Obama unleashes new regulations on Wall Street

Wall Street suffered its worst one-day decline in nearly three months on January 21 after the Barack Obama administration announced a slew of proposals aimed at tightening the regulatory noose around the nation's biggest financial firms. The proposals aim to deter commercial banks from becoming so large that they put the broader US economy at risk and distort normal competitive forces. The proposed new norms include limiting the size and scope of Wall Street's trading operations.

Obama, who blames excessive risk taking by Wall Street firms for helping to cause the financial crisis, also intends to stop them from owning or investing in hedge funds. They also prohibit commercial banks from owning, investing or advising private equity funds. "If these folks want a fight, it's a fight I'm ready to have," Obama told reporters at the White House, flanked by his top economic advisers and lawmakers. "We should no longer allow banks to stray too far from their central mission of serving their customers," he said.

The proposed rules also would bar US financial institutions from proprietary trading operations for their own profit. The White House blames the practice for helping to nearly bring down the US financial system in 2008. They would also set a new limit on banks' size in relation to the overall financial sector that would take into account deposits as well as liabilities and other non-deposit funding sources. Only commercial banks that don't do proprietary trading on their own accounts would have access to the Federal Reserve's discount window, a government-lending facility through which banks borrow reserves at a discount.

This would separate commercial and investment banks. Key banks that would be covered by the proposed restriction include Citigroup, Bank of America, JP Morgan Chase, Wells Fargo. Traditional investment banks such as Goldman Sachs and Morgan Stanley could need to give up their status as commercial banks to continue proprietary trading of mortgage securities. Goldman Sachs would need to divest its private-equity and hedge fund businesses as well as limit its proprietary trading, based on the proposal.

The plan is in tune with the proposal of former Federal Reserve chairman and current economic advisor Paul Volcker, who has called for greater restrictions on financial institutions in the wake of the financial crisis. Before his announcement, Obama met Volcker. The White House did not discuss the proposal with the banking industry prior to making it public.

Jubilant FoodWorks IPO subscribed 30.86 times

The Initial Public Offering (IPO) of Jubilant FoodWorks Ltd. received a strong response as it got subscribed 30.86 times as per latest information available with the stock exchanges. The total QIB portion was subscribed 59.38 times while the HNI was subscribed 51.81 times. The retail portion also received an overwhelming response as the segment was subscribed 3.71 times. Kotak Mahindra Capital Co. Ltd. was the sole book running lead manager to the IPO. Jubilant FoodWorks had entered the capital markets with its IPO of 22,670,447 equity shares with a price band of Rs135 to Rs145 a share. The offer comprised a fresh issue of 4,000,000 shares and an offer for sale of 18,670,447 shares by the India Private Equity Fund (Mauritius) and Indocean Pizza Holding Ltd.

Lupin unit gets USFDA nod for Memantine tablets

Lupin announced that its US subsidiary, Lupin Pharmaceuticals, Inc (LPI) has received the tentative approval for the company's Abbreviated New Drug Application (ANDA) for its Memantine Hydrochloride tablets, 5mg and 10mg from the US Food and Drug Administration (USFDA). Lupin's Memantine HCL tablets are AB-rated to Namenda tablets indicated for the treatment of moderate to severe dementia of the Alzheime's type Namenda had annual sales of about US$1.1bn for the twelve months ended September 2009, based on IMS health sales data. Commenting on the approval, Vinita Gupta, Group President & CEO, Lupin Pharmaceuticals Inc. said, "We are pleased to receive this tentative approval and look forward to bringing Memantine HCI tablets to the US market as an affordable generic alternative post-patent expiry".

Govt to divest 10% stake in Hindustan Copper

The frenzy in PSU stocks continued this week on speculation about further disinvestment plans by the Government though shares of the state-run companies did turn a bit volatile. Reports suggested that the Government was planning to sell a 10% stake in Hindustan Copper Ltd. through a proposed follow-on public offering (FPO). The Union Mines Ministry approved selling a 10% stake in Hindustan Copper, Chairman and Managing Director Shakeel Ahmed was quoted as saying. Sunil Mitra, who is in charge of disinvestment, indicated recently that the Finance Ministry was in talks for selling a 10% stake in Hindustan Copper. The Government of India holds a 99.59% stake in Hindustan Copper at present.

