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Sunday, March 30, 2008
Moving towards 200 day DMA
The markets staged a relief rally as expected and now look on course to test the 200-DMA (Daily Moving Average).
The Nifty surged by 8 per cent or 368 points to 4,942. It touched a low of 4,540 and a high of 4,971 during the week.
The Nifty closed above its short-term 20-DMA, which was 4,845. The 50-DMA and 200-DMA are 5,090 and 5,099 respectively.
If the index closes above the 200-DMA for three consecutive sessions, one may a see further upmove.
The Nifty may face resistance around 5,105-5,155-5,210 this week, while it has a support around 4,775-4,725-4,675.
The Sensex moved in a range of 1,396 points. From a low of 15,056, the index rallied to a high of 16,452 and finally ended with gains of 9.2 per cent or 1,376 points at 16,371.
The index is now close to the upside target zone of 16,650-17,200 mentioned last week. It may face resistance around 16,900-17,070-17,235 and support around 15,835-15,675-15,505 this week.
A move beyond 17,200 would be crucial for the Sensex to sustain the upmove.
Via Business Standard
Pyramid Saimira ties up with Spize TV
Pyramid Saimira Entertainment, a subsidiary of Pyramid Saimira Theatre, has tied up with the UK-based Spize TV, a direct-to-home (DTH) platform to offer the complete suite of the ARY Network channels (ARY Digital, ARY One World, QTV, and The Musik) and also the two B4U Network channels (B4U Movies & B4U Music) in the UK.
Pyramid Saimira Entertainment will provide content on Spize TV, a pan-European direct-to-home (DTH) TV platform offering Asian and niche content to viewers in Europe.
While Spize TV’s North bouquet has have channels in Urdu, Hindi, Punjabi, Bangla and Gujarati. The South bouquet has channels in Tamil, Telugu, Malayalam, Kannada, and Sinhalese. Since the soft launch of the bouquet, the channels are available, and the formal commercial launch for viewers will be in April 2008.
SpizeTV is a pan-European direct-to-home TV platform offering Asian and niche content to viewers in Europe. Spize TV is available on the EuroBird-9 (EB9) satellite, which allows viewers to benefit from the 500+ free-to-air channels on the HotBird satellite. Ajoy Khandheria, CEO of SpizeTV (Managing Director, ORG Informatics Ltd.) says “SpizeTV is a very exciting project for our Group to offer niche content on a pan-European basis and are proud to work with Eutelsat to create the EB-9 as a new hot location for the region, and with Pyramid Saimira to capitalize on their extensive content expertise.”
Salman Iqbal, MD of ARY Group says “we are proud to be the anchor tenant on the SpizeTV platform to progress the European distribution of ARY.”
Via ET
Coromandel Fertilisers
The strong uptrend in farm product prices, mounting pressure to expand farm output and yield and expanding government outlays on agriculture, are all likely to stoke demand for agri-inputs such as fertilisers and crop protection products over the next few years.
The policy environment for domestic fertiliser makers is also likely to turn more conducive in this backdrop. However, the stock may deliver only over a 2-3 year time frame, as the company’s cost and sourcing advantages may pay off only over the medium term. Near-term financials, especially for the March quarter, may be muted as one of the units had temporarily suspended production during this period.
Coromandel Fertilisers, one of India’s leading makers of phosphatic and complex fertilisers, has the scale and distribution reach to capitalise on this trend. The company has managed an annualised growth of 15 per cent in its sales and 32 per cent in net profit over the past five years helped by capex and acquisitions, despite limited pricing power and an unfriendly policy environment. The stock, trading at about eight times its estimated earnings for the current year, at its market price of Rs 117, appears to be a value ‘buy’ in this context.
Starting out as a South-based producer of phosphatic and complex fertilisers and pesticides, Coromandel Fertilisers has acquired significant scale and a pan-India presence through a series of acquisitions. The company’s acquisition of EID Parry’s farm inputs division, phosphate producer — Godavari Fertilisers — and pesticide maker — Ficom Organics — have added manufacturing facilities that are well spread-out to reduce logistics costs and an extensive distribution network for agri-inputs. These have been leveraged to market a wide range of farm inputs spanning fertilisers, crop protection products and micro-nutrients across India.
Scale and diversity
In the fertiliser business, the company is India’s second largest phosphate producers, controlling capacities of close to 2.5 million tonnes; this is proposed to be enhanced to 3.3 million tonnes by 2009. Economies of scale allow considerable flexibility and diversity in CFL’s product mix between DAP and various grades of NPK complex fertilisers (12:32:16, 20:20, 10:26:26 and 28:28). CFL’s earnings growth in fertilisers is determined mainly by volumes and product mix changes. Current selling prices are well below production costs, with producers reimbursed for the shortfall through a “concession” (subsidy) determined on the basis of “normative” conversion costs and prices of imported inputs.
