J Kumar Infraprojects IPO Analysis

Investors can avoid subscribing to the initial public offer of J. Kumar Infraprojects (JKI). The asking price of Rs 110-120 appears stiff, given the present size of the company and the large number of unorganised players in the contracting space. Limited geographical presence, significant expansion in equity and low visibility for growth over the long term are also limiting factors for this company. However, given that the overall prospects for the company’s business appear good, investors can take a second look at the stock post-listing, if its valuation dips due to broad market factors.

At the offer band, the IPO is priced at 19-21 times its per share earnings of FY 2007 on a pre-issue equity base. Post-issue, the price-earnings multiple is 14-16 times the annualised earnings for FY-08. Similar sized peers are at a discount to this valuation.

Business and offer details

JKI, a construction company with operations in Maharashtra, focusses on building roads, flyovers, buildings and piling works. The offer proceeds (Rs 72-78 crore) are to be utilised for purchasing capital equipment and for working capital requirements. At the offer price band, the market capitalisation of the company’s stock would be Rs 228-248 crore.

Sustainability, an issue

JKI, although incorporated in 1999, started operations in 2005 and saw a huge jump in revenues in 2006. This was after one of the promoter group companies — J. Kumar & Co. — transferred certain assets as well as a contract licence for public works department. JKI’s revenue grew from Rs 3 crore in FY-05 to Rs 112 crore in FY-07. The company’s current order-book of Rs 461 crore provides earnings visibility over the next couple of years. However, the annual growth over 2006 and 2007, afforded by a low base, is unlikely to repeat itself.

The present infrastructure boom in the country provides ample room for small players such as JKI to share a part of the order flow pie. However, JKI’s current business model depends more on the local municipal and metropolitan development authorities (in Maharashtra) than on the ‘infrastructure spending’ in the country. While this strategy is likely to fetch steady revenues in the medium term, the growth opportunity appears relatively less as infrastructure players moving to high-end segments could be better options from an investment perspective. The company’s valuation can, therefore, at best be at a discount to other infrastructure players.

Concentration of work in a single State also poses the risk of slowdown if the State spending declines. The company has also not stated any plans of moving to locations outside of Maharashtra.

JKI has done well to diversify its operations from predominantly bridges and flyovers to civil construction and piling works. Piling works for larger infrastructure players are likely to provide the company with superior profit margins. The OPMs for the half-year ended September 2007 have already seen a marked increase of over 500 basis points.

While the augmented volume may also have contributed to the improved profit margins, the working-capital requirements may further tighten with more projects. The increase in the proportion of debtors (as a percentage of sales) for the half-year ended September 2007 indicates that volumes could pose pressure on working capital. Increase in secured loans and rise in interest charges also point to the mounting requirement for funds. While the offer proceeds would provide some momentary relief on this front, the company may have to find other sources to fund its projects in hand.

Cords Cable Industries IPO Analysis

Investors with a lowrisk appetite and a moderate return expectation can consider an exposure in the initial public offering of Cords Cable Industries (CCIL).

In the business of manufacturing cables, CCIL offers a proxy exposure to the ongoing infrastructure and power growth story. Robust growth in sales and bottomline, diverse revenue mix, established clientele and the proposed entry into HT (high tension) power, rubber and speciality cables segment, suggest good prospects for the company.

In the price band of Rs 125-135, the stock would be valued at about 12-13 times its likely FY-08 per share earnings on a diluted equity base.

While the valuation is not a steep discount to established players such as KEI Industries, they appear attractive, considering the strong demand environment and the move by CCIL into higher value-added product segment. We would be more comfortable if the offer is priced at the lower end of the price band.

Investment rationale

The demand for cables is set to increase significantly, given the ongoing capex in power and infrastructure and strong growth in industries such as metro rail, shipping and aviation.

In the light of the robust demand undercurrents, CCIL’s capacity expansion in low tension (LT) power cables segment and the proposed addition of HT power, rubber and speciality cables to its product portfolio appear promising. CCIL’s established track record of over 15 years with approvals and pre-qualifications from companies such as NTPC, BHEL, Power Grid and Reliance Energy also lend confidence to its ability to further penetrate the cables’ market.

CCIL’s order-book pegged at about Rs 77 crore (as on November 30, 2007) lends visibility to revenues. Revenues could also get a lift from the management’s renewed focus on the export market.

While the company has so far not enjoyed any significant exposure to the export market (1 per cent in FY-07), it plans to export to over 15 countries by FY-09, broadbasing from the current spread of over five countries.

In this context, CCIL has already tied up with companies in West Asia such as Petroleum Development Oman and Saudi Electric Supply Company.

CCIL witnessed a compounded earnings growth of over 328 per cent supported by a 67 per cent growth in revenues during the last four years. During the period, operating profits enjoyed a CAGR of about 127 per cent; operating profit margins expanded by 8.9 percentage points to about 14.7 per cent.

Going forward, margins may witness a further expansion given CCIL’s foray into higher value-added products. Besides, post-expansion, CCIL may also benefit from better utilisation of its capacities.

Business

CCIL has a diversified clientele and product portfolio. Its current order-book, with the major portion leaning towards power sector (about 48 per cent), is spread across sectors such as cement, refineries and petrochemicals and steel.

The company may be able to further extend its reach to sectors such as railways, shipping and wind power after the proposed expansion of its capacity and the addition of new products. On the product front, it offers an extensive range of high quality control and instrumentation cables, power cables and special cables for oil wells. The company plans to utilise proceeds from the issue towards setting up of production facilities. About Rs 6 crore from the proceeds will be diverted towards working capital requirements.

Concerns

While CCIL does hedge its price risk on copper to an extent, any steep increase in price of copper and aluminium (about 50-70 per cent of the raw material cost) may adversely affect its earnings.

Offer details

The offer is open from January 21-24. Collins Stewart Inga is the book running lead manager to the issue.

Via Businessline

Exide Industries

Shareholders can subscribe to the rights offer from Exide Industries. The offer is attractively priced at Rs 30, a steep discount to the market price of Rs 78. The company is raising Rs 150 crore through a 1:15 issue (one share for every 15 held) to meet its working-capital requirements. This is part of its Rs 400-crore capex plans announced in April 2007.

