Great Offshore surges to 475

I had suggested in my earlier post dated 13th April to buy Great Offshore at levels of 418-422.

The share had been languishing constantly in range of 400-420 levels since quite some time and break out at higher levels looked very likely.

The stock past two days is seeing a good rally of more than 5% and today it touched an intraday high of 475.80.

Interest rates not to rise immediately

The RBI has increased all its key policy rates by 25 bps.

Current Prev
Repo rate 5.25 5
Reverse Repo 3.75 3.5
CRR 6 5.75


The CRR hike coupled will Government borrowing plans will suck away some money from the system. However since there is enough liquidity in the markets, it doesnot look like bankers will immediately resort to raising interest rates.

At the same time with the credit growth picking up ( around 20%) and deposits rising (17%), and the gap between supply and demand narrowing, we can see rise in interest rates inching up in next 5-6 months.

Great Offshore - A Good Buy at Current levels

The stock has been languishing in the range of 400-420 since a long time now. Breakout looks eminent, and when this happens stock would rise minimum upto 500.

The company is about to pass a special resolution to raise 1750 crs of funds.
It is expected that before this fund raising exercise begins share price will start shooting up.

Moreover ABG Shipyard has bought shares of the company at Rs 510 in open offer and Bharti Shipyard too in open offer has bought the shares at 590.

Bharti Shipyard which is the biggest shareholder in the company is continuously mopping up shares of the company at prices above the CMP in off market transactions.

Speaking from a fundamental perspective too, stock looks attractive. For FY10 it is expected to generate EPS of 50 Rs on a consolidated basis.
It is trading at PE of 8 and P/BV of 2.2.

Hence there is every reason for the stock to rise to higher levels from here.

The latest shareholding pattern is something like this :-
Bharti Shipyard-49.73%, ABG Shipyard - 12%, FIIs-6%, MFS/FIs/Insurance - 3%. Public 23%

Realty stocks once again in the limelight.

One of the flats in Mumbai(Worli) measuring approximately 3640 sqft in size was sold in auction at a whopping 37crs.

This one event has helped realty stocks that were sluggish past almost a year to shine again.

But this story will only last a couple of weeks/months as

1. Monsoons will set in next 2-2.5 months
2. In a rising interest rate scenario, realty will take a beating.
3. Housing sector has revived a bit but commercial property is still sluggish.
4. Volumes have not picked up yet.

Surely one can play this sector, but dont get greedy and book your profits early.

A Great Thumps Up for Bharti Airtel - Zain Deal

After two unsuccessful attempts at acquiring international telecom company (MTN), the efforts of Bharti this time has finally consummated into a deal with a Kuwatian telecom company called Zain.

As part of this deal Bharti would acquire Zain's operations in 15 African countries at the cost of $10.8B

In my view this acquisition will bode good for the company. The reasons are enlisted below

1. The competition in India is getting fierce with ARPUs in India show a declining trend and MOUs becoming inelastic relative to price. Voice has become a commodity. There is a compelling need for telecos to enter new markets and acquire new set of customers.
2. Zain is at No.1 in 10 countries and No.2 in 12 countries.
3. The competition in African part of the world is less as compared to our country. The no of operators in these countries is 3-4 as compared to India which has around 10-12 operators in each circle.
4. ARPUs are 60% higher than in India.
5. Teledensity in African countries is around35%.

However there a few caveats to this -

1. The acquisition is a liitle expensive
2. The infrastructure in Africa is poor which will necessitate capex
3. The operative costs in Africa is higher compared to India because of poor infrastructure and power shortage.

At a time when Bharti is gearing up for 3Gbidding, laying infrastructure in the hinterlands of India, strengthning Warid position this deal will be EPS dilutive for some years.

However given Bharti's strong management and capability of reproducing the minute model in Africa I see the deal though expensive should be good for the company.

Banking stocks will outperform

Banking stocks will be the leaders in the next bull run.
I strongly believe this because of the reasons listed below

Pick up in Credit growth

• -Strong GDP numbers
• -Strong IIP numbers
• -Expansion in capex because of utilization of excess capacity and pent up demand

Easing of NPAs

• Strong IIP nos suggests that corporates and retail will not defer from their loan payments
• Aiding to that benign political environment and gradually improving global scenario has helped in bringing larger FII money in India
  
• Due to which many companies have been able to raise equity from the markets and reduce the leverage on their books.

Margins would remain intact

• Base rate implementation will see many of the teaser home loans and such other loans vanish, which will help to ease the pressure on margins.
• Repricing of high cost liabilities and improving CD ratio