HT Media - Swing Call - Buy at 143 - target 151 - Stop loss 137.5

Dear All,

We advise you to buy HT Media at 143 for a target of 151 and stop loss at 137.5

Disclaimer Post applies.

Indian Rupee - US Dollar - (USD/INR) - Maintain Range 44.5 - 46

Disclaimer post applies.

Bharti seals $10.7 bn Zain deal.

Bharti Airtel has inked a definitive agreement to acquire Zain Africa. The enterprise value of Zain Africa BV is USD 10.7 billion, Bharti said in a press release. The Indian telecom major will become the world's 5th largest wireless company post the Zain buy.

Bharti will now have operations in 18 countries worldwide. Post the Zain buy, its total customer base would be around 179 million and it would cover over 1.8 billion people.
Zain operates in 15 other African countries, of which it is a leader in 10 countries. Its African assets exclude Sudan and Morroco. It has a subscriber base of 41.89 million as on September 30, 2009, which grew at 13% year-on-year.

Post the deal, Bharti will become the world's fifth largest wireless company with operations across 18 countries. Its total customer base will reach around 179 million, including Zain Africa's mobile operations in 15 countries with over 42 million customers.

Top 5 Telecom Companies in world:

1. China Mobile - 522 million.
2. Vodafone - 333 million.
3. Telefonica - 202 million.
4. America Movil - 201 million.
5. Bharti Airtel - 179 million (approx).


We are proud to have Bharti Airtel in our model portfolio and are also proud to be shareholder of this company.

Source: moneycontrol.com, DNA.

Thanks,
Nimesh.

Sector Overview for FY11.

1. Information technology

The information technology (IT) sector has the potential to do well as the global economic conditions improve. The scope for IT companies is good in the domestic markets. There are many large government IT projects lined up for execution in the next few years.

However, investors should track the currency rate movements in the international markets. A sharp appreciation in the rupee value against the US dollar, and other global currency rate movements can play spoilsport. One should invest more in large-cap companies that have a well diversified execution model and wider base, apart from the power to hedge against sharp currency rate movements.

Stocks To watch:
• Infosys
• TCS
• Wipro
• HCL
• Rolta
• Patni Computers

2. Auto
The automobile sector is promising as the disposable incomes are increasing and companies are launching new models in the market. Analysts believe the volume growth is expected to remain strong and will not be impacted by small hikes in the interest rates. However, auto stocks have appreciated significantly over the last few months and it is good for investors to wait for a correction to enter into these stocks.

Stocks To watch:
• Maruti
• Hero Honda
• M& M
• Tata Motors

3. Pharma:
The pharma sector looks promising in the wake of the US healthcare bill, the expanding middle income segment here, and their growing affordability and greater access to healthcare . Analysts believe the out-performance of pharma stocks is expected to continue in the medium to long terms. Pharma stocks also add diversity and defence to an investment portfolio.

Stocks To watch:
• Ranbaxy
• Sun Pharma
• Cadila Health
• Divis

4. Infrastructure
The infrastructure sector got a boost in this year's Union Budget as the finance minister has increased the allocation by almost 13 percent for road infrastructure improvement and defence projects. Also, a growth in the economy translates directly to a growth for the infrastructure sector. Investors with a longterm horizon should look at investing in these stocks.

Stocks To watch:
• Aban Offshore
• IVRCL Infra
• Reliance infra

5. Banking
Banking is another promising sector in times to come. It is expected that the credit growth will increase in future as capital expenditures increase with the economic growth. Rising rates favour domestic banks as they help them spread as loans are re-priced immediately , but only incremental deposits are re-priced at the higher rate.

Therefore, the net interest margins (NIMs) are likely to rise. Higher NIMs along with loan growth results in improved earnings in the medium to long terms. Investors with a medium to long-term horizon can accumulate bank stocks during correction phases.

Stocks To watch:
• HDFC Bank
• ICICI Bank
• SBI
• Yes Bank

Source: Economictimes, Money control.

Thanks,
Nimesh.

Company Bonds & Deposits - For the month of April. - Ceat, JP Associates, Unitech & United Spirits

Following is the list of company deposits available for investments in the month of April. 

We have been advising Unitech to our clients since we know that getting loans from the banks for real estate developers is very difficult right now and hence Unitech is collecting deposits from the retail market.

Kindly let us know if there is a requirement at your end for the same by dropping an email to dewang@denip.in or nimesh@denip.in or just give us a call on 9320196699 / 9320496699.

