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Sunday, November 29, 2009
MBL Infrastructures IPO Review
Investors with a high risk appetite and a two-year perspective can subscribe to the initial public offer of MBL Infrastructures Ltd (MBL), a player in the road segment. A healthy order-book, sound clientele, backward integration and steady margins are key positives for this construction contractor. While MBL does not possess any unique selling proposition, a steady business model, sustained earnings growth combined with attractive valuations buttress this offer. The company small size, competition and concentrated business model remain risks attached to similar businesses.
In the price band of Rs 165-180, the stock is valued at about 5.8 to 6.3 times its expected earnings for FY-10 on an expanded equity base. This valuation places it at a slight discount to similar sized peers such as KNR Construction and Tantia Constructions.
Background
MBL's project portfolio comprises road construction and maintenance contracts. Clientele is primarily made up of the Public Works Department and municipal corporations of various cities and states such as Mumbai, Delhi, Haryana and West Bengal. Projects are also funded by the World Bank and the Asian Development Bank. MBL, thus, has the credibility to secure repeat orders, especially in road maintenance contracts. The client base is likely to ensure a steady stream of contracts as public works is seldom affected by economic slowdown. MBL has also not seen project cancellations or payment delays thus far.
Having used joint ventures in project execution before, MBL plans to use such alliances to boost eligibility to bid for larger-sized build-operate-transfer contracts. It has completed a one-road BOT project. However, it has neither bid for nor won contracts since then. While small companies have ramped up operations to jointly bid and win BOT projects, MBL's current status can be said to be that of a contractor.
Given the competition and presence of large players in the BOT space, it may be challenging for the company to successfully venture into this space. However, even if it does not, we believe that as a contractor, it is positioned to secure ample business opportunities. Apart from local municipal works, the company is likely to get its pie of business from large road developers, which may subcontract the projects bagged by them.
Geographically, the company's projects cover a majority of the north and mark a presence in the south. Unexecuted order book stands at Rs 815.3 crore, about 2.2 times revenues for FY 09. Slated to be completed over a period of 18 - 24 months the order book provides medium-term earnings visibility. MBL has plans to increase contribution from industrial and urban infrastructure, but does not have any definite orders in hand, resulting in a heavy dependence on the road sector posing concentration risk.
About a third of MBL's revenues is sourced from waste management of steel plants such as SAIL. But with an operating margin of merely 1 per cent, it hardly aids overall profitability. This revenue stream is set to cease by the end of the current financial year; such a move could be positive as this business is unlikely to integrate with the primary road business and may act as a drag on resources.
Issue objects
The company plans to raise about Rs 100 crore through this issue. About Rs 55 crore is marked for acquisition of equipment and machinery. Funds raised will also be used to finance working capital.
Equipment ownership, though requiring higher capex in the short term, will ensure timely availability of key equipment, mobility between projects besides helping to reduce costs. MBL also operates its own ready mix concrete and bitumen divisions that serve captive consumption. It takes stone quarries on lease, mines and produces stone aggregates to meet raw material requirement.
It is, perhaps, this backward integration that has resulted in operating profit margin (OPM) jump to 14.5 per cent in FY-09, compared with the 10 per cent levels in FY-06. The profits margin achieved in FY-09 is commendable, given the raw material pressures faced by most infrastructure players. At 15.6 per cent, OPMs have been maintained in the June 09 quarter as well. Price escalation clauses built into most contracts would further protect margins.
Sales growth
MBL clocked health revenue and net profit growth of 46 and 48 per cent respectively, compounded annually over the last three years. The growth, while superior to many other players, comes from a small base. A repeat performance in future years may be a tough task. Further, debt taken to fund working capital, and depreciation on equipment have dented net profit margins. Comfort, though, may be derived from the fact that interest as a percentage of sales has remained around 4 to 5 per cent.
Offer details
The offer is open from November 27 to December 1. Motilal Oswal Investment Advisors is the book running lead manager. Given its risk factors, investors may consider setting target returns and exit the stock on meeting the same.
