Cairn India - Buy Stock Report - Value Midcap From Petroleum Sector

Cairn’s production from its Rajasthan field is set to begin shortly after a long investment phase and this marks a good time for the long-term investors to buy stocks of this midcap stock as an good intrinsic value investment.

CAIRN India (CIL) is set to emerge as one of India’s leading petroleum producer - and possibly the largest onshore producer - once its oilfields in Rajasthan reach peak production in 2 years. The company is about to commence production at its largest Mangala field and scale it up gradually to 80,000 barrels per day by the end of this year. Its growth prospects look attractive for long-term investors.

Business:
Cairn India, which is a 64.7% subsidiary of the UK-based Cairn Energy, holds petroleum exploration and production (E&P) rights in 14 blocks across India. It is an operator in two blocks - with a 22.5% stake in Ravva field off the eastern coast and 40% in Cambay basin fields - which together produced around 67,600 barrels of oil equivalent per day (boepd) in 2008. Out of this, Cairn’s share worked out to around 17,600 boepd.

CIL made an important hydrocarbon discovery in Rajasthan in 2004 and, after further discoveries, has established inplace reserves of 3.6 billion barrels of oil equivalent (boe). It holds 70% operator’s stake in this field and the remaining 30% is held by ONGC. The company recently acquired exploration rights in one block in Sri Lanka.

The crude oil produced from the Rajasthan fields has high wax content and therefore needs to be heated while being transported through a pipeline. The land-locked nature of the oil field also makes marketing of this crude difficult. The company has overcome these difficulties by changing the point of delivery to the coast of Gujarat from Barmer and the cost of constructing the pipeline - nearly $800 million - was included in the field development programme expenses.

Growth Drivers:
The company intends to start the production of 30,000 bpd by October this year and raise it to 80,000 bpd by January 2010. By July 2010, the Mangala field will operate at full capacity of 1, 25,000 bpd. The Bhagyam and Aishwarya fields will come on stream in 2011, thereby raising the peak rates to 1,75,000 bpd.

The smaller fields in the Rajasthan - Rageshwari and Saraswati - can add another 10,000-15,000 bpd. CIL plans to drill nearly 300 more wells in these blocks and use enhanced oil recovery (EOR) measures from the early phase to improve the production levels in the future.

The company’s exploration efforts elsewhere in the country are also on schedule and hold a possibility for new discoveries.

Financials:
The consolidated profit of CIL stood at Rs 785 crore for the year ended December 2008, with Rs 446 crore coming from other income. The company is carrying a cash balance of Rs 2,943 crore, over and above its debt, for funding its capex plans. It generates healthy cash-flows from operations and had raised Rs 2,500 crore through preferential equity placement in April 2008 to build this war chest.

Valuation:
At the prevailing market price of Rs 188, the company is trading at 45.6 times 12 months profits. However, its current valuations are more dependent on expected petroleum output rather than existing operations.

If the company meets its production targets, it should report net profit of Rs 849 crore in FY2010 and Rs 5,144 crore in FY2011. The existing market price is 41.7 times the profits of 2009 but merely 6.9 times the expected 2011 profits. The company’s profitability would go up further after it commences peak production of 1,75,000 bpd in 2011. Buying stocks of Cairn is advisable at this moment due to clear visibility of profits growing for the company in next couple of years.

Shareholding pattern
Total shareholding of Promoter and Promoter Group: 64.68%
Foreign/Institutional Investors: 14.50%
Public shareholding: 20.82%

Risk Factors:
The price movement of crude oil is the key risk for Cairn. The oil prices, which crashed to $35 in December 2008 from $145 in July 2008, have recovered over the past couple of months. But if they remain soft for a protracted period of time, Cairn’s realisations and profitability would take a hit. A substantial appreciation of the rupee against the dollar will also impact the company adversely.

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Best stocks to buy now for 2009 - 2010 : top 15 stocks from Kotak

In last few days stock trades & volumes have picked up substantially in the market, institutional investors are buying stocks, foreign institutional investors (FIIs) have bought 1,600 crore in the last five days.

Kotak Institutional Equities team has put out a list of top 15 stocks to buy now for 2009 - 2010, which are not penny stocks but are reasonably large cap names and stock buying in these counters can give returns of 50-100% over the next 18 months.

Most analysts believe that domestic participation has picked up quite significantly and so people may trade back into the market as there are lots of values and accumulate stocks.

Following are Sanjeev Prasad, ED, Kotak Institutional Equities' fabulous 15 picks

Punjab National Bank (PNB): Valuations are attractive and gross non-performing loans (NPLs) are seen at 5% for FY11

HDFC Bank: It is a large cap stock with attractive valuations

Axis Bank: Valuations are cheaper than that of HDFC Bank and see high return on equity (ROE)

United Phosphorous: See fair value of the company and in a year�s time it would be Rs140-150 per share

Crompton Greaves: See seven times prcie to earnings (PE) on 2010 numbers. It is a pretty good buy, despite whatever has happened on the investment in the power

India Infoline: The brokerage stock will see upside in market volumes

Tata Steel: See FY10 earnings per share (EPS) at Rs 55

Indiabulls Real Estate: The occupancy levels in the properties are going higher and there will be a re-rating of the stock to some extent.

Reliance Infrastructure: See clarity in Q4 on the usage of cash available with the company

JP Associates: The company will benefit from higher cash flows from its cement business

Biocon: Although valuations are cheap and the stock has fallen a bit, but by 2010 things will start improving.

CHECKOUT: Best Stocks To Buy In 2010 - Let's Share Ideas

Other fab picks mentioned in the report were:
DLF

Hindustan Zinc

Tata Power

Federal Bank

However, ICICI Bank is suffering from bad news and thus more clarity is expected on that front so that has not been added to the list. Nonetheless, the company can be re-rated and can be perceived as a stock to be bought in future.
Source: Moneycontrol

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Hot Stocks To Buy From Power Sector

Power sector business is one sector always considered as recession proof and that the consumption of this commodity can never stop! No matter whatever expenses people cut in day to day life in recession times, power is one such thing where anyone could do the least. Also power demand in India is growing exponentially. Everyone from ordinary consumers to industrialists and businessmen, from farmers to politicians, everybody faces problems because of the shortfall in the supply of this vital ingredient of economic growth. This is the right time to buy stocks of good power sector companies which are bound to grow with rising consumption. This article talks about best stocks to buy from Indian power sector.

Here are excerpts from article in Money Today on power sector.

The total annual power shortfall in India is 15,175 megawatts (MW).This gap could widen in the future. The generation capacity is increasing at a very slow rate, with a 5% annual addition in the past five years. On the other hand, the demand for power is galloping. The Power Ministry estimates that in another three years, the per capita electricity consumption will rise by 50%—from the current 672 KW to 1,000 KW by 2011-12. In 2007, the government had set a target of adding 78,000 MW of power generation capacity during the 11th Five Year Plan (2007-12). But two years down the line, only 15% of this target capacity addition has been achieved.

The sector:
All this is good news not only for the power companies but also for investors in power stocks. The power industry is recession-proof. Power generation and distribution companies such as NTPC, Tata Power, CESC and Neyveli Lignite have clocked consistent earnings growth even during downturns. This is partly because they have always had an assured buyer, with the government buying the electricity that these companies produce.

“The order flow is over. It is time to focus on execution. This will be the big driver over the next three years,” says Sumeet Agrawal, a power sector analyst at HSBC. Early financial closure and execution help in reducing the interest costs. “The winners will be those with operating experience, financial stability, and with projects that have achieved financial closure,” adds Agrawal.

The stocks:
For the analysts, CESC and Tata Power are the most preferred picks. CESC distributes electricity in Kolkata. It has 2.1 million customers and an installed capacity of 945 MW. The company plans to add 1,850 MW over the next three years, of which 250 MW is expected to be commissioned by September. “The company’s operational performance has been consistent over the years and we believe it will be maintained in the future as well,” says Shankar K., an analyst at Edelweiss. However, CESC’s diversification in non-core businesses like retail and real estate is a major concern. Analysts at India Infoline say the company’s retail arm, Spencer’s, is losing Rs 20 crore a month.

