Saturday 19 January 2008

Weekly Newsletter

SEBI for 25% price band on listing day

Capital market regulator SEBI proposed imposing a price band of 25% on the issue price on the day of listing for issues of up to Rs2.5bn. The proposal does not apply in case of re-listing of shares of any company. Currently, the stock exchanges do not apply price bands on the day of listing. The price fixed by the company in consultation with its lead managers is left open to price discovery. After listing, the process of price discovery may continue within a price band of 20%. For IPOs that are greater than Rs5bn in size, price bands are not imposed even after the day of listing if such scrips are available for trading on the derivative segment. The move appears to be aimed at curbing excessive speculation whereby investors subscribe to IPOs purely for the purpose of making a quick buck on the day of listing. SEBI clearly wants to put a lid on such activities.

SBI Central Board clears Rights Issue

State Bank of India (SBI) announced that its Central Board has decided to raise an aggregate amount of Rs167.36bn (including premium) by way of a Rights Issue offer to the Government of India and to other eligible existing shareholders, including GDR holders. Ratio for the Rights Issue will be one share for every five shares held by the eligible shareholders as on the Record Date. The price for the Rights Issue will be Rs1,590 per share (i.e. face value of Rs10 each and a premium of Rs1,580 per share). Brokerages have given a thumbs up to the bank's proposed rights issue that has been priced at a 35% discount to the market price. It is expected to hit the market in the next couple of months. And though March is a tough month in terms of liquidity, most players expect the mega-issue to sail through without a hiccup. Foreign brokerages like Merrill Lynch and Citigroup have already come out with buy reports on the SBI rights issue.

BSNL mulling IPO worth up to US$10bn

State-run telecom behemoth Bharat Sanchar Nigam Ltd. (BSNL) is considering an Initial Public Offering (IPO) of its equity shares to fund expansion plans. India's largest telecom carrier plans to raise as much as Rs400bn (US$10.2bn) in about a year in what would be India's largest IPO. According to reports, BSNL has been valued at over US$100bn (Rs4 trillion). "We will look into it...the Department of Telecom (DoT) will discuss the issue and take a decision," Telecom Minister A. Raja said on Jan. 14. He, however, refused to give any timeline for the proposed IPO. The company may sell a 10% stake in India and overseas, BSNL Finance Director S.D. Saxena said. But, later in the week, Raja's office issued a statement saying that BSNL has no plans to come out with an IPO in the immediate future. "The matter will be discussed internally in the ministry and with the stakeholders and then, a suitable decision will be taken in this regard. An IPO for BSNL will be issued if considered appropriate," the statement said.

TCS, Wipro, HCL Tech report in-line results

Tata Consultancy Services (TCS) posted a consolidated net profit of Rs13.27bn for the fiscal third quarter ended December 31, 2007 as against Rs12.52bn in the same quarter last year. This translates into a year-on-year growth of 19% and sequential growth of 6%. Revenue for the period stood at Rs59.23bn versus Rs56.4bn in the year-ago quarter. This represents an increase of 22% YoY and 5% QoQ. EPS for the quarter rose to Rs13.56 from Rs12.79 in the second quarter. The company added 54 new customers in the October-December quarter of the current fiscal year. There was a gross addition of 7,522 employees in the quarter ended December 31, 2007, taking its total headcount to 108,229. The company's attrition rate stood at 12.2%, arguably the lowest in the industry.

Wipro reported a consolidated net profit of Rs8.54bn for the fiscal third quarter ended December 31, 2007 as against Rs8.14bn in the previous quarter. This translates into a sequential growth of almost 5%. The Bangalore-based IT major has posted net sales of Rs53.4bn versus Rs47.85bn in the second quarter, representing a QoQ growth of 11.6%. Global IT Revenues for the October-December quarter stood at $910mn. For the fourth quarter, Wipro expects Global IT Revenues at $455mn. Wipro added 2,389 new employees and 39 new customers during the third quarter. The drop in Global IT margins by 100 bps sequentially was primarily on account of Infocrossing acquisition.

