Stock updates: GMR, RIL, SBI and Balaji

4 comments Written on August 25th, 2006 by
Categories: Stocks
GMR Infrastructure - Post IPO story
I had suggested avoiding the GMR IPO, which was later issued at Rs. 210 per share.

Current Price: Rs. 225.05
IPO Price: Rs. 210
Gains: 7.2% (since Aug 21 listing)
Recommendation: Don't bother.

Largely I don't like high P/E stocks where visible growth is limited. The spike in the price could be the "close to listing day" period gains, but it's interesting to note that the stock opened close to the purchase price. I'm not sure this share is worth locking your money for.

Reliance Industries Limited (RIL)
First recommended here, and follow up here.

Current Price: Rs. 1112.3
Recommended at: Rs. 850
Additional (free) shares since recommendation: Reliance Infocomm (Rs. 298) and others equivalent to about Rs. 100.
Total Gain: 78% (in 8 months) Recommend: Hold. Sell if it falls below 1,100 or touches 1,200.

I've always liked this company, but I would recommend you hold (don't buy more). For a more aggressive approach, sell 5 out of 10 shares you own. The share seems like it's overvalued with growth at around 7% projected in 2007 and current P/E is already 13.9. Stop losses at Rs.1,100 and exit at Rs. 1,200.

State Bank of India (SBI)
First recommended here and follow up here.

Current Price: Rs. 905
Recommended at: Rs. 922
Total Loss: (-2%) (in 8 months) Recommend: Sell.

Bad hit there. The share went to Rs. 1000 and then dipped, down to Rs. 690 (I bought a few that day) and it's back up on news that the SBI act has been modified to allow it to issue preferential shares. The bad news is that interest rates are rising and banks are being forced by this government to keep interest rates artificially lower - maybe not right now but next time there will be more vociferous opposition to raising rates. Additionally the Insurance business has not yet started contributing to profits, and the losses will be amortised for a while. The new chairman has also reversed some of the key Purwar decisions like spreading the banking software, and foreign acquisitions.

In this light my recommendation is to sell. There's a good time now, with prices hovering around Rs. 900. If the outlook starts getting better in terms of stable interest rates, greater credit offtake or faster growth predictions, I will post here.

Balaji Telefilms
First recommended here.

Current Price: Rs. 136
Recommended at: Rs. 118
Total Gain: 17% (in 10 days) Recommend: Hold, buy below 130, sell at 175.

The share looks pretty good and the company has paid out dividends very fast (Rs. 3 per share). The reserves are now at around Rs. 25 per share, and the TV viewership and ratings seem to be increasing for their shows. Balaji has recently set up a subsediary in Sharjah for the Middle eastern market - Operational from November 2006. This is very positive use of the cash kitty. Further, the first quarter earnings for FY 2006-07 are up 38% from 1st Q 05-06. This points to a FY 06-07 earnings of about 13 per share, which, at today's PE of 15 will fetch a price of Rs. 195 per share. I would suggest a target price of Rs. 175 in one year.

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About the Author:
http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@capitalmind.in.

4 comments “Stock updates: GMR, RIL, SBI and Balaji”

>Hi Deepak,

I am new to the field of financial planning, managing finances etc but am not trying to seriously understand the subject matter and put it to practice. Your blog has provided wealth of information on the subject and explained a lot of things to me and a lot of others as well. Please keep up the good work.

My question is whether you would still recommend RIL (CMP of 1466 odd) or now is not a good time to enter this stock? Please advice.

Regards,
Sumeet

>Thanks for your kind words, Sumeet.

RIL has a tremendous growth potential, and I think it’s still a good buy. With the merger from IPCL imminent, RIL will benefit from the higher earnings (and lower PE) of IPCL. So for about a year time-frame, I would say buy, for gains of about 25-30%.

A better strategy would be to keep this share for about 5 years. I believe the net value of the share will increase by about 20% annually over the period.

>Deepak,

With the inflation coming down to 5.74 % and considering that its unlikely that RBI is going to increase rates the next time they meet to review the monetary policy, isn’t it better to hold on to SBI for while? And also recently PC hinted at reducing the interest rate if the inflation comes down to 5 % range, do you think inflation is unlikely to come down to that level anytime soon?

And I think RIL is still a strong buy, considering that there will be a value unlocking in the form of retail and pharma.

Thank you.

>Sushant: This is a very old post – August 2006, that just got bumped up in the RSS feed, I think.

My recos were considering RIL and SBI then. Right now RIL is a buy with the IPCL changes. (Prior to that RIL was around 1280, an appreciation of only 10% since the August hold reco)

SBI is not something I would buy (or any bank for that matter). Not just because of interest rates, which I think will stay about 10-11% because any attempt to bring them below that will fuel inflation again. But also because of CRR issues, reserve allocation hikes for personal and real estate loans, high interest lock in for (most) deposits, and lower income projections from retail in general.

Of course there is a trigger for SBI – if it actually decides to list the subsediaries. Otherwise, this is a no go.