NIFTY (4354) SUPP 4331 RES 4376

BUY Colgate (391) SL 386
Target 399, 401

BUY Cummins (351) SL 347
Target 360, 362

BUY UTI Bank (630) SL 625
Target 638, 641

SELL Dish TV (103) SL 107
Target 97, 94

SELL Mphasis BFL (312) SL 317
Target 305, 302

 

 Nifty and Sensex have exhibited Doji candlestick.

Technically, one may use the level of 4300 (Nifty) and 14700 (Sensex) as the stop loss level.

Nifty faces resistance at 4390 and Sensex at 15050.

Nifty Range 4300 to 4390.

BSE Smallcap and BSE Midcap also exhibited bearish candlestick following reversal candlesticks the day before.

CNX IT has closed Negative.

In the Punter's zone we have a Sell in Peninland, Parsvath and Ansal infra.

In the Technical call section, we have a Buy in RCOM, Sail and Voltas.

 

Citigroup in their daily tech,

Nifty — The index opened on a positive note, after which it dipped toward 4,312 during the afternoon trading. It saw a recovery during the remaining part of the day's session. The index ended the day down 4 points.

Trading around a high of 4,363 — The index is trading around a 4,363 high amid intra-day volatility. Intra-day rise is facing resistance around 4,363. Until the index stays below the 4,363 high on a closing basis, range-bound movement with high intra-day volatility should be expected.

Support and resistance — The index has support around 4,314 (low of 3 July 07) and 10dma at 4,305. Intra-day dips should find support around these levels. The resistance level is around 4,386 (high of 4 July 07).

Conclusion — Range-bound movement within 4,305-4,386 band can be expected.

 

Prabhudas Lilladher report on Gammon India:

Result Snapshot

Gammon India reported Q4FY07 and FY07 results in line with expectations. Revenues (adjusting JV revenues) in Q4FY07 rose 54% y-oy to Rs 6268 million. However, due to higher tax on account withdrawal of 80IA benefits, net profit in the quarter was lower by 24% at Rs 220 million. For the full year (adjusting for JV revenues) was higher by 57% and net profit was higher by 20% at Rs 18.6 billion and Rs 984 million respectively. Given its strong order book of Rs 76 billion and a expected strong order inflows, we are projecting revenues of Rs 27.3 and Rs 35.7 billion for FY08E and FY09E. We have valued Gammon's 82.5% stake in GIPL at Rs 114 per share. However, we believe that that there is an upside to this valuation and would look and revisiting this at a later date. Adjusted for GIPL and other subsidiaries value of Rs 124 per share, Gammon is currently trading at 21x and 16x FY08E and FY09E earnings respectively. While valuations do appear a bit on the higher side, given the strong order book and the likely value unlocking on account of GIPL we maintain our 'OUTPERFORMER' rating on Gammon.

Result Highlights

Revenues in Q4FY07 grew by 54% y-o-y and 65% sequentially to Rs 6.2 billion. Driven by strong EBIDTA margins of 9.6% for the quarter, EBIDTA increased 71% to Rs 603 million. EBIDTA margins were higher on account more projects reaching the profit-booking threshold. Gammon has provided for tax at 60% of PBT as adjustments for tax rates for the previous three quarters reflected in Q4FY07. As a result, net profit for the Q4FY07 fell by 27% y-o-y to Rs 220 million. For the full year gross revenue was at Rs 21 billion and net revenue (adjusted for JV income) grew by 57% to Rs 18.6 billion. Gammon now accounts for income from JV's based on profit sharing, which implies that only the profits from the JV are included in the overall revenues. For the full year the revenues from the Oman JV was at Rs 2.4 billion and the profit from the JVs is at Rs 131 million. As EBIDTA margins for the year were lower at 9.9% as against 13% last year, EBIDTA for the full year grew at 20% to Rs 1.85 billion. The slower growth in EBIDTA is on account of the large base of last year, which also includes some claims that the company had received. Depreciation for the year grew at 19% to Rs 352 million on account of a total capex of Rs 1.7 billion during the year largely on new equipment. Gammon has provided for tax at 31% for the full year. In light of the clarifications on the applicability of 80IA benefits, Gammon has provided for income tax for previous years. This amounts to Rs 500.9 million and also includes the interest on the amount. As a result, for the full year, recurring net profit increased 20% to Rs 984 million. Adjusting for the short provision in tax, profit for the year was at Rs 445 million, which is lower by 47%.

Order Book

Gammon has an unexecuted order book position of Rs 76 billion of which a third each is distributed across the power and transportation segments and the balance within irrigation, water, industrial structures etc. While order inflows in the current year have been relatively slower, we expect this momentum to pick. Moreover, Gammon would also add to the order inflows once GIPL received the LoI for the Mumbai Offshore Port and the HEPs. Currently, approximately 20% of the total outstanding order book comprises projects awarded to the parent by GIPL. Going forward the management has indicated that this share should increase as more projects are awarded through the Public Private Partnership route. Moreover, order intake from the mega real estate developments should also likely provide momentum in overall order intake.

Gammon Infrastructure Projects

In March 2007 the Securities Appellate Tribunal (SAT) passed an interim order directing SEBI to process GIPL's draft 'Red Herring Prospectus' expeditiously. SEBI has thereafter directed the company to refile the DRHP. The management has indicated that they are in the process of working out the fund raising format for GIPL and will make available the details shortly. Currently GIPL has 13 BOT projects totalling a project value of Rs 55 billion. Of this GIPL has yet to receive the formal LoIs for 3 of these projects, namely the Mumbai Offshore and the Hydel Power projects. GIPL currently has a networth of Rs 2.6 billion.

Real Estate

During the year, GIL incorporated Gammon Realty Ltd, as a subsidiary of the parent company, with the objective to carry on the business, developers, builders and construction of residential, commercial and industrial premises etc. However, the company has yet to formally announce its real estate development plans.

Valuations

Given its strong order book of Rs 76 billion and a strong order inflow pipeline, we are projecting revenues of Rs 27.3 and Rs 35.7 billion for FY08E and FY09E. We have valued Gammon's 82.5% stake in GIPL at Rs 114 per share. However, we believe that there is an upside to this valuation and would look and revisiting this valuation at a later date. Adjusted for GIPL and other subsidiary valve of Rs 124 per share, Gammon is currently trading at 21x and 16x FY08E and FY09E earnings respectively. While valuations do appear a bit on the higher side, we believe that given the strong order book and the likely value unlocking on account of GIPL we maintain our 'OUTPERFORMER' rating on Gammon.

 

IDBI Capital report on Kohinoor Foods:

FY07 revenues at Rs 5,892 million is up by 9% YoY on account of increase in branded sales. EBIDTA margin at 10% have increased by 138bps YoY leading to rise in PAT by 6% YoY to Rs 221 million.

FY07, PAT exceeding expectation

In FY07, KFL's revenues increased by 9% YoY to Rs 5,892 million on account of 20% YoY increase in branded basmati rice revenues to Rs 3,292 million. Branded foods division contributed Rs 374 million to the topline, exhibiting an increase of 40% YoY. EBIDTA margins at 9.9% exceeded our expectation of 9.1% in FY07. This is on back of 24% YoY increase in branded sales that now contribute around 62% of total turnover. This lead to PAT rising by 6% YoY to Rs 221 million. Net profit margin stood at 3.7% inspite of increase in interest cost by 59% YoY and depreciation by 28% YoY.

Q4FY07, subdued quarter

For Q4FY07, revenue declined by 15% YoY to Rs 1,750 million on account of decline in commodity sales. However, operating profit increased by 17% YoY to Rs 172 million. EBIDTA margin at 9% increased by 237bps YoY on account of 20% increase in branded sales. PAT declined by 13% YoY to Rs 42 million. The decline was also lead by increase in depreciation cost by 31% YoY and interest cost by 32% YoY. Net profit margin increased by 8 bps YoY to 2.4%.

Valuation

KFL has reported excellent set of number exceeding our expectation. Going forward, we expect the company to post robust performance in FY08. The company's plans of ramping up rice milling capacity to 45 MTPH and RTE capacity to 100,000 pouches a day, are intact and expected to yield results by FY08. The current market price discounts FY08E EPS of Rs 18.7 by 3.3x. We reiterate 'Buy' with a target price of Rs 161.

 

After marching hard for three day's on the trot, the markets settled into consolidation mode today and sustained buying interest in cement and auto space was offset by underperformance by banking and tech stock. The markets ended flat after three days of sharp rally. In terms of cues, there was not much to take from Asia and Europe. It was quiet for frontliners and also for the midcaps and smallcaps. The turnover was good but the breadth was almost neutral more in favour of declines.

 

Nifty closed at 4,359 up just 2 points, while Sensex shut shop at 14,880 up 73 points.

 

On today's trade Nilesh Shah, CIO, ICICI Prudential thinks that the positive onset of monsoon is one of the drivers. "Second is the India story being told and retold and retold to investors during the IPOs, during the conferences which has been conducted around the world by various brokerage houses. All these things put together is bringing in liquidity and economic numbers continued to be good, except for some softening in the auto sales and the two-wheeler sales. So the momentum is still positive and that's pushing the market at higher level," he said.