The rollout of new models by passenger car makers, the continued buoyancy in the automotive replacement segment and the potential for high growth in the telecom and UPS battery segments lend a positive outlook to the company’s earnings prospects. The stock has run up sharply with a return of over 70 per cent in the last six months. At the current market price, the stock trades at 29 times the estimated FY-08 and 22 times the estimated FY-09 earnings per share.

Business

Exide is the market leader in the storage batteries business, selling mainly under the Exide and Standard Furukawa brands. While the automobile batteries segment generates 60 per cent of the revenues, the industrial batteries division chips in with the rest. Exide batteries power most of the models of Toyota, Honda, Hyundai, Tata Motors, Maruti and Mahindra and Mahindra. The company also supplies two-wheeler batteries. The industrial applications extend to power, telecom, mining and railways. They also export batteries to West Asia, Japan and CIS countries.

Prospects

As telecom service providers expand their networks and foray into infrastructure sharing, the company will benefit from the increased demand for batteries that support tower and exchange infrastructure.

UPS battery sales will be propelled by growth in the IT and ITES industry, which requires back-up power, and the demand from households and offices due to the continued power shortage situation.

Besides, the company is also engaged in the production of the high-margin miner’s cap lamp and submarine batteries, which are likely to improve the product mix.

In the automotive segment, a key positive for the company is its diversification — it caters to the passenger car, two-wheeler, commercial vehicle and tractor markets. This de-risked sales mix will help the company tide over a slowdown better.

The introduction of new models by OEMs (Original Equipment Manufacturers) provides an opportunity to become sole suppliers for that model, ensuring a steady revenue stream. Such supplies will also help boost volumes and make up for the lower margins (margins in OE are lower than replacement segment). Exide, which has been the key supplier for Tata Motors, is likely to be the chief supplier to the Tata Nano (Rs 1-lakh car) as well. This inspires confidence and bodes well for volume growth.

Financials

The last few quarters have seen prices of lead, a key raw material, shoot up by more than 100 per cent. This explains the steady decline in the operating margins from 20 per cent in the June quarter to 17 per cent in the September quarter and 15 per cent now.

However, buoyant replacement market sales and periodic price increases (to partially pass on increase in raw material costs) have seen both the net sales and profits grow by a robust 60 per cent on a year-on-year basis to Rs 722 crore and Rs 55 crore respectively.

Concerns

Raw material costs account for about two-thirds of sales and lead constitutes 70 per cent of the raw material used. Although lead prices appear to have peaked, any unfavourable movement in prices will affect the company. Also, any future price increase may not be welcomed by OEMs, who are themselves surviving a slowdown and are focused on cost cutting.

To reduce dependence on imported lead, Exide has recently acquired the Pune-based Tandon Metals, a lead smelting company that will help Exide use more recycled lead in its battery manufacturing facilities. Until the company is able to put this facility to full use, input costs will remain a concern.

Glaxo Pharma

Investors can retain their holdings in GlaxoSmithKline Pharma (GSK Pharma), the listed subsidiary of global pharma major GlaxoSmithKline, despite the stock under-performing over the past year. A slew of product launches (both patented and in-licensed), sharper focus on pharmaceuticals (after having divested the animal healthcare and fine chemicals businesses) and opportunities for uptake of clinical research by the parent company indicate that prospects may change for the better.

At the current price of Rs 1,010, the stock discounts its FY-08 per share earnings by about 19 times. The valuation is not cheap, given GSK Pharma’s muted top line and profit growth over the past three years (compounded annual growth rate of 4 per cent in sales and 3 per cent in profits including sold-off businesses).

However, the valuation is justified by the expected ramp up in earnings from at least four exclusive launches (a cancer drug and vaccines), which will also help it foray into new niches. GSK Pharma holds a 4.8 per cent share in the domestic drug market, making it one of the top three manufacturers.

Any delay in product launches due to an uncertain patent regime and the looming threat of more drugs being brought under the Drug Price Control Order (GSK Pharma now derives around 30 per cent from price-controlled products) are risks to the company’s prospects.

Launches to drive growth

In 2005, GSK Pharma had announced that it would leverage its parent’s robust pipeline by launching four vaccines (Rotarix, Cervarix, Streptorix and Infanrix) latest by 2009. Being new drugs targeting key areas, 2008 will see the company finally benefiting from Infanrix (combo vaccine for tetanus, diphtheria and pertussis in infants), Boostrix (Infanrix but targeted at the preteen/teens) and Rotarix (vaccine against Rotavirus — the main cause of diarrhoea).

The company does not produce vaccines in India and sources them from its parent’s facilities worldwide.

Revenues from vaccines contributed around 6 per cent of the company’s first half turnover in 2007. This will be scaled up, driven by launches; the easing of supply constraints at its global vaccine production facilities augurs well.

After December 2008, GSK Pharma is also tipped to launch Cervarix (vaccine for cervical cancer) and, post-2010, other vaccines for malaria, tuberculosis, dengue and Streptorix (combo vaccine for 11 indications) are also on cards.

Once launched, these could provide a significant upside to earnings, but are subject to the hurdles of pricing pressure and delays in patent approvals and subsequent registrations.

In patent protected drugs, GSK Pharma is slated to launch Tykerb (first in class breast cancer medicine for a focus patient group) by second quarter in 2008, which would ensure exclusivity for some years. Other launches could be in the form of Allermist (targeting allergic rhinitis), Alvimopan (first in class medicine to treat impairment of bowel motility due to surgery) and Pleuromutilin (topical antibiotic). These could be launched in 2008/2009. However, regulatory delays and legal hold-ups akin to those being recently faced by innovator companies in India, pose risk to these plans. (None of GSK’s vaccines and in-licensed products are claimed to have incremental innovation.) Patented products are expected to contribute 10 per cent of the company’s revenues by 2010.

With around eight in-licensed products under its belt, GSK Pharma is well-placed to leverage on a strong sales and marketing set up to access doctors and retailers. This year, the company may introduce two such products (one might be a patentable drug).