The information contained in this communication is intended solely for the use of the individual or entity to whom it is addressed and others authorized to receive it. It may contain confidential or legally privileged information. If you are not the intended recipient you are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by responding to this email and then delete it from your system. The sender-organization is neither liable for the proper and complete transmission of the information contained in this communication nor for any delay in its receipt. The author of this email does not make any warranties, express or implied, as to results to be obtained from using the information in this email. Investors should obtain individual financial advice based on their own before making any investment decisions. Any losses suffered due to the same will not be the liability of the sender of this email.

Trading Ideas - 31/03/2010 & Trading Ideas you missed 30/03/2010 !! Previous disclaimers apply !

Following are the trading ideas for tomorrow:

·         Nifty short at 5265 for a target of 5240; stop loss at 5275

·         Patni Computers – Short at 538 for a target of 530; stop loss at 545

·         Areva T&D – Short at 303 for a target of 299; stop loss at 305

Ideas you Missed - To get these in your inbox drop an email to dewang@denip.in / nimesh@denip.in

·         Balrampur Chini – Buy at 93 for a target of 96; stop loss at 92.4 (3% return)

1.       Target completed with a day high of 96.5

·         Bharat Forge – Buy at 252 for a target of 259; stop loss at 249 (3% return)

1.       Target missed by 0.5ps with a day high of 258.5

·         Central Bank – Buy at 144 for a target of 148; stop loss at 142 (3% return)

1.       Target just missed by 0.7ps with a day high of 147.3

  

·         Bank of India – Long since 321 for a target of 331; completed target of 329 in cash and 331 in futures segment

1.       Target completed with a day high of 343.7

·         Cairn India – Short since 297 for a target of 293;  closed on 295.65 in the futures space & 294 in the cash segment

1.       Stop loss hit due to a day high of 303. Stop loss was set at 300

The information contained in this communication is intended solely for the use of the individual or entity to whom it is addressed and others authorized to receive it. It may contain confidential or legally privileged information. If you are not the intended recipient you are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by responding to this email and then delete it from your system. The sender-organization is neither liable for the proper and complete transmission of the information contained in this communication nor for any delay in its receipt. The author of this email does not make any warranties, express or implied, as to results to be obtained from using the information in this email. Investors should obtain individual financial advice based on their own before making any investment decisions. Any losses suffered due to the same will not be the liability of the sender of this email.

ICICI Pru Pinnacle - Life Insurance Policy.

ICICI Pru Pinnacle is a unique life insurance plan which offers you the dual benefits of protecting your family & also getting the highest value from your investments. It has an inbuilt ‘Pinnacle Fund’ which guarantees that your maturity benefit is based on:

a) The highest daily NAV in the first 7 years of the fund or
b) NAV at maturity; whichever is higher.

Other benefits:


Save tax up to Rs. 30,900 u/s 80C.

Pay premiums for only 3 years; get life cover for 10 years.

Get additional 3% of Fund Value at maturity.

Get flexibility to withdraw money from 6th policy year onwards.


Thanks,
Nimesh.

Bharti Airtel joins the club of global telecom majors.

It’s only a matter of time Bharti Airtel will join an elite club of global telecom majors — a deal with Kuwaiti telecom firm Zain to buy its African assets is just round the corner. Once this $10.7 billion deal is sealed, India’s largest telecom firm by revenue and number of customers, will become the seventh largest telecom company in the world, and fifth in the cellular mobile segment.

Once the deal is done, Bharti Airtel will have a pan-African footprint, thanks to the Zain’s operations in 15 countries, and will remain be-hind only to a select telecom companies that includes China Mobile and Vodafone. It will also gallop ahead of other giants such as China Unicom, Sweden’s TeliaSonera, and Germany’s Tmobile.

Media reports on Saturday however said that the closing of the deal could take weeks or months, Zain’s chairman Asaad al-Banwan was quoted as saying. In fact, Mr Banwan who spoke about a possible delay in a television interview did not however mention any issues that may derail the talks. Not too long ago, Bharti made two separate bids to merge with South Africa’s MTN, but the deal fell through because of nationalism issues in the African country.

Bharti Airtel which is also bidding for 3G auction costing billions in license fees, has put in place a $8.5 billion warchest exclusively for its African sojourn. The company in an official statement said that banks like Standard Chartered and Barclays would lend it $7.5 billion, or the State Bank of India would offer a rupee loan equivalent to $1 billion, which will be used for transaction costs. No wonder, the financing was oversubscribed as international banks were committing to underwrite the total amount.

Also, Bharti has $1.5 billion of cash on its balance sheet, but that’s not sufficient in the backdrop of the company’s foray into the African market and its plan to consolidate its position in the home market through third generation mobile technology 3G. Already, there are speculations whether the Indian telecom major would be able to replicate its Indian success story of low-cost “minutes factory” model to 15 new markets in Africa.

