Watch for the following stocks

Scrips  with Targets

Kaveri Telecom   >>     200
TCFC                  >>     50
Sterling Resort    >>     75
Thirumalai           >>     250
Fairfield Atlas      >>     150
Patel Engg           >>     400

Hindu Businessline Recommendations

Buy >> Maruti Udyog, Container Corporation,
>> TISCO, Sun Pharma, Harrisons Malayalam

Hold >> I-Flex Solutions, P&G

Indian investors follow 'beacon'

Read here

Exhibiting strength

The Nifty has moved above the 1973 resistance level and closed on a strong note. After posting a double bottom at 1900, the index moved above the peak of 1973 and in the short-term is likely to exhibit momentum. On the upside the Nifty is likely to target 2012 and 2020.
The 20-DMA at 1958 and the 10-DMA at 1940 are support levels. Any intra-day decline should see the Nifty find support around 1958 and 1940.

Dena Bank has a support at Rs 28.50 and on the upside the stock could test Rs 33. Canara Bank has a support around the rising gap at Rs177-178 and any intra-day decline should see the stock find support around this level. On the upside the stock could move to Rs 197.

Reliance Industries is likely to exhibit intra-day strength above Rs552. SBI could test Rs 635 and the stock has a support at Rs 606.

Stock Ideas Report Card

Aban Loyd Chiles Offshore
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs2,330
Current market price: Rs1,948

Well on growth track

Result highlights

• Aban Loyd Chiles Offshore's revenues from operations for Q4FY2005 were up by 52.6% year on year (yoy) and by 79.1% quarter on quarter (qoq) to Rs102.7 crore. For the full year the growth was 6% yoy in line with our expectations.
• The operating profit for Q4FY2005 was up by 103.5% yoy (226.6% qoq) to Rs60.8 crore. For FY2005 the performance was much ahead of our expectations with a growth of 14.6% yoy.
• The net profit for Q4FY2005 was up by 100.3% yoy (96.3% qoq) at Rs19.9 crore.
• However the net profit for FY2005 at Rs50.1 crore was below our expectation due to higher both depreciation and interest cost.

 

Alok Industries 
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs120
Current market price: Rs63

Well woven

Alok Industries reported a 64% rise in the net profit for Q4FY2005, ahead of our expectations. A large part of the outperformance was on account of the additional export incentives given under the "Target Plus" policy announced in the last export-import policy. An impressive performance with regard to the exports of bed linen and a 100-basis-point expansion in the operating margin, primarily reflecting a change in the product mix, were the key highlights of the results. However the earnings per share have been short of our estimate as the majority of the dilution on account of the foreign currency convertible bonds and optionally fully convertible debentures issued to the Life Insurance Corporation was completed in FY2005. Additional capacities in bed linen and apparel wear are going on stream in the middle of FY2006 which should drive the earnings growth. We are marginally upgrading our FY2006 EPS estimates by 5.7%. The stock currently trades at 6.8x FY2006E earnings.

Bharat Bijlee 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs4,550
Current market price: Rs4,000

Power-packed future 

While initiating coverage on Bharat Bijle in our report dated November 29, 2004 we had mentioned the following investment arguments:

• Reforms in the power sector to be the driver of Bharat Bijlee's transformer business;
• A high level of industrial activity to drive volumes of its electric motor business;
• The transfer of its lift division to improve its profitability and return ratios; and
• Cash and cash equivalent in its kitty shall provide safety.

All of these investment arguments are gradually materialising, thereby improving the business prospect and earnings outlook for Bharat Bijlee.

 

Cipla 
Cluser: Cannonball
Recommendation: Buy
Price target: Rs310
Current market price: Rs254

VAT blues
With the export strategy in place through tie-ups with companies based in the USA and the UK (as an outsourcing hub), the revenue streams for the company have now become stable. The company has also commissioned a new manufacturing unit in Baddi, Himachal Pradesh. The margins over the last few quarters have also shown an improvement. We maintain our buy on the stock with a price target of Rs310.

Corporation Bank 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs370
Current market price: Rs346

Strong operating growth

Corporation Bank has reported a strong growth of 16.6% year on year (yoy) and of 3.9% quarter on quarter (qoq) in its net interest income (NII) for Q4FY2005. The growth in the NII rebounded after a meagre 3.3% growth posted by bank in Q3FY2005. However the net profit declined by 9.9% as the bank made a higher provision for bad loans against a write-back of Rs19 crore in Q4FY2004. The fee income also showed an impressive growth of 24% yoy and of 42.9% qoq for Q4FY20005. However the profit for the full year at Rs402.2 crore was lower than our estimates of Rs640 crore as during Q2FY2005 the bank transferred Rs4,930 crore of government securities from the Available for sale (AFS) category to the Held till maturity (HTM) category, providing an accounting loss of Rs205  crore. Adjusting for this one-time losses the net profit of the bank would have been Rs607 crore compared to our estimate of Rs640 crore. At the current market price of Rs346.5, the stock is quoting at 8x its FY2006E earnings and 1.4x its FY2006E book value. We maintain a Buy on the stock.

