Market ends choppy

The market opened flat but expectations of good earnings helped the Sensex recover from the day's low of 15,135. The market remained choppy in early trades but recovered as results poured in. Good quarter results of Hindustan Unilever and SBI, followed by heavy buying in cement stocks helped the Sensex see the day's high of 15,452 by afternoon. However, in the closing session, the Sensex entered in to the negative territory as selling intensified. But, last minute buying helped the Sensex finally close the session at 15,261 up 26 points. The Nifty, the broad based index, closed by shedding five points at 4,440.

The breadth of the market was positive. Of the 2,660 stocks traded on the BSE 1,342 stocks advanced, 1,258 stocks declined and 60 stocks remained unchanged. Among the 12 sectoral indices on the BSE only three managed to close in the green. The BSE Realty index dropped 1.97% at 7,670, the BSE Metal index slipped 1.05% at 11,381 while, the BSE HC index, the BSE CG index and the BSE Teck index also ended at lower levels. The BSE Bankex index, the BSE FMCG and the BSE PSU index gained over 0.50-1% each.

Select heavyweights edged higher on decent buying support. On the back of good quarterly results, Hindustan unilever rose 6.26% at Rs209 and SBI jumped 5.26% at Rs1,579. Ambuja Cement advanced 3.40% at Rs129, Grasim added 2.96% at Rs2,947, ACC gained 2.27% at Rs1023 and Reliance Energy gained 2.20% at Rs780. However, select front-line stocks came under selling pressure. Hindalco was the major loser and dropped 4.13% at Rs166. Other draggers M&M declined 3% at Rs753, ITC dropped 2.62% at Rs167 and TCS shed 1.32% at Rs1,138.

Over 1.78 crore Reliance Natural Resources shares changed hands on the BSE followed by IKF Technologies (1.03 crore shares), IFCI (97.43 lakh shares), Suryachakra Power Corporation ( 86.25 lakh shares) and JP Hydro (54.75 lakh shares).

Value wise, Reliance Industries registered a turnover of Rs216 crore on the BSE followed by Reliance Energy (Rs200 crore), Housing Development & Infrastructure (Rs182 crore), SBI (Rs178 crore) and Reliance Capital (Rs152 crore).

Result Updates

Reliance Industries: 1QFY08 results: Stronger-than-expected results on forex gains and stronger margins

State Bank of India: SBI's profit optically good, but operational performance in line, valuations full, downgrading to IL

ITC: 1QFY08: Cigarettes division posts impressive numbers despite taxation issues'we retain OP

Hindustan Lever: 2QCY07 Results: Core FMCG sales growth of 13.4%; retain In Line rating

Suzlon Energy: Results disappoint as several problems come to haunt simultaneously

GMR Infrastructure: Results first take: operating performance in-line with expectations

GAIL (India): Stronger-than-expected 1QFY08 results on lower subsidy losses, jump in gas transmission profits

Grasim Industries: 1QFY08: VSF leads the growth even as other division perform well; retain IL

ABB: Strong revenue growth and margin expansion; estimates and target price revised upwards

Tata Power: 1QFY08: Good growth in Mumbai licence area; maintain In Line

Container Corporation: Lower than expected exim volume growth; revise target price, maintain rating

BPCL: In the black despite no oil bonds

Bank of Baroda: BoB delivers on profit, driven by lower provisions

Canara Bank: Performance likely to remain under pressure, downgrading to IL

MTNL: No improvement in sight; broadband subs addition slow down; maintain U

Punj Lloyd: Strong operating performance helps beat expectations

Indian Overseas Bank: IOB on track as usual, retain OP

Colgate-Palmolive (India): 1QFY2008: Volumes growth near double-digits; upgrade
rating to Inline

Lanco Infratech: 1QFY08: results in line with expectations; Upgrade to Outperform

CESC: 1QFY08: Results in line with expectations

J&K Bank: PAT exceeds estimate supported by non-interest income, retain OP

GSPL: In-line 1QFY08 results; retain estimates with DCF-based target price of Rs58

TVS Motor Company: No respite from troubles; net profit down 65% yoy

Updates

Federal Bank: Amongst the few good results in financial sector, upgrading target price, retain OP

Result Updates

Sensex inches ahead in volatile trade

The market which was strong till late-afternoon trade, following steady buying interest for index pivotals, came sharply off higher level later on fresh selling. Short covering at lower level restricted the fall after the Sensex slipped into the red at one point of time in late trade. Stocks rose in Asia. China’s Shanghai Composite hit all time high. Most of European indices were trading with small gains.

The BSE 30-share Sensex rose 29.12 points to 15,263.39, as per provisional closing. It opened higher at 15,278.03 and slipped to a low of 15,135.25 shortly. From here, the index staged a solid rebound to hit a high of 15,451.81 at 14:28 IST. It moved in a range of 317 points for the day.

The S&P CNX Nifty lost 5.40 points to 4,439.80 as per provisional closing

The market breadth was positive on BSE with 1,360 shares advancing as compared to 1,267 that declined, while 67 remained unchanged

The turnover on BSE spiked in the last hour of trade to Rs 5031 crore from Rs 3772 crore by 14:30 IST.

Among the Sensex pack, 17 advanced while the rest declined

Hindustan Unilever jumped 6.10% to Rs 208.40 on 14.42 lakh shares after its board of directors at its meeting held on 29 July 2007 approved the buyback at a price not exceeding Rs 230 per share up to an aggregate amount of Rs 630 crore. India's largest FMCG player in terms of sales registered a 29.56% growth in net profit to Rs 493.08 crore in Q2 June 2007 over Q2 June 2006. Net sales increased 12.9% to Rs 3,481.40 crore. It was the top gainer from the Sensex pack.

State Bank of India (SBI), the country’s biggest commercial bank advanced 5.40% to Rs 1,581. SBI on Saturday, 29 July 2007, posted 78.6% jump in net profit to Rs 1,425.81 crore in Q1 June 2007 over Q1 June 2006. The bank’s consolidated net profit jumped 93.3% to Rs 1,862 crore in Q1 June 2007 over Q1 June 2006. Net interest income was up 15% at Rs. 4,497.40 crore in Q1 June 2007 over Q1 June 2006.

Cement stocks ACC (up 2.37% to Rs 1023.60), Ambuja Cements (up 2.92% to Rs 128.70), and UltraTech Cement Company (up 2.80% to Rs 899) gained on fresh buying

Aditya Birla Group diversified company Grasim Industries gained 2.20% to Rs 2925. Grasim, on Saturday, 29 July 2007 reported a 64.04% jump in net profit to Rs 511.66 crore in Q1 June 2007 over Q1 June 2006. The total income of the Mumbai-based company increased 30.23% to Rs 2,512.53 crore in Q1 June 2007 over Q1 June 2006.

India’s leading utility company Reliance Energy rose 1.95% to Rs 778.25, after hitting a high of Rs 814.90. It has won the revised bid for the Sasan ultra mega power project (UMPP), the government said today. Last week, the government officially disqualified the Lanco Infratech-Globeleq consortium, alleging misrepresentation of financial data and the subsequent withdrawal of Globeleq from the consortium. Lanco had apparently bid Rs 1.19 per unit in the first auction. REL had previously bid Rs 1.29 per unit. Other suitors in the race for the Sasan project were NTPC and Jaiprakash Associates.

L&T, India’s largest engineering & construction firm, rose 0.97% to Rs 2449. The stock had cooled off recently from a solid surge it had witnessed over the past two months. From a lifetime closing high of Rs 2667.55 on 24 July 2007, the stock had lost 9% in three trading sessions to Rs 2425.55 on 27 July 2007.

India’s largest private sector company Reliance Industries (RIL) declined 1.27% to Rs 1,842.70 on media reports that it may suspend its $5.2 billion project for producing gas from D6 block in KG basin if the Indian government does not approve its gas price formula by the end of August 2007. The stock hit high of Rs 1900 in early trade after it reported a forecast-beating 28.1% growth in net profit to Rs 3264 crore in Q1 June 2007 over Q1 June 2006, on Saturday, 28 July 2007. Revenue rose 14.4% to Rs 28056 crore in Q1 June 2007 over Q1 June 2006. Gross refining margin (GRM) for the quarter was $15.4 per barrel, highest in the company’s history.

Aluminium and copper major Hindalco Industries slumped 4.24% to Rs 165.95, on 4.99 lakh shares. It was the top loser from the Sensex pack

Mahindra & Mahindra, the country’s largest tractor maker by sales slumped 2.82% to Rs 754, after its net profit declined 6.37% to Rs 191.17 in Q1 June 2007 over Q1 June 2006. Total income rose 15.89% to Rs 2644.38 crore in Q1 June 2007 over Q1 June 2006.

ITC (down 2.65% to Rs 167.25), TCS (down 1.73% to Rs 1133), and Bhel (down 1.21% to Rs 1640) were the other losers.

India’s largest private steel maker Tata Steel lost 0.70% to Rs 647 after it reported 28% growth in net profit to Rs 1222 crore in Q1 June 2007 over Q1 June 2006. Net sales rose 7.66% to Rs 4198 crore in Q1 June 2007 over Q1 June 2007

As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 1475 crore, while domestic institutional investors (DIIs) were net buyers of shares worth Rs 727.32 crore on Friday, 27 July 2007.

Asian markets recovered from initial fall. Japan's Nikkei (up 0.03% at 17,289.30), Seoul Composite (up 1.25% to 1,906.71) and Straits Times (up 0.96% to 3,526.96), edged higher.

