Strong undercurrent By G.S. Roongta

As I had stated with great conviction in the last issue, the BSE Sensex nearly hit the 12000 mark last week as it was within kissing distance of the most important 12K mark. The bulls were, however, terribly disturbed when the stock market crashed on Monday, 11^th September’06 on global cues along with the meltdown in Asian markets on news of a slowdown in the U.S. economy.

G.S. Roongta

On Monday, 11^th September’06, the BSE Sensex fell like nine pins losing nearly 400 points in intra-day trades resulting in panic with big players running helter skelter to cut short their bull position. It gave the impression of another Black Monday being repeated! Again after the Black Monday of May’06, when the BSE Sensex had crashed by over 1200 points forcing the Stock Exchange Authorities to close down the market for one hour to restore normally in an unhappy atmosphere.

Thank God, the market bounced back when it reopened after an hour but uncertainty remained looming large in the minds of investors on account of crash in the market which ultimately took a heavy toll of roughly 2500 points by July’06 end from the high of 12671 on 11^th May’06.

That Monday has now become ominous for stock market ill effects with terrible panic situations that recur on Mondays.

The BSE & NSE authorities should, therefore, perform a puja to stop the demon on Mondays! The BSE Sensex initially drifted lower the next day too to hit a low of 11444 but the news of positive economic data released an hour or so before the close of the market provided the trigger for recovery. The FM’s announcement about the Index of Industrial Production (IIP) hitting a new high at 12.4% in July’06, which is the highest in a decade, reassured the market about the resilience on the Indian economy in relation to the rest of Asian as well as global markets.

It reaffirmed the global thinking about the Indian economy set to make landmark progress in coming years next only to China or even best China’s growth rate in the near future.

Getting a clue about the robust growth in Industrial Production especially in the manufacturing and electricity sectors, it is now pretty clear that India’s GDP growth is headed to achieve 9% growth in 2006-07 as against the target of 7.8% to 8%. There is, therefore, no reason to be pessimistic in as much as the Rain God, too, have showered above average rainfall, which was also well-spread throughout the country.

Once agriculture output, which is likely to witness impressive growth estimates start flowing in it will give a further boost to the ongoing bullish sentiment.

FIIs are well aware of these developments about the Indian economy and it is for this reason that they have changed their mind after their divestments from May to July’06 and led them to re-enter the Indian market.

Let us bear in mind that these players are not doing us any favour by investing in our country. They do so because they know very well that India is a better destination to provide better returns compared to other countries.

If investors take a cue from the day to day fluctuations, they will miss the boat or will fall off in between somewhere in the middle before reaching any destination. The 500 points rally last week is a clear indication of the direction that the Indian stock market is destined to take.

The Sensex rise, as I said last week, is immaterial now and big players who will corner large parcels of stocks give out misleading clues about them deliberately.

If we look at the breadth of the stocks that rose and fell on Thursday, 14^th September’06, it was so narrow as the number of stocks that fell was almost equal to the stocks that rose. Yet the BSE Sensex hit the most sensational level of 12K. This means that the indices fluctuate irrationally to influence the market but the individual stocks tell the true story about the underlying market sentiment.

G.E. Shipping hit a new high of Rs.290, ICICI Bank rose by 22 points to cross the Rs.650 mark, UTI Bank rose by 10 points, Corporation Bank hit the Rs.355 mark rising by 16 points. Bajaj Auto rose by 55 points to over Rs.2825. Each day, several new stocks are buzzing to achieve new heights even beyond those attained in May’06 when the Sensex hit its life-time high of 12176.

Another major bullish factor for the market is the falling crude oil prices, which have tumbled down by US $14, which works out to nearly 20% and will positively impact corporate working.

Last week, Priyadarshini Spg. Mills was recommended. Unfortunately, it could not attract investors’ attention following the meltdown in the market on Monday & Tuesday.

Moreover, small investors who are not fully acquainted with corporate performances are just misled by the broad fluctuations in the market to properly evaluate the merits of good or bad stocks and fall a prey even if they follow the advise of columnists like me because of dis-proportionate fluctuations irrespective of merits.

Anyway, stocks recommended under this column are based on fundamentals and fundamentally good stocks will always rise on merit even if delayed.

Earlier, WPIL was recommended at Rs.30 three week back which has spurted by 20% in just 2 weeks and still has scope to rise further.

Escorts was also recommended under this column which after withering a downturn to as low as Rs.68, it has now crossed Rs.98 to Rs.100 mark based on its fundamental strength.

Those who have faith in the column need not book a loss as fluctuations in share prices is the order of the day and true investors alone can reap a good harvest.

Priyadarshini Spg. Mills is like Escorts. It is immaterial whether it evokes the fancy of readers this week or next week. Because of market fluctuations, I cannot stop recommending fundamentally good stocks. As is I am sure of it evoking investors’ fancy once the market sentiment improves.

This week again a low-priced share is being recommended. It does not need much elaboration as it was recommended earlier also in this column and had evoked a good response but the scrip could not deliver as it was negatively impacted by the global fall in price of its products.

Sathavahana Ispat Ltd.

- Sathavahana Ispat is currently quoted at Rs.25

- It’s book value is Rs.32 with an equity of Rs.26.30 cr. and reserves of Rs.54.25 cr. as of 31^st March’06.

- Its products are pig iron and metallurgical coke with an installed capacity of 2,10,000 MTD and 1,50,000 MTA respectively. Both are raw materials needed for steel production. China is in short supply of this product and is the main importer.

Price: The robust growth the world over of the steel industry has put severe pressure on raw materials such as iron ore and coking coal. Steel prices, which had fallen to US $150 from US $160 per tonne last year have now bounced back and the freight cost to China from Brazil & Australia has also gone up from US $40 to US $70, which makes Indian products most attractive to buy.

Industry: The current outlook of the Iron & Steel industry appears to be quite robust. The Indian Iron industry is, therefore, in a position to reap a good harvest of growth and demand.

Performance Review: After a not so encouraging performance in FY06, the performance in the current year has improved and is expected to do well for the year ending 31^st March’07.

Dividend: Despite its not so encouraging performance in FY06, the company recommended a dividend of 5%. Hopes of a better dividend in the current year are therefore not unfounded.

Conclusion: At Rs.25, the stock is worth buying to reap 50% returns in a year’s time.

FIFTY FIFTY By Kukku

The Chemical Business Division Company of Excel Inds. (Rs.45) has maintained its leadership position in several products mainly due to economic size capacities, superior technologies and image with the customers for quality and reliability. This leading position continues to provide good growth opportunities to the company.

The company continues to improve process economics to improve margins. Efforts are also on to increase volumes by regaining the market share in India and by tapping newer export markets. The company is exploring opportunities to reposition some of its bulk products for the retail market, which is expected to fetch higher unit realisation. In addition to regular manufacture and sales, the company has accepted toll manufacturing to increase plant utilisation. Lower import duties compelled the company to adjust prices to meet the competition form imports. In general, the business environment favours end producers of agrochemicals as far as input prices are concerned. The prices of various raw materials, both crude oil based and others increased sharply during the year, but the last quarter has seen certain stabilisation. The current fall in crude prices will help it to put in a better performance during 2006-07, which may mark its turnaround in the current year.

Investors with long-term view can keep a watch on this stock for investment.

* Voltas (Rs.1033) Following its earlier phase of consolidation, the company has achieved its highest ever PAT of Rs.70.49 cr. and is said to be faring very well in current year. In the June’06 quarter, it reported 32% growth in top-line while net profit went up by 31% to Rs.21.75 cr. due to 223% higher provision for tax. Investors should continue to hold this stock as the order book position of the company is said to very healthy.

* Garnet Construction (Rs.46) is expected to come out with better performance in the second quarter. Seeing to the volumes, speculative position seems to be building up. Investors should stay invested.

* Investors should continue to hold Fortis Financials (Rs.58).

* Although TRF (Rs.365) operates at low margins, it is very likely to report sharp growth in top-line. Investors should continue to hold this stock.

* Keep a watch on Everest Kanto (Rs.475) for an upmove.

* Jai Prakash Associates (Rs.471) is one of the strong fundamental stocks with strong order position for infrastructure projects and also has large capacity in cement. Stock is attracting the attention of large investors of some leading broking firms. The company is planning to raise its cement capacity from 7 to 18 million tones by 2008. Investors should continue to hold this stock with good long-term target.

* Pratibha Industry (Rs.185) may post a turnover of Rs.350 cr. and a net profit of Rs.22-23 cr in FY07 and a turnover of Rs.450-475 cr. in FY08 plus Rs.250 cr. from the new plant for the pipes division. Net profit in FY08 is likely to be around Rs.40 cr.

* Nicco Ltd. (Rs.17.5) is attracting the attention of investors. After CDR approval, the Reliance Group is said to be taking an interest in the stock. Investors should continue to hold the stock.

* We have continued our thrust on increasing the exposure to cement/hotel stocks by switching over from sugar stocks and it worked very well, as many of the recommended cement stocks like Ultratech, Birla Corporation, JK Lakshmi Cements, Rainbow Commodity, NCL Ltd., Shri Digvijay Cements, Mangalam Cements have all improved. It is expected that hotel stocks, too, are likely to give similar upmove in the next few weeks. Keep a watch on Taj GVK, Hotel Leela, EIH Associates, Kamat Hotels, Oriental Hotels, Jaypee Hotels to name a few.

