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Friday, April 28, 2006

Indiabulls key operator in IPOs: SEBI

Indiabulls is perhaps the only institutional market player barred by Sebi in its original order cracking down on market players in the IPO scam.

Sebi, in its original report on the IPO Scam, has categorised them as entities who appear to be key operators in various IPOs during 2003 to 2005.

Sebi has also directed them not to buy, sell or deal in the securities markets, including IPOs, directly or indirectly, till further directions.

Sebi has pointed out that many of the 24 master account holders have, in turn, made further off-market transactions to other entities. This, according to Sebi, indicates that they themselves must have acted as intermediaries for their financiers who appear to be the ultimate beneficiers. Sebi has directed them too not to buy, sell or deal in the securities markets including in IPOs.

The 24 account holders identified by Sebi are: Roopalben Nareshbhai Panchal,  Sugandh Estates And Investments Pvt Ltd, Dhaval A. Mehta, Arjav Nareshbhai Panchal, Parag P Jhaveri, Kelan Atulbhai Doshi, Ambuja Estate And Holdings Pvt Ltd, Purshottam Budhwani, Dharmesh Bhupendra M, Jhaveri Securities Pvt. Ltd, Biren Kantilal Shah & Shah Biren Kantilal, Kamal P Jhaveri, Devangi Dipakbhai Panchal, Chandrakant Amratlal Parekh, Dharmesh K Katakia, D B Mehta, Pratik Mafatlal Shah, Dhaval K Katakia, Deepakkumar Shantilal Jain, Himani N Patel, Deepak Madhukant Patel, Indiabulls Securities Ltd, Opee Stock - Link Ltd and Manojdev Seksaria.

Sebi has also listed another 85 such entities.
1. Hasmukhlal N. Vora
2. Welvet Financial Advisers Pvt Ltd
3. Jayesh P Khandwala HUF
4. Gautam N Jhaveri
5. Excell Multitech Limited
6. Zenet Software Limited
7. Tauras Infosys Ltd
8. Seer Finlease Private Ltd.
9. Devangi Dipakbhai Panchal
10. Dipak Jashvantlal Panchal
11. Shilpa Rajan Dapki
12. Rajan Vasudev Dapki
13. Bhargav Ranchhodlal Panchal
14. Hina Bhargav Panchal
15. Jayantilal Jitmal
16. Bhanuprasad Dipakkumar Trivedi
17. Umang R Shah
18. Sujal Leasing And Finance Pvt Ltd.
19. Sarvani Choudhary
20. Anand Netanand Choudhary
21. Netanand Surjaram Bhambu
22. Ramesh Chimanlal Shah
23. Netanand Bhambu
24. Saumil A Bhavnagari
25. Masat Texturising And Twisting Private Ltd
26. Chirag Desai
27. Bakul Desai
28. Hemlata Desai
29. Vinita A Choudhary
30. Welvet Financial Advisers Pvt Ltd
31. Vasudev Gordhandas Dapki
32. Sanjay Rameshchandra Shah
33. Himanshu Piyushkumar Choliya
34. Sanjay R. Shah
35. Dushyant Natwarlal Dalal
36. Monal Y. Thakkar
37. Vinod Modha
38. Amadhi Investments Ltd
39. Ritaben R. Thakkar
40. Jitendra Lalwani
41. Veenaben Y. Thakkar
42. Parag P Jhaveri
43. Puloma Dushyant Dalal
44. Rajesh Jhaveri Stock Brokers Pvt. Ltd.
45. Patel Rajeshkumar
46. Deep Stockbroking Private Limited
47. Arth Stockbroking Pvt.Ltd
48. Rasila Natwarlal
49. Natwarlal Thakordas
50. Nimisha Kadakia
51. Rajkumar Jain
52. Balvinder Gurmukhsingh Purswani
53. Jayprakash Girdharilal
54. Niranjan Girdharilal
55. Gurmukhdas Rameshkumar Giyamalani
56. Mehta Bansilal
57. Magnum Equity Services Limited
58. Meenakshi L Phulwani
59. Laxminarain L Phulwani
60. L L Phulwani
61. Anagram Securities Limited
62. Chirag Jayendrakumar Shah
63. Bagrecha Ashok K.
64. Kelan Atulbhai Doshi
65. Ajay Kumar Gupta
66. Ashmi Financial Consultancy Pvt Ltd
67. Chimanlal Girdharlal Shah
68. Sheelu Lalwani
69. Pratik Pulp P Ltd
70. Sonal N Dadia
71. Kiran D Dadia
72. Jayesh N Dadia
73. Dadia Finvest Limited
74. Deepak N Dadia
75. Jasmina J Dadia
76. Natvarlal N Dadia
77. Jasmina J Dadia
78. Natvarlal N Dadia
79. Neha Narendra Dadia
80. Dhaval Narendra Dadia
81. Narendra Harilal Dadia
82. Kashmira Narendra Dadia
83. Rupesh Vipinchandra Shah
84. Karvy Stock Broking Limited
85. Shah Kantilal Jitmal