 

India's biggest real estate company, DLF debuts on the bourses on Thursday. The company had priced its IPO at Rs 525 per share. The price band for the IPO was Rs 500 to Rs 550. Analysts feel DLF is going to have a pronounced impact on the real estate stocks, because it's going to be the number one real estate company in terms of marketcap. For the last couple of days, there has been a renewed interest that we have been witnessing in all the realty stocks, which are already listed like Akruti Nirman, Unitech, Parsvnath. Taking indications from the grey market also, there are huge activities taking place as the premium in the grey market is also going up.

 

"Taking all this as an indication, tomorrow the demand or the appetite for the stock should be quite good. I am expecting that it could probably list at anywhere between Rs 560 to Rs 565. Thereafter probably, due to the good overseas appetite of the FIIs, the shares will probably run up from that level" adds SP Tulsian of sptulsian.com.

 

Ashu Madan, National Head, Religare is not too excited about that listing. "I don't see any move on either side. It's quite on predictable lines. Backed by that listing, all the momentum, which was to come on the realty stocks, is already more or less in place. So I don't see much movement left in realty stocks"
 

According to market experts, market testing new high is not a new phenomenon anymore as it has been happening in the last 3-4 years, so testing new highs should not deter any investment opportunities into the equities but the last 3-4 years rally has been largely confined by falling interest rate environment as well as the currency which has been helping the out sourcing business.

 

C Jayaram, Executive Director, Kotak Mahindra Bank, is cautious on the market in the near-term. On whether he sees any upside from these levels, he said, "In the near-term, I will be a little cautious because the market has run-up reasonable amounts in the last few days. You can't predict these momentum flows and what will be the peak. On a fundamental basis, one would be little cautious at these levels." he adds.

 

"Definitely the range is improving, from 4100 to 4300, it is 4200 to 4400. So immediate is that I feel it should cross 4400 barring some edgy moves tomorrow on account of the DLF listing. Otherwise, it seems that let's play with the momentum and as long as the momentum is there, there is no point in nursing the doubts and carry on" says Ashu Madan.

 

 P-Sec report on Maruti Udyog:

Maruti reported robust volume growth of 23% y-o-y during June'08 aided by healthy growth in A2 segment of 38% y-o-y and good response to the new launch SX4 in A3 segment. The company sold 2500 units of SX4 and 7500units of Swift. The A3 segment grew by 46% y-o-y. Presently operating at over 100% capacity at Manesar plant a strong jump in volume in these segments is unlikely as new capacity with come on stream only in FY09. Impact from hardening interest rates were no seen in volumes growth however, we expect realizations to remain subdued. The stock trades at 13x its FY0 8P earnings, we maintain BUY.

 

Prabhudas Lilladher report on Pfizer:

Sluggish sales growth

For Q2 FY07 (ending May '07), Pfizer has reported a 1% yoy dip in net sales -from Rs 1.67 billion to Rs 1.65 billion. The dip is attributed to supply-related issues regarding its major product, Corex. Moreover, the company is in the process of divesting its consumer healthcare (CHC) business in favor of Johnson & Johnson (J&J) in line with the global transfer of its CHC business to J&J, and hence the uncertainty about the divestment. The pharmaceutical business slipped 4% yoy whereas the animal healthcare (AHC) segment has reported a 21% sales growth. The clinical development services grew a marginal 1%.

Margins under pressure

During the quarter the operating margin slipped 60bp—from 22% to 21.4%—due to the rise in 'other expenses'. 'Other expenses' climbed 130bp—from 25% to 26.3% of net sales—due to lower sales growth. Material cost rose by 50bp—from 37.8% to 38.3% of net sales—with the change in product mix and higher sales of AHC products. Personnel expenses declined by 120bp—from 15.2% to 14%—due to the ongoing VRS.

Higher 'other income'

The company has reported a 60% rise in 'other income'—from Rs 109 million to Rs 174million—due to the rise in treasury income (Rs 90 million during the quarter). Pfizer has completed the sale of the Chandigarh property, and profited by Rs 2.74 billion. With this higher 'other income', the EBIDTA margin has improved, by 340bp—from 28.5% to 31.9%.

Capital gain

The company paid Rs 462 million as capital gains tax from the sale of the Chandigarh property and therefore the net inflow is Rs 2.28 billion. With this inflow, the company's treasury income is likely to rise by over Rs 50 million per quarter.

Net profit improved

Net profit before extraordinary items grew 10%—from Rs 298 million to Rs 329 million—due to higher 'other income'. Net profit after EO items also went up—from Rs 238 million to Rs 2,578 million—from the high inflow due to the sale of the Chandigarh property.

Investment positives

Pfizer has employed a contract field force of 100 people in three states to promote its mature products. It is widening its geographical reach to cover class II and class III cities. This is likely to generate additional sales and improve top-line growth.

To raise top line growth, it is focusing on the institution and hospital segments and the retail segment.

To improve sales and profitability as well to expand therapeutic coverage, the company is looking at domestic acquisitions.

Its new launch, Lyrica, is doing well in the domestic market. It is likely to be a future growth driver for the company.

Financials and Valuations

We expect Rs 3 billion from the sale of CHC business to J & J in FY07. Net inflow after capital gains tax is likely to be Rs 2.66 billion. With this, Pfizer can look at acquisitions aggressively. We expect a 13% reduction in net sales in FY07—from Rs 6.89 billion to Rs 6.04 billion, due to it's divesting its CHC business, which accounts for about 22% of the company's revenue. We expect an 11% rise in sales in FY08—from Rs 6.04 billion to Rs 6.73 billion. We expect the operating margin to inch up from 24% in FY06 to 24.4% in FY07 due to the reduced material cost as well as from operational efficiencies. We expect net profit (after EO items) to shoot up—from Rs 1.06 billion in FY06 to Rs 5.91 billion in FY07—and then slip to Rs 1.35 billion in FY08. Management has guided to double-digit sales growth and the maintaining of the EBIDTA margin after the transfer of the CHC business. The CMP of Rs 804 discounts the FY07E EPS of Rs 38.4 by 21x and the FY08E EPS of Rs 48.6 by 16.5x. We are positive on the long-term prospects of the company.

 

Prabhudas Lilladher report on Bhagwati Banquets:

Investment Highlights

Just now, it monopolises premium catering in Ahmedabad and Surat and commands a high (about 35%) operating margin from this business. The company wants to expand catering business to other major cities.

It plans to branch out to other cities like Mumbai, Jaipur, Jodhpur, etc., to become a national player. From October '07, it will commence catering services in Mumbai. The entry into other cities is likely to improve the sales and profitability of the company.

BBHL has plans to enter into tie-ups with clubs for providing F & B services, resulting in additional revenue and profits.

In FY07, it has undertaken the F&B management of the revolving restaurant, Patang, in Ahmedabad. The company is exploring similar F & B management opportunities.

It plans to serve companies and MNCs, BPO centres, shopping malls, theatres, etc. catering for them and providing food packs. This business is likely to generate additional revenues and profits.

BBHL expects a good response for the Surat hotel as well as for club membership at its Surat Club, adjoining the hotel. It expects Rs 500 million in revenue and Rs 150 million in operating profit from the Surat hotel in the first year of operation.

The catering business generates free cash, as it receives payments in cash and obtains credit from its suppliers. Hence, the working capital required is low.

Major risks

The company had a negative cash flow in FY04 and FY06 due to continuous expansion of the business.

Delay in implementing the Surat project might affect profitability.

Revenue arises from catering contracts at various hotels/ clubs and party plots. On expiry, these contracts might not be renewed; or might even be terminated before expiry, resulting in loss of revenue and profits.

BBHL's business is seasonal, with greater revenue arising in the October-March period. Any disturbances/ disruptions during this period might result in loss of revenue and profits.

Management Vision

In the long run, BBHL plans to set up 5-star hotels in Ahmedabad (2nd hotel in 2008), Jaipur (2011), Hyderabad (2014), Lucknow (2017) and Mumbai (2020). It is evaluating several proposals to acquire property for its new hotel at Ahmedabad.

Business Development

BBHL expects a good response to the 5-star hotel now being set up at Surat. This hotel will have 100 rooms (deluxe, suites and a presidential suite). It will have two large banquet halls, which can be partitioned as required. The hotel will also have a business center, with a boardroom, conference rooms, a world-class spa, a pub, a discotheque, etc. The company plans to develop a separate club adjoining the hotel. BBHL is likely to enroll members for the club and expects a good response for membership. The company has 1,000 people, consisting of 10 master chefs and a catering staff of 650 for Ahmedabad and 45 for Surat.