Overall, these initiatives in the form of launches in vaccines, patented drugs and in-licensing opportunities could help GSK Pharma maintain operating margins at current levels (about 31 per cent), as pricing power may enable the company to bear heavy promotional expenses. Disposal of non-core businesses has also been a margin accretive step in this light.

Better focus

Till 2006, GSK Pharma had to divide its attention between the pharmaceutical business and non-core businesses such as animal health and fine chemicals business. The company exited the animal health business in April 2006 and the fine chemicals business in July 2007. These initiatives have not only brought substantial cash flows (around Rs 450 crore from both) but also allowed GSK Pharma to focus on its strength: Pharmaceuticals.

The company still has minor interests in diagnostics, laboratory equipment and exports related to drugs, but are aligned with the pharma-model. In the first half of 2007, GSK Pharma’s revenues were distributed between the focus, other segments and price-controlled drugs in the proportion of 29 per cent, 27 per, 27 per cent respectively.

With divestment of the non-core businesses complete, GSK can now target higher double-digit growth in its focus group of drugs, which have hitherto grown at a slower rate than the overall market. Skincare and cardiovascular therapeutic segments are high-growth areas for the company. Progress on this front would be important as the company looks to offset flat growth and reduced contributions from the price-controlled products (consisting mainly of anti-infectives and dietary supplements).

The policy proposal to increase the number of price-controlled drugs to five times the existing number (currently 74), if carried out by the government, may expand this contribution to around half its current revenues. This scenario bears watching as it could lead to a knock-on effect on GSK Pharma’s sales and profitability.

Clinical research is another promising segment for the company. GSK Pharma has till date carried out clinical trials for the parent company covering a significant 9 per cent of its global patient populace. The year 2007 saw 31 trials against 16 in 2006.

This trend might continue as the MNC subsidiary conducts trials across oncology, neuropsychiatry, cardiovascular and metabolic segments. Revenue contribution from clinical research is pegged at Rs 30 crore for 10 months of FY-07 and is slated to grow in future with the company exploring the possibility of bringing in Phase I/II trials, as Indian regulatory clearances are rigorous for overseas companies.

Furthermore, job cuts in the global pharma industry may also benefit Indian arms such as GSK Pharma as bulk drug production may witness increased uptake. GSK Pharma now manufactures a single API for the global parent.

Dabur India

Investors with a two-three-year horizon can consider using the recent decline in price to accumulate the Dabur India stock. Dabur India appears set to deliver earnings growth of 22-25 per cent (annualised) over the next three years, on the back of proposed forays into FMCG categories such as personal and home care, scaling up of the foods portfolio, and recent launches in health supplements and skincare.

A diverse basket of brands that lends itself to extensions and a strong ‘ayurvedic’ and herbal association should help Dabur capitalise on the high-growth potential for the personal and healthcare businesses within the FMCG space. At its current market price of Rs 113, the stock trades at a premium valuation of about 23 times its expected earnings for 2008-09. This, however, appears justified in the light of the high return ratios enjoyed by the business and superior growth prospects.

Of the diversified portfolio that spans consumer products, health products and foods, the consumer-care business contributes two-thirds of Dabur’s current revenues. This straddles oral care (Babool, Meswak, Dabur Red), hair care (Vatika, Anmol), health supplements (Chyawanprash, honey), digestives (Hajmola) and home care (Odomos, Odonil, Sanifresh). Dabur’s brands in most of these segments sustained double-digit growth recently. Relatively slow-movers such as health supplements may also move into a higher growth trajectory if recent launches pay off. New product launches in the last few months include skin-cream extensions under Gulabari and brand extensions of Chyawanprash, apart from a household cleaner, Dazzle. Dabur also plans to leverage on its national distribution network to substantially expand its food offerings. Though competitive pressures in the new categories will be high, the company’s ability to connect with consumers on the ayurvedic and natural planks may stand it in good stead. That the company has managed robust growth in its oral-care portfolio despite being a late entrant, is evidence of this.

Dabur India has also lined up a retail foray in the health and beauty segment, with plans to open 350 stores in five years. Though funding for this venture may not be a challenge given the healthy cash coffers, the payoffs carry uncertainty given the likely competition in this segment. Rising input costs are also a risk, but may be offset by Dabur’s ability to take price increases.

Shri Lakshmi Cotsyn, TCS, J K Lakshmi Cement

Shri Lakshmi Cotsyn, TCS, J K Lakshmi Cement

Weekly Newsletter - Jan 18 2008

SEBI for 25% price band on listing day

Capital market regulator SEBI proposed imposing a price band of 25% on the issue price on the day of listing for issues of up to Rs2.5bn. The proposal does not apply in case of re-listing of shares of any company. Currently, the stock exchanges do not apply price bands on the day of listing. The price fixed by the company in consultation with its lead managers is left open to price discovery. After listing, the process of price discovery may continue within a price band of 20%. For IPOs that are greater than Rs5bn in size, price bands are not imposed even after the day of listing if such scrips are available for trading on the derivative segment. The move appears to be aimed at curbing excessive speculation whereby investors subscribe to IPOs purely for the purpose of making a quick buck on the day of listing. SEBI clearly wants to put a lid on such activities.

SBI Central Board clears Rights Issue

State Bank of India (SBI) announced that its Central Board has decided to raise an aggregate amount of Rs167.36bn (including premium) by way of a Rights Issue offer to the Government of India and to other eligible existing shareholders, including GDR holders. Ratio for the Rights Issue will be one share for every five shares held by the eligible shareholders as on the Record Date. The price for the Rights Issue will be Rs1,590 per share (i.e. face value of Rs10 each and a premium of Rs1,580 per share). Brokerages have given a thumbs up to the bank's proposed rights issue that has been priced at a 35% discount to the market price. It is expected to hit the market in the next couple of months. And though March is a tough month in terms of liquidity, most players expect the mega-issue to sail through without a hiccup. Foreign brokerages like Merrill Lynch and Citigroup have already come out with buy reports on the SBI rights issue.

