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Saturday, January 13, 2007
WSJ - Rakesh Jhunjhunwala
Indian Mogul Rises to Status Of Money Icon Hunt for Undervalued Now Goes to the Mall; Like Warren Buffett
Rakesh Jhunjhunwala, often referred to as "India's Warren Buffett," built his fortune over the past 20 years by shopping for undervalued local companies. Now he's shopping for shopping malls.
He is keen on the malls, and the consumer goods flying off the shelves there. There is "a big explosion of purchases in India," especially in areas like construction and jewelry, he said recently, sitting in his 15th-floor office here in Mumbai, India's financial capital, his back to the Arabian Sea just beyond the window.Mr. Jhunjhunwala, a chain-smoking, diamond-ring-wearing 46-year-old money manager, is idolized in India by millions of small investors who dream of following in his footsteps. He is a fixture on Indian television, talking up his bull-market views, and on the lecture circuit -- addressing groups like the "Millennium Mams," an organization targeting housewives who want to learn about business. He makes headlines when buying 2% of a company's shares, sits on 10 boards of directors, and regularly finds fellow investors chasing his stock picks.
His investments map the arc of India's recent economic emergence. The son of a tax commissioner, Mr. Jhunjhunwala says he toyed with becoming a pilot but went into accounting instead. In the mid-1980s, he began playing the market with 5,000 rupees (just over $100 at today's exchange rates), and never looked back. One of his first investments: Tata Tea Ltd., which quickly took off. (Years later, Tata Tea would acquire British tea giant Tetley.) He subsequently moved into mining, where he made his first million rupees in iron-ore exporter Sesa Goa.
In this nation of castes and sometimes rigid tradition that can limit social and economic mobility, his is a relatively unusual story of self-created wealth. Today, he has amassed a $700 million fortune. While that pales in comparison with the real Buffetts of the world, it's a fortune in a country where average annual income is measured in hundreds of dollars. Mr. Buffett's fortune has been valued at more than $40 billion, though he is giving away big chunks of that to charity. Like India's stock market itself, Mr. Jhunjhunwala has had his share of setbacks. Last year, the Securities and Exchange Board of India cleared him and his wife in an investigation into stock-price manipulation. The case dealt with how some big trades from his firm a few years ago affected stock prices.
Mr. Jhunjhunwala's colleague, Utpal Sheth, says they are pleased with the outcome of the case and found regulators "sensible and fair." Mr. Jhunjhunwala certainly isn't the only Indian investor to benefit from the run-up in local markets in recent years. Many other value investors there have also become famous for spotting cheap stocks. And last May, when the Bombay Stock Exchange's benchmark 30-stock Sensitive Index, or Sensex, plunged amid a sharp retreat in emerging-markets stocks world-wide, Mr. Jhunjhunwala's portfolio tumbled along with it. He endured another big hit just a few weeks ago, when a dramatic downturn in Thailand's stock market rippled through India's market as well. Local newspapers blared headlines like "Blood Baht in Thai markets," a reference to a decline in Thailand's currency, the baht. India's shares fell 3% that day. The next day Mr. Jhunjhunwala, sitting in front of five computer screens in his office in the Nariman Point financial district, scribbled trades in a small notebook and barked orders to his assistants in Hindi to fetch tea and sell some shares.
"The market is on the weaker side today," Mr. Jhunjhunwala muttered -- an understatement -- sitting with his collared shirt untucked.
As the day unfolded, he found time to eat an elaborate Indian lunch and chat with a friend about bringing a bottle of whiskey that weekend to his house in the hills outside of Mumbai, formerly Bombay, which features a karaoke studio and gym. In his office, his assistants serve drinks on coasters printed with a quote stressing the importance of integrity and hard work that is attributed to John Bogle, Vanguard Group's founder. Displayed nearby are images of Hindu deities, as well as sketches of billionaires Mr. Buffett and George Soros. He built his private investment company, Rare Enterprises (the name merges the "Ra" from his first name with "Re" from his wife's name, Rekha), by investing mostly in smaller Indian stocks. His rise has differed from other Indian investing icons who made their names through speculation and fraud during the technology bubble of the 1990s.
One of his best recent moves was selling part of his stake in Indian rating company Crisil Ltd. to McGraw-Hill Cos.' Standard & Poor's Corp. for more than four times what he bought it for. S&P acquired a majority stake in the company last year. These days he is buying land in the south India city of Secunderabad, where he plans to build shopping malls, and backs private equity and other investments in a dredging firm, a radio station, a school and a security company.