China's shares rose to a new record high on Monday, 30 July 2007 boosted by investor expectations of strong corporate profits despite government efforts to rein in the sizzling economy. The benchmark Shanghai Composite Index gained 2.2% at 4,440.77, surpassing its previous all-time closing high of 4,346.46. It also struck an all time high of 4,450.18 today.

Wall Street extended its steep decline for the second straight day Friday, 27 July 2007, pulling the Dow Jones industrials down more than 500 points over the two days after investors gave in to mounting concerns that borrowing costs would climb for both Japan 17, companies and homeowners. The Dow slipped 208.10 points, or 1.54%, to 13,265.47. Broader stock indicators also fell. The S&P 500 ended down 23.71 points, or 1.60 %, at 1,458.95. The Nasdaq Composite index fell 37.10 points, or 1.43 %, to 2,562.24.

Oil prices were lower in morning in Singapore trade on Monday, 30 July 2007, on profit-taking even as key producer Iran expressed opposition to any hikes in OPEC crude output. New York's main contract, light sweet crude for September delivery, was down 35 cents at $76.67 a barrel from 77.02 dollars in late US trade Friday. Brent North Sea crude for September eased 41 cents to $75.85.

Weekly Watch - July 28 2007

Weekly Watch - July 28 2007

Morning Call

Market Grape Wine :

In House :

Nifty at a supp of 4427 and 4378 with resis at 4478 and 4500

Intra day calls: Buy Essdee Aluminium above 531 with a TGT of 551 and a SL of 524

Buy PTC above 85.20 with a TGT of 93 and a SL of 82

F&O: Sell M&M below 764



Out House :

Markets at a support of 15015 & 15112 levels with resistance at 15414 & 15515 levels .

Markets to be very choppy and volatile maintain strict stop loss .

Buy : SBIN at dips

Buy : RIL at dips

Buy : ACC at dips

Buy : LNT at dips

Buy : Bilt & Sesasaee paper

Buy : Aban & IOLBroad

Buy : Unitech & IBulls at dips

Buy : NTPC at dips

Dark Horse : RIL , SBIN , Educomp , Skumar , Suzlon , HLL & ITC

Market may see further correction

The market is expected to see further correction today, 30 July 2007, after a sharp slump on Friday, 27 July 2007 when the Sensex plunged 541.74-point to 15,234.57, gripped by intense selling pressure following sharp fall in US and Asian stocks.

Value buying may emerge at lower level, cushioning a sharp correction.

As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 1475 crore, while domestic institutional investors (DIIs) were net buyers of shares worth Rs 727.32 crore on Friday, 27 July 2007.

Japanese shares fell sharply today, 30 July 2007, after the nation's ruling party suffered a major defeat in Sunday's parliamentary elections, with financial shares such as Mitsubishi UFJ Financial Group and Sompo Japan Insurance leading the decline. Japan's Nikkei plunged 1% at 17,111.17. Taiwan's Taiwan Weighted declined 0.65% at 9,102.31.

However, Hong Kong's Hang Seng (up 0.07% at 22,585.64), Singapore's Straits Times (up 0.15% at 3,497.91) and South Korea's Seoul Composite (up 0.19% at 1,886.71), edged higher.

Wall Street extended its steep decline for the second straight day Friday, 27 July 2007 pulling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. The Dow slipped 208.10 points, or 1.54%, to 13,265.47. Broader stock indicators also fell. The S&P 500 ended down 23.71 points, or 1.60 %, at 1,458.95. The Nasdaq Composite index fell 37.10 points, or 1.43 %, to 2,562.24.

Oil prices were lower in morning in Singapore trade on Monday, 30 July 2007 on profit-taking even as key producer Iran expressed opposition to any hikes in OPEC crude output. New York's main contract, light sweet crude for September delivery, was down 35 cents at $76.67 a barrel from 77.02 dollars in late US trade Friday. Brent North Sea crude for September eased 41 cents to $75.85.

Weekly Strategist - July 30 2007

Weekly Strategist - July 30 2007

Market may remain uncertain

After Friday's carnage market may remain uncertain owing to lack of clarity and may witness sideways movement on the back of sharp intra-day volatility. Mixed fund inflows and global trend will be closely monitored for further direction. Among the local indices, the Nifty could test 4385 on the down side while on the upside it could find support at 4500. The Sensex is likely to get support at 15000 and may face resistance at 15450.

On the result front Andhra Bank, Asian Paints, Bhart Earth Movers, BHEL, Cairn India, Great Eastern shipping, Hinduja TMT, HPCL, I-flex solutions, India Infoline, India Cement, IOC, Jet Airways, Jindal Steel, M&M, Mirc Electronics, Nalco, NTPC, Oriental bank, Parsvanath Developers, Sun TV, Syndicate Bank, Tata Steel, Tata Teleservices and Wyeth are expected to announce the quarterly numbers.

Credit market worries followed by rising oil prices sent the US indices plummeting for the second straight session on Friday, while the Dow Jones declined by 208 points to close at 13265 and the Nasdaq also slipped 37 point at 2562.

The Indian ADRs also posted losses on the US bourses. MTNL lost over 4%, while Rdiff and Patini Computers fell over 3% each. Among other laggards, Infosys, VSNL, HDFC Bank, Tata Motors and ICICI Bank ended with losses of over 1-2% each.

Crude oil prices moved up, with the Nymex light crude oil for September series rising by $2.07 at $77.02 a barrel. In the commodity space, the Comex gold slipped by $2.80 to settle at $672.30 a troy ounce.

Inflation

Inflation

Research Calls

Godawari Power and Ispat

Reco price: Rs 184 Current market price: Rs 178 Broking firm: IL&FS Invest Smart

Godawari Power and Ispat the manufacturer of sponge iron and steel billets has announced the impressive Q1FY08 results. The company reported 61.5 per cent y-o-y growth in top line and 72.9 per cent y-o-y growth in bottom line. The growth has been driven primarily by higher volume and realisations.

During the same period the operating margins improved by 350 basis points to 20.0 per cent. Going forward, IL&FS expects the company to continue reporting robust growth during FY08-09.

The commissioning of phase-II capacities will drive the growth during FY08, while a significant savings from captive iron ore mines will provide fillip to revenue in FY09E. At Rs 184, the stock is valued at a P/E of 4.2 times and 2.6 times its estimated FY08 and FY09 earnings, respectively.

Orient paper & Industries Reco price: Rs 463 Target price: Rs 560 Current market price: Rs 454 Broking firm: Emkay Share and Stock Broking

Orient Paper & Industries’ Q1FY08 net profit at Rs 44.6 crore is marginally below expectations primarily because of lower than expected profit of the paper division.

Revenues for the quarter grew by 13.4 per cent to Rs 293 crore driven by 20.5 per cent growth in revenues of cement division. The operating profit for the quarter grew by 45.6 per cent to Rs 77.7 crore driven by 55 per cent growth in EBIT of cement division.

With repayment of debt during the end of FY07 OPIL's interest charge for the quarter decline by a huge 40 per cent and hence its net profit for the quarter grew by a smart 73 per cent on y-o-y basis to Rs 44.6 crore.

The stock at recommended price trades 5.5 times its estimated FY08 earnings and 5.1 times its estimated FY09 earnings. Emkay believes the valuation for OPIL are undemanding and maintain “accumulate” rating on the stock.

ABG Shipyard Reco price: Rs 508 Target price: Rs 600 Current market price: Rs 526 Broking firm: Angel Broking

ABG Shipyard recently secured an order from Essar Shipping & Logistics, Cyprus worth Rs 618 crore, this coupled with the acquisition of Vipul Shipyard and good financial results in Q1FY08, the Angel broking puts a buy on the stock.

For the Q1FY08 the company recorded topline growth of 23 per cent to Rs 203 crore. On the operating front, OPM increased by 97 basis point to 27 per cent. During the same period net profit grew by 24 per cent to Rs 33 crore.

ABG Shipyard has a order book of Rs 5,560 crore. The company’s existing order book is 4.9x its estimated FY08 revenues. At Rs 508 the stock traded at 13.5 times FY08E and 8.5 times FY09E on fully diluted earnings of Rs37.5 and Rs59.5, respectively.

Maruti Udyog Reco price: Rs 841 Current market price: Rs 829 Broking firm: Edelweiss Securities

Edelweiss maintains “accumulate” on Maruti Udyog on the back of continued positive outlook on the passenger car industry. Maruti Udyog Ltd’s Q1FY08 net profit, at Rs 499 crore, was up 35.2 per cent on y-o-y basis from Rs 369 crore in Q1FY07.

During this period its EBITDA margin was steady, however up sharply on q-o-q basis by 220 basis points at 14.6 per cent, primarily due to improved product mix and a fall in other expenses by around 165 basis points.

The company is believed to benefit from the capacity ramp up at the new Manesar plant. On an estimated EPS of Rs 60.0 for FY08 and Rs 70.5 for FY09, the stock at recommended price is trading at 14.0 times FY08E and 11.9 times FY09E.

Suzlon Energy Reco price: Rs 1,299 Current market price: Rs 1,304 Broking firm: Prabhudas Lilladher

The broking firm maintains “outperformer” on Suzlon Energy. The company for the Q1FY08, reported a consolidated net sales growth of 81.9 per cent on y-o-y basis to Rs 1,940 crore.

Operating margins were down to 7.2 per cent as compared to 17.4 per cent in the corresponding quarter last year due to various reasons such as rupee appreciation, higher employee costs and loss of 100 MW of sales.

