My View On Tata Teleservices Ltd

About The Company

Tata Teleservices (Maharashtra) Limited (TTML) spearheads the Tata Group's presence in the telephony sector in the telecom circles of Maharashtra and Goa, and Mumbai. Ideally, being in such a lucrative area, the company should have done exceedingly well. But it only manages to post one loss after the other; the losses only just seem to pile up. During the year, the Company has acquired a wholly owned subsidiary viz 21st Century Infra Tele Ltd (21st Century), which now forms the “consolidated” performance.Recently, TTML has signed a MoU with Hirco Developments under which it will provide complete telecom solutions to Hirco’s Panvel project.

About The Results

For the year ended 31/03/09, the company posted a net loss of Rs.169.94 crore as against the loss of Rs.125.74 crore it posted in previous year. The only gratifying part was that its net income rose to Rs.2045.98 crore from Rs.1707.19 crore in previous year. Increased operating expenses and higher interest outgo have taken its toll.

Expenses were up 47% of which employee cost rose 21%, network operating cost was up 25%. Its interest outgo burgeoned from Rs.171.01 crore in FY08 to Rs.305.68 crore in FY09. Interest charges are disclosed on net basis, wherein interest and other income earned from treasury operations are reduced from the costs of treasury operations. Interest charges also include amounts aggregating to Rs.36.13 crore for the year ended March 31, 2009 as compared to the gain of Rs.9.98 crore in FY08, on account of foreign exchange fluctuations. Again here, the only silver lining is that EBITDA was up 21% at Rs.588 crore.

Adjusted Gross Revenue (AGR) market share increased by 1% as compared to the previous year, as per the reports published by the Telecom Regulatory Authority of India (TRAI), a growth of 14.8% compared to the industry growth of 3.6% in TTML’s geography. 2861 wireless sites were deployed as compared to 1538 sites at the end of the previous year. The company has a market share of around 50% in private landline telecom service providers in Mumbai.

During the year, FCCB holders converted their holdings into equity, due to which paid up equity share capital now stands increased at Rs.1897.19 crore. 49.70% of this capital, held by the promoters now stands pledged. Japan's NTT DoCoMo holds a 26% stake. The company does not plan to sell any more stake in its telecoms tower arm. In January, it had sold a 49% stake to an unlisted tower firm in a deal that valued the business at an enterprise value of Rs.13,000 crore.

About The Stock

Stock has performed well in the last rally and was in limelight after the merger news drive in with Tata Indicom. The stock has potential but any jump in short term is at least not expected.

Disclosure: I do not have any personal holding in this stock.

Hot new : DLF Promotors Stake Sale

The News

The biggest news on the market today is the stake sell by DLF. Though it was an expected move but the fact is that it has finally been done. DLF promoters have finally parted with a 10% stake in the company. The data on the BSE shows that 16.8 crore shares were sold in two different block deal at an average Rs 233.50 per share, thus raising around Rs.3900 crore. Prior to this sale, promoters holding stood at 88.5%.

Another stake sale also happened yesterday. BSE data revealed that the founders of Suzlon Energy raised Rs.231 crore by selling 30 million shares or 2% stake at Rs 77 each. The markets greeted this news also with a rise yesterday.

Cause Behind Stake Sale

Of the funds raised, Rs.2000 crore is to be used to purchase private equity D.E. Shaw's stake in DAL. DE Shaw had invested $400 million in DAL in 2007 and is due to exit by the end of the month under an agreement. It also has the option to buy 100% stake in its privately held property trust DLF Assets Ltd (DAL) for which the rest of the funds raised could be used.

Impact On Share Value

The market was very happy with this piece of news and DLF rose 5.40% to Rs 249 the moment this news broke out. After this stake sale, DLF expects to have debt of less than Rs.5000 crore by end of this year.

Impact on Company

For DLF, this was good news as the stake sale will now put the much needed liquidity back into the company. Grappling with a cash crunch, this is probably the best solution it could have worked out. And what is positive also is that despite the stake sale, promoter holding continues to remain high and it does not dilute shareholders' stake.

Awaited Move

1. Stake sale is best when promoter’s stake is high. For the Tata’s, stake sale could have been the best way to get out this current financial bind that it is in. But low promoters stake will make this move impossible. Though it managed to do so in Tata Tele, doing so in other companies seems difficult.

2.There is also talk of Unitech planning to sell stake.

3.Reliance Communication was also rumored to be toying with the idea after it repurchased its FCCBs.

4.In fact unlisted Subhiksha, which is staring at the face of bankruptcy, is also looking at the option of stake sale.

