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Saturday 30 June, 2007

SSKI - Reports

Jet Airways


Jet Airways (Jet) has registered a 25% growth in revenues for FY07 at Rs70.5bn. EBITDAR for the year stood at Rs3.6bn and net profit at Rs280m. While domestic operations grew at 15% to Rs57bn, international operations grew by a remarkable 100% at Rs13.5bn. Furthermore, the contribution from international operations grew to 20% in FY07 as against 12% in FY06.

In a year where the industry has lost close to $400mn, Jet has managed to turnaround its operations starting in Q3FY07. Even in a traditionally slow fourth quarter, Jet has reported a 21% growth in revenues in Q4FY07 at Rs19.8bn and an EBITDAR of Rs2.8bn, which is notable considering the losses in the industry. Jet has also registered a strong net profit in the quarter of Rs880m as against losses in the first 2 quarters of the year. The turnaround came on the back of a 120% growth in international operations and a 9% growth in domestic operations in the quarter. Further in Q4FY07, international operations are starting to turn profitable at the EBITDA level at Rs31mn.




ONGC



ONGC reported Q4FY07 numbers that were marginally below our expectation. Net profits at Rs22.1bn were down 9.7% yoy, led by higher under recovery contribution (up 37% yoy to Rs 46.7bn). For FY07, consolidated profits were up 15.4% yoy to Rs 177.7bn, driven by higher crude / gas realization as well as higher production. The stock trades at a steep discount to global / domestic earnings as well as reserve valuations, which reflects highly pessimistic estimates on loss sharing, APM deregulation and growth. However, with a 21-32% increase expected in ultimate (recoverable) reserves over the next 18-24 months, low earnings sensitivity to international crude prices and falling proportion of APM gas, we see the valuation gap narrowing significantly. Reiterate Outperformer, with a revised target price of Rs1337, upside of 43% from current levels.




Dish TV


Dish TV has reported revenues of Rs1916m (against our estimates of Rs1823m) on a subscriber base of 1.9m in FY07. As anticipated of heavy losses in initial years, Dish TV has reported operating loss of Rs1825m and net loss of Rs2523m, much wider than our estimates of a net loss of Rs2070m. Significant part of the bleed comes due to higher pay channel costs, ASP expenses and subsidization of Set Top Boxes. Given the interoperability of content, the only differentiator lies in service standards and subsidies (or Balance Sheet). On both counts, given the emerging competitive environment, Dish TV is unlikely to find the going smooth.

We believe that Indian television distribution is set for digitization. With DTH being less regulated and more organized, we expect DTH to outpace digital cable in near term and become a 16m home market by 2010. While we are positive over the space as also Dish TV's first mover advantage, our concern pertains to intensifying competition. Competition from deeper pocketed players like Reliance ADAG, Bharti, Tatas and Sun would only make it difficult for Dish TV to sustain its share of incremental market (from over 75% now to 32% by 2010E) as also extend the bleed period. Increasing subsidies and customer acquisition cost, besides impending dilution to fund Rs7bn of capex, leave no value for investors. Reiterate Neutral.

Inflation at 14-mth low, no policy change seen

India's inflation rate fell more than expected to a 14-month low in mid-June, but analysts said on Friday that firm manufactured product prices and data revisions meant the Reserve Bank of India had no room to relax policy now.

Separate data showed the current account balance swung into surplus in the March quarter from a deficit at the end of 2006, helped by Indians overseas sending money home.

The widely tracked wholesale price index rose 4.03 percent in the 12 months to June 16, slowing from an annual rise of 4.28 percent a week earlier and well below a two-year high of 6.69 percent in late January, data showed.

It was lower than a Reuters poll estimate of 4.13 percent.

But analysts said that firm manufactured product prices and data revisions meant the RBI had no room to relax policy now.

"The manufacturing inflation, or core inflation, has still not come off," said Harish Menon, economist at ING Vysya Bank.

"The RBI should pause rather than react to these positive numbers. If the market is looking to go into an easy monetary stance based on these numbers, they would be disappointed."

The annual inflation rate for April 21 was revised up to 6.07 percent from 5.77 percent, with the index for that week revised up to 211.5 points - just 2 points below the preliminary index level as at June 16.

Speaking after the data, RBI governor Yaga Venugopal Reddy reiterated the central bank's aim was to contain inflation to 5 percent in the fiscal year that began in April, and lower it to 4.0 to 4.5 percent in the medium term.

The RBI has raised interest rates five times in the past year, the last time at the end of March, but could now hold its fire when it next reviews policy on July 31 with inflation below its comfort zone of 5 percent.

Finance Minister Palaniappan Chidambaram has said that policy tightening and currency strength had helped moderate inflation, and more rate rises may not be needed if the trend continued.

In its latest forecast, the weather office said monsoon rains in July -- the most crucial month for farm output-- were expected to be 95 percent of the long period average. Analysts say good monsoon rains would result in better crops which in turn could help ease supply pressures and inflation.

The Indian economy, Asia's third-largest, grew 9.4 percent in the fiscal year that ended in March, its highest rate in 18 years and second only to China among major economies.

CURRENT ACCOUNT SURPLUS

The government said its fiscal deficit for April and May, the first two months of the 2007/08 fiscal year, was 621.35 billion rupees ($15.3 billion), or 41.2 percent of the full-year target of 1.51 trillion rupees.

Separate data from the RBI showed the current account swung to surplus of $2.56 billion in the March quarter from a revised deficit of $2.78 billion in the December quarter.

For the 2006/07 fiscal year, India posted a current account deficit of $9.61 billion. While that was wider in dollar terms from a $9.19 billion deficit in 2005/06, the deficit held steady at 1.1 percent as a percentage of gross domestic product.

The balance of payments surplus rose to $20.45 billion in the March quarter from a revised surplus of $7.51 billion in the December quarter. External debt rose by $12.3 billion in the quarter to $155.0 billion at the end of March

Sharekhan Investor's Eye ,June 29, 2007

Tata Tea
Cluster: Apple Green
Recommendation: Buy
Price target: Under review
Current market price: Rs853

Eyeing Snapple

Key points


As per media reports Tata Tea is bidding for the Snapple range of fruit drinks, diet drinks and iced tea coming from the portfolio of Cadbury Schweppes. Cadbury Schweppes, which makes a range of soft drinks and confectionary including Dairy Milk chocolate, Trident chewing gum and Snapple juice drinks, is in the process of spinning off its US beverage unit.

If Tata Tea is successful in acquiring Snapple, the brand would stimulate growth in its stagnating black tea business. Till further clarity emerges on the revenue potential and profitability of Snapple as well as the structure of the Tata Tea-Cadbury Schweppes deal, it is difficult to form an opinion on how this deal may affect the performance of Tata Tea's stock price.

State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,780
Current market price: Rs1,525

Price target revised to Rs1,780

Key points

The Reserve Bank of India (RBI) has announced that it is going to transfer its 59.7% holding in State Bank of India (SBI) to the government for Rs35,530 crore on June 29, 2007. The transaction is revenue neutral for the government, as the RBI would declare a special dividend of a similar amount to replace the amount paid by the government for the stake sale.

The SBI management has said that the bank will require to raise Rs15,000 crore of capital in FY2008; of this Rs6,000 crore is likely to be in the form of equity and the balance as debt.
The current guidelines restrict SBI from diluting the promoter's stake below 55% and this would hinder the bank's capital raising plans. Hence the management is of the view that the follow-on offer would take place after the amendment to the SBI Act, most probably in December 2007.

SBI has plans to consolidate its insurance and asset management businesses into a separate non-banking financial company (NBFC). It also plans to sell a 10% stake in the NBFC to three to four investors and intends to list the arm in FY2009. All these would be significant value drivers going forward. The chairman of the bank has stated that he expects the valuation of the life insurance business to be around Rs28,700 crore ($7 billion) while we have valued the same business at Rs23,800 crore ($5.8 billion). Our valuation is lower considering the roadblocks that the bank is likely to face while unlocking the value in these investments, just as ICICI Bank is facing now.

After providing for the AS-15 impact (Rs900 crore of extra provision per year from FY2008-12) our earnings estimates for FY2008 and FY2009 have reduced by 4% each. We have also introduced our FY2009 estimates. Based on the current market price of Rs1,525 the stock is currently trading at 13.9x FY2009E earnings per share (EPS), 1.9x FY2009E stand-alone book value of Rs813 and 1.4x FY2009E consolidated book value of Rs1,061. The stock has run up 54% in a span of the past three months. Hence in the near term there could be some profit booking and consolidation. However, we believe the bank has entered a sweet spot as a host of policy changes in the banking sector and for SBI could unlock significant value in the stock in the medium term. We maintain our Buy recommendation on the stock with a revised twelve-month price target of Rs1,780

Weekly Stock Recommendations

IDFC
CMP: Rs 131.80
Target price: Rs 162

Morgan Stanley has maintained its ‘overweight’ rating on IDFC, but increased its price target for the stock from Rs 130 to Rs 162. “

Strong infrastructure spending should enable IDFC to book healthy revenues across businesses – lending, syndication, investment banking products, private equity and proprietary trading,” the Morgan Stanley note to clients said.

“While valuations appear full – 25.3 times F2008(estimated) earnings and 3.1 times book – in line with private banks, private equity (PE) and proprietary investments are not contributing significantly to earnings but provide almost 40% of value. Hence, core valuations are lower and could rise, given strong earnings growth expectations,” the note added.

TVS Motor
CMP: Rs 60.90
Target price: na

Motilal Oswal Securities has maintained its ‘neutral’ rating on TVS Motor, saying its performance for the latest quarter has been below expectations. “In the motorcycles segment, in particular, sales have been impacted by higher interest costs and stringent norms being followed by retail financiers,” the Motilal note to clients said.

“TVS is working on putting a strong product portfolio in place, which is likely to drive growth going forward. However, pressure on margins remains a concern,” the note added. Motilal has forecast an earnings per share of Rs 7.3 and Rs 8.7 for the company for FY08 and FY09, respectively.


Nava Bharat
CMP: Rs 180.80
Target price: Rs 268

Religare has initiated coverage on Nava Bharat Ventures with a ‘buy’ rating and a price target of Rs 268. Nava Bharat Ventures has realigned its business strategy towards the rapidly growing power sector. Power generation capacity is being ramped up from 125 MW to 237 MW by FY09. Also, a 1,050 MW power plant is to be set up by 2010-11, with power purchase agreements secured for 75% of the power generated.

According to Religare, the highly volatile ferro alloy business has been derisked by power sales since the company can close down its ferro alloy operations in times of fluctuating prices and sell power instead. Religare has forecast an earnings per share of Rs 21.1 and Rs 27.8 for the company for FY08 and FY09, respectively.

Deepak Fertilisers
CMP: Rs 90.55
Target price: Rs 123

Emkay Share and Stock Brokers has maintained its ‘buy’ recommendation on Deepak Fertilisers & Petrochemicals with a price target of Rs 123. “Deepak Fertilisers & Petrochemicals is expected to be one of the key beneficiaries from the commissioning of Dahej Uran Pipeline (DUPL), a gas pipeline which will increase the availability of LNG for the DFPCL along with other players in the region,” the Emkay note to clients said.

