Sunday, 6 September 2009

Oil India — IPO: Invest at cut-off

Oil India (OIL) may not be in the same league as Oil and Natural Gas Corporation (ONGC) in terms of its size of business, extent of reserves or scale of operations.

Where it scores over its big brother though is in its ability to show a growth trend in crude oil production and in adding to its reserves, more than what it produces every year.

OIL’s offer at Rs 950-1050, is at a fair valuation that compares favourably with its peers on most parameters. The offer band is at a price-earning multiple (PEM) of 9-10 times the 2008-09 earnings. ONGC has a valuation of 16. OIL also compares favourably on price-to-book value terms with a ratio of 2-2.2; ONGC’s is at 3.2.

Unlike other recent IPOs, OIL has left something on the table for investors. Investors can subscribe at the cut-off price and hold the stock for the medium-term.

Source: thehindubusinessline

Analysts bullish on full subscription of OIL IPO on Day 1

With investors looking bullish on public sector undertakings, the initial public offering of Oil India -- the second state-run to firm to hit the capital market this year -- starting tomorrow is expected to elicit good response, analysts said.

OIL has fixed a price band of Rs 950-1,050 per share for the IPO, which is expected to raise up to Rs 4,982 crore.

"Despite the aggressive pricing, the public offer of OIL will sail through comfortably and would be fully subscribed within hours of opening as investors still want to invest in PSU IPOs," Taurus Mutual Fund Managing Director R K Gupta said.

The OIL IPO, which would close on September 11, comes a month after the successful offering by hydroelectric power generator NHPC. The shares of OIL would be listed on the bourses on September 29.

The IPO of state-run hydro-power company NHPC received robust response from investors with the issue getting subscribed nearly 24 times. The company raised over Rs 6,000 crore from the IPO, marking it as the second biggest public offer after Reliance Power last year.

"There is demand in the market and the government is trying to capitalise on that... State-run companies have a good track record of investor returns and they want to raise as much money possible," Gupta said.

Both retail investors and institutional players would be betting more on OIL, he noted.

According to analysts, aggressive pricing of the government IPOs would gradually lead to investors taking a cautious stance before investing in them in future.

"There is not much left for the investors. These days even PSUs are not leaving money on table for retail investors and in due course of time the huge demand generated will also come down," SMC Capitals Equity Head Jagannadham Thunuguntla said.

Further, the listless debut of NHPC and Adani Power on the bourses, seem to have dampened the aggressiveness in the IPO financing market.

"Post the disappointing debut by NHPC on the bourses the IPO financiers were forced to pay the interest cost on the borrowing out of their pocket. This has somewhat dented their investment spirit," Thunuguntla added.

Source: EconomicTimes

Did Bernanke save US from another Great Depression?

The causes of last year's financial upheaval remain hotly debated, but many analysts say a swift and massive response by US authorities may have averted another Great Depression.

A year after the collapse of Lehman Brothers and a near-meltdown of the financial system, a fragile recovery appears to be underway that will put a bookmark on the worst crisis of the post-World War II era.

Perhaps the most important player in the crisis was Federal Reserve chairman Ben Bernanke, a scholar of the 1930s determined to avoid a repeat of that economic devastation.

"The Fed's policies averted a second Great Depression," says Joseph Brusuelas, at Moody's

"Under Bernanke's leadership, the Fed's unorthodox response to the crisis is without precedent. It has slashed the policy rate to zero and flooded the financial system with liquidity."

Brusuelas said the Fed's series of liquidity programmes "slowly rebuilt confidence in the banking system" and helped unfreeze credit markets to help revive economic activity.

Jeffrey Sachs, economist at Columbia University, said that at the time of the Lehman collapse, "a depression seemed possible," but that now "the storm has broken" as a result of the exceptional action of the Fed and other central banks.

"Months of emergency action by the world's leading central banks prevented financial markets from crashing," Sachs writes.

Diane Swonk, chief economist at Mesirow Financial, said that the Fed and Bernanke "performed unbelievably well in the height of the crisis."

"He reacted so quickly, he was doing things creatively," she said. "Once Lehman went there was nowhere to go but down, the question was how far we were going to fall."

