Movers & Shakers

• Rajesh Exports advanced on announcing the launch of Laabh Jewellers.
• United Phosphorus rose on signing a deal to buy Dupont's Bensulfuron-methyl business.
• Sical Logistics hit the upper limit of 5% on the likely acquisition of Bergen Offshore Logistics.
• Ranbaxy inched up on announcing the launch of Storvas in Malaysia.
• Sonata Software was locked at the upper limit of 5% on signing an agreement to buy a 50.1% stake in TUI Infotec.
• Escorts notched up gains on receiving Rs114 crore from its stake sale in Carraro to its joint venture partner, Carraro Italy.
• McNally Bharat Engineering jumped on bagging an order from France-based Solios Carbone.
• Dr Reddy�s Laboratories was marginally up on reports that the company has signed a deal with ClinTec International to jointly develop an anti-cancer compound, DRF 1042.
• Monnet Ispat slipped despite announcing plans to set up a Rs4,200 crore power plant in Orissa.

The Lost World - Jay Dubhashi

We Indians have a love-hate relationship with foreign companies, usually known as multinationals. We know that in this globalised world, we simply cannot avoid them and at the same time, we are not entirely happy about their presence in our midst.

So, from time to time, we crack the whip and ask them to behave. But they know they are here to stay and take it all in their stride. Fifteen years ago or so, before the economy was thrown open, things were different. Indian companies, whether in soft drinks or automobiles, were sitting pretty. They had a nice monopoly business going and since they never had to compete with foreign companies, they were clueless about their impact.

Ramesh Chauhan of Parle, who had built a profitable soft drink business from scratch, was initially rattled when news came that Coca-Cola had received a license to operate in India. Since I was all for Swadeshi, he believed that I might be of some use. So he came to see me.

I asked him if he knew Coca-Cola people. No, he said, he didn't. I told him that I knew some of them and had visited their offices in Atlanta. I told him that Coca-Cola's entry would be followed by Pepsi's-- or was it the other way round-- and Parle would have to take on two giant multinationals in a small market. Did he have the capacity to do that? A few weeks later, I heard that Parle had sold out to Coca-Cola for a hundred crore, which was a great deal of money then. That was the end of the nascent soft drink industry in India for it is either Coke or Pepsi now and there is no other choice for the consumer.

Things were a little different with the auto industry, but not all that different. When Maruti was taken over by Suzuki, I wrote in my column that companies like Premier Automobiles would soon be on their way out, just as Coke had replaced Parle. For Suzuki would be followed by other foreign auto companies and they would sweep the market.

Not so, wrote Vinod Doshi, who ran Premier Automobiles at the time. He actually took the first plane to Delhi from Bombay and came to see me. I have now forgotten what arguments he put forward, but within months he had signed up with Fiat of Itlay and had, in effect, sold out to them and virtually closed down his business, just as I had predicted.

I have not met Doshi for a long time, but, as far as I know, his Premier plant is no more. One more Indian business has fallen prey to yet another multinational.

It must be said both the soft drink business and the automobile businesses are flourishing. I am told that we are now producing or selling a million cars a year, about ten times more than what we did before liberalisation. The same must be the case with soft drinks.

I used to drive a Premier, now I drive a Maruti. But I neither drink Coke nor Pepsi because they don't suit me. Incidentally, I have never seen the inside of a McDonald's, either here or in the US, for reasons that have nothing to do with the fact that Mc Donald's is a foreign business. I just don't like hamburgers and I am allergic to French Fries.

Friends tell me that the Indian economy is booming and GDP growth is in the region of 7 to 8 per cent., if you go by RBI's calculations. Good luck to RBI and its bulging foreign exchange coffers. But I am not sure who the real winner is. The Indian consumer has certainly won. But, in my heart of heart, I cannot help feeling that India has lost. Jai Hind.

DCB - IPO

DCB is a new private sector bank, which has embarked on revitalization plans. As part of revitalization plan, the bank has in
place a new management team & the board of directors committed to improving bank’s operational performance & overall business.

DCB’s business is concentrated in certain regional centers, primarily Maharashtra, AP and Gujarat. The Bank has 106 interconnected branches including 5 extension counters & 34 Satellite offices, spread over 26 cities in the country. It also has an ATM network of 58 interconnected onsite and 43 interconnected offsite ATMs.

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Citigroup - Nagarjuna Construction

Entering the big league — We initiate coverage on Nagarjuna with a Buy/Medium Risk (1M) rating and target price of Rs191. Among the fastest-growing construction companies in India, Nagarjuna has diversified skill sets and an improving business mix to exploit the growth opportunity in the construction sector. We expect Nagarjuna to provide 27% upside and rate its peers HCC and Gammon as Sell.

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Movers & Shakers

• Sterling Biotech attracted unabated buying on reports that the company will acquire China Gelatin in an all-cash deal.
• NIIT rallied sharply on launching IFBI in a tie-up with ICICI Bank.
• Asian Tea & Exports hit the upper circuit breaker of 5% after the company reported that it would take on lease a tea production facility and increase the capacity to produce 2 million kilogram of black tea per annum.
• Radha Madhav Corporation was frozen at the upper limit of 5% on receiving a packaging order worth Rs3.25 lakh from Reliance Retail.
• Alok Industries inched lower despite reporting that it will acquire a 60% stake in the Czech Republic-based Mileta International.
• Northgate Technologies fell sharply despite announcing the company's proposal to raise $35 million.
• Sujana Universal eased even as the company proposed to raise $15 million by selling equity shares through the GDR route.

