Stocks to pick this week - Economic times

Gujarat State Petronet Cmp: Rs 52.40

Target price: Rs 60

Citigroup Global Markets has maintained its ‘buy’ recommendation on Gujarat State Petronet, and has raised the target price for the stock from Rs 55 to Rs 60. “We are raising our earnings forecasts by 14% for FY07 and FY08 on higher spot LNG volume assumptions. Our new target price is based on our revised DCF (discounted cash flow) value for the stock following our earnings upgrade,” the Citigroup note to clients said. “With greater visibility of gas supplies ensuring better utilisation of GSPL’s network, we remain positive on the stock despite its very strong performance over the past month,” the note added.

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Petronet LNG

Cmp: Rs 53.20

Target price: Rs 70

Ask Raymond James has reaffirmed its ‘buy’ rating on Petronet LNG, and raised its price target for the stock from Rs 66 to Rs 70, citing sustained growth in volumes over the next few quarters. “Higher-than-expected volumes arriving from Qatar and four spot cargos led the surge in earnings ((for October-December) for PLL. We believe these volumes would be maintained in 4Q FY07 and expect this trend to continue for next 4-5 quarters,” the ASK Raymond James note to clients said. “We have upgraded our earnings estimate for Petronet by 8-18% for FY07(estimated)-FY09E. Based on our upgraded earnings, we expect PLL to clock 25% CAGR growth in revenues over FY06-09E and 33% CAGR growth in PAT over the same period,” the note added.

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Godrej Consumer Products

Cmp: Rs 151.25

Target price: NA

Prabhudas Lilladher has maintained its ‘outperformer’ rating on Godrej Consumer Products, saying the company was like to end the current financial year on a positive note with an improvement in operating margins. “The Q3 FY07 performance was primarily impacted by the decline in sales of liquid detergents and slower growth in hair colours. On the positive side, the market comfortably absorbed the hike in soap prices as income levels rose and overall demand growth too continued,” the Prabhudas Lilladher note to clients said. “We expect the company to end the year on a positive note by recording higher operating margins in the last quarter. This would be due to the recent 12.5% hike in prices of powder hair-dye sachets, which are a major contribution to the company’s hair colour sales,” the note said.

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Dr Reddy’s

Cmp: Rs 751.80

Target price: Rs 875

CLSA Securities has retained its ‘buy’ rating on Dr Reddy’s with a price target of Rs 875 despite the pharma major reporting third-quarter numbers below market expectations. “Disappointment primarily stemmed from lower-than-expected contribution of Authorised generics and Fexofenadine due to shelf stock adjustments. Base business, however, remained robust with a 38% y-o-y growth driven by strong performance in APIs (active pharmaceutical ingredients) and branded formulations,” the CLSA note to clients said. “Robust base business growth will help Dr Reddy’s achieve our FY08 and FY09 estimates; with company mentioning potential for additional one-off opportunities. However, weak Q3 results and delay in Balaglitazone progress is likely to result in near-term weakness in the stock,” the report added.

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Zee Telefilms

Cmp: Rs 314.90

Target price: NA

Brokerage house SSKI Securities has retained its ‘outperformer’ rating on Zee Telefilms citing strong growth in subscription revenues as a key trigger. “With first phase of CAS implementation in notified areas emitting positive signals as also revenue through DTH distribution starting to flow in, by 2010 Zee’s domestic subscription revenue is set to be over 3x its current pay revenues,” the SSKI note to clients said. “Given the fact that distribution revenues largely flow down to the bottomline, Zee’s PAT is expected to grow at 34% CAGR over FY06-09. Given Zee’s attractive business property and high earnings visibility, coupled with value unlocking through demerger of DTH operations in the near term (Rs50 built in CMP), we maintain our outperformer’ call on the stock,” the note added.

Tata Wins Corus Deal

Finally, a sigh of relief for the nation - Economic times

LONDON: And so ends the winter of our discontent on a cold January night in the one square mile of the City of London. For Ratan Tata, it ends almost a four-month-old battle to conclude the largest ever Indian overseas acquisition.