ESAB India  
Cluster: Vulture's Pick
Recommendation: Buy
Price target: Rs215
Current market price: Rs205

Earnings surge

• Esab's net sales for Q1CY2005 grew by 24% year on year (yoy) and stood at Rs54.1 crore.
• The operating profit margin (OPM) improved by 760 basis points yoy and by 140 basis points quarter on quarter on account of a drop in the consumption of raw material. The raw material cost as a percentage of sales fell from 50.1% to 46.9% yoy and dropped by 120 basis points sequentially.
• The improvement in the margins was primarily driven by a huge improvement in the margins of the Equipment division, which saw a rise of a whopping 1,280 basis points to 18.4%.
• During the quarter the operating profit zoomed by 89% to Rs12 crore as against Rs6.34 crore for the corresponding period last year.
• The net profit for the quarter registered a staggering growth of 155% and stood at Rs7.5 crore.

Geometric Software Solutions 
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs550
CMP: Rs485.00

Growing in double-digits 

Result highlights

• Geometric Software Solutions' overall results are in line with our expectations.
• The top line is up by 14.7% in rupee terms quarter on quarter (qoq). In dollar terms the same is up by 17.2%.
• The operating profit margin fell during the quarter but if we ignore the one-time expenses incurred during the period the same is largely in line with expectations.
• The company has given a robust growth guidance for FY2006: a growth of 45-50% in the top line in US Dollar terms and a similar growth at the net profit level.
• At the current market price the stock is quoting at 12.3x FY2006E earnings.
• We maintain our Buy call on the stock.
  
  

Gujarat Ambuja Cement 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs500
Current market price: Rs424.00

Reading between the lines 

Results highlights

• Gujarat Ambuja Cement's net sales registered a growth of 19.4% year on year on the back of a 15% growth in cement sales and a 4% growth in cement realisation.
• The operating profit margin (OPM) is down 280 basis points primarily because of a huge 26% rise in power and fuel costs, and a 19% increase in staff cost.
• The operating profit grew by 9.1% and stood at Rs199 crore as against Rs182.3 crore last year.
• A 19.6% increase in the depreciation charge resulted in a negative bottom line growth of -1.5%.
• Adjusted for an extraordinary foreign exchange loss, the stand-alone net profit is higher by 24% at Rs146.7 crore. The consolidated net profit registered a growth of 22.6% to Rs161.7 crore.
• The company has announced a dividend of 60% (Rs6 per share), a 1:2 bonus issue and a 1:5 stock split (face value to be split from Rs10 to Rs2).

HCL Technologies 
Cluser: Ugly Duckling
Recommendation: Buy
Price target: Rs400
Current market price: Rs347

BPO business drives growth 

Result highlights

• HCL Technologies' revenues grew by 7.1% quarter on quarter (qoq) in Q3FY2005.
• Its software services business grew at a disappointing 3.3% qoq in rupee terms.
• The business process outsourcing (BPO) business continues to record a strong growth and grew by 17.9% qoq.
• The infrastructure management business grew by 24% sequentially.
• The overall EBITDA margins were maintained again.
• The stock trades at 14.0x FY2006E and at 4.6% dividend yield. We maintain our Buy call.

HDFC Bank 
Cluster: Evergreen
Recommendation: Buy
Price target: Rs600
CMP: Rs558.55

A "30%" machine

Result highlights

• HDFC Bank's net interest income (NII) grew by 42.4% year on year (yoy) for Q4FY2005 and by 33.2% yoy for the full year ended March 31, 2005.
• During FY2005 the net advances grew by 44.1% to Rs25,566 crore driven by a 47.5% growth in the retail advances.
• The bank's deposits grew by 19.6% yoy during FY2005 on the back of a 46.3% growth in the saving account deposits.
• The capital adequacy ratio (CAR) improved from 9.7% in Q3FY2005 to 12.2% in Q4FY2005 on account of an American depository share (ADS) issue of $293.4 million.
• The bank has declared a dividend of Rs4.50 per share for FY2005.

