Monday, November 06, 2006
Indices managed to end in green as the index heavyweights propelled the market. Global cues were nothing much to favor as Asian indices ended mixed while Europe started off in ranged but trading in green. Among sectors, Aluminium, Cement and select FMCG stocks were the one which fuelled the days rally. But this rally was off set by selling in Auto, Banking and IT. Midcaps and Small caps too supported the rally. Index majors Reliance, industry, ACC fuelled the rally. Adding to this were the IT midcap which also supported the momentum with 3i infotech, Hexaware, Mphasis BFl trading high.
Crude traded at $58 which was good for the Energy stocks but OPEC is contemplating another cut in production in December in view of a decline in crude oil prices which could spurt crude prices to jump keeping energy stocks to trade weak. Index IT stocks too traded weak on the back of weak Dollar which is trading at Rs 44.89.
Sensex ended up by 56 points at 13186.89. It was helped up by gains in HLL (246.8,+5 percent), Guj Ambuja (128.15,+4 percent), HDFC (1526.55,+3 percent), Cipla (263.35,+3 percent) and TISCO (506.05,+3 percent). Restricting the gains were ONGC (859.8,-2 percent), Maruti (954.95,-2 percent), Bajaj Auto (2795.1499,-2 percent), SBI (1109.3,-2 percent) and Satyam (421.6,-1 percent).
Cement stocks were the once which zoomed with ACC, GUJ Ambuja, Grasim and many other small and midcap cement stocks rallied for the day. As we have positive view here because of good demand for cement in Infrastructural development which has been at full swing in the country and many SEZ's, Residential, Commercial and many more construction programs to keep cement manufactures busy.
Banking stocks were sluggish for the day on the back of news that FM will review the performance of PSU banks on various parameters like lending to the priority, agriculture & SME sectors and the first-half results. Heads of all the 17 nationalised banks, SBI and associates and IDBI attended the review meeting, besides representatives from the Reserve Bank, Indian Banks' Association and Nabard. Credit flow to agriculture, SMEs and the financial performance in the first half are the main issues to be discussed during the meeting. The Outcome came out to be that Finance Minister P Chidambaram has asked public sector banks to take a re-look at deposits and rebalance their portfolios. PC said that while the rate of credit growth in the economy was 'brisk', it was higher than sustainable levels. He said that meeting the demand for credit was a difficult challenge, and has asked the Indian Banks' Association (IBA) to suggest policy steps for growing deposits. The finance minister said that while banks must moderate credit growth to overheated sectors, productive sectors must not be denied credit. We really don't see much upsides in banks for now unless the consolidation story starts. Inflation is headed higher and a rate hike is pending. Look to take profits from this segment for now as inflation is the worry.
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WS Industries India
Cluster: Vulture’s Pick
Price target: Rs99
Current market price: Rs54
Results below expectations
- The Q2FY2007 results of WS Industries (WSI) are below expectations primarily because of a lower-than-expected top line growth and higher-than-expected power and fuel costs.
- The operating profit for the quarter grew by 30% year on year (yoy) to Rs4.91 crore as the operating profit margin (OPM) expanded by 180 basis points to 12%. The OPM expanded because of a 10% decline in the other expenditure and strict control on the employee cost. However WSI's power and fuel costs increased by 31%. As a percentage of sales the same increased by 340 basis points to 20.9% on account of rising crude oil prices. The crude prices have, however, cooled off substantially from their highs and the same should provide some respite going forward.
- The interest cost increased by 16% and the depreciation rose by 18% on account of a 20% expansion in the manufacturing capacity of hollow core insulators. The net profit at Rs1.89 crore grew by 51% yoy.
- In a significant development, WSI has diluted its stake in its relity subsidiary, WS Electric, from 98% to 59% by placing 42,200 shares @Rs4,325 each and 50 lakh convertible preference shares with Schroder, thereby mobilising Rs23.25 crore. This puts the value of WS Electric at Rs60 crore.
- The total value of the realty subsidiary is more or less in line with our estimates, but the equity dilution in WS Electric is against our expectations.
- Out of the 15 lakh square feet of area to be developed into an IT park , WS Electric will get a total of 300,000 square feet of developed area and the rest shall go to its partner TCG (the Chatarjee group). Assuming that the company sells it at the current rate of Rs3,500 per square feet, it would realise Rs105 crore.
Cluster: Ugly Duckling
Price target: Rs375
Current market price: Rs217
An operationally strong quarter
- The net profit before exceptional items of Saregama India Ltd (SIL) is in line with our expectations.
- During Q2FY2007 SIL's revenues grew by 26.2% year on year (yoy) backed by a three-fold jump in the licence fee income.
- The pre-exceptional operating profit for Q2FY2007 grew by 105.5% yoy with a 700-basis-point expansion in the margins as the licence fee income rose steeply.
- However, during the quarter under review SIL did one-time provisions of Rs1.4 crore and incurred an asset impairment charge of Rs0.87 crore. Hence, the reported operating profit grew by only 8.4%.
- The pre-exceptional profit grew by 66.4% yoy to Rs4.6 crore. With the above-mentioned provisioning, the reported net profit grew by 16% to Rs3.2 crore.
- We believe there are several positive triggers lined up for SIL over the next two years, viz the revision of the rates with radio stations, growth of value-added services in the telecom sector and the turn-around of its subsidiaries.
- At the current market price of Rs217, the stock is quoting at 13.1x its FY2008E earnings per share (EPS) and 9.7x its FY2008E enterprise value (EV)/earnings before interest, deprecation, tax and amortisation (EBIDTA). In view of the stock's attractive valuations, and cash and cash equivalent of Rs28 per share, we reiterate our Buy recommendation on the stock with a price target of Rs375.
