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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 35
Monday, July 14 - 20, 2008
Pages 17
Stay away
till follow-up buying emerges
By Sanjay R. Bhatia
The markets, which had rallied on the back of short covering and value based buying at lower levels, lost heavily on
Friday on weak IIP numbers and higher inflation rate. The spike in crude price also spoilt the sentiment. Occasional bouts
of volatility and choppiness were witnessed. With the
political situation easing out after the CPM withdrew its
support, traders and speculators were seen covering their
short positions. FIIs continued to remain net sellers in the
cash market but were net buyers in the derivatives segment.
Mutual Funds, however, were net buyers but occasionally
used higher levels to book profits.
The global cues have remained mixed. Crude oil price once
again spiked above the $147 per barrel on the back of Iran
testing its missiles. Global markets, too, continued to display
a mix trend taking cues from the US economy and rising
crude prices. Bank of England kept the interest rates
unchanged. On the domestic front, the political situation
seems to have eased after the Left parties withdrew their
support to the UPA government. With the Samajwadi Party ready to support the government, the political situation is
likely to improve and the government might last its full term if it wins the vote of confidence scheduled on 22
nd
July.
The IIP numbers were disappointing. The inflation rate continued its upward trend and further tightening of monetary
measures by RBI are likely. The earnings season has begun with Infosys declaring its Q1FY09 results. The markets would
continue to take cues from the Q1 results, crude prices and the global markets. However, it is important that follow-up
buying emerges at higher levels, which has, so far remained absent. With the discount on Nifty July Futures coming
down, large scale short covering is unlikely to help the markets to move higher. So unless buying emerges, the markets
are unlikely to witness a sustainable rally. Any negative surprises from the Q1 results will trigger a sell-off. Stock specific
action will be witnessed amidst occasional bouts of volatility and choppiness.
On the upside, the Sensex faces resistance at the 13779 and 13989 levels but has support at the 12884 and 12300 levels. On
the upside the Nifty faces resistance at the 4108 and 4482 levels while 3750 and 3550 are its important support levels.
Investors are advised to stay away.
1
Which Singh is King?
By Fakhri H. Sabuwala
Singh is King! Singh is King!...what lyrics….what a film…what pre-publicity of this mega blockbuster. Its preview trailer
runs on every news channel, on every radio station and on the front pages of every daily. Coincidentally, Singh is King in
the political arena too. But one of the two Singhs is the king while the other is the kingmaker….
The market is evaluating both the Singhs and their endeavours. To one, it is the nuclear deal, which is close to his heart
but for the other it is his survival in U.P. As long as both of them stay onboard the treasury benches, the market is in for a
steady growth and will arrest the freefall. A slight discomfort to either of these Singhs may mean fresh nervousness on
Dalal Street and which shall persist till the election schedule is announced. The earlier this happens, the better it is for the
market as it ends the first uncertainty. The second will be the election results. But whichever way it goes, the 'ruling
khichdi' will be free of the 'communist tadka'!
The political situation remains fluid and the statements and counter statements are so heated that the market may swing
to wild moods. In all probability, the UPA government may have to face a no confidence motion and work hard in
keeping its flock of supporters together. The game of breaking the Samajwadi Party (SP) or persuading the dissidents of
the Bahujan Samaj Party (BSP) to crossover to the SP shall in the end prevail and decide the government's fate. Till then,
one should only get in at declines or in a meltdown.
Just as politics dominates the economics, it's the poor distribution of rainfall which is causing further damage to the
sentiment here. Maharashtra is facing a near drought; Gujarat is minus on the rainfall chart so far, which are not pleasant
developments.
Also, considering the pound of flesh sought by the new UPA partners, the market is fearful about some heads that may
roll. The need for 'windfall tax' on the private refiners and marketers of oil is a move to help Anil Ambani camp settle
scores with Mukesh Ambani of Reliance Industries. This demand could well be the first of a series of the price that the
Manmohan Singh government may have to pay to the other 'Singh'.
Technically, the market is not yet through the bear phase. As long as the market remains below its 200 Day Moving
Average (DMA) and forms successive lower tops and bottoms, it is a bear market. It is also likely that the market may fall
50% from its recent high just like the three bear markets of the past 20 years have shown.
Time wise, the correction of macro fundamentals took 18 months to bottom out; we have, therefore, another 25 to 50
weeks to go. If it ends in 25 weeks from now, this shall be the shortest bear market of the last 20 years.
The second indicator of the return of good times may be visible only if the northwards journey in commodity prices is
halted. Till commodity prices do not top out, the stocks may not rally. The medium-term inflation rate must come under
control before an upward breakout in stocks is achieved.
So at least for now, just keep a watch on how the battle between the two Singhs shapes up. For whichever Singh emerges
on top, the corporate scores will now be settled in New Delhi. This is a trap in which the Congress has fallen into. It had
to choose between the devil and the deep sea and it chosen the former and there is a price to buy for the same.
2
Market indecisive
TRADING ON TECHNICALS
but bias to test lower range
By Hitendra Vasudeo
In last week's update, we had indicated about an
intermediate reversal above 13872. We had almost
confirmed it till Thursday, 10 July 208 but on Friday,
11 July, the market opened up but failed to sustain it
to erode the weekly gains but yet somehow some
how managed to inch positive on a week-to-week
basis. The week-to-week closing was not above
13872 though on daily charts, it did so for two
trading days.
On a week-to-week basis, a flat to weak closing has
put a question mark on the upside once again. A
strong week-to-week close with a positive weekly candle was desired, which was in existence at one time but its failure to
sustain on Friday punctured it all.
Last week, the Sensex opened at 13561.92 attained a low at 13049.45 and moved up to make high at 14063.45. The Sensex
failed to close above 13872 and closed the week at 13469.86. As a result of the weak closing resistance gets built at higher
levels. An equally strong overall market effort will now be needed if the Sensex has to restore back what it had gained in
the last fortnight.
The only positive point last week was that the low of last week was above the previous week, which means that the low
of 12822 has not been violated.
It looks that the Sensex has formed a lower top at this point, which could threaten the low of 12822 unless a miraculously
strong rise above 14064 is witnessed.
A fall and close below 12822 will take the Sensex to test the lower range of 12717-12344 and could even violate it. The
Sensex must, therefore, cross and close the week above 14064 at the earliest. But the bias has tilted it back to a down move
or we may witness some kind of sideways move between 14064 -12822.
Sensex Wave Analysis
Wave I- 2594 to 3758
WEEKLY UP TREND STOCKS
Wave II- 3758 to 2828
Wave III- 2828 to 21206
(Not yet complete)
Internals of Wave III
Wave 1- 2828 to 6249
Wave 2- 6249 to 4227
Wave 3-4227 to 21206
Wave 4- 21206 to 12822
(Appears to be completed
but
confirmation
is
needed)
If we allow the liberty of
channel violation to test
the 0.500 and 0.618 levels
of 12717 and 10713, then it
must close the quarter
ending 30 September 2008
above and back
Let the price move below Center Point or Level 2 and when it move back above Center Point or Level 2 then buy
with what ever low registered below Center Point or Level 2 as the stop loss. After buying if the price moves to
Level 3 or above then look to book profits as the opportunity arises. If the close is below Weekly Reversal Value
then the trend will change from Up Trend to Down Trend. Check on Friday after 3.pm to confirm weekly reversal
of the up Trend.
Last
Center
Relative
Weekly
Up
Close
Point
Strength Reversal Trend
Scrips
Level 1 Level 2
Level 3 Level 4
Value
Date
Stop
Loss
Buy
Price
Buy
Price
Book
Profit
Book
Profit
SPICE COMMUN
74.20 67.8
72.3
74.8
76.7
81.2
80.2
70.3
04/04/08
LUPIN
698.00 604.7
662.7
685.3
720.7
778.7
78.5
686.0
11/07/08
CIPLA
211.35 197.3
206.1
209.5
214.8
223.6
73.3
210.5
11/07/08
SHIV-VANI OIL
550.35 468.6
523.6
551.8
578.6
633.6
65.7
536.1
11/07/08
KOUTONS RETAIL
743.15 692.2
728.1
749.1
764.1
800.0
65.6
738.0
04/07/08
WEEKLY DOWN TREND STOCKS
into
the
channel.
