Citigroup - Credit Policy Review

Citigroup - Credit Policy Review

Emkay - Mid-April '07 - F&O Review

Market Outlook:

• Nifty and Sensex both gained 3.1% during first half of April series.
• We expect Nifty to remain strong and witness further upside move in the coming days as remarkable build up of positions with improvement in CoC is seen across the board.
• Implied Volatility of Nifty March options is currently trading in range of 22-23% compared to high levels of 26-28% during the first half of april series; this indicates decline in uncertainty and expectation of stable markets in the coming days.
• PCR (OI) of Nifty has also improved to 1.18x due to build up in Nifty Put options suggesting development of support in the markets.

F&O Cues:

• April total futures open interest at Rs 36025 Crs compared to Rs.28780 Crs at the beginning of April series; increase of 25.2%
• Stock futures's OI for April series currently at Rs.22720 Crs compared to Rs.17460 Crs beginning of series; sharp rise of 30%.
• Open Interest in April stock futures, in terms of number of shares, is nearly 93.75 Crore shares compared to 79 Crore shares at the beginning of April series; increase of 18.7%.
• OI in Nifty April futures currently at 3.4 crore shares v/s 2.97 crore shares at the beginning of April series. In value terms, currently Nifty April OI is nearly Rs.13300 crores v/s Rs.11300 crores at the beginning of April series.
• Huge build up of over 41 lakh shares seen in Nifty 3800 Put options; indicating that players may be looking at 3800 levels to offer strong support in the coming days.

SECTORAL OUTLOOK:

Auto & Auto Ancillary : HeroHonda, M&M & Maruti expected to trade with negative bias.

Banking & Finance: Heavyweights like SBI, ICICI Bank, HDFC Bank, HDFC and other stocks like IFCI, Reliance Capital, Kotak Bank & IDFC look strong.

Cement & Construction : Cement Stocks like ACC, Guj Ambuja and Construction stocks like Parsvnath Developers & Sobha Developers are looking strong.

FMCG: ITC & HLL look strong

IT & Telecom: Infosys, TCS, Satyam, Wipro, RCOM & Bharti are looking strong. Mid-cap IT stocks like I-flex, Polaris & HCL Tech are also looking strong.

Metals: Bullish on Sterlite & SAIL. Jindal Stainless look strong. Short covering seen in TataSteel.

Oil, Gas & Refinery : Bullish on Reliance, ONGC, RPL & GAIL looks strong.

Pharma: Ranbaxy, Orchid Chem, Dr.Reddy, Divis Lab, Cipla, Sun Pharma, Glaxo and Lupin are looking strong.

Power & Engineering : We like BHEL, NTPC, Suzlon, Praj, CESC, ABB and TataPower.

Others: We like Zee, Titan, NDTV, Voltas, BILT and Guj Alkali

Emkay - Mid-April '07 - F&O Review

India Inc in Q3 — Few dark spots in bright picture

India Inc has yet again pleasantly surprised investors with commendable results for the quarter ended December 2006, leading to renewed buying interest. Buoyed by the healthy earnings scorecard, the bellwether indices Sensex and Nifty have scaled new highs. Corporate India's sales for Q3 grew about 27 per cent while net profits increased about 67 per cent on a year-on-year basis (including the "other income" component, which was up 28 per cent). On a sustainable basis, however, the operating profit for the quarter increased by about 48 per cent. Rising interest costs (31 per cent higher) are a source of concern. A total of 2,140 companies have announced their earnings so far.

Impressive numbers from cement companies, private banks, infrastructure, steel and non-ferrous metals, apart from the usual high-performers, such as information technology and telecom service providers, underpinned strong profit growth. Sugar and automobiles, on the contrary, posted lacklustre numbers.

Here is a brief overview of the results of various companies, on a sectoral basis:

Cement companies firm up: Cement companies once again came up with impressive numbers, registering a 270 per cent increase in net profits over the quarter. Robust sales volumes and better realisations have driven an overall increase in the operating profit margins for the majors. Helped by a consolidation of ACEL (Ambuja Cement Eastern) as well as healthy realisations and despatches, Gujarat Ambuja Cements reported earnings of Rs 337 crore, 284 per cent higher, while India Cements outperformed expectations by posting a sharp turnaround in profitability. Higher prices and better operating margins, in general, pushed up earnings' growth for Ultra Tech Cement, Prism Cements and Shree Cements.