Competitive Environment

At present, there is no organized player in the catering business in Ahmedabad and Surat and hence the company enjoys a "healthy" market share (a monopoly) in the premium segment. There are other cooks in the unorganized sector who undertake contracts for wedding and other functions. However, unorganized players do not have a centralized kitchen; hence, the cooking is done at the wedding site, resulting in hindrances and disturbances. Since the business of catering is unorganized, most transactions are conducted in cash. Hence, the unorganized players are at an advantage, as they do not pay tax. The company pays 6.4% service tax and 4% VAT. This renders it less competitive than those in the unorganized sector. With the rise in corporate clients, it does not envisage a problem on this front.

Financials and Valuations

In April '07, Bhagwati came out with a public issue of 23 million shares at Rs 40 each, aggregating Rs 920 million. Its equity capital then rose–-from Rs 62.9 million to Rs 292.9 million. The catering service has done well in the past five years. The number of meals supplied per day has jumped from 200/300 in FY03 to 1,500/2,000 in FY07. The company derives over 66% of its revenue from F&B and the other 34% from its hotels business. It charges from Rs 350 to Rs 900 a meal and provides personalized service. A minimum order has to be for 300 people (off-season) and 500 in season, resulting in revenue ranging from Rs 0.1million--0.45million on each order. The typical room rate in Ahmedabad is Rs 5,000 per day and average occupancy is 75-80%. BBHL is likely to commence catering services in Mumbai and is likely to generate sales of Rs 29 million-35 million in FY08 and Rs 135 million-150 million in FY09, with an EBIDTA margin of about 35%.

Valuations

At the CMP of Rs 37,the stock trades at 9.7x FY08E EPS of Rs 3.8 and at 7.3x FY09E EPS of Rs 5.1. With its unique business model of catering services as well as monopoly in premium catering, we are upbeat about the company's long-term prospects.

 

 Edelweiss Research report on Spentex Industries:

Spentex Industries' (Spentex) Q4FY07 results were below our expectations. Net revenues grew 18% Q-o-Q to Rs 3.13 billion. Pressure on realisations and higher power expenses caused EBITDA margin to decline 160bps Q-o-Q to 11.3%. Higher depreciation costs, on account of revaluation of assets, caused PBT to decline 186% Q-o-Q, bringing about a loss of Rs 67 million. PAT decreased 124% Q-o-Q, causing a loss of Rs 31 million. There was a deferred tax write-back of Rs 50 million.

For the full year FY07, Spentex (consolidated) reported revenues of Rs 9.41 billion. Its EBITDA margin was at 11.9% (12.3% in 9MFY07) versus our estimate of 12.4% for FY07.

Spentex also announced the acquisition of Schoeller Textil (Schoeller) headquartered in Germany, with manufacturing plant in the Czech Republic. Schoeller is the European market leader in 'corner markets' in the yarn industry and manufactures special sewing thread yarns, carpet warp yarns, and core yarns for weaving mills. Schoeller was valued at Euro 25 million for the transaction (FY06 revenues of Euro 54.5 million, EBITDA of Euro 5.8 million).

We expect earnings downsides in FY08 from our earlier estimates, primarily on the back of Rupee appreciation and decline in yarn prices. However, scale-up of all the capacities acquired in FY07 and the company's continued inorganic growth at inexpensive valuations imply strong growth in EBITDA and profitability, going forward. We have revised our FY08 earnings downward to factor in the appreciated rupee and lower yarn prices. We maintain 'BUY' on Spentex owing to its strong business model that enables it to earn superior RoCEs. At CMP, the stock is trading at a PE of 4.8x and EV/EBITDA of 4.6x on our FY08E consolidated earnings.

Result highlights and outlook

Topline growth muted, power, and depreciation costs create further bottomline pressures Net revenues grew 18% Q-o-Q to Rs 3.13 billion. Pressure on realisations and higher power expenses (power costs in Maharashtra units peaked at Rs 5.2/ unit in February as against Rs 4.25 now) caused EBITDA margin to decline 160bps Q-o-Q to 11.3%. Higher depreciation costs of Rs 247 million as against Rs 152 million in Q3 FY07 (due to revaluation of assets) caused PBT to decline 186% Q-o-Q bringing about a loss of INR 67 mn. PAT decreased 124% Q-o-Q, causing a loss of Rs 31 million. There was a deferred tax write-back of Rs 50 million.

Yarn prices to keep earnings subdued in FY08; acquisitions to compensate

An appreciated Rupee, coupled with pressure on yarn prices, is likely to keep topline and margins under pressure in FY08. However, Spentex will be able to derive full utilization of the capacities it acquired in FY07 in FY08. Also, the company continues to pursue its strategy of inorganic growth at inexpensive valuations, which implies strong growth in EBITDA and profitability.

Revised proforma numbers

We have revised our FY08 and FY09 estimates to factor in lower yarn realizations and a full year average Re/USD conversion rate of 43 as against 45 earlier. We have also factored in estimates for the Czech acquisition in the proforma consolidated estimates.

Schoeller Textile acquisition to be value accretive

Spentex also announced the acquisition of Schoeller Textil (Schoeller) headquartered in Germany, with manufacturing plant in the Czech Republic. Schoeller is the European market leader in 'corner markets' in the yarn industry and manufactures special sewing thread yarns, carpet warp yarns, and core yarns for weaving mills. Schoeller was valued at Euro 25 million for the transaction (FY06 revenues of Euro 54.5 million, EBITDA of Euro 5.8 million). The deal involves share purchase of 100% of Schoeller Litvinov k.s., the Czech Republic company along with 11 employees in Germany based front end operations from Leopold Schoeller.. This will be financed completely though the books of Spentex's Netherlands based subsidiary (SNPV) which will raise a debt of Euro 17 million to infuse equity and debt into Schoeller and to cater to other costs.

Valuations- Inexpensive, upsides to come from future acquisitions

We believe, Spentex will continue to pursue inorganic growth opportunities, which will drive its asset base growth at low costs. We maintain 'BUY' on Spentex owing to its strong business model, which enables it to earn superior RoCEs on the spinning operations. At CMP, the stock is trading at a PE of 4.8x and EV/EBITDA of 4.6x on our FY08E consolidated earnings.

 

Nitin Raheja, CIO-Equities at Dawnay Day believes that the markets may see a rally of 200 points, but results will play a key role.

He thinks tech sector could lead the next leg of the rally if the results are not too bad. He expects midcaps to outperform this year too. Raheja is bullish on cement as the demand for it remains robust. Realty valuations are not in favour of investments currently.

He sees the interest rate cycle topping out in 3-6 months.

 

Raamdeo Agarwal of Motilal Oswal Securities feels that the markets may go well above 17000 in an year's time. He opines that the cement sector is likely to do extremely well and predicts that once the monsoon gets over, there will be a severe shortage of cement in India if global prices don't come down.

 

Regarding banking, he feels that there is still lot of action to come in the next 2-3 years in SBI. He is positive on capital goods, telecom, in particular, in the time to come.

 

Strong momentum in the market as buying in the Capital goods and Metal stocks fuelled the rally. Market touched its all time high of 14730 levels after a long gap. But, Indices paired of its gains as profit booking at higher levels pulled it down. Banking, FMCG, IT and Oil & Gas went for profit booking. Sensex slipped into red zone at final trade but managed to end in green. Cement stocks witnessed selling pressure after good rally last week. Auto stocks cames out with their Monthly sales number. Maruti was the top gainers. Midcaps and Small caps were buzzing today but also witnessed the selling pressure. Global cues had nothing to support as Asia traded mixed, while Europe trading in red.

Sensex ended up by 14 points at 14664.26. It was helped up by gains in Maruti (771.35,+4 percent), Ranbaxy (364.7,+3 percent), RCVL (529.7,+2 percent), Tata Motors (684.05,+2 percent) and L & T (2234.8999,+2 percent). Restricting the gains were Guj Ambuja (122.45,-2 percent), TCS (1134.6,-1 percent), Wipro (512.75,-1 percent), Hindalco (158.45,-1 percent) and RIL (1684.5,-1 percent).

Auto stocks traded mixed. Car major Maruti reported good sales figures for the month June which were in line with the market expectations. The company's sales were up 24% YoY. The company sold 56,000 units in the domestic market, up 25.5% YoY from 44,626 units in June 2006. It has exported around 3,917 units in June, which were up 3% YoY. The company had ramped its presence in the non-European countries leading to the rise in exports. Utility Major Mahindra & Mahindra also reported Fantastic growth with 52 % jump in June month to 17,816 units from 11,709 units sold a year earlier. Its domestic auto sales including utility vehicles, light commercial vehicles and three-wheelers surged by 50 % to 16,814 units from 11,178 units. 2389 units of its new car Renault's no-frills Logan sedan in June and the exports rose by 89 % to 1,002 units. And also sold 10,089 tractors in June which was down 3 %. Maruti (+4%) and MNM (+1.5%) rallied. TVS, Bajaj Auto and Hero Honda numbers were not up to markas all traded weak.

Prathiba Industries reported that the company had secured two contracts from Indore Municipal Corporation for two water supply schemes. The total value of the contracts is almost Rs 98 crore. The project is to be executed in 12 to 18 months. Some days back the company had also secured a contract worth Rs 27 crore from Jabalpur Municipal Corporation for a water supply scheme. The project is to be executed in 24 months. The company is engaged in infrastructure business with focus on the water segment and the company also expertise in building and developing infrastructure projects for water-supply and distribution system. The company has also passed a special resolution was for issue of securities by way of ADR/GDR not exceeding $25 million. We have a quickies call here and its rocking as it got locked up in upper circuit.

