SUN PHARMA - RESULTS BELOW PAR

Angel Broking has maintained its buy rating on Sun Pharma with price target of Rs 1273 in its February 02, 2009 report. "Sun Pharma’s 3QFY2009 numbers were below our expectations. The company posted Net Sales of Rs 918.3 crore, registering a yoy growth of 14.2%. For 3QFY2009, Net Profit came in at Rs 408.6 crore, up 28.4% yoy mainly driven by OPM expansion but was below our estimate of Rs 450 crore on account of lower contribution from Protonix. On the valuation front, at Rs 1,047, the stock is trading at 12.4x FY2009E and 14.8x FY2010E Earnings. We maintain a Buy on the stock, with a target price of Rs 1,273," says Angel Broking's research report.

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AREVA - LOOKS POSITIVE

Areva-Set To Expand Capacity, Projects A Positive Outlook

Belying slow-down fears Areva T&D India will be shortly commissioning three new facilities in India. Involving an investment of Rs 700 crore, these facilities are coming up at Padappai and Hosur in Tamil Nadu and Vadodra in Gujarat by March 2009. With the expansions in place Areva would be able to double its Revenues over the next three years.

Investors would note that even with all expansions proposed in the XIth plan, the average power deficiency in the country will exceed 10 per cent and in certain States and Cities it could be as high as 16 per cent. With Government under-taking most Transmission and Grid Expansion, the possibility of order slow down seems negligible.

Despite the foggy economic scenario there was no slow down in tenders in the utilities side of the business, though load in distribution transformers could be hit due to the downturn in the infrastructure sector, the power transformer business would continue its growth trajectory. There are indications that the T&D industry, which was roughly growing at 20 per cent, may maintain its growth rate.

Areva T& D has an order book that exceeds at least one year of Revenues, thereby provding earnings visibility. The company, even during this slow down has not witnessed any major deferments that could disturb its revenue stream.
AS Hameed

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OPTO CIRCUITS - BUY

Opto Circuits Q3FY09 results are in line with expectations. During Q3FY09, OCL registered an operating income of Rs 211 crore, a growth of 65.7 per cent y-o-y.
However, its net profit grew by 47.4 per cent to Rs 52.7 crore, which was partly restricted due to higher interest costs that increased by a staggering 426.7 per cent to Rs 14.66 crore. The broking house Ambit Capital remains upbeat on the company's growth prospects and increases its PAT estimates for FY09E, from Rs 176.4 crore to Rs 196.76 crore, on account of lower administrative costs and higher other income. Also, the company is planning a capex of Rs 100 crore as against Rs 25 crore planned earlier for FY10E. Interest burden is likely to come off marginally as the company would see an infusion of Rs 18 crore by way of the promoter's warrant conversion.
At the recommended price of Rs 85, the stock is available at 5.3x its consolidated FY10E EPS. The broking firm expects the stock to perform well as company delivers growth numbers over the next few quarters. OCL's strong margins and high return ratios warrants a re-rating on the stock.
Also, the concerns on high interest cost and extended working capital cycle are already priced in current valuations. The broking house maintains a buy on the stock with a reduced DCF target price of Rs 140.


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EDUCOMP - BUY

Educomp Solutions has won orders from the State Governments of Uttar Pradesh (UP) and Assam for a total of 2,042 schools and the total size of these orders stands at Rs120 crore.
With these wins, Educomp has achieved its target of 12,000 schools in its ICT Business (government schools).
The UP Government has awarded 1,401 schools to the company, including 372 schools in Lucknow, 380 schools in Meerut, 369 schools in Jhansi and 280 schools in Gorkhapur for a period of 5 years on a Build-Own-Operate-Transfer (BOOT) basis.
Educomp will supply computer hardware, software and connected accessories and provide computer-aided education in the specified schools and intermediate colleges from Classes VI to XII. The company will also provide one full-time instructor, supply courseware, impart training and provide electricity and internet connections at each school.
The company will also impart training in 641 schools awarded to it by Axom Sarba Siksha Abhijan (SSA) Mission, Assam. With these order wins, the total number of schools in Educomp’s ICT Business goes up to 12,012.
We maintain a BUY on the stock, with a target price of Rs2,207

source : Angel Broking
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BEL - SOLID DEFENCE

Strategic tie-ups, new product development, good track record and cash hoard augur well for Bharat Electronics.


