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Thursday, April 3, 2008

Stock Recommendations: 8

STOCK UPDATE

Balaji Telefilms
Recommendation: Buy
Price target: Rs355
Current market price: Rs198

Price target revised to Rs355
Balaji Telefilms Ltd (BTL) and Star entered a 49:51 joint venture (JV) in April 2007 (with BTL having a 49% stake) to launch regional entertainment channels in Telugu, Kannada, Malayalam, Bengali, Marathi and Gujarati. Star transferred its Tamil channel Star Vijay to the JV. Forward integration in regional broadcasting arena (especially south Indian language channels) with a world-class broadcaster like Star (with BTL's expertise in content) promised immense value creation potential for BTL and acted as a trigger for the stock. However the broadcast venture has been considerably delayed, as the first of these channels in Telugu that was to go on air by September 2007 and to be followed by the launch of at least four other regional language channels over a period of time are still to operationalise. The management has cited procedural issues to get the required approvals as the reason for the delay. In the absence of clarity on the timeline for the launch of these channels, the worst-case scenario would be that the JV might be called off. Considering this, we have conservatively revised our estimates and price target for the stock.



Q4FY2008 IT earnings preview

The frontline tech stocks are expected to show a sequential revenue growth of 5-8% during the fourth quarter ended March 2008. The sequential growth is likely to be driven by a 4-7% growth in the volumes aided by the depreciation of rupee by around 90 basis points over Q3FY2008. We expect Satyam Computer to continue with its strong growth momentum and outperform its frontline peers. On the other hand, Tata Consultancy Services (TCS) could lag behind due to customer specific issues, whereas HCL Technologies will face pressure on its earnings growth due to foreign exchange (forex) fluctuation.


SECTOR UPDATE

Automobiles

Mixed bag
Sales of automobile majors for March 2008 were a mixed bag. Two-wheeler sales improved, particularly for the market leader Hero Honda, however our channel checks reveal that the segment is still witnessing pressures because of non-availability of finance, as financers are still reluctant to lend in the wake of rising cases of delinquencies and defaults. Maruti Suzuki's sales were affected due to intense competition in the passenger car segment, while the commercial vehicle (CV) segment appears to have started witnessing a recovery of sorts with the recent improvement in the freight rates, which also points to an end to the CV downturn. However, a delay in the interest rate cut could prolong the downturn.

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