HCL Technologies posted a consolidated net profit of Rs3.33bn, up 16.3% from last year and 6.3% over the previous quarter. Revenues for the second quarter stood at Rs18.17bn, up 24% YoY and 6.3% QoQ. Gross margin for the quarter stood at 38% as against 37% in the first quarter and 37.8% in the same quarter last year. EBITDA Margin for the October-December quarter was 21.4% versus 21.3% in the previous quarter and 22.1% in the year-ago quarter. Basic EPS for the quarter ended December 31, 2007 increased to Rs20.1 from Rs18.6 last quarter and Rs17.7 in the second quarter last year

Supreme Court stays sale of TVS Flame

There is a new twist to the ongoing dispute between two-wheeler majors Bajaj Auto and TVS Motor over the use of twin spark plug technology. The Supreme Court (SC) ordered TVS to stop selling its 125cc bike Flame, till the matter is resolved by the Madras High Court. "No further booking shall be made from today till January 29," a division bench headed by Justice H. S. Kapadia said while directing the single bench of the Madras High Court to take the interim application of Bajaj Auto on the day. The bench issued its direction on a petition filed by Bajaj Auto, challenging the Madras High Court order of Dec. 20, allowing TVS to go ahead with manufacturing and selling of Flame.

Tata Steel, JSW Steel acquire overseas mines

Tata Steel said it has signed a Joint Venture agreement with members of the Al Bahja Group, a leading business house of Oman for the development of the Uyun limestone deposits at Salalah in the Sultanate of Oman. Tata Steel will hold a 70% stake in the existing company called AL Rimal Mining LLC through its subsidiary, TS Global Minerals Holdings Pte Ltd. Al Rimal Mining will execute the project of developing and operating the Uyun mine.

JSW Steel announced the acquisition of eight concessions in a greenfield area through its Dutch subsidiary for exploration of magnetite iron ore deposits in Atacama, Chile. These mining concessions extend over an area of about 1,200 hectares. The company acquired the concessions for US$52mn. The company has been actively pursuing augmenting of captive sources of iron ore and coal both in India and overseas for its Indian steel making operations.

Domestic M&A Buzz

Essar Oil said its subsidiary Essar Energy Overseas has entered into an agreement to acquire a 50% stake in Kenya Petroleum Refineries, a four million metric tons per annum refinery in Mombasa. Essar Energy will acquire the stake from the existing shareholders - The Shell Petroleum Co., Chevron Global Energy and BP Africa. Subject to certain conditions, the acquisition is expected to complete in early 2008. The Kenyan Government holds the remaining 50% of KPRL.

Great Offshore said it has made an offer for purchasing a controlling stake in UK-based SeaDragon Offshore. The offer has been accepted by the Boards of both the companies. SeaDragon will own, upon delivery, two harsh environment, semi-submersible, sixth generation drilling rigs, which are currently under construction, at an estimated cost of about US$1.4bn, Great Offshore said.

Peninsula Land clarified that in September, Swan Mills had signed a deal with the Essar Group for sale and lease of three buildings in its Kurla commercial complex for around Rs12bn. The Ashok Piramal Group was responding to newspaper reports that it had signed a deal with Essar Realty Holdings to sell and lease premises at its upcoming IT park called Peninsula Technopark on the LBS Marg in Kurla.

House of Pearl Fashions announced it has signed a MoU to acquire a 75% stake in the Hong Kong-based marketing company, Simple Approach. The acquisition will benefit the company in expanding its customer base into high fashion mid market segment. Simple Approach is supplying to value and mid market retailers in the UK and the USA. The target company will be clocking revenues of Rs800mn in the current financial year. This is expected to grow to Rs1bn in FY09 and Rs2bn by FY11.

Goldman Sachs cuts Asia's growth outlook

Goldman Sachs slashed its economic growth forecast for Asia, as an impending recession in the US - the region's biggest market - would hurt exporters. Asia (ex-Japan) will grow by 8.3% in 2008, down from an earlier estimate of 8.6%, Hong Kong-based economist Michael Buchanan said in a report. The investment bank last week cut its forecasts for US and Japan. It also trimmed its growth prediction for 2009, to 8.5% from 8.6%. "There could be a tipping point at which the US slowdown has a more significant impact on Asia than before," Buchanan wrote. "The further deterioration in the US economy comes as Japan is also teetering on the edge of recession." Goldman Sachs described the growth downgrades as meaningful but not disastrous. "The impact on currencies is in general likely to be contained, although equity markets could be in for more volatility," it added. For developing Asia's two largest countries - China and India - Goldman Sachs lowered its 2008 growth forecasts to 10% from 10.3% and to 7.8% from 8%, respectively.