And this is truly the mother of all deals. The Tatas walked off with Corus to become the world's fifth largest steel company with an offer of a staggering GBP 6.2 billion for Corus in fully diluted equity value, plus adjusted debt of GBP 500 mn. The enterprise value of Corus is now at an astronomical GBP 6.7 bn.

In a midnight auction held in London, Team Tata beat Brazil's CSN with a final bid of 608 pence per share in the ninth and ultimate round of bidding. Reports are that the initial rounds were a bit slow to take off, as the opponents circled around each other, but the final round was of sealed bids, in which the Tatas trumped CSN. CSN's last offer was of 603 pence a share, which was topped by the Tatas with the 5 pence differential stipulated by the Takeover Panel in the UK.

Speaking to ET right after the auction, Anwar Hasan, managing director of Tata Ltd in UK, said that the bidding was tense and at many times hectic, but finally the mood in Camp Tata is "naturally, very happy," at the outcome. The auction, slated to go on for 10 hours, actually lasted about 8 and half to nine hours.

Lord Karan Billimoria, founder of Cobra beer and chairman of the Indo-British partnership network, said in a lighter vein that this would complete a phenomenal Indian 'hat-trick' in the UK this week. After Shilpa Shetty winning Big Brother on Sunday night, the successful visit of the FM on Monday, and now the Tata win on Tuesday night.

Going forward, this should be greeted with relief within Corus as well, although no spokesperson was available for comment. The company's management had earlier strongly recommended the Corus bid, and the future of chairman Jim Leng and Philippe Varin was tipped by insiders to be stronger in a Tata regime.

For a City of London which tends to be deserted by 6 pm on weekdays, and plays host to Bollywood shootings in the evenings, Tuesday night was one of unusual and hectic activity.

At offices around London the midnight oil burned - the Takeover Panel was conducting the emailed auction a heartbeat away from the London Stock Exchange and St Pauls Cathedral. In the shadow of the Big Ben, in Westminster, Corus' top brass monitored the event. Camp Tata was parked in Primrose Street, just off Liverpool Street, the hub of the growing financial clout towards the east of the City. CSN and its advisors were entering the fray from Lazard's offices in London's west end.

SingTel eyes Vodafone's 10% in Bharti - Economic times

LONDON: Singtel is understood to have formally conveyed its interest in acquiring Vodafone’s 10% stake in Bharti Airtel to the British company and its advisors UBS. Vodafone has initiated talks with SingTel, Singapore’s largest telecom group, to sell its 10% stake in Bharti Airtel. Vodafone would need to offload its holding in Bharti Airtel, if it wins the $18 billion auction of Hutchison Essar. SingTel’s chief executive has already said that the company is interested in acquiring Vodafone’s 10% holding in Airtel.

At present, SingTel owns 30.5% stake in Bharti Airtel. “The initial talks have started. SingTel is keen on it,” a source close to the deal said. The news comes at a time when Vodafone’s chief executive Arun Sarin revealed that he would be making a formal offer for the Hutchison Essar early next month.

“Our due diligence process is under way. Once we get the report, which could be any time next week, we will be submitting a formal proposal. It will be sometime early next month,” he said. The fate of Vodafone’s stake in Bharti, India’s biggest mobile operator with more than 30 million customers, is one of the many complexities surrounding the tussle for Hutchison Essar.

Bharti chairman Sunil Mittal had said last week that the sale of Vodafone’s stake would not be a problem, although it is unclear whether he has a preference to identity any individual buyer. The bidding war, which includes the Hinduja brothers, Essar and Reliance, began after Hutchison Whampoa, the Hong Kong-based conglomerate, decided to auction its 67% stake in Hutchison Essar, which is held through its subsidiary Hutchison Telecommunications International.

