WEEK AHEAD

 

EGoM meeting on diesel prices in focus

 

A meeting of the ministerial panel on diesel prices, progress of the monsoon rains and data on industrial production will be on investors' radar next week. A decision on raising diesel price is likely to be taken by the Empowered Group of Minister (EGoM) headed by finance minister Pranab Mukherjee on Thursday, 9 June 2011. If the government hikes diesel prices it will lead to increase in inflationary pressures -- diesel is a key transportation fuel in India.

 

 

WEEK

06-06-11 to 10-06-11

 

NIFTY RANGE

5350-5650

 

CRUCIAL

SUPPORT 5430 & RESISTANCE 5560

 

APPROACH

Cautious with positive bias

 

STRATEGY

Any Dips Should Be Used As An Opportunity To Enter The Markets

 

MARKET TREND

Trend looks steady for further upmove

 

MARKET OUTLOOK

Market conditions are not favourable for a secular rally

 

FACTORS

Macroeconomic Data, EGOM on Fuel & Global Cues

 

IMPORTANT

Things are pretty volatile and uncertain in the short term

 

 

Ø        OUT-LOOK:

 

The price action of Nifty for the last few days has only been an enactment of our prognosis. We were on our toes and remained contrarians' inspite of underlying bearish sentiment around 5300 levels. The encouraging upmove of the markets for the last two weeks has again proved our views correct.

 

The penultimate and the last day of the previous week may have subdued the strong optimism. There has been a strong rally from the lows of 5330 to high of 5600 and it should only be natural to anticipate few days of pullback. Also the level of 5600 coincides with the 200 DEMA. Hence, such pull back should be construed as healthy as long as key supports on the downside are held. In the short term, we may be undergoing such a phase and post this ,there is a high probability for the Nifty to breach the level of 5600 in the coming weeks. A decisive breach of 5600 level should clear the way for further advance till 5750.

 

Our views on the midcap index have proved quite accurate. Its strength on the way down and on the way up, makes this index a good candidate for outperformance in the medium term.

 

Overall, the trend looks steady for further upmove and any dips should be used as an opportunity to enter the markets.

 

Ø        ROAD AHEAD:

 

The Indian market continues to witness zigzag movements without any clear bias and sense of direction. It is seeing alternating bouts of buying and selling based on certain news flow. Though FII flows have improved slightly, the influx is still not strong enough to lift the key indices substantially. At the same time, macroeconomic landscape remains challenging and the Centre is still grappling with issues of corruption, leaving policy making in a limbo.

 This week will yet again be a litmus test for the UPA II as the EGoM on fuel prices assembles. Let's hope the meet doesn't get postponed further. But, if it does take place one must brace for a spike in headline inflation in the days to come. The RBI will decide on policy rates on June 16. Before that, the market will react to April IIP data on June 10 and May inflation on June 14. In the meantime, the progress in monsoon will also have a sentimental impact on the market.

 

Globally, investors are on tenterhooks amid worries about anemic growth in the US economy and lingering concerns over sovereign debt problems in the eurozone. Hopefully, the Greece situation will get resolved over the weekend. On Monday, world markets could head south after the US jobs data came in much below expectations. Interest rate decisions are due next week from the central banks in UK, EU and Australia.

 

In short, market conditions are not favourable for a secular rally. Things are pretty volatile and uncertain in the short term. There is a general lack of confidence among investors at this juncture. This may take a while to change. So, be vigilant and stick to stock centric approach to avoid major hit in your portfolio. Wait for the market to signal a decisive breakout from the current range before resuming your shopping binge.

 

Ø        DERIVATIVES:

 

High inflation and interest rate would keep the market bias negative for some time

 

Addition of OI of the 5400 to 5700 strike call due to writing, while at the same time addition of OI due to buying in the 5700 strike put option indicate heavy resistance ahead

 

Prospects of good monsoon helped the domestic bourses to record gain during the week ended 3^rd June 2011. As mentioned during the previous week, there wasn't enough conviction on the bull side despite addition of long position. Consequently the S&P nifty index recorded gain during the beginning of the week helped by firm global market and the prospects of good monsoon this year. However widening 2G scam, which threatens to include some more corporate and the failure on the part of Reliance to explain lower gas output from the KG basin during their AGM held on Friday resulted in the market correcting sharply on Friday. The nifty fell by 41.65 points and 33.60 points on Thursday and Friday respectively. However for the full week under review, the benchmark nifty closed 40.65 points higher at 5516.75.

 

The nifty June series future closed at a premium of 6.75 at 5523.50 on Friday. In the futures and option (F&O) segment, both the nifty and the stock future segment added open interest (OI) due to buying initially, however subsequently a lot of those longs where covered while fresh shorts were created in both the counter to wards the end of the week, especially on Thursday and Friday. In the nifty option segment too aggressive short position were created in the 5500 and up call strikes towards the end of the week, while the 5400 and up strike puts witnessed unwinding of puts wrote earlier, thus indicating strong resistance going ahead.

 

The nifty June series future contract added 4.88 lakh shares in OI on Friday to take the total OI to 2.48 crore shares. During the full week under review the nifty June future added 33.01 lakh shares in OI. Again the market appears to carry the negative bias as there could be some more consolidation going ahead. The domestic monsoon trend and the institution investor buying behavior will be closely watched. High inflation is a major concern for the domestic market while high prevailing interest rate and the expectation of further hike in interest rate do not bode well for Indian industries going ahead. Post the Q4 FY11 result announcements, the forward earnings are being revised downward by major brokerages for most of the sectors. Thus the going ahead may be tough as the market starts discounting these factors. Meanwhile the average traded volume in the futures and option (F&O) segment during the week under review was considerably lower at Rs 79927.79 crore as compared to Rs 145296.66 crore during the previous week, understandably as this was the first week of the new series.

