August, 2007 | Dalal Street

Biocon & Abraxis Bioscience announces licensing agreement

August 9, 20071 min read

Biocon has announced that the company and Abraxis BioScience, an integrated, global biopharmaceutical company has announced a licensing agreement for the commercialization of ABRAXANE in India.

Under the terms of the agreement, the company will also have the right to market ABRAXANE in Pakistan, Bangladesh, Sri Lanka, United Arab Emirates, Saudi Arabia, Kuwait and certain other persian gulf countries. As part of this agreement, Abraxis will receive royalties from the company based on net sales of ABRAXANE in these countries.

In July 2007, Abraxis submitted to India’s Ministry of Health and Family Welfare an application to market ABRAXANE for the treatment of breast cancer.

Breaking Corporate India Earnings News

Tata Tea gains on US acquisition buzz

August 9, 20071 min read

As per reports, the Tata Tea is examining a number of acquisition targets in the US beverage market. Topping the list is AriZona Beverages, in which the Tatas have been interested for almost three years now.

AriZona Beverages operates a portfolio of tea, coffee, water and juice brands, besides beer and snacks. Reportedly, if a bid goes through, the Tatas will keep both the bottled and powder beverage operations and may divest the beer and snack businesses of AriZona Beverages.

Last year, Tata Group paid about $677 million for a 30% stake in Glaceau — makers of enhanced water in the US. But it was forced to sell its stake in the company to Coke after the US giant made an aggressive offer.

The scrip touched a high of Rs 744.90 and a low of Rs 724.10 so far during the day. On BSE, 20,044 shares were traded in the scrip.

Economy, Markets and Macro Views

Hexaware+Sasken + KPIT Cummins Downgraded

August 9, 20072 min read

Citigroup Research has downgraded Hexaware Technologies Ltd [Formerly Aptech], Sasken Communications and KPIT Cummins Ltd.

Hexaware Technologies:
Company reported 2Q07 results – revenue of Rs.2.62b (-1% qoq) and net profit of Rs.261 m (-26% qoq) – was disappointing and significantly below our expectations on net profit.

Company clearly lacks margin levers especially when it had triple whammy – a) Strong INR, b) wage hikes (higher than usual) and c) tepid sales outlook due to client specific issues. Revise estimates now factor weak 2Q, cloudy outlook from a few clients and integration issues at FocusFrame – we cut our earning estimates by 11-18% for CY07-09. With lower earnings CAGR, Hexaware is now valued at 15x CY09E EPS (against 17x earlier) – thus, new target price is Rs.155 from Rs.214 earlier.

Sasken Communications Limited:
Sasken’s 1QFY08 numbers came in below street expectations. Services revenues grew only 2% qoq ($ terms) while margins declined sharply by ~800bp sequentially. Product business had an inline quarter – revenues ($2m) were in line with expectations.

Management cut the guidance for services revenues – 20-25% growth in $ terms as against the 30-35% guidance earlier. This implies $132 – 137m of revenues (against $100m in FY07). EBITDA margin outlook was reduced to 15-17% from the earlier 20-23%.

The disappointing 1Q results, weakness in telecom services and higher than expected INR impact has resulted in a 24% and 12% cut in FY08 and FY09 estimates. Revised target price is Rs.505 (from Rs.643) as the services business is now valued at 10x EV/EBITDA (against 11x earlier) to reflect lower earnings growth and deteriorating comparable valuations for mid-cap Indian IT.

KPIT Cummins Limited:
Company reported 1Q08 results – revenue of Rs.1.35b (+3.8% qoq) and net profit of Rs.127 m (-10% qoq) – was broadly in-line with expectations. Recognizing revenue at hedged rate, inflates revenue figure and EBITDA line in appreciating quarter.

KPIT Cummins recognizes revenue at hedged rate (against spot rate done by several other Indian IT companies) – this recognizes hedging gains/losses with revenue. lower our earnings estimates by ~7-10% for the delayed currency impact and amortisation of upfront payment.

