India Strategy - Jan 4 2008
Wednesday, January 09, 2008
Reliance Power - Udayan Mukherjee
The most awaited event of the Indian primary market calendar is here. Reliance Power may have priced its IPO in the Rs 415-450 band but the active grey market price is Rs 900. This gives Reliance Power a potential listing market capitalisation of Rs 2,00,000 crore. With zero installed capacity today, expected generation capacity of 6,000 megawatts by 2011 and 26,000 MW by 2016. NTPC, in itself a richly valued stock, has an installed capacity of 27,000 MW and commands a similar market cap. The market has simply taken an eight year leap and priced it in the Reliance Power stock today. I find that staggering.
A look at the ratios look even more mind numbing. This IPO money is being raised to execute about 7,000 MW of capacity. That should be done by 2012. That year, if all goes perfectly, Reliance Power will have revenues of Rs 7,700 crore, EPS of under Rs 8 and a book value of Rs 70. At the listing price of Rs 900, the stock would be trading at a 2012 price-earning ratio of 110, a price to book value ratio of 13 and a market cap to sales ratio of 26. These are four-year forward ratios, remember. The ratios moderate somewhat for 2016 but by then much further dilution would have happened to finance the additional capacity so the market cap would balloon substantially.
This is madness. While many explanations abound on how such valuations could be justified, this is so similar to the 100-plus PEs the market gave freely to information technology stocks back in 2000. While all of us know how that story finally ended, we should also remember how long that madness continued. The power madness, too, will end, sector tailwind notwithstanding, but it may continue longer than we think it can before fizzling out. While it lasts, the most expensive stock in the sector will become the valuation benchmark and will pull the others into the clouds. Just remember the old adage: those who forget history are doomed to repeat it.
(The writer is Executive Editor, CNBC-TV18)
Via Hindustan Times
Reliance Power IPO - 6 days to go
Reliance Power IPO ?
Yes ! Anil bhai's dream! 602 (67.9%)
No! Scam !! 284 (32.1%)
Votes so far: 886
Vote NOW >> See right TOP for the POLL
See the Previous Trends
Goldman Sachs - Recession in 2008
Goldman Sachs on Wednesday said it expects the U.S. economy to drop into recession this year, prompting the Federal Reserve to slash benchmark lending rates to 2.5 percent by the third quarter.
In a note to clients, Goldman said real gross domestic product would contract by 1 percent on an annualized basis in both the second and third quarters. For all of 2008, the investment bank said GDP would rise by 0.8 percent.
The unemployment rate will rise to 6.5 percent in 2009 from the current 5 percent, it said.
The weakening economy will force the Fed to lower policy rates by an additional 1.75 percentage points from the current 4.25 percent. Starting in September, the Fed cut rates at the last three meetings of the Federal Open Market Committee, reducing the target rate on loans between banks by 1 percentage point from 5.25 percent.
Via Reuters
Market Close: Correction or consolidation ?
A sea saw trading session of market ended marginal in red. Markets took cues from its global counterparts and opened in red. Post that the session was highly volatile. Software and selective power stocks aided the indices. Software is seen some interest on hopes of good results. While auto, pharma, metals, oil and gas and FMCG stocks ended in the red. Mid caps and small caps were the major losers. Markets may take cues from companies quarterly performances as results are awaited. Although the Asian indices ended in green, European indices are trading in red.
There has been big optimism among retailers on IPO specially Reliance. Probably this may be one of the reasons for profit booking as money flow from secondary market to primary market. The hope is stronger cashflows From Middle East and China will prevent the big downsides. However we believe that there is likely to be a flight to safety triggered by the US slippages. The US cut in interest rates possibility is another ray of hope.
Sensex was down by 4 points at 20869.77. Weighing on the Sensex were losses in BHEL (2443.8,-2 percent), ONGC (1298.65,-2 percent), ICICI Bk (1310.45,-2 percent), Ranbaxy (411.6,-2 percent) and ACC (970.05,-2 percent). Losses were restricted by gains in NTPC (277.15,+4 percent), HDFC (3174.25,+4 percent), RCVL (820.8,+2 percent), Hindalco (212.5,+2 percent) and HDFC Bk (1745.1,+2 percent).
Sayaji Hotels is into the hotel and restaurant business. The hotels of the company are located in Indore and Baroda. The restaurant business of the company is managed by a 100% subsidiary 'Sanchi Hotels Pvt Ltd' under the brand name of 'Barbeque-Nation'. The concept is good and we like the business model. Capex plans of the company include setting up a new 4 star hotel in Pune with expected room rental revenues of Rs 3,300 per day. Hotel would come up in Waked near Pune with room inventory of 240 rooms. The stock has rallied on the interest of some big investors. Keep watching this space to know more.
