Saturday, September 1, 2007

Tata Steel Q1 consolidated PAT soars six-fold due to Corus buy

Tata Steel Q1 consolidated PAT soars six-fold on Corus buy The entry of the Anglo-Dutch steel major Corus into Tata Steel's fold (the former became a subsidiary from April 2, 2007) has sharply boosted the latter's consolidated turnover and net profits for the first quarter of the current fiscal. The subsidiaries contributed a little less than half to the consolidated turnover and hardly anything at all to Tata Steel's profits in fiscal 2006-07.

But the consolidated results filed by the company show that they are now responsible for a 6.4 times improvement in turnover (from Rs 4,198 crore to Rs 31,155 crore) and a 5.2 times growth in adjusted net profits (from Rs 1,222 crore to Rs 6,360 crore) in the first quarter of the current fiscal.

However, the consolidated net profit for the first quarter has been aided by a gain of Rs 4,121 crore. The company has attributed this to savings in pension liabilities for its subsidiary Corus, consequent to an improvement in yields on bonds held by the Corus' various pension funds as investments to meet such obligations. Thus if pension fund gains are excluded, the Corus
acquisition does not appear to have had significant impact on profit performance.

KJMC maintains buy on Prajay Engineers

PESL is one of the leading companies in construction sector in Hyderabad with over 20 years of experience and has demonstrated consistency in performance, quality infrastructure facilities, and innovative designs along with timely execution of each project. Till date, the company has developed and delivered approx. 4.5 million sf ft of built up area.

Order Book

The company has 35 projects under construction, comprising of 18 million sq ft of area. These projects include high end residential apartments and townships, 3 5-star hotels, 3 business class hotels, 1 golf course and several retail and entertainment complexes. Government thrust on infrastructure spending has given a tremendous boost to construction sector in terms of market size resulting in higher demand across the sector.

It is expected that
investments to the tune of USD 320 billion will be required to boost Infrastructure in India over the next few years. During FY07, PESL reported a tremendous 187% yoy growth in topline to Rs 210 crs against Rs 73 crs in FY06. During the same period, its bottomline zoomed by 240% to Rs 77.2 crs from Rs 22.7 crs in FY06. During Q1 FY08, the topline registered YoY growth of 89% to Rs 70 crs from Rs 37 crs in Q1 FY07 whereas the bottomline zoomed by 104% to Rs 27 crs from Rs 13 crs. PESL's operating margins improved by 474 bps to 47.22% whereas net profit margin improved by 571 bps to 37% during FY07. During Q1 FY08, PESL's operating margins improved YoY by 1232 bps to 54% whereas net profit margins improved by 290 bps to 39% during the same period.

Valuations

At CMP of Rs 309, the
stock is trading at a P/E of 8.67x on FY07 adjusted EPS. Considering the growth momentum, decent financial performance and future plans, we believe that PESL will generate decent returns for the shareholders riding on higher growth trajectory.

Areva T&D and outperformer, target Rs 1855: P Lilladher

Power to grow

We initiate coverage on Areva T&D with 'Outperformer' rating and a target price of Rs 1855 (30x CY08 earnings), implying a 17% upside potential. Areva T&D is the third largest transmission and distribution player globally with a significant presence in the Indian T&D space. We believe that Areva with its high-end technology systems would be in a position to garner major share of business as India progresses towards a high voltage grid. Also the company's strategy of bidding for high margin orders would help it to sustain its high return ratios. For the period FY07 to FY09, we expect CAGR of 57.7% in
net profit on the back of revenue CAGR of 24.7%. At the CMP of Rs 1,588, the stock is available at 36.8x and 25.7x CY07E and CY08E earnings of Rs 43.1 and Rs 61.8 respectively.

Highlights

The Indian electricity grid is moving towards the next stage in its life cycle with the emergence of the national grid. PGCIL has been introducing higher voltage lines and plans to introduce lines higher than 765kV in a phased manner. Areva, with the technical backing of its parent would be one of the major beneficiaries. _ Areva currently has an order book of Rs 24.2bn, 1.8x its CY06 sales, providing visibility of earnings for next few years. The company has won the first ever 765 kV substation order. It is setting up a 765kV transformer manufacturing facility to garner business in the high voltage segment. We believe order inflow would continue to be strong and would outpace the revenue growth. Order Book growth to continue Areva currently has an order book of Rs 24.2bn, 1.8x its CY06 sales, providing visibility of earnings for next few years. The company has won the first ever 765 kV substation order from NTPC, being the only fully integrated 765kV substation supplier in the country. It is also setting up a 765kV transformer manufacturing facility to garner business in the high voltage segment as and when orders are allocated for these. The company is expanding its current facilities as well as setting up new facilities to capture the opportunity in the Indian market.

Risks

Key alterations in government plans. Though the government has established ambitious targets for the power sector, however the real challenge for the government would be to commission the projects as per schedule. Also any change in government plans might hamper the future revenues. The government has achieved only 56.7% out of its target for the Xth Plan. We believe that the achievement could be as high as 70% in the XIth plan considering that already orders have been placed for equipment worth 51,000MW and remaining is expected to be ordered by December 2007. With an increase in generation facilities, we expect T&D to pick up at the same pace, favoring companies such as Areva.

Valuations

For the period FY07 to FY09, we expect CAGR of 57.7% in net profit on the back of revenue CAGR of 24.7%. At the CMP of Rs 1,588, the stock is available at 36.8x and 25.7x CY07E and CY08E earnings of Rs 43.1 and Rs 61.8 respectively. Areva enjoys attractive return ratios with RoE at 46.1% and RoCE at 47.5%. We believe with attractive ratios and high margins Areva should trade at a higher multiple than comparable. We initiate coverage on Areva T&D with an 'Outperformer' rating and a target price of Rs 1855 (30x CY08 earnings), implying an upside of 17% from current levels.

Akurdi plant closure could be +ve for Bajaj Auto: HSBC

Company plans to shut its Akurdi plant and shift production to Waluj to take advantage of tax concessions and reduce costs

If it sells the 200 acre Akurdi land, we estimate it could add INR100/share, a potential upside risk

We maintain our earnings forecast and Neutral rating with an unchanged target price at Rs 2,420

Akurdi land could add to value

Bajaj Auto plans to shut down its Akurdi plant from September 2007 and shift its production to its Waluj plant (both in Maharashtra). The company was manufacturing its Kristal scooter at the Akurdi plant, which was operating at 4% capacity utilisation. The company expects to save Rs 1,000 per bike due to sales
tax benefit and other tax concessions, by shifting production to Waluj.

We have done a scenario analysis to estimate the net gain that may accrue to Bajaj Auto if it chooses to sell its 200 acre Akurdi land after reaching an agreement with workers.
HSBC estimates the land rate at Akurdi to be about Rs 1,000-1500 per square foot, based on discussions with real estate agent. The average of this translates into Rs 107 per share of Bajaj Auto. The Akurdi plant currently employs 2,730 workers. Since this is the oldest plant of Bajaj Auto, we expect the average age of the worker to be 45 years. If we assume that the company and the employees agree to a voluntary retirement scheme of 5 years' pay at the current rate, it could cost the company Rs 8/Bajaj Auto share. We believe the whole transaction could add Rs 100/share to Bajaj Auto's valuation. Our sum-of-the-parts value of Rs 2,420 per share does not include the Akurdi land value, as the sale is not certain; this is a potential upside risk to our estimates.

Maintain Neutral with unchanged target price of Rs 2,420

We value Bajaj Auto using a sum-of-the-parts valuation methodology. Our DCF-based fair value estimate of the automobile business is Rs 1,200. In our DCF, we have assumed a cost of
equity of 13.5%. We have used a three-stage DCF with the semi-explicit forecast period of 10 years starting FY11 in which we assumed NOPLAT CAGR of c11%. Our target price of Rs 2,420 comprises Rs 1,200 for the automobiles business, Rs 501 for the insurance business and Rs 717 for value of investments (rounded up) net of debt.

Risks

Valuation of life insurance business is dependent on the new business growth and margin assumption. Lower than expected growth and margin represents potential downside valuation risk.

We have assumed that Allianz would be able to raise its stake to 74% from existing 26% in life insurance business. Allianz's inability to exercise a call option represents an upside risk.

Better than expected performance of its new bike is also a key potential upside valuation risk.

The possibility of the sale of land at the Akurdi plant represents and upside risk.

HDFC a market outperformer, target Rs 2406: Enam

The mortgage business still offers tremendous potential

  • Mortgages remain under penetrated despite having moved up to 9% of GDP against approx 2%, five years back
  • Banks have started going slow on the mortgage business, which will help HDFC
  • Affordability far better – Average Cost of house to Annual Gross Income is at approx 5x against 15-20x, 10 years back

HDFC offers the best mix of growth, quality and returns

  • CAGR in loan disbursements of 29% in the last ten years and 42% since inception
  • Gross NPAs at approx 1% for last 10 years, net NPAs nil. Net Loan loan loss since inception at 5bps
  • ROE almost doubled from 16% in FY97 to an estimated 31% in FY07

No pressure seen on growth or profitability, despite rising interest rates

  • Asset-liability management among the best in the financial sector
  • Spreads likely to be maintained at greater than 2%, incremental funding more benign now
  • LTV of 63% and EMI to MGI of just 20-25%, makes HDFC less vulnerable against rising interest rates
  • Post dilution, ROE will still be high at 25% in FY08 and 23% in FY09. FCCB likely to be converted only by 2010

Value of investments estimated at Rs 826 p/s

Life insurance business likely to grow at 55-60% for next 2 years, where HDFC has approx 82% stake (51% economic stake)

Value of Life Insurance business estimated at USD 3.3billion – Rs 311 p/s for HDFC

Net of the value of investments, HDFC quotes at 3.2x FY09E BV and 13.2x FY09E earnings

Maintaining sector Outperformer with a price target of Rs 2,406

Ashok Leyland a mkt performer with negative bias: HDFC

Ashok Leyland and Nissan Motor Co Ltd, signed a Heads of Agreement (HoA) for the formation of three joint venture companies to produce Light Commercial Vehicles (LCVs).