"In Mumbai, he's very widely known" as a "bit of a blunt guy," says Pradeep Dokania, head of the global private-client group for DSP Merrill Lynch. However, "sometimes people may feel he's overconfident" about the markets. So far, his optimism has paid off. The Sensex has quadrupled in the past five years, and such growth is attracting foreigners. In just the past week, New York Stock Exchange parent NYSE Group Inc. and others said that they are buying a stake in India's National Stock Exchange.
And Mr. Jhunjhunwala is sticking to his guns. By 2010, he predicts India's gross domestic product growth will have hit 10% for at least one year. In a slide show that outlines his investment philosophies, he says: The bull market in India "will really need God's wrath for it to be reversed prematurely."
WOW - Broker Rap - Kotak - Reliance Communication
In its Report Dated 8th January, 2007 Kotak Securities (Kotak) initiates a coverage on Reliance Communications as an Underperform with CMP of Rs.435 and a 12-months Target Price of Rs. 375.
Kotak Securities (Kotak) mentions that Reliance Communications limited (RCL), a part of the Reliance Anil Dhirubhai Ambani Enterprises Group, is India''s second largest wireless operator in terms of subscribers. Its also has a strong positions in the long distance (ILD) and broadband segments. RCL has grown its subscriber base and earnings strongly over the past few quarters led by its strong management and solid execution. Kotak informs that RCL''s strategy to grow revenues and earnings is to expand the reach of its wireless and broadband services and exploit its extant long distance (both national and International) infrastructure.
Kotak anticipates that pricing will deteriorate in all key segments of the India telecom sector-wireless, LD and data. In the critical wireless segment, kotak views increased price competition as a result of the proliferation of new players in new circles, RCL''s GSM expansion, a potential industry slowdown and the eventual introduction of mobile number portability (MNP).
Kotak points out that two areas of positive surprise could sustain RCL''s stock price above kotak''s fair value.
(1) Benign price competition in the key wireless segment may result in higher than expected prices (revenue per minute or RPM) and hence, higher-than-expected profitability.
(2) Continued high liquidity in the Indian market may result in the street continuing to focus on relative valuation of RCL versus its key comparable, Bharti Airtel, rather than on the validity of absolute valuations of either stock.
Kotak model''s that RCL''s EPS to grow to Rs32.5 in FY2010E from Rs12.5 in FY2007E led by
(1) strong growth in wireless subs (70 mn at end-FY2009 from 28.6 mn at end-November 2006) and
(2) moderately strong growth in long distance (LD) and broadband segments. RCL''s GSM expansion strategy is a big variable for the Indian wireless market and its financials.
You will find this report on this site
Thanks HK
WOW India - Broker RAP - - ITC
In its report dated 10th Jan, 2007 Man Financial (Man) upgrades ITC to Neutral at a CMP of Rs. 163 with a 12 month target price of Rs.185.
Based on Man''s various probabilistic scenarios, without offsetting price hike the expected impact of VAT on ITC''s earnings could be 11%-12% but the actual impact would depend upon the price hike that ITC can take to offset this.
Man states that the expectations treadmill has also slowed down with better appreciation of increasing challenges in agri-retailing and inflationary concerns on NCFMCG.
Man points out that after a significant re-reacting over the past couple of years, valuation stretch has reduced significantly. 1-year forward PE and EV/EBITA have declined by 30% and 32%, respectively from their highs in May ''06.
Man believes that after the recent price under performance, the stock is trading at closer to fair valuations. It trades at 18.6XFY08E one year forward EPS. According to Man''s expectations 20.2% EPS CAGR for FY07E-FY09E, the stock is trading at a PEG of 1.1x. Man believes that this reflects the risks and rewards of the Business composition quite fairly and initiates a coverage with Neutral rating.
Thanks HK
Industry Update: Sharekhan Mutual Funds Report dated January 12, 2007
Robust NFO collections boost equity AUM and cash levels
The assets under management (AUM) for equity funds increased by 5.7% to Rs143,619 crore in December 2006. The rise in the equity AUM was substantially higher than the market movement of 0.7%.
Download hereSLR flexibility to be RBI's new tool: Sharekhan Special dated January 12, 2007
SLR flexibility to be RBI's new tool
The Union Cabinet on January 11, 2007 approved the promulgation of an ordinance to amend the statutory liquidity ratio (SLR) for banks to ensure greater credit flow to the industry. To achieve this, the government intends to empower the Reserve Bank of India (RBI) to set lower SLR floors from the existing 25% on the net demand and time liabilities ie deposits.