Technical Speaking: Momentom has Pushed up sensex to new high at 14746 levels. Sensex touched an intraday high of 14746 levels and low of 14639 levels. Volumes were good as the market churned Rs. 4303 Cr. Overall breadth was in favor of Advances, where the Advancers were 1490 against 1163 Decliners. As we have been telling for sometime now that the trend is up and we are mostly likely to make a new high on Sensex, a new high was made today. Some signals of worry today as we could not close above previous high. The sentiment is still bullish but caution should be taken and fresh entry should be avoided if Sensex goes below 14550. Market is extremely bullish & money flows are strong which keeps good support.

 

The Sensex opened with a positive gap of 34 points at 14,685, and hit a new intra-day high of 14,746 in morning deals surpassing its previous intra-day high of 14,724.

After moving in a narrow, positive range for most part of the session, the index slipped into negative zone (low of 14,639) in late noon deals. Last-minute buying in heavyweights saw the index close with a marginal gain of 14 points at 14,664 - a new closing high.

The BSE Auto, Health Care and Capital Goods indices closed with gains of over 1% each today.

The breadth was bullish - out of 2,687 scrips traded, 1,468 logged gains and 1,153 declined today.

INDEX GAINERS & LOSERS

Maruti gained 5% in intra-day deals after reporting a 25% rise in domestic sales in June. The stock finally closed with a gain of nearly 4% (Rs 28) at Rs 771.

Ranbaxy moved up 2.8% to Rs 365. Reliance Communications added 2.5% to Rs 530. Tata Motors was up over 2% at Rs 684.

L&T, Reliance Energy, Cipla, Dr. Reddy's and Infosys also closed with gains today.

Reliance slipped nearly 1% to Rs 1,684.

Gujarat Ambuja dropped 1.7% to Rs 122. TCS, Wipro, Hindalco and ONGC also declined.

MOST ACTIVE COUNTERS

GMR Infrastructure was the most active counter with a turnover of Rs 158 crore followed by IFCI (Rs 120 crore), Divi's Labs (Rs 103 crore) , Reliance (Rs 103 crore) and ENIL (Rs 93 crore).

 

The BSE Sensex ended the session on a positive note as it grew by 13.75 points to close at 14,664.26 while Nifty slipped by 4.55 points to close at 4,313.75. Of the 2,687 stocks actively traded on BSE, 1,468 stocks advanced while 1,153 stocks declined. The BSE Mid cap and Small cap closed up by 64.32 points and 52.86 points at 6,591.35 and 7,783.26 respectively.

BSE Auto Index grew by 51.49 points to close at 4,791.06 as Maruti Udyog (3.80%), Tata Motors (2.14%), M&M (1.51%), Hero Honda (0.28%) are closed in green.

BSE Capital goods index surged by 129.79 points to close at 12,429.15 as ABB (1.78%) and L&T (1.77%) are closed in green whereas Siemens (0.72%) and BHEL (0.34%) are closed in red.

BSE bankex index decreased by 19.46 points to close at 7,990.48 as BOI (2.21%), PNB (2.12%) and ICICI bank (0.48%) are closed lower while SBI (0.36%) and HDFC bank (0.17%) are closed higher.

BSE Metal index closed at 10,560.32 down by 44.68 points as SAIL (2.06%), Hindalco (1.06%) and Tata Steel (0.61%) closed in red.

BSE IT index decreased by 3.46 points to close at 4,867.27 as HCL tech (2.25%), TCS (1.27%) Wipro (1.11%) and Infosys (0.70%) closed lower.

BSE Health Care Index closed up by 43.89 points at 3,849.59 as Ranbaxy labs (2.75%), Sun pharma (1.41%), Cipla (0.77%), and Dr Reddy (0.74%) closed higher.

BSE FMCG index closed marginally lower by 5.33 points at 1,824 as Dabur (0.73%) and ITC (0.45%) closed in negative while Tata tea (0.66%) and HLL (0.11%) closed in positive.

BSE oil & gas index decreased by 29.36 points to close at 7,597.30 as IPCL (1.84%) and ONGC (0.67%) closed lower while Reliance petroleum (3.11%), IOCL (2.43%), BPCL (0.90%) and GAIL (0.28%) closed higher.

 

The market which was firm till mid-afternoon trade, pared gains towards the later part of the trading session as some selling emerged at higher level. Sensex, in fact, slipped into the red at one point of time in late trade, before settling with small gains. The market rose for the third straight day today. Auto, capital goods, and healthcare shares saw buying interest, while cement and IT shares witnessed selling.

Asian markets which were subdued earlier during the day, recovered later.

The BSE 30-share Sensex rose 13.75 points to 14,664.25, an all time closing high. The barometer index opened higher at 14,685.16 and surged to strike a record high of 14,745.75 at 11:23 IST. It slipped to a low of 14,638.88 at 15:12 IST. It oscillated in a range of 108 points for the day.

Prior to this, the Sensex had struck a record high of 14,723.88 on 9 February 2007.

The Sensex had surged 146 points on Friday, 29 June 2007, boosted by latest data showing fall in inflation to a 14-month low.

The S&P CNX Nifty ended the day marginally in the red, declining 4.55 points to 4,313.75. The Nifty July futures settled at 4302.30, a discount of 11.45 points as compared to spot closing.

The total turnover on BSE amounted to Rs 4,303 crore compared to Friday (29 June 2007)'s Rs 4,855.07 crore. Turnover on NSE's futures & options (F&O) segment stood at Rs 34061.14 crore compared with Friday (29 June 2007)'s Rs 35,463.65 crore.

The market breadth was strong on BSE with 1,490 shares advancing as compared to 1,163 shares that declined. 64 remained unchanged.

The BSE Small-Cap Index rose 0.68% to 7,783.26. It struck an all time high of 7,819.30. The BSE Midcap Index gained 0.99% to 6,591.35. It scaled an all time high of 6,615.65. 6,615.65

Among the Sensex pack, 17 advanced while the rest declined.

Car major Maruti Udyog surged 4.29% to Rs 774.40, on 2.26 lakh shares, after it said on Monday, 2 July 2007, it had sold 59,917 vehicles in June 2007, up 24% from 48,425 vehicles sold in June 2006. Maruti Udyog sold 56,000 units in the domestic market, up 25.5% from 44,626 units in June 2006. It exported 3,917 units in June, up 3% from 3,799 units last year.

Tata Motors (up 2.20% to Rs 684.50), Hero Honda Motors (up 0.05% to Rs 689.20), Mahindra and Mahindra (up 1.82% to Rs 736) rose from the auto pack. The BSE Auto Index settled 0.99% higher at 4,791.06.

Bajaj Auto rose 0.10% to Rs 2,131. The company said on Sunday, 1 July 2007, said its sales in June 2007 fell 12% to 1,87,624 units, from 2,13,918 units in June 2006. The company said it will launch a new motorbike in September 2007, with an initial sales target of 50,000 units a month by January 2008.

Pharma shares advanced on renewed buying. Ranbaxy Laboratories (up 3.10% to Rs 365.95), Cipla (up 0.74% to Rs 210) and Dr Reddy's (up 0.74% to Rs 660.80), edged higher. The BSE Healthcare Index was up 1.15% at 3,849.59. It was the top gainer among the sectoral indices on BSE

Shares from the capital goods space advanced on fresh buying. L&T (up 2.23% to Rs 2,245), Punj Lloyd (up 8.47% to Rs 278.65), Areva T&D (up 5.25% to Rs 1589) and Crompton Greaves (up 4.56% to Rs 264.75) advanced. However, Bhel slipped 0.41% to Rs 1,532 after striking an intra-day high of Rs 1582.70. L&T firmed up on reports that the government may select the engineering and construction firm as an additional supplier of equipment for power projects. The BSE Capital Goods index struck an all-time high of 12,586.12. It finished 1.06% higher to 12,429.15.

Cement stocks saw profit booking after two straight days of rally. Ambuja Cements shed 1.97% to Rs 122.10, on 5.54 lakh shares. It was the top loser from the Sensex pack. Grasim slipped 0.57% to Rs 2,622.90.

However, ACC gained 0.14% to Rs 935.10 after it reported 9.67% growth in cement despatches to 1.70 million tonnes in June 2007 from 1.55 million tonnes in June 2006.

IT stocks saw some unwinding as the Indian rupee opened at its highest level in over three weeks on Monday, 2 July 2007. Wipro (down 1.25% to Rs 512), Satyam Computers (down 0.21% to Rs 466), and TCS (down 1.07% to Rs 1136.90), edged lower.