During the same period net profit was lower by 80.3 per cent to Rs 18.9 crore. The company has an order book of Rs 13,500 crore. Prabhudas Lilladher revised earning estimates downward by 22 per cent for FY08 and by 17 per cent for FY09.

At the recommended price of Rs 1,299, the stock trades at 32.6 times FY08E and 21.0 times FY09E consolidated earnings of Rs 39.9 and Rs 61.8 respectively. The stock is expected to be under pressure for the next few months, however continue to be positive on the long-term potential of the company.

Bulls set to swing

Win as if you were used to it, lose as if you enjoyed it for a change.

On Wall Street, credit market fears once again wreaked havoc, while a surge in oil prices helped pressure stocks. The Dow Jones Industrial Average plunged further on Friday, falling more than 200 points, marking its worst week in over four years.

The Dow Jones slumped 208 points, or 1.5% to close at 13,265, leaving the 30-stock index up 6.4% for the year. Last week's sharp sell-off, which was the biggest percentage drop for the Dow since March 2003, comes just days after the blue chip barometer finished above 14,000 for the first time ever. The broader S&P 500 lost 1.6% to end at 1458 while the tech-fueled Nasdaq Composite index was down 37 points or 1.4% to 2,562.24.

Wall Street found some comfort though in a better-than expected second quarter GDP reading and comments by Treasury Secretary Henry Paulson that the US economy is the strongest he has seen in several decades.

Treasury bonds kept climbing after a big run-up in the previous session, as investors again sought shelter from falling stock prices. The 10-year note yield rose to 4.76%, down from 4.78% in the previous session.

The dollar gained versus the euro and was lower against the yen. COMEX gold for December fell $2.80 to $672.30 an ounce.

European stocks closed lower on Friday. The FTSE 100 in London lost 0.6% to 6,215.20. The German DAX 30 gave up 0.8% to finish at 7,451.68 while the French CAC-40 shed 0.6% to 5,643.96. The pan-European Dow Jones Stoxx 600 ended 0.5% lower at 372.69 and 5% lower for the week.

In Latin America, Brazil's Bovespa ended down 436 points, or 0.8%, at 53,457.39. Mexico's IPC, meanwhile, reversed a decline and ended 239 points, or 0.8%, higher at 30,235.17. Chile's IPSA ticked up 15 points, or 0.4%, to end at 3,292.29, but posted a 2.2% drop for the week. In Russia, the RTS index dropped 1.5% to close at 1967.

Asian markets were trading mixed this morning. The Nikkei in Tokyo was down 172 points, while the Hang Seng in Hong Kong was up 26 points at 22,596. The Kospi in Seoul was flat at 1882 and the Straits Times in Singapore was up 5 points at 3497.

The Morgan Stanley Capital International Asia Pacific Index lost 0.4% to 153.82 as of 10:48 a.m. in Tokyo, set for its lowest close since June 29. The regional stock benchmark dropped 3% on July 27, the most since March 5.

The Philippine Stock Exchange Index slumped 1.4%, the region's biggest decline. Benchmarks fell elsewhere, except in China. Thailand's stock market is closed for a holiday.

Horrific session ended terribly as bears were back with vengeance. BSE benchmark Sensex witnessed its fourth biggest single day absolute fall as global sell off dragged the markets from its peaks. Markets witnessed intense selling as both the indices fell sharply. Both the Sensex and NSE Nifty lost over 3.5% each.

All the key sectoral indices ended in negative territory. The Real Estate stocks crashed as the Realty index was down by over 5%. Others like Metal and PSU index also fell heavily. Even the Mid-Cap and the Small Cap indexes lost over 2.5% each dragging the benchmark Sensex to hit a low of 15159.

Sugar stocks which traded smartly throughout the day also pared its gains in last hour of the session. Even the FMCG index marginally lost ground towards the fag end. Finally, BSE 30-share Sensex lost 542 points to close at 15235. NSE-50 Nifty dropped 175 points to close at 4445.

RIL, ICICI Bank, L&T, HDFC and R Com were the top five lagging movers. On the other hand ITC, Ranbaxy, Ambuja Cement and Maruti were the top five leading movers.

MTNL declined nearly by 6% to Rs150 after the company announced disappointing Q1 result The company’s net profit was at Rs1.11bn (down 6%) and revenue (down 5.2%) at Rs12.8bn. The scrip touched an intra-day high of Rs158 and a low of Rs150 and recorded volumes of over 13,00,000 shares on NSE.

Titan dropped 5% to Rs1128. The company posted 209% growth in its Q1 profit. The company Q1 net profit was at Rs126.4mn (up 209%) and net sales at Rs6.67bn (up 48%). The scrip touched an intra-day high of Rs1187 and a low of Rs1116 and recorded volumes of over 4,00,000 shares on NSE.

NTPC declined by over 4% to Rs162. The company declared that it planned to set up 150MW Power Plant in Joint Venture with Rashtriya Ispat Nigam. The scrip touched an intra-day high of Rs167 and a low of Rs160 and recorded volumes of over 27,00,000 shares on NSE.

STAR edged lower by 0.7% to Rs299. The company announced its Q2 result with Group Profit at Rs115.8mn (up 108%) and Group net sales at Rs1.8bn (up 6%). The scrip touched an intra-day high of Rs308 and a low of Rs294 and recorded volumes of over 40,000 shares on NSE.

CESC declined by 4% to Rs492.The company announced its Q1 result with net profit at Rs820mn (up 49%) and net sales at Rs7.17bn (up 6.3%). The scrip touched an intra-day high of Rs503 and a low of Rs483 and recorded volumes of over 11,00,000 shares on NSE.

Sugar stocks were in action as reports stated that Government is likely to lift restriction on Sugar exports. Renuka Sugar advanced by 1.8% to Rs628, Bajaj Hindusthan was up by 1.2% to Rs156 and Balrampur Chini added 1.8% to Rs69.

Pharma stocks were also on the receiving end led by fall in frontline stock Dr Reddy’s Lab dropped by over 3.5% to Rs640, Cipla was down by 3.4% to Rs188, Wockhardt slipped by 3% to Rs382 and Sun Pharma declined 2.8% to Rs933.

FMCG index also pared its gains towards the end led by fall in heavyweight Hindustan Unilever lost by over 4.5% to Rs195, McDowell declined by over 4% to Rs1246, Dabur was down 4% to Rs100 and Colgate dropped 0.7% to Rs373. However, ITC surged by over 3%to Rs172 after the company’s result recorded better than market expectations The company’s Q1 profit was at Rs7.83bn (up 20%) and sales at Rs33.25bn (up 16.6%).

Realty stocks were the top losers as the index was down by over 5%. DLF lost by over 5% to Rs599, Unitech was down by over 6% to Rs559, Parsvnath dropped by over 6.5% to Rs359 and Sobha declined 2.3% to Rs890.

Metal stocks lost its shine led by fall in frontline stocks Tata Steel as the scrip dropped by over 7% to Rs651, Hindalco slipped by 5% to Rs173 and Sterlite Industries dropped by 4.8% to Rs623.

Results Today:

Aditya Birla Nuvo, Akruti Nirman, Andhra Bank, Asian Electronics, Asian Paints, BEML, Bharati Shipyard, BHEL, Cairn India, DCB, Divi's Labs, Dredging Corporation, Glenmark, Hinduja TMT, Hotel Leelaventure, HTMT Global, i-flex, India Cement, IOC, INOX, Jet Airways, Jindal Steel, NALCO, NIIT, NTPC, OBC.

Fund Activity:

FIIs were net sellers of Rs14.75bn (provisional) in the cash segment on Friday. On the other hand, local institutions were net buyers at Rs7.27bn. In the F&O segment, FIIs were net sellers at Rs53.44bn.

On Thursday, FIIs poured in Rs2.48bn in the cash segment. Mutual Funds were net buyers of Rs150mn.

Major bulk Deals:

There are no major bulk deals.

Insider Trades:

Action Construction Equipment Limited: JM Financial Mutual Fund through its various schemes has purchased from open market 33800 equity shares of the company on 25th July, 2007.

GlaxoSmithKline Pharmaceuticals Limited: Life Insurance Corporation of India has purchased from open market 36478 equity shares of the company on 24th July, 2007.

Lower Circuit:

Kothari Products, Zuari Industries, Prism Cement, Tanla, Aarti Industries, Marksons, Karuturi Network, Swan Mills.

Upper Circuit:

Ganesh Forgings, Jai Corp and Jaybharat Textile.

Delivery Delight (Rising Price & Rising Delivery):

Crompton Greaves, Federal Bank, ITC and Triveni Engineering.

Abnormal Delivery:

Dabur Pharma, Abhishek Industries, Bharti Airtel, Everest Kanto, Glenmark, Indiabulls, VSNL, RIIL, Punj Lloyd, Sadbhav Engineering and Tata Steel.

Major News & Announcement:

Inflation rate was 4.41% in week ended July 14 against expectation of 4.36%

Titan Q1 net profit at Rs126.4mn (up 209%) and net sales at Rs6.67bn (up 48%)

MTNL Q1 profit at Rs1.11bn (down 6%), revenue (down 5.2%) at Rs12.8bn

Colgate Q1 profit at Rs608.8mn (up 63.6%), net sales at Rs3.51bn (up 13.2%)

CESC Q1 net profit at Rs820mn (up 49%), net sales at Rs7.17bn (up 6.3%)

Tata Chemical Q1 net profit at Rs1.21bn (up 61%), net sales at Rs6.69bn (down 11%)

NTPC plans to set up 150MW Power Plant in Joint Venture with Rashtriya Ispat Nigam

Punj Lloyd gets order worth Rs4.98bn

HCC Q1 net profit at Rs349.8mn (up 39.2%), net sales atRs7.29bn (up 27%)

Moser Baer unit secures $880mn order from REC group

ITC Q1 profit at Rs7.83bn (up 20%) and sales at Rs33.25bn (up 16.6%)

Peninsula Land to split each share into five

Reliance earns record refinery margins in Q1

Reliance Industries Ltd, the nation's most valued company, made a record refinery margin of 15.4 dollars per barrel in the first quarter this fiscal as its Jamnagar refinery processed more complex crude oils.

