Infinity.com - Prathiba, JK Industries, Hindustan Zinc

Infinity.com - Prathiba, JK Industries, Hindustan Zinc

Morgan Stanley - India Strategy

Morgan Stanley in their India Strategy Report say,

Conclusion: Indian equity valuations appear tolerable at 16.5x F2008E earnings (BSE Sensex measured using Morgan Stanley estimates). However, we see four key issues with the multiple: (i) rising long rates; (ii) the global multiple and India’s relative position; (iii) the low valuation dispersion across sectors and stocks; and (iv) earnings revisions. In this context, valuations still appear vulnerable.

What’s New: The higher level of long-term interest rates seems to be pointing to a further decline in the market’s P/E multiple. There is little argument that Indian equities warrant a premium to the rest of the world – the key question is quite what level of premium is justified. Pertinently, India remains susceptible to a decline in relative P/E if the world falters. In our view, investors could also suffer because the dispersion of
valuation multiples across stocks and sectors is too low – reflecting a view that the narrowing of the gap in fundamentals across stocks is permanent. As fundamentals revert to mean, the dispersion of valuation multiples may increase. Finally, the biggest
problem is with the denominator of the P/E multiple. We think earnings are at risk from the prospects of slowing economic growth. Earnings revisions have already turned down in recent weeks.

Ultimately the Earnings Outlook Is a Bigger Issue
We think the key issue with the P/E ratio is with the denominator – i.e. earnings. Earnings could be in a bubble, as suggested by the big increase in their share of total output. Profits to GDP have surged from around 2% at the start of the decade to an estimated 6% in F2007. True, the starting point may have been low, especially with respect to companies in cyclical sectors, but the current level may not be sustainable
either. Earnings have benefited from a sweet macro backdrop of low rates and thus a positive financial leverage effect and rising capacity utilization owing to depressed capex and high growth. Several of these areas are under the scanner – rates are rising and eroding the positive financial leverage effect, growth could be slowing in response to higher inflation and capex is already at an all-time high.

On our residual income model, if we assume that the market expects a 14% long-term return from the BSE Sensex constituents (which equates to an equity risk premium of
around 6%, given that long bonds are around the 8% mark), the mid-term annual earnings growth from these companies (i.e. from F2010 onwards) needs to be around 17%. This is not impossible for the BSE Sensex constituents, but also not a given, in our view. We think the next two years’ growth will probably be lower than the consensus is expecting for the reasons discussed earlier. The consensus is forecasting 15% growth in earnings in the coming two years for the BSE Sensex constituents on aggregate. However, more than half the aggregate earnings for the BSE Sensex come from just five companies. Incidentally, earnings revisions have already turned down, and this could be an early indicator for lower multiples

Commodities & Metals

Mustard: To gain today
Mustard prices also recovered late in the day due to some buying. The strength in soy oil due to strong palm oil prices this morning would give a good support to the counter. Stocks currently held by NAFED stood at seven million tonne. Yesterday, price of expeller oil in Mumbai softened, tracking bearish cues from CBOT and BMD. However, expeller oil prices across Kota and Jaipur spot markets firmed up marginally on steady demand and limited stocks. Prices are expected to remain firm today, taking cue from strong edible oil prices. June contract should target Rs419 per 20kg in the short term.

Copper in the process of correction
Yesterday COMEX Copper had closed as a Doji after Bullish Engulfing..

Citigroup - India Economics

Citigroup on India Economy and GDP Growth

4QFY07 GDP rose by 9.1%yoy, with growth led by agriculture (+3.8%), industry (+11.2%) and services (+9.9%). Quarterly growth was only slightly below consensus, largely due to a revision in the base, with 4QFY06 GDP revised from 9.3% earlier to 10%yoy ( however, full-year FY06 GDP remained unchanged at 9% due to downward revisions in earlier quarters)

Key highlights for FY07 include: (1) a continued uptrend in industry, led by double-digit growth in manufacturing (+12.3% in FY07) and construction (+10.7%yoy); (2) strong trends in services, led by trade, hotels and communication (+13%) and financial services (+10.6%); (3) Data on consumption and investment indicate that total consumption during FY07 was at 68% of GDP( of which private consumption was 56%), while fixed capital formation stood at 29.5%.

Maintaining our Macro Forecasts: While the near-term outlook remains clouded given the stepping up of the RBI tightening stance since last October; we expect GDP growth to sustain at 9% levels in FY08; given the continuation of the key growth drivers, an uptrend in savings and investment, and our expectations that inflation and interest rates are close to peaking.

Citigroup - IDEA SPICE Merger

Citigroup in their report on IDEA Spice Merger answer some interesting questions

How likely is it? — Recent media reports suggest there is more to Idea-Spice talks
than pure speculation. However, hurdles remain to the timing (Spice’s listing
plans, Idea’s share lock-ins) as well as the modalities (with reported intentions of
both to buy the other one out to fulfil their national ambitions).


What is the rationale? — The footprint, with Spice’s presence in Punjab and
Karnataka, offers a good fit for Idea. While Spice’s weak presence in Karnataka is a
dampener, there is an opportunity to turn it around. Depending on the structure,
TM stands to gain from a stake (albeit smaller) in a larger Indian wireless play.

What will be the relative valuations? — The relative merger/takeout valuations
would reflect our estimates for Spice’s equity value at US$800-1,000m. In a pure
merger scenario, that would translate to Spice promoters owning 9-11% equity in
the potential combined entity (at Idea’s present market cap).


Who else benefits? — Though small in itself, any M&A event would bode well for
sector fundamentals and valuations. Besides, it might also prompt a rethink among
the remaining aspirants, i.e. Maxis-Aircel and RCOM (given the uncertainty on
GSM spectrum). The larger incumbents would also benefit indirectly. The valuation
range implies RM0.40-0.50 per Telekom Malaysia share for TM's 49% stake in
Spice. This is versus RM0.40/share in our current SOTP based target price for TM.

Remain Overweight on Indian wireless — Potential M&A adds to the long list of
positives – accelerated supply-driven rollout, attractive paybacks (on per min
basis), infrastructure sharing and rational competition. Bharti remains our top pick.

Market Close: Nifty kisses new High.. Rally picks Up..

Firm start with significant gains on the back of positive cues from Asian markets. Most of the Asian markets were up except China. There was no sharp rally but market retained its gains. Indices stayed firm at higher levels, as buying continued in index pivotals. Strong set of GDP figures supported the rally in early afternoon trade. Market saw some profit booking little after the mid session but strong buying activity in the final trading hour led the indices to gain the lost momentum and to close high. Buying was seen in Auto, Bank and FMCG while selected stocks in the Software and Telecom sectors witnessed selling pressure. Asian indices ended mixed while European indices are trading up.

The GDP growth was 9.4% in fiscal-year ended March 2007 which is higher than government estimate of 9.2% and the fastest growth in 18 years. Farm sector output in the January-March 2007 quarter grew an annual 3.8%, manufacturing rose by 12.4% and construction 11.2%. Trade, hotels, transport and communications segment recorded a strong 12.4% growth. This is good sign of growth in the economy which eventually helped out market to grow.

Sensex ended up by 133 points at 14544.46. It was helped up by gains in Hero Honda (732.35,+5 percent), HDFC Bk (1139.75,+3 percent), HLL (203.5,+2 percent), HDFC (1870.8,+2 percent) and SBI (1352.4,+2 percent). Restricting the gains were BHEL (1398.9,-49 percent), Guj Ambuja (113.15,-2 percent), NTPC (158.4,-1 percent), Dr Reddys (649.45,-1 percent) and ACC (855.6,-1 percent).

Zee TV cancelled its five-year contract with the Board of Control for Cricket in India (BCCI) following a new law on sports broadcasting putting a question mark on the three-match one-day series between India and South Africa in late June. They have cancelled the deal with the BCCI because of their step motherly treatment towards the company. The cancellation of the five-year deal signed last year and covering only offshore matches worth around Rs 820 Cr comes after the sports channel asked the board for re-negotiation of the price. After the government passed the sports broadcasting signal bill it will suffer huge losses. On the other hand they have been negotiating with Nimbus on this issue as well. So this is clearly a case of step-motherly attitude towards the company. According to the new act on sports broadcasting it is mandatory for every broadcaster to share live feed without advertisements for all ties involving India with national broadcaster Doordarshan. This provide good for the stock as it ended over 3.5%.

Energy sector traded in mixed as the petroleum ministry has projected that gas availability in India is set to more than double (increase by 157%) in the next five years. This could alleviate the plight of major gas consumers in the power, fertiliser and industrial sectors, which face huge losses owing to an over 60% shortfall in gas availability. It is estimated that India would have a surplus of 16.95 mmscmd of gas within two years. Of the total gas supply of 285.42 mmscmd, natural gas produced in India comprises 202.30 mmscmd. The balance is contributed by LNG imports. The significant jump in natural gas supply is mainly due to 80 mmscmd supply from Reliance Industries. RIL's offshore fields in the KG Basin are projected to supply 40 mmscmd from 2008-09. Besides the 40 mmscmd production certified by DGH, RIL's other fields are expected to supply an additional 20 mmscmd in 2009-10, 30 mmscmd in 2010-11 and 40 mmscmd in 2011-12. On this news petroleum companies like HPCL ended up by 2%, RPL and Indraprastha Gas each up 1% featuring among the major gainers.

Tata Tea the Indian tea majors went in for 11% stake in Mount Everst Mineral water which is also a listed company. Mount Everst Mineral water Ltd has its Mineral water Brand Himalaya which is prefered by the Shopping Mall, Multiplexes and Hotels. The Mineral wate company has total reveune of Rs 16 Cr for the FY06. And the company has already made Rs 16.5 Crs for 9 months of FY07. With CMp of Rs 128 the Market capitalisation comes to Rs 370 Cr. Tata tea acquiring 11% Values at Rs 155 Cr seems to be on the higher side. Tata Tea has kept some strategy and has put his hands in this company. Lets wait and watch. Both the stocks ended over 5%.

Technically Speaking: FNO expiry had nothing to upset the market as Sensex rallied. Sensex touched intraday high of 14574 and low of 14449. Resistance lies at 14660, 14730 and Support lies at 14375 levels. Market turnover was pretty good at Rs 4449 Cr. Overall market breadth was in favor of Advances, where the Decliners stood at 1198, Advances were stood at 1381. We about the 14560 levels above this market can see new high. Nifty touched the new high of 4305 levels then slipped to close at 4296.

Merrill Lynch - IDEA Spice Merger

Media says Spice Tele to merge with Idea; confirm awaited

Media (CNBC) has flashed that Spice Telecom will likely merge with Idea Cellular. Spice shareholders would reportedly own ~12% of the merged entity. As per media the deal values Spice at Rs45-50bn. Idea is yet to confirm the news.

Spice – 2 circle presence; No.2 in Punjab; weak in K’taka
Spice operates in 2 circles - Punjab & Karnataka. The Co’s wireless sub base totaled ~2.8mn subs as of Apr '07 i.e ~1.7% subscriber mkt share on a pan-India basis. In Punjab, Spice is ranked No.2 (behind Bharti) with ~23% share of total subs. In Karnataka, Spice is ranked No.6 with ~7% mkt share. Latest (Sep ’06) financials indicate Spice is EBITDA positive but makes net loss.

