July, 2007 | Dalal Street

Citi Upgrades Kotak Mahindra Bank

July 26, 20071 min read

Citigroup Research has upgraded the price target of Kotak Mahindra Bank to Rs 825 but a bit too late. Kotak has swiftly moved up from Rs 640 to Rs 730 on expectations of better results.

Kotak which is also into Retail Stock Trading business had made all its clients BUY their company Futures ahead of the results. This is a matter of great concern and SEBI should investigate this matter ?

Coming back to Citi’s analysis, 40% yoy profit growth, but 7% below their estimate. KTKM’s loan book is up 56% yoy (4% qoq) and remains diversified across consumer loan segments, with almost no asset stress. Margins remain 5%+ in the face of funding challenges, though broking volumes are only flat.

Target price of Rs825 is based on EVA methodology. KTKM’s relatively high share of securities fees suggests a valuation benchmark of an investment bank. Kotak is expected to report an EPS of Rs 19.92 for FY2008 and Rs 25.46 for FY2009.

Breaking Corporate India Earnings News

Ranbaxy – GSK agree to dismiss US Litigation

July 26, 20071 min read

Ranbaxy Laboratories has reached an agreement with GlaxoSmithKline (GSK) to stipulate a dismissal of their US litigation with regard to Valtrex (Valacyclovir Hydrochloride tablets). The lawsuit in the US was related to GSK’s US Patent No 4,957,924, covering Valacyclovir Hydrochloride and its use in the treatment of herpes virus infections.

Under the agreement, the company will enter the US market in late 2009 whereby as the first generic, the company will enjoy a 180 days exclusivity. In early February 2007, the company received a final approval from the US FDA to market and manufacture Valacyclovir Hydrochloride tablets.

Company will continue to pursue a strategy to effectively leverage and monetize it’s pipeline of FTF opportunities. The company believes that it has a First-to File (FTF) status on approximately 20 Para IV ANDA filings representing a market size of – US $ 26 billion valued at innovator prices.

India IPO Reviews and Updates

Central Bank of India – Subscribe

July 26, 20072 min read

Central Bank of India [CBI] has the third largest network in the country with 3,194 branches (with major presence in central, eastern and western parts of the country). It has an employee base of 36,227 employees serving over 2.5 crore customers. Around 98% of the banks business has been computerised as at the end of March 2007 with 353 branches covering 35% of the banks business covered under core banking solution.

CBI cleans up Balance Sheet:
The bank restructured its capital base in March 2002 by netting off accumulated unabsorbed losses of Rs681.3 crore against its paid-up capital of Rs1,805.5 crore. On March 2007 the balance equity capital of Rs1,124.1 crore was further restructured and converted into Rs800 crore worth of noncumulative perpetual preference shares and Rs324.14 crore of equity capital.

NPAs are on a decline since 2003 and at an all time low of 1.7% to net advances which is still a high compared to Bank of Baroda at 0.9%.

Current IPO Offer:
Issue Size – Rs 680 – Rs 816 crore.
Pricing Rs 85 – Rs 102
Retail offer – Rs 272 crore

Valuations:
Based on the price range of Rs85102, CBI is available at (1.11.2)x its post-issue book value (BV) and (1.51.7)x its post-issue adjusted book value (ABV). The bank has a return on equity of around 13%, a dividend yield of 3% (based on the upper price band).

Recommendation:
Being the 3rd largest banking network in the fastest emerging economy of the world, CBI will attract heavy FII interest pre and post IPO. Investors with appetite for long term capital appreciation are requested to HOLD after allotment [You see what happened to Indian Bank] and Investors who want to SELL on allotment can also do so. We recommend a subscribe to CBI IPO for our readers.

Indian Banks are in much better shape than their Chinese counterparts and Indian banks attract cheaper valuations and are unexpected to cool off. Drastic measures by the RBI may hit their bottomline in short-term. Long Term Investors just hold your investments tight.

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India IPO Reviews and Updates

Zylog + Omnitech heavily over subscribed

July 25, 20071 min read

The IPO of Zylog Systems for which we had a SUBSCRIBE recommendation was heavily subscribed by Retail and Institutional Investors. Total over-subscription 76.51 times. Here is the final break up.

