Thursday, May 17, 2007
Optimism across the global market kept Indices to trade higher. US rally gave the support across to trade firm. Indian Indices got the boost from the Asian market to close higher. Tech counters bounced back to close higher after a weak play with the news of H1 B visas and appreciating Rupee. SBI continued its upward journey from where it stopped yesterday with the Amendments news. Reliance also rallied with its Gas findings. Buying activity was also witnessed across other sectors like Banks, Cement and Engineering stocks along with small and mid caps. Asian indices ended in green after the Bank of Japan kept interest rates unchanged at 0.5% while the European ones are trading in green.
Sensex ended higher by 172 points at 14299.71. It was helped up by gains in SBI (1328.1,+3 percent), RIL (1684.85,+3 percent), Dr Reddys (677.85,+2 percent), Tata Motors (750.75,+2 percent) and TCS (1248.3,+2 percent). Restricting the gains were Bajaj Auto (2500.3,-7 percent), HLL (195.05,-1 percent), Cipla (208.4,-1 percent).
Bajaj Auto saw a Topline growth of 9% at Rs.2,471 cr against Rs.2,269 cr. The Bottom line for the quarter slipped by 11%. The bottom line for the quarter stood at Rs.308 cr against Rs.347 cr in the same quarter previous year. The reason for the decrease in the bottom line was because of increase in input cost. The passing on of cost on customers was not easy for the company on account of increased competitive pressures. On the yearly basis the top line improved by 25% on consolidated basis. The top line stood at Rs.8,104 cr against Rs.10,119 cr. The bottom line for the year was at Rs.1,248 cr against Rs.1,105 cr. Company also announced its demerger which was keenly awaited by investors. As per the demerger plan Bajaj Auto would be split into two companies Bajaj financial services (BFL) and Bajaj holdings and Investments ltd (BHIL). The Auto business along with its Assets and th Indonesian Business will be transfered to BHIL. And BHIL will alsi include a Total Rs 1500 Cr in cash and cash equivalents. Wind power, insurance and financial services along with the relevant Assets and liabilities and Along with a Total of Rs 800 Cr in cash and cash equivalents would be transfered to BFL. The share holders of the company would be entitled to get 1 share of Rs.5 paid up in Bajaj Financial Services Ltd and 1 share of Rs.10 paid up share in Bajaj holdings and Investments Ltd. The whole restructuring plan is expected to be completed by the end of 2007. At the press meet on the demerger, analyst pointed out that ALLIANZ has a option to raise its stake all the way up to 74% (from the current 24%) at a throwaway price of INR 13.42/ share. This is big negative and the Stock was hit on the back of this news.
Tata Steel ended a percent higher after the results were announced. The bottom line for the quarter was at Rs.1103.50 cr against Rs.783.10 cr, up by 40%. The EBIDTA margin for the quarter stood at 38%. The top line for the quarter was at Rs.4,165 cr against Rs.5,060 cr, up by 21%. The top line for the year on standalone basis stood at Rs.17,986 cr against Rs.15,470 cr witnessing a growth of 16%. The bottom line for the year improved by 20% at Rs.4,222 cr against Rs.3,506 cr.
Balaji Telefilms the leading hindi content provider ended up by 2.3% after it announced its results. The Bottom line for the quarter improved by 37% at Rs.21 cr against Rs.16 cr. The top line for the quarter ended marginally higher by 4% at Rs.82 cr against Rs.78 cr. The top line for the year stood at Rs.327 cr up by 13% from Rs.289 cr. The net profit for the year was at Rs.80 cr. We will update more here in coming days..
Technically Speaking: Sensex traded higher between an intra day high of 14,353 and low of 14,217 levels. The breadth was in favor if advances through out the day before the Bajaj Auto announced its demerger scheme. However, Declines marginally edged the Advanced in the final trading hours. The declines for the day were 1,254 against 1,362 advances. Resistance lies at 14,360-14,410 levels while the support lies at 14,210-14,105 levels. Sensex churned a turnover of Rs.5,715 cr.
Margin Pressure: An exaggerated concern
A concerned RBI has been on a tightening spree over the last one year. RBI has surprised the market on various occasions and its measures have impacted liquidity and have created a more tightly balanced, and some-what restrictive operating environment. This has raised the spectre of concern on bank margins through the year as their funding costs have risen disproportionately. An analysis of the results so far, makes us believe that the concerns are exaggerated.
However, despite all of this, margins for the banking system have remained stable qoq in Q4FY07 as banks have passed on the rate hikes to relatively underleveraged borrowers who are riding the wave of optimisim in the ongoing economic expansion. Both lending and deposit rates have risen by around 250-350bps on an average, with bulk deposits witnessing even larger rise. PSU banks following a calibrated loan growth strategy have seen rising margins (owing to their positively gapped ALMs). Private banks on the other hand have overcome the ALM disadvantage by raising their lending rates more aggressively than state-owned banks enabling them to maintain their margins.
We believe that margins for PSU banks will only slightly moderate (5-15bps) as deposits reprice over the next 12-18 months. However the margin outlook over the next few quarters is bright as the 100-125 bps PLR hikes over the past 3 months drive up yields. We maintain that significant margin pressures (if any) would be driven by structural issues ( like a very low CASA, or an ambitious loan growth strategy) rather than recent interest rate developments. Banks like HDFC bank and Union bank which have driven their CASA and followed a strategy of a calibrated loan expansion have actually witnessed increasing margins. We expect margins to remain insensitive to small hikes (around 25bps). However, the key risk to our assumptions is an outsized tightening / hike (50bps or more) by the RBI as banks may not be able to pass on hikes of such magnitude to their borrowers.
We prefer private sector banks and public sector banks with a calibrated loan growth strategy.
