Weekly Support and Resistance Levels - Feb 14 2010

February, 2010
COMPANY NAME	S3	S2	S1	CLOSING PRICE	R1	R2	R3
ABB	731	753	771	792	811	832	850
ACC	786	825	847	886	908	947	969
Ambuja Cem	92	98	101	107	110	116	119
BHEL	2,197	2,241	2,277	2,320	2,357	2,400	2,437
BPCL	526	538	554	566	582	594	610
Bharti	284	296	303	315	322	334	341
Cairn	237	247	253	263	269	279	285
Cipla	281	291	303	312	324	333	345
DLF	280	289	299	307	317	325	335
Gail	384	393	404	412	423	432	442
Grasim	2,362	2,493	2,580	2,710	2,798	2,928	3,016
HCL Tech	315	328	337	349	358	370	379
HDFC Bank	1,470	1,514	1,554	1,598	1,638	1,682	1,722
Hero Honda	1,461	1,551	1,601	1,691	1,741	1,831	1,881
Hindalco	123	128	133	138	144	149	154
HUL	220	224	229	233	238	242	247
HDFC	2,210	2,268	2,325	2,383	2,440	2,498	2,555
ICICI Bank	727	762	791	826	855	890	919
Idea	54	56	57	58	59	61	62
Infosys	2,216	2,325	2,389	2,498	2,563	2,672	2,737
ITC	235	240	243	247	250	255	258
L&T	1,352	1,385	1,415	1,448	1,479	1,512	1,542
M&M	889	922	953	987	1,017	1,051	1,082
Maruti	1,266	1,296	1,327	1,356	1,387	1,417	1,448
Nalco	341	350	358	367	374	383	391
NTPC	192	195	200	203	207	211	215
ONGC	1,008	1,037	1,071	1,100	1,133	1,163	1,196
Powergrid	104	105	106	107	108	109	111
PNB	804	833	855	884	907	936	958
Ranbaxy	383	395	403	415	423	435	443
Rcom	158	162	165	169	172	177	180
Reliance	942	970	987	1,015	1,032	1,060	1,076
Reliance Infra	940	986	1,017	1,064	1,095	1,141	1,173
Reiance Power	134	136	139	142	145	147	150
Satyam	93	95	97	98	100	101	103
Siemens	590	607	623	640	657	674	690
SBI	1,791	1,831	1,878	1,918	1,964	2,004	2,050
SAIL	181	189	198	206	214	222	230
Sterlite	688	718	738	767	788	817	837
Sunpharma	1,397	1,440	1,477	1,520	1,557	1,600	1,637
Suzlon	68	70	72	74	76	78	80
Tata Com.	282	288	297	303	312	318	327
TCS	678	703	718	743	758	783	798
Tata Motors	589	628	650	688	710	748	770
Tata Power	1,169	1,195	1,240	1,266	1,312	1,337	1,383
Tata Steel	467	487	514	534	560	581	607
Unitech	65	69	71	75	77	81	83
Wipro	602	622	636	656	670	690	704
Zee	243	249	256	262	269	274	281

IEA hikes global oil demand forecast

The International Energy Agency (IEA) revised its forecast for global oil demand for the year 2010 by 170,000 barrels per day, citing the stronger than anticipated rebound in the global economy. However, a higher price assumption and persistently weak OECD oil demand. Global oil demand is estimated at 86.5 million barrels a day in 2010, or 1.8% higher than 2009 levels, the IEA said in its monthly report. This growth in demand will come entirely from emerging, non-OECD economies.

Meanwhile, the US government and OPEC came out with contrasting estimates for global oil demand this year, with the Energy Information Administration (EIA) boosting its growth forecast while OPEC trimmed its downbeat prediction. Encouraged by rising consumption in China and other Asian nations, the US government's energy analytical arm lifted its growth forecast by 120,000 barrels per day (bpd) to 1.2 million bpd as global use rebounds following two years of decline. "China's economic stimulus package continued to help push up both oil usage and economic growth," the EIA report said.