The average yield on the advances for public sector undertaking (PSU) banks is above 9% after the prime lending rate (PLR) hike while the current yield on investments is in the range of 7.2-7.5%. For private banks the average yield on the advances is in the vicinity of 10% while the average yield on investments is below 7%. This provides a significant opportunity for the banks in the longer term to improve their earnings based on a small realignment of their balance sheet composition as we don't expect the RBI to cut the SLR at this point of time
Download hereFriday, January 12, 2007
iPhone: Is It Worth $500?
Apple Inc.'s feverishly anticipated iPhone combines the music and video features of an iPod with the communications functions of a smartphone. The question is how many consumers will be willing to pay the hefty price for the combo.
The iPhone has a sleek design and is only 11.6 millimeters thick. A 3.5-inch screen, bigger than on most iPods, extends for almost the entire length of the nearly button-free device. Instead of the iPod's iconic scroll wheel, users will navigate through their song collections, make phone calls and perform other tasks by tapping their fingers on the iPhone's touch-sensitive screen. Users of the iPhone will make calls or type emails on a virtual keyboard that pops up onscreen as needed.
Apple, of Cupertino, Calif., has an exclusive agreement with AT&T Inc.'s Cingular, the nation's largest cellular carrier by subscriber, to sell the iPhone in the U.S. for $499 and $599 -- well above mass-market cellphones -- with a commitment to a two-year wireless plan. Although it has been on a hot streak, Apple doesn't always hit it big when it enters new markets. The company collaborated with Motorola Corp. on a phone called ROKR that plays songs from users' iTunes music collections, but it was seen by many as a disappointment because of limited storage capacity.
Price Cut?
It's unclear if and when the prices for the iPhone might come down, as prices for electronics gear such as flat-screen television sets and video camcorders tend to do. While prices for the iPod have generally stayed in the same range over the years, consumers have been getting more features on new generations of iPods, essentially getting more for their money each time. With cellphones, the historical model has been for prices of such devices to come down quickly, with wireless carriers sometimes taking a loss on the products in order to get consumer subscription revenue.
In defense of the price of the iPhone, Apple Chief Executive Steve Jobs said in a speech at the start of the Macworld conference in San Francisco that consumers normally have to pay $199 for a comparable iPod nano and $299 for a smartphone, which would lack many of the whiz bang features of the iPhone at roughly the same price.
With Cingular, Apple developed a feature the companies described as a major innovation, calling it "visual voice mail." Instead of having to wade through voice mail messages in the order in which they were left, iPhone users will see a list with the names and phone numbers of people who left them voice messages and tap to listen the messages in whichever order they like.
There are also sophisticated sensors within the product that, for instance, adjust the brightness level of the screen to make it more legible based on ambient lighting conditions. Another sensor automatically shifts the screen-orientation of the iPhone to landscape from portrait mode when a user holds the device between two hands, which will allow users to view movies and television shows in wide-screen mode.
Initially, users will load music, video and other content onto the iPhone from their computers, not wirelessly over the Cingular network. Executives in the music industry say Apple will need to negotiate new licensing agreements with music labels to obtain rights to sell songs wirelessly on the iPhone.
Market: Its better than an Esselworld ride !
What a week it was.. Sentiments turned from negative to positive and this is for the nth time that this has happened. Certainly this beats Esselworld in terms of the volatility and investors with a weak heart really would have felt the jerks. The common part is that the ride at both places ended with a smile on the faces of the investors.
The week started off on a very weak note with global cues negative. There was no reason to be positive as stocks across the globe collapsed. There were worries of increasing interest rates in Japan and to add to that Emerging markets saw a selloff on back of developments in Venezuela. Venezuelan President announced that they would be nationalising the oil and Telecom companies. This was bad enough to snuff out the strength in equities. The impact was felt in India too. There was a surprise rate hike by the Bank of England has overnight rate now at 5.25%, matching that of the Fed funds rate but really markets finally ignored this. Metal prices crashed in the beginning of the week and the impact was felt across board with Hindalco, Nalco, Hindustan Zinc, Sterlite
Crude had a major selloff this week touching 20 month lows. Cut threats by OPEC dont seem to be taken seriously. Open had decided on a cut of 1.2 mn barrels per day in November and is expected to cut a further half a mln barrels per day starting February. The refineries had a ball and they surged. The airlines stocks also flew with Jet doing extremely well on the bourses. Reliance rallied too after many days of ranged action. Lower crude prices helps its profitability of the refined products. However the gains are limited as it exports 30% of its refined products. Also there is a risk that the Government may consider to reduce fuel prices further. But Reliance has the benefit of now being a play on retail and also SEZs where its expected to get huge value.
