Investing in high dividend yield stocks with a consistent track record is a good strategy

Investing in high dividend yield stocks with a consistent track record is a good strategy

With tough economic conditions and falling interest rates, investing in high dividend yield stocks with a consistent track record is a good strategy.

The current challenging times and the sharp correction in the equity markets have led to a dramatic fall in stock valuations. However, picking a stock for investment has also become an equally difficult task, given the increasing risk as corporate performance becomes unpredictable. Little wonder then that stock markets have turned volatile and sentiment is weak. Investors have turned wary and their appetite for risk has almost vanished.
Simultaneously, interest rates have started falling and bank fixed deposits now provide a return of between 3.5 and 8 per cent annually, which suggests that returns on the so-called safer assets are diminishing.
In this scenario, the strategy to invest in high dividend yield stocks would make good sense. The Smart Investor crunched numbers of all companies listed on the BSE with a market capitalisation of over Rs 100 crore and a dividend yield of about five per cent or more. In addition, factors like growth prospects, leverage (in terms of debt-to-equity), revenue track record and cash flows were also considered to arrive at the shortlist of nine investment-worthy companies (See: Dividend Stars) .
These attributes should not only ensure dividends in future, but also indicate that there is potential for capital appreciation in the longer run. Apart from these nine companies, there are 15 more that offer high dividend yield and deserve attention. (See: Consistent Performers) Read on to know more.

Deepak Fertilisers
Deepak Fertilisers, a major player in nitrogen-based bulk chemicals (accounts for 71 per cent of total revenues), has been a key beneficiary of consistent demand from user industries like pharmaceuticals, pesticides, textiles, fertilisers, rubber and petrochemicals. It reported a 34 per cent growth in sales and a decline of 9 per cent in net profit for Q3 FY09.
The fall in profits was on account of lower operating margins (due to higher trading volumes), a 182 per cent spurt in interest costs and a shutdown of its ammonium nitrate plant for 59 days.
Going ahead, although realisations will be lower, given the 20-40 per cent correction in chemical prices, the company should benefit from higher volumes and a simultaneous fall in raw material (phosphoric acid, etc) prices. The company is increasing its capacities of diluted nitric acid (DNA) by 50 per cent and ammonium nitrate by 45 per cent this quarter.
Besides, the enhanced availability of gas from Reliance Industries' KG Basin would prove to be a positive trigger helping in producing more volumes of methanol (FY08 capacity utilisation of 31 per cent) and fertilisers. Increased capacities, restart of plant, higher utilisation levels and, the start of revenues from real estate and power generation businesses, augur well for the company, and should ensure healthy growth in financials. At Rs 53.4, the stock is trading at 3.4 times FY09 and 3.6 times FY10 estimated earnings.

Gateway Distriparks
The decline in India's exports (down 9.9 per cent) and slowdown in imports (up just 6 per cent) during November 2008 was bound to have an impact on companies like Gateway Distriparks, which generates about 70 per cent of revenue from the container freight business.
During Q3 FY09, Gateway reported a 10 per cent decline in volumes, but its standalone revenue was higher by 30 per cent on account of higher realisations earned on ground rentals. However, these concerns of slowing foreign trade may continue for some time, but, given that the company is the largest port-based container freight player with presence in all the major ports like Mumbai, Chennai, Vizag and Cochin (20 per cent market share at Mumbai port), it should benefit whenever trade revives (likely in 12 months).
Additionally, there is cushion in the form of its recent entry into the railway container business. The income from railway business increased a robust 226 per cent in Q3 FY09 at Rs 43.8 crore on account of addition of seven new rakes taking the total capacity to 14 rakes.
The company is expanding its rakes capacity and is also investing in the cold chain business as long-term growth drivers. It has plans to acquire 22 new rakes and increase the cold chain capacity from 10,000 pallets to 25,000 pallets. The cold chain business, which is growing fast and accounts for 9 per cent of total income, holds huge potential in terms of transportation and warehousing services for the agriculture and processed foods sectors.
Gateway (is virtually debt-free) provides good long-term investment opportunity in light of the prospects of businesses it operates in, consistent growth in revenues and valuable asset base in key logistic areas. Overall, while there are some near to medium term macro economic issues, which are yet to be fully priced in, the stock is a good long term investment and can be considered at dips. The stock is trading at 7.5 times FY09 and 8.5 times FY10 estimated earnings.