SSKI - Indian Banks - Margin Pressure: An exaggerated concern
The wait is over. United Spirits (USL), the third largest spirits manufacturer in the world, in order to strengthen its foothold in the international alcohol industry, has acquired the world's fourth largest scotch manufacturer, Whyte & Mackay (W&M) for GBP 595mn ($1.18bn). The acquisition comes at 3.7xFY06 revenues and at 12xEV/EBITDA, a near 25% discount to comparable transactions in the space (Moet Hennessy acquired Glenmoragie at 24xEV/ EBITDA). This acquisition will add the world's largest grain distillery (capacity of 40mn liters), 4 malt distilleries in Scotland (capacity of 12mn liters), a bottling unit in Grangemouth and bulk scotch inventory (115mn liters of maturing scotch) to USL's portfolio. Along with these, W&M also owns a number of strong brands such as Isle of Jura, Dalmore single malt, Vladivar vodka and its flagship blended scotch, Whyte and Mackay. We understand that W&M revenues stood at US$320m and EBITDA at US$99m and the value of its maturing inventory of 115m is estimated to be valued at US$750m.
For USL, a US$1.2bn acquisition is clearly going to strain its balance sheet in the near term. Most of the acquisition is likely to be debt funded. USL will be raising $640mn on the strength of the target assets (W&M) with no recourse to USL and the balance on the overseas SPV of USL. Furthermore it may also offload its 2.3mn shares of treasury stock.
The alcohol industry in India, over the past 2 years has been witnessing an uptake in the alcohol industry. With an increase in disposable incomes and declining propensity to save, the Indian population is moving towards better quality. Observant to a 26% volume growth when the rest of the industry is growing at 12%, the scotch industry in India is clearly at a nascent stage.
We have always liked USL's business and believe that the acquisition only enhances the abilities of USL to take a shot at becoming a global leader in the space. Maintain Outperformer and will be introducing consolidated numbers shortly, accruing for W&M acquisition.
Erratum: Sharekhan Daring Derivatives for May 17, 2007
The market held firm above the 14300 level for almost the entire trading session as strong US and Asian markets created a perfect platform for the bulls to pursue buying. After registering yesterday the biggest single-session gain (of 198 points) in the last two weeks, the Sensex resumed with a huge positive gap of 90 points at 14217. The Sensex gained further ground on sustained buying in banking, oil & gas and information technology stocks. However, buoyancy towards the close lifted the Sensex to touch the intra-day high of 14353. The Sensex finally closed with gains of 1.22% and was up 172 points at 14300. The Nifty rose 1.17% and gained 49 points to close at 4220.
Surprisingly, the breadth of the market was negative, with the losers outpacing the gainers in the ratio of 1.05:1. Of the 2,685 stocks traded on the BSE, 1,337 stocks declined, 1,272 stocks advanced and 76 stocks ended unchanged. Among the sectoral indices, the BSE Oil & Gas index moved up by 2.41% followed by the BSE Bankex index (up 1.69%), the BSE PSU index (up 1.42%), the BSE IT index (up 1.39%), the BSE Teck index (up 1.16%) and the BSE FMCG index (up 1.09%). However, the BSE Auto index closed in negative territory and shed 0.82%.
Among the index heavyweights, SBI surged 3.40% at Rs1,328, Reliance Industries spurted 3.09% at Rs1,685, Dr Reddy's Lab scaled up 2.19% at Rs678, Tata Motors soared 2.16% at Rs751, TCS advanced 1.95% at Rs1,248, ACC moved up by 1.91% at Rs889 and Reliance Communication added 1.84% at Rs500. However, Bajaj Auto tumbled 6.71% at Rs2,500, HLL slipped 1.14% at Rs195 and Grasim closed with marginal losses at Rs208.
Over 4.10 crore Bhagwati Banquets & Hotels shares changed hands on the BSE followed by IFCI (2.35 crore shares), Reliance Natural Resources (1.56 crore shares), Nagarjuna Fertilizers (77.93 lakh shares) and Tata Teliservices (70.52 lakh shares).
Unitech was the most actively traded counter on the BSE and registered a turnover of Rs246 crore followed by Bhagwati Banquets & Hotels (Rs205 crore), Bajaj Auto (Rs178 crore), Reliance Industries (Rs164 crore) and Tata Steel (Rs131 crore).
The market rallied for the second straight day as buying momentum continued for index pivotals, specially index heavyweight Reliance Industries (RIL) which struck a fresh all-time high of Rs 1688.15.
The highlight of the day was auto major Bajaj Auto, which swung sharply and tumbled over 10% reacting to results which were unveiled today afternoon.
The 30-shares BSE Sensex settled 145.30 points higher at 14,272.61, as per provisional closing. It opened higher at 14,217.36, after notching a 198-point rally yesterday, 16 May 2007, and surged to a high of 14,352.98 as buying intensified. Firm global markets have been aiding the rally in the Indian markets.
From a recent low of 13,771.23 on 10 May 2007, the Sensex gained 356.08 points, or 2.58%, to 14,127.31 on 16 May 2007 in four trading sessions.
The market was further boosted after Bank of Japan (BOJ) left rates unchanged. The world's second largest economy cooled in the first quarter as companies cut spending on concern that exports to the US will slow. Gross domestic product grew at an annual 2.4% rate in the three months ended 31 March 2007, the Cabinet Office said in Tokyo today. The fourth-quarter figure was revised to 5% from 5.5%.
All the Asian indices except the Nikkei 225 (down 0.17%) logged gains, while all the European markets, except Swiss Market, advanced. The Hang Seng index rose 0.27%.