Banks, a mixed bag: Continuing the previous quarter's trend, private banks outperformed their public sector counterparts in profit growth. While the average net profits of public sector banks increased 16 per cent over the previous year, private banks notched up about 37 per cent growth. A bigger deposits base and higher fee-based income helped sustain the growth rates of private sector banks.

ICICI Bank reported a 42 per cent rise in net profit for the third quarter on the back of higher interest income, coupled with a rise in fee-based income. A robust rise in net interest income (the interest earned on loans minus that paid for funds) bodes well for HDFC Bank, which recorded 32 per cent higher net profits for the third quarter. Bank of Rajasthan, ING Vysya Bank and Dhanalakshmi Bank doubled their earnings. State Bank of India, however, saw its net profits fall about 4.5 per cent as a result of higher provisioning and rising costs.

Infrastructure/realty grows: Infrastructure/realty companies sustained their stellar earnings growth with 56 per cent higher revenues and a 257 per cent increase in net profit.

Leading the pack, Unitech registered a staggering 3,190 per cent increase in earnings as several of its ongoing residential projects were completed and booked over the quarter. Its operating margins stood at 69 per cent, against 13 per cent the previous year.

Other companies that scored high were Valecha Engineering, Prajay Engineers and Noida Toll Bridge. Higher volumes and, hence, better operating margins, could have contributed to the sector's strong showing.

Metals strike: While the growth in volumes for players in non-ferrous metals was healthy, better realisations contributed to their earnings' growth. Hindalco reported a 91 per cent increase in earnings on the back of a 62 per cent volume growth. Its operating margins grew about 216 percentage points during the period. Madras Aluminium recorded a 300 per cent increase in net profits on the back of robust revenue growth and 1,612 percentage points increase in operating margins.

Buoyed by higher metal prices, steel companies too put up a decent performance last quarter. SAIL reported a 54 per cent increase in earnings on a yearly basis. Higher volume growth and an 800-percentage point increase in operating margins boosted performance. Tata Steel, helped by a 21 per cent sales growth, reported a 35 per cent increase in earnings. Usha Martin, Jindal Stainless and Man Industries recorded over 130 per cent increase in net profits.

Software — surprises from smaller firms: Results of software companies were mixed, as the quarter is seasonally a quiet one for the sector, with a lower number of billing days. An appreciation in the rupee also had an impact on overall earnings.

Software majors Infosys Technologies, Wipro, TCS and Satyam Computers turned in numbers that ranged from `in-line with expectations' to `better-than-expected'. It was the mid-sized firms that turned up most of the surprises this quarter. Polaris Software, reporting a sharp turnaround in profitability, caught the market by surprise.

Some of the small- to medium-sized companies, such as KLG Systel, Silverline Technologies, Four Soft and Tele Data Informatics, more than doubled earnings during the quarter. IOL Broadband and Ramco Systems, bucking the trend, registered losses during the period.

Telecom buzzes with action: Continuous growth in the subscriber base provided the necessary impetus for telecom service providers, which turned in a solid performance during the third quarter.

Bharti Airtel reported an increase of 61 per cent in net revenues YoY on the back of a 41 per cent operating profit margin (a 550 percentage point increase). VSNL recorded a 5 per cent decrease in net profit for the quarter on a YoY basis because of lacklustre sales and operating margins. Tata Tele-Services (Maharashtra) reported losses for the quarter.

Autos in neutral gear: Despite strong growth in the top-line, the third-quarter results of auto companies are a mixed bag, as players became vulnerable to margin pressures from rising input costs. Two-wheeler companies Hero Honda and TVS Motors reported a decline in profits on the back of a rise in raw material costs. Ashok Leyland, thanks to a significant growth in volumes, reported a 93 per cent increase in earnings. Tata Motors and Maruti Udyog registered a near 11 per cent increase in net profit during the quarter.

However, Maruti's operating margins dipped by 119 percentage points during the period.

Sugar turns bitter: The December quarter usually captures the start of the crushing season for sugar companies. However, lower sugar prices, on expectations of a bumper output this year, resulted in sharp profit declines for most companies, marking a reversal of the past two years' trend.

While the revenues of Thiru Arooran Sugars, Dwarikesh Sugar and Rajshree Sugar rose more than 50 per cent, the earnings were lacklustre. Though volume growth for sugar companies remained healthy given higher cane availability, lower realisations weighed heavily on the profitability.

Divergence in numbers

Though the big picture showing the earnings performance of India Inc in the third quarter is impressive, a sectoral breakdown of the numbers reveals a significant divergence.