Switch from Karvy in 15 days: Sebi

Giving relief to retail investors, Securities and Exchange Board of India (Sebi) today said transactions carried out by barred market players on behalf of their clients will not be affected by the ban.

Sebi, which cracked down on market players including Karvy and Indiabulls for their alleged involvement in the IPO scam, also asked clients of the banned entities to switch over to other depository participants within 15 days.

The directions to the barred brokers not to buy, sell or deal in the securities market, including IPOs "would apply only in transactions in the proprietary accounts of brokers," Sebi said in its clarification, adding that clients of these market players will not be affected by the ban.

The regulator also said that DP transaction of clients would remain unaffected only for 15 days, by which time clients of Karvy DP and Pratik DP should switch over to another DP.


  • Look for buying opportunities in case the market tanks.
  • Have stop losses.

Market may remain uncertain

A look at how the indices fared at their closes: Sensex 11835 (-0.87%); Nifty 3508 (1.34%); Nasdaq 2345 (+0.49%); Dow 11383 (+0.25%). On April 26 2006, FIIs were net sellers of stocks to the tune of Rs206.20 crore (purchases worth Rs1,784.70 crore and sales of Rs1,990.90 crore) while domestic mutual funds were net buyers of stocks to the tune of Rs327.67 crore (purchases worth Rs968.11 crore and sales of Rs640.44 crore).

Uncertainty in the market is likely to continue on the back of a strong intra-day volatility and weak Asian indices in the ongoing trades. Reports of the market watchdog Sebi imposing an interim ban on several depository participants, brokers and banks from carrying out activities in the stock market till further notice due to some irregularities in the recent IPO's may keep the investors jittery from taking any fresh positions. Among the banks HDFC Bank, Centurion Bank of Punjab, IDBI Bank and ING Vysya Bank have been asked not to open new demat accounts, while the listed Indiabull Securities has been barred from the securities market. HDFC Bank yesterday closed 1.57% lower at Rs823, while Indiabull Financial Securities rose over 12% at Rs311. Sebi has also asked Karvy and Pratik from carrying out despositary participant and broking activities.

Among the key domestic indices, the Nifty may witness support at 3467 on the downside and a break below this level could see it slip further to 3410. The index faces a resistance at 3555. The Sensex has a likely support at 11710 and could test higher levels of 11965. In the results section, Finolex, GV Films, GE Shipping, Guffic Biosciences, Essar Oil, Cadila Healthcare, FCS Software, Hindustan Construction, Ind-Swift Lab, McDowell, Patel Roadways, Reliance Natural Resources, Sterlite Opticals, Union Bank of India are expected to announce their quarterly numbers.

 US indices moved up for the second straight session, after the sentiment received a boost from the Federal Reserve chairman Ben Bernanke that the economy is on a right track irrespective of energy prices scaling to record peaks. While the Dow Jones added 28 points at 11383, the Nasdaq gained 11 points to close at 2345.

News of the market regulator Sebi imposing a ban on several brokers saw the Indian ADRs take a heavy plunge on the US bourses. ICICI Bank, HDFC Bank, MTNL, Rediff and Patni Computers tanked over 6% each, while Infosys, Satyam, Wipro, Dr Reddy's, Tata Motors and VSNL tumbled 2-4% each.

Crude oil prices declined further, with the Nymex light crude oil for June series sliding by 96 cents at $70.97 a barrel. The London Brent crude shed $1.19 to close at $70.70 per barrel. In the commodity segment, the Comex gold for June delivery dropped $5.70 to settle at $636.30 an ounce.