The total turnover on BSE amounted to Rs 5715 crore, which was higher than Wednesday’s turnover of Rs 5,179 crore
The market breadth turned negative on BSE, with 1,362 shares declining as compared to 1,254 that advanced, while 88 remained unchanged. This is in sharp contrast from the morning session, when 1,097 shares had advanced as compared to 311 that slipped.
Among the Sensex pack, 23 advanced while the rest declined.
The Rahul Bajaj-led Bajaj Auto tumbled 10.45% to Rs 2400, from a high of Rs 2747, in the last 15 minutes of trade, following announcement of its results and demerger into three separate entitities. About 6.79 lakh shares were traded on the counter on BSE.
Bajaj Auto reported today a 13% increase to Rs 1,248.28 crore in consolidated income attributable to the group in the year ended March 2007 when compared with Rs 1,104.60 crore in FY 2006. According to a release issued to the BSE today, net sales increased to Rs 10,118.67 crore, from Rs 8,103.74 crore in FY 2006.
Income attributable to consolidated group stood at Rs 377.39 crore in the quarter ended March 2007 as against Rs 357.34 crore in Q4 FY 2006. Income from operations increased to Rs 2,589.50 crore, from Rs 2,297.52 crore.
On a stand-alone basis, Bajaj Auto posted profit after adjustments of Rs 308.31 crore in Q4 F0Y 2007 when compared with Rs 346.97 crore in Q4 FY 2006. Total income increased to Rs 2,471.25 crore from Rs 2,268.95 crore in Q4 FY 2006.
The company posted a net profit of Rs 1,237.10 crore in the year ended March 2007 as against Rs 1,123.27 crore in FY 2006. Income increased to Rs 10,076.05 crore from Rs 8,106.35 crore.
The board has recommended a dividend of 400%, i.e, Rs 40 per share for the year ended March 2007.
Bajaj Auto’s board also approved the demerger scheme leading in the incorporation of two new companies to eventually result in three companies in all. The two new entities are Bajaj Finserve and Bajaj Holdings. The shareholders will get one share of Bajaj Holdings and Finserve for every one held. The face value of Bajaj Finserv will be Rs 5 and that of Bajaj Holdings will be Rs. 10.
Auto business to be transferred to Bajaj Holdings. Bajaj Auto, consequently, will be renamed Bajaj Holdings. Rs 1,500 crore cash will be transferred to Bajaj Holdings.
HLL (down 1.40% to Rs 194.55), Cipla (down 1.10% to Rs 207.50), and Hero Honda (down 0.63% to Rs 674), were the other losers.
Banking shares were in strong demand today. State-run banking major State Bank of India (SBI) was the top gainer, up 3.31% to Rs 1327 on 9.17 lakh shares, following its plans to consolidate ownership in associate banks, dilution of stake in unlisted associates, and a further dilution of its holding in the already listed arms to augment its resources.
SBI has seven subsidiaries, of which State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed with SBI`s stake in these banks between 75% and 98%.
The SBI Act's amendment to reduce the government`s stake to 51% and the idea of consolidation is being mulled to create a bank of greater size and strength.
The four unlisted units of the State Bank of India: State Bank of Indore, State Bank of Patiala, State Bank of Hyderabad and State Bank of Saurastra plan to raise Rs 20-30 billion from the market in the coming few months after the Lok Sabha cleared the SBI Subsidiary Bank (Amendment) Bill.
Bank ADRs surged overnight on the NYSE. ICICI Bank's ARD was up 7%, while HDFC Bank ADR advanced 4.8%.
Other shares from banking and financial sector including ICICI Bank (up 1.73% to Rs 935), HDFC (up 0.44% to Rs 1705) also participated in the rally. These shares have been consistently rising in the past few days, buoyed by market rumours of a cut in the cash reserve ratio. Also strong set of results from banking major SBI boosted the sentiment further.
Also there is a buzz of consolidation in the Indian banking industry. HDFC Bank is reportedly planning a merger with parent HDFC, SBI diluting its stake in its seven associates; Chinese giant ICBC eyeing a stake in ICICI Bank, Citibank having a greater handle on HDFC, Canara-Dena merger and LIC seeking a bigger play in banking, justify this.
Aditya Puri, CEO and Managing Director of HDFC Bank, said on Wednesday, 16 May 2007, that the recent legislation allowing the Reserve Bank of India (RBI) to do away with the floor on banks’ government securities investments would make his bank’s merger with its parent company, Housing Development Finance Corporation (HDFC), a lot easier. Puri also added that his company has never said no to a merger.
Tata Steel eased from high of Rs 608.20, to gain 1.96% to Rs 600, after its quarterly net profit rose 41% on higher steel prices, but the result lagged analysts' forecasts. Tata Steel, which bought Anglo-Dutch firm Corus Group for $12.9 billion earlier this year, said standalone net profit for Q4 March 2007 rose to Rs 1104 crore from Rs 783 crore reported a year earlier. Net sales rose 21.5% to Rs 4980 crore in the March 2007 quarter, from Rs 4100 crore a year earlier. The company said steel production slightly rose to 1.27 million tonnes in the quarter, from 1.23 million tonnes a year ago.
Index heavyweight RIL advanced 3.07% to Rs 1684.50 on 9.84 lakh shares. It also struck an all-time high of Rs 1,688.15 in late afternoon session of trade. The stock has seen sustained buying interest after it struck natural gas in the Krishna-Godavari basin and Gujarat-Saurashtra basin on 12 May 2007. It is in the deepest location drilled to date, at 4,860 meters. India's directorate general of hydrocarbons awarded this block to a consortium of RIL and NIKO, in which RIL has 90% stake and NIKO 10%. The commerciality of the above discoveries is currently under evaluation.
