Sharekhan Investor's Eye dated May 29, 2007

ITC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs200
Current market price: Rs165

Strong growth across segments

Result highlights

In Q4FY2007 the net revenues of ITC grew by 24.4% year on year (yoy) as most of its businesses saw a strong growth: cigarettes (revenue up 14.3%), fast moving consumer goods (FMCG; revenue up 63%), hotels (revenue up 15.6%), paperboards (revenue up 12%) and agri-business (revenue up 16%).

The company's earnings before interest, tax, depreciation and amortisation (EBITDA) margin dropped by 220 basis points to 23.9% in Q4FY2007 primarily due to higher other expenditure.

The tax provisioning was on the higher side during the quarter which along with a decline in the operating profit margin (OPM) led to a lower than expected profit after tax (PAT). The Q4FY2007 net profit grew by 14.7% yoy to Rs650 crore.

We believe that the company's cigarette business would see a stable growth despite the slowdown in demand witnessed by the cigarette industry earlier in the year.

The non-cigarette FMCG business is the only business in ITC's portfolio that is not making a profit. However, its losses were stable despite the roll-out of the Bingo brand of products throughout the country which led to higher sales and promotion expenses during the quarter. We expect this business to break even by FY2009.

In the hotel segment, the profitability was lower primarily due to a one-time transition cost incurred on account of upgrading 7 Sheraton Hotel to Starwood Hotels and Resorts' The Luxury Collection brand.

At the current market price of Rs165, the stock is attractively quoting at 20.6x FY2008E earnings per share (EPS) and 13.1x FY2008E enterprise value (EV)/EBIDTA. We maintain our Buy recommendation on ITC with a price target of Rs200.

Saregama India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs375
Current market price: Rs295

Hitting a musical note

Result highlights

The business mix of Saregama India Ltd (SIL) is undergoing a change. Until now the company used to generate the bulk of its revenues by selling cassettes, CDs and DVDs (physical sales). However with the increasing preference of consumers for non-physical formats like radio and the continuing high rate of piracy, the physical sales business is witnessing a downtrend. At the same time, SIL has found a new high-margin revenue stream in radio stations and telecom companies that pay it royalty for use of its content (non-physical sales). This new revenue stream is going to be the driver of SIL's growth in future as is evident from its results for the fourth quarter and FY2007.

In the fourth quarter, the revenue from operations remained almost flat year on year (yoy) at Rs29.3 crore. As expected physical sales declined by 23.8% yoy to Rs19.1 crore while non-physical sales grew sharply by 117.4% yoy to Rs9.5 crore.

The share of the non-physical sales for the quarter increased to 33.3% from 14.9% in Q4FY2006; the same rose to 30.2% in FY2007 from 14.9% in FY2006. This is a big positive as the revenue mix of the company is shifting towards this high-margin business.

The operating profit margin (OPM) improved manifold yoy, from a meagre 1.7% in Q4FY2006 to 10.1%. The margin improvement was possible because the total cost declined during the quarter despite flat revenues. Also, the contribution of non-physical sales to total revenues was higher yoy. Consequently, the operating profit grew from Rs0.5 crore in Q4FY2006 to Rs3.0 crore.

With flat depreciation and interest charges, a slightly lower other income and a higher tax outgo, the company recorded a pre-exceptional net profit of Rs1.6 crore for Q4FY2007 against a loss of Rs0.4 crore in Q4FY2006.

Several growth triggers are in the offing which make the SIL stock an attractive investment. These triggers include (1) the expected roll-out of many new radio stations by H1FY2008; (2) the increase in the music content rate; (3) a rapid growth in the number of telecom subscribers and the inclination of telecom customers towards value-added services (ring tones, caller tunes etc); (4) the expected commissioning of its portal in Q1FY2008 (containing its large portfolio of musical tracks); and (5) the value creation on listing of Global Wholesale Club.

At the current market price of Rs295, the stock is quoting at 18.4x its FY2008E earnings per share (EPS) of Rs16 and 12.9x its FY2008E enterprise value (EV)/earnings before interest, deprecation, tax and amortisation (EBIDTA). We reiterate our Buy recommendation on the stock with a price target of Rs375.

Mahindra & Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs765

In investment mode

Result highlights

Mahindra and Mahindra's (M&M) stand-alone net sales grew by 20% year on year (yoy) to Rs2,747 crore in Q4FY2007. The operating profit margin (OPM) for the quarter declined by 48 basis points to 11.4% yoy. Higher other income and interest income resulted in a 59% growth in the pre-exceptional profit after tax (PAT) to Rs247.1 crore. An extraordinary income of Rs166 crore realised from the sale of shares of Mahindra and Mahindra Financial Services Ltd (MMFSL) last year depressed the reported PAT. The reported PAT declined by 21% to Rs233 crore from Rs255 crore in Q4FY2006.

On a stand-alone basis, the net sales for FY2007 grew by 22% to Rs10,050 crore. The operating profit rose by 30% to Rs1,263 crore. In the automotive business, the domestic volumes grew by 17.8% while the exports surged by 45%. The tractor segment however recorded a strong growth of 22%.

On a consolidated basis, the net sales for FY2007 grew by 43% to Rs17,617 crore. The OPM surged to 15.3% from 14.0% in FY2006. Consequently, the operating profit grew by 56% to Rs2,704 crore. The consolidated pre-exceptional PBT for the year stood at Rs2,320 crore, marking a growth of 50.7% yoy.

