Rolta India

Investors with a two-year horizon can buy the shares of Rolta India, a software solutions provider, considering its strong order book position, favourable geographic mix and a strong focus on areas such as Defence where spends are increasing.

At Rs 183, the stock trades at 10 times its likely FY11 per share earnings. Given its differentiated focus, there are no strict peers, but valuations are at a discount to most mid-tier IT companies of similar size.

In the nine months of FY10, the company has seen revenues grow by 7.7 per cent to Rs 1,120.6 crore, while operating profits improved 14.9 per cent to Rs 440.8 crore.

Rolta provides geospatial information to the armed forces, the DRDO, the Survey of India, the Airports Authority of India and a host of other governmental nodal agencies. This segment contributes to half its revenues, while engineering services (25 per cent) and enterprise IT solutions (about 25 per cent) are its other divisions.

The company derives 55 per cent of its revenues from Indian clients, with a strong concentration towards government customers, where spends are being enhanced. With a 45 per cent overseas currency exposure, across the dollar, euro and the pound, the impact of rupee appreciation on revenues has largely been muted (2.5-3 per cent).

Its client base is resilient in India. With Defence spends increased by four per cent in the 2010-11 Union Budget to Rs 1,47,344 crore, companies such as Rolta with existing relationships can look to a increased share of the pie.

The nuclear reactor segment, another key area where the company recently won a deal, is also set to improve contribution as India signs deals with various members of the nuclear suppliers group.

The company has an order book of Rs 1,770 crore (more than its expected current year revenues) executable over the next four-five quarters. The order book comprises healthy contribution from all three of its segments of operations, with geospatial services and engineering services accounting for nearly 79 per cent. This gives a fair degree of revenue visibility for the company across divisions.

Also, the billing rates have stabilised across all three segments and in cases, even marginally increased. IP services, which ensure strong margin-led growth, account for 8-9 per cent of Rolta's revenues currently. The company expects this proportion to go up to 20-25 per cent over the next three years.

via BL

ULIPs - the way forward

The dispute between regulators over unit linked insurance plans (ULIPs) marketed by insurance companies has left many investors confused. Here's an FAQ to address some of the doubts that investors may have:

What is the status of my existing ULIP after the SEBI ban? Should I continue to pay my renewal premium? Will it be accepted?

With both the regulators agreeing to jointly seek a binding legal mandate from a Court in this matter, there is as of now no change in the status of your ULIP.

If you have taken the ULIP to meet any of your financial goals, you should not stop paying the annual premium. The insurance companies will continue to accept the renewal premium.

SEBI's clarification this week also exempts ULIPs existing as on April 9, 2010, from the earlier ban.

Should I surrender my ULIP as there seems to be some regulatory problem?

The current issue is not about ULIPs, but about who will regulate them. Hence, you need not surrender the policy, especially if it is less than five years old.

ULIPs typically collect high surrender charges in the first five years. The surrender charges could be as high as 25 per cent if you have paid premium only for two years.

Apart from that, due to high initial upfront charges you may not even get what you have invested.

So don't make a hasty decision.

Will my money be safe if there is change in the regulator?

You need not worry about that. The issue of safety will arise only if the insurance company is going bankrupt.

In ULIPs, the money collected is mainly invested in equity and debt instruments based on the mandate of the policy. Your investments do carry market risk and can suffer if the portfolio of the fund does not perform. But as long as the equity and debt markets are functioning smoothly, a change in the regulator will not impact you.

I have paid premium for three years. Will I continue to get risk cover on my life if I stop paying premium?

Policyholders will be covered for life risk as long as your fund value is above the regular premium payable. If your fund value falls below this threshold due to adverse market conditions, then your policy will be closed and the proceeds will be paid to you, after deduction of surrender and other charges.

I have paid premium for two years. Is it possible for me to surrender the policy?

If you stop regular premium payments before three years have passed, your funds will be held in suspense, after deduction of surrender charges. The amount in the policy will be paid out to you only at the end of the third year.

Is it possible for me to convert my ULIP to a pure term insurance products?

It is not possible to convert your ULIP into another product. If you have decided to close the ULIP, with that proceeds you can buy a new term insurance policy.

Is investing in a ULIP a bad investment decision? If I pay premium for three years for a 10-year term, will it affect the overall return?