A separate report said that the Government is keen to bring metals and mining companies at the front of the divestment queue, and is likely to push the initial public offer (IPO) of Satluj Jal Vidyut Nigam (SJVNL) to next fiscal year. Manganese Ore India Ltd. (MOIL) and Hindustan Copper could hit the market early next fiscal, with the Government disinvestment riding on it. The Government is looking to offload about 10% of its stake in MOIL in the company’s proposed IPO and 15-20% stake in Hindustan Copper. At the same time, reports said that the Centre was not planning any stake sale in Dredging Corporation of India and Shipping Corporation of India (SCI).

In November 2009, the Union Cabinet approved a proposal to sell at least 10% government holding in PSUs and use the proceeds for social schemes until March 2012 to cut high fiscal deficit. The Government wants profitable listed public-sector companies, where its stake is more than 90%, to have at least 10% of their shares held by the public. Prime Minister Dr. Manmohan Singh’s government also plans to sell shares in some profitable unlisted PSUs.

Weekly Stock Picks - Jan 23 2010

Buy HCL Tech

Buy Satyam Comp

Buy McDowell

Buy GAIL

Buy ICICI Bank

Weekly Newsletter - Jan 23 2010

Unfavourable external environment (China and US) had an adverse impact on sentiment, though the NSE Nifty did manage to rebound after falling well below 5000. The market remains vulnerable to a fresh decline, owing to both local as well as global factors. However, a further recovery from here on is not ruled out, especially if the RBI doesn't spring a nasty surprise in its quarterly policy meeting on Jan. 29. The undertone will also hinge on global markets remaining stable. Any fresh bad news from China or any other part of the world may drag the Nifty down below 5000 again. A flood of earnings announcements, including some top companies, will only add to the anxiety levels. Volatility may escalate due to the F&O expiry on January 28. Technically, the Nifty has strong support at 5000, but can drop as low as 4950. On the way up, the Nifty could encounter resistance at around 5120. So, brace for a bumpy ride. Don't take undue risks till the current uncertainty subsides and there is more clarity on direction.

Results Next Week: Adani Power, Alstom Projects, Alok Industries, Aban Offshore, Anant Raj Industries, Apollo Tyres, Aurobindo Pharma, BEL, BPCL, BoB, BoI, Britannia, Cairn India, Colgate, Cadila Healthcare, Canara Bank, Cipla, Century Textiles, Crompton Greaves, Cox & Kings, Dabur India, Dredging Corp., DLF, Educomp, EIH, Emami, EMCO, Gammon India, Gujarat Industries Power, Glenmark, GSK Consumer, Godrej Industries, GMR Infra, GTL Infra, GVK Power, HCL Tech, Hero Honda, Hindustan Unilever, Hindalco, HPCL, Hotel Leela, IOB, IVRCL Infra, IOC, IDFC, India Cements, Indian Hotels, Jagran, Jain Irrigation, Jindal Steel, Jet Airways, Jyoti Structures, KEC Intnl, KSK Energy, Karnataka Bank, Karur Vysya Bank, Lupin, LIC Housing, Max India, MTNL, M&M, Marico, Mundra Port, NHPC, NTPC, NALCO, Nagarjuna Construction, OBC, Opto Circuits, Onmobile, Pidilite, Pfizer, P&G Health, PNB, Patel Engineering, PFC, Pantaloon, Power Grid Corp., Puravankara, Reliance Infra, Siemens, Shoppers Stop, Sobha Developers, Sun Pharma, Suzlon, SBI, Sterlite, SAIL, Tanla, Tata Steel, Tata Tele, Tata Comm, Tata Motors, Trent, Titan, Thermax, Tulip Tele, Union Bank, United Phosphorus, Unitech Voltamp and Wockhardt.

Food inflation drops to 16.81%

Food price inflation continued to soften in the week ended January 9 even as non-food prices witnessed a sudden spurt, data released by the Government showed. Despite the drop in food inflation from nearly 20% a few weeks earlier, the RBI will most likely boost the CRR if not the policy rates. For the week ended January 9, inflation for the Food Articles group fell to 16.81% from 17.28% in the preceding week, according to the Union Commerce & Industry Ministry. The index for Food Articles group declined by 0.1% to 285.6 from 285.8 for the previous week.