via BL
Saturday, November 28, 2009
Weekly Stock Picks - Nov 28 2009
Buy BEL
Buy Bajaj Auto
Buy Aurobindo Pharma
Buy Bharti Airtel
Buy Sintex Inds
Weekly Newsletter - Nov 28 2009
Once considered the magnet for international investment, Dubai is now repelling bulls world over. The debt problems in Dubai are having a cascading effect as panic sets in amongst most markets. The markets were waiting for an excuse to move up or down; and the Dubai default fear gave the bears reason to step in. The coming week will see a lot of stock-specific action based on the perceived impact due to the Dubai-issue. A section of the market believes that one should not co-relate too much as the market was anyways feeling heavy at the top. Take each day as it comes and the coming week sure will offer a lot in terms of good bargains. Picking up the large caps at lower rates would be a relatively safer bet for the coming week
Telecom war now on SMS service
Reliance Communications, India’s largest and only nationwide operator offering both GSM and CDMA mobile services, today initiated a radical move in the Indian telecom industry by making SMS’s more affordable to all mobile customers in India. Reliance Mobile customers can avail of two revolutionary SMS tariff plans: paisa per SMS plan and Unlimited SMS for just Re 1 per day
The new SMS tariff plans are add-on plans and are applicable for all Reliance Mobile customers irrespective of CDMA or GSM network as well as prepaid and postpaid customers.
"SMS continues to grow every year with more and more innovative ways of utilizing its potential coming in the forefront. Indians are using SMS as a mode of communication to keep in touch with friends and family. With select subscriber groups, SMS is a preferred communication mode over voice calls. On account of significant tariff disparity in the recent months, it has lost its due share of attention. Considering this, Reliance Communications with its 1st in the industry initiative, aims to revitalize SMS usage in the country", said Mr. Mahesh Prasad, President – Reliance Communications.
Obama says Namaste India
US President Barack Obama greeted Indian Prime Minister Manmohan Singh with a Namaste at the first state dinner in Washington. Calling India a rising and responsible global power, Obama ran through an exhaustive and expansive agenda between the two countries. Lavishing praise on Singh, standing next to him at the White House press interview, the president said India would play a 'pivotal role' in meeting future challenges in the world, and US-India ties will be the defining partnership of the 21st century.
"The United States welcomes and encourages India’s leadership role in helping to shape the rise of a stable, peaceful, and prosperous Asia," Mr. Obama said.
"So, engagement is the right strategy for India as well as for United States. We ourselves have tried very hard to engage China in the last five years and today China is one of our major trading partners," he said.
Indian Prime Minister Manmohan Singh said, "There are other values which are important than the growth of gross domestic product. I think the respect for fundamental human rights, the respect for the rule of law, respect for multi-cultural, multi-ethnic, multi-religious rights, I think those have values. So, even the Indian perforce with regard to the GDP might not be as good as the Chinese, certainly I would not like to choose the Chinese path.
Dubai…than sinking feeling!
Dubai, till recently the magnet for international investment, is now repelling bulls world over. That sinking feeling came yet again as debt problems in Dubai took its toll on financial markets world over. Safe-haven bonds rose and the rupee fell against the dollar. The debate of whether we are out of the woods or not will only gain further momentum again.
In what appears to be the biggest sovereign default since Argentina in 2001, Dubai has sought debt standstill agreement at its Dubai World holding company or in other words, a six-month reprieve on debt payments.
Dubai Inc as it is nick-named, is deep in debt of $80 billion and needs a bailout from Abu Dhabi.
Meanwhile, RBI governor, Duvvri Subbarao, said the RBI will study the situation in Dubai and if necessary communicate about what the implications likely are.
Speaking to reporters in Hyderabad, the RBI governor said, "We should not react to instant news like this. One lesson of the crisis is that we must study the developments, and I think we must measure the extent of the problem there and how it impacts India."
Nifty December 2009 futures at premium
Turnover declines
Nifty December 2009 futures were at 4953, at a premium of 11.25 points compared with the spot closing of 4941.75. Turnover in NSE's futures & options (F&O) segment declined to Rs 96075.18 crore from Rs 137130.38 crore on Thursday, 26 November 2009.
Tata Steel December 2009 futures were at premium at 544.35 compared to the spot closing of 543.40.
ICICI Bank December 2009 futures were at premium at 851.55 compared to the spot closing of 850.05.
Ranbaxy Laboratories December 2009 futures were at premium at 445 compared to the spot closing of 442.10.
In the cash market, the S&P CNX Nifty fell 63.80 points or 1.27% at 4941.75.
Dubai Debt Crisis Derails Asian markets
Hang Seng sink more than 1000 points while Shanghai, Sensex, Sydney drove deeper
Stock market in Asian region slumped in the sea of red on Friday, 27 November 2009, with investor’s pressing heavy sales in financial stocks amid fears of a likely debt default in Dubai.
The U.S. market was closed overnight on Thanksgiving Day holiday. But investors are seen tracking cues from European markets, where stock prices had plunged sharply after Dubai World asked for more time to meet its debt obligations. The mood is so bearish that stocks cutting across several sectors are seeing a fairly massive sell-off.