However, Infosys Technologies was up 0.57% to Rs 1940.10, buoyed by rumors that the Indian IT major is mulling a bid to buy Europe's largest IT services giant, Capgemini. Both Infosys Technologies and Capgemini have denied the takeover rumours which had first hit the market after trading hours on Thursday, 28 June 2007. Infosys Technologies will announce its first quarter June 2007 results on 11 July 2007. The BSE IT Index lost 0.07% to 4,867.27.

The Indian was at 40.645/655 per dollar in early trade, slightly off its opening of 40.60, its strongest start since 6 June 2007. The rupee rose as traders built positions in the local unit on positive cues from high-yielding Asian currencies, and expectations of foreign investment flows.

Index heavyweight Reliance Industries slipped 0.83% to Rs 1,686.20, on 6.07 lakh shares. It had hit a high of Rs 1709.80.

Reliance Energy (REL) gained 1.94% to Rs 626. REL's wholly owned subsidiary Rosa Power Supply, on 26 June 2007, tied up long-term loans of around Rs 2,000 crore for the first stage of its 600 meg watt (MW) power project.

Hindalco Industries slipped 0.81% to Rs 158.85 on entering into a joint venture agreement with Mahanadi Coal (MCL), a subsidiary of Coal India, and with Neyveli Lignite Corporation (NLC) for coal mining. The joint venture company (JV) is expected to be formed in the next 3-6 months and the company will have 15% shareholding, with MCL holding 70% and NLC holding 15%.

Other metal stocks, Tata Steel (down 0.61% to Rs 593.55) and Sail (down 2.24% to Rs 128.30), also slipped. The BSE Metal index was down 0.42% to 10,560.32, and was the top loser among the sectoral indices on BSE.

IFCI galloped 7.87% to Rs 60.30 on high volume of 2.03 crore shares, after scheduling a board meet on 6 July 2007 to consider inviting bids for inducting a strategic investor in the firm. The company made the announcement after market hours on Friday, 29 June 2007. IFCI said it would also take on record its audited financial results for the quarter ended June 2007 on the same day.

Welspun Gujarat Stahl Rohren surged 7.19% to Rs 237.85 on announcing plan to build a manufacturing facility in the US.

Corporation Bank rose 1.79% to Rs 330.20 after it sold 0.26% stake in NSE for $6.625 million to Citigroup Strategic Holdings Mauritius. The company made the announcement during trading hours today, 2 July 2007.

Pratibha Industries rose 5% to Rs 242.60 on securing two contracts from Indore Municipal Corporation for two water supply schemes. The total value of the contracts is Rs 97.78 crore. The project is to be executed in 12 to 18 months.

Kernex Microsystems India was locked at the 5% lower limit at Rs 244.90 on BSE even as its board of directors approved issue of one bonus share for every 10 shares held in the company after trading hours on Friday 29 June 2007. The company's net profit rose 58.2% to Rs 0.87 crore in Q4 March 2007 as against Rs 0.55 crore in Q4 March 2006. Sales declined 50.4% to Rs 5.42 crore in Q4 March 2007 compared to Rs 10.93 crore in Q4 March 2006.

Spentex Industries rose 4.83% to Rs 40.15 on acquiring Schoeller Litvinov k.s. in Czech Republic. The company made this announcement before market hours on Monday, 2 July 2007. The acquisition of Schoeller was made for $25 million. The transaction will enhance the topline of the company by about euro 55 million and add another euro 6 million per year in cash flows.

GMR Infrastructure rose 2.29% to Rs 765 after the company said its board approved splitting each share of face value Rs 10 each into five shares of Rs 2 each. The company made the announcement on Saturday, 30 June 2007. GMR reported net profit of Rs 12.37 crore upon sales of Rs 22.75 crore in Q4 March 2007. Net profit plunged 91.89% to Rs 2.88 crore in the year ended March 2007 as against Rs 35.55 crore in FY 2006. Net sales declined 41.9% to Rs 33.39 crore in FY 2007 (Rs 57.44 crore).

Gujarat Alkalies & Chemicals jumped 6% to Rs 153 after signing an initial agreement with DowEurope GmbH for a long-term strategic business relationship for chlorinated organics.

Asian markets which were subdued earlier during the day, recovered later. Singapore's Straits Times (up 0.06% to 3,550.34), Taiwan's Taiwan Weighted (up 0.63% at 8,939.49) and Seoul Composite (up 1.59% at 1,771.35) edged higher. China's Shanghai Composite rose 0.41% to 3,836.29.

Japan's Nikkei was flat at 18,146.30. The Tankan report released by the Bank of Japan showed that the major manufacturers' business confidence index was unchanged at 23 in June 2007 from the previous survey in March 2007, while the index for large non-manufacturers was also unchanged at 22.

All the European indices were trading lower.

US stocks slipped on on Friday, 29 June 2007 as investors sold shares due to rising oil prices and lingering worries about subprime mortgage lending.

The Dow Jones lost 13.66 points, or 0.10%, to 13,408.62, after swinging dramatically higher and lower over the course of the day. Broader stock indicators also dipped. The S&P 500 index fell 2.36 points, or 0.16%, to 1,503.35, and the Nasdaq Composite fell 5.14 points, or 0.20%, to 2,603.23.

Oil prices retreated on Monday, 2 July 2007, as traders took profits after crude futures closed above the $70-a-barrel mark, last week, for the first time in almost a year. Light, sweet crude for August delivery lost 31 cents to $70.37 a barrel in Asian electronic trading on the New York Mercantile Exchange in Singapore.

 

The market began the day on a firm note. After opening 34 points above its previous close at 14685, the Sensex advanced to touch a new intra-day high of 14745.

However due to a lack of movement in most of the counters, the trading thereafter was range-bound with an upward bias. The market eventually gave up its early gains in the afternoon trades and the emergence of sharp selling towards the end saw the index slip below the 14700 mark to touch the day's low of 14639. Although selective buying trimmed the losses of the index at the close, yet it ended the session with a marginal gain of 14 points at 14664. The Nifty ended a tad lower than its previous close at 4317.

The BSE Mid-cap Index rose 1% at 6591 while the BSE Small-cap Index moved up 0.68% at 7783 in a range-bound market. Among the sectoral indices, the BSE Auto index, the BSE CG index, the BSE HC index and the BSE Teck index were up nearly half percent each.

The BSE Metal index, the BSE Bankex, the BSE IT index and the BSE Oil & Gas index, however, were the laggards. Gujarat Ambuja led the weakness and dropped 1.69% at Rs122. While TCS slumped 1.27% at Rs1,135, Wipro lost 1.11% at Rs513 and Hindalco shed 1.06% at Rs158. Reliance was down 1% at Rs1,685. ICICI Bank, ONGC, Tata Steel, Grasim and ITC were down.

Maruti Udyog, however, remained firm through the session and moved up 3.80% at Rs771. While Ranbaxy jumped by 2.75% at Rs375, Reliance Communication added 2.45% at Rs530 and Tata Motors gained 2.14% at Rs684. L&T scaled up 1.77% at Rs2,235 and Reliance Energy was up nearly 1.66% at Rs624.

Auto stocks stole the limelight and ended with sharp gains. Swaraj Engines Company rose 7.67% at Rs186. While Sono Koyo shot up by 4.95% at Rs47.70, Automo Car advanced 4.76% at Rs558. JMT Auto surged 4.28% at Rs95 and Balkrishna Industries moved up 4.02% at Rs635.

Amara Raja at Rs553.20, IFCI at Rs60.50, SBI at Rs1,549.90, Titan India at Rs1,378, Kotak Bank at Rs678, Great Estate at Rs366.50 and Automobile Corporation at Rs584 scaled to new intra-day highs.

Reliance Petro clocked volumes of over 50.26 lakh shares on the BSE followed by IDBI (49.87 lakh shares), Welspun Gujarat (36.43 lakh shares), Dena Bank (21.65 lakh shares) and GMR Infrastructure (20.88 lakh shares).

GMR Infra was the most actively traded counter on the BSE with a turnover of Rs159.20 crore followed by Reliance Industries (Rs103.23 crore), Welspun Guj (Rs85.01 crore), RCom (Rs80.23 crore) and State Bank of India (Rs75.24 crore).

