BIG TV to offer portfolio tracker application ‘iStock’ to viewers
Reliance BIG TV has joined hands with its sister concern Reliance Money to offer ‘iStock’, a new portfolio tracker application for its DTH platform users.

“Now you can view the stock market in your drawing room with Reliance BIG TV,” said Sudip Bandyopadhyay, managing director, Reliance Money.

Reliance Money had created a unique iStock zone on the DTH platform to provide information about Indian and international indices, currencies, commodity, stock and market news besides offering the portfolio tracker services.

The application would be offered exclusively to BIG TV users without any cost.
– Pallabika Ganguly [email protected]

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Can It Scale-up?
Evinix started as a manufacturer of accessories like headgear, baseball caps and high-altitude jackets made of cotton textiles and leather, mainly for exports in 1996. Over the years, it has evolved into three business divisions – accessories, apparel and retailing which it calls ‘Rapid Retail’. The accessories division manufactures and exports leather bags, travel bags, school bags, wallets, headgear, belts, scarves and other lifestyle accessories. The apparel division makes shirts, trousers, skirts, tops, kids wear and nightwear. It has introduced organic cotton wear for infants and expecting mothers. Manufacturing is done at Faridabad and Noida. Clients include reputed names like GAP, Crew, Country Road, Liz Claiborne, Kookai, and Marks & Spencer.

Last year, it entered retailing with CUT which is a multi-brand store mainly targeting the youth between 16–35 years. It houses 61 global brands (Adidas, Puma, Kappa, 454, Purple Wine, Reebok, Lee, Levi’s, Mercedes Benz, to name a few). CUT is an acronym for Comfortable, Urban and Trendy. The idea is that all merchandise will have a limited shelf life at CUT stores. While the concept is great, it has been slow to take off. In June 2008, the company had announced plans to open as many as 125 CUT stores mainly in Tier-II and Tier-III cities by 2010. The liquidity crunch and economic slowdown has forced the company to postpone its plans. It has currently launched 13 stores out of its planned 15 stores in the western region and would gradually move towards the east, central, north and, finally, to the south. The management has decided to defer the opening of new CUT stores until the operations of existing stores stabilise.

Since mid-March 2009, when the broader market began showing signs of a strong uptrend, Evinix too began gaining momentum after being beaten down heavily during the 2008 crash. Despite the sharp rise this stock is still reasonably priced. Currently trading at Rs4, its PE is 11 and its market-cap is 0.42 times its five-quarter sales (annualised) and 3.89 times its annualised operating profits.

Over the past five quarters, its sales have grown by an average of 17%, though its operating profit has declined by an average of 2% over the same period. In FY08-09, the company reported sales of Rs22.84 crore, Rs30.87 crore and Rs25.32 crore in the June, September and December quarters of 2008, respectively whereas in the March 2009 quarter, the company posted sales of Rs42.75 crore. It declared Rs6.84 crore operating profit for the March 2009 quarter. Sales and operating profit in the March quarter were the highest among the past four quarters. What we don’t like about this stock is its operating margin, which averaged just 10% over the past five quarters, though margins are improving. Evinix’s business has a huge potential in the domestic as well as international markets. In fact, the domestic market for accessories and trendy garments is very large and growing rapidly but this demand is catered to by the unorganised segment. If the experiment of CUT stores works, it could mean a balanced mix of exports and domestic revenues. Buy the stock on declines.

Overlooked Value Play
A textile stock that’s just too inexpensive

Banswara Syntex Limited has been in spinning, historically. Over time, it has stepped across the textiles value chain. Value-added businesses fetch high margins and Banswara is looking to increase its share from such products. It started with weaving and later diversified into cotton spinning and readymade garment manufacturing. A separate unit was set up at Daman to manufacture trousers under the brand name of ‘Integration’. The production is exported to more than 50 countries including US, UK, Canada and Spain. With its plan of positioning itself as an integrated textiles company, it has taken several steps. Recently, it installed 10 jacquard looms to make upholstery fabric and set up a new plant for readymade garments at Surat. This plant also has the capacity of producing 11,250 jackets per month. Its foray into jackets will ensure another revenue source. The share of fabric and garments in its total revenue is rising and is expected to reach 60% by 2010. While integration is the goal, its focus on the yarn business will remain unchanged. This is clear from the increase in its spinning capacity. As competition for cotton yarn business has intensified, it has converted spindles for cotton yarn spinning into blended yarn production. The company enjoys a strong customer base. It includes Levi’s Strauss (Dockers), Marks & Spencer, Next, Perry Ellis, Liz Clairborne and domestic players like Raymond and Pantaloon. It has set up an 18MW thermal power plant in Banswara which meets 90% of its power requirements. Changing over to coal has also helped to save on fuel costs. The March quarter has been good for the company. Sales and operating profit have grown 18% and 135%, respectively. The five-quarter average sales and operating profit growth are 27% and 42%, respectively. It operates with a margin of 13%. The most compelling reason to buy this stock is its valuation. At the current price of Rs47, its market-capitalisation is 0.12 times its sales and 0.97 times its operating profit. We can’t get too many stocks cheaper than this. Buy on declines.