* Ashiana Housing (Rs.172) has given good returns to investors who kept faith and bought this stock. Though housing stocks did not perform well last week, Ashiana Housing outperformed and closed the week at Rs.172 level. Investors should continue to hold this stock.

* Keep watch for an upmove in Greaves Cotton (Rs.350), Era Constructions (Rs.311), Gujarat Apollo Equipments (Rs.174), SKF Bearings (Rs.309). After long accumulations, these stocks may be heading for good upmove.

* Marathon Nextgen Realty & Textiles (Rs.1324) was recommended at Rs.225 level on 23^rd July’05. After that, there was bonus issue of four shares for every one share held. Thus its capital went up from Rs.84 lakh to Rs.4.21 cr. Now the stock price is ex bonus at Rs.1323 i.e. cum bonus price is Rs.5292. Thus the stock has become 23.52 times.

Reproduced below is the earlier recommendation:

“Keep a watch on Marathon Nextgen Realty & Textiles Ltd. (Rs.225.75) its project is situated at Lower Parel, which is currently the most sought after address in Mumbai. Company would benefit immensely from these developments. Its capital is just Rs.84 lakh. Its buildings ‘Innova’ & ‘Emperor’ are ready for fitment and 3rd project ‘Era’ its first phase will be ready by Sept’ 06 & 2nd phase will be by Sept’07.”

Sensex gets elbowroom By Sanjay R. Bhatia

despite profit-booking and selling pressure

By Sanjay R. Bhatia

The markets tested the psychologically important Sensex 12000 level twice during the course of last week, after witnessing a sharp correction amid high bouts of volatility and choppiness. The volumes recorded have been good along with mixed advance decline ratios. Traders and speculators were active in index heavyweights, auto, cement, banking and tech stocks. Incidentally, FIIs have were net buyers along with mutual, which funds and have helped the markets touch the Sensex 12000 level.

Overall, global cues have remained positive with an occasional correction in oil global markets, which triggered the much-awaited correction on the Indian bourses. The Crude oil prices continued to remain soft and have fallen below the US $64 level, which is an extremely positive sign for global markets. The markets continued to witness profit booking and selling pressure at higher levels, which did not allow the Sensex to close above the 12038 level (intra-day high of 15^th September). Now, the markets need follow up buying above the 12000 level if the Sensex has to sustain above this level for it to move up higher and conquer new peaks. Buying would be needed especially from institutional investors for the rise to sustain. Meanwhile, the markets would continue to take cues from global markets and crude prices, which continue to remain soft and would hopefully touch the $60 level as steady progress is made between Iran and UN negotiators. Stock specific action, however, would be witnessed amidst occasional bouts of volatility and choppiness.

As we had indicated in the last issue, the markets corrected by a few hundred points giving the Sensex the much required elbowroom to cross the 12000 level. Now, it needs to be seen if the Sensex can sustain above the 12K level as profit booking and selling pressure is being witnessed. On the upside, if the BSE Sensex manages to sustain above the 12000 level, it is likely to test the 12039 level followed by the 12217 level. On the downside, the 11746 level is an important support level. In case of S&P CNX Nifty, it is likely to test the 3500 level followed by the 3573 level. On the downside, the 3335 level is an important support level for the Nifty.

Traders and speculators could buy McDowell with a stop loss of Rs.636 and a target price of Rs.800-825 level and could buy UTI Bank with a stop loss of Rs.332 and a target price of Rs.374.

At 12K what we do now?

12K is here again! After experiencing the brutal correction during the month of May and June, when the markets tumbled from its dizzying heights and looked to be on journey to explore what appeared then as its lowest level, no one had dared to dream that the all those losses will be soon wiped out and the bulls will be again running to set new highs.

Well it has happened, and happened in just a matter of four months. Fuelled mostly by local money the Sensex is looking tantalizingly close to soar past its all time highs. Will it eventually happen is a matter of discussion for a later date. So even as we celebrate this bull market, it's important to know what kind of strategy one should adopt in the market from hereon.

Well, the chorus is to book profits and wait. Jagdish Malkani of NSE is asking people to wait and do some profit booking at the same time. "It is still a bullish market but at the moment, it is getting ahead of itself. So clearly there going to be opportunities where one will see that 800-1000 point correction. In those circumstances, one should jump," he says.

But which stocks should people book profit in? Gaurang Shah of Geojit Financial Services is recommending taking money off the table in banking, auto mobiles, IT and Cement stocks. In auto pack, he singles out Tata Motors and M&M. TCS and Infosys are the ones he is asking to book profit in. From the cement pack, ACC and Gujarat Ambuja are on his selling list.

Deven Choksey of KR Choksey of Securities though does ask to do profit booking, he does recommend not making new purchases in IT, auto and oil stocks. Reason, he says the biggies in IT sector have moved up a lot and are done with their run up.

Auto too, he says, has equally appreciated in terms of valuations and one should wait for correction. In the case of oil companies, he says that one should wait for fresh price correction in oil before making new buys.

Sumit Rohra of Antique Broking advises to book profits in oil companies like HPCL and BPCL. However, in his opinion, one should stay away from metals.

Ambressh Baliga of Karvy Stock Broking is also recommending people to book profits. "The market will see some correction. Therefore, it's not the time to buy now. Rather, it's the time to book profits across all the sectors, as almost all of them have done well," says Baliga.

The same sentiment is being echoed by Anand Tandon of Gryffon Investment Advisors . Except "capital goods, construction, cement and IT", he says, people should take their profits in all other sectors

Why the Tatas 'bought a piece of the future' by Surajeet Das Gupta

All it took was four weeks and a blind date to shape a $677 million deal - the largest overseas spend by an Indian company.

Neither Glaceau's J Darius Bikoff, nor R K Krishna Kumar, vice chairman of Tata Tea, would have known that when they met for dinner in New York, that they would soon be crunching numbers before they met again, this time for a drink.

As a result of those meetings, Ratan Tata found himself on a US bound flight, to Glaceau's New York headquarters where, in a boardroom, he shook hands after buying a 30 per cent equity stake in Energy Brands Inc, America's number one company in the enhanced water category, best known for its Glaceau brand.

Tatas' shopping spree: 27 in 6 years!

For the Rs 3,000-crore (Rs 30 billion) Tata Tea, it was an unusual purchase. What would a tea (and coffee) company have in common with another that sold fortified water or energy beverages?

"Convergence," explains Krishna Kumar, almost as if it's the most natural thing in the world. "Like in telecom where there is convergence of technology, we see the same thing between tea and enhanced water."

But, er, just what is enhanced water? In the US, dominated as it is by such popular carbonated beverages as Coca-Cola and Pepsi, it is the hottest new growth area in the beverage category and consists of water enhanced with flavours, minerals and sometimes a tinge of fruit.

On the face of it, the deal is a mystifying one. What sense did the Tatas see in it? According to Kumar, though, it's part of a well-orchestrated move to transform Tata Tea from just a tea (it is the third largest tea company in the globe) and coffee company into a global beverages giant.

"What is our business? Our business is not just tea, our business is beverage. And it's about healthy beverages like tea and, now, enhanced water," he insists.

But behind the seeming dysfunctionalism of the deal are some interesting facts. Globally, tea and coffee sales have been stagnating, so diversification into newer beverage categories makes sense.

Tata Tea has a relatively minor presence in the US market, something that could be advantageously addressed now that it has a stake in EBIL. And surely there are synergies in distribution and technologies that can be leveraged in the marketplace between the two companies.

Tea consumption has been growing at a mere 1.8 (against an Indian average of 3.3 per cent per annum). Says P T Siganporia, managing director of Tata Tea, "You can either grow in width by entering tea-drinking markets that you have not gone into, or go into high growth beverage sectors with a health plank attached to it. Enhanced water is a perfect fit to get into high growth."

Of course, Tata Tea-Tetley (the company it acquired and merged into Tata Tea) is available only in 40 per cent of the tea drinking countries. So it is growing in width too.

That is why it has been entering newer markets, like it recently did in the Czech Republic where it bought over Jemca. And just last week there was news that it was setting up a joint venture in the green tea-dominated Chinese market. And there's a buzz that the ready-to-drink tea market is also booming.

Still, entering the enhanced water biz is a no-brainer. EBIL has grown at a whopping 200 per cent annually so far, and should "slow" down to between 60-100 per cent in the next few years.

With reported sales of $355 million (and a 50 per cent market share in this category) in 2005, Tata Tea expects it to hit revenues of $2 billion over the next few years. With a 30 per cent stake that could go up to 40 per cent, a substantial portion of the revenues would skew Tata Tea's topline and profits in favour of enhanced water.

Analysts are projecting that by 2010 the overall enhanced water segment could be worth $8.6 billion, and there's no reason Energy Brands should not have a large part of that market share.

For Tata Tea, this means that its key challenge - of trying to make a substantial dent in the US beverage market - could bear fruit. Siganporia admits as much. At $100 million, Tata's "business in the US has not been substantial and we need to grow by getting into high-growth areas".

If enhanced water is a high-growth category, Tata Tea's efforts will also be bolstered by its recent acquisition of Eight o'Clock coffee, also in the US. The brand is the third-largest in the mid-gourmet coffee market in the US.

