India Equity Analysis, Reports, Recommendations, Stock Tips and more!
Search Now
Recommendations
Monday, July 16, 2007
Market to see consolidation at higher level
The market is expected to see consolidation at higher level. The 30-share BSE Sensex surged 180.68 points to 15,272.72, an all-time closing high, on Friday, 13 July 2007. It rallied to strike an all-time high of 15,330.73 on that day.
The S&P CNX Nifty jumped 58.40 points to 4,504.55, after striking an all-time high of 4,513.90 on the same day.
Sensex rose 308.60 points in the week ended 13 July 2007 to settle at a record closing high of 15,272.72. Strong global markets, fresh buying at higher levels, healthy inflow from foreign funds and domestic mutual funds, easing fears of interest rate hike, anticipation of robust Q1 June 2007 results were some of the factors that contributed to the rally
However, profit booking cannot be ruled out at higher levels.
Asian markets were trading on a mixed note today, 16 July 2007, with shares in Singapore setting a record intra-day high after US blue chips' record performance on Friday, 13 July 2007. South Korea's Kospi was volatile as investors booked profits in shipbuilding shares.
Hong Kong's Hang Seng (down 0.20% at 23,052.80), and South Korea's Seoul Composite (down 0.70% at 1,949.33), slipped. However, Taiwan's Taiwan Weighted (up 0.64% at 9,531.83) and Singapore's Straits Times (up 0.34 at 3,667.16), edged higher.
US stocks rose further into record territory on Friday, 13 July 2007 and posted strong weekly gains that saw the Dow Jones Industrial Average close in on the 14,000 level, as investors continued the previous session's record rally after in-line earnings from General Electric Co. and a jump in a consumer-confidence survey. The Dow Jones Industrial Average rose 45.52 points to a record 13,907.25, while the Standard & Poor's 500 Index gained 4.80 points to a record finish of 1552.50.
As per provisional data, foreign institutional investors (FIIs) bought shares worth a net Rs 1323.52 crore, while domestic institutional investors (DIIs) were net buyers of shares worth Rs 174.37 crore on Friday, 13 July 2007.
Morning Call - July 16 2007
Market Grape Wine :
In House :
Nifty at a support of 4480 & 4451 levels with resistance at 4529 and 4561 levels .
Positive opening but profit booking at higher levels not ruled out .
Buy : Intraday : ZEE above 347.25 target 360 s/l of 341
Buy : Intraday : RIL above 1773 target 1791 s/l of 1765
Out House :
Markets at a support of 15055 & 15115 levels with resistance at 15298 & 15335 levels .
Buy : IciciBank & SBIN
Buy : RIL & RelCap
Buy : IndiaInfo bullet
Buy : ACC & Kesoram
Buy : Apar bullet
Buy : LITL & Sterlite
Buy : Sail & JSW
Buy : Unitech & DLF & IBulls
Buy : Pantaloon , Gontermannpiper , Ankurdrugs & Aptech
Dark Horse : LITL , IBulls , IndiaInfo ,Apar , SBIN , REL , IciciBank & Century
Bullet for the Day : IbullRealty & Apar & Karuturi ( BSE ) with strict stop loss
Market may move sideways
The current market sentiment is mainly driven by the earning estimations and movement in global indices. The mood of the market is expected to remain positive after Friday's solid gains and the gains in the US markets will also help the local indices advance further. However, subdued Asian indices in current trades may drag the market in early trades. Among the indices, the Nifty could test higher levels around 4550 and 4600 while on the downside the index has a strong support at 4450-4385 levels. The Sensex has a likely support at 15000 and may face resistance at 15450. Geomet, Indo Rama Synthics, Merck, Petronet LNG, Power Finance Corporation and TCS are expected to announce their numbers.
US indices gained marginally on Friday. While the Dow Jones gained by 46 points at 13907, the Nasdaq added 5 points to close at 2707.
Most of the Indian ADRs barring few ended in the red on the US bourses. Rediff tumbled nearly 4% and MTNL slipped 2.06% while Infosys, Satyam, Wipro, Dr Reddy's Lab and VSNL lost over 1-2% each. However, Tata Motors, ICICI Bank and HDFC Bank gained over1-2% each.
