Monday, June 04, 2007
The BSE Sensex ended the session on a negative note as it fell by 74.98 points to close at 14,495.77 while Nifty closed at 4,267.05 down by 30 points. Of the 2,654 stocks actively traded on BSE, 1,385 stocks declined while 1,184 stocks advanced. The BSE Mid cap and Small cap closed lower by 30.70 points and 7.10 points at 6,233.58 and 7,466.77 respectively.
BSE Capital goods index closed lower by 138.89 points at 11,102.87 as BHEL (3.01%) and L&T (1.65%) closed in negative while Siemens (1.20%) and ABB (0.52%) closed in positive.
BSE bank index closed higher by 58.92 points at 7,741.56 as SBI (2.07%), HDFC bank (1.05%), IDBI bank (0.87%), BOI (0.85%) and ICICI bank (0.58%) closed in green.
BSE Metal index closed at 10,634.17 surged by 166 points as Hindalco (3.97%) and Tata Steel (0.34%) closed higher.
BSE IT index closed at 4,846.50 declined by 61.88 points as Satyam (2.33%), Infosys (1.22%), Wipro (1.87%), HCL Tech (1.63%) and TCS (0.84%) closed in red.
BSE Auto Index closed in negative at 4,948.37 down by 81.83 points as Tata Motors (4.78%), Hero Honda (0.61%) and Maruti Udyog (0.55%) closed in red while M&M (1.48%) and Bajaj Auto (0.71%) closed in green.
BSE Health Care Index closed lower by 11.84 points at 3,840.59 as Cipla (2.99%) and Sun pharma (1.55%) closed lower while Glaxosmithkline (1.24%) and Dr. Reddy lab (0.96%) closed higher.
BSE FMCG index closed at 1,893.91 marginally up by 3.38 points as Dabur (3.27%), ITC (2.04%) closed in green while HLL (2.39%) closed in red.
BSE oil & gas index closed lower by 88.42 points at 7,691.14 as GAIL (4.87%), HPCL (3.40%), Reliance petroleum (1.62%), BPCL (1.14%) and ONGC (1.07%) closed in red.
CLSA thinks that DLF might be a attractive issue at lower end of the IPO price band. They believe it is Unitech which is trading at 25% premium. However, they feel it might be expensive at the higher end of the price band because of the risk of the property prices weakening
AllSec Tech, India Economy, Market Strategy,Deccan Aviation, Mahindra &Mahindra , Maruti Udyog, Automobiles, Banks,
JP Morgan in their daily report,
Economy: India: Full-year fiscal deficit below forecast
· The central government's fiscal deficit came in at 3.5% of GDP for 2006-07 (year-end Mar-31), lower than official revised estimate of 3.7% of GDP given by the government when it announced the budget for 2007-08 in Feb. Impressive revenues owing to the ongoing economic boom along with spending that was largely in line with expectations caused the fiscal deficit to print INR1,427.93 billion, or 6.3% lower than the revised estimate.
· In 2006-07, gross tax revenue surged 29.3%oya due to exceptional gains in corporate (+41.4%) and personal income (+35.4%) tax collections. Indeed, corporate tax revenue increased its share in gross tax revenue to 30.3% in 2006-07 from 27.7% in the prior year. In contrast, the share of personal income taxes in gross tax intake increased to 16.0% from 15.3% over the same period.
· The government forecasts the fiscal deficit to narrow to 3.3% of GDP in 2007-08. Overall, it appears on track to cut the fiscal deficit to 3.0% of GDP by 2008-09 as envisaged in the Fiscal Responsibility and Budget Management Act. However, it is unlikely that the government will be able to spring another positive surprise on the outcome for the fiscal deficit in the current year. Overall economic growth is poised to be slower this year, and corporate taxes will be impacted by slower top-line growth and increased pressure on margins. On the expenditure side, the government will be under pressure to increase populist spending ahead of the general election to be held by May 2009.
Allsec Technologies Ltd, ALLS.BO, Overweight Muted 4Q FY07; outlook remains robust
· Allsec reported a mixed 4Q FY07, largely below expectations. While demand remains robust, Allsec continues to face supply-side issues leading to lower-than-expected headcount addition in 4Q FY07. Combined with Rupee/US$ appreciation, supply issues led to muted 1% Q/Q revenue growth in 4Q FY07. However, margins were better than we expected due to continued control on costs. Overall, net profit was in line with our estimate.
· Demand remains sound: Allsec continues to see a robust business pipeline in line with strong momentum in offshore BPO business. Further, Allsec is already speaking to few Carlyle investee companies that could lead to significant business in our view over the coming 12-24 months.
· Allsec is making gradual improvements on supply issues: 1) 4Q FY07 attrition dropped to 17% from 20% in 3Q FY07; 2) Allsec plans to open a center in Trichi in 1Q FY08 that should have lower attrition. In fact, management expects to double voice-services headcount to ~4,000 people in FY08.
· Estimate changes: Strong headcount increase should lead to robust 42% revenue and 35% net profit CAGR over FY07-09E in our view. We highlight that our estimates have been reduced (12% for revenues and 17% for EPS in FY08) largely due to sharp Rupee appreciation and partially due to muted 4Q FY07.
· Investment view: We are reducing our DCF-based Dec-07 target price by ~6% to Rs400/share due to reduction in our FY08-09 estimates. With the stock having corrected in the past 2-3 months, we would recommend buying at the current level. Further, Allsec remains an attractive two-year investment story in our view given significant business potential from Carlyle investee companies.
Economy: India: Merchandise trade deficit surges
· India's international trade deficit in April jumped to a record high of US$7.06 billion (JPMorgan: US$5.3 billion). Merchandise exports increased an impressive 23.1%oya in April, while imports surged 40.7%. In the import details, oil imports gained 1.4%oya, but non-oil imports rose 54.3%.
· The over-year-ago growth rates for both exports and imports are much stronger than expected, but it is not clear how much of the increase owes to the underlying trend. This is because the relevant organization that announces the international trade data has adopted an "improved methodology" for estimating the provisional trade data reported today. However, it has chosen not to offer any details about the new methodology and how it is different from the old one.
· Unexplained changes in India's international trade data are not new and typically make meaningful analysis more challenging. Still, we'll attempt for more insightful comments after figuring out the impact of the new methodology.
· We maintain that India's current account deficit will widen to US$17 billion (1.5% of GDP) in 2007-08 (year that began on April 1) from an estimated US$10.5 billion (1.2% of GDP) in the last fiscal year. However, financing the wider deficit will not be a problem (see Tracking the shifts in India's balance of payments, GDW, May 11). The recent appreciation of INR should also cause the trade deficit to widen in the coming months.
India Monthly Wrap: May 2007: Inflation and liquidity boost
· The MSCI India (US$) index gained 6.9% over May, and the market significantly outperformed the MSCI emerging markets (US$) index, which gained 4.6%. The US$ index gain has been aided by a 1.4% rupee appreciation over the period. Financials, industrials and energy companies are relative outperformers, while IT and consumer discretionary sectors underperformed.
· The index gain has been supported by market expectations of an easier interest rate outlook on the back of lower headline inflation and continued higher risk appetite among global investors.
· 4Q FY07 GDP increased 9.1%oya, below JPMorgan's (+10.0%) expectations, but the shortfall is mainly on account of significant upward revisions for the previous three quarters. The growth is driven by strong gains in industry and services.
· Institutional buying support continued for Indian equities. Domestic mutual funds and FIIs net invested US$ 430 million and US$ 942 million respectively, over the month.
· Among other developments:
1. Coca Cola bought Glaceau for US$ 4.1 billion and Tata Tea's sold its 25% stake in the company.
2. Industrial production unexpectedly surged in March and is up 12.9%oya (JPMorgan expectation-10.4%).
Deccan Aviation Limited, DECA.BO, Underweight
Kingfisher takes the driving seat - ALERT
· Deccan has confirmed that it has placed 35m new share to UB Holdings (the parent of Kingfisher Airlines) at Rs155 per share - equivalent to a 26% equity stake. UB will also bid for a further 20% of Deccan Aviation at the same price.
· UB gets 6 board seats, along with 6 existing directors. Capt Gopinath becomes Exec Chaiman and Vijay Mallya becomes Vice Chairman. Warwick Brady is leaving with a replacement to be appointed. Deccan's CFO remains in situ, but also assumes the acting CEO/COO role until further hires are made.
· Conclusion: The structure of the deal (between two Bangalore based carriers operating identical equipment) looks like a rescue on one hand. On the other, it looks like Vijay is well positioned to move equipment between the two airline brands. At a later stage, a back door listing looks likely.
· We maintain our view that this consolidation marks the bottom of the earnings cycle for the profit starved sector. We believe JAIL offers the best, most liquid play on this rebound. We would look to sell Deccan shares to UB and for Deccan shares to decline thereafter as we do not expect profits to flow easily to Deccan.
Mahindra & Mahindra, MAHM.BO, Overweight
May '07 Sales - Unit sales growth of 17% led by UV's - ALERT
· M&M reported robust unit sales growth of 17% yoy for May. Growth was driven entirely by the automotive segment (+27% yoy) while the tractor segment reported a flattish trend (up 2% yoy).
· In the Auto segment, UV sales grew 25% yoy with Scorpio sales growing 28% yoy while other UV's (semi urban segment and pick up vehicles) grew 24% yoy. The recently launched stripped down Bolero and the Maxi truck are boosting sales for Mahindra's UV's. Low value 3 wheeler sales grew 22% yoy.
· The relative weak trend in tractor sales continues (up only +2% yoy). Apart from a more demanding base effect, tractor sales have likely been impacted by a) pipeline inventories and b) tightening of lending norms by banks for this segment.
· Mahindra launched the Renault Logan (in both petrol and diesel versions) in April in the entry level C segment at a competitive price point of Rs.428,000. In May, the Logan has sold 2,786 units across 11 cities.
· In the recent analyst meet, management has guided to Auto sales growth of 8-12% and tractor sales growth of 6-8% for FY08.
· To drive growth over the future M&M has the following plans: launch a new UV - the Ingenio (in about 12 months), followed by another UV (in 2010) and enter the CV market (in 2010). A new facility at Chennai is expected to be commissioned in 2010 for manufacturing cars and at Pune for trucks.