Inflation for the Non-Food Articles group jumped to 10.40% from 8.76% in the week ended January 2. The index for Non-Food Articles group rose by 1.9% to 257.9 from 253.2 for the previous week. Inflation for the Minerals group remained unchanged at (-) 5.18%. The WPI for the Primary Articles group rose by 0.4% to 284.6 from 283.4 in the previous week. The annual rate of inflation for the group stood at 13.93% compared to 13.82% for the previous week. It was at 11.87% during the corresponding week of the previous year.

The annual rate of inflation for the Fuel & Power group stood at 6.34% for the week ended January 9 compared to 6.25% in the previous week. It was (-) 1.41% during the week ended January 10, 2009. The index for this major group rose by 0.1% to 350.4 from 350.1 for the previous week. Inflation for the Mineral Oils group rose to 9.78% from 9.65% while that for the Electricity group stood unchanged at 1.95%.

India’s benchmark wholesale price inflation rate accelerated to 7.31% in December, the most in 13 months. That exceeded the central bank’s forecast of inflation
touching 6.5% by March 31, 2010.

United Spirits

United Spirits

Biocon

Biocon

Mkt will look to `language` of Policy Review statement

``All eyes are on the RBI Policy Review scheduled for Friday 29 January. While the market turns apprehensive prior to any RBI Policy Review, the period prior to the Review this time is all the more significant as there are expectations of rate action from RBI. This run-up period to the Review is slightly different from the earlier ones, in that while there are apprehensions of rate hike (s), yield levels have actually eased this week. The background to this is that the market had already discounted the possibility of rate hike (s); in fact in December, there were rumours of an impending CRR hike. This week, sentiments have improved due to the reasons discussed above,`` said Joydeep Sen, VP, Advisory Desk (Fixed Income) BNP Paribas Wealth while opining on the trends of equity market for the coming week (Jan.25 - Jan.29, 2010).

``On the expectation of rate action in the Policy Review, the possibility of a CRR hike of 50 basis points has been strongly discounted and some liquidity control measure is due anyway. There could be an announcement on MSS in addition to CRR hike.`` he said further.

``The action being debated by the market now is whether it is the right time to signal a rate hike in the economy by hiking repo / reverse repo rates. Strong GDP and IIP growth and galloping inflation have made a case for rate hike whereas sluggish credit off take and the contribution of the stimulus packages to GDP growth make a case for delaying the rate hike to, say, April. Signal rate hike is the one variable in the Policy Review that will be keenly watched by the market. If RBI hikes it now, it would not come as a total surprise, but may be a mild negative for the market as consensus is yet to be developed.``

``Market will also look to the `language` of the Policy Review statement i.e. the hints given on the future course of action on rate hikes and targets on economic parameters like inflation, growth, M3, etc.`` he added.

Rupee declines again

Ends at 46.15/16 per dollar

Rupee fell for a fourth day on Friday (22 January 2010), but pulled back from a two-week low struck early as exporters cashed in their dollars in the belief the drop was overdone.

Rupee ended 0.2% weaker at 46.15/16 per dollar from previous day's 46.04/05. The unit fell as low as 46.2750 in early deals, its lowest since 5 January 2010.

Nifty January 2010 futures at a steep discount

Turnover rises

Nifty January 2010 futures were at 5013.90, at a discount of 22.10 points as compared to the spot closing of 5036. Turnover in NSE's futures & options (F&O) segment soared to Rs 1,32,392.09 crore from Rs 1,11,117.17 crore on Thursday, 21 January 2010.

Tata Steel January 2010 futures were at discount at 617.40 compared to the spot closing of 621.10.

Reliance Industries January 2010 futures were near spot price at 1050.15 compared to the spot closing of 1051.70.

Larsen & Toubro January 2010 futures were at premium at 1470.60 compared to the spot closing of 1467.25.

In the cash market, the S&P CNX Nifty lost 58.15 points or 1.14% at 5036.

Asian markets wrap-up woeful week weaker

Nikkei led the regional losses as Sensex, Sydney, Seoul, Shanghai follows them

Stock market in Asian region fell Friday, 22 January 2010, as concerns over proposed U.S. banking curbs and the prospect of China rolling out more measures to cool its economy triggered broad losses. Investors followed the lead of the Dow Jones index, which suffered its worst fall of the year after Obama said he wanted to put limits on banks to avoid a repeat of the financial crisis that tore into the world’s economies.

