Friday, January 18, 2008

Nice Article: Making money is short-term, creating wealth is long-term


'Making money is short-term, creating wealth is long-term'
Vikas Khemani, executive VP & co-head, institutional equities, Edelweiss

January 14, 2008

Making money is a short-term process, while creating wealth only
happens in the long run. Vikas Khemani, executive vice president and
co-head, institutional equities, at Edelweiss, believes this is the
only mantra for young investors to become wealthy in the long-term.

"I have seen most young people these days call up their friends
working in a stock broking house and ask them for tips. This will help
them make money in the short-term. But, on a net basis, they won't be
able to take this money out," he warns all those investors trying to
cash in on the recent bull market frenzy.

Vikas spoke with rediff.com's Prasanna D Zore about the sectors,
themes and stocks that can become help youngsters create wealth if
they have an investment horizon of five to seven years.

Which sectors do you think can help an investor create wealth, in say, 10
years?

Ten years is too long a time period. Probably by that time you will
have two cycles (ideally, any economy moves in two cycles: the up
cycle and the down cycle, with each making its presence felt for at
least five years or more) in place. So I will talk about a long-term
horizon, which could be between five to 10 years. The sectors which we
at Edelweiss like -- with a three to five year time horizon -- are the
banking and financial spaces.

One has to take a structural call on whether India's GDP growth is
going to continue at eight to 10 per cent. The answer to that is India
is likely to grow for the next three to five years at eight to 10 per
cent. In this context, the banking and financial services spaces
become the most important. This makes me bullish on this space with a
one, two, three, four, five and possibly 10-year perspective if the
growth cycle continues.

Which other sector/s do you like for the long term?

Given the fact that there is huge amount of opportunity, the other
sectors that we like are the infrastructure and capital goods and the
engineering space. As you know, India is still a hugely
infrastructure-starved country and we need to build sea ports,
airports, roads, improve electrical supply and all such infrastructure
related sectors.

Huge amounts of investments are likely to be made in building these
infrastructural facilities. In this process wealth creation is going
to happen for two set of people: people who are going to create these
assets and infrastructure and people or companies who will enable
creation of these assets. Both these sections will do very, very well
in the long-term: asset owners and asset enablers.

Can you elaborate on these two themes for our readers?

Let us first talk about infrastructure creators or asset owners. These
will be companies owning ports, airports, power plants. These
companies will own assets, run them and this will be like an annuity
(a business that generates fixed returns or steady cash flows every
year) kind of business.

For instance, somebody who will own the mines will be an asset owner;
those who are operating the mines will be asset enablers. Reliance
[Get Quote] Power (yet to be listed) and NTPC are building power
plants so they are asset owners. But other companies in the capital
goods sector like BHEL will be enabling this process of building power
plants.

GMR Infrastructure [Get Quote] will be building airports; but somebody
has to help them to build the airport. In the process, both parties
benefit a lot. However, asset enablers will yield faster results than
asset owners.

Do you see investors making money in the banking and financial space
and the asset owner, asset enabler companies?

Absolutely! Here I must also add the domestic consumption story in
India. If you are talking about a five to seven year time horizon then
I am sure India's per capita income will increase, wealth creation
will happen, poverty and illiteracy will go down. All these things
will happen structurally. When this happens, consumption in the
economy will go up and the companies that cater to the domestic
consumption sector will benefit tremendously.

FMCG companies, retail stories and any company related to consumerism
will offer a lot of wealth creating opportunities in the coming years.

Companies that would possibly benefit from the above three themes?

Banking and financial services is a fairly large space and if I have
to name a few companies than the first name that comes up is ICICI
Bank [Get Quote]. They have captured the entire gamut of financial
services and I think this bank is going to gain big time in this
space.

Another company that I like in this space is Axis Bank. It has done
well in the last seven to eight years, and if one has to look at this
bank from another five to seven year perspective, then the quality of
management that Axis Bank has will help it reap the benefits of a
booming Indian economy. Also, both these banks can scale their
operations with great ease.

Companies that attract your attention in the asset owner and asset
enabler space?

In the asset owner space, I would go for something like GMR
Infrastructure, Mundra Port -- they own large assets which are going
to yield returns over a period of time. Though there aren't many
companies in this sector that are available at reasonable valuations
now. Having said that, I would still want to go for GMR Infrastructure
and Mundra Port as they are into a space that offers new and exciting
opportunities going ahead.

Right now, we are only seeing the initial phase of what is likely to
come in these spaces of ports and airports. In the next few years, you
can see more wealth creation happening. Other asset owners that come
to mind are JP Associates.

In the asset enabler space, L&T comes immediately to mind. The company
has displayed an excellent track record over a period of time and they
are likely to continue with that. Their organisational platform is
strong and I think this company will do very, very well in the next
3-5 years. It can be a potential multi-bagger.

In this space you can also consider BHEL, BEL, BEML. All these
companies are large asset-enablers with good quality management
support and scalability. I am talking only about large caps here. You
can also find a lot of good names in the small cap space in this
theme.

However, in this space, the main concern is the scalability of their
business models. Otherwise, if I have to give a pick from the small
cap space, then Mcnally Bharat will be a strong small cap contender in
the asset nabler space.

Stock picks for the long term from the domestic consumption space?

Pantaloon [Get Quote] Retail is one name that can ride the boom in
this segment. The management understands the retail game very well.
The other story that is a part of domestic consumption story is ITC.
It is a part of the FMCG sector, in the agricultural space -- which I
believe also offers a huge opportunity for investment. Another name in
this space could be McDowells.

Your advice to young investors?

Don't think you can make quick money in stocks. Don't go by tips and
hearsay. It is a dangerous thing that people can do at your age. You
have to understand what companies you are investing in, what is the
aim of your investments is and then put your money in stocks.

If you can't follow this path, then mutual fund route is better for
this age group to create wealth. If you look at it, over a period of
time, large part of wealth is created through asset allocation rather
than stock picking. If you are able to get right your asset allocation
mix then I think you have done 90 per cent of your job.

My suggestion to young people would be if you are investing directly
in equity, do your home work thoroughly. Read research reports, read
about the company you want to invest in, gather more information about
it. Then make an informed decision.

Typically, I have seen most young people these days call up their
friends working in a stock broking house and ask them for tips. This
will help them make money in the short-term. But, on a net basis, they
won't be able to take this money out. This way, they will make money
but not create wealth. Making money is short-term, creating wealth is
a long-term process.

Will you be able to make money out of the markets using trading tips?
It never happens. Creation of wealth can only happen if an investor is
looking at it as a serious business. Look at it this way: People will
work for 8-10 hours in their jobs and make Rs 8-10 lakhs a year. And
the very same people want to make the same amount of money in a
month's time purely acting on tips from their friends. From the effort
and return point of view, there is some disconnect, right?

When you come to the stock market, you should come with a long-term
perspective. But they don't look at what kind of input they are
putting in this effort. They should ask these questions: What kind of
intellectual effort I am putting in this? What kind of research am I
doing? Most young investors don't do this. In my opinion, this is a
very dangerous sign.

 
.

__,_._,___


Wednesday Telefolio : HDFC


 

cid:image001.png@01C85914.2C9C06E0

Housing Development Finance Corporation

Worth taking shelter

While the earnings growth in core housing finance business is expected to increase, value of its investments in banking, insurance and asset management businesses will gallop in the expected favourable environment

Buy

Housing Development Finance Corporation

BSE Code

500010

NSE Code

HDFC

Bloomberg

HDFC@IN

Reuter

HDFC.BO

52-week High/Low

Rs 3257/ Rs 1397

Current Price

Rs 2842 (as on 16th January 2008)

Housing Development Finance Corporation (HDFC), country�s premier housing finance company, is one of the few companies, which have been consistently growing at CAGR of 20% and is expected to improve this growth rate in future

Encouraging industry prospects

The industry continues to witness high demand largely driven by improved affordability on the back of rising disposable income, lower interest rates (compared to high levels few years ago), tax incentives (interest and principal repayments deductible), increasing urbanization, favourable demographics and rapid rise in new households

Moreover at present, Indian housing finance industry mainly caters to the organized or the employed sector and traditionally confined to metros and other big cities. The industry has to go a long way to cover vast populace of semi urban and rural towns that live outside the formal sector.

Further property prices are not likely to impact the housing demand, since in India people do not usually buy a house for investment, they usually buy a house for self-occupation. So when people are buying a house for self-occupation, what they are looking at is whether they can afford to buy a house or not. Hence whether the price goes up a little later on or goes down a little is not going to matter much.

HDFC is the most competitive and efficient player

HDFC has always been dynamic as well as quality-conscious with respect to resource mobilisation as well as its lending programme. It enjoys one of the most coveted reputation of having zero NPAs for past many years.

