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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 21
Monday, April 7 - 13, 2008
Pages 17
Market rangebound & volatile
with negative bias
By Sanjay R. Bhatia
The markets displayed intermediate bouts of volatility and choppiness on the back of negative global cues last week.
Selling pressure was evident at higher levels as traders and speculators were seen booking profits and also seen creating
fresh short positions. The volumes recorded remained lacklustre amidst negative breadth of the market. FIIs remained net
sellers in the cash as well as the derivatives segment together with mutual funds, who were net sellers too.
Global cues have remained mixed, with the US Federal Reserve
Chairman admitting to a slowdown in the US economy and the
possibility of a recession looming large. Crude oil prices have
softened a bit on the back of an increase in US inventory levels. On
the domestic front inflation continues to remain the biggest concern.
It has touched 7%, which is a three year high and is potent enough
to derail the Indian growth story. The RBI is likely to take some
stringent measures, like increasing the CRR, which would lead to a
sell-off on Dalal Street. In the meanwhile, follow-up buying
continues to remain absent at higher levels, which is a cause for
concern. The markets are likely to keep a close watch on the global
markets, crude prices and the rupee dollar equation.
Intermediate bouts of flare-ups amidst bouts of volatility and
selective buying will be witnessed. However, rise in funds flow and
increase in volumes is needed if a sustainable rally has to unfold. The results are also likely to impact the market
sentiment and positive surprises are needed if the markets have to witness any sort of sustainable rally. Any negative
surprises will only act as a trigger for a sell-off on the bourses. The overall trend is likely to remain rangebound with a
negative bias.
Technically, on the upside Sensex faces resistance at the 15,699, 16,608 and 17,022 levels but has support at the 15,332 and
14,141 - 13,989 levels. On the upside, the Nifty faces resistance at the 4899, 5025 and 5156 levels while 4482 and 4070 are
its important support levels.
Investors should avoid long positions.
ICAI steps in the right direction
By Fakhri H. Sabuwala
The recommendation of the Institute of Chartered Accountants of India (ICAI) for early adoption of prudent derivative
accounting is a step in the right direction although it comes at the wrong time when market sentiment is at its lowest ebb.
The ripples of fear created in corporate circles seem unfounded as derivatives accounting will ensure that corporates
report their estimated losses from foreign currency derivatives as per the existing norms. ICAI has clarified that it is not
1
advancing the date of implementation although it would have liked to, but only wants to ensure compliance on the basis
of existing parameters of disclosures.
Adoption of new standards AS30 in financial instruments would compel companies to provide for future gains or losses
in foreign currency derivatives as per the fair market value. But if a company does not adopt the new norm it will not
have the flexibility to provide for future gains, therefore, its net profit may be lower.
Although Accounting Standard AS30 comes into force from 2011, AS1, which is in force today, necessitates all corporates
to disclose their foreign currency derivatives as per the principle of prudence enunciated, which requires companies to
provide for losses in respect of all outstanding derivative contracts on the balance sheet date by marking them to market.
The guideline to adhere to AS30 is recommendatory in nature from 1
st
April 2009 and compulsory from 1
st
April 2011.
However, ICAI has made it mandatory for corporates to provide for losses if any, in their forex derivative transaction and
mark to market (mtm) their outstanding transactions in all accounting periods ending from 31
st
March 2008 onwards, a
matter of prudential accounting.
It is believed that many companies playing the hedging game out of greed may be put to big losses. To begin with, Amtek
Auto ($18 million), L&T ($50 million) and Hexaware (figure awaited) have begun disclosures. Although the total
quantum of such derivatives volume by Indian corporates is still not available, knowledgeable sections put the total
exposure to exotic derivatives to nearly $2 billion!
By any yardstick, this is a welcome step as it increases transparency in disclosures and will help put investors on guard.
Check your net worth!
The bloodbath of 22
nd
January 2008 and the broker-client litigations that followed have a lot to explain and a lot to learn
from. By its move aimed at rationalizing the entry of retail investors in the stock derivatives market. SEBI has specified a
certain minimum net worth as criterion for trading and assigned the turnover limits based on the net worth and not on
the basis of margin money.
SEBI is of the opinion that the regulatory framework needs to be enhanced to create a sense of awareness among
investors. The net worth certificate is based on the latest IT returns and balance sheet and the trading limit must be
commensurate with it.
The brokers, in turn, need to inform clients upfront about their working and the background of their firm. The regulator
intends to protecting investors from the arbitrary tip culture that flourishes via sms, print or word of mouth. Investor
interests need to be protected from mere recommendations of buy and sell. The trading member will have measurable
grounds to believe that the recommendation is suitable for the client on the basis of the facts disclosed about his/her
financial position, other security holdings, past investment experiences, patterns and investment needs. Trading members
will also ensure timely execution of such transactions of their clients and ensure the best available price for them. It will
become obligatory for brokers to adequately inform their clients of the nature and implication of the recommendations. A
tough call one may say but all for the cause of small investors!
2
Painful market!
TRADING ON TECHNICALS
By Hitendra Vasudeo
We had hoped for a pull back last week but there are no signs of it. In fact, the market has retraced back the entire weekly
gain that was registered on 28/03/08. Last week, the Sensex opened at 16226.66 attained a high at 16236.70 and fell to a
low of 15297.96 before it closed the week at 15343.12 thereby showed a net fall of 1031 points on a week-to-week basis.
Weekly resistance will be at 15625-15953-16500. Weekly support will be at 15015-14677-14076.
On the daily chart, support will be 15300. On sustained fall and close below 15300, expect a slide to 15015-14677. Till 14677
is not violated, we have some hope of a sideways movement in a
wider band of 16500-14677. If the level of 14677 is not violated and
we consolidate above 14677, then we have some chance of a rise
back to 16500. Ultimately, we need a breakout and close above 16500
that can extend the pull back.
If the Sensex falls and closes below 14677, then expect a slide down
to 14100-14000. The 0.382 level of the fall from 2594 to 21206 is
placed at 14097.
Sensex Wave Analysis
Wave I-2594 to 3758
Wave II-3758 to 2904
Wave III- Internals as follows:
Wave 1- 2904 to 6249
Wave 2-6249 to 4227
Wave 3-4227 to 12671
WEEKLY UP TREND STOCKS
Wave IV- 12671 to 8799
Wave V- 8799 to 21206
Wave A-21206 to 14677
Internal of Wave A is as
follows:
Wave a-21206 to 15332
Wave b-15332 to18895
Wave c-18895 to 14667
(not yet complete)
Further micro internals
are as follows
Wave c-18895 to 14667
Wave 1-18895 to 16457
Wave 2-16457 to 18314
Wave 3-18314 to 14677
3
Wave 4-14677 to 16452
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
REI AGRO
1470.00 1195.0
1384.0
1487.0
1573.0
1762.0
86.4
1426.8
28/03/08
HINDUSTAN UNILE 241.55 204.6
228.2
238.6
251.9
275.5
73.6
233.8
28/03/08
ITC
200.80 176.5
194.3
205.7
212.1
229.9
72.5
196.6
28/03/08
I.C.I. INDIA
579.00 414.0
533.0
606.0
652.0
771.0
71.7
565.9
28/03/08
NESTLE INDIA
1496.00 1405.7
1464.7
1492.3
1523.7
1582.7
68.9
1455.8
28/03/08
Wave 5- 16452 to 15303
(not yet complete)
WEEKLY DOWN TREND STOCKS
It is possible that Wave 5
mentioned above can get
terminated
near
the
support range of 15055-
14667. If that happens,
then it will be failure of
Wave 5. Further, Wave A
of the fall from 21206 will
get terminated. If without
violating 14677, we find
the Sensex crossing 16500
then Wave A must be
complete at 14677 and the
current movement is part
of Wave B, which is the
pull-back of the fall from 21206 to 14677.
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
MAHA. SEAMLESS 290.90
243.9
278.9
302.0
313.9
348.9
25.36
298.19
04/04/08
OMAXE
201.45
170.8
193.6
208.5
216.4
239.2
28.70
205.61
04/04/08
BHUSHAN STEEL
661.00
457.3
605.3
697.7
753.3
901.3
30.58
749.75
07/03/08
KIRLOSKAR BROS 226.25
181.1
211.5
227.2
241.9
272.3
32.02
239.64
07/03/08
JET AIRWAYS
529.85
460.2
511.0
543.0
561.9
612.7
32.31
548.64
22/02/08
The situation now is that either to violate 14677, to complete Wave A or move up from here to cross 16500 to confirm the
Wave A completion at 14677. If it falls and closes below 14677, then further bleeding can be witnessed to 14300 at least
and to an outer extent to 14100-14000.
