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Wednesday, September 12, 2007
Daily Technical Analysis
Nifty — The index opened on a positive note yesterday, but was unable to sustain the higher levels. It drifted down throughout the day’s session and ended the day with a loss of 11 points.
Range-bound — The index is stuck in a trading band of 4,547 on the upside and 4,446 on the downside for the last 7 trading sessions. Until it sees a breakout from the 4,547-4,446 range, range-bound trading can be expected. Breakout from the trading band will likely result in a directional move.
Resistance can be expected around 4,534 and 4,547 (the higher end of the band).
Support can be expected around 4,446 (the lower end of the band) and 4,404 (50 dma).
Conclusion — Expect range-bound trading between 4,547 and 4,446.
IT Earnings, BHEL, Top Equity funds
Q2FY2008 IT earnings preview
After tough Q1, the frontline tech stocks are estimated to report a marked improvement in their performance during the current quarter. Traditionally, Q2 is one of the best quarters for Indian IT companies. Moreover, the rupee has also stabilised in the range of Rs40.5-41/USD and the average realisation in Q2 could be around Rs40.7/USD, which is almost at the same level as reported by the tech companies in the previous quarters. Consequently, the frontline tech companies are estimated to show a growth of around 9% in their cumulative revenues on a sequential basis.
STOCK UPDATE
Bharat Heavy Electricals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,954
Current market price: Rs1,910
Annual report review
Key points
- Bharat Heavy Electricals Ltd (BHEL) had a splendid FY2007, registering a 29% growth in its revenues to Rs18,739 crore and a 44% increase in its net earnings to Rs2,414.7 crore. The operating profit margin (OPM) expanded marginally (by 60 basis points) to 19.1%.
- The power business registered a healthy growth of 28% in its revenues while the industrial business recorded a rise of 32% in its revenues during the year.
- It was a remarkable year for BHEL in terms of order inflow, which grew at 88.2% year on year (yoy) to Rs35,643 crore. Consequently, the order backlog at the end of the year stood at Rs55,000 crore.
- BHEL's cash pile stood at a huge Rs5,808 crore at the end of FY2007, thanks to reduced working capital requirement and lower capital expenditure during the year.
- The company has crafted a "Strategic plan 2012" targeting a turnover of $10 billion by 2012 vs $4 billion at present.
- In our view, the government's focus on increasing power generation in order to meet its mission of providing "power for all by 2012" would be one of the key catalysts for BHEL's order inflows, providing clear visibility to the company's earnings.
- We believe in future, the execution capability is going to be a key differentiating factor in this business and BHEL, which is a large player, will be better placed to secure the best orders in the industry. Hence, we remain bullish on the stock and reiterate our Buy recommendation with a price target of Rs1,954. At the current market price Rs1,910 the stock is trading at 30.4x its FY2008E earnings and 24.4x its FY2009E earnings.
Alphageo India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs517
Current market price: Rs416
Annual report review
Key points
- In FY2007, Alphageo India’s (Alphageo) revenues increased by around 128% year on year (yoy) to Rs54.3 crore. The operating profit rose by 128% yoy to Rs25.5 crore as compared with Rs11.2 crore in FY2006. However, the operating profit margin (OPM) remained almost flat at 46.9% in FY2007. The net profit grew at 78.3% yoy to Rs7.5 crore.
- The company witnessed a significant improvement in its project mix in FY2007, where the 3D projects made up around 77% of the total revenues as compared with around 44% in FY2006.
- The company's order book as on April 30, 2007 stood at Rs117.1 crore, which is around 70% higher than that of Rs68.8 crore on April 30, 2006. Around 85% of the company's current order book comprises of 3D projects.
- During the year, the company received a Rs58.4 crore contract from ONGC in the operational blocks of the Cauvery basin, Tamil Nadu. The contract will reduce company's excessive dependence on non-monsoon assignments.
- The Company added one more 3D crew in FY2007. The crew strength of the company now stands at five of which three are 3D crew and two are 2D crew.
- Alphageo is the largest private sector player with five crew (three 3D crew and two 2D crew) in operation for 2D and 3D seismic services. The company is well versed with almost all the terrains in the country, which makes the company one of the most experienced (private sector) players in the country to take the advantage of the ongoing boom in oil and gas exploration in the country. At the current market price of Rs416, the stock discounts its FY2009E earnings by 8.0x and is available at enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.0x. We maintain our Buy recommendation on the stock with a price target of Rs517.
SECTOR UPDATE
Steel
Sustained upturn in steel prices
The average international hot rolled coil prices has increased by approximately 6% in the last one month to $570 per tonne. Following the global buoyancy in the international market and the increase in feedstock prices, international companies such as POSCO and Hyundai steel have raised the prices for the second time in the last two months. We believe cost-push factors will keep the steel price firm for the medium term and increasing consolidation will ensure reduced volatility over the longer term.
MUTUAL GAINS
Sharekhan's top equity fund picks
We have identified the best equity-oriented schemes available in the market today based on the following 3 parameter : the past performance as indicated by the one and two year returns, the Sharpe ratio and Fama (net selectivity).
