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Book Profits Punj Lloyd + Powergrid

Tuesday, October 30, 2007

If you had bought Punj Lloyd on our recommendation, then we recommend investors to Book Profits Partially. The stock has run up post-split 200% since we recommended and hence profits should be taken out.

Also book partial profits in Powergrid Ltd. Though long term investors can continue to hold without any fear.

We had also recommended LIC Housing Finance. Investors who bought at less than Rs 200 can book profits in 20% of their holdings.
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Published by DalalStreet Business @ 11:58 AM IST.  

Accumulate Voltas - Cooling business - Hot results

Voltas' strong performance for the second quarter in a row came in as a positive surprise, after soft performance for most of last fiscal. Revenue growth, at ~35% Y-o-Y (to INR 7 bn), on the back of a 30% plus growth across segments. EBIT margins improved in excess of 500bps for both electromechanical projects (EMPS) and engineering agency and services (EAS) segments, tripling the EBITDA to INR 636 mn. Earnings was up 79% Y-o-Y on improved margins of 6% at the net level, to INR 431 mn.

Voltas current order backlog of Rs27bn (up 37%YoY) improves visibility going forward. Voltas won 3 international orders worth Rs7bn in Q208. Management has indicated that there are a lot of projects in the final discussion stages and are confident of announcing some order wins in Q308.

Citi has upgraded the stock to BUY with a target price of Rs 242. Voltas is expected to report a fully diluted EPS of Rs 6.86 and 9.26 for FY08 and FY09 respectively. However, other brokerages are not so bullish as Citi, Credit Suisse has a target of Rs 180 on the stock with an OUTPERFORM rating with EPS expectation of Rs 5.8. Edelweiss expetcs the EPS to be Rs 5.8 as well for FY08.
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Published by DalalStreet Business @ 9:12 AM IST.  

ABB is getting expensive

ABB has declared another good set of results. Revenues stood at Rs.13.8 bn; up 29% yoy while EBITDA was up 56% at Rs.1.7 bn and PAT was up 41% at Rs.1.16 bn. EBITDA margins have increased sharply YoY in 3Q07 by 219 bps to 12.5%, the strongest leverage in the last six quarters.

India is not only a promising domestic market, where ABB is well-positioned as a market leader in power and automation technologies, but also a key regional and global resource base because of lower costs and higher productivity.

ABB is getting pricey as it seems to be running ahead of the fundamentals. ABB has had a strong run over the past three years, outperforming the BSE Sensex significantly over different horizons. Citi downgraded ABB to Hold/Low (2L) risk from Buy/Low (1L) risk an new target price of Rs1,595. At 38.9x CY08E and 28.2x CY09E, it is now the most expensive stock in our Indian Electrical Equipment universe.

It is expected to report an EPS of Rs 38.52 for FY08 [ending Dec] However, HSBC analyst thinks Rs 1250 is the fair price for the stock and expects it to report an EPS of Rs 37.5 for FY08. Credit Suisse has a price Target of Rs 1450 for the stock which we think is reasonable in the bull case scenario.
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Published by DalalStreet Business @ 8:58 AM IST.  

BUY Bharat Forge

Monday, October 29, 2007

You probably think we are insane to recommend a BUY when the SENSEX is at an all time high. Well our job gets really tough, when India an oil dependent economy has to face the burden of larger fiscal deficit with rising oil prices [$93 / barrel an all time high]. However, our analysts are extremely careful when they recommend a BUY. You will also see some Book Profits recommendation within the next few hours.

Bharat Forge's standalone Q2 net profit was 27% ahead of estimates, driven by higher sales and huge surprise in margins. Therefore EPS forecasts is being raised. Following the 50% YTD stock under performance and strong growth visibility, the stock is a definite BUY.

Standalone margins expanded 420bps QoQ at 24.6% (MLe 90bps at 21.3%), driven by better utilization and cost control. This is despite the in-line impact of stronger rupee.Exports (~45% of standalone sales) surged 41% YoY, led by a ramp-up of new programmes in Europe (up 97%) and recovery in China (up ~350%, on a small base), which enabled increase non-US exposure to 50%.

Bharat Forge is expected to report an EPS of Rs 14.5 and 18.2 for FY08 and FY09 respectively. BUY with a target price of Rs 405.
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Published by DalalStreet Business @ 11:41 AM IST.  

Nagarjuna Constructions - BUY

Friday, October 26, 2007

We had an in depth and up to date coverage about Nagarjuna Constructions. Now we are raising the price target to Rs 350. Primary reason for the same is revisions in earnings estimates by -9% to +14% over FY08E-10E. Increasing target multiple for core business to 19x from 16x earlier due to a structural change in the business mix, and rolling forward our target basis to Sept. 09E from Mar. 09E.

Nagarjuna is expanding into newer areas like EPC for the metals and oil and gas sector. Nagarjuna, in a JV with POSCO E&C, recently won an Rs11bn blast furnace order from SAIL for IISCO. NCC Urban, the real estate arm of Nagarjuna, has a three-year plan for developing about 12.87mn sqft and targets revenues close to Rs24bn. Nagarjuna is also looking to expand into laying of oil and gas pipelines in India. It has entered in to a joint venture with Naftogas of the Ukraine. Nagarjuna will hold about 70% stake in the venture.