Orchid Chemicals & Pharmaceuticals
Cluster: Emerging Star
Price target: Rs390
Current market price: Rs210
Strong growth potential ahead
- Orchid Chemicals reported a 2.7% increase in its net sales year on year (yoy) to Rs245.7 crore in Q2FY2007. The growth in the sales was low on account of a high base in the corresponding quarter of the previous year. On a sequential basis, the sales grew by 21.8%. The growth in the sales was in line with our expectations, and was driven mainly by the US generics business and a recovery in the sales of active pharmaceutical ingredients (API) to the regulated markets.
- Orchid's operating profit margins (OPMs) improved by 90 basis points to 31.7% in the quarter under review. The improvement in the margins was driven by a 20.4% decline in the company's material costs. The sharp drop in the material costs was on account of an improved product and geographical mix, as the company continued to derive an increasing share of its revenues from the high-margin formulation exports to the regulated markets. However, the steep drop in the raw material costs was largely offset by an increase in the staff costs and regulatory expenses. Consequently, the company's operating profit (OP) grew by 5.5% to Rs77.8 crore in Q2FY2007.
- Orchid's interest expenses have risen from Rs22 crore in Q1FY2007 to Rs25 crore in Q2FY2007. The increase in the interest cost is due to a general hardening of the interest rates. Further, the company has raised its debt level in H1FY2007 by Rs100 crore. The highly leveraged financial structure of the company continues to remain a cause of concern.
- Orchid's net profit for the quarter rose by 8.2% to Rs29.5 crore. The growth in the net profit was aided by lower depreciation charges and a lower tax provisioning in the quarter. The earnings for the quarter stood at Rs4.5 per share.
- During the quarter, the company filed 4 drug master files (DMFs), 2 abbreviated new drug applications (ANDAs) and 4 dossiers for marketing authorisations (MA) in Europe. The company plans to continue this accelerated pace of filings in the upcoming quarters.
- Going forward, the addition of non-antibiotic products to the US generics portfolio, the ramp-up in the European business and contract research and manufacturing (CRAMS) deals are likely to drive the company's growth. With these growth drivers in place, Orchid aims to become a $1 billion company by FY2012.
- At the current price of Rs210, Orchid is quoting at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 8.1x for FY2007 and 5.8x for FY2008. This is way below its peers like Lupin, Wockhardt and Aurobindo Pharma, which are trading at an EV/EBIDTA range of 9.0-10.2x. Given the strong growth drivers of the company and the untapped potential, we maintain our Buy recommendation on Orchid with a price target of Rs390.
South East Asia Marine Engineering & Construction
Cluster: Ugly Duckling
Price target: Rs270
Current market price: Rs183
Read between the lines
- For Q3CY2006 South East Asia Marine Engineering & Construction Limited (Seamec) reported a net profit of Rs0.5 crore, which is below our expectations. However if we read between the lines, there are three extraordinary costs, to the extent of Rs13 crore that are not related to the fleet that was operational during the quarter under review. Adjusted for these extraordinary costs, the pre-exceptional net profit at Rs13.5 crore is ahead of our estimates.
- The extraordinary costs include a Rs8 crore mobilisation and repairs cost incurred on Seamec Princess, a newly acquired vessel all set to begin its operations. Further Rs4 crore were paid as salary to the crew of this vessel, which anyway was not operational during the quarter. There was also an additional depreciation cost of Rs1 crore, charged on account of Seamec Princess.
- The revenue for the quarter increased by 90% year on year (yoy) to Rs33.6 crore, as all the company's vessels operated for a higher number of days and that too at higher charter rates.
- The operating profit for the quarter, adjusted for the extraordinary costs mentioned above, grew by 232% to Rs16.5 crore. The reported operating profit declined by 9%.
- The other income declined by 52% as the company utilised its excess cash to buy Seamec Princess. The depreciation charges jumped by 52%, as there was an additional depreciation of Rs1 crore charged on account of Seamec Princess.
- Adjusted for the three extraordinary costs, the net profit for the quarter grew by 413% to Rs13.5 crore. The reported net profit at Rs0.5 crore declined by 81%.
Rides high on milestone anticipations
Highlights of analyst meet
- Glenmark believes that the creation and ownership of intellectual property (IP) are critical for differentiation and value creation; therefore it plans to focus on building IP assets and out-licencing these to drive its growth.
- The company expects to receive $30 million from Forest Laboratory in FY2008. As per the company, the said milestone payment is already due, but has been delayed. Currently, the company is scouting for a partner in Europe to out-licence the GRC 3886 molecule for the European market, which would also trigger a milestone payment.
- In October 2006, the company signed an out-licencing agreement with Germany's Merck KgaA for its prospective diabetes molecule GRC 8200 for a total of €190 million (approximately Rs1,110 crore), including an up-front payment of €25 million (approximately Rs146 crore).
- For the USA, the company believes that to maintain the growth momentum it must continuously expand its product basket either by its own product filings or by product development alliances or by licencing marketing rights or by acquiring registrations in the USA.
- For Europe, Glenmark plans to focus on select branded generic markets like Spain, Italy and Eastern European countries. It is looking to acquire a company in Europe (having sales of 8-12 million euros and a strong product pipeline) to establish a front end. It plans to conclude the acquisition by the end of FY2007.
- Glenmark has a target for a 100% growth in Latin America in FY2007.