Crude oil prices in the global market extended their upward trend, with the Nymex light crude oil for August series jumping by $1.43 at $73.93 a barrel. In the commodity space, the Comex gold for August delivery moved down by $1 to settle at $662.10 a troy ounce.
Indiainfoline - Intraday Stock Ideas
NIFTY (4504) Supp 4479 Res 4532
Buy HDFC (1988) SL 1974
Target 2020, 2027
Buy GAIL (319) SL 314
Target 327, 330
Buy LIC Hsg Finance (210) SL 206
Target 217, 220
Sell Cipla (211) SL 215
Target 204, 202
Sell J&K Bank (675) SL 680
Target 666, 663
Bulls in charge but look before you leap
It is by attempting to reach the top in a single leap that so much misery is caused in the world”
With foreign capital inflows continuing unabated and global markets extending more than a helping hand, the local bulls are set to leap ahead. We expect the key indices to start the new week on a positive note. The market has rallied sharply over the past few weeks. Some cooling from higher levels cannot be ruled out. The large caps particularly do not look cheap and only select heavyweights appear to be propping up the main indices. A reshuffling of portfolio could be considered. Lock in some gains in stocks that have had a strong run. Though fresh buying should be largely avoided, any purchases should be done with utmost care. The action has been heating up in the small-cap and mid-cap stocks. But, one should be careful while investing in these stocks, as they tend to be very volatile and lack liquidity. Quarterly results will continue to drive the market in the near term. Select stock specific and sector-centric trend is the order of the day. Short-term traders may find it really tough to make money in this kind of a market. Even long-term investors will have to be smarter in picking up stocks.
Omnitech Solutions IPO opens today and closes on July 19 '07. The price has been fixed at Rs 90-105.
Yet another historic session for the bulls as they enter new region led by the heavy weights like Reliance Industries, BHEL, ICICI Bank and L&T. Markets opened on a strong note with NSE Nifty breaching the 4500mark for the first time, key indices stayed firm for major part of the session, however it lost partial gains as profit booking in the Realty and the Pharma stocks dragged the markets lower. Finally, the 30-share Sensex surged 180 points to close at 15272. NSE-50 Nifty advanced 58 points to close at 4504.
Gail India India's biggest gas distributor has gained by 1.3% to Rs319 after the company declared that it has completed a 575km pipeline that would supply natural gas to the nation's largest gas-fired power plant at Dabhol. The scrip has touched intra-day high of Rs322 and a low of Rs317 and has recorded volumes of over 3,00,000 shares on NSE.
ICICI Bank has advanced by 1.2% to Rs979 after Dubai International Capital LLC yesterday announced that it purchased 2.87% of the company. The scrip has touched intra-day high of Rs991 and a low of Rs975 and has recorded volumes of over 15,00,000 shares on NSE.
Bajaj Auto is trading flat at Rs2194. Reports have stated that Renault SA may partner with Bajaj Auto to make a car that will sell for $3,000. The scrip has touched intra-day high of Rs2239 and a low of Rs2180 and has recorded volumes of over 3,00,000 shares on NSE.
Ranbaxy Labs has edged higher by 0.5% to Rs360. The Company has announced that hey would close its manufacturing facility located at E-2/E-3, MIDC, Jejuri, Pune with effect from July 13, 2007 for being unviable. The scrip has touched intra-day high of Rs362 and a low of Rs358 and has recorded volumes of over shares on NSE.
L&T has surged by over 2.3% to Rs2434 after the company announced that they have secured contract worth Rs8.53bn. The scrip has touched intra-day high of Rs2438 and a low of Rs2400 and has recorded volumes of over 2,00,000 shares on NSE.
Realty stocks took the day off as the index fell by 1.31%. DLF lost 1.6% to Rs601, Parsvnath declined by over 4% to Rs378, Unitech slipped 2% to Rs561 and Akruti fell 2% to Rs497.
Cement stocks recorded concrete gains led by index heavy weight ACC as the scrip surged by 2.6% to Rs1103, Gujarat Ambuja advanced by 2% to Rs128, Mangalam Cement gained 2.3%t o Rs172 and India Cement added 3%6t o Rs226.
Power stocks gained momentum on back of Increase in Government spending for electricity generations. CESC rose over 5% to Rs453, REL gained by 1% to Rs675, Suzlon advanced by 0.6% to Rs1472. However, Tata Power pared its gains as the scrip declined by 1.5% to Rs687.