KEI Industries Limited (KEI) is one of the established player and the second largest power cable company in India. KEI is into manufacture of high and low tension cables (HT and LT), control and instrumentation cables, house wires and stainless steel wires. The Indian Power Cable market is estimated at more than Rs 8,500 cr. About 67,000 MW of power generation capacity and 60,000 circuit km of transmission network are proposed to be added by 2012 as per 11th Five Year plan. The expenditure estimated for power generation alone is at Rs 270,000 cr and Rs 69,500 cr for power transmission. The cost of power cables is around 3% of the investment in power generation and 2% for power transmission. This will generate a huge demand for power cables in near future. KEI is growing aggressively by expanding capacity to meet domestic and international demand. On the whole the macro scenario seems to be best for KEI in future. Do read our note on KEI to know more.
Technically Speaking: Sensex traded highly volatile and finally ended flat. It made intraday high of 21,113 and days low of 20,701. Volumes were good at Rs 9610crs. The breath was in favor of Declines, where Advances stood at 760 and Declines at 2136. Sensex resistance stands at 21,100 and support lies at 20,520.
Mahindra Lifespace Developers
Mahindra Lifespace Developers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,096
Current market price: Rs799
Pioneering the SEZ revolution
Key points
- Leveraging on SEZ expertise: Mahindra Lifespace Developers (MLD) is the only private sector player to have an operational SEZ, the Chennai SEZ, in the country. Leveraging on this rich expertise, the company is planning to develop one more SEZ in Jaipur. For this it has already acquired 2,100 acre of land. It expects to acquire the balance land for the project by FY2008 end.
- More upside possible from Karla and Chennai SEZ extensions: MLD also has plans to develop another 3,000-acre multi-product SEZ in Karla and to extend its Chennai SEZ by 1,980 acre. However, it has acquired only 100 acre of land for the Chennai project so far. Hence, we have not considered these two projects in our valuation. Any development on these projects would lead to an upward revision in our valuation.
- Margins to improve: Given the higher revenue contribution from the Chennai SEZ's non-processing area and better realisation for the Jaipur SEZ's processing area, we expect MLD's EBITDA margin to improve to 55.2% by FY2010 from 14.3% in FY2007. Consequently, we expect MLD's earnings to grow at a CAGR of 179.2% over FY2007-10.
- Other initiatives: MLD also plans to develop space aggregating 2.7 mn sq ft over the next few years. These projects contribute Rs83 per share to our valuation. MLD is also implementing the Tirupur Water Supply and Sewerage project through its subsidiary Mahindra Infrastructure Developers. It is a 30-year BOOT project and is expected to generate an annual income of Rs6-8 crore.
- Attractive valuation: We value the stock using the SOTP method. Given MLD's operational expertise in SEZ and premium brand in the other verticals, we value the Chennai and Jaipur SEZs and the other planned developments at 1.0x NAV of Rs1,038 per share. We value the balance land for which its has no development plans in the short to medium term at Rs58 per share, ie at a discount to the current market price. We initiate Buy recommendation on MLD with a price target of Rs1,096.
Future Capital Holdings, Reliance Power Grey Market Premiums
Future Capital Holdings 700 to 765 620 to 630
Reliance Power 405 to 450 400 to 410
SVPCL 42 DISCOUNT
Aries Agro 130 20 to 25
Porwal Autocomponents 75 DISCOUNT (The company is desperately advertising on CNBC saying that they have got orders!!)
Precision Pipes & Profiles 150 25 to 30
Post Market Commentary
The Indian market closed on a negative note after coming off sharply from the higher levels in the final trading hours of the session. The Sensex after a flat opening dipped down by taking negative cues from the global markets but managed to recover towards the mid session to touch an intraday high of 21,113.13. The BSE Mid Caps and Small Caps stocks remained out of favor as most selling was seen from these baskets and they closed lower by 47.08 points and 146.18 points at 9,769.99 and 13,369.95 respectively. The Oil & Gas, Metal and CG was the most hit as they closed with heavy losses. The BSE Sensex closed with marginal loss of 3.55 points at 20,869.78 and NSE Nifty closed lower by 15.85 points at 6,272.
BSE Metal index declined by 114.62 points to close at 19,423.72. Scrips that dropped are Sesa Goa (4.02%), Jindal Saw (3.12%), Gujarat NRE (3.98%), JSW Steel (2.98%) and Jindal Stainless (2.25%).
BSE Realty index closed higher by 82.81 points at 13,566.71. Scrips that grew are HDIL (12.19%), Mahindralife (3.84%), Anant Raj Industries (2.21%), DLF (1.59%)
BSE Bankex index slipped by 45.52 points to close at 12,041.05 as Indian Overseas (2.81%), Canara Bank (2.37%), Kotak Bank (2.12%), PNB (2%), Union Bank (1.90%).