- Glenmark currently has 6 new chemical entity (NCE) molecules in its pipeline; 2 in Phase II trials, 3 entering the Phase I trials shortly and one in the pre-clinical stages. Its target is to take one molecule into the clinical trials every year. The company plans to conclude one more out-licencing deal in the current financial year.
- The company is upbeat on its growth prospects for the next two years. It has raised its growth guidance and its profit guidance for FY2007 and FY2008. As per the company's projections, it is planning to grow at a compounded annual growth rate (CAGR) of 52% over FY2006-08E, with profits growing at a CAGR of over 137% over the same period. It has raised its earnings per share (EPS) guidance from Rs36 earlier to Rs42. But the projected EPS has been powered largely by the anticipated milestone payments of $31 million in FY2007 and $69 million in FY2008. Considering the uncertainty of the milestone receipts, if we remove them from the projected earnings of Glenmark, the revised EPS would reduce by 50%.
- At the current market price (CMP) of Rs437, the stock is trading at 18.9x its consensus FY2008 earnings.
Parsvnath Developers currently derives most of its revenue from residential and integrated township projects in Harayana and Uttar Pradesh (UP). However, the company, promoted by Pradeep Kumar Jain, has taken steps to diversify its revenue in terms of locations as well as projects.
Presently Parsvnath Developers has acquired land/ development rights to develop 20 integrated townships, 27 commercial complexes including shopping malls, multiplexes, office space and a complete metro station and 25 residential projects. The company intends to construct 14 hotels and four information technology parks on commercial land acquired by it or on which it has development rights. It has obtained in principle approvals from the government of India for the development of 9 SEZ projects.
The track record of Parsvnath Developers includes 17 projects comprising nine housing projects and eight commercial complexes. To finance 11 of the 90 projects in hand, the company is coming out with public issue
* The growth of the Indian economy and its middle class has resulted in increased demand for housing units. Further, it has also resulted in increased consumerism, which in turn has created higher demand for shopping malls and multiplexes. Thus, the growth of the Indian economy has been acting as the growth driver for the real-estate sector in India. As per industry estimates, Rs 5500-crore of mall development is expected to take place in India over the next five years. The IT/ITES sector will make real estate investments of Rs 2500 crore by FY 2008, while the housing sector will require investment of $ 33 billion to $ 44 billion per year. As one of the leading players with presence across most verticals, Parsvnath Developers is likely to benefit from the growth of the real-estate sector in India.
* Though subjected to a penalty clause under the construction agreements entered into with its customers for any delay in the completion of the project, Parsvanth Developers has not paid even a single rupee as penalty.
* As of 15 October 2006, Parsvanth Developers directly owned or held development rights for an estimated 108.64 million square feet of saleable area.
* Parsvanth Developers is planning to develop SEZ in various parts of the country. As per the provisions of sec 80-IAB of the Income-Tax Act, 1961, the company is eligible for 100% deduction of profit derived from developing an SEZ notified on or after 1 April 2005 under the Special Economic Zones Act, 2005, for 10 consecutive assessment years.
* Parsvanth Developers’s financial performance is vulnerable to fluctuations in the market value of land and constructed inventories as a result of changing economic and market conditions due to lag between the acquisition of land / development rights and construction and development of the project. Also, prices of steel and cement, which comprise a major portion of the construction cost, are expected to rise in the coming couple of years, which may adversely affect margin.
* Hardening of the interest rate and/or withdrawal of tax incentives available for housing loans (recommendations of various committees/panels) may dampen the growth of demand for housing units, which could adversely affect the growth of Parsvanth Developers.
* Parsvanth Developers had negative operating cash flow in the last two financial years. In the quarter ended June 2006, too, the operating cash flow was negative.
* There is a civil suit pending against Parsvanth Developers for the use of the trading name, Parsvnath Developers. If the judgement is adverse, the company will not be able to use or advertise the name, Parsvnath Developers, for its business. The plaintiff, who is also engaged in the construction business, has staked claimed to the name, Parshwanath. As brand name plays an important role in the real-estate industry, the business of a company, deprived of the use of the brand name by which it is known, could be adversely affected.
In last five financial years, Parsvnath Developers’s revenue has grown at a CAGR of 121% and net profit at a CAGR of 139%. EPS on FY 2006 earning (assuming green-shoe option is exercised in full) works out to Rs 5.8. At the offer price band of Rs 250-Rs 300, the PE range will be 43.2 to 51.8, respectively. The company’s current profile compares well with Ansals and D S Kulkarni Developers, which command a PE of around 20-30. However, its future projects and plans are to get into the league of Unitech and Mahindra Gesco, which command a stratospheric PE of over 100. The financial performances and stock prices of real-estate stocks are highly volatile and currently their PEs are very high and, hence, highly vulnerable to fluctuations depending on the overall economic as well as stock market trends.
Lanco Infratech, an infrastructure development company with interests in power, construction and property development, is promoted by Mr. L. Madhusudhan Rao, Mr. G. Bhaskara Rao, Mr. L. Sridhar, Prince Stone. The company currently owns 11 power projects, of which five are in operation and six are under development.
To finance investments in various subsidiaries, pay for the acquisition of 13.3% equity interest in Aban Power, acquire 25.1% equity in Lanco Kodapalli, and for meeting general expenses, Lanco Infratech is coming out with an IPO.