“DFPCL at present suffers from lower operating levels at its DNA plant (capacity utilisation 71%), methanol plant (64% capacity utilisation) and ANP plant (24% capacity utilisation) due to inadequate gas availability,” the note added.


LIC HsG Finance
CMP: Rs 206.40
Target price: Rs 246

SBI Cap Securities has initiated coverage on LIC Housing Finance with a ‘buy‘ rating and a 12-month price target of Rs 246.

“The (mortgage) industry offers a great potential for growth given Indian demographics and LIC housing finance would be able to reap benefits with its marketing network and enhanced operational set-up,” the SBI Cap Securities note to clients said. SBI Cap has forecast an earnings per share of Rs 33.7 and Rs 39.8 for the company for FY08 and FY09, respectively.

TCS explores merger of group firms

The country's leading information technology (IT) services provider, Tata Consultancy Services (TCS), will explore the option of merging some of its group companies.

Speaking at the company's second Annual General Meeting (AGM), Tata Group chairman, Ratan N Tata, said: "It makes sense merging some of the group companies. However, Tata Elxsi is into animation and will be a standalone business." He, however, did not specify any name. IT solutions provider CMC, Elxsi and Tata Technologies are the other IT companies of the group.

The company mangement also announced it has earmarked a capex of Rs 1,400 crore. This is an increase of Rs 235 crore from the Rs 1,165 crore spend during the previous financial year. TCS managing director and chief executive officer, S Ramadorai, said that Rs 300-350 crore would be spent on technology, while the remaining would be set aside for IT infrastructure.

On the rising rupee, Ratan Tata said "It is a matter of concern to us as to anyone who is into exports. But as offshoring is becoming a critical business strategy among the US, European and Latin American companies there will be some balancing act." Ramadorai added: "We are looking at expansion of our Latin America centre. But this will be through organic growth."

Answering a shareholder's concern on why Indian IT companies cannot be the next Microsoft or Cisco of the world, Tata remarked: "This is something that I have been discussing with Rama (Ramadorai). But I feel that products come from markets that are close to such market places and US provides that market. We might look at creating a product group in US and treat it as a venture capitalist activity by TCS." The Tata group company, he added, is aiming to become one of the top 10 global IT companies by 2010.

Friday 29 June, 2007

Results - SUN TV, PFIZER,TVS MOTOR,BANKING

Nifty strikes lifetime high; Sensex at second best close

The market surged today on renewed buying in index pivotals on smooth rollover of positions from the June 2007 series to the July 2007 series in the derivatives segment, and on build-up of fresh positions. The June 2007 derivatives contracts expired on Thursday, 28 June 2007. Data showing a further fall in inflation aided the rally.

Shares from banking, sugar, cement and capital goods sector rose while some profit booking was seen in metal stocks. Among sectoral indices, Bankex, BSE Mid-Cap, BSE Consumer Durables, BSE Capital Goods, all struck lifetime high.

The BSE 30-share Sensex vaulted 145.94 points or 1.01% at 14,650.51. This is the second highest closing for the Sensex. The barometer index had struck record closing high of 14,652.09 on 8 February 2007.

Sensex opened higher at 14,589.52, and surged to strike a high of 14,663.25 at 15:07 IST as buying inetensified towards the close of the trading session. The benchmark hit a low of 14,574.45, at 10:20 IST. The Sensex oscillated in a range of 89 points for the day. A bout of volatility was witnessed in mid-afternoon trade.

The Sensex is just about 73 points away from its all-time high of 14,723.88, which it had struck on 9 February 2007.

The S&P CNX Nifty advanced 36.30 points or 0.85% at 4,318.30. This an all time closing high for the Nifty. It had struck an all time high of 4,362.95 on 4 June 2007. The July 2007 futures settled at 4290.50, a discount of 27.80 points compared to spot closing.

The NSE F&O turnover slumped to Rs 35,463.65 crore as compared to Rs 60,499.60 crore on Thursday, 28 June 2007. The turnover had surged on Thursday on account June 2007 futures expiry

India's wholesale price index rose 4.03% in the 12 months to 16 June 2007, lower than the previous week's increase of 4.28% due to a decline in food and manufactured product prices, government data released today, 29 June 2007, afternoon showed. The annual inflation rate was the lowest since the end of April 2006.

As per market data, Nifty futures witnessed a rollover of 65% to 70% whereas stock futures saw rollover of around 70% to 73%, to July 2007 series from June 2007 series.

The total turnover on BSE amounted to Rs 4817 crore as compared to Rs 4848 crore on Thursday, 28 June 2007.

The market breadth was strong on BSE with 1,496 shares advancing as compared to 1141 that declined. 80 remained unchanged.

The BSE Mid-Cap index struck an all time high of 6,527.48, as buying continued in small and mid-cap stocks. The BSE Mid-Cap index settled 69.03 points or 1.07% higher at 6,527.03.

The BSE Small-Cap Index rose up 68.30 points or 0.89% to 7,730.40.

Among the Sensex pack, 23 advanced while the rest declined.

Reliance Energy (REL) surged 5.63% to Rs 613.25, on 6.81 lakh shares, and it was the top gainer from the Sensex pack. REL’s wholly owned subsidiary Rosa Power Supply, on 26 June 2007 tied up long-term loans of around Rs 2,000 crore for the first stage of its 600 meg watt (MW) power project.

Housing Development Finance Corporation (HDFC) jumped 3.27% to Rs 2022.50, after it received Rs 445 crore for its stake sale in BPO firm Intelenet to Blackstone, which has resulted in a total capital gain of Rs 381 crore on its BPO venture. The stock surged to an all time high of Rs 2039, in intra-day trade.

At its 30th annual general meeting (AGM) held on Wednesday, 27 June 2007, HDFC chairman Deepak Parekh said interest rates had peaked and he expected them to remain stable for some time.

State-run banking major State Bank of India (SBI) vaulted 3.89% to Rs 1527.50, after striking an all time high of Rs 1531 in intra-day trade. The stock is buzzing on reports that it is planning to launch a private equity fund with a corpus of $1 billion (Rs 4100 crore). SBI also informed BSE today, that the entire shareholding of Reserve Bank of India (RBI) aggregating 31.43 crore equity shares of Rs 10 each in the bank was transferred to the Central Government on 29 June 2007.

Banking shares rallied today after data showing fall in inflation. The BSE Bankex surged 2.9% at 8,009.94, after striking an all time high of 8,019.27. It was the top gainer from the sectoral indices on BSE. HDFC Bank (up 4.39% to Rs 1140.25), ICICI Bank (up 1.18% to Rs 954), Canara Bank (up 4.11% to Rs 271), Bank of Baroda (up 4.35% to Rs 270.95), Union Bank (up 2.72% to Rs 132), Bank of India (up 3.91% to Rs 234), Federal Bank (up 2.74% to Rs 302), and UTI Bank (up 4.26% to Rs 605) gained.

Bank shares were also boosted by reports that the Reserve bank of India has allowed banks to undertake pension fund management business through their subsidiaries. Only profitable and credible banks with have net worth of not less than Rs 500 crore, capital adequacy ratio of more than 11% and return on assets of not less than 0.6% to undertake the business, can enter into the business of pension fund management. Besides this, the banks venturing into pension fund management need to ensure that they have net non-performing assets of less than 3%.

Bhel (up 3.50% to Rs 1541) and L&T (up 1.49% to Rs 2186), advanced from the capital goods pack. The BSE Capital Goods Index was up 1.9% at 12,299.36. It struck an all time high of 12,329.20.

Cement shares rallied for the second straight day as buying continued after the Finance Minister P Chidambaram told a television news channel, after market hours, on Wednesday, 27 June 2007, that there was no freeze on cement price and the government has not tried to control cement prices. He also said prices had gone up by a few rupees in south India.

Cement major ACC (up 3.58% to Rs 931.05), and Grasim (up 0.32% to Rs 2632) advanced.

Pharma shares, Cipla (up 3.92% to Rs 211), Dr Reddy’s Laboratories (up 0.10% to Rs 655.45), and Ranbaxy Laboratories (up 2.17% to Rs 355.50), edged higher.

Aluminum and copper major Hindalco Industries slipped throughout the day, as selling continued. It lost 5.25% at Rs 160.10, on 13.74 lakh shares. It was the top loser among the Sensex constituents.

Other shares from the metal pack, Nalco (down 0.42% to Rs 259), Sail (down 0.34% to Rs 131), declined while Tata Steel (up 0.83% to Rs 598), and JSW Steel (up 1.32% to Rs 608.10), edged higher. The BSE Metal Index closed at 10,605, down 0.28%, and was the only loser among the sectoral indices on BSE.

Auto major Maruti Udyog lost 1.05% to Rs 742 while telecom services provider Bharti Airtel slipped 0.98% to Rs 834.50.

Index heavyweight Reliance Industries was up 0.46% to Rs 1700, on 7.01 lakh shares. It moved in a range of Rs 1689.05 –1711.50

Infosys Technologies rose 0.22% to Rs 1930.10 on rumours that it is mulling a bid to buy Europe’s largest IT services giant, Capgemini. Both Infosys Technologies and Capgemini have denied the takeover rumours, though the Capgemini stock surged on Thursday, 28 June 2007, boosted by this rumour. Infosys Technologies will announce its first quarter June 2007 results on 11 July 2007.

Satyam Computers ended flat at Rs 468.30 while Wipro (up 0.36% to Rs 517) and TCS (up 1.43% to Rs 1153) edged higher. The BSE IT Index settled with agin of 0.60% to 4,870.73.

The BSE Consumer Durables index also struck all time high of 4,280.52, before settling 3.39 points higher at 4,250.65. Lloyd Electric (up 2.57% to Rs 181.35), and Rajesh Exports (up 0.62% to Rs 532.90) rose.

Shares from the sugar pack rallied for the second straight day, as buying continued after the Finance Minister told a TV channel on Wednesday, 27 June 2007, that more sops will be given to the sugar sector if required. Bajaj Hindusthan (up 8.39% to Rs 169.30), Sakthi Sugars (up 10% to Rs 88.20), Balrampur Chini Mills (up 13.27% to Rs 76.40) and Shree Renuka Sugars (up 9.26% to Rs 651) surged.

Wendt India was up 5% to Rs 797.75 after the machine tool accessories maker said Winterthur Technologies AG has indirectly acquired 40.02% of the company from parent, Wendt GmbH Germany. The company made the announcement before trading hours today, 29 June 2007.

Indian state-run lender IDBI rose 5.64% to Rs 119, after it said on Thursday, 28 June 2007, after market hours that it had sold 2% stake in the National Stock Exchange of India (NSE) to MS Strategic (Mauritius) for $50 million, after receiving the necessary approvals.

