Micro Tech: BUY

• Micro Technologies is products focused IT company that develops applications around mobile messaging and Internet.
• Over the years it has developed more than 80 products in various domains with micro vehicle black box, VBB, a vehicle security system, and micro home security system, HSS, messaging based security products being the most popular ones.

Robust order book

• The company's order book for its security products like the VBB and HSS has been growing over the past few quarters and currently it has orders to supply more than 0.35 million systems over the next eight quarters.
• I believe the order book would increase, going forward, as the company enters newer geographies and signs on more customers.

Valuations

• Micro Technologies has no direct comparables in the listed space. Therefore, we have valued this company on the average of FY07E PER of other small/mid cap IT companies.
• Based on this, I arrive at target price of Rs 412, an upside of 57.2% from the current level. The target price of Rs 412 is based on a PER of 14.4X that is the average FY07E PER of Indian IT companies with revenues of up to USD 100 million."

RALLIS INDIA - BUY

Rallis India appears to be a good "value" stock to accumulate at current price levels. At Rs 310, the stock trades at a modest price-earnings multiple of about 10 times its trailing 12-month earnings. This is at a substantial discount to multiples of about 20-22 times enjoyed by both the multinational crop protection companies, such as Monsanto and homegrown ones, such as Excel Crop Care.


Capital infusion from the group by way of preference capital has helped the company make progress on its debt restructuring programme, with interest costs cut by nearly half over the past couple of years. With more cash being released by recent exits from non-core businesses, there appears to be further scope for interest cost savings from a continuation of debt restructuring efforts.

After registering a robust 80 per cent growth in post-tax profit on the back of a 15 per cent sales growth in the first half of this fiscal, Rallis has received a sharp setback to both revenues and profit in the December quarter.

However, investors in agrochemical stocks have to be prepared for volatile earnings as they depend on only on the state of agricultural output, but also on pest incidence in a particular season, which is always a wild card.

However, the modest valuation multiple enjoyed by the Rallis India stock may make it more resilient to downside.

UCO Bank: Buy

UCO Bank: BUY

Fresh investments can be considered in the stock of UCO Bank. The stock trades at a price-to-book value of slightly below one. This appears attractive when compared to its peers such as Syndicate Bank, Andhra Bank and Indian Overseas Bank that are quoting a price-to-book multiple of more than about 1.5.

The bank has done remarkably well on several vital business parameters over the last few months. Advances, for the quarter ended December 2005 have clocked a growth of over 45 per cent, outpacing the industry average of about 30 per cent. There is also improvement on the bad loans front.

The valuation of UCO Bank has, however, lagged behind its peers ever since the stock was listed. There are, however, good reasons for the discount. UCO Bank has for long been suffering from low margins, which impacted its profitability. This situation has continued this year also.

Net interest income rose only by about eight per cent in the December quarter even as advances growth was impressive. This is where the initiative to raise long-term debt fits in. The increased leverage will help in improving the profitability for shareholders. In addition, the discount in valuation compared to peers is relatively higher than warranted as indicated by the dividend yield of 3.2 per cent.

There is also scope for improvement. The bank's increasing thrust on retail business would protect margins going forward. UCO Bank has taken several initiatives to improve its fee income too. Several initiatives rolled out by the bank on the technology front also promise growth in the medium term. An investment with a medium-term perspective can be considered.

Stock Reco's for forthecoming week - End of March...

Selan Explorations Technology Ltd.
Recommendation: Buy
CMP: Rs 58
Target Price: Rs 94

• Developing its oil assets: Selan Exploration Technology Ltd (SETL) aims to considerably ramp up its production through the development of its oil & gas fields. In the first phase, it has embarked on the development of ten oil producing wells in the Bakrol oil field which is estimated to increase the production by at least 500 barrel of oil per day (bpod) over the next 18-24 months.
• Consequently, its earnings are estimated to grow at a CAGR of 39% over FY2006-09E. The first batch of the two additional wells is likely to come on stream by Q2FY2007.
• Relatively de-risked business model: Unlike its peers, SETL has not invested in exploratory blocks and all of its oil fields are located in the category I sedimentary basin that has a track record of proven commercial production. This means that it is not exposed to the inherent risk associated with the exploration business.
• Hike in promoter''s stake: Over the past five years, the promoters have gradually hiked their stake by 7.5% through a reduction in the equity capital from a buy-back of shares and an increase in the absolute number of shares held by them. This reflects the management''s confidence in the business.