The vehicle manufacturing JV will have exclusive rights to manufacture LCV products in India for both the partners. While manufacturing facilities will be located in India, ALL will have a majority stake in the venture. In the medium term, production volume for both Indian and export markets, is expected to be over 1,00,000 units per annum.

The joint venture company for powertrain manufacturing will produce and assemble engines and other drivertrain components to be fitted in the LCVs and for exports. The majority stake will be with Nissan Motor Company.

The technology development venture will be responsible for the development of LCV products and related powertrains, destined for the Indian and the other identified emerging markets. This company will be owned 50:50 by the two partners and the products developed will be sold under both ALL and Nissan brands.

Following the signing of the HoA, both companies will now embark on a detailed feasibility study covering all proposed areas of cooperation. This study is expected to conclude by October 2007 and will lead to the signing of an MoU.

The partnership with NISSAN is a positive for the company as currently it has a negligible presence in the LCV segment, which is dominated by Tata Motors. This is a win-win situation for both the entities. On the one hand, Nissan will provide its engineering expertise in developing vehicles and on the other, ALL will share its knowledge of the Indian market and distribution network.

YTD FY08, the company's market share of MHCVs increased to 29.6% from 27.0% in FY07. For the same period, the Market Share of the company in the Goods MHCV segment was 25.5%.

Outlook and Valuation

The JV will start contributing to the profitability of the company only by FY10. Meanwhile, ALL announced an aggressive Capex plan of Rs.10 billion for FY08. This will increase both the interest and depreciation expenses and impact its earnings. At the CMP of Rs.37.9, the stock trades at 11.4x and 11.2x its FY07 and FY08E earnings.

Though the valuations of ALL are tad below that of TAMO, we maintain a "Market Performer" rating on the stock with a negative bias. We prefer TAMO over ALL due to its diversified business segments. Better than expected performance from TAMO's passenger car business and the potential unlocking from its various subsidiaries could be positive catalysts for TAMO in the future.

Buy Bharti Airtel; target of Rs 1082: CLSA

The Telecom Regulatory Authority of India's (TRAI's) new recommendations are a mixed bag for the industry in general and Bharti in particular, and could increase service costs – a negative for affordability. Bharti could also now be eligible for additional spectrum in fewer circles. We await the final government decision, but GSM industry opposition is likely. Still, Bharti's network expansion continues to drive a healthy 30% earnings Cagr over FY07-10CL, and, at 22x FY09CL earnings, the stock remains a BUY. Spectrum allocation, costs

In its newly issued guidelines, TRAI has recommended an increase in subscriber norms (as an interim measure) for spectrum allocation; a one-time levy (ie, of Rs160m for 1MHz in Mumbai/Delhi/A circles) and a 1% higher usage charge for allocations beyond 10MHz; and the constitution of a committee to frame new spectrum allocation criteria. TRAI also supports the auction of spectrum for 3G and WiMax. If accepted by the Department of Telecommunications and the government, these recommendations are a negative for the Indian mobile industry. Specifically, Bharti, which was eligible for additional spectrum beyond 10MHz in 14 of 23 circles, would now qualify for additional in only four circles. For the GSM industry, we believe additional charges and a one-time levy would raise the cost of services and adversely affect margins.

Merger & Acquisition guidelines

In its recommendations on M&As, while TRAI has lifted the existing cap on combined spectrum (2X15MHz in metro/A circles; 2X12.4MHz in B/C circles); and allowed a 20% stake (vs 10% currently); it has also capped the market share of merged entities at 40% either in terms of subscribers or revenues against the current 67% based on subscribers. Alongside TRAI has allowed an existing licensee to use alternate technology subject to payment of specified upfront fees and relevant spectrum charges. We see these recommendations as a mixed bag in light of likely consolidation in the sector.

Rural roll-outs and USO funds

However, we see positives from TRAI's recommendation to use the Universal Services Obligation (USO) Fund to drive a rural rollout, ie specifically, a licensee that covers 75% of development blocks in a circle (excluding four metros) will now be eligible to pay just 3% USO fees vs 5% currently. Still, Bharti's network expansion continues to drive a healthy 30% earnings Cagr over FY07-10CL, and, at 22x FY09CL earnings, the stock remains a BUY.

Merill Lynch maintains buy on Firstsource, target Rs 105

Strengthens healthcare offering; EPS accretive in FY09

Firstsource (FS) announced a USD 330 million acquisition of Med Assist (MA), a US BPO vendor providing revenue cycle management to the healthcare industry. It has been valued at 12-13x CY07 EBITDA in line with FS and is being funded by about USD 75 million cash and the rest by debt. We believe the deal will be EPS neutral in FY08 and marginally accretive in FY09, assuming margin expansion and tax shield from debt funded interest cost. We retain our current estimates & Buy rating.

Higher EBITDA margins but high taxes as well

Med Assist had USD 99 million revs in CY06 and high EBITDA margins of between 22% and 24% vs FS EBITDA margin of 19-20%. FS expects to enhance margins further through improved operational (agent utilization) and SG&A efficiency. However, net margins will likely be lower than FS given likely 40% US tax rate.

Significant market expansion; Cross selling opportunities

Med Assist provides FS an entry into the high potential provider (hospitals) segment in the US healthcare BPO industry. FS is a strong player on the payor side (insurance cos) and intends to leverage Med Assist clientele (approx 1000 clients) to cross-sell its services to the provider side. For example, while MA provides eligibility services, receivables management and post default collection for healthcare providers, FS could provide billing and support to its clients.

Retain estimates; Buy

While revenue may grow more slowly than the company average, the acquisition should be at least marginally accretive in FY09 assuming improved efficiencies in delivery and SG&A. We have a Buy on FS, which is trading at 24x FY08E PE and 17x FY09E PE with about 36% 2-yr EPSg forecast

HSBC underweight on GMR Infrastructure

Exposure to airports, power and road and first-mover position provides profitable assets, but valuation has run up

Net profit CAGR of 43% over FY08-10e

Initiating coverage with an Underweight (V) rating and a target price of INR595, 20.5% downside from current level

Flying too high

GMR Infrastructure (GMR) is one of the first private infrastructure players to adopt a construction-neutral development strategy by offloading construction risk to third parties. A first-mover advantage has helped GMR build up a portfolio of profitable assets focused on airports, roads and power plants. The company has a risk mitigation strategy with a good mix of assets under operation and under development across different sectors and a diverse list of clients.

The airport business also benefits from real estate appreciation as GMR has c1,250 acres of land on a 60-year government lease ready to be developed commercially at the Delhi and Hyderabad airport projects. We estimate that this real estate contributes c41% of the company's overall valuation. GMR has expanded outside India and has a 40% equity stake in a consortium that has won a contract to operate Sabiha Gokcen International Airport (SGA) in Istanbul. GMR is trying to turn around its power portfolio, changing strategy to focus on assured fuel supply. In the road sector, GMR has unlocked value through financial engineering and securitising receivables.

The company's business fundamentals remain strong but its valuation has run ahead of its one-year earnings prospects. We have valued all of GMR's projects using a DCF approach as most of the projects are for fixed durations. Based on this, we have valued the company at INR197.1bn, or a per-share value of INR595, 20.5% below the current share price. Even after the recent correction of 25% from its historic peak, we believe there is still some downside to the stock. We initiate coverage on GMR with an Underweight (V) rating. The key upside risks to our valuation are the contribution of the SGA Airport in Istanbul and a higher-than-expected valuation of airport real estate. Key business risks are uncertain interest rates and airport traffic, aviation fuel shortages, increased competition, and regulatory, finance and execution risks

Valuation

Most of GMR's projects are conducted over fixed durations of 15-60 years. After the concession period, the assets are handed back to the government at no cost. We believe DCF is the most suitable approach to value the company. We have valued GMR's entire current business at INR197.1billion, translating into INR595 per share. The two airports should be the key value drivers for the company; they contribute c77% of the total value, including the associated real estate businesses. The Delhi airport project contributes c23% of the overall valuation and Hyderabad airport c54%. Of the current airport valuation, real estate contributes 40%, with Delhi real estate contributing 33.7% to Delhi International Airport Limited (DIAL) valuation and Hyderabad real estate contributing about 73% to Hyderabad International Airport Limited (HIAL) valuation. We have valued Delhi airport assuming passenger CAGR of 12% over FY08-15e with passenger growth of 18.4% for FY08e. Aeronautical revenues are capped at 11.6% return on the fixed assets, so there is not much upside.

Nonaeronautical revenue, currently at USD3.9 per pax, should reach the international level of more than USD9 per pax by FY15, a 16% CAGR over the period. If we compare Delhi airport valuation on EV per pax, at our valuation it will be USD96 for FY09e vs average USD64 EV per pax for Asian airports under HSBC coverage. The Hyderabad airport should contribute c54% to overall valuation, with real estate contributing a major part of the revenue. As the Hyderabad airport is a green field project, the revenues are not regulated. We have assumed the current passenger growth rate of 40% to continue at 13% CAGR over FY08-15. We have factored in investment in capacity renovation after every 20 years of operation. According to our estimates, the Hyderabad airport will generate a high return on invested capital. The Hyderabad airport valuation on EV per pax works out to USD189 for FY09e vs average USD64 EV per pax for Asian airports under HSBC coverage. The real estate business contributes Rs 122 billion for 1,000 acres of land translating into Rs 122 million per acre. The valuation contribution of HIAL is higher than Delhi airport despite Delhi airport handling more capacity because there is no return cap on HIAL revenue charges, it has a lower revenue share of 4% (with a 10-year deferred payment schedule) vs the Delhi airport, which has 45.99%; and has a higher contribution from the real estate business. Based on our assumption, we have arrived at a DCF value of Rs 197 billion. However, GMR will continue to bid for new projects, so there is likely to be incremental value creation for shareholders.

