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Friday, April 13, 2007
Infosys guidance to decide the course
Infosys' guidance for FY 2008 (year ending 31 March 2008) is likely to offer directions to the bourses today. The IT bellwether has a substantial 11.7% weightage in the Sensex. There is a possibility of traders shifting to Old Economy shares if the IT bellwether comes out with a muted guidance. Stock-specific buying is expected to continue amid corporate earnings reporting season which has just begun.
There have been concerns of a muted guidance from Infosys due to a surge in the rupee against the US dollar during late-March 2007 - early-April 2007, and due to mixed reports from the US economy.
Kotak Securities expects Infosys to give an EPS growth guidance of 20 - 22% range for FY 2008. It expects the EPS guidance to be constrained by equity dilution and the rupee’s surge. It expects a revenue guidance of 24 - 26% in rupee terms and 28 - 30% in dollar terms. According to Merrill Lynch, Infosys’ EPS growth guidance could be conservative, in the early 20s. It, however, reckons that the company can actually achieve a 25% EPS growth, given the strong offshoring trend.
Regarding Q4 results of the IT bellwether, eight brokerages have forecast 3.1 - 6.9% sequential growth in Q4 March 2007 consolidated net profi, between Rs 1013.60 crore and Rs 1050.80 crore compared to a net profit of Rs 983 crore in Q3 December 2006. They have forecast 4.8 - 7.2% sequential growth in revenue, between Rs 3830.60 crore and Rs 3917.30 crore compared to Rs 3655 crore in Q3 December 2006.
The key data due today is that on inflation. The wholesale price inflation rate is expected at 5.81% for the 12 months to 31 March 2007, falling from an annual rise of 6.39% a week earlier. The annual rate hit 6.73% on 3 February 2007, its highest in more than two years, but has moderated after the central bank tightened policy and the government cut duties on a range of items to rein in prices.
As per data released on Thursday (12 April), industrial production rose 11% in February 2007 from a year earlier, slightly lower than upwardly revised annual growth of 11.4% in January 2007. Manufacturing production, which represents more than 75% of industrial output, rose 12.3% in February from a year earlier, compared with a revised 12.1% annual growth in January.
Asian markets were mixed on Friday. Key benchmark indices in China, Hong Kong and Japan were up between 0.06 - 0.14%. Key benchmark indices in Singapore, South Korea and Taiwan were down between 0.1 - 0.4%.
US stocks rose on Friday, after biotechnology company, MedImmune Inc.'s, announcement that it was seeking a buyer, breeding speculation of more deals in the sector. The Nasdaq Composite Index rose 21.01 points, or 0.85%, to close at 2,480.32, with biotechnology shares rising strongly. The Dow Jones Industrial closed up 68.34 points or 0.55%, at 12,552.96, and the S&P 500 index finished up 8.93 points or 0.62%, at 1,447.80.
Q4FY2007 FMCG earnings preview: Sharekhan Special dated April 12, 2007
Q4FY2007 FMCG earnings preview
Key points
- Backed by a pick-up in rural demand, the fast moving consumer goods (FMCG) sector has seen the volume growth getting better every quarter. The revenue growth for the current quarter is likely to be driven by volume growth as well as improved pricing power.
- Rising input prices is a concern for the industry. Palm oil prices have increased by around 20% in the last three months but LAB prices continue to remain steady. Price increases as well as cost savings would help the companies to maintain their margins.
- We expect the profit of Hindustan Lever Ltd (HLL), the market leader in the segment, to grow by 18.8% year on year (yoy) backed by a strong growth in the home and personal care (HPC) segment and price increases in key products. We expect the margin to improve from 11.8% in Q1CY2006 to 12.8% in Q1CY2007, which would be primarily due to the price hikes taken in many of its products as well as improved product mix.
- ITC's profits are expected to grow by a strong 24% yoy. We expect the growth to be broad-based with the magnitude of losses in the non-FMCG business coming down. The imposition of the value-added tax (VAT) is having a dampening effect but we believe any decline is a good opportunity to buy.
- The long-term potential of this sector appears favourable with higher disposable incomes and increased spending. We believe with strong free cash flows, high return on capital employed (RoCE) and sustainable growth the sector still looks attractive.
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Sharekhan Investor's Eye dated April 12, 2007
PULSE TRACK
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February 2007 IIP in line with market estimates
SHAREKHAN SPECIAL
Q4FY2007 FMCG earnings preview
Key points
- Backed by a pick-up in rural demand, the fast moving consumer goods (FMCG) sector has seen the volume growth getting better every quarter. The revenue growth for the current quarter is likely to be driven by volume growth as well as improved pricing power.