 

Hyderabad Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs300
Current market price: Rs210

A clean(-up) exercise

Result highlights

• Net sales of Hyderabad Industries Ltd (HIL) in Q4FY2005 rose 30.5% to Rs114.7 crore, driven by a 28% increase in the sales from the Asbestos division.
• The operating profit stood at Rs13.97 crore in Q4FY2005 as compared to Rs7.09 crore in Q4FY2004.
• HIL reported a net loss of Rs5.73 crore in Q4FY2005. However the net profit before extraordinary items stood at Rs4.9 crore, registering an increase of 129%
• The net sales increased by 25.8% to Rs407 crore in FY2005.
• The operating profit in FY2005 rose by 332% to Rs49.34 crore.
• The net profit before extraordinary items stood at Rs20.4 crore as compared to a loss of Rs4.2 crore in FY2004.

Indian Petrochemicals Corporation 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs230
Current market price: Rs170

Another quarter of growth

Result highlights

• Indian Petrochemicals Corporation Ltd's (IPCL) net sales for Q4FY2005 are higher by 1% compared to that in the corresponding quarter of last year because of a drop in the revenue from the chemical trading business.
• However the operating profit for the quarter grew by 71.5% as the operating profit margin (OPM) expanded by 826 basis points
• The interest cost was lower by 42% year on year (yoy).
• The net profit adjusted for extraordinary items is up by 239.4% yoy.

Infosys Technologies 
Cluster: Evergreen
Recommondation: Buy
Price target: Rs2,500
CMP: Rs1,957.00

Top line grows by 6% 

Result highlights

• Infosys Technologies' top line grew by 6.0% on a sequential basis, at a rate lower than our expectations but higher than the company's guidance.
• The operating profit grew by 7.9% on a sequential basis. 
• The operating profit margin (OPM) improved for the second consecutive quarter.
• The provision for post-sales customer support, the higher depreciation cost and the lower other income affected the bottom line, which grew at just 3.2% sequentially.
• Although there will be apprehensions with regard to the company's performance in the short term (considering the muted first quarter guidance given by the company), yet the long-term outlook for the information technology giant remains positive.
• At the current market price the stock is quoting at 21.2x FY2006E earnings.
• We maintain our Buy call on the stock with a 12-month price target of Rs2,500.

Jaiprakash Associates 
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs240
Current market price: Rs186

Raising the target
At current levels the stock is discounting its FY2006 consolidated estimated EPS of Rs21.5 by 8.7x. We believe that the stock's valuations are attractive, considering the robust order book of the construction business and firm cement prices across the company's key markets. We reiterate our Buy recommendation on the stock with a revised price target of Rs240.

 

Mahanagar Telephone Nigam 
Cluser: Vulture's Pick
Recommendation: Buy
Price target: Rs170

Current market price: Rs121

Numbers ahead of expectations 

Result highlights

• The top line is up 4.5% quarter on quarter (qoq) ahead of expectations.
• EBITDA margins declined, but are not comparable qoq.  
• Valuations are attractive at a dividend yield of 4.1-4.5%.
• We maintain our buy with a reduced price target of Rs170.

NDTV 
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs245
Current market price: Rs175

Encouraging numbers 

Result highlights

• NDTV's overall numbers are ahead of expectations.
• The company's top line for Q4FY2005 was up 76% year on year (yoy)--5.5% higher than our expectations.
• The operating profit for Q4FY2005 is 28.8% higher than our expectations.
• NDTV's future looks more promising following the announcement of the results.
• We maintain our Buy call.

 

Reliance Industries  
Cluster: Evergreen
Recommendation: Buy
Price target: Rs660
Current market price: Rs539

Results above expectations

Result highlights

• Reliance Industries' revenues for Q4FY2005 are up by 29.6% year on year (yoy) (by 0.6% quarter on quarter or qoq) to Rs19,840 crore on the back of buoyant refining margins and a surge in the petrochemicals cycle.
• The operating profit is up by 34% yoy (7.8% qoq) to Rs3,546 crore.
• The net profit has risen by 61.5% due to a one-time adjustment of Rs300 crore in the deferred tax liability.
• Reliance Infocomm broke even at the net profit level during the quarter.
  
  

Satyam Computer Services 
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs450
Current market price: Rs405

Results meet expectations 

Result highlights

• Among the Indian information technology (IT) companies that have declared their Q4FY2005 results so far Satyam Computer Services has reported the highest volume growth of 8.7%.
• During the quarter the company's top line grew by a good 8.8% in US Dollar terms and by 7.0% in Indian Rupee terms, both on a sequential basis.
• The operating margins improved by 10 basis points (despite a 1.8% appreciation in the rupee against the dollar) due to a higher growth in the offshore business.
• The net profit grew at 22% on a sequential basis due to a higher other income and lower taxation.
• The company has acquired Citisoft, a UK based company.
• At the current market price the stock is quoting at 13.6x FY2006E earnings.
• We maintain our Buy call on the stock.