The company plans to increase its capital expenditure (capex) for the year to Rs2,000 crore, which is going to be utilised for capacity expansions, new product launches and research and development (R&D) activities. Apart from this, the company also needs to carry out the Punjab Tractor Ltd (PTL) and Swaraj Engine acquisitions, and invest in joint ventures. All these projects would be financed through a combination of debt and equity which would lead to nominal equity dilution.

The contribution of the non-automotive business has increased significantly in the recent years. For FY2007, the non-automotive business contributed 39% to the top line and 51% to the bottom line.

We expect FY2008 to be the year of consolidation for the company while all new product launches would take place in FY2009. At the current market price of Rs764, the stock discounts its consolidated FY2009 earnings by 8.7x. We maintain our Buy recommendation on the stock with a sum-of-the-parts (SOTP) price target of Rs1,050.

ITC, Thermax, Gokaldas, IGL, Patni

UBS on ITC

ITC's FY07 cigarette growth, at 7%, was in line with our estimate, and cigarette segmental revenue growth was 13.3%, aided by an estimated 2-2.5% of weighted price increase and 3-3.5% mix improvements. Gross revenue grew 20.2%, and net revenue grew 26.3%. FY07 operating profits rose 19% YoY. PBT was up 20% but a higher tax rate caused PAT to grow by a little less (18.4%).

Our price target of Rs160 is benchmarked against 18x FY08E earnings, which is the mid-point of ITC's long-term trading band. We maintain our Neutral 2 rating.

Prabhudas Lilladher on Gokaldas Exports

Based on the revised earnings estimates of Rs 24.3 and Rs 31.0, the stock is trading at PER of 9.1x and 7.1x FY08E and FY09E respectively. We maintain our BUY rating on the stock given the attractive valuations and set a 12-month price target of Rs 291 (12.0x FY08E EPS) giving an upward return of 32%.

Man Financial on IGL

Indraprastha Gas Ltd.’s (IGL) Q4FY07 results were much ahead of our expectations with positive surprise in sales volume
• Net sales were up by 21.1% at Rs 1,643mn while net profit was up by 35.6% YoY at Rs 401mn.
• Increase in CNG and PNG volumes by 11.6% and 44.4%, respectively, boosted revenue and net profit growth
• We maintain our Buy rating on the stock and a target price of 135

Citigroup on Patni Computers

Significant outperformance — After outperforming the BSE IT index by 50% in the past 2 months, we downgrade Patni to Sell/Medium Risk. High valuations, coupled with execution risks, tilt the risk-reward profile to the downside.

Why we had upgraded the stock? — We had upgraded Patni based on thefollowing: (a) cheap valuations; and (b) it being an M&A candidate with its cheap valuations and decent size.

Target price at Rs565 — The apparent M&A premium in the current valuations,putting the stock on a par with Satyam, is difficult to justify, in our view. An upside risk remains potential M&A announcements. Our new target price is Rs565, based on a 15% discount to Satyam.

Citigroup on Thermax

Strong recurring PAT growth — Thermax reported Q407 consolidated recurring PAT of Rs668mn, up 74% YoY and 35% ahead of our expectations. Higherthan- expected revenues, EBITDA margins, other income and lower-thanexpected taxes helped boost recurring PAT growth.

Order backlog up 66% YoY, guidance positive — Thermax FY07 end order backlog was Rs36.72bn, up 66% YoY. Management has guided for more than 40% revenue growth in FY08. We await further details in the conference call to be held on May 30.

Maintain Buy (1L) — Thermax remains one of our top picks in the Electrical E quipment and Engineering space. TARGET of Rs 562

Kotak Mahindra Bank, BPCL, Construction, Consumer, IOC, IVRCL

Morgan Stanley in their report on Kotak Mahindra Bank

Kotak’s stock is up 40% YTD, buoyed by strong capital markets. Its earnings continue to be largely dependent on capital markets: 78% of F2007 PBT was contributed by businesses linked to capital markets, such as securities, distribution income, investments, etc. With competition intensifying in these segments due to entry of strong players, we expect Kotak’s capital markets-related earnings to come under
pressure. This, coupled with steep valuations, will keep further stock performance in check, in our view.

Increased competition likely to depress brokerage earnings. Kotak’s average daily volume rose 52% in F2007, but its PBT increased by only 12%, implying downward pressure on brokerage rates – which we expect to accelerate with entry of Reliance Money (brokerage rates offered are significantly below the current market rates) in retail broking and distribution business.

Full Valuations – Our New Target Price of Rs450 implies 22% downside from current levels. Kotak is trading at 32x our F2008E earnings – highest in our coverage universe in India. Given its dependence on capital markets, we view these valuations as full. We
maintain our Underweight rating but raise our target price to Rs450 based on sum of parts.


HSBC in their report on BPCL say

BPCL’s FY07 profits almost quadrupled on higher oil bonds and increased subsidy sharing by upstream companies

Subsidy sharing based on oil bonds looks set to continue in high crude price scenario – positive for R&M companies

We revise our target price marginally upwards to INR445 to reflect change in EPS, BVPS and value of investments


B&K on Construction

In line with the NHDP, the government has embarked ambitious programme for the state highways and has urged state government to take a cue from the NHAI in expanding the road network. The government has also advised private sector to prepare for a bigger role in the development of infrastructure sector. The government is ready to provide financial assistance and do handholding for the state government in setting technical and procedure standards.

Although, few state governments have taken initiatives for highway construction. Ability and willingness of most of the state government and PWD departments to implement the projects of such magnitude is yet to be seen. The states needs to raise fair amount of resources on their own by taking the partnership route and even collecting levies from the public to meet the additional burden for highway construction.

