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Tuesday, November 06, 2007
Post Market Commentary
The market closed the session on a negative note as BSE Sensex closed lower by 190.11 points at 19,400.67. A lot of volatility is seen in today''s trading session as the Sensex touched an intrady high of 19,919.34 and low of 19,337.85. Overall, the market breadth was weak as 1606 stocks are closed in red while 1108 stocks are closed in green. The market breadth becomes weak towards the end of the session as the sellinf of scrips across the sectoral indices intensified. Except PSU and Reality index, all the sectoral indices closed in red. The BSE Mid Cap and Small Cap closed lower by 60.51 points and 43.99 points at 8,015.30 and 9,803.03 respectively.
The capital goods index declined by 354.99 points to close at 19,697.29. Leading the losers pack are Siemens (4.64%), Alstom (3.96%), L&T (3.77%), Praj industries (2.20%) closed lower.
BSE bankex index fell by 221.44 points to close at 10,786.51 as BOB (6.12%), BOI (3.84%), Axis bank (3.52%), ICICI bank (2.36%), PNB (1.87%) and SBI (1.41%) closed lower.
BSE Metal index dropped by 195.63 points to close at 17,206.06 as Jindal Steel (5.17%), Sesa Goa (3.76%), Jindal Saw (3.13%), Tata Steel (2.20%), Hind Zinc (2.33%), SAIL (1.25%) closed in negative.
The oil and gas index slipped by 116.33 points to close at 11,389.21. Pushing it down are RPL (17.64%), CAIRN India (1.58%), Reliance industries (0.31%), BPCL (0.30%) and HPCL (0.16%) closed in red.
The IT index dropped by 26.44 points to close at 4,540.69. Pushing it lower are Tech mahindra (3.33%), Iflex (2.65%), Satyam (2.34%), TCS (0.65%) and Infosys (0.30%) closed in negative.
Market Close : Finally a fall, Heavyweights under pressure..
Rally at the started was witnessed with dowsides at the close. Market trade on cautious mode after opening strong. FII's have been net sellers in cash and Fno too while Domestic funds were buyers. This shows FII's are exiting their positions. Market trade in yoyo fashion as the investors traded cautious. Indices witnessed profit booking at high levels as it lost ground in the late sessions and fell in the red zone but managed to recovered as value buying was seen in almost all segments but the power sector stocks were the front runners. RIL some how kept its hold on the market after Morgan Stanley raised the price target on the stock by 25% to 3,150 and its earnings forecast on RIL by 4% for the year ending 31 March 2008. But RIL alone couldnt hold the market for long as the market saw heavy profit bookings in the last hour of trade with index heavy weights leading the way.
Banking and telecom stocks led the decline with Auto majors like Tata Motors and Maruti Udyog followed them. L&T witnessed heavy selling pressure towards the end as it was down by 4%. Some of the Reliance group shares tumbled with RPL leading the way. All BSE Sectoral Indices end in the red Except the Realty Index which showed ended marginal in green. Small and Mid caps could not sustain the selling pressure as both ended in Red. Metals and oil & gas stocks continue to see selective action with some value buying seen in stocks like GAIL, Hindalco and Nalco. Another sector which was in favour with the investors was the Fertilizer sector which saw good value buying.
In Auto stocks 4 wheelers ended weak but two wheelers like Bajaj Auto and Hero Honda ended up. As per some reports, Bajaj Auto has picked up a 14.5% stake in Vienna based sports bike manufacturer KTM Power Sports for more than Rs 300 cr. KTM which is the second largest sport bike maker in Europe will be using Bajaj's Chakan plant to locally produce their bikes and engines for the Indian and south east Asian markets. The alliance apart from enabling Bajaj Auto to take over the distribution of KTM products in India and South East Asia, will also provide access to the European market through acquisition. KTM is into producing sports bike which are above 250cc and go up to almost 900+ cc. The Indian markets are not made for these types of bikes as the Indian mentality is to have bikes with better mileage and the efficiencies. The market for such sports bikes are very niche in India. But, Bajaj being the only distributor for KTM for its Asian territory saw Bajaj end up in green.
Titan announced spectacular numbers. Revenues were up over 35% and profits grew by 45%. Watches is high margin business which grew by over 20%. Jewelry business grew by over 45% with higher gold prices and of course volume growth as well with a higher retail network. Titan now has 223 World of Titan outlets, 100 Tanishq outlets (earlier 80) and 17 Gold Plus (earlier 10) outlets. Going ahead we see that the eyewear and the precision engineering are expected to bring in the extra. However, at current valuations of 45 X FY09 leaves nothing on the table near term. As per some market reports, Reliance Retail will make its jewelry foray with the launch of Reliance Jewelry this Diwali. Reliance will be the second corporate after the Tatas to enter the Rs 70,000 crore Indian jewellery industry, which is dominated by almost 3 lakh traditional family jewellers. Some competition is building up in the jewelry segment which has grown really fast and with Reliance foray in this means some hard tuff fight for Titan is there. Today we proved the power of WOW as the negative note on Titan and the short call went hand on hand is delivering superb profits.
Technically Sepaking: Weaik trade with Declines outnumbering Advances. Tunover was low at Rs 9840cr. The market trend is slowly weakening, though there are few pleasant moves in the midcaps (as we had expected). Sensex supports are at 19260 and 19075. The large caps are likely to be strong once again only if Sensex stabilise above 20000.
Market takes heavy pounding
Indices were off highs as traders booked profits on every rise. Banking shares were worst hit followed by capital goods and tech stocks. However, realty and PSU stocks remained strong. The Sensex resumed on a positive note at 19,690, 99 points above its last close of 19,591 and by mid-morning trades accumulated gains of 328 points on all-round buying to touch the day's high of 19,919. Although the index managed to trade above 19,750 till afternoon, unabated selling dragged it below the 19,350 level towards the close. After slipping over 581 points from the day's high, the Sensex finally dropped 0.97% and was down 190 points for the day at 19,401. The Nifty shed 1.04% and was down 61 points at 5,787.