Gold tops US$900; falls later

The price of gold breached US $900 a troy ounce for the first time and platinum reached another record early in the week. The dollar fell to a seven-week low against the euro amid rising concerns that an impending recession in the US will force the Federal Reserve to slash rates more aggressively. Gold futures surged to a new record, climbing as high as US$915.90 an ounce, but fell later in the week to US$877.60. Gold for immediate delivery also fell to US$876.95 an ounce on speculation that a rebound in the dollar will stall demand for the precious metal as an alternative investment to stocks and bonds. Platinum and other precious metals also declined. Spot gold prices lost 2.1% on the week, heading for the biggest weekly decline in seven weeks, as the dollar advanced against the euro.

China hikes banks' reserve requirement

China's central bank announced a 0.5% hike in bank reserve ratio in the latest move to cool down the economy and curb inflation. Lenders must park 15% of deposits with the People's Bank of China as reserves from Jan. 25, up from 14.5%, the central bank said. The ratio is the highest since 1984. The PBC said the adjustment is to draw back excess liquidity at banks and curb the overly fast growth of credits. Excess liquidity is a major challenge for the Chinese government as it could result in asset bubbles and overheated economy. The problem could become more pronounced as the record trade surplus pumps more cash into the country. The increase in the reserve requirement is the first such move in 2008, and the 11th since January last year. China's policy-makers decided to shift the country's monetary policy from "prudent" to "tight" at the end of last year to keep the economy on track and tame inflation.

Oracle ups bid price for BEA Systems

Larry Ellison finally gave into the pressure from billionaire investor Carl Icahn, and raised its offer price for BEA Systems by 14% in order to emerge a leading player in the business software segment. Oracle will acquire all outstanding shares of BEA Systems for US$19.37 per share in cash. The offer is valued at about US$8.5bn, or US$7.2bn net of BEA Systems' cash on hand of US$1.3bn. The all-cash price represents a 24% premium from BEA Systems' closing stock price on Tuesday. It's 42% improvement from BEA Systems' share price three months ago, when Oracle launched an unsolicited bid of US$17 per share. That bid was rejected by BEA Systems. San Jose-based BEA Systems represents Oracle's most expensive purchase since it paid US$11.1bn for PeopleSoft in early 2005. The acquisition extends a three-year spree in which Oracle has spent about US$35bn buying dozens of its smaller competitors.

Toyota mulling low-cost compact car

As expected, Tata Motors' ultra low-cost compact car, the Nano has turned the global auto industry upside down with companies like Toyota, Volkswagen and Nissan contemplating their own versions of budget cars. But, the price of US$2,500 still remains a big challenge for the global auto majors. "We have an early prototype in development," President Katsuaki Watanabe said in Detroit. "The vehicle is close to getting a go sign," he said, without saying when the model would be launched or what it would cost. "I think there is a huge market for low-cost and low-priced vehicles," Watanabe told reporters. "I have been asking our engineers to come up with low-cost enabling technology." But, Watanabe said that Toyota was not aiming to compete with Tata Motors. The vehicle must be up to Toyota's standards and must address the key issues of environmental friendliness and safety, he said.

Apple unveils thinnest laptop

Apple unveiled the world's thinnest laptop yet. The MacBook Air weighs 3lb and is 0.76in, wide narrowing to 0.16in at its slimmest point. It goes on sale in a fortnight priced at £1,199 in the UK compared to US$ 1,799 (£899.50) in the US. Jobs said the MacBook Air's ultra-slim design was partly made possible by its lack of a CD or DVD drive. The CD drive's functions such as playing films, backing up information and installing software will all be carried out wirelessly by the laptop or other Apple devices. Other features of the MacBook Air include a 13.3in back-lit screen, a full size back-lit keyboard and a tracking pad which allows users to manipulate images in a similar way to the iPhone's screen. The new laptop comes with a standard 80GB hard drive and has 2GB of memory. Its eco-friendly aspects include a fully recyclable aluminium case, a mercury-free display and less external packaging than its predecessors.