LIC Housing Finance
Among the leading housing finance players in the country, LIC Housing provides loans for homes as well as construction activities. In FY07 and FY08, LIC Housing has grown at robust rates; consolidated net income and profit have risen by an average 30 per cent and 37.5 per cent, respectively. Even for the nine months ended December 2008, net income and net profit was up 36 per cent and 39 per cent, respectively. Notably, the company’s net interest margins (NIMs) have been healthy and ranged between 2.6 per cent and 3.3 per cent in the last six quarters. Likewise, while asset quality has also been improving (net non-performing loans declined to just 0.7 per cent in Q3 FY09 from 0.9 per cent in Q2 FY09 and 1.6 per cent in Q3FY08), provision coverage is reasonable at over 50 per cent.
The improvement in performance (since FY07) is largely due to the internal restructuring the company undertook, including strengthening its risk management and loan recovery systems.

Among the few worries that have lately cropped up, say analysts, is the high growth in loan advances to project developers in Q2 and Q3 of FY09. Although this segment provides higher yield as compared to loan advances to the retail (individual) segment, the tough environment being experienced by the former is the reason for their concerns.
Positively, the project developer segment accounts for less than 10 per cent of total advances, with the rest coming from the retail segment. Thus, as NIMs are expected to hover close to 3 per cent levels, analysts suggest that asset quality may deteriorate (though not significantly) due to the difficult macro environment.
With net profit estimated to grow by at least 15 per cent annually in FY10 and FY11, the dividend payout (as a percentage of net profit) should also improve (last five years average payout is 25 per cent). At Rs 206, the yield (based on FY08 dividend) works out to 4.9 per cent, and can be considered for dividends as well as capital appreciation. Opto Circuits
A stable growth outlook (10-15 per cent) for the global medical electronics devices segment, a successful inorganic acquisitions strategy (seven so far) and a strong distribution network are expected to help Opto Circuits record 30 per cent top line growth over the next four years. The company's products in the invasive (devices such as stents, which aid blood flow) and non-invasive (monitors and sensors) segments have a global market size of about $12 billion.
The company is awaiting US FDA approvals, which will enable it to sell its stents in the US, which along with Japan accounts for half of global sales. This will expand its addressable market size from about $5 billion currently. In addition to these two key markets, Opto has the CE (European conformity) certification, which allows it to sell its stents in 34 countries and is now expanding its presence in new, low cost markets which will help it generate volumes and control fixed costs.
Its acquisitions have been aimed at plugging its gaps, for examplein the ICU range, and will help it to expand its product portfolio and achieve scale faster.With negligible debt, a resilient, recession proof sector that helps the company generate about Rs 70 crore of free cash from the business, and estimated annual earnings growth of 30 per cent (FY08-FY11), expect the company to maintain its consistent dividend record going ahead. The stock trades at 6 times FY10 estimated earnings. Pfizer India
Despite the sale of key brands such as Listerine and Benadryl to Johnson & Johnson, Pfizer still has well known brands such as Corex, Becosules, Gelusil and Waterbury's Compound, which coupled with launches of Champix (to reduce smoking) and Cyklokapron (prevent bleeding) last year, are expected to help grow net profit by about 20 per cent in FY08 (November year end).
Both its key businesses–animal healthcare and pharmaceuticals (accounts for 85 per cent) have seen healthy growth of about 18 per cent and 11 per cent, respectively to Rs 62 crore and Rs 435 crore, for the nine months ended August 2008. On the back of strong volume growth, outsourcing and cost reductions in logistics/supply chain, EBIDTA margin is expected to improve to 28 per cent over the next two years from 23 per cent currently.
With minimal capex and zero debt, expect the current cash hoard to grow to about Rs 700 crore (Rs 235 per share) for the year ended November 2008.
The two key risks for the company are on the regulatory front (currently 22 per cent of its products are under price control) and the presence of a 100 per cent subsidiary though the company has not launched its products through this route for CY08. The stock is available at 9.2 times its adjusted CY08 EPS of Rs 52, and can deliver 30 per cent over the next one year.
Savita Chemicals
Despite the drop in base oil prices, petroleum specialty product (including transformer oil) manufacturer, Savita Chemicals is likely to see an improvement in operating profit margins (OPM) only from Q1 FY10. Base oil prices (key raw material for transformer oils) have dropped 63 per cent from their August 2008 peak to about $530 per tonne, but due to the inventory carryover, OPM will range 7-7.5 per cent for the last two quarters of FY09.
While the near-term will be challenging due to delays in projects in the power sector, it is estimated that the Rs 1,500 crore transformer oil segment is likely to grow at 15-20 per cent in FY10. The company expects exports of transformer oils and liquid paraffin to touch 18 per cent of the estimated Rs 1,200 crore turnover in FY09. Growth would have been higher, but for the slowdown in demand in its key West Asian markets.
While the company has invested Rs 65 crore in debottlenecking capacity and wind power business, capex funding for FY10 is unlikely to be an issue with ebt-equity ratio at just 0.2.
The company has been generous in its dividend policy doling out nearly 100 per cent dividend every year for the last four years, and good growth prospects for the sector means this is likely to continue. The stock is trading at just 3 times its FY10 earnings and can give returns of about 25 per cent over the next one year.