UNQUOTED

Simplex Trading & Agencies Ltd (Rs110):
This company’s operations are a joke. In the June, September and December 2008 quarters, this company posted an operating loss of Rs1.01 crore, Rs10,000 and Rs1 lakh, respectively, whereas in the March 2009 quarter, it has posted an operating profit of Rs10 lakh. There were no revenues in the September and December 2008 quarters! The promoters hold only a 0.07% stake. It was listed on 17 July 2006 at Rs1.68 and ended up hitting a high of Rs152.20 by the end of November 2008 – a jump of 8960%. In December 2008, it issued bonus shares in the ratio 4:1 and the stock crashed hitting a low of Rs96 on 21 May 2009.

Softpro Systems Ltd (Rs203):
Hyderabad-based Softpro Systems Limited claims to be a business-solutions provider in banking, finance, insurance, retail, telecom services and manufacturing industries delivering a wide range of leading–edge technology solutions like enterprise portals, application software development and technology integration, ERP, business intelligence and e-learning solutions. Their client list includes names of ICSA (India) and BRG Energy. Well, such an impressive range of services fetched the company pathetic revenues. In the March and December 2008 and March 2009 quarters, the revenues were Rs1.27 crore, Rs1.67 crore and Rs1.81 crore, respectively, whereas in the June and September 2008 quarters, revenues were as low as Rs15 lakh and Rs8 lakh. With such paltry revenues, it is not surprising that ‘profits’ have been completely erratic. In the June, September and December 2008 quarters, the company posted an operating loss of Rs41 lakh, Rs28 lakh and Rs73 lakh, respectively. But in the March quarters of 2008 and 2009, it posted operating profits of Rs1.03 crore and Rs1.22 crore, respectively. Clearly, the businesses are only in name. But the price trend of this scrip is a different story altogether. Between 2 May 2008 and 27 March 2009, it declined 79% but since 2 April 2009 until 9 June 2009, it has surged 225%. As usual, it is listed only on the BSE. Are the BSE authorities watching?

Switching Technologies Gunther Ltd (Rs33):
Chennai-based Switching Technologies Gunther Limited claims to manufacture miniature reed switches for the automobile, power, telecommunications, aircraft and industrial control industries and tilt switches. It is a 100% export-oriented unit (EOU) and has a buy-back arrangement with its promoter company, W Gunther GmbH, Germany. If all this is true, how come revenues range only between Rs2 crore-Rs3 crore every quarter? Besides, how can this company continue to run, since it makes consistent losses? In the March, June, September and December 2008 quarters, it reported operating losses of Rs72 lakh, Rs58 lakh, Rs10 lakh and Rs22 lakh, respectively. As usual, all this has nothing to do with its stock price. Between 6 March 2009 and 9 June 2009, the scrip of this company has surged a massive 255%.

STOCK TALK

Unusual Rally
Despite a fourth-quarter loss and huge debt, the share price of Aban Offshore has been shooting up. Last year on 18th June, Aban shares hit a high of Rs3,843 and in just 10 months fell to Rs224, a decline of almost 94%! And during the past three months, the same Aban has outperformed other oil & gas sector companies with a whopping 400% rise. Shares of other companies, like Shiv-Vani Oil and Jindal Drilling rose between 150% and 250% during the same period. Aban Offshore, which carries a huge debt of more than $3 billion, has already defaulted on two loan repayments. The main concern is whether the company would be able to deploy its idle rigs. Aban has a fleet of 21 offshore rigs and its shares move in line with oil prices, like any other stock in the oil & gas service industry.

Slowdown
Bad times for the airlines industry seem never-ending. They are squeezed between high cost of operations and tepid demand. Despite the takeover of Deccan Airways by Kingfisher and Sahara by Jet Airways, overcapacity continues to plague the industry. Jet has cut down its capacity by 20% to deal with demand deceleration. This comes on top of Jet’s decision to freeze capacity in the past three years. It has deferred acquiring new aircraft. JetLite (earlier Sahara) is still making losses. The industry could have turned around, if the airlines had a way of reducing the price of tickets but that seems impossible because more than 60% of the cost of tickets is by way of taxes and levies. The newly-levied airport development charge in Mumbai, Delhi and Bengaluru will make tickets even more expensive.