Conclusion
Support of 15300-15050-14677 are important and breakout and close above 16500 is required in order to extend the pull-
back.
Strategy for the week
Exit long positions on rise to weekly resistance levels, which will be at 15625-15953-16500.
* Share price of Sagar Cement has been kept high artificially by operators. Sell immediately as it is one of most
overvalued cement company.
TOWER TALK
* Royal Orchid Hotels has acquired 50% stake in Galaxy Beach Resort, Goa while Panoramic Universal took over Rishi
Garden Resort, Karnala near Mumbai. Both are decent picks in the hospitality sector.
* To take advantage of the sharp correction & cheap valuation, promoters of Indo Asian Fusegear are making preferential
allotment of 19 lakh warrants to themselves. At a market cap of mere Rs.150 cr., it's a screaming buy.
* The share price of Flat Products has not fallen much because of the proposed open offer at Rs.517 by a Belgian company.
But once the open offer price is downgraded, the scrip will collapse as it seems richly valued in the current market
sentiment.
* Projections made by the Hazoor Multiproject are totally unreliable. The company is trying to create a rosy picture
through some print media. Stay away from this counter.
* I-flex solutions plans to change its name to Oracle Financial Services, which will add value to the stock as it will be the
only Oracle entity listed outside USA. A value stock with good buy-back possibility in future.
* Speciality Papers has announced 1:1 bonus and record date is 16
th
April 2008. The company has acquired running paper
companies and increased the turnover substantially.
* Zicom Electronics security systems has major plans lined up. At the current level of around Rs.125, the stock is a good
value buy.
* Khoday India has corrected substantially and can be considered for decent appreciation. The company has shed its
conservative approach and has planned for expansion and diversifications.
* Southern Online Bio Technologies will start supplying 3,00,000 litres of biodiesel per month to APSRTC for its 12
depots in Hyderabad & Secunderabad from this quarter, Q1FY09.
* Ennore Coke to start commercial production by the end of this month.
* Investors should exit Jayaswal Neco Industries, as some Rajkot operators could be offloading their stakes.
By Saarthi
BEST BETS
Mazda Ltd. (Code: 523792)
Rs.64
Established in 1977, Mazda Ltd. (erstwhile Mazda Controls Ltd.) was founded by Mr. Sorab R. Mody as a small unit to
manufacture automated valve packages. Today, it is among the few engineering companies in the world that
manufactures very specialized, high technology and critical equipments for industries like Power, Refineries, Fertilizers,
Chemicals, Nuclear, Sugar, Paper, Food, Pharma etc. Broadly, its product profile can be segmented into vacuum system,
valve division, air pollution control equipment, crystallizers and evaporators. Thus its product range includes various
types of vacuum jet ejectors, turbine bypass valves, desuperheaters, condensers, pressure reducing stations, pneumatic
actuators, steam jet thermo compressors, process control equipments, scrubbers etc. In India, its products are installed in
the plants of Reliance group, United Phosphorus, IOC, BHEL, Alstom, Cadila, Grasim, GSFC, HPCL, Siemens, Triveni
Engineering, GHCL, NRC, L&T, Nuclear Power Corp etc. Besides engineering, the company also has a Biotechnology
division dealing in carbohydrates, rare sugars and miscellaneous bio-chemicals. Recently, the company diversified into
the business of manufacturing food and drink concentrates, essence, jams etc. on a small scale.
Mazda has two manufacturing facilities located at Ahmedabad, Gujarat. For vacuum systems and air pollution control
equipment, it has a technical collaboration with market leaders Croll-Reynolds Inc., USA, which also holds 12% stake in
the company. Accordingly, designing & engineering is jointly done by them manufacturing is done by Mazda while
marketing across the globe is done by Croll. Mazda also has a collaboration with Germany-based Kauer Engineering for
manufacturing various types of valve. Importantly, Mazda has the coveted ASME 'U' stamp accreditation certificate from
the American Society of Mechanical Engineers (ASME) which very few Indian engineering companies can boast of.
Hence, the company can fabricate pressure vessels and heat exchangers confirming to ASME standards and is authorised
to stamp them as 'Coded Vessels'. Of late, Mazda has designed vacuum systems for applications like steel De-gassing and
expects good growth in this line of business. In future, the company intends to enhance exports substantially having
Siemens, Alfa Laval, APV Asia Pte, BASF, Petronas, Bechtel, Colgate Palmolive, European Space Agency, IDE
Technologies Ltd., Ministry of Oil & Gas Industry, Turkmenistan etc. as its global clients. It also expects some good orders
from a German firm for the supply of fabricated valves for gas pipelines in Europe.
Due to increased business and unavailability of space at its two existing units, Mazda is setting up a third manufacturing
unit at an investment of about Rs.5/6 cr. on land at Naroda, Ahmedabad. It is well poised to harness growth
opportunities and is continuously upgrading its manufacturing facilities, technology, production processes and its
marketing reach to maintain its growth momentum. For FY07, it recorded 40% growth in sales as well as net profit at
Rs.53 cr. and Rs.5 cr. respectively and reported an EPS of Rs.12 on its small equity of 4.25 cr. For FY08, it is estimated to
report sales of Rs.65 cr. with profit of Rs.6.5 cr., which means an EPS of Rs.15 in relation to which the scrip is trading at a
P/E ratio of 4, which is extremely low considering its expertise and future prospects. Investors are strongly recommended
to buy this scrip as it can easily double within 12-15 months.
Hind Rectifiers Ltd. (Code: 504036)
Rs.131
Established in 1958 in collaboration of Westinghouse Brake & Saxby Signal, UK, (which still holds 16% equity stake),
Hind Rectifiers Ltd. (Hirect) has rich experience in developing, designing, manufacturing and marketing power
semiconductors, power electronic equipments and railway transportation equipments. Currently, the company derives
50% of its revenue from railways, 20% from the power sector and the rest 30% from various industries like
telecommunications, electronics, defence, aviation, R&D organisations, electro-chemicals, steel, cement etc. Its business is
segmented into the following four divisions:-
4
A. Equipment Division: manufactures power supply equipments for R&D, Defence & Aviation, DC power system for
electrochemical plants, rectifiers for metal finishing, battery chargers and dischargers etc. It also offers specialised services
such as customisation, automation and optimisation of controls and safety. It has a technical tie-up with M/s. Friem
S.P.A., Italy, in design & technology transfer of high current water cooled rectifier systems for electro-chemical
applications.
B. Semi Conductor Division: manufactures power diodes, power modules, thyristors & assemblies apart from supplying
special devices on request. To complement them, a full range of custom designed heatsink assemblies using IEC circuit
configuration is also manufactured. These semi-conductors find use in industrial, military and transport applications.
Recently, the company signed a technical collaboration agreement with M/s. Infineon Technologies AG, Germany, for
manufacturing IGBT based primeSTACK, which will complement its other products. These stacks will also be used for in-
house consumption for manufacture of equipments.
C. Railway Transportation Division: manufactures transformers for rolling stock, auxiliary converter and inverter, track
side DC substation equipment, rectifier for rolling stock etc. Out of the 50% revenue from railways, 10% comes from
locomotive transformers, 20% from rectifiers and the balance 20% from inverters. Hirect has a technical collaboration with
M/s. Transtechnik GmbH of Germany for design and development of inverter and auxiliary converters for traction
application. In collaboration with M/s. Nieke, Germany, it has upgraded its technology and infrastructure for
manufacture of main transformers for AC/DC Dual Voltage EMU and BG AC EMU. It also has a tie-up with M/s.
Microelettrica Scientifica of Italy for supply of resistors for railway applications.
D. Trading Division: Hirect has a separate small trading division under which it imports and markets semi-conductor
fuses from Bussmann-Denmark, capacitors from ICAR-Italy and resistors from Microelettrica Scientifica, Italy.
Hirect has two manufacturing plants in Mumbai and Nasik. Its Equipment Division is ISO 9001 certified and the
Semiconductor Division is ISO 9002 certified. Although railways is its major customer, it has a reputed clientele including
HUL, Indian Navy, Ordnance factory, ISRO, BARC, HAL, Nuclear Power Corp, BSNL, BHEL, BEML, Grasim, L&T, Tata
Steel, Hindustan Zinc, Siemens, ABB, Crompton Greaves etc. Its products are also exported to Australia, Bangladesh,
Canada, Columbia, Italy, Malaysia, Middle East, Pakistan, South Africa, South Korea, Spain, Sri Lanka, Thailand, UK and
USA.
