Saturday, June 16, 2007
Royal Orchid Hotels Ltd (ROHL) on Friday reported a 59.9 per cent increase in net profit at Rs 33.91 crore for the year ended March 31, 2007 and has recommended a 60 per cent dividend for the year.
The company's stand alone profit in 2005-06 stood at Rs 21.2 crore.
Total income during 2006-07 grew 46 per cent to Rs 91.18 crore as against Rs 62.48 crore in the previous fiscal.
The Board of Directors has recommended a dividend of 60 per cent, subject to approval by the shareholders, an ROHL statement said.
The consolidated profit after tax for ROHL is Rs 35.26 crore, a 52.97 per cent rise from the Rs 23.05 crore registered in 2005-06. Total income grew 44 per cent during the year to stand at Rs 124.1 crore as compared to the Rs 85.9 crore recorded in the year ago period.
Q4 review: The March 2007 quarter ended on a weak note for the three frontline IT services firms, TCS, Infosys Technologies and Wipro, as they reported lower growth in sales and profits compared with the previous three quarters.
Satyam Computer, however, did well in both sales and profits growth. It demonstrated good volume growth, offshore shift and attrition control. Increasing attrition plagued the top three IT firms. While Infosys pulled back in the fourth quarter, TCS and Wipro saw an increase in attrition in the financial year.
Trigger: The rupee appreciation in the current quarter is likely to have a severe impact on revenues and profits. The rupee has firmed up by an average of 10 per cent to quote at around 41.30, while the IT majors had calculated the rupee at 42.30-43.50 in their guidance estimates.
Outlook: Infosys has estimated a margin drop up to 50-60 basis points for the first quarter of this financial year, if the rupee were to quote at Rs 43.1 a dollar. Satyam’s guidance talked about flat margins based on Rs 42.3 a dollar, while TCS indicated flat year-on-year margins, with the rupee at 43.5 a dollar.
The rupee’s appreciation has exceeded the projections by around 4.2 per cent in case of Infosys, 5.05 per cent for TCS and 2.40 per cent for Satyam. The software majors are thus expected to post a decline in the Q1 margins.
According to a CLSA report, every one-rupee appreciation would knock off 35-40 basis points from the operating margins and 1.6 per cent from the earnings of software majors. With the rupee currently quoting at $41, CLSA has projected a decline in the operating margins by 150-230 basis points in the first quarter of 2008. To reduce the impact of the strengthening rupee, the top IT companies have increased their forex cover.
TCS has increased its forex cover across vendors by $1,500 million, Infosys upped it by $1,000 million, HCL Technologies $900 million and Wipro and Satyam Computer by $600 million each. The increase in forex covers would help the companies to arrest the decline in margins in case the rupee appreciates further
Announces 50% cut in prepaid monthly recharge.
Vodafone-Essar, India’s fourth largest mobile service provider, is looking to add over 1.5 million subscribers a month in this financial year or 18 million new customers in a year, Vodafone CEO Arun Sarin told reporters today.
Simultaneously, the company announced a 50 per cent reduction in the minimum monthly recharge required for a prepaid customer to Rs 99 from the earlier Rs 199 effective June 16, 2007.
This is the mobile service provider’s first board meeting since Vodafone acquired a 67 per cent stake in the company, formerly called Hutchison-Essar, from Hong Kong-based Hutchison Whampoa earlier this year.
To support the move, which marks a strategic shift from its focus on revenue per customer to the mass market, the board has approved doubling investment for the current year to $2 billion.
To gain consumers and market share, Sarin said the company would also introduce low-cost handsets.
The company’s new monthly target, which would translate into 65 per cent growth in subscriber numbers, is larger than last year’s 1-1.2 million. The company has over 28 million subscribers and operations in all 23 telecom circles in the country.
The target would also be the same as India’s leading GSM operator, Bharti Airtel’s, a former Vodafone partner. The Sunil Mittal-owned company has over 40 million subscribers in the 23 circles.
On the integration of Vodafone with Hutchison-Essar, Sarin said, “Whether it is on the network, marketing or human side, the integration is going on smoothly.”
Vodafone-Essar MD Asim Ghosh said the formal integration would take place by the end of September, and after that it would be an ongoing process.
On the constitution of the board, Sarin said there would be 12 members on it, with eight from Vodafone and four from Hutch. Ravi Ruia is the chairman of the new company, with Arun Sarin as vice-chairman and Asim Ghosh as managing director.
There will be two independent directors, Analjit Singh, who owns a stake in the company, and C R Dua. Prashant Ruia, Anshuman Ruia, Vittorio Colao and Vikash Saraf will be board directors representing Essar. Paul Donovan, Gavin Darby and Robert Barr will represent Vodafone.
