Pre Budget Analysis, Expectations

Pre Budget Analysis, Expectations

Unitech

Unitech

Suzlon Energy

Suzlon Energy

Rural Electrification IPO Review

Rural Electrification IPO Review

India Oil and Gas Update

India Oil and Gas Update

Tata Metaliks, Apar Industries

Tata Metaliks, Apar Industries

HT Media, Redington, PVR, Pre Budget

HT Media, Redington, PVR, Pre Budget

Andhra Bank, Punj LLoyd

Andhra Bank
Cluster: Cannonball
Recommendation: Buy
Price target: Rs117
Current market price: Rs91

Showing signs of improvement

Result highlights

• Andhra Bank reported its Q3FY2008 results with the net profit going up by 16.7% year on year (yoy) and 5.2% quarter on quarter (qoq). The year-on-year (y-o-y) growth was driven by higher other income (up 29.3%) and lower staff expenses (down by 17.8%). The core performance was better than that of last quarter (Q2FY2008) with the net interest margin (NIM) improving slightly due to a slim reduction in the cost of deposits.
• The bank's advances grew 22.7% yoy and 2.7% qoq with the net interest income (NII) going up by 1.8% yoy and 7.4% qoq. Our calculations suggest that the bank's NIM improved by 10 basis points qoq mainly due to the increase in the yield on advances (7 basis points) and a reduction in the cost of deposits (10 basis points). An increase of 290 basis points qoq in the low-cost savings account and current account (CASA) deposit base helped matters.
• The non-interest income grew by 11.1% yoy to Rs147.7 crore due to a 258.7% jump in the treasury income, while the core fee income showed a decline of 3.7% yoy. The fall in the core fee income is a cause for concern though the management expects this to improve going forward with an increase in the income from distribution of third party products.
• The operating expenses fell by a moderate 2.6% yoy helped by a 17.8% fall in employee costs, which is in contrast to other public sector unit (PSU) banks. The main reason for the fall in the employee costs is the bank's decision to adjust the transitional liability on account of AS-15 (amounting to about Rs375 crore) against the reserves. Upto Q2FY2008 the bank used to make an adhoc provision for this liability.
• This coupled with a 4.3% y-o-y growth in the net total income resulted in a moderate growth of 10.5% yoy in pre-provisioning profits. Provisions were lower at Rs 27.8 crore due largely to a write back of investment depreciation (Rs15 crore) and lower standard asset provision.
• Andhra Bank's business grew quite strongly with the advances up by 22.4% yoy. The deposits mirrored the advances growth going up by 21.6% yoy. The deposits were down 1.2% qoq, which is an indication of the bank giving up some of the high-cost deposits.
• Despite the strong growth in the advances, the asset quality continued to remain among the best in the industry with the gross non-performing assets (GNPA) at 1.35% and the net non-performing assets (NNPA) at 0.16%.
• As these quarterly results indicate, the pressure on margins is easing and the situation should improve going forward. The capital adequacy levels are comfortable at 12.03% with the Tier-I capital adequacy ratio (CAR) at around 8-9%, which is not a constraint on growth. The asset quality continues to remain among the best in the industry. At the current market price of Rs91, the stock is quoting at 6.3x its FY2009E earnings per share (EPS), 3.4x pre-provision profits (PPP) and 1.1x book value (BV). The stock is available at attractive valuations given its low price to book multiple compared with its peers. We maintain our Buy call on the stock with a price target of Rs117.

Punj Lloyd
Cluster: Apple Green
Recommendation: Buy
Price target: Rs620
Current market price: Rs379

Positive outlook, orders in pipeline

We attended the investors' conference of Punj Lloyd Ltd (PLL) and hereby bring to you the key highlights.