HDFC�s distribution network spans 243 outlets that include 49 offices of HDFC �s distribution company, Home Loan Services India Private Limited (HLSIL). In addition, HDFC covers over 90 locations through its outreach programmes. HDFC �s marketing efforts continue to be concentrated on developing a stronger distribution network. Home loans are also marketed through HLSIL, HDFC Bank Limited and other third party Direct Selling Agents (DSA). To cater to non-resident Indians, HDFC has an office in London and Dubai and service associates in Kuwait, Oman, Qatar, Sharjah, Abu Dhabi, Al Khobar, Jeddah and Riyadh in Saudi Arabia.

Encouraging financial performance

For the six months ended Sep�07, HDFC reported 40% increase in Income from operations at Rs 3713.79 crore. Gross profit increased by 33% to Rs 1095.15 crore. While the PBT before exceptional item stood at Rs 1087.45 crore, up by 34%, the half-year reported exceptional income of Rs 313.25 crore (as compared to Rs. 32.98 crore) on account of profit on sale of investment in an associate company, Intelenet Global Services Private Limited. After providing Rs. 381.50 crore for taxes, the profit after tax increased by 53% to Rs 1019.20 crore.

As at September 30, 2007, the total assets of HDFC stood at Rs. 72,665 crore as against Rs. 56,496 crore as at September 30, 2006 � an increase of 29%.

Loan approvals during the six-month period ending September 30, 2007 amounted to Rs. 18,948 crore as compared to Rs. 14,729 crore, in the corresponding period last year, representing a growth of 29%. Loan disbursements during the period ending September 30, 2007 amounted to Rs.14,275 crore as compared to Rs.11,280 crore in the corresponding period last year, representing an increase of 27%.

The loan portfolio (including loans outstanding and investments in debentures and inter-corporate deposits for financing real estate related projects) as at September 30, 2007 amounted to Rs. 63,446 crore as against Rs. 51,332 crore as at September 30, 2006, representing an increase of 24%.

Comfortable capital adequacy ratio

HDFC�s capital adequacy ratio stood at 17% of the risk weighted assets, as against the minimum requirement of 12%. Tier 1 capital adequacy was 12.4% as against a minimum requirement of 6%.

Strategic investments will add to the core business growth

HDFC has interests in banking, insurance and asset management.

All the subsidiaries are currently doing extremely well.

HDFC Standard Life

Its life insurance company (HDFC Standard Life) is a tie up with Standard Life Assurance Company, U.K. HDFC holds 74% of the equity of HDFC-SL.

The company earned total premium income of Rs 2856 crore for FY 07 (against Rs 1570 crore). Its first half growth in total premium is 79%.

Funds under management of group new business increased by 109% as at September 30, 2007 as against the previous year.

It has market share of 8.3% (private sector) and 3.7% (overall) in terms of Effective Premium in H1 08.

HDFC Asset management

HDFC Asset management has Tie-up with Standard Life Investments (SLI). HDFC holds 60% of HDFC Asset Management.

The company earned a Profit After Tax of Rs 67.50 crore for FY07 and paid a dividend of 100% for FY07 to equity shareholders.

Total assets under management as at September 30, 2007, stood at Rs 52800 crore, which is inclusive of portfolio management and advisory services of Rs 11400 crore.

HDFC Property fund

HDFC Launched in March 2005 its first property fund.

Its first scheme was HDFC India Real Estate Fund having fund corpus of US $ 250 million. It was a domestic 7-year close-ended fund managed by Funds managed by HDFC Venture Capital

General Insurance

In October 2007, HDFC and ERGO (Germany) entered into shareholders� agreement whereby ERGO will acquire 26% of HDFC General Insurance Company Ltd. The company offers Auto Insurance, Home Insurance, Group Accident Insurance, Group Travel Insurance, Commercial Insurance, which includes Fire and Marine and Specialty Insurance Products like Directors & Officers Liability.

The company had Achieved Gross Written Premium of Rs 197 crore.

HDFC Bank

HDFC also has 24% equity stake in HDFC Bank, which has one of the best technology and finest quality of assets with one of the best consistently high growth rates.

Investments

HDFC also has lot of investments in many listed companies like IDFC, Gruh Finance, Hindustan Oil Exploration, Siemens etc which are worth Rs 1800 crore at current market rates. Additionally its investments in HDFC Bank is worth Rs 6900 crore at current market rates.

Outlook

HDFC�s core business profitability numbers are on an upswing due to less intense competition from banks (due to higher reserve requirements increasing their costs and regulatory discouragement towards lending to realestate/retail sector) and some easing in funding costs. The insurance company is growing remarkably faster and the bank �s growth also shows signs of acceleration.

Reasonable valuation

HDFC is expected to report standalone adjusted EPS of Rs 64.8 for FY 2008 and Rs 83.1 for FY 2009. At Rs 2842, P/E is just 34 times its FY 2009 standalone adjusted earnings, which is reasonable in view of the expected sustained growth of 25% in earnings and expected continued growth in value of its investment in banking, life insurance, general insurance, property fund and asset management businesses (whose combined value can be Rs 750-Rs 1000 per HDFC �s share).

HDFC: Financials

 

0503(12)

0603(12)

0703(12)

0803 (12P)

0903 (12P)

Income from operations

3400.6

4265.54

5842.52

7887.40

10411.37

Other Inc.

9.48

12.85

20.76

14.00

16.00

Total Inc.

3410.08

4278.39

5863.28

7901.40

10427.37

Interest Exp.

1959.43

2491.13

3666.85

5096.92

6778.91

Other exp.

175.17

211.27

244.17

285.68

331.39

Gross profit

1275.48

1575.99

1952.26

2518.80

3317.08

Dep.

18.69

18.69

17.46

17.60

18.50

PBT before EO

1256.79

1557.30

1934.80

2501.20

3298.58

EO

0.00

0.00

32.98

313.25

0.00

PBT

1256.79

1557.30

1967.78

2814.45

3298.58

Taxation

220.2

300.00

397.40

759.90

956.59

Net profit

1036.59

1257.30

1570.38

2054.55

2341.99

EPS*(Rs)

36.8

44.6

54.8

64.8

83.1

* Annualised on current equity of Rs 281.94 crore.
Face Value: Rs 10
Figures in Rs crore EO: Extraordinary items
*EPS is after excluding EO and relevant tax
(P): Projections
Source: Capitaline Corporate Databases

HDFC: Results

 

0709(3)

0609(3)

Var. (%)

0709(6)

0609(6)

Var. (%)

0703(12)

0603(12)

Var. (%)

Income from operations

1888.60

1446.69

31

3713.79

2659.43

40

5842.52

4265.54

37

Other Inc.

3.90

9.54

-59

7.34

12.35

-41

20.76

12.85

62

Total Inc.

1892.50

1456.23

30

3721.13

2671.78

39

5863.28

4278.39

37

Interest Exp.

1223.75

913.59

34

2467.13

1715.00

44

3666.85

2491.13

47

Other exp.

82.31

68.64

20

158.85

135.31

17

244.17

211.27

16

Gross profit

586.44

474.00

24

1095.15

821.47

33

1952.26

1575.99

24

Dep.

4.00

3.89

3

7.70

7.61

1

17.46

18.69

-7

PBT before EO

582.44

470.11

24

1087.45

813.86

34

1934.80

1557.30

24

EO

313.25

0.00

100

313.25

32.98

850

32.98

0.00

100

PBT

895.69

470.11

91

1400.70

846.84

65

1967.78

1557.30

26

Taxation

249.30

102.09

144

381.50

182.00

110

397.40

300.00

32

Net profit

646.39

368.02

76

1019.20

664.84

53

1570.38

1257.30

25

EPS*(Rs)

59.6

52.2

56.1

45.3

54.8

44.6

* Annualised on current equity of Rs 281.94 crore.
Face Value: Rs 10
Figures in Rs crore
Source: Capitaline Corporate Databases

 
.

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ANALYSIS - Welspun Gujarat Stahl Rohren

Stellar Performance

 
For the quarter ended Dec'07 Welspun Gujarat Stahl Rohren (WGSRL) reported a 39% increase in net sales revenue to Rs 1036.40 crore. The topline growth was supported by decent growth in production volume, which grew at 12%. During the quarter under review the company produced around 1.58 lakh tonne of pipe as against 1.41 lakh tonne during the corresponding period last year.

On a Y-o-Y basis comparison the Operating Profit Margin (OPM) increased by 400 basis points to 16.8%. A 25% growth in realization along with higher utilization levels aided the expansion in margins. The resultant operating profit for the quarter ended Dec'07 stood at Rs 174.10 crore which was 83% higher when compared to the corresponding previous quarter last year. The ensuing PAT for the quarter ended Dec'07 was Rs 97.40 crore which was higher by 136% as compared to corresponding period last year. Currently the company has a strong order book of Rs 4488.9 crore (US$1.1 billion), which is one of the highest in the Industry.