The market breadth was extremely negative. Of the 2,782 stocks traded on the Bombay Stock Exchange (BSE), 1,597 stocks declined, 1,116 stocks advanced and 69 stocks remained unchanged. Barring the BSE Realty index and the BSE PSU index, most of the sectoral indices closed in negative territory. The BSE Banking index was down 2.01% at 10,787 followed by the BSE CG index (down 1.77% at 19,697), the BSE Teck index (down 1.60% at 3,838), the BSE Metal index (down 1.12% at 17,206) and the BSE Oil & Gas index (down 1.01% at 11,389).
Barring a few, the index stocks came under heavy selling pressure. Reliance Communication led the slump and crashed by 4.35% at Rs745. Among the other major laggards, L&T tumbled by 3.77% at Rs4,126, Bharti Airtel dropped 2.52% at Rs918, ICICI Bank slumped 2.36% at Rs1,241, Satyam Computer fell 2.34% at Rs453, Tata Motors declined by 2.24% at Rs723 and Maruti Suzuki lost 2.24% at Rs723. However, few frontline stocks bucked the downtrend. Hindalco rose 4.19% at Rs191, Bajaj Auto gained 2.49% at Rs2,455, BHEL surged 2.29% at Rs2,724, Dr Reddy's Lab added 1.99% at Rs613 and ACC moved up by 1.34% at Rs1,022.
Over 7.62 crore Reliance Petroleum shares changed hands on the BSE followed by Reliance Natural Resources (7.22 crore shares), Tata Teleservices (1.96 crore shares), Power Grid Corporation (1.81 crore shares), and Ispat Industries (1.73 crore shares).
Value-wise Reliance Petroleum registered a turnover of Rs1,845 crore on the BSE followed by Reliance Natural Resources (Rs1315 crore), Reliance Energy (Rs372 crore), Power Grid Corporation (Rs287 crore) and HDFC (Rs211 crore).
Sensex sheds 190 points on profit taking
The market drfited lower, coming sharply off day's high as investors booked profit after the early rise. Volatility was high. Banking and telecom stocks were worst hit. Power stocks ended strong. Some of the Reliance group stocks tumbled.
Asian indices ended on a mixed note after Monday (5 November 2007)'s fall caused by worries about the credit crunch in the US. European markets were trading firm.
The 30-share BSE Sensex settled 190.11 points or 0.97% lower at 19,400.67. Sensex hit a high of 19919.34 in mid-morning trade. At day's high of 19919.34, Sensex had risen 328.56 points. It hit a low of 19,337.85 in late trade. At day's low, Sensex lost 252.93 points.
The broader based S&P CNX Nifty was down 61 points to 5786.50.
The market breadth was negative with decliners outpacing advancers. On BSE, 1606 stocks declined, while 1108 stocks advanced and 70 shares were unchanged. From the Sensex pack, 18 out of 30 stocks were in red.
BSE clocked a turnover of Rs 9840 crore, compared to Monday (5 November 2007)'s Rs 9,049.87 crore.
The BSE Mid-Cap index was down 60.51 points, or, 0.75% at 8,015.30, while the BSE Small-Cap index fell 43.99 points, or, 0.45% at 9,803.03. Both these indices outperformed the Sensex
Telecom stocks dropped. Reliance Communications lost 4.35% to Rs 745.25 and Bharti Airtel shed 2.52% to Rs 918.45.
, Larsen & Toubro (down 3.77% to 4125.70), and Satyam Computer (down 2.34% to 453.10) were among other top Sensex losers.
Hindalco Industries (up 4.19% to Rs 191.30), Dr Reddy's Laboratories (up 2.59% to Rs 613.35), Bajaj Auto (up 2.49% to Rs 2454.65), Bharat Heavy Electricals (up 2.29% to Rs 2724.25) and ACC (up 1.34% to Rs 1021.75) were the major gainers from Sensex.
The BSE Bankex fell 221.44 points, or, 2.01% to 10,786.51. The banking index underperformed the Sensex in today’s trade.
ICICI Bank dropped 2.36% to Rs 1240.80. ICICI Bank said during trading hours today, it will cut interest rates on deposts by 0.25% to 0.50% points 12 November 2007.
State bank of India fell 1.41% to Rs 2208.75, HDFC Bank fell 0.21% to Rs 1705.95, Bank of Baroda skid 6.12% to Rs 359.65 and Bank of India slipped 3.84% to Rs 367.90.
The BSE Capital Goods index fell 354.99 points, or, 1.77% at 19,697.29. The BSE Metal index lost 195.63 points, or, 1.12% at 17,206.06. The BSE Oil & Gas index fell 116.33 points, or, 1.01% at 11,389.21. All these indices underperformed the Sensex
Oil and Natural Gas Corp (ONGC) ended up 0.13% to Rs 1300.75 on reports the state-run firm was in talks to buy a 30% stake in Sudan's Block 8 from Malaysia's Petronas, as well as a second exploration block.
Bajaj Auto, India's second biggest motorbike maker by sales, rose 2.49% to Rs 2454.65 on reports that it subsidiary has bought 14.5% in Austrian sports motorbike maker KTM Power Sports AG for more than Rs 300 crore.
Real estate firm Unitech settled lower 0.26% to Rs 385.15 on reports that the promoters of the company are said to be close to acquiring up to 40% stake in Orissa Sponge Iron and Steel.
Biotech firm Biocon edged higher by 1.93% to Rs 573.75 on reports that the company is in the final stages of negotiations with a drug marketing and distribution firm in the US.
Reliance Energy was up 1.32% to Rs 1844.95. It was the only gainer from the Reliance pack. Reliance Petroleum lost 17.64% to Rs 220.35, Reliance Natural Recources shed 9.02% to Rs 162.45, Reliance Industrial Infrastructure fell 5% to Rs 2388.20, Relaince Communications dropped 4.35% to Rs 745.40 and Reliance Capital slipped 3.62% to Rs 1833.55.
Reliance Industries fell 0.31% to Rs 2655.50. Morgan Stanley raised the price target on the stock by 25% to 3,150 and raised its earnings forecast by 4% for the year ending 31 March 2008. The key reasons for the upgrade were news flows on exploration and production business, including pricing contracts being signed, retail business being executed ahead of expectations and higher global refining and petrochemical margins.
New additions in MSCI index announced by MSCI as part of a semi-annual rejig were mixed. GMR Infrastructure ended up 3.01% to Rs 196.50), DLF rose 1.40% to Rs 927.90, NTPC gained 1.16% to Rs 239.55 and Sterlite Industries rose 0.07% to Rs 991.65.
