After witnessing a strong correction yesterday, the market is likely to remain uncertain on the back of a strong intra-day volatile moves. However, firm Asian indices in current trades may release some pressure from local indices in morning trades. Among the local indices, in the near term the Nifty could test 3030 on the upside while on the downside the index may get support at 2930. The Sensex is likely to get support at 9400 and may face resistance at 9700.
US indices declined sharply on Monday, as worries about the auto and bank industries sent investors running after the recent rally.
The Dow Jones lost 254 points to close at 7522 and the Nasdaq to end 43 points lower at 1502.
All the Indian ADR's fell on the US bourses. ICICI Bank was the biggest loser and dropped over 13.27% followed Tata Motors declined 9.90%, while HDFC Bank, Rediff, Satyam, Wipro. Dr Reddy, MTNL, Patni Computers and VSNL were down around 2-8% each. However, Infosys closed in negative territory with marginal loss.
Crude oil prices lost sharply, with the Nymex light crude oil declined $3.97 at $48.41 per barrel. In the metals segment, the Comex gold for June series lost $7.60 to settle at $917.70 an ounce.
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Tuesday, March 31, 2009
Monday, March 30, 2009
Sensex down 250pts in early trades
The Sensex opened with a negative gap of 146 points at 9,902, and has since extended losses. The index is now down 252 points at 9,796.
ICICI Bank has slumped nearly 6% to Rs 363.
Jaiprakash Associates, Sterlite and Tata Steel have shed 4.7% each at Rs 85, Rs 356 and Rs 213, respectively.
Reliance Infrastructure has plunged 4.5% to Rs 542. Reliance Communications has tumbled over 4% to Rs 176.
DLF, HDFC Bank and Infosys have dropped nearly 4% each to Rs 175, Rs 958 and Rs 1,297, respectively.
Tata Motors and TCS have slipped 3.5% around at Rs 182 and Rs 556, respectively.
HDFC and SBI are down around 3% each at Rs 1,539 and Rs 1,090, respectively.
Sun Pharma, however, has gained nearly 2% at Rs 1,100.
Source: BS
ICICI Bank has slumped nearly 6% to Rs 363.
Jaiprakash Associates, Sterlite and Tata Steel have shed 4.7% each at Rs 85, Rs 356 and Rs 213, respectively.
Reliance Infrastructure has plunged 4.5% to Rs 542. Reliance Communications has tumbled over 4% to Rs 176.
DLF, HDFC Bank and Infosys have dropped nearly 4% each to Rs 175, Rs 958 and Rs 1,297, respectively.
Tata Motors and TCS have slipped 3.5% around at Rs 182 and Rs 556, respectively.
HDFC and SBI are down around 3% each at Rs 1,539 and Rs 1,090, respectively.
Sun Pharma, however, has gained nearly 2% at Rs 1,100.
Source: BS
Markets at a glance
The optimism in the global financial markets has helped the Sensex inch past the sentimental 10,000-point barrier. The BSE Sensex spurted 1,082 points or 12.06 per cent to end the week at 10,048 and the Nifty jumped 302 points or 10.74 per cent to 3,109. Mid and small cap indices registered smaller gains at 6.3 per cent and 4 per cent respectively, compared with broader indices.
Apart from positive global cues, inflation stood at 30-year lows decreasing from 0.44 per cent to 0.27 per cent for the week ended March 14, 2009. FIIs, who were the major sellers over the last year, made net purchases of around Rs 1,315 crore in the week. Short covering in the expiry week has also helped to end the week with major gains.
Markets next week
The markets have spurted around 23 per cent from the earlier lows in March. Experts feel that profit-booking could be the order of the day. The political uncertainty ahead of elections would be a dampener. On the macro front, worsening fiscal deficit, slower GDP growth are concerns along with declining corporate profits.
As per estimates, exports for February are down by 13.7 per cent, which would mean a fall for the fifth straight month indicating that global economic slowdown woes are far from over. Inflation on the downward journey has raised expectations of a further easing of the monetary policy. The extent of FII buying in the future will decide the fate of the present upturn.
STOCK TO WATCH
ONGC
Last week's close (Rs) 1,548.38
Prev. week’s close (Rs) 1,338.88
Week’s high (Rs) 1,582.70
Week’s low (Rs) 1,352.00
Last week’s ave. daily turnover (Rs cr) 1,422.74
Prev. week’s ave. daily turnover (Rs cr) 825.16
Number of up/down move 4/1
Reliance Industries (RIL) shares will be in the limelight on announcement late last week that the company has entered into gas sales and purchase agreements with twelve fertiliser sector players.
These include public and private sector units such as NFCL, RCF, IFFCO, GNFC and Tata Chemicals. The signing of agreements with customers is a precursor to the initial start of gas production of around 15 mmscmd in April. RIL is expected to reach peak production of 80 mmscmd in a year’s time.
RIL would sell gas to the companies at $4.20 per mmbtu for a period of five years. Reliance Gas Transportation Infrastructure, a group company along with GAIL and GSPC will be transporting gas to the fertiliser companies. At Rs 1,548, the stock is trading at around 15 times of its trailing EPS.
Source: BS
Apart from positive global cues, inflation stood at 30-year lows decreasing from 0.44 per cent to 0.27 per cent for the week ended March 14, 2009. FIIs, who were the major sellers over the last year, made net purchases of around Rs 1,315 crore in the week. Short covering in the expiry week has also helped to end the week with major gains.
Markets next week
The markets have spurted around 23 per cent from the earlier lows in March. Experts feel that profit-booking could be the order of the day. The political uncertainty ahead of elections would be a dampener. On the macro front, worsening fiscal deficit, slower GDP growth are concerns along with declining corporate profits.
As per estimates, exports for February are down by 13.7 per cent, which would mean a fall for the fifth straight month indicating that global economic slowdown woes are far from over. Inflation on the downward journey has raised expectations of a further easing of the monetary policy. The extent of FII buying in the future will decide the fate of the present upturn.
STOCK TO WATCH
ONGC
Last week's close (Rs) 1,548.38
Prev. week’s close (Rs) 1,338.88
Week’s high (Rs) 1,582.70
Week’s low (Rs) 1,352.00
Last week’s ave. daily turnover (Rs cr) 1,422.74
Prev. week’s ave. daily turnover (Rs cr) 825.16
Number of up/down move 4/1
Reliance Industries (RIL) shares will be in the limelight on announcement late last week that the company has entered into gas sales and purchase agreements with twelve fertiliser sector players.
These include public and private sector units such as NFCL, RCF, IFFCO, GNFC and Tata Chemicals. The signing of agreements with customers is a precursor to the initial start of gas production of around 15 mmscmd in April. RIL is expected to reach peak production of 80 mmscmd in a year’s time.
RIL would sell gas to the companies at $4.20 per mmbtu for a period of five years. Reliance Gas Transportation Infrastructure, a group company along with GAIL and GSPC will be transporting gas to the fertiliser companies. At Rs 1,548, the stock is trading at around 15 times of its trailing EPS.
Source: BS
Fund managers in profit-taking mode
In one of the sharpest rallies since the launch of Smart Portfolios, the benchmark BSE 200 index soared over 11 per cent. Its net worth appreciated sharply from Rs 5.91 lakh to Rs 6.57 lakh during the week ended March 27.
Buoyancy in the markets, which caught most investors unawares, was due to sustained fund inflows and heavy short-covering owing to the March futures and options expiry.
In contrast to the smart gains in the markets, our fund managers mainly the cash-rich ones - Amar Ambani and Anand Agarwal - under-performed the benchmark by a hefty margin of over 10 per cent each.
However, fund managers continue to outperform the benchmark by wide margins. While the benchmark's net worth is down 34.3 per cent since the inception of Smart Portfolios on September 1, 2008, Anand Agarwal with a loss of 12.4 per cent has seen the highest loss among the four fund managers. In fact, Amar Ambani's portfolio has turned positive.
In the week under review, only three fund managers were active as Anand Agarwal remained on the sidelines. Cumulatively, they were net sellers of stocks worth Rs 0.49 lakh, which included aggressive buying of stocks worth Rs 1 lakh by Amar Ambani, and sale of stocks worth Rs 1.14 lakh by Kashyap Pujara.
For more details on Smart Portfolios please visit www.business-standard.com/smartportfolios
NO TRADE WEEK
ANAND AGARWAL
Fund Manager, Reliance Money
Anand Agarwal remained on the sidelines last week while his portfolio appreciated by almost a per cent to Rs 8.76 lakh from Rs 8.68 lakh. The reason for the significant under-performance was the high level of cash (at a time when the markets were moving up) in his portfolio.