The Mukesh Ambani-run company had recorded a gross refinery margin (revenue earned on processing of a barrel of crude) of 12.4 dollars per barrel in April-June last year, a company source said.

"This performance is a result of a highly complex refinery along with most efficient liquid port, location advantage and following sound economics of buying cheap and selling premium products," he said.

The complex refineries allows RIL to buy and process some of the heaviest and sour crude the world has seen and which only a handful of refineries have the capability to process. The refinery regularly tries out crude from new sources, which are both cheaper and challenging to process.

During the quarter, RIL tried out crude with an API of 21-24. API is an indicator of how heavy, sour and difficult the crude is to process. The differential in light and heavy margins has been growing in the past few quarters and today it stands at 5-5.5 dollars per barrel, the source said.

With the refinery converted into an export-oriented unit, the company has focused on exports with reducing sales in the local market where it is incurring losses as government refuses to give RIL subsidy at par with what it gives to the PSU oil companies.

The source said that for a long time now RIL has outperformed the Singapore complex benchmark GRM by a wide margin. "The factors that have contributed to high GRMs are cost of sourcing crude oil, manufacturing reliability and efficiency, ability to produce quality transportation fuels and flexibility of crude oil receipt and product evacuation infrastructure."

During the quarter, RIL processed four new crudes which it procured at a substantial discount, the source said.

The 33-million-ton Jamnagar refinery imports all of its crude oil requirement in VLCCs (very large crude carriers) capable of bringing up to two million barrels in each shipment.

"This reduces the freight costs considerably and optimises the overall landed cost of crude oil. The product evacuation infrastructure again provides the flexibility to evacuate the products in varying parcel sizes and optimises the supply chain costs of the buyers," the source said.

Indian Market - a laggard

Eye-popping gains over the past few months notwithstanding, the Indian stock market has not been among the star performers of 2007. And if share turnover velocity is any indicator of the breadth of activity and liquidity in the market, India fares poorly compared with other (both developed and emerging) markets.

Share turnover velocity is the ratio of traded turnover to market capitalisation. Higher the ratio, better the liquidity and more widespread the activity in the market. Globally, investors are attracted to markets with high share turnover velocity as it means lower impact costs (the cost of entering and exiting a stock).

In stock markets across the globe, share turnover velocity has been on the rise over the past one-and-a-half years. In India, the trend has been the opposite, with share turnover velocity declining steadily.

Experts attribute factors like concentration of trading in few stocks and high-promoter holding in companies to this trend.

The share turnover velocity on BSE was as low as 28%, while on NSE it was 59% in June 2007. In January 2006, these figures were 36% and 75%, respectively, as per World Federation of Exchanges’ data. Share turnover velocity in some of the developed world stock exchanges like Nasdaq, NYSE, Shenzhen Stock Exchange, Taiwan Stock Exchange, BME Spanish, Borsa Italiana, Tokyo Stock Exchange and Deutchse Borse is very high and in many cases runs to over 100%.

“Trading in Indian exchanges is very concentrated. Though we have progressed on market depth, market liquidity and market activities remain a concern. Though BSE has the largest number of shares listed on it, the top 5% companies in terms of market capitalisation account for over 80% of the trading volume. Though it is better in case of NSE, it is still not the best,” says Ajay Bagga, CEO, Lotus India AMC.

He says that there is very low market participation, restricting the trading concentration to a few players. This is also due to the fact that promoter shareholding is over 50% in Indian markets, compared with 10-15% in countries like the US. For example, in Korea, there is a huge domestic base of mutual funds and retail investors unlike India.

Expressing concern over the decreasing share turnover velocity, JR Varma of IIM-A says that “this is also probably due to the fact that retail investors are finding the market less attractive and are worried about valuations. Also, barring a few stocks, liquidity has not improved much. Also, we have a very active stock futures market, which attracts day traders as they prefer to trade in futures where it is available, which may not be the case with other countries. The best way for institutions is to split the order between two exchanges to avoid the high impact costs,” adds Mr Varma.

The fallout of the low share turnover velocity in the Indian market is that institutional investors stop looking beyond the top 100 companies. Of late, they have been showing a higher degree of interest in second-line shares. But market players feel it is not much.

“Brokerage houses do not cover more than 100 top companies. So if funds want stock ideas beyond these companies, they have to deploy their own people, which is a costly affair,” says Mr Bagga.

US Market witnesses its worst weekly drop in four years

Just the way deal-making news had taken the US Market to new highs, problems related to financing those deals pushed US Market to their lows for the week ended Friday, 27 July, 2007 and Dow Jones Industrial Average witnessed its worst ever weekly loss in last four years in percentage terms.

Investors digested mixed earnings results once again during the week but ongoing problems in housing and credit market added to the list which already had subprime issues heading it. Other than Apple, none of the earnings reports had any major positive impact on the market sentiments. Market even ignored the strong second quarter GDP numbers announced on Friday, 27 July, 2007.

Growing fears that private equity is having difficulties raising money for acquisitions they've already made was the biggest catalyst behind the week’s market crash.

The Dow Jones Industrial Average lost 586 points for the week. Tech heavy Nasdaq lost 125 points while S&P 500 lost 75 points. The Dow's percentage loss was its worst since March 2003, when it dropped 4.4%. The S&P 500's loss, in percentage terms, was its worst since September, 2003. The Nasdaq's percentage loss for the week was its worst since 2004.

The Materials sector turned in the worst performance followed by Utilities, Financial, and Consumer Discretionary. Materials were worst hit due to a bad earnings report from an important Dow component, Du-Pont. Exxon Mobil was the other biggie to come out with an earnings miss.

Among other names, Merck, AT&T and Amazon.com reported positive results. Ford Motors surprisingly reported its first quarterly profit in almost two years.

On Wednesday, 25 July, 2007, the National Association of Realtors reported that existing home sales, which represent approximately 85% of the housing market, fell 3.8% in June to a 5.75 million annual rate. That was a larger decline than expected and marked the lowest level in nearly five years.

On Thursday, 26 July, 2007, the Commerce Department showed sales of new homes dropped by 6.6% last month to an annual rate of 834,000, well below the consensus estimate of 900,000. The median home price also fell 2.2% to $237,900. That was the largest drop since April.

On Friday, 27 July, 2007, the Commerce Dept reported that the U.S. gross domestic product grew at a 3.4% annual pace in the second quarter, a strong rebound from the 0.6% gain in the first quarter of the year (against economists’ expectation of a 3.2% gain for the quarter).

Executive Summary

For the week, all the three indices registered substantial losses. DJIx is down by 4.41%, S&P 500 is down by 4.9% and Nasdaq is down by 4.7%. Housing and credit market problems continued to haunt stocks. Earnings misses from two big names – Du Pont and Exxon Mobil shook sentiments further.

The yield on the benchmark 10-year Treasury note fell to 4.74% from 4.96% during the end of the week. Crude prices soared beyond $77/bbl but it did not help Energy stocks any way which continued to bear the brunt of Exxon Mobil’s disappointing result.

For the year, Dow is up by 6.4%. Nasdaq is up by 6.1% and S&P 500 is up by 2.9%. With credit crunch hitting the market and housing problem still having a long way to go before soothing, market sentiment is presumed to remain a bit shaky in the forthcoming week too.

Sensex crash: 4th biggest or 64th?

As the Sensex bled 541.74 points in today’s bear attack, market watchers didn’t quite know whether to rate this casualty the fourth biggest or the 64th in the 21-year history of the benchmark index.
Today’s fall was the fourth biggest in terms of absolute value, but it did not figure even in the top 60 when considered in the percentage terms, which some observers said should be given preference as it takes into account the current high level of the market.
A fall of this magnitude would have been a major crash a few years back, when even a 100 point dip was considered as a major concern. However, with the market trading over a level of 15,000 points in terms of the Sensex value, a fall of 100 or 200 points hardly makes a dent, said a broker.
In terms of percentage, the Sensex today fell by 3.43% points, which is the 64th biggest in its history.
While the fall of 826.38 points on May 18, 2006 is widely known as the biggest ever plunge for the Sensex, in percentage terms it was only sixth biggest at 6.76% and occurred at a time when market was trading over 12,000 level.
The biggest ever fall so far in percentage terms occurred on May 17, 2004 when the Sensex slid 11.14%. It was a fall of 564.71 points -- the third biggest in absolute value terms -- and took place when the Sensex was trading just above 5,000-points level.
The second biggest percentage fall was of 8.3% on March 31, 1997, followed by falls of 7.2% on October 5, 1998, 7.1% on April 4, 2000 and 6.9% on April 17, 1999 -- all of which took place when the market was trading below 5,000-points level.
In terms of fall in absolute value of the Sensex, the 826-points fall on May 18, 2006 is the biggest so far, followed by 616.73 points on April 2, 2007, 564.71 points on May 17, 2004, today’s fall of 541.74 points and 540.74 points on February 28, 2007.
However, only two of the ten biggest falls in absolute value terms find place in the top-ten list of biggest falls in percentage terms.
Ever since the Sensex crossed the five-figure mark of 10,000 points, just one of the single-day falls have made to the list of top-20 biggest falls in percentage terms.

