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Monday, February 01, 2010
Weak global indices may weigh on sentiment
Headlines for the day
Oil India Ltd acquisition dreams skid, co still hopeful - DNA Money
Reliance, L&T-led consortia in race for B'lore Metro project - Business Standard
Fortis to raise Rs 450 cr as part of additional capex - Business Standard
M&M to launch seven variants next financial year - Business Standard
GVK power buy hits coal mine hurdle - Business Standard
Events for the day
IPO Update: Emmbi Polyarns Ltd IPO opens today
Major Corporate Action: CONCOR,INT DIV-RS.6/- PER SHARE,Ex Date: Feb 1 2010,Rcd Dt: Feb 2 2010,
GODREJCP,3RD INT DIV-RE.1/- PR SHR,Ex Date: Feb 1 2010,Rcd Dt: Feb 2 2010
SAIL,INT DIV-RS.1.60 PER SHARE,Ex Date: Feb 1 2010,Rcd Dt: Feb 2 2010
SHREEASHTA,BONUS 4:1,Ex Date: Feb 1 2010,Rcd Dt: Feb 2 2010
TATAINVEST,INT DIV-RS.15 PER SHARE,Ex Date: Feb 1 2010,Rcd Dt: Feb 2 2010
Pre-market report
Global signals
European shares rose on Friday, boosted by stronger-than-expected U.S. economic growth, but also notched up their biggest monthly loss since February 2009 on worries over Greece's deficit, and curbs on banks.
U.S. stocks dropped on Friday, as worries about fiscal turmoil in Europe and a drop in technology stocks pushed the S&P 500 to its worst monthly decline since February 2009.
In today's trade, the Asian indices showing the negative trend in the early trading hours. Indices like Shanghai Composite, Hang Seng, Seoul Composite, Straits and Jakarata trading in red territory. While Nikkei trading with loss and at the time of writing this report, SGX Nifty that opened lower trading down by 32 points at 4855.
Indian markets
The market is likely to remain under pressure after a fall in the US market on Friday and weakness among major Asian indices in the ongoing trades.
Among the local indices, the Nifty could test the 4900-4975 range on the up side, while on the down side it could find support at 4825 and 4766. While the Sensex is likely to get support at 16182 and may face resistance at 16543.
Indian ADR's
All the Indian ADRs trading on the US bourses closed on mixed note. ICICI Bank that surged by 5.41%. On other hand Rediff fell the most with loss of 4.73%
Commodity cues
In the commodity space, wherein the Crude oil prices recorded marginal loss, with the Nymex light crude oil for March series decline by $0.27 to settle at $72.62 a barrel.
In the metals space, Comex Gold for April series declines by $1.60 to settle at $1083.20 to a troy ounce.
In the metals space, Comex Silver for March series advances by $0.06 to settle at $16.27 to a troy ounce.
Daily trend of FII/MF investment in equities
On January 29, 2010, FIIs were the net sellers of the Indian Stocks in the tune of Rs2332 crore (with the gross purchase of Rs3327 crore and gross sales of Rs5659 crore).
While the Domestic mutual funds, on January 29, 2010, were the net buyers of the stocks in the tune of Rs1112.50
Crude ends lower
Strong economic data fails to boost crude prices
Crude oil prices ended lower on Friday, 29 January 2010. Prices dropped as the dollar headed up based on strong fourth quarter GDP reading by the Commerce Department. The strong consumer sentiment data added further fuel. Prices were also slipping since last couple of days due to impending worries from China front where tightening monetary policies are bothering investors due to shaky demand of metals in coming months.
Strong economic reports generally tend to push crude prices higher. But with a firm dollar, commodity prices were pressured on Friday.
On Friday, crude-oil futures for light sweet crude for March delivery closed at $72.89/barrel (lower by $0.75 or 1%). For the week, crude ended lower by 2.4%. In January 2010, crude ended lower by 8.3%.
In the currency market on Friday, the dollar index, which weighs the strength of dollar against the basket of six other currencies headed up following stronger than expected fourth quarter GDP reading in the US.
