Best performing Sectors in Indian Economy
Saturday, February 23, 2008
This is one bit of very interesting data that our analyst pulled off and thought we share with all our readers here. If you are an investor using the Mutual Fund route, then very likely your fund managers has churned his portfolio depending on the table below. If you are wondering why your funds are under performing, then the reason is obvious, your Fund Manager failed to ride these sectors.The data is being benchmarked against BSE 200 [Our recommended HDFC Top 200 Fund follows the same benchmark]
2003: BSE 200 - 94%
Metals - 211%
Capital Goods - 167%
Auto - 149%
2004: BSE 200 - 15.6%
Bankex - 33%
Capital Goods - 29%
FMCG - 56%
2005: BSE 200 - 34%
Consumer Durables - 114%
Capital Goods - 93.65%
FMCG - 55%
2006: BSE 200 - 39%
Capital Goods - 56.7%
FMCG - 40%
Oil & Gas - 40.1%
2007: BSE 200 - 60%
Metals - 121%
Capital Goods - 117%
Oil & Gas - 115%
So what are your picks for 2008 ? Our pick is Bankex, though we expect the returns this year to be same as 2004 [it was an election year too]
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Published by DalalStreet Business @ 11:24 PM IST.
Kotak retains BUY on DLF + HDIL
Friday, February 22, 2008
In a report released just a while ago, Kotak Securities has retained BUY on Mumbai's Real Estate Giant - HDIL and also on Delhi based DLF. Kotak maintains a Neutral opinion on the overall sector.DLF: Mid Income Housing - Zindabad
Excerpts after talking to the DLF management. Investors appear concerned about (1) the delay in the DLF Offices Trust (DOT) listing on commercial business, (2) DLF's financial leverage, (3) DLF's ability to ramp up its residential segment, and (4) financial estimates. Commercial segment continues to see strong momentum and monetizing this through DOT will just be a timing issue. On the residential front, DLF has shifted its focus to mid income housing and large pre-sales provide revenue visibility.
Revenue estimates stands revised to Rs152.7 bn for FY2008E (Rs152.9 bn earlier), Rs203.9 bn for FY2009E (Rs201 bn earlier), and Rs255.1 bn for FY2010E (Rs241.4 bn earlier). PAT estimates are revised to Rs93.9 bn for FY2008E (Rs93.8 bn earlier), Rs123.4 bn for FY2009E (Rs123.3 bn earlier), and Rs141.5 bn for FY2010E (Rs143.6 bn earlier).
Target price of Rs1,220/ share is based on our Mar'09-based NAV of Rs815/share and a terminal value of Rs406/share.
HDIL:
HDIL has sold its project named Kaledonia situated at Andheri (East) to Mack Star Marketing Pvt. Ltd for Rs9 bn.The sale price of Rs20,000/sq. ft is in line with market.
Revenue estimates stand revised to Rs24.0 bn for FY2008 (Rs19.4 bn earlier) and Rs28.8 bn for FY2009 (Rs34.0 bn earlier).PAT estimates to Rs13.9 bn in FY2008E (Rs10.5 bn earlier) and Rs15.8 bn in FY2009E (Rs18.9 bn earlier). HDIL pursue growth opportunities as well as invest in its airport slum rehabilitation project. Kotak retains target price of Rs1,200/ share and BUY rating.
Here is ICICI's recommendation on HDIL. We are more inclined to go with Kotak's reasonable valuation and recommendation.
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Published by DalalStreet Business @ 11:35 AM IST.
Markets to Remain Volatile - Zenith behind us ?
Thursday, February 21, 2008
The highly uncertain external environment and risk aversion amongst global fund managers may keep Indian markets volatile for next few months.
We knew it for long that sub-prime loss will be booked on P&L, US economy was slowing down, food inflation is rising, European growth slowing down a tad, higher inflation is forcing central bankers in most growing economies to tighten monetary policy stance and valuations are unsustainably high in some emerging markets. Ameicans and FIIs just waited too long to accept this.
Since FIIs are now back to value investing instead of chasing dreams, the markets may not run away but these are certainly not "weak". Consolidation at the present or a little lower level would strengthen the market for the medium term.
The stress test on Indian economic fundamentals suggests that if the US were to go into a profound recession and the world does follow her in the deep pit, India may still grow 6.5%, a decent number as compared to 4% growth seen in previous global shocks of FY98 and FY01.
About 36% of the contributors to Sensex EPS would be hurt by a global slow-down so you are required to take the following actions, take a business perspective and Market cycle approach may not be profitable. Look at strengths not apprehensions, strong visible growth.
