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Cyber Media (India): Avoid

Retail investors may avoid the initial public offering of Cyber Media (India) as the risks involved in the projects in the pipeline planned are fairly high. Given Cyber Media's long presence in niche media publications segment, it plans to scale-up its presence in content BPO (business process outsourcing) using its existing customer relationships, especially in the European market. This project is to be launched by May 2006.

While the initial flow of projects for content BPO may not be an issue, managing the challenges of scale-up, process efficiencies, attrition and competition will be fairly stiff. As the company claims that content BPO will be its main thrust area in the coming years, investors will have to assess its track record in content creation and delivery and the right tie-ups with agents in Europe over a longer time frame before taking an exposure in the stock.

Besides this Cyber Media is also launching three media publications that are to be financed through this IPO. As Singapore is slowly emerging as Asia's global hub for biomedical sciences, the company is launching BioSpectrum Singapore, a magazine focused on the nascent field of biomedical sciences. Second, to focus on the growing field of BPO, it is planning a magazine, Global Outsourcing that will focus on the readership in the Indian and American markets. Both the magazines are likely to be launched between May and July 2006. Finally, McGraw Hill, the publishers of BusinessWeek, has licensed Cyber Media to publish BusinessWeek India, subject to permission from the Ministry of Information and Broadcasting.

A chunk of the revenues for these two publications - BioSpectrum Singapore and Global Outsourcing - will be derived from advertising. As these two publications will be aimed at a global audience, the competitive intensity for advertising revenues will be quite high. Unlike information technology, where Cyber Media has operated over five publications in India for long, its exposure to the field of biotechnology and bioinformatics has been of more recent vintage (2002). Though it has run this magazine in the domestic market for over two years now and estimates a readership of 40,000, replicating this experience for a global audience remains untested.

As the quality of content will drive advertising revenues to start with, margins on this magazine will be fairly low for at least a year or two.

Relatively, its BPO publication may be placed on a better footing as it has an established presence in the Indian market.

Given these uncertain variables, the offer price of Rs 60 per share, which works out to a price-earnings multiple of 10 times the annualised per-share earnings for 2004-05, appears to be on the high side.

Cyber Media's integrated model in the publishing businessis a positive. For the nine months ended December 31, 2004, Cyber Media clocked consolidated revenues of Rs 50.4 crore and post-tax earnings of Rs 3.25 crore. The operating profit margin stands at 13.5 per cent, steadily moving up in the last couple of years.

Last year was the best for the print media across an entire business cycle, with advertising revenues driving overall growth for the general and special media.

The real test will be in sustaining this growth over the coming years. Given its long presence in this sector across publications that cover IT, telecom and consumer electronics, Cyber Media will be in a position to maintain its growth momentum.

Moreover, its integrated model has confined its dependence on advertising revenues to about 50 per cent of its consolidated revenues, with the rest coming from multimedia, online, event management and research sources. While this is encouraging, the new projects planned by Cyber Media present a new set of challenges and risks that may impact the group's overall performance.

Facts: Cyber Media is offering 28.2 lakh shares to raise Rs 16.9 crore . The offer opens on May 4 and closes on May 9. The lead manager is Khandwala Securities.

Hindu Businessline Recommendations

Buy >> Hindustan Lever ( Long Term ), Ashok Leyland, Hexaware Technologies, Automotive Axles

Sell >> Biocon ( Reduce Exposures )

Shoppers Stop - Equitymaster - IPO Analysis

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Infosys - Equitymaster - Stockselect

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Reliance: Good numbers but…

Performance Summary

Reliance Industries has announced strong results for the fourth quarter and year ended March 2005. For FY05, while revenues have grown YoY by 28%, profits are up 47%, mainly on account of a slight margin expansion and higher other income. The fourth quarter was much more robust with the company clocking over 26% revenue and nearly 62% bottomline growth.

What is the company's business?

Reliance Industries is the country's largest private sector company having interests across the hydrocarbons value chain. The company, along with subsidiary, IPCL, controls over 70% of the country's domestic polymer capacity. Further, the acquisition of the German company, Trevira, by Reliance makes it the largest polyester manufacturer in the world. The company also has interests in the upstream petroleum sector, whereby it has participating interests in existing oil and gas fields, while it is likely to begin commercial production from its Krishna Godavari fields in 2007. It has recently ventured into fuel retailing with nearly 300 outlets.