But the OPEC took a grimmer view, citing a slower-than-expected recovery from recession as it revised down its growth forecast for the year by 10,000 bpd to 810,000 bpd, the weakest outlook of the three main agencies that issue forecasts. "The slow pace of the recovery in the world economy in 2010 is putting pressure on oil demand," the report from OPEC's Vienna headquarters said. "Early assessment indicated that worse-than-expected U.S. oil demand might shave more than 100,000 bpd from the world oil demand growth forecast for 2010."

Eurozone's economic recovery stalls in Q4

Eurozone GDP growth in the fourth quarter of was 0.1% over the previous three months, short of the 0.3% figure economists were expecting. In the third quarter, GDP had risen by 0.4%. Fiscal issues of Greece and a struggling German economy were among the key factors dragging on growth. The recession in Greece deepened, with GDP falling 0.8% in the fourth quarter after a 0.5% slump in the previous three months, European Union’s (EU) statistics office in Luxembourg said on Friday. The German economy stagnated in the fourth quarter after recording 0.7% growth in the previous three months, while Italian GDP fell 0.2%. France’s economic expansion accelerated to 0.6% from 0.2%. From a year earlier, euro-area GDP declined a seasonally adjusted 2.1% in the fourth quarter. For the full year, the economy contracted 4%. Separate data showed that industrial production in the region fell 1.7% in December, the most in 10 months.

As market turmoil pushes bond yields higher across southern Europe, the recovery is in danger of losing momentum. European policymakers are struggling to come up with a plan that allays concerns about the credit worthiness of the euro zone’s peripheral economies. The euro has fallen 7% in the last two months on concern that Greece’s fiscal problems will spread to other countries. Earlier this week, EU leaders ordered Greece to get its deficit under control and pledged determined and coordinated action to protect the region from any possible fallout from Greece’s debt crisis, but stopped short of setting out concrete steps.

China surprises...raises bank reserve requirement again

In an unexpected move, China's central bank once again sought to check the unbridled loan growth in that nation by asking banks to increase their reserves for the second time this year. The move once again rattled markets around the globe. From Feb. 25 Chinese banks will be required to set aside an additional 0.5% of deposits as reserves, the People's Bank of China said. After the hike major banks will be required to set aside 16.5% of deposits. Smaller banks are currently required to set aside 14% of deposits. The announcement came after the close of financial markets in Shanghai and on the eve of the week-long Chinese New Year holiday. On January 12, the Chinese central bank had increased banks’ reserve requirements for the first time since June 2008.

Chinese policy makers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles. Policy makers are reining in credit growth after banks extended 19% of this year’s 7.5 trillion yuan (US$1.1 trillion) lending target in January and property prices climbed the most in 21 months. Economic data this week showed property prices across 70 cities surged 9.5% in January, exports climbed and producer-price inflation accelerated. Bank lending of 1.39 trillion yuan topped the total for the previous three months combined.

The central bank said on Feb. 11 that it plans to gradually normalise monetary conditions from a crisis mode after gross domestic product (GDP) grew by 10.7% in the fourth quarter, the fastest pace in two years. The move doesn’t alter the central bank’s moderately loose monetary policy, local media reports cited an unnamed official as saying. Concerns about possible asset bubbles in China, and what action the Beijing government may take to prevent or deflate them, have mounted this year. Oil, copper and European stocks fell on concerns that tighter lending in China will hurt the fragile global recovery.

Telenor acquires further stake in Unitech Wireless

Uninor, the joint venture between Unitech and Telenor, announced that it has received the fourth and final round of the planned fresh equity investment from the Telenor Group. With this, the Telenor Group has invested a total of Rs61.35bn of new equity into the company, taking its ownership to 67.25%, as per the shareholders' agreement. The Cabinet Committee on Economic Affairs (CCEA) had approved Uninor's application to increase its foreign shareholding up to 74% in 2009. Uninor aims at achieving EBITDA break-even within 3 years and Operating Cash Flow break-even within 5 years of launch of operations and a market share of 8% by 2018.