Alternately, it must not
fall and close below the
range of 12717-12344. If it
does fall, then hopes of a
recovery back into the
channel will be less.
This wave count is a
wishful and optimistic
count.
Normal Count mentioned
last week
Wave I-2594 to 3758
Let the price move above Center Point or Level 3 and when it move back below Center Point or Level 3 then sell
with what ever high registered above Center Point or Level 3 as the stop loss. After selling if the prices moves to
Level 2 or below then look to cover short positions as the opportunity arises. If the close is above Weekly Reversal
Value then the trend will change from Down Trend to Up Trend. Check on Friday after 3.pm to confirm weekly
reversal of the Down Trend.
Last
Center
Relative
Weekly Down
Close
Point
Strength Reversal Trend
Scrips
Level 1 Level 2
Level 3 Level 4
Value
Date
Cover
Short
Cover
Short
Sell
Price
Sell
Price
Stop
Loss
SOBHA DEVELOP
257.10
194.2
236.1
257.0
278.0
319.9
13.75
292.43
09/05/08
PARSVNATH DEV
115.10
93.3
108.7
117.6
124.1
139.5
21.79
129.16
09/05/08
WOCKHARDT
182.00
161.2
175.7
183.8
190.2
204.7
23.38
197.16
30/05/08
OMAXE
130.35
95.2
119.2
132.1
143.2
167.2
24.37
140.23
09/05/08
SHREE CEMENT
529.70
446.2
504.0
536.0
561.7
619.5
25.61
590.58
25/04/08
Wave II-3758 to 2904
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly Relative
Strength (RS)
REI AGRO
986.00 1099.05 1152.50
1205.95
1379.00 646.1
36.57
SUN PHARMACEUTICAL I
1317.00 1328.86 1345.50
1362.14
1416.00 1187.9
45.36
Wave III- Internals as
follows:
Wave 1- 2904 to 6249
Wave 2-6249 to 4227
Wave 3-4227 to 12671
Wave IV- 12671 to 8799
Wave V- 8799 to 21206
Wave W-21206 to 14677
Wave X-14677 to 17735
Wave Y- 17735 to 12822 (current ongoing move)
Internal of Wave Y
Wave i- 17735 to 16546
Wave ii-16546 to 17497
Wave iii- 17497 to 14645
Wave iv- 14645 to 15789
Wave v- 15789 to 12822 (current ongoing move)
Alternative option of Wave Y
Wave a-17735 to 16535
Wave b-16535 to 17497
3
Wave c-17487 to 14645
Wave x-14645 to 15789
Wave a-15789 to 12822
Wave b-12822 to 14063
Wave c- 14063 to 13351(Current on going move- valid till 14064 is not crossed)
Whenever Wave c- gets complete in the range of 12822-12344, then we could begin the next leg of corrective cycle which
has upward direction.
The completion of W-X-Y can get translated on Wave A and the rise can be for Wave B or Wave X will once again emerge
for a Double Zig-Zag.
Another overall Count Structure can be as follows:
Wave I- 2594 to 3758
Wave II- 3758 to 2828
Wave III- 2828 to 21206
Internal of Wave III
Wave 1-2828 to 3416
Wave 2- 3416 to 2904
Wave 3-2904 to 6249
Wave 4- 6249 to 4228
5
th
Wave in Extension
Wave 5 from 5228 to 21206
Internals of Wave 5
Wave i- 4228 to 6954
Wave ii-6954 to 6069
Wave iii-6069 to 12671
Wave iv- 12671 to 12316
Internals of Wave iv
Wave a- 12671 to 8799
Wave b-8799 to 14723
Wave c- 14723 to 12316
Wave v- 12316 to 21206
Wave IV- 21206 to 12822 (current ongoing move)
Weekly pivotal support levels are placed at 12991 and 11974. Weekly resistance will be at 13713-14064.
Conclusion
Expect further upmove only on rise and close above 14064 and the pressure is back on the support of 12822. It is possible
that we may see sideways movement in the band of 14100-12822 range with bias to test the lower side.
Strategy for the week
Look for a rise to 13700-14100 to book profit on earlier trading long positions as the opportunity arises. Re-enter long on
index based stocks if Sensex close is above 14100. Lower levels of 13049-12822 range can be tested.
* On its demerger, Macmillan India is likely to issue free shares of Macmillan Publishers (India) Ltd., which can be sold
to the promoters at Rs.69 per share. A real value buy.
TOWER TALK
* Moser Baer may hive off its entertainment business to concentrate on its new photovoltaic cell business.
* Mysore Cement is considered as a decent buy with good earnings in FY08.
* Amrutanjan has completed the sale of its surplus land off Chennai and has proposed 29
th
July as the record date for a
one time dividend to all shareholders.
* Infosys' Q1 performance holds cheer for IT companies. They could be the best hedge in an insipid market.
* Promoters of ANG Auto may buy back its shares from the open market. Scrip may see a smart rally in a couple of weeks
time.
* With SEAMEC's second vessel put to work since last week, all its four vessels are deployed. This could lead to bumper
results for the September 2008 quarter. One of the safe bets in the current sentiment.
* Despite its share price falling almost one-tenth from its recent high, the Lok Housing management plans a massive
Rs.1600 cr. fund raising program through the equity route.
* Stone India has actually posted a huge loss of around Rs.8 cr. for the March 2008 quarter but the management has not
given any explanation for this sudden loss. Stay away from this Duncan Goenka group company.
* With paper prices again anticipated to go up, TNPL looks one of the best bets from this sector. Scrip has bottomed out
and gives a great dividend yield as well at CMP. Keep on accumulating.
4
* Crest Animation to sign joint venture with an US company for production of 3 animation films next year.
By Saarthi
Allahabad Bank (Code: 532480)
Rs.56.80
BEST BETS
Incorporated in 1865, Allahabad Bank (AB) is one of the oldest public sector banks. Today, it is the sixth largest bank with
2154 branches comprising 983 rural, 405 semi-urban, 452 urban and 314 metropolitan branches. Besides, it has 98
extension counters, one overseas branch in Hong Kong and a representative office at Shenzhen, China. Nationalised in
1969, AB is presently led by Mr. A C Mahajan. Apart from carrying out the general banking and treasury operations, AB
offers housing loan, education loan, depository services, life insurance, bancassurance, mutual funds and wealth
management services etc. It has also launched a reverse mortgage scheme for senior citizens and offers online education
loan sanction facility for nearly 250 educational institutes. It already has tie-up with National Insurance Company for
non-life insurance products and with LIC for life insurance business respectively. To ramp up its fee based income, the
bank has multiple tie-ups with the county's leading AMCs namely UTI, Principal PNB, Kotak Mahindra, Franklin
Templeton & Reliance Mutual Fund for promoting their wide range of products. It has also tied-up with Wall Street
Finance, the primary agent for Western Union Money Transfer, for inward remittances from various foreign countries. AB
also has a subsidiary called 'AllBank Finance', which has a Category-I Merchant Banking and Underwriting registration
with SEBI and is engaged in corporate advisory services, project appraisal, issue management, loan syndication and
underwriting. Although AB has major presence in central & eastern India, it is looking to expand in the western and
northern regions. It opened 94 branches in FY08 and has authorisation for opening 117 new branches this fiscal.
AB has achieved 100% computerisation of all its branches, extension counters, currency chests and offices. But on the
other hand, only 209 branches and Mumbai zonal office have been covered under Core or Centralized Banking Solution
(CBS) representing nearly 50% of the bank's business. However, the bank aims to take the total count of branches with
CBS facility to 900 by March 2009. In line with the technological developments, AB also provides internet banking, mobile
banking, SMS banking and e-Payment facilities. Its 157 branches are participating in RBI sponsored RTGS transactions
whereas NEFT has been activated in 147 branches. At the same time, it has enabled 183 branches for Electronic
Accounting in Excise and Service Tax and 167 branches for direct tax - OLTAS system. Currently, AB has only 211 ATMs
but has joined the National Financial Switch project of sharing ATM network across 28 member banks thereby facilitating
its customers to use more than 18500 ATMs across the country at a very low cost. It has the principal membership of VISA
for issue of ATM-cum-Debit cards and has issued nearly 3 lakh cards to its customers. Interestingly, the bank is in the
process of implementing the cheque truncation system in 61 branches in the National Capital Region (NCR) around New
Delhi.
