Weekly Update 27 Dec, 2009 by Tanmay G Purohit

Nifty closed up by 190 points or 3.82% at 5178 recovering all of previous week's losses and in addition hitting new 2009-year high at 5198 on Friday. Though Nifty is into new yearly high territory, Sensex (17360) has failed to achieve this feat as its 52-week high at 17493 is still some way to go which may happen next week if rally sustains on higher volumes. The year is closing with strong gains as both Nifty and Sensex have risen more than 75% this year so far where AUTO, METAL, IT, HEALTHCARE stocks have given fantastic returns to investors while REALTY, CAP GOODS and FMCG have remained laggards. 

This week METAL stocks dominated the up trend SAIL +11%, HINDALCO +10% and TATA STEEL +9%. NTPC moved up 11% and the company has got "Maharatna Status" along with ONGC and SAIL from Indian government, the status would provide more autonomy to these public sector units. Losers were not special - CIPLA lost 3% this week.

Food inflation softened to 18.65% for the week ended December 12, though essential items like potato and pulses continued to remain expensive. The food inflation declined by 1.30 percentage points during the second week from 19.95% in the previous week. Core infrastructure industries grew by 5.3% in November against meagre 0.8% a year ago, in line with the recovery in industrial growth. Food Inflation, though easing a bit, is still a worrying indicator as it is in double-digits from quite some time and many expect RBI rate action through CRR or interest rate hike before RBI 3rd Quarter Review on 29 Jan. Nifty bounced back strongly from 4950-support this week after FM Pranab Mukherjee said the economy can grow 7.75% in current FY and the fiscal stimulus given to the industry will not be withdrawn before the budget. The number of telephone subscribers touched 543.20 million at the end of November; with this record addition, the overall tele-density has touched 46.32% and the telecom industry is becoming "matured" now as competition is becoming cut-throat, in such a situation stocks like TATACOMM would provide margin of safety and one can accumulate this stock in dips. 

Both Nifty and Sensex have closed at yearly highest levels and a sustained move past 5200 on Nifty may take it to 5350/5500 also but next move would be characterized by euphoric rally which would give fast returns but may not last for a long time. As a trader one would do well trailing positions as gains can be huge in short period of time but protecting downside would also be equally important. Investors would do well avoiding blind investing, always look for margin of safety before putting hard-earned money. Value-buys - JUBILANT, ABG SHIP, IDBI.

Supp 5105/5058/5000 Res 5205/5350/5418

Last Weekly Update:-

Nifty closed down 129 points or 2.53% Week-on-week and it has hit 14-day low at 4979 closing at day and weekly lowest level. HEALTHCARE stocks had big buying interest this week as BSE HC Index rose 3.76% this week and RANBAXY, CIPLA, SUN PHARMA were among top gainers in Nifty. TECH stocks remained resilient through the week on the back of gains in TCS, WIPRO, INFOSYS and HCL TECH. Major draggers for index have been BANKING and REALTY as both indices fell more than 5% this week. OIL and GAS index too retreated 4% after nearly 5.5% decline in RELIANCE INDUSTRIES.

Advance Tax numbers for Q3 were out and the all India direct tax collection, which includes corporate and personal taxes, increased 8.1% to Rs 2.27 lakh crore, according to figures that are currently with the income-tax (I-T) department. Corporate tax collection has gone up by 11.3% to 1.48 lakh crore.The tax collection from foreign banks operating in India has also come down significantly, affecting the rate of growth in tax collection. Large tax-payers such as SBI, RIL, HINDUNILVR, TATA STEEL have paid higher advance tax this quarter. Overall, companies in the auto industry and pharmaceuticals have paid higher advance tax. BANKING was a dampner as the Adv Tax payments were pretty flat while the stock performance has been amazing the last one year that is why the sector is witnessing large profit-taking after disappointment in Adv Tax figures. Prices of potatoes and pulses raised food inflation to 19.95% in the first week of Dec’09 against 19.05% in the previous week and experts feel RBI may raise rates earlier than expected. Leading steel companies like SAIL JSW, ESSAR and BHUSHAN may hike prices next month to cash in on the demand surge in domestic markets after steel prices internationally have improved by about $30 a tonne in the past one month. DLF's over all debt will go up by Rs 2,200 crore as a result of integration of its whollyowned subsidiary DLF Cyber City Developers Ltd with Caraf Builders & Constructions and it may be further overhang on the stock which is already looking weak from REALTY space.  Both the BSE and NSE have postponed the implementation of new trade timings to January 4, 2010, from the earlier decided December 18, 2009. In its mid-year review of the economy, the government said GDP growth could top 7.75% during the fiscal to March 2010, as attention turns to policy measures that will be required to keep inflation under check. 