What has driven performance in FY05?

Robust pricing key to realizations:  During FY05, the company's gross revenues were up by about 30% YoY. Of this, 24% could be attributed to higher product prices, while the balance 6% is on account of higher volumes. Firm petrochemical and petroleum product prices in the international markets helped boost realizations. The company also witnessed a jump of 71% in export revenues. Although the company sells petroleum products to oil marketing PSUs in the domestic markets at a discount, higher prices on a YoY basis explains the growth in the topline.

Operating margins:  In 4QFY05, operating margins improved encouragingly (1.1%), while the improvement was marginal during FY05. The increase in margins during the March quarter could largely be attributed to a scale down in other expenditure head of the company. Raw material costs (forming over 85% of expenditure) increased by 2.5% during the quarter. However, for the said period, strong product prices helped the company enjoy gross refining margins at over US$ 8 per barrel, thereby negating the hike in raw material costs.

Other income boost:  The bottomline growth of nearly 47% during FY05, is largely a result of higher other income component, which has grown by over 27% during the period. The other income boost was largely on account of income from preference shares. Also helping boost the bottomline were extraordinary expenses that were part of last year's financials. But for a marginal rise in interest outgo (due to foreign exchange differences) and depreciation during the year, the bottomline growth could have been better for the FY05 period.

What to expect?

At the current price of Rs 554, the stock is trading at a price to earnings multiple of 10.2 times FY05 earnings. The board of the company has recommended a final dividend of Rs 7.5 per share (dividend yield of 1.3%). The current petrochemicals uptrend has helped Reliance post record profits for eight consecutive quarters. Given the firm international demand on the back of no significant capacity addition, Reliance is likely to continue to maintain momentum in the medium term.

Also, refining margins are likely to remain robust in wake of high crude oil prices and growing demand for petroleum products. Infact, domestic demand for petroleum products increased by 4.8% in FY05, as compared to 3.5% last year.

Its retail foray is also going strong with product sales higher volumes per outlet as compared to the PSUs. Although the company has not made any significant breakthrough in the retail business, it is likely to continue to grow over the next couple of years. The company has approvals for setting up 5,849 retail outlets in India. The company's E&P business (oil and gas) is on track and the its telecom initiative (Reliance Infocomm) posted a profit of Rs 510 m in FY05, as against a loss of Rs 3.9 bn last year. All in all, the company is likely to continue on a higher growth trajectory during the medium term backed by its core business. However, the tussles in the top management are likely to have a bearing on investor sentiment till the issue is resolved.

Gillette: India Vs USA

A name synonymous to male grooming worldwide, the Gillette Company today is the global market leader, principally in the grooming and alkaline battery segment. It also has a decent presence in oral care business. In the more than 100 years since the company was founded, Gillette has gained, held and strengthened leadership positions globally. We decided to compare Gillette India with Gillette USA (Consolidated Worldwide) to get a perspective as to where does its Indian operations stand vis-à-vis the global parent.

Background

Gillette USA: A company founded in 1901, Gillette is the world leader in male grooming (Gillette, Sensor Excel, Mach range etc.), a category that includes blades, razors and shaving preparations, and in selected female grooming products, such as wet shaving products and hair removal devices. In addition, the company holds the number one position worldwide in alkaline batteries (Duracell) and in manual and power toothbrushes (Oral B). Gillette manufacturing operations are conducted at 31 facilities in 14 countries, and products are distributed in over 200 countries and territories.

Gillette India: Earlier known as Indian Shaving Products, the company's presence in India is over two decades old. The company was rechristened to Gillette India Limited in CY00, the same year in which it consolidated its Indian operations, by merging all existing businesses in India under a single fold. Gillette India is the 52% subsidiary of US shaving major - Gillette USA. The company's promoter groups' (including the Indian partners) together hold 88.8% in the company. The company hived off its battery manufacturing (Duracell and Geep) plant at Manesar in CY03 and is now a focused shaving product major, which also markets the Duracell range of batteries.

