US Markets up on stimulus package

As economic reports disappoint, stimulus package from Bush administration cheer investors

US Market managed to end higher for the second consecutive day today, Thursday, 24 January, 2008. Reports that a bond insurer bailout is not imminent weighed on the stock market shortly in the morning hours. But a stimulus package from the Bush administration to ward off recession in US cheered investors and stocks rallied in the post lunch hours.

The Dow Jones industrial Average ended the day with a gain of 108 points at 12,378. The Nasdaq Composite Index, finished higher by 45 points at 2,360. S&P 500 finished higher by 13 points at 1,352. Twenty-one out of thirty Dow stocks ended in the green today.

As per the stimulus package from the current administration, House leaders Nancy Pelosi and Treasury Secretary Paulson announced their bipartisan $150 billion fiscal stimulus plan. As per the plan, individuals who earn up to $75,000 will be eligible for a $600 check and couples who earn up to $150,000 will be eligible for $1,200. Individuals who do not pay income tax, but have earned more than $3,000 will be eligible for a $300 check. Parents will get $300 per child. Businesses will get $50 billion in incentives.

Though, the stimulus plan still has to pass the House and Senate, investor sentiments got a good boost as the morning economic reports did not have much of a good news to deliver.

December existing home sales lower than expected

On the economic front, December existing home sales came in at a worse than expected. December existing home sales was reported at 4.89 million. This was short of the consensus estimate of 4.95 million. Existing sales are down 2.2% compared to last month's reading of 5 million. The median sale price of an existing home is down 6% against last year.

Also, weekly jobless claims came in at 301,000, lower than the expected reading of 320,000. The good part was that the figure is less than the typical recessionary levels of over 450,000

Earlier this week, it was announced that the Federal Open Market Committee (FOMC) approved a 75 basis point intermeeting cut in the fed funds rate to 3.50%. The Board of Governors also approved a 75 basis point cut in the discount rate to 4%. This was Fed's first move this year to keep recession at a bay.

Crude prices erased all of yesterday's gains and prices rallied today. Prices rose today after the Bush Administration announced a stimulus package to ward off recession. Prices rose despite Energy Department announcing a rise in crude inventories for week ended 18 January, 2008. Crude-oil futures for light sweet crude for February delivery today closed at $89.41/barrel (higher by $2.42/barrel or 2.8%) on the New York Mercantile Exchange. Prices are 61% higher than a year ago.

As per the weekly inventory report by the Energy Department, U.S. crude inventories, rose for a second week, increased to 289.4 million barrels in the week ended 18 January. Crude inventories at Cushing, Oklahoma, the delivery point for Nymex-traded crude, fell by 800,000 barrels to stand at 15.7 million barrels. Total commercial petroleum inventories, including crude, motor gasoline, heating oil, increased by 2.2 million to 972.3 million barrels last week, and were in the middle of the average range for this time of year.

Volume on the New York Stock Exchange neared 2.2 billion, and advancing stocks topped those declining almost 2 to 1. On the Nasdaq, more than 2.5 billion shares traded, and advancing issues outran decliners 4 to 3.

Indian ADRs mostly ended in the red today. ICIC Bank was one of the main losers today shedding 3.8%. Dr Reddys remained one of the winners gaining 3%.

Investors will again be focused on earnings reports tomorrow. Caterpillar and Honeywell are the main Dow names to report their earnings tomorrow.

Strike well with banks!

The reason lightning usually doesn't strike twice in the same place is that the same place isn't there the second time.

The stock market is here to stay no matter what strikes it. As if all the turbulence and volatility was not enough, investors and traders could have tough time today due to the nationwide bank strike. Ironically, if you wish to take some position (only if you have the money), banking is the sector to be in. The RBI meet next week (Jan. 29) will ensure that there is plenty of action in these counters. The flip side is F&O expiry could cause wild swings no matter which counter you enter.

Stock exchanges have had to alter their settlement schedules because of the bank strike. No clearing and settlement will take place today with banks across the country downing their shutters on a slew of issues. All trades executed on Jan. 24 and Jan. 25 will be settled on Jan. 28. In a nutshell, money could again be in short supply and may pose some more strain despite the bounce back across global markets.