Reiterating an issue he had raised earlier, Sarin said the company was looking at infrastructure-sharing in the country and was in talks with other mobile firms.
“Infrastructure sharing is the best possible way to reach the 1.1 billion people living in India. We are setting up a platform with whoever wants to join us, so that we can build our network in India in a cost-effective way,” he said.
Cinema chain operator Pyramid Saimira Theatre Ltd. expects about 250 million rupees in cash profit from the first-month screening of the much-awaited Tamil film 'Sivaji' in India, a top official said.
The Tamil language movie, which opened on Friday, stars southern Indian superstar Rajnikanth, 57, and comes with a dubbed version in Telugu language.
Pyramid is distributing the movie in southern India and Malaysia, besides exhibiting it across 678,000 seats a day, Managing Director P.S. Saminathan told Reuters over the phone.
"Going by the response of the audience and the advanced booking, this might run for 100 days also," he said earlier on television.
Saminathan said he expected a revenue of 500 million rupees from screening the movie in India and another 150 million rupees from Malaysia, where it has been booked for three weeks.
The company has invested about 260 million rupees into this film.
Company Name Net Sales (2008) in $ billion (conversion rate Rs.40.90 per dollar)
Indian Oil Corporation Ltd 52.53
Reliance Industries Ltd 25.76
Bharat Petroleum Corp Ltd 23.85
Hindustan Petroleum Corp Ltd 21.95
State Bank of India 9.73
Steel Authority of India Ltd 8.63
NTPC Ltd 8.04
Mangalore Refinery & Petrochemicals Ltd 7.04
Tata Motors Ltd 6.79
Chennai Petroleum Corp Ltd 6.07
MMTC Ltd 5.72
ICICI Bank Ltd 5.67
Hindalco Industries Ltd 4.51
Bharti Airtel Ltd 4.39
Larsen & Toubro Ltd 4.33
Tata Steel Ltd 4.33
Bharat Heavy Electricals Ltd 4.25
GAIL (India) Ltd 3.96
Tata Consultancy Services Ltd 3.68
Maruti Udyog Ltd 3.61
State Trading Corp of India Ltd 3.53
Wipro Ltd 3.37
Infosys Technologies Ltd 3.24
ITC Ltd 3.05
Hindustan Lever Ltd** 2.98
Sterlite Industries (India) Ltd 2.91
Reliance Communication Ltd 2.89
Punjab National Bank 2.84
Canara Bank 2.80
Adani Enterprises Ltd 2.50
Mahindra & Mahindra Ltd 2.48
Hero Honda Motors Ltd 2.44
Bajaj Auto Ltd 2.35
Bank of Baroda 2.27
Bank of India 2.26
Grasim Industries Ltd 2.14
JSW Steel Ltd 2.12
Hindustan Zinc Ltd 2.11
Ruchi Soya Industries Ltd 2.11
Videocon Industries Ltd*** 1.87
Ispat Industries Ltd 1.85
Union Bank of India 1.82
Ashok Leyland Ltd 1.77
HDFC Bank Ltd 1.70
Industrial Development Bank of India Ltd 1.56
Ambuja Cements Ltd** 1.55
Central Bank of India 1.54
Satyam Computer Services Ltd 1.54
Syndicate Bank 1.49
National Aluminium Co Ltd 1.46
Housing Development Finance Corporation Ltd 1.45
Indian Overseas Bank 1.44
Bongaigaon Refinery & Petrochemicals Ltd 1.43
ACC Ltd** 1.41
Reliance Energy Ltd 1.40
Petronet LNG Ltd 1.36
Suzlon Energy Ltd 1.33
UCO Bank 1.31
Oriental Bank of Commerce 1.27
Mahanagar Telephone Nigam Ltd 1.21
UltraTech Cement Ltd 1.21
Allahabad Bank 1.20
Jindal Stainless Ltd 1.20
Tata Power Company Ltd 1.16
Redington India Ltd 1.16
National Bank for Agriculture & Rural Development 1.15
UTI Bank Ltd 1.12
Siemens Ltd*** 1.11
Indian Bank 1.06
ABB Ltd** 1.05
National Mineral Development Corporation Ltd 1.03
* For manufacturing & service companies, net sales considered as revenue.For commercial banks, net interest income is considered as revenue.
** Firms’ financial year ending December 2006
*** Firms’ financial year ending September 2006
# For the nine months ended December 2006, ONGC’s sales were $9.75 billion. It has not yet announced its financial results for the full year. In 2005-06, the firm had recorded sales of $10.74 billion.
