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Monday, June 04, 2007
Nitin Fire Protection - Listing
Nitin Fire Protection will list on June 5 2007
We expect minimum 50% appreciation on the issue price. Watch for the market conditions though as it might lead to sell off later in the day.
Nitin seems to be a good hold for Long term investment.
Market Close: Profit booking drags down the market
Though market took off in positive territory in moring trade it couldn't sustained the gains and landed in negative territory. Chinese market tumbled over 8% for the third time in four sessions since the government raised a tax on trading last week with a little effect on Indian bourses. Market is near its all time high and direction is upward biased. It opened firm continuing the same euphoria but profit booking at higher levels led the indices to shed gains with each successive trading hour. Session then were extremely choppy and volatile. Selling pressure witnessed in Auto on back of poor monthly sales numbers. However some interest was seen in Metal and Banking. Inflation has eased to 5.06% and that is really good sign for Banks. IT stocks also ended weak due to stronger rupee. Midcap and Smallcap indices traded flat inline with frontline stocks.
Sensex traded down by 75 points at 14495.77. Weighing on the Sensex were losses in Tata Motors (711.45,-5 percent), Grasim (2439.6499,-3 percent), BHEL (1371.8,-3 percent), Cipla (217.5,-3 percent) and HLL (196.45,-2 percent). Losses were restricted by gains in Hindalco (146.6,+4 percent), SBI (1406.65,+2 percent), ITC (164.75,+2 percent), NTPC (160.1,+1 percent) and HDFC Bk (1165,+1 percent).
Aluminum and copper major Hindalco was the star performer for the day on reports that Sterlite with Alcan is looking to buy Hindalco. The reports that says that Canadian company Alcan may team up with Sterlite for a hostile takeover bid for Hindalco. The A V Birla Group holds only 27% stake in Hindalco. FIIs and institutions holds 20% and 12% respectively. About 10% is in GDRs while the remaining is with retail investors which are a fairly large free-float. To raise money for its Novellis takeover Hindalco had also made a preferential allotment of 14.75 million warrants and shares in April which would take the promoter holding to about 35%. Sterlite has always been trying to increase its market share in India. It plans to become the No.1 aluminum player in the country. In case if Alcan makes a bid for Hindalco it will make it highly unattractive for other players as it will be embroiled in quite a hostile bid unless the Aditya Birla Group is willing to sell.
Auto major Tata Motors was weak on disappointing monthly sales number. Tata Motors reported a total sale of 42,558 vehicles (including exports) for the month of May 2007 a decline of 4% over vehicles sold in May last year. Cumulative sales were at 83044 numbers which grew by 3%. Vehicles sales in the domestic market were impacted in varying degrees between the commercial and passenger vehicles segments due to the high interest rate regime severely affecting retails. The company's sales of commercial vehicles in May 2007 in the domestic market were 20,675 nos., a decline of 6% over 21,903 vehicles sold in May last year. The passenger vehicle business reported total sales of 17, 580 vehicles in the domestic market in May 2007, a decline of 3% over May 2006. The Indica reported sales of 12,002 nos., a decline of 3% over May 2006. The Indigo family registered sales of 2,215 nos., a decline of 22% over May 2006. Cumulative sales of the Indigo family were at 4,847 nos. with a decline of 11%. Cumulative sales of Sumo and Safari were 6,703 nos., an increase of 31%. The company's sales from exports were flat at 4,303 vehicles in May 2007 as compared to 4,339 vehicles in May 2006. The cumulative sales from exports in the current period at 8,340 nos. have recorded a 5% growth over the previous year. The numbers were below the market estimations which hit the stock and closed down by 5%.
Technically Speaking: Ranged session as profit booking seen at the end. Sensex touched intraday high of 14683 and low of 14465. The Advance to decline ratio stood at 1:1. Market is expected to be ranged and choppy.
IT, auto stocks lead fall as Sensex sheds 75 points
The benchmark index, BSE Sensex, which had surged to highest level above 14,650 in nearly four months since 9 February 2007, at the onset of the trading session started declining since afternoon trade. Selling accentuated at the fag end of the trading session. A sharp fall in Chinese markets weighed on domestic bourses today. Auto and IT pivotals declined while shares from metal and banking sector edged higher.
