (OPM) witnessed a 140-basis-point fall sequentially to 16.8%. The fall was largely due to the company incurring a Rs18.4 crore other operating loss as against an income of Rs75.5 crore in the previous quarter.
• Further, the company has charged a one-time cost of Rs22.6 crore relating to a settlement of its contract manufacturing arrangement.
• Finally, with higher depreciation, the loss at the other operating income level and the one-time provision, the net profit grew by 6.5x against the estimated 9.5x. Though Ranbaxy has disappointed the market with below expected earnings, we believe the company would perform well going forward by following a comprehensive business model that involves aggressive new launches, in-licencing, strategic partnering, widening geographical presence etc. Also, its margins will remain firm, thanks to its cost-cutting initiatives. At the current price of Rs412, the stock trades at 19.8x its CY2007 earnings per share (EPS). We maintain our confidence in the stock and reiterate the Buy recommendation with price target of Rs558 .
  

Download here

Thanks Satish