Recently, Hirect modernised all its plants in Mumbai and has set up greenfield plant in the tax-free zone of Uttarakhand
for manufacturing equipment, semiconductors and for the railway transportation system. Although this new plant is
ready, Hirect is completing the earlier orders from its old plants in Mumbai and Nasik in order to get the Cenvat paid on
raw material. The new orders, however, will be manufactured at the Uttrakhand plant, Hence the excise and income tax
benefits will be visible from FY09. Based on the first three quarter results, it may end FY08 with sales of Rs.95 cr. with
PAT of around Rs.11 cr. i.e. an EPS of Rs.15 on its very tiny equity of Rs.1.50 cr. having a face value of Rs.2 per share.
Importantly, the company is estimated to report an EPS of more than Rs.20 for FY09. Investors are strongly recommended
to buy this share current level at a fair discounting of 14 times as it can double in 12-15 months. Moreover, since the
company is in its 50
th
year of operation, the chances of declaring a liberal bonus are also high.
Pyramid Saimira Theatre Ltd.: Developing fancy
ANALYSIS
By Devdas Mogili
Pyramid Saimira Theatre Ltd. (PSTL), formerly known as Pyramid Films International Ltd., is an 11-year old Chennai
based company established in 1997. Originally, the company was engaged in the production of Tamil films releasing them
in different modes including theatres. V. Natarajan is the chairman while P. S. Saminathan is the managing director of the
company.
The company entered the capital market with an IPO of equity shares at an issue price of Rs.100 per share in December
2006, which evoked a good response.
PSTL takes theatres on long lease and converts them to digital format and installs 2-way digital infrastructure for satellite
delivery of content.
PSTL has also created a theatre chain that became operational in November 2005. Since then, the company has more
theatres and has decided to concentrate on the exhibition side of the film industry and has already become India's biggest
theatre chain organization. The future revenue of the company will primarily flow from the theatre chain operations
only.
Tie-Ups: PSTL has tied up with Real Image for servers and software solutions. It has tied-up with Prasad Labs for
conversion of raw films into digital. Tata Net, a leading Telecom & VSAT provider, is its technical partner providing
turnkey connectivity and bandwidth and link theatres in a Closed User Group Network (CUGN) and has tied-up with
Bharat Digital Ltd. for supply of projectors. It has also forayed into markets like Singapore, Malaysia, China, Europe, UK
and the US with appropriate tie-ups.
5
Pan-India Presence: The company is already operating a theatre chain and adds one theatre a day in South India in its
network. It planned to have a total of 400 theatres by end FY08 and 1000 theatres by end FY09. It has also forayed into the
Hindi speaking market from 2006 and is adding one screen a day in North India. By the turn of this decade, PSTL plans to
manage and operate about 2000 screens apart from about 4000 screens as franchise screens across India.
Performance: It posted an impressive performance in FY07 recording an income of Rs.164.32 cr. with net profit of Rs.13.43
cr. and an EPS of Rs.6.23.
Financial Highlights:
(Rs. in lakh)
Latest
Results:
PSTL
reported highly encouraging
results for Q3FY08.
Its
income
from
operations
stood at Rs.231.42 cr. with a
net profit of Rs.29.86 cr.
recording a basic/diluted
EPS of Rs.10.56.
The
annualised EPS thus works
out to Rs.42.24. As on 31
st
December 2007, the company
had 655 screens in India,
which
includes
44
multiplexes with 94 screens.
The average revenue per
admission in this quarter was
Rs.40.55 as against Rs.39.83
for
the
previous
corresponding quarter. The
seating capacity per show stood at 4.29 lakh. The theatre chain registered 516.93 lakh footfalls during the quarter with an
average occupancy rate of 39.15%.
Particulars
QE 31/12/07
QE 31/12/06
YE 31/03/07
Income from operations
23141.87
4605.34
16431.88
a. Income from Box Office
14965.13
-
11765.43
b. Income from Food & Beverage
5998.36
-
2786.14
c. Income from Distribution
2178.38
-
1880.31
Other Income
152.90
-
44.25
Total Income
23294.77
4605.34
16476.13
Expenditure
a. Cost of Content
9135.17
-
7412.50
b. Cost of Exhibition
5549.84
-
6166.23
c. Raw Materials
-
3645.04
-
d. Purchase of traded goods
2473.12
-
-
e. Employees Cost
129.69
-
-
f. Depreciation including amortisation
133.77
6.26
116.78
g. Other Expenditure
2296.35
374.15
17.27
h. Total
19718.54
4025.43
13712.78
Interest
203.56
-
17.27
Profit Before Tax
3372.67
579.91
2746.08
Tax Expense
386.17
64.80
507.92
Net Profit after Tax
2986.50
515.11
1343.33
Paid-up eq. share cap. FV: Rs.10/share
2827.65
2827.65
2827.65
Reserves Exc Rev Reserves
-
-
10133.71
Basic/Diluted EPS (Rs)
10.56
2.60
6.23
Financials: The company has an equity of Rs.28.28 cr. with the book value of its share placed at Rs.45.83. As on 31
st
December 2007, it posted an ROCE of 27.54% and RONW of 18.20%
Share Profile: PSTL's share with a face value of Rs.10 per share is listed and traded on the BSE and NSE under the B
group. It touched a 52-week high of Rs.551 and a low of Rs.251. At its current market price of Rs.304, it has a market
capitalization of Rs.868 cr. The share has a beta value of 1.2, which implies high volatility.
Dividend: With a view to conserve resources, the company has not declared any dividend.
Shareholding Pattern: As on 31
st
December 2007, the promoter holding was 53.39% while the balance 46.61% is held by
non-corporate promoters and the Indian public. Mutual funds like Kotak, HDFC, Escorts and DSP ML etc have been
adding the company's shares to their various schemes.
Prospects: According to the 2005 annual edition of FICCI – Price Waterhouse Coopers' report on the Indian Entertainment
& Media industry, the Indian entertainment industry is one of the fastest growing sectors of the Indian economy. It
stands at more than Rs.35,000 cr. (US $7.8 billion) today and is expected to grow at a compounded annual growth rate
(CAGR) of 19% to reach over Rs.83,700 cr. (US $18.6 billion) by 2010 and is expected to outperform the GDP growth by a
significant margin in coming years.
The study attributes this to economic growth, rising income levels, consumerism, coupled with technological
advancements and policy initiatives taken by the Government e.g. 100% FDI permitted to encourage inflow of
investments into this sector.
The film entertainment sector is expected to get more and more corporatised and is projected to grow at 18% p.a. to
become a Rs.15,300 cr. (US $3.4 billion) industry by 2010 from Rs.6,800 cr. (US $1.5 billion) now. This growth is expected
to be driven by technology advancements in film, production, exhibition and marketing.
The exhibition industry in India has over 12,000 screens and 60% of them are in South India. Further the emergence of
Tier I & III towns holds a huge potential for the organized film exhibition and retail industry. Convergence is the mantra
for the Indian entertainment industry over the next five years. Technology will drive it in the next decade when its
boundaries will get diffused and will be merged with those of the telecommunications and information technology
segments. This will give rise to a host of value-added features for consumers and create new revenue streams for players
in each segment. Mobile entertainment, with its ability to dissect the boundaries of time and space, will be the biggest
growth driver.
6
Conclusion: PSTL is the first Indian company to have presence across all regions and across all category of customers. It
is also the content agglomerator and as such is the distributor-cum-exhibitor. The theatre chain concept of the company is
a path breaking one. Its pioneering efforts in bringing together single standalone theatres under one umbrella and
develop the revenue streams of the theatres becomes the revenue of the company. PSTL manages the entire infrastructure
of the theatres including the content.
At its current market price of Rs.304, the share price is discounted less than 8 times against the industry average P/E
multiple of over 25. The share is available at a very reasonable valuation given its aggressive growth plans. Since, the
markets are passing through difficult times with a continuous downslide in share prices, genuine investors can start
accumulating the PSTL share in small parcels at the current level and add more on declines for decent appreciation with a
medium-to-long-term perspective.
7
Welcome Fiscal 2008-09
MARKET
The best is yet to come
By Suryadevara
A Volatile but prosperous FY08 has passed on the baton to the new fiscal and it is time to crystal gaze and plan our
investments in FY09 for better returns. The outgoing FY08 has left behind many milestones in the Indian capital markets
and gave us a rare treat of five prosperous fiscals in succession. Will then FY09, too, bring about further wealth creation or
unpleasant wealth erosion as seen in the last three months?