· Over March, M&M marginally underperformed the market - down 3% vs a gain of 5% for the BSE Sensex. Slowing growth rates in tractors along with concerns on interest rates have resulted in the underperformance. While we remain underweight the auto sector, M&M remains amongst our preferred picks on a relative basis as we expect lower volatility in sales for key product segments and due to the substantial value of investments in high growth areas (account for 40% of the SOTP valuation).
Maruti Udyog, MRTI.BO, Overweight
May '07 unit sales: Sales growth (11% yoy) led by SX4 launch and exports - ALERT
· Maruti reported unit sales growth of 11% yoy for May. Local sales rose 10% yoy, while exports (typically lumpy) increased 38% yoy.
· The A1 segment continued to decline (down 19%) and growth in the A2 segment moderated to 8% - an indication that rising interest rates are beginning to impact demand.
· Growth in the A3 segment was however boosted significantly (up 104%) due to the launch of the new SX4 model. Reviews for the model have been encouraging. The local content in the SX4 is 79%, which has helped price the product competitively at Rs. 618,000 (ex showroom Delhi). Management expects to further bolster its presence in the mid to premium segments over the current fiscal by launching a new SUV model.
· Maruti has had the best product momentum in the Indian passenger car market over the last 2 years. Prominent launches have included the Swift, Wagon R Duo, Zen Estillo, Swift Diesel and the SX4.
· But competition is attempting to play catch up. The month of April has seen 4 new model launched by competition (GM Spark, Hyundai Getz, Fiat Palio & Renault Logan). We see the passenger car space getting increasingly crowded over the next 12 - 24 months, with several competitors setting up additional/ new capacity.
· The Government sold its residual 10% stake in Maruti at Rs.797/ share (a 5% premium to the floor price of Rs.760). The shares were sold to 32 local institutions. The sale price represents an 18% premium to the previous sale price of Rs.678, which was effected in Jan'06.
· Over the month, the stock delivered a positive return of 2% vs. 4% for the broad market. While sales growth and product momentum remain healthy so far, investor sentiment remains cautious due to rising competition and the potential impact of rising interest rates on growth.
Indian Financial Services: On Bank Street -Vol 85
· Inflation at 5.06 % -in line with expectations - 21 bps lower than last week's release. Inflation likely to moderate below 5% by end June given favorable base effect.
· Stock Movement - Neutral: SOE and private banks up 2.2% and 2.5% respectively - in line with the market. Star stock performers - HDFC up 6.6%, HDFC Bank up 4.6% and SBI up 5.3%. DEVB and CBOP see profit booking after solid runup.
· HDFC to raise Rs31.1 bn via preference issue
· India Infoline to raise Rs. 4.84 bn; Ropes in key CLSA personnel
· PNB chairman retires
· Indian Bank to offload Rs.15 bn bad loan portfolio
· Indiabulls to foray into Life Insurance business
India Two Wheeler: May'07 unit sales decline further - ALERT
· The slowdown in the two-wheeler sector continued over May with sales declining (10% yoy) for the top three manufacturers - Hero Honda (-6% yoy), TVS Motor (-13% yoy), and Bajaj Auto (-15% yoy).
· The 6% decline in Hero Honda's sales comes off a high base. Sales had crossed the 300,000 mark in May last year as the company had pumped inventory in the system.
· Bajaj Auto's bike sales declined 15% yoy, with sales of entry level Platina taking a hit. We believe the success of Hero Honda's CD Deluxe as well as Bajaj cleaning up channel inventories in preparation for the launch of a new platform in August led to the fall. High-margin three-wheeler sales were flat yoy. Strong export growth for Bajaj (+53%) partially mitigated the effect of the sharp fall in domestic sales (-24% yoy).
· TVS Motors continued to struggle with bike sales (-37% yoy). Hero Honda continued to gain market share at the expense of the other manufacturers.
· Over the month, Hero Honda launched an upgraded variant of the Splendor-- Splendor NXG (100cc) priced at Rs.40,990 (ex-showroom Delhi). This follows the prices of the Splendor Plus being reduced by Rs.1,200 last month.
· We expect competitive intensity in the two-wheeler sector to remain sedate over the next two months until Bajaj launches its new platform in August.
· Over the month, Bajaj Auto announced the re-structuring of the company by creating two new entities for its automotive and financial services business; at the same time the holding company has retained 30% stake in these two companies, thus ensuring control.
· Over the month, the two-wheeler sector performance was a mixed bag. Hero Honda was up 5%, TVS was up 7% while Bajaj Auto was down 9% for the month vs the broad market return of +5%. While Bajaj was beaten down due to concerns on the demerger, Hero Honda rose on the company gaining market share and TVS rose on beaten down valuations. We remain underweight on the sector.
Khandwala Securities is bullish on Marico and has recommended a buy rating on the stock with a target price of Rs 71.
Khandwala Securities report on Marico:
Brand portfolio consists of ingrained & naval growth drivers:
Marico’s portfolio consist of well recognized ingrained brands or growth drivers like Parachute, Saffola, Nihar, Hair & care and naval growth drivers like Kaya, Parachute cream, Camellia, Aromatic, Silk n Shine, Fiancée and Hair code. We believe Marico’s strategies to strengthen & further leverage the ingrained brands, keep focusing & coming up with new brands would fuel its growth in faster space.
Broadening wings Inorganically:
Marico is expanding its brand portfolio inorganically. In FY07 it has acquired Fiancée and Hair code in Egypt. Prior to this in 2006 it has acquired four brands, two in domestic market (Nihar & Manjal) and two in Bangladesh (Camellia & Aromatic). We believe in future also Marico will take inorganic route to grow fast.
Scaling up services:
During the FY2007 Marico’s skin care solutions business Kaya broke even. During Q4FY07, Kaya recorded a turnover of Rs 220 million, a growth of 52% over Q4FY06 and a growth of 10% overQ3FY07. Kaya’s revenue for FY07 was Rs 750 million. Kaya Skin Clinic now reaches its customers through 43 clinics in India and 5 in the Middle East. The Kaya consumer base has increased to over 200,000. The management has given guidance of opening 15-20 Kaya skin clinics in FY2008. We believe Kaya’s revenue to grow at CAGR of 40% in the next three years.
Moving up in value chain:
Though Marico Industries has traditionally derived bulk of its revenues from hair oils and edible oils, it has transformed its product portfolio in recent years with the help of higher margin product launches and new category forays. Marico’s strategy to focus more on higher margin products and moving up in value chain helps in improving the margins.
Marico currently trades at P/E multiple of 24X & 19X on 2008 (E) &2009 (E) earnings respectively. We believe its revenue to grow at CAGR16% during FY2007-2009 (E) and profits to grow at CAGR of 28%during the same periods. We initiate our coverage on Marico with price target of INR 71 based on our DCF valuation (WACC 10.5% and Terminal growth of 4%), an upside of ~20%. The stocks would quote at 22x FY09 earnings on our target price.
Edelweiss Research is bearish on TV Today Network and has maintained sell rating on the stock.
Edelweiss Research report on TV Today Network:
TV Today’s Q4FY07 results were in line with our expectations. Revenues for the quarter grew 20% Y-o-Y and 2.5% Q-o-Q to Rs 585 million. The growth in revenues was largely driven by the ad rate hike that the company had taken earlier this year and better utilizations on account of the World Cup and elections in UP. Subscription revenues from international markets and contribution from Dilli Aaj Tak also contributed to the revenue growth. As expected, EBITDA margins declined 394 bps Y-o-Y and 292 bps Q-o-Q due to higher employee expenses and higher carriage fee paid to the cable operators to carry the channel in the prime band. PAT margins correspondingly dropped 167 bps Y-o-Y and 368 bps Q-o-Q. For the full year, revenues grew 18.4% while EBITDA and PAT margins declined by 524bps and 94 bps, respectively.
Inability to build another growth driver other than Aaj Tak and consequent volatility in earnings remain a concern. Even though Aaj Tak has been able to maintain its leadership position, it has been consistently losing market share and is vulnerable to losing its leadership position. This, in turn, will adversely affect the revenue growth of TV Today. The plan to make Aaj Tak a pay channel has been deferred because of intense competition in the Hindi news space, especially given that most channels are free-to-air. Headlines Today has still been lagging behind in the English news genre even though the newcomers, CNN-IBN and Times Now, have surged ahead. So even though the stock trades at relatively cheaper valuations of 23.2x FY08E and 19.8x FY09E, we remain negative on the outlook of TV Today. We maintain our ‘SELL’ recommendation.
Excessive dependence on Aaj Tak due to inability to build a second growth driver remains a concern:
Inability to build another growth driver other than Aaj Tak and consequent volatility in earnings remain a concern. Even though Aaj Tak has been able to maintain its No. 1 position, it has been consistently losing market share and is vulnerable to losing its leadership position. This, in turn, will adversely affect the revenue growth of TV Today. The plan to make Aaj Tak a pay channel has been deferred because of intense competition in the Hindi news space, especially given that most channels are free-to-air. Headlines Today has still been lagging behind in the English news genre even though the newcomers, CNN-IBN and Times Now, have surged ahead in terms of viewership share. This excessive dependence on Aaj Tak has resulted in volatility in earnings in the past and puts at risk the future earnings as well.
Maintain ‘SELL' :
’We estimate that TV Today will make EPS of Rs 6.6 and Rs 7.7 in FY08 and FY09, respectively. The stock currently trades at P/E of 23.2x FY08E and 19.8x FY09E. While the stock is less expensively priced as compared to its peers, lack of growth drivers and volatility in earnings make it unattractive. We maintain our ‘SELL’ recommendation on the stock."
Macquarie in their India Earnings report,
The 4Q FY3/07 GDP growth of 9.1% has obviously fed into corporate earnings for Indian companies. Our coverage universe continues to post strong profit growth, above expectations.
Most sectors were very strong. Most sectors showed very strong growth.Profit growth rates varied between 23% and 107%, barring a few outliers. Not surprisingly, sectors with close linkage to the economy – banks, cement, construction, metals and telecoms – turned in exceptional numbers.
We were surprised. Most of the high-growth sectors surprised us. The average extent of earnings surprise was 13%. The largest upsides to our forecasts came from pharmaceuticals, banks and construction. Suzlon, the only company we cover in utilities, also posted results significantly above expectations.
Margins the key driver. The earnings surprise came primarily from margins. Sales growth was almost exactly in line for the high-growth sectors. Margin improvements were the strongest in pharma, cement, metals and telecom.