As analysts have said, one of the main challenges for the Bharti Airtel in Africa after the deal is to evolve a new strategy to become a dominant player there. After all, Zain has been on the back-foot in key markets like Nigeria and Kenya, and the company needs to tackle its foreign exchange exposure efficiently as it has to buy equipment in dollars whereas revenue will come from local currencies.

Yes, there are challenges but for Bharti Airtel and its promoters including chairman Sunil Bharti Mittal, it’s more like chasing a global dream. A few years ago, Mr Mittal wanted to make a foray into infrastructure business, and then Bharti Enterprises and Singapore’s Changi Airport formed a consortium to bid for the development and management of airports in Delhi and Mumbai. But that was before two relatively low-profile companies from South, GMR and GVK, put an extra effort to make a mark in India’s political and financial capitals respectively. In this round, Mr Mittal may not like any dropped call.

Source: Economictimes.

Thanks,
Nimesh.

Weekly Market Outlook - April 1st Week - Disclaimer Post Applies

Dear All,

Please find below the screen shots of the Weekly Market Outlook and the Trading account details for the 1^st week of April 2010. We believe that Nifty should open below 5280 levels on Monday and can touch 5350 this week. Investors & traders are advised to book profit from these levels and short around 5400 levels.

Stock ideas for the week are as follows:

·         Bank of India – Long at 321 for a target of 331 (3.1% return); stop  loss at 315

·         L&T – Short at 1635 for a target of 1571 (4.1% return); stop loss at 1663

·         MTNL – Long at 72 for a target of 74 (3% return); stop loss at 71

·         M&M – Long at 1077 for a target of 1103 (2.5% return); stop loss 1050

Speculative Buy on Monday Open:

·         Petronet LNG – Long at 78 for a target of 80 (2.5% return); Stop loss at 77

Please ensure that you have stop loss for all your longs / shorts since the market is not showing any one direction.

Also, to get this outlook directly in your inbox free of cost drop an email to dewang@denip.in or nimesh@denip.in

Is LIC the New Unit Trust ??

In 2003, the collapse and subsequent bailout of the old Unit Trust of India was the biggest financial crisis that an Indian financial institution had ever faced. Even though many keen observers knew that the Unit Trust was unlikely to actually be in as good health as it pretended to be, the organisation's collapse came as a shock to its ordinary customers.

Seven years later, there are some uncomfortable parallels between the UTI of the time and the Life Insurance Corporation of today. That UTI was a sort of a mutual fund but since its existence predated the rest of the industry and the regulatory framework, there were all sort of exceptions, some theoretical and some just practical, for these exceptions. UTI was a pool of funds outside the government's finances that was nonetheless available to the government for certain purposes. Some of these alternative uses of this money were official and some were private initiatives of decision-makers at different levels.

The deployment of this money was not done transparently and there was no information that was available to the public and the media at large about where it was being invested and what those investments were really worth. Investors identified UTI as an arm of the government and in terms of the marketing pitch for its products, UTI enjoyed an aura of sovereign guarantee. Everyone assumed that UTI was an impregnable fortress of financial solidity without realising how hollow, years of abuse had made it.

If you sit back and think for just a moment, you'll realise that there is reasonable outward evidence that the Unit Trust's history could repeat itself with LIC. It's true that there's a lot that is different about the regulatory framework and the nature of LIC's liabilities. However, the core reasons that led to UTI's collapse also exist for the LIC today: there is an unapologetic tendency to use the LIC as a bottomless pit of money of which there wasn't enough accountability. The blatant use of this money to bailout the public sector IPOs is only the most recent and the most visible example-given the lack of public information, it's not possible to make any assumptions that everything else must be OK with LIC's investments-just as it wasn't with the Unit Trust.

When I first wrote about LIC's purchases of huge amounts of shares being sold by the government a few weeks ago, a rather knowledgeable person flippantly said to me, "Why should anyone worry about this? Today LIC is rescuing the government, tomorrow the government will rescue LIC-hisaab baraabar!" I wonder if it will eventually come to that.

Source: Valueresearch Online

Next 10 years of Indian Economy.

India has come a long way since the economic reforms in 1991, moving from rates of 5% into the orbit of 7-9% growth rates. However, how many of us really know the scope and scale of this story and how it pans out over the next 10 years?

We have assumed Indian gross-domestic savings at around 35%, an incremental capital output ratio of four as in the past decade, inflation of 4% and a marginal current account deficit of 2%. These assumptions lead us to a real GDP growth rate of 9% and a nominal growth of 13%.

By 2020, India’s GDP is likely to quadruple from the current $1.1 trillion to about $4.5 trillion. Per capita income is likely to triple from the current approximately Rs 50,000 to over Rs 1.5 lakh. The number of households with income of more than Rs 16 lakh will be over 18 million, while the number of middle class households (income between Rs 1.5 lakh and Rs 16 lakh) would grow by 50% to 180 million.