Yet Bernanke does not escape his share of blame for the crisis, both for his role as a Fed governor under then-chairman Alan Greenspan from 2002-2005 and after taking the helm at the central bank in early 2006 as the crisis was unfolding.

Economist Allan Meltzer at Carnegie Mellon University said the Lehman collapse represented a mistake of historic proportions.

"Allowing Lehman to fail without warning is one of the worst blunders in Federal Reserve history," he wrote in a Wall Street Journal essay.

Ahead of the crisis, Bernanke "consistently downplayed the danger signs that others brought to his attention," said John Browne, senior market strategist at Euro Pacific Capital.

Source: EconomicTimes

Bartronics India: Buy

Investments with a two-three year perspective can be considered in the shares of Bartronics India, considering the company’s strong order book position, increasing Indian footprint on the back of large government deals and prospects of winningmore orders over the next few years.

At Rs 166, the stock trades at 5-6 times its likely 2009-10 per share earnings. As Bartronics is seeing high growth in revenues and profits and, despite being in a hardware-intensive business, has consistently managed an operating profit margin of over 25 per cent and net profit margin of close to 15 per cent, there may be scope for further capital appreciation.

Between 2006-07 and 2008-09, the company has seen its revenues and operating profits grow nine-fold. It has increased its revenues from India to nearly 65 per cent in recent times from about 30 per cent a couple of years ago. This was made possible by growing presence in government deals, where heavy technology spends are happening. The company also delivers smart cards (mostly SIM cards) to telecom operators, again a high-growth area.

A few quarters ago, Bartronics secured a Rs 5,000-crore deal from the “Aapke Dwar” project of the Municipal Corporation of Delhi spread over nine years. Revenues are set to kick in from October with the launch of 300 kiosks in the first phase. The deal also confers on Bartronics the right to advertising revenues from these kiosks. With the Commonwealth Games set to begin in Delhi in 2010, the scope for substantial advertising revenues makes this deal even more lucrative. The company has tied up with banks for the Rs 750 crore capital expenditure needed for this deal. This could step up interest costs and strain margins. But with interest coverage of over six times, the burden of servicing debt may not be too heavy.

Apart from this deal, the company has an order book worth Rs 600 crore as of June 2009, to be executed over the next year. A large part of this has come from its high-margin RFID solutions business. Armed with key technical certifications, Bartronics hopes to win deals from the Delhi Metro and Indian Railways, with both entities set to increase technology spends. The company has several deal wins from State governments and Government projects in Singapore. Another target area is animal tagging, where the company has the necessary certification.

Source: thehindubusinessline

The harder stocks fell, the higher they bounced back

If you were allowed to travel back in time to March 9 this year, when the Sensex was poised at 8100 levels, which stocks would you have bet on? Analysis shows that you would have reaped the best rewards had you been brave-hearted enough to buy those that were the most out-of-favour at that point in time. The realty sector, which was down 91 per cent from its January 2008 peak, has been the best sector performer in the post-March rally.

Small-cap stocks have been the best market cap segment to be in. And if you had built a portfolio of stocks that had seen a value erosion of 90 per cent or more in March, you would actually have got five times your money in six months! In a nutshell, ‘What fell the most must rise the most’ is a maxim that has held well in this rally. Does this experience hold any lessons for investors? Well, for starters, here’s an analysis of the stocks that led to this rally.

Sectors at the forefront
Returns on the BSE sectoral indices suggest that investors would have been able to outperform the broader market by betting on sectors that were battered the most as the market plunged to its March lows. The clear frontrunner in this rally is the realty sector which, between March 2009 and now, has delivered a staggering 230 per cent return, surpassing other sectoral indices (100-150 per cent return).

The realty sector was singled out for brutal treatment in the market fall; with the BSE Realty index losing 91 per cent in value between January 2008 and March 2009. However, few investors may actually have taken advantage of this opportunity as there was barely any sign of a recovery in the realty sector’s prospects in March. . Signs of recovery in the sector’s fundamentals are just beginning to emerge, and mainly for the larger players.