Better-than-expected earnings growth in sectors such as infrastructure/realty, telecom and cement made up for the lacklustre performance in the auto, sugar and certain other heavyweight sectors.

Strong topline growth across sectors suggests that demand and consumption drivers are still in place, amid margin pressures in select businesses.

The stock market rally of the past six months has been quite narrow, focussing on a few sectors and stocks seen to have impressive growth prospects; if the earnings scorecard is anything to go by, these trends will only continue.

Close: Bulls Out with all horns up

It was good day for the market as Sensex changed its movement to positive streak zone. Steady buying in the market saw the index display positive trend throughout the day. Cements, engineering many other sectors are trading in green. Software majors Wipro, TCS, and Satyam all traded up as the Dollar is trading strong against Indian Rupee. All sectors along with the mid-cap and small-cap stocks posted smart gains. Global cues had nothing much to support as Asian Market traded in green and European market traded mixed range.

Sensex closed up by 186 points at 13616.77. It is helped up by gains in Rel Energy (532.75,+3 percent), Bharti Tele (623.55,+3 percent), ITC (183.85,+3 percent), TCS (1147.7,+3 percent) and Satyam (453.25,+3 percent). Restricting the gains are HDFC (1642.5,-1 percent), Infosys (2252,0 percent), Ranbaxy (381.5,0 percent).

Info Edge zooms; ITC flares while Britannia slips; BEL plays strong

Dotcom major Info Edge made its debut on the bourses today with a bang. Info Edge is a leading provider of online recruitment and matrimonial classifieds and related services in India and owns brands like 'Naukri.com' and 'Jeevansathi.com' which are very much popular in India. The stock opened at Rs 480 with 50% gains over its offer price of Rs 320 and went on to make a day's high of Rs 624. It finally closed at Rs 607 with a rise of nearly 90% over the offer price.

There is a tiff between Kelloggs and Britannia on the rights of using the Tiger Logo. Tiger is a Rs 300 crore brand for Britannia in the country. Kelloggs has an objection for Britannia wanting to use it for health foods. Interestingly, the Wadias and Danone the two partners in Britannia are also in a tiff on the same issue. Wadias expect Danone to dish out royalty for the Tiger brand. Britannia pays royalty for Little hearts (its a small brand). We are positive on Britannia simply on the back of the fact that we like its strategy to penetrate across the country setting up vendors with its backing to supply bakery products. The strategy to not pass on price hikes has also seen strong off take of its products and growth has been in the region of 25% at the cost of margins. The threat is from ITC which has deep pockets but we believe that the fight is not between ITC and Britannia. Both will tend to take share from the unorganised market. ITC moved smartly to close up by 3% while Britannia closed marginally down.

Bharat Electronics Ltd has bagged a `breakthrough' order from a Zee group-owned company for the supply of two lakh set top boxes. The order was placed by Wire and Wireless India Ltd, Mumbai. The boxes would be supplied with embedded conditional access software that enables the subscriber to choose the pay channels from the bouquet offered by WWIL. Zee is getting ready for the CAS implementaion in 3 Majors cities Delhi, Mumbai and Kolkatta as CAS has to be implemented in these 3 majors cities before Jan 07. BEL surged today and closed up by over 2.50% while Zee ended up by over 1 % .

Technically Speaking: Index was traded ranged but after mid session sensex moved up to touch intraday high of 13630 and low of 13434 before closing at 13617. Market Churned Rs 4041 cr which is good. The breadth favored Advances as the Advance Decline ratio stood at 2.41:1. The Resistance lies at 13759 ? 13691 levels while Support at 13496 -13367 levels.

Nothing much say about the today?s Performance. Adonis call on Bharti in DTP was excellent with provided good profits and M&M call by Wow_VJ was booked with decent gains. Quickies call on Premier Tyres was booked with good returns. Hitachi home appliance zoomed which was booked partially earlier. Wow Adonis call in Delivery Delight on Crompton was booked with 7% gains and expect more in coming days.

Networth Stock - Quarterly Result Review

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SSKI Research : Results review Q2FY07: Full steam ahead

A 33.5%yoy growth in Sensex earnings for Q2FY07 (vis-à-vis our expectations of 27.5%) vindicates our view that India Inc's growth story is on track. Sectors driving the higher-than-estimated performance include metals, petrochemicals, telecom and software. SSKI universe earnings growth of 45.8% is also ahead of our expectations (43.5%). On the back of the strong performance, we have marginally upgraded our FY07 & FY08 Sensex earnings estimates by 2.2% and 1.4%.respectively. In October, we had upgraded our Sensex target range to 12,500 to 13,400 (17-18xFY08 earnings) factoring in reduced cost of capital. We further upgrade the range to 12,800 -13,600 factoring in earnings upgrade. Buoyed by strong growth earrings, the Sensex is approaching our target and is currently trading at 17.4x FY08 earnings. Our top large cap picks include BHEL, Bharat Forge, Grasim Industries, Infosys, ITC, ONGC, Tata Motors and Zee.