Hinduja TMT leads gainers in 'A' group

Sell Ashok Leyland: Citigroup

Company description

Ashok Leyland (ALL) is owned by the Hinduja Group (which has an equity stake of 50.9%). ALL is the second-largest CV manufacturer in India, with a strong focus on medium and heavy commercial vehicles (MHCVs). The company's core product portfolio comprises MHCVs (goods vehicles and buses), and it also manufactures a range of vehicles suited for defense and special applications. Its recent successes in the export market are indicative of its product quality. Sales of spares and engines add to revenue and earnings, especially during cyclical downturns.

What's new

Ashok Leyland has announced it will enter into three JVs with Nissan – 1) a manufacturing JV (in which ALL will hold the majority stake), 2) a powertrain manufacturing JV (wherein Nissan will hold the majority stake), and 3) a technology development JV, in which both Nissan and ALL will hold 50-50 equity stakes.

Capital outlay remains undisclosed

Management indicated that capital outlay for all three projects, as well as the funding mix, will be disclosed at a later date (probably Oct.). We contend the manufacturing JV (with an ultimate capacity of over 100,000 units) will probably have an outlay of USD 200 million. Commercial production is forecast to commence 18-24 months from now. Execution risk remains the key risk in this initiative.

Mutually beneficial alliance

Ashok Leyland gets access to Nissan's engine / powertrain and product technologies. Nissan gets access to the high-growth Indian market. We think that it might also be able to utilize ALL's distribution network and vendor base. The ALL-Nissan ventures will have a complete product range spanning the light truck market, with payloads ranging from 0.35-4MT.

Reiterate Sell

Risk/reward ratio currently appears unattractive on ALL, even at the current stock price. Burgeoning capital outlay on various initiatives is a concern. Reiterate Sell (3L). Key Upside risks: a) a sharper-than-expected growth in HCV volumes over FY08E, b) decline in material costs and rebound in margins.

Investment thesis

We have a Sell / Low Risk (3L) rating on ALL - valuations being the primary concern. We believe the stock currently prices in all positives. Fundamentally, key reasons for a healthy growth outlook in commercial vehicles include a sustained pick-up in economic activity, a focus on infrastructure spending and astrong replacement cycle (27% of the existing fleet in India is more than 15 years old and needs to be replaced both for commercial and environmental reasons). Moreover, growth in the agriculture, infrastructure and manufacturing sectors – all of which have positive linkages to the freight business - should remain positive. ALL is raising capacity by c30% over the next two years to meet demand, and plans to launch new products. In the long term, exports couldemerge as a growth driver as ALL leverages off its low-cost competitive advantage to enter foreign markets.

Valuation

Our 12-month target price of Rs 39 for ALL is based on 8.55x FY08E cash earnings. Our target multiple is at a 20% discount to the multiple we assign toTata Motors, which we believe, correctly reflects ALL's substantially smallers cale of operations and less diversified revenue profile. (ALL is not present in passenger cars or utility vehicles and has an extremely modest presence in light commercial vehicles.) A c18% CAGR in cash earnings over FY06-08E should support these valuations. We prefer to use P/CEPS as a valuation metric to ensure proper comparison with historical trading bands, a restructuring of the balance sheet in FY03 and the capital-intensive nature of the business. At our target price, the stock would trade at a P/E of 13x FY07E EPS, in the middle of its recent trading band. This appears well supported by a 20% CAGRin earnings over FY06-08E.

Risks

We rate ALL Low Risk based on our quantitative risk rating system, which tracks 260-day historical share price volatility. The key risk factors to our target price are movements in economic variables - particularly GDP growth, interest rates and fuel prices, to which sales of commercial vehicles are very sensitive. Input costs are volatile and linked to global commodity prices for metals, plastics, etc. The profitability and viability of the STUs over the long term is an important risk factor, given that the STUs are the largest buyers of ALL buses. Key upside risks which could drive the shares above our target price include: 1) Greater-than expected volume growth on account of the Supreme Court ruling on overloading;2) Reduction in input costs (notably steel and aluminium) would benefit earnings; 3) Effective integration of the Avia acquisition could enable ALL to successfully penetrate the domestic LCV market.

Idea Cellular has target of Rs 155: Sunidhi Securities

Highlights:

ICL has licence to operate telecom services in 13 of the 23 circles in the country, which include one metropolitan circle of Delhi, three category A circles of Andhra Pradesh, Gujarat and Maharashtra (excluding Mumbai), six category B circles of Haryana, Kerala, Madhya Pradesh, Chattisgarh, Rajasthan, Uttar Pradesh (UP) (East) and UP (West) and one category C circle of Himachal Pradesh. On June 30 2007, ICL had over 16.1 million subscribers. ICL has received unified access services (UAS) licences for metropolitan circle of Mumbai and category C circle in Bihar. In addition, it has nine license applications pending for further circles, which, if obtained, would give it complete access to the entire Indian market. Recently, ICL was awarded a National Long Distance (NLD) licence by the Department of Telecommunications which it will set up the network by March 2008. ICL has added 21.2 lakh subscribers in Q1FY08 taking the total count to 161.3 lakh. It posted better than expected results for Q1 helped by the increase in average revenue per user (APRU) to Rs 391 from Rs 332. This is higher than the national average of Rs 298, indicating a continued ability to command a premium over other telecom operators.

During Q1FY08, ICL has already spent Rs 1110 crore out of the IPO and Green Shoe proceeds of Rs 2800 crore towards capital expenditure. ICL has hinted upon spending USD 1.5-2 billion over the next two years in the existing circles to increase its network coverage and depth. Up to 74% FDI is permitted in the telecom sector, providing global telcos with an opportunity to have a controlling stake.

Valuation & Recommendations:

According to industry sources, the Indian mobile market will surpass the 400 million subscriber mark by 2010 and 556 million by 2015. Based on the 13 circles in which ICL is operating, is estimated that it will have a subscriber base of 38-40 million by end-2010, with an estimated market share of 10%. Out of little less than 9000 owned cell sites, the company shares about 25% of the sites with other operators. The overall infrastructure sharing results in to saving 10-15 % operating costs of the company. Going forward the company will focus more on infrastructure sharing. ICL is already operating in Gujarat and Maharasthra. Mumbai not only serves as the geographical missing link but as the financial capital of India provides growth opportunities. Similarly, its expansion in Bihar will enhance its presence in the more rural C circles (it already has a presence in C circles such as Madhya Pradesh and Himachal Pradesh). Bihar, with its 5 % penetration level, offers tremendous potential.

The global experience suggests consolidation will be driven by a combination of spectrum constraints, heavy network upgrade costs to 3G, a shift to nationwide pricing and financing constraints. Vodafone's landmark purchase of Hutch India for USD18 bn and a relaxation of regulatory restrictions on M & A suggest consolidation will remain a key theme. The possibility of ICL being taken over by MNC can not be ruled out.

Exponential growth in wireless telecom services, massive investment in the sector, robust volume growth in number of subscribers, expansion in margin, revenue sharing relief, alliance among the regional players, rising trend in ARPUs, the likely introduction of mobile number portability, NLD initiatives are industry positives and offer visibility in further strengthening the revenue and profitability. The shares traded at Rs 117 at a forward P/Ex of 20.5 on FY08E and 14.4 on FY09E (against industry average P/E of 40) are recommended with a price target of Rs 155 in the medium term.

Sensex ends up 197pts, Reliance gains 3%

Indian Economy roars

India Shining - April-June GDP grows 9.3 per cent

India's economy in the April-June quarter grew a faster-than-expected 9.3 per cent from a year earlier, led by robust manufacturing and services, but analysts said the pace could moderate in coming quarters.

The annual growth rate for India's fiscal first quarter published on Friday topped both a median forecast of 8.9
percent in a poll and growth of 9.1 per cent the previous quarter.

The stock market extended its strong opening gains after the data. The rupee was little changed around 41.02
per dollar, and the benchmark 10-year bond edged up 1 basis point to 7.92 percent.

Analysts said the strong growth did not mean the central bank was likely to resume raising interest rates, but said it showed the need for vigilance against a build-up of price pressures.

"This number is good, but does not suggest any need for monetary tightening and we expect the current stance to
continue as inflation has come off substantially," said JP Morgan economist Rajeev Malik.

"We see moderation in growth in coming quarters."

Manufacturing grew an annual 11.9 percent in the April-June quarter, lower than the 12.4 percent in the previous three months.

Services grew at an annual pace of 10.6 percent, while farming, which the government is trying to revive, expanded by 3.8 per cent, matching the previous quarter's growth rate.

Asia's third-largest economy grew 9.4 percent in the fiscal year that ended March 2007, its fastest rate in 18 years, and the central bank expects expansion of 8.5 percent this fiscal year.

The central bank raised interest rates five times between June 2006 and March this year and has also increased banks' reserve requirements, measures that have cooled the property market and calmed inflation and loan demand.

"Growth will be about 9 percent in the coming quarters. There is no need to change the monetary stance, but there has to be a close monitoring," said Saumitra Chaudhuri, economic adviser at domestic ratings agency ICRA.

India is now a $1 trillion economy after a growth spurt in the past four years second only to China's hot pace of
expansion among major economies. This has given it increasing muscle in world trade talks and seen it invited to meetings of the world's leading industrialised economies.

The central bank said on Thursday India was on the verge of a step-up in its growth trajectory but only if accompanied by vigilance on price and financial stability.

Some economists see the economy averaging 7-8 percent for the next few years due to private sector expansion and rising demand from a growing middle class.

Analysts say this will buttress the domestic economy in the event of a slowdown in demand around the world due to problems in the US home
loan market.