1 year price graph

• Attractive valuation: At an enterprise value (EV)/reserve of $0.7 per barrel of oil & oil equivalents (boe), the stock is trading at relatively much cheaper valuations as compared with the other domestic companies like Hindustan Oil Exploration Company (HOEC) and Oil and Natural Gas Corporation (ONGC).
• Globally, exploration and production (E&P) companies command a valuation in excess of $7-8 per boe of the estimated proven and probable (2P) reserve. The stock is expected to get re-rated with the commercialisation of additional wells and ramp-up in the production.
• I recommend a Buy call on the stock with a price target of Rs94 (based on EV/reserve of $1.1/boe which is at a 75% discount to the prevailing valuations of HOEC).

Stock Reco's for the forthcoming week - End of March...

Cadila Healthcare Ltd
Recommendation: Buy
CMP: Rs 595.00
Target Price: Rs 850

• US generic business to grow exponentially: Cadila Healthcare (Cadila) has made a big entry into the regulated markets of US formulations this year. In the coming years its revenues from the high-margin regulated markets are expected to increase exponentially.
• It has a strong research and product pipeline with 30 products expected to receive generic approval by FY2007.
• Strong and steady domestic formulation business to provide a solid base: Cadila is ranked number five in the domestic formulation business in India. It plans to introduce over 40 products in the Indian market in the next two years. We expect the formulation business to be a steady revenue source in the future, showing a higher-than-industry growth rate.
• Key subsidiaries to start adding value: Cadila has subsidiaries in France, the USA and Brazil, and these were making losses till this year. The French business, earlier expected to break even in FY2009, is now expected to do so even earlier, in FY2008.
• The US subsidiary is expected to earn good profits for Cadila from FY2007 onwards. I expect these subsidiaries to collectively make a profit of over Rs 32 crore in FY2008 as compared with a loss of over Rs 30 crore in FY2005.

1 Year Price Graph

• Buy with a price target of Rs 850: A strong research-based, integrated pharma player, Cadila is now spreading its wings to the high-margin regulated markets.
• I expect its consolidated profit after tax (PAT) to grow from Rs117.9 crore in FY2005 to Rs 293.8 crore in FY2008, at a 36% CAGR. Considering its strong growth prospects, we initiate our Buy recommendation on Cadila with a 12-month price target of Rs850, which is a 43% upside to the current market price of Rs595.

Day Trader's Hit List

Stock Reco's for Friday, March 24

Mahanagar Telephone Nigam

Recommendation: Book Profit

Current market price: Rs 181

• I had initiated coverage on Mahanagar Telephone Nigam on May 05, 2004 at a price of Rs 148.
• The stock has achieved our price target of Rs 170. We recommend investors to book profits.

Stocks to Watch in this Week

• Ratnamani Metals & Tubes has secured a order worth Rs 90 crore from a petrochemical company and two export orders worth Rs 30 crore from European companies.
• EID Parry India has entered into a 50:50 joint venture with Roca of Spain for parryware business.
• Reliance Industries is likely to raise about Rs660 crore though an overseas bond issue to fund the capex of its refining and petrochemicals businesses.

Selan Exploration Technology
Recommendation: Buy
CMP = Rs 58
Price target: Rs 94

• Developing its oil assets: Selan Exploration Technology Ltd (SETL) aims to considerably ramp up its production through the development of its oil & gas fields.
• In the first phase, it has embarked on the development of ten oil producing wells in the Bakrol oil field which is estimated to increase the production by at least 500 barrel of oil per day (bpod) over the next 18-24 months.
• Consequently, its earnings are estimated to grow at a CAGR of 39% over FY2006-09E. The first batch of the two additional wells is likely to come on stream by Q2FY2007.
• Relatively de-risked business model: Unlike its peers, SETL has not invested in exploratory blocks and all of its oil fields are located in the category I sedimentary basin that has a track record of proven commercial production. This means that it is not exposed to the inherent risk associated with the exploration business.
• Attractive valuation: At an enterprise value (EV)/reserve of $0.7 per barrel of oil & oil equivalents (boe), the stock is trading at relatively much cheaper valuations as compared with the other domestic companies like Hindustan Oil Exploration Company (HOEC) and Oil and Natural Gas Corporation (ONGC). Globally, exploration and production (E&P) companies command a valuation in excess of $7-8 per boe of the estimated proven and probable (2P) reserve.
• The stock is expected to get re-rated with the commercialisation of additional wells and ramp-up in the production. We recommend a Buy call on the stock with a price target of Rs94 (based on EV/reserve of $1.1/boe which is at a 75% discount to the prevailing valuations of HOEC).