A key event to watch today is a Union cabinet meeting scheduled later in the day to take up a proposal to allow public sector enterprises to invest their surplus funds in mutual funds. With state owned companies sitting on huge cash surpluses, even a small percentage of this money entering equities indirectly through mutual funds will pep up markets.
FIIs pressed sales worth a net Rs 330.80 crore on Tuesday, 15 May 2007 as compared to an inflow of Rs 60.50 crore on Monday, 14 May 2007. As per provisional data, FIIs were net sellers of Rs 245- crore equities on Wednesday, 16 May 2007, the day when Sensex had surged 198 points. Domestic institutional investors were net buyers of Rs 403- crore equities on that day.
Over the next few months, the progress of the June-September monsoon will hold the key to the direction of the domestic bourses. The Indian meteorological department on Monday, 14 May 2007, forecast annual monsoon rains would arrive in Kerala on 24 May 2007. The weather office said last month that this year's monsoon rains were likely to be 95% of the long-term average, with a 5% margin of error.
US stocks advanced on Wednesday, 16 May 2007, amid expectations of further corporate takeovers, driving the blue-chip Dow to another record closing high. The Dow gained 103.69 points, or 0.77%, to 13,487.53. The tech laden Nasdaq Composite Index gained 22.13 points, or 0.88%, to 2,547.42.
Oil prices rose slightly in Asian trading on Thursday following continued concerns about gasoline supply — despite a U.S. government report that showed stockpiles of the fuel increased last week. Light, sweet crude for June delivery added 13 cents to $62.68 a barrel in electronic trading on the New York Mercantile Exchange, midday in Singapore. The contract fell 62 cents Wednesday to settle at US$62.55 a barrel after crude oil, gasoline and distallate inventories were all reported to have increased last week.
The NIFTY futures saw a drop in OI to the 4.05% with prices went up sharply and closed near day's high indicating aggressive short covering seen in the nifty futures and fresh long positions built up in the market .Market managed to cross the resistance of 4150 levels with good trading volumes which may help market to up further. Nifty futures closed at 25 points premium to spot nifty suggesting fresh buying coming in nifty at lower levels and shorts covering their positions. The FII buyers index futures to the tune of 408crs and buyers in index options to the tune of 1.76crs. The PCR has come up from 1.19to 1.121 indicates some buying may emerge at lower levels in the market. The IV is around 24.80 levels indicating some volatile trading sessions ahead.
Among the Big guns, ONGC saw 2.40% drop in OI with prices closing in blue indicating buying emerging in the counter suggesting some more addition in the OI may be seen in the counter with positive bias. Whereas RELIANCE saw 0.31% drops in OI with prices moved up sharply and closed near day's high and thereby helping the overall market to gain further momentum. The built up suggests that the overall rise in the price was mainly driven by short covering.
In the TECH front, INOFSYSTCH, TCS & SATYAMCOMP saw rise in OI with prices recovering from lows indicating some buying emerging in these counters as market recovered forcing weak short positions to cover their positions aggressively indicating some buying support may emerge in these counters.
In the BANKING counters, all the majors saw buying with OI either going up or down indicating we saw short covering as well long positions built up in the BANKING counters .SBIN saw 2.09% drop in OI with prices closing on higher side indicating shorts covering their positions as it rallied on higher side & fresh money coming in the counter and fresh long positions built up suggesting further strength in the counter. .ICICIBANK saw drop in OI with prices up indicating short covering seen in the counter suggesting further strength in the counter. .HDFCBANK saw rise in OI with prices up indicating long positions built up in the counter indicating strength in the counter.
In the metal pack TATASTEEL saw drop in OI with prices almost flat indicating that both bulls were liquidating their positions in the counter. SAIL saw rise in OI with prices coming up indicating long positions being built up in the counter indicating further strength may be seen in the counter. HINDALCO & NALCO saw drop in OI with prices up indicating long positions being built up in these counters as well as shorts covering their positions indicating strength in these counters. STER saw rise in OI with prices coming down indicating selling pressure emerging in this counter suggesting weakness may be seen in the counter.
We feel that the volume and built up in OI suggests that market may show strength as it crossed the resistance of 4150 levels and forced bears to cover their positions . Market may show further strength and we may see fresh buying emerging in the market. One should trade with strict stop losses to be adhered too.
Anand Rathi - Daily Strategist - May 17 2007
The market may extend Wednesday 16 May 2007’s rally today on firm global markets. But an intermittent surge in sales by FIIs this month may cap upside. A key event to watch today is a union cabinet meeting which is scheduled later in the day to take up a proposal to allow public sector enterprises to invest their surplus funds in mutual funds. With state owned companies sitting on huge cash surpluses, even a small percentage of this money entering equities indirectly through mutual funds will pep up markets.
Some important March 2007 quarter results are scheduled today and the market will take its cue from these results. Bajaj Auto and Tata Steel report Q4 results on Thursday, 17 May 2007. The board of Bajaj Auto will also consider proposal to split the company into two. Tata Motors and Dr Reddy’s Laboratories unveil Q4 results on Friday, 18 May 2007.
Bank stocks have led rally on the domestic bourses in the past four days on a view that interest rates may be near their peaks. Firm global markets have aided the rally. From a recent low of 13771.23 on 10 May 2007, Sensex gained 356.08 points or 2.58% in four trading sessions to 14127.31 on 16 May 2007.
FIIs pressed sales worth a net Rs 330.80 crore on Tuesday 15 May 2007, as compared to an inflow of Rs 60.50 crore on Monday 14 May 2007. There has been lack of direction regarding FII investment this month. However, there has been an intermittent surge in their outflows. FIIs pulled out a net Rs 553.50 crore from Indian equities this month, till 15 May 2007. FIIs had made heavy purchases in April 2007, aiding the market stage a solid rebound from lower level. Their inflow in April 2007 totaled Rs 6679.20 crore.
