Sharekhan Investor's Eye dated September 28, 2007

STOCK UPDATE

Surya Pharmaceuticals 
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs205
Current market price: Rs83

Strong growth at cheap valuations

Key points

• During FY2007, Surya Pharmaceuticals (Surya) has enhanced its production capacities and has improved efficiencies of its production processes through de-bottlenecking exercise. From a collective capacity of manufacturing 4,152 metric ton (MT) per annum, the company's current capacity stands at 5,423MT per annum marking an increase of 30%. The resultant capacity increase is expected to translate into higher revenues for the company's existing business of active pharmaceutical ingredients (APIs) and intermediates from FY2008 onwards. 
• Surya has also initiated construction of a new plant in the tax-haven state of Jammu. The Jammu plant will be constructed in line with the US Food and Drug Administration (US FDA) standards primarily to manufacture new APIs and sterile cephalosporins. With the commissioning of this facility, Surya will enter the high-margin injectable business. We expect the Jammu facility to contribute an incremental Rs100 crore to Surya's revenues in FY2009E.
• Surya has recently entered the business of manufacturing menthol and its derivatives. The company primarily intends to sell these products to its overseas clients, and the company has started exporting these products in August 2007. We expect the menthol business to add Rs50 crore to Surya's turnover in H2FY2008E and Rs100 crore in FY2009E.
• Having made a foray into the contract manufacturing space, Surya is now increasing its focus on the contract research area. The company is in advanced stage of negotiation with a British company for the development of a cost-effective process for a new molecule. Surya expects that partnering with the British company at this early stage of development will open up huge contract manufacturing orders for it, once the molecule gets commercialised. However, as the deal has not yet been finalised, we have not factored the upsides from this development into our estimates.
• We have introduced our FY2009E revenue and earning estimates for Surya. We expect Surya's profit to grow at a compounded annual growth rate (CAGR) of 55.3% over FY2007-09E on the back of a 46.2% CAGR in the revenues and a 100 basis point expansion in the operating profit margin. Based on this, we have projected fully diluted earnings of Rs28.8 per share in FY2008E and Rs32.1 per share in FY2009E. 
• At the current market price of Rs83, Surya is trading at 3.6x its FY2008E diluted earnings of Rs23.2 and at 2.6x its FY2009E diluted earnings of Rs32.1. The stock is highly undervalued when compared with its peers like Ankur Drugs, Sharon Bio-Medicine and Granules India, which are trading at an average FY2009E price earning (P/E) multiple of 7x. At current prices, Surya offers a remarkable combination of strong growth at cheap valuations. We view this as a strong buying opportunity and hence maintain our Buy call on the stock with a price target of Rs205. 

Marico 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs70
Current market price: Rs61

Growth momentum continues
The copra prices have strengthened in the last two months but Marico has taken a price hike of 3% in Parachute, which will offset the increase in its raw material cost and help it to safeguard its margin. The company has been able to maintain its market share at 48%. The launch of Fortune (agro tech foods) has been a non-event for Marico since the same has not been able to erode its market share.

Seamec 
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: Rs208

Unexpected damage
Seamec has announced that its vessel Seamec II has been damaged in its front portion due to a fire while the vessel was undergoing statutory dry-docking in a shipyard at Netherlands. The extent of damage is not certain as of now. However, it is clear that the dry-docking days for the vessel would get extended now, resulting in lower revenue and earnings for the company in CY2007.

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SECTOR UPDATE

Banking   

Banking sector poised for a re-rating
In this report we have discussed our views on the various macro aspects that have been a concern for the banking sector in the recent past. We have also delved into the various positive and negative factors that are likely to affect the banking sector in the medium term. Keeping in mind the strong interest of the investors in the financial sector, we feel the unfolding of the various positive triggers could lead to a re-rating of the banking sector in the medium term. Hence, we have revised our price targets for most leading banks (explained in detail later).

Banks	CMP* (Rs)	Old price target (Rs)	New price target (Rs)	Upside  (%)
Bank of Baroda	322.0	366.0	400.0	24.1
Bank of India	260.0	280.0	325.0	25.0
SBI	1886.0	1780.0	2282.0	21.0
HDFC Bank	1433.0	1355.0	1694.0	18.2
Axis  (UTI) Bank	768.0	725.0	960.0	25.0
*CMP as on September 27, 2007

 

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Hindustan Organic Chemicals Limited : A Hidden Gem in PSU Area

Name: Hindustan Organic Chemicals Limited

BSE:500449

NSE:HOCL

Website: www.hocl.gov.in/index.asp

Current Mkt Price: Rs. 64.70 (as on 30/9/2007)

Target : Rs. 225 (18- 24 months)



Business Profile

Hindustan Organic Chemicals Limited (HOC) was set up by the Government of India in 1960 with the objective of attaining self-reliance in basic organic chemical needs. In fact this was the first endeavor to indigenise manufacture of basic chemicals and to reduce country's dependence on import of vital organic chemicals. HOC, started as small chemical unit, has today acquired the status of a multiunit company with two fast growing units and one subsidiary unit. The Company has achieved turnover of about Rs. 4500 million in 1999-2000.