Good strategic fitment with Idea
A merger with Spice would take Idea a step closer to becoming a pan-India operator. Currently, Idea does not have any presence in Spice’s circles.

Rollovers Analysis 30 May, 2007 - Edelweiss

1. Momentum in the market wide rollovers continued to remain strong with a total of 63% open interest rolled to the June series rising from 48% yesterday. They are marginally above the average D-1 rollovers of 61% over the last few expiries.

2. The average rollover cost continued to move in the range of 75 bps to 80 bps (average of positives).

3. In Value terms, INR 290 bn worth position has already been rolled to June series and another INR 183 bn needs to be rolled on the expiry day.

4. Rollovers in Nifty also picked to 59% from 43% yesterday and are higher than 55% rollovers generally seen 1 day prior to expiry.

5. However these rolls have been happening with a continuous downwards pressure on the rollover cost, which has further drifted down to -26 bps from -20 bps yesterday and -7 bps, 5 days back.

6. 116,812 contracts in Nifty got rolled over today and 288,301 contracts over the last 5 days. Current Nifty OI stands at 719,810 contracts, which is 10% lower than D-1 of previous expiry.

7. Rollovers in IT stocks remained very strong with aggregate rollovers of 66% against 52% yesterday. The rise in rollover activity also happened with an upwards pressure on the rollover cost. Stocks which gained good momentum with a high rollover cost include Infosys (53% to 69%), TCS (49% to 61%), Patni (47% to 70%) and Satyam (77% to 82%).

8. Rollovers in Auto counters continue to remain robust, rising to 67% from 55% yesterday.

9. Construction and Sugar stocks continued to witness low rollovers with major laggards being Renuka (44%), Bajaj Hindustan (50%), Lanco (52%) and IVRCL (57%).

10. Given below are the stocks that are expected to see selling action in the last 30 min of market, as rollovers in these counters have been weak till a day before expiry:

1. Lanco Infratech

2. Polaris

3. Voltas

4. Reliance Capital

5. PFC

6. Escorts

7. ZEEL

8. HCC

11. Given below are the stocks that are expected to see buying action in the last 30 min of market, as rollovers in these counters have been weak till a day before expiry:

1. Hero Honda

2. ONGC

Sharekhan - DLF IPO

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Market Commentary

The BSE Sensex closed the session on a positive note as it grew by 133.08 points at 14,544.46 while Nifty closed at 4,295.80 up by 46.15 points. Of the 2,564 stocks actively traded on BSE, 1,332 stocks advanced while 1,153 stocks declined. The BSE Mid cap and Small cap closed higher by 30.79 points and 63.47 points at 6,222.40 and 7,413.03 respectively.

BSE bank index closed higher by 102.13 points at 7,607.35 as HDFC bank 3.18%, PNB 2.38%, SBI 2.09%, Bank of Baroda 1.42%, BOI 0.55% and ICICI bank 0.87% closed in positive.

BSE Capital goods index closed higher by 74.56 points at 11,153.99 as ABB 1.83% and L&T 0.25% closed in green while BHEL (49.47%) and Siemens (0.30%) closed in red.

BSE Metal index closed at 10,405.99 up by 61.32 points as Tata Steel 0.71%, SAIL 0.68% and Hindalco 0.21% closed in positive while NALCO (0.80%) closed in negative.

BSE Auto Index closed in positive at 5,012.28 up by 64.12 points as Hero Honda 5.01%, Maruti Udyog 2.63%, Tata motors 2.07%, Bajaj Auto 1.06% and M&M 0.88% closed in green.

BSE IT index closed at 4,851.43 grew 37.34 points as Wipro 1.59%, Infosys 0.84%, Satyam 0.95%, HCL Tech 0.63% closed in green while TCS (0.41%) closed in red

BSE Health Care Index closed higher by 14.46 points at 3,841.84 as Cipla 1.35%, Glaxosmithkline 0.95% and Sun pharma 0.52% closed higher while Dr. Reddy lab (0.78%) and Ranbaxy labs (0.45%) closed lower.

BSE oil & gas index closed up by 40.09 points at 7,795.67 as HPCL 4.08%, BPCL 1.98%, Reliance petroleum 1.82% and GAIL 1.56% closed in green while ONGC (0.19%) closed in red.

BSE FMCG index closed higher by 26.06 points at 1,907.38 as HLL 2.42%, Dabur 1.53% and ITC 0.77% closed in green.

Market ends upbeat, gains 133 points

The market displayed a positive trend, almost for the entire session, despite expectations of unwinding of positions on the last day of the May series of derivative contracts. Taking its cue from firm Asian markets, the Sensex opened with a gap of 40 points at 14451 and continued to rally further to touch the day's high of 14574 on buying in banking and capital goods stocks. The market remained range-bound thereafter, with a positive bias. However the announcement of the GDP numbers did little for the market despite a GDP growth of 9.1% in the fourth quarter of FY2007. The buoyancy in the consumer durables, especially in Videocon Industries and Fedders Llyod, lifted the BSE CD index to its record high of 4217. However, profit booking in some of the front-line stocks dragged the market to its intra-day low of 14449. The Sensex bounced back towards the close as short-covering in heavyweights helped the index to recover and end the session at 14544, up 133 points. The Nifty finally settled at 4296, up 46 points.

The breadth of the market was positive. Of the 2,565 stocks that traded on the BSE, 1,333stocks advanced, 1,154 stocks declined and 78 stocks ended unchanged. Among the sectoral indices, the BSE CD index notched up gains of 4.47% at 4195 followed by the BSE FMCG index (up 1.39% at 1907), the BSE Bankex (up 1.36% at 7607) and the BSE Auto index (up 1.30% at 5012).

The heavyweights witnessed strong buying interest. Hero Honda soared 5.01% at Rs732, HDFC Bank rose 3.18% at Rs1,140, Maruti Udyog was up 2.63% at Rs824, HLL shot up by 2.42% at Rs204, HDFC jumped 2.29% at Rs1,871, SBI added 2.09% at Rs1,352, Tata Motors gained 2.07% at Rs757, Bharti Airtel moved up by 1.98% at Rs848 and Wipro was up 1.59% at Rs545. However, Gujarat Ambuja slipped 1.74% at Rs113 and NTPC lost 1.19% at Rs158.

Over 1.56 crore Reliance Natural Resources shares changed hands on the BSE followed by MIC Electric (65.19 lakh shares), Insecticides India (58.78 lakh shares), SREI Infrastructure (54.71 lakh shares) and Reliance Petroleum (46.66 lakh shares).

Value-wise MIC Electric registered a turnover of Rs252 crore on the BSE followed by India Infoline (Rs112 crore), Unitech (Rs103 crore), Reliance Industries (Rs103 crore) and SBI (Rs83 crore).

Nifty at new peak on short covering in derivatives, firm Asian markets

The market surged today on continued buying and strong global markets. Upbeat January-March 2007 GDP growth data and short-covering in derivatives ahead of expiry of May 2007 derivatives contracts also aided the upmove. Today's high of Sensex of 14573.81 is its highest level in more than 3-½ months since 9 February 2007. S&P CNX Nifty struck an all time high 4,306.75 in late trade. All the sectoral indices on BSE settled with gains.

Volatility was the hallmark of the day, which was but obvious as the May 2007 contracts were to expire today. The market held firm right from the opening bell as the market-wide rollover of 63% and Nifty rollover of 59%, by Wednesday, 30 May 2007, meant that most of the rollover had already happened.

Sensex surged 133.08 points or 0.92% to settle at 14,544.46. It opened higher at 14,451.31 and surged to an intra-day high of 14,573.81 at the onset of the trading session tracking firm global markets.

The S&P CNX Nifty rose 46.15 points or 1.09% at 4,295.8, a lifetime closing high.

The Nifty June 2007 futures settled at 4278.10, a discount of 17.70 points compared to the spot closing of 4,295.80. It also surged to an all time high above 4,300 mark at 4,325.

The turnover picked-up in the wake of derivatives expiry today. Turnover vaulted to Rs 52,950.90 crore on NSE’s F&O segment from Rs 50,481.89 on 30 May 2007. It was Rs 43,290.08 crore on 29 May 2007.

The Sensex is just about 175 points away from its all time high of 14,723.88 struck on 9 February 2007.

India's economy grew 9.1% in January-March 2007 quarter, from a year earlier, led by robust manufacturing, and services sector growth. The government released the data in mid-morning trade today.

The GDP growth was 9.4% in fiscal-year ended March 2007, which is higher than government estimate of 9.2%, and the fastest growth in 18 years. Farm sector output in the January-March 2007 quarter grew an annual 3.8%, manufacturing rose 12.4% and construction 11.2%. Trade, hotels, transport and communications segment recorded a strong 12.4% growth.

The market breadth, which indicates overall health of the market was strong on BSE, with 1380 shares advancing as compared to 1198 that declined. 93 remained unchanged. It was, however, much stronger in morning session, when 1196 shares had advanced as compared to 381 that had declined.

The BSE Mid-Cap Index settled at 6,222.40, a gain of 31 points or 1.01% while the BSE Small-Cap Index advanced 87 points or 0.9% to 7,413.03

The total turnover on BSE was Rs 4511.34 crore, as compared to Rs 5303 crore on Wednesday, 30 May 2007.

Among the Sensex pack, 21 advanced while the rest slipped.

Bike maker Hero Honda surged 5.03% to Rs 732.50, on 2.02 lakh shares, and was the top gainer. The company that launched eight models in the last fiscal, will look at a slew of more launches and some facelifts in the current year.

Other auto stocks also participated in the rally. Maruti Udyog (up 2.73% to Rs 824.80), and Tata Motors (up 1.87% to Rs 756) rose. The BSE Auto index rose 1.3% to 5012.28.

Shares from banking & financial services space advanced on renewed buying. The BSE Bankex gained 1.4% at 7,607.35 HDFC Bank (up 4.01% to Rs 1148.90), ICICI Bank (up 0.99% to Rs 920), State Bank of India (up 2.11% to Rs 1352.65), and HDFC (up 2.03% to Rs 1866) rose.

Index heavyweight Reliance Industries (RIL) advanced 0.41% to Rs 1760 on 5.81 lakh shares. Its all time high is Rs 1785.

State run engineering major Bhel turned ex-bonus today. It settled at Rs 1397.95, compared to its previous close of Rs 2768.30. It also slipped to a low of Rs 1351 today. The bonus ratio was 1:1.

NTPC (down 1.85% to Rs 157.35), Dr Reddy’s (down 1.12% to Rs 647.10) and Gujarat Ambuja Cements (down 1.13% to Rs 113.80), edged lower.

