Daily Silicon Valley Reporter
Google Tablet Delayed. Although we know precious little about Google's upcoming Nexus tablet, we do now seem to know one fact: It's delayed. Earlier reports had suggested a June time frame, with the device priced at around $249 ($150 less than the iPad 2's new price). But Google and maker-partner Asus are said to be delaying the launch until July so they can optimize its price, which may actually then be much lower--perhaps even $150. Rival and also, paradoxically, maker-partner Samsung recently said it was delaying the Galaxy Tab 2 due to extra work needed on its Android 4.0 OS.
Instagram About To Get $50 Million Injection. Instagram is poised to receive a cash input in a Series B funding round of some $50 million led by Sequoia Capital, so the rumors go. That would place the young social network at a valuation of some $500 million, which is roughly 200 times less than Facebook's value--actually an astonishingly big percentage, given how new Instagram really is and how narrow its focus versus the sprawling Facebook.
Is Web 2.0 Over? Cofounder of influential VC firm O'Reilly AlphaTech Ventures Bryce Roberts has a fascinating opinion post up that questions if we're already at the boundary of Web 2.0 (the interactive web) with Web 3.0. In his mind, efforts like Google's Glass and many other highly successful tech efforts out there are all about gathering vast amounts of data. It may be "data monopoly or also-ran," he worries. Given many developments in tech at the moment, Roberts has a point.
Facebook To List On Nasdaq, Not NYSE. Although the value of companies listed on the NYSE is about triple that of Nasdaq's companies, Facebook--in what is likely to be one of the splashiest and most important tech IPOs of the next 10 years--has chosen to list on Nasdaq.
Google's Larry Page On Google's Future. Google CEO Larry Page has an open letter on Google's 2012 plans and the future--though it's in general terms, the theme sends to be "more of the same from Google." Core search will continue, but Google will also pursue unexpected side projects like Glass, and Page ended the letter noting "happiness is a healthy disregard for the impossible."
Anonymous Chinese Hacktivist Reveals Secrets. A hacker called Hardcore Charlie has revealed that he's hacked into a Chinese military contractor's computer systems and discovered documents that reveal information on the U.S. military effort in Afghanistan. It's a big development on Anonymous's recent effort to expose China to the same sort of digital assault the hackers have used elsewhere around the world.
HTC Profits Slip Thanks To Phones. HTC is now well-known as one of the biggest and best makers of Android phones, but the firm has just revealed financial figures that are its biggest drop in profit since it IPO'd over a decade ago. The Taiwan firm's net income for the last quarter was $151 million, down 70% on a year ago and even underperforming on gloomy analyst expectations. It was because it "dropped the ball" on phones, according to its CFO, and lost sales to Apple and Samsung.
Daily Silicon Valley Reporter
Over Half-A-Million Macs Affected By Virus. According to a Russian security expert, over 600,000 Macs have been infected with the Flashback trojan virus. It's installed simply by visiting an infected website, and can steal personal info like passwords, which it reports back home. Over half the infected machines are in the U.S. But a manual fix is available, and Apple has recently patched the security loophole that enabled it.
U.S. Lags Much of Europe, East, In Homes With Wi-Fi. According to a new survey by Strategy Analytics, just 61% of U.S. households have a wireless LAN to share their broadband connection with TVs and mobile gadgets. South Korea and the U.K. led the survey results with 80.3% and 73.3% penetration, and many European nations beat the U.S., as do Japan with 68.4% and Canada with 67.8%.
Dell Acquires Legacy Code Firms. Dell has just bought Make Technologies, a firm that specializes in updating legacy applications and systems for corporate IT clients, for an unmentioned sum. It's a most recent in a swift round of purchases that's seen Dell buying similar companies. Presumably Dell is sensitive to the rapid changes in the computing market such as cloud tech and the upcoming upset of Windows 8, and is hedging against it.
Pottermore Sells $1.5 Million Worth Of Harry Potter In 3 Days. Harry Potter's digital debut was much-delayed, but it is here now, and by all accounts is a success. In just three days of being open, over one and a half million dollars' worth of e-books (over £1 million, in Pottermore's native British value) sold. At the average price of each text, that's over 164,000 copies.
