Sharekhan recommends BUY for this stock for 30% Gains

Tata Tea -

Analyst meet takeaways

Buy; CMP: Rs798 -- Target; Rs. 1040

We attended the analyst meet organised by Tata Tea Ltd (TTL) last week after the acquisition of Energy Brands Inc (EBI) by the company. Even though the recent acquisitions of TTL have helped the company transform itself into a splendid branded beverage play, we believe that the funding issues with regard to the latest acquisition (EBI) will act as an overhang on the stock in the short term.

 

Valuation of EBI revised at 12.4x sales

 

In the analyst meet, the management of TTL indicated that EBI's revenues for CY2005 were at $175 million instead of $350 million as was stated earlier. This puts the valuation of EBI at 12.4x its CY2005 revenues against the earlier valuation of 6.2x. TTL may go for equity dilution

The various options available to TTL for raising Rs864 crore required to invest in EBI

are as follows:

 

• it could unlock the value of its investments in various other Tata group companies;
• it could restructure/sell partially its north Indian plantation operations;
• it could take debt as its stand-alone debt/equity ratio is very low at 0.2x; or
• it could go for equity dilution, which may be in any form including a rights issue. The dilution may be to the extent of 8-10%.

 

TTL's stake in TTGL to go down

 

TTL and Tata Sons Ltd (TSL) will invest $192 million and $58 million respectively in Tata Tea GB Ltd (TTGL; a vehicle for the EBI acquisition) in the form of equity. TSL will subscribe to convertible bonds of TTGL which will increase its stake in the latter to 23% (current holding = 1.4%). TTL's stake in TTGL will come down to 77% from 98.5% pre-acquisition.

 

Short-term overhang on the stock

 

We expect the EBI acquisition to act as an overhang on the stock price in the short

term because of the following reasons.

 

1. Near-term earnings to reduce by 20-25%

 

• To fund the acquisition, TTL will either raise debt or dilute equity or reduce investment which will affect its earnings negatively
• TTL's stake in TTGL will reduce to 77% from 98.5% pre-acquisition
• TTGL will have to take $427 million of debt to fund the acquisition which will increase TTGL's interest cost

 

2. Reduce appetite for further acquisitions

• TTL's consolidated debt/equity ratio of nearly 3-4x will reduce its appetite for further acquisitions in tea space

 

3. EBI to contribute to earnings from FY2009

 

EBI is expected to start paying dividend from FY2009 onwards and hence will contribute to TTL's profitability only after three years Long-term potential is immense The management of EBI has indicated that the revenues of the company are likely to quadruple over CY2005-07 to $700 million with the potential to reach even $1 billion in the same period. It is also expecting the enterprise value of the company to nearly go up to $10 billion from the current $2.2 billion (appreciate almost five times). Thus, the investment in EBI holds immense long-term potential

for TTL looking at the fact that TTL holds the right to increase its stake in the company to 40%.

 

Valuation and view

We will revise our earnings for the stock once the funding pattern for the EBI acquisition becomes clear. We maintain our Buy recommendation on the stock with price target of Rs1,040.

Block deals turn the tide for Igarshi Motors

Igarashi Motors jumped 10.24%, to Rs 142.70 after three block deals were sealed in the counter in opening trades

A block deal of 74,332 and of 2,74,691 was struck at Rs 130 per share while a third of 2,74,691 was struck at Rs 130.70 per share.

The counter clocked a cumulative volume of 6.58 lakh shares on BSE.

The stock witnessed a steady decline in the past few sessions. From Rs 147.35 on 21 August 2006, it has slipped to Rs 129.45 by 04 September 2006, as selling continued.

At the current market price of Rs 142.70, Igarshi Motors trades at 53.24 times its Q1 June 2006 annualized EPS of Rs 2.68.

Recently, Igarashi Motors' board approved an increase in FII ceiling up to 40% of the paid-up capital of the company.

The latest paid-up equity share capital of the company is Rs 13.87 crore.

Igarshi Motors makes DC micro motors mainly for automotive applications. These are used in areas such as power window motors and wiper motors. The company's clients include auto giants General Motors, Honda, Renault, and Mitsubishi.

For the first quarter ended 30 June 2006, the company reported turnaround results. It posted a net profit of Rs 93 lakh compared to a net loss of Rs 1 crore in the previous corresponding quarter. Net sales rose 64.80% , to Rs 57.06 crore (Rs 34.63 crore).

Tantia Constructions excited on winning new project

Tantia Constructions advanced 2.77%, to Rs 128 after bagging a domestic project worth Rs 64.83 crore.

Tantia Constructions will construct a second bridge across Gandak river, construction of major approach bridges, earth work including minor bridges between Hajipur - Sonepur station. The completion period of the project is 24 months.

As many as 2.42 lakh shares were traded in the counter on BSE.

