Caution on Indian Banks - Morgan Stanley
Thursday, June 26, 2008
According to Morgan Stanley, India has the worst macro among Asian countries right now - implying significant probability of tightening. This move is clearly bad for banks - the question is how bad. In Morgan's view, it's very bad - don't be surprised if banks correct by another 25-30% from current levels, even after they have declined 30-50% YTD.
Banks earnings will be hit by slower volume growth, weaker NIMs and deterioration in credit quality. The hike in rates will impact individuals and as well as corporate profitability, which will probably cause further deterioration in asset quality. PSU Banks will book MTM losses on their bond portfolio, given that 10-year G-sec yield that have already moved around 60-70bps since Mar-08 and will increase further given RBI's latest move.
Indian Banks and their forward P/E [FY-2009 E] is recorded as below.
HDFC 23.6
Kotak Bank 21.5
HDFC Bank 19.9
Reliance Capital 19.9
Axis Bank 18.8
ICICI Bank 16.7
IDFC 16.3
SBI 11.9
IDBI 7.6
PNB 5.8
BOI 5.6
Corp Bank 4.7
Bank Of Baroda 4.6
Canara Bank3.8
OBC 3.1
Dalal Street Opinion: One can accumulate PSU Banks with really long term horizon [5-10 years] as they are profit making and dividend declaring companies. Their full vaule will be unlocked within the next decade.
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Published by Sunil K @ 7:22 PM IST.
How to Calculate SENSEX Earnings / EPS ?
Wednesday, June 25, 2008
Many have always wondered how to calculate the Earnings / EPS of Bombay Stock Exchange's 30 stocks benchmark Index - the SENSEX. It is a very easy and the process is highlighted below.The EPS of Sensex is the sum of all the individual companies EPSs considered on a pro-rata basis on the available floating stock of the company.
Lets analyze what does this mean, First, have the list of 30 companies which constitute the SENSEX in a spreadsheet. Or download the spreadsheet from BSEIndia.com. Now, all you need to do is get individual EPS of each company independently. This EPS must be taken on a pro-rata basis depending on the availability of the free float for calculating the BSE Sensex EPS. (i.e non-promoter holding, it is readily given by BSEIndia) Make another column in your spreadsheet and multiply the EPS the company reported by the Adjustment Factor.
For example, lets consider ACC. ACC reported an EPS of Rs 72.70 for FY-2008. The Adjustment Factor for ACC is 0.60, means 60% of ACCs stock is free floating stock [or non-promoter non-locked in stock] Multiplying 72.70 * 0.60 = Rs 43.62 is ACCs contribution to SENSEX EPS.
We are attaching the Spreadhseet for your ready reference which you can download and use it in every way you want to. Kindly feel free to post any questions you have in mind.
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Published by Webmaster @ 4:38 PM IST.
Indian Party Spolied for Sure, But Not Over
Thursday, June 19, 2008
In a somewhat bold report written by Citigroup Economists, they are of the view that the Indian Party Sp'OIL'ed for Sure, But It's Not Over [Reason OIL].
The 40% rise in oil prices since Jan 2008 is key to the direction change seen across all macro variables in India. The pressure could ease a bit from FY10 as new hydrocarbon discoveries come onstream.
Surprising but true - in terms of transport fuels, the Indian consumer is not as subsidized as is generally thought…high taxes are the culprit.
Citi has maintained GDP estimates at 7.7% for FY09 ; but lowered for FY10 from 8.3% to 7.9%. The Rupee likely to remain weak in the near term and with inflation to remain high, Citi sees further monetary tightening in coming months.
Including all the off-balance sheet items as well as the state deficits, India's combined deficit would come in close to 9% of GDP. This is an area to worry about.
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Published by Webmaster @ 12:44 AM IST.