The index put-call ratio on Friday fell to 1.09 as compared to 1.39 during the previous trading day, while the stock put-call ratio increased to 0.44 as compared to 0.38 the previous day. The overall put-call ratio fell to 1.04 as compared to 1.29 the previous trading day.

 

The market-wide OI on Friday stood at 224.98 crore shares, 2.85 crore shares higher than the previous day. The index and stock option segment witnessed significant addition of OI during the week.

 

On Friday the 5400 to 5700 strike call option added aggressive OI due to writing, while the 5400 to 5600 strike put option shed OI as put wrote at this level earlier were aggressively covered. Thus there was significant unwinding of long positions during the week. The 5800 strike call option shed OI due to unwinding of calls bought earlier, while the 5700 strike put option added OI due to buying, indicating heavy resistance ahead. The 5500, 5600 and 5700 strike call option added 6.15 lakh shares, 8.71 lakh shares and 8.21 lakh shares respectively in OI to take their total OI to 39.64 lakh shares, 56.84 lakh shares and 57.82 lakh shares respectively. The 5800 strike call option shed 2.53 lakh shares in OI to take its total OI to 65.33 lakh shares. The 5700 strike put option added 3.59 lakh shares in OI to take its total OI to 11.33 lakh shares

 

Ø        TECHNICALLY:

 

·     Medium Term Indicator: The short term/ medium term indicator continue to be on the buy mode. This should support a positive undertone for the Nifty.

 

·     200 DAY SMA: The 200 Day SMA for the Nifty is currently at 5750. Going by historical evidence, there is a good chance that this level should act as a resistance for the Nifty.

 

·     Outlook: Earlier, we had highlighted the following pionts to support an impending upmove and a possible trend reversal for the Nifty. 1) Pace of rallies is faster than the pace of declines indicating a shift of sentiment. 2) Accumulation pattern which are now becoming evident in the short term. 3) Oversold technical indicators which are now exhibiting positive divergence. 4) Weekly candlestick chart showed a "Dragon Fly Doji" which is a bullish reversal pattern. A good closing for the last week has confirmed this reversal pattern. These factors reaffirm our bullish view in the medium term. Target on the upside should be near the area of 200 Day SMA which comes to around 5750. Moreover, the 200 Day EMA is at 5600 and this level is acting as the logical resistance for the trend.

 

Ø        MACROECONOMIC:

 

Investors will closely watch macroeconomic data in the near term, which could provide a cue on the Reserve Bank of India's (RBI) likely monetary policy stance at its mid-quarter policy review on 16 June 2011. The government unveils data on industrial production for April 2011 on Friday, 10 June 2011. The government releases data on headline inflation for May 2011 on 14 June 2011.

 

Ø        MONSOON:

 

Investors will continue to watch the progress of the annual monsoon rains. The India Meteorological Department (IMD) has predicted the southwest monsoon 2011 to be 98% (normal) of the long period average (LPA) with a model error of plus/minus 5%. IMD has indicated that there is very low probability for the season rainfall to be deficient (below 90% of LPA) or excess (above 110% of LPA).

 

Good rains would help ease food inflation and boost rural income. Rainfall that comes within 96% to 104% of the long-term average is considered a normal monsoon season, but this alone doesn't guarantee a good crop. The timing and spread of the rains are equally important. The quantity and geographical spread of rainfall during the monsoon season is crucial for India's agriculture sector, which lacks irrigation facilities on more than half its farm land. Monsoon rains usually enter India's mainland through the southern state of Kerala in the first week of June, gradually progressing to cover most of central and northern India by July, before retreating in September.

 

Ø        SECTORIAL:

 

·     CNX Defty's: upmove from the lows of 4100 has been encouraging. There is a fair chance that a short term uptrend may have begun and further upsides remains a high possibility in the coming weeks.

 

·     BSE PSU: has moved on anticipated lines, its trend still looks good for further advances closer to 8800.

 

·     BSE Bankex: has achieved our upside target of 12500 and may continue to scale higher. Any declines may only be corrective in nature to this short term uptrend.

 

·     BSE IT: continues to be in a technical short term downtrend. The drifting nature of this weak trend is likely to continue.

 

·     The BSE Cap Goods: has been one of the strong sector for the last few weeks. Its uptrend remains intact. Target on the upside to watch out is 13500 followed by 13800.

 

·     BSE Auto: index remained subdued and underperformed for the major part of last week. The strucutre of its downtrend suggest that there may be minimal downsides. A trend change cannot be ruled out in the coming week.

 

Ø        GLOBAL WATCH:

 

·     S&P 500: had a pull back closer to $1340 level but it lost all its gains towards the end of last week. Technically, it still remains in a downtrend with support at 1295.

 

·     Bovespa: has remained largely sideways with a positve bias. Although its trend is still down, but a close above 65000 would lead to further advances. It is likely to consolidate for a few sessions.

 

·     SSE: has achieved our downside target of around 2650. Its downtrend remains intact.

 

·     Hang Seng: saw a high of 23700 before retracing to close at 22950. The undertone suggests of a positive trend in the short term. Strong support on the downside is at 22500.

 

·     Nikkei: retraced after touching a high of 9700 last week. It is in a consolidation phase and could remain in this phase for some more time.

 

·     FTSE: is in a volatile sideways phase with slightly negative bias. It could consolidate for some more time.