Strategic sourcing
Though this subsidy regime allows eventual pass-through of major input costs (significant when international prices of sulphur and phosphoric acid have risen 9 and 3 times respectively in a year), late recoveries and under recoveries do tend to exert pressure on the liquidity of domestic manufacturers. CFL, on its part, has made several strategic moves over the past five years to optimise its cost structure. It has secured sourcing of key raw materials such as rock phosphate by acquiring stakes in large global suppliers such as Foskor.
A JV to produce Phosphoric acid has also been flagged off with Groupe Chimique Tunisien. CFL has also acquired, turned around and expanded capacities at Godavari Fertilisers to attain considerable scale; it has also worked with a flexible product mix to take best advantage of the subsidy regime. The company’s cost structure is now among the lowest in the phosphatic/complexes space, which makes it well-placed to compete with imported fertilisers.
Favourable twist to policy
Domestic demand for complex fertilisers has been strong over the past three years, on the back of stable prices (fixed by the government) and expanding irrigated area, with the Southern market registering the strongest demand growth. Supplies in the domestic market have been extremely tight as investments in new capacity have not kept pace with demand. Bridging the deficit through imports has become an expensive proposition with global fertiliser prices soaring more than two-fold in the past year.
In this backdrop, the policy on the subsidy and pricing of phosphatic and complex fertilisers is likely to turn more favourable in the years ahead. Implementation of the Abhijit Sen committee recommendations (which proposes pricing and subsidy based on landed cost of imported DAP ) could translate into better margins for low cost, integrated producers such as CFL; it will also make the policy regime more stable and transparent. CFL will also benefit from any transition to nutrient-based subsidies, as this will ensure better offtake of phosphatic fertilisers, relative to urea.
The recent spiral in global fertiliser prices has ensured that landed costs of imported products are well above production costs for efficient domestic producers such as CFL, allowing them a substantial margin of comfort. CFL’s other products offerings within agri-inputs — crop protection and micro nutrients — also offer growth potential. Low-cost manufacture makes CFL a supplier of choice for generic agrochemicals, while micro-nutrients offer significant scope for scaling up given the nascent Indian market.
Indo Tech Transformers
Indo Tech Transformers is one of the small-cap stocks that witnessed steep declines during the recent sell-off by foreign institutional investors. With strong fundamentals in place, the correction has provided an attractive entry point into the stock.
However, given the volatility seen in the broad markets, investors can consider buying in small lots and use price dips, if any, to accumulate the stock.
Invest with a perspective of two-three years. At the current market price of Rs 515, the stock trades at 9.7 times its expected per share earnings for FY-2009 and 12.5 times its present trailing 12 months earnings. Capacity additions that have gone on stream in February 2008 can be expected to reflect fully in revenues from FY-2009.
While the company has enjoyed price-earnings multiple of over 20 in the past, we believe such valuations were driven more by market momentum than fundamentals.
While the company’s business potential is likely to drive healthy growth, investors may have to temper their expectations on the returns front.
Steady demand
Indo Tech Transformers makes a range of power and distribution transformers. The company has fully utilised the proceeds of the IPO (March 2006) towards its plans and has rapidly added capacities. For companies such as Indo Tech, timely expansion moves may be key to capturing orders in a demand-driven market such as the present one. Indo Tech has been doing well on this front with the recent capacity augmentation from 3450 MVA to 7450 MVA.
While the company has not made any significant foray into overseas markets because of capacity constraints, recent capacity additions have opened up opportunities to diversify.
The company has already received orders from the African markets. As these are at present booked in the euro, the risks arising from currency fluctuations may not be as high as with dealing in dollars. Enhanced spending in transmission and distribution segment in these countries has led to higher demand. As a result, Indo Tech’s orders from these countries now carry relatively high profit margins.
While Indo Tech may not significantly ramp up contribution from the export market, the 15 per cent contribution that it hopes to achieve by FY-2009 may be sufficient to strengthen overall profit margins.
SEB dependent
Indo Tech’s order-book of Rs 180 crore is likely to convert into revenues in the next 6-7 months. While state electricity boards (SEBs) of Tamil Nadu and Andhra Pradesh account for about 70 per cent of this, Indo Tech has been expanding its list of corporate clients as a de-risking strategy. Interestingly, the company has managed to recover its receivables more quickly than even bigger players such as Emco, despite having SEBs as its biggest clients.