As per provisional data, FIIs were net sellers to the tune of Rs 245 crore on Wednesday 16 May 2007, the day when Sensex had surged 198 points. Domestic institutional investors were net buyers to the tune of Rs 403 crore on that day.
Over the next few months, the progress of the June-September monsoon will hold the key to the direction of the domestic bourses. The Indian meteorological department on Monday, 14 May 2007, forecast annual monsoon rains would arrive in Kerala on 24 May 2007. The weather office said last month that this year's monsoon rains were likely to be 95% of the long-term average, with a 5% margin of error. The annual monsoon is vital for India's economic health as it provides the main source of water for agriculture, which generates more than a fifth of gross domestic product (GDP).
Asian stock markets were higher on Thursday, 17 May 2007 boosted upbeat data showing unexpectedly strong growth in US housing starts and industrial output last month. MSCI's measure of Asia Pacific stocks excluding Japan gained 0.30% and was within striking distance of a record high set on Monday, 14 May 2007.
US stocks advanced on Wednesday, 16 May 2007 amid expectations of further corporate takeovers, driving the blue-chip Dow to another record closing high. Dow gained 103.69 points or 0.77% to 13,487.53. The tech laden Nasdaq Composite Index gained 22.13 points or 0.88% to 2,547.42.
In recent days, a spate of merger and acquisition activity as well as increasingly eye-popping takeover bids have helped propel many global indices to record highs. However, the sharp and swift surge has raised concerns of a steep correction.
NIFTY (4170) S4139 R4197
BUY Corporation Bank (322) SL 317 T 331, 334
BUY Gammon India (392) SL 387 T401, 404
BUY Satyam (452) SL 446 T462, 465
SELL REL (507) SL 512 T499, 497
SELL SCI (214) SL 218 T206, 204
Early gains, enjoy the day
It is always sound business to take any obtainable net gain, at any cost and at any risk to the rest of the community.
The dullness during most part of Wednesday suddenly disappeared post lunch. With the global markets in a pink of health, the bulls may just be able to extend their gains, at least in the early hours of trading. What's heartening about Wednesday’s trade is that the market breadth and volume were both positive. Even the small-cap and mid-cap shares participated in the rally. Some cooling may wait for a day as the market is moving ahead without any triggers. And yes, don’t forget the historic falls of May 17 in ’04 and May 18 in ’06.
In fact, foreign funds have been bearish this month after pumping in well over a million dollars last month. They were said to be net sellers yesterday as per the NSE data and on Tuesday too they offloaded stocks worth Rs3.3bn. Mutual Funds too were net sellers on Tuesday at Rs736mn. Stock specific action and the usual intra-day volatility is a given as valuations are not cheap.
Watch out for Bajaj Auto as the company unveils its plans on the much-awaited demerger. The two-wheeler major is also set to announce its annual results. Tata Steel is also likely to be in the thick of things as it will also declare its results today. GE Shipping and Great Offshore might benefit from a newspaper report that the Seth brothers are headed for an amicable resolution. Tata Tele (Maharashtra) could gain from improved financial performance and reports that the Tata Group is expected to form a joint venture with Richard Branson's Virgin Mobile for the British company's India foray. Petroleum marketing companies may rise amid talk of a hike in petrol and diesel prices.
Shares of Bhagwati Banquets & Hotels Ltd. will get listed on the bourses today. Electrotherm India may gain as it has secured $25mn in funding from IFC. ICI India may rise following good set of numbers. Also, the company's Board will meet on May 26 to consider a proposal for buy-back of shares at a price not exceeding Rs575 per share. The stock rose 4.2% yesterday to end at Rs502. Balaji Telefilms could be in action after its results. There is a disinvestment rumour in Gujarat Alkalies. Reliance Capital seems to be in momentum. VSNL may attract some attention amid reports that the Government may consider the issue of residual stake sale in today's cabinet meeting.
FIIs were net sellers to the tune of Rs2.45bn (provisional) in the cash segment yesterday while domestic institutions pumped in Rs4.03bn. In the F&O segment, FIIs were net buyers at Rs1.84bn on the same day.
US stocks closed higher on Wednesday, with the Dow Jones Industrial Average closing at another record high. Investors cheered stronger-than-expected industrial production data and set aside worries about the troubled housing market.
The Dow climbed 103.69, or 0.8%, to 13,487.53. The S&P 500 added 12.95, or 0.9%, to 1514.14, its first advance in three days. The Nasdaq Composite Index rose 22.13, or 0.9%, to 2547.42.
The sentiment also received a boost from reports that billionaire investors Warren Buffett, Edward Lampert and Carl Icahn have boosted their holdings of drugmakers, banks and railroads.
Healthcare shares rose the most in four weeks after Buffett's Berkshire Hathaway almost doubled its investment in Johnson & Johnson. Citigroup had its biggest jump since 2003 after Lampert disclosed an $800mn stake in the largest US bank.
Icahn joined Buffett in acquiring railroad shares by building up a position in CSX, the third-largest US railroad.
After the close, Hewlett-Packard reported lower quarterly earnings and higher quarterly revenue. Shares rose 0.5% in extended-hours trading.
US light crude oil for June delivery fell 62 cents to settle at $62.55 a barrel in New York, remaining lower after the weekly inventories report showed a surprise rise in gasoline and crude oil stocks. The front-month contract was trading 14 cents higher at $62.59 a barrel in extended trading in Asia.
COMEX gold for June delivery fell $13 to settle at $661.50 an ounce. Treasury prices slipped a bit, pushing the yield on the 10-year note to 4.71%, up from 4.7% late on Tuesday. In currency trading, the dollar rallied against the euro and the yen.
