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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 12 Monday, February 4 - 10, 2008 Pages 16
Markets must stabilise
and fund flows must improve to inject liquidity
By Sanjay R. Bhatia
The markets continued to display weakness due to lack of liquidity and fund flows. Selling pressure continued unabated
on the back of broker margin calls and also due to lack of confidence in the markets, which continued to display volatility
and choppiness last week. Traders and speculators were seen unwinding positions in frontline index heavyweights and
mid-cap and small cap stocks. Incidentally, FIIs remained net sellers in the cash segment but were net buyers in the
derivatives segment. Moreover, domestic institutional investors were net buyers - cherry picking stocks at lower levels.
Volumes recorded were low while the breadth of the market continued
to remain weak throughout the week.
Global cues have remained mixed, with the U.S. Federal Reserve
announcing a 50bps cut in interest rates on continued fears of a credit
crunch affecting the US economy. The global markets also moved in
tandem with the US markets. The RBI abstained from tinkering with
domestic interest rates but may follow suit in the near future probably
in the April review of the credit policy. Crude oil remained range
bound on fears of the US economy slowing down and slipping into a
recession. The earnings season is drawing to an end but did not hog
much attention due to the ongoing liquidity crisis and the fall on the
bourses.
Even though the markets witnessed a smart pull back on Friday, the volumes have remained low. Now, it is important
that the markets stabilise and fund flows improve, which hopefully should improve over the next few days as the
Reliance Power refunds have begun. This will infuse the much-needed liquidity into the system. However, it is necessary
that follow-up buying emerges at higher levels for any sustainable rally to unfold. In the meanwhile, the markets would
continue to take cues from global markets and crude oil prices. Stock specific action will be witnessed amid occasional
bouts of volatility and choppiness.
Technically, on the upside if the Sensex can sustain above 17,475 level, it is likely to test the 18,526 and 18,715 levels. The
Sensex has support at the 17,475 and 16,545 levels. On the upside, if the Nifty manages to sustain above 5156, it is likely
to test the 5519 and 5575 levels. The 5156 and 4482 levels are important support levels for the Nifty.
Traders and speculators could buy Maruti with a target price of Rs.950 and a stop loss of Rs.862.
1
The show must go on!
By Fakhri H. Sabuwala
The market has yet to recover from the carnage of week before last; so much so that hardly anyone talks about last week
as the nightmarish memories of week before last refuse to fade away.
It was a 'Believe it or not' situation last week. Really, the bourses provide 'stranger than fiction' stories. How does one
justify the swings of ups and downs between January 21 and January 25? The fall of 1408 points on Monday, January 21,
continuing further with 8754 points pruned the next day, though the intra-day fall being over 2000 points. The rise of 864
points on Wednesday and losing 372 points the next day only to rise by a record making 1140 points on Friday, January
25.
When the ride is so bumpy and intra-day falls are as deep as 2000 points, a healing touch makes a world of difference.
After losing a fortune in the derivatives segment, speculators need to learn some vital lessons
in controlling their nerves, disciplining themselves and keeping a cool head on their
shoulders. Opportunities abound even in adversity and they must be availed of, despite the
prevailing pessimism. The coming days may be volatile, too, as the market prepares to list
Reliance Power and Future Capital Holdings. The run-up to the budget and the return of
consideration for the aam-aadmi may keep constant pressure on prices but global cues will
keep us on our toes.
SEBI, in turn, needs to probe into the how and why of the carnage week before last. The
entry of small timers in the F&O segment is the real factor responsible for such a crisis. With
220 scrips trading in the F&O segment is an experiment that even the developed countries
dread. It's time for SEBI and market intermediaries to pay heed to Warren Buffet's comments
on calling derivative instruments as the 'weapons of mass destruction'.
But crying over spilled milk will lead us nowhere, so let's get going and explore investment stories that are promising.
The exciting corporate scorecard given hereunder can be considered for medium to long-term investment.
* Tata Steel: The company clocked in Rs.9646 cr. as the first half net profit on a turnover of Rs.63872 cr. The financial
results of Corus came in handy to post the H1 profits, which is twice to the previous year's net profit. On standalone
basis, the company posts a net profit of Rs.2412 cr. on a turnover of Rs.9223 cr. the scrip has corrected from a high of
Rs.950 by almost two thirds and has turned into a very promising story.
* ACE (Action Construction Equipment): A leading crane manufacturer reports a 75% increase in turnover at Rs.108 cr.
for Q3FY08 with net profit rising 102% to Rs.9.5 cr. in an economy growing at 9%, infrastructure support companies like
ACE have a way to go.
* PNB: With total revenues for the nine months ending 21
st
December'07 rising to Rs.10,385 cr. from Rs.8118 cr. with net
profit at Rs.1505 cr. in the previous corresponding nine months gives it an EPS of Rs.48. Focused on inclusive growth and
centred in customer solutions, this bank scrip is headed to break new grounds in coming weeks.
* Bank of India: The third quarter reports a 100% jump in net profits at Rs.512 cr. on the back of 72% rise in non-interest
income. The operating profit for Q3FY08 is up at Rs.971 cr. – a neat rise of 75% over Q3FY07. Cumulatively, net profit for
the nine months stands at Rs.1252 cr. up by 85%.
BOI's planned qualified institutional placement (QIP) of 5% stake from the government's holding will act as a trigger in
the medium to long-term. Efforts are on to discover the price for the sale of such a holding. Investments bankers put the
price of this scrip at beyond Rs.550 mark in the medium to long-term.
* Lupin Ltd.: Its robust Q3FY08 profit of Rs.181 cr. is the result of its overall good performance led by the advanced
markets and the domestic formulations business along with monetization of its investments into R&D through sale of
intellectual property rights (IPR). The company also received € 20 million payment from Servier Laboratories as payments
for certain patents on Perindopril.
The company's growth momentum may remain intact, now that it enters Japan through acquisition of Kyowa.
* Tanla Solutions: The company posts an 88%rise in its bottomline at Rs.43 cr. as against Rs.23 cr. in the corresponding
period last year. A scrip to watch in these telecom times.
* Gujarat NRE Coke: India's largest independent producer of low ash-metallurgical coke and the only company to own
and operate coal mines in Australia. It is also into power generation through wind mills and has a mini steel mill
producing TMT bars form steel scrap.
Its Q3FY08 performance registered a 39% rise in sales at Rs.243 cr. whereas the net profit zoomed 263% to Rs.50 cr. year
on year, mainly due to decline in raw material expenses (58% v/s 74% of net sales). This led to improved operating
margins at 35% from 21% and net margins at 12% from 8%.
Both, firming coal prices and the cheaper dollar will benefit the company immensely. A scrip to watch in 2008.
* The IPOs of Wockhardt Hospitals and Emaar MGF were the first casualties of the poor market sentiment as they both
had to reduce their offer price bands.
TOWER TALK
- Nayan Patel
Oath of a
chastened trader
"Main aaj pratigya leta
hoon ki F&O mein
sauda nahin karunga jab
tak circuit breaker ya
physical settlement
nahin chaalu hota."
* A research report by a leading investment broker puts Kaveri Telecom's price at over Rs.600 a year from now.
* Bank of India shall offer QIP at Rs.430 to Rs.450 per share and sell 5% of the stake for the government.
* Reliance Power on listing may gallop beyond Rs.800 as the allotment is very poor.
* KEI Industries is seemingly among the best mid-cap bets to offers handsome returns a year form now.
* After hitting a high of
2
Rs.305 in December 2007, SEAMEC has corrected sharply to below Rs.200 levels. This debt free MNC may not be
available at this rate after its December 2007 numbers. Just buy it and sit tight.
* To de-risk its business model and capitalise on the construction boom, Aro Granites is getting into the domestic retail
business. Besides, the scrip stood strong in the recent carnage. Keep accumulating at declines.
* As per reliable sources, Accurate Transformers has bagged some good orders and is sitting on a healthy order book
position. The scrip has bottomed out. Grab it before it shoots up.
* Ansal Housing has been mercilessly beaten down by 50% in the last few days. The company has come out with decent
set of numbers which may bring about a smart pull-back. Keep a close watch.
* A leading broking firm is bullish on 3i Infotech and has been recommending it to its clients. Technically also it looks
strong and may see a smart rally in the short-term.
* Gandhi Special Tubes stock is being split, which will increase its liquidity. A stock to accumulate.