Thermax
The industrial production (IIP) figures, which reflected a decline of 0.41 per cent in October are clearly signaling an industrial (steel, refinery, cement, etc) slowdown and thus, its impact on companies in the engineering sector (like Thermax). The stock of Thermax has corrected almost 80 per cent from its peak of Rs 925 in January 2008, and well reflects the current economic conditions.
This can be attributed to higher industrial exposure, given that Thermax generates about 70 per cent of its revenues from products and solution including heating, cooling, waste heat recovery and captive power for various industries. The remaining 30 per cent comes from environment, which includes water treatment and recycling, waste management and chemicals.
As the concerns over economic growth may remain for some time, there is some improvement seen. The industrial growth, albeit marginally, has recovered to 2.38 per cent in November 2008.
The lower commodity prices, improving credit availability, falling interest rates and increasing government intervention to arrest the economic slowdown are some more positive developments. Even in the short-term, the company’s existing order book of Rs 4,500 crore (1.3 times its FY08 revenue), should ensure healthy revenue growth. Above all, Thermax is well-managed and a debt-free company, having a track record of consistent growth in revenues and regular dividend payouts. Valuations, too, look appealing (current P/E of 7 times TTM earnings) in light of the historical PE range of about 6-35 times.

Paper Products
A part of Finland-based Huhtamaki Oyj (a leading global consumer packaging company with operations in 36 countries), Paper Products is a dominant flexible packaging player in India and provides total packaging solutions (flexible packaging, labelling, specialised cartons, holograms, and packaging machinery).
A majority of its revenues (over 70 per cent) come from the FMCG industry, besides other categories like seeds, specialised chemicals, pharmaceuticals and electronics. Its client list includes nearly all the top names—Unilever, Nestle, Britannia, Coca Cola, Pepsi, Perfetti, Colgate, Tata Tea, Mico, Castrol, Cadbury, Dabur and P&G and many others. Its fortunes are thus, largely linked to those of the FMCG players, which have done reasonably well in the last few quarters.
Paper Products, too, has reported a growth of about 22 per cent in net sales at Rs 508 crore for the nine months ended September 2008 (year ending is December). However, forex losses to the tune of Rs 10.5 crore (including book loss of Rs 5.75 crore) resulted in profit after tax declining 19.7 per cent to Rs 16.6 crore.
That apart, pressure on margins, on account of higher raw material prices (films, polymers which are derived from crude oil and metals) also existed during most part of 2008. The margin pressure however, should ease going forwrd as crude oil and metal prices have fallen sharply (part of this could get offset due to the rupee’s depreciation).
Since product packaging involves protecting the product from damage, weather, pilferage and leakage, technology plays an important role. And, Paper Products’ emphasis on technology driven solutions and ability to innovate has helped it sustain leadership in the business.
Going forward, its investment in expanding capacities (in 2007 and 2008) will help sustain volume growth, which together with easing pressure on margins, should help the company report 15 per cent growth in profits over the next two years.