Top sectors: pharma, telecom, cement. Pharma, telecom and cement were the top sectors in terms of YoY profit growth. While pharma was boosted by one-off income in Dr Reddy’s Labs, telecom continued to ride the strong wave of subscriber additions, which also drives operating leverage. Cement was boosted by a strong pricing environment.
Laggards: oil and gas, textiles, retail. The laggards from 3Q continue to disappoint. All three sectors showed declining profits. Oil and gas suffered from a lack of pricing freedom and from being forced to absorb high global oil prices. Textiles, on the other hand, continue to be affected by soft global prices. Retail was affected by dramatic margin pressures.
We think that the India growth story is still very much intact. There may be near-term pressures from rising rates, especially if the Reserve Bank of India pushes through with the next rate hike, as we expect it to do. But we do not think that longer-term growth is at risk, and we maintain our bullish view of the markets. The recent run-up has increased the risk of a correction, but that is likely to be temporary.
Our top picks are Reliance Communications (RCOM IN, Outperform, Rs506, TP: Rs650), HDFC Bank (HDFCB IN, Outperform, Rs1153, TP: Rs1270), Tata Steel (TATA IN, Outperform, Rs635, TP: Rs800), Dr Reddy’s Labs (DRRD IN, Outperform, Rs649, TP: Rs838), Reliance Industries (RIL IN, Outperform, Rs1750, TP: Rs1775) and Tata Consultancy Services (TCS IN, Outperform, Rs1219, TP: Rs1654). Our key Underperform calls are Bank of Baroda (BOB IN, Underperform, Rs271, TP: Rs250) and ONGC (ONGC IN, Underperform, Rs910, TP: Rs695).
Citigroup in their report on Indian Sugar Companies
UP sugar incentives withdrawn — UP govt. has withdrawn the sugar incentives provided by the previous govt. to sugar mills for investments in capacity, and is looking to replace this with a new incentive scheme. Until details of the new scheme are known, it is difficult to ascertain the impact on sugar mills. UP sugar policy entailed subsidies for companies investing above Rs3.5bn in sugar assets. Subsidies added up to about Rs1.4 /kg for sugar produced from new assets.
UP sugar mills new demands — UP sugar mills have demanded sops from the new govt. entailing reduction in cane price, tax exemptions and export subsidies. We estimate that the subsidies demanded add up to over Rs3 per kg of sugar. If the govt. accepts these demands, mills would be net beneficiaries.
Price outlook remains bleak — Latest ISMA estimates have raised FY07 Indian sugar output to 27.2m tons, up from 23m tons estimated at the beginning of the season. This would significantly add to inventories and is likely to delay price recovery. Current average realizations in UP are about Rs14/kg
Incorporating worst case scenario — Cutting FY07-FY09 EPS estimates for BJH by 15%-104% and for BRCM by 11%-94% as we 1) cut realizations to Rs14.25/kg and 2) remove the UP sugar policy subsidies. We also shift our valuations to replacement cost, which we believe will form the base for sugar stocks given the current uncertainty. Reducing price targets – BJH to Rs229 from Rs300 and BRCM to Rs88 from Rs107. Maintain Buy on BJH, while cut BRCM to Hold from Buy
Near term upside risk — A beneficial new sugar policy / subsidy by the UP govt.
Chinese stocks plunged Monday following government efforts to cool a market boom, recording their biggest one-day fall since a February drop that triggered a global sell-off.
The benchmark Shanghai Composite Index tumbled 8.3 percent to 3,670.40, falling for the third time in four sessions since the government raised a tax on trading last week. The index had dropped 2.7 percent Friday. The Shenzhen Composite Index for China's smaller second market fell 7.9 percent to 1,039.90.
It was Shanghai's biggest decline since Feb. 27, when the main-market composite index slid 8.8 percent, triggering selloffs in Hong Kong, New York and London.
"There is the risk that this snowballs into a crash. Sentiment is so fevered that a bubble could burst," said Claire Innes, an economist in London with the consulting firm Global Insight.
But most other Asian markets shrugged off Monday's plunge. Five markets -- Australia, Indonesia, Singapore, South Korea and the Philippines -- rose to record highs. Tokyo's Nikkei 225 index edged up 0.08 percent, while Hong Kong's benchmark index rose 0.6 percent.
The impact of the Chinese decline on markets abroad was expected to be limited because Beijing keeps its markets largely isolated from global financial flows. Most Chinese shares are off-limits to foreign investors and financial controls prevent most Chinese from investing abroad.
The Chinese currency, the yuan, fell slightly against the dollar on Monday after rising throughout May.
Beijing is trying to cool a boom that by last week had pushed up Chinese stocks more than 50 percent since the start of the year. The rally has attracted millions of first-time investors who are pouring their savings into the market.
Government financial newspapers tried to reassure investors with front-page editorials Monday that said the tax hike on stock trades -- from 0.1 percent to 0.3 percent -- would be good for the market by encouraging longer-term investment in better stocks.
But blue chips were hammered as shares in about 1,000 of the 1,400 companies on the main "A"-share market fell by the maximum daily limit of 10 percent. They included Tsingtao Brewery and China Petroleum & Chemical Corp., also known as Sinopec, two of China's most prominent companies.
Beijing has given no sign how much it wants prices to fall, but economists say Chinese leaders might consider 20 to 25 percent the right level to restore order to the market.
Drops in Chinese prices last week caused brief declines in markets in Tokyo, Hong Kong and elsewhere.
Analysts have been warning of a possible Chinese correction for weeks, reducing the element of surprise for investors abroad.
Philippine shares appeared to be benefiting from the sell-off in China as some foreign investors shift funds to elsewhere in the region, said Lawrence de Leon, an analyst at Accord Capital Equities Inc. in Manila.
"A lot of money is going out of the China equities and are moving into other Asian markets, among them the Philippines," he said.
Even with the declines since last week, the Shanghai index is still up more than 37 percent since the start of the year, after rising more than 130 percent in 2006. It has dropped 15 percent since last Tuesday's all-time high of 4,334.92.
The surge has been driven by strong corporate profits and an influx of money from Chinese investors, who have opened millions of new trading accounts and are dipping into theirs savings and mortgaging homes to buy stocks.
Authorities have warned that the new money could be fueling a bubble and they say novices could be hurt by a sharp fall in prices.
Regulators are facing conflicting pressures as they try to develop China's markets into a source of financing for economic reform while also trying to discourage speculation, said Global Insight's Innes.
To create a more stable market, Beijing will have to encourage more pension funds and other institutional investors to get into the market and ease barriers to foreigners owning shares, she said.
Otherwise, she said, "you're going to keep seeing these cycles because it's fueled by all this cheap cash flooding around."
Nitin Fire Protection will list on June 5 2007
We expect minimum 50% appreciation on the issue price. Watch for the market conditions though as it might lead to sell off later in the day.
Nitin seems to be a good hold for Long term investment.
Though market took off in positive territory in moring trade it couldn't sustained the gains and landed in negative territory. Chinese market tumbled over 8% for the third time in four sessions since the government raised a tax on trading last week with a little effect on Indian bourses. Market is near its all time high and direction is upward biased. It opened firm continuing the same euphoria but profit booking at higher levels led the indices to shed gains with each successive trading hour. Session then were extremely choppy and volatile. Selling pressure witnessed in Auto on back of poor monthly sales numbers. However some interest was seen in Metal and Banking. Inflation has eased to 5.06% and that is really good sign for Banks. IT stocks also ended weak due to stronger rupee. Midcap and Smallcap indices traded flat inline with frontline stocks.
Sensex traded down by 75 points at 14495.77. Weighing on the Sensex were losses in Tata Motors (711.45,-5 percent), Grasim (2439.6499,-3 percent), BHEL (1371.8,-3 percent), Cipla (217.5,-3 percent) and HLL (196.45,-2 percent). Losses were restricted by gains in Hindalco (146.6,+4 percent), SBI (1406.65,+2 percent), ITC (164.75,+2 percent), NTPC (160.1,+1 percent) and HDFC Bk (1165,+1 percent).
Aluminum and copper major Hindalco was the star performer for the day on reports that Sterlite with Alcan is looking to buy Hindalco. The reports that says that Canadian company Alcan may team up with Sterlite for a hostile takeover bid for Hindalco. The A V Birla Group holds only 27% stake in Hindalco. FIIs and institutions holds 20% and 12% respectively. About 10% is in GDRs while the remaining is with retail investors which are a fairly large free-float. To raise money for its Novellis takeover Hindalco had also made a preferential allotment of 14.75 million warrants and shares in April which would take the promoter holding to about 35%. Sterlite has always been trying to increase its market share in India. It plans to become the No.1 aluminum player in the country. In case if Alcan makes a bid for Hindalco it will make it highly unattractive for other players as it will be embroiled in quite a hostile bid unless the Aditya Birla Group is willing to sell.
Auto major Tata Motors was weak on disappointing monthly sales number. Tata Motors reported a total sale of 42,558 vehicles (including exports) for the month of May 2007 a decline of 4% over vehicles sold in May last year. Cumulative sales were at 83044 numbers which grew by 3%. Vehicles sales in the domestic market were impacted in varying degrees between the commercial and passenger vehicles segments due to the high interest rate regime severely affecting retails. The company's sales of commercial vehicles in May 2007 in the domestic market were 20,675 nos., a decline of 6% over 21,903 vehicles sold in May last year. The passenger vehicle business reported total sales of 17, 580 vehicles in the domestic market in May 2007, a decline of 3% over May 2006. The Indica reported sales of 12,002 nos., a decline of 3% over May 2006. The Indigo family registered sales of 2,215 nos., a decline of 22% over May 2006. Cumulative sales of the Indigo family were at 4,847 nos. with a decline of 11%. Cumulative sales of Sumo and Safari were 6,703 nos., an increase of 31%. The company's sales from exports were flat at 4,303 vehicles in May 2007 as compared to 4,339 vehicles in May 2006. The cumulative sales from exports in the current period at 8,340 nos. have recorded a 5% growth over the previous year. The numbers were below the market estimations which hit the stock and closed down by 5%.
Technically Speaking: Ranged session as profit booking seen at the end. Sensex touched intraday high of 14683 and low of 14465. The Advance to decline ratio stood at 1:1. Market is expected to be ranged and choppy.
The benchmark index, BSE Sensex, which had surged to highest level above 14,650 in nearly four months since 9 February 2007, at the onset of the trading session started declining since afternoon trade. Selling accentuated at the fag end of the trading session. A sharp fall in Chinese markets weighed on domestic bourses today. Auto and IT pivotals declined while shares from metal and banking sector edged higher.
