What’s buzzing in these stocks right now
Kingfisher Airlines: The stock has risen sharply in the last 10 sessions or so from around Rs54 to around Rs61 mainly after its announcement to immediately raise up to $250 million through Global Depository Receipts to reduce its debt and and a further Rs5 billion through a domestic offering. Kingfisher's total debt is Rs60 billion as of 31 March 2010. However, there are a lot of rumours flying around this stock. One is that British Airways is likely to take a stake in this company.
Another is that about 13 of its aircraft are grounded because of some technical problems. United Breweries (Holdings) recently decided to convert Rs6.5 billion (which it had given as loans to Kingfisher) into preference shares.
GMR Infrastructure: The Bengaluru-based infrastructure company which is into airports, energy and roads has been in the news of late because it deferred plans to raise Rs50 billion (the buzz in the market was it was finding few takers). GMR Infrastructure's debt is about Rs180 billion, about 2x equity. It is looking at exiting its 50% stake in InterGen, a US-based utility, which it bought in 2008 for $1.1 billion. There were reports that Tata Power had made an offer to buy that stake for $1 billion-$1.2 billion. The latest buzz in the stock is that it is planning to monetise its airport land. The GMR Group operates the Hyderabad International Airport and Delhi International Airport and has around 5,700 acres of land at these two airports.
Mcleod Russel: After trending down for several sessions, the stock is up today on a 1:1 bonus buzz. However, it seems unlikely because its board meeting is already over and done with. Moneylife had reported in this section on 9 July 2010 that the stock is likely to rise on shortage in tea production and a subsequent rise in prices.
Since then, the stock moved up from Rs210 to as high as Rs265, before coming off to the current market price of Rs236. In its June quarter, its selling price was stable at Rs140/kg, operating profit was 60% lower at Rs142 million, sales quantity was marginally higher at 8.7 million kg but crop was 2.5 million kg lower at 17.7 million kg. It exports for the quarter also dipped sharply to 1 million kg against 1.82 million kg y-o-y. The company said in a communication after its results that weather conditions in Kenya and Sri Lanka have improved and this may lead to a revival in global tea production.
Mumbai: Insurance behemoth Life Insurance Corporation of India (LIC) today called upon the industry to invest heavily in training their agents if it wants to grow more profitably, reports PTI.
Pointing out that the biggest challenge to faster growth is non-professional or poorly/un-trained agents, LIC chairman T S Vijayan said it is high time that the life insurance industry professionalised its distribution channels by training its agents.
"We have to migrate to fully-trained professional agents.
Unless we as an industry invest in training our agents and making them qualified trained professionals, we cannot continue to grow. If we don't invest in this, at least we should entrust this job to some professional institutes which can do this for us," Mr Vijayan said at an insurance seminar organised by the Associated Chambers of Commerce and Industry (Assocham) here today.
Pointing out that when LIC was created on 1 September, 1956 by nationalising as many as 245 private players, all of them making profits but even after a decade of operations, the private players are still in the red, he said better trained agents can help the industry clip at faster growth.
Stating that the controversial Unit-Linked Insurance Plans (ULIPs) have been the biggest growth driver ever since their induction, has for the past few years been contributing over 80% of new incremental premia, Mr Vijayan said, the Insurance Regulatory & Development Authority (IRDA) guidelines on ULIPs will offer the policyholders a much-fairer deal.
The IRDA norms on new ULIPs come into force from today, which besides offering life cover on all ULIPs, also offer lower lock-in periods among others.
On the just-introduced Direct Taxes Code (DTC), which exempts income tax on investment of up to Rs1 lakh in approved funds, he said it will help a lot more the people to buy insurance policies.
Over the past month, the BSE Metals and IT indices have been sluggish performers. In the last few sessions they have actually slipped into a bearish mode. Is there an opportunity here? Or are IT and metal stocks best avoided?
CLSA, one of Asia's main brokerages, throws some light on the IT and metals sector in India. For metals, there is very little clarity about pricing. However, one thing is certain, says CLSA - "Indian metal firms are about to enter a phase of strong volume growth over the next three years as multiple projects get commissioned, which should drive faster earnings accretion for most."