Sun TV Network jumped 4.69% to Rs 1,599 on reporting a 310.9% rise in net profit in Q4 March 2007 to Rs 118.86 crore as compared to Rs 28.93 crore in Q4 March 2006. Sales spurted 382.2% to Rs379.04 crore (Rs 78.60 crore). Net profit jumped 106.42% to Rs 268.82 crore in the year ended March 2007 (FY 2007) as against Rs 130.23 crore in FY 2006. Sales advanced 110.29% to Rs 676.95 crore (Rs 321.91 crore). The results were announced after market hours on Thursday 28 June 2007.

Along with the Q4 results, Sun TV Network also informed stock exchanges that the register of members & share transfer books will remain closed from 28 July 2007 to 6 August 2007 (both days inclusive) for the purpose of payment of final dividend, stock split, bonus issue.

GMR Industries was locked at the 5% upper circuit of Rs 170.35 at 14:05 IST, following the company's decision to set up an integrated sugar complex with a capacity of 2500 tonnes per day (tcd), expandable to 3500 tcd, in Srikakulam district, Andhra Pradesh. The company made the announcement during trading hours today, 29 June 2007.

ICI (India) declined 3.13% to Rs 531 on turning ex-dividend, for a huge dividend of Rs 27 per share. The company, on 16 May 2007 had announced dividend of Rs 27 per share, which included a one-off special dividend of Rs 20 a share.

GMR Infrastructure rose 5.59% to Rs 747.90, ahead of its Q4 March 2007 and FY 2007 results which are scheduled tomorrow, 30 June 2007.

LIC Housing Finance rose 5.95% to Rs 206.40 on reports that the company is evaluating plans to float its own venture fund focusing on the realty sector. LIC Housing has already invested Rs 50 crore in Kotak Realty Fund and Rs 10 crore in CIG Realty Fund. The proposed new fund would focus on financing projects such as shopping malls and special economic zones.

TVS Motor Company plunged 5.50% to Rs 61 after the two-wheeler maker reported 69% fall in net profit in Q4 March 2007 to Rs 9.05 crore as against Rs 29.09 crore during the previous quarter ended March 2006. Sales moved up 9.60% to Rs 919.88 crore in Q4 March 2007 (Rs 839.27 crore). The net profit dropped 43.08% to Rs 66.60 crore in the year ended March 2007 as against Rs 117.00 crore during the year ended March 2006. Sales jumped 19.17% to Rs 3854.96 crore in FY 2007 (Rs 3234.96 crore). The company declared the Q4 results after market hours yesterday, 28 June 2007.

Kesoram Industries rose 4.34% to Rs 454.40 on media reports that the diversified firm plans to spend Rs 1200 crore in FY 2008 to set up tyre and cement plants.

Suzlon Energy gained 0.76% to Rs 1489. Suzlon Energy announced today 29 June 2007, during market hours said that Suzlon Wind Energy Corporation, the USA, the step-down subsidiary of the company has extended its contract with PPM Energy of Portland, Oregon, USA to add 300 mega watt (MW). The original agreement calls for delivery of 300 MW of turbine capacity in 2008 and 100 MW of capacity in 2009, but now has been extended to include an additional 300 MW in 2009 for a total of 700 MW over two years.

Banco Products (India) slipped 1.80% to Rs 319.50 after the company recommended issue of bonus shares in the ratio of one equity share for every one share held. The announcement was made after market hours on Thursday, 28 June 2007.

Asian stocks were mixed today, 29 June 2007, after the US Federal Reserve left US interest rates unchanged. The yen weakened against the dollar. Japan's Nikkei surged 1.15% at 18,138.36 and Straits Times rose 0.28% at 3,548.20. However, Taiwan's Taiwan Weighted (down 0.11% at 8,883.21), Seoul Composite (down 0.47% at 1,743.60) and Hong Kong's Hang Seng (down 0.75% to 21,772.73) slipped.

China’s Shanghai Composite slumped 2.39% to 3,820.70

Most of the European markets were trading weak.

US stocks finished flat on Friday, 29 June 2007, after the Federal Reserve said the economy appeared to be growing at a moderate pace. The Fed, however, repeated its worries about inflation. The Dow Jones industrial average lost 5.45 points, or 0.04%, to 13,422.28. Broader stock indicators finished mixed. The S&P 500 index slipped 0.63 points, or 0.04%, to 1,505.71, and the Nasdaq Composite rose 3.02 points, or 0.12%, to 2,608.37.

Oil held steady around $70 for the third session on Friday, 29 June 2007 as the market remained focused on falling US gasoline inventories and a decline in crude stocks in a key delivery point in the world's largest consumer. US crude rose 5 cents to $69.62 a barrel

Market may scale record high

The market may extend last week's gains following the smooth rollover of positions from the June 2007 series to the July 2007 series in the derivatives segment, and on build-up of fresh positions. The June 2007 derivatives contracts expired on Thursday, 28 June 2007. As per market data, Nifty futures witnessed a rollover of 65% to 70% whereas stock futures saw rollover of around 70% to 73%, to July 2007 series from June 2007 series

Both the Sensex and Nifty are now within striking distance from their all time highs. The benchmark index, BSE Sensex is just about 73 points away from its all-time high of 14,723.88 struck on 9 February 2007. The S&P CNX Nifty is 45 points away from its all time high of 4,362.95 struck on 4 June 2007.

The market will boosted further by the steady progress of monsoon so far.

Also all eyes will be on Q1 June 2007 earnings season which will be kickstarted by IT bellwether Infosys Technologies on 11 July 2007.

Gujarat Mineral Development Corporation, Hikal and Television Eighteen India will announce their March 2007 quarter results in the coming week.

A good news is that inflation is under control. India's wholesale price index rose 4.03% in the 12 months to 16 June 2007, as per latest data released on Friday, 29 June 2007. The annual inflation rate was the lowest since the end of April 2006

Thursday 28 June, 2007

June 2007 Newsletter - ECOSELECT

7 common investment mistakes

The other day I got a call from a friend. He wanted to know my opinion on 'Stock A', which was proposed to him by an old hand in the stock market. He was told that the stock would double in a few months and the person who had recommended the stock also had bought some. I told him that this stock was crap and unless an operator was running the stock, I did not see strong reasons on why this stock would double.

I said this not because I have the ability to spot stocks that will double in very short periods of time, but because I am yet to come across people or experts who can do this feat every time.

So in a nutshell I told him to stay away from this stock. Nevertheless he went ahead and took some exposure in the stock, as the seduction of making quick bucks was very high. Exactly 3 days down the line this stock is 18% down with 10% being knocked off in 1 day.

He was now skeptical about making equity investments with the losses suffered in a couple of days. He blamed the stock markets as well as others for his misfortune, but at the same time wanted to participate in the growth of the Capital Markets and our economy.

However, never ever did this friend ponder over the mistake he had committed. I bet there are plenty of people who are guilty of committing the same mistake or others, but never get down to really understand what went wrong and try to learn from their mistakes.

So what are the important lessons for people wanting to create wealth through equities? The cardinal rule is to make as few big mistakes as possible.

Though the list can be pretty long, here are seven common mistakes people make when investing in equities and that you should stay away from.

Mistake No 1: The first and biggest mistake is not to admit making a mistake

People stubbornly hold on to stocks where they are making sizeable losses in the belief that they can exit when the price reaches their buying price. Most of the minds are not trained to acknowledge the fact that they have made a mistake and probably the best thing is to move on.

There was this gentleman who had bought a "penny stock" at Rs 9 following a tip and hoping that it would double in a few months. The stock first rose by 20% and then declined by almost 40%. He was unwilling to let go of the position with the belief that he will do so only when the price reaches his buy price and it will happen sometime soon.

The gentleman is still holding on to the stock and the stock has lost a further 40%. He could have exited the stock with a loss of just 28% initially (considering the appreciation of 20%). Now his losses are around 56% and he is still holding the stock. This happened in October 2005. Even several blue chip stocks have actually doubled or tripled since then.

Mistake No 2: Buy on tips and khabars and wanting to make a quick buck

Technology has made our lives much easier but at the same time has caused a lot of overload as well. We are subject to SMSes , emails and flyers with lucrative offers for "buy and sell tips" , commodities trading etc. that at the end of the day leave you confused.

In this state only two things can happen, (a) One is that you procrastinate and not take any action with the fear of screwing it up and (b) Succumb to these offers for making you rich quickly.

The point that I am trying to make is that how people who are conservative or sane can take dangerous calls and sabotage their own well being. I remember having met this conservative gentleman who was targeting only 12% returns but still could not resist the stock market temptation when the broker called and showed him some tantalizing figures.

Mistake No 3: Buying a loser on its way down thinking you are averaging your costs

Mistake No 4: Ignoring Risk in the investment and looking only at the returns
Risk is an integral part of every equity investment and some equity investments are more risky than others. People however look at the returns without giving due importance to risk.

Stock Futures can give you great returns but at the same time they can wipe out your capital as well. In the mutual fund context, people look at returns when investing in the fund, but do not consider the kind of risks the fund manager has taken whether it be concentration in stocks or sectors etc. At the same time betting heavily in Futures & Options, Commodities without understanding the nuances of the same is fraught with risk.

Understand the risk, i.e, the downside inherent in every investment and volatility associated with it.

Mistake No 5: Buying penny stocks thinking they are cheaper and ignoring stocks, which are priced above a certain number like Rs 1000 thinking, they are expensive.

Mistake No 6: Exiting Winners early and sticking to Losers

Ask yourself: Suppose I have a choice of 2 boats. Boat A is strong, consistent and has traveled the sea through many rough weathers as well. Boat B is showing some cracks and leaks in certain places. Water seeped in through this boat sometime back. Which boat will I choose to safely get me from this shore to the next?

I bet all would opt for Boat A and no person in his right mind would opt for Boat B. Yet when this same logic is applied to stocks, people will stick to losers (Boat B) but exit winning stocks (Boat A) to make a small profit.

Mistake No 7: Just thinking but not doing anything

Finally doing makes all the difference. There is no substitute for action. Just knowing that exercise is good will not keep you fit. In the same vein, just knowing this stock is good is of no use unless you buy it.

I come across so many intelligent people who know many things but are simply unable to implement because of lack of time and busy schedules.

"I knew this stock would do well, wish I had put in money here" or "I missed a good time to enter this stock" are some common responses you hear. Whatever the reason be, in the end what matters is whether you did what you knew was right. A better option for people here is to put their investments on Autopilot (Automatically investing fixed amounts every month in stocks and mutual funds).

To be a successful investor and create wealth through equities, you should shun the costly mistakes outlined. And yes if you have made any one of the above mistakes, admit it and correct it. More importantly "Stop Hoping".

At the end of the day 'Hope is not a strategy in the equities market.'

The author is a practising Certified Financial Planner. He can be reached at amar.pandit@moneycontrol.com.

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How to win in the stock market

-Amit Trivedi, Moneycontrol.com

It is the very characteristic of the securities markets to swing from one end to the other depending on the popular mood and in such times, those who can separate reason from emotion can spot opportunities.

As Sir John Templeton puts it, "To buy when others are despondently selling and sell when others are avidly buying requires the greatest fortitude and pays the greatest potential reward."