 

·     MSCI EMI's: move from the lows of 1112 indicates that its uptrend may continue in the short term. 1170 is an important resistance above which it can advance closer to 1210 levels.

 

 

 

IN-A-NUTSHEL:

 

Going ahead post the Q4FY11 results many of the brokerages are revising downward the earnings estimates for FY12 and FY13. Thus when the market starts discounting these factors, the market may further correct. Aggressive addition of OI of the 5400 to 5700 strike call due to writing, while at the same time addition of OI due to buying in the 5700 strike put option indicate heavy resistance ahead. The domestic monsoon trend and the institution investor buying behavior will be closely watched. High inflation and high domestic interest rate would keep the market bias negative for some time.

 

 

Stocks To Watch:Dr.Reddy's, Indraprastha Gas, Jubilant Life, Vimta
  Monday, Jun 6 - Morning brief for the stock market:
.
.
BIG PICTURE
* US economy adds just 54,000 jobs as unemployment rises to 9.1% in May. (var)
* IMF says next tranche of Greece's existing bailout likely in July. (var)
.
.
TOP EVENTS TODAY
.
* Annual General Meet of: State Bank Of Bikaner and Jaipur, Zenu Infotec.
.
* Board Meetings of:
  + Colgate Palmolive (India) Ltd, to consider interim dividend.
  + Geojit BNP Paribas Financial Services Ltd, to consider dividend.
  + Indian Infotech & Software Ltd, to consider Jayanti Prime Software's
    open offer proposal.
  + SPL Industries Ltd, earnings for year ended March.
.
.
INDICATORS (previous session)
* NSE provisional net buy/(sale) in bln rupees, Jun 3: FII 4.45, DII (3.55)
* Institutional net buy/(sale) in bln rupees, Jun 2: FIIs 1.51, MFs (1.43)
* FII NSE futures net buy/(sale) in bln rupee, Jun 3: index 0.33, shr (4.91)
* Sensex 18,376.48, down 117.70 points; Nifty 5,516.75, down 33.60 points
* Crude: $100.22/bbl; Rupee: 44.81/$1; Gold: $1,545.20/ounce; 10-yr yld: 8.2660%
.
.
OUTLOOK
* Share indices are likely to open weak today, tracking regional markets which were trading weak as disappointing jobs data released in the US on Friday fuelled worries over a slowdown in economic growth..
.
WEEKLY SECTOR OUTLOOK
* AUTOMOBILE: Decision on diesel hike, export sops eyed.
* BANKS: In tight band; private banks to stay top picks.
* CAPITAL GOODS: To track broad market; sentiment subdued.
* CEMENT: Under pressure on low sales in May.
* FMCG: Seen firm on defensive buying, monsoon hopes.
* INFORMATION TECHNOLOGY: Seen range-bound with positive bias.
* OIL & GAS: Reliance Industries, oil retailers seen down.
* PHARMACEUTICAL: In range; stock-specific action likely.
* STEEL: Seen rangebound but with negative bias.
* TELECOM: Rangebound; Reliance Communications seen volatile.
.
.
GLOBAL STOCK MARKETS
* US: US indices end around 1% lower on Friday as data showed a mere 54,000 jobs were added in May, the lowest reading since September and way below
analysts' estimates. The US unemployment rate also rose to 9.1% from 9% in April.
.
* ASIA: Asian equities declined tracking Wall Street as weak jobs data in the US spooked sentiment. Equity markets in Hong Kong, South Korea, China, and
Taiwan are shut for holiday.
.
.
SECTOR NEWS
* AGRICULTURE: Government notifies export of 10,000 tn each of organic sugar, pulses, edible oil.
.
* AUTOMOBILE: General Motors India to unveil Chevy Beat's electric version this month. (BL)
* COAL: State-run International Coal Ventures considering acquisition of a 59% stake in Minas de Revuboe, which owns the Revuboe coal mining project in
Mozambique, for around $1 bln. (Mint)
.
* EDUCATION: Tata Group planning to enter the sector with an initial investment of 1 bln rupees. (BS)
.
* FINANCIAL: Promoters of five microfinance institutions--Asmitha Microfin, Future Financial Services, Share Microfin, Spandana Sphoorty Financial, and
Trident Microfin--agree to pledge 100% shareholding with banks for debt recast. (var)
    Avendus Capital buys 84% of Grama Vidiyal Micro Finance's 108-mln-rupee
loan portfolio in securitisation deal. (ET)
    L&T Infrastructure Finance and SREI Infrastructure Finance to benefit from. Ministry of Corporate Affairs' new guidelines public financial institution status. (Mint)
.
* FMCG: Carlsberg to buy partner Lion Brewery's share in India operations, raise stake to 90%. (ET, Sat)
.
* GLASS: Saint-Gobain has approached Tamil Nadu and Andhra Pradesh governments seeking 60 acres of land for setting up a factory to produce
glass for solar power plants. (BL, Sat)
    To invest 15 bln rupees in India across its manufacturing facilities over a period of two years. (FE, Sat)
.
* HEALTHCARE: Vasan Healthcare in talks with private equity investors for raising  $150 mln. (FC)
.
* IT: Genpact to have nearly 60% of its senior leadership based outside India in the next 12-18 months, a move aimed at being closer to global clients.
.
* LOGISTICS: Freight premiums on imported coal likely to increase 20% from next year. (Mint, Sat)
.
* SHIPPING: Companies like Greatship India, Great offshore, Essar Shipping and Global Offshore are acquiring vessels to tap the oil exploration and
drilling services market in countries like Brazil. (ET)
.
* MEDIA: Government agrees to hike foreign direct investment in broadcast carriage services to 74% from 49%, while retaining that for local cable
operators at 49%. (Mint)
.
* METALS & MINING: Karnataka government may set terms on exporters with regards to quantum and mode of transport of iron ore. (BL, Sat)
    Gujarat Mineral Development Corp is looking at private partnerships to add value to its mineral products. (BS)
.
* MONSOON: India Jun 1-3 average rainfall 14.4 mm, 67% above normal.
.
* OIL & GAS: Empowered Group of Ministers' meet on gas allocation called off. (BS, Sat)
    Centre sets Jul 15 deadline to resolve payment crisis for Iranian crude oil. (BL, Sat)
.
* PHARMACEUTICAL: Government drafts uniform rules of conduct for the industry. (ET, Sat)
   Drug Controller of India summons Wyeth, Quintiles, Lilly, Amgen, Bayer, Bristol Mayer, Sanofi, Pfizer and PPD for clinical trials-related deaths.
(ToI)
.
* POWER: Southern region to be completely integrated with national power grid in three years. (BL, Sat)