The company has also managed to enter into price escalation clauses with these SEBs. While it has had a smooth sail dealing with SEBs, the risk of delayed payments arising from the cash-strapped and loss-making SEBs does remains a risk factor.
However, on the positive side, the spending warranted by SEBs would ensure that Indo Tech (being a regular supplier) would secure new as well as replacement orders, thus providing a steady stream of projects.
While the order-book has remained healthy for Indo Tech, inflows in the current quarter (ended March) may see some slowdown associated with the delays in tendering process normally seen towards the financial year-end.
Superior margins
Indo Tech has always enjoyed higher operating profit margins compared to peers. The company’s raw material as a percentage of sales has been lower than peers, indicating better management of sourcing cost.
For the quarter ended December 2007, OPMs surged to 34 per cent from the 25-28 per cent range. While a better client mix could have contributed to this improvement, the company may also have enjoyed the benefits of lower prices of copper in that quarter.
However, even if copper prices remain sluggish (as suggested by forward contracts now, the company may not always be able to retain the cost benefits. Hence, sustainable OPMs of 28-30 per cent appear more realistic.
Tech Mahindra
The steep correction in the price of Tech Mahindra’s shares over the last several months can be traced more to adverse sentiment towards mid-sized IT companies, than to any material change in fundamentals. This offers an opportunity for investors to consider investments in the stock with a two-year perspective.
At Rs 723, the stock trades at 12 times its current earnings and 10 times its FY-09 earnings. This puts valuations on a par with Tier-2 IT players, though the company’s much larger revenue base and net profit margin (20 per cent) is comparable to Tier-1 IT players. Strong business prospects driven by an established relationship with British Telecom offer scope for capital appreciation.
Tech Mahindra broadly caters to three sets of clientele — telecom service providers, telecom equipment manufacturers and independent software vendors. The company is also working with clients on latest Internet technologies to cover newer delivery standards such as WiMAX.
These three segments, along with associated IT and BPO services, cover the entire gamut of IT/network operations for any telecom company. This makes Tech Mahindra a fully integrated player, a model not easily replicable even by Tier-1 software players, providing it with a significant competitive advantage. The other critical aspect is Tech Mahindra’s focus on the European markets, a critical geography for telecom spending. The client base of Tech Mahindra comprises, among others, AT&T, Motorola, Alcatel-Lucent, Convergys, Vodafone, and O2. Tech Mahindra derives 70 per cent of its revenues from European clientele.
Europe is also the biggest telecom market, home to top service providers and equipment makers (such as Ericsson, Alcatel, Nokia-Siemens) and the largest market for value-added services.
Tech Mahindra already works with some of these players. In the Business Support Systems and Operations Support Systems segment (areas where a lion’s share of telecom-software outsourcing happens), Tech Mahindra is among the top ten players in the world.
Business Drivers
Deal wins and strong pipeline: Tech Mahindra has recently won a $350-million, five-year deal with British Telecom Group (BT). This deal is largely for provision of application support and maintenance services and is structured for payment evenly spread over five years, giving sustained revenue visibility in an environment of global uncertainty over IT spends. This being a volume service deal, BT has indicated that a good part of the work is to be carried out offshore, suggesting scope for higher margins. This deal is over and above the $1-billion deal that the company had won from BT in December 2006.
The deal also envisages higher compensation to Tech Mahindra if it betters BT’s standards on certain project metrics. BT has also indicated that there may be more such “multi-hundred million” dollar deals in the offing, which may buoy Tech Mahindra’s prospects.
This apart, AT&T, Tech Mahindra’s second-largest client, has won a chunk of spectrum in the recent auction by the American telecom regulators. This will enable it to enhance its voice and data services delivery and tap new customers.
Other recent deal wins are from mobile virtual network operator (MVNOs), WiMAX providers and select media and entertainment companies. These are spread across West Asia and Europe. These services and geographies are high growth, portending more business for Tech Mahindra.
Operational Metrics
The geographic spread is now expanding with US also contributing 20 per cent of Tech Mahindra’s revenues. Revenue concentration (BT being the top client) has been reducing, with BT’s contribution down from 75 per cent levels earlier to 61 per cent now.
Utilisation levels as of December 2007 stood at 69 per cent, much lower than Tier-1 peers. Tech Mahindra may need to hike this level substantially to generate higher volume-driven growth, especially during turbulent quarters.