Reliance Capital hikes stake in Fame India

The Anil Dhirubhai Ambani Group (ADAG) firm Reliance Capital said it had raised its stake in Fame India. Reliance Capital Partners hiked its holding in Fame India to 7.6% through open market purchases since February 3, when Inox Leisure announced a deal to acquire Fame. Inox had acquired 43% stake owned by promoters in Fame India and bought further shares from the stock market to take total holding to a comfortable 50.48%. It has also announced a mandatory open offer to acquire another 20% in Fame India at Rs 51 a share. ADAG, that runs the country's largest multiplex chain under the Big Cinemas brand, had objected to the deal. It said that the Inox offer for Fame India was inferior to its own bid of Rs 80. In a statement, issued on February 9, Reliance MediaWorks said that it plans to bring all the relevant facts to the notice of all regulatory authorities, including markets regulator SEBI, the Ministry of Corporate Affairs, the Reserve Bank of India, the Income Tax department and others for such action, if any, as they deem appropriate.

Jan car sales up 32% yoy

India’s domestic car sales rose by 32% to 145,905 units in January 2010 from 110,300 units sold in the same month a year ago, data released by the Society of Indian Automobile Manufacturers (SIAM) showed. Utility Vehicle (UV) sales were up 54.7% at 26,120 units in January 2010 while the total passenger vehicle sales rose by 36.6% to 187,605 units. Local sales of trucks and buses (CVs) jumped 130.8% to 53,447 units from 23,154 units in January 2009, according to the SIAM data.

Two wheeler sales grew by 43.4% to 834,383 units in January this year from to 581,729 units in the year-ago period. Motorcycle sales in January 2010 were up 43.7% at 650,633 units versus 452,809 units sold in the corresponding month last year. Total three-wheeler sales rose by 46.5% to 38,722 units during January 2010 compared with 26,435 units sold in the same month a year earlier.

Total sales of automobiles stood at 11,14,157 units in January 2010 as against 768,698 units sold in January 2009, representing an increase of 44.9%. Total exports were up 45.7% at 150,780 units in January 2010 with shipments of passenger cars growing by 77% to 38,118 units.

GSM user base swells 13.7mn in January

India's GSM wireless telecom operators added 13.7 million new subscribers in January 2010, taking the overall subscriber base to 394.2 million, data released by industry body COAI showed. Last month’s GSM addition was marginally up from the December 2009 numbers when the GSM operators signed up 13.1 million new users. Bharti Airtel, India's top GSM mobile operator, added 2.85 million new mobile subscribers in January, taking its total to 121.7 million, according to the COAI data. Vodafone Essar signed up 2.74 million new mobile users in January this year, to boost its total to 94.1 million. Idea Cellular along with Spice Communications added 2.27 million new users, taking it to a total 59.88 million. It retains the position as the third largest GSM operator. The state-run BSNL added 2.2 million new users last month taking its total subscriber base to 59.45 million. Aircel added 2 million new users, taking its user base to 33 million and MTNL added a mere 45,067 users taking its users base to 4.6 million. The latest GSM data does not contain the subscriber addition of Tata DoCoMo, the GSM services of Tata Teleservices and the GSM numbers from Reliance Communications (RCOM). Both these companies prefer to release separate data.

Ambuja Cement

Ambuja Cement

Food inflation inches higher

Inflation, which till recently was largely restricted to essential food items, appears to be slowly but surely getting transmitted to other categories as well. While inflation in the crucial Food group remains in high double digits, that in Minerals and Fuel groups suddenly jumped in the last days of January. Government data released today showed that inflation, as measured by the Wholesale Price Index (WPI), for the Primary Articles group stood at 15.75% in the week ended January 30, as against 14.56% in the preceding week. Inflation in this group stood at 8.17% during the corresponding week (Jan. 31, 2009) of the previous year. The WPI for the Primary Articles group rose by 0.1% to 285.2 in the week ended January 30 from 284.9 in the previous week.

