Sharekhan - Investor's Eye

KEI Industries 
Cluster: Ugly Duckling
Recommendation: Buy 
Price target: Rs550
Current market price: Rs452

Price target revised to Rs550

KEI Industries Ltd (KIL) has firmed up plans to take on further capital expenditure (capex) to ride the spending in the power sector. On August 30, 2005 we had mentioned in our report titled "A live wire" that KIL was planning a capex of Rs106 crore to increase its capacity for low-tension (LT) cable and set up a new capacity for high-tension (HT) cable. The company has plans to make incremental capex of Rs100 crore to expand its LT cable capacity by March 2007. The additional capacity shall start contributing to the company's revenue from FY2008.

At the current market price of Rs452, the stock is trading at 10.7x its FY2008E diluted earnings per share (DEPS) and at 4.0x its FY2008E EV/EBIDTA. We have revised our price target for the stock to Rs550, at which level it shall discount its FY2008E DEPS of Rs45 by 12.2x. At Rs550, the stock will also trade at 4.7x its EV/EBIDTA.

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VIEWPOINT

Wipro 

Robust Q4 but relatively weaker Q1 guidance

Result highlights

• Wipro's consolidated revenues have grown by 13.5% quarter on quarter (qoq) and by 34.6% year on year (yoy) to Rs3,113 crore. 
• The global information technology (IT) service revenues grew by 9.2% qoq to Rs2,317 crore, which is higher than the company's guidance but lower than the market's expectations.
• However, the company has surprised positively on the margin front, with an improvement in the profit before interest and tax (PBIT) margin of its global IT service business by 30 basis points to 25.1%. 
• The margins improved as a result of an improvement in the realisation (the onsite billing rate per employee improved due to a higher number of working days in Q4 as compared with Q3) and the employee utilisation rate (up by 200 basis points qoq). The margins in the Indian IT service business also improved by 50 basis points to 9.9%. (These two businesses together contribute 93% of the company's consolidated revenues). 
• Consequently, the consolidated earnings of the company were higher than expectations at Rs618 crore (amounting to a sequential growth of 13.7%).
• On the full year basis, the consolidated revenues have grown by 29.9% to Rs10,603 crore whereas the earnings have grown at 26.7% to Rs2,067.3 crore. The overall operating profit margin (OPM) slipped by 110 basis points to 21% in FY2006, largely owing to the 180-basis-point drop in the PBIT margin of the global IT service business.
• The revenue guidance of $533 million (a 3.5% growth qoq—marginally higher than the $515 million reported for Q4) for the global IT service business in Q1FY2007 is relatively lower than that of its other front-line peers. 
• 
  

At the current price the stock trades at 29.8x its FY2007 estimated earnings.

Bullions: Reasons to be long

Concerns over the geopolitical situation in the Middle East increased after a bomb attack in Tel Aviv early this week. This is the first Palestinian bombing in Israel since Hamas came to power three weeks ago. The situation would continue to be closely monitored, with the Israeli acting Prime Minister Ehud Olmert likely to decide on a response to the attack while the USA has warned the Hamas-led Palestinian government against defending terrorist acts. Further, the nuclear standoff in Iran continues, with the Iranian President Mahmoud Ahmadinejad issuing a warning to any nation considering attacking Iran, while the USA is planning to meet with other world powers today to consider sanctions against Iran.

Leading Ideas: Decisiveness Generates Momentum

Courtesy: Fast Company

"The percentage of mistakes in quick decisions is no greater than in long-drawn-out vacillation, and the effect of decisiveness itself 'makes things go' and creates confidence." -- Anne O'Hare McCormick (1882-1954), First woman to win a Pulitzer prize for journalism

Consider This:

Contrary to popular belief, your decisions don't drive your long term success - your decisiveness does. Said another way, when you reach a crossroads on any issue, the act of choosing creates power, not the choice itself. The issue is momentum. No matter what you choose, when you commit boldly with conviction, you create momentum. When you hesitate you don't. And success is built on momentum.