Wochardt - Motilal Oswal

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Sharekhan - Investor's Eye

Maruti Udyog 
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs1,050
Current market price: Rs898

Upgrading estimates

Result highlights

  • Maruti Udyog (MUL) reported better than expected numbers for Q4FY2006, mainly on account of better profitability. The income from its operations grew by 8% year on year (yoy) on the back of a 5% growth in the volumes and a 2% improvement in the realisations.
  • The operating profit margins (OPMs) improved by 120 basis points to 14.9% due to the cost-cutting measures undertaken by the company, the improvement in productivity and lower export sales. A 66% reduction in the interest cost and 35% lower depreciation led to the profit after tax (PAT) for the quarter improving by 39% to Rs360.92 crore.
  • For FY2006 the sales grew by 10% to Rs12,052 crore and the earnings before interest, depreciation, tax and amortisation (EBIDTA) margins improved by 90 basis points. The PAT for FY2006 surged by 56% to Rs1,189 crore. The company has recommended a dividend of 70% for FY2006 (Rs3.5/share) from 40% (Rs 2/share) in FY2005.
  • MUL, expected to be the biggest beneficiary of the excise duty cut on small cars, has been impacted due to the rising interest rates and higher road tax rates in some states. The merger of Maruti Suzuki Automobiles India (MSAIL) with MUL will add value for the shareholders and eliminate all potential issues relating to inter-company transactions. 
  • MUL's earnings are expected to grow at a compounded annual growth rate (CAGR) of 23% over FY2006-08, driven by a 13% CAGR in the volumes over the same period. At Rs898, the stock trades at 8.9x its FY2008E enterprise value (EV)/EBIDTA and 14.6x its earnings. We reiterate our Buy recommendation on the stock and revise our price target to Rs1,050. 

Godrej Consumer Products  
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs912
Current market price: Rs723

Results in line with estimates

Result highlights

  • The revenues of Godrej Consumer Products Ltd (GCPL) grew by a strong 18.5% year on year (yoy) to Rs164.1 crore in Q4FY2006. The growth, driven by a 20% rise in the company's branded business, was in line with our estimate. 
  • GCPL's operating profit (OP) grew by a whopping 50.6% yoy to Rs35.6 crore in the quarter, with the operating profit margin (OPM) expanding by 460 basis points to 21.7%. The margin improvement too was in keeping with our estimate. 
  • The soap business reported a revenue growth of 15.7% yoy to Rs101.6 crore, with its profit before interest and tax (PBIT) margin expanding by 120 basis points to 12.9%.
  • The personal care business grew by 23.3% yoy to Rs62.5 crore aided by a strong growth in hair colour, hair dye, talc powder etc. The PBIT margin of this business stood at 41.1%, up by 440 basis points. 
  • Driven by the good performance of the soap and personal care businesses, the company's profit after tax (PAT) grew by 36.3% yoy to Rs30.2 crore. The earnings for the quarter stood at Rs5.3 per share as against Rs3.9 per share a year ago. The growth in the earnings was on expected lines.
  • GCPL is currently trading at 23x FY2008E stand-alone earnings and enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBITDA) of 19.7x FY2008E. We maintain our Buy recommendation on the stock with a price target of Rs912. 

Cluster: Ugly Duckling
Recommendation: Buy 
Price target: Rs552
Current market price: Rs450

Adjusted PAT up 36%

Result highlights

  • Wockhardt's Q1CY2006 net sales (on a consolidated basis) grew by 13.4% year on year (yoy) led by a 51% growth in its domestic sales during the quarter.
  • The operating profit margin (OPM) showed a small increase of 30 basis points yoy to 19.6% due to lower raw material prices.
  • The earnings before interest, depreciation, tax and amortisation (EBIDTA) however rose by just 4.8% yoy due a lower other income, which fell from Rs9.1 crore in Q1CY2005 to Rs3.3 crore this quarter.
  • The adjusted profit after tax (PAT) showed an increase of 36% yoy to Rs56.7 crore.
  • The company had a one-time extraordinary expense of Rs60.4 crore this quarter which included merger and acquisition (M&A) expenses of Rs22.8 crore and a write-off of Rs37.6 crore for the US business.
  • At the current market price of Rs450, the stock is trading at 16.3x CY2007 earnings estimate. We reiterate our Buy recommendation on Wockhardt with a price target of Rs552. 

