Wednesday, October 18, 2006
Buy I Flex with a stop loss of Rs 1400 for a target of Rs 1640
Buy Vakrangee Software with a stop loss of Rs 170 for a target of Rs 260
Buy Tech Mahindra below Rs 709 with a stop loss of Rs 700; This is a day-trading recommendation
Sell Tata Chemicals above Rs 225.50 with a stop loss of Rs 228; This is a day-trading recommendation
Sell TCS (Rs 1116.90) with a stop loss above Rs 1126 for a target of Rs 1093
Sell ONGC (Rs 1168.10) with a stop loss above 1177.50 for a target of Rs 1143
Vesuvius India Ltd. Unimers India Ltd. Biocon Ltd. Gujarat Credit Corporation Ltd Union Bank of India Danlaw Technologies Ltd. ING Vysya Bank Limited Gandhi Special Tubes Ltd National Fertilisers Ltd. National Fertilisers Ltd. Gemini Communications Ltd Panoramic Universal Ltd. Marico Ltd. Deepak Fertilizers & Petrochemicals Corp. Ltd. Tech Mahindra Ltd. Mangalore Refinery And Petrochemicals Ltd. Infotech Enterprises Ltd. Grasim Industries Ltd. Greenply Industries Ltd. Prime Property Development Corporation Ltd. Borosil Glass Works Ltd. State Bank Of Mysore Shanthi Gears Ltd. Gujarat Hotels Ltd. Geodesic Information Systems Ltd. Rolcon Engineering Company Ltd. Jay Bharat Maruti Ltd. Gujarat Carbon & Industries Ltd. Ucal Fuel Systems Ltd. Bajaj Auto Ltd. Rama Phosphates Ltd. Unichem Laboratories Ltd. Emco Ltd. Nicholas Piramal India Ltd. Hindalco Industries Ltd. Industrial Cables (India) Ltd. Emkay Share & Stock Brokers Ltd. Arvind Product Ltd. Peninsula Land Ltd. Reliance Natural Resources Ltd. Elder Pharmaceuticals Ltd. TTK Prestige Ltd. Sharon Pharma Chem Ltd. Gujarat NRE Coke Ltd. Natura Hue Chem Ltd. Gupta Synthetics Ltd. Jyoti Structures Ltd. Kirloskar Pneumatic Ltd Pitti Laminations Ltd. Ispat Industries Ltd. Ras Resorts & Apart Hotels Ltd. OCL India Ltd. Pondy Oxides & Chemicals Ltd. Karan Woo-Sin Ltd. Ashapura Minechem Ltd. Wipro Ltd. GCCL Infrastructure & Projects Ltd. Surbhi Industries Ltd. Thirumalai Chemicals Ltd. Automotive Stampings & Assemblies Ltd. JBF Industries Ltd. Bank of Rajasthan Ltd. TTK Healthcare Ltd. GCCL Construction & Realities Ltd. Aarvee Denims and Exports Ltd. Srinivasa Hatcheries Ltd. Ultramarine & Pigments Ltd. Bhushan Steel & Strips Ltd. Savant Infocomm Ltd. Ahmedabad Steelcraft Ltd. Sukhjit Starch & Chemicals Ltd. Titan Industries Ltd. Andhra Petrochemicals Ltd. Finolex Cables Ltd. Exide Industries Ltd. Essel Propack Ltd. Themis Medicare Ltd. Aurionpro Solutions Ltd. Dishman Pharmaceuticals & Chemicals Ltd Welspun Gujarat Stahl Rohren Ltd. Loyal Textiles Mills Ltd. Life Style Fabrics Ltd. Kale Consultants Ltd.