Sum of Parts Valuation of the Company:
  • Core Construction Business - 250 18x FY09 earnings
  • NCC Infrastructure Holdings - 24
  • NCC Urban Infrastructure - 58
  • Tishman project- 15
  • Investment in Gautami Power and Jubilee Hills - 4
Thus we arrive at a sum of parts valuation of Rs 350 for the stock and reiterate a BUY.
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Published by DalalStreet Business @ 2:00 AM IST.  

Buy JBF Industries Ltd

Thursday, October 25, 2007

JBF Industries reported an excellent set of Q2FY08 numbers. The company's earnings estimates have been revised upwards and continue to recommend BUY with increased price target of Rs.250 .

Net sales for Q2FY08 were at Rs.5.3 bn. Up by 76.2% YoY. EBIDTA margin during Q2FY08 was up by 190 bps at 14.0%. EBIDTA for Q2FY08 was at Rs.742 mn up by 72.0% YoY and PAT is at Rs 571 mn up 68%.

The company has successfully commissioned it Ras-Al-Khaimah, UAE project for polyester resin packaging (PET) and polyester films manufacturing. Main raw materials for JBF are PTA and MEG and globally the scenario is turning favorable for JBF.

Expect JBF to report higher EPS of Rs.20.1 in FY08E moving upto Rs.29.1 in FY09E. We recommend a BUY with a price target of Rs 250.
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Published by DalalStreet Business @ 2:45 PM IST.  

Upgrading Dishman Pharma

Dishman Pharma reported an inline Q2 ended Sept-30th. Sales up 59% and PAT up 67%, although YoY figures are not entirely comparable given that Carbogen Amcis (CA) was present only for 1 month in 2Q07.

Management expects significantly large contract wins from Solvay over the next few quarters. Dishman has recently increased capacity for Solvay; Vitamins business buyout from Solvay to be effective by October end; 8 projects from CA have been transferred to India.

Expect the strong INR trend and lumpy nature of the CRAMS business to lead to volatility in quarterly earnings in the near term. However, Dishman is in the process of re-negotiating prices with its customers. We expect Dishman to report a fully diluted EPS of Rs 14.40 and Rs 19.75 for FY08 and 09 respectively. The stock has historically traded at valuations of 15x. Buy Dishman with a target price of Rs 360.

Read about Citi's upgrade report on Jubliant Oragnosys.
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Published by DalalStreet Business @ 2:22 PM IST.  

Unitech + DLF - Book Profits

Wednesday, October 24, 2007

Our on-the-ground checks with industry participants suggest greater evidence of a slowdown - which also seems to be spreading to the office segment in some cities - in property transactions/prices. And many property firms' diversification
into telecoms is also discomforting. Meanwhile, the stock prices of DLF and Unitech have run up by 47% and 40% respectively in the last few weeks. Despite positive long-term view and upgrades in our 12M DCF-based NAVs and target prices, book partial profits in both the counters. Buy back at lower levels if market corrects.

We are aware of the huge money raising plans by both these companies with PE funds and REITS either in London or Singapore. But moving forward to FY09e fair DCF-NAV based prices for DLF and Unitech are Rs 760 and Rs 300.
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Published by DalalStreet Business @ 9:35 PM IST.  

Desperate Analyst compares Rolta to L&T - Mad Market

A colleague of mine told that a Research Analyst working with a famous Australian brokerage house active in the Indian market, compared in his analysis Rolta India an IT company to L&T to raise the Target price of the stock. We all know that Engineering & Construction stocks enjoy far superior rating in this Bull market than IT stocks.

The day has come where research analysts don't know how to react to results and how to evaluate a stock. DCF, EBITDA, EPS etc have all taken a back seat. Stupid theories like Rolta does lot of Engineering Design work so we should rate the stock like L&T are the basis of this mad market. I wonder how safe are the funds of Australian investors in the hands of these analysts :-)
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Published by DalalStreet Business @ 4:00 PM IST.  

Buy Megasoft + Zensar Technologies

Tuesday, October 23, 2007

Megasoft Ltd reported good set of numbers for the 3Q of CY07; consolidated revenues for the company stood at Rs.768mn, with Visual's contribution being Rs.180mn. The consolidated PAT stood at Rs.163mn. The company witnessed healthy traction in the telecom products segment and margin improvements across both products and services.

The telecom products business to spur revenue and profit growth for Megasoft in CY07, with de-focus on the lower margin services business. Expect Megasoft to report a consolidated revenues of Rs.2.87bn in CY07, up from the Rs.1.78bn in CY06. The consolidated entity is expected to post net profits of Rs.530mn in CY07 (Rs.330mn, CY06) that would translate into an EPS of Rs.11.6 per share in CY07. Management expects profits to further grow to Rs.1bn in CY08. Kotak recommends a BUY with a target price of Rs.167, the stock will trade at 14.4x its consolidated CY07 earnings.

Zensar Technologies:
Zensar's revenues grew by 2% on a QoQ basis, PAT was up by 6% QoQ. The company improved the EBIDTA margins by about 78bps despite the rupee appreciation and salary hikes given during the quarter. Company hopeful of achieving Rs.700 mn PAT in FY08. Kotak foreecasts PAT of Rs.586mn; an EPS of Rs.24.5. Earlier EPS estimates @ Rs 28. The reduction is due to the weakening of USD.

In line with revised earnings estimates, we revise our DCF - based price target from Rs.314 to Rs.284.
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Published by DalalStreet Business @ 10:53 AM IST.  