Though, order book is not a concern for the construction sector, even if state governmentsare able to convert small portion of proposed investment into actual projects, it would be big opportunity for the construction sector. We remain upbeat on the construction sector.

JP Morgan on Consumer Shelf


Key highlights of our fourth edition of the consumer fortnightly:

Domestic : 1) HLL extends its premium soap brand 'Dove' into hair care segment with the launch of shampoos, conditioners and treatments under this brand to counter rising competition from L'Oreal in premium segment, 2) Godrej Consumer is planning to enter the shampoo segment with the launch of a mass market brand in near future. This is likely to intensify competition in this space which is currently dominated by HLL and Procter & Gamble, and 3) Diageo-Radico JV launches Masterstroke whisky targeting mid-premium segment in Maharashtra.
· Key commodity trends: Palm oil prices continued their uptrend rising almost 5% over the fortnight. Expected tightness in soyabean (closest substitute) supply and increased demand for bio-diesel is leading to new highs for palm oil (now at over M$2500/tonne). On the other hand prices for wheat softened by 2% over the past fortnight on the back of steady crop arrivals.
· International: 1) Luxury brand Christian Dior Couture is planning to set up its subsidiary in India and expand its operations, reflecting confidence of foreign luxury brands in India's fast growing luxury retailing market (35-40% growth p.a.), 2) UK based Cobra beer has announced plans to set up two Greenfield breweries in India.


Merrill Lynch on Indian Oil Corporation

IOC has attained a recurring consolidated EPS of Rs50.2/share in FY07, which implies 31% YoY earnings growth. The rise in earnings has been driven by generous issue of oil bonds in FY07 by the government. IOC received Rs139bn of oil bonds in FY07, which is almost twice the Rs70bn of oil bonds received in FY06. FY08E earnings outlook is uncertain. It is entirely dependent on the
government decision on oil bonds. We remain Neutral on IOC.

We are keeping our FY08E earning forecast unchanged at Rs49/share, which implies 2.5% YoY earnings decline. There could be upside risk to our earnings forecast if the government is generous in the issue of oil bonds to R&M companies even in FY08E. Clarity on earnings outlook for FY08E is possible in the next two months. The government may announce a subsidy sharing plan for FY08E as it did in June 2006 for FY07. The fact that it stuck to its announced subsidy sharing plan in FY07 would lend credibility to any such plan for FY08E

Merrill Lynch on IVRCL

IVRC, our top pick in the mid-cap E&C space, reported solid 4QFY07 on all fronts. Sales were up Rs10bn +67%YoY; EBITDA margin expanded by 140bpsYoY & PAT of Rs732mn, +67%YoY. PAT was ahead of MLe due to better margins & non-prov of full tax (25% v/s MLe 32%) pending appeal in tribunal. Order backlog remains robust at ~3x FY07 sales. Value creation through the listing of IVR Prime, and 42% earnings CAGR in core business are potential triggers ahead. Buy, PO Rs450.

Our PO of Rs450 is based on an SOTP approach. We have valued IVRCL's core construction business at PER 14x FY09E - a 30% discount to E&C majors despite its faster growth. Risk: Unrelated acquisitions (oil & gas), project execution.

Ernst & Young - Infrastructure 2007 - Global Perspective

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BCA Research - Emerging Markets Strategy

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Carlyle Group - Have Emerging Markets Finally Left Behind their Second Class Citizenship for PE Investors

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Market Close: LNT, BHEL..Fuel the rally But..

Subdued start in the Indian indices with little support from the Asian Counters. Markets traded ranged after open in green with profit booking at higher levels. Preceding session continued to be choppy ahead of FNO expiry. Indices continued to gain ground with momentom given by the small caps and mid caps. INdex majors like Cipla, LNT BHEL rallied at the final hours of trading RIL and SBI too helped to push the indices to close high. Selective Buying was witnessed in Cement, Power, Banking and Pharma companies. Volatility in Rupee kept Techies to trade ranged. Adani Exports slipped by 10% after the SEBI banned the promoters for 2 Yrs for their involvement in Ketan Parekh securities scam. Binani cement which got listed yesterday continued to trade at discount and ended lower than its issue price. Cooling Gold prices provided soothing effect in Titan which rallied. Global market trading ranged with most of the European markets trading in red.

Sensex ended up by 110 points at 14508.21. It was helped up by gains in Cipla (218.55,+5 percent), BHEL (2856.2,+5 percent), L & T (1856.5,+4 percent), Ranbaxy (390.45,+2 percent) and RCVL (521.2,+2 percent). Restricting the gains were HDFC (1813.45,-2 percent), Guj Ambuja (114.8,-1 percent), NTPC (160.75,-1 percent), Infosys (1951.6,-1 percent) and ITC (165,-1 percent).

Larsen & Toubro (L&T) ended 3% with its good result news. The net profit for the quarter grew by 50%, while the top line surged by 31%. The Company posted a net profit of Rs.701 cr for the quarter as compared to Rs.467 cr in the same quarter previous year. Total Income increased from Rs.4782 cr in the previous quarter to Rs. 6452 cr in this quarter. The top line on standalone basis grew by 38%.The Company posted a net profit of Rs.1403 cr for the year as compared to Rs.1012 cr in the previous year on standalone basis. Total Income increased from Rs.15199 cr for the year ended March 31, 2006 to Rs 18041 cr for the year ended March 31, 2007, up by 18%. On Consolidated basis Net profits jumped by 70% YoY, from Rs.2240 cr for the year as compared to Rs.1317 cr previous year. The Total Income increased from Rs.17019 cr for the year to Rs. 21342 cr for the year ended March 31, 2007. Order inflow for the year stood at Rs.25,429 cr while the total order book of the company at present is at Rs.35,300 cr. Engineering and Construction segment reported a revenue of Rs.13,400 cr contributing 75% of the top line. LnT with its huge order booked and expertise in its core segments looks good. the stock is trading at new levels Keep a Stoploss of 1725 for Long term if take for delivery from current levels.