Quarterly Analysis

For the quarter ended Dec'07 WGSRL reported a 39% increase in net sales revenue to Rs 1036.40 crore. The Operating Profit Margin (OPM) increased by 400 basis points to 16.8%. The resultant operating profit for the quarter ended Dec'07 stood at Rs 174.10 crore which was 83% higher when compared to the corresponding previous quarter last year.

The raw material cost and staff cost decreased (as % of sales net of stock adjustment) from 76.3% to 64.0% and from 2.0% to 1.8% respectively. The other expenditure increased (as % of sales net of stock adjustment) from 9.5% to 17.3%. The other expenditure of the company grew by 142.4% primarily on account of rise in freight expenses on higher exports revenue.

For the quarter ended Dec'07 the other income of the company increased by 340% to Rs 2.20 crore. The ensuing PBIDT for the quarter ended Dec'07 stood at Rs 176.30 crore which was 84% higher as compared to the corresponding previous quarter last year. The Interest/Finance charges for the quarter ended Dec'07 was Rs 14.30 crore which was 26% lower as compared with the corresponding previous quarter last year, while the depreciation charges for the quarter ended Dec'07 stood at Rs 14.50 crore which was 19% higher as compared with corresponding previous quarter last year.

The ensuing PBT for the quarter ended Dec'07 stood at Rs 147.50 crore which was 129% higher as compared to the quarter ended Dec'06. Provision before taxation (including Current, Deferred and Fringe Benefit tax) for the quarter ended Dec'07 stood Rs 50.10 crore resulting in a PAT of Rs 97.40 crore as compared to Rs 41.20 crore in corresponding previous quarter last year indicating a rise of 136%.

Nine months ended

For the nine months ended Dec'07 WGSRL reported a 42% increase in net sales revenue to Rs 2767.00 crore. The Operating Profit Margin (OPM) increased by 420 basis points to 16.7%. The resultant operating profit for the nine months ended Dec'07 stood at Rs 460.80 crore which was 90% higher when compared to the corresponding period last year.

The raw material cost and staff cost decreased (as % of sales net of stock adjustment) from 74.8% to 68.2% and from 2.2% to 1.8% respectively. The other expenditure increased (as % of sales net of stock adjustment) from 10.9% to 14.3%.

For the nine months ended Dec'07 the other income of the company increased by 177% to Rs 3.60 crore. The ensuing PBIDT for the nine months ended Dec'07 stood at Rs 464.40 crore which was 91% higher as compared to the corresponding previous quarter last year. The Interest/Finance charges for the nine months ended Dec'07 was Rs 45.40 crore which was 14% lower as compared with the corresponding previous quarter last year, while the depreciation charges for the nine months ended Dec'07 stood at Rs 39.20 crore which was 11% higher as compared with corresponding period last year.

The ensuing PBT for the nine months ended Dec'07 stood at Rs 379.80 crore which was 145% higher as compared to corresponding period last year. Provision before taxation (including Current, Deferred and Fringe Benefit tax) for the nine months ended Dec'07 stood Rs 130.50 crore resulting in a PAT of Rs 249.30 crore as compared to Rs 101.10 crore in corresponding period last year indicating a rise of 147%.

Order Book:

Welspun rated amongst the top 3 SAW Pipe companies in the world by CLSA Asia Pacific Markets (July 2007) enjoys order book position of Rs 4488.9 crore ($1.1 billion), one of the highest in the Industry.

Projects Status:

Pipe

LSAW Pipe capacity of 300,000 tons at Anjar SEZ (Welspun got permission for Engineering SEZ), Gujarat, India and 150,000 tons of HSAW capacity in Anjar, are progressing as per schedule. Similarly, the implementation of 300,000 tonne project in Little Rock, Arkansas, is going as per schedule and the facility is expected to be commissioned by Sept 2008. Post completion of all the U.S. and Indian projects by March 2009, Welspun capacities will reach 1.75 MTPA, making it one of the largest line pipe companies in the world.

Plates and Coil Mill

In Sept' 07, Welspun had started trial production of its Plate-cum-Coil Mill by producing India's widest plate of 4.5 meters, This 1.5 MTPA facility is now being stabilized.

Management Comment

On the back of robust performance B.K. Goenka, VC & MD said, "The first nine month of the year has been outstanding, we not only achieved excellent financial results but also sowed seeds for our future growth by bagging prestigious orders and embarking new capacity additions. We strongly believe that we are poised to become one of the biggest and most respected one-stop-solution providers for steel pipes in the World."

Echoing his comments, Braja Mishra, CEO, Welspun said, "We are growing at a rapid pace. In our aggressive growth phase, we have ensured that we remain focused, adhere to 'Engineering Excellence' and continue to delight our customers with flawless product quality and timely delivery schedules".

The scrip is currently trading around Rs 530.55

ANALYSIS - Petronet LNG

OPM up by 370 bps

Related Tables
4 Petronet LNG: Results
Petronet LNG posted a 54% rise in its net profit for the quarter ended December 2007 compared to corresponding previous year period as operating margins improved 370 bps resulting a 34% increase in its operating profits. However net sales of the company remained stagnant reporting a negligible rise. Other income of the company rose 36%, interest cost declined marginally and depreciation remained sluggish leading to 50% rise in profit before taxes. During the quarter, the company processed and sold 80.27 TBTUs achieving 135% of capacity utilization.

Mr. P Dasgupta MD & CEO stated that the work on the expansion of the existing Dahej Terminal from 5 to 10 MMTPA is on schedule and will be commissioned progressively between July 08 and December 2008. The company is in the final stages of selection of EPC Contractor for setting up 2.5 MMTPA (expandable to 5 MMTPA) Greenfield LNG Terminal at Kochi.

Quarterly Results

For the quarter ended December 2007, Petronet LNG reported marginal increase in sales to Rs 1581.13 crore as against Rs 1575.96 crore in the quarter ended December 2006. The operating profit margins of the company improved by a huge 370 bps to 14.7% resulting a 34% rise in operating profits to Rs 232.05 crore.

Cost of raw material consumed as a percentage to net sales decreased to 83.4% from 86.8% in corresponding previous quarter. Similarly the other expenses was lower by 40 bps to 1.7% and staff cost was stagnant at 0.2%, thus helping sharp expansion in OPM on y-o-y basis.

Other income jumped 36% to Rs 11.96 crore boosting the PBIDT by 34% to Rs 244.01 crore. Interest costs fell 7% to Rs 25.63 crore while depreciation remained constant at Rs 25.66 crore. The resultant PBT was up 50% at Rs 192.73 crore. The effective rate of tax declined to 32.0% compared to 33.9% resulting into 54% rise in PAT to Rs 131.08 crore.

Nine months ended December 2007

For nine months period ended December 2007 Petronet LNG reported a 21% rise in its net sales to Rs 4802.66 crore. The operating profit margins improved by 330 bps causing a 45% spurt in operating profit to Rs 651.30 crore. Other income was 64% higher at Rs 35.69 crore. Interest costs declined 5% to Rs 77.36 crore and depreciation remained sluggish at Rs 76.82 crore. As a result PBT rose 70% to Rs 532.82 crore. The effective rate of tax declined marginally to 33.4% compared to 33.7% resulting into 71% rise in PAT to Rs 354.62 crore.

The scrip is currently trading at Rs 109.

The promoter's shareholding remain unchanged at 50%.


ANALYSIS - Reliance Energy - PBT before forex gains down 13%

PBT before forex gains down 13%

Related Tables
4 Reliance Energy: Result
4 Reliance Energy: Segment Results
Reliance Energy (REL) has turned in a tepid performance for the quarter ended Dec '07. Income from operation for the quarter was down by 1% to Rs 1505.49 crore with income from EPC contracts crashimg by 55% to Rs 276.08 crore. Income from electricity sale, which grew by 34% to Rs 1229.41 crore, for the quarter though provided cushion it could not fully compensate the fall in revenue from EPC business leading to marginal drop in overall revenue for the quarter ended Dec '07. Even the sale of electricity was higher for the quarter, the electricity sourced from external sources too were higher (by 12% yoy) and also at a higher price of Rs 5.11/ unit compared to Rs 3.21 unit. On the other hand the revenue from EPC business though lower for the quarter, the segment margin of it has increased impressively and nearly compensated the contraction in the margin of power generation and supply division. The operating margin as result of this eroded by just 10 bps to 4.9% and thus operating profit was down by 3% to Rs 74.13 crore.

Despite setback at top line the net profit surged up by 50% to Rs 301.60 crore thanks to revaluation of forex derivative instruments in accordance with changed accounting policy amounting Rs 60.02 crore and prior period tax write back of Rs 89.50 crore compared to nil and a charge of Rs 1.50 core in the corresponding previous period respectively.

Reliance Energy, a part of the Reliance - Anil Dhirubhai Ambani Group, is India's leading private sector utility company. The group distributes nearly 28 billion units of power consumers in Mumbai, Delhi, Orissa and Goa, across an area covering 124300 sq. kms. The company generates about 941 MW of power, through its power plants located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa.

