Weekly Stock Review and Price Correction May Continue Next Week

Disclosure

Index moves as anticipated; some more downside likely

The Hindu reported on August 2 about the fall in the index like this:

“In a major shake-up on stock exchanges, the benchmark Sensex lost 615.22 points to end below the 15000-mark. The meltdown in the Indian stock prices on Wednesday was attributed to negative news flow on sub-prime mortgage — which related to realty markets — worries from the U.S. While Asian markets witnessed a sharp fall in their indices, India’s Realty index was the worst hit, which was down by over 6.64 per cent and selling was seen in scrips across sectors.”

We can understand the fall in realty index and real estate stocks as a result of US events, but why there should be across the board selling in other sectors?

This is what The India Street analysis said about index:

Review dated July 20:

“…This means that the market is witnessing profit booking at higher levels. Going by this chart, we may see further corrections next week. But those corrections will be good for the index and the overall market.”

Review dated July 28:

“…The index has just managed to break the 38.2% retracement from 4648 today at 4438 but managed to close above it. 61.8% retracement works out to 4309. It falls below the first support 4363 and should be the downside target for this correction.”

Nifty had lost 174.60 points last Friday (July 27). On Monday (July 30) we saw a near flat trading session which lost 5.15 points. A red candle with a doji body appeared yet again. We discussed this doji body in our weekly review dated July 20 and monthly review dated July 28. On Tuesday index went up by 88.80 points. Nifty fell by 183 points on Wednesday. Thursday’s trading session witnessed a green candle and a doji body, gaining 10.50 points. Today the index once again went up by 45.20 points.

Overall, Nifty lost 43.65 points or 0.98% this week. The daily chart of nifty is displayed below.

http://groups.google.com/group/theindiastreet/web/NiftyDaily030807.JPG

When the two green candles of Thursday and Friday are superimposed we get a green candle as shown in the box. This leads to “Harami” candlestick pattern. Harami means pregnant and the Japanese view this as a confusing signal though it is a bullish pattern. This pattern needs to be confirmed by a green candle on Monday preferably with an upward gap opening and a close above 4530. For this to happen, the index needs to gain at least 128 points. But the intraday chart of August 3 shows that the bulls were losing momentum right through the trading session.

Chart courtesy: NSE web site (www.nseindia.com)

http://groups.google.com/group/theindiastreet/web/NiftyIntra030807.jpg

It can be seen that the market opened on positive note but gradual selling occurred during the day and the index failed to break its intraday resistance.

As I mentioned last week, nifty touched an intra week low of 4327 on Thursday, just 18 points more than the target of 4309 and it has managed to bounce back.

Forecast for next week:

If the index manages to close above 4530 with a green candle (either full upward gap or even a partial upward gap) on Monday, we can confirm that the ongoing correction is over and the market will resume its uptrend.

Going by the intraday chart on Friday, this doesn’t seem to be a possibility. In that case, market may witness some more correction. However, 4363 and 4245 are the support levels between which the index should reverse.

The short sellers need to be cautious since the nifty has not yet broken the short term supports and medium/long term trend is still bullish.

Advance / Decline Ratio:

Date	Adv.	Dec.	Unch.
30-Jul-07	517	581	27
31-Jul-07	779	325	19
01-Aug-07	75	1043	10
02-Aug-07	592	508	30
03-Aug-07	736	370	27

This leads to an overall advance % of 47.87, decline % of 50.13 and unchanged % of 2.00% for the week.

Top Gainers / Losers among Index stocks:

Scrip	% Gain	Scrip	% Loss
SBIN	9.14	M&M	13.04
HDFC	4.30	NATIONALUM	11.24
LT	4.13	TATAMOTORS	6.12
BHEL	3.75	HINDALC0	6.07
GRASIM	3.54	ZEEL	5.58

Top Gainers / Losers in overall market:

Scrip	% Gain	Scrip	% Loss
TIPSINDSLTD	38.96	CANDC	20.66
JINDALPOLY	28.48	KOTHARIPRO	18.33
JAICORPLTD	27.63	VENKEYS	17.55
VOLTAMP	27.30	AXIS-IT&T	16.61
JINDALPHOT	25.74	SHAHALLOYS	15.87

We discussed about Jindal Photos Limited in “Technical review of select India stocks – Part 2”.