Stock Reco's for This Week

ORG Informatics
Recommendation: Buy
CMP = Rs 138
Price target: Rs 194

• ORG Informatics has announced that it has bagged an order worth Rs 255 crore from Bharat Electronics Ltd (BEL) for the convergent billing system that is being implemented for the state-owned Mahanagar Telephone Nigam Ltd (MTNL).
• The order largely involves the supply and integration of the hardware related requirements of the project.
• Consequently, the margins are likely to be lower than the double-digit margins reported by the telecom business segment currently. The order is to be executed over the period of the next 24 months.
• Hence, the future of ORG Informatics over the next couple of months seem to be very bright and hence I recommend Buy option for this stock.

Stock Reco's for Mar 14-16

Mahindra & Mahindra
Recommendation: Buy
CMP = Rs 612
Price target: Rs 700

• Mahindra and Mahindra (M&M) was in the news recently for making some important announcements. These include:
• a) the launch of a new version of Scorpio,
• b) the expansion of the capacity of its Nasik plant at a cost of Rs100 crore, and
• c) the setting up of its first overseas factory in Russia.

Hindustan Lever
Recommendation: Buy
CMP = Rs 258
Price target: Rs 270

• HLL raises price of Lakme productsHindustan Lever Ltd (HLL) has marked up the prices on its leading cosmetic brand, Lakme.
• The increase is across the Lakme range of colour cosmetics and skincare products.
• For some products, the price hike comes after a gap of two years.

Stock Reco's for March 13-17

Electrosteel Casting Limited
Recommendation: Buy
CMP: Rs 382.45
Target Price: Rs 465

• Electrosteel Casting Limited is an integrated water infrastructure player providing end-to-end solutions in water supply and sewerage application systems.
• The company has been growing at a CAGR of 24 per cent over the FY2002-05 period with exports contributing almost 20 per cent to sales. On the back of robust demand, the company’s sales and PAT are estimated to grow at a CAGR 24 per cent and 42 per cent respectively , over the FY2006-08 period.
• At the current market price, it is trading at a P/E of 5.8x FY2008E EPS of Rs 62.

Lupin Limited
Recommendation: Buy
CMP: Rs 865.40
Target Price: Rs 1,130

• Lupin Limited is one of the world’s largest manufacturers of drugs that combat tuberculosis, bacterial infections and cardiovascular disease. The company has a vast reach in the domestic formulation segment.
• It is now focusing on high growth lifestyle segments and with aggressive new launches in FY2006 we expect the revenues from the domestic formulations segment to increase by 33 per cent from Rs 455 crore in FY2005 to Rs 608 crore in FY2006.

United Phosphorus Limited
Recommendation: Buy
CMP: Rs 272
TARGET PRICE: Under Review

• United Phosphorus Limited is the largest producer in India of crop protection products. Its product range includes fumigants, fungicides, insecticides, rodenticides and herbicides.
• It ranks fourth amongst the generic agrochemical companies in the world. In Q3FY06, on a year-on-year basis the company has reported 26.3 per cent and 53.8 per cent growth in revenues and net profit, respectively .
• I expect the company to further improve its performance, led by a combination of fresh registrations and inorganic initiatives.

Stock Reco's for March 13-17

Mahanagar Telephone Nigam Limited
Recommendation: Sell
CMP: Rs 137.50

• Mahanagar Telephone Nigam Limited (MTNL) was set up in 1986 by the Indian government to upgrade the quality of telecom services and expand the telecom network. However, the recent developments in the telecom sector have not boded well with the company.
• In Q3FY06, the company registered a mere 2.70 per cent year-on-year growth in sales. This was due to a limited increase in the customer base coupled with falling ARPUs (Average Revenue Per User).
• Lack of day-to-day operational freedom, overstaffing, the restriction on expanding geographically beyond Mumbai and Delhi and insufficient marketing and customer-care focus are expected to further impact the company’s performance in the coming future.

Nucleus Software Limited
Recommendation: Buy
CMP: Rs 357.50

TARGET PRICE: Rs 457

• Incorporated in 1989, Nucleus Software Limited’s business broadly consists of software development and support services for corporate business entities.
• Its flagship products like ‘FinnOne’ and ‘Cash@will’ are very well received by its clients. In the first nine months of FY06, the company’s revenues and profits have grown by 47 per cent and 114 per cent respectively on a year-on-year basis.
• Margins are expected to remain subdued in the next few quarters since the company is adding up significantly to the employee numbers. The stock is currently trading at 12.5 x its FY07E EPS of Rs 29.

