Hold UTV Software below 545

Mr. Subrato Sarthi, a technical researcher of IEM Group is of the view that UTV Software is forming a nice base. It is an outperforming stock in Media sector. He advise to buy it if it comes down to 545 and buy it more if it goes a bit lower than this. Sarthi says, on technical as well as fundamental ground, the stock is a hot pick. If you see recent movements in the stock, it is very likely that this stock will hit 600 and probably rise up to 620 in a month period. So IEM Group suggests a buy signal for this stock on every fall below 545.

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ICICI FPO to oversubscribe upto 3 times in retail section- IEM Group reports

According to an estimate, at the COP tomorrow, ICICI bank FPO will be subscribed up to 2.5 to 3 times in retail section. Basically tomorrow, ICICI FPO will see a full subscription within first two hours of opening the Market and subsequently, it may get oversubscribed up to 2.5 to 3 times, IEM Group analysts report say.

Also read: Anand's view on ICICI Pricing

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ICICI meant for medium to long term investor, says Anand

The public issue of equity shares of ICICI Bank in India, of Rs 8,750 crore will be open for bidding through the book building route from June 19, 2007 to June 22, 2007. Up to 5% of the issue, or Rs 437.5 crore, is reserved for existing retail shareholders of the bank ( i.e. shareholders holding up to 108 shares of the bank as of June 13, 2007). The issue has a green shoe option of Rs 1,312.5 crore.

The price band for the issue has been fixed at Rs 885 to Rs 950 per equity share. Retail bidders, including existing retail shareholders, will be allotted shares at a discount of Rs 50 per share to the issue price determined through the book-building process. The minimum bid size will be six equity shares for retail bidders and existing retail shareholders. Bids should be in multiples of six equity shares for all bidders.

The bank announcing the payment system, elaborated that accordingly there will be two systems that are:

Under Payment Method-1- retail bidders are required to pay Rs 250.00 a share on application, Rs 250.00 a share on allotment and the balance amount on a Call which is to be issued by the Bank within a period of six months from the date of allotment, and the discount will be adjusted against the Call amount.

Under Payment Method-2- retail bidders are required to pay the full bid amount less the discount, at the time of application.

Non-Institutional Bidders have the option to pay Rs 250.00 on application and the balance on allotment.

Non-Resident bidders (including FIIs) will require prior approval of the Reserve Bank of India to subscribe to partly paid shares.

Qualified Institutional Bidders (QIBs), well who cares about them anyway…

Anand talks about ICICI fundamentals, which he thinks is robust and sound.

Reasons includes:-

• The life-insurance business, by its very nature, takes time to break-even and the future growth in it is robust for ICICI.
• Any future re-alignment in the Foreign Direct Investment policy relating to insurance (even if it appears remote at present) could have a bearing on the banking company's valuations. ICICI Bank may then be in position to encash or monetize, with capital gains, the investments it has made in the subsidiaries.
• Quality of core bank financials
• Overall prospects look good
• Hinterland to foreign soil

A close watch of the FPO reveals that an investment in ICICI Bank's follow-on public offer may only suit those with a two-three-year investment horizon. Such investors may bid at the cut-off price. Those looking for gains over the short term would be better off not participating in the offer, as there is a possibility of the stock offering better entry points in the market at the issue closes.

Anand doesn't say that short term player won't be able to make anything out of it but he cautioned that it may not be charming even after getting Rs. 50 of discount.

Why it's not meant for short term player:-

· Short term player can enter it at lower price when market fluctuate by 4-5% ICICI may provide a better pricing for re-entry

• A correction of 10-15% is expected in near future in overall equity market, which may allow an investor a better entry point.

· By the time ICICI will list, depending upon market situation, Rs. 50 benefit may come down. That means a profit of Rs. 50 can't be taken for sure.

Why it's meant for medium and long term player:-

• Long term story is robust and fundamentally strong
• Equity size is too big so oversubscription ratio is not expected to go in double digit in any case. Just think that to just get it subscribed, it needs 4 million retailer to bid with full permissible amount. In even adverse situation, retail section won't get subscribed by more than 7-8 times, realistically 4 times.
• Retailers are given a discount of Rs. 50, which means at least that much amount can be presumably treated as profit, which also is close to 6% of money involved.

Whatever be the response to this issue, ICICI Bank appears to be a long term story with an aggressive growth strategy that would now focus on the country's poor on the one end and overseas operations on the other, apart from the traditional segments like urban retail and corporate banking. Over the next two years, the bank should be able to achieve an asset growth of 28 per cent and profits some 35 per cent, according to estimates.

Despite the accelerated growth if anyone is complaining it is because ICICI Bank has been knocking at the capital market more often than its peers thus earnings a lower return on equity (ROE). Much to the dismay of analysts, ICICI Bank raised roughly Rs 10,000 crore (Rs 100 billion) over the past three years.