Risks
Attrition at 21 per cent, higher than Tier-1 players, is a key execution risk. Vendor rationalisation process of top clients may mean that large deals could be sliced into smaller ones, affecting deal size and revenues. In this light, Infosys and TCS, in particular, may offer stiff competition to the company.
Saturday, March 29, 2008
Weekly Newsletter - March 29 2008
After posting one of the best weekly gains in recent months, the bulls will hope to retain their hold. Markets could see some spikes before the result season gets underway. Despite inflation rising, the markets staged a strong comeback on Friday. Some suspect the gains witnessed in the week, especially on Friday, was more to do with NAV propping by some mutual funds.
Like in recent weeks, pressure at higher levels will continue to keep the markets choppy. Besides the global cues, there are worries on the margin front for institutional investors too. No harm in booking profits if some recently bought stocks have had a good run. But then keep collecting some stocks for the long term too. w
Pay commission recommends liberal hike and Cabinet approves farmers relief
Sixth pay panel recommends liberal pay hikes
The Sixth Pay Commission submitted its report to Finance Minister P. Chidambaram and asked for a substantial hike in salaries for central government employees across the board. The new pay scale will come into effect from January 1, 2006. The report will now be presented to the Union Cabinet for its consideration. The pay panel is set up once a decade to assess civil servant salaries. The pay hike will cost the Government a net Rs79.75bn (US$2bn) in the financial year ending March 31, 2009. Apart from this, the Government will have to make an additional, one-time payment of Rs180.6bn for salary arrears. The commission recommended a salary increase of 77% for the lowest rung of central government workers. It suggested minimum wage of Rs6,660 a month and maximum salary of Rs80,000 a month for government employees. The previous pay commission was set up in April 1994 and submitted its report in January 1997. The subsequent pay increase cost the Government Rs170bn (US$4.2bn) annually. States were forced to match the pay hike, swelling the combined central and state deficit to nearly 10% of GDP. Some economists fear a similar slippage in the fiscal deficit this time around.
Cabinet okays farmers debt relief fund
The Cabinet gave its approval for creation of a Farmers’ Debt Relief Fund with an initial corpus of Rs100bn to be transferred from the Consolidated Fund of India to Public Accounts during the financial year 2007-08. The Cabinet gave its approval for augmentation of the fund required for reimbursing the lending institutions the amount of debt waiver /relief granted by them. Accordingly, the fund will subsequently be enhanced by Rs150bn in FY09, Rs150bn in FY10, Rs120bn in FY11 and Rs83.14bn in FY12. A scheme of debt waiver for farmers was announced in the Budget 2008-09. The scheme is aimed at mitigating the hardships being faced by the farmers in general and small and marginal farmers in particular. Upon being granted, debt waiver or signing an agreement for debt relief under the One Time Settlement (OTS), farmers would be entitled to fresh agricultural loans from banks in accordance with normal rules. The implementation of the debt waiver and debt relief scheme will be completed by June 30.
No fun subscribing to IPOs this season..
Investors have lost around quarter of the amount raised by 18 IPOs this calendar year as 13 of them are trading below their issue prices, a top Finance Ministry official said on Saturday.
"Out of the 18 IPOs launched in 2008, 13 were trading at a discount last week implying losses to investors of about a quarter of the total IPO amount. I think, it must be larger today," Finance Secretary D Subbarao said at a seminar on Securities Contracts (Regulation) Rules here.
If the situation continues, it would be increasingly difficult for corporates to raise money from the capital market, he said.
The Finance Secretary attributed weak sentiment in the market to increasing risk-aversion among investors. "The stock market provided 15 billion dollars in 2007 to support investments of firms. But, as global risk aversion has risen in the past few months, this has dented investors sentiments in India too," he added.
Of the total IPOs listed on stock exchanges this year, 11 companies had an issue price above Rs 100. The aggressive pricing of the IPOs have led the companies to lose substantially being unable to sustain the prices in long-term.
In fact, reliance power launched with much fanfare, closed at Rs 372.50 on the opening day, much below its offer price of Rs 450 a share, forcing the company to issue three bonus shares for every five held by non-promoters.
However, state-run rural electrification corporation was trading higher at Rs 109.05 against its issue price of Rs 105 and GSS America at Rs 640.85 against an issue price of Rs 400.
The bearish sentiments in the market has led to 13 firms witnessing red in the market. The Sensex, which opened above 20,300 points in January, has dipped 4,000 points to about 16,400 points since then till yesterday.
Inflation scares the Govt, may take steps on Monday
Concerned at "disturbing" inflation, that spiralled to over 13-month high of 6.68 percent, the government has decided to hold a meeting of high-level Cabinet Committee on Monday to take stock of rising prices, Finance Secretary D Subbarao said on Saturday.