The Commerce Department in US reported on Friday, 29 January 2010 that the U.S. economy grew at the fastest pace in six years during the fourth quarter of 2009, even as consumer spending and business investment remained tepid. As per the report, real gross domestic product increased at a 5.7% seasonally adjusted annual rate in the final three months of the year, the best quarterly growth since late 2003. The economy grew 2.2% in the third quarter. A year ago, the economy fell at a 5.4% pace.
The 5.7% increase in the fourth quarter was in line with the 5.4% gain expected by by market. In the fourth quarter of 2009, about two-thirds of the growth came via the swing in inventories. Excluding the change in inventories, final sales increased at a 2.2% annual rate. But, even with healthy growth in the second half of the year, the economy shrank 2.4% in 2009, the worst year for GDP since the 10.9% drop in 1946.
Separately, there was an upbeat report on consumer sentiment. The Reuters/University of Michigan consumer sentiment index rose to a reading of 74.4 in January from 72.5 in December, reaching its highest level since January of 2008.
Earlier during the week, the Energy department reported in its weekly inventory report that crude-oil supplies for the week ended 22 January 2009 fell 3.9 million barrels. Gasoline inventories rose 2 million barrels. Distillate supplies rose 400,000 barrels. Market was expecting crude and gasoline stockpiles to show an increase of 2 million and 1.7 million barrels respectively.
Last week, in the latest report, the Organization of the Petroleum Exporting Countries said that world oil demand is forecast to grow by 800,000 barrels a day this year to average 85.1 million barrels a day, representing no major change from last month's forecast.
Paris based, IEA, left its forecasts for global oil demand for 2010 virtually unchanged in its latest monthly report last week. It forecasts demand of 86.3 million barrels a day in 2010, up 1.7%, or 1.4 million barrels a day higher than 2009.
Among other energy products on Friday, heating oil for March dropped 1.9 cents, to $1.91 a gallon, while gasoline for the same month fell 1.7 cents to $1.91 a gallon.
Also on Friday, March natural-gas futures fell 0.8 cents to $5.13 per million British thermal units.
Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 53.5% since then. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.
Bullion metals give up gains
Prices drop as dollar heads up
Precious metal prices ended lower on Friday, 29 January 2010. Prices dropped as the dollar headed up based on strong fourth quarter GDP reading by the Commerce Department. Prices were also slipping since last couple of days due to impending worries from China front where tightening monetary policies are bothering investors due to shaky demand of metals in coming months.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa.
On Friday, gold for April delivery ended at $1,083.8 an ounce, lower by $1 (0.1%) an ounce on the New York Mercantile Exchange. For the week, gold lost 0.6%. For January 2010, gold lost 1.2%. Hence, year to date in FY 2010, gold prices are lower by 1.2%.
Last year, after hitting a low at $807.30 per ounce on 15 January 2009, gold futures rallied almost 51% to hit an all-time high at $1217.40 per ounce during early December of 2009 but fell from those levels at the end.
On Friday, March Comex silver futures ended lower by 2 cents (0.13%) at $16.19 an ounce. For the week, silver ended lower by 4.3%. Year to date in FY 2010, silver has dropped by almost 3.9%.
Silver futures had hit a low at $10.42 on 15 January 2009 and hit a high at $19.30 per ounce on 2 December 2009. Like gold, silver also ended lower than its all time high level.
In the currency market on Friday, the dollar index, which weighs the strength of dollar against the basket of six other currencies headed up following stronger than expected fourth quarter GDP reading in the US.
The Commerce Department in US reported on Friday, 29 January 2010 that the U.S. economy grew at the fastest pace in six years during the fourth quarter of 2009, even as consumer spending and business investment remained tepid. As per the report, real gross domestic product increased at a 5.7% seasonally adjusted annual rate in the final three months of the year, the best quarterly growth since late 2003. The economy grew 2.2% in the third quarter. A year ago, the economy fell at a 5.4% pace.
