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Friday, October 13, 2006
Yahoo's India Internet Intentions
Back in May, a private jet ferried the top honchos of Yahoo! (YHOO) from Sunnyvale, Calif., to Bangalore. On board were company co-founder Jerry Yang, CEO Terry Semel, CFO Susan Decker, and corporate development head Toby Coppel on a whirlwind four-day, three-city Indian tour.
In Bombay, they threw a party for the top brass of India's top 12 advertising and media houses at the harbor-facing Taj Palace Hotel. The objective: to get some on-the-ground intelligence about the potential for India's small but rapidly expanding Internet market.
It looks as if they picked up a very welcoming message. "It is a superb time for Yahoo to be a significant player in India," Semel told his staff. In late September, Yahoo announced it was expanding its second biggest development center outside the U.S. in Bangalore from 800 engineers to 1,000. India already accounts for 10% of the company's global workforce. It is launching regional channels in Hindi, Tamil, Telegu, Kannada, and Malayalam.
"EXPANSION MODE." All this comes after Yahoo invested $8.65 million, together with private equity firm Canaan Partners, in an Indian matrimonial portal called Bharatmatrimony.com. And the U.S. mega-portal is hungry for more acquisitions and tie-ups. The company has introduced Yahoo Search marketing to place ads with searches and Yahoo Go!, a tie-up with Nokia (NOK) and Motorola (MOT) aimed at providing mobile phone users access to many of Yahoo's services, including messenger, e-mail, and search.
Other products are expected to be rolled out in coming months. Says George Zacharias, managing director of Yahoo India, "We are in expansion mode to provide a good experience with our range of Yahoo products and services customized for India."
If Yahoo is busy, so are the others, such as Microsoft's (MSFT) MSN, Google (GOOG), and Indian portals such as Rediff, Sify, and Indiatimes. MSN recently launched five regional channels with Messenger compatibility, and now wants to take its search and mail regional and look for opportunities in mobile telephony.
FRACTION OF ADS. Google is said to be in talks with many startups for voice and short message service, or SMS-based advertising. Rediff, launched more than a decade ago, was one of the first to go regional—just a couple of years ago. With 45 million global Indian users as of July, it launched a service called "lightning fast Rediffmail" in 11 languages and its Rediff Bol chat in Hindi recently. Indiatimes, the portal owned by publishing house Bennett & Coleman, is looking for acquisitions but will wait and watch before going regional.
With a PC penetration rate of 2%, vs. 60% in developed economies, India's Internet market is miniscule. According to the Internet and Mobile Association of India, there are 37 million Internet users, likely to go up to more than 54 million in 2008. And online advertising is a mere $25 million, just a fraction of India's total $2.5 billion advertising industry. In comparison, China's online market is said to be around $600 million.
Mobile-based services, however, are a huge opportunity with more than 200 million cell phone users in India. As Internet connectivity and broadband usage improves, Net advertising on mobiles could be big, say players. "With Indian consumers beginning to treat the Internet as a friend, reaching out to them becomes imperative," says Yahoo's Zacharias.
MULTIPLE LANGUAGES. "For us, it is both strategic and opportunity driven," says Jaspreet Bindra, country manager at MSN India. With more than 75 million Indians who speak English, the market has room to grow. Yet local language content is key, too. "We have to prepare for this and then go where our advertisers go," he adds.
Two-thirds of India's population live in villages, and today the five most-read publications are still regional. Regional television channels have higher viewership than their English counterparts. "That India is rich in language content anyway, makes it easier," says Mohit Hira, director of content and marketing at Indiatimes.
So portals are also beefing up their offerings. Having begun with pure content, they now have a range of services and are looking for more. Big on the popularity chart are airline and hotel bookings, astrology, matrimony, and e-commerce sites, which bring in cash. The players are not revealing their India revenues, but say that even as they want to grow organically, they have a war chest and M&A teams in place to grab any good buy.
Yahoo plans to bring in its Yahoo Finance and other services to reach India's huge market of youthful online readers. From all indications, it seems India is shaping up to be an interesting playground for global Net companies.
Sharekhan Investor's Eye - Oct 12
PULSE TRACK
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Strong growth in August 2006 IIP despite floods
STOCK IDEA
South East Asia Marine Engineering & Construction
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs270
Current market price: Rs190
At a high tide
Key points
- Boom in offshore service industry: With the surge in crude prices and drop in global spare production capacity for oil, exploration activity has picked up globally. The IEA estimates that USD3.6 trillion would be spent on oil and gas exploration over 2003-30. The day rates for offshore oil and gas drilling, and support assets including MSVs are sky-rocketting as a result of this rise in the E&P spend.
