Sunday, 2 November 2008

Punj Lloyd: Buy

Punj Lloyd’s financial performance over the last two quarters amply demonstrates its ability to weather tough macro-economic conditions. The current trend of softening commodity prices and clear signals on interest rates softening from here on may further support the company’s earnings growth.

Investors with a 2-3-year investment perspective can consider adding the stock of Punj Lloyd. At the current market price, the stock trades at a modest valuation of about 9.5 times its estimated consolidated earnings for FY09. The current valuations provide a good entry point into the stock. The company’s earnings grew at 48 per cent compounded annually over the past three years.

The consolidated sales for the quarter ended September 2008 rose 53 per cent while net profit was higher by 61 per cent over a year ago. Net profit growth, excluding profit on sale of its ISP division (pending approval), was at 45 per cent. The company’s strong performance comes on the back of diversified business operations across several nations, a strategy that has enabled it to beat threats of a slowdown.

For instance, while revenue contribution from pipeline and process plant segment continues to remain significant in the latest quarter, its proportion to total sales has declined. Instead, the company’s infrastructure segment, further strengthened by its Singapore-based acquisition, has made a higher contribution. This segment’s increased contribution is visible in the order book as well.

Punj Lloyd has also made headway in geographic diversification, having significantly ramped up presence in South-East Asian and Asia-Pacific regions.

Over the past few quarters, infrastructure stocks have been beaten down on fears of higher raw material and borrowing costs hurting earnings. A mild slowdown in order book in the June quarter also sent the earnings estimates spiralling downwards for the company. Punj Lloyd has done well to cross these hurdles.

In the latest quarter, the proportion of raw material to sales witnessed a decline, improving operating profit margins by 50 basis points to 9.3 per cent. Interest cost too was comfortably covered by higher profits. Order inflows during the quarter, at Rs 5,600 crore, were more than double September 2007 levels.

The company’s current order book of Rs 21,700 crore (2.8 times FY08 sales) from cash-rich clients is likely to provide revenue visibility over the next 18 to 24 months. Beyond this period, new ventures such as defence equipment, onshore drilling and strategic stake in a shipyard are likely to expand the revenue stream. While a subsidiary has bagged its first onshore drilling contract, a further decline in crude oil prices may pose a threat to the rental income

Source: TheHinduBusinessLine

Day Trading Guide - November 3, 2008

The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop-loss level is breached. There is a risk of loss in trading.

Source: TheHinduBusinessLine

India Cements (Rs 87.05): Buy

We recommend a buy in India Cements from a short-term perspective. It is clearly visible from the charts of India Cements that it has been on a long-term downtrend from its December peak of Rs 333 (52-week high), forming lower troughs and lower peaks. However, the stock recently found support at Rs 70 levels, which is a significant long-term support level and bounced up. On October 31, the stock penetrated the medium-term down trendline by jumping up almost 16 percent acco mpanied by high volume.

This reversal was triggered by the positive divergence in the daily relative strength index (RSI), which has entered in to the neutral region from the bearish zone. The weekly RSI is recovering from the deep oversold area. Moreover, we notice a weekly bullish piercing candlestick pattern that indicates short-term trend reversal.

We are bullish on the stock from a short-term perspective. We anticipate the stock to rally until it hits our price target of Rs 98 in the forthcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 82.

Source: TheHinduBusinessLine

It is ‘recession’ for one in seven of NSE-listed cos

The economy as a whole may still be growing, although at a reduced pace; but for many listed corporate entities, ‘recession’ is here and now.

An analysis of the quarterly financial performance shows that one in seven companies listed on the National Stock Exchange saw a decline in the quantum of ‘value added’ in their operations for two successive quarters (ended September 30, 2008) – the commonly accepted definition of recession.

As many as 116 companies out of a sample of 814 companies analysed have seen a decline in the ‘value added’ (measured as the sum of ‘net sales’, ‘other incomes’ and net addition to inventory minus the value of raw material and stores consumption) during June and September 2008 quarters compared to their immediate previous quarters.

Maruti Suzuki instance
Take for instance, Maruti Suzuki. The company added Rs 1,428.49 crore in the quarter ended March 2008.

However, this came down to Rs 1,392.29 crore and further to Rs 1,279.63 crore respectively, in the two subsequent quarters.

The decline in value addition during these two quarters relative to that generated in March 2008 for these 116 companies has ranged between half a percentage point and close to 100 per cent (the entire surplus being wiped out).

However on an average (median value), the decline stood at close to 30 per cent (see Table).

That, more than normal cyclicality is at work here is evident from another piece of statistic: There were only 79 companies which posted two successive quarters of de-growth as of June 2008, a good 40 per cent lower than the latest number.

Companies usually see a sharp deceleration in output in the first quarter of a fiscal year before the momentum of economic activity sees output catching up in the second quarter number. Even in September 07, there were only 82 companies that witnessed a decline in ‘value added’ for two successive quarters.