Metal stocks continued to stay firm on talks of consolidation in the global metal industry and firm metal prices. Sterlite Industries as the scrip surged by over 3.5% to Rs665, Hindustan Zinc spurred by over 8% to Rs798, SAIL rallied 10% to Rs159 and Tata Steel surged by over 3.5% to Rs695 According to reports the world's six-largest steelmaker has been invited by the Indonesian government to participate in the privatization of PT Krakatau Steel.
Results Today:
Blue Dart, Deepak Fertilizers, Dish TV, Dolphin Offshore, Genus Overseas, Geometric Software, Indo Rama Synthetics, Merck, Petronet LNG, PFC, Shanthi Gears, Sonata Software, Tata Coffee, TCS, Zee News and Zensar Tech.
Fund Activity:
FIIs were net buyers of Rs13.24bn (provisional) in the cash segment on Friday. On the other hand, local institutions were net buyers at Rs1.74bn. In the F&O segment, FIIs pumped in Rs3.03bn on the same day.
On Thursday, FIIs poured in Rs7bn in the cash segment. Mutual Funds were net buyers of Rs1.24bn.
Major bulk Deals:
Kotak Mahindra has bought Balasore Alloys; Goldman Sachs has picked up Gayatri Projects; Morgan Stanley has purchased Infotech Enterprises; Fidelity has sold Pfizer; Union Investments, Luxembourg has bought RPG Transmission; Franklin India Fund has purchased Taneja Aerospace and Citigroup Global has bought Zensar Tech.
Insider Trades:
UFLEX Limited: Anshika Investments Private Limited (part of Promoters' group) has purchased from open market 106202 equity shares of the company on 11th and 12th July, 2007.
Karuturi Networks Limited: Mrs. Anitha Karuturi, Director has sold in open market 51413 equity shares of the company on 9th July, 2007.
Lower Circuit:
Sujana Metal, TCI Finance, Nirlon, Tripex Overseas, Biclare, Zenith Infotech
Upper Circuit:
Goldstone Technology, PBA Infrastructure, Bag Film, GVK Power, Ganesh Forgings, Tera Software, IID Forgings, Rama Pulp, Taneja Aerospace and Godawari Power.
Major News & Announcements:
Inflation for the week ended June 30 was 4.27% against expectations of 4.10%
Bharti Airtel adds 1.96mn GSM users in June
House of Pearl unit to start real estate biz
KEC International wins Rs1.3bn order
PVR Board to consider overseas Bond sale proposal on 20th July
Essar Oil to shut refinery for 3 weeks starting 18th July
L&T secures contract worth Rs8.53bn
Ranbaxy closes 'unviable' Pune facilityHeavy buying likely ...
The Dalal street may witness a heavy buying spree with a sector-specific rally in the week ahead when blue-chips like TCS and Wipro announce their first quarter results, analysts said.
The benchmark BSE Sensex added more than 300 points last week and touched an intra-day high of 15,330.73 before settling at a record high of 15,272.72. Market analysts said it may cross 15,500 mark in the next few trading sessions.
Domestic brokerage Religare expects a disappointing performance from IT companies on the back of the appreciating rupee against all major currencies, especially the US dollar.
The new week would open with earnings announcement of the country's biggest software exporter Tata Consultancy Services and third-largest Wipro. Religare forecasts the firms would revisit their rupee guidance for the year.
Last week, IT major Infosys came out with its first quarter results and lowered its rupee guidance for the year. Indian IT companies earn more than half of their revenues from
the US market and have been facing a margin squeeze as the rupee has gained over 9 per cent against the dollar since the beginning of 2007.
Another heavyweight and a recent entrant on the bourses DLF is also scheduled to report its quarterly results on July 19. The stock has witnessed strong buying activity in the past week with its market cap crossing the Rs 1,00,000 crore mark.
Weekly Technical Analysis
Nifty — The index closed positive on the opening session of the week; mid-week it dipped down toward 4344, after which it rallied toward 4514.The index ended the week with gains of 120 points.
Channel — The index has closed above the upper end of the channel from the low of 4136 (low of 19 June 2007). Close above the upper end of the channel suggests the index should test higher levels above 4514 during the current week's trading. Plotting a parallel line to the upper end of the channel gives a projected value around 4600 levels during the current week's trading.