Tata Metaliks

Cluster: Emerging star
Recommendation: Book Profit
Current market price: Rs161

Disappointing results

Result highlights

• Tata Metaliks Ltd's (TML) revenues grew by 101.7% to Rs71.5 crore year on year (yoy); the revenues however declined by 3.7% sequentially due to lower realisations.
• The margins came under pressure with the operating profit margin (OPM) down from 41.5% in M9FY2005 to 21.6% in Q4FY2005.
• The cost of its raw materials rose in Q4FY2005, with the cost as a percentage of sales rising from 47.9% in M9FY2005 to 60.5% in Q4FY2005.
• The profit after tax (PAT) growth was lower at 30.2% to Rs8.8 crore and failed to meet our implied Q4FY2005 estimates of Rs14.3 crore.
• The earnings for FY2005 at Rs25.3 per share were also lower than our estimates of Rs27.6 per share by Rs2.3 per share.
• In view of the pressure on the company's margins, we revise our FY2006 estimates downwards by 14.6%. We recommend investors book profit at the current market price. (The stock is up 284% from our recommended price of Rs41.9).

Upper Ganges Sugar Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: Rs210

Against all odds

Result highlights

• Upper Ganges Sugar Industries Ltd's (UGSIL) revenues for Q3FY2005 grew by 28.7% year on year (yoy) and by 44.4% quarter on quarter (qoq) to Rs104.9 crore.
• The operating profit grew by a strong 34.8% yoy (by 76.9% qoq) to Rs36.7 crore.
• The pre-exceptional profit was up by 144.8% yoy; however exceptional items marred the show. Post-exceptional items the profit was down by 22.2% yoy.
• About 1,325,000 quintal of sugar stock was carried forward to the last quarter of the year with unrealised gains of Rs43 crore.

UTI Bank 
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs300
Current market price: Rs238

Bank on it

Result highlights

• UTI Bank's advances have grown strongly by 67% year on year (yoy) in Q4FY2005; deposits too have grown by 52% yoy though at the expense of net interest margins (NIM).
• The net interest income (NII) has grown a tad slower at 19.6% yoy during Q4FY2005.
• The other income has however grown by 62.4% yoy on the back of a strong growth in the fee income and treasury profits.
• The bank's net non-performing assets (NPAs) as a percentage of its net advances was stable yoy—it improved by 27 basis points quarter on quarter (qoq).
• A global depository receipt (GDR) issue of $239 million improves the bank's Tier-I capital adequacy ratio (CAR) to 8.87%; its overall CAR was at 12.66%.

---

SECTOR UPDATE

Cement 

The road ahead... 

The cement industry on a whole had a fairly decent run in FY2005, when it witnessed a rather rare phenomenon of a growth in excess of 6% in both volumes and cement prices. However FY2006 and FY2007 will be very crucial for the industry, as we believe the industry is on the verge of a demand-supply equilibrium and any significant amount of greenfield capacity addition could disrupt the parity and adversely affect cement prices which in turn could affect the profitability of the cement manufacturers.

Sugar

Pick your sweets

Exit Oudh Sugar, buy KCP Sugar and Upper Ganges
Oudh Sugar Mills, which is based in Uttar Pradesh, too faces the risk of being made to pay the huge arrears for the 2002-03 season. Looking at this risk and the declining probability of another hike in the price of sugar we recommend investors exit the company.

On the other hand a higher carried forward stock (at a cost of Rs13-14) should work as a near-term trigger for Upper Ganges Sugar. The incremental earnings per share from the carried forward stock would be even higher due to the lower equity base of the company.

KCP Sugar and Industries has the advantage of being located in the coastal Andhra Pradesh belt and the risk of SAP doesn't affect the company except for presenting a meagre liability of Rs2 crore for the 2002-03 season. A 6-megawatt power plant that is expected to be commissioned in September 2005 would also augment the company's revenues.

We maintain our Buy call on Upper Ganges and KCP Sugar Industries.

---

SHAREKHAN SPECIAL

Consumer power

Is the FMCG sector coming out of hibernation? Yes, if the sector trends are to be believed:

• A handsome growth in volumes across segments in the fourth quarter of the calendar year 2004.
• The capital expenditure cycle is turning upwards after a long time--companies are heading north to take advantage of tax breaks.
• A good south-west monsoon to be crucial for the sector.
  

