HDFC Bank - Out Performer

Prabhudas Lilladher has reiterate their out performer rating on HDFC Bank. Currently the stock is trading at 4.5x FY 08 ABV. Net NPA of the bank remains steady at 0.4 per cent of net customer assets.

In Q3 FY07 result, bank has reported 30.4% growth in deposits to Rs. 667.5 bn whereas advances have gone up by 33% to Rs. 480.2 bn. Within this share of retail advances have come down from 54.3% a year ago and from 56% as on Q2 07 to 52%. Steady NIM and healthy business growth has resulted in NII going up by 38.5% to Rs. 9286 mn. While true to its past performance bank has reported steady bottom line growth with net profit going up by 31. 7% to Rs. 2956 mn. CAR has improved to 12.8% against 12.1% in Q2 FY 07.

HDFC Securities Retail Research recommends Bartronics India (BIL)

HDFC Securities Retail research recommends a “Buy on decline” on Bartronics India (BIL) with a price range of Rs 98 to Rs 111. The stock closed at Rs 123 on January 12 and trades at at 13.8 times and 8.9 times FY08 and FY09 estimated earnings.

BIL, which is the only integrated player in the AIDC/RFID solution market in India, planning to establish a manufacturing facility near Hyderabad for smart cards and/or RFID tags with an investment of Rs 262 crore.

HDFC securities expects the company to achieve a topline of Rs 71 crore, Rs 210 crore and Rs 280 crore respectively in next three years from FY07 on the back of rising output.

The new project brings with it the benefits of the first mover in a fast growing industry, faster rollout, backward integration and change in orbit for BIL. However, it exposes to the risks of project completion, gestation issues, operating risk of low utilisation in a capital-intensive industry and an entry into a commodity business.

Research Calls: Infosys Technolgies

BRICS PCG recommends a "Buy" on Infosys Technologies at Rs 2183 with a revised target of Rs 2806 (earlier target price of Rs 2217). The stock trades at 32.1 times and 25.7 times its estimated FY07 and FY08 earnings respectively.

The strong growth recorded in the December 2006 quarter with a 9.7 per cent growth in total billed volumes and a 10.1 per cent growth in revenues in dollar terms was in line with expectations.

Though the rupee appreciation led to a fall of 200 basis points in margins, it was offset to the extent of 80 basis points by an improvement in revenue productivity, 30 basis points by lower SG&A expenses and 80 basis points by higher license fees from banking product Finnacle.

Though BRICS has marginally revised its FY07 EPS estimates down to Rs 68 from Rs 69, it has kept its FY08 estimates of 85.1 unchanged. Moreover added offshore effort and continuing Client growth are key positives.

How to invest in a risk-free way

The BSE Sensex fell by 400 points in the second week of December 2006, reviving memories of the fall in May, when it crashed by more than 1,000 points within a week. The Sensex came down from a high of 13,000 to 10,000 in a month's time.

A major portion of investors' wealth was wiped out by the steep decline and many burnt their fingers, especially, those who had invested only in equities. They are yet to recover from the shock. The proverb that never put all eggs in one basket comes in handy in such times.

This axiom points at diversification of assets, since it reduces risk.

Diversification here means proper asset allocation among different asset classes.
This cuts down the risk of overall negative returns, because when one asset class is performing badly, another might be doing well. What one should note is that he/she should possess negatively correlated assets, i.e. when one asset is in negative territory, other must be in positive.

As we all are aware, there is a negative correlation between the bond market and share market. When the share market witnesses a boom, bond usually does not perform well. For allocating assets to different classes, one should be aware about the various asset classes available today. Unlike the earlier days, when not many choices were available in the market, today we have a wide range of products vying for the investor's attention. For convenience sake, here we are not considering hedging tools such as futures, options, derivatives and commodities.

Cash is the liquid form of asset with no capital growth. Inflation risk too is high. You can keep cash at your home or in savings bank account.

Fixed interest/debt
Next comes fixed interest securities or debt. These could be fixed deposits with a bank or company or government or corporate bonds. Here the chances of capital growth are poor, liquidity is high. If inflation soars, real rate of return is less than the interest rate. The rate of return is around 8 per cent per annum.

The stock market is an avenue available for investors who are ready to take risks. In the long term, there are fair chances of capital appreciation. Now-a-days shares offer good liquidity too, because of the T+1 trading cycle.

That it helps you beat inflation is a great advantage. You can also diversify further by investing in various shares. The Sensex gave handsome return of 47 per cent last year and the Nifty's return stood at 40 per cent. Some shares even gave better returns than the Sensex or Nifty. But one should remember that the stock market has given negative returns twice in every seven years.