The stock was hammered brutally in the past, ever since going public. From the peak of Rs 309.70 on 02 May 2006, it plunged close to 73% to Rs 84.80 on 14 June 2006, under sustained selling pressure. It started heading higher steadily from this level, and finished at Rs 124.45 by 04 September 2006, on finding buying support.

At the current market price of Rs 128, Tantia Constructions trades at 21 times its Q1 June 2006 annualized EPS of Rs 6.08.

Recently, Tantia Constructions bagged projects for construction of infrastructure work and foundation work for an upcoming 8,000-tcd-sugar mill, at Balrampur, from Balrampur Chini Mills. The gross value of the project is Rs 40 crore, including the cost of steel and cement approximately valued at Rs 20 crore, and to be supplied by the client. The project has to be completed within six months.

Tantia has a diversified project portfolio spanning railways, roads, ports, bridges, power and urban infrastructure. As its order-book is not dependent on a single segment of the construction industry, Tantia Construc exposed to relatively low business risk.

For the first quarter ended 30 June 2006, the company reported 184.40% surge in net profit to Rs 2.19 crore (Rs 0.77 crore). Net sales rose 45.70% to Rs 52.35 crore (Rs 36 crore).

For FY 2006, the company reported 430.20% surge in net profit to Rs 8.43 crore (Rs 1.59 crore). Net sales jumped 57.30% to Rs 162.28 crore (Rs 103.16 crore).

JMC Projects jumps on rights offering

JMC Projects jumps on rights offering

JMC Projects India spurted 5% to Rs 131.85on announcement of their decision to issue around 46.46 lakh equity share of Rs 10 at Rs 100 per share.

At the current market price of Rs 131.85, the offer price of Rs 100 stands at a discount of Rs 31.85.

As many as 27,322 shares were traded on the BSE. There were pending buy orders for 23,002 shares at the maximum price

The stock witnessed a pre-results rally from Rs 92.70 on 28 July 2006, to Rs 103.60 by 02 August 2006 in anticipation of strong results from the company. Here, the stock advanced to Rs 136.30 by 14 August, only to slip to Rs 125.60 by 4 September on profit-booking.

At the current market price of Rs 131.85, JMC Projects trades at 16.44 times its Q1 June annualized EPS of Rs 8.02.

JMC Projects India has decided to issue 46,46,550 equity shares of Rs 10 each, at a premium of Rs 90 per share (offer price Rs 100 per share), aggregating to around Rs 46.46 crore in the ratio of 2 shares for every 5 shares held on the record date.

In March, JMC Projects bagged an order for rehabilitation and straightening of Badnawar-Thandla in MP (Road 21) totaling $ 9.95 million (Rs 44.13 crore), from the Ministry of Rural Development Controller of Aid Accounts and Audit. Of the total amount, $ 5.99 million is being financed by Asian Development Bank.

JMC Projects is a leading player in civil construction of buildings and industrial structures and infrastructure projects such as roads and bridges.

Kalpataru Power Transmission holds 49.90% stake in JMC Projects. The latest paid-up equity share capital of the company is Rs 11.63 crore.

JMC Projects reported turnaround results for the Q1 June 2006. It posted a net profit of Rs 2.33 crore for the Q1 June 2006, compared to a net loss of Rs 1.21 crore for the Q1 June 2005. Net sales rose 45.20% to Rs 82.61 crore (Rs 56.89 crore).

 

Source: Capitalmarket

BUY Era Constructions - Read analysis

Investor can consider fresh exposures in the stock of Era Constructions (Era). The stock trades at a price earnings multiple of 10 times its expected 2006-07 per-share earnings. Our view is based on the healthy order flow, better than expected earnings numbers for the first quarter and substantial expansion in operating profit margins.

The recent expansion in equity will also prepare it for entry into BOT (build, operate transfer) projects. The company has forayed into making of pre-engineered building materials that could help protect margins and improve its earnings growth. Its foray into newer business segments such as real estate and BOT projects could diversify growth avenues but would also carry an element of risk.

Construction stocks were the worst hit during the recent correction and they have been laggards compared to other sectors in the recent pull back despite good performance and healthy order flows. Era trades at a discount compared to most other construction stocks in its peer group and has potential for appreciation.

Era has been receiving a flurry of orders from the power and railway sectors apart from industrial civil structures in the last three-four months. Quite a few of them are large-sized orders. The total orders received in the first quarter are close to Rs 275 crore, almost equal to 2005-06 revenues. The order book to sales ratio at four times is comparable to other players in the sector. The robust order flow in the first quarter reinforces the growth prospects.

Operating profit margins have shot up sharply due to increase in volumes and execution of contracts where the clients supplied raw materials. Though this may not be sustainable, its backward integration into pre-engineered building could help it protect margins to some extent. The scope for such products also holds promise.