Food inflation rose to 17.94% in the week ended January 30 from 17.56% in the previous week, the Commerce & Industry data revealed today. The index for the Food Articles group increased by 0.3% to 287.3 in the week under review. Inflation for the Non-food Articles group increased to 11.32% from 10.93% in the week ended January 23 while the same for the Minerals group shot up to 7.72% as opposed to a drop of 5.18%.

Fuel & Power inflation surged to 10.44% in the week ended January 30, as against 5.88% in the week ended January 23. Inflation for this group stood at (-)3.54% during the corresponding week (ended Jan. 31, 2009) of the previous year. The index for the Fuel & Power group rose by 1.2% to 355.4 from 351.2 in the previous week due to higher prices of non-coking coal (15%), coking coal (11%).

Weekly Newsletter - Feb 14 2010

Though the main Indian indices managed moderate gains after a rollercoaster week, the near-term outlook remains cloudy on account of an uncertain external climate. On the domestic front, IIP growth in December has been extremely strong notwithstanding the low base effect. A major worry now is with regard to inflation and its fallout on the monetary policy. The latest monthly inflation figures will be released on Monday and could have sentiment effect on markets.

A weak monsoon has led to a 7.5% drop in kharif foodgrain output. The good news is that the winter farm output is not likely to be quite as bad. What is needed is a good monsoon this year. If that doesn't materialise then there could be some hiccups for the economy and policy makers. The RBI has vowed not to tinker with rates till its annual review in April, but a sharper than anticipated jump in inflation could force its hands.

We expect the market to remain volatile and rangebound between a broad range of 4700 and 5200. There is considerable anxiety over how Europe's debt woes will play out. Also, China has surprised global markets with its second monetary tightening move in a month. One also has to see how the US economy performs over the next few months and how long does the Fed continue the ultra loose monetary regime.

Back home, the big event in the near term will be the Union Budget. The Finance Minister should announce a gradual rollback of fiscal stimulus as India Inc. no longer requires the support extended at the height of the financial crisis. At the same time, it may come out with a medium term road map for returning to the path of fiscal consolidation. The FM may or may not meet these expectations, in which case the market might falter again. Also, FII inflows must turn positive again.

Industrial output growth beats expectations

India's industrial production grew at its fastest pace in 15 years in December, surpassing all optimistic forecasts, lending credence to a growing view that the economy is out of the woods and ready for an 'exit' from the crisis-fighting stimulus measures. Industrial output, as measured by the Index of Industrial Production (IIP), expanded by a robust 16.8% in December from the same month a year earlier, data released by the Commerce & Industry Ministry showed. The figure was well above consensus estimates of 12-13%.

India's industrial output had contracted by 0.2% in December 2008, as credit markets seized up in the wake of the global financial turmoil and industrial demand sank amid weak external environment. It was the highest reading since April 1995, when the series, which uses 1993-94 as base year, started. On a month-ago basis (with no seasonal adjustments), however, the December 2009 performance showed an industrial growth rate of 10.81%, the highest since the industrial slowdown began in the third quarter of 2008.

Manufacturing, with an almost 80% weightage in the IIP, grew by 18.5% in December 2009 compared to a 0.6% decline in the same month in 2008. The Electricity sub-segment grew by 5.4% in the month under review versus 1.6% in December 2008. Mining output grew by 9.5% in the last month of 2009 as against 2.2% growth achieved in December 2008.

Consumer Durables expanded by a whopping 46% in December 2009 after contracting 4.2% in the same period in 2008. Consumer Non-durables grew by 3.7% compared to 3.2% in December 2008. Overall, Consumer Goods recorded a respectable growth rate of 12% over a measly 1.7% in December 2008. Capital Goods grew by 38.8% in December 2009 compared to 6.6% for the same month of 2008. Intermediate Goods grew by 21.7% in December 2009 after shrinking 8.9% in December 2008. The growth rate in Basic Goods category stood at 7.5% versus 2% in the year-ago period.