However, legal wrangling between Hutchison Whampoa and Essar relating to the Hong Kong company’s ability to sell its stake to an overseas buyer complicated the process. India is the world’s fastest growing mobile market. Analysts forecast the country will have 500 million users by 2010.

The pace of growth was reinforced last week when Bharti unveiled a 69% rise in earnings before interest, tax, depreciation and amortisation for the nine months to December and an 18% increase in mobile subscriber numbers during the final quarter of the calendar year. Vodafone is likely to wait until all potential bidders have declared before making a formal offer.

EPFO runs scared of stock market gamble

NEW DELHI: The Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO) has rejected the finance ministry’s suggestion that the Fund invest up to 5% of its corpus in the capital market. It also deferred a decision on the so-called rate of interest for 2006-07 to the next meeting, scheduled for March 10. The decision to not invest the EPF corpus in the stock market had the backing of both employees and employers’ representatives at the meeting here.

The move, they feel, was “too risky,” never mind that the 30 stock lead index of the Bombay Stock Exchange, the Sensex, gained a mammoth 10,000 points over the last three years. Instead, the CBT has decided to ask the government, once again to hike the rate of interest on the Special Deposit Scheme of the central government, in which 80% of EPF funds are invested. SDS already pays 8% interest on the deposits, more than the government needs to pay on market borrowings. This excess represents a subsidy.

In effect, the CBT has demanded that the government hike its subsidy to the organised sector workers, while rejecting an opportunity to generate handsome returns from the stock market. Strong indications are that the labour minister will try to convince both finance minister P Chidambaram and PM Manmohan Singh that the interest rate for the current fiscal be kept at 8.5%, as in 2005-06, notwithstanding a Rs 450 crore deficit this would create. That is expected to earn the UPA big political brownie points.

On the other hand, a reduction of interest rate by half a per cent will leave the EPFO with a marginal surplus of Rs 10.25 crore. Talking to ET after the meeting, Labour minister Oscar Fernandes, when asked if employers’ representatives had also backed the decision to avoid the capital markets as an investment option, maintained “The Board as a whole felt this. We don’t differentiate between the one and the other.

The decision was taken based on all factors, including the interest of the Board and the subscribers.” Instead, the CBT reiterated its proposal to permit the investment by EPFO in National Savings Certificate and Post Office Termed Deposit Receipts. It also permitted TDRs with private sector banks subject to limit of 5% of the deposit base. The tenure of the current Board lasts until March 2008 and the decision will pertain to this period. However, there are few precedents when decisions as crucial as this have been reversed or overturned by a newly constituted Board.

The proposal to invest 5% of EPF funds in the stock market was made by the finance ministry in the revised investment pattern in 2005, which has yet to be notified by the labour ministry, pending approval. This would mean that the EPFO will stick to the earlier prescribed investment pattern. That involved investment of 25% of the funds in central government securities, another 15% in state government bonds and 25% in PSUs.

Vodafone to make bid on Hutch-Essar next month

Economic Times

DAVOS: The race for acquiring majority interest in Indian telecom major Hutch-Essar is going to get fiercer with Vodafone set to submit a formal bid next month, even as the Hindujas began their due diligence process Friday.

"Our due diligence process is currently underway. Once we get the report, which could be any time next week, we'll be submitting a formal proposal. It will be sometime early next month," Vodafonne chief executive Arun Sarin told IANS.

"Yes, the entry of so many players has pushed up valuations. But we're serious," the Indian-born alumnus of the Indian Institute of Technology (IIT), Kharagpur said on the margins of the World Economic Forum (WEF) meetings.

Anil Ambani's Reliance Communications, the Hinduja group and Russia's Altimo are among those interested in acquiring the 67 percent stake that the Hong Kong-based Hutchinson Whampoa has in Hutch-Essar.

Sarin said Hutch-Essar was an exciting prospect for Vodafone even if it means an aggressive bid to get a foothold in one of the fastest growing economies in the world, especially in the telecom market space.

The Vodafone chief executive, who has already had been authorized by the company board to take steps as he deems fit on the Hurch-Essar takeover bid, said he has not spoken yet on offloading stake in Bharti group's telecom venture.