ULIPs are not a bad product per se. Insurance is a long-term product and the cost structures are designed in such a way that only investors who with the fund for 8-10 years will reap the benefits of the investment. Early exit is penalised through high charges.

If you bought a ULIP believing it to be a three-year product, then it will fail to reward you for the risk of blocking your money.

In a ULIP, more of your money goes to build your fund value only from the third year onwards. Therefore, only someone who keeps investing for 8-10 years may get an equity market return.

The major problem with an ULIP is that if the product underperforms the market for the initial years and if you try to exit, investors suffer a double whammy – low returns and high charges.

Should I invest in a ULIP today, given all this controversy?

First and foremost, it is to be understood that insurance are long- term product intended for, say, 10-15 years. We do not know how the current dispute on regulations will end. But it may alter the structure, costs and other features of products. Some changes may also be beneficial for investors.

Under the uncertain situation, it may be better to postpone the investment in new ULIPs and wait for clarity.

Tomorrow if the life insurance agent's commission is reduced, like mutual funds, and if he stops collecting the premium cheque and stops advising me, how should I handle the situation?

If that does happen, based on the service you require and the service rendered by the agent, you can negotiate and fix an advisory fee for him. You should also note that payments and reminders about renewal premium have become easier to deal with as several options are available.

To pay premia, you can opt for electronic clearance mode, credit card payment option, online payment or use the cheque-drop facility.

via BL

China's Q1 GDP grows more than expected

Some more monetary tightening move could be in the offing in China and the pressure to let the yuan float a little more freely may also increase after first-quarter gross domestic product (GDP) grew at a faster than anticipated pace. GDP in the January to March period expanded by 11.9% from 10.7% in the fourth quarter of 2009, the National Bureau of Statistics (NBS) said. Economists had forecast growth of 11.5%. It was the fastest growth rate in the first quarter since 2007, when the Chinese economy grew by 13%. Non-deliverable yuan forwards climbed 0.2% to 6.6140 as of 10:08 a.m. in Hong Kong, suggesting that the currency may appreciate 3.2% in the next 12 months. The Shanghai Composite Index swung from losses to a gain following the release of the GDP data. Industrial production rose 18.1% in March and retail sales climbed 18%, the data showed. Urban fixed-asset investment increased 26.4% in the first quarter from a year earlier. Consumer prices in China rose at a less-than-estimated pace of 2.4% in March from a year earlier, government data showed. CPI rose by 2.7% in February. Economists had forecast a gain of 2.6%. The producer price index (PPI) was up 5.9% after climbing 5.4% in February.

Zee News shares adjust for demerger of GEC biz

Shares of Zee News plunged because of the demerger. The Regional General Entertainment Channel (GEC) business of the company was de-merged and transferred to Zee Entertainment Enterprises Ltd. with effect from January 1, 2010 (appointed date). April 16 was fixed as the Record Date for determination of members of the company who would become eligible for issuance of equity shares by Zee Entertainment Enterprises. For every 19 shares of Zee News one received residual portion of Zee News shares as well as four shares of Zee Entertainment. The Zee News stock fell by more than 75% cent on April 15 and traded at a market capitalisation-to-sales ratio of about two times, based on estimated sales of around Rs2.4bn that the company may achieve in FY11. Zee News reported revenues of Rs4.69bn for the nine months of FY10. When the demerger was agreed in October 2009, the GEC business contributed about 65% of Zee News' topline and 95% of operating profit. Now with only news channels in its fold, Zee News would be a loss-making company.

HDFC re-launches teaser loan scheme

Housing finance major HDFC re-introduced a new dual rate home loan scheme, which is available only till the end of April. Under the scheme, the fixed rate will be 8.25% up to March 2011. In the following year (2011-12), the rate will be fixed at 9%. Starting from the third year (2012-13) the scheme will attract the prevailing floating rate for the remainder of the loan's tenure. The floating rates will be applicable under two slabs; for loans up to Rs3mn the rate will be 9% while for loans above Rs3mn the rate will be 9.25%. HDFC also said today that its existing floating rate product would continue without any change where rates are 8.75% for loans up to Rs3mn, 9% for loans between Rs3mn and Rs5mn and 9.25% for loans of more than Rs5mn.