Sensex lost 74.98 points, or 0.51%, to settle at 14495.77. In opening trade, it had surged to an intra-day high of 14,683.36, buoyed by strong global markets and sustained buying from FIIs and mutual funds. This is Sensex's highest level in nearly four months since 9 February 2007. The market had pared gains shortly after a firm opening. Sensex hit a low 14,465.68.
Sensex all time high is at 14,723.88, struck on 9 February 2007.
The S&P CNX Nifty which had advanced above the 4,350 level, to strike an all time high of 4,362.95, in opening session, settled with 30 points, or 0.70% loss at 4,267.05
The total turnover on BSE amounted to Rs 3745 crore. Turnover on NSE's futures & options segment totaled Rs 28727.23 crore
Market breadth was negative on BSE, with 1398 shares declining as compared to 1172 that advanced. 95 remained unchanged. The breadth turned negative in early afternoon trade from a strong breadth at the onset of the trading session. In morning session, there were over 2 gainers for every loser on BSE.
The BSE Small-Cap Index was down 0.10% to 7,466.77, while the BSE Mid-Cap Index lost 0.49% at 6,233.58.
Among the Sensex pack, 19 declined while the rest advanced.
Aluminium and copper major Hindalco Industries surged 4.01% to Rs 146.65 on high volume of 59.57 lakh shares, tracking firm global copper prices. It surged to a high of Rs 156.25, in intra-day trade. As per reports Hindalco and Sterlite Industries, are in talks with global firms to separately bid for Canada's Alcan. Sterlite's parent Vedanta Resources Plc was in advanced talks with global miner Rio Tinto to form a special purpose vehicle to bid for the aluminum major. While London-based Vedanta is likely invest $3-$4 billion and Rio Tinto could put in $10-$12 billion in the joint venture.
State Bank of India (SBI) advanced 2.02% to Rs 1405.90 on 6.59 lakh shares. It also surged to an all time high of Rs 1418.90, in intra-day trade. The government appears set to promulgate an ordinance to close the largest ever acquisition involving the transfer of Reserve Bank of India's 59.7% stake in State Bank of India to the Centre in a deal worth nearly Rs 40,000 crore. The government will value the 31.43 crore SBI shares, which have a face value of Rs 100 each, held by RBI at the average closing price for six months.
As per reports, the finance ministry will seek the Cabinet's approval over the next couple of weeks to ensure that the Centre hands over the cheque to RBI on 29 June 2007, a day before RBI closes its annual books of accounts.
Other shares from the banking and financial sector also advanced on renewed buying, after fears of hike in CRR eased. HDFC Bank (up 1.05% to Rs 1165), HDFC (up 0.71% to Rs 1875), and ICICI Bank (up 0.42% to Rs 932), edged higher.
Led by SBI, the BSE Bankex rose 0.8% at 7,741.56.
Tata Motors slumped 4.97% to Rs 710 on 6.82 lakh shares, and was the top loser from the Sensex pack. Tata Motors’ sales declined 4% to 42,558 units May 2007. Commercial vehicle (CV) sales declined to 20,675 units in May 2007 from 21,903 units in May 2006. Passenger vehicle sales were down 3% at 17,580 units in May 2007. It slipped to a low of Rs 710.20.
Led by fall in Tata Motors, the BSE Auto Index shed 1.63% to 4,948.37. It was the top loser among the sectoral indices on BSE.
Hero Honda Motors declined 0.56% to Rs 713.10, after its May 2007 sales declined 6% to 2,85,109 units from 3,03,444 units in May 2006.
Pune headquartered Bajaj Auto slipped 0.95% to Rs 2214 after its bike sales (including exports) dipped 15% at 1,67,008 units in May 2007 from 1,96,120 units in the same month last year. Three-wheeler sales were flat at 24,110 units (24,029). The company’s exports, however, were up 53% at 49,203 units against 32,179 units in the same month last year.
Cipla (down 3.39% to Rs 216.60), Grasim (down 3.25% to Rs 2438.05), and Bhel (down 3.14% to Rs 1370), were the other losers from the Sensex pack.
IT pivotals stayed weak, as they did over the past few weeks, as selling continued. The BSE IT Index lost 1.3% to 4,846.50.
Satyam Computers (down 2.10% to Rs 468.50), TCS (down 1.21% to Rs 1204.35), Infosys (down 1.45% to Rs 1912) and Wipro (down 2.37% to Rs 531.25) slipped.
IT stocks have not performed in the market's recent surge due to stronger rupee. A rise in the rupee directly impacts revenue and profit of IT firms, which derive a lion’s share of revenue from exports to the US. The Indian rupee headed towards last week's nine-year high on Monday, 4 June 2007, spurred by capital inflows and positive cues from most Asian currencies.
Index heavyweight Reliance Industries (RIL) slipped 0.76% to Rs 1737 on 3.66 lakh shares. As per reports, it has inked a pact with Gas Authority of India (GAIL) to supply, transport and market gas. Under the agreement, RIL would be allowed to use state-run GAIL's pipeline network in states such as Andhra Pradesh and Madhya Pradesh. In return, GAIL would get to market a portion of RIL's gas from the Krishna-Godavari basin. The two companies have not made a decision on the price of the gas.
Meanwhile, as per reports, RIL’s retail venture - Reliance Fresh which has set up 157 outlets in 18 states, is all set to put up 100 stores in Mumbai.
Asahi Songwon Colors settled at Rs 89.95, a marginal discount over its IPO price of Rs 90 per share. On BSE, 62.91 lakh shares were traded in the scrip. The scrip listed on BSE at Rs 93 and moved in a range of Rs 87.65 to Rs 134.70. The company had priced its IPO at the lower end of the Rs 90 – Rs 108 per price band. The IPO was subscribed 1.85 times.
Reliance Capital was the top traded counter on BSE with turnover of Rs 143.80 crore followed by MIC Electronics (Rs 139.60 crore), Indiabulls Real Estate (Rs 103.50 crore), State Bank of India (Rs 97.30 crore) and Hindalco Industries (Rs 92.40 crore).
Reliance Natural Resources (RNRL) led the volumes chart on BSE with 1.23 crore shares followed by Asahi Songwon Colors (63 lakh shares), Hindalco (61.50 lakh shares), Nagarjuna Fertilisers (54.80 lakh shares) and Mangalore Chemicals (44.70 lakh shares).
Metal stocks advanced on renewed buying, following firm metal prices on London Metal Exchange (LME). The BSE Metal index surged 166 points or 1.59% to 10,634.17, and was the top gainer among sectoral indices on BSE.
Hindalco Industries (up 4.01% to Rs 146.65), Tata Steel (up 0.10% to Rs 635.25), SAIL (up 0.10% to Rs 138.75), Jindal Steel & Power (up 10.57% to Rs 3660) and Jindal Saw (up 1.55% to Rs 583), edged higher.
Shares of refining companies declined after they slashed jet fuel (aviation turbine fuel — ATF) prices by 1.9%, the first reduction since February 2007. Hindustan Petroleum Corporation (HPCL) (down 3.60% to Rs 285.10), IOC (down 3.92% to Rs 447), Bharat Petroleum Corporation (BPCL) (down 1.38% to Rs 354) declined. Other refinery stocks like Bongaigaon Refinery and Petrochemicals (down 1.68% to Rs 49.70), Chennai Petroleum (down 0.81% to Rs 247), and MRPL (down 2.65% to Rs 40.65) also declined.
Oil firms had raised jet fuel prices for three consecutive months since February 2007. Public sector companies—Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) —-revise ATF prices on the first of every month in line with movement in international prices.
However aviation stocks advanced, as ATF prices account for about 45% of the operational cost of an airline firms. Jet Airways (up 1.80% to Rs 796.65), and Jagson Airlines (up 7.44% to Rs 21.65), edged higher.
Uttar Pradesh-based sugar companies' shares were down sharply after the newly elected government in the region withdrew an incentive scheme for sugar mills. Balrampur Chini Mills (down 4.16% to Rs 73.70), Bajaj Hindusthan (down 5.57% to Rs 165.20), Dhampur Sugar Mills (down 2.67% to Rs 67.35) and Triveni Engineering & Industries (down 4.22% to Rs 53.40), edged lower. The newly elected Mayawati government in Uttar Pradesh on Friday, 1 June 2007, decided to do away with the Mulayam Singh administration’s Sugar Policy 2004 on the grounds that it was not comprehensive.
Bajaj Hindusthan said on Monday, 4 June 2007, the cancellation of the Uttar Pradesh sugar policy 2004 would have a significant adverse impact on its financials. It said it could not yet quantify the impact, adding it had not heard from the government on the issue.
SREI Infrastructure Finance surged 10% to Rs 94.75 triggered by its alliance with BNP Paribas Lease group for equipment finance in India. With today’s surge, the SREI scrip has advanced 50% in the past three trading sessions after the news hit the markets during trading hours on Thursday, 31 May 2007. The alliance involves setting up of a new 50:50 joint venture (JV) company. The joint venture would be formed with an initial networth of Rs 800 crore.
Logix Microsystems jumped 5% to Rs 268.80 as its US subsidiary izmocars was selected by Earnhardt Automotive Centers to develop customized online stores and internet sales solutions and also offer internet sales training to a number of Earnhardt's dealerships. Earnhardt sells over 27,000 cars a year and has market dominance in the southwestern United States.
Rain Calcining jumped 20% to Rs 42.50 after it announced acquisition of a US based firm for $595 million. Rain Calcining said on Saturday, 2 June 2007, it had agreed to acquire US-based CII Carbon LLC for $595 million in an all cash deal, making the combined entity the world's largest maker of calcined petroleum coke. Calcined petroleum coke is a pure form of carbon used in steel and aluminium industries. The two companies would have total production of more than 2.4 million tonnes and annual sales of $550 million.
Fortis Healthcare jumped 5.01% to Rs 92.30 on reports it had entered into an agreement with DLF for floating a joint venture to set up hospitals across the country with about Rs 6,200 crore of investments. Fortis will have a majority holding with 74% stake and the rest will be with DLF in the proposed joint venture. The JV plans to set up a chain of 200-450 bed hospitals in 31 cities in India within three to five years.