Engineering and construction major Larsen & Toubro was up 0.32% to Rs 2000, on 4.13 lakh shares. It also struck an all time high of Rs 2058, in intra-day trade. It reported 50% rise in net profit to Rs 701 crore in Q4 March 2007 from Rs 467 crore in Q4 March 2006, during market hours on 29 May 2007. Sales rose 35.01% to Rs 6248.24 crore in the Q4 March 2007 as against Rs 4627.87 crore in previous Q4 March 2006. The results were announced during trading hours on Tuesday, 29 May 2007.

IT pivotals advanced, after staying weak in the last few weeks, on renewed buying. The BSE IT index rose 0.8% at 4,851.43. Satyam Computers (up 0.82% to Rs 469), Infosys (up 1.14% to Rs 1926) and Wipro (up 1.11% to Rs 542) gained, while TCS lost 0.21% to Rs 1211. IT stock have not performed in the market's recent surge due to stronger rupee. A rise in the rupee directly impacts revenue and profit of IT firms, which derive a lion’s share of revenue from exports to the US.

The Indian rupee climbed today, 31 May 2007, after falling nearly 1% in the previous session, as firm Asian stock markets bolstered expectations of a fresh wave of capital inflows into local equities.

Unitech (up 1.81% to Rs 577.80), Aditya Birla Nuvo (up 2.76% to Rs 1393) and Videocon Industries (up 4.53% to Rs 480) surged on the eve of their inclusion in MSCI index from Friday, 1 June 2007.

MIC Electronics was the top traded counter on BSE with total turnover of Rs 252.30 crore followed by India Infoline (Rs 112.60 crore), Unitech (Rs 103.35 crore), Reliance Industries (Rs 103 crore) and SBI (Rs 83.30 crore).

While from the volumes point of view, Reliance Natural Resources (RNRL) was the topper on BSE with total volume of 1.55 crore shares followed by MIC Electronics (65.20 lakh shares), Insecticides India (58.80 shares), Srei Infrastructures (54.70 lakh shares) and Reliance Petroleum (46.65 lakh shares).

McDowell Holdings jumped 20% to Rs 234.70, with the stock showing a strong momentum a day after it was listed on the bourses yesterday, 30 May 2007. The share price had hit the roof on the first day of its listing on 30 May to Rs 195.60, surging 20%, compared to the base price of Rs 163.

The listing McDowell Holdings (MHL) on the bourses took place following a restructuring scheme undertaken at United Spirits (USL) whereby investment business of USL was transferred to MHL as a going concern.

MIC Electronics surged 20% (maximum limit) to Rs 402.75. Pent up demand in its IPO which was subscribed a whopping 50 times, appears to be driving up the stock price. The stock had sizzled on its debut on Wednesday 30 May 2007. It had settled at Rs 335.65 on that day, a premium of 124% over IPO price of Rs 150. The combined volumes in the stock on BSE and NSE on Wednesday 30 May 2007 had aggregated 3.46 crore shares. This is over 6 times of 51 lakh shares that were in the offer through its IPO which closed early this month.

Insecticides India surged 11.14% to Rs 121.70 on high volumes of 58.55 lakh shares. The stock had settled at Rs 109.50 on BSE, a discount of 4.7% over IPO price of Rs 115, on 30 May 2007.

Shasun Chemicals and Drugs surged 20% to Rs 116.15 after it posted 110.49% growth in consolidated revenue at Rs 793.34 crore in the financial year ended March 2007 compared to Rs 376.90 crore in FY06. Consolidated net profit increased 43.19% at Rs 52.62 crore (Rs 36.74 crore).

The company posted 134.54% spurt in consolidated net sales to Rs 238.06 crore in Q4 March 2007. Consolidated net profit grew 40.79% at Rs 17.54 crore in Q4 March 2007.

TVS Electronics rose 19.99% to Rs 50.20 on announcement of selling of its contract manufacturing services business in Karnataka to a unit of Finland's Incap Corp. TVS Electronics said during trading hours on Thursday, 31 May 2007, that it sold its contract manufacturing services (CMS) business in Karnataka for Rs 41.12 crore to a unit of Finland's Incap Corp.

Budget airline Deccan Aviation spurted 14% to Rs 149.60 boosted by reports that Vijay Mallya, founder of Kingfisher Airlines bought 26% stake in the low cost carrier at Rs 150 per share.

SREI Infrastructure Finance galloped 20% to Rs 71.80 on announcement of its joint venture with BNP Paribas group for infrastructure equipment financing in India. The alliance will involve setting up of a new 50:50 joint venture (JV) company. The current infrastructure equipment financing business of SREI Infrastructure Finance along with its insurance broking activity will be transferred to this new JV.

Tata Tea surged 5.28% to Rs 923, while Mount Everest Mineral Water jumped 5% to Rs 127.65 on reports that the former will acquire majority stake in the later.

Ramco Systems shed 2.25% to Rs 132.50 after it posted higher net loss of Rs 18.02 crore in Q4 March 2007 as against net loss of Rs 3.82 in Q4 March 2006. Sales declined 42.61% to Rs 19.38 crore (Rs 33.77 crore). The company posted a loss of Rs 32.20 crore in the year ended March 2007 (FY 2007) as against loss of Rs 34.07 in FY 2006. Sales dipped 33.1% to Rs 78.57 crore ( Rs 117.47 crore).

Easun Reyrolle surged 3.53% to Rs 822.10 after the company reported 134.7% growth in net profit in Q4 March 2007 to Rs 6.76 crore from Rs 2.88 crore in Q4 March 2006. Net sales rose 44% to Rs 46.15 crore (Rs 32.05 crore).

The net profit rose 35.1% to Rs 17.67 crore in the year ended 31 March 2007 from Rs 13.08 crore in the year ended 31 March 2006. Net sales rose 25% to Rs 132.96 crore (Rs 106.40 crore). The company’s board also approved a 5-for-1 stock split.

Tata Power company declined 2.34% to Rs 577 on reporting 30.20% decline in net profit Q4 March 2007 to Rs 92.73 crore as against Rs 138.82 crore in Q4 March 2006. Sales declined 19.10% to Rs 947.40 crore in Q4 March 2007 (Rs 1171.10 crore).

The net profit rose 14.13% to Rs 696.80 crore in the year ended 31 March 2007 (FY 2007) as against Rs 610.54 crore in FY 2006. Sales rose 3.95% to Rs 4715.32 crore in FY 2007 (Rs 4536.32 crore).

Welspun India declined 1.06% to Rs 70 after it reported 3.92% fall in net profit in Q4 March 2007 to Rs 10.29 crore from Rs 10.71 crore Q4 March 2006. Sales rose 21.14% to Rs 248.46 crore (Rs 205.10 crore). The net profit rose 25.39% to Rs 52.10 crore in the year ended March 2007 from Rs 41.55 crore in FY 2006. Sales rose 46.93% to Rs 973.56 crore (Rs 662.60 crore).

India Infoline jumped 5.66% to Rs 658.55 extending its recent solid surge that was triggered by four top officials from a rival brokerage joining the firm earlier this week. The brokerage inducted four top officials of the foreign brokerage CLSA. The market believes that inducting four top officials from rival brokerage would help the firm significantly expand its client base. India Infoline hired the executives to help grow its investment banking, institutional equities and asset management businesses. The four executives have the right to buy nine million shares of India Infoline at Rs 440 a piece.

Transformer oil maker Apar Industries lost 5.69% to Rs 160 after it reported 33.56% fall in net profit in Q4 March 2007 to Rs 10.73 crore from Rs 16.15 crore in Q4 March 2006. Sales rose 26.41% to Rs 414.61 crore (Rs 327.99 crore). The company’s net profit rose 15.01% to Rs 45.97 crore in the year ended March 2007 as against Rs 39.97 crore in the year ended March 2006. Sales rose 34.62% to Rs 1468.76 crore (Rs 1091.03 crore).

BL Kashyap & Sons saw high volatility today. It had surged to a high of Rs 1675, in early trade, but slipped from there and settled 2.63% down at Rs 1515. It bagged fresh construction orders worth Rs 1007 crore. The announcement was made after market hours on Wednesday, 30 May 2007.

Asian & European markets were trading strong. Japan's Nikkei 225 average surged 287.49 points or 1.63% at 17,875.75. Hong Kong's Hang Seng index advanced 340.71 points or 1.68% at 20,634.47. Shanghai Composite gained 56.56 points or 1.40% to 4,109.65

US stocks rose on Wednesday, 30 May 2007, with Standard & Poor's 500 indexing striking to its first record close in more than seven years, as investors grew more confident that the Federal Reserve might cut interest rates in the second half of 2007. The Dow Jones industrials also reached a new closing high.

The Dow Jones Industrial Average surged 111.74 points or 0.83% to 13,633.08, and also reached a new all time high of high of 13,636.09. The S&P 500, surpassed the record of 1,527.46, set 24 March 2000, at the peak of the dot-com boom, closing at 1,530.23, up 12.12 points, or 0.80%. The Nasdaq Composite index rose 20.53 points, or 0.80%, at 2,592.59.

Oil prices fell on Thursday ahead of the release of a US government report which expected to show US crude and gasoline supplies rose last week. Light, sweet crude for July 2007 delivery dropped 13 cents to $63.36 a barrel in Asian electronic trading on the New York Mercantile Exchange, mid-morning in Singapore. The contract on Wednesday, 30 May 2007, rose 34 cents to settle at $63.49 a barrel.

July Brent crude lost 4 cents to $67.80 a barrel on the ICE Futures exchange in London, after tumbling 50 cents overnight to settle at $67.84 a barrel.

Foreign institutional investors sold shares worth Rs 377.10 crore on Wednesday, 30 May 2007.

Trading Calls

Buy Welspun Gujarat at Rs 180. Stop Loss at Rs 175 (Intra-day Call)
Buy Gujarat NRE Coke at Rs 59.60. Stop Loss at Rs 57 (Intra-day Call)
Buy Torrent Pharma at Rs 265. Stop Loss at Rs 235. Target of Rs 306 and Rs 398 (Delivery-based Call)

Thermax, HPCL, NTPC, IVRCL

SSKI on Thermax

Thermax has reported strong Q4FY07 results, which were broadly in line with our expectations with consolidated net profit growth of 74.3%yoy to Rs668m. However, operating margins fell 80bp yoy to 12.4% owing to raw material price pressure and higher proportion of lower margin products. Topline growth of 65%yoy has been driven by a healthy order book as well as operational improvement. Going forward with the closure of ME Engineering, robust order inflow and stable raw material cost will drive earnings. Led by favorable macro economic fundamentals, Thermax has guided for 40% revenue growth for FY08. To factor in robust earnings momentum we are increasing our FY08 and FY09 EPS estimates by 7.2% and 8.1% to Rs24 and Rs32.9 respectively. We estimate 40% CAGR in Thermax's consolidated earnings over FY07-09. Reiterate Outperformer with a revised price target of Rs 590

SSKI on HPCL

Hindustan Petroleum Corporation's (HPCL) Q4FY07 results - net profit of Rs 5.5 bn - were below our estimates, due to lower than expected refining margins. Oil bonds amounting to Rs 10bn and upstream share of Rs11.4bn more than offset the negative impact of under recovery impact of Rs 16.1bn. We upgrade the stock to Outperformer to factor in an expected improvement in fuel marketing margins driven by lower crude prices. Reiterate outperformer with a price target of Rs 375.