Sensex lost 74.98 points, or 0.51%, to settle at 14495.77. In opening trade, it had surged to an intra-day high of 14,683.36, buoyed by strong global markets and sustained buying from FIIs and mutual funds. This is Sensex's highest level in nearly four months since 9 February 2007. The market had pared gains shortly after a firm opening. Sensex hit a low 14,465.68.
Sensex all time high is at 14,723.88, struck on 9 February 2007.
The S&P CNX Nifty which had advanced above the 4,350 level, to strike an all time high of 4,362.95, in opening session, settled with 30 points, or 0.70% loss at 4,267.05
The total turnover on BSE amounted to Rs 3745 crore. Turnover on NSE's futures & options segment totaled Rs 28727.23 crore
Market breadth was negative on BSE, with 1398 shares declining as compared to 1172 that advanced. 95 remained unchanged. The breadth turned negative in early afternoon trade from a strong breadth at the onset of the trading session. In morning session, there were over 2 gainers for every loser on BSE.
The BSE Small-Cap Index was down 0.10% to 7,466.77, while the BSE Mid-Cap Index lost 0.49% at 6,233.58.
Among the Sensex pack, 19 declined while the rest advanced.
Aluminium and copper major Hindalco Industries surged 4.01% to Rs 146.65 on high volume of 59.57 lakh shares, tracking firm global copper prices. It surged to a high of Rs 156.25, in intra-day trade. As per reports Hindalco and Sterlite Industries, are in talks with global firms to separately bid for Canada's Alcan. Sterlite's parent Vedanta Resources Plc was in advanced talks with global miner Rio Tinto to form a special purpose vehicle to bid for the aluminum major. While London-based Vedanta is likely invest $3-$4 billion and Rio Tinto could put in $10-$12 billion in the joint venture.
State Bank of India (SBI) advanced 2.02% to Rs 1405.90 on 6.59 lakh shares. It also surged to an all time high of Rs 1418.90, in intra-day trade. The government appears set to promulgate an ordinance to close the largest ever acquisition involving the transfer of Reserve Bank of India's 59.7% stake in State Bank of India to the Centre in a deal worth nearly Rs 40,000 crore. The government will value the 31.43 crore SBI shares, which have a face value of Rs 100 each, held by RBI at the average closing price for six months.
As per reports, the finance ministry will seek the Cabinet's approval over the next couple of weeks to ensure that the Centre hands over the cheque to RBI on 29 June 2007, a day before RBI closes its annual books of accounts.
Other shares from the banking and financial sector also advanced on renewed buying, after fears of hike in CRR eased. HDFC Bank (up 1.05% to Rs 1165), HDFC (up 0.71% to Rs 1875), and ICICI Bank (up 0.42% to Rs 932), edged higher.
Led by SBI, the BSE Bankex rose 0.8% at 7,741.56.
Tata Motors slumped 4.97% to Rs 710 on 6.82 lakh shares, and was the top loser from the Sensex pack. Tata Motors’ sales declined 4% to 42,558 units May 2007. Commercial vehicle (CV) sales declined to 20,675 units in May 2007 from 21,903 units in May 2006. Passenger vehicle sales were down 3% at 17,580 units in May 2007. It slipped to a low of Rs 710.20.
Led by fall in Tata Motors, the BSE Auto Index shed 1.63% to 4,948.37. It was the top loser among the sectoral indices on BSE.
Hero Honda Motors declined 0.56% to Rs 713.10, after its May 2007 sales declined 6% to 2,85,109 units from 3,03,444 units in May 2006.
Pune headquartered Bajaj Auto slipped 0.95% to Rs 2214 after its bike sales (including exports) dipped 15% at 1,67,008 units in May 2007 from 1,96,120 units in the same month last year. Three-wheeler sales were flat at 24,110 units (24,029). The company’s exports, however, were up 53% at 49,203 units against 32,179 units in the same month last year.
Cipla (down 3.39% to Rs 216.60), Grasim (down 3.25% to Rs 2438.05), and Bhel (down 3.14% to Rs 1370), were the other losers from the Sensex pack.