Fly Jet Airways - Will it Zoom ?

Monday, October 22, 2007

After the consolidation of Low Cast Carriers in India, the immediate beneficiary is Jet Airways. The domestic passenger and cargo traffic recorded a growth rate of 44.6% and 8.7%, and the international passenger and cargo traffic recorded growth rates of 15.8% and 13.8% respectively during 2006-07. Domestic air travel in India is predicted to grow at 20% over the next five years.

Jet Airways with a fleet size of 80 aircrafts (including JetLite's 14 aircrafts) is the second largest carrier in India behind the Air India & Indian combined fleet of 132 planes.

Jet Airways posted a net profit of Rs 30.9 crore in the quarter ended June 30, 2007 compared to Rs 45 crore loss in the corresponding period last year. Total income grew 18% to Rs 1983 crore up from Rs 1678.8 crore in Q1Y07. Revenue from domestic operations accounted for 76% of total operating revenue, compared to 87% during the previous corresponding year. Revenue earned was boosted by fast rising international revenues, which increased by 104.5%.

At the current price of Rs 870 it is trading at a market cap to sales ratio of 1.06x its FY07 sales and 0.78x its FY09E sales. ICICI Expcts the stock to hit a price target of Rs 1,044 within the next 3-6 months.

Related Reading:
TravelGuru is offering Cash Back offer on flights of Jet Airways.
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Published by DalalStreet Business @ 4:07 PM IST.  

Buy Asian Paints + RIL

Sunday, October 21, 2007

Asian Paints reported 49% increase in 2QFY08 profit (pre exceptionals), domestic growth (13% YoY) seems to be slowing down. On the positive side, margins expanded 258bps.Management has indicated that there is a slowdown in domestic construction activity which has impacted paint sales.

International business growth was only 7.85%, adversely impacted by an appreciating rupee, EBIT margins have been improving sharply, especially for key areas such as Middle East and South Asia. Asian Paints is likely to report an EPS of Rs 36.62 for FY08 and Rs 44.08 for FY08 and FY09 respectively. Price target of Rs1102 is based on 25x FY09E consolidated EPS.

RIL:
Reliance Industries reported a solid Q2. Earnings upgrade of 17-42%, incorporating IPCL merger, higher GRMs/petchem margins, MA oil, and lower tax; Include RPL estimates; Greater confidence in sustainability of E&P cash flows.

Recent but not-yet-quantified discoveries in KG-D4 and CY-D5 vindicate this further and increase confidence to value E&P on EV/FCF of 12x FY11E (10x earlier). At US$35bn a 47% premium to NAV. Citi upgrades the stock to Rs 2,860 from Rs 2,005. Other brokerage recommendations on RIL - RELI.BO are also covered here.

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Published by DalalStreet Business @ 12:27 PM IST.  

Stocks to BUY in Weak Market

Friday, October 19, 2007

Stocks that ShareKhan likes at current level of market (Nifty 5233 # Sensex 17,640) purely from delivery and investment point of view (more volatility is possible over next few days so one should keep 50% - 70% amount aside to buy at lower levels and actually accumulate when these stocks fall ) are :

J P Associates (cmp 1055) our Target is Rs. 1350
Bharti Airtel (cmp 970) our Target is Rs. 1100
SBI (cmp 1665) our Target is Rs. 2282
Shivvani (cmp 365) our Target is Rs. 480
BHEL (cmp 2075) our Target is Rs. 2450
Ranbaxy (cmp 420) our Target is Rs. 500
Aban Lloyds (cmp 3900) our Target is Rs. 4400
Maruti (cmp 1092) we shall put a new Target shortly.

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Published by DalalStreet Business @ 2:37 PM IST.  

Indian Market Valuations

Here is a brief round-up on Indian Market valuation on various factors as told by ABN Amro.
Think twice before you commit your hard earned money at current levels. However, you can work with your professional fund managers and decide.
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Published by DalalStreet Business @ 8:27 AM IST.  

Reliance Power IPO should be Probed by SEBI and Authorities

Thursday, October 18, 2007

Anil Ambani who is in a hurry to takeover as the richest Indian from his brother, Mukesh has landed in trouble for violating SEBI guidelines in the Reliance Power IPO draft prospectus.

Reliance Power is promoted 50:50 by Reliance Energy and Anil Ambani and investment companies owned by him. Reliance Power has proposed to come out with an IPO of 130 crore shares of face value of Rs 2 at a premium to be fixed later. This includes 16 crore shares to the promoters at the offer price. The net offer to the public will be 10.5 per cent of the company's expanded equity capital raising Rs 12,500 crore.

The Violation by Anil Ambani and AAA Company:
As per clause 4.1.1, the promoters shall contribute at least 20 per cent of the post issue capital in a public issue by an unlisted company. As per clause 4.6.2, the promoters have to contribute this 20 per cent at least at the IPO price if they have contributed this 20 per cent during one year preceding the public issue.

However, according to page 29 of the draft prospectus, it has been pointed out that Anil Ambani through AAA project ventures and REL got themselves allotted 105 crore shares each on September 30 reportedly through a bogus merger. Each of them plan to subscribe 8 crore shares each at the IPO price.

Clause 4.6.1 has been provided to check the abuse by promoters by allotting shares to themselves, for consideration other than cash by merger schemes; allotment of bonus shares out of revaluation reserves (ie out of reserves not earned in cash) and or in any other manner other than for cash (for example contributing an asset to the business at higher unfair value), within three years prior to public issue.

