25th April, 2011

After a gap up opening the markets traded sideways for most of the trading session touching intraday high in the morning session and moving bit lower in the afternoon session before ending the day on a positive note. Among the Sectoral indices Metals & Oil and Gas gained while Capital goods and Power were among the losers. In the Sensex kitty Maruti Suzuki (3.22%), ONGC (3.01%) & Hindalco (2.92%) were amongst the gainers while BHEL (4.38%), TCS (2.23%) and Bharti Airtel(1.01%) were among the losers. The Sensex gained 131 points or 0.67% to close at 19,602 while Nifty gained 33 points or 0.56% to close at 5,885.

Total traded turnover stood at Rs 1,63,807 cr. In equities both FIIs & were net buyers of (Rs 307 cr) While DIIs were net sellers (Rs 270 cr). On the derivatives side, FIIs were net buyers in Index Futures (Rs 204 cr), Index Options (Rs 586 cr) and Stock Futures (Rs 84 cr) while they were net sellers in Stock Options (Rs 26 cr).

The US markets ended positive on strong earnings reported by companies like Apple Inc but the gains were limited due to mediocre results from General Electric & McDonaldʹs coupled with concerns on increase in jobless claims. The Dow Jones gained 52 points or 0.42% to close at 12,506 while NASDAQ gained 18 points or 0.63% to close at 2,820.

The Asian markets are trading marginally higher. Nikkei is trading higher by 0.29% while Hang Seng is shut on account of holiday.

On Thursday, the markets ended on a positive note after trading sideways throughout the day. The advance decline ratio was almost 1:1. The markets may open on a soft and may remain volatile ahead of F&O expiry and declaration of corporate earnings this week. Adopt a stock specific approach.

The trend deciding level for the day is 5885,If NIFTY trades above this level then we may witness a further rally up to 5910‐5940‐5965 levels. However, if NIFTY spot trades below 5885 levels then we may see some profit booking to initiate in market, it may correct up to 5860‐5834‐5805.

Stocks to focus for intraday long: Titan, SBIN

IPO Update : IIL

Innoventive Industries Limited

Price band: Rs 117-120 per share

Issue opens: 26 April 2010

Issue closes: 29 April 2010

Bid Lot: 50 shares

Company and promoters

Incorporated on Aug 1991; Innoventive Industries Ltd. (IIL) is a multi-product engineering company engaged in the manufacturing and sale of precision steel tubes, tubular components, auto components, machined components and other steel products which find application in diverse industrial sectors such as transportation, oil & gas, power, farm equipments and general engineering. IIL is ISO 9001:2000 and ISO/TS 16949:2002 certification certified and has also successfully implemented TPM.

Mr. U.K. Dixit, is currently holding the post of Chief Operating Officer (COO). He is a Mechanical Engineering Graduate. Mr. Dixit has over 39 years of experience in the steel industry including projects, plant operation and installation. He possesses great experience in handling Greenfield projects.

Issue highlights

ü  Innoventive Industries Ltd. (IIL) is a multi-product engineering company engaged in the manufacturing and sale of precision steel tubes, tubular components, auto components, machined components and others. IIL is ISO 9001:2000 and ISO/TS 16949:2002 certification certified and has also successfully implemented TPM.

ü  23 pilger machines were installed over last 2 years that have now stabilized and higher utilization on these machines is expected. Moreover, 94 pilger machines are expected to be installed over next 2 years and their total benefits will be reaped in FY 2013. If IIL achieves this scale of utilization; it will significantly propel revenue growth coupled with margin expansion due to economies of scale.

ü  IIL is eligible for Industrial Promotion Subsidy (IPS) equivalent to 75% of the eligible investment in its plant. As at Nov 2010; an overall investment of Rs 262.5 cr has been made by IIL of which Rs 94.5 cr has been sanctioned as eligible investment and Rs 167.9 cr is in the process of validation.