Discussion On Automobile Sector

Impact on Capital Market

Car and bike sales for the month of April 2009 have gone up.Based on this, there are also quite a few who believe that this rise in April sales marks an end to the slowdown. They feel its time to invite the bulls over on Dalal Street permanently.

This is like celebrating the arrival of the baby the moment the news of pregnancy is declared. Yes, the news is good but it’s too early to celebrate. Mere surge in car and bike sales is not enough. The real mover of the economy is the truck sales. So unless and until the truck manufacturers declare a surge in their sales, there is really no recovery.

Why so much significance to truck sales? Well, it is the trucks which move goods from place to the other. And goods will start moving once industrial activity picks up and demand shows a rise. That in the right sense would mark the kick start of economic revival. But right now, that is not happening. Falling truck sales means that demand is low and there is no need for additional trucks to move goods from one place to the other. So the revival is yet to really happen.

Sales Figure

As per figures released by the Society of Indian Automobile Manufacturers (SIAM), motorcycle sales in the country during the month was up 12.11%. Total two-wheeler sales in April rose by 13.71% and domestic passenger-car sales increased by 4.20%. Last year around this time around this time, the gloom in the auto sector was just about beginning to spread. The pile up of inventory, rising raw material costs and falling demand started taking its toll. But this time around, the first month of fiscal 2009-2010 has been good, especially for the car makers. Except for Mahindra Renault, which showed a 68% drop in its sales growth for April, all others have reported a positive growth. Maruti sales was up 9%, Hyundai was up 3.5%, Honda 7.5%, M&M by a sharp 35%, Hero Honda by 29.5%, TVS by 3% and Yamaha by 48.3%.

Commercial vehicle sales were down 11.25%. Ashok Leyland reported a 69.33% decline in commercial vehicles sales in April. Its domestic sales for the month stood at 1,615 units against 5,549 units in corresponding month last year, down by 70.90%. Tata Motors, for the first time since Sept 2008, has registered a YoY increase in April in LCV sales though M/HCV sales were down 28%. So recovery is yet to really happen, that’s the writing on the wall.

What does the rise in car and bike sales mean? Does it not indicate a revival in demand? Yes, it does mean that people have started buying cars and bikes but that buying alone is not enough for the companies and the economy to bounce back. It is good news but not good enough.

And in case of auto component makers, it would take a while for the perk up in demand to percolate down to them. It would be too early to stock up on these auto component stocks. Well, if you have the holding power, you can stock up. And in that context, you can stock up on almost any good stock as whatever goes down does come up, some time or the other. That’s the cycle of life.

Advice For DLF

About the Company

The giant of the reality sector Indian domestic market , who had been the leader amongst the promoters and had a warm welcome in the capital market is passing though the toughest time ever due to overall slowdown in the economy and recession in the reality sector.

Problems In the Company

The cup of woe seems to be brimming and threatening to overflow for DLF. Probably one of the biggest victims of the slowdown in the realty sector, the tight monetary condition is becoming a noose around its neck.

1. Earlier too, there had been talks all around of the liquidity crunch which the company was facing but this is managed to cull when it announced a buy back program. That sent out a very positive signal to the markets, indicating that maybe things are not as bad as they are made out to be and the company does have the money.

2. Then last week, the company announced the foreclosure of its buy back. This did not go down too well with the market men. Though it was the best thing to do from a financial point of view, it was frowned down upon as bad practice. Many have frowned down upon this move to buy back when this money could have been used in a much better way.

3. Recently, the Income Tax Department raised an additional demand of Rs.400 crore for understating its income for the fiscal year ended March 31, 2006. According to the according to the red herring prospectus available with SEBI, for year ended 31/03/06, the company posted a net profit of Rs.227.4 crore, which doubled to Rs.417.80 crore for year ended 31/03/07. And now in FY09, the company reported a 41% fall in net profit.

The I-T department in December had ordered a special audit to evaluate the tax filings of the company for FY06.And as per the Special Audit, Fy06 was the first year when the company started using percentage of completion method (PoCM) method for recognizing revenues and profits. What this means is that if the project is half complete, but has been sold only 10%, then the revenue will be recognized only to the extent of 20% and rest will be treated as inventory. So what is completed is not recognized as revenue, what is sold is revenue. And prior to PoCM, revenue was recognized only after the entire project was completed. This PoCM has been followed compulsorily by all realty companies from FY06. The discrepancy, leading to the additional tax demand has come during the process of changing from the old method to the PoCM. Naturally, DLF is expected to appeal but for now, we have to assume that there is a contingent liability to the tune of Rs.300-400 crore staring at the company.

