September, 2007 | Dalal Street

Spanco Telesystems demerger

September 17, 20071 min read

Reports indicates that the new subsidiary will also act as a holding company for all its joint ventures in the BPO business, including railways project Bharat BPO Services, in which it holds a 50% stake. Spanco’s Middle East joint venture, in which it holds 51%, its call centre business in the UK and the international BPO business from Respondez will now come under Spanco BPO Ventures

Spanco’s net profit rose 106.7% to Rs 9.26 crore on 68.8% rise in sales to Rs 102.14 crore in Q1 June 2007 over Q1 June 2006. At the current price of Rs 230.95, the scrip trades at a PE multiple of 12.87, based on Q1 June 2007 annualised EPS of Rs 17.94.

Equity Research

TN Petro + Mercator Lines Short Term Trading Calls

September 17, 20072 min read

Reliance Money is recommending Mercator Lines Ltd [MLL] for short term trading. The buoyancy in dry bulk rates and low one time charges profits are expected to bounce back in FY08. The net profit is likely to be over Rs 250 crs for FY08E as against Rs 135 crs for FY07. FY09E will also see improvement, as the dry bulk cargo will be operational for the full year plus the additional chartered tonnage co will add to its
portfolio.

At the current market price of Rs 66, the stock is trading at 7x FY08E EPS of Rs 9 and 6x FY09E EPS, respectively. RMoney expect MLL to trade at 8x FY08E and expect the stock can rise with a target price of Rs.85 in the short term.

ABN Amro Stock Research is recommending TN Petro Products Ltd for short term trading gains with a price target of Rs 28.

TPL plans to set up a Coal based power plant to reduce energy costs. Singapore subsidiary to invest 51% in petrochemical plant. Subsidiary SEPC has necessary approvals for implementation of Power Project. TPL has given a price breakout on a daily and weekly basis and the breakout has been accompanied with strong volumes signifying greater strength in the scrip.

Equity Research

Alstom Projects India to Outperform Infrastructure Sector

September 15, 20071 min read

Alstom projects India Ltd [APIL] involved in EPC work will outperform the sector. BUY with a Target price of Rs 1,079.

India planning a huge capex for power generation, we frame a bullish outlook for APIL and expect it to post earnings CAGR of 43% FY07-10E. APIL will outperform on strong incremental order flow triggers. The current order book is over Rs 30bn (>2.4XFY07 revenues). APIL will to continue to post better margins and foresee the company’s RoCE & RoE improving substantially. APIL can leverage on its parent’s global leadership in integrated and hydroelectric power projects. With India set to enter a strong power generation capex cycle, this will be its key strength.

We all know the Record response Power Grid IPO received. We also know that India will spend massively in producing Electrical energy and hence stocks involved in building such mega projects will have excellent growth. A Price Objective of Rs1,079 (+38.7%) for Alstom Projects India Ltd, assigning it an exit multiple of 34X & 22X for FY09E & FY10E, respectively. Similar discounting has been assigned to Siemens and ABB stocks as well.

Economy, Markets and Macro Views

Tata Motors’ subsidiary HV Axles + HV Transmission IPO

September 15, 20071 min read

Breaking News:
The management of Tata Motors have indicated that they will unlock the value of its subsidiaries – HV Transmissions Ltd and HV Axles Ltd through an IPO or sale to outside party.

After the London Investors Conference, Citi still maintains a BUY – Low Risk with a target price of Rs 1029 on the stock.

Management guided to a modest revival in truck sales into 2HFY08E, implying that overall sales for the fiscal should be flat, or register modest growth. Truck operators’ profitability remains healthy, despite the rise in interest rates. Freight rates also continue to remain stable.

Rs80bn will be deployed over the next 3 years to launch new platforms in passenger cars and trucks. The small car remains on schedule and will be launched in mid-CY08 (1HFY09E). Management stated that TAMO will start the process of demerging its subsidiaries by end FY08E – with HV Transmissions and HV Axles being the businesses to be initially listed.

12-month target price of Rs1,029 is based on a sum-of-parts valuation methodology. Tata Motors’ core business at Rs 827 / share, which is based on 9.2x FY08E EBITDA. The subsidiaries are valued at Rs201 / share.

Breaking Corporate India Earnings News

Zenith Birla to hive off tools manufacturing division

September 15, 20071 min read

The board of Zenith Birla India has considered a proposal to hive off the company’s tools manufacturing division.

The board discussed the proposal of de-merger / hive off of tools division at length. After having discussion at length, it was decided to obtain detailed study report from an independent consultant for the purpose before finalizing any proposal.

The board also considered the proposal of merger / acquisition of Tungabhadra Holdings which is also into the manufacturing of steel pipes and with its operations at Murbad and Tarapur and having synergy with the steel pipes business of Zenith.

Mutual Funds Review

HDFC Equity + Top 200 Fund – Portfolio Update

September 14, 20071 min read

Sr. Fund Manager of HDFC Equity fund has completely exited the stocks of DLF, Wipro and TCS. Added more of ICICI Bank and United Phosphorous, which has been in the folio for quite sometime now. UBS has a BUY recommendation on United Phosphorous. The new entrants in the folio are Suzlon Energy and Puravankara Projects Ltd. Realty Stocks have undergone quite a churn in this fund – First it was Ansal Properties and Infrastructure, then DLF and now Purvankara Projects.

In HDFC Top 200 fund, Investment in Maruti Udyog has doubled since the end of July. Suzlon Energy is the new entrant. Added more of United Phosphorous. Reduced holdings in Punj Lloyd and exit from DLF.

In HDFC Prudence Fund, Punj Lloyd and Zee Entertainment holdings were reduced. ICICI Bank and Puravankara projects are the new entrants.

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