Emco + Crompton Greaves to Transform your Portfolio
Wednesday, June 18, 2008
Investors can consider Holding or Adding Emco and Crompton Greaves to transform their portfolio.Emco:
Emco has posted a healthy net sales growth of 36% YoY to Rs 3.4bn for Q4FY08 and 44% to Rs 9.4bn for the full fiscal. Project division revenues have picked up pace during H2FY08, contributing 30% of net sales for the fiscal. The management expects an even higher revenue share from this division in FY09, at 45%. Emco's order book stands at Rs 11bn, which is 1.2x FY08 sales. The healthy order backlog and bright outlook for the project division indicate good revenue flows over the next two years.
EBITDA margins moved up by 155bps during Q4FY08 to 14.2% and by 50bps for FY08 to 13.7% on strict cost control measures. Expect margins to dip slightly to 13.4% in FY09 given the higher share of project division revenues, which earn lower margins than transformers.
EMCO is expcted to report a fully diluted EPS of Rs 14.7 and Rs 18.9 for FY09 and FY10 respectively. On a DCF model, one can expect EMCO stock to trade at Rs 240 in 9 months.
Crompton Greaves:
Crompton's power division revenue growth slowed down to 13% in FY08 after growing at a 33% cagr over previous three years. Management attributed this slowdown to a fire in one of the power transformer plants and implementation of more stringent quality standards at its domestic factories.
Margins for power business are expected to be 50-75 bps lower than FY08 due to the sharp increase in steel prices. Management expects margins for Industrial and Consumer division to be stable. For the overseas business the management expects margins to improve by 1-1.5% in FY09.
In Q4 FY08, order booking has been slow. However, enquiries have been strong in recent months so there is no slowdown expected in the next 18 months or so. Finally, at the recently concluded investors meet, the management expressed confidence of maintaining 25-27% revenue growth for the power business and 14-22% growth for the Consumer and Industry divisions over next few years.
On a consolidated basis Crompton is expected to report an EPS of Rs 13.2 and Rs 18.1 for FY09 and FY10 respectively. CLSA has a BUY on Crompton with a price Target of Rs 333.
Oue View: Existing investors can hold. Fresh positions can be taken around Rs 230 levels.
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Published by Sunil K @ 10:34 AM IST.
United Spirits - Mallya running out of spirit
Monday, June 16, 2008
After the pathetic loss of Royal Challengers in IPL, it seems like Vijay Mallya is running out of spirits. [J/K] What is really haunting Mallya is higher price of molasses. Industry sources indicate continuing molasses price run up led by lower sugar production and growing demand for ethanol. Merill estimates molasses to be in sharp deficit versus surplus over the last two years and FY09 price to rise ~36% vs 25% earlier.United Spirits [US] margins will reverse their impressive expansion of past three years and decline by 80bps in FY09. Synergy benefits from SWC integration have likely maxed out and UNSP does not have pricing power in 2/3rd of its Govt. controlled markets to counter rising molasses prices.
India has adopted a bio-fuel policy according to which 5% blending of molasses produced ethanol with fuel is permitted. This limit for mixing of ethanol in fuel is going to be raised from 5% to 10% from 1st Oct’08. This would generate a significant demand on molasses which is used to manufacture ethanol.
The stock has corrected 31% from its peak in January. It is now trading at P/E of 27xFY09E EPS and ~70% premium to the Sensex. Merill estimates US to report an EPS of Rs 43.20 and Rs 55.7 for FY09 and FY10 respectively. Merill has cut the price target on United Spirits to Rs 1,350 with an UNDERPERFORM rating on the stock.
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Published by Komal M @ 11:46 AM IST.
Jyoti Structures + KEC International - Transmission Tower Business Outlook
Sunday, June 15, 2008
The Outlook for Tower and related business remains positive in medium to long term even though the sector saw their margins come down YoY due to cost inflation leading to higher raw material cost. KEC International and Jyoti Structures are two favorites in this sector.KEC International:
The merger of RPG Transmission and NITEL will lead to higher efficiency and will enhance operational and financial capability of KEC. The recent quarterly performance of KEC clearly demonstrates this fact.