* Indsil Electrosmelt has come up with encouraging Q3 results with an EPS of over Rs.5. The company's power
generation business has been yielding substantial profits and making up for difficulties faced in the ferro alloys sector.
* Indrasprastha Medical is a hospital stock available at an attractive valuation. With Wockhardt Hospitals completing its
IPO, hospital stocks are being re-rated. A risk-free buy.
* Despite consistent
performance Suraj Diamonds has not yet found favour among marketmen.
But things may change. The company is going for preferential share at Rs.85
against the market price of Rs.66. A buy for patient investors.
* The grey market premium on IPOs weakened last week with Reliance Power
at Rs.120/125, IRB Infrastructure at Rs.15/20, On Mobile at Rs.10 and Emaar
MGF at Rs.35/40.
3
By Saarthi
BEST BETS
As Mr. Hitendra Vasudeo is outstation,
his column 'Trading on Technicals' is
not featured this week.
It will be resumed from the next issue
on his return.
- Editor
Aurobindo Pharma Ltd. (Code: 524804)
Rs.292.50
Established in 1986, Aurobindo Pharma Ltd. (APL) has come a long way to rank among India's top five pharmaceutical
companies and the undisputed global leader in certain product categories. It has successfully transformed itself from a
single-product API manufacturer to a fully integrated multi-product player, encompassing intermediates, APIs and
formulations. After ensuring a firm foundation of cost effective production capabilities, APL eventually entered the high
margin speciality generic formulations segment with a global marketing network. Today, it operates in over 100 countries
and markets over 180 APIs and 250 formulations. It is one of the largest players in Semi Synthetic Penicillin and
Cephalosporin space and is backward integrated into manufacturing the key raw material P-Gen. The company mainly
operates in six primary therapeutic categories of antibiotics, anti-retrovirals, cardiovascular/diabetology, central nervous
system, gastroenterology and anti-infectives/allergies apart from having small presence in anti-inflammatory, anti-
histamines, anti-asthmatics, erectile dysfunction etc. Presently, APL derives nearly 70% of its revenue from the sale of
APIs and intermediates while about 30% comes from formulations. And in a couple of years, the company intends to take
this ratio to almost 50:50. As the company is focused on expanding is presence in regulated markets like USA, UK and
European countries, exports constitute around 55% of its total revenue.
Over the years, APL has made mammoth investments in building a mega infrastructure for APIs and formulations to
eventually emerge as a vertically integrated company. Hence it is able to offer products at a competitive price as its cost of
production is very low. Today, it boasts of having 11 state-of-the-art manufacturing facilities across the globe, around
6000 employees, 20 overseas subsidiaries and half a billion dollar revenue. Remarkably, almost all the company's facilities
are approved by regulatory authorities such as the US FDA, UK MHRA, MCC (South Africa), ANVISA (Brazil), Health
Canada and the WHO. However, the overall capacity utilisation at its API plants is less than 60%. Its R&D unit is spread
across 1,00,000 sq. ft. and its has 700 scientists busy in developing intellectual property in the area of non-infringing
processes and resolving complex chemistry challenges. Interestingly, APL is one of the largest DMF filers with the US
FDA from India with 114 DMFs filed to date. Besides, it has filed 100 ANDAs in USA and 40 ANDAs in Europe, out of
which 62 approvals (both final and tentative) have been received from USA and only 7 approvals from Europe.
Importantly, the company has the infrastructure to market new products with the shortest lead time and convert
approvals into invoicing. So its additional product pipeline is expected to improve the income stream in coming years
coupled with improved capacity utilisation. In order to increase its foothold in Europe, the company acquired Pharmacin
in Netherlands with a portfolio of 203 market authorizations and Milpharm in UK having 100 market authorisations.
In future, the company plans to invest around Rs.200 cr. in SEZ at Jedcherla near Hyderabad, and Rs.160 cr. in Pharma
City near Visakhapatnam. It is also setting up one more state-of-the-art R&D facility exclusively to meet the needs of
increasing its business of contract research. Further, APL constantly looks to grow inorganically and is scouting to make a
4
few acquisitions in Europe especially in Italy, Spain & Portugal. Meanwhile, the company has sold off its loss making
Chinese subsidiary catering to the local Chinese markets. In short, the company is on track to register a strong presence in
select premium markets of USA, Canada, Europe and Australia leveraging its large product portfolio, well-balanced
therapeutic presence, world class manufacturing infrastructure and experienced marketing resources. To fund its growth
plans APL has raised nearly Rs.900 cr. through FCCB route to be converted into equity shares at Rs.1014 and Rs.879 in
tranches.
Recently, company declared disappointing results for December'07 quarter as it reported a fall in operating margin
maybe due to lower realization on its flagship product Penicillin. However, on the back of higher 'other income' it
reported only 8% decline in net profit to Rs.55 cr. for the quarter on a standalone basis. Despite this, it is estimated to
clock a turnover of Rs.2200 cr. and profit of Rs.280 cr. for FY08. On a conservative basis, even if total FCCB gets converted
at an average price of Rs.550 per share, the diluted equity works to Rs.35 cr. with Rs.5 as face value. So the diluted EPS on
a standalone basis for FY08 works out to Rs.40. Considering the management's integrity & capability, APL can post an
EPS of Rs.50 for FY09. Meanwhile, due to apprehension about the company's future prospect and appreciating rupee, the
scrip hit a new low of Rs.233 in the recent carnage and is still trading below Rs.300 against its 52-week high of Rs.825 in
July 2007. Hence investors are recommended to buy at current levels with a price target of Rs.550 in a year.
La Oplala RG Ltd. (Code: 526947)
Rs.32.05
Incorporated in 1987, La Opala RG Ltd. (LORL) is engaged in the manufacturing and marketing of opalware and
crystalware in India. It is among the very few well-established domestic crockery brand in the country with a range of 100
products including dinner sets, tea sets, coffee sets, soup bowls, spoons, mugs, plates, casseroles, flower vases and other
tablewares. In fact, LORL is the market leader with 50% market share in opal ware and 20% market share for crystal ware.
While the opal glass tableware is retailed through franchises under the 'La Opala' brand, handcrafted crystal ware is sold
through select exclusive outlets under the 'Solitaire' brand. The company's USP lies in elegant designs, world class
quality, microwave safe, chip resistant and 100% recyclable mark. Notably, the company has a good distribution network
with approx 50 distributors and 9300 dealers. Apart from having pan India presence, the company also exports to 30
countries across the globe including US, UK, Spain, Belgium, France, Germany, Japan, Dubai etc.
LORL's manufacturing facility is located at Madhupur in Jharkhand having an installed capacity of 3,500 MT & 1,080 MT
for opal ware and crystal ware respectively. In order to meet the growing demand and increase its market share, the
company has recently set up a new unit of opal ware at Sitarganj, Uttarakhand, with a capacity of 4,000 MTPA at a cost of
Rs.35 cr. Thus the company has more than doubled its opal ware capacity to 7500 MT from 3500 MT earlier. Apart from
being fully automated, this plant uses alternate source of fuel i.e. electricity for heating the furnace instead of LPG &
furnace oil, which are currently used as fuel in the Jharkhand plant. This would lead to a substantial reduction in fuel
cost. Besides, this new plant also enjoys an exemption of excise duty and income tax for 10 and 5 years respectively.
Hence in the near future, the company is contemplating to reduce its capacity utilisation at its Jharkhand plant and shift
manufacturing to its new plant to avail lower fuel costs and tax benefits. Although the company has started commercial
production in Sept 2007 at its new facility, due to certain technological backlog, the plant is yet to achieve full production.
Meanwhile, the company has started exploring the opportunity of supplying its products to big hotel chains in the
country, which would further aid the growth of the company. It is also increasing its focus on exports and targets to
achieve more than 40% of turnover from overseas markets in coming years.
The current euphoric growth of the Indian economy, the rise in disposable income, increase usage of credit card, maverick
changes in the aspiration and emotional level of the consumers and their changing lifestyles have all resulted in increase
in the market size of the company's products. And LORL with its established brand name, wide network, high quality
and large variety of products is all set to capitalise on the opportunity. Financially, the company is estimated to report
bumper result for FY09 on the back of improved margins and increased revenue from its new plant getting fully
operational in a few months. At the same time, on the back of higher interest and depreciation costs, its FY08 results look
very disappointing. For the December'07 quarter its sales increased by 20% to Rs.15 cr. but net profit stood at Rs.0.01 cr.
against 1.30 cr. last fiscal. But for FY09, it is estimated to clock sales of 75 cr. with PAT of Rs.7.50 cr. i.e. EPS of Rs.7 on its
current equity of Rs.10.60 cr. With a gross block of around Rs.55 cr. and book value of Rs.35, it's a value buy at the current
EV of approx Rs.50 cr. Investors are advised to accumulate this stock at declines only as the scrip can drift down further
and hit new lows.