Vodafone has a little under 10-percent stake in Bharti group's telecommunication venture and will need a nod from the company before acquiring a stake in rival Hutch-Essar. "We will talk about that when the issue arises. For the moment, Sunil's told us he is quite open," Sarin said, referring to his informal conversations with the chairman of the Bhati Group, Sunil Bharti Mittal.

"But we have no problems with. Vodaphone has aspirations of running a telecom business in India and having some management say. But that is not available in the Bharti group," Mittal told IANS "So we have no problems if they look elsewhere," added Mittal, who has Friday named for the Padma Bhushan award and is among the four co-chairs at the WEF's ongoing annuam meeting.

He, however, said there were no official talks as yet. The board of Bharti, in fact, also appreciated the fact that Vodafone officials chose to abstain from participating at their board meeting in view of their plans for in a rival firm.

Even Prakash P. Hinduja, who met with this IANS correspondent on the sidelines of the WEF meeting, said his group was keen on Hutch-Essar. "We are serious. That's why we entered the fray," Hinduja said, adding the due diligence process had started.

Incidentally, the Hindujas had exited Hutch-Essar last June by selling their 5.11 percent-stake for $450 million.

FIIs increase holding in Ansal

Business Line

New Delhi, Jan. 26
Delhi-based Ansal Housing and Construction Ltd announced that foreign institutional investors have increased their stake in the company from 5.02 per cent as on September 31, 2006 to 14.47 per cent as on December 31, 2006.

The major FIIs include Citigroup Global Market Mauritius, Lehman Brothers Asia Ltd, Morgan Stanley and co and UBS Securities Asia Ltd, the company said in a release, quoting data available on stock exchanges. The company has upcoming projects worth Rs 6,000 crore, primarily in tier-II and III cities. More than 65.56 million sq ft of development is underway by the company, according to the release.

UBS to buy Stanchart MF business

Business Line

UBS Global Asset Management, a leading international asset management company, said on Friday that it has agreed to buy Standard Chartered Group's mutual fund business in India for about $120 million.
UBS said that the deal is structured for acquisition of 100 per cent stake in Standard Chartered Asset Management Company as well as Standard Chartered Trustee Company, the manager and trustee respectively, of the group's mutual funds in India.

The transaction, to be wrapped up by the second half of 2007, does not include Standard Chartered's mutual fund distribution business in India, said a statement from UBS.

The Standard Chartered group's assets under management amount to $3.1 billion. It currently manages 16 mutual funds, of which 10 are fixed income, two in asset allocation and four in equities. The equity funds represent around 19 per cent of the total assets under management.

Formerly known as ANZ Grindlays Asset management Company, StanChart AMC, set up in 1999, is the ninth largest fund manager in the country with four per cent share in the domestic market. Headquartered in Mumbai, the AMC has offices in 27 cities and employs 60 people.
UBS also announced its intention to form a strategic alliance with Standard Chartered Bank for fund distribution in Asia, the Middle East and Africa.

"The acquisition is a milestone in our plan to build a major presence in India's growing fund management industry and demonstrates UBS' commitment to this important market," Mr John Fraser, Chairman and CEO of UBS Global Asset Management, was quoted in a media release.
Mr Kai Nargolwala, Standard Chartered Group Executive Director, said: "Mutual fund management is not our core business and the time has come for us to evaluate whether we are adding enough value to the business for the customers. Our decision to sell the mutual fund business will enable us to play to our global strength in distribution of third-party financial service products. India remains one of our key markets."

While fixed income and money markets have been Standard Chartered's traditional focus representing 80 per cent of the invested assets, equities will form an increasing proportion of assets under management, said Mr Christof Kutscher, Head of UBS Asset Management in Asia Pacific.

News for investment decisions

1. BHEL to announce stock split
2. RIL likely to buy GE plastics
3. Vodafone has an edge over Reliance communication in Hutch buyout