Key highlights

• SEC the wholly-owned subsidiary of PLL has recently won an order from Marina Bay Sands to build a resort comprising of casino, theaters and retail arcade in Singapore. The order is valued at $400 million (Rs1,119 crore) and the project is expected to be complete by April 2009.
• SEC's current order book stands at Rs7,358.1 crore, out of which close to Rs1,070-crore orders are legacy orders which would be executed at low margins over the next 15-18 months. The recent order bookings in SEC have been done at the earnings before interest, depreciation, tax and amortisation (EBIDTA) margin of 7.5% and above (our estimates is ~3.5% in FY2009 and 7% in FY2010).
• In Q3FY2008, The write off of Rs67.9 crore in relation to legacy orders of SEC was for its client SABIC. PLL is negotiating with SABIC to recover the escalation in the cost due to delay in the project.
• PLL has made strategic investments in various companies namely Pipavav Shipyard Ltd (PSL), Airworks Ltd and a real estate venture. PLL would use these investments to enhance its compatibility to execute more complex and variety of jobs.
• We believe PLL has laid a strong foundation to further augment its position as a significant EPC player in the hydrocarbon space; its subsidiary SEC and Simon Carves with expertise in urban infrastructure provide a great fit to the group on the whole. We expect the order inflow to be buoyant, but more lumpier than before with the company laying emphasis on increasing its order ticket size.
• We reiterate Buy with a price target of Rs620. At the current market price, the stock trades at 21.7x FY2009E and 16.4x FY2010E earning estimates. In terms of enterprise value (EV)/EBIDTA the stock is quoting at 12.3x and 9.6x its FY2009 and FY2010 estimates.

The Model Model - Sanjeev Pandiya

All Indian have black and brown eyes. Aishwarya Rai has hazel eyes. Hence, Aishwarya Rai is not Indian.

The above is what in Logic is called a tautology. You can use 'logic' (which is mathematically sound) to come to some strange conclusions, simply by twisting a little part of the 'logical premise'.

Take a look at the first sentence again. If we assume that there are 5,000 people with eyes like Aishwarya's (wow!), then the first sentence is statistically sound, i.e. true for 99.99995 per cent of the Indian population. The use of the word "all" would then be justified, both by the English dictionary and by Statistics.

The subsequent sentence is also an absolute premise, statistically true. Hence, the conclusion logically follows.

I have a peculiar spin to this. So if you have hazel eyes, does that make you Aishwarya Rai? Well, to the extent that her hazel eyes have contributed to making her what she is, maybe yes, you would say. And if not, what else does it take to make/ get someone like that?

The Random Walk Theory says that "stock prices follow a random walk and markets are efficient", implying that it is therefore impossible to beat the market. Prices reflect all available information, thereby preventing anyone from consistently beating the market.

Well, if there are only 100 billionaires from the financial markets at any given point of time, then that is only 100/ 6.42 billion = some tiny percentage of the world population. Superimpose on the above tautology and you will be able to write a book that will become a bestseller, formulate a theory that could be 'universally' true and maybe even win a Nobel Prize for it…

Unless, of course, you ask Aishwarya Rai what she thinks of all this...! My guess is that she will be nonplussed. She will not be able to argue with any of the premises, but will obviously find the conclusion absurd.

Don't look at me like that! I am not pretending to be any Aishwarya Rai of any place, even the stock markets. I only write about these things. I am just the little guy who periodically points out that the king is wearing no clothes, something that is obvious to everyone, if they only stop looking at each other and focus on the king…!

No doubt market beaters are few in number, too busy actually beating the markets to be going around writing books about how to do it, and just not interested in Nobel Prizes. They may represent just a tiny fraction of the actual population operating in markets, but they represent fully 50 per cent of the behaviour patterns seen on markets. One behaviour pattern is that you can't beat markets (a.k.a Random Walkers), and the other behaviour is that you can. Which is why they are more important to markets than Aishwarya Rai is to Indian-ness.

Let us look at this concept called "market efficiency" where market prices are supposed to factor all available information. Everybody thinks "India is shining", hence everyone is buying stocks. I focus on everyone buying stocks, and I don't care whether Indian actually shines or not……

And if everyone is buying stocks, then the supply of (equity) paper will increase and capital (which is in excess supply) will eventually be misallocated, and India will someday stop shining when too much of this capital gets misallocated. I can see this in many stocks, sectors which are 'hot'.

There, I have gone and told you my secret. This new piece of information should now bring down the markets by 50% tomorrow morning and the government will put me in jail for high treason….what?! Say, power stocks are hot. But all this money is going into coal, even as the world gears up to sign the post-Kyoto protocol, where the rich nations will force us to take emission targets. If they don't, we will stupidly eschew new technology, while the world goes carbonless.