ANALYSIS
Bongaigaon Refinery & Petrochemicals Ltd.: A refined scrip
By Devdas Mogili
Bongaigaon Refinery & Petrochemicals Ltd. (BRPL), a 34-year old Assam-based company established in 1974, is a
subsidiary of Indian Oil Corporation (IOC). BRPL has a presence in refinery, petrochemicals and polyester staple fibre
(PSF). At present, it has a total refining capacity of 2.35 million MTPA.
It has the distinction of being the first indigenous grass root refinery in the country integrated with a Petrochemical
Complex at one location. Sarthak Behuria is the chairman of the company.
BRPL became a subsidiary of IOC in 2001 after the disinvestment of shares by the Government of India in favour of IOC,
which currently holds 74.46% stake and also markets the petroleum products of the company.
BRPL's refinery in Assam processes crude oil available from the oil fields of ONGC and Oil India Ltd. (OIL) located in
North-East India and the Ravva crude oil from the Krishna-
Godavari (KG) basin off the coast of Andhra Pradesh.
During 2004-05, it completed and commissioned the structured
packing for the crude distillation unit (CDU) main distillation
column, which was taken up to improve middle distillate yields
and to reduce RCO generation. Further, the company has
completed and commissioned Phase I of the Advanced Process
Control & Site Acceptance Test that was taken up to facilitate
throughout and yield optimization while maintaining the required
quality.
Some of the projects under progress are Petrochemicals Instrument Modernization to replace the obsolete pneumatic
control system and relay interlock logics with DCS and PLC for better control productivity and quality improvement;
Revamping of Power Distribution System in Captive Power Plant; Construction of one additional crude tank to augment
crude storage capacity; Continuous Film Contactor in DCU-I & II to improve the quality of LPG.
Needle Coke: The company in collaboration with IOC (R&D) has been producing Calcined Needle Coke in DCU/CCU
plant using suitable feedstock. Calcined Needle Coke is an import substitute product and BPL is the only producer in the
country. During the year 2006-07, BRPL produced 2,037 MT of Needle Coke.
LPG Bottling Plant: Its LPG Bottling Plant, which is located inside its refinery, is operated by IOC under an operational
agreement. The LPG produced is marketed by IOC and a major portion of this is being utilised as feedstock for its own
LPG bottling. Out of the total LPG dispatch of 48,070 MT in FY07 against 51,208 MT in FY06, packed LPG dispatch was
38,983 MT against 37,989 MT in FY06.
Performance: For FY07, the company recorded net sales of Rs.5788.44 cr. and earned a net profit of Rs.185 cr. against
Rs.175 cr. in FY06. The profit before tax was Rs.275 cr. against Rs.267 cr. in FY06 and it registered an EPS of Rs.9.26.
Financial Highlights:
(Rs. in lakh)
Latest Results: BRPL's net sales
has risen 6.6% to Rs.1462.22 cr. in
Q3FY08 over Q3FY07 and posted a
net profit of Rs.84.90 cr. against
Rs.34.86 cr. in Q3FY07. Thus it
recorded a basic/diluted EPS of
Rs.4.25 for the quarter against
Rs.1.74 in Q3FY06. The annualised
EPS works out to Rs.17. The
company has, therefore, recorded
all-round
improvement
in
profitability margins.
Financials: The company's current
equity stands at Rs.199.82 cr. and
the book value of its share works
out to Rs.48.78. Its current price of
Rs.67
discounts
Q3FY08
annualized EPS of Rs.17 by a PE
multiple of 3.94. Price to Book
Value (P/BV) 0.84. EV/EBIDTA
2.83. Return On Capital Employed 33.6% while Return On Net Worth is 23.11%. It is pertinent to note that BRPL has a low
debt:equity ratio of 0.10.
Particulars
QE 31/12/07
QE 31/12/06
YE 31/03/07
Gross Sales/Income
160150
153211
642595
Less: Excise Duty
13928
16054
63751
Net Sales/Income
146222
137157
578844
Other Income
1086
1333
4503
Total Income
147308
138490
583347
Expenditure
a. In/Dec in Stock
(2156)
7748
(3207)
b. Raw Material
123896
111797
495052
c. Pur of traded goods
-
-
-
d. Emp Cost
3784
2661
14145
e. Depreciation
747
802
3638
f. Impairment of assets
-
-
5468
g. Other Expenditure
7285
9639
39496
h. Total Expenditure
133556
132647
554592
Interest
346
514
1205
Profit before Tax
13406
5329
27550
Tax Expense
Current Tax
4592
1917
12748
Deferred Tax
286
(94)
(3785)
FBT
38
20
89
Net Profit
8490
3486
18498
Paid up equity capital (FV: Rs.10)
19982
19982
19982
Res Exc Rev Reserves
77498
Basic/Diluted EPS (Rs)
4.25
1.74
9.26
IMPORTANT
Readers may please note that BRPL is being merged
with Indian Oil Corporation (IOC) and every
shareholder holding 37 shares of BRPL on the record
date will be entitled to 4 shares of IOCL in exchange.
IOCL has convened a SGM for this merger at 10.30 am
on Friday, 22
nd
February 2008 at the Ravindra Natya
Mandir, Prabhadevi, Mumbai 400 025 to seek the
approval of its shareholders.
5
Share Profile: The company's share with a face value of Rs.10 is listed and traded on BSE/NSE under the 'A' group. It
share price touched a 52-week high of Rs.117 and a low of Rs.39. At its current market price of Rs.63.50, it has a market
capitalisation of Rs.1369 cr.
Dividends: The company has been paying dividends as shown below: In view of its encouraging performance during
2006-07, the company hiked the dividend by 8 points from 27% to 35%.
March 2007 - 35%; March 2006 - 27%; March 2005 - 120%; March 2004 - 77%; March 2003 - 27%.
Shareholding Pattern: IOC is the major shareholder with a stake of 74.46% while the balance of 25.54% is with the non-
corporate promoters, institutions and the Indian public. A host of mutual funds like JM Equity, PRU ICICI, Kotak,
Taurus, Tata Mutual Fund etc. have added the share to their various schemes.
Prospects: Due to the unstable geopolitical situation, oil prices have been on an increase with prices shooting beyond US
$90 a barrel from the beginning of the current year. In fact, recently, crude oil price touched a record US $100 a barrel.
Energy experts opine that the global oil market will continue to witness high volatility and upward energy prices in
future, as demand outstrips the addition of new supply capacity.
With energy security assuming significance and India's proven reserves of crude oil estimated to last only 23 years, India
is actively pursuing oil & gas ventures in various countries in addition to stepping up exploratory efforts within the
country. It is expected that the demand for petroleum products could be in the range of 135 million MTPA to 145 million
MTPA by the end of the 11
th
Five Year Plan.
Conclusion: The company's principal activity is to operate the refinery together with the petrochemical complex and its
performance during recent times has been highly encouraging. The company is expected to repeat its performance going
ahead.
At its current market price of Rs.63.50, the BRPL share discounts earnings less than 5 times against the industry average
P/E multiple of 20. Currently, companies in the refining space like RIL, RPL are hot favourites on the bourses and the
shareholders have been rewarded significantly by way of price appreciation. The same can be expected from BRPL
considering its sparkling performance, leadership position. Moreover, it has an attractive dividend yield of 5.1%. BRPL is
a sound scrip to acquire at the present juncture of severe market volatility.
Market trades volatile in uncertainty
MARKET REVIEW
By Ashok D. Singh
Continuing worries about the slowing US economy and its spillover effect in Asian markets kept the markets volatile last
week as they witnessed alternate bouts of buying and selling. The Sensex fell 119.08 points or 0.64% to 18242.58 for the
week ended 1 February 2008. The NSE Nifty lost 66.1 points or 1.22% to 5317.25 for the week.
The BSE Small-Cap index lost 348.58 points or 3.34% to 10072.32 in the week. The BSE Mid-Cap index fell 259.58 points or
0.04% to 7761.54 in the week.