Despite being the 2nd most populous country in the world, India's contribution to the parent is negligible, a mere 1% in terms of revenues. In grooming, Gillette has a market share of above 75% in almost all countries where it has a presence in, except India and a few other third world countries while in some places like Latin America it is almost 90%.

Asian markets have grown at a rate of 12% from CY02 to CY04, but at the same time, Indian markets have shown a decline of 1%. The share of India to Asia-pacific revenues is low at 9.3%.

The Indian market has not been totally tapped and penetration levels are yet low for its flagship products. In India, the company is aiming to wean away consumers from the traditional double-edged razor segment to twin blade system through its mid-priced offering 'Vector Plus'. If successful, the company could achieve a new growth trajectory. Worldwide, the consumer Razor and blades sales have grown 31% in the past three years.

In terms of potential in India, nearly 90% of consumers' still use double-edged razors, a large part of which Gillette can convert. Slowly and steadily, times are changing with Indian men, beginning to place more emphasis on grooming and taking as much time as the fairer sex at the super market to pick up their favourite cologne, deodorant, aftershave lotion, shaving cream, body talc, face wash, shampoo, and conditioner.

Sales mix

The parent has a vast array of products including 5 US$ 1 bn plus brands. Unlike the parent's diverse folio mix, in India, Gillette sales primarily consist of its key brands 'Sensor Excel' and 'Mach 3' i.e. male grooming. Duracell, which holds the No.1 position worldwide in Alkaline batteries under performed badly in India, forcing the Indian counterpart to sell the factory to a worldwide subsidiary, and focus only on marketing the product.

India being a very price sensitive market has never been on the parents' priority list for new launches and products are made available only after considerable time. To put things into perspective, Mach3 turbo is trying to make an arrival in India, whereas worldwide M3Power an automatic version of Mach3 turbo is available in stores and in developed markets like US and Europe, M3Power Nitro a newer version of M3Power has already hit shelves.

P&G acquisition of Gillette

P&G recently acquired Gillette globally for US$ 56 bn. The combination will create a US$ 62 bn company - number two in the consumer products world behind Nestle in sales, and number one in market capitalization at nearly US$ 200 bn. The fit works just as well geographically, creating a good balance in sales across North America, Europe and the developing markets of Asia and Latin America.

Valuations

Gillette USA currently trades at US$ 52.75, a P/E multiple of 32 times its CY04 earnings and market cap to sales of 5x. On the other hand, Gillette India trades at Rs 660 that translates into a rich valuation of 35 times CY04 earnings. This is at the higher end of the spectrum in comparison to other stocks in the Indian FMCG space. Market cap to sales of its Indian operations is at 5.5x.

Although Gillette India just forms 1% of global revenues, the US parent will be looking to change that. The Indian operations have seen a major restructuring and cash infusion to continue on the path to profitability. With every 3rd person globally either an Indian or Chinese, Gillette can ill-afford to not focus on this geography. But progress will be a long drawn affair in this value conscious country. From the stock perspective, with nearly 90% stake in the hands of promoters', liquidity is an issue and the only thing keeping the valuations pepped up is hope of a good buyback offer in future.

Infosys, world's most valuable IT firm

Are Bangalore-based Infosys Technologies and Wipro Ltd, India's software bellwethers, the first and third most valuable software services companies in the world?

It would seem so.

Today, the $1.5 billion Infosys would be the costliest company to acquire even ahead of the $16 billion Accenture, the biggest consultancy and software solutions multinational.

Surprised? Don't be.

The EV or enterprise value of Infosys as on April 25, 2005 at $16.72 billion has nudged ahead of Accenture's, which had an enterprise value of $16.57 billion.

Infosys's market cap though at $17.41 billion is lower than that of Accenture's market capitalisation, which stands at $19.95 billion.

Also to understand how valuable Infosys is as a software company consider the enterprise values of other software companies, both Indian and global.

Bigger MNC competitors like EDS and Bearing Point have enterprise values of $10.27 billion and $1.40 billion, respectively. Another Indian IT major Wipro, with an enterprise value of $13.09 billion, is third after Infosys and Accenture in the most valuable software services companies list.