ICICI Bank's Rs 8,750 crore follow-on public offer's (FPO) price band has been fixed at Rs 885-950 per share. The FPO comes with a green shoe option of Rs 1,312.5 crore.
The issue, which will take the book building route, will open on June 19 and close on June 22.
Dispatches grow by 11% yoy in May 2007
The industry dispatches grew by 11% year on year (yoy) to 14.2 million tonne in May. Among the major players, the volumes of ACC jumped by a massive 19.2% yoy to 1.8 million metric tonne (MMT) boosted by the capacity expansion at Lakheri. Ambuja Cements and the AV Birla group witnessed a marginal volume growth of 2.7% yoy and 4.8% yoy to 1.5MMT and 2.7MMT respectively, as they did not witness any capacity additions. Among the mid-cap cement companies, Shree Cement's volumes jumped by 20.2% yoy fuelled by its third unit at Ras whereas Madras Cement's volumes grew by 15% yoy to 0.45MMT on account of a lower base in the same month last year. JK Cement's volumes declined yoy in both April and May on account of routine maintenance shutdown of its grinding mill at Nimbahera.
Lakshmi Machine Works
Growing at a rapid pace
Lakshmi Machine Works (LMW) is a leading textile machinery manufacturer in India with presence in machine tools and foundry businesses. The company is a major player in the textile machinery space and has about 50% of the domestic market share. The machine tools division makes the CNC machine tools and is a brand leader for customised products while the foundry division makes precision casting.
Though the company has presence in three sectors but the revenues from its textile machinery segment, which contributed 89% of the total revenues in FY2007, dominate its top line. LMW is known for its quality and all its divisions are ISO 9000 certified.
Sharekhan Investor's Eye dated June 15, 2007
That’s the storyline that threatens to unravel if US bond yields rise and the US consumer wilts, so it’s no wonder that stocks across the world tumble whenever there’s an interest rate scare.
Six companies now largely control India's telecom market, which is growing the fastest in the world. But even as valuations rise, ARPUs are dropping. Will this, and other issues like limited spectrum, bring values back to terra firma?
In mid-2005, Rajeev Chandrasekhar sold BPL Communications to Essar Teleholdings for Rs 4,400 crore, and signalled the dawn of the billion-dollar M&A era in the Indian telecom space. His operations, spread across four circles, including the lucrative Mumbai circle, then had a subscriber base of 2.63 million. This was only the beginning. More such deals followed. In October 2005, Vodafone picked up a 10 per cent stake in Bharti Airtel for $1.5 billion (then Rs 6,750 crore); then, in December 2005, Maxis Communications of Malaysia and the Reddys of Apollo Hospitals bought out C. Sivasankaran's 100 per cent stake in Aircel for $1.08 billion (then Rs 4,860 crore); and in April 2006, the Aditya Birla Group acquired the Tata Group's 48.14 per cent holding in Idea Cellular for Rs 4,406 crore. The mother of all telecom deals in India, of course, was Vodafone's 52 per cent buyout of Hutchison Essar for $10.9-billion (Rs 44,690 crore) last year, that valued the company at $21 billion (Rs 86,100 crore). It's almost as if the law of gravity had been put in suspended animation-what went up could only go higher in the Indian telecom space, it seemed.
There were (and are) sound economic reasons for the exponential growth in the valuations of Indian telcos. "Two years ago, one couldn't have anticipated a monthly subscriber growth of six million new additions," says Rajeev Gupta, Managing Director and Head of the Carlyle India Buyout Team. Then, India's wireless subscriber base of 167 million at the end of April 2007 translates to a penetration level of less than 16 per cent. For China, a comparable market, the figure has already crossed 400 million, a penetration of 35 per cent.
Clearly, then, the Indian market has massive headroom to grow. It is this potential that excites global giants like Vodafone and others that now view India as a long-term play. The natural corollary: they are willing to pay high premiums to grab a slice of this pie. "India is a compelling telecom story; no wonder all serious players want to be a part of it," says Manisha Girotra, Managing Director and Chairperson (India), UBS Securities. Her firm represented Vodafone in its buyout of Hutch-Essar.