One of the most common breeding grounds for indecision is to-do lists. One of my clients had over 100 items on his when we first met. He wanted me to help him create systems to get them all done. I told him the most powerful system I know is the 3 D's - Do it, Delegate it, or Delete it. We carved up his list and actually deleted 75% of it in about 30 minutes (including some items that had been on there for 2 years!) The process was painful for him, but ultimately very freeing. "It was cathartic," he later admitted. "Actually making the choice NOT to do all those things took a huge weight off my shoulders and allowed me to focus on things that were truly important."

Try This:

1. Get a copy of your to-do list
2. Be decisive about each item - are you going to Do it, Delegate it, or Delete it
3. Write out steps and a timeline for things you need to do.
4. Do it
5. Recognize that the more decisive you are, the easier the process gets

DP Asks You

One of my friends, Nag asks you all to ponder over ...

Let's say you dropped 1 lakh on 10 IT stocks in 1993... 10K each on 10 IT services stocks, You went to sleep, a la Rip van Winkle, and woke up in 2006. You find that 9 of those 10 companies have tanked. As in, share price has become Zero.

But the one survivor is...Infosys.

Your initial investment of 10K would now be worth 2.1 CRORES!

So, the question is: identify 10 stocks that the DP readership feels have the...potential to become obscenely successful in 10 years.

Every decade in India has produced one such company.
1970s: HLL.
1980s: Reliance
1990s: Infy.

So, what is it for 2006 - 2016?

Please reply to this post in the comments section.

Alternatively, you can mail at dpstock@gmail.com

Infosys Technologies - Merrill Lynch

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Sharekhan Investor's Eye

UTI Bank 
Cluster: Emerging Star
Recommendation: Buy 
Price target: Rs400
Current market price: Rs352

Aggressive growth continues

Result highlights

• The net profit of UTI Bank grew by 30.2% year on year (yoy) to Rs151.7 crore in Q4FY2006. The growth in the net profit was in line with our expectation.
• However the operating performance gave a positive surprise as the net interest income (NII) grew by 59.4% yoy backed by a strong growth in the advances and an expansion in the net interest margin (NIM). The fee income too grew by a good 47.2% yoy.
• The net non-performing assets (NPAs) as a percentage of the bank's customer assets improved markedly by 32 basis points yoy and by 20 basis points quarter on quarter (qoq). The NPAs now stand at 0.75% of the net customer assets.
• UTI Bank's Tier-I capital adequacy ratio (CAR) stood at 7.26% at the end of Q4FY2006 whereas its overall CAR stood at 11.08%. The bank plans to raise the Tier-I capital by the end of FY2007 to fund its growth plans.
• At the current market price of Rs352 the stock is quoting at 13.3x its FY2008E earnings per share (EPS) and 2.4x its FY008E book value (BV). We reiterate our Buy recommendation on the bank with a revised price target of Rs400.
  
  

New Delhi Television

 
Cluster: Emerging Star
Recommendation: Buy 
Price target: Rs300
Current market price: Rs275

Strong revenue growth

Result highlights

• The revenue of New Delhi Television (NDTV) showed a strong traction for yet another quarter as the same grew by 43.2% year on year (yoy) and by 2.4% quarter on quarter (qoq) to Rs69.9 crore.
• The operating costs that had gone up substantially in the first quarter due to a wage increase and the launch of NDTV Profit have begun to stabilise. At 25% the operating profit margin (OPM) was much higher than 16.7% in M9FY2006.
• The net profit adjusted for the employee stock options remained flat at Rs10.3 crore. 
• We believe that NDTV is evolving as a complete media play with multiple revenue triggers in place. Revenue of NDTV Profit, its business news channel, has picked up substantially. NDTV now has global tie-ups for broadcast of its channels in the USA, the UK and Canada. The stake sale of the soon-to-be-launched general entertainment channel would also provide substantial upside from here. Its Internet vehicle, www.ndtv.com, has been rated the sixth best news site globally. In March 2006, the company tied up with Genpact to provide media outsourcing services globally (see our report "Price target revised to Rs300" dated March 29, 2006). 
• At the current market price of Rs275, the stock is quoting at 19.8x it FY2008E earnings per share (EPS). We maintain our Buy recommendation on the stock.
  