The scorching pace has generated jobs but it has also put pressure on roads, ports and other infrastructure, and increased wage and price pressures

Weekly Close: Great week despite Issues.

Market really had great week. Though global and political issues made market realize their presence but index managed to make it out of worries. Of course, the US fed provided a helping hand to recover and it helped, though once reacted badly on lack of support from fed. On political front India also had some relief and stability. Congress said that it would put Indo-US nuke deal on hold for now and that was some face saving formula. Market had a great bounce back in spite of F&O settlement week. Sensex and Nifty both gained by 6.5%. Probably this was back by short covering. However it is paired off 1.5% for August. August market was extremely volatile.

Political overview: The news flow from the political front may appear encouraging. At least polls have been averted for now. This is what we mentioned in our previous note that the crucial time will be in two months from now. Volatility may continue?really the time will tell us!

Sensex zoomed 6.5% (894 Points) for the week. With Tisco among the biggest gainer up by18%, followed by Hindalco, MNM and RIL gaining 10% each. Losers for week were Cipla and Guj Ambuja down by over 1% each. topnew.gif (1104 bytes)

Auto Majors at their best; Eveready ready for more?..Zodiac super jump..

Auto stocks did rally this week. Bajaj Auto is set to launch its new fuel-efficient 125 cc bike that offers 109 km a litre. Named as? Exceed? and is slated to be launched in mid -September. The company is also launching a new-generation engine ahead of the rollout of bikes to educate people about the advantages of new technology that combines the features of fuel efficiency and performance. With Bajaj upgrading the platform from 100 cc to 125 cc with the new bike, the sales of 100 cc would further decrease which would impact Hero Honda. Hero Honda is the market leader in the 100 cc segment. Bajaj wants to make the bike to exceed the youth power. We expect trading upsides over the medium term. The Festival demand is what all 2 wheeler players are banking on and we too. Lower interest rates will be the trigger the markets will be looking for. MNM was also rallied ahead of its Sales numbers for the month of August is what we assume. Auto Majors will be coming out with their monthly sales number next which we expect to be good one.

McNally Bharat, it was surprising to note that the Rs 90 cr Mazgaon dock order was already an old one existing in the Rs 1100 cr order book indicated with the recent results. It?s just that the order copy was received. However, the negative which emerged was that the Rs 1000 cr orders may take their time to be announced given that the uncertainty in political environment has delayed their letters to be sent. May be, in the face of elections, the company may not be ready to accept for now given the uncertainty. There is no surety that a new government and new Minister may want to review the same. However this is our guess. All in all, this company is less expensive than many other engineering firms on an FY09 expectation.

Textile stocks performed mixed for the week. Star performer was Zodiac Clothing for the week. The branded business has continued to grow and has recorded a growth of nearly 24% by virtue of growth in every segment of the Indian business. In the export business the sales grew with a satisfactory increase in contribution due to the company reshuffling its portfolio of customers, eliminating those customers with low contribution. Profitability and growth has been sustained, despite a major challenge posed by the sudden and sharp appreciation of the rupee. With the festive season in India approaching, we look forward to sustained demand for the branded business which will grow the profitability overall. Zodiac ralied 17% for the day..

Esab India is another stock which has good prospects going ahead. The company had an open offer revised upward: 58.01 lakh shares (37.7%) from 30.78 lakh shares (20%) Price increased to Rs 505 from Rs 406 (CMP: Rs 490.85). We seem to be running into luck. We like this welding electrode business which will benefit from lower metal prices. The company has recently added new capacity and has also seen greater outsourcing to meet the demand in India. Charter PLC is the parent owning ESAB. It also has a group business called Howden which is into Gas Turbines. Howden has been looking to get into India as indicated in Howdens annual report and that could be through Esab though given the less than 50% holding gives reason to believe that its more likely to be a trading activity initially. The welding demand is more dependent on Ship building, Pipes Engineering, and Construction. Ship Building and Pipelines is where there is strong visibility for the next couple of years where the order books are full. Valuations at 17X FY 08 at Rs 490 the stock is certainly not cheap but the downsides are limited. With Charter probably owning over 51% post this offer. We believe that product introductions could accelerate. However for now the stock is likely to remain in the current range.

Eveready sold of the Mumbai land and our guess was on target. They sold the Mumbai land for Rs 115 cr that comes to Rs 14 per share. The company intends to raise money for business. Do they find the current prices attractive ?.. With Zinc at around $ 3000 per tonne, profitability certainly will be better.. and promoters have a 40% stake in the company. May be a good time to increase stake. There is also the issue of the FCCB issued 2 years ago with conversion at Rs 95. If the stock does not cross 95, that would mean cash outflow. More comment on that once we speak to the management.

Technically Speaking: Sensex closed above 15200 levels. Next Immediate target is at 15650. On the lower side 15170 and 15040 are the key supports. Volumes traded were good at over 5000 cr for the day.

Weekly Newsletter

All the talk of higher interest rates slowing down the Indian economy took a backseat after the Government released the GDP data for the first quarter ended June. Apart from the minor dip in the growth rate for Mining and Manufacturing, all other engines of the Indian economy remained in healthy condition. Overall, the GDP growth in the April-June quarter was 9.3% as against 9.6% in the same quarter last year. Compared with the previous quarter's (Q4 FY07) growth rate of 9.1%, economic growth in Q1 FY08 was slightly on the higher side. The data also beat all optimistic expectations by various economists, who had been looking for a growth rate of around 9%.

At 3.8%, agriculture growth rate was better than 2.8% in the year-ago level while mining output slid, from 3.7% to 3.2%. Growth rate of the manufacturing sector declined to 11.9% in the first quarter of the current fiscal year versus 12.3% last year. Output in Electricity and Construction sectors improved, to 8.3% and 10.7%, respectively, from 5.8% and 10.5% in the first quarter last year. Other sub-segments that registered significant growth in Q1 FY08 over the previous year included Trade, Hotels, Transport & Communications (12% vs 12.4%), and finance, insurance, real estate and business services (11% vs 10.8%).

Asia's fourth-largest economy grew by 9.4% in the fiscal year ended March 2007, its fastest rate in 18 years, and the central bank expects expansion of 8.5% this fiscal year. Finance Minister P. Chidambaram said the GDP growth of 9.3% in the April-June quarter was 'satisfactory', and that the Government would ensure investment and credit flows remained strong. "Despite compulsions of a tight monetary policy, we will ensure that credit flow to the productive sectors of the economy remains strong," Chidambaram told reporters in New Delhi.

The Reserve Bank of India (RBI) expects India's economic growth to accelerate further notwithstanding the threat of inflationary pressure and external shocks like the recent sub-prime crisis in the US. Though the central bank cautioned that the turmoil in the global credit markets could cause further outflow of capital from India, it remains hopeful that the Indian economy will remain resilient to global shocks. In its 2006-07 annual report, the RBI has asked commercial banks, financial institutions and corporates to be vigilant and well-prepared with appropriate risk mitigation strategies to deal with significantly higher volatility than before.

"Steady increases in the rate of gross domestic saving and investment, consumption demand, addition of new capacity as well as more intensive and efficient utilisation/capitalisation of existing capacity are expected to provide support to growth during 2007-08," the RBI said. The central bank's GDP growth estimate for FY08 stands at 8.5%. "There is growing evidence that the economy is on the threshold of a step-up in the growth trajectory, provided the vigil on price stability, including financial stability is intensified in a convincing manner," the RBI said.

But, the turmoil caused by the subprime mortgages in the US remains one of the biggest underlying concerns for the RBI. "Further deterioration in subprime delinquencies could lead to reassessment of risk by investors across products and markets and retrenchment of capital from the emerging market economies (EMEs), given the contagion and herd mentality," the RBI said. A higher volatility could also emanate from the behaviour of private equity funds, according to the central bank. Any further monetary tightening in major economies has the potential to accentuate volatility in global markets, feels the RBI.


Bulls finally found a week to rejoice. Value buying in index heavyweights like RIL, Tata Steel, Hindalco, BHEL and L&T enabled the Sensex post its longest winning streak this year. Also, lower inflation and impressive GDP growth figures spurred the sentiment, lifting the benchmark BSE Sensex higher by 6.2% or 894 points to close the week at 15319. The NSE Nifty ended higher by 6.5% or 274 points to close at 4464.

The current rally in the market was supported by gains in Metals, Banking, IT, Auto and Oil & Gas stocks. Interestingly, the activity was also seen in the mid-cap counters. On the political front, sentiment improved after the ruling coalition agreed to set up a panel for examining the implications of the Indo-US nuclear deal, putting to rest, the concerns of Communist parties pulling away from the Centre.

Bulls had more reason to cheer with India's economy growing at 9.3% in the three months to June 30 from a year earlier. Also, inflation declined to 3.94% in the week ended August 18, from 4.1% in the previous week, as prices of some manufactured products fell. It was the first time annual inflation fell below 4% since the end of April 2006.

Firm metal prices on LME and strong demand from the domestic as well as overseas market boosted the metal stocks with Tata Steel, leading from the front. Tata Steel was the star performer over the week, advancing by 18% to Rs689 after Corus Group Plc's consolidated operations for the June quarter almost tripled. Operating profit climbed to Rs49.04bn. Revenue surged more than five-fold to Rs311.55bn. SAIL surged by over 15% to Rs168 and JSW Steel jumped by over 12% to Rs643.

Value buying emerged across the auto stocks on expectations that revenue will increase in the coming quarter after inflation fell below 4%. Expectations are that interest rates won't rise further. Hindustan Motors skyrocketed by over 29%, M&M raced ahead by 10% to Rs708, Maruti rose nearly by 10% to Rs867, Tata Motors surged nearly by 7% to Rs701 and Ashok Leyland added 8.5% to Rs38.

IT stocks staged smart recovery during the week. The rupee appears to have stabilized against the US$ around the $41 mark. Wipro surged nearly 6% to Rs482, TCS rose over 4.5% to Rs1065, Satyam gained 2.5% to Rs447 and Infosys added 1.7% to Rs1885. Financial Technologies was the star performer, advancing by over 20% to Rs2463.