Buying in banking and auto shares helped the market recover from the day's low on 28 January 2008. The market had
declined sharply in afternoon trades due to fall in Asian markets. On that day, the Sensex declined 208.88 points or 1.14%
at 18,152.78. The broader Nifty was down 109.25 points or 2.03% at 5,274.10. Banking and auto shares were in focus ahead
of the monetary policy review on Tuesday, 29 January 2008.
The market drifted lower in what was a choppy trading session on 29 January 2008. The market suffered sharp losses in
afternoon trades as the sentiment was dampened by the Reserve Bank of India keeping key rates - repo rate, reverse repo
rate, bank rate and cash reserve ratio unchanged at its quarterly monetary policy review announced on 29 January 2008.
The Sensex declined 60.84 points or 0.34% at 18,091.94. However, the broader Nifty rose 6.70 points or 0.13% at 5,280.80.
On Wednesday, 30
th
January 2008, the market edged lower for the third straight day in choppy trades tracking weak
European and Asian markets. Investors refrained from making fresh commitments ahead of the crucial Federal Open
Market Committee meeting on interest rates later that day. The Sensex plunged 344.98 points or 1.91% at 17746.96. The
broader based Nifty was down 113.20 points or 2.14% at 5167.60.
On Thursday, 31
st
January 2008, the market extended losses for the fourth straight day in highly volatile trade. Volatile
movements in late trades were due to expiry of January 2008 derivative contracts on that day. The Sensex declined 109.93
points or 0.62% at 17,648.71. The broader based Nifty was down 30.15 points or 0.58% at 5,137.45.
On 1 February 2008, the market galloped in late trade, to snap its four-day losing streak on buying in pivotals. Fresh
build-up of positions after a smooth expiry of January 2008 derivative contracts propelled the market from lower level.
The Sensex vaulted 593.87 points or 3.36% at 18,242.58. The broader based Nifty jumped 179.80 points or 3.50% at
5,317.25.
RBI's bitter stance to maintain status quo on interest rates dampened the market sentiment. The market was expecting the
RBI to lower the short-term lending rate by 0.25% points after the hefty 75 bps US Fed rate cut last week. Another rate cut
of 50 bps by US Federal Reserve on Wednesday, 30 January 2008 was unable to lift market higher. The US Federal Reserve
6
cut interest rates for the second time in eight days on 30 January 2008 in an effort to stimulate the flagging US economy.
The Fed cut the rate by 0.5%, bringing its key-lending rate to just 3%. On Tuesday, 22 January 2008 the US Federal
Reserve bank slashed rates by 0.75%. However, contradicting the expectations of a rate cut, the RBI kept all key rates
unchanged at its meeting held on 29 January 2008. RBI kept rates steady amid inflation concerns on the domestic front
and an increasingly worsening international situation.
On 31 January 2008, Oil Minister, Murli Deora informed that the cabinet was likely to consider a fuel price hike next
week. The meeting with other members of the ministerial panel formed by the Indian government to look into the fuel
pricing issue was inconclusive and no decision has been taken as yet.
On 31 January 2008, the government revised upwards India's gross domestic product (GDP) growth estimate for 2006-07
to 9.6% from 9.4% reported earlier. This was the highest GDP growth in 18 years. The robust growth of GDP was
achieved due to high growth in the manufacturing sector (12%), mining and quarrying (5.7%), electricity, gas and water
supply (6%) and construction (12%). Farm output was pegged at 3.8%.
On 30 January 2008, Union Information & Broadcasting Minister, Priyaranjan Dasmunsi informed that the cabinet
approved easing caps on foreign direct investment in sectors such as civil aviation, petroleum and natural gas,
commodity exchanges, credit information services, mining in titanium, industrial parks and construction and
development. The minister added that further details will be given shortly. India expects to attract foreign investment of
$26 billion in 2007-08, substantially higher than $16 billion a year earlier.
Annual inflation, based on the wholesale price index (WPI), rose 3.93% in the week ended 19 January 2008 as against
3.83% in the week ended 12 January 2008.
Reliance Industries fell 2.60% to Rs.2541.65. ICICI Bank fell 4.88% to Rs.1197.75.
DLF fell 13.92% to Rs.813.55. The company posted net profit of Rs.605.84 cr. on total income of Rs.1,812.59 cr. in Q3FY08.
The company announced the results on 30 January 2008
Hindalco Industries rose 2.05% to Rs.176.90. Hindalco Industries' net profit declined 16% to Rs.542 cr. on 1.44% fall in
total income to Rs.4646 cr. in Q3FY08 over Q3FY07. The results were announced on 30 January 2008.
Reliance Communications fell 8.46% to Rs.611.80. The company posted 48.5% rise in consolidated net profit to Rs.1,372.83
on 29.79% rise in consolidated total income to Rs.4,874.2 cr. in Q3FY08 over Q3FY07. The company announced results on
31 January 2008.
Bharti Airtel fell 0.75% to Rs.907.75. It posted 36.04% rise in net profit to Rs.1,419.84 cr. on 41.46% rise in total income
41.46% to Rs.6,682.57 cr. in Q3FY08 over Q3FY07. The company announced the results on 30 January 2008.
National Thermal Power Corporation (NTPC) fell 7.54% to Rs.205.50. The company said on Wednesday, 30 January 2008
it would invest about Rs.4375 cr. in setting up a power plant in north-east India.
ONGC rose 2.86% to Rs.1044.50. As per reports, the Director-General of Hydrocarbons has conceded ONGC's demand for
a drilling holiday on account of a global rig shortage. The stock moved in a range of Rs.970 and Rs.1034.80 so far during
the day
Tata Steel rose 8.73% to Rs.776.45. The company reported 0.45% rise in net profit to Rs.1068.58 cr. on 10.34% rise in total
income to Rs.5040.95 cr. in Q3FY08 over Q3FY07. The results were announced during trading hours on 31 January 2008.
Mahindra & Mahindra was unchanged at Rs.674.30. It registered 67.6% rise in net profit to Rs.405.15 cr. boosted by one-
off gain. The company's sales rose 14.1% to Rs.2,940.15 cr. in Q3FY08 over Q3FY07. The company announced results on 30
January 2008.
The Sensex fell 119.08 points to close at 18242.58 last week. Lack of any positive triggers and subdued foreign inflows
suggest a choppy trade this week. The forthcoming Union Budget 2008-09, to be presented at the fag end of February
2008, will be one event that market will look forward to in the near term.
Excess of F&O positions ruin the market
MARKET
while corporate results and fundamentals are intact
The stock market continued to reel under unabated selling pressure even at lower levels. This resulted in the market
posting a losing streak on the first four days of the week as stock prices plummeted further to throwaway
levels. Both the Sensex and the Nifty recorded further losses on Thursday, 31
st
January 2008, which was
the fourth day of the week and also the last day for the expiry of the F&O contracts of the January 2008
series.
7
Surprisingly enough, the bull position was substantial and continued to be squared up till the last day
and moment despite the continuous fall in stock prices since the past two weeks! Any recovery in
between proved to be short lived only to end with further sharp losses.
This sharp fall in the indices together with the fall in prices of individual stocks week after week has now
demoralized the bulls who appeared to be in no position to hold the prices even at these pull-back levels. After the
G.S. Roongta
8
bloodbath on Monday, 21
st
January and Tuesday, 22
nd
January 2008, the BSE Sensex rebound twice with 864 points on
Thursday, 24
th
January 2008 and again smartly by 1139 points on Friday, 25
th
January 2008 but the bulls failed to hold it at
these levels on both the occasions, which gave a renewed chance to hammer down the markets further to maximize their
gains. Just as the bulls kept on celebrating the 1000 point rally on the Sensex so frequently without any justification for the
stock prices ruling so high, so also the bears are now hell bent on seeking revenge and make the bulls repent for
celebrating their Diwali, Eid and New Year parties altogether in the last quarter of 2007. And just as bears spent many
sleepless nights as the indices kept on zooming and put them through many hardships and pressure, it is now the turn of
the bulls to suffer the tension. One should not forget that the whole world represents a circle and any excesses committed
in any form or style always rebounds one day as nothing in the world is 100% foolproof and nature does not spare
anyone.
Hence the current market collapse is due to the excesses committed by promoters, operators and HNIs when the market
would just move up and up defying gravity on a daily basis for weeks and months together without taking stock of the
reality of share prices at any given time. Thus the BSE Sensex, which had taken several months to build up a bull empire
and reach the height of 21,207 on Thursday, 10
th
January 2008 collapsed like a pack of cards within three trading days i.e.
18
th
, 21
st
and 22
nd
January!
