A fair price?

Societe Generale, if it buys into Bank of Rajasthan, will not be getting a bargain

Foreign banks are obviously keen to get a foothold in the Indian market. After ING Bank's investment in Vysya Bank and HSBC picking approximately 14 per cent stake in UTI Bank, there's news that the Paris-based Societe Generale is planning to pick up a 14.5 per cent stake in the Bank of Rajasthan (BoR).

Reports suggest that management has indicated Rs 85-95 a share for the sale. Not surprisingly, the stock soared 20 per cent on Thursday to Rs 68.40.

Societe Generale, which has two branches in India, is presumably hoping to grow its business in a market that is important to be in. At Rs 85-95, the stock is valued at 2.76-3.08 times its book value as on March 2004.

Valuations for banks in the same group are much lower at around 1.44 for Bank of Punjab Ltd and 1.05 for Bank of Maharashtra. At FY04's earnings per share of Rs 6.42, the price-earnings multiple works out to around 13.2. Bank of Punjab is trading at a multiple of around 9.5 times FY04 EPS, while Bank of Maharashtra trades at barely four times FY 04 earnings.

BoR with 361 branches and 42 extension counters is larger than peers Bank of Punjab and The Karur Vysya Bank. But more importantly, the bank's non-performing assets (NPAs) are also far higher "" BoR's net NPAs stood at 3.99 per cent in Q2FY05"" while it was 2.89 for Bank of Maharashtra and 2.22 per cent for The Federal Bank.

No doubt, the bank has stepped up write-offs and provisioning "" net NPAs at the end of FY04 were brought down to 72.63 crore from Rs 151 crore.

Like most other banks BoR, too, saw a sharp decline in treasury profits, a 43 per cent drop in its net profit to Rs 19.92 crore in the September quarter largely owing to a 91.9 per cent drop in other income.

So Societe Generale, if it buys into BoR at these levels, will not really be getting a bargain. But then, if it wants more than a toe hold in India and is confident of being able to make a profitable proposition, it might just be willing to pay.

Indian Hotels

The hotel industry too is beginning to see consolidation with Taj GVK Hotels and Resorts buying the Chennai-based Sri Tripurasundari Hotels for Rs 32 crore.

Taj GVK is an associate company of Indian Hotels, in which the latter has a 26 per cent stake. The Taj-GVK stock has more than doubled to touch Rs 325 from levels of Rs 115 in July this year.

With foreign tourists flocking to India, more than 3.5mn tourists are expected in FY05, it makes sense for hotel companies to grow the business.

The management claims that the Chennai property, located in the central business district, needs infusion of funds so that it can be upgraded to five-star levels. The amount mentioned is around Rs 50 crore, taking the total amount that will need to be forked out to around Rs 80 crore.

That seems to be a somewhat large amount for a company which did a turnover of Rs 87.6 crore and notched up a profit of Rs 12.71 crore for the year ended March 2004, but it has a net worth of Rs 98 crore.

That will allow the company to leverage since a sizeable amount of the investment will need to be borrowed. So there could be some pressure on the margins till the hotel is up and running, which could take another year or so.

However, the demand for hotel rooms in the metros is strong , so once commissioned, the revenues should flow in. For Indian Hotels, which is growing its business through associate firms, this is an opportunity to earn a management fee and, at some point, higher dividends.

Personal computers industry

Personal computer (desktop) sales zoomed 37 per cent in the first half of this fiscal, according to hardware association, MAIT.

This is better than the 32 per cent growth the industry managed in 2003-04. Notebook sales jumped by 119 per cent, albeit on a small base, accounting of just about 4 per cent of total personal computer sales.

If that isn't good enough news for PC manufacturers, consider this: the share of branded PCs has improved from 43 per cent in last year's first half period to 56 per cent this time around.

It's multinational manufacturers which are leading this shift to branded products, with their share having increased to 33 per cent this year from just 23 per cent last year.

But even domestic brands improved their share, albeit by a lower margin of three percentage points to 23 per cent. In unit terms, sales of domestic brands improved by 57 per cent, much higher than the overall growth.

But not all of this would have translated into value growth, since the volume growth was aided by lower selling prices. For the industry, although unit sales grew 37 per cent, growth in value terms was just 16 per cent.

For larger players such as HCL Infosystems, the relatively lower growth (in value terms) in the PC segment is made up by other segments such as office automation and telecommunications which includes the distribution of Nokia's mobile handsets.

As a result, overall revenues grew 84 per cent in the September quarter for HCL Infosystems. The impressive growth in PC unit sales has only made things rosier for the HCL Infosystems stock, which now trades at close to a five-year high.

With contributions from Amriteshwar Mathur, Shobhana Subramanian & Mobis Philipose