Results For Tomorrow: Lloyds Finance Ltd., Mazda Ltd., Rajkumar Forge Ltd., Sharp India Ltd., TCI Industries Ltd., Bharati Shipyard Ltd., Gujarat Borosil Ltd., ACC Ltd., Vikram Thermo (India) Ltd, Saksoft Ltd., Allsec Technologies Continental Credit & Investment Ltd., ABC Bearings Ltd., Alpha Hi-Tech Fuel Ltd., Flexo Film Wraps (India) limited, Pratibha Industries Ltd., Canara Bank, SNL Bearings Ltd., Aarti Drugs Ltd., Bank of Maharashtra, Insul Electronics Ltd., Aditya Birla Nuvo Ltd., Reliance Industries Ltd., Muller & Phipps (India) Ltd., Ingersoll-Rand (India) Ltd., Merck Limited SKF India Ltd., Sumeru Leasing & Finance Ltd., Jindal Hotels Ltd., Saint-Gobain Sekurit India Ltd., Adlabs Films Ltd, Lok Housing & Constructions Ltd., First Leasing Company of India Ltd., Mysore Cements Ltd. Gujarat State Fertilizer & Chemicals Ltd., Bharat Gears Ltd., Sumeet Industries Ltd., JSW Steel Ltd, KPIT Cummins, Infosystems Limited Investment & Precision Castings Ltd., Sun Pharmaceutical Industries Ltd., Oil & Natural Gas Corporation Ltd., Adani Enterprises Ltd., Oil Country Tubular Ltd., Garware Marine Industries Ltd., Industrial Development Bank of India Ltd,. Hexaware Technologies Ltd., Can Fin Homes Ltd. Rasoi Ltd., Austin Engineering Company Ltd., HT Media Ltd., Datamatics Technologies Ltd., Khandwala Securities Ltd., State Bank Of Bikaner and Jaipur Yuken India Ltd., Elder Health Care Ltd., Piramyd Retail Ltd., EID Parry (India) Ltd., Kotak Mahindra Bank Ltd., Nettlinx Ltd., Jayshree Chemicals Ltd., Jayant Agro Organics Ltd., Reliance Energy Ltd, Nitco Tiles Ltd., 3i Infotech Ltd., Paradyne Infotech Ltd., KLG Systel Ltd., ETC Networks Ltd ,Gujarat Narmada Valley Fertilisers Company Ltd., Narmada Chematur Petrochemicals Ltd., Dewan Housing Finance Corporation Ltd., Syngenta India Ltd., Orchid Chemicals & Pharmaceuticals Ltd., Housing Development Finance Corporation Ltd., Punjab Tractors Ltd, Kampani Consultants Ltd., Aplab Ltd., Panacea Biotec Ltd., Navin Fluorine International Ltd. Foods & Inns Ltd., Techno Electric & Engineering company Ltd,. Poddar Pigments Ltd., Larsen & Toubro Ltd., Hella India Lighting Ltd., Henkel India Ltd., Q-Flex Cables Ltd., RPG Transmission Ltd., Lupin Ltd., Ranbaxy Laboratories Ltd., Cholamandalam DBS Finance Ltd., Hindustan Construction Company Ltd., Mipco Seamless Rings (Gujarat) Ltd., Torrent Cables Ltd.
Cluster: Ugly Duckling
Price target: Rs900
Current market price: Rs727
On strong financial wicket
- JM Financial Ltd (JMFL) reported a strong 74.7% year-on-year (y-o-y) growth in the revenues for H1FY2007 to Rs183.5 crore. The strong growth in the revenues was backed by the institutional broking and investment banking divisions. The revenues of these divisions together grew by 62.2% year on year (yoy).
- The operating profit of JMFL grew by 70% yoy to Rs92.1 crore as the operating profit margin (OPM) was stable at 50.2%.
- The company's net profit for H1FY2007 stood at Rs41.2 crore, up by 68.6%.
- On a quarter-on-quarter (q-o-q) basis, its income for Q2FY2007 was lower by 11.1% to Rs86.4 crore as there were no big initial public offerings (IPOs) during Q2FY2007 and the income for Q1FY2007 was also abnormally higher due to the Reliance Petroleum IPO.
- On a q-o-q basis, the net profit for Q2FY2007 was lower by 37%.
- At the current market price of Rs727 the stock is quoting at 17x its FY2008E earnings per share and 2.7x its FY2008E book value per share.
- We have revised our price target on the stock to Rs900, as we have valued JMFL at 20x its FY2008E earnings.
Price target: Rs1,080
Current market price: Rs1,010
Strong operational growth
- HDFC Bank's Q2FY2007 results were better than our expectations driven by a higher fee income and controlled expenses.