In the earlier two market collapses in 1992 and 2001, the market watchdog body, the stock exchanges and the government
had held the then big bulls, Harshad Mehta and Ketan Parikh responsible for rigging stock prices and engineering a false
bull market. But nobody has been named so far for the present market collapse, which is far more severe than the earlier
two collapses. But before anybody's name, let us own responsibility as we all were indirect participants in this unrealistic
bull market.
According to me, the post mortem report of this severe accident will be somewhat as follows:
(1) When the stock indices were advancing by leaps and bounds week after week and month after month, no one
objected or doubted its reality despite the global indices, particularly in USA and the UK appeared stationary and
weak. The sub-prime issue and the economic slowdown in the USA resulting in the fall in the outsourcing
business to IT and BPO companies like Infosys, TCS, Wipro, Stayam etc. were a clear indication of the weakness
that was developing. Not only were these companies hit by lack of growth but also the rising Rupee vis-à-vis the
US Dollar, which also had a negative effect on all exporters as exports became a loss making proposition. This
along with rising costs of raw materials and transportation put all manufacturing and marketing operations
under pressure but the stock markets feigned ignorance. Nobody bothered to expose this falsehood everybody
kept smiling baking in the glory of the in, which it appeared to do now wrong.
The economists, market experts, government bodies, marketmen or stock exchanges or operators not only kept
quiet but also tried to justify the unabated rise in stock prices on the back of the booming Indian economy and the
GDP growth. But since corporate results and the GDP growth is intact and projected at 9% for FY08, then why
have the markets collapsed? Can these experts provide the reason or justifications?
(2) The ballooning F&O outstanding position or open interest to the tune of Rs.1,20,000 cr. at nay given point of time
should have been a cause of worry for the authorities to check the rampant speculation that had touched
alarming levels. But instead of finding the pros and cons of such a highly leveraged position, we labelled
ourselves at par with global economies and foresaw no danger to our stock markets when in reality this itself was
the cause.
The high outstanding positions in the F&O segment till the last day of its expiry on Thursday, 31
st
January 2008
revealed that bull positions could not be squared up even till the last moment even though stock prices had
crashed by 30% or more despite the circuit filters imposed by the stock exchanges. What is indeed strange is that
the circuit filters are effectively used to contain the rise in stock prices when the markets are bullish but failed to
reduce the fall in contract values by 5% or 10% the next day allowing the holders of Futures to square up under
such panic conditions. I am told that there are no such circuit filters in F&O, which has proved to be dangerous as
so evident now.
Those who had plus positions with their brokers or banks or fund houses such as Karvy, Indiabulls, India
Infoline, Anand Rathi Securities and others were at the mercy of their brokers as they liquidated their clients'
positions irrespective of any limit or price. This is what led to the real panic and which kept on escalating by the
minute.
(3) SEBI must thoroughly examine and investigate the role of these brokerages and funds who try to save their skins
by forcing their clients to bear huge losses especially on 21
st
and 22
nd
January 2008. These entities have lakhs of
clients on an all India basis and if they choose to sell their clients' stocks in panic and in such a hurry, why would
the market not collapse, which led to the closure of the markets and which is a very grave matter almost
amounting to a systemic failure. In my opinion, the brokerages butchered their clients rather than treat them holy
cows. SEBI must make a full survey of client positions that were liquidated almost instantly on these two days
and take the culprits to task.
Was there any real cause for panic or worry, it would have been somewhat logical and understandable. But the
market collapsing suddenly without any reason is indeed serious and deserves to be thoroughly investigated.
And if any brokerage or fund house that squared up its clients' position beyond reasonable levels must be
severely punished because it is they who ushered in the panic in an orderly market.
(4) Unabated qualified institutional placements (QIPs) and the high premium IPOs also played their role in bringing
about this market collapse. New issue offerings at such high premiums poses a great danger and victimizes
innocent investors, especially in a country where 75% investors are uneducated and illiterate about the
functioning of the stock market and cannot even read a prospectus. They operate in a herd mentality and put
their money to risk following the grapevine.
The two big IPOs of Reliance Power at Rs.450 and Future Capital Holdings at Rs.765 sucked out a huge amount
from the secondary market as investors old their stocks to apply to these IPOs that were commanding handsome
premia in the grey market.
The mad rush for these IPOs and the sharp decline in liquidity in the secondary markets was the perfect moment
seized by the bears to hammer down the markets and bring about the change in sentiment and the debacle
thereafter that we are witnessing till date. This had a debilitating effect on the primary market as both Wockhardt
Hospitals and Emaar MGF lowered their price bands. Should the merchant bankers be allowed to go scot-free for
promoting such high priced issues when neither of the companies are fully operational? It is these kind of
liberties that are exploited by uncanny promoters that take a toll of the market. The regulator should be aware of
these loopholes and should prevent their exploitation.
(5) While FIIs' sales of Rs.13,500 cr. in January 2008 could be considered to be one of the factors, what is little known
is the game played by an old, well-known bear who was masquerading as a bull till recently and was projecting a
Sensex of 25,000 on the TV channels till a few weeks back. It is said that he sold heavily and accentuated the crash.
These are some of the reasons responsible for the market collapse and if these anomalies are checked and safeguards built
in place, we can go back to being a good, orderly and regulated market which will not destroy common investors/traders
who were taken in by the greed and encouraged to play beyond their capacities by these very brokers who squared up
their positions without recourse to them.
The stock markets have not fully revived even after the US Federal's second rate cut y 50 bps on Wednesday, 30
th
January
2008 after the hefty 75 bps cut in the previous week. The gain of over 500 points on Friday, 1
st
February 2008 is not too
convincing a move to bring about a change in market sentiment. Let us see if the refunds from these two IPOs this week
bring about some change in sentiment.
Those who have managed to survive this carnage should not give up and can look forward to better times as the Union
Budget is the next trigger and may well salvage the market since the economy is in fine fettle.
"Correction can be considered as a healthy reduction of excesses that
were built in certain segments"
FROM THE FUND MANAGER'S DESK
says Mihir Vora, Senior Vice President and Head – Equities, HSBC Asset Management (India) Pvt. Ltd. in an exclusive
interview with Money Times (MT)
MT: What is your outlook on the markets given the turmoil witnessed in the last few weeks.
What in your opinion would be the key triggers for the broader indices hereon?
A: The turmoil witnessed over the past few weeks can be attributed to a combination of local
and global factors. Globally, there were large write-downs on the mortgage book by big US
financial institutions. US data on employment and retail sales turned negative raising fears
that the consumer may be finally losing steam. The Fed chairman indicated that the economy
may be slowing faster than anticipated earlier. This dragged the developed markets down.
Indian markets outperformed global markets significantly in December 2007 reaching new
highs even though many global markets had started correcting in November/December. This
coincided with a huge increase in derivatives position. The conclusion one can draw from this
is that the markets were being supported by significant speculative interest. Futures positions
peaked at over Rs.1,00,000 cr. Local sentiment was also held up by the positive response to mutual fund NFOs, company
IPOs and inflows into equity-linked insurance products. Hence the market was in an overbought zone. The resultant
correction, of course, was much sharper than was expected.
9
A large pipeline of fundraising is still one of the underlying concerns. A list of various types of proposed fundraising by
corporates (IPO, QIP placements, rights/ preferential allotments, ADR/GDR etc.) over the first few months of 2008
shows about Rs.50,000 to Rs.80,000 cr. of equity paper can potentially be issued.
However, if one were to look at investments with a medium to long-term perspective, the correction can be considered as
a healthy reduction of excesses that were getting built in certain segments of the market. The Indian economy has triggers
and buffers to counter any potential global slowdown since a large part of the Indian growth story is driven by domestic
factors e.g. consumption, infrastructure, services, and agriculture. In case of a global slowdown, commodity prices may
come down reducing inflationary pressures. Also, global (and ultimately local) interest rates would come down (e.g. the
US Fed has already cut short term rates aggressively) which would be positive for growth. Moreover, given the
improvement in the fiscal situation, there is room for Government policy (fiscal, monetary) to counterbalance the impact
of any potential global slowdown. High levels of domestic savings and remittances from Indians overseas may also
provide support to the economy.
We do expect market volatility to continue for the next few months as the impact of global headwinds may still not be
over. However, as long as GDP growth of 8% can be sustained driven by investment growth and domestic consumption,
we remain positive. In portfolio construction, we shall continue to stick to basics i.e.: fundamentals, growth and
valuations.