Quarterly performance

Aggregate revenue for the quarter ended Dec'07 was down by 1% to Rs 1505.49 crore. Even the income from sale of electric energy was higher by 34% to Rs 1229.41 crore that from EPC contract was lower by 55% to Rs 276.08 crore thus resulting in marginal fall in aggregate revenue. In terms of unit sale the aggregate electric energy sold for the period was 2337 million units compared to 2221 million units translating into a growth of 5%. However higher external purchase of electricity at a higher cost have put pressure on margin of electricity business. Electrical energy sourced from external source during the quarter stayed higher by 9% to 1203 million units and with cost per unit being Rs 5.39/ unit (Rs 4.15 in corresponding previous period) the cost of energy purchased was higher by sharp 42% to Rs 648.17 crore. Reflecting this, the segment margin (PBIT margin) of electrical energy business of the company was lower by 20 basis points to 7.8% resulting in a segment profit of Rs 97.33 crore (up 23% yoy) on a segment sales (including other income) of Rs 1247.32 crore (up 26%). On comparison the segment margin of EPC business was higher by 610 basis points during the quarter resulting in a segment profit of Rs 25.37 crore (up 40%) despite its segment revenue erode by sharp 54% to Rs 280.51 crore.

Other income excluding the gain on revaluation of forex derivatives of Rs 60.02 crore was Rs 287.90 crore, a fall of 2%. As result the PBIDT was lower by 2% to Rs 362.03 crore. With interest cost higher by 55% to Rs 85.44 crore and depreciation cost lower by 7% to Rs 56.60 crore, the PBT before EO was lower by 13% to Rs 219.99 crore. With gain on revaluation of forex derivatives being Rs 60.02 crore as against nil in the corresponding previous, the PBT after EO was spurred up by 11% to Rs 280.01 crore. The tax provision including FBT and deferred tax was higher by 34% to Rs 67.91 crore and the tax rate was higher by 4.3% points. As result the growth at PAT was limited to 5% to Rs 212.10 crore. After accounting for a prior period tax write back of Rs 89.50 crore compared to a charge/ provision of Rs 1.50 crore, the net profit stood increased by sharp 50% to Rs 301.60 crore.

Nine-month performance

For the nine month ended Dec '07, the aggregate revenue was higher by 15% to Rs 4671.22 crore. Even the income from sale of electric energy was higher by 38% to Rs 3774.25 crore that from EPC contract was lower by 34% to Rs 896.97 crore. In terms of unit sale the aggregate electric energy sold for the period was 7197 million units compared to 6637 million units translating into a growth of 8%. But with the cost of energy purchased was higher by sharp 78% to Rs 1968 crore with electrical energy sourced from external source stay higher by 12% to 3836 million units, this has effectively pressurized the margin of business segment. Reflecting this, the segment margin (PBIT margin) of electrical energy business of the company was lower by 230 basis points to 8.8% resulting in a segment profit of Rs 337.94 crore (up 7% yoy) on a segment sales (including other income) of Rs 3821.90 crore (up 35%). On comparison the segment margin of EPC business was higher by 423 basis points to 8.4% during the nine month period resulting in a segment profit of Rs 76.09 crore (up 35%) despite its segment revenue erode by 33% to Rs 907.37 crore.

Other income was higher by 36% to Rs 826.87crore. With interest cost higher by 43% to Rs 240.16 crore and depreciation cost lower by 9% to Rs 170.31 crore, the PBT before EO was higher by 22 % to Rs 822.02 crore. With gain on revaluation of forex derivatives being Rs 26.55 crore as against nil in the corresponding previous period, the PBT after EO was up by 26% to Rs 848.57 crore. The tax provision including FBT and deferred tax was higher by 57% to Rs 168.64 crore. As result the growth at PAT was limited to 20% to Rs 679.93 crore. After accounting for a prior period tax write back of Rs 93.31 crore compared to a charge/ provision of Rs 1.50 crore, the net profit stood increased by sharp 37% to Rs 773.24 crore.

Power Generation Performance

Dahanu Thermal Power Station

During the nine months ended December 31, 2007, the Company's Dahanu Thermal Power Station (DTPS) operated at a Plant Load Factor (PLF) of 101.1 % against the PLF of 100.6 % achieved during the corresponding previous period.

Samalkot Power Station, Andhra Pradesh

The Samalkot Power Plant operated at a Plant Load Factor (PLF) of 49.6 %, against the PLF of 47.1 % achieved during the corresponding previous period. The improvement in PLF is mainly due to mixed fuel operation and increased gas supply for meeting the growing grid demand.

Goa Power Station

The Goa Power Station maintained a Plant Load Factor (PLF) of 83.2 % during the

Period under review against the PLF of 93 % achieved during the corresponding previous period

Wind Farm Power Project

The Wind farm operated at a Plant Load Factor (PLF) of 37 %, against the PLF of 33 % during the corresponding previous period.

EPC Business

The order book of EPC business as end of Dec '07 was Rs 8300 crore compared to Rs 4718 crore as end of Sep '07.

Other developments

During the quarter the Company converted Foreign Currency Convertible Bonds( FCCBs) of the face value of USD 177.448 million due for redemption on February 24, 2009, resulting in the allotment of 79,72,548 Equity Shares. Accordingly, the paid-up Equity Share Capital of the Company stands increased from Rs.228.57 crore to Rs.236.54 crore and the Share Premium account from Rs.5,298.75 crore to Rs.6,093.54 crore. Currently, FCCBs aggregating US$ 0.60 million are outstanding. The accounting effect, if any, of the premium foregone on equity shares issued pursuant to conversion of FCCBs shall be reflected on completion of conversion of all

FCCBs.

Reliance Power, an associate of the company taps the capital market with an initial public offering of its equity shares and the issue of the same is open for subscription from January 15, 2008 to January 18, 2008. The Company has since, made an additional investment of Rs. 720 crore by way of promoters contribution for subscribing to 1.60 crore equity shares of Reliance Power. Reliance Energy holds about 45% post issue equity stake of RPower.

Subsequent to quarter end, pursuant to the approval of shareholders through postal ballot, the Company is making a preferential offer of 4.30 crore warrants to one of the promoters AAA Project Ventures Private Limited. The warrant holder will be entitled to apply for one equity share of the Company of Rs. 10 each at a premium of Rs. 1, 812.08 per share, per warrant on or before expiry of 18 months from the date of allotment.

During the quarter, Reliance Energy Trading has become a subsidiary of the Company.

Valuation

The promoter holding as end of Dec '07 was 34.68% compared to 29.71% as end of Dec '06. The stock closed at Rs 2212.70 at BSE on Jan 17, '07.


Analysis - Allahabad Bank

Spurt in other income saves the bottomline

Related Tables
4 Allahabad Bank: Financial Results
Allahabad bank reported 28% increase in Net profit at Rs 365.05 crore for the third quarter ended Dec'07. The Net interest income for the quarter declined by 8% at Rs 445.28 crore. Nevertheless 281% spurt in other income at Rs 372.92 crore saves day. The operating profit for the quarter under review jumped by 60% to Rs 521.12 crore.

Business Highlights

  • The Business of the Bank has crossed Rs 1,10,000 crore mark as on Dec'07 to reach Rs 113835 crore as against Rs 95237 crore as on Dec'06, an increase of 20% y-o-y.
  • Total Deposit of the Bank went up by 20% to reach Rs 68044 crore and Gross Advances went up by 18% to Rs 45791 crore as on Dec'07.
  • Market Share in aggregate deposits stood at 2.24% and Market share in advances stood at 2.09% as on Dec'07.
  • Low-Cost Deposits of the Bank grew by 13.60% on Year-on-Year basis.
    • Cost of Deposits was 6.55% as at December 2007 as against 5.55% as at December-end 2006.Yield on Advances grew to 10.76% as at December-end 2007 up from 9.21% in December 2006. During this period, while Cost of Deposit was up by 100 basis points, yield on advances increased by 155 basis points.
    • Net Interest Margin (Spread to Average Working Funds) stood at 2.90% as on December-end 2007 compared to 2.88% in December-end 2006
    • Gross NPA to Gross Advances reduced to 2.06% as at Dec.-end 2007 from 3.06% as at Dec.-end 2006. It was 2.61% as at March-end 2007.
    • Net NPA to Net Advances ratio reduced to 0.67% as at December-end 2007 from 1.07% as at March-end 2007 and 0.72% as on corresponding date last year.
    • Provision Coverage Ratio was 65.16% as on 31.12.2007.
    • Capital Adequacy Ratio stood at 12.84%. The Bank is comfortably placed for compliance of new Basel II norms by target date of 31.3.2008.
    • Return on Assets (ROA) went up to 1.50% during April-Dec., 2007 compared to 1.42% during the same period last year.
    • Operating Expenses to Average Working Fund reduced further from 1.69% at December-end, 2006 to 1.53% as at 31.12.2007 despite pressure.
    • Establishment Cost to Total Expenses went down to 12.22% as at Dec.-end 2007 from 15.18% as at Dec.-end 2006.
    • Gross Credit to Total Deposit Ratio was 67.30% as on 31.12.2007.