But how does one act contrarian? There is an adage in the stock markets, "Do not catch a falling knife."

Well, there is an answer in one of the proven portfolio investment strategies - Asset Allocation. What is asset allocation? How does it work? How does it help an investor invest contrary to the market?

Asset allocation is the scientific process of dividing all your money across various non-correlated asset classes. In simple terms, if your money is allocated between stocks (equity shares or growth mutual funds), bonds (debentures, government securities, long term fixed deposits or income funds) and cash (savings bank account, short term bank deposits of money market mutual funds), you have taken the first step.

One may consider various other investment options like property or gold, but we will restrict our discussion only to the financial assets, which are stocks, debentures and cash.

The second step is to know how much money should be allocated in which of the options. Now this is a function of two things, the investment options have certain traits or characteristics and the investor has certain financial goals as well as certain risk appetite.

This risk appetite is again a function of one's needs as well as psychological ability to handle the unexpected. The science of asset allocation tries to build a portfolio that matches the traits of the assets with the needs of the investor.

There are various approaches adopted by different advisors to build portfolios for their clients largely keeping the clients' needs in mind. We will not get into the discussion of the same here since the solutions would be different for different investors since their needs would be different from one another.

Let us come back to the discussion of what asset allocation can do and how it can help investors. We will try to keep it very simple only for the purpose of understanding. The actual portfolios or the practical approach cannot be so simple.

Let us assume that after assessing the needs of one of the clients, the advisor recommends investment of 50% of the assets in an equity mutual fund and 50% in a money market mutual fund.

The investor and the advisor then decide to review the performance of the portfolio every six months. The review process is also very simple. The objective would be to maintain the allocation between equity fund and money market fund at 50:50.

Given that the stock prices are volatile over shorter terms and move in line with the profits of the company over longer periods, we are likely to see the value of the equity mutual fund go up and down over time. When that happens, the asset allocation would stray from the 50:50 that was set originally.

When the equity prices move up faster than the debt prices, the allocation will get skewed in favour of equity and our review process would restore it back to 50:50 by shifting some money from equity fund to debt fund. In the other case, when the equity prices move adversely, the balance would get skewed towards debt and the balance can be restored by shifting from debt fund to equity funds.

What you are doing here is selling equity when the prices run up and buying when the units got cheaper. One is able to do this without having to worry about analyzing what is happening in the market place.

The above example is applicable to an investor, who has a static portfolio without any additions into the portfolio or withdrawals from the same.

In reality, the investor may get inflows, which need to be invested in the portfolio or have a need to take some money out of the investments. In such cases, at the time of investment or redemption, the investor has to look at the current market value of the equity fund and debt fund and rebalance the portfolio to 50:50.

Automatically, the money goes into equity fund when the stock prices are low and into debt fund when the stock prices are high.

The only problem with the above is that what looks so simple is very difficult to execute since the approach means ignoring all the sound bytes taking place around you. It takes a lot of courage to chart one's own course and more importantly, to continue walking that path � at times, all alone.

The author works with a leading mutual fund company. The views expressed are his personal views.

BEML FPO Analysis - EDELWEISS

Spice IPO-Over subscribed 37 times

The initial public offer of mobile service provider Spice Communications has got subscribed over 37 times on its last day on Wednesday.

The IPO received bids for 425.38 crore shares against 11.3 crore shares on offer, latest data available on the stock exchanges show.

The QIB portion had received subscriptions of more than 5 times the reserved shares with major demand coming from foreign institutional investors till yesterday.

Spice Communications expects to raise up to Rs 520 crore through its maiden public offering at a price band of Rs 41- 46 per share.

The company is expected to use a major portion of the issue proceeds to get national and international long distance licences. The company, in which Telekom Malaysia holds 49 per cent stake, has received a non-exclusive letter of intent for providing STD and ISD services.

A part of the proceeds would also be used for repayment of debt and payment to vendors for network equipment.

Easing inflation may cap interest rates -Chidambaram

Finance Minister P.Chidambaram said on 27 June that central bank policy tightening and currency strength had helped to moderate inflation and more rate rises may not be needed if the trend continues.

“So far central bank actions have moderated inflation. The rupee rise has also helped moderate inflation to some extent,” Chidambaram told reporters on the sidelines of a conference in London.

“If inflation is contained at current levels and shows a decline, there is no reason why interest rates should go up.”

Last week, data showed India’s wholesale inflation fell to its lowest level in 14 months at 4.28% in the 12 months to 9 June. The signs of slowing price growth came finally after five interest rate rises in the past year to 7.75%.

The central bank has also largely kept out of the rupee’s way as the currency has surged to nine-year highs versus the dollar, rising about 9% so far this year.
India’s economy, the third largest in Asia, grew 9.4% in the fiscal year ending March, its highest rate in 18 years and second only to China among major economies.

Chidambaram said the intention for this year was to keep inflation at 4.0 to 4.5%. He earlier told the conference that inflation remained a concern for the economy but policies aimed to tackle this issue should not dampen growth.

“We have to strike a balance between growth and inflation. The politically tolerant level of inflation in India is 4-4.5% and we are aiming to keep it at that level,” he said, noting that factors such as oil prices would be key.

“But we will be alert and take fiscal as well as monetary steps (to curb inflation)”.
Chidambaram said it was hoped gross domestic product growth would be “close to 9%” in the current fiscal year, with an annual growth rate of 10% growth achievable by 2010.

He acknowledged that rupee appreciation was a headache for Indian exporters, but he said the rise was due to huge capital inflows into the country and no immediate steps were planned to curb the currency’s strength.

“We don’t believe in imposing capital controls on inflows. We will keep an eye on the rupee but our policy is a well regulated market determining the exchange rate,” he said. “The rupee will find its level, if it hurts any sector unduly, we will help that sector in other ways.”

Chidambaram forecast that foreign direct investment would exceed the $16.1 billion received in the 2006/2007 fiscal year.

One of the sectors that has experienced booming price growth has been real estate and most major Indian cities have seen property prices double in the past two years.

Foreign property funds have been flocking into India ever since rules on inward investment in the construction sector were relaxed.

Many analysts believe a property price correction of 10-40% is due in the short term. The last time a property bubble burst in India, prices fell as much afive interest rate rises in the past year to 7.75%.

Wednesday 27 June, 2007

Auto, metal stocks lead Sensex fall

Weak global cues and choppy trading ahead of the expiry of the June F&O series ensured that the market remained in the red today. Despite weak Asian markets the Sensex opened on a positive note but soon slipped into the red on selling pressure in heavyweights and metal stocks. The Sensex fell sharply as investors sold for profits and touched the early low of 14433. However, buying at lower levels by the afternoon saw the Sensex pare most of its losses, but the benchmark index again tumbled on unabated selling in public sector, metal and auto stocks, touching the day's low of 14407. The Sensex finally closed the session at 14431, down 70 points. The Nifty ended the session down 21 points at 4264.

The breadth of the market was weak, with the losers outnumbering the gainers in a ratio of 1.06:1. Of the 2,647 stocks traded on the BSE, 1,338 stocks declined, 1,245 stocks advanced and 64 stocks ended unchanged. Most of the sectoral indices ended weak. The BSE PSU index slipped by 1.04% followed by the BSE Auto index (down 0.87%), the BSE Metal index (down 0.79%) and the BSE Bankex (down 0.64%).

Among the major losers, Tata Motors slipped 2.40% at Rs668, NTPC tumbled by 2.09% at Rs150, Reliance Communication declined by 2.05% at Rs515, Reliance Energy plunged by 1.97% at Rs578, ACC dropped 1.93% at Rs829, Bharti Airtel crumbled by 1.81% at Rs835, ONGC slumped 1.57% at Rs921 and Ranbaxy fell by 1.41% at Rs343. However, Satyam Computer gained 2.55% at Rs468 and Hero Honda moved up by 1.07% at Rs677 while TCS, Grasim, Infosys, Dr Reddy's Lab, HLL, Gujarat Ambuja, Wipro and Bajaj Auto ended with modest gains.

PSU stocks took a beating on the bourses. Bank of Baroda slipped by 2.92% at Rs259, Union Bank crashed by 2.36% at Rs128, SAIL shed 2.28% at Rs131, Mangalore Refineries lost 2.17% at Rs41 and Bharat Petroleum dropped 2.14% at Rs331.

Over 1.80 crore IFCI shares changed hands on the BSE followed by IKF Technologies (82.45 lakh shares), Reliance Petroleum (79.42 lakh shares), GV Films (62.22 lakh shares) and Nelcast (60.95 lakh shares).

Value-wise GMR Infrastructure clocked a turnover of Rs297 crore on the BSE followed by Indiainfoline (Rs138 crore), Nelcast (Rs131 crore), Suzlon Energy (Rs124 crore) and Entertainment Network (Rs116 crore).

A bricks & mortar economy

It is almost impossible to live in an Indian city right now and miss the obvious signs of the construction mania that has gripped the country.

There is a profusion of new residential towers, malls, office blocks and IT parks sprouting from the urban soil, like wild grass after the first rain. Our cityscapes are changing dramatically, thanks to the new piles of brick and mortar all around us. But do we realize that the building craze is altering our economic landscape as well?

Let’s start with the stock market. The DLF share will be open for trading soon—and that listing will change the very nature of the Indian stock market, perhaps making it more vulnerable to the inevitable cyclical swings in real estate prices, but also making its composition more reflective of the underlying economy.

Assuming that it commences trading at around its issue price, it is likely that DLF will command a market capitalization of Rs90,000 crore. There are already many other real estate developers listed in the stock market and there is a long line of wannabes who are planning to follow in DLF’s footsteps. It’s pretty clear that real estate, which was an investment minnow till just a couple of years ago, will now be one of the big blue whales in our stock market. Perhaps only oil and software will be bigger in terms of market value. Brokerage house CLSA was prescient when it said in an April 2006 research report that the DLF IPO would make India a property-driven stock market, like Hong Kong and Japan.

A few back-of-the-envelope calculations show that real estate and construction could account for around 5% of India’s total market capitalization a few months down the line, despite the recent cooling off of land prices and lower valuations of real-estate developers. Surprised? Actually, there is no need to be. It merely reflects a broader economic fact.

The Asia Development Outlook 2007 published by the Asian Development Bank (ADB) tips its hat, so to say, at the growing importance of construction in the Indian economy. The ADB has actually divided India’s GDP into four sectors, with construction joining the regular three (industry, agriculture and services). This is the first time that I have seen construction given independent billing in GDP data. ADB has also suggested that the construction boom has stimulated credit growth and demand for consumer durables. People borrow to buy houses and then borrow once again to buy televisions and washing machines for their new homes.

The fortunes of many other sectors—from banks to consumer durables to some capital goods—are now inexorably linked with those of the construction business.
Good news? Perhaps. But this also brings a new type of risk in the Indian economy—the risk of asset deflation.

