Reliance Capital Downgraded to EqualWeight
Wednesday, August 20, 2008
In a report today, Morgan Stanley has downgraded Reliance Capital to Equal Weight and has also cut the target price citing near term pressures as all the businesses of the company are capital markets-linked.The sharp slowdown in market activity is likely to result in slower growth in RCap's businesses and contraction in multiples.RCap reported robust volume growth in 2007 as markets were strong, but growth has moderated in the last few months. The continued weakness in market activity can cause growth across businesses for RCap to be moderate, which can drag down valuations.
General Insurance:
RCap reported an accounting loss in F2008 due to higher claims and operating expenditures. The company showed some improvement in its combined ratio in F1Q09, although it continued to report a loss on the insurance business. The growth rates for general insurance should slow as the company is also focusing on better underwriting to minimize claims cost and operating expenditures.
Life Insurance:
RCap's new business premium on an APE basis has recorded a CAGR of around 375% in the last couple of years. This is significantly ahead of private players' growth of 93% and overall industry growth of 60% in the same period. RCap's market share increased from 1.1% in F2006 to around 6.6% in the same period.
AMC:
RCap is the largest player in the domestic asset management business with AUM of around US$22bn on June 2008. However, AUM growth for the industry will be under pressure in current market conditions: The growth in AUM is dependent on broader capital markets.
Sum of Parts Valuation:
Life Insurance 505
Asset Management 250
Brokerage & Distribution 45
Consumer Finance 95
General Insurance 25
Listed Equity - Unrealized Gains 120
Total Rs 1,040 - Near Term Price Target
However, in long term India is expected to report a fantastic GDP growth and financial sector will benefit from the same. RCap's presence in all the growth segments will be of tremendous advantage.
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Published by Webmaster @ 8:41 PM IST.
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Contrarian views on IT EoU
Tuesday, August 12, 2008
I thought of sharing this Contrarian Views on Indian IT Export Oriented Companies - Infosys Technologies, Wipro, TCS, Satyam, and HCL Technologies as released by Edelweiss Research. The environment is still difficult and any optimism on guidance outperformance that investors may have had in the middle of Q1FY08 has tempered, we see select Indian companies doing well reiterating their FY09 guidance after a not too enthusing Q1FY09.Optimists View:
FY10 could be a good year in terms of volumes even if incremental pricing trends downwards. This is because the slowdown is forcing offshore outsourcing. But delays and longer-than-usual deliberations in deal closure will mean that the bulk of what the slowdown will induce by way of outsourcing may not accrue in FY09 as much as in FY10. Moreover, companies across verticals will see this as a priority in their FY10 plans, given that they have already begun drawing/have drawn the contours of the impact the slowdown will exert on them. Thus, expect a broad-based thrust as regards offshore outsourcing beginning FY10 even though incremental pricing may not hold as steady.Pessimists Views:
The broader economic slowdown in the US could affect more than just the BFSI and retail sectors. Not only is the slowdown likely to be protracted, but with its broader impact, it can affect decision-making on tech spending across verticals. In such an evolving scenario, it becomes appropriate to draw a contrast with the earlier tech/telecom bust in 2001-02, which seemed shorter and more incisive. Then, there were excesses in the information technology industry which unwound (dotcom segment, e-commerce spending, and "bubble" spending in the telecom vertical). The slowdown was a direct consequence of the collapse of such sub-segments. It was swift and severe and the good aspect was that investors could look ahead no later than four quarters. It is worth pointing that Infosys's quarterly momentum slowed down for five quarters in succession (beginning Q4FY01 through Q4FY02) registering five quarter revenue CQGR of about 5%, before picking up again in Q1FY03 (12.4% revenue growth Q-o-Q over Q4FY02). Today, the situation, according to a growing number of observers/analysts (e.g. Forrester), is different as many believe the slowdown to be prolonged. That is bad news for Indian IT firms as far as FY10 goes.
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Published by Webmaster @ 2:10 PM IST.
