February, 2007 | Dalal Street

Mutual Funds Review

Buy Paper Gold through Mutual Funds

February 3, 20071 min read

Gone are the days when women would love to be in Gold Shell. I do agree that Gold is a conservative investment option and you need to have small part of your assets in Gold. No more need to BUY expensive lockers to preserve the same. BUY Benchmark Asset Managements Gold Fund – Units. Yes as simple as that. Benchmark fund invests in physical gold through HDFC Bank [custodian of your Gold] and you are the owner of the same.

Gold Benchmark Exchange Traded Scheme (Gold BeES) offers investors an innovative, cost-efficient and secure way to access the gold market. Gold BeES is intended to offer investors a means of participating in the gold bullion market without taking physical delivery of gold, and to buy and sell on National Stock Exchange (NSE).

For Offer Details Kindly refer the document here. [PDF]

Benchmark Asset Management company is the same company that introduced award winning Nifty BeES the first exchange traded fund for which they won the Golden Peacock Award.

My sources in Mumbai have confirmed that after this year’s budget, Real Estate Mutual Funds will also come into existence so that everybody can ride the Indian real estate boom.

Equity Research

Merill Lynch Upgrades Satyam and Infotech Enterprises

February 3, 20072 min read

DSP Merill Lynch has upgraded Satyam Computer Services Ltd to a BUY rating with a price target of Rs 575. Though Satyam missed the 3Q Rupee revenue and profit guidance due to forex losses, margin improvement was ahead of expectation. DSPML raises FY08 and FY09 EPS estimates by 5 and 10% to Rs 25.52 and Rs 31.60 and price target by 15% on roll-forward of forecasts.

While Satyam met its USD revenue guidance, a steep Rupee appreciation and relatively lower hedging than peers resulted in a 3Q revenue and EPS guidance (before Restricted Stock Unit charge) by ~0.5% and ~3.7%.

20 to 25% PE discount to Infy may continue
Satyam’s 20 to 25% PE discount to Infosys may sustain given lower visibility to earnings, as reflected in the revenue and profit miss this quarter and lower forecast earnings growth of ~23% CAGR vs 30% for Infosys and TCS.

Infotech Enterprises Ltd:
Based on a robust operating performance in Q3FY07 and sustainable EBITDA margin expansion, DSPML has revised Infotech’s FY08 and FY09 earnings estimates upwards by 10 and 9% respectively to Rs 24.9 and Rs 30.95 . Based on this they have set a target price of Rs400 (17% potential upside from current levels) at a target PE of 16x FY08E and at a target PEG of 0.5 for FY08E to FY07-09E growth.

EBITDA margin expanded by 100bps driven by utilization (150bps impact). Given room for further improvement in utilization, increasing proportion of EMI revenue and scale benefits we believe these improvements are sustainable. GSD growth picked up (grew 9% qoq) ahead of our expectations, post two flat quarters driven by strong order intake of GBP6mn in Europe, ramp-up in clients like Swisscom, and growth in US operations. EMI grew by a robust 9% qoq driven by a ramp up in existing clients like Bombardier and Alstom.

India IPO Reviews and Updates

Power Finance Corporation – Review and Recommendation

February 2, 20072 min read

Power is the most essential element to run any industry. The situation of Power is pathetic in India. Their is acute shortage of power and with Central Government’s aim to provide Power for all by 2012, their is a lot of investment needed on this front.

Background:
Power Finance Corporation [PFC] is a PSU undertaking promoted by Govt of India to finance mega power projects. PFC offers a range of financial products and fee-based advisory services to infrastructure projects in the power sector. PFC intends to diversify its borrowers profile by including companies from different sectors such as – coal, lignite, oil and gas, wind power and non-conventional energy.

PFC – Silver Lining:
PFC has less than 1 percent non-performing loans. Most of its borrowers are PSUs NTPC, NHPC and state boards. All of its loans are secured by various guarantees and the company has been profitable for the past 5 years. PFC is highly under leveraged with a long term debt-equity of 4-5 times as against an industry average of 10 times which leaves with lot of headroom for improving return on equity.

PFC – Risks:
Top 10 borrowers account for more than 50% of PFCs business. Net interest margins are under pressure and have been declining, from 4.5% [2006] to 3.4% [2007]. Since all of its lending is restricted to power & energy sector, poses some risk.

Power Finance Corp – The IPO:
Fully Diluted Equity – 114.79 crore equity shares of Rs 10 each.
Share available for Retailers: 40,185,845 = Rs 341 Crore
Price Range – Rs73 to Rs 85

PFC Financials:
PFC reported a PAT of Rs 401 crore for the first half of FY2006-07. Annualising the same, PFC would report a PAT of Rs 800 crore a decline by Rs175 crore over its previous year. However on fully diluted Equity, PFC is expected to report an EPS of Rs 7.0 for FY2006-07 and growth in EPS is uncertain until more details about the company are made available. At EPS of 7, the IPO is priced at P/E of 10.4 and 12 for Fy2006-07.