It was expected that indigenous manufacture of these chemical intermediates will give impetus to downstream industries resulting in setting up of chemical units and achieving self-sufficiency for the country in this area. This objective of setting up HOC has been achieved and at present more than 500 units based on HOC's products have been set up all over the country which have not only succeeded in meeting the goal of self-sufficiency but also entered the international markets earning precious foreign exchange by exporting chemicals, dyes and drugs.

Main Manufacturing Units of HOC comprises

·The Nitro Aromatic Complex at Rasayani in Raigad District (Maharashtra)

·Polyurethane System House at Rasayani

·The Phenol Complex at Kochi (Kerala)

·The Polytetrafluroethylene (PTFE) Complex (Subsidiary) at Rudraram, Hyderabad (Andhra Pradesh)

HOC provides Basic Organic Chemicals essential for Vital Industries. The main products manufactured by HOC are Phenol, Acetone, Nitrobenzene, Aniline, Nitrotoluenes, Chlorobenzenes and Nitrochlorobenzenes. The raw materials used by HOC are Benzene, Toluene, LPG, Methanol, Naphtha and Sulphur, majority of which come from petroleum refineries.

HOC provides the basic organic chemicals essential for vital industries like resins and laminates, dyes and dyes intermediates, drugs and pharmaceuticals, rubber chemicals, paints, pesticides and others, touching virtually facet of everyday life.

It also produces the versatile engineering plastic polytetrafluoroethylene (PTFE) through its subsidiary.

Recent Developments

The disinvestment procedure of government`s 32.61 per cent stake in Hindustan Organic Chemicals Ltd (HOCL) is expected to be completed soon. Six chemical and fertiliser companies have submitted their expression of interest (EoIs) which include

Chambal Fertilizers and Chemicals, Vam Organic Chemicals, Schenectady India, Atul Ltd, Deepak Fertilisers and Petrochemicals and Rashtriya Chemicals and Fertilisers.

Financials


Technical Chart (Weekly)

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Federal Reserve (USA) Credit Crunch

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Q2FY2008 FMCG earnings preview: Sharekhan Special dated September 13, 2007

SHAREKHAN SPECIAL

Q2FY2008 FMCG earnings preview 

• Backed by a pick-up in demand in the semi-urban as well as rural areas, the fast moving consumer goods (FMCG) sector has seen the volume growth getting better every quarter. The revenue growth for the current quarter is likely to be driven by volume growth as well as improved pricing power of the FMCG companies.
• Rising input prices is a concern for the industry. In the past quarters the FMCG companies had been able to combat this issue with price hikes, innovative products with higher realisations and prudent advertising spend.
• We expect the earnings of the market leader in the segment, Hindustan Unilever Ltd (HUL), to grow by 17.2% year on year (yoy) backed by a 13% growth in the home & personal care (HPC) segment. We expect HUL's margin to improve from 13.1% in Q3CY2006 to 14.2% in Q3CY2007, primarily due to the price hike taken in many of its products as well as improved product mix.
• ITC's growth is expected to be broad based with the reduction in the magnitude of the losses in the non-FMCG businesses. The imposition of the value added tax (VAT) and the price hike taken by the company in the first quarter of FY2008 had affected the growth of its cigarette business in that quarter and the second quarter is expected to witness a trailing effect of the same. Despite this, we expect higher realisations to boost ITC's bottom line by 11.2%.
• In our past reports we had always opined that the implementation of VAT might have a dampening effect on the stock price of ITC but the same would likely be a temporary aberration. The recent spurt in the stock price substantiates our opinion. We continue to be bullish on the stock with a long-term perspective.
• The long-term prospects of the FMCG sector appear favourable with the rising disposable income of Indians and the increased spending by them. We believe with strong free cash flows, high return on capital employed (RoCE) and sustainable growth, the sector still has considerable upside potential compared with the other sectors.

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Sharekhan Investor's Eye dated September 13, 2007

 

SHAREKHAN SPECIAL

Q2FY2008 FMCG earnings preview 

• Backed by a pick-up in demand in the semi-urban as well as rural areas, the fast moving consumer goods (FMCG) sector has seen the volume growth getting better every quarter. The revenue growth for the current quarter is likely to be driven by volume growth as well as improved pricing power of the FMCG companies.
• Rising input prices is a concern for the industry. In the past quarters the FMCG companies had been able to combat this issue with price hikes, innovative products with higher realisations and prudent advertising spend.
• We expect the earnings of the market leader in the segment, Hindustan Unilever Ltd (HUL), to grow by 17.2% year on year (yoy) backed by a 13% growth in the home & personal care (HPC) segment. We expect HUL's margin to improve from 13.1% in Q3CY2006 to 14.2% in Q3CY2007, primarily due to the price hike taken in many of its products as well as improved product mix.
• ITC's growth is expected to be broad based with the reduction in the magnitude of the losses in the non-FMCG businesses. The imposition of the value added tax (VAT) and the price hike taken by the company in the first quarter of FY2008 had affected the growth of its cigarette business in that quarter and the second quarter is expected to witness a trailing effect of the same. Despite this, we expect higher realisations to boost ITC's bottom line by 11.2%.
• In our past reports we had always opined that the implementation of VAT might have a dampening effect on the stock price of ITC but the same would likely be a temporary aberration. The recent spurt in the stock price substantiates our opinion. We continue to be bullish on the stock with a long-term perspective.
• The long-term prospects of the FMCG sector appear favourable with the rising disposable income of Indians and the increased spending by them. We believe with strong free cash flows, high return on capital employed (RoCE) and sustainable growth, the sector still has considerable upside potential compared with the other sectors.