Click the image to enlarge

With an installed capacity of 2,400 MW, Tata Power straddles the value chain. The company distributes power in Delhi and Mumbai and has tied up with the Power Grid Corp to explore opportunities in transmission. “Tata Power’s healthy balance sheet puts it in a strong position to capitalise on emerging opportunities,” says Shirish Rane, an analyst at IDFC SSKI.

India’s largest power generator NTPC is the least preferred stock due to slippages in execution and fuel scarcity. The publi-sector unit plans to add 20,000 MW to its current installed capacity of 29,000 MW by 2011-12. But most of its plants are coal-based and analysts fear that the company will fall short of fuel supplies. NTPC plans to import around 10.5 million tonnes of coal in 2008-9 as its captive mines are still under development. “Fuel unavailability and execution delays have led to slippages in targets. This is likely to result in muted earnings growth in the medium term,” says Shankar of Edelweiss.
Reference: Money Today
I am not sure why Reliance power was not included in this article. Here is my opinion and analysis on reliance power stock and it's future prospects.
Reliance Power - Stock Analysis - Should You Buy Stocks Now?

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Compounding - Investment Management Principle

Albert Einstein had once remarked, 'The most powerful force in the universe is compound interest'. The concept is cliched, overused from an investment perspective; it may be ill-timed to reiterate the power of compounding, especially when the market is down in the dumps. Buying stocks for longer duration of time frame helps you in utilising benefits of compounding and fetching phenomenal investment return from your stock investing.

What Does Compounding Mean?
The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

Also known as "compound interest".

Disciplined investment can go a long way, one need to get bogged down by intermediate glitches such as these. Let's take an example. Rahul, 25, had only one goal: he wanted to become a millionaire. No, he wasn't inspired by the movie Slumdog Millionaire, for everyone is not lucky enough to win a million on a game show. He wanted to put his money to hard work!


What is compounding?
We aren't defining the mathematical term, the achievement of academics is to apply them in daily life.

The wonder of compounding (in investing terms) is to make your money work, to transform it into a state-of-the-art, highly powerful income-generating tool. Compounding is the process of generating earnings on your asset's reinvested earnings. Compounding works on two basic premises: re-investment of earnings and time.

Simply put, the longer time you leave your money to compound, the higher is the wealth you generate.

Read: Value Stock Investing - How To Buy Top Stocks - Buy Stocks After Analysis

Start early, save consistently
Often, it is seen that investments are generally the last thing on your mind in your early 20s. You probably didn't know a thing about investing during your college days. The pocket money went straight to splurging on shopping, gadgets, theatres etc. The earlier you realise the importance of investing, the more time you would have for your money to compound and build a huge corpus. The adjacent table shows a simple representation of the power of compounding.

The table shows that if you save Rs 10,000 per month for 10 years (that is Rs 12 lakh at the end of 10 years) and if it compounds every year at a rate of 8 per cent then at the end of the 10th year you will get a corpus of Rs 18, 29, 460. But if you continue investing Rs 10,000 per month for another 10 years (that is Rs 24 lakh at the end of 20th year) and if this money compounds itself at 8 per cent then you build a corpus of more than Rs 58 lakh. That is you double your invested amount in 20 years.

Click image to enlarge
Doesn't sound very mouth-watering, does it? No. Well, the power of compounding works handsomely when you let your money grow for a longer period of time as the table and the two illustrations below highlight. Apart from the time factor the other assumption that changes is the rate at which your money grows.

Now, if the same Rs 10,000 per month grows at 10 per cent per annum then your Rs 24 lakh (at the end of 20th year) will get you an amount that is more than three times (Rs 75 lakh) your invested amount (Rs 24 lakh). Likewise, if the same amount of Rs 10,000 per month (Rs 24 lakh in 20 years) compounds at 15 per cent every year for 20 years then you end up becoming a crorepati: that is, your actual investment of Rs 24 lakh returns Rs 1crore and 49 lakh.

Checkout: How to buy stocks ? Buy stocks with confidence

Numbers do look good when tabulated; however, it is indeed a Herculean task to translate them into reality! You may observe now that it is not just time and money that commands the direction in which your corpus grows; there is one more important parameter which determines the same: rate of returns. For nobody can give you an assurance that your corpus will grow every year at a given rate.

Discipline & diversification
Consistency scores, both in cricket and in investments! Not being perturbed by intermediate glitches (such as the current one) will help you curb the key fear factor which is detrimental in erosion of your money.

To achieve the best risk-adjusted returns, it becomes absolutely necessary not to put all your money in the same basket. Having a judicious mix of debt and equity is equally important whilst you embark on your journey to become a millionaire.

Rahul had a moderate risk appetite and was keen on buying stocks especially at current levels given the fact that they are available at discounts to their actual value. He had limited knowledge about equities hence he start off with equity mutual funds, which is also an ideal way to begin investing into equities.

Often, one is unsure of how much exposure one can assume: a thumb rule is to have equity exposure at 100 less your age; for Rahul it translates into 75 per cent (100 less his age, that is, 25 years) into equities and 25 per cent parked in debt (say fixed deposits for safety).

Diversification is what will determine what returns you achieve. In table 1, we have illustrated three scenarios on returns: 8 per cent, 10 per cent and 15 per cent. Although risk is directly proportional to returns, one should aim to achieve optimal returns at risk-adjusted levels.
Patience is a virtue

Do not touch your investments; don't react to the prime sentiment of the day. Compounding only works if you allow your investments to grow over a longer period of time. It is exactly like growing a tree to bear fruits. The results will seem slow at first, but persevere.

We quoted earlier that numbers look good when tabulated. However, transforming them into reality could be a Herculean task. Well, not quite. An investment of Rs 10,000 per month for a period of 10 years has yielded an average of 12 per cent on a year-on-year basis even after a huge market fall as the adjacent table illustrates.

Most of the magic of compounding happens only at the end. It's time you planned on how to be a millionaire and maybe not the Slumdog way!
Reference: Rediff & Investopedia

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Mid Cap Value Stocks - Consutruction Sector Mid Caps Outperform Large Caps

Looking at the recession and it's ripple effect on stock markets, construction sector was one of the worst hit sector in Indian stock markets. is it still the case? Are people buying stocks of construction sector? If yes, which stocks are investors investing in? And should you also buy stocks of these companies?

Out of 35 construction companies, those with a market capitalization of less than Rs 1,000 crore outperformed their larger counterparts in the fortnight to March 26. The total market capitalization of the seven large cap companies—Rs 57,275.52 crore as on March 26—has risen by 17% since March 9. On the other hand, the market cap of mid cap companies—the remaining 28 companies—has grown 21% in the same period to Rs 6391.81 crore. The Sensex rose by 20% in the same period.

Large cap companies include Larsen and Toubro, Punj Lloyd, Jaiprakash Associates, IRB Infrastructure, IVRCL Infrastructure, Nagarjuna Construction and Era Infra Engineering while the rest lie in the mid and small cap categories.

One of the reasons for the outperformance of the mid cap companies, is that most in the list of remaining 28—namely, Hindustan Construction, Patel Engineering, Simplex Infrastructures, Gammon India, Consolidated Construction, Sadbhav Engineering, BL Kashyap & Sons, Ahluwalia Contracts, Madhucon Projects and Subhash Projects—have seen huge bargain buying in the last few trading sessions. These are the companies, which were earlier in the large cap space in the same period last year but were pounded heavily as they were in the lower end among their larger players.

For example, HCC, Patel and Gammon had a market capitalization in excess of Rs 3000 crore on March 23, 2008 but now they quote below Rs 1000 crore. This has led to some value buying as they are up by around 20% since March 9.
Source: EconomicTimes

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Tata Car Nano May Drive In Profits For Tata Motors

Tata Car - Nano has been buzzing in India and around the globe for quite some time now. Recent launch from Tata motors has definitely boosted the prospects for Tata motors with this new cute product. But from investor's perspective what change would this launch do for company balance sheet and so for shareholders? Here is an article trying to throw some light on this and guide whether one should buy stocks of Tata motors or should be in wait and watch mode.