Much later, we will find that these new technologies leave us with expensive energy usage, while the world has moved to zero-cost power in wind, wave, tidal, geothermal, etc. Then, we will burn coal to produce aluminium, while they have a smelter in Iceland that imports bauxite from across the Atlantic and is still viable because it operates on free energy.

So now, both NTPC and Hindalco should drop like a stone tomorrow morning, no?!

But no...

This 'insight' is not enough. I not only have to be right about what I just said, but put my money where my mouth is, hold on to this belief for 5-10 years till the FIIs and sundry world travellers are done with India. I have to then pay margin calls while sundry operators manipulate stocks to squeeze the bears, with the excess liquidity easily available today. Not only do I have to believe something that is at odds with the 'market hypothesis', but I have to hang on till the market turns around to reflect (in stock prices) my 'new' hypothesis. In other words, I have to get a serious 'black eye' before I get a hazel one.

The tenacity of this belief system is really the key to beating the market. By definition, that has to be with the minority in the population. Otherwise, India would shine simply by printing Rupees and distributing it among the population; why do you need a stock market for that?

So which Mutual Fund will do that for you? This entire industry lives on misquoting that tautology I have outlined above. If you wear hazel contact lenses, you can be (or get, depending on your preference) Aishwarya Rai, say the dream-sellers. You can laze on the beaches, go to Singapore, retire at 40, send your child to the US, get yourself a facelift or whatever……just gimme your money!!!

What is wrong with all this? The underlying premise that you can't beat the market (which you probably can't, if you are still reading this dumb article) but we can…the implied promise that your money is going to outperform the markets if you give it to us, but will not if you just give it directly to the markets, is where you need to get careful.

Those of you who have the capacity to think about this will do so: efficiency is not about 'information' and it is known from other studies that insiders don't make a lot of extra money ALL the time, there is such a thing called 'insiders bias'. They know about inside information, but they (usually) don't know enough about human behaviour and its quirks, or relative valuation of markets….etc, etc ad infinitum.

So what practical use is this to you? Should you put your money under your mattresses, or should you look for someone who can beat the markets for you. Well, the problem is that if I know how to beat the markets, why would I need your money? So the guys who know how to beat markets, like I said above, are too busy doing it than talking (or writing) about it.

This is terrible, what have I done? So where does all this leave you, and what is the point of wasting precious trees on this garbage? Well, for starters, just understand why you will not be going to Singapore, that alone is worth the time you have wasted reading this. Read the rest of my articles on the behaviours needed to beat markets, learn to stand alone and look stupid for a long time, sometimes lose your shirt trying to hang on to what you think is right, get it right once in a while and hope for the best. In any case, isn't what you were doing when you gave your money to professional money managers?

Weekly Stock Ideas - Feb 17 2008

A lower opening would provide an opportunity to pick up strong fundamental stocks at cheap prices. Among our picks for buying at lower levels for the long term are:

Buy GAIL

Buy NTPC

Buy Tata Motors

Buy GNFC

Buy Punj Lloyd

Via Indiainfoline

Mumbai among Top 5 most expensive office markets

Nariman Point in Mumbai is the world's fourth most expensive location for office occupation, leaving behind the likes of Paris, New York, Singapore and Dubai, according to the 'Office Space Across the World 2008' report by real estate services firm Cushman & Wakefield.

Mumbai’s Central Business District (CBD) moved up one place from No.5 in 2006. Nariman Point witnessed annual rental growth of 60%, the report said. The total occupancy cost in Mumbai CBD is US$166.04 per square foot, per annum.

In terms of increase in office rentals, Mumbai CBD is at No.8 in the world.

Within the Asia Pacific region, India captured three of the Top 10 most expensive locations with Mumbai -Nariman Point and Central Mumbai - Worli on 3rd and 4th position, respectively and New Delhi’s Connaught Place at 6th position.

London retains its title as having the most expensive office occupancy costs in the world while Hong Kong is up one place at No.2 followed by Tokyo, which is down one place. Moscow has risen by two places, from No.7 last year to No.5 this year.