Viewed from either perspective, the latest number represents a significant shift in the underlying business fundamentals.

Competitive pressures at work
Anecdotal evidence points to a combination of competitive pressures forcing companies to keep their output prices in check even as the input cost increases pare surplus value added by them.

Bharat Petroleum is a case in point.

The former has seen crude petroleum prices skyrocket and regulatory pressures preventing it from marking up the refined, end-product prices.

Grasim too found itself in a similar predicament with regard to viscose staple fibre and cement businesses in its portfolio that saw sequential declines in value added in two successive quarters.

Financial services, construction, hospitality, mineral ore extraction are some of the industries that are prominently featured in the list of companies with negative growth in value addition.

Source: TheHinduBusinessLine

IDBI Bank cuts home, education loan rates by 0.5 per cent

Shortly after Reserve Bank cut its key rates, IDBI Bank on Saturday reduced its home and educational loan rates by 0.5 per cent with immed

iate effect.

The rate cut will be applicable to both the existing and new customers, the bank said in a press stetment here.
Following the revision, the home loans will be now available to customers for an interest rate of 11 per cent as against 11.5 per cent earlier, the bank said.

Simultaneously, the margin on housing loans has been enhanced from 15 per cent to 20 per cent for loans up to Rs 30 lakh and to 25 per cent for loans over Rs 30 lakh, the bank said.

Country's second largest public-sector bank, Punjab National Bank, had recently cut its prime lending rate by 0.5 per cent effective from November one and deposit rates from December one.

Source: EconomicTimes

Home, car loans to get cheaper

Interest rates could fall soon, making loans cheaper and saving less attractive, following a slew of measures by the RBI on Saturday.

The central bank cut the rate at which it lends short-term funds to banks by half a percentage point and infusing an extra Rs 1,20,000 crore into the banking system.

Pressure on banks to cut rates has risen sharply in the past few days with the RBI making clear the crisis could only be resolved if banks followed up with measures to boost demand and sustain spending.

This would mean home, car and other consumer loans becoming cheaper by half a percentage point. Companies too can look forward to similarly lower lending rates. But, for depositors, the flipside of a rate cut is lower interest rates on savings.

Senior officials of public sector banks unanimously told STOI that rate cuts would follow very soon, perhaps within the week. They said they would follow through on the RBI's move to contain the slowdown, even though they face a severe liquidity crunch because the central bank continues to suck cash worth $500 million every day in order to support the rupee. Punjab National Bank chairman KC Chakrabarty said that banks are likely to take their cue from RBI's decision to cut rates.

On Saturday, the RBI in its mid-term review of policy announced that the repo rate — the rate at which banks can borrow short-term funds from RBI — will fall from 8% to 7.5% from November 3. This would make it easier for banks to cut interest rates for consumers.

Simultaneously, there will be a two-stage cut by November 8 of the cash reserve ratio (CRR) — the proportion of deposits banks have to maintain in cash with the RBI. It will fall from 6.5% to 5.5%.This will give banks access to an additional Rs 40,000 crore to lend.

In another liquidity infusing measure, RBI in effect brought down the statutory liquidity ratio — the proportion of deposit money that banks mandatorily have to invest in government securities — by two percentage points.

While the SLR is formally currently at 25%, various temporary relaxations that allowed banks to borrow from RBI against their holdings of government securities meant that it is effectively at 23.5%. Further relaxations announced on Saturday brought down the effective SLR to 21.5%, though the formal rate has been reduced only to 24%.

The effective two percentage point cut means an addition of Rs 80,000 crore to the kitty available to banks for lending. With the CRR cut, that makes a total of Rs 120,000 crore in extra liquidity. One of the key relaxations was that banks can now borrow up to 1.5% of their deposit base from RBI to lend to mutual funds and non-banking finance companies (NBFCs) facing shortage of funds to repay their investors.

Source: EconomicTimes

My First Million: Rajiv Vij

Radio taxis are ubiquitous in India now. And the man who first brought them in is Rajiv Vij, whose eight-year-old firm Carzonrent,runs a fleet of

1,400 Easycabs across the country today. “This industry had unexploited potential and the ground transportation business was largely unorganised at that time,” says Vij, 50.

When he started, Vij says a senior executive at one of India’s leading banks turned down his proposal on the grounds that taxis are best run and dominated by ‘sardars’ and that he couldn’t possibly make a success of it. It took him six months to convince the gentleman to finally agree to fund his venture.

Coming from a fairly modest background—his father was a school principal while his mother was a housewife—Vij graduated from Hindu College and did his MBA from FMS, Delhi. He then worked his way up the corporate ladder, going on to serve as marketing head at Hindustan Motors and then joining ITC’s International Travel House as head of its car rental business.