BSE Oil & Gas index declined by 234.13 points at 13,817.14. Scrips that fell are RNRL (6.47%), RPL (5.90%), BPCL (5.63%), Essar Oil (3.17%), HPCL (2.25%) and ONGC (1.76%).
BSE Capital Goods index slipped by 139.58 points to close at 20,075.34. Scrips that dropped are Jyothi Structures (4.21%), Kalpataru (3.42%), Areva (3.15%), SKF India (2.71%) and BHEL (2.02%).
BSE Health Care fell by 24.06 points to close at 4,273.05 as Dishman Pharma (6.53%), Fortis Health care (3.13%), Ranbaxy (1.65%), Aventis (1.36%) and Biocon (1.33%) closed lower.
BSE IT index grew by 10.77 points to close at 4,255.52. Scrips that advanced are I-Flex (8.18%), Mphasis (4.21%), Patni Computers (3.41%), Rolta India (1.67%), Mosear Baer (1.63%) and Satyam (0.80%).
Market trips on volatile moves
The market remained under the grip of strong volatile moves as key indices kept swinging between positive and negative zones through the session. After resuming slightly above its last close at 20,903, the market snapped gains in early trades before frenzied buying propelled the index to an intra-day high of 21,113. While the market failed to make any further impact thereafter, the index drifted into the red once again in noon trades to touch the day's low of 20,701. The Sensex, after witnessing an intra-day swing of 412 points, ended 4 points down at 20,870, while the Nifty declined 4 points to close at 6,272.
The market breadth ended weak. Of the 2,912 stocks traded on the BSE, 2,128 stocks declined, 766 stocks advanced and 18 stocks ended unchanged. In a volatile market, the BSE Realty index rose 0.61% while the BSE CD index, the BSE Teck index, the BSE Power index and the BSE IT index ended with steady gains. Other sectoral indices, however, ended at lower levels.
Dragging the Sensex, M&M shed 2.67% at Rs807.90, BHEL dipped 2.02% at Rs2,443.80, ONGC lost 1.76% at Rs1,298.65 and ICICI Bank was down 1.73% at Rs1,310.45. Ranbaxy, ACC, Maruti, ITC, RIL and Tata Motors were down 1% each. NTPC, however, advanced 4.49% at Rs277.15, HDFC moved up 3.59% at Rs3,174.25 and Reliance Communications moved up 2.05% at Rs820.80. Hindalco, HDFC Bank and DLF ended with steady gains.
Among the Realty stocks HDIL led the momentum with 12.19% at Rs1,357.75, Mahindra Life, Anant Raj, DLF, Sobha Developers, Indiabulls Realty, Peninsula Land and Puravankara Projects gained 0.13-3.84% each. Power stocks CESC, Siemens, Torrent Power and REL rose over 2-4% each.
Over 1.81 Crore Ispat Industries shares changed hands on the BSE followed by RPL (1.39 Crore shares), Ashok Leyland (75.30 lakh shares), NTPC (57.85 lakh shares) and Spice Tele (37.83 lakh shares).
Reliance Capital was the most actively traded counter on the BSE with a turnover of Rs369 crore followed by RPL (Rs331 crore), Reliance Communications (Rs308 crore), REL (Rs222 crore) and RIL (Rs160 crore).
Sensex ends flat amidst volatility
The market came sharply off higher level in late trade on a volatile day of trade. Earlier, the market had recovered from an initial slump to hit a record high in mid-afternoon trade. Capital goods, auto, metal, FMCG stocks declined. IT stocks rose. BSE Mid-Cap and Small-Cap indices underperformed Sensex. The market breadth was weak on BSE.
European markets which opened after Indian market were weak. Asian markets, which opened before Indian market, were higher.
The 30-share BSE Sensex declined 3.55 points or 0.02% to 20,869.78. It hit a record high of 21,113.13 in mid-afternoon trade. At day’s high, Sensex gained 239.80 points. Sensex hit a low of 20,701.49, in morning trade. At day’s low of 20,701.49, Sensex had lost 171.84 points.
The broader CNX S&P Nifty lost 15.85 points or 0.25% to 6,272.
BSE clocked a turnover of Rs 9610 crore, lower than Tuesday (8 January 2008)'s Rs 11870 crore.
Nifty January 2008 futures were at 6260, at discount of 12 points as compared to spot closing of 6272.
The NSE's futures & options (F&O) segment turnover was Rs 74,171.29 crore, which was lower than Rs 84,355.67 crore on Tuesday, 8 January 2008.
The BSE Mid-Cap index was down 0.48% to 9,769.58. The BSE Small-Cap index was down 1.08% to 13,369.95. Both these indices underperformed Sensex.