The India Street analyzed Puravankara Projects Limited IPO. The issue was to close on August 3 and it received a very poor response. Bids for 7.6 million shares were received till 1700 hours on Friday, for an issue size of 21.47 million shares (36% subscription). This is attributed to the negative news on the realty index and real estate sector.

The Book Running Lead Manager to the issue has informed the National Stock Exchange that the issue will close on August 8, 2007 instead of the earlier closing day of August 3, 2007. Further, price band has revised from Rs.500/- to 525/- per share to Rs.400/- to Rs.450/- per share.

Everonn Systems India Limited got listed with a big bang on August 1. Its issue price was Rs.140. However it opened with a premium of Rs.105 at Rs.245, reaching a high of Rs.567 on the day of listing. It closed at Rs.474.25 on August 3.

Realty Index:

Chart courtesy: BSE web site (www.bseindia.com)

http://groups.google.com/group/theindiastreet/web/Realty_Daily.JPG

The daily chart of BSE realty index is shown above. Watch the upward and downward gaps in the chart. The downward gap indicates that there would be some sell off, as it was confirmed on August 1. So it didn’t come as a surprise. Same principle is applicable for the upward gap too.

Click here to view the status of The India Street stock picks.

Sundaramurthy Vadivelu

Suggested Reading

India Stock Market – July Monthly Review Feeling Bullish - India Stock Market Weekly Review 5 Reasons to be Bullish in the Long Run 5 Reasons to Remain Bullish on India Stocks in the Short Term Video: India vs. China – Which is Better

Puravankara Projects IPO – The India Street Analysis

Summary

The Issue: With so many real estate IPO’s entering the capital market will there be reasonable returns from this stock in long term?

The Answer: We expect yes as this company is backed by decent financials, good experience and strong marketing network.

Puravankara Projects Limited is a Bangalore based real estate developer company with more than 30 years of presence in Mumbai, Bangalore, Kochi, Chennai, Coimbatore, Hyderabad, Mysore, Colombo and the United Arab Emirates (U.A.E). Its public issue opens July 31, 2007 and closes on August 3, 2007.

Business Overview:

The operations of the company include identification/acquisition of land, planning, executing and marketing of real estate projects. Both residential and commercial projects are executed. Residential projects consist of apartment complexes, villas and townhouses while commercial projects include retail and office premises.

The company was originally incorporated as Puravankara Constructions Private Limited in 1986 at Mumbai. In 1992 it was made a public limited company and the name was changed as Puravankara Projects Limited.

The total land area available is 38.07 million square foot, developable area is 116.24 million square foot and saleable area is 106.80 million square foot.

The company’s real estate development is concentrated primarily in southern India i.e. Bangalore, Chennai and Kochi. It has also acquired roughly 1.06 million square foot of land in Colombo for luxury residential project consisting of independent villas and townhouses.

The list of completed projects so far is given below:

At Mumbai:

Project Name	Saleable area
Uran Park, Mora Road	0.02

At Bangalore:

Project Name	Saleable area
Purva Park, Cox Town	0.50
Castlemaine, Jayamahal Road	0.02
Purva Nest, Cambridge Road	0.01
Purva Graces, Yelahanka	0.17
Purva Iris, Cox Town	0.06
Purva Heights, Bannerghatta Road	0.35
Purva Paradise, Domlur	0.05
Purva Fairmont, Koramangala	0.41
Purva Pavilion, Hebbal	0.24
Purva Parkridge, Marathahalli	0.35
Purva Carnation, Cox Town	0.08
Whitefield Bouganvilla	0.07
Purva Riviera, Marathahalli	1.26

Saleable area is in million square foot.