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STOCK UPDATE

Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs500
Current market price: Rs417

Lipitor launch in Canada delayed; Ranbaxy to appeal

Key points

• Pfizer Inc has succeeded in winning patent protection in Canada for its blockbuster drug, Lipitor, thereby prohibiting its rival, Ranbaxy Laboratories (Ranbaxy), from launching a generic version of the cholesterol-reducing drug until the expiry of the patent in July 2016. 
• The Canadian Federal Court in Toronto has ruled that Ranbaxy's proposed generic drug would infringe Pfizer Inc's patent that covers a crystalline form of atorvastatin (patent # 2,220,018) which is due to expire in July 2016. On the other hand, the Canadian court has granted a favourable ruling to Ranbaxy in the case of the patent # 2,220,455, which covers the process for making an amorphous form of atorvastatin and is also due to expire in July 2016. 
• Despite handing out a mixed ruling wherein the validity of the patent for crystalline atorvastatin has been upheld and the patent for the amorphous form of the compound has been invalidated, the court has ordered the Canadian health ministry not to issue a notice of compliance (approval) to Ranbaxy for marketing the generic version of Lipitor until the expiry of the patent covering the crystalline form of atorvastatin in July 2016, thereby preventing the company from entering the market until July 2016. 
• Ranbaxy has confirmed its intention to appeal against the ruling of the Canadian Federal Court to the Federal Court of Appeal in Canada and is confident of reversing the current ruling, thereby enabling it to launch the product in Canada before July 2016. Thus, Ranbaxy would be barred from launching the product until July 2016, unless it succeeds in reversing the court's current ruling in its appeal. 
• The unfavourable ruling received in Canada would come as a major setback to Ranbaxy in its battle for launching generic Lipitor in various markets across the world. However, we remain optimistic on the company's ability to receive a favourable ruling on all the four patents in its appeal in Canada. At the current market price of Rs417, the stock is trading at 23.6x its CY2008E earnings. We maintain our Buy recommendation on the stock with a price target of Rs500.

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MUTUAL FUNDS: INDUSTRY UPDATE 

Caution continues; strong cash position to spur buying
Assets under management (AUM) of equity mutual funds rose by 1.9% to Rs174,381 crore in August 2007 from Rs171,110 crore in July 2007. The 1.9% rise in AUM of equity mutual funds was in the backdrop of a 1.5% decline in the BSE Sensex in August 2007

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Update On Tips (13th Sep 2007)

Hello Friends,
How often do u see scripts giving a 50% return in less than 3 months. 33% of my picks have done so. The rest of them have not been far behind either. 33% of the remainig have given over 20% returns.

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Looking forward to your co-operation. Kindly give your valuable feedback on my guestbook.

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Sharekhan Investor's Eye dated September 12, 2007

 

PULSE TRACK

• IIP sharply down in July 2007

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SHAREKHAN SPECIAL

Q2FY2008 Media earnings preview 

• Media and entertainment companies continued their march ahead. While Q1 marked fund raising activities by majors such as the TV18 group and UTV for their movie ventures and the disclosure of expansion plans in the entertainment business by companies such as Viacom18, Q2 marks the launch of NDTV's lifestyle channel "Good Times" and UTV's proposed launch of youth channel "Bindaas". 
• While the television news channels continue to slug it out in the stiff competition, the general entertainment space awaits the entry of new players. Among the existing channels, Zee TV continues to narrow the gap with the leader Star Plus that should get reflected in the increased ad revenues for Zee Entertainment. 
• This is the third quarter after the implementation of the conditional access system (CAS) in select areas of Mumbai, Delhi and Kolkata. We believe the impact of CAS in terms of enhanced pay revenues from these metros should be reflected in Q2 revenues of the broadcasters. 
• In a major step forward to ensure lower charges to direct to home (DTH) subscribers, the Telecom Regulatory Authority of India (TRAI) has enforced a regulation mandating the broadcasters to offer channels to DTH service providers on an a-la-carte basis. This may spell bad news for the broadcasters as it would curtail their ability to push weaker channels as a part of the bouquet and thereby impact their pay revenues. However, this may lower the overall content cost for DTH service providers, which may help them expand faster.
• We expect a subdued bottom line performance from TV18 as it continues to spend heavily for future growth, while Saregama India's numbers should be impacted by the lack of major releases during the quarter.

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STOCK UPDATE

Bajaj Auto      
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,550
Current market price: Rs2,393

XCD launch to improve margins
Bajaj Auto Ltd (BAL) expects its overall margin to rise in the second quarter of FY2008 on the back of sales of XCD, the recently launched 125cc motorcycle, and the closure of the Akurdi plant.

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MUTUAL FUNDS: WHAT'S IN—WHAT'S OUT 

Fund Analysis: September 2007
An analysis has been undertaken on equity and mid-cap funds' portfolios, indicating the favourite picks of fund managers for the month of August 2007. Equity funds comprise of all diversified, index, sector and tax planning funds, whereas mid-cap funds include a universe of 18 funds such as Reliance Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla Mid-cap Fund etc

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India growth story to continue, despite odds: Rakesh Jhunjhunwala

 

India growth story to continue, despite odds: Rakesh Jhunjhunwala

Super broker Rakesh Jhunjhunwala (left) sounded optimistic while talking about the Indian market weighed against its US counterpart at a recent meeting organised by Shailesh J Mehta School of Management, IIT, Bombay.