---

VIEWPOINT

Ador Welding
Current market price: Rs121.80

Impressive results
Based on Ador's results, ESAB India is likely to post equally impressive numbers.

Result highlights

• During Q4FY2005, the net sales of Ador Welding have registered a smart growth of 43% to Rs66.65 crore. The net sales have maintained the momentum even on a sequential basis registering a growth of 43%.
• The operating profit margin (OPM) has registered an increase of 510 basis points sequentially and stood at 19.5%, primarily because of a sharp drop of 420 basis points in the raw materials/sales ratio (on a sequential basis)  from 51.6% to 47.4%.
• This combined with a 43% rise in the sales has pushed up the operating profit by a whopping 112% on a sequential basis.
• The net profit for the quarter (adjusted for extraordinary items) has registered a huge growth of 229% sequentially and a 64% growth year on year to Rs11.28 crore.
  

Bharti Tele-Ventures

Current market price: Rs207

Ringing in good numbers

Result highlights

• Bharti Tele-Ventures' Q4FY2005 results-a growth of 16.0% in the earnings before interest, tax, depreciation and amortisation (EBITDA) quarter on quarter (qoq) and a growth of 17.2% in the net profit qoq—were ahead of estimates.
• The operating leverage effect in the mobile business and the margin gains in the long distance business from the cut in the access deficit charge (ADC) and bad debt write-backs led to the positive surprise.
• The revenue per minute of mobile business declined from Rs1.5 to Rs1.4 on a quarter-on-quarter (q-o-q) basis on account of the ADC cut and higher pre-paid mix but the EBITDA per minute remained stable at Rs0.47/minute.

 

Sona Koyo Steering Systems
Current market price: Rs60

On growth path

Sona Koyo Steering Systems (Sona Koyo) has reported strong Q4FY2005 results with a profit after tax (PAT) of Rs6.2 crore, exceeding our estimates mainly due to a higher other income. The PAT grew by a record 73.7% year on year (yoy) despite higher interest and depreciation charges, boosted mainly by the other income of Rs2 crore. Despite a steep increase in its input costs, the company managed to improve its earnings before interest, depreciation, tax and amortisation (EBIDTA) margin by ten basis points to 11.8%, driven by higher economies of scale. Its net sales increased by 30.6% yoy and by 12.7% quarter on quarter (qoq) to Rs87.4 crore (as against the industry average of 18% yoy) owing to higher export sales of Rs11.1 crore.

 

Tata Consultancy Services           

Current market price: Rs 1,115

TCS belies expectations

Q4FY2005 result highlight

• The overall results of Tata Consultancy Services (TCS) are significantly below market expectations.
• The company's top line grew by just 0.2% quarter on quarter (QoQ); even in US Dollar terms the growth was low at 2.3%.
• The operating profit margin declined by 250 basis points while the operating profit declined by 8.6% QoQ.
• At the current market price the stock is quoting at 22.8x FY2005 earnings; the earnings exclude the Rs102 crore provided towards economic value added linked variable compensation and a one-time expense of Rs204 crore.

 

Wipro
Current market price: Rs648

Report card reads good

Result highlights

• Wipro's overall numbers are in line with street expectations.
• The top line of the Global IT Services business grew by 6.3% (in $ terms) sequentially led by a good volume growth of 8.5%.
• The operating margins in the Global IT Services business were stable.
• Another quarter of muted performance by Spectramind.
• The management's guidance for Global IT Services business implies a growth of 5.3% in the next quarter.
• The stock trades at 21.6x FY2006E earnings.

Moving towards 1973

The Nifty surpassed its 10-DMA at 1940 and ended the trading session on a strong note. On the upside the index is likely to target its recent high of 1973. On the downside 1920 is a crucial support level. Any intra-day decline should see the Nifty find support around 1920. In the short-term the index has formed a double bottom around 1900 (1902 and 1895), which should now provide strong support and the Nifty is likely to move up to 1973.

Oriental Bank of Commerce could test Rs300 on the upside. Any intra-day decline should see the stock find support around Rs282. Maruti is likely to exhibit intra-day strength above Rs415. Reliance Industries could test the Rs550-554 range and on the downside the stock has a support at Rs533. Tisco will exhibit intra-day strength above Rs355.75.

Shree Cement

Shree Cement
Cluster: Emerging Star
Recommendation: Book profit
Current market price: Rs367

 

Book your gains

 

We had recommended a Buy on Shree at Rs267 with a price target of Rs353 on January 5, 2005. Subsequently we revised our price target to Rs400.The stock has appreciated by 39%  since we recommended a Buy on it. However we believe the rising fuel cost will affect the earnings of all cement players and consequently have an impact on their valuations.