Moving Averages — The index is trading above the 10 dma = 4393 and 20 dma = 4324.The index trading above the moving averages should be considered positive. Intra-week decline should find support around the 10 dma around 4393. [dma = daily simple moving average]
Momentum Oscillators — On the daily charts MACD is in buy mode. Fast Stochastic (5 ,3) is in buy mode but in the overbought zone. RSI (14) - Relative Strength Index is exhibiting a reading of 75 (reading above 70 signifies overbought zone).
Support — The index has support around 4434 (high of 10 July 07). Intra-week dips should find support around these levels. Lower support is around 4363 (high of 4 June 2007).
Conclusion — Expect the index to move toward 4600 levels; support is around 4434.
Google, Yahoo may be eyeing Rediff
US-based Internet giants such as Google and Yahoo are eyeing Rediff.com India Ltd, which runs one of India's most popular consumer Internet portals, for a possible acquisition. Investment banking sources told Hindustan Times that the management of Nasdaq-listed Rediff was in talks with the global companies for a negotiated takeover deal.
Rediff, Google and Yahoo officials could not be immediately reached for their comments. Talk of the deal is emerging in the context of a general worldwide rebound in the Internet business, and India emerging as a hot story in the global economy with strong growth in both telephone penetration and the Internet in urban areas.
Leading US-based investment journal Barrons reported this month that Rediff is seeing speculation that it could be a takeover target. Rediff’s stock has witnessed a sharp jump in share price and volume on Nasdaq over the past week, when it also launched a Website to help consumers upload voice, video and photographic content for free.
The company's stock moved up to $25.41 per share on July 13 from $17.94 on July 5 and. The trading volume has increased to more than a million shares from an average of 50,000 share a day. In fact, on July 12, Rediff shares closed at $26.46 and more than 3.3 million shares traded hands. The company has a current market capitalisation of $738 million.
The sources said if the deal comes through, the valuation may be close to a billion US dollars.
The Barrons report quoted Ashish Thadani, an analyst at Gilford Securities, as saying that Rediff could fetch more than $ 25 a share in a sale and could see other suitors besides Yahoo and Google
Other suitors could possibly include AOL (America On Line), a division of Time Warner, which has a strong presence in offshore services from India, but is not a significant player in the market. Microsoft's MSN portal is also keenly stepping up its presence in the Indian market.
Rediff.com India, an online provider of news, information, communication, entertainment and shopping services, reported a net income of $2 million for the fourth quarter or $6.89 per ADS, compared with $0.53 million or $1.96 per ADS in the same quarter of the previous year.
The company's revenues increased 66 per cent to $8.48 million from $5.11 million in the same quarter of last year. India Online revenues, which include advertising and fee-based revenues, jumped 76 per cent to $6.30 million from $3.57 million in the year-ago quarter, while US Publishing revenues were $2.18 million, up 42 per cent from $1.54 million a year earlier.
India Telecom Subscriber Additions
Event
The Cellular Operators Association of India (COAI) has released June 2007 GSM subscriber numbers, except for Reliance Communications. Excluding RCOM, GSM operators in India added a record 5.39m subscribers in June compared to 5.04m subscribers in May, 4.13m in April, 5.9m in March, 4.64m in February and 4.76m in January 2007 (all numbers are excluding RCOM GSM for comparison).
The total GSM subscriber base in India now stands at 135.5m (4.1% MoM growth). June 2007 was one of the strongest months for GSM operators, with second highest monthly net additions ever recorded. The CDMA operators' association (AUSPI) has not yet released the CDMA operators’ (RCOM and Tata Tele) numbers for June. Assuming same net adds run rate as last month for CDMA operators, we should see total monthly net adds of 7.2m, a record in Indian wireless history, in line with our theory of accelerating subs addition.
Impact
Bharti Airtel continued its impressive run with record net adds of 1.96m subs in June 2007, compared to 1.85m in the previous month. Bharti’s total subscriber base now stands at 42.7m subscribers (up 4.8% MoM and 85.1% YoY). We have modelled in 1.92m subscribers per month for the remaining nine months of FY08E in our earnings model. A stronger performance by Bharti would provide further upside to our estimates.