HDFC’s earlier scheme offered home loans at 8.25 per cent fixed for the first two years and thereafter, at the then-prevailing floating rate. The leading home loan provider’s revised scheme was apparently a reaction to State Bank of India (SBI) extending its special scheme till the end of this month. Renu Sud Karnad, managing director, HDFC, said even though there is a marginal increase in interest rate compared with the earlier offer, HDFC's effective rate over a 15-20 year term is very attractive. HDFC said this is a flexible product with dual rates. The fixed rates are applicable for all new loans irrespective of the loan amount. SBI is charging 8% fixed for the first year and 8.5% fixed for the subsequent two years under its special scheme for loans up to Rs5mn.

GMR Infra raises US$350mn via QIP

GMR Infrastructure Ltd. raised US$315mn through issue of shares to foreign investors. Bangalore-based GMR received good interest and the company raised the offering size from an initially planned US$250mn, according to reports. Foreign investors bought 88% of the QIP, with half of the total demand coming from Europe and the remaining from Asia, reports added. GMR opened the sale on April 15 and said the proceeds would be used for capital expenditure and for acquisitions. The floor price for the QIP was Rs62.20, a discount of 2.5% to the close on April 15. Bank of America-Merrill Lynch was the sole global manager for the QIP, while Axis Bank and IDBI Capital Markets were the other lead managers. Last week, an arm of GMR Infrastructure raised US$200mn when Singapore state investor Temasek Holdings bought a stake in unlisted GMR Energy. In June 2009, GMR Infrastructure had cancelled a US$500mn QIP due to poor investor demand.

Separately, IVR Prime Urban Developers Ltd., a subsidiary of Hyderabad-based infrastructure major IVRCL Infrastructures & Projects Ltd., is planning to raise capital through qualified institutional placement (QIP). The funds will be used for execution of projects and working capital requirements. IVRCL has recently raised Rs630mn by selling two separate land properties in Pune and Chennai.

Welspun India Ltd. launched a QIP to raise up to Rs1.5bn. The shares will be sold at Rs97.50 apiece, a discount of 14.6% to the close on April 12 of Rs114.20. Motilal Oswal Financial Services was the sole arranger to the issue.

M&M and Renault announce restructuring of JV

Mahindra and Renault announced the restructuring plans for their 51:49 JV, Mahindra Renault Pvt Ltd, through which the Logan car is manufactured. Under a Framework Agreement, the two parties have in principle agreed that M&M will take over the operations of the JV. Renault will continue to support M&M and the product through a License Agreement and supply of key components, including the engine and transmission. The aim of the restructuring is to ensure continuity and build on the positive customer equity that exists for the Logan in India, the two companies said in a statement.

Mahindra & Mahindra (M&M) will buy Renault’s equity stake in MRPL resulting in Mahindra Renault Pvt Ltd becoming a 100% Mahindra group owned company. M&M will be responsible for the management of the Logan in the Indian market. The Renault name and logo will continue to be used on the Logan till the end of this calendar year. Over the course of a transition period of about 18 months, M&M will rename the car to a Mahindra owned brand name and the car shall then only display the Mahindra logo.

M&M may make modifications in line with customer expectations and execute additional localization to reduce costs. Other vehicles built on the Logan platform by Renault globally, such as the Sandero, are not included in this new agreement. M&M and Renault will continue to work together on an ongoing basis to explore areas of synergy for mutual benefit on several fronts.

Tata Motors DVR hogs limelight amid heavy discount

ata Motors' DVR shares surged amid optimism that liquidity on the counter will improve amid reports that Tata Sons will pare its stake through a book-building route. Tata Sons had reduced its stake to 54% from 73% in 2009 and is further planning to cut it in an attempt for better pricing for the DVR, which is currently quoting at a significant discount to Tata Motors. Tata Sons plans to sell the DVRs in the open market through an auction and has also reportedly appointed Tata Capital for the transaction. On April 13, in bulk deal on the exchanges, Tata Sons sold ~1.6mn shares. HDFC MF bought ~1.05mn shares at an average rice of Rs485 per DVR. Tata Motors’s DVRs (with a one-tenth voting right compared to ordinary shares) have been trading at a ~40% discount to the ordinary shares. The ‘A’ class shares have a 5% higher dividend than ordinary shares.