At the current market price of Rs367 Shree is quoting at US$98 per tonne of cement (on expanded FY2006 capacity of 3.8 million tonne) and at 6.5x FY2006 E earnings before interest, depreciation, tax and amortisation. We believe the stock's valuations are justified and advise investors to book profits at these levels.

Source : Sharekhan

Motilal Oswal Reports

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Cyber Media (India): Avoid

Retail investors may avoid the initial public offering of Cyber Media (India) as the risks involved in the projects in the pipeline planned are fairly high. Given Cyber Media's long presence in niche media publications segment, it plans to scale-up its presence in content BPO (business process outsourcing) using its existing customer relationships, especially in the European market. This project is to be launched by May 2006.

While the initial flow of projects for content BPO may not be an issue, managing the challenges of scale-up, process efficiencies, attrition and competition will be fairly stiff. As the company claims that content BPO will be its main thrust area in the coming years, investors will have to assess its track record in content creation and delivery and the right tie-ups with agents in Europe over a longer time frame before taking an exposure in the stock.

Besides this Cyber Media is also launching three media publications that are to be financed through this IPO. As Singapore is slowly emerging as Asia's global hub for biomedical sciences, the company is launching BioSpectrum Singapore, a magazine focused on the nascent field of biomedical sciences. Second, to focus on the growing field of BPO, it is planning a magazine, Global Outsourcing that will focus on the readership in the Indian and American markets. Both the magazines are likely to be launched between May and July 2006. Finally, McGraw Hill, the publishers of BusinessWeek, has licensed Cyber Media to publish BusinessWeek India, subject to permission from the Ministry of Information and Broadcasting.

A chunk of the revenues for these two publications - BioSpectrum Singapore and Global Outsourcing - will be derived from advertising. As these two publications will be aimed at a global audience, the competitive intensity for advertising revenues will be quite high. Unlike information technology, where Cyber Media has operated over five publications in India for long, its exposure to the field of biotechnology and bioinformatics has been of more recent vintage (2002). Though it has run this magazine in the domestic market for over two years now and estimates a readership of 40,000, replicating this experience for a global audience remains untested.

As the quality of content will drive advertising revenues to start with, margins on this magazine will be fairly low for at least a year or two.

Relatively, its BPO publication may be placed on a better footing as it has an established presence in the Indian market.

Given these uncertain variables, the offer price of Rs 60 per share, which works out to a price-earnings multiple of 10 times the annualised per-share earnings for 2004-05, appears to be on the high side.

Cyber Media's integrated model in the publishing businessis a positive. For the nine months ended December 31, 2004, Cyber Media clocked consolidated revenues of Rs 50.4 crore and post-tax earnings of Rs 3.25 crore. The operating profit margin stands at 13.5 per cent, steadily moving up in the last couple of years.

Last year was the best for the print media across an entire business cycle, with advertising revenues driving overall growth for the general and special media.

The real test will be in sustaining this growth over the coming years. Given its long presence in this sector across publications that cover IT, telecom and consumer electronics, Cyber Media will be in a position to maintain its growth momentum.

Moreover, its integrated model has confined its dependence on advertising revenues to about 50 per cent of its consolidated revenues, with the rest coming from multimedia, online, event management and research sources. While this is encouraging, the new projects planned by Cyber Media present a new set of challenges and risks that may impact the group's overall performance.

Facts: Cyber Media is offering 28.2 lakh shares to raise Rs 16.9 crore . The offer opens on May 4 and closes on May 9. The lead manager is Khandwala Securities.

Hindu Businessline Recommendations

Buy >> Hindustan Lever ( Long Term ), Ashok Leyland, Hexaware Technologies, Automotive Axles

Sell >> Biocon ( Reduce Exposures )

Shoppers Stop - Equitymaster - IPO Analysis

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Infosys - Equitymaster - Stockselect

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Reliance: Good numbers but…

Performance Summary

Reliance Industries has announced strong results for the fourth quarter and year ended March 2005. For FY05, while revenues have grown YoY by 28%, profits are up 47%, mainly on account of a slight margin expansion and higher other income. The fourth quarter was much more robust with the company clocking over 26% revenue and nearly 62% bottomline growth.

What is the company's business?

Reliance Industries is the country's largest private sector company having interests across the hydrocarbons value chain. The company, along with subsidiary, IPCL, controls over 70% of the country's domestic polymer capacity. Further, the acquisition of the German company, Trevira, by Reliance makes it the largest polyester manufacturer in the world. The company also has interests in the upstream petroleum sector, whereby it has participating interests in existing oil and gas fields, while it is likely to begin commercial production from its Krishna Godavari fields in 2007. It has recently ventured into fuel retailing with nearly 300 outlets.