India’s recent test of two missiles, including the land-attack version of the BrahMos supersonic cruise missile, is part of its ongoing investments in strengthening its defence capabilities. The growing concerns over cross border tensions and the increasing terrorist activities in the country indicate that the need for higher defence expenditure and focus on enhancing capabilities is at its zenith. The statement of India’s defence minister at a recent seminar on Defence industry only confirms the rising importance of defence. “As the security scenario is undergoing unprecedented changes, the defence industry has come to occupy the centre-stage like never before – not only in our country, but the world over.”

Defensive business model
One of the key beneficiaries of India's focus on strengthening its defence capabilities will be Bharat Electronics, which was formed with the aim of serving different mechanical and electrical requirements of the Indian defence sector. As the defence sector is considered to be strategic, it is not surprising that government of India holds 75.86 per cent stake in the company.

CONSISTENT PERFORMER
in Rs crore FY08 FY09E FY10E
Net sales 4059 4627 5320
EBITDA (%) 24.7 23.2 23.5
PAT 826 879 1011
EPS (Rs) 103 110 126
PE (x) 7.9 7.4 6.5
E: Estimates

This has also resulted in most of the defence requirements being met through Bharat Electronics (BEL). While 70 per cent of the equipment requirements are sourced from overseas markets, BEL enjoys over 57 per cent market share of the 30 per cent sourced locally. The company supplies strategic electronics such as range of military communication systems, radars, naval systems, telecom & broadcast systems, electronic warfare systems, tank electronics and many more to all the defence establishments including Army, Navy, Air Force and Paramilitary Forces. As a result of this, 83 per cent of the company's revenue accrue from the defence sector, while 17 per cent is accounted by civil equipment like telecommunication, broadcasting products like DTH and electronic voting machines (EVM). The company was recently awarded an Rs 100 crore order for EVM by the election commission.

Consistent growth
Historically, the growth in the defence expenditure has been in the range of 6-8 per cent, which is expected to continue on the back of similar growth in the GDP. Though the growth may not look very strong, but given the consistency in the defence spending, the company has been able grow on sustainable basis. BEL's revenue and net profit have never declined in any of the last ten years. Its revenue and net profit have consistently grown annually at 14.6 per cent and 35 per cent, respectively during FY99-FY08 respectively. Moreover, the company's current order book of Rs 10,000 crore is 2.5 times BEL’s FY08 revenue and provides good revenue visibility.

Going forward, considering the political scenario and cross border tension in the country it is unlikely that India's capex on defence will be curtailed. Also, the emphasis is now given on newer and indigenous technologies with an aim to reduce dependence on imports.

Inventing to grow fast
The need for indigenous technologies and increasing overall production, the government has allowed 100 per cent private participation in the defence equipment sector. Companies like L&T are eying these opportunities in the big way. Although competition will increase, the opportunities continue to be huge given that India imports almost 70 per cent of its defence equipment. Bharat Electronics, too, has appointed global consultancy firm, KPMG, to help identify opportunities to expand in existing as well as new business segments. The company is consolidating its businesses so as to achieve its targeted revenue of Rs 10,000 crore by FY12 (from Rs 4,100 crore in FY08) implying an growth rate of 26 per cent per annum.

Plan of action
To achieve this, the company has planned a total capital expenditure of Rs 570 crore for the next two years (FY09 and FY10). This will be towards modernising its manufacturing facilities. Also, the focus will be strategic tie-ups with its partners to enhance business capabilities. The company already has partnerships with aerospace majors like Lockheed Martin and Boeing and global defence companies like EADS, Northrop Grumman, Raytheon and Honeywell.

"BEL is looking for new growth opportunities through organic or inorganic growth in existing and new areas. In this direction, BEL is discussing with reputed foreign and Indian players for forming joint venture companies in India, in the areas of defence electronics, namely electro optics, airborne electronic warfare, missile electronics and guidance systems, microwave super components, etc. Some of these proposals are in the advanced stage of discussions," says N K Sharma, Director (Marketing), BEL. The company has also been aggressively investing in developing new products in-house—in FY08, it introduced about 20 new products. The company now intends to increase its R&D expenditure, which was about 5 per cent in FY08, to 8-10 per cent of its turnover, which should help sustain its efforts in this direction.