Genus Overseas Electronics 

Cluster: Ugly Duckling
Recommendation: Buy 
Price target: Rs305
Current market price: Rs218

A genius set of numbers

Result highlights

• At Rs8 crore the Q4FY2006 net profit of Genus Overseas (Genus) is sharply higher than our estimate, primarily because of higher-than-expected revenue booking by the project business. 
• As a result of the healthy revenue booking, the company's net sales for the quarter got catapulted to Rs112 crore, up a whopping 294%. The three-fold jump in the revenue clearly marks the company's big-bang entry into the metering project business.
• At 11.4% the operating profit margin (OPM) for the quarter saw a decline of 5.4%. The margin declined because of a change in the revenue mix in favour of the project business, where the margins are comparatively lower. The operating profit for the quarter grew by 168% to Rs12.8 crore.
• The interest expenses for the quarter rose by 91% as the company had to avail of large working capital loans to execute project orders. Consequently the net profit for the quarter grew by 140% to Rs8 crore. 
• After Genus' entry into the metering project business, the order book for the business has shown a phenomenal improvement with Rs495 crore of order backlog. That is a jump of a staggering 400% year on year (yoy) and of 20% quarter on quarter (qoq). The order book is more than 2x the company's FY2006 revenue of Rs229 crore and provides a strong visibility to its earnings.

Tata Consultancy Services 
Cluster: Evergreen
Recommendation: Buy 
Price target: Rs2,190
Current market price: Rs2,012

High on confidence

Result highlights

• Tata Consultancy Services' (TCS) consolidated revenues grew by 8.1% quarter on quarter (qoq) to Rs3,733 crore on the back of an 8.2% growth in the volumes during Q4FY2006. It should be noted that Tata Infotech Ltd (TIL) was amalgamated with TCS during the quarter. The Q3FY2006 performance is also restated and is comparable. 
• The operating profit margins (OPM) declined by 130 basis points to 24.8% primarily due to the rupee appreciation and an increase in the contribution of the onsite revenues. Going forward, the company is likely to witness some margin pressure in the first half of FY2007 due to the proposed healthy annual hikes in the salaries. But the management is confident of maintaining the margins on a full year basis.
• However, the higher other income and the lower tax rate (due to some onsite tax write back and arrears totaling Rs31 crore) boosted the earnings growth to 10.9% qoq to Rs832.6 crore. Taking into account the one-time expense of Rs23 crore related to the grant of equity shares to the employees of TIL, the earnings growth stood at 7.9% qoq at Rs809 crore. 
• On the full year basis, the revenues and earnings have grown by 36.3% to Rs13,255 crore and by 41.2% to Rs2,897 crore respectively. The OPM declined by 190 basis points to 25.8% as compared to FY2005. However, the performance is not strictly comparable due to the inorganic initiatives taken in the last fiscal.
• The management has announced a bonus issue of 1:1 and a final dividend of Rs4.5 per share (taking the total dividend for the year to Rs13.5 per share).
• TCS has not given any annual growth guidance but the management sounded quite optimistic about the growth prospects. Some of the key reasons for the management's confidence are: flow of large outsourcing orders (the company has bagged a $500 million order spread over five years) and overall improvement in IT spending; robust ramp-up in the acquired entities (FNS, Comicrom and the Pearl deal); healthy recruitment targets (gross employee addition of 30,500 planned in FY2007); and the stable margin outlook (in spite of the healthy salary hikes and the other cost pressures like commencement of large outsourcing deals where the margins can be lower at least initially).
• We maintain our Buy call on the stock with a revised target price of Rs2,190.