IT pivotals stayed weak, as they did over the past few weeks, as selling continued. The BSE IT Index lost 1.3% to 4,846.50.
Satyam Computers (down 2.10% to Rs 468.50), TCS (down 1.21% to Rs 1204.35), Infosys (down 1.45% to Rs 1912) and Wipro (down 2.37% to Rs 531.25) slipped.
IT stocks have not performed in the market's recent surge due to stronger rupee. A rise in the rupee directly impacts revenue and profit of IT firms, which derive a lion’s share of revenue from exports to the US. The Indian rupee headed towards last week's nine-year high on Monday, 4 June 2007, spurred by capital inflows and positive cues from most Asian currencies.
Index heavyweight Reliance Industries (RIL) slipped 0.76% to Rs 1737 on 3.66 lakh shares. As per reports, it has inked a pact with Gas Authority of India (GAIL) to supply, transport and market gas. Under the agreement, RIL would be allowed to use state-run GAIL's pipeline network in states such as Andhra Pradesh and Madhya Pradesh. In return, GAIL would get to market a portion of RIL's gas from the Krishna-Godavari basin. The two companies have not made a decision on the price of the gas.
Meanwhile, as per reports, RIL’s retail venture - Reliance Fresh which has set up 157 outlets in 18 states, is all set to put up 100 stores in Mumbai.
Asahi Songwon Colors settled at Rs 89.95, a marginal discount over its IPO price of Rs 90 per share. On BSE, 62.91 lakh shares were traded in the scrip. The scrip listed on BSE at Rs 93 and moved in a range of Rs 87.65 to Rs 134.70. The company had priced its IPO at the lower end of the Rs 90 – Rs 108 per price band. The IPO was subscribed 1.85 times.
Reliance Capital was the top traded counter on BSE with turnover of Rs 143.80 crore followed by MIC Electronics (Rs 139.60 crore), Indiabulls Real Estate (Rs 103.50 crore), State Bank of India (Rs 97.30 crore) and Hindalco Industries (Rs 92.40 crore).
Reliance Natural Resources (RNRL) led the volumes chart on BSE with 1.23 crore shares followed by Asahi Songwon Colors (63 lakh shares), Hindalco (61.50 lakh shares), Nagarjuna Fertilisers (54.80 lakh shares) and Mangalore Chemicals (44.70 lakh shares).
Metal stocks advanced on renewed buying, following firm metal prices on London Metal Exchange (LME). The BSE Metal index surged 166 points or 1.59% to 10,634.17, and was the top gainer among sectoral indices on BSE.
Hindalco Industries (up 4.01% to Rs 146.65), Tata Steel (up 0.10% to Rs 635.25), SAIL (up 0.10% to Rs 138.75), Jindal Steel & Power (up 10.57% to Rs 3660) and Jindal Saw (up 1.55% to Rs 583), edged higher.
Shares of refining companies declined after they slashed jet fuel (aviation turbine fuel — ATF) prices by 1.9%, the first reduction since February 2007. Hindustan Petroleum Corporation (HPCL) (down 3.60% to Rs 285.10), IOC (down 3.92% to Rs 447), Bharat Petroleum Corporation (BPCL) (down 1.38% to Rs 354) declined. Other refinery stocks like Bongaigaon Refinery and Petrochemicals (down 1.68% to Rs 49.70), Chennai Petroleum (down 0.81% to Rs 247), and MRPL (down 2.65% to Rs 40.65) also declined.
Oil firms had raised jet fuel prices for three consecutive months since February 2007. Public sector companies—Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) —-revise ATF prices on the first of every month in line with movement in international prices.
However aviation stocks advanced, as ATF prices account for about 45% of the operational cost of an airline firms. Jet Airways (up 1.80% to Rs 796.65), and Jagson Airlines (up 7.44% to Rs 21.65), edged higher.