Nifty has broken down from the range-bound trade and the triangle is also broken which indicates any sustained move below 4950 and Nifty may test 4840/4805 as next support in this fall. Move past 5100 would be necessary to show some strength but the formation of triple top is very bearish and it seems to have started working now. Avoid leveraged positions and invest where value is available. GLENMARK, SUZLON, PTC, EMCO would provide margin of safety.

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EMCO LTD - http://www.emcoindia.com/

CMP Rs 91.35 Market Cap Rs 538 Cr

Book Value - Rs 71 EPS - Rs 9.03 (FY09) Debt-Equity Ratio - 0.84

Ratios - Price to Earnings : 10.11  Price To Book : 1.28 Price To Sales: 0.52

The Company was incorporated in 1964. The main object of the Company is to manufacture various types of high tension transformers. 

What's the business?

EMCO offers Transmission & Distribution (T&D) solutions in the power sector.  

• Through it's TRANSFORMER DIVISION it offers widest transformers range up to 315 MVA, 400 KV for power generation transmission & distribution. It is the largest producer of specialised rectifier & furnace transformers in the country. In addition it also manufactures Loco-Motive & Traction Transformers.  
• Through it's METERS DIVISION it offers state of the art metering solutions like tamper proof electronic energy meters, automatic meter reading solutions like drive by, walk by or fixed network, prepayment metering solutions & High end metering like Trivector Meters, Grid Metering etc. It also offers a total Energy and revenue management solutions. 
• Through it's PROJECTS DIVISION it offers turnkey solutions from concept to commissioning for large electrical substation projects in the power generation, transmission & distribution area. It offers a Cellular Indoor Substation (CIS) as an alternative and less cost solution to the expensive gas insulated substation (GIS) up to 132 kV in the areas where space and cost is a major constraint. It also undertakes entire industrial electrification work from designing to execution. The SCADA group offers IT solutions for power distribution management. It undertakes large distribution automation and sub-station automation projects.  
• Through its INTERNATIONAL DIVISION EMCO offers Transformers and Energy Meter confirming to the latest International specifications. Emco Transformers have been commissioned in USA, Europe & West-Asia also. 

How fast is the company growing?

Companies are judged by their sales and earnings growth rates than on the absolute value of their sales and earnings. Look for companies that consistently grow faster than there peers.

EMCO had posted Rs 235.9Cr Sales in FY05 and has grown Sales to Rs996Cr in FY09 which gives a (Compounded) Annual Growth Rate of 43% over the last 4 years and similarly profits have grown 53% to Rs 53.1Cr in FY09 (despite a fall in profits from Rs 64.4 Cr in FY08).

How profitable is the company?

Investors prefer companies that give consistent profit margins -- the percentage of sales that they keep -- every year. This is accomplished either by lowering expenses or raising prices. EMCO Operating Profit Margins have stabilized around 13% for the last 5 years which gives it a strong record of squeezing out consistent profits from every rupee of sales.

Key Features:-

• Amongst Top 3 Transformer Companies in India(20,000 MVA)
• Manufacturing widest range of Transformers in India (5kVA –315 MVA/400kV)
• Largest Transformer commissioned-315 MVA, 400 kV
• Leading Player in 132 kV,220 kV & 400kV market segments in India
• Leaders in special application Transformers like Furnace, Rectifier and Locomotive
• Exporting to more than 30 countries aroundthe world
• Constant Dividend payout for the last 5 years
• Manufacturing Electronic Energy Meters forover a decade and having complete product range of Single Phase,Three Phase, Trivector meters 

Recent Data:-

• Order book at the start of Oct 1, 2009 was Rs 1600 crore as compared to Rs 1300 crore as on corresponding previous period. Of the order book Govt. and private share is in the ration of 70:30.
• Majority of the orders i.e. transformer, substation and transmission line is covered with price variation clause.
• Sale in value-terms were down by 13% (to Rs 201 crore) largely on account of fall in commodity prices. But Volume sales for the first half ended Sep 2009 was up to 5100 MVA compared to 4800 MVA in the corresponding previous period.
• The company is planning to double transmission tower capacity from 45000 MT to 1 lakh MT. Further the company is also proposing to augments is substation building capacity.