While analysing the Indian market weighed against its US counterpart, Jhunjhunwala quoted the former US Federal Reserve Chairman Alan Greenspan: "History has not dealt kindly with the aftermath of protracted periods of low-risk premiums."

The super broker feels the going will get tough for the Indian markets for the next few months. This is sad, he said as India has all the ingredients that markets value.

 

 

'India growth story will be sustained'

 

During his 45-minute presentation, Jhunjhunwala made an irrefutable case for sustaining the India growth story.

US slowdown may affect Indian market only for short term, he assured, adding, "India will have favourable asset allocation outcome in the long-run."

Enormous wealth was created over the last five years because opportunities in India have grown manifold, Jhunjhunwala stated. Admitting that gains were going to be moderate in future unlike the manifold rise over the last few years, he advised investors to be realistic in their expectations.

The super broker took the cue from Warren Buffett's words: "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

"Blindly following stock picks by big investors is not a wise thing to do," he warned investors. "I don't think the government is necessarily interested in hurting growth. The government is interested in growth with controlled inflation."

 

 

 

'America has 3.22 million Indians'

"There are 3.22 million Indians in America. Out of which, Jhunjhunwala said, 38 per cent are doctors, 12 per cent scientists, 36 per cent are NASA employees.

Dwelling on the statistics a bit more, Jhunjhunwala said that 34 per cent of Microsoft employees, 28 per cent of IBM employees, 17 per cent of INTEL staff and 13 per cent of XEROX employees are Indians. Indians, therefore, do have substantial contribution towards US growth.

The impact of the current credit crisis in the US will lead to a slowdown in the US economy, and that is bound to affect world equity markets, "India, however, may benefit," argued Jhunjhunwala, "but only after an intermittent transition period."

 

 

India vs US market by Rakesh Jhunjhunwala

Jhunjhunwala believes that India has all the ingredients that the stock markets value and hold in high regard.

Just as cheap credit in the US fuelled its growth, (one must refer to the graph on the left hand side), India owes its progress to the following factors:

Efficient capital allocation

Sustained earnings expansion driven by growth and productivity

8 per cent+ real GDP growth + 4 per cent + Inflation = 12 per cent + Nominal GDP growth

Corporates to grow faster than unorganised sector

Operating and financial leverage to kick in

Corporate earnings to grow at more than 18 per cent

Favourable framework for equity investing

Rising savings, yet low equity ownership -- significant potential

Corporate governance

Transparency

Effective regulation

Electronic trading

Dematerialisation

Tax paradise for equity investing under the STT regime

'India's biggest asset: A large pool of skilled people'

Why would India benefit against these odds, one wonders. Jhunjhunwala cited the following reasons:

A large pool of skilled people,

Favourable demographics,

Domestic consumption-led growth,

Increased productivity.

Corporate sector growing faster than the unorganized sector.

The withdrawal of reservations for small scale industry may result in the closing down of small firms, but it will also benefit the larger companies.

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India ranks 2nd in IPOs, 4th in M&As

India ranks second in capital market inflows and fourth in merger and acquisition deals in Asia Pacific (including Japan), as deals worth $65.033 billion were reported in the first eight months of calendar 2007.

The data compiled by Thomson Financial revealed that 121 Indian firms mobilised $23.96 billion, while there were 697 M&A deals worth $41.069 billion.

The strong inflows saw India's share in capital markets in Asia Pacific region increase to 17.3 per cent from 9.7 per cent in calendar 2006.

With Indian firms making overseas acquisitions and placing shares to private equities, its shares in merger and acquisition deals have increased to 10.3 per cent from 7.9 per cent in calendar 2006.

The Indian firms have heightened activities in equity market and mergers and acquisitions mart in the last four years.

The equity markets snapshot shows that 56 firms mobilised 9.27 billion in 2004, 14.39 billion in 2005, $16.1 billion in 2006 and 23.96 billion in the first eight months of the current calendar year.

On the M&A platform, the total cross boarder deals registered $4.3 billion in 2004, $12.58 billion in 2005, $34.72 billion in 2006 and $54.48 billion in the eight months of 2007.

The acquisition value of the Indian firms by overseas buyers showed a quantum jump from $3.16 billion in 2004, $8.39 billion in 2005, $10.38 billion in 2006 to $34.50 billion in 2007. The overseas acquisitions by India firms slowed down to 19.98 billion in 2007 compared with $24.32 billion in 2006.

The data compiled by Thomson Financial show that the flow of funds in capital markets and mergers and acquisitions deals in the Asia Pacific region aggregated to $535.64 billion in 2007, up by 51.6 per cent compared with $353.33 billion during the same time last year.

China ranked first in equity capital markets with mobilization of $47.78 billion, while Australia ranks first in mergers and acquisitions with deals size of 101.96 billion.

The data from Thomson Financial show that Vietnam (+686.5 per cent), Malaysia (+590.6 per cent), Indonesia (+371.8 per cent), Philippines (+361.2 per cent) and New Zealand (+270.8 per cent) were ahead of India (+136.8 per cent) in terms of growth in equity capital offerings. Japan (- 62.6 per cent) and South Korea (-35.7 per cent) have registered a decline in fund mobilization through equity offerings.