The pot of gold is right round the corner for Nano. With commodity prices and excise duty dipping, and tax benefits stacked up in its favour, the road to profitability looks a lot closer than when it did when Tata Motors conceived the project in 2002-2003.

Nano has hit the market at the right time — commodity prices have fallen 30-40% since August last year, when they had peaked. The excise duty on smaller cars too has come down to 8% from 12% over two years.

Tata Motors was banking on profitability two years from now, but MD Ravi Kant says the car will ring in profits from the word go. The 10-year excise holiday in Uttarakhand will also help Tata Motors considerably, a top Tata executive said. The first 50,000 cars will roll out of its Pantnagar plant. Declining steel and metal prices too could lead to lower input costs on future supply contracts for Nano.

Read: Tata Nano - Can It Be Dream In Stock Markets For Tata Motors

Tata Motors is expected to raise huge amounts from Nano bookings — the company expects 5 lakh orders, which will generate a corpus of Rs 5,000 crore.

Further, the booking will fetch the company an interest-free deposit of Rs 95,000 (the amount for the base model) and Rs 1.4 lakh (booking for the top-end variant). Besides, it will also gain a Modvat benefit, which means the company will not have to pay tax on auto components as the supplier would already have done so.

“Tata Motors will need to sell many Nanos to break even. However, by leveraging the Nano platform, it can make high-end cars for overseas markets. With several variants, it could be a highly profitable product for the company,” said auto analyst with Booz & Company, Vikas Sehgal.
Source: EconomicTimes

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Warren Buffet - Top Secrets of His Success In Value Investing

With an estimated net worth of $62 billion, the world’s richest person and the greatest investor of all time, Warren Buffett ‘s timeless philosophy of value investing has proven relevant and profitable in all types of markets and financial environments.

Following his simple strategies, he has converted the holding company Berkshire Hathaway into a powerhouse today.

However, despite being simple, he believes in doing things patiently and differently because that’s the only way to stand tall in a crowd.

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently,” he says.

You believe him or not, but some of the top secrets of the stupendous success he has achieved as an investor are here:

Simple living and high thinking
Very few people are aware that one of the top secrets of Warren Buffett’s stupendous success is simple living and high thinking.

In fact, anyone with modest means can claim to be leading a simple life. But give one money and one would start behaving like a king.

That, however, is not the case with Buffett who still leads a very simple life considering his status. Like, he lives in a house he bought ages back and dresses up in normal clothes.

“I just naturally want to do things that make sense. In my personal life too, I don't care what other rich people are doing. I don’t want a 405 foot boat just because someone else has a 400 foot boat,” he says.

No unrealistic expectation
You believe him or not, but some of the top secrets of the stupendous success he has achieved as an investor are here:

Unlike many investors around us, Warren Buffett never has had any unrealistic expectation from the market.

No wonder, he says that earning more than 12 per cent in stock is pure dumb luck.

“During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3 per cent when compounded annually .... For investors to merely match that 5.3 per cent market-value gain, the Dow – recently below 13,000 – would need to close at about 2,000,000 on December 31, 2099!”

Thus, “if your adviser talks to you about double-digit returns from equities, explain this math to him,” he says.

Also Read:
Rakesh Jhunjhunwala - Investment Principles Insights
Warren Buffett's Priceless Words
Want to earn like Warren Buffett? 24 tips

Not timing the market
One thing that Warren Buffett doesn’t do is try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares.

A majority of investors, however, do just the opposite, something that financial planners are always warning them to avoid.

Not diversifying too much
Buffett also likes to keep his investment portfolio limited and simple, and believes in adopting simple investing strategies.

“I want to be able to explain my mistakes. This means I do only the things I completely understand,” he says.

According to his philosophy, keeping one’s attention limited to selected stocks and investment avenues, and not diversifying too much also helps.

“Over time, you will find only a few companies that meet these standards -- so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes,” he says.

Not investing money where it has been earned
Buffett does not believe in reinvesting earnings in the same business. Because no one can guarantee you the same return again.

May be you may loose your money in that process. So it is always better to look for new avenues where one can optimize returns.

“There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so,” he says.

Having no herd mentality
It is very easy to follow others and very difficult to carve one’s own way out. But it is only the second strategy which often makes one successful.

This philosophy holds true for the stock market as well.

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well,” Buffett says.

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Reliance Communication - Multi Bagger Stock Report

Reliance Communication - Multi Bagger buy stocks recommendation from India Infoline stock research firm.
Combined GSM+CDMA monthly adds may surpass Bharti Airtel:
Reliance Communications has recorded cumulative 8.3 million wireless users in the first two months of its pan-India GSM foray.

We forecast its GSM subscriber base at 36 million by FY10, accounting for 35.1% of the total base of just over 100 million. We have assumed average monthly additions of about 2.5 million over the next two years, which would surpass Bharti’s estimated run rate of about 2.2 million/month.

Earnings ramp up seen beyond FY10; Retain BUY:
Reliance Communication is likely to witness earnings pressure on higher interest cost in FY10 as interest income may not be enough to cover charges on its estimated Rs 266 billion debt in FY10. This could weigh in the near-term stock performance. However, as capex intensity declines, the company is expected to generate free cash flow to the tune of Rs 18 billion in FY10.

Checkout: Reliance Communication India - Ready To March Ahead With 3G Broadband

Reduce FY10E EPS by 15.1% as we trim our revenue (by 5%) and OPM (by 100 bps) estimates. However, valuations appear attractive (6.5x FY10E P/E) and earnings may ramp up 31% yoy in FY11.

Retain BUY.

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Gold - Has The Bubble Built? Will It Burst Soon?

The world over, air has whooshed out of bubbles in stocks, crude oil, metals and real estate. But before recovery comes, another bubble needs to burst: the bubble in gold prices. Around $950 per ounce, gold is still close to its all-time high of March last year, when it closed at $1,002 per ounce, three times costlier than what it had been from 1999 to 2002.

A gold crash sounds like heresy. Deep in our hearts is a belief that gold is the ultimate asset, the final port of call in times of instability, the safest thing to buy and hold when all else looks doomed. But the heart is an unreliable guide for these things. And the warning bells are ringing at home.

India is the world’s largest hoarder of gold. It’s reckoned that the stockpile of gold here now is more than the 8,000 tonnes stashed away in the US treasury’s vaults in Fort Knox. Unlike the US, where the government owns most of the gold, India’s government owns a measly 300-odd tonnes. The rest is in private hands: bridal jewellery in Godrej almirahs or bank lockers. And little of this hoard comes up for sale.

We take our women’s jewellery seriously. Selling your wife’s bridal baubles would be a last resort, a signal to society of moral and financial bankruptcy, deserving more social scorn than passing wind in a room full of prospective in-laws negotiating an arranged marriage. In Bengal, the tale that Rabindranath Tagore’s wife pawned her bridal gold to help her husband fund a university is the stuff of martyrdom even today.

But at today’s prices our greed for gold has evaporated. In February, India’s imports of gold were close to zero, down from 28 tonnes a year ago. In March, it’s the same story, no imports. Jewellery sales in the marriage season are expected to be low and a lot of bridal jewellery is mothers’ hoard, recycled. High prices have forced the world’s largest gold junkie to kick its habit.

Yet, reports hint that gold exchange traded funds (ETFs), pieces of paper whose value is linked to gold prices, are still pulling subscribers. Why are people buying paper gold when they can’t afford the real thing for their daughters’ marriages? Because speculators are buying the paper, when folks that really need gold can’t afford to. But who needs gold and why?

Historically, gold has been valued for adornment. Till about 500 years ago, it also had value as currency. But around the 16th century, paper currency started flooding the world, with good reason. Gold is very dense and heavy. A little cube of gold, measuring one foot on each side weighs half a tonne, about as much as a Maruti 800. Today this cube would be worth Rs 85 crore, but for that transaction nobody would lug a gold Maruti around. A weightless electronic money transfer would suffice.