Uttar Pradesh-based sugar companies' shares were down sharply after the newly elected government in the region withdrew an incentive scheme for sugar mills. Balrampur Chini Mills (down 4.16% to Rs 73.70), Bajaj Hindusthan (down 5.57% to Rs 165.20), Dhampur Sugar Mills (down 2.67% to Rs 67.35) and Triveni Engineering & Industries (down 4.22% to Rs 53.40), edged lower. The newly elected Mayawati government in Uttar Pradesh on Friday, 1 June 2007, decided to do away with the Mulayam Singh administration’s Sugar Policy 2004 on the grounds that it was not comprehensive.
Bajaj Hindusthan said on Monday, 4 June 2007, the cancellation of the Uttar Pradesh sugar policy 2004 would have a significant adverse impact on its financials. It said it could not yet quantify the impact, adding it had not heard from the government on the issue.
SREI Infrastructure Finance surged 10% to Rs 94.75 triggered by its alliance with BNP Paribas Lease group for equipment finance in India. With today’s surge, the SREI scrip has advanced 50% in the past three trading sessions after the news hit the markets during trading hours on Thursday, 31 May 2007. The alliance involves setting up of a new 50:50 joint venture (JV) company. The joint venture would be formed with an initial networth of Rs 800 crore.
Logix Microsystems jumped 5% to Rs 268.80 as its US subsidiary izmocars was selected by Earnhardt Automotive Centers to develop customized online stores and internet sales solutions and also offer internet sales training to a number of Earnhardt's dealerships. Earnhardt sells over 27,000 cars a year and has market dominance in the southwestern United States.
Rain Calcining jumped 20% to Rs 42.50 after it announced acquisition of a US based firm for $595 million. Rain Calcining said on Saturday, 2 June 2007, it had agreed to acquire US-based CII Carbon LLC for $595 million in an all cash deal, making the combined entity the world's largest maker of calcined petroleum coke. Calcined petroleum coke is a pure form of carbon used in steel and aluminium industries. The two companies would have total production of more than 2.4 million tonnes and annual sales of $550 million.
Fortis Healthcare jumped 5.01% to Rs 92.30 on reports it had entered into an agreement with DLF for floating a joint venture to set up hospitals across the country with about Rs 6,200 crore of investments. Fortis will have a majority holding with 74% stake and the rest will be with DLF in the proposed joint venture. The JV plans to set up a chain of 200-450 bed hospitals in 31 cities in India within three to five years.
Greenply Industries gained 1.82% to Rs 140, after the plywood maker reported a 78% jump in net profit in Q4 March 2007 to Rs 6.72 crore from Rs 3.77 crore in Q4 March 2006. Sales moved up 51.62% to Rs 110.61 crore (Rs 72.95 crore). The net profit rose 59.83% to Rs 22.52 crore in FY 2007 as against Rs 14.09 crore FY 2006. Sales rose 40.30% to Rs 392.20 crore (Rs 279.54 crore).
Mount Everest Mineral Water declined 5% to Rs 124.95 after Tata Tea decided to acquire controlling stake in the company. On Friday, 1 June 2007, the board of Mount Everest Mineral Water approved the issue and allotment of 50.99 lakh shares to Tata Tea at a price of Rs 140 per share on preferential allotment basis.
Hindustan Zinc rose 4.21% to Rs 675 after the company, on Saturday, 2 June 2007 raised zinc price by 1.5% to Rs 1.68 lakh per tonne and lead prices were raised by 2.4% to Rs 1.04 lakh per tonne.
Glenmark Pharmaceuticals rose 1.53% to Rs 713, after the company said its board will meet on 11 June 2007 to consider stock split proposal.
Ashapura Minechem rose 5% to Rs 291.95 on getting approval from the Development Commissioner, Kandla Special Economic Zone, Gandhidham, Kutch, to set up two 100% export oriented units (EOUs) for processed bauxite at Jamnagar. These permissions are valid upto 20 May 2012 and 16 May 2012 for the two different EOUs.
Chinese stocks fell sharply on Monday, 4 June 2007, following government efforts to cool a market boom that authorities worry could create a dangerous price bubble. The benchmark Shanghai Composite Index was down 8.26% at 3,670.41 after a 2.7% decline on Friday, 1 June 2007.