The pertinent question is whether ICICI Financial Services' current valuations would be sustained when the company goes for listing about 12-24 months from now. Otherwise, investors may not realize the value made out to be built into the stock. The answer to this question is most likely!

My advice to retailers is that if you can involve money for at least 6 months horizon, do invest in it, you'll get reward. For short term players, downside risk is lower, but you may find a better opportunity to get in.

In all ICICI has played a mindful and tricky strategic pricing game. Read this to know more.

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Three best pick of IEM Group for medium term investment

Tamil Nadu Newsprint and Paper
CMP: RS ~95
TARGET PRICE: RS 141
TIME-FRAME: 6-8 Months

IEM Group has assigned an 'buy' rating to Tamil Nadu Newsprint and Paper (TNPL) after the company improved its operational efficiencies moderately during last financial year. Despite raw material prices remaining firm, the company was able to improve its operating margins by 100 basis points. "Post the mill development programme, which is slated to come on stream by August 2007, we expect significant improvement in the margins in FY08," says the report.

Meanwhile, the company has been shifting its revenue mix from lower-value products like newsprint to higher realisation products like copiers. "This strategy has benefited the company through increase in its average realisation by Rs 2,795 per tonne of paper," the report adds. The company is also planning to foray into cement production and set up an IT park.

Dabur
CMP: Rs ~101

TARGET PRICE: RS 149

TIME-FRAME: 10-12 Months

IEM Group Report says Dabur can be a good investment for about an year.Dabur's competitive advantage lies in its niche position as the premium player in 'herbal' personal care products. The company owns some of India's most trusted brands in hair care, oral care and health supplements on an Ayurvedic platform. These factors support Dabur's margins due to sustainable pricing power. The trend of margin expansion is unlikely to reverse. The strength of Dabur's core business and brands, combined with the positive impact of its recent forays on the bottomline, should protect against any margin erosion due to investment in new businesses such as retail. It is expected that Dabur will remain among the fastest-growing FMCG players in India and report a three-year earnings CAGR of 18%. The company's core business strength has enabled it to consistently deliver 20-50% earnings growth over the past five years. Importantly, earnings have outpaced revenues in each of these years. Dabur trades at a P/E ratio of 17x FY08E earnings, which is at a ~20% discount to its domestic consumer sector peers.

Bihar Tubes

CMP: Rs ~98

TARGET PRICE: RS 172

TIME-FRAME: 12 Months

We are bullish on Bihar Tubes and has recommended buy rating on the stock with target price of Rs 172.

New product forays and backward integration plans to boost earnings

1) Rising demand for pipes and tubes, particularly from the oil & gas and construction sectors; BTL has raised cumulative capacity from 60,000mtpa to 125,000mtpa in FY06-FY07 to meet demand from both domestic and overseas markets

2) Foray into auto tubes and high-end 20" diameter tubes, along with backward integration (via set-up of a skelp mill for captive raw material) will ramp up turnover and expand margins

3) Apollo Metalx, a 100% subsidiary, with a capacity of 24,000mtpa willsupply 85% of its production to BTL, and prove EPS-accretive

4) Technology from Kusakabe, Japan has helped expand product range, scale up production efficiency and enhance quality

5) Revenue CAGR of 101% expected over FY07-FY09 to Rs 8.4 billion with a PAT CAGR of 125% to Rs 3.5 billion; Initiate coverage with Buy with an end-FY08 target price of Rs 172, an appreciation of 83%

At present, the company operates in four segments – hollow section (square and rectangular), pre-galvanised, ERW and galvanised tubes and pipes. BTL's current capacity of 125,000mtpa is interchangeable and can be tailored to demand conditions. Typically, 30-35% of the production comprises hollow tubes and pipes, 20-25% is galvanised, 20-22% is for ERW and 30% is for pre-galvanised tubes and pipes. The company is now focusing on raising production of pre-galvanised products since these earn relatively higher realisations.

Large-scale capacity expansion

The company has increased its overall capacity of steel pipes and tubes from 60,000mtpa to 125,000mtpa during FY06-FY07 at a capital expenditure of Rs 65 million. With increased capacity it can now generate turnover from Rs 3.5 billion to Rs 4 billion on the current gross block.

Scaling up the value chain

Foray into high-end automobile tubing products: BTL is now foraying into the automobile sector by creating a capacity of 35,000mtpa in Sikandarabad for boiler tubes, air heated and shock absorber tubes. The project entails a capex of Rs 100 million and will be funded via internal accruals. The land for the project has already been acquired and work is expected to commence from December 2007. The company is in the final stage of talks with automobile companies for the off-take of its products. We expect this division to contributing to revenues from FY09 onwards and boost margin growth.

