BEST STOCK TO BUY NOW

MY BLOG RANKED AS WORLD'S NO.3

2009-05-30T08:00:00.000-07:00

I recently received a Mail from www.etfdb.com, a US based etf site which has ranked my Blog http://http://goodfundsadvisor.blogspot.com among the Top 50 50 Buy and Hold Investing Blogs and mine has been ranked at NO.3.
This is what the email said :

“From: Jimmy Atkinson
To: sharesher@indiatimes.com
Sent: Thu, 14 May 2009 21:59:42 +0530 (IST)
Subject: Good Funds Advisor Named a Top 50 Buy and Hold Investing Blog

Hi

Just in case you
have not yet noticed, Good Funds Advisor was named a top 50 buy and hold investing
blog at ETF Database earlier this week. I thought you and your readers might
want to check out the rest of the list. Let me know if you have any feedback, or
feel free to leave a comment directly on the blog post. httphttp://etfdb.com/2009/top-50-buy-and-hold-investing-blogs/

Thanks!
Jimmy
Atkinson

ETF
Database

http://http://etfdb.com
I dedicate this success to YOU. Yes, you dear readers, who keep visiting my blog and come up with interesting suggestion.
So, guys check out my blog http://http://goodfundsadvisor.blogspot.com and tell me how can I further improve my blog and make it No.1.
Thanks to you all
Srikanth Shankar Matrubai

Also visit http://equityadvise.blogspot.com for an indepth Equity Analysis

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SUN PHARMA - RESULTS BELOW PAR

2009-02-03T02:37:00.000-08:00

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

2009-02-03T02:28:00.000-08:00

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

2009-02-02T00:48:00.000-08:00

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

2009-02-02T00:38:00.000-08:00

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

2009-02-02T00:36:00.000-08:00

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

2009-02-02T00:33:00.000-08:00

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

2009-02-02T00:23:00.000-08:00

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

2009-02-02T00:20:00.000-08:00

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

2009-02-02T00:14:00.000-08:00

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

2009-02-01T23:59:00.000-08:00

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.
Visit http://equityadvise.blogspot.com for Detailed indepth Stock Analysis by Me.
The blogger is not responsible for any loss arising on account of transactions done on the basis of recommendations/opinions published here. You are advised to consult your Advisor before taking any decision.

BUY APOLLO HOSPITALS

2009-01-12T04:20:00.000-08:00

Healthcare is one of the most underdeveloped sectors in India with a lot of growth potential. There are few large corporate players in this highly fragmented and unorganised market. Apollo Hospitals Enterprise (AHE) is the largest player in the tertiary care segment with the single largest network of integrated hospitals and pharmacies in the country.

While the Sensex has lost more than 50% of its value in the last one year, the company's market capitalisation declined by just 15% during the same period. The stock has appreciated by 26% since October '08 till date. Investors can look at this stock expecting sound growth in its fairly recession-proof business.

BUSINESS:

Chennai-based AHE is a national level operator of hospitals, retail pharmacies and provider of consultancy services in healthcare management. Nearly 83% of the company's revenues are contributed by its hospitals business, while 16% is contributed by pharmacy.

The company owns 26 hospitals and manages 17 hospitals on a contractual basis. Majority of its hospitals are in metros and tier I cities in the country. The total bed capacity is 8,500 beds, with 4,500 beds in AHE's owned hospitals. The revenue per bed per day ranges from Rs 8,000 to Rs 17,000, depending on the location of the hospital. The average length of stay has largely remained the same for the company at an average of 5.7 to 5.9 days across its various hospitals.

AHE runs a chain of 785 standalone pharmacies in the country on a franchise basis. It has 40 pharmacies operating as part of its hospitals. The company also provides various precommissioning and postcommissioning consultancy services comprising of feasibility studies, infrastructure consultation, training and deployment of medical, paramedical and administrative staff and advising on hospital management.

AHE also has other subsidiary businesses providing home healthcare services, clinical and diagnostic services, medical business process outsourcing services, third party administration services and insurance.

GROWTH STRATEGY:

The company's growth has been primarily driven by its hospitals business. The company has a high occupancy rate of 80%, with 7-8 % more head room to grow. There is also still scope for increasing the tariff.

The company is in the process of expanding capacities in its greenfield projects. By FY10, it intends to add a total capacity of 500 beds in its hospitals at Bhubaneshwar and Vizag. Over the next five years, the company has plans to start 50 hospitals in tier II and III towns in partnership with a local doctors or entrepreneurs.

AHE's pharmacy business is relatively nascent and still in investment stage. The company intends to set up 1,000 pharmacies by FY10.
In the coming years, the company expects to increase its exposure to the pharmacy business to 20-25 % of the total revenues. The company has plans to eventually hive off its pharmacy business to a strategic partner.

The company has incurred a capex of Rs 157 crore in FY08. It has planned a capex of Rs 900 crore to be incurred over the next three years.

FINANCIALS:

The company's net sales have grown at a compounded average growth rate (CAGR) of 21% over five years ended March 2008 to Rs 1,214.7 crore. The net profit (adjusted for the extraordinary items) has grown at a faster CAGR of 26.6% to Rs 71.8 crore. At 24.3%, the CAGR in the company's dividend has fairly matched the corresponding growth in profits.

While the hospital business has EBIDTA margins of 28-40 %, the pharmacy business is a low margin business with a EBIDTA margin of 8-10 %.
Besides, a new pharmacy requires 12-18 months to mature and contribute to profits. Due to the company's recent expansion of its pharmacy business, its profit margins and return on capital employed have suffered in the last three years.

The company has raised secured loans and has made significant investments in fixed assets during the last three years. The company expects to breakeven in the pharmacy business by FY10 and expects stability in the returns from the business.

VALUATIONS:

Being the largest listed healthcare player, AHE commands a premium over its peers. It is currently trading
at 25 times its earnings. Assuming the company maintains its growth in sales of more than 20%, its estimated P/E for FY09 and FY10 would be 23.4 and 18.7 respectively. Investors interested in steady and predictable earning growth can look at accumulating this stock with a long-term perspective.

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M & M

2009-01-12T04:19:00.000-08:00

Motilal Oswal maintains its 'Buy' rating on Mahindra & Mahindra. M&M had earlier mentioned in its post-2 QFY09 results that it would be reviewing the Rs7,000-crore capex plan over FY09-12 for a possible reduction . After a review of the capex plans, management has now decided to go ahead with the original capex plan of Rs 7,000 crore without any cuts. Out of the Rs 7,000 crore over FY09-12 , Rs 5,000 crore will be invested in the automotive business and Rs 2,000 crore in the non-auto business. In auto business, investment will be made in the Chakan plant (~ Rs2,500 crore), product development (Rs 2,000 crore for Xylo, Scorpio's successor, light transport vehicles and lobal product) and further equity contribution in Mahindra Navistar JV (Rs 350 crore). In the non-auto business, it is investing Rs 500 crore in tractors business, Rs 700 crore in logistics business and defence business and Rs 750 crore for setting up world-class research facility at Chennai. Motilal Oswal has downgraded the consolidated earnings estimates by 11.7% for FY09 to Rs 58.7 and by 12.9% for FY10 to Rs 70.6, to factor in lower volumes and downgrade in subsidiary / associate earnings. Notwithstanding short-term challenges, valuations at 4.6x FY09E and 3.9x FY10E consolidated EPS are attractive.
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GUJARAT STATE PETRONET

2009-01-12T04:17:00.000-08:00

Gujarat State Petronet went public on 24th January 2006, with a public issue of 13.80 crore equity shares of Rs.10 each, at Rs.27 per share. Its 52 week high low were at Rs.114 and Rs.25 and is now ruling at Rs.41 levels.

The stock has been in the news for the last one month as huge delivery based buying has been seen in the stock. Share has risen by about 64% in the last one month, from Rs.25 on 10-12-08, which was also its 52 week low.

The company is the second largest natural gas transmission network in India and is the first and only pure natural gas transmission company in India, to transport natural gas on an “open access,” means, company making available its gas transmission capacity available to any shipper on non-discriminating basis.

The company presently has grid pipe network of 1,130 kms. which is being expanded to 2,200 kms. in the next 18 months. The company is presently transporting about 17 mmscmd of gas while in FY 08 transported 6,145 mmscm of gas. In first 6 months of FY 09, it transported 3,069 mmscm of gas. There is no overlapping pipeline network along the route of the company’s pipeline network.

The company has also signed a 15 year agreement with Reliance Industries Ltd., to transport 11 mmscmd (expandable to 14 mmscmd) of gas from Bharuch to Jamnagar and also with Torrent Power, of 20 years, to transport 4.5 mmscmd of gas. Both these contracts would be operational in the next 3 – 4 months, with commencement of gas production, by RIL, from its K G Basin. Hence, the company would be able to double its topline and bottomline.

For FY 08 the total income of company was at Rs.447 crores with net profit of Rs.100 crores and cash profit of Rs.265 crores on equity of Rs.562 crores. EPS for FY 08 was placed at Re.1.81 while cash EPS was at Rs.4.70. For first six months of FY 09, total income of the company was at R.252 crores with profit after tax of Rs.61 crores with cash profit of Rs.145 crores.

The company has been able to source gas upto points of Mundra Port and Pipavav Port and are connected to supply to Surat, Bharuch, Vadodara, Ahmedabad, Anand, Gandhinagar, Surendranagar, Sabarkantha, Kalol, Mehasana, Morbi, Vapi and Valsad.

The share capital of the company is at Rs.562 crores, of which, 37.77% is held by its promoters, Gujarat State Petroleum Corporation Ltd., while 35.91% is held by Banks, Mutual Funds, FIIs and state government companies. 26.32% stake is held by the public.

It is strange to see that Gujarat Maritime Board is holding 6.60%, Gujarat Urja 2.02%, GNFC 1.42% and GIDC 1.42% (totaling 11.46%( but the same has not been shown as promoters holding). So, in reality, Gujarat Govt is having a direct – indirect stake of close to 50%.

The controversy in respect to sharing 30% profit before tax of the company, for charity is also likely to be given re-thinking by the Gujarat Govt., as the similar proposal has been defeated by the shareholders of Guj. Alkalies and GNFC, where government stake is less than 50%,. So, if this company also drops this proposal, stock would get further re-rating.

Due to bright prospects of gas transportation sector, in Gujarat, the stock holds good growth potential as the company would be able to double its topline and bottomline in the next 6 months with its existing infrastructure and network.

Those who are holding the stock are advised to remain invested as stock has good medium term potential.

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Hold Larsen and Toubro: Sharekhan

2009-01-12T04:15:00.000-08:00

Sharekhan has recommended a hold rating on Larsen and Toubro (L&T) in its January 9, 2009 research report. "L&T Capital, a subsidiary of Larsen and Toubro (L&T), has raised its stake in Satyam Computer Services (Satyam) to about 3.95%. The shares were acquired in the last couple of weeks. We estimate the average acquisition price to be about R157, which takes the estimated buying value to about Rs418 crore. We view the event as a negative, as the transaction has already led to a portfolio loss of Rs 355 crore at the prevailing price of Satyam (Rs 6.1 per share for L&T Capital)."

"At the current market price, the L&T stock is trading at 10.1x its FY2010E consolidated earnings. The valuation is very attractive considering the company’s leadership position, strong order book and excellent execution skills. We recommend a Hold on the stock and are placing our price target under review," says Sharekhan's research report.
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Sun Pharma an outperformer: Karvy

2009-01-12T04:14:00.001-08:00

Karvy Stock Broking has maintained its outperformer rating on Sun Pharmaceutical Industries with a target price of Rs 1300 in its January 12, 2009 research report. "Margins are expected to lower at 42.3 % as compared to 44.1 % in the corresponding quarter in the previous year. PAT is likely to be higher by 39% to Rs 4424 million for the quarter. We have factored the USD 24.5 mn revenue upside from the controlled substances in FY 2010. We marginally upgrade our FY 2010 EPS by 1.3 % to Rs 78.2. We upgrade our price target by 4.3% to Rs 1,300 based on 16.6x FY 2010E. With increasing traction in US markets and domestic formulations on a strong wicket we maintain our Outperformer rating on the stock," says Karvy's research report.
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Hold Hero Honda, target of Rs 851: Asit C. Mehta

2009-01-12T04:13:00.001-08:00

Asit C. Mehta has recommended a hold rating on Hero Honda Motors with a target price of Rs 851 in its January 9, 2009 research report. "Considering a slowdown in the domestic two wheeler industry in FY10E, we expect Hero Honda Motors Ltd.’s revenues to grow at a CAGR of 11% over the period FY08 -FY10E, compared to a CAGR of 12% over the period FY05-FY08. Taking into account the decline in raw material prices and lower tax rates, net profit is expected to grow at a CAGR of 15% over the same period."

"We value the core earnings of the company and investments plus cash balances separately, as investment plus cash balances are significant portion of the total capital employed. We initiate coverage on Hero Honda Motors Ltd. with a “HOLD” recommendation and a price target of Rs. 851. Our target price implies a 13x multiple on core earnings (i.e. excluding other income) of Rs 53.4 in FY10E and cash per share of Rs 157," says Asit C. Mehta's research report
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Larsen a good long term bet: Vijay

2009-01-12T04:12:00.002-08:00

Portfolio Manager, PN Vijay feels that Larsen can be a pretty good long term bet in the next 12 months.

Vijay told CNBC-TV18, "L&T looks very interesting because the speed with which the government is planning to increase the orders of the NHAI, the highway program was ordering about 5,000kms a year it has come down very drastically in the last two years because of lack of financial closure and I think L&T being a big player in that, suffered. But with the new funding that is taking place, L&T will get a lot of new projects
and it’s also fallen a lot because of the Satyam affair. So this could be a pretty good long term bet in the next 12 months or so."
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Buy Canara Bank, target of Rs 278: Karvy

2009-01-12T04:12:00.001-08:00

Karvy Stock Broking has recommended a buy rating on Canara Bank with a target price of Rs 278 in its January 12, 2009 research report. "In 3QFY09, we expect the bank total business to grow by 23.7% (Y/Y) on the back of 28.3% growth in net advances and 20.5% growth in total deposits mobilization. We rate the stock as a BUY with a price target of Rs 278 at 1.25x adjusted book value FY2010," says Karvy's research report.
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Hold Mastek: PINC Research

2009-01-12T04:11:00.002-08:00

PINC Research has maintained its hold rating on Mastek in its January 12, 2009 research report. "Mastek Ltd. (Mastek) reported a disappointing quarter as net sales dipped by 2.6% QoQ to Rs 2.5 billion primarily due to cross currency headwinds and client pressures. Mastek’s business model remains superior to that of most mid tier peers due to its focus on solution based fixed price offerings but a deteriorating economic environment continues to impart pressure on client spends and this has disrupted near term visibility over revenues. Though valuations appear cheap, an outlook of single digit earnings growth does not make a case for a re-rating in the stock. Therefore, we maintain our ‘HOLD’ recommendation," says PINC's research report.
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Buy City Union Bank, target of Rs 31: Karvy

2009-01-12T04:11:00.001-08:00

Karvy Stock Broking has recommended a buy rating on City Union Bank with a target price of Rs 31 in its January 12, 2009 research report. "In 3QFY09, we expect that the bank's net advances would grow by 29% (Y/Y) to Rs 51.6 billion and deposits would grow by 20% (Y/Y) to Rs 76 billion; we expect that the bank's NII would grow by 13% (Y/Y) to Rs 558 million; the bank's margin is expected to be under pressure due to higher costs of deposits. We estimate 21% (Y/Y) growth in bottomline to Rs 308 million. At current price, the stock quotes at 0.65x adjusted book value FY2010; we rate the stock as a BUY with a price target of Rs 31 at 1.45x adjusted book value FY2010," says Karvy's research report.
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Buy Petronet LNG, target of Rs 63: Karvy

2009-01-12T04:09:00.000-08:00

Karvy Stock Broking has maintained its buy rating on Petronet LNG Ltd with a target of Rs 63 in its January 12, 2009 research report. "For FY09, we expect the revenue growth of 9.8% to Rs 71,948 million and adjusted profit to rise by 11.9% to Rs 5,309 million. We maintain our Buy rating with target price of Rs 63," says Karvy Stock Broking's research report.
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Buy Pennar Industries, target of Rs 33: Karvy

2009-01-12T04:08:00.000-08:00

Karvy Stock Broking has upgraded its rating on Pennar Industries from market performer to buy with a target of Rs 33 in its January 12, 2009 research report. "For Q3FY09, we expect Pennar Industries Ltd (PIL) to report net sales growth of 11% (YoY) and de growth of 7% (QoQ) to Rs 1598 million. We expect net profit to be around Rs 87.5 million, 13% lower (YoY) and 3% lower (QoQ)."

