Summary
of Contents
PULSE TRACK
IIP
for October 2006 dips to 6.2%
The Index of
Industrial Production (IIP) grew by 6.2% year on year (yoy) for
October 2006, as compared to an 11.4% growth in September 2006 and a
9.8% growth in October 2005. The growth was significantly lower than
the consensus estimate of 9.6%.
Key
points
-
The slowdown
is not broad-based as basic goods are up 9.9% yoy, capital goods
are up 8.2% yoy and intermediate goods are up 8.1% yoy.
-
The slowdown
is mainly in the consumer goods sector, which reported a 0.5%
year-on-year (y-o-y) growth, with durables up only 2.4% yoy and
non-durables down 0.4% yoy.
-
The slowdown
in the consumer goods production has largely been influenced by
the festive season falling in the month October in the current
fiscal compared to November in the previous fiscal.
-
The decline in
non-consumer durables production is somewhat strange as leading
fast moving consumer goods (FMCG) companies have reported that the
growth rate is normal. Further if we take a cue from the beverages
and tobacco category which grew by 11.5% yoy the decline in
non-durables remain a surpirse.
STOCK IDEA
Nucleus Software Exports
Cluster: Emerging Star Recommendation: Buy Price
target: Rs680 Current market price: Rs497
Product
play
Key
points
-
Niche
player with established presence: Nucleus Software Exports Ltd
(NSEL) is a niche player offering software products and services
to companies in the banking and financial service space. It has
established itself globally with product installation base of over
250 application modules in more than 30 countries.
-
Product
business drives growth: The product business grew
exponentially in FY2006, on the back of some impressive order wins
like the $12-million multi-year deal with GMAC. Apart from this,
it added 21 new clients and bagged orders for 38 new installations
in FY2006. In the first half of FY2007 also, the company added 14
new clients and continued to grow its pending order book that
stood at Rs135 crore as on September 2006. Consequently, we expect
the product revenues to grow at a CAGR of 67% over
FY2006-08.
-
Margins are
sustainable: In spite of the cost pressures and the aggressive
employee addition targets for this year, the company is likely to
sustain its overall profitability. The growing contribution from
the high-margin product business is expected to mitigate the
adverse impact of the rising wage bill and the expansion-related
pressures in the intermediate term.
-
Alliance
could throw positive surprises: The initiatives to forge joint
marketing alliances with global technology giants and develop a
network of channel partners could result in higher-than-expected
order bookings. The partnership model has already started yielding
results.
-
Valuation: Revenues and earnings are estimated to
grow at CAGR of 38% and 40% respectively over FY2006-08E At the
current price the stock trades at 11x its FY2008 earnings, which
is relatively cheaper compared with the peer companies. We
recommend a Buy on NSEL with a one-year price target of
Rs680.
STOCK
UPDATE
Bank of
India Cluster: Apple
Green Recommendation: Buy Price target: Rs185 Current
market price: Rs165
Acquiring 76% stake in an
Indonesian bank
Key
points
-
Bank of India (BoI) is set to
acquire a majority 76% stake in Indonesian bank, P T Bank Swadesi
Tbk, at an estimated cost of Rs111.3 crore ($25 million). The deal
will be completed in another couple of months, as certain
clearance issues need to be sorted out.
-
The Indonesian bank is a mid-sized
bank, listed on the Jakarta Stock Exchange and has been operating
in Indonesia for the last 38 years. It has an asset base of Rs445
crore ($100 million), a deposit base of Rs333.8 crore ($75
million) and a net worth of Rs48.9 crore ($11
million).
-
The Indonesian bank has four
branches, two each in Jakarta and Surayaba, and five sub-branches.
International business contributes approximately 20% of BoI's
assets as on September 30, 2006.
-
BoI has been operating in
Indonesia for the last 33 years through a representative office
and hence its management felt that acquiring a local bank would be
a better deal than setting up a bank in Indonesia as the capital
requirements for setting up a new bank are high at Rs1,335 crore
($300 million).
-
Since 20% of BoI's assets are from
foreign operations, we feel that the deal would add value to the
bank's overall operations considering the financials of the bank
(refer table below). The bank acquired has an asset base of Rs445
crore (2% of BoI's international assets and 0.4% of BoI's total
assets as on March 31, 2006) which we feel is fairly
manageable.
MUTUAL FUNDS: WHAT'S IN—WHAT'S
OUT
Fund Analysis: December
2006
An analysis has been undertaken on equity and
mid-cap funds' portfolios, indicating the favourite picks of fund
managers for the month of November 2006. Equity funds comprise of
all diversified, index, sector and tax planning funds, whereas
mid-cap funds include a universe of 17 funds such as Reliance
Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla
Mid-cap Fund etc .
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