 

The intermediate projection would suggest a move till 4400 points on the Nifty is possible. The market surged in the post-settlement session driven by a combo of positive monsoon projections, sops to the sugar industry and speculative activity in bank stocks. The Nifty closed at 4318.3 points for a week-on-week gain of 1.56 per cent. The Defty was up 1,46 per cent as the rupee lost a little ground versus the dollar. The Sensex underperformed the Nifty somewhat, rising 1.26 per cent to close at 14,650 points. Breadth was excellent with advances outnumbering declines. The Nifty Junior rose 3.2 per cent while the BSE 500 was up 1.82 per cent. The Bank Nifty also rose by 3.03 per cent while the CNX IT registered a positive but marginal move of 0.53 per cent. Volumes were good, although they are always high in a settlement week. Surprisingly, in what seems to be a key week, the mutual funds and FIIs were not uniformly bullish. The FIIs were net sellers through the first four sessions while domestic funds were net buyers. Outlook: The market appears on the cusp of a bullish breakout. A saucer pattern has almost been completed with the accompaniment of high volume on the breakout. The intermediate projection would suggest a move till 4400 points on the Nifty is possible. The short-term projection suggests intra-day levels of 4365 will be reached next week. Rationale: High volumes and good breadth on a rising price line are a classic bullish combination. The saucer formation is also a reliable pattern that usually achieves its targets. The last two weeks have seen a narrow trading range, a pattern that has been clearly broken. The last month has seen a correction followed by a recovery. Counter-view: The breakout is not absolutely confirmed yet – that would have required a slightly higher close of 4336 and intra-day levels of 4365. A combination of fund buying and speculation by operators has counter-balanced and absorbed heavy FII sales. If FIIs continue to press sales, the trend could reverse. However, it does seem far more likely that the bull run will continue. A burst of profit booking should still see the Nifty find support around 4275. Bulls & bears: As mentioned above, the sugar sector saw the most violent spikes. Stocks ranging from the liquid Triveni, Shree Renuka and Balrampur to Upper Ganges and KCP gained over 15 per cent on Friday. But banks were the major influence on index moves with everything from ICICI and SBI to Corporation Bank, Kotak Mahindra Bank, Syndicate Bank, PNB and HDFC Bank did well. Cement stocks such as ACC and Gujarat Ambuja also saw recovery. Other heavy gainers included GMR Infrastructure and Tata Tele along with Reliance Natural Resources. MICRO TECHNICALS ABB
Current Price: 1094
Target Price: 1200

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The 5:1 split has generated extra liquidity in an already-bullish counter with volumes multiplying more than 10 times since the split. It's dangerous to make price projections immediately post-split. However if we adjust for the split, the target price ought to be about 1200. Keep a stop at 1075 and go long. Balrampur Chini
Current Price: 76.35
Target Price: 81

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Despite a huge spike on Friday, the long term pattern still looks bearish in this industry bellwether. The stock has massive resistance just above the current levels and it has not managed to violate a falling trend line drawn from its highs of May 2006 on a weekly chart. If you go long keep a tight stop at 73 and book profits above 81. GMR Infra
Current Price: 749
Target Price: NA

---

The stock has gained approximately 50 per cent in the past month and risen almost vertically in the past five sessions on excellent volumes. It's impossible to set a target with this sort of a pattern. Go long, keep a trailing stop loss at 705 and raise the stop by 20 for every gain of 20. Expect high daily volatility but net gains. RNRL
Current Price: 39
Target Price: 42

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This is the new darling of the punters. Massive buying in the past few sessions has pushed it close to new all-time highs. Keep a stop at 37 and go long. There is a minimum target of 42 but that is liable to be exceeded next week. SBI
Current Price: 1525.8
Target Price: 1650

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"Bank" rose sharply on Friday with rising volumes to back the price move. The chart formation projects to a possible target of 1640. Keep a stop at 1495 and go long. Book some profits above the 1550 threshold.

 

Cadila
Research: Kotak Securities
Rating: outperform
CMP: Rs 376 (Face value Rs 5)

Zydus Cadila has acquired a 100% stake in Nikkho, a mid-sized,privately held company in Brazil. Nikkho is generating profits andposted sales of $26 million in calendar year '06. The acquisitionprice is around 1x sales, and seems to be attractive. This is Zydus'second oveRseas acquisition this year, after the one in Japan, and ispart of its global expansion strategy.

More such acquisitions arepossible in the medium term. For FY08, the estimated revenuegrowth is expected to be 18% and net profit growth, 25%. This acquisitionwill add about 5% to the company's revenues. Kotak hasassigned an outperform rating to Cadila, with a DCF-based targetprice of Rs 420, or 17x FY09 earnings.

Reliance Communications
Research:HSBC
Rating: Outperform
CMP: Rs 517 (Face Value Rs 5)

HSBC believes that it is time to update/upgrade its estimate of thevalue unlocked by Reliance Communications' (RCOM) balancesheet, following the planned spin-off of its telecom tower and undeRseafibre optic assets. RCOM will be the fiRst operator to monetisetower assets via a strategic investment by private equity playeRs/tower operatoRs. The company acquired its FLAG undeRsea fibreoptic unit in '04 and is well-positioned to benefit from the globalre-rating of fibre, following the listing of FLAG on London's AIMlater this year.

In a May '07 initiation report, HSBC valued RCOM'stower business at $4.8 billion or Rs 97 per share, based on 12,000toweRs. It has since updated its tower valuation, based on the15,000 toweRs the company currently has in place, thus raising valuationto $5 billion or Rs 102 per share. The target price for thestock has now been upgraded from Rs 624 to Rs 644.

Tata Steel
Research: Macquarie Research
Rating: Outperform
CMP: Rs 597 (Face Value Rs 10)

Tata Steel's recently acquired subsidiary, Corus, has announced a7% hike in UK wire rod prices for deliveries beginning in July.Corus has been increasing prices across product segments sinceFebruary this year. Macquarie has assumed a year-on-year increaseof 3% in average realisations for FY3/08 for Tata Steel and Coruscombined. Prices remaining at current levels could add Rs 9 to theFY3/08 EPS estimate.

Tata Steel trades at a rights-adjusted PER of5.4x its FY3/08 EPS estimate, which represents a 43% discount toAsian steel stocks Macquarie believes that this steep discount is unwarranted,given the margin expansion and strong growth that isprojected for the company. It strongly reaffirms its outperform recommendationwith a target price of Rs 800.

Ranbaxy
Research: CLSA
Rating: Outperform
CMP: Rs 355 (Face Value Rs 5)

While CLSA maintains an outperform rating on the stock, it has downgraded its target price for the stock from Rs 445 Rs 405. CLSA believes that even though there have been visible improvements in cost control in both selling, general & administrative (SG&A) and research& development (R&D), organic growth remains a challenge and aweak balance sheet limits its ability to grow inorganically. A 10% appreciationin the rupee vis-à-vis the dollar will result in a strong secondquarter (expected profit of more than Rs 300 crore), as well as an8% upgrade to CLSA's CY07 estimates due to the translation gains on$600 million+ ECB/FCCBs.

However, CLSA is concerned about a potentialstructural downward shift in margins if the rupee remainsstrong and is downgrading its CY08/09CL estimates by 12%, assuming that the rupee trades at 42 to a dollar.

LIC Housing Finance
Research: SBICAP Securities
Rating: Buy
CMP: Rs 206 (Face Value Rs 10)

SBICAP believes that LIC Housing Finance (LICHF), the second largest non-banking housing finance company (HFC), is a serious long-term player in the business and deserves better valuations.The industry offeRs great potential for growth, given Indian demographics.LICHF will be able to reap benefits with its marketingnetwork and enhanced operational set-up. SBICAP expects thedisbuRsements for LICHF to witness a compounded annual growthrate (CAGR) of 22.5% over the next three yeaRs, against 11.7%CAGR witnessed in the past three yeaRs. It believes that the restructuringof business processes and improvement in credit qualityundertaken by LICHF will also pay dividends.

At the currentmarket price of Rs 193, the stock is trading at 5.7x (FY08E) and4.8x (FY08E) its earnings and 1x (FY08E) and 0.8x (FY09E). Thecurrent valuations do not fully reflect the growth potential of theindustry and the company. With expected return on equity (RoE)at around ~17.5% and return on assets (RoA) at ~1.4% over thenext couple of yeaRs, SBICAP believes that the stock deservesbetter valuations.

Union Bank
Research: CLSA
Rating: Buy
CMP: Rs 212 (Face Value Rs 10)

Union Bank of India is the fifth-largest state-owned bank. Itranks in the top tier on all operational measures with 30% earningsgrowth in FY08CL and has one of the highest FY09CL returnon equity (RoE) at 21%. With the non-retail sector accounting formore than 75% of its lending, Union Bank is a key beneficiary of rising corporate credit demand. With the management strategicallyreducing its lending to large corporates and focusing on thesmall & medium enterprises (SME) segment, CLSA expects marginsto expand by 4-7 basis points over the next two yeaRs.

UnionBank trades at a 20-25%discount to its peeRs like Bank of Indiaand Canara Bank. CLSA believes that while it has underperformedin the past year, given earnings growth in excess of 30% in FY08and high RoE of 20% in FY08, Union Bank could trade up to 1.2-1.3x one-year forward (FY09CL) adjusted book, with a pricetarget of Rs 180.

Cairn India
Research: Citigroup
Rating: Buy
CMP: Rs 146 (Face Value Rs 10)

Citigroup has set a target price of Rs 185 for Cairn India, based ona 15% premium to net asset value (NAV) of cash flows and recoveryand exploration upsides. Cairn India's owneRship of valuable oil reservesin Rajasthan should generate steady cash flows from '09, besideshaving the potential to generate further upside from enhancedoil recovery (EOR) and exploration.

Cairn India's valuations areamong the most highly leveraged to crude among global exploration& production (E&P) peeRs, offsetting inherent operationalrisks. Key risks include delays and cost overruns, unfavourable rulingon cess liability being higher and potential conflict of interestarising out of Cairn's majority owneRship in Cairn India, especiallyin the context of the new exploration assets in the country.