Expressing satisfaction at the latest IIP numbers, Finance Minister Pranab Mukherjee said that the third-quarter GDP growth would be strengthened by the strong recovery in the industrial sector. In fact, if the current momentum in the industrial sector continues at the same pace in the next three months, the GDP growth figure for FY10 could actually surpass the Central Statistical Organisation's advance estimate of 7.2%. Mukherjee expects the economy to grow around 7.75% in FY10 while the RBI sees a growth rate of 7.5%.

For April-December 2009-10, industrial output growth stands at 8.6% against 3.6% during the corresponding period in the previous fiscal year.

For the first nine months of the current fiscal year, Manufacturing recorded a growth rate of 9% (3.6% in April-Dec 2008-09), Mining 8.5% (3.2%) and Electricity 5.8% (2.7%), according to the Commerce Ministry data.

The RBI is widely expected to raise interest rates at its April policy review after it surprised markets with a stronger-than-expected rise in the cash reserve ratio (CRR) in its January meeting. The Union Budget, to be announced on Feb. 26, would have a major bearing on the central bank's future course of action. Higher-than-expected government borrowings might prevent the RBI from raising interest rates.

Earlier this month, RBI Governor Duvvuri Subbarao said that the Government's gross market borrowings in the fiscal year ending March 2011 might be slightly higher than FY10 because of redemptions. Bond yields touched a 16-month high of 7.88% on Thursday on uncertainty about government borrowings in the coming fiscal year

SAIL

SAIL

Cairn India

Cairn India

Indiabulls RealEstate

Indiabulls RealEstate

India Strategy - Feb 14 2010

India Strategy - Feb 14 2010

Reliance Communications

Reliance Communications

Polaris Software

Polaris Software

Suzlon Energy

Suzlon Energy

Bajaj Electricals

Bajaj Electricals

Hotel Leela

Hotel Leela

India Wireless Sector

India Wireless Sector

PTC India

PTC India

Patni Computers

Patni Computers

India Cement

India Cement

Jet Airways

Jet Airways

Reliance Industries

Reliance Industries

Texmo Pipes and Products IPO Analysis

Investors can play it safe by staying away from the IPO of Texmo Pipes and Products. Despite the fact that the company's business does hold good potential, the asking price for the IPO appears high.

Texmo Pipes is yet to put its existing capacity into full use and the massive expansion plan therefore carries risks. Investors may be better off buying this stock in the secondary market, if the expansion plans pan out well for the company.

At the current levels of issued share capital of 62.7 lakh, the offer price would discount its trailing 12-month earnings by 15.8 times in the lower end of the price band (Rs 85) and at the upper end (Rs 90), by 16.8 times.

Post issue, when the capital base swells to 112.7 lakh shares, the PE would work out to 16.6 to 17.6 times. When compared to peers such as Precision Pipes and Profile (10.2 times PE), Tulsi Extrusion (3.3 times) and Kisan Moulding (12.8 times), the IPO of Texmo Pipes does seem stiffly priced.

Business structure

Texmo Pipes is engaged in the business of manufacturing PVC and HDPE pipes. These products find application in irrigation, agriculture, portable water supply solutions, sewerage and drainage systems, construction, telecommunications and underground water suction.

At present, sales to the agriculture sector account for a little over 50 per cent of the company's total revenues. Telecommunications and portable water supply segment are the next major pockets and contribute 25 per cent and 16 per cent, respectively, to sales. Idea Cellular, which accounts for 16 per cent of total sales, and Tata Communications (7 per cent) are some of its noteworthy customers.

In FY 09, about 47 per cent of the company's revenues were generated by HDPE pipes, while 52 per cent came from PVC pipes.

The company has two units in Madhya Pradesh and with a total capacity to make 25,094 metric tonnes per annum (mtpa) of PVC pipes and 11023 mtpa of HDPE pipes.

It plans to add another 16,580 mtpa of PVC products through the expansion plans and also add on capacities for CPVC pipes, DWC pipes, injection moulds and woven sacks. Much of the present capacity has been created by consolidating group entities only in 2008 and there is only limited track record to judge if the company has managed to scale up revenues in the past.

In 2008-09, the company's capacity utilisation at its PVC Pipe facility stood at 33.7 per cent and that on the HDPE pipe facility stood at 24.6 per cent.