"We maintain our sales and earning estimates of PIL for FY09 and FY10. Based on earnings, we value PIL at Rs 30 per share (8x of FY10 EPS). To add to that, value from real estate holding, is estimated to be around Rs 3 per share. Hence we retain our target price of PIL at Rs 33 and upgrade our rating from Market performer to BUY due to recent fall in stock price. Currently, PIL is trading at EBITDA multiple of 6xFY09. Our target price also reflects an EBITDA multiple of 6x on FY10," says Karvy Stock Broking's research report.
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Buy Nitin Fire Prot, target of Rs 239: Karvy

2009-01-12T04:07:00.000-08:00

Karvy Stock Broking has maintained its buy rating on Nitin Fire Protection Industries with a target of Rs 239 in its January 12, 2009 research report. "Nitin Fire Protection Industries (NFPIL) is expected to report strong set of numbers on YoY basis on back of its CNG cylinder plant that started operations during FY09. We expect the company to report revenue of Rs 698 million as against Rs 396 million, a strong YoY growth of 76%. However on QoQ basis, we expect a marginal growth of 5%, primarily on back of volume growth in CNG cylinder segment. We expect the company to report revenues of Rs 348 million from the fire fighting segment and Rs 350 million from the seamless cylinder business. We continue to maintain our BUY rating on the stock with the price target of Rs 239," says Karvy Stock Broking's research report.
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DLF a top pick: Motilal Oswal

2009-01-12T04:05:00.000-08:00

DLF is Motilal Oswal's top pick in the Real Estate sector. The research firm expects FY09-10 to be a period of consolidation, in which the industry leaders would get differentiated from peers.

Motilal Oswal's report:

In FY08, the focus was on the real estate sector as a ‘theme’, with all real estate stocks moving in tandem. In FY09, the focus has shifted to specific companies within the real estate sector. We expect FY09-10 to be a period of consolidation, in which the industry leaders would get differentiated from peers. We believe developers with staying power would utilize this consolidation phase to emerge stronger. Focus on companies with (1) high visibility on monetization of assets over the next 3-5 years, (2) low leverage and robust financials, and (3) strong execution track record. DLF is our top pick in the Real Estate sector.

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SATYAM FRAUD - RAJU BAN GAYA FRAUD

2009-01-08T00:23:00.000-08:00

I go by the Dictam, "THERE IS NEVER ONE COCKROACH IN A KITCHEN". I, for one, there is much more skeleton in the cupboard of Satyam, waiting to tumble down, than has been known till now.
It is shocking that India`s 4th Largest Software Co, having 185 of Fortune 500 companies as its clients has had such big skeletons in its cupboard.
I also suspect whether Balance Sheets can be fudged for seven years in a row. Probably, Satyam`s fudging has been very recent. A popular saying that captures the process of accounting fraud of the kind Satyam has likely engaged in is, “You have to say a hundred lies to cover the first lie,”

GOVT SHOULD STEP IN :
There is always a first time. Sure, Indian Govt does not enter into the nitty-gritty of merger and acquistions, but Satyam`s case is different. This scam, to me, is Bigger than What Enron did to US. The Whole World Media will be jumping at the prospect of painting Black the Indian Corporate Governance Picture and would not hesitate to add some spice too. And moreover, World Economy in a Tailspin, the Govt should do all it can to prevent the Indian IT Ind getting marginalised, before this has a cascading effect. . Govt can`t just wash its hand off. The Govt should ensure that Satyam`s 53000 employees and innumerable Shareholders are protected.

The damage is not just confined to the IT Ind, alone but also on India Inc`s credibility. The Govt should get to the bottom of this without even a bit of favouritism .

MY SUSPICION :
The First thing that any Auditor does, is to check the Cash and Bank Balance, as this is very easy to verify. In all probability Satyam did have money on the books till the last audit. (Satyam paid 226 crores as Tax). I wonder whether Satyam liquidated the bank accounts and started holding cash reserves. Probably, First Raju tried to take out money through Maytas deal. When his move back fired, and he started losing even his stake in Satyam, he decided to decamp with entire cash saying that the Cash were on account of fudged balance sheet and there is no Cash at all. Raju family is diverting the attention of law agencies by alleging fudging.
A Bigger Fraud is happening now!!!
By the way, PWC should be BANNED, financial penalty levied and its auditors Jailed.
HOPEFULLY, NARAYANA MURTHY IS RIGHT WHEN HE SAYS THAT THIS IS JUST A ISOLATED CASE AND A FAILURE OF GOVERANCE. For years, IT Cos (TCS, Infy, Wipro) have prided themselves on their Corporate Governance. One Satyam,sadly, will surely change this.

God help the Indian IT industry.
Best of luck,
Srikanth Shankar Matrubai

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OPTO CIRCUITS - RECESSION PROOF

2009-01-07T23:03:00.000-08:00

Opto Circuits has been a Consistent Performer since its Public Issue in 2000. It has never faltered and has an uncanny knack of delivering good performance quarter after quarter.
Opto Circuit is a leading manufacturer of medical equipments like digital thermometers, cholesterol monitors, cardiac stents etc. The company came out with excellent results for September quarter with its revenues growing by more than 75% from around Rs 125 crore to Rs 217 crore and net profits have also grown by 66% from around Rs 34 crore to Rs 57 crore. The company has been able to expand its EBITDA margins also by 230 bps points on the back of strong operational efficiency and integration synergies.

In the recent past, the company had acquired two companies namely Eurocor of Germany and Criticare in US and both these acquisitions have given the company tremendous advantage to reach different geographical areas and beat the global slowdown with its diversified product basket.
Over the past few years, Opto has created strategic and shareholder-value by focusing on inorganic opportunity for growth, be it in the Advanced Micronic Devices acquisition in ’01, Palco Labs and the thermometer division of HUL in ’02, Mediaid in ’03, EuroCor in ’05, or the recent Criticare Systems acquisition in ’08. This shows the management’s focus on value creation.
The management in a recent outlook to Leading Brokerage said "Invasive segment to continue to grow at 100% for the next couple of years despite global economic slowdown; the business is fairly insulated from global economic slowdown because OCIL primarily operates in the critical care industry; non-invasive business to remain solid and growing led by new products launches; criticare provides significant growth opportunities in the US markets and is expected to generate revenues of US45-50mn in FY09 with significant margin improvement."

COMMENTS :
Opto operates in a High Margin Business.
Opto is in a Recession Proof Business.
Opto continues to face very little new competiiton.
Opto continues to grow aggressively through acquistions.
Opto will benefit from Falling Interest Rates as it requires High Working Capital Requirement.
Opto has a strong Distribution Network across 36 countries.

Opto Circuits has been one of those Rare Companies who believe in Distributing Wealth to its Shareholders. It has given Bonus and Dividend for last 8 year consective years.
After the recent correction in stock price, the valuations offer a good buying opportunity. Opto has traded at a premium to the market due to high growth, healthy margins and upside from potential acquisitions. But with the recent market fall and overhang of large ownership by FIIs, the stock price has corrected more than warranted , making it more attractive. BUY

TARGETS :
Vikas Sethi, MD of Sethi Finmart is of the view that Opto Circuit can touch Rs.250
Kotak Securities has maintained its Buy rating on Opto Circuits with a target price of Rs 212.
Emkay Global Financial Services has maintained its buy rating on Opto Circuits with a target price of Rs 432.
India Infoline maintained a BUY on Opto in its August 2008 Report with a Price Target of Rs.509.
Sharekhan has a target of 453 in its Dec 2008 report.

Finally, it would be apt to recall OPTO CIRCUITS had made it to the list of FORBES list of 200 Top companies under $1billion in Asia.

Most brokerages have an average EPS estimation for Opto at 15. Even at a conservative PE of 10, the minimum price target should be 150.

Opto Circuits is among my Top Picks for 2009

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Some More Top Picks for 2009

2009-01-04T23:53:00.001-08:00

Anup Bagchi, Executive Director, ICICI Securities, said infrastructure will tend to do well. Places like NTPC, etc. will tend to do well. On the defensive plays, some of the pharma will do well, Glenmark is one of our top picks and one can play on the FMCG stocks as well the HLL, etc. will do well because the input prices are correcting sharply and that will lead to increase in margins.
India Infoline feels that Reliance will be elevated to top Global League and were bullish on the stock. Besides, Reliance, India Infoline felt that SBI, ITC, Bharti Airtel and RCom should outperform in 2009.
Religare feels that Reliance, BHEL, Tata Steel, DLF and L&T should do well.

Besides Banking Stocks, Angel Broking is bullish on Reliance, Bharti and RCom.
ICICI Securities top picks are SBI, L&T, NTPC, Maruti and Bharti Airtel.

Geojit has chosen Tata Power, Infosys, SBI, HDFC and ICICI Bank as its pick for 2009.

Khandwala Securities is very bullish on the Sensex and expects a high of 15975 for the Sensex in 2009 and feel Reliance, Tata Steel RCom, ICICI and JP Associates should be bought at every declines.

Centrum Broking has picked up Hindustan Unilever besides Airtel, Infosys, LT, ICICI.

Most brokerages seem to believe that Reliace Industries and Bharti Airtel should outperform the Sensex in 2009 and should form part of every investor portfolio.
Best of luck,
Srikanth Shankar Matrubai,

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Top Stock Picks for 2009 by Experts

2009-01-01T06:09:00.000-08:00

I have picked from various sources the top Picks By Experts for 2009 for your benefit. Go through them, it may be useful to you.

Ambareesh Baliga of Karvy Stock Broking says Stock-specific, we would say it’s NTPC, BHEL, L&T, Infy, SBI and P&B. In infrastructure, it’s GMR and Punj Lloyd.

Samir Arora of Helios Capital advises investors to have a 15-20% exposure to gold, as the yellow metal will do well in next 1-2 years.

He is bullish on financials, infrastructure, select media and broking stocks. "We don't like commodities, pharma, consumer staples, and technology.".

Outlook Money has chosen Bank of India, Titan Inds, HDFC Bank, KS Oils, Mphasis, Bharti Airtel, Indraprasta Gas and Emami.

Angel Broking's top picks are HDFC Bank and Axis Bank.

Nirmal Bang is bullish on GEShipping, JPAssociate, Moser-Baer and SBI. Nirmal Bang also felt Stock specific counters like: GEShipping, SCI, Ster, TataSteel and Welspun Gujarat looks attractive to buy on dip.

KRChoksey Research's top picks are Reliance Industries, State Bank of India (SBI), Infrastructure Development Finance Company (IDFC), Housing Development Finance Corporation (HDFC), Bharat Electronics (BEL), BEML, Bharat Forge, Tata Steel, Glenmark Pharma, Mundra Port, Bharti Airtel, Hindustan Zinc.

Prabhudas Lilladher's top picks are Hero Honda, Amtek India, ICICI Bank, State Bank of India, Bank of India, Bank of Baroda, Crompton Greaves, Voltas, Jyoti Structures, IVRCL, Hindustan Unilever, Tata Chemicals, HDFC, Sun TV, IBN18 Broadcast, Aban Offshore, Bharati Shipyard, GAIL, Reliance Industries, Sun Pharma, Dishman Pharma, Lupin, Jindal Steel & Power, Reliance Communication, Tulip Telecom, Bombay Rayon Fashions, XL Telecom & Energy, Country Club, Parekh Aluminex.

According to Anagram Research's report, be invested in upstream crude companies and buy more if the commodity dips to newer 2009 lows, (which obviously means Stocks like Reliance Petroleum, Chennai Petro, MRPL, Cairn).
UBS AG in its Top 10 Picks for Asia has picked up only one stock from India and that stock is not suprisingly is Bharti Airtel Ltd!!

Financial Chronicle has picked Sun Pharma, Glaxo, Exide, GSPL, HDIL, AIA Engg, IVRCL and Everest Kanto as its top picks for the year 2009.

In an article, Money Today picked up AIA Engg, Cairn India, MTNL, NMDC, PTC, Biocon, MIC Electronics, Champagne Indage, Raymond and Gitanjali Gems as its top picks for 2009 based on the Low Debt levels and trading below Book Value.

Sharekhan's Top Picks are Bharat Heavy Electricals Ltd, Reliance Industries Ltd, LUPIN LTD, Housing Development Finance Corp.Ltd, ITC Ltd, Maruti Udyog Ltd, Shiv Vani Universal Ltd, Marico Ltd, Hindustan Lever Ltd, Larsen & Toubro Ltd, Bharti Airtel Ltd and Aban Offshore Ltd.

Well, the list is exhaustive and should be enough for you to make a shortlist on what to buy. I have not given my own picks as I am still doing some more research on few stocks and will be posting my own in a few days. Keep visiting my blog and find out. Your comments will be highly appreciated and your Top Picks will also help me and other readers to make a final decision.
Best of luck,
Srikanth shankar Matrubai

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INDIA WILL BOUNCE BACK

2009-01-01T03:18:00.000-08:00

Read my Article in Today's(1/1/2009) Financial Chronicle on Page 12 on "INDIA WILL BOUNCE BACK"

BOUNCING back ¦ AS AN investor and a financial advisor, I am relieved to see the year 2008 being consigned to history. It was a year in which the financial crisis held the entire world in its grip. Equity markets crashed in nearly every country, while most financial institutions across the world were looking up to their respective governments to bail them out of the mess. Though India escaped relatively unhurt from the financial market turmoil, it was badly hit by the slowdown in the commodities market and real estate. Besides, the US recession badly affected the country's information technology (IT) sector. The outlook for 2009 is not too rosy either. With general elections due in April/May, we cannot expect the government to be aggressive on the reform front. The strong dollar is holding back the foreign institutional investors (FIIs) from pumping money in Indian markets. The continuing global recession will be a dampener on the inflows. The key takeaway, however, is that India will see growth when the world continues to be in a fullblown recession.

Thankfully, there is good news too. Falling crude prices will ease the pressure a bit on the country's balance of payment.

The government has admitted that the economy is faltering and taking pro-active steps to stem the rot before it gets out of hand. Easing interest rates have made companies breath easy.

The RBI is looking to make the housing sector as attractive as before and this is one sure shot way of igniting the spark back in the economy as most sectors such as cement and steel are directly and indirectly depended on the real estate sector. Giving stimulus to infrastructure would complete the picture and the recovery would be put on the fast track. Experts have diverse opinions but majority are optimistic that by mid-2009, we should be looking at a recovery and an eventual bounce-back by the Indian economy.