Number of deprived households (with income below Rs 1.5 lakh) is likely to be reduced by almost 25% to 100 million. Indian consumption is likely to increase 3.7 times to about Rs 113 trillion, with discretionary expenditure likely to increase significantly. According to our estimates, the education sector will grow 5.7 times, domestic pharma and healthcare six times, media and entertainment five times and organized retail 6.3 times. The automobile sector is likely to grow 4.8 times, while urban premium housing will grow 6.5 times.

By 2020, we expect total savings to be about $1.4 trillion — more than our current GDP. The massive growth in savings will propel a 5.3 times growth in banking, 4.7 times in broking, 5.7 times in asset management and 4.7 times in life insurance. There are three key risks to achieving and managing this growth.

Execution of planned infrastructure projects remains an area of concern, inflation is another. The third risk to growth is the inclusion of lower income segments. With a Gini index of 36, the income disparity levels in India are amongst the highest in the world. It’s important that the bottom of the pyramid participates in the growth process.

However, in the past decade, we have grown at 7.2% with 5% inflation and carried out significant reforms despite pulls and pressures of a democracy. We see no reason why this can’t continue for the next 10 years.

Source: Economictimes.

Thanks,
Nimesh.

Dividend in Sundaram BNP Paribas Balanced Fund.

Sundaram BNP Paribas Balanced Fund Dividend.

Scheme : Sundaram BNP Paribas Balanced Fund

Quantum of dividend : 45%

Record date : 30th March, 2010

NAV (as on 23rd March, 2010): Rs.15.4520.
 
 
Thanks,
Nimesh.

Dollar Rise ... Fall of Markets !!

The dollar broke into positive territory after reversing its early losses as the Euro broke down amid numerous Greek rescue headlines. In turn, commodities pared their early gains.

Precious metals held on to minor gains despite the dollar's recovery. April gold closed 0.4% higher at $1090.90 per ounce. May silver closed 0.6% higher at $16.74 per ounce.

April natural gas sold off in the morning ahead of its inventory report this morning. It hit closed 2.9% lower at $3.99 per MMBtu. Natural Gas futures are now at 6-month lows.

Crude oil futures trended higher throughout the session but faded after hitting resistance at the $81.50 level. It closed fractionally lower at $80.53 per barrel. DJ30 +53.58 NASDAQ +14.95 SP500 +4.55 NASDAQ Adv/Vol/Dec 1559/2.12 bln/1095 NYSE Adv/Vol/Dec 1756/817 mln/1271

However post the dollar rise DJ30 closed +5 NASDAQ -1 and SP500 -1.99

Monthly Income Plan Comparison.

Pease click on the Table to check the complete information.

MF Investment are subject to Market Risk, please read the SID carefully before investing.

Thanks,
Nimesh.

Up in flames !! Will we see the Phoenix rise or just Ashes ??!! How will this affect Tata motors as a stock ???!!

 Satish Sawant was proudly driving his first car home from the showroom: A brand-new silver Tata Nano, draped with a celebratory garland of marigolds.

Then there was smoke. And then there was fire.

Minutes after the software engineer's wife and five-year-old son clambered out of the back seat, smoke from the engine, located in the Nano's rear, erupted into flames that engulfed the tiny car.

His ordeal showed just the latest problem with the low-cost Nano -- raising fresh questions about safety and quality as top Indian carmaker Tata Motors sets its sights on global expansion and aims to ramp up production of the Nano with a new factory next month.

"My wife now doesn't want to buy any car," Sawant said by phone from his home in northern Mumbai on Thursday. "She doesn't even want to go for a Mercedes."

Starting around $2,500, the Nano has been heralded as the world's cheapest car, and was meant to usher in a safety revolution, which would get millions of families off dangerous motorbikes and into the cool comfort of an affordable car.

Tata Motors, which also owns Jaguar and Land Rover, plans to start selling versions of the Nano in Europe in 2011, and later, in America.

Tata Motors spokesman Debasis Ray said the company is investigating the incident but believes it to be a one-off problem rather than the result of faulty design or manufacture.

"We believe it was a one-off stray incident," he said. "It did catch fire. We're trying to figure out what may have caused it."

Tata has offered Sawant a replacement Nano or a refund.

This is not the first time there have been customer complaints about the Nano, which has been feted with rave reviews and awards since its launch a year ago.

Last fall, three customers in India complained that their Nanos started smoking.

Tata Motors attributed that to a faulty electrical switch and said it had changed suppliers and done additional tests to rule out a recall or redesign.

Ray said Thursday that the incidents are not related.

The switch problem, he said, "has been comprehensively addressed."