In the 21st century, there are specialised uses of gold in tiny volumes for scientists working on fuel cells, or semiconductors, or heat resistant fabrics. Gold is inert, it doesn’t decay. A gold tooth filling made 5,000 years ago will fill your tooth today. It’s malleable, you can twist it to make any kind of shape, something jewellers have known for ages. These properties make gold interesting in the labs. But researchers in labs don’t set the price of gold. Who sets the price of gold is a story with a beginning and end.

After World War II, Europe and large parts of Asia were devastated. Factories, roads, railways and bridges had been blown to bits, most young men were dead or injured and economies were in free fall. Hyperinflation raged, making currencies worthless.

The way out was plotted when a group of wise men gathered in Bretton Woods, America, and worked out a plan to save the post-war world. The wisest of them, John Maynard Keynes, figured that to stop hyperinflation the world had to anchor all currencies to the strongest currency in the post-war world, the US dollar. And for good measure, anchor the dollar to gold, because America then had 75% of the world’s yellow metal.

So the price of gold was fixed and the only country that suffered no war damage on its soil, the world’s strongest economy, said that it would buy gold from anyone and pay 35 reliable US dollars for every ounce of gold. Then American aid poured into Germany and Asia. Those economies revived, currencies stabilised and, perhaps for the last time in its history, gold was the final arbiter of value.

That lasted 37 years. By 1968 the world was restive, America was bleeding in Vietnam and Europe had consolidated.
Asia, especially Japan, was emerging as a manufacturing powerhouse. US inflation was soaring. A bunch of European speculators called ‘gold bugs’ bet that the US, plagued by poor growth, high deficits and rising inflation, would be forced to print money and snap the $35 per ounce anchor with gold.

The gold bugs were right. In 1971, president Richard Nixon pulled the plug on the gold standard. The dollar became a freely-traded currency and gold prices shot up to more than $40 per ounce in London. Through the 1970s and 1980s, the world was clobbered by two oil shocks that hiked crude oil prices by 15 times, high inflation and unemployment, and low growth. People turned to gold for value. The price of gold shot up from $40 to $850 per ounce, a return of about 30% every year.

But nothing is permanent. After 1980, normalcy returned and gold fell back to $250 per ounce and stayed there for nearly 20 years. From 2002, when all of today’s bubbles began, gold started climbing and now it’s right up there looking all pricey and out of reach. So when will it pop?

It took four months for the bubble in crude oil to burst spectacularly: from $147 a barrel in July to $40 in November 2008, a loss of more than 70%. We need oil to drive cars, heat homes, cook and power our airlines. But the yellow metal is intrinsically worthless. It shouldn’t take long for gold, a bauble competing with silver, platinum and other metals for jewellers’ attention to come off the highs.

About 150 years ago, John Ruskin wrote about a man who liked gold and turned all his wealth into it before sailing off. In high seas, a storm wrecked his ship. The man strapped his bag of gold around his waist and dived into the water and drowned immediately, dragged under by the weight of gold. Asked Ruskin: “Now as he was sinking, had he the gold? Or had the gold him?”
Source: Economictimes

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Time To Invest For High Dividend Stocks

Even after a long year of turmoil, most investors are asking the question, "ye kitna upar jayega?" before buying stocks. Investors are still not prepared to accept the reality that the bull-run is long behind us and the market is staring at a drought of good news to take it forward. This new reality requires the investors to revisit their investments and buy stocks which are fundamentally sound.

The days of momentum buying (buy high and sell higher without looking at the company's finances) are over. Nor is it possible to double or triple your capital in ultra short time anymore. The froth is out and the investment world is back to its normal trajectory. Does this mean the end of the road for equities? Not really.

It just means that investors will now have to change their perception about equities. While equities were traditionally bought for capital returns, they could become excellent sources of steady income during bear phases. The lower stock price translates into higher dividend per share, thereby pushing up the dividend yield to attractive levels.

Right now, the market is full of low-hanging fruits where the post-tax yields are almost double those in fixed income instruments. ET Intelligence Group makes your task easier by doing the necessary legwork. We must add that this does not amount to 'buy' recommendation for any of the stocks listed in the table. The investors are advised to do their homework before taking the plunge.

Rationale behind dividend approach
The new financial year is just a week away. The beginning of the new fiscal will usher in the annual dividend season. Beginning from the middle of April, companies that follow the April-March financial year (and bulk of them do that) will start announcing the annual goodies to the shareholders. It makes sense to focus on dividends which are also incidentally tax-free in the hands of the investor. In fact, a dividend yield of 6.5% is equivalent to 10% interest earned over a period of one year, which is a taxable income.

Another important aspect of dividends is that they are more stable than corporate profitability. Most companies raise their dividend payout ratios during times of low profitability instead of cutting the dividends in tune with a decline in profitability.

In fact, in the Western countries, a large section of people invest solely for dividends. And a cut in dividends is considered as a fundamental degradation of a company's financials. For example, General Electric lost more than 30% of its value immediately after it announced a reduction in dividend and the shares of Citigroup dipped below $1 after it cancelled its annual dividends.

Will the dividends really come this year?
The number of dividend-paying companies in India and the total quantum of dividends would, no doubt, reduce this year compared to FY08. However, if we look back in history, a number of companies had a consistent dividend-paying record over the past 10-15 years regardless of the ups and downs in the business cycle. We also need to appreciate the fact that even the promoters of these companies depend on dividends as a source of their income.

We at ETIG sifted through heaps of data to identify companies that are most likely to maintain their dividend pay-outs. We only chose companies that never missed a dividend pay-out in the past 10 years, have healthy operating cash-flows, comfortable debt-to-equity ratio and haven't performed too badly in the first 9 months of the year. We excluded companies in the automobile, auto ancillary and real estate space. Our list also excludes newly listed companies.


Enjoying ample legroom: A case explained
Let's take the case of Tata Steel. Its profitability has been hit by the crash in steel prices. Being a commodity business, the steel industry is cyclical and has undergone several ups and downs in the past. However, if we look at the history of the past 15 years, the company has never missed a single dividend. Even when its PAT fell by more than 60% y-o-y in 2002, it cut its annual dividend by just 20% to Rs 4 per share.

CHECKOUT: High Stock Dividend Yield Companies

The worst of estimates predict a mere 25% decline in Tata Steel's profits in FY09. Even if the company just maintains last year's payout ratio, it would still pay Rs 12.5 per share as dividend. This is a 7.1% yield on the scrip's prevailing market price.

Companies such as MM Forgings, Deepak Fertilisers, Graphite India, Tamilnadu Newsprint and Balmer Lawrie have actually seen a rise in profits in the first 9 months of FY09 over the past year. So they just need to maintain their dividend at the past year's levels to make the cut. Most of the companies in our list paid out a very small portion of their last year's profits as dividends. This provides them ample leg room to fiddle with pay-out ratio and thereby maintain dividend stability.

If we broaden our search to companies paying dividends since FY 2000 - to include companies listed in 1999 or 2000 - more interesting names would crop up. The readers can log on to www.etintelligence.com website for the detailed list.

At the end, we must mention that the payment of dividend is at discretion of the company management and shareholders should not treat it as their right. Nevertheless, in the current market scenario, dividend payout could and should be a compelling reason for buying shares, rather than being disappointed at the stagnant stock prices.
Source: EconomicTimes

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Tata Nano - Can It Be Dream In Stock Markets For Tata Motors

Tata Motor’s much awaited small car ‘Nano’ was finally launched on Monday. The Rs 1 lakh-car is expected to create history not only in the Indian automobile industry but around the world. However, the Nano’s ride may not be a dream on the stock markets, feel market experts.

“There are a lot of positive vibes in the market but every thing depends on how successful the product will be. Indian buyers have always given positive response to low priced cars,” said Sudip Bandopadhyay, director and CEO, Reliance Money.

The stock price of Tata Motors rose from Rs 145 on March 12 to cross Rs 165 ahead of the Nano launch today. Market has nothing to encash from Nano’s launch as of now barring a sentimental boost, brokers feel.