Major Catalyst:-

India is expected to add a generation capacity of 62000 MW on certainty basis in the 11th five-year plan out of the plan target of 78700 MW. Against this the country has added just 14337 MW during the first two and half years of April-Sep 2009. Thus to capacity to be added in the remaining two and half years will be over 45000 MW. This translates into a capacity addition of about 19000 MW per annum. 

Limited pricing worries:-

Majority of the orders i.e. transformer, substation and transmission line is covered with price variation clause and any fall/rise in commodity prices may not affect EMCO to a large degree.

Conclusion:-

EMCO is a large player in transformers business but being valued at a cheap price given recent slowdown in global economy but India is a power-deficit country and meeting generation targets is of prime importance. Being the largest producer of specialised rectifier & furnace transformers in the country, EMCO stands to benefit given its experience of 4 decades in the industry. Technically the stock is looking very strong as it looks being accumulated near current levels and low valuations would provide much-needed margin of safety even if broader markets are looking weak. EMCO is trading in an up channel on weekly graph and 1-year target can be Rs 150. Investors accumulate this stock in declines, this can be an Electric Performer!

Weekly Update 19 Dec, 2009 by Tanmay G Purohit

Nifty closed down 129 points or 2.53% Week-on-week and it has hit 14-day low at 4979 closing at day and weekly lowest level. HEALTHCARE stocks had big buying interest this week as BSE HC Index rose 3.76% this week and RANBAXY, CIPLA, SUN PHARMA were among top gainers in Nifty. TECH stocks remained resilient through the week on the back of gains in TCS, WIPRO, INFOSYS and HCL TECH. Major draggers for index have been BANKING and REALTY as both indices fell more than 5% this week. OIL and GAS index too retreated 4% after nearly 5.5% decline in RELIANCE INDUSTRIES.

Advance Tax numbers for Q3 were out and the all India direct tax collection, which includes corporate and personal taxes, increased 8.1% to Rs 2.27 lakh crore, according to figures that are currently with the income-tax (I-T) department. Corporate tax collection has gone up by 11.3% to 1.48 lakh crore.The tax collection from foreign banks operating in India has also come down significantly, affecting the rate of growth in tax collection. Large tax-payers such as SBI, RIL, HINDUNILVR, TATA STEEL have paid higher advance tax this quarter. Overall, companies in the auto industry and pharmaceuticals have paid higher advance tax. BANKING was a dampner as the Adv Tax payments were pretty flat while the stock performance has been amazing the last one year that is why the sector is witnessing large profit-taking after disappointment in Adv Tax figures. Prices of potatoes and pulses raised food inflation to 19.95% in the first week of Dec’09 against 19.05% in the previous week and experts feel RBI may raise rates earlier than expected. Leading steel companies like SAIL JSW, ESSAR and BHUSHAN may hike prices next month to cash in on the demand surge in domestic markets after steel prices internationally have improved by about $30 a tonne in the past one month. DLF's over all debt will go up by Rs 2,200 crore as a result of integration of its whollyowned subsidiary DLF Cyber City Developers Ltd with Caraf Builders & Constructions and it may be further overhang on the stock which is already looking weak from REALTY space.  Both the BSE and NSE have postponed the implementation of new trade timings to January 4, 2010, from the earlier decided December 18, 2009. In its mid-year review of the economy, the government said GDP growth could top 7.75% during the fiscal to March 2010, as attention turns to policy measures that will be required to keep inflation under check. 

Nifty has broken down from the range-bound trade and the triangle is also broken which indicates any sustained move below 4950 and Nifty may test 4840/4805 as next support in this fall. Move past 5100 would be necessary to show some strength but the formation of triple top is very bearish and it seems to have started working now. Avoid leveraged positions and invest where value is available. GLENMARK, SUZLON, PTC, EMCO would provide margin of safety.

Supp 4939/4841/4730 Res 5068/5153/5228

Last Weekly Update:-

Nifty closed very flat as it was up just 8 points week-on-week and the action has clearly shifted to individual stocks now. Telecom stocks IDEA, BHARTI AIRTEL and RCOM were among major gainers this week and one may take some profits in those stocks as the short-term up trend may have run its course; TATA COMM looks good as the stock trades near important support. BHEL & LT were other gainers in Nifty after positive IIP data and good Cap Goods growth numbers. Metal stocks looked weak with TATA STEEL, STERLITE being top losers this week.