US Market continues to bleed

Stocks ignore strong economic data and focuses on credit market concerns

US Market continued with its downward journey even on Friday, 27 July, 2007. Strong economic data failed to cheer market sentiment as ongoing worries about deal-financing overshadowed largely positive economic data and continued to sweep Wall Street. Crude prices crossed $77/bbl but it was of no use to Energy stocks which continued to slip due to Exxon Mobil’s earnings miss.

Reports that Cadbury Schweppes delayed the potential $15 bln sale of its drink division due to "extreme volatility" in debt markets exacerbated the worst of the fears that had been haunting the credit market since the past couple of weeks.

The Dow Jones Industrials plummeted by a huge 208 points to close at 13265.47. Tech heavy Nasdaq shed 37.1 points to close at 2562.24. S&P 500 dropped by 23.71 points to close at 1458.95.

Twenty-six out of the thirty Dow stocks closed in red on Friday. American Express, AIG and Exxon Mobil headed the list of the Dow laggards. JP Morgan and P&G were the Dow winners along with Boeing and 3M which managed to register marginal gains for the day.

US GDP makes a strong rebound in Q2

In the morning hours, the Commerce Dept reported that the U.S. gross domestic product grew at a 3.4% annual pace in the second quarter, a strong rebound from the 0.6% gain in the first quarter of the year (against economists’ expectation of a 3.2% gain for the quarter).

The core consumer price index, rose 1.4% in the second quarter. But that core number, which excludes food and energy, was down from the 2.4% rise in the first quarter, a good sign for inflation. The good GDP numbers just had a momentary positive impact on stocks.

Crude futures climbed, with September crude closing at $77.02 a barrel, its highest level since mid-August of last year. The contract was up 2.8% for the session and 1.6% for the week as supply and demand concerns returned.

On the New York Stock Exchange, more than 2.2 billion shares were traded, while 2.7 billion shares were exchanged at the Nasdaq. At the NYSE, declining stocks beat advancers, 2-1, and by 11-5 on the Nasdaq.

Bank of India, Canara Bank, Global Telesystems, HEG, Hindustan Zinc, Jindal Stainless, Oriental Paper, Panacea

Bank of India, Canara Bank, Global Telesystems, HEG, Hindustan Zinc, Jindal Stainless, Oriental Paper, Panacea Biotec, Shree Cement, Punjab National Bank, SAIL

EXCLUSIVE - Equibrain Report - July 30 2007

EXCLUSIVE - Equibrain Report - July 30 2007

BUY - Omax Auto, Indus Fila, Punjab National Bank; HOLD - Bank of India

BUY - Omax Auto, Indus Fila, Punjab National Bank; HOLD - Bank of India

BUY -Tulip IT, Opto Circuits, Great Offshore, Lakshmi Energy, UBI, Sasken, Venus, Greenply, SELL - ACC

BUY -Tulip IT, Opto Circuits, Great Offshore, Lakshmi Energy, UBI, Sasken, Venus, Greenply, SELL - ACC

Ashok Leyland - Buy, ICICI Bank - Buy, Cipla - Sell, Garware Wall Ropes - Buy, Central Bank of India

Ashok Leyland - Buy, ICICI Bank - Buy, Cipla - Sell, Garware Wall Ropes - Buy, Central Bank of India

Weekly Technicals, Futures, Trace Track

Weekly Technicals, Futures, Trace Track

Trader's Corner

Humans are an optimistic bunch. They love sunshine, smiling faces, happy endings and soaring markets. Perhaps it is this natural trait that draws the investors to stock markets in the final stages of a bull market when things are extremely rosy with scarcely a cloud in sight.

It is again this tendency that accounts for the trader’s disillusionment since they invariably plough in all their capital near the market peaks only to see their accounts wiped out in a few sessions. Most of the pain can be avoided if traders stick to a trading plan.

Trading plans would have an entry point, the profit objective and a protective stop. Needless to say that enough deliberation should be done before deciding on the stock to trade on. If the trade goes against you and the stop is hit, it would mean that the entry signal was wrong and it would be time to move on to the next trade.

It never pays to keep reviewing a trade that has been stopped out. It will only cause unnecessary anguish as the stock would definitely have moved in the direction of your call after hitting the stop. Similarly, do not wage a battle with a stock that has made you book a loss. Many of us get in to this trap and keep visiting the stock every day to try and initiate a fresh trade in the stock that would wipe out the former loss. Apart from satisfying the ego, such an exercise is entirely meaningless.

The level at which stop losses ought to be placed and the amount of drawdown has been discussed in previous columns of the Trader’s Corner. It would however do to pay attention to the ratio between the stop loss and the profit target. For example, the profit target ought to be two to three times the amount risked in stop loss. If the stop loss is placed 1 per cent below the market price, the profit target ought to be at least 2 to 3 per cent above the price. This would ensure that the trading is rewarding in the long run.

SEL Manufacturing — IPO: Avoid

Investors can avoid the initial public offer of SEL Manufacturing, a producer of yarn, fabrics and knitted garments. At the upper end of the price band, the offer is valued at five-six times its FY-07 consolidated per-share earnings, on an expanded equity base. The valuation is in line with several mid- and small-cap textile stocks, which have undergone a severe de-rating over the past year. Larger players such as Nahar Spinning are available at comparable valuations. Given the uncertainty over the near-term prospects of textile stocks, investors may be better off sticking to the leaders in the space.
Background

SEL has a consolidated revenue base of about Rs 200 crore and derives its income from the export and domestic markets equally. About 40 per cent of its consolidated revenues are accounted for by the garment business. The company exports its garments mainly to Russia and the UAE. These are much smaller markets than the US or the UK, and imports by these countries are likely to be subject to fluctuation.

The company has over the past three years consolidated its outfits under its fold; it recently acquired a garmenting unit. Its previous financial performance is therefore not strictly comparable.

SEL is raising Rs 37 crore from the equity market, which will help fund only 20 per cent of its Rs 185-crore project. The rest will be funded mainly through loans under the technology upgradation fund scheme, which entitles it to an interest subsidy of 5 per cent. A substantial portion of the proceeds will be used to expand its spinning capacities by about 50 per cent. The project will add 1.5 million pieces to its garment capacity (now at six million). A part of the project has been implemented and commenced production. The rest of the capacities are expected to go on stream by August.
Prospects

While SEL has had a presence across segments, it has, so far, not capitalised on the advantages of integration and has, instead, outsourced most of its yarn and fabric requirements. Once the new capacities are installed, it will be able to captively source most of its requirements, which will lead to time and cost savings. SEL’s plans to discontinue its trading activities and polyester business also augurs well for profitability.

That the company’s capacities are set to go on stream shortly is also a positive. However, given the poor macro environment for textile exports, the ability to significantly ramp up utilisation levels will be a challenge. Its existing capacity utilisation of yarn and fabric do not also appear to be at optimum levels. With fresh supply coming in, realisations in the domestic market are likely to remain low. Its plan to further expand its spinning capacities in addition to the current project is also, therefore, a cause for concern, especially as it intends to fund the next phase of its expansion through additional debt.

With cotton prices showing signs of firming up and mounting interest costs, we expect profitability to come under further strain.

Offer details: About 41 lakh shares are on offer at the price band of Rs 80-90. The offer closes on July 31. The lead manager is UTI Bank.

Puravankara Projects — IPO: Invest at cut-off

Investors with at least a three-year perspective can consider subscribing to the initial public offer of Puravankara Projects. While the asking price of Rs 500-525 appears stiff now, the high earnings visibility from its current and planned projects may well provide an upside in the long term. Further, a strong track record of real-estate development, low-cost land bank, more transparent transactions and steady growth in revenue over the last five years are positives to this offer.

At the offer price, the price-earnings multiple is likely to be about 20 times the company’s expected earnings for FY-09. This is assuming there is no undue delay in its ongoing and planned projects. With a track record of having developed a sizeable area (without having to depend solely on the land bank to discover valuations), we believe the P/E multiple is an acceptable valuation metric in this case.
The company and offer

Puravankara is a real-estate developer with a majority of projects executed in Bangalore. The company’s core business lies in the residential segment with diversification into commercial projects. The company plans to raise about Rs 1,000 crore through this IPO. It plans to deploy the proceeds towards acquisition of land in Tamil Nadu and repayment of debt. Post-issue, Puravankara’s market capitalisation at the offer price would be over Rs 10,000 crore. While the company would be competing with bigger (in terms of turnover) players in this market-cap segment, there appears considerable scope for quickly ramping up revenue.
Comfortable past

Puravankara’s track record of executing 14 residential projects and a commercial one, spanning 3.93 million sq ft of developable area, is proof of its execution capability.

Further, it appears that the company has been benefiting from identifying low-cost land, ahead of the property market. That its land cost, as a proportion of total expenditure, has fallen from 24 per cent in 2004 to 6.4 per cent in 2007, reflects that the company has benefited from the boom in land prices over the last couple of years. Such a sharp decline in land cost also indicates that the company has been able to identify land at the right location and at the right time.