The only exception is when a merger scheme is sanctioned by a High Court. This clause has been provided to take care of genuine mergers and acquisitions which may have taken place before the public issues.

Reliance Public utility - Anil Ambani's Shell Company Scam:
The group had an existing shell company called Reliance Public Utility Private Limited (RPUPL) which at that time had a paid up capital of Rs 1 lakh. The authorized capital of RPUPL was increased to Rs 1000 crores by a resolution dated July 30, 2007.

Anil Ambani's personal investment company and Reliance Energy Ltd (controlled by Anil Ambani) invested Rs 500 crore each in the equity share capital of RPUPL on August 3, 2007. RPUPL is still a shell company with just Rs 1,000 crore of share capital and Rs 1,000 crore investment.

RPUPL and Reliance Power Limited passed necessary Board orders for merger of RPUPL into Reliance Power Limited. Rationale of the merger, as stated in the Scheme of Amalgamation is that,
RPUPL has put in considerable efforts in acquiring necessary technical and manpower skills which are ancillary to the business of Reliance Power Limited which can take benefits of this specialized skill sets and technology available with RPUPL to undertake mega power projects and implement them more efficiently and successfully.
From where the shell company having only one lakh paid up capital till July 31 this year acquired skill sets to implement mega power projects.

Anil Ambani is afraid to risk his own money and thus is passing on the risk of Ultra Mega Power projects to the Indian investor. Is there any agency in India to probe this scam ?

Source - Entire Reliance IPO Scam can be read here.

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Published by DalalStreet Business @ 9:37 AM IST.  

Institutional Investors Manipulating Indian Market - NSE Chief

Wednesday, October 17, 2007

The architect of Modern Stock Trading and CEO of National Stock Exhcnage of India, R H Patil has said that Foreign Institutional Investors have Manipulated the Indian markets and in recommendations to the Finance Minsitry had ask to plug the holes. Mr. Patil said,
The market is being manipulated right now and a bubble was growing rapidly. Although the SEBI proposals are late, they would help avoid a greater disaster. It is very important to know the identity of foreign investors, who have been manipulating this market.
The Indian Markets have crashed this morning and trading has been halted for an hour. The BSE SENSEX was down 1,700 points.

What triggered the market crash ?
SEBI, in a draft guideline, said that foreign institutional investors and their sub-accounts cannot issue or renew participatory notes with underlying as derivatives with immediate effect. They have to unwind their current position within 18 months.

Participatory Notes - PNs are financial instruments used by investors or hedge funds that are not registered with Sebi, to invest in Indian shares. FIIs and their sub-accounts buy Indian securities and then issue PNs to foreign investors with these securities as the underlying.

Once the Sebi proposals are operationalised, only FIIs whose outstanding notes do not exceed 40% of their total asset holding in India will be allowed to issue fresh ones. For instruments already issued by FII sub-accounts, Sebi has given a window of 18 months to wind up existing positions.

As per reports, the notional value of investments through PN's route grew almost ten times to Rs 3.53 lakh crore at the end of August 2007 from just Rs 31, 875 crore three years ago.

The Ministry of Finance should act immediately by using the Income Tax and Central Intelligence agencies to investigate and bring to book all those involved in the market manipulation.

Update from FM:
FM does a U-Turn and puts SEBI in a tight spot now. He said, We have not banned P Notes. SEBI to issue release to on P-Notes renewals. Move intended to moderate inflow of capital.

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Published by DalalStreet Business @ 10:38 AM IST.  

Tata Steel - Macquarie Research

Tuesday, October 16, 2007

Tata Steel's margin expands on rising raw material prices due to its fully-integrated nature compensating for Corus, while later takes care during falling raw material prices.

Refinancing of bridge loans utilised for acquiring Corus is now firmly put in place. Rights issue and convertible preference shares offer open up later this month, while a big part of the debt US$2.5bn has been sourced locally from State Bank of India to avoid turmoil in the international market following sub prime issue. Tata Steel’s 1.8mtpa expansion is on schedule for completion in early 2008. The green field project in Orissa has reached an advanced stage and will commence construction shortly.

EPS estimates for FY3/09 and FY3/10 by -4% and -1% to Rs99.9 and Rs117.7 respectively. Increased target price from Rs800 to Rs1,000 (ex rights and converts).

Also read our coverage on Gujarat NRE Coke and JSW Steel.
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Published by DalalStreet Business @ 11:51 AM IST.  

Axis Bank + IDFC Results Preview - Citi

Axis Bank's net profits increased 60%yoy, 17% ahead of expectations. Operationally, the results were strong too with pre-provisioning profits up an impressive 85%yoy. The bank continued strong growth, momentum in fees, strong asset quality and high profitability; though profits were boosted by new capital and bond gains.

AXBK's loan growth remained strong, ahead of expectations at 53%yoy, despite a lacklustre 22% industry growth and a relatively modest 27% increase in retail loans. Continued fee momentum also surprised on the upside with a 59%yoy growth.

Axis Bank's overall asset quality remained comfortable as NPL ratio declined to 1.1% of loans from 1.5% in 2Q07. Axis Bank is expected to report an EPS of Rs 30.02, 36.96 and 47.95 for FY08, 09 and 10 respectively. Citi maintains a hold though the stock is already trading above its target price of Rs 675.

