RCom vs Bharti Airtel
Friday, October 31, 2008
Reliance Communications and Bharti Airtel both reported their Q2 numbers and here is a brief comparison on the same.
RCom reported 2Q FY09 net profit at Rs15.3bn, up 17% YoY and flat QoQ; reported results were boosted by ~Rs919mn of one-time income from FLAG arbitration. Adjusting for this, RCom's EBITDA margin fell ~250bps QoQ to 39.8%.
High debt levels (~70% of which is forex debt), possible pressure on EBITDA margins from network expansion and increasing competitive risks in the Indian telecom sector remain key risks in our view. The Co continues to capitalize (MTM) losses (~Rs23bn) on its forex exposure.
EBITDA forecast is cut by 5-7% for FY09-10E & lowered wireless margin by 100-300bps across years. We now forecast RCom's FY08A-10E EBITDA CAGR at 18% vs 30% CAGR for Bharti. RCom is expected to report an EPS of Rs 25 for FY09 and is expected to stay flat or decline in FY10.
Bharti Airtel:
The company continues to be the darling of Telecom Investors in India. Bharti reported 2Q FY09 profit at Rs20.46bn, up 27% YoY & flat QoQ. Net income was flat at INR20.4bn, wireless margins were stable at 30.5% and consolidated margins were 41%. On the operational side highlights included: MOU declined 1% on the back of seasonality and ARPU dropped 4% sequentially, network costs were 150bps higher due to rural penetration and higher energy charges and sales costs were down 140bps on rationalisation of distributor margins and elimination of wastage.
Network operating expenses for Bharti were up 17% QoQ (to 21% of net revenue) vs 6% QoQ topline growth. Despite this, margin slippage was limited as Bharti's selling & admin overheads stayed flat QoQ.
Bharti Airtel is expected to report an EPS of Rs 45.09 and Rs 52 for FY09 and FY10 according to HSBC estimates. DSP ML expects EPS to be Rs 44 and Rs 58 for FY09 and FY10.
Read the full article
Published by Komal M @ 7:50 AM IST.
BSE Sensex Forward P/E at Lowest Level
Friday, October 24, 2008
If you have been a regular reader here, you would have noticed by now that we always believe in "VALUATIONS". Just to enlighten our readers, we are presenting Historical BSE SENSEX Forward P/E Chart from 1990 through Sept-2008. The Forward P/E is quoting at its lowest level ever as shown below.
The BSE Sensex Forward P/E was quoting at 18, a year ago. And when it touched 22 in Jan-2008, we cautioned investors by calling it "Absurd Valuations".
Keep Bottom Fishing Now with a 24 Months Horizon. It will take some time for FIIs to de-couple India from the Global Crisis. Keep looking at results and EPS expectations for FY09 and FY10 before averaging any stock or taking fresh exposure.
Chart Courtesy: Citigroup + Bloomberg
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Published by Webmaster @ 10:36 AM IST.
Market Fundamentals + Outlook - Start Buying
Thursday, October 23, 2008
This is the last post in the series. You can read the first two here. Historical Bear market Returns in India and Concerns / Risks the Indian market offers and how they are mitigated.Domestic Fundamentals:
Household savings are at a robust 35% of the GDP and consumers in India are highly under leveraged at 8% of the GDP compared to 13% in Thailand, 26% in Malaysia, 36% in Taiwan and 58% in Korea. Over the years Indians have amassed huge wealth in Gold and equity market investments, which has a wealth effect.
Indian Corporates are leveraged to lower than 5%, limiting the impact of rising interest rates and cash and bank balances are about 9% of the market cap which is expected to provide cushion for corporates in the tough credit environment. RoEs are higher in most Indian industries compared to others.
Future Outlook:
Even if you consider the Bear Case outlook [forget the Base case], SENSEX EPS is likely to be around Rs 1,000 for FY09. Inspite of intact fundamentals, investors have de-rated the Indian economy which is evident from the lack of liquidity leading to a level of 10,000, wherein Sensex is trading at 10.1x one year forward, which is the lowest from 1991 till date.