HDFC Bank 
Cluster: Evergreen
Recommendation: Buy 
Price target: Rs900
Current market price: Rs832 

Another quarter of 30% growth

Result highlights

• In Q4FY2006 HDFC Bank�s net interest income (NII) grew by 44.3% year on year (yoy) on the back of a 48.1% year-on-year (y-o-y) growth in its advances. 
• The net interest margin (NIM) declined by 25 basis points yoy due to a drop in the proportion of the demand deposits in the total deposits. However on a sequential basis, the NIM expanded as the bank raised rates on a couple of loan categories.
• The fee income grew sharply by 90.4% maintaining the strong growth momentum built over the past several quarters. The bank saw a good growth in its transaction service, third party product distribution and credit card businesses.
• As a result its operating profit grew by a strong 39% yoy despite a 46.7% y-o-y jump in its operating expenses. The operating profit excluding the treasury gains grew at even a higher rate of 65.8%.
• The net profit for the quarter grew by 30.9% to Rs263.3 crore. The provisioning for the loan loss went up substantially in the quarter as the bank aggressively grew its retail loan portfolio during the period. The provision for amortisation of investments was also higher in Q4FY2006.
• At the current market price of Rs832 the stock trades at 17.6x its FY2008E earnings per share (EPS) and 3.6x its book value (BV). We maintain our Buy recommendation on the stock with a revised price target of Rs900. 
  

Sharekhan Special - Pharma

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Prabhudas Lilladher - Q4 Preview

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(Rapidshare link - May expire soon)

Courtesy: Gagan

Satyam - Chartbuster

18/04/2006 | Company Name: SATYAM | Call Type: Go Long
Stop Loss/ Reversal: 824.0000
Buy/Sell Price Rs.: 843.00
Current Price Rs.: 853.00
Potential P/L%: 1.3600
Target: 875
Remark:
Investment Argument: Buy the stock with a stop loss of Rs824 on an intra-day for a target of Rs875.

Sharekhan Investor's Eye

3i Infotech 
Cluster: Emerging Star
Recommendation: Buy 
Price target: 244
Current market price: Rs180

3i Infotech acquires Datacons

3i Infotech has announced the acquisition of Datacons, a Bangalore-based software products company, offering niche products for asset management companies. Datacons has a comprehensive range of products for the mutual fund industry that covers accounting (MFund/AM), investor services (MFund/ISS), and dealing and decision support services (MFund/dealing). 


Infosys Technologies 
Cluster: Evergreen
Recommendation: Buy 
Price target: Rs3,504
Current market price: Rs3,230

Exceeding expectations

Result highlights

• For the fourth quarter of FY2006, the consolidated revenue of Infosys Technologies grew by 3.6% quarter on quarter (qoq) and by 32% year on year (yoy) to Rs2,624 crore. The growth was lower than the consensus expectation of a 5-6% growth qoq and marginally higher than the guidance given by the company. 
• The company took a severe beating on the profitability front with a 230-basis-point sequential decline in the operating profit margin (OPM) to 31.7% in Q4. The OPM was dented largely by the appreciation of the rupee and the company's conscious decision to bring down its employee utilisation rate.
• The consolidated earnings grew by 3.7% to Rs673 crore, much lower than the consensus estimate of Rs720 crore and our estimate of Rs696 crore. In spite of the steep decline in the margins and the jump in the depreciation charges, the sharp growth in the other income component enabled the earnings growth to keep pace with the growth in the revenue.
• On the full year basis, the revenue and earnings grew by 33.6% and 29.9% respectively. The OPM was also quite stable at 33.5% as compared with a 33.7% growth in the previous fiscal. 
• The annual guidance of a 28.7-30.7% (Rs12,254-12,446 crore) growth in the revenue and a 26.4-28.4% (Rs13.9-15.6 per share) growth in the earnings is much ahead of the market expectations. This is one of the most aggressive guidance in the past five years and shows the management's growing confidence in the visibility of the company's growth on the back of a pick-up in the discretionary spending by the clients. 
• The management has rewarded the shareholders with a 1:1 bonus issue and a special silver jublee dividend of Rs30 per share (600%). This is in line with the market expectations.
• We maintain the Buy call on the stock with a revised price target of Rs3,504 (23x its FY2008 revised earnings estimate of Rs152.3 per share). 
  