According to media reports, initial bookings of Nano could reach 5 lakh units, which will far exceed Tata Motors’ current production capacity. The company is currently making Nano from its facilities at Pantnagar and Pune. Tata Motors will be constrained by capacity till its Sanand unit in Gujarat comes up, which has a capacity of 2.5 lakh units per annum.

In the last three consecutive quarters, Tata Motors registered turnover of Rs 20,000 crore. If the company expects sales of 1 lakh Nano cars in a year, it will generate a turnover of Rs 1,000 crore.

Said Manish Innani, a NSE listed member, “Nano is too ‘nano’ in Tata Motor’s balance sheet. It is a low priced car wherein profit margin is very low unlike commercial vehicles which basically drive the company’s fortune.”

However, there are lot of reasons to go for the car. While a large section of two wheeler riders will prefer to switch to a 4-wheeler for the low cost, people with higher income group may find the car convenient to go to short distance places.

“Nano will prove fruitful for the company in long term. More the volume company increases, greater the success for Nano,” said P K Agarwal, head - equity, Bonanza Portfolio, who feels disbursement of arrears on account of 6th Pay Commission will support Nano’s sales.

Brokers seem to be divided on investing into the stock. Bonanza’s Agarwal advocates long term investment at the current level, while Innani is unwilling to take any call until the company shows better turnover in its commercial vehicles segment and a ratings upgrade by rating agencies consequently.

The stock recently saw a new bottom at Rs 135 over its Jaguar and Land Rover acquisition. On Monday, the stock closed at Rs 166.15, up 3.28 per cent from the previous close.
Source: EconomicTimes

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LIC - Jeevan Varsha - A Cost Benefit Analysis

After the overwhelming response garnered by Jeevan Astha, LIC has introduced Jeevan Varsha, a moneyback policy (life insurance + Investment) with assured returns. This has caught the imagination of investors who are tired of the prevailing uncertainty in asset markets. But one needs to do a costbenefit analysis of insurance policy & insurance quotes before putting one’s money in it, rather than get carried away with features such as assured returns and risk cover.

This policy is nothing but a general money-back policy offered for a limited period — 6th February ‘09 to 31 March ‘09. Another attractive feature of the policy is assured returns. The policy holder will get Rs 65 per thousand (6.5%) of sum assured (SA) for a policy of 9 years and Rs 70 per thousand (7.0%) for a 12 years’ policy. As is known, the returns earned are tax-free.

Tax-free returns of 6.5% to 7% look attractive on the face of it. However, comparing these returns with the total costs incurred— premium paid—raise doubts about the economic viability of the policy. For example, a 30-year old person will have to pay an annual premium of Rs 78,497 for a 12-year policy of Rs 5,00,000. As a policy feature, the premium payment term is 9 years. So the total premium outflow will be Rs 7,06,473.

At the time of maturity, the policyholder will get 40% of the sum assured (as 10%, 20% and 30% of SA will be paid at the end of three ,six and nine years respectively) along with accrued guaranteed returns for 12 years. So, the total guaranteed amount received during the policy period is Rs 9,20,000. Therefore, the tax-free assured net gain (difference between total premium paid and guaranteed benefit) on the policy investment will be Rs 2,13,527. The policyholder is also entitled for variable returns, known as loyalty addition, at the time of maturity. But this depends on the profits earned by LIC.

Does this mean that investment in Jeevan Varsha is a better option? One needs to compare the policy with other fixed income instruments. Let us assume that a 30-year old person invests Rs 78,497 — the amount equivalent to the premium paid — in a bank FD for 12 years, maturing in 2021. Subsequently, the person may open a new FD of an equivalent amount every year with the maturity year as 2021. Thus, the person will have 9 FDs maturing in 2021 for a total sum of Rs 706,473. The total interest accrued on these FDs will be Rs 544,205 in 12 years, assuming an average annual deposit rate of 7% compounded quarterly. (The assumed deposit rate is based on the simple average of deposit rates observed in the past seven years, which have witnessed swings in deposit rates to higher and lower ends.)

Yes, the interest earned on FDs is taxable. Assume that a person belonging to a higher income tax bracket pays Rs 1,68,159 as tax on interest earned. Yet, investment in FDs is better off as interest earnings adjusted for tax at Rs 376,046 are much higher than the assured returns on the Jeevan Varsha policy. One can argue that the insurance policy covers death risk. But one could buy term insurance policy (pure) to get a life cover.

This may cost Rs 10,145 (single premium) for a 25-year policy of Rs 5,00,000. Thus, an investment combination of bank FD and pure insurance is preferable to an insurance policy with dual benefits of investment and life insurance.

Going ahead, insurance policies may offer attractive assured returns. But a cost benefit analysis is a must before making any investments.
Source: EconomicTimes.com

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Gold Investment

Gold investing is something people have started thinking again in this recession times. The average return on gold in the past year has been around 30 per cent. But if you are investing in gold, make sure it comes with tax benefits and security. Gold has been doing well because of inflationary fears and the downtrend in equity markets.

It is also proving to be a good hedge against inflation, justifying Indians' age-old faith in the yellow metal. The average return on gold in the past one year has been in the range of 30 per cent, making it one of the best performing asset classes right now.

“Due to the current economic downturn and inflationary fears, gold is doing well,” says Keyur Shah, associate director, World Gold Council, India. Gold has been rising over the past one year and experts feel the trend will continue . Some analysts expect the average gold price to hover around Rs 14,000 (per 10 gram) by December 2008.

Considering that gold prices are fluctuating between Rs 12,500 and Rs 13,000 of late (after touching the high of Rs 13,680 on July 15), there is still some upside. “A weak dollar following a slowdown in the US will definitely boost the value of gold even further,” says Kartik Jhaveri, director , Transcend India.

While individual gold holdings are the highest in India, most of it is in the form of jewellery. But jewellery is an uneconomic method of holding gold as on selling jewellery you will lose up to 10 per cent of the gold value and also the making charges that you paid during the purchase.

Jewellery vs Coins
“Those who want to buy gold for investment, prefer buying medallions and bars — this category has been growing in India over the past few years,” informs Mr Shah. Although coins and bars do not attract making charges, the sale discount is still there if the gold is not hallmarked. Hallmarked gold attracts the lowest discount and can be sold at 1-2 per cent lower than the market value.

Gold jewellery is not as good a investment as it is not as liquid as bars or gold funds, points out financial planner Gaurav Mashruwala. If you are saving to buy jewellery it makes sense to buy gold coins. These coins are accepted by jewellers in return for gold used in jewellery. If you intend to sell the coins, you may have to take a discount of up to 4 per cent, irrespective of how pure are the coins/bars.

But if you are holding a large quantity of gold, you will have to make provisions for storage and insurance as there is a security issue in keeping gold at home.

Gold exchange-traded funds (Gold ETF)
Gold ETFs are quite similar to mutual funds. The money you invest in gold ETFs is used to purchase physical gold of equivalent value. The advantage of ETFs are that the fund house that issues the gold ETF takes over the responsibility of storage and insurance of this gold. Gold ETFs are also tax efficient unlike physical gold. “While physical gold is considered a long-term investment, only if you hold the same for three years, gold ETFs acquire this status after one year,” says Mr Mashruwala.

In short, selling gold within three years of purchase will attract capital gains tax. Moreover , holding large quantities of physical gold can attract wealth tax, while gold in demat form does not. This apart, the spread between the buy and sell prices pertaining to gold ETFs is less than that of physical gold.

In other words, while your jeweller could sell you a gram of physical gold at Rs 105 and buy the same at Rs 95, you can buy a unit of gold ETF at Rs 101 and sell it at Rs 99. “Doing an SIP in gold would be the best option in the current scenario,” reckons Pritam Patnaik, AVP, Kotak Commodity Services.