MT: Given the current market scenario, do you think retail investors need to relook at their asset allocation? How much
importance do you give to asset allocation?
A: Asset allocation is definitely a very important factor at the investor level when constructing one's portfolio across
equity, fixed income, real estate, commodities etc. The final asset allocation will need to consider various factors like
liquidity considerations (e.g. real estate may not be readily liquid), age considerations, individual risk appetite, personal
asset-liability considerations, social commitments etc. to arrive at an optimal mix. One should plan for an asset allocation
from a long-term perspective and not daily market movements. So we do not recommend a re-look into asset allocation
just because of the recent market volatility.
MT: What are your expectations from the Budget? How do you think it will augur for the markets?
A: This year's budget is likely to be the last Budget by the UPA alliance prior to the General Elections. This means that it
could be slightly populist in its appeal and secondly, the government is likely to maintain its thrust on infrastructure and
agriculture to maintain the healthy growth rate in the economy. We expect higher spending in these areas. There may be
a case for minor rationalization in direct and indirect taxes in some sectors.
MT: As per your latest fact sheet, HSBC AMC is underweight on Utilities and Software sectors. Kindly elaborate.
A: We continue to remain underweight on the two sectors. Rate cuts by the Fed may lead to continued weakness in the
US Dollar, which impacts IT companies' margins. Further, the US financials sector remains a large part of revenue for
Indian IT companies and any slowdown here will impact the revenue growth prospects of IT companies. We remain
underweight on utilities given their high valuations and the fact that this space will probably see a number of equity
issuances this year.
MT: HSBC's Small Cap NFO is open at the moment. What would be the risk reward ratio for investors looking at it?
A: The recent meltdown in the market has resulted in an approximately 10% underperformance of the BSE small cap
index in the past 1 month vis-à-vis the NIFTY and the index itself is down nearly 25% from its peak. In our view, a lot of
stocks look attractive from a valuation perspective as a result. We expect to see the market generating returns of 15-20%
p.a. over the medium-term and the small caps could be in a position to be marginally better.
MT: Anything else that you may want to highlight for the benefit of investors?
A: We recommend investors to maintain a disciplined approach to investing. Further investors should avoid leverage in
such volatile times and invest in a staggered manner over time.
- Devangi Bhuta
MUTUAL FUNDS
Three attractive MF schemes
By Devangi Bhuta
In the backdrop of the recent turmoil in the capital markets, equity diversified schemes have taken a beating. Further,
with the plummeting of mutual fund NAVs, certain schemes appear to be attractive.
Some of them also include tax savings fund and considering that the year end is close by, this offers a dual benefit to
investors.
Tax Savings Funds
DSPML Tax Saver Fund
This scheme is overweight on software and construction space followed by media, metals and pharmaceuticals. It has
reported returns of 89% since inception, which is fair. This sectoral allocation has been more or less maintained.
10
The company has been holding onto large cap stocks like Reliance Industries and has a good basket of stocks that have
robust business models like UTV Software, KLG Systel, GMR Infrastructure etc. Further, it also buys into interesting
primary market opportunities like Jyothy Laboratories etc.
Principal Tax Saving Fund
One of the better performing schemes in this category, Principal Tax Savings has delivered 80% returns in the last one
year and has a lock in of 3 years. It is a well diversified scheme with exposure to sectors like industrial capital goods,
construction, chemical and metals. Besides, it is also holding onto good stocks like Mahindra & Mahindra, AIA
Engineering etc.
Long-term investors looking at tax savings schemes may consider it through staggered purchases.
NFO Analysis
HDFC Infrastructure Fund
(NFO Closes – 21st February, Minimum Investment: Rs.5000)
Objective: HDFC Infrastructure Fund is a 3 year close-ended equity scheme. The objective of the scheme is to seek long-
term capital appreciation by investing predominantly in equity and equity related securities of companies engaged in or
expected to benefit from growth and development of infrastructure.
Analysis: The Scheme will invest predominantly in equity and equity related securities of companies engaged in or
expected to benefit from the growth and development of infrastructure like Airports, Banking and Financial Services ,
Cement, Power & Energy, Industrial Capital Good, Ports, Telecom, Metal, Mining, Minerals etc. The scheme may also
invest up to 35% of the fund in non-infrastructure related companies.
In the backdrop of a burgeoning economy, infrastructure development is inevitable. Further, the prospects of this sector
have strengthened by the huge budgeted outlays witnessed in the last few budgets and this trend is likely to continue
considering that the ruling party will have to win pacify voters for the elections due a year and a half down the line.
Further, this space will also witness big ticket IPOs with good business models and scalability prospects resulting in good
opportunities for the Mutual Fund manager.
Market Scenario: Given the recent corrections in the market and the global cues, we may see some good buying
opportunities hereon. Further, it appears that the budget will give a direction to markets and will most likely be a positive
one considering the election schedules.
Investors betting on this NFO will need to check its sectoral diversification and must bear in mind the risk associated with
the market scenario at present.
11
By Saarthi
STOCK WATCH
Numeric Power Systems Ltd. (Code: 532051) (Rs.732) is India's No. 1 manufacturer of uninterrupted power supply (UPS)
systems, stabilizers and power conditioners. It also undertakes turnkey projects and offers end to end solution for
SCADA/EMS package, large network of industrial process, power transmission support systems and distribution
management. For the December'07 quarter, its sales increased by 45% to Rs.100 cr. whereas NP shot up 70% to Rs.10.60 cr.
thereby posting a highest ever EPS of Rs.21 for the quarter. Last year, the company entered into a joint venture with the
French UPS major SOCOMEC SA to distribute, market and service the 3 phase range of UPS systems (greater than 10
KVA) products to customers in India. Ironically, around 75% of the ATMs in the country are fitted with UPS supplied by
the company. With India's significant power deficits and the ubiquitous outages and voltage fluctuations the company's
products still have significant market
potential in the country. For FY08, it may
report sales of Rs.375 cr. and profit of Rs.38 cr.
i.e. EPS of Rs.75. Secondly, with an estimated
reserve of more than Rs.125 cr. on a tiny
equity of Rs.5.05 cr., the scrip is fully ripe for
liberal bonus. A solid bet for the medium-to-
long-term
*****
Last week, Mazda Ltd. (Code: 523792)
(Rs.73.05) declared terrific results for the
December'07 quarter. It reported 40% rise in
sales to Rs.18 cr. and Net profit shot up 80%
to Rs.2.40 cr. posting an EPS of almost Rs.6 for
Q3FY08 alone. Hence its nine month profit of
Rs.4.90 cr. has already surpassed the entire
FY07 PAT of Rs.4.70 cr. Importantly, the
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company has technical collaboration with world renowned Croll-Reynolds Inc., USA, which holds 12% stake in the
company. Besides, HSBC holds 8% stake under the FII category. To cater to the increasing demand, Mazda is setting up a
third unit at an investment of about Rs.5 to 6 cr. It is among the few engineering companies in the world that
manufactures very specialised, high technology and critical equipments for various industries like power, refineries,
fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. For FY08, it is expected to clock a turnover of Rs.65 cr. and
profit of Rs.6.50 cr. This works out to an EPS of whopping Rs.15 on its small equity of Rs.4.26 cr. At a modest discounting
by 10 times, the scrip has the potential to touch Rs.150 in a year's time. A screaming buy.
*****
Micro Technologies (India) Ltd. (Code: 532494) (Rs.30.50) is a global provider of security, safety and life-support
solutions with its very unique, hi-tech, first of its kind and innovative products like Home Security Micro HSS, Vehicle
Security Micro VBB, Lost Mobile Tracking System, Secure-Bank Black Box, Disaster Management System, Intelligent Black
Box, Access Control Solution etc. have huge demand worldwide. Further, it has launched couple of dynamic products like
Office Black Box for office security, Shop Security System for commercial premises and Electric Black Box for power
industry. Once again, the company has reported excellent results for the December'07 quarter as its topline as well as
bottomline grew by 65% to Rs.46.60 cr. and Rs.14.40 cr. respectively. Besides India, the company has huge plans for
exports to China, Japan, U.S.A, Middle East, South Africa and adjoining countries etc. Recently, it also got FCC
compliance certification, which will increase the recognition of all its products globally and will enable it to penetrate new
global markets. Considering all these factors, the company is estimated to end FY08 with revenue of Rs.175 cr. and profit
of Rs.50 cr. i.e. EPS of Rs.47 on its current equity of Rs.10.75 cr. In the near future, the company is looking to make
preferential allotment of 24 lakh warrants, which take its total diluted equity to around Rs.16-17 cr. At the current market
cap of around Rs.300, it is trading reasonably cheap and can appreciate 50% in a year's time.