The firm evaluated companies on six parameters - volume growth, gearing, product-mix improvement/cost-reduction measures, resource ownership, conversion costs and commodity-price support and came up with Hindustan Zinc, Sterlite, Hindalco, Jindal Steel and JSW Steel as getting the best composite scores. "These companies are reasonably valued at 8.1-13.9 x FY12CL earnings," the report says. However, it believes that these stocks will offer superior returns only over 18 months. This is not a short-term bet.
CLSA prefers base metals to iron ore and steel. Among non-ferrous metals, it prefers aluminium to zinc on a relative basis and expects iron-ore prices to decline from the current $148/tonne to $90/tonne by 2011. Its resources team believes that seaborne iron ore supply will grow faster than demand from 2H10 and break the decade-long trend of undersupply.
This will also put pressure on steel prices. While it accepts that oversupply still exists in nonferrous metals, it prefers aluminium to zinc, based on cost support and because aluminium benefits from renminbi appreciation (Chinese smelters are not as cost effective).
According to CLSA, volumes will actually average a 15% compounded annual growth rate (CAGR) over 2011-13, compared with 5% in 2008-11 - a threefold jump. Most of the capacity is coming up in steel and aluminium. Take a look at the timeline below (Source: CLSA report dated 30 August 2010).
Of the projects above, CLSA envisages delays for SAIL, Sesa Goa, Sterlite Energy and Vedanta Aluminium. Vedanta Aluminium has been denied approval to start mining bauxite at the Niyamgiri hills.
Sterlite Energy's first 600MW unit has seen a six-month delay and there could be some delays at the remaining three units as well.
Within the steel expansions, the most competitive one is by JSPL at $602/tonne against global average costs of $1,000/tonne while Tata Steel and SAIL will prove to be the most expensive at $975/tonne and $1,000/tonne. However, most are relatively lower than the global average and hence, competitive. The aluminium expansions are at a much lower cost than the global average: BALCO at $2,328/tonne, Vedanta Aluminium at $2,336/tonne, and Hindalco at $2,761/tonne against a global average of $4,000.
While volume growth is expected to accelerate for most metal companies, the highest will be experienced by Sterlite (26%-48% volume CAGR), Sesa Goa (20%-25% CAGR), Jindal Steel (10%-25% CAGR) and JSW Steel (7%-40% CAGR).
CLSA does not foresee any supply off-take problems. It points out that "India is a net importer (of steel) but is a net exporter in aluminium and zinc. However, Indian aluminium and zinc producers feature lower on the global cost curve and it is highly unlikely that they will face a problem selling their output in global markets." The broker also points out that companies like Hindustan Zinc and Sesa Goa will acquire global scale after expansion. In fact, Sesa could become the world's fourth-largest iron ore company in four years (even though it will still be far behind the top three) while Hindustan Zinc is set to become the world's largest zinc producer.
As mentioned earlier, CLSA ranked Indian metal firms on six parameters to come up with favourites. In terms of volume growth, Sterlite, Sesa Goa and JSW Steel were the best. In terms of gearing, Bhushan Steel and Tata Steel scored the lowest while Hindustan Zinc, which has net cash of $2.5 billion, Nalco with $600 million and SAIL with $1.2 billion scored the best. In product mix and cost-reduction measures, Bhushan Steel and JSW Steel scored the best. Hindustan Zinc, Sesa Goa and JSPL got the best scores in resource ownership while Hindustan Zinc, Sesa, Bhushan and JSW scored highest in conversion costs.
Turning to IT, CLSA has a near-term positive view. It believes that with order-book trends pointing up and IT budgets improving over the next couple of months, stocks should do well. It prefers Tier-I stocks over Tier-II ones and reiterates Infosys and TCS as top picks.
It says, "Over 52% of the 118 CIOs surveyed this month indicated that their 2011 IT budgets could be up y-o-y in 2011 with 41% indicating that services outsourcing to low-cost locations will rise through 2011."
CLSA does not expect the kind of industry-wide pricing pressure seen in FY09. It expects attrition to reduce, going forward. It believes that "protectionist noises (from the US) have been driven by the mid-term senate elections in the US and should go down post Nov 2010."