European shares lost ground. The pan-European Dow Jones Stoxx 600 index slipped 0.2% to 389.47. The UK's FTSE 100 closed down 0.1% to 6,559.50, the German DAX Xetra 30 lost 0.3% to 7,481.25 and the French CAC-40 declined 0.2% to 6,017.91.
All the emerging markets ended sharply higher yesterday. The Ibovespa index in Brazil surged 2.4% to 51,737 while the IPC index in Mexico jumped 2.4% to 30,341 and the RTS index in Russia climbed 1.65% to 1856.
Asian stocks rose for the first time in three days on Thursday. The Morgan Stanley Capital International Asia-Pacific Index gained 0.5% to 148.95 at 10:42 a.m. in Tokyo. All of the region's benchmarks rose.
Japan's Nikkei added 92 points to 17,624.87 while the Hang Seng in Hong Kong rallied 118 points at 21,055. The Kospi in Seoul added 12 points to 1613 while the Straits Times in Singapore advanced 13 points to 3514.
Rally may continue
Markets registered strong opening and a robust closing. After opening on a firm note markets turned lackluster in the afternoon trades. However, buying interest in the heavy weights like BHEL, SBI, ICICI Bank, Reliance Industries and Reliance Communication lifted the benchmark index Sensex to hit a high of 14159.36 and NSE Nifty to close above the 4150 level. Finally, the 30-share benchmark Sensex surged 197 points to close at 14127. NSE Nifty was up 50 points to close at 4170.
Reliance Communication advanced by 3.2% to Rs490 after reports stated that the company has added 1.02mn new subscribers in April. The scrip touched intra-day high of Rs492 and a low of Rs476 and recorded volumes of over 30,00,000 shares on NSE.
Gujarat NRE surged by over 4.5% to Rs49 after the company agreed to pay A$49mn to buy Elouera coal mine in Australia from BHP Billiton. The scrip touched intra-day high of Rs49 and a low of Rs47 and recorded volumes of over 3,00,000 shares on NSE.
Tata Power gained by 1.2% to Rs587 after the company announced that it has signed Contract for Boiler Island Scope with Doosan for first 4000 MW Mundra Ultra Mega Power Project. The scrip touched intra-day high of Rs592 and a low of Rs574 and recorded volumes of over 1,00,000 shares on NSE.
Banking stocks continued to its upward trend. SBI surged 4.6% to Rs1284, ICICI Bank was up by 3.8% to Rs918 and HDFC Bank gained by 2.5% to Rs1035. OBC, Andhra bank and Canara Bank were major gainers among the Mid-Cap stocks.
The Real Estate stocks witnessed fresh buying interest. Parsvnath surged nearly by 6% to Rs328, Bombay Dyeing spurred by over 4.5% to Rs580, Sobha Developers was up by 5% to Rs909 and Akruti added 4.2% to Rs395.
The BSE small cap index advanced by 1.45% was among the major gainers. Bajaj Electrical locked at 20% upper circuit to Rs503.60, Aztek Software surged by over 8% to Rs94 and Blue Bird rallied by over 9% to Rs74.
PSU stocks are recording smart gains. BHEL was up by 2.6% to Rs2586, SAIL gained by 0.8% to Rs139 and Dena bank surged by over 7% to Rs43.
BSE Bank index was the major gainer and gained 3.09%. BSE PSU index (up 1.55%), BSE Oil & Gas index (up 1.52%), BSE Capital Good index (up 1.50%) and FMCG index (up 1.15%) were among the other major gainers. However, BSE IT index lost 0.54%.
RNRL, Nagarjuna Fertilizers, TTML, IFCI, Petronet LNG, SAIL, Dena Bank, IDBI, Unitech, PFC, RPL, HFCL, Zee News, Raj TV, R Com, Idea and DCB.
UTV Software, TV Today, Max India, Atlanta, U Fklex, GMR Industries, Mefcon Agfro, Nesco Ltd, Tripex Overseas, Tera Software, Dawn mills, Vypar industries, Flawless Diamond, ACE, Thomas Cook, Bajaj Electricals, KS Oils, PBA Infrastructure and Swan Mills
Andhra Bank, Bajaj Auto, Ballarpur Industries, BEL, Bombay Dyeing, Century Textiles, Dr Reddys Laboratories, HCL Technologies, HDFC Bank, Nicholas Piramal, Reliance Capital, SBI, SAIL and UTI Bank.
Escorts, Sterling Biotech, Polaris, Arvind Mills, IPCL, Lupin, BASF India, BPCL, VSNL, Mahindra & Mahindra Ltd and Balrampur Chini.
Stock Futures with largest increases in OI:
Birla Corp, BRFL, Peninsula Land, Mahindra Gesco, Kesoram Industries, Unitech, Ansal Property, S Kumar Nationwide, Shree Cement and Sterlite Optical.
Stock Futures with Decreases increases in OI:
United Spirits, Bank of India, Reliance Capital, TTML, Century Textiles, Bongaigaon Refinery, Bajaj Hind, Siemens, HTMT and Nagarjuna Fertilizers.
Bajaj Auto, Nicholas Piramal, OCL India, Oriental Hotels, STAR, Tata Steel, Unichem Labs, Usha Martin, Dabur Pharma and Wyeth.
R Com – Outperform from Macquarie with target of Rs650.
Allsec Technologies Ltd. (Q4 FY07) Result Update
"Lowering estimates for FY08, but upgrade to Buy".
Allsec Technologies Ltd. delivered below expected numbers for the second quarter in a row. Revenues and net profit were up just 1.2% and 0.5% respectively on qoq basis. The Company continued to face manpower ramp-up issues similar to Q3 FY07 leading to a business execution shortfall. Over the last two quarters, stand-alone headcount has decreased by ~573 people ie ~21%.