    Performance for the quarter ended Dec '07

    Allahabad Bank for the third quarter ended Dec'07 recorded 21% increase in the Interest earned at Rs 1583.49 crore aided by 26% increase in Interest on advances at Rs 1129.54 crore. However the interest expended for the period increased by 39% to Rs 1138.21 crore plunged the Net Interest Income (NII) by 8% to Rs 445.28 crore.

    Despite decline in NII, Net total income increased by 40% to Rs 818.20 crore with other income increasing spurting by 281% to Rs 372.92 crore. Commission & Exchange that form part of other income grew by 30.50% to Rs 295.47crores in Dec' 07 compared to Rs 226.41 crore in Dec' 06.

    The operating expenses increased by 16% to Rs 297.08 crore with the staff cost increasing by 13% to Rs 180.03 crore. Despite increase in operating expenses, spurt in other income took the operating profit for the quarter up by 60% to Rs 521.12 crore.

    The provision and contingencies (including provision for NPA) stood at Rs 125.01 crore compared to write back of Rs 8.37 crore in the corresponding previous quarter thus, constraining the PBT to increase by 18% to Rs 396.11 crore. However with the Provision for tax decreasing by 36% to Rs 31.06 crore, Net profit stood at Rs 365.05 crore as against Rs 286.13 crore, recording a y-o-y growth of 28%.

    Performance for the nine months ended Dec '07

    The Net interest income for the nine months ended Dec'07 increased by 6% to Rs 1338.24 crore. Other income increased by 137% to Rs 596.15 crore taking the Net total income up by 28% to Rs 1934.39 crore. Operating profit for the period increased by 43% to Rs 1109.55 crore after accounting for Rs 824.84 crore of operating expenses (up by 11% on y-o-y). Provision and contingencies increased by 35% to Rs 181.35 crore and tax provision increased by 584% to Rs 122.96 crore. Thus the Net profit for the period recorded 29% growth at Rs 805.24 crore.

    Retail Banking

    • The total outstanding amount under retail credit as on 31.12.2007 was Rs.7233 crores.
    • The Bank has bouquet of Retail Credit Products to cater to the needs of all sections of the society.
    • The Bank has 126 Retail Banking Boutiques (RBBs), which are solely focused on Retail Lending.
    • Housing Finance to individual accounts stood at Rs.3024.86 crores as on 31.12.2007, registering a growth of about 6% over December 2006.

      Branch Expansion

      During the calendar year of 2007, 100 more branches have been opened throughout the country taking total number of branches from 2042 to 2142 of which rural are 983 (46%), semi-urban 402 (19%), urban 450 (21%) and metropolitan 307 (14%). The Bank has already in hand 116 authorizations for opening of new branches. Bank's plan is to expand in areas where the Bank's presence is not very much visible now and where business potentiality is good.

      The Bank has connected 211 ATMs with 239 branches on its network. With membership of VISA and National Financial Switch, our card member can now access over 16500 ATMs all across the country.

      Future Initiatives

      • After the first overseas branch at Hong Kong, the Bank is planning to expand further in other countries having economic potentiality.
      • Aggressive marketing of retail products, cross-selling of insurance and mutual fund products with more thrust on income generation.
      • Renewed thrust on prompt and courteous Customer Service and Grievance Redressal.
      • Steadily bringing eligible branches under Core Banking Solutions (CBS) platform.
      • The Bank plans to come out with Rs.300 crore perpetual Bond during the last quarter of the year after obtaining approval of the Board.


    • Small-cap, mid-cap indices shine in weak market

      The market slipped for the fourth straight session today, giving up early gains as index heavyweights Reliance Industries (RIL) and ICICI Bank declined. RIL dipped after it reported Q3 December 2007 results, which were boosted by one-off gains. Ambuja Cements slipped. Banking and oil & gas shares declined. FMCG stocks were the flavor of the day. 17 out of 30 stocks from the Sensex pack were in red. The market breadth was strong.

      Asian markets, which were weak in early trade, firmed up as the day progressed. European markets, which opened after Indian markets, were positive.

      A meeting of the group of ministers (GoM) on fuel pricing which was scheduled today afternoon has been reportedly postponed until 18:00 IST. There had been reports recently that the government may hike petrol prices by a steep Rs 4 per litre and diesel by Rs 2 per litre. A steep hike retail fuel prices will result in increase in inflation.

      The 30-share BSE Sensex lost 167.29 points or 0.84% to 19,700.82. Sensex hit a low of 19,643.76 at the fag end of the trading session. At the day's low, Sensex declined 224.35 points. Sensex hit a high of 20,026.12 in afternoon trade. At the day's high, Sensex rose 158.01 points.

      The broader CNX S&P Nifty lost 22.55 points or 0.38% to 5913.20.

      The BSE Small-Cap index rose 1.74% to 12,740.29. The BSE Mid-Cap index rose 0.79% to 9,340.01.

      The market breadth was strong. On BSE, 2003 shares advanced as compared to 833 that declined. 41 remained unchanged.

      BSE clocked a turnover of Rs 8423 crore, compared to Wednesday (16 January 2008)'s Rs 7900 crore.

      Nifty January 2008 futures were at 5922, at premium of 8.8 points compared with spot closing of 5913.20.

      The NSE futures & options (F&O) segment turnover was Rs 67865.55 crore, which was lower than Rs 80606.24 crore on Wednesday, 16 January 2008.

      India's largest private sector firm by market capitalization and oil refiner Reliance Industries (RIL) lost 3.30% to Rs 2996.25. RIL reported 162.22% surge in net profit to Rs 8079 crore on 23.01% increase in total income to Rs 34831 crore in Q3 December 2007 over Q3 December 2006. The surge in net profit was due to one-off gains.

      Among the other Sensex losers, Ambuja Cements slipped 3.89% to Rs 130.80, DLF fell 3.71% to Rs 1085.75, Ranbaxy Laboratories declined 2.85% to Rs 367.90, and Satyam Computers fell 1.95% to Rs 372.45.

      Among the Sensex gainers, ITC soared 3.98% to Rs 217.10, Grasim Industries jumped 3.05% to Rs 3360, Maruti Suzuki flared up 2.76% to Rs 867.30, Larsen & Toubro climbed 2.20% to Rs 4077.70, Cipla rose 1.83% to Rs 209.

      The BSE Bankex fell 1.58% to 11,971.14. It underperformed the Sensex. India's largest private sector bank by assets ICICI Bank shed 3.46% to Rs 1321.80.

      Centurion Bank of Punjab fell 1.75% to Rs 67.35, HDFC Bank declined 1.72% to Rs 1647.10, Federal Bank slipped 1.55% to Rs 339.95, and Canara Bank skid 0.90% to Rs 351.60.

      The BSE Oil & Gas index fell 1.97% to 13,381.37. It underperformed the Sensex. Aban Offshore dropped 2.85% to Rs 4,656.45, HPCL skid 1.83% to Rs 329.90, Indian Oil Corporation slipped 1.65% to Rs 656.75 and Reliance Petroleum fell 0.75% to Rs 219.30.

      The BSE FMCG index rose 1.79% to 2,347.27. It outperformed the Sensex. Godrej Consumer Products rose 1.60% to Rs 127.30, Hindustan Unilever gained 1.09% to Rs 217.30, GlaxoSmithkline Consumer Healthcare moved up 0.68% to Rs 690 and Tata Tea rose 0.62% to Rs 829.85.

      The BSE Capital Goods index rose 1.38% to 18,931.82. It outperformed the Sensex. Siemens jumped 4.26% to Rs 1,998.05, Thermax rose 2.19% to Rs 755.40, Crompton Greaves gained 1.93% to Rs 382 and Bharat Heavy Electricals climbed 1.72% to Rs 2348.50.

      India's second largest power utility by revenue Reliance Energy (REL) fell 2.38% to Rs 2212.70. The company today reported 50.02% rise in net profit to Rs 301.6 on 1.81% increase in total income to Rs 1,853.41 crore in Q3 December 2007 over Q3 December 2006.

      As per the latest data, the IPO of Reliance Power was subscribed 20.84 times. The IPO closes tomorrow. REL will have 45% stake in Reliance Power post issue.

      India's largest software exporter by sales TCS fell 2.31% to Rs 922.65. TCS posted 6.7% rise in net profit as US accounting standards to Rs 1331 crore in Q3 December 2007 over Q2 September 2007. The results, which hit the market after trading hours on Wednesday, were in line with market expectations.