Many Buyers, Few Sellers
A decade ago, there were a large number of players to choose from. Today, following several rounds of consolidation-which saw the exit of players like JTM, RPG, Usha Martin, Skycell and Telstra-there are five large private operators, Bharti Airtel, Reliance Communications, Hutchison Essar, Tata Teleservices and Idea and the public sector bsnl that have largely carved out the market among themselves. The implication: buyers who want to enter the Indian telecom sector at this stage have to buy a large operator; this will naturally involve the payment of a hefty control premium. The Vodafone-Hutch deal is a case in point. "Valuations are about projections of future cash flows discounted to their present value. Earlier, the subscriber base was the key determinant of valuation since EBITDA figures of most players were largely in the negative," says Sanjeev Aga, Managing Director, Idea Cellular. Today, the EBITDA margin is the key indicator of valuation; going forward, earnings multiples, and not EBITDA margins, are likely to emerge as the key to valuing telcos. "EPS will become important when current exponential growth rates and the high levels of CAPEX slow down to more normal levels. Today, we are still in the investment mode," he adds.
To put the issue in perspective, AT&T last year acquired BellSouth (both us-based) for $67 billion (Rs 3,01,500 crore). A few months before that, Spain's Telefonica agreed to acquire UK's O2 for just over $31 billion (Rs 1,39,500 crore). BellSouth had 54 million customers spread across wireless voice and data services and earned a net profit of $3.3 billion (Rs 14,850 crore) last year. o2 had a pre-tax profit of $614 million (Rs 2,763 crore) at the time of the acquisition and 27 million customers globally. This means, that on a like-to-like basis (profits to enterprise value), Vodafone's acquisition of Hutchison Essar is between two and four times more expensive than these deals.
Ironically, the era of high valuations and steroid-charged growth in subscriber numbers comes at a time when Average Revenue Per User (ARPU), a key metric in the telecom industry, has been falling. According to data released by the Cellular Operators Association of India (COAI), the apex body of GSM operators, the national ARPU for the October-December 2006 quarter was Rs 315.93 compared to Rs 335.46 for the July-September quarter of 2006. Interestingly, every player in the market has been hit by this phenomenon (See ARPUs Are Headed South).
There have been a few indicators to suggest that there could be a slowdown in subscriber growth. For instance, BSNL added 0.32 million subscribers in April this year compared to 1.98 million in March, an 83 per cent fall in growth rate.
But this doesn't seem to have had any adverse effect on the companies. The Bharti Airtel share price has appreciated 126 per cent over the last year from Rs 370.15 to Rs 836, valuing the company at Rs 1,58,322 crore as on May 24, 2007, while Reliance Communications has seen its scrip rise 83 per cent from Rs 269.95 to Rs 493.75 over this period, giving it a market capitalisation of Rs 1,00,952 crore as on May 24, 2007. The latter, in fact, recently joined the exclusive club of seven Indian companies with M-caps in excess of Rs 1,00,000 crore. The Aditya Birla Group, meanwhile, has sold a 33 per cent stake in Idea Cellular to a clutch of investors for $833 million (Rs 3,415.3 crore), giving it an equity valuation of $2.5 billion (Rs 10,250 crore), while Temasek's decision to pick up a 9.9 per cent stake in Tata Teleservices for $300 million valued it at $3.03 billion (Rs 12,423 crore).
How Stretched Are Valuations?
Rajeev Chandrasekhar, who was Chairman of BPL Communications before its sale to Essar Teleholdings, thinks the valuations are fully justified. "Till 2001, telecom was considered a part of infrastructure; but today, it is seen as a consumer business. Valuations depend on demand and supply, and India is the most exciting telecom market in the world," he says
Analysts say that valuations will be sustained at current levels, though they do not expect to go up much further. "We estimate that the sector will see CAPEX of $22 billion (Rs 90,200 crore) over the next three years against the $13 billion (Rs 53,300 crore) it has witnessed since 1995," says Subhabrata Majumder, Telecom Analyst at Macquarie Securities, a financial services firm. This will be driven by the existing Big 5 private players and also by the national ambitions of regional players like Spice Telecom, which has a presence in the Karnataka and Punjab circles. "We are looking to spread our presence to 21 more circles. This will increase our valuation from $1 billion (Rs 4,100 crore) today to $20 billion (Rs 82,000 crore)," says B.K. Modi, the company's Chairman.
Then, analysts also foresee the probability of more M&A activity in the sector, as more global players seek to enter the market. Says Carlyle's Gupta: "The multiples in the sector seem to have peaked. And while the ownership pattern in individual companies may change, there may not be a change in the number of players."
Players, for their part, will need to offer more value-added services and with the expected launch of 3g services soon, some big-ticket investments will be made. Assuming that these investments will take time to pay back, there is a good chance that valuations will be affected.
Analysts also feel that the contrarian trends-of falling ARPUs and rising valuations, both driven, ironically, by rising subscriber numbers-will play out simultaneously, and the occasional big-ticket deal will create periodical spikes in valuation, and add excitement to the market. Clearly, the valuation story for Telecom India could not have got more interesting.