Also Read: Gold Deposit Scheme From State Bank of India (SBI)

The two gold ETFs that are more than a year old — Gold Benchmark ETF and UTI Gold ETF — have delivered more than 40 per cent returns in the last one year. In case of others too, the returns have been positive for most months, in contrast with equity and debt funds that have posted negative or mediocre returns. However, the two world gold funds, which invest in stocks of gold mining companies, have had to suffer a fate similar to other equity funds. “It is advisable that you invest in gold as a commodity. Gold funds basically invest in gold mining companies. If you buy a gold fund, you actually invest and take a risk on that company and not on gold," adds Mr Gopkumar.
Source: EconomicTimes

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Gold Deposit Scheme From State Bank of India (SBI)

Gold Deposit Scheme is back. The Rising cost of gold imports has once again prompted the largest public sector bank of the country, SBI, to re-launch its Gold deposit scheme to help bring privately held stock of gold in circulation and reduce country's dependence on imported gold.

This scheme which was first launched in Nov '99 at the initiation of the then union finance minister Yashwant Sinha in the budget 1999-2000 did not gel well with the public at large and was thus withdrawn within a few years of its launch.

The scheme, as the name suggest, invites investors to deposit their surplus gold, in any form, with the bank and earn interest on the same.

India being a country where gold commands more of an emotional attachment than a mere source of investment amongst the masses, the scheme is targeted only to those affluent and high net worth investors, temples and trusts for whom gold is just another asset class.

The minimum amount of gold deposit is thus pegged at 500 grams (1/2 kg), which is probably beyond the reach of general public at large.

Famous temples across the country are known to receive huge donations in gold and they are likely to be most preferred customers for the bank under this scheme.

During its previous phase, the scheme had garnered 400 kgs of Gold alone from Guruvayur Devaswom in Kerala. If the scheme does a turnaround this time, it may find its potential customers in the very famous Siddhivinayak Temple, Mahalaxmi Temple, Lalbaug Ka Raja and Shirdi's Sai Baba Temple to name a few.

The scheme has just been re-launched and is available only at select SBI branches. Currently only 50 branches across the country have been nominated to accept these deposits of which four are in Maharashtra.

Only two branches in Mumbai have been nominated for the purpose, namely, Mumbai Main Branch and Shivaji Park Branch. The bank is also setting up a separate branch at the gold hub of Mumbai - Zaveri Bazaar to manage these deposits.

The gold so deposited with the bank shall be checked for purity and melted at the Government of India mint. A certificate of purity will then be issued by the Government, which can be used by the investor to claim back the gold after the maturity period.

The bank has also clarified that the expenses incurred on assaying of gold shall be borne by the bank and will not be passed on to the customer.

During the investment tenure, the deposited gold will earn an interest, which is currently tagged as 1% (3 years), 1.25% (4 years) and 1.5% (5 years). The investment shall be locked-in for one year.

Premature withdrawal, after the lock-in period but before the maturity, shall attract a penal interest of 0.5% if withdrawn within 3 years and 0.25% thereafter.

However, unlike the regular deposits, interest here is calculated in grams and not in rupees. Thus, an investment of 500 grams of gold for three years shall earn 5 grams of gold as interest per annum, compounded annually. At the end of the maturity term, the interest so earned shall be converted into rupee equivalent of gold then and paid to the investor.

For the principal investment, investor will have an option to claim back pure gold (0.999 purity) or cash equivalent of gold as on that day. The scheme is also attractive from tax perspective as the interest earned as well as tax on any capital gains arising from rise in price of gold after maturity is exempt from tax. Gold so deposited has also been exempted from wealth tax.
Source: EconomicTimes

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Stocks To Buy In Deflation Period - Where To Invest Money?

Inflation at historic low of 0.44%
Economy staring at deflation. Is it a good news?
While a fall in prices may sound like good news to most laymen, economists see this as an ominous sign of a collapse in demand in the economy.

The country is facing a negative inflation or deflation scenario with inflation touching near-zero level of 0.44% and expected to go down further in coming weeks. If negative inflation sustains for longer period of time, it will affect economic activities and in turn performance of most of the companies.

Let's understand what is deflation:

In economics, deflation is a sustained decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below zero percent, resulting in an increase in the real value of money — a negative inflation rate. This should not be confused with disinflation, a slow-down in the inflation rate (i.e. when the inflation decreases, but still remains positive). Inflation reduces the real value of money over time, conversely, deflation increases the real value of money.

Most economists believe that deflation is a problem in a modern economy because of the danger of a deflationary spiral. Deflation is also linked with recessions and with the Great Depression.

In the current scenario, prices are falling not because of improved productivity but because of fall in demand. If deflation sustains for longer period of time, it will have a more adverse impact on demand. "Deflation results in less demand, lower production and weak economic growth," said Citibank in a report "India Macroscope''.

A negative inflation discourages investments in the economy. The real interest rate difference between nominal interest rate and inflation becomes very high, making funds costlier. As demand goes down, capacity utilization of manufacturing units declines. This discourages investment in capacity expansion.

As performances of companies will be hit, the Citibank report said investors should be selective while buying stocks in deflationary environment. It said invest in those companies whose products or services are not much affected by fall in demand. So, companies operating in health care, telecommunication and utilities like electricity distribution could be good bet to invest. Services of these companies will remain in demand even if the economy slows down.

Investors also need to identify those companies where decline in prices lead to increase demand for their products, prompting them to produce more value-added products with greater economies of scale. In this category, companies operating in sectors like FMCG, snacks and beverages, health care, utilities and telecommunications can be included.

Checkout: Best FMCG Companies - Stocks to Invest in 2009

Companies with strong balance sheets, which do not have much debt on their books, can also be considered for investment. As debt servicing would become difficult in the deflationary time, one should stick to companies (mainly in IT, health care and energy sectors), which are less leveraged, the report added.

The report pointed out that total investment in the economy may decline by 2 percentage points of GDP by 2010 to 35.7% from 37.1% in the current financial year.

At the same time, companies operating in capital goods sector should be avoided. Capital goods are required when companies are investing in either new projects or expanding existing facilities. But, as companies are avoiding both, the performance of capital goods companies may further dip.

The real estate companies should also be avoided. In deflation, the general perception is that the prices will further fall. So, home buyers will further postpone their purchasing decisions, which will further increase the suffering of the cash-starved real estate sector. Read: Real Estate Sector Still In Downtrend

Checkout: Stock Market in 2009 - Stocks to Buy
Source & Reference: Times Of India

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Pantaloon Retail - Buy Stocks Of Leading & Only Growing Retailer

Pantaloon Retail (PRIL) recorded positive Same Store Sales (SSS) for the two consecutive months of January and February 2009, after having plunged and recorded negative growth in November 2008 and ruling weak in December 2008. Amidst the ongoing economic slowdown, Pantaloon’s Lifestyle Retailing Segment sprung a surprise registering higher SSS growth than Value Retailing in January 2009.

Back in Business
Same Store Sales growth positive in January and February 2009

The Lifestyle Retailing Segment reported a better performance on the back of the
month-long Great Indian Shopping Festival held by the Future Group in December 2008-
January 2009 and increased consumer confidence compared to the last quarter of CY2008.
The Segment witnessed healthy yoy SSS growth of 12% in January 2009 v/s 14% degrowth
registered in December 2008. On the other hand, the Value Retailing Segment witnessed
yoy SSS growth of 4% in January 2009 as against 3.6% degrowth in December 2008.
The positive trend continued in February 2009 with the Value and Lifestyle Retailing
Segments recording yoy SSS growth of 5.3% and 4.4%, respectively. The sustained sales
growth in February 2009 can also be attributed to aggressive pricing, continuous
promotional efforts and availability of more credit for consumers following softening of Interest rates. Pertinently, on a yoy basis, SSS growth of PRIL Standalone is nearing July 2008 levels which is an indicator of revival in consumer sentiment.

CHECKOUT: Biyani's' Sixth Sense Saves The Day For Pantaloon Retail

Future Group's Home-Retailing arm, HSRIL, is still witnessing negative SSS growth since November 2008. HSRIL, on a yoy basis, SSS degrew by 36% in November 2008, a sharp decline compared to a healthy SSS growth of 23% in October 2008. The substantial SSS growth registered in October 2008 followed by the dip in November 2008 can be attributed to the festival of Diwali falling in October in 2008 as compared to November in 2007. The months of October and November 2008 combined, witnessed a 9% decline in SSS yoy and reflected low levels of consumer confidence.