Recommendation:
I would be comfortable if the IPO is priced at Rs 73 leaving something for short-term investors. It may list around Rs 100 but is a good long term bet when global financial institutions come fishing for financial companies with good loan portfolio.

India IPO Reviews and Updates

Global Broadcast News – Allotment Details

February 2, 20071 min read

Global Broadcast News Allotment Status is avaliable here. Basis of allotment has been lottery in all the categories of retail. The number of shares alloted in all the category of retail is 25 depending on the ratio. For instance 37 applicants of 102 have been alloted 25 shares in the 400 shares category.

Economy, Markets and Macro Views

ACC buoyant on FY-2006 outcome

February 1, 20072 min read

ACC posted 106.66% surge in net profit to Rs 358.46 crore for the quarter ended December 2006, whereas the same was Rs 173.45 crore for the quarter ended December 2005. Total income rose 52.46% to Rs 1677.94 crore (Rs 1100.51 crore).

For the year ended December 2006, ACC posted a net profit of Rs 1231.84 crore compared to Rs 709.70 crore for the year ended December 2005. Total income increased to Rs 5934.96 crore (Rs 4445.68 crore). The board of directors of the company recommended a dividend at the rate of Rs 15 per share for year 2006.

The results for the year ended December 2006 include figures of Tarmac (India), which was merged with ACC in January 2006. The current quarter’s and year ended December 2006 figures are not comparable with the corresponding quarter of the previous year and year 2005 figures. The operation of Tarmac (P) resulted in a profit of Rs 4 crore during the current year as compared to the Rs 1.23 crore loss during the corresponding period of the previous year (not included in these results).

On a consolidated basis, the group posted a profit of Rs 1239.60 crore for the year ended December 2006, whereas the same was at Rs 695.97 crore for the year to December 2005. Total income for the same period was Rs 5974.39 crore (Rs 4672.03 crore).

ACC is expanding capacity at its Wadi plant, Karnataka, by three million tonnes a year, at Rs 1,480 crore. Apart from the new Wadi plant, ACC is gearing up to capture the boom in the cement industry by increasing capacity by 2.9 million tonnes per annum in Gagal (Himachal Pradesh), Lakheri (Rajasthan) and Bargarh (Orissa). ACC also plans to expand by 2 million tonnes per annum every year through internal accruals, if the demand-supply gap widens.

Holcim, along with Gujarat Ambuja Cements (GACL), hold 35.15% stake in ACC as of December 2006.

Economy, Markets and Macro Views

Reliance Energy sizzles as Haryana, UP offer power projects

February 1, 20072 min read

In what may be the single largest engineering, procurement and construction (EPC) contract, the Haryana Power Generation Corporation has asked Relience Energy to set up a 2×600 Mw coal-based power project on a turnkey basis for Rs 3763 crore. The project will be financed in a debt:equity ratio of 80:20, with 20% of the contribution coming from the state government.The project will be implemented in a schedule of 35 – 38 months.

REL has also bagged the ‘balance of plant package’ from Uttar Pradesh Rajya Vidyut Utpadan Nigam for the 2×250 Mw extension units 5 & 6 of the Parichha Thermal Power Station, Jhansi. The value of the order is Rs 395 crore. The order for the main plant, which consists of boiler turbo-generator and civil works, was earlier awarded to Bhel.

As many as 90,645 shares changed hands in the counter on BSE. The stock had advanced ahead of this announcement; from Rs 502.10 on 25 January to Rs 513.60 by 31 January.

In late-2006, Reliance Energy, along with its consortium, recently signed a contract with the Ministry of Petroleum and Natural Gas (MoPNG) for exploration and production of four coal-bed methane (CBM) blocks – two in Rajasthan, one in Andhra Pradesh and one in Madhya Pradesh.

REL will be responsible for utilising the coal from the four blocks for power-generation. REL has major expansion plans in the power-generation segment. The company is planning a 4,000 Mw gas-based plant in Maharashtra. The company may bid for two ultra-mega projects, which have been launched by the Government of India, at Mundra and Sasan.

REL posted 22.10% growth in net profit to Rs 201.03 crore for Q3 December 2006, against Rs 164.64 crore in the corresponding period of the previous fiscal. Total income in the quarter rose 60% to Rs 1,820.34 crore (Rs 1,137.63 crore).

During the quarter, REL purchased the balance equity shares of BSES Kerala Power (BKPL) making it a wholly-owned subsidiary of the company. The company also acquired 100% shareholding in Reliance Aworld, Reliance Infrastructure Projects and Reliance Infrastructure Services. REL also purchased 51% shareholding in Reliance Energy Transmission. Consequently, all these companies have also become REL’s subsidiaries.

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