The 5.7% increase in the fourth quarter was in line with the 5.4% gain expected by by market. In the fourth quarter of 2009, about two-thirds of the growth came via the swing in inventories. Excluding the change in inventories, final sales increased at a 2.2% annual rate. But, even with healthy growth in the second half of the year, the economy shrank 2.4% in 2009, the worst year for GDP since the 10.9% drop in 1946.
Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year.
DB Realty IPO Review
Bitter reality
DB group has 112 companies and 3 partnership firms in similar as well as diverse fields with many related party transactions
DB Realty (DBRL), promoted by Vinod K Goenka and Shahid U Balwa, is engaged in real estate development in and around Mumbai and Pune. The company, incorporated on January 8, 2007, is currently focused on both residential as well as commercial (including retail) realty projects. In addition, the company is also involved in mass housing projects as well as cluster redevelopment projects in Mumbai.
The company has land reserve of 30.72 million square feet (sq ft), which on development will have a saleable area of 61.02 million square feet as of December 2009. It has commenced work for eleven projects (ongoing projects) aggregating to 19.51 million sq ft of saleable area. In addition, the company has firmed up plans for eight projects (forthcoming projects) with 19.28 million sq ft of saleable area and another six projects for which the company has acquired land but has not taken any initiative yet for obtaining approval aggregating to a saleable area of 22.24 million sq ft. Of the total 61.02 million sq ft of aggregate saleable area, about 29.29% is accounted for by mass housing and cluster redevelopment. In fact, the share of mass housing and cluster redevelopment projects is as high as 56.05% (or 10.94 million sq ft) in the ongoing projects.
From the development of mass housing projects for the Mumbai local authority, DBRL generates transferable development rights (TDRs), which are rights to develop additional built-up area in parts of Mumbai, generally north of the relevant development, and can be utilized in its own projects or other developers' projects in Mumbai. Currently, the company's ongoing project is expected to generate TDRs of up to 10.94 million sq ft. Similarly, the forthcoming and upcoming projects of the company are expected to generate TDRs of up to 6.21 and 0.73 million sq ft, respectively. So the aggregate TDRs generated from ongoing, forthcoming and upcoming projects amount to approximately 17.88 million sq ft. Likewise, the cluster redevelopment of old and dilapidated structures in Mumbai grants the company additional floor space index. Depending on market/commercial conditions, the company either sells TDRs or uses it for own development projects. Revenue from sale of TDRs constituted 76% of total revenue in FY 2009, but plunged to a mere 3.4% in H1 of FY2010.
The proceeds from the initial public offer of Rs 1500 crore will be used to a) meet construction and development of Orchid Ozone (residential cum commercial project), Ascot Centre II (commercial project), and Orchid Corporate Park (commercial project) in Mumbai and Orchid Centre (residential) in Pune, amounting to Rs 1044.66 crore; b) pre-pay the loan of Rs 800 crore taken from IDFC; and c) for meeting expenses for general corporate purposes.
Strengths
The company is focused on the Mumbai market and most of its projects are in and around Mumbai city. Of the total saleable area of 61.05 million sq ft, considering its ongoing, forthcoming and upcoming projects, about 85.5% (or 52.15 million sq ft) is in and around Mumbai. Mumbai market is one of the micro markets to have quickly bounced back from the recent (mid 2008) realty slump, given the consistent short supply of good quality residential stocks. Similarly, there is always a strong demand for commercial/retail space in Mumbai City if it is rightly located and rightly priced, given the pre-eminence of the city as commercial capital of the country.
Redevelopment schemes come with challenges in the form of majority consent (70% of project residents) as well as temporary accommodation. At the same time, redevelopment schemes offer opportunity to develop projects on such land at a lower cost in prime locations.
Ongoing projects of the company are expected to generate TDRs of up to 10.94 million sq ft, providing enough liquidity as the prices of TDR in the Mumbai market are quoting at around 2500/ sq ft and are looking firm.
Weaknesses
The company's operating history is very short, having incorporated in January 2007. The company does not have a record of completion of a project and delivery. It has only projects under construction. However, its promoters have strong experience in the real estate industry, having collectively developed approximately 15.90 million sq ft of real estate spanning across verticals of residential, commercial, retail and hospitality. Though the company has clocked revenue of Rs 434.43 crore for FY 2009, its operating cash flow is negative for that fiscal. This was primarily because of the continuing land development and acquisition expenses, unmatched by revenue streams.