Mahindra & Mahindra (M&M) ended 4% higher after its results were announced yesterday. The top line for the quarter improved by 21% at Rs.2,747 cr from Rs.2,288 cr in the same quarter previous year. The bottom line for the quarter stood at Rs.236 cr against Rs.322 cr down by 26% on yearly comparison. The EBIDTA margins for the quarter stood at 8.48%. The sales numbers for the year stood at Rs.10,245 cr against Rs.8,326 cr in the same quarter previous year. The top line for the year improved by 23% YoY. The net profit for the year stood at Rs.1,068 against Rs.857 cr witnessing a growth of 24%. The growth of the company on volume terms improved by 15% in the Automobile segment and 21% in its tractor business. The decline in the bottom line was due to increased input cost which could not be passed on the customer. Company had also launched its new model "Logan" which is being manufactured in partnership with Renault Ltd. The increased advertisement expenses also had an impact in deflating the bottom line. The increased interest rates also had an impact on the company's performance as it acted in halting the sales of its cars. The impact of higher interest rates has had its impact on all the other players in industry.

Greenply has launched 13 laminates categories under their Greenlam range targeting the growing interior infrastructure space. Kenyan raft wood, horizontal hush, horizontal lines, American wall paper, Caravan leather, Quarter cut oak finish, Alluring alligator finish, Techno steel finish, Wacky wicker finish, Fabric (Thai Silk), 3D range, Chic and Teen talk are the new categories that define the shade and texture of the product. Exotic names like Ebony, Samara oak, Candy orange, Divine yellow, Thai fauna silk, Olive chic, Antique oak, Lorriane walnut and many others are available in the price range of Rs 600 to Rs 2,000 a sheet. The products would be marketed through its network of 27 branches and more than 3,700 dealers and stockists across the country. Company is well placed in the industry where 90% of the market is with the unorganized players. Brand name of the company is its key factor for success in the business. Implementation of VAT has been a big positive as it hits the unorganised sector and makes it more competitive. One can accumulate the stock at this level for long term investments. The story is damn good and we are bullish here. We have a note here to and Wowcall ranning here too.

Technically Speaking: Sensex has managd to trade at 14500 levels. As it made an intra day high 14,530 and low of 14,372 levels. The breadth favored Advances as there were 1,352 Advances against 1,240 Declines. The turnover for the day stood at Rs.4,573 cr. Sensex support lies at 14,420-14,250 levels while Resistance lies at 14,530-14,560 levels if managed to open up with a gap above 14530 levels and touches 14560 and sustaince this levels then we could see new Highs..

Market regains as capital goods surge

Despite getting mixed signals from Asian markets the Sensex resumed on a positive note at 14419, up 21 points. But it soon lost momentum as traders took to profit booking and touched the day's low of 14372. The market gained momentum in the mid-morning trades after a hectic upsurge in capital goods, consumer durables and oil stocks that lifted the Sensex to positive territory. The buying remained stock-specific thereafter as investors remained on the sidelines, expecting a further fall. As trading progressed, the mood turned extremely buoyant in the afternoon on hectic buying in select large cap stocks and the Sensex touched the intra-day high of 14530. Buying was also seen in a number of mid-cap and small cap stocks. Buoyancy among heavyweights towards the close ensured that the Sensex moved past the 14500 mark and ended the session with a surge of 110 points at 14508. The Nifty rose 36 points to close at 4293.

The breadth of the market was positive. Out of a total of 2,670 stocks traded on the BSE today, 1,346 stocks posted gains, 1,217 stocks were down in the red and 107 stocks remained unchanged. Among the sectoral indices, the BSE CG index jumped 2.81% at 10,896 followed by the BSE HC index (up 1.70% at 3858), the BSE CD index (up 1.59% at 3943) and the BSE Oil & Gas index (up 1.19% at 7793).

Barring a few select counters, most of the heavyweights ended at higher levels. Among the blue chips, Cipla shot up by 4.95% at Rs219, BHEL soared 4.86% at Rs2,856, L&T surged 4% at Rs1,857, Ranbaxy advanced by 2.17% at Rs390, Reliance communication added 2.05% at Rs521, Reliance Industries moved up 1.85% at Rs1,755, HDFC Bank scaled up 1.78% at Rs1,145 and SBI was up 1.22% at Rs1,322. Among the laggards, HDFC dropped 1.72% at Rs1,813 and Gujarat Ambuja Cement shed 1.03% at Rs115 while NTPC, Infosys, ITC, Maruti Udyog, Bajaj Auto and ICICI Bank closed marginally lower.

Capital goods stocks were in the limelight and closed with strong gains. Reliance Industrial Infrastructure vaulted 5% at Rs499, Crompton Greaves soared 4.54% at Rs251, Carborundum Universal surged 4.14% at Rs173 and Lakshmi Machine Works advanced by 3.93% at Rs2,755.

Over 1.83 crore Reliance Natural Resources shares changed hands on the BSE followed by IFCI (96.70 lakh shares), NOCIL (87.59 lakh shares), Orbit Corporation (84.79 lakh shares) and Sunflag Iron & Steel (74.32 lakh shares).