One may recall that in the preceding week Agarwal sold stocks worth Rs 3.05 lakh. Presently, he has just two stocks in his portfolio - Reliance Communications and Indian Bank - both up 33 and 36 per cent, respectively. He continues to hold cash worth Rs 8.17 lakh.
| Top Holdings | % of assets | Cost (Rs) Price | Current price (Rs) | Value (Rs lakh) |
| Reliance Comm | 4.20 | 138.30 | 183.85 | 32.94 |
| Indian Bank | 2.51 | 64.62 | 88.10 | 36.34 |
| Total investments | 6.74 | 0.59 | ||
| Cash | 93.26 | 8.17 | ||
| Net worth | 8.76 | |||
| Returns (%) | -12.42 |
BALANCED PORTFOLIO
SADANAND SHETTY
Vice President, Kotak Securities
Sadanand Shetty executed 17 trades last week, six buy and 11 sell. While he bought shares worth Rs 0.84 lakh, he sold stocks worth Rs 1.18 lakh. In the 11 sell trades executed, he booked gains in 10 of them. The best being Tata Steel which netted an average gain of around 26 per cent. He booked a 6 per cent loss in ICICI Bank.
Of the 12 stocks in his portfolio, six are up and six down. Reliance Industries with a gain of over 32 per cent is his best buy, while Allied Digital with a loss of nearly 52 per cent is a major drag on his portfolio. Shetty's net worth surged by 4.4 per cent to Rs 9.26 lakh from Rs 8.87 lakh.
| Top Holdings | % of assets | Cost (Rs) Price | Current price (Rs) | Value (Rs lakh) |
| Reliance Ind | 5.02 | 1169.58 | 1548.00 | 0.46 |
| Power Finance | 4.16 | 129.33 | 137.50 | 0.38 |
| Godrej Consumer | 3.90 | 121.76 | 120.40 | 0.36 |
| Balrampur Chini | 3.71 | 55.14 | 51.70 | 0.34 |
| SBI | 3.65 | 1154.76 | 1125.35 | 0.34 |
| Total investments | 34.77 | 3.22 | ||
| Cash | 65.23 | 6.04 | ||
| Net worth | 9.26 | |||
| Returns (%) | -7.4 |
OFFLOADING CONTINUES
KASHYAP PUJARA
Fund Manager, ENAM Direct
Kashyap Pujara's portfolio value appreciated by 5.4 per cent from Rs 8.67 lakh to Rs 9.14 lakh, even as he booked losses in number of his trades. He executed 13 trades last week, of which there was only a single buy trade of Yes Bank. Off the rest, he booked losses in nine, and gains in the rest. Eventually, he was a net seller of stocks worth Rs 1.14 lakh. This follows sales of Rs 1.55 lakh in the preceding week.
Currently Pujara's holds four stocks in his portfolio - of which only Century Textiles is below is buy price (down 37 per cent). His cash limit has gone up significantly from Rs 5.63 lakh to Rs 6.78 lakh.
| Top Holdings | % of assets | Cost (Rs) Price | Current price (Rs) | Value (Rs lakh) |
| SBI | 12.31 | 1099.56 | 1125.35 | 1.12 |
| Idea Cellular | 5.74 | 47.55 | 52.45 | 0.52 |
| Century Textiles | 4.73 | 343.87 | 216.15 | 0.43 |
| Yes Bank | 3.02 | 46.00 | 55.50 | 0.28 |
| Total investments | 25.82 | 2.36 | ||
| Cash | 74.18 | 6.78 | ||
| Net worth | 9.14 | |||
| Returns (%) | -8.62 |
BACK IN GREEN
AMAR AMBANI
Vice President (Research),
India Infoline
Although, Amar Ambani's net worth moved into the positive zone, he too like Anand Agarwal saw marginal rise in net worth last week owing to low investment in equity. However, the underlying fact remains that Ambani's portfolio value is now up 0.5 per cent at Rs 10.05 lakh, and he still continues to hold Rs 8.60 lakh in cash.
| Top Holdings | % of assets | Cost (Rs) Price | Current price (Rs) | Value (Rs lakh) |
| Reliance Comm | 4.57 | 207.29 | 183.85 | 0.46 |
| Aban Offshore | 3.14 | 395.50 | 421.15 | 0.32 |
| Hindustan Unilever | 2.39 | 222.00 | 240.00 | 0.24 |
| aiprakash Associates | 2.23 | 90.25 | 89.55 | 0.22 |
| Guj State Petronet | 2.05 | 37.95 | 37.40 | 0.21 |
| Total investments | 14.34 | 1.44 | ||
| Cash | 85.66 | 8.60 | ||
| Net worth | 10.04 | |||
| Returns (%) | 0.48 |
Last week, he deployed cash worth Rs 1 lakh in the market. While he increased his holding in Reliance Communications, he added Aban Offshore, Jaiprakash Associates and Gujarat State Petronet to his portfolio. Ambani now has five stocks in his portfolio - of which Aban Offshore and Hindustan Unilever are up 6.5 and 8 per cent, respectively.
Source: BS
Tata Tele: A mountain to climb
While the stake sale to NTT DoCoMo is positive, TTML will have to pull out all the stops to improve its share in a highly competitive marketplace.
Tata Teleservices Maharashtra (TTML), which has a 14 per cent market share in the lucrative Maharashtra and Mumbai circles, faces tough challenges as it gets ready to roll out its GSM-based telephony services in the second quarter of FY10. The biggest of them is to maintain and improve its stagnant market share in face of aggressive marketing by rivals, both existing and new entrants. In this context, the tie up with a leading Japanese player not only ensures technological inputs, but also cash infusion at a critical juncture.
Long-term benefits
NTT DoCoMo, which has 54 million customers in Japan and is a leader in mobile internet services, had acquired 26 per cent stake in Tata Teleservices Limited (TTSL) for Rs 12,740 crore in November 2008. In a subsequent open offer for TTML shareholders (TTSL has 37 per cent stake in TTML) that followed (closed on March 12), NTT-DoCoMo picked up about 12 per cent stake in TTML. Although the infusion of fresh funds (Rs 10,000 crore) is to TTSL, the deal is expected to bring in technological inputs on 3G W-CDMA network, roaming, handset co-development and corporate services for both, TTML and TTSL. While the Japanese mobile company has an edge in value added services (such as music downloads, video streaming) analysts expect that its contribution in the short to medium term will be limited to voice and SMS services.
Subscriber growth
While the company’s subscriber base in the December quarter grew at a decent clip in the Maharashtra circle (10.7 per cent to the sector average of 9.9 per cent) it lagged behind in the Mumbai circle (3.1 per cent to industry average of 8.1 per cent). In February, the company grew its subscriber base by only 1.8 per cent to 22 lakh in Mumbai where Vodafone is the largest with 43 lakh users and TTML ranks fifth. In the Maharashtra circle, which is dominated by Idea with 72 lakh subscribers, it grew by a respectable 5 per cent to 43 lakh users and is currently the fourth largest player.
The worrying factor for TTML is that GSM players with new launches such as Idea and Reliance Communications (RCOM) have notched by higher growth rates through aggressive pricing even as existing players continue to consolidate. Though players such as RCOM continue to surprise by clocking subscriber growth (combined numbers of GSM and CDMA) of 21 and 12 per cent in January and February respectively, with the wireless teledensity in Mumbai at a high of 95 per cent, there might be little scope for further growth in the city. On the other hand, Maharashtra with a penetration of only 27 per cent, offers good growth prospects both for TTML’s CDMA and soon-to-be-rolled out GSM-based services.
Data business and GSM rollout
To arrest the decline in ARPUs and improve its profitability, TTML is focussing on data and enterprise segments. These segments currently constitute about 13.4 per cent of wireless revenues and get much higher ARPUs than the voice segment (Rs 200). Wireline growth could be another area where the company could improve its financial performance. Despite the fact that the company’s 5 lakh wireline subscribers constitute just 7 per cent of the total subscriber base, they contribute to a third of the total revenues with ARPUs of Rs 1,100 per month.
| STRETCHED | |||
| in Rs crore | FY08 | FY09E | FY10E |
| Revenues | 1,789 | 2,065 | 2,375 |
| Ebdita | 492 | 624 | 689 |
| Net profit | -125 | -174 | -192 |
Analysts say that the company’s GSM rollout across Maharashtra and Mumbai faces structural disadvantages as higher frequencies (1800 Mhz band) require 1.5 times more base stations than those at lower frequencies to cover the same area. This means higher capex for TTML compared with players such as Idea, which has 900 Mhz in 9 circles and is among the top two players in these circles. With Reliance and Idea having launched their GSM services, the company will have an uphill task of adding subscribers to its kitty.
