Angel - SMS Pharma

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Angel - Mindtree Consulting

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Sharekhan Daring Derivatives for February 08, 2007

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A new high lead by select heavy weights !

Market surpassed the previous higher levels to close at an all time high yet again amid mixed Global cues. Starting apprehensively, buying was witnessed through out the trading session. Bajaj was the star of the day on rumours of stock split. Really a stock split is of no significance and value should not increase by 8% but thats a BULL market for you. The rally was supported by Banking, Pharma and FMCG stocks while Automobile, Power, and cement stocks traded mixed.

Driven by robust performance in manufacturing and financial services, the country's gross domestic product (GDP) growth is projected at 9.2% during FY07, against 9% in the previous year. This is along expected lines and kind of discounted. The issue now is that interest rates are rising and whether the GDP growth can continue with the momentum that it has been growing in the current environment.

Sensex closed up 165 points at 14643 helped by gains in Bajaj Auto (3080.3,+9 percent), Hindalco (181.9,+4 percent), Infosys (2358.75,+4 percent), Grasim (2874.6001,+3 percent) and ICICI Bk (982.35,+3 percent). Restricting the gains were Tata Motors (902.05,-2 percent), ONGC (891.65,-2 percent), Guj Ambuja (141.2,-1 percent), HLL (207.5,-1 percent) and RCVL (485.75,-1 percent)

FIIs were buyers of Rs.656 cr yesterday in cash. FII interest seems to have reignited. Yesterdays data would also include about Rs 150 cr of TCS shares sold by Tatas. FII positive numbers will keep the momentum going up with the India Conference of many FII brokers bringing in interest

Bajaj stole the show today. The market talked about stock split in Bajaj Auto. The stock gained substantially on back of this. We like the company but near term competitive pressures are expected. However we believe that the interest was more to do from the fact that Uttaranchal facilities may be near completion and that would add to the margins. The news was positive with Sri Lankan courts decision in favor of Bajaj and against their Sri Lankan importer Ranatunga Motors against the sale of Ranamoto Gulsar. Ranamoto Gulsar is an Chinese version of Bajaj's Pulsar model. Company has started registering its name, design and Brands in the countries where it intends to sell and also deputed a team to track such cases in other export markets to avoid such incidents in future in its other export markets. Bajaj Auto sells 5,000-6,000 bikes per month in Sri Lanka out of which 1,000 are Pulsar 180 model. Bajaj is still a strong contender as an investment option in the two wheeler segment with 34% market share in the two wheeler industry and a strong hold in the three wheeler segment with a market share of 78%. We are positive on this one.

InsdusInd Bank rallied on back of news that Hindujas intends to sell 20 per cent stake to a MNC bank..at Rs 80 per share. It was also said that this deal mandated by RBI. We believe that, the price cannot be mandated. and by the RBI, certainly not. This pricing is probably an expectation of the Hinduja group. IndusInd bank has strengths in credit disbursal but its tough to source funds and that is key for success. The stock closed up 6%.

Technically Speaking: There were 1320 advances against 1337 declines still market ended high as rally was led by selected stocks. Market traded in the range of 14,478 and 14,493. Resistance lies around 14680 levels while support is around 14520 levels. Volume was good at Rs 4,641 cr. 14,720 level will be the next level to be watched out. Key support is now at 14320.

HSBC - Bharti Airtel

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Sharekhan Investor's Eye - Feb 6 2007

ACC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,250
Current market price: Rs1,100