The world’s Top 10 most expensive office locations saw rents, a large component of occupancy costs, increase by an average 40% last year, the Cushman & Wakefield report said. Worldwide, the growth in office rents was an average of 14% last year versus 10% in 2006.

London remained the most expensive city, with rents in the city's West End rising 30% and total annual occupancy costs averaging US$311.58 a square foot. Hong Kong moved up to second place from third last year, with annual occupancy costs of US$238.58 a square foot.

Tokyo dropped to third place from second, with US$210.12 a square foot of annual costs. Singapore moved into the global top 10 for the first time, with occupancy costs hitting an average of about US$130 a square foot. New York dropped one level from last year to 10th place.

Office Space Across the World 2008 compares office occupancy costs in 203 key locations in a record 58 countries around the world. Of these 203 locations, 79% showed rental growth last year, 20% stable rents and only 1% showed a rental fall (compared with 6% last year).

In the top ten of the global ranking, the biggest risers include Singapore, which goes up 10 places to join the Top 10 at 7th position. Prime office rents rose 78% in Singapore last year in local currency, the report said.

Together with strong performances in India and Vietnam, among other locations in the region, Singapore helped Asia Pacific achieve the strongest regional growth, with rents rising 23% over the course of 2007, according to Cushman & Wakefield.

The strongest riser in the global ranking is Oslo, which goes up 14 places to 11th position. Turkey accounts for the top three locations for the highest annual growth in office rents in all 203 locations monitored, with Istanbul’s Levent district, Turkey’s most expensive location, in the No. 1 position.

Govt finally announces modest hike in fuel prices

The Government finally showed some gumption and announced a marginal hike in retail prices of petrol and diesel while keeping the prices of politically sensitive LPG and Kerosene unchanged. The price of petrol was hiked by Rs2 per litre while that of diesel was increased by Re1 per litre. This was the first upward revision in petrol and diesel prices in the past 20 months. The Government has not increased fuel prices since June 2006, even as crude oil rose 57% in 2007 and surged to US$100 a barrel last month. The Government had actually cut fuel prices in November 2006 and February 2007.

With this, the price of petrol in Delhi rose to Rs45.52/litre from Rs43.52/litre and that of diesel to Rs31.76 a litre from Rs30.48/litre. Fuel prices vary across the country due to different tax structure of states. The state-run oil firms have been suffering heavily owing to the steep increase in crude prices even as local fuel prices have been kept unchanged to avoid a spike in inflation. Oil marketing companies' under-recoveries for the current fiscal year are estimated at Rs718bn. The increase in fuel prices is likely to benefit oil marketing companies by Rs8.4bn.

Meanwhile, Petroleum Secretary M.S. Srinivasan said the contribution of oil bonds towards under-recoveries will go up to 57% from the current level of 43%. Oil marketing companies will get Rs234.6bn of bonds for the year to March 31. They received Rs241.2bn of bonds in the previous fiscal year. Another 33% is currently being borne by public sector oil & gas upstream companies - ONGC and Oil India while the balance is shared by IOC, BPCL and HPCL.

As expected, the Left parties demanded an immediate roll-back, threatening to launch nation-wide protests. The BJP too lashed out on the Government. The matter is expected to be raised in the budget session of the Parliament, which begins on Feb. 25.

Upstream majors ONGC and Oil India will bear a third or Rs240bn. The burden on IOC, BPCL and HPCL will be limited to their last year’s level of 8.4% (Rs61bn) of the total under-realisation. The price hike would cut losses by 1.2%. But, this would provide only partial relief to public sector oil marketing companies. Even with the revised prices, PSU companies will continue to lose Rs7.20/litre on petrol and Rs9.94/litre on diesel.

Reliance Power...load shedding on listing

All the hype and hoopla surrounding the launch of Reliance Power vanished in a flash, as the stock got hammered right from the moment it listed, on Feb. 11. It just could not cope with the immense selling pressure after it managed to open at Rs525 on NSE. The stock constantly lost ground and hit a low of Rs355. Finally, the stock managed to recoup towards the end to close at Rs372, translating into a discount of 17% on its debut. The stock managed to regain some lost ground by the end of the week and closed at Rs385.70, in line with the improvement in the market sentiment.