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Sensex snaps four-day winning streak

Profit-taking emerged in select frontline shares including index heavyweight Reliance Industries (RIL), which brought the Sensex down in a volatile trading session. Volatility in the Sensex was partly due to volatility in some of its constituents, namely, Reliance Industries, ICICI Bank and Bharti Airtel.

The 30-share BSE Sensex lost 30 points (0.23%), to end at 13,156.66. The S&P CNX Nifty dropped 10.50 points (0.28%), to end at 3,798.75.

The market remained volatile throughout the day. The benchmark index, which had weakened in late trading, had earlier surged over 100 points in opening trade tracking firm global markets, to hit 13,300 level for the first time.

Between some of the vital tops and bottoms of the day, the Sensex swung over 300 points. Between the day’s low of 13,135.21 and a high of 13,300.69, it swung 165.48 points.

The market-breadth turned weak during the course of trading compared to that in early trade. For 1,390 shares declining on BSE, 1,124 rose. Just 80 stocks were unchanged. Losers outpaced gainers by a ratio of 1.23:1.

The turnover on BSE surged to Rs 4,714 crore from Monday’s Rs 4,265 crore.

Select side-counters surged. Punjab Communications (Rs 52.70), Shyam Telecom (Rs 158.75), Development Credit Bank (Rs 49.80), Pantaloon Retail (Rs 2156), Action Construction (Rs 244.65), Revathi Equipment (Rs 643), Indo Asian Fusegear (Rs 130.45), Centum Electronics (Rs 227.50), Suryajyoti Spinning (Rs 49.90), Nucleus Software (Rs 536), Apollo Hospitals (Rs 489), Binani Industries (Rs 320), Motherson Sumi Systems (Rs 99), Voltamp Transformers (Rs 512.55), Sesa Goa (Rs 1294), and Aban Offshore (Rs 1200) rose between 6 - 20%.

Firm global markets, due to ample global liquidity, have propelled the Sensex to an all-time high above 13,000. The BSE Sensex surged 224.99 points (1.7%) in the past four trading sessions, from 12,961.90 on 31 October 2006. It rose in all those four trading sessions.

The Indian equity market has benefitted from strong global liquidity. The domestic bulls have been going strong for about two years now. During this period, the market staged a strong comeback after some major corrections. In calendar 2006 so far, the BSE Sensex is up almost 40%.

However, valuations appear stretched. At 21.6 times its trailing 12-month September 2006 earnings, the Sensex is trading at a premium over its regional peers.

Last few trading sessions have witnessed a rally in select small-cap and mid-cap shares. Even as the Sensex has surged to an all-time high, a number of small-cap and mid-cap stocks are yet to see their all time highs since May 2006.

In today’s trade, RIL shed 1.4% to Rs 1,286.60, in contrast to the firm early trend when it had hovered at about Rs 1,312. The stock surged since late last month on multiple triggers, and played a key role in the benchmark index's surge by virtue of being a heavyweight. RIL has a huge 11.8% weightage in the Sensex.

Software major Infosys rose 1.6% to Rs 2,105. Infosys' shareholders today approved an issue of up to 30 million American Depositary Receipts before markets opened. At the time of announcing Q2 results, Infosys said that it was planning a sponsored ADR issue.

Housing finance major HDFC added 2.5% to Rs 1,566, extending its recent upmove, which has been triggered by expectations of growth in demand for housing loans in Maharashtra after the state government last week announced incentives for the housing industry.

Dr Reddy’s Lab rose 2% to Rs 793. Last month, the company reported robust Q2 results.

Metal shares rose tracking firm base metal prices on LME. Hindustan Zinc jumped 5% to Rs 987.60. On the London Metal Exchange, zinc hit a record high of $4,460 a tonne, up from Monday's close of $4,405 a tonne. Zinc futures have gained nearly 134% so far this year, outperforming other base metals.