Fertilizer stocks hogged the limelight during the week on expectations of sops & subsidy. Nagarjuna Fertilizer was the top gainer, rallying by over 21% to Rs40.3, Chambal Fertilizer surged by over 7% to Rs49.8 and Deepak Fertilizer rose over 4% to Rs105.

Banking stocks also gained momentum on hopes that interest rates wont be increased given the lower inflation rates. Axis Bank surged by over 11% to Rs635 as the scrip witnessed strong fund buying. Heavyweights also recorded smart gains. SBI rose over 9% to Rs1600, HDFC Bank was up by 6.7% to Rs1171 and ICICI Bank added .5% to Rs888.

Reliance Industries, India's most valuable company and world's third biggest refinery was among the leading gainers in the 30-share Sensex index. The scrip rose over 10% hitting 52-week high of Rs1970 finally closing at Rs1959.

Global cues to drive local mood

Friday's impressive and unexpected rally has left the bears wondering what struck them. The markets surged higher defying all negative cues and overcoming the volatility of F&O expiry. Could it be a one-week wonder or signs of things to come? In the absence of any major triggers, we expect some consolidation in the market before a further upmove kicks in. A lot will depend on the speech by Fed chief Ben Bernanke on housing and monetary policy. President Bush is also set to unveil a slew of steps aimed at addressing the problems facing the American housing sector. As always, global cues will again provide the much needed direction to the bulls. Action is likely to be stock specific with mid-cap stocks appearing to have got back into action. However, one needs to adopt a cautious approach. Stocks like IFCI and Escorts are expected to witness action in the coming week. Ranbaxy is another counter which can be considered for the medium to long term.

Tackling a rising home loan EMI with ease

The usually smiling Ravi Raman wasn't his usual self a few days ago. He was seen walking restlessly across his office. The IT company for which he was working informed him that his salary would be credited a little late into his account.

Mr Raman was worried since it meant his home loan cheque could probably bounce. In the past few years, the Ramans have been facing the arduous task of trying to eke out a living, thanks to rising EMIs (Equated monthly Installments).

This wasn't the case two years ago when he took the loan. Coping with higher EMIs for many is something but a bitter truth that one has to live with. ET takes you through smart measures to befriend higher EMIs.

Managing rising EMIs
There are two ways to cope with increasing home loan EMIs. One way could be to lower your consumption needs. Then you could cough up some funds to prepay the home loan. Explains certified financial planner and wealth advisor Gaurav Mashruwala,

"You have two variants in the expenses category, mandatory and voluntary. You have to spend on food but you can cut down on eating in restaurants and entertainment. The idea is to cut down on your lifestyle. Start buying a Cambridge shirt instead of a Tommy Hilfiger. There is always scope to tone down your lifestyle and expenses to accommodate the increase in EMIs. Another way to partly prepay your loan could be to liquidate your low-yielding assets.

All you need to evaluate is how much net return does your investment fetch you. If it's lower than the interest outgo on your home loan, it makes financial sense for you to liquidate that investment to repay a part of your housing loan.

"You can look to break your bank fixed deposits or liquidate some debt-based products. Touch your equity investments only if you are in dire need," advises Mr Mashruwala. Typically, equity earns more than 16% annually (more than home loan rates of 12% pa) and historically, has been the best performing asset.

You need not liquidate all your investments. You can liquidate around 30-50% of your low-yielding investments, which will also take care that you have a balanced portfolio of investments. However, you have to evaluate this option very carefully. You cannot liquidate those investments which have the ability to beat inflation in the long run.

Higher EMI or tenure?
Whenever a bank/HFC hikes lending rate, you either see a rise in your EMI or an extension in the tenure. Industry experts recommend increasing the EMI than tweaking the tenure of the loan. Approximately, when a bank/HFC hikes the lending rate by 0.5%, the tenure of your loan is increased by almost 25 months. If you take a housing loan at the age of 30, you would have planned to repay by the time you complete 50 years of age. The idea would have been to spend a debt-free retired life.

Now, if you postpone the termination of loan at 52 years of age, that would impact your personal finances even more, especially if you retire, says Akhilesh Tilotia, financial advisor and director of PARK Financial Advisors. Secondly, a series of rate hikes could further postpone the closure of your home loan. So it's better to take the EMI hit right now than postpone the impact of rate hike. The idea is you are able to realise the hike in interest rates upfront.

Even the compounding effect has huge impact on long-tenure loans. For example, if you take a Rs 30-lakh loan for a period of 15 years at 12%, then your EMI works to a tad above Rs 36,000. Essentially, you will be paying close to Rs 65 lakhs on your house, including your interest outgo. The longer you extend the tenure of the loan, this number will increase. In other words, your interest outgo is another party's income. Why do you want to earn for a third party? Settle the loan repayment at the committed tenure.

Facts you must know

Watch your EMI
Banks say they can lend up to 48 times your monthly salary. But you should see how much can you afford by looking at the EMI as percentage of your salary. EMIs should not increase beyond 35-40% of you take home salary for a housing loan. Any other loan EMI should not go beyond 25%. Banks may recommend an EMI up to 60% of your disposable income. But you have to provide for contingencies such as a job slow down, change of job or mere liquidity needs, Mr Tilotia adds.

Don't read too much into penalty
It's not wise to save on the 2% prepayment penalty on your housing loan. You are actually spending 12-14% on the same loan as interest cost. Even if you take into account the tax benefit, you cannot discount the forthcoming rate hikes in the years to come. Always get out of your debt as soon as possible.

Your first house is a consumption asset
You will never sell that for money. If you look at your salary as a pie, your ideal break should be 30% EMIs, 30% to the government in terms of taxes, 20% for consumption needs and the balance 20% should be savings.

Govt-Left smoke peace pipe for now

For the moment, it seems that the storm over the Indo-US nuclear deal has receded. In a last ditch attempt to save the fragile coalition in New Delhi, the Government and the Left parties agreed to set up a committee to address some of the apprehensions of the Left parties over the civilian nuclear cooperation between India and the US. As part of the truce, the Government will hold no negotiations with IAEA - the first of the three steps crucial for operationalising the deal - till the panel comes out with its findings. The committee will have 14 members - eight from UPA and six from the Left - with the likelihood of External Affairs Minister Pranab Mukherjee as its convenor. The temporary settlement will enable the Left Front to back off, for some time, from their brinkmanship that had put the Government's survival in danger

RBI expresses caution on holding company

The Reserve Bank of India (RBI) has raised some uncomfortable questions about the proposed intermediate holding companies proposed by ICICI Bank and SBI. The RBI has made a strong case against intermediate holding companies. "It will be desirable to avoid intermediate holding company structures (a structure in which a bank owns a holding company for various non-bank businesses)," the banking sector regulator said in a discussion paper on holding companies in banking groups. Any clearance for foreign investment in such a holding company by other regulators could be subject to a legal review, the RBI said. The creation of an intermediary financial holding company may lead to a problem of regulation, it added. The announcement from the RBI comes notwithstanding the clearance granted by the Finance Ministry to ICICI Bank's proposal for setting up a holding company for its insurance and mutual fund business. SBI has also proposed a similar holding company for its insurance and mutual fund businesses.

TRAI in favour of more players per circle

In a bid to shore up competition and encourage mergers and acquisitions in the telecom sector, the Telecom Regulatory Authority of India (TRAI) suggested that the limit on the number of operators in a particular circle should go. It also recommended relaxation of stringent M&A norms, technology neutrality for telecom licences, besides suggesting that both GSM and CDMA players should pay an entry fee and higher spectrum fee additional 2G radio frequency allocation. The telecom regulator suggested a one-time fee from operators for allocation of spectrum beyond 10 MHz. At present, a company pays 1% of its revenue to the Government for additional spectrum, being allocated based on subscribers. On M&As, TRAI said the combined market share of the merged entities should not exceed 40%, either in terms of subscribers or revenue against 67% now. It proposed that an operator should be allowed to acquire up to 20% equity in the target licensee company in the same circle against the present cap of 10%.

SEZs...Govt allows purchase of 30% land

The Group of Ministers (GoM) set up to frame a rehabilitation and resettlement policy for those affected by industrial projects, including SEZs, suggested that state governments be given a discretion to acquire up to 30% of the land required for such projects provided the developer has acquired the balance land. The GoM recommendation would now go to the Cabinet for its approval. "The decision is not specific to SEZs but would apply to all industrial projects," Science & Technology Minister Kapil Sibal said after the GoM meeting. Separately, the Government cleared 20 new SEZs, including two IT and IT enabled service based SEZs of Tata Consultancy Services (TCS) and Cognizant Technology. It also gave in-principle approval to seven SEZs. In April, the Empowered Group of Ministers on SEZs headed by External Affairs Minister Pranab Mukherjee had imposed a ban on compulsory acquisition of land, while fixing an upper limit of 5,000 hectares for multi-product zones.

Bajaj family feud continues

Warring Bajaj brothers - Rahul and Shishir failed to reach a settlement on the division of the group within the time allotted by the Company Law Board (CLB). The two brothers sought some more time from the principal bench of the CLB. Counsels representing Rahul and Shishir told the bench they would carry on negotiations to settle the matter. CLB Chairman S. Balasubramanian adjourned the matter to the third week of October. The Shishir-Rahul feud erupted in March 2003, with the former approaching the CLB alleging there was a move by the Rahul camp to oust him from the chairmanship of Bajaj Sevashram, a key holding company of the Bajaj group. The battle intensified this year when the Shishir camp moved the CLB for a stay on the induction of Rahul Bajaj's son Sanjiv and cousin Neeraj in the boards of Bajaj Sevashram and Jamnalal Sons. Admitting the application by the Shishir faction, the principal bench of the CLB stayed all board meetings of the two holding companies Bajaj Sevashram and Jamnalal Sons.