Accordingly, on the belief of a clearer picture arising out only post the elections next year, stabilization in inflation and steadying interest rates in addition to an improved YoY 1st quarter FY10 corporate performance, where markets will start discounting fundamentals on expectations of new policies and de-couple itself from the Western World.
Start Investing Now with at least 2 Year Horizon:
The equity markets are trading at attractive valuations but we expect a volatility to remain. Invest at least 40% of your Funds now and go on averaging with the rest on corrections. Stick to fundamentals while investing giving preference to Large Caps. If this is all too complex, then visit our Mutual funds Section and Choose any of the funds recommended in the past.
Additional Suggested Reading:
Sr. Fund Manager of HDFC's Outlook for Long Term Investor in the Indian Market.
Read the full article
Published by Webmaster @ 11:52 AM IST.
Indian Markets Concerns / Risk and Mitigation
Wednesday, October 22, 2008
This is the second post in the series of three on why one can dare to BUY the Indian market now. If you have not already read the first part, its here - Historical Returns in India after Bear market.As an Indian investor what are the prime concerns weighing on the Indian market ?
1.Uncertain global macro-economic scenario, especially the United States.
2.Forthcoming Parliament Elections in India has postponed major policy decisions and spending.
3.High fiscal deficit arising out of the agri-debt waiver, implementation of the 6th pay commission, oil bonds, fertilizer bonds, etc.
4.High Inflation + Interest Rates + High Oil Prices
5.Economic Slowdown
Mitigation of the above risks:
Despite gloomy international scenario, India has seen a positive month in terms of the fundamental growth story by way of the the NSG waiver which has put the country into a different league and this move other than providing power solutions of the country has also improved the way the country will be looked at.
Inflation numbers seem to have taken a breather but still remains unacceptable in the political context and containing it is an electoral mandate which the Government will.
The commodity complex including oil having corrected and reduction of CRR and Repo Rate is a booster to the Indian industry. The unexpected surge in oil prices this year and its further consequences should rationalise by the mid of next year and then is when the order book implementation will uplift IIP.
The GDP growth forecast though lowered is still higher than most other economies and going forward with inflation easing, new government in place and expected easing of interest rates this slowdown is expected to reverse.
Read the full article
Published by Webmaster @ 11:24 AM IST.
Historical Bear Market Returns in India
Tuesday, October 21, 2008
We are presenting to you the historical returns in India after a Bear market. This is the First Part of the three part post. Part-II will cover the concerns and how they can be mitigated. Part-III will cover Fundamentals and Outlook. Read Every Word of this Article Carefully. Sensex has corrected by 50% in the last 9 months which augurs well from wealth creation point of view. At current levels it is trading at a historical low on one year forward P/E basis. Investments in equity with long term perspective at current levels will help generate good returns. Things can only go better from here as currently global investors are underweight on both equity as well India as an asset class.The following tables data shows historical returns since 1990 delivered by the Indian stock markets after every major crash or a bear phase. The longest period for the index to recover to the 16x multiple was in Nov 95 after a period of 45 months since the peak of 52x in Apr 92.
As witnessed in the past, Indian investors have created enormous wealth after any major fall in Sensex. Markets during such times have given above normal returns as compared to historical returns.
We will post about the Concerns around us in the global crisis and how they are mitigated. Questions / Critics are Welcome.
Read the full article
Published by Webmaster @ 11:10 AM IST.
And What is HSBC's India Strategy ?
Friday, October 17, 2008
If you are a regular reader here, we started recommending HSBC and also track their Sr. Fund Manager, Mr. Duggal. We now present to you an insight on HSBC's India investment strategy. Indian markets continue to face headwinds in the form of global risk aversion and deceleration in corporate profit growth due to slowing economic activity. Risk aversion is unlikely to end soon but don't expect it to get worse either. India's Growth slowdown is part of a normal cyclical downturn and will work itself out.