With a $10 billion FREE PACKAGE [rumored to be in the offing] to Agriculture sector from the Union Government, don't expect too much. The zenith of 21,206 maybe behind us.
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Published by DalalStreet Business @ 11:40 AM IST.
Infosys to Exit OnMobile - Stock Expensive
Wednesday, February 20, 2008
Infosys Technologies Ltd has proposed exit its holding in OnMobile said a report released just a while ago by HDFC Sec. The stock at 32x FY09E earnings estimates is expensive, considering that the only comparable peer listed, Tanla solutions is at 14x FY09E earnings.Product concentration, which is 67% on ringback tones, ringtone downloads and music messaging applications is a major cause of concern. Going forward, spending per user on these services will fall with the introduction of innovative services in the Indian VAS market. In-house development by Telcos of product suites offered by Onmobile will further dent the revenues of OnMobile. Two major telcos Bharti Airtel and Reliance Communications already have their own operations - Bharti Telesoft and Tech Reliance which will cater to parent company needs.
The stock looks expensive at current levels and investors are advised to Book profits.
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Published by DalalStreet Business @ 10:19 AM IST.
Bharti Airtel - Downgraded to Hold
Tuesday, February 19, 2008
In a report released just a while ago, Deutsche Bank [DB] AG has downgraded Bharti Airtel to HOLD from buy. DB is bullish on the long-term sector growth compared to the street and believe that the sector's period of sustained out-performance is behind us. Bharti led to an exponential growth and a large revenue base (c18bn wireless revenues in 6-7 years) - a feat unmatched by any other sector in the last five years. However, both growth and margins are likely to be impacted as operators move deeper into the rural areas in search of revenues. A look back on Hindustan Unilever's past performance reflects a similar dynamic.With the entry of new GSM players into the market, expect revenue/min to fall 16% p.a for the next two years (prev est 10%). The vigorous infrastructure sharing efforts reflect the strategic challenge for operators over the next 2-3 years.
Bharti capex at Rs 360bn during FY08-10E compared to cash flow from operations of Rs 429bn. Bharti is likely to end FY08E with a capex of Rs133bn and management has indicated a capex of cRs 120bn($3bn) in FY09E.
DB expects Bharti to Rs 35.26 for FY08, Rs 44.69 for FY09 and Rs 51.35 for FY10. DB sets a target price of Rs 860/ share based on DCF and adds that Telecom sector may not outperform in the near term. In a somewhat bold move, DB does not ascribe any extra value to Bharti's tower sharing initiatives through its 3-way JV of Indus towers. The presence of minority shareholders in the tower company will constrain Bharti from extracting the full value of the sharing.
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Published by DalalStreet Business @ 2:07 PM IST.
Goldman Sachs Underweight on India
In a report released just a while ago, Goldman Sachs [GS] has maintained UNDERWEIGHT on India stating - India has sold down but other markets have corrected as much or more. The growth /inflation /rate /currency tradeoff is less favorable now than it was in 3Q07, when the market began its last bull move. Earnings growth, while good, is not likely to surprise positively.Goldman Sachs estimates valuation support at 15x P/E, which equates to 20% downside or a range-bound market to end-2008.
From the Graph above, GS is looking forward for the SENSEX to trade at 15X earnings, implying 20% immediate correction or 9% correction in the next 6-9 months. Citi - the bankrupt FII has set a 23,500 to 25,000 target before correction which we had termed it as absurd valuation.
GS in its report stresses on the following 5 issues,
Pricing:India is still well up on its August 2007 lows and its decline is comparable to or less than most other Asian indices.
Valuation:Valuation parameters, which are clearly high in absolute terms, relative to the market's historical ranges and relative to other regional alternatives.
Fundamentals:Macro and earnings growth prospects remain good in absolute terms, but the mix of key macro variables is less favorable than it was in the latter part of 2007 when the market was in a bull trend. Moreover, the potential for earnings to positively surprise consensus expectations is low.
Domestic Flows:Retail investors have been a key driver of the market's strong rise from August 2007-January 2008, and, as noted, their speculative enthusiasm has been dampened.
Implementation:15x forward earnings as fundamental support, which is about 20% below current levels. Our year-end Sensex index target of 18,000 equates to slightly above 15x earnings.
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Published by DalalStreet Business @ 11:29 AM IST.
Bajaj Auto's Patent extinguishes TVS' Flame
Sunday, February 17, 2008
In a landmark judgment, the High Court of Madras [Chennai] has upheld Bajaj Auto's patent for use of twin spark plugs in an engine of a small bore used in Motorbikes and has ordered TVS Motors not to go ahead with the launch of TVS Flame a bike which is using Bajaj's technology.Are you surprised by Bajaj Auto and patents ? Yes, as a company under its erstwhile incompetent laidback Chairman, Rahul Bajaj, there was no place for innovators. Things don't work the same anymore under Rajiv, who is a hands on person and thus the changes you see in India's Motorbike industry. In fact, Harvard Business Review had a case study on Rajiv Bajaj for transforming incompetent legacy business.