4. Another news is that the promoters might raise around Rs.3000 crore through stake sale. K P Singh and family, promoters of DLF, are stated to negotiating with FIIs to sell 6 -7% stake out of their current total holding of 88.5%. A price of Rs.200-230 per share is being worked out. JP Morgan and Deutsche Bank have been appointed to oversee the sale. The promoters will use the proceeds to infuse funds into DLF Asset Ltd (DAL), the promoter-owned real estate investment trust, to pay off private equity firm DE Shaw, which invested $400 million in 2007 and is due to exit by the end of the month under an agreement. Analysts have described the rising receivables from DAL as the biggest cause of concern for DLF.

5. DLF has also got plans to raise around Rs.5000 crore by selling its non-core assets such as power units and hotels.

About The Stock

Well, for now, things look tight for DLF. What is gratifying to see is that the company is working on raising liquidity and does have the means to do so. It will emerge out of all this but will take a while to do so. If the company made super duper profits when there was a boom, it surely is paying a high price for the recession in the realty sector.

It would be better to avail the opportunity of the current rally to book partial profits , though fresh position could be made at more reasonable value.

Disclosure: I do not have any personal holding in this stock.

Advice for SBI & Gujarat Gas Co.

Advice For Gujarat Gas Company

For CY2008-10, we estimate the company’s Operating Revenue to post a CAGR of 13.7% to Rs 1,681 crore on the back of the expected 7.0% CAGR in Volumes and higher Realizations (due to increase in gas cost and Rupee depreciation). This Volume growth factors the dismal trend in PMT volumes and delays in tying up new sources. Further, during CY2008-10, we expect Gujarat Gas’ OPM to expand by 180bp to 20% on the back of an increase in Realizations and higher scale of operations. On the PAT front, we expect PAT to increase to Rs 205 crore at a CAGR of 12.9% over CY2008-10."

At the current price of Rs 268, the stock is trading at 10.3x CY2009E and 8.5x CY2010E Earnings. However, due to the company’s inability to tie up new sources, a pre-requisite for its growth plan, we have lowered our Target P/E multiple for the stock. We ascribe a P/E multiple of 10x (12x earlier) on CY2010E EPS of Rs 31.7, which gives a revised Target Price of Rs 317 (Rs 340), translating into an upside of 18.3%. Thus, we maintain a Buy on the stock.

Advice For SBI

The results for banks are much better than what we were expecting , we are utilizing this rally to exit at higher levels. But going forward, for longer time we are bullish on banks especially the PSU banks like SBI, PNB and Bank of Baroda, so we would wait for lower levels to again re-enter these stocks.

Description of New Penison System (NPS)

Introduction

The much-awaited New Pension System (NPS) was launched on 1^st May 2009 as a new saving revolution.This launch was eyed with a lot of cynicism and given the general apathy towards making an investments in today’s scenario, people just gave it a ‘ho-hum” look, barely suppressing a yawn. But if one gets over this mind block, it would do good to take a long, hard look at what NPS has to offer.

1. Eligible for all citizens between the age of 18 and 55 years,

2. After registeration for the scheme, a permanent retirement account number is issued.

3. You can subscribe to the NPS from any of the 285 points of presence (PoPs) or even online. 17 banks run this NPS – SBI and its associates, ICICI, Axis Bank, Kotak, Allahabad Bank, Citibank, IDBI, Oriental Bank, South Indian Bank and Union Bank. One can even go through LIC, IL&FS, UTI Asset Mgmnt and Reliance Capital. One also has the freedom to shift from one PoP to another.

4. There are six fund managers with whom subscribers can decide to go with – ICICI Prudential, IDFC, Kotak Mahindra, Reliance Capital, SBI and UTI.

5. Minimum annual contribution is Rs.6,000, meaning monthly it is Rs.500.

6. The minimum number of installments per year is four and there is no upper limit on the contribution per installment or on the number of installments.

7. The NPS is for private individuals and this means, from April 1, any individual will be able to start a NPS account with designated ‘point of presence’ and start saving up for a pension.

8. National Security Depository Limited (NSDL) is the record keeper and six entities selected by the Pension Fund Regulatory and Development Authority (PFRDA) are the fund managers.

They will have different plans under the NPS that, like a mutual fund would have a mix of equity, government securities and corporate bonds.

Risks and returns would obviously vary with each scheme. These plans will obviously have different combinations of risk and potential returns. You have to select only one pension fund and if you do not select any investment option, then it would automatically be channeled into a life-cycle fund.