And, though trading will continue as usual, one fears that traded volume will take a hit owing to the weak undertone and the bank strike. In addition, there are reports of brokers still not having recovered from this week's big sell-off. A couple of brokers are reportedly in trouble. The system is still not fully fit to resume a full fledged rebound as aftershocks of the global meltdown will continue to haunt the bulls. Meanwhile, the NSE has clarified that it has not allowed brokers to fund their pay in commitments in the form of shares with certain conditions.

Intra-day traders may continue to find life difficult for a while till the overall sentiment improves considerably and there is complete stability. This may take time. How long is anybody's guess. For long-term investors though, this is a big opportunity to prepare for a long haul, as the outlook on the Indian economy remains pretty good. We expect a firm opening on the back of strong global cues. Having said that, things will continue to be uncertain and choppy. One will have to continue to keep an eye on global markets for near-term direction of the market.

One big worry is the relentless selling by the FIIs. Unless there is a favourable change on this front, things will remain uncertain and volatile. FIIs were net sellers of 22.55bn (provisional) in the cash segment yesterday. On the other hand, domestic funds continued to pump money, and were net buyers of Rs11.17bn. In the F&O segment, FIIs were Rs25.42bn buyers. On Wednesday, foreign funds were net sellers of Rs24.99bn. With this, they have pulled out well over US$3.2bn in the past six days (excluding yesterday). Mutual Funds were net buyers of Rs8.77bn on Wednesday.

Results Today: Andhra Cement, Ashok Leyland, Atlanta, Barak Valley, BEML, BEL, BHEL, Century Textiles, Dalmia Cement, Dish TV, Dishman Pharma, Dr. Reddy's, Emkay Share, Federal Bank, Force Motors, Goa Carbon, Gujarat Industries & Power, ICRA, ING Vysya Bank, Jyoti Structures, Kale Consultants, KEI Industries, Marg Construction, Matrix Labs, Novartis, PTC India, REI Agro, Rico Auto, TVS Motor, UCO Bank, Unity Infraprojects, Voltas and Zee News.

Asian markets were trading mostly higher this morning. The Nikkei in Tokyo gained 367 points to 13,459 while the Hang Seng in Hong Kong surged 1049 points to 24,558. The Kospi in Seoul advanced 16 points to 1679 while the Straits Times in Singapore rose 66 points to 3119.

The Shanghai Composite in China was flat at 4715 and the Taiex in Taiwan was up 196 points to 7713.

US stocks ended higher on Thursday as investors continued bottom fishing after the recent drubbing. Announcement of a tentative economic stimulus package by the White House lifted the sagging spirits of the bulls.

Xerox Corp. and Lockheed Martin reported profit that topped analysts' estimates. Freeport-McMoRan Copper & Gold, Exxon Mobil and Alcoa led gains in commodities producers after China's economy posted a fourth- straight quarter of growth above 11%.

The S&P 500 climbed 13 points, or 1%, to 1,352.07, paring its decline this year to 7.9%. The Dow Jones Industrial Average, which yesterday fell 326 points before ending the day 299 points higher, added 108 points, or 0.9%, to 12,378.61. The blue chip gauge is still down 6.7% in 2008. The Nasdaq rose 44 points, or 1.9%, to 2,360.92, still off 11% in 2008.

Market breadth was positive. On the NYSE, winners topped losers three to two on volume of 2.17bn shares. On the Nasdaq, advancers beat decliners by more than four to three on volume of nearly 3bn shares.

Treasury prices fell, raising the yield on the 10-year note to 3.71% from 3.6% late on Wednesday. In currency trading, the dollar fell versus the euro and rose against the yen.

US light crude oil for March delivery rose $2.42 to settle at $89.41 a barrel in New York after the government reported a stronger-than-expected rise in crude supplies last week. COMEX gold rallied $22.70 to settle at $905.80 an ounce.

After the close, Microsoft, Sun Microsystems and Amgen reported their quarterly results. Microsoft reported higher quarterly sales and earnings that topped estimates, sending shares 5% higher in extended-hours trading.

Sun also reported higher quarterly profit that beat estimates. Shares were little changed after the close. Amgen reported higher earnings and weaker sales in the fourth quarter, both above analysts' expectations. Shares gained 5% in extended-hours trading.