Australia ranks number one in M&A activities with deal size of $101.96 billion, followed by Japan at $80.331 billion, China, $41.77 billion, India $41.07 billion and South Korea $32.45 billion.

China ranks at number one in the equity markets with mobilization of 47.78 billion, followed by India $23.96 billion, Hong Kong $18.22 billion, Australia 12.98 billion and South Korea $6.69 billion.

 

Source:Rediff

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6 key dangers to Indian economy

While the US Fed continues to give confusing signals regarding the subprime meltdown and the status of economic growth in the US, its counterpart in India continues to make candid acknowledgements of the past and projections of what lies ahead.

Although the Reserve Bank of India (in its Annual Report 2007) reiterated its faith in the Indian economy clocking nothing less than 8.5% GDP growth in this fiscal, the central bank has also put forth some key concerns that have the potential to derail the growth engine.

1. Uneven rainfall distribution: As per the RBI, although the cumulative rainfall during the monsoon so far has been 7% above normal, it has been very uneven in terms of temporal and spatial distribution.

The uneven distribution of rainfall has impacted the agricultural production that has decelerated from an annual average of 4.7% per annum during the 1980s to 3.1% during the 1990s and further to 2.2% during the Tenth Plan period. Per capita annual production of cereals declined from 192 kg during FY05 to 174 kg during FY07 and that of pulses from 15 kg to 12 kg over the same period.

Per capita availability of foodgrains has, thus, fallen close to the levels prevailing during the 1970s.

2. Power shortage: The power shortage of around 10% and a peak hour shortage of over 13% is a deterrent to the sustained current high growth phase. In the Tenth Plan, capacity addition was around 50% of the target.

Expansion of private investment in the power sector has been constrained due to perceived lack of assurance of timely payment for power supplied or as contracted. The gas-based power plants, which account for about 11% of the installed generating capacity, are operating below their capacity in view of inadequate supply of gas and constraints in using alternate, high-cost fuels such as naphtha and high-speed diesel.

Transmission and distribution (T&D) losses remain unacceptably high, ranging from 30% to 45% in many states.

3. Labour issues: While it is encouraging to note that employment generation in the economy accelerated during the Tenth Plan period (FY02 to FY07) from the preceding period, the growth in employment during the respective periods, however, still trailed the growth in labour force over the same period.

Moreover, it was the unorganised manufacturing sector that generated more employment in recent years. The sustained growth in industry is, therefore, vital to generate employment opportunities and to absorb the disguised labour force dependent upon the agricultural sector.

The annual growth in employment during the Tenth Plan (2.5%) has been marginally lower than that of the labour force and as a result, the unemployment rate rose from 2.8% in FY00 to 3.1% in FY07.

4. Consumption slowdown: Lead indicators of consumption growth i.e. growth in tourist arrivals, revenue earning freight traffic of the railways, new cell phone connections, export cargo handled by civil aviation, passengers handled by civil aviation, cement, steel and bank credit have shown signs of moderation in FY08 so far.

Growth of non-food credit was 23.6% in 1QFY08 as compared to 32.5% in 1QFY07. The same is expected to remain within the range of 18% YoY to 25% YoY over the next 2 fiscals given the estimated growth rates and inflation during this period.

5. Low welfare expenditure: The shares of public expenditure on education and health in India are still low by international standards. In 2004, the share of public expenditure on health in India at 0.9% of GDP was lower than Brazil ( 4.8%), China (1.8%) and least developed countries (1.8%).

Re-prioritisation of expenditures towards social sectors along with higher capital outlays are the only means of improving the social infrastructure and provide productivity gains.

6. Global meltdown: According to the estimates by the IMF, global growth is likely to moderate from 5.5% in 2006 to 5.2% each in 2007 and 2008. Growth in the world trade volume is also expected to decelerate from 9.4% in 2006 to 7.1% in 2007 and 7.4% in 2008.

The emergence of protectionist pressures, further rise in oil prices, persisting global imbalances, adjustment in the US on account of housing slowdown and potential shifts in financial market sentiment pose downward risks to global growth prospects.

If these risks materialise, they could have some adverse impact on the domestic economy as well. Conditions in the subprime mortgage sector in the US have the potential for rise in delinquencies and could lead to reassessment of risk by investors across products and markets and retrenchment of capital from the emerging market economies, given the contagion and herd mentality.

RBI's testimony thus highlights the need for appropriate macroeconomic policies to avoid risks of financial imbalances and recurrence of inflationary pressures while facilitating the growth momentum in an inclusive fashion. In this regard, policy priority needs to be accorded.

Equitymaster.com is one of India's premier finance portals. The web site offers a user-friendly portfolio tracker, a weekly buy/sell recommendation service and research reports on India's top companies.

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Global market woes? India not bothered

September 11, 2007 07:41 IST

Aided by some robust buying by domestic institutions, Indian stock markets have been showing signs of independence from global trends.

Indian stock market indices have climbed close to their all-time highs, even as key overseas indices such as the Dow Jones, FTSE 100 and Nikkei 225 are reeling under the sub-prime meltdown in the US.