Investment rationale
The company’s strategy to increase spend on R&D and new capacities, acquire new technologies and identify key growth areas augurs well and should help in achieving its ambitious long-term growth plans. BEL is a debt-free company and is sitting on a cash and cash equivalent worth Rs 2,400 crore, which also indicates that the company has enough muscle to fund its future plans.

In turbulent times, this stock proves to be a safer investment available at attractive valuations (PE multiple of 6.4 times its FY10 estimated earnings). Since the company has maintained a dividend payout in excess of 20 per cent, one can expect additional returns in terms of healthy dividends (yield of 3.2 per cent based on FY10 profits) in future as well. The company's cash (yields interest income of about Rs 200 crore or earnings of Rs 23 per share) is valued at about Rs 300 per share or 38 per cent of its current market price. At Rs 800, the stock is capable of delivering healthy returns in the long-run.

source : business-standard
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MARICO - IN PERFECT SHAPE

A balanced portfolio, healthy volume growth, rapidly growing international sales and easing cost pressure augur well for Marico.


Over the years, Marico Industries has transformed itself from a coconut oil manufacturer, sold under its renowned “Parachute” brand, into one with presence across hair care, skin care and healthcare segments and nearly 20 brands under its fold. Likewise, its foray into international markets in the recent years has seen the share of global revenues rise to a fifth of total. Consequently, the company has been able to sustain growth rates of about 20 per cent in sales and profit in the last five years, and establish a de-risked business model. Investment in new product development has meant that these now account for a fourth of consolidated revenues, as compared to 3 per cent in FY2000. Despite the slack economic conditions and global slowdown, Marico’s earnings are expected to grow at 18-20 per cent in the next two years, on new product launches, volume growth in existing businesses, higher rural penetration and easing input cost pressures. Notably, valuations are reasonable, with the stock trading near the lower band (14-22x) of its one-year forward earnings.

HEALTHY GROWTH
in Rs crore FY08 FY09E FY10E
Net sales 1,907 2,380 2,745
OPM (%) 13 13 13
Net profit * 159 184 227
EPS (Rs) 2.6 3.02 3.75
PE (x) 22.31 19.21 15.47
* Adjusted for extra-ordinary items
Consolidated financials E: Estimates

On solid footing
In its flagship business (coconut oil), Marico has successfully extended its Parachute brand to related hair care segments like value-added hair oils, creams and gels, by identifying new categories and launching new products. Among launches (including products in test marketing phase) in the last 15 months are “Parachute Advansed Hot Oil” (suitable for winter season; launched in Q3 FY09), “Parachute Night Repair Cream” (a fragrant, protein-based hair cream being test marketed in Mumbai) and “Parachute Advansed Starz” (oil, shampoo and cream products for kids; launched in December 2007). These initiatives have helped Marico strengthen its product range, which along with healthy growth in existing products has helped sustain volume growth (average) of 10-11 per cent in last seven quarters (9 per cent in Q3, FY09).

The value-added hair oils business is also growing at a robust rate and includes products like “Parachute Jasmine” and “Nihar” (perfume-based oils), “Hair & Care” (protein based oil) and “Silk n Shine” (post-wash hair conditioner) among others. Along with new product launches, coupled with low penetration levels, average volumes growth was 20 per cent in the last six quarters (15 per cent in Q3).

The second biggest revenue contributor is the refined edible oil business (Sweekar and Saffola), wherein its Saffola brand is positioned on the ‘preventive’ platform. Capitalising on its health-related equity, the company launched atta products viz. Saffola Cholesterol Management (in 2007) followed by Saffola Diabetics, targeting the health conscious customers. More recently, in January 2009, it has launched “Saffola Zest” a salty baked snack (positioned as one that contains 50 per cent less fat) and Saffola Rice (for weight management). The volume growth for Saffola oil, which has ranged 20-30 per cent in the past, slipped to single-digits in the last two quarters as the price gap between Saffola and other refined oils (palm, etc) widened. With the price of Kardi (a key input for Saffola) seen declining, the price gap should narrow and volumes likely to pick up.

Likewise, Marico provides skin-care products and services under its Kaya business. It has 84 clinics (six added in Q3), of which 73 are located in 20 Indian cities and balance abroad. With a plan to add 15 clinics each year, this business (6 per cent of revenues) should grow at a robust pace (59 per cent growth in Q3). In June 2007, Marico started offering weight-management solutions under the Kaya Life brand, thereby extending its services portfolio. In initial stages, the business should see a full-fledged rollout soon.