* Lanco Infratech intends to use the proceeds of the issue for acquisition of 25.1% equity interest in Lanco Kodapalli Power (LKPPL), which is expected to become a consolidated subsidiary of the company by quarter ended December 2006 as its holding will increase to 59%. LKKPL had earned revenue of Rs 555.82 crore from sale of electrical energy and a net profit of Rs 106.79 crore in FY 2006. FY 2007 consolidated financials will also include financials of Aban Power Plant, which had earned revenue of Rs 97.91 crore from sale of electrical energy and a net profit of Rs 3.35 crore in FY 2006. The plant had commenced operations in August 2005. Thus, revenue in FY 2007 likely to be higher than in the previous year. Hence, FY 2007 financials of consolidated Lanco Infratech are likely to be much higher than FY 2006.
* Currently managing power generation capacity of 518 MW (including LKPPL), power generation capacity of Lanco Infratech will increase to about 3793 MW by April 2010. This means the generation capacity will increase seven times the existing capacity in the next four years, As a result, revenue and profit from power business will increase significantly. The company has also been qualified to bid for two ultra mega power projects: Sasan and Mundhra.
* The construction division had an order book of Rs 1611.83 crore on 30 September 2006. Of this, Rs 1229.95 crore were contracts with affiliates of Lanco Infratech. The entire order book will be executed by 2010.
* Lanco Infratech is obtaining approvals for a large integrated IT park and township on a 100-acre plot on which it proposes to develop 18.5 million square feet of saleable area in Manikonda, Hyderabad. The company also owns land banks, aggregating about 21.8 acres, close to Ocean Park in Hyderabad, where it intends to develop a residential housing project with one million square feet of saleable area. In addition, it has won a bid to develop an IT park and township on a 10.7-acre plot, on which it proposes to develop two million square feet of saleable area, in Vishakhapatnam, Andhra Pradesh. The property is, however, under dispute.
* Due to the nature of the business, Lanco Infratech’s projects typically require a long gestation period and substantial capital outlay before completion. It may be months or years before positive cash flows can be generated. Further, power, property development, and infrastructure and construction projects are capital intensive and will require high levels of debt financing. They will also lead to continuous dilution of equity.
* Contingent liabilities of Lanco Infratech amounted to Rs 755.92 crore on 30 September 2006. Apart from these, the offtake of the Kodapalli power plant has resulted in court proceeding related to Rs 224-crore charges paid by the offtaker to LKPPL. The offtaker claims the charges payable by it should be based on the capacity of 355 MW, which was operating capacity of the power plant at the time of signing the power purchase agreement (PPA). LKPPL has charged for electricity based on engineering, procurement and construction (EPC)- guaranteed capacity of 368.1 MW.
* Kondapalli Power Plant, Aban Power Plant and Lanco Amarkantak Power Plant rely on a single fuel supplier. Further, while LKPPL and APCL (Aban Power Company) have contracted with Gail for long-term supply of natural gas to the Kondapalli Power Plant and the Aban Power Plant, the management estimates these plants will not have sufficient fuel to operate at contracted capacity until alternative sources of fuel become available.
The stock market’s experience with Lanco Industries and Lanco Global Systems, the group’s earlier listed companies, has not been satisfactory.
On the basis of FY 2006 earning, EPS of Lanco Infratech works out to Rs 0.8. Annualised EPS based on earning in the quarter ended June 2006 is 2.4. Though typically EPS of the power and construction companies cannot be annualised due to the seasonal nature of the business, for Lanco Infratech it is likely to be a better indicator of future earnings on account of the fact that the company had reorganised its business in May 2006 by acquiring controlling interest in 19 entities from the promoter group.
At the offer price band of Rs 200-240, the PE range (on the base Q1 earning) works out to 83 to 100. If the large numbers of projects under the company’s belt are implemented well, PE will gradually come down in the long run. Hence, only long-term investors with appetite for high risk are advised to consider this offer
Unitech Ltd. India's most-valuable listed real estate firm, expects strong revenue and earnings growth as it doubles construction of houses and offices every year for the next four to five years.
"That's the kind of growth we have, because we are in multiple markets now," said managing director Sanjay Chandra.
"A few years ago we were just a Gurgaon property developer. And we are entering new markets," Chandra told Reuters in an interview. Gurgaon is a suburb of New Delhi.
Unitech, which has a market capitalisation of $7.1 billion, reported a profit of 1.0 billion rupees ($22.3 million) on sales of 3.8 billion rupees for the three months to Sept. 30.
Revenues were set to accelerate as it moved into second-tier cities such as Hyderabad, Chennai and Kolkata, where firms were setting up offices to beat rising costs in major cities, which in turn was creating demand for housing and shopping malls.
Chandra said Unitech expected to meet or beat market estimates for its fiscal third quarter to December 2006.
"Next quarter should be good. The stock market has a lot of expectations from us. Lot of houses are trying to figure out what our numbers will be. We should definitely meet them. Possibly exceed them also," he said, but declined to give specific numbers.
Investment bank UBS expects Unitech to have a compounded average growth rate of 105 percent in sales and 126 percent in earnings over the three fiscal years to March 2009.
Industry estimates show that India's retail real estate market could top $460 billion by 2010, from around $290 billion in 2004.
Chandra said housing, which contributes about 70 percent of the company's revenue, would continue to dominate revenues even as Unitech's developed special economic zones (SEZs) being set up by the government to attract investment and boost exports.
While the revenue impact of the SEZs would be "very big" and "lot of growth" would come from that sector, Chandra said it would be two years before it contributed to cash flows and four years for revenues.
Chandra said Unitech was unlikely to give an equity stake to a real estate fund in the near future, but was open to project-specific funding.
"We don't see any need of external equity right now. But yes, there may be opportunities later, we will see. I think project-specific funding is what we are focusing on. But no private placement at the entity level," Chandra said.