Outlook
If RCom’s experience is anything to go by, the GSM expansion will ensure healthy revenue growth of about 15 per cent for TTML in FY10. However, the company will have to invest substantially higher amounts to rollout its telecom network and its interest burden, which is currently at about 40 per cent of Ebidta, is unlikely to ease. Whether it will be able to improve its operating margins (currently at 29 per cent) will depend on its ability to control sales and marketing expenses and network operating costs. Given the rollout of its GSM network, it looks doubtful that these will trend down. While the company made cash profits of Rs 216 crore for the nine months ended December 2008, its ability to generate higher cash flows in the future will depend on the successful rollout of its GSM network and expansion of its datacard and enterprise subscriber base.
While the NTT DoCoMo deal is a positive, analysts believe that merger among group firms (TTML and TTSL in wireline and wireless service, Tata Communications in ILD and enterprise segment and Tata Sky in DTH) will be the biggest trigger for the stocks as it would help it match up to the fully integrated telecom offerings of Bharti Airtel and Reliance Communications. Invest at dips and have a time horizon of at least 15 months to see decent returns from this stock.
Source: BS
Value picks
A tough economic environment and consequent price decline offer an opportunity to buy stocks with reasonable growth prospects at cheaper valuations.
The downturn in economic and corporate growth, both on the domestic front and globally, has led to a sharp decline in stock prices across the board in the last one year. Thanks to the capitulation and weak sentiments in the markets, many stocks are quoting below their respective book values or intrinsic worth. Although business prospects have deteriorated to an extent, the impact is unlikely to weaken the underlying strengths of these companies. In such cases, while the downside is typically limited, there also tends to be a buying opportunity. Because good companies are capable of delivering decent performance even under tough conditions, they would be the first to bounce back when things look up.
In a bid to identify such companies, The Smart Investor crunched numbers to shortlist stocks that are quoting below one time their respective book value. Says a fund manager, “Price to book value is a good matrix and broadly, a figure of less than one indicates that there is value in the stock.” Additional filters like profit growth in the last 12 months, debt-equity ratio of about one and market capitalisation and sales (each, with a minimum of Rs 100 crore) were applied to weed out the weaker and smaller companies. While a dividend paying track record provides comfort, companies with the ability to sustain an improvement in book value - consistently grow profits that get added to the reserves (net-worth) - were considered. That's because, it is particularly in such cases that stock valuations can be sustained (if not improved) in the long run.
The final list includes companies - a majority of whom are among the top players in their respective industries - with healthy prospects and ability to deliver good returns in the long run. Read on to know more on the picks.
Bartronics
A good mix of technology and efforts to scale up its businesses in terms of capacities, geographical presence and products offerings has enabled Bartronics India to grow at a fast pace. A smaller base, too, has helped it grow at a compounded annual growth rate (CAGR) of 100 per cent in revenues and 220 per cent in profits during FY2003-08. Even for FY09, revenues are seen growing by 85 per cent year-on-year (y-o-y) to Rs 500 crore (Rs 417 crore in nine months ended December 2008).
The company's inventory and supply chain management products and solutions find application in different industries and hold promising future thanks to increasing applications in retail and manufacturing sectors. The company has recently extended its product offering through its partnership with US-based Intelleflex Corporation for RFID(radio frequency based identification)-based solutions for the Indian market.
Notably, its smart cards business also holds promise and finds wide application in data capturing and identification. The company has a manufacturing capacity of 80 million cards per annum. While in FY08, it sold 31 million cards (Rs 93 crore in revenues), for FY09 and FY10, the company is expected to achieve higher sales on the back of strong order book of Rs 140 crore. Also, the average realisation (Rs 30 per card) and volumes, so far, has been low due to high dependence on a single vertical (telecom).
The company is eyeing orders from the government and banking sectors, which should help in improving pricing power and volumes going ahead. With the introduction of 3G cards itself, the realisation will jump by 40-50 per cent. The expected introduction of 'master' banking cards (consolidated card assisting multi-banking transactions) in 2010 should also help improve realisations. Thus, both margins and volumes are seen improving in this business. The company is operating in fast growing segments and has a strong order book of Rs 1,100 crore (four times its FY08 revenue and executable over the next two years), which provides good growth visibility.
BEML
BEML is a multi-product and multi-technology company. Its vast product range primarily caters to the needs of three segments, namely mining and construction (like hydraulic excavators, bulldozers, dump trucks), defence (field artillery tractor, tank transportation trailers, weapon loading equipment, armoured recovery vehicle) and railways and metro (metro trains, rail coaches, D-EMUs, wagons). BEML's other three divisions are technology (design and engineering solutions), trading (third party products) and exports.
Little wonder, the current economic slowdown and high input prices (besides higher wages) has impacted its performance in the recent quarter. While topline growth has slowed, margins have also slipped. However, net profits haven't declined thanks to higher other income.
Positively, receipt of a few high value orders recently has propped up its order book. In February 2009, BEML bagged a Rs 1,672.50 crore order from Bangalore Metro Rail Corporation for supply of 150 metro coaches (orders for another 63 is in pipeline). This is in addition to an Rs 1,365 crore metro coach order from Delhi Metro. Since new metro projects (Chennai, Mumbai) are coming up, BEML with the advantage of a local manufacturing base should gain.
BEML has also been active in terms of strengthening its vast portfolio by entering into joint ventures with foreign players. On March 19, it tied-up with France-based NFM Technologies (second largest globally) to produce Tunnel Boring Machine in India. Likewise, an agreement with Indonesia-based Sumber Mitra Jaya (30 per cent stake by BEML) for contract mining opportunities in India was also signed recently; total number of foreign partners is now 20.
To sum up, given the humungous investments planned in infrastructure, power, mining, steel, cement, transportation (air, road and rail) and urban infrastructure as well as focus on defence capex, the demand for BEML's offerings is likely to remain robust (equipment cost as a percentage of project costs range 4-15 per cent).
BEML expects revenues to grow at a CAGR of 11-12 per cent to Rs 5,000 crore by 2013-14. In light of the underlying potential, this is a modest target and should be achieved beforehand. On the flip side, analysts believe its past record has not been very impressive, which is also one reason for this stock to quote at relatively lower valuations. For now, in 2008-09, BEML is expected to clock revenues of Rs 2,800 crore and currently has an order book of over Rs 5,000 crore. With cash profits of Rs 250 crore a year and negligible debt on books, the stock can deliver steady returns in the long run, while it offers a decent dividend yield too.
Gateway Distriparks
For the largest player in the container freight station (CFS) segment at Mumbai's JNPT and with a significant presence in other ports, weak demand from India's key trading partners has resulted in decline in volumes and revenues. In the December quarter, exports from India have registered negative growth, while import growth has moderated. The volume decline has meant that Gateway, (operates CFSs at Mumbai, Chennai, Vizag and Kochi) will finish FY09 with single digit growth y-o-y to about 4 lakh TEUs (twenty-foot equivalent units) compared with a 49 per cent y-o-y growth in FY08.
In addition to CFSs (over half of revenues), Gateway also has a presence in the rail freight (35 per cent of revenues) and cold chain (7 per cent) businesses. While profits at the operating level will come from its core CFS business (contributes 90 per cent to Ebidta), revenue growth in FY10 will be driven by its rail freight/inland container depot business. While its rail business (with 14 rakes operational) is currently loss-making, its advantages over road transport, large volumes and connectivity to industrial hubs is expected to translate into increased revenues for the largest private rail freight operator in the country. A strong presence in the CFS business and an expanding rail freight infrastructure with good business prospects will help the company post improved growth rates in the long term. And obviously, any improvement in economic growth rates will provide a trigger for this stock. Expect returns of about 15-20 per cent over the next 15 months.
IVRCL Infrastructures
The fall in interest rates and commodity prices and the improving availability of funds are some good signs for infrastructure and construction companies. Nonetheless, it is prudent to be selective. Among companies, analysts prefer IVRCL Infrastructures & Projects, a leading player in the water and irrigation segments (account for over 60 per cent of total revenue), which has better visibility in terms of continuous flow of orders and is less leveraged (debt-equity of 0.7 times). As about 90 per cent of these projects are government-sponsored, the company has been a key beneficiary of increased capital expenditure on irrigation projects.