While the Dow has fallen 4.40 per cent, the FTSE 4.73 per cent and the Nikkei 12.43 per cent since July 24, when the markets felt the first tremors of the crisis, the BSE Sensex has softened just 1.25 per cent.

Today also, most Asian market indices, except the Hang Seng and Shanghai, reacted sharply to Friday's reports of poor jobs data in the US and ended the day in the red.

The Sensex too initially lost 227 points but recovered immediately and ended the day up 0.04 per cent to 15,596.83 points. The Dow was 52 points down at the time of going to press on Monday, while the FTSE 100 had lost 57.1 points.

Stock market experts said this was a clear indication that the Indian markets had de-coupled from the western markets and had a destiny of their own.

Ravi Kapoor, managing director and head of equity capital markets with Citigroup Global Markets India, said: "We believe, once the sub-prime c risis is managed, the fundamentals of the Indian economy and the performance of Indian companies will get appropriately noticed and valued."

Data released last week by the government had said that the economy grew 9.3 per cent in the first quarter (April-June) of current fiscal. In addition, inflation has fallen to below 4 per cent and latest trade data showed that exports continued to rise in July, notwithstanding the strengthening of the rupee vis-a-vis the dollar.

Studies have also suggested that the mortgage market in the country, including the sub-prime market, continues to be in robust health.

In August, foreign institutional investors (FIIs) sold equities worth more than $2 billion, while domestic institutions stepped up buying. Clearly, the domestic institutions continue to bet on the India growth story, even if the FIIs are not buying.

"Earlier, the sentiment was bad, which sucked out the liquidity. With the corporate earnings season set to begin, the impact will unfold now," said Seshadri Bharathan, director (stock broking), Dawnay Day AV Securities.

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Lok Housing : Hidden Gem and Multibagger

Company Name: Lok Housing and Constructions Limited
BSE: 500256
NSE: LOKHSG
CMP:Rs. 154.30
Target: 300 in 12-15 months
Company Website:http://www.lokhousing.com

Company Facts

Incorporation

Incepted in 1986, Lok Housing and Constructions Limited is the flagship company of the Mumbai based Lok Group of Companies and firms founded in 1982.

Experience

Backed by over two decades of experience in designing skylines, explicit from its exemplarary portfolio of projects across both the residential and commercial segment, Lok Housing's name has today become synonymous with quality, versatility, innovation and pioneering in the real estate development in Mumbai. The company is also reputed for developing innovative range of properties across all budget options ranging from middle and higher middle projects on one hand to ultra modern and premium projects on the other, which helps it amply address diverse customer aspirations and lifestyles.

Corporate structure

In 1990, Lok Housing took the road less travelled in a fragmented, individual driven realty sector by imbibing professional management standards, ushering in high levels of transparency and establishing a corporate structure guided by an eminent board of directors on its group of companies.


News Items: Economic Times Source: http://economictimes.indiatimes.com/articleshow/2080457.cms
City's salt pan land gets freed up for real estate


MUMBAI: Huge tracts of privately-owned salt pan land would be made available for redevelopment in Mumbai if last week's Bombay High Court order is an indication.

The court has set aside three legal suits filed by the Union government against Lok Housing and Suresh J Thanawala over 175 acres of salt pan land in Turbhe, Navi Mumbai, which was sold by Mr Thanawala to Lok Housing. Mr Thanawala, the original land owner of the salt pan, sold the land to Lok Housing in 1994.

The Union government had earlier opposed the use of salt pan land for real estate development. The court has now cleared the way for redevelopment and asked the Union government not to create any legal obstructions for the developer.
It is estimated that Mumbai has over 2,000 acres of privately-owned salt pans that are owned by developers and industry houses like the Godrej group, the Ajmera group and Lok Housing.

"Since the court has allowed Lok Housing to carry out the redevelopment of land, they are now settling various other issues with the commerce ministry," said industry sources. However, legal experts feel that redevelopment of salt pan land depends upon the kind of land and its location. "If it is a leased land from the government, the private developer can't do anything and it all depends upon the Centre. In the case of privately-owned land, the developer can redevelop it if the court permits.

But in Mumbai, privately-owned salt pan land is negligible," Divyakant Mehta, advocate, Divyakan Mehta and Associates, said.

With land prices in Mumbai becoming dearer by the day, more and more heads are turning to salt pans, which are being viewed by developers and builders as the answer to the city's housing problems. Mumbai and its suburbs have over 6,000 acres of salt land — both privately-owned and lease-held — under litigation. Various court cases are pending with the high court and the Supreme Court on the issue. If the Thanawala case sets a precedent, huge tracks of privately-owned land will be available for redevelopment, industry officials said.


Senior officials with Knight Frank India said there are 3-4 kinds of salt pan agreements in Mumbai, between the developers and the state as well as the Union government.

"Redevelopment of the land would depend on the kind of agreement they have entered into with the state or the Union government," they said.

Last month, the Prime Minister had cleared the redevelopment of the government-owned salt pans in Mumbai to rehabilitate slum dwellers. It is likely that more land will come up for redevelopment, offering a big development opportunity for real estate developers in the city.

However, it is not yet clear how the land will be allocated or who will develop it. "The methodology is not stated. There has to be some participation from private developers to help in construction," said an official with Hiranandani Constructions.