- SEAMEC to benefit from rising E&P spend: With its fleet of three MSVs, SEAMEC is a direct beneficiary of this boom and the higher charter rates for the MSVs. It has recently entered into a long-term charter for its MSVs and that too at high charter rates of USD40,000-47,000 compared with USD20,000 per day for the earlier contracts.
- New vessel to further boost revenues: SEAMEC has recently acquired a vessel named Oceanic Princess, which is being converted into a diving support vessel (DSV). This DSV (expected to commence operation by Q1CY2007) and the three MSVs should help its revenues to grow at a CAGR of 70% over CY2005-07E.
- Profit to grow at a CAGR 126%: With a strong revenue growth, a debt-free status and the tonnage tax scheme, the earnings per share are expected to grow at a CAGR of 126% to Rs17.4 in CY2006 and to Rs29.2 in CY2007.
- Buy with a price target of Rs270: At the current market price of Rs190, the stock is trading at 6.5x CY2007E earnings and 4.1x CY2007E EV/EBIDTA. Compared with its global peers, SEAMEC is trading at a discount of 30%. It has the highest EBIDTA margin and RoE compared with them. We believe the discount is not justified. We recommend Buy on SEAMEC with a price target of Rs270.
SECTOR UPDATE
Automobile
Performing against all odds
Despite the impact of floods, heavy monsoons and the inauspicious Shraadh Paksha, the automobile industry reported a strong performance for September. The car segment delivered a good performance with a 22.4% domestic growth and the two-wheeler sales too grew by 18.9% despite an average performance by the market leader, Hero Honda. The overall automobile sales volume rose by 20% with the domestic and export sales rising by 19.7% and 24.2% respectively.
INDUSTRY UPDATE
Equity AUMs rise in line with market movement
The AUM for equity funds increased by 6.2% to Rs121,332 crore in September 2006. The rise was in line with the general upward movement seen in the equity markets.
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Thursday, October 12, 2006
Mutual Fund Report
The AUM for equity funds increased by 6.2% to Rs121,332 crore in September 2006. The rise was in line with the general upward movement seen in the equity markets.
Download here
Sharekhan Movers & Shakers
- Granules India soared on reports that the company has formed a 50:50 joint venture with China's Biocause Heilen Pharmaceutical.
- Allsec Technologies moved up following reports that First Carlyle Ventures Mauritius has acquired a 4.93% stake in the company from Euronet.
- Aptech inched lower despite the company announcing that it has got the board's nod to acquire a 70% stake in Synergetics
To compete with Google, Yahoo! should buy AOL
AOL has never quite worked as planned for Time Warner, Inc (NYSE: TWX). The merger of the two companies is seen as the cause of the drop in TWX stock to today's $19 -- much improved from earlier this year, but still well below $91, where it traded over six years ago. AOL is taking a large risk by trying to migrate from a subscriber-based revenue model to one driven by ad revenue.
It is hard to say what AOL is worth. One way to look at it: With Time Warner's market cap at $77 billion and AOL representing about 20% of revenue, the company might fetch $15 billion, depending on whether any of Time Warner's debt is involved. Since AOL is in transition, TWX might even sell the company for less.
Read more that bloggingstocks.com
Wednesday, October 11, 2006
Sharekhan Investor's Eye
Infosys Technologies
Cluster: Evergreen
Recommendation: Buy
Price target: Rs2,430
Current market price: Rs1,981
Far ahead of street expectations
Result highlights
- Infosys Technologies has reported an impressive revenue growth of 14.5% quarter on quarter (qoq) and of 50.4% year on year (yoy) to Rs3,451 crore for the second quarter ended September 2006. The sequential growth in the revenues was driven largely by an 11.2% growth in the volume in the information technology (IT) service business. The uptick in the blended billing rate (up 1.2%) and depreciation of the rupee (1.3%) also aided the sequential growth in the revenues.
- But the highlight of the performance was the smart improvement of 260 basis points in the operating profit margin (OPM) on a sequential basis. The margin improvement was possible due to the cumulative impact of a lower visa cost (1.1%), the positive impact of foreign exchange (forex) fluctuation (0.9%) and savings in the selling, general and administration (SG&A) expenses (0.6%) as a percentage of sales.
- Consequently, the earnings grew 17.1% qoq and 58.5% yoy to Rs929 crore, despite the substantial reduction in the other income to Rs66 crore (as compared with Rs128 crore in Q1). The rupee depreciation resulted in a net positive impact of Rs11 crore (reflected in the other income component) as compared with Rs52 crore in Q1.