Apple Addresses iPad Wi-Fi Error. The new iPad has, for a few users, suffered intermittent Wi-Fi connectivity problems (the Wi-Fi-only model seems at fault). Apple has now acknowledged the occasional flaw in its flagship tablet product, and via a leaked store memo we know it's telling staff to send suspect units to the lab for testing and possible replacement.
Intel's StudyBook Is A Tablet For Schools. Intel's Classmate netbook design has been used successfully used as a template for education-centric netbooks around the world--such as the Magalhães in Portugal--but now Intel has realized there's a whole new tech market it can address: Tablets. Thus it's created the StudyBook, a school-centric reference tablet design based on Intel CPUs, dual-booted with perhaps Windows and Android and costing less than $299.
Anonymous Aims At China. Diffuse hacktivist collective Anonymous has targeted hundreds of official Chinese government websites in its latest protest. While some were merely defaced with Anonymous branded imagery and messages--inciting the population to resist government censorship--others were more seriously breached with administrator passwords leaked online. Interestingly it's a new branch of Anonymous which seems to be based in China itself, dedicated to resisting the government's control of the population.
Daily Silicon Valley Reporter
Yahoo Loses 2,000 Staff. In order to be "smaller, nimbler, more profitable and better equipped to innovate as fast as our customers and our industry require," as CEO Scott Thompson explained in a letter, Yahoo has just cut 2,000 staff. That's around 14% of its workforce. Yahoo has said for a while that serious change was coming, and the move isn't hugely unexpected, but it does paint a worrying picture. As does the word "urgent."
Google And Paramount Bring Movies To YouTube. Google is partnering with 100-year-old movie studio Paramount to allow users to rent 500 more films including The Godfather andTransformers on YouTube. That makes six partnerships in total that Google has made with big Hollywood studios.
"Next Issue" Delivers Magazines To Your iPad. For a monthly subscription of $10 or $15, you can have access to a host of magazines (without the annoying mail-back pullouts) via Next Issue's new iPad app. That's an attractive, Netflix-esque offer for iPad owners, but also a sign that the publishing industry is trying a few new approaches to strutting their digital stuff.
Facebook Sues Yahoo. Facebook is taking a breather from IPO prep to file a suit against Yahoo, in swift response to Yahoo's 10-patent suit against Facebook. In late March, Facebook bought a stack of 750 patents off IBM. Now it's suing Yahoo for photo tagging features, online recommendations, advertising… and at least one of those claims is made on a patent Facebook acquired after Yahoo made the first sue move. --NS
LinkedIn Woos Japanese Users. LinkedIn is stepping up its game in Japan and has launched a "How To" guide--video explainers that introduce people to the service, and a technique used before by Facebook and Twitter. This is just a few weeks after Facebook announced it had reached 10 million users in the country where, oddly enough, a main use for the social network is to build and maintain business connections.
Google Maps Updates London Olympics Schedule With Real Time Delays. What will you do with all that free Wi-Fi time you're going to get while waiting for Olympics-bound public transport in London? Now you can check if your train is delayed. As part of a pre-Olympics rollout, Google Maps has started posting delay information for the London tube, updated in real time.
Daily Silicon Valley Reporter
Amazon Pilot Tests In-App Payments. Amazon could be setting up to earn more from the Kindle Fire by a new in-app payment system that Bloomberg's heard the company's been piloting. It's a strategy that Google and Apple have both been following for some time now--when users buy items from within an app, it's a kick in revenue for both the device maker and the app builder.
EU Sizes Up Motorola In Antitrust Investigation. The EU's antitrust inspector is launching an investigation into Motorola Mobility and its patent licensing practices, especially those it cited in its injunctions against products like the iPhone, iPad, Xbox, and more. This comes after Apple and Microsoft petitioned the EU saying Motorola was being "anticompetitive" and wasn't playing fair.
Google Buys TxVia For Wallet. Google has bought up payments tech startup TxVia. Google says it values the "fast, flexible and highly reliable payments platform" and intends for partnership to "accelerate innovation" on developing the Google Wallet system. In other Wallet news, cofounder and engineer has jumped ship to Square, where, according to his LinkedIn page, he's snapped up the role of "Hyperspatial Payments Pioneer."