Property is key to one's asset since a residential house is must for anybody. Some financial planners, however, do not consider residential asset as part of asset allocation strategy since you cannot sell it and go elsewhere to stay.
As we consider property from an investment point of view, it is a good avenue for investors with greater risk appetite and less concerned about liquidity. In the long run, this asset class overtakes all other categories. Property prices in all cities had appreciated by around 30 per cent last year.

Gold & Jewellery
In India, gold has been considered only for making jewellery. The yellow metal was bought and sold whenever emergency arose. Nowadays, it comes with hallmark certification - a step towards gaining more transparency. Gold is highly liquid. That last year it had given returns worth 18 per cent reinforces the fact that it a must asset.

These are a neglected asset class in asset allocation plans. In India, they are mainly used in ornaments. At least, diamond is worth considering for investment.
Nowadays it comes with certification ensuring transparency. Though prices of diamonds have hit the roof, liquidity of this asset is a concern here. In foreign countries, people invest in diamond.

Art & antiques
Last but not the least among all the asset classes is art & antiques. These are for persons with high-risk appetite and net worth, as they require a lot of investment. You can definitely invest in works of well-known painters such as M F Hussain.

As far as capital growth is concerned, chances of appreciation are very good in the long run. There are art funds, which collect money from you and buy art & antiques. They sell it on appreciation. But the minimum investment requirement is quite high.

These are the asset classes available in the market today. But still the question remains how much to invest in each asset class. You should consult a certified financial planner before developing such a strategy.

Top Stock Picks for January 2007...

IPOs likely to net Rs 35,000 cr in 2006-07

Corporates are likely to raise around Rs 35,000 crore from the initial public offerings (IPOs) in the primary market during the current fiscal. Money raised through the IPOs during the period April-November 2006 was Rs 15,189 crore through 37 IPOs as compared to Rs 10,936 crore netted via 79 IPOs in the financial year 2005-06, a SEBI bulletin said here.

With realty giant DLF finally filing offer document for a mega Rs 13,500-crore IPO and Rs 5,260-crore Cairn India issue getting fully subscribed, the money raised through the IPOs by the corporates this fiscal is likely to be around Rs 35,000 crore with some more issue in the pipeline.

"There were 37 IPOs during the period April-November 2006 which raised Rs 15,189 crore as compared to Rs 5,890 crore raised through 41 IPOs during the same period in the previous fiscal," the SEBI bulletin issued in December said. In fiscal 2006, some mega IPOs like Reliance Petroleum and Cairn India hit the market to raise more than a billion dollar each.

While Reliance Petroleum, Tech Mahindra and Sobha Developers raised investor interest to new highs by getting oversubscribed by huge numbers, Deccan Aviation and Cairn India just managed to scrape through. Drama unfolded on the last trading day of 2006 when Nissan Copper IPO was listed on the BSE and NSE and rose by nearly 248 per cent due to alleged manipulations by the promoters as the circuit filter don't operate on the day of listing.

Among the other IPOs that raised money from primary market in the fiscal 2007 so far were Parsvnath Developers, Gwalior Chemicals, Gayatri Projects, Usher Agro, Patel Engineering, Rathi Udyog, Development Credit Bank, Blue Bird, LT Overseas, Opto Circuit and Plethico Pharma. The revival of the primary market started in 2003-04, gathered momentum in 2004-05, received overwhelming response in 2005-06 and during the first eight months of 2006-07.

Source: The Economic Times, Mumbai

Most new IPOs trade below price

If you believe in blindly investing in primary market issues, here’s some data that may make you sit up and think. Nearly 50% of the new scrips, which got listed after the May meltdown, were trading below their issue price at the close of the year.

Here’s an even bigger shocker. If you have been investing in all the initial public offers (IPOs) and follow-on public offers (FPOs) for the last three months, four out of every five stocks that you now own were trading below their listing price on the last trading day of 2006.

According to an ET study, 48% (18 out of 37) scrips that entered the market between mid-May and December 31 are trading at a discount to their offer price, while the Sensex has shot up 50% during the same period after touching a low in early June. While the volatile market post-May meltdown was said to be the reason for the poor turnout of new issues, the performance of scrips which got listed between October and December was actually worse. Fifty two per cent of them are trading below their offer price. Barring one sharp correction, the market has not witnessed a rough ride.