Not everyone seems as happy about Tata Tea's hasty acquisition. Analysts say the price paid for the enhanced water might be too high. A recent Merryl Lynch report, though overall "positive" on the acquisition, points out that "in the near term the sharp increase in interest cost to fund these acquisitions and rising raw tea prices would deteriorate earnings outlook".

Points out another analyst: "The Glaceau brand might be on top now, but could face tough competition from the new age beverages - Cadbury Schweppes, Coke and Pepsi are all in it."

He adds that though Glaceau has 200 independent distributors to sell its products, "any expansion of this chain will take a lot of cash and, like most others, might require dependence on Coke- and Pepsi-aligned distributors. If you don't, you are in trouble".

The challenge must be clear to both Tata Tea and Energy Brands. The Tatas expect Glaceau to ride on Tetley's distribution channels in its non-US markets (UK, Europe and even India) where it has its own networks in place. Industry experts say it could also leverage the Eight o' Clock distribution chain in the US, which reaches more than 60 per cent of US retail stores.

More potent could be bringing in the expertise of tea and enhanced water together. Darius Bikoff, CEO of EBIL, hints at one such area of cooperation - ready-to-drink iced teas. EBIL already has some tea beverages and could extend that range.

Also, there could be new formats and a new line of beverages that might hit the market emerging from the shared knowledge between the two. Bikoff admits they are already working on these. But in India, the greater challenge will lie in delivering Glaceau at a price point consumers will accept.

Kumar says Tata Tea had offers to acquire juice companies in the US but preferred enhanced water, which is on the cutting edge of technology. His logic was simple.

"In the coming decades, water is going to be one of the most strategic resources for the world. I'm buying a stake in purified water. And that stake is like buying a piece of the future." The challenge is to ensure that it will also be good for the shareholders and future of Tata Tea.

The healthier alternative J Darius Bikoff

His father - a metals importer - sometimes bought steel from the Tatas, but that was many decades ago. But Darius Bikoff - sceptical about carbonated drinks - decided to make a product that was healthy enough to be given to his kids. Bikoff's enhanced water has become a raging success in the US. The founder of the Glaceau brand, who tied up with the Tatas last week, talks about how he made it in a world dominated by Coke and Pepsi You entered a market dominated by Coke and Pepsi. How did you cope with their financial and brand power? If I had worried about them, I would never have launched enhanced water. It is very difficult to compete with Coke and Pepsi, but what they do not have, despite all the money they spend, is a bonding with consumers, which we have. Initially, both offered to buy us and we said no. Pepsi tried again and with Sobe they copied us completely. We filed a law suit against them this year and won. When you look at the history of Coke and Pepsi, they don't innovate, they just imitate. But young people today know the difference between an authentic product and one which is not. India is a difficult market, will you get in here? Yes. India is a sophisticated market - you see traditional drinks and also newer, modern products. We want to make vitamin water available. We will manufacture it here, but there is no time frame yet. Coke and Pepsi have done a great disservice to customers, especially in high schools, and at the same time you have a controversy on soft drinks in India. There is an awareness that there can be something healthy [as an alternative]. But how do you resolve the question of pesticides in water? Soft drinks companies are saying water quality in India is poor. You will have to use the same ground water. There are water quality issues in the US too. We have resolved it because we make our own water of high quality, and that is expensive. Soft drinks giants don't do it. It is not a matter of not being available, it is a matter of whether you want to spend so much money. Coke and Pepsi are trying to take cost out, we are busy taking the cost in. Which are the markets you are looking for enhanced water, beyond the US? We have only scratched the surface in the US. We will go to markets nearer home, in Canada, Mexico and the Caribbean. We might be able to reach distribution agreements with Coke and Pepsi in some markets. Is there a market in India for a product that costs Rs 75? It is a bridge we have yet to cross. Red Bull sells in India for Rs 75. If they can sell at that price, so can we. But it does not sell much because it's much too expensive. When we launched in the US for $1.50-2.50 a bottle, experts said no one would buy us as they paid only 50 cents for Coke. But there are consumers who were ready to pay a premium for a product which is healthy. Maybe that will happen in India too.

Water for tea R K Krishna Kumar

For a deal that was closed in a record four weeks, precious little is known about what motivated Tata Tea to move into the global market for enhanced water. Here, Krishna Kumar, the pivotal force behind the acquisition, talks about what it means for Tata Tea Is Tata Tea moving from being a tea company to a beverages giant? Tata Tea is not only in tea, but in its many forms. It is in instant tea, flavoured tea, green tea. And it is in coffee. We always wanted to be a strong player in the beverage space. More importantly, we wanted to be at the cutting edge of the beverage market. And one common thread was the health consciousness of people. Are we going to remain only in tea? The answer is no. I think we must define ourselves. What is our business? Our business is not just tea, our business is beverage. And it's a healthy beverage. Why did you acquire a company in the US? The biggest market in the world is the United States. Fortunately, in spite of our acquisition of Tetley, the US was a different cup of tea altogether. We needed to make our presence grow. We found a very interesting development - the growth of enhanced water. And when we looked at that, we found its brightest star was Glaceau. The US market for beverages is difficult to crack. How will the enhanced water acquisition help you? The tea market in the US is changing. Younger, newer customers are looking for a more exciting experience. That's why people go to a Starbucks coffee shop, not because they can't have it at home. The tea market is also undergoing a change. Flavoured teas are now riding the crest. It is not mainstream black tea, it is speciality teas that are growing in double digits. That's why we acquired Good Earth (in speciality tea) last year, and that's what we will keep looking at. The partnership with Glaceau will add tremendous power to make the US market grow for us.

Powered by

LML declares itself sick, to approach BIFR

Dogged by prolonged lockout of its manufacturing unit and inability to make a turnaround, Kanpur-based two-wheeler manufacturer LML Ltd on Friday declared itself a sick unit and decided to approach the Board for Industrial and Financial Reconstruction (BIFR).

The board of directors of LML, which met on Friday after approving the audited accounts of the company for the period April 1, 2005 to August 31, 2006, has decided to refer the company to BIFR.

The company informed the Bombay Stock Exchange that after taking into consideration the continued lock-out of two wheeler operations and the present prevailing condition coupled with the uncertainty of generation of profits in near future, the board decided to reverse the provision of deferred tax asset (DTA).

As a result, the net worth of the company as on August 31, 2006 has been completely eroded and consequently it has become a sick industrial Company under Sick Industrial Companies (Special Provisions) Act, 1985, it said.

Company officials, including managing director Deepak Singhania, were not available for comments despite repeated attempts.

LML, which sold once-successful models like 100 cc Freedom, had completed a financial restructuring last year that put it on a recovery path, reducing the heavy debt burden of Rs 310 crore (Rs 3.10 billion) to around Rs 108 crore (Rs 1.08 billion).

It had also then raised fresh funds of nearly Rs 228 crore (Rs 2.28 billion) via the issuance of equity and preferred shares and convertible bonds to overseas investors such as Credit Suisse First Boston.

However, trouble started brewing afresh in the company earlier this year when workers struck work in March and the company declared a lockout at its plant in Kanpur since then.

In the meantime, the company had said it was working for restructuring of its business, which includes the possibility of a strategic partnership. It had cautioned that pending its outcome, LML's production, sale and normal operations may be adversely impacted.

The company had not announced its results for the financial year ended March 31, 2006. The promoter and promoter group currently hold about 32 per cent stake in the company.

sorce: rediff bussiness

Inflation at 5.01%

Inflation at 5.01%

India's wholesale price index rose 5.01% in the 12 months to 26 August, higher than 4.91% a week earlier due to an increase in some food prices, data showed on Friday. The figure was a shade higher than a forecast for 5%. The inflation rate was 3.33% during the corresponding week of the previous year.

Source: Capital Market

Birla Power to consider preferential allotment

Birla Power to consider preferential allotment

Birla Power Solutions has scheduled a meeting of the Committee of Directors (CoD) on 9 September, 2006, to consider allotting preferential issue of 12.80 lakh equity shares of Rs 10 each at a premium of Rs 33 per share to Bennet, Coleman & Co. Ltd.

Source: Capital Market

Ambuja Cement Eastern, Gujarat Ambuja Cements to merge

Ambuja Cement Eastern has scheduled separate meetings of the equity shareholders, secured creditors and unsecured creditors on 13 September, 2006 for the purpose of considering and, if thought fit, approving, with or without modification(s), the scheme of amalgamation of the company and Gujarat Ambuja Cements Ltd.

Source: Capital Market

GTL to consider allotment of equity shares to FCCB holders

GTL to consider allotment of equity shares to FCCB holders

GTL has scheduled a meeting of the committee of the board on 11 September, 2006 to consider allotment of 47,06,732 equity shares of Rs 10 each for cash at a premium in terms of the offer document to FCCB holders, consequent upon the exercise of right to convert FCCBS worth Swiss Francs (SFr.) 11,737,869.

Source: Capital Market

Canara Bank issues promissory notes worth Rs 575 crore

Canara Bank issues promissory notes worth Rs 575 crore

Canara Bank issued Tier II Bonds worth Rs 575 crore with the annual coupon rate of 8.85%. These bonds are promissory notes and are in the nature of subordinated debt. The face value per bond is decided at Rs 10 lakh. The deemed date of allotment will be September 15, 2006. The tentative schedule for the instruments will be September 12, 2006 and September 14, 2006. Interest on application money will be charged at par of coupon rate subject to deduction of TDS as applicable.