On Wall Street, blue-chip stocks suffered a second day of triple-digit losses Thursday after President Obama announced sweeping new curbs on big banks. The Dow Jones Industrial Average stumbled by 213 points, or 2%, to 10,390. The S&P 500 dropped 22 points, or 1.9%, at 1116, and the Nasdaq declined by 26 points, or 1.1%, at 2266.

In the commodity market, crude oil fell below $76 a barrel in New York, poised for a second weekly decline, after a U.S. government report showed refineries in the biggest energy consumer slashed processing in response to lower fuel demand.

Crude oil dropped for a third day after the Energy Department said refineries operated at 78.4% of capacity last week, the lowest rate outside the Atlantic hurricane season since at least 1989. Gasoline stockpiles climbed to the highest level since March 2008. Fuel consumption in the past four weeks was down 1.8% from a year earlier.

Crude oil for March delivery declined as much as 46 cents, or 0.6%, to $75.62 a barrel in electronic trading on the New York Mercantile Exchange. It was at $76.37 at 10:14 a.m. London time. Yesterday, the contract lost 2.1% to $76.08, the lowest settlement since 22 December 2009.

Brent crude oil for March settlement fell as much as 30 cents, or 0.4%, to $74.28 a barrel on the London-based ICE Futures Europe exchange, and was at $74.98 at 10:14 a.m. London time. Yesterday, it declined 2.3% to $74.58, the lowest settlement since 22 December 2009.

Gold, trading was little changed in London trading, as it is poised for its biggest weekly decline in six as the dollar’s rebound curbed investor demand for the precious metal as an alternative investment. Bullion for immediate delivery traded at $1,097.20 an ounce at 10:14 a.m. in London.

In the currency market, the U.S. dollar was trading off its early lows near the end of the Asian session Friday, regaining some ground after initial losses though still smarting from the aftermath of the U.S. President’s new plans to regulate U.S. banks.

The Japanese yen strengthened against major currencies on Friday. Japan’s currency was quoted at 89.97 per US dollar on Friday from yesterday quote at Y90.34 per dollar in New York.

The Hong Kong dollar was trading at HK$ 7.7730 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 trades, the Australian dollar was stuck near three-week lows on Friday as investors fled riskier trades and higher-yielding currencies, unwinding leveraged positions funded mainly in yen. At the local close, the dollar was trading at $US0.9031, having shed over a cent overnight and almost 2% for the week.

In Wellington trades, the New Zealand dollar fell to multi-week lows against a range of currencies today after United States President Barack Obama proposed the biggest regulatory crackdown on banks since the 1930s. The NZ dollar traded just below US 71 cents, it’s lowest since 29 December 2009, before settling at US 71.30 cents at 5 pm from US 72.09 cents at the same time yesterday.

The South Korean won closed at 1151 won to the greenback, down from Thursday 1137.10 won.

The Taiwan dollar weakened against the greenback. The Taiwan dollar was trading lower against the US dollar at NT$ 31.9640, 0.0450 down from Thursday’s close of NT$31.9190.

In equities, Asian markets tumbled as concerns over proposed U.S. banking curbs and the prospect of China rolling out more measures to cool its economy triggered broad losses, with financials and metal shares hit especially hard.

In Japan, the share market benchmark Nikkei Average stumbled with broad based slumps across the sectors, triggered by the proposed banking limits by the White House and the prospect of China rolling out more measures to cool the economy. Losses were heavy and widespread with the oil developers and trading houses being the most heavily sold. The Nikkei Average sank 3.6% or 391.55 points in a week.

At the end of Friday trade, the Nikkei 225 Stock Average index was at 10,590.55, dropped 277.86 points or 2.56%, while the broader Topix of all First Section issues on the Tokyo Stock Exchange fell 15.09 points, or 1.58%, to 940.94.

On the economic front, Japan's nationwide supermarket sales on an annual basis fell below the 13 trillion yen thresholds for the first time in 21 years, according data released Friday by the Japan Chain Stores Association

In Mainland China, the stock index dropped after hitting an one month intraday low of 3,062.6 in morning low on the back of the slide in commodity prices and overseas market losses and on concern the government will raise interest rates to cool the world’s fastest-growing major economy. Lower commodity prices due to strength greenback dampen commodity and resources stocks. Energy stock also lost ground following the weakness in the oil price. Properties were sluggish on prospect of China rolling out more measures to cool the economy. The index has lost 3 percent or 95.57 points this week.