Travel Sites Lodge Antitrust Complaints Against Google. Travel sites Expedia and now TripAdviser are filing antitrust complaints in Europe against search giant Google. The companies say Google's preferential travel search practices put rival travel sites at a disadvantage--something that's anti-competitive, and, frankly, unsporting. The EU will decide this month if the complaints warrant a case against Google.
Pinterest Cofounder Leaves For Andreessen Horowitz. Following yesterday's rumors that he was leaving Pinterest, cofounder Paul Sciarra has confirmed in a blog post on Pinterest that he's moving on to join Andreessen Horowitz as entrepreneur-in-residence. The Pinterest journey had been a singular one, as he reminisced, "I can almost guarantee that this is the only company ever that’s been offered homemade barbeque sauce in exchange for a beta invitation."
Daily Silicon Valley Reporter
Yahoo Open Sources App Framework. Mojito is Yahoo's own all-device app development framework, and it's just been made open source. The practical upshot of this is that if you use Yahoo's JavaScript-based tool you'll be well on your way to creating apps that can run on the world's most popular mobile devices. It's a bold if-you-can't-beat-'em, circumvent-'em move.
Samsung Spins Off Display Business. Samsung has spun off its enormous, hi-tech display-making business. Samsung Display will be registered as a separate corporation tomorrow, and based on its employee count of 20,000 is the world's largest display manufacturer, Samsung claims. As a division of Samsung Electronics, Samsung Display earned the company about $20 billion dollars in annual revenue in 2011.
Kiwi ECard Makers And Mobile Operators Team Up For NFC App. More proof that NFC is taking off outside the U.S.--New Zealand's largest electronic card operator and a top mobile service provider are banding together to create a mobile payments app. Kiwis will be able to pay for groceries and public transport by holding their phones up to devices installed on stores and trains. They'll even earn loyalty points for using it.
IBM To Build Computer For Giant Telescope. IBM is taking on a data project of astronomical proportions. It's partnering with the Netherlands Institute of Radio Astronomy to help reveal the origins of our universe. Through the $43 million "DOME" project, IBM will create a computing system robust enough to process the gigantic flood of radio wave data (used by astronomers to investigate the history of the universe) that'll come streaming off the Square Kilometer Array telescope when it's finished.
Global - Economy and Market
Fed's Bullard: U.S. economic outlook is brighter
VANCOUVER - St. Louis Federal Reserve Bank President James Bullard said on Friday the U.S. economic outlook is righter and household confidence has improved, suggesting he sees no need for further steps to ease financial conditions.
Initial unemployment claims in U.S. hold near 4-year low, U.S. car sales reach highest level since February 2008
First-time jobless claims in the U.S. edged down after fluctuating near a four-year low for several weeks. The Labor Department said initial claims declined 2,000 last week, to a seasonally adjusted 351,000. The four-week rolling average dropped 5,500, to 354,000, the fewest since March 2008. Last month, Americans bought the most vehicles since February 2008, despite rising gas prices. Automakers weren't offering additional incentives. Analysts attributed the growth to pent-up demand by consumers who were delaying purchase as well as optimism about the economic recovery.
U.S. factory growth cools, spending stagnant, U.S. house prices reached 9-year low in December, index shows
WASHINGTON - U.S. manufacturing cooled in February and consumer spending was flat for a third straight month in January, suggesting the economy lost more steam early this year than expected. The Standard & Poor's/Case-Shiller Home Price index sank in December to its lowest since 2002, suggesting the housing market remains a threat to the U.S. economic recovery. The index dropped 4% compared with December 2010
Eurozone ministers withhold some funds for Greece, to decide on firewall in March
Eurozone finance ministers released €58 billion to Greece as part of its rescue program to smooth the country's bond restructuring, but they withheld €71.5 billion. They plan to hold a conference call on March 9 and make a decision on March 12. Athens faces a March 20 deadline to make a €14.5 billion bond payment. the European Central Bank said its extraordinary support measures would not be repeated, putting the onus squarely back on governments to act.