Era has raised capital to meet pre qualification requirements for entry into BOT projects. Though competition is stiff in this segment, with tie-ups with bigger players, even a marginal share of these projects could improve revenues. Margins, however, are lower in this segment.

Investment Advice: Questions and Answers on YOUR Stock - 4th Sept to 8th Sept

Please tell me the future of Gitanjali Gems, which I purchased at Rs 190 and JP Hydro purchased at Rs 34.

Gitanjali Gems (Rs 196.8): The chart is showing good momentum since the bottom formed in the beginning of August 2006. The stock has the short-term target between Rs 220 and Rs 230. If this level is crossed, the price can go on to the previous high of Rs 270. Hold the stock with a trailing stop-loss of Rs 20 from the most recent peak to take advantage of this rally.

J. P. Hydro (Rs 28): JP Hydro has not been able to recover with any great conviction from the hit it took in May 2006. The price is moving sideways between Rs 21 and Rs 28 since early June. Price will face resistance at Rs 29 and then at Rs 33. Exit at Rs 29 if the price is unable to overcome this resistance level.

I would appreciate your view on Andhra Petrochemicals and Nagarjuna Fertilizers (long term view).

Andhra Petrochemicals (Rs 11.4): The Andhra Petrochemicals stock has started moving up since August 2006.

A long-term low seems to have been formed at Rs 7.2 in mid June. The long-term resistance for the price exists at Rs 16. This level needs to be crossed for the price to rally to the previous high of Rs 21. Hold the stock with stop-loss at Rs 7.

Nagarjuna Fertilizers (Rs 12.1): The long-term bull run that began in 2003 has ended in this stock.

However, the slide in the prices of Nagarjuna Ferlilizers has halted near its long-term support at Rs 10.

Hold the stock with a stop-loss at Rs 9. The price can rise to Rs 13.5 and then to Rs 16 over the next one year. Exit can be considered at either of these levels.

I want to know the long-term outlook of Hindustan Construction Company purchased at Rs 176 during March 2006. Is there any sign of recovery? Should I hold or book loss at current levels?

Hindustan Construction Company (Rs 108.4): This stock rose from a low of Rs 81 in October 2005 to a high of Rs 196 in March 2006.

The slide since May 2006 has now stopped at Rs 82 and we are seeing a fight back in the price. Good volumes have accompanied the rally since July 2006, which is a positive sign.

You can hold this stock for long term (more than one year) with a stop-loss at Rs 75.

Please advice on the prospects of IDFC (Rs 64.32) and Micro Technologies (Rs 158.06) in a medium-term perspective.

IDFC (Rs 59.8): The IDFC stock has had a strong upward move since hitting a low of Rs 44 on July 24. The medium-term prospects of IDFC look good. The immediate resistance for the price is at Rs 65. If this level is crossed, then there can be a rise to the former peak of Rs 78 or beyond. Hold the stock for the medium-term with a stop-loss at Rs 50.

Micro Technologies (Rs 202.4): The price of Micro Technologies is turning down from its immediate resistance of Rs 220.

Hold the stock with a stop-loss at Rs 175 for the medium-term. The target beyond Rs 220 falls at Rs 260.

Should I buy Grasim Industries at current prices?

Grasim (Rs 2,252.9): The chart of Grasim has been moving sideways with an upward bias since the beginning of August 2006.

The short-term formation indicates inherent strength. Buy at current levels with a stop-loss at Rs 2,170 if you are a trader. Investors should wait for a dip to Rs 1,950 or Rs 1,820 before entering this stock.

Please advise whether I can hold Bongaigaon Refineries purchased at the rate of Rs 99.9.

Bongaigaon Refineries (Rs 56.9): The price of Bongaigaon refineries has bounced off its long-term support at Rs 44. You can hold the stock with a stop-loss at Rs 40. This level should support the price in case of a sharp slide in prices. For the next one year, the price will have difficulty rising above Rs 79. This level needs to be crossed if the price has to rally to its previous high of Rs 107.

Kindly, let me know the prospects of Jet Airways purchased at Rs 1,020. Can I purchase additional units at these current prices?

Jet Airways (Rs 538.2): The stock is currently ruling near its all-time low. Due to paucity of adequate historical data, it is not easy to determine the place where the price can halt. So buying additional shares is not recommended. Price can rally to

Rs 700 over the next few months when you can exit this stock. Till then, hold with a stop-loss at Rs 450.

What is the short-term and medium-term outlook for MSK projects (India) Ltd bought at Rs 128 and Advani (Ramada) Hotel bought at 102?

MSK Projects (Rs 70): The price has had a very steep 63 per cent fall from its peak of Rs 138 recorded in May 2006. Since several investors have entered this stock at higher levels, profit booking will be seen at every rally. Price will face stiff resistance between Rs 85 and Rs 90 over the next few months. Exit at these levels and switch to another stock. Till then hold with a stop-loss at Rs 48.