Sr.No.	Category	No.of shares offered/reserved	No. of shares bid for	No. of times of total meant for the category
	Qualified Institutional Buyers (QIBs)	2100000	188063600	89.5541

Non Institutional Investors

350000

50383980

143.9542

Retail Individual Investors (RIIs)

1050000

36889600

35.1330

The fate of Rs 98,000 application will also be decided by lottery. Ratio of allotment for Rs 98,000 application will be 1 : 2.5. Grey Market Premium si already Rs 150+. Good Luck!!!

Omnitech Info Solutions:
The issue was oversubscribed by 61.84 times. Here is the final breakup.

Sr.No.	Category	No.of shares offered/reserved	No. of shares bid for	No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)	1847199	114073140	61.7547

Non Institutional Investors

554160

60216660

108.6629

Retail Individual Investors (RIIs)

1293039

65884920

50.9535

The stock is expected to list at Rs 150. Good Luck for your allotment. We strongly recommend value investors to AVOID IVR Prime Urban Developers IPO.

Breaking Corporate India Earnings News

Infosys from Technologies to a BPO Company

July 25, 20071 min read

Infosys Technologies Ltd has signed a multi-million dollar outsourcing contract with Royal Philips Electronics of Netherlands. As part of the agreement, Philips will enter into a multi-year contract with Infosys BPO to provide finance & accounting (F&A) services and the processing of purchasing orders.

The company will also acquire three shared service centers located in India, Poland and Thailand from Philips. The contract is amongst the largest finance & accounting BPO engagements from India and will expand the company’s global network, particularly strengthening its European operations.

The deal extends the company’s global network with new centers in India, Poland and Thailand. The company will gain approximately 1,400 Philips professionals who will add to the company’s BPO team a wide range of valuable skills and abilities, which include diverse language capabilities, technical expertise and domain knowledge.

Infosys is desperate to do any business now. LOL. Why can’t they expand high margin Infosys Consulting [Min. $100+ / Hour / Consultant] rather than doing stupid BPO deals.

Economy, Markets and Macro Views

Indian Hotels + Leela Venture – BUY

July 25, 20073 min read

In an exclusive report released just few minutes ago by Citigroup analysts on the Indian Hotels Sector, they continue to be bullish on Indian Hotels [Taj] and Hotel Leela Ventures and a HOLD on EIH India Ltd[Oberoi Hotels].

Indian Hotels Company Ltd [Taj]:
Indian Hotel (IHC) is the top pick with target price of Rs187 based on 21x Sept ’08E P/E (vs. 22x FY08E P/E) to factor in risk of increased room supply; but given scale, stronger earnings growth visibility, IHC’s pan-India presence, it is expected to trade at premium to the sector (16x).

Expansion Plans:
Plans to add six hotels (1,656 rooms) to the portfolio over FY08-10E – key being in Bangalore, Mumbai and Hyderabad. Besides this, IHC plans to increase number of ‘Ginger’ hotels to 30 by FY09-10E, up from eight now. Further tied up for management contracts in domestic (2,055 rooms) and international markets (584 rooms); all should be operational by FY08-11E.

Hotel Leela Ventures Ltd:
Stock Upgraded to BUY with 1M Rating [Medium Risk]
65% earnings growth, vs. 38% for the sector, in FY08E with additional rooms operational in Mumbai and Bangalore (ahead of supply in mid-2008); and 2) the stock’s 22% underperformance vs. the Sensex over the last three months. Our lower target price of Rs62 is set at 18x Sept 08 P/E, and offers 23% upside potential.

Expansion Plans:
Leela has capex of Rs19.5bn for building hotels over FY08E-11E, key locations being: Udaipur, Chennai, Pune, Hyderabad and South Delhi (recently acquired three acres at Rs6.1bn, this is a concern for ROCE, in our view).

The stock is currently trading at 15x Sept 08E P/E, at discount to sector’s 16x. With strong earnings growth momentum and the stock trading at lower end of its two-year historical P/E band of 16-25x.

EIH India Ltd [Oberoi Hotels]
Citi downgraded EIH to a Hold/Low Risk (2L). While earnings growth is still strong for FY08E, with stock up 13% over last 4-months, upside appears limited at 11% even at a price target of Rs.115 based on lower target multiple of 19x Sept’08E P/E, at 19% premium to sector valuations.

With the stock already trading at 17.5x Sept’08E P/E, at a premium to sector valuations of 16x, much of the 33% earnings growth of FY08E is priced in.

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