The Tata Motors DVR had been under pressure due to offloading of large stakes by Tata Sons and other major shareholders like IFCI and Tata Steel. The latter two together held a 15% stake in the DVR, which they have been selling to several investors. The DVR shares rights issue happened when market was in downturn and most of the shares were subscribed by the promoter(s). In a note this week, IIFL said that globally, shares with lower voting rights trade at only a 3-5% discount to those with higher voting rights when there is enough liquidity in both classes of shares. The steep discount for the Tata Motors DVR is due to illiquidity. However, in the past few months, the initial holders of the DVRs have sold more than a third of their holding, so liquidity in DVRs is likely to improve, going forward. So, the discount between Tata Motors and the DVR should narrow down further going ahead.

Jan-Mar domestic air passenger traffic up 20% yoy

The total domestic passengers carried by the Scheduled Airlines of India in the first quarter of 2010 (January to March) was 11.8mn. The total domestic passengers carried by the Scheduled Airlines of India in the first quarter of 2009 was 9.8mn. Passengers carried by domestic airlines, including NSOP operators, from January-March 2010 were 12.03mn as against 9.98mn in the corresponding period of year 2009, thereby registering a growth of + 20.54%. Domestic airlines flew close to 4mn passengers during March 2010, up 23% over the corresponding month last year. As per the Directorate General of Civil Aviation (DGCA) data, most of the airlines filled over 70% of their seats during this period. The flight occupancy, however, dipped marginally compared with February this year.

Analysis of Capacity (ASKM) and Demand (RPKM) data on Year-to-Year basis indicates that trend of increase in both the capacity and demand continued in the March 2010 also. The month observed low seat factor primarily due to lean season. The overall cancellation rate of scheduled domestic airlines for the month has been 1.9%. The number of passenger related complaints of scheduled domestic airlines for March 2010 has been 4.5 per 10,000 passengers carried.

3G auction...pan-India bid up 38% at Rs48.31bn

Bidding process for the 3G airwaves continued for the 5th day on April 15. Bids for the third-generation (3G) wireless spectrum increased by 38% compared to the base price fixed by the Department of Telecommunications (DoT). The 3G auction was kicked off on April 9. A provisional winning bid for pan-India 3G spectrum licence rose to Rs48.31bn on the fifth day of the 3G auction, the DoT said on its web site. The DoT has fixed a base price of Rs35bn for a pan-India 3G licence. As per the details given by the Department of Telecommunications (DoT), six more Clock Rounds were completed.

With this, the total number of Clock Rounds completed to date has come to 28. The Price in Round 28 for Delhi Service Area has been recorded at Rs4.64bn; whereas for Mumbai Service Area the price in Round 28 has been recorded at Rs4.42bn. Gujarat has recorded the highest price at Rs4.88bn in Round 28. Both Delhi and Gujarat circles have a base price of Rs3.2bn each. The 3G auction resumed on April 15 after a day's break on April 14 on account of the Ambedkar Jayanti holiday.

The Government is auctioning three slots of 3G airwaves in 17 telecom service areas. Only two slots are up for sale across the country for broadband wireless access (BWA) airwaves, which will begin after the 3G auction. Six existing major telecom service providers - Bharti Airtel, Vodafone Essar, Reliance Communications, Idea Cellular, Tata Teleservices and Aircel - are vying with each other for spectrum in all the 22 telecom circles. The Government expects to earn Rs350-450bn from 3G and BWA auctions. Telecom PSUs BSNL and MTNL have already been allotted 3G spectrum. The two have also launched their 3G mobile services. However, they would have to match the highest bids.

India’s Feb IIP rises 15.1% yoy

India’s industrial output, as measured by the index of industrial production (IIP), grew by 15.1% as against an annual gain of 16.7% in January, and 17.6% in December. It was also lower than the consensus estimate of around 16%. Industrial production grew by a mere 0.2% in the same month last year. Manufacturing output rose by 16% as against a mere 0.2% in February 2009, while Mining production was at 12.2% versus (-)0.2% in the year-ago period. Electricity sector output expanded by 6.7% compared to just 0.7% in the same month a year ago. During April-February 2009-10, the industrial output grew by 10.1% versus 3% in the corresponding period of the last fiscal year.