BSNL mulling IPO worth up to US$10bn

State-run telecom behemoth Bharat Sanchar Nigam Ltd. (BSNL) is considering an Initial Public Offering (IPO) of its equity shares to fund expansion plans. India's largest telecom carrier plans to raise as much as Rs400bn (US$10.2bn) in about a year in what would be India's largest IPO. According to reports, BSNL has been valued at over US$100bn (Rs4 trillion). "We will look into it...the Department of Telecom (DoT) will discuss the issue and take a decision," Telecom Minister A. Raja said on Jan. 14. He, however, refused to give any timeline for the proposed IPO. The company may sell a 10% stake in India and overseas, BSNL Finance Director S.D. Saxena said. But, later in the week, Raja's office issued a statement saying that BSNL has no plans to come out with an IPO in the immediate future. "The matter will be discussed internally in the ministry and with the stakeholders and then, a suitable decision will be taken in this regard. An IPO for BSNL will be issued if considered appropriate," the statement said.

TCS, Wipro, HCL Tech report in-line results

Tata Consultancy Services (TCS) posted a consolidated net profit of Rs13.27bn for the fiscal third quarter ended December 31, 2007 as against Rs12.52bn in the same quarter last year. This translates into a year-on-year growth of 19% and sequential growth of 6%. Revenue for the period stood at Rs59.23bn versus Rs56.4bn in the year-ago quarter. This represents an increase of 22% YoY and 5% QoQ. EPS for the quarter rose to Rs13.56 from Rs12.79 in the second quarter. The company added 54 new customers in the October-December quarter of the current fiscal year. There was a gross addition of 7,522 employees in the quarter ended December 31, 2007, taking its total headcount to 108,229. The company's attrition rate stood at 12.2%, arguably the lowest in the industry.

Wipro reported a consolidated net profit of Rs8.54bn for the fiscal third quarter ended December 31, 2007 as against Rs8.14bn in the previous quarter. This translates into a sequential growth of almost 5%. The Bangalore-based IT major has posted net sales of Rs53.4bn versus Rs47.85bn in the second quarter, representing a QoQ growth of 11.6%. Global IT Revenues for the October-December quarter stood at $910mn. For the fourth quarter, Wipro expects Global IT Revenues at $455mn. Wipro added 2,389 new employees and 39 new customers during the third quarter. The drop in Global IT margins by 100 bps sequentially was primarily on account of Infocrossing acquisition.

HCL Technologies posted a consolidated net profit of Rs3.33bn, up 16.3% from last year and 6.3% over the previous quarter. Revenues for the second quarter stood at Rs18.17bn, up 24% YoY and 6.3% QoQ. Gross margin for the quarter stood at 38% as against 37% in the first quarter and 37.8% in the same quarter last year. EBITDA Margin for the October-December quarter was 21.4% versus 21.3% in the previous quarter and 22.1% in the year-ago quarter. Basic EPS for the quarter ended December 31, 2007 increased to Rs20.1 from Rs18.6 last quarter and Rs17.7 in the second quarter last year

Supreme Court stays sale of TVS Flame

There is a new twist to the ongoing dispute between two-wheeler majors Bajaj Auto and TVS Motor over the use of twin spark plug technology. The Supreme Court (SC) ordered TVS to stop selling its 125cc bike Flame, till the matter is resolved by the Madras High Court. "No further booking shall be made from today till January 29," a division bench headed by Justice H. S. Kapadia said while directing the single bench of the Madras High Court to take the interim application of Bajaj Auto on the day. The bench issued its direction on a petition filed by Bajaj Auto, challenging the Madras High Court order of Dec. 20, allowing TVS to go ahead with manufacturing and selling of Flame.

Tata Steel, JSW Steel acquire overseas mines

Tata Steel said it has signed a Joint Venture agreement with members of the Al Bahja Group, a leading business house of Oman for the development of the Uyun limestone deposits at Salalah in the Sultanate of Oman. Tata Steel will hold a 70% stake in the existing company called AL Rimal Mining LLC through its subsidiary, TS Global Minerals Holdings Pte Ltd. Al Rimal Mining will execute the project of developing and operating the Uyun mine.

JSW Steel announced the acquisition of eight concessions in a greenfield area through its Dutch subsidiary for exploration of magnetite iron ore deposits in Atacama, Chile. These mining concessions extend over an area of about 1,200 hectares. The company acquired the concessions for US$52mn. The company has been actively pursuing augmenting of captive sources of iron ore and coal both in India and overseas for its Indian steel making operations.

Domestic M&A Buzz

Essar Oil said its subsidiary Essar Energy Overseas has entered into an agreement to acquire a 50% stake in Kenya Petroleum Refineries, a four million metric tons per annum refinery in Mombasa. Essar Energy will acquire the stake from the existing shareholders - The Shell Petroleum Co., Chevron Global Energy and BP Africa. Subject to certain conditions, the acquisition is expected to complete in early 2008. The Kenyan Government holds the remaining 50% of KPRL.

Great Offshore said it has made an offer for purchasing a controlling stake in UK-based SeaDragon Offshore. The offer has been accepted by the Boards of both the companies. SeaDragon will own, upon delivery, two harsh environment, semi-submersible, sixth generation drilling rigs, which are currently under construction, at an estimated cost of about US$1.4bn, Great Offshore said.

Peninsula Land clarified that in September, Swan Mills had signed a deal with the Essar Group for sale and lease of three buildings in its Kurla commercial complex for around Rs12bn. The Ashok Piramal Group was responding to newspaper reports that it had signed a deal with Essar Realty Holdings to sell and lease premises at its upcoming IT park called Peninsula Technopark on the LBS Marg in Kurla.

House of Pearl Fashions announced it has signed a MoU to acquire a 75% stake in the Hong Kong-based marketing company, Simple Approach. The acquisition will benefit the company in expanding its customer base into high fashion mid market segment. Simple Approach is supplying to value and mid market retailers in the UK and the USA. The target company will be clocking revenues of Rs800mn in the current financial year. This is expected to grow to Rs1bn in FY09 and Rs2bn by FY11.