Idea Cellular saw a good month, with net adds of 0.86m in June 2007. Improved performance in Delhi, Rajasthan and UP (West) circles led to strong overall subscriber growth for Idea. Idea’s subscriber base now stands at 16.1m (up 5.6% MoM and 88.9% YoY).
Vodafone Essar (erstwhile Hutchison Essar) (Not listed) also reported record numbers, with monthly net additions of 1.54m in June 2007. Vodafone’s subscriber base currently stands at 30.8m (up 5.3% MoM and 75.3% YoY).
BSNL (Not listed) again saw a poor month with monthly net adds of 0.42m, taking its subscriber base to 28.4m (up 1.5% MoM and 55.4% YoY). Severe capacity constraints continued to choke the growth of BSNL and we think this will continue until its new capacity comes onstream.
Aircel (Not listed) witnessed a poor month with net adds of 0.37m. Low growth in Assam and North East led to slow overall growth for the month.
Category B circles witnessed a strong month with subscriber base growing at 5.13% MoM. Category C and Category A circles also witnessed strong growth with subs growing at 4.27% MoM and 4.08% MoM, respectively. Metro circles witnessed a steady month with growth of 3.14% MoM.
Outlook
Macquarie expects strong subscriber growth to continue in coming months. RCOM remains our top pick in the Asia Pacific telecom universe, and we also reiterate our Outperform rating on Bharti and Idea.
Sector watch
The market seems to have rewarded stocks in advance building in the Q1 forecast. Investors need to take a cautious stock specific approach to avoid disappointments.
The first quarter of this fiscal has been one of the most challenging quarters for India Inc in recent times as it was fraught with problems like rising interest rates, appreciating rupee, cooling down of metal prices and threat of price controls on cement.
As a consequence, the Sensex earnings growth in excess of 30 per cent reported in the past few quarters is expected to moderate. Then, why is the Sensex taking great strides (it touched all-time level of 15,330 on Friday) when the earnings are slowing down and there are concerns about valuations getting stretched?
Says Amitabh Chakraborty, president-equity, Religare Securities, “We believe that interest rates have peaked and hence earning estimates that were based on higher interest rates need to be revised upwards.” Accordingly, analysts are looking beyond the first quarter estimates and feel that Indian companies are likely to end the year with a robust earnings growth of 20 per cent.
Growth will primarily come from sectors such as telecom, banks, engineering and cement. While telecom is experiencing robust growth in the subscriber base, the macro environment for banks looks favourable. Similarly, engineering companies are riding on the capex cycle and attracting huge orders to sustain growth much beyond this year.
Cement companies, while attracting the wrath of the government, are profiting from the tight demand-supply situation. Thus as growth is likely to happen in select pockets, analysts suggest a stock specific strategy. Here is a synopsis of how the first quarter numbers are likely to be and more importantly, what is in store beyond this quarter. Also check out the best picks.
| INFORMATION TECHNOLOGY Looking at the Infosys results, investors must have got a sense of how the results of other IT companies are going to be. The rupee's rise across major currencies in Q1FY08 (up 7 per cent, 5 per cent and 4 per cent against dollar, pound and euro respectively) took a toll on Infosys’ financials. |
| The same can be expected of other technology companies as well. Revenues are expected to increase 1-3 per cent quarter-on-quarter (q-o-q), thanks to volume growth of 5-8 per cent and price improvement of nearly one per cent. Operating profit margins are likely to decline by at least 2-3 percentage points due to wage hikes, visa costs and rupee appreciation. Flat sales and declining operating margins will have an impact on the net profit margins as well. |
| However, investors have punished IT stocks enough. BSE IT index is down 9 per cent since January 2007 as compared to the Sensex gain of 9.8 per cent. The current valuations reflect the downward revision in the rupee earnings guidance given by Infosys and expected from other key players. |
| Analysts are now recommending front-line IT stocks due to their attractive valuations. Moreover, the business outlook still looks bullish with other levers of growth like volume and pricing remaining strong. Says Chakraborty, “With Sensex having touched fairly high levels, money will now start chasing beaten down sectors like auto, IT, pharma and FMCG.” |
| TOP PICKS Infosys: Reasonable valuation and sustained growth prospects TCS: Broad based revenue growth and strong margin levers |