Advani Hotels (Rs 95.6): The price has turned up from its long-term support at Rs 56 and has since gained 68 per cent. There is short-term resistance at Rs 100 from which the price is currently reacting. Exit here is if you are a short-term investor. If your perspective is long-term, then hold the stock with a stop-loss at Rs 70.

Kindly let me know the prospects of Bata India purchased at Rs 247. T.S. Prasad

Bata India (Rs 207.2): Price of this stock has had a sharp 57 per cent fall since its peak of Rs 329 in May 2006. Price is turning down from the near term resistance at Rs 220. The resistance beyond Rs 220 falls at Rs 257. Exit at current levels if you are a short-term investor. If you are a long-term investor, then hold with a stop-loss at Rs 180.

I have purchased 1257 shares of Sterlite Industries at the rate of Rs 405. What is the prospect of this stock? Can I get rebate of STT (Securities Transaction Tax) in income-tax? I am an individual.

Sterlite Industries (Rs 424.5): The price has seen a strong rebound since hitting a low of Rs 255 on June 16. The price has already retraced 50 per cent of the fall from its May 2006 highs. The next target for the scrip is at Rs 475. This level needs to be crossed convincingly if the bear grip has to end on this counter. If you are a short-term investor, book profit and exit at these levels. Long-term investors can accumulate this scrip in the band between Rs 300 and Rs 350.

You can get rebate in respect of securities transaction tax (STT) paid under section 88E introduced by the Finance Act (No 2) of 2004. As per this section, where the total income of an assessee includes any income under the head `Profits and Gains from Business or Profession' arising from taxable securities transaction, he shall be entitled to a rebate from the income tax on such income. The amount of rebate shall be the lower of the amount of STT paid in respect of taxable securities transactions entered into in the course of business during the previous year or the income-tax on above income.

What is the outlook for Mid-day multimedia bought at Rs 90 three months back?

Mid-day Multimedia (Rs 46.4): This stock has wiped out almost the entire gains that were made from the low of Rs 26 in August 2005. Long-term support exists at Rs 25. Hold with a stop-loss at Rs 24. The price will however struggle to get past Rs 66 in the medium-term. Exit at these levels if you are a medium-term investor and switch to some other stock.

What are the short and medium term prospects of Tata Tele Maharashtra?

Tata Tele Maharashtra (Rs 18.9): The recovery in the price since the low of Rs 15.5 recorded on 9 June does not show any conviction. A long-term support exists at Rs 17. A sharp fall below Rs 17 will drag the prices to Rs 14 or Rs 11. Price will struggle to go past Rs 24 over the next few months. This level, if breached can take the price to Rs 29. The outlook is negative for this stock.

Please advise whether I should hold JP associates bought at Rs 577.

JP Associates (Rs 427.1): If you are a short-term investor, then exit at current levels as the price has already retraced 50 per cent of its fall since the May 2006 high. The next resistance for the stock is at Rs 490. This level needs to be crossed strongly if the price has to proceed towards your cost price. If you are a long-term investor, then hold with a stop-loss at Rs 340.

What are the prospects of Hind Motors Shares bought at Rs 44.38 per share one year back?

Hindustan Motors (Rs 39.4): The price has clawed back to Rs 40 levels after being hammered to the lows of Rs 25 in July 2006. The medium-term outlook will stay positive as long as the price stays above Rs 32. You can hold the stock with a stop-loss at that level if you are a long-term investor. Short-term investors can exit at current levels. The price will face considerable resistance from Rs 47 levels over the next few months.

Sensex ends with 12,000 in sight

Sensex ends with 12,000 in sight

The market was gripped by a steady rally. The BSE benchmark index, the BSE Sensex, kept advancing throughout the day hitting a fresh high at regular intervals. It reached a high of 11,939.96 in final trading as buying intensified. A strong closing of the US market, and steady Asian as well as European markets brightened the sentiment further. Also, a major trigger was provided by market talk that the government may not impose a ban on participatory notes.

The BSE 30-shares Sensex ended above the 11,900 level as buying picked up pace. It is now eyeing the psycological 12,000 mark.

The BSE Sensex surged 136.19 points (1.16%), to close at 11,914.21. It had opened higher, at 11,824.49, as buying resumed because of a fall in global crude oil price. The benchmark's low was recorded at 11,824.49.

The NSE Nifty surged 41.45 points (1.21%), to finish on 3,476.85.

The market-breadth was strong with 1,608 shares advancing compared to 918 that declined. As many as 86 shares remained unchanged. The BSE Mid-Cap index jumped 1.93% while the BSE Small-Cap index advanced 1.27%.

The total turnover on BSE was Rs 2,862 crore.

Among the Sensex pack, 24 advanced while only 6 declined.