Reliance Power was expected to list around Rs500-550 as per the unofficial rates in the grey market. This itself was substantially down from the initial premium of around Rs900 when the company launched the IPO. The premium shrunk gradually due to weak market sentiment and after Wockhardt Hospitals and Emaar MGF withdrew their public issues. Still, nobody would have imagined that Reliance Power would get pounded so badly on debut.

A lot of investors suffered big losses by betting on the Ambani/Reliance goodwill and brand equity. Even such big names as Centurion Bank of Punjab, Allahabad Bank and ABN Amro booked losses on the second day of the listing after getting substantial number of shares. The worst hit were those who applied by borrowing at an interest rate of 18-20%. Most of them are likely to have lost money.

The invincible reputation of the Reliance group has taken a severe beating post the dismal listing of Reliance Power and it would take some doing on the part of Anil Ambani to win back investors' confidence.

Another ripple effect of the disappointing Reliance Power listing will be felt in the primary market. The IPO market is likely to remain subdued for a while as scary investors will view every issue with a lot of apprehensions now. However, the management of public sector Rural Electrification Corp. and Oil India remain confident that their issues will manage to clear the litmus test despite the Reliance Power fiasco.

NSE Bulk Deal Watch - Feb 15 2008

Date,Symbol,Security Name,Client Name,Buy/Sell,Quantity Traded,Trade Price / Wght. Avg. Price,Remarks
15-FEB-2008,EMCO,Emco Limited,MERILL LYNCH CAPITAL MARKET ESPANA S A SVB,BUY,289600,1155.00,-
15-FEB-2008,ERACONS,Era Constructions (India),SIKHAR DEALCOM PVT LTD,BUY,142180,755.47,-
15-FEB-2008,GABRIEL,Gabriel India Ltd,ASIA INVESTMENT PRIVATE LIMITED,BUY,3576774,20.70,-
15-FEB-2008,PTC,PTC India Limited,MORGAN STANLEY DEAN WITTER MAURITIUS CO. LTD,BUY,2533713,114.30,-
15-FEB-2008,SARLAPOLY,Sarla Performance Fibers,HINDUSTAN COTTON COMPANY,BUY,50000,150.00,-
15-FEB-2008,SARLAPOLY,Sarla Performance Fibers,KAUSHIK SHAH SHARES & SECURITIES PVT LTD,BUY,25,159.88,-
15-FEB-2008,SELMCL,SEL Manufacturing Company,TAIB BANK E,BUY,76081,207.13,-
15-FEB-2008,XLTL,XL Telecom Limited,KMRINDUSTRIESLIMITED,BUY,65000,314.27,-
15-FEB-2008,XLTL,XL Telecom Limited,KOTAK MAHINDRA UK LTD,BUY,97430,300.00,-
15-FEB-2008,EMCO,Emco Limited,FIDELITY INDIAN MUTUAL FUND A/C. FIDELITY EQUITY FUND,SELL,227086,1155.00,-
15-FEB-2008,EMCO,Emco Limited,FIDELITY TRUSTEE CO PVT LTD A/C FIDELITY TAX ADVANTAGE FUND,SELL,62514,1155.00,-
15-FEB-2008,GABRIEL,Gabriel India Ltd,FEDERAL-MOGUL CORPORATION,SELL,3696000,20.70,-
15-FEB-2008,PTC,PTC India Limited,ABN AMRO BANK N.V. LONDON BRANCH,SELL,2534000,114.30,-
15-FEB-2008,SARLAPOLY,Sarla Performance Fibers,KAUSHIK SHAH SHARES & SECURITIES PVT LTD,SELL,50000,150.00,-
15-FEB-2008,XLTL,XL Telecom Limited,KMRINDUSTRIESLIMITED,SELL,165000,301.40,-