- Rising input prices is a concern for the industry. Palm oil prices have increased by around 20% in the last three months but LAB prices continue to remain steady. Price increases as well as cost savings would help the companies to maintain their margins.
- We expect the profit of Hindustan Lever Ltd (HLL), the market leader in the segment, to grow by 18.8% year on year (yoy) backed by a strong growth in the home and personal care (HPC) segment and price increases in key products. We expect the margin to improve from 11.8% in Q1CY2006 to 12.8% in Q1CY2007, which would be primarily due to the price hikes taken in many of its products as well as improved product mix.
- ITC's profits are expected to grow by a strong 24% yoy. We expect the growth to be broad-based with the magnitude of losses in the non-FMCG business coming down. The imposition of the value-added tax (VAT) is having a dampening effect but we believe any decline is a good opportunity to buy.
- The long-term potential of this sector appears favourable with higher disposable incomes and increased spending. We believe with strong free cash flows, high return on capital employed (RoCE) and sustainable growth the sector still looks attractive.
STOCK UPDATE
Bharat Heavy Electricals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,650
Current market price: Rs2,470
NTPC capex plan augurs well for BHEL
Key points
- The near-term order flow for Bharat Heavy Electricals (BHEL) is expected to be robust in view of the ambitious capacity addition plans of the power utilities, especially National Thermal Power Corporation (NTPC). NTPC has announced its provisional results and plan for the next ten years where it plans to increase its capacity by 22,000 megawatt (MW) during the 11th Five-Year Plan and by 25,000MW in the 12th Five-Year Plan, taking its total capacity to over 75,000MW from 27,404MW at present. NTPC, which had awarded contracts for 3,600MW last year, has already placed orders for projects with aggregate capacity of about 11,300MW.
- More importantly, NTPC's capital expenditure (capex) budget of Rs12,792 crore for this fiscal is 63% higher than last year's Rs7,820 crore. Four straight years of 100% realisation on its billing has clearly improved its cash flows and strengthened its finances considerably. NTPC had free cash of about Rs12,000 crore as on December 31, 2006, hence the capex budget looks quite achievable.
- Furthermore, over the next 18-24 months, we expect the other power utilities to award projects worth around Rs76,000 crore for around 38,000MW of capacity.
- Over half of the total orders to be awarded in the next 18-24 months are in the category of 250/500MW units, where BHEL is extremely competitive. So far BHEL has not lost a single 500MW project in India, despite competition from Russian, Korean and Chinese companies. NTPC as well as the state utilities award many of the 500MW orders to BHEL on a negotiated basis. Thus, it is highly likely that BHEL may bag around 19,500MW, or Rs39,550 crore, worth of new orders.
Thursday, April 12, 2007
Market Close: Down but not out ! All eyes on Infy !
Tracking the global trends, Indian indices had weak session for the second day. Indices traded on a weak note since the start of the trade. Profit booking was seen across the board except selective stocks in Software, Pharma and Airlines where there was some buying interest. IT major Infosys firmed up further as every one awaits the giants results which is due tomorrow. The key economic data of February 2007 industrial production output rises to 11.1% VS 8.8%, which shows no signs of slowdown in the economy. Asian markets ended in mixed where as European markets currently trading in red.
Sensex closed down 69 points at 13113.81. Weighing on the Sensex were losses in ONGC (852.5,-3 percent), TISCO (495.95,-3 percent), Ranbaxy (335.15,-3 percent), HDFC (1536.95,-3 percent) and Maruti (759.8,-3 percent). Losses are restricted by gains in Bajaj Auto (2349.3501,+3 percent), Infosys (2043.65,+3 percent), Grasim (2258.6499,+2 percent), NTPC (159.9,+1 percent) and Satyam (446.1,+1 percent).
Infosys numbers are due tomorrow and a lot is being made of it. Guidance expected is about 22- 28% for bottomline growth next year. Valuations at 24 X FY 08 certainly not enthusing in the current environment. So better to be careful here. There are short positions and that may limit the downsides.
Jet Airways India Ltd and Sahara Airlines have settled their dispute with regard to the Share Purchase Agreement of January 18, 2006. Jet is set to acquire Sahara Airlines for a lump sum price of Rs 1450 cr. Rs 500 cr has already been paid. Rs 400 cr is payable immediately no later than April 20, 2007. The balance Rs 550 cr is payable in four interest free annual equal instalments commencing on or before March 30, 2008. Jet closed up by 2.83% and its peer Deccan Aviation ended up 10%.