Firstsource acquires MedAssist

Firstsource Solutions acquired MedAssist Holding, a leading provider of revenue cycle management in the healthcare industry in the US, for US$330mn. There would be no change in the management of MedAssist and all 1,400 employees would continue in their current jobs. MedAssist provides Eligibility Services, Receivables Management Services and Post-default Collections services for healthcare providers. The company has over 1,000 clients, including hospitals, large physician groups and alternate site providers. MedAssist's revenue for year ended December 31, 2006 was US$99mn. Firstsource's US subsidiary will raise US$275mn through debt for the deal while the balance will be funded through internal accruals, Managing Director and CEO, Ananda Mukerji said.

Puravankara Projects falls below issue price

Shares of Bangalore-based real estate major Puravankara Projects slipped below the issue price amid uncertainty about the growth prospects of the housing industry. The stock listed on the Bombay Stock Exchange (BSE) at Rs399, on Aug. 30, as against the issue price of Rs400. Soon it hit a low of Rs357 before ending the maiden trading day at Rs361. It gained about 3.9% on the next day to close the week at Rs375. Puravankara raised Rs8.6bn from its 21.5-million-share public offer, to part-fund land acquisition and to repay debt. The company had entered capital market with an IPO of 21,467,610 shares of Rs5 each in a price band of Rs400-450. The issue was subscribed 1.91 times despite the company cutting the price band, from 450-500 and extending the duration of the IPO.

Power Grid Corp IPO opens on Sept. 10

ndia's principal power transmission company and Mini-Ratna Category- I public sector undertaking, Power Grid Corporation of India Limited ("the Company") is entering the capital markets with an Initial Public Offering (IPO) of 573,932,895 equity shares of Rs 10 each ("Equity Shares") for cash (the "Issue") at a price to be decided through a 100% book building process. The issue comprises a fresh issue of up to 382,621,930 equity shares by the Company and an Offer for sale of up to 191,310,965 equity shares by The President Of India acting through The Ministry Of Power, Government of India. The issue comprises a net issue to the public of up to 559,954,895 equity shares and a reservation of up to 13,978,000 equity shares for subscription by employees of the Company. The Issue shall constitute approximately 13.64% of the fully diluted post- issue capital of the Company. After the Issue, the Government of India, through the Ministry of Power will continue to hold 86.36% of the diluted post-Issue paid-up equity capital of the Company.

Nicholas Piramal to spin off R&D unit

Nicholas Piramal India Ltd. announced that its Board had approved the proposal to de-merge its New Chemical Entity (NCE) Research Unit into a separate company. The NCE pipeline has expanded from 5 compounds in 2002 to 13 compounds in 2007. Out of this, 4 are in clinical trials. Nicholas Piramal expects to have 8 compounds in clinical trials by end of the current financial year. It wishes to complete development upto proof-of-concept (end of Phase II) for all its compounds and bring to market certain niche ones on its own. Nicholas Piramal will hold equity capital of Rs45.5mn in the new NCE Research Unit. This move will facilitate induction of strategic or financial investors in future who may wish to invest directly in the NCE research program. The new company will issue fully paid up equity shares aggregating to Rs209mn to the shareholders of Nicholas Piramal in the ratio of 1:10. Post de-merger, Nicholas Piramal will hold 18% equity capital of the new company and the remaining 82% will be held by the shareholders of Nicholas Piramal. The new company will be listed on the BSE and NSE in the future.

Parsvnath Developers to foray into telecom

Real estate major Parsvnath Developers plans to launch mobile services in the country. The company has expressed the intention to apply for licences in 22 out of 23 telecom circles in the country. It has identified two partners - one domestic investor and other a well known global telecom giant. Though the company has not yet declared any funding structure, it is likely to hold a minority stake of 26% in the proposed joint venture while the foreign players will hold around 51 per cent and the balance will be with the financial investors. "Despite increasing number of subscribers, the penetration of mobile telephony in India is still very low," Chairman Pradeep Jain told reporters in New Delhi. Parsvnath will set up a special purpose vehicle, a company that's being created for the proposed diversification

Bush bailout for subprime mess
After the central banks, it's now the turn of the US Government to come to the rescue of the crumbling housing sector. President George W. Bush, in his first response to the subprime mortgage crisis, plans to announce several steps aimed at helping Americans with credit difficulties to meet the rising cost of their housing loans, administration officials said. According to published reports, Bush will let the Federal Housing Administration (FHA), which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favorable rates. FHA mortgage insurance program will be changed to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages. The change would affect borrowers who are at least 90 days behind in payments and let them stay in their homes. Stocks in Europe and Asia rose, led by mining companies and exporters, before Bush's announcement. The yen fell against all of the world's 16 most-active currencies.

US economy picks up pace in Q2

The US economy grew at a much faster pace in the second quarter than previously estimated, but tepid consumer spending, slowing housing activity and credit-market turmoil suggested that growth will slow significantly into next year. America's Gross Domestic Product (GDP) expanded at a 4% annual rate in the second quarter, the Commerce Department said. That was up from a previous estimate of 3.4%, largely because exports and business investment during the period were stronger than previously thought. The GDP revised number was in line with Wall Street forecasts and far outstripped the first quarter's anemic 0.6% rate of expansion.

US consumer confidence dives

Consumer confidence in the US fell more sharply in August than in any month since the aftermath of Hurricane Katrina two years ago, according to the Conference Board. The GfK index of German consumer confidence also dropped, for the first time in six months. House prices in America fell by 3.2% in the year to the second quarter, according to the S&P/Case-Shiller national home-price index. It was the largest decrease in the period covered by the index, which runs back to 1987. On a month-by-month basis, in June metropolitan areas in California and the south-west continued to see some of the steepest declines in property prices. The housing market in the Pacific north-west, however, remained buoyant.

Home Depot sells unit at steep discount

Home Depot Inc. said it had closed the sale of HD Supply to three private-equity firms for about US$8.5bn, nearly US$2bn below the original offer for the unit. In June, Home Depot announced that it had agreed to sell its supply business to Bain Capital, Carlyle Group and Clayton Dubilier & Rice for US$10.3bn. Under the revised terms announced earlier this week, Atlanta-based Home Depot will pay US$325mn for a 12.5% equity interest in HD Supply and guarantee a US$1bn senior secured loan of HD Supply. The sale was one of the first big buyouts to be renegotiated because of the recent tightening of credit and problems in the housing market. Because the deal relies heavily on debt, investors and bankers have been watching closely for signs of how new stringent standards on credit could affect other large buyouts, collectively worth nearly US $400bn, that are pending.

Taiwan's Acer to buy Gateway for US $710mn

Taiwan PC maker Acer Inc., the world's fourth-largest computer supplier, said it would acquire Gateway Inc., the fourth-largest PC company in the US, for US$710mn. Acer will pay US$1.90 a share for Irvine, California-based Gateway. The price represents a 57% premium over Gateway's closing price of US$1.21 on Aug. 24. The deal has been unanimously approved by both Boards of Directors and should create pretax synergies of at least US$150mn. Separately, Gateway announced it intends to exercise its right of first refusal to acquire all of the shares of PB Holding, the parent company of European PC vendor Packard Bell BV. Gateway is also currently in discussions with a third party over the potential sale of its US-based professional business.

Mkts seen consolidating next week

All the talk of higher interest rates slowing down the Indian economy took a backseat after the Government released the GDP data for the first quarter ended June. Apart from the minor dip in the growth rate for Mining and Manufacturing, all other engines of the Indian economy remained in healthy condition. Overall, the GDP growth in the April-June quarter was 9.3% as against 9.6% in the same quarter last year. Compared with the previous quarter's (Q4 FY07) growth rate of 9.1%, economic growth in Q1 FY08 was slightly on the higher side. The data also beat all optimistic expectations by various economists, who had been looking for a growth rate of around 9%.

At 3.8%, agriculture growth rate was better than 2.8% in the year-ago level while mining output slid, from 3.7% to 3.2%. Growth rate of the manufacturing sector declined to 11.9% in the first quarter of the current fiscal year versus 12.3% last year. Output in Electricity and Construction sectors improved, to 8.3% and 10.7%, respectively, from 5.8% and 10.5% in the first quarter last year. Other sub-segments that registered significant growth in Q1 FY08 over the previous year included Trade, Hotels, Transport & Communications (12% vs 12.4%), and finance, insurance, real estate and business services (11% vs 10.8%).

Asia's fourth-largest economy grew by 9.4% in the fiscal year ended March 2007, its fastest rate in 18 years, and the central bank expects expansion of 8.5% this fiscal year. Finance Minister P. Chidambaram said the GDP growth of 9.3% in the April-June quarter was 'satisfactory', and that the Government would ensure investment and credit flows remained strong. "Despite compulsions of a tight monetary policy, we will ensure that credit flow to the productive sectors of the economy remains strong," Chidambaram told reporters in New Delhi.

The Reserve Bank of India (RBI) expects India's economic growth to accelerate further notwithstanding the threat of inflationary pressure and external shocks like the recent sub-prime crisis in the US. Though the central bank cautioned that the turmoil in the global credit markets could cause further outflow of capital from India, it remains hopeful that the Indian economy will remain resilient to global shocks. In its 2006-07 annual report, the RBI has asked commercial banks, financial institutions and corporates to be vigilant and well-prepared with appropriate risk mitigation strategies to deal with significantly higher volatility than before.

"Steady increases in the rate of gross domestic saving and investment, consumption demand, addition of new capacity as well as more intensive and efficient utilisation/capitalisation of existing capacity are expected to provide support to growth during 2007-08," the RBI said. The central bank's GDP growth estimate for FY08 stands at 8.5%. "There is growing evidence that the economy is on the threshold of a step-up in the growth trajectory, provided the vigil on price stability, including financial stability is intensified in a convincing manner," the RBI said.