What has driven performance in FY05?

Robust pricing key to realizations:  During FY05, the company's gross revenues were up by about 30% YoY. Of this, 24% could be attributed to higher product prices, while the balance 6% is on account of higher volumes. Firm petrochemical and petroleum product prices in the international markets helped boost realizations. The company also witnessed a jump of 71% in export revenues. Although the company sells petroleum products to oil marketing PSUs in the domestic markets at a discount, higher prices on a YoY basis explains the growth in the topline.

Operating margins:  In 4QFY05, operating margins improved encouragingly (1.1%), while the improvement was marginal during FY05. The increase in margins during the March quarter could largely be attributed to a scale down in other expenditure head of the company. Raw material costs (forming over 85% of expenditure) increased by 2.5% during the quarter. However, for the said period, strong product prices helped the company enjoy gross refining margins at over US$ 8 per barrel, thereby negating the hike in raw material costs.

Other income boost:  The bottomline growth of nearly 47% during FY05, is largely a result of higher other income component, which has grown by over 27% during the period. The other income boost was largely on account of income from preference shares. Also helping boost the bottomline were extraordinary expenses that were part of last year's financials. But for a marginal rise in interest outgo (due to foreign exchange differences) and depreciation during the year, the bottomline growth could have been better for the FY05 period.

What to expect?

At the current price of Rs 554, the stock is trading at a price to earnings multiple of 10.2 times FY05 earnings. The board of the company has recommended a final dividend of Rs 7.5 per share (dividend yield of 1.3%). The current petrochemicals uptrend has helped Reliance post record profits for eight consecutive quarters. Given the firm international demand on the back of no significant capacity addition, Reliance is likely to continue to maintain momentum in the medium term.

Also, refining margins are likely to remain robust in wake of high crude oil prices and growing demand for petroleum products. Infact, domestic demand for petroleum products increased by 4.8% in FY05, as compared to 3.5% last year.

Its retail foray is also going strong with product sales higher volumes per outlet as compared to the PSUs. Although the company has not made any significant breakthrough in the retail business, it is likely to continue to grow over the next couple of years. The company has approvals for setting up 5,849 retail outlets in India. The company's E&P business (oil and gas) is on track and the its telecom initiative (Reliance Infocomm) posted a profit of Rs 510 m in FY05, as against a loss of Rs 3.9 bn last year. All in all, the company is likely to continue on a higher growth trajectory during the medium term backed by its core business. However, the tussles in the top management are likely to have a bearing on investor sentiment till the issue is resolved.

Gillette: India Vs USA

A name synonymous to male grooming worldwide, the Gillette Company today is the global market leader, principally in the grooming and alkaline battery segment. It also has a decent presence in oral care business. In the more than 100 years since the company was founded, Gillette has gained, held and strengthened leadership positions globally. We decided to compare Gillette India with Gillette USA (Consolidated Worldwide) to get a perspective as to where does its Indian operations stand vis-à-vis the global parent.

Background

Gillette USA: A company founded in 1901, Gillette is the world leader in male grooming (Gillette, Sensor Excel, Mach range etc.), a category that includes blades, razors and shaving preparations, and in selected female grooming products, such as wet shaving products and hair removal devices. In addition, the company holds the number one position worldwide in alkaline batteries (Duracell) and in manual and power toothbrushes (Oral B). Gillette manufacturing operations are conducted at 31 facilities in 14 countries, and products are distributed in over 200 countries and territories.

Gillette India: Earlier known as Indian Shaving Products, the company's presence in India is over two decades old. The company was rechristened to Gillette India Limited in CY00, the same year in which it consolidated its Indian operations, by merging all existing businesses in India under a single fold. Gillette India is the 52% subsidiary of US shaving major - Gillette USA. The company's promoter groups' (including the Indian partners) together hold 88.8% in the company. The company hived off its battery manufacturing (Duracell and Geep) plant at Manesar in CY03 and is now a focused shaving product major, which also markets the Duracell range of batteries.

Despite being the 2nd most populous country in the world, India's contribution to the parent is negligible, a mere 1% in terms of revenues. In grooming, Gillette has a market share of above 75% in almost all countries where it has a presence in, except India and a few other third world countries while in some places like Latin America it is almost 90%.

Asian markets have grown at a rate of 12% from CY02 to CY04, but at the same time, Indian markets have shown a decline of 1%. The share of India to Asia-pacific revenues is low at 9.3%.