Tata Motors was the top gainer from the pack, up 3.72% to Rs 895.50 on 5.09 lakh shares. The total sales for August rose 26.2%, to 45,681 units. Total commercial vehicle sales advanced 35%, to 23,069 units while passenger car sales rose 26.4%, to 17,541 units. Sales of the mid-sized sedan, Indica, surged 48%.

Maruti Udyog jumped 3%, to Rs 901.50 on 4.98 lakh shares. It had struck a high of Rs 906, in the last minute of trading.

L&T (up 2.15% to Rs 2480), HLL (up 1.76% to Rs 243) and Bajaj Auto (up 1.60% to Rs 2835) were the other gainers.

Index heavyweight RIL advanced 0.55%, to Rs 1,128.20 on a volume of 7.85 lakh shares. It had surged to Rs 1,136.85, as buying continued in the scrip.

Hero Honda lost 1.51% to Rs 715.95 after reporting a fall in August sales.

Dr Reddy's (down 0.47% to Rs 739.80) and Ranbaxy (down 0.18% to Rs 414.65) were the other losers.

United Western Bank (UWB) recovered from a low of Rs 10, struck in early trade, and ended with a plunge of only 28.82%, at Rs 16.05. A huge 2.24 crore shares were transacted on BSE. Its high for the day was at Rs 18.05. The recovery is attributed to a series of banks –private and public - being interested in the sick private bank.

The stock plunged in early trade after the RBI placed it under a moratorium. ICICI Bank's board has okayed a proposal to merge UWB. Federal Bank, Canara bank and South Indian Bank have evinced keen interest in UWB.

It may be recalled that in previous cases involving two private sector banks, the Global Trust Bank (GTB) and Nedungadi Bank, shareholders got nothing. In the first case, the GTB stock was down 20% on the day markets opened after the moratorium. Exchanges then lifted the circuit from the stock, and it crashed to close at Rs 1.50. In case of Nedungadi Bank also, shareholders had wash their hands off the investment.

Among some noteable block deals, 5 lakh shares of Cranes Software changed hands at Rs 102.50 per share on BSE, while 4.92 lakh shares of Madhucon Projects were transacted for Rs 230 per share on BSE.

Technology stocks witnessed strong demand, and the BSE IT index advanced 77.90 points (1.82%), to 4,365.01. Infosys Technologies (up 1.26% to Rs 1834), Satyam Computer (up 1.33% to Rs 810.50), TCS (up 1.52% to Rs 1,014.40), Mphasis (up 0.82% to Rs 179), Wipro (up 0.58% to Rs 520), Patni Computers (up 2.35% to Rs 376.80), iGate Global (up 8.73% to Rs 196.20), GTL (up 2.55% to Rs 148.90) and Polaris (up 4.42% to Rs 117.05) were the major gainers from the pack.

Zee Telefilms surged 4.34% to Rs 300.25 on a huge volume of 64.78 lakh shares. It had surged to a high of Rs 314.80, while its low was at Rs 286.10.

Whirlpool (up 20%), Garden Silk (up 13.69%), Divi's Labs (up 12.58%), Essel Propack (up 15%), TVS Motors (up 12.10%), and Voltas (up 10.08%) were the major gainers.

Mangalore Refinery and Petrochemical (MRPL) rose 2.02%, to Rs 42.85 on issuing tenders to sell naphta, 100-octane reformate and vacuum gas oil for October 2006.

Auto ancillary company, Steel Strips Wheels, rose 1.50% to Rs 164 after its wheel rims sales rose 57%, to 3,76,183 units in August from a year ago. Its production of rims rose 62%, to 3,79,842 during the same period.

Petronet LNG surged 4.38%, to Rs 51.20 on forming a joint venture with the Adani group for building a solid cargo port in Gujarat. The Solid Cargo Company has already been incorporated as Adani Petronet (Dahej), in which the initial equity holding ratio will be 50:50 by both participants. The project is likely to be completed within 36 months.

Suzlon Energy rose 3.01%, to Rs 1,249 after Suzlon Wind Energy Corporation, US, the wholly-owned subsidiary of Suzlon Energy, Denmark, the wholly-owned subsidiary and the international business arm of the company, signed another 105 Mw deal with Edison Mission Group for 50 units of Suzlon's S88-2.1 Mw wind turbines. The delivery is expected to begin in mid-2007. With the signing of these orders, the company has a current consolidated order-book of Rs 4,587 crore, Rs 3,787 crore worth of which are from overseas while Rs 800 crore from domestic firms.

Aluminium producer Nalco rose 0.72%, to Rs 203.90 on a volume of 59,065 shares. As per reports, the company has cut aluminium prices by Rs 2,000 per tonne.

Nikkei average rose 1.39% on Monday, hitting the highest level in more than three months, as investors looked to Canon Inc., after a US jobs report eased worries about a slowdown in Japan's major export market. The Nikkei added 223.82 points, to 16,358.07, its highest closing since 15 May. The japanese benchmark index hit a three-month peak of 16,414.94, earlier in the day.

