On Wipro's Citi Technology Acquisition - Analysis
Wednesday, December 24, 2008Wipro has acquired Citi Tech Services (CITOS), Citigroup's India-based captive, for an all-cash deal of US$127m. CITOS has CY08 projected revenue of US$80m.
According to our estimates, Citi would, through CITOS, provide Wipro with revenue of at least US$500m over the next six-year period. The acquisition is expected to close in Mar-09. [The same way like TCS - Citi BPO Deal that happened in October-08]
Operations of CITOS:
CITOS provides Technology Infrastructure Services (TIS) and application services. It has about 2,050 people (1,650 employees and 400 on contract) and development facilities in four locations - two each in Mumbai and Chennai. CITOS gets business from Citi entities worldwide.
On a TTM basis, CITOS has an EBIDTA margin and NPM of ~38% and ~42%, respectively, assuming an annual run-rate of US$80m in revenue.
Published by Sunil K @ 10:08 AM IST.
JP Associates Mergers - Impact Analysis
Tuesday, December 23, 2008Jai Prakash Associates [JPA] proposes to merge the following companies with itself wef April 1, 2008.
Jaypee Hotels Ltd (existing 72% stake, owns Jaypee Palace Hotel (Agra), Jaypee Vasant Continental and Jaypee Siddharth Hotel (New Delhi))
Jaypee Cement Ltd (existing 100% stake)
Gujarat Anjan Cement Ltd (existing 100% stake, setting up ~ 2.4 mtpa cement capacity in Gujarat by FY10)
Jaiprakash Enterprises Ltd (owns 15% stake in Jaypee Power Ventures. Jaypee Power Ventures in turn owns power assets of Vishnuprayag hydro, Siddhie and Karcham Wangtoo (55%)). (Outstanding share capital and stake held by JPA is not known)
The impact of merging three subsidiaries Jaypee Hotels, Jaypee Cements and Gujarat Anjan Cement with JPA is negligible. Equity share capital is diluted by 1.3%, JPA's standalone PAT increases by 0.8%. We await details of the outstanding share capital and stake held by JPA in Jaiprakash Enterprises to assess its impact on JPA.
Published by Webmaster @ 9:38 AM IST.
Morgan Stanley Upgrades to Equal Weight
Monday, December 22, 2008Morgan Stanley recommendations are following the Indian market but not lading it ;-). Morgan has upgraded India to Equal weight from Underweight.
India's quant model ranking has improved from #19 to #13 making it the biggest gainer in rank on the month. India has had a major jump in its relative EPS growth (#6 to #2) indicating a less severe deterioration on these metrics over the last month than other EM markets. On the trailing P/E (#17 to #11) and P/CE metrics (#13 to #10) India has also improved significantly.
However, India remains locked at the bottom of the asset class on the dividend yield metric. The market's technical ranking has also improved (#14 to #9).
You can recall, Morgan Stanley has got many forecasts about India wrong. Former Morgan Analyst Andy Xie had told India will slip into Bear Phase in 2006 but it made an all time high in Jan-08.
Published by Komal M @ 12:55 PM IST.
Inflation Tanks to 6.84%
Thursday, December 18, 2008For the week ending 6 Dec '08, headline (wholesale price index, WPI) inflation fell to 6.84%, beating our and street estimates by large margins.
For the first time, Primary prices fell, backed by easing in food articles (food grains, fruits, vegetables and condiment and spices). Non-food articles also witnessed a fall. We expect the current trend to continue, further easing primary price inflation.
Except food products, all the major components witnessed a fall. Basic metals, alloy, chemicals and transport equipment fell. The week under review saw cuts in the administered fuel (petrol and diesel) as well as non-administered fuel.
Going forward, Inflation is softening ahead of our expectations. The cut in cenvat, a stronger rupee and the pass-through of falling international commodity prices now indicate that India might slide into a technical deflation much sooner than our earlier forecast.
Published by Webmaster @ 12:44 PM IST.
Advance Tax Collection - Autos + Commodoties Lag
Tuesday, December 16, 2008We have finally got the list of Advance Tax Numbers from IT Authorities in Mumbai and here is the picture.
For Q3FY09, PSU Banks led by SBI, Bank of India, Bank of Baroda, Central Bank of India have remitted higher Advance tax compared to Q3FY08.
Private Banks [ICICI / HDFC Bank] advance tax payments were below Q3FY08. The worst was from Mahindra & Mahindra which has paid mere Rs 4 crore compared to 60 crore a year ago. Ultratech and Tata Steel have also paid significantly lesser tax. The following chart shows the numbers.
Published by Webmaster @ 3:46 PM IST.
PLR Cut in the Next Few Weeks
Monday, December 15, 2008On the back of weakness in industrial sector, expect banks to cut their prime lending rates (PLR) by 75bp by March 09 and another 75 bp by 1HFY10.
Indian bankers who have been resisting a lending rate cuts - "only Delhi wants it", arguing they have sufficient customers queuing up at their branches. Credit demand had indeed accelerated to 26.5% in November 08 from 22.8% last year with corporates shut out of the capital market and external commercial borrowings returning to banks.