The real picture emerges after a close scrutiny of the data. The opening day performance of the new scrips hasn’t been too bad. Infact, just about one in five IPOs and FPOs have opened lower than their issue price. However, here’s another half of the story. As much as 70% of the scrips are trading below their list price. What’s more, in the last quarter of 2006 the performance has only become worse with 78% of scrips trading in the negative zone compared to their list price.

The list of top five underperformers include Zenith Birla, Gangotri Textiles, Rathi Udyog, Richa Knits and JHS Svendgaard. But there are some stocks which have bucked the trend. Some outperformers include Allcargo Global, GMR Infrastructure, Tech Mahindra, Voltamp, Atlanta, Action Construction, DCB, Info Edge, Parsvnath, Sobha Developers and Nissan Copper. However some of these have listed recently and it’s still early days to gauge their performance.

How the Sensex swung through 2006

2006 was a rocking year for the stock markets. And a rocky one too! Not only did the Sensex show a whopping jump of 47%, it also demonstrated the greatest volatility in the past five years.

An ETIG analysis reveals that the annualised volatility coefficient (AVC) of the Sensex stood at 26% for 2006, compared to 17% and 25% during 2005 and 2004 respectively. The benchmark index was significantly less fluctuating in 2003 and 2002 also, with AVC of 19% and 17% respectively.

The bourses witnessed sharp see-saw movements during the year, with a continuos upward movement from January to May, a sudden crash from May to June and then again, a strong recovery continuing throughout December. On one hand, the Sensex touched an all-time high of 14000, while on the other hand, it also witnessed its single largest-ever fall in one trading day since 1991. With Indian markets getting more globally aligned, this year witnessed sharper reactions to global macro-economic changes and domestic policy measures.

Annualised volatility indicates the amount of fluctuations in the market movements during the year. The higher the volatility, the riskier it is to invest in the short term. The annual volatility is calculated by taking the standard deviation of daily returns for either the stock or the index and then annualising it over the total number of trading days during the year.

Among the Sensex stocks, Infosys and TCS were the least volatile with AVC of 31% and 32% respectively. Reliance Communications, during its 10-month stint on the bourses, exhibited the maximum volatility of 82% since listing. Tata Steel, in news for its Corus bid, was the next most volatile stock with a coefficient of 48%, followed by Hindalco and Reliance Industries at 43% each.

Twenty-five out of the BSE 100 stocks reported AVC of more than 50%, with United Spirits topping the chart with 83%. Asian Paints was the only stock to move in sync with the Sensex, with an AVC of 27%, while Sun Pharma was slightly worse off at 29%. Smaller companies were even more unpredictable during the year, with the BSE Small-Cap and BSE Mid-Cap indices reporting AVC of 28% and 27% respectively.

On the sectoral front, the metal sector was the most fluctuating of all with an AVC of 41%, while the healthcare sector was the least volatile with a coefficient of just 24% during the year.

Sensex breaches all time high, closes @ 14,015

Sensex closed at an all time high at 14,014.92 after a choppy session on Wednesday, as buying interest resumed for index pivotals at lower level. The market witnessed a sharp rally in the first two trading session of calendar year 2007. At closing, Sensex was up 72.68 points or 0.52% at 14,014.92.

The BSE Sensex struck an all time high of 14035.67 in mid afternoon trade surpassing its previous all time high of 14,035.30, which it had struck on 6 December 2006. The Nifty closed at 4,024.05, up 16.65 points. The market staged a smart recovery in the second half of the day's trading session, after slipping to an intra-day low of 13,897.42 in mid-morning trade.

The market-breadth was strong, as buying continued for small-cap and mid-cap stocks. For 1,695 shares advancing on BSE, 933 declined. Just 64 shares were unchanged. The BSE clocked a turnover of Rs 4,286 crore as compared to Rs 3381 crore on Tuesday (2 January). Among the 30-Sensex pack, 21 advanced while the rest declined. In NSE, there were 619 advances and 379 declines.

BUY - Marico Industries Ltd.

CMP: BSE – Rs 547.25 / NSE – Rs 546.05
Target price: NA
  • Marico Limited (ML) is into manufacturing of consumer products such as coconut oil, other edible oils, hair oils, fabric care products, hair creams and processed foods. It has made its second acquisition in the Egyptian market by acquiring a hair-care brand, Hair Code.
  • The Hair Code acquisition increases its market share to 50 per cent of the Egyptian pre and post wash hair care market. The pre and post wash hair care market in Egypt is growing at about 6.5 per cent per annum. Sales of Hair Code are expected at Rs 35 crore and profit after tax margin of 18 to 20 per cent.
  • The acquisitions between Fiancee and Hair Care are estimated to contribute about 4.5 to 5 per cent to sales and about 7 per cent of operating profits during FY08. The acquisition could also act as a platform to promote its Indian-made products in these markets due to access to the distribution network and a better understanding of the markets.
  • At the CMP of Rs 540, the stock trades at 24.5x FY07E earnings and 20.6x FY08E earnings.