At the end of Friday’s trade, the Shanghai Composite Index, measuring A shares and B shares on the Shanghai Stock Exchange, dropped 30.27 points, or 0.96%, to 3,128.59, while the Shenzhen Component Index on the smaller Shenzhen Stock Exchange dived 321.22 points, or 2.49%, to 12,595.94. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, dropped 1.24%, to 3,366.20.

In Hong Kong, the stock market tumbled to three month closing low following tumbles in surrounding markets on falling commodities and fears of more monetary tightening in China. Although, most of morning declines were pared back on late hour bargain hunting triggered by late recovery in the Shanghai market on hope recent sell off turned stocks valuation attractive.

At the end of Friday session, the Hang Seng Index dropped 136.49 points, or 0.65%, to 20,726.18, while the Hang Seng China Enterprise, which tracks the overall performance of 43 Mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, recouped 17.82 points, or 0.15%, to 11,975.92.

In Australia, the shares fell sharply with benchmark All Ordinaries tumbled as investor risk appetite hurt by a proposed overhaul of the US banking sector, which sent New York shares tumbling overnight, while a falling commodities prices hammered materials and resources. Energy stock also lost ground following the weakness in the oil price. The proposed banking limits by the White House hurt financial stocks. The All Ordinaries registered weekly declines of 3.2% or 157.60 points. At the closing bell, the benchmark S&P/ASX200 index dropped 76.60 points, or 1.59%, to 4,750.60, meanwhile the broader All Ordinaries dived 77.70 points, or 1.60%, to 4,771.90.

In New Zealand, stock market dropped sharply on the last trading day of the week in line with most of the Asian markets that faltered after a strong decline on the Wall Street overnight. Share prices had dropped sharply overseas as US President Barack Obama took a tough stance on financial institutions, proposing rules to make the system safer by preventing the biggest banks from taking excessive risks. He said he was ready to fight the financial sector and its lobbyists for rules that would bar banks from owning, sponsoring or investing in hedge funds or private equity funds for their own profit, causing a bank share sell-off.

At the closing today, the NZX 50 lost 1.09% or 34.86 points to 3190.43. Meanwhile, the NZX 15 declined by 1.17% or 67.45 points to close at 5748.20.

In South Korea, stocks closed lower on strong foreign and institutional selling sparked by overnight fall on Wall Street. The benchmark Korea Composite Stock Price Index (KOSPI) plunged 37.66 points to 1,684.35.

In Singapore, the share market melted as equities and commodities sold-off across the market on US plans to curb excessive risk-taking by banks and concerns over Chinese monetary tightening. The blue chip Straits Times Index was at 2,819.71, slipped 31.27 points or 1.1%.

In Taiwan, stock market fell for fifth straight session taking the index to one-month closing low, as financial shares witnesses a selling spree after the United States proposed tough restrictions on banks that could squeeze profits. U.S. President Barrack Obama threatened to fight Wall Street banks on Thursday with a new proposal to limit financial risk taking, sending stocks and the dollar tumbling. Construction and technology stocks also lost ground as investors feared that the new restrictions could cause consumers to pull back on spending and hit corporate earnings.

The benchmark Taiex share index extended loses to fifth session, as the index finished tumbled by 200.56 points or 2.47% at 7927.31, the lowest closing since 23 December 2009 when market finished at 7901.50. The index also registered its biggest one day percentage fall since 27 November 2009.

In Philippines, the stock market closed the week in the negative territory following the Asian equities, as investors became vigilant after US president Barack Obama proposed tough new restrictions on banks, curbing investors' appetite for riskier assets. The downward moves echoed those on Wall Street flustered the PSEi, which plummeted more than 2%. Sustained selling in financials and industrials hurt the sentiments, keeping the selling pressure on ahead of the weekends. At the concluding bell, the benchmark index PSEi lost 2.01% or 62.11 points to 3,023.47, while the All Shares index tumbled 1.27% or 24.56 points to 1,906.89.