Troika reviews Portugal's economic reforms
The European Commission, the International Monetary Fund and the European Central Bank were expected to review Portugal's progress on fiscal reforms, paving the way for it to receive the next tranche of its rescue. Portugal continues to face significant challenges, and many economists expect that more emergency funding will be needed. European officials are striving to downplay Portugal's economic woes and differentiate its situation from that of Greece.
Risk of severe global downturn is fading, IMF says
The chances of Europe's financial problems triggering a sharp, worldwide downturn have fallen since the eurozone took several actions to deal with the sovereign-debt crisis, the International Monetary Fund said in a report. "The key risk remains that policies do not shift Europe toward a 'good equilibrium' and fail to break adverse feedback loops between real, fiscal, and financial sectors," the IMF said. The multinational development bank confirmed that the eurozone will soon enter a "mild recession."
Analysis: Stores fail to compete with online merchants
Conventional retailers are suffering because they aren't moving swiftly to compete with Internet merchants, according to The Economist. "To build a profitable online business retailers must integrate it seamlessly with their bricks-and-mortar operations," the magazine notes. "Many keep them separate, increasing the risk that they fail to communicate or work together properly." The Economist
Emerging nations want World Bank, IMF top jobs more contestable
Leaders of emerging economies called for an end to the longstanding practice of naming a U.S. citizen to head the World Bank and a European to helm the International Monetary Fund. The positions should be filled based on merit, rather than nationality, they said. Reuters
China boosts defence budget by 11.2 percent for 2012
BEIJING - China will increase military spending by 11.2 percent this year, a spokesman for the nation's parliament said on Sunday,building on a nearly unbroken succession of double-digit rises in the defence budget across two decades.
India - Economy and Market
Manufacturing PMI slips marginally to 56.6 in February
The seasonally adjusted HSBC PMI posted a reading of 56.6 in Feb, fractionally lower from January's 57.5, highest of past 8 mths.
Economy slumps to weakest growth in 3 years
NEW DELHI - India's economic growth slowed to 6.1 percent in the three months to December, the weakest annual pace in almost three years, as high interest rates and rising raw material costs constrained investment and manufacturing.
RBI deputy gov: options open on CRR cut
MUMBAI - Reserve Bank of India Deputy Governor H.R. Khan said on Friday that options were open on a further cut in the cash reserve ratio (CRR) for banks before the central bank's policy review on March 15, but a view had not yet been taken.
January exports up 10 pct y/y
NEW DELHI - India's January exports rose 10.1 percent to $25.347 billion, while imports rose 20.3 percent to $40.1 billion, leaving a trade deficit of $14.8 billion, the government said on Thursday.
India carmakers post steady sales growth in Feb
Maruti, 54.2 percent owned by Japan's Suzuki Motor Corp (7269.T), said it sold 118,949 vehicles in February, an increase of 6.5 percent from the year-ago period. Tata Motors (TAMO.NS) (TTM.N), which makes the Nano, the world's cheapest car, also posted a 19 percent jump in February sales. Mahindra & Mahindra Ltd (MAHM.NS), India's largest maker of utility vehicles and tractors, said total vehicle sales for February jumped 29 percent to 43,087, while exports surged 86 percent.
Unemployment rate declined to 6.6% in 2009-10 from 8.3% in 2004-05
Government today said unemployment rate in the country has declined from 8.3 per cent in 2004-05 to 6.6 per cent in 2009-10 despite global slowdown.
India business team to visit Iran next week: Export group
An Indian trade delegation will travel to Iran next week to explore "huge opportunities" created by US-led sanctions over the Islamic republic's disputed nuclear programme, an export group says.
TMT (Technology, Media and Telecom) News
2G case: Sistema, Uninor moves SC seeking review of verdict
Sistema Shyam TeleServices Ltd and Uninor moved the Supreme Court seeking a review of the verdict canceling its licenses for 2G spectrum.
As revenues dry up, telcom companies target machine-to-machine apps
Bharti is aiming to convert its 2,000 customers who take enterprise services (such as broadband Internet) to M2M subscribers.