ü  Marquee clientele list includes some prominent names like Bharat Heavy Electricals Ltd, Bajaj Auto Ltd, Thermax Ltd, Alstom Projects Ltd, John Deere India and Salem Steel North America LLC, amongst others.

ü  IIL has delivered stellar performance in the last 2 years. Total sales have grown at a CAGR of 14.3%, 76% in EBITDA and 107% in PAT during FY 2008-2010. IIL has also successfully augmented its customer base from 447 in FY 2006 to over 700 in FY 2010.

ü  ICRA has graded the IPO 3/5 which indicates average fundamentals.

Positives

ü  Capacity expansion, geographical diversification and broadening end user industries expected to provide stability and growth

ü  IIL will reap benefits of its investments; higher utilization rates will propel margins

ü  Procurement of essential raw materials from captive mines a big positive

ü  Technology enhancement aids in saving costs and improves cost competitiveness

ü  Benefits derived under the Package Scheme of Incentives 2007

Risk factors

ü  Steel and D.I. Pipe plants typically have long gestation period. The scheduled completion target for IIL’s Project is an estimate and is subject to delays as a result of, among other things, contractor performance shortfalls, unforeseen engineering problems, dispute with workers, unavailability of financing, and others; any of which could give rise to cost overruns or delay in implementation schedule. Failure to complete the project according to its specifications or schedule, if at all, may give rise to potential liabilities as a result, ROI may be lower than originally expected, which may have a material adverse impact on the business operations of Company.

ü  IIL procures steel coils, which constitute a majority of raw material, from suppliers on annual contract basis. Besides this contract for steel coils, company does not have any tie – ups / firm arrangements with vendors for the supply of raw material. Further, in the event vendors discontinue supply or fail to adhere to technical specifications, quality requirements and delivery schedules for any reason whatsoever, IIL may have temporary stoppages of production till alternate arrangements are made. Such temporary stoppages may affect business and profitability.

Magma Fincorp : BUY

Strong Profit Growth

Magma FinCorp (Magma) maintained its strong growth trajectory in 4QFY11 driven by robust growth in interest income (25% QoQ to Rs 253 cr) and lower write-offs (Rs 24.6 cr in 4QFY11 vs. Rs 40 cr in 4QFY10). PAT rose 69% YoY and 39% QoQ to Rs 43 cr which includes Rs 10.9 cr of provision for standard assets. On-book AUM grew 35% YoY to Rs 4,280 cr as on March 11 which now comprise 46% of total AUM (40% in March 10). Going forward, management expects similar growth trend (50% disbursement growth) with focus on high yielding products (HYP) which will keep their NIMs at above 5%.

Key highlights

ü  Disbursement grew 41% YoY and 53% QoQ to Rs 1,955 cr mainly driven by Cars & UV (80% YoY growth and 26% share) and HYP segment (111% YoY growth and 18% share).

ü  NIM (on incremental biz) maintained at 5% and mgmt has guided for 5.25% in FY12. However, mgmt does not expect its cost of funds to come down (9.1% in 4QFY11) from current levels.

ü  Magma maintains a capital adequacy ratio of 18.2% (Tier 1 ratio of 11.3%), which is above the regulatory requirement of 15%.

Valuation

Magma continues to impress with robust business growth, lower write- offs (0.24% of AUM), sustained NIMs (5%) and healthy PAT growth. Magma, in-line with its guidance, is consistently reducing its share of securitized portfolio (~54%) and is aiming to bring it down to ~30% by FY13E. Keeping this in mind, we expect that the company may need to raise capital in near term in order to grow its On-book AUM. At CMP of Rs 70, it is trading at 5.6x FY12E EPS of Rs 12.6 and 4.0x FY13E EPS of Rs 17.4. On P/ABV it is trading at 1.2x FY12E ABV of Rs 60 and 0.9x FY12E ABV of Rs 79. On the back of its consistent improving performance BUY with a target price of Rs 86 (1.4x FY12E ABV).