Nokia reported a 44% jump in net profit and said it had reached its goal of 40% market share in handset sales. The company also said that while it expects continued growth in 2008, first-quarter growth would slow from the last quarter of 2007. Shares jumped 12.5%.

On late Wednesday, Qualcomm reported strong fiscal first-quarter results and forecast second-quarter and full-year profit in line with forecasts. Shares jumped over 10% in active Nasdaq trade.

European shares posted their biggest one-day advance in nearly five years, as investors seized upon strong results from Nokia and others to pick up battered shares. The pan-European Dow Jones Stoxx 600 index climbed 5.2%, or 16.05 points, to 322.08, the most it has risen in one day in percentage terms since a 5.6% rise logged in March 2003.

UK's FTSE 100 closed up 4.8% at 5,875.80, while the German DAX 30 surged 5.9% to 6,821.07 and the French CAC-40 jumped 6% to 4,915.29.

All the emerging markets closed up. The Bovespa in Brazil shot up almost 6% to 57,463 while the IPC index in Mexico added 1% to 27,905. The RTS index in Russia gained 5.15% to 1988 while the ISE National-30 index in Turkey rose 6.3% to 57,053.

Bull bear slugfest continue

Bears once again showed their strength today shrugging off bulls off the bourses. After staging a strong come back in the previous session and starting off the day in style bulls were not able to hold on to their gains as markets wiped off all its early gains on back of weak cues from the Asian markets and all round profit booking.

The upward trend short lived and markets turned volatile gyrating almost 1,000 points between its days high and low, The benchmark Sensex dropped 372 points to close at 17,211 and NSE Nifty slipped 169 points to close at 5,034.

Reliance Industries was down 2.5% to Rs2488. According to reports the company is eyeing a larger pie of $25bn global plastic industry may rollout expansion plans soon. Reports have also stated that its retail subsidiary entered into a joint venture with Citigroup to offer retail finance The scrip touched an intra-day high of Rs2645 and a low of Rs2435 and recorded volumes of over 48,00,000 shares on NSE.

Hindustan Zinc slipped 12.2% to Rs568 after the company announced that they lower zinc prices to Rs1,01,900 per ton and cut lead prices to Rs1,12,500 per ton. The scrip touched an intra-day high of Rs650 and a low of Rs550 and recorded volumes of over 1,00,000 shares on NSE.

HB Stockholdings was locked at 5% lower circuit. The company announced that it increased its stake in DCM Shriram Industries Ltd to 35,23,143 equity shares comprising 23.03% of it total equity through open market purchases. The scrip touched an intra-day high of Rs94 and a low of Rs88.70 and recorded volumes of over 13,000 shares on NSE.

BHEL was down 2.5% to Rs2090. The company declared that they secured order worth Rs24.75bn. The company announced that it would set up 600MW Thermal power unit. The scrip touched an intra-day high of Rs2260 and a low of Rs2075 and recorded volumes of over 11,00,000 shares on NSE.

Madras Cement gained 2% to Rs3707. The company announced that they would consider buy back offer on Jan 31. The scrip touched an intra-day high of Rs4200 and a low of Rs3585 and recorded volumes of over 6,000 shares on NSE.

Essar Shipping was locked at 5% lower circuit to Rs189.45. Reports stated that the company may merge Essar Group's exploration and drilling business. The scrip touched an intra-day high of Rs209.35 and a low of Rs189.45 and recorded volumes of over 28,00,000 shares on NSE.

Jet Airways slipped 2.6% to Rs719. The company announced that they planned to set up two new subsidiaries maintenance, repair and overhaul and flight-catering unit. The company is also looking for other funding sources according to reports. The scrip touched an intra-day high of Rs796 and a low of Rs705 and recorded volumes of over 43,000 shares on NSE.

Tata Tea advanced by over 7.5% to Rs728 following reports that the company opened it first out-of-home segment first outlet 'Chai Unchai' in Bangalore. The scrip touched an intra-day high of Rs744 and a low of Rs685 and recorded volumes of over 3,00,000 shares on NSE.

HCL Technologies dropped 4.2% to Rs230. The company announced that it has been selected as the provider of a mobile and remote working solution to Wiltshire Police. Valued at 4mn USD, the partnership will last for five and a half years, including an initial six month implementation period. The scrip touched an intra-day high of Rs252 and a low of Rs225 and recorded volumes of over 11,00,000 shares on NSE.