Source: Capital Market

Bidders queue up for troubled UWB

United Western Bank (UWB) became the most sought after bank in the country after the Reserve Bank of India (RBI) placed it under moratorium due to lack of adequate capital. A slew of banks, public, private as well as foreign ones rushed to submit their proposals to the RBI for the acquisition of the troubled private bank. Some of the biggest names in the industry have thrown their hats into the ring to acquire UWB. These include: ICICI Bank, Citibank, Standard Chartered Bank, Corporation Bank, Allahabad Bank, Federal Bank and Andhra Bank. Indiabulls, a Delhi-based stock broker, too jumped on the bandwagon. However, the bank itself managed to muster Rs3.5bn with the support of the Maharashtra Government, SICOM (the state government owned financial institution) and HDFC. UWB submitted its restructuring package with the RBI. But, it remains to be seen as to which way the cookie crumbles and which suitor will get UWB. With a network of 230 branches, 75 ATMs and 12 extension counters, UWB can be a strategic fit for quite a few banks which are ready to shell out funds for cleaning its balance sheet. According to reports, RBI considers UWB's move to rope in SICOM and HDFC as financiers is too late. They should have shown some interest when the bank was going down and it was making losses, a RBI official was quoted as saying. As UWB has high potential to turn around and make profits again, there is a lot of interest among the bidders. The RBI will now study all the EoIs and take a decision within the next few weeks. The UWB stock continued to attract a lot of interest after taking a beating on Monday. According to market observers speculators are buying heavily into the counter hoping to get some returns if the bank is merged with a strong bank later on. As on March 31, 2006, the bank's maturing liabilities were more than assets by Rs318.8mn for short-term loans and by Rs13.26bn from long-term loans. For the financial year ended March 31, 2006, the bank had negative cash flows of Rs58.8mn. This is said to have forced the RBI to impose stringent curbs on UWB when it suspended the bank’s operations and banned withdrawals of above Rs10,000 from each account. Over 22-lakh depositors of UWB are now waiting for the bank’s merger with a stronger one so that they can access their money.

Tarapore panel wants CAC in 5 years

The S.S. Tarapore Committee proposed that the country should shift to fuller Capital Account Convertibility (CAC) in five years beginning the current fiscal year. In its report submitted to the Reserve Bank of India (RBI) on July 31, the panel recommended that the proposed regime be implemented in three phases - 2006-07 (Phase I), 2007-08 and 2008-09 (Phase II) and 2009-10 and 2010-11 (Phase III). The panel also said that FIIs should be prohibited from investing fresh money raised through participatory notes (PNs). Existing PN holders should be provided an exit route and phased out completely within one year. The RBI formed an internal committee to examine the regulations and suggest measures to further ease the rupee's convertibility. The panel will submit its report by December. The panel proposed a more moderate public sector borrowing and asked the Government to rein in liabilities such as small savings and unfunded pension. It also said that the Centre and States should graduate from the present system of computing fiscal deficit to a new measure of public sector borrowing requirement (PSBR).

The PSBR could be above the fiscal deficit by about 3% of the GDP. According to the fiscal responsibility and budget management (FRBM) Act, the Centre is mandated to reduce fiscal deficit by 0.3% every year. The deficit is slated to be reduced to 3.8% by the end of this fiscal. The previous Tarapore panel had set reducing fiscal deficit to 3% as one of the conditions for CAC. Which means that it will take a decade or so for the Centre to prepare the ground for CAC, if it adheres to the current FRBM pace. The committee recommended a series of measures to strengthen the banking system. It said that the minimum share of the Government/RBI in the public sector banks (PSBs) be reduced from 51% (55% for SBI) to 33%. It also said that to meet the increased capital requirement of the banking industry to comply with the Basel II norms and CAC, the proposed transfer of ownership of SBI from the RBI to the Government be put on hold. The panel, however, endorsed the view that the Government must give up majority ownership of PSBs.

MARKET MOOD

---

Sensex fails to capture point 12k

Choppiness was the order for the week as the bulls faced stiff resistance in lifting the Sensex past the 12,000 mark. Every bout of buying was met with profit taking and vice versa, making the market volatile. However, traded volumes remained lackluster, reinforcing a view that the current rally is quite fragile and lacks conviction. Buying in Index Heavyweights and rally in Mid-Cap stocks pushed the markets higher for a seventh week in a row. Steady inflows from FIIs over last few weeks coupled with softening of crude oil prices and firm global markets boosted the sentiment.

Investors still appear to be wary and cautious following the rise in the last one and a half months. As a result, the Sensex continued to face pressure at around 12,000. During the week, Auto, Metal and Cement and Capital Good stocks were in momentum. While IT, FMCG and Banking stocks were at the receiving end. Finally, the Sensex added 141 points or 1.2% to close at 11,919 and the NSE Nifty gained 36 points or 1% to end at 3471.

Short Name	Last Price (Rs.)	Closing Price 5 Days Ago (Rs.)	Change 5 Day Percent
HDFC BANK LTD	850	873.7	-2.71
WIPRO LTD	509.9	517	-1.37
INFOSYS TECH LTD	1794.7	1811	-0.90
ICICI BANK LTD	603.75	609.1	-0.88
ITC LTD	188.1	189.6	-0.79

Strong monthly sales numbers and buoyant prospects for the auto sector boosted auto stocks. Maruti rose 7.4% to Rs940 after the company and Suzuki announced mega investment plans. Tata Motors advanced 4% to Rs898, Hero Honda gained 1.2% to Rs736 and TVS Motors jumped 21% to Rs116.

After rising for the last many sessions, banking stocks cooled off owing to profit booking. HDFC Bank fell by 3% to Rs850, ICICI Bank slipped by 0.8% to Rs603, PNB lost by 0.80% to Rs469.

Capital goods stocks attracted buying interest with L&T leading from the front. L&T surged by 5.3% to Rs2558, BHEL advanced by 3% to Rs2325 and ABB gained by 1.1% to Rs2851.

Short Name	Last Price (Rs.)	Closing Price 5 Days Ago (Rs.)	Change 5 Day Percent
RELIANCE ENERGY	488.1	445.05	9.67
MARUTI UDYOG LTD	940.8	875.25	7.49
HINDALCO INDS	183.9	173.15	6.21
LARSEN & TOUBRO	2558.35	2428.05	5.37
TATA STEEL	524.8	501.75	4.59

Cement stocks were also up on hope of increased construction activities post monsoon. Cement companies announced their monthly dispatches numbers, which were in line with expectations. Birla Corp added 7.6% to Rs305, Prism Cement surged 6.7% to Rs38.7, Grasim was up by 3.7% to Rs2335 and ACC gained 3.3% to Rs945.

After a long time, the action returned to the mid-cap counters with the NSE CNX Mid-Cap adding 3.5% on the week. Adlabs Films, Birla Corp, Bombay Dyeing and Goetze India were among the major gainers.

Firm international metal prices boosted the metal stocks on local bourses. Bhushan Steel rose by 7% to Rs252, Jindal Steel advanced by 5% to Rs102, Tata Steel gained by 4.7% to Rs525, Hindalco advanced by 6% to Rs184 and Sterlite Industries climbed 12% to Rs474.

Index	8th Sep 06	1st Sep 06	% Change
BSE Consumer Durable	3108.4	3052.5	1.8
BSE Capital Goods	8079.7	7749.6	4.3
BSE Auto	5207.0	5050.5	3.1
BSE Pharma	3632.8	3610.3	0.6
BSE PSU	5654.5	5563.3	1.6
BSE Small-Cap Index	6031.2	5814.3	3.7
BSE Metal	8626.3	8158.8	5.7
BSE-200	1435.5	1411.2	1.7
BSE Oil & Gas	5742.7	5688.5	1.0
CNX-Mid-cap 200	4504.6	4352.4	3.5
BSE IT	4273.0	4287.1	-0.3
BSE FMCG	2035.8	2034.2	0.1
BSE Bank	5362.0	5383.9	-0.4

INVESTMENT STRATEGY

---

Bulls set sight on 12k!

So near, yet so far

The bulls could well be living over the edge. The psychological mark of 12K has come near and moved slightly afar. In fact in the last five days, on four occasions the bulls looked like they would breach past the mark. All it managed to do was hit a high of 11983.48 on Wednesday.

A correction is long overdue. Valuations have been looking expensive for some time now. Major positive triggers are also hard to come by. But after every fall, the markets have bounced back sharply, which is evident from Friday’s gain towards the end. Even the volumes traded on the bourses have picked up slowly indicating renewed buying interest among the investors. Global cues will again provided much needed direction to the bulls. Action is likely to be stock specific with mid-cap stocks appearing to have got back into action. Fall in crude oil prices have softened the concerns of the rate hikes. Bank of Japan kept its overnight lending rate stagnant at 0.25%, judging that the economy isn't expanding fast enough to require a second increase in two months. Even, the Bank of England JUSTIFY its benchmark interest rate unchanged at 4.75% after last month's unexpected increase to manage accelerating inflation. The market may continue to face pressure before the psychological milestone is taken out. Judging by the impressive comeback by the bulls on Friday, looks like they are set to conquer Mount 12k again in the coming week. Auto, Mid-cap, Pharma and Cement counter are likely to remain in limelight for the coming week.