United Spirits (down 3.26% to Rs 1816.80), Cairn India (down 1.85% to Rs 217.95), HCL Technologies (down 0.44 to Rs 305.85) and Reliance Natural Resources (down 9.02% to Rs 16.45), edged lower.
The change is effective 30 November 2007. Stocks earmarked to be added to the MSCI indexes tend to rise, as funds tracking these indexes will have to buy them.
Reliance Petroleum clocked highest volumes of 7.62 crore shares on BSE, followed by Reliance Natural Resources (7.22 crore shares), Tata Teleservices (1.96 crore shares), Power Grid Corporation of India (1.81 crore shares) and Ispat Industries (1.73 crore shares), in that order.
Reliance Petroleum clocked highest turnover of Rs 1845.38 crore on BSE, followed by Reliance Natural Resources (Rs 1315.38 crore), Reliance Energy (Rs 372.57 crore), Power Grid Corporation of India (Rs 287.86 crore) and Housing Development Finance Corporation of India (Rs 211.76 crore), in that order.
Diamond Power Infrastructure rose 10% to Rs 374 after the company said it will raise Rs 228 crore from GE Capital and Clearwater Capital Partners, to fund expansion.
Subhash Projects & Marketing ended lower 1.28% to Rs 307.55 despite securing an order worth Rs 52.06 crore for a water supply project in Rajasthan.
Fiber optics cables maker Sterlite Optical Technologies rose 1.43% to Rs 304.55 after bagging a Rs 143 crore order from BSNL for supply of copper telecom cables.
Great Eastern Shipping Company rose 1.70% to Rs 478.75 after the company said its subsidiary signed a contract for 2 multi purpose platform supply and support vessels.
Mahindra & Mahindra, India's largest tractor and utility vehicle maker by revenue, moved down 0.26% to Rs 740.95 on reports that it has put in the highest bid of 105 million pounds to take over Italian gear maker Metalcastello.
Brokerage house Motilal Oswal Financial Services fell 1% to Rs 1193 after credit rating agency CRISIL assigned "P1+" rating to its short term debt programme to raise Rs 50 crore.
Infrastructure development firm Pratibha Industries moved up 2.09% to Rs 256.85 on securing an order for designing and constructing storm water pumping station at Irla, Andheri West, Mumbai from Municipal Corporation of Greater Mumbai.
Asian markets were mixed today. Hang Seng was up 1.71% at 29,438.13, Nikkei was down 0.12% at 16,249.63, Taiwan Weighted was down 0.17% at 9,292.80, Straits Times was up 0.35% at 3,683.10 and Seoul Composite was up 1.91% at 2,054.24.
The European markets held firm. France’s CAC 40 was up 0.21% at 5,696.72, Germany’s DAX was up 0.43% at 7,841.04 and UK’s FTSE 100 rose 0.30% at 6,481.
US stocks crumbled on Monday, 5 November 2007, after Citigroup warned of billions of dollars in loan losses, reigniting fears about the health of financial firms and the broader US economy. Dow Jones Industrial Average lost 51.70 points or 0.38% to 13,543.40. The tech-laden Nasdaq Composite index lost 15.20 points or 0.54% to 2,795.18.
FIIs have turned sellers in equities recently after a slowdown in their inflow was witnessed at the fag end of October 2007 and at the onset of this month. FIIs sold shares worth a net Rs Rs 656.90 crore on Monday, 5 November 2007, the day when Sensex had lost 385.45 points or 1.93% to 19,590.78 on renewed fears over the impact of US credit crisis after US financial giant Citigroup said it may suffer up to $11 billion in write-downs for subprime losses. FIIs had sold shares worth a net Rs 761.40 crore on Friday, 2 November 2007.
FII sales/slowdown in inflow comes when Securities & Exchange Board of India (Sebi) put restrictions on issue of participatory notes (PNs) and it also directed unwinding of some exiting PNs within 18 months. The Sebi restrictions on use of PNs came into force from 25 October 2007.
Massive FII inflow had send the market surging in the last two months. FII inflow was a robust in the last two months - at Rs 16132.60 crore in September 2007 and Rs 20590.90 crore in October 2007. FII inflow had surged as huge liquidity infused by a steep 50 basis points cut in Fed funds rates in mid-September 2007 found its way into emerging markets.
The Q2 September 2007 results of India Inc.were decent to strong which means that strong fundamentals would support Indian equities at declines. At the macro level, the India’s economy is expected to post decent to strong growth for a long period of time, mainly due to favourable demographics. Mutual funds are said to be sitting on a strong cash pile of about Rs 14000 crore and they may step up buying if and when there is a steep correction on the bourses.
At current 19,400.67, Sensex trades at a PE multiple of 18.47 to 19.40 based on projected FY 2009 EPS of Rs 1000-to-Rs 1050 for 30 Sensex companies.
Morning Call
Market Grape Wine :
In House :
Nifty at a supp of 5795 and 5700 with resis at 5897 ,5950 and 6050
Outlook to stay positive till Nifty stays above 5700. Mkt to stay in the range of 5700~6100
Intra Day: Buy VSNL above 495 with a TGT of 525 and a SL of 487
Buy Grasim above 372 with a TGT of 3950 and a SL of 3735
F&O: Buy Punj above 530 with a TGT of 550 and a SL of 520
Sell ABB below 1565 with a TGT of 1515 and a SL of 1586
Out House :
Markets at a support of 19391 & 19229 levels with resistance at 19786 & 19898 levels .
Buy : RIL at dips
Buy : REL & RNRL
Buy : Petronet bullet
Buy : IBullsFinanace bullet
Buy : JpAsso
Buy : Primesecurities bullet
Buy : MRPL
Buy : IOlBroad
Dark Horse : ABAN , GeShipping , JpAsso , IBulls , MRPL , LNGPetronet & SBIN
Bullet for the Day : MRPL & Primesecurities with stop loss .
Tax holiday for Hotels
The government is planning to offer a five-year income-tax holiday to five-star, three-star, two-star and budget hotels. The matter would be discussed in the National Development Council’s meeting headed by prime minister Manmohan Singh on December 9.
