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Indian stock market and companies daily report (November 16, 2009, Monday)

Contributed by Angel Broking

By Angel Broking

The Indian markets opened on a flat note, but managed to trade in the positive zone thereafter, even as US markets closed lower and Asian indices were trading mixed in the early session. The indices were highly volatile, even as they rose higher by midsession. There were sharp spikes in intra-day trade, as the indices finally closed with fair gains for the day and strong gains for the week. The Sensex and the Nifty closed  with gains of 0.9% each. The BSE Mid-Cap index closed almost flat for the day, while the BSE Small-Cap index rose by 0.2%. Among the front liners, Hero Honda, Maruti, ONGC, TCS and Tata Steel gained between 1.8%-4.0%, while JP Associates, M&M, DLF, Reliance Communications and Tata Power lost between 0.0%-2.0%. In the Midcap segment, Motherson Sumi, McLeod Russel, Exide Inds., Ackruti City and HCC gained between 5.6%-10.3%, while Tech Mahindra, Dish TV, IndusInd Bank, Karnataka Bank and Spice Telecom lost between 3.7%-4.3%.

Markets Today
The trend deciding level for the day is 4987 / 16808. NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 5030 – 5062 / 16950 - 17051. However, if NIFTY trades below 4987 / 16808 for the first half-an-hour of trade then it may correct up to 4955 / 16707.

Ultratech-Samruddhi merger gets nod
The board of Ultratech has approved the merger of Samruddhi cement (Samruddhi) with itself. Samruddhi is the 65% subsidiary of Grasim Industries (Grasim). Grasim had transferred its cement business to Samruddhi in October 2009, while the shareholders of Grasim directly hold the remaining 35%. According to the merger plan, the shareholder’s of Samruddhi will get four shares of Ultratech at a face value of Rs10 each for every seven shares of face value of Rs5 each. We believe that the swap ratio  approved by the Ultratech board is positive for the shareholders of Grasim, as the board would have considered a holding-company discount before arriving at the ratio. The merged entity is expected to have a total cement capacity of 48.9mtpa by FY2010E, making it India’s largest cement player. We maintain a buy on Grasim, with a Target Price of Rs2,548.

PVR Cinemas acquires DLF’s DT Cinemas
PVR Cinemas has finally announced the much-speculated agreement with DLF Group’s DT Cinemas to acquire their cinema business on a slump sale basis. PVR will fund the acquisition through a part stock and part cash payout. It will issue 25.57 lakh shares to DT Cinemas and pay Rs20.2cr cash to fund the acquisition. Hence, based on a CMP of Rs140, PVR has acquired the DT Cinema’s chain for a sum of Rs56cr.

As part of the deal, PVR will also have exclusive rights to operate as a key anchor multiplex partner in all the future mall developments of the DLF Group. PVR would run these multiplexes under the revenue-sharing format. DT Cinemas has a current portfolio of 8 properties with 29 screens, of which 26 screens are currently operational and another 3 screens are expected to commence operations in the next six months.

PVR currently runs 26 cinemas with around 108 screens across 14 cities. Hence, postacquisition, PVR Cinemas’ screen count will jump to 137 screens and it will control 60- 70% of the market share in the Delhi and Gurgaon markets.

In a second separate deal, it will issue another 25.57 lakh shares to the Thailand-based Major Cineplex group at Rs165 (18% premium to Friday’s closing), leading to a fund infusion of Rs42.2cr. Hence, the total dilution on both counts will be around 18% (post diluted capital of 28.1mn O/S shares) which will dilute the promoter’s shareholding to 33.7% from the current 41.2%. Moreover, the company is also looking to raise ~Rs50cr debt to fund its organic growth.

While the complete details in terms of DT Cinema’s financials are not available, we believe that at a Rs56cr acquisition price, PVR has paid less than ~Rs2cr per screen (29 screens), which is below its own replacement cost per screen. Moreover, a clear monopoly in the Delhi and NCR region, a strategic tie-up with DLF and a further commitment from Major Cineplex (tie-up for bowling alleys under Blu-O) through the deal bode well for PVR’s future growth prospects.

Hence, we upgrade the stock to Buy, with a revised Target Price of Rs159 (at post-dilution equity capital of 28.1mn shares), based on 1) 15x FY2011E Profit of Rs23.2cr, 2) Rs56cr value for DT Cinemas (in line with replacement cost at Rs2cr per screen), and 3) Rs42cr cash infusion by Major Cineplex valued at 1x.

Economic and Political News
- Petroleum ministry proposes 33% hike in natural gas price to $4.2 per mbtu
- India's FY2010 GDP may exceed 6%: CII
- PSU oil firms hike ATF prices by 2.4%

Corporate News
- L&T sold 27.2mn shares, a third of its holding in Mahindra Satyam
- Infosys sets up US subsidiary to serve contracts in e-governance space
- TVS re-launches Flame bikes