Both the commercial projects among the ongoing projects are to be funded through the IPO proceeds. These commercial projects are likely to be completed by end of CY 2012. Since the commercial projects involve upfront cash outgo towards land and construction, revenues are expected only when the project is leased or sold out, which will happen only at advanced stage of completion. With two long years for completion, there will not be any cash inflow from commercial realty segment.
DB group has 112 companies and 3 partnership firms, with many related party transactions. The company, as of 30 September 2009, had given corporate guarantees for certain debt facilities availed by its related entities, aggregating to nearly Rs 2518.89 crore. This is in excess of the net-worth of the company at Rs 1411.55 crore end September 2009. Out of the total corporate guarantees provided, Rs 1769.26 crore (or 70% of guarantees) has been provided to entities engaged in businesses other than real estate such as hospitality and telecom. Moreover, the company has also made an investment of Rs 705.15 crore in unlisted entities related to it. In addition, the promoters have provided personal guarantees aggregating to approximately Rs 4328.77 crore in connection with certain debt facilities availed by such entities.
DBRL has extended interest-free loans to various entities related to the promoters, amounting to more than Rs 553.56 crore end September 2009. Further, it has not signed written agreements to document the terms and conditions of such loans. Moreover, some of these entities are either incurring losses or have negative net-worth.
Valuation
Incorporated in January 2007, the company has started clocking revenue from FY 2009 from sale of TDR and booking revenue from a couple of projects under construction by way of percentage completion method. Consolidated sales for FY 2009 stood at Rs 464.43 crore and net profit at Rs 145.79 crore. The EPS for FY 2009 stands at Rs 5.8 and Rs 5.9 on post-issue likely equity on the offer price band of Rs 468 at the lower level and Rs 486 at the upper level. The P/E works out to 80.7-82.4 times the offer price band. On the other hand, HDIL quotes at 13.6 times its FY 2009 consolidated earnings.
The enterprise value per million sq ft on the saleable area under construction and forthcoming/ pipeline is Rs 312.94 crore. That of HDIL is about is Rs 345.84 crore. HDIL has a land reserve of 175 million sq ft in the Mumbai metropolitan region compared to 30.72 million sq ft of DBRL.
OBC
Investors with medium-term perspective can consider buying the stock of Oriental Bank of Commerce. The stock bottomed out at the multi-year low of Rs 95 in March 2009. Since then, it has been on a long-term uptrend, forming higher peaks and higher troughs.
While trending upwards, the stock conclusively broke through various resistances at Rs 150, Rs 200 and Rs 240, with good volume.
The stock was however in a corrective phase from the November 2009 peak at Rs 295 that ended at the long-term uptrend-line at Rs 230.
On January 29, the stock gained 6 per cent penetrating the downtrend-line and the 21-day moving average decisively.
It has also managed a close above its 50-day moving average that indicates resumption of its long-term trend.
We notice that there has been an increase in volumes over the past three trading sessions supporting the current up-move.
Both daily and weekly price rate of change indicators have re-entered the positive territory. The daily moving average convergence and divergence indicator is also signalling a buy. The daily relative strength index is hovering at 57 levels and weekly RSI is on the verge of entering in to the bullish zone.
Considering that the long-term uptrend line is intact, we are bullish on the stock from a medium-term perspective.
We believe that it has the potential to trend upwards until it hits our medium-term price target of Rs 320. However, we do not rule out a minor pause at Rs 293. Investors with medium-term perspective can consider buying the stock while maintaining stop-loss at Rs 238. Short-term traders can buy with a target of Rs 293 and Rs 253 as stop.
Follow up: Punj Lloyd (Rs 187.3)
The stock witnessed a decline to Rs 175 and bounced up on Friday, ending the week at our recommended price level. We maintain our bearish view on the stock from a medium-term perspective. Investors can consider selling it with the targets and stop-loss indicated last week.
via BL
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