Emkay - DLF IPO Analysis
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Friday, June 08, 2007
Bias may remain weak
The market is likely to witness cautious trend as major Asian gauges like the Nikkei, the Hang Seng index, the Kospi index and the Jakarta index have declined above 1% each in current trades and may drag down the indices in early trades. The presence of a sharp intra-day volatility, overnight fall in US indices and the correction for last couple of sessions may see the market remain edgy and move on the either side of the zone.
US indices tumbled for a third straight day Thursday as surging treasury yields, higher mortgage rates and hawkish comments from bond guru Bill Gross that the Federal Reserve may have to raise interest rates later this year. While the Dow Jones tumbled 199 points at 13267, the Nasdaq was down 46 points at 2541..
Indian floats, also, bucked the weak US market trend and ended lower. Rediff and HDFC Bank lost 4.26% & 3.21% respectively, while ICICI Bank, Wipro, Dr Reddy's, Tata Motors, VSNL, & Infosys also lost below 1-2% each, Satyam and Patni Computer however, were the only gainers amongst the ADRs and gained by 0.24% & 1.65% respectively..
Global crude oil prices inched up, with the Nymex light crude oil for July series rising by 0.97 cents to close at $66.93 per barrel.
Bad Friday Ahead
The Nifty lost 19 points over the day to close at 4179. A day ofextreme volatility that saw the Nifty move between 4150-4210 a fewtimes making trading difficult both for the bulls and bears. Eventuallythe bears turned out victorious as the indices closed near the days lowand below the support of 14200/4200. During the volatile action theNifty achieved the “Wedge” pattern target of 4150, which wepresented in our weekly report. The volume activity was very stronghinting at a fierce battle between the bull and bear camp. The reactionhas led to the oscillators testing the oversold line while the 30-EMAhas also been tested. Also, an important trendline breakdown hasbeen confirmed on the daily chart that would have a bearish effect onthe price action in the near term (See Exhibit 1 on Page 2). Fortheday, major support seen at 4150 and 4100 while resistance seen at4184 and 4196. Overall, with a fresh breakdown confirmed yesterdaybelow 14200/4200, the indices are likely to correct further and getclose to 14000/4100 in the extreme short-term.
GSPL, Indian Banks, AIA Engineering
Kotak on AIA Engineering
AIA reported numbers marginally better than expectations with adjusted consolidated netincome increasing by 84% to Rs965 mn in FY2007 from Rs524 mn in FY2006. Adjusted EBITDA margins of 24.9% for FY2007 were in-line with expected 25%. Reported EBITDA margin was lower on account of extraordinary marketing expense and Rs200 mn trading revenue booked under its subsidiary. On a y-o-y basis, FY2007 volumes and average realisations were higher by 12% and 10%, respectively. Allowing for marginal delays in power availability, we reduce our volume assumptions by 5% and 0.5%, respectively for FY2008 and FY2009. However, we increase our average realisation assumptions for FY2008 and FY2009 by 3.7% and 6.2%, respectively (see exhibit 1). Accordingly, we revise our consolidated FY2008 and FY2009 eps estimate to Rs70.4 and Rs98.8, respectively from Rs71.9 and Rs93.5, respectively, previously. We roll over our target price and increase it to Rs1,750 from Rs1,615 earlier and maintain OP rating on the stock
Kotak on GSPL
GSPL reported 4QFY07 net income at Rs193 mn (-32.2% qoq, +78.5% yoy) against our estimate of Rs159 mn. 4QFY07 EBITDA at Rs711 mn was lower versus our expected Rs764 mn due to lower-than-expected volumes. However, lower depreciation due to lower capex for two pipelines commissioned in 4QFY07 compensated for the weaker operating performance. GSPL's FY2007 reported net income is Rs894 mn (Rs1.6 EPS). We have fine tuned our EPS estimates for FY2008, FY2009 and FY2010 to Rs2.0, Rs4.1 and Rs5.2, respectively from Rs1.8, Rs4 and Rs5.5, respectively, previously. We have raised our rating in the stock to IL from U previously with a revised 12-month DCF-based target price of Rs57. The upward revision primarily reflects roll-forward and lower capex. Key risks stem from lower-than-expected gas transportation volumes and tariffs. We would also watch for
the nature of regulation on gas transportation business.
