Indian Equity Research and Investment Strategy
Here are the top picks from Motilal Oswal In large Cap, MidCap and Small Cap.
Large Cap:
Tata Steel: Banking on rising steel prices. Trading at EV/EBITDA of 4.4 and P/E of 5.8 for FY09.
Bharti Airtel:Undisputed leader in Indian wireless. Trading at EV/EBITDA 10.7 and a P/E of 19 for FY09 earnings. (more…)
Indiainfoline in a research note has said additional costs due to H-1B Visa applications and salary hikes will take ~200bps off Infosys’s EBITDA margin in 1QFY09, resulting in a 4% QoQ decline in PAT. Infosys is to release its FY09 guidance on 15 April. Expect FY09 guidance would be revenue growth of 20% and PAT growth of 15% as against consensus estimate of 19%, which means an EPS upgrade cycle is unlikely. Given management’s none-too-encouraging comments in the recent past and clients’ weak business outlook, Infosys could even guide conservatively for a 10% PAT growth. This is really shocking and if that is the case then expect a MASSIVE SELL off in IT stocks.
Now are you shocked that how come H-1B Visa’s can take a toll on its margins ? In 2007, Infosys Technologies processed 1,734 Visa applications excluding BPO, Consluting etc The Visa processing charges + Attorney Fees + Employee Relocation cost will all add up.
The first Housing Price Index data as a part of the Indian Economic Survey and provided by the National Housing Bank is as published here. Year 2001 was chosen as the base year for the statistics and is calculated only until 2005. Bangalore / Bengaluru has seen the highest rise in Realty Prices between 2001 and 2005. Yes, it is only upto 2005, further data is being collected and analyzed. Only Delhi, Mumbai, Kolkatta, Bangalore and Bhopal were analyzed. You see how the Index has risen over 5 year period in all the above mentioned cities. (more…)
ICICI Prudential Life Insurance hosted a conference call to clarify the new business margin calculations on its life insurance business – This was prompted by Prudential plc’s disclosure that its Indian life insurance business (which is a JV with ICICI Bank) had a new business margin of 12%, compared to ICICI Bank’s disclosure that the margin is 19%. We depend on the insurance company to disclose margins – it’s impossible to calculate it ourselves – and if Prudential was correct, this would have reduced life insurance values by 35%.
However, the difference is due to accounting; the underlying margin is closer to 19%. The key reason for the difference in margins is expense ratio assumptions. New business margins reflect the present value of all profits on a particular policy; its calculation requires various assumptions like discount rate, return, expense ratio. For the expense ratio, the correct assumption is to take expenses over the life of the policy – which will imply a meaningfully lower expense ratio compared to the current ratio.
Finally we have something from the House of Ruias for Indian investor that is worth mentioning. IDFC-SSKI / Sharekhan has initiated coverage on Essar Oil Ltd with a BUY rating.
Essar Oil (EOL) is on its way to becoming a vertically integrated oil company with significant presence in E&P, large presence in refining and a commensurate marketing infrastructure. A timely investment in expanding its refining capacity by ~3x to 34m tonnes and upgrading its complexity to take advantage of the global tightness in refining would be the biggest value creator for the company. (more…)
Kotak Sec has initiated coverage on Gujarat Ambuja Exports Ltd [GAEL] with a BUY rating.
GAEL used to sell its entire oil in bulk form to other people who were packing it in small quantities and sell it as their own brand. A couple of years back GAEL started doing 20% branded sales while the rest used to go as bulk sales. Today, the company has already achieved almost 65% branded sales.
The company’s solvent extraction plant at Pithampur is the only plant which does not have facilities for refining oil. Thus, to bridge this gap to capture the entire value chain of refining, packing, and selling as branded product the company is setting up 200 TPD oil refinery at Pithampur. It is likely to incur a capex of Rs.150 mn (more…)