To understand why, look at Hong Kong. This island city is woefully short of land, a fact that has made it an economy heavily dependent on the vagaries of land prices. They power a huge part of the city’s government revenue, personal wealth and bank credit. A sharp drop in land prices inevitably sends the island’s economy hurtling towards recession. Government tax revenues drop, people feel poorer because of lower home prices and cut back on spending, mortgage defaults create cracks in the banking system.
Sure, India is no Hong Kong. Our economy is far more varied. But a strong real estate component in our economy, stock markets and banking system does expose us to a milder version of Hong Kong’s problem.

Many Asian countries such as Thailand and Indonesia did suffer from asset deflation after the financial crisis of 1997, even though their economies were not as dependent on real estate as Hong Kong is. A fall in real estate prices in these countries sent stock markets on a tumble, piled up bad loans in banks and squeezed personal wealth and spending.

In short: while the construction mania we see around us is part of the very welcome attempt to rebuild India’s tattered infrastructure, it would be foolish to forget that real estate can be a macroeconomic risk. Remember: The International Monetary Fund has included it as one parameter in the financial soundness indicators that it launched in 2003.

Blackstone v ICICI Bank

Here are seven reasons why investing in ICICI Bank is better than investing in Blackstone.

1. ICICI Bank is managing assets of $79 billion, compared to Blackstone managing assets of about $88 billion. The major difference in these two asset bases is that ICICI has much larger customer base in the Indian middle class, whereas Blackstone is managing money for large institutions and rich people.

2. ICICI is biggest Indian bank by market cap (about $22 billion) and the second largest Indian bank in terms of assets. Even with this market cap, it is only about 1/11th that of Citibank and still far behind China construction bank, which has a market cap of more than $220 billion. This provides large upside and growth potential for ICICI. Compared to this, Blackstone's market cap (about $32 billion) is 1/3rd of its largest competitor, Goldman Sachs

3. ICICI has a very large presence in India's biggest metros and still offers tremendous growth opportunity in second tier cities.

4. Indian bank industry will be going through M&A activity and being the largest bank would be a tremendous opportunity for ICICI bank to get even bigger.

5. ICICI bank has wide variety of products ranging from retail banking to insurance to brokerage. Its stake inan insurance company alone would be billions of dollars.

6. Investing in ICICI bank is like investing in India's growth story since banks are best barometer ofa country's economy

7. Indian billionares like Azim Premji, Ambani and Bajaj are investing about $250 million each in this issue. In addition, large foreign investors like Temesek and Warburg Pincus are investing large amounts in this issue. All of these smart investors cannot be wrong at same time


Via SeekingAlpha

Tuesday 26 June, 2007

Sensex posts modest gains

Side counters hog limelight in range bound market

The market settled with marginal gains in volatile session. Volatility was witnessed in late trade. There has been a lack of direction on the bourses since the past few trading sessions due to absence of any trigger. Shares from consumer durables sector surged, while IT stocks saw some unwinding in late trade, after opening firm.

The 30-shares BSE Sensex posted marginal gain of 13.36 points or 0.09% to 14,501.08. It opened slightly lower at 14,478.75 tracking weak global markets. It was also Sensex's low of the day. From here, the index advanced to strike a high of 14,560.48 at 13:11 IST. Sensex swung just 82 points today, between a low of 14,478.75 and high of 14,560.48.

BSE Sensex is 222 points away from its all-time of 14,723.88, which it had hit on 9 February 2007.

The S&P CNX Nifty rose 26.30 points or 0.62% at 4,285.70. The Nifty June 2007 futures settled at 4272.20, a discount of 13.50 points as compared to spot closing

Gains in some of the heavyweights in Nifty helped Nifty score over Sensex today. ONGC rose 2.1% to Rs 935.90, Bharti Airtel gained 2% to Rs 850 and Bhel rose 1.4% to Rs 1470.75. These three stocks have a combined weightage of 19.44% in Nifty. The combined weightage of these three stocks in Sensex is lower at 12.93%.

There was a plenty of action outside index stocks, indicated by healthy market breadth. On BSE, 1503 shares advanced as compared to 1126 that declined, while 80 remained unchanged.

The BSE Mid-Cap index struck all time high of 6,435.32. It rose 33.71 points or 0.53% to 6,417.90. The BSE Mid-Cap index has witnessed a solid surge over the past few months.

The BSE Small-Cap index settled with a gain of 41 points or 0.54% to 7,604.72. It is 268 points away from its all-time of 7,872.80 that it had hit on 11 May 2006.

The total turnover on BSE amounted to Rs 4,677 crore as compared to Rs 4,316 crore on 25 June 2007. Turnover surged to Rs 52,571.16 crore in NSE's F&O segment as compared to Rs 40264.20 crore on 25 June 2007.

Among the Sensex pack, 16 advanced while the rest declined.

State run oil exploration major Oil & Natural Gas Corporation (ONGC) gained 2.45% to Rs 939.10, on 2.96 lakh shares. It was the top gainer from the Sensex pack. ONGC posted 13% fall in net profit to Rs 2681.64 crore in Q4 March 2007 compared to a net profit of 3085.89 crore in Q4 March 2006. Total income rose 16.35% to Rs 14575.92 crore in Q4 March 2007 (Rs 12528.23 crore). The results were announced during trading hours on Monday, 25 June 2007.

Led by heavyweight ONGC, the BSE Oil and Gas Index rose 0.6% to 7,658.34.

Telecom services provider Bharti Airtel rose 1.89% to Rs 849, on 2.46 lakh shares as buying continued after HSBC Holdings Plc., recently raised price target of India’s top wireless services company by 9%, and said that the company will continue to expand market share. The one-year target was raised to Rs 1110.

State run engineering major Bharat Heavy Electricals (BHEL) gained 1.35% to Rs 1470. The company won an order worth Rs 106 crore from Rashtriya Ispat Nigam (RINL). The announcement of the order win was made during market hours on Monday, 25 June 2007. The contract will be executed in 28 months.

The BSE Capital Goods Index rose 1.01% at 11,949.91. Suzlon Energy (up 5.16% to Rs 1431.10), Crompton Greaves (up 4.37% to Rs 253), Bharat Bijlee (up 3.98% to Rs 2260), Praj Industries (up 4.21% to Rs 488.70), and Areva T&D (up 3.86% to Rs 1495), edged higher from Capital Goods index.

IT stocks which were trading firm till mid-afternoon session, pared gains later. The BSE IT Index lost 0.25% at 4,799.99. Satyam Computers rose 0.86% to Rs 457, while TCS (down 0.22% to Rs 1123), Infosys Technologies (down 0.50% to Rs 1926.10), and Wipro (down 1.18% to Rs 509) edged lower.

The Indian rupee started at its lowest level in more than two weeks on Tuesday, 26 June 2007, as investors anticipated an abatement in capital inflows on shrinking global risk appetite and a step-up in dollar purchases by oil refiners. In early trade, the rupee was at 41.01/02 per dollar, slipping from Monday's (25 June 2007) 40.875/885.

Index heavyweight Reliance Industries (RIL) slipped 0.35% to Rs 1,700, on 5.56 lakh shares. It had struck a high of Rs 1719.40. As per reports, the Prime Minister's Office (PMO) has referred the issue of pricing natural gas found off the east coast to a committee of secretaries. The move comes in the wake of differences the petroleum ministry has with the power and fertiliser ministries over the methodology adopted for arriving at the gas price.

Pharma major Ranbaxy Laboratories lost 2.40% to Rs 347.50, on 3.13 lakh shares. It was the top loser from the Sensex pack. Goldshield become the latest in a string of companies to pay millions of pounds in out-of-court settlements to the NHS for alleged drug price-fixing. Goldshield's settlement follows April's announcement from the UK's Serious Fraud Office that it intended to charge nine people and five companies with conspiracy to defraud the NHS over certain drug prices and supply. Ranbaxy is one of the 5 companies allegedly involved in a cartel that took place between 1996 and 2000.

Cement stocks Ambuja Cements (down 0.68% to Rs 116.45) and ACC (down 1.27% to Rs 845.25), edged lower on profit booking

Housing finance major HDFC lost 1.27% to Rs 1880, on reports that it has cut floating rates for new home loans by 25 basis points as part of monsoon offer

ICICI Bank continued to shed value since the Foreign Investment Promotion Board (FIPB) on Monday, 25 June 2007, rejected ICICI Bank’s proposal to divest 24% stake in ICICI Financial Services in favour of foreign investors as a subsidiary could not take part in insurance business. It lost 0.70% to Rs 945.10.

The BSE Bankex was down 0.35% at 7,802.33, and was the top loser among the sectoral indices on BSE. Canara Bank (down 2.99% to Rs 255.95), UTI Bank (down 2.98% to Rs 598.20), Federal Bank (down 2.50% to Rs 290.10) and Union Bank of India (down 1.50% to Rs 131.20), were some of losers from the banking pack.

Entertainment Network India (ENIL) jumped 20% to Rs 506.60, on 5.72 lakh shares. Novartis India (up 14.90% to Rs 400), Nicco Corporation (up 19.86% to Rs 33.50), Valecha Engineering (up 10% to Rs 269.40), Kalindee Rail Nirman Engineers (up 10% to Rs 254), and Honeywell Automation (up 9.80% to Rs 2060), surged from small-cap and mid-cap space.

Kothari Products rose 2.85% to Rs 555 after 16.9 lakh shares changed hands in block deals on the BSE at an average price of Rs 541.41 each. The scrip touched a high of Rs 585 and low of Rs 540 during the day. The stock had average daily volume of 7,313 shares on BSE in past one quarter. The block deals, amounting to 25.5% of its equity capital, constituted transfer of stake between promoters. As per recent media reports, Deepak Kothari intends to increase his stake to 46.02% in the company by purchasing the stake from M.M. Kothari and Sharda Kothari.

Shares from the consumer durables sector were in demand. The BSE Consumer Durables index surged 2.71% to 4,163.86, and was the top gainer among the sectoral indices on BSE. Titan Industries (up 8.78% to Rs 1279.30), Lloyd Electric (up 1.91% to Rs 155), and Rajesh Exports (up 0.52% to Rs 525.15), were the major gainers from BSE Consumer Durables index.

Steel stocks gained in anticipation of further consolidation of steel industry globally. Tata Steel (up 0.42% to Rs 602), Sail (up 0.83% to Rs 133.40) and Bhushan Steel (up 0.11% to Rs 703), gained. As per reports, Arcelor Mittal and Nippon Steel Corporation will ink a new partnership agreement next month on technology transfer and capacity expansion at their joint ventures. The two firms have been talking about the pact since last July after Mittal bought Arcelor, Nippon's strategic partner in Europe, in an unfriendly bid to create the world's biggest steel maker.

GMR Infrastructure rose 6.49% to Rs 691.95 and came fourth among top gainers in A group. As per recent reports, the GMR group is planning to invest in infrastructure private equity (PE) funds. The company has got proposals from several PE funds to invest in them, reports stated.