The company has also completed a commercial project, The Pavilion, on M.G. Road, Bangalore and it is ready for occupation. One more commercial project is being undertaken at Chennai with a saleable area of 0.35 million square foot.

There are 4 residential projects currently under execution at Bangalore on land that is owned by the company with a saleable area of 6.41 million square foot. These are Purva Grande (Lavelle Road), Purva Fountainsquare (Marathalli Junction), Purva Venezia (Yelehanka) and Purva Highlands (Kanakapura Road).

Similarly there are two ongoing projects at Chennai. These are Purva Swanlake (Old Mahabalipuram Road), Purva Jade (Arcot Road) with a total saleable area of 0.92 million square foot. In addition, at Kochi, there are three more projects currently in progress. These are Purva Grand Bay (Marine Drive), Purva Eternity (Kakkanad), Purva Moonreach (Airport Road) with saleable area of 1.86 million square foot.

The company also executes 5 more projects at Bangalore on joint development basis with a total saleable area of 1.44 million square foot.

A view of the Purva Fairmont, HSR Layout, Koramangala, Bangalore

The company has entered into a joint venture (Keppel Puravankara Projects Private Limited) with Keppel Investment Mauritius Private Limited, a subsidiary of the Singapore based Keppel Land Limited. Elita Promenade, a residential project in Bangalore, is being executed with a saleable area of 1.22 million square foot by this joint venture.

Through its IPO the company plans to mobilize Rs.1,125 crores at the upper price band of Rs.525, which shall broadly be used for repayment of loan of Rs.420 crores and Rs.351 crores for acquiring 43.56 million square foot land in and around Sriperumbudur and Kancheepuram near Chennai. After the IPO promotors shall have 89.95% stake in the company.

Financial data:

Item	2003	2004	2005
Income	41.35	76.38	151.03
Expenditure	32.29	59.94	110.60
Profit before tax	9.06	16.44	40.43
Net profit	6.49	15.44	38.02

Item	2006	2007
Income	280.42	416.86
Expenditure	197.81	284.53
Profit before tax	82.61	132.33
Net profit	73.45	130.40

All figures in Rs. Crores.

Comparison with some listed companies:

Company	EPS	P/E	Book value
BLKASHYAP	43.80	35.00	237.80
PENINLAND	57.00	8.60	104.80
ANSAL **	9.40	29.90	80.50
PURVA **	6.80	77.20 *	11.50

* At the upper price band.

** Face value of Ansal and Puravankara is Rs.5.

IPO Details:

• Issue Period: July 31, 2007 to August 03, 2007
• Issue Size: 21,467,610 Equity Shares
• Face Value: Rs. 5
• Price Band: Rs. 500 to Rs. 525
• Market Lot: 10 shares
• Minimum Quantity: 10 shares
• Retail Investor Limit: Rs.100,000

Click here to download application form.

Click here for Red Herring Prospectus.

Conclusion:

Puravankara has a strong presence in southern India, where lot of IT companies have set up their operations. After Sobha Developers, Puravankara is the second Bangalore based realty major to enter the capital markets. The company sells the real estate properties directly to the customers with marketing offices in India and UAE. The strong marketing network will help the company to reach the large NRI population in Gulf countries.

Puravanakara has the industry experience and technical expertise. Moreover, it owns nearly 43% of the developable land which gives a distinct advantage.

At the upper price band Rs.525, EPS of 6.80 and P/E of 77.20, the stock may be slightly expensive but there seems to be some considerable upside, based the growing demand in real estate industry and company’s ongoing / proposed projects.

Sundaramurthy Vadivelu

Suggested Reading

DLF IPO overview HDIL IPO Expected to be a Winner Omaxe IPO A Good Investment – The India Street Analysis IVR Prime Urban Developers IPO: May Want to Avoid in the Short Term BSE India launches New Real Estate Index · Video: Selling Naked Puts – We Bare All

Omaxe IPO A Good Investment – The India Street Analysis

The India Street analyzed DLF IPO and HDL IPO recently. Another Delhi based real estate developer, Omaxe Limited plans to raise about Rs.605 crores through their initial public offering. The issue opens on July 17 and ends on July 20. The proceeds of the IPO will be utilized to acquire lands, repay loans and to meet construction costs.