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Budget Special : Countdown begins – ‘Aam Aadmi’ is watching says KR Choksey
When Pranab Mukharjee will rise to present Union budget for year 2009-10 and his 4th budget on 6th July, 2009, all eyes will be watching him closely. This budget gives an opportunity to the UPA government to signals its agenda for the next 5 years. However, budget this time around is also a challenge of balancing expectations of people of India with economic & fiscal rationale. We expect government to remain committed in its inclusive growth agenda and “aam aadmi”. Given the revenue constraint faced by the government and already large concessions given in the three stimulus packages, any significant indirect concessions or another fiscal stimulus package is highly unlikely. We will not be surprised if government withdrawn few of the stimulus to bridge the fiscal deficit.

Budget is likely to be focus on the agriculture, infrastructure, job-intensive industries and SMEs. On the reform side we expect road map on the disinvestment & GST to be presented. FDI limits in Insurance, Airlines & defense to be increase with simplified norms in calculating FDI limit. Apart from the budget announcement, execution of the reform is another matter and historically we had below-average track record of executing reforms.

Key focus area to achieve long term economic growth
Supporting long term economic growth of 8-9% is very much focus of the new government and the key actionable items to achieve are: 1) Increase public & private investment in infrastructure to boost the economy reeling under the impact of the global financial meltdown 2) Announcement of new large size projects in Port, Road & urban infrastructure 3) Long-term agriculture policy to promote second green revolutions, expanding irrigation channels, development of supply chains to connect farmers to consumers and processing industry which Improve the agriculture productivity & rural income 4) Initiatives to improve skill levels & human resources 4) Improve governance.

“Aam Aadmi” is on the top priority
In UPA manifesto and post election, government has emphasized its focus on the inclusive growth and ‘aam aadmi’. Huge job losses in export oriented sectors and weak job scenario has led many politicians to support labour driven industries. Government to expand its populist scheme NREGS to urban area and will also increase the allocation to Sarva Siksha Abhiyan, NRHM and Bharat Nirman.
Government will widen the food subsidy to the Below Poverty Line (BPL) family by providing food grains of 25kg/family/month at Rs3/kg. Government may consider increasing tax slabs & exemption limit on individual income.

Economic Reforms will be accelerated but not in full gear
Roadmap on disinvestment through public offering will be announced as a revenue raising measure. Deregulation on fuel prices will be the complex and political issue as international crude is above $70/bbl level. Goods & Services Tax (GST) is most important reform in indirect taxation and government to present its blueprint in the budget. Increase FDI limits in few sector is on the card since UPA government’s budget in 2004-05. Given the lower commodity prices, subsidy bill will be lower compared to the previous year. Political will be required to improve the targeting of government subsidy by providing it directly in the recipients in form of cash/voucher rather than indirectly through prices. Given the lack of political will, any significant labour reforms are not expected. The government will not announce outright sale or management transfer of PSU companies due to political opposition both within and outside the UPA. Any changes to land acquisition laws are not expected as there was significant public opposition to SEZ land acquisitions.

Containing fiscal deficit will be the challenge
The President’s speech makes it clear that the government plans to focus on ‘inclusive growth’ and rural India. Given the significantly higher plan allocation and lower than budgeted revenue collection, budget deficit is expected to increase. The government may announce a roadmap to reduce fiscal deficit through a new FRBM Act. Government will announce revenue raising measures such as disinvestments and 3G auction sales. Oil and fertilizer subsidies were given through bonds which were not reflected on the government’s budget. In keeping with sound budgeting policies, the government many announce a plan to provide all future oil and fertilizer subsidies through the budget rather than through off budget bonds.

Corporate wish list!!!
There are not many realistic expectations of significant reduction in both direct and indirect taxes. However, India Inc will expect government to remove Fringe Benefit Tax (FBT) which has added tax burden and paper work. Re-introduction of investment allowances is also a demand for few sections of the corporate. Companies would like to see retention of the cuts in indirect taxes that were part of the stimulus packages. Long pending demand from the capital market is removal of Securities Transaction Tax (STT) & Commodity Transaction Tax (CTT) and reduction in dividend distribution tax from current 15%. Metal companies want an imposition of safe guard duty on steel & aluminum products. IT companies are lobbying to extend STPI benefits beyond March’2010. Oil & gas companies expect de-regulation of fuel prices and inclusion of tax holiday for natural gas production. Telecom players demand faster 3G auction and implementation of uniform licence fee. Infrastructure sector expect annuity based road projects compared to BOT projects. In the banking sector, banks expect increase in subvention on farm credit from 2% to 3% and consolidation of PSU banks.

Market Performance Pre-Post Budget
Historically market built expectation on budget and has little run up before the budget (Exhibit 11). Out of the last 18 budgets we have taken, in 12 cases we had given negative return for 30 days post budget as most of the announcement already factored in pre-budget run up. We had seen one of the fastest and sharpest rally since March’09, we don’t expect market run up post budget unless significant reforms announced.

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