Financially, AB has been faring well and ended FY08 on a buoyant note. Its deposits as well advances grew by 20% to
Rs.71,616 cr. and Rs.50,312 cr. respectively. The net interest margin fell marginally to 2.78% against 2.97% last year but its
total income increased by 35% to Rs.7,136 cr. Remarkably, the banks fee based income increased by 22% to Rs.438 cr. The
business per employee increased from 4.95 cr. in FY07 to Rs.6.04 cr. in FY08, an increase of 22%. Notably, the bank has
reduced its gross NPA to 2% from 2.61% and net NPAs to 0.80% from 1.07%. Surprisingly, the bank's agriculture NPA is
only about 3% of its overall NPA for FY08. Its reserves and surplus as on 31
st
March 2008 stood at Rs.4800 cr. leading to a
healthy book value of Rs.117. On the other hand, its capital adequacy ratio (CAR) was 12.04% as per BASEL II and 12.23%
as per BASEL I. To boost its CAR further, the bank is planning a rights issue in the next 2 years. For FY08, AB recorded a
net profit of Rs.975 cr. after making higher provisions for contingencies and tax to the tune of Rs.505 cr. Thus, it posted an
EPS of Rs.22 on its current equity share capital of Rs.447 cr. and declared 35% dividend, which gives its a whopping yield
of 6% at the CMP. For future, AB has projected a business level of Rs.2,00,000 cr. by FY10 against Rs.1,21,000 cr. in FY08.
The bank plans to open its overseas branches in the upcoming economies like Kenya, Tanzania, New Zealand, Australia,
China etc. apart from Bangladesh. For FY09, it is estimated to post total income of Rs.7750 cr. with PAT of Rs.1000 cr. i.e.
an EPS of Rs.22 on its current equity. Although the hardening in interest rate, the debt waiver scheme and government
steps to control liquidity are causes of concern, investors can still buy AB at current levels for a price target of Rs.90 in 15
months.
Kamat Hotels India Ltd. (Code: 526668)
Rs.120
Incorporated in 1986, Kamat Hotels India Ltd. (KHIL) was founded by Late Venkatesh Krishna Kamat and is the flagship
company of the Mumbai based Kamat Group which is one of the fastest growing hospitality groups in the country.
Presently under the leadership of Mr. Vithal Kamat, KHIL boasts of developing and running Asia's first Ecotel hotel –
'The Orchid' way back in 1997. Since then, the hotel has won around 42 national and international awards. Presently, the
company is engaged in operating and managing the following hotels:
5
The Orchid (Mumbai) - This is a 245-room, 5 star Ecotel hotel located adjacent to the domestic airport in Mumbai. With
an average room rate (ARR) of almost Rs.10,000 per day and occupancy rate of more than 85%, this flagship hotel
contributes about 70% of the company's revenue. On the back of robust demand, KHIL is in the midst of expanding its
room capacity by another 130 rooms in a phased manner.
VITS (Mumbai) – KHIL owns and operates 190 rooms service apartment in Andheri near the International Airport.
Formerly known as Lotus Suites, this 4 star Ecotel hotel with an occupancy rate of 75% has an ARR of about Rs.6000.
Orchid Heritage (Pune) – KHIL took over an existing fort 'Jadhav Gadh' on the Pune-Saswad highway on a long-term
lease and converted it into a 40-room palace hotel in Phase I. It was recently opened in December 2007 and commands an
ARR of Rs.15,000. Another 60 rooms will be developed in a phased manner.
VITS (Nagpur) – KHIL's has taken over an existing 55-room hotel 'Sunny International' on lease and is converting it into
'VITS', the 4 star business hotel brand of the company. The company is also developing 120-room 5 star eco friendly hotel
under the brand 'The Orchid' near the International Airport by 2010.
Kamats Hotel Siddharth (Nasik) – Lately, the company has upgraded and renovated all the 32 rooms of the hotel. It is
also looking at setting up an 80-room new luxury hotel at Nashik under the brand name 'VITS' within a year.
VITS (Belgaum+Aurangabad+Baroda+Aronda+Amboli) - KHIL also manages or is looking to manage 60 rooms hotel in
Belgaum, 100-room hotel in Aurangabad, 100-room in Baroda, 34-room in Amboli Sindhudurg and 34-room in Aronda,
Goa.
White Orchid (Vaishnodevi) – Under the joint venture with Concept Hospitality last year, the company undertook the
management of a property in Katra Jammu consisting of approx 200 rooms.
The Orchid (Raipur) – Considering the development of Raipur into a hub for steel, mining, cement and power, the
company is constructing a 120-room, 5 star Ecotel under brand name 'The Orchid' to be operational within the next two
years.
Hotel in Balewadi (Pune) - KHIL has entered into a joint venture with BSEL Infrastructure Realty Ltd. and Unity
Infraprojects Ltd. to build, operate and manage 200-room 5 star and 200-room 3 star hotels at Balewadi, Pune
6
C.
KHIL currently operates around 7 F&B outlets and 6 banquet halls in Orchid Hotel and VITS. It has a variety of F&B
outlets in its hotels namely Boulevard, Gourmet, Vindhyas, Mostly Grills, Merlins, Cirkus Cirkus and Behind Bars which
add to its revenues and create wide publicity for both its hotels. These outlets ensure that the company has an active
clientele apart from their room guests and provide stability to revenues in case of a fall in occupancy rates and room rates.
F&B revenue is estimated to have contributed around 20% in FY08. Besides KHIL is operating around 20 restaurants in
various locations in Maharashtra and is well on track to establish around 100+ Vithal Kamat vegetarian restaurants in
various locations in Maharashtra, Gujarat, Rajasthan, Goa and Karnataka over the next 5 years some of which will be
executed under a tie-up with HPCL
and ONG
Lately, the company has acquired 60%
stake at Rs.127 per share in Concept
Hospitality Ltd. thereby making it a
subsidiary
of
KHIL.
Concept
Hospitality is engaged in hotel
management of reputed hotels like
Rodas-Mumbai, Uppals Orchid-Delhi,
Lagoona Resort-Lonavala, Floatel-
Kolkatta, Wall Street-Jaipur, Beach
Orchid-Kerala etc. Earlier to fund its
expansion, KHIL has raised nearly
Rs.80 cr. through the FCCB route to be
converted into equity at Rs.225 per
share. Not a single FCCB has been
converted yet. For FY08, KHIL reported
30% growth in topline as well as
bottomline to Rs.148 cr. and Rs.27 cr.
respectively. This translates into EPS of
Rs.20 on its current equity of Rs.13.80
cr. Incidentally, foreigners contribute
around 40% of the total revenue.
Although the company boasts of very
aggressive expansion plans, is actually
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7
target of Rs.180 in 12-15 months.
slow in execution. Hence on a conservative basis for FY09, it may report total revenue of Rs.175 cr. with net profit of Rs.30
cr., which works out to an EPS of Rs.22 on its current equity and Rs.17 on its diluted equity of around Rs.17.50 cr.
Investors can buy the scrip with a price
By Nayan Patel
Visaka Industries
BSE Code: 509055
NSE Code: VISAKAIND
Last Close: Rs.54.80
This is an Andhra Pradesh based cement product manufacturing company. The company produces Asbestos Cement
Products and Textile Yarns. It has an equity of just Rs.15.88 cr. and has huge reserves of Rs.143.36 cr. The promoters hold
32.71% stake in the company, foreign investors hold 11.47%, government financial institutions hold 6.31%, corporate
bodies hold 23.40% while the Indian public holds 26.11% stake in the company.
For FY08, the company has recorded sales of Rs.433.13 cr. and maintained 30% dividend. It has paid 30% dividend for the
last 3 years and thus appears to be investor-friendly. Book closure for 30% dividend is 25 July 2008.
In February 2007, it made a QIP issue of 28,98,600 equity shares at Rs.136 per share and currently the stock is available at
less than half the QIP issue rate.