Before looking ahead, let us peep through the rear-view mirror for a moment. Earlier, after a prosperous FY03, FY04 was
a dream year during which the BSE Sensex grew from 3049 of 31/03/2003 to 5590 on 31/03/2004. Later, in FY05, the
Sensex rose from 5590 to 6493. During FY06, the Sensex recorded a growth rate of 74%to 11307 from 6493. In FY07, the
Sensex rose to a high of 14724 and closed the fiscal at 13072. In the outgoing FY08, the Sensex rose to a high of 21206.77 on
10/01/2008 but closed at 15644.44 after the painful fall. What next after these five successive prosperous years? If we look
at the apparent & unfolding positive and negative factors, probably the party is still on and investors can welcome the
new fiscal with re-assuring hope. Is it a mere new fiscal wish after the painful carnage or a reasoned perception? Let us
look in detail.
Look at concerns first -In the Indian context, bull markets have always been shorter than bear markets, which last longer.
Hence, after five successive prosperous years the probability of a bearish market ahead is more. India's fiscal deficit is
another thing of concern. Prevailing higher crude oil prices do not augur well for the economy. Appreciation of the
Japanese Yen and the Euro against the Indian Rupee in FY08 sends some warning signals. Even inflationary pressures in
the new fiscal are alarming. The government's compulsion to contain inflation may result in sacrificing some growth.
Indian valuations appear a bit expensive in comparison with those in other developing nations. Above all, the financial
crisis of USA is casting its impact across the globe.
Now, look at the positive factors - India is the second fastest growing economy in the world (second only to China). Its
GDP growth rate of around 8% can be expected in the next few years although some estimates see it dipping to 7%.
Recently, Narahari Rao of Asian Development Bank has predicted a growth rate of 8% in 2008 and 9% in 2009 for India.
Exports growth rates of the economy are
satisfactory. A consistent and impressive
growth rate of the Indian corporate sector
arouses confidence. The Rupee appreciation
against the US Dollar in FY08 is very
impressive, which augurs well for increased
FIIs inflows. Let us not forget that over a
decade long boom-conditions prevailed in the
USA in the Nineties during which period the
US Dollar ruled supreme.
Our burgeoning forex reserves as well as the
government's commitment to reforms are
positive factors. Probable revaluation of the
Chinese currency by about 10% in the new
fiscal also augurs well for the Rupee's
strength. Even on crude oil prices, last fiscal
has also proved that the impact of high crude
oil prices is no longer alarming in the light of
globalisation. Besides, crude prices are likely
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8
to soften further after a couple of months. Coming to the fiscal deficit, India's position is far superior to that of USA.
During 2006, more than $7.09 billion moved out of US equity markets to emerging markets in spite of federal interest
hikes to a record 5.25% p.a. Now, with the lowering of US interest rates to 3%, the interest rate differential points to the
potential of higher inflows. Problems in the financial sector of USA and the likely US slowdown signals further flight of
capital from Dollar assets to non-Dollar assets across the globe. Even the Euro zone interest rates are softening. Similar
conditions prevail even in Great Britain. The Japanese economy, too, is unimpressive and even a rate cut from the present
0.50% p.a. cannot be ruled out. All these factors are favourable for increased inflows into India in the new fiscal.
So, the historical perspective of the market is no longer valid. What we have seen in the past 55 years in India may not be
relevant for the next few years. In fact, the long bull phase of around a decade that was witnessed in the USA in the
Nineties and in China in the recent past can be visualised in the Indian context in the evolving conditions. Hence the
bearish concerns after five consecutive prosperous years need not bother us much.
Although inflation is a major concern, almost all countries face this threat and we need not be unduly worried about it.
Even on the valuation front, mere P/E ratios alone do not impact the investors' fancy. Indian corporates are brimming
with confidence - Tata Motors acquired Jaguar-Land Rover brands from Ford Motors for $2.30 billion. Dr. Reddy's Lab is
acquiring Dow Pharmas UK units and Italian generic company Jet Genericisri. Jupiter Biosciences Ltd. is acquiring two
companies - Swiss manufacturing unit of Merck Life Sciences and another US based pharma company for around $15
million. Better growth rates perceived for the Indian corporate sector and the depth of the Indian capital market may
compel global investors to continue to buy the Indian growth story for some more time. Going by the higher P/E ratio of
the Chinese market (50% higher compared to India), global investments pulling out of China cannot be ignored especially
in view of the massive inflows into China for over a decade. In fact, this can benefit the Indian economy even if we can
attract a fraction of such outflows. Looking at the sustainable impressive growth of around 8% (which is more than
double of the world's average growth), the Indian economy will certainly be attractive for global funds. Unlike China,
India has not gone for (the Finance Minister certainly deserves accolades here) deployment of Soverign Wealth Fund.
Countries that opted for such a fund have eroded their wealth due to the losses in US securities.
By this, I do not mean that the road ahead will be smooth and safe. Volatility is to be accepted as a matter of fact,
especially on the back of the US problem, which has even started to impact the housing sector in Europe. May-June 2006
movements of the market and January-March 2008 movements should serve as a reminder for investors. When elephants
run in panic for cover, there will be destruction all around. That is what happened in the past three months. Global funds
ran for cover in panic and went on for indiscriminate selling. Leveraged investors followed them blindly increasing the
market distortions.
It is really sad to observe professional fund managers and analysts following the panicky crowd. Even with present cash
holdings of around Rs.29,000 cr., which is yet to be deployed, domestics funds are continuing sales. Is this lack of
confidence warranted? In fact, this attitude is hurting the inflows even though global investors may perceive Rupee assets
more rewarding. Just see the depth of the carnage-share price of Ind-Swift Ltd. touched a 48-month low even though this
regular dividend paying company's fundamentals improved drastically in the last four years. Are managements of such
companies too busy to think of shareholders' concerns? Let us remind them of the recent example from the troubled US
market. Efforts of agitated shareholders of the bankrupt 'Bear Stearns' forced JP Morgan to hike its takeover offer from $2
to $10 per share within a couple of days. When employees of a bankrupt firm rose to protect the interests of shareholders,
can't the managements of progressive companies attempt the same? What prevents them to offer limited buy-back of
shares around the book value? I do believe that investors who invest in such beaten-down scrips can benefit in the long-
run.
Even Marc Faber has recently admitted that "There will be a re-allocation of capital to non-G7 countries. Emerging
markets will grow much more than the US and the developed markets." India, which is the most attractive among
emerging countries, is poised for better inflows for some more years. CalPERS (California Public Employees Retirement
System) which currently has $5 billion (which is only 5% of its total equity investments) in emerging markets including
India, remains confident about our long-term growth prospects. Even JP Morgan has recently indicated that it plans to
invest $150 million a year in India.
I do believe that after the announcement of March 2008 quarterly results, the wisdom of these expressions will be
understood by most of the global investors. Just consider the following fact - BSE Sensex plunged to a low of 8799 on
14/06/2006 in just one month from its high of 12671 scaled on 12/05/2006. The recovery thereafter was equally strong
with the market even crossing the 14700 level in February 2007. Although the recent fall is more painful and longer, this
too will come to pass for the best is yet to come. Such volatility is to be carefully utilised to reduce the cost of one's
holdings by selling at higher levels and buying back at lower levels. In fact, we can look at the Sensex level of around
21500 if not beyond in FY09 as it can be more eventful than FY08. Cautious and conservative investors can get around
20% returns in the New Year. Brave, nimble-footed, studious and aggressive investors can even target dream returns
commensurate with the risks they are willing to take.
In the past few fiscals, large cap momentum stocks stole the limelight. However, things are more likely to change than not
in view of the provision for short selling permitted along with stock-lending in the new fiscal. This move will reportedly
bring in more depth to the markets. However, this will certainly tilt the balance in favour of bear operators, especially
after 5 prosperous years. In such circumstances, most bull operators are likely to turn their attention to growth stocks
from the mid/small cap segments. Hence mid/small cap stocks are likely to give superior returns in the new fiscal
even though the indices may not be able to record their impressive growth rates.
Before looking ahead, let us review the performance of the scrips recommended last year.
Rs.10,000 invested each in of the above scrips gave an
average high return of 124.96% while passive investors
who invested right through the fiscal recorded average
return of 28.75%. Even this is better than the Sensex
return of below 20%. This low return should caution
investors about the need to book profits at market peaks
in the new year.
Name
30/03/07
Looking ahead, which sectors appear promising in the
new fiscal?
Pharma, Farm, Auto, Power and Steel sectors are likely
to be fancied in the new financial year. Select scrips from
Infrasructure and Financial sectors can also spring
pleasant surprises. Scrips that appeal to me in these
sectors are given below:
Pharma Sector - Divis Laboratories Ltd., Dr Reddy's Lab
Ltd., Ranbaxy Lab Ltd., Jupiter Biosciences Ltd., Ind
Swift Ltd., Cipla, Suven Life Sciences Ltd.