Interestingly, the company enjoys a strong position in most of its businesses (Parachute 48 per cent volume share, Hair Oils 20-22 per cent, Saffola 98 per cent, Mediker 90 per cent); some of them provide niche solutions and have helped Marico distinguish itself from others. While many of these products are a result of investment in R&D, an extensive distribution reach (over 2.5 million outlets) helps in quickly rolling out new consumer products. With these segments under-penetrated, there is immense potential for Marico to sustain growth rates.

Expanding footprint
The company has been equally aggressive in its international business (includes two acquisitions since 2006). Notably, its brands enjoy a strong position in their respective countries, and revenues in most markets have grown at a rapid pace (average 46 per cent in last three quarters).

In Bangladesh, Marico is looking at sustaining its 72 per cent market share in coconut hair oils by encouraging customers towards using branded products. It recently launched its “HairCode” hair dye, which along with backward integration (crushing of copra for coconut oil) should help sustain growth rates and improve profitability.

While “Parachute” branded products (mainly creams) are doing well in West Asia, Marico’s sales in Egypt (Fiancee and HairCode brands command 62 per cent market share) were impacted in Q3 due to restructuring of the supply chain and higher inflation. With the revamp over and inflation slipping, the trend is seen reversing from Q4. A new factory for hair creams has also been commissioned (exempt from income tax till 2018), which will help service nearby regions and lead to improved profitability.

Investment rationale
A diversified product portfolio, ability to innovate, identify and tap niche/high growth segments, strong brands and the customer’s increasing attention towards health and personal care, should help Marico grow at a healthy pace.

In the near-term, while margin pressure should ease as input prices are coming down, revenue growth in FY10 may remain subdued (volume growth should remain healthy) due to the base effect (price hikes taken across categories; like 15 per cent in Parachute in the past). Overall, expect earnings to grow at 18-20 per cent annually over the next two years. At Rs 58, the stock trades at 15.5 times its estimated FY10 earnings and, can deliver 20 per cent returns over one year.

source : business-standard
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SHREE RENUKA SUGARS

Shree Renuka Sugar-On The Right Side Of Politics

Sugar prices in India have firmed on the expectation of low sugar output. The government has recently revised its production estimate from 22m tonnes to 20m tonnes for 2008-09. However, industry sources have indicated that production may be lower than 17-18m tonnes. Faced with an impending election in April-May 09 high Sugar prices are not acceptable to the GOI, at the same time it has no power over State Governments to lower Cane SAP prices.

To appease the millers, the GOI has allowed import of Raw Sugar-this will benefit coast based sugar mils in Karnataka, Tamil Nadu, Andhra Pradesh and Maharashtra. The move is positive for Shree Renuka, Rajshree Sugars, Bannari Amman, Sakthi Sugar, Saraswati Industrial Syndicate and KCP Sugar.

Tonne-to-tonne import

Under the tonne-to-tonne sugar import scheme, raw sugar may be imported and converted or refined to white sugar and sold in the domestic market. This is unlike the ALS (Advanced License Scheme) as sugar imported under ALS cannot be sold in the domestic market. This will likely benefit Shree Renuka Sugars as it has a sugar refining plant in the port city of Haldia in the state of West Bengal.

Import under open general license

Under the open general license (OGL) scheme, the government may allow duty-free import of white sugar. This is likely to have a big impact on the sector, as it may flood the domestic market with imported sugar. Also, sugar can be imported freely by a chipping company under OGL. This is unlike the ALS, under which only sugar millers can import raw sugar.
Shree Renuka to benefit from imports.

High sugar prices in the middle of the earnings season might lead to changes in the sugar import policy. Shree Renuka Sugars has strong connections with Maharashtra politicians, and its earnings are skewed towards non-cyclic businesses such as distillery and co-generation of power. A change in import policy to tonne-to-tonne import will benefit Renuka as it has a sugar refining plant in Halidia, a port with access to the eastern and north eastern parts of India, areas which have the highest sugar realisation.

source : AS Hameed

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GEMINI ENGI FAB - FORGET IT

Gemini Engi Fab is entering the capital market on 3rd February 2009 with a public issue of 55 lakh equity shares of Rs.10 each, in the price band of Rs.75 to Rs.80 per share.
Gemini Engi-Fab has been in the business of manufacturing and salvaging of process equipment for well over a decade now.