ENAM on NTPC

Rich valuations, Maintain Neutral
NTPC’s Q4FY07 profits were in-line with our estimates, if adjusted for extraordinary expenditure of Rs 3bn. As of now, we maintain our FY08E earnings and await greater clarity from the management on the capacity adds. Given the rich valuations (2.5x FY08E BV), the near term earnings seem fully factored in. We maintain a sector Neutral rating.

ENAM on IVRCL

The company has guided for Rs 33bn of revenues in FY08 and a marginal improvement in OPM; higher than its initial guidance of Rs 30bn in sales. Given the current order backlog and high intake capacity of the company due to increased net worth, we believe a 30% CAGR is achievable over FY07-09E. However, we are factoring in a full tax rate until further clarity on the same. Accordingly, our FY08E earnings stand revised upwards by 8%. We have also introduced FY09 earnings estimate of Rs 2.1bn

Trading Calls

Buy Tulip IT below Rs 887 with stop loss at Rs 875. This is a day-trading recommendation.
Buy NIIT Tech below Rs 612 with stop loss at Rs 595. This is a day-trading recommendation.
Sell HDFC Bank with stop loss above Rs 1119 for targets of Rs 1084 and Rs 1061. This is a day-trading recommendation.
Buy GE Shipping with stop loss below Rs 276.50 for targets of Rs 294 and Rs 300. This is a day-trading recommendation.

Sell Maruti Udyog with stop loss of Rs 810 for a target of Rs 768. This is an intraday recommendation
Buy Patni Computers with stop loss of Rs 515 for a target of Rs 558. This is an intraday recommendation
Buy Bharat Electronics with stop loss of Rs 1720 for a target of Rs 2200.
Buy Bharati Shipyard with stop loss of Rs 425 for a target of Rs 555.

ABN Amro - Jindal SAW - Trading Call - BUY - CMP 575 - TGT 760

ABN Amro has given a buy trading call on JSW Steel,
,
Strong Business Traction: Increasing demand of hydrocarbons is providing ample business opportunities and the same is expected to continue. Further, increased focus of Government on improvement in the water and sanitation facilities throws up good business prospects. JSL, with a wide product portfolio is expected to witness significant growth, which is further substantiated with its strong order book of Rs66bn.

Reasonable Valuation: JSL is currently trading at 12x F9/07E EPS of Rs47.22 (Reuters Consensus estimate), 9.8x F9/08E EPS of Rs57.69 and 7.6x F9/09E EPS of Rs74.15. However the market value of its quoted investments stands at Rs68 per share, factoring which JSL seems an attractive investment opportunity.

Price Breakout: JSL has given a strong breakout on a daily, weekly and monthly basis at Rs.500. The weekly price projection of the breakout comes to Rs.760.

Fundamental Snippets

Tata Power's Q4 net profit was down at Rs 69.9 crore versus Rs 138.8 crore on YoY basis. Operating profit margin was down at 0.53% versus 13.4% in the corresponding quarters.

Tata Chemicals posted net profit of Rs 94 crore in Q4 of FY07 compared to Rs 64 crore in Q4 of FY06. Net sales stood at Rs 803 crore (Rs 8.03 billion) versus Rs 754 crore (Rs 7.54 billion).

Hindustan Motors's net profit was at Rs 53 crore in Q4 versus Rs 13.8 crore on QoQ basis. The net sales figure stood at Rs 154.8 crore versus Rs 167.4 crore on QoQ basis.

Kingfisher is believed to be buying Air Deccan, India's leading low-cost airline, in a move that would make him the country's biggest aviation player by marketshare. The Air Deccan-Kingfisher alliance would have the largest market share in the industry and is likely to pose a stiff challenge to Jet Airways, which recently bought out Air Sahara to cement its position in the domestic market

Spice Telecom would merge with Idea (Source CNBC), and was being valued at between 45-50 billion rupees ($1.1-1.2 billion) Spice Telecom provides services in two of the 23 circles or zones that make up telecoms market, and had 2.8 million subscribers as of end-April. Idea Cellular, which provides services in 13 circles, had 14.6 million subscribers at the end of April.

Citigroup - Thermax, Vardhaman Textiles

Citigroup in their report on Thermax say,

Raising target price to Rs604 — We are raising our target price on the back of earnings revision of 2-13% over FY08E-10E. We now expect an EPS CAGR of 31% and ROEs of 35-40% over FY07-10. We maintain our target P/E of 20x FY09E.

Play on power and industrial capex — We think Thermax is in a sweet spot given: 1) India’s captive power capacity is set to grow by 63% in the next five years; and 2) Industrial capex is expected to grow 181% in FY06-10 driven by strong demand and peak capacity utilizations. Thermax remains one of our top picks in the Electrical Equipment and Engineering space.

Citigroup in their report on Vardhaman Textiles say,

Results below expectations — 4QFY07 revenues grew 9% YoY with yarn growing
at 12% and fabric at 10%, but earnings (before extra-ordinaries) declined 25%
YoY due to EBITDA pressures and high depreciation on back of new expansions.

Maintain Buy, but lowering target to Rs260 — We expect thrust on vertical integration, growth in thread business post de-merger to reduce dependence on yarn. Factoring this, higher ROEs (14%) vs. sector 11% and stock at compelling looking valuations of 6.5x FY08E P/E at 23% discount to sector – we maintain Buy (1L) with lower target of Rs260 on 8.4x FY08E P/E, at par with sector.

Daily Strategist Note

The NIFTY futures saw a gain in OI to the 0.35% with prices coming down and closing dear day's low indicating aggressive short positions built up in the market thus suggesting some weakness may be seen in the market as market seeing selling pressure at the higher levels The nifty futures closed at 11 points discount to spot nifty suggesting liquidation of weak long positions and built up of aggressive short positions. Market if it goes below 4220 levels then we may see further short positions built up in the market and longs liquidating their positions. The FII were sellers' index futures to the tune of 316 crs and buyers in index options to the tune of 399 crs. The PCR has come down from 1.55 to 1.53 indicates some consolidation may be seen in the market.

Among the Big guns, ONGC saw 8.87% rise in OI with prices remaining in a dull range suggesting some consolidation may be seen in the counter before taking any sharp direction on either side. Whereas RELIANCE saw 0.45% loss in OI with prices coming up from lows and closing near day's high indicating shorts covered their positions aggressively as market recovered thus giving further strength to the market.

In the TECH counters, INFOSYSTCH & WIPRO saw gain in OI with prices coming down from high indicating short positions built up in the counter suggesting weakness in the counter. SATYAMCOMP saw drop in OI with prices coming down suggesting liquidation of long positions as market reacted at higher levels thus suggesting caution to be taken while making positions in the counter.

In the BANKING counters, SBIN saw rise in OI with prices coming remaining flat indicating that both bulls and bears were aggressive in the counter thus suggesting some sharp movement may be expected in the counter. ICICIBANK saw drop in OI with fall in prices indicating liquidation of positions and profit booking seen in the counter suggesting one should book profits in the counter. HDFCBANK saw 25.77% rise in OI with prices moving down and closing low indicating fresh short positions built up in the counter suggesting further weakness may be seen in the counter.

In the Metal pack, TATASTEEL saw rise in OI with prices facing resistance at higher levels indicating fresh short positions built up in the counter thus suggesting some weakness may be seen in the counter. SAIL saw rise in OI with prices down indicating short positions built up in the counter suggesting further weakness may be seen in the counter. HINDALCO & STER saw drop in OI with prices coming down indicating liquidation of long positions in these counters. whereas NALCO saw drop in OI with prices flat indicating liquidation of both short and long positions in the counter.

We feel that the volume and built up in OI suggests that market may show some profit booking in the coming few days as settlement is near so one should not take aggressive positions in the market. Market may show further weakness and we may see fresh selling emerging in the market if market sustains below 4220 levels. One should trade with strict stop losses to be adhered too.

Morning Commentary - May 31 2007

Markets could open up with a gap as markets elsewhere overcome the Chinese market fears

Markets in India opened in the negative on Wednesday and made an attempt to rise. They went into positive territory around 1145 Hrs but failed to stay above these levels for long. They once again began to fall and closed almost at the intra day low. These moves reflected moves in the Chinese and European markets. Ultimately the frontline indices closed 0.67-1.02% lower on volumes that were 19% above the previous day's volumes on the NSE. Advance decline ratio plunged sharply to much under 1:1. IT, Nifty Junior, FMCG, Metals indices fell while Capital Goods, Consumer Durables, indices did well.

Markets in the US gained for the third day in a row on Wednesday as Dow and S&P closed at all time highs while the Nasdaq closed at a 6 year high. Release of minutes of Fed meeting held on May 09 suggested that Fed officials were less concerned about economic growth than inflation. These helped the US markets to overcome jitters arising out of a rout in the Chinese equity markets. Gold and Non Ferrous metal prices were down while Oil prices rose marginally. Latin American markets rose sharply in line with the US markets. Indian ADR prices were mixed as Wipro, ICICI Bank and MTNL gained while the other stocks were either flat or down. Asian markets this morning are up by 1 to 1.6% following the rise in US markets overnight. The Chinese markets after opening 5% lower this morning are only about a percent lower at the time of writing this piece.

FIIs were net buyers of Rs.837 cr in the cash markets on Tuesday and net sellers of Rs.220 cr in the F&O markets. Mutual Funds were net buyers of Rs.4 cr. As per the provisional numbers, FIIs were net sellers of Rs.599 cr in the cash markets and net sellers of Rs.307 cr in the F&O markets on Wednesday.

Markets in India could open with an upgap on Thursday as they shake off the fears arising out of Chinese market weakness. Derivatives expiry related volatility could be witnessed during the day. IT and Metals indices could continue to underperform. Bharat Forge, Infosys, ITC, SAIL could underperform while Amtek Auto, BEL, GE Shipping, Jet, L&T, Reliance could outperform. We could close the day with a gain.

Kotak - EASUN REYROLLE

Kotak in their report on Easun Reyrolle,

Easun Reyrolle's products are switchgear, control relays and panels. These products are witnessing healthy demand on the back of investments in the power sector. We see market growth for power products remaining buoyant over the next four to five years on the back of planned capacity additions in the power sector. Thus, revenue visibility for players in the power equipment sector continues to be strong. Easun Reyrolle is trading at 12.7x FY08E earnings. We maintain our BUY with a price target of Rs.900.

Kotak - INFOTECH ENTERPRISES

Kotak in their report on Infotech Enterprises and their plans of acquisitions

In the absence of further details of the acquisition and till the time the company
gets approvals in the EGM, we are maintaining our earnings estimates and
target price for Infotech.

We remain optimistic about the company's healthy growth prospects, which is
visible in our 34% revenue growth assumption for FY08. We expect an EPS of
Rs.22.6 in FY08, a growth of 24.7% YoY.

However, at the current price, our FY08E earnings are discounted by 16x which,
we believe, fully factors in our healthy outlook for the company's revenue
growth in FY08.