Huawei eyes 40 per cent revenue growth in India this year
Huawei said it expects about 40 per cent growth in revenues from India in 2012 on the back of large-scale 3G roll out.
Nokia Siemens bags Bharti Airtel's 4G network deal for Maharashtra
Bharti Airtel said it has appointed Nokia Siemens Networks (NSN) for building and operating its 4G network in Maharashtra.
Government to auction 4G spectrum this year: Kapil Sibal
Sibal said the government will have enough radio waves for all operators after it is released from the defence services.
Idea Cellular expands managed services agreement with Ericsson
Networking gear maker Ericsson today said it has signed an agreement with Idea Cellular to provide managed services in five Indian telecom circles.
Government won't auction all 2G airwaves at one go;fears oversupply may depress prices
The department of telecom arrived at this conclusion after results of an audit revealed it would have 923.80 MHz of bandwidth.
Infosys selected technology partner for airtel money
Country's second largest software exporter Infosys today said it has been selected as the technology partner for 'airtel money', the mobile wallet service of telecom operator Bharti Airtel.
IT Industry should be bullish about growth: Partha Iyengar, Gartner's top analyst
Technology analyst firm Gartner's top researcher in India sees strong demand for IT services from the country in 2012.
TCS to set benchmark with 'non-linear' revenues
By deciding to make 'non-linear' revenue data public every quarter, India's largest software exporter could be challenging its rivals to do likewise.
Infosys to set up development centre in Nagpur
IT major Infosys will set up a software development centre in the city, its second in Maharashtra after Pune, with an initial investment of Rs 100 crore.
HCL Infosystems wins Aadhaar contract of Rs 2,200 crore from UIDAI
According to government sources, TCS bid about 6,500 crore for the contract while Mahindra Satyam backed out from bidding.
TCS bags deal from South Africa's Nedgroup Insurance
NIC is the first insurance customer for Tata Consultancy Services in Africa, though the company is already serving banks in the region, the statement said.
Wipro focusing on cloud, analytics and mobility solutions
Wipro is betting big on areas like cloud, analytics and mobility solutions to boost its business in the market here, a top company official said.
IBM takes `smarter cities' concept to Rio de Janeiro
Can IBM turn small government into big business? You could think of Rio as a high-level science project from the same company that built Watson, the computer that plays "Jeopardy."
DataWind bags UK's most innovative mobile company award for making $35 Aakash tablet
DataWind has won Smart UK Project award from UK for nation's 'Most Innovative Mobile Company', beating competition from blippar, P2i and QRpedia.
Ibibo eyes 50 pc share of India's social gaming market by FY'14
Online gaming company Ibibo aims to increase its market share in the country's social gaming space to 50 per cent in the next two years.
Intel partners India's Lava, others for smartphone push
Microchip maker Intel has tied-up with Indian start-up Lava to announce the first Intel-powered smartphone in India.
China's Huawei, ZTE target smartphone incumbents with cheap phones
The two vendors combined sold 35 million smartphones last year, around 7% of global market, and see 2012 sales rising to 90 million.
Global mobile industry to grow to $1.9 trillion by 2015
The global mobile industry is expected to grow to $1.9 trillion by 2015 from the current $1.5 trillion level.
HTC bets on cameras, music to recover smartphone mojo
Taiwan's HTC Corp has turned to advanced cameras and music functions for a new range of phones in a bid to recover from a rapid fall from grace.
Orange to offer smartphone with 'Intel Inside'
The "Intel Inside" logo on hundreds of millions of personal computers is finally making its way onto a smartphone. iPhones and iPads, use energy-efficient processors based on technology licensed to chip designers by Britain's ARM Holdings and made by Intel rivals like Samsung Electronics and Qualcomm Inc.
Neel Kashkari was hired in 2009 by the well-known bond manager PIMCO to build its equity business. Prior to joining PIMCO he was with the US Treasury, and was a high profile member of Henry Paulson's crisis management team during the initial period of the 2008 financial crisis. Neel writes a monthly piece with a focus on equity and global financial markets, and I thought his recent piece was particularly insightful. To summarise:
-Western medicine can sometimes be too focussed on treating symptoms to make the patient feel better while Eastern medicine is more focussed on balanced and healthy living and thereby preventing disease.