The Indian market has not been totally tapped and penetration levels are yet low for its flagship products. In India, the company is aiming to wean away consumers from the traditional double-edged razor segment to twin blade system through its mid-priced offering 'Vector Plus'. If successful, the company could achieve a new growth trajectory. Worldwide, the consumer Razor and blades sales have grown 31% in the past three years.

In terms of potential in India, nearly 90% of consumers' still use double-edged razors, a large part of which Gillette can convert. Slowly and steadily, times are changing with Indian men, beginning to place more emphasis on grooming and taking as much time as the fairer sex at the super market to pick up their favourite cologne, deodorant, aftershave lotion, shaving cream, body talc, face wash, shampoo, and conditioner.

Sales mix

The parent has a vast array of products including 5 US$ 1 bn plus brands. Unlike the parent's diverse folio mix, in India, Gillette sales primarily consist of its key brands 'Sensor Excel' and 'Mach 3' i.e. male grooming. Duracell, which holds the No.1 position worldwide in Alkaline batteries under performed badly in India, forcing the Indian counterpart to sell the factory to a worldwide subsidiary, and focus only on marketing the product.

India being a very price sensitive market has never been on the parents' priority list for new launches and products are made available only after considerable time. To put things into perspective, Mach3 turbo is trying to make an arrival in India, whereas worldwide M3Power an automatic version of Mach3 turbo is available in stores and in developed markets like US and Europe, M3Power Nitro a newer version of M3Power has already hit shelves.

P&G acquisition of Gillette

P&G recently acquired Gillette globally for US$ 56 bn. The combination will create a US$ 62 bn company - number two in the consumer products world behind Nestle in sales, and number one in market capitalization at nearly US$ 200 bn. The fit works just as well geographically, creating a good balance in sales across North America, Europe and the developing markets of Asia and Latin America.

Valuations

Gillette USA currently trades at US$ 52.75, a P/E multiple of 32 times its CY04 earnings and market cap to sales of 5x. On the other hand, Gillette India trades at Rs 660 that translates into a rich valuation of 35 times CY04 earnings. This is at the higher end of the spectrum in comparison to other stocks in the Indian FMCG space. Market cap to sales of its Indian operations is at 5.5x.

Although Gillette India just forms 1% of global revenues, the US parent will be looking to change that. The Indian operations have seen a major restructuring and cash infusion to continue on the path to profitability. With every 3rd person globally either an Indian or Chinese, Gillette can ill-afford to not focus on this geography. But progress will be a long drawn affair in this value conscious country. From the stock perspective, with nearly 90% stake in the hands of promoters', liquidity is an issue and the only thing keeping the valuations pepped up is hope of a good buyback offer in future.

Infosys, world's most valuable IT firm

Are Bangalore-based Infosys Technologies and Wipro Ltd, India's software bellwethers, the first and third most valuable software services companies in the world?

It would seem so.

Today, the $1.5 billion Infosys would be the costliest company to acquire even ahead of the $16 billion Accenture, the biggest consultancy and software solutions multinational.

Surprised? Don't be.

The EV or enterprise value of Infosys as on April 25, 2005 at $16.72 billion has nudged ahead of Accenture's, which had an enterprise value of $16.57 billion.

Infosys's market cap though at $17.41 billion is lower than that of Accenture's market capitalisation, which stands at $19.95 billion.

Also to understand how valuable Infosys is as a software company consider the enterprise values of other software companies, both Indian and global.

Bigger MNC competitors like EDS and Bearing Point have enterprise values of $10.27 billion and $1.40 billion, respectively. Another Indian IT major Wipro, with an enterprise value of $13.09 billion, is third after Infosys and Accenture in the most valuable software services companies list.

The enterprise value of a company is calculated by adding the total amount of long-term debt that the company is carrying on its balance sheet to the company's market capitalisation, whilst subtracting the value of cash and cash equivalents that are held by the company.

The enterprise value of a company also reflects the actual purchase price of the company if it were to be acquired without taking into account any premium or discount that may be offered at the time of sale.

With Infosys as a company carrying no debt on its balance sheet, it is but normal to expect a premium to be offered in case there is an offer to buy out India's most valuable software company.

Interestingly, the enterprise value of Infosys is higher than that of Accenture despite its most recent fourth quarter results that had disappointed market watchers and had also led to a fall in the Sensex.

Only IBM, which offers both products and software services -- and hence is not a pure play software consultancy and services player -- is more valuable than Infosys.

The $96 billion IBM dwarfs Infosys with an enterprise value of $135.92 billion and a market capitalisation of $121.16 billion.

Source : Rediff.com