The driest spell in nearly four decades and floods in some parts of the country have trimmed farm output and pushed up food prices as the food price index rose 19.05% in the 12 months to November 28.  Investments in mutual fund schemes saw a sharp 68% decline in November to over Rs 45,100 crore over the previous month, as investors preferred to stay away from equity market even if market breadth has improved this month. 

After Dubai being downgraded by global rating agencies, it was turn of Greece and Spain where agencies have cut outlooks from stable to negative and after 3 downgrades, the risk this time around is more of “sovereign” nature which can impact global sentiment faster than any other worry, Indian markets have a tendency to correct late but when it happens it overreacts. 

Nifty has formed a triple top at 5181 and the pattern has impacted weekly as well as monthly graphs too, so until we see a strong move above these levels, the trend may remain weak and lower levels of 4950/4800 are not ruled out. IIP data was quite positive and a growth at 10.3% is very impressive but market is always forward-looking and the best looks discounted by nearly 73% rally in 2009 for Nifty. Advance Tax figures would start coming in soon and those would give some cues for Q3 results in January.

India has signed Nuclear fuel supply deal with Canada and Russia and this would benefit India as power capacity would increase - NTPC, LT, HCC, THERMAX, ROLTA can benefit.

Supp 5040/4935/4806 Res 5188/5258/5366

Doom's Day nears for Dubai's $3.5 bn debt hurdle

• Nakheel’s possible non-payment of its Islamic bond due on Monday will trigger defaults on two other securities, bringing the total of  affected securities to $5.25 billion, bond documents show. 
• Investors are waiting to see if the Dubai state-controlled developer will pay the maturing $3.52 billion Islamic bond, known as sukuk. The Dubai government said on November 25 that state-run holding company Dubai World is seeking a “standstill” agreement on its debt, including for the Nakheel unit. 
• A sudden u-turn and repayment would placate disappointed and confused investors in the immediate term. Dubai's handling of the situation has tarnished its reputation. 
• If Nakheel does not pay on Monday, it would technically be in default, but it would still give its restructuring team a two-week grace period to reach an agreement with creditors. 
• December 28 is the final cut off point. After that a cross default clause in its original prospectus will be triggered that covers Nakheel and its guarantor Dubai World, adding to the overall debt burden. 

The Dubai government and its affiliated firms owe non-financial Japanese companies roughly $7.5 billion in credit that had not been collected as of Oct. 31, a study by the Japanese government showed. The study covered 18 projects that involved Japanese general contractors, trading companies and electric machinery manufacturers, the Nikkei business daily. http://in.reuters.com/article/businessNews/idINIndia-44677520091213

Russian companies are sitting on a multi-billion dollar debt time bomb after allowing overseas borrowings to rise since April, heedless of default fears that dogged them in early 2009. Bankers say a failure to complete restructurings may hamper Russia's ability to borrow in the future and the absence of clearly defined negotiation guidelines between Russian and western lenders raises the risk of future defaults. http://in.reuters.com/article/businessNews/idINIndia-44639320091211?sp=true

Greece and Ireland are among countries in an “intolerable” economic situation, which may lead to bailouts or even an exit from the euro area by the end of next year, according to Standard Bank Plc. The absence of a mechanism to permit so-called fiscal transfers within the 16-nation region may undermine the exchange-rate system, said Steve Barrow, head of Group of 10 foreign-exchange strategy at the bank in London. http://www.bloomberg.com/apps/news?pid=20601087&sid=aRMkt.e8ujIo&pos=7

Investors have little choice as Nakheel looks set to default http://economictimes.indiatimes.com/markets/global-markets/Investors-have-little-choice-as-Nakheel-looks-set-to-default/articleshow/5334677.cms

Dooms Day near for Dubai http://economictimes.indiatimes.com/news/international-business/D-Day-nears-for-Dubais-35-bn-debt-hurdle/articleshow/5333728.cms

With three more American banks biting the dust, the total number of collapses in 2009 has touched 133, more than five-fold that of  last year. Battered by the financial turmoil, an average of 11 banks especially the small and medium ones, are going belly up every month in the country. Last year, just 25 banks had collapsed. The count of bank failures in 2009 is the maximum in 18 years. In the wake of the savings and loan crisis, a whopping 181 banks were shuttered in 1992.  http://in.news.yahoo.com/20/20091213/372/tbs-11-us-banks-collapse-every-month-133.html