But, the turmoil caused by the subprime mortgages in the US remains one of the biggest underlying concerns for the RBI. "Further deterioration in subprime delinquencies could lead to reassessment of risk by investors across products and markets and retrenchment of capital from the emerging market economies (EMEs), given the contagion and herd mentality," the RBI said. A higher volatility could also emanate from the behaviour of private equity funds, according to the central bank. Any further monetary tightening in major economies has the potential to accentuate volatility in global markets, feels the RBI.


Bulls finally found a week to rejoice. Value buying in index heavyweights like RIL, Tata Steel, Hindalco, BHEL and L&T enabled the Sensex post its longest winning streak this year. Also, lower inflation and impressive GDP growth figures spurred the sentiment, lifting the benchmark BSE Sensex higher by 6.2% or 894 points to close the week at 15319. The NSE Nifty ended higher by 6.5% or 274 points to close at 4464.

The current rally in the market was supported by gains in Metals, Banking, IT, Auto and Oil & Gas stocks. Interestingly, the activity was also seen in the mid-cap counters. On the political front, sentiment improved after the ruling coalition agreed to set up a panel for examining the implications of the Indo-US nuclear deal, putting to rest, the concerns of Communist parties pulling away from the Centre.

Bulls had more reason to cheer with India's economy growing at 9.3% in the three months to June 30 from a year earlier. Also, inflation declined to 3.94% in the week ended August 18, from 4.1% in the previous week, as prices of some manufactured products fell. It was the first time annual inflation fell below 4% since the end of April 2006.

Firm metal prices on LME and strong demand from the domestic as well as overseas market boosted the metal stocks with Tata Steel, leading from the front. Tata Steel was the star performer over the week, advancing by 18% to Rs689 after Corus Group Plc's consolidated operations for the June quarter almost tripled. Operating profit climbed to Rs49.04bn. Revenue surged more than five-fold to Rs311.55bn. SAIL surged by over 15% to Rs168 and JSW Steel jumped by over 12% to Rs643.

Value buying emerged across the auto stocks on expectations that revenue will increase in the coming quarter after inflation fell below 4%. Expectations are that interest rates won't rise further. Hindustan Motors skyrocketed by over 29%, M&M raced ahead by 10% to Rs708, Maruti rose nearly by 10% to Rs867, Tata Motors surged nearly by 7% to Rs701 and Ashok Leyland added 8.5% to Rs38.

IT stocks staged smart recovery during the week. The rupee appears to have stabilized against the US$ around the $41 mark. Wipro surged nearly 6% to Rs482, TCS rose over 4.5% to Rs1065, Satyam gained 2.5% to Rs447 and Infosys added 1.7% to Rs1885. Financial Technologies was the star performer, advancing by over 20% to Rs2463.

Fertilizer stocks hogged the limelight during the week on expectations of sops & subsidy. Nagarjuna Fertilizer was the top gainer, rallying by over 21% to Rs40.3, Chambal Fertilizer surged by over 7% to Rs49.8 and Deepak Fertilizer rose over 4% to Rs105.

Banking stocks also gained momentum on hopes that interest rates wont be increased given the lower inflation rates. Axis Bank surged by over 11% to Rs635 as the scrip witnessed strong fund buying. Heavyweights also recorded smart gains. SBI rose over 9% to Rs1600, HDFC Bank was up by 6.7% to Rs1171 and ICICI Bank added .5% to Rs888.

Reliance Industries, India's most valuable company and world's third biggest refinery was among the leading gainers in the 30-share Sensex index. The scrip rose over 10% hitting 52-week high of Rs1970 finally closing at Rs1959.

Global cues to drive local mood

Friday's impressive and unexpected rally has left the bears wondering what struck them. The markets surged higher defying all negative cues and overcoming the volatility of F&O expiry. Could it be a one-week wonder or signs of things to come? In the absence of any major triggers, we expect some consolidation in the market before a further upmove kicks in. A lot will depend on the speech by Fed chief Ben Bernanke on housing and monetary policy. President Bush is also set to unveil a slew of steps aimed at addressing the problems facing the American housing sector. As always, global cues will again provide the much needed direction to the bulls. Action is likely to be stock specific with mid-cap stocks appearing to have got back into action. However, one needs to adopt a cautious approach. Stocks like IFCI and Escorts are expected to witness action in the coming week. Ranbaxy is another counter which can be considered for the medium to long term.

Tackling a rising home loan EMI with ease

The usually smiling Ravi Raman wasn't his usual self a few days ago. He was seen walking restlessly across his office. The IT company for which he was working informed him that his salary would be credited a little late into his account.

Mr Raman was worried since it meant his home loan cheque could probably bounce. In the past few years, the Ramans have been facing the arduous task of trying to eke out a living, thanks to rising EMIs (Equated monthly Installments).

This wasn't the case two years ago when he took the loan. Coping with higher EMIs for many is something but a bitter truth that one has to live with. ET takes you through smart measures to befriend higher EMIs.

Managing rising EMIs
There are two ways to cope with increasing home loan EMIs. One way could be to lower your consumption needs. Then you could cough up some funds to prepay the home loan. Explains certified financial planner and wealth advisor Gaurav Mashruwala,

"You have two variants in the expenses category, mandatory and voluntary. You have to spend on food but you can cut down on eating in restaurants and entertainment. The idea is to cut down on your lifestyle. Start buying a Cambridge shirt instead of a Tommy Hilfiger. There is always scope to tone down your lifestyle and expenses to accommodate the increase in EMIs. Another way to partly prepay your loan could be to liquidate your low-yielding assets.

All you need to evaluate is how much net return does your investment fetch you. If it's lower than the interest outgo on your home loan, it makes financial sense for you to liquidate that investment to repay a part of your housing loan.

"You can look to break your bank fixed deposits or liquidate some debt-based products. Touch your equity investments only if you are in dire need," advises Mr Mashruwala. Typically, equity earns more than 16% annually (more than home loan rates of 12% pa) and historically, has been the best performing asset.

You need not liquidate all your investments. You can liquidate around 30-50% of your low-yielding investments, which will also take care that you have a balanced portfolio of investments. However, you have to evaluate this option very carefully. You cannot liquidate those investments which have the ability to beat inflation in the long run.

Higher EMI or tenure?
Whenever a bank/HFC hikes lending rate, you either see a rise in your EMI or an extension in the tenure. Industry experts recommend increasing the EMI than tweaking the tenure of the loan. Approximately, when a bank/HFC hikes the lending rate by 0.5%, the tenure of your loan is increased by almost 25 months. If you take a housing loan at the age of 30, you would have planned to repay by the time you complete 50 years of age. The idea would have been to spend a debt-free retired life.

Now, if you postpone the termination of loan at 52 years of age, that would impact your personal finances even more, especially if you retire, says Akhilesh Tilotia, financial advisor and director of PARK Financial Advisors. Secondly, a series of rate hikes could further postpone the closure of your home loan. So it's better to take the EMI hit right now than postpone the impact of rate hike. The idea is you are able to realise the hike in interest rates upfront.

Even the compounding effect has huge impact on long-tenure loans. For example, if you take a Rs 30-lakh loan for a period of 15 years at 12%, then your EMI works to a tad above Rs 36,000. Essentially, you will be paying close to Rs 65 lakhs on your house, including your interest outgo. The longer you extend the tenure of the loan, this number will increase. In other words, your interest outgo is another party's income. Why do you want to earn for a third party? Settle the loan repayment at the committed tenure.

Facts you must know

Watch your EMI
Banks say they can lend up to 48 times your monthly salary. But you should see how much can you afford by looking at the EMI as percentage of your salary. EMIs should not increase beyond 35-40% of you take home salary for a housing loan. Any other loan EMI should not go beyond 25%. Banks may recommend an EMI up to 60% of your disposable income. But you have to provide for contingencies such as a job slow down, change of job or mere liquidity needs, Mr Tilotia adds.

Don't read too much into penalty
It's not wise to save on the 2% prepayment penalty on your housing loan. You are actually spending 12-14% on the same loan as interest cost. Even if you take into account the tax benefit, you cannot discount the forthcoming rate hikes in the years to come. Always get out of your debt as soon as possible.

Your first house is a consumption asset
You will never sell that for money. If you look at your salary as a pie, your ideal break should be 30% EMIs, 30% to the government in terms of taxes, 20% for consumption needs and the balance 20% should be savings.

Govt-Left smoke peace pipe for now

For the moment, it seems that the storm over the Indo-US nuclear deal has receded. In a last ditch attempt to save the fragile coalition in New Delhi, the Government and the Left parties agreed to set up a committee to address some of the apprehensions of the Left parties over the civilian nuclear cooperation between India and the US. As part of the truce, the Government will hold no negotiations with IAEA - the first of the three steps crucial for operationalising the deal - till the panel comes out with its findings. The committee will have 14 members - eight from UPA and six from the Left - with the likelihood of External Affairs Minister Pranab Mukherjee as its convenor. The temporary settlement will enable the Left Front to back off, for some time, from their brinkmanship that had put the Government's survival in danger

RBI expresses caution on holding company

The Reserve Bank of India (RBI) has raised some uncomfortable questions about the proposed intermediate holding companies proposed by ICICI Bank and SBI. The RBI has made a strong case against intermediate holding companies. "It will be desirable to avoid intermediate holding company structures (a structure in which a bank owns a holding company for various non-bank businesses)," the banking sector regulator said in a discussion paper on holding companies in banking groups. Any clearance for foreign investment in such a holding company by other regulators could be subject to a legal review, the RBI said. The creation of an intermediary financial holding company may lead to a problem of regulation, it added. The announcement from the RBI comes notwithstanding the clearance granted by the Finance Ministry to ICICI Bank's proposal for setting up a holding company for its insurance and mutual fund business. SBI has also proposed a similar holding company for its insurance and mutual fund businesses.