In July, the private equity arm of Infrastructure Development Finance Co. Ltd. invested 750 million rupees in Unitech's International Recreation Parks.
The BSE Sensex gained for the fourth straight day, as buying demand for the index pivotals continued at higher levels. The Sensex rose 56.10 points or 0.43% to 13186.89. This is an all time closing high for the Sensex. It opened on a firm note at 13155.11. It also struck an all time peak of 13206.87, during late afternoon session. Its low for the day was at 13113.39.
The S&P CNX Nifty rose 3.9 points or 0.10% to 3809.25
The total turnover on BSE amounted to Rs 4240 crore, higher than Friday’s turnover of Rs 4034.07 crore.
Market breadth was positive on BSE, with 1395 shares advancing as compared to 1147 that declined. 54 remained unchanged. The BSE Small-cap index rose 61.44 points or 0.95% while the BSE Mid-cap index gained 57.65 points or 1.05%.
The market has risen for the past four days in a row. It has advanced 225 points or 1.74% during the past four trading sessions, from 12961.90 on 31 October. Sustained inflows from FIIs and strong set of Q2 September 2006 results from India Inc have helped market surge to all time highs. FII inflow in October 2006 totaled Rs 8013 crore, compared to their inflow of Rs 5425 crore in September and Rs 4643 crore in August 2006.
In today’s trade, 15 stocks advanced from the Sensex pack while the rest declined
FMCG major, HLL was the top gainer, up 4.76% to Rs 246.70 on 20.35 lakh shares on reports that the company is gearing up for price hike for the fourth time in the year and is to increase product prices by 4-10%. It moved in a range of Rs 237 and Rs 247.55
Besides HLL, a host of other FMCG stocks advanced on renewed buying following reports that they will resort to price hike. The BSE FMCG index advanced 2.35% or 47.99 points to 2088.88. It was the biggest gainer among the sectoral indices. Mc Dowell (up 5% to Rs 833.35), Colgate (up 0.24% to Rs 422), ITC (up 1.60% to Rs 190.20), Godrej Consumer (up 0.72% to Rs 160), Gillette India (up 2.23% to Rs 879) and Nirma (up 0.21% to Rs 376.75) rose.
Cement stocks advanced on expectations of continued strong demand and a rise in retail prices on the back of a boom in construction activity. ACC (up 1.01% to Rs 1017) and Gujarat Ambuja Cements (up 3.29% to Rs 127.25) advanced.
Other cement stocks, Shree Cement (up 5.25% to Rs 1279.40), JK Lakshmi Cement (up 3.37% to Rs 151.75) and India Cements (up 0.67% to Rs 224.70) rose.
Cipla rose 2.95% to Rs 263.50 after it received tentative approval from the U.S. Food and Drug administration for selling insomnia drug zolpidem tartrate in the tablet form.
Index heavyweight Reliance Industries (RIL) advanced 1.56% to Rs 1307 on 14.33 lakh shares. It had struck lifetime high of Rs 1315.90 on strong buying demand. Its low for the day was at Rs 1281.
ONGC was the top loser, down 2.55% to Rs 855 on 4.73 lakh shares. It had slipped to a low of Rs 853.20, while its high of the day was at Rs 895.
Auto stocks witnessed selling pressure. Bajaj Auto (down 2% to Rs 2784) and Maruti Udyog (down 2.39% to Rs 951) slipped lower.
Shyam Telecom settled at Rs 139.05, compared to its last closing of Rs 60.50 on 24 July 2006. It had surged to a high of Rs 147.80, while its low is at Rs 72.60. The stock was re-listed on BSE today to give effect to its restructuring. A massive 1.35 crore shares changed hands on the counter on BSE.
Two block deals were struck on Godrej Industries counter, of 12.52 lakh shares each at Rs 166.15 and Rs 168.50 per share by 10:08 IST. The stock finished 5% higher at Rs 176.90 on total volumes of 37.60 lakh shares.
Siel climbed 3.28% to Rs 51.90 and Mawana Sugars went up 1.74% to Rs 73 after Siel announced that its board would meet on November 13 to consider merger of the company with Mawana Sugars.
Rajesh Exports rose 0.60% to Rs 238.70 after it launched two more jewellery retail showrooms at Chandigarh and Delhi, under the brand name of ‘Laabh Jewellers’
Software developer i-flex solutions rose 2.54% to Rs 1573 on market talks that Oracle Corporation would increase the open offer price to purchase shares in the Indian company. In September, Oracle had offered to buy 16.629 million shares of i-flex solution, or 20%, at Rs 1,475 a share.
Thermax rose 1.56% to Rs 346 after the company bagged new orders worth Rs 383 crore for two captive power projects. With the latest orders, Thermax’s current fiscal order booking exceeds 250 MW of captive power plants valued at about Rs 1,000 crore.
Elecon Engineering Company jumped 7.08% to Rs 319.95 after it received orders aggregating to Rs 29.24 crore towards design, manufacturing, testing and supply of wagon tippler, stacker reclaimers, other equipment and spares.
Indiabulls Financial Services advanced 2.58% to Rs 476.60 on 13.60 lakh shares after its unit received in-principle approval from the federal government to develop a multi-product special economic zone (SEZ) in Maharashtra.
Solectron Centum Electronics jumped 10% to Rs 206.85 after the company decided to separate services business into a separate company effective from 01 October 2006. The new company would be called Solectron EMS India (SEIL). At present, the company has two businesses, products business and services business. The services business comprises of electronic manufacturing services (EMS). The products division makes hybrid microcircuits.