SBI gained 1% to Rs2343. The company announced that they have purchased 91% stake in Global Trade Finance, for Rs5.25bn. SBI acquired the stake from three of the four promoter shareholders of GTF at a price of Rs75 per share, according to reports. The scrip touched an intra-day high of Rs2399 and a low of Rs2300 and recorded volumes of over 13,00,000 shares on NSE.

News Snippets:

- Land troubles may delay Sasan ultra mega power project developed by Reliance Power. (Mint)
- Reliance Industries and Gail in race for supplying 8mscmd of gas to Karnataka Power Corp's 1,400MW power project at Bidadi. (Mint)
- NK Minda Group plans to invest Rs4bn for units in Chennai and Pune over next 18 months. (Mint)
- Britannia Industries plans to enter ready-to-eat foods and strengthen presence abroad. (Mint)
- Aditya Birla Retail looking for an IPO in 3-5 years. (Mint)
- M&M launches Scorpio Pik-up in Brazil. (Mint)
- Tata Motors' mini truck to be launched in USA. (BS)
- Areva T&D bags Rs28bn order from Qatar General Electricity and Water Corporation. (BS)
- BHEL gets award of Rs25bn contract from Tamil Nadu Electricity Board. (BS)
- Pyramid Saimira plans Rs2bn investment on proposed SEZ. (BS)
- PBA Infrastructure secures Rs1.5bn order from Municipal Corporations of Greater Mumbai and Pimpri Chinchwad. (BS)
- Electrotherm India won orders worth US$14mn for furnaces and other accessories supply for a steel billet plant in Turkey. (BS)
- Patni Computers to consider a share buyback. (BS)
- Ansal Properties enters into tripartite agreement with subsidiary of Educomp Solutions to construct and develop school properties. (BS)
- Blue Dart appoints Yogesh Dhingra as COO. (BS)
- RCom plans to offer broadband in Bhutan. (BS)
- Adani Enterprises planning to add capacities in energy, real estate and agri businesses in next 3-5 years. (BS)
- JSW Steel gets into galvalume production. (BL)
- BSNL ties up with US firm SOMA for Wimax. (BL)
- TCS wins US$40mn New India Assurance deal. (BL)
- Sony Ericsson launches new handsets in Indian market. (BL)
- United Spirits plans acquisition to increase volumes by 33% to 100mn cases in 2-3 years. (BL)
- Reliance Retail in talks with global players for new store formats. (BL)
- PNB may take its wholly owned subsidiary PNB Housing Finance for a public offer in coming months. (BL)
- ING Vysya Life Insurance looks to raise Rs1bn more capital by March 2008. (BL)
- ICICI Bank ties up with UAE Xchange to promote its travel card. (BL)
- IOC may get Rs39.8bn subsidy from upstream companies. (BL)
- Gayatri Projects eyes projects in water, infrastructure and power. (BL)
- Sical Logistics close to buying freight forwarding company. (BL)
- Cadila Healthcare and US based Prolong Pharmaceuticals tie-up to develop anaemia drug. (BL)
- Spanco Telesystems plans SBU to market product that enables real time monitoring of vehicles. (BL)
- Rolta India agrees to buy Broech of US for Rs1.8bn. (BL)
- The proposed IPO of National Hydroelectricity Power Corporation (NHPC) to face hurdle on non compliance of regulatory clause. (FE)
- Infosys to develop information, communication technology to connect farmers with retailers. (FE)
- JSW Steel recommissions one of its galvanizing line. (FE)
- Monsanto India to sell Butachlor & Alachlor biz to Sinochem International for $8.4mn. (FE)
- RNRL applies for coal blocks to turn coal into gas. (FE)
- NDTV Imagine plans to make contemporary international cinema available to viewers through various platform. (FE)
- M&M in negotiations to take over the Belgian automotive gear maker VCST for ~Rs14bn including pound 125mn in debt. (ET)
- Aditya Birla Retail looking to foray in Consumer Durable, Footwear, fashion, books or music. (ET)
- Capgemini denies that Indian IT companies like Wipro may possibly be acquiring parts of the company. (ET)
- Concor looking for a major chunk of the air cargo biz in the country. (ET)
- Concor plans to build two air cargo complexes in Goa and the North east. (ET)
- ICICI Venture plans US$3bn infra fund to invest in road, port and Power projects. (ET)
- Areva T&D India looking to double its transformer capacity in India by 2010. (ET)
- SBI plans to buy 91% stake in GTF Global Trade Finance. (ET)
- Dr Reddy's Lab, Sun Pharma lead US patent litigation race. (FE)