TRAI in favour of more players per circle

In a bid to shore up competition and encourage mergers and acquisitions in the telecom sector, the Telecom Regulatory Authority of India (TRAI) suggested that the limit on the number of operators in a particular circle should go. It also recommended relaxation of stringent M&A norms, technology neutrality for telecom licences, besides suggesting that both GSM and CDMA players should pay an entry fee and higher spectrum fee additional 2G radio frequency allocation. The telecom regulator suggested a one-time fee from operators for allocation of spectrum beyond 10 MHz. At present, a company pays 1% of its revenue to the Government for additional spectrum, being allocated based on subscribers. On M&As, TRAI said the combined market share of the merged entities should not exceed 40%, either in terms of subscribers or revenue against 67% now. It proposed that an operator should be allowed to acquire up to 20% equity in the target licensee company in the same circle against the present cap of 10%.

SEZs...Govt allows purchase of 30% land

The Group of Ministers (GoM) set up to frame a rehabilitation and resettlement policy for those affected by industrial projects, including SEZs, suggested that state governments be given a discretion to acquire up to 30% of the land required for such projects provided the developer has acquired the balance land. The GoM recommendation would now go to the Cabinet for its approval. "The decision is not specific to SEZs but would apply to all industrial projects," Science & Technology Minister Kapil Sibal said after the GoM meeting. Separately, the Government cleared 20 new SEZs, including two IT and IT enabled service based SEZs of Tata Consultancy Services (TCS) and Cognizant Technology. It also gave in-principle approval to seven SEZs. In April, the Empowered Group of Ministers on SEZs headed by External Affairs Minister Pranab Mukherjee had imposed a ban on compulsory acquisition of land, while fixing an upper limit of 5,000 hectares for multi-product zones.

Bajaj family feud continues

Warring Bajaj brothers - Rahul and Shishir failed to reach a settlement on the division of the group within the time allotted by the Company Law Board (CLB). The two brothers sought some more time from the principal bench of the CLB. Counsels representing Rahul and Shishir told the bench they would carry on negotiations to settle the matter. CLB Chairman S. Balasubramanian adjourned the matter to the third week of October. The Shishir-Rahul feud erupted in March 2003, with the former approaching the CLB alleging there was a move by the Rahul camp to oust him from the chairmanship of Bajaj Sevashram, a key holding company of the Bajaj group. The battle intensified this year when the Shishir camp moved the CLB for a stay on the induction of Rahul Bajaj's son Sanjiv and cousin Neeraj in the boards of Bajaj Sevashram and Jamnalal Sons. Admitting the application by the Shishir faction, the principal bench of the CLB stayed all board meetings of the two holding companies Bajaj Sevashram and Jamnalal Sons.

Firstsource acquires MedAssist

Firstsource Solutions acquired MedAssist Holding, a leading provider of revenue cycle management in the healthcare industry in the US, for US$330mn. There would be no change in the management of MedAssist and all 1,400 employees would continue in their current jobs. MedAssist provides Eligibility Services, Receivables Management Services and Post-default Collections services for healthcare providers. The company has over 1,000 clients, including hospitals, large physician groups and alternate site providers. MedAssist's revenue for year ended December 31, 2006 was US$99mn. Firstsource's US subsidiary will raise US$275mn through debt for the deal while the balance will be funded through internal accruals, Managing Director and CEO, Ananda Mukerji said.

Puravankara Projects falls below issue price

Shares of Bangalore-based real estate major Puravankara Projects slipped below the issue price amid uncertainty about the growth prospects of the housing industry. The stock listed on the Bombay Stock Exchange (BSE) at Rs399, on Aug. 30, as against the issue price of Rs400. Soon it hit a low of Rs357 before ending the maiden trading day at Rs361. It gained about 3.9% on the next day to close the week at Rs375. Puravankara raised Rs8.6bn from its 21.5-million-share public offer, to part-fund land acquisition and to repay debt. The company had entered capital market with an IPO of 21,467,610 shares of Rs5 each in a price band of Rs400-450. The issue was subscribed 1.91 times despite the company cutting the price band, from 450-500 and extending the duration of the IPO.

Power Grid Corp IPO opens on Sept. 10

ndia's principal power transmission company and Mini-Ratna Category- I public sector undertaking, Power Grid Corporation of India Limited ("the Company") is entering the capital markets with an Initial Public Offering (IPO) of 573,932,895 equity shares of Rs 10 each ("Equity Shares") for cash (the "Issue") at a price to be decided through a 100% book building process. The issue comprises a fresh issue of up to 382,621,930 equity shares by the Company and an Offer for sale of up to 191,310,965 equity shares by The President Of India acting through The Ministry Of Power, Government of India. The issue comprises a net issue to the public of up to 559,954,895 equity shares and a reservation of up to 13,978,000 equity shares for subscription by employees of the Company. The Issue shall constitute approximately 13.64% of the fully diluted post- issue capital of the Company. After the Issue, the Government of India, through the Ministry of Power will continue to hold 86.36% of the diluted post-Issue paid-up equity capital of the Company.

Nicholas Piramal to spin off R&D unit

Nicholas Piramal India Ltd. announced that its Board had approved the proposal to de-merge its New Chemical Entity (NCE) Research Unit into a separate company. The NCE pipeline has expanded from 5 compounds in 2002 to 13 compounds in 2007. Out of this, 4 are in clinical trials. Nicholas Piramal expects to have 8 compounds in clinical trials by end of the current financial year. It wishes to complete development upto proof-of-concept (end of Phase II) for all its compounds and bring to market certain niche ones on its own. Nicholas Piramal will hold equity capital of Rs45.5mn in the new NCE Research Unit. This move will facilitate induction of strategic or financial investors in future who may wish to invest directly in the NCE research program. The new company will issue fully paid up equity shares aggregating to Rs209mn to the shareholders of Nicholas Piramal in the ratio of 1:10. Post de-merger, Nicholas Piramal will hold 18% equity capital of the new company and the remaining 82% will be held by the shareholders of Nicholas Piramal. The new company will be listed on the BSE and NSE in the future.

Parsvnath Developers to foray into telecom

Real estate major Parsvnath Developers plans to launch mobile services in the country. The company has expressed the intention to apply for licences in 22 out of 23 telecom circles in the country. It has identified two partners - one domestic investor and other a well known global telecom giant. Though the company has not yet declared any funding structure, it is likely to hold a minority stake of 26% in the proposed joint venture while the foreign players will hold around 51 per cent and the balance will be with the financial investors. "Despite increasing number of subscribers, the penetration of mobile telephony in India is still very low," Chairman Pradeep Jain told reporters in New Delhi. Parsvnath will set up a special purpose vehicle, a company that's being created for the proposed diversification

Bush bailout for subprime mess
After the central banks, it's now the turn of the US Government to come to the rescue of the crumbling housing sector. President George W. Bush, in his first response to the subprime mortgage crisis, plans to announce several steps aimed at helping Americans with credit difficulties to meet the rising cost of their housing loans, administration officials said. According to published reports, Bush will let the Federal Housing Administration (FHA), which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favorable rates. FHA mortgage insurance program will be changed to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages. The change would affect borrowers who are at least 90 days behind in payments and let them stay in their homes. Stocks in Europe and Asia rose, led by mining companies and exporters, before Bush's announcement. The yen fell against all of the world's 16 most-active currencies.

US economy picks up pace in Q2

The US economy grew at a much faster pace in the second quarter than previously estimated, but tepid consumer spending, slowing housing activity and credit-market turmoil suggested that growth will slow significantly into next year. America's Gross Domestic Product (GDP) expanded at a 4% annual rate in the second quarter, the Commerce Department said. That was up from a previous estimate of 3.4%, largely because exports and business investment during the period were stronger than previously thought. The GDP revised number was in line with Wall Street forecasts and far outstripped the first quarter's anemic 0.6% rate of expansion.

US consumer confidence dives

Consumer confidence in the US fell more sharply in August than in any month since the aftermath of Hurricane Katrina two years ago, according to the Conference Board. The GfK index of German consumer confidence also dropped, for the first time in six months. House prices in America fell by 3.2% in the year to the second quarter, according to the S&P/Case-Shiller national home-price index. It was the largest decrease in the period covered by the index, which runs back to 1987. On a month-by-month basis, in June metropolitan areas in California and the south-west continued to see some of the steepest declines in property prices. The housing market in the Pacific north-west, however, remained buoyant.

Home Depot sells unit at steep discount

Home Depot Inc. said it had closed the sale of HD Supply to three private-equity firms for about US$8.5bn, nearly US$2bn below the original offer for the unit. In June, Home Depot announced that it had agreed to sell its supply business to Bain Capital, Carlyle Group and Clayton Dubilier & Rice for US$10.3bn. Under the revised terms announced earlier this week, Atlanta-based Home Depot will pay US$325mn for a 12.5% equity interest in HD Supply and guarantee a US$1bn senior secured loan of HD Supply. The sale was one of the first big buyouts to be renegotiated because of the recent tightening of credit and problems in the housing market. Because the deal relies heavily on debt, investors and bankers have been watching closely for signs of how new stringent standards on credit could affect other large buyouts, collectively worth nearly US $400bn, that are pending.

Taiwan's Acer to buy Gateway for US $710mn

Taiwan PC maker Acer Inc., the world's fourth-largest computer supplier, said it would acquire Gateway Inc., the fourth-largest PC company in the US, for US$710mn. Acer will pay US$1.90 a share for Irvine, California-based Gateway. The price represents a 57% premium over Gateway's closing price of US$1.21 on Aug. 24. The deal has been unanimously approved by both Boards of Directors and should create pretax synergies of at least US$150mn. Separately, Gateway announced it intends to exercise its right of first refusal to acquire all of the shares of PB Holding, the parent company of European PC vendor Packard Bell BV. Gateway is also currently in discussions with a third party over the potential sale of its US-based professional business.