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Friday, May 18, 2007
Market may edge lower on weaker Asian markets
The market may edge lower today, 18 May 2007, tracking weaker global markets and on a surge in crude oil price. Domestic bourses have been closely following global markets in recent years. But data showing a surge in FII inflow on Thursday 17 May 2007 may cap downside. The key data today is the weekly inflation data. The important key Q4 results today are Tata Motors and Dr. Reddy’s Laboratories.
As per provisional data, FIIs were net buyers to the tune of Rs 518 crore on Thursday 17 May 2007, the day when Sensex had surged 172 points on the back of gain in index heavyweights. Domestic institutional investors were net buyers to the tune of Rs 634 crore on that day.
FIIs were net sellers to the tune of Rs 139.20 crore on Wednesday 16 May 2007 compared to their outflow of Rs 330.80 crore on Tuesday 15 May 2007. There has been lack of direction regarding FII investment this month. Their outflow this month till Wednesday 16 May 2007 totaled Rs 693 crore.
The wholesale price inflation rate is forecast at 5.30% for the 12 months to 5 May 2007, lower than an annual 5.66% a week before. The data will be released around 12:00 IST today, 18 May 2007. The annual inflation rate hit 6.69% on 27 January 2007, its highest in more than two years, but has moderated since as the central bank has tightened policy and the government cut duties on a range of items to rein in prices.
Weakness in major metal and mining shares pulled Asia-Pacific stocks lower on Friday, 18 May 2007. Key benchmark indices in Hong Kong, Australia, China, Japan, Singapore and South Korea were down by between 0.18% to 0.9%.
US stocks edged lower on Thursday 17 May 2007 as an upbeat report on business conditions in the mid-Atlantic region, coupled with data suggesting strength in the job market, signalled a reduced chance of interest-rate cuts. The Dow Jones industrial average declined 10.81 points, or 0.08%, to end at 13,476.72. The Standard & Poor's 500 Index dipped 1.39 points, or 0.09%, to finish at 1,512.75. The Nasdaq Composite Index shed 8.04 points, or 0.32%, to close at 2,539.38.
Brent crude oil prices surged more than $2 to a fresh 8-month high above $70 a barrel on Thursday 17 May 2007 as US refinery problems fanned concerns about potential gasoline supply bottlenecks just before the summer-driving season begins.
Indiainfoline - Intraday Stock Ideas
NIFTY (4219) Sup 4199 Res 4249
BUY IPCL (333.15)
SL 328 T 342, 345
BUY INDIACEM (189.8)
SL 185 T 197, 200
BUY TATATEA (835.95)
SL 830 T 845, 849
SELL BHARATFORG (342.65)
@ 345 SL 349 T 335, 332
SELL CINEMAX (156.5)
@ 159 SL 162 T 151, 148
STRATEGY INPUTS FOR THE DAY
Can bulls leave the world aside?
The world is a tragedy to those who feel, but a comedy to those who think.
Leave your feelings and thoughts aside as the market movement today may have no logical reasoning. The bulls have been on a roll this week notwithstanding the lack of catalysts and absence of buying from the FIIs. But, today could be somewhat different. There might be some softening at the start as US stocks slipped overnight and Asian markets are also in the red this morning. Crude oil prices climbed past the $65 per barrel mark yesterday and are still hovering around the same level. There has also been a sell-off in the metals market on the London Metal Exchange.
Federal Reserve Chairman Ben S. Bernanke has warned that the housing market in the US will continue to bleed and the central bank sees significant risks in the leveraged-buyout boom. Against this background, we may just close the week on a negative note. Having said that, one should not be surprised if the domestic market manages to brush aside global concerns and charts its own course.
Select stocks will be in focus. Bajaj Auto may cede some more ground on worries about the call options given to Allianz for increasing its stake in the two insurance joint ventures. A few foreign brokerages have already downgraded the stock. Others may follow suit. But, those with an eye on the long-term and a strong heart may consider entering the stock at lower levels. Tata Steel is likely to rise after posting strong results. Tata Motors will hog the limelight as it is set to announce its results today. Dr. Reddy's will also declare its results today.
Among the other big names unveiling their results today include the likes of Marico, Jaiprakash Associates, Federal Bank and Sun Pharma.
Deccan Aviation will remain in the spotlight amid market grapevine of an impending stake sale. Rumors have it that the ADAG is a strong contender for picking up a substantial stake in the low-cost carrier.