The Hang Seng index rose 90.16 points (0.52%), to 17,513.88. All other indices from Asia/Europe were trading in the green.

US indices rallied sharply on Friday amid strong August job numbers and a fall in the crude oil prices. While the Dow Jones hit a 3-month high to close 83 points higher, at 11,464, the Nasdaq Composite rose 7 points, to finish on 2,193.

Crude oil prices eased below $ 70 a barrel, with the Nymex light crude oil for October delivery falling $ 1.07, to close at $ 69.19 a barrel and the London Brent crude dropping $ 1.20, to $ 69.11 per barrel.

On 31 August 2006, FIIs were net buyers of stocks to the tune of Rs 487.10 crore (gross purchases worth Rs 2194.50 crore and gross sales of Rs 1707.40 crore) while domestic mutual funds were net buyers to the tune of Rs 54.45 crore (gross purchases worth Rs 555.03 crore and gross sales of Rs 500.58 crore).

Source: Capitalmarket

We recommend an Accumulate rating on the stock with long-term perspective

Denso India Limited (CMP: Rs 89)

Denso India Limited is a subsidiary of Denso Corporation of Japan. Denso Corp Japan (DC) is a US$ 27 bn global auto component giant operating in more than 30 countries. Denso India (DI) manufactures alternators, motors (starters, wiper, fan, blower), CDIs and magnetos at its plant located in Uttar Pradesh. Denso Corp holds 48% in DI, Maruti Udyog and Sumitomo Corp hold 10% each, while 5% is held by Asmo Company Japan.

Denso India supplies its products mainly to domestic OEMs in the four- and two-wheeler segments. It derives 60% of its revenues from the four-wheeler segment, while the balance comes from two-wheelers. DI's major customers in the four-wheeler segment include Maruti Udyog and Toyota. Globally, it derives close to 50% sales from Toyota and 3-5% from Suzuki. In the two-wheeler segment, it mainly caters to Hero Honda and Honda Motorcycles & Scooters, India. Overall, DI derives 75-80% of its sales from Maruti and Hero Honda. Both these companies have chalked out ambitious cap-ex plans to increase their production capacities. The increase in their production will result in higher sales for DI, assuming their strong business relations built over the years in India and globally.

Denso's balance sheet has virtually no debt. With a gearing ratio of 0.05x the company has tremendous opportunity to scale up by leveraging. On the operating front, the company has maintained its margins and has not suffered any major erosion even in the era of high raw material prices. Low gearing and strong cash flows has enabled the company to pay dividend consistently for last several years.

Among DC's markets (ex-Japan), Asia-Oceania is the most lucrative with margins as high as that in Japan. With high contribution from Asia-Oceania, the company is focusing to increase its presence in these markets with newer products through transfer of technology. This move will enable DI to gain further ground with its customers by supplying latest products.

India and Japan are working on a comprehensive economic co-operation agreement. The agreement is expected to conclude by end of 2006. As a result, the bilateral trade between the two countries, which stands current at US$ 5.5 bn, is expected to double over the next three years. Further, India is being increasingly looked by Japan as a low cost manufacturing base. The Suzuki- Nissan deal to manufacture small cars of Nissan at Maruti's plant clearly displays the initiative towards a large game plan. We believe these developments would work in favour of companies such as Denso India, because it has established relationship with its customers such as Maruti and Hero Honda, and their parent companies have global relationships.

Net Sales moved up to Rs 95 Cr in Q1FY07 from Rs 82 Cr, showing a YoY growth of 16% for the quarter. This was aided by higher volume growth due to buoyancy in overall automobile sector. Net Profit moved up to Rs 3.6 Cr in Q1FY07 from Rs 2.5 Cr, showing a growth of 47% for the quarter. Sequentially, it fell from Rs 8.6 Cr to Rs 3.6 Cr in Q1FY07. OPM stood at 7.9% in Q1, compared to 7.7% in Q1FY06. EPS for the quarter stood at 1.3. Q1 has been a relatively subdued quarter for the company. Therefore, the earnings are expected to increase in the next 3 quarters, with demand picking up from Auto majors during festival season.

The demand for four-wheelers and two-wheelers is expected to continue to show upward trend. However, as the competition among the OEMs intensifies, the pricing of the products of Denso India will be under pressure. Therefore, to offset this, the company needs to pursue aggressive cost control activities.

Denso India Limited is a subsidiary of Denso Corporation of Japan. Denso India supplies alternators, motors (starters, wiper, fan, blower), CDIs and magnetos mainly to Maruti Udyog and Hero Honda. DI is expected to benefit from capacity expansion plans of Maruti and Hero Honda. The ongoing efforts of increasing the customer base along with introduction of new products by OEMs is expected to help the Company in maintaining revenue growth momentum. Also the developments on economic co-operation front between India and Japan is expected to benefit companies such as DI, which have established relations with Indian auto major with parents based in Japan.