Given the fragmented nature of the pipes business, it is sensitive to raw material cost increases. The spiralling prices of polymers as crude oil prices trend up, may impact margins. Raw material costs have already started climbing and are up by 50 per cent from December 2008 lows. This may dent the company's operating margins given that raw materials account for 72 per cent of its total sales.

Expansion of its current product line, namely, drip inline pipe plant has already commenced and about Rs. 343.18 lakh has been deployed on this though internal accruals. Commercial production of this product range will begin from August 2010, while that of the new products will commence from October 2010.

Out of IPO proceeds Rs 1,132 lakh will go in for expanding the drip inline pipe plant, Rs 2,206.27 lakh for setting up new product ranges and Rs 1,000 lakh for meeting working capital requirements. Texmo Pipe's IPO has been assigned ‘CARE IPO Grade 2'.

Financial scorecard

The company does not have a sufficiently long relevant financial record, as its current operations are a result of business transfer agreements with three of its promoter group entities in August 2008.

The company's net profits stood at Rs 336.38 lakh on net sales of Rs 3897.53 lakh in the first seven months of 2009-10.

There has been a substantial increase in borrowed funds (from Rs 9.2 crore in FY 08 to Rs 22.9 crore in 2008-09).

The subsequent increase in interest cost has resulted in a negative cash flow during FY 09. The situation persisted in the half year ended September 2009 also.

via BL

Apollo Tyres

Investors with a two-year perspective can consider buying the stock of Apollo Tyres. At its current price of Rs 55.75, the stock discounts its trailing 12-month earnings by 8 times. Sustained growth in tyre demand from the original equipment makers (OEMs) and a pick-up in the replacement market from the first quarter of the current fiscal are major positives for the company.

Demand in the commercial vehicles segment is beginning to pick up and is expected to further improve in the months to come. The company's broad-based customer profile and imminent ramp-up in capacity position it well to capture this demand.

Operations at its greenfield plant in Chennai, which has the capacity to produce radial tyres for both passenger cars and commercial vehicles, are set to commence by the first quarter of FY 11. This is likely to increase its market share in the OEM segment. At present, sales to OEMs account for just 14 per cent to the total sales.

The replacement market, which offers better margins and superior pricing power, is now Apollo Tyres' key source of revenue, accounting for 74 per cent of sales. The company has a strong brand recall and healthy market presence in this segment with over 4,000 network partners and 2,000 exclusive dealers. Due to muted economic activity, buyers, especially in the trucks and buses segment, deferred replacement decisions for most of 2008. However, a revival in the economy by the first quarter of 2009 and pent-up demand have helped tyre-makers stage a strong comeback.

From April to November 2009, the replacement market grew 11.7 per cent. While the truck and bus segment grew 15 per cent year-on-year, the passenger vehicles segment grew by just about 1 per cent. Apollo Tyres' strong presence in the replacement market made it one of the early beneficiaries of the revival.

The nine months ended December 2009 saw the company's sales expand by 26 per cent, while operating profits almost doubled. Net profits swelled from Rs 61.93 crore to Rs 298.81 crore. On the back of a healthy demand growth, the company is well-positioned to sustain the profit growth in the months ahead.

Raw material costs, mainly natural rubber, which account for 60 per cent of the total cost, have started spiralling once again and are up by over 30 per cent from their 2009 lows. However, market leadership allows Apollo Tyres the pricing power to pass on this burden to its customers; tyre prices have been hiked by 5-10 per cent across markets. This may partially help the company retain its current operating profit margins of 15 per cent. About 11 per cent of Apollo Tyres' revenue is generated through exports. The export market mainly caters to passenger cars, whose sales are showing signs of revival across the globe.

via BL

Man Infraconstruction IPO Analysis

Investors with a two-year perspective may subscribe to the Initial Public Offer from Man Infraconstruction (Man Infra), a construction contractor in the realty and infrastructure segment. The company intends to utilise funds to purchase capital equipment and for general corporate purposes.