| AUTOMOBILES AND AUTO COMPONENTS Auto has been another beaten down sector after IT, and is down 11 per cent since January 2007. The reason for the huge underperformance is well known. Interest rate hikes and pricing pressures have impacted demand for autos, mainly two-wheelers where volumes were down 7.6 per cent in the April-June 2007 quarter. |
| While heavy commercial vehicle volumes were up marginally (0.06 per cent), there was reasonable growth in other segments like passengers cars (12.8 per cent), utility vehicles (12.4 per cent), and light commercial vehicles (15.2 per cent). |
| As a result, revenue growth of the auto sector comprising two, three and four-wheeler major is likely to be muted at around 7 per cent but profits are likely to decline by 7 per cent due to competitive pressures and rising input costs especially for two wheeler majors. |
| However analysts feel that the worst is over for the auto sector as interest rates have peaked. But it may take some time to have a positive impact on the sales volumes. |
| TOP PICKS Maruti: Better product mix, strong growth despite tough quarter M&M: Diversified product portfolio and value in subsidiaries |
| On the other hand, auto component companies are likely to do well due to exports especially to non-US markets like Europe. Moreover, acquisitions done in the past by companies like Bharat Forge, Amtek Auto and Apollo Tyres are likely to start contributing results. While revenues are expected to grow over 10 per cent, profits are expected to grow at 20 per cent. |
| TOP PICKS Bharat Forge: Strong profit growth due to forex gains offsetting currency losses on exports Amtek Auto: Integration with subsidiaries to expand margins Apollo Tyres: Strong volume and profit growth thanks to stable natural rubber prices |
| TELECOM Telecom companies are going to be the biggest earnings drivers for the Sensex. Robust subscription growth (about 6.1 million per month) will take care of the slow growth or marginal decline in average revenue per user (ARPU). Margins may remain flat or expand a bit because of economies of scale and operating leverage. |
| The subscriber growth has grown over 4 per cent q-o-q in the June 2007 quarter, and low-cost entry level phones have expanded the market. Rajat Ragharia, head of research, Motilal Oswal expects telecom companies to double their profits in the first quarter. Going forward, volume growth will continue as and when companies penetrate in the rural areas. |
| TOP PICKS Bharti Airtel, Reliance Communication, Idea VSNL: Robust growth in subscription and substantial profit growth |
| BANKS Banks are expected to be the second best performers after telecom. Strong macro environment is enabling higher advances and stable yields on investment portfolio and firm net interest margins. |
| The key thing to look at is the non-performing assets as a fallout of interest rate hikes undertaken by banks. Private banks might see some pressure on margins due to their aggressive deposit raising exercise and higher provisioning on consumer loans. |
| On the other hand, public sector banks might fare better on this count. ASK Securities expects margins of public sector banks to ease off in this quarter due to PLR hikes of 50-75 bps in February 2007 and 50-75 bps in April 2007. However, they lag behind their private counterparts in non-interest income growth. |
| Banking stocks had a significant run-up on the bourses in the last quarter which reflects the turnaround in sentiment in these stocks. Moreover, investors have paid little attention to the recent big bang capital raising plans of banks and the resultant dilution in equity as over the long term it will benefit in terms of higher business. |
| Also the outlook is positive as interest rate are expected to remain stable with inflation going down. Any dip in stock prices can be considered as good buying opportunities, say analysts. |
| TOP PICKS Private banks: HDFC Bank, ICICI Bank, UTI Bank: Robust growth in interest and non-interest income Public sector banks: SBI (capital raising plans), Bank of India (consistency in performance even in challenging environment) |
| Engineering and power equipment Capital goods has been the best performing sector till date in year 2007 with the BSE Capital Goods index gaining 42 per cent. And the reason is obvious. Robust economic activity and huge capex plans is leading to huge order inflows. After a stupendous rise however valuations of many stocks look stretched. |
| But analyst cannot resist the robust pace of growth in companies like L&T, BHEL, ABB, Siemens and Crompton Greaves. As a result, these stocks still remain the best buys. Says Sandeep Nanda, head of research, Sharekhan, “Being one of the principal sectors, liquidity will continue to flow in the sector.” |
| In Q1FY08, analysts expect a top line and bottom line growth of at least 30 per cent and 40 per cent respectively, followed by a double digit growth in order backlog. |