The company fabricates heat exchangers, tower and column internals, reactors and vessels for a fairly diversified user industry base.

It plans to use the proceeds of the public offer to expand its operation and set up a manufacturing workshop in Umbergaon, Gujarat.
With a gross block of just Rs.7 crores and an annual topline of close to Rs.25 crores, the company is setting up a new plant of Rs.50 crores. To finance this, Rs.10 crore of Term loan has been sanctioned by Barclays Bank, which will get disbursed only after successful completion of IPO. The Bank had also kept call option after 3 months from first disbursal, which is very risky for a term loan facility.
The share is issued in the band of Rs.75 – Rs.80, which implies a PE ratio of close to 12 times even at the lower band.
Not only is this at a premium to the market, it also compares poorly with pure-play capital goods and engineering companies, which are currently available at lower valuations in the secondary market.
But what argues strongly against investing in the IPO is the pricing. This Rs 21-crore company has been valued at about 10-11 times its annualised FY09 per share earnings (post-offer equity) in the given price band, failing to price in the many business risks.

Much larger companies today suffer lower multiples owing to uncertainties on order flows, higher debt incidence or increasing pressure on working capital; even the Sensex-30 or Nifty-50 basket of stocks are available at lower valuations.
So why invest in Gemini IPO when you can get Frontline Blue Chips at a PE of 4-5???



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RAKESH JHUNJHUNWALA ON KSK ENERGY

Rakesh Jhunjhunwala was recently asked : "You were talking about recognising value in a stock. If you look at the power sector in India, there are some stocks like KSK Energy who have captive coal reserves. What do you feel about this"??

RAKESH JHUNJHUNWALA answered : "The first multi-bagger of my life was Tata Power. But after having earned a lot of money in Tata Power, I have promised myself I am not going to buy any power companies because after all it is a fixed return rate of return and the rate of return is 13-14%. It is a capital intensive industry. So god bless NTPC and KSK Energy. But that is not where my interest is, because I can’t think of any industry in the world where the rate of return as fixed, if it is going to give you multiple returns.

Don’t forget all these coal reserves. You know what is the average value for oil reserves ‑ about USD 10-15 or maybe USD 20. You first have to say in what time period KSK Energy will get the coal reserves. If it gets it 15 years later and you bring it to present value, you come to 3% of the current market price. Then, you have value in the current coal prices. Are these prices going to last? So, therefore they may appear cheap.""



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EDSERVE IPO - AVOID

Edserv Softsystems is entering the capital market on 5th February 09, with an IPO of 39.74 lakh equity shares of Rs.10 each, in the band of Rs.55 to Rs.60 per share.



The networth of the company as at 30-09-08, was just Rs.10.50 crores with book value per share at Rs.12.50. Even FY 08 topline was pathetic at Rs.3.95 crore which was a meager Rs.18 lakh for FY 07. Inspite of such a pathetic performance, sundry debtors of the company were as high as Rs.3.25 crores as at 31-03-08, equivalent to about 10 months topline. Present equity of Rs.8.03 crores would rise to Rs.12 crores, post IPO.



The company has been a virtual non-starter for all these years as it is reflected from its aggregate topline of less than Rs.2.50 crores in the years FY 04 to FY 07. In the year 2007, the company acquired ELMAQ, an IT Education and Training Business for Rs.90 lakhs from S. Giridharan and consideration were discharged by issue of convertible debentures of Rs.90 lakhs. This is inspite of the fact that the company had a cash balance of Rs.2.90 crores as at 31-03-08.



The company now proposes to go on the lines of Educomp and Everon and chalked out an expansion of Rs.30 crores for which this issue is being made. If you have speculative element, you need to have a role model, and Educomp has been taken by the company. But the promoters forget that there are Software Technology, NIIT, Aptech kind of companies also, which are much larger than this company is going to be, but ruling at a pathetic valuation.



It is sad to see such IPOs hitting the capital market which otherwise was remaining dormant. Definitely, it will kill the prospects of reviving it.



This issue is pure momentum and worthless, not even worth subscribing at Rs.10 per share. Maybe, initial speculative momentum play can take share price to a level but would get settled in single digit.



So why to risk your hard earned money? Use it for the education of your near and dear ones.
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