Financials and technology to remain in focus - Markets Look Positive
Posted on April 17th, 2008 in Personal Finance) by Motilal Oswal Securities Ltd |
Today’s View: Positive bias 
Expect a positive opening. Inflation figures expected to be at 7.22% vs 7.41% in the previous week.Financials and technology to remain in focus
“Maintain a strong buy on Rcom for investments: Strong macro tailwind continues: With ~260m subscribers, India has now become the second largest wireless market globally. India also remains one of the fastest growing wireless markets with penetration set to almost double from 22% to 40% over FY08-10E. The resulting average subscriber CAGR of ~40% should support 25-30% CAGR in revenue and EBITDA.
Market is attractive, but only for incumbents: Listed majors currently enjoy RoE of 22-39% and RoIC of 15-30%. While the return ratios are attractive, the wide range underscores their skewed nature - highly in favor of the market leader. Comparatively late entrants like Tata Teleservices and regional players like Spice Communications are still in the red. Considering this dispersed profitability profile, we believe greenfield rollouts will be unviable.
Incumbents on a strong footing: We believe incumbents continue to get stronger and enjoy (1) tremendous lead in scale, coverage, and distribution, (2) increased customer stickiness from longer validity plans and higher on-net volumes, (3) reducing capex and opex intensity from enhanced infrastructure sharing, and (4) opportunity to unlock value from the demerged tower business.
Regulatory situation stabilized for now: Despite inherent differences, most operators seem to have fallen in line with the interim measures taken
by the government on the two most controversial regulatory issues - dual technology and GSM spectrum allocation criteria. While the legal tussle
continues, the regulatory situation seems to have stabilized. We believe lower risk perception on regulatory front would provide better environment
for sector outperformance.”
” Larsen & Toubro Ltd has announced that its construction division has bagged a Rs20b order from Bombay Dyeing (BD IN; Mkt Cap USD0.6b, CMP Rs626, Buy), for developing 9msf of real estate, at its erstwhile textile plants at Worli (4msf) and Wadala (5msf). This provide clarity to investors on 1) total saleable area and 2) monetization timeline for the real estate.
- The turnkey construction project involves construction of mixed-use developments of approximately 4msf at the Textile Mills at Worli and 5msf at the Spring mills development at Wadala to be completed in the next 46 months by the end of March 2011 (total area 9msf). This is substantially higher than the ~4.3msf of developable area that we had assumed earlier. Considering L&T’s press release, BD’s total saleable area has increased from 4.3msf to 9msf, an increase of 4.75msf at the two mill properties.Recommend a strong buy”