Farm Sector – ITC, which has increased its focus on
agro-trade, Nath Seeds.
Auto Sector - Tata Motors, Bajaj, Mico.
Power Sector - BHEL, NTPC, Power Grid.
Steel Sector - Tata Steel, National Steel & Agro.
Canara Bank, GMR Infra and Maytas Infra can spring
surprises.
Canara Bank's recent pro-active moves are bringing it
more visibility. Converting high priced private bank
scrips into under discounted Canara Bank can prove to
be rewarding.
Choosing the right investments alone is not sufficient for
ensuring good returns. Profit-booking will be more relevant in the new fiscal, especially after five prosperous years.
Booking profits at higher levels to increase liquidity and buying again at lower levels will ensure superior returns.
Price (Rs.)
FY08
High (Rs.)
31/03/08
Price (Rs.)
Sensex
13072.10
21206.77
15644.44
ACC
734.65
1315.00
826.10
Arvind Mills
43.50
94.00
37.75
Visaka Ind
93.25
118.00
48.95
Divis Labs
615.71 *
1930.00
1269.00
GMR Infra
72.04 *
269.00
149.00
Eurotex
30.40
63.00
21.50
Glenmark Pharma
304.90 *
624.00
490.70
iGate Global
385.85
435.00
404.20
IVRCL
252.10
575.00
401.10
Ind-Swift Ltd.
28.10
51.00
23.30
Jupiter Bioscience
144.30
242.00
143.85
Lanco Infra
158.25
888.00
388.75
IDBI
77.55
181.00
89.05
Ambuja Cement
106.70
161.00
121.05
Grasim Inds.
2091.00
4074.00
2574.70
Bank of India
167.80
466.00
252.90
Canara Bank
194.70
421.00
225.20
MSK Projects
61.05
196.00
100.20
National Steel
20.00
53.00
26.75
Natco Pharma
145.50
179.00
84.75
NCCL
160.55
373.00
213.00
Nicholas Piramal
245.65
383.00
303.20
PBA Infra
75.75
177.00
70.15
Sagar Cements
123.60
460.00
384.10
Satyam Computers
470.10
522.00
394.55
Zenotech
99.85
183.00
93.85
TCS
1231.20
1330.00
810.90
Tech Mahindra
1427.90
1687.00
706.85
Tata Elxi
288.25
365.00
157.70
Tata Steel
449.80
970.00
693.15
Vijaya Bank
42.50
97.00
49.65
UTV Software
293.35
1132.00
774.25
(* Adjusted price of face value change)
In these fast-changing times, investors who update their knowledge with the help of good and unbiased experts can
benefit from the emerging conditions. Buying into potential winners, booking profits at higher levels during market peaks
to re-enter at lower levels should be the approach in the new fiscal. Although the outlook for the Indian economy in the
next few years appear rosy, investors should preserve their pot of profits in the new fiscal by booking profits at market
peaks, especially in the light of the recent market carnage.
May FY09 bring pleasing prosperity and happiness to all the readers of Money Times.
Indices may lose further ground
MARKET
By Ashok D. Singh
The Sensex fell 1,028.17 points or 6.28% to close at 15,343.12 for the week ended 4 April 2008. The NSE Nifty lost 295
points or 5.96% to 4647 for the week. The market edged lower last week as concerns about potential losses of corporate
India on forex derivatives resurfaced after the Institute of Chartered Accountants of India asked companies to disclose
losses on a mark-to-market basis incurred on derivatives trades from the current financial year onwards. This was a
precursor to making new accounting standard, AS-30, mandatory from 1 April 2011. This may hit Q4FY08 and FY08
bottomlines of Indian corporates.
9
Some arbitrageurs and jobbers stayed away from the market on 1 April 2008 protesting the change in tax treatment of the
Securities Transaction Tax that came into force from that day. The protest led to low volumes, which saw share prices
swing wildly on the first day of the new financial year FY09.
India's wholesale price index rose 7% in the 12 months to 22 March 2008, accelerating from the previous week's rise of
6.68%. This is the highest since 4 December 2004.
Exports from India rose 35.3% in February 2008 from a year earlier to $14.24 billion, government data showed on
Tuesday. Imports rose an annual 30.5% to $18.47 billion. The trade deficit for February 2008 widened to $4.23 billion,
compared with $3.62 billion in the same month a year earlier. The trade deficit was $72.47 billion in the first eleven
months of the fiscal year to February 2008.
The Infrastructure sector performed better and it's output grew 8.7% in February 2008 from a year earlier - faster than a
downwardly revised 3.1% growth in January 2008, government data showed on Thursday, 3 April 2008. Output had risen
an annual 7.6% in February 2007.
The BSE Mid-Cap index outperformed the Sensex falling 259.94 points or 3.99% to 6,262.85. The BSE Small-Cap index, too,
outperformed the Sensex falling 186.99 points or 2.37% to 7,714.99.
Indian companies are sitting on potential losses on account of the forex derivative transactions they undertook last year.
A steep decline in the value of the US dollar against the Japanese Yen and the Swiss Franc has hit Indian corporates,
which used these two currencies (Yen and Franc) extensively to swap their Rupee denominated debt.
Meanwhile, the change in tax treatment of securities transaction tax is seen raising the cost for arbitrageurs, which in turn
may result in a fall in arbitrage volumes. STT will now be treated like any other deductible expenditure against business
income of the assesses. This is against the earlier practice of 100% rebate for STT paid against the tax liability for the year.
Sustained selling pressure in blue chips spooked the bourses on Monday, 31 March 2008. The Sensex plunged 726.85
points or 4.44% at 15,644.44. The broader based NSE Nifty plunged 207.50 points or 4.20% at 4,734.50.
On 1 April 2008, after opening on a firm note, the market lost ground by early afternoon trades only to recover in mid-
afternoon led by recovery in index heavyweights Reliance Industries and ICICI Bank. The Sensex was down 17.82 points
or 0.11% at 15,626.62. The broader based NSE Nifty rose 5.05 points or 0.11% at 4,739.55.
On 2 April 2008, an early surge on the bourses proved short-lived as index heavyweights Reliance Industries, ICICI Bank
and L&T gave up initial gains. The Sensex, which had surged past 16,000 mark in early trades, fell below that level later.
The Sensex settled 123.78 points or 0.79% higher at 15,750.40. The broader based S&P CNX Nifty was up 14.65 points or
0.31% at 4,754.20.
On 3 April 2008, the key benchmark indices ended higher as IT stocks rallied on hopes that the US recession may not be as
deep as feared. The Sensex settled 82.15 points or 0.52% higher at 15,832.55. The broader S&P CNX Nifty rose 17.4 points
or 0.37% at 4771.60.
On 4 April 2008, data showing a surge in inflation to a three-year high pulled the market down. The 30-share Sensex
slipped 489.43 points or 3.09% at 15,343.12. The broader based NSE Nifty fell 124.6 points or 2.61% at 4647.
The Sensex lost 1,028.17 points to end at 15,343.12 last week. Prospects of further monetary tightening by the Reserve
Bank of India following a surge in inflation is a cause for concern at a time when the already high rates are pinching the
domestic industry. The surge in inflation has triggered fears that RBI my raise cash reserve ratio. An increase in CRR
would suck out liquidity immediately pushing up the cost of funds and thereby curbing demand. The market sentiment
is depressed and the indices may lose further ground.
Negative news dominates the market
MARKET
By G. S. Roongta
The stock market once again disappointed investors last week breaking the tempo of the pull-back rally that seemed to
have set in earlier. This time, the Institute of Chartered Accountants of India (ICAI) played a major role in puncturing the
sentiment with its recommendation of adhering to accounting norms AS30 under which companies are required to report
their estimated losses from foreign currency derivatives on the mark to market basis instead of the time of sell off.
This had already been factored in the share prices of several companies but by sounding fresh alarms by RBI, SEBI and
now ICAI, the bear cartel developed an additional muscle to beat the bulls and they took full advantage
of the situation on the opening day of last week on Monday, 31
st
March 2008.
G.S. Roongta
This came as a rude shock to most marketmen as market sentiment has started improving in most other
global markets and the same was expected on our bourses too. In fact, the US and UK markets took the
write-off of US $19 billion additional losses by the Union Bank of Switzerland (UBS) taking its total to US
$23 billion in their stride. Even the sacking of its chairman had no adverse impact at all on these markets.
On the contrary, the Dow Jones recorded a gain of nearly 300 points and most Asian markets, too,
recorded gains with the Hang Seng zooming up by 1500 points last week.