      Reliance Industries clocked the highest turnover of Rs 472.55 crore on BSE. Reliance Natural Resources (Rs 431.10 crore), Reliance Energy (Rs 316.12 crore), Reliance Capital (Rs 210.53 crore) and Himachal Futuristic Communications (Rs 202.53 crore), were the other turnover toppers on BSE in that order.

      Himachal Futuristic Communications reported the highest volume of 4.60 crore shares on BSE. Reliance Natural Resources (1.96 crore shares), Ispat Industries (1.90 crore shares), Bellary Steels & Alloys (1.56 crore shares) and Hindustan Motors ( 1.12 crore shares), were the other volume toppers on BSE in that order.

      In Europe, key indices in UK, France and Germany were up 0.25% to 0.47%

      Most of the Asian markets firmed up as the day progressed. Key indices in Japan, Hong Kong, and South Korea were up 1.09% to 2.72%. Key benchmark indices in China and Taiwan were down by 0.95% to 2.63%.

      US stocks fell on Wednesday, after Intel Corporation posted both a disappointing profit and outlook. The Dow Jones industrial average lost 34.95 points, or 0.28%, at 12,466.16. The Standard & Poor's 500 Index lost 7.75 points, or 0.56%, at 1,373.20. The Nasdaq Composite Index shed 23 points, or 0.95%, at 2,394.59.

      Crude oil futures declined 1.15% at $90.84 on Wednesday, 16 January 2008. Foreign institutional investors (FIIs) were net sellers of Rs 3,760 crore in the futures & options (F&O) market on Wednesday, the day when Sensex had lost 383 points amid setback in global markets. FIIs were net sellers of Rs 3,164 crore in index futures, and Rs 1,080 crore in stock futures. They were buyers of Rs 484 crore in index options.

      FIIs were net sellers of Rs 2,517.59 crore (provisional) in the cash market on Wednesday, according to data released by NSE. Domestic institutional investors (DIIs) were net buyers of Rs 188.97 crore on Wednesday.

      Morning Buzz 17Jan08 (Apollo Tyres - BUY)

       

      Results Update

      Apollo Tyres

      CMP: Rs 54   Target: Rs 70   BUY

       

      Steady pace of growth

      Apollo Tyres (ATL) has registered revenue growth of 14% YoY during Q3FY08 along with a better-than-expected EBITDA margin (up 270bps YoY to 13.4%). The growth was led by the following – a) robust sale volumes led by demand from the replacement market and b) effective internal cost control measures. PAT has risen 77% YoY, in line with our expectations.

      We expect demand from the OEM and replacement markets to sustain the company's volume growth, while its cost cutting programme will continue to offset the pressure exerted by higher rubber costs. Consequently, we have raised our revenue and earnings estimates for FY08E and FY09E. We also introduce our FY10E numbers. We maintain our target price at Rs 70, which represents a potential upside of 30% from current levels, and reiterate a Buy on the stock.

       

      Regards,

       

      Religare Research

       

       

      Sharekhan Investor's Eye dated January 17, 2008


       
      Investor's Eye
      [January 17, 2008] Please see the attachment for details
      Summary of Contents

      STOCK UPDATE 

      Ranbaxy Laboratories                   
      Cluster: Apple Green
      Recommendation: Buy
      Price target: Rs500
      Current market price: Rs367

      Q4CY2007 results: First-cut analysis

      Result highlights

      • Ranbaxy Laboratories reported a 5.1% revenue growth to Rs1,784.5 crore during Q4CY2007, against our expectation of Rs1,729.3 crore. As expected, the growth was affected by the appreciation in the rupee, as the growth in dollar terms was more robust at 19%. 
      • The growth was driven by a 24% increase in the sales to the emerging markets. India, the Commonwealth of Independent States, Romania, South Africa and Brazil were the key drivers of the growth in the emerging markets. The US business declined by 3.7% (on a high-base of Q4CY2006 when the company had recorded substantial revenues from exclusivity opportunities) to $104 million during the quarter. However, the base business (excluding the impact of the exclusivity revenues) grew by 8%.
      • The operating profit margin remained under pressure during the quarter and declined by 90 basis points year on year (yoy). The decline in the margins was largely due to the increase in the material cost (due to the impact of the rising rupee, which reduced the realisations, and the high base of Q4CY2006, when the company had recorded revenues from the Simvastatin exclusivity). Consequently, the operating profit of the company declined by 3.8% yoy to Rs179.9 crore in Q4CY2007. 
      • The company recorded an extraordinary income of Rs4.4 crore during the quarter on account of sale of land and buildings, which boosted the net profit after extraordinary items. The pre-exceptional net profit stood at Rs183.5 crore, down by 1.3% yoy. The same was ahead of our estimate of Rs164.7 crore. 
      • For CY2007, Ranbaxy Laboratories' consolidated revenues grew by 20% to $1,607 million. However, due to the impact of the appreciating rupee, the growth in rupee terms was more moderate at 9.5% to Rs6, 590.4 crore. The sales reported by the company were ahead of our estimates. The net profit for CY2007 stood at Rs790.1 crore, up by 53.3% yoy. Excluding the impact of the foreign exchange gains, the net profit stood at Rs606.9 crore, a growth of 15% yoy. 
      • The management has guided towards a 18-20% top line growth in CY2008 and an expansion of earnings before interest, depreciation, tax and amortisation (EBIDTA) margin from 16.6% in CY2007 to 17.5-18% in CY2008, resulting in a net profit growth of 20-25% in CY2008. 
      • At the current market price of Rs367, the stock is discounting its estimated CY2008 earnings by 20.8x. We maintain our Buy recommendation on the stock with a price target of Rs500.

       

      Jaiprakash Associates                  
      Cluster: Ugly Duckling
      Recommendation: Buy
      Price target: Rs484
      Current market price: Rs424

      Price target revised to Rs484

      Result highlights

      • Jaiprakash Associates' (JP Associates) net sales for Q3FY2008 stood at Rs900 crore, down 0.2% on year-on-year (y-o-y) basis.
      • Operating profit margin (OPM) for the quarter was at 24.8% against 26.8% during the same quarter last year. The OPM contracted mainly due to lower revenues and higher total expenditure, which went up 2.6% year on year (yoy).
      • Other income shot up by 251.7% yoy to Rs102 crore mainly on account of dividend received from Jaiprakash Hydro Power Ltd.
      • Profit after tax (PAT) was up 53% yoy at Rs156 crore on account of higher other income and lower tax rate, which was 20% for Q3FY2008 compared with 35% for the corresponding period last year.
      • At the current market price the stock is trading at 75x its estimated FY2008 earnings and 74x its estimated FY2009 earnings. Though this appears to be over stretched, it should be noted that the company has huge value in its subsidiaries, investments and large build, operate and transfer (BOT) projects. We are revising our price target to Rs484. The revision is driven by the higher than expected valuations of its power generation subsidiary, Jaiprakash Power Venture Limited (JPVL) including the value of JP Associates' holding in Jaypee Hotels and Malvika Steel. We maintain our Buy call on the stock with a revised sum-of-the-parts (S-O-T-P) based fair value of Rs484.

       

       

      HCL Technologies                  
      Cluster: Apple Green
      Recommendation: Buy
      Price target: Rs354
      Current market price: Rs274

      Price target revised to Rs354

      Result highlights

      • HCL Technologies (HCLT) has reported a revenue growth of 6.3% quarter on quarter (qoq) and 24% year on year (yoy) to Rs1,816.6 crore for the second quarter ended December 2007. In dollar terms, it has reported a sequential growth of 7.4% in its consolidated revenues to $461 million. The sequential growth in the revenues was driven by a 6.6% growth in the volumes, a 1.6% improvement in the blended realisations and a 1.3% gain from hedging. On the flip side, the revenue growth was adversely impacted by 1.1% due to lesser number of working days in Q2, by 0.8% due to the offshore shift and by 0.2% due to lower effort based pricing revenues during the quarter. 
      • The operating profit margin (OPM) improved by 10 basis points to 21.4% on a sequential basis due to the cumulative positive impact of higher realisations (123 basis points), hedging gains (100 basis points) and efficiency gains (69 basis points). This positive affect was however partially offset by higher overheads cost (89 basis points due to global customer meet), rupee appreciation (107 basis points) and lower working days (83 basis points). 
      • The healthy growth of 34.9% in the other income and lower effective tax rate resulted in an earnings growth of 7.9% qoq to Rs332.9 crore, which is ahead of the street expectations. The company realised treasury gains of $12.3 million in Q2 (as compared with $9 million in Q1). It has around $20.3 million of unrealised treasury gains on its books. In terms of accounting treatment for foreign exchange (forex) cover, the company realised net gains of $9 million in Q2, of which 
        $7 million was accounted for in the revenues. It has around $63 million of unrealised forex gains on its books as on December 2007.
      • In terms of operational highlights, the company has signed two large deals (multi-million, multi-year) during the quarter, including a $300-million deal (the fourth deal of over $200 million in the past 24 months). The company added 2,312 employees in Q2 (5,937 in H1) and the attrition rate in the software services business declined to 15.5% (declining for the fourth consecutive quarter). It reported robust sequential growth in revenues from US geography (7.9%) and financial services vertical (14.1%) during the quarter.
      • HCLT sounded more confident about the demand environment as compared with some of its peers. The management, as per its assessment, believes that the weak economic environment could put pressure on the discretionary Information technology (IT) spending in USA. But the focus is more on investing in IT solutions to improve the overall organisational efficiencies and cope up with the challenging environment (rather than cut cost as seen post the dotcom bubble bust in 2001). In fact, the management believes that certain pockets would witness an increase in discretionary IT spending due to tough economic conditions such as enterprise solutions (ERP and CRM). This is clearly reflected in the record license sales by SAP during the last quarter. 
      • To factor in the change in accounting for forward covers, we have fine-tuned our estimates. At the current market price the stock trades at 14.8x FY2008 and 11.6x FY2009 estimated earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs354 (15x FY2009E earnings). 
       
