Sunday, July 25, 2010
Iron ore major Sesa Goa appears to be a risky play in the metals space considering the uncertain outlook on iron ore realisations and demand from the export market. The company's reliance on the Chinese market, where iron ore prices and volumes are showing fatigue after a 20-month period of buoyant demand, makes its near-term prospects uncertain. While the company's generous profit margins and financial strength are attractive, its consumers led by the Chinese are likely to make the company's realisations quite volatile. The company, which trades at Rs.364 or 8.6 times trailing 12-month earnings, is at a discount to domestic peer NMDC, which trades at 29 times FY10 earnings and international peers such as Rio Tinto, BHP Billton and Vale, which trade between 16 and 20 times. With the base effect wearing off and China cutting back on stimulus efforts, the company has a difficult 2010-11 to contend with.
Investors with an appetite for risk can consider investing in the stock of Hitachi Home & Life Solutions (India) at the current price of Rs 337. The stock, though at a high now, offers scope for gains in the medium term given the pace at which the demand for air-conditioners is growing and the company's foothold in the premium air-conditioning market.
The markets continued to march upwards for the third straight week. Healthy corporate earnings and steady inflows from foreign institutional investors (FIIs) boosted sentiment. However, global events have kept a check on the upside so far. As a result of this, the Sensex has gained 670 points in the last three weeks.
Sales at the biennial Farnborough trade fair in the UK could not quite match the record levels of 2008, when almost 70 billion euros changed hands, but they were still a massive improvement on 2009's post-financial crisis air show at Le Bourget, near Paris, when sales totaled a meager 5.4 billion euros.
Airbus did a roaring trade at the Farnborough International Airshow. The Franco-German company Airbus was positively bullish after selling 130 planes and securing pledges for the future purchase of a further 122. "The recession is definitively over," Airbus sales chief Tom Leahy said. "Liquidity is back in the market, traffic is back in the market and GDP growth is back." Airbus revised its sales estimates for 2010 upwards, saying that it expects to sell north of 400 planes.
Airbus bagged an order from Virgin Atlantic to purchase 40 Airbus A320 jets for Virgin America with the option to add another 20, in a deal worth at least 2.3 billion euros ($3 billion). Airbus said the deals it has either sealed or set up at the British air show will eventually be worth almost 22 billion euros, and that it is considering further increases in production of its smaller, single-aisle A320 family to cope with rising demand.
Meanwhile, Boeing flew in its new 787 Dreamliner for its debut appearance outside the US. The 787 is Boeing's answer to the Airbus A380 superjumbo. Boeing reported 103 new orders worth roughly 8 billion euros at the trade fair.
Unusually uncertain - that is how Federal Reserve Chairman Ben S. Bernanke sees the prospects for the US economy. His guarded view of the world’s largest economy sent US stocks into a bit of a tizzy but Wall Street managed bounced back the next day. The Fed chief also said that the central bank is willing to do more to shore up growth. But he did not elaborate further on what actions the Fed might take should the economic recovery starts losing steam. The markets seemed disappointed that Bernanke did not offer any specifics about a contingency plan for additional stimulus measures if there is another dip in the US economic growth.
Nikhil Gandhi-controlled SKIL Infrastructure, promoter of Pipavav Shipyard, entered into an agreement to acquire 40 lakh convertible debentures, which when converted, will represent 20.28% stake in Everonn Education. SKIL also made an open offer to acquire an additional 20% stake in Everonn Education at Rs 536.16 a share. SKIL will acquire 3.9 lakh shares in the Chennai-based education services provider, at Rs536.16 a piece, aggregating to over Rs2.11bn, Everonn Education said in a public announcement. The public offer will open on September 9 and closes on September 28. But, the open offer may not succeed as it is made at a discount to the current market prices. SKIL will buy a combination of OCDs and equity shares from the open offer in such a manner that its holding in Everonn stays at 21%. Everonn’s promoter and managing director P. Kishore will hold a 22% stake in the company, post the open offer, against his current stake of 26%.
The Telecom Regulatory Authority of India (TRAI) issued its tariff order for 2010, for digital addressable systems such as DTH and IPTV and insisted that customers must be given free choice of pay channels. DTH and IPTV providers will have to allow consumers to choose and pay for only those channels they want to watch, besides a minimum monthly fee of Rs150. The regulator restrained itself from fixing tariffs for individual channels, although it reduced the maximum amount broadcasters can charge DTH, IPTV and digital cable providers for channels. The change must be made by September and the final deadline will be January 2011 if operators needed extra time for technical upgrade.
A SEBI panel on takeover rules recommended a complete rewrite of regulations. The recommendations include raising the public offer trigger to 25%, from 15%; obligation on any acquirer to buy out all minority shareholders instead of just 20%; introducing the ability to control concept; doing away with non-compete fees, and improving the definition of indirect control of companies. The market regulator can exempt buyers from offers based on conditions that have been laid out. C. Achuthan, former presiding officer at the Securities Appellate Tribunal (SAT), submitted the report to SEBI chairman CB Bhave.
Indian rupee rose for a third consecutive session on Friday amid optimism that strong economic growth and a rising local stock market will continue to attract overseas capital inflows. Other Asian currencies, barring the yen, gained against the dollar amid growing risk tolerance. But, the euro edged slightly lower against the dollar ahead of the announcement of the stress test results for 90-odd European banks. The partially convertible rupee ended at Rs46.9450 per dollar, after touching an intraday high of Rs46.8950. It had closed at Rs47.1250/1350 on Thursday. It touched Rs47.3850 on July 20, the weakest level since June 7.
Another sideways-to-rangebound week has gone by, though the main indices did manage to surpass key barriers. Our market was relatively quiet even as global markets witnessed lot of action. Economic reports coming out of Europe were the biggest positive surprise. Global earnings held up pretty well, but a few of them did miss the estimates. Back home, results were mostly in line with expectations and there has not been any major nasty surprise. The earnings outlook for the Indian companies remains bright in line with the prospects for the Indian economy. The PM's Economic Advisory Council has set a target of 8.5% and 9% for the next two years.
India's gross domestic product (GDP) is expected to grow by 8.5% in FY11 (April to March 2010-11), said Dr. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council (EAC). He went on to add that India's Agriculture growth in FY11 is projected to be 4.5%, while Industry is estimated to expand by 9.7% and Services by 8.9%. The GDP growth in FY12 will rise slightly to 9%, Rangarajan said today. Agriculture growth in FY12 is estimated to be 4%, while Industry is forecast to grow by 10.3% and Services by 9.8%, he said.