Greenply Industries gained 1.82% to Rs 140, after the plywood maker reported a 78% jump in net profit in Q4 March 2007 to Rs 6.72 crore from Rs 3.77 crore in Q4 March 2006. Sales moved up 51.62% to Rs 110.61 crore (Rs 72.95 crore). The net profit rose 59.83% to Rs 22.52 crore in FY 2007 as against Rs 14.09 crore FY 2006. Sales rose 40.30% to Rs 392.20 crore (Rs 279.54 crore).
Mount Everest Mineral Water declined 5% to Rs 124.95 after Tata Tea decided to acquire controlling stake in the company. On Friday, 1 June 2007, the board of Mount Everest Mineral Water approved the issue and allotment of 50.99 lakh shares to Tata Tea at a price of Rs 140 per share on preferential allotment basis.
Hindustan Zinc rose 4.21% to Rs 675 after the company, on Saturday, 2 June 2007 raised zinc price by 1.5% to Rs 1.68 lakh per tonne and lead prices were raised by 2.4% to Rs 1.04 lakh per tonne.
Glenmark Pharmaceuticals rose 1.53% to Rs 713, after the company said its board will meet on 11 June 2007 to consider stock split proposal.
Ashapura Minechem rose 5% to Rs 291.95 on getting approval from the Development Commissioner, Kandla Special Economic Zone, Gandhidham, Kutch, to set up two 100% export oriented units (EOUs) for processed bauxite at Jamnagar. These permissions are valid upto 20 May 2012 and 16 May 2012 for the two different EOUs.
Chinese stocks fell sharply on Monday, 4 June 2007, following government efforts to cool a market boom that authorities worry could create a dangerous price bubble. The benchmark Shanghai Composite Index was down 8.26% at 3,670.41 after a 2.7% decline on Friday, 1 June 2007.
The Chinese government had raised taxes on trading last week in an effort to cool a frenzied market that by last week had pushed up prices more than 50% before they began to decline. Even with today’s fall, the Shanghai market is still up more than 40% since the start of the year after rising 130% in 2006.
Most of the other Asian market held gains. Hang Seng index rose 126.72 points or 0.62% to 20,729.59 while Nikkei 225 index gained 14.54 points or 0.08% to 17,973.42
However, all the European indices were trading with losses.
Wall Street carved out a solid advance on Friday, 1 June 2007, after data on job creation, manufacturing and inflation injected the market with renewed confidence about the economy and sent major indexes to record closes. The Standard & Poor's 500 index was the biggest gainer among the major indicators and moved toward its all-time high.
The Dow Jones industrial average advanced 40.47 points, or 0.30%, to 13,668.11, with the Dow closing on all time high for the 26th session in the year. The Dow also set a fresh intra-day high of 13,692
Broader stock indicators also gained Friday to end a week that saw stocks advance amid a bevy of favorable economic figures and the continued hum of corporate takeover activity. The Standard & Poor's 500 index rose 5.72 points, or 0.37 %, to 1,536.34. The S&P traded as high as 1,540.56 and advanced toward its record trading high of 1,552.87 set in March 2000.
Oil prices slipped on Monday, 4 June 2007, after three days of gains as a major US gasoline pipeline resumed pumping and some Nigerian militants called a one-month truce, although analysts saw little to suggest an end to 18 months of violence.
London Brent crude, currently seen as a better gauge of global oil markets, fell 31 cents to $68.76. US light, sweet crude fell 40 cents to $64.68 a barrel.
FIIs bought shares worth a net Rs 482.40 crore on Friday, 1 June 2007.
The market cooled off after having recorded gains for the last two sessions. The Sensex opened on a positive note at 14619, up 48 points, tracking strong Asian indices. The Nifty registered its all-time high of 4363 on buying in metal and banking stocks. However, the market gave up its gains due to profit booking in heavyweights, information technology (IT), cement and automobile stocks. As the trading progressed the Sensex lost its strength and slipped into the negative territory to touch the day's low of 14466. The Sensex pared some losses towards the close but the sustained selling in index pivotal stocks kept the index in negative territory. The Sensex finally closed the session by shedding 75 points at 14496, while the Nifty ended the session down 30 points at 4267.
The broader market remained weak. Of the 2,654 stocks traded on the BSE, 1,388 stocks declined, 1,182 stocks advanced and 84 stocks ended unchanged. Barring the BSE Metal index, the BSE Bankex and the BSE FMCG index, the other sectoral indices ended in negative territory. The BSE Auto index dropped 1.63% at 4948, the BSE IT index shed 1.26% at 4847 and the BSE CG index was down 1.24% at 11,103.
Among the major losers, Tata Motors dropped 4.78% at Rs711, Grasim slumped 3.19% at Rs2,440, BHEL shed 3.01% at Rs1,372, Cipla lost 2.99% at Rs218, HLL declined 2.39% at Rs196 and Satyam Computer slipped by nearly 2.33% at Rs467. However, Hindalco notched up gains of 3.97% at Rs147, SBI rose 2.07% at Rs1,407, ITC added 2.04% at Rs165, NTPC advanced 1.11% at Rs160 and HDFC Bank moved up by 1.05% at Rs1,165.
Auto stocks came under sharp selling pressure. Clutch Auto tumbled by 6.70% at Rs144, Goodyear slipped 4.73% at Rs197, TVS Motors slumped 4.12% at Rs66, Amar Raja Battries fell 3.65% at Rs381, Escorts lost 3.57% at Rs120, Bharat Forge declined 3.33% at Rs324, Cummins shed 3.03% at Rs304 and Tube Investments was down 2.80% at Rs78.
Over 1.22 crore Reliance Natural Resources shares changed hands on the BSE followed by Asahi Songwon Colors (62.93 lakh shares), Hindalco (61.48 lakh shares), Nagarjuna Fertilizer (54.80 lakh shares) and Mangalore Chemicals & Fertilizers (44.72 lakh shares).
Value-wise Reliance Capital registered a turnover of Rs143 crore on the BSE followed by MIC Electric (Rs139 crore), Indiabulls Real Estate (Rs103 crore), SBI (Rs97 crore) and Hindalco (Rs92 crore).
Buy Adhunik Metaliks with stop loss below Rs 51 for a target of Rs 58-60. This is a day-trading recommendation.
Buy ITI with stop loss below Rs 45.40 for a target of Rs 53. This is a day-trading recommendation.
Buy Tera Software with stop loss of Rs 85 (On Closing Basis), for a short-term target of Rs 113.
Buy Bata India with stop loss of Rs 172 (On Closing Basis), for a short-term target of Rs 201 and a medium term target of Rs 235.
Buy Educomp Solutions below Rs 1870 with stop loss at Rs 1830. This is a day-trading recommendation.
Buy Bharat Electronics below Rs 1895 with stop loss at Rs 1860. This is a day-trading recommendation.
Kotak - Tata Tea, Dish TV, Reliance Industries, Idea Cellular, UTI Bank, Torrent Pharma, Automobiles, Economy
Kotak on Tata Tea
Tata Tea reported 14.7% growth in revenues at Rs2.51 bn (we expected 12.2% growth) and 34% increase in EBITDA to Rs150 mn (we estimated Rs243 mn) during 4QFY07. While domestic branded tea sales continue to do well (9% volumes growth and 12% value growth for branded tea in domestic portfolio), higher wage expenses (wage increases and new accounting standards) resulted in lower EBITDA. Tetley continues to post marketshare gains in key markets. However, stagnant black tea market in UK remains a concern. Tata Tea has agreed for conditional sale of its stake in Energy Brands Inc (EBI) to Coca Cola. Tata group had earlier acquired 30% stake in EBI (25% held by Tata Tea and 5% by Tata Sons) for US$677 mn, in a bid to add a high growth beverage portfolio in the world's largest beverage market. With the sale of 30% stake to Coca Cola for US$1.2 bn, Tata Tea will need to redraw its plans for improving its growth profile. Tata Tea has reiterated its thrust on three verticals—Tea, Coffee and Water, and has announced the acquisition of a controlling stake in Mount Everest Mineral Water Limited (MEMW). We believe that given the robust macro environment in rural as well as urban India, domestic tea business will continue to do well. However, we have concerns on the Tetley business and need to watch out for Tata Tea's strategy to drive growth. We retain In Line rating on the company. Our revised target price of Rs992/share includes Rs91/share from investments in group companies (valued at 50% discount to market price). Our target price implies a P/E of 21.5X and 16.9X on FY2008E and FY2009E respectively.
Kotak on DishTV
We have downgraded Dish TV to IL from OP noting the fact that the stock is trading above our 12-month DCF-based target price of Rs125 and the stock's strong outperformance over the past few weeks. We continue to like Dish TV as a good play on India's emerging distribution opportunity. Indeed, we are most favorably disposed to the distribution portion of the media chain versus broadcasting and content given distribution's ownership of the last-mile, its more loyal audience and hence more predictable cash flows. We would wait for more visibility on the pace of adoption of DTH service in India, Dish's execution versus others and pricing strategy of new entrants. However, we model rapid uptake of DTH service in India given problems with the cable industry. Thus, Dish's current valuations leave limited scope for execution and macro-environment-related disappointments. We retain our earnings estimates.
Kotak on Reliance Industries
According to an article in Petrowatch (31st May 2007), Reliance's gas and oil production from KG D-6 block may be delayed by a few months. We do not expect a delay, if any, to have a material impact on valuations although it may be a modest negative for sentiment. We anyway use valuations based on FY2010E EPS discounted back to set our 12-month fair valuation for Reliance stock (see Exhibit 1). We have made some minor changes to our model—(1) exchange rate (Rs43/US Dollar for FY2008E-FY2010E versus US$44/US Dollar previously) and (2) use of gas for internal refining process for RIL refinery also; we already model this for RPL refinery. Our consolidated FY2008E, FY2009E and FY2010E EPS are Rs71.5, Rs98.5 and Rs153.5, respectively versus Rs73.2, Rs95.6 and Rs150.1, respectively, previously. Key upside risks to our 12-month target price of Rs1,400 (Rs1,375 previously) stem from continued high liquidity in the Indian market and new E&P discoveries.
Kotak on IDEA Cellular
Several newspaper articles over the past few days have reported discussions between Idea Cellular and Spice Telecom regarding a potential merger or acquisition of Spice by Idea. The managements of the respective companies have not confirmed the news. In our view, the reported merger is unlikely to change the competitive landscape in India. The merger will give Idea a presence in two new circles'Punjab and Karnataka'but would not address key issues including (a) lack of pan-Indian presence, (b) likely weak position in unaddressed and certain existing circles and (c) high risk to operating metrics from emerging price competition. We believe ongoing deterioration in pricing is the real issue and note that Idea is the most vulnerable in the emerging environment. We maintain our U rating on Idea stock with a 12-month forward DCF based target price of Rs100. Key upside risk is higher-than-expected profitability.