       
       
       
       
       
      Regards,
      The Sharekhan Research Team
       

       


      Thursday, January 17, 2008

      Anagram Earning Preview - Cement Sector


       
      • The cement sector is likely to have two more quarters of favourable demand-supply scenario. After two quarters, the pace of capacity additions is likely to surpass the pace of consumption growth of cement.


      • Historically, Q4 has been the best quarter for cement industry due to the peak season in its user industry, viz. construction & housing industry. Thus in Q4, Cement companies are likely to hike prices. However the hike is likely to be compensatory in nature, as the industry has witnessed sharp surge in input costs, viz. coal, pet coke, gypsum etc.


      • In December-07, the Monopolies & Restrictive Trade Practices Commission (MRTPC), in an order, indicted the cement industry and Cement Manufacturers Association (CMA) for indulging in cartel arrangements during Feb-Apr 1990 and fixing retail cement prices. The commission has ordered the industry not to indulge in fixing cement prices and file an affidavit of compliance with this order.


      • Also, after the Tamil Nadu government's threat of nationalization, cement manufacturers have offered to make available 20 lakh bags of cement every month in Tamil Nadu at a subsidized price of Rs 200 per 50 kg bag.


      • These developments could cap the magnitude of the price hike in near terms, as cement industry would like to avoid any negative announcement for itself in the upcoming Union Budget.


      • In the long run, as capacities start coming onstream, cement prices may come under pressure.