Ciba Specialty Chemicals (India) slumped 3.95% to Rs 382.50 even as it notched up 68.75% rise in net profit in Q4 March 2007 to Rs 5.40 crore as against Rs 3.20 crore in Q4 March 2006. Sales declined 36.81% to Rs 100.10 crore in Q4 March 2007 (Rs 158.40 crore). The net profit jumped 142.81% to Rs 81.10 crore in the year ended March 2007 (FY 2007) as against Rs 33.40 crore in the year ended March 2006 (FY 2006). Sales declined 18.24% to Rs 510.20 crore in FY 2007 (Rs 624.00 crore). The results were announced after the market hours on Monday, 25 June 2007.

Jet Airways India rose 0.16% to Rs 804.25 after it reported 61.25% a fall in net profit in Q4 March 2007 to Rs 88.01 crore as compared to Rs 227.12 crore in Q4 March 2006. Total income rose 1.99% to Rs 1989.03 crore in Q4 March 2007 from Rs 1950.19 crore in Q4 March 2006. Net profit declined 93.82% to Rs 27.94 crore in the year ended March 2007 compared to Rs 452.04 crore for the year ended March 2006. Total income rose 21.58% to Rs 7401.31 crore in FY 2007 from Rs 6087.57 crore in FY 2006

Great Eastern Shipping declined 3.13% to Rs 337 after its board approved issue of 50 lakh warrants convertible into shares at Rs 312.75 each to promoters and directors. The conversion price of warrants of Rs 312.75, is 7.1% discount to current market price of Rs 337. If the entire warrants are converted into equity shares, it will result into 3.2% equity dilution. The promoters hold 29.30% stake as on March 2007.

Dollex Industries was locked at the 5% upper circuit of Rs 142.05, after the company said it bagged an order worth $5 million to supply liquor to Africa. The time-frame for the order is 6 months. Once the order is successfully executed, the company plans to enter into a joint venture with this buyer and expects to cross its export target of IMFL up to 1200 containers in this year alone.

Cairn India advanced 4.17% to Rs 143.50 on reports that the government has agreed to company’s proposal to lay a pre-heated 580 kilo metre pipeline at a cost of Rs 2400 crore to transport the crude oil from its Barmer oil fields in Rajasthan to Virangam in Gujarat.

The cost of laying the pipeline is to be shared between Cairn and Oil and Natural Gas Corporation (ONGC) in a 70:30 ratio, the same as the shareholding in the oil field, laying to rest a contentious issue between the government and Cairn. Petroleum Minister Murli Deora is expected to announce the decision shortly, reports suggest.

Esab India declined 2.27% to Rs 449.90 on reports of London based Charter making an open offer for acquiring 20% stake to the shareholders of Esab India at Rs 426 per share. According to Esab India's shareholding pattern as of 31 March 2007, Charter holds 57,43,200 shares amounting to 37.31% in the company through a subsidiary, Esab Holdings. With this offer, Charter's shareholding in Esab India would increase to 57.3%, subject to the regulatory approvals.

Wearology was locked at the 5% upper circuit of Rs 263.15 after foreign fund Merrill Lynch Capital Markets Espana bought 5.7% stake or 2.9 lakh shares in the company in a block deal at Rs 250 per share on BSE on Monday, 25 June 2007.

Britannia Industries slipped 0.86% to Rs 1520, after striking a high of Rs 1594.95, on reports that Groupe Danone, an equal partner in Indian biscuit major Britannia Industries, may sell its 25.5% stake in the company to an outsider.

NIIT spurted 4.70% to Rs 988.10 after it tied up with Intel Corporation to develop a multi-core training curriculum. NIIT, in association with its training partners, will offer the Intel multi-core training curriculum to the software developer community, globally.

Suraj Stainless plunged 5% to Rs 342.70, even after its board recommended a liberal 2:1 bonus. The company made the announcement during trading hours today, 26 June 2007.

Natco Pharma rose 5.45% to Rs 146 after the drug maker said it got US Food and Drug Administration approval to market its ondansetron hydrochloride tablets in the United States. Ondansetron tablets are used to treat nausea and vomiting caused by cancer treatments. The company also stated that it is in process of establishing a retail chain in the US and hopes that the chain would serve a useful purpose in distributing and marketing its approved products there.

Gabriel India galloped 4.76% to Rs 27.55 after the auto parts maker said it plans to close its loss-making plant in Noida, near Delhi. The company made the announcement after market hours on Monday, 25 June 2007.

Asian markets were in the red. Japan’s Nikkei 225 index declined on losses in exporters such as Sony Corp. and Canon Inc., while food stocks such as Ajinomoto Co. edged higher. Nikkei was down 21.37 points at 18,066.11. Taiwan's Taiwan Weighted (down 0.82% at 8,865.75), Singapore's Straits Times (down 1.54% at 3,525.10), Hang Seng (down 0.09% at 21,803.57), South Korea's Seoul Composite (down 0.47% at 1,749.55) all edged lower.

China’s Shanghai Composite gained 0.82% to 3,973.31

All the European markets were trading lower.

US markets gave up a big advance and turned lower yesterday, 25 June 2007, as investors suffered a renewed case of the jitters ahead of the Federal Reserve’s meeting on interest rates later this week. The Dow Jones industrial average fell 8.21 points, or 0.06%, to 13,352.05, after rising more than 100 points earlier in the day. Broader indices also declined. The Standard & Poor's 500 index fell 4.82 points, or 0.32%, to 1,497.74, and the Nasdaq Composite lost 11.88 points, or 0.46%, to 2,577.08.

Volatility is likely to be high on the bourses in the short term ahead of expiry of June 2007 derivatives contracts on Thursday, 28 June 2007. As is the case at the time of expiry of near-month contracts, the extent of rollover to July 2007 contracts from June 2007 contracts will dictate the trend in the near term. A higher rollover indicates that the market players expect bourses to remain firm in the month ahead and vice versa.

Over the next few months, the progress of the July-September monsoon will hold key. The weather office said in April 2007 that this year’s monsoon was likely to be 95% of the long-term average, with a 5% margin of error. The annual monsoon is vital for India’s economic health as it is the main source of water for agriculture, which generates more than a fifth of the gross domestic product

Crude oil prices reversed early weakness to gain 4 cents to $69.18 today, 26 June 2007, following news that a number of oil companies have reportedly refused Venezuela's terms on major oil projects.

Monday 25 June, 2007

Sanjay Chhabria recomends "CHEVIOT"

Sanjay Chhabria is an equity analyst and investment consultant based at Raipur (Chhattisgarh). At the time of writing this, he doesn't have any position in the stock mentioned above. He brings out a weekly Investment newsletter Market-View to help investors take an informed investment decision. He invites Readers to send him email to get free 1 week trial offer of Market -View. He welcomes comments, feedback & investor queries at valueinv@sify.com. Under no circumstances does the information in this report represent a recommendation to buy or sell stocks. This report has been prepared solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.






Cheviot Company Ltd (Rs 240)

(BSE Code-526817)


Cheviot Company Ltd, a recognised export house has emerged as one of the leading manufactures and exporters of fine jute yarn, hessian sacking and industrial fabrics. Exports constitute more than 70% of total turnover of the company. The Cheviot share at Rs 240 trades at 4.7 times FY'07 earnings (Rs 50.57) and offers an attractive investment opportunity for the medium-long term.

Cheviot Company Ltd was incorporated in 1897, in the name of Delta Jute Mills Company Limited (DJML). Subsequently, the name of DJML was changed Cheviot Company Limited (CCL). The Jute Mill of the Company is located at 19, Mehta Road, Budge Budge in District 24 Parganas of West Bengal. The unit has been focusing on continuous technological improvements, breakthrough, R&D and machinery development. It is equipped with the state of the art technology. The major concentration is on specialty fabrics and precision wound yarns meeting the most challenging technical parameters. CCL has been a producer of traditional jute products like sacking and hessian. It is to the credit of the Company that while in the 1980s many jute companies fared quite indifferently, the Company managed to retain a healthy growth and went ahead with the modernization of their manufacturing facilities. In 1996, the company set up a 100% EOU near its said jute unit at Budge Budge for the manufacture of jute specialty fabrics. Again in March'03 the company set up another 100% EOU unit at Sector II, Falta Export Processing Zone, Falta, West Bengal, adding another feather to its cap, for its increasing focus on exports.

CCL continues to operate through two business segments: jute goods and captive power-generation. However, revenues/assets from captive power-generation is not more than 10% of the total segment results/assets. In the jute goods segment, the company manufactures and exports special-quality jute yarn and HDPE/PP woven sacks. CCL today has emerged as one of the leading manufactures and exporters of fine jute yarn. Besides being a Manufacturer of high value non-traditional diversified jute yarns and fabrics, CCL is an IS/ISO 9001:2000 Company and also a recognised EXPORT HOUSE. Exports constitute more than 70% of total turnover. Fine yarns are exported to Belgium, U.K., Germany, U.S.A., Holland and other countries. Cheviot has now carved a niche for itself in the non-traditional and high value market segments.

Cheviot Company had declared bonus issue in the ratio of 1:2 in August 2006 after which the enhanced capital is Rs 4.5 cr. (promoter's stake- 73.13%). For FY 07, the company posted net profit of Rs 22.8 cr. on net sales of Rs 156.86 cr. The EPS stood at Rs 50.57 and the dividend declared is 80% on enhanced capital. The Cheviot scrip has escaped investor attention in the market, as the company is very low profile. At current valuations, the stock is trading at 4.7X FY07 earnings and at around 4 times expected FY08 earnings. The Cheviot scrip looks undervalued considering its steady financial performance. The dividend yield also works to 3.4%. and the dividend payout has been increasing steadily. Cheviot trades at price to book of just 0.74 based on its FY07 book value of Rs 315

Cheviot's current market-cap is around 108 cr whereas it holds investments worth around Rs 50 cr. parked in various liquid mutual funds. Besides it has investments in blue chip stocks valued at around Rs 45 cr. So total investments and cash comes to around Rs 100 cr. against the co.'s mcap of 108 cr. so, the co's business is valued at just Rs 8 cr. .In view of the above, the scrip holds potential for appreciation in the medium term. Investors can accumulate the Cheviot share at this level for decent returns over the medium-long term.

Financials Year ended March 2007

· Net Sales - Rs 156.86 cr
· Net profit - Rs 22.8 cr.
· Equity - 4.5 cr
· Promoters' stake-73.13%
· Public stake-22.75%
· EPS - Rs 50.57
· Dividend - 80% (Rs 8 per share)
· Expected FY'08 EPS - Rs 60 -Rs 62
· Forward P/E- 4
·Current Market Price - Rs 240
· Market Cap- 108 cr

New IPO - 'Everonn'

Chennai-based education and learning solutions company Everonn Systems India is tapping the capital markets with a public issue of Rs 50 crore. The price band has been fixed between Rs 125 and Rs 140 per share of Rs 10 each.

With a current authorised capital of 16 million shares and paid-up capital of 10.28 million shares, the company will increase its issued shares by 35.71 lakh at the lower end of the IPO band and 40 lakh shares at the upper end. The company plans listings on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The issue will open on July 5, 2007, and close on July 11, 2007.