"Safety has never been an issue with Tata cars," he added. "They are one of the safest cars on Indian roads."

But some say the Nano's smoke and fire problems are symptomatic of pervasive quality control issues at India's number three carmaker, which must be addressed before Tata can successfully take its brand global -- especially in the wake of Toyota's massive recalls, which have left car buyers jittery about safety standards.

"As of today, is Tata good enough to take on the world? I would say no," said Deepesh Rathore, an auto analyst at IHS Global Insight in New Delhi. "On quality standards, Tata barely makes the cut."

There are fewer than 30,000 Nanos on the road today, which means on a percentage basis the problem rate is fairly high, he said.

"The Nano is a wonderful product, but these incidents really tarnish the image of the car as well as the company," Rathore said. "This is the time for Tata to have a deep look at quality."

He said the recent addition of Carl-Peter Forster, former head of General Motors in Europe, as group chief executive is a step in the right direction.

"They've got a guy running the show now who knows how the industry should work," he said. "How soon will the effects be seen across the Tata product range? Well, that will take time."

Reliance Mutual Fund has declared dividends!!!

Reliance Mutual Fund has declared 25% dividend in following schemes:

• Reliance Regular Savings – Balanced Option.
• Reliance Growth Fund.
• Reliance Vision Fund.
• Reliance Diversified Power Sector Fund.

Record date: 30th mar 2010.

For investment in these schemes, please contact Mr. Nimesh - 9320196699 or Mr. Dewang - 9320496699.

MF Investment are subject to Market Risks, please read SID carefully before investing.

Thanks,
Nimesh.

Great Turnaround Bets !! Aban Offshore, Mahindra Satyam, Punj Lloyd, Suzlon, Unitech, Wockhardt, Glenmark, RCOM etc. !!

Even though Indian markets have recovered from their March 2009 lows, there are still many companies and sectors where investor interest hasn’t caught up in the same breadth. As a result, the share prices of some companies are still at depressed levels as compared to their peaks in 2008.

There could be genuine concerns which in turn justify the valuations of these companies. Reasons could be weak demand, subdued margins, excess debt, heightened competition, lower capacity utilisations and so on. To put in simple words, in some of these cases due to absence of clarity over the future prospects and the financial position of the companies, the share prices continue to trade at lower levels.

The positive side is that, ever since the global economic downturn and its impact on the Indian industries and companies, lot of things have changed for the better, which is also reflecting in the key indicators. These indicators suggest a recovery in industrial production, higher GDP growth, turnaround in the exports market and pick up in credit growth among others. Also, on the corporate front, companies have been able to report better sales and profit margins; in many cases there has been a clear turnaround viz., from losses to profits.

Change is the only constant
Meanwhile, many of these concerns pertaining to these companies could still hold true. However, as it typically happens during any economic recovery, there is a tendency that certain sectors and companies lag others and recover only in the later part of overall recovery or when demand improves visibly leading to enhanced confidence levels. This is also a reason that despite the economic recovery some companies are yet to show improvement in growth.

Nevertheless, it could be a good time to look at companies, whose stocks are quoting at lower levels, which appear to have the potential to rebound once the economic momentum picks up further. Here are six companies, which are operating in growing industries with some of them enjoying leadership in their respective segments. While there are some medium-term concerns, a turnaround (whenever it happens) could lead to strong gains for investors.

Aban Offshore
Aban Offshore, a leading offshore rig provider, suffered due to the two critical events. Due to the correction in crude oil prices, the day rates at which the company deployed its rigs came down. Simultaneously, some its rigs were rendered ideal, leading to lower revenues and profits. But, crude oil prices have now stabilised and are showing an upward bias. Analysts, thus, believe that the day rates for the rigs should also improve from $125,000 currently (still lower by 50 per cent compared to its highs in 2008).

For Aban, the bigger issue pertains to capacity utilisation. Currently, of Aban’s fleet of 20 rigs/jacks, 16 are deployed and remaining ideal. If all of these are deployed, the company will be able to generate good cash flows. However, analysts expect the utilisations to only improve in the medium term. Aban’s management is expecting to deploy three rigs by mid 2010-11. More importantly, it is working towards reducing its dependence on a single market.

On this front, it has already deployed six rigs in India and is looking to deploy the remaining one rig in the country.
 