The company generates about 30 per cent of revenues from the transportation sector, wherein the order book stood at about Rs 1,257 crore in December 2008. The company is constructing three road projects on a BOT basis (worth Rs 1,080 crore), which are expected to be commissioned by May 2009. Analysts value these projects at about Rs 20 per share of IVRCL, based on future cash flows.
IVRCL's total order book is about Rs 15,000 crore, which is four times its FY08 revenue and provides good visibility. Thus, revenues should grow at 30 per cent, while earnings are likely to increase by 25 per cent over the next two years. Besides its core business, the company also has an exposure in the real estate business through its subsidiary IVR Prime (62.3 per cent stake) and industrial water treatment and environment equipment segment through a 70 per cent controlling stake in Hindustan Dorr Oliver, (a listed domestic company). Meanwhile, based on estimated FY10 projections, IVRCL Infrastructure's stock is trading at a PE of 6.4 times and 0.87 times its book value of Rs 155 per share.
Simplex Infrastructures
About 30 per cent of Simplex Infrastructure's Rs 10,200 crore total order book (3.6 times FY08 revenue) comprises orders from West Asian countries. Also, within the total order book, about 50 per cent is from the private sector, including 20 per cent from industrial sectors. These are some concerns being cited by analysts with the stock is down 72 per cent in the last one year. However, the 84-year old engineering and construction company has superior execution capabilities, high operating margins and a less leveraged balance sheet (debt-equity ratio of about one currently), which makes it a good investment case.(Click for table)
Moreover, these concerns are already factored into the share price and valuations-the stock is currently trading at four times its estimated earnings and 0.5 times estimated book value for FY10. These valuations are low, as historically (during FY97-FY08) the stock has traded at an average price-to-book value of 1.3 times (and high of 7.5 times).
Importantly, fundamentally, things are now progressing on a positive note. Led by improvement in working capital, the company has repaid part of its debt recently which should lead to better profitability. Also, the fall in commodity prices would add to the operating margins, which is seen at about 10 per cent in FY10 compared to 9.7 per cent in FY09 and 9.5 per cent in FY08.
Although, there could be some slowdown in orders in the short-term (about six months), the company is confident of maintaining revenue growth of about 25 per cent over the next two years on the back of a strong order book. Additionally, the company's diverse presence across sectors like power, marine, industrial, roads, railways, bridges, urban infrastructure and housing provides comfort. Its recent foray into mining, onshore drilling and power T&D segments could prove to be future growth drivers and provides stability in the event of any slowdown in a particular segment or geography. (Click for table)
Sintex Industries
Despite the economic slump, Sintex Industries has been able to maintain its growth. The company's Q3FY09 sales were up by 30 per cent followed by 22 per cent growth in net profit. The company has been growing consistently in the past led by investments in fast growing businesses and partly due to acquisitions. Sintex manufactures plastic products such as custom mouldings and, prefabricated and monolithic structures, which are widely used in different industries, household and construction of temporary and permanent housing. The company has also extended its product portfolio covering sectors like aerospace, wind power, defence and consumer durables by way of acquiring new technologies and companies in the overseas markets (five companies in last 15-18 months).
While margins contracted to 13.2 per cent (down 340 basis point y-o-y) on account of high raw material prices and inventory losses (Rs 25-30 crore) in Q3FY09, they should improve in the coming quarters due to the 30-40 per cent correction in petrochemical prices (main raw material) and absence of inventory losses.
Overall, in the near term, there could be some concerns regarding its international operations given the slowdown in global markets (especially automotive plastic segment). However, the company is still expected to maintain a healthy revenue growth of about 25 per cent over the next two years. Notably, valuations are attractive as the stock is trading at 0.55 times its estimated book value and 3.9 times its estimated earnings for FY10.
Tanla Solutions
For this mobile value added service (MVAS) player, which gets over three quarters of its revenues from UK and Ireland, the recession in these markets have dampened the business outlook in the near term.
The company offers telecom infrastructure solutions through its four segments---products, network aggregation (SMS, MMS), professional services (infrastructure management) and mobile payments (smart phones) in about 28 markets around the world. Though the UK market is growing at just 10 per cent, VAS contributes to nearly a fifth of total mobile usage. With a shift to higher usage of 3G and mobile internet on the rise, Tanla with a 5 per cent market share in the UK market should benefit. For Q3FY09, except for the mobile payments segments, all others reported a decline of over 20 per cent q-o-q (sequential) due to a combination of slowing growth, regulatory changes in UK and weakening of the British pound.
The company is expanding into the Indian market and has deployed the 3G platform for MTNL and launched the missed call alert for Aircel among other projects. While Tanla is debt free and sitting on a cash of about Rs 150 crore, its debtors at Rs 278 crore and an increase in debtor days to 119 days in Q3 are causes for concern. The management, however, believes that this will come down going ahead and Ebidta margins, which have dropped (768 bps q-o-q) to 38 per cent, should stabilise on higher transaction volumes and cost cutting efforts. The stock which has corrected substantially over the year and on the back of robust growth prospects should fetch returns of about 40 per cent over the next one year.
Tata Chemicals
Acquisitions of soda ash makers (UK-based Brunner Mond in FY06 for Rs 800 crore and US-based General Chemical Industrial Products in March 2008 for $1.05 billion) have placed Tata Chemicals in the big league. It has not only emerged as the world's second largest producer of soda ash (capacity of 5.5 million tonne), but it now has an enhanced presence in US, UK and Africa. Soda Ash forms a large part of the chemicals division (sodium bi-carbonate and edible salt are the other major contributors), while crop nutrition (urea, DAP; mainly domestic focus) accounts for the rest.
Notably, while the chemicals business accounts for 40 per cent of consolidated revenues, it enjoys higher Ebidta margins (about 20 per cent) giving it a 55 per cent share in profit. With the overall economic environment having turned weak - prime users of soda ash are glass, soap, detergent, paper and textile industries - realisations and volumes have been under pressure. However, analysts expect Ebdita margins to remain stable in FY10 helped by a sharp decline in input prices (coal and coke; locally) and better realisations in the US (new long-term contracts at higher prices). Notably, majority of Tata Chemicals' production is of low-cost 'natural' soda ash (balance is produced through 'synthetic' route) and is supported by reserves in the US and Kenya. In the edible salt business, the company has been gaining ground and is expected to sustain profitability and growth.The crop nutrition business was impacted by lower realisation of DAP even as input prices were higher, which is also reflecting in its Q3 FY09 performance.
A shutdown at its Uttar Pradesh-based fertiliser plant to stabilise operations of the expanded capacity (up by 33 per cent to 1.16 million tonnes per annum) also impacted operations. Going ahead, lower input costs and higher capacity (and benefits of new urea policy) in the fertiliser business will mean better margins. Also, as the gas supply from Reliance Industries KG-basin is made available, margins should perk up in FY10.
With expansions scaled down, the cost will come down by 28 per cent to Rs 400 crore, which can be funded through annual cash generation of over Rs 1,000 crore. This should also help lower debt further. Operationally, although revenues are expected to decline in FY10 (due to lower realisation), expansion in margins and lower debt should help sustain net profit at FY09 levels; in FY11, it should rise. Expect the stock to deliver good returns.
Source: BS
Citigroup maintains 'Buy' rating on Axis Bank
RESEARCH: CITIGROUP
RATING: BUY
CMP: RS 431
Citigroup maintains 'Buy' rating on Axis Bank with risk-adjusted target price of Rs 470. Citigroup reduces the earnings estimate by 5-13 % over FY09-11 E on the back of: a) Higher loan loss charges, and b) Lower asset and fee income growth.
The stock remains a `Buy’ in spite of the challenges due to its strong franchise, decent returns, modest valuations and high sensitivity to an economic rebound. While Axis’ rapid asset expansion and mid-market profile have sustained concerns on asset quality, management now suggests some of it will show up. If significant - on NPAs and/or restructurings - it could open a Pandora’s Box on how deep the pressure can go. If not, it will still unlikely lift concerns; bottomline, an overhang. Axis is, however, a beneficiary of the currently surplus liquidity - on wholesale deposits (and margins), asset acquisition and its trading portfolio. Its high growth trajectory is also leveraged into the economic cycle.
Economic upswing /revival with easy liquidity could be a significant biz and stock boost. Valuations, franchise and leverage to recovery should offer upsides. There are pressures on asset quality, growth, earnings and management uncertainty , which moderate fundamental and near-term value. But valuations look attractive relative to the franchise and risks are in the headlines, while leverage to economic revival is high.