It's 52-week high/low is Rs.118.50/Rs.44.35. and the stock is available around its 52-week low rate and is available with
high dividend yield. Sources expect the company to announce good results in June 2008 quarter. Buy at declines with stop
loss of Rs.47. On the upper side, the stock can go up to Rs.64-68 level in the medium-term. It is a good and safe stock for
investors with good dividend yield in the current uncertain market.
Sathavahana Ispat: Add on declines
By Devdas Mogili
Sathavahana Ispat Ltd. (SIL), a 19-year old Hyderabad based company established in 1989, is engaged in the manufacture
and sale of pig iron and Metallurgical Coke and caters to the Iron & Steel industry, which is considered as a core sector. K.
Thanu Pillai is the chairman while A. Naresh Kumar is the managing director of the company.
SIL manufactures pig iron through the mini-blast furnace route with an installed capacity of 120,000 TPA and has a
technical collaboration with Tata Korf. Pig iron is used as a raw material in foundries for making cast iron. Pig Iron is of
two grades - basic grade and foundry grade. Basic grade is used in the manufacture of Steel and whereas foundry grade is
used for making castings.
As a part of its diversification and backward integration programme, SIL is setting up a project for the manufacture of
metallurgical coke with co-generation of power. The project, which is coming up at a green-field site in the Bellary district
of Karnataka, envisages setting up a plant for manufacturing metallurgical coke with a capacity of 3,00,000 TPA with
30 MW cogeneration of power at an estimated outlay of about Rs.174 cr. This metallurgical coke facility was
commissioned in March 2007 whereas the co-generation power facility was to be commissioned during second quarter of
FY08.
Performance: For full FY08, sales rose 45.28% to Rs.357.64 cr. in FY08 as against Rs.246.17 cr. during FY07 while net profit
rose 134.90% to Rs.32.98 cr. as against Rs.14.04 cr. during FY07. The company recorded an EPS of Rs.12.53 for FY08.
Financial Highlights:
(Rs. in lakh)
Latest Performance: Its sales increased by
168.39% to Rs.138.65 cr. in Q4FY08 as
against Rs.51.66 cr. during Q4FY07. The
company reported a net profit of Rs.11.67
cr. in Q4FY08 as against a net loss of
Rs.1.22 cr. during Q4FY07 and it notched a
basic/diluted EPS of Rs.4.43 for the
quarter. Going forward, the annualised
EPS works out to Rs.17.72.
TECHNO FUNDA
ANALYSIS
Particulars
Q4FY08
Q4FY07
FY08
Gross Sales/Income
15229.47
6035.27
39589.35
Less: Excise Duty
1364.01
830.83
3825.67
Net Sales/Income
13865.46
5204.44
35763.68
Other Income
79.46
158.87
432.18
Total Income
13944.92
5363.31
36195.86
Total Expenditure
10395.96
4533.04
29347.65
Interest
532.10
172.74
1696.54
Profit Before Tax
3016.86
657.53
5151.67
Tax Expense
1849.97
779.32
1853.75
Net Profit
1166.89
-121.79
3297.92
Financials: The company has an equity
base of Rs.31.83 cr. and with reserves of
Rs.121.20 cr., the book value of share
works out to Rs.48.08. It has a debt:equity ratio of 1.76. Its RoCE is 12.49% while RoNW is 16.32%.
Paid up equity share capital (FV: Rs.10)
3182.50
2630.00
3182.50
Reserves Ex Rev Reserves
-
-
12120.49
Basic/Diluted EPS (Rs)
4.43
-0.46
12.53
Share Profile: SIL's shares with a face value of Rs.10 are listed on the BSE under the B group. Its share price touched a 52-
week high/low of Rs.111/Rs.35. At its current market price of Rs.42, it has a market capitalisation of Rs.130 cr. and a beta
value of 0.9.
Dividends: The company has declared the dividends as shown below:
FY08 - 15%, FY07 - 10%, FY06 - 5%, FY05 - 12%, FY04 - 12%, FY03 - 6%.
The company hiked the dividend by 5% from 10% to 15% for FY08.
Prospects: Pig Iron is the basic raw material for most engineering products and the construction industry. It is also a raw
material for the foundry and engineering industry. With significant growth in the main user industries like automobiles,
construction and foundries, the demand for Iron & Steel has increased significantly. The total production of Pig Iron in
India has increased from 1.59 million tonnes in 1991-92 to the present level of 4.96 million tonnes in 2006-07.
The Indian Steel industry is slowly emerging as a global player placed among the world's top ten players and ranked as
the seventh largest producer and consumer in 2006. In line with the global steel growth, the Indian finished steel
production touched a peak of 49.39 million tonnes in the FY07 accounting for 10.9% year on year (YOY) growth and
with apparent consumption reaching 43.74 million tonnes, an increase of 11.6% over last year's level of 39.19 million
tonnes. The Indian Pig Iron production and apparent consumption during the year was at 4.96 million tonnes and 4.65
million tones, which account for an annual growth of 5.6% and 12.6% respectively.
The outlook for the Iron & Steel industry continues to be encouraging with the global Steel industry constantly reporting
strong output and demand growth during the last five years. The market is expected to be strong in the short-to-medium-
term and stable in the long-term. The strong GDP growth, a booming manufacturing sector, continuous thrust on
infrastructure and growing auto sector are the growth drivers to the Iron & Steel industry.
Conclusion: SIL is a profit-making and dividend paying company. The company's Pig Iron enjoys brand value being one
of the low cost producers of Pig Iron. There is thus an opportunity for increasing its market share.
At its current market price of Rs.42, the share is discounted less than 4 times its FY08 earnings against the industry
average P/E multiple of about 7. Considering its robust performance and bright prospects for the Iron & Steel industry,
the SIL scrip is a good addition to one's portfolio more so on declines with a medium-to-long-term perspective.
Market may lose further ground
MARKET REVIEW
By Ashok D. Singh
The market shrugged off the Left parties' decision to withdraw their support to the Congress-led UPA government in the
hope that this would give the government an opportunity to kickstart the stalled economic reforms, which the Left had
blocked for four years. However, a surge in crude oil prices, disappointing industrial production data and inflation
climbing to more than a 13-year high at the end of week played the spoilsport paring earlier gains of the week with the
market ending with marginal gains in the week. The BSE Sensex fell on 3 out of 5 trading sessions.
The Sensex closed almost flat adding marginal 15.85 points or 0.12% to 13,469.86 for the week ended Friday, 11 July 2008.
The NSE Nifty edged up 33 points or 0.82% to 4,049 for the week.
The BSE Mid-Cap index added 87.10 points or 1.65% to 5,365.34. The BSE Small-Cap index rose 263.99 points or 4.09% to
6,713.66.
Inflation based on the wholesale price index rose 11.89% in 12 months to 28 June 2008, above the previous week's annual
rise of 11.63%, government data released on Friday, 11 July 2008, afternoon showed. It was at highest level in more than
13 years.
Industrial production rose 3.8% in May 2008, much lower than the revised 6.2% growth in April 2008. Industrial
production growth for April 2008 was revised downwards to 6.2% from earlier 7%.
Infrastructure sector output rose 3.5% in May 2008 from a year earlier holding steady near April's 3.6% annual growth.
The infrastructure sector accounts for 26.68% of industrial output.
Sales of passenger cars rose 6.1% to 99,738 units in June 2008 over June 2007, the Society of Indian Automobile
Manufacturers said. Sales of commercial vehicles rose 13.5% to 40,324 units in June 2008 over June 2007.
FIIs sold shares worth Rs.1,012.20 cr. in July 2008 till 9 July 2008 totalling worth Rs.26,477.50 cr. in the calendar year 2008.
Mutual funds have bought shares worth Rs.712.30 cr. in the month of July 2008 so far.
The Sensex rose 71.99 points or 0.54% at 13,525.99 on Monday 7 July 2008 but lost most of its gains in late trade ending
marginally higher on reports of a suicide attack on the Indian Embassy in Kabul. The market had remained firm in most
part of the day on firm global cues.
The Sensex lost 176.34 points or 1.3% at 13,349.65 on Tuesday, 8 July 2008 as it failed to sustain the previous day's small
gains as global markets played spoilsport. Nevertheless, the market came off the lower level after an initial sharp fall
shrugging off the decision of Left parties to withdraw their support to the Congress-led UPA government.