Once approved in NDC, the proposal may form part of next year’s budget announcements. The proposal comes in the wake of acute shortage of hotel rooms acting as a spoiler for country’s booming tourism. At present, India faces a shortage of 1.5 lakh rooms.
According to government estimates, foreign arrivals in India increased 85.8% to 4.4 million in 2006, up from 2.4 million in 2002. India received over Rs 29,600 crore as foreign exchange revenues from tourism in 2006 registering a growth of 17.6% over 2005.
With high occupancy rates forced by country’s acute room shortage, tariffs have hit the roof over last three years even among lower star categories. “Hence tax sops have been proposed to kick-start rapid development of hotels to take on the influx of tourists into India,” a government official said.
Fresh tax concessions were allowed in the Budget 2007-08 to promote infrastructure facilities. A five-year holiday from income tax was allowed for two, three or four star hotels in the National Capital Region (NCR) including Faridabad, Gurgaon, Ghaziabad or Gautam Budh Nagar.
The step was aimed at meeting the requirement of 20,000 additional hotel rooms for the Commonwealth Games, 2010. The government now feels that same sops to should be extended to hotels across the country to meet shortage of rooms.
The proposal would place hotel projects at par with other infrastructure projects. Infrastructure status for the tourism sector has been a long pending demand of the industry. However, it is yet to find favour of the finance ministry.
According to a report by hospitality consultants HVS International, average room rates among three-star hotels grew 22.4% from fiscal 2004 to fiscal 2006, to Rs 2,044 per night. One reason for this has been shortage of rooms, especially during peak tourist season. It is expected that unless the estimated 1.5 lakh rooms (1.1 lakh in budget category) comes up at rapid pace, room prices would remain firm.
Apart from tax holiday, government may also consider special incentive for hilly areas, rural areas, places of pilgrimage, North Eastern region including Sikkim, J&K, Uttranchal and Himachal Pradesh. A subsidy would be offered on the basis of room created in these areas.
Tourism has been identified as an important sector for increasing country’s foreign exchange earnings. During Eleventh Plan the government is likely to provide a budgetary support of Rs 5,156 crore for the sector.
Market to remain sideways
The market may open on cautious note after the Sensex lost around 400 points during intra-day trades on Monday and shed 1.93% at the close on across-the-board selling pressure. The sharp intra-day volatile trend due to lack of clarity and overnight fall in the US markets likely to see the market remain edgy and move on the either side of the zone. However, the gain in Asian indices in the present trades could move up the local indices in early trades. Among the indices, the Nifty may get support at 5700 and could test higher levels in the range of 6000. The Sensex has a likely support at 19000 and may face resistance at 20500.
US indices ended a session of volatile trading lower on Monday after Citigroup stoked credit fears with the announcement of more mortgage-related losses. While the Dow Jones slipped by 52 points at 13543, the Nasdaq moved down by 15 points at 2795.
Most of the Indian floats finished in the red. Rediff tumbled nearly 4% while Dr Reddy's, Tata Motors, ICICI Bank, MTNL Infosys, Satyam, HDFC Bank and VSNL fell over 1-3% each.
Crude oil prices declined marginally on Monday. While the Nymex light crude oil for December delivery fell by $1.95 to close at $93.98 a barrel. In the commodity space, the Comex gold for December series jumped $2.30 to settle at $810.80 an ounce.
Grey Market Premiums
Reliance Power -- 54 to 56
Mundra Port & Sez 400 to 440 500 to 525
Empee Distilleries 350 to 400 160 to 165
Edelweiss 725 to 825 800 to 825
Varun Ind. 60 42 to 45
Religare Enterprises 185 325 to 350
Barak Valley Cement 37 to 42 17 to 19
Rathi Bars 35 3 to 4
Allied Computers 12 14 to 16
SVPCL 40 to 45 3 to 5
Market may recover in Asian rebound
The market is likely to edge higher tracking recovery in Asian stocks. However, upside may be capped due to FII sales/slowdown in FII inflow.
FIIs have turned sellers in equities recently after a slowdown in their inflow was witnessed at the fag end of October 2007 and at the onset of this month. As per provisional data, FIIs sold shares worth a net Rs 1093.16 crore on Monday, 5 November 2007, the day when Sensex had lost 385.45 points or 1.93% to 19,590.78 on renewed fears over the impact of US credit crisis after US financial giant Citigroup said it may suffer up to $11 billion in write-downs for subprime losses. FIIs had sold shares worth a net Rs 761.40 crore on Friday, 2 November 2007.
FII sales/slowdown in inflow comes when Securities & Exchange Board of India (Sebi) put restrictions on issue of participatory notes (PNs) and it also directed unwinding of some exiting PNs within 18 months. The Sebi restrictions on use of PNs came into force from 25 October 2007.
Massive FII inflow had send the market surging in the last two months. FII inflow was a robust in the last two months - at Rs 16132.60 crore in September 2007 and Rs 20590.90 crore in October 2007. FII inflow had surged as huge liquidity infused by a steep 50 basis points cut in Fed funds rates in mid-September 2007 found its way into emerging markets.
The Q2 September 2007 results of India Inc.were decent to strong which means that strong fundamentals would support Indian equities at declines. At the macro level, the India’s economy is expected to post decent to strong growth for a long period of time, mainly due to favourable demographics. Mutual funds are said to be sitting on a strong cash pile of about Rs 14000 crore and they may step up buying if and when there is a steep correction on the bourses.
At current 19,590.78, Sensex traded at a PE multiple of 18.65 to 19.59 based on projected FY 2009 EPS of Rs 1000-to-Rs 1050 for 30 Sensex companies.
Asian stock markets rebounded today, 6 November 2007, from Monday (5 November 2007)’s fall caused by US credit market fears. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.36% to 1.1%.
US stocks wilted on Monday, 5 November 2007, after Citigroup warned of billions of dollars in loan losses, reigniting fears about the health of financial firms and the broader US economy. Dow Jones Industrial Average lost 51.70 points or 0.38% to 13,543.40. The tech-laden Nasdaq Composite index lost 15.20 points or 0.54% to 2,795.18.
Citigroup's chairman and chief executive, Charles Prince, resigned on Sunday, 4 November 2007, after the largest US bank said it may write off up to $11 billion of subprime mortgage losses, on top of a $6.5 billion write-down last quarter.
