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Indian stock market and companies daily report (August 20, 2010, Friday)

Contributed by Angel Broking

By Angel Broking

The markets opened on a firm note, with the key benchmark indices hitting 2.5 year highs. Stocks extended gains in morning trades on firm Asian equities. The market ruled positive in early afternoon trades after the latest data showed that the pace of rise in inflation slowed early this month. However, in mid afternoon trades markets pared gains as the European stocks slipped into the red, soon after a firm opening. Frenzied buying in index pivotals saw the key benchmark indices hitting fresh highs. Stocks ended positive with the Sensex and Nifty closing with gains of 1.1% each. The BSE mid-and small-call indices closed with gains of 0.9% and 0.8%, respectively. Among the front-liners, ACC, ICICI, HDFC, JP Associates and Jindal Steel gained 2–5%, while ONGC, Tata Power, Tata Motors, Bharti Airtel and SBI lost 0–1%. Among the mid-caps, Wockhardt, MVL, Thomas Cook, Petronet LNG and Ruchi Soya gained 8–20%, while Shriram City Union Finance, Torrent Pharma, BF Utilities, Motherson Sumi and Nava Bharat Ventures declined by 3%.

Markets Today

The trend deciding level for the day is 18402/5521 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18528–18601/5564–5588 levels. However, if NIFTY trades below 18402/5521levels for the first half-an-hour of trade then it may correct up to 18329–18203/5497–5454 levels.

Vedanta would have to make open offer at Rs405/share v/s earlier Rs355/share to acquire 20% stake in Cairn India

As per news reports, Vedanta will be forced to make an open offer at Rs405/share to acquire the additional 20% stake in Cairn India as against the earlier proposal of Rs355/share. Vedanta has agreed to buy 40% stake in Cairn India at Rs405/share, which includes Rs50/share non-compete clause payment to Cairn Energy. According to SEBI, up to 20% of the share price can be given as non-compete payment. However, a senior government official stated that in the present case a non-compete clause did not hold good as India is a net oil-importing country and neither of the two contracting parties is known for their expertise in oil exploration. Thus, with the non-compete clause not meaning much, Vedanta should pay Rs50 more (Rs355 + Rs50) to the public (Rs405) in the open offer, the official added. Vedanta has agreed to buy up to 60% stake in Cairn India (operates Rajasthan and other oil fields in the country) as per the US $9.6bn deal. According to the deal, Vedanta will first buy 40% stake in Cairn India at Rs405/share from Cairn Energy, which owns 62.4% in its Indian arm. Post that, Vedanta will make an open offer to acquire additional 20% stake from the public at Rs355/share. In the event of the open offer failing, Cairn Energy will have to offload more shares so that Vedanta's total stake in Cairn India reaches 51% and it would have to pay Rs405/share. The petroleum ministry has indicated that it could approve the deal only if it meets the twin criteria of protection of interests of ONGC as well as the minority investors, and complete compliance with the production sharing contract (PSC) Cairn has with the PSU. The government may also bring up the issue of Vedanta’s inexperience in the oil sector while vetting the deal. We believe that Vedanta may sweeten its open offer to Rs405/share to avert any failure of the offer. If the open offer is revised upwards to Rs405/share, the total acquisition cost for Vedanta will increase by Rs1,897cr post buying the 20% stake from the public. In such an eventuality, the shareholders contemplating to tender their shares in the open offer stand to benefit as they would get a better price. We maintain an Accumulate on ONGC, with a Target Price of Rs1,356. We maintain Neutral on Cairn India.

Sadbhav Engineering raises money for its BOT arm – calls for an Upgrade

Sadbhav Engineering (SEL) has announced that its subsidiary (having exposure to nine BOT road assets) has raised capital to the tune of Rs400cr from Norwest Venture Partners (NVP) and the Xander group Inc (Xander). However, clarity regarding the breakup of debt and equity and other details of the deal are still awaited. Nonetheless, we believe that the funds raised are a big positive for the company. It will also help ease the pressure in SEL's (parent) balance sheet along with setting a benchmark for valuing its BOT portfolio. Prior to this development we had valued its BOT venture at Rs565cr (1.5x its equity invested). However, the valuation that it has garnered far exceeds our expectations owing to which we believe that the stock needs to be upgraded. However, pending clarity about the deal, the stock is currently under review.

Sun Pharma receives 180-day exclusivity for generic version of Effexor XR ER tablets

Sun Pharma has announced that US FDA has granted ANDA approval for tablet form of the generic version of Effexor XR ER (capsule form). The company will enjoy 180-days exclusivity on the product. The generic version of Effexor XR tablets are therapeutically equivalent to Osmotica’s generic version of Effexor XR ER tablets and include three strengths: 37.5mg (base), 75mg (base) and 150mg (base). Though the approval is positive it is for the non-AB rated version, which is not substitutable at the pharmacy level and could impact market share scale up. Further, Teva has already launched AB-rated generic version of the capsules in July 2010. Thus, we expect limited upside from the product and have arrived at an NPV of Rs3.8/share. We maintain Neutral on the stock.

Domestic aviation sector update for July 2010

Domestic passenger traffic witnessed growth for the seventh consecutive month, increasing 14% yoy to 41.61lakh passengers in July 2010. For the seven months (January–July 2010), passenger traffic grew by robust 21% yoy to 298.71lakh (247.48lakh) passengers.

In July 2010, SpiceJet witnessed a 20.3% increase in domestic passenger traffic to 5.4lakhs, becoming the fifth largest carrier in the domestic market behind Kingfisher (8.15lakh, +1.7%), Jet Airways (7.82lakh, +14.8%), Air India (7.08lakh, +21.6%) and Indigo (6.91lakh).

The industry’s overall load factor witnessed a month-on-month decline in July, primarily due to active monsoons in various parts of the country. During the month, load factors for SpiceJet, Kingfisher, Jet Airways and Air India declined to 76.8%, 79.3%, 73.8% and 62.5%.

At the end of the month, the market share of the major industry players stood at: 17.3% for Air India (Domestic), 19.1% for Jet Airways, 7.5% for JetLite, 20.0% for Kingfisher, 13.2% for Spice Jet, 5.6% for GoAir and 16.9% for IndiGo. We continue to maintain a Neutral rating on SpiceJet

Economic and Political News
- World Bank approves loan of US $430mn for Mumbai Urban Transport Project
- Cheaper potato, onion pull down food inflation to 10.35%
- NTPC, Powergrid pull out of CWG sponsorship

Corporate News
- ADAG gets nod for exploration of Coal-Bed Methane in Madhya Pradesh
- Royal Orchid hotels plans to raise Rs150cr
- ONGC may have to pay US $13bn for Rajasthan block