Kotak on Indian Banks
We are revising our earnings estimates post publication of their annual financial
statements. We are now assuming those banks will make the AS-15 pension gap
provisions through their net-worth, our new book value estimates thus reflect this. Our earnings estimates assume: (1) healthy but lower credit growth of around 20% to 23% compared to 24-40% in FY2007, (2) decline in margins of around 10 bps to 35 bps in FY2008 to reflect the lag impact of higher deposit cost and lower CASA ratio, (3) higher NPL provisions as recoveries slowdown and (4) lower investment depreciation/
amortization. While we are assuming moderating top line growth, PAT growth will likely be moderate to high given lower investment depreciation. Despite moderation in growth and higher pension gap we find PSU banks attractive given low valuations and significant valuation gap between PSU and private banks. Our top picks are: PNB, IOB, Andhra Bank, SBI and Canara Bank. While we believe that Indian Bank fundamentals remain strong, we are downgrading it to IL from OP, given that the stock trades at a premium to most other PSU banks at 1.5X PBR FY2008 and current market price is close to our fair value estimate.
Indiainfoline - Intraday Stock Ideas
NIFTY (4179) SUP 4129 RES 4229
BUY SREINTFIN (102.6)
SL 98 T 110, 112
BUY MPHASIS (324.80)
SL 319 T 333, 336
BUY SESAGOA (1692.30)
SL 1672 T 1727, 1735
SELL HINDLEVER (191.55)
@ 193 SL 196 T 183, 181
SELL HINDPETRO (271.85)
@ 274 SL 278 T 263, 260
Friday fury…just bear it!
If we believe that tomorrow will be better, we can bear a hardship today.
The buzz on the street was that weakness could be ‘created’ to coincide with the DLF issue. Not much of stage management required as bears have found support from the global markets. Fresh concerns about inflation and hardening of interest rates are the immediate worries. It all started with Federal Reserve chief Ben Bernanke's speech earlier in the week, where he said that prices are rising too quickly. Then there was the rate hike by the European Central Bank. And, though the Bank of England left rates steady yesterday, most experts are betting on a rate hike in the next meeting.
The trigger for the sell-off in global markets overnight was the sudden jump in US Treasury yields, which rose to 5.13% - the highest in 11 months - from 4.96% late on Wednesday. This has prompted bond guru Bill Gross to turn bearish on the bond market. Gross now expects strong economic growth worldwide to push up global interest rates and put a damper on the Treasury market. With global equity markets tumbling, we expect the Indian stocks to open sharply down and remain weak for most part of the day. Also, FIIs have been net sellers of late, reversing the trend from the past two months. Another worry is the spike in oil prices.
FIIs were net sellers to the tune of Rs2.87bn (provisional) in the cash segment yesterday while the local institutions pumped in Rs2.84bn. In the F&O segment, they offloaded stocks worth Rs11.14bn. On Wednesday, foreign funds were net sellers of Rs696mn. Mutual Funds were net sellers of Rs1.93bn on the same day.
UCO Bank should be under pressure amid reports that the RBI has pulled up the bank for not heeding its advice on provisioning for bad loans. M&M could be in focus as a financial daily reports that it is in talks for buying an Italian gearbox maker for Rs4bn. Wipro might attract some attention as it has decided to merge six subsidiaries with itself. Tata Steel may also be in the spotlight amid reports that it is looking at jointly developing a $3bn integrated steel project in Angola.
Patni Computer will continue to hog the limelight as a business daily reports that private equity major General Atlantic Partners, which already holds around 16% in the software company, is likely to increase its stake. ONGC may rise after the company said that it has made five new oil & gas discoveries.
Entertainment Network India is another stock that is likely to be active. The company has signed a MoU with Shri Puran Multimedia Ltd., whereby the latter has agreed to solely and exclusively utilize the sales support function offered by the Company on a national level to facilitate the sale of airtime of radio stations.
K Sera Sera Productions' Board has authorized Managing Director to explore the opportunities available for working with GV Films. Spanco Telesystems' Board has approved an investment of up to Rs750mn in Bharat BPO Services, which is a 50:50 JV between the company & Omnia BPO Services Ltd. for its Railway project. Omnia is a Spice telecom group company.