    Lanco Infratech and GMR Group have sought clarity from the government on natural gas supplies from Reliance Industries Ltd's D-6 block in
Krishna-Godavari basin. (PTI)
    Governemnt expects to achieve additional power generation capacity of 16,000 MW in the remaining 10 months of the 11th five-year plan. (ET)
.
* REAL ESTATE: Indiareit Fund Advisors and Ambience to jointly develop 17.63 acres of land in Gurgaon. (ET, Sat)
   Indiareit Fund Advisors plans funds to tap rental yield, debt market. (BL, Sat)
.
* REGULATORY: Securities and Exchange Board of India says infrequently traded Indian Depository Receipts must be redeemed.
    SEBI eases prior-approval norm for bourse members, sub-brokers.     The Central Board of Direct Taxes to make disclosure of Permanent Account
Number mandatory in high value transactions. (ET, Sat)
    Reserve Bank of India cancels registrations of S K Capsec Pvt Ltd and Sansun Leasing and Finance Pvt Ltd for carrying on the business of a
non-banking financial institution after their exit from the business. (var, Sat)
.
* RETAIL: Wal-Mart may tie up with 'kirana stores' for bigger India play; to
open new outlets in Maharashtra, Andhra Pradesh, and Chhattisgarh. (ToI, Sat)
.
* RUBBER: Prices of the commodity set to recover as production enters lean phase. (ET, Sat)
.
* TELECOM: Nokia forays into dual-SIM mobile market. (BL, Sat)
.
STOCKS
.
* ABG SHIPYARD: Plans to cut debt by 17% in 2011-12; aims to turn debt-free by 2014. (DNA, Sat)
.
* ASHOK LEYLAND: May total sales 5,725 units, down 12% on year.
.
* BALAJI TELEFILMS: Plans to launch film-focused private equity firm. (Mint)
.
* BHARAT HEAVY ELECTRICALS: Prepares strategic plan to take on competition; railway transportation and defence to expand in a big way while power
business will continue to be the most important constituent of company's portfolio. (Mint, Sat)
.
* BHARAT PETROLEUM CORP: Plans to add 1,70000 barrels per day refining capacity at its Kochi and Bina plants. (DNA)
.
* CAIRN INDIA: To soon take up minority shareholders' concerns regarding deal with Vedanta with parent company Cairn Energy. (BL, Sat)
.
* CORPORATION BANK: To open 200 branches, hire 1,200 personnel this fiscal. (var, Sat)
.
* DABUR INDIA: Keen to enter consumer healthcare segment. (ET, Sat)
.
* DR REDDY'S: Directorate of Factories, Andhra Pradesh, files second case against company's US FDA-certified manufacturing facility at Bollaram for
alleged safety-related lapses. (PTI)
*
* HERO HONDA: The Munjals, promoters of the company, decide to drop the 'Honda' tag. (ToI, Sat)
.
* HOUSING DEVELOPMENT & INFRASTRUCTURE: Sees transfer of development rights sales 20% lower for 2011-12 (Apr-Mar). (BS, Sat)
.
* INDRAPRASTHA GAS: Hikes compressed natural gas prices by up to 55 paise per kg.
.
* INFRASTRUCTURE DEVELOPMENT FINANCE CO: and Khazanah plan infrastructure development joint venture in India.
.
* JINDAL STEEL & POWER: Managing Director Navin Jindal is on a visit to Bolivia to give a push to the company's plans of investing $2.1 bln in next
few years in mining and in a 1.7 mln tn per year steel plant in the South American country. (FE)
.
* JUBILANT LIFE SCIENCES: Gets US Food and Drug Administration's approval for Alzheimer's drug Aricept generic.
.
* JYOTHY LABORATORIES: Looking at possibility of introducing new categories such as hair care, body care, and adhesives post Henkel India buy. (BL, Sat)
.
* KARNATAKA BANK: To recover 2.5-bln-rupee bad loans in 2011-12. (BL, Sat)
.
* KITPLY: Approves closure of Igatpuri laminate unit on operational loss.
.
* LIC HOUSING FINANCE: To raise 1 bln rupees via 3-year bonds at 10.20%.
.
* MAHANAGAR TELEPHONE NIGAM: To spend 11.45 bln rupees on 3G network expansion. (FE)
.
* MAHINDRA & MAHINDRA: Has asked its suppliers to focus on reducing cost and deliver on time. (PTI)
.
* MANGALORE REFINERY & PETROCHEMICALS: Ongoing 150-bln-rupee expansion may get delayed if road blockade by agitating displaced people of Mangalore special economic zone continued at Jokatte.  (FE, Sat)
.
* MARUTI SUZUKI: The standoff between workers and management at the company continues as workers demand recognition of a new union and retention of
contract labourers. (DNA)
.
* MAXWELL INDUSTRIES: To sell Erode spinning unit to MC Spinners for 390 mln rupees.
.
* NIIT: To acquire balance promoters' stake in Evolv Services. (
.
* NMDC: Inks memorandum of understanding with Australia's Minemakers to jointly develop the Wonorah phosphate deposits in Northern Territory.
.
* NTPC: To get showcause notice for dyke collapse at Orissa plant. (BS, Sat)
* PERSISTENT SYSTEMS: US telecom major Sprint Nextel Corp to enter India by buying 74% stake in a joint venture firm, Sprint Telecom India, floated by
the company. (FE, Sat)
.
* PTC INDIA FINANCIAL: Sanctions 5-bln-rupee debt to three power companies.
.
* RURAL ELECTRIFICATION CORP: Plans to raise up to $1.75 bln by November through Foreign Currency Convertible Bonds and External Commercial
Borrowings. (ET)
.
* SATYAM COMPUTER SERVICES: Has sought more time to build an IT/Ites special economic zone in Hyderabad. (PTI)
.
* SHREE GANESH JEWELLERY: Plans to foray into the NBFC space. (BL, Sat)
.
* SHOPPERS STOP: Promoters Raheja Group are looking at exiting the Crossword Bookstores business. (BS)
.
* SOFTBPO GLOBAL SERVICES: Approves 25-for-1 rights issue at 55 rupees per share.
.
* STEEL AUTHORITY OF INDIA: To invest 36 bln rupees for setting up four pellet units in the next two-three years. (BL, Sat)
    May rope in four private companies to bid for Hajigak mines in Afghanistan. (BL)
.
* WENDT INDIA: 3M arm makes open offer to acquire 20% more in the company at 1,366.34 rupees a share.
.
* TATA MOTORS: To meet additional credit requirement in a high interest rate and lower sales market Tata Motors has infused an additional 7.5 bln rupees
in fully-owned arm Tata Motors Finance. (FE)
.
* TATA POWER: Solar plant in Pune goes on stream; to contribute 4.5 mln units a year to the grid. (BL, Sat)
.
* UNITY INFRAPROJECTS: Eyes 25% growth in revenue in 2011-12. (FE, Sat)
.
* VIMTA LABS: European firm seen interested in taking over the company; suitor said to have bought 10-11% through leading investment company. (DNA, Sat)
.