Orbit Corporation clocked a turnover of Rs208 crore on the BSE followed by Unitech (Rs150 crore), Reliance Industries (Rs149 crore), Advanta (Rs129 crore) and India Infoline (Rs122 crore).

Sensex settles above 14500 after 110-point surge

The benchmark index, BSE Sensex, which stayed lacklusture for most part of the day, surged to cross the 14,500 level, as sudden buying momentum emerged in late-afternoon trade, led by index heavyweight Reliance Industries (RIL). The rise could also be attributed to short covering ahead of expiry of May 2007 derivatives contracts on Thursday, 31 May 2007. All the BSE's sectoral indices settled with gains, except the BSE IT index and FMCG index.

Sensex advanced 110.32 points or 0.77% at 14,508.21. This is Sensex's highest closing in over 3-1/2 months since 9 February 2007. Sensex today opened higher at 14,457.57, and touched an intra-day low of 14,372.07. It advanced to an intra-day high of 14,530.15, by 14:48 IST.

The S&P CNX Nifty, which struck a record high of 4,298.85 points in late trade, settled 36.70 points or 0.86% higher at 4,293.25, an all time closing high.

Volatility was the hallmark of today’s trading session, with the Sensex moving in and out of positive zone. Going forward, volatility is expected to remain high this week in the run-up to expiry of May 2007 derivatives contracts on Thursday, 31 May 2007.

The market breadth, which indicates overall health of the market, stayed positive on BSE, with 1352 shares advancing as compared to 1240 that declined. 96 remained unchanged. It was much stronger by 10:30 IST, with 949 shares advancing and 500 declining.

The BSE Mid-Cap index settled at 6,254.51, rising 48 points or 0.8%, while the BSE Small-Cap index gained 54 points or 0.7% to 7,388.33.

The total turnover on BSE amounted to Rs 4576.77 crore, while the NSE F&O turnover was at Rs 43290.08 crore.

Among the Sensex pack, 21 shares advanced while the rest declined.

Pharma major Cipla surged 5.64% to Rs 220, on high volumes of 11.62 lakh shares. It was the top gainer from the Sensex pack. The stock witnessed strong buying momentum today, after it was hammered in the past few weeks, for posting poor Q4 March 2007 results.

State run engineering major Bhel advanced 4.75% to Rs 2853, on 2.91 lakh shares. It had galloped to an all time high of Rs 2889.90 in intra-day trade. It had reported 32.54% rise in net profit in Q4 March 2007 to Rs 1150.37 crore from Rs 867.95 crore in Q4 March 2006, after trading hours on 25 May 2007. Sales rose to Rs 6919.68 crore, from Rs 5515.69 crore in March 2006. The net profit rose to Rs 2414.70 crore in the year ended FY 2007, from Rs 1679.16 crore in FY 2006. Sales rose to Rs 17237.53 crore in FY 2007, compared with Rs 13228.26 crore in FY 2006. Earlier, Bhel had set 1 June 2007 as record date for a liberal 1:1 bonus issue.

Engineering and construction major Larsen & Toubro advanced 3.30% to Rs 1844, after it reported 50% rise in net profit in Q4 March 2007 to Rs 701 crore from Rs 467 crore in Q4 March 2006. Sales rose 35.01% to Rs 6248.24 crore in the Q4 March 2007 as against Rs 4627.87 crore in previous Q4 March 2006.

The net profit rose 38.62% to Rs 1,403.02 crore in the year ended March 2007 as against Rs 1,012.14 crore in FY 2006. Sales rose 19.31% to Rs 17,578.84 crore (Rs 14,733.85 crore).

Led by Bhel and L&T, the BSE Capital Goods Index surged 2.8% to 10,896.14, and was the top performer among the sectoral indices on BSE.

Pharma major Ranbaxy Laboratories advanced 2.10% to Rs 390.40. Ranbaxy Laboratories Inc., the wholly owned subsidiary of Ranbaxy Laboratories, acquired the US rights to a group of 13 dermatology brands from Bristol-Myers Squibb Co.(BMS) for $26 million on Monday, 28 May 2007. Ranbaxy expects the 13 products, with a US presence of over 10 years, to contribute significantly to its incremental sales volume

Index heavyweight Reliance Industries (RIL) rose 1.67% to Rs 1752 on 8.53 lakh shares. It saw high volatility, as it moved in a range of Rs 1711.95 to Rs 1765.80. As per reports, the Directorate of Revenue Intelligence (DRI) officials on Monday visited Mukesh Ambani promoted Special Economic Zone (SEZ) at Jamnagar to ascertain the area used for setting up the export zone.

Cement major Gujarat Ambuja Cements was the top loser, down 1.47% to Rs 114.30 on 7.43 lakh shares.

HDFC (down 0.98% to Rs 1827), Bajaj Auto (down 0.89% to Rs 2183), NTPC (down 0.85% to Rs 160.90), and ITC (down 0.45% to Rs 165.35) were the other losers.

Reliance Energy (REL) rose 0.54% to Rs 553.50 on reports that t is scouting for coal mines in Indonesia and Australia to feed its proposed projects in Uttar Pradesh and Maharashtra.

IT pivotals showed mixed trends, after the rupee inched towards a nine-year high on Tuesday, 29 May 2007. IT stocks have not participated in the recent rally, due to concerns of stronger rupee.