The past performance is measured by the one and two year returns generated by the scheme. Sharpe indicates risk-adjusted returns, giving the returns earned in excess of the risk-free rate for each unit of the risk taken. The Sharpe ratio is also indicative of the consistency of the returns as it takes into account the volatility in the returns as measured by the standard deviation.
FAMA measures the returns generated through selectivity, ie the returns generated because of the fund manager's ability to pick the right stocks. A higher value of net selectivity is always preferred as it reflects the stock picking ability of the fund manager.
Reverse brain drain
With India becoming a favoured destination of several multi-national companies, thousands of Indian IT professionals in the United States are returning to their homeland with good pay packets, according to a survey.
The survey conducted by Indus Entrepreneurs, an association of Indian IT professionals settled in the US, found that around 60,000 professionals have returned to India in recent years, Michael M Bala, Business Head of recruitment portal clickjobs.com, said.
Several couples in age group of 27 to 35 were looking forward to come back to India, he said, quoting the survey.
“Most young Indian couples preferred to return to India to protect their kids from the Western culture and to educate them in Indian atmosphere,” he said.
Infrastructure development and job opportunities at the more or less same salary in India were cited as the factors behind the trend.
Bala, who recently conducted a job fair in New Jersey to recruit personnel for multi-national companies, said more and more Indians were coming forward to return to their motherland with the country becoming favoured destination of several MNCs, financial institutions and IT companies.
“The growth of these institutions in India have thrown open the doors to talented people, who had so for thought that the West was their only resort,” he said.
In the recently held job fair, over 3,000 people, mostly couples, had come forward to attend interviews for companies like Yahoo, Canon, IBM and HP, he said.
Encouraged by this, the portal would be conducting another fair in the US within six months, he said.
Best paymasters in IT companies
If you work for an information technology company, it makes sense to be in the R&D function. According to a recent study conducted by technology research firm IDC India Ltd for Dataquest magazine, multinational firms in the R&D business pay the highest salaries in the Indian IT industry.
The top three paymasters in the industry, according to the study, are companies that hire people largely for R&D work in India: Cadence Design Systems (India) Pvt. Ltd, Sun Microsystems India Pvt. Ltd, and Honeywell Technology Solutions Lab Pvt. Ltd. “For R&D, you need the best brains and you can’t get them cheap,” says E. Balaji, CEO, Ma Foi Management Consultants Ltd.
The study also found that foreign IT firms such as IBM India Pvt. Ltd, Capgemini Consulting India Pvt. Ltd and Computer Sciences Corporation India Pvt. Ltd pay higher salaries than their Indian counterparts.
According to the study, the average salary hike received by software professionals in 2007 was 18.7% compared with 18.3% in 2006; and the average salary of people in the IT industry, across all management levels barring the top management has grown 11% to Rs6.2 lakh per annum. This average salary increase is considered significant because large IT firms have been hiring a large number of people at the entry-level. “It is generally expected that, with the on-campus recruitment of thousands of freshers, the average salaries should go down,” says Shailendra Gupta, senior manager, research, IDC India.
The survey also found out that there is no correlation between salaries and the satisfaction of employees with salaries. “We knew that high salary didn’t always mean high satisfaction, but the sheer extent of disconnect is amazing. There was less than 8% correlation between salary and satisfaction with salary,” says Prasanto Kumar Roy, chief editor, Dataquest. Thus, Cadence, that ranks No.1 in terms of salary, comes in at No.10 in terms of satisfaction of employees with salaries. And HCL Infosystems Ltd, that ranks No.1 in terms of satisfaction of employees with salaries, ranks No.23 in terms of salaries.
The survey found that companies that manage to keep their employees happy can afford to pay lower salaries. “Although salary is one of the biggest deciding factor, a lot depends on the kind of growth potential and work environment the company offers,” adds Ma Foi’s Balaji.
The survey, which excludes top management, covered 2,806 professionals across 31 software companies.
Tuesday, September 11, 2007
Kaveri Seed Company Limited Subscription Details
Qualified Institutional Buyers (QIBs) - 5.5867 times
Non Institutional Investors - 5.0456 times
Retail Individual Investors (RIIs) - 3.2623 times
Employee Reservation - 3.2623 times
OVERALL - 4.51 times
Kaveri Seeds IPO
The initial public offer of Kaveri Seed Company was subscribed 4.51 times on the last day of its offer.
The issue received bids for 1.80 crore equity shares for the 40 lakh shares on offer, latest data available on the stock exchanges show.
The company is expecting to garner up to Rs 68 crore from issue for which the price band has been fixed between Rs 150 to 170 a share.
Besides, another IPO of Dhanus Technologies got subscribed 2.65 times on the second day of issue.
The issue received bids for 1.01 crore equity shares for the 38.35 lakh equity shares on offer, data available on the exchanges show.
The price band of the issue, which closes on September 12, has been fixed between Rs 280 to 295 a share.