-In a similar vein, policy makers in the US as well have focussed on reducing the symptoms rather than cure the underlying disease which is caused by a 30-year addiction to debt-fuelled consumption, which can only be cured by developing a growth strategy.
-Instead, US policy in the last three years has bought time by supporting consumer spending which is the largest component of US economic activity (over 70% of GDP from 62% in the 1960s).
-As a result of such government policies (which include the stimulus, payroll tax holidays, low interest rates and quantitative easing) , consumption has bounced back to pre-crisis levels suggesting that government policies have been effective. But is this another case of treating the symptoms rather than curing the disease?
-Another case in point is the recent liquidity operation (LTRO) by the ECB, to inject cheap three year money into European Banks. While this does provide stability in the short term, it does not cure the underlying illness which is too much debt taken on by their societies to fund excessive spending, which cannot be supported by the low growth of their economies.
-As per a recent McKinsey Global Institute report, the US is far ahead of other countries in terms of deleveraging, with the US consumer now having less debt than in 2008. They estimate that US households face roughly two more years of deleveraging to bring debt to disposable income levels back to the historical trend, thereby allowing the economy to resume its normal growth trajectory.
-However, the historical trend implies debt to income levels of "only" 100%, rising from 55% in 1955. Is this a sustainable trend and good for the US economy in the longer run?
-To delve deeper into this issue, one has to look at the savings rate in the US, which has declined from 8% in the mid-80s to almost zero before the crisis of 2008. After the shock of 2008, the savings rate climbed to 6%, but alarmingly has slipped back again to below 4% in recent quarters fuelling the recent rise in consumption.
-This fall in savings is taking place against a back-drop of high unemployment, implying that millions of people do not have any income and are therefore not included in the savings rate calculation.
-It is only when overall consumption dollars climb, while unemployment falls, savings remain high and consumption as a % of GDP remains flat (or falls) can we be sure that the US economy is finally on a path of sustainable growth. Consumption fuelled by stimulative government policies is like a nasal decongestant, it only masks the symptoms of the underlying "cold" (debt).
-The implications for equity investors is to concentrate on high quality global companies which sell into higher growth markets. Be cautious on consumer discretionary stocks (i.e. autos) which assume a return to trend line growth once the crisis has passed.
An interesting insight and does warrant caution about the longer-term sustainability of an economic recovery and market upside in the developed world. The problem of lack of growth in the developed world is deep rooted, without easy solutions and the lack of political will required to address the issue. This makes the case to invest in the future "global growth generators" countries as discussed in last week's newsletter all the more compelling!
As I have mentioned previously on numerous occasions, a core equity portfolio weighting in China and India would be an appropriate strategy for the long term. In terms of timing, the two recent Reserve Ratio Requirement (RRR) cuts by the PBOC imply a significant injection of liquidity which typically presages an uptrend in the Chinese stock market (as the graph below illustrates).
Sources: CFLP; Li & Fung; BIS; Plexus Holdings.
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-Western medicine can sometimes be too focussed on treating symptoms to make the patient feel better while Eastern medicine is more focussed on balanced and healthy living and thereby preventing disease.
-In a similar vein, policy makers in the US as well have focussed on reducing the symptoms rather than cure the underlying disease which is caused by a 30-year addiction to debt-fuelled consumption, which can only be cured by developing a growth strategy.
-Instead, US policy in the last three years has bought time by supporting consumer spending which is the largest component of US economic activity (over 70% of GDP from 62% in the 1960s).
-As a result of such government policies (which include the stimulus, payroll tax holidays, low interest rates and quantitative easing) , consumption has bounced back to pre-crisis levels suggesting that government policies have been effective. But is this another case of treating the symptoms rather than curing the disease?
-Another case in point is the recent liquidity operation (LTRO) by the ECB, to inject cheap three year money into European Banks. While this does provide stability in the short term, it does not cure the underlying illness which is too much debt taken on by their societies to fund excessive spending, which cannot be supported by the low growth of their economies.