*****
Bihar Caustic & Chemicals Ltd. (BCCL) (Code: 500057) (Rs.78.65), a 51% subsidiary of Hindalco, is among the leading
caustic soda producers in the northern and eastern region of the country with an installed capacity of 225 tonnes per day.
Notably, BCCL also enjoys the highest operating margins among it peers - even better than Gujarat Alkalies and Chemfab
Alkali. It registered 20% increase in sales to Rs.48 cr. but net profit jumped up 70% to Rs.16.50 cr. posting an impressive
EPS of Rs.7 for the quarter. To maintain its growth, the company is in the process of expanding capacity of its caustic soda
plant by 20% to 265 TPD by addition of electrolysers and by debottlenecking. Secondly, it has also taken a decision for
setting up a stable bleaching powder (SBP) plant at an estimated cost of Rs.7.50 cr. Importantly, the company has
commissioned an aluminium chloride project with a capacity of 12000 TPA, which will give a good fillip to its topline as
well as bottomline. For FY08, it is estimated to clock a turnover of Rs.185 cr. with profit of Rs.50 cr. which leads to an EPS
of Rs.21 on its equity of Rs.23.40 cr. Fundamentally, the scrip can move up to Rs.120 in a year's time.
12
By Kukku
FIFTY FIFTY
* Jaihind Projects (JPL) (Rs.152.15) is an Engineering & Construction company serving the Oil, Gas and Water sectors. It
has installed around 5000 km cross country pipelines for transportation of Oil, Gas, Water and plant piping in as many as
10 states in India and has a strong hold in the high growth piping business.
Pipeline is the cheapest mode of transportation of crude oil and petroleum products and JPL has a strong proven track
record in laying pipelines. It has also executed many river crossing projects for oil & gas pipelines, some of which
involved horizontal directional drilling (HDD). HDD is an advanced technology useful in construction pipelines and
cable lines under various terrains obstacles, such as rivers,
lakes, ramparts, roads, canals, swamps, runways, parks,
sanctuaries etc.
It has a current order book position of approx Rs.260cr. This
includes the prestigious gas pipeline order of Rs.150 cr. from
GAIL.
Errata
In the issue dated January 21-27, 2008 the third last stock
should have read as Madhucon Projects and the last stock as
Pratibha Industries. The typographical errors are regretted.
- Editor
Net profit of JPL rose 78.57% to Rs.2.00 cr. in Q3FY08 as against Rs.1.12 cr. in Q3FY07. Sales rose 36.26% to Rs.34.12 cr. in
Q3FY08 as against Rs.25.04 cr. in Q3FY07.
With many outgoing projects at an advanced stage, the company is likely to book major portion of sales in Q4. It has also
bid for big orders to the tune of Rs.1600/1800 cr. and is expected to get orders worth of Rs.400/500 cr.
Full year sales are projected around Rs.165/175 cr. with expected net profit of Rs.10.5 cr. in FY08, which will give an
attractive EPS of around Rs.15, while next year EPS is projected around Rs.25/28 level.
Investors should continue to hold this stock with long term point of view or even add at Rs.155/160 levels.
* Net profit of Indian Hume Pipe Company (Rs.846) rose 209.52% to Rs.5.20 cr. in Q3FY08 as against Rs.1.68 cr. in
Q3FY07. Sales rose 25.29% to Rs.110.48 cr. in Q3FY08 as against Rs.88.18 cr. in Q3FY07.
The balance value of work as on date is Rs.926 cr. as against Rs.281 cr. in the corresponding period of the previous year.
Investors can add this stock as it has reacted from Rs.1484 level to Rs.850 now the where down side is less.
* Navbharat Ventures Ltd. (Rs.) has come out with encouraging results for the 1st nine months of FY08. It has earned net
profit of Rs.185 cr. on sales of Rs.581 cr. on an equity of Rs.15.55 cr. recording an attractive EPS of Rs.24 for the first nine
months. The company is into Ferro Alloys/Power/Sugar/Infrastructure but its main focus is now on the power sector. It
has a land bank of around 68 acres in Hyderabad valued at around Rs.400 cr. It also has a 51% subsidiary, M/s. Brahmani
Infratech Private Ltd., which has a land bank of 250 acres. In view of the strong outlook for the sector in which the
company operates, investors can add this stock for good long term growth over the next two years.
* Nile Ltd. (Rs.178) - Glass Lining, Lead and Wind Energy are the three main divisions of this company. Glass Lined
Equipment is primarily used in pharmaceuticals, speciality chemicals, agrochemicals and other chemical industries. Lead
and Lead Alloys are mainly supplied to manufacturers of Lead Acid Batteries, Plastic stabilizers and metal oxides. Wind
energy generated is sold to Andhra Pradesh Power Transmission company.
The company has already reported an EPS of around Rs.24 for the first nine months after paying 33% tax. Full year EPS is
expected around Rs.30/32. At the current market price of Rs.185, it is available at a P/E multiple of less than 6. Investors
can accumulate this stock at current levels for target price of Rs.350 over the next 6 months.
* DIC India's (Rs.190) recent right issue was at Rs.225 per share while the stock is available at Rs.190 level, which is
almost around its book value. Long-term investors can add this stock for safe returns.
* Sharyans Resources (Rs.299) has come out with encouraging 3rd quarter results on a consolidated basis. Company has
earned net profit of Rs.9.21 cr. against Rs.2.99 cr. for the 3rd quarter last year. Long-term outlook is encouraging. Investors
can take benefit of this reaction to add this stock for good long term growth.
* HDIL (Rs.918.80) is another stock where investors can take small exposure in this reaction.
* Nectar Life Sciences (Rs.250.20) first nine month EPS is around Rs.40. Stay invested.
* Stocks like Yuken India (Rs.230), Jetking (Rs.320), Pratibha Industries (Rs.389), GTL (Rs.257) & Atlas Copco (Rs.1200)
are attracting good investment buying support. Stay invested.
Note - The market is likely to take support around current levels unless FIIs continue to sell even at current levels. Stay
invested in good stocks for good long-term growth.
* Jetking (Rs.347) has reported Q3FY08 EPS of Rs.11, which is very encouraging. It is good portfolio choice for good
long-term growth and also for good dividend yield.
* International Combustion's (Rs.500) Q3FY08 EPS is Rs.13 and first 9 months EPS is Rs.34.5 after paying almost 33% in
taxes. Full year FY08 EPS is likely to be around Rs.45/48. The stock had touched high of Rs.918. Stay invested.
* Kirloskar Electric (Rs.250) is another stock coming out with consistent performance since the last few years. This is an
attractive level for investments.
* JMC Project's (Rs.390) order position is very strong. The company reported net profit of Rs.9.05 cr. against Rs.4.96 cr. in
Q3 of the same period. Stay invested.
* Valuation of Amrutanjan (Rs.400) looks attractive at Rs.400 as the stock has reacted from a high of Rs.674. Long-term
outlook of the company is very encouraging. It has a good track record of dividend and liberal bonus issue and has a low
equity base with strong brand value and good real estate worth.
By Nayan Patel
TECHNO FUNDA
Accumulate some good fundamentally strong momentum cash stocks at current level.
PAE Ltd.
BSE Code: 517230
Traded on NSE as PAEL
Last close: Rs.27.90
Company has an equity of just Rs.9.52 cr. and promoters hold 46% stake in the company. For the first nine months, the
company has declared marvelous numbers. Net sales jumped 45.05% and net profit jumped by more than 161.78%. Last
year's profit was only Rs.3.25 cr.
It is good bet for the short-medium-to-long-term. Buy with stop loss of Rs.25.50 for an intra-day target of Rs.30.50 and
weekly target of Rs.34
Ador Fontech
BSE Code: 530431
Last close: Rs.117
The company paid 50% dividend last year but a bumper dividend is expected this year. It has an equity of just Rs.3.50 cr.
and has declared excellent numbers for the December 2007 quarter as net profit jumped by 151.35%. For the first nine
13
months, the company's net sales zoomed 24.56% while net profit jumped 97.69%. Buy with a stop loss of Rs.113. On the
upper side, it will go up to Rs.126-130 level in the short-term.