» Anil Ambani: He has been extremely keen on a GSM footprint and is waiting for spectrum to come his way. Expected to bid aggressively if any company becomes available for sale
» Vodafone: Following the buyout of Hutch-Essar, it could look to acquire the 15 per cent stake held by Asim Ghosh, Analjit Singh and IDFC
» European players: Telenor, Telefonica and Deutsche Telekom are known to be keen on getting a slice of the India market
» Telekom Malaysia: It currently holds a 49 per cent stake in Spice which it bought for $178 million and may look to increase this holding
» Tata Teleservices: It is more than likely that the company could get in another investor after Temasek and Sterling Infotech which hold 15 per cent in the company
» BPL Mobile: This Mumbai operation is being run by Essar and there is more than a good chance of the Ruias selling out if the price is right
» Idea Cellular: UBS said in a recent report that Idea was a possible candidate for acquisition
» Essar: The group's 33 per cent holding in Hutch-Essar is worth about $6 billion and there is every chance that the group may dilute its holding in future
The Indian stock market was largely influenced by global cues this week--interest rate concerns, liquidity constraints, and rising inflation. Adding to this, were the slew of domestic public offerings.
Bombay Stock Exchanges' Sensex gained 0.7% over the week to close at 14163 on Friday. National Stock Exchange’s Nifty rose 0.6% week on week.
Capital goods shares saw good amount of buying interest and the BSE Capital Goods Index ended 2.9% higher over the week. BSE Metals Index also put up a good show and gained 2.5%. But autos witnessed selling pressure and the BSE Auto Index lost 0.6% week on week.
Asian equities continued their upward momentum on Monday and Tuesday on the back of Wall Street gains. But they came under a cloud as bond yields soared to a five-year high in the US on rate worries. But as the concerns eased, Japan’s Nikkei and South Korea’s KOSPI scaled new highs. Friday, Bank of Japan decided to leave interest rates unchanged at 0.5%.
Back home, the week kicked off with investor expectation high from the 17.5-crore share DLF issue. Vishal Retail’s 47 lakh share, which also opened Monday, seemed ill-timed. But it was subscribed 69 times as it closed Wednesday.
In comparison, the DLF float was subscribed 3.5 times, but retail portion just 1.05 times. Analysts said the high price band of Rs 500-550 made retail investors shy away.
The Roman Tarmat issue, which opened on Tuesday closes on June 19, has not been as lucky as Vishal Retail and has evoked a lukewarm response.
Next week, investors will again ready themselves for the Rs 20,000 crore follow-on issue from ICICI Bank which opens Tuesday. The domestic issue is for Rs 8,750 crore, with a greenshoe option of Rs 1,312.5 crore. The bank also plans an American depositary share issue of Rs 10,100 crore. Both the ADS and domestic issues will run simultaneously.
Market watchers feel ICICI will receive more retail participation. The price band for the issue will be fixed Monday. It closes June 22.
Such a huge strain on liquidity will play on the secondary market, even as global happenings during the weekend give fresh cues.
“Till the Nifty spot decisively crosses 4200 and provided the cost of carry in derivatives stabilises at 10%, the gyrations in the market will continue,” said Amit Hiremath, analyst at IDBI Capital Market Services.
The indices turned tail in the latter half of the session as per expectations that I advocated yesterday.
The weekend nervousness was apparent as the traders were unwilling to rollover positions initiated at lower levels. That exposes the weakness in the underbelly of the prevailing sentiments in the market. Traded volumes were in line with the previous session as the traders refused to enhance commitments.
The market breadth was marginally positive as the BSE & NSE combined figures were at 1837 : 1729. The capitalisation of the market breadth was also positive as the combined exchange figures stood at Rs 7082 cr : Rs 5397 cr.
The F&O data for the previous session indicated a marginal increase in the PCR and fresh net long positions being created.
The indices have closed at the lower end of the intraday range and that too on steady volumes. The fall may be attributed to the weekend blues that professional day traders suffer from.
The 4208 resistance specified for Friday held as the Nifty retraced from the 4209 top, and the closing was lower than the opening levels, indicating a key reversal on the daily charts.
The bulls will retain charge of the sentiments only when the intraday high of 4209 is overcome with higher commitment from bullish traders. Watch the traded volumes / open interest / implied volatility along with the prices in the coming days.
The outlook for the markets on Monday is that guarded optimism as the bulls are still to show the fire power needed to overcome the combined forces of bear selling and gravity to take markets higher. Till the overhead supply exists, desist from bulge bracket purchases.