While the development of unused salt pan land is being viewed as a possible answer to the city's staggering housing problem, the project will require massive funding. Real estate dealers feel that redevelopment of government-owned salt pans could get delayed for decades unless the private sector is allowed to participate.

Financials

http://www.moneycontrol.com/india/stockpricequote/construction/lokhousingconstructions/14/30/quarterlyresults/marketprice/LHC

INTRODUCTION

The construction activity as per the International Standard Industrial Classification consists of contract construction by general builders, civil engineering contractors and special trade contractors. The sector also includes own account construction carried out by independent units of enterprises or other organisations, though it is not a part of the construction industry proper. The importance of the industry lies in its strong linkages with the economy. Its multiplier effect on the economy is one of the highest. The multiplier effect is 1.85 times the assets being created.

Real growth in construction (Rs bn)

1999		2000( projected)
Volume	Growth	Volume	Growth
2100	7.7%	2180	3.8%

This sector, while contributes about 5% to the GNP, has been growing at 9.1% at constant price (at 1993-94 prices) where as at current price it has declined to 12.6% from last years 17.6. It clearly indicates that the prices have not moved much in this sector.

The expenditure on construction for the period 1981-1991, was Rs 3142.32 bn and it is expected to increase to Rs 53242.26 bn for the period 2001-11 i.e. an increase of about 1600%.

Cumulative Expenditure in Construction Sector (Rs bn)

Year	Total Exp	Res. Bldgs.	Non-Res. Bldgs.	Other forms of Const.
81-91	3142.3	800.4	692.0	1694.9
91-01	13146.2	3377.2	3328.2	6440.9
01-06	17683.1	4547.9	4576.2	8559.0
06-11	35559.2	9150.3	9264.5	17144.4
01-11	53242.3	13698.2	13840.7	25703.4

The industry can be classified into three broad segments: Civil (municipal roads, sewerage and water supply projects), Infrastructure (highways, bridges, dams, ports etc.) and Housing / Industrial segment (residential and non-residential construction).

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INDUSTRY STRUCTURE

The industry is highly fragmented with over 300,000 contractors of which only about 100 are large/medium-sized companies. Over 60% of the contracting firms are into housing, while 20% are into industrial, with the remaining 20% in both the segments. Large companies usually have a major presence in non-housing sector, whereas small players venture into real estate projects. Proprietary concerns focus on small/ individual housing projects and civil work for small industrial units. However, given the natural cost advantage enjoyed by the small firms, many large companies sub-contract a part of the big projects.

Major listed players

Housing	Industrial / Civil / Infrastructure
Ansal Properties, Lok Housing, Premier Const., Alsa Const.	Astron Engg., Gammon India, UB Engineering, Continental Const., Jaiprakash Ind., L & T, Unitech, Hindustan Const., Kvaerner Cementation

The housing sector is on an upward spiral this financial year. The disbursals by home finance institutions (HFIs) show that in 00-01, the 29 approved HFIs are expected to disburse Rs. 125 bn against Rs 95 bn in 99-00. In the first half, the number of dwelling units financed by HFIs has grown by a massive 50% and disbursal rose 30%. From Apr-Sept 00 HFIs financed 112,615 units against 75,516 units a year ago. The housing finance segment is growing at a compounded annual rate of 30%.

Civil Construction

This includes construction of roads, water supply and sewerage projects. Civil projects have historically been government sponsored and large projects are normally split up into under Rs 20 mn contracts. Consequently, the unorganised sector share is around 85%. The financing of civil projects are done through internally generated resources (both tax and non-tax revenue) of the municipalities, and transfers from Central and State governments. The Government of India also allocates resources to the State Governments through various centrally sponsored schemes, provides finances through national financial institutions and supports various external assistance programmes for urban development in the country as a whole. Since 97-98, there has been budget sops for various infrastructure projects and a few municipal corporations have also undertaken steps to realise fund from the market.

HOUSING/INDUSTRIAL

The total housing stock in India in 1991 was 153.2 million units, of which 40.7 mn units were in urban areas and 112.5 mn units are in rural areas. Housing shortage in India stands at 7.2 mn in urban areas and 13.2 mn in rural areas in FY99. Housing investment in India forms a relatively small proportion of GDP. This is partly due to credit allocation policies that restrict exposure of regulated institutions to housing finance. The budget for FY99-00 has made an attempt to increase housing stock through new policy initiatives and incentives for private investment. The budget for 2000-01 has extended the benefits available to the housing sector for another two more years, i.e. for houses or projects that are completed by March 31, 2003. A 20% rebate of tax for repayment of housing loans of up to Rs. 20,000 would be allowed. The budget has set a goal of providing 2.5 mn dwelling units in rural areas. Several schemes for meeting the needs of different sections of society have been prepared.

An amount of Rs 920 million has been provided by the budget for construction houses under the credit-cum-subsidy scheme, for families with annual income below Rs 32,000. The National Housing Bank will provide refinance to banks and housing finance companies for construction of houses under Golden Jubilee Rural Housing Finance Scheme.