FIIs were net buyers of Rs5.18bn (provisional) in the cash segment yesterday while the domestic institutions pumped in Rs6.34bn. In the F&O segment, foreign funds poured in Rs13.4bn. On Wednesday, FIIs were net sellers of Rs1.39bn. Mutual Funds were net buyers of Rs3.36bn on the same day.
US stocks dropped for a third day this week, amid renewed concerns that a troubled housing market will hurt growth in the world's largest economy. Rising oil prices, mixed economic news and some investor fatigue also had a role to play in yesterday's decline.
The S&P 500 finished almost flat at 1512.75. The Dow Jones Industrial Average slipped 10.81 points, or 0.1%, to 13,476.72. The Nasdaq Composite Index fell by 8 points, or 0.3%, to 2539.38.
Fed chief Bernanke said that stricter lending rules may lead to foreclosures in the housing market. Bernanke said at a conference in Chicago that tighter lending standards will limit mortgage financing, further restraining home sales that fell to the lowest level in almost four years in March.
US light crude oil for June delivery rose $2.30 to settle at $64.85 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 8 cents up at $64.94 a barrel in extended trading in Asia.
Gold futures closed lower for a two-day drop of nearly $16 an ounce and copper futures tumbled more than 3%, to stretch its losing streak to four successive trading sessions. COMEX gold for June delivery fell $4.30 to settle at $657.20 an ounce.
The dollar rallied to a three-month high against the yen and one-week high versus the euro. Treasury prices slipped, pushing the yield on the 10-year note to 4.75% from 4.71% late on Wednesday.
A measure of six metals traded on the LME, including copper and zinc, slumped 3.3%. Copper slid 4.7%, zinc dropped 4.7% and nickel fell 3.2%.
Asian stocks are mostly down this morning, with the Morgan Stanley Capital International Asia-Pacific Index set for its first loss in three weeks. BHP Billiton and Sumitomo Metal declined after metals prices slumped on the LME.
MSCI's Asia-Pacific Index fell 0.4% to 147.55 at 11:07 a.m. in Tokyo, taking its decline this week to 0.6%. Japan's Nikkei 225 Stock Average lost 0.2% to 17,466.71. Benchmarks rose only in New Zealand, Taiwan and the Philippines. Indonesia's stock market is close for a public holiday.
Brazilian shares closed lower on profit-taking while Mexican equities reached an all-time high for the second straight session. In Mexico City, the IPC index of the 35 most-traded issues rose 0.5%, or 137 points, to 30,478.37, after hitting an intraday high of 30,535.89. In Sao Paulo, the broader market as measured by the benchmark Bovespa index closed 106 points, or 0.2%, lower at 51,631.47.
Bulls may take breather
Markets yet again registered strong close for second consecutive trading session after closing flat on Tuesday. The frontline stocks once again lifted the NSE Nifty to close above the 4200 mark with Reliance industries, SBI, ICICI Bank, Infosys and Tata Steel leading the pack. The Oil & Gas stocks were the major gainers others like Bank and Technology followed suit. However, Auto index was the major loser as heavy weight Bajaj Auto declined over 6.5%.
Technology stocks witnessed some momentum after being on the side lines in previous trading sessions. Deccan Aviation flew higher by over 22% to Rs145 after reports stated that ADAG group was interested in picking stake in the company. Finally, the 30-share Sensex closed at 14299 gaining 172 points. NSE-50 Nifty ended at 4219 adding 48 points.
Tata Steel gained by 1.6% to Rs598 after the company announced its Q4 result with net profit at Rs11.03bn (up 40.8%) and sales at Rs56.09bn (up 21.6%). The scrip has touched intra-day high of Rs608 and a low of Rs590 and has recorded volumes of over 67,00,000 shares on NSE.
Bajaj Auto plunged by over 6% to Rs2503. The company approved the demerger scheme. The companies Q4 Group profit was at Rs3.77bn (up 5.6%) and standalone net sales at Rs23.14bn (up 6.8%). The scrip touched intra-day high of Rs2749 and a low of Rs2395 and recorded volumes of over 18,00,000 shares on NSE.
TTML marginally edged higher by 0.4% to Rs27 on improved financial performance and reports that the Tata Group is expected to form a joint venture with Richard Branson's Virgin Mobile for the British company's India foray. The scrip touched intra-day high of Rs28 and a low of Rs27 and recorded volumes of over 1,00,00,000 shares on NSE.
VSNL gained 1.6% to Rs457 amid reports that the Government may consider the issue of residual stake sale in today's cabinet meeting. The scrip touched intra-day high of Rs468 and a low of Rs450 and recorded volumes of over 5,0,000 shares on NSE.