The company was originally promoted by Rohtas Goel as Omaxe Builders Private Llimited in 1989. The primary objective was to venture into construction and contracting business. It became a limited company in 1999 and the name got changed as Omaxe Construction Limited. Now it is just Omaxe limited. The company has executed more than 120 industrial, institutional, commercial, residential and hospital construction projects. Omaxe entered into real estate development in 2001.

Within about 5 years of its entry, it has completed and delivered 10 projects (8 residential and 2 commercial) covering approx 5.13 million square foot area, with on time schedule. About 52 projects are in currently in progress. These include 1 hotel, 14 commercial complexes / shopping malls, 16 integrated townships and 21 group housing projects. Omaxe has declared land reserves of 3,255 acres, representing 150 million square foot of developable area, mainly in North India, but spread across nine states.

The company has received several awards such as ‘Svedala’, ‘Udyog Ratna', ‘Pride of the Country', ‘Arya Vaidya Sala' for excellence in construction.

The following tables show the company’s residential projects:

Delhi:

Location	Name	Status
Bahadurgarh	Omaxe North Avenue	In progress
Faridabad	Green Valley Omaxe Hills Omaxe Heights The Forest	Delivered In progress Delivered In progress
Location	Name	Status
Ghaziabad	Habitat Floors	Delivered
Greater Noida	NRI City Omax Palm Greens	Delivered Future plans
Gurgaon	The Nile South Avenue Mayfield Garden Olive Apartments Executive Floor	Delivered Delivered Delivered Delivered Delivered
Noida	The Forest Royal Residency Grandwoods Omaxe Twin Towers The Forest Spa	Delivered Delivered In progress In progress In progress

Designer Villas at South Avenue, Gurgaon

Haryana:

Location	Name	Status
Palwal	Omaxe City	In progress
Rohtak	Omaxe City	In progress
Sonepat	Omaxe City	In progress

Himachal Pradesh:

Location	Name	Status
Baddi	Omaxe Park Woods	In progress

Madhya Pradesh:

Location	Name	Status
Indore	Omaxe City Omaxe City II	In progress Future plans

Punjab:

Location	Name	Status
Derabassi	Omaxe Greens	In progress
Patiala	Integrated Township	Future plans
Ludhiana	Royal Residency	In progress

Rajasthan:

Location	Name	Status
Bhiwadi	Group Housing	Future plans
Jaipur	Omax City	In progress

Uttaranchal:

Location	Name	Status
Rudrapur	Omaxe Riveria	In progress

Uttar Pradesh:

Location	Name	Status
Ghaziabad	Habitat Floors	In progress
Lucknow	Omaxe City Omaxe Heights	In progress In progress

The following tables show the company’s commercial projects:

Delhi:

Location	Name	Status
Jasola Wazirpur	Omaxe Citadel Pearls Omaxe	In progress In progress

Haryana:

Location	Name	Status
Gurgaon	Omaxe Plaza Wedding Mall House2Home	Delivered In progress In progress
Sonepat	Omaxe Mall	Future plans

Punjab:

Location	Name	Status
Amritsar	Omaxe Terminal Mall Omaxe Novelty Mall	In progress In progress
Ludhiana	Omaxe Plaza Omaze Mall	In progress In progress
Patiala	Wedding Mall	In progress

Pearls Omaxe at Wazirpur, Delhi

Uttar Pradesh:

Location	Name	Status
Agra	Wedding Mall	In progress
Greater Noida	Omax Arcade NRI City Centre Omaxe Cannaught Palace	Delivered In progress In progress
Indirapuram	Park Plaza	In progress
Lucknow	Omaxe City Centre	In progress

Except Omaxe Plaza at Gurgaon and Omaxe Arcade at Greater Noida (which have been sold), rest of the commercial projects are ‘Lease only’ model.