Consumer Durables production expanded by 29.9% in February 2010 as against 6% in the same period in 2009. Consumer Non-durables output rose by 2.3% versus (-)3.4% in the same month of last year. Consumer Goods output grew by 8.9% compared to (-)1.3% in February 2009. Output in Capital Goods grew by 44.4% in February 2010 as against 11.8% for the same month of 2009. The growth rate in Basic Goods category stood at 8.4% versus a contraction of 0.1% in the year-ago period. Intermediate Goods' output rose by 15.6% in the month under review versus (-)3% in the year-ago period.

As many as 14 out of the 17 industry groups showed a positive growth during February 2010 compared to the corresponding month of the previous year. ‘Metal Products and Parts, except Machinery and Equipment’ clocked the highest growth of 57.0%, followed by 40.4% in ‘Machinery and Equipment other than Transport Equipment’ and 36.4% in ‘Transport Equipment and Parts’. On the other hand, ‘Jute and Other Vegetable Fibre Textiles (except cotton)’ showed a negative growth of 28.7% followed by 6.0% in ‘Wool, Silk and Man-made Fibre Textiles’ and 1.0% in ‘Other Manufacturing Industries’.

March inflation almost unchanged at 9.9%

India's inflation, as measured by the wholesale price index (WPI), surprisingly stayed almost unchanged in March at 9.90% as compared to 9.89% in February. Economists had expected inflation to exceed the 10% mark in March. The official WPI for 'All Commodities' for March 2010 rose by 0.3% to 250.8 from 250.1 for the previous month. Inflation was at 1.20% during the corresponding month of the previous year. Meanwhile, the Government announced that it has revised January's inflation figure to 9.44% as against 8.56% forecast earlier. So, don't be surprised if the February and March inflation readings are also revised higher in the coming months. Indian bonds pared losses as after inflation in March remained more or less steady as against expectations of a double-digit figure. The yield on the benchmark 10-year note declined to 8.09% from 8.12%, the most since October 2008.

Inflation in the Primary Articles group stood at 14.10% in March as against 15.54% in February. Food inflation declined to 16.65% from 17.79% in February. Inflation also dropped in the Non-food Articles space to 12.77% from 13.35% in the previous month. However, inflation in Food & Power group rose to 12.71% from 10.19% in February. Inflation in the Mineral Oils sub-group jumped to 17.02% in March from 14.38% in February. Inflation in Electricity sub-group also rose to 4.72% from 1.95% in February. In the Manufactured Products group, inflation stood at 7.13% versus 7.42% in February. Inflation in the Food Products sub-group fell to 16.98% from 20.43% in February. But, inflation increased in the Textiles, Chemicals, Beverages & Tobacco and Machinery & Tools segments.

Though inflation did not surpass the double-digit mark in March as was feared by policymakers and analysts alike, it is likely to remain elevated at the current level for another two months, Finance Minister Pranab Mukherjee said. "Of course, the apprehension was that it may reach the double-digit figure in March. So it has moderated to some extent but you will have to see that till the month of June, this pressure will continue," Mukherjee told reporters in New Delhi. The Finance Minister said that inflation will soften after the Rabi crop harvesting is complete sometime next month and if the southwest monsoon this year turns out to be good. It may be recalled that monsoon was below par last year, hitting farm output and adding pressure to food prices.

Europe air traffic hit by Iceland volcano

A massive ash cloud from a volcanic eruption in Iceland disrupted air travel across Northern Europe and beyond for most part of the week, prompting authorities to shut major airports in the region and cancel or divert flights. Hundreds of thousands of passengers were left stranded across the globe by the biggest flight disruption since the 2001 terrorist attacks in the US. Officials said it could take days for the skies to clear out. The ash could affect air traffic for a few months if the eruption continued. Eurocontrol, the agency in Brussels that is responsible for coordinating air traffic management across the region, said that disruptions to air traffic could last an additional 48 hours, depending on weather conditions.

The volcano began erupting on April 14 for the second time in a month from below the Eyjafjallajokull glacier, hurling a plume of ash 6 to 11 kilometres (4 to 7 miles) into the atmosphere. Hot gases melted the thick ice, sending cascades of water thundering down the steep slopes of the volcano. The ash plume drifted at between 20,000 feet and 36,000 feet (6,000 meters and 11,000 meters), where it could get absorbed into aircraft engines and cause them to shut down. The smoke and ash could also affect aircraft visibility. The massive plume drifted slowly eastwards on April 16, reaching into central Europe and Russia.