US stocks extended their losses on Gross' remarks. Recent concerns about rising interest rates have sent Wall Street and global markets into a tizzy. The Dow Jones Industrial Average has shed about 400 points in the past three sessions. The Dow industrials tumbled 199 points to 13,266.73. The S&P 500 fell 26.66 points, or 1.8%, to 1490.72. The Nasdaq Composite Index lost 45.80 points, or 1.8%, to 2541.38.
Indexes extended their declines after oil prices climbed to a nine-month high. Crude oil for July delivery climbed 1.5% to $66.93 a barrel in New York after a government report showed that refinery outages curbed US fuel production. In currency trading, the dollar rose versus the euro and the yen. COMEX gold for July delivery fell $9.40 to settle at $665.20 an ounce, falling with other dollar-traded commodities.
European shares lost ground, as investors continued to adjust their expectations for global interest rate levels. The Dow Jones Stoxx 600 index dipped 1.3% to 385.18. The German DAX Xetra 30 closed down 1.4% at 7,618.61 and the French CAC-40 declined 1.5% to 5,890.49. However, the UK's FTSE 100 closed down only 0.3% to 6,505.10.
European 10-year note yields climbed to 4.5% on speculation the region's central bank will keep raising interest rates after lifting the refinancing rate to 4% on June 6.
In the emerging markets, the Ibovespa in Brazil tumbled 2% to 52,049 while the IPC index in Mexico slid 1.6% to 31,184 and the RTS index in Russia was down 1.1% to 1803.
Asian stocks slumped again this morning on concern that rising global interest rates will curb consumer spending and corporate profits. All 10 industry groups of the Morgan Stanley Capital International Asia-Pacific Index declined, sending the regional benchmark to its biggest loss in seven weeks.
BHP Billiton, the world's largest mining company, led materials stocks lower along with metals prices. An index of six metals traded on the London Metal Exchange (LME) dropped 1.2% yesterday. Nickel slumped 5.7% and zinc fell 0.8%.
The MSCI index lost 1.3% to 150.85 as of 10:51 a.m. in Tokyo, the most since April 19, after yesterday sliding 0.2% from a record high. The benchmark has dropped 0.3% this week, snapping a two-week, 2.7% advance.
In Japan, the Nikkei 225 Stock Average dropped 1.7% to 17,755.70. Japanese shares declined after a report showed that April machinery orders rebounded less than some economist estimates.
Stock indexes plunged more than 1% in Australia, South Korea, Singapore, New Zealand and the Philippines. China's CSI 300 Index swung between gains and losses.
Markets were on the receiving end for second consecutive trading session with benchmark Sensex sliding almost 350 points. The key indices witnessed wild intra-day gyrations during the day as NSE Nifty swung nearly by 100 points. IT stocks hogged the limelight as the dollar strengthened against the Indian rupee the rupee closed at Rs40.70 per dollar.
The other entire key sectoral ended in negative territory BSE FMCG, Auto and Banking index were the major losers losing over 1% each. The Auto stocks like Bajaj Auto, Hero Honda and TVS Motors slipped as they announced cut in production on decline in demand. Finally, the 30-share Sensex dropped 69 points to close at 14186. NSE-50 Nifty was down 18 points to close at 4179.
L&T slipped by 1.3% to Rs1896. The company announced that it has secured 1.87 Dirham order. The scrip touched intra-day high of Rs1940 and a low of Rs1879 and recorded volumes of over 6,00,000 shares on NSE.
Reliance Communication gained by 1% to Rs520 after the company announced that it has added 1.4mn Mobile users in the month of May. The scrip touched intra-day high of Rs531 and a low of Rs500 and recorded volumes of over 9,00,000 shares on NSE.
Sterlite Optical advanced by 2.8% to Rs218 after the company was granted optical Fiber patent in USA. The scrip touched intra-day high of Rs223 and a low of Rs210 and recorded volumes of over 11,00,000 shares on NSE.
Lanco Infratech slipped by 2.8% to Rs170. The company announced that its units 5.84% stake would be bought by IFC. The scrip touched intra-day high of Rs177 and a low of Rs167 and recorded volumes of over 7,00,000 shares on NSE.