AIA Engineering Limited
Recommendation: Buy
CMP: Rs 601.55
Target Price: Rs 700

• AIA Engineering Limited is an ISO 9000 certified company, specialising in design, development, manufacture, installation and servicing of high chromium wear, corrosion and heat resistant parts used in cement, mining and thermal power generation industries.
• In Q3FY06 the company’s performance was better than expected. On a consolidated basis, the company registered sales of Rs 94.5 crore (up by 48 per cent) and net profit of Rs 13.6 crore (up by 115 per cent) on a year-onyear basis.

Sensex zooms 192 points to new peak

The benchmark Sensex scaled a new life-time high on Friday, while riding on the back of all-round buying interest witnessed on the blue chip counters.

After a jump of more than 200 points in the intraday trade, the 30-share Sensex settled with a gain of 191.62 points at a new record closing high of 10,765.16, after hitting an all-time peak of 10,782.34 in intraday trade. The NSE Nifty closed 54.80 points higher at 3,183.90, after hitting an intraday high of 3,189.35.

Buying interest was conspicuous across a host of sectors on Friday and there were only three Sensex scrips that ended the day in the red. Satyam Computer, HDFC, Bajaj Auto, HLL, L&T, Hero Honda, Infosys, Tata Motors, TCS and Tata Power were among the biggest gainers on the Sensex, while Reliance Energy, HDFC Bank and Ranbaxy closed with modest losses.

The overall market breadth was also positive with 55.04 per cent of the total BSE scrips closing with gains, as against 42.06 per cent scrips closing in the negative territory. Buying acitivities were particularly impressive on the auto, technology, FMCG and capital goods counters, while banking, consumer durables, healthcare, metal and energy sectors also witnessed robust demand. All the sectoral indices on the BSE closed in the positive territory.

Stock Reco's for March 6-10

Tata Consultancy Services
Recommendation: Buy
CMP = Rs 1,705
Price target: Rs 1,980

• Leader all the way: In addition to being the largest information technology (IT) services vendor, TCS has the largest practice in most of the fast-growing new service offerings like package implementation, remote infrastructure, testing and engineering services, which is something not highlighted in its consolidated reporting structure.
• Boosting BPO business: TCS lagged behind its peers in terms of the ramp-up in the BPO business. However, the recent acquisition of Chile-based Comicrom and the take over of assets in the Pearl deal has dramatically enhanced the scale of the company’s BPO operations and more importantly the skill pool in the lucrative insurance and pension industry vertical.
• Eyeing the large deals: Given the range of its offerings, the scale of operations in each horizontal practice and its global delivery presence, TCS is ahead of some of its peers in terms of bagging large outsourcing deals. It is effectively leveraging its leadership position to aggressively exploit the vast opportunities emerging from the scheduled renewal of the numerous outsourcing deals globally.
• Margin pressure can be mitigated: The concerns related to the severe pressure on its profitability from the integration of low-margin acquisitions and some large outsourcing deals have resulted in the scrip’s underperformance on the bourses. However, the company has levers to mitigate the adverse impact in the short-term and improve the overall profitability gradually over the coming quarters.
• Limited downside risk: Given the scrip’s recent underperformance, the premium attracted by TCS over the benchmark indices has narrowed down considerably and would limit the downside. With the estimated earnings per share CAGR of over 25% in the two-year period FY2006-08, I recommend a Buy on the stock with a target price of Rs 1,980, which works out to 21x its FY2008E earnings.

Day Trader's HIT List - 3 March

Upmove likely to continue

After moving above the medium-term channel the Nifty has been exhibiting strength and it could test 3225 in the short term. On the downside there is a support at 3120. Any intra-day or near-term decline should see the index find support around 3120 and move up to test higher levels in the short term. Intra-day the Nifty could test its resistance at 3166 and a break above 3166 will see further intra-day strength in the market.

Tata Chemicals is range-bound between Rs 232 and Rs 260 with a positive bias. Bank of Baroda has a support at Rs 219 and it faces a resistance at Rs 240. Jet Airways is in the Rs 1,014-960 trading range with a positive bias. A break above the range will see the stock test Rs 1,057.

IMPORTANT - Change in market timings due to Sun Outage

Kindly note that there will be a change in the market timings from March 06, 2006 to March 19, 2006 due to the sun outage. The changed timing will be as follows:

Duration of Outage : March 06, 2006 to March 19, 2006.