BUY - Deepak Fertilizers And Petrochemicals

CMP: BSE – Rs 87.75 / NSE – Rs 87.50
Target price: Rs 120.00
  • Deepak Fertilisers and Petrochemicals Corporation Limited (DFPCL), manufactures anhydrous liquid ammonia. A consistent supply of its crucial raw materials, like natural gas, is assured through DFPCL’s own gas pipeline, direct from Bombay High gas fields.
  • DFPL is the only domestic producer of isopropyl alcohol (IPA). IPA will significantly add to the revenues and is likely to contribute around 20 per cent of FY09 revenues.
  • DFPL has been adding to its industrial chemicals portfolio consistently, and today it has a wide range of products that share the same production processes or raw materials. At present, the agriculture inputs business of DFPCL contributes around 30 per cent of its net revenues.
  • DFPL currently holds a domestic market share of around 35 per cent. At the current market price, the stock is trading at a P/E of 8.1x and 6.1x and EV/EBITDA of 3.8x and 2.8x its FY07 and FY08 earnings, respectively.
  • I initiate coverage with a Buy rating and a target price of Rs 120.

BUY - Essel Propack Ltd.

CMP: BSE – Rs 78.20 / NSE – Rs 78.55
Target price: Rs 98.00
  • Essel Propack Ltd. (EPL), which was previously Essel Packaging, belongs to the Subhash Chandra group and was incorporated in 1982.
  • It commenced commercial production in 1984. Today, it is recognised as a manufacturer of fully laminated tubes, co-extruded seamless tubes and laminates, in India, as well as overseas. EPL has been awarded the ISO 9002 certification for its manufacturing and marketing operations.
  • I expect margin improvements in the laminated tubes, plastic and especially in packaging segments. A 30 per cent growth is expected in plastic tubes in CY07E.
  • I expect revenue in the quarter of December, i.e. CY06E of Rs 3 billion and profits of Rs 312 million. At the current market price, the shares trade at 8.1x CY08E EPS.
  • I recommend a ‘Buy’ on the stock with a price target of Rs 98.

BUY - Indraprastha Gas Ltd.

CMP: BSE – Rs 116.85 / NSE – Rs 116.80
Target price: Rs 162.00
  • Indraprastha Gas Limited (IGL) is a joint venture of GAIL (India) Limited, Bharat Petroleum Corporation Limited and the Government of the National Capital Territory of Delhi.
  • IGL was incorporated to implement the Compressed Natural Gas (CNG) expansion programme and the Piped Natural Gas (PNG) project for varied applications in the domestic and commercial sector. DTC buses, taxis and auto rickshaws, generate approximately 92 per cent of the revenues for the CNG segment of IGL.
  • We expect the company to witness a CAGR of 12.8 per cent in revenues from sale of CNG between FY06-FY09. Due to increasing awareness about PNG and its advantages over LPG, the demand for it is increasing and the revenues expected from the sale of PNG show a CAGR of 51.9 per cent during FY06-FY09.
  • The stock trades at 12 times its one year forward earnings or 6 times EV/EBIDTA.
  • I recommend you buy the stock with a price target of Rs 162.

BUY - Asian Paints Limited

CMP: BSE – Rs 725.80 / NSE – Rs 725.30
Target price: NA
  • Asian Paints Ltd (APL) is India’s largest paint company and ranks among the top ten decorative coatings companies in the world. We expect the paints industry to grow at a CAGR of 12 to 14 per cent over the next three years, as against 9 per cent in the past few years.
  • I also expect a 20 per cent growth in automotive paints, which accounts for 45 per cent of the demand for industrial paints. APL expects its revenues to grow at a CAGR of 19 per cent over FY06-09E.
  • Its EBITDA margin is expected to increase from 13 per cent in FY06 to 14.7 per cent in FY09. We expect the EPS to grow at a CAGR of 26 per cent over FY06-09E and a 19 per cent growth in revenues.
  • At the CMP, APL trades at 25.1x its FY07E earnings and 20.1x its FY08E earnings. The EV/EBITDA for the stock is 14.8x and 11.9x on FY07E and FY08E, respectively.
  • I initiate coverage on the stock with a ‘Buy’ recommendation.

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