Housing Stock (mn units)

	Urban	CAGR %	Rural	CAGR %
1961	14.1	-	65.2	-
1971	18.5	2.8	74.5	1.3
1981	28.0	4.2	88.7	1.8
1991	39.3	3.4	108.7	2.0
2001 (e)	59.4	4.2	119.7	1.0

The oversupply in the urban India has led to a fall in the price of the housing stock with little sign of improvement. Real estate prices have bottomed out but however, growth is expected to accelerate due to the freeing of the allocation norms for LIC and GIC. Government has also repealed the Urban Land Ceiling Act which will ensure supply of land in urban areas and has also decided to allow private participation, including FDI, in the housing sector to meet the growing demand for housing in metros and other urban areas.

The industrial construction segment is a function of industrial growth, capital utilisation and investment. Major contribution is expected to come from the power and petroleum sectors where several units are coming up. Apart from this, the government has also given permission to develop area bordering road projects, which could see several commercial and service construction projects coming up. In the remaining areas in the manufacturing sector, growth is not expected to be high on account of postponement of investment decisions due to uncertainty on the political front and slowdown in demand.

Select Ongoing Power Projects

Projects	State	Capacity (MW)
Dabhol Power Company (Gas/ naphtha based)	Maharashtra	2450
Daewoo Power (Coal based)	Madhya Pradesh	1000
Dakshin Bharat Energy (LNG based)	Tamilnadu	1850
Duncans North Hydro Power Co (Hydel Power)	Shrinagar	330
Hinduja National Power (Coal based)	Andhra Pradesh	1040
Rosa Power Supply Company (Coal based)	Uttar Pradesh	567
Tannirbhavi Power Co (Naphtha based)	Karnataka	200

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Power Your Trade Trading Calls for 07th September 2007

Ashwani Gujral Buy Alchemist with stop loss of Rs 107 for target of Rs 150.

Buy Alchemist with stop loss of Rs 107 for target of Rs 150. Disclosure: Neither me, nor my family nor our clients have any position in the above stock. However we run a substantial newsletter, chatroom and money mgmt business and this can change at any time in the future.

Buy NIIT with stop loss of Rs 133 for targets of Rs 170 and Rs 225.

Buy NIIT with stop loss of Rs 133 for targets of Rs 170 and Rs 225. Disclosure: Neither me, nor my family nor our clients have any position in the above stock. However we run a substantial newsletter, chatroom and money mgmt business and this can change at any time in the future.

Rajat Bose Buy IDBI with a stop below Rs 133 for target of Rs 144. This is a day trading recommendation. Buy IDBI with a stop below Rs 133 for target of Rs 144. This is a day trading recommendation. Note: Either on the long side or on the short side if at any moment a counter is not moving beyond an initial or interim target to the final target book profits. Once initial target is crossed, you can use that as your trailing stop-loss level. Notes: ·  All prices relate to the NSE, unless otherwise mentioned. ·  Calls are based on the previous trading day's price activity. ·  The call is valid for the next trading session only unless otherwise mentioned. ·  Stop-loss levels are given so that there is a level below/above, which the market will tell us that the call has gone wrong. Stop-loss is an essential risk control mechanism; it should always be there. ·  Trading involves considerable risk. Trade at your own risk to the extent you are comfortable. The analyst shall not be responsible for any losses incurred for acting on these recommendations. Disclosure:The analyst and his family do not have any trades in the securities recommended above at the time of giving this recommendation. His newsletter clients have been recommended the same along with other picks. Traders are requested to adhere to the stop losses very strictly; they are given to be implemented, not ignored. Do not chase a security and take a position where you would be uncomfortable with the stop-loss level. Take a position only when you feel that the risk-reward ratio looks comfortable and favourable for the trade.   Deepak Mohoni   Short sell Colgate above Rs 396 with stop loss of Rs 402. This is a day trading recommendation. Short sell Colgate above Rs 396 with stop loss of Rs 402. This is a day trading recommendation. Use trailing stops once the position is taken. The extreme price of the previous 45-90 minutes at any time can be used as the trailing stops. I have no position in any of these stocks at the time of writing (0945 hours, 7th Sep 2007), nor am I aware of any family members or clients holding positions in these stocks. The stocks may or may not have been recommended as buys and/or short sales in the last two months, but that is irrelevant since these are purely day-trading recommendations.   Buy Reliance Energy below Rs 865 with stop loss of Rs 857.5. This is a day trading recommendation. Buy Reliance Energy below Rs 865 with stop loss of Rs 857.5. This is a day trading recommendation. Use trailing stops once the position is taken. The extreme price of the previous 45-90 minutes at any time can be used as the trailing stops. I have no position in any of these stocks at the time of writing (0945 hours, 7th Sep 2007), nor am I aware of any family members or clients holding positions in these stocks. The stocks may or may not have been recommended as buys and/or short sales in the last two months, but that is irrelevant since these are purely day-trading recommendations.   E Mathew   Buy Subhash Projects with stop loss of Rs 255 for short-term target of Rs 295.

Buy Subhash Projects with stop loss of Rs 255 for short-term target of Rs 295. Disclaimer: - I, my family members and my group companies do not have any position what so ever in SUBHASH PROJECTS. This stock has been recommended to our clients and they may be holding long or short positions in this stock. Mathew Easow and matheweasow. com gives an unbiased and competent picture of trading opportunities and it does that to the best of its abilities. However, prices can move up as well as down due to number of factors, all of which are impossible for anyone to foresee. THEREFORE, Mathew Easow and matheweasow. com cannot accept any responsibility for any investment decision or trading decision taken by readers and clients on the basis of information contained herein.

 

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