Our DCF-based price target of Rs.331 suggests a potential downside to the stock
price from current levels. Thus, we recommend a REDUCE on the stock at the
current price.

Further information on inorganic initiatives or stock price declines could make
us take a re-look at our recommendation.

Emkay - Tech Mahindra

The results for the quarter gone by was quite inline with our expectations, and it reflects strong business tractions of TML. Going forward, we expect TML to continue its growth momentum for coming quarters, with incremental growth coming from US and European regions coupled with strong ramp up in the BT and non-BT accounts. We have maintained our estimates for FY08Eand FY09E, and we are looking very closely at the ramp up in $1 bn BTGS deal and other key client accounts ramp up and more importantly on the margins movements, as in the initial year the margins in the BTGS deal will be lower coupled with 15% offshore salary hike coupled with lower utilization would keep the margins under pressure.

We expect TML’s revenue and net profit to grow at a CAGR of 53% and 43% over FY07E-09E. The TML stock trades at a P/E of 23x FY08E and 16x FY09E with an EPS (On fully diluted equity of Rs 1320 m of FV of Rs 10) CAGR of 43% estimated over FY07-09.

We recommend a BUY on TML with a target price of Rs 1794, at our target price the stock will be valued at 19x for FY09E

Kotak - NTPC, Tata Power,Shriram Transport Finance, Cairn India

Kotak Institutional in their report on NTPC

NTPC reported net sales of Rs88.6 bn, EBITDA of Rs23.4 bn and net profit of Rs17.4 bn for 4QFY07 as against our estimate of Rs80.6 bn, Rs20.9 bn and Rs14.8 bn respectively.

Better than expected operating performance, higher prior period revenue and other
income (including forex gains) resulted in the company reporting higher than expected
profits. Higher fuel expenses (usage of naphtha and spot LNG) further contributed to
higher revenues. NTPC has also made additional provisions for the pending pay revision of the employees w.e.f. January 1, 2007. The reported net sales of Rs326.3 bn for FY2007 includes income tax of Rs16.76 bn recovered through tariffs. The tax recovered through tariffs was earlier not included in the reported revenues. We will revisit our estimates after the conference call when more details on operating performance and non-recurring income/expenses are available. We retain our In Line rating on the stock with DCF based target price of Rs160/share.

Kotak Institutional in their report on Tata Power

Tata Power (TPC) reported 19% decline in revenues and 97% decline in EBITDA during
4QFY07 as against our estimate of 42% decline in revenues and 75% decline in EBITDA. The year-end results are lower due to the reversal of tax provisions of earlier years resulting in a net surplus of Rs2.42 bn over the reasonable return requirement. MERC in its tariff order for Tata Power had adjusted the net deficit of previous years against available reserves and also used the residual reserves of Rs0.62 bn for reducing the applicable tariffs for FY2007. FY2007E are impacted by one-off adjustment to tariffs and FY2008E reflect the normalized earnings based on FY2007 tariff order. We note that TPC has filed a petition seeking the review of the tariff order and has not made any adjustments in the accounts till now. Reported profit of Rs0.93 bn (our est. loss of Rs0.37 bn) includes a large other income of Rs1.78 bn (Rs0.29 bn from sale of investments) compared to only Rs0.53 bn last year. We will revisit our estimates when more details on the other income and operating performance of the company are available. We retain our In Line rating with SOTP based target price of Rs670/share.

Kotak Institutional in their report on Shriram Transport Finance

STFC's net profit was up 28% yoy to Rs484 mn supported by growth in net operational income (Rs1,829 mn) up 37% yoy. Key highlights: (1) Moderate disbursements growth in 4QFY07 of 24% yoy as against 73% in 3QFY07- nevertheless disbursements were ahead of our estimates, (2) spreads have likely been stable, (3) Gross NPLs increased to 1.9% in 4QFY07 from 1.2% in 3QFY07 - this is a concern and we will ascertain reasons for the same. We will revisit our estimates after the conference call with management. Retain OP with target price of Rs155.

Kotak Institutional in their report on Cairn India

An unconfirmed Bloomberg report has cited that Cairn India may be barred from building a pipeline to transport crude from its Rajasthan fields. Instead, the government wants Cairn to reduce plateau crude production to 80,000 b/d from the currently planned 150,000 b/d and ONGC to build a refinery to use the crude oil. We see absolutely no logic for sub-optimal production of crude oil and refinery capacity and do not expect such an eventuality. Nonetheless, this development, if confirmed, could have a significant impact on the valuations of Cairn India. We have previously highlighted the pending issue of crude evacuation as a key downside risk; however, we have seen this more as a financial issue (cost recovery). We maintain our earnings estimates and our 12-month DCF-based target price of Rs130.

May derivatives expiry to swing the market

The market is expected to stay highly volatile throughout the day’s trading sessions, as derivative contracts for the May 2007 series expire today.

As per market data, the marketwide rollover stands at 63%, while the Nifty rollover is 59%.

Local markets, which have been tracking global markets closely, may show strength today, as Asian benchmarks were broadly trading with gains. Japanese Nikkei 225 index surged 1.10% or 193.15 points at 17,781.41 while Hong Kong's Hang Seng index advanced 0.96% or 194.48 points at 20,488.24. Taiwan's Taiwan Weighted (up 0.75% or 60.98 points at 8,208.32), South Korea's Seoul Composite (up 1.66% or 27.61 points at 1,690.33) also posted gains. However, Singapore's Straits Times lost 0.45% or 15.95 points at 3,511.13.

Cues from the US markets were also encouraging with the Wall Street rising and sending the Standard & Poor's 500 index to its first record close in more than seven years, as investors grew more confident that the Federal Reserve might cut interest rates in the second half of 2007. The Dow Jones industrials also reached a new high close.

The S&P 500, surpassed the record of 1,527.46, set 24 March 2000, at the peak of the dot-com boom, closing at 1,530.23, up 12.12 points, or 0.80%. The S&P 500, which crossed its closing record on May 21 and then retreated, remains below its all-time trading high of 1,552.87, also reached in March 2000.

The Dow Jones Industrial Average surged 111.74 points or 0.83% to 13,633.08, and also reached a new all time high of high of 13,636.09. The Nasdaq Composite index rose 20.53 points, or 0.80%, at 2,592.59.

Oil prices fell on Thursday ahead of the release of a U.S. government report expected to show U.S. crude and gasoline supplies rose last week. Light, sweet crude for July delivery dropped 13 cents to $63.36 a barrel in Asian electronic trading on the New York Mercantile Exchange, midmorning in Singapore. The contract on Wednesday rose 34 cents to settle at $63.49 a barrel.

July Brent crude lost 4 cents to $67.80 a barrel on the ICE Futures exchange in London, after tumbling 50 cents overnight to settle at $67.84 a barrel.

Morning Call - May 31 2007

Market Grape Wine :

In House :

Markets endded lower yesterday due to China Factor and profit booking at higher levels .

Nifty at a support of 4200 & 4220 with resistance at 4280 & 4320 levels .

Sell : Infosys below 1900 to 1870 s/l 1915

Out House :

Markets at a support of 14352 & 14292 levels with resistance at 14465 & 14532 levels .

Buy : RIL & RELCAP

Buy : Divis & ABB

Buy : IDEA & IDFC

Buy : UTV & RajTV

Buy : Lupin & GlenMark

Buy : Sail & Tisco

Buy : RNRL , NagarFert , IFCI &

Dark Horse : GlenMark , RNRL , TataTea , IDFC , IDEA , 3I & NagarFert

Bullet for the Day : Patni , RIL & Unitech with strict stop loss .

Bias may remain positive

The market is likely to display positive trend on the back of a firm economy outlook and continuing fund inflows into the domestic equities. The major Asian gauges like the Nikkei, the Hang Seng index, the Kospi index and the Jakarta index have gained substantially in current trades and US Market also ended with a positive note could move up the local indices in early trades. However, Persisting intra-day volatility and unwinding of position on the last day of May series derivative contracts may see the market witness sideways movement. Among the major domestic indices, the Nifty could test 4220 on the downside and faces resistance at 4300. The Sensex has a likely support at 14300 and test higher levels of 14600.

US indices rallied Wednesday as the Dow industrials closed with another record high and Nasdaq at new 6-year high. While the Dow Jones flared up by 112 points at 13,633, the Nasdaq moved up by 21 points at 2,593.

Barring few, rest of the Indian floats had a field day on the US bourses. Wipro gained 2.92%, while Satyam, Tata Motors, ICICI Bank, HDFC Bank, VSNL and Rediff gained around 1% each. However, Patni Computer slipped over 2% and Infosys, Dr Reddy's and MTNL fell marginally.

Crude oil prices edged higher, the US light crude oil for July delivery moved up by 34 cents at $63.49 a barrel. In the commodity space, the Comex gold for August series declined $4.10 to settle at $663.40 a troy ounce.

Morning Murmur - 4300 IS A ‘SPICY’ ‘IDEA’

Bulls are going to have bears for breakfast this morning as the markets are likely to open sharply higher, following some frantic short covering. The US markets, not only sidestepped the Shanghai weakness but went onto register a new high for the Dow and finally for the S&P, which over came a 7 year resistance. Helping the US markets climb the wall of worry was the release of Fed minutes of the May 9 meeting, which
the markets read as bullish. Our take is that those minutes were clearly bearish for the markets as the concern for inflation has been re-iterated where as the concern from the sub-prime mess to temper over all economic growth have reduced.

Markets driven by liquidity can afford to arrive at an illogical conclusion and get away with it. An upward push of 50 points in the Nifty is not ruled out and that is where I suppose the May derivatives could settle. The Telecom shares will buzz today, as conjectures of Idea wooing Spice Telecom are all over the place in print and electronic
media. Technology could moderate the heavy gains, which one would have expected today.

Daily Technical Note

BSE Sensex and Nifty have exhibited a bearish candlestick with a long tail. This indicates that there was genuine selling coupled with heavy bull offloading that led the speed of the fall in markets emerging from higher levels.

Based on the chart pattern developed to date, one may use the level of 4240 (Nifty) and 14,350 in Sensex as the stop loss level for long positions. Breach of these support levels may lead to a deeper correction.

On the resistance front, the Nifty faces resistance at around 4,340-4370 level and the Sensex at around 14,600 -14,750 levels.

DLF Limited Red Herring Prospectus

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Intraday Stock Ideas

NIFTY (4249) SUP 4249 RES 4272

BUY PHONIXLMP (129.35)
SL 125 T 137, 139

BUY JETAIRWAYS (758.10)
SL 752 T 768, 772

SELL AIRDECCAN (130.95)
@ 132 SL 136 T 122, 120

SELL JSTAINLESS (157.20)
@ 158 SL 162 T 150, 148

SELL INDIACEM (182.60)
@ 185 SL 189 T 175, 172

STRATEGY INPUTS FOR THE DAY

Volatile day...expiry, GDP numbers to keep indices shaky

The best way to live is by not knowing what will happen to you at the end of the day...