Hawkins Cooker
BSE Code: 508486
Traded on NSE as HAWKINCOOK
Last close: Rs.185
The 70% dividend paying stock is available at Rs.185. Company has reported full year's profit during the first nine
months of FY08. Net sales in the first nine months jumped 25.57% while net profit jumped 71.21% and full year EPS may
be Rs.18-20 in FY08. Stock is available at dirt cheap. Buy with stop loss of Rs.181. On the upper side, it will go up to
Rs.200-205 level in the short term.
Steel Strip Wheels
BSE Code: 513262
Traded on NSE as SSWL
Last Close: Rs.171
Last week, we recommended this stock with full details. The company declared December 2007 quarterly results last
week when its net profit jumped 30%. Its new ultra modern plant will start from May 2008.
Hold this stock will stop loss of Rs.152. On the upper side, expect Rs.205 level in the short-term while the stock can go up
to Rs.256 level in the next one year.
Tulsi Extrusions IPO closes on 5
th
February
MONEY FOLIO
Tulsi Extrusions Ltd. (TEL), manufacturer of PVC pipes & fittings for the irrigation, industrial, infrastructure and housing
sector, is entering the capital market with a public issue of 57,00,000 equity shares of Rs.10 each through the 100% book
building process in the price band of Rs.80 to Rs.85. The issue opened on Friday, 1
st
February and will close on
Wednesday, 5
th
February 2008. The issue has been graded 3/5 by CARE, which indicates its average fundamentals and
will be listed on the BSE & NSE.
TEL's product offerings include PVC Pipes. PVC fabricated fittings, PVC casing and screen pipes, ASTM plumbing pipes,
LLDPE pipes, HDPE pipes and elastomeric sealing pipes, which are used in irrigation, industrial use, infrastructure and
housing and manufactured at Jalgaon in Maharashtra.
The company plans to expand its capacity product range by venturing into manufacture of PVC injection moulded
fittings, HDPE Sprinkler Systems, Inline Drip Irrigation System, LLDPE fittings for micro irrigation, which would take its
total installed capacity to 17,971 MTA from the present of 10,483 MTA at a cost of Rs.27.27 cr. TEL also plans to setup a
captive wind power plant, which can lower its power expenses and improve its profitability.
As on 30
th
November 2007, the company has posted sales of Rs.36.77 cr. with a PAT of Rs.4.72 cr. For FY07, it registered
sales of Rs.59.15 cr. with a net profit of Rs.4.15 cr.
SVEC Constructions IPO opens on 4
th
February
Hyderabad-based SEVC Constructions Ltd. is going public with an IPO of 40,00,000 equity shares of Rs.10 each in the
price band of Rs.85 to Rs.95 per equity share through the 100% book building route. The issue will open on Monday, 4
th
February and will close on Friday, 8
th
February 2008, and will be listed on the BSE & NSE.
The company, which has a 22-year proven construction experience in the areas of building and irrigations works and
proposes to deploy the fund for the purchase of capital equipment worth Rs.15.32 cr. and Rs.23.86 cr. for meeting its long-
term working capital requirements.
SVEC's clientele includes Army Welfare Housing Corporation, Airport Authority of India, Chennai Metro development
Authority, DRDO, and Hindustan Aeronautics Ltd., irrigation and public works department (PWD) of Andhra Pradesh,
Karnataka and Madhya Pradesh.
As on 30
th
November 2007, its order book was Rs.521.91 cr. and mostly related to execution of government projects in
irrigation in Andhra Pradesh and Madhya Pradesh. Other contracts include execution of civil works for a waste water
treatment plant in Tamil Nadu besides construction of residential accommodation for Army Welfare Organisation in
Gurgaon and Panchkula in Haryana, dwelling units in Vishakapatnam and development of commercial complex in
Hyderabad.
The company's net worth comprising share capital and reserves and surplus as on 31
st
March 2007 is estimated at Rs.25.95
cr. Its total assets are estimated at Rs.81.67 cr.
Lotus India AMC launches Lotus India Gilt Fund
14
Lotus India AMC, a joint venture between Fullerton Fund Management Group and Sabre Capital Worldwide, has
launched its Open-Ended Dedicated Gilt Fund: Lotus India Gilt Fund. The objective is to generate optimal returns by
investing in a portfolio of securities issued and guaranteed by Central and State Governments. The Fund may utilise
derivatives as permitted by regulations in order to achieve its objective.
Lotus India Gilt Fund offers two plans i.e. Long Duration Plan is ideal for investors including institutions with a view of 6
months and above and the Short Duration Plan is ideal for investors including institutions with a view of 3-6 months.
Both plans provide sub-plans Retail and Institutional with two options i.e. Growth and Dividend and a sub-option under
Dividend i.e. Reinvestment and Pay-out. The Scheme is opened for subscription on 30
th
January, 2008 and will close on 6
th
February, 2008 and will re-open for continuous purchases on or before 11
th
February 2008.
The minimum application amount for both Long and Short Duration - Retail Plan is Rs.5,000 per application plus in
multiples of Re.1 thereafter and for Institutional Plan is Rs.50 Lakh per application plus in multiples of Re.1 thereafter.
Units will be available at Rs.10 each during the New Fund Offer plus applicable entry load. The scheme does not charge
any entry and exit load during New Fund Offer and ongoing offer period.
Rolta's net up by 47.1%
Rolta India Ltd. reported 47.8% higher consolidated income at Rs.251.9 cr. in Q2FY08 as against Rs.170.4 cr. in Q2FY07.
The consolidated PAT grew by 47.1% to Rs.60.2 cr. as against Rs.40.9 cr. in Q2FY07. The consolidated EPS for the quarter
ended 31
st
December 2007 was Rs.3.76 as against Rs.2.56 in the previous corresponding quarter.
For the half year ended 31
st
December'07, Rolta recorded 43.4% higher revenue at Rs.462.7 cr. against Rs.322.7 cr. in the
corresponding previous half year. Its PAT was 45.7% higher at Rs.114 cr. as against 78.3 cr. last half year. The half yearly
EPS was Rs.7.1 as against Rs.4.9 in the previous corresponding half.
BOB's Q3FY08 net up 52%
Bank of Baroda has reported 52.2% higher net profit at Rs.501 cr. in Q3FY08 against Rs.329.1 cr. in Q3FY07. For the nine
month period April-December'07, the net profit was up by 48.5% at Rs.1159 cr. against Rs.780.8 cr. in the previous
corresponding period. The bank's total income was higher by 35.7% at Rs.3620 cr. in Q3FY08 against Rs.2668 cr. in
Q3FY07. For the 9 months period, the respective figures were Rs.9978.8 cr. as against Rs.7316 cr. in the nine months of last
year.
Net Interest Income has increased by 9.8% from Rs.908.21 cr. in Q3FY07 to Rs.9997.47 cr. in Q3FY08. For the nine months
period, net interest income grew by 14.2% to Rs.2883.29 cr. in Apr-Dec'07 from Rs.2524 cr. in Apr-Dec'06.
On a y-o-y basis, total business of the bank increased by 22.35% to Rs.2,32,418 cr. from Rs.1,89,959 cr. from end December
2006 to end December 2007. Gross NPAs of the bank have come down to Rs.2,040.30 cr. as at December 31, 2007 from
Rs.2,388.60 cr. as at December 31, 2006 reflecting a reduction of 14.6%.
Gitanjali Gems' new Brand Ambassador for 'Collection g'
World Gold Council & D'damas Gold have announced Jacqueline Fernandez, a former Miss Sri Lanka, as the new face for
their contemporary and light weight 18 carat gold line 'Collection g'. The collection is created and developed by World
Gold Council and is marketed in India exclusively by D'damas Gold, a renowned name in the world of jewellery in India.
'Collection g' consists of contemporary pieces of light weight 18 carat gold jewellery to adorn today's young professional
or college students alike. The line is designed to help these women to create their own style and look trendy, chic and
cool. Collection g is unique in that it celebrates every woman's affinity for gold through a stylized expression of
innovative designs.
Mehul Choksi, Chairman, Gitanjali Group & D'damas said "Collection g is an attempt to celebrate a woman's
achievement in a modern and stylised way."
Disclaimer: Investment recommendations made in Money Times are for information purposes only and derived from sources
that are deemed to be reliable but their accuracy and completeness are not guaranteed. Money Times or the analyst/writer does
not accept any liability for the use of this column for the buying or selling of securities. Readers of this column who buy or sell
securities based on the information in this column are solely responsible for their actions. The author, his company or his
acquaintances may/may not have positions in the above mentioned scrip.
15
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