DLF, IPCA, Cement, Corporation Bank
Ipca Laboratories
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs875
Current market price: Rs660
Vertical integration to change fortunes
Key points
- Domestic formulation business to outpace industry growth: Driven by steady new launches, a strong therapy-focused field force and good brand building abilities, Ipca Laboratories' (Ipca) domestic formulation business has been growing at above industry growth rates. With an enhanced focus towards chronic therapies and aggressive new launches, Ipca's domestic formulation business would continue to grow at 16-18% during FY2007-09.
- Strong thrust on exports: With steady performance on the domestic front, Ipca is increasingly focusing on its export business, which generates 30% of its total revenues. Driven by aggressive brand promotion in the emerging economies, a revival in the European business and a scale-up in the US business, the formulation exports are projected to grow at a CAGR of 14.5% over FY2007-09.
- API business to benefit from outsourcing contracts: A leader in several API products, Ipca's API business constitutes 33% of its total revenues. With its low-cost advantage, Ipca is set to capture a substantial chunk of the outsourcing business of global pharmaceutical companies. We believe Ipca's API business will grow at a 13.5% CAGR over FY2007-09, driven by a 9% CAGR in the domestic API business and a 15% CAGR in API exports.
- Earnings to gallop at a 23% CAGR: We estimate Ipca's earnings to grow at a CAGR of 23% over FY2007-09E on the back of a 20% CAGR in revenues. The revenues will be driven by a 15.3% CAGR in the domestic business and a 24.4% CAGR in exports. We estimate earnings of Rs59.9 per share in FY2008 and of Rs73.0 per share in FY2009.
- Compelling valuations: At the current market price of Rs660, Ipca is trading at attractive valuations of 11.0x FY2008E earnings and 9.0x FY2009E earnings. It has traditionally been getting PE multiple in low teens. But with the enhanced visibility of growth from the US and European markets, the sustained growth in the domestic business and the healthy return ratios, we believe that the stock should command higher valuations. We therefore recommend a Buy on Ipca with a one-year price target of Rs875, ie an upside of 33% from the current levels.
STOCK UPDATE
Corporation Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs542
Current market price: Rs471
Price target revised to Rs542
Result highlights
- Corporation Bank's (CORP) Q2FY2008 profit after tax (PAT) grew by 27% year on year (yoy) to Rs161.3 crore. The growth was primarily driven by a higher non-interest income component. However, the net interest income (NII) growth was better than that of most peers. A surge in the operating expenses due to higher provisioning on account of AS-15 related staff expenses restricted the overall profit growth.
- We have revised our FY2008 and FY2009 earnings estimates upwards by 5% and 3.5% to Rs669.2 crore and Rs773 crore respectively. The upward revision in the earnings is to factor in the higher non-interest income growth and higher AS-15 related expenses likely to be reported by the bank going forward compared with what was envisaged at the beginning of the year.
- CORP's total assets grew by 18% yoy and 5% quarter on quarter (qoq) while the reported NII grew by 17.5% yoy and 7.3% qoq. The NII (adjusted for amortisation) grew by 15.3% yoy and 7% qoq. Its adjusted net interest margin (NIM) showed a sequential improvement unlike many of its peers as it was the only bank that aggressively reduced deposit rates after its dismal NII performance in Q1FY2008 (when NII had seen a growth of 7.8% yoy).
- The non-interest income grew by 62% yoy and by 32.3% qoq to Rs183.2 crore, driven by higher treasury and foreign exchange (forex) incomes. The higher non-interest income growth was the trend for all public sector banks during Q2FY2008.
- CORP's operating expenses jumped up by 25.3% yoy to Rs243.2 crore mainly due to a 39.2% jump yoy in the staff expenses brought about by a Rs47-crore AS-15 related expense charged during the quarter. Despite such a sharp jump in the operating expenses, the operating profit growth was robust at 33.4% yoy brought about by a higher non-interest income growth. However, the core operating profit growth was moderate at 8.7% yoy.
- Provisions and contingencies increased by 128% yoy mainly due to lower investment depreciation write-back and higher standard assets provisioning during the quarter compared with that in the corresponding quarter in the previous year.
- The bank's business growth moderated with advances up by 17% yoy from a 25% growth yoy reported during March 2007. The deposit growth also moderated from 28.8% to 20% for the same period. Its total assets grew by 18% yoy compared with a growth of 30% yoy reported in March 2007. The cut in the deposit rates and a moderation in the balance sheet expansion are welcome as the same would help in maintaining the margins, a task that many public sector banks are finding difficult at a time when credit growth is moderating and deposit costs are escalating.
- The bank's asset quality continues to remain one of the best in the industry with the gross non-performing asset (NPA) down by 21 basis points to 1.9% and the net NPA lower by 11 basis points to 0.35% sequentially.
- CORP has been the first bank to cut deposit rates and show some sequential improvement in its NIM in Q2FY2008. The non-interest income growth is expected to be much better in future. It will be driven by higher treasury gains that would help in improving the bank's return on equity (RoE) by 230 basis points to 17.3% in FY2009 from 15% reported in FY2007. The bank's earnings are expected to grow at a compounded annual growth rate (CAGR) of 20.1% between FY2007 and FY2009, which is much better than its past performance. At the current market price of Rs471 the stock is quoting at 8.7x its FY2009E earnings per share (EPS), 4.5x pre-provisioning profit (PPP) and 1.4x FY2009E book value (BV). We maintain our Buy recommendation on the stock with a revised twelve-month price target of Rs542.
SECTOR UPDATE
Cement
Cement dispatches pick up post-monsoon
The top three cement majors have announced their October dispatches. Volumes for ACC grew by 6.7% year on year (yoy) to 1.76 million metric tonne (MMT), whereas Ambuja Cement's volumes grew by 3.6% yoy to 1.48MMT. Volumes for AV Birla group remained flat at 2.55MMT.