Varun Shipping
Energy transportation company Varun Shipping is increasing its focus on the offshore segment (LPG and crude tankers are its other segments) with the acquisition of its sixth anchor handling towing and supply vessel (AHTS) recently. The increasing demand for AHTS vessels for deep sea exploration activity in KG Basin, North Sea and coasts of Nigeria, Brazil and Mexico is expected to increase the share of the company's revenues in the high margin offshore segment from two per cent earlier to about 25 per cent (about Rs 200 crore) in the current fiscal.
Despite the fall in crude oil prices, the company believes that the offshore segment will continue to see good demand on the back of increased oil exploration activity and a likely uptrend in crude prices going ahead. In its LPG business, which contributes to half of its revenues, the company expects coastal business to compensate for the drop in imports due to increased production at Reliance Industries.
While the energy transportation sector has been less impaced than the dry bulk segment, the drop in overall demand will mean a hit of about 10 per cent to the company's top line in the current fiscal. The worry for the company will be the Rs 2,200 crore debt on its books, which could aggravate if global recessionary conditions continue to depress freight rates.
The stock is available at 4.2 times its estimated FY10 earnings. With a consistent dividend track record of nearly two decades, Varun could generate about 20 per cent returns in the next one year.

Satyam staff get offers but with 50% pay cut

Satyam staff get offers but with 50% pay cut

Employees of Satyam Computer Services are in a quandary over looking for jobs outside the company. Some admit that consultants are offering them jobs, but at salaries that are almost half their current cost-to-company (C-to-C) packages. Many others are running into a dead-end given the poor job market.

“We are in a tricky situation. If we join another company, we will get a lower salary. If we stick around, we are not sure how long we will be secure,” summed up an associate (that’s what Satyam calls its employees) from Hyderabad on condition of anonymity.
“Consultants are extracting details from Satyam-ites on their plans to relocate, their expectations on salaries and other perks, but they are not revealing who these clients are,” said another associate who works at the company’s Bahadurpally campus on the outskirts of Hyderabad.
A Bangalore-based company, he added, was throwing out the bait of mass recruitments for 200 positions. “We are, however, adopting a wait-and-watch stance and are deferring the calls,” he claimed.
Rajasekhar (name changed) at the Bahadurpally campus said those who have attended interviews at other companies hesitate to take the process forward because there is no major jump in salaries and the job profile offered is not the same. “A job change will mean a lot of updating to fit the new job descriptions,” he said.
Another employee, who initially thought of accepting an offer from Bank of America, is now thinking of sticking to Satyam. “There is increased confidence from clients. That is a good sign,” he said, adding that clients like Cisco and General Electric (GE) have communicated their willingness to continue with Satyam.
An associate said her colleagues from Delhi and Gurgaon had tapped several sources for new opportunities but had not been successful so far. Her immediate superior, however, held a staff meeting January 23, about two weeks after founder Ramalinga Raju’s January-7 confessions of financial fraud, and assured them that there would be no lay-offs, bringing relief to the 600-odd employees engaged in the vertical.
He also reportedly told them that 90 per cent of the amount required to pay January salaries was already in place and it was not a problem to mobilise the remaining 10 per cent. Satyam needs Rs 450-500 crore a month for salaries.
In another communication, the company has also assured employees that it would renew their insurance policies.
Since nothing has been said about February’s salaries, however, employees did not feel confident about not looking for jobs elsewhere.
“There should be a takeover of the company. This will remove a lot of the psychological trauma associated with current developments,” said a team leader.
Reports that Larsen and Toubro, Unitech, Essar and Aegis among other are showing interest in acquiring Satyam or at least some of its verticals are keeping their hopes alive.
He added, though, that many associates have decided to stay two or three months more. “I think we will all have work to do. After all, clients will need at least six months to a year to find new service providers,” said one employee.
There are many associates who think like him. “Satyam is not Ramalinga Raju alone. The employees understand that and they’re all working hard to see the bigger picture,” is how another associate responded to a query on the impact of the new, government appointed six-member board’s initiatives.
Meanwhile, a mail is doing rounds from the employees who see a future in Satyam. “When one man can create Satyam as an organisation of 53,000 people, why cannot 53,000 committed people rebuild one SATYAM?” the mail asks. Or perhaps he means 40,000 since Raju has also reportedly confessed to overstating Satyam’s head-count.