FII Holding in Indian Stocks can be a major risk as they continue to liquidate their positions else where to save their parent companies. This is one of the major risks. However, even GDP growth of 7.5% in the current fiscal year and 7.3% next fiscal year and earnings growth averaging a 10-12% CAGR over the same period represents strong performance. If this performance is delivered India may reappear on the radar screen of foreign investors. [De-coupling Theory will Surface]
The valuation of the Indian market has declined considerably and is now below historical levels. For instance, the Sensex is at 9.7x 12-month forward PE, compared to the average of 12.8x and the historic low of 7x. This level is reasonable, but not rock bottom. India is the most diversified stock market among emerging markets by share of the top-three sectors in market capitalisation and earnings.
Timing the bottom is difficult, and downside risk is likely, but we believe the markets are close to trough. HSBC's index target of 15,000 for end-2009 assumes 25% recovery from our 2008 end target of 12,000. It is time to start incrementally increasing risk in portfolios.
HSBC is underweight on Real Estate as cheaper valuations also mask the impending decline in property prices. Underweight on Banks as risk of rising NPLs. neutral on IT, Healthcare and Energy. Positive on Telecom + Consumer Goods.
Read the full article
Published by Webmaster @ 9:30 AM IST.
Inflation Softens - Food Prices Rise
Thursday, October 16, 2008
For the week ending 4 Oct'08, headline (wholesale price index, WPI) inflation was 11.44%, lower than market's estimate (11.9%). Inflation for 9 Aug '08 was revised upwards 19bps to 12.82%. [Did the Government manipulate ? Is their metrics / procedure buggy ?]
Prices of basic food articles such as food grains, cereals, fruits and vegetables remain firm. Vegetable prices have moved up considerably on a week over week basis. The fall in inflation is due to the fall in non-administered petro and manufactured products.
Inflation has corrected much faster than anticipated. The fall in international commodity prices, the main driver of inflation in India in recent times, is the key to this. Going ahead, the steep fall in international crude prices to half its peak value could drive a cut in domestic administered petro prices, in turn lowering inflation.
Will the RBI cut interest rates to boost the Capital Expenditure Cycle and Business Confidence ? Probably it could once the Inflation numbers are firmly below 10%. However, rising prices of daily food articles is still a cause of concern.
Related Reading:
Exclusive - Constituents of the Indian Inflation Index.
Read the full article
Published by Webmaster @ 8:01 PM IST.
CRR Cut + FCNR & NRE Deposit Rates Hiked
Wednesday, October 15, 2008
The Reserve Bank of India in a surprise move has cut the CRR by 100 bps taking the total cut in the past 10 days to 250bps. CRR is now down from 9% to mere 6.5%. This is probably one of the sharpest cuts in the Indian financial history. The move will infuse Rs 40,000 crore liquidity into the system, thus meeting the industry's demand of Rs 100,000 crore put forth few days ago.Additionally, the RBI has also revised Interest rates on FCNR and NRE deposits upwards. With immediate effect, the interest rate ceiling on FCNR (B) deposits will go up by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 25 basis points.
Also with with immediate effect, the interest rate ceiling on NR(E)RA deposits will go up by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 100 basis points.
Subbarao Vs Reddy:
Ex-RBI governor, Dr. Reddy had raised CRR to cool off the inflation which had hit 13%. With global commodities under pressure and Crude Oil almost halved from its high of $140 a barrel, Subbarao, the current RBI governor is probably estimating Inflation to go below 10% within the next few weeks and thus cut CRR.
The goal behind current RBI rate cut is to help the Indian Industry, really especially the manufacturing. Only time will tell if Banks lend the money to SMEs and Industries to fuel IIP output or lend into the speculators of Real Estate responsible for current worldwide problems.
Read the full article
Published by Webmaster @ 7:20 PM IST.