8
The Sensex gained 614.61 points or 4.6% at 13,964.26 on Wednesday, 9 July 2008. A mix of positive domestic and global
news helped the bulls conquer the bourses. The market got a boost on hopes that the government may push through
some of the economic reforms which Left parties had stalled over the past four years.
The Sensex lost 38.02 points or 0.27% at 13,926.24 on Thursday, 10 July 2008. The market ended little changed after
witnessing a bout of volatility in the day. Investors refrained from building large positions ahead of the weekly inflation
data and Index of Industrial Production data for May 2008 to be released the next day on 11 July 2008.
The Sensex slumped 456.39 points or 3.28% to 13,469.85 on Friday, 11 July 2008. Dismal economic data and strengthening
crude oil prices forced investors to dump shares across the board. IT stocks tumbled after Infosys said at the time of
announcing Q1FY09 results that the business environment was tough. All sectoral indices on the BSE were in the red.
Infosys slumped 4.5% to Rs.1676.45 for the week. Infosys' consolidated net profit as per Indian GAAP rose 4.2% to
Rs.1302 cr. on 6.8% growth in revenue to Rs.4854 cr. in Q1FY09 over Q4FY08. Infosys has forecast 24.4% to 26.6% growth
in earnings per share as per Indian GAAP at between Rs.98.79 to Rs.100.51 in FY09 over FY08. It has forecast a between
27.5% to 29.5% growth in revenue at between Rs.21278 cr. and Rs.21622 cr. in FY09 over FY08.
Satyam Computer Services fell 3.83% to Rs.444.45. It formed an alliance with Taiwan based Tyfone to provide mobile
financial services to its customers. Tata Consultancy Services (down 5.28% to Rs.799.20) edged lower for the week.
Bharti Airtel rose 4.01% to Rs.745 on 11 July 2008. As per reports the company added 2.5 million new subscribers in June
2008, the highest ever monthly customer addition by any operator in India.
Reliance Communications fell 0.07% to Rs.437.90. South African mobile phone operator MTN Group has agreed to extend
its exclusive talks with the Indian cellular services provider for a possible combination of their businesses, until 21 July
2008.
DLF surged 9.23% to Rs.452.80. The company's board of directors on 10 July 2008 approved a proposal of buyback of
equity shares at a price not exceeding Rs.600 per share.
Tata Steel rose 4.07% to Rs.666.15 in the week. As per reports on 10 July 2008 the company plans to list a holding firm for
steel and raw material assets outside India, on the London Stock Exchange to raise funds for acquiring iron ore and coal
mines.
The Sensex closed marginally higher adding 15.85 points to 13,469.86 last week The market might extend it's last Friday's
sharp fall on gloomy domestic and global scene. Higher crude oil prices, rising inflation, weak industrial production
numbers, fears of further rise in interest rates, fluid domestic political situation and tension in Middle East will weight on
the investor sentiment.
Reserve Bank of India on 24 June had hiked both repo rates and cash reserve ratio by 50 basis points each to tame rising
inflation. There are expectations of further monetary tightening in quarterly monetary policy review of RBI scheduled on
29 July 2008 as inflation is showing no signs of abatement.
Prime Minister, Manmohan Singh is likely to seek a vote of confidence on 22 July 2008 in parliament following the Left's
withdrawal of support to the government over the India-US civil nuclear agreement. This political development will have
a major impact on the markets.
Time to buy for the long-term
MARKET
By G. S. Roongta
Last week seems to have signalled the end of the bear phase as all negative factors have materialised including the
withdrawal of support to the UPA government by the Left parties. This had been the major political factor, which had
riddled the stock markets ever since the Left parties threatened to withdraw their support on the nuclear deal with the
USA.
The efforts of bear operators on the first two days of last week to break the Nifty below 4000 and the BSE
Sensex at 13000 once again failed to materialise even though the bear TV channel and some print media
were propagating another major fall on account of this political factor. Instead, the market bounced back
handsomely by 615 points on Wednesday, 9 July 2008. This was reportedly on strong US markets and
softening of crude oil prices, which would help cool domestic inflation.
This was one of the largest rises in recent months and that too in the backdrop of a huge political
uncertainty with the Sword of Damocles hanging over the Prime Minister's (PM) head. This should not
be considered as an ordinary event and must be viewed in the context of the shift in perception. All this
while, the threat of the Left coalition partners would send shivers down the stock markets as all UPA government
decisions, especially in relation to economic reforms, were rendered ineffective. But with the boldness demonstrated by
the PM to go ahead with the nuclear deal and the Samajwadi Party (SP) extending support have led marketmen to believe
that it was 'good riddance to bad rubbish' and that the UPA government will henceforth move ahead more boldly and
G.S. Roongta
9
firmly. Thus the departure of the Left support was taken as a blessing in disguise. This change in sentiment is important
even though it is brushed off as a technical bounce back or a pull-back rally by the media.
Having reacted to all negative cues right from the failure of the US financial system, the US economic slowdown, the rise
in crude oil prices followed by lower growth and the spurt in inflation rate to double digits, which knocked off 8000
points in the Sensex from its high of 21200 achieved on 10 January 2008. Thus in 6 months the market has lost more than
40% whereas some specific stocks have even lost over 70% even though there is no change in their outlook or fall in
corporate earnings. And if the Q1 results due from next week do not reflect any material change, then the markets may
bounce back with greater speed than they had fallen.
Besides, if the inflation rate that was expected to peak to 13% does not materialise and drifts downward on the back of a
good monsoon, it will have a positive impact on the market sentiment.
The rampant speculation in Nifty Futures needs to burst out. And once that happens, the bears will rush to cover their
short positions. Just imagine what would happen to the Sensex then. Would it then be just short covering or a technical
bounce or a pull-back rally or a genuine change in sentiment?
As far as specific stocks are concerned, they all seem to have reached their bottom and bears are finding it difficult to beat
them down any further as value buying by investors emerges at these levels. That is why I have been repeatedly
recommending bottom-fishing for the past 6 weeks and those of you who have followed my advice must have benefited
by this rally or bounce back. L&T, Reliance and ACC have risen by over 100 points and second line shares rose by 8-10%
last week and given good profits.
Since a definite trend will take some time to emerge and the market has again reacted on Friday, 11 July 2008, on low
productivity numbers and higher crude oil price as also higher inflation, investors are advised to buy fundamentally
good stocks in panic and book profits in the pull-back rally that follows. Till a definite trend emerges, this trading strategy
is the best option for people who cannot hold for long.
Bajaj Auto, which announced its Q1 results has shown 9% increase in turnover indicating a rise in demand while the
profit has dropped by 4%. This gives a fair clue that while demand is still intact, cost escalation, especially rise in steel
prices, have affected its profitability, which had been going up year after year over the last 3 years. While it has fallen
from the top level it is much above the normal.
Last but not the least; let us look at some of the future events in store:
(1) Kharif sowing peaks – Just as the inflation rate scales a 13-year high, so also there is good news like timely
monsoon and the farmers expending sowing areas significantly in kharif season (mainly for rice) from 47.08 lakh
hectares to 55.95 lakh hectares i.e. more than 25%. Similarly, pulses cultivation has increased from 13.5 lakh
hectares to 20.03 lakh hectares i.e. over
50%. These two crops were mostly in
shortage and gave rise to the high
inflation rate. With better supply of rice
and pulses, inflation is sure to retreat.
(2) If the UPA government succeeds to win
the various trust votes, various
economic proposals such a divestment
of PSUs, which had been blocked by the
Left parties, can be taken up once again.
This would have a positive impact on
the markets.
(3) In case crude oil prices tumble, it is
bound to reduce inflation, which will
have a salutary effect on the economy.
And interest rates, which are feared to
rise further, will stabilise at current
levels.
(4) The GDP growth rate, under such
circumstances, may yet average out between to 8% to 8.5%.
Thus, according to me, the markets should improve rather than deteriorate further and investors should indulge in
bottom-fishing and buy fundamentally good stocks for the long-term. But if they can't hold for long they should buy in
the panic and sell on a pull-back rally. They can continue to do so until a clear indication of a trend emerges.