Srikanth Shankar Matrubai, Bangalore

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ALOK INDUSTRIES - SAFE AT THESE LEVELS

2008-12-31T01:57:00.000-08:00

Established in 1986, Alok Industries is one of the largest vertically integrated Textile Companies in India is preferred as a Vendor by Global Gaints like Wal-Mart , Target, etc.
The Company announced excellent results recently where its Sales grew by 40.5% to 1241crores. Exports which make up 40% of sales, grew by 40% to 460 crores. The Net Profit should have shooted up but due to Hedgeing, did not reflect the Strong Dollar but this should get reflected in Dec and March results.
The Company has started to focus aggressively on Africa, Latin America and Gulf countries in order to reduce its dependence on the US and Uk.
The Company has been very active in increasing its capacities for the last four years, all of which should start to get executed by March 2009. The Company’s officials have said, that they have no funds requirement as of now and have already tied up for the same.
Alok should start extract benefit from its Capital Investment from the next fiscal.
Alok also has plans to foray into Fabrics used for Car Upholstery, etc and also wrinkle-free, stain-resitant, bullet-proof fabrics.
With the Govt of India too considering a Package to help Exporters, Alok should be major beneficiary.
Alok has taken a huge beating in the Stock Markets. From a High of 103, it is now trading at around 18 levels. With a Book Value of 67 and at a conservative estimated EPS of 8, the stock is now trading of PE of only 2.3. The Stock can be considered in small chunk for Long Term.
CAVEAT :
Rupee appreciation can impact profit margins of the company.

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BOC INDIA - A SAFE BUY

2008-12-30T23:48:00.000-08:00

Safest Buy Now is BOC INDIA
Dear all,

BOC India was established in 1935 in Kolkata. Through seven decades of operations, it has set up itself as provider of complete solutions in gases business to the Indian industry. With over 20 production plants, comprising one of Asia's biggest air separation units; 40 warehouses and depots; 100 dealers; more than 100 dedicated tankers in the distribution fleet; - BOCI offers an wide geographic reach, thus bringing it closer to its customers in any part of the country. Headquartered in Kolkata, BOC India Limited employs 654 people and serves more than a lac customers.
BOC India which is quoting at 124 is one of the Safetest Buy in the Indian Stock Market today. The Company is Buying Back shares at 200. The Promoters hold a staggering 89.6% stake in the Company!!!
BOC india is a part of Linde Group which is the world's leading gases & engineering company with a turnover of Euro 12.3 billion & presence in over 100 countries.
In these times of tight liquidity the Company with a Capital of 85 crores, is sitting on a mountain of Cash in Hand of above 275 crores!. And Book Value of the Company is above 50.
The Company is already providing over 1290 tonnes per day of gases to TISCO which will go up substantially on TISCO's huge expansion programme. Similarly 1800 tonnes per day project to Jindal Vijaynagar too is being completed by end of 3rd Quarter of current year. Reflection of which will be in year 2009's result. 700 tonnes per day requirement is from Jindal Steel. Further big orders are expected from SAIL & Raourkela Steel. Thus company's gases production will increase substancially in near future & expected to go upto 5000 tonnes per day in next 3 -5 years.

Company is growing in its Medical gases segment & has restructured its hospital care business.

Solar Cell, photo Voltaic industry is offering a potential for gases industry. BOC India has won order from Moser Bear & has established a clear lead in this segment also. Tata Power, Reliance, videocon etc. has planned to make investment of Rs. 1,00,000 Crores in this sector, which too will provide oppurtunity to BOC.

The company will also trade in Helium Gases.

It has gained orders over 450 Crores in Engineering segment which would increase further in near future.

Hydrogen Fuel could be a big trigger in this counter. Linde is agressively pursuing in the field of Hydrogen as an alternative fuel. It may take many years to materialise but will be very positive factor for long term investor.

Company has projected a growth @ 50 % in one of its meeting.

The company is expected to reopen its buyback offer at 200 in about 6 months time. Buy now and submit the shares in buyback, and make a cool profit of about 60%.
Best of luck,
Srikanth Shankar matrubai

http://buycall.blogspot.com

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PIRAMAL HEALTHCARE

2008-12-29T09:17:00.000-08:00

PIRAMAL HEALTHCARE LTD
BSE: 500302 | NSE: PIRHEALTH | ISIN: INE140A01024 |FV 2.00

Piramal Healthcare is among the leading producers of halothane and isoflurane. With its latest acquistion of Minrad Internation (a generic inhalation anaesthetics company), Piramal Healthcare is set to strengthen its global presence in the critical care space, as the deal will give Piramal immediate access into the US market for the country's largest selling inhalation anaethetic sevaflurane.
Piramal has been on the prowl for quite sometime with its acquisition of Rhodia's Inhalation Anaesthetics business in 2004 and 'Haemaccel' brand acquisition from PlasmaSelectAG of Germany.

RECOMMENDATIONS :
With the continued favourable environment for CRAMS business due to its inherent cost advantages, and strong MNC relations, Piramal will continue to be a big beneficiary of increased outsourcing from India. Its domestic business too continues to be strong and steady.
The Company should outperform its peers comfortably and can be considered for accumulation at every declines.

Other Brokerages Targets :
Angel Broking has maintained its Buy rating on Piramal Healthcare with a target price of Rs 340.
Kotak Securities has maintained its Accumulate rating on Piramal Healthcare with a target price of Rs 313.
Sharekhan has maintained its buy rating on Piramal Healthcare with a target of Rs 434 in its December 23, 2008 research report.
SBICAP Securities
has maintained its buy rating on Piramal Healthcare with a target of Rs 360.
Motilal Oswal has maintained its buy rating on Piramal Healthcare.
Religare research has maintained buy rating on Piramal Healthcare with target price of Rs 412.

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KINGFISHER AIRLINES - PROMISING GOOD TIMES

2008-12-28T00:24:00.000-08:00

Kingfisher Airlines Limited Formerly known as Deccan Aviation Ltd. The Group's principal activity is to provide commercial passenger airline and a private helicopter and airplane chartering services in India.
After the Annual General Meeting, I had a chance to talk with the “King of Good Times”, Dynamic Chairman of Kingfisher Airlines, Dr.Vijay Mallya.

He announced “the worst is over for the Airlines Industry. Kingfisher Airlines Fundamentals is getting stronger by the day and we will start to break even from this month itself.
“I think the worst is over and there’s no reason why private equity investors who had expressed interest when oil was at $100 a barrel shouldn’t be more interested when oil is $36 a barrel,” Mallya said

SEE VIDEO OF DR.VIJAY MALLYA HAVING LUNCH WITH WE, THE SHAREHOLDERS ;

He said once the Govt brings the ATF under the ‘Declared Goods’ category, Kingfisher Airlines will immediately reduce fares.
“We can pass on pretty much majority of the savings and that would be good for the industry, make air travel even more affordable and stimulate an industry that has slowed down considerably,” claimed Mallya.
.
"Kingfisher will be the biggest airline in India by 2010 not only in terms of market share, as others claim. In all the aspects, it will be the biggest. Wait and you will see," he said, dismissing all related questions. Hyperbole? Like the man says, we will wait and see.

MY TAKE :
At least in Near Short Term of upto 1 year, things are looking much much brighter than it was in anytime of the Kingfisher’s history. The operations costs are lower and there are no visible signs of going up, and, the Airfares are not being reduced and surprisingly, the load factor is going up, which should all add up to “Good Times” for the Kingfisher Stock. Can expect an upside of at least 40% from here and expect the Stock to reach at least 50-55 by June End 2009. Buy in Small quantities as “Contra” Pick. The stock could be the Dark horse of 2009.

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SUJANA TOWERS LTD

2008-12-26T02:35:00.001-08:00

SUJANA TOWERS LTD which was formed by the de-merger of tower division of Sujana Metal Products Ltd looks attractive at current level of around Rs.25 (Face Value 5).

Sujana Towers Ltd is in manufacturing of Power Transmission towers as well as Telecom Towers. In Power transmission segment it mostly sells towers to project engg companies or in some cases, forms JV for such projects where in its role remains as tower supplier and JV partner undertakes installations. Post its massive expansion, 80 per cent of the structural steel requirement of the lower division is being met through in-house production. The company currently utilizes 85 per cent of its galvanized tower capacity.

In order to meet the rising demand, it is further increasing its gavanised tower capacity by 75 per cent to 2,28,125 mtpa in Chennai, which is expected to be commissioned from January 2009. The additional capacity will be directed at meeting export demand for power and transmission towers from East and West Africa.
Sujana Towers Ltd is looking put up a new plant in Gujarat to produce galvanized steel parts with a capacity of 75,000 MTPA. Company is also contemplating to acquire a company in China for manufacturing of tower parts and set up a subsidiary in Hong Kong for sourcing cheaper raw material. Recently, it acquired 51% shareholding in Telesuprecon Ltd (Mauritius), undertaking Telecom infrastructure contracts in various cast / central African countries.

In this business, the delivery schedule adherence is most important and critical, so most of the companies won't carry large order
books, the order are taken for shorter periods of 1-3 months and cycle of execution and order intake continues. Almost all the telecom companies are clients of company, similarly all major turnkey players in power transmission business procures towers from Sujana Towers.
Fortunately, in the second half of CY09 almost all key inputs like Steel, Zinc, Welding Electrodes have become cheaper making Sujana more viable on the cost front.

The management sees huge demand for towers, both from the power and telecom sectors. In the power transmission business, the relationship with Deepak Cable continues Sujana Towers executing orders up to 400kVA. The company is making additional investment for 756kVA capacity, government board approval for which is awaited.

Looking to the expansion in capacities and growth potential in Power transmission, Telecom and Railway electrification, the
company is likely to post significant growth in coming couple of years. Going by management's estimates, company is likely to post good growth in top line and bottomline in coming years. Stock is available at 2X expected '09 earnings, which is quite attractive compared to other companies in the same Sector.
FIIs had a Steep Holding of nearly 48% in the company and seems to have Dumped this stock alongwith BlueChips and so it is no surprise that Sujana Towers fell from a massive 240 to a ridiculous 24 now. The expected EPS for the year is 12, which gives it a PE of only 2. The Stock looks attractive in view of its strong order pipeline, expansion program and sound market strategy. Most risks are priced in and stock seems to be building a base for the next rally.

Best of luck,
Srikanth Shankar Matrubai

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FORTIS HEALTHCARE - A MULTIBAGGER

2008-12-24T00:49:00.000-08:00

Fortis Healthcare Limited (FHL), one of India’s largest private healthcare companies with network of 23 hospitals and more than 2600 beds has been hyperactive in acquiring stakes in Hospitals across India and is said to be eyeing Wockhardt and Manipal Hospitals.
The company is a leading player in the nascent healthcare services market that has high growth potential.The company is well placed to capitalise on the high growth potential for healthcare services.

Despite being a relatively recent entrant to the healthcare space, Fortis has used acquisitions and investments to build a strong reputation in specialised areas such as cardiac care and orthopaedics, and a sizeable scale of operations in this business. Fortis Healthcare now controls a network of 12 hospitals, of which seven are owned and the rest are under management contracts; these are located mainly in and around the National Capital Region. It also recently charted a foray into Western India by acquiring a stake in Mumbai-based Hiranandani Healthcare. The owned hospitals include Escorts Heart Institute and Research Centre (EHIRC) in Delhi, other Escorts hospitals in Amritsar and Faridabad and the Fortis Hospitals in Amritsar, Noida and Mohali. The company also operates 16 satellite "Heart Command Centres" in other hospitals. EHIRC enjoys a very strong reputation in cardiac care for its skilled doctors and efficiently-run operations. Future plans include greenfield projects in Jaipur, Delhi and Gurgaon, to scale up the current bed capacity of 1,800 by another 750 over the next two years. Plans are also afoot for further geographic expansion through acquisitions and management contracts. It recently took over the 180 bed Malar Hospitals in Chennai and launched high-end "Malar Heart Institute" there.

Demand prospects for healthcare services appear strong in the light of higher longevity and the demographic shift in the Indian population and acute shortage of hospital infrastructure (a deficit of 7.5 lakh hospital beds is estimated over the next six years). A rising incidence of lifestyle diseases and increasing penetration of health insurance, suggest that service providers may enjoy strong pricing power in the years ahead. Fortis Healthcare, as one of the two leading players in the domestic healthcare space, given its strong brand equity, is well-placed to capitalise on this opportunity.

The hospital business is highly capital-intensive, with a new facility usually taking a five-six year gestation period to break even at the net profit level. Apart from revenue per bed, profitability of a hospital depends, to a large extent, on the level of occupancy and the average length of stay for patients. Higher occupancy and a lower length of stay contribute to higher asset turnover, leading to better operating profit margins. Given that Fortis made its first foray into the healthcare space in 2001, its facilities, with the exception of the key Escorts facilities, are fairly new and, therefore, have relatively low occupancy levels at present. But the management has shown its skill and expertise in improving occupencies and earning better margins.

Financials :
The Company recently turned around and posted postive Profit After Tax for the First Quarter and reported Highest Ever EBIDTA for Sep quarter at 23.16 crores with a Growth of 44%.

Dismissal of Anil Nanda case against Escorts Heart Institute and Research Centre has mitigitated the legal risk hanging over its head since its IPO. The company is now free to execute its plans for growing the Escorts network and brand.
Fortis has the Largest Chain of NABH accredited hospitals in India. Fortis Escorts Hospital, Jaipur has also attained the distinction of being the first hospital in India to get NABH accreditation barely within 10 months of start of its operations. This is the fastest for any hospital in India.
Promoters hold about 74% stake in the Company and with the just announced Rights Issue of 1000 crores, they are sure to increase their Stake.

Risks
Business risks surrounding Fortis' operations arise from its ability to retain its skilled workforce and attract new patients at its smaller centres. Apart from this, a significant proportion of corporate clientele could result in pricing pressure as such clients may try to wrangle better rates. Given the aggressive expansion plans, there are significant execution risks to the revenue and profit projections.

CONCLUSION :
With the Promoters sitting on Huge Cash and the proposed Rights Issue giving some more cash, they can get a lot of Hospital Asset at distressed price (Wockhardt, Manipal, etc) and the Company is bound to be Multi Bagger in the years to come.

BUY

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GIC HOUSING FIN - ATTRACTIVE

2008-12-24T00:13:00.000-08:00

GIC Housing-Dividend Play

As compared to big brothers HDFC and LIC Housing Finance, GIC has to do a lot of catching up to do, both in terms of gaining investor fancy and growing up size. A lower discount is justified, considering the company's indifferent performance in the past and the relatively poor disclosure standards.However, given the potential for growth in the housing finance sector and the company's performance over the past two years, a narrowing of the valuation discount appears justified. And apart from this, GIC has done well for itself and discerning investors should be buying the stock, if only for the dividend yield.

Net profit of GIC Housing Finance rose by 3% to Rs 30 crore in the half year ended September 2008 as against Rs 29 crore during the corresponding half of the same period previous year.

Operating income rose 16% to Rs 150 crore in HIFY09 as against Rs 131 crore during the previous half ended September 2007.

The company disbursed Rs 363 crore of loans, registering a growth of 9%. The Company recorded a Net Interest Margin of 1.4% for the half of FY2009.

The Net NPAs of the Company stood at 2.26 % as of September 2008.

The housing sector in the Country has been growing progressively and has a vast potential for further growth.

In an environment where banks are reluctant to lend to the housing sector, housing finance companies like GIC would be able to enjoy tremendous growth opportunities in times to come.

The stock trades at a P/BV of 0.5x. It is presently quoting at around Rs.38

At the current price it also provides an extremely attractive dividend yield of more than 11%.