10
Only the Indian markets reacted and the BSE Sensex registered a fall of 726 points falling below the 16,000 level to close at
15,644.44 on Monday, 31
st
March 2008. This once again reiterates my view that our markets are impacted by global cues
only on the negative side as they do not respond favourably when global markets are up as in this case. I have also
maintained, right since third week of January 2008, that our problems are due to internal factors rather than global cues –
a view that has now begun to find favour with the authorities and other market observers if one goes by media reports.
The cross currency deals of our corporates with banks seems to have backfired afresh with this ICAI recommendation
especially as most companies were busy closing their financial accounts for the year ended 31
st
March 2008. It was not
something new and had already been highlighted in the media a few days earlier with the examples of leading corporates
taking a hit including SBI and L&T.
When this news first surfaced, the market reacted as a whole and the reaction was not stock specific. But if one company
after the other reports its losses in its hedging in forex derivatives before the results are out, there will be no end to it.
However, it will provide a strong handle to the bears, who now control the game in the stock markets and they will
naturally take full advantage of the situation.
The stock markets were already nervous with several government initiatives to combat rising inflation, which had crossed
the RBI's comfort level of 5%. The government is already asking manufacturers to cut prices especially from cement and
steel manufacturers and there is every likelihood of an interest rate hike instead of the rate cut expected on the back of
strong economic fundamentals.
These developments are peculiar to the Indian financial markets, which are already suffering and these new measures by
the government can take a further toll of investors' confidence and calculation about future market outlook.
Instead of softening the interest rate, the government is trying to enhance the supply chain by reducing import duties
while sitting tight on excise duties affecting domestic manufacturers adversely. Manufacturers have already pleaded with
the government to reduce duties, which they will pass on to the consumers. Mr. J. J. Irani of Tata Steel has already spoken
against the government action and asked it not to adopt an ad hoc policy without going into the merits of the rise in input
costs for the steel industry. Otherwise, the steel industry will go back to incurring losses as it did right from 1992 to 2000.
Mutual Funds, too, fear redemption pressure to the tune of Rs.20,000 cr. if the stock market keeps on struggling like this.
This will be in addition to the FIIs who are already in a selling mode. If this happens, it will add further downward
pressure on the market.
Analysts have also begun hinting about weak Q4 earnings. They cite pressure on margins both at the gross level and post
tax levels.
The combined effect of the government measures, selling by FIIs and the likelihood of mutual funds joining them together
with weak Q4 results can only lead to a cautious approach on the bourses.
According to me, there is a tough fight amongst the bulls and bears at the current level as both of them are trying to
manouver the market in their favour leading to the sharp volatility off and on during the trading sessions. The indices
move up and down by almost 200 points on either side without giving a clue as to which side the market is headed for.
If you observe the market closely, you will notice that it is refusing to fall further as value buying or replacement buying
is in force despite the selling pressures from all quarters. Otherwise, the market would have fallen vertically as it did on
Monday, 31
st
March 2008 since the bears are still in command.
Investors and HNIs who wish to change the market mood and behaviour should start picking up mid cap and small cap
stocks, which have fallen by 50-60% and provide ample opportunity to profit but also change the market trend. FIIs and
bear cartels, who can afford to short sell active large cap stocks will be rendered helpless in hammering mid cap and small
cap stocks because of their fundamental strengths and quoting nearly half their real worth or book value. Once they gain
strength by profiting in small caps and mid caps, investors can switch over to large caps, which would have by then
beaten down further by the FIIs and bear cartels.
The market is attractively priced and investors can make selective buys in stocks of their choice or remain invested doing
nothing for the time being if they lack liquidity for fresh investments. The market will take its own course and settle at a
good level by mid-May 2008. Any attempt to hurry without strength may spoil the game but by staying cool and calm
and observing the market from a little distance will certainly provide a good opportunity sooner than later. This is the
best advice to readers as buying opportunities never cease but selling opportunities come seldom. Those who were very
keen to buy when the market was heated around Sensex 20,000 level as they had missed the train should not miss this
opportunity to buy stocks of their choice now.
MF Scheme Analysis
MUTUAL FUNDS
Bluechip Funds
By Devangi Bhuta
In the last issue we had concluded as follows:
11
"For the time being, mid-cap and small-cap schemes may not augur too well since liquidity may not flow in here first. Even if we do
see some liquidity it is most likely that blue chip companies may see some relief.
Only for those with a favourable risk appetite and surplus funds, buying in a staggered fashion and over a longer time frame in blue
chip equity schemes may augur well. The downside, as already mentioned last time, may be poor rainfall or unexpected political
developments.
Finally, the asset allocation principle of investments in gold and debt along with equities must never be overlooked."
Our view holds and we have for review two bluechip funds.
Franklin India Bluechip Fund
The scheme's objective is to seek steady and consistent growth by focusing on well established, large size companies and
aims to provide long term capital appreciation.
As per the February 2008 factsheet, the scheme's highest exposure is to Industrial Capital Goods and this represents 18%
of the total sector exposure. This is followed by Banks at 12% and by Petroleum Products, Software and Telecom Services
at around 8% each. The prospects of L&T, BHEL and ABB from the Capital Goods space remain robust. But in the
backdrop of volatility in stocks market, the same cannot be ruled out for this scheme too. The fund added to its holdings
in Siemens and Infosys and reduced its exposure to Bharti Airtel and ABB and exited from ACC.
The scheme appears to have a 'buy & hold' strategy, which augurs well for investors and it has a portfolio turnover ratio
of 68%.
Returns Table
Scheme performance (%) as on 03/04/08
1 Month
3 Months
6 Months
1 Year
3 Years
5 Years
Since Inception
-5.79
-23.80
-13.49
23.38
31.82
44.75
26.93
(Source: mutualfundsindia.com)
The scheme appears to be a good bet in the long term for investors with a decent risk appetite. It must be reiterated here
that those with surplus funds should buy in a disciplined and a staggered fashion as the key downside of an
unfavourable monsoon and political instability to the markets remains.
SBI Bluechip Fund
The scheme provides investors with opportunities for long-term growth in capital through an active management of
investments in a diversified basket of equity stocks of companies whose market capitalisation is at least equal to or more
than the least market capitalised stock of BSE 100 Index.
Returns Table
Scheme performance (%) as on 03/04/08
1 Month
3 Months
6 Months
1 Year
3 Years
5 Years
Since Inception
-7.00
-26.88
-13.52
17.23
NA
NA
10.06
The scheme has the highest exposure to the Financial Services sector upto 14% followed by Industrial Manufacturing
sector and Energy segment, both at 11%. The top stocks include Reliance Industries, Jaiprakash Associates, ICICI Bank
and Thermax.
Its portfolio turnover ratio is 49%, which augurs well for investors, although qualitatively the scheme appears to be
riskier, in terms of stocks and sector exposure, as compared to Franklin Bluechip Fund. Further, the expense ratio of this
scheme is higher at 2.5% as compared to 2% in the former. Investors may steer clear of it for the time being.
By Saarthi
STOCK WATCH
A few days back, GM Breweries Ltd. (Code: 507488) (Rs.79) came out with disappointing results for the March 2008
quarter. Sales improved marginally to Rs.49 cr. but net profit declined by 25% to Rs.2.65 cr. due to lower operating
margin. Accordingly, the company declared 25% dividend (including 5% special dividend being the Silver Jubilee year),
which gives a yield of nearly 3% at CMP. Although the March 2008 quarter results were below expectation, the entire
FY08 figures are pretty decent as sales grew by 10% to Rs.186 cr. and PAT increased by 25% to Rs.14.70 cr. thereby
registering a healthy EPS of Rs.16 on its equity of Rs.9.40 cr. At the current market cap of Rs.80 cr., the scrip is trading at a
low P/E multiple of 5. With a whopping gross block of Rs.68 cr., low debt : equity ratio, strong cash flows, decent margins
etc., the company deserves much better discounting. With 68% holding, the promoters are investor friendly and have an
uninterrupted record of dividend payment from the day of listing. At a modest discounting by 12 times, the scrip has the
potential to cross Rs.200 mark in the medium-to-long-term.