Current order book of KEC stands at Rs 50 bn, which is 1.75 times of the FY08 revenue. The total turnover would grow at a CAGR of 28% for FY08-FY10E. The government is planning to go for tendering of 40000 telecom towers under USO fund to role out telecom network in the rural areas. With KEC planning to make a big entry here we expect the growth in revenue in Telecom Towers for the company would remain at 40% CAGR during FY08-FY10E.
On a consolidated basis expect a 25% CAGR in revenue and 21% CAGR in net profit for KEC over FY08-FY10E. EPS for FY09 is expected to be Rs 41.4 and Rs 51.2 for FY10. One can ADD KEC based on 8x EV/EBIDTA for FY10E with a 12 month price target of Rs 685. At the Target price the stock would trade, at 17x and 13.4x to FY09E and FY10E EPS estimates.
Jyoti Structures:
Jyoti Structures (JSL), one of the key players in the Transmission & Distribution space. JSL is amongst the top 3 players in India and has a strong management with proven execution skills.
JSL stands to gain the most from the Private sector Power business. JSL's domestic order book stands at Rs 2652 crore with around Rs 1800 crore orders from the transmission line towers projects. Around 2/3rd of the transmission line tower projects orders are in the 400 KV lines and around 40% of the rest in the 765 range KV lines.
The 70% South African subsidiary of JSL has also witnessed a good move in winning substantial orders in a short time span. Currently this subsidiary has a total orders to the tune of USD 110 mn which are to be executed in the next one and half year's time.
JSL is expected to report a modest EPS growth of 17% for FY09 to Rs 10.53 and for FY10 32% to Rs 14.00. Existing investors can hold to the stock. Fresh Additions can be considered with a 12 month price target of Rs 190.
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Published by Komal M @ 11:16 AM IST.
April Industrial Growth up 7%
Thursday, June 12, 2008
The Indian Industrial Production - IIP for APRIL-08 was 7% Vs 3.9% in MARCH-08. Led by mining up 8.6%, manufacturing up 7.5% while electricity came in at a poor 1.4%. The slowdown in industry coupled with a deceleration in service growth (mainly financing and insurance) is likely to result in overall GDP growth coming in at 7.7% in FY09 v/s 9% in FY08. Capital goods at 14.2% remained in the double-digit range but lower than trends last year. This supports the view that investment growth in the coming year is likely to be relatively lower than last year.
In the autos sector, higher interest rates, curtailment in retail finance and a slowdown in growth has curbed demand, but this has been offset in the past two months by aggressive discounting and financing schemes.
In the construction sector, rising input costs coupled with an oversupply due to the export ban in cement, delays in raw material availability and a slowing economic outlook remain risky.
A month from now we will have Q1-FY2009 results and guidance by managements paving way for a clear picture.
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Published by Webmaster @ 2:07 PM IST.
Historical Indian Bear Market / Correction Analysis
Tuesday, June 10, 2008
Yesterday we presented with India's GDP growth under various governments from 1991 to 2008. Today lets analyze the "Bear Market" or "Market Correction" [Call it whatever you want to] since 1992 to 2008. Benchmark used in the Analysis is NIFTY.- April-92 to April-93: Nifty's peak value in April-92 was 1281 and it corrected by 53% to bottom out at 600 in April-93.
- Sep-94 to Dec-96: Nifty scaled to a high of 1385 in Sept-1994 and started correction to hit a bottom of 775 in Dec-1996. Correction of 44% over 15 months.
- Feb-00 to Sep-01: Nifty inched to a peak of 1818 in Feb 2000 and started correcting until Sept-2001 recording a low of 850. Correction of 53% over 20 months period.
- Jan-08 Till date: Nifty recorded an all time high of 6357 in Jan-08 and has fallen by 30.6% to 4408.
Also, here is the 10 Biggest Fall in BSE Sensex in the past 12 months.
