Indian Equity Research and Investment Strategy
State Trading Corporation of India is a premier international trading house owned by the Government of India. The company trades with almost all the countries of the world. Government holds 91.02% stake in the company.
The board of directors will met to consider a Bonus Issue of the shares. At the current price of Rs 567.55, the scrip trades at a PE multiple of 24.50, based on Q1 June 2007 annualised EPS of Rs 23.08.
FirstSource Solutions, India’s leading BPO has informed us that the board of directos will meet on the 23rd to discuss the proposal for $300 Million ADR / GDR issue of the company.
The financial results for the quarter ended 30 September 2007 shall now be considered by a committee of board of directors at its meeting to be held on 29 October 2007.
FirstSource is the leading bidder for Citigroups CAPTIVE BPO operations in India.
Reliance Energy’s net profit jumped 34.17% to Rs 250.08 crore on 13.65% rise in total Income to Rs 1799.92 crore in Q2 September 2007 over Q2 September 2006.
At the current price of Rs 1723.70, the scrip trades at a PE multiple of 44.45, based on Q1 June 2007 annualised EPS of Rs 38.77.
The scrip outperformed the market by a huge margin in one month to 16 October 2007, soaring 109.78% as against the Sensex’s 22.88% gain. It had also outperformed the market in the past three months, surging 176.50% against the Sensex’s 24.51% rise.
Reliance Energy is planning to come out with Reliance Power IPO to fund Ultramega Power projects in India.
TCS reported good 2QFY08 results – revenues grew 10.8% qoq to $1.42b (our exp: $1.38b) and EBITDA margins at 26.3% (exp: +26.1%) were up 80bp qoq. Net profit for Q2 was Rs12.15b (exp: Rs12b). Volumes in the international business were up 9% qoq.
TCS reported another quarter of pricing increase – realizations improved by ~85 bp qoq. Offshore proportion of revenues increased by ~190bp qoq. Pricing increase and higher offshore proportion resulted in margin expansion despite INR appreciation.
Management remains confident of strong deal flows and improved client mining over the next few quarters. Pricing trend continues to remain positive with 5-8% hikes in new deals and 3-5% hikes in renewals.
Kotak Research expects EPS growth of 22% YoY for FY08 at Rs.51.5. FY09 EPS has been
estimated at Rs.60. The rupee is assumed to be at Rs.38.50 per US dollar by FY09 end. BUY TCS with a price target of Rs.1297, implying a P/E of about 22x on FY09 estimates.
Citigroup Researach estimates a fully diluted EPS of Rs 51.55, 62.65 for FY08 and FY09 respectively. Target price of Rs1,460 is based on a P/E of 24x FY09E EPS, derived from a 4% discount to our target 25x FY09E EPS for Infosys.
Motilal Oswal revised EPS estimate of Rs51 and Rs61.8, the stock trades at a P/E of 21x FY08E and 17.4x FY09E respectively. Valuations at 17.4x FY09E earnings offers room for upside. Maintain Buy with a target price of Rs1,360.
CLSA expect underperformance to continue for some more time. Current 16-18% EPS Cagr for FY07-10 remains the key drag on the stock. CLSA has set a price target of Rs 1,135 for the stock.
DSP Merill Lynch says the stock is attractively valued and has a Price Objective of Rs1360 to Rs 1480 is at a rolling forward multiple of 20x 12 months earnings ended Sep 09 at a 10% discount to Infy’s median PE or an implied FY09e target multiple of 21x.
Monnet Ispat and Energy’s (MIEL) Q2FY08 results were better than expectations due to greater-than-anticipated increase in ferro alloy sales volume and realisation. Sales volume of ferro alloys increased 70% Y-o-Y and 10% Q-o-Q. Net revenue, EBITDA, and net profit grew 92%, 45%, and 36% Y-o-Y, respectively, led by higher sales volume in sponge iron and ferro alloys and improved sales realizations across all products (sponge iron, steel, and ferro alloys).
Key disappointments were in terms of: (i) lower-than-expected sponge iron production, which at 118,081 MT was 14% below our expectation; and (ii) the second captive power plant not commencing in September 2007.
At CMP of INR 390, the stock is trading at an EV/EBITDA of 8.0x FY08E and 5.6x FY09E, and P/E of 9.5x FY08E [Rs 41 EPS] and 6.8x FY09E [Rs 57 EPS] on a fully diluted basis.
The architect of Modern Stock Trading and CEO of National Stock Exhcnage of India, R H Patil has said that Foreign Institutional Investors have Manipulated the Indian markets and in recommendations to the Finance Minsitry had ask to plug the holes. Mr. Patil said,
The market is being manipulated right now and a bubble was growing rapidly. Although the SEBI proposals are late, they would help avoid a greater disaster. It is very important to know the identity of foreign investors, who have been manipulating this market.
The Indian Markets have crashed this morning and trading has been halted for an hour. The BSE SENSEX was down 1,700 points.
What triggered the market crash ?
SEBI, in a draft guideline, said that foreign institutional investors and their sub-accounts cannot issue or renew participatory notes with underlying as derivatives with immediate effect. They have to unwind their current position within 18 months.
Participatory Notes – PNs are financial instruments used by investors or hedge funds that are not registered with Sebi, to invest in Indian shares. FIIs and their sub-accounts buy Indian securities and then issue PNs to foreign investors with these securities as the underlying.
Once the Sebi proposals are operationalised, only FIIs whose outstanding notes do not exceed 40% of their total asset holding in India will be allowed to issue fresh ones. For instruments already issued by FII sub-accounts, Sebi has given a window of 18 months to wind up existing positions.
As per reports, the notional value of investments through PN’s route grew almost ten times to Rs 3.53 lakh crore at the end of August 2007 from just Rs 31, 875 crore three years ago.
The Ministry of Finance should act immediately by using the Income Tax and Central Intelligence agencies to investigate and bring to book all those involved in the market manipulation.
Update from FM:
FM does a U-Turn and puts SEBI in a tight spot now. He said, We have not banned P Notes. SEBI to issue release to on P-Notes renewals. Move intended to moderate inflow of capital.