 

 

Source: GEPL Capital

Everest Kanto Cylinders Ltd. 4QFY11 & FY11 Results Update

EKCL's FY11 results were ahead of consensus estimates (company beat its earnings guidance of Rs 5.4 by 16%), its revenue increased by 19 % YoY due to higher turnover from Dubai subsidiary owing to robust demand scenario, EBITDA margins increased sharply to 17.6% for FY11 from 9.6% in FY10 due to superior performance from the Dubai subsidiary (running at 120% capacity utilization), reduction in Raw material cost (due to removal of previously held high cost inventory).

Consequently, the reported PAT was also higher at Rs 702 mn with a YoY margin increase of 700 bps at 9.0%. PAT margins increased due to two primary reasons:

• Reduction in interest cost outgo as company's Net Debt decreased from Rs 4.4bn in FY10 to Rs 3.2bn in FY11, thereby also improving Balance Sheet quality.

• Reduction in Tax provisions; despite Indian subsidiary providing for full taxes, higher contribution from Dubai and losses made at US & China Subsidiaries kept the cumulative Tax outgo low.

Segmental Performance:

Dubai plant displayed superlative performance on both revenue as well as margin terms, while Indian plant remained flattish on sales term but improved PAT margins by 400 bps YoY owing to better capacity utilizations. Though China & US plant still remain a drag, management has indicated that they will turn around in FY12 as demand has picked up in US & they have $ 30mn worth orders (Jumbo Cylinders) which will keep there US plants occupied for next 7-8 months. In China, capacity utilization is expected to improve (FY11 capacity utilization at 34%)
with increasing demand in the country as well as opening up of office in Thailand to cater to local demand. Management expects output to grow by 50% from China in FY12 over FY11.

The growth in India was led by better off-take in CNG cylinders (up 40.9% YoY) led by revival in demand form OEM's (EKC now has 80% market share of OEM's against 65% in last year). For the full year FY11, the consolidated volumes grew 27.5% YoY to 876, 000 cylinders mainly driven by India (up 21% YoY) to 572,000 cylinders and UAE (up 49.2% YoY) to 234,000 cylinders. The Dubai Plant is expected to continue its superlative performance; management is also increasing its capacity by 50% in FY12 with a cap-ex of $ 20mn (to be funded by internal accrual & debt). The increased capacity will start adding to revenue from 4QFY12 onwards and is expected to boost the annual volume growth of Dubai plant by
25% in FY12E.

Other Highlights:

Average realization/Cylinder have been better since Q2FY11, still due to decline in same in Q1FY11, the FY11 annual average realization/Cylinder came in lower at Rs 8800 against Rs 9453 in FY10. Though, a positive sign was that EBITDA/Cylinder has constantly been in a decent range, EBITDA/Cylinder for FY11 stood at Rs 1574 which is almost twice of that in FY10.Also, concerns with respect to high inventory have been allayed with sharp reduction in inventory days to 142 in FY11 from 231 in FY10.