Market Open : 0955 hours to 1145 hours.

Break : 1145 hours to 1230 hours.

Market Resume : 1230 hours to 1615 hours.

Closing Session : 16:35 to 16:45 hours.

Budget 2006: What Is In It For You...

As A Consumer

• Small cars to be cheaper, as excise duty cut from 24% to 16%
• Coke & Pepsi promise to get more enticing this summer
• Calories back in fashion as FM exempts host of food items from excise
• Fridge, AC, Desktop computer & Laptop prices expected to go up
• All cooking oils set to become more expensive
• Prices of clothing items expected to drop

As An Investor

• Hike in STT rate to make market transactions costlier
• FDs kept with banks for 5 years get tax breaks
• Close-Ended MFs attractive now as dividend distribution tax goes

As A Taxpayer

• No changes in direct-tax rates
• One-by-six scheme scrapped
• Tax sleuths keep close watch on spending

As A Corporate

• MAT (minimum alternate tax - on book profit) rate hike from 7.5% to 10% to hit bottomlines
• Long-term capital gains now part of book-profit & thus taxable
• FBT tax rates reduced selectively but hassels remain

Keep visiting this space to get more insight on Budget 2006...

Highlights of Budget 2006

Big Picture

• Finance minister says economic prospects for 2005/06 just as good as last year
• GDP growth likely to be 8.1 percent in 05/06
• Government aims to raise GDP growth to 10 percent
• Gross budgetary support for 2006/07 at 1.73 trillion rupees
• FDI inflows up to November 2005 at $4 billion

Rural Investment

• Farm sector output likely to grow 2.3 per cent in 2005-06
• Government to spend Rs 117 billion ($2.60 billion) on rural jobs guarantee scheme in 05/06
• Government to allocate 186.96 billion rupees for rural infrastructure projects in 2007-07
• Banks to raise farm credit to Rs 1.75 trillion in 06-07 from 1.42 trillion
• Farmers to receive short-term credit at 7 per cent

Health and Education

• Education spending to be increased by 31.5 per cent, and health spending by 22 per cent
• Allocation for primary education increased to Rs 100.41 billion from 71.56 billion
• Allocates more funds for education of minorities, schemes for lower caste people

Industries

• Government to promote textiles, automobiles, leather, food processing and tourism for job creation
• Food processing sector to be treated as a priority sector for bank lending
• Petroleum, chemicals and petro-chemicals investment zones to be set up
• India to be promoted as a semiconductor manufacturing hub

Infrastructure

• Government aims to raise power generation capacity by 15,000 megawatts by March 2007
• Comprehensive review of coal policy needed
• Government expects investment of 220 billion rupees in oil refining over next few years. The government will encourage investment in refineries, pipelines and green fuel.
• Highways development programme to receive Rs 99.45 billion in 2006-07. The government has identified three new road projects to be built under a new special purpose vehicle.

BUDGET 2006 - Reform Cues Go Missing In Poll Hues

MODEST taxes and modest spending increases marked a Modest budget from a normally immodest finance minister. This don't-rock-the-boat Budget was tailored for the upcoming state elections. Finance Minister P Chidambaram, on Tuesday, steered clear of controversial reforms - some of which had been confidently predicted - that might have raised electorial heat. He didnot utter a word about labour reforms or raising oil prices in line with the Rangarajan committee's suggestions.

The Finance Minister didnot liberalize foreign investment, announce any new disinvestment, tax withdrawals of long-term savings, or impose any new tax. He increased allocations for every conceivable vote bank, but modestly enough to avoid an explosion of pre-election spending that might swell the fiscal deficit. Releived by this prudent populism, sensex shot up by 88 points!

What is cheaper & what is costlier

Cheaper

• Small cars
• Soft drinks
• Shoes
• Ice cream
• PVC
• Alloy Steel
• Aluminium
• Tin Sheets
• Anti-HIV drugs
• Anti-Cancer drugs
• Pasta
• Instant food products
• LPG stoves
• Fluorescent lamps
• DVD drives
• Flash drives

Costlier

• Packaged software
• Umbrella
• Walking Sticks
• Kitchenware
• Tableware
• ATM services
• Honey
• Vanaspati
• Credit/debit card services
• Share transfers
• Internet Telephony
• International Air Travel
• Travel by cruise ships
• Glassware
• Computer
• Soaps
• Cigarettes
• Biscuits
• Goggles
• Henna powder
• Ceramic items
• Bricks and tiles
• Marble slabs
• Roofing tiles