Goldman Sachs cuts Asia's growth outlook

Goldman Sachs slashed its economic growth forecast for Asia, as an impending recession in the US - the region's biggest market - would hurt exporters. Asia (ex-Japan) will grow by 8.3% in 2008, down from an earlier estimate of 8.6%, Hong Kong-based economist Michael Buchanan said in a report. The investment bank last week cut its forecasts for US and Japan. It also trimmed its growth prediction for 2009, to 8.5% from 8.6%. "There could be a tipping point at which the US slowdown has a more significant impact on Asia than before," Buchanan wrote. "The further deterioration in the US economy comes as Japan is also teetering on the edge of recession." Goldman Sachs described the growth downgrades as meaningful but not disastrous. "The impact on currencies is in general likely to be contained, although equity markets could be in for more volatility," it added. For developing Asia's two largest countries - China and India - Goldman Sachs lowered its 2008 growth forecasts to 10% from 10.3% and to 7.8% from 8%, respectively.

Gold tops US$900; falls later

The price of gold breached US $900 a troy ounce for the first time and platinum reached another record early in the week. The dollar fell to a seven-week low against the euro amid rising concerns that an impending recession in the US will force the Federal Reserve to slash rates more aggressively. Gold futures surged to a new record, climbing as high as US$915.90 an ounce, but fell later in the week to US$877.60. Gold for immediate delivery also fell to US$876.95 an ounce on speculation that a rebound in the dollar will stall demand for the precious metal as an alternative investment to stocks and bonds. Platinum and other precious metals also declined. Spot gold prices lost 2.1% on the week, heading for the biggest weekly decline in seven weeks, as the dollar advanced against the euro.

China hikes banks' reserve requirement

China's central bank announced a 0.5% hike in bank reserve ratio in the latest move to cool down the economy and curb inflation. Lenders must park 15% of deposits with the People's Bank of China as reserves from Jan. 25, up from 14.5%, the central bank said. The ratio is the highest since 1984. The PBC said the adjustment is to draw back excess liquidity at banks and curb the overly fast growth of credits. Excess liquidity is a major challenge for the Chinese government as it could result in asset bubbles and overheated economy. The problem could become more pronounced as the record trade surplus pumps more cash into the country. The increase in the reserve requirement is the first such move in 2008, and the 11th since January last year. China's policy-makers decided to shift the country's monetary policy from "prudent" to "tight" at the end of last year to keep the economy on track and tame inflation.

Oracle ups bid price for BEA Systems

Larry Ellison finally gave into the pressure from billionaire investor Carl Icahn, and raised its offer price for BEA Systems by 14% in order to emerge a leading player in the business software segment. Oracle will acquire all outstanding shares of BEA Systems for US$19.37 per share in cash. The offer is valued at about US$8.5bn, or US$7.2bn net of BEA Systems' cash on hand of US$1.3bn. The all-cash price represents a 24% premium from BEA Systems' closing stock price on Tuesday. It's 42% improvement from BEA Systems' share price three months ago, when Oracle launched an unsolicited bid of US$17 per share. That bid was rejected by BEA Systems. San Jose-based BEA Systems represents Oracle's most expensive purchase since it paid US$11.1bn for PeopleSoft in early 2005. The acquisition extends a three-year spree in which Oracle has spent about US$35bn buying dozens of its smaller competitors.

Toyota mulling low-cost compact car

As expected, Tata Motors' ultra low-cost compact car, the Nano has turned the global auto industry upside down with companies like Toyota, Volkswagen and Nissan contemplating their own versions of budget cars. But, the price of US$2,500 still remains a big challenge for the global auto majors. "We have an early prototype in development," President Katsuaki Watanabe said in Detroit. "The vehicle is close to getting a go sign," he said, without saying when the model would be launched or what it would cost. "I think there is a huge market for low-cost and low-priced vehicles," Watanabe told reporters. "I have been asking our engineers to come up with low-cost enabling technology." But, Watanabe said that Toyota was not aiming to compete with Tata Motors. The vehicle must be up to Toyota's standards and must address the key issues of environmental friendliness and safety, he said.

Apple unveils thinnest laptop

Apple unveiled the world's thinnest laptop yet. The MacBook Air weighs 3lb and is 0.76in, wide narrowing to 0.16in at its slimmest point. It goes on sale in a fortnight priced at £1,199 in the UK compared to US$ 1,799 (£899.50) in the US. Jobs said the MacBook Air's ultra-slim design was partly made possible by its lack of a CD or DVD drive. The CD drive's functions such as playing films, backing up information and installing software will all be carried out wirelessly by the laptop or other Apple devices. Other features of the MacBook Air include a 13.3in back-lit screen, a full size back-lit keyboard and a tracking pad which allows users to manipulate images in a similar way to the iPhone's screen. The new laptop comes with a standard 80GB hard drive and has 2GB of memory. Its eco-friendly aspects include a fully recyclable aluminium case, a mercury-free display and less external packaging than its predecessors.

Weekly positional calls - Jan 18 2008

Buy Ranbaxy

Buy Hero Honda

Buy IOC

Buy Kesoram Industries

Buy Patel Engineering

Punj LLoyd - Jan 18 2008

Punj LLoyd - Jan 18 2008

Godrej Consumer Products - Jan 18 2008

Godrej Consumer Products - Jan 18 2008

Its not Mukesh, its HPCL!

One of the country’s leading petroleum products retailers Hindustan Petroleum Corp. Ltd (HPCL) plans to enter the petrochemicals business by acquiring a “strategic stake” in Andhra Petrochemicals Ltd (APL), according to an executive at APL. If it were to happen, the acquisition would make logical sense for HPCL because it will reduce the company’s dependence on the refining and fuel retailing business.