4 realty issues in pipeline to raise Rs 8,000 cr

As many as four public offers of equity  initial and follow-on  by realestate developers are in the pipeline, designed to raise a total of over Rs 8,000 crore.
 
 Along side, at least three construction companies are looking to raise justunder Rs 2,000 crore from the public. This is being interpreted as a sign of the coming of age of the sector and greater transparency seeping in.
 
 Among the real estate companies, Delhi-based DLF alone is looking to raiseRs 5,000 crore. Ansal Properties, a listed company expecting to set up a Rs10,000-crore township in the National Capital Region, has decided to floata follow-on issue of Rs 2,000 crore. Parsvnath Developers has filed a draftred herring prospectus for public issue of up to 3.32 crore equity sharesand hopes to raise Rs 1,000 crore by going public. In step with the trend,DS Kulkarni has planned an issue of Rs 75 crore.
 
 Among construction companies, Akruti Nirman plans to raise Rs 1,000 crore,Ahluwalia Contracts Rs 500 crore and IJM India Infrastructure Rs 400 crore.
 
 Real estate and construction companies are being spurred on to float publicissues in part because of the transparency that is seen to have set in inthe sector since the government allowed 100 per cent foreign directinvestment in construction under the automatic route in March 2005, alongwith overall relaxation of norms. Experts say this has increased investorinterest in such stocks.
 
 "Unitech's shares have shot up from Rs 20 to approximately Rs 3,000 in thelast two years," said Prithvi Haldea, chief executive officer,Primedatabase.
 
 With the construction sector growing at 12.5 per cent a year and having aweightage of 5.9 per cent in the gross domestic product, this is the righttime for construction companies to go public and unlock value.
 
 "Compared with private equity, these companies will prefer raising moneyfrom the stock market. Private equity may translate into interference,while the public market offers more freedom and better valuation," saidGaurav Dalmiya, chairman, Landmark Holding.

Deccan IPO

Deccan Aviation has decided not to rope in any private equity investors forthe present and plans to hit the market to raise approximately Rs 500-550crore, sometime in the second week of May.    The initial public offering (IPO) for 2.45 crore shares is likely to bepriced in a band of Rs 200-250. Two of the merchant bankers associated withthe IPO, ABN Amro Rothschild and JP Morgan, may however, withdraw from it.The issue will now be lead managed by ICICI Securities, Enam and SBI Caps.The reason for this, according to a senior company executive is that JPMorgan and ABN Amro have other commitments in May. However, should the IPObe delayed for any reason and hit the market only in June or July, theseinvestment bankers may once again be part of the team.    While Deccan has been toying with the idea of a preferential allotment toprivate equity investors, even before the IPO, it was apparently taking toomuch time. The company needs to bring out the public issue before May 20;otherwise it will have to file a fresh prospectus with Sebi. In fact Deccanwas to bring the IPO in February, which got delayed because of a deal thatthe company was negotiating with Airbus. While ABN Amro and JP Morgan werecomfortable with the public issue coming up in February-March, they nowhave other assignments.    However, sources say, the investment bankers were also not too comfortablewith the pricing as indicated during the road shows overseas; they found itaggressive. At that time, the price being talked about was between Rs300-325 per share. The overseas investors have been a little wary of theaviation stocks because Jet Airways, which came out with its IPO inFebruary last year, is currently trading below Rs 1,100. However, theshortage of aviation stocks and the lower pricing should generate interestfrom both foreign and local investors, say merchant bankers.    Deccan Aviation incurred a net loss of Rs 19.5 crore for the year-endedMarch 2005, on a net income of Rs 305.5 crore. The loss for the six monthsended September 2005, was Rs 72.5 crore, on a net income of Rs 328.86crore.    The issue will result in a dilution of 25 per cent of the post-issue equityof Rs 98.18 crore and the price band of Rs 250-250 would mean a marketcapitalisation of Rs 2,000-2,500 crore. Jet, which trades at Rs 970 has amarket capitalisation of Rs 8,378 crore.

World in 2050 - PwC

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