Management Guidance:

Management has given guidance of more then 20% EBITDA margins for FY12E & increases it further ahead in FY13E. They steered clear of any upfront guidance's on sales front, though they gave individual plant based guidance's:

• China plant is expected to grow by 50% in volume terms and management expects to break even there in FY12E.

• US plant is also expected to break even in FY12E

• Indian plant is expected to grow by 15 % for this year and increase momentum in FY13E, Billet based plants are expected to be operational in Q1FY12E & plates based plants will be operational from Q3FY12E, this will increase EBIT margins in Indian margins from Q3FY12 onwards as raw material cost will decrease further.

• Dubai plant is increasing its capacity by 50%, same is expected to kick-in in the last quarter of FY12, and it is also expected to grow sales volume by 25% this year with sustained margins.

Putting together all the above guidance's, EKCL is expected to grow by more then 20% in both margin as well sales volume terms. Though realization may be down in Q1FY12E due to lower raw material cost, but improvement in the same in rest three quarters will give sales growth of around 15-20%. Due to better operating parameters earnings growth will beat sales growth by 300-400 bps.

Valuation & Viewpoint:

Owing to improved demand scenario in Industrial Cylinder (growing at 15% per year in India) & CNG cylinders (due to increasing OEM's interest &
rising conventional fuel costs), improving off-take of Jumbo Cylinders in US & China, visible sales growth in Dubai Plant with sustained margins, improving balance sheets quality due to decreasing debt & inventory days, and constantly improving plant capacity utilizations & hence margins, EKC looks well set to achieve its growth targets. Although a earnings growth of 18-24% is on the cards for next two years, decreased RoE's
& ROCE's (due to ongoing expansion in plants) might not allow the stock to garner its historical premium of more then 20X PE multiples.
Consensus FY12 & FY13 EPS target for EKCL are Rs 8.3 & 10, at CMP of Rs 90, the stock is trading at 13.6X its FY11 EPS, 10.8X its FY12E consensus EPS & 9X its FY13E consensus EPS. We think that on the conservative side, even ascribing a PE multiple of 11X FY13E
EPS of 10, stock looks attractive at current valuations.

 

Source: Nirmalbang

Apar's results were in line with our expectation. Going forward we are confident that, from FY12, margins of conductors will be better on account of execution of higher margin business and increase in volume due to capacity
expansion

Key Highlights

- During the quarter, Apar report 59.6% (YoY) increase in sales. This was mainly attributed to strong volume growth of 74% (YoY) in conductors (31836 MT). For FY11 (cons) company reported sales of Rs. 3034 crs, an increase of 36% YoY.

-For the quarter, EBIDTA stood at 42.4 crs against the loss of Rs. ‐ 31.75 crs in Q4FY10. EBIDTA margin stood at 5.5%. For FY11, EBIDTA increased by 37% and margin remain stable at 6.2%.

- On Segmental performance, revenue in conductors segment increased by 72% (YoY,) but EBIT margin decline by180bps (YoY) on execution of lower margin business. For FY11, Conductor division grew by 34% (YoY) with EBIT margin of 3.5% against 6.1% (YoY). On Specialty oil division front, revenue increased by 42% (YoY) and EBIT margin of 9.7% against 6.9% (YoY). This 280bps increase in margin was mainly on account of better product mix. For FY11, Oil division posted growth of Rs. 36% with EBIT margin of 9.7%

-Current Order book of Apar stands at Rs. 1260 Crs (PGCIL is Rs. 400 crs). During the quarter, Apar reported more than Rs. 500 Crs worth of order inflow.

- Apar report Adj PAT of Rs. 22.5Crs against 20.5 Crs. Company reported quarterly EPS of Rs. 6.9 per share.

-Company has allotted 0.363 crs shares to Templeton on preferential basis at a premium of Rs.210per share, which has resulted in equity dilution. Total equity post allotment has increase to 3.957 crs

 

It's that time of the year when your office asks for your tax-saving investment plans for the new financial year.

Here's a dummies' guide on the tax breaks available to a salaried individual and how to make the most of them

EVERY year as the financial year comes to a closure, like most of the salaried taxpayers, you start scrambling for arranging tax-related investments and documents that you need to submit to your organisation to save your hard-earned money. Tax saved is income earned.

There are numerous ways and opportunities available to you so that you can minimise your tax liability legally. Although Albert Einstein had once admitted "the hardest thing in the world to understand is income tax", it really does not require a genius to understand taxation and plan tax saving options.

As the year has just started, it is the right time to plan for a higher take home pay. It is prudent to start deciding on your investments from the beginning to avoid payment of additional taxes from your coffers. Here are a few tips: Structure your salary: As per the law, tax is required to be deducted at source by an employer. In most companies, the employees are given the option of structuring their salaries tax-efficiently to minimise their tax burden.

Some ways of structuring salary could be as follows – individuals staying in a rented accommodation may structure part of their salary towards house rent allowance and keep it in line with the rent paid for the accommodation. Medical reimbursements up to Rs 15,000 per annum can be claimed as exempt from tax if the employee submits supporting bills.

An individual is also allowed tax exemption towards transport allowance up to Rs 800 per month. Additionally, depending on the company policy, employees may also opt for an employer-provided car for official and personal purposes. The same will be taxed as a perquisite in the hands of the employee at a discounted value of Rs 2,400 per month and an additional Rs 900 per month if a chauffeur is also provided with the car.

Any amount that is recovered from the employee will be reduced to arrive at the perquisite value. The above options may bring some breather from taxes.

Buy a house: If you plan to buy a house and obtain a loan for the same, it may help in minimising your tax.