The Chinese government had raised taxes on trading last week in an effort to cool a frenzied market that by last week had pushed up prices more than 50% before they began to decline. Even with today’s fall, the Shanghai market is still up more than 40% since the start of the year after rising 130% in 2006.
Most of the other Asian market held gains. Hang Seng index rose 126.72 points or 0.62% to 20,729.59 while Nikkei 225 index gained 14.54 points or 0.08% to 17,973.42
However, all the European indices were trading with losses.
Wall Street carved out a solid advance on Friday, 1 June 2007, after data on job creation, manufacturing and inflation injected the market with renewed confidence about the economy and sent major indexes to record closes. The Standard & Poor's 500 index was the biggest gainer among the major indicators and moved toward its all-time high.
The Dow Jones industrial average advanced 40.47 points, or 0.30%, to 13,668.11, with the Dow closing on all time high for the 26th session in the year. The Dow also set a fresh intra-day high of 13,692
Broader stock indicators also gained Friday to end a week that saw stocks advance amid a bevy of favorable economic figures and the continued hum of corporate takeover activity. The Standard & Poor's 500 index rose 5.72 points, or 0.37 %, to 1,536.34. The S&P traded as high as 1,540.56 and advanced toward its record trading high of 1,552.87 set in March 2000.
Oil prices slipped on Monday, 4 June 2007, after three days of gains as a major US gasoline pipeline resumed pumping and some Nigerian militants called a one-month truce, although analysts saw little to suggest an end to 18 months of violence.
London Brent crude, currently seen as a better gauge of global oil markets, fell 31 cents to $68.76. US light, sweet crude fell 40 cents to $64.68 a barrel.
FIIs bought shares worth a net Rs 482.40 crore on Friday, 1 June 2007.
Sensex slips below 14500
The market cooled off after having recorded gains for the last two sessions. The Sensex opened on a positive note at 14619, up 48 points, tracking strong Asian indices. The Nifty registered its all-time high of 4363 on buying in metal and banking stocks. However, the market gave up its gains due to profit booking in heavyweights, information technology (IT), cement and automobile stocks. As the trading progressed the Sensex lost its strength and slipped into the negative territory to touch the day's low of 14466. The Sensex pared some losses towards the close but the sustained selling in index pivotal stocks kept the index in negative territory. The Sensex finally closed the session by shedding 75 points at 14496, while the Nifty ended the session down 30 points at 4267.
The broader market remained weak. Of the 2,654 stocks traded on the BSE, 1,388 stocks declined, 1,182 stocks advanced and 84 stocks ended unchanged. Barring the BSE Metal index, the BSE Bankex and the BSE FMCG index, the other sectoral indices ended in negative territory. The BSE Auto index dropped 1.63% at 4948, the BSE IT index shed 1.26% at 4847 and the BSE CG index was down 1.24% at 11,103.
Among the major losers, Tata Motors dropped 4.78% at Rs711, Grasim slumped 3.19% at Rs2,440, BHEL shed 3.01% at Rs1,372, Cipla lost 2.99% at Rs218, HLL declined 2.39% at Rs196 and Satyam Computer slipped by nearly 2.33% at Rs467. However, Hindalco notched up gains of 3.97% at Rs147, SBI rose 2.07% at Rs1,407, ITC added 2.04% at Rs165, NTPC advanced 1.11% at Rs160 and HDFC Bank moved up by 1.05% at Rs1,165.
Auto stocks came under sharp selling pressure. Clutch Auto tumbled by 6.70% at Rs144, Goodyear slipped 4.73% at Rs197, TVS Motors slumped 4.12% at Rs66, Amar Raja Battries fell 3.65% at Rs381, Escorts lost 3.57% at Rs120, Bharat Forge declined 3.33% at Rs324, Cummins shed 3.03% at Rs304 and Tube Investments was down 2.80% at Rs78.
Over 1.22 crore Reliance Natural Resources shares changed hands on the BSE followed by Asahi Songwon Colors (62.93 lakh shares), Hindalco (61.48 lakh shares), Nagarjuna Fertilizer (54.80 lakh shares) and Mangalore Chemicals & Fertilizers (44.72 lakh shares).