ABAN OFFSHORE
in Rs crore	FY08	FY09	FY10E	FY11E	FY12E
Revenue	2,021	3,185	3,452	4,590	4,487
EBITDA margin (%)	61.7	55.4	61.1	59.4	57.2
PAT	93	556	456	1,010	1,022
EPS (Rs)	24.3	146.5	104.4	231.4	234.2
Interest cover (x)	1.2	2.6	1.6	2.6	2.7
ROE (%)	14.7	43.5	19.7	29.9	23.3
Free cash flow to equity	-2,973	-3,605	812	1,464	1,511
Net debt-equity ratio (x)	15.3	9.2	5.0	3.4	2.4
Source: BNP Paribas

The other major concern is the high debt in its books. Notably, Aban’s debt-equity ratio has improved to 9 times in 2008-09 and is further expected to fall to about 5 times in 2009-10. While these levels are still high, the company is looking at ways to reduce it further. While the Rs 700 crore it raised through a QIP in December 2009 quarter helped pay some debt (should result in a lower debt-equity ratio in 2009-10), analysts expect Aban to generate cash flow of about Rs 3,500 crore from operations during the next two years. This should help bring down its debt further. Also, the company might dilute its equity further to reduce its debt. Any improvement in the business such as higher day rates will only be icing on the cake.

Mahindra Satyam
Post the scandal at Satyam Computer Services not many analysts cover the stock now; even investors have stayed shy of the stock. While the problems were for real, the market is awaiting clarity about the company’s financials. Positively, post the Mahindra group company, Tech Mahindra, acquiring ownership things seem to be improving as the management is trying to turnaround the company. Also, in the recent past, the outlook for the IT sector has improved as a result of the ongoing global economic recovery. This has also resulted in improved pricing power for IT players.
 

MAHINDRA SATYAM
in Rs crore	FY10E	FY11E	FY12E
Revenues	5,420	6,072	7,137
Net profit	662	1,213	1,429
EBITDA margin (%)	17.0	25.6	24.1
RoE (%)	17.1	19.2	18.6
EPS (Rs)	5.6	10.3	12.2
PE (x)	17.1	9.4	7.9
Source: BNP Paribas; E: estimates

For now, the company’s biggest challenge of retaining employees seems to be cooling off after the recent hike in salaries. Besides, the big worry relating to Upaid’s $1 billion claim, which is being settled out-of-the-court by paying $70 million or Rs 325 crore, has not only eased worries but now, will also help the company get worldwide royalty-free license for the related products.

The confidence is also increasing as the company is able to retain its existing clients. It recently bagged a four-year offshore contract work with KMD valued at Rs 218 crore. This is in addition to the GE’s extension of multi-million dollar contracts for the next three years. In last one year, the company has signed about 90 new deals, including over 35 new accounts. As a result of higher confidence, the company is also planning to hire around 5,000 people by March 2010. However, analysts believe that the stock captures most of these positives, and at a one-year forward PE is fairly valued. Also, given that the financials are awaited, it is better to adopt a wait-and-watch approach.

Punj Lloyd

Punj Lloyd’s stock has also been impacted on account of concerns over its prospects. For instance, in the case of Simon Curve’s (its subsidiary) ethanol project, analysts expect Punj to book additional liquidated damages in the March 2010 quarter. While Punj has already booked Rs 300 crore so far in 2009-10, its client raised a claim of Rs 160 crore in early March 2010. Punj’s large project in Libya, which is delayed and accounts for about 43 per cent of its order book, could mean more earnings downgrades by analysts in the near term. Also, concerns over its ONGC project exists, even as the company has booked most of the likely cost overrun. In terms of revenue visibility, too, Punj’s order book has been shrinking in the last few quarters on account of lower order inflows due to the lower capex in the global oil and gas industry.
 

PUNJ LLOYD
in Rs crore	FY09	FY10E	FY11E	FY12E
Net sales	11,910	11,910	13,700	15,630
Net profit	-230	350	510	630
EBITDA margin (%)	2.6	9.0	10.0	10.5
EPS (Rs)	-7.7	10.7	15.3	18.9
RoE (%)	-8.9	11.9	13.5	14.6
EV/EBITDA (x)	25.5	7.8	6.1	5.1
Order flow	13,100	14,200.0	15,300	21,100
Closing order book	20,800	22,900	25,200	30,200
Order book/sales (x)	1.7	1.9	1.8	1.9
Source: Macquarie Equities Research, ENAM Direct Securties

Overall, there are some concerns surrounding Punj’s near to medium-term prospects, which should gradually get resolved. On the positive side, Punj Lloyd is a leading company with superior engineering skills in hydrocarbon and infrastructure sectors. If these concerns, which are partly easing, are resolved, Punj’s performance should improve. Also, the company is gradually trying to de-risk its business model by focusing on the domestic E&P market and infrastructure projects, particularly in the road and power BOP segments. The strategy has paid off given that share of infrastructure projects in the order book has risen from 35 per cent in March 2008 quarter to 60 per cent in December 2009 quarter. 