Downward momentum may continue (Source: HBL)

Downward momentum may continue Jayanta Mallick Institutional investors reducing portfolio.
The third quarter results have been testing convictions of the optimists. However, dampened sentiment has forced a large chunk of non-institutional investors to sell at a loss. Among the institutional investors, certain FIIs are also booking losses in their exercise to reduce portfolio. This week the Sensex is likely to test its bear market low. A moderate bounce back would largely depend on good news, whether domestic or foreign. If RBI takes a softer view on the interest rates, as expected by many in the market, the sentiment may temporarily change for the better.Bad news: Not yet over On the global front, bad news is not over. Things have turned trickier as the UK slid deep into recession after Germany, Europe’s biggest economy. The Obama euphoria may not drown out Wall Street concerns over the economy and sharp fall in profits. But one should not rule out the possibility of popping up of dramatically positive news when a new regime is taking over.While investment advisers remain bullish on the long-term prospects of Indian equities, their exercise in revising earning estimates is getting more conservative. Market strategists’ focus, on the other hand, currently seems to be on stocks and not the indices or sectors. There are indications that past practices are being reviewed and fresh approach towards stability in performance in troubled times is gaining prominence. The discounted market valuations are increasingly not being regarded as a trigger for buying.According to market intelligence, many prefer to keep cash and wait till the fourth quarter results and the elections.Some market players, who have large retail client base, suggest that small investors with resources not more than Rs 50,000 are steady and selective buyers in this difficult market. They appeared to be ready to wait for two to three years to earn a decent return. Fresh selling This is interesting in the backdrop of a fresh wave of selling by the FIIs and domestic institutions reducing their activity. Among the overseas investors, pension funds and high net worth individual or family investors were rather circumspect last week but mutual funds and hedge funds, particularly of European origin, have suddenly begun pulling out money. According to officials with overseas institutions, portfolio investments from abroad may turn negative or remain neutral in the first half of 2009 against estimates of a positive inflow.

Ramalinga Raju also fudged employee headcount

The fourth largest IT major inflated staff numbers by well over 10,000 people, Andhra Pradesh’s public prosecutor Ajay Kumar told a local Hyderabad court. What's more, the erstwhile promoters and management siphoned off money, at an average of Rs200mn a month as salaries to fictitious accounts, for at least five years. Enough evidence is also emerging on large scale fund diversion and fictitious bank deposits to the tune of Rs33.6bn. The possibility of insider trading by the promoters could not be ruled out either, Kumar told the court. Disgraced Satyam founder B. Ramalinga Raju also bought lands not only in India but in other countries also, prosecutors told the court. Kumar also said that former Satyam CFO, Srinivas Vadlamani, had confessed to the fraudulent activities. Raju’s lawyer, Bharat Kumar denied all allegations, saying that no written application of Raju’s and Vadlamani’s confessions was produced before the court.A local court on Friday posted the hearing on bail petitions of Ramalinga Raju, and its ex-CFO, Vadlamani Srinivas, to January 27. The chief metropolitan magistrate posted the bail plea of B Rama Raju, brother of Ramalinga Raju and former MD of Satyam, to January 28. Separately, the Andhra Pradesh CID arrested Gopal Krishna Raju, general manager of SRSR Holding, through which Ramalinga Raju's family held a stake in the IT firm. SRSR Holding is owned by Ramalinga Raju's sibling, Suryanarayana Raju, whose house was also searched by the police with regard to the Rs78bn accounting fraud in the IT major. In related development, the Registrar of Companies (RoC) filed a caveat in the Andhra Pradesh High Court with regard to the Company Law Board orders restraining former whole-time directors, chairman, chief financial officer and company secretary of Satyam from selling or mortgaging their assets.Tarun Das, one of the government nominees on Satyam board, and the Government admitted to receiving several approaches from potential suitors. Larsen & Toubro (L&T) increasingly emerged as a strong contender for buying Satyam, though the company denied any such move. L&T chairman A.M. Naik also met top government officials in New Delhi to discuss the Satyam issue. The engineer major also increased its stake in the Hyderabad-based company from 4% to 12%, claiming that it was doing so to protect its interest. Reports suggested that Tech Mahindra, Patni (along with PE firms), Essar group and iGate Global remained in the hunt for acquiring Satyam or parts of it. Separately, Infotech Enterprises said that some of Satyam's customers had approached it but refused to name any of them. Some clients notified Satyam that if uncertainty persists they could terminate their relations with the company.The new board of Satyam said that additional funding arrangements and the appointment of the top management were in the final stages of being concluded. The board said that it had narrowed the shortlist of candidates for chief executive and chief financial officer to the final three and the decision would be made in the coming week. Existing customers continue to release new work orders and collections from receivables were robust, it said.