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GANDHI SPECIAL TUBES - AVAILABLE AT DISCOUNT

2008-12-23T02:01:00.000-08:00

Company Background

GANDHI GROUP is manufacturing automobile components since over 3 decades. The products are marketed all over India and are also exported all over the world including Germany, UK, South East Asian countries etc. GANDHI SPECIAL TUBES LTD. formerly known as GANDHI SPECIAL 07 TUBES LTD. was a project set up by GANDHI GROUP in technical collaboration with BENTELER of GERMANY. BENTELER is one of the leading enterprises in manufacturing of steel. Besides steel they manufacture welded and seamless steel tubes and are also producing pressed, drawn, stamped parts and tubular components.The project was for manufacturing small diameter welded and cold drawn seamless steel tubes. M/S BENTELER have supplied most of the critical machines and were involved in installation and commissioning of the plant and training personnel in INDIA as well as GERMANY. The plant situated at Gujarat, started commercial production in April 1988.

GANDHI SPECIAL TUBES LTD. have also subsequently started producing tubular components like condenser coils and wire on tube condensors at Halol plant mentioned above and have recently set up a unit at Pune to manufacture tubular components.

M/S Gandhi Special Tubes Ltd. have also started manufacturing of Cold Formed Tube Nuts for Fuel Injection Tube Assemblies as well as Hydraulic Tube Assemblies. This is a pioneering effort in India as hitherto tube nuts were being manufactured by machining.

Products

Small Diameter Welded Steel Tubes

The size range of small diameter welded steel tubes manufactured is 3.1 to 12.7mm Outside dimension and 0.5 to 1.5 mm wall thickness. Plain, inside and outside copper plated and outside zinc plated tubes are manufactured. These tubes find applications mainly in refrigeration and the automobile industry. The list of customers include major refrigerator manufacturers like Godrej, Voltas, Electrolux, Daewoo, Carrie etc and major automobile / engine manufacturers like Telco, Ashok Leyland, M&M, Simpson, Kirloskar Oil Engines, Maruti Udyog Ltd etc or their ancillaries.

Cold Drawn Seamless Steel Tubes

The size range of cold drawn seamless steel tubes manufactured is 3 to 75 mm Outside dimension and 0.5 to 7.5 mm wall thickness. GSTL is a pioneer in introducing cold drawn seamless steel tubes normalized / annealed in bright annealing furnace in India. This ensures soft and scale free tubes. These tubes find applications in high-pressure fuel injection tubing and hydraulic tubing. Most of the customers in India who were earlier importing these tubes are now buying these tubes from GSTL. The list of customers include Telco, Ashok Leyland, M&M, Simpson, Kirloskar Oil Engines, Mannesman Rexroth, Vickers, Wipro, SMS (I) Ltd, L&T, Tisco etc.

Tubular Components

Facilities at Pune plant for manufacturing tubular components include CNC and manual bending, hydraulic head forming, welding / brazing, flushing, pressure testing etc. Components manufactured are condensers, compressor parts, fuel injection tube assemblies, hydraulic tubes etc.

Cold Formed Nuts

In order to provide a complete product with end fittings, GSTL also started the manufacture of cold-formed nuts. These nuts have the following distinct advantages over machined nuts: High degree of reliability ensuring zero failures on account of cracked nuts, tensile strength, yield strength and shear strength increase due to cold working. Also, the unbroken flow lines follow the part contour, which increase the strength of the part and improved surface finish, which not only gives it a better look but also improves the life of the product and helps sealing where ferrules are used.

Investment Rationale

Gandhi Special Tubes is a niche player in small diameter seamless and welded tubes segment which caters to the automobile and general engineering industry. It has virtually no competitors in the small diameter seamless tubes segment but faces some competition in the small diameter welded segment from players like STI Sanoh India Ltd and Bundy Tubing. Also threat from new entrants is low as gestation period for new companies is long about 3-5 yrs. The technology required for its product is highly specialized and as a result the small diameter seamless tubes are high-margin value added products. The seamless tubes find application in diesel based automobiles and hydraulic equipments and the welded tubes are used in refrigerators and automobiles.

The Specialized and high quality nature of its products is evident from the fact that it developed a very special component for Volvo. The product was approved and now it manufactures this component for all Volvo’s component manufactures who export from India. One of the most important engines driving the growth of the Indian manufacturing sector is the domestic automobile industry, which has grown at a CAGR of 13% over the past 5 years. Further, multinational automobile companies like JCB India and Volvo are expanding automobile/excavator manufacturing capacities in India. Many new players are entering the Indian market and India is emerging as an automobile and automobile component manufacturing hub due to the availability of cheap labor, skilled Engineers and high-quality products. Even domestic auto component companies are investing about Rs. 30,000 crore to cash in on the automobile boom. It is expected that the automobile capacity in the country will double from 2.2 million units per annum to 4.4 million by 2010. This kind of growth in OEM auto manufacturers (one of GSTL’s major clients), gives GSTL the potential to ride on the progress of the auto industry in India.

GSTL is the exclusive supplier of seamless tubes to JCB India. JCB recently announced the opening of its second plant in Pune, Maharashtra, with an investment of $25 Million. Total investment of $75 Million has been made in Pune Plants, where world-class heavy-line machines will be manufactured for India and Pan Asia. Going ahead, it is expected that JCB will open a third plant in India in order to keep up with the robust demand and to capitalize on the growing market.

Further, GM is coming up with a special small car plant in India. The Volkswagen group is also coming to India with plans to manufacture 1,20,000 cars per year near Pune.

Being the only manufacturer of seamless welded tubes in India and a very cost-efficient import substitute, GSTL is witnessing a rise in demand for the same. Seamless welded tubes find applications in high-pressure diesel fuel injection, hydraulics and general engineering. Diesel engines are primarily found in commercial vehicles. With the Supreme Court’s ban on overloading of trucks above permissible limits, rising off-take of the small commercial vehicles and increased demand for construction related vehicles; commercial vehicles sales are slated to grow at a CAGR of 10-11% till 2010-2011. Further, the Indian commercial vehicle space is also seeing substantial interest from foreign investors.

Recently, Volvo acquired a 50% economic interest in Eicher Motors’ commercial vehicles business for $350 million while Daimler Trucks announced a strategic alliance with the Hero Group. In October, Ashok Leyland had announced an alliance with Nissan to produce LCVs. This results in increased demand for diesel engines that in turn results in augmented demand for GSTL’s specialized small diameter seamless tubes.

GSTL’s clients include reputed international and domestic automobile and general engineering companies. Over the years, GSTL has built a direct relationship with its clients and has received the necessary approvals for its various products. The list of a few clients is provided below.

1. Tata Engineering & Locomotive Co, Ltd.

2. Tata Iron & Steel Co. Ltd.

3. Ashok Leyland Ltd.

4. Maruti Udyog Ltd.

5. Mahindra & Mahindra Ltd.

6. Bajaj Auto Ltd.

7. Escorts group companies

8. L & T Case Equipment Ltd

9. Larsen & Toubro Ltd.

10. SMS India Ltd.

11. Steel Authority of India Ltd.

12. Bharat Heavy Electricals Ltd.

13. Bharat Earth Movers Ltd.

14. Bosch Rexroth India Ltd.

15. Vickers System International Ltd.

16. Lincoln Helios India Ltd.

17. Godrej Appliances Ltd.

18. Electrolux India Ltd.

19. Voltas Ltd.

20. Daewoo India Ltd.

21. Kirloskar Copeland Ltd.

22. Carrier Refrigeration Ltd.

23. Imperial Auto Industries Ltd.

24. Injecto Ltd.

25. Matchwell Engineering Pvt.Ltd.

26. Sebros Enterprises

GSTL is entirely a debt free company and has been able to fund its expansion of about 45 cr entirely from internal accruals.

Risk and Concerns

Ø The margins could come under pressure due to increase in input costs and other expenses.

Ø Competition from low cost manufacturing countries such as China.

Ø Adverse fluctuation in foreign exchange rates.

Valuation

At current market price of Rs 84, it is trading at 6.5 times FY08 EPS and 1.6 times book value with a dividend yield of about 2.9%. Also the company has high profit margins and return on invested capital The value of a debt free company has to be substantially more than the amount of debt it can comfortably service. It's a principle which was laid out by Ben Graham in Security Analysis and is known as the Debt-capacity bargain. On that basis it can be valued at Rs 130 assuming cost of capital to be 10%.

Value =earning per share /cost of capital

= 12.9/10%

= 130

Hence the business is available at 35% discount to intrinsic value.

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DECCAN GOLD - LIMITED DOWNSIDE

2008-12-23T01:56:00.000-08:00

Ashish Chugh, investment analyst and author-Hidden Gems is of the view that there is limited downside in Deccan Gold Mines.

Chugh told CNBC-TV18, "Deccan Gold is the only listed company and it is the only first private sector company involved in gold exploration, this company has been promoted by Australian investors, who are involved in similar business in Australia. This company has got a large portfolio of exploration blocks, which are located mainly in four states and these blocks are located in the states of Andhra Pradesh, Kerala, Karnataka and Rajasthan. The total area of the block is an excess of 10,000 sq km. This company has got one of the most prospective blocks in the country in gold exploration."

He further added, "As of now the company has got no revenues because of the fact that they have applied for mining license for few blocks, but they are yet to get the approval from the Central Government and State Government for mining these blocks. The management expects to get the approvals and start producing in the third quarter or fourth quarter of FY10. They expect to do about 4 tonnes of gold every year and 4 tonnes of gold, if multiplied with the gold price of Rs10, 000 per 10 grams this translates into the revenue of Rs 400 crore. If we try to be conservative and say that they are able to do only 50% of what they are talking about, this would translate into Rs 200 crore revenues."

"Gold exploration it is a high margin business, something like oil exploration, where initial expenses may be high but the margins can be pretty good once they are able to start mining gold. So at a marketcap of Rs 80 crore, I think the downside from these levels looks to be very less. Even though I would recommend that the current price is about Rs 14-15, investors can choose to make a staggered purchase, which could be spread over the next 3-6 months at the price of between Rs 10-15."

"In the case of the unusual movement in the stock like the one we saw last year, when the stock went up from Rs 15 to Rs 150. Risk management is very important because this is a high risk stock, high risk because the uncertainty, which is attached with the kind of business it is involved in. But at the same time the returns in case every thing goes well for the company can also be very good."

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MAHARASTRA SCOOTERS - HIGH DIVIDEND YIELD

2008-12-23T01:54:00.000-08:00

Maharashtra Scooters is a Bajaj Auto group company. In fact, this company has been promoted by Bajaj Auto Ltd along with Western Maharashtra Development Corporation. Till about two years back, this company was manufacturing scooters and supplying it to Bajaj Auto. It was in fact an ancillary to Bajaj Auto, but this company stopped the manufacturing of scooters two years back. As of now, this company has got no business of its own.

This company has got an equity capital of Rs 11.5 crore and its book value as on March 31, 2008 was about Rs 172.

This company is totally debt-free, it has got absolutely no term loans or unsecured loans or working capital loans. It is a totally zero debt company. This company has got cash close to Rs 95-100 crore in its books.

It also holds shares of Bajaj Auto Ltd, which got demerged into three companies ‑ Bajaj Holdings, Bajaj Auto and Bajaj FinServ ‑ last year. So, this company was holding about 33.87 lakh shares of Bajaj Auto and it now holds 33.87 lakh shares in each of these three companies whose value at the current price comes close to Rs 225 crore.

Besides these three companies, this company is holding Bajaj Auto Finance and Bajaj Hindustan shares also, which are valued at close to about Rs 17-18 crore.

In all, this company has got the quoted investments whose value at the current market price is close to Rs 250 crore. All investments which this company is holding are trading very close to their 52-week lows whether it is Bajaj Auto, Bajaj FinServ, or Bajaj Auto Finance.

So, at the current price of Rs 65, you have a company whose market capitalisation is just about Rs 75 crore, which is holding cash of Rs 100 crore and quoted securities of Rs 250 crore. This company paid a dividend of 60% last year. So, at the current price, the dividend yield itself comes to about 9%, book value is Rs 171 as against which the stock is available at Rs 65.

In a market where there is so much of uncertainty, here is a company that is holding a lot of cash in the balance sheet. It is giving a good dividend yield to shareholders, and this seems to be a safe stock in an uncertain market like this.

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MARG - INTERESTING

2008-12-23T01:52:00.000-08:00

Marg is an infrastructure stock. This is in a sector which is out of favour as of now and there is a lot of negative sentiment surrounding this sector.

The company is into infrastructure as well as real estate. This company is into development of ports, airports, SEZ and they also into development of commercial and residential real estate. Most of their projects are in and around Chennai.

This stock had touched a high of about Rs 630 in January and currently trades close to Rs 35. It has dropped about 95% from its high, which it had touched early this year.

This is inspite of the fact that if you see the financials of this company, there has practically been no deterioration in financials till now.

In fact in the first six months of the current financial year, sales are up by about 80%, profit after tax (PAT) is up by about 42%, and the tax payment for the first half is more than double of what they did in the first half of last year.

Now, despite of any deterioration in the financials of this company till date, the stock price has dropped by about 90%. This drop in stock price is mainly because of negative sentiment surrounding this sector. Nobody wants to buy real estate or infrastructure today.

This is primarily on account of two things. One is fundamental factors. There has been a slowdown in the economy, stock markets have come down, and there has been a liquidity position which is getting worse by the day.

But having dropped by about 95% from its high, the major part of this decline seems to be on account of other factors like fear psychosis, which is surrounding investors. There is definitely a lack of confidence among investors in the market.

Even then I am not ruling out the possibility that in the next few quarters there could be a decline in the profits of the company, but that factor is already getting factored in the stock price. The current market capitalisation of the company is just about 90 crore, which is less than one year of operating profits.

As on March 31, 2008 the book value of this company was Rs 121 crore. As against the book value of Rs 121 crore, the stock trades at close to Rs 35 which is roughly 25% of the company’s book value.

From a current price, even if deterioration in the economy were to happen, the downside looks extremely restricted. In the case of liquidity easing off, these kinds of stocks can bounce back very sharply from their current levels.

The book value – even if you look at the gross block of the company ‑ is close to about Rs 425 crore. Given all these factors and that the stock has dropped about 95% from its high to Rs 35, the downside looks very restricted, and in case of conditions becoming slightly favourable, these stocks can jump up by 50-100-200% also in a short period of time.

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BAJAJ FINSERVE - ATTRACTIVELY VALUED

2008-12-23T01:51:00.000-08:00

Bajaj FinServ is a company which was created out of the three way demerger which Bajaj Auto undertook. Bajaj FinServ was one of the companies which were created as a result of the demerger. Bajaj FinServ has got several businesses in its portfolio and most important is the insurance business of the Bajaj group which is Bajaj Alliance Life Insurance and Bajaj Alliance General Insurance
. Bajaj FinServ holds 74% in each of these two companies.

Besides insurance, the financial distribution business of the Bajaj group is Bajaj Auto Financial Distributors Ltd. Bajaj FinServ is a holding company for that and they also hold a substantial stake in Bajaj Auto Finance, besides the wind power business of the group.

This company holds 74% stake in both the life and the general insurance business of this group. The insurance business has been growing at a good pace for both the life and general insurance. In fact, the general insurance company is already a profit-making company. They made a profit of close to Rs 100 crore for FY08.

If you look at the balance sheet of Bajaj FinServ at the current market price, the market cap of this company is just about Rs 1,600 crore. The company has got cash and cash equivalents of more than Rs 800 crore on March 31, 2008. Assuming a 10% annualised rate of return, the holding would be valued at around Rs 860-870 crore as of today. They are holding Bajaj Auto Finance whose market value at the current price is close to Rs 100 crore. So, you are left with the insurance business which is available at a valuation of about Rs 600-700 crore at the current market price. They have a wind power business where the gross block is about Rs 300 crore. At the same time, there is a deferred tax liability of close to Rs 300 crore in this business.

The triggers for the stock can be once the insurance bill is table in Parliament and the later gives it approval for increase of foreign company’s stake from 24% to 49%. That could be a big trigger for this stock. In the event of both these companies offering higher stake to foreign stakeholders, it would lead to a complete re-rating of the stock.