Shares of oil marketing firms edged lower as crude price surged. Indian Oil Corporation lost 2.2% to Rs 505, BPCL shed 3.3% to Rs 389.65 and HPCL lost 3.4% to Rs 310. Oil marketing firms continue to make losses on sale of diesel, kerosene and LPG, while making profit on petrol.

Two-wheeler makers slipped. Bajaj Auto lost 2.6% to Rs 2,720 and Hero Honda shed 3% to Rs 737. The two-wheeler industry has been witnessing pressure on margins due to rising input costs and intense competition.

Car major Maruti Udyog lost 1.2% to Rs 943.50, on reports that the ministry of commerce and industry had rejected the automaker’s application for granting special economic zone (SEZ) status for its manufacturing facility being developed at Manesar, in collaboration with Nissan.

Tata Steel shed 1.8% to Rs 496.50. Tata Steel is optimistic it will complete the agreed takeover of Corus Group by January, Tata Steel Managing Director B Muthuraman said on Monday. Some investors, including Standard Life Investments, the biggest shareholder in Corus, have said the agreed price of 455 pence per share was lower than expected.

FMCG giant Hindustan Lever ended flat at Rs 247.10. Volumes in the scrip were a hefty 28.2 lakh shares on BSE.

Iron ore exporter Sesa Goa jumped 6% to Rs 1,294, tracking a rally in mining stocks across global markets.

Hotel shares were in demand on strong prospects due to rising room rates and healthy occupancies. Indian Hotels rose 3% to Rs 148.75, Hotel Leelaventure rose 0.4% to Rs 64.65, EIH gained 5% to Rs 106 and Royal Orchid Hotels rose 2% to Rs 190.95. In terms of financial performance, the second half of the year – October-March period -- has been traditionally strong for the hotel industry.

GMR Infrastructure rose nearly 2% to Rs 353, after the Supreme Court on Tuesday rejected a petition filed by Anil Ambani's Reliance Airport Developers challengiing the government's decision to award bids for modernising Delhi and Mumbai airports to rival bidders. "We find no merit in the plea," a bench comprising of two judges said. GMR has won the bid to modernize the Delhi airport.

Punj Lloyd rose 3.4% to Rs 874, after the company said on Tuesday it had been offered contracts worth Rs 1,163 crore from state-run Indian Oil Corporation for their refinery project at Haldia, West Bengal.

Recently-listed Development Credit Bank jumped 10.7% to Rs 49.80. The stock rose on a heavy volume of 1.22 crore shares on BSE.

Meanwhile, National Council for Applied Economic Research (NCAER) has revised up its 2006/07 economic growth forecast to 8.1% from 7.9% previously due to good monsoon rains, robust exports and foreign investment inflows. It expects GDP to expand by an average annual rate of 8.2% in the next five years. Finance Minister P Chidambaram said on Tuesday the economy can sustain 8 - 10% growth in coming years with more reforms.

Q2FY2007 Earnings Review: Sharekhan Special

Q2FY2007 Earnings Review

• The Q2FY2007 earnings of the Sensex companies grew by 22.7% year on year (yoy) and 8.4% quarter on quarter (qoq) compared with the consensus expectations of 20.0% growth yoy and 6.0% growth qoq. Capital goods, cement, and information and technology (IT) companies led the growth in the earnings.
• The quarter was a celebration of sort as of the total thirty companies in the Sensex twenty five companies reported results above or in line with expectations.
• While the sales of the non-banking companies in the Sensex grew by 29.3% yoy, the operating profit of these companies grew by a slower 24.4% as their operating profit margin (OPM) contracted by 120 basis points yoy to 23.5%.
• The earnings of the BSE200 companies grew by 35.0% yoy. The sales of the non-banking companies reported a revenue growth of 34.1% whereas their operating profit grew faster at 40.6% driven by an 80-basis-point expansion in the margins.
• The consensus estimates for the earnings growth of the Sensex companies has been upgraded to 22.6% for FY2007E and FY2008E. The earnings growth estimate for FY2007 has been upgraded to 22.6% from the earlier 21% whereas the FY2008 consensus estimate has seen a sharper upgrade from 11% to 14.6%. At the current level of 13,091, the Sensex is trading at 16.2x its one-year forward earnings which is towards the higher end of its valuation range.
• Many of the companies in our universe have seen upgrades in their earnings, led by cement and banking sectors. The IT sector is not far behind with almost all the IT companies also witnessing upgrades in their FY2007 and FY2008 estimates. The ratio of upgrades to downgrades in full year's earnings after Q2FY2007 stands at a stupendous 28:5.
  


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