Kaveri Seed proposes to utilise the net proceeds of the issue for acquisition of farmland for research and development near Hyderabad, Alwar and Ahmedabad, setting up marketing offices and godowns in Delhi, Lucknow, Jaipur, Ahmedabad and Aurangabad, and a biotechnology lab near Hyderabad.
The proceeds would also be used for upgradation of existing seed processing plants at Kandalkoi, Gundla Pochampally, Gatla Narsingapur and Bellary and setting up of seed processing plant near Hyderabad.
Kaveri Seed Company is mainly into research, production, processing and marketing of high-quality hybrid seeds for crops like corn, sunflower, cotton, pearl millet, paddy, grain sorghum and has recently forayed into micro-nutrients and bio-products.
Dhanus Technologies proposes to utilise the proceeds to expand its infrastructural facilities and equipment base, and construct a new corporate office.
Sensex ends down 54pts
The Sensex opened with a positive gap of 71 points at 15,668, and touched a high of 15,699 in morning trades.
Profit-taking in early noon trades reversed the trend, and sustained selling in auto and technology stocks saw the index drop to 15,506 - down 193 points from the day's high. The Sensex finally ended with a loss of 54 points at 15,543.
While the BSE IT index plunged over 2% to 4471, the Metal index moved up over 1% to 11,772.
The market breadth was marginally positive - out of 2,802 stocks traded, 1,402 advanced, 1,340 declined and 60 were unchanged today.
INDEX SHAKERS...
Infosys and Wipro dropped 2.5% each to Rs 1,823 and Rs 455, respectively. TCS and Satyam slipped over 2% each to Rs 1,024 and Rs 433, respectively.
Tata Motors tumbled nearly 2% to Rs 690. Maruti shed 1.7% at Rs 862.
SBI, ICICI Bank, Ambuja Cements and Dr.Reddy's declined over 1% each to Rs 1,622, Rs 901, Rs 143 and Rs 653, respectively.
...AND THE MOVERS
NTPC surged 2.4% to Rs 196. HDFC rallied 2% to Rs 2,145.
Tata Steel gained 2.3% at Rs 709, and Hindalco added 1.6% to Rs 157.
Hindustan Unilever moved up 1.5% to Rs 217. ACC and BHEL were up 1% each at Rs 1,104 and Rs 1,911, respectively.
MOTILAL GAINS 18% ON DEBUT
Motilal Oswal Financials listed at Rs 999 - a 21% premium to its issue price of Rs 825 per share - on the BSE. The stock touched a low of Rs 913, and finally ended at Rs 974 - a gain of 18% (Rs 149) on listing day.
MOST ACTIVE COUNTERS
Debutant Motilal Oswal topped the value chart with a turnover of Rs 363.50 crore followed by IFCI (Rs 188.70 crore), Reliance (Rs 120 crore), Tata Steel (Rs 109 crore) and Tata Tele (Rs 96.30 crore).
Tata Tele led the volume chart with trades of around 2.85 crore shares followed by IFCI (2.45 crore), Reliance Natural (1.77 crore), Nagarjuna Fertilisers (94.30 lakh) and IKF Technologies (81.20 lakh)
Post Market Commentary
Ailing technology stocks saw indices wipe out the day's gains and end in the red Tuesday. The market opened higher buoyed by positive global cues and with support from index heavyweight Reliance Industries.
Shares of the oil and gas major hit an all-time high of Rs 2007 on the back of the Malaysian buy. Also, reports that Reliance Industries is planning a Rs 25,000-crore healthcare initiative over 7-8 years spurred the stock. The share, however, ended flat at Rs 1,986.3, as the market sentiment turned slightly cautious during the session.
“People are awaiting the US Fed meet on September 18, anxious for news of a rate cut. Perception is that the market has already discounted this, but I still believe it will be a positive trigger for equities,” said Mehraboon Irani of Darashaw & Company.
Traders also booked profits in other frontline stocks, especially in the auto and banking space.
But the worst performers of the day came from the technology sector. The BSE IT Index ended 2.19 per cent lower at 4,470.56 dragged by Satyam Computer (down 2.5%), Wipro (2.44%), Infosys Technologies (2.33%) and Tata Consultancy Services (2.21%).
The drop in tech majors pulled the Sensex down to a low of 15,506.1 intra day.
The 30-share index closed the day at 15,542.77, down 54 points or 0.35 per cent from the previous close. It touched a high of 15,698.98 intra day.
The National Stock Exchange's Nifty finished down 11 points or 0.24 per cent at 4497.05.
However, the CNX Mid-cap Index ended 0.27 per cent higher at 6252.8.
“Second-line stocks have been garnering investor interest and will continue to do so. Even though the Sensex has corrected over a thousand points, there were many stocks which didn't drop as sharply. So investors are buying such scrips,” said Irani.
He is advising clients to look at individual stocks, and buy on dips. "One doesn't necessarily have to wait for the benchmarks to correct to buy. Even technically speaking, I don't think the Sensex will fall below 14500, so there's only upside from here," he said.
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