Patni Computer rallied by over 7% to Rs514 after the company announced the formation of its Consulting Services practice within its Manufacturing Business Unit. The scrip touched intra-day high of Rs536 and a low of Rs482 and recorded volumes of over 18,00,000 shares on NSE.
Banking stocks continue its uptrend. Frontline stocks like 3.2% to Rs1324, ICICI Bank is up by 2.3% to Rs939, HDFC Bank has advanced by 1.5% to Rs1049. Corp bank, OBC and Canara Bank are the major gainers among the Mid-Cap stocks.
Petroleum marketing companies were in action. There were reports earlier regarding hike in petrol and diesel prices. However, cabinet later on denied the reports. HPCL rose over 3.6% to Rs306; BPCL advanced by over 3% to Rs380 and IOC added 5% to Rs514.
Insider Trades:
Balrampur Chini Mills Ltd: 1) Morgan Stanley & Co. International Plc A/C Morgan Stanley Dean Witter Mauritius Co. Ltd. 2) Morgan Stanley & Co. International Plc A/C Morgan Stanley Investment Mauritius Ltd has purchased from open market 1700000 equity shares of Balrampur Chini Mills Ltd on 14th May, 2007.
Sectoral Movement:
BSE Oil & Gas index was the major gainer and gained 2.41%. BSE Bank index (up 1.69%), BSE PSU index (up 1.42%), BSE Technology index (up 1.16%) and BSE FMCG index (up 1.09%) were among the major gainers. However, Auto index lost 0.82%.
Volume Toppers:
IFCI, Bhagwati Banquets, Nagarjuna Fertilizer, TTML, RPL, Unitech, Idea, SAIL, Arvind Mills, Tata Steel, PFC, R Com, Ashok Leyland, ITC, Deccan Aviation, Satyam Computer, Balrampur Chini and UCO Bank
Upper Circuit:
Atlanta, Radha Madhav, GMR Industries, Mefcom Agro, Tripex Overseas, Vypar Industries, Anant Raj Industries, Swan Mills and Ruby Mills.
Delivery Delight:
Federal Bank, Grasim Industries, HDFC Bank, IPCL, Infosys, Reliance Capital, Tata Chemicals, Tata Tea and Bombay Dyeing.
Abnormal Delivery:
Sundram Fasteners, BEL, Rolta India, LIC Housing Finance, Steel Authority of India Ltd, ONGC, HDFC and Raymond.
Stock Futures with largest increases in OI:
Sterlite Optical, Patel Engineering, Deccan Aviation, Rolta, BRFL, Financial Technologies and Patni
Stock Futures with Decreases in OI:
Sobha Developers, United Spirits, J&K Bank, OBC, JP Associates, Ansal Property and Kotak Bank.
Results Today:
Deepak Fertilizers, Dr Reddy’s Lab, Federal Bank, GTC Industries, JP Associates, KEI Industries, SRF Polymers, Tata Motors and VSNL.
Results Corner:
Bajaj Auto Q4 net (down 9%) to Rs3.08bn and net sales at Rs23.13bn (up 6.7%).
Tata Steel Q4 profit at Rs11.03bn (up 40.8%) and sales at Rs56.09bn (up 21.6%).
Brokers Recommendations:
Ahmednagar Forgings – Buy from Emkay with target of Rs335.
Patel Engineering – Buy from Motilal Oswal with target of Rs504.
Long Term investment:
Great Offshore.
Major News Headlines:
Chidambaram says 'scam' unlikely in India's IPO market
Usha Martin recommends 5:1 stock split and Rs3.75 per share dividend
Orient Paper to mull ratio and price of Rights Issue on 24th May
Sugar Exim to give mills incentive to boost exports
HDFC Bank to raise an additional share capital US$1bn or Rs42bn
Hindusthan Zinc cuts zinc prices by 3.5%.
Great Offshore Ltd. was formed by de-merging the offshore division of The Great eastern shipping company. The Company is into offshore logistics, offshore drilling, Marine construction and port & terminal services. The company’s fleet strength stands at 40 offshore vessels which include 2 exploratory rigs, 26 offshore support vessels, 11 harbor tugs and one construction barge.