After a fairly volatile week so far, the bulls can hope for a better day in office, with positive global cues and strong inflows from FIIs. And though the Chinese market is once again down sharply today, it is unlikely to have a significant impact on local sentiment. What will have a bearing on today's trading will be the GDP numbers for Q4 and FY07 to be released at noon. The Government has forecast a 9.2% growth in GDP for the year ended March 2007. Any reading above that level will help boost the undertone, which is positive despite the recent spurt in volatility. Even a slightly disappointing data may be brushed aside.

In the F&O segment, marketwide rollover has been 63% so far while the same in the Nifty is at 59%. The open interest is at record levels and with the Sensex close to all-time high there is bound to be intra-day gyrations. We expect the stock centric activity to continue. On the whole, we expect a strong day for the bulls.

Air Deccan will be in action as a financial daily reports that the low-cost carrier is set to be taken over by Vijay Mallya's Kingfisher Airlines. For the time being though Air Deccan is denying the same. Idea Cellular will be another stock to keep an eye on as some media reports have suggested it could merge with Spice Telecom, though none of the companies have officially confirmed any such deal. Fortis Healthcare shares might fall anew after Dr. Naresh Trehan sold its 10% stake in Escorts Heart Institute and has joined rival Apollo Hospitals.

Retailers like Pantaloon and Shoppers' Stop will be in focus as the Left parties have demanded restrictions on their proposed rapid expansion. GMR Infrastructure could gain as it has set up a subsidiary for the development of the excess land at the Delhi airport. Besides, a few brokerages have come out with 'buy' reports on the stock. Watch out for some movement in Indus Fila. It could announce an acquisition today along with its results. Hindustan Oil Exploration could be in limelight on speculation that a large corporate may take stake. No confirmation on the same. BHEL could see some choppiness.

FIIs were net sellers of Rs5.98bn (provisional) in the cash segment yesterday while the local institutions pumped in Rs5.62bn. In the F&O segment, they were net sellers of Rs3.07bn yesterday. On Tuesday, foreign funds poured in Rs8.37bn in the cash segment, taking their net investment in the month to nearly a billion dollars. For the year, their net inflows have crossed the $4bn mark. Mutual Funds were net sellers of Rs42mn on Tuesday.

In the minutes of the last policy meeting released yesterday, the Federal Reserve said economic growth was slow, but added that it would pick up in the coming quarters. The central bank also maintained that inflation was their predominant concern. Yet, US stocks rallied. The Dow Jones and the S&P 500 ended at new all-time highs on Wednesday, while the Nasdaq finished at a new six-year high.

US stocks fell in the morning on the back of a slump in the Chinese stocks. But by midday, investors shrugged off such worries and sent stocks higher. S&P 500 surpassed its 2000 record, led by energy and financial shares. The S&P 500 rose 12.12, or 0.8%, to 1530.23, eclipsing its March 2000 record close of 1527.46. The Dow added 111.74, or 0.8%, to 13,633.08, its 25th high this year. The Nasdaq rose 20.53, or 0.8%, to 2592.59.

US light crude oil for July delivery rose 34 cents to $63.49 a barrel on the New York Mercantile Exchange. COMEX gold fell $4.10 to $659.30 an ounce. Treasury prices rose, lowering the yield on the 10-year note to 4.87 percent from 4.88 percent late Tuesday. In currency trading, the dollar gained modestly versus the euro and the yen.

European shares finished lower. The pan-European Dow Jones Stoxx 600 index fell 0.9% to 394.64. The UK's FTSE 100 dropped 0.9% to 6,545.50, the German DAX Xetra 30 lost 1% to 7,703.86 and the French CAC-40 declined 0.9% to 6,001.13.

Mexican and Brazilian stocks jumped to record highs. Mexico's benchmark IPC stock index climbed 715 points, or 2.3%, to 31,380. Brazil's Bovespa soared 814 points, or 1.6%, at 52,527.65. Also, Chile's IPSA ended up 0.5% at 3,261 and Argentina's Merval index rose 0.9% to 2,222.22.

China's stocks fell further today, set for the biggest two-day drop on record, after the government tripled the tax on securities transactions. The benchmark CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, dropped 170.82, or 4.4 percent, to 3715.64 as of 10:06 a.m. local time. The measure tumbled 6.8 percent yesterday and is headed for the worst two- day performance since it was introduced in April 2005.

Meanwhile, other Asian markets have bounced back this morning. The Nikkei in Tokyo is up 193 points to 17,781 while the Hang Seng in Hong Kong is up 230 points at 20,524 and the Kospi in Seoul has gained 27 points to 1690. The Straits Times in Singapore has shed 16 points to 3511.

Emerging market funds witnessed robust inflows in the fourth week of May, according to the Emerging Portfolio Funds Research (EPFR). Latin America and Global Emerging Markets (GEM) equity funds had their best week in over a year, EMEA (Europe Middle East Africa) equity funds posted inflows for the first time in six weeks. China and Japan country funds remained out of favour, although the pace of outflows slowed.

Four day rally came to an end ahead of F&O expiry as bulls ran out of steam led by weak Asian markets upfront. Further weak opening by the European markets dampened the sentiments of the investors on Dalal Street. The frontline stocks like HDFC, Bajaj Auto and SBI were the major gainers. However, Reliance Energy, BHEL and Satyam Computer were the major laggards.

Even the Mid-Cap and the small cap index witnessed sell off as Mid-Cap index fell over 1% and small cap index lost half percent. Nirma after surging for couple of trading session cooled off a bit, however, L&T, Punj Lloyd held firm. Finally, the 30-share Sensex ended lower by 96 points to close at 14411. NSE-50 Nifty lost 43 points to close at 4249.

Shares of MIC Electronics Ltd. and McDowell Holdings Ltd. climbed on their stock market debut on Wednesday while that of Insecticides India Ltd. fell below the issue price.

MIC Electronics, the maker of True Colour LED video displays, listed at Rs210.25 on the BSE, up 125% over its issue price of Rs150 per share.

McDowell Holdings opened at Rs195.60 on the BSE as against the base price of around Rs157. the scrip was locked in the 20% upper circuit. McDowell Holdings (formerly McDowell India Sprits Ltd.) got listed following a restructuring scheme.

L&T surged by over 7.5% to Rs1994 after the company yesterday announced its full year profit at Rs14.03bn (up 38%), full year net sales at Rs175.79bn (up 19.1%) and to pay Rs2 as final dividend. The scrip touched intra-day high of Rs2010 and a low of Rs1847 and recorded volumes of over 33,00,000 shares on NSE.

Ranbaxy edged lower by 0.5% to Rs389 after the company won a legal battle against Pfizer in Norway. The scrip touched intra-day high of Rs401 and a low of Rs386 and recorded volumes of over 10,00,000 shares on NSE.

Orbit Corp declined by over 2.5% to Rs248 amid reports of some accounting mismanagement. The scrip touched intra-day high of Rs263 and a low of Rs203 and recorded volumes of over 73,00,000 shares on NSE.

Simplex Infrastructure surged by over 4% to Rs340 after the company declared that they have secured order worth Rs10.55bn. The scrip touched intra-day high of Rs359 and a low of Rs326 and recorded volumes of over 95,000 shares on NSE.

Crompton Greaves dropped by over 6% to Rs235. The company announced its Full year result with net profit at Rs1.92bn (up 17.7%) and sales at Rs36.6bn (up 33%). The scrip touched intra-day high of Rs254 and a low of Rs234 and recorded volumes of over 6,00,000 shares on NSE.

Capital Good stocks held firm as the index gained by 1.68% in a falling market. L&T led from the front the scrip surged by over 7.5% to Rs1994, Punj Lloyd rallied by over 6% to Rs208 and Gammon India advanced by 1.2% to Rs385. However, BHEL pared its intra-day gains and slipped by 3% to Rs2767,

Metal stocks lost its shine on back of selling pressure. SAIL dropped by over 3% to Rs139, Hindalco was down by 3% to Rs140, Sterlite Industries slipped by 1.3% to Rs531 and Hindustan Zinc declined by 1.5% to Rs647.

FMCG stocks also were on the receiving end on back of profit booking. HLL slipped by 1% to Rs198, ITC was down by 1.6% to Rs162, Colgate dropped by over 4% to Rs354 and Tata Tea declined 3.7% to Rs876.

Insider Trades:
UFLEX Limited: Anshika Consultants Private Limited (part of the promoters' group) has purchased from open market 58757 equity shares of UFLEX Limited on 28th and 29th May, 2007.

Volume Toppers:
RNRL, IFCI, JP Hydro, RPL, Nagarjuna Fertilizer, ITC, Orbit Corp, TTML, Dish TV, R Com, Redington, Dabur Pharma, Punj Lloyd, Unitech, Dena Bank, L&T and Bank of Rajasthan.

Upper Circuit:
Shree Ashtavinyak, Redington, McDowell Holding, ACE, UTV Software, Eicher Motors, Shree Precoated and Ruby Mills.

Delivery Delight:
Alfa-Laval, Apollo Tyres, Bharat Electronics, GAIL, GlaxoSmithKline Pharma, GNFC, Gujarat State Fertilizers, HCL Technologies, Hero Honda, HDFC, IPCL, Oriental Bank of Commerce, Sterling Biotech and Union Bank of India.

Abnormal Delivery:
Nirma, BEML, Grasim Industries, Rolta, SCI, Bombay Dyeing, BPCL, Bharat Forge, Geometric Software Solutions Company Ltd, TVS Motor, Colgate, Indian Oil Corporation Ltd and McDowell & Co Ltd.

Results Today:
Cummins India, Indus Fila, Punj Lloyd, RPG Cables, Timex, Swaraj Mazda, .

Results Corner:
NTPC Q4 profit at Rs17.35bn (up 11%), revenues at Rs95.37bn (up 14%)

Crompton Greaves Full year sales at Rs36.6bn (up 33%) and Full year profit at Rs1.92bn (up 17.7%)

Birla Corp Q4 profit at Rs1.01bn (up 50.7%) and revenue at Rs4.56bn (up 14.8%).

Brokers Recommendations:
M&M – Buy from Citigroup with target of Rs1032

Unity Infra – Buy from Kotak with target of Rs636

Long Term investment:
Infosys

Major News Headlines:
Ranbaxy wins legal battle for Lipitor against Pfizer in Norway

Patel Engineering bags order from NHAI worth Rs5.18bn

ICRA enters MoU with UCO Bank for rating for SSI, SME borrowers

Pricol to set up Joint Venture company in Iran

Simplex Infra gets orders worth Rs10.55bn

Sobha Developers enters retail business

HPCL (Q4 FY07) Result Update

Hold

CMP Rs283

Hindustan Petroleum Corporation Ltd (HPCL), reported robust numbers for Q4 FY07 and for the fiscal year ended March 2007 on back of higher bond income and strong volume growth. Higher share of upstream companies in sharing of under recoveries further provided a boost to bottomline growth. Improved GRMs provided additional strength to operational performance. Going ahead, the GRMs are likely to remain at current high levels on account of stringent fuel specifications and lower capacity additions compared to increase in demand for petroleum products. With expectations of the sharing pattern of under recoveries in FY07 to continue in FY08, HPCL stands to gain. However, uncertainty with respect to the above issue and also related to the pricing of auto fuels increase risk element in valuations. Hence we recommend only high risk appetite investors to hold on to the stock.