Going by its history and the current land holding, the company appears to prefer locations in cities and their peripheries. We believe that this strategy is relatively less risky as the demand for residential and commercial space is likely to remain robust in such areas. Corrections, if any, are also likely to be less sharp compared to smaller towns. Puravankara, therefore, appears to have a lower risk profile than similar-size peers which are aggressively moving to Tier-II and III cities.
Clean structure

Puravankara’s land holding appears to be structurally superior to a number of real-estate companies. The holding pattern also appears less complex and reflects better clarity in ownership. Of the developable area of 116 million sq ft, 14 million sq ft has ongoing projects in them.

Of the total land, 65 per cent is owned by the company; only 6 per cent of the land is on sole development rights where the title lies with the owner and the company gets only the development rights. The above proportion reduces the risk of any stalling of projects by landowners, who retain the title to the land. Even in the case of joint development projects, the company has stated that its economic interest in the same would be in the 60-77.5 per cent range. This percentage appears to be land owner-(who is typically the joint developer)friendly, striking mutual benefit.

The consideration for the above-mentioned land at Rs 795 crore is mostly paid, about 11 per cent remains outstanding.

Given that it has locked into land costs, the company may benefit from appreciation, as the land bank, going by its size, may last six-eight years.
Strength in joint venture

In 2005, Puravankara entered into a joint venture with a subsidiary of the Singapore-based Keppel Land, in which the Singapore Government’s investment arm, Temasek Holdings, has an indirect holding. Keppel Land has a presence across Singapore, China, Indonesia and Vietnam. While this joint venture is likely to improve the company’s execution capability, Puravankara has also been cautious in not exposing more than 7 per cent of its total developable area through this strategy. This venture may give Puravankara a presence in the overseas markets as well. Besides, the company has an ongoing project in Sri Lanka and an office in West Asia. Nevertheless, the venture has its risks, as the agreement does not preclude the venture partners from competing with each other.
The spread

With Bangalore being Puravankara’s strong point, the company continues to have 72 per cent of its developable area in this city. The company has also cautiously taken smaller exposure to land in Kochi and Chennai, Mysore and Hyderabad among other locations.

The demand from the middle- and upper middle-income group, to which Puravankara primarily caters to, is fairly robust in the above locations. Any correction in the now infrastructure constrained Bangalore is unlikely to dent the company’s profitability margins much, as the land is spread across the city and its outer limits. Further, the volume in the above income group segment is likely to provide some insulation to margins.
Strong financials

Puravankara’s revenue has grown at an annual rate of 75 per cent over the past three years, to Rs 417 crore in 2006-07. Operating profit margin at 32 per cent have remained stable over the past four years.

While there was scope for improvement in OPMs, with the land cost having reduced over the years, increasing construction costs appears to have prevented further growth. The margins are nevertheless above industry average.

The company is heavily geared and has a debt-equity ratio of over three. However, the proceeds of the issue are likely to bring this ratio to a comfortable level of less than 1.

DSP Merrill Lynch and Citigroup are the book running lead managers. The offer is open from July 31 to August 03.

Indraprastha Gas: Buy

There are few stocks in the oil and gas sector that come without the risk of a significant downside from rising global crude oil prices or government policy. Indraprastha Gas (IGL) is one. The stock is characterised by none of the traditional risks associated with an oil and gas sector investment.

For IGL, high global oil prices are not a threat; they are an opportunity. The Government policy on pricing of petroleum products do not affect IGL; they help the company. There are no subsidies that the company has to bear or share with other oil companies.

The company has a Supreme Court judgement, nothing less, to back its business. It is a monopoly player in the entire Delhi market and presents a huge entry barrier to competition. And, to top it all, the stock comes cheap at a multiple of just 10 times the annualised first quarter earnings.

The market appears to be ignoring the company’s prospects and its low-risk high-growth business model. Investors with a medium-term investment horizon can consider acquiring the stock at the current price of Rs 113.
Statutory backing

IGL supplies compressed natural gas (CNG) through a network of 154 gas stations across Delhi. Following a Supreme Court order, all commercial vehicles and public transport have to use CNG as fuel as it is clean and non-polluting. From last July, all new light commercial vehicles have also been brought under the CNG fold.

IGL now services 1.28 lakh vehicles in Delhi and this number will keep growing. Growth will also come from private vehicles that are increasingly beginning to convert to CNG as the economics are in its favour with petrol prices ruling at Rs 43.52/litre there. IGL sells CNG at Rs 19.20/kg in comparison.

The company also plans to spread out to areas in the National Capital Region (NCR) such as Noida/Greater Noida, Ghaziabad, Ferozabad and Panipat. The Commonwealth Games, scheduled to be hosted by Delhi in 2010, is expected to add significantly to the vehicle population, including public transport and all these vehicles will have to use CNG as fuel.

IGL also sells piped natural gas to domestic households in Delhi; this segment is also growing rapidly with the only limitation being the ability to extend the pipeline network to the residential areas in and around the city.

The company sources natural gas from GAIL (India) at administered prices that are substantially cheaper than the market rates. Given the Supreme Court order, GAIL is obliged to supply the entire natural gas demand of IGL on a preferential basis; gas availability for IGL to grow its business is, therefore, not an issue.
Robust financials

IGL had a very good first quarter 2007-08 immediately following its excellent performance in the fourth quarter of 2006-07 ended March 31. Earnings were up 39 per cent at Rs 3.84 crore while net sales were up 19 per cent at Rs 16.18 crore. CNG sales volume at 89 million kg grew 13 per cent compared to the same quarter last year, while piped natural gas sales grew 16 per cent to 9.6 million standard cubic metres.

IGL also improved its operating margins to 44.9 per cent from 41.5 per cent in the same period last year mainly by controlling costs. The company passes on any increase in natural gas prices to its customers. That it has practically no debt on its balance-sheet helps margins because interest charges are nil.

Rising oil prices and consequent increase in retail prices of transportation fuels will actually help IGL by pushing the conversion rate of private vehicle owners to the considerably cheaper CNG.

The company is also not part of the subsidy-sharing mechanism that is causing so much uncertainty in the oil sector, leading to poor discounting for its stocks.

IGL’s rapid expansion of the CNG/PNG network across Delhi and surrounding areas leaves limited scope for a second player to enter the market.

There are other virgin markets opening up for CNG networks in hinterland cities and towns where other players might be interested.

Given these, IGLs prospects appear bright. Investors can acquire the stock at the current price levels with a medium-term holding perspective.

McNally Bharat Engineering: Buy

Investments with a two/three-year horizon can be considered in the stock of McNally Bharat Engineering (MBE), a turnkey material handling company.

An expanding order book, possible expansion in operating margins, shift in product mix in favour of high-margin businesses such as steel sector applications and equipment point to strong earnings growth in future.

This apart, given MBE’s established market presence, it may be one of the leading beneficiaries of the increased focus on infrastructure and the ongoing capex boom across industries.

At the current market price, the stock trades at about 23 times its expected FY-08 earnings per share on a fully diluted basis.
Investment argument

Buoyant trends in infrastructure and capacity expansions across MBE’s user industries such as power, steel, minerals and coal, to name a few, are likely to translate into improved business prospects for the company. Apart from providing turnkey solutions, MBE also manufactures equipment used in construction, mines and metal production.

Anticipating a rise in demand for such equipment, McNally has embarked on an expansion and modernisation drive for its plants in Kumardhubi and Bangalore.

This apart, it plans to set up a greenfield plant in West Bengal for heavy fabrications at a cost of Rs 22-25 crore. While it could take about a year or two for contributions from these expansions to kick in, they could deliver a potential boost to earnings.

Another significant pointer towards McNally improving prospects is its bulging order book. Pegged at Rs 1,125 crore (as on May 2007), its order book is about 2.2 times its FY-07 revenues.

In addition, McNally has bid for orders worth Rs 7,500 crore. Notably, it has emerged the L1 bidder in Rs 2,000 crore worth orders. The order book, which comprises mainly orders from steel sector applications (about 50 per cent), also points at a shift in revenue-mix towards segments that enjoy higher margins.

While this shift will help better its margins, it will also help MBE tap a considerable portion of the capex boom across such sectors.

In this context, the capex plans of SAIL (MBE’s main customer) of about Rs 42,000 crore for its various steel plants over the next five years offer MBE a potential market to scale operations.

Markedly, all these steel plants are located near MBE’s factories, giving it a logistic advantage over its peers. This apart, the strict pre-qualification norms in the steel sector, which are currently met by only MBE and L&T, are also likely to give MBE an edge.
Financials

For the year ended March 2007, MBE’s revenues grew 51 per cent while its earnings more than doubled on a sustainable basis; both the product and project businesses grew by more than 60 per cent each.

On an operational front, margins declined marginally to about 5.0 per cent. This could be attributed to the losses incurred after MBE withdrew from the highway construction business on facing disputes relating to land acquisition.

This apart, margins also were dented as the company had executed earlier orders at low margins.

Given that the loss from the road construction business was a one-time affair and with the change in the composition of the order book in favour of higher contribution segments, one can expect the pressure on margins to eventually ease.

In this regard, the management’s guidance for a double-digit margin for FY-09E also provides confidence.
Concerns

The long gestation period of McNally’s projects tend to reduce flexibility on pricing; as contracts may be locked in for a period of the contract.

Moreover, since its projects are completely dependent on the capex cycles of its user industries, any delay in execution from the user industries’ side could also affect earnings

Thermax: Buy

Investments with a one-two year perspective can be considered in the stock of Thermax, a leading energy and environment engineering solutions provider. A strong business outlook on the back of capex across user industries, a robust order book, and good growth across segments underscore our recommendation.

At current market price, the stock trades at about 23 times it FY09 expected per share earnings. Though the stock has appreciated considerably over the last two months, fresh exposures can be considered in light of strong medium-term earnings prospects.