 

After stock markets finished the first three months of the fiscal on a bullish note, bulls on Dalal Street are looking for a new peak when the benchmark Sensex opens for trading on the first day of the second quarter tomorrow.

The Bombay Stock Exchange's 30-share barometer index gained 145 points on Friday to settle at 14,650.51 – less than 75 points away from its all-time high of 14,723.88 scaled nearly five months ago on February 9.

The index had hit an intra-day high of 14,663.25 points on the last trading day of the first quarter, missing its record high by just 60 points.

Besides, the index is barely two points away from its all-time closing high of 14,652.09, hit on February 8.

The 50-share Nifty of National Stock Exchange scaled a new closing peak of 4,318.30 points and is just 45 points away from its all-time intraday high of 4,362.95, struck on June 4.

The Sensex gained 17.6 per cent in the first quarter, while the gain was 18.8 per cent in Nifty during the same period.

The market observers believe that regaining this peak should not be a far-fetched conclusion early this week, as the market is expected to start factoring in expectations for March-June quarter earnings results, which are scheduled to start pouring in by the second week of July.

However, it remains to be seen whether the market manages to sustain at its higher levels, as earnings of IT firms, which are among the first ones to publish their results, are not expected to be exceptionally robust this time around due to the sharp depreciation in the US dollar.

The IT companies gather a major part of their earnings from overseas markets and a weak dollar adversely affects their results.

The market analysts are keeping their fingers crossed on June quarter earnings season, which will be kick-started by it bellwether Infosys Technologies on July 11.

Besides, the impact of rupee appreciation, high interest rates and skyrocketing wages could also upset the applecart of IT firms.

However, some market observers expect some boost to the sentiments from the latest government data showing a further decline in the inflation rate, which has fallen within the RBI's medium-term inflation target of 4.0-4.5 per cent, from a high close to six per cent in recent past.

The steady progress of monsoon so far is also being accounted for the expected sustained rally on the bourses.

 

Nifty was able to break out of the 4050-4250 band last week. While the spot Nifty closed at 4318.3, a gain of about 1.5 per cent over the week, the Nifty future ended at 4293.4 (4240.75).

Overall open interest positions hit another high this week at Rs 81,992 crore against last week's Rs 76,006 crore.

Despite healthy rollover of open positions (for both index and stock futures), turnover remained rather dull compared with previous occasions.

Follow-up: Expecting a downtrend, we advised investors to go short on the Nifty July future with a stop-loss at 4250.

Currently, this strategy is in negative position. Those, who have not closed out their positions can hold on.

Outlook

The Nifty future is just a little way away from its all-time high of 4314.

While a breach above that level could take the Nifty future to the 4410-15 level, a dip below its support 4285 could weaken it to 4230 and even to 4115.

We expect the latter to happen, as Nifty future is in over-bought position.

Recommendation

We expect the market to open on a firm note but the rally may fizzle out later.

We advise investors to consider shorting Nifty July future and hold it till expiry. However, this strategy is for those who are willing to take risks. On other hand, the investor may also buy the Nifty 4150 put; it ended at Rs 54.5 on Friday.

Put/call ratio

Open interest put/call ratio increased to 1.58 against the previous week's 1.4 while volume wise PCR to 1.54 (1.03). This indicates a lot of puts positions were carried over and call positions were squared-off during last week when the market climbed sharply.

Implied volatility

IV declined for both puts and calls. While puts IV decreased to 15 per cent (21 per cent), calls implied volatility slipped to 18 per cent (19 per cent).

Though the relative stability in calls IV suggests strong undertone, the decrease indicate calm market condition ahead.

Backwardation

The Nifty future widened its discount and it now trails the Nifty by 24.3 points against last week difference of 11 points. This suggests that a lot of short positions were added.

Stock futures

ICICI Bank: We presented a negative outlook on the stock with a target range of Rs 900 on the downside.

Though the stock witnessed some pressure, it was able to remain firm and closed around previous week's levels of Rs 955.

We still believe that this stock could test Rs 900 level. Those who hold short positions on the counter can continue to do so. The market lot is 350 units per contract.

NTPC: We had presented a positive outlook on the stock and had said that it might not witness any sharp swings.

This counter also finished around the previous week's levels of Rs 153.

We still expect the stock to touch our targeted level of Rs 168 if it breaches resistance at Rs 158.

Consider going long on the stock keeping stop loss at Rs 150 levels. Market lot is 1,625 units per contract.

IDBI: The stock is at a critical stage. While a move post its 52-week high at Rs 121 could take it to Rs 135-140, a dip below current level could weaken it to Rs 110-105 level. We expect the latter to happen as the stock is in an overb ought position.

Consider shorting the IDBI future with a stop loss if it begins the week on a weak or flat note. In that event keep the stop loss at Rs 121.

FIIs trend

The cumulative FII positions as percentage of total gross market positions on the derivative segment as on June 21 improved to 35.20 per cent (33.83 per cent).

FIIs were predominantly net sellers last week. They now hold open positions of Rs 14,412.01 crore (Rs 20,135 crore) in index futures and Rs 19,968.99 crore (Rs 22,665.76 crore) in stock futures.

Position-wise, they hold 6,46,798 contracts (9,45,092 contracts) of index futures and 6,86,149 contracts (7,93,995 contracts) of stock futures.

 

Investors with a three/four-year investment horizon can subscribe to the follow-on public offer of Bharat Earth Movers (BEML), being made in the price band of Rs 1,020-1,090 per share. At the price band, the offer is priced at 21-22 times its FY-07 per share earnings on a post-issue equity base. The rise in industrial capex, increasing Defence outlay, and proposals to introduce metro rail projects in major cities, lend visibility to BEML's future earnings. This apart, BEML's well-diversified product portfolio, established presence in the domestic market, strategic tie-ups with global players and a planned approach towards marking a global presence, are positives. However, short-term investors, despite these positives, can stay away, given the possibility of better entry points to the stock in the short term after the issue closes.

Business

Operating in three segments — construction and mining equipment division, Defence products division and railway and metro division — BEML's strength stems from its business straddling a variety of user industries. In the construction and mining equipment space, BEML enjoys market leadership, thanks to its well-diversified product portfolio. The division's performance can also be attributed to BEML's competitive pricing and on-time availability of spare components. While this trend is likely to continue given the ongoing industrial capex boom, the revenues are likely to get a boost from BEML's upcoming contract mining operations.

To leverage on opportunities in contract mining, BEML has formed a joint venture with Midwest Granites and the Indonesia-based Sumber Mitra Jaya. This venture, apart from giving BEML a 45 per share in earnings, will also serve as an alternative source of revenue; BEML is expected to provide for about 40 per cent of the mining equipment needs. However, effective contributions from this venture are likely to be derived from FY-09 only. While the construction and mining equipment division is likely to enjoy a robust revenue growth, increase in outsourcing of components and rising competition in this space could curtail pricing power.

Having established itself as the country's leading metro coach manufacturer, BEML is well-placed to benefit from the upcoming metro rail projects in major Indian cities. While concerns on the delay in the execution of such projects cannot be ignored, the inevitability of the roll-out of such projects, given the increasing congestion in major cities, points to sound long-term prospects for the business. Further, the Railways' proposal to introduce enhanced passenger capacity coaches, increase the production of electric motor units (EMU) and introduce air-conditioned EMU coaches in suburban trains in Mumbai, Chennai and Kolkata, are also opportunities.

BEML has planned an investment of about Rs 210 crore from the offer proceeds towards expanding its capacity to 190 coaches per annum from the present 150 coaches. Given the cost-advantage BEML enjoys over international players (partly because of a five-year sales-tax exemption), it is likely to garner a chunk of the metro project business. Nevertheless, the possibility of BEML losing out a few orders to other players cannot be completely ruled out.

BEML's Defence products division, which supplies Tatra Vehicles, armoured vehicles and ammunition loader vehicles to the Government, is likely to sustain its revenue growth. Given the 11.6 per cent increase in Defence budget for FY-08 over the previous year, the division is likely to sustain its growth levels. Also, the new Defence procurement procedure, which stipulates a 30 per cent offset for contracts exceeding Rs 300 crore, augurs well for domestic Defence contractors such as BEML.

Brazilian foray

BEML has proposed to form a joint venture with Companhia Comercio E Construcoes, a Brazil-based railroad equipment provider. It plans to utilise about Rs 100 crore from the offer proceeds towards this venture and has proposed to acquire a local manufacturing unit. Given the growing demand for coal mining in Brazil and other South American countries, the joint venture, when it takes off, is likely to help BEML consolidate its position in these new markets. While it is certain to face stiff competition from the already established international players in the region such as Caterpillar, Terex and Komatsu, there is enough room for growth for BEML. Nevertheless, the first couple of years could be crucial.

BEML's tie-up with Apollo Tyres and MRF Tyres for the manufacture of Off The Road (OTR) tyres, apart from meeting the increasing demand for such tyres from earth moving equipment companies, is also likely to help it reduce the delay in orders and production cycles.