VIEWPOINT
DLF
Strong Q2FY2008 performance
Result highlights
- DLF sales grew by 5.7% quarter on quarter (qoq) to Rs3,249.9 crore in Q2FY2008 despite a reduced revenue contribution from DLF assets Limited (DAL-the promoter owned company involved in the management of real estate properties). The revenues from the sales to DAL declined by 16.0% qoq to Rs1,387 crore and contributed 42.7% to the total revenues in Q2FY2008 (down from 53.8% in Q1FY2008). The non-DAL sales grew by 33.7% qoq to Rs1,963 crore.
- The operating profit margin (OPM) declined by 205 basis points qoq to 69.7% in Q2FY2008. The OPM decline can be attributed to a fall in the margins of non-DAL business, which went down to 69.5% in Q2FY2008 from 77.9% in Q1FY2008 due to unfavourable sales mix (lower margin in retail segment and absence of super luxury sales in residential segment). Consequently, the company's operating profit grew by 2.7% qoq to Rs2,263.7 crore.
- DLF's bottom line grew by 33.2% qoq to Rs2,018.6 crore during the quarter, primarily due to lower tax rate and interest expenses. The company's effective tax rate in Q2FY2008 stood at 14.1% compared with 28.4% in Q1FY2008, mainly due to a favourable sales mix. Moreover, the company invested in wind power assets, which led to the reduction in tax expenses. Additionally, the company also utilised some initial public offer (IPO) funds for the repayment of long term debt. This led to a significant reduction in the interest expenses to Rs3.6 crore in Q2FY2008 from Rs107.7 crore in Q1FY2008.
- During the quarter, the company also issued a 100% interim dividend of Rs2 per share.
- At the current market price of Rs915, the stock trades at 25.1x and 16.6x of consensus FY2008E and FY2009E price-to-earning multiples respectively. In terms of net asset value (NAV), the consensus estimates range from Rs800-820 per share. The stock trades at around 10-15% premium to the NAV estimates. Given its leadership position, superior quality land bank (concentrated in tier I cities and National Capital Region [NCR]), and proven execution skills, DLF has emerged as a preferred investment option in the real estate sector.
Trading Calls
Nifty (5847) Sup 5794 Res 5907
Sell Dr Reddy’s Labs (603) SL 609 Tgt 592, 589
Sell NDTV (354) SL 359 Tgt 346, 343
Buy NTPC (237) SL 233 Tgt 245, 247
Buy IVRCL Infra (538) SL 533 Tgt 548, 551
Buy HPCL (246) SL 241 Tgt 255, 258
A bounce likely
When there is no peril in the fight there is no glory in the triumph.
The bulls of course may be knowing this axiom, for they have fought back quite well after the August meltdown and the P-Note scare last month. The rebound that we hoped for didn't materialise yesterday. The local bulls developed cold feet amid renewed worries over the subprime mortgage contagion in the US and its fallout on the global markets. However, there is a chance that the bulls might just have enough stamina in them to stage a comeback today. The overall trend will remain choppy as FII inflows have slowed in the past few days and fresh bad news pours in from the US housing and financial sectors.
Traded volume may be lower as most players are in a holiday mood ahead of an extended weekend on account of Diwali. Select stock centric, and in some case sector specific action will continue to be the order of the day. Investors should do well to remain on guard amid heightened volatility and lack of clear direction. But, that's just for the near term. There is no change in the positive outlook over the longer term period. So, one should prepare oneself to ride the secular bull run in the Indian market. Today, we expect a higher opening as Asian markets have bounced back from yesterday's big fall.
Hotel stocks will gain as a financial daily reports that the Government is likely to give 5-year income-tax holiday to star and budget hotels. Bajaj Auto will be in action post its tie-up with Austria-based KTM. M&M is another stock to keep an eye on as it is believed to be the frontrunner for acquiring Italy's gear maker Metalcastello. Unitech and Orissa Sponge will attract attention amid reports that the realty major's promoters are close to buying a 40% stake in the company as a backward integration plan. Biocon may perk up on acquisition news. TIL (formerly Tractors India) might advance as a pink paper reports that Enam Capital has bought nearly 12% in the Kolkata-based company. Eicher Motors may rise amid reports that it is in talks with various players for strategic partnership for heavy commercial vehicles. Power companies like Torrent, Reliance Energy and Tata Power will extend their rally amid news that they are bidding for the 2,000 MW project in Gujarat. Dawn Mills is expected to be in the limelight after a business daily reports that Standard Chartered close to buying two lakh square feet of space in the Lower Parel, Mumbai-based mill. Glenmark Pharma and SKF India could gain ahead of some announcements expected tomorrow.
A weak opening ended with a negative close as shaky cues from the Asian and the European markets coupled with selling pressure in the Banking, Oil & Gas and IT stocks dragged the key indices lower.
Markets further lost ground in the second half as selling intensified, however managed to recoup towards the end with benchmark Sensex slipping 385 points to close at 19,590 and Nifty lost 85 points lower at 5,847.
Hotel Leela rallied by over 8.5% to Rs50 after reports stated that Blackstone, US-based PE, may invest Rs50bn in the company. The scrip touched an intra-day high of Rs55 and a low of Rs47 and recorded volumes of over 62,00,000 shares on NSE.
Jet Airways advanced 1% to Rs830 after the nation's largest domestic carrier announced on November. 2 that they would raise the fuel surcharge by Rs150 on all types of fares. The fuel surcharge would be raised to Rs1,350 per ticket. The scrip touched an intra-day high of Rs846 and a low of Rs822 and recorded volumes of over 59,000 shares on NSE.
M&M was down by 1.4% to Rs744. The company on November 2 announced that
Hindustan Zinc slipped 2.6% to Rs861. The company announced that they have lowered prices of zinc and raised prices of lead. Zinc prices were cut by 2.9% to Rs127,300 per metric ton. Lead prices were raised by 0.3%, to Rs160,900 per ton. The scrip touched an intra-day high of Rs884 and a low of Rs855 and recorded volumes of over 76,000 shares on NSE.
Power Grid advanced 2% to Rs152 after reports stated that the company secured Rs42bn mega transmission project. The scrip touched an intra-day high of Rs155 and a low of Rs148 and recorded volumes of over 21,00,000 shares on NSE.
Raymond was up 4.2% to Rs369 after the Board of Directors of the company announced that they would consider selling warrants to founders. The scrip touched an intra-day high of Rs381 and a low of Rs351 and recorded volumes of over 3,00,000 shares on NSE.