Mid caps were in action on Tuesday though the large caps saw selling. Investors were waiting for the results season. Infosys officially kicked it off well. Infosys results on Thursday was awaited with baited breath. The fact that they did not positively surprise was what was a disappointment. However Markets then rallied strongly on Thursday even though Infosys numbers were not as exciting as they normally are. TCS and Wipro were big gainers. TCS is expected to post the best ever numbers. Results are expected on the 15th that is Monday evening. The reason for the rally on Thursday was known only on Friday and that was the big trigger from the FM who gave a big boost to the banks. Seems like smart people knew about it in advance. The RBI has been given the power to change SLR floor and ceiling rates of 25% and 40%. Banks have been strugglng to raise resources and what this does at one shot is that it would help release funds for the banks. ICICI also has raised $2 bn for lending into the Indian markets and that led the Sensex on to an all time new high. Weighing this week for the initial part of the week were global cues but domestic policy coupled with global recovery brought back the glory of last week.
Sensex ended the week up almost 200 points closing at 14056 which is the highest ever weekly close.
The gainers in the Nifty were MTNL +10%, Mah +4%, TCS + 5%, Wipro +4%, Bharat Petroleum + 4%. Bharti Airtel + 4%, ICICI bank +6%, ITC + 4%, Jet +6%, Reliance +4%, Sun Pharma +4%. There were a few large losers including Suzlon -3.7%, Rel Com - 3%. topnew.gif (1104 bytes)
IFCI moved up sharply, Zee babies got listed.. Results season got of to a good start.. !
IFCI rallied strongly this week. IFCI sold off 5% stake in NSE which managed to sell 20% stake to strategic investors including New York Stock exchange. However the big kicker was the talk that the company had land which was under sale and that would be a big kicker to its bottomline as per valuation. The stock had a surge of over 66% this week. We are not enthused though. There is no continuing business for the company.
Zee babies got listed this week. This was the Wire and Wireless ltd and Zee News Ltd. The split was done so as to bring in clarity and also meet the norms with regards to foreign ownership in a News channel. We have been positive on this stock for quite some time and the demerger did create value. Zee will further demerge with the DTH business at the end of the month. The results however are unlikely to be exciting.
The power ministry has announced ultra mega transmission projects for private sector participation on a build-own-operate basis. The ministry has identified 14 such projects entailing a total investment of over Rs 22,000 crore. They are likely to be commissioned by 2011-12. Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) have been appointed as the nodal agencies to oversee implementation of these projects. A bidders' conference is in progress from January 10, 2007. The Ministry, PFC and REC have already invited expressions of interest (EoIs) for the Rs 4,200-crore evacuation system for the Maithon (1,000 mw), Kodarma (1,000 mw) and Bokaro extension (500 mw) projects. They have also invited EoIs for a project to bring surplus power from the east and northeast to the northern region, entailing an investment of Rs 1,800 crore. Besides, EoIs have also been invited for the evacuation system for North Karanpura (1,980 mw) costing Rs 4,100 crore. Other transmission projects include the southern-western region synchronous inter-connector (Rs 800 crore), as well as evacuation systems for Barh II (1,320 mw, Rs 1,200 crore), Nabinagar (1,000 mw, Rs 800 crore) and Daripally (3,200 mw, of which 800 mw in the 11th plan, Rs 4,000 crore).
The first two Ultra Mega Power projects of 4,000 Mw each at Sasan (Madhya Pradesh) and Mundra (Gujarat) were awarded last month to Lanco and Tata Power, respectively. The next two will be Krishnapatnam in Andhra Pradesh to be awarded by March and Tilaiya in Jharkhand by July-end.
Thus the scene for the power sector remains extremely robust. Bhel, Siemens, ABB rallied at the end of the week.
HDFC bank posted decent growth numbers in a crunch scenario Infosys numbers were quite good. UTI bank also surged on the back of decent numbers. It has been a fair start for the results season and more will be known as results unfold.
Technically Speaking: We had mentioned in our Technical Analysis that the Sensex was ready to make a new high with support at 13180 and surprise surprise it did that. Going ahead 14180 - 14380 is an expected range and then some correctives could be expected.
Fundamentally: The results have yet to come in and that certainly does not portend well. Experience tells us that results of the large caps normally leads to profit taking. Next week is the interest rate meeting for Japan and that could be a dampener. Mid caps is where the action is more likely to shift as the performance is expected to be good but it will be selective action. The FIIs who have been sellers so far will be keenly watched. Its very much possible that FII buying will be selective and sombre at these kind of levels. So its more likely to be a choppy market.
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