The BSE IT index was down 0.14% to 4,908.15. Satyam Computers (up 0.53% to Rs 471.50), and TCS (up 0.46% to Rs 1230.35) advanced whereas Infosys (down 0.95% to Rs 1945.90) and Wipro (down 0.37% to Rs 537.20) declined. A rise in the rupee directly impacts revenue and profit of IT firms, which derive a lion’s share of revenue from exports to the US.

Other IT stocks, Tech Mahindra (down 0.92% to Rs 1490.15), and Hexaware Technologies (down 1.61% to Rs 159), also declined.

Recently listed real estate company Orbit Corporation surged 15.13% to Rs 252.60 on huge volumes of 84.38 lakh shares. It was the top traded counter on BSE with total turnover of Rs 207.53 crore. Unitech (Rs 150 crore), Reliance Industries (Rs 149 crore), Advanta (Rs 129 crore) and India Infoline (Rs 122 crore), followed Orbit Corporation in that order in terms of turnover on BSE.

Reliance Natural Resources (RNRL) topped the volumes chart on BSE with 1.83 crore shares followed by IFCI (96.70 lakh shares), NOCIL (87.60 lakh shares), Orbit Corp (84.38 lakh shares) and Sunflag Iron & Steel (74.30 lakh shares).

Tyre stocks rallied on renewed buying interest, on expectations of significant expansion in the profit margins during the current financial year. CEAT (up 2.86% to Rs 176.15), MRF (up 3.07% to Rs 4072), Goodyear India (up 5% to Rs 196.55) and Krypton Industries (up 10% to Rs 58.40) advanced.

The tyre industry has been suffering from high input costs and thin operating margins for the past few years. In the past two quarters, the industry has been able to pass on the rise in input cost to consumers through successive price hikes. This has significantly pushed up the industry’s profit margins in the last quarter. Analysts expect top tyre makers to close the financial year with a net profit margin of around 4% of net sales, against an average net profit margin of 2.5% during last year.

Ashapura Minechem jumped 10% to Rs 292.65 after Reliance Growth Fund purchased 8.94 lakh shares (2.3% stake) at Rs 263.09 per share in a block deal on 28 May 2007. Deutsche Securities Mauritius was the seller to the tune of 5 lakh shares at Rs 265 per share.

Bajaj Electricals jumped 10.39% to Rs 588 after its board recommended a liberal 1:1 bonus issue. Prior to this, the company had issued bonus in ratio of 1:2 (1 bonus share for every 2 held) in 1997. The latest equity share capital of Bajaj Electricals is Rs 8.64 crore. The latest book value per share is Rs 90.59.

Strides Arcolab soared 3.33% to Rs 329 after the company said during trading hours today, 29 May 2007, it would acquire fermentation unit of Italy's Diaspa S.p.a near Milan. The plant has approvals of US Food and Drug Administration and the European Union.

Dishman Pharmaceuticals & Chemicals rose 1.98% to Rs 247.25 after it announced 101.7% surge in net profit in Q4 March 2007 to Rs 14.20 crore as compared to Rs 7.04 crore in Q4 March 2006. Sales rose 23% to Rs 78.89 crore (Rs 64.16 crore). The net profit rose 33.1% to Rs 60.87 crore in the year ended March 2007 (FY 2007) compared to Rs 45.72 crore in the year ended March 2006. Sales rose 23% to Rs 279.95 crore (Rs 216.06 crore). The results were announed after trading hours on Monday, 28 May 2007.

Mahindra & Mahindra (M&M) advanced 3.88% to Rs 769 after it reported a 17.9% increase in consolidated net profit to Rs 1497.15 crore in FY 2007 compared with Rs 1269.72 crore in FY 2006. The company's total income was up 41.6% at Rs 17,912.28 crore in FY 2007 (Rs 12,648.41 crore). The results hit market during trading hours on 28 May 2007.

M&M also said that future outlook for the company remains positive. However, high interest rates, moderation in credit growth and uncertainties on the inflation front were a few worrisome factors.

Indraprastha Gas spurted 6% at Rs 120, after it reported 35.61% rise in net profit to Rs 40.06 crore in Q4 FY 2007 as against Rs 29.54 crore in Q4 FY 2006. Sales increased 21.08% to Rs 164.30 crore (Rs 135.70 crore). Profits jumped 29.98% to Rs 137.96 crore in FY 2007 as against Rs 106.14 crore in FY 2006. Sales scaled up 17.90% to Rs 614.10 crore (Rs 520.88 crore). The results were announced after trading hours on Monday (28 May 2007).

Adani Enterprises plunged 10% to Rs 212.25 after the market regulator on Monday, 28 May 2007, banned promoters of Adani group from dealing in stock markets for two years for their involvement in the Ketan Parekh securities scam. The regulator said that the promoters of Adani Enterprises, formerly Adani Exports, Adani Agro, Adani Impex, Crown International, Shahi Property Developers, Adani Properties and Advance Intercontinental India have been restrained from accessing the securities market either directly or indirectly for two years.

Easun Reyrolle rose 2% to Rs 885 after the company announced after trading hours on Monday, 28 May 2007 that its board will consider stock split on Wednesday, 30 May 2007, along with FY 2007 (year ended 31 March 2007) results.

Product design and system integrator Tata Elxsi surged 10.15% to Rs 360.30. The company was recently in news for its expansion plan in India by adding two more locations.

Power Finance Corporation jumped 9.06% to Rs 163.65 on value buying. It also struck an all time high of Rs 165.50 today.

Gayatri Projects rose 1.13% to Rs 272 after the firm said it had secured five orders aggregating Rs 455 crore.