- The net interest income (NII) grew by 38.1% year on year (yoy) to Rs845.6 crore in line with our expectations. The advances grew by 34.4%. The net interest margin (NIM) declined by eight basis points to 3.92%, albeit the same remained the highest in the industry.
- The other income grew by a strong 52.9% driven by a 44.2% year-on-year (y-o-y) growth in the fee income, which was higher than our expectations.
- The operating profit grew by 41.1% yoy to Rs664.2 crore as the operating expenses remained under check. The operating expenses grew by 44.2% yoy, lower than expected, probably because there was no expansion in its branch network during the quarter.
- That the bank did not add any branch in Q2FY2007 (for want of new licences from the Reserve Bank of India) is a cause for concern. Because of this the proportion of the CASA deposits in the total deposits fell to 52.2% in Q2FY2007 compared with 59.7% (Q2FY2006) and 52.6% (Q1FY2007).
- The growth in the advances was also lower than an average growth of 50%+ recorded over the previous four quarters.
- At the current market price of Rs1,010, the stock is quoting at 21.1x its FY2008E earnings per share (EPS), 8.5x its FY2008E pre-provision profits (P/PPP) and 4.3x its FY2008E book value (BV).
- We believe that the current market price fairly discounts the growth expected over FY2006-08E, leaving very marginal upside to the stock price. We are revising our price target for the stock to Rs1,080. At this level the stock would discount its FY2008E EPS by 22.6x and FY2008E BV at 4.6x.
Genus Overseas Electronics
Cluster: Ugly Duckling
Price target: Rs270
Current market price: Rs230
Profit meter ticking on
- Genus Overseas reported a year-on-year (y-o-y) growth of 87% in its net profit to Rs5.6 crore for Q2FY2007. The same is above our expectations, primarily because of higher-than-expected revenue booking and operating profit margin (OPM) for the quarter.
- As a result of the healthy revenue booking for the project business and impressive offtake in the metering business, the company's net sales for the quarter grew by a smart 105% year on year (yoy) to Rs78 crore. Notably, the growth in the net sales was higher than that in the gross sales (y-o-y growth of 97%). This was primarily because the project business earned higher revenues, which were free of excise duty. The growth was also aided by the sales from the new excise-free plant at Uttaranchal.
- The operating profit for the quarter grew by 140 percentage points to Rs12 crore, as the OPM improved by 220 basis points to 15.4%. The margin improved on the back of higher order booking that brought operating leverage into play. This was clearly visible as the other expenditure as a percentage of sales came down to 11.6% in Q2FY2007 from 20.1% in Q2FY2006.
- However the interest expenses for the quarter trebled to Rs4.82 crore as the company had to avail of large working capital loans to execute project orders. The depreciation charge also rose by 135% to Rs1.2 crore as the company commissioned the first phase of its Uttaranchal plant.
- Consequently the net profit for the quarter grew by 87% yoy to Rs5.6 crore.
- The order book for the quarter jumped by 123% to Rs491 crore as the company started taking metering orders on project basis as against on the basis of pure metering sales.
Cluster: Ugly Duckling
Price target: Rs720
Current market price: Rs609
Results ahead of expectations
- HCL Technologies has reported a robust revenue growth of 10% quarter on quarter (qoq) and 42.1% year on year (yoy) to Rs1,379.5 crore for the first quarter ended September 2006. The sequential growth was driven by a 9.7% increase in the revenues of the software service business and a growth of 16.6% in the infrastructure management service (IMS) business. On the other hand, the business process outsourcing (BPO) business continues to lag behind with a relatively lower growth rate of 5.4% on a sequential basis.
- The earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 70 basis points to 21.7% on a sequential basis, largely due to the salary hikes given to almost 85% (employees below "project manager" level) of its work force with effect from July. The worst affected was the profitability of the software service business that reported a 90-basis-point decline in the EBITDA margin to 22.3%. On the other hand, the IMS business reported another quarter of margin expansion (up 20 basis points to 17.6%). The operating profit grew 6.2% qoq and 43.9% yoy to Rs298.9 crore.
- The earnings grew at a relatively lower rate of 7.4% qoq and 49.6% yoy to Rs250.2 crore (ahead of our expectations of Rs239.5 crore and consensus estimates of a sequential drop in the earnings). The growth in the earnings was also aided by the 25.2% sequential growth in the other income (due to the lower base resulting from a negative foreign exchange [forex] impact of Rs16.6 crore in Q4).
