January, 2007 | Dalal Street

ITC gains as Q3 outcome lives up to estimates

January 31, 20072 min read

The stock had bounced back from a lower level ahead of results. From Rs 162.65 on 9 January 2007, the scrip recovered to Rs 172.40 by 29 January 2007. The stock had earlier drifted lower in a weak market. From Rs 177.65 on 28 December 2006, ITC declined to Rs 162.65 on 9 January 2007.

The key trigger for the ITC scrip, in the near term, is developments pertaining to value added tax (VAT) on cigarettes. The Centre has agreed to allow states to levy VAT on tobacco and tobacco products. The Centre and states reached an agreement in early January 2007, to phase out central sales tax (CST) over the next four years.

A 12.5% VAT on cigarettes will lead to a steep hike in cigarette prices, which may impact volumes. The concern for the cigarette industry is higher taxes may result in a shift in tobacco consumption, to low-end products such as bidis and chewing tobacco.

ITC today reported a 33.6% growth in net profit in the December 2006 quarter to Rs 717.40 crore, from Rs 536.83 crore during the year ago period. The net profit was at the top end of analysts’ expectations. Net sales rose 23.8% to Rs 3165.57 crore (Rs 2556.04 crore), which was also in line with estimates.

ITC has initiated retail and wholesale vending of vegetables and fruits. The company has prepared a plan to expand its ‘Choupal Fresh’ stores across the country. The company will open 140 stores across 54 towns in the next three – four years. Currently, ITC runs a store each in Chandigarh, Pune and Hyderabad.

Economy, Markets and Macro Views

India Real Estate Investment

January 30, 20071 min read

If you are planning for Real Estate Investment in 2007, then here is an in depth review of prevailing property prices across various cities in India.

Delhi and NCR is also one of the hottest property market but the prices have risen way too sharp, so don’t expect much returns unless you are first time home buyer.

India IPO Reviews and Updates

Firstsource – Review and Recommendation – Apply

January 30, 20072 min read

Firstsource formerly ICICI Onesource is India’s leading pure-play BPO. The BPO industry in India is expected to grow at a rate of 37% till 2010. Globally Indian companies dominate the space with a healthy 46% market share.

Firstsource currently has 10,000 employees across 20 centers. Being the market leader it has several advantages to bag large outsourcing deals. The company has consistently acquired BPO companies to establish presence in various verticals. Clientele is split between the US and Europe in equal proportions. The proceeds of the IPO will be used for expansion and debt repayment.

Firstsource IPO Details:
69.3 Million shares of which 9.3 million are offer for sale.
Price Band : Rs 54 to Rs 64
Issue Size: Rs 443 crore.
Fully diluted Equity post IPO – 41.62 crore equity shares of Rs 10 each

Financial and Valuations:
The Draft Red Herring Prospectus reports that the company had an income of Rs 549.9 crore for FY2006 and a PAT of Rs 24.7 crore. Income and profits for the first 9 months of FY 2007 are Rs 549 crore and Rs 62.3 crore. Annualising the first 9 months figures, Firsource will conservatively report a PAT of Rs 83 crore. EPS on fully diluted equity will be Rs 2.0.

At the upper band of the IPO, it quotes at a P/E multiple of 32 for FY2007E . Companies operating in the same space listed in New York are traded at a P/E multiple of 40. With Firstsource being the market leader we expect some listing gains though the stock is a good long term bet.

Retail Subscription:
Retailers have roughly around Rs 140 crore reserved. One has to apply in multiples of 100 shares. Thus a retailer can apply for a maximum of 1,500 shares @ Rs 64 each = Rs 96,000. If the retail portion of the issue is oversubscribed by more than 15 times, then the fate of investor applying for 1,500 shares will also be decided by lottery. [It will also depend on how many times the category @ Maximum is oversubscribed] Happy Investing!!!

Economy, Markets and Macro Views

Bonus bounty powers Bhel’s upmove

January 29, 20071 min read

As many as 48,353 shares changed hands in the counter on BSE.Rumours of a bonus, stock-split boosted the stock ahead of the results announcement. From Rs 2315.80 on 23 January 2007, the stock rose 5.7% in just two trading sessions to Rs 2448.35 on 25 January. The announcement of a bonus hit the market after trading hours on 25 January.

At the time of declaring Q3 results, Bhel also unveiled a 1:1 bonus issue on Thursday (25 January). Bhel reported 58% growth in net profit in December 2006 quarter to Rs 667.70 crore, on 32% growth in sales to Rs 4339.70 crore.

The order backlog at end of Dec 2006 was Rs 46700 crore, a rise of 38% on year-on-year. The current price of Rs 2500 discounts its FY 2006 (year ended 31 March 2006) EPS of Rs 68.60, by a PE multiple of 36.4.

Mutual Funds Review

HDFC Mutual Fund SIP Investment Update – Q4-2006

January 28, 20071 min read

Here is the latest update from HDFC Mutual Funds performance for our SIP investors. Though the IPO market has been BUOYANT, HDFC fund managers are very cautious and they continue to hold Blue-Chips and winners in their folio. One fantastic thing about Prashant Jain [ HDFC Equity, Top-200] and Vinay Kulkarni[LongTerm Advantage Fund and TaxSaver] is their ability to spot turnaround companies and ride the boom.

SIP has always outperformed LumpSum investment in the long run. Check out the performance of the funds where we recommend investment and which we have been closely tracking for your benefit.

Happy investing!!! Stay invested for the next 10 years 🙂

Equity Research

Citigroup upgrades Gammon India to BUY

January 26, 20071 min read

Citigroup Research has upgraded Gammon India Ltd to BUY with a price target of Rs 461, 20% upside from current levels.

Citi’s target price is based on a P/E of 19x FY08E (from 17x CY07E), a premium to Nagarjuna’s 16x and a discount to L&T’s 23x. Gammon’s portfolio of projects has been significantly enhanced to 13 from 7.

Gammon ended 2Q FY07 with a strong order backlog of Rs80bn (4.0x FY07E sales), comprising 30-35% low-margin transportation orders, 30-35% high-margin power orders, and medium-margin orders making up the balance. Citi expects order inflow momentum to remain strong with an order booking CAGR of 14% over FY06-09E.

Citi expects an EPS CAGR of 42% over FY06 -09 (FY06A annualized for 12 months), supported by a sales CAGR of 45% and stable EBITDA margins of 9.0 – 9.5% over FY06-09E. Citi’s research expects an EPS of Rs 18.06 and Rs 27.49 for FY08 and FY09.

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