IDFC:
IDFC's 2Q08 net profits rose 25%yoy in-line with expectations. Key positives were improvement in NIMs, strong loan growth and fee momentum. Asset management returns and fund raising plans are also ahead of expectations and could provide valuation upsides.

IDFC's NIMs increased to 320bps (+40bps qoq) driven by a favorable interest rate environment and helped by additional capital raising during the quarter.

Unrealized gains have increased to Rs3.24bn and provide earnings comfort. Management indicates that IRRs on its first PE fund are over 45%; expects contributions to performance fees from 3Q08 and plans a new fund launch in early FY09E – ahead of expectations and could drive valuation upsides.

IDFC is expected to report a fully diluted EPS of Rs 5.32, 6.36 and 7.88 for FY08, 09, 10 respectively. Citi maintains a BUY/medium Risk recommendation on the stock with a price target of Rs 140 [which the stock has already crossed].

Comments and Suggestions maybe sent to feedback @ dalalstreet.biz
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Published by DalalStreet Business @ 10:21 AM IST.  

Raising RIL's Target Price - Macquarie

Sunday, October 14, 2007

Macquarie Research just a while ago upgraded the stock of Reliance Industries Ltd with a new target price of Rs 3,100. 20.8% Potential upside from current levels.

RIL plans to build one of the world’s largest cracker and petrochemicals complexes at Jamnagar. The proposed facility, with 2mtpa capacity, will be built at a capital cost of US$3bn and is expected to come on-stream by FY3/11.RIL has 4.4bn boe of 2P hydrocarbon reserves which are twice of that provided by partner in KGD6, Niko resources and compares with 1.5bn boe of 1P reserves stated in recently released annual report.

Sum of Parts Valuation of the company by Macquarie,

Core Business Rs 1161
IPCL Rs 70
Fuel Retailing Rs 85
E&P Business Rs 263
75% stake in Reliance Petroleum - Rs 386
Treasury Stock Rs 359
CBM-Sohagpur and NEC 25 Gas - Rs 198
Other E&P (D9, D3 and GS-01) Rs 119
Organised retail venture - Rs 165
2mtpa Ethylene Cracker - Rs 295

This is still very cheap as they have not factored in the vast Land Banks the company has been accumulating for its SEZ and Retail venture.

Coverage of Reliance Industries by Goldman Sachs, CLSA, Deutsche Bank

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Published by DalalStreet Business @ 1:50 PM IST.  

Flash News Investment

Friday, October 12, 2007

Hanung Toys & Textiles:
It's already India's largest manufacturer of soft toys. Now Hanung Toys plans a fairy tale-like foray into home furnishing. The order book of the Rs 275-crore soft toys and bed linen export is crammed. Within the last three weeks, Hanung has signed deals worth over $265 million (Rs 1,060 crore).

In next few years, Hanung will work on expanding its footprint across the country. It is already present in over 3,000 stores, which includes like Archies, Lifestyle, Shoppers' Stop and Pantaloons. Hanung has invested Rs 160 crore in a new plant in Uttaranchal, which will boost its capacity from six million metres to 39 million metres. As with toys, the new plant will also help Hanung grow its domestic business.

On the valuation front, the CMP of Rs 173.85 discounts its FY07 earning by 15.75x. But with the management confident of its 50 per cent growth the counter seems to be a good buy.

Dhanlakshmi Bank:
Dhanalakshmi Bank is a Kerala based bank, with about 180 branches and 26 extension counters spread. The bank has deposits of about Rs 3200 crore, advances of about Rs 2000 crore, investments of about Rs 700 crore and capital adequacy of about 9.87 per cent.

Recently the RBI did not allow the bank to come out with right issue as promoter holding is higher than 10 per cent. But recently the promoters have brought down their holding to 9.68 per cent by selling stake in the open market. So, now the company can go for right issue which will increase its networth beyond Rs 300 crore, which will also help the bank to take its
branch network beyond 200.

Warburg Schweiz, Deutsche Bank and FIIs like Lotus Global Investments, Rhodus Diversified Fund and Somerset Emerging Opportunities Fund have bought stake in the bank. The counter would be a good takeover candidate in the long run.

The bank may post an EPS of Rs 8 plus for FY08 and the right issue may likely to be in the ratio of 1:1 with the price not exceeding Rs 50 per share; close to its present book value. This, would be perceived positively by the market.
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Published by DalalStreet Business @ 10:12 AM IST.  

IDFC Upgraded by Morgan Stanley

Thursday, October 11, 2007

India's premier infrastructure lending company - IDFC was upgraded by Morgan Stanley research. They have set a new price target of Rs 200 on the stock. Here is Citi's exclusive coverage on IDFC.

IDFC is entering a phase where all parts of revenue are doing well - loan growth is strong, spreads are improving and fees are very strong. For F2005-F2007, IDFC has delivered the best core earnings progression among Indian private banks and financial institutions at a 55% CAGR. This trend will continue, resulting in outperformance.

IDFC has launched the first tranche of its proposed US$2 bn project equity fund along with Citi. This will result in a doubling of assets under management in 1-2 months. Moreover, its investments in NSE is performing strongly. SSKI is two-third owned by IDFC is also performing well.