Expect Delhi to be more amenable to a parallel reduction in public sector bank deposit rates with the November 08 assembly polls out of the way - and with a better-than expected performance.
Further one can expect RBI easing: 50bp rate and CRR cuts by January 09 and 100bp SLR cut by March 09.
Published by Webmaster @ 2:04 AM IST.
Life Insurance Company Marketshare
Sunday, December 14, 2008The Private Life Insurance Companies have put a fantastic effort to break into the monopoly of LIC India. LIC controlled 100% of the market in 2000 and since then its market share has slipped to less than 50% and at the end of October-08, it was at 37.1%. Private Insurance Companies control 62.9% of the Life Insurance market in India.
Top 5 Private Life Insurance companies Marketshare at the end of Oct-08 is as follows,
- ICICI Prudential - 14.1%
- SBI Life 9.1%
- Bajaj Allianz - 8.5%
- Reliance Life - 5.6%
- HDFC Standard - 5.5%
Published by Webmaster @ 2:14 PM IST.
Industrial production contraction - Temporary Blip
Friday, December 12, 2008Industrial production for Oct-08 contracted 0.4%. This was way behind market expectation. The last industrial-production contraction registered back in Apr-94. Manufacturing, the major part of industry, declined by 1.2% in Oct-08. Mining and electricity grew 2.8% and 4.4%, respectively.
Auto, chemicals, food products nonmetallic minerals and textiles contracted significantly. While the performance of almost all industrial categories deteriorated, the fall has been most marked for capital and intermediate goods.
Compared to the 15% export-GDP ratio for the whole economy, the ratio was over 50% for manufacturing. A near freeze of international trade finance in Oct-08 and stalling global demand seem to be the main factors behind the contraction of manufactured output.
Industrial growth is likely to be subdued during Nov-08 as well. Lacklustre industrial sector performance since Aug-08, however, does not necessarily indicate an impending recession/sharp growth slowdown in India. Recent improvements in domestic liquidity and the credit situation and the pro-active stance of the authorities are likely result in a modest bounce back in 4QFY09.
Published by Webmaster @ 6:03 PM IST.
100bn Fertilizer Bonds - Marginal Impact
Thursday, December 11, 2008Govt. will issue INR100bn of fertilizer subsidy in the form of Bonds. This issue of bonds forms ~10% of total estimated fertilizer subsidy for FY09, which is higher than our expectation of ~5%. However we believe the companies will realize cash and minimize losses on discounting these bonds through a delayed sale to institutions given further rate cuts expected in FY09.
These bonds will bear a yield of 7% till maturity in 2022. They are being issued at par and are not eligible to be kept with banks under SLR requirement. The bonds can be bought by insurance companies in the "other approved securities" list and also by PF/Gratuity/Superannuation funds as special bonds. Moreover, these bonds are also eligible for repo transactions.
While Chambal Fertilizers will receive INR2.16bn and Tata Chemicals will get INR6.12bn worth of bonds, we expect these companies to wait for the discount to narrow before selling the bonds and hence minimize losses.
Published by Webmaster @ 12:46 PM IST.
Astrologer - Ashok Motiani Led Rally ?
Wednesday, December 10, 2008
Believe it or Not!!! Today's Rally in the Equity Market was rightly predicted by Financial Astrologer - Ashok Motiani. Yes he had quoted the Date - Dec-10-2008 as the beginning of the rally, on Nov-18th-08.Ashok has the credibility of correctly predicting the 3 great crashes in the Indian stock market - 1992, 2006 and 2008. According to Ashok, the Indian market should rally upto 16,000 by the end of Feb-09. He has also said that India will outperform American Economy.
If Ashok is right, then we need to stop looking at Analysts whose recommendations have followed the market in the past 6 months. The big question is will Analysts now follow Ashok Motiani before pushing the publish button of their recommendation ?
Published by Webmaster @ 3:42 PM IST.
Inflation headed to sub 5% levels
Tuesday, December 09, 2008With the recent cut in fuel prices and CENVAT, the Inflation is headed towards sub 5% level. The move has direct impact to reduce inflation by 0.5 ppt; total impact may be about 1 ppt.
CENVAT reduction can lower inflation rate by 2.5 ppt on complete pass-through, but actual impact may be much less. The CENVAT reduction can lower the inflation rate closer to 7.0% by end-December, even assuming a moderate pass-through.
Strong base effects starting January 2009 may lower inflation to sub-six percent at the start of the new year. Inflation is likely to trend down to 4.0% by end-March 2009 with further downside risks to this number. One can expect inflation to continue to decline to around 1% by July 2009, unless global oil prices reverse before that or some new shock comes.
Published by Komal M @ 1:31 AM IST.
DLF + Unitech + Ansal properties downgraded by Fitch
Saturday, December 06, 2008Global rating Agency Fitch has downgraded the Ratings for Indian Real Estate Companies including DLF, Ansal Properties and Unitech.
- DLF has been downgraded from F1+ to F1 due to reduced liquidity position, which is driven by an overall slowdown in the real estate sector, resulting in slower sales and significant receivables from DLF Assets Ltd [Privately Held Company].