STOCK SNIPPET

---

United Western Bank: RBI curbed the operations of United Western Bank Ltd until December 1 and announced that it may find another bank to take it over. The stock has been in limelight as Indian lenders including ICICI Bank, Canara Bank, Federal Bank are among the other major banks bidding to acquire United Western Bank to expand into the rural areas of one of the nation's richest states. Several banks have announced interest in buying the bank. The stock had a roller coaster ride this week. The scrip touched a low of Rs10 on Monday but managed to climb higher to close at Rs16.15 that day. The scrip closed the week at Rs21, locked at 10% upper circuit.

Reliance Energy Ltd. (REL): The scrip out performed the Sensex after being on the sidelines in the recent trading sessions. REL added over 9.6% to close at Rs488. The scrip made a solid breakthrough this week. The company plans to spend Rs200bn to complete the Dadri plant.

Jet Airways surprised everyone and flew up by 16.5% to close the week at Rs627.3. Lower oil prices coupled with rumours of an out of court settlement with Sahara fueled the rally. The company had increased fuel surcharge on tickets for flights within the country by 15% because local oil refiners have raised prices of aviation turbine fuel. Also, the company is to establish its own Hangar in Mumbai, to carry out major and line maintenance checks for its fleet of Boeing and ATR aircraft.

DOMESTIC NEWS

---

Core sector growth jumps in July

India's infrastructure sector grew by 9% in July as against 2.3% in the same month last year, the Government said. All the six key core industries, except steel, managed to register a substantial improvement in performance. The infrastructure index, comprising of crude oil, petroleum refining, steel, cemh

ent, coal and electricity, rose to 211.2 in July from 193.8 a year earlier. The six industries account for a quarter of India's index of industrial production (IIP). In the first four months of the current fiscal year (April-July 2006-07), the core sector index expanded by 7% as against 6.1% in the same period a year earlier. Five of the six sectors - except steel - recorded improved performance during July compared to the year-ago period. Crude oil output grew by 4.1% versus a decline of 3.9%, while refining throughput rose 12.6% as against 3.6% in July 2005. Coal production increased 10.6% as against a negative 1.6%, while electricity generation grew 8.6% from a negative 1% in July last year. Cement production rose by an impressive 13.3% compared to only 3.6%, while steel production slowed down to 8% in July from 10.4% a year ago.

Apr-Aug direct tax collection up 50%

The first five months of the current fiscal (April-August 2006-07) have witnessed a 50.3% jump in direct taxes, with a substantial contribution of 70% coming from the corporate tax. The budgeted increase in tax collections is 25% for FY06-07. The budgetary estimate for direct taxes is Rs2.1 trillion, while for customs duty it is Rs770.66bn. Total direct tax collection is up at Rs429.17bn as against Rs285.44bn in the year-ago period. Corporate tax receipts are up at Rs225.87bn in the period under consideration versus Rs122.58bn the corresponding period last year. Personal income tax collection is up 32.9% at Rs203.30bn compared to Rs152.96bn last year (April-August 2005-06). For the month of August, corporate tax receipts were up 11.54% at Rs30.34bn while personal income tax mop-up grew by 9.5% at Rs38.02bn. On the indirect tax front, customs duty collection is up 34% at Rs341.1bn in April-August 2006-07. In August, customs duty collection went up by 30% to Rs74.07bn.

Kamal Nath: exports may cross $126bn target

India's merchandise exports are likely to surpass the target of $126bn during 2006-07 if the first quarter growth is sustained, Commerce Minister Kamal Nath said. The target of $126bn exports will be exceeded going by the 40% growth seen in the first quarter of this fiscal, Nath said at a meeting of the Parliamentary Consultative Committee of the Commerce Ministry. Exports grew by 23% to $103bn in 2005-06. Kamal Nath also said that Engineering Process Outsourcing (EPO) services from India would be a key element of the country's engineering export strategy, and the development of the EPO sector will have a far-reaching impact on India's engineering industry as a whole. The EPO market in India has the potential to exceed US $40bn by 2020, which would catapult India's market share in this category to 30%, from the current 12%, the Minister said. Engineering goods exports from India have crossed $5bn in the first quarter of the current financial year, showing a growth of 20%, he said, adding it had the potential to grow at 30% annually. The Government is giving high priority to engineering, which was an important segment of India's manufacturing sector, he said.

Inflation climbs past 5%

India's inflation, based on the Wholesale Price Index (WPI), rose to 5.01% for the week ended August 26, the Government said. It was at 4.91% in the previous week. Inflation stood at 3.33% as in the comparable period last year. Meanwhile, inflation rate for the week ended July1 has been revised upwards, from the preliminary estimate of 4.96% to 5.21%. The final WPI for the same period stood at 203.8 as against the provisional figure of 203.3. The index for Primary Articles Group (weight: 22.02%) rose by 0.3% to 205.7 from 205.0. The index for Fuel, Power, Light & Lubricants (Weight 14.23%) remained unchanged at its previous week's level of 328.3. The index for Manufactured Products (Weight 63.75%) too remained static at its previous week's level of 177.7.

ONGC earmarks Rs23bn investment

Oil and Natural Gas Corp (ONGC) approved an investment of Rs23bn for re-development of its ageing Heera and South Heera fields at Mumbai offshore in the Arabian Sea. The re-development will enhance production with improved recovery and redistribution of water injection, pattern sweep and pressure maintenance. The project includes development of a marginal field B-134 A through Heera facilities, which would not have become viable for exploitation on stand-alone basis. ONGC recently received approvals from the Director General of Hydrocarbons (DGH), for redeveloping its Heera oilfield. The estimated incremental gain is estimated at 10.685mn tons (MT) of crude oil and 2.265 bn cubic metres (BCM) of natural gas by 2030. ONGC's output has stagnated at about 520,000 barrels per day in recent years and fell to 490,000 barrels per day in the full year to March 2006, after an accident destroyed an offshore oil platform in July 2005. The oil major recently said it plans to spend Rs600bn during 2007-12 to raise its total production to 140 mn tons.

HDFC's $720mn fund gets Cabinet nod

The Cabinet Committee on Economic Affairs (CCEA) cleared an investment by HDFC's global real estate fund to invest up to Rs32.4bn in the country. The Mauritius-registered India Offshore Real Estate Investments (IOREI), which is sponsored by HDFC, has been allowed to invest this amount, raised overseas, in units issued by HDFC's International Real Estate Fund (IREF), which would in turn invest in Indian companies. The CCEA also allowed the HDFC-sponsored fund to raise $30mn (nearly Rs1.35bn) from the domestic market. The Series A units that India Offshore Real Estate Investments would subscribe to will have a face value of Rs 1,000 each. The international scheme of the fund would be managed either by HDFC Venture Capital or a different entity from within the HDFC group. Investments in the HDFC property fund would be subject to the existing FDI policy in respect of the real estate sector, including not allowing repatriation of original investment before three years from completion of original capitalisation. HDFC Property Fund is a venture capital fund, whose investment manager is HDFC Venture Capital and the trustee company is HDFC Ventures Trustee Company. The fund was set up in 2005 and has launched two schemes over the last one year. These include the HDFC India Real Estate Fund and the HDFC IT Corridor Fund. The Cabinet decision comes at a time when the country's real estate sector is going through a boom period and property prices in major cities are at an all-time high. A lot of global real estate players have also shown considerable interest in the Indian realty market.

Govt unveils Auto Plan 2016

The Government unveiled an ambitious "Automotive Mission Plan-2016" to make the country a global hub for automobiles and auto components. The plan envisages the auto sector contributing more than 10% of the GDP in a decade. Under the plan, the output of India's automotive sector will be $ 145bn and will provide additional employment to 25mn people by 2016. The Government would play a key enabling role in facilitating infrastructure creation, promote country's capabilities, create a favourable and predictable business environment, attract investments and facilitate R & D, Heavy Industries and Public Enterprises Minister Santosh Mohan Dev. On the other hand, the role of industry will primarily be in designing and manufacturing products of world class quality, cost competitiveness, improving productivity of both labour and capital, achieving scale and R&D capabilities and showcasing India's products in potential markets.

Meanwhile, Suzuki and Maruti scaled up their investment plans for the country by Rs30bn, taking the total investment to Rs90bn, and announced they would start contract manufacturing for Nissan from 2008-09. Maruti's new car plant at Manesar, which is expected to begin production soon, will manufacture 100,000 units of the 'Swift' as well as 200,000 units of a new small car that the company is developing in collaboration with Nissan. Out of the production of the new small car, Maruti will export 100,000 units to Europe while 50,000 would be exported by Nissan and the remaining 50,000 units will be sold in India. Reports also suggested that Suzuki is in talks with Nissan to build a new car plant in India that will export 400,000 vehicles annually.

Fiat and Tata Motors are reportedly examining options whereby the Italian auto major will use the Indian auto giant's platforms to manufacture cars for select overseas markets. Fiat is considering making a low-cost car with Tata Motors, Sergio Marchionne, CEO of Fiat said. At a gala event held late to celebrate the 100th anniversary of Lancia, one of Fiat's premium brands, Marchionne told reporters that a low-cost car could be one of the projects to be pursued with Tata Motors. Tata Motors Ltd. will pump in Rs120bn in a four year span, to expand capacity and develop new products. The automobile behemoth will fund the capex through cash reserves and borrowings, Ravi Kant, Managing Director, Tata Motors, said. Toyota Kirloskar, Hyundai, Honda, Mahindra & Mahindra (M&M) and Eicher Motors also made big-ticket announcements on their expansion plans.