Another comforting factor is that the promoters have been increasing their stake by buying from the market. If you see the shareholding pattern of the company between September 2008 and the disclosures which they have made to the stock exchange recently, one of the group companies which is Bajaj Holdings has already increased stake by more than 4.5% in the last 60-75 days. So, given all these factors, the stock is available at attractive valuation, and the real kicker can come from the offloading of stake in the insurance business.

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MSK PROJECTS - AN ARBITRAGE OPPORTUNITY

2008-12-23T01:50:00.000-08:00

MSK Projects provides a very attractive arbitrage between the current market price of Rs 45 and the open offer price of Rs 84. This company is a construction company which started with residential and commercial projects but later diversified to the road sector and BOT (build-operate-transfer) projects.

The company achieved revenues of about Rs 244 crore for FY08 and made a PAT (profit after tax) of about Rs 17 crore. In the first half of the current financial year, both revenues and profits are up by 50%. The EPS on a TTM (trailing 12-month) basis is about Rs 9 and at the current market price of Rs 45, the stock is available at a price to earning ratio of 5.

Now, this company made a preferential allotment to a company called Shubhkam Holdings in October 2007. Shukhkam prior to this preferential allotment was already holding about 8.7% stake in the company. After the preferential allotment, their holding went up to about 24%. Since their holding went beyond 15% the open offer got triggered. Shubhkam Holdings announced the open offer at Rs 84 in October 2007.

This open offer has been delayed by more than one year because of the difference in the stand taken by the Securities and Exchange Board of India and the acquirer, under which the regulation of Sebi this open offer has to be made. The acquirer wants to make this open offer under regulation 10 of Sebi. This means that the acquirer is only a strategic investor whereas Sebi’s stand is that this open offer should be made under regulation 10 along with regulation 12, which means that acquirer would be a part of the promoter group.

Now, this appeal was filed by the acquirer with Securities Appellate Tribunal and SAT wide its order date October 23, 2008 has referred the matter back to Sebi for reconsideration and has asked the market regulator to give its decision on the matter.

If you look at the shareholding pattern of MSK, promoters and Shubhkam together hold about 46% in this company, which means 54% shares are the ones which are eligible to be tendered in the 20% open offer. Theoretically, the acceptance ratio will be 40%, given this ratio. But if you do an analysis of the open offer, which have opened and closed in the last one year, you will find that the actual acceptance ratio in most cases is much higher than the theoretical acceptance ratio.

Here also we have taken two scenarios. One is a conservative scenario where we have assumed a 50% acceptance ratio and a favourable scenario where the acceptance ratio is assumed at 70%. The purchase price in both cases is Rs 45. The open offer price in the conservative scenario is about Rs 84 while in an aggressive scenario we have taken it as Rs 90, because of the possibility of interest component being added to the open offer price. Time period for investment in both cases has been taken as six months and the value residual shares is taken as Rs 25.

Now, under a conservative scenario, you get an annualized return of about 42%. Taking an aggressive scenario or favourable scenario, the returns are more than 100%. In fact it comes to about 110%. So in a scenario where there is a lot of uncertainty and people are not willing to commit a lot of money into the stock market, I think this stock offers a very attractive arbitrage, since the open offer has got delayed by such a long time, people have probably forgotten about this arbitrage opportunity. In the uncertain times, it provides virtually a risk-free investment where returns can be between 40% and 100%. The major risk to this investment is prolonged delay in the opening of the open offer. The other risk is that the risk of open offer getting delayed, but we are ruling out that possibility because we don’t have any precedence where the open offer has been announced and then withdrawn at a later stage. So, that possibility is totally ruled out.

So, the only bigger risk which I can see with this investment is some inordinate delay in the opening of open offer which can pay gains for investors, but it is a good investment for somebody who is willing to take a calculated risk. In the uncertain times, I think 40% return on the investment should be good enough for many investors.

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NATCO PHARMA - UNDERVALUED STOCK

2008-12-23T01:47:00.000-08:00

Investment Analyst, Ashish Chugh is of the view that Natco Pharma is a very undervalued stock and a safer investment.

Chugh told CNBC-TV18, "Natco Pharma is a very undervalued stock. It is a company based in Hyderabad. This company is mainly into the oncology business and this company is ranked number one in India in the oncology segment. The management expects to grow the oncology business by about 20% every year over the next three years.

He further added, "There are a few interesting developments taking place in this company, one is that this company is increasing its presence in the retail pharma space in the US through acquisition of retail pharma stores. They have already acquired three stores and they are scouting for more acquisitions in this space in the US."

"Secondly, this company’s major strength is research and they are currently doing clinical trials for oncology drug, which they have developed. The phase I of clinical trials have already begun and commercialization of this drug will lead to a substantial benefit to the company and the shareholders."

"Thirdly, this company has entered into a tie up with Mylan Inc for worldwide sales of a drug, which they have developed. This drug is called Glatiramer Acetate, the other company which is making and marketing this drug is Tava Pharmaceuticals of Israel. This drug is a USD 3 billion drug and Teva currently has a monopoly position in this drug. Now the agreement with the Mylan is that Mylan will do the clinical trials and they will incur all the expenditure, which is involved in the clinical trial for this drug and they will do the regulatory approvals and registration of this drug in the US."

"It may so happen that since this drug is going to threaten the monopoly of Teva, they may try to maybe delay the launch or they may file a suit against Natco Pharma, which may lead to a slight delay but whenever the commercialization of this drug happens, it could be a big leap forward for Natco Pharma."

"This company did sales revenues of about 330 crore for FY08. They made a profit after tax of about 42 crore-I am talking about the consolidated numbers, which means an EPS of close to Rs 14. At the current price of Rs 75, this stock trades at a price to earnings ratio less than 6."

"Another comforting factor or the margin of safety in this investment is that this company holds a land bank close to 300 acres, which is close to the new Hyderabad airport. This land bank alone is valued at between 250 and 300 crore, which is more than the current marketcap of this company which stands at about 200 crore."

"So one has a company, which is available at reasonable valuation, it is growing through the inorganic route by acquiring retail pharma stores in the US. There could be a very big trigger-it may take two-three years for that Mylan thing to materialize but as and when it materializes, it will lead to a quantum-it will basically position Natco on a different platform altogether. Also their strength in the oncology segment and the new drug discovery, which is happening. So one has a company which is trading at reasonable valuation and one has a good margin of safety also by way of the land bank of 300 acres which the company has. So at this price I think the stock merits investment."

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BAJAJ HIND - Results Bitter, Future Sweet

2008-12-22T23:43:00.000-08:00

Bajaj Hindusthan

, the country's largest sugar manufacturing firm, posted a consolidated net loss of Rs 197.62 crore in the financial year ended September 2008 as against a consolidated net loss of Rs 4.01 crore last year. This loss was on a total income rose to Rs 2,120.26 crore in FY08 from Rs 1,812.86 crore in the last fiscal.

On a standalone basis, the net loss was lower at Rs.50.17 crore when compared to the consolidated net loss but higher than the Rd.45.65 crore net loss it posted last fiscal.

Despite the loss, company has declared a dividend of 60% at the rate of 60 paise on shares of face value of Re.1/- for 2007-08.

If one looks carefully, it becomes quite apparent that it is only due to forex loss and higher interest outgo in Q4, that the net loss has burgeoned. In fourth quarter ended 30th September 2008, the PBT of Rs.131.57 crore was due to forex loss of Rs.71.4 crore, which was earlier not booked due to non completion of capex. This apart, it also had a higher interest outgo of Rs.59.02 crore in Q4 against Rs.139.44 crore of FY08 on completion of capex,

UP government has recently announced SAP for sugarcane for season 08-09 at Rs.1,400 per MT. This year, lot of damage has been caused to the sugarcane crop in UP and hence mills are not likely to operate for more than 150 days in this season against, an average pf 180 days in the earlier years. So there would be mad scramble to purchase sugarcane by the mills even at a higher rate of more than Rs 1,400 per MT.

All this would give a great advantage to company, being the largest player. Due to lower estimated sugar production of India for season 08-09, at about 20 million tonnes, sugar prices will start rising from April 09, once general elections in the country happens and crushing in UP and Maharashtra stop. Sugar price can rise by about Rs 3 to Rs 4 per kg, after April 09, which will give huge advantage to the sugar mills.

Season 08-09 and season 09-10 is going to be excellent for the company and despite the loss, given the positive outlook for the sector, qualifies a good buy at the current rate of Rs.60.

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MYSORE CEMENT - A SURE SHOT WINNER

2008-12-22T23:29:00.000-08:00

Mysore Cement-A Call At Rs 15.75
BSE 500292; CMP Rs 15.75

The way I would play Mysore Cement is to consider the current market price of the stock as a Call option with a one year expiry. And within the next 12 months I would expect the stock to double-a return of 100 per cent. Is it possible? Yes, it is.

Mysore Cement is now owned to the extent of roughly 60 per cent by the Rs 55,000 crore German major Heidelberg Cement. Post merger of IndoRama Cement and Heidelberg Cement Pvt Limited with Mysore Cement, the total cement manufacturing capacity with the company has risen to 3 mn tonnes. The corporate with units in Mysore, Damoh, Jhansi and Pune is now in a position to serve the south and west regions of India.

Consistent fund infusion from Heidelberg has turned Mysore Cement into a debt free corporate, with CY08 EPS expected to be slightly above Rs 5 per share. This makes the stock the cheapest play in the cement sector at a PE of 3 or more appropriately the corporate will earn enough to pay-off its Equity in 3 years.

Though signs of slow down are apparent, the recent moves by the GOI to reduce Cenvat on Cement, and the fall in Crude will reduce manufacturing costs through a majorly lower power and transport bill while cheaper cement will encourage more construction activity.

On a replacement cost basis too, Mysore Cement is under-valued. The 3 mn tpa capacity will cost Rs 750 crore should a greenfield unit be set up today, against the enterprise value of Rs 352 crore that Mysore Cement possesses today. If things proceed as per plan, the stock should double by December 2009.

What is important is that Heidelberg sees a great future for Cement in India. It had bought over the Birla and public stake at Rs 58 per share a year ago, and through fresh infusion of equity at Rs 54 per share paid off all institutional debt making Mysore Cement a zero debt company.

The plans as of now include doubling the cement capacity to 6 mn tpa by 2011-2012.

The Opportunity

The Indian economy is witnessing its best ever growth phase with the GDP expected to continue to grow between 8.5%-9%. It is well understood by the policy makers that the biggest obstacle to growth of over 9% or more is India’s infrastructure – especially the state of roads, ports and power. India spends 4% of its GDP on infrastructure investment compared with China’s 9%.

The Government of India has plans to raise the total infrastructure spending to 8% of GDP over the current five year plan. With the thrust on the infrastructure development, boom in housing sector and accelerated road and highways development, demand of cement is expected to be firm. In order to tap the future potential of the cement sector in India, the Company is contemplating the expansion of capacity from the existing 3.0 million tonnes per annum to 5.9 million tonnes per annum.

Outlook

Cement manufacturers have announced capacity increases, but gestation period of the projects has gone up due to capacity constraints of plant and equipment suppliers. This implies that new capacities are likely to take longer time to come on line and that the capacity utilization levels would be comfortably placed atleast for the next few years.

The demand for cement over the next five years will be robust enough to absorb 40 million tonnes of Greenfield capacity, according to CRIS INFAC’s (a subsidiary of CRISIL) news report on the long term outlook for the industry.

This capacity addition will require an investment of nearly Rs. 13,200 crores.

Industry profile

Industry structure and developments The Indian cement industry has a capacity of around 173.08 million tonnes per annum at the end of December 2007 as reported by the Cement Manufacturers Association (CMA). Against this, the cement production was 163.90 million tonnes during the period January to December 2007 exhibiting a growth of 7.12 %.

The cement despatches during this period were 159.20 million tonnes, showing a growth of 9 %. Western Region recorded a growth of 14% in cement consumption during the period January to December’07. Southern and Northern Regions achieved a growth of over 10%. Central and Eastern regions exhibited a growth of 4% and 3% respectively. Cement export during this period declined by 34% from 6.4 million tonnes in 2006 to 4.2 million tonnes in 2007, due to robust domestic demand.

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HTMT GLOBAL

2008-12-22T02:59:00.000-08:00

HTMT Global offers everything you want in a company in tough market conditions.

A fluid world prices solidity at a premium. Oh, but that is baba aadam ke zamaane ki wisdom. Today even solidness is being extensively discounted.

The one stock where this is most visibly evident is HTMT Global. This company figures among the leading 15 Indian BPO vendors with an entrenched presence in voice-based services and a growing presence in non-voice transaction processing services.

It would be simplistic to pronounce that the company is available at a discount to its intrinsic value; in HTMT Global, it is serious enough to become a case study for all those B-school students who otherwise taqseem away their summers conducting thesis on deeply profound philosophies like ‘The future of the mutual fund industry in India’ and ‘Risk appetites of fixed income investors’.

But first the raw case for investing: HTMT Global is priced by the market at a market capitalisation of around Rs 240 crore (last week’s closing); the company possesses Rs 625 crore of cash on its books with negligible debt, despite reporting rising earnings over the last five quarters (pre-adjustments) and the possibility of delivering an EBIDTA of Rs 160 crore in the current fiscal.

This is why I like the company.
* Completely focused on vertical based service offerings like customer care and transaction processing. No software, no IT products. Focused ITeS company. Addressable market opportunity of $90-127 billion.

* Business classified as mission-critical, comprising the back-end hosting of the client’s customer management services. Existing client base of about 78 across India, Philippines and North America with no client attrition even in a challenging October and November.

* Delivery capabilities spread across India, Philippines, the US and Canada. Offshore centres located in Bengaluru, Mysore, Chennai, Mumbai, Hyderabad and Durgapur (India) and Manila (Philippines); onshore/near shore centres are located at Montreal (Canada) and Peoria, St. Louis, Waterloo, and El Paso (USA).

* About 76 per cent of revenues generated from voice-based services, largely linked to customer care (presales, sales, after sales, help desk support, product support and billing) Non voice-based offerings (24 per cent of sales) comprise healthcare adjudication services and insurance claim processing. Safe vertical selection; no customer from the mortgage or BFS segments; nearly 90 per cent of the business is inbound as distinct from telemarketing.

* Business stability secured through enduring customer relationships. Business reality highlighted by the need for stable back-end vendors. Relationships weighted more around capability and long-term pricing contracts than short-term bargain hunting by customers; also influenced by the ability of specialised vendors like HTMT Global to enhance client’s customer satisfaction and retention leading to growing volumes. Relationship pivoted around high Service Level Agreement scores, placing the company among top three BPO vendors for customers and reflected in a 50 per cent increase in business from two customers in the last couple of quarters.

* Posted growing profits in strong rupee environments over some of the last few quarters before the rupee weakened sharply. Business viability protected by an attractive 30-40 per cent wage and quality arbitrage opportunity for clients

* Negligible gearing has protected viability at a time when a number of international competitors with stretched balance sheets have exited the business in the last few months, enhancing an opportunity to improve market share. Fancy a balance sheet size of Rs 969 crore as on September 30, 2008 and a debt position of Rs 89 crore!

* Profitable balance of onshore (based in US) and offshore (India and Manila) business models; onshore business caters to clients needing back-end support for high end products; provides the company with an exposure to cutting-edge industry practices; provides a reference that leads to customer acquisition in other geographies; provides evidence to US policy makers that the company is creating jobs in US.

* Robust and growing domestic presence. The company was one of the first players to tap the domestic market for BPO services, which now contributes about 19 per cent of sales (Airtel is a client since 2005 contributing 15 per cent of sales).