Outlook and Valuation
We are bullish on the long-term growth prospects of the Retail Sector despite the ongoing slowdown in the economy. Our Top Pick PRIL is the largest player in the Indian Retail Sector.

We are positive on PRIL as it has been able to maintain its growth (YTD) at a healthy 31% on a Standalone basis and 34% on a consolidated basis despite the slowdown. We believe that PRIL Standalone would be able to meet our FY2009 and FY2010 Net Sales estimates of Rs6,894cr and Rs8,492cr, respectively. We estimate PRIL Standalone to clock Net Profit of Rs154.6cr and Rs217.8cr in FY2009 and FY2010, respectively.

On the bourses, the PRIL stock has witnessed significant correction in the past few months and is currently trading at attractive valuations and provides favourable risk-reward for the investors.

At Rs138, the stock is trading at 11.1x FY2010E Earnings and 1.6x FY2010E P/BV. We have valued PRIL Standalone at Rs173. We have valued PRIL's stake in FCH, HSRIL and Future Bazaar at Rs33, Rs13 and Rs20, respectively.

We maintain a Buy on the stock, with SOTP Target Price of Rs239, translating into an upside of 73% from current levels.

Download stock report PDF here.

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AXIS Bank - Stock Report With Target Price

Karvy Stock Broking has maintained its buy stocks rating on Axis Bank with a target price in its March 19, 2009 research report.

AXIS Bank CMP: 341
Target Price: Rs. 629

Checkout: Multibagger - Buy Stocks Recommendation On Axis Bank

"We have revised our Axis Bank earning estimates after a visit to the bank's senior management; we expect that the bank's credit growth would moderate to 31.5% (Y/Y) to Rs 1,146 billion from our earlier credit book estimate of Rs 1,226 billion in FY10. Net interest margin is estimated to shrink by 30 bps to 2.57% in FY10.The bank's core fee income growth momentum is expected to come down to 28% (Y/Y) in FY10 from 70% in FY08 and 50% in 9MFY09. The bank's management did not provide with any guidance or estimates on non-performing assets front; we expect 152% (Y/Y) rise in gross NPA in FY10 to Rs 21.5 billion and increased credit cost to 1.3% in FY10 from 0.71% in FY08 and 1.1% 9MFY09."

Key takeaways of the meeting are
Moderation in credit growth:
Axis Bank's management is of the view that in FY10 SCBs' and the bank credit book would grow by around 18-20% and 28-35% (Y/Y) respectively; we have slightly reduced our credit growth assumption to 31.5% (Y/Y) to Rs1,146 bn. Focus on CASA improvement and cost of deposits: Relatively slower growth in credit book would reduce undue dependence on term deposits and declining whole-sale deposits rates would also improve overall cost of deposits. According the bank's management total whole-sale deposits contributes almost 35% of total deposits; average cost of whole-sale deposits was close to 7.75%.

Margin under pressure:
The Bank's management indicated there would be strain on net interest margin; we expect that in FY10 margin would come by 30 bps to 2.57% from estimated NIM of 2.87% for FY09.

"We increase our earning estimates for FY09 by 5.0% to Rs 17.7 billion and reduce for FY10 by 9.6% to Rs 15.5 billion and reduce our target price by 29% to Rs 629 per share.We estimate the bank to record RoAE of 18.8% and 14.4% in FY09 and FY10 respectively. We re-iterate our BUY rating on the stock with a target price of Rs 629 at 2.2x adjusted book value FY10," says Karvy Stock Broking's research report.

Mkt Cap 12,862.81
P/E 8.06
Div 60.00
EPS (TTM) 44.44
B/V: 244.29
Mkt Lot 1.00
FV 10.00
Download stock report PDF here

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Biyani's' Sixth Sense Saves The Day For Pantaloon Retail

This isn’t a company that needs rubber bands and paper clips to fake a grin. At a time when Indian retailers are trying desperately to make cash registers ring, Pantaloon Retail is perhaps the only one still raking it in. Its numbers for the quarter till December-end tell the story.

It is the only Indian retailer that has managed to grow sales by 25%. Its operating margin crossed the 10%-mark, up 1.4% year-on-year, while manpower and operating costs fell 1.33% and 1.78%, respectively, despite Pantaloon adding 18 large format stores. EBIDTA or core earnings rose 62%. And, despite the worldwide gloomy consumer sentiment, Kishore Biyani, promoter and CEO of Pantaloon’s parent Future Group, is planning to add six times more retail space next year.

Rivals Shoppers Stop and Vishal Retail, meanwhile, grew sales by only 3.3% and 17.8%, respectively, in the same period. Operating margin fell 1.4% at Vishal Retail and 4.4% at Shoppers Stop. Both reported a double-digit decline in their same-store sales, a key metric used in retail industry analysis that compares sales of stores that have been open for a year or more. This analysis is important because although new stores are good, a saturation point — where future sales growth is determined by same-store sales growth — eventually comes off.

Checkout: Pantaloon Retail - Buy Stocks Of Leading & Only Growing Retailer

So, what makes Pantaloon Retail click? Company officials credit it to Biyani’s native caution and his ability to keep an ear to the ground. In January 2008, when much of India Inc was on a roll, KB’s Monday Musing, a weekly e-mail communication sent to all employees, Kishore Biyani called for an initiative, Garv Se Kaho Hum Kanjoos Hain (Say proudly we are stingy).

In Big Bazaar, the group’s largest value retail company, employees along with Biyani, took an oath to be stingy and take an axe to costs. The message was part of a flurry of initiatives by Pantaloon Retail to make sure it was completely prepared to face a challenging business environment.

As the numbers show, the initiatives seem to have paid off. “Thank god for what we call Kishore Biyani’s sixth sense. Early on, he had an inkling of things to come and we kicked in the restructuring and reorganisational process quickly. We have revised production norms and are redeploying existing people in new stores,” said Sanjay Jog, head of human resources at Pantaloon Retail.

“Being closer to the ground realities, we were able to spot the trend early on and started cost-cutting measures much earlier than others. We had outsourced our IT and other varied functions and optimised costs everywhere in the system.” The fast moves ensured that operations and teams got streamlined within six months of Biyani’s mail. But cutting your own costs is one thing. Making the cost-conscious consumer spend his money in your store is another. Discretionary spends are currently low and both middle-income shoppers and affluent consumers are seeking more value for their buck.

To overcome this problem, retailers tend to step up pre-festive discounts and price cuts. Through massive marketing promotions and in-store festivals, Pantaloon, too, lured customers who had turned fence-sitters and postponed purchase decisions. The Future Group Shopping Festival, End of Season Sale at Pantaloons, Happiness Sale at Central, Blindfold Sale at EZone, Sabse Sasta 3 Din at Big Bazaar and the Exchange Mela were all attempts by Biyani to keep in-store excitement alive during a lean period.

“The organisation has been designed in a manner to adapt to changes faster. So, a Pantaloon customer moved to Big Bazaar, or an EZone customer buying Samsung could now buy Koryo at Electronics Bazaar. By being present across the consumption basket — fashion, food, electronics, mobiles, furniture, and home products — Pantaloon kept overall sales growth far more stable. Even if customer decided to spend less on furniture or mobiles, spends on apparel or food continued to grow,” says Biyani.

The bottomline got an extra boost because the company’s cost of renting stores is far lower than those of new players because it locked in property earlier, he adds. Fashion, too, contributes a higher share to Pantaloon’s overall sales, compared to other retailers. Fashion and apparel contribute 32% of sales. That has come in handy for the company because this category has the highest gross margins of around 40%, compared to categories such as household products or fresh food, which give less than 20%. Most other retailers got dragged down because they focussed on these two less remunerative categories.

Modern retailers across all segments of the industry are closing or relocating unviable stores to stem losses and tackle operational costs. Retailers such as Reliance Fresh, More, India Bulls, Spencers and Subhiksha, which concentrated on replacing neighbourhood kirana stores, are among the worst hit. Many of them are renegotiating rentals with developers.