Aug GSM subscribers base up 5.1% MoM

The GSM-based cellular operators witnessed the highest ever subscriber additions in August. Thus, the GSM industry set a new record by adding 4.2mn subscribers in August. The GSM subscriber base has touched 86.6mn at the end of August, compared to 82.4mn as on July 31. Among all the circles, Category B witnessed the highest rate of growth at 7%, followed by Category C at 5.6%. Within Category B, UP (West) and Madhya Pradesh recorded the highest growth at 13% and 10% respectively. Within the Category C, the highest growth was recorded by Assam (8%) followed by Himachal Pradesh (7%). Category A also witnessed a healthy growth of 5% in August. Karnataka recorded the highest growth at (5.6%) followed by Tamil Nadu (5.3%). The Metro subscribers also grew by 2% over the previous month. Kolkatta recorded the highest growth at (5.3%) followed by Chennai (3.3%).

Reliance Comm applies for GSM licences

After ruling the roost in the CDMA space, Reliance Communications Ltd. is now eyeing the GSM segment. The Reliance-Anil Dhirubhai Ambani (ADAG) company has reportedly approached the Department of Telecommunications (DoT) for 21 spectrum licences out of the total 23 circles in the country. "The move is in line with our enhanced focus on GSM. However, it is clear that the company will continue with its emphasis on CDMA and deploy GSM for future expansion as is being done by many global operators," Reliance Communications said in a statement. According to reports, the DoT is awaiting detailed business plans from Reliance Communications to gauge the seriousness of the company's planned diversification into the GSM business. Separately, Reliance Communications joined hands with Nokia to market Nokia 1255 mobile handsets across the country at Rs1,999. With this Nokia partnership, the company is expecting to sell about two million handsets in the next six months, Reliance Communications CEO Sajive Kanwar said. Reliance Communications also launched commercial operations of Falcon, its 2.56 terabit undersea cable, connecting West Asia with India. Falcon has been laid by Flag Telecom, a subsidiary of Reliance Communications. The submarine cable system connects 11 countries and four continents as it stretches 11,859 km from Mumbai to Egypt. It covers Oman, Kuwait, Bahrain, Qatar and Saudi Arabia, where Falcon is expected to bring down the bandwidth costs. Falcon has 14 landing stations.

CBoP-LKB merger gets nod

The Boards of Centurion Bank of Punjab (CBoP) and Lord Krishna Bank approved their merger. The proposal is subject to all the requisite statutory, regulatory and shareholder approvals, including the approval of the Reserve Bank of India (RBI). Rana Talwar will be the Chairman and Shailendra Bhandari the Managing Director & Chief Executive Officer of the merged entity. It is proposed that Mohan Puri would join the Board of CBoP, subject to regulatory approvals. The share swap ratio has been fixed at 5:7 i.e. for every 5 shares of Lord Krishna Bank, its shareholders will receive 7 shares of CBoP. There will be no retrenchment of staff of either bank and there will be no closure of any rural branches. The merger provides for a one-time increment to all existing employees of Lord Krishna Bank. CBoP will have an EGM of its shareholders on Sept 30, and Lord Krishna Bank would have its AGM on the same day. Both banks will seek approvals for the merger from their respective shareholders at these meetings. The Board of CBoP also approved a proposal to raise additional capital through a preferential issue of fresh equity. The bank will issue up to 75mn shares at Rs 24.54 per share for up to Rs1.84bn to India Advantage Fund V, acting through its investment manager, ICICI Venture Funds Management. Up to 95mn shares will be issued at not exceeding Rs 25 per share for up to Rs2.37bn to Bank Muscat. The additional capital raised will enable CBoP to maintain a strong capital position post merger and provide the support and drive that the bank requires to ensure accelerated growth over the following quarters.

Grasim inks JV with Chinese Co

Grasim Industries Ltd. said that it has reached an agreement with Hubei Jing Wei Chemical Fibre Company in China - a 30,000 TPA VSF manufacturer head quartered in the Hubei Province. Under the agreement, the Aditya Birla Group, through its Cellulosic Fibre companies (Grasim, Thai Rayon Public Co and PT Indo Bharat Rayon) along with Hubei Jing Wei, will form a JV. The new entity will be named Birla Jingwei Fibres Co. Ltd., and will acquire the existing assets of Hubei Jing Wei. While the Aditya Birla Group will have a majority stake in the JV, Grasim will have own a little over 30%. Speaking on the occasion, Kumar Mangalam Birla, Chairman, Aditya Birla Group, said, "In Viscose Staple Fibre, we are in a leadership position. Our intent is to grow even further globally in this sector. Our new JV, in which we have made a strategic investment, marks a major milestone in China. Furthermore, the Asian and Chinese markets offer enormous potential for commodity and speciality fibres, in both of which our Group has a strong foundation. We are expanding in both these segments." Separately, Grasim acquired 50,000 equity shares of Himachal Pradesh-based Harish Cement for Rs1mn. The company acquired the shares at Rs 20 per share, following which it has become a wholly-owned subsidiary of Grasim.

HLL to merge Modern Foods with itself

Hindustan Lever Ltd. (HLL) said that its Board has approved the proposal for the merger of Modern Food Industries Ltd. (MFIL) and its subsidiary Modern Food and Nutrition Industries Ltd. (MFNIL) with itself, with effect from October 1. In terms of the Scheme of Amalgamation, the entire shareholding of MFIL and MFNIL would stand cancelled. Accordingly, HLL has not undertaken any valuation exercise n or recommended any share exchange ratio. The FMCG giant also cleared the plan to demerge the non-functional factory land at Shamnagar and Jamnagar and the vacant leasehold land at Daverashola into three separate companies, being 100% subsidiaries, with effect from October 1. HLL will subscribe to the shares of the respective companies.

Separately, Capgemini extended its Finance and Accounting BPO capabilities by acquiring from HLL a 51% shareholding in Unilever India Shared Services Ltd. (Indigo). HLL has a put option to sell the rest 49% stake to Capgemini by 2008. The acquisition of Indigo is expected to be consummated in October. The specific terms of the agreement were not disclosed. At the same time, Capgemini and Unilever enter into a seven-year agreement to deliver the full range of BPO services to Unilever companies. Indigo is a provider of financial shared services and Sarbanes Oxley compliance services to Unilever throughout the world. It has operating centres in Bangalore and Chennai and has nearly 600 professionals. It currently serves Unilever companies in about 45 countries. Two of HLL's directors and three of Capgemini's directors would be on Indigo Board. Indigo reported a net profit of Rs14mn on a turnover of Rs223mn in 2005. In 2004, Indigo had reported a loss of Rs6.7mn on a turnover of about Rs 100mn.

Steel makers hike galvanised steel prices

Leading steel producers in the country announced an increase in galvanised steel prices by Rs 500-1,000 per ton. JSW Steel and Ispat Industries hiked galvanised steel prices by Rs500-750 per ton on the back of rising zinc prices. JSW Steel's price revision was with retrospective effect from September 1, the hike by Ispat was with immediate effect. Uttam Galva increased prices by Rs 500-1,000 per ton. Tata Steel, however, kept prices unchanged. A Tata Steel spokesman said galvanised corrugated sheet prices are reviewed on a quarterly basis. Zinc prices have rallied sharply over the last few days. Steel makers use 40 kg of zinc for every ton of galvanised steel. Zinc prices are now at a premium of $300 per ton. Zinc prices on the London Metal Exchange (LME), which were hovering around $3,100 per ton a couple of weeks back, were now hovering around $3,750 per ton. Ankit Miglani, Uttam Galva's Director (Commercial) said that the increase in spot prices was with immediate effect but the company anticipates another hike this month.

Spice Comm to raise up to US$300mn via IPO

Spice Communications Pvt. Ltd., which provides GSM-based cellular services in Punjab and Karnataka, is planning to raise up to $300mn through an IPO of its equity shares. The company, which is 49% owned by Telekom Malaysia Bhd., plans to sell up to 20% of its equity by December. The company plans to invest as much as $2.5bn to expand its network, Vice Chairman Dilip Modi said. The company may make a second public offer by December 2008 to raise $350mn, he said. Spice has more than 2mn mobile users out of a total market of more than 108mn GSM and CDMA customers in the world's fastest growing cellular services market. The pattern of the holding won't be altered by the share sale, Modi said. Spice posted revenue of Rs7.34bn and EBITDA of Rs2.24bn in the year ended March 31, 2006. The company expects revenue of Rs9.9bn and EBITDA at Rs3.2bn in FY07.

Videocon consortium to buy Daewoo Electronics

A consortium led by India’s Videocon Industries Ltd. and the US fund Ripplewood Holdings was selected as the primary bidder to buy Daewoo Electronics. The creditors declined to reveal the bidding price, but a local newspaper reported that the Videocon consortium offered from 670bn to 680bn won. If successful, it will be the largest foreign take over of a Korean manufacturing firm since Shanghai Auto’s acquisition of Ssangyong Motor in 2004. Videocon can become the new owner of Daewoo as early as December after two months of due diligence, said Park Ki-hoon of Woori Bank, one of Daewoo’s main creditors. Daewoo Electronics is a former unit of the Daewoo Group, which collapsed in 1999 under debts totaling $80bn. It is now the third-largest maker of consumer electronics in South Korea after Samsung Electronics and LG Electronics. Daewoo operates six plants in South Korea and 18 overseas units, including manufacturing facilities in Mexico, Poland, Vietnam and China. Its assets totaled 1.65 trillion won at the end of last year. Daewoo posted a net loss of 94bn won in 2005 on sales of 2.16 trillion won. For Videocon, the proposed acquisition will help it jump from a domestic brand to a global player. Last year, it acquired French firm Thomson’s color picture tube manufacturing business for $291mn, and the Indian unit of Swedish firm Electrolux for $76mn.