Value-wise Reliance Capital registered a turnover of Rs143 crore on the BSE followed by MIC Electric (Rs139 crore), Indiabulls Real Estate (Rs103 crore), SBI (Rs97 crore) and Hindalco (Rs92 crore).
Trading Calls
Buy Adhunik Metaliks with stop loss below Rs 51 for a target of Rs 58-60. This is a day-trading recommendation.
Buy ITI with stop loss below Rs 45.40 for a target of Rs 53. This is a day-trading recommendation.
Buy Tera Software with stop loss of Rs 85 (On Closing Basis), for a short-term target of Rs 113.
Buy Bata India with stop loss of Rs 172 (On Closing Basis), for a short-term target of Rs 201 and a medium term target of Rs 235.
Buy Educomp Solutions below Rs 1870 with stop loss at Rs 1830. This is a day-trading recommendation.
Buy Bharat Electronics below Rs 1895 with stop loss at Rs 1860. This is a day-trading recommendation.
Kotak - Tata Tea, Dish TV, Reliance Industries, Idea Cellular, UTI Bank, Torrent Pharma, Automobiles, Economy
Kotak on Tata Tea
Tata Tea reported 14.7% growth in revenues at Rs2.51 bn (we expected 12.2% growth) and 34% increase in EBITDA to Rs150 mn (we estimated Rs243 mn) during 4QFY07. While domestic branded tea sales continue to do well (9% volumes growth and 12% value growth for branded tea in domestic portfolio), higher wage expenses (wage increases and new accounting standards) resulted in lower EBITDA. Tetley continues to post marketshare gains in key markets. However, stagnant black tea market in UK remains a concern. Tata Tea has agreed for conditional sale of its stake in Energy Brands Inc (EBI) to Coca Cola. Tata group had earlier acquired 30% stake in EBI (25% held by Tata Tea and 5% by Tata Sons) for US$677 mn, in a bid to add a high growth beverage portfolio in the world's largest beverage market. With the sale of 30% stake to Coca Cola for US$1.2 bn, Tata Tea will need to redraw its plans for improving its growth profile. Tata Tea has reiterated its thrust on three verticals—Tea, Coffee and Water, and has announced the acquisition of a controlling stake in Mount Everest Mineral Water Limited (MEMW). We believe that given the robust macro environment in rural as well as urban India, domestic tea business will continue to do well. However, we have concerns on the Tetley business and need to watch out for Tata Tea's strategy to drive growth. We retain In Line rating on the company. Our revised target price of Rs992/share includes Rs91/share from investments in group companies (valued at 50% discount to market price). Our target price implies a P/E of 21.5X and 16.9X on FY2008E and FY2009E respectively.
Kotak on DishTV
We have downgraded Dish TV to IL from OP noting the fact that the stock is trading above our 12-month DCF-based target price of Rs125 and the stock's strong outperformance over the past few weeks. We continue to like Dish TV as a good play on India's emerging distribution opportunity. Indeed, we are most favorably disposed to the distribution portion of the media chain versus broadcasting and content given distribution's ownership of the last-mile, its more loyal audience and hence more predictable cash flows. We would wait for more visibility on the pace of adoption of DTH service in India, Dish's execution versus others and pricing strategy of new entrants. However, we model rapid uptake of DTH service in India given problems with the cable industry. Thus, Dish's current valuations leave limited scope for execution and macro-environment-related disappointments. We retain our earnings estimates.
Kotak on Reliance Industries
According to an article in Petrowatch (31st May 2007), Reliance's gas and oil production from KG D-6 block may be delayed by a few months. We do not expect a delay, if any, to have a material impact on valuations although it may be a modest negative for sentiment. We anyway use valuations based on FY2010E EPS discounted back to set our 12-month fair valuation for Reliance stock (see Exhibit 1). We have made some minor changes to our model—(1) exchange rate (Rs43/US Dollar for FY2008E-FY2010E versus US$44/US Dollar previously) and (2) use of gas for internal refining process for RIL refinery also; we already model this for RPL refinery. Our consolidated FY2008E, FY2009E and FY2010E EPS are Rs71.5, Rs98.5 and Rs153.5, respectively versus Rs73.2, Rs95.6 and Rs150.1, respectively, previously. Key upside risks to our 12-month target price of Rs1,400 (Rs1,375 previously) stem from continued high liquidity in the Indian market and new E&P discoveries.