Jindal Drilling surged by over 5.5% to Rs1101 after the company announced that they have secured Rs103cr contract. The scrip touched an intra-day high of Rs1190 and a low of Rs1060 and recorded volumes of over 11,000 shares on NSE.
Reliance Communication slipped 1% to Rs777. The company formed an Internet TV partnership with Microsoft. The scrip touched an intra-day high of Rs799 and a low of Rs762 and recorded volumes of over 90,00,000 shares on NSE.
Jyoti Structures gained 2% to Rs284 after the company on Monday announced that they have formed a Joint Venture Company, Jyoti Structures Africa (Pty) Ltd. in Johannesburg, South Africa to participate in the transmission line markets of Southern Africa. The scrip touched an intra-day high of Rs293 and a low of Rs279 and recorded volumes of over 78,000 shares on NSE.
RCom has tied up with Microsoft for launching of IPTV by March at an investment of US$1bn.
HPCL is planning to buy British Gas’s stake in Mahanagar Gas.
Bajaj Auto has picked up 14.5% stake in European Bike maker KTM for Rs3-3.5bn.
M&M is believed to have put a bid of €105mn to take over Italian gear maker Metalcastello.
TCS is building a cabin crew software for management solution for British Airways.
Biocon is close to acquiring a drug marketing and distribution firm in US by the year end.
Emami is all set to launch its hair care products in the next six months.
Unitech is planning to buy 40% stake in Orissa Sponge Iron and Steel.
Enam Capital is picking up 11.8% stake in proposed expanded capital base of TIL.
Deccan Aviation has formed a consortium for bidding of airport projects.
Leading PE firms including Warburg Pincus, Blackstone, and StanChart Private Equity are vying for 32% stake in Sony Entertainment Television.
Pidilite is set to acquire plant and machinery of an international specialty company for Rs4.5bn.
Madras Cements is setting up one million tonsa year grinding unit in West Bengal.
Sun TV is launching two FM radio stations in Lucknow and Bhopal from Tuesday.
ICICI Bank has sold ~45% of its sticky home loans to the Asset Reconstruction Company of India.
Videocon Industries has acquired Planet M for Rs2bn and plans to invest Rs5bn to set up 1,000 stores.
Reliance Industries plans to set up a manufacturing facility in specialized apparel for its flagship brand Vimal.
Dabur group is planning to launch ~10 skincare products under its Gulabari brand.
Tata Coffee expects ~12% increase in production at over 8,500 tons during Oct-Sept 2007-08.
TVS has launched a 110cc bike StaR City priced between Rs34,000-Rs39,000.
Standard Chartered is close to acquiring 2 lakh Sq. Ft. in Piramal group owned Dawn Mills for Rs5.25bn.
Telecom Ministry says the new policy on licenses and spectrum allocation will apply to only those companies who applied before September 25.
Government is planning to curb ability of domestic companies to allot preferential shares to overseas partners and investors.
Government will consider allowung 49% FDI in new refineries to be setup by state-run refiners.
Government is planning to offer a five year income tax holiday to five-star, three-star, two-star and budget hotels.
Direct tax collection during April-October 2007 rise by 24% to Rs1.28 trillion.
Government is planning to allow certain SEZs and EOUs to avail benefits provided to exporters to combat a rising rupee.
The auto industry is asking the government to bring auto exports under the DEPB scheme.
DoT is planning to change the definition of broadband in accordance with international norms and raise the minimum download speed from 256kbps to 2Mbps.
Private investment in infrastructure in India is poised to grow to about 9% of GDP from 5% by 2012.
Petroleum minister Murli Deora will meet the Prime Minister on Nov 7 to discuss oil price hike.
FII Investment Trend:
FIIs were net sellers of Rs10.93bn (provisional) in the cash segment on Monday while the local institutions pumped in Rs6.49bn.
In the F&O segment, FIIs were net sellers of Rs4.32bn.
On Friday, FIIs were net sellers of Rs7.61bn in the cash segment. Mutual Funds were net buyers of Rs2.18bn on the same day.
RNRL November futures at premium
Turnover in F&O segment rises
Nifty November 2007 futures were at 5861, at a premium of 13.70 points as compared to spot closing of 5847.30.
NSE’s futures & options (F&O) segment turnover was Rs 77,646.90 crore, which was higher than Rs 76,145.01 crore on Friday, 2 November 2007.
Reliance Natural Resources (RNRL) November 2007 futures were at premium, at 185.90, compared to the spot closing of Rs 179.30.
GMR Infrastructure November 2007 futures were at premium, at 193.85, compared to the spot closing of Rs 190.90.
Power Grid Corporation of India November 2007 futures were at premium, at 153.60, compared to the spot closing of Rs 152.15.
In the cash market, the S&P CNX Nifty lost 85.10 points or 1.43% at 5847.30.
Crude ends lower
Prices drop on geo political issues and demand concerns
Geo political concerns coupled with demand concerns weighed on crude prices today, 5 November, 2007 and the same slipped by almost $2/varrel today. Prices closed near the $94/barrel mark today.
For the day ending Monday, 05 November, 2007, crude-oil futures for light sweet crude for December delivery closed at $93.98/barrel (lower by $1.95/barrel or 2%) on the New York Mercantile Exchange. Prices are up 59% on a yearly basis. Oil prices rose 16% in October, 2007, the biggest one-month gain since September 2004.
Brent crude oil for December settlement fell $1.59 (1.7%) to $90.49 on the London-based ICE Futures Europe exchange.
Tension in the Middle East eased a bit today on reports that Kurdish fighters freed eight Turkish soldiers, reducing the likelihood Turkey will attack bases in the north of Iraq, holder of the world's third-biggest crude reserves.
Demand concerns on the US front also weighed on crude prices today. The U.S. accounts for about a quarter of the world's oil consumption. The slowdown of the economy could reduce oil demand from the country. US stocks ended lower today bogged by sub prime concerns.
Natural gas bears the maximum brunt of falling crude
Today’s weakness in crude prices was most pronounced in December natural gas. The contract tumbled 43.5 cents (5.1%) to stand at $7.983 per million British thermal units.
Against this backdrop, December reformulated gasoline fell 4.89 cents at $2.3906 a gallon and December heating oil slipped 2.24 cents at $2.5513 a gallon.