Everonn Systems has budgeted an outlay of Rs 30 crore for IT infrastructure services. Out of the IPO proceeds, the company will allocate Rs 17.25 crore towards capital expenditure for virtual and tech-enabled learning solutions, and Rs 8 crore has been earmarked for mergers and acquisitions during 2007-08, Rs 5 crore for working capital, while brand building and investments in the company’s proposed subsidiary will be taken up with the rest of the funds. The company also announced that it has received Gujarat Government's contract to set up IT labs worth Rs 30 crore.

Everonn is also looking at expanding its operations in the overseas market, especially in the Middle East and Far East--Singapore and Malaysia.

Kishore Padmanabhan, managing director, Everonn Systems said: "Almost 95% of the e-learning market is untapped. India alone has 10 lakh schools that can be provided such services."

Everonn Systems has seen revenue grow at a compound annual growth rate (CAGR) of 22% and profit after tax at a CAGR of 64%. For the year ended March 31, 2007, the company recorded a turnover of Rs 43 crore.

Short-term Trading Calls

Buy Bank of India with stop loss of Rs 185 for a target of Rs 310.

Buy GBN with stop loss of Rs 875 for a target of Rs 1200

Buy Sun Pharma with stop loss of Rs 1020 for a short-term target of Rs 1196.

Buy PBA Infrastructure with stop loss of Rs 72 for a target of Rs 95.

Index shines in range bound market

The benchmark index, BSE Sensex oscillated about 105 points in the day’s trading session, without much movement on either side. It started firm, but later pared gains, since early afternoon session, tracking weak global markets. All the European indices opened lower, while a majority of Asian markets were trading weak. IT and auto stocks were under selling pressure. Shares from capital goods sector saw buying with the BSE capital goods index striking an all time high.

The 30-share BSE Sensex gained 20.36 points or 0.14% at 14,487.72. It opened slightly lower at 14,454.49 but advanced to strike a high of 14,521.62 at 11:35 IST, as buying resumed. It later pared gains. It slipped to a low of 14,424.71 at 14:14 IST. It later recovered from that low.

The S&P CNX Nifty rose 7.35 points or 0.17% at 4,259.40. It had struck an all time high of 4,362.95, on 4 June 2007. Nifty June 2007 futures settled at 4242.40, a discount of 17 points compared to spot closing.

The market had surged last week. Sensex rose 304.65 points, or 2.15%, to 14,467.36, while the S&P CNX Nifty gained 80.6 points, or 1.93%, to 4,252.05 in the week ended 22 June 2007.

The turnover on BSE rose to Rs 4283 crore compared to Rs 5343.74 crore, on Friday, 22 June 2007. The turnover was over Rs 5,000 crore in the previous three trading sessions (20-22 June 2007). The NSE Futures & Options (F&O) segment turnover was Rs 40264.20 crore as compared to Rs 37941.31 crore on Friday, 22 June 2007.

The market breadth, which indicates overall health of the market held firm, as buying continued in small and mid-cap stocks. 1487 shares advanced on BSE as compared to 1116 that declined, while 82 remained unchanged.

The BSE Mid-Cap index rose 0.16% to at 6384.19 while the BSE Small-Cap index gained 0.68% to 7,564.21

Among the Sensex pack, 15 declined while the other 15 advanced.

Engineering & construction major Larsen & Toubro (L&T) surged 2.58% to Rs 2162 on 2.74 lakh share and was the top gainer from the Sensex pack. The scrip hit an all time high of Rs 2,189.40 during the day. The stock rose after the company said today, 25 June 2007, its board would meet on 3 July 2007 to consider a special dividend. The stock gained 23.87% in the past one month to Friday, 22 June 2007.

State run engineering major Bharat Heavy Electricals (BHEL) gained 0.55% to Rs 1448, after it won an order worth Rs 106 crore from Rashtriya Ispat Nigam (RINL). The contract will be executed in 28 months.

Led by L&T and Bhel, the BSE capital goods index surged to an all time high of 11,870.62. The index rose 1.13% to 11,830.08.

Telecom stocks gained on fresh buying. Bharti Airtel rose 1.30% to Rs 833.50, and was the top gainer from the Sensex pack. As per reports, the Bharti group is forging ahead with its ambitions to be in the digital media space. It is likely to launch DTH services by December this year.

Reliance Communications vaulted 2.15% to Rs 524.15 on 8.79 lakh shares.

State run oil exploration major Oil & Natural Gas Corporation (ONGC) gained 1.05% to Rs 918.20 even as it posted 13% fall in net profit to Rs 2681.64 crore in Q4 March 2007 compared to a net profit of 3085.89 crore in Q4 March 2006. Total income rose 16.35% to Rs 14575.92 crore in Q4 March 2007 (Rs 12528.23 crore). The results hit the market during trading hours today, 25 June 2007.

Index heavyweight Reliance Industries (RIL) was unchanged at Rs 1,704, on 5.41 lakh shares. The scrip had lost ground on Friday, 22 June 2007, after the Bombay High Court said after market hours on 21 June 2007 that Reliance Industries cannot sell the gas to be produced from one of its prime blocks in the Krishna-Godavari basin to any third party other than Anil Ambani’s Reliance Natural Resources (RNRL) and NTPC. In an interim order on a petition filed by RNRL, the high court has said that the 81.6 million cubic metres of gas per day (mmscmd) is to be earmarked for RNRL, NTPC or for RIL’s captive use for the next eight years.

The BSE Oil and Gas Index rose 0.3% to 7,613.58

Shares from the auto pack, slipped on profit booking. Bajaj Auto lost 2.05% to Rs 2130, on 67,220 shares. It was the top loser from the Sensex pack. Tata Motors (down 1.53% to Rs 674), and Maruti Udyog (down 1.28% to Rs 752) edged lower. Analysts reckon that tight financing and weakening of demand are the major reasons for the decline in auto shares. The BSE Auto Index lost 0.80% to 4,766.06.

IT stocks declined on renewed selling. The BSE IT Index declined 0.94% to 4,812.24, and was the top loser among the sectoral indices on BSE. Satyam Computers (down 1.47% to Rs 455), TCS (down 1.32% to Rs 1125), Infosys Technologies (down 0.89% to Rs 1933.40), and Wipro (down 0.42% to Rs 515.05) were not spared either. A stronger rupee impacts the profit margins of IT firms which derive a lion's share of their revenue from exports.

IT stocks were hit in recent months from rupee's surge against the US dollar. But the rupee slipped against the US currency and was quoted at 40.81/82 in late morning deals today, 25 June 2007, on dollar purchases by importers. The local currency opened slightly lower at 40.76/78 a dollar, from Friday’s close (22 June 2007) of 40.75/76 per dollar.

ICICI Bank was down 0.07% to Rs 953.10. The bank’s plan to sell a 5.9% stake in a subsidiary had failed to get government nod. Meanwhile, the bank priced its follow-on public issue (FPO) of equity shares at Rs 940 per equity share, before markets hours on 25 June 2007. ICICI Bank had set an indicative price band of Rs 885 to Rs 950 per share for its public offering. The issue was open from 19 June 2007 to 22 June 2007. The issue was subscribed close to 11.5 times. ICICI Bank sold American Depositary Shares (ADSs) at $49.25 each.

Aluminium and copper major Hindalco Industries advanced 0.47% to Rs 170.80 on high volumes of 70.24 lakh shares. The stock saw high volume on the back of multiple block deals in the counter. There is market speculation that promoters are hiking their stake from open market. It was the third highest traded counter on BSE with turnover of Rs 119.82 crore. From a recent low of Rs 161.30 on 15 June 2007, the stock has gained 5.88%

Reliance Energy was down 0.36% to Rs 588.10, after striking high of Rs 604.70, in early trade. The company was one of the five qualified bidders who had submitted bids for the 4,000-mega watt Sasan ultra mega power project.

NTPC advanced 0.36% to Rs 153.25, after a block deal of 5.28 lakh shares was struck in the counter on BSE at Rs 153.90 per share at the onset of the trading session. As per reports, the company is slated to acquire 44.6% stake in Transformers and Electricals Kerala (TELK), a Kerala government company, which manufactures and repairs transformers. The state government and its undertakings currently hold 95.6% equity of TELK.

Sterling Holiday Resorts (up 16.15% to Rs 53.25), Force Motors (up 14.24% to Rs 345), Zodiac Clothing Company (up 10.98% to Rs 291), Esab India (up 8.72% to Rs 460), Yes Bank (up 8.44% to Rs 170.90), Greenply Industries (up 7.42% to Rs 166.50), KLG Systel (up 8.03% to Rs 451.30), and GMR Infrastructures (up 7.39% to Rs 661.50) advanced from the small-cap and mid-cap space.

Hindustan Machine Tools declined 3% to Rs 68 on reporting a net loss of Rs 16.35 crore in Q4 March 2007 as against net profit of Rs 23.66 crore in Q4 March 2006. Sales declined 16.84% to Rs 77.19 crore (Rs 92.82 crore). Net profit rose 309.19% to Rs 54.30 crore in the year ended March 2007 as against Rs 13.27 crore in the previous year ended March 2006. Sales fell 8.47% to Rs 227.29 crore in FY 2007as against Rs 248.33 crore in FY 2006. The company had announced the results on Saturday, 23 June 2007.

Kalyani Steels jumped 4.85% to Rs 430 after agreeing to sell a 45% stake to Brazil's Gerdau SA in recent Indian acquisition. The company made the announcement after market hours on Friday, 22 June 2007. As per the agreement, both the companies will have equity partnership of 45% each in SJK Steel Plant, which was recently acquired by Kalyani Steels. The remaining 10% will be held by other investors. SJK Steel is an integrated alloy steel plant with an installed capacity of 2.75 lakh tonnes per annum and is located at Tadipatri in Andhra Pradesh.

Marathon Nextgen Reality & Textiles was locked at 2% upper limit of Rs 1773.45 after it announced a board meet on 29 June 2007 to consider a bonus issue.

Hexaware Technologies slipped 1% to Rs 157 after forming a joint venture with Pemtrad International for risk management technology. The new joint venture will focus exclusively on offering a comprehensive suite of technology-intensive solutions in the domain of enterprise risk and compliance management, primarily for financial institutions worldwide.

Amara Raja Batteries jumped 5% to Rs 454.80 after recommending subdivision of equity shares of Rs 10 each to Rs 2 each after market hours on Friday, 22 June 2007.

Bharat Earth Movers (BEML) slumped 4.23% to Rs 1,140.05 after it fixed a price band of Rs 1,020 - Rs 1,090 per share for its follow-on public offer of 49 lakh equity shares of Rs 10 each. The issue will open for subscription on 27 June 2007 and close on 3 July 2007. The issue would constitute 11.77% of the fully diluted post issue paid-up capital of BEML.

Television Eighteen India gained 2.86% to Rs 885 after it scheduled a board meeting on 5 July 2007 to consider bonus issue. The company had made the announcement on Saturday, 23 June 2007.