- In addition to announcing a robust performance in Q2, the management revised upward its growth guidance once again. The consolidated revenues are now guided to grow in the range of 45.5-46% to Rs13,400-13,899 crore (up from Rs13,350-13,400 crore revised guidance given with the Q1 results). The earnings are guided to grow by 46.6% to Rs66 per share (up from Rs62.25-62.85 given with the Q1 results).
- In terms of the guidance for Q3, the revenues and earnings (in rupee terms) are guided to grow sequentially by 4.4-5% and 0.5% respectively. The management expects appreciation of the rupee and relatively lesser number of working days to not only limit the growth in the revenues but also adversely affect the margins in Q3.
- At the current market price the scrip trades at 29x FY2007 and 22x its FY2008 estimated earnings. We maintain our Buy call on the stock with a revised price target of Rs2,430 (27x FY2008E earnings).
BASF India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: Rs231
Unexciting quarter
Result highlights
- BASF India (BASF) reported unexciting results for Q2FY2007, as the net profit for the quarter grew by 19.8% year on year (yoy) aided by lower depreciation, higher other income and stable tax rate.
- The net sales for the quarter under review grew by 14.2% yoy to Rs218.5 crore on the back of a strong growth (23.9%) in the sales of performance products.
- The operating profit grew by a slower 7.1% as the operating profit margin (OPM) declined by 100 basis points to 15.5%. The steep rise in the other expenses led to contraction in margins. The raw material cost remained stable during the quarter.
- The lower depreciation led to a stronger growth in the profit before interest and tax (PBIT) at 17.2% to Rs31.6 crore.
- With a flat interest outgo and a stable tax rate, the net profit grew by 19.8% to Rs20.4 crore.
- At the current market price of Rs231, the stock is quoting at 8.3x its FY2008E earnings per share (EPS) and 4.7x its FY2008E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We believe that the stock is trading at attractive valuations, given the bright outlook for the company's business over the next two years. We reiterate our Buy recommendation on BASF with a price target of Rs300.
VIEWPOINT
Dr Reddy's Laboratories
Migraine drug adds to profitability
Dr Reddy's Laboratories has settled a patent litigation with GlaxoSmithKline (GSK) in relation to GSK's anti-migraine drug Imitrex. Under the terms of the settlement, Dr Reddy's will be permitted to launch the authorised generic version of Imitrex (in the 25mg, 50mg and 100mg strengths) in the USA in the fourth quarter of CY2008. The launch of the product will be ahead of the expiry of the paediatric exclusivity on Glaxo's patent number 5037845 for Imitrex on February 6, 2009. However, the terms of the settlement are subject to review by US federal agencies.
MUTUAL FUNDS: WHAT�S IN�WHAT�S OUT
Fund Analysis: October 2006
An analysis has been undertaken on equity and mid-cap funds� portfolios, indicating the favourite picks of fund managers for the month of September 2006. Equity funds comprise of all diversified, index, sector and tax planning funds, whereas mid-cap funds include a universe of 17 funds such as Reliance Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla Mid-cap Fund etc.
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Sharekhan Movers & Shakers
- Geometric Software Solutions moved up on acquiring Modern Engineering's engineering division for $25 million.
- Shree Renuka Sugars gained on getting the SEZ status for its sugar unit in Karnataka.
- BSEL Infrastructure Realty slipped despite signing a joint venture contract with Unity Infraprojects for participating in the tenders offered by the Nagpur Municipal Corporation.
- Bank of Maharashtra tumbled in spite of reports that the bank is considering raising Rs300 crore via Tier-II bonds.
Anagram Earnings Preview
Sharekhan Movers & Shakers
- Dr Reddy�s Laboratories inched up on reports that the company has settled its patent litigation with GlaxoSmithKline relating to sumatriptan succinate tablets.
- JBF Industries rallied sharply after the company reported that it has completed the expansion of its polyester yarn manufacturing facilities at Silvassa.
- Mohit Industries hit the upper circuit breaker of 10% on expansion plans worth Rs90 crore and receiving an order to the tune of Rs9.50 crore.
- Elecon Engineering advanced on bagging an order worth Rs36.75 crore from Madras Cement.
- Abee Info Consumables declined despite signing an agreement with HPCL to open cartridge collection and refilling centres at selected petrol pumps in Pune.
- Kewal Kiran Clothing slipped even as the company announced acquisition of land measuring 53,000 square feet and building space measuring about 40,000 square feet at Daman
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