Stupendous quarterly performance

Result highlights

• ACC put up an excellent performance for the fourth quarter clocking a 250% year-on-year (y-o-y) growth in the profit after tax (PAT) at Rs329 crore, ahead of our estimates.
• The top line grew by a healthy 51% year on year (yoy) to Rs1,619 crore on the back of a 42% y-o-y growth in the realisations and a 7% y-o-y growth in the volumes.
• The operating expenditure grew by 25.8% yoy to Rs1,151 crore driven by a 12.7% y-o-y rise in the power & fuel costs and a 19.7% rise in the freight costs.
• On account of the higher realisation growth, the operating profit witnessed a 197.5% y-o-y growth to Rs468 crore. The operating profit margin expanded by 1,420 basis points yoy and by 230 basis points quarter on quarter (qoq) to 28.9%.
• Consequently, the earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne jumped three-fold to Rs975 per tonne on account of the company's high leverage to the cement prices.
• The interest cost fell by 80.1% yoy to Rs4.1 crore whereas the depreciation provision stood higher at Rs77.1 crore.
• The pre-exceptional profit stood at Rs329 crore translating into a y-o-y growth of 249.9%. Adjusting for the extraordinary items, the PAT was up 86.1% yoy at Rs358 crore.
• The company has declared a dividend of Rs15 per share for the year ending December 2006 implying a dividend payout of 27%.
• ACC is adding capacity of 0.9 million metric tonne (MMT) at Lakheri along with the setting up of a 25MW captive power plant (CPP). The company is also expanding the capacities at various other locations post which, its total capacity is expected to increase by 3.19MMT to 23.1MMT by December 2007. The company is also adding 1.18MMT capacity coupled with a 30MW CPP at its Bargah Cement unit (expected to be commissioned in the first quarter of CY2008) and is putting up a fresh 3MMT plant at Wadi, which is expected to be commissioned in the next 24-30 months.
• At the current market price of Rs1,100, the stock is discounting its CY2007E earnings by 15.7x and EBITDA by 9.2x. On an enterprise value (EV) per tonne basis, the stock is trading at USD198 per tonne. We believe the stock is very attractive considering its leverage to the cement prices, better cost structure as well as its improving financials. We thus maintain out Buy recommendation on the stock with a price target of Rs1,250.

Ashok Leyland
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs56
Current market price: Rs49.8

Spillover boosts January numbers

Key points

• Ashok Leyland has reported a magnificent growth in its January numbers. The higher than expected growth was a result of the spillover of sales  from the previous month due to the implementation of the value-added tax in Tamil Nadu w.e.f January 1, 2007.
• The company reported an overall growth of 67% year on year (yoy) as its vehicle sales jumped to 9,650 units in the month. Its domestic sales grew by 62% while its exports rose by a whopping 228%.
• The medium-duty vehicle (MDV) goods segment (which accounts for the bulk of the company's sales) turned a brilliant performance, reporting a growth of 69.6% yoy with sales of 7,870 vehicles. The MDV passenger segment, where the company has been losing market share, is beginning to show signs of improvement grew by 56% in January.
• In January the sales of its light commercial vehicles stood at 28 units, marking a growth of 16.7% yoy.
• Looking at the year-till-date numbers, the company has reported an overall growth of 41.7% with the MDV goods segment growing by 61% yoy and the MDV passenger segment marking a decline of 4.7%.
  w At the current market price of Rs49.8, the stock quotes at FY2008E PER of 12.4x and at an EV/ EBIDTA of 6.9x. We maintain our Buy recommendation on the stock with a price target of Rs56.

Sundaram Clayton
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,550
Current market price: Rs1,202

Higher efficiencies improve margins

Result highlights

• Sundaram Clayton Ltd's (SCL) Q3FY2007 results are in line with our expectations. The net sales for the quarter marked a growth of 29.5% to Rs204.7 crore, in line with our expectations. Both the air brakes and die-casting divisions performed well during the quarter registering revenue growth of 17% and 52% respectively.
• The operating margins have improved by 90 basis points year on year (yoy) to 15.6% because of increasing operating efficiencies. Consequently, the operating profit rose by 37.4% to Rs31.9 crore for the quarter.
• The other income was higher due to the accounting of the dividend income; while the interest cost has also risen due to the higher capital expenditure incurred by the company. Consequently, the profit after tax (PAT) for the quarter was up 17.3% at Rs24 crore.
• Due to a lower dividend income, and higher interest costs in the year-till-date period, we are lowering our FY2007 PAT estimates by 6%. However, we are very positive on the long-term prospectsof the company considering the continuing buoyancy in the commercial vehicle (CV) industry, strong outsourcing potential and a huge opportunity in anti-lock braking system (ABS).
• The value of SCL's total investment in the group companies works out to Rs660 per share. While computing SCL's value, we have assumed a 75% discount to the company's total investment. After adjusting for the same, the SCL stock is currently trading at 14.1x its stand-alone FY2008E earnings and at 11.5x its stand-alone FY2008E earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs1,550.

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C&C Constructions IPO

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IDBI Capital - Shasun Chemicals

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Market in Bradmanesque form

After a shallow correction of 38 points on Tuesday (6 February 2007), the market shot back up today. The two key indices, the Sensex and the Nifty, set their third records in the last four trading sessions. The government today estimated GDP growth of 9.2% in the financial year ending March 2007, above RBI’s forecast between 8.5 - 9%, spreading more cheer in the market.

