“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]
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
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):
Softpro Systems Ltd (Rs203):
Switching Technologies Gunther Ltd (Rs33):
STOCK TALK
Unusual Rally
Slowdown
A textile stock that’s just too
inexpensive
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.
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?
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%.
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.
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.
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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