Sundaram Fastners & TNPL

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Sharekhan Eagle Eye - Sept 27

Moving towards 3600. The Nifty opened on a firm note and took support around 3520 amid sideways moves in early trades...

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Bharat Electronics

Bharat Electronics
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs1,525
Current market price: Rs1,108

Sound as a BEL(L) 

Key points  

• Growing addressable market: The healthy increase in the capital outlay of the defence budget and the government's efforts to reduce dependence on imports for critical equipment and security systems has considerably increased the size of the addressable market for the defence equipment manufacturers. With its wide range of product portfolio, R&D capabilities and a proven track record, Bharat Electronics Ltd (BEL) is well poised to effectively tap the same. 
• Civilian orders and export business to aid overall growth: BEL has taken steps to improve its market share in the civilian market, especially the fast-growing broadband access equipment and telecom segments. It has bagged some prestigious large civilian contracts recently including the Rs500-crore order from MTNL. In exports market also, it is expanding its reach and has set an aggressive revenue target of $24 million in FY2007 (up from $13.7 million in FY2006).
• Scope for positive surprises: With the recent modernisation and expansion of its manufacturing facilities as well as its technical capabilities, BEL is actively looking at tapping the huge opportunity in the contract manufacturing service space. The additional capacities shall also make it the preferred contender for any foreign supplier looking at partnering with a domestic entity as per the offset clause for any contract worth over Rs300 crore from the defence sector. 
• Attractive valuations: BEL's net revenue and earnings are estimated to grow at a CAGR of 16.4% and 14.1% respectively, over FY2006-08E. The current valuations do not capture the improved growth outlook and the free cash & cash equivalents of Rs385 per share expected by the end of FY2008. We recommend a Buy on BEL with the price target of Rs1,525.

Minar International IPO

Minar International (MIL) trades and exports made-ups, particularly bed linen, in the home textile segment. Almost 80% of its exports are to the US markets. Presently, the company outsources processed fabrics and processes them in its cutting, machining and trimming (CMT) unit at Vasai, Maharashtra, with a capacity of 10000 sheets per day.

MIL now proposes to backward integrate and set up an integrated and modern wider width fabric processing plant at Perunduria in the Erode district of Tamil Nadu. This unit would have a capacity of 60,000 metres per day. The company plans to spend around Rs 8.84 crore on land and building, Rs 46.77 on plant and machinery for fabric processing, Rs 11.06 crore on other fixed assets, and the balance to meet preliminary and pre-operative expenses. It plans to raise around Rs 74.76 to Rs 79.61 crore (depending on the price band) through the current IPO.

Strengths

• The abolition of the quota regime has opened new growth avenues for export-oriented companies like MIL, which was the largest merchant exporter in made-ups for five years of the quota period and held the largest quota in made-ups for the US till the quota era ended in December 2004.

• The proposed project will make the company backward integrated, resulting in timely delivery of processing fabrics and improvement in margin.

Weaknesses

• MIL has been debarred up to 22 November 2007 from exporting to quota-regulated destinations such as Canada, the European Union and the US by an order passed by Texprocil (Textile Export Promotion Council) on grounds of circumvention of quota restrictions on exports and for alleged fabrication of documents. The Bombay High Court has confirmed the debarment but stayed the other punishments awarded by Texprocil. Currently, the company is exporting indirectly. It has provided a bank guarantee of Rs 5 crore, though the contingent liability on this account is Rs 10 crore. Texprocil has also informed Sebi about the complaints lodged against MIL with CBI, though the company claims to have not received any copy of the complaint.
• Vibhgyor Texotech, another promoter group company, is in similar line of the business, which could lead to conflict of interest.
• Compared to a net profit of Rs 14.44 crore, MIL had a negative cash flow of Rs 24.02 crore from operating activities in FY 2006, mainly due to increase in inventories and debtors.
• In the pre-quota regime, MIL was awarded major quotas in segments that could be sold to other companies, which is also reflected in the huge other income. But after the abolition of the quota regime, this source of income no longer exists.

Valuations

MIL reported a net profit of Rs 14.44 crore in FY 2006. EPS on post- issue equity works out to Rs 5.9. The shares are being offered in a band of Rs 108 to Rs 115 at a PE of 18 to 19 times. Alok Industries, which is a much larger and far more integrated player, trades at Rs 64 at a TTM PE of 9.5 times. The sector TTM P/E is around 12.

Movers & Shakers

• Godrej Industries inched up on reports that its subsidiary Godrej Agrovet will form a joint venture for the palm oil business with IJM Plantations Berhad of Malaysia.
• Brady & Morris Engineering hit the upper circuit on announcing a 1:1 bonus issue.
• Mefcom Agro surged on the acquisition of a stake in Gypcrete Building India.
• Southern Ispat slipped despite announcing the signing of a MoU with KSIDC.
• Gateway Distriparks eased in spite of entering into a joint venture with the Chakiat group.
• Kamla Dials inched lower despite announcing a 2:3 right issue. 

Merrill Lynch - Reliance Communications

We are raising our price target on RCom to Rs385 (vs Rs345 earlier).

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Gayatri Projects IPO

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Sharekhan Eagle Eye - Sept 26

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Sharekhan Investor's Eye - Sept 25

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PLIndia - Gail

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