Manufacture of 20" diameter tubes: BTL currently manufactures tubes up to 12" diameter. The company is now looking to scale further up the value chain via the manufacture of 20"-diameter tubes and is currently setting up a tube mill for this purpose. This will enable BTL to compete with companies like SAW Pipes, MAN Industries and Welspun Gujarat.

Backward integration to assure cost-effective input supply

Raw material accounts for 80-85% of the cost of the finished goods. With a view to cutting input costs, the company is undertaking backward integration via the set up of a fully integrated 100,000mtpa HR skelp plant at Sikandarabad. The plant will be set up at a cost of Rs 500 million to be partially financed by a warrants issue at Rs70 per share (after bonus), amounting to Rs 450 million. Approximately 75-80% of the production from the skelp plant is expected to be utilised for captive consumption while the surplus will be sold. The unit will assure BTL of an uninterrupted supply of raw material at a discount to market price, which will strengthen margins. We expect the benefits of this project to flow in from H2F

Valuation

The company currently trades at a P/E of 4x on FY08E. On an EV/EBITDA basis, the stock is trading at 3.3x on FY08E and 2.4x on FY09E, which is highly attractive. From the table below, we see that the company currently quotes at a discount of 250% to Welspun and 14% to Technocraft Industries on FY09 P/E valuation. Other steel pipes and tube player trade within a P/E band of above 7-10x on FY08E. We expect BTL to outperform its peers in the long run considering its focus on the infrastructure and agricultural segments which are showing robust growth.

Initiating coverage with Buy

We have valued the company using a discounted cash flow (DCF) valuation, and accordingly have a target of Rs 172 for the scrip. At our target price the stock will be available at 7.4x and 6.2x on FY08E and FY09E earnings of Rs 23.2 and Rs 27.7 respectively. We initiate coverage with a Buy recommendation.

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Glory Polyfilms will generate substantial gains, despite adverse media created myth

Plastic packaging maker Glory Polyfilms which is going to list today at its issue price of Rs 48 will give substantial gains upto 70% (I.e. Rs 80) to its holders. On the back of strong buying interest and positive sentiment in the markets,London based HNI Mr. Anand is very optimistic about this stock. However by late today we'll come to know about the outcome but Anand goes on to advise the holders that don't sell it off before Rs. 72 in any case.

The company entered capital market with a 8.22-million-share initial public offer, IPO at a fixed a price of Rs 48 per share.

The issue raised Rs 394.56 million for part- expansion of capacity, would constitute 47.06% of the post-issue paid-up capital.

The proceeds raised from the issue will be used to part finance the expansion of multlayer film, printing capacity and lamination film. Money will also be used for meeting the working capital margin requirements.

Hold on, be patient and you'll see stock price touchin Rs. 80 today, Anand advises to IEM Group visitors.

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One should know few things about Roman Tarmat IPO

We maintain a No signal for Roman Tarmat IPO. Reasons are

• The company has been taking the benefit of Section 80IA for the past two years. The effective tax rate for FY06 is 5.4% and that for 9m FY07 is 3.5%. With the benefit been taken away from the contractor companies like Roman Tarmat, the company's profitability will be adversely affected.
• Over 62% of the company's order book is constituted by two major orders. Thus, the visibility of revenue flows is limited going forward.
• Till date, the company has not bagged any orders from NHAI. The company mostly has small size orders (orders below Rs 1 billion) in its books. Thus, scalability of company's business remains a concern.
• A large proportion of company's revenue and order book is derived from low margins roads and highway segment.
• Keeping these in mind we firmly believe that the IPO is aggresively priced.

We advise to not go for this IPO, and probably after listing even after correction, don't opt for it. You'll find so many good stocks in secondary market to pick in.

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Vishal Retail: Lucky ones will have little to cherish says Anand

In IPO, too good a news is a bad news! HNI Mr. Abhishek Anand is of the view that For HNIs pumping money into Vishal Retail happened to be as bad as pumping it into an IPO which couldn't get subscribed even 50%.

Anand puts an example for this; consider for an HNI who has put INR 2 million into Vishal retail IPO, taking oversubscription ratio of 300, at the end of allotment process, he may get meager 25 share in hand. Even at 100% premium listing it'll earn him a maximum of INR 6750. Now consider the interest rate (15% industry avg), he'll turn up paying on that over a month period, which if you calculate will come down to 25000. So at the end of day he is in loss, isn't he?

Well, even those in retail sector who will be among the lucky ones to get 25 shares, will have very little to cherish Anand goes on to say.

Probably Vishal Retail would have been a real good investment if DLF, which also opened for subscription on the same day, would have kept less aggressive pricing.

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