Markets back with a vengeance!

Wed, 26 May Closing

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While the Indian markets traded well above the dotted line for the larger part of the day, buying activity across index heavyweights further intensified in the final trading hours. Thus, the markets were able to recoup most of yesterday’s losses. While the BSE Sensex closed higher by around 365 points (up 2.2%), the NSE Nifty gained around 106 points (up 2.2%). While the BSE Midcap ended higher by 1.5%, the Smallcap index notched up gains of 1.7%. Gains were largely seen in stocks across sectors with the IT and realty stocks leading the gainers.

As regards global markets, Asian indices closed higher today while the European indices too have opened on a positive note. The rupee was trading at Rs 47.32 to the dollar at the time of writing.

Engineering major BHEL announced its fourth quarter and full year FY10 results a while back. The company’s sales grew by about 29% YoY in 4QFY10. This growth was aided by a 30% YoY increase in the company’s ‘Power’ segment. It’s ‘industry’ segment grew at a slower pace of 16% YoY during the quarter. Operating margins on the other hand expanded by 2.3% YoY during the quarter owing to significant fall in raw material costs (as percentage of sales). Net profits increased by a robust 42% YoY during the quarter. This was mainly due to the expansion in operating margins as also a lower effective tax rate. The company has declared a final dividend of Rs 12.30 per share which works out to a dividend yield of 0.5% at current prices. As per the management, the company is well on its way to becoming a Rs 450 bn turnover company by FY12, which in our view is achievable.

Electricity transmission major Power Grid also announced its results today. The company’s net sales grew by 25% YoY during FY10. This was largely aided by a 23% YoY growth in the company's power transmission business. This forms around 94% of the company's total sales. The other business segments of consultancy and telecom grew by 27% and 9% respectively. Operating margins on the other hand expanded to 82.3% during FY10, helped by lower staff costs (as percentage of sales). Net profit grows at a slower pace (21% YoY) as compared to the growth in sales owing to lower other income and higher depreciation. The board has recommended a final dividend of Re 1 per share. Total dividend (including interim dividend) for FY10 works out to Rs 1.5 per share (dividend yield of 1.5%).

The stock of real estate companies ended the day on firm note, led by GMR Infra. Unitech and DLF. As per a leading business daily, DLF plans to construct a large super luxury housing project in Lower Parel, Mumbai. The project is estimated to fetch revenues of around Rs 150 bn to the company. Surprisingly, DLF’s FY10 sales stood around Rs 74 bn. This means this single project is expected to generate over 2 times the company’s FY10 sales, though it will be executed over a period of more than a year. Further, this super luxury housing project is expected to be one of the country’s tallest and most expensive. Reports peg this project to be a 90 storey skyscraper, with 1,000 apartments. Each of the apartments is likely to be priced in the range of Rs 50 m to Rs 100 m with a minimum size of 2,000 square feet. The company plans to develop the project on 17 acre land, which it acquired in 2006 for a consideration of Rs 7 bn. The project will have a developable of 4 to 5 m square feet. As such, DLF is banking on a high FSI (floor space index) for the project. Considering that the company has acquired this land at prices relatively lower than prices prevailing currently, this should be a high margin project for the company.