10
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STOCK WATCH
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As Spanco Telesystems & Solutions Ltd. (Code: 508976) (Rs.90.75) transferred its BPO division on slump sale basis to its
indirectly owned subsidiaries w.e.f. March 2008, its Q4 results include the results the of BPO divisions for only two
months. Still on a standalone basis, it recorded 30% growth in sales to Rs.139 cr. But due to very high interest cost of Rs.14
cr., its net profit declined by 60% to Rs.3.70 cr. However for entire FY08, it recorded 30% and 20% increase in topline and
bottomline to Rs.565 cr. and Rs.38 cr. respectively. This works out to an EPS of Rs.18 on its equity of Rs.20.65 cr. The
company's core competency lies in offering telecom systems integration, which includes implementation of multi-
location, multi-services converged networks for carrying diverse multimedia traffic (voice, data & video) based on latest
technologies like ATM, MPLS, Frame Relay, TCP/IP etc. Its also active in RFID space through another 51% subsidiary. On
the back of strong order book position, it is expected to report total revenue of Rs.750 cr. and PAT of Rs.50 cr. i.e. an EPS
of Rs.24 on a consolidated basis. The company has allotted 28.50 lakh warrants at Rs.215, which may not get converted
considering the CMP. A good scrip to accumulate.
******
For Q4FY08, Numeric Power Systems Ltd. (Code: 532051) (Rs.576.60), the undisputed leader in uninterrupted power
supply (UPS) systems reported 30% growth in sales to Rs.108 cr. whereas net profit more than tripled to Rs.10 cr.
Accordingly, for the full year it registered 40% growth in sales to Rs.387 cr. with PAT more than doubled to Rs.40 cr.
leading to an EPS of Rs.80 on its tiny equity of Rs.5 cr. Apart from manufacturing UPS, stabilizers and power
conditioners, the company 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. It even has 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. As per unconfirmed reports, around 75% of the ATMs in the
country are fitted with UPS supplied by it. For FY09, it may report sales of Rs.450 cr. with profit of Rs.45 cr. i.e. an EPS of
Rs.89. Secondly, with an estimated reserve of more than Rs.125 cr. on its tiny equity of Rs.5 cr., the scrip is fully ripe for
liberal bonus as well. Keep adding on declines.
******
Lloyd Electric & Engineering Ltd. (Code: 517518) (Rs.86.30) posted satisfactory Q4FY08 results and ended FY08 with
sales of Rs.668 cr. (up 40%) and net profit of Rs.60 cr. (increase of 40%) i.e. an EPS of Rs.19 on its equity of Rs.31 cr. Being
India's largest manufacturer of evaporator and condenser (E&C) coils with around 60% market share, the company has
got itself forward integrated into the lucrative business of contract manufacturing of window/split air conditioners for
various MNCs in India. It is also into manufacturing of roof mounted packaged units i.e. packaged AC for railway
coaches on turnkey basis and even has an agreement with Australian company for metro rail AC units. Further, the
company is contemplating to diversify into production of roll bond and frost free coils for refrigerators and has tied up
with a Korean company. More importantly, couple of months ago, it acquired 100% stake Luvata Czech s.r.o. in Prague,
Czech Republic, which is also into manufacturing heat exchangers/coils and has good presence in the European markets.
On a consolidated basis, it is expected to clock a turnover of Rs.850 cr. and PAT of Rs.65 cr. i.e. an EPS of Rs.21 on its
current equity. The company has allotted 50 lakh warrants at Rs.225, which may not get converted considering the CMP.
A screaming buy at current levels.
******
After hitting a new low of Rs.49 last week, the share price of Quintegra Solutions Ltd. (Code: 532866) (Rs.59.85) has
recovered somewhat by 30% to the current level. The company's broad capabilities include application management,
product engineering, enterprise solutions such as SAP, testing & validation, technology consulting, professional services
and proprietary product suites. Presently, the company focuses on six main business verticals including BFSI, Heatlhcare,
Education & Training, Engineering Services, Logistics and Telecom. Unlike other companies, Quintegra has invested in
creating products in its chosen verticals. Importantly in October 2007, it acquired M/s. PA Corporation, Virginia, USA
(PAC), which specialises in high-end IT consulting and leadership in middle-space IT services such as enterprise
application services, date architecture & data validation, audit compliance documentation, business process management,
integration architecture & deployment and testing & configuration management. Financially, for FY08, Quintegra's top
line as well as bottom-line has increased by five times to Rs.390 cr. and Rs.35 cr. respectively thereby posting an EPS of
Rs.13 on its equity of Rs.26.80 cr. For FY09, it is expected to earn a net profit of Rs.42 cr. on a revenue of around Rs.600 cr.
i.e. an EPS of Rs.14 on diluted equity of Rs.29.50 cr. However, the company is looking to raise Rs.400 cr. through the
equity route, which will dilute the share capital significantly.
By Kukku
FIFTY FIFTY
* Indian Hume Pipes (Rs.478) - There is sharp rise in input costs in the last 7/8 months since we recommended this stock
in this column. As per its FY08 annual report, there is the following sharp increase in input cost:
(1) Mild steel wire rods prices flared from Rs.28,000 to Rs.47,000 per MT a rise of 68%.
(2) Prices of steel plates shot up from Rs.28,500 to Rs.43,500 per MT - a rise of 53%.
11
(3) High tensile wire cost shot up from Rs.34,200 to 42,500 per MT - a rise of 24%.
(4) Cement cost went up from 4200 per MT to Rs.5100 per tonne - a rise of 22%.
It is understood that there is further increase from 1 April 2008 by another 15-20% in steel prices.
Last year, it consumed about Rs.86 cr. worth of steel while the cement consumption was around Rs.25 cr.
Interest cost, too, flared up to Rs.10.32 cr. against Rs.7.84 cr. in FY07. This will go up sharply in the current year in view of
higher interest rates and higher working capital requirements.
Overall, the outlook of the company is encouraging with strong order position but margins are likely to remain under
pressure as all orders do not have a price escalation clause. Even the price increase clause is linked to the price index,
which does not fully cover the increase in steel cost.
Since most companies have long execution periods for completion of work, it is likely to suffer profit margins although
there may be good growth in its topline.
Raw material ratio of IHP is around 26%. What will happen to other sectors like auto sector/capital goods where raw
material cost is as high as 50-65%. In saw pipes, it is even higher.
* The promoter of Saregama Ltd. (Rs.103.25) has increased its stake in the company by 1.36% in March 2008 quarter while
in last full year, promoter stake increased by 2.35%. There is further promoter buying as per disclosure. Company has
recently declared 10% dividend after long gap of time. The stock looks attractive for buying around Rs.100 level as it has
reacted from a high of Rs.388.
* Assam Company (Rs.23) - Re-emergence of demand for tea from merchant exporters and fall in production have led to
a Rs.10 per kg increase in price realisation during May 2008 compared to last year. For the full year, tea prices have
increased by an average Rs.6.33 per year. Tea exports are showing an improved trend albeit marginally with shipments
increasing by 3.4 million kg (mkg) during January-May 2008 this year compared to 66 mkg last year. This should also help
improve the profits of the company. Its tea business contributes more from Q2 onwards with Q3 and Q4 being still better.
It diversified into exploration and production of oil to leverage its joint venture with Canoro Resources Ltd, the Canada-
based Oil & Gas Company and its presence in Assam since 1839. The revenue model of ACL can change considerably
with major contribution coming in from the Oil & Gas business as compared to the Tea business.
Investors can add this stock on dips to around Rs.21/22 level where the downside is limited.
* Supreme Industries (Rs.167.60) has a foreign exchange loan of about Rs.100 cr. for which it may have to make higher
provisions due to increased liability as dollar is now Rs.43, as against around Rs.40 level in June 2007.
* Amtrutanjan Ltd. (Rs.387) has sold the land and buildings situated at Egattur, Chengleput Taluk, Kancheepuram
District, Tamil Nadu, to Life Insurance Corporation of India for a total consideration of Rs.110 cr. The company is going to
declare special one time interim dividend on 17 July 2008. Investors may continue to hold the same. The company has
small equity base of Rs.3.2 cr.