Kotak on UTI Bank
On Friday, the UTI Bank shareholders approved the change of bank’s name to 'Axis Bank Ltd' from 'UTI Bank Ltd' and appointment of Dr. P.J Nayak as whole-time Chairman of the bank. The later is subject to the approval of RBI. Simultaneously at its board meeting the UTI Bank board finalized its plan to raise US$1bn of capital to meet the bank’s growth plan through a preferential issue to existing promoters and a equity/GDR issue. We believe that amongst private banks UTI Bank has strong growth potential, is well run and has delivered strong financials. A large part of this credit goes to Dr. Nayak, who has been with the bank for the last seven years. Even assuming that RBI clears Dr Nayak’s appointment it still leaves two long-term crucial issues unresolved - i.e long-term succession plan and potential sell down of stake to a public sector. We believe that the issuance was an opportune time to reduce holding of the government owned organization, which it appears, is unlikely at this stage. The current valuations of 19.5XPER and 4.0X PBR FY2008 therefore appear rich and reduce the margin of safety for investors and we retain our Underperform rating.
Kotak on Torrent Pharma
We recently met the Torrent management. Outlook continues to be robust, with strong revenue growth and margin expansion. For FY2008, we have modeled revenue growth of 18%, 130bps margin expansion (10.8% EBITDA) and 36% growth in net profit. We estimate an EPS of Rs15 and Rs17.4 for FY2008 and FY2009 (versus Rs13.2 and Rs16.1 earlier). Amongst key markets, India, Brazil and CIS are doing very well, a trend, which is likely to continue. Company expects sharp margin expansion in the Brazil market, which will equal investments/loss in Mexico (for product filings). Investment/losses in the US market will continue this year too (for product filings), as revenues are expected to begin from next year. Germany continues to be a dark spot (Rs230 mn loss in FY2007). We have rolled over our DCF to March 2009 and our revised price target is Rs260 (Rs200 earlier), or 15x FY2009 earnings. Key risks include inability to improve profitability of international operations, mainly Germany
Kotak on Auto Sales
May saw a weak sales growth across all segments of the auto industry. CV sales declined impacted by high interest rates. The 2W industry witnessed a decline in volume growth across all players thus raising concerns of a slowdown in demand. Hero Honda along with its peers reported a 6% yoy decline in May. Maruti continued with its growth backed by the launch of the Sx4 sedan and the success of Swift and Zen Estilo while Mahindra- Renault's Logan had a decent launch with 2,786 vehicles being sold in May. Tata Motors reported a 17% yoy drop in volumes of M&HCVs for May. LCV sales however grew at 10% for the month resulting in a 6% yoy decline for domestic CV sales. Car sales for Tata Motors, too, declined 7.6% in May.
Kotak on India Economy
India’s merchandise trade deficit expanded sharply to US$ 7 bn in April 2007 from US$3.9 bn in April 2006 (Exhibit 1). This reflects strong non-oil import demand suggestive of sustained economic activity (abetted by a stronger Rupee). Robust capital goods imports (32.4% during April 2006 ‘ January 2007 vs 39.9% last year), in particular, point to sustained investment. In any case, imports pick up in 1Q of the FY (Exhibit 2). We nevertheless continue to expect non-oil import demand to moderate with a slowdown in real GDP growth (8.2% in FY2008E from 9.4% in FY2007). Although still robust, we also expect some slow down in exports in FY2008E (US$148 bn lower than the commerce ministry’s bullish US$ 160 bn projection) on account of the IMF’s estimate of slower world GDP growth (4.9% 2007E from 5.4% 2006) and a somewhat higher Rupee (Rs43/USD in FY2008E up from Rs45.1/USD in FY2007). The current account deficit is now forecast at a pretty doable 1.4% of GDP in FY2008E, assuming stable oil prices (US$65/bbl Dated Brent). Every US dollar increase in the India basket barrel price hits the current account deficit by about US $ 500-600 mn.
The benchmark index, BSE Sensex may strike an all time high today, tracking strong global markets. It’s all time high of 14,723.88 struck on 9 February 2007, is 153.13 points away from Friday, 1 June 2007's close of 14,570.75. Sustained buying interest from FIIs and mutual funds will support the market on the downside.
Asian stocks started the week on an upbeat note today, with Japan's Nikkei Average hitting a three-month high after Toyota Motor Corp. and other exporters gained ground after the release of stronger US economic data. It was up 33.90 points or 0.19% at 17,992.78. Other markets were also trading positive. Hang Seng (up 0.79% or 161.98 points at 20,764.85), Taiwan's Taiwan Weighted (up 0.48% or 39.79 points at 8,289.69), Singapore's Straits Times (up 0.69% or 24.45 points at 3,572.77) and South Korea's Seoul Composite (up 0.60% or 10.38 points at 1,726.62) edged higher.
As per provisional figures, FIIs were net buyers to the tune of Rs 373.38 crore, while Domestic Institutional Investors also bought net shares worth Rs 319.84 crore on Friday, 1 June 2007
Wall Street carved out a solid advance Friday, 1 June 2007, after data on job creation, manufacturing and inflation injected the market with renewed confidence about the economy and sent major indexes to record closes. The Standard & Poor's 500 index was the biggest gainer among the major indicators and moved toward its all-time high.
The Dow Jones industrial average advanced 40.47 points, or 0.30 %, to 13,668.11, with the Dow closing on all time high for the 26th session in the year. The Dow also set a fresh intra-day high of 13,692
Broader stock indicators also gained Friday to end a week that saw stocks advance amid a bevy of favorable economic figures and the continued hum of corporate takeover activity. The Standard & Poor's 500 index rose 5.72 points, or 0.37 %, to 1,536.34. The S&P traded as high as 1,540.56 and advanced toward its record trading high of 1,552.87 set in March 2000.
Oil prices slipped on Monday, 4 June 2007, after three days of gains as a major US gasoline pipeline resumed pumping and some Nigerian militants called a one-month truce, although analysts saw little to suggest an end to 18 months of violence.
London Brent crude, currently seen as a better gauge of global oil markets, fell 31 cents to $68.76. US light, sweet crude fell 40 cents to $64.68 a barrel.
Market Grape Wine :
In House :
Nifty at a Supp. of 4277, 4251 and 4235 with Resis. at 4325 and 4360.
Intra day calls: Buy JSW steel above 618 with a TGT of 638 and a SL of 609
Buy Unitech above 587 with a TGT of 604 and a SL of 579
Delivery calls: Buy Avayaglobal above 367 with a TGT of 420 and a SL of 349
F&O: Buy Rajesh exports above 519 with a TGT of 532 and a SL of 513
Buy OBC above 240 with a TGT of 249 and a SL of 236.50
Out House :
Markets at a support of 14486 & 14414 levels with resistance at 14636 & 14678 levels .
Buy : RIL & REL
Buy : Divis & ABB
Buy : IDEA & IDFC
Buy : McDowellHolding & MIC
Buy : Lupin & GlenMark
Buy : Sail & JSW
Buy : RNRL & IDBI
Dark Horse : GlenMark , RNRL , TataTea , IDFC , Lupin , JSW & CenturyTex
A positive opening in most of the Asian indices in ongoing trades and prevailing strong bullish sentiment may help the local market advance further. However, bouts of strong intra-day volatile moves may weigh on the sentiment. Among the key indices, the Nifty has a resistance at 4300 and has a key support at 4260 in the near-term. The Sensex has a likely support at 14400 and may face resistance at 14600.
Us indices set new records on Friday, while the Nasdaq hit its highest in last six years and Dow hitting its new high as investors welcomed upbeat readings on job growth, manufacturing and inflation, as well as a strong earnings report from Dell. While the Dow Jones gained over 40 points, the Nasdaq moved up by 9 points.
Indian floats trading on the US bourses fared better on Friday, the gainers were, MTNL registering the highest gains over 13% while VSNL,Tata Motors, Infosys, Wipro, Dr Reddy's, HDFC Bank, Patni Computer and ICICI Bank gained around 1-2% each. Rediff, however, dropped around 1%.
Crude oil prices moved up, while the Nymex light crude oil for July delivery rose by $1.07 to close at $65.08 a barrel. In the commodity segment, the Comex gold for August series flared up $10.20 to settle at $676.90 an ounce.
US markets were POSITIVE & Asian markets are trading POSITIVE.
Levels for NIFTY - support at 4283-4269-4255 & resistance at 4311-4326-4340.
Bias for markets is Cautious for the day…
Crompton Greaves Ltd's (CGL) revenues grew by 25% year on year (yoy) in Q4FY2007 to Rs990.0 crore. The revenues were slightly below our expectations. We have revised price target to Rs280.
View Point on SREI Infrastructure Finance. SREI Infrastructure Finance (SREI) and BNP Paribas Lease Group (BPLG), the leasing arm of BNP Paribas, have reached an agreement regarding a strategic partnership in equipment finance in India.
Tata Tea will acquire 10.74% from promoters & also they will apply for preferential offer of 15%. That will make 24% of Mount Everest of capital.
Trina M (sharekhan): Rumor in the market about Cement import norms eased (Business Line).
Imp. Results today: Balkrishna Ind, Mcleod Rusel, Nocil, Onward Technologies,
Stocks with +ve bias: MTNL, Punj Lloyd,
Stocks with short term Delivery: Aurobindo Pharma, 3i Infotech, MICO, HOEL
Stocks for investment: Bharat Bijlee, HDFC Bank, CEAT, Crompton Greaves, Ahmednagar forging, Indotech Transformers, JP Associates, Saregama India, Thermax
Maruti Udyog Ltd
Maruti Udyog Ltd (MUL) registered a 35.2% yoy increase in net sales during Q4 FY07. This was higher than our expectation of 30.4% yoy growth. However, this growth came at the cost of substantial margin reduction of 240bps yoy during the quarter. Factoring in margin pressures, we projected a 13.9% OPM for the quarter. However, the actual fall in OPM was even severe on account of loss at Manesar plant due to power issues.