Kotak on IDEA Cellular
Several newspaper articles over the past few days have reported discussions between Idea Cellular and Spice Telecom regarding a potential merger or acquisition of Spice by Idea. The managements of the respective companies have not confirmed the news. In our view, the reported merger is unlikely to change the competitive landscape in India. The merger will give Idea a presence in two new circles'Punjab and Karnataka'but would not address key issues including (a) lack of pan-Indian presence, (b) likely weak position in unaddressed and certain existing circles and (c) high risk to operating metrics from emerging price competition. We believe ongoing deterioration in pricing is the real issue and note that Idea is the most vulnerable in the emerging environment. We maintain our U rating on Idea stock with a 12-month forward DCF based target price of Rs100. Key upside risk is higher-than-expected profitability.
Kotak on UTI Bank
On Friday, the UTI Bank shareholders approved the change of bank’s name to 'Axis Bank Ltd' from 'UTI Bank Ltd' and appointment of Dr. P.J Nayak as whole-time Chairman of the bank. The later is subject to the approval of RBI. Simultaneously at its board meeting the UTI Bank board finalized its plan to raise US$1bn of capital to meet the bank’s growth plan through a preferential issue to existing promoters and a equity/GDR issue. We believe that amongst private banks UTI Bank has strong growth potential, is well run and has delivered strong financials. A large part of this credit goes to Dr. Nayak, who has been with the bank for the last seven years. Even assuming that RBI clears Dr Nayak’s appointment it still leaves two long-term crucial issues unresolved - i.e long-term succession plan and potential sell down of stake to a public sector. We believe that the issuance was an opportune time to reduce holding of the government owned organization, which it appears, is unlikely at this stage. The current valuations of 19.5XPER and 4.0X PBR FY2008 therefore appear rich and reduce the margin of safety for investors and we retain our Underperform rating.
Kotak on Torrent Pharma
We recently met the Torrent management. Outlook continues to be robust, with strong revenue growth and margin expansion. For FY2008, we have modeled revenue growth of 18%, 130bps margin expansion (10.8% EBITDA) and 36% growth in net profit. We estimate an EPS of Rs15 and Rs17.4 for FY2008 and FY2009 (versus Rs13.2 and Rs16.1 earlier). Amongst key markets, India, Brazil and CIS are doing very well, a trend, which is likely to continue. Company expects sharp margin expansion in the Brazil market, which will equal investments/loss in Mexico (for product filings). Investment/losses in the US market will continue this year too (for product filings), as revenues are expected to begin from next year. Germany continues to be a dark spot (Rs230 mn loss in FY2007). We have rolled over our DCF to March 2009 and our revised price target is Rs260 (Rs200 earlier), or 15x FY2009 earnings. Key risks include inability to improve profitability of international operations, mainly Germany
Kotak on Auto Sales
May saw a weak sales growth across all segments of the auto industry. CV sales declined impacted by high interest rates. The 2W industry witnessed a decline in volume growth across all players thus raising concerns of a slowdown in demand. Hero Honda along with its peers reported a 6% yoy decline in May. Maruti continued with its growth backed by the launch of the Sx4 sedan and the success of Swift and Zen Estilo while Mahindra- Renault's Logan had a decent launch with 2,786 vehicles being sold in May. Tata Motors reported a 17% yoy drop in volumes of M&HCVs for May. LCV sales however grew at 10% for the month resulting in a 6% yoy decline for domestic CV sales. Car sales for Tata Motors, too, declined 7.6% in May.