* Kalpana Industries (Rs.127.75) is said to be doing well. Investors can keep a watch on this stock for buying on dips
around Rs.115/120 levels.
Note: The market seems to have taken good support around Sensex 12800 level and a good bounce back was seen from
that level in many of the stocks which had come down sharply. Since fundamentals do not support an upward move this
bounce back may be due to short covering.
Investors can book profits or exit stocks where the fundamentals do not support an upmove.
India's industrial growth plunged to 3.8% in May 2008, as compared to 10.6% a year-ago, due to poor performance in the
manufacturing and electricity sectors.
There are indications of a slowdown in growth in sectors like automobile, machine tools, capital goods sector &
inventories are said to be building up.
Investors should avoid buying on a pull-back.
Avoid stocks having steel as its main raw
material and where the margins are very thin.
Avoid all broking firm stocks as we may see
more realistic values after a few quarters.
Avoid all high priced IPOs.
Since economic fundamentals are weak,
market is likely to go below 12800 and may
take support around Sensex 11500 level.
12
By V. H. Dave
EXPERT EYE
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The shares of Federal Bank Ltd. (FBL) (Code: 500469) (Rs.173) are being recommended for long-term gains. Seeing its
potential, FIIs have purchased a large chunk of this share.
13
Incorporated in 1931 as Travancore Federal Bank by a small group of local citizens, the bank acquired its present name in
1949. It is one of the older private sector banks and has its largest client base in Kerala. Its operations were confined to
Kerala till 1972 but later expanded to all metropolitan centres. In FY07took over the erstwhile Ganesh Bank of Kurunwad,
which it merged with itself and has widened its network in the last 18 months by adding 100 new branches taking its total
network to 603 branches and 536 ATMs.
The bank plans to strengthen its 100% subsidiary, Fed Financial Services, for marketing its home loans and car loans
aggressively. Fed Financial has brought in business of over Rs.200 cr. in the last 4 months and is operating in around nine
centers and in targeting a business volume of Rs.1,500 cr. in FY09.
The bank distributes mutual fund products of 15 AMCs and life insurance products of its own joint venture with IDBI
Fortis Life Insurance, besides non-life products of United India Insurance. It has invested Rs.52 cr. in 5.2 cr. equity shares
of Rs.10 each in IDBI Fortis Life Insurance Company constituting 26% of the share capital of the company. The other big
shareholders are IDBI and Fortis Insurance International N.V.
FBL opened its first overseas representative office in Abu Dhabi to provide a single window facility to its NRI clients in
the Gulf region. This is expected to bolster remittances, which constitute a significant volume of it's business.
During FY08, its net profit advanced by 26% to Rs.368 cr. on 60% higher income of Rs.2910 cr. and the EPS was Rs.21.5 on
its increased capital of Rs.171 cr. resulting from 1:1 rights issue. It has recommended a dividend of 40%.
It's Q4FY08 net profit grew only 4% (YoY) largely due to Rs.68 cr. of MTM (mark-to-market) hit in the bond portfolio,
resulting in 59% YoY jump in provisioning. It also provided an additional Rs.12 cr. for the expected wage revision. The
total wage provision for FY08 stood at Rs.42 cr.
Otherwise, its core business remained strong with net interest income (NII) growing 22% (YoY) driven by 27% growth in
credit and 20% rise in deposits. Its asset quality remained stable with gross NPAs at 2.42% and net NPAs at 0.23%.
The bank's total business has crossed Rs.42, 400 cr. (+16%), with deposits of roughly Rs.24,500 cr. (+13%) and advances of
over Rs.17,900 cr. (+20%).
Its return on assets (ROA) stood at 1.34% as on FY08 against 1.38% as on FY07. Its capital adequacy ratio (CAR) stood at
22.46% as on FY08 against the regulatory minimum of 9% stipulated by RBI. The business per employee as on FY08 has
improved to Rs.640 lakh from Rs.544 lakh as on FY07. The profit per employee grew to Rs.5.30 lakh as on FY08 compared
to Rs.4.43 lakh as on FY07.
The net interest margin (NIM) of the bank increased from 3.47% as on FY07 to 3.49% as on FY08. Its gross NPA ratio stood
at 2.42% as on FY08 compared to 2.95% as on FY07. Its Net NPA ratio stood at 0.23% as on FY08 against 0.44% as on FY07.
The total provisions held against non-performing advances as a per cent of gross NPAs (Provision coverage of Gross
NPAs) amounted to 81.46% as on March 31, 2008.
Its equity capital is Rs.171 cr. and with reserves of Rs.3745 cr., the book value of the share works out to Rs.229. FII holding
is 42.1%, GDR holding is 13.1%, Mutual Funds hold 5.1%, Banks/Institutions hold 29.2% leaving 10.5% with the investing
public.
FBL is gearing up operations in the Gulf countries and the USA a move for the longer term against just mobilising NRI
funds for the short-term.
The bank would continue to add more branches and ATMs this year in line with its organic growth plans. New branches
tend to perform better than the old during the initial five to six years, and it plans to open 50 new branches in FY09.
To meet the requirements of higher business levels, it will pursue a massive recruitment drive and plans to recruit 2,000
personnel over the next one year.
The bank has recently concluded a 1:1 rights issue raising Rs.2, 140 cr. for branch expansion. It hopes to boost its balance
sheet size from Rs.42, 400 cr. in FY08 to Rs.1, 02, 000 cr. by 2012 and is targeting 1,000 branches by 2012.
It's investment in increasing branch network organic and inorganic route, offering better value propositions in terms of
technology, wider product range and increasing business through its subsidiary gives it strong revenue & profits
visibility in coming years.
We expect the bank to record momentous growth in net profit in FY09 aided by the fresh rights capital raised in FY08 for
branch expansion. Increasing operating income and increase in deposits & advances will deliver good growth in business
and drive net profitability higher with better return ratios.
During FY09, FBL is likely to register a net profit of Rs.520 cr. on total income of Rs.3790 cr., which would further rise to
Rs.640 cr. on an income of Rs.4850 cr. in FY10. The EPS could work out to Rs.30.4 and Rs.37.4 in FY09 & FY10 respectively.
At the CMP of Rs.173, the share is trading at a P/ABV of 0.7 on its FY09E and 0.6.1 on the FY10 book value and a P/E of
5.9 on FY09 estimated EPS of Rs.30.4 and 4.8 on the projected EPS of Rs.37.4 for FY10. The share is recommended with a
target price of Rs.235 in the medium-term.
******
The share of Core Projects & Technologies Ltd. (CPTL) (Code: 512199) (Rs.184) is being acquired by overseas and local
funds in fairly large quantities in anticipation of its bright outlook. Marketmen put the share price in 4-digit in about one
year.
CPTL is an IT product and end-to-end services solution provider company catering to verticals such as Education,
Logistics, HealthCare and ERP. CPTL is a niche player within the IT education domain having products such as Core Star,
Core Bright Idea, Core Grants Manager etc. Products in other verticals include Core RFIDS, Core Mobile-VTS, Core
Hospital Managemnt, Core Prism, Core Attorney-MS etc. Enterprise Computing Services Inc. (ECS) in Atlanta, USA;
Software Technical Services Inc. (STS) in Atlanta, USA; Core Projects & Technologies Ltd. FZE in Sharjah, UAE, Weda
Infotech Pvt. Ltd, Aarman Inc.; Aarman Software Pvt. Ltd. and EMACS Technologies Inc. are its subsidiaries.
CPTL has 31 products in the education space and operates in 16 states in USA and is also present in some parts of the UK
and Africa. Its offerings in logistics include RFID and GPS/GPRS based asset tracking system (ATS). It enables automated
tracking of assets or products on a real-time basis.
In the past two years, CPTL has acquired five companies, which have contributed over 65% to its total revenue and profit
in FY07. Its strategy is to acquire companies in the US and UK as it enables it to add more products to its portfolio and
expand its geographic base.
CPTL's client list includes several US State Governments such as Georgia, North Carolina, Michigan, Illinois, Florida and
Maine. It recently got a major breakthrough by bagging an order from the Jharkhand Government of India and is
aggressively looking to add other State Governments to its client kitty. CPTL is scouting to expand its expertise across the
globe with a view to tap the potential in the European Union (EU) and Australia and to enhance the functionality of its
clients across the globe.