Source: ET
RATING: BUY
CMP: RS 431
Citigroup maintains 'Buy' rating on Axis Bank with risk-adjusted target price of Rs 470. Citigroup reduces the earnings estimate by 5-13 % over FY09-11 E on the back of: a) Higher loan loss charges, and b) Lower asset and fee income growth.
The stock remains a `Buy’ in spite of the challenges due to its strong franchise, decent returns, modest valuations and high sensitivity to an economic rebound. While Axis’ rapid asset expansion and mid-market profile have sustained concerns on asset quality, management now suggests some of it will show up. If significant - on NPAs and/or restructurings - it could open a Pandora’s Box on how deep the pressure can go. If not, it will still unlikely lift concerns; bottomline, an overhang. Axis is, however, a beneficiary of the currently surplus liquidity - on wholesale deposits (and margins), asset acquisition and its trading portfolio. Its high growth trajectory is also leveraged into the economic cycle.
Economic upswing /revival with easy liquidity could be a significant biz and stock boost. Valuations, franchise and leverage to recovery should offer upsides. There are pressures on asset quality, growth, earnings and management uncertainty , which moderate fundamental and near-term value. But valuations look attractive relative to the franchise and risks are in the headlines, while leverage to economic revival is high.
Source: ET
Citigroup maintains 'Buy' rating on Axis Bank
RESEARCH: CITIGROUP
RATING: BUY
CMP: RS 431
Citigroup maintains 'Buy' rating on Axis Bank with risk-adjusted target price of Rs 470. Citigroup reduces the earnings estimate by 5-13 % over FY09-11 E on the back of: a) Higher loan loss charges, and b) Lower asset and fee income growth.
The stock remains a `Buy’ in spite of the challenges due to its strong franchise, decent returns, modest valuations and high sensitivity to an economic rebound. While Axis’ rapid asset expansion and mid-market profile have sustained concerns on asset quality, management now suggests some of it will show up. If significant - on NPAs and/or restructurings - it could open a Pandora’s Box on how deep the pressure can go. If not, it will still unlikely lift concerns; bottomline, an overhang. Axis is, however, a beneficiary of the currently surplus liquidity - on wholesale deposits (and margins), asset acquisition and its trading portfolio. Its high growth trajectory is also leveraged into the economic cycle.
Economic upswing /revival with easy liquidity could be a significant biz and stock boost. Valuations, franchise and leverage to recovery should offer upsides. There are pressures on asset quality, growth, earnings and management uncertainty , which moderate fundamental and near-term value. But valuations look attractive relative to the franchise and risks are in the headlines, while leverage to economic revival is high
Source: ET
RATING: BUY
CMP: RS 431
Citigroup maintains 'Buy' rating on Axis Bank with risk-adjusted target price of Rs 470. Citigroup reduces the earnings estimate by 5-13 % over FY09-11 E on the back of: a) Higher loan loss charges, and b) Lower asset and fee income growth.
The stock remains a `Buy’ in spite of the challenges due to its strong franchise, decent returns, modest valuations and high sensitivity to an economic rebound. While Axis’ rapid asset expansion and mid-market profile have sustained concerns on asset quality, management now suggests some of it will show up. If significant - on NPAs and/or restructurings - it could open a Pandora’s Box on how deep the pressure can go. If not, it will still unlikely lift concerns; bottomline, an overhang. Axis is, however, a beneficiary of the currently surplus liquidity - on wholesale deposits (and margins), asset acquisition and its trading portfolio. Its high growth trajectory is also leveraged into the economic cycle.
Economic upswing /revival with easy liquidity could be a significant biz and stock boost. Valuations, franchise and leverage to recovery should offer upsides. There are pressures on asset quality, growth, earnings and management uncertainty , which moderate fundamental and near-term value. But valuations look attractive relative to the franchise and risks are in the headlines, while leverage to economic revival is high
Source: ET
UBS Investment maintains 'Buy' rating on Maruti Suzuki
RESEARCH: UBS INVESTMENT
RATING: BUY
CMP: RS 766
UBS Investment maintains 'Buy' rating on Maruti Suzuki and sees it as the key beneficiary of the improving domestic auto demand. UBS believes domestic sentiment has turned favourable for passenger cars following the sharp reduction in excise duty, petrol prices and rapidly declining interest rates.
Maruti has raised product prices, and this along with declining commodity prices should result in a sequential margin improvement over the next couple of quarters as contract prices get reset lower. UBS is increasing its EPS estimate for FY10/FY11 by 12%/13% driven by 94bps/93bps EBITDA margin improvement and 2%/3% reduction in volume estimates due to lower exports for FY10/11 respectively.
It has conservatively raised the domestic volume growth by 1% in FY10/FY11 to 5% y-o-y / 9% y-o-y by factoring in declining sales for Maruti’s entry level portfolio with the launch of the Nano. However, overall volume growth is to remain robust at 9% yo-y in FY10 and 13% y-o-y for FY11 helped by increasing exports of A-Star to Europe. The valuations of MSIL are attractive relative to its global peers.
Source: ET
RATING: BUY
CMP: RS 766
UBS Investment maintains 'Buy' rating on Maruti Suzuki and sees it as the key beneficiary of the improving domestic auto demand. UBS believes domestic sentiment has turned favourable for passenger cars following the sharp reduction in excise duty, petrol prices and rapidly declining interest rates.
Maruti has raised product prices, and this along with declining commodity prices should result in a sequential margin improvement over the next couple of quarters as contract prices get reset lower. UBS is increasing its EPS estimate for FY10/FY11 by 12%/13% driven by 94bps/93bps EBITDA margin improvement and 2%/3% reduction in volume estimates due to lower exports for FY10/11 respectively.
It has conservatively raised the domestic volume growth by 1% in FY10/FY11 to 5% y-o-y / 9% y-o-y by factoring in declining sales for Maruti’s entry level portfolio with the launch of the Nano. However, overall volume growth is to remain robust at 9% yo-y in FY10 and 13% y-o-y for FY11 helped by increasing exports of A-Star to Europe. The valuations of MSIL are attractive relative to its global peers.
Source: ET
HSBC reiterates 'Overweight' rating on Kalpataru Power
RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: RS 335
HSBC reiterates 'Overweight' rating on Kalpataru Power with a target price of Rs. 360. Kalpataru Power, last month, announced orders of Rs 1,160 crore, including orders from Power Grid Corp and a pipeline laying order from Hindusthan Mittal Energy.
Thus, its consolidated order book has increased to Rs 6800 crore, or 2x FY09E sales. Its stand-alone order book of Rs 5,100 crore, or 2.4x of FY09E stand-alone sales, is the strongest among the transmission tower companies like Jyoti Structures, at 1.9x of FY09E sales, and KEC International, at 1.5x. In a business that is working capital-intensive , Kalpataru Power has the least balance-sheet gearing, of FY10E net debt/equity of 0.4x, compared to peers such as Jyoti structures, at 0.6x, and KEC International, at 1x.
Based on FY10E price to book (PB) value, Kalpataru Power’s stock is trading at the cheapest multiple of 0.7x; among peers, Jyoti Structures is trading at 0.8x and KEC International at 0.9x. HSBC values Kalpataru using price to earnings (PE) and PB multiple-based methods. Based on a target PE of 5x and December 2009E EPS, fair value for the stock is Rs 340. HSBC’s target PB multiple is 1x, and based on December 2009 BVPS (book value per share), it arrives at a fair value of Rs 380. The target of Rs 360 is the midpoint of our PE and PB multiple-based valuations.
Source: ET
RATING: OVERWEIGHT
CMP: RS 335
HSBC reiterates 'Overweight' rating on Kalpataru Power with a target price of Rs. 360. Kalpataru Power, last month, announced orders of Rs 1,160 crore, including orders from Power Grid Corp and a pipeline laying order from Hindusthan Mittal Energy.
Thus, its consolidated order book has increased to Rs 6800 crore, or 2x FY09E sales. Its stand-alone order book of Rs 5,100 crore, or 2.4x of FY09E stand-alone sales, is the strongest among the transmission tower companies like Jyoti Structures, at 1.9x of FY09E sales, and KEC International, at 1.5x. In a business that is working capital-intensive , Kalpataru Power has the least balance-sheet gearing, of FY10E net debt/equity of 0.4x, compared to peers such as Jyoti structures, at 0.6x, and KEC International, at 1x.