In the commodity market, crude oil tumbled to a six-week low as Dubai’s attempt to reschedule its debt prompted investors to sell commodities.
On the New York Mercantile Exchange, where markets didn’t settle yesterday because of a public holiday, January U.S. crude futures were trading at $74.36 a barrel, down 4.6% from the closing price on 25 November 2009.
Brent crude oil for January settlement fell $1.47, or 1.9%, to $75.52 a barrel on the London-based ICE Futures Europe exchange at 9:28 a.m. London time. Earlier, the contract plunged as much as 4.3% to $73.7.
Gold dropped the most since January in London as gains in the dollar damped demand for the precious metal as an alternative asset. Gold for immediate delivery dropped as much as $50.28, or 4.2 percent, to $1,138.10 an ounce, the biggest intraday slide since Jan. 12. The metal traded at $1,152.33 by 9:09 a.m. in London.
In the currency market, Dubai debt fear continued to drive investors away from risks, sending Asian stocks sharply lower while Yen soars, taking dollar higher with it. Investors are clearly worried about the risk of contagion effect from Dubai which could trigger second wave in the credit crisis.
Yen accelerates further, making another 14 year high against dollar and rallies sharply against other major currencies. The Japanese yen was quoted at 85.7 per US dollar, compared to 86.59 hit late Thursday in New York and 128.47 per euro.
The Hong Kong dollar was trading at HK$ 7.7503 against the dollar. Actually the Hong Kong dollar is pegged at HK$ 7.8 to the U.S. dollar but can trade between HK$ 7.75 and HK$7.85 to the U.S. dollar.
In Sydney trade, the Australian dollar slumped to an eight-week low on a strong yen on Friday after choppy markets and fears that Dubai may not repay its $US80 billion debt turned investors off riskier assets. Against the US dollar, the Aussie fell as far as $US0.8989, from Thursday's close of $US0.9220. At the local close on Friday, it had recovered slightly to $US0.9017, but still hovered at a three-week low.
In Wellington trade, the NZ dollar was ditched today by Japanese investors fearful of a financial meltdown in the Middle East but it found support at lower levels. The NZ dollar was US71.05c at 5pm from US71.62c at 8am and US72.49c at 5pm yesterday. The low of US70.45c has not been seen since September.
The South Korean won declined 1.72% against the U.S. dollar on Dubai debt fears prompted investors to flock into safe assets. The local currency closed at 1,175.5 won to the greenback, down 20.20 won from the previous session.
The Taiwan dollar weakened further against the greenback. The Taiwan dollar was trading lower against the US dollar at NT$ 32.3150, 0.0710 up from Thursday’s close of NT$32.2440.
In the equity market, Asian stock markets slumped with some suffering their worst losses in months amid concerns about the potential fallout from Dubai World's debt standstill, with bank and construction stocks leading decliners.
In Japan, fears that Dubai may default on its debt have sent Japan shares market lower, joining a global retreat, as investor’s dumped riskier asset on worries about the ripples from a new international debt crises in Dubai.
Investors’ sentiments remain fragile amid growing pessimism over a recovery in the world’s second-largest economy. Investors expect that the market might remain weak for perhaps a few months given ongoing worries over the prevailing toxic cloud of so-called “3Ds” i.e. deflation, dilution, and the ruling Democratic Party of Japan.
At the closing bell, the Nikkei 225 Stock Average index was at 9,081.5, lost 301.72 points or 3.22% from its previous close, while the broader Topix of all First Section issues on the Tokyo Stock Exchange dropped 18.55 points, or 2.34%, to 811.01.
The Nikkei 225 Stock Average index dropped 416.18 points or 4.38%, while the broader Topix index has lost 27.7 points or 3.3%, for the week ended Friday, 27 November 2009.
On the economic front, the statistic bureau of Japan said that country core consumer price index fell 2.2% in October from a year earlier, the eighth straight annual decline, as the economy wallows in deflation due to weak domestic consumer demand. An index stripping out both energy and food prices showed deflationary pressures were mounting. Month-on-month, overall consumer prices dropped 0.4%, and excluding fresh food, prices fell 0.1%.
Retail sales in Japan dropped 0.9% year-on-year to 10.83 trillion yen in October 2009, the Ministry of Economy, Trade & Industry reported on Friday. Sales in large-scale retail stores declined 7.2% annually to 1.56 trillion yen in October. Wholesale sales plummeted 24.4% to 30.17 trillion yen.
Meanwhile, the Ministry of Internal Affairs & Communications reported that Japan's unemployment rate stood at a seasonally adjusted 5.1% in October, down from 5.3% in the previous month.