Rising crude prices, increasing trend in exploration & production is bound to give Great Offshore benefit as they are well diversified and well maintained fleet. The Company’s assets are on 3-5 years contract that indicates long term profitability. It is been learnt that the company is entering into new asset contract on a higher rate of at least 20-25%, this is because of high demand in exploration and production. The Company is into a huge expansion foray with seven vessel additions in FY07 and targeted another two more by FY10, One jack up rig and one MSV, both from Bharati Shipyard. It is estimated that this new asset will increase the revenue of the company by 50% by FY10.
The Company plans to focus on marine construction projects, management back on this huge opportunity and is expecting revenue of Rs. 200cr in FY08. It is estimated that Great Offshore has 74% of the revenue is been contracted for the next 2 years. Currently the Great Offshore stock trades at a P/E of 7.6x FY09E EPS of Rs 93.6.
Anand Rathi - Daily Technical - May 18 2007
Nifty and Sensex have exhibited another bullish candlestick.
Technically, one may use the level of 4170 (Nifty) and 14200 (Sensex) as the stop loss level.
Nifty faces resistance at 4250 and Sensex at 14400.
BSE Smallcap exhibited a narrow candlestick and BSE Midcap exhibited a bullish candlestick.
CNX IT has gained ground.
In the Punter's zone we have a BUY in IFCI , A.C.C. & Corp Bank.
In the Technical call section, we have a BUY in Zensar Tech , India Cement & Hcl - Tech..
Anand Rathi - Daily Technical - May 18 2007
Merrill Lynch - Hexaware Technologies, Pantaloon Retail, Emerging Markets India, State Bank of India, Uttar Pradesh Elections
Sharekhan Investor's Eye dated May 17, 2007
JK Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs200
Current market price: Rs162
Price target revised to Rs200
Result highlights
- The overall revenues of JK Cement grew by 49% year on year (yoy) to Rs366 crore, as the overall volumes grew by 11% yoy and the realisations improved by 34.9% yoy.
- The expenditure for the quarter increased by 27% yoy to Rs255 crore mainly on account of a 13% year-on-year (y-o-y) increase in the raw material cost and a 31% y-o-y rise in the freight cost.
- The company's high leverage to cement prices resulted in a 145% y-o-y surge in its operating profits to Rs111.7 crore which helped the operating profit margin (OPM) to expand by 1,200 basis points yoy to 30.5%.
- As the interest cost and depreciation provision remained flat, the profit after tax (PAT) ballooned by 274% yoy to Rs61.4 crore.
- We had mentioned in our previous reports, the company is incurring a capital expenditure (capex) of Rs290 crore for setting up three captive power plants (CPPs). But as there has been a delay in the commissioning of all the projects, we don't expect the company to avail of the complete savings in the power cost in FY2008 as expected earlier.
- Consequently, we are revising our earnings estimate downwards by 5.2% to Rs211 crore from Rs222 crore. We are also introducing our FY2009 earnings estimate at Rs180 crore.
- At the current market price of Rs162 per share, JK Cement is trading at 5.3x its FY2008 earnings and 6.2x its FY2009 earnings. We maintain our Buy recommendation on the stock with a reduced price target of Rs200 per share.
Bank of Baroda
Cluster: Apple Green
Recommendation: Buy
Price target: Rs310
Current market price: Rs285
Improved performance
Result highlights
- Bank of Baroda's (BoB) results are marginally below expectations. The profit after tax (PAT) grew by 17.6% year on year (yoy) but declined 25.4% quarter on quarter (qoq) to Rs245.7 crore compared with our estimate of Rs256.7 crore.
- The adjusted net interest income (NII) was up by 21.5% yoy and 9.6% qoq to Rs1,052.6 crore, better than our estimate of Rs1,002 crore. The net interest margin (NIM) has shown a sequential improvement of nine basis points, driven mainly by an improvement in the asset yields.
- The non-interest income grew by only 6.9% yoy to Rs397.8 crore; the growth was restricted mainly due to a 61.7% decline in the treasury income. However the core fee income grew by 36.4% yoy and 13.9% qoq.
- The operating profit was up 21% yoy but the core operating profit (operating profit excluding treasury and recovery) grew by 37.4% yoy.
- Although provisions and contingencies remained stable on a year-on-year (y-o-y) basis, yet the bank's tax liability for the current quarter went up significantly. This restricted the overall profit growth to only 17.6% on a y-o-y basis.
- The asset quality of the bank continues to be healthy with the gross non-performing assets (NPA) at Rs2,092 crore, down Rs300 crore sequentially. The net NPA in percentage terms stood at 0.6%, down from 0.67% in the previous quarter. The capital adequacy ratio (CAR) remains at a comfortable 11.8% with the Tier-I CAR at 8.74%.