In India, the key benchmark indices ended a volatile trading session lower after US President Barack Obama proposed limiting risk-taking at US banks.The BSE 30-share Sensex was down 191.46 points or 1.12% to 16,859.68. The S&P CNX Nifty was down 58.15 points or 1.14% to 5036.

Elsewhere, Malaysia’s Kula Lumpur Composite index finished slightly lower at 1300.45 while stock markets in Indonesia’s Jakarta Composite index fell by 28.04 points ending the day higher at 2610.34.

In other regional markets, European shares Friday extended steep losses made in the previous session as the threat of profit-hindering regulation continued to drive investors away from the banking sector. On a regional level, the U.K. FTSE 100 index declined 0.1% to 5,331.79, the German DAX index declined 0.4% or 23.81 points to 5,723 and the French CAC-40 index declined 0.3% or 12.65 points to 3,850.

Aqua Logistics IPO Review

Asset light, but working capital heavy

Due to large and rising debtors and loans & advances, the company has not seen positive operating cash flow in the last five fiscals

Aqua Logistics (AL), promoted by Gopalkrishana Uchil, Rajesh G Uchil, Harish G Uchil and M S Sayad, is a full scope third party logistics service provider offering end to end solutions in the logistics and supply chain domain.

Started in 1999 as a freight forwarding company, AL has consistently increased its capabilities and scope of services. Turning itself into a multimodal transport operator in January 2001, it bagged its first project logistics order from ABB in 2003. It has acquired Rajesh G Uchil & Co, the partnership firm of Rajesh G Uchil, the promoter.

The scope of services now includes multimodal transportation, contract logistics, regulatory compliance, warehousing, value added services and project logistics. The revenue stream of the company comprises income from freight logistics, contract logistics and project logistics. Of the three, about 91.6% of the revenue came from freight forwarding/logistics in the fiscal ended March 2009 (FY 2009) with contract logistics (2.9%) and project logistics (5.5%) accounting for the balance. The company over the years has build up capabilities in meeting special logistics needs of industry verticals such as power, heavy engineering, pharmaceutical, telecom, retail, sports and events. The company has wide presence across the country covering all the major cities of the country such as Mumbai, Chennai, Delhi, Bangalore, Ludhiana, Baroda, Cochin and Pune. International operations are supported by third-party logistics (3PL) partners and vendors. They enable servicing clients in India and abroad.

The object of the issue is to raise funds to finance its future plans of 1) purchase of specialized equipment for project logistics business (Rs 30.52 crore); 2) expansion/ establishment of offices (Rs 17.11 crore); 3) inorganic expansion/ acquisitions (Rs 35 crore); and 4) additional working capital requirements (Rs 45 crore). The balance is for general corporate purposes as well as public issue expenses.

Strengths

Backed by experienced management team, the company is consistently moving up the value chain and has been building capabilities across the logistics value chain. Strong relationship with international as well as domestic logistic players will help the company to tap the growing logistics market in the country with lower investments. The Indian logistics sector, though impacted by slowdown, has shown strong resilience, especially the domestic cargo segment, unlike exim cargo. With the industrial sector bouncing back, logistic demand too is growing strongly.

The company services multiple industry verticals namely power, heavy engineering, pharmaceutical, telecom, retail, sports and events. Moreover, the top five clients of the company contributed just 30% and the top 10 clients account for about 37.7% of the revenue of the company. Hence, any downturn in any one of the verticals or loss of a clientele will not impact the operation of the company much.

On December 22, 2009, the company entered into a Memorandum of Understanding (MoU) with Enkorr Powergen to provide end to end project logistics service comprising the entire range of advisory consultancy and execution for the 3X4000 MW UMPP coal based thermal power plant one each in Tamil Nadu, Andhra Pradesh and Gujarat. The conclusion of the firm contract will provide strong traction to revenue as well as profitability given the high margin nature of the logistic business compared to freight forwarding business.

Weaknesses

The company follows asset light model and does not have its own fleet of equipment or any other logistics infrastructure. A tender driven business such as project logistics warrants owning of certain critical equipments as one of prequalification criteria and not owning equipment fleet will be a hurdle in expanding the project logistics business.