1. Jan 21, 2008 - 1,408.35 points
2. Mar 17, 2008 - 951.03 points
3. Mar 3, 2008 - 900.84
4. Jan 22, 2008 - 875.41 points
5. Feb 11, 2008 -833.98 points
6. May 18, 2006 - 826.38 points
7. Mar 13, 2008 - 770.63 points
8. Dec 17, 2007 -769.48 points
9. Oct 17, 2007 - 717.43 points
10. Jan 18, 2007 - 687.82 points
Labels: 10-Biggest-Fall-For-Sensex
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Published by Komal M @ 12:58 PM IST.
India Investment Strategy
Monday, June 09, 2008
Global factors combined with internal developments within India are a dent to investment in India in the near term. Apart from Fiscal Deficit and Inflation some other issues are likely to affect the financial market performance in the next few quarters.After talking to few Analysts, most of them were of the opinion to wait and watch. An excerpt from the interaction is as follows.
RBI May Step In: Inflation above 9%, regardless of cause, could make the RBI raise the reserve rate by 50-100 bp in 2H08. Hike in Interest Rates is not ruled out if the official Inflation figure rises above 10%.
Subsidized Oil and Bonds: The government is likely to issue about Rs1 trillion worth of additional fiscal and oil bonds in FY09 versus FY08. Banks will have to absorb most of these bonds to liquefy their holders who need cash.
Lending Rates to Rise: Unlike in the last few months, one can expect the authorities to allow the banks to charge higher lending rates with pressure on margins and deposit rates now.
Government Capex slowdown: The worst of all is the slowdown in Government's CAPEX plan. Data suggests that around elections, central plan outlay (i.e. total spending by all governments and public sector) in key infrastructure industries miss the budget by about 12% versus a 3% miss in other times. Annual spending growth averages at 3-4% YoY around elections versus near 20% in the rest. This year is likely to be one with a record miss. [Will affect all Capital Goods and Infrastructure Companies which in-turn will affect Manufacturing companies.]
Appreciating Rupee: Every 1% higher Rupee would reduce oil deficit burden by about 0.15% of GDP for crude at around US$120.
Since this was largely an FII driven rally [$40 bn investment between 2003-07], we have to wait for them to stop selling and start BUYING to conquer previous highs and this may not happen immediately, be prepared to HOLD for more than 12 months.
With Inputs from Citi, CSFB and DSPML
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Published by Sunil K @ 11:46 AM IST.
2 Years of market media service - Nifty Watch Freebie
Friday, June 06, 2008
This site in its new form came to life 2 years ago on June 7th. Since tomorrow is a holiday for markets we thought of announcing it today.
As a birthday bash, we would like to give away an Excel Spreadsheet to track Live NSE Indices S&P CNX NIFTY, S&P CNX DEFTY, S&P CNX 500 , NIFTY MIDCAP 50, CNX NIFTY JUNIOR CNX MIDCAP, CNX IT, CNX 100, BANK NIFTY.
You can also get live stock quotes of companies in Nifty, IT, Banking, Midcap 50 and Junior Nifty.This is useful to employees of companies where they block NSE / Kotak websites.
Usage:
Enable Macros and Enable Auto Refresh and you are all set to keep track of the market.
For Readers who are Stock Researchers based on Technical Analysis, we are willing to provide access to NSE Cash Market Data from 1995 and NSE Derivates Market Data from 2001.
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Published by Webmaster @ 11:15 AM IST.
Reliance Petroleum - Buy or Sell ?
Wednesday, June 04, 2008
Two big brokerages have come out with conflicting reports on reliance Petroleum one with a BUY - Can't Wait to Start and see cash flow while the other with SELL - on weak gasoline spread forecasts. What do you do now ?Lets first analyze the BUY Report:
Based on average product spreads and L-H differential over last 12 months, 6 months, and 1 week, RPL would have reported GRMs of US$16.6/bbl, US$19.5/bbl, and US$30.9/bbl respectively. This compares very favorably against our base case of US$16.3-16.5/bbl dor FY09-10E. The inherent cushion available to RPL's GRMs justifies target EV/EBITDA at 7.0x (higher end of peers, but lowered from 7.5x).