******
PBA Infrastructure Ltd. (Code: 532676) (Rs.68) is engaged in the execution of civil engineering projects and specialises in
construction of highways, dams, runways and heavy RCC structures, bridges and other infrastructure projects of various
12
government and semi-government bodies. It is executing projects from Kashmir to Kanyakumari and has taken up new
works like toll collection and quarrying to augment its income. For the first three quarters of FY08, its revenue increased
by 45% to Rs.270 cr. and net profit increased by only 20% to Rs.11.50 cr. The company has been regularly bagging new
orders and its current order book position is around Rs.700 cr. But it has a huge debt of Rs.170 cr. due to which its interest
cost is very high. However, to fund its working capital requirement and reduce the high cost debt, the company has
finalised a preferential allotment of 30 lakh warrants to the promoters and promoter group. Meanwhile, it is estimated to
clock a turnover of Rs.375 cr. with PAT of Rs.13.50 cr. for FY08. This translates into an EPS of Rs.10 on its current equity of
Rs.13.50 cr. Technically, the scrip seems to have bottomed out and investors should start accumulating it from the current
levels.
******
Avantel Softtech Ltd. (Code: 532406) (Rs.59) designs and manufacturers repeaters, filters, splitters, tappers, combiners,
couplers & amplifiers to enhance the capacity and coverage of wireless communication networks for use in GSM, CDMA
and 3G networks. Interestingly, it has developed customized solutions for INSAT based mobile satellite services with
advance microwave, digital wireless communication and signal processing products for defence and commercial use.
Hence it offers mobile satellite services for messaging, tracking and all locations based services with appropriate network
security. Using the same technology it provides specialised products like Ship borne terminal, handheld terminal, S-band
receiver, UHF transmitter, burst demodulator etc., which are one of its kind. It has also signed a Transfer of Technology
(TOT) agreement with ISRO for supply of hubs and satellite interactive terminals for EduSat networks. Through its
government recognized R&D division, the company has developed a number of products for the defence sector by
ensuring compliance of stringent defence standards. Q4 being the best quarter for the company traditionally, it may end
FY08 with sales of Rs.35 cr. and profit of Rs.5 cr. i.e. an EPS of Rs.10 on its equity of Rs.5.15 cr. Buy before the results are
out.
******
Rohit Ferro Tech Ltd. (Code: 532731) (Rs.65) is a leading producer of high carbon ferro chrome apart from manufacturing
ferro manganese and silico manganese through submerged arc furnace route. It has set up a greenfield plant in Jajpur-
Orissa thereby taking its total capacity to 1,65,000 MTA from 55,000 MTA earlier. Further, it has set up a fifth furnace with
15000 MTA capacity in Bishnupur, which is expected to go operational soon. To become an integrated player, the
company has applied for a mining lease to the Government of Orissa for chrome ore as well as manganese ore. Presently,
it is sourcing manganese ore from Australia besides local sourcing. On the other hand, due to higher production, better
margins and better availability of raw-materials, the company is stressing more on production of ferro manganese in
place of high Carbon Ferro Chrome. For future it has chalked out a plan to setup a 110 MW captive power plant to bring
down its power cost. In order to fund this, it recently made a preferential allotment of 80 lakh convertible warrants at
Rs.43 per share to promoters as well as strategic investors like Kampani Finance, Foster Capital etc. On the back of
stunning Q3 results, it may end FY08 with sales of more than Rs.500 cr. with PAT of Rs.50 cr. i.e. an EPS of Rs.14 on its
current equity of Rs.34.50 cr. The company has the potential to post an EPS of Rs.20 on its fully diluted equity of Rs.42.50
cr. for FY09. Keep accumulating at declines.
By Kukku
FIFTY FIFTY
Investment Call
* DIC India (Rs.158) has reported encouraging results for CY2007. It reported consolidated net profit of Rs.14.24 cr. on its
equity of Rs.6.88 cr. resulting in an EPS of Rs.20.50. The company had recently issued shares worth of Rs.51 cr. at a
premium of Rs.215 to reduce its borrowings, which included the amount borrowed for its new project. This will save
interest burden of around Rs.5 cr. in the current year while its equity will go up to Rs.9.15 cr. Moreover, it is likely to
benefit from the expansion in the current year.
The FMCG sector has seen a turnaround and its fortunes are looking up. The publication sector has a huge growth
potential and is expected to grow in coming years in view of the country's large population and rising literacy levels.
With more foreign publication houses setting up shop in India, it is poised for major growth. Similarly, the Packaging
sector is expected to be driven by the retail boom with more and more improvements in lifestyle and urbanisation. The
stock cum 35% dividend looks attractive from the long-term view.
Market Guidance
* Avaya GlobalConnect (Rs.163) - Book value Rs.149; last dividend 45%; 52-week high/low Rs.414/147. Current year
expected EPS is around Rs.20. The stock looks attractive. Buy on dips around Rs.150/155 level.
* First Leasing Company (Rs.42) - Expected EPS for FY08 is around Rs.13 after provisions of deferred tax of around Rs.8
cr. The stock looks attractive around Rs.40 level for safe investment, regular dividend income and good long-term capital
growth.
13
* Encouraging reports are pouring in about Indus Fila (Rs.123). Keep a watch to add on dips.
* Khoday Industries (Rs.120.95) stock seems to have bottomed out. Hold on it.
* Rajshree Sugar (Rs.54) - Investors can keep a watch to add this stock on dips. It has book value of Rs.45 and 35%
dividend payout. There are indications that the sugar sector may do well in coming years in view of better prices.
* Ennore Foundries (Rs.150) - Placement expected at higher levels. Stay invested.
* Kesar Enterprises (Rs.62) - Stay invested or keep a watch to add on reactions with a long-term view. The company has
storage division earning good rental income. Sugar sector also expected to turnaround. It is good restructuring story over
the long run.
* New developments are said to be taking place in Gujarat Apollo Inds. (Rs.186.75). Stay invested.
* Jaihind Projects (Rs.93) is about to get orders worth of Rs.185 cr. in the very near future as per unconfirmed reports.
* Shree Ram Urban Infrastructure (Rs.171) will also be India's first residential building aspiring to achieve the
prestigious The Leadership in Energy and Environmental Design (LEED) Platinum rating.
Spread over 25 lakh sq. ft. at Shree Ram Mills in Lower Parel, the luxury building will have 100 apartments with areas of
8,700 sq. ft. and 14,000 sq. ft. With a floor plate of 5 lakh sq. ft., the premises will have amenities like a cinema house, spa,
cricket pitch, soccer field and three swimming pools.
Long-term investors are advised to stay invested in this stock.
* J K Paper (Rs.35) is a good dividend yield stock. Last dividend paid was 22.5% and its book value was around Rs.50.
Note: Investors are advised to avoid buying at higher levels; they should buy only on dips very selectively. They should
not chase rising stocks in such a sentiment. They should avoid buying stocks, which have gone up by 40/50% from lower
levels.
14
By V. H. Dave
EXPERT EYE
Asian Granito India Ltd. (AGIL) (Code: 532888) (Rs.52) was incorporated on 8
th
August 1995, as Karnavati Fincap Pvt.
Ltd, for carrying on the business of non-banking finance. On 29
th
August 1995, it was converted into a public limited
company and renamed Karnavati Fincap Ltd.
Thereafter, the company's line of business changed from finance to trading in cloth and accordingly renamed as
Panchariya Textile Industries in 1999 and later as Vasudev Textile Industries Ltd. in 2000. In September 2002, the
promoters of Asian Tiles acquired the entire shareholding of Vasudev Textile, whereafter its line of business changed
from trading in cloth to ceramic tiles and it was renamed to the present name. AGIL was promoted by Kamlesh, Mukesh
and Vinod Patel.
AGIL's plant is located in the Ceramic Zone, Dalpur, Sabarkantha District, Gujarat. It has an extensive network of
business associates, 250 distributors, more then 3500 retail counters and 19 depots all over India.
The company has an installed capacity of 16,000 sq. mt. per day and is the second largest domestic producer of vitrified
tiles controlling 11% of the installed capacity to produce domestic vitrified tiles. Its subsidiary Asian Tiles manufactures
ceramic floor tiles with a capacity of 7,000 sq. mt. per day.
AGIL tapped the capital market in July 2007 with 70,00,000 shares priced at Rs.97 each aggregating Rs.63 cr. for the
modernisation and expansion of its vitrified tiles plant. While the company has earmarked close to Rs.48 cr. for the new
wall tiles unit, around Rs.15 cr. will be used to expand the vitrified tiles capacity.
The 2,000 sq. mt. per day of vitrified tiles capacity has come on stream from December 2007 taking its total capacity to
16,000 sq. mt. per day. The wall-tile unit came on stream on 15 January 2008. AGIL simultaneously implemented
modernisation of its existing facilities.
During FY07, it earned consolidated net profit
of Rs.23 cr. on sales of Rs.190 cr. resulting in
an EPS of Rs.16.4 on the then equity capital of
Rs.14.1 cr. During Q3FY08, its consolidated
net profit advanced by 34% to Rs.7.8 cr. on
24% higher sales of Rs.62 cr. For the first three
quarters of FY08, net profit has advanced by
39% to Rs.22.5 cr. on 19% higher sales of
Rs.165 cr. with an EPS of Rs.10.7.