Economic Snippets

- EPF rate for 2007-08 kept unchanged at 8.5%. (Mint)
- Railways to invest Rs200bn in three years over 100 projects. (BL)
- Telecom industry seeks duty cut on wireless data cards. (BL)
- Finance Minister to take appropriate measures to curb certain kinds of capital inflow that are speculative in nature. (FE)
- Department of revenue and economic affairs agrees to waive STT on option where the right to buy or sell is not exercised. (FE)
- Civil aviation ministry in pact with Saudi Arabia government to enhance air traffic between two countries. (FE)
- TRAI orders telecom service providers to provide hard copy of the bill free. (FE)
- Existing DTH players decide to levy a carriage fee to limit the introduction of new channels. (FE)
- TDSAT defers the hearing of GSM operators' petition against dual technology. (FE)
- Asian Development Bank (ADB) to provide a loan of $350mn to improve Urban Infrastructure in India's Northern state of Uttarkhand. (FE)
- Applications from NBFC seeking no objection certificate (NOC) for branch expansion have to be registered with RBI on a case to case basis. (FE)
- The united forum of Banks unions have called a strike on January 25, 2008 to highlight their charter of demands. (ET)

Gold crosses 900 dollar mark again

 Gold crosses the 900 mark once again as ECB hints at steady interest rate

Precious metal prices soared today as US stock market made a recovery since the past two days and the dollar slipped against the euro. Rising concerns about growth in the US economy had pressured bullion metals since the past couple of days. Silver prices also gained today.

Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.

Comex Gold for February delivery rose $22.7 (2.6%) to close at $905.8 an ounce on the New York Mercantile Exchange. Earlier in the day, it hit an intraday price of $8911 an ounce. Prior to today, gold prices had reached a record $916.10 on 15 January. This year, prices have gained 8.5% till date. Last week, gold suffered a loss of 1.8%.

Comex Silver futures for March delivery rose 36.3 cents (2.3%) to $16.333 an ounce. Silver has gained 10% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.

In the currency markets today, the dollar was down against most major counterparts, pressured by weaker-than-expected existing-home sales data. The dollar was mainly down against the euro. The dollar index, which tracks the performance of the greenback against six other major currencies, dropped 0.9% at 75.685. On the other hand, European Central Bank officials signaled interest rates would remain steady to cap inflation.

In the energy market today, crude oil rose by more than $2 after the Bush Administration came out with a stimulus package to ward off recession.

Earlier this week, Federal Reserve slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Federal Reserve's decision came as a surprise to everyone but Fed took the same as stocks markets worldwide, had been plunging on fear that US economy would be hitting a recession soon.

Gold had climbed 31% in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. The Fed reduced federal funds rate three times in FY 2007.

At the MCX, gold prices for February delivery closed higher by Rs 224 (1.9%) at Rs 11,484 per 10 grams. Prices rose to a high of Rs 11,517 per 10 grams and fell to a low of Rs 11,275 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 330 (1.6%) higher at Rs 21,017/Kg. Prices opened at Rs 20,775/kg and rose to a high of Rs 21,210/Kg during the day's trading.

Crude oil firms up

 Prices end more than $2 higher as Bush Administration announces stimulus package

Crude prices erased all of yesterday's gains and prices rallied today, Thursday, 24 December, 2008. Prices rose today after the Bush Administration announced a stimulus package to ward off recession. Prices rose despite Energy Department announcing a rise in crude inventories for week ended 18 January, 2008.

Crude-oil futures for light sweet crude for February delivery today closed at $89.41/barrel (higher by $2.42/barrel or 2.8%) on the New York Mercantile Exchange. Prices are 61% higher than a year ago.