Maruti sold a 674, 924 units, including exports of 39,295 units during FY07. The company has been building a good product portfolio. While it had planned to launch five new vehicles in five years, it has been successful in doing so in 2.5 years itself. Besides introducing the WagonR Duo and the Zen Estilo during FY07, MUL entered the diesel car segment with Swift Diesel.
Pressure on operating profit margins is expected to continue with high marketing and promotion expenses. With the ongoing cricket world cup, other expenses have been high. Competitive pressures and promotions for new launches will keep margins in check. Mr. Khattar stated that he expects input pressures on account of rising commodity prices to continue. He also stated that near term focus would be on gaining market share rather than margins. We project a 100bps yoy decline in OPM during FY08 for MUL. While input cost and other expenses are likely to remain high, we expect MUL’s realizations to marginally improve during the period.
The net profit for MUL grew by 24.3% yoy during Q4 FY07, significantly higher than our expectation for the quarter. The prime reason for the same was the huge jump in other income earned during the quarter, growing by 77.8% yoy and accounting for 30.7% of the PBT income. The Board has recommended a final dividend of Rs4.5 per share for the year.
NIFTY (4297) RES 4308 SUP 4278
BUY GNFC (111.85)
SL 108 T 119, 121
BUY HCL-INSYS (168)
SL 164 T 176, 178
BUY PARSVNATH (326.35)
SL 321 T 336, 339
SELL TATACHEM (251.25)
@ 254 SL 258 T 244, 241
SELL TVTODAY (153.65)
@ 156 SL 160 T 145, 142
HDFC Ltd: D N Ghosh, Director has sold in open Market 3000 equity shares of Housing Development Finance Corporation Ltd on 28th May, 2007.
SREI Infrastructure, GTC Industries, DCB, DCHL, Dewan Housing, TVS Electronics, Saksoft Ltd, Dawn
Mills, Shreyas International, Genus Overseas, Asian Electronics, Marg Construction, Helios Matheson, UTV
Software, Taneja Aerospace, Accel Frontline and Swan Mills.
Delight Delight (Rising Price & Rising Delivery):
Cipla, Crompton Greaves, Federal Bank, Geometric Software, Gujarat State Fertilizers & Chemicals, ICICI
Bank, Indian Hotels, NALCO, Satyam Computer and TVS Motor.
Mastek, J B Chemicals, Jindal Steel & Power, BPCL, IOC, Tata Elxsi, CEAT, IPCL, Ucal Fuel, SCI, Andhra
Bank, Union Bank of India and Balaji Telefilms.
Balkrishna Industries, McLeod Russel, Nahar Export, Nahar Spinning, NOCIL, Onward Technologies, Greenply Industries, Southern Ispat, VIP Industries and Williamson Magor.
Delivery Momentum Call:
Jyoti Structure Ltd. is in the business of erecting power transmission tower, electricity sub-station structures and railway electrification systems, the company has been turnaround story due to the Electricity Act that freed transmission to the private sector.
The current order book of Jyoti structure ltd stands at Rs2000Cr in comparison to Rs11bn last year.
The existing orders form Powergrid, higher rural electrification job New Higher power orders will enhance
revenue; it is expected to grow at a CAGR of 32% for the next 2 financials years. It is seen that the
margins have really improved this year with Operating profit margin standing at 12.31% in comparison of
The management has given a guidance of 12% operating margin for the next 2 financial years. The company Joint venture Gulf-Jyoti will commence trial run in June 2007. The company has already bagged one order from Dubai electric and water agency. The company has a 45% stake in the net profit under the Joint venture agreement. Jyoti Structure stock trades at a P/E of 11.90x FY08E EPS of Rs11.90 and 8.20x FY08E EPS of Rs14.88.
Peek at peak
Dreams are the windows of the soul--take a peek and you can see the inner workings, the nuts and bolts.
The bulls have had a dream run mainly on account of select stocks. The big question (and the question only gets bigger) is whether this rally can sustain. Concern arises if you look at the nuts and bolts, read valuations and lack of fresh catalysts. There could be some bumps ahead once the so-called landmarks are achieved. The NSE Nifty, has crossed the 4300 mark and is sitting pretty at a new all-time high. The Sensex is trying to follow suit. Given the current momentum, strong inflows (from both overseas and local institutions) and firm global markets, the Sensex could have its 'moments' of glory. Will it happen today itself? Well, the bulls appear confident enough to not only lift the Sensex to a new life-time peak, but could also take the benchmark index near 15,000 in the near term. While a new high for the Sensex this week is a foregone conclusion, the ride to mount 15k may face resistance.
We expect a positive opening as US stocks advanced further on Friday on the back of a slew of positive economic reports. Asian markets, barring China, are all up today. Oil is trading above $64 per barrel mark and may pose some threat in the coming days due to the onset of summer and the hurricane season in the US. Though everything looks rosy at the moment, one must be on guard for any unforeseen negative surprises as the market is at or near historic peak.
As usual, a lot of stock specific action is likely to continue. Among the scrips to keep an eye on include Indian Hotels. The Tata Group company is expected to announce good results this week and a new acquisition. Development Credit Bank is also expected to do well amid expectations of a minor stake sale and improvement in the fundamentals.
Media Video is another stock one can watch out for, as it is likely to sign a deal with the Godrej Group and is also planning to unlocking value through the demerger of its infrastructure business. It is also foraying into real estate and has already announced a township project. Rain Calcining and Rain Commodities are likely to be in the limelight. Rain Calcining has decided to acquire all of the outstanding equity of CII Carbon LLC for $595mn.
FIIs were net buyers of Rs3.73bn (provisional) in the cash segment on Friday. While the local institutions pumped in Rs3.19bn on the same day. In the F&O segment, they were net buyers of Rs6.93bn. Foreign funds were net buyers of Rs3.1bn in the cash segment on Thursday.
US stocks rose on June 1, lifting the Standard & Poor's 500 Index to a record. US employers added 157,000 non-farm jobs in May after boosting payrolls by 80,000 in April, a government report showed. Economists surveyed had expected an increase of 132,000 jobs in May.
European shares advanced on Friday. The pan-European Dow Jones Stoxx 600 index added 0.8% to 399.95. The UK's FTSE 100 closed up 0.8% at 6,676.70 and the German DAX Xetra 30 rose 1.3% to 7,987.85. The French CAC-40 increased 1.1% to 6,168.15.
In the emerging markets, the Bovespa in Brazil rose 2.2% to 53,422 while the IPC index in Mexico was up 1.7% to 31,946 and the RTS index in Russia climbed 2.8% to 1829.
Asian stocks were trading higher this morning after government reports showed that employment and manufacturing growth in the US expanded more than expected and metals prices gained.
The Morgan Stanley Capital International Asia-Pacific Index added 0.5% to 152.12 as of 11:16 a.m. in Tokyo, extending a two-day, 2% rally. Benchmarks in South Korea, Australia and Singapore climbed to new highs. New Zealand's market is closed for a holiday.
In Japan, the Nikkei 225 Stock Average added 0.2%. Stocks also rose after a Ministry of Finance report showed that the country's largest companies increased spending more than expected in the first quarter.
China's stocks fell to a five-week low today after official media said that the slide in shares since stamp duty was tripled last week is a normal correction, suggesting that the government won't act to stem the decline.
The benchmark CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, declined 213.03, or 5.6%, to 3590.92 as of 10:14 a.m. local time, set for its lowest close since April 30.
Markets greeted good Buy to May as bulls welcomed June on a flat note. Bulls managed to survive the so called May Mayhem as the benchmark Sensex instead on tanking added on over 3% during the month. And history says the month of June is always the month of bulls, but with no major triggers on the horizon and the result season far away, market players would look upon Global developments, dollar concerns and crude oil prices.
On Friday markets managed to close with marginal gains as selling pressure in the Oil & Gas, FMCG and Consumer Durable index dragged the markets to wipe off almost all its intra-day gains. However, BSE Technology, Bank and Auto index bucked the negative trend holding the markets from a huge fall. Finally, the 30-share Sensex gained 26 points to close at 14570. NSE-50 Nifty was flat at 4297.
MTNL rallied almost by 7% to Rs163 after the company said that it plans to announce Noida Property Developer in 10 days. The scrip touched intra-day high of Rs165 and a low of Rs151 and recorded volumes of over 59,00,000 shares on NSE.
Bajaj Auto gained momentum towards the end as the scrip added 0.7% to Rs2242. The company announced its May sales which were at 193437 units (down 12%). The scrip touched intra-day high of Rs2252 and a low of Rs2211 and recorded volumes of over 3,00,000 shares on NSE.
M&M gained by 0.5% to Rs758 after the company announced its May auto sales which was at 18116 units (up 49.5%). The scrip touched intra-day high of Rs770 and a low of Rs751 and recorded volumes of over 8,00,000 shares on NSE.
Tata Tea further gained ground for second consecutive after reports stated that the company would buy majority stake in MT Everest. The scrip surged by over 3.5% to Rs952 touching an intra-day high of Rs970 and a low of Rs938 and recorded volumes of over 1,00,000 shares on NSE.
Lupin advanced by 1.7% to Rs711 after the company announced that they have secured FDA approval for Cefadroxil Capsules. The scrip touched intra-day high of Rs733 and a low of Rs714 and recorded volumes of over 2,00,000 shares on NSE.
Consumer Durable stocks were on the receiving end as after being in the limelight for previous couple of trading session. Videocon Industries declined by over 4.5% to Rs470 and Gitanjali Gems was down by 0.4% to Rs189. However. Rajesh Exports and Titan managed to buck the negative trend as Rajesh Export gained by 2.5% to Rs515 and Titan was up by 1.4% to Rs1140.
Oil & Gas stocks also witnessed some selling pressure. ONGC declined by 0.5% to Rs910, RNRL was down by 1.3% to Rs35.60, RPL dropped by 1.5% to Rs99.05 and BPCL edged lower by 0.6% to Rs357.
Banking stocks recorded smart gains led by gains in the heavy weight ICICI Bank surged by 1.3% to Rs930, HDFC Bank was up by 0.5% to Rs1153 and SBI added 1.8% to Rs1378. Canara Bank, OBC and PNB were the major gainers among the Mid-Cap stocks.
Capital Good stocks also ended on a firm note. BHEL advanced 1.4% to Rs1418, ABB gained 2.5% to Rs4720, Gammon India advanced by 3.6% to Rs399 and Punj Lloyd added 1.8% to Rs222.