At the current market price of Rs 89, the stock trades at 13x its FY07E earnings of Rs 7, which is fairly priced. The company is virtually zero debt with book value of Rs 50 for FY06. We believe that the company's long-term growth prospects are sound.

We recommend an Accumulate rating on the stock with long-term perspective.

Spice Communications likely to come out with IPO

Indian GSM carrier Spice Communications, which is partly owned by Telekom Malaysia, is likely to tap the Indian capital markets soon, reports CNBC-TV18.

Sources say that Spice Communications will invest USD 2.2 billion in the next two to three years. Sources also say that it may come out with an IPO by December this year.

Estimates suggest that the company could look to raise USD 200 to 300 million through the issue.

Quick look at HOV Services IPO

HOV Services, providing business process outsourcing, BPO services to the finance and accounting, F&A business sector with operations in India and the US, is open for subscription with an initial public offering, IPO of 4,050,000 equity shares of Rs 10 each in the price band of Rs 200 to Rs 240 per equity share.

The issue closes on September 7, 2006 and constitutes 32.3% of the fully diluted post Issue paid up capital of the company.

The equity shares are proposed to be listed on the NSE and the BSE.
 
DSP Merrill Lynch is the BRLM, JM Morgan Stanley Private Limited is the Co-BRLM for the Issue and Karvy Computershare Private Limited is the registrar.
 
Issue snapshot

• Offer of 40.5 lakh shares to public
• Price band: Rs 200-240/sh
• Issue size: Rs 81-97.2 crore
• Issue opens on Sept 4; closes on Sept 7

Business

• BPO services company focused on finance & accounting sectors
• Has total of 410 seats in Pune & US
• Plans to take seats to 750 by March 2007 in 3 phases

Use of proceeds

• To part finance its capex and acquisitions
• Rs 65.5 crore will be infused into its subsidiary

Concerns

• Dependence on few clients
• Top 10 clients account for 70% of revenues

FY06 (Standalone)

• Revenues: Rs 4.47 crore
• Net profit: Rs 2.61 crore
• EPS (on expanded equity): Rs 2.07

March quarter FY06 (cons)

• Revenues: Rs 44.97 crore
• Net profit: Rs 5.8 crore
• EPS (on expanded equity): Rs 4.62

Call money ends steady for the fifth day

Ends at 6.00-6.10%.

Call money rates remained steady through out the day and ended at 6.00-6.10% on Monday (1 September 2006), as against its closing at 6.00-6.10% on Friday.

Call money are expected to open tomorrow at a steady 6.00-6.10% due to easing oil prices, less hawkish US Fed on back of soft US economic data, and on Central Bank governor YV Reddy announcement the inflation would be contained in a range of 5.0-5.5% in the financial year 2007.

The central bank on its first one-day reverse repo auction under LAF had received and accepted 17 bids amounting to Rs 21,475 crore. While, on the second one-day reverse repo auction the RBI received and accepted 29 bids amounting to Rs 19,200 crore. There were no repo bids.

Indian federal bonds rose to 3-month highs on Monday, bolstered by US Treasuries that rose in the previous session on expectation the Federal Reserve would not raise rates on the back of soft economic data.

Easing oil prices also boosted prices. But traders expect some profit-booking ahead of fresh issues slated for later in the week.

Benchmark 10-year bond yield at 3-month low of 7.72% and down from Friday's close of 7.88%, on gains in US Treasuries and expectations the upcoming bond auction will be heavily subscribed.

IPO Updates: Action Construction Equipment Limited

Action Construction Equipment Limited

Action Construction Equipment Limited is one of the leading manufacturers of material handling equipments. This 1995 incorporated Faridabad based company has captured much of its gains from the ongoing construction and infrastructure growth of the country. The growth of this decade-old company has been commendable. ACE has built a brand image value with pan-India presence, which has in turn enabled it to increase its market share to become the Number 1 player in its key product segment. The company's current product profile includes:-
1. Hydraulic Mobile Cranes
2. Mobile Tower Cranes
3. Tower Cranes in tie-up with Zoomlion-China
4. Loaders & Backhoe Loaders
5. Lorry Loader Cranes in tie-up with PM-Italy
6. Mast Climbing Platform and Construction Eevators in tie-up with Maber-Italy
7. Aerial Access Platforms in tie-up with Tigiefee SRL-Italy.

The company's equipment are successfully used in many sectors like infrastructure construction, Power Projects, Ports and Shipyard, Dams, Metro Rails, Road, Canal Mines, Steel Industry, Engineering Industry, Railways, Cement, Petroleum, Defense, Chemical and Fertilizers Plants, Building Construction etc.