Interim Budget on Feb. 16; Rail Budget on Feb 13

The Government will present an Interim Budget on February 16, according to a Parliament communiqué. Railway Minister Lalu Prasad Yadav will present an Interim Railway Budget on February 13, the second day of the coming Parliament session. The parliament session, which will be the last one of the 14th Lok Sabha, will begin on February 12 with the customary joint address of the parliament by President Pratibha Patil. It will continue till February 26. The Congress party-led multi-party coalition is expected to give an overview of the economy and highlight its achievements. It is expected to seek the parliament's approval in the second half of February to draw funds from the Consolidated Fund of India for meeting expenses until the new administration presents a full-fledged budget. The UPA government's term expires in May. The general election is likely to take place sometime in April-May. The interim budget may include some indirect tax changes, but it is unlikely to contain direct tax proposals. The new Government will announce a fresh budget for the remainder of the fiscal year 2009-10 once it takes over. According to reports, the Government may also try to pass some pending bills during the coming parliament session.

UK slips into 1st recession in 17 years

The British economy officially slipped into a recession in the quarter ended December, as credit markets seized up in the wake of the housing meltdown, leading to contraction in manufacturing as well as services industries. GDP shrank by 1.5% in the final three months of 2008, the Office for National Statistics reported. The figure was weaker than the 1.2% decline that economists on average were expecting. The economic contraction follows a decline of 0.6% in the quarter ended September, meeting a widely used definition of a recession as two successive quarters of shrinking GDP. This is Britain's first recession since 1991. It was the worst performance since the second quarter of 1980, when the country was in the middle of steep downturn. On an annual basis, UK's fourth-quarter GDP shrank 1.8% following a 0.3% year-on-year rise in the third quarter. In the whole of 2008, the British economy grew by just 0.7%, the weakest annual performance since 1992.

Japan's exports registered their biggest fall

Japan's exports registered their biggest fall on record last month, sparking concerns that local companies will be forced to eliminate more jobs and shut more factory lines, driving the world's second-biggest economy deeper into recession. Exports plunged 35% to 4.833 trillion yen (US$54.15bn) in December as against 7.434 trillion yen in the same month a year earlier, according to provisional figures released by the Finance Ministry. This was the sharpest decline since 1980, the earliest year for which there is comparable data. The December drop eclipsed a record 26.7% decline set the previous month. Economists had predicted a 30% contraction. Imports shrank 21.5% to 5.153 trillion yen in December, resulting in a trade gap of 320 billion yen, its third straight month of deficit. Japan's shipments to the US, China and Europe fell by the most ever, as the global recession sapped demand for it's cars and electronics.

Toyota snatched the 'world no. 1 automaker' crown away from General Motors (GM)

Toyota snatched the 'world no. 1 automaker' crown away from General Motors (GM) with the latter's 2008 sales volume falling behind that of the Japanese major. This is the first time since early 1930s that GM has had to relinquish its Numero no position in the global automotive industry. GM sales fell by around 11% in 2008 to 8.35 million vehicles, about 620,000 fewer than Toyota’s 8.97 million vehicles. GM had been the undisputed champion among global automakers since it overtook Ford in 1931, two years before Toyota began making cars in Japan. The two companies had traded places from one quarter to the next in recent years. GM was widely expected to slip to the second spot in 2007 but held off the challenge from Toyota by about 3,000 vehicles.

Rolta India - Pricing ahead of volumes; retain BUY (Source: BNP)

Pricing ahead of volumes; retain BUY

Retains guidance; remains our pick for the downturn
Despite challenging macroeconomic conditions, Rolta retained both its
FY09 guidance of 38.0-39.9% revenue growth and 23.9-25.8% net profit
growth (pro forma for MTM provisions for FCCBs). This corroborates our
thesis that the company’s niche market leadership, defensive end market
exposure, strong order book and hence revenue visibility, position it
better than its generic IT services peers, which are finding new projects
increasingly hard to come by with clients cutting back heavily on
discretionary spending. At 4.0x FY10E P/E, on an FY08-11 EPS CAGR
of 21.9%, we see value in Rolta, so retain our BUY.

EPS beat on pricing-led margin gains and lower taxes
Rolta’s 2QFY09 revenue came in slightly below our expectations (4.6%
q-q vs BNPP’s 6.6%), while pricing-led margin gains and lower taxes
allowed the company to beat our EPS estimate (-1.6% q-q vs BNPP at -
9.6%). Its EPS q-q decline was primarily due to lower other income and
interest expenses on a foreign currency loan taken to fund the recent
Piocon acquisition. Order book growth was subdued at 1.3%, which is
understandable given the weak macro environment, but at about 2x our
2HFY09E revenue, still provides enough cushion to meet our FY09
revenue projections.