Citigroup in their report on 2 Wheeler Majors say,
Growth Rates Decline — Two-wheeler majors' May sales declined c10%Y/Y – motorcycle sales were significantly lower – down 13%Y/Y, as rising interest rates continued to curb growth. Market leader Hero Honda motorcycle sales also declined 6% Y/Y after positive growth in April 07. Bajaj Auto and TVS' sales degrew ~15% and ~37% respectively.
Rising Interest Rates to Moderate Growth — Interest rates have risen sharply over the last few months (~18-20% IRR at present) and should continue to remain at these levels over the near term. We believe this will moderate volume growth in FY08. BJAT has already guided to c10% volumes growth in FY08E – far lower than its previous guidance of >20%.
HROH market share gains continues — Hero Honda's market share has improved by 495bps in May 07 from Jan 07 which we believe is on back of its success in the entry level segment driven by aggressive promotions and discounts. This segment has little product differentiation (with price being the key driver) hence we don’t think these gains are sustainable.
New Model Launches — Key model launches next fiscal are TVS' relaunch of the Victor in early FY08E), BJAT's launch of a new motorcycle platform in 2QFY08E. These are the most eagerly awaited new product launches for FY08E, and the market response to these will be keenly monitored.
Relative Performance — Over the past month, the sector underperformed the market by 790bps, largely due to strong underperformance of Bajaj Auto on the back of demerger announcement. In relative performance, Hero Honda was the best performer over the month.
Concerns Persist — We believe the two-wheeler segment is witnessing intense competition and a challenging cost environment. We maintain our negative view on
the sector. We reiterate our Sell recommendations on Hero Honda (HROH.BO - Rs717.10; 3L) and TVS Motor (TVSM.BO - Rs69.20; 3M), and Hold rating on Bajaj
Auto (BJAT.BO - Rs2,235.00; 2L).
Citigroup in their Weekly Technical Report advise,
Nifty — The index opened on a positive note towards the opening session of the week. Mid-week it gyrated in a narrow band of 4307-4241. It closed the week on a positive note up 49 points.
Channel — The index from the low of 3617 (2 April 07) is trading in a upwards sloping channel finding support at the lower end and resistance at the upper end of the channel. Channel support for the current week's trading is around 4230.The index maintaning above the lower end of the channel on a closing basis should be considered positive
Momentum oscillators — The momentum oscillators on the daily charts are exhibiting negative divergence (i.e. Index has posted a higher high whereas the oscillators has posted a lower high). RSI (14) – Relative Strength Index, MACD, Stochastic (5, 3) on the daily charts are exhibiting negative divergence .This indicated range-bound trading can be expected during the current week with support around the lower end of the channel around 4230.
Support — The support levels for Nifty during the current week’s trading are around 4263 (10dma) and 4230 (lower end of the channel). Break of support around 4230 will see nifty exhibit intra week volatility and dip down towards 4141 (low of 25 May 2007).
Higher levels — Last week's trading saw index confined in a trading band of 4307 on the upside and 4241 on the downside, a breakout from this trading band (i.e. a close above 4307) can see it move up towards 4373 levels.
Conclusion — Stay focused on upside towards 4373 while prices hold above 4230 (on a closing basis).
HSBC in their report on India Utilities is very bullish on PTC
We see distinct opportunities in India’s deregulated power sector, with growth driven by consumer demand for a cheaper and more efficient power supply and industry players who will make higher margins than in the regulated market, especially those with first mover advantage.
In a country with a severe power shortage, we believe there is a bigger growth story here than the market is factoring in. Our analysis yields a 71% CAGR for deregulated power from FY07-12e and our estimates for companies discussed in this report are 0-40% above consensus. We believe government initiatives to increase competition –
including the ultra mega power policy – will increase deregulated power capacity from just 2.6GW (less than 2% of the country’s total) to 38GW (18%) by FY12e. While regulated plants’ ROE is currently 14%, deregulated plants should average 20-25%. We forecast that merchant power plants – those permitted to sell power to the spot
market – will be the most profitable segment, with expected ROEs of 25%.
PTC India should be a key beneficiary; we estimate net profit CAGR of 42% over FY06-11e and initiate coverage with an Overweight (V) rating and target price of INR99. Tata Power (Overweight), with 77% capacity in the deregulated segment
by FY12, should also gain significantly.
PTC India: market leader in trading Target price: INR99; rating: Overweight (V)
PTC India has a pipeline of 5GW of projects to be developed over the next five years, most of its capacity is in merchant power and it has innovative propositions like tolling (a virtual power plant agreement wherein the company will pay fixed charges to the plant developer, supply fuel and get power in return). We initiate coverage with Overweight (V) and a target price of INR99 (average of DCF fair value of INR114 and sumof- the-parts fair value of INR84/share). It trades at 15.5x FY08e and 12.7x FY09e earnings.
Our forecasts for trading volumes are higher than consensus, as we have factored in fee-based income from its non banking finance company (NBFC). Our EPS forecasts are 13% and 18% above consensus for FY08e and FY09e respectively.
Tata Power: right place, right time Target price: INR732; rating: Overweight Tata Power is likely to have more than 40% of its capacity in the deregulated segment by 2010,
compared to its current capacity of less than 20%.
Target price: INR176; rating: Neutral
NTPC, the biggest player in the power sector, will also benefit from deregulation. However, we think valuations have run up recently and maintain our Neutral rating on the stock. If NTPC wins the Tilaiya or Krishanapatanam ultra mega power projects we think it stands to gain. It trades at 14.3x FY08e and 12.3x FY09e earnings.
We have factored in very high utilisation rates (88%) for coal plants, and so our EPS forecasts for FY08e and FY09e are 20% and 23% above consensus, respectively.
Target price: INR589; rating: Neutral
We think Reliance Energy is a cautious player and has taken a small step towards deregulation. If it wins the Tilaiya project, its earnings could grow above our forecasts. It trades at 12.2x FY08e and 10.7x FY09e earnings. Our forecasts for other income are higher than consensus because we factor in higher interest and foreign exchange income. Our EPS forecasts are 16% and 17% above consensus for FY08e and FY09e, respectively.
Global Statistics Analysis (28-05-07 to 01-06-07):
1) The US & EU Markets:
· US markets bounced back in this week trading on government reports that showed an improving economic outlook. The S&P 500 index moved towards its all time high trading during this period. The closing of US markets were in the range of 1.09% to 1.60% for this week closing whereas for the month of May'07 it's in the positive range of 3% to 4%.
· In EU markets we observed a negative start for the week but by the end of closing session on Friday it has rose to its highest close since Sep 2000, buoyed by a flurry of US data. On the statistics we can observe that it has gained 1% in this week whereas in the month of May'07 it has gained 2.67%.
2) The Asian Markets:
- Nikkei, Hang Seng & Strait Times are showing signs of strong developing markets. They have gained in the range of 0.36% to 2.11% in this week and 1.5% to 4.5% in the month of May'07.
- Taiwan and Korea have gained 1.14% and 3.56% respectively in this week and for the month of May'07 we observe upside at 3.42% and 10.25% respectively for these markets. Further, upward movements can be expected with some global positive cue in these developing countries of Asia.
- Federal Reserve Chairman Greenspan had commented on May 23 that Chinese stocks may undergo a "dramatic contraction" in near future. Well, as we had predicted that China stock market is overvalued and the equity bubble can burst on any negative cues. This is what we saw in this week trading sessions after the government tripled the stamp tax on stock trading to 0.3% from 0.1%. Until today the index had more than doubled this year and its stocks traded at 48 times earnings, almost 3 times the multiple for those in the US Dow Jones Industrial Avg. The statistic chart is showing southwards movement of 6.37% for this week ending and in the month of May it has still sustained positive signs at 7% (approx). We still expect further downtrend in this market. There is speculation surrounding the likelihood that government officials would once again attempt to tighten liquidity through tax measures.
- In India, for the last one month (May) we had a well balanced economic picture; control on inflation, good earnings and economic growth for FY07 has also been reported at 9.4% which is second only to China's about 10%. We don't see many concerns in a short term for the markets to slide down but clearly valuations are stretched and upside from here is very limited. It seems the markets will remain in a consolation phase. The positive trigger from here on to achieve new highs is depended much on monsoons, what happens in China and paradigm shift in the outlook for interest rates in India. Also, in this month market is expecting large amount of inflows from FIIs and investors because there are upcoming IPO's of DLF, ICICI holdings etc. lined up which seems attractive and requires large amount of liquidity for their expansion plans. In this week Nifty & Sensex gained 1% and 1.25% respectively whereas in the month of May gained 5% (approx).
3) Emerging Markets:
- In Bovespa (Brazil) and Bolsa (Mexico) we are observing gains of 2.5% and 1.84% respectively for this week in our statistics. As well as for in the month of May'07 they have managed to gain 7% to 8 % approx. These markets bounced back after correction phase in last week. They seem to be strong emerging markets.
- Russia has shown the sign of uptrend after long correction phase in this week closing. It has gained 2.15% in this week and still seems to be attractive investment destination for FIIs and investors because in the month of May it has corrected by 9% (approx).
- Karachi market is moving upwards slowly and steadily as we can observe on the statistics. It has gained 5% in the month of May'07 and in this week managed to gain 0.8%. It still has the potential to move upwards in coming trading sessions on some positive global cue.
- Crude Oil prices have climbed in this week due to supply concern. At, the end of week it has climbed up by 0.68%.
- Gold and silver are showing positive signs after a correction phase which lasted for 2 weeks (approx). In this week they have gained 2.36% and 5.16% respectively. At the end of May'07 on statistics it seems silver was almost flat whereas gold was down 1.89%.
- Similar, is the case for metals which have shown positive signs after a correction phase. Copper, Aluminum and Zinc have gained in the range of 1.3% to 3.63% (approx) whereas Nickel is still in down by 1%.
- The dollar hit its highest in nearly 4 months against the Japanese Yen in this week.
- Baht, Rouble and Peso currencies are depreciating must faster against a dollar comparing to other major export oriented countries such as India, China, etc. These are not good signs for other major export oriented countries.
- A rupee has broken the Rs40.5 mark in this week trading against a dollar. It seems in near future it will trade in the range of Rs.38 to Rs.40 per dollar. The IT sector has already increased their hedging position due to rupee appreciation which is major a concern for them.
6) Bond Yield:
- US 10 Year treasury notes rose to 4.95%, the highest level in more than 9 months. Higher bond yields make dividends bearing stocks less attractive.
India 10 Year benchmark bonds were flat in the trading.