Telecom stocks closed in red on profit taking . Sustaining its aggressive growth in subscriber additions, the GSM-based cellular industry has added over 61 lakh subscribers in March with Bharti Airtel capturing 30.59% of the market share. With this, the all-India GSM subscriber base has touched 12.14 crore at the end of March 2007 compared to 11.53 crore as on end of February 2007, reflecting a growth rate of five per cent. In March, the cellular subscriber base of Bharti touched 3.71 crore with additions of over 17 lakh users, followed by BSNL at 2.74 crore with a market share of 22.59 per cent and additions of over 19.84 lakh subscribers. Hutch-Essar has 2.64 crore subscribers, taking its market share to 21.78% and Idea with a market share of 11.54% has 1.4 crore subscribers in March. Bharti Airtel closed marginally down and its peer R Com, MTNL and VSNL ended in red. Idea closed positive.
Educomp Solutions closed at the upper limit. The company has acquired a Web based trailing company and also bagged some orders in Haryana. We have been bullish on this one and our stand has been vindicated. Do read our research note here. We had a research note on Esab as well. This one looks interesting. Do read the note. Its for our subscribers.. may be here is a hidden gem as well.
Technically Speaking: It was a weak session for the whole day before closing. Sensex touched intraday high of 13194 and low of 12904. Sensex has closed above its resistance at 13170. On the higher side it is looking to hit near 13400 whereas on the lower side major support likes at 12900. Resistance lies at 13289, 13386. Support lies at 13000, 12808. Market turnover stood at Rs 3075 cr. Overall breadth was in favor of Advancers where the Advancers stood at 1916, Decliners stood at 632.
Results anxiety, global weakness plague market
Caution before Infosys Technologies flags off the earnings season Friday (13 April) and a weak trend in global markets pulled domestic bourses lower today. Asian and European shares edged lower on concerns of a further rise in US interest rates. After an initial sharp fall, the market made a good intra-day rebound by early-afternoon trade. But the recovery was short-lived and the market failed to sustain higher level.
The 30-share BSE Sensex lost 69.43 points (0.53%), at 13,113.81. It had moved 129.28 points, between a low of 13,030.87 and a high of 13,160.15.
The S&P CNX Nifty dropped 32.80 points (0.85%), to settle at 3,829.85. The Nifty April futures were at 3,797.95.
As per provisional data, FIIs were net sellers to the tune of Rs 173.58 crore today
The market-breadth was weak. Against 1,466 shares had declined on BSE, 1,090 that rose. Also, 74 stocks remained unchanged. Losers outpaced gainers by a ratio of 1.34:1. The BSE Small-Cap Index shed 28.98 points (0.43%), to settle at 6,682.53. The BSE Mid-Cap Index shed 4.66 points (0.08%), to end at 5,512.40.
Asian and European stocks fell on Thursday (12 April), dented by concern about the economic outlook for the United States and a rise in oil prices. Minutes of the US Federal Reserve's March meeting, released on Wednesday, hinted at a need for further interest rate increases in the United States to fight inflation. Key benchmark indices in Japan, Hong Kong, Singapore, and Taiwan were down between 0.1 – 1.4%. In Europe, key benchmark indices in London, Germany and France were down between 0.4 - 0.6%.
Rising US interest rates do not bode well for emerging markets, since cash in emerging markets may become a casualty as a result.
US stocks fell on Wednesday, as markets faced up to reality that the Federal Reserve may raise interest rates again to quash inflation. The Dow Jones industrial average fell 89.23 points, or 0.71%, to 12,484.62. The Standard & Poor's 500 Index slid 9.52 points, or 0.66%, to 1,438.87. The Nasdaq Composite Index lost 18.30 points, or 0.74%, to 2,459.31.
The BSE clocked a turnover of Rs 3127 crore today compared to Wednesday’s Rs 3952 crore.
Except BSE IT index and the BSE Tech Index, all other sectoral indices of BSE ended in the red. The top-loser in percentage terms was the BSE Metal Index, which had lost 208.86 (2.2%), to end at 9,122.01. BSE FMCG index shed 23.21 points (1.28%), to finish at 1,788.37. BSE’s banking sector index, the Bankex, lost 82.60 points (1.26%), to settle at 6,470.32.
The BSE IT Index gained 71.51 points (1.49%), to end at 4,879.59. The BSE Tech, which is a free-float index comprising IT, telecom and media shares rose 22.01 points (0.63%), to finish at 3,525.65.
Infosys led the gain in IT shares ahead of the announcement of Q4 March 2007, results from the IT bellwether on Friday (13 April). Infosys gained 2.3% to Rs 2040, while Satyam Computer gained 1% to Rs 446.