The company has got ISO 9001 certification from Det Norske Veritas (DNV), The Netherlands.

Financial performance in the recent past:

(All figures in Rs. Crores)

Item	2004	2005
Income	283.73	396.60
Expenditure	264.18	367.02
Profit before tax	17.24	26.37
Net profit	8.35	5.04

Item	2006	2007
Income	819.86	1,439.68
Expenditure	667.27	1,083.99
Profit before tax	146.70	322.32
Net profit	118.82	257.26

It can be noted from the above tables that the net profit has gone up from Rs. 5 crores in 2005 to about Rs.257 crores in 2007. This indicates strong demand for the real estate sector during this period.

The following table compares the EPS and book value among some listed real estate companies in India.

Company	EPS	Book value
Omaxe	16.72	29.87
Mahindra Gesco	3.50	189.30
Unitech	7.90	2.80
Parsvnath	5.7	69.9
Sobha	22.2	118.3

IPO details:

• Start Date: 17 July, 2007
• End Date: 20 July, 2007
• Issue Size: 1,77,96,520 shares
• Face Value: Rs.10
• Price Band: Rs.265 – Rs.310
• Market Lot: 20 shares
• Minimum Quantity: 20 shares

Download the RHP (Red Herring Prospectus) here.

Conclusion:

The company’s success has been primarily attributed to professionalism and transparency. It has successfully established in the real estate sector after starting as a civil engineering contractor. The track record of the company in executing the projects is exceptional. At the offer price of Rs.265 – Rs. 310, the P/E ratio is 18 to 20 times the company’s consolidated earnings for 2006 - 07 on the expanded equity base. The offer is at a discount to companies of a similar size in the real estate sector.

Some of its major competitors are concentrated in and around Delhi like DLF, Unitech etc. So this company faces tough challenges since they have to compete with better known players. It also has relatively lesser experience in this field than their main competitors.

Investment can be considered in the IPO with a long term perspective.

SUNDARAMURTHY VADIVELU

Suggested Reading Stock related Articles

DLF IPO overview HDIL IPO Expected to be a Winner BSE India launches New Real Estate Index

BSE India launches New Real Estate Index

The Bombay Stock Exchange (BSE), founded in 1875 with 318 members, is the barometer of the Indian stock market. Located at Dalal Street in the central business district of Mumbai, the stock exchange accounts for a market capitalization of nearly USD 1 trillion.

In 1986 BSE introduced SENSEX (SENSitive indEX) comprising of 30 well established Indian companies with the base year 1978 – 79. It is one of the indices the financial world tracks regularly. Since September 2003, “free float market capitalization” methodology is followed. In full market capitalization methodology, the total market capitalization of a company, (including those held by promotors, government agencies etc.), is taken into consideration for computation of an index. But in free float methodology, market capitalization is computed as the proportion of total shares issued by the company, which are readily available for trading in the market. It normally excludes promoters' holding, central/state governments’ holding, strategic holding and other locked in shares, which cannot be traded in the market.

BSE has introduced several indices so far. These include:

BSE 100

BSE 200

BSE Dollex 200

BSE 500

BSE PSU

BSE Midcap

BSE Small cap

BSE Bankex

BSE Teck

BSE Auto

BSE Healthcare

BSE Fast Moving Consumer Goods

BSE Consumer Durables

BSE Metal

BSE 100 comprises of 100 major stocks listed at five major stock exchanges in India at Mumbai, Kolkata , Delhi , Ahmedabad and Chennai. The mid cap and small cap indices represent relatively smaller companies. The teck index includes IT, media and telecom stocks.

Real estate prices, both residential and commercial, have soared up in the last few years in India due to huge demand. Very strong growth has been witnessed in this sector. Many domestic and international investors have been attracted by the Indian real estate industry. More growth is anticipated in the sector since the real estate market capitalization in India is 4.2% where as global norm is 15%.