The Nikkei rose 0.48% on Tuesday, 29 May 2007, as Sanyo Electric Co. surged after posting strong earnings. The Nikkei added 84.97 points to 17,672.56.

FIIs were net buyers to the tune of Rs 324 crore on Monday, 28 May 2007.

Finance Minister P Chidambaram said on Tuesday, 29 May 2007, that he aims to bring down inflation to 4%-4.5%, urging states to maintain adequate supplies of food for ensuring price stability.

The Reserve Bank of India (RBI) on Monday, 28 May 2007, asked Securitisation Companies/Reconstruction Companies (SC/RC) to declare their net asset values (NAVs) to enable investors know the value of their investment in the securities issued by such companies.

RBI has asked the SC/RC companies to use the ratings obtained from SEBI-registered rating agencies like Crisil, Icra etc for the purpose of arriving at NAV. The NAV should be calculated according to the past experience of the company in recoveries.

Commerce Minister Kamal Nath expects foreign direct investment (FDI) equity flows of $30 billion in the fiscal year ending in March 2008, almost doubling from the previous year. FDI equity flows increased almost three times to $15.7 billion in 2006/07, from $5.5 billion in 2005/06.

Crude oil prices bounced back to $70 per barrel in London on Tuesday due to concerns over Nigerian crude production at the beginning of the summer driving season in US. London Brent crude was up 29 cents at $70 per barrel after hitting $70.05 earlier. It had slipped 98 cents on Monday, 28 May 2007, after Nigerian oil unions called off the two-day strike that had threatened to halt oil supplies.

Lacklustre Trading

The market opened on a flat note and witnessed lacklustretrading in the opening session. Last week¿s tug of warbetween bulls and bears seems to be continuing this weekas well, which is dragging the markets into a subduedmode with lack of a clear direction in the short term. AsKST in the hourly chart shows, the market is consolidatingand we should wait for a clear indication on either side.We expect the market to consolidate throughout thetrading session and experience some of buying towardsend of the day. The market breadth is indicating a positivebias with 2,115 advances and 905 declines. The index islikely to have strong support around 14327 level, which is 20-hour simple moving average, and on breaching thislevel it is likely to take support around 14250, which isthe lower end of the triangle in the hour chart shown below.The index is likely to have resistance around 14500 level,which is our short-term resistance, and on breaching thislevel it is likely to touch 14600, which is our short-termtarget. Our short-term as well as medium-term bias remainspositive with targets of 14600 and 14700 respectively.We have a positive bias on Titan Industries as it has strongsupport around Rs1,050 level, which is around 10-day simplemoving average, and resistance around Rs1,090-1,110 levels.We have a negative bias on IDBI, which is having resistancearound Rs97 level and support around Rs94.10-93.50 levels.We have a positive bias on GE Shipping with support aroundRs261 level and resistance around Rs266-270 levels.

Citigroup - ABB

Citigroup in their report on ABB are positive on its prospects

Raise target price to Rs5,516 — We increase our target price to Rs5,516 (from Rs4,400 earlier) on the back of an earnings revision and rolling forward our P/E multiple (30x) to FY09E. We now expect earnings CAGR of 42% over the CY06- 09E with RoEs at the ~35% levels driven by sales CAGR of 40%.

At a ~ 50% premium to BHEL — Our target price of Rs5,516 is based on a P/E of 30x FY09E (~50% premium to BHEL, in line with premium over the last 3 yrs). The premium is justified by: A) EPS CAGR of 42%; B) RoEs of ~ 35%; C)Access to parent technology; and D) ABB India’s importance in the ABB Group.

Earnings revised upwards — Raising our EPS estimates by 2-5% over CY07ECY09E on the back of: 1) Better-than-expected sales, profit & order inflow in 1QCY07; 2) In the next 10 years, India is targetting 151GW of capacity up 86% vis-à-vis the last 10 years; and 3) India is also targetting a transmission capex of Rs550bn in the next five years up 157% vis-à-vis the previous 5 years.

Trading Calls

Buy Gokaldas Exports around Rs 221.15. Stop Loss at Rs 218 (Intra-day Call)

Buy L&T at Rs 1805. Stop Loss at Rs 1775 (Intra-day Call)

Buy Hindustan Oil Exp and remain invested at Rs 103-96. Stop Loss at Rs 84. Target of Rs 129 and Rs 168 (Delivery-based call)

Buy GMR Infrastructure at Rs 514. Stop Loss at Rs 500 (Intra-day Call)

Nestle, Indraprastha Gas, IOC, CBoP, Gokaldas

ENAM recommends OUTPERFORMER on Nestle

We believe Nestlé India has a significant intrinsic value (~Rs 2056 per share) and value unlocking will unfold in stages on successful introduction of brands / products from its parent¿s global portfolio and an improvement in its existing portfolio¿s reach and affordability in the rural markets. At CMP (Rs.1143) Nestlé India is currently trading at P/E of 24x CY08E and EV/EBITDA of 14x CY08E, close to its long-term one-year forward valuations. Given the growth momentum and EBITDA margin (pre provisions) expansion in Q1CY07, we believe the company has the potential to positively surprise consensus growth expectations in the interim term. We maintain sector Outperformer rating on the stock.


ISEC recommends BUY on Indraprastha Gas

IGL reported impressive 35% YoY growth in Q4FY07 recurring net income to Rs401mn, the best ever quarterly performance. Recurring net income was 11% higher than our estimates on the back of higherthan- expected volumes and margins. The company's growth prospects are bright based on accelerated conversion of private vehicles to CNG and incremental demand of 1,000 CNG buses due to Commonwealth Games in '10. Valuations are attractive as the stock has fallen 14.1% YoY and has underperformed the BSE-200 45% in the past one year. Maintain BUY.