It is also reported that, Landing price RPL's exports will be cheaper in Europe. RPL is expected to report an EPS of Rs 12 for FY2009. [Somewhat bullish estimates]
The Sell Report:
RPL's new 580Kpbd refinery, representing almost 50% of estimate of global oil demand growth in 2009E, is likely to impact refining margins globally, particularly gasoline spreads, when it comes on stream in 4Q2008E. Incremental RPL supply amid weak gasoline demand and tighter ethanol blending norms in the key US market are likely to keep gasoline spreads weak over the medium term, in our view. While RPL, despite high gasoline yield, will likely make healthy margins owing to feedstock advantage, its share price implies a much more bullish refining environment.
Dalal Street Analyst Views: It is highly unlikely that RPL will report an EPS of Rs 12 for FY09. Consensus estimate is Rs 6 while commissioning the refinery ahead of scheduled time Sept-2008, can see the EPS rise to as much as Rs 8. We stick to our previous coverage and still maintain a fair value of Rs 158 and a NEUTRAL recommendation on the stock.Then we had advised to Book Profits because the prevailing market price was Rs 225
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Published by Komal M @ 12:41 PM IST.
Performance of Various Asset Classes
Tuesday, June 03, 2008
We are presenting to you the YoY change in %ge of various asset classes comprising commodities, bonds, equity indices. Nickel and Zinc are the top losers in the last 12 months while Crude, Soyabeans and Corn are the biggest gainers. The BSE Sensex occupies the Median slot in the list, check it out -52.73 Nickel
-45.84 Zinc
-18.28 Nikkie
-16.42 US 10 Year
-10.63 Lead
-7.87 FTSE
-6.43 Dow Jones Industrial Average
-4.76 UK 10 Year
-0.6 Sugar
0.11 Germany 10 Year
0.62 India 10 Year
0.78 Japan 10 Year
4.72 Aluminum
8.7 Copper
13.46 BSE - Sensex
17.81 Silver
18.14 Cotton
18.53 Paladium
29.11 Gold
39.07 Naturalgas
40.64 Brazil - Bovespa Equity Index
52.53 Wheat
57.95 Platinum
60.12 Corn
68.54 Soybeans
82.32 Crude
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Published by Komal M @ 1:43 PM IST.
India's Balance of Payment with rising crude oil prices
Monday, June 02, 2008
Crude Oil speculators have created a havoc in emerging countries like India. As the 10th largest oil importing nation in the world (oil imports are close to 70% of India's crude oil requirements), a continued uptrend in prices will likely have repercussions on India's Balance of Payments (BoP). With every US$1/bbl increase in oil prices likely to increase the import bill by US$700mn, if WTI touches US$150/bbl, the current account deficit (CAD) would widen to US$61.3bn or 4.7% of GDP v/s base case of the CAD at US$37bn or 2.8% of GDP. This would lead to a drawdown in reserves and much further currency weakening. Currently, to compensate the oil marketing companies for the under-recoveries, the government is likely to issue oil bonds to the tune of Rs630bn (1.2% of GDP) in FY0. As every US$1/bbl increase in oil prices raises the under-recoveries by ~US$1bn, bond issuances could more than double to Rs1.5trillion (2.8% of GDP), if prices rise to US$150/bbl.
Impact of an Increase in the Indian Oil Basket on the BOP
If the crude oil price is going to hover around $115, $135, $150 and $200, then India's Trade Deficit would widen to $115bn, $129bn, $140bn and $175 bn respectively. In order to bridge the trade deficit gap, if the Government decides to hike fuel prices, then the impact on inflation for the above said crude prices will be 4.70% 5.67% 7.48% and 12.40% respectively. Lets hope the crude prices stops boiling and settles down.
Labels: How-Crude-Oil-at-200-dollars-will-affect-India
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Published by Sunil K @ 12:05 PM IST.