      Volume shockers of the day


      Last Price % Chg Last Volume Avg Volume % Chg
      Jaysynth Dyestu B2 Dyes & Pigments 13.49 4.98 418501 5881.00 7016
      Simplex Infra B1 Construction & Contracting - Civil 670.00 0.49 368510 9073.60 3961
      Anil Products B1 Miscellaneous 386.65 1.92 86237 2487.60 3367
      Sakuma Exports B1 Trading 34.90 -0.29 192526 6382.60 2916
      Deccan Gold T Trading 103.55 3.34 1223701 41028.80 2883
      Link Pharmachem B2 Chemicals 17.20 0.29 65240 2387.40 2633
      Polymechplast B2 Miscellaneous 18.65 3.04 30385 1170.00 2497
      Bellary Steel T Steel - Rolling 10.44 3.47 15617163 759570.20 1956
      PAL Credit T Finance - Leasing & Hire Purchase 16.10 3.87 444381 22056.20 1915
      Dutron Polymers TS Plastics 32.05 -0.77 26068 1410.00 1749
      HFCL B1 Telecommunications - Equipment 42.50 -4.17 46016356 2589371.80 1677
      Axis Capital B2 Finance - General 104.15 -4.76 28172 1666.40 1591
      Gopala Polyplas T Packaging 12.44 4.98 497783 30713.40 1521
      Upsurge Invest B2 Finance - General 17.75 3.20 117387 7357.40 1495
      PSL B1 Steel - Tubes/Pipes 465.95 -0.92 180329 11732.40 1437
      Kothari Ferment B2 Edible Oils & Solvent Extraction 31.55 -0.94 46019 3141.20 1365
      IKF Software T Computers - Software 15.95 0.31 8772705 600476.00 1361
      Cat Technologie B2 Computers - Software 11.38 -4.93 4034188 277253.60 1355
      VCK Capital T Finance - Investments 18.95 2.99 27068 1936.20 1298
      JPT Securities B2 Finance - Investments 15.50 4.73 23624 1931.20 1123
      HFCL Infotel TS Telecommunications - Service 39.60 -1.00 493488 41076.80 1101
      Torrent Guj Bio T Pharmaceuticals 18.10 -4.99 109752 9450.20 1061
      Ashiana Ispat B2 Steel - Rolling 24.60 4.68 18652 1676.20 1013
      Blue Dart B1 Couriers 695.00 -1.90 22654 2079.00 990
      BCL Forgings Z Castings & Forgings 30.30 -1.30 12550 1200.00 946
      Polar Ind T Domestic Appliances 14.25 -4.68 53409 5293.20 909
      Marmagoa Steel T Steel - Medium / Small 14.75 0.00 25107 2617.80 859
      Chandni Textile T Textiles - Machinery 18.52 -4.98 41429 4336.00 855
      Duncans Ind T Plantations - Tea & Coffee 16.85 2.43 241816 27113.20 792
      JIK Industries B1 Diversified 13.54 3.20 195607 21986.60 790
      Integra Capital Z Finance - Leasing & Hire Purchase 10.55 4.98 77100 9100.00 747
      Integrated Dig Z Computers - Software 10.94 -4.95 12833 1519.00 745
      Hind BioScience T Miscellaneous 10.93 4.10 127431 15315.60 732
      UB Engineering B2 Engineering - Heavy 207.90 9.25 953806 119005.20 701
      Guj Lease Fin T Finance - Leasing & Hire Purchase 17.80 3.49 201235 25454.60 691
      Vimta Labs S Miscellaneous 167.00 11.26 98322 13081.00 652
      Polycon Int B2 Plastics 10.87 -4.82 9749 1360.20 617
      Marsons T Electric Equipment 11.06 2.03 769836 108149.00 612
      Guj Carbon T Chemicals 12.30 -4.13 42805 6541.00 554
      Gufic Bio T Pharmaceuticals 17.10 4.91 394564 61113.60 546
      Kriti Industrie S Edible Oils & Solvent Extraction 17.60 3.23 396122 65931.40 501
      Facor Steels T Steel - Large 13.21 4.84 2676422 446992.20 499
      Tulip StarHotel TS Hotels 97.00 -0.21 8825 1475.00 498
      Software Tech T Computers - Software - Training 29.55 4.97 23292 3903.60 497
      Livewell HomeFi T Finance - Housing 962.15 2.91 57181 9770.60 485
      Ashima T Textiles - Spinning - Cotton Blended 14.85 2.41 153496 26670.40 476
      Akruti City B1 Construction and Contracting - Real Estate 1,238.35 5.91 526631 91807.80 474
      Century Extr T Aluminium 12.00 4.80 243148 43000.00 465
      Guj Themis T Pharmaceuticals 19.10 3.52 16128 2950.00 447
      Rainbow Foundat T Construction and Contracting - Real Estate 27.05 -3.57 12974 2386.00 444
      KPR Mill B1 Textiles - Readymade Apparels 175.35 11.47 20230 3722.40 443
      Jayant Mercanti B2 Miscellaneous 10.45 -4.57 36200 6721.40 439
      Lupin A Pharmaceuticals 599.80 -1.48 306952 57182.60 437
      Sakthi Finance T Finance - Leasing & Hire Purchase 22.85 4.82 21535 4126.20 422
      Amrapali Devlpr T Trading 24.65 3.79 32786 6275.00 422
      Monnet Ind B2 Steel - Medium / Small 54.10 -1.01 6098 1167.40 422
      Refnol Resin B2 Chemicals 17.80 2.89 23647 4548.00 420
      Force Motors S Auto - LCVs/HCVs 279.00 -1.01 12861 2491.00 416
      Prithvi Info B1 Computers - Software 333.30 8.04 930725 183347.80 408
      Saya Housing T Finance - Housing 10.37 -4.95 7450 1476.00 405
      Tamil Telecom T Cables - Telephone 18.15 3.13 44219 8811.20 402
      Yash Manage T Finance - Investments 16.80 3.38 115675 23173.80 399
      Sadbhav Eng B1 Construction & Contracting - Civil 1,500.00 2.83 42305 8497.20 398
      Betala Global B2 Finance - General 13.28 4.90 9150 1863.80 391
      BNR Udyog B2 Finance - Investments 17.95 4.97 7141 1458.60 390
      Worldwide Leath B2 Leather Products 21.45 2.39 17100 3530.40 384
      CCS Infotech B2 Computers - Hardware 11.72 4.64 143839 30078.80 378
      Apple Finance T Finance - Leasing & Hire Purchase 18.10 2.84 382532 80271.40 377
      Shri Rama Multi T Packaging 11.30 4.82 394994 82976.80 376
      Bihar Tubes S Steel - Tubes/Pipes 194.30 1.01 361599 76410.80 373
      Sintex India B1 Diversified 517.00 -2.27 743772 158409.40 370
      Shiv Vani Oil S Oil Drilling And Exploration 695.40 8.34 346795 74477.00 366
      N M D C Z Mining/Minerals 13,122.90 5.00 5400 1160.00 366
      Inter State Oil B2 Transport 12.47 4.88 49946 10853.00 360
      Acknit Knitting B2 Textiles - Hosiery/Knitwear 45.00 0.90 10110 2203.80 359
      Kalptaru Papers S Paper 38.75 -4.44 22440 4906.20 357
      eClerx Services B1 Computers - Software 386.20 19.51 216477 47857.20 352
      Arihant Found S Construction & Contracting - Housing 572.90 8.44 18649 4196.40 344
      Ranbaxy Labs A Pharmaceuticals 367.90 -2.85 794075 179947.00 341
      HDFC A Finance - Housing 2,849.75 0.27 425206 96855.20 339
      Venkat Pharma T Pharmaceuticals 13.30 -2.92 15377 3518.00 337
      Midas Pharmasec T Trading 20.00 -3.38 8412 1955.00 330
      Bhagwati Gases B2 Chemicals 26.35 3.74 328781 77037.60 327
      Mysore Paper Z Paper 11.00 -2.22 337300 81160.00 316
      Aimco Pesticide T Pesticides/Agro Chemicals 14.40 -2.70 13335 3214.80 315
      Goldiam Inter T Diamond Cutting/Precious Metals/Jewellery 75.90 1.07 223609 53876.60 315
      Softsol India S Computers - Software 72.00 2.13 5807 1397.80 315
      Vedant Hotels Z Hotels 15.20 4.83 4600 1120.00 311
      Areva T&D B1 Power - Transmission/Equipment 2,135.25 -0.92 53327 13200.60 304
      Mcnally Bh Engg B2 Engineering 271.85 1.21 58856 14739.60 299
      Mahaan Foods B2 Food Processing 16.60 -4.32 8370 2107.00 297
      Asian Tea Expo TS Plantations - Tea & Coffee 43.25 -2.92 23267 5868.40 296
      Tamilnadu Petro T Detergents 25.80 4.24 229719 58105.80 295
      Uniproducts S Textiles - General 60.00 1.01 10027 2546.40 294
      Shriram Asset B2 Finance - General 43.80 4.91 6100 1552.40 293
      Mayur Uniquoter S Plastics 64.50 -4.80 15184 3874.40 292
      Kutch Minerals Z Mining/Minerals 27.10 -4.07 54500 13940.00 291
      Aditya Ispat T Steel - Medium / Small 15.50 4.73 46621 11997.60 289
      LIC Housing Fin A Finance - Housing 382.40 4.88 1653151 434902.60 280
      Mohit Paper Mil B2 Paper 10.20 -4.67 26735 7056.20 279
      Sybly Ind TS Textiles - Spinning - Cotton Blended 10.15 -3.33 385087 101882.20 278
      Entegra B2 Power - Generation/Distribution 61.80 4.66 582901 154076.40 278
      United Brewerie S Breweries & Distilleries 340.20 -2.41 496458 131644.20 277
      Mercator Lines S Shipping 132.85 3.10 3503257 950897.80 268
      AMD Metplast B1 Packaging 67.55 2.58 587052 160248.00 266
      TVS Finance T Finance - Leasing & Hire Purchase 23.15 4.99 9222 2528.40 265
      Jenson Nicholso T Paints/Varnishes 18.10 4.62 808068 227739.00 255
      Birla Capital T Finance - Investments 22.15 4.98 621553 176172.20 253
      Biocon B1 Pharmaceuticals 540.60 -0.96 88819 25213.40 252
      Hexaware Tech A Computers - Software 79.70 4.11 962313 275497.60 249
      Ras Resorts B2 Hotels 46.20 20.00 5147 1473.00 249
      GV Films T Media & Entertainment 11.53 1.68 9687455 2795987.40 246
      MJP Leasing Z Finance - Investments 167.05 -4.98 9050 2650.00 242
      Punj Lloyd A Engineering 520.30 -1.12 923057 277447.00 233
      UB Holdings B1 Trading 1,110.25 3.31 218736 65627.40 233
      Pantaloon Ret B1 Retail 778.95 0.59 85819 26209.60 227
      Eastern Silk B1 Textiles - Synthetic/Silk 244.30 7.36 21234 6531.80 225
      TV 18 B1 Media & Entertainment 451.05 -8.69 111724 34651.60 222
      Asian Electroni B1 Electricals 552.20 0.05 552458 171603.60 222
      ADF Foods S Food Processing 73.50 -1.01 35148 10965.80 221
      NCJ Inter B2 Computers - Software 17.00 -1.73 6312 1977.60 219
      K Sera Sera TS Media & Entertainment 40.05 -0.87 397371 125433.40 217
      Siddhartha Tube T Steel - Tubes/Pipes 15.20 4.83 4550 1440.00 216
      Multi-Arc India TS Miscellaneous 36.15 -4.99 8668 2761.40 214
      Kohinoor Broard T Media & Entertainment 15.00 -0.33 4951854 1588734.60 212
      Gulshan Sugars S Chemicals 81.35 15.15 1482414 476635.00 211
      Sipaper B2 Paper 88.50 -0.45 3066 1001.40 206
      Ponni Sugars(E) T Sugar 52.00 4.00 23080 7562.20 205
      Sharon Bio Medi S Pharmaceuticals 250.00 3.03 6665 2183.60 205
      Patni Computer B1 Computers - Software 274.60 -5.13 144882 47664.40 204
      OK Play B2 Plastics 136.45 4.36 363297 119795.00 203
      D-Link (India) A Computers - Hardware 104.90 3.71 153584 51064.80 201
      Voltas B1 Diversified 256.00 2.75 1174815 393704.00 198
      Escorts Finance T Finance - Leasing & Hire Purchase 16.85 -2.03 55210 18700.80 195
      TRF S Engineering - Heavy 1,700.00 -0.96 8244 2827.20 192
      Coral Labs B1 Pharmaceuticals 107.90 1.79 4675 1608.40 191
      GEE B2 Electrodes/Graphite 100.35 4.97 47782 16469.80 190
      Jet Airways A Transport 910.80 3.01 49935 17334.80 188
      Times Guaranty T Finance - Leasing & Hire Purchase 53.05 0.00 8437 2942.80 187
      Steelco Gujarat T Steel - CR/HR Strips 16.15 4.19 81552 28495.80 186
      Orchid Chemical A Pharmaceuticals 314.95 2.36 2010372 704603.80 185
      Parekh Aluminex B2 Packaging 240.05 2.15 133116 46816.40 184
      Magnum Fincap T Finance - Leasing & Hire Purchase 25.45 4.95 9067 3195.20 184
      Ahluwalia B2 Construction & Contracting - Civil 327.55 3.49 90040 31944.60 182
      Bombay Dyeing A Petrochemicals 970.15 8.30 430323 155446.40 177
      Selan Explore S Oil Drilling And Exploration 214.05 6.28 188740 68112.40 177
      In House Prod B2 Computers - Software 52.30 -4.91 7857 2837.60 177
      Maruti Infra T Construction & Contracting - Housing 17.15 4.89 16975 6225.00 173
      SKP Securities B2 Finance - General 77.90 0.84 4620 1696.00 172
      India Lease Dev T Finance - Leasing & Hire Purchase 13.90 -4.14 22840 8525.80 168
      Ashapura Mine B1 Mining/Minerals 343.80 2.81 124773 46724.00 167
      Mather Pumps B2 Pumps 180.90 -0.74 12647 4749.80 166
      Givo T Textiles - Readymade Apparels 17.75 0.28 210269 79217.40 165
      Steel Strips Wh S Auto Ancillaries 190.75 4.81 39316 14903.20 164
      Central Bank A Banks - Public Sector 136.15 1.34 429225 163309.00 163
      Cinevista Comm B1 Media & Entertainment 102.25 9.71 208306 79120.80 163
      Hind Sanitary B1 Ceramics/Granite 88.25 7.03 52383 20162.20 160
      Bhagwandas Meta B2 Steel - Rolling 13.10 4.80 17172 6633.60 159
      Binani Cement B1 Cement - Major 117.75 0.17 707023 279715.20 153
      Binani Ind B1 Glass & Glass Products 251.90 11.61 65218 25950.00 151
      Khaitan Electri B2 Domestic Appliances 120.05 1.01 15565 6216.00 150
      Sanjivani Paren B2 Pharmaceuticals 48.35 4.77
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