Atleast now, Indian companies should wake up and sanction liberal budgets towards their R&D divisions to stay competitive in the flat global market. Will this mark the beginning of a new era in the Indian industry ?
We do not recommend TVS Motors - here is the research.
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Published by DalalStreet Business @ 12:42 PM IST.
Shankar Sharma A Global Chameleon
Monday, February 11, 2008
It was another day blood bath on the street - Day of Rumors, Losses and continued selling from Foreign Institutions. If you are sticking to VALUE INVESTING, then you don't see the PANIC button. However, if you have been speculating, let Lord save you.
CNBC TV-18 which rose to fame with rising market and its worthless reporters have some Global Chameleons as hosts - presenting Shankra Sharma of First Global. His views as reported by CNBC-TV18 on 26th Sept-07,
Our view is that India is headed for a market situation in the next six months time wherein we will see index levels get taken out successively. I would be surprised if the index doesn’t hit between 25,000 and 30,000 in the next six-nine months time.This same person today says that the markets can go down by another 20%.
I see a journey back to levels, which will approach four digits rather than remain five digits. It may or may not get there, but you will definitely get very close to those levels. By the middle of the year, we should be trading closer to those levels ‑ 20% lower rather than 20% higher.What i don't understand is, what changed in the Indian economy so drastically that Shankar Sharma has become a Big Bear from Big Bull ? Kindly ignore these biased CNBC-TV18 hosts/guests and their opinions.
You may have noticed in every article that is being posted on this site, we quote expected EPS, EBITDA other factors that are very critical in deciding to hold, buy or sell the stock. If you don't understand, then Mutual Funds is the place for you to be. No Kidding, if you are here to make BIG MONEY in long term, be disciplined and you will make it :-)
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Published by DalalStreet Business @ 4:37 PM IST.
Indian Economy More Resilient
Wednesday, February 06, 2008
The markets are concerned about the negative impact on India's economy if the US is thrown into a severe recession, but for now that remains an "if". The RBI is focusing on a domestic economy that still has strong growth momentum and rising inflation risks.
India's growth is set to moderate in 2008. US will avoid a full blown recession but is likely to witness an extended period of lackluster growth. This is likely to hurt India's exports, most notably exports of services, of which about 60% depend on US demand.Expect the Indian GDP to soften a little bit to 8.5% in 2008 and will be only second to China. India stands to be the best to attract capital inflows. [FDI as well as stocks].
If the US Fed cuts rates by a further 100bp to 2.00% by June and successfully averts a major recession, we expect India to attract massive capital inflows, leading to heavy Forex intervention by the RBI to avoid excessive rupee appreciation. However, if the US were to slip into recession, things would be different - India's growth is likely to soften to 7%. In past US recessions, a 1pp drop in US GDP shaved 0.1-0.3pp off India's GDP. The impact could be larger this time due to increased integration.
Finally, 2008 being a pre-election year, it is likely to be aam-aadmi's budget. The government will also be hesitant to take major policy decisions, evident from the de-sealing drive in Delhi which had started a year ago. With Inputs from Lehman Brothers and Credit Suisse.
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Published by DalalStreet Business @ 11:28 AM IST.
Buy Punj Lloyd - Kotak
Monday, February 04, 2008
Punj Lloyd took a hit on its bottom line last quarter due to project delay and cost overrun. However, the markets have reacted more than necessary considering the strong order-book the company enjoys.Punj Lloyd's management expects to settle these losses once the projects get over by March-April 2008. In that case, losses may get reversed. Kotak expects blended operating margins to be around 9% in FY08 and expect it to improve to 10.3% in FY09 and 11% by FY10.
The company's revenues to grow at a CAGR of 39% between FY07-FY10 and profits to grow at a CAGR of 61% between FY07-FY10. At the current price of Rs.401, the stock is trading at 21.1x and 14.9x its P/E multiples on FY09 and FY10 estimates, respectively.
Sum of the parts Valuation:
Value of core business 576 At 21.5 x FY10 estimated earnings
Value of JV with Ramaprastha grp 14 At 2.5x its book value of investment
Value of Pipapav shipyard stake 33 At Rs 80 per share
Kotak recommends a BUY with a price target of Rs 624. Citi also has a Target Price of Rs 620 post Q3FY08 earnings review.
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Published by DalalStreet Business @ 1:00 PM IST.