Weekly Update 12 Dec, 2009 by Tanmay G Purohit

Nifty closed very flat as it was up just 8 points week-on-week and the action has clearly shifted to individual stocks now. Telecom stocks IDEA, BHARTI AIRTEL and RCOM were among major gainers this week and one may take some profits in those stocks as the short-term up trend may have run its course; TATA COMM looks good as the stock trades near important support. BHEL & LT were other gainers in Nifty after positive IIP data and good Cap Goods growth numbers. Metal stocks looked weak with TATA STEEL, STERLITE being top losers this week.

The driest spell in nearly four decades and floods in some parts of the country have trimmed farm output and pushed up food prices as the food price index rose 19.05% in the 12 months to November 28.  Investments in mutual fund schemes saw a sharp 68% decline in November to over Rs 45,100 crore over the previous month, as investors preferred to stay away from equity market even if market breadth has improved this month. 

After Dubai being downgraded by global rating agencies, it was turn of Greece and Spain where agencies have cut outlooks from stable to negative and after 3 downgrades, the risk this time around is more of “sovereign” nature which can impact global sentiment faster than any other worry, Indian markets have a tendency to correct late but when it happens it overreacts. 

Nifty has formed a triple top at 5181 and the pattern has impacted weekly as well as monthly graphs too, so until we see a strong move above these levels, the trend may remain weak and lower levels of 4950/4800 are not ruled out. IIP data was quite positive and a growth at 10.3% is very impressive but market is always forward-looking and the best looks discounted by nearly 73% rally in 2009 for Nifty. Advance Tax figures would start coming in soon and those would give some cues for Q3 results in January.

India has signed Nuclear fuel supply deal with Canada and Russia and this would benefit India as power capacity would increase - NTPC, LT, HCC, THERMAX, ROLTA can benefit.

Supp 5040/4935/4806 Res 5188/5258/5366

Last Weekly Update:-

Nifty closed up 3.38% or 167 points at 5108 after strong Q2 GDP numbers at 7.9% which surpassed many expectations. RANBAXY was top gainer in Nifty with nearly 14% rise after the company launched generic version of Valtrex in US markets. Auto numbers were very strong once again and TATA MOTORS shot up 13% this week. Telecom stocks saw value buying support and BHARTI AIRTEL, IDEA & RCOM rose smartly. HERO HONDA and HIND UNILEVER lost 4% each this week.

The annual rate of inflation for food articles rose to 17.47% for the week ended November 21, 2009, data released on Thursday showed. This is the sharpest rise in food prices since 1998 and food inflation may become a major worry for the government later as it may impact manufacturing inflation also. Experts feel high food inflation coupled with 7.9% GDP growth may force RBI to resort to rate action earlier than expected.  Markets have shrugged off Dubai woes for now but UAE has become top receiver of Indian exports and USA as second top export destination for India, if both regions face some economic problems, India would be affected to some extent and a big part of remittance benefits comes from both these destinations only. The leveraged asset purchases of Dubai-based wealthy NRI in the past few years may begin to haunt them, as the collapse of real estate prices in the emirate prompts calls for additional funds as margins which may force them to sell some Indian assets, experts say. REALTY is one sector which is haunting the globe and caution is advised in this sector. India’s fiscal deficit during April-October increased to 2.45 trillion rupees Vs 1.17 trillion rupees (YoY) owing to falling tax receipts & rising spending and in percentage terms, the fiscal deficit is 61.1% of the government's full year budget deficit aim of 4 trillion rupees. Despite equity markets gaining almost 80% so far in the current year, the number of new FIIs coming to India has touched a six-year low as only 111 new FIIs got registered with SEBI till November, against as many as 375 in calendar year 2008. 

Nifty has hit double top at 5181 to its previous top in October and as long as it is not crossed comfortably, the trend may remain down. Once breakout above 5200 is seen, Nifty may test 5350-5500 levels on upside. Action has clearly shifted to cash stocks and index heavyweights are lagging for now, so stock-specific approach looks best in this market. Below 4950 caution is advised.

Stocks looking good for next week - RELIANCE, EKC, ORCHID CHEM, NEYVELI, ROLTA

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