Based on earnings adjusted for recent capital issuance and new fund raising in project equity, consensus is expecting 4% YoY earnings growth in the rest of F2008. The actual numbers are likely to be higher and hence raise F2008 earnings estimates by 5%.

The stock is trading at 24.8x F2009E earnings - in line with private banks. However, private equity (PE) and proprietary investments are not contributing significantly to earnings but provide almost 30% of value. Hence, core valuations are lower at 19x (cheaper than private banks, with better earnings profile) and could rise, given strong earnings growth expectations.

In a separate development, Reliance Capital has launched an exclusive Consumer Finance Loan subsidiary.
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Published by DalalStreet Business @ 12:57 AM IST.  

Lehman's Bearish View on Indian IT Sector

Wednesday, October 10, 2007

Report just inLehman Brothers have just released an equity research report initiating coverage on Indian IT stocks. Here is the overview before we get into the details. The report assumes USD pricing of Rs 36 and is Negative on the IT sector.
Infosys Technologies:
The macro environment is likely to remain unfavourable due to the appreciating rupee and a possible slowdown in the banking and financial services (BFS) vertical. Lehman estimates a 15.7% EPS CAGR for the next three years (FY07-FY10E) compared with 43.5% in the past three years. Volume growth and price hikes may be impacted negatively due to a cut in discretionary IT spend. The demand environment continues to be good; US dollar revenue CAGR of 35% for the next three years.

Tata Consultancy Services:
A 14% EPS CAGR for the next three years (FY07-FY10E) compared to 35.8% for the past three years. Volume growth and price hikes may be impacted negatively due to cuts in discretionary IT spending. The demand environment continues to be good, because US dollar revenue CAGR of 30.8% for the next three years.

Wipro:
Wipro continues to be hit by relatively slow growth in Telecom equipment manufacturing (TEM) and BPO segments. Lehman projects a 30.6% US dollar revenue CAGR for the company's Global IT Services and Products business on an organic basis for the next three years compared with 35% for Infosys Technologies (INFY, 2-Equalweight) during the same period. Should result in an EPS CAGR of 15.6% for Wipro in FY07-FY10E.

Wipro has underperformed the most among tier-1 Indian IT stocks in the past five years. This will continue because margins to fall by more than 300bp for the next three years.

Satyam Computers:
Given the deteriorating environment, robust QoQ volume growth as witnessed in the past five quarters and price hikes could be pressured in FY09, in our view. Despite strong volume growth, we estimate an EPS CAGR of 13.4% for the next three years given our expectation of falling margins.

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Published by DalalStreet Business @ 3:02 PM IST.  

Indian Indices Hit Record High; Its Raining Money

Tuesday, October 09, 2007

Insance Foreign Institutional Investors are pouring money into Dalal Street as if their is no tomorrow. The Indian Indices BSE SENSEX and NSE Nifty have hit a record high. Currently the SENSEX is up whopping 800 points at 18,293.

It took 8 trading sessions for the Sensex to reach 18,000 from 17,000 after it had first hit 17,000 on 26 September 2007. It had taken just 5 trading sessions to reach 17,000 from 16,000

In a separate development, Ansal Properties & Infrastructure has successfully diversified in the new business of power by establishing & commissioning wind mills with a capacity of 12 MW, at Kutch, Gujarat.

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Published by DalalStreet Business @ 3:52 PM IST.  

Small Cap Multibaggers - Part 2

Monday, October 08, 2007

Check out the Small Cap Multibaggers in our Stock Research Section. Here are 3 more small cap stocks added to the same coverage.

Gujarat Apollo Industries:
Gujarat Apollo Industries (GAI), holds ~30% market share in the domestic road construction equipment industry. It is a key beneficiary of investments being made for up gradation and widening of roads and expressways under the National Highway Development Programme (NHDP), golden quadrilateral etc. A large part of these investments, estimated to be in excess of INR 2.2tn

Till date, only 15% of the total targeted roads under NHDP are complete, implying that a huge chunk of the budgeted investments are yet to be expended. This means that apart from the existing pent up demand, there is a good demand visibility for GAI over the next few years. Moreover, the company's venture into new geographies through exports is likely to de-risk it from the rising interest rate concerns in India. With the capacity expansions in place, we expect GAI to achieve a turnover of INR 2.8 bn by FY10, with an improved product mix favouring better margins. At 11.1x its FY07 earnings, we consider GAI as the best proxy to the Indian road and infrastructure boom.

International Travel House:
The USD 53.5 bn Indian tourism industry (2006) is slated to grow to USD 128 bn by 2016 (Source: World Travel & Tourism Council (WTTC)), led by Government of India's (GoI's) tourism promotion efforts through "Incredible India" campaign, strong economic growth, rising income levels, consumerism, and increasing business, and domestic travel.

Given the booming tourism sector, the ITC pedigree, launch of portal, and strong focus on the car rental industry, the prospects of ITHL appear extremely bright. We expect ITHL's revenues and profits to grow at 28% and 29.7% CAGR, respectively, between FY07 and FY09E. At the CMP of INR 165, the stock trades at 9.9x FY08E EPS of INR 16.7 and 7.7x FY09E EPS of INR 21.4.

Phoenix Lamps:
The Indian market for compact fluorescent lamps (CFLs) has been growing at ~40% over the past few years and is currently valued at INR 7 bn. India produced 44 mn CFLs in FY06, a mere 6% of the total number of traditional incandescent bulbs produced during that year. Phoenix Lamps, a leading player in CFLs, is looking to triple its current capacity of 25 mn units to 75 mn units by FY09E.