About 17,000 flights were expected to be cancelled on April 16 due to the dangers posed by clouds of volcanic ash from Iceland, aviation officials said, with airports in Britain, France, Germany, and across Europe closed until at least Saturday. British airspace will be restricted until at least 1 a.m. on Saturday, according to flight-control authority National Air Traffic Services. The fallout hit shares of European airline companies such as Lufthansa, British Airways, Air Berlin, Air France-KLM, Iberia and Ryanair. The cloud of volcanic ash shutting dozens of airports in the UK and northern Europe may cost the aviation industry US$1bn in lost revenue if it lasts for three days, the Centre for Asia Pacific Aviation said. Six million passengers could be affected if the closures continue for as many as three days, it added.

Carriers halted several hundred flights between the US and Britain. Airlines across Asia also cancelled or delayed flights to most European destinations. Iceland sits on a large volcanic hot spot in the Atlantic's mid-oceanic ridge, and has a history of devastating eruptions. Iceland has more than 200 volcanoes and 600-plus hot springs. When Eyjafjöll last erupted in 1821 the event lasted more than a year, according to the Global Volcanism Program at the Smithsonian Institution in Washington. The latest eruption is a further blow to a country struggling to rebuild a crippled economy after financial collapse prompted the nation to turn to the IMF

Lalit Modi, Shashi Tharoor spar over Kochi franchise

Lalit Modi and the Indian Premier League (IPL) courted fresh controversy even as several teams jostled to secure a place in the semi-final of the third season of the domestic T-20 cricket championship. This time the brouhaha was to do with the Kochi franchise, its shareholding structure, funding and ownership. Modi was locked in a war of words with Shashi Tharoor, Minister of State for External Affairs over the Kochi team's ownership. Allegations and counter allegations flew thick and fast. The matter came to such a head that even parliament proceedings were disrupted amid growing calls for Tharoor's exit. In the Lok Sabha, the BJP, SP, RJD and other parties demanded a discussion on the Lalit Modi-Shashi Tharoor saga. Even Gujarat chief minister Narendra Modi was dragged into the sordid episode amid reports that the two Modis were trying to take the Kochi bid away to Ahmedabad. What's worse, Income-Tax officials landed up at Lalit Modi's premises and reportedly grilled him for 10 hours.

Tharoor said he lobbied for a franchise for Kerala because he has been a passionate cricket fan. He also repeated that as an MP for Kerala, he believed an IPL team would be a triumph for Kerala. Tharoor went on to add that the consortium that bid and won for the IPL team, Rendezvous, approached him and he became their mentor and advisor. He stated that he was not a part of their business decisions. "There was no misuse of my official position or ministry," Tharoor said. He dismissed charges that Sunanda Pushkar, who reports said is a close friend of the minister, was a front for him. "I've never had slightest taint of financial wrongdoing. Money has never been motivating factor for me," Tharoor said.

Despite all the accusations against Tharoor, he got a clean chit from Congress president Sonia Gandhi. The Congress and the government distanced themselves from the controversy but without abandoning the minister. Tharoor got into trouble after Lalit Modi revealed the identities of the Kochi franchise on Tweeter. It may be recalled that the Kochi team was bought by a consortium for a whopping Rs15.3bn under the entity called Rendezvous Sports World. The Pune team was bought by the Sahara group for around Rs17bn. BCCI president Shashank Manohar wrote a strongly-worded letter to the IPL commissioner, criticising his decision to make public the ownership details of the Kochi franchise. But, Modi said he had done no wrong and had breached no confidentiality. He said there were a lot of hidden things inside the Kochi franchise and he was just trying to make things clear. The IPL Governing Council will meet in a few days to deliberate on the ugly issue. Some reports suggested that the BCCI could clip the wings of Lalit Modi as the commissioner of the ultra successful IPL.

Weekly Stock Picks - Apr 16 2010

Buy Mphasis

Buy Divis Labs

Buy Union Bank

Buy Titan Inds

Buy Unitech