In Mainland China, share market stumbled with all ten sectors tilted into red terrain, hit by concerns over Dubai’s financials health. The shock from Dubai’s move to suspend payments due on a slice of Government-backed debt spilled over the world market. Investors recoiled from risky asset like materials and energy and also dumped banks and financials and properties stocks on rekindled fear that Dubai debt default could reignite the financial turmoil of the credit crises.
The Shanghai Composite Index, measuring A shares and B shares on the Shanghai Stock Exchange, slumped 74.71 points, or 2.36%, to 3,096.26, meanwhile the CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, tumbled 2.96%, to 3,382.51. The Shenzhen Component Index on the smaller Shenzhen Stock Exchange retracted 3.09% or 411.23 points, to 12,876.15. The Shanghai Composite index stumbled 212.08 points, or 6.41%, while the CSI 300 Index retracted 248.5 points or 6.84%, for the week ended Friday, 27 November 2009.
In Hong Kong, the stock market plummeted as heavy selling triggered across the sector after a weaker performance in mainland bourses and European markets and lower US index futures on concern over losses stemming from Dubai’s attempt to reschedule its debt.
At the closing bell, the Hang Seng Index hammered 1,075.91 points, or 4.84%, to 21,134.50, meanwhile the Hang Seng China Enterprise, which tracks the overall performance of 43 mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, stumbled 674.15 points, or 5.13%, to 12,472.13. The Hong Kong benchmark Hang Seng Index surrendered 1,321.34 points or 5.88%, while Hang Seng China Enterprises retracted 857.53 points or 5.88%, in the week ended Friday, 27 November 2009.
In Australia, the share market plummeted with all round of selling across twelve sector, sparked by meltdown in European stocks and other Asian bourses after ‘Dubai World’, the Dubai government’s investment and development vehicle, said it would halt repayments for up to six months on its nearly $60 billion in debt.
At the closing bell, the benchmark S&P/ASX200 index sagged 136.5 points, or 2.9%, to 4,572.1, meanwhile the broader All Ordinaries plummeted 130.4 points, or 2.76%, to 4,597.2. The benchmark S&P/ASX200 index shrank 113.70 points, or 2.43% in the week ended Friday, 27 November 2009, meanwhile the Broader All Ordinaries lost 109.50 points or 2.33%, during same period.
In New Zealand, benchmark index declined by more than 1% to end the last trading day of the week in the negative terrain on Friday. The NZX50 declined 1.06% or 32.87 points to 3094.43. The NZX 15 lost 0.60% or 33.42 points to close at 5616.47.
In South Korea, stocks finished lower Friday as investors fretted over debt problems in Dubai. The market's decline followed reports that Dubai World, a Dubai government investment fund, has asked creditors for a debt payment deferment. The benchmark Korea Composite Stock Price Index (KOSPI) declined 75.02 points or 4.69% to end at 1,524.50, carrying its losing streak through a second consecutive session.
Stock markets in Singapore were closed for the holiday.
In Taiwan, stock markets dumped their recent gains, following the fear of Dubai debt crisis as Dubai World, developer of some of the glitziest properties on the planet comes up short on repaying debt. The fear of contagion in the financial sector was seen through the exposure of Cathay Financial, Taiwan's largest listed financial services provider by assets.
The benchmark Taiex share index slumped to three weeks low on Friday, ending lower by 248.35 points or 3.21% in a day, closing at 7490.91, the lowest closing since 6 November 2009 when market finished the day at 7463.05
In India, key benchmark indices cut steep intraday losses as European stocks recovered from an initial slide. News that China has pledged to stick with a pro-growth stance in 2010 also helped. The market recovered after a heavy sell-off in early afternoon trade triggered by worries about Dubai's debt problems. Investors were also spooked by broader fears that global financial markets have not healed properly since last year's crisis, and that the Dubai problem could expose these weaknesses.
The BSE 30-share Sensex was down 222.92 points or 1.32% to 16,632.01. The S&P CNX Nifty was down 63.80 points or 1.27% to 4941.75.
Elsewhere, Malaysia's Kula Lumpur Composite index finished lower at 1270.61 while stock markets in Indonesia’s Jakarta Composite index gave up 68.01 points ending the day lower at 2393.45.
In other regional market, European shares pulled back from early lows on Friday, as investors started to buy up shares in firms battered in the previous session by news that Dubai is seeking to postpone repaying the debt of its corporate entity Dubai World. Regional share markets were also off lows in Europe. The U.K. FTSE 100 index declined 0.3% or 13.72 points to 5,180, the German DAX index fell 0.2% or 12.76 points to 5,603 and the French CAC-40 index lost 0.1% or 4.10 points to 3,675.
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