BSE Power index (up 0.23% to 4,818.43), BSE IT index (up 0.25% to 4,255.52), BSE Consumer Durables index (up 0.4% to 6,596), BSE Realty index (up 0.61% to 13,566.71) outperformed Sensex.
BSE Bankex (down 0.38% to 12,041.05), BSE Healthcare index (down 0.56% to 4,273.05), BSE FMCG index (down 0.57% to 2,490.71), BSE Metal index (down 0.59% to 19,423.72), BSE Capital Goods index (down 0.69% to 20,075.34), BSE Auto index (down 0.9% to 5,544.15) and BSE Oil & Gas index (down 1.67% to 13,817.14) underperformed Sensex.
The market breadth was weak on BSE with 757 shares advancing as compared to 2,137 that declined. 25 remained unchanged. 18 stocks from Sensex pack were in red.
India’s largest private sector firm by market capitalization and oil refiner Reliance Industries declined 0.61% to Rs 3,031.95.
Capital goods stocks declined. Bharat Heavy Electricals (down 2.02% to Rs 2,443.80), Larsen & Toubro (down 0.07% to Rs 4,329.80) and Suzlon Energy (down 1.41% to Rs 2,241.60) edged lower.
Auto stocks declined. Tata Motors (down 0.48% to Rs 770.45), Bajaj Auto (down 0.23% to Rs 2,532.10), Maruti Suzuki India (down 1.48% to Rs 925.70), Hero Honda Motors (down 0.28% to Rs 688.15) edged lower.
Mahindra & Mahindra declined 2.67% to Rs 807.90 after the company said Mahindra Holidays & Resorts India (MHRIL), a leisure hospitality provider offering family holidays, has finalised a 2% private placement deal with the State Bank of India for a consideration of around Rs 80 crore.
FMCG majors declined. ITC (down 1.19% to Rs 227.95) and Hindustan Unilever (down 0.34% to 233.85) edged lower.
Metal stocks declined. Tata Steel (down 0.15% to Rs 890.50), Steel Authority of India (down 0.7% to Rs 261.25), National Alluminium Company (down 0.37% to Rs 498.65) edged lower. Hindalco Industries (up 1.7% to Rs 212.50) and Sterlite Industries (up 0.48% to Rs 1,039.75) edged higher.
India’s largest private sector bank by assets ICICI Bank declined 1.73% to Rs 1,310.45.
IT stocks rose. Wipro (up 0.6% to Rs 490.85) Satyam Computer Services (up 0.8% to Rs 427.90) and Tata Consultancy Services (up 0.36% to Rs 994.10) edged higher. India’s second largest IT exporter by sales Infosys Technologies declined 0.4% to Rs 1,655.55.
NTPC (up 4.49% to Rs 277.15), HDFC (up 3.59% to Rs 3,174.25), RelianceCommunications (up 2.05% to Rs 820.80) and HDFC Bank (up 1.68% to Rs 1,745.10) edged higher.
ONGC (down 1.76% to Rs 1,298.65), Ranbaxy Laboretories (down 1.65% to Rs 411.60) edged lower.
Himachal Futuristic Communications clocked the highest volume of 3.17 crore shares on BSE. The scrip declined 1.89% to Rs 57.20. Reliance Natural Resources clocked the second highest volume of 2.95 crore shares on BSE. The scrip declined 6.47% to Rs 228.35. Ispat Industries clocked the third highest volume of 1.81 crore shares on BSE. The scrip declined 0.58% to Rs 69. Centurion Bank of Punjab clocked the fourth highest volume of 1.54 crore shares on BSE. The scrip rose 0.51% to Rs 69.50. Cybermate Infotek clocked the fifth highest volume of 1.49 crore shares on BSE. The scrip rose 1.18% to Rs 18.
Reliance Natural Resources clocked the highest turnover of Rs 701.70 crore on BSE. Reliance Capital (Rs 369.31 crore), Reliance Petroleum (Rs 331.85 crore), Reliance Communications (Rs 308.54 crore) and Reliance Energy (Rs 222.06 crore) were other turnover toppers in that order.
Fears of a US recession and poor results from major retailer Marks & Spencer hit European stocks hard. UK’s FTSE 100 was down 0.85% to 6,302.20. Germany’s DAX was down 0.48% to 7,812.45.
Earlier, however, Asian stocks managed to shake off some of the fears, mainly on hopes that new US tax rebates may be in the works to boost consumers. Key benchmark indices in Hong Kong, Japan, Singapore, China, Taiwan and South Korea were up by between 0.41% to 1.53%.
The Dow Jones industrial average plunged 238.42 points, or 1.86%, at 12,589.07 on Tuesday, 8 January 2008. The Standard & Poor's 500 Index lost 25.99 points, or 1.84%, at 1,390.19. The Nasdaq Composite Index shed 58.95 points, or 2.36%, at 2,440.51.
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