Operating margin was maintained near the previous quarter level. For the full year on consolidated basis, revenue growth stood strong at 35.8% while profit growth was lower at 19.6% bogged down by margin contraction due to B2K losses.
Management expects growth resumption from Q1 FY08 with rectification of manpower recruitment issues. Company is targeting ~4,000 people in voice segment by the end of the year.
On the back of significant underperformance in FY07 (actual EPS at Rs16.2 v/s expected EPS of Rs17), we are revising downwards our FY08 EPS forecast by 12.7% to Rs22.6. However, we are upgrading our view on the stock from ‘Hold’ to ‘Buy’ as Allsec has underperformed its peers and the market in the last three months declining by 23.5%. We see negligible downside from current levels but rather a likely upside of 20-30% in the next 6-8 months. We expect strong sequential growth in Q1 and Q2 of FY08.
After posting biggest gains in the last two weeks, the bias for the market may remain positive. The market is expected to make further headways on surging international indices and prevailing strong bullish sentiment. However, investors should remain cautious on account of the prevalence of a intra-day volatility. Among the local indices, the Nifty could test higher levels in the 4160-4180 range and has a support in the 4120-4140 range. The Sensex on the downside may slip to13800 and may face resistance at 14300.
Major US indices rose Wednesday, after government data suggested that the housing market is stabilizing and the upbeat corporate news from big investments from Berkshire Hathaway and others. While the Dow Jones flared up by 103 points at 13488, the Nasdaq moved up by 22 points to close at 2547.
All the Indian ADRs traded firm on the US bourses. ICICI Bank led the pack with gains of over 7% while, HDFC Bank, Dr Reddy's, Tata Motors, Rediff, MTNL jumped over 3-4% and Infosys, Satyam, Wipro, Patni Computer and VSNL closed with the marginal gains.
Crude oil prices eased, with the Nymex light crude oil for June delivery falling by 62 cents to close at $62.55 a barrel. In the commodity space, the Comex gold for June delivery tumbled $13 to settle at $661.50 an ounce.
Time Technoplast, promoted by Anil Jain, Venkatasubramanian and associates, manufactures and sells technology-based polymer products used in industrial and consumer packaging solutions, lifestyle products, auto components, healthcare products and construction and infrastructure-related products.
Starting its operations in 1991 as an SSI unit in single-product segment (industrial packaging) with technology partner Mauser, Germany, joining in 1993, Time Technoplast has manufacturing facility located at six different places: Daman (Union Territory), Baddi-Thane (Himachal Pradesh), Hosur (Tamil Nadu), Sahibabad (Uttar Pradesh), Mahad (Maharashtra) and Pantnagar (Uttaranchal). The company is setting up new manufacturing facility in Himachal Pradesh, Silvassa (Gujarat), Sharjah (UAE), and Poland.
The forthcoming IPO is to part-finance its various aggressive expansion projects. One new project is being set up at Thane (Himachal Pradesh) to manufacture medical devices with a capacity of 4,200 tonnes per annum. These would comprise auto disabled and auto collect syringes ranging from 0.5 ml to 5 ml, and involve a capital expenditure of Rs 35.23 crore. The project is to be commissioned by October 2007.
A Rs 15.37-crore integrated injection moulding facility, with a capacity of 3,000 tonnes per annum, will come up at Silvassa for augmenting the production capacity of plastic pails and auto components. This project is likely to go on stream by October 2007.
The issue money will also be utilized in overseas projects to part-finance a new project by a wholly owned subsidiary, Elan Incorporated FZE, in Sharjah, UAE, for packaging (plastic drums, containers and coni pails) and lifestyle products (garden furniture). The total cost of the project is around Rs 27.5 crore. This is to be part-financed by a term loan of Rs 16.5 crore from the Exim Bank of India and rest through IPO proceeds. The UAE subsidiary is proposed to be operational by June 2007
Time Technoplast’s wholly owned subsidiary, Novo Tech, will put up a production facility in Poland, Europe, for auto components and lifestyle products. Commercial production will begin in October 2007. The capex required for this project is estimated to be Rs 12.1 crore.
A 75% stake has been purchased in Tainwala Polycontainers, a BSE listed company, for which it had raised a loan of Rs 40 crore. The IPO proceeds will also be used for the repayment of its outstanding portion of the loan including interest totaling to Rs 36.32 crore. The company has changed the name of the acquired company, which manufactures HM-HDPE drums/barrels and has an installed capacity of 6,000 metric tonne per annum, to TPL Pastech.
About Rs 19.2 crore raised through the IPO will be further used to acquire a 49% holding in Time Securities Services (TSSPL), which had floated the Singapore-based joint venture Mauser Holding Asia (MHA) along with Mauser Holdings. TSSPL is one of the promoters of Times Technoplast. MHA recently acquired a 91.89% stake in Pack Delta, an industrial packaging company based at Bangkok, Thailand.
Along with collaborators Mauser, Germany, Time Technoplast had formed a joint venture, Time Mauser Industries (TMIPL) in India in 2004. The Mauser group holds 51% and Time Technoplast 49% in the company set up to manufacture intermediate bulk containers (IBC) of 1000-liter capacity at Daman. TMIPL is now putting up a new 200-litre drum production facility at Pen in Maharashtra. The new project is expected to commence production from June 2007.
Time Technoplast had merged its group companies Shalimar Packaging and Oxford Moulding, catering to lifestyle products and healthcare products, respectively, from 1 April 2005. In view of this, the results of FY 2006 and nine months ended December 2006 are not comparable with the results of FY 2005, FY 2004, FY 2003 and FY 2002.