Elecon Engineering surged by over 6% to Rs456 after the Board of Directors announced that they would meet on June 15th to consider Bonus Issue. The scrip touched intra-day high of Rs469 and a low of Rs422 and recorded volumes of over 5,00,000 shares on NSE.
Technology stocks witnessed some fresh buying as Dollar strengthens against Indian Rupee. Index heavy weight Infosys advanced by 1% to Rs1957, Satyam Computer gained by over 3.5% to Rs481, Wipro was up 2.7% to Rs545.
Banking stocks also were on the receiving end. Index heavy weights like SBI slipped by 2.1% to Rs1360, HDFC Bank was down by 2% to Rs1105 and ICICI Bank edged lower by 0.3% to Rs909. Corp Bank, Bank of Baroda and Bank of India were the major losers among the Mid-cap stocks.
Oil & Gas stocks also witnessed some profit booking. Reliance Industries slipped by 1.3% to Rs1669, ONGC has dropped by 1.2% to Rs854. Oil refinery stocks also slipped HPCL dropped by 1.9% to Rs271 and IOC was down by 1.2% to Rs440.
Insider Trades:
Clutch Auto Limited: J M Financial Mutual Fund through its various schemes has purchased from open market 100000 of Clutch Auto Limited on June 1, 2007
Prime Securities Limited: Mr N Jayakumar, President has purchased from open market 75000 equity shares of Prime Securities Limited on June 4, 2007
Lower Circuit:
Tripex Overseas, Marg Construction and Donear Industries
Upper Circuit:
Prime Focus, GVK Power, Hindustan Oil Exploration, Kernex, Dawn Mills, ION Exchange, Ruby Mills, IID Forgings and Bharat Bijli.
Delivery Delight (Rising Prices & Delivery):
Amtek Auto, Aurobindo Pharma, Bank of Rajasthan, Engineers India , Financial Technologies, GVK Power, Hindustan Oil Exploration, IFCI, Jagran Prakashan , Nucleus Software, Pfizer, Rajesh Exports, Spanco Telesystems, Tata
Chemicals and TV Today.
Abnormal Delivery:
Hindustan Motors, Bank of Baroda, TVS Motor, Punjab National Bank, Punj Lloyd and Crompton Greaves
Major Bulk Deals:
Citigroup Global has sold Balkrishna Industries; HDFC MF has sold Ceat; Citigroup Global has bought Fedders Lloyd.
Security in ban period:
The derivative contracts in the underlying IFCI have crossed 95% of the market-wide position limit and are currently in the ban period. It is hereby informed that all clients/ members shall trade in derivative contracts of IFCI only to decrease their positions through offsetting positions. Any increase in open positions shall attract appropriate penal and disciplinary action.
Major News:
Elecon Engineering Board to meet on June 15 to consider bonus
AIA Engineering to pay Rs3.5 per share as dividend
R Com adds 1.4mn Mobile users in May
SKF invests in new plant in India
L&T secures US$51mn order from Dubai
Tata Motors ups stake in Automobile Corp to 37.8%
IFC to buy 5.84% stake in Lanco Infratech unit for $8mn
HCC bags order worth Rs1.68bn from Tata Steel
Sterlite Optical granted optical Fiber patent in USA
Network 18 starts unit for event management business
TVS Motors cuts bike production by 5000 units per month
Hero Honda cuts motorcycle production as demand slows
Bajaj Auto cuts bike production as much as 10%
Pratibha Industries secures order for water supply scheme from J&K
Citigroup - Daily Technicals
Citigroup in their technical report,
Nifty — The index opened on a flat note and exhibited intra-day volatility in 4230 and 4162 band.It ended the day down 18 points.
Support — The index has support around 4141 (low of 25 May 2007) and 4127 (approx.) the level of 4127 is 62% retracement level of the rise from low of 3981(11 May 07) to the recent high at 4363. Intra day Nifty declined towards the 4141 level and witnessed an intra-day bounce.
Resistance — The index faces resistance around 4225 (20dma) and 4257 (10dma), cross above 4225 could see an intra-day bounce towards 4257.
Conclusion — Intra-day pullback will face resistance around 4257.