Also, contribution of South East Asia, including India, in overall order book has increased to 20 per cent. Going ahead, the company is eying about Rs 3,000 crore worth of new orders in the oil and gas industry in 2010-11. The years 2010-11 and 2011-12 would be crucial as its order book could bounce back and by that time the concerns over project delays and possible write offs relating to the existing projects should become history.  

Suzlon Energy
Due to various concerns, Suzlon Energy’s share price dropped from a high of Rs 455 in January 2008 to Rs 36 in December 2008.

In January 2008, it traded at a one-year forward P/E of about 25 times. But now, even as it is at just 10 times, investors continue to stay shy of the stock. Notably, while concerns exist, things seem to be changing for the better.

For instance, the company has repaid its outstanding acquisition loan of $780 million by selling a 35.22 per cent stake in Hansen (an erstwhile subsidiary) besides, securing a new five-year dollar denominated loan of $465 million. This has led to a 15 per cent reduction in debt and hence, interest cost. Along with improving fundamentals, analysts say, Suzlon’s net debt-equity ratio will fall further to 0.7 times by 2011-12.
 

SUZLON ENERGY
in Rs crore	FY08	FY09	FY10E	FY11E	FY12E
Total sales (mw)	2,384	2,790	1,713	2,110	2,547
Domestic installations (mw)	976	749	723	884	1,079
Exports (mw)	1,408	2,041	990	1,226	1,468
Consolidated revenues	13,679	26,082	22,380	21,264	25,089
EBIDTA margin (%)	14.9	11.4	6.6	10.2	11.3
PAT	10,154	2,364	-2,609	3,255	9,624
EPS (Rs)	7.8	7.6	-1.6	1.8	5.3
RoE (%)	33.2	14.0	-3.1	3.9	10.4
Net debt-equity ratio (x)	0.4	1.4	1.3	0.9	0.7
PE (x) *	-	-	-47.4	42.2	14.3
Source: Morgan Stanley; E: Estimates, *PE is on current market price

On the demand side, again, concerns have not eased out completely but, there has been some recovery – new orders have started flowing from key markets like the US and Europe. Suzlon’s Germany-based subsidiary, REpower Systems AG, in November bagged its largest ever onshore order for supplying equipments worth 954 mw. A significant recovery, however, is seen starting the second half of CY2010, which should improve Suzlon’s order book which stood at 1,484 mw as of end-January 2010.

This in turn will drive Suzlon’s revenue growth and improve utilisation of existing capacities leading to better margins and profitability, going ahead.

Meanwhile, the domestic market has seen a pickup in new orders. Also, steps such as imposition of cess on coal and allowing higher RoE (return on equity) on power plants based on renewable energy are positives for the sector, and companies like Suzlon. Currently, India’s installed wind power capacity is about 11,000 mw as against the potential of 45,000 mw. Even globally, due to higher crude oil and coal prices, many countries are favouring wind energy projects, indicating huge growth potential. Suzlon, which is the fifth largest wind turbine player globally with large market share, strong product portfolio and distribution network, will be a key beneficiary in the long run.

Unitech
The stock price of India’s second largest realty company by market capitalisation has had a remarkable recovery from the March 2009 lows of Rs 24.60 to currently Rs 74, though it is still far from its peak of Rs 546.80 in January 2008. The economic downturn caught most realty companies, which were in the midst of expansion sprees, unawares resulting in unsold inventory and a pile of debt. While the situation has improved a bit, especially on the residential front, there are demand concerns in the commercial realty segment.

On the operational front, for the December 2009 quarter, the company has been able to record revenue growth of 76 per cent year-on-year to Rs 774 crore largely on sales which have occurred in the previous fiscal and realised now due to the percentage completion method. Part of the surge in growth rates is also due to the low base of previous year. Though margins have dropped by half to 24 per cent due to cost overruns, they are expected to move to 35 per cent levels in 2010-11. The company is focussing on affordable homes and expects the segment to contribute about half of the overall volumes in 2010-11 of about 16 million square feet. Considering the demand for this category of houses, the move could pay off for Unitech going ahead.
 

UNITECH
in Rs crore	FY08	FY09	FY10E	FY11E
Net sales	4,114.0	2,844.0	2,771.0	4,013.0
Ebdita	2,266.0	1,632.0	1,316.0	1,826.0
Net profit	1,661.0	1,196.0	803.0	1,195.0
P/E (x)	–	–	22.8	15.6
E: Estimates                                    Source: Company, Bloomberg

The company is also focussing on Mumbai where it has tied up with Mumbai-based developers for slum rehabilitation projects. Coupled with its own projects in Mumbai, Unitech is looking at developing saleable area of 42 million square feet in the city.