As per the weekly inventory report by the Energy Department, U.S. crude inventories, rose for a second week, increased to 289.4 million barrels in the week ended 18 January. Crude inventories at Cushing, Oklahoma, the delivery point for Nymex-traded crude, fell by 800,000 barrels to stand at 15.7 million barrels. Total commercial petroleum inventories, including crude, motor gasoline, heating oil, increased by 2.2 million to 972.3 million barrels last week, and were in the middle of the average range for this time of year.

EIA also reported that U.S. gasoline supplies rose by 5 million barrels in the latest week, but distillate stocks fell by 1.3 million barrels. U.S. refineries operated at 86.5% of their operable capacity last week, down from the previous week's 87.1%.

Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude's biggest yearly gain in five years.

Natural gas caps six days of slipping streak

Last Tuesday, Federal Reserve slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Federal Reserve's decision came as a surprise to everyone but Fed took the same as stocks markets worldwide, had been plunging on fear that US economy would be hitting a recession soon. On that day, futures touched $85.42 after the Fed announcement during intraday trading.

Brent crude oil for March settlement today rose $2.45 (2.8%) to $89.07 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.

Natural gas advanced today on speculation the U.S. will avoid a recession and fuel demand will increase. Gas for February delivery rose 18.1 cents (2.4%) to settle at $7.802 per million British thermal units. EIA reported today that U.S. natural-gas supplies declined by 155 billion cubic feet to stand at 2.536 trillion cubic feet in the week ended 18 January.

Against this backdrop, February heating oil gained 5.32 cents to $2.4763 a gallon and February reformulated gasoline rose 3.2 cents to $2.2828 a gallon.

Members of the OPEC left production targets unchanged at the 5 December meeting in Abu Dhabi. The group, which produces 40% of the world's oil, will review output at a 1 February, 2008 meeting in Vienna.

At the MCX, crude oil for February delivery closed at Rs 3,491/barrel, higher by Rs 42 (1.2%) against previous day's close. Natural gas for January delivery closed at Rs 308.1/mmtbu, higher by Rs 7.9/mmtbu (2.6%).

Nifty January 2008 futures at discount

Turnover in F&O segment rises

Nifty January 2008 futures were at 5001, at discount of 32.45 points as compared to spot closing of 5033.45.

The NSE's futures & options (F&O) segment turnover was Rs 39,442 crore, which was higher than Rs 36,073.86 crore on Wednesday, 23 January 2008.

Reliance Industries January 2008 futures were at discount, at 2486, compared to the spot closing of 2488.90.

In the cash market, the S&P CNX Nifty lost 169.95 points or 3.27% at 5033.45.

IPCA Labs, Lupin, Sanghvi Movers, Marico, PNB

Ipca Laboratories
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs875
Current market price: Rs638

Results in line with expectations

Result highlights

• Ipca Laboratories (Ipca) reported a 21.2% year-on-year (y-o-y) increase in its net sales to Rs281.8 crore in Q3FY2008. The sales growth was in line with our expectations and was driven by a 32% rise in the domestic business and a 14% growth in the exports.
• After a subdued performance in Q2FY2008 (on account of lower sales of anti-malarials), Ipca's domestic formulation business resumed its strong momentum. The domestic formulation sales grew by an impressive 32.1% in Q3FY2008, clearly outpacing the industry growth of 12.3%. The strong performance was driven by increased traction seen in the chronic therapy segments of cardiovascular, diabetology and arthritis.
• Ipca's formulation exports grew by 19.2% to Rs86.4 crore during the quarter. This was on the back of a strong performance in Europe, on account of new product approvals received during H1FY2008. The African, Asian and Commonwealth of Independent States (CIS) markets also performed well. The performance seems impressive when viewed in light of the ~12-13% appreciation in the rupee against the US Dollar.
• Ipca's active pharmaceutical ingredient (API) business grew by 13.1% to Rs77.0 crore in Q3FY2008, driven by a 33.3% rise in the domestic API sales and a muted 6.6% growth in the export of APIs. Ipca's API exports have been under pressure over the last few quarters, due to the sharp appreciation in the rupee against the US Dollar. However, Ipca has now initiated the process of raising prices across some of the key products and remains confident of a much improved performance in the coming quarters, given the strong order visibility.
• Ipca's operating profit margin (OPM) expanded by 40 basis points to 21.8% in the quarter. The expansion in the margin was driven by a 100-basis-point drop in the staff cost and a 150-basis-point reduction in the other expenses. Consequently, the operating profit grew by 23.7% to Rs61.6 crore in Q3FY2008.
• Ipca's pre-exceptional net profit increased by 12.8% to Rs38.3 crore and was in line with our estimate. The growth in the net profit was restricted due to a sharp reduction in the other income. On the other hand, the net profit was boosted by an 80-basis-point drop in the tax incidence of the company.
• At the current market price of Rs638, Ipca is discounting its FY2008E earnings by 10.6x and its FY2009E earnings by 8.7x. The valuations at these levels seem absolutely compelling when viewed in context of the strong growth potential that awaits the company. We retain our positive stance on the stock and maintain our Buy call with a price target of Rs875.