Based on FY10E price to book (PB) value, Kalpataru Power’s stock is trading at the cheapest multiple of 0.7x; among peers, Jyoti Structures is trading at 0.8x and KEC International at 0.9x. HSBC values Kalpataru using price to earnings (PE) and PB multiple-based methods. Based on a target PE of 5x and December 2009E EPS, fair value for the stock is Rs 340. HSBC’s target PB multiple is 1x, and based on December 2009 BVPS (book value per share), it arrives at a fair value of Rs 380. The target of Rs 360 is the midpoint of our PE and PB multiple-based valuations.
Source: ET
Merrill Lynch retains 'Buy' rating on Cairn India
RESEARCH: MERRILL LYNCH
RATING: BUY
CMP: RS 194
Merrill Lynch retains 'Buy' rating on Cairn India with a price target of Rs 226. Brent price forecast is cut by 11-20 % for FY11-FY 12E, the first two fullyears of oil production from the main RJ-ON-90 /1 block of Cairn India.
This led to a cut of FY11-FY 12E EPS forecasts by 16-22 %. Despite the long-term Brent price cut to $72/bbl from $90/bbl, Merrill Lynch raises price target for Cairn by 3% to Rs 226. This is because the old price target had been effectively based on a long term Brent of $70/bbl while new target is based on $72/bbl. Merrill Lynch expects Cairn’s oil and gas production volumes to jump 5x in FY11E and 7x in FY12E from its 2007 level.
Oil production starting and ramping up from its main block RJ-ON-90 /1 should drive volume and earnings. Cairn’s current share price of Rs 175 discounts long-term Brent price of $54/bbl if exchange rate is taken at Rs 45 and $47/bbl if exchange rate is Rs 50.
Source: ET
RATING: BUY
CMP: RS 194
Merrill Lynch retains 'Buy' rating on Cairn India with a price target of Rs 226. Brent price forecast is cut by 11-20 % for FY11-FY 12E, the first two fullyears of oil production from the main RJ-ON-90 /1 block of Cairn India.
This led to a cut of FY11-FY 12E EPS forecasts by 16-22 %. Despite the long-term Brent price cut to $72/bbl from $90/bbl, Merrill Lynch raises price target for Cairn by 3% to Rs 226. This is because the old price target had been effectively based on a long term Brent of $70/bbl while new target is based on $72/bbl. Merrill Lynch expects Cairn’s oil and gas production volumes to jump 5x in FY11E and 7x in FY12E from its 2007 level.
Oil production starting and ramping up from its main block RJ-ON-90 /1 should drive volume and earnings. Cairn’s current share price of Rs 175 discounts long-term Brent price of $54/bbl if exchange rate is taken at Rs 45 and $47/bbl if exchange rate is Rs 50.
Source: ET
HSBC reiterates 'Overweight' rating on Kalpataru Power
RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: RS 335
HSBC reiterates 'Overweight' rating on Kalpataru Power with a target price of Rs. 360. Kalpataru Power, last month, announced orders of Rs 1,160 crore, including orders from Power Grid Corp and a pipeline laying order from Hindusthan Mittal Energy.
Thus, its consolidated order book has increased to Rs 6800 crore, or 2x FY09E sales. Its stand-alone order book of Rs 5,100 crore, or 2.4x of FY09E stand-alone sales, is the strongest among the transmission tower companies like Jyoti Structures, at 1.9x of FY09E sales, and KEC International, at 1.5x. In a business that is working capital-intensive , Kalpataru Power has the least balance-sheet gearing, of FY10E net debt/equity of 0.4x, compared to peers such as Jyoti structures, at 0.6x, and KEC International, at 1x.
Based on FY10E price to book (PB) value, Kalpataru Power’s stock is trading at the cheapest multiple of 0.7x; among peers, Jyoti Structures is trading at 0.8x and KEC International at 0.9x. HSBC values Kalpataru using price to earnings (PE) and PB multiple-based methods. Based on a target PE of 5x and December 2009E EPS, fair value for the stock is Rs 340. HSBC’s target PB multiple is 1x, and based on December 2009 BVPS (book value per share), it arrives at a fair value of Rs 380. The target of Rs 360 is the midpoint of our PE and PB multiple-based valuations.
Source: ET
RATING: OVERWEIGHT
CMP: RS 335
HSBC reiterates 'Overweight' rating on Kalpataru Power with a target price of Rs. 360. Kalpataru Power, last month, announced orders of Rs 1,160 crore, including orders from Power Grid Corp and a pipeline laying order from Hindusthan Mittal Energy.
Thus, its consolidated order book has increased to Rs 6800 crore, or 2x FY09E sales. Its stand-alone order book of Rs 5,100 crore, or 2.4x of FY09E stand-alone sales, is the strongest among the transmission tower companies like Jyoti Structures, at 1.9x of FY09E sales, and KEC International, at 1.5x. In a business that is working capital-intensive , Kalpataru Power has the least balance-sheet gearing, of FY10E net debt/equity of 0.4x, compared to peers such as Jyoti structures, at 0.6x, and KEC International, at 1x.
Based on FY10E price to book (PB) value, Kalpataru Power’s stock is trading at the cheapest multiple of 0.7x; among peers, Jyoti Structures is trading at 0.8x and KEC International at 0.9x. HSBC values Kalpataru using price to earnings (PE) and PB multiple-based methods. Based on a target PE of 5x and December 2009E EPS, fair value for the stock is Rs 340. HSBC’s target PB multiple is 1x, and based on December 2009 BVPS (book value per share), it arrives at a fair value of Rs 380. The target of Rs 360 is the midpoint of our PE and PB multiple-based valuations.
Source: ET
CLSA maintains 'Buy' rating on HDFC
RESEARCH: CLSA
RATING: BUY
CMP: RS 1589
CLSA maintains 'Buy' rating on HDFC with a price target of Rs 1,675. HDFC’s volume growth in FY10 is likely to be lower than the management guidance of 20% due to: a) a 20% fall in property prices, b) loss of market share and c) HDFC Bank retaining higher proportion of loans it originates.
However, margins are likely to surprise on the upside as the recent RBI guidelines on priority sector lending would lower funding costs for HDFC by 25-50 bps. HDFC’s FY10 loan growth would be ~15-17 %, lower than the management guidance of 20%, as even though the volumes in low and mid-housing segments have marginally improved, average property prices are down 15-20 %.
Source: ET
RATING: BUY
CMP: RS 1589
CLSA maintains 'Buy' rating on HDFC with a price target of Rs 1,675. HDFC’s volume growth in FY10 is likely to be lower than the management guidance of 20% due to: a) a 20% fall in property prices, b) loss of market share and c) HDFC Bank retaining higher proportion of loans it originates.
However, margins are likely to surprise on the upside as the recent RBI guidelines on priority sector lending would lower funding costs for HDFC by 25-50 bps. HDFC’s FY10 loan growth would be ~15-17 %, lower than the management guidance of 20%, as even though the volumes in low and mid-housing segments have marginally improved, average property prices are down 15-20 %.
Source: ET
Sunidhi Securities recommends ‘BUY’ on Yes Bank for TP Rs 60
Given the high quality assets, comfortable capital adequacy, robust other income and strong growth in advances in the current challenging scenario, Sunidhi Securities has recommended ‘buy’ on Yes Bank for a target price of Rs 60 in the medium term.
Yes Bank is aggressively foraying into retail banking for deposits, while retail advances are not the focus. Its loan book is divided between corporate (57%) and small and medium enterprises (41%).
The bank also plans a foray into asset reconstruction business by the end of this year; this can boost its ‘other income’. The bank intended to increase its SME clientele to 1,000 by FY09 and plans to add 5,000 customers under its Urban-Micro Finance programme.
Sunidhi Securities expects Yes Bank’s capital adequacy ratio continues to remain healthy at 15%. Further, the bank has raised hybrid tier-1 capital (innovative perpetual debt) of INR 1.6 billion recently and expects release of 80bps when it reports in Basel 2 by FY09. Yes Bank’s NPA on Dec 31, 2008 stood at 0.15% and capital adequacy ratio at 14.6%.
Yes Bank’s balance-sheet and advances have grown by 130 per cent (compounded annually) in the last four years ended March 2008, whereas the deposits grew at 170 per cent (annualized rate) in the same period.
During Q3FY09, total income rose 64% to Rs 726 crore and net profit by 95% to Rs 106 crore. NIM and NP margin stood at 2.8% % 14.6% respectively. NPA to net advances stood at 0.15% and capital adequacy ratio at 14.6%. Its balance sheet grew by 31% to Rs 19, 747 crore (Y-o-Y).