Thursday, June 07, 2007
Mukesh Ambani Vs KP SIngh
Finally DLF has managed to come up with the biggest IPO in the country. But, investors are in a dilemma whether it will be worth investing in the stock. We at DP would like to inform our visitors about a rumor that has been doing rounds for sometime regarding the DLF IPO and Reliance Industries.
There have been speculations in the market that Reliance is trying to create hurdles to stop DLF going to the market. Something similar that happened with Cairn Energy.
During the Cairn energy IPO, most of the brokers told investors not to invest in Cairn. They said that the issue will not give returns. Brokerage houses came up with reports that the valuations are higher. And, market experts said this all happened thanks to Reliance's attempt to spoil the issue.
If you are wondering why would Reliance do it? Here is a simple answer. Cairn is a competitor to Reliance in the energy space. Similarly, DLF is a direct competitor for Reliance in their real estate play.
DLF has their SEZ in Gurgaon and Haryana. This is in direct conflict with Reliance's ambitious plans for their 25,000 acres SEZ in the same state.
Also, if the DLF's issue happens, Mukesh Ambani will no longer remain the wealthiest man in India. DLF's KP Singh will replace him.
We would like our readers to watch out for some events that might occur.
Markets may perform negatively till the issue is over (around June 14).
Brokerage houses saying that DLF is expensive issue.
Brokers advising clients not to invest in the issue.
DLF may open much below the issue price.
Since few days everyone in market and business journalists are talking about markets to perform badly and that has started to happen.
This also means newspaper flashing news regarding how stock markets are not performing well. Don't be surprised to see articles that say that market is heading for a correction of 15% - 20%.
A Moral Dimension By Jay Dubashi
Why is it that some businesses last a long time, sometimes centuries, while some don't? Take Tatas. They are a 150-year old group and still going strong. Scores of others have come and gone, some even bigger than Tatas but they have fallen by the wayside and vanished into thin air.
Businesses are essentially money-making enterprises. Money is what keeps them going. But money is not enough, nor is it everything. Money is to business what food is to living organisms. You cannot do without food, but you have to have something more to keep you going.
That something is a moral dimension, something bigger than you, or at a level much higher than money. Without such a dimension, you are just like a pig at the trough, using the trough as a sole reason for your existence.
Ghanashyam Das Birla always said that he was not a businessman. He was actually much more than a businessman. He was a political activist all his life, intensely interested in India's struggle for freedom and supported Gandhi through all his ups and down.
This at a time when the British were closely watching him. In fact, GD Birla's close association with Gandhi so alarmed his brothers that there was a move at one time to split the family business and get rid of GD. But it does not seem to have bothered him.
It was the same with Jamsetji Nusserwanji Tata. Jamsetji set up his first industry, a textile mill, immediately after the so-called Mutiny, but what he wanted to do was something much bigger - a steel plant. But the British government in India was deadly opposed to Indians musling in on their monopoly.
Jamsetji received no help at all from the Britishers, and he had to take the help of Americans for his new enterprises. The steel plant at Jamshedpur was set up in the teeth of opposition from foreign vested interests, and it was this, not money, that drove Jamsetji. Incidentally, Tata Steel will be completing its centenary this year.
There were times during the depression of the thirties when it was touch and go whether Tata Steel would survive. There was no money in the kitty and things were so bad that at one time the Tatas have almost decided to close down the factory and go into liquidation. But Jamsetji's two sons and their wives saved the day.
GD Birla was so much involved in Gandhi's politics that at one time the Britishers were seriously thinking of shutting down his jute and cotton mills and throwing him into jail. Somehow he managed to survive, though his brothers were very much cut up with him and almost disowned him.
This is what I call moral dimension, when your drive comes not from money but something bigger than money. I once spent a whole evening with GD in his Delhi residence. He was then past eighty but as perky as ever. Throughout the evening, we did not even once mention business, though it was very much on the agenda. At one point, GD said that he was not a businessman. To call GD a mere businessman is tantamount to calling Gandhi a politician. In fact, Gandhi, a baniya, was more of a businessman than Birla, which is why they got on so well.
Take it from me. Half the businesses you see today will not make it beyond the half-way mark of the 21st century, if at all. But the Tatas and Birlas will still be there, because they are not really business as you and I know them.
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