India not an Emerging Market Favorite – UBS

UBS Equity research is underweight on the prospects of Indian market compared to others globally. It has rated India at position 15 amongst 16 countries.
Rank of India across various parameters in the UBS Report are as follows, [1=Highest Score, 16=Lowest Score]

  • Country Risk Rank – 15
  • Economic Rank – 16
  • Political Rank – 9
  • Budget Deficit – 15
  • Current Account – 13
  • Tariffs – 16
  • Currency – 13
  • Inflation – 14
  • Sovereign Credit Rating – 14
  • Economic Rank – 16
  • Contract enforcement – 16
  • Investor protection – 4
  • Liquidity – 5
  • Size of Government – 3
  • Corruption – 11
  • Reforms – 9

The sectors UBS is globally looking for are Banking, Telecom and Consumer Services and Goods.

Target Price of Reliance Capital Raised – Merill

Merill Lynch has raised the stock target price of Reliance Capital [R-Cap] to Rs 1850. R-Cap is expanding its distribution at a very rapid pace which could result in growth, ahead of Merill’s estimates, remaining very strong through FY10 and possibly beyond. Based on FY10E sum of parts valuation, a value of Rs 2033/share, the target price for Mar’09 (18 months from now), a 36% upside. Hence, 12 month PO is Rs 1850.

By Dec’08, it is likely to have 10,000 touch points in retail in 1 year (v/s 4,000 now), 5,000 locations (v/s 700), 300,000 agents in life insurance (and 400 cities) and +1500 dealers.

  • Consumer loan book [Housing, Auto, Personal etc] to expand 10-fold to US$4.1bn by FY10, delivering ROE of +20%.
  • General insurance too is likely to show +100% growth through FY09 and 75% in FY10.
  • R-Money is likely to be the other strong growth driver as it expands distribution and customers hit 1 million mark.
  • Overall, life insurance should, however, remain the biggest contributor at 37% of target value with premia income forecast to rise 7-fold from FY07 levels.

Reliance Capital is likely to emerge amongst the top 3-4 players in the financial services segment. R-Cap is expected to report an EPS of Rs 41.16 for FY 08 and Rs 59.27 for FY09.

In a separate report, Merill Lynch’s most preferred stocks are – BHEL, Bharti Airtel and Grasim Industries. While the least preferred are Hindalco, Tata Motors and Pantaloon Retail India Ltd.

Gammon India not responsible for Flyover Accident

The government of Andhra Pradesh had constituted a high level committee to investigate the collapse of flyover @ Hyderabad. The findings of the report sent to us in a fax message is as follows,

The committee reported that the heavy rainfall in Hyderabad (on the day of the accident) and the trench dug near the temporary structures by HMWSSB resulted in the erosion of soil and subsequent loosening of the foundation of temporary structures of the flyover. The committee noted that the failure was not of the main structure but the temporary structure (due to rains) and hence absolved Gammon from any claims of negligence in handling the project.

Thus Gammon India will have no impact on obtaining or bidding for further large tenders.

Shiv-Vani Oil & Gas Exp for Medium Term

ICICI recommends investment in Shiv-Vani Oil & Gas Exp for medium term [3-6] months with a price target of Rs 403.

Shiv-Vani provides services to ONGC, OIL, RIL, and Cairns India for on-shore exploration services. The company provides the entire value added services from seismic data acquisition through drilling. The growth of the company is a function of increase in the number of onshore block on offer for exploration and production. Under the New Exploration Licensing Policy – VI (NELP), the central government has invited bids for 55 exploration blocks comprising 25 onshore, 6 shallow water blocks and 24 deepwater blocks (beyond 400 metres). Only 18% of the total sedimentary basinals area has been explored so far. Huge potential is yet to be explored. Shiv-Vani has a 50% market share and is set to be one of the primary beneficiaries of the increase in the number onshore blocks on offer.

Shiv-Vani is sitting on an order book position of Rs 3,200 crore. Of this, Rs 1,000 crore pertains to a company in Oman and is spread over 15 years. The remaining Rs 2,200 crore, to be executed over the next 2 to 2.5 years is around 8x CY06 consolidated revenue of Rs 276.78 crore.

The stock trades at 11.37x its diluted CY08E EPS of Rs 29.56.Its foray into the offshore business could lead to a re-rating on the counter. The stock will be an outperformer with price target of Rs 403 over a 6-month time frame.

Reliance Energy Surges Ahead on Powergrid Deal

Power Grid Corporation of India (PGCIL) selected Reliance Energy (REL) as a joint venture partner through international competitive bidding for setting up the transmission lines for the Parbati and Koldam hydro-electric projects in Himachal Pradesh and two projects under the Western Region System Strengthening Scheme-II (WRSS-II) in Maharashtra and Gujarat on a build, own, operate (BOO) basis.

These projects would entail an investment of about Rs 3,500 crore. The two companies would sign a letter of intent for the WRSS-II project and a shareholder agreement for a joint venture for the Parbati and Koldam projects soon, the reports added.

In a separate development, there was a wide spread rumor that Reliance Energy will file for a DRHP to raise $2 Billion for Reliance Power Ltd. REL may also bid for another Ultra mega Power Project.

REL also wants to hive off its EPC construction business, which fueled the rally ignoring Citigroups recommendation.

SEBI relaxation fuels Atlanta

The Securities and Exchange Board of India (SEBI) has allowed the company for conversion of warrants and listing of shares issued on conversion. The stock is currently locked in upward circuit at 10% @ Rs 345.15.

In February 2007, SEBI had asked the promoter group, which comprises 16 entities, of Atlanta, not to deal in Atlanta scrip. Rajoo Barot, Managing Director, and Sachin Jain, Company Secretary, also featured on the list. The share price of Atlanta rose abnormally after listing at Rs 170 on 25 September 2006 to Rs 1264.20 by 11 December 2006.

SEBI had advised the NSE and the BSE to conduct a probe into the abnormal price surge. The probe concluded that promoters group made large scrip purchases during the period.

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