YBL also plans a foray into asset reconstruction business by the end of this year; this can boost its ‘other income’. The bank intended to increase its SME clientele to 1, 000 by FY09 and plans to add 5,000 customers under its Urban-Micro Finance programme.
Fee income growth will continue with focus on transactional banking. The bank is not witnessing any incremental issues on derivative transactions sold and has replaced this business by normal Forex fees. Debt syndication (part of financial advisory) is witnessing increased activity as closure of equity related transactions are getting elongated despite a healthy pipeline.
Segments such as transaction banking, financial advisory and third-party product distribution have grown at a good pace to boost ‘other income’. YBL intends to grow at a rate superior to its peers, given its aggressive moves in opening retail branches, targeting SMEs and also building corporate relationships.
Thursday on NSE the stock of Yes Bank was trading 7.12 per cent up at Rs 53.
Source: ET
Yes Bank is aggressively foraying into retail banking for deposits, while retail advances are not the focus. Its loan book is divided between corporate (57%) and small and medium enterprises (41%).
The bank also plans a foray into asset reconstruction business by the end of this year; this can boost its ‘other income’. The bank intended to increase its SME clientele to 1,000 by FY09 and plans to add 5,000 customers under its Urban-Micro Finance programme.
Sunidhi Securities expects Yes Bank’s capital adequacy ratio continues to remain healthy at 15%. Further, the bank has raised hybrid tier-1 capital (innovative perpetual debt) of INR 1.6 billion recently and expects release of 80bps when it reports in Basel 2 by FY09. Yes Bank’s NPA on Dec 31, 2008 stood at 0.15% and capital adequacy ratio at 14.6%.
Yes Bank’s balance-sheet and advances have grown by 130 per cent (compounded annually) in the last four years ended March 2008, whereas the deposits grew at 170 per cent (annualized rate) in the same period.
During Q3FY09, total income rose 64% to Rs 726 crore and net profit by 95% to Rs 106 crore. NIM and NP margin stood at 2.8% % 14.6% respectively. NPA to net advances stood at 0.15% and capital adequacy ratio at 14.6%. Its balance sheet grew by 31% to Rs 19, 747 crore (Y-o-Y).
YBL also plans a foray into asset reconstruction business by the end of this year; this can boost its ‘other income’. The bank intended to increase its SME clientele to 1, 000 by FY09 and plans to add 5,000 customers under its Urban-Micro Finance programme.
Fee income growth will continue with focus on transactional banking. The bank is not witnessing any incremental issues on derivative transactions sold and has replaced this business by normal Forex fees. Debt syndication (part of financial advisory) is witnessing increased activity as closure of equity related transactions are getting elongated despite a healthy pipeline.
Segments such as transaction banking, financial advisory and third-party product distribution have grown at a good pace to boost ‘other income’. YBL intends to grow at a rate superior to its peers, given its aggressive moves in opening retail branches, targeting SMEs and also building corporate relationships.
Thursday on NSE the stock of Yes Bank was trading 7.12 per cent up at Rs 53.
Source: ET
Market's resilience will be put to test this week
The newly-found resilience in equities may be put to test this week, with investors showing reluctance to ride the recent bullish wave ahead of the March quarter results and general elections in April and May. After the 22% rally in benchmark indices in the past couple of weeks, investors fear whether there is any space to accommodate more upsides due to unpredictability about the outcomes of these upcoming events.
Also, with fears about the global economy and financial system far from over, the wider consensus is that a bull market is still some time away. But, market participants hope that the recent steps by the US government to revive the financial system is keeping the undertone positive for the moment.
“People were genuinely fed up of the market coming down again and again. Now they see a glimmer of hope in the US government’s plans to stabilise the financial system,” said George Moller, CEO of Dutch AMC, Robeco Group.
Mr Moller, however, warned that the execution of America’s package contains lot of risks. “As soon as there are indications that the US government’s auction process is going well, markets will rise,” he said.
Mr Moller expects the global economy to be back on its feet only in 2011, and sees the equity markets responding to it a year before . On Friday, US equity indices ended roughly 2% lower.
Back home, developments in political circles in the last few days have heightened the uncertainty about the results of the general elections. With chances of the coalition - consisting of the Left parties - coming to power increasing, analysts said investors are confused and are increasingly staying on the sidelines. It is feared that this coalition would introduce policies that are not marketfriendly .
“As there is now more than a reasonable chance of a third front government coming to power, the Left agenda is likely to play an important role,” said Credit Suisse in a recent report.
Brokers said investors may need to gear up for some disappointments in the March quarter results of Indian companies, especially with the economic data hardly signalling any improvement in business activities. There are concerns about sharp write-downs , especially for small companies, which may precipitate losses in the quarter.
Source: ET
Also, with fears about the global economy and financial system far from over, the wider consensus is that a bull market is still some time away. But, market participants hope that the recent steps by the US government to revive the financial system is keeping the undertone positive for the moment.
“People were genuinely fed up of the market coming down again and again. Now they see a glimmer of hope in the US government’s plans to stabilise the financial system,” said George Moller, CEO of Dutch AMC, Robeco Group.
Mr Moller, however, warned that the execution of America’s package contains lot of risks. “As soon as there are indications that the US government’s auction process is going well, markets will rise,” he said.
Mr Moller expects the global economy to be back on its feet only in 2011, and sees the equity markets responding to it a year before . On Friday, US equity indices ended roughly 2% lower.
Back home, developments in political circles in the last few days have heightened the uncertainty about the results of the general elections. With chances of the coalition - consisting of the Left parties - coming to power increasing, analysts said investors are confused and are increasingly staying on the sidelines. It is feared that this coalition would introduce policies that are not marketfriendly .
“As there is now more than a reasonable chance of a third front government coming to power, the Left agenda is likely to play an important role,” said Credit Suisse in a recent report.
Brokers said investors may need to gear up for some disappointments in the March quarter results of Indian companies, especially with the economic data hardly signalling any improvement in business activities. There are concerns about sharp write-downs , especially for small companies, which may precipitate losses in the quarter.
Source: ET
Punj Lloyd (Rs 90.35): Buy
We recommend a buy in Punj Lloyd stock from a short-term trading perspective. It is apparent from the charts of Punj Lloyd that it was on an intermediate-term downtrend from a significant resistance level of Rs 310 encountered in late September 2008 to March low of Rs 66.
The March low is also a 52-week low for the stock. However, the stock reversed its trend triggered by the positive divergence displayed in the daily relative strength index (RSI) and the daily moving average convergence and divergence. The stock breached its intermediate-term down trend-line in the recent time and has been on a short-term uptrend since its 52-week low.
While trending up, the stock crossed over the 21 and 50-day moving averages. On March 27, the stock gained 10 per cent, accompanied with heavy volume. The daily RSI has entered in the bullish zone and the weekly RSI is rising in the bearish zone towards the neutral region. From a short-term perspective we are bullish on the stock.
We expect it to rally further until it hits our price target of Rs 100 in the upcoming sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 85.
Source: HBL
JSW Steel: Hold
Increasing domestic exposure, aggressive retail expansion plans and steps to reduce interest costs may help improve performance.
However, the company’s relatively high overseas exposure, the vulnerability of its US operations to recessionary trends and the debt on its consolidated balance-sheet leading to losses in the recent quarter, appear to justify a valuation discount to peers such as SAIL.
The company’s moves to increase its domestic exposure, aggressive retail expansion plans and steps to reduce interest costs may help improve performance, with a lag of a few quarters. The debt-to-equity ratio stands at a high 1.75 (as against 0.18 of SAIL).
Business overviewWith steel plants in Karnataka and Tamil Nadu, JSW Steel produces around 6.8 million tonnes of steel per annum. The company produces hot and cold rolled steel products with galvanised sheets, plates and pipes. The company’s market is concentrated in India with 85 per cent of revenues coming from West and South India.
Even as JSW Steel shifts focus to the domestic market, steel demand has been showing signs of improvement in recent months. CMIE sees steel production growing by 6.5 per cent in 2009-10 as falling interest rates stoke growth in the construction sector, thus increasing demand for long steel products.
An improvement in the passenger vehicle numbers also augur well for steel demand. JSW Steel is looking to capitalise on these trends by turning to value-added products, aggressively expanding its retail presence. The company plans to open another 50 outlets across the country and have a pan-India presence.
