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Summary
of Contents
PULSE TRACK
-
Fiscal deficit broadly in line with
estimates
MARKET
OUTLOOK
Setting sights on
16000
We expect the markets to reach
15500-16000 within the next twelve months. This appears a reasonable
target given our expectation of a robust growth in corporate
earnings, a positive Union Budget and benign global macro factors
especially a possible rate cut by the US Federal Reserve (Fed) in
mid-CY2007. With the global growth rate likely to moderate,
inflationary pressures in the USA should ease in three to four
months. India would continue to grow at a robust rate though and
thus attract good foreign funds in line with the other emerging
markets. This would lead to strong liquidity conditions and money
supply will continue to grow at 19-20%. In this issue of Market
Outlook, we have analysed the various positives and risks associated
with our equity markets in the coming year. Our preferred sectors
are those that are driven by domestic consumer demand and capital
spending, and therefore are relatively insulated from a US slowdown.
Thus sectors like automobiles, banking, capital goods and cement
continue to remain our preferred bets.
STOCK UPDATE
Aban Offshore
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs2,090
Current
market price: Rs1,636
Unlocking of
value
Key points
-
Aban Offshore
(AOL) will make an open offer for an additional 60% stake in
Sinvest at an estimated cost of $800 million. To fund the same, it
has tied up for debt of $625 million at the subsidiary level and
is making a private placement of $150 million in Aban Singapore
Pte (ASPL).
-
The private
placement pegs the equity value of ASPL at $1.45 billion, which is
much ahead of the market expectations. Consequently, the implied
value of AOL's stake in ASPL works out to around Rs1,426 per
share. The open offer is also positive in terms of gaining a
controlling stake in Sinvest that would provide AOL access to the
strong cash inflows generated by Sinvest.
-
The target
price is revised to Rs2,090 to factor in the higher-than-expected
value of ASPL. The stand-alone business is valued at Rs664 per
share, which is 12x FY2009 estimated earnings (discounted by 12%
for one year).
SECTOR UPDATE
Automobiles
Good growth
despite year-end
Key points
-
Bajaj
Auto has reported encouraging sales numbers for the month of
December 2006. This month is generally a lean month being the last
month of the year.
-
TVS
Motors has reported disappointing sales numbers for the month
of December 2006. The sales in December were impacted to some
extent by the impending implementation of the value-added tax
(VAT) in Tamil Nadu with effect from January 1, 2007.
-
Hero
Honda reported a lower-than-expected growth in its two-wheeler
sales in December.
Maruti has reported strong sales
numbers for the month of December 2006 at 56,985 vehicles, a
growth of 24% yoy. The domestic sales grew by 26%, whereas the
export sales declined by 17% yoy.
-
M&M's utility vehicle (UV) division has reported
a growth of 29.5%. Scorpio grew by 22.4% and UVs other than
Scorpio grew at a faster rate of
39%. |