FII Vs Mutual Funds Inflows - Sensex Movement
Monday, October 13, 2008
Historically, FIIs have been the major movers and shakers of the BSE Sensex. In most cases, the domestic Mutual Funds have taken the opposite approach, SELL when FIIs Buy and vice-versa. However, due to smaller participation by domestic funds [1/3rd of FIIs], FIIs tend to be the momentum movers. The following data shows how FIIs and domestic mutual funds have invested in the past 6 months in Indian equities.
The following Historical Graph shows how the BSE Sensex has moved when FIIs pumped money into Indian Equities and later when they withdrew money to save their first home on Western Turn which is under crisis.
Read the full article
Published by Webmaster @ 11:28 AM IST.
I-Sec Sensex Expectation - Bearish
Sunday, October 12, 2008
Due to marked deterioration in earnings outlook ICICI Secucties - i-Sec has lowered our target PE multiple to 11.8x (one Standard deviation below the 8 year mean of 15.9x) against 15.2x (8 year median) used previously. i-Sec has also pushed back the investment horizon to March 2010 from Sept 2009 to price in a more prolonged phase of risk aversion and now expect Sensex level of 16050 by then.
If one were to use the median PE on the Sensex target it implies a modest growth of 4% in Sensex earnings over FY09-FY11 (vs. our current expectation of 18%). i-Sec believes that rapid monetary easing by central banks all over the world which has begun would catalyse the next global growth cycle and increase appetite for risk over the next 18 months leading us to have a positive view on the market.
i-Sec is Underweight on Oil & gas driven by risk to refining and petrochemical margins, Underweight on IT Services driven by likely reversal in rupee, volume, pricing and margin pressures from deeper-than-expected slowdown. Underweight on Capital Goods driven by valuations, risk to P/E and EPS from lower order inflow growth from Infrastructure and Commodities sectors.
Overweight on Consumer sector driven by steady earnings prospects and possibility of surprises from lower soft commodity prices. Overweight on Telecom.
Read the full article
Published by Webmaster @ 11:04 AM IST.
Subscription by SMS - Live
Friday, October 10, 2008
We have started SMS Alerts for Articles where in the heading of the article will be delivered to your mobile. Apart from that, we will also send important Flash News updates during market Hours. You can subscribe to the same here and stay updated for BREAKING NEWS.
Read the full article
Published by Webmaster @ 4:53 PM IST.
Rising Losses - Financial Sector Underperform
Wednesday, October 08, 2008
The Indian Economy maybe secluded from the Global Crisis to a large extent, however, some sectors dependence on the same is all set to drag down the Indian financial sector. Credit Suisse in a report said, on a conservative basis gross NPLs are expected to rise by 194% by March 2011, with the ratio rising to 4.3%, even before the most recent market turmoil. Amidst a much higher cost of capital and risk premia, the MSCI India financial index continues to trade at 2.3x P/B, greater than its historical average. Maintain UNDERWEIGHT on the Financials sector.Rest of the Indian Economy:
Consumers: defaults could rise in personal and unsecured credit if unemployment rises and property prices fall more.
Investors / Promoters Risk: as elsewhere, many market operators in India borrowed heavily through structured or direct instruments over the last few years. One can not estimate the extent of damage, but if equities do not stabilize soon, defaults
from this segment could rise rapidly.
Corporate India: interest rates in India that are double those in many other markets, the interest burden of borrowing has grown to alarming levels for a few. If there was ever a time for the cyclical financial sector to sustain its bear market ranges, it is perhaps from hereon.
Read the full article
Published by Sunil K @ 6:12 AM IST.
Indian Bear Market for 29 Month More ?
Monday, October 06, 2008
If technical analysis from the past is to be believed, then Indian Stock market is headed for a 29 Months bear market from this month. WTF ? Well, here is the basis for the same. The present fall has striking similarity to the 2001 correction and the bear market there-off.Have a look at the following chart of 2001, [Courtesy: Deepak Singh]
The basis of the above research is 200 Week Moving average of Nifty and not 200 Day Moving average. You can see when Nifty cracked below the 200 Week Moving average, it stayed below it for 29 Months and a bounce back after that has led to a sharp rise.