Financials

For the year-ended FY-07, the earnings grew 10 per cent on the back of an 18 per cent increase in revenues. Operating profits grew 17 per cent, while the margins remained flat. However, with the introduction of the voluntary retirement schemes and setting up of windmill for captive power consumption, the pressure on margins is likely to reduce. For the year, while the mining and construction equipment division and the Defence products division contributed to about 63 per cent and 32 per cent of the total turnover respectively, the Railways division made only a 5 per cent contribution. The metro coaches division is loss-making, but with the roll out of metro rail projects in the light of BEML's increase in capacities, the division is likely to see better contributions.

Concerns

Given that the Government contributes to a major share of BEML's revenues, any unfavourable changes in policy with regard to Defence or the Railways procurement and any constraints in their budget could affect its earnings negatively. This apart, any unprecedented changes in the price of steel could also dent its earnings.

Offer details

The offer is open from June 27-July 3. The company seeks to raise Rs 534 crore through this offer. ICICI Securities is the book running lead manager and Karvy is the registrar to the issue. The offer would constitute about 11.7 per cent of the fully diluted post-issue paid-up equity capital of the company.

 

Investors with a high risk appetite and a three-year investment horizon can subscribe to the Initial Public Offer of Allied Digital Services (ADS) as it has reasonable growth prospects.

The company, which started operations in 1995, provides IT infrastructure management and technical support outsourcing services to a large set of corporate clients. It primarily acts as a support-partner for the infrastructure products — desktops, laptops, servers, network management etc. — of companies such as HP, Dell, IBM, Compaq, Cisco, Microsoft and Symantec. ADS generated revenues of over Rs 156 crore during FY07 and has grown at a CAGR (compounded annual growth rate) of over 50 per cent over the last three years.

Business Outlook

The company generates revenues mainly by providing services related to IT infrastructure, such as incidence-based support, facility management services (FMS), annual maintenance contracts (AMC), project management and consultancy, and network audit services. The prospects for the company over the medium-term appear to be good. First, Allied delivers its services through its own facilities and centres spread across 92 cities and follows a 'direct' model rather than a franchisee model.

This gives it direct control over customers' Service Level Agreement (SLA) and Quality of Service (QoS) level requirements. Second, Allied has taken a vendor-neutral approach, which has allowed it to be a solutions and channel partner for some of the big names in the IT infrastructure space, and develop technical expertise over a vast range of products. Third, the company generates its revenues mainly from the BFSI (banking, financial services and insurance) sector, telecom and manufacturing clients and has announced an increased thrust on these businesses. With increased IT spending by these businesses , Allied is in a reasonable position to translate at least a part of this into business on its books, considering its longstanding client relationships.

Expansion Plans

The company plans to raise about Rs 86 crore (at Rs 190, the upper end of the price band). About Rs 33 crore has been earmarked for starting a Global Service Delivery Centre (GDSC), which is likely serve as a centralised control and monitoring centre for the company's operations around the country.

The GDSC is to host, among others, a technical BPO, an IT services delivery centre and a remote management service centre. The company already runs a customer support centre for a few clients, such as EDS, Unisys and Fujitsu. Upgrading and expanding its existing internal infrastructure and setting up strategic units — a Network Operating Centre and a Security Operating Centre — have been allocated Rs 10 crore and Rs 16 crore, respectively.

All the above units are expected to help Allied expand its service offerings, considering the technical knowledge base it has already acquired. A sum of Rs 35 crore is envisaged to be spent on possible strategic acquisition(s) and the company has indicated that it is looking out for partners in a similar line of business.

Risks and valuation

Allied faces considerable competition (directly and indirectly) from highly established and more integrated players in the field, such as HCL Infosystems, CMC Ltd, CMS Computers, Wipro Infotech, Datacraft and Netsol, among others. The established players are more equipped to handle rapid changes in technology and client requirements. They are also better placed to operate on wafer-thin margins.

Another fact to be considered is that the capex to be funded by this IPO is expected to provide returns only over a two-three year period, as this expansion marks a significant ramp-up in scale.

The fact that it plans to have its Technical BPO to serve potential North American clientele could expose it to currency appreciation risks at a later date.

Last, the efficacy of any possible strategic acquisition remains in the realms of speculation as no company has been specifically identified as a takeover candidate. These factors indicate high levels of execution risks in its operations, which could affect earnings.

Allied Digital is much smaller in scale and breadth of operations when compared to companies that operate in this space. However, Allied has an EBITDA (Earnings Before Interest Taxation Depreciation and Amortisation) margin of 21.2 per cent, which is a clear 10 percentage points higher than players such as HCL Infosystems and CMC. This reflects Allied's status as a pure services and solutions provider, as also its reasonable operating efficiency.

The EV (Enterprise Value) multiple, at the upper end of the price band at 10.1, is at a discount to its peers considering its smaller scale of operations. The offer price (at Rs 190), values the company at a PE multiple (price-earnings multiple) of about 14.3 times the FY07 EPS (Rs 13.3), on diluted equity. This is at a discount to competition. Considering the valuations, one could consider investing at the cut-off price.

Allied plans to issue 45,22,435 shares, representing about a 25 per cent stake in post-offer equity. The price band is Rs 170-190. The offer is open from July 2 to July 5, 2007.

 

Hexaware Technologies: Buy

Investors with a two-year perspective can buy the Hexaware Technologies stock. At the current market price, the stock trades at around 15 times its expected FY-07 earnings and 12.5 times its expected FY-08 earnings. This valuation is at a discount to its peers such as KPIT Cummins and iGate. A good business model, a strong order-book and healthy client additions reiterate our positive view. But the near-term returns are likely to be muted.
Business Prospects

With the acquisition of Focus Frame, the US-based testing consulting firm in November 2006, Hexaware plans to enter testing services in a big way. The company expects testing services to contribute $50 million (Rs 204.5 crore) to the revenues this year compared to $11 million (Rs 45 crore) last year. The management expects testing services to bring in $100 million (Rs 409 crore) by 2009. Testing has contributed to 17.5 per cent of the revenues in Q1 compared to an average of 5.3 per cent in FY-06, with the integration of Focus Frame. Focus Frame has also patented the 'Acclerator' technology which provides pre-defined testing components for several platforms including SAP and Peoplesoft. Since Hexaware is one of the largest providers of offshore services for the Peoplesoft suite, the availability of the acclerator would help the company obtain new businesses on the latest Peoplesoft version 9. Eight new clients were acquired in Q1 including those of Focus Frame and Hexaware Testing.
Reorganised business

Since January, Hexaware has restructured its business to bring in greater competency. It has identified six focus areas and henceforth, sales strategies including client wins and mining of existing clients are to be aligned to these focus areas. Despite higher client acquisitions, repeat business in this quarter stood at 88.7 per cent as against 88.4 per cent last quarter.
Financials

Hexaware ended Q1FY-07 on a reasonable note. The quarter saw an all-time high order booking of $61 million (approximately Rs 249 crore). Client acquisitions were healthy at 20. Revenue and profit figures were in line with the guidance; revenues grew by 10.1 per cent sequentially showing double-digit growth after two quarters. The management expects to double revenues in the eight-10 quarters beginning January 07. Profits grew by 4.3 per cent for the quarter, sequentially.

For the next quarter, the profit guidance stands at $7-7.2 million (about Rs 29 crore), lower than the $8.02 million (Rs 35 crore) PAT achieved in Q1. This is attributed to three reasons: A wage increase of 14-15 per cent offshore and 3-5 per cent onsite; one-time visa charges of $3 million; and rupee appreciation.
Margin pressures

The company is looking at increasing margins by 1-1.5 per cent this year. But the target appears ambitious. Focus Frame is an onsite business with margins lower than Hexaware. This is reflected in the onsite percentage in Q1 which has increased to 62.1 compared to 61.6 per cent last year.

This has also played a role in the flat operating margin for Q1 although gross margins have improved. Selling, general and administrative expenses in Q1, as a percentage of revenue, have risen to the 24-25 per cent levels as against the reductions achieved in the previous year. What has helped maintain Q1 margins is the stepped up utilisation rates and an increase in the billing rates . The pressure on the margins might remain until full integration of Focus Frame is achieved by end 2007.
Attrition and utilisation

The attrition rate (excluding Focus Frame) at 16.1 per cent in Q1FY-07 is not expected to reduce in a big way despite wage hikes. Utilisation rate in this quarter has touched the 70 per cent mark by keeping the head count lower. Given the revenue growth that the management wants to achieve over the next two years, utilisation must improve in such a way as to help the margins grow along with the revenues. The company has a forward cover of $60 million at Rs 44.73. Any adverse impact of rupee appreciation, competition from local and MNC peers and visa issues remain principal risks to this recommendation.

Last year, General Atlantic picked up a 7.95 per cent equity stake along with optionally convertible preference shares. Preference shares, when converted, would increase the holding to 14.99 per cent (the open offer trigger is 15 per cent). One needs to wait and watch as to how things unfold on this front.