Major Clients
ACE has more than 3,350 clients, viz. Reliance, BHEL (biggest client), ABG, L&T (ECC), BSES, Punj Lloyd, Essar, Gammon India, Nagarjuna Construction, Gujarat Ambuja, IISCO, Simplex Concrete, Coal India, BSNL, Gannon Dunkerley, Bhushan Steel, PSL, ISPAT, IVRCL, Indian Railways, etc.

Objects of the Issue
o To set up a new manufacturing plant for Loaders, higher capacity Tower Cranes and Construction Equipment
o Expand/Modernize the existing capacities/facilities
o Acquisition/ Investments
o To set up a Joint Venture.
o To provide additional working Capital
o To set up Corporate Office and R & D Centre

The demand for the material handling equipments is directly linked to the construction and infrastructure growth in the economy. The major factors contributing to such robust growth of the material handling industry are the vibrant economic growth rate, increased participation of the public and private sectors, the opening of FDI, government reforms, coupled with easy availability of finance.

ACE has built a brand image value with a pan-India presence. It has an edge over its competitors, both domestic and foreign, on account of cost competitiveness and strong brand reputation. The Company has a number of sales and marketing tie-ups with leading foreign companies for promotion, distribution and installation of their equipment in India.

Sales volume, average realizations and operating margins reflect an improving trend for the company. The excellent volume growth has been a result of buoyant industry demands for these products. The average realizations have been rising on account of increasing share of higher value products in the overall sales mix.

Investment concerns
The company has high proportion of raw material component in the cost structure which stands at 75% of sales. This needs to be controlled in order to reduce impact on the earnings. The company has had highly erratic cash flow in the past. Maintaining free cash flows through effective working capital management will be the key in order to command better valuations.

Considering the large market in the infrastructure space, impressive clientele, good recognition of its products, the revenue growth for the company remains intact and is expected to gain further momentum as it expands capacity and enters new markets.

On a comparative basis, valuations are attractive for ACE on the post issue equity capital. The issue is priced in the band of Rs 110-130. At the upper price of Rs 130, it quotes at a trailing PE of 18, while at the lower price of Rs 110, it quotes at a trailing PE of 15.

Considering the strong growth potential from infrastructure spending, we recommend subscribe to the issue at the cut-off price.

 

Indo Tech Transformers upbeat on DuPont tie-up

Indo Tech Transformers surged 4.63%, to Rs 169.40 on a technical and marketing agreement with EI Dupont India.

As many as 19,874 shares were traded on the BSE.

The counter earlier advanced from Rs 124.90 on 14 June to Rs 166.20 on 22 June, only to slip to 139.25 on 2 August. Here, the stock rose to Rs 180 on 21 August, only to fall to Rs 161.90 on 1 September 2006.

At the current market price of Rs 169.40, Indo Tech Transformer trades at 14 times its Q1 June 2006 annualized EPS of Rs 12.09.

Indo Tech Transformers has entered into a technical and marketing assistance agreement with E.I. Dupont India , Gurgaon, for technical and marketing assistance in respect of reliatran brand dry type vacuum pressure impregnated transformers.

E.I. Dupont India, a wholly-owned subsidiary of E.I. DuPont de Nemours and Company, US, has its principal place of business at Wilmington, Delaware, USA.

Under the terms of this agreement, DuPont will provide technical, marketing, analytical and business information to Indo Tech. The company will use the information and procure insulation material and wrapped conductor supplied by DuPont for the manufacture of dry type VPI transformers.

DuPont will also help in setting up the dry type transformer plant within the company's Thirumazhisai complex. All the major equipments for the plant have been ordered.

The agreement will be effective from 1 August 2006 and shall remain in effect till 31 December 2008. It may be renewed by mutual consent. DuPont will be at liberty to terminate this agreement by giving 90 days prior notice to the company.

Indo Tech Transformers had in mid-July secured orders worth Rs 35.5 crore.

Earlier last month, Indo Tech Transformers acquired 30.04 acres of land at an all-inclusive cost of approximately Rs 10 crore on NH-4 beyond Sriperumbudur, near Chennai, to set up its new power transformer facility for manufacturing 220 Kv and above range of power transformers.

Indo-Tech Transformers (ITT) manufactures distribution transformers and power transformers. The company's three plants have an overall annual capacity of 2,450 MVA.

Its key customers of ITT include state electricity boards (SEBs), engineering, procurement and construction (EPC) contractors, and the corporate sector. The company has also exported transformers to Nigeria, Srilanka, UK, US, Ghana, and Canada.

Under its expansion plan, the company is setting up a new power transformer plant with a capacity of 2,400 MVA per annum, including 220 Kv class of transformers. It is also setting up a 120-unit per annum dry-type transformer plant at Thirumazhisai.

Indo Tech Transformers registered a net profit of 156.8%, to Rs 3.21 crore (Rs 1.25 crore) for Q1 June 2006. Net sales rose 33.4%, to Rs 21.39 crore (Rs 16.04 crore).