Hexaware Technologies surged 5.12% to Rs 182.75 after it bought US-based specialized testing consulting firm FocusFrame for $ 34.3 million in an all-cash deal. At the time of announcing the acquisition of FocusFrame, Hexaware also said it expects FocusFrame to post a revenue of $24 million in 2006.
Williamson Magor spurted 10% to Rs 62.60 after it announced that it has signed a joint venture agreement with UK's D1 Oils Trading and Williamson Magor Bio Fuel for the manufacture of bio-fuel from Jatropha seeds.
Tantia Construction rose 0.65% to Rs 139.30 after it said on Saturday, it had won an order worth Rs 56 crore to set up a sewerage and drainage project in Kolkata.
S Kumars Nationwide lost 2.21% to Rs 77.50. It has scheduled a board meet on Thursday (09 November) to consider a proposal to acquire a home textiles company in the United States. Last month, the company's board had approved raising up to $65 million through equity to fund acquisitions and expansion.
Zinc producer, Hindustan Zinc rose 2.69% to Rs 940 after it raised zinc prices by Rs 1,200 a tonne, or by 0.54% to Rs 2,23,000 with immediate effect. The company also increased lead prices by Rs 700 a tonne, or 0.83% to Rs 85,300.
Japan’s Nikkei 225 index rose 14.74 points or 0.09% to 16,364.76 while the Hang Seng index advanced 186.86 points or 1% to 18,936.55
As per provisional data, FIIs were net sellers to the tune of Rs 11 crore on Friday, 3 November, the day when Sensex had risen 40 points.
Oil prices slipped Monday after threats of disruptions to production in Nigeria and the United States failed to materialize. Crude oil prices for December delivery dropped 42 cents to $ 58.72 on the New York Mercantile Exchange.
Twice during the day the Sensex moved above the 13200 level to touch an intra-day high of 13206.
The trading session was marked by range-bound moves and the market ended the day with the Sensex up 56 points at 13187 while the
Nifty closed at 3809,
up four points. Twice during the day the Sensex moved above the 13200 level to touch an intra-day high of 13206 before settling at its closing level.
There was weakness mainly in the PSU stocks, which topped the losers chart. Meanwhile, the market leaders like Infosys, Reliance Industries, Wipro and Satyam traded around their previous closes and did not have much impact on the market movement during the day. However, the day was ruled by HLL, which shot up by over 4% at Rs246.70. Bharat Forge, Glaxo Pharma, Indian Hotels and Crompton also recorded gains of over 4% each. The other counters that ticked positively during the day included Zee Tele, Tisco, Cipla and i-flex.
Maruti, BPCL, HPCL, Neyveli Lignite, Bank of Baroda and a few other PSU stocks were among the top losers during the day followed by Britannia, Wockhardt and Bajaj Auto.
A large number of second-line stocks recorded a sharp rise in their prices amid substantial volumes. Among the major gainers, HCL Info, Blue Star Info, TV18, Balaji Telefilms, Kopran Drugs, Saregama and Aban Lloyd topped the charts.
The cash segment clocked a combined turnover of over Rs12,000 crore as 1,415 scrips advanced on the BSE and 1,131 scrips declined during the day. Over 40 scrips touched new 52-week highs including Reliance Industries, i-flex Solutions, Indiabulls, India Infoline, BHEL and Grasim Industries.
Satish - one of the visitors to our blog writes ...
I Think Hinduja TMT is grossly undervalue at the moment and seems like a good stock to hold for 1 year with a target of 1000-1200. would appreciate if you could share it with your readers on your lbog.
The stock fundamentally valued in the following terms:
1. Rs.50/stock of cash which they approx have.
2. The Media arm which is valued @ $1bn
3. The hutch stock sale which kicks in about Rs.450/stock
4. CAS which shall kick in towards year end, leading to substantial revenue gain to the media arm.
5. Prime realty near Banglore's new Airport.
6. The demerger which itself shall unlock value
7. About Rs.40/stock which the company still has in terms of other investments.
8. A BPO business of 8000 people spread over India/Philiphines, earning about 100cr per year or around Rs.15 EPS annualised. This business itself should be worth around $300-400mn dollars.
Would you still want to value HTMT @ 2000Cr or $400mn for all of the above
Bank of Baroda
Dr. Reddy's Laboratories
Lanco Infratech is in the business of construction, power generation and real estate. The company’s IPO, which opens today, is priced in a band of Rs 200-240 for an equity share of Rs 10 each with an issue size of Rs 890-1,067 crore at the two ends. The proceeds of the issue are to be used for the company’s upcoming power and property projects and for acquiring additional equity in existing plant.
Fund usage will be to the tune of Rs 642 crore in 1,015 mw Nagarjuna power plant, Rs 256 crore in 600-mw Amarkantak project and the rest for other projects. With the current projects on hand and expected earnings over the next five years, the stock holds sufficient value.
However, since most of its projects are expected to go on stream line beginning ’09, the issue may be looked at as long-term investment only. The company is undertaking several projects in various areas, with construction being its core business.
In the power sector, Lanco Infratech has a current operating capacity of 509 mw, of which 488 mw is generated from two gas-based plants. It expects to commission 690 mw of capacity in FY09 and 1,690 mw of capacity in FY10.
Of these, about 675 mw will come from hydro and 1,615 mw from two coal-based plants. This is apart from the 1,000-mw Anpara project, for which it recently won the bid, as well as the memorandum of understanding (MoU) with the Orissa government for 1,320 mw, which is at a very early stage.