It is, however, important to note that had you invested in realty stocks at their peak, you would still be staring at sizeable erosion in your wealth. If betting on realty was a difficult call to make, putting money on metals or capital goods, the other two most beaten down sectors in March 2009, would have paid off well too, though not as handsomely as realty. While the BSE Metal Index is up 184 per cent from its March low, the BSE Capital Goods index is up 140 per cent.

The two sectors that have done well in this rally without suffering too much in the previous fall are IT and automobiles. The BSE Auto index is up 136 per cent, after taking just a 55 per cent knock in the 2008 correction.

The BSE IT index too has more than doubled from its lows, after losing 56 per cent from its peak.

Small-caps race ahead

It is not just in terms of sector preferences that down-and-out stocks led this rally. Small and mid-cap stocks that fell more than their blue-chip counterparts during the meltdown too outperformed in the rally so far. Consider this.

With a near 80 per cent fall, the BSE Small-Cap Index lagged the BSE Midcap (down 75 per cent) as well as the Sensex (down 62 per cent). In the bounce-back, the situation has simply been turned on its head. While the BSE Sensex delivered a 95 per cent gain from its low on March 9, the BSE Small-cap index returned 144 per cent and the BSE Midcap Index 129 per cent.

The out-performance of small and mid-cap stocks has been a clear outcome of their bargain valuations during the lows. The BSE Midcap index traded at a price earnings multiple of just nine times trailing earnings and the BSE Small-Cap index traded at less six times during the March 2009 lows. A reversal in the interest rate cycle, with rates beginning to trend down, may have supported the re-rating of these stocks, as has the better-than-expected sales growth of the mid-sized companies in the June quarter.

However, investors need to note that while betting on small or mid-cap stocks at market lows may pay off eventually, taking bets on them when markets peak can be extremely injurious to their wealth!

Stocks that led the rally
The above trends prove that investors who picked the most battered sectors and classes of stocks would have reaped the most rewards in the recent rally. But what about individual stocks? Well, the pattern is only repeated.

If an investor had completely ignored all fundamental or sector considerations and blindly picked up the ones which fell more than 90 per cent from their peaks on March 9 2009, his/her portfolio would today have risen by 366 per cent from its March 9 value! The investor would have clearly outperformed the Sensex, which made a 93 per cent return in this period.

The multi-baggers of this rally were the mid- and small-cap players from the realty and construction space — Madhucon Projects, Unity Infra, Ahluwalia Contracts, Peninsula Land, HDIL, Marg Constructions and Orbit Corporation. All these stocks lost over 85 per cent of their value in the market crash between January 2008 and March 2009; but turned around to give a stupendous 300-400 per cent return since.

One surprising trend that emerges is that the multi-baggers in this rally did not attract significant FII buying. Though FII buying was clearly the trigger for this rally, stocks which rose manifold were not the ones where FIIs pegged up their stakes to the maximum.

In fact, stocks such as McNally Bharat (up fivefold), Madhucon Projects (up fourfold), JSW Holdings (up fourfold) and Unity Infraprojects (up fourfold) were among the top gainers, despite FIIs actually trimming their stakes in these companies in the March-June 2009 quarter.

With the rally driven mainly by hopes of a recovery in earnings and the prospect of a recovery already built into current valuations, from here on market moves may become more selective.

Investors may now need to keep watch on the new sector leaders that are emerging in the recent recovery. If one looks at the sectors that have already moved past January 2008 highs, it appears to be IT, automobiles and FMCGs.

IT, which was beaten down on concerns of the US economy’s poor health and was languishing even after many sectors recovered past the March low, has played catch-up, as recovery signs emerged in the US. And as far as the auto segment is concerned, the recovery started much ahead; it bottomed out in the October trough and started recovering before early 2009.

Hero Honda Motor and Maruti Suzuki are at significantly higher levels than in 2008 peak. Select scrips from commodities — sugar, cement; pharmaceuticals, FMCG too — are riding above the 2008 high. Shree Cement, EID Parry, Godrej Consumer and Cadila Healthcare are among such stocks.

Source: TheHinduBusinessLine

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.