They (HPCL) are looking for a strategic alliance and this is at a preliminary stage. Only the data is collected (through due diligence) and nothing is through yet,” said V.N. Rao, chief executive and chief operating officer, APL. He added that HPCL could buy some stake in the company.
O.P. Pradhan, executive director, corporate planning and strategy at HPCL, declined to comment on the issue.
“It is basically a vertical integration for the refinery companies to get into petrochemical business,” said Sanjeev Prasad, co-head institutional equities and head of research chemicals, energy, media, telecom at Kotak Securities Ltd, a Mumbai-based brokerage.
According to another analyst, who did not wish to be identified, the petrochemicals business has a margin of $400-600 (Rs15,720-23,580) per tonne while the refining business has a margin of $5-15 per barrel.
The state-owned HPCL has a 9.24 million metric tonne per annum (mmtpa) capacity refinery in Visakhapatnam and it already supplies naphtha to APL’s petrochemical plant in the same city.
It has another refinery in Mumbai; together the two refineries have a total capacity of 16.66mmtpa, which translates into a 12% share in the domestic refining capacity of the country.
Naphtha is one of the products of refineries apart from petrol, diesel and kerosene.
At Friday’s close of Rs32.8 a share, APL has the market capitalization of Rs278.81 crore. Andhra Pradesh Industrial Development Corp. and Andhra Sugar Ltd hold 10.8% and 28.18% stake in the company, respectively. The company ended 2006-07 with revenues of Rs266.10 crore and a net profit of Rs36.35 crore. It produced 42,408 metric tonne of oxo alcohols, a petrochemical in 2006-07.

HPCL ended 2006-07 with a net sales of Rs89,724 crore and a net profit of Rs1,571 crore.
Rao said there was “no question of present promoters divesting” their entire holding in APL.
He said there has been no decision on whether HPCL would acquire a minority or majority stake. “Options could be anything, but as of now nothing has been finalized either way.”
Shares of APL dropped 8.76% to Rs32.80 on the Bombay Exchange on Friday on a day the exchange’s benchmark index plunged 3.49%. The shares hit their 52-week high of Rs42.80 on 7 January.
HPCL shares lost 5.74% to Rs310.95 on Friday.

Via Mint

NSE Bulk Deal Watch - Jan 18 2008

Date,Symbol,Security Name,Client Name,Buy/Sell,Quantity Traded,Trade Price / Wght. Avg. Price,Remarks
18-JAN-2008,ARIES,Aries Agro Limited,FIN BRAINS SECURITIES (INDIA) LTD.,BUY,110284,217.86,-
18-JAN-2008,ARIES,Aries Agro Limited,KARIMJEE PVT.LTD.,BUY,85270,220.28,-
18-JAN-2008,ARIES,Aries Agro Limited,PACE FINCAP PRIVATE LIMITED,BUY,77990,219.57,-
18-JAN-2008,ARIES,Aries Agro Limited,R.M. SHARE TRADING PVT LTD,BUY,89931,220.56,-
18-JAN-2008,HBSTOCK,HB Stockholdings Ltd,B R INTERNATIONAL/BHARATKUMAR RADHAKRISHNA RUIA,BUY,307700,126.80,-
18-JAN-2008,OMNITECH,Omnitech Infosolutions Li,MANISH VRAJLAL SARVAIYA,BUY,53165,237.01,-
18-JAN-2008,POCHIRAJU,Pochiraju Industries Limi,OM ARORA,BUY,160422,45.57,-
18-JAN-2008,ARIES,Aries Agro Limited,FIN BRAINS SECURITIES (INDIA) LTD.,SELL,110284,218.30,-
18-JAN-2008,ARIES,Aries Agro Limited,KARIMJEE PVT.LTD.,SELL,85270,220.02,-
18-JAN-2008,ARIES,Aries Agro Limited,PACE FINCAP PRIVATE LIMITED,SELL,77990,219.44,-
18-JAN-2008,ARIES,Aries Agro Limited,R.M. SHARE TRADING PVT LTD,SELL,89931,220.64,-
18-JAN-2008,CINEVISTA,Cinevistaas Limited,RAVI KUMAR AGARWAL HUF,SELL,55000,102.97,-
18-JAN-2008,HBSTOCK,HB Stockholdings Ltd,NANDITA MIHIR MEHTA,SELL,307700,126.79,-
18-JAN-2008,MADHUCON,Madhucon Projects Limited,GOLDMAN SACHS INVESTMENTS MAURITIUS I LTD,SELL,255967,807.30,-
18-JAN-2008,OMNITECH,Omnitech Infosolutions Li,MANISH VRAJLAL SARVAIYA,SELL,76452,235.71,-
18-JAN-2008,TATAMETALI,Tata Metaliks Ltd,VIJAY KUMAR,SELL,174690,166.41,-