- Unitech - Long Term Debt rating is down to A- from A+ and outlook revised to Negative from Stable. Likely negative impact of the rapidly deteriorating real estate sector on Unitech's ability to service debt given its current cash flow generation and amortising debt structure and reduced liquidity position.
- Ansal Properties and Infrastructure - Long term debt rating has been revised to BBB- from A- and outlook revised to Negative from Stable. Weaker than expected operating results, higher financial leverage levels than previously anticipated and reduced liquidity position resulting in increased refinancing risk.
Published by Webmaster @ 11:06 PM IST.
What Falling Crude Prices means to India ?
Friday, December 05, 2008Crude prices tumbled US$20/bbl in November 2008 led by concerns of a deep and lasting global recession resulting in weakening global demand and strengthening of the US Dollar. The following chart shows 14 year historical Crude Oil prices in USD / barrel.
Refining margins have declined sharply and plunged into negative territory in November 2008 led by demand weakness and sharp contraction in product (naphtha and gasoline) cracks. We could see a short-term rebound from current very low levels but expect refining margins to remain under pressure.For December 2008, the marketing margin for gasoline at Rs10.9/liter (versus Rs1.3/liter in November and -Rs6.6/liter YTD), the marketing margin for diesel at Rs4.6/liter (versus -Rs0.1/liter in November and -Rs11.8/liter YTD). Subsidy losses on LPG and kerosene were at Rs72/cylinder and Rs16.3/liter for December 2008 compared to Rs217/cylinder and s20.9/liter in November 2008. Since current retail prices result in very high marketing margins, expect the Government to cut prices of diesel and gasoline over the next few days.
Published by Webmaster @ 1:35 PM IST.
Food Price still High - WPI Down
Thursday, December 04, 2008
For the week ending 22 Nov '08, headline (wholesale price index, WPI) inflation fell to 8.40% from 8.84% last week.Contrary to softening of WPI, CPI continued the ascent for the third successive month in Oct'08 and crossed 10% mark first time in almost ten years. Primary food articles grew 10.48% y-o-y. Food grains, cereals, pulses, vegetable, egg, meat and fish are the main drivers of this rise.
Fuel index continues to fall on the back of non-administered fuel components. Manufactured products mostly edible oil, rubber and plastic products and basic metals have witnessed a continuous fall in the recent weeks.
Inflation falling will provide more comfort to RBI to ease the monetary policy and we expect further repo, reverse-repo and CRR cuts.
Published by Webmaster @ 12:50 PM IST.
Dr Reddy's German Contract Impact
Wednesday, December 03, 2008
AOK (Allgemeine Ortskrankenkassen), German group of public health insurer, has indicated partial (44 APIs out of 64) results for the recent bidding for its two year tender. Amongst Indian players, DRL (Betapharm) has the highest interest in AOK business.According to DRL, it has won 29 contracts so far (out of 220 awarded so far), which relate to seven APIs (out of 33 APIs bid by DRL). In our view, what matters is the value of contracts won (rather than the number of contracts), price compression.
We await results of the AOK tender for the balance of 20 APIs and disclosure by DRL on the net impact of AOK tender on its German business.
Published by Webmaster @ 1:47 AM IST.
Auto Sector Sales - No Cheers Despite Festive season
Tuesday, December 02, 2008
November was a disappointing month for the two-wheeler sector. Bajaj put up a dismal performance, which was significantly impacted by weaker retail demand and correction of dealer inventories. Bajaj's domestic volumes declined by 51% YoY. Hero Honda performed above our expectations in November (flat YoY vs. -3-4% expected) and gained 30 bps market share MoM over Bajaj Auto. TVS' domestic volumes also declined by 28% YoY.Maruti Sales was down 25%. Domestic sales were down 27% YoY, driven by a 27% YoY decline in A2 segment volumes. We believe that Swift and Dezire volumes continued to hold out in this challenging environment, but demand for old models was extremely disappointing.
Mahindra & Mahindra November sales declined 38% YoY, driven by weak UV (- 41% YoY) and tractor sales (-32% YoY). Domestic tractor sales declined 33% YoY, reflecting a sharp reduction in dealer inventories to match the slowdown in retail off-take.
Published by Webmaster @ 12:06 PM IST.
Infosys Conference Call Excerpts
Monday, December 01, 2008Here is an excerpt from the Conference Call with the Management of Infosys Technologies held on the 28th of Nov,
- Mr Gopalakrishnan sai that near-term visibility remained low, with 2009 budgets expected to decline YoY
- The company indicated that IT budgets of financial sector could have stabilized while retail could be under pressure
- Management agreed that there could be pricing pressure in 2009
- On the other hand, the company is highly focused on reducing costs to maintain margins. Travel budgets and new investments could be reduced now and company could limit employee variable wages if margins come under severe pressure.
- Finally, if margin performance comes under pressure, the pain would be shared
between employees, business investments and shareholders in the ratio 50:25:25
Published by Komal M @ 1:53 PM IST.