Phoenix Lamps' CFL business, which has been growing at 34% CAGR over FY04-07, is likely steer the company's growth over the next few years on the back of its leadership position in a radically changing industry. Sales and profits have grown at 23.4% and 49.4% CAGR, respectively, over FY04-07. Profits have grown at a faster pace as compared to sales over the last three years on account of lower tax rates.

Sarla Performance Fibers:
Sarla Performance Fibers (SPF) is the only producer and processor of multi-filament polyester and nylon textured yarn in India, catering to a varied set of applications and end users. As on FY07, SPF earned ~ 63% of its revenue from exports whereas the 10% was deemed exports. SPF is only export focused player has been successful in meeting and maintaining client specifications and is thus one of the preferred suppliers for most of its clientele.

Due to its focus across various geographies, SPF is well positioned to capture the huge opportunities across its product segments. Also, the Honduras JV is likely to provide an added upside to revenue growth once it is consolidated. That apart, a break through in high tenacity yarn will lead to margin expansion going forward. At CMP of INR 126, the stock trades at 8.1x its FY07 earnings.

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Published by DalalStreet Business @ 1:25 PM IST.  

HSBC Overweight on BHEL + Underweight on HDFC

Saturday, October 06, 2007

HSBC is overweight on the prospects of BHEL. BHEL still dominates, with 55% share of incremental orders and 69.4% share of thermal. Increase earnings estimates by 5.6% and 10% for FY09e and FY10e respectively, based on the strong order inflow.

BHEL to outperform the market due to strong order book and potential success in supercritical projects. BHEL to continue to trade at a MACC range of 8.4-10.3% vs. earlier estimate of 8.0-11% MACC range, due to increase in revenue visibility post FY10e. Based on this, increased target price to INR2500 and Maintain Overweight rating.

It may be possible for HDFC to cut rates on the entire stock of floating rate loans. The 28.7% disbursal growth in the quarter ended June was a little higher than in preceding quarters. Target price of INR 2173, up from INR1985 previously, is a weighted average where the DCF is assigned a weight of 50% and the PE and P/B derived forecasts are assigned weights of 25% each. HDFC has risen 33.9% after end of June compared with an 18.8% rise in the Sensex and 19.1% in the Bankex. Rating methodology requires a minimum potential return of 6.3% to rate a non-volatile Indian stock Neutral. The potential return on HDFC is well below this threshold and hence HSBC continue to rate the stock Underweight.
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Published by DalalStreet Business @ 1:47 PM IST.  

India Quarterly Results - Winners and Losers ?

Friday, October 05, 2007

India Inc had a robust 1Q, Citigroup expects Sensex ex-oil profits to rise by 21% in 2QFY08 (14.5% for Citi India universe ex-oil). Forex gains (a key driver of positive surprises last quarter) will likely be less of a factor this time, as the rupee appreciated by a modest 2% during the Sep-07 quarter.

Telecom (+114%), Media (+109%), Brokerages (91%), Hotels (54%), Capital Goods (47%), and Cement (50%) should lead in profit growth. Key laggards seen as Autos, Pharma, Textiles, Metals, and Sugar. IT Services companies are expected to report (18%) profit growth lagging behind the market average.

Autos: The sector's performance will likely remain weak overall, with high interest rates continuing to have a negative impact on two-wheelers and fourwheelers alike. Sales for the sector are expected to remain flat on a yoy basis, while profits should decline. Likely best performers: Amtek Auto and Amtek India.

Banks: The sector has potential upside from bond portfolio appreciation and a facilitative trading environment. Expect strong performances from brokerages and possible earning dip for a few public sector banks to due to a high base effect. Likely star performers: Kotak Bank and IL & FS.

Capital Goods: Strong forecast earnings growth of 47% led by expected top-line growth of 35%, and margin expansion. Likely top performers: Thermax, Punj Lloyd, Jindal Saw, L&T and BHEL.

Cement: Higher cement prices should drive margin improvements. Profits likely up by almost 50% on a topline growth of 27%. Likely top performers: ACC and UltraTech.

Consumer: Expect a weak quarter with profit growth seen at only around 10%, Expected top performers: Britannia, and Marico. Likely laggards: TataTea, Colgate and Shoppers' Stop.

IT Services: Expect strong volume growth should continue in a seasonally strong quarter. EBITDA margins seen down yoy, but likely to improve sequentially for most companies with visa costs and wage hikes being taken care off in 1Q. Likely top performers: Mphasis BFL
and NIIT . Laggard: Sasken Communications.

Oil&Gas: Assuming oil-bond issuance to the tune of Rs240bn for this fiscal, with Rs121bn for the first half, to be booked in this quarter. Rupee appreciation is likely to have a significant
positive impact on gas distributors. Likely top performers: Aban, Gujarat Gas and GAIL.

Pharma: Impact of currency appreciation on exports and margins should lead to a weak quarter with revenue growth in single-digits at 8%, and negative profit growth (-11%). Base effect should have a positive impact on Matrix and a negative impact on Dr. Reddy's.

Telecom: Expect another strong quarter with profit growth well above 100% yoy. Forex gains in this quarter are likely but to a lesser than the previous quarter. Likely top performers: Idea Cellular and Reliance Communications.
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Published by DalalStreet Business @ 10:20 AM IST.  