BSE Bulk Deals to Watch - Jan 18 2008

18/1/2008 531518 ADARS DERIVA SONIA JINDAL B 79025 30.92
18/1/2008 530889 ALKA INDIA JMP SECURITIES PVT. LTD. S 1480031 1.86
18/1/2008 532910 ANIL PRODUCT NAMAN SEC AND FIN PVT LTD B 45731 375.41
18/1/2008 532910 ANIL PRODUCT NAMAN SEC AND FIN PVT LTD S 52732 375.86
18/1/2008 532935 ARIES AGRO PACE FINCAP PRIVATE LIMITED B 79607 218.93
18/1/2008 532935 ARIES AGRO PACE FINCAP PRIVATE LIMITED S 79051 219.63
18/1/2008 505506 AXON INFOTEC S. B. CORRUGATORS PVT LTD S 30000 75.40
18/1/2008 505506 AXON INFOTEC HANUMAN TRADING AND FEEDS PVT.LTD. S 20000 75.65
18/1/2008 531591 BAMPSL SECUR JMP SECURITIES PVT. LTD. S 319938 3.07
18/1/2008 507050 BELAPUR INDU SHEETAL RAJESH JAIN B 10000 42.20
18/1/2008 500045 BELLA STE AL JMP SECURITIES PVT. LTD. B 1952435 9.92
18/1/2008 500045 BELLA STE AL JMP SECURITIES PVT. LTD. S 1968347 9.97
18/1/2008 531682 CAT TECHNOL ARCADIA SHARE AND STOCK BROKERS P LTD B 185000 10.82
18/1/2008 505923 CEEKAY DIAKI MAHENDRA KUMAR JAIN B 30655 137.71
18/1/2008 505923 CEEKAY DIAKI MASTER FINLEASE LTD B 25059 138.85
18/1/2008 512199 CORE PROJECT RHODES DIVERSIFIED B 600000 337.75
18/1/2008 532271 CYBERMAT INF JMP SECURITIES PVT. LTD. S 337185 15.52
18/1/2008 531270 DAZZEL CONFI ANURAG SABOO B 19500 7.00
18/1/2008 532180 DHANLAK BANK NISHU FINLEASE PVT. LTD. S 163869 153.03
18/1/2008 532751 EASUNREYRL FUTURE VENTURES INDIA LTD B 206325 317.00
18/1/2008 526560 ENGLISH I.CL NAMAN SEC AND FIN PVT LTD S 28601 3495.98
18/1/2008 532876 EVERONN SYS B R INTERNATIONAL B 211985 1180.82
18/1/2008 532876 EVERONN SYS NANDITA MIHIR MEHTA S 211985 1180.82
18/1/2008 531486 FILMCIT MEDI JMP SECURITIES PVT. LTD. S 411777 3.15
18/1/2008 532857 GLORY POLY MAVI IMPEX LTD. B 186800 98.74
18/1/2008 532857 GLORY POLY AXIOM IMPEX INTERNATIONAL LIMITED S 200000 97.33
18/1/2008 524184 GULSHA SUG C KAMAL KUMAR DUGAR AND CO S 219850 80.16
18/1/2008 500178 HARIG CRANKS JMP SECURITIES PVT. LTD. S 2484154 4.95
18/1/2008 532347 HELIOS MAT I NISHA SUMAN JAIN B 140000 136.06
18/1/2008 532414 IKF TECHNO JMP SECURITIES PVT. LTD. B 1808442 15.20
18/1/2008 530165 KANCHA INTER SHIRISH H SHAH S 19100 13.90
18/1/2008 531904 KARUNA CABLE PRABHAKAR RAO MANDAVA S 325000 13.48
18/1/2008 531904 KARUNA CABLE ASHA PRIYA MANDAVA S 349750 13.49
18/1/2008 505299 KULK POW TOO BHUPESH KUMAR LODHA B 8500 247.96
18/1/2008 501209 MAST MEDI SY MAVI INVESTMENT FUND LTD B 39636 71.99
18/1/2008 531456 MINAX TEXTIL JMP SECURITIES PVT. LTD. S 250000 3.09
18/1/2008 500307 NIRLON LTD CITIGROUP GLOBAL MARKETS MAURTIUS PVT LTD B 370761 134.79
18/1/2008 532086 OCEAN INFRST LATIN MANHARLAL SEC PVT LTD S 50000 9.97
18/1/2008 523574 PANTAL RETAI PANTALOON INDUSTRIES LTD B 1080000 770.00
18/1/2008 523574 PANTAL RETAI KISHOR BIYANI S 950000 770.00
18/1/2008 521246 PARAS PETROF JMP SECURITIES PVT. LTD. S 1150000 4.14
18/1/2008 532606 PAREKH ALUM MERRILL LYNCH CAPITAL MARKETS ESPANA S.A. S.V. B 600000 435.00
18/1/2008 532606 PAREKH ALUM U P SHAH HUF S 67051 233.80
18/1/2008 532606 PAREKH ALUM ABDEALI SAIFEE MAMAJI S 93433 230.00
18/1/2008 532606 PAREKH ALUM HALCYON TRADING PVT LTD S 85000 235.00
18/1/2008 532606 PAREKH ALUM PRAKASH SEVANTILAL DOSHI S 62980 235.00
18/1/2008 514300 PIONER EMBRO SANTOSH INDUSTRIES LIMITED B 99000 249.36
18/1/2008 514300 PIONER EMBRO WITHAL COMMERCIAL PVT LTD S 100000 249.26
18/1/2008 532933 PORWAL AUTO V J PATEL INVESTMENT B 100000 61.47
18/1/2008 531646 RFL INTERNAT MUKESH BHANUBHAI SHAH B 31000 2.68
18/1/2008 526407 RIT PRO IND SANJEEV ARORA B 54820 144.35
18/1/2008 523710 SAYAJ HOTELS RUANE CUNNIFF AND GOLDFARB INC AC ACACIA PARTNERS LP B 100900 141.34
18/1/2008 523710 SAYAJ HOTELS CLEARWATER CAPITAL PARTNERS CYPRUS LTD S 151609 143.22
18/1/2008 503297 SUP SYNCOT I DAKSHA M SHAH B 65638 7.71
18/1/2008 526133 SUPERTEX IND JMP SECURITIES PVT. LTD. S 543600 1.57
18/1/2008 505930 VISHAL MELL. LALIT SINGHAL S 25800 72.70
17/1/2008 531223 ANJANI SYNTH MANOHAR PUNDLIKRAO BADHIYE B 70000 55.84
17/1/2008 531223 ANJANI SYNTH ASHA B AGRAWAL S 70000 55.83
17/1/2008 532935 ARIES AGRO MATRIX EQUITRADE PVT LTD B 117052 225.92
17/1/2008 532935 ARIES AGRO MATRIX EQUITRADE PVT LTD S 117052 226.22
17/1/2008 532161 BAFIN ENG PR JMP SECURITIES PVT. LTD. B 500000 2.13
17/1/2008 531671 BISLERI GUJ JMP SECURITIES PVT. LTD. B 514465 7.45
17/1/2008 531936 BLUE CHI IND ASTUTE COMMODITIES AND DERIVATIVES PVT LTD B 450009 3.80
17/1/2008 531936 BLUE CHI IND ASTUTE COMMODITIES AND DERIVATIVES PVT LTD S 408416 3.97
17/1/2008 505923 CEEKAY DIAKI MAHENDRA KUMAR JAIN B 23339 125.68
17/1/2008 505923 CEEKAY DIAKI MAHENDRA KUMAR JAIN S 29403 126.19
17/1/2008 532271 CYBERMAT INF CHIMANLAL MANEKLAL SEC.PVT.LTD B 451843 15.05
17/1/2008 532271 CYBERMAT INF CHIMANLAL MANEKLAL SEC.PVT.LTD S 426843 15.01
17/1/2008 517973 DMC INTER CENTENARY SOFTWARE PRIVATE LIMITED S 25935 35.21
17/1/2008 531621 EZ-COMM TRAD MUKESH JITENDRA VORA S 25455 9.28
17/1/2008 532767 GAYATRI PROJ LEVERAGE INDIA FUND S 50000 675.19
17/1/2008 511682 IFL PRMOTER CENTENARY SOFTWARE PRIVATE LIMITED B 26415 37.46
17/1/2008 532092 KIRTI FINVES ENCA FINLEASE LTD. S 750000 2.04
17/1/2008 531213 MANAP GEN FI LOTUS INDIA MUTUAL FUND AC LOTUS INDIA GROWTH FUND B 119633 189.35
17/1/2008 532882 OMNITECH MANISH VRAJLAL SARVAIYA B 66689 230.67
17/1/2008 532882 OMNITECH MANISH VRAJLAL SARVAIYA S 66689 230.58
17/1/2008 520073 RAUNAQ AUT C CENTENARY SOFTWARE PRIVATE LIMITED S 40250 31.88
17/1/2008 532886 SEL MANUF ASTUTE COMMODITIES AND DERIVATIVES PVT LTD B 155874 216.20
17/1/2008 532886 SEL MANUF ASTUTE COMMODITIES AND DERIVATIVES PVT LTD S 126611 216.00
17/1/2008 531812 SGN TELECOMS JMP SECURITIES PVT. LTD. B 361304 3.29
17/1/2008 531738 SILICON VALL JMP SECURITIES PVT. LTD. B 702666 3.26
17/1/2008 531499 SYBLY INDUSR VICHITRA TRAVELS PVT LTD S 231500 10.12
17/1/2008 526506 SYSTEM COR S SHRI RAM STOCKMART PVT LTD B 60700 139.39
16/1/2008 532935 ARIES AGRO DYNAMIC STOCK BROKING I PVT LTD B 143207 229.64
16/1/2008 532935 ARIES AGRO DYNAMIC STOCK BROKING I PVT LTD S 381232 234.81
16/1/2008 505506 AXON INFOTEC SAPNA JOGANI B 4000 69.16
16/1/2008 505506 AXON INFOTEC SAPNA JOGANI S 4000 69.15
16/1/2008 505923 CEEKAY DIAKI MAHENDRA KUMAR JAIN B 22395 118.49
16/1/2008 505923 CEEKAY DIAKI MAHENDRA KUMAR JAIN S 22688 117.30
15/1/2008 532935 ARIES AGRO DYNAMIC STOCK BROKING I PVT LTD B 393429 234.62
15/1/2008 505506 AXON INFOTEC SAPNA JOGANI B 4000 73.06
15/1/2008 505506 AXON INFOTEC SAPNA JOGANI S 4000 73.05