- Operating in diverse business segments of the plastic products industry: packaging products, lifestyle products, auto components, and healthcare, effectively de-risking its business.
- Has established brands in each segment of its operation: Time Mauser for packaging products, Ecopet for PET sheets, Meadowz for Turf, DuroTurf and Durosoft for mattings, Regal for garden furniture, 3S for Anti Spray Devices (automotive component), and Genex for healthcare products.
- Has a manufacturing facility spread over six locations, eleven regional / area-marketing offices and distribution and dealer network spread over 345 cities and towns to offer its product range across the country.
- Three out of six plant locations – Daman, Thane near Baddi, and Pantnagar – enjoy income-tax exemptions, which will also be available to new plants coming up in these places.
- Operating in a highly competitive environment. Also, end users are price conscious. Increasing competition implies reduction in prices, affecting margin.
- Is in the process of entering the overseas market by setting up a plant in the UAE. and Poland. No prior experience of handling overseas market.
- Fluctuations in the prices of polymers, the principal raw material, will have adverse impact on the profitability.
Time Technoplast has set a price band of Rs. 290 to Rs 315 per equity share of Rs 10 each for the IPO. This translates into a P/E of 16.0x on the lower price band and 17.4x on the higher side of the price band, according to the annualised consolidated EPS of Rs 18.1 for the nine-month period ended December 2006 on post-issue equity of Rs. 20.92 crore. Listed plastic product majors Supreme Industries and Sintex Industries are currently traded around P/E of 17.
Nifty and Sensex have exhibited a narrow candlestick.
Technically, one may use the level of 4070 (Nifty) and 13900 (Sensex) as the stop loss level.
Nifty faces resistance at 4185 and Sensex at 14100.
BSE Smallcap and BSE Midcap exhibited narrow candlesticks.
CNX IT has lost ground.
In the Punter's zone we have a BUY in TV-18 , FSL & Indian Hotels.
In the Technical call section, we have a BUY in Era Construction , Lupin & Tulip.
Anand Rathi - Daily Technical - May 17 2007
First Global - NALCO
First Global - Colgate
First Global - Deccan Chronicle
Cluster: Apple Green
Price target: Rs2,975
Current market price: Rs2,505
Price target revised to Rs2,975
- The stand-alone revenues of Grasim Industries (Grasim) grew by a robust 37.4% year on year (yoy) to Rs2,490 crore, driven by strong cement realisations and higher volume in viscose staple fibre (VSF) and sponge iron businesses.
- The operating profit grew by 66% yoy to Rs771 crore largely on account of a 77% year-on-year (y-o-y) rise in cement earnings before interest, tax, depreciation and amortisation (EBITDA) to Rs470 crore. Cement margins expanded by 800 basis points on the back of a strong realisation growth. The VSF business witnessed a lower growth of 29% yoy in profits to Rs201 crore as the pulp prices remained high during the quarter.
- The interest expenses were up by 55% yoy to Rs36 crore in the quarter on account of higher borrowings in the period. Depreciation increased by 15% yoy to Rs87.6 crore.
- Boosted by an other income component of Rs78 crore (on account of the deployment of surplus funds), Grasim's net profit rose by 69.1% yoy to Rs437 crore.
- As mentioned in our previous updates, Grasim is augmenting its cement capacity at Kotputli and Shambhupura units by 4 million metric tonne (MMT) each by putting up greenfield plants. The capital expenditure (capex) is progressing well and the new capacities are expected to get commissioned in the first quarter of FY2009.
- The company is expanding its VSF capacity at Kharach, Gujarat from 45,625 tonne to 63,725 tonne and is in the process of getting regulatory clearances for expanding the capacity by 31,000 tonne at Harihar. On completion of both these projects, the company's VSF capacity will expand to 350,000 tonne.
- Looking at the better than expected performance of the VSF and sponge iron businesses, we are upgrading our consolidated FY2008 earnings per share (EPS) estimate by 3.8% to Rs245 and introducing our FY2009 EPS estimate of Rs208.
- At the current market price of Rs2,505 the stock is trading at 10.1x FY2008E EPS and 11.9x FY2009E EPS. Looking at the stability imparted to the company by the higher cash flows from the VSF business, we maintain our Buy recommendation with a price target of Rs2,975 per share.
Price target: Under review
Current market price: Rs1,091
Q4FY2007 results: First-cut analysis
- Shree Cement's Q4FY2007 net revenues grew by 68% year on year to Rs378 crore on the back of a 36% year-on-year growth in its volumes and a 24% year-on-year growth in its realisations.
- The expenditure (adjusting for the depreciation) grew by 67% year on year to Rs226.9 crore on account of a higher power fuel cost, which witnessed a 51% year-on-year increase (due to the rising pet coke prices) and increased freight cost, which jumped by 35% year on year.
- The operating profit grew by 69% year on year to Rs151 crore whereas the operating profit margin stood at 40%, adjusting for the pre-operative expenses of Rs20 crore pertaining to the earlier years (the company reversed the same in the current quarter).
- The interest cost remained flat on a year-on-year basis but declined sequentially. For the quarter the company provided a depreciation of Rs154 crore, which included Rs114 crore on Unit IV commissioned in March 2007 and Rs20 crore of amortisation of the pre-operative expenditure.
- The tax provision for the quarter was marginal at Rs0.3 crore. On account of the higher depreciation provision, the net profit was lower at Rs23.8 crore.
- The net sales for FY2007 grew by 104% year on year to Rs1,367 crore whereas the net profit grew by 862% year on year to Rs177 crore. Adjusting for the additional depreciation provision of Rs199 crore pertaining to Unit II, the net profit stood at Rs376 crore.
- We are in the process of revising our earnings estimates for the company. We shall update you with the revised earnings and price target as soon as we meet with the management.