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Indian stock market and companies daily report (March 08, 2010, Monday)

Contributed by Angel Broking

By Angel Broking

The key benchmark indices eked out marginal gains in what was a volatile trading session. The market opened on a firm note, tracking gains in Asian stocks. The market cut gains in early afternoon trade, after the government sought an additional spending plan for the current year. The market regained strength in mid-afternoon trade as world stocks rose. The market pared gains in late trade. The Sensex and the Nifty closed the trading session in the green withgains of 0.1% and 0.2%, respectively. The BSE Mid-cap and Small-cap indices outperformed the benchmark indices and closed in the green with gains of 0.6% and 0.8%, respectively. Among the front-liners, DLF, Hero Honda, Bharti Airtel, Sun Pharma and JP Associates were up by 1-4%, while Tata Motors, Wipro, BHEL, Hindalco and NTPC were down by 1-2%. In the mid-cap segment, Puravankara Projects, Pipava Shipyard, Firstsource Solutions, Petronet LNG and Prakash Industries were up by 6-12%, while Eicher Motors, Sterlite Technologies, Simplex Infrastructures, MRF and National Fertilizer were down by 3%.

Markets Today

The trend deciding level for the day is 17009 / 5092 levels. NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17083 – 17171 / 5116 – 5142 levels. However, if NIFTY trades below 17009 / 5092 levels for the first half-an-hour of trade then it may correct up to 16921 – 16848 / 5065 – 5041 levels.

RBI postpones implementation of Base Rate by 3 months

RBI has deferred the date for implementation of the Base Rate by banks to 1 July, 2010 (as against April 1 announced earlier). Further, RBI has also allowed certain category of loans to be lent below the base rate. These category of loans include loans against fixed deposits, loans given by a bank to its own employees, as well as restructured loans, where borrowers get more time and pay lower rates to avert defaults. However, RBI has ruled out any lending to corporates below the base rate. We maintain our positive view on private banks.

Balrampur Chini Mills – Initiating Coverage

Sugar prices have been spiralling over the last one year owing to reduction in the area under cane cultivation and low global and domestic inventory. We expect sugar prices to rule firm in SY2010E, which will result in higher switch over from ethanol to sugar in Brazil as well as increase in cane acreage in India. Hence, supply would ease and prices are expected to soften globally in SY2011E. In case of Balrampur Chini Mills (BRCM), it is the most efficient player in the Indian Sugar industry considering its long Profitability trend compared to peers. However, at current levels the stock is available at fair valuations of 4.8x EV/EBITDA, 1.6x P/B and 1.5x Enterprise Value/Invested Capital on SY2011E Earnings. Hence, we Initiate Coverage with a Neutral view on the stock.

DQ Entertainment IPO – Recommend Neutral

DQ Entertainment (International) Limited (DQE) is tapping the IPO market with a public issue of 1.6cr shares, including a reservation of 0.03cr shares for the eligible employees. The issue of new shares would comprise 20.2% of the post-issue paid-up capital of the company and the net issue will constitute 19.8% of the post-issue paid-up capital of the company. Thus, the company intends to raise between Rs120cr-Rs128cr, at a price band of Rs75-80 per share. The issue opens on 8th March and will close on 10th March, 2010. DQE is an animation services and production company, focused on both the Indian and International markets. It has an asset base of over 350 hours of animation content from which it earns revenues through licensing and distribution activities. DQE has a strong order book worth US $95mn (Rs457cr) to be executed over FY2010-12E. It has a client base of over 90 companies, which include internationally recognized brands. Moreover, the company has moved upward in the animation value chain, gaining greater exposure to Intellectual Property (IP) ownership and distribution, by following a co-production model for content development.

Over the last couple of years, DQE has exhibited strong growth rates, given its strong order book in animation production and sound execution capabilities. Moreover, its focus to move up the value-chain into co-production, licensing and IP creation has helped the company improve its Margins from 25% in FY2008 to 35% in FY2009. However, going ahead, the company's growth story is highly dependent on: 1) acquiring projects (mostly from Europe or USA), which is again dependent on macro-economic conditions favorable to these economies, 2) acquiring IP rights, and earning revenues through licensing and distribution (lack of experience in the same is a cause of concern), and 3) favourable currency fluctuations. At the upper band of Rs80, the market capitalisation post issue for DQE would stand at Rs634cr, which equates to rich valuations - P/E of 20.3x, P/BV of 1.6x and EV/Sales of 2.6x FY2012E. Moreover, a lack of clarity over its business model and a limited execution record in IP creation makes us wary of DQE's growth rates in the future. Hence, we recommend a Neutral view on the issue.

OVL discovers oil in Syria

OVL and its partner, IPR Mediterranean Exploration Ltd, have made two new oil discoveries (Rashid and Abu Khashab fields) in Block-24, in Syria. The two discoveries are expected to hold about 185mnbbls of oil in place. A plan of development (POD) has been submitted for development of both Rashid and Abu Khashab fields. OVL's investment in the project till now was around. US $24.3mn. The company is planning to undertake more exploratory work in the block and this will mean drilling more wells. OVL is looking at an additional investment of about US $24mn in 2010. The discoveries of Rashid and Abu Khashab fields occurred back-toback in 2009. The contract or concession agreement for the block was signed in January 2004 and was effective May 2004. OVL holds 60% participating interest in Block-24, with IPR Mediterranean (operator) holding the remaining 40%. The first discovery well Rashid-1 tested oil with a rate of 1,343bpd. The second discovery well Abu Khashab-1 tested oil with a rate 900bpd. The third well Abu Khashab-2 was drilled deep where oil was found. Exploration work is still continuing in the block. As per our calculation, this discovery will be adding a mere Rs5-7 to ONGC’s valuation. We continue to maintain a Neutral view on ONGC.

Bosch – Result Review 4QCY2009

For 4QCY2009, Bosch India reported a 39% yoy growth in Net Sales to Rs1,454.2cr, on the back of a 39.8% yoy growth in the Auto Segment and a 7.6% de-growth registered by its other businesses. The company’s Bottom-line, which increased 67.9% yoy to Rs158.2cr (Rs94.2cr), came marginally below expectations. Bosch registered a marginal 39bp yoy growth in EBITDA Margins, primarily on the back of an increase in Other expenditure by 296bp. However, a further dip in Margins was arrested to a certain extent due to the fall in Staff costs by 105bp. Thus, the company reported an OPM of 17.2% in 4QCY2009. Overall, for CY2009, Bosch reported a 5.1% yoy growth in the Top-line; however, its Operating Margin dipped by 74bp and its bottom-line also plunged by 6.8%, primarily owing to poor performance on the top-line front, coupled with sub-optimal operating leverage. After the recent recovery in the CV cycle and pick up in Auto industry volumes, the company is estimated to clock around a 15% CAGR in the Top-line over CY2009-11E and around a 17% CAGR in Net Profit, assuming a better outlook and growth of the CV and CRS segments. We estimate the company to clock an EPS of Rs227.3 and Rs259.4 for CY2010E and CY2011E, respectively, owing to the overall pick up in Auto demand. At the CMP, the stock is quoting at 18.4x CY2010E Earnings. At our Fair multiple of 20x (based on its three-year historical average multiple) CY2011E EPS, our Fair Value for the stock works out to Rs5,188. We maintain an Accumulate rating on the stock.

Economic and Political News
- Govt. grants coal linkages to 11 new power units
- LIC aims 20% growth in investment
- Direct Tax Code draft in 3 months

Corporate News
- BSNL scraps US $10bn mega GSM tender
- Essar set to buy US co. Trinity coal for US $600mn
- Adani power shortlisted for Kosovo project