Specialising in energy conservation systems and captive power projects, Thermax is likely to profit from the growing importance for energy management among its user industries. This apart, given the nationwide shortage of power, it is also likely to benefit from the increasing demand for captive power solutions.

Revenues could get a further fillip with the addition of the two new manufacturing facilities, being put up in Gujarat and China. These facilities are expected to become fully operational by March 2008. The company has recorded impressive earnings growth for the quarter-ended June 2007, with a twofold expansion in profits and revenues.

On a consolidated basis, revenues doubled to about Rs 724 crore, driven by 115 per cent growth in revenues of the energy segment (about 86 per cent of total revenues). The environment segment, on the other hand, grew by about 56 per cent.

On the operational front, rise in raw material cost, rupee appreciation and intake of small orders led to a marginal decline in margins. However, the management has guided that margins could stabilise.

The group's current order backlog of Rs 3,057 crore adds further visibility to its revenues. In this context, the management's expectations of a 40 per cent growth in revenues and an expected ramp up in the momentum for order inflows appear achievable.

However, a dramatic change in the oil price outlook, further appreciation of the rupee, and any unexpected slowdown in the economy remain primary risks to our recommendation.

Will markets be able to shake off the blues?

Where are Indian equities headed in the short term? Going by the severity of Friday’s fall and the continued weakness in global markets, chances of a recovery appear slim. The Dow Jones Industrial Average fell by 208 points, or 1.5%, on Friday to close at 13,265.47, while the Nasdaq Composite Index shed 37 points, or 1.4%, to end the day at 2,562.24.

Back home, the futures segment on the National Stock Exchange could hold some clues about the short-term trend. On Friday, foreign institutional investors were net sellers of Rs 4,985 crore ($1.24 billion) of Nifty August futures, which closed at 4,402.20, a discount of nearly 43 points to the spot. Dealers said the quantum of sales was unusually large, even after accepting the fact that the derivative market is much more liquid than it was about a year ago.

Market players haven’t a clue as to who could have absorbed this huge chunk of sales. While FIIs account for roughly 38% of the outstanding positions in the market, derivative traders say the top five players among them account for nearly 70% of the market share. Individual investors are unlikely to have been the major buyers.

For one, most of them have been long on the market and would have been trying to unwind their positions rather than building fresh ones. Also, brokers would have been cautious in allowing them to take up long positions in a falling market. Many of the key market operators too are reported to have taken a bearish view for the time being and are unlikely to buy in a big way.

As the figures speak for themselves, foreign funds have been net sellers. While activities by domestic mutual funds have been on the rise, they too are unlikely to have gone long on the Nifty, given the fragile sentiment in world markets.

“Nifty futures were being unloaded (by foreign funds) at a 40-50 point discount to the spot; a clear indication of panic selling, and it needed real guts for somebody to stand up to them,” said a derivatives trader. So who absorbed the avalanche of Nifty futures unloaded by foreign funds on Friday?

Market watchers say a cartel of highly influential domestic investors were behind the purchases. This group is betting there is likely to be a short-term rebound which will allow them to exit their positions at a neat profit. Over the past couple of weeks, Indian indices had managed to gain ground despite the correction in world markets.

Strong foreign fund flows apart, this cartel too is said to have contributed significantly to the trend. Still, some of the seasoned players say the cartel’s act of taking up huge long positions in the market is no assurance of a recovery in the short-term. After all, these players had taken up huge long positions in Nifty futures in February just ahead of the Budget in a falling market. Despite the purchases, the market continued to fall over the next couple of weeks.

Coming back to present correction, foreign fund flows will be a deciding factor for a near-term recovery. And the global liquidity scenario does not look too promising at the moment. Apart from the crisis in the sub-prime loan segment, markets’ reluctance to finance a couple of high-profile leveraged buyouts (Chrysler in the US and Boots in the UK) has required banks to step in and subscribe to these offerings.

In effect, that could mean cash, which could have found its way to risky assets such as emerging market equities, will no longer be available. In addition, the emerging sub-prime losses would require many banks and hedge funds to liquidate their positions elsewhere and shore up their capital at home.

Results - Bharti Airtel, Maruti Udyog, IDFC, Federal Bank, Glaxo SmithKline Consumer

Results - Bharti Airtel, Maruti Udyog, IDFC, Federal Bank, Glaxo SmithKline Consumer

Infosys Technologies

Infosys Technologies

Global Doom & Gloom

This week was quite memorable. The markets were volatile, with the Sensex scaling a new high on Monday to fall on Wednesday. The F&O expiry witnessed a record turnover on Thursday. Quarterly results continued to be declared. The rupee continued its upward descent against the dollar.

On Friday, the Indian market closed in the red. But it was not just in India that mood was subdued. Global markets too felt the tremors of rising interest rate concerns caused by high inflation, rising oil prices which will further aggravate inflation.

World markets plunged on Thursday, hit by concerns that higher interest rates will hit profits and takeover deals. Rising interest rates have indicated that the days of easy money are over. According to observers, the tightening of credit is causing a lot of uncertainty. When looked in the light of the rising share prices been largely driven by takeovers - corporate or private equity, this does take on some amount of significance.

The fall was initiated by US markets. The Dow plunged 311.50 points to 13,473.57. The close was its worst since a 416.02 point loss on February 27, 2007. T he concern was that not only would higher corporate borrowing costs curb the rapid pace of takeovers but also aggravate the sluggish environment for home sales and the continued defaults in sub-prime loans.

But in London, the FTSE 100 rebounded into positive territory, easing fears that the share slump would be extended.

Let's wait and see.

Monetary Policy, ITC, Balaji Telefilms, Ranbaxy Labs, Wockhardt,

Monetary policy preview

RBI expected to maintain a status quo
We expect the Reserve Bank of India (RBI) to keep the policy rates unchanged during its first quarter review of the annual credit policy on July 31, 2007. With inflation down below 4.5% and the annual credit growth moderating to 24%, the RBI is much more comfortably placed than it was in the previous couple of quarters. Thus we feel the monetary policy's focus is likely to shift from inflation management to liquidity and exchange rate management, as the current high annual growth of above 21% in the money supply continues to be above the central bank's comfort zone. The market also seems to be unanimously agreeing that the status quo on policy rates (reverse repo and repo rates) would be preserved. However, market estimates suggest that there exists a 10% chance of the cash reserve ratio (CRR) being increased by 50 basis points in the upcoming policy review meet.

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STOCK UPDATE

ITC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs200
Current market price: Rs172

Better than expected results

Result highlights

• The Q1FY2008 results of ITC were better than our expectations. In Q1FY2008 the net revenues of ITC grew by 16.7% year on year (yoy) as most of its businesses witnessed a strong growth: cigarettes (revenue up 9%), fast moving consumer goods (FMCG; revenue up 50.7%), hotels (revenue up 11.3%), paperboards (revenue up 5%) and agri-business (revenue up 27.6%).
• The operating profit grew by 16% to Rs1,127 crore in Q1FY2008 as against Rs970.5 crore in Q1FY2007. The company's earnings before interest and tax (EBIT) margin dipped slightly by 26 basis points to 17.8% in Q1FY2008, primarily because of the ongoing expansion in most of its businesses that resulted in higher fixed and depreciation costs. We consider this to be a short-term phenomenon as the incremental capacity in these businesses will help the company to fuel growth and improve its positioning in the respective markets.
• With a higher depreciation charge of Rs101 crore in Q1FY2008 as against Rs87.6 crore in Q1FY2007, the Q1FY2008 net profit grew by 20% yoy to Rs782 crore.
• We believe despite the imposition of a 12.5% value-added tax (VAT), a 5% increase in the excise duty and a 33.5% trade tax in Uttar Pradesh, the net realisation in the cigarette segment improved in this quarter due to an average increase of 20% in the selling price of most of the brands. There had been a marginal decline in the volumes in this quarter due to a major price hike in the last week of April 2007. We believe the volumes in second quarter will also remain affected and from the third quarter the volumes will recover.
• The non-cigarette FMCG business is the only business in ITC's portfolio that is not making a profit. However, its losses have come down in this quarter despite the roll-out of the Bingo brand of products throughout the country in March 2007. With the entry into new businesses and losses coming down, the improvement in the performance of the non-cigarette FMCG business is apparent.
• In the hotel segment, with the current properties working at peak occupancies, the 11% growth in the top line was driven by improved revenue per available room (RevPAR) and the stellar performance of the food and beverage (F&B) segment.
• The paperboard segment registered a slower growth of 5% due to the planned shutdown of a paperboard machine at Bhadrachalam in this quarter. With this machine getting fully operational again, the company expects the business to regain its growth trajectory going forward.
• We have always maintained that the fear of VAT may have a dampening effect on the stock but the same is likely to be a short-term aberration and one should look at the stock with a long-term perspective. At the current market price of Rs172, the stock is attractively quoting at 21.6x its FY2008E EPS and 13.7x FY2008E EV/EBIDTA. We maintain our Buy recommendation on ITC with a price target of Rs200.