Current Scenario:
Nifty's 200 Week Moving average is around 3,600 and which has touched today. If the same pattern as that of 2001-02 is to be followed, then it should rise to 4300 level once before it tanks decisively below 3,600 again, which is when it will stay there for over 24 months. The following Chart shows the same,
Ofcourse, Nifty is behaving in the same pattern as it did earlier and 200 Week Moving average is one of the best indicators for long term behavior of this market. Well, lets just hope that the global financial turmoil ends soon and then moves towards consolidation and hope it will all be under 29 months. What do you think ?
Read the full article
Published by Komal M @ 11:00 AM IST.
IT Services Sector - Buy / Sell ?
Friday, October 03, 2008
Indian IT stocks have corrected sharply in the last two weeks given global financial turmoil. Uncertainty of demand environment and achievable growth in 2009E/FY10E is the key issue. Valuations are at new lows; confidence in earnings also remains low. While lower valuations/reduction in consensus means that risks have largely been priced in, there are no near-term upside catalysts in sight.While weaker IT spending does lead to headwinds, we believe the structural offshore trend remains intact, with customers pushing more work offshore in a downturn due to cost advantage. Like the last downturn, we expect market share gains for offshore to accelerate in the downturn, leading to 10%/12% growth in Indian IT exports in 2009E/2010E. As a word of caution, in our due diligence, we have found out that increasingly companies are looking to offshore to China Development Centers due to higher productivity than in India.
We have outlook from various brokerages on front line IT stocks as summarized below.
Infosys Technology:
JP Morgan expects an EPS of Rs 100 and a target price of Rs 1,825
BNP Paribas has a target of Rs 1,720 on Infosys
TCS:
JP Morgan Expects an EPS of Rs 57.6 and a target price of Rs 850
Citi has a target price of Rs 925 [Looks like it has not been revised]
BNP Paribas has set gloomy expectations out of TCS with a target price of Rs 580 on an EPS of Rs 58.75.
Wipro:
JP Morgan expects Wipro to report an EPS of Rs 26.7 with a target price of Rs 400
Citi has a target price of Rs 440
BNP Paribas has set a target of Rs 320
Satyam Computers:
JP Morgan has an EPS expectation of Rs 33.7 and a target price of Rs 475
Citi laos has a target of Rs 475
BNP Paribas has a target of Rs 380
All the targets are for the next 9 to 12 months. Finally, wait for the next 3 weeks when we will have comments by tier-I companies on the outlook on volume/pricing will be the key focus for investors. We expect companies to be very cautious on their near-term outlook.
Read the full article
Published by Webmaster @ 12:36 PM IST.
Indian Banks Exposure to Real Estate
Wednesday, October 01, 2008
The most vulnerable banks due to declining property prices in India are ICICI Bank, Kotak and Axis Bank and the least are Canara, SBI, Bank of Baroda and HDFC Bank. However, bear in mind that the situation is manageable considering the low absolute levels of property-related lending and the cushion due to lending practices.CRISIL Research (subsidiary of S&P in India) estimates that loans against property constitute just 8% of mortgages, and within that 76% loans against residential property (as against commercial). Even in the latter, the preference is for lending against self-occupied property which is better collateral. It is reasonable to assume that since borrowing for a home has picked up only in the last 4-5 years, most of these loans are not fully repaid and hence the house cannot be re-mortgaged for further borrowing.
The following Table shows Home Loans as % of Net advances by various Indian banks:
In case of defaults these banks do not follow the blanket seizure-and-sell model. Banks prefer to work out with the borrower rather than sell the house. During the period of the workout and until installments return to the regular level, the loan has to be reflected as an NPL.Home sales have dried up because the steep increases in property prices. We need at least a 20 to 25% fall in property prices before demand picks-up meaningfully.
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Published by Komal M @ 10:22 AM IST.