Strategy shift to improve pricing ahead of volumes
Rolta remains among few Indian services companies to still see pricing
gains given the demand-supply imbalance for its services, and its thrust
on higher value offerings. Net hiring was almost negligible in the quarter,
while USD-based pricing went up 0.5-3.3% q-q across divisions, and
almost entirely drove revenue growth. This appears to be the strategy
going forward as the company has no plans for any more fresher hiring
in FY09, and will instead focus on a solutions-based sales approach.
Strong earnings visibility, solid buying opportunity; BUY
We retain our DCF-based TP of INR220, which implies a 9.9x FY10E
P/E. Rolta appears to have been an unfair victim of the overall weak
market and market rumours. The key risks to our call are weakening
order book growth and higher than expected capex plans.

Ban on import of toys from China

INDIA on Friday slapped a ban on import of toys from China after cheap supplies from the neighbouring country upset the applecart of the domestic manufacturers. The ban, notified by the Directorate General of Foreign Trade (DGFT), will remain valid for six months. While the government notification did not cite the reason for the ban, sources said it was concerned over a rise in imports of toys. A concern had also been raised over the safety of children playing with the chinese toys, which were found to be toxic. Most of the varieties, including wheeled toys, dolls, stuffed toys, toyguns, wooden and metal toys, musical instruments, electric trains and puzzles are covered under the ban. The Toys Manufacturers Association of India said it was pleasantly surprised by the decision of the commerce ministry to prohibit shipments of cheap toys from China. "We welcome the decision. It is good for the industry," association president Raj Kumar said, adding it is in the interest of the country. In the face of global downturn, Indian industry has been clamouring for protection from aggressive Chinese manufacturers. Industry officials said there has been a surge in the import of handicraft and toys by Rs 1,000 crore during April. However, trade expert Arun Goyal said: "The ban would encourage smuggling of toys through Nepal borders. That would be more dangerous... It is bad, especially for the slum children, who an afford the cheap chinese toys only."

Police on trail of 275 firms; 40 of them have Maytas tag

Police on trail of 275 firms; 40 of them have Maytas tag

The CID officials have asked the Stamps and Registration Department to provide details of all land transactions of these companies in the State.

K.V. Kurmanath Hyderabad, Jan. 24
The Rs 7,136-crore financial fraud of Satyam Computer Services is assuming much larger proportions than initially thought, with the sleuths investigating the scam suspecting that Mr B. Ramalinga Raju, kin and friends may have floated as many as 275 companies.Of them, nearly 220 firms carry the tag Agro-Farms, Biotech and Greenlands. About 40 entities carry the Maytas tag. Transaction details The police now are trying to fathom the alleged role of the Rajus and extent of the land and financial deals.Giving a list consisting of names of these companies with their PAN numbers, the CID officials have asked the Stamps and Registration Department to provide details of all land transactions of these companies in the State.Shareholding pattern, relationship of promoters of these companies with the Rajus and financials of these companies are under investigation.Persons under scanner The officials provided a list of 30 persons, including Mr Ramalinga Raju (both in his personal capacity and part of the Hindu Undivded Family), his brother and co-accused Mr Rama Raju, wife and sons, to the Stamps and Registration, asking them to run a scan for transactions of these people.Initially, the police gave a list of just 10 persons and names of 54 companies to the Stamps and Registration Department for verification of transactions. But with the scope of the investigation widening each day, the police gave a list of 20 more names to the department.Collecting information The officials are in the process of gathering information from 1999. “Our preliminary investigations found that most of the transactions occurred in the last 2-3 years. “Most of the land dealings may have happened in Hyderabad, Medak, Rangareddy, Nalgonda, East and West Godavari districts,” an official told Business Line.Interesting names Mr Ramalinga Raju, who has a penchant for nature, particularly rivers and mountains, seems to have exhausted all the names of rivers, mountain ranges, stars and puranic names.The list comprises Brahmaputra, Chitravathi, Kanchanjunga, Vindhya, Vamsadhara, Sutlej, Punarvasu, Tungabhadra, Chandravamsa, Bhagiradhi, Mrugasira, Indravati, Jhelum, Indravati, Sahyadri and Tapti.
http://www.thehindubusinessline.com/2009/01/25/stories/2009012550850500.htm