Balaji Telefilms
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs303
Current market price: Rs249

True on expectations

Result highlights

• The Q1FY2008 results of Balaji Telefilms Ltd (BTL) are in line with our expectations. The company reported stand-alone numbers (our preview estimates were based on consolidated numbers) that do not include the results of its film business and subsidiary in the UAE.
• The revenues for the quarter were almost flat year on year (yoy) at Rs74.5 crore, as was expected. The realisation from the commissioned programming business showed an impressive growth of 49.3% yoy to Rs33.5 lakh. However lower programming hours at 204.5 hours compared with 298 hours in Q1FY2007 led to a marginal increase in the revenues from this segment.
• As per its strategy of finally exiting the sponsored programming business the company reduced its programming under this format from 220.5 hours to 142 hours, while the realisation improved by 39.3% yoy to Rs4.2 lakh per hour. This led to a drop in the revenue from this segment to Rs6 crore against Rs6.6 crore in Q1FY2007.
• The operating profit margin (OPM) showed a good growth of 418 basis points yoy to 39.6% as the programming cost as a percentage of sales declined by 802 basis points on account of higher realisations. Thus the operating profit grew by 13.3% yoy to Rs29.5 crore.
• Consequently, on account of a higher tax outgo the adjusted net profit grew by 6.1% yoy to Rs18.4 crore.
• During the quarter BTL launched "Kasturi" on Star Plus and its overseas offering "Khwaish" on ARY channel while "Kesar" (Star Plus) and "KumKuma Bhagya" (Udaya TV) went off air. In July 2007 it also launched "Khwaish" on Sony. Considering that these new shows went on air and several other new launches have been planned in the coming quarters, we expect the commissioned programming volumes to pick up, especially on the launch of channels proposed under its joint venture with Star.
• BTL's co-production "Shootout at Lokhandwala" (released on May 25, 2007) was a big hit and one of the top revenue grossers on the box office.
• At the current market price of Rs249 the stock discounts its FY2009E earnings by 13.6x and quotes at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 7.5x. We maintain our Buy recommendation on the stock with a price target of Rs303, based on our sum-of-the-parts (SOTP) valuation.

Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs375

Valtrex settlement improves earnings visibility

Key points

• Ranbaxy Laboratories has reached an out of court settlement with GlaxoSmithKline (GSK) on Valtrex® (Valacyclovir Hydrochloride tablets), as per which Ranbaxy will enjoy the 180-day exclusivity for marketing the generic version Valtrex® in US market in late 2009 (after the expiry of the patent in June 2009). Valacyclovir Hydrochloride is used in the treatment of herpes virus infection
• The total annual market sales of Valtrex were around $1. 3 billion, which the management expects to, touch $1.5 billion by late 2009 (we have considered $1.4 billion market size for our estimate). Anticipating Ranbaxy to garner at least 55% market share and 40% profit margin during the exclusivity period in late 2009, the product can generate $269 million in revenues and $107.8 million (Rs442 crore) in profits. This will translate into incremental EPS of Rs11.1 per share during the exclusivity.
• At the current market price of Rs375, the stock trades at 18.0x its CY2007E earnings. Anticipating earnings surprises from its first-to-file product pipeline, we maintain our Buy recommendation on the stock with a price target of Rs558.

Wockhardt
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs552
Current market price: Rs383

Acquisition-led growth

Result highlights

• Wockhardt's net sales increased by 52.7% to Rs630.3 crore in Q2CY2007. The growth was achieved on the back of a 16.2% growth in the domestic business and a 79.4% growth in the international business. On a like-to-like basis (excluding the impact of the acquisitions made during the year), the growth stood at about 9.2% during the quarter. The sales growth was in line with our estimates.
• Wockhardt's European business almost doubled during the quarter to Rs361.2 crore, driven by a healthy performance across the existing markets of the UK and Germany, and the consolidation of Pinewood and the recently acquired Negma Laboratories (Negma).
• The formulation sales in the US market grew by 50.7%, driven by five new product launches and strengthening of the existing product portfolio in the USA.
• Wockhardt's operating profit margin (OPM) expanded by 240 basis points to 26.1% in Q2CY2007, driven by an improvement in the gross margin and a reduction in the research and development (R&D) cost. Adjusting for the capitalised R&D cost of Rs17 crore, the OPM remained flat at 21.5%. The company reported an operating profit (OP) of Rs152.2 crore, a growth of 69.7% year on year (yoy).
• Wockhardt's net profit stood at Rs102.4 crore in the quarter, growing by 61.5% yoy. The profit growth was way ahead of our estimates, despite a 15-fold increase in the interest expense (on account of an increase in debt for funding acquisitions and foreign exchange [forex] loss), a 22.9% rise in the depreciation charge and a 180-basis-point increase in the tax incidence. On adjusting for the net forex gain recorded by the company during the quarter, the net profit stood at Rs96.4 crore, up 52.1% yoy.
• During the quarter, Wockhardt completed the acquisition of France-based Negma, which has sales of $150 million and an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of around 18%, in an all-cash deal worth $265 million. This acquisition is in line with the company's aim to achieve a turnover of $1 billion by 2009. With the company's successful track record of creating value post-integration, we believe the acquisition of Negma too will be value accretive for Wockhardt.
• In order to account for the Negma acquisition and the appreciation in the rupee against all the other major currencies, we are revising our revenue and earnings estimates for Wockhardt. We have upgraded our revenue forecasts by 19.6% and 21.8% to Rs2,272.8 crore and Rs3,098.8 crore for CY2007 and CY2008 respectively. Our earnings per share (EPS) estimates have been upwardly revised by 2.6% and 2.9% to Rs31.0 and Rs35.8 for CY2007E and CY2008E respectively.
• At the current market price of Rs383, the stock is available at 12.4x its CY2007E and 10.7x its CY2008E earnings, on a fully diluted basis. The valuations seem very attractive at these levels and should be viewed as a strong buying opportunity. We maintain our Buy recommendation on the stock with a price target of Rs552.

NIIT Technologies
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs690
Current market price: Rs495

Price target revised to Rs690

Result highlights

• For Q1FY2008, NIIT Technologies Ltd's (NTL) consolidated revenues reported a decline of 5.8% quarter on quarter (qoq) and growth of 20.1% year on year (yoy) to Rs229.4 crore. The revenue growth in the quarter was dented by 4.8% due to the appreciation of the rupee and seasonal weakness in the domestic business (which declined by 26.7% qoq to Rs16.1 core).
• The operating profit margins (OPM) plummeted by 340 basis points to 18.5% on a sequential basis. During the quarter, the OPM declined by 480 basis points due to the cumulative impact of the rupee appreciation (negative impact of 240 basis points), annual wage hikes (average hikes of 16% resulted in negative impact of 200 basis points) and increase in rentals (impact of 40 basis points). The same was partially mitigated by 100-basis-point improvement in the blended realisations and 40-basis- point gain from an increase in offshore component and better operational efficiencies.
• The increase in the other income to Rs6.2 crore (up from Rs5.6 crore in Q4FY2007) was aided translation gains of Rs3.6 crore. The consolidated earnings declined by 23.5% qoq and grew by 60.3% yoy to Rs35.1 crore.
• In terms of the outlook, the order backlog executable over the next 12 months grew to $105 million (up from $103 million in Q4FY2007) and the fresh order intake stood at $40 million. Apart from this, the joint venture (JV) with Adecco has become operational in the current month and would add to the company's overall growth in revenues. The management expects the margin to improve in the coming quarters and has guided for flat margins on a full year basis (as compared to its earlier guidance of improvement in the margins).
• To factor in the effect of rupee appreciation, the earnings estimates is revised downwards by 3% and 4.3% in FY2008 and FY2009 respectively. At the current market price the stock trades at 12x FY2008 and 10.1x FY2009 estimated earnings. We reiterate our Buy call on the stock with a revised price target of Rs690 (14x FY2009 earnings).

Nicholas Piramal India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs326
Current market price: Rs265

Price target revised to Rs326

Result highlights

• The net sales of Nicholas Piramal India Ltd (NPIL) grew at a subdued rate of 15.5% year on year (yoy) to Rs603.5 crore in Q1FY2008. The same were much below our expectation of Rs660 crore.
• The revenue growth was lower because the company lost about Rs25 crore worth of business from its largest brand Phensedyl, as Codeine, one the key raw materials, was in short supply. Further, the rise in the rupee and delay in revenue realisation also affected the top line growth.
• NPIL's operating profit margin (OPM) contracted by 360 basis points to 13.2% during the quarter, largely due to the lost business and the rising rupee. The sharp increase in the staff cost also affected the margin, which was below our expectation of 15.3%. Consequently, the operating profit declined by 9.4% to Rs79.5 crore.
• There was an incremental other income of Rs6.6 crore (including Rs4.6 crore of foreign exchange [forex] translation gain). But the interest cost jumped by 144.8% and the tax incidence shifted up from 11% in Q1FY2007 to 13%, resulting in a 19.4% fall in the consolidated net profit to Rs43.4 crore. The net profit too was below our estimate of Rs59.3 crore.
• However, considering the rupee's appreciation and the lower than expected growth in the contract manufacturing operations (CMO), we have downgraded our estimates for the company. As per our revised estimates, NPIL's revenues and profit would grow at compounded annual growth rates (CAGRs) of 15.8% and 22.4% to Rs3,248.1 crore and Rs342.1 crore respectively in FY2009. Our revised EPS estimates for FY2008 and FY2009 stand at Rs13.4 (down by 5%) and Rs16.3 (down by 3.7%) respectively.
• Based on our revised estimates, we have downgraded our price target to Rs326. In fact, we have valued the base business at Rs293 per share (ie 18x FY2009 EPS) and maintained the value of the research and development (R&D) deal with Eli Lilly at Rs33 per share.
• At the current market price of Rs265, NPIL is discounting its FY2009 estimated earnings by 16.3x. In view of the traction in the operations of both the Indian businesses, the improvement in the operating leverage and the steady progress in the domestic business of formulations, we remain positive on the stock.