- In terms of operational highlights, the company added 3,826 employees during the quarter, one of the highest in the past 10 quarters. The revenues from the top 10 clients grew at a robust rate of 13% on a sequential basis.
- At the current market price the stock trades at 19x FY2007 and 15.2x FY2008 estimated earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs720 (18x FY2008 revised earning estimates).
Cluster: Apple Green
Price target: Rs258
Current market price: Rs237
Price target revised to Rs258
- Crompton Greaves' revenues grew by 48.6% year on year (yoy) in Q2FY2007 to Rs824.0 crore, way ahead of our expectations. Although all its three divisions reported a strong performance, the power system division led the pack with a revenue growth of 68.7% yoy to Rs449.7 crore. The revenues of the consumer product division and the industrial system division grew by 33.3% and by 36.8% respectively.
- The raw material cost/sales ratio spiked to 75.6% in Q2FY2007 from 69.5% in Q2FY2006 largely due to an increase in the prices of the base metals like copper and the inability of the company to pass on the same to its customers. However, lower employee cost and other expenses muted the impact of the same. Consequently, the operating profit margin (OPM) reduced by 60 basis points yoy to 8.9%.
- The profit before interest and tax (PBIT) margin of the power system division declined by 50 basis points to 8.0% during the period. The high-margin businesses maintained their margins (the consumer product division's margin was up 10 basis points to 9.7% and the industrial system division's margin was up 20 basis points to 13.6%).
- Crompton Greaves provided for the full tax rate in Q2FY2007 as against the minimum alternate tax (MAT) rate in Q2FY2006.The increased tax provisioning led to a slower growth of 25.0% yoy to Rs40.7 crore in the profit after tax. But the growth was still in line with our expectations.
- Pauwels' top line grew by 86.4% yoy to Rs520.0 crore in Q2FY2007, way ahead of our estimates and the profit before tax (PBT) stood at Rs21.3 crore.
- The stand-alone order book grew by 0.6% sequentially and by 20.0% yoy to Rs1,800.0 crore in Q2FY2007. The consolidated order book stood at Rs3,739.0 crore, up 16.5% sequentially largely on account of the 36.5% jump in the order book of Pauwels.
- The Ganz acquisition, which was announced in July but is yet to be concluded will further accelerate the growth of the consolidated numbers. Though currently loss making, it is expected to contribute 70 million euros in FY2008 and turn profitable by then. We have not currently included these estimates in our numbers.
- The board has announced a bonus of two shares for every five shares held.
- Given the robust top line growth, higher raw material costs, the consequent margin contraction and higher provisioning for income tax, we are tweaking our FY2007 and FY2008 estimates. The FY2007 earnings per share (EPS) stand revised lower by 10% to Rs9.2. Although with the margins stabilising in FY2008 and the robust top line growth coupled with the strong performance of Pauwels we are revising our earnings estimates upward by 7.9%.
- At the current market price of Rs237, Crompton Greaves is trading at 25.7x its FY2008E stand-alone earnings and 17.4x its FY2008E consolidated earnings. We maintain a Buy on the stock with a revised price target of Rs258 discounting its FY2008E consolidated earnings by 19x.
Sensex opened with a gap up and soon spurted to a new all-time intra-day high of 12,994. Markets are hovering at its all time high and certainly this is driven by huge liquidity flow. It seems that FIIs interest is back to market. Rupee has seen appreciation and currently trading at around 42.21. Indian economy is good going and we believe that rupee will see more strength in long run. Coming back to market, after a three-days Bull run it was the Bear which took over due to caution trading and heavy profit bookings. Market was weak and ranged. Weak global cues also added weight to the indicies. Stocks from cement, energy, FMCG, power and telecom sectors were the key losers while selective stocks in aluminium, auto, software and steel held the ground.
Sensex closed down by 44 points at 12883.83. Losses were seen in HDFC Bk (1009.1,-4 percent), HLL (231.8,-2 percent), NTPC (128.35,-2 percent), HDFC (1514.65,-2 percent) and Grasim (2624.3501,-2 percent). Losses were restricted by gains in Satyam (450.45,+3 percent), BHEL (2462.55,+2 percent), Hero Honda (757.95,+2 percent), ICICI Bk (727.05,+1 percent) and TISCO (515.7,+1 percent).