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Patel Engineering - SBI Caps
Monday, August 11, 2008
SBI Caps Equity Research has initiated coverage on Patel Engineering with a BUY Rating. Patel Engineering has retained its focus on high margin sectors such as hydropower plant construction. Assuming an implementation rate of 50 percent and 7 crore per MW to be the cost of hydropower generation, there is a demand of 43,750 crore on an annual basis. Hence PEL hydropower segment is geared for immense growth in the years to come.Power Plant and Real Estate Foray:
Patel engineering is in the process of setting up a 1,200 MW thermal power plant. PEL will monetize its historical land bank and channel the revenues back into asset ownership. PEL has more then 1,000 acres of land bank situated in Maharashtra, Bangalore, Chennai and Hyderabad. Nearly 200 acres of land are situated in etropolitan cities like Mumbai, Chennai and Bangalore etc. The company plans to develop 12.10 million sq. ft. in its first phase with available FSI on land bank.
Patel engineering is expected to report and EPS of Rs 29.5 and Rs 32.3 for FY09 and FY10 respectively. SBI Caps retails a BUy with a Target price of Rs 575.
Sum of the parts valuation:
Multipurpose Engineering - Rs 253
Irrigation Projects - Rs 75
Transport - Rs 64
Land Bank - Rs 131
Subsidiaries - Rs 70
Kotak has a BUY recommendation with a Target of Rs 727.
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Published by Webmaster @ 9:06 PM IST.
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Reliance Petroleum Weak Refining Margins - Merrill
Thursday, August 07, 2008
Reliance Petroleum, which is likely to add 1% to global gasoline and diesel capacity, is facing one of the biggest risks that refining margins may weaken further. Problems in stabilizing refinery cannot be ruled out despite the past impeccable track record. The refinery may well start in September 2008 but commercial operations are likely just for 3-4 months at best in FY09E.
RPL exporting more to Asian countries than originally envisaged is a threat to
Asian refining margins. RPL's exports to US may be lower than the originally envisaged 30-40%. However, RPL's exports to the US should still be significantly higher than 7%.
Commercial operations from April 2009 not ruled out due to the way the tax holiday works in India, is that if commercial operations start in January, the tax holiday will effectively be for four years and three months.
Additionally their are rumors that a MAT will be levied on RPL's project, we don't think Mukesh Ambani will like it and will keep quiet but will retaliate against the Government, if it moves to impose any tax on RPL.
Merill has rated RPL an underperformer with EPS expectations of Rs 3.6 and Rs 19 for FY09 and FY10 respectively. RPL's DCF based fair value based on long term refining margin of US$12.3/bbl is Rs142/share.
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Published by Webmaster @ 1:34 PM IST.
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Shoppers Stop - Retail Trouble Evident
Monday, August 04, 2008
Shoppers Stop reported net sales of Rs. 289.19 crore for Q1 FY09 against Rs. 225 crore in Q1 FY08, an increase of 28.5%. Gross profit rose by only 26.3% to Rs. 104.37 crore for 1Q FY09 as compared to Rs. 82.59 crore in 1Q FY08 on account of decline in share of private labels (20.4% against 20.9%). The company reported operating loss of Rs. 0.59 crore for the Q1 FY09 as against operating profit of Rs. 13.55 crore for Q1 FY08 on account of increase in expenditure (37% growth) primarily attributable to service tax paid (Rs. 4 crore), expenses incurred on re-branding (Rs. 7 crore) and higher overheads of new stores.New store takes 5-6 quarters to break even; space estimated to increase 51% in FY09e and 37% in FY10e, which will likely pressure the bottom line. Store rollout target for FY11e revised from 4.6m to 3.8m on the back of slowdown in mall developers industry.
HSBC is undderweight on Shoppers Stop as the company is expected to be in RED for FY09 expecting a loss of Rs 1.24. For FY10, the company is expected to report an EPS of Rs 1.61. HSBC has a target of Rs 260.
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Published by Webmaster @ 1:05 AM IST.
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