- The bank has shown strong business growth with comfortable asset quality levels. However the profitability has not improved in proportion to the growth in the business, thereby leading to a lower return on equity. We feel the bank has successfully made structural changes required to show consistent business growth and the management has now focused on improving the profitability, which should lead to better numbers going forward. At the current market price of Rs285, the stock is quoting at 8x its FY2008E earnings and 1.1x FY2008E book value. We maintain our Buy recommendation on the stock with a price target of Rs310.
Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs3,300
Current market price: Rs2,500
Q4FY2007 results: First-cut analysis
Result highlights
- Bajaj Auto's Q4FY2007 results are slightly ahead of our expectations due to a higher than expected other income. The net sales grew by 6.8% to Rs2,313.6 crore in the fourth quarter.
- The operating profit of the company declined by 23.2% to Rs326.3 crore as the operating profit margin declined by 550 basis points to 14.1% year on year. However, the margin was stable on a sequential basis.
- The net profit before extraordinary items for the quarter declined 3.9% to Rs320.75 crore.
- The consolidated income from operations rose to Rs2,589.5 crore from Rs2,297.5 crore in the same quarter last year. The consolidated profit grew to Rs377.4 crore for the quarter as compared with Rs357.3 crore in the same quarter last year.
- The company has also announced its demerger, whereby two new companies will be listed. The existing Bajaj Auto will be renamed as Bajaj Investment and Holdings Ltd (BIHL) and will be the holding company for two other companies, namely Bajaj Auto (new-consisting of two- and three-wheeler manufacturing business) and Bajaj Finserv Ltd (BFL). Bajaj Finserv would comprise wind power, insurance and financing businesses.
- All shareholders in the existing Bajaj Auto on the record date would become shareholders in each of the new companies and be issued shares of the two new companies in the ratio of 1:1. After such issuance, for every share held in the existing Bajaj Auto each shareholder would:
- continue to hold one share of BHIL (existing BAL) of face value of Rs10 each fully paid up,
- be allotted one share of the new Bajaj Auto (existing BHIL) of face value of Rs10 each, fully paid up,
and
- be allotted one share of BFL of face value of Rs5 each, fully paid up. - We will come out with our detailed update on the company and revise our estimates after gaining more clarity on the de-merger. Watch this space.
Union Bank of India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs141
Current market price: Rs120
Strong operating performance
Result highlights
- The Q4FY2007 results of Union Bank of India (UBI) are below our expectations with the profit after tax (PAT) reporting a growth of 57.4% year on year (yoy) to Rs228.1 crore compared with our estimate of Rs254.7 crore. The profit is lower mainly due to higher than expected provisions made by the bank during the quarter.
- The adjusted net interest income (NII) was up 29.4% yoy and 9.4% quarter on quarter (qoq) at Rs750.4 crore. The net interest margin (NIM) of the bank improved on a sequential basis by 38 basis points to 3.37% for Q4FY2007. Controlled increase in costs coupled with improvement in yields helped the bank to improve its margins both yoy and qoq.
- The improvement in the NIM was a fall-out of the strategy adopted by the bank's management in the previous quarters. The bank shed low yielding advances and focused on quality advances to improve the yields on the asset side. On the liability side, the bank reduced the high-cost term deposits and improved its low-cost deposits, which helped in containing the costs.
- The operating profit was up 49.4% yoy and 30.7% qoq, while the core operating profit (ie the operating profit excluding the treasury gains and others) reported a growth of 56.4% yoy and 31.4% qoq. The growth was driven by a good core income growth and controlled operating expenses.
- Provisions and contingencies rose by 48.1% yoy and 148.3% qoq mainly due to higher non-performing asset (NPA) and standard asset provisions made during the quarter to improve the asset quality levels.
- As a result of higher provisioning the bank's NPA level improved to 0.96% from 1.12% in the previous quarter. The gross NPA level also declined to 2.94% from 3.24% on a sequential basis.
- The management's renewed focus on profitable businesses and asset quality is a welcome move for the bank's future performance, which is aptly reflected in its improved NIMs and low NPA levels. The bank is currently available at attractive valuations compared to its peers. At the current market price of Rs120, the stock is quoting at 5.6x its FY2008E earnings and 1x FY2008E book value. We maintain our Buy recommendation on the stock with a price target of Rs141.
Labels:
Bajaj Auto,
Bank of Baroda,
Investor's Eye,
JK Cement,
Sharekhan,
Union Bank
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