GLOBAL NEWS

---

Oil hits five-month low

Crude oil dropped to a five-month low after supplies of gasoline and diesel in the US, the world's biggest energy market, rose unexpectedly. Separately, BP said it will restore full production at Prudhoe Bay in Alaska, the biggest US oilfield, as soon as work to bypass a corroded pipeline is done at the end of October. Crude oil for October delivery fell as much as 63 cents, or 0.9%, to $66.69 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The contract traded at $66.92 at 9:56 a.m. in London. Brent crude oil for October settlement fell 42 cents to $66.11 a barrel on London's ICE Futures exchange. Oil futures in New York touched a record in July, fueled by concern that the fighting between Israeli and Hezbollah forces would spread to other parts of the Middle East. Supply disruptions in Nigeria and a dispute with Iran over its nuclear program also bolstered prices. Mounting demand from emerging economies such as China and India, besides developed nations like the US, has also been driving oil prices up. At the same time, spare production capacity has declined because OPEC isn't investing enough. Since hitting US$78.40 a barrel on July 14, oil has slipped about 14% after the fighting in Lebanon ended and concerns eased about disruptions from Iran, the world's fourth-biggest producer.

OPEC to keep output unchanged

The Organisation of Petroleum Exporting Countries (OPEC) is likely to leave production unchanged when its members gather for a meeting next week. OPEC, which pumps 40% of the world's annual oil requirement, is scheduled to meet on Sept. 11 in Vienna. Output for the 10 OPEC members, excluding Iraq, was 27.9mn bpd in August, below the planned 28mn a day. Members last surpassed the target in February. A two-day energy seminar in Vienna will follow the formal OPEC meeting, with ministers and executives from companies including Exxon Mobil, Royal Dutch Shell, Chevron Corp. and Saudi Aramco scheduled to attend. The OPEC meeting comes as high oil prices curb consumer spending from Australia to the US, prompting calls by politicians to reduce reliance on OPEC crude.Officials from Iran and Nigeria have said in the past three weeks that OPEC members, apart from Iraq, should keep their target of 28mn barrels per day (bpd). Iran, Venezuela, Nigeria and Indonesia are all failing to produce as much oil as planned. Some members, including Saudi Arabia, exceed their official quotas to make up for shortfalls by other nations. OPEC's largest producer produced 9.38mn bpd in August, surpassing its quota of about 9.1mn bpd. Saudi production peaked at 9.78mn bpd in October 2004. Algeria pumped 54% more than its quota in August, while Indonesia was 41% below. However, the quotas don't really reflect the potential of various countries.

ADB ups Asia growth forecast for 2006

For the second time this year, the Asian Development Bank (ADB) raised its 2006 growth forecast for Asia (excluding Japan), citing strong performances in China and India. The Manila-based regional lender says that Asia's developing economies will expand by 7.7% this year, 0.5% higher than its forecast in April. It has raised its 2006 growth projection for China to 10.4% from 9.5% earlier, and for India to 7.8% from 7.6%. "Fast growth at a regional level is supported by strong performances by China and India," the ADB said in its Asian Development Outlook 2006 Update report. "Acceleration in growth in China, due to booming investment and exports, has significantly influenced this regional upward revision." Separately, the International Monetary Fund (IMF) said that China and India will help the global economy post healthy growth this year. Global economic growth is likely to reach 5% in 2006, IMF Managing Director Rodrigo Rato said. On the US economy, Rato said that growth in the world's largest economy should moderate to a more sustainable level, on account of the slowdown in the housing market and the impact from higher interest rates. "We expect next year to be another year of solid growth, with expansion in Europe and Japan supporting global demand, even if the US economy cools," he said.

BOJ leaves rates unchanged

The Bank of Japan (BOJ) decided to keep its benchmark interest rate unchanged at 0.25% amid a growing view that the world's second-largest economy is not expanding fast enough to warrant another rate increase in two months. BOJ Governor Toshihiko Fukui and his policy-making colleagues held the key interbank overnight lending rate unchanged for a second month after raising it from near zero percent in July, the first increase in almost six years. The decision was unanimous. The BOJ also kept the Lombard rate, or the rate at which it lends overnight loans directly to commercial banks, unchanged at 0.4%. Japanese borrowing costs are the lowest among Group of Seven (G7) nations. However, at a press conference Fukui said that consumer prices will keep rising, reinforcing speculation that the BOJ will increase interest rates before the end of the year. "Prices are basically on a positive trend," Fukui said. Last month's revision to the way consumer prices are measured won't prompt us to change our basic stance. Fukui said that the central bank maintains its view that interest rates should be adjusted gradually depending on the economy and prices.

Germany's industrial production rises in July

Industrial production in Germany, Europe's largest economy, rose more than expected in July, led by spending on household appliances and construction. Production expanded 1.2% from June, when it declined 0.4%. Economists expected an increase of 0.5%, according to the average economist forecast. From a year earlier, output jumped 4.7%. Germany's construction output rose 3.4% in July from a month earlier and production of goods such as refrigerators and washing machines climbed 3.2%, the German government said. Output of plants and machinery advanced 1.8%. The European Commission said that Germany's economy will grow by 2.2% in 2006, the fastest pace in six years. German factory orders rose a greater-than-expected 1.8% in July. Separately, German exports rose more than expected in July. Exports, adjusted for working days and seasonal changes, rose 2.3% from June, when they increased 1.4%. Economists had predicted a 0.6% increase.

Intel raises job cuts

Intel Corp. increased its previously announced job cut target to 10,500 jobs, or about 10% of its workforce, as it gears up to ward off competition from rival AMD. The world's largest chipmaker said that it would eliminate 7,500 jobs by the end of this year, and another 3,000 jobs by the middle of 2007. The reductions include some previously announced cuts, including the layoffs of 1,000 managers made in July and reductions related to the sale of its communications and media businesses. But, the move failed to satisfy Wall Street, which had been expecting bigger job cuts of 10,000 to 20,000 and the sale of loss-making businesses. Besides, only 5500 of the positions constituted new reductions.

Ford names new CEO

Ford Motor named Alan Mulally, head of Boeing's commercial aircraft division, as new CEO. Mulally will take over from Bill Ford in a major shake-up at the world's third biggest carmaker. Ford, a great-grandson of Henry Ford, the company's founder, will remain as executive chairman. But he insisted that Mulally would have the responsibility and the freedom to do the job. The appointment comes just weeks before Ford is due to unveil a sweeping new plan aimed at reversing years of falling market share in its key north American market, missed financial targets and mediocre management. The carmaker reported a $1.3bn loss in the first half of this year. Its US market share slid to 16% last month from 18.1% a year earlier and a peak of over 25% in 1995. Ford said in a memo to employees that the company's turnaround required the additional skills of an executive who has led a major manufacturing enterprise through such challenges before. United Auto Workers union President Ron Gettelfinger said that Ford Bill Ford made a very smart move in naming a new chief executive. However, a few analysts said that Ford should have recruited a new CEO three or four years ago, when the automaker was in better shape.

FROM THE RESEARCH DESK

---

Cipla Ltd BUY CMP Rs257

Cipla Ltd. is India’s leading formulations and API manufacturer with a strong presence in both the domestic and international markets. In the domestic market, Cipla features amongst the top five domestic companies with strong presence in anti-asthmatics, anti-retroviral and anti-biotic/bacterial. In the international markets, Cipla has the most diversified business model with presence in both the regulated and semi regulated market. Cipla has adopted a partnership model for the regulated markets whereby it partners generic companies for formulations and API supply rather than setting up its own front end in those markets.

Cipla recorded strong growth for Q1 FY07 with net sales increasing by 30.2% to Rs8.6bn led by the export of formulations. Domestic sales witnessed a growth of 20% to Rs4.7bn. However, export of API witnessed a decline on a qoq basis to Rs752mn. Operating profit margin expanded by 390bps to 26.5% led by a better product mix and excise benefits generated out of Baddi. PBT increased by 55% to Rs2.22bn. PAT increased by 53% to Rs1.7bn, translating into an annualized EPS of Rs8.8. At Rs257, the stock is trading at 27.6x FY07E EPS of Rs9.3 and 22.7x FY08E EPS of Rs11.3.

Sasken Communications Ltd BUY CMP Rs321

Established in 1989, Sasken Communications Limited (Sasken) is an embedded telecom solutions company that helps businesses across the telecom value chain accelerate product development life cycles. Sasken is a specialist in communications software, particularly for the broadband and wireless segments. It also plans, deploys and manages wireless networks for network equipment manufacturers. Unlike other providers, Sasken helps clients speed product development through a unique combination of ready-to-use technology blocks and services along with unparalleled telecom experience. Some of the global Fortune 500 customers like Nortel, Nokia, Motorola etc. are part of Sasken's esteemed customer profile. Sasken employs over 2500 people at offices in India, Canada, China, Germany, Japan, Sweden, UK and the U.S.

