Summary
of Contents
STOCK
UPDATE
South East Asia Marine
Engineering & Construction Cluster: Ugly
Duckling Recommendation: Buy Price target: Rs300 Current
market price: Rs177
Annual report review
Key points
-
The robust financial performance of South East
Asia Marine Engineering & Construction (SEAMEC) was driven
largely by higher deployment days and an increase in charter
rates. The strong growth momentum in earnings and tight working
capital management resulted in a significant improvement in the
return ratios during CY2006.
-
The outlook on charter rates continues to be
bullish for the next two years. Moreover, the deployment of
SEAMEC's recently acquired fourth vessel from mid-CY2007 would
drive growth. It would also enable the company to more than
nullify the impact of the revenue loss and expenses resulting from
the planned periodic dry-docking of two vessels in the second half
of CY2007.
-
A sharp appreciation of the rupee and an
unexpected delay in the deployment of its fourth vessel are two
key risks to our earnings estimates.
-
At the current market price the stock trades
attractively at 7.2x CY2007 and 5x CY2008 estimated earnings. We
maintain our Buy recommendation on the stock with a price target
of Rs300.
SECTOR UPDATE
Banking
CRR hike—negative for banks The
Reserve Bank of India (RBI) has surprised the market with another
50-basis-point hike in the cash reserve ratio (CRR) to 6.5% from
6.0% at present and a 25-basis-point hike in the repo rate to 7.75%.
The CRR is a percentage of the net demand and time liabilities, read
deposits, which the banks need to maintain in the form of cash
balances with the RBI. The CRR hike would be in two stages of 25
basis points each (effective from April 14 and April 28 of this
year). The hike is expected to absorb Rs15,500 crore of liquidity
from the banking system. The RBI has also reduced the interest on
CRR balances from 1% to 0.5%.
Automobiles
High interest rates affect two-wheeler
sales Hardening interest rates seem to be having a dampening
impact on automobile sales, as the sales during March were lower
than expectations despite the month containing a number of
auspicious days like Gudi Padwa and Navratri. The
impact seems to be more severe in the two-wheeler segment,
particularly motorcycles, while four-wheelers continued to record
decent growth.
Our checks also reveal that the auto
finance companies have been extra careful while disbursing loans,
hence the rejection rates have gone up in the past few months. To
counter the effect of rising interest rates, auto-manufacturers are
partnering with auto finance firms to offer loans at a lower rate to
consumers. The cost of the same is being borne by the manufacturers,
financers and the dealers. However, the same shall have a negative
impact on the earnings of the
companies. |