Comparison with PPF

1. There is one major apparent disadvantage with the NPS. You cannot withdraw the money till you are sixty years old, except for critical illnesses and for building or buying one house.

2. Even at the age of 60, you can only withdraw 60% of the corpus as cash and the remaining 40% is used to buy an annuity. If you choose to exit from the scheme before the age of 60, then you can keep one fifth of the accumulated savings and invest the rest in annuities offered by the insurance companies.

3. Unlike the PPF, which earns you a fixed rate of return per annum, which is usually much higher than the bank saving rates, the NPS is more like a mutual fund. Here what you get at the end would depend on the amounts contributed and the investment growth up to the point of exit from NPS. Thus the value of your investment in NPS may rise or fall.

4. Currently, the gains made on NPS are taxable and there is no real clarity on the rate of taxation too. Call this lack of political will or sheer negligence, this blunder will have to be corrected or else NPS would be a non-starter.

5. There is also a lot of talk about the low cost. The annual cost of record-keeping is Rs.380, each transaction will cost Rs.6 and the investment management fee is 0.009% per annum. As against this, a mutual fund charges a load of 2% per investment. This works in favor of the subscriber as ultimately the returns in the long run would have lower outgo in terms of costs. But this advantage would come to the subscriber only as his accumulation increases. Initially, the cost works out to around Rs.350 as fixed cost on every Rs.2000 he contributes. Unless the Govt steps in to correct this, it would be a non-starter with the small savers.

Summary

So if you are 30 years of age, to earn a pension of Rs.2000 per month at today’s rate, you need to invest Rs.16,600 per year till the age of 60.

Wait for the clarity on taxation before taking the plunge. The tax angle would make or break this scheme.

Advice On Wipro LTD.

Advice on Wipro

Wipro’s 4Q FY09 IT services revenue fell 3.8% to USD 1058 million in constant currency, versus management’s guidance of USD 1045 million, led by reduction in volumes and cross currency headwinds. Given a challenging demand outlook for the next 12 months and the expiration of STPI in FY10, we expect earnings to increase at a CAGR of 0.8% over FY09-FY11.Must wait for value buying levele to arrive to make investment for safe returns.

View On Results Of Sugar companies

Seven sugar companies have declared their financial results for the quarter ending March 09, of which, 5 companies are from U.P. while 2 are from south. These companies are Bajaj Hindustan, Balrampur Chini, Triveni Engg., Oudh Sugar, Upper Ganges, Shree Renuka Sugars and Thiru Arooran Sugars. Though this represents less than 25% amongst listed peers of about 30 sugar companies, but in terms of capacity, it constitutes close to 70%.

We have been taking a bullish call on sugar sector with a view of 12-18 months on account of following parameters :

1. Lower estimated production of about 15 million tones(mt) in India, during season 08-09, which is far below the original estimate of 22 mt and about 45% lower then the last year’s production. If we take opening stock of 8 mt, as also import of raw and white during the year of about 2 mt, we would have total sugar availability of about 25 mt for season 08-09, against our annual domestic consumption of 23 mt. This will result in low carry forward inventory in next season on 30-9-09. Even for next season 09-10, India’s sugar production is not likely to exceed 18 mt.

2. Globally, sugar is heading towards its first deficit in four years in 08-09, with global production estimated to be lower at 157 mt, a decline of over 9 mt from previous season, against global consumption, estimated to rise by 2.5 mt to 161 mt. With India importing sugar, global prices should remain firm and landed cost of sugar in the country will act as a floor for the domestic sugar prices.

3. Looking to the results of the 7 companies declared so far, optically either they look flat or little disappointing. For example, Balrampur Chini had sales of Rs.357 crores with PAT of Rs.66.20 crores for quarter ending March,09, against income of Rs.311 crores and PAT of Rs.65.65 crores in the corresponding quarter of the previous year. This means, absolutely flat results. Same trend was seen in Triveni and Renuka while decline in PAT was seen for Oudh and Upper Ganges. PAT of Bajaj Hind doubled to Rs.81.39 crores for March 09 quarter, thanks to forex losses write back, provided earlier. Thiru Arooran PAT improved to Rs.5.50 crores from Rs.2.42 crores, mainly due to a lower base.

4. In the Results of sugar industries ,EBIT from segment has shown a good rise. The average realization of sugar, ex-mill in U.P., in December 08 quarter was at Rs.1,752 per quintal which rose to Rs.2,082 in March 09 quarter and now ruling over Rs.2,400 per quintal, ex-mill.