In case of a self-occupied property, an exemption up to Rs 1,50,000 can be claimed with respect to the interest paid on such loan. Additionally, the repayment of principal paid can also be claimed as a deduction up to Rs 1,00,000 under section 80C of the act.

An option that married couples may explore is buying a house jointly and applying for a joint housing loan and then both will be able to claim a deduction for the principal and the interest amounts paid separately from their incomes to the extent of their respective share in the house and the loan.

Capital gains: Gains from sale of a capital asset are taxed as capital gains.

Broadly, if the assets such as real estate and gold are held for a period of three years or more, then the gain arising from the sale of such assets are long-term capital gains and are taxed at the rate of 20 per cent, subject to indexation. If the assets are held for less than three years and sold, then the gain on sale is short-term capital gain, which is taxed at the normal rate, that is, at the rate of 30 per cent if the person is in the highest tax bracket.

On the other hand, if such assets are held for less than one year and then sold, the gains, subject to certain conditions, are taxed at the rate of 15 per cent. Thus, individuals should plan to invest their money in line with their financial goals.

Gifts: Gifts are taxable subject to a few exceptions. Gifts received from anyone during special occasions such as marriage are exempt from tax. Any sum of money received as gift up to Rs 50,000 from a person other than the specified relatives is also exempt from tax.

Proposed investments: There are many investment options under section 80C of the act that enable tax payers to reduce their taxable income by a maximum of Rs 1,00,000. Some of the prominent options are contribution to employees' provident fund (EPF), public provident fund (PPF), national savings certificate (NSC) and life insurance premium. Keeping in view the importance of education in our country, the government allows the taxpayer to claim deduction for paying tuition fees of his child up to Rs 1,00,000 for his full time education.

Besides Section 80C, an individual may invest additional Rs 20,000 in infrastructure bonds which is allowed as deduction under section 80CCF. Taking medical insurance for self/spouse/dependent children and parents, allows a tax benefit u/s 80D of the act of up to Rs 15,000. If the medical insurance is being taken for a senior citizen, a deduction of Rs 20,000 can be availed.

In case an individual has taken an education loan, the interest payable for that loan is deductible from the taxable income under section 80E of the act.

If an individual plans to make a donation to certain other specified institutions/funds, an exemption of the amount, either 100 per cent or 50 per cent as the case may be, can be claimed under section 80G of the act.

Also, an individual can claim a deduction under section 80GG of the act, in case he is staying in a rented accommodation and does not own a house property in the city of workplace.

The amount allowed as deduction would be the minimum of the rent paid in excess of 10 per cent of the total income or Rs 2,000 per month or 25 per cent of the total income as specified.

However, if he is already claiming an exemption for the rent paid from the HRA received from his employer, he cannot claim the deduction again under this section.

Individuals who see a liquidity crunch in the near future should opt for short term investments, and those who have spare funds for a long period of time can look at investing in long term avenues that are more secure and give a higher return on investment.

 

Remember Scarlett O'Hara's immortal words in the novel 'Gone with the Wind? "....After all, tomorrow is another day…" With the financial year (FY) 2010-11 behind us, one would probably be muttering these words while looking forward to FY12.

While planning for FY12, one should remember that though FY11 is over, the return filing compliances required for the year are far from over. Compliance for FY11 can be laid to rest only after the due filing of income-tax returns (ITR) for the year is done, as required under the law.

There would be numerous questions with respect to tax filing by individual taxpayers; some of which have been addressed below.

WHO SHOULD FILE AN ITR?:

Every individual, whose total income exceeds the prescribed exemption limit (which is . 160,000 for male assesses, . 190,000 for female assesses and . 240,000 for those above 65 years of age [i.e. senior citizens]), is required to file an ITR with the Indian revenue authorities on or before the prescribed due date. If you have agriculture income as well as non-agriculture income and your non-agriculture income is less than the minimum threshold limit, you will not be obliged to file an ITR. In case of a deceased person, his executor, administrator or other legal representative would be required to file an ITR for the deceased.

WHAT IS THE DUE DATE?:

The prescribed due date is September 30, 2011 for FY11, if the individual, being a sole proprietor, has his accounts subjected to tax audit or is a partner of a partnership firm whose accounts are subject to tax audit. In all other cases, the due date is July 31, 2011.

WHICH FORM TO FILL?:

It may sound strange, but the fact is that the ITR form for FY11 is yet to be prescribed. So, the filing would have to wait till it is prescribed.

WHO SHOULD SIGN THE ITR?:

The ITR is required to be signed by the individual himself or herself. However, in case the individual is not physically present in India to sign the ITR or in case of a nonresident, a power of attorney holder could sign the ITR. In case of deceased assesses, the executor, administrator or other legal representative would be required to sign the ITR. A word of caution: An unsigned return is not a valid return.

CAN YOU FILE ITR ELECTRONICALLY?:

Well, yes an ITR can be filed electronically with the income-tax department website (www.incometaxindia.gov.in) with or without a digital signature. In case an ITR is filed online without the digital signature, the acknowledgement generated is required to be signed and sent to the Central Processing Centre (till last year, only in Bengaluru, Karnataka).

ARE ANY DOCUMENTS NEEDED?:

Currently, no documents can be submitted along with the ITR. However, the tax authorities sometimes ask for a copy of the PAN card or acknowledgement of previous ITR filed, to verify the tax jurisdiction.

In case the ITR is signed by a legal representative, copy of the power of attorney is required to be filed.