This was where the seeds of his venture were sown. It was during this stint that Vij got to know car rental companies like Dollar, Europcar and Avis and radio taxi companies like Smart Cabs and Comfort Cabs, and studied their operating systems and challenges.

Finally, after nearly 20 years of employment, he realised the time was right since India’s car rental industry was poised to boom. In September 2001 he launched Carzonrent (India) Pvt Ltd with an initial investment of Rs 2 crore (of which Rs 30 lakh were his own while the rest were borrowings from ICICI Bank and HDFC Bank) and a fleet of 38 cars. In the first month Vij claims he did business worth Rs 30 lakh. Soon after, his company was appointed as a master licensee for Hertz in India. In six months it turned profitable.

Radio taxis were next in line and in June 2006, Carzonrent entered the business with a trial run of 25 taxis in Chandigarh. “The reason for choosing Chandigarh as a launch pad was that it never had a meter taxi service and it’s a much smaller city as compared to the metros, which in a way was appropriate for testing our business model,” says Vij.

Encouraged by the results, Easycabs were launched in Delhi NCR in January 2007 with an initial investment of Rs 15 crore and a fleet size of 250 cars. Last year, it expanded its fleet by adding 750 Mahindra Renault Logans.

Executives at automotive companies were stumped as no other radio taxi firm had ever placed a single order of this size before, recalls Vij. “It was a challenge negotiating the Rs 40 crore contract but after many rounds of meetings the deal was finalised,” he says. Now with a fleet of 1,400 cars Easycabs operates in Delhi, Hyderabad, Bangalore and Chandigarh, and has corporate clients such as Infosys, Microsoft, Nokia, and ISB, among others.

In nearly two years of operation the company has received investments to the tune of Rs 85 crore and it does Rs 4 crore worth business every month, informs Vij. He adds that in addition to buying new vehicles, much of this money is spent on maintenance, recruitment and training of manpower and upgradation of technology that are crucial to maintaining this service-driven business. By March 2009 he plans to grow the Easycabs fleet to 3,000 and start in Mumbai and Chennai as well. From driving an ambassador—his first car—to a BMW now, Vij sure has covered a lot of ground.

Source: Moneycontrol

Buy Mercator Lines, target of Rs 147-160: Networth

Networth Stock Broking has maintained its buy rating on Mercator Lines with a target price range of Rs 147-160 in its October 31, 2008 research report. "Net sales for Q2FY09 have increased by 75.9% to Rs 6493 million against Rs 3690.9 million in Q2FY08. Coal mining Operation contributed 5.7% to this growth. Mercator lines has sold 129000 MT of coal in Q2FY09."

"Going forward we believe MLL to post an EPS of Rs 15 in FY09 and Rs 24.6 in FY10. Apart from this the coal mining operations in Indonesia have began which started contributing to the earnings. At a CMP of Rs 33.55, the stock is trading at P/E of 2.4x and P/BV of 0.89x its FY08 earnings. We have valued the stock at 6x- 6.5x its FY10E consolidated earnings and so our target price range is Rs 147-160. We maintain our ‘BUY’ recommendation on the stock," says Networth's research report.

Disclaimer: The views and investment tips expressed by investment experts on are their own, and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

Buy Phillips Carbon; target of Rs 134: Angel

Angel Broking has recommended a buy rating on the Phillips Carbon Black with a target price of Rs 134 in its October 29, 2008 report. “India’s economic growth is expected to slow down in FY2009 to 8% as the RBI keeps a tight Monetary Policy and the government initiates a slew of measures to rein in inflation ahead of Parliamentary elections next year. Interest rates have also spiked substantially, which would impact the Interest rate-sensitive sectors including the Auto sector. Invariably, the Tyre industry would also get affected. But, around 60% of the Tyre demand is from the Replacement segment, which cushions companies like PCBL which are directly dependent on the Tyre industry growth rate.”

“There would continue to be huge demand from the Tyre Replacement segment due to the huge vehicle population getting added over the years, and because of PCBL’s market leadership position it would stand to benefit. We expect PCBL to record CAGR of 21.2% in Top-line over FY2008-10, while Bottom-line would grow at a CAGR of 3.1% in the mentioned period. At the CMP, the stock is trading at 2.2x FY2009E and 1.7x FY2010E Earnings and 3.4x FY2010E EV/EBITDA. We maintain a Buy on the stock, with a revised Target Price of Rs134 (Rs219). We revise the Target P/E multiple downwards to 4x FY2010E in line with the valuation contraction in broader indices,” says Angel's research report.