Shivalik Global - Investor Presentation

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Market today: Look out at 4220

Due to negative global cues the Nifty slipped to negative territory after kissing 4300. It traded in negative zone throughout the day and closed on a very weak note below
4250 levels. For the last couple of weeks the Nifty has been facing stiff resistance at 4300. Today the index touched the 4300 level for a brief while after which it saw
heavy selling.

In the short term, 4300 would remain a stiff resistance and unless the Nifty sustains below 4300, it might go into a bigger consolidation mode wherein it
could trade in a broader range of 4150-4300. In the short term, only if the Nifty breaches and sustains above 4300 can one expect a major upside that can lead
the market to 4320-4350 levels.

On the downside, the Nifty has support near its 10-day moving average and at
4220 below that. As long as the Nifty trades above and closes above 4220, our bias will remain positive with reversal point at 4220. On a break below 4220, our trend
will change with the next support at its 20-day moving average, which is at 4180.

On intra-day basis or on the hourly chart, the Nifty continues to trade in the middle of a broader channel but due to today's selling one can expect the index to drop till
the lower end of the channel, targeting 4220. As shown in the Nifty 60-minute chart, the Nifty is trading in a broader channel where it takes support at the lower end of channel and faces resistance at the upper end (marked with a circle). As it faces stiff resistance at 4300, one can expert the Nifty to fall back to the lower end of the channel.

The Nifty has to bounce back from 4220 for the uptrend to continue in the market.
Wipro can test Rs565 with support at Rs525. McLeod Russel looks good and should test Rs67 with support at Rs62.5. Infosys is at its support level of Rs1,900 and can test Rs1,945 in the short term.

Macquarie - SAIL, Hindustan Zinc,JSW Steel, Tata Steel, Sterlite Industries

Macquarie on SAIL

Price catalyst
12-month price target: Rs146.00 based on a PER methodology.
Catalyst: Stable steel pricing environment.

Downgrade to Neutral: We value SAIL at a target PER of 8x on FY3/08E, which is in line with peers. Although the business outlook remains positive, SAIL’s stock price is already factoring in the best-case scenario. The stock has seen a PER re-rating in line with the steel sector as a whole. With very low possibility of the company being acquired, we do not believe that any further re-rating is on the cards.

Switch to Tata Steel: With the re-rating over, SAIL becomes a play on steel prices only. We believe that Tata Steel (TATA IN, Rs629, Outperform, TP: Rs800) provides a much better leverage to play the steel cycle; it is trading at 20% discount to SAIL on both PER and EV/EBITDA multiples.

Macquarie on Hindustan Zinc

Price catalyst

12-month price target: Rs1,035.00 based on a PER methodology.
Catalyst: Expansion of capacity by 50% and generation of huge cashflows should lead to a re-rating of the stock.

Action and recommendation

Attractive valuations: The stock is trading at a PER of just 5.7x on FY3/08 estimates. It is one of the cheapest zinc stocks globally and is trading at a 17% discount to its NPV valuation. Its peers Zinifex and Kagara Zinc are trading at respective premiums of 114% and 73% to their NPV valuations.

Maintain target PER multiple: We maintain our target PER multiple at 9x, in line with our multiple for other metal stocks.

Macquarie on JSW Steel

Price catalyst
12-month price target: Rs772.00 based on a PER methodology.
Catalyst: Strong earnings growth driven by volume growth and strong steel prices.

Action and recommendation
Maintain Outperform: JSW has a robust earnings outlook driven by strong volume growth, stable steel prices and the company’s move up the value chain. We retain our Outperform rating and target PER multiple of 8x, in line with the other Indian steel companies.

Macquarie on Tata Steel

Price catalyst
12-month price target: Rs800.00 based on a PER methodology.
Catalyst: Sustained high steel prices and benefits from the Corus acquisition.

Action and recommendation
Maintain Outperform: We value Tata Steel at 8x FY3/08E PER, in line with our target multiple for other Indian steel stocks, in spite of its better growth profile. Tata Steel is one of the cheapest steel stocks globally and is also trading well within its historical range.

Increasing target price: We have raised our target price for Tata Steel to Rs800 (from Rs556 previously), suggesting upside of 28%.

Risk factors: The main risk factor other than steel prices is the pension liability of Corus. Any change in the discount rate can appreciably affect the valuation of the company.

Macqaurie on Sterlite Industries

Price catalyst
12-month price target: Rs829.00 based on a Sum of Parts methodology.
Catalyst: Acquisition of 26% government stake in Hindustan Zinc and the
ramp-up of expanded capacity in aluminium and copper by FY3/08.

Action and recommendation

Attractive valuations: Sterlite is trading at a PER of 7.1x and an EV/EBITDA of 3.4x on our base-case scenario of 31% dilution and acquisition of additional 26% stake in HZ. In the most pessimistic case of 31%equity dilution and no stake increase in HZ, our sum-of-the-parts valuation is Rs642, an 18% upside.

Maintain Outperform: Sterlite is one of the fastest-growing diversified base metal companies with the lowest cost of production across metals. We retain our Outperform recommendation.

Dishman Pharma,Dwarikesh, ITC, Oil Marketing Companies

Edelweiss in their result update on Dishman Pharma

Dishman announced results for Q4FY07, the revenues were higher than our estimates but lower EBITDA margins resulted in lower than expected EBITDA. Higher other income and lower depreciation and negative tax rate compensated for the lower EBITDA margin and the net profit was in line with expectation. Sales increased by 139% on Y-o-Y basis to INR 2057 mn, EBITDA increased by 20%, and net income grew by 255%. This quarter’s financials carried the impact of adjustment related to change in accounting nos. to IGAAP from UK GAAP for Carbogen Amcis.

Dishman’s outlook remains positive as it has announced several new initiatives which
might turn into new sizable contracts and Synergy derived from Carbogen-Amcis. At CMPof INR 258, the stock trades at a P/E of 14.6x on FY08E estimates. We retain our ‘BUY’ recommendation.

Edelweiss in their report on Dwarikesh Sugar

The stock has corrected by ~12% from our sugar sector update of February 2007,
paradise Lost, where we had downgraded the sector and DSIL to ‘REDUCE’ from ‘ACCUMULATE’. On SS07 capacity, the stock trades at 0.8x EV/replacement cost. Although valuation looks compelling vis-à-vis peers, we reckon it to be primarily attributable to DSIL continuing to be a relatively purer play on the sugar cycle with limited integration benefits. If current sugar prices continue, leading to funds’ crunch for holding on to working capital commissioning delays of its cogen unit in SS08 cannot be ruled out. Due to lack of any medium term triggers to revive sugar prices, highly levered balance sheet (D/E of ~2x), and over reliance on sugar segment, we maintain ‘REDUCE’ recommendation.

ABN in their report on ITC say,

4QFY07 results reflect strong underlying performance ITC reported 16% yoy EBITDA growth, driven by 16% EBIT growth in cigarettes, 23% EBIT growth in paper and 20% EBIT growth in hotels. The FMCG business recorded higher losses yoy, partly driven by heavy launch expenses for the Bingo range of potato chips. While ITC's reported PAT growth was lower at 15% yoy, the underlying growth was 19% adjusting for the higher base in 4QFY06 due to tax refunds. Cigarette prices raised proportionately more than tax increases ITC needed to raise prices by around 15% to neutralise the impact of the VAT and excise increases. However, the company has raised cigarette prices at a weighted average of 20%. In some brands, like Wills Navy Cut, Scissors and Capstan, the price hikes have been sharper, while in its key king-size brands like Classic and Gold Flake, the hikes have been close to the tax increases.

We estimate ITC's FY08 cigarette volumes will decline 2% (factoring in segments that are price inelastic and relatively inelastic), but expect cigarette net sales to grow 5.2% as price hikes have been sharper. Investing in paper and hotels for the next leg of growth FY07 EBIT for the hotels and paper businesses came in at Rs3.5bn and Rs4.2bn, respectively.

ITC is planning investments of Rs10bn in each of these businesses over the next three years, to be funded by their respective cash flows. The company plans to raise paper-board capacity from 0.32m mt to 0.42m mt, double its paper-pulp capacity from 0.1m mt to 0.2m mt, and set up uncoated-paper capacity of 0.1m mt (by 4QFY08). In hotels, ITC plans to set up two 900-room hotels, one each in Bangalore and Chennai. Maintaining Buy, with a lower target price of Rs205 (from Rs215) We cut our FY08F EPS by 9.1% to Rs7.75 to account for our lower cigarette volume estimate, but expect 15% EPS growth from FY09. ITC has underperformed the market 13% since the Budget and 9.3% ytd, which we believe largely discounts the earnings moderation we had expected. In line with our earnings downgrade, we reduce our DCF-based target price to Rs205, from Rs215.

Edelweiss in their report on Oil Marketing Companies

Based on our new oil price and INR/USD assumptions and revised under-recovery sharing between government, upstream and OMCs, we have revised our FY08 and FY09 earnings estimates for the oil marketing companies. For BPCL, our revised consolidated FY08 and FY09 EPS estimates stand at INR 52.4/share and INR 62.1/share. For HPCL, our revised FY08 and FY09 EPS stand at INR 38.2/share and INR 56.3/share and for IOCL we have revised our FY08 and FY09 EPS estimates to INR 59.9/share and INR 64.8/share.


We estimate the fair value of BPCL, HPCL and IOCL at INR 376, INR 266 and INR 529,
respectively. Both, BPCL and IOCL provide marginal upside from current levels. Though HPCL’s fair value is lower than CMP, it is explainable considering the higher earnings growth in FY09 due to increase in refining capacity and complexity. Further, current political scenario makes it unlikely that the government may reduce its controls on the sector. We believe that any reduction in crude price may only provide an opportunity for the government to reduce the auto fuel prices (run up to the elections in 2009). On the other hand the low P/BV and high dividend yield valuations provide support to the oil marketing companies. We therefore downgrade the R&M stocks (HPCL, BPCL, and IOCL) from ‘BUY’ to ‘ACCUMULATE’.

Citigroup - India Pharma Capsule

Citigroup in their report on Indian Pharma say,

Indian pharma is best viewed as distinct sub sectors to better understand valuation opportunities. Each sub sector faces its own pressures and has unique growth and valuation drivers. Innovator CRAMS is gaining traction, while Generics are winding through an obstacle course of regulatory and pricing hurdles. Given rapid evolution in the Indian market, we see strong growth potential for MNC pharma and Hospital stocks, although valuations remain challenging.

Ranbaxy, NPIL and Glenmark are our top buys. Initiate Buys on Shasun & Dishman, upgrade Apollo (to Buy), Sun (to Hold) & downgrade Matrix (to Sell).