Lupin
Cluster: Apple Green
Recommendation: Buy
Price target: Rs840
Current market price: Rs515

Another strong quarter

Result highlights

• Lupin's consolidated revenues increased by 43.8% year on year (yoy) to Rs721.3 crore in Q3FY2008. The growth in the top line was above our expectations and was driven by a 25.3% growth in the domestic formulation business, an appreciable 169.8% jump in the export of formulations to advanced markets and the consolidation of the recent acquisitions. Excluding the impact of the acquisitions (which contributed Rs65-70 crore collectively during the quarter), the like-to-like growth stood at ~30% yoy.
• Lupin's consolidated operating profit margin (OPM) shrank by 40 basis points yoy to 16.8% in Q3FY2008, led by a 50-basis-point rise in the other expenses. The operating profit grew by 40.8% to Rs121.5 crore in the quarter.
• The company received Euro 20 million from the sale of its Perindopril patent rights to Laboratories Servier of France, which boosted the other income and the net profit substantially. As a resultant, the net profit level grew by a whopping 191.6% to Rs180.9 crore in Q3FY2008. The profit growth was way above our expectation of Rs149 crore. Excluding the impact of the Euro 20 million received from the sale of the Perindopril patent rights and its associated tax impact, the net profit grew by approximately 70% yoy.
• With Lupin still awaiting the approval of US Food and Drug Administration (USFDA) for generic Altace, the exclusivity opportunity for Lupin remains uncertain, as Cobalt (the first-to-file for generic Altace) has already launched the product in the USA towards the end of December, thus triggering off the 180-day exclusivity period. While the management is confident of securing a sizeable time period of limited competition to benefit out of the Altace opportunity, any delay in the USFDA resolution could significantly restrict Lupin's window of opportunity. The USFDA resolution and clarity on the launch would act as a near-term catalyst for the stock.
• At the current market price of Rs515, Lupin is discounting its FY2008E earnings by 14.4x and its FY2009E earnings by 11.7x. Keeping in mind the strong business fundamentals and the growth potential of the company, we reiterate our Buy recommendation on Lupin with a price target of Rs840.

Sanghvi Movers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Under review
Current market price: Rs290

Q3FY2008 results: First-cut analysis

Result highlights

• For Q3FY2008 Sanghvi Movers Ltd (SML) has reported a spectacular growth of 65.4% in its top line to Rs64.4 crore. The growth is above our expectation.
• The operating profit of the company grew by 66.9% to Rs46.9 crore during the quarter. The operating profit margin improved by 60 basis points to 72.8% as against 72.2% in Q3FY2007.The operating profit margin for the company has been improving on the back of better capacity utilisation and lower maintenance cost.
• The interest cost increased by 13.2% to Rs7.5 crore while, the depreciation charge was up 33.3% to Rs11.7 crore in Q3FY2008.
• The profit after tax grew by a whopping 111.2% to Rs17.8 crore, which is way above our expectation. The robust top line growth and stable operating performance led to a strong growth in the profits of the company.
• The company plans to acquire100 cranes at a total cost of Rs550 crore over the next 18 months. These will include 72 second hand cranes from the USA worth Rs160 crore, mainly for the use of the power sector.