WHAT IF YOU MISS THE DUE DATE?:

If the ITR is not filed before the prescribed due date and also if the taxes due are not deposited before the said date, the individual would be subject to penal interest at the rate of 1% per month of such taxes due, for the duration of the non-compliance. In addition, a penalty of Rs 5,000 could be levied by the authorities if the ITR is not filed before the end of the assessment year (i.e. March 31 following the year for which the tax return pertains).

CAN YOU FILE IT LATER?:

An ITR can be filed after the prescribed due date but before the end of one year from the end of assessment year. So for FY11, ITR can be filed by March 31, 2013. But you should be aware of the fact that the belated return so filed cannot be revised under any circumstances.

Also, if you have business loss and capital loss during the financial year, it cannot be carried forward to subsequent financial year, impacting your next year's planning.

 

Unlike large-, mid- or small-cap funds that are subject to restrictions regarding where they can invest, multi-cap funds face no limitations regarding the market capitalisation of stocks they can invest in. Their mandate is to buy stocks across the entire market-cap spectrum in order to generate alpha. Managers of multi-cap funds are also allowed to invest in both value and growth stocks in their quest for beating their benchmark or category average. Theoretically, multi-cap funds are meant to weather all kinds of market conditions and come up winners. Many of them actually do.

 

Multi-cap funds as those that have allocated between 40-60 per cent of their assets to large-cap companies over the last three years.

 

In a multi-cap fund the fund manager is pro-active, changing and realigning his allocations to different market caps whenever market conditions change.

 

Advantages

Flexibility and freedom are the key advantages of multi-cap funds: the fund manager can go anywhere in search of value or growth. The current market conditions, where stock prices have corrected across market capitalisations, are particularly well suited for such a fund. The fund manager can take advantage of opportunities available across the market-cap spectrum.
In the early stages of a bull run, usually large-cap stocks tend to do well. But as the bull run continues and large caps reach high valuations, investors shift their focus to mid- and small-cap stocks. It is then the turn of the latter to play catch up. Often, by the time a bull run peaks, mid- and small-caps have outperformed their large-cap counterparts. Similarly, in a bear market, mid- and small-cap stocks tend to correct much more sharply than large caps.
A good multi-cap fund manager is able to realign his portfolio rapidly and thus benefit from changing market conditions.

 

Disadvantages

As is clear from the above, a lot rides on the fund manager's abilities. If the fund manager fails to read market conditions well (even veteran fund managers fail to do this consistently) and doesn't alter the complexion of his portfolio rapidly, his returns would lag. His fund would fall behind the category average in a bull market while declining more in a bear market.
The multi-cap fund manager must also be able to manage his sectoral allocations well. Sectors too go in and out of favour frequently depending on which part of the economic and market cycle one is in.

Since fund managers of multi-cap funds also tend to churn their portfolios more, their expense ratios can rise. Over the long-term this can affect the returns from the fund.

For all these reasons, multi-cap funds are more high-risk, high-return holdings than, say, a pure large-cap fund. Before investing in them, look up the fund manager's track record carefully both in up- and down-cycles.

 

Portfolio Strategy

Both aggressive and conservative investors can hold multi-cap funds in their portfolios. However, their position and role would differ. While these funds can be part of an aggressive investor's core portfolio, they should be part of a conservative investor's satellite portfolio.

 

Notable characteristics of multi-cap funds

• Multi-cap funds are those that have had between 40 to 60 per cent of their assets in large-cap companies over the last three years.
• These funds offer investors exposure to large-, mid- and small-cap stocks in a single portfolio.
• These funds have the latitude to find attractive stocks without market-cap, sector or style constraints.
• The investment process may involve high portfolio turnover. This could raise costs and hurt the fund's performance.
• These funds can also have more volatility and risk.
• These are higher-risk funds that should complement the core portfolio (comprising large- or large- and mid-cap funds) of a conservative investor. They should have only a limited allocation to these funds in their satellite portfolio.

 

STEP 1:

Log on to www.incometaxindiaefiling.gov.in and register yourself with your PAN — which acts as the user ID — and log in to your account.

• STEP 2:

From the 'Downloads' menu, select the ITR form applicable to you for assessment year (AY) 2010-11 and download the same. For a salaried individual with no other source of income, the relevant one is ITR-1.

• STEP 3:

Open the downloaded excel utility with 'macros enabled'. For example, if you are using Office 2003, then go to Tools > Macro > Security, set the security level at 'medium' and enable macros while opening the excel utility.

STEP 4:

Fill in the relevant details with the help of the Form 16 issued by your employer.

• STEP 5:

Validate all the information by clicking the 'Validate' key and proceed to generate an XML file. It will be automatically saved in your machine.

• STEP 6:

Upload this XML file on to the website by going to the drop down menu under the 'Submit Return' section; select AY 2010-2011 and the applicable Form. Select 'No' for the question 'Do you want to digitally sign the file?', unless you have obtained a class II digital signature.

 

STEP 7:

If you have followed all steps correctly, a message about successful efiling will be displayed on the site, along with a note that the ITRVerification form has been mailed to your e-mail ID.

• STEP 8:

Download the ITR-V form, print it out, sign the same and send it by ordinary post to Income Tax Department-CPC, Post Bag No-1, Electronic City Post Office, Bangalore - 560100, Karnataka within 120 days of filing your returns online. A failure to adhere to the deadline will mean going through the process all over again. If you do not have a printer at home, you can simply save the file in a pen drive/CD and carry it to a printing centre.

FOOTNOTE:

* This flow chart has been designed keeping in mind individuals with zero tax liability. For those who are liable to pay taxes or entitled to a refund, the flow chart will entail certain additional steps like entering the details of taxes paid, bank account number, MICR code and the like.