The recovery in the realty market from the December quarter lows and the easing of credit has helped the company raise resources through a QIP and pay a part of outstanding loans. The company has been able to bring down its debt to Rs 6,200 crore from Rs 6,600 crore at the end of September quarter. Debt-to-equity ratio is now at around 0.5 times. In the medium-term, the company’s decision to hive-off its non-core businesses like power, telecom, hotels and SEZs into separate ventures, including getting in a PE investor to further reduce debt, should improve sentiments towards the stock.

At Rs 73.70, the stock is trading at 20.5 times its 2010-11 estimated earnings of Rs 3.59. Given its land bank (7,500 acres), move to lower debt and focus on affordable homes, the scrip could be looked at dips from a 2-3 year horizon.

Wockhardt 
While the Wockhardt’ stock has doubled from its 2009 low of Rs 67, it is still 68 per cent adrift of its 2008 highs. The reason for this has been the over Rs 3,500 crore debt the company incurred primarily due to the 2006 and 2007 acquisitions of Negma Labs of France for Rs 1,000 crore and Pinewood Labs of Ireland for Rs 663 crore.

To reduce its debt and as a part of the corporate debt restructuring programme, the company sold its animal health, nutrition and its German business for Rs 170 crore, Rs 627 crore and 120 crore, respectively. However, the sale of nutrition business is stuck in the courts as its foreign unsecured lenders have refused to give up on the proceeds from the sale in favour of secured lenders. The resolution of this dispute is key, if the company has to move ahead on its plan to restructure its debts. 
 

WOCKHARDT
in Rs crore	CY08	CY09	CY10E	CY11E
Net sales	3,592.0	3,629.0	3,898.0	4,096.0
Ebdita	678.0	665.0	565.0	601.0
Net profit	-138.0	-435.0	236.0	251.0
EV	4,948.0	5,043.0	5,255.0	5,289.0
EV/Sales (x)*	1.4	1.4	1.3	1.3
EV/Ebidta	7.3	7.6	9.3	8.8
E: Estimates; * EV/Sales for CY09 is estimated Source: Company, Bloomberg

Operationally, the company saw a 9 per cent year-on-year fall in revenues to Rs 889 crore for the December 2009 quarter, while operating profits were down 36 per cent on higher raw material and other expenditure. A mark-to-market forex loss of Rs 235 crore meant that Wockhardt reported losses of Rs 181 crore.

For CY2009, revenues were flat at Rs 3,629 crore and higher raw material consumption meant a 15 per cent drop in operating profit to Rs 665 crore. Losses for the year were at Rs 435 crore largely due to the forex loss of Rs 661 crore.

While interest coverage ratio is at a mere over 2 times, the more worrying metric is the debt-equity ratio of 4. It is this debt overhang which is the reason why investors have shunned the stock, which at the current market capitalisation trades at an attractive enterprise value/sales of about 1.38 as compared to over 4 for other pharma majors. A risky bet, but worth a shot given that the core Indian and European businesses (over 50 per cent of revenues) are reporting steady growth in revenues.

Some more…
Unlike the above companies, below are three more companies that due to a few events or near-term concerns have their stock valuations take a hit. It could be a matter of time before the operating environment improves or concerns ease, which could lead to better valuations.

Glenmark Pharma
The announcement in August last year that Oglemilast used in the treatment of lung disease had failed clinical tests had a negative impact on the stock, which lost a fifth of its value. Till then, the molecule had fetched Glenmark Rs 158 crore in milestone payments. Since then, the stock has recovered and its operational performance has also been good. For the December 2009 quarter, Glenmark’s speciality business (56 per cent of consolidated revenues) grew by a robust 19 per cent. However, the markets are awaiting the IPO of its generics business, which could be a trigger for the stock.

Reliance Communications
The Reliance Communications’ scrip bore the brunt of the price war among mobile telephony service providers falling 53 per cent (the most among the three major listed players) since its 2009’s highs in May. Competition has led to a drop in operating profit margins as well as market share. Though capex (for the existing operations) should come down going ahead, 3G licence fee would add to the Rs 25,000 crore gross debt pushing the current debt-equity metric of 0.67. Positively, the expected IPO of its tower subsidiary, sale of other assets along with reasonably good cash flows should offset some of this pressure.

Sintex Industries
Sintex Industries’ stock is trading at half the levels it touched in January 2008; the decline was consequent to worries over its foreign subsidiaries and pressure on financials. The latter, however, is seen improving and earnings are expected to grow at 25-30 per cent over the next two years on the back of improving demand from the retail, infrastructure and industrial segments. Also, worries about its foreign subsidiaries are easing as a result of higher integration and better performance in the recent past. Margins, too, will improve as a result of better pricing and lower input cost due to lower crude oil prices. Overall, the stock can be considered at dips.