Aqua Specialized Transport, a promoter group company, is currently in the business of transportation, loading of goods, materials or other things in any form. Moreover, some of the promoter group companies, i.e., Aqua Management Consulting Group, Lefworld Private and Aqua PCW have objects similar to the business of the company. As of now these group companies are not competing against the company but helping the company in offering end to end logistics service. While the Aqua Management Consulting Group offers supply chain consultations, the Aqua Specialized Transport offers last mile project execution and specialized transport. This might lead to clash of interest and may affect the profitability of the company. Moreover, the company does not have any non-compete agreements/ arrangement with any of the promoter group entities as of now. This gives freedom to promoter group companies to carry out business on their own and compete against AL.

The logistic industry is highly fragmented with lot of unorganized players as well as organized players especially in transportation and freight forwarding. This is likely to result in aggressive pricing, especially in a downturn, for a slice of business affecting the profitability of the company.

The company has not seen positive operating cash flow in the last five fiscals. For FY 2009, the company had negative cash flow from operating activities amounting Rs 23.84 crore on account of increase in debtors as well as loans and advances. While the sundry debtors have spiked by 82% to Rs 59.73 crore, loans and advances surged by 224% to Rs 23.97 crore during this period.

Valuation

Sales of the company increased by 96% to Rs 213.40 crore for the fiscal ended March 2009 and net profit was higher by 75% to Rs 9.84 crore. At the offer price band of Rs 220-230, the post issue equity capital of the company works out to 20.44 crore at the lower price band and Rs 20.15 crore at the upper price band. Consequently, the EPS at the lower price band was Rs 5.2 and at the upper price band it was Rs 5.3 for FY 2009. Resultantly, the P/E works out to 42.3-43.4 times on the offer price band of Rs 220-230. Comparatively, Arshiya International and Gateway Distripark are available at a PE of 18 times and 19.1 times their FY 2009 consolidated earning. Even on first-half annualized EPS of Rs 9.1-9.2 on post-IPO equity, AL's P/E works out to 24.2-25.

Bears act in concert

Today's major news

Reliance Industries’ Q3 net up 16%; the stock closes 0.06% lower

ITC’ Q3 net sales brew by 18.7%; the stock jumps 2.13%

Allahabad Bank’s Q3 net down by 6.5%; the stock ends the day 1.5% lower

Fortis Healthcare’s Q3 net profit at Rs12.40 crore; the stock rises 1.97%

HCC’ Q3 net down 36%; the stock slides 5.09%

Click here for more stories

Post-market summary

Global signals

European indices traded marginally lower in morning trades, as banking stocks slid. At the time of writing this report FTSE 100 was trading marginally 0.09% lower.

All Asian markets closed in red. Nikkei closed 2.56% lower while the SGX Nifty closed 85 points down.

US stock futures opened marginally higher on Friday.

Indian indices

Pessimistic cues from overseas markets saw the Sensex open 73 points lower to breach 17000 level mark and extend its losses and touch the day’s low of 16608. However, better-than-expected Q3 numbers by Reliance Industries helped the Sensex to recoup some of losses and touch the day’s high of 17000. Of the Sensex’ pack, only three scrips closed higher. The index ended the Sensex 191 points lower. Nifty also broke 5000-level though at the end it closed 58 points lower.

Market sentiment

The market breadth, the number of advancing shares to declining shares, was fairly negative. Of the total 2,937 stocks traded on the BSE, 2,043 stocks declined, whereas 842 stocks advanced. Fifty-two stocks closed unchanged.

Sectoral & stock screening

Of the 13 sector indices, only BSE FMCG that surged 1.34% and BSE PSU that rose 0.36% closed positive. BSE Realty (down 1.70%), BSE IT (down 1.61%)and BSE Bankex (down 1.56%) were hit the most.

On stocks’ front, Hindustan Copper topped the chart surging by 9.99% followed by Idea Cellular (up 7.64%) and NMDC (up 7.00%). Among losers, Punj Lloyd slid the most by 6.28%, followed by IVRCL Infrastructure that fell by 5.64% and Rei Agro that shed 5.34%.

Viewing volumes

Public sector unit Rashtriya Chemicals and Fertilisers saw the highest trading with over 1.25 crore shares changing hands on the BSE, followed by wind turbine major Suzlon Energy (0.98 crore shares), India’s second biggest realty company Unitech (0.88 crore shares), Ispat Industries (0.81 crore shares) and industrial finance company IFCI (0.59 crore shares).