* The US presence is conducted through a subsidiary called Affina, which shares a part of the profits with the erstwhile US owner; the agreement expires in December 2008 following which all the inflow will be retained; even as US margins are lower than in India, Affina turned profitable in the last two quarters of 2008-09.

* Proposed renegotiation of agreements with customers in January 2009 will translate into enhanced earnings.

* Increasing headcount by 3,000 this year to a total of 17,000; a Vashi (Mumbai) centre was commissioned in June 2008, a Chennai centre in September 2008 and a centre in North India is expected to go on stream by the end of this financial year.

* Significant cash buffer is a balm for weak nerves. Prior to de-merger of the combined entity, the Hinduja Group exited from the erstwhile Hutchison Essar in July 2006. The group sold its 5.1 per cent stake in the telecom service provider for $450 million in cash. Post de-merger, HTMT Global Solutions received its share of $110 million cash from the stake sale as a part of the stake was held by its Mauritius-based subsidiary ‘Pacific Horizon’. The company’s net cash on books is higher than its market capitalisation!

* There is a positive earnings momentum: EBIDTA margins have broadly climbed from 12.7 per cent to 18.9 per cent in the last six quarters; pre-tax and pre-adjustment profits have climbed from Rs 20.24 crore to Rs 33.65 crore during the period; topline has increased from Rs 143 crore to Rs 190 crore, indicating a sweet spot for the business.

Pray, then what could be the reason behind the company’s abysmal discounting? Theories abound.

Issues
* There is a perception that the company is largely supported by revenues from companies within the Hinduja Group; the reality is that not more than Rs 40 lakh was derived from BPO revenues for Hinduja Hospital of the company’s overall revenues of Rs 750 crore in 2007-08.

* The company generated $110 million from stake sale. The perception is that the company is under-utilising the war chest in terms of its potential. The reality is that the company has kept these funds in Mauritius; if it brings this money into India, there could be a tax implication of 33 per cent; the invested funds are generating a modest return of a little less than 5 per cent (post-tax). The war chest is being protected to acquire assets or companies or brands prudently. Even as the company maintains that this will be done only if the inorganic gambit is shareholder-accretive, investors have lost nerve.

If the strategy in panic-driven times is to sit on liquid assets, then it might help to remember a company where you can buy a rupee for a little more than just 30 paise! A wise investor had once said that the most profitable investing is when making money is as simple as simply going over and picking up cash that others have left around.

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HERITAGE FOODS - BUY

2008-12-22T02:35:00.001-08:00

The Heritage Group, founded in 1992 by Sri Nara Chandra Babu Naidu (former Chief Minister of Andhra Pradesh) operates three-business divisions viz., dairy, retail and agri under its flagship company Heritage Foods (India) Ltd (HFIL). Presently Heritage's milk products have market presence in Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Maharashtra and has its retail stores across Bangalore, Chennai and Hyderabad. Its integrated agri operations are in Chittoor and Medak districts of Andhra Pradesh. Heritage Foods has its headquarters in Hyderabad, Andhra Pradesh

The company is listed on the BSE and NSE and falls in the T group category of BSE.

The BSE stock price trend of the scrip (BSE code: 519552) from 19.01.2007 to 19.12.2008 is as shown:

Closing Price Source: BSE

The scrip was Rs.272.85 on 19 Jan 07, reached the periodic high of Rs.444.05 on 06 Fec 07 and was Rs.73.25 on 19 Dec 08. The sudden spike during December 2007-January 2008 is due to the buying pressure during the bull run then. A trend line has been inserted to track the general periodic trend.

As on 31 Mar 2008, Total Income has risen by 80.73%, but PAT has dropped by 45.34% y/y. 2006, 2007 and 2008 have shown a falling trend for RoNW, which indicates decreasing profitability with the help of shareholders' funds. The rising Long Term Debt to Equity ratio indicates increasing dependence of debt as a source of financing. A plunge in PAT, PAT to Total Income ratio, RONW and EPS is seen between 2006 and 2007 because the company commenced retail business operations at the end of 2006 and incurred substantial start-up expenses.

Source: Company annual report 2007-08

The following factors appear favourable for the company:

· The company is expanding itself rapidly. 22 new units have been commissioned with procurement capacity of 2.51 lac litres per day (LLPD) in Andhra Pradesh and Maharashtra and 3 milk packing stations have been added totalling to 1.2 LLPD capacity in Andhra Pradesh and Karnataka. It also plans to spend 2.3 crores on expanding its dairy business further.

· The Indian retail market is expected to reach USD 427 billion by 2010. In the sway, the company plans to launch 30 more stores to the existing 70, thus aggregating to a total of 100 stores by the end of FY 2008-09. According to industry studies, people in South India have taken the supermarket-style of shopping very keenly. Hence, the company has a spread of more than 30 stores each in Hyderabad, Chennai and Bangalore.

· In order to distinguish itself from the competitors, HFIL has chalked out two strategies - Urban and Rural. The Urban strategy includes a home-delivery based model of retail goods as well as rewards and schemes for its customers. The Rural strategy includes deploying company representatives to sell FMCG products into rural areas. The company is confident that these strategies will help it win over its competitors in terms of market share.

· On 29 April 08, the Union Commerce and Industry Minister Kamal Nath assured that no foreign direct investment would be allowed in the retail sector. Hence, the company is relieved that there is no immediate threat of a foreign competitor entering India

Some risks pertaining to the company are as follows:

· The company has accepted that it is still considered as a regional and niche player in terms of expansion plans and geographical spread. This has led to hindrances in its recruitment policies, thus hampering the quality and quantity of manpower.

· As per the company's annual report, the company's size and scale of operations are small as compared to its competitors. It also faces a threat from future entrants.

· Since most cities in India are undergoing rapid urbanisation, the property and rental costs are rising sky high. This has a direct bearing on the company's profitability as its rentals payable are rising.

The following table analyses the current returns to an investor, if the stock was purchased at different periods of time.

The P/E ratio of HFIL is highest amongst its peers. This is one of the indicators of faith of the investors in the company. The stock is currently trading at its life-time low. To increase the revenue share from products, HFIL is establishing as well as increasing the production capacities for value added products such as ice cream, paneer, cooking butter, curd etc. This will help in its overall growth. Further, the above given positive factors seem to outweigh the risks, making the stock attractive. So, we conclude that the scrip is a good pick in the recent bearish markets.

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ABG SHIPYARD - out of Rough Sea?

2008-12-22T02:31:00.000-08:00

ABG Shipyard formerly known as Magdalla Shipyard Private Ltd, is the flagship company of the ABG Group. The company is into shipbuilding and ship-repair activities. It has the distinction of being the largest private sector shipbuilding yard in India.

ABG Shipyard's state-of-the-art manufacturing facilities in Surat, is spread across 32.54 acres. This shipyard has the capacity to construct 23 ships on a modular basis. The yard has been certified by DNV - one of the world's leading registrars for certification as ISO 9001:2000 compliant.

The company is expanding its manufacturing facility in Surat and setting up a new shipyard in Dahej as well. The new facility in Dahej will have the capacity to build eight large vessels a year, ranging from Handymax and Panamax to Aframax.

These expansion plans have been financed through a mix of initial public offer proceeds, debt and private placement of equity. ABG raised Rs 157 crore through its maiden public offer, a majority of which would be utilized to fund the Dahej shipyard.

Financials
FY 06 FY 07 FY 08
Net Sales (Rs cr) 541.74 704.36 977.26
PAT (Rs cr)* 72.38 104.11 152.17
EPS (Rs) 19.77 22.84 31.55
RONW (%) 27.43 21.57 24.92
ROCE (%) 54.4 39.28 43.52
FY ending March 31 each year
*Net of non-recurring transactions

Investment Rationale
Diversified Product Portfolio
Shipbuilding sector is directly related to the fortunes of the shipping industry, which is cyclical by nature. Hence, to de-risk this factor, ABG has diversified its vessel offerings by catering to the oil and gas sector, short sea trade and the coast guard. The company has built support and utility vessels for oil and gas companies, and pollution control and interceptor vessels for the coast guard. These vessels are always in demand and provide a cushion to the company whereby it is not severely affected by the volatility in the shipping cycle.

Demand for Off-shore Vehicles
Of late, oil prices have touched record highs and that has led to a dramatic rise in the level of exploration activities with several oilrigs being set up. Normally, a single oilrig requires about 15 off-shore vehicles (OSV), which is an investment of around Rs 300 crore per rig, considering an average cost of Rs 18 crore to 20 crore for one OSV. In such a situation, the demand for OSVs is expected to be very strong. OSVs contribute about 30 per cent of ABG's order book. Recently, ABG bagged an order worth US$480 million from Essar Oilfields Limited, Mauritius to build tow self-elevating rigs as well.

Extension of Subsidy
Governments across the globe provide assistance to their domestic shipbuilding industry in the form of subsidy. Some countries like China provide assistance in the form of zero per cent interest and tax benefits. Such assistances have helped Asian companies out price their Indian peers in global biddings in the past. However, in 2002, the Indian government started a subsidy scheme under which it provides a 30 per cent subsidy for all export orders and domestic orders for ships greater than 80 meters. Such subsidy income, which constitutes about 16 per cent of ABG's shipbuilding revenues, will boost its earnings and enable it to compete with its international peers.

High Replacement Demand
The International Maritime Organisation has issued a directive to phase out all single-hull tankers by 2010 to reduce oil pollution in the oceans. This regulation will accelerate the demand for double-hull tankers. Furthermore, the average age of an Indian fleet is about 16 years. This factor will add to the replacement demand since 60 per cent of the current Indian fleet would need to be replaced within five years. ABG, which is expanding its capacity, would be optimally placed to capitalize on this buoyant demand.

Risks & Concerns
Discontinuation of Subsidy
Subsidy accounts for nearly 16 per cent of ABG's shipbuilding revenues and 13 per cent of the total revenue. Shipping Ministry of India is to provide subsidies worth Rs 400 crore to two major private shipyards, ABG and Bharti, but only ABG has received any amount from the ministry, and that too only Rs 20 crore. While the industry players are confident about receiving the subsidy, the wait may be longer. Furthermore, there are talks about the subsidy being cut down to 20 per cent.

Competition from Domestic, International Players
Domestic competitors include state-owned shipyards like Cochin Shipyard and private sector players, Bharti Shipyard are strong competitors. The company also has to compete against Chinese and South Korean companies. The competition can affect ABG's pricing and impact margins.

Order Cancellations
The shipbuilding sector has borne the brunt of the global trade and economic slowdown in the form of fewer new shipbuilding orders along with the cancellation of existing orders. However, the management of ABG has indicated that they have not witnessed any cancellations till now. Furthermore, ABG receives 20 per of the order amount as a non-refundable advance, which reduces the chances of an order being cancelled.

Valuations
ABG trades at 3.5x FY09E earnings and 2.2x FY10E earnings. Concerns of global economic growth slowing down and the credit crunch have led to decline in stock prices of shipbuilding companies. ABG's order book in excess of 10x FY08 revenues provides sustained revenue visibility, but concerns of current global trade slowdown and the renewal of subsidy by the Government of India prevail. ABG is at a 30 per cent discount to global average at 4.21x CY09E earnings. The target price would be at Rs 160, which means an upside of 38 per cent from current level.

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HDFC BANK - Safe as ever

2008-12-22T02:16:00.000-08:00

HDFC Bank’s track record of consistent growth with high profit margins and robust risk management systems bode well for the future.

HDFC Bank’s ability to grow at over 30 per cent annually in the last nine years, along with superior credit risk management practices, which have helped it maintain asset quality, would ensure that it will be among the least affected in a slowdown. The bank’s focus on technology and superior margins with support from low-cost deposits will ensure profitable growth in the future.

The merger of retail focused-Centurion Bank of Punjab (CBOP) with HDFC Bank effective May 23, 2008, will shore up revenues in the medium-term. However, the synergies from the merger with start reflecting over 12-24 months, and boost profitability. Put together, the gains from organic and inorganic initiatives will help the bank sustain growth rates in excess of its historical average of 29-30 per cent, and in a profitable manner.

Post-merger
The inherent synergies of HDFC Bank and CBOP in their retail focus was the driver for the merger, which added around 400 branches to HDFC Banks’ branch strength of 760 (as on March 2008) along with a 15-20 per cent increase in the asset base to more than Rs 1.7 lakh crore. While the merger has helped increase the size of HDFC Bank, it has also led to some pressure on key ratios (see Merger Effects) for the combined entity; CBoP ratios were lower than that of HDFC Bank. The next pertinent question is the pace of integration, and how fast HDFC Bank can ramp up efficiency levels of CBOP to its own benchmarks.

The integration plan is on schedule. The re-branding of CBOP was completed in May itself; training processes to assign all the employees of CBOP in their new roles is marching ahead with almost 90 per cent of the people retrained. With regards the systems, treasury, wholesale banking and retail loan segments, they have already been integrated with HDFC’s platform, while the overall retail banking is expected to be completed in the next two months.

MERGER EFFECTS
Rs crore CBOP **
9 Mths HDFC Bank**
9 Mths Standalone
FY 08 Post-merger
H1 FY09
Net Int. Income 505 3,586 5,228 3,590
Other Income 459 1,734 2,283 1,237
Net Profit 123 1,119 1,590 992
Cost/income (%) 63.0 49.7 49.9 55.4
NIM (%) 3.6 4.3 4.4 4.2
CASA (%) 24.5 50.9 55 44.0
Net NPA (%) 1.7 0.4 0.5 0.6
CAR (%) 11.5 13.8 13.6 11.4
** Pre-merger and for nine months ended December 2007

The actual benefits will start to filter in the next 12-24 months, with improved productivity in terms of net revenue (net interest income and other income) and CASA (the ratio of low cost deposits to total deposits) growth of CBoP branches on par with HDFC outlets. But before that to happen, HDFC bank will have to shoulder the pressure in the medium-term.

For instance, on the efficiency front, the cost to income ratio has also increased from 50 per cent in March, 2008 to around 55 per cent in Q2 FY09 on the back of higher employee costs and integration costs, post the merger. The integration of the two banks’ technology-based platforms is expected to be completed by the end of this fiscal, and will improve the cost efficiencies going forward.

Likewise, the capital adequacy ratio (CAR) dropped to 11.4 per cent in Q2 FY09; this can partially be attributed to the merger blues and also organic growth of loan book. However, it is comfortably above the regulatory requirement of 9 per cent. Notably, CAR will improve and provide capital for future growth, if the promoters exercise their right to convert warrants and infuse Rs 3,500 crore (warrants already issued, conversion price of Rs 1,500 per share, deadline is December 2009).

STEADY GROWTH
Rs crore FY 2008 FY 2009 E* FY 2010 E *
Net Interest Income 5,228 7,805 10,600
Other Income 2,283 3,222 4,085
Net Profit 1,590 2,290 2,950
EPS (Rs) 45.4 54 66
P/BV (x) 3.2 2.4 2.1
E *: estimates for merged entity

Sustained growth
HDFC Banks’ net revenues have grown at a CAGR of 44.5 per cent in the last five years on the back of net interest income (NII) and other income growing by 43 per cent and 47.7 per cent, respectively. Net profits grew by 33 per cent; the lower pace is due to the bank’s prudent policy of higher provisioning (last three years).

Of late, HDFC Bank has been going slow on the retail loans and even CBoP’s non-issuance of fresh loans (since December 2007) to the two-wheeler and personal loan segments, has ensured comfortable NPA (non-performing assets) levels for the combined entity. Gross NPA and net NPA are up 40 basis points and 20 basis points y-o-y in Q2 FY09 to 1.6 per cent and 0.6 per cent, but are comfortable in comparison to peers. Analysts say that HDFC Bank, after the merger, would provide higher provisions to the combined entity in line with its own superior provision coverage of around 67 per cent (CBOP’s at 55 per cent). Although, it will add pressure on the profitability in the near term, it will help avoid slippages in asset quality in the future.