New target price of Rs.154 (earlier Rs 180) is based on 15x FY09E EPS (against 16x earlier) to factor in lower earnings growth. Stock trading at 17x FY08E and 12x FY09E earnings.

Equity Research

Shipping Corporation of India – SELL / Exit

August 9, 20071 min read

Citigroup research has terminated coverage on Shipping Corporation of India Limited due to lack of investor interest in the stock.

Given global shipping team’s expectations of a stablisation in charter rates over 2007 / 10E in the tanker and the dry bulk segments, we expect SCI’s earnings to decline moderately over FY07-10E.

Final recommendation for the security is Sell/Medium Risk (3M) with a target price of Rs 171. Target price for SCI is calculated by using simple average of the long-term P/BV and the current NAV. Fair-value NAV/share is Rs204. SCI’s long-term average P/BV is 0.68x. The share price trades within a fairly steady band of +/-1 standard deviations. At an FY08E P/BV of 0.68x, the fair value is Rs138. SCI’s EPS is expected to fall to Rs 30.09 and Rs 27.46 for FY 08 and FY 09 respectively.

Equity Research

Shriram Transport Finance – Outperformer

August 9, 20072 min read

Shriram Transport Finance Company Limited delivered strong quarterly results on the back of strong asset growth. In addition to this, a marginal decline in the cost of funds also came in as a surprise. On the flipside, a wait and watch approach towards securitising its new CV loan book and more aggressive provisioning make us revise our estimates marginally downwards. RoAs continue to move up and we expect them to reach 3% by the end of this fiscal. UTI Securities upgrades target price to Rs. 195 and assign an ‘Outperformer’ rating to the stock.

Preowned CV disbursements grew 77.4% yoy, while new CV disbursements grew at 3.8% yoy. On a QoQ basis, new CV loan disbursements have declined by 30.5% while they have grown by 3.8% on a YoY basis.The quarter continued to witness increase in the share of institutional funds (from 67% to 78% yoy) in the borrowing book of the company. Reduction in the cost of funds, which was at 10.3% during the quarter, was a positive surprise.

Earnings per share (EPS) are expected to grow at a CAGR of 55% over the next two years. The company is expected to deliver RoA of 3% and 3.5% for FY08E and FY09E respectively and RoE of 27% and 29% for FY08E and FY09E respectively. The stock currently trades at 2.2X FY08E and 1.7X FY09E Adjusted Book Value (ABV). One year target price of Rs. 195 for the stock implying a 18% upside.

Mutual Funds Review

Are Fund Managers Holding More Cash ?

August 9, 20072 min read

Our Mutual Fund Analyst researched some top mutual funds and has observed that the cash levels in portfolio have increased compared a quarter ago.

Reliance Growth fund and Reliance Equity Fund both managed by Sr. Fund Manager Sunil Singhania [On your Left] is holding is holding 9.81% and 15.11% of portfolio in Cash / Call Money. Reliance Vision fund is having 9.42% in Cash / Money Market instruments. Franklin India Flexicap fund once again managed by Sr. Fund Manager K N Siva Subramainan is also holding 9.42% of folio in Cash / Call Money. All these funds are large funds with portfilio value ranging between Rs 4,000 to Rs 3,200 crore.

Our star fund manager Prashant Jain of HDFC Equity and Top-200 has taken a different bet. Holds very low cash in HDFC Equity fund – 2.9% while in HDFC Top-200 fund it is at 9.1%. The portfolio of HDFC Equity Fund is mostly Large Cap liquid stocks and hence we guess he feels it un-necessary to hold cash.

What is common in all the above funds is, where Managers take significant exposure to Midcap stocks, they prefer to hold around 10% cash in their funds. However, if volatility continues then they are expected to shift to Large Cap otherwise they are under severe pressure of quarterly performance with their peers.

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