Infosys unveils Q4 results tomorrow. The rupee’s sharp surge in late-March 2007 - early April 2007, against the US dollar, as well as mixed reports from the US economy, have raised concerns that the FY 2008 guidance by Infosys may turn out conservative. Infosys unveils its full year guidance at the beginning of the financial year along with Q4 March results
According to analysts, an important factor IT companies must watch out for is the extent of equity dilution in the March 2007 quarter arising out of exercise of employee stock options (ESOPs). This is so in the backdrop of the Budget 2007-08 bringing ESOPs exercised on or after 1 April 2007 under fringe benefit tax. Analysts will also closely watch revenue guidance in dollar terms and expect wage hike for FY 2008 in Infosys’ FY 2008 outlook.
8 brokerages have forecast a between 3.1% to 6.9% sequential growth in Infosys’ Q4 March 2007 consolidated net profit to between Rs 1013.60 crore to Rs 1050.80 crore compared to net profit of Rs 983 crore in Q3 December 2006. They have forecast a between 4.8% to 7.2% sequential growth in revenue to between Rs 3830.60 crore to Rs 3917.30 crore compared to Rs 3655 crore in Q3 December 2006.
TCS rose 1.1% to Rs 1204. As per a report, Tata Sons is considering a $1 billion-plus overseas equity offering in Tata Consultancy Services to fund acquisitions. The offer may take place in six months and include the sale of new shares, a newspaper report said.
Oil exploration major ONGC plunged 3.4% to Rs 850. It was the top loser among 30 Sensex constituents. It will invest over Rs 6700 crore to raise oil and gas output, and set up the first large power plant, the state-run oil exploration company said on Wednesday.
Tata Steel lost 3.2% to Rs 495. As many as 22.1 lakh shares changed hands in the counter on BSE. Tata Steel said on Tuesday its board will meet on 17 April 2007, to consider proposals for raising equity funds to finance investment in a special purpose vehicle (SPV) for the acquisition of steel maker, Corus Group.
Ranbaxy shed 3% to Rs 334.45. Ranbaxy Laboratories said on Thursday, it had received approval from Canadian authorities to sell antibiotic cefprozil tablets and powder in Canada.
Auto shares drifted lower. Car major Maruti Udyog (MUL) shed 2.9% to Rs 759.05, Tata Motors lost 1.7% to Rs 709 and Hero Honda shed 1.4% to Rs 631.10. But Bajaj Auto rose nearly 3% to Rs 2345.
Selling was conspicuous in banking stocks. HDFC Bank lost 2.2% to Rs 958, State Bank of India (SBI) shed 1.3% to Rs 968.45 and ICICI Bank lost 1.1% to Rs 849. Banking credit growth decreased to 27% in 2006-07 from 29.6% growth a year earlier, as a result of stiffer monetary tightening since December 2006. The year-on-year growth in bank credit till 29 December 2006, was 30.1%.
Cellular services major, Bharti Airtel, was down 0.1% to Rs 772, off the session’s low of Rs 761.01. The company added 1.7 million new cellular customers in March 2007, taking their user base to 37.1 million.
Gujarat Ambuja Cements (GACL) shed 1.4% to Rs 106.30. GACL said on Wednesday, its March shipments fell 4.5% to 1.48 million tonnes from a year earlier.
Jet Airways gained 2.6% to Rs 625.15, after the company said it had agreed to buy Air Sahara for Rs 1450 crore. The price includes Rs 500 crore that Jet had paid to Air Sahara last year as a bank guarantee pending an acquisition, as well as Rs 400 crore that Jet will pay on or before 20 April 2007. The balance will be paid in equal, interest-free annual installments from March 2008 to 2011. The combined entity will have a market share of about 40%.
Sesa Goa lost 4.4% to Rs 1671.50, after a newspaper report said Aditya Birla group was leading the race with a bid for Mitsui's 51% stake in the company at Rs 1550 a share, 11.4% lower than Wednesday's closing price of Rs 1749.65.
IFCI rose 3.4% to Rs 38, on strong institutional interest. Volumes in the stock were a huge 1.99 crore shares on BSE.
Real estate developer Orbit Corporation settled at Rs 127.95, on BSE. The scrip today debuted at Rs 90 compared to the IPO price of Rs 110. It hit a low of Rs 90 and a high of Rs 137. As many as 1.44 crore shares changed hands in the counter on BSE.
UTV Software Communications rose 2.7% to Rs 309.75, after the company said it planned to sell a stake in a film production subsidiary and a possible listing of the unit in the Alternative Investment Market of the London Stock Exchange (LSE).