Marico
Cluster: Apple Green
Recommendation: Buy
Price target: Rs70
Current market price: Rs60

Q3FY2008 results: First-cut analysis

Result highlights

• Marico's sales growth in Q3FY2008 was in line with our expectations. The company posted a strong top line growth of 23.7% year on year (yoy) in Q3FY2008 to Rs506.2 crore aided by an impressive performance across businesses. The impressive top line growth was a result of a 19% organic growth and a 5% inorganic growth.
• Affected by a hefty 34% year-on-year increase in the staff cost and a higher than expected increase in the other expenses (up 32.9% yoy to Rs81.2 crore) the operating profit margin declined by 79 basis points to 12.68%. Thus, the operating profit grew by 16.4% yoy to Rs64.2 crore.
• The raw material cost was under check as copra prices during the quarter were lower by about 10-12% yoy. However, the input cost for edible oils continued to rise and was up 20-30% across categories.
• A much higher other income of Rs7.53 crore (against Rs0.33 crore in Q3FY2007) and a lower tax incidence aided a strong 81% rise in the adjusted net profit to Rs50.2 crore.
• The company changed the method of charging depreciation on factory building that led to a one-time charge of Rs4.29 crore; after this the reported net profit stood at Rs45.9 crore, which was up 61.5% yoy.
• Marico continues to implement its three-pronged growth strategy of enhancing the existing products, introducing new products and achieving inorganic growth through acquisitions. During the quarter it entered the South African ethnic hair care and health care markets by acquiring the consumer division of Enaleni Pharmaceuticals, which has an annualised turnover of ~Rs53 crore.
• We remain positive on Marico's businesses and maintain our Buy recommendation on the stock with a price target of Rs70. At the current market price of Rs59.7 the stock trades at 17.9x our FY2009E earnings per share of Rs3.34.

Punjab National Bank
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs675
Current market price: Rs618

Q3FY2008 results: First-cut analysis

Result highlights

• For Q3FY2008, Punjab National Bank (PNB) reported a profit after tax (PAT) of Rs541 crore, beating our estimate of Rs502 crore. The Q3FY2008 PAT indicates a growth of 26% year on year (yoy), but remains largely flat on a quarter-on-quarter (q-o-q) basis.
• The quarterly performance at the net interest income (NII) level was lacklustre, with reported NII registering a 1.5% decline yoy and a growth of 10.3% quarter on quarter (qoq). The disappointing NII performance was primarily due to the net interest margin (NIM) contraction yoy coupled with a moderate growth in the advances.
• On a year-on-year (y-o-y) basis, NIM continued to remain under pressure. The calculated NIM for Q3FY2008 was 3.2% compared with 3.8% for the year-ago period and 3.2% for the previous quarter. The y-o-y decline of 58 basis points in NIM was due to the higher cost of funds (up 106 basis points yoy), which outweighed the 48-basis-points y-o-y improvement in the yield on funds. The reported NIM for the quarter stood at 3.66% compared with 3.85% for the year-ago period.
• Meanwhile, the non-interest income jumped by 49.6% yoy to Rs483 crore. Of the total non-interest income, treasury income contributed Rs134 crore.
• The rise in the operating expenses was contained at 12.8% yoy compared with a 22.4% growth in H1FY2008. The increase in the operating expenses was driven equally by the staff expenses and the other operating expenses. However, the resulting operating profit grew by a weak 3.6% yoy.
• Despite the weak operating profit growth, the PAT grew substantially, mainly due to a significant 56% y-o-y decline in provisioning.
• Advances at the end of the quarter stood at Rs101,534 crore indicating a growth of 15.8% yoy, while remaining flat on a q-o-q basis. The growth in advances was primarily due to a strong growth of 28% yoy in retail advances (excluding trade advances) and a healthy growth in agricultural advances. Meanwhile, the deposits grew by a healthy 17.2% yoy to Rs152,622 crore. Currently, the management's focus area is controlling the quality of the existing advances book and not the advance growth per se.
• Asset quality improved sequentially as evidenced by a 28% q-o-q decline in gross non-performing assets (GNPA) to Rs1,339 crore and a 10% decline in net non-performing assets (NNPA) to Rs4,251 crore. While the sequential improvement in asset quality is a positive, the NPA levels (%GNPA of 4.1%, %NNPA of 1.3%) are still high compared with peers in public and private sector banking space.
• Capital adequacy ratio (CAR) as on December 2007 stood at a comfortable 14% compared with 12.6% in September 2007 and 12.9% in December 2006.