With the price band due to be announced only later this week, investors may subscribe if the offer price is below Rs 400, resulting in maximum acceptable valuations of 20 times the estimated FY-11 earnings. Beyond this price, the offer is unlikely to provide attractive returns to investors. Peers in the listed space such as BL Kashyap and Ahluwalia Contracts are available at current valuations of 15 to 24 times trailing earnings, and 12 to 20 times estimated FY-11 earnings.

While the company does not possess too many distinguishing aspects, its superior margins, strong funding position and a secure client base set it apart from most other construction contractors. Strong order-book across segments further supports our recommendation.

Contract player

Man Infra undertakes and executes construction contracts besides providing project management and consultancy. In the infrastructure space, it takes up construction of roads and port container terminals and support infrastructure. In the realty sector, it undertakes residential and township construction, commercial and industrial construction.

Spread of the order-book over a variety of segments could mitigate risk to an extent, and allows flexibility to shift focus based on segment prospects. Man Infra has a secure client base with several repeat contracts from players such as Simplex Infrastructure, Gateway Terminals India, the Dynamix Group, and so on.

The company has not made any serious move to graduate to the status of an infrastructure developer from a contractor. Its current stance as a construction contractor may still serve it well; its ability to secure repeat orders bodes well here. As investment in infrastructure projects progresses and residential construction recovers from its slump, bigger developers will be looking to subcontract projects bagged by them. The company also does not have exposure to the slightly riskier IT parks and malls, focusing instead on schools and hospitals.

Order-book balance

Current value of unexecuted orders stands at Rs 2020 crore, 3.8 times the sales of FY-09. About 83 per cent of the order-book stems from residential contracts, a segment that has seen lower off-take and slowdown in construction. However, a good many of Man Infra's contracts come from repeat orders.

Further, about 22 per cent is under the slum rehabilitation programme of the Government of Maharashtra; providing a safe source of fresh orders as the State provides ample scope for business in this space, what with higher allocation to the said programme. Commercial construction accounts for 10 per cent of the order book. Ports and roads form 4.8 per cent and 2 per cent of the order book respectively.

Revenue contribution from the sectors is fluent, with ports accounting for 41 per cent and residential contracts 39 per cent of revenues for the nine months ended December 09, while contribution was 25 per cent and 60 per cent for the same period in 2008. This suggests that Man Infra has the ability to adapt order-book to suit opportunities. Orders are also slated to be executed with 24 to 36 months, providing medium-term revenue visibility.

Margin strength

Pass-through costs on primary inputs of steel and cement, project consultancy services and almost nil interest costs have helped the company record operating margins of 23 per cent and net margins of 14 per cent (consolidated 2008-09). Operating and net margins bettered to 32 and 17 per cent in the nine-month period ended December 09 on lower raw material and sub-contracting costs.

Increase in investments in capital equipment has largely led to high depreciation costs; both assets and depreciation almost doubled in 2008-09 over the previous year, and further increased by 20 per cent in the above-mentioned nine-month period, over the same period in 2008.

With Rs 122 crore of the funds raised marked for purchase of equipment, depreciation is set to rise in the coming quarters.

While this would increase capital expenditure in the short term, owning a good part of equipment reduces hiring costs and risks of delays due to unavailability of critical equipment besides allowing mobility of equipment between projects.

The company operates on a zero-debt basis, leaving it in a secure position to fund bigger projects in the future, should it be required. Sales have clocked a 71 per cent three-year compounded annual rate, while net profits have grown 69 per cent in the same period.

Offer details

The offer is open from February 18-22. On offer are a total of 5,625,150 shares. IDFC SSKI and Edelweiss Capital are the lead managers to this issue.

via BL

Sundaram Finance

Fresh exposures can be considered in the stock of Sundaram Finance, a conservative investment option in the non-bank financing space. An asset financing company, Sundaram Finance predominantly funds new commercial vehicles (CV) and passenger cars for retail customers.

With CV and passenger car segments posting higher sales growth in the current fiscal (2009-10) and with the growth expected to be sustained, Sundaram Finance's disbursements may grow at a strong pace.