A high-level Cabinet Committee will meet on Monday to take stock of high inflation that has surged to over 13-month high of 6.68 percent, a top finance ministry official said on Saturday.
"The Cabinet Committee on prices will meet on Monday," Finance Secretary D Subbarao told reporters on the sidelines of a seminar on proposed amendments to `securities contracts (regulations) rules`.
Earlier addressing the seminar, Subbarao said yesterday`s inflation numbers, which were quite disturbing, were partly due to high global commodity prices.
Commodity prices are rising globally despite fears of recession in the US, he said at the seminar organised by the Institute of Company Secretaries of India.
"Generally, we expect commodity prices will go down when there is recession in the developed countries. If you look at past recession in the US, there is depression in commodity prices. But, this time there is elevation in commodity prices together with recession in the US," he said.
Together with surging inflation, the rupee had also risen yesterday to the highest level in a month to go below crucial 40-level to stand at 39.89/90 against the dollar, up 20.50 paise over the previous closing.
Subbarao said exports have come under double pressure because of appreciation in the rupee and low demand due to recession in the US.
Metal and food prices spurted inflation to the highest number in over a year, much above the RBI`s tolerance level of 5 percent.
Finance Minister P Chidambaram had said yesterday that the government would take every measure to keep prices under check, even at the cost of slowing down the economic growth.
"The government is determined to take all steps -- fiscal, monetary and supply side -- to moderate inflation and if that means we have to live with slightly lesser growth, so be it," he had said in Mumbai.
Describing inflation as a regressive tax, he had said, "we have to balance between inflation and growth."
Attributing high rate of inflation to global crude, food and commodity prices, the Finance Minister had said interest rates are the most effective instrument to contain price rise.
Analysts also said they did not rule out further tightening of monetary stance by the reserve bank at its annual monetary policy review, slated for April 29, even if it costs some growth.
Commerce Minister Kamal Nath had said in Delhi, "any rise in inflation is a matter of concern ...Government is looking at a proposal to ban non-basmati rice exports. We are also going to recommend scrapping of import duty on steel."
Market ends up 9% higher for the week
The long bear phase seems to have ended as the stock markets witnessed an impressive relief rally lifting the benchmark Sensex by 9% during the week ended March 28.
The Sensex moved between a high of 16,452.08 and a low of 15,056.09 before ending the week at 16,371.29 - a sharp rise of 1,376.46 points (9.18%) over the previous weekend.
The buying spree was so strong that the Sensex logged its second-biggest gain of 928.09 points on March 25.
Take Solutions, Four Soft may merge
Hyderabad-based Four Soft Ltd and Chennai-headquartered Take Solutions Ltd, providers of IT products and solutions in the supply chain management (SCM) space, announced their intent to merge. The combination will create a global, comprehensive company with one of the largest product offerings in SCM. Both companies have received in-principle approval from their board of directors to consider the merger.
Both boards will appoint independent firms of chartered accountants and financial advisers to reach a fair valuation for the shareholders of both the companies. The boards of Four Soft and Take Solutions expect to meet within six to eight weeks to consider the reports of the advisers. The merger, if approved by the boards, will be subject to shareholders’ approval of both companies and other regulatory approvals.
“Four Soft has full service products and offerings. Take Solutions' product offerings complement this very well on the enterprise side. The combined range of intellectual property (IP) is unmatched globally and will enable both good customer traction and good shareholder value,” Palem Srikanth Reddy, chairman and chief executive officer of Four Soft, stated in a press release today.
Commenting on the proposed merger, Srinivasan HR, vice-chairman and vision holder, Take Solutions, said, “The coming together of two leading first-generation IT companies with similar philosophies and vision will create a significant IP company based out of India with worldwide operations. Four Soft is a perfect foil to Take Solutions. Our strong presence in the US and Asia Pacific complements Four Soft’s dominance in Europe and Japan. The proposed merger of the two companies will leverage Indian innovation and a strong partnering philosophy to become a truly global company in size and capability in the coming years.”
Four Soft, which has over 300 customers across 120 countries and 50,000 users in the supply chain domain, clocked revenues of Rs 150 cr during the last financial year. The company has been registering revenues of Rs 45 cr per quarter and expects to keep the current performance level to touch Rs 180-190 cr by this fiscal end. While 60% of Four Soft’s revenues flow in from Europe, the US and Asia markets account for 25 per cent and 15 per cent respectively.
Via BS
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