The improvement in sales for JSW Steel in the ongoing March quarter (relative to December) may be quite sharp, given the plant shutdowns in the preceding quarter and the commissioning of expanded capacity at Vijayanagar. The company expects its March quarter 2009 sales to expand to 1.2 million tonnes from 0.7 million tonnes recorded in December quarter of 2008. The re-opening of two blast furnaces that were temporarily shut in November and December and the commencement of production at the Vijayanagar works in February may aid volumes.
The new Vijayanagar facility has expanded the production capacity of the steel maker to 6.8 million tpa from 3.8 mtpa earlier. JSW Steel is further looking to expand the capacity to 10 mtpa by 2011.
Subsidiary drags profitsIn 2007, the company acquired three plate and pipe mills in the US for a consideration of $940 million. These companies had a capacity of producing 1.2 million tonne of plates, 0.55 million tonne of pipes and 0.35 million of double jointing and coating lines and are under JSW Steel (US). The strategy behind the acquisition was to ship the excess one million tonne of slab produced in the Indian facilities to the acquired US operations for value-addition and subsequent marketing in that region. It was also hoped that the acquisition would be a stepping stone to catering to the oil and gas sector in North America, a key driver of plate and pipe demand.
But recessionary trends in the US markets and the collapse in oil prices have hit the subsidiary’s operations. In the December quarter alone, the company saw sales volume of plates decline by 53.6 per cent and that of pipes by 20.5 per cent sequentially in the December 2008 quarter; the subsidiary reported a net loss of $2.8 million for the quarter.
As demand may take time to recover in North America, the US subsidiary may continue to weigh on numbers for some more time.
JSW Steel has substantial debt outstanding in its book, with long-term loans at Rs 14,153 crore as at end-December 2008. This takes the debt-to-equity ratio of the company to a high 1.75. With the company eyeing another expansion of capacity to 10 mtpa by March 2011, there remains a risk of further addition to these borrowings.
JSW Steel’s consolidated performance in the December quarter of 2008 was hit by interest costs (Rs 330.19 crore) which more than doubled and from forex losses of over Rs 181 crore on FCCBs with the rupee depreciating sharply against foreign currencies.
Last week the company made an announcement stating that it had repurchased its FCCBs to the extent of US $ 47.80 million. However this is only a small amount when compared to the total outstanding dues in the balance sheet.
Relief on input costsThough factors such as leverage and challenges for overseas operations remain, the company may see substantial relief in input costs.
The company has recently succeeded in negotiating the prices on long-term coking coal contracts downward to $175 per tonne from $300 per tonne, which may provide substantial margin relief in the coming quarters. (Coking coal prices had shot up to $300 in 2008 from $98 in 2007). The company has also locked into lower prices by taking delivery of 2,00,000 tonnes of coal at the negotiated price.
Overall, while JSW Steel’s efforts to increase its domestic presence may pay off only over time, the March and June quarter numbers may see improvement with the prospect of higher sales and lower input costs.
Source: HBL
Housing Development & Infrastructure: Buy
We recommend buying the Housing Development and Infrastructure stock at current levels. The stock spiralled downward from its life-time high of Rs 1,112 recorded in January 2008 to Rs 69 in December 2008. Though the stock encountered selling pressure close to Rs 200, the decline is tapering in the zone between Rs 60 and Rs 70, leading to the expectation that a long-term trough is possible in this zone. Positive divergence in the monthly relative strength index supports this view. The range for the stock over the next 12 months is likely to be between Rs 70 and Rs 200. Investors can buy the stock as it moves closer to the lower boundary and book profits near the upper boundary.
The short-term view for this stock has turned positive since it has moved above its 50-day moving average as well as the previous trough at Rs 75. Investors with a greater penchant for risk can buy at current levels with a stop loss at Rs 74 and with the target of Rs 108.
Source: HBL
Corporation Bank: Buy
Superior asset quality, high proportion of non-operating income and better operating efficiencies are key positives.
Leveraging on its first-mover advantage in implementing CBS at all its branches.
M. V. S. Santosh Kumar
Investors with a two-three year horizon can buy the Corporation Bank stock as it trades at a low valuation, though the bank has clocked a higher rate of earnings growth than most of its PSU peers, over the past five years. At the current market price of Rs 174, the stock trades at a trailing one-year PEM of 3 and at just half its December 2008 book value.
At this valuation (P/BV), the stock trades at a discount to most of its peers. The dividend yield for the stock is 6 per cent. The large valuation discount already factors in the possibility of moderation in profits in future (likely due to rising credit costs and falling advances growth). The bank’s earnings may, however, outperform peers beyond CY09.
The South-based Corporation Bank, with 67 per cent of its branches in South India and Maharasthra, was the first PSU bank to completely implement core banking solutions (CBS) at all its branches. Superior asset quality, high proportion of non-operating income (54 per cent of net revenues), high loan-loss provision coverage (73 per cent), higher operating efficiencies (cost-income ratio of 40 per cent) are key positives on the business.
Corporation Bank’s advances book grew at 26 per cent compounded annually in the last four years. In the same period, the net profit grew by 22 per cent annually. Corporation Bank’s advances continued to grow, recording 30 per cent growth for the period ended December, 2008.
The bank’s loan book is well-diversified and comprises of corporate loans (30.6 per cent), retail loans (20 per cent), SMEs (10.4 per cent) and agricultural loans (9.2 per cent) as of December. High growth in the past year was contributed by corporate advances (46 per cent year-on-year) and agricultural advances (39 per cent year-on-year).
FinancialsFor the nine months ended December 2008, the bank’s net profit grew by 19.44 per cent primarily boosted by a 33 per cent growth in non-interest income. The net interest income growth of 18 per cent is on the low side due to contraction in net interest margin (NIM) from 2.81 to 2.53 per cent over a year; pressured by higher cost of deposits. Corporation Bank’s CASA ratio has tended to be much lower than other PSU peers at 25.2 per cent and actually fell from 30 per cent last year.
Corporation Bank has leveraged on its first-mover advantage in being CBS-enabled, by generating fee-based income; non-interest income contributed 32 per cent of total income (16 per cent of total income comes from core non-interest income). Core non-interest income grew by 34 per cent year-on-year boosting the total income. Cost-income ratio of the bank stands at 40 per cent though higher provisions were provided for AS-15 and employee wage revision.
Though the bank has one of the lowest net non-performing assets (NNPA) proportions in the banking space, it is exposed to higher slippages due to its exposure to slowdown-sensitive sectors such as commercial real estate, exports, SMEs and textile sector. The retail side of the loan book may also see higher slippages. In terms of asset quality, the bank’s provisions for bad loans remained flat for the first nine months of this year. Provision coverage fell from 80 per cent last year to 73 per cent, but remains healthy enough to shield the bank from any slippages in the coming quarters.
Gross NPAs of the bank stood at 1.24 per cent of the total advances and the net NPA remained flat at 0.33 per cent of the total advances. The bank may not need re-capitalisation from the government in the near future as it has a capital adequacy ratio of a comfortable 12.76 per cent. The Government of India holds 57 per cent in the bank. Though the bank is raising Tier-2 capital to maintain its capital adequacy, with Tier-1 capital of 9.68 per cent, there is no urgency for the bank to raise money from equity markets.
OutlookThe credit-deposit ratio of the bank stands at 72 per cent and is expected to come down due to moderation in the credit offtake. Given the low CASA ratio, margin pressures for the bank may continue for a few quarters. Deposit rates may not fall as sharply as lending rates over the next few quarters. On the asset quality front, the current slippages from rate sectors may show up in the coming quarters, but restructuring measures and interest rate cuts may alleviate these concerns over the medium term.
The bank’s presence in rural areas and branchless banking provide opportunities to access untapped potential customers. The bank’s tie-up with automobile manufacturers for vehicle financing may aid growth in the loan book in the secured mode.
Source: HBL
Praj Industries: Buy
We recommend a buy on the Praj Industries stock. Praj Industries is in a structural bear market since the lifetime high of Rs 273 recorded in late-2007. This long-term downtrend has, however, lost momentum since October 2008 and the stock is attempting to consolidate sideways since then. The lower end of this consolidation range is around Rs 50 that corresponds with the trough formed in February 2006. A falling wedge pattern, which is a bullish reversal pattern, is also apparent in the daily charts.
Investors with a three-month horizon can buy this stock with a stop-loss at Rs 49. The medium-term outlook is encouraging and an up move to Rs 70 levels is possible in this period. Long-term investors can also consider investing in this stock, while retaining the stop-loss at Rs 44. Following a likely sideways consolidation in the range between Rs 55 and Rs 70, the stock has potential to reach Rs 110 over a longer time horizon.
Source: HBL
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