In the first official growth estimate for 2006/07, the Central Statistics Office said manufacturing output growth was estimated at 11.3%, compared with 9.1% a year ago. India had last week revised upwards growth for the fiscal year 2005/06 to 9% from a previous reading of 8.4%.

The 30-share BSE Sensex jumped 164.94 points (1.1%), to a lifetime closing high of 14,643.13. A bout of volatility afflicted the Sensex after it had struck an all-time high above 14,600 in afternoon trade. After cooling from this record high, the market firmed up once again in late-trading, striking a lifetime high of 14,663.26 at 15:21 IST, and surpassing an earlier all-time high of 14,564.80 of Tuesday (6 February 2007).

The S&P CNX Nifty rose 28.35 points (0.68%), to an all-time closing high of 4,224.25, a gain of 27.80 points (0.66%). The relatively muted gains in the Nifty compared to those in the Sensex were due to a fall in oil exploration major, ONGC, which is a heavyweight in the Nifty.

The market-breadth turned negative in the latter part of trading. The breadth held strong till the afternoon. Against 1,337 shares declining on BSE, 1,320 rose. Just 51 shares were unchanged.

The BSE Mid-Cap Index rose just 4.51 points (0.07%), to 6,186.86. The BSE Small Cap Index gained 35.06 points (0.46%), to 7,697.81.

All sectoral indices of BSE, other than the Oil & Gas Index and the FMCG Index, ended in the green. The BSE IT Index jumped 118.53 points (2.1%), to 5,524.22. It was the top gainer among sectoral indices in percentage terms. The BSE Metal Index gained 142.56 points (1.5%), to settle at 9,426.33.

The BSE clocked a turnover of Rs 5340 crore, lower than Tuesday’s Rs 6103 crore.

With today’s rise, the Sensex has added 552.21 points (3.9%) in the past five trading sessions, from 14,090.92 on 31 January 2007. The barometer index is up 856.22 points (6.2%) in calendar 2007.

FIIs have stepped up buying of late. Their inflow was Rs 165.60 crore in three trading sessions, from 2 February to 6 February 2007.

Healthy corporate earnings' growth in a booming Indian economy, along with strong global liquidity, has been a key driver of the bull-run on the Indian bourses, which is now in its fourth year. The Q3 December 2006 corporate results were strong.

Although the RBI raised short-term interest rates by 25 basis points in its quarterly monetary policy review on 31 January 2007, it also raised its GDP growth forecast for the current fiscal year. A day before, ratings agency Standard & Poor's (S&P), on 30 January 2007, raised India's sovereign local currency credit ratings to investment grade BBB-/A-3, with a stable outlook, citing strong economic prospects and an improving fiscal situation.

A lot of funds, for instance, pension funds in foreign countries, which were not allowed to invest in Indian equities hitherto, will now become eligible to purchase Indian equities. The development will be instrumental in carrying the rally on the stock market forward.

The near-term trend on the bourses will be determined by expectations regarding the Union Budget 2007-08. Market men expect the finance ministry to give a big impetus to agriculture and infrastructure in the budget. According to a pre-budget report of Man Financial, though the 10% surcharge on corporate tax may be eliminated, the effective tax burden for corporates may go up if certain open-ended exemptions are removed.

In today’s trade, insurance firms hogged the limelight. Bajaj Auto jumped nearly 9% to Rs 3078, Aditya Birla Nuvo gained 9.6% to Rs 1392 and Max India gained 5% to Rs 1115. As per reports, the group of ministers (GoM) on insurance headed by Minister of External Affairs, Pranab Mukherjee, will meet on 13 February 2007 to decide the fate of amendments to the insurance bill.

The bill, which proposes to hike the foreign direct investment (FDI) cap for insurance companies to 49% from the present 26%, was referred to the GoM after the Cabinet deferred a decision on the contentious issue in December 2006. Once the GoM forms a view, the issue will be taken up by the Cabinet. The Union Government wants to introduce the bill in the forthcoming Budget Session of Parliament.

IT bellwether Infosys gained nearly 4% to Rs 2360. The BSE has raised Infosys’ free float factor for calculating its weightage in the Sensex from 0.8% to 0.85% with effect from 12 February 2007. Free float factor is used to calculate the weightage of a scrip in a free-float index like the Sensex. Index funds tracking the Sensex will have to make adjustments in their holdings following the changes in the free-float factor.

Oil exploration major ONGC lost 1.6% to Rs 893.70, after the government halted moves to confirm the appointment of R S Sharma as chairman.