Kotak on India Economy
India’s merchandise trade deficit expanded sharply to US$ 7 bn in April 2007 from US$3.9 bn in April 2006 (Exhibit 1). This reflects strong non-oil import demand suggestive of sustained economic activity (abetted by a stronger Rupee). Robust capital goods imports (32.4% during April 2006 ‘ January 2007 vs 39.9% last year), in particular, point to sustained investment. In any case, imports pick up in 1Q of the FY (Exhibit 2). We nevertheless continue to expect non-oil import demand to moderate with a slowdown in real GDP growth (8.2% in FY2008E from 9.4% in FY2007). Although still robust, we also expect some slow down in exports in FY2008E (US$148 bn lower than the commerce ministry’s bullish US$ 160 bn projection) on account of the IMF’s estimate of slower world GDP growth (4.9% 2007E from 5.4% 2006) and a somewhat higher Rupee (Rs43/USD in FY2008E up from Rs45.1/USD in FY2007). The current account deficit is now forecast at a pretty doable 1.4% of GDP in FY2008E, assuming stable oil prices (US$65/bbl Dated Brent). Every US dollar increase in the India basket barrel price hits the current account deficit by about US $ 500-600 mn.
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Sensex may strike all time high
The benchmark index, BSE Sensex may strike an all time high today, tracking strong global markets. It’s all time high of 14,723.88 struck on 9 February 2007, is 153.13 points away from Friday, 1 June 2007's close of 14,570.75. Sustained buying interest from FIIs and mutual funds will support the market on the downside.
Asian stocks started the week on an upbeat note today, with Japan's Nikkei Average hitting a three-month high after Toyota Motor Corp. and other exporters gained ground after the release of stronger US economic data. It was up 33.90 points or 0.19% at 17,992.78. Other markets were also trading positive. Hang Seng (up 0.79% or 161.98 points at 20,764.85), Taiwan's Taiwan Weighted (up 0.48% or 39.79 points at 8,289.69), Singapore's Straits Times (up 0.69% or 24.45 points at 3,572.77) and South Korea's Seoul Composite (up 0.60% or 10.38 points at 1,726.62) edged higher.
As per provisional figures, FIIs were net buyers to the tune of Rs 373.38 crore, while Domestic Institutional Investors also bought net shares worth Rs 319.84 crore on Friday, 1 June 2007
Wall Street carved out a solid advance Friday, 1 June 2007, after data on job creation, manufacturing and inflation injected the market with renewed confidence about the economy and sent major indexes to record closes. The Standard & Poor's 500 index was the biggest gainer among the major indicators and moved toward its all-time high.
The Dow Jones industrial average advanced 40.47 points, or 0.30 %, to 13,668.11, with the Dow closing on all time high for the 26th session in the year. The Dow also set a fresh intra-day high of 13,692
Broader stock indicators also gained Friday to end a week that saw stocks advance amid a bevy of favorable economic figures and the continued hum of corporate takeover activity. The Standard & Poor's 500 index rose 5.72 points, or 0.37 %, to 1,536.34. The S&P traded as high as 1,540.56 and advanced toward its record trading high of 1,552.87 set in March 2000.
Oil prices slipped on Monday, 4 June 2007, after three days of gains as a major US gasoline pipeline resumed pumping and some Nigerian militants called a one-month truce, although analysts saw little to suggest an end to 18 months of violence.
London Brent crude, currently seen as a better gauge of global oil markets, fell 31 cents to $68.76. US light, sweet crude fell 40 cents to $64.68 a barrel.
Investsmart - Morning Call
Market Grape Wine :
In House :
Nifty at a Supp. of 4277, 4251 and 4235 with Resis. at 4325 and 4360.
Intra day calls: Buy JSW steel above 618 with a TGT of 638 and a SL of 609
Buy Unitech above 587 with a TGT of 604 and a SL of 579
Delivery calls: Buy Avayaglobal above 367 with a TGT of 420 and a SL of 349
F&O: Buy Rajesh exports above 519 with a TGT of 532 and a SL of 513
Buy OBC above 240 with a TGT of 249 and a SL of 236.50
Out House :
Markets at a support of 14486 & 14414 levels with resistance at 14636 & 14678 levels .
Buy : RIL & REL
Buy : Divis & ABB
Buy : IDEA & IDFC
Buy : McDowellHolding & MIC
Buy : Lupin & GlenMark
Buy : Sail & JSW
Buy : RNRL & IDBI
Dark Horse : GlenMark , RNRL , TataTea , IDFC , Lupin , JSW & CenturyTex
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