ISEC on Indian Oil Corporation

Indian Oil (IOC) reported recurring net income of Rs29bn in Q4FY07 as against Rs8bn in Q4FY06. The impressive 262.5% YoY growth was post pro-rata adjustment of oil bonds worth Rs65.7bn issued to IOC in Q4FY06 for full FY06. However, reported net income at Rs16.1bn was down 60.1% YoY. Overall, fall in crude prices reduced gross underrecoveries, which, along with the surprise increase in subsidy relief through upstream sharing and oil boosted IOC¿s performance. Further, the healthy outlook on refining margins and expected reforms on cooking fuel subsidies is a key positive for IOC. Added drivers include the impact of the company¿s petrochemicals business (paraxylene, PTA) and the upside from oil & gas finds from IOC¿s E&P assets. The stock rose 13.2% QoQ, outperforming the Sensex 7.7% QoQ based on the benign subsidy sharing scheme implemented by the Government. The stock is currently trading at FY07 P/E of 8.3x.

ENAM on Centurion Bank of Punjab

Our FY08 numbers take into account the LKB merger, Bank of Muscat preferential allotment and a part of warrants conversion by Sabre Capital. This will keep the reported ROE low, but the ROA will likely be maintained at 0.8%. Given that valuations at 3.6x FY09E are rich, the stock may underperform in the short term. However, along with the strong growth prospects and high execution capability, the bank is also a strong takeover candidate post 2009. Hence, valuations are
likely to remain high in the coming years. Maintaining our sector Outperformer rating on the stock.

ENAM on Indraprastha Gas

In our view, market is largely ignoring IGL¿s business franchise, itsability to manage the costs and seems to be concerned on the impactregulations. However, at current valuations (9.8x FY08E EPS), theconcerns seem to be overdone, making it one of the mostinexpensive stock in oil & gas universe. We maintain our sectorOutperformer rating on the stock.

Merrill Lynch on Gokaldas Exports

Valuations at 10x FY08E PER, look undemanding, being at the lowest end of thehistoric PE band (12-15x). However, with expectations of an earnings slowdown inFY08, these multiples may just about be right, for now. We note that impendinglabor reforms and the big domestic opportunity remain as key long term growthdrivers for Gokaldas. However, in the absence of any near term triggers and theoverhanging concern on Re appreciation, we maintain our Neutral rating

Kotak - Nagarjuna Constructions, Emkay - NIIT Technologies

Kotak recommends Nagarjuna Constructions, in their report, they say

At the current market price of Rs.175, the stock is trading at 18.5x and 14.5x on P/E multiples and 9.7x and 7.8x on EV/EBITDA multiples on FY08 and FY09 estimates. Adjusted with BOT and land development valuations, it is trading at 15.5x and 12x on P/E multiples on FY08 and FY09 estimates. We have valued the company on the sum-of-the-parts methodology, incorporating the valuation of core business, BOT projects and land development valuation. We recommend BUY with a price target of Rs.210.

Emkay recommends NIIT Technologies

The fiscal gone by, can be termed as a year of strong accomplishments for NIIT
Technologies, with four quarters of double digits sequential growth in net profit,
successful integration of Room Solutions, which further strengthened company’s
BFSI Vertical, especially insurance coupled with JV with global giant Adecco, which
gave NIIT Technologies access to top global Fortune 100 companies.
Going forward, we expect NIIT Technologies to continue its strong business
momentum, with strong revenues visibility from key business verticals and
geographies. We have marginally revised our estimates for FY08E and introduce our new estimates for FY09E. We expect NIIT Technologies revenue and net profit to grow at a CAGR of 32% and 26% respectively over FY07A-09E.

Rollover Analysis

1. Build-up in futures open interest at the market wide level continued to be strong in the month of May resulting in it nearing its all time high levels.

2. The aggregate futures OI, at 1,756,534 contracts, is up by 1.8% from D-3 of previous expiry. However in value terms, open interest has risen by over 9% over the last month and 22% over the last 2 months.

3. Momentum in rollovers picked up very strongly on the very first day of the expiry week with 35% rollovers against 31% on the same day in previous expiry.

4. In fact D-3 rollovers of 35% are at the highest level seen since November 2006 expiry.

5. As there is still huge open interest that needs to be rolled to the June series, we expect the markets to remain volatile till the end of this expiry.

6. Rollovers in Nifty have also picked up quite sharply with 31% positions getting rolled compared to 26% and 25% in March and April expiry respectively.

7. However short covering throughout the month resulted in an 11% fall in Nifty OI from D-3 of previous expiry.

8. Nifty rollover cost continued to hover in the range of -5 bps to -15 bps over the last 5 days simultaneously with rollover of 116,065 contracts.

9. In contrary to the market sentiments, IT stocks have shown very strong rolls along with a good jump in rollover cost. Overall 44% of total positions have got rolled to the June series simultaneously with the average rollover cost rising to 63 bps from 32 bps yesterday. Satyam(71%), Infosys (44%) and TCS (36%) lead the action.

10. In continuation with the trend of previous expiry, Metal stocks showed very strong rollovers. Jindal Steel (63%), Jindal Stainless(57%) and JSW Steel (55%) have seen aggressive rollovers. Rollovers in Construction, FMCG and Sugar stocks remained weak.