Edelweiss' Top Picks in India

Thursday, October 04, 2007

In a recently conducted London Conference, here are Edelweiss Capitals top picks in India and their target prices.
You can research and then enter the stock when the market corrects.
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Published by DalalStreet Business @ 11:50 AM IST.  

Lehman Brothers India Portfolio Strategy

Wednesday, October 03, 2007

FII, Lehman Brothers just a while ago has released India strategy report.After the recent strong run, market valuations have become quite expensive compared with historical levels. However, the declining global interest rate environment coupled with strong flows could mean that the market remains expensive.

The report said,
We are overweight domestic cyclicals, especially those for which interest rates are key inputs in driving demand and valuations. These include banks, automobiles and utilities as key sector plays. We also recommend overweighting construction stocks given strength in both corporate and infrastructure capex. Moreover, we expect large consumption buoyancy, especially in durables, following the award of Sixth Pay Commission.
One can avoid sectors with INR costs and USD revenues. This means underweighting the technology and pharmaceutical sectors. Also underweight on global cyclicals such as metals at this time..

Ten large cap picks include Reliance Industries, ICICI Bank, Larsen & Toubro, Maruti Udyog, Mahindra & Mahindra, Union Bank, SBI, Nagarjuna Construction, NTPC and Zee Telefilms.
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Published by DalalStreet Business @ 12:00 PM IST.  

Tata Motors + Maruti Udyog - Buy or Hold

Tuesday, October 02, 2007

Tata Motors - Weak Sales
Weak domestic sales (down ~3% YoY); strong exports (+16%YoY) mitigated the impact somewhat. Within the domestic segment, MHCV sales fell 7%, whilst cars declined 4%. LCVs continued to exhibit strong growth (+13%) driven by product extensions of the ACE platform. Although sales fell Y/Y, sequentially (MoM) sales rose almost 22%, rising from an average of around 11k units to ~14k.

Interest rates are on a downtrend, with high credit quality clients reporting bulk CV deals at 10-10.25% (almost 400bps lower than the peak in Apr-May). For the broader industry, rates fell 200-250bps. TAMO management said incentives on trucks are minimal, while discounts on cars are now ~6-9% off face value, to push a jaded vehicle line. Citi maintains BUY with a price target of Rs 1,029.

Maruti Udyog Ltd - Sales Rise in September
Domestic sales rose 11%Y/Y (vs17.5% YTD), hampered by a strong base effect, which management indicated will temper growth rates over 2HFY08 too. The last few days of September were also hit by a religious festival, when consumers typically eschew vehicle purchases. Exports rose 55% Y/Y, 51% YTD as it continues to increase penetration in new African and Latin American markets (FY08 target of 55000 units appears achievable).

MUL has maintained its market share at 51% in Aug, with the main gain being c3.3% in the key A2 segment – driven by the Swift variants. Near term, Swift diesel might face competition from the newly launched Getz diesel (~9% more expensive than the Swift diesel).
Citigroup maintains a hold on Maruti Udyog with a price target of Rs 945.
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Published by DalalStreet Business @ 12:03 PM IST.  

Central Bank of India Downgraded

Monday, October 01, 2007

Citigroup Research has downgraded Central Bank of India [CBI] and set a target price of Rs 130. It has initiated coverage with a SELL rating on the stock.

The Citi report says that the banking industry is well poised to grow in India. However, it is skeptical about CBI's performance. Central Bank appears well positioned to capitalize on this growth through its strong pan-India distribution, above-industry deposit franchise and large corporate lending portfolio. Citi estimates pre-provision profits, earnings and loan growth of 16%, 13% and 18% over FY07-10E. This is well below the PSU Banking industry expectation of 20%.

Expect profitability to remain structurally challenged amid competitive margins, low fees and higher NPLs and delinquencies relative to peers. Though management has taken corrective steps, we see only a gradual recovery.

Central Bank is valued at Rs130 per share based on EVA model, which better captures the long-term value of the business and is a standard valuation measure for Indian banking coverage. At a price-to-book (P/BV) of 1.2x FY09E, which is at a slight discount to target multiples for peer government banks, a value of Rs127 per share of Central Bank is arrived at.
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Published by DalalStreet Business @ 11:53 AM IST.  

Analysis on Lupin's Rubamin Acquisition

We reported that Lupin has acquired Rubamin Pharma.[RLL]

RLL is a research driven organization with 145 employees, of which 30% are involved in R&D. The company's R&D capabilities encompass activities such as Product Development and Optimization, and NCE Development Support. This acquisition would provide Lupin access to RLL's customer base of innovator and generic companies in the US and Europe and various technology platforms, which Lupin does not have. We believe that Lupin would be able to use this customer base, and technology platforms to leverage its own CRAMS initiatives. Lupin will also fill gaps, which RLL has in terms of scale-up and forward integration. Apart from this, we expect Lupin to initiate operational restructuring to reduce cost and improve profitability.

Currently, RLL has sales less than Rs500 mn and EBITDA margin lower than Lupin's margin. However, ASK India expects sales of RLL to grow to Rs2.5- 3 bn in three years and significantly improve profitability. ASK maintains a BUY on Lupin with a price target of Rs 807. Fully diluted EPS expected for FY08 and FY09 are - Rs 36.9 and Rs 44.8.

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Published by DalalStreet Business @ 10:09 AM IST.