It may be seen that Renuka had maximum increase in inventory of Rs.336 crores during March 09 quarter, while it is at Rs.578 crores for 6 months ending March 09. In case of Bajaj Hind it is Rs.224 crores and Rs.338 crores, respectively, while for Triveni, it is Rs.196 crores and Rs.346 crores. In case of Balrampur Chini, it is Rs.313 crores and Rs.354 crores. However this increase is not very significant for Oudh, Upper and Thiru Arooran.

Shree Renuka has been holding 5.12 lakh bag of sugar as at 31-03-09, on which unrealized of about Rs.250 crores would get made in the current and coming quarter.Similarly, Balrampur Chini is going to report its highest ever bottomline for the year ending September, 09.

So to correctly assess the results of a sugar company, is not to see the quarterly results, but, to see how much profit would get made on the inventory being carried on by the company. Since next season is going to be more critical, an ex-mill realization of Rs.27 per kg. is just a matter of time. This gives a clear visibility of growth in the bottomline of all the big sugar companies, over next 4-6 quarters. So, keep a bullish view on the sector.

My View On Indiabulls & Maruti Suzuki

View On India Bulls

Indiabulls Real estate has been moving in a range of Rs 150-130 for the last few days and in yesterday’s fall it has closed at the lower end of the range. The medium charts look very strong and if it breaks Rs 130, in the short-term it could be available at Rs 120 which could be good level to enter on long positions for a positional trader.

View on Maruti Suzuki

Maruti Suzuki India Ltd (MSIL) reported net sales of Rs 6,432.9 crore, up 35% y-o-y & 39% q-o-q. The growth in the net sales was mainly driven by a healthy 17% growth in volumes and 13% growth in realisation. We believe that MSIL is likely to get some cushion from the export market as it has received order of 30,000 units from Nissan. MSIL is also likely to benefit from the ramp up of exports of A star in the European markets."

However, the company’s earnings are likely to be affected from appreciating yen. We expect the royalty and selling & distribution expense to increase on the back of ramp-up in exports. Power & fuel cost is also likely to be high as the Manesar plant runs on diesel and it is expected that CNG power is to be implemented after a year. MSIL may face tough competition in its A1 and A2 segment from the Tata Nano launch. As well as Swift has major challenges in the coming quarters with the launch of diesel variants of the i10 and i20 from Hyundai. We recommend 'Reduce' on the stock with target price of Rs 775,

Disclosure: I do not have any personal holding in either of these stocks.

My view On Bajaj Hindusthan Ltd.

About The Company

Bajaj Hindusthan being the company headed by the most reputed BAJAJ group.The stock has been fairly fancied among the investors in the capital market. The financial results need to be studied with care before making any fresh position in this stock.

About The Results

Bajaj Hindusthan has posted its Q2 results for March 09 which has really disappointed or can be termed as flat. Optically it looks good, which is due to reversal of forex losses of Rs.83.66 crores provided earlier and now credited back to profit & loss account. On total income of Rs.516 crores,( including other income of Rs.91.07, which largely consist of forex gain referred above) PBT is at Rs.118.18 crores while PAT is at 81.39 crores. If we exclude this forex gain, PBT would have been at Rs.35.15 crores.

However major disappointment is from its sugar and distillery segment. The company, as at 30-09-08, had a closing stock of 35.56 lakh bags of sugar, valued at Rs.16.25 per kg., at Rs.578 crores. It is learnt that the company had crushed 64 lakh tonnes of sugarcane in the current season and has produced 57 lakh bags of sugar with a recovery of 8.9%. Part of opening stock, out of 35.56 lakh bags, were sold in Q1 and remaining quantity got sold in Q2. In Q1 average sugar realization was at Rs.17.75 per kg. while it was at Rs.20.60 per kg. in Q2. So, sugar segment earned an EBIT of about Rs.4.35 per kg. But this is not reflected in the results as its sugar segment had an income of Rs.408 crores and EBIT of just Rs.30.50 crores. Even distillery for Q2 had a turnover of Rs.38.63 crores and negative EBIT of Rs.1.19 crores which is surprising.

Considering overall results, the company being the largest sugar mill in the country with a capacity of 96,000 TCD, has really disappointed.

Major Drawbacks

1. Since, inventory of lower cost is now being replaced with higher cost, increase in stock, of Rs.338 crores for 6 months ending March 09 is also not very encouraging.

2. Rising interest cost also remains an area of concern.

About The Stock

The performance of the company is not suggesting to make any additional or fresh position in this counter at least before the results for the upcoming quarters gets better.

Disclosure: I do not have any personal holding in this stock.