AGIL's equity capital is Rs.21.1 cr. and with
reserves of Rs.113 cr., the book value of the
share works out to Rs.63.5. The promoters &
associates hold 56% in the equity capital,
mutual funds & institutions hold 3% leaving
41% with the investing public.
Daily Fresh Buy
(for the busy investor)
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trading day.
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is not met.
Our review over the next four days will provide new exit levels while the
stock is still in an uptrend.
This low risk, high return product for the busy investor is available for
subscription at Rs.2000 per month. For details contact
moneytimes@vsnl.com or phone on 022-22616970/ 22654805.
Today, vitrified tiles are replacing natural products like marble, granite, kota stone etc. as they have better visual appeal
and the polished finish lasts longer. Also unlike marble, which turns yellowish with the passage of time, vitrified tiles do
not exhibit any discolouration.
The Ceramic industry is growing by leaps and bounds with 12% growth in general and 30% growth in the vitrified tiles
segment over the last 3 years. Today, it has grown to 270 million sq. mt. including 40 million of vitrified tiles at a
valuation of Rs.5,500 cr.
AGIL enjoys a pan-India presence as it has a well-diversified geographical distribution of revenue. On the cost angle, the
company's facility is close to raw materials and has shifted to LNG (instead of LPG) as fuel over the past one year thereby
reducing its power cost. This cost efficiency would lead to better margins. AGIL also aims to fully explore global avenues
in emerging markets around the world.
AGIL has been focused on the vitrified tiles segment over the past three years and generates majority of its revenue from
the domestic market. It also has presence in glazed tiles and a few variants. It competes with the unorganised sector and
the marbles segment for its vitrified tiles.
AGIL is currently experiencing immense growth and expects its sales to cross Rs.225 cr. in FY08 with consolidated net
profit of Rs.30 cr. would give an EPS of Rs.14.2.
Sales during FY09 are expected to touch Rs.350 cr. on account of full expansion coming into play with net profit
increasing to Rs.45 cr. when the EPS could go up to Rs.21.3.
At current market price of Rs.52, the AGIL share is traded at a P/E of 3.7 on FY08E EPS of Rs.14.2 and 2.5 times its FY09
projected EPS of Rs.21.3 and is recommended with a target price of Rs.75 in the medium-term. The 52-week high/low of
the share has been Rs.135/44.
15
By Nayan Patel
TECHNO FUNDA
Shivalik Bimetal Controls
BSE Code: 513097
Last Close: Rs.21
Shivalik Bimetal is engaged in the production of thermostatic
bimetal/ CRT components/ shunts/ EB Welded Strips/ Trimetal
Strips/ Solder reflow material/ Snapaction disc/ Precision stainless
steel etc. Its products are used in many industries and it also has clients in domestic as well as global markets like
Germany, UAE, France, Australia, USA, Japan, UK and many others. It is an investor-friendly company. In 2005, it issued
1:1 bonus and paid 37.5% dividend in 2007-08. Its equity is only Rs.3.84 cr. while reserves are Rs.28 cr. and promoters
hold 61.52% stake in the company.
Review
Last week, we recommended Anuh Pharma at
Rs.208.45. During a volatile week, it zoomed to
Rs.247.95 and achieved our medium-term target in
just 3 days.
For the first nine months of FY08, sales were Rs.54.60 cr. (Rs.44.94 cr.) and net profit was up by 26.54% at Rs.6.15 cr.
against Rs.4.86 cr. in the previous corresponding period. It may close FY08 with sales of Rs.75 cr. and with a net profit of
Rs.8 cr. The share is trading at a P/E of 4.5 only.
This is a hi-tech engineering company, wherein the promoters have a high stake and have a got decent track record of
rewarding of shareholders. The company has entered into a MOU with M/s. G RAU GmbH & Co. KG, Germany, for
setting up a joint venture for manufacturing of Metal Parts (Tubes and Wires) for industrial applications in India on a
50:50 basis.
Buy with strict stop loss of Rs.17. On the upper side, its share price can go up to Rs.27 in the medium-term. If we apply a
P/E ratio of just 10, then also stock can easily go up to Rs.45 in the bull market.
Infotrek Syscom
BSE Code: 530643
Last Close: Rs.37
Mumbai based Infotrek Syscom was incorporated in 1994 as a private limited company and was converted into a limited
company in 1995 when it went public and was listed on the BSE in June 1995.
The company is engaged in Electronic Equipment Recycling with manufacturing facilities located in Panvel, Navi
Mumbai spread over 7000 sq. ft. constructed area and run by qualified & experienced professionals with access to modern
tools and technology.
It has an equity of just Rs.4.50 cr. In December 2007 quarter, its net sales zoomed 32.02% but net profit zoomed 180.95%.
Infotrek Syscom has informed the BSE that a meeting of the Board of Directors of the company will be held on 10
th
April
2008, interalia, for the following business:
1. Conversion of 600,000 warrants to Bennett, Coleman & Co. Ltd. into equity shares at Rs.90 per share as per the terms of
the issue of warrants as approved by the General Body in its meeting dated 12
th
January 2008.
2. Ratification of allotment of 19,00,000 warrants to First On Line Comtrades Pvt. Ltd. as per the terms of the preferential
issue as approved by the General Body in its meeting held on 12
th
January 2008.
On 8
th
January 2008, the share was traded at Rs.134 but is now traded at Rs.37. The stock is thus trading at a throwaway
price. From this price, the stock can slide by a maximum 10% while on the upper side; it can zoom by 70-100% in the long-
term.
Buy with stop loss of Rs.30. On the upper side, the share price will go up to Rs.53 in the medium-term and will cross it's
52-week high price in the next 15-18 months.
Union Bank launches Union Reverse Mortgage Scheme
MONEY FOLIO
Union Bank of India has launched its 'Union Reverse Mortgage Scheme' for senior citizens.
This loan product enables home owners to obtain monthly payments against the mortgage of their homes so long as they
continue to live in the home. There are no repayment obligations on the owner as the loan becomes due only on the death
of the owner or the last surviving spouse. On the demise of the last surviving owner, the legal heirs have the right to
repay the loan. If they do not wish to repay the loan, the Bank will sell the property and set off the loan amount
outstanding. Surplus if any will be given to the legal heirs.
Unlike other loan products, there is no 'income criteria' to be met for availing this loan. The minimum amount of loan that
can be availed is Rs.1 lakh and the maximum is Rs.50 lakh. The maximum tenor of a loan under this scheme is 15 years
and it carries a fixed interest rate of 10 % p.a. with a reset at the end of every five years. Every five years the property is
revalued and adjustments will be made to the monthly payments accordingly.
NCDEX to launch Carbon Credit Futures Contract
National Commodity and Derivatives Exchange Ltd. (NCDEX) will launch futures contract for Certified Emission
Reduction (CERs) on 10th April 2008. It is the first exchange in any developing county to launch a futures contract for
carbon credit issued under United Nations Framework Convention on Climate Change (UNFCCC) on its exchange
platform.
Buyers and sellers of CERs will now be able to do price discovery and hedge their price risk on NCDEX. Physical
delivery of CERs will also be facilitated where specific delivery requirements of the buyers and sellers will be matched by
the Exchange for guaranteed deliverable CERs.
Currently, the carbon market in India is limited to bilateral trading where Indians are net sellers to international buyers.
Bilateral trades in carbon tend to be opaque; are highly customized; entail high transaction cost; and are marred with
counter party risks. In the absence of a price discovery mechanism, sellers neither have information on the optimal value
of their CERs nor are able to get desired value for their CERs.
In the developed world futures contract of CERs are traded on Nordpool, European Climate Exchange - ICE, European
Energy Exchange - Eurex, and NYMEX's Green Exchange.
Dena Bank launches International Gold Debit Card and Internet Banking Services
Dena Bank has launched its Gold International Debit Card with VISA affiliation that provides higher limit for daily
withdrawals at Rs.50,000; higher limit per day in the case of Point of Sales transactions of Rs.1.5 lakh; Personal Accident
Insurance cover of up to Rs.5 lakh; purchase protection limit of Rs.50,000 and cover for loss of baggage of up to Rs.20,000
etc.
The bank has also launched 'Dena i Connect' to provide internet banking services, which enables clients to make balance
enquiries, mini statement of 10 transactions, cheque status query, funds transfer between two accounts of the customer, E-
Payment facility for direct tax payments etc.
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.
16
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