Nicholas Piramal India 
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs325
Current market price: Rs237

Back into the black

Result highlights

  • Nicholas Piramal's net sales in Q4FY2006 on a consolidated basis grew by 83% year on year (yoy) due to an increase in the demand for domestic formulations.
  • The earnings before interest, tax, depreciation and research (EBITDR) margins increased to 15% this quarter as against –9% in Q4FY2005.
  • The research and development expense showed a marked increase of 124% yoy, thus pulling down the operating margin to 7.9%.
  • The adjusted profit after tax stood at Rs18.1 crore as against a loss of Rs42.7 crore in the same quarter last year.
  • At the current market price of Rs237, the stock is trading at 15x its FY2008 earnings estimate. We maintain our Buy recommendation on Nicholas Piramal with a price target of Rs325. 

Hyderabad Industries 
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs700
Current market price: Rs450

Results slightly below expectation

Result highlights

  • Hyderabad Industries Limited's (HIL) revenues during Q4FY2006 declined by 1.65% year on year (yoy). However, on a like-to-like comparison, the revenues of the building division increased by 13.1% yoy to Rs107.32 crore.
  • The weak prices of asbestos cement and the strike at one of the company's plants affected the profitability during the quarter. The operating profit declined by 16.2% to Rs11.7 crore. The building products division reported a profit before interest and tax (PBIT) of Rs14.88 crore during Q4FY2006 as compared to Rs18.29 crore in Q4FY2005. Typically, the March-July period generates strong demand for asbestos. The company has also announced a price hike of 10% in the beginning of April. We, therefore, expect a strong Q1FY2007.
  • The heavy engineering division (HED) has been hived off. However, the company reported a loss of Rs9.69 crore due to the discontinued operations of the HED. 
  • HIL is utilising its strong cash flows from its operations to prepay a large portion of its debt. The reduction in the debt has impacted the interest cost, which has declined by 70% to Rs0.78 crore in Q4FY2006. 
  • The company has reported a profit after tax (PAT) of Rs37.6 crore in FY2006 as compared to a net profit of Rs9.06 crore in FY2005. However, the FY2005 numbers include a one-time extraordinary write-off of Rs16.04 crore. We expect the company to report a net profit of Rs46.5 crore in FY2007 and of Rs52.9 crore in FY2008. The stock trades at 7.6x its FY2007 and 6.7x its FY2008 earnings. We maintain a Buy on the stock with a price target of Rs700.

Selan Exploration Technology
Cluster: Ugly Duckling
Recommendation: Buy 
Price target: Under review
Current market price: Rs95

Riding the oil boom

Result highlights

  • During the fourth quarter, Selan Exploration Technology (SETL) showed a 28% growth in its net sales to Rs4.4 crore as compared to Rs3.4 crore reported in the corresponding period last fiscal.
  • The operating profit margin (OPM) at 43.7% was much higher than 5.2% reported in Q4FY2005 but has declined sharply as compared to 62% shown in Q3FY2006. The sequential decline in the margin was largely due to the development expenditure of Rs1.34 crore written off during the fourth quarter. Excluding the development expenses, the OPM stood at 67.9%.
  • However, the company received sales tax reimbursements of Rs1.9 crore from the government nominee, Indian Oil Corporation (IOC), which boosted the other income component to Rs2.2 crore. Consequently, the earnings stood at Rs3.3 crore as compared to Rs1.6 crore in Q3FY2006 and a marginal net loss in Q4FY2005.
  • On a full year basis, the net sales have grown by 68.4% to Rs18.7 crore and the earnings have zoomed by 630% to Rs8.7 crore. 
  • At the current price the scrip trades at 7.8x its FY2008 estimated earnings and enterprise value (EV)/oil reserves (proven) of $1.2 per barrel of oil and oil equivalent (boe). We had recommended the stock at Rs58 with a price target of Rs94, which has been achieved. We will revise the target price based on more clarity in terms of the progress in the development of its oil assets. 

SEBI Order

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Fist of fury knocks out Karvy from ring

In a major crackdown on prime suspects in the demat scam unearthed by Sebi recently, the stock market regulator has come down heavily on Hyderabad-based Karvy DP, one of the players in the misuse of share allotment in about 105 IPOs.