Copper and aluminium major Hindalco 4% to Rs 181.45, following a recovery in global copper prices.

ICICI Bank gained 2.5% to Rs 982, after the largest private sector bank on Tuesday, said it had raised the reference rate by 1% for corporate loans and home loans, from 9 February 2007. HDFC Bank gained 1.7% to Rs 1107.

Engineering & construction major L&T gained nearly 3% to Rs 1749. The stock hit a lifetime high of Rs 1767. As per reports, L&T will sign a deal with European aerospace and defence group, EADS, on Thursday to sell components for the latter's defence systems.

Reliance Industries rose 0.2% to Rs 1392. The stock came down from a session’s high of Rs 1399. The BSE has reduced Reliance Industries (RIL)’s free float factor from 0.55% to 0.5%.

Cipla surged 3% to Rs 257.65. As many as 2.5 lakh shares changed hands in the counter on BSE.

IFCI rose 6.5% to Rs 32.15. The rally materialised on heavy volumes, of 3.9 crore shares, on BSE. With effect from 23 February 2007, NSE has slashed the lot size of IFCI in the derivatives segment to 7,875 from 31,500.

NSE also reduced the lot size of a number of contracts in the derivatives segment, including that of the briskly traded Nifty contract. The decision has been taken based on the prescribed minimum contract value of Rs 2 lakh as per a Securities & Exchange Board of India (Sebi) circular of 2004. The premier stock exchange has simultaneously raised the lot size of some stocks, in order to comply with the same criteria.

Auto parts maker Amtek India jumped 7% to Rs 167, on renewed buying.

Autoline Industries jumped 10% to Rs 430.35, extending what has been a solid surge in the past few days, in the newly-listed entity. The stock rose on high early volume of 21.9 lakh shares on BSE.

Punjab Tractors (PTL) jumped 9% to Rs 309.50, on news that Mahindra & Mahindra had submitted a non-binding bid to buy a stake in the company. Private equity firm Actis has put its 29% stake in PTL on the block.

Akruti Nirman settled at Rs 564. The stock declined sharply after a strong debut at Rs 701.35 on BSE compared to the IPO price of Rs 540.

Software firm, Silverline Technologies gained 2.5% to Rs 23.85, after it said its board will meet on 8 February 2007 to consider setting up a joint venture in Oman for animation, IT education and training services. The board estimates an investment of $10 million in this venture.

Valecha Engineering dropped 1.7% to Rs 271.35, after the company said on Wednesday it will own 60% of Singapore's Koon Holdings, in return for a 5% stake, 48% of its unit Valecha Infrastructure and transfer of international assets.

Aircraft maker Taneja Aerospace & Aviation jumped 5% to Rs 249.15 after the company said on Wednesday it planned to form a joint venture with Belgium's Sabena Technics for maintenance, repair and overhaul services.

The IPO of state-run Power Finance Corporation received bids for 77 times the shares offered. The 117.32-million-equity share offer aimed to raise Rs 997 crore at the top of the Rs 73 - Rs 85 price-band. Qualified Institutional Buyers (QIBs) have applied for 137.2 times the shares reserved for the segment, while retail investors have tendered requests for 8.5 times the shares in their category. The IPO closed on Tuesday (6 February 2007).

European markets were slightly firmer in early trade. Key benchmark indices in London, Germany and France were up between 0.05 - 0.27%. Asian markets were mixed. Japan’s Nikkei 225 average shed 0.6%. Hong Kong’s Hang Seng was up 0.12%. It had moved between positive and negative zone during the session.

Nymex crude was up 60 cents at $59.48 a barrel.

Market looks strong

When the Nifty was trading below 4,100, investors had hedged their long positions in individual stocks by selling Nifty future contracts. Once this level was crossed, Nifty futures were bought by investors who squared off their previous shorts, thus giving an upward push to the Nifty futures and in turn, the cash market as well.

Further indications from the derivatives segment are positive as well. The cost of carry is at a comfortable level; the put-call ratio as per Tuesday’s data stood at 0.8:1. Along with a fresh build-up of long positions on the futures side, we are also observing a contrary short position build-up, thus giving certain stability to the system. When the next correction comes, these shorts will give support, as we will see a portion of them getting squared up.

If the derivatives segment cues are considered, then an upmove seems likely.

- Amit Hiremat, Derivatives Analyst, IDBI Capital Markets Services

Business Today - Money Column

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Emkay - NRB Bearings

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Karvy - Balrampur Chini

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