Reliance Capital dropped 2% to Rs 661.25. Reliance Capital on Wednesday announced its foray into the brokerage business through Reliance Money, which will offer ‘fixed’ flat-fee structure instead of the contemporary system, where investors pay brokerage fee for each transaction conducted in the stock market.
Lupin rose 1.5% to Rs 625.10, after the company got approval of the US Food and Drug Administration to sell cefixime, an antibiotic for children, the company said on Thursday. Commercial shipments of the product have already commenced, Lupin said.
Bharat Forge rose 0.3% to Rs 313.90. The company is reportedly foraying into manufacturing components for aerospace applications and marine engines by investing Rs 300 crore in a greenfield project at Baramati as the first step.
Hindustan Zinc dropped 3% to Rs 681.10, even as the company said on Thursday it had increased zinc prices by 8.3% (Rs 13400) a tonne to Rs 1,75,000 a tonne, with immediate effect. It also increased lead prices by 2.2% to Rs 99,100 a tonne.
The immediate trigger for the market is Q4 March 2007, results. Overall Q4 results are expected to remain strong. More important than Q4 results is what company managements say about the outlook for the current financial year (FY 2008). The Citigroup expects an overall corporate earnings growth to moderate to 15 - 16% in the current and next year, while FY 2007 (year ended 31 March 2007) could be the fifth straight year of 25 - 30% earnings growth.
Key important data due tomorrow is that on inflation. The wholesale price inflation rate is expected at 5.81% for the 12 months to 31 March 2007, falling from an annual rise of 6.39% a week earlier. The annual rate hit 6.73% on 3 February 2007, its highest in more than two years, but has moderated after the central bank tightened policy and the government cut duties on a range of items to rein in prices.
As per data released today, industrial production rose 11% in February 2007 from a year earlier, slightly lower than upwardly revised annual growth of 11.4% in January 2007. Manufacturing production, which represents more than 75% of industrial output, rose 12.3% in February from a year earlier, compared with a revised 12.1% annual growth in January.
Sensex sheds 69 points
In line with the weakness in the global indices the domestic market slipped in early trades, as the investors were cautious ahead of the announcement of key results. The Sensex opened with a negative gap of 55 points at 13128. The index tumbled 152 points in early trades on heavy selling in banking and auto stocks. The market managed to pare some losses as buying emerged at lower levels but remained in negative territory. The market steadily lost momentum as the trading session progressed and slipped on selling in heavyweight, metal, banking, fast moving consumer goods and public sector unit stocks. The Sensex finally ended the session with losses of 69 points at 13114, while the Nifty shed 33 points and closed at 3830.
The market breadth was weak. Of the 2,628 stocks traded on the BSE, 1,090 stocks advanced, 1,464 stocks declined and 74 stocks ended unchanged. Most of the sectoral indices ended in the red. The BSE Metal Index led the slump and closed weaker by 2.24% at 9122 followed by the BSE PSU Index (down 1.31% at 6023), the BSE FMCG Index (down 1.28% at 1788) and the BSE Bankex (down 1.26% at 6470).
Among the Sensex stocks nine stocks advanced and 21 stocks declined during the day. ONGC slumped 3.13% at Rs853, Tata Steel shed 3.11% at Rs496, Ranbaxy declined 2.94% at Rs335, HDFC lost 2.92% at Rs1,537, Maruti Udyog shed 2.86% at Rs760, ITC fell 2.74% at Rs156, HDFC Bank slipped 2.26% at Rs958, Hero Honda plunged 1.89% at Rs629 and Tata Motors was down 1.63% at Rs710. Among the select gainers Bajaj Auto added 3.03% at Rs2,349, Infosys advanced 2.57% at Rs2,044 and Grasim gained 1.70% at Rs2,259.
Among the metal stocks Sesa Goa tanked 4.94% at Rs1,663, Jindal Steel slumped 4.01% at Rs2,501, Tata Steel dropped 3.11% at Rs496, Hindustan Zinc shed 2.54% at Rs684 and Nalco was down 2.29% at Rs241.
IFCI was the most actively traded counter with volumes of over two crore shares on the BSE followed by Orbit Corporation (1.44 crore shares), Reliance Natural Resources (53.53 lakh shares), Gremach Infrastructure (39.88 lakh shares) and Idea Cellular (39.57 lakh shares).
Value-wise Orbit Corporation clocked a turnover of Rs185 crore on the BSE followed by India Bulls Real Estate (Rs115 crore), Tata Steel (Rs112 crore), Mind Tree (Rs91 crore) and India Bulls (Rs90 crore).
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