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Emkay - Offshore Oil Field Services Sector

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M&M, L&T, Dishman Pharma, VSNL,

SSKI on Mahindra & Mahindra

M&M's standalone Q4FY07 revenues and profits were above our expectations; though margins were lower by ~50bps vis-à-vis our expectations. Net sales grew by 20%yoy to Rs27.47bn on the back of 17.7% volume growth at 75,155 units. The company's EBIDTA margins were lower at 11.4%, lower 50bps yoy and 60bps qoq due to lower margins in the automotive segment. The company's Q4FY07 operating profit grew by 15.2%yoy to Rs3.13bn and net profit before extraordinary items was higher by 47%yoy at Rs2.28bn. M&M's FY07 consolidated revenues grew by 43%yoy to Rs176.2bn led by strong performance of the standalone entity and the company's key subsidiaries. Consolidated EBIDTA margin for the company increased to 15.3% in FY07 against 14.1% in FY06 and consolidated PAT before extraordinary items grew by 54% to Rs16.0bn in FY07.

We expect M&M's core business to remain under pressure due to moderation in growth rates, both in the UV and Tractors segment, pressure on margins and a sharp surge in depreciation and interest charges due to the company's enhanced capex and borrowing plans. The company's consolidated performance for FY07 has exceeded our expectations and its subsidiaries are likely to continue their growth momentum. We have introduced Punjab Tractors into our consolidated estimates, resultant of which, we have recognized amortization of our estimate of goodwill arising due to the acquisition and also adjusted for minority interest in PTL. This, along with higher depreciation and interest charges has led to a marginal earnings downgraded of 1% for FY08 and 2.2% for FY09 - the positive impact of increased revenues has been negated by higher depreciation and interest charges and good will amortization. We have an SOTP based price target of Rs845/share for M&M with the core business valued at Rs402/share, which implies that ~52% of the SOTP value is derived from the company's subsidiaries. Segments other than Automotive and Farm Equipment contribute to ~40% of consolidated revenues and ~51% of M&M's consolidated profits. Thus, we believe M&M is currently more a play on its value accretive subsidiaries than on the core business. Maintain Outperformer.

SSKI on L&T

L&T's 4QFY07 earnings were sharply ahead of our estimates at Rs7bn driven by sharply higher than estimated revenue growth and operating margins of the E&C segment. The overall operating margins improved by 50bps to 13% during the quarter led by 300bps margin improvement in E&C segment as few large projects crossed the profit booking threshold limit. Moreover, order booking during the quarter increased by 19% yoy to Rs61.2bn thereby resulting in strong order backlog growth of 48% yoy to Rs353bn. However, the lower than estimated performance of its subsidiaries led to consolidated earnings being in line with our estimates at Rs18.1bn for FY07. We have upgraded our standalone FY08 and FY09 estimates by 19.3% and 26% respectively (higher operating margins and higher revenue growth), while consolidated earnings are upgraded by 7.5% and 12.1% for FY08 and FY09 respectively (led by sharp upgrade in standalone earnings estimates). L&T is currently trading at 17.4x FY09E earnings on consolidated earnings. Considering its strong order book of Rs353bn and ensuing visibility of revenues and hence earnings growth of 27% CAGR over the next two years, we believe the valuations are attractive. Also, L&T continues to be amongst the largest and most preferred "infrastructure plays" in the country, thereby L&T will continue to trade at a significant premium to the market multiples. As a result, we maintain our Outperformer rating on the stock.

SSKI on Dishman Pharma

Dishman's Q4FY07 results have been impacted by one-offs and regroupings related to consolidation of Carbogen-Amcis and material write-off. Net profits at Rs329m are significantly ahead of estimates due to higher other operating income, lower tax and depreciation provisions even though the operating profits are considerably lower at Rs215m. Operating profits have been impacted have by rupee appreciation (Dishman exports ~75% of sales) and Rs900m of one-off provisions. Overall the broad story remains firmly on track. Carbogen-Amcis is doing better than expected; Solvay is on track while there is very strong momentum in non-Solvay CRAMS business executed out of India. We expect this non-Solvay business to drive growth for Dishman with increasing traction from multiple big pharma clients. Dishman has started to leverage synergies with Carbogen-Amcis with 3 of existing Amcis clients seeking to transfer manufacturing to Indian facilities. We remain positive on Dishman's business model and believe it is one of the best companies on play the CRAMS opportunity in India. Maintain earning estimates and reiterate Outperformer with price target of Rs.312 (20xFY08E and 15.6xFY09E). Commercialization of any of the 3 Phase III products in Carbogen-Amcis will be upsides to estimates. Dishman remains one of our top picks in the space.

JP Morgan on Mahindra & Mahindra


· M&M's 4Q adjusted earnings at Rs.2.4B (up 36% yoy) were in line with our expectations. While EBITDA was lower than expected (the margin was 60bp below our estimate), higher other income and lower rate of taxation offset the impact.
· While unit sales grew 19%, and EBITDA increased just 14%. EBITDA margin at 11.3% (down 60bp yoy) declined due to a 200bp yoy increase in other expenditure. Though RM/sales ratio was lower by 120bp yoy, it could only partially offset the effect of higher other expenditure.
· Higher other income (due to increased dividends from subsidiaries) and lower tax rate (down 540bp yoy) mitigated the drop in operating performance.
· In FY08, M&M expects unit sales grow to moderate to c.8-10% for both UV's and tractors (due to higher interest rates and base effect).
· M&M firmed up plans for its newly announced plants for commercial vehicles at Pune and passenger cars at Chennai. Both plants are expected to commence production in FY10.
· The company is working on two new platforms in UVs: The Ingenio, a Multi Purpose Vehicle (MPV), which is expected to launched over the next 12 months, and a new UV, which will be launched from the Chennai facility.
· For commercial vehicles, M&M will launch a mass market vehicle (both in the goods and passenger segment) besides launching its range of heavy CVs in collaboration with its foreign partner, Navistar.
· M&M has planned a capex of Rs20B p.a. for the above initiatives over the next three years. To fund these activities, M&M will use its internal accruals as well as raise debt; however it would restrict its leverage (Debt: Equity ratio would not exceed 1x).
· Over FY08, M&M plans to list its subsidiary, Mahindra Holidays. It is also in the process of merging the recently acquired forging companies in its group company, Mahindra Forging.


JP Morgan on Videsh Sanchar Nigam Limited,

· Mixed operational performance. VSNL's 4QFY07 (unconsolidated) revenues were up 1.7% Q/Q (+13.0% Y/Y) but EBITDA was down 5.6% Q/Q (+3.0%) because of higher SG&A costs. On full year (FY07) basis, EBITDA increased by only 6.3% Y/Y to Rs9.3 bn but we expect growth to be higher in FY08 based on continued strong volume growth (total LD minutes were up 53% Y/Y, IPLC bandwidth +103% Y/Y in FY07) and cost optimization (impact of recent headcount reduction).
· Consolidated results highlight the challenges. FY07 consolidated EBITDA of Rs10.54 bn reflects start up losses in South Africa and the challenges in revenue generation from loss making Tyco network (TGN). We estimate EBITDA loss from TGN was US$35 mn in FY07 compared with our estimated US$50-55 mn in FY06. EBITDA growth in Teleglobe is a consolation but has been mainly driven by cost reductions.
· Valuations and stock view. We maintain neutral rating on VSNL stock with Jun-08 SOP price target of Rs500 (Rs475 previously). Our SOP includes Rs235 from the India business, which we have valued using DCF (implied FY08E EV/EBITDA is 6.0x). Stock is likely to remain in a trading range and we would consider buying around Rs400/share level.
· Risks to our view. Downside risks are competition, adverse regulatory changes (regulation of access to cable landing stations) and delay in cash breakeven of TGN. Upside may come from unlocking of surplus land value. Furthermore, listing of RCOM's cable assets (FLAG) could also boost investor outlook on the value of TGN submarine cable system.

Religare on Riddhi Siddhi Gluco Oils

Strategic location of Gokak and Pondicherry plants provides substantial operational benefits; upcoming Uttaranchal unit also offers a strategic cost-advantage and opens up access to north and eastern markets Tie-up with French starch giant, Roquette Freres, generates strong value addition for its product portfolio Net sales CAGR of 38.9% expected over FY06-FY09 to Rs 6.2bn We initiate coverage with Buy with an end-FY08 target price of Rs 365, 47% potential upside from the current levels

Merrill Lynch on Larsen and Tourbo

Margins Surprise in FY07; Raising Earnings & PO to Rs2150
We hike our earnings estimates by 15% for FY08 and 10% for FY09 & PO to Rs2150 (1925) led by better-than-expected FY07 parent EBITDA margins (+300bps) and subsidiary performance. Further L&T had 48%YoY growth in order backlog, rebound in parent sales (+35%YoY in 4Q FY07), 300bps EBITDA margin expansion in E&C to 11% and consolidated rec. PAT growth of 72%YoY. Buy

Citigroup - HPCL, BPCL, IOC

Citigroup on BPCL

Our target price for BPCL of Rs385 based on an FY08E EV/EBITDA of 5.5x for core earnings and 2.0x to contribution from oil bonds. We use FY08E as a base considering a normalized earnings scenario along with improved marketing profitability (in line with lower crude) but continued policy ambiguity. While valuing the Indian oil refining and marketing companies, we prefer to use EV/EBITDA to compare companies across the region to avoid differences in accounting policies in depreciation and taxation. Our target price is also based on an FY06E P/BV of 1.4x, between the value we ascribe to HPCL and IOC, justified given the better mix of refining and marketing BPCL as compared to HPCL, but a lower proportion of high-yielding pipeline assets vis-a-vis IOC.

Citigroup on HPCL

We assign a Medium Risk rating to the stock, even though our quantitative rating system rates the stock Low Risk, as we believe volatility in international oil prices will continue to impact earnings given the linkage to marketing margins. Sentiment towards the sector and HPCL is closely linked to crude price fluctuations, sector deregulation, subsidy losses, and auto fuel price hikes. Upside risks to our target price include: a further decline in crude prices (to US$50-55/bbl) and stronger-than-expected recovery in the company's marketing profitability leading to higher-than-estimated returns; if the government took concrete pricing action on retail products to bring them in line with international prices, it would put our earnings forecasts at risk; and on the macro front, if the government were to adopt the Downstream Regulatory Bill, appoint an independent regulator, and give pricing freedom to the oil-marketing companies, it would likely give a fillip to the stock price.

Citigroup on IOC

Our target price for IOC of Rs450 is based on an FY08E EV/EBITDA of 6.0x—at a premium to BPCL and HPCL and 2.0x the contribution from oil bonds. We are maintaining a valuation premium (for core earnings) to BPCL and HPCL considering IOC's superior revenue mix and sustainable competitive advantage. The target price includes the value of IOC's holdings in ONGC and GAIL at current market prices worth Rs103/share at a 20% discount to the current market prices. IOC has stated its intention to liquidate a part of the crossholdings in ONGC and GAIL in installments, the first tranche of which was completed earlier this year. While valuing the Indian oil refining and marketing companies, we prefer to use EV/EBITDA to compare companies across the regions to avoid the differences in accounting policies on depreciation and taxation. Our target price is also based on an FY06E P/BV of 1.6x, at a premium to BPCL/HPCL given IOC's lower proportion of marketing assets as a proportion of total assets.