-As per a recent McKinsey Global Institute report, the US is far ahead of other countries in terms of deleveraging, with the US consumer now having less debt than in 2008. They estimate that US households face roughly two more years of deleveraging to bring debt to disposable income levels back to the historical trend, thereby allowing the economy to resume its normal growth trajectory.
-However, the historical trend implies debt to income levels of "only" 100%, rising from 55% in 1955. Is this a sustainable trend and good for the US economy in the longer run?
-To delve deeper into this issue, one has to look at the savings rate in the US, which has declined from 8% in the mid-80s to almost zero before the crisis of 2008. After the shock of 2008, the savings rate climbed to 6%, but alarmingly has slipped back again to below 4% in recent quarters fuelling the recent rise in consumption.
-This fall in savings is taking place against a back-drop of high unemployment, implying that millions of people do not have any income and are therefore not included in the savings rate calculation.
-It is only when overall consumption dollars climb, while unemployment falls, savings remain high and consumption as a % of GDP remains flat (or falls) can we be sure that the US economy is finally on a path of sustainable growth. Consumption fuelled by stimulative government policies is like a nasal decongestant, it only masks the symptoms of the underlying "cold" (debt).
-The implications for equity investors is to concentrate on high quality global companies which sell into higher growth markets. Be cautious on consumer discretionary stocks (i.e. autos) which assume a return to trend line growth once the crisis has passed.
An interesting insight and does warrant caution about the longer-term sustainability of an economic recovery and market upside in the developed world. The problem of lack of growth in the developed world is deep rooted, without easy solutions and the lack of political will required to address the issue. This makes the case to invest in the future "global growth generators" countries as discussed in last week's newsletter all the more compelling!
As I have mentioned previously on numerous occasions, a core equity portfolio weighting in China and India would be an appropriate strategy for the long term. In terms of timing, the two recent Reserve Ratio Requirement (RRR) cuts by the PBOC imply a significant injection of liquidity which typically presages an uptrend in the Chinese stock market (as the graph below illustrates).
Sources: CFLP; Li & Fung; BIS; Plexus Holdings.
1 of 1 File(s)
NMDC Price 179 Target 230
NMDC is India's largest iron-ore producer with ~30mn tonnes of annual extraction capacity and rich iron-ore reserves & resources of ~1.36 bn tonnes. It has 3 fully operating mines located in Chhattisgarh and Karnataka, having a total proved reserve of around 800mn tonnes. Debt free mining company sitting on huge cash Rupees 207.25 Billion will provide leverage to explore and develop new mines both India and globally.
Investment Arguments
~NMDC - One of the Best Players in Mining
~Quality resources in kitty
~High margin backed by low cost of production
~Diversifying Product Portfolio
~Huge Cash in Balance sheet will help company to grow inorganically
~Valuation
~Concerns
Company Description
NMDC Limited engages in the exploration and production of various minerals in India and internationally
It explores for iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, and beach sands. The company also focuses on coal and gold properties, as well as platinum group of elements and bauxite.
It has interests in Bailadila iron ore deposits in Chhattisgarh, as well as Donimalai iron ore mines in Karnataka; diamond mine in Panna, Madhya Pradesh; magnesite mine in Jammu; and Arki lime stone project in Himachal Pradesh.
In addition, the company involves in developing a steel plant at Jagdalpur, as well as pellet plants in Donimalai and Bacheli; and invests in the development of renewable energy resources, which include a wind mill project of approximately 10.5MW capacity in Karnataka.
It was formerly known as National Mineral Development Corp.Ltd., and changed its name to NMDC Limited in January, 2008.
Valuations
With strong domestic demand, we expect NMDC's volumes to grow at 6-8% CAGR during F11-F14e. On EV/EBITDA, it trades at 5x F13e and 4.8x F14e and EV/Sales, it trades at 3.8x FY13e and 3.6x FY14e. We feel at the current valuation, the stock is undervalued with its peers and the company should command a premium, given its cost, high ROE, debt free, market leadership in the domestic iron-ore space, huge cash balance and high margins. We assign the price target of Rs. 230 based on relative valuation in next 12-15 months.
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NMDC-AR.pdf