At the MCX, crude oil for November delivery closed at Rs 3745/barrel, higher by Rs 1 (0.03%) against previous day’s close. Natural gas closed at Rs 319.4/mmtbu as against previous close of Rs 328/mmtbu, lower by Rs 8.6/ mmtbu.
OPEC has planned to boost daily oil production by 500,000 barrels. OPEC's production target is 27.2 million barrels a day, beginning 1 Nov. OPEC, has decided to raise their daily output by 500,000 barrels per day, starting 1 November.
Attacks on oil facilities in Middle East and tight supplies from OPEC have bolstered crude prices this year. As per the U.S. Energy Information Administration, tight global energy supplies are expected to keep energy prices high through 2008.
Citigroup reminds investors of sub prime mess
Third quarter is not the bottom for the financial sector as Citigroup writes down further losses
Citigroup weighed heavily on market sentiments today, Monday, 05 November, 2007 after reports that the company anticipates recording a write-down of approximately $8 billion to $11 billion for its fourth quarter due to worries in the mortgage market. This gave a feeling among investors that after Merrill Lynch and Citigroup, there are more to come in the coming quarters. Barring utilities and consumer staples, all other eight sectors posted loss today.
After being down by more than 150 points earlier in the day, The Dow Jones industrial Average averted a triple digit loss and closed lower by 51.7 points at 13,543.4. The Nasdaq Composite Index, finished lower by 15.2 points at 2,795.18. S&P 500 finished lower by 7.5 points at 1,502.17.
Nineteen of thirty Dow stocks ended in red headed mainly by Citigroup shares. The stock was down almost 4.9% today. The financial sector finished down 1.4% and was the worst-performing of the ten economic sectors.
The write-down of Citigroup was due to significant declines in the fair value of approximately $55 billion of subprime related exposures. The company had recorded a write-down of approximately $6 billion in the third quarter. The company’s announcement imparted a feeling that the third quarter was not the bottom for the financial sector.
Also, following an emergency Citigroup board meeting this weekend, the company’s CEO Charles Prince retired.
Google to release open-source software for mobile telephones
Among other news, Institute for Supply Management reported non-manufacturing sectors of the U.S. economy in October grew more than economists expected, with the ISM index rising to 55.8% from 54.8% in September. A number above 50 reflects expansion.
Google announced today that it will release open-source software for mobile telephones. Google shares rose 2% to $725.65, a new closing high after peaking to a ew all time intra day high at $730.23.
Other than Patni Computers, all Indian ADRs ended in red today. HDFC Bank and ICICI Bank were the topmost losers dropping 3.5% and 3.9% respectively. In the technology area, Infy and Wipro Tech lost 3.6% and 1.7% respectively. Patni shares closed up by 4.1% today.
Geo political concerns coupled with demand concerns weighed on crude prices today, 5 November, 2007 and the same slipped by almost $2/varrel today.
Crude-oil futures for light sweet crude for December delivery closed at $93.98/barrel (lower by $1.95/barrel or 2%) on the New York Mercantile Exchange. Prices are up 59% on a yearly basis. Oil prices rose 16% in October, 2007, the biggest one-month gain since September 2004.
Volume on the New York Stock Exchange came to 1.5 billion, and declining stocks outran advancing issues about 3 to 1. On the Nasdaq, more than 2.1 billion shares exchanged hands, and decliners topped advancers more than 2 to 1
For tomorrow, no economic data is scheduled. Market will nest wait for Chairman Ben Bernanke to testify later in the week to the Congressional Joint Economic Committee regarding the U.S. economic outlook on 8 November.
Monkeys, Goats and Markets
So there was this village where one day a man appeared and said that he wanted to buy monkeys. He said that he would pay a hundred rupees per monkey. The villagers caught all the monkeys in the neighbourhood and sold them to him for a hundred rupees each. Soon another man appeared and said that he would pay two hundred rupees for each monkey. But there weren't any more monkeys around. They were all owned by the first man. So the villagers went to him and said that they were willing to take the monkeys back and return his money. But the monkey owner was unwilling to sell. The villagers raised the offer price to Rs 150 per monkey, then Rs 175 and finally to Rs 199 but the man just didn't want to sell, even though he clearly didn't have any use for the monkeys. Eventually, just to see whether he would sell, they offered him Rs 200 but he still refused.
The villagers were puzzled by this. Finally, one of them figured out that there must be someone else who was going to come to the village and offer even more money for the monkeys. Convinced that this was the real explanation, they went and offered the man Rs 300 for each monkey and sure enough the man accepted. Joyous at having landed such a good deal, they quickly paid him off before he changed his mind and took possession of the monkeys. The man went away with his money and presumably lived happily ever after. The villagers waited for the next buyer. And waited. And waited. But no one ever appeared who wanted to buy a monkey.
But wait. If you think you've guessed the moral of the story, you are wrong because the story isn't over yet. This story isn't quite the same as the monkey story you may have got in one of those chain-fowarded emails. In my version, there was another village nearby. In this village a man appeared one day and offered a thousand rupees each for a goat. Now goats were valuable, but not as much as a thousand rupees so the villagers sold the goats to this man. A similar thing happened here too. A second man appeared, offered two thousand for each goat, the first man refused and eventually the villagers ended up buying the goats back for Rs 3,000 each. Here too, the two men disappeared and no one ever came and offered so much money for a goat again. But there was a difference. Goats aren't monkeys. They could be milked every day and the milk was good and healthy. In fact I've heard that Gandhiji preferred goat milk. Even the goat droppings could be used as fuel, though I'm not sure of that. When the goats eventually grew too old to be milked, the villagers could kill them for mutton. All in all, it wasn't a complete disaster.
But the monkey-owners were not so lucky. Since these weren't demat monkeys, they actually had to be kept in one's house. The monkeys ate too much, shouted and shrieked all day and sometimes bit people. Eventually, when it became clear that the monkeys were worthless, their owners abandoned them and tried to forget about their losses. And that's the moral of the story. In the stock markets today, there are good companies that are overpriced and there are worthless companies that are overpriced. If you are going to be a fool and pay absurd prices because you think that a greater fool will appear in the future, make sure you buy a goat and not a monkey.
Dhirendra Kumar
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