The advances haven’t slowed and this is indicated from the credit-deposit ratio rising from 63 per cent (FY08) to around 75 per cent in Q2 FY09. The recent CRR cut has released additional funds of around Rs 4,500 crore that could be used for further loan disbursements and provide support to NIMs (CRR balances with RBI do not yield any returns). The higher yield on advances and investments in conjunction with high interest rates has meant that NIM is still comfortable at 4.2 per cent.

Investment rationale
The demand from the domestic corporate sector is also robust as the external doors are relatively closed in view of the global liquidity crunch. This should also help offset any slowdown in retail lending and lower concerns pertaining to retail defaults. HDFC Bank’s ability to transfer its operational efficiencies to CBOP assumes importance for future growth. Considering its track record of successfully integrating Times Bank with itself in 2000, the bank will also accrue the benefits from the existing CBOP branch network through increased offerings of HDFC Bank products, which will help shore up revenues.

Superior NIMs, a high proportion of low-cost deposits (at 44 per cent) and an extensive branch network (now at over 1,400) will drive growth without appreciable cost pressures. This quality and profitable growth along with low valuations, provides an investment opportunity for long-term investors. At Rs 856.70, the stock trades at around 12.5x (traded at an average 20-25x in the last five years) and P/BV at 2.1x its FY10 earnings, and can deliver 18-20 per cent annually for the next few years.

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IPCA LAB

2008-12-22T02:15:00.000-08:00

Ipca Laboratories’ focus on branded formulations and expansion into the US market will help it post strong growth rates over the next two years.

While the healthcare index has been quite resilient in the face of the equity meltdown dropping 28 per cent to Sensex’s 55 per cent over the last one year, some healthcare stocks have fallen quite sharply offering an attractive opportunity for investors. Once such scrip is Mumbai-based Ipca Laboratories, which despite registering robust rates and having strong cash flows lost about half its value since its peak in January this year and is trading at Rs 360 levels.

The company which gets about three quarters of its revenues from formulation sales (APIs make the rest), exports its products, largely in the high margin lifestyle segment (cardiovascular, anti-diabetics etc) to over 100 countries across the world and is preparing to expand its presence in the US market.

Exports
While Europe constitutes nearly half of the company’s exports, the company is now eyeing the US market especially in the formulations segment in a big way. The company has two tie-ups---one each with Ranbaxy and US-based generic pharma company, Heritage Pharma to distribute its formulations. While Ranbaxy has recently launched Metoclopramide tablets with annual sales of $27 million, Heritage introduced Propranolol tablets (annual sales $25 million). Ipca Labs’ executive director A K Jain says that the strategy of seeking out more partners will continue and the company will not establish a distribution network due to high costs and the need for a large generic portfolio (at least 100 ANDAs) to make it a viable proposition.

The arrangements are on profit sharing basis which includes the cost of manufacturing and marketing of the product. The company’s formulations exports to the US started in September and the company expects sales of about Rs 15 crore for FY09. Currently, formulation exports are being carried out from a smaller FDA-approved unit at Silvassa (the company has two units there) which is capable of manufacturing 9 products and the maximum exports turnover from this would be about Rs 40 crore.

Once its bigger units in Silvassa and at the SEZ unit in Indore get FDA-approved, the company expects to scale up to 40 products and earn a sizeable chunk of revenue over the next two-three years. While 28 products are under development, the company has applied for ANDA approval for 11 products. Overall, the company currently manufactures 65 APIs and two years down the line expects this number to move to about 100.

Domestic market
The company’s top brands in the country include the anti-malarial drug Lariago with sales of Rs 45 crore, Zerodol range (Rs 42 crore) (pain management) and Perinom, a drug to treat nausea (Rs 25 crore). While the company is planning to launch only one new drug per marketing division (it has eight divisions), its focus will be on brand building and consolidation rather than launching a larger basket of products. Driven by sales in lifestyle drugs which account for 30 per cent of the company’s business, IPCA expects to grow its domestic formulation business by about 17-18 per cent over the next two to three years.

ATTRACTIVE VALUATIONS
Rs crore FY08 FY09E FY10E
Net Sales 1,082 1,299 1,559
EBIDTA 229 292 359
Net Profit 141 169 203
P/E (x) 6.4 5 5
E: Estimates

Expansions
The company plans to invest about Rs 75 crore in the current fiscal. Major investments include upgradations of API facilities in Ratlam at a cost of Rs 20-Rs 25 crore and an equal amount at the formulation plant at Athal, Silvassa (used for exports to Europe). Imported packing lines will be installed at the Athal facility and will help the company triple capacities at the plant. The company has lined up a further Rs 100 crore investment for FY10 which includes the setting up of its Sikkim plant and the expansion at its SEZ unit in Indore. The expansions will be funded by small loans and internal accruals, which include annual cash profits in excess of about Rs 170 crore.

Investment rationale
In addition to utilising its internal accruals for expansions, the company plans to buy back shares up to Rs 60 crore at a price not exceeding Rs 600. The buyback plan allows the company to take advantage of the low prices and is expected to boost investor sentiment.

On the operational front, the company has had to grapple with high raw material (RM) costs due to supply issues in China in the last two quarters. However, better product mix and higher sales in APIs as well as branded formulations has helped bring down the RM to sales ratio to 35 per cent (40 per cent) and improve EBIDTA margins by 400 bps y-o-y to about 24 per cent in the September quarter.

Of its products, branded formulations fetch the highest EBIDTA margins of about 27-28 per cent while generics bring the lowest at 15 per cent with APIs contributing in line with the company’s overall margins of 22-23 per cent. Going ahead, higher branded formulation sales in the lifestyle segment is expected to help the company grow its sales by 20 per cent in the current fiscal. Its growth plans will get a boost once its facilities are approved by the US FDA and the company introduces a larger basket of formulations in the world’s largest healthcare market.

At Rs 360, the stock trades at just under 4.5 times its FY10 earnings and would fetch around 30 per cent returns over the next 15 months.

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Proctor & Gamble - No Gamble pure Logical Investment

2008-12-22T02:14:00.000-08:00

Underpenetrated markets, low per capita consumption and well established brands will translate into high growth rates for Procter & Gamble.

A basket of popular products, access to superior technology and good understanding of consumer needs are factors that have helped Procter & Gamble Hygiene and Health Care (P&G) report robust growth rates in the past. The company, however, has not been resting on its laurels. In fact, P&G has been proactive in building near-term as well as long-term growth drivers, which will not only help maintain leadership in its businesses, but also in sustaining growth rates going ahead. In this light as well as given the current uncertain market conditions, this stock is a good investment, offering a combination of growth as well as safety at reasonable valuations.

Strong businesses
For decades, its ‘Vicks’ brand has been synonymous with remedies that cure cold and cough. Various innovations in the past have helped maintain healthy sales growth in the healthcare business (Vicks branded products; estimated market share of 17 per cent), which contributed a little over Rs 300 crore to sales in FY08. Going forward, says Pritee Panchal, analyst, SBICAP Securities, “There is a lot of potential in this segment, but don’t expect high growth rates-expect about 10 per cent annual growth on an average. That’s because, Vicks Vaporub, Formula 44 and Inhaler are seasonal products. Vicks Cough Drops (in candy form) though is more of confectionary product and will help this segment grow fast.”

The feminine care business, which sells sanitary napkins under the ‘Whisper’ brand, has reported an average annual growth rate of 20 per cent in the last five years. It clocked sales of Rs 340 crore in FY08, representing a year-on-year growth of 21 per cent. The growth rate was higher at almost 30 per cent in the first quarter ended September 2008, driven by 50 per cent growth in ‘Whisper Choice’ and 34 per cent in ‘Whisper Ultra’. Says Panchal, “A 50 per cent growth in the mass segment product (Whisper Choice) in Q1FY09 signifies growing acceptance, affordability and usage of these products among the middle-class urban women.”

Analysts expect this business to clock growth rates of over 22 per cent (average), which should help Whisper, a leader in urban India with a market share of 50 per cent (value terms), become a $100 million brand in two years.

Favourable prospects
While the slowing economic growth may have a marginal influence on demand, the fact that the company’s products are driven more by necessity rather than luxury (discretionary) provides comfort. Notably, the overall growth dynamics for the businesses continue to be very favourable.

Consider this. In case of sanitary napkins, statistics (source: company) indicate that there are 26.6 crore menstruating women in India, of which, only three per cent use branded sanitary napkins. Even if the economically weaker population is excluded, the penetration levels would be far lower than 32-60 per cent in other developing economies like Thailand, Philippines and China (in developed countries like USA and Japan, it is over 85 per cent). The other evidence of long-term growth opportunity is the fact that by 2050, more than half of India’s population will be under the age of 25 years.

That apart, the growing population of working women, increasing literacy levels, higher disposable incomes and the expanding middle- and upper-middle class are some key factors that clearly indicate the huge potential for companies like P&G and hence, will help drive growth rates in the future.

Right moves
Among various initiatives, the introduction of low value packs (Rs 5 pack of Vicks Vaporub) and mass segment products (Whisper Choice) has helped the businesses grow at a fast clip on the back of increased volumes. On the other hand, the company’s emphasis on delivering new solutions based on customer needs has helped it stay ahead of competition. For instance, in FY08, P&G upgraded its ‘Whisper Maxi’ product in line with customer needs.

In the long-run, P&G’s initiative through the ‘Whisper School Program’ will help raise awareness among consumers and build the path for future growth. The programme involves educating adolescent girls and mothers about hygiene care, and so far has reached 6 million girls (1.6 million in FY08). The impact of this programme has been encouraging. According to the studies undertaken, while two-thirds of the school girls were using cloth (instead of sanitary napkin) before the programme, only six per cent continued to use cloth after the programme.

ROBUST MARGINS
Rs crore FY08 FY09E FY10E
Net sales 646 775 910
Net profit 131 170 200
OPM (%) 28 28 28
EPS (Rs) 40.5 52 62
PE (x) 18.2 14 11.9
Source: CapitaLine Plus, analysts reports

In a recent move, the company tied up with National Rural Health Mission, Rajasthan, to educate the rural women about hygiene issues. Such measures should help improve education levels among women and thus, increase penetration of sanitary napkins in the rural areas, which so far has been negligible. In short, it should prove helpful for P&G in the long run.

Growth blocks in place
During FY06-08, the company invested nearly Rs 60 crore towards capacity creation (Rs 10 crore was invested in its Goa plant for hygiene products and Rs 26.7 crore in Baddi plants for healthcare products, in FY08 alone), thereby almost doubling the fixed assets to Rs 123.10 crore in 2007-08. While the two Baddi plants enjoy tax incentives and help the company lower its tax expenses, these investments are sufficient to take care of the company’s capacity requirements for the next few years. Nonetheless, the low capital-intensive nature of the businesses and high cash-flows suggest that internal accruals are more than enough to take care of future capex, whenever the need arises.

More importantly, the company enjoys the backing of its US-based parent, The Procter and Gamble Company, which offers the necessary technology and products, helping it to sustain growth rates. In return, the company pays royalty to its parent, which works out to about five per cent of sales. Even thereafter, P&G ends up with a hefty net profit margin of 20 per cent (partly helped by tax incentives), which is enviable.

Investment rationale
There is no doubt that the company has in place the key growth ingredients like strong brands, access to latest technology, healthy balance-sheet and an insight into consumer behaviour. The under penetrated markets, rising population of working women, low per capita consumption and, improving income and literacy levels are also conducive for long-term growth.

All these should help P&G achieve topline growth of 16-18 per cent for many years and become a Rs 1,000 crore company in the next three years. Notably, profits should grow faster at over 18 per cent, to some extent helped by lower taxes. At Rs 735, quoting at a PE of 14 times (not adjusting for the cash, worth Rs 51 per share, held as on June 2008), the stock can deliver 18-20 per cent annual returns for next two-three years.

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SBI - the Big Boss

2008-12-22T02:13:00.000-08:00

Adverse times may not be bad for all. State Bank of India (SBI), the largest domestic banker with a share of around 16 per cent (in both, advances and deposits), is aiming to up its market share further and in a profitable manner. The above industry growth in advances in the recent past is just an indication. A wide branch network would sustain the management’s stance of improving its business share in these difficult times.

A focus on agriculture and rural segments would give it an edge compared to its private peers. Diversified loan portfolio, higher exposure to low cost deposits with improving cost efficiencies would ensure steady profitability. Consolidation of SBI with its affiliate banks (which command another 6-7 per cent of the market share) and unlocking of value from its subsidiaries make SBI an ideal pick for long-term investors.

Rural drive
Rural and agricultural segments are an under-penetrated market for the banking sector. The historical focus of public sector banks (PSB), vis-à-vis the private counterparts, in these areas, would stand them in good stead. SBI, the biggest of the PSU lot, owns 13 per cent of the industry’s total branches in rural areas; around 70 per cent (or 7,100 branches) of its total branches are in the rural and semi urban (RSU) regions.

SBI intends to improve its branch strength in RSU areas to around 10,000 by 2010, backed by enhanced use of technology. The improved operational efficiencies along with the typically higher CASA levels (low-cost current and savings account deposits) in rural areas would ensure sustained profitability, besides growing volumes.

Sound financials
The total interest income and the net profits have grown by an average 12.5 per cent and 16.3 per cent, respectively in the last 5 years. In the first half of 2009, in line with growing profitability, the net profits grew by 29 percent, above its five-year average due to lower growth in operating expenses, over the corresponding period. Recently, advances have grown at 37 per cent y-o-y in Q2 FY09, much faster than in FY08 (at around 23.5 per cent) indicating that credit off-take is high, with the bank’s inclination to increase its market share in the advances segment.

It is noteworthy that advances were robust to corporate and SMEs, in spite of SBI increasing PLR by 1 percentage point this August. The advance growth is witnessed at a time, when most of the banks are decreasing their credit off take, to avoid any probable increases in asset deterioration. As a preferred lender for many borrowers, the bank has been able to lend at higher levels for the deposits garnered, thus ensuring a credit-deposit ratio of above 77 per cent in the last two years. Although, net NPA (non-performing assets) have fallen from 1.8 per cent in FY08 to 1.34 per cent in Q2 FY09, the aggressive advances stance along with low provision coverage may lead to deterioration in asset quality in the future.

SBI holds the largest CBS-enabled branch network (around 10,500) with growing efficiency levels, reflected in the cost-to-income ratio improving from around 54 per cent in FY07 to around 45 per cent in H1 FY09. SBI is planning to add around 25,000 employees and aggressive expansion of around 1,500 branches during the course of next year, which would put pressure on the cost-to-income ratio in the near-term.

Despite increases in operating costs, the additional staff and branches would help to attract CASA deposits (which stand comfortable at around 40 per cent) along with increase in fee income (cross selling of insurance and mutual fund products). The higher CASA levels have enabled SBI to maintain net interest margins (around 3.16 per cent) at decent levels. Going forward, although mobilisation of higher-interest term deposits would put pressure on margins, the cut in CRR and repo-rate by the RBI could offset a large part of this pressure, enabling SBI to sustain margins at over 3 per cent.

VALUABLE BANKER
in Rs crore FY 2008 FY 2009 (E) FY 2010 (E)
Net Interest Income 17,021 20,894 24,151
Other Income 8,695 10,074 11,487
Operating Profit 13,108 16,674 18,806
Net Profit 6,729 7,834 8,312
EPS (Rs) 106.6 124.1 131.6
P/E (x) 10.7 9.2 8.7
P/BV (x) 1.47 1.3 1.16
E: Analysts estimates

Add-ons
The RBI’s roadmap of allowing foreign banks, to operate on par with domestic banks in India would pose greater competition to PSBs in the future. It becomes prudent for the domestic banks to consolidate to match the foreign counterparts in terms of size and scalability. Large branch network of more than 15,000, balance-sheet size of more than Rs 10 lakh crore, common technology platform along with about a fourth of total deposits and advances in the country, would create a behemoth- SBI group. While SBI and its associate banks have already integrated their operations to a large extent, the physical merger is expected to shape up in the future.