Recently, it tied up with IBM, a worldwide leader in IT, for using its platform to provide solutions in the government and
education space. It has entered into a pact with Center of Higher Learning (CHL), which is a collaboration between NASA
and the State of Mississippi, USA, to develop innovative technologies that would be used in the delivery of education in
USA and India.
The new delivery system will use three-dimensional technology where students can not only visualise but also interact
with the content. CPTL has also signed a MoU with the Indira Gandhi National Open University (IGNOU) for setting up
visualisation learning centres at all IGNOU centres in India.
During FY07, CPTL registered consolidated income of Rs.200 cr. and posted a net profit of Rs.33.5 cr. yielding an EPS of
Rs.4.8 on FV of Rs.2 per share. During Q2FY08, it posted 279% higher net profit of Rs.22.4 cr. on 283% increased sales of
Rs.115 cr. In H1FY07, income rose by 238% to Rs.201 cr. and net profit by 223% to Rs.34.9 cr.
Its equity capital is Rs.14.2 cr. and with reserves of Rs.105.2 cr., the book value of its share is Rs.17. The promoters hold
53.7% in the equity, Foreign holding is 8%, Institutions hold 2.5%, PCBs hold 23.3% leaving 12.1% with the investing
public.
Coming to its future prospects, countries worldwide are making huge investments in education. For instance, the US
Government spends around 5.7% of its GDP on education, which roughly translates into $706 billion. Of this, around 6-
7% is spent on IT ($46 billion). In 2006, the US spent $536 billion on public schools and this figure is increasing by 4-5%
p.a.
The second largest area of increase in federal spending is on special education, which increased from $250 million in 1977
to $5 billion in 2000 to $12 billion in 2005. Also, countries like UK, Australia and Africa, spend anywhere between 4.5% -
5% of their GDP on education. On the other hand, the Indian Government spends 3% of its GDP i.e. around $21 billion on
education, which is expected to increase to
around 5% of GDP. In the 2006-07 Budget,
the government had allocated Rs.210 billion
for Sarva Shiksha Abhiyaan (SSA) (53%
jump from previous year).
CPTL has been at the forefront of the
administrative school software. With
several large application installations
throughout the USA and UK, and with
additional opportunities emerging in India,
the company is a leader in providing school
administrators with the tools they need to
help provide quality education to students.
CPTL's focus on education vertical is
expected to change its revenue model with
education accounting for over 85% by FY10
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from the current 32% in FY07. In the education space, CPTL has its focus on state Governments that are initiating various
education programmes under the SSA, which throws upon a huge domestic education infrastructure opportunity.
CPTL plans to produce educational software titles for over 17,000 higher education institutions, as well as hundreds of
thousands K-12 schools in the US, UK and India. The applications will be in areas such as mammography physics,
chemistry, molecular science, biology, computer science, mathematics, scientific computation and more.
The company has entered into a joint venture (JV) with IL&FS IETS to provide IT and infrastructure solution in the
education space. It aims to assist State Governments, in achieving their responsibility of funding and implementing
projects under SSA. The outlay approved for SSA has been increasing every year. It has gone to Rs.20,900 cr. in FY07 up
from Rs.13,600 cr. in FY06 and the total outlay approved till date is Rs.32,300 cr. for FY08.
Over a period of three years, the company will set up 175 centres that will fetch it one-time revenue of Rs.28 lakh
($70,000). These centres will be set-up for IL&FS and IGNOU and will be operated by the JV between Core and IL&FS.
The JV will earn annual revenue of $1.3 million from each centre per year.
Its focus on education verticals is expected to change its revenue model as education will account for over 85% of its
revenue by FY10 from 32% in FY07.
Given the government's increasing thrust on education, CPTL's focus on quality education, universalisation of secondary
education, increasing focus on IT education, large student population, doubling of education spend to spend 6% of GDP
from 3%, high scalability of CPTL's business and its tie-up with NASA and others in the field of education together with
its successful inorganic growth strategy bodes well for higher revenue & profitability in coming years.
CPTL's equity will further rise to Rs.19.8 cr. by 2009 due to FCCB conversion. The book value of the share will rise to
Rs.52 and Rs.70 respectively due to corresponding increase in reserves and increased profits.
At CMP of Rs.184, the share is traded at a P/E of 24 on FY09E EPS of Rs.15 and 12.8 on FY10E EPS of Rs.28. Against this,
the shares of IT education sector currently rules firm at 108. The share has all the potential to cross the Rs.1000 mark in the
medium-to-long-term. The 52-week high/low of the share has been Rs.370/119.
Allied Digital acquires EnPointe Global Services for $30 million
Allied Digital Services Ltd. (ADSL), a leading Enterprise IT infrastructure management services provider has acquired
80.5% stake in IT Infrastructure Management/Remote Management Services provider EnPointe Global Services Llc., a
carved out subsidiary of EnPointe Technologies Inc. (ENPT), a NASDAQ listed company, with revenues over US $340
million. According to the effective acquisition agreement, Allied Digital has acquired the IT Infrastructure Managed
Services business for an equity valuation of US $30 Million.
MARKET FOLIO
The transaction is a combination of cash & equity swap, entailing upfront cash payment of US $10 million and issuance of
745,000 equity shares of ADSL to ENPT, with an additional cash infusion of US $4 million in En Pointe Global. This
acquisition is revenue and earnings accretive to ADSL and is expected to strengthen the opportunity pipeline for the
company in the US market for its Remote Service offering and also use the acquired entity as a platform for several other
inorganic growth initiatives across the globe.
En Pointe Global has contracted revenues of US $40 million, with gross margins of 35%. En Pointe Global will receive on
going marketing & business support from US $350 million En Pointe Technologies, which has a strong sales team, reach
and credibility established over last 15 years of operation in the US market and an established presence across 44 states
with a client base that includes several Fortune 1000 companies across the BFSI, Healthcare, Retail, Manufacturing,
Aviation, Transportation sectors.
KZen Equities launches operations in India
KZen Equities has launched its investment advisory operations, which for the first time, offers clients the opportunity to
invest outside India in early stage investment opportunities. The company caters to the needs of sophisticated investors:
high net worth individuals (HNIs) and entrepreneurs.
KZen Equities offers its clients access to investment opportunities, based on experience gained by its top management in
positions including membership of the London Stock Exchange, the Market Practices Committee of the IPMA in London
and the Index Policy Committee of the NSE of India. Its senior management has gained market experience from working
with leading investment banks and equity houses, such as ABN Amro, Barings Bank, Deutsche Bank and JP Morgan
Chase.
Over the last 10 year, the senior management, in various capacities, has raised finance for more than 240 companies,
across geographical as diverse as Latin American , Russia–CIS, China and SE Asia and in sectors as varied as mining,
biotech and waste recycling. Returns on some of these investments reached as high as 1000% from companies such as
Brancote Mining, ARM Holding and Traffic Master.
ICICI Bank launches virtual 'B2-Branch-free Banking'
15
ICICI Bank has launched 'B2-Branch-free Banking', which offer seamless information through a single interface to
facilitate banking transactions over the internet. It is a unique direct bank, which empowers customers to manage all their
finances online.
In addition to easy access and anytime anywhere banking, customers opting for 'B2-Branch-free Banking', can benefit
from zero charges and no minimum balance. The customers will also benefit from quantum optima facility, wherein if the
balance exceeds Rs.5000, the money is automatically transferred, in multiples of Rs.5000, to a linked fixed deposit which
will earn ICICI bank fixed deposit rates. It also offers facilities like an e wallet – a zero limit pre-paid visa card which can
be used for online purchases and to pay utility bills.
Union Bank net up by 64%
Union Bank of India has declared 40% dividend for FY08 against 35% in FY07.
The bank made 64.14% higher net profit at Rs.1387 cr., which is one of the highest in the industry. It improved the return
on average assets from 0.92% to 1.26% and fall in cost to income ratio to 38.17% from 42.45%, which is on par with global
standards. EPS has increased substantially from Rs.16.74 to Rs.27.46 and book value from Rs.93.60 to Rs.111.19.
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.
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