Indian Equity Research and Investment Strategy
Our IPO analyst has learnt that SEBI has recommended a Dutch Auction process for IPOs. Google went IPO in this route. The move is to discourage small investors to make a profit on listing.
The government had discussed the proposal with SEBI after which the panel was entrusted with the task. According to one model being considered by the committee, qualified institutional buyers (more…)
Edelweiss is recommending investors to book profits in Reliance Capital.
The company’s overall business performance and expect its asset management segment to grow by 45% over FY07-10E, market share in life insurance to improve significantly to 10% by FY09E and 11% in FY10E, and the GWP in general insurance to grow aggressively at 100% plus over FY07-09E. Moreover, we estimate the company’s retail broking business to generate a profit of INR 1,050 mn by FY09E and INR 1,575 mn by FY10E, and its consumer finance book to grow to INR 115 bn by FY09E and INR 185 bn by FY10E.
Sum-of-the-parts (SOTP) framework gives us the base case fair value of INR 1,573 on FY09E and INR 1,874 on FY10E estimates and we believe the stock should hover in this range in the medium term. Investors can book profit at these levels and to view any weakness in the stock as an opportunity to re-enter.
Assigning a 100% probability to what the company seeks to achieve over the next two years, we arrive at the fair value of INR 1,894 on FY09E estimates and INR 2,482 on FY10E basis (best case).
FII, Lehman Brothers just a while ago has released India strategy report.After the recent strong run, market valuations have become quite expensive compared with historical levels. However, the declining global interest rate environment coupled with strong flows could mean that the market remains expensive.
The report said,
We are overweight domestic cyclicals, especially those for which interest rates are key inputs in driving demand and valuations. These include banks, automobiles and utilities as key sector plays. We also recommend overweighting construction stocks given strength in both corporate and infrastructure capex. Moreover, we expect large consumption buoyancy, especially in durables, following the award of Sixth Pay Commission.
One can avoid sectors with INR costs and USD revenues. This means underweighting the technology and pharmaceutical sectors. Also underweight on global cyclicals such as metals at this time..
Ten large cap picks include Reliance Industries, ICICI Bank, Larsen & Toubro, Maruti Udyog, Mahindra & Mahindra, Union Bank, SBI, Nagarjuna Construction, NTPC and Zee Telefilms.
We have received reliable information from insiders that AT&T Bids For India Telecom License With Mahindra Unit – US Telecommunications major AT&T Inc. Sources said it has bid for licenses to provide mobile services in all 22 circles in India.
Bharti Airtel has become the first Indian telecom company to hit a subscriber base of over 50m (about 48m of these would be mobile customers) till the end of September, making it the tenth largest wireless telecom operator in the world. The company will also launch its DTH by the end of March 2008.
Omaxe’s wholly owned unit Satvik Hitech Builders Pvt. Ltd. will apply for a license to provide telecommunications services in 22 circles.
So considering this rush of new applications, Vodafone’s BUY out of HTIL appears to be really cheap and reasonable.
Sobha Developers has entered in to a joint development agreement with QVC Realty and Chintels India, to develop an integrated township spread over 192 acres in Gurgaon, Haryana. This is an addition to the list of integrated township projects already launched by the company in Kochi and Thrissur.
Projected investment estimated to be over Rs 20,000 million and the total development in excess of 6.5 million square feet.
US-based private equity fund Goldman Sachs is learnt to be in talks with Indiabulls Real Estate (IREL) for investing $200 million (around Rs 800 crore).
Insiders told us that half of the proposed investment, around Rs 400 crore, could be in a 50:50 special purpose vehicle (SPV) to be floated by Goldman Sachs and parent firm Indiabulls, while the remaining Rs 400 crore could be in IREL’s existing projects.
Indiabulls Group is also looking to diversify into sectors like power, retail and telecom. The group has already applied for mobile licences.
Indian IT major, Infosys Technologies which mainly banked on large maintenance and lower end IT work is now going through mid life crisis. Founding member, Naryana Murthy who takes much credit is responsible for the current mess Infosys is in today. Had he been a visionary, he should have stepped down long before to pave wway for other Infoscions who have different vision apart from being mere consulting company. Unfortunately all those guys parted ways with Infosys to successfully build tech companies – OnMobile is one of them.
Scenario 1: Indian Rupee at 39 for FY09 and 3-4% appreciation from current levels.
In this scenario, our EPS estimate for FY2010 is INR 110 (considering the higher tax rate in 2010) and EPS is expected to grow at a CAGR of 25% between FY10-12.
1a. Assuming a historically traded PEG of 1, the stock price in 18 months should be INR 2,750 (25x FY10 EPS, upside of 44%).
1b. Assuming a lower PEG of 0.8 to factor in lower ROEs (31% in FY10 from 40%+ in FY05-07) and risk of further depreciation, the stock price in 18 months should be INR 2,197 (upside of 15%, 20x FY10 EPS).
Scenario 2: Indian Rupee at 38 for FY09 and 3-4% appreciation p.a. from there
In this scenario, we think FY10 EPS will be INR 104 (considering the higher tax rate) and EPS will grow at a CAGR of 25% between FY10-12.
2a. Assuming historically traded PEG of 1, the stock price in 18 months should be INR 2,599 (upside of 36%).
2b. Assuming a lower PEG of 0.8 to factor in lower ROEs (29% in FY10 from 40%+ in FY05-07) and risk of further depreciation, the stock price in 18 months should be INR 2,079 (upside of 9%, 20x FY10 EPS).
Assigning a 33% probability to scenario 1b and 2b and 17% to 1a and 2a (of course there can be more optimistic and pessimistic scenarios). 18 month target price comes to INR 2,314 (annualized return would be 14.5%). Therefore, it should be rated accumulate from the current levels. It becomes a buy only below INR 1,800