This would, in turn, lead to improving earnings growth, going forward. For the nine months ended December, the company's disbursements grew by 20 per cent to Rs 4000 crore, contributed by a 25 per cent growth in car financing.

At the current market price of Rs 352, the stock trades at a modest valuation of 8.8 times its trailing one-year standalone earnings.

This is at a discount to Shriram Transport Finance (13.33 times) and M&M Finance (10.8 times). The stock trades at 1.6 times its December book value.

Sundaram Finance has a strong branch network of more than 450 branches with predominant presence in the South. This, together with a well-recognised brand name, helps it attract depositors; however, the reliance on depositors has come down over the years.

Currently, the liability profile is quite diversified with 15 per cent of the funds raised from public deposits, 47 per cent from the secured and unsecured debentures and 27 per cent from the bank loans. Sundaram Finance also raises funds by securitising loans.

Business

The receivables of Sundaram Finance stood at Rs 9,500 crore as of December 2009. Commercial vehicle finance and car financing form a chunk of financing, with 60 per cent and 30 per cent share respectively in the total loan book. Rest of it is contributed by equipment finance and tyre finance.

While the commercial vehicle segment witnessed a significant fall in sales in 2008-09, sales have picked up smartly during the first ten months of this fiscal, with stimulus measures and the improvement in the overall economic environment aiding a recovery.

According to ‘Society of Indian Automobile Manufacturers', commercial vehicles sales, which fell by 22 per cent in 2008-09, rebounded in the first ten months of the current fiscal. Commercial vehicles sales grew by 30.4 per cent between April-Jan 2010.

The passenger car segment, on the other hand, has been growing at a strong pace, after flat numbers in 2008-09. Passenger vehicle sales grew 25 per cent in the first ten months of this fiscal.

With excess capacity gradually being absorbed and freight demand picking up, CV sales may continue to make headway even if there is a partial rollback of stimulus. If salary hikes initiated by IT companies spread to other sectors, the demand for cars, which was earlier driven by the Sixth Pay Commission and stimulus incentives, may also continue.

Improving Financials

The company's loan book for the period 2004-09 grew at a modest 13 per cent annually. Sundaram Finance has actually weathered the slowdown of last year relatively well, despite its reliance on CV financing.

Though disbursements fell by 12.5 per cent in 2008-09, the company's adjusted net profits grew by 11 per cent. Despite the slowdown, Sundaram Finance managed to maintain its asset quality notwithstanding moderate slippages.

Net NPAs to advances ratio rose from 0.49 per cent to 0.75 per cent for 2008-09. Asset quality slippages may now bottom out, with the economy showing signs of revival and low interest costs.

For the nine months ended December 2009, Sundaram Finance posted 55 per cent growth in net profits. Improved interest spreads, coupled with strong disbursements, has aided earnings.

The company has a capital adequacy ratio of 14.7 per cent which, coupled with internal accruals, may support a loan growth of around 25 per cent for the company over next one year without having to raise any funds. In the current fiscal, even as the interest spreads of Sundaram Finance have improved, maintaining these spreads would be a challenge as the demand for liquidity increases.

Therefore, the earnings growth for the company would be primarily driven by higher disbursements, which appear likely given the high vehicle sales volumes. A strong branch network continues to offer scope for ‘other income' contribution.

Sundaram Finance also has a presence in insurance, logistics, mutual fund and housing finance segments from which it earns dividend income.

Sundaram BNP Paribas Asset Management is one of the bigger domestic mutual fund houses with asset under management of Rs 13,700 crore. AMC business and Housing Finance have reported a net profit of Rs 10.3 crore and Rs 26 crore respectively for the year-ended 31 March 2009.

Risks

As banks are expected to lend at a base rate and sub-PLR lending ceases to exist from April 1, 2010, the cost of borrowing may trend higher for NBFCs such as Sundaram Finance.

However, Sundaram Finance has a smaller proportion of bank borrowings compared to the other NBFCs.

via BL

Pratibha Industries

Pratibha Industries