BSE Bulk Deals to Watch - Feb 15 2008

Deal Date Scrip Code Scrip Name Client Name Deal Type * Quantity Price **
15/2/2008 531223 ANJANI SYNTH NATRAJ FINANCIAL AND SERVICES LTD B 142025 41.44
15/2/2008 531223 ANJANI SYNTH NATRAJ FINANCIAL AND SERVICES LTD S 166525 41.45
15/2/2008 505506 AXON INFOTEC SHEETAL KASHIRAM KADAM S 4020 51.44
15/2/2008 531591 BAMPSL SECUR JMP SECURITIES PVT. LTD. B 524576 1.79
15/2/2008 532483 CANARA BANK CITIGROUP GLOBAL MARKET M PVT LTD S 2450000 294.00
15/2/2008 531682 CAT TECHNOL SARFARAZKHAN SARVARKHAN PATHAN S 283135 8.59
15/2/2008 531358 CHOIC INTERN VINOD JEETAPAL BANA B 25000 13.13
15/2/2008 531358 CHOIC INTERN RAJPAL HARPAL RANA B 20600 13.13
15/2/2008 531358 CHOIC INTERN RAJ KUMAR SARAF.. B 25000 13.13
15/2/2008 524388 CRAZY INFOTE MANOJ DAGA B 65245 40.10
15/2/2008 524388 CRAZY INFOTE BAKLIWAL FINANCIAL SERVICES INDIA PVT LTD S 54500 40.10
15/2/2008 532271 CYBERMAT INF PRABHUDAS LILLADHER PVT. LTD. B 606602 9.22
15/2/2008 532271 CYBERMAT INF JMP SECURITIES PVT. LTD. B 1325003 9.19
15/2/2008 532271 CYBERMAT INF SARFARAZKHAN SARVARKHAN PATHAN B 3977343 9.24
15/2/2008 532271 CYBERMAT INF PRABHUDAS LILLADHER PVT. LTD. S 456483 9.49
15/2/2008 532271 CYBERMAT INF JMP SECURITIES PVT. LTD. S 510003 9.65
15/2/2008 532271 CYBERMAT INF SARFARAZKHAN SARVARKHAN PATHAN S 3930996 9.18
15/2/2008 508918 GREYCELLS EN PRIME SECURITIES LTD AC PWM B 23500 207.08
15/2/2008 508918 GREYCELLS EN PRIME SECURITIES LTD B 16000 207.06
15/2/2008 508918 GREYCELLS EN PRAVINCHANDRA NAGARDAS KAMDAR S 17750 205.93
15/2/2008 530117 H.K.FINECHEM DHIREN S. SHAH HUF B 50000 17.35
15/2/2008 530117 H.K.FINECHEM DIPTI D SHAH B 100000 17.35
15/2/2008 530117 H.K.FINECHEM DHIREN S. SHAH S 150000 17.35
15/2/2008 500227 JINDAL POLFM FOREX FINANCE LTD B 275000 203.00
15/2/2008 500227 JINDAL POLFM BINDAL LEFIN P LTD S 275000 203.00
15/2/2008 532283 KASHYAP TEC SHARMISHTA MAHESHBHAI SHAH B 1813289 3.76
15/2/2008 512529 P I DRUGS FRAXIS LIFE SCIENCES PVT LTD B 423000 59.90
15/2/2008 512529 P I DRUGS AGNUS HOLDINGS PVT LTD S 469702 59.90
15/2/2008 531219 POONAM PHARM SWARN GANGA TRADING PVT. LTD. B 70100 3.16
15/2/2008 522207 RASAND ENG I RAJIV ARORA S 24013 99.83
15/2/2008 532886 SEL MANUF JITENDRA PARSHURAM MAYEKA S 95000 207.44
15/2/2008 500285 SPICEJET LTD BSMA LTD B 9076832 66.10
15/2/2008 500285 SPICEJET LTD BNP PARIBAS ARBITRAGE S 9236161 66.15
15/2/2008 530585 SWASTIK INV SEEMA JAIN B 15320 34.42
15/2/2008 504605 UNIABEX AL P DHIREN S. SHAH HUF B 15000 86.20
15/2/2008 504605 UNIABEX AL P DHIREN S. SHAH S 15000 86.20
15/2/2008 532765 USHER AGRO UBS SECURITIES ASIA LTD. ACCOUNT SW B 480000 165.00