The power plants are being developed through various joint ventures, which help to mitigate the risks, as well as bring in outside expertise. Of the total project, financial closure was achieved for about 1,200 mw of capacity.
In the power business, financial closure is an important milestone as tariff (or selling price) is determined as per the guidelines of regulatory authority and the off-take risk is relatively low.
While the tariff is fixed so as to provide a 14% return on equity, there is an upside to it, which comes with more than 80% plant load factor (equivalent to capacity utilisation).
However, the running plant at Kondapalli (368 mw) is at a disadvantage due to shortage of gas and had a PLF of only 67.2% in FY06. Although the fixed costs are reimbursed as per the contracts, gas shortage eliminates the upside in earnings.
In construction, it aims to generate significant revenue from in-house power projects apart from outside projects. Construction accounts for 35% and 60% of the cost in coal and hydro projects, respectively. It currently has about Rs 1,200 crore worth of projects on hand and can generate a total revenue of about Rs 4,000 crore till FY10 (apart from the Anpara project).
The company is also actively participating in the development of real estate in Hyderabad, where growth is being led by the boom in the information technology industry. It is expected to meet about 5% of commercial space demand and 7-8% of residential demand in the city over the next few years.
It owns or has won bids to develop 19.5 million square feet of saleable area, including a 100-acre IT park in Hyderabad. Due to the ongoing boom in the industry, there is significant upside in this area of business.
Since the proceeds of the IPO will go towards long-term projects, it will be incorrect to judge it on the basis of current P/E, which runs at about 200 times. Earnings should begin to flow from FY09 and stabilise by FY11.
The P/E, based on FY10 earnings, comes to around 4.0 times for the consolidated business. In comparison, estimates for power companies range at around 13 and for existing construction companies, it is about 8 times.
Based on the estimates and projections, there is sufficient value in the stock for long-term investors. However, there is an element of uncertainty with respect to project execution, funds mobilisation and regulatory environment, considering the longer horizon. Investors will have to keep a long-term view to realise the gains.
Parsvnath Developers is one of the leading real estate developers in the National Capital Region (NCR), and has a presence in various other markets as well. The company is tapping the market with an issue of 33.24 million shares at a price band of Rs 250-300. The issue will add up to Rs 997 crore at the higher end of the band.
The company intends to use the proceeds of this issue to fund various ongoing residential and commercial projects. Parsvnath hopes to ramp up its scale of operations sharply over the next few years, based on the development rights it holds currently. Investors with a three-year horizon can consider subscribing to the issue.
Profile: The company has, so far, completed nine residential and eight commercial projects, adding up to 3.5 million sq ft. The company has seen very sharp growth over the past five years. Its turnover surged from Rs 27.3 crore in FY02, to Rs 112.9 crore in FY04 and Rs 653.8 crore in FY06. The company’s net profit stood at Rs 107 crore in FY06, against Rs 65.7 crore in FY05 and Rs 18.4 crore in FY04.
Prospects: The company is currently executing projects with total development rights of 108.6 million sq ft. This includes 25 residential projects, 27 commercial complexes and 20 integrated townships. Parsvnath is also building 14 hotels.
In addition, the company has in-principle approvals for setting up nine special economic zones (SEZs) — one of these is spread over 2,500 acres, while the others are all less than 250 acres. Land acquisition for SEZs is at a very preliminary stage.
Outlook & Recommendation: Parsvnath’s FY06 valuation works out to Rs 5,400 crore at the higher end of the price band, giving the company a price-earnings (P/E) multiple of 50. Clearly, the valuation is not based on past financials.
It is based on the developmental rights that the company holds — at 108.6 million sq ft, against 3.5 million sq ft that the company has so far. Approximately half of this is in the NCR area, while the remainder is spread across the country, mostly in tier-2 cities.
The SEZ agreements are at a very preliminary stage to be factored into the valuation. The company expects to complete this development over the next five years. In addition, Parsvnath is also building 11 malls for Delhi Metro Rail Corporation (DMRC).
Once these are completed, they may contribute Rs 150-200 crore to the operating profit. Part of the developable area with the company is in the form of hotels, which will continue to be owned by the company. The hotels and DMRC malls will provide the company with stable cash flows in future.
However, the company faces two major risks. A slowdown in the real estate market could hit margins. Secondly, the company is scaling up almost exponentially — from 17 projects executed so far, it now has over 70 projects at hand to be completed over the next five years. Hence, timely execution could become an issue. Investors willing to take this call can invest in the issue.
Research: Enam Broking
CMP: Rs 1,126 (Face Value Rs 10)
12-Month Price Target: NA
State Bank of India’s (SBI’s) net profit declined 2.5% y-o-y in Q2 FY07 largely due to the tax effect. Strong growth in fee income, lower operating expenses and a stable asset quality are the key highlights. Other income grew 11% y-o-y to Rs 1,430 crore against Rs 1,290 crore for the corresponding quarter last year.
However, excluding treasury income, which fell to Rs 7.7 crore in Q2 FY07 (Rs 240 crore for Q2 FY06), the growth in other income was very strong at 36%, driven by 35% growth in commission and exchange, and 53% growth in miscellaneous income, including recoveries.
Deposits grew 3.3% y-o-y, largely due to the base effect of IMDs redemption in FY06. Excluding IMDs, core deposits grew 10.8%. Credit growth, at ~23%, though lower than the system growth, has been maintained from Q1 levels.
While margins for Q1 FY07 stood at 3.37%, implying a fall in Q2 FY07, the fall is largely on account of higher interest expense on borrowings (up 155% y-o-y) and other sundry interests (up 142% y-o-y).