For the first time in India’s history, the market capitalisation of the BSE has crossed the country’s domestic GDP. The total listed market cap touched Rs 33 lakh crore on Friday, eclipsing the GDP figure of around Rs 32 lakh crore during FY06. The market cap for all listed BSE stocks rose to Rs 34 lakh crore on Monday.
India has become the first BRIC country where the market cap of the companies listed on the stock exchange exceeds the GDP of that country. India now joins an exclusive club of developed markets, including the US and the UK along with a few emerging economies such as South Africa, Malaysia and Singapore.
2004 was a volatile year for the Indian rupee. While the elections and the subsequent elevation of the UPA government to the seat of power saw the rupee dip below 46 levels during the first half of the year, the sharp depreciation of the dollar against the euro and major Asian currencies led to the rupee appreciating to 43.50 levels during the second half of the year. The rupee once again touched a high of 43.28 on May 11, 2005 in tandem with other Asian currencies after the Chinese government took a small but significant step in appreciating the yuan. Since then, the rupee has considerably depreciated (by around 7%) and here we examine why.
High crude prices take their toll: One of the key factors that led to the depreciation of the rupee is the impact of the high crude prices on the merchandise account. In the period between May 2004 and September 2005, the average price of the Indian basket increased from around US$ 40 per barrel to around US$ 60 per barrel leading to the widening of the trade deficit (Source: RBI). Typically, in a trade deficit scenario, depreciation of the rupee makes sense as a weaker rupee will make exports more competitive thereby easing, to some extent, the pressure on the trade deficit. However, given the fact that the demand for crude oil is relatively inelastic, the value of the import bill rises leading to a vicious circle. However, what is interesting to note is that during the above-mentioned period, there was a rise in the value of the Indian currency, which was largely attributed to the surge in FII inflows. That said, since the start of 2006, while the trade account continues to be in the red, the rupee has depreciated leading to a correction in this anomaly.
The FII impact: The quantum of FII money in the Indian stockmarket has played a significant role in the movement of the exchange rate. In fact, as mentioned earlier, in the past couple of years, despite the trade deficit, the value of the Indian currency has been rising mainly due to the surge in FII inflow into the country. As can be evinced from the graphs, the value of the rupee between December 2004 and June 2005 was supported by large inflows on account of FIIs to the tune of US$ 6 bn (Source: SEBI). Pitted against this, in the period between January 2006 and August 2006, when the FII inflow of money into Indian equities was relatively at its lowest (US$ 3.8 bn), the rupee has also depreciated from 44 levels to 46.50 levels.
The reduced interest rate differential between the US Fed rates and the Indian interest rates could also be attributed to the fall in the FII inflows. To put things in perspective, while US Fed has hiked interest rates to 5.25% in 2006 from a low of 1% in June 2004, the extent of rise in the reverse repo rate in India has been much slower and currently stands at 6%.
To sum up...
Given the slowdown in FII inflows in the last few months and the trade deficit, we believe that the fall in the value of the rupee was inevitable. While this is a positive scenario for export oriented sectors such as software, pharma and textiles amongst others, a major drawback of the same is that it will increase the burden of servicing and repaying of foreign debt of companies that have raised dollar denominated debt. Also, oil companies are an exception, as India imports around 70% of the oil that it consumes (the only respite being a fall in the crude prices). That said, we believe that, in the long-term, the Indian rupee is likely to be weaker against the greenback. Therefore, in such a scenario, while it is not possible to completely eliminate forex risks, those companies that adopt prudent hedging strategies will have that extra edge over their peers.
The Amaranth fiasco and implosions at other hedge funds raises an interesting question for hedge funds. Where's the hedge?
Hedge funds were originally designed as a lower risk alternative to mutual funds. Mutual funds were primarily long investment vehicles and thus were susceptible to extended downturns in bear markets. Hedge funds allowed both long and short positions in stocks. The short positions were supposed to benefit from bear markets and thus act as a "hedge" to reduce the risk of the investment portfolio.
Read more at Blogging Stocks