Sebi, in its interim order on the IPO scam, has barred Karvy DP and Pratik DP from acting as depository participant (DP) till the completion of enquiry against the two entities and passing of the final order. Market sources fear that the Sebi action on Karvy would lead to serious consequences as the DP has more than 1000 demat accounts with it. They, however, feel that Sebi has to clarify on certain issues like the time limit, within which beneficiary accounts are to be transferred to another DP. Karvy is also a major share transfer agent and registrar for a number of companies.

The DPs can only effect transfer of beneficiary account to another Sebi-registered DP on request, said Sebi. Repeated efforts to talk to Karvy chairman C Parthasarathy was futile as he did not respond to ET's calls. M Yugandhar, Karvy MD, could not comment on the Sebi order. "I am not aware of the development as I am travelling aboard."

Suspecting that other Karvy group companies would have played a role in the scam, Sebi ordered four companies — Karvy Stock Broking, Karvy Computershare, Karvy Investor Services and Karvy Consultants — not to undertake fresh business as registrar and share transfer agent, except in businesses they have already tied up.

In the order, Sebi said that Karvy DP and Pratik DP prima facie do not appear to be fit to deal in securities market as Sebi-registered intermediaries. The regulator also said that appropriate quasi-judicial proceedings are being initiated against the two DPs.

Sebi charges at Indiabulls, bars firm from dealing

Thelentless rise of Indiabulls, started by two entrepreneurs, has been checked by the order of the Securities and Exchange Board of India (Sebi) barring the firm from dealing in securities including IPOs till further notice.

Sebi has come down heavily on Indiabulls along with 23 other entities. Of these, about 20 are individuals and besides Indiabulls the only other securities firm which has been named is Jhaveri Securities. These entities have been barred from trading in any kind of securities, in the Indian securities market including IPOs. The order is particularly strong as it does not indicate the timeframe for barring these entities, but it says its an interim order, so another order is expected to come soon.

"Our role as alleged in the Sebi order is limited to the fact that Indiabulls demat account has received 13,939 shares of TCS from 559 accounts. We have received these shares in our client margin account from the 559 clients as margin for their trading purposes. Sebi has assumed that these clients have given these shares to Indiabulls because they were used by Indiabulls for cornering TCS IPO shares. The order is factually incorrect. It would have been better if Sebi had at least asked us as to why we received shares from 559 accounts. If we are a retail broker then we receive shares from clients as margin and receive shares in margin as per the Sebi laws that provide that we can not trade for clients without receiving margin from them," Gagan Banga founder of Indiabulls said.

Indiabulls was started by Samir Gehlot and Mr Banga a few years ago. The company's rise was meteoric. It went public in September '04, within three months of its IPO, the FII holding in the company was 50%, possibly the highest for any publicly traded stock broking firm in that time.

The rise of Indiabulls is reflected in the dark glass facade building which houses the firm in Gurgaon. The office is situated in one of the most expensive real estate in Gurgaon and rivals the glass facade office of MNCs, like Nestle, American Express, and Convergys.

Indiabulls built up an huge client base of more than 50,000 accounts in a very short period of time. The trick to attracting these clients was to use the lure of margin trading. Basically the credit arm of the broking firm would extend a loan against securities to the clients of the broking firm. In a rising market, margin trading helps investors get higher exposure, but it is considered a huge risk.

Indiaulls has been attracting not only clients but foreign investors in droves. The US fund Farallon paid Rs 88 crore for a 33% stake in Indiabulls arm in January 3, '05. Indiabulls raised $45m from the GDR market in February 25, '05.Merrill Lynch acquired 2% in Indiabulls on June 8, '05. and increased it to 5% in February, '06

LN Mittal also picked up a stake in Indiabulls Credit, while Farallon also increased it stake to 60% in Indiabulls Credit in February, '06.

Indiabulls Financial Services (IBFSL) claims to be a diversified financial services company offering, directly and through its various subsidiary companies, consumer loans, housing loans, personal secured & unsecured loans, securities brokerage & depository services, and distribution of insurance and mutual funds.

And through its group companies, IBFSL has projects of over Rs 2,000 crore in real estate development.

IBFSL boasts an employee strength of over 10,000 employees, spread across more than 400 branches in over 100 cities of India, and consolidated net worth exceeding Rs 1,800 crore.

Indiabulls stopped in its tracks