The enterprise value of a company is calculated by adding the total amount of long-term debt that the company is carrying on its balance sheet to the company's market capitalisation, whilst subtracting the value of cash and cash equivalents that are held by the company.

The enterprise value of a company also reflects the actual purchase price of the company if it were to be acquired without taking into account any premium or discount that may be offered at the time of sale.

With Infosys as a company carrying no debt on its balance sheet, it is but normal to expect a premium to be offered in case there is an offer to buy out India's most valuable software company.

Interestingly, the enterprise value of Infosys is higher than that of Accenture despite its most recent fourth quarter results that had disappointed market watchers and had also led to a fall in the Sensex.

Only IBM, which offers both products and software services -- and hence is not a pure play software consultancy and services player -- is more valuable than Infosys.

The $96 billion IBM dwarfs Infosys with an enterprise value of $135.92 billion and a market capitalisation of $121.16 billion.

Source : Rediff.com

Put your money where you shop

The retail sector will grow faster than the fastest growing sector in the country. But, in return, they sell at a premium. May be justifiably so.

More than a decade ago, shopping for clothes, perfumes, footwear and fashion jewellery - all under one roof - in Mumbai meant going to just one shop. Shopper's Stop in suburban Andheri.
Today, Shopper's Stop has six stores in Mumbai. Add to that an equally large number of competing stores like Pantaloon, Lifestyle and Westside.

Fast forward to 2010. There will be 600-odd malls across the country, constituting nearly 10 per cent of total retail sales. That is great news not just for shoppers but also for investors in stocks.

More here

Hindu Businessline Recommendations

Buy >> HCL Infosystems, India Glycols, Monsanto India

Reality Check

The indices gained yesterday. But it will not bring a sense of relief to investors who have been following the market goings on over the past couple of months. With equity markets globally in a state of dilemma, not much will change towards India overnight. But is it the end of the India story?

It is a known fact that most emerging markets and even key western markets have been on a slippery ground in recent times. With US consumer price index indicating a sign of inflationary pressure, US Fed chairman's strategy to control economic excesses in the world's largest economy is taking shape. It is a given that US rates are on their way up, only the speed and the quantum of the hikes is not really known.

If the rate hike is faster than anticipated, then FII flows could slow down, drying up liquidity in the emerging markets. However, in our view, despite the bonhomie, sustainability of growth of the US economy is still not really visible. And even if it was, there are too many worries it has created in the global investor's mind, which are unlikely to go away any time soon.

The pressure on the US economy over the past few years has been a blessing in disguise for other large emerging economies. In the past couple of years, global investors have really stepped out of their US horizon and looked at other regions. We believe that even if the US economy does sustain its current growth rate, the newer economies are unlikely to come in as an 'after thought' to global investors.

Sure, the next couple of months may be choppy, but longer term, the India story looks good. Even if India trudges along its usual 6%-6.5% GDP growth, that itself offers potential to equity investors to grow their capital, beating most other investing avenues. Though inflationary pressures are also evident in the economy, it is unlikely to be a very sharp rise in interest rates.

For India, FY06 has started on a good note. Structurally, VAT has been implemented, which has the capability to bring in cost efficiencies in the system over the longer term, despite early worries. Efforts are on to allow FDI in retailing and other sectors. Early indications are that the monsoon will be 'normal' this year. This again is a proven positive for the Indian economy. All in all, the benchmark indices at 13 times forward FY06 earnings, does not seem to be steep. Pick and choose!

Source : Equitymaster

Mangalam Drugs - IPO Analysis

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A pull-back rise possible

The Nifty is trading near its 200-daily exponential moving average that lies at 1908. Volatility can be expected around this level. The index can see a pull-back rise in the near term. In case of a pull-back the Nifty can test 1953-1960 levels, where it can faces resistance. On the downside the index is likely to test at 1894-1872 levels in the short term. The short-term bias remains Down till the resistance at 1970 holds on a closing basis.

On an intra-day basis if the Nifty manages to sustain above 1934, then we may see the index stretch to 1953. On the downside Nifty has support at 1916. If it breaks 1916, then we may see the index seeking lower levels in the vicinity of 1900. Satyam made a matching low at Rs364; on the upside the stock can test Rs386. Tisco has support at Rs352; on the upside the stock can pull back to Rs374. Reliance can pull back to Rs538-542 levels, where resistance can be expected. Infosys faces resistance at Rs1,976 above which the stock can test Rs2,006 levels.