K S Oils rose 0.61% to Rs 415 on getting shareholders' approval for stock-split from Rs 10 to Re 1 per equity share, in a meeting held on Saturday, 23 June 2007. The company’s current equity is of Rs 22.09 crore comprising 2.209 crore outstanding shares of a face value of Rs 10 each.

Gujarat Apollo Industries spurted 3.47% to Rs 161.10 on entering into a technical knowhow agreement with a German company. This development will also help the company to address mining and re-cycling industry in the coming years.

Aurobindo Pharma rose 0.87% to Rs 792 after the company received tentative approval for quinapril hydrochloride and hydrochlorothiazide tablets from the US Food and Drug Administration.

Volatility is likely to be high on the bourses in the short term ahead of expiry of June 2007 derivatives contracts on Thursday, 28 June 2007. As is the case at the time of expiry of near-month contracts, the extent of rollover to July 2007 contracts from June 2007 contracts will dictate the trend in the near term. A higher rollover indicates that the market players expect bourses to remain firm in the month ahead and vice versa.

Most of the Asian markets were trading lower today, 25 June 2007, tracking overnight sharp fall in US stocks on Friday, 22 May 2007. Hong Kong’s Hang Seng (down 0.81% at 21,822.35), South Korea’s Seoul Composite (down 0.75% at 1,757.73), and Straits Times (down 0.97% at 3,580.33) edged lower.

Japan’s Nikkei 225 average was down 0.56% to 18,087.48. On Friday 22 June 2007, MSCI's measure of Asia Pacific stocks excluding Japan had struck an intraday record high.

China's main stock index plunged 3.68% to 3,941.08, on Monday, hit by worries about government policies to cool the economy and the market, and by big losses in oil refining giant Sinopec. On Friday, 22 June 2007, the index had tumbled 3.29%. Central bank governor Zhou Xiaochuan, speaking in Switzerland at the weekend, said another interest rate hike could not be ruled out because inflation might rise further.

US stocks tumbled on Friday, 22 June 2007, wrapping up their worst week since a global sell-off in February amid fears that trouble at two Bear Stearns hedge funds may signal worse problems lie ahead for credit markets. The Dow Jones industrial average was down 183.31 points, or 1.35%, to 13,362.53. The Standard & Poor's 500 Index was down 19.50 points, or 1.28%, to 1,502.69. The Nasdaq Composite Index was down 28, or 1.07%, to 2,588.96.

The Q1 June 2007 Indian corporate earnings season will kickstart from less than a month from now and, over the next few days, traders are likely to build positions based on Q1 results expectations. The Q4 corporate earnings were strong which had helped trigger a solid surge in domestic bourses since early April 2007.

Over the next few months, the progress of the July-September monsoon will hold key. The weather office said in April 2007 that this year’s monsoon was likely to be 95% of the long-term average, with a 5% margin of error. The annual monsoon is vital for India’s economic health as it is the main source of water for agriculture, which generates more than a fifth of the gross domestic product

Crude oil fell from a nine-month high in New York after a strike in Nigeria ended, easing concern that supplies from Africa's biggest oil producer may be disrupted. Crude oil for August delivery fell as much as 62 cents, or 0.9%, to $68.52 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

Sunday 24 June, 2007

Stock Ideas for the Week

Buy PNB at Rs517 with SL of Rs509 and target of Rs532, 537

Buy Dr Reddy’s Labs at Rs651 with SL of Rs641 and target of Rs670, 676

Buy HCC at Rs114 with SL of Rs109 and target of Rs122, 126

Buy Sun TV at Rs1636 with SL of Rs1618 and target of Rs1675, 1685

Buy NDTV at Rs399 with SL of Rs391 and target of Rs414, 419

Sharekhan Investor's Eye, June 22, 2007

Tata Motors
Cluster: Apple Green
Recommendation: Buy
Price target: Rs792
Current market price: Rs685

Annual report review

We have analysed the recently released annual report of Tata Motors (TAMO) and present the highlights below.

Key points

*TAMO had a good FY2007, registering a 32.3% growth in its top line and a 37.5% growth in its bottom line. The medium and heavy commercial vehicle (M&HCV) sales volumes picked up splendidly during the year, led by a strong growth in the freight availability and the Supreme Court's ban on the overloading of trucks. The light commercial vehicle (LCV) volumes sustained their growth momentum as Ace continued to do well while passenger car volumes remained strong on the back of good Indica sales.

*The company continued to make progress towards improving its operational efficiencies as its turnover per employee rose to Rs73 lakh against Rs68 lakh in FY2006. The return ratios remained stable with the return on capital employed (RoCE) at 29.9% and return on net worth (RoNW) at 27.1%. The debtor days reduced to 10.5 days while the inventory days too reduced to 33.7 days from 35.8 days.

*The company has a capital expenditure (capex) plan of Rs12,000 crore for the next four years. The funds shall be spent towards new product development and capacity expansion. To part finance the activities, the company has recently announced the issue of five-year foreign currency convertible alternative reference securities (CARS) aggregating to $490 million, including a green-shoe option of $40 million. The same will be convertible at the option of the company into depository receipts or ordinary shares at a price of Rs960.96 per share. At that price, it would lead to a dilution of 5% over its current diluted equity.

*The company maintains its optimism towards the automobile sector, considering the strong macro factors. However the growth during the current year is expected to be lower in comparison to that in the previous year as the same shall be affected due to the higher interest rates and tightening liquidity. As a strategy going forward, the company plans to focus on new product launches and has lined up a number of launches in the next couple of years.

*We maintain our cautious view on the commercial vehicle (CV) industry and believe that the lacklustre trend in sales would continue in the coming months. We expect a revival at the end of the monsoons and with the commencement of the festive season. At the current market price of Rs685, the stock quotes at 10.4x its consolidated FY2009E earnings and at 5.2x its earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation with a price target of Rs792.

Ratnamani Metals & Tubes
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Under review
Current market price: Rs880

Q4FY2007 results: First-cut analysis

Result highlights

*The Q4FY2007 results of Ratnamani Metals & Tubes are above our expectations.

*The company reported strong quarterly results. The revenues for the quarter grew by 95.3% to Rs172.6 crore.

*The operating profit for the quarter grew by 77.6% to Rs34 crore and the operating profit margin (OPM) for the same period declined by 240 basis points to 22.3% from 24.8% in Q4FY2006. The OPM declined due to a higher raw material cost as a percentage of sales. The raw material cost went up by almost 310 basis points to 62.9% from 59.8% in Q4FY2006. Other expenses as a percentage of sales also went up by 110 basis points during the quarter.

*The interest expense for the quarter increased by 111.4% to Rs4.9 crore while the depreciation cost for the quarter increased by 310.1% to Rs6.2 crore.

*The profit before tax grew by 80% to Rs27.6 crore. The net profit for the quarter grew by 38.4% to Rs17.5 crore due to a higher tax rate of 36.7% in this quarter compared with 17.8% in Q4FY2006.

*For the full year, the net sales grew by 79% to Rs571 crore and the net profit grew by 91% to Rs64.2 crore.

*The order book at the end of this quarter stood at Rs500 crore.

*Driven by a strong order book and the increasing demand for its products from its key user industries, which are in capital expansion phase, we believe there is strong visibility of its earnings. At the current market price, the stock is trading at 12.4x its FY2007 earnings per share and 6.9x its FY2007 enterprise value/earnings before interest, depreciation, tax and amortisation. We shall be upgrading our earnings estimates for FY2008 as well as the price target and would be coming out shortly with a detailed update on the company.

IPO - HDIL: Invest at cut-off

Established business in the Mumbai Metropolitan Region (MMR), land reserve in the prime areas of Mumbai and the relatively attractive offer price band are the key positives for the initial public offer of Housing Development and Infrastructure Ltd (HDIL). Operations in slum rehabilitation projects which involve uncertainties and track record of deriving a chunk of revenues through the sale of development rights or floor space that it receives through the slum rehabilitation schemes are risk factors to the IPO.

As the IPO is priced is at a discount to players of similar size, investors with a risk appetite can consider investing in HDIL with a two/three-year perspective. At the offer price band of Rs 430-500, the price-earnings multiple is 14-16 times its per-share earnings for FY-2007 on the existing equity base (and 16-19 times on the post-issue equity).

Fund utilisation

HDIL, a real-estate company of the Wadhawan group, builds residential, commercial and retail projects and also undertakes slum rehabilitation schemes in Mumbai. The company derives most of its business from the lucrative MMR market. The company plans to raise Rs 1,200-1,450 crore, the chunk of which is to be utilised on ongoing projects; less than 10 per cent of the funds will be used for the acquisition of land and development rights.

lucrative market

HDIL has a land reserve equivalent of 112 million sq ft of saleable area, 40 per cent of which is under construction or development.

Therefore, the company can start deriving revenue flow in the medium term from ongoing projects, even if there are delays in the take-off of planned projects.

Of the total land reserves, 83 per cent is in the lucrative MMR, the commercial capital where there is much demand, especially for commercial and retail space.

This locational advantage lends much visibility to the earnings potential for the company's completed projects. We are, therefore, confident about the absorption of the built projects in this region.

Another positive feature of the land reserve is that the company owns 70 per cent of the total developable area and the possession of land by way of sole development rights is negligible. This primarily means low probability of disputes or stalling of projects by court cases where the company only has development rights and not land ownership.

Business segments

Of the saleable area developed by the company so far, close to 50 per cent is derived from land improvement, wherein the company creates infrastructure on the land it holds and then sells the parcels. This business, which is otherwise not a very lucrative proposition, has yielded reasonable margins because of the high value land granted under the Slum Rehabilitation Scheme (SRS). But the fact remains that only 50 per cent of what the company has done so far can be termed as core real-estate development.

However, looking at the ongoing and planned projects, the company appears to be concentrating on the residential and retail segment and to this extent, its operations would be dominated by real-estate development.

This would be essential for the company to not only build and retain its brand image among competitors in the Mumbai region but also improve margins. For instance, the company's commercial and residential segment saw the highest growth compared to selling of land or development rights in 2007. As a result, the OPM surged from 31 per cent to 54 per cent between FY-06 and FY-07.

HDIL has so far followed the build-and-sell model even for its commercial and retail properties.

While this may not be in line with international practices, we feel that for companies such as HDIL, which also lock their working capital in developing SRS in Mumbai, there may be higher requirement of capital, and this is better met by building and selling, rather than leasing property.

However, this model has its disadvantages, as it would lead to bunching of revenues in some years. . This would also result in fluctuating operating costs and negative cash flows.

HDIL has, however, offset this to some extent by regular sale of transferable development rights that it earns thorough the slum rehab projects.

HDIL is into SRS projects, which are typically uncertainty prone as they involve evacuation of dwellers and providing them with alternative housing. HDIL however has a reasonable track record of re-settling 25,000 families under this scheme, thus inspiring some confidence.

Moreover, these projects have formed only 15 per cent of its construction activity so far. But we view this business as a tactical way to build low-cost housing and earn high-value land in return.

The IPO is open from June 28-July 03. Kotak Mahindra Capital and Enam Financial are the book running lead managers.