Disclaimer: The views and investment tips expressed by investment experts on are their own, and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

Buy Bharati Shipyard; target of Rs 179: Angel

Angel Broking has recommended buy rating on the Bharati Shipyard with a target price of Rs 179 in its October 29, 2008 report.“Bharati is one of the leading companies in the Shipbuilding space in India. It has a healthy Order-book position and expects to augment it on getting more clarity on the possible delivery schedules that it can provide clients. The company is also ramping up its production capacity. The company envisages no problem in augmenting its Order book as it caters to the niche segment of off-shore vessels where demand continues to be strong on account of the attractive crude oil prices. Also, the company does not expect any order cancellations to happen as its charges all its customers 20% advance at the time of booking the order, and shipbuilding being a long drawn process involving 2-3 years, buyers have to make bookings with a long-term prospective.”

“We are downgrading our diluted EPS estimate for FY2010E to Rs44.7 (Rs49.4) on the back of expected increase in labour and other operating costs. We are downgrading our FY2010E Target PE multiple to 4x (7x previously) revised 18-month Target Price of Rs 179 (previously 12-month Target Price of Rs 346). However, at current levels, Bharati is trading at an attractive PE of 1.5x FY2010E Earnings and 0.2x FY2010E P/BV. We maintain a Buy in the stock,” says Angel's research report.

Disclaimer: The views and investment tips expressed by investment experts on are their own, and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

Buy HEG, target of Rs 319: SKP Securities

SKP Securities has maintained its buy rating on HEG with a target price of Rs 319 in its October 31, 2008 research report. "Net sales were up 14.61% for Q2FY09 at Rs 295.39 crores. At the current level of Rs 135.25 and excluding the investment value ,HEGL is trading at 2.74 x FY09E earnings and 1.74 x FY10E earnings of Rs. 35.90 and Rs 56.58 respectively. We have valued the core business of the company at 5 x FY10E earnings, taking value of the stock to Rs 282.91 per share. The value of the company is further increased by Rs 37 per share by discounting HEGL's investment value in Bhilwara Energy Ltd. by 50%. We maintain our BUY recommendation on the stock with a target price of Rs 319 per share, upside potential of 137%," says SKP Securities' research report.

Disclaimer: The views and investment tips expressed by investment experts on are their own, and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

Buy Jindal Saw, target of Rs 530: Asit C. Mehta

Asit C. Mehta has maintained its buy rating on Jindal Saw with a revised target price of Rs 530 in its October 29, 2008 research report. "In Q3CY08, JSL’s sales increased to Rs 14,855.3 million. from Rs 14,286.1 million in Q3CY07. Sales growth was low at 4%, as JSL sold its US operations in 2007, which contributed 30% to sales in Q3 CY2007. We believe that the company will benefit in the near term on account of the capex incurred in the pipes segment. We therefore maintain positive outlook on the stock and reiterate a “BUY” recommendation with a revised target price of Rs 530, which is equivalent to a P/E multiple of 7 times to its FY10E EPS," says Asit C. Mehta's research report.

Disclaimer: The views and investment tips expressed by investment experts on are their own, and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

See mkts rally on Monday post RBI move: Experts

The Reserve Bank has cut the repo, CRR, and SLR. It cut the repo rate by 50 basis points to 7.5% with effect November 3. It has also cut CRR by 100 bps in two stages to 5.5%, and cut SLR to 24% by 100 bps from November 8 onwards.

So, how will this move impact capital markets?

Portfolio Manager PN Vijay expects markets to rally on Monday. "Central banks globally have been cutting rates and inflation has been on the downward trend in India. Everyone was looking up to the RBI to shift its focus from inflation control to getting the growth engine going. Now, the markets will be looking towards the Sebi to force the FIIs to square their short positions. Then we will really have a real rally."

Dipan Mehta, Member, BSE and NSE, feels this RBI move will improve market sentiment. "We had the RBI policy [on October 24] in which it had maintained status quo and any kind of a policy statement from the RBI had been ruled out by the market completely. Now that we have this fantastic dose of liquidity along with interest rates [expected to] decline, then we also have the inflation figures in place, so what it will do is: it will create a feel-good factor and go a long way in improving sentiment in the market."

"A lot of institutional and retail investors, who were sitting on the sidelines, waiting for a bottom and for an opportunity to get into the market, will see the signals. They will react positively. Like Vijay said, the short positions which are there — even if Sebi doesn’t force the P-note issuers to reverse those short positions — the fact that the numbers have been disclosed and the fact that they may not be allowed to renew the stocks lent will also add prowess to this market."

Will the expected rally be spearheaded by the banking sector?

Meha feels the rally will be spearheaded by the banking sector. "On Friday itself, we saw private-sector banks and some PSU banks do exceedingly well and this particular move will give a further fillip to the banking sector. Government security prices will go down to that extent. Profitability of these banks will be helped by lesser provisions. I think that beleaguered realty and the auto sector will also benefit. There is hope that lending rates for the housing sector may come down and there could be some benefits on auto loans too. So the interest-sensitive sectors will be in focus first thing Monday morning."

Source: Moneycontrol

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.