Source : Sharekhan

i-flex, Infosys among top 10 Banking Solutions

Indian companies operating in the banking technology space are seen as a natural choice for banks across the world which wish to adopt advanced technology systems.

In a recent survey conducted by International Banking System (IBS), four Indian companies figure among the top 10 companies worldwide in the banking technology space.

According to the Annual Sales League released by IBS, the four Indian companies are i-flex Solutions (ranked at the top), Infosys (at fifth), InfrasoftTech (eighth) and Nucleus Software (10th).

Meanwhile, another study conducted by the Tower Group, which is an advisory research and consulting firm, points out that technology spending in the global banking industry is well on its way to increase by approximately 4% during the 2005 calendar year. Significantly, almost three-quarters of the spend will take place out of Europe and North America.

"Consumer banking will continue to represent the largest share in technology spending while wholesale banking will experience a steady recovery during the year," said Nasscom research head Sunil Mehta. Flexcube — an internet banking and e-finance platform from i-flex — has been ranked as the world's best universal banking solution for 2002 and 2003 by IBS. "Citigroup accounts for almost 38% of our aggregate revenue. Other top clients include the North Carolina Department of State Treasurer, Bharat Overseas Bank, IMF etc," said i-flex Solutions CEO and CFO Deepak Ghaisas. Infosys software product Finacle is used by approximately 84 banks worldwide. 3i Infotech is ranked 18th worldwide for banking technology products. "In fiscal 2004, our suite of banking software solutions contributed to about 8% of our total income," said 3i Infotech managing director and CEO V Srinivasan.

Rights, bonus, splits no more good news for stocks

38 of 45 scrips have declined after such Announcements

The shares of 38 companies, out of a total sample of 45, whose prices got adjusted for either bonus, rights or stock-splits between January and April 2005, have seen their prices decline sharply after the
respective adjustment.

A Business Standard Research Bureau study shows that out of the 45 stocks, 16 have declined between 20 per cent and 50 per cent, while 12 fell between 5 per cent and 20 percent. The scrip price of only seven companies firmed up after the adjustment, while ten scrips declined by
around five per cent each.

The shares of Interworld.com got adjusted for stock-split when the face value was reduced from Rs 10 to Re 1 per share on February 14, 2005. After adjusting for the stock-split, the stock price fell by a
big 50 per cent from ex-split price of Rs 3.35 on February 14, 2005 to Rs 1.70 on April 15.

Likewise, Doctors Biotech India's share price declined by 35.2 percent from ex-split price of Rs 8.50 on January 18 to Rs 5.51 on April 15. The stock was split, from Rs 10 per share to Re 1 per share.

Hitech Gears' shares, adjusted for a 1:1 bonus issue on March 16, has fallen by 27.4 per cent, from Rs 202.65 to Rs 147.05 now.

Similarly, the stock price of Aarti Industries, which gave a liberal bonus in the ratio of 2:1, went down by 27.1 per cent, from Rs 127.65 (ex-bonus) on February 9 to Rs 93.05 on April 15.

ING Vysya Bank's stock price also fell by 27 per cent from ex-rights price of Rs 200.05 on February 21 to Rs 146 now. The bank issued shares in the ratio of 3:1 at a premium of Rs 35 on a rights basis to existing shareholders.

Others in the category include: Karnataka Bank whose stock price has fallen 26 per cent, Ipca Laboratories (22.6 per cent), Vijay Textiles (21 per cent), Matrix Laboratories (17.2 per cent) and Gammon India (15.4 per cent).

The seven companies which bucked the trend include Vyapar Industries, whose shares appreciated 109 per cent after it became ex-bonus, Mercator Lines (ex-split prices up 20 per cent), G V Films (up 12.5 per cent ex-split), Hindustan Sanitaryware (up 5.7 per cent ex-bonus), Prraneta Industries (4 per cent ex-split) and Gujarat NRE Coke (1 per cent ex-bonus).

Source : Business Standard