These, in turn, have begun paring rates by between 25% and 50% to survive a challenging business environment. But with its instinct for street-smart and savvy planning, Pantaloon Retail appears very much immune to this misery. At least, for now.
Source: EconomicTimes.com

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Best Stocks To Buy In 2009 From Pharmaceutical Sector

Buying stocks for year 2009 has been a nightmare for investors in current stock market. Investors are constantly searching for stocks to buy from good sectors in economy which probably could buck the trend in show growth in 2009.

Core generics remain defensive; alternative themes to suffer:
The developed market generics business will be the most resilient to global slowdown, as governments running large deficits will aggressively promote generics to rein in healthcare costs. Other areas in the pharma industry are not as well-placed: the CRAMS business faces inventory reductions by customers, falling prices of end-products and idle capacities; growth in the emerging markets will likely cool off owing to financial pressures; and the drug discovery business continues to face tight credit conditions.

More growth drivers:
The Democrat regime’s proposal to bring 47m more Americans under health insurance could increase the size of the generics market by 15%. The recently expanded PEPFAR (President’s Emergency Plan for AIDS Relief) and para IV patent challenge opportunities are other growth drivers. Opening up of the regulated biosimilars market represents another medium to long term growth opportunity.

Top picks:
Sun Pharma, Cipla and Dr Reddy’s are the best plays on the continuing growth in developed markets. We expect all three to register 20%-plus revenue CAGR over FY08-11. Ranbaxy and Glenmark too will benefit in the long term, though in the medium term, their prospects will likely be hampered by drug quality issues with US FDA and emerging market pressures, respectively. Cipla will be the key beneficiary of the expanded PEPFAR programme. Biocon and Dr Reddy’s hold promise in the regulated bio-similars market.


Our top picks
At current market prices, Sun Pharma, Cipla and Dr Reddy’s offer the biggest potential upsides from growth in the generics business, in our view. These companies are well positioned to exploit the large opportunity in the US and other developed markets, and we do not see any major risk to their businesses. Ranbaxy and Glenmark also stand to gain from increasing market share in these geographies, but are likely to underperform in the near term. Cipla would be among the prime beneficiaries of the expanded PEPFAR programme: the company has been one of the biggest suppliers to the programme over last five years and has a large number of products specially approved by the US FDA under the scheme. Dr Reddy’s and Biocon hold promise in the regulated biosimilars market, as both companies have multiple biologicals registered and sold in the semi-regulated markets and are on course to developing them for the regulated markets.

Sun Pharma
We rate Sun Pharma as one of the best plays on the Indian pharma industry, as we expect its revenue growth to outpace that of the domestic and international pharmaceutical markets over the next 2-3 years. Sun’s product portfolio, which is dominated by drugs to treat lifestyle diseases, should help it maintain higher growth rates than the overall market, while a tight control on costs keeps profitability robust. A negotiated deal on the Taro acquisition could be a near-term catalyst for the stock. Sun has about US$500m cash in hand and a debt-free balance sheet. These attributes position it to be a prime beneficiary of any consolidation drive in the US and other developed markets. We believe there are also potential acquisition-led upsides in the near term, other than Taro. BUY.

Cipla
We expect Cipla’s core earnings to register a CAGR of 36% over FY08- 11, significantly aided by rupee depreciation and consequent margin expansion, apart from accelerated growth in volumes. Recent capacity expansion through new plants in Indore and Sikkim will contribute to volume growth. Industry reports indicate the return of growth momentum in the domestic pharma market, where Cipla has one of the strongest franchises, especially in respiratory medicine. Cipla’s unique business model of registering products in other countries and partnering with other companies to market them makes it the best counter-cyclical play in the Indian pharma space. We maintain our BUY rating.

Dr Reddy’s Labs
We believe that the market’s concerns over various businesses of Dr Reddy’s are overdone, given the potential for sustained overall earnings growth at over 20% a year. The downside in the German market, from the costly acquisition of Betapharm and subsequent changes in the market, have already been priced in the stock, in our view. The stock is trading at a P/E of 10xFY10ii core earnings, at a 20-35% discount to peers; we expect the gap to close over the next 12 months. In the medium term, there could be more upside from the company’s biosimilars portfolio and acquisitions in the developed markets. BUY with a target price of Rs511.

Biocon
The depreciated rupee and falling raw-material prices have put Biocon back on the growth track, with gross margin expanding 900bps and EBITDA margin expanding 770bps QoQ in 3QFY09. We believe that the expanded margins will start accruing to bottomline from 1QFY10 onwards, after hedges at higher rupee rates have expired. Additional growth triggers in the near to medium term include the single AOK contract won by Axicorp in Germany, the pipeline of generic products for the US market and the launch of insulin glargine in the domestic market, biosimilar insulin in Europe and oral insulin in India. Buy with target price of Rs154.

Opto Circuits
We believe India’s cost advantage and technical expertise can make the country a global hub for medical devices over the next 10 years. Opto Circuits, being the only large Indian medical-devices company, would be a key beneficiary of the industry’s growth. Excluding the effect of acquisitions, the company’s revenues registered 36% CAGR over FY04- 08ii, but in our view, it has barely scratched the surface; there’s a huge opportunity yet to be tapped. We expect organic annual growth above 40% over FY08-11. Completion of the acquisition of Criticare presents another platform to stabilise and expand the sales front-end in the US. Other growth drivers are its subsidiaries Eurocor, Ormed and Devon. Buy with price target of Rs156.

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LIC India - Buying Stocks of 11 Companies

Cashing in on the current lower value of different stocks, the Life Insurance Corporation has been buying stocks in past 3 months in 2009 and have increased its stake in as many as 11 firms, including SBI and ICICI Bank worth a little more than Rs 6,400 crore.

The country's largest financial institution has hiked its stake in seven companies to nearly 10 per cent, while it has raised its holding in another four in the range of 3-7 per cent. The value of the transactions is totalling to Rs 6,450 crore based on the current market prices.

On Monday, LIC informed the Bombay Stock Exchange that it has raised its stake in the country's largest bank, State Bank of India, to 9.16%, from 4.58% in December 2008 nearly doubling the stake in a space of less than three months.

LIC said it acquired 1.34 crore shares, representing 2.11% equity of the State Bank, for Rs 1,484.12 crore on Monday. It said the remaining shares were bought through open market transactions between November 2008 and March 2, 2009.

"Most banking stocks are trading at their near or below book value levels and that present a tremendous growth opportunity for the insurance company. When the India story gets on track again, these stocks will have a bull run," says a fund manager with a leading domestic mutual fund. "Also, many the leading banks have subsidiaries, whose value, is not reflected on the books fully. And when these are sold off, they will unlock tremendous potential," he added.

Read: Best stocks to buy now are banking stocks

LIC has also been buying heavily into the ICICI Bank stock. On February 23, LIC had raised its stake in India's largest private sector lender to 9.38%, by purchasing 2.27 crore shares. Currently LIC, which is a promoter of the ICICI Bank, holds over 10.44 crore shares, representing 9.38% stake in the bank.

Both SBI and ICICI Bank have strong subsidiaries in the insurance, broking and mutual funds businesses, the value of which can be unlocked when the cycle turns again, reckon others. Banking stocks have remained a favourite of the insurer. Also, in many ways, the cash-rich institution acts as a support to the markets when it buys at dips. It is reckoned that LIC gets substantial investible funds at the end of the year, when many investors tend to complete their taxation obligations this time and the premium collection rises.

LIC holds almost close to 26.32% of Corporation Bank. LIC has in recent times increased its stake in public sector banks like Allahabad Bank (up 4.60 %), Oriental Bank of Commerce (2.60 %), Syndicate Bank (2.32 %), Union Bank of India (2.18 %), Bank of India (1.63 %), Indian Overseas Bank (1.59 %), Bank of Baroda (1.53 %), Canara Bank (1.21 %) and Punjab National Bank (0.38 %).

LIC's stake in Oriental Bank of Commerce and Allahabad Bank rose to 16.02% and 10.99 %, respectively. Its holding in HDFC Bank rose by 0.37% to 5.07 %.
Source: Yahoo.com

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