Several real estate companies have come up with IPOs. The Indiastreet analyzed DLF, HDIL IPOs and Indiabulls Real Estate stock in various articles.

On July 9, 2007 BSE had introduced yet another index – The BSE Realty Index comprising of real estate stocks.

The base year for the index is 2005 and base index value is 1000. Like the Sensex, this index is also computed using free float methodology. 11 scrips are included in the Realty Index, representing about 95% market capitalisation of real estate development companies in BSE - 500 index. On July 9, the index value was reported to be 7333.97.

The following table shows the list of 11 companies, their free float market capitalization and weightage in the Realty Index.

Company	Free float market capitalization (Rs. Crores)	Weightage (%)
DLF Limited	14,542.01	35.94
Unitech Limited	12,773.71	31.57
Indiabulls Real Estate Limited	5,639.65	13.94
Parsvnath Developers Limited	1,375.80	3.40
Ansal Properties & Infrastructure Limited	1,213.38	3.00
Mahindra Gesco Developers Limited	1,096.16	2.71
Sobha Developers Limited	1,011.35	2.50
Anant Raj Industries Limited	890.13	2.20
Phoenix Mills Limited	725.06	1.79
Peninsula Land Limited	707.12	1.75
Akruti Nirman Limited	489.84	1.21

Total free float market capitalization: Rs. 40,464.21 crores

Total market capitalization: Rs. 179,499.70 crores

The following table gives the yearly historical stock prices of the constituent stocks. (Source: BSE web site, www.bseindia.com)

Company	31/03/04	31/03/05	31/03/06	31/03/07	Current
AKRUTI				405.85	499.90
ANANTRAJ		15.82	693.50	1103.45	1299.00
ANSALINFRA 1	19.70	111.95	721.30	527.50	311.45
DLF					590.45
GESCOCORP	21.05	122.45	462.20	568.30	558.20
IBREALEST				298.10	501.40
PARSVNATH				259.00	383.25
PENINLAND	34.25	132.40	661.25	371.70	484.75
PHOENIXLTD 2	1134.15	6105.00	976.25	1603.50	2009.75
SOBHA				800.70	955.00
UNITECH 3	85.05	337.35	2785.45	387.35	542.40

¹ Price adjusted in November 2006 ² Price adjusted in December 2005

³ Price adjusted in June 2006

ANSALINFRA, GESCOCORP, PENINLAND and UNITECH have performed very well in the bull market. GESCOCORP touched a high of 1300 in May 2006 but has fallen considerably since then.

Today’s intraday chart of Realty Index is plotted below, with Sensex by its side as a comparison.

Source: BSE web site www.bseindia.com

http://groups.google.com/group/theindiastreet/web/REALTY.JPG

Today, the sensex has lost 99 points or 0.66% whereas the realty index has gained 249 points or 3.38%. BSE Metal index was the next highest gainer with 162 points or 1.48%. The BSE IT index lost 168 points or 3.34%.

However, considering BSE Sensex with base year 1978 – 79 and base value of 100, it has appreciated nearly 150 times in 28 years. Realty index though, has appreciated nearly 7.6 times in just about 2.5 years. DLF has nearly 36% weightage, Unitech has 31.5%, Indiabulls Real Estate has about 14%. Unitech has appreciated considerably (more than 11 times) in the last 2.5 years. DLF and Indiabulls Real Estate are relatively new issues.

Conclusion:

Sectoral indices (like healthcare, auto, metal, IT, realty etc.) are useful in analyzing how a particular industry or sector has performed over a period of time. Since the constituent stocks are chosen from the same industry, it presents a clearer picture about the sector than the overall index. Real estate industry is being projectd for further growth. We can anticipate that the realty index too performs well in future.

Suggested Readings:

http://www.theindiastreet.com/2007/06/dlf-ipo-overview-dlf-universal-limited.html

http://www.theindiastreet.com/2007/06/hdil-ipo-expected-to-be-winner.html

SUNDARAMURTHY VADIVELU