| TOP PICKS BHEL: High earnings visibility (current 3.1x FY07 order book to sales) L&T: Focus on margin expansion, efficiency and better priced orders Suzlon: Sharp rise in overseas sales, consolidation of Hansen |
| OIL AND GAS Crude oil price rose by 18.6 per cent during the quarter to $68.6 and the Indian basket of crude oil increased by 17.6 per cent to $66.8. However, the rising rupee mitigated the impact of higher crude oil prices to some extent. Though ONGC is expected to gain due to higher crude oil prices, it will suffer due to the heavy subsidy burden and rupee appreciation. |
| Pure refining companies like Chennai Petroleum are likely to gain from volume growth as well as stronger refining margins though it might be offset partially by a stronger rupee. Refining margins bounced back significantly, to $9 a barrel during the quarter (compared to US$6.8 a barrel in the March quarter). |
| Oil marketing companies are likely to report losses due to under-recoveries pending clarity on oil bonds. Till date there has been no official announcement on the same. Moreover gas transmission and distribution companies are likely to fare well due to bounce back in volumes thanks to gas availability. |
| TOP PICKS RIL: Rise in margins especially refining; higher crude throughput; new exploration success. GAIL: Growth in LPG and petrochemical business. Aban Offshore: Increase in fleet size and higher day rates on rigs. |
| CEMENT The performance of the cement sector is expected to be robust. Revenues are expected to grow at a strong 20-30 per cent thanks to higher volumes growth (10-20 per cent) and increase in realisations (10-15 per cent). Operating margins are expected to improve by over 100 basis points. |
| Southern players like India Cements are likely to perform better as cement prices have risen by Rs 3-5 per bag in the South compared with Rs 2-3 per bag in other regions. Going forward, analysts do not foresee any substantial rise in cement prices. |
| The cement sector has underperformed the Sensex due to price curbs and concerns of oversupply in FY09. Most cement stocks especially in the mid-cap space are quoting at single multiples and EV per tonne of $40-60. |
| However Nanda of Sharekhan thinks differently: “Cement stocks look attractive though there will be one year of pain due to supply glut in the next financial year.” But looking at India's requirements for augmenting infrastructure and ongoing developments in commercial and residential complexes, cement demand would be robust, he adds. |
| TOP PICKS ACC: Will better industry growth rates. Madras Cements, India Cements: Beneficiary of the price rise in South Grasim: Diversified business, strong growth in cement and VSF business |
| PHARMA The performance of pharma companies is likely to be a mixed bag. Since most of the companies have significant exposure to the US and Europe, there could be some currency impact. Sales and profits are expected to grow in the range of 20-30 per cent. |
| Overall, the outlook for the sector is slightly cautious as most of them are in the generics market where pricing pressure still continues, though the domestic formulations market continues to be strong. However, nobody seems to be interested in the pharma sector story despite its defensive nature as market participants prefer to be more focused on individual companies. |
| TOP PICKS Divi’s Labs: Increasing traction in contract research and API growth |
| METALS Steel companies are expected to fare better than non-ferrous metal players like aluminium. Aluminium price cuts due to weaker international prices as well as stronger rupee, will impact realisations for Nalco and Hindalco. |
| International aluminium prices have been down by around 1 per cent in Q1FY08 compared to the March 2007 quarter. On the other hand, steel prices have risen 9.7 per cent. |
| Moreover, appreciating rupee will have an impact on the realisations across the board. As a result, profit growth could be in the range of 5-10 per cent except JSW Steel and SAIL on good growth in top line. Investors need to be cautious going ahead about metal prices in general. |
| TOP PICKS Tata Steel: Financials of Corus to be included in this quarter (profit of Rs 900 crore). JSW Steel and SAIL: High volume growth of over 20 per cent due to increased capacity utilisation on expanded capacities during FY08. |
| FMCG The performance of FMCG companies is not going to be extraordinary. Net sales and operating profits are likely to grow between 10-15 per cent each. |
| While some analysts think that one could see pressure on margins for players like Hindustan Unilever and Nestle due to rise in input costs (palm oil and milk prices), others debate that margins will be maintained due to price hikes. |
| TOP PICKS Hindustan Unilever: Personal care products to resume growth. ITC: Less dependence on cigarette volumes-a positive |
Subscribe to:
Posts (Atom)