Committed to innovation, Sasken works with terminal device manufacturers, network equipment manufacturers, semiconductor vendors and network operators to help them get to market ahead of the competition and stay focused on new product development and manufacturing. With deep understanding of the telecom industry, access to current and emerging technologies, mature development processes, global resources and a proven track record, Sasken creates complete solutions to help clients succeed. Supporting development of global wireless communications Sasken works with premier technology groups including the ITU, ETSI, GCF, PTCRB, ATM Forum, DSL Forum, OFDM Forum, UWCC and the SDR Forum.

Sasken has adopted a hybrid strategy of offering both services (embedded R&D outsourcing services) and products (software for mobile phones) to its customers. Though the contribution of products has decreased in recent years, this scenario is set to change as royalties from customer phone shipments start kicking in from Q4FY07. We foresee a huge potential for Sasken’s software products in the immediate future. At Rs321, the stock is trading at 18.1x FY07E EPS of Rs17.7 and 10.3x FY08E EPS of Rs31.1

Motherson Sumi Systems Ltd. NO RATING CMP Rs88

Motherson Sumi Systems Ltd (MSSL) is a leading integrated player in the Indian auto ancillary space with major presence in electrical distribution system, where it is the market leader for supplying integrated wiring harnesses with 65% market share. It is a major supplier to spectrum of OEMs in cars and 2-wheelers. The company also manufactures polymer products and elastomer components.

Basic Investment Thesis:

During FY06, MSSL spent Rs1.7bn on capital expenditure and is expected to incur additional Rs1.5bn on capital expenditure in FY07 which shall be financed through FCCB money raised in FY06. It has also been expanding inorganically through 3 acquisitions over the last couple of years. The rest of the proceeds from the FCCB issue are expected to be spent over further acquisitions.

Exports formed 31.5% of its total revenues in FY06, substantially higher from 25% in FY03. The company plans to increase the contribution further in future. This reduces the risk of slowdown in the domestic auto market which and will also will help to conquer a larger share of the increasing demand from global players who are slowly developing India as their outsourcing hub for ancillary products.

The company has been diversifying its product portfolio, which has led to increased content of MSSL per car. Existing tie-ups with various OEM players creates a ready market and acceptance for the new products.

Indo Tech Transformers BUY CMP Rs170

Indo Tech Transformers Ltd is in the process of more than more than doubling its existing capacity from 2,450MVA to 6,100MVA, including both planned and unplanned expansions. This will enable it to expand its reach coupled with newer and wider range of products. We expect the company to benefit from the ongoing investments in the power generation and transmission and distribution space by public and private sector. This should translate into stronger demand for transformers which will help the company’s bottomline grow at 35.1% CAGR over FY06-08E. The stock is currently trading at 11.6x and 8.9x FY07E and FY08E earnings of Rs14.6 and Rs19 respectively. We maintain a BUY on the stock with a long term perspective.

Allsec Technology BUY CMP242

Post successful completion of the upcoming (Oct 23rd-Nov 11th 2006) Carlyle’s open offer, the group would hold 38.5% stake in Allsec, more than promoter’s holding of 30.2%. We strongly believe that association with Carlyle would increase business prospects of Allsec with the group having sufficient motivation (majority stake) to help the company win business especially from its large investee companies. First Carlyle Ventures, Mauritius, (part of Carlyle Asia Growth Partners III), recently subscribed to 3.02mn equity shares and 0.16mn convertible warrants of the company at Rs260 per share/warrant, ~9% premium to market price. Further, the Carlyle Group has made an open offer to the remaining shareholders to acquire further 3.05mn shares at the same price.

The growth momentum is expected to continue as CompuCredit, its anchor client, is growing fast in its business, opportunity for cross selling remains robust within other established relationships (especially the 2nd to 5th largest customers) and the new clients added (four in the last 15 months) are expected to start contributing materially soon. Further, with the recent 1000-seat expansion, the company has infrastructure in place to manage growth. From 2,578 people at the end of Q1 FY07, company plans to add about 800 in Q2-Q4 FY07 and 750 in H1 FY08. Inorganic initiatives to further catalyze growth and help achieve essential scale Allsec acquired B2K Corp, a 600-seat Bangalore based Technical Support call centre in January 2006 for about Rs120mn. B2K clocked revenues of Rs132mn and net loss of Rs46mn in FY06. Presently, company operates at best-of-the-breed margins in the BPO industry. Strong cost discipline within the company has given it a frugal cost structure. Even at current seat utilization of 1.1x (2,578 people on 2,300 seats), Allsec earns 27.7% OPM and 24.5% NPM. We believe that these levels would be more or less sustained going ahead. The company targets utilization of 1.6x by end FY07 and 1.8x by mid FY08. Utilization improvement is expected to come from growing daytime services (Quality Assurance and HR Processing) and client acquisition in non-US geographies.

We estimate revenue CAGR of 49.1% and earnings CAGR of 48.3% on consolidated basis over the next two years. We have not factored any further inorganic growth (except B2K) due to difficulty in ascertaining the same and have rather preferred to value cash allocated towards it.

WEEKLY SUPPORT & RESISTANCE LEVEL

---

Co. Name S3 S2 S1 Closing Price R1 R2 R3 NSE NIFTY 3431.00 3439.83 3449.20 3467.40 3485.60 3494.98 3503.80 ACC 914.68 921.40 928.54 942.40 956.26 963.40 970.12 ABB 2795.55 2807.55 2820.30 2845.05 2869.80 2882.55 2894.55 BAJAJ AUTO 2717.64 2733.00 2749.32 2781.00 2812.68 2829.00 2844.36 BHARTI 417.07 420.30 423.73 430.40 437.07 440.50 443.73 BHEL 2264.55 2277.75 2291.78 2319.00 2346.23 2360.25 2373.45 CIPLA 249.55 251.18 252.90 256.25 259.60 261.33 262.95 DABUR INDIA 134.46 135.80 137.23 140.00 142.77 144.20 145.54 DRREDDY 720.36 725.00 729.93 739.50 749.07 754.00 758.64 GAIL 260.84 262.55 264.37 267.90 271.43 273.25 274.96 GRASIM 2284.31 2299.03 2314.66 2345.00 2375.34 2390.98 2405.69 GUJAMBCEM 110.38 111.50 112.69 115.00 117.31 118.50 119.62 HCLTECH 542.29 547.23 552.47 562.65 572.83 578.08 583.01 HDFCBANK 820.14 827.38 835.07 850.00 864.93 872.63 879.87 HEROHONDA 700.81 709.35 718.43 736.05 753.67 762.75 771.29 HINDLEVER 234.06 235.48 236.98 239.90 242.82 244.33 245.74 HINDALCO 174.36 176.58 178.93 183.50 188.07 190.43 192.64 HDFC 1287.82 1299.50 1311.91 1336.00 1360.09 1372.50 1384.18 ICICIBANK 590.23 594.05 598.11 606.00 613.89 617.95 621.77 INFOSYSTECH 1724.28 1739.00 1754.64 1785.00 1815.36 1831.00 1845.72 IPCL 298.93 300.43 302.01 305.10 308.19 309.78 311.27 ITC 183.22 184.48 185.81 188.40 190.99 192.33 193.58 M&M 614.78 620.78 627.14 639.50 651.86 658.23 664.22 MTNL 155.81 157.23 158.73 161.65 164.57 166.08 167.49 MARUTI 845.64 868.08 891.92 938.20 984.48 1008.33 1030.77 NATIONALUM 204.49 206.55 208.74 213.00 217.26 219.45 221.51 ONGC 1157.32 1169.85 1183.16 1209.00 1234.84 1248.15 1260.68 ORIENTBANK 197.77 200.25 202.89 208.00 213.12 215.75 218.23 PNB 454.51 458.03 461.76 469.00 476.24 479.98 483.49 RANBAXY LAB. 406.30 408.78 411.40 416.50 421.60 424.23 426.70 REL 456.22 463.80 471.86 487.50 503.14 511.20 518.78 RELCAPITAL 478.24 482.30 486.62 495.00 503.38 507.70 511.76 RELIANCE 1104.39 1109.75 1115.45 1126.50 1137.56 1143.25 1148.61 SATYAMCOMP 768.44 774.15 780.22 792.00 803.78 809.85 815.56 SIEMENS 1045.43 1052.55 1060.12 1074.80 1089.49 1097.05 1104.17 SBIN 902.71 912.50 922.90 943.10 963.30 973.70 983.49 SUZLON 1152.11 1164.23 1177.10 1202.10 1227.10 1239.98 1252.10 TATA POWER 525.55 528.33 531.27 537.00 542.73 545.68 548.45 TATAMOTORS 872.37 878.10 884.19 896.00 907.81 913.90 919.63 TATASTEEL 503.77 508.33 513.16 522.55 531.94 536.78 541.33 TCS 956.20 964.15 972.60 989.00 1005.40 1013.85 1021.80 VSNL 407.05 410.55 414.27 421.50 428.73 432.45 435.95 WIPRO 495.37 498.55 501.93 508.50 515.07 518.45 521.63 NOTE : S1, S2 and S3 are critical support levels while R1, R2 and R3 are resistance levels. Trading call depends on the price band.