Analyst Picks - Biocon, IDFC, Marico, ONGC

ONGC

CMP: Rs 1,209.45

Target price: Rs 1,348

CLSA expects ONGC shares to consolidate, citing absence of major triggers for at least a year.“With valuations at par with global peers, we see a more challenging near term stock outlook — especially as visibility on other triggers (discoveries, East Coast developments, ONGC Videsh re-rating, gas price deregulation, fuel pricing overhaul) is a year or more away,” the investment bank said in a recent note.

“While there is potential for 15-16% EPS upgrades if the likely Re1-2/litre price hike and Rs 2/litre excise cut in auto fuels is not followed by a hike in ONGC’s OIDA (Oil Industry Development Act) cess or subsidy sharing, the lacklustre outlook for ONGC’s production growth over FY09-10CL and its relatively modest leverage to crude prices (every $/bbl changes EPS by 0.5%) is a dampener for future surprises,” CLSA added.


IDFC

CMP: Rs 209.25

Target price: Rs 195

Citigroup rates IDFC a sell with a price Target of Rs 195. It believes the recent rise in this stock factors in possible positive surprises. “While the business momentum continues to remain strong and in line with expectations; we believe wholesale funded institutions such as IDFC are relatively more exposed to interest rate tightness/cyclicality (as is the case with many global markets currently) and should be valued at a discount to private banking peers,” the investment bank said in a note.

Citi estimates the infrastructure financier’s earnings per share (EPS) for 2007-08 at Rs 6.54 and Rs 8.82 in 2008-09. For 2006-07, IDFC reported EPS of Rs 4.48.

Marico

CMP: Rs 65.25

Target price: Rs 90

Kotak’s private client group recommends a buy on Marico, with a 12-month price Target of Rs 90.
“We expect business revenues to grow at a CAGR (compounded annual growth rate) of 23% over FY07-09. The PAT (profit after tax) is expected to grow to Rs 2.25 billion ( Rs 225 crore) at a CAGR of 41% over FY07-09E,” the retail brokerage said in a note.

“We forecast Marico will consolidate its leadership position in the beauty and wellness segment on the back of changing lifestyles, demand for high quality products and consistent introduction of new products and brand extensions. Kaya Skin Clinic, the skincare solutions business, is also expected to witness high growth post consolidation in FY07,” Kotak added.


Biocon

CMP: Rs 518.70

Target price: NA

IDBI Capital Markets has rated Biocon a buy, after its lower-than-expected third quarter earnings. It advises clients to buy the stock on fall citing better growth prospects.

“There are quite a few positive developments, the management has indicated intent of unlocking value in its contract research subsidiary ‘Syngene’ though an IPO. Also, Clinigine has now broken even and though much smaller presently, is likely to follow a similar path,” the institutional brokerage said in a report.

“The other research programmes - both in Oral Insulin and other biosimilars are progressing well. In fact, the company hopes to launch some of these in the Indian market as early as 2010. The process for registration and sale in a number of markets for injectible insulin/insugen is ongoing. The earliest launch in US / Europe could be 2-years hence, but the opportunity is big,” IDBI Cap added.

Reliance Power Final Subscription Details

Your Ad Here

Qualified Institutional Buyers (QIBs) - 82.6190 times

Non Institutional Investors - 190.0231 times

Retail Individual Investors (RIIs) - 14.8716 times

OVERALL - 73.04 times