The reported PAT of both standalone SBI and SBI group are expected to show a decline in FY07 on account of ~Rs 2,200 crore one-time income in FY06. However, core operating profit of SBI is estimated to grow ~15% this fiscal. The stock quotes at 1.4 times FY07E BV.
Research: Angel Broking
CMP: Rs 43 (Face Value Rs 1)
12-Month Price Target: Rs 55
In October ’06, the company’s wholly-owned foreign subsidiary, AVIA Ashok Leyland Motors sro, completed the acquisition of the truck business of AVIA in Czech Republic in pursuance of the framework agreement signed earlier.
The subsidiary has begun its business operations, post-acquisition. AVIA specialises in the manufacture of D-Line trucks in the 6T to 9T GVW range. AVIA’s facility, at the heart of the Czech capital, with an annual production capacity of 20,000 vehicles, is supported by state-of-the-art R&D facilities.
The company also has marketing footprints in Europe. The current sales volume of AVIA is around 2,000 units. Ashok Leyland (ALL) expects to increase this to 5,000 units in the current year and 10,000-15,000 in the next 2-3 years. For Q2 FY07, ALL reported net sales of Rs 1,675.7crore (Rs 1,249.2 crore) on the back of a 33% growth in sales volume, up from 14,895 units to 19,863 units. Going forward, volume is likely to grow by around 20% in FY07.
ALL also stands to benefit from the price hikes effected in the next quarter. Angel Broking estimates ALL to clock an EPS of Rs 3.1 in FY07 and Rs 4.1 in FY08. At the current market price, the stock is trading at 14.2x FY07E and 10.7x FY08E EPS.
CMP: Rs 187 (Face Value Rs 1)
12-Month Price Target: NA
ITC reported stunning sales growth of 32% to Rs 2,890 crore in Q2 FY07, with all business segments witnessing sustained growth momentum. The non-cigarettes consumer business grew at 66%, hotels at 31% and the agri business at 87%.
While margin profile in individual businesses has improved (except for agri), the changing business mix away from cigarettes has led to EBITDA margin shrinkage of 390 bps. SSKI is impressed by ITC’s dominance in the core cigarettes portfolio, no dearth of growth-drivers and risk-taking appetite.
While all non-cigarettes businesses like foods, agri and hotels are growing at a brisk pace, SSKI believes that the foods and agri businesses offer the largest scale-up potential. While ITC’s deep pockets and distribution network make it the potent force in the foods and FMCG businesses, it is also investing heavily in the agri and hotel space.
It intends to become an aggregator (e-choupal) and branded consumer play (Choupal Sagar); it currently has over 6,400 e-choupal kiosks and 11 Choupal Sagars.
The build-up of a superior and impregnable business model, like the cigarettes business, continues to throw huge cash (over Rs 2,000 crore annually) and ITC has the appetite to redirect funds in long gestation businesses (expected annual capex of Rs 800 crore). Hence, ITC remains SSKI’s top pick in the sector.
CMP: Rs 176 (Face Value Rs 5)
12-Month Price Target: NA
Usha Martin’s Q2 FY07 results were in line with expectations. The consolidated topline of the company grew 12% q-o-q to Rs 520 crore. EBITDA, at Rs 85.5 crore, is up 21% sequentially. Consolidated net profit grew 13% q-o-q to Rs 30.9 crore.
The company is expanding its steel capacity at Jamshedpur to capture a larger portion of the burgeoning automotive steel market. It plans to increase its capacity from the current 360,000 tpa to 600,000 tpa by Q2 FY09 and further to 1 million tpa by FY10. Major equipment orders have been placed for phase I of the expansion plan to increase capacity to 600,000 tpa.
The company plans to obtain its entire iron ore requirement from captive sources by the end of the current fiscal. The coal mine acquisition is progressing as per schedule. It is also in the final stage of commissioning a wire rope plant in the US.
The JV project with Joh Pengg of Austria, for specialty OT wires, is progressing on schedule and is expected to be completed by Q3 FY08. The capital expenditure plan for steel capacity expansion to 1 million tpa, as well as value-added product capacity enhancements, are progressing as per schedule. At the current market price, the stock trades at an EV/EBITDA of 4.2x and P/E of 6.0x FY07E and looks attractive.
Research: India Infoline
CMP: Rs 351 (Face Value Rs 5)
12-Month Price Target: Rs 392
Cadila Healthcare’s (CHL’s) Q2 FY07 results were better than expectations. Sales increased by 22.6% to Rs 475 crore, driven by 78% growth in exports to Rs 140 crore. Sales would have been higher, but for another quarter of lower-than-expected domestic formulations growth (Q2 FY07-8.8%, Q1 FY07-3.6%), mainly due to restructuring of field force and withdrawal of some products from the market.
OPM grew by 200 bps to 23.1%, driven by increasing contribution from regulated markets. Profitability increased by 55% to Rs 72.6 crore, translating into an annualised EPS of Rs 23.1 CHL’s strategy for the US market is paying off well and the company is on track to achieve sales of $30 million for FY07.
Zydus France is also recording consistent growth and is set to contribute to the profitability in H2 FY08. The CRAMS business is fast gaining pace, with CHL signing three more contracts for the quarter, taking the total number of contracts to 17, and having a peak revenue potential of $25 million.
The potential acquisition of Mayne Pharma by Hospira is unlikely to have any negative impact on CHL. The JV for eight oncology products, starting FY09, may turn out to be a win-win situation for both companies. Hospira will gain access to a low-cost manufacturing base in India, while CHL’s products will be marketed globally.