In fact, SBI has rolled out it plans in this regard with the merger of State Bank of Saurashtra (SBS) with itself in August 2008. Although opposition from employee unions is on the cards, governmental support is also vital as was the case with SBS, for the mergers to happen swiftly.

In addition to affiliates, SBI has exposure in other financial services businesses like life insurance (SBI Life), asset management (SBI Mutual Fund), investment banking (SBI Cap) though its subsidiaries. SBI Life and SBI MF are leading players occupying fifth and sixth positions in terms of market shares in their respective categories. Other subsidiaries operate in credit cards, factoring, security trading and primary dealership in money markets.

Investment rationale
A wide network, better connectivity (using IT) and strong brand equity would help the bank grow its rural business. The receipt of around Rs 1,700 crore through the debt waiver scheme in December 2008 will also be a positive in the near-term. SBI has observed a decline in CAR to 11.5 per cent in the latest quarter, due to growth in advances and this could be short-term phenomena as the bank is trying to raise capital.

Besides, the recent cut in risk weights would also increase its capital base in line with the RBI’s promulgated CAR levels of 12 per cent. A diversified loan book, judicious lending and stricter monitoring would keep the NPAs at reasonable levels, in these tough times.

The stock is available at around 9 times of its estimated FY09 earnings and P/BV of around 1.3 of its FY09 standalone book value. Industry leadership, well-spread out asset mix along with additional value of around Rs 300-350 per share (on account of value of affiliate banks and subsidiaries) together with attractive valuations, makes it a valuable proposition. The stock can deliver around 20-25 per cent in a year’s time.

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NEYVELI LIGNITE - Power Packed

2008-12-22T02:11:00.000-08:00

A strong visibility in earnings and significant cash on its books make Neyveli Lignite a growth-cum-value stock.

Within power generation, which is considered to be a relatively defensive sector on the back of steady earnings as well as humungous growth opportunities, Neyveli Lignite Corporation (NLC) is a safe investment. The company is expanding its capacities aggressively, which are backed by robust cash flows, loads of cash in hand and large mining reserves.

NLC is a public sector lignite-based power generation company and currently operates three power generation plants with total capacity of 2,490 mw. All these plants are well backed by three lignite mines, which have estimated total reserves (including proven, indicated and inferred) of 38,929 million tonne.

According to estimates, the company's reserves are enough for the three power plants to operate at optimum capacity for the next 18-20 years. Over a period of time, the company has become a prominent player with expertise in lignite-based power plants. Today, the company has the largest reserves of lignite in the country insulating it from any risk associated with the availability of fuel.

In terms of efficiency as well, the company scores well. Its existing three plants are currently operating at a plant load factor (PLF) of about 70-89 per cent. Lignite, which is also known as 'brown coal', is considered to be a cheaper fuel source for generating power. This is also a reason that the company is one of the lowest cost producers of the thermal power in the country; it sells power at about Rs 1.20 per unit. Besides the benefit of low cost, Lignite is preferred on account of scarce supply of coal in the domestic market and higher international coal prices.

Well planned expansions
Leveraging its capabilities, the company is aggressively increasing its power generation capacities. The company plans to add 2,000 mw of power during the Eleventh Five Year Plan (2007-12) and further another 10,250 mw of power capacity during the Twelfth Five Year Plan (2012-17). To back these projects, the company will also increase its mining capacity by 8.7 MTPA (million tonne per annum) in Eleventh Five Year Plan and by another 32 MTPA Twelfth Five Year Plan.

Among the bigger projects is a 1,000 MW coal-based plant based in Tuticorin (Tamil Nadu), which is being developed in joint venture with the Tamil Nadu Electricity Board. NLC will hold 89 per cent of the equity and the rest will be held by the latter. The company has established coal linkages and acquired land for the said project. NLC is expecting an equity contribution of Rs 1,311 crore for this project, which will be funded through internal accruals, and is expected to be completed by August 2012.

REPLACEMENT COST
Rs crore
Capacity (MW) FY09 2,615
A) Cost @ Rs 4.5 cr/mw 11,768
B) Net cash 3,455
Approx replacement value (A+B) 15,223
Market capitalisation 8,766
M-cap/total value (%) 58.00

The company generated about Rs 1,500 crore of cash profits during FY08. After adjusting for the dividend (Rs 431.68 crore) paid out to shareholders, the company is still left with about Rs 1,000 crore per year. Along with the strong internal cash accruals and a cash equivalent (adjusted with total loan) of about Rs 2,785 crore as on March 2008, the company is well placed to fund its projects. A strong balance-sheet, needless to say, also helps in raising debt with ease. Among other major projects, many of them are at the early stages and will take a long time before they start functioning. This will also mean the revenue flow will only start after 4-5 years from now.

LOADS OF CASH
Rs crore
Cash & Bank balances 5,420
Investments 826
A) Total cash equivalents 6,246
B) Total loan 2,791
C) Net cash (A-B) * 3,455
Market capitalisation 8,766
Cash as %age of mkt cap 39.4
Cash per share (Rs) 20.6
* Estimates as on Sept 30, 2008

Meanwhile in the near-term, the growth will come from its ongoing 750 mw power projects. These projects will be completed in a phased manner by the end of March 2010. This should provide a marginal volume growth of 5-6 per cent in FY09 and about 15-18 per cent in FY10. Thereafter, volume growth will come from the commissioning of the Tuticorin project (first phase of 500 mw capacity expected to start by December 2011).

The volume growth is marginal in the near-term, the company’s long-term prospects are better given the strong balance sheet, regular cash flows and a pipeline of new projects (see Project Pipeline. For the said projects, totaling 1,750 mw of capacity, the company has estimated a debt funding requirement of Rs 4,640 crore, for which it has already tied up for a rupee loan of Rs 2,500 crore and a 50 million euro-based funding through the ECB route.

PROJECT PIPELINE
MW No of units Total MW Estimated
Cost
(Rs crore) Approx date of commissioning
Projects at advanced stage of completion
TPS11 250 1 250 2,375 Nov–2009
TPS11 250 1 250 2,375 Mar–2010
Barsingsar Thermal 125 1 125 940 Dec–2008
Barsingsar Thermal 125 1 125 940 June–2009
Coal-based plant (Tuticorin) *** 500 2 1,000 4,910 Aug–2012
Advance Action Projects (already sanctioned by Government)
Jayamkondam * 800 2 1,600 9,800 NA
TPP at Neyveli * 500 2 1,000 NA NA
Coal-based plant (Orisa) ^ 500 4 2,000 8,000 NA
Gujarat Power # 1,000 1 1,000 5,640 NA
Barsingsar Thermal $ 250 1 250 1,690 NA
TPS111 * 500 2 1,000 NA NA
Total 8,600
* At intial stage seeking initial approvals; $ Various reports are under progress
^ Acquiring land and mining for coal in JV; # Feasibility, environment at final stage
*** Equity stake 89%, coal mines and land acquired

Investment rationale
The robust growth plans apart, the stock is a clear ‘value buy’ providing a reasonably decent dividend yield of four per cent. The company has been paying dividends since the past ten years, which has gradually risen from 5 per cent to 20 per cent. Even in terms of replacement cost, assuming total operational capacity of 2,615 (as on March 2009) and value of Rs 4.5 crore per mw (conservative cost, factoring large mining reserves), the company’s value works out to Rs 11,768 crore.

Besides, the company is also holding cash equivalents (see Loads of cash) of Rs 3,455 crore (net of total debt), which is about Rs 20.29 per share as against the current market price of Rs 52.25. Including the net cash equivalent, the replacement value works out to about Rs 15,223 crore, thus, valuing the company at just 58 per cent of its estimated replacement value.

Thirdly, on the basis of price-to-book value, the stock is again reasonably priced at less than one time its book value of Rs 53.88 per share as on FY08. To sum up, the stock appears to be a ‘value buy’ using any of the three different valuation methods. These valuations look good for a company, which is expected to grow consistently at a healthy pace for the next three years, at least. Even if the volume growth remains low for some time, the company will continue to generate strong cash as result of regulated returns (14 per cent) on equity.

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ITC - Blue Chip in True Sense

2008-12-22T02:09:00.000-08:00

Robust cash flows in the cigarette business is helping ITC improve its revenue mix and build businesses that will help sustain growth rates.

ITC has seen headwinds in the cigarette business in last two years led by changes in regulations and tax structure. While excise duties were increased by 6 percentage points and value-added tax of 12.5 per cent was imposed on cigarettes in FY08, duties on non-filter cigarettes were hiked in 2008-09 budget. About three months back, smoking in enclosed public places was also banned. But, these moves have not prevented ITC from investing in its businesses, which also include hotels, paperboards and FMCG products.

Notably, and going forward, even as the recent terror attacks may play a spoilsport for its hotel business, ITC’s consolidated numbers are expected to grow at a healthy pace. This will be driven by growth in the cigarette business, improvement in non-tobacco FMCG businesses and volume expansion in the paperboards business.

FMCG-Cigarettes
Three out of every four cigarettes consumed in India are from the ITC stable. These are sold under domestic brands like Wills, Gold Flake, India Kings and Scissors besides, foreign brands like State Express 555 and Benson & Hedges, which are owned by BAT, UK (owns 32 per cent stake in ITC).

Over the last few years, regular changes in the tax structure and regulations have not only made cigarettes expensive, but have also threatened to lower consumption. The hike in duties on non-filter cigarette in the 2008-09 budget saw the company discontinue its non-filter cigarette sales (about 20 per cent of volumes). Such moves have impacted overall cigarette volumes of ITC, which analyst say were down 2-3 per cent in H1 FY09 (similar trend expected for FY09).

Positively, cost control measures, judicious price hikes and efforts to upgrade consumers to filter-based cigarettes has paid off; topline was up 10.6 per cent and profit was up 9.2 per cent during H1 FY09. In fact, profit margins were up in Q2FY09 at 55.6 per cent (54.9 per cent in Q2 last year). The recent ban on smoking in enclosed public places, too, hasn’t impacted sales in any meaningful manner.

Going forward, analysts say that margins should increase marginally due to better product mix, price hikes effected in Q2 and lower expenses (which ITC had incurred in an effort to upgrade customers to filter cigarettes). Also, the mandate of putting ‘pictorial signs’ indicating the harmful effects of smoking on the cigarette packs (from June 2009) is unlikely to have any visible impact on the ITC’s sales; partly due to the fact that about 70 per cent of cigarettes sold in India are in loose format.

Overall, analysts expect cigarette volumes to grow between 2-5 per cent in FY10. In short, the company’s cash cow (cigarette) should continue to generate money, which can be use for investing in other businesses.

FMCG- Others
Many of the non-tobacco FMCG businesses like processed foods, personal care and apparels have high growth potential due to low per capita consumption and under-penetrated markets. For ITC, a low base suggests that growth rates should be ahead of the industry average. But, since quite a few of these businesses are in the nascent stage of development they will continue to incur losses.

ITC forayed into snack foods (‘Bingo’ potato chips) in March 2007 and in soaps and shampoos (‘Fiama Di Wills’, ‘Vivel Di Wills’ and ‘Superia’) in September 2007. Since early 2007, it has launched many products/variants and increased spending on advertising and promotions.

These product development expenses are largely responsible for the increase in losses, more so in the last three quarters. Against a loss before interest and segment of Rs 264 crore in FY08, the same stood at Rs 239 crore in H1FY09. With most of the product launch expenses through and consumer response healthy (Bingo’s share at 16 per cent of potato chips market), the H2 FY09 is likely to be better (estimated loss of Rs 150 crore) with further improvements expected in FY10.

In processed foods, margins are seen improving due to the easing of commodity prices (wheat, vegetable oils) and as businesses like snack foods gain further scale. Analysts say that the increasing thrust on high margin products (like cream biscuits, as against low-priced glucose biscuits) will also help spur margins. Overall, ITC inherently also enjoys the advantage of direct sourcing of tobacco leaf and other agri-commodities from farmers, which help control costs and quality in its businesses including processed foods, which includes staples, biscuits, ready-to-eat foods and snack foods.

In the lifestyle retailing (apparel) business, which sells apparels under brands like Wills Lifestyle and John Players, margin pressure is also expect to ease as ITC is expected to renegotiate rentals in light of the subdued real estate market.

BUSINESS MIX
in Rs crore FY06 FY07 FY08 CAGR(%)5-year
GROSS REVENUES 17,701 21,110 23,670 14.8
FMCG-Cigarettes 11,330 12,834 13,826 9.5
FMCG-Others 1,013 1,689 2,511 87.2
Hotels 783 986 1,100 41.6
Agri Business 2,678 3,501 3,868 18.5
Paperboards & Paper 1,896 2,100 2,364 15.2
Share of cigarette (%) 64 60.8 58.4 -
EBIT 3,237 3,861 4,364 15.5
FMCG-Cigarettes 2,709 3,172 3,634 13.6
FMCG-Others -172 -202 -264 NA
Hotels 258 351 411 109.9
Agri Business 91 124 129 9.0
Paperboards & Paper 351 417 453 14.9
Net Profit 2,235 2,700 3,120 17.9
Share of cigarette (%) 83.67 82.15 83.28 -

Paper, Paperboards & Packaging
This business, which supplies packaging and printing solutions to many industries, has consistently delivered EBIT margins of 18-19 per cent in the last five years. However, in the last few quarters, margins have been under pressure due to high input costs (coal, power), and recently, due to higher depreciation on new capacities. Notably, with the company’s pulp facility stabilising (120,000 tonne per annum-TPA), coal prices down and small price hikes effected, margins should improve going forward. That apart, volume growth should improve led by contribution from new capacities (100,000 TPA). Since this business accounts for about 10 per cent each of revenues and profits, the impact on ITC’s numbers should be positive.

Hotels
With the hotel industry witnessing subdued times, prospects for ITC’s hotel business is unlikely to be very different. In fact, revenue growth has ranged at just 12-14 per cent in the last year-and-a-half. Although profit growth was better at 18 per cent during the same period, it slipped to just 4 per cent in Q2FY09. This business, which operates 90 properties (over 6,000 rooms), will see a new super deluxe hotel each coming up in FY10 (Bangalore) and FY11 (Chennai), which along with other expansions should help improve volumes.

Agri
Although a visible contributor to revenues (16 per cent), which accrue from trading of tobacco leaves and agri commodities, its contribution to profits has been small at 3-5 per cent. While these have improved recent to 5.7 per cent in H1FY09, thanks to better tobacco leaf prices, expect them to hover at 4-5 per cent in the medium-term.

GROWING STRONGER
in Rs crore FY08 FY09E FY10E
Net sales 13,948 16,532 19,941
OPM (%) 31.6 30.0 29.5
Net profit 3,110 3,423 3,988
EPS (Rs) 8.3 9.1 10.6
PE (x) 20.5 18.6 16.0
* Standalone numbers; E: Analysts estimates

Investment rationale
ITC’s move into various non-tobacco FMCG businesses and expansion of its e-Choupal network are seen as steps towards building long-term sustainable growth drivers. And ITC, which has an annual cash flow of over Rs 4,000 crore from operations, funding these initiatives will not be an issue. Interestingly, ITC has well integrated operations in many of its businesses, including tobacco, foods, paper and agri, which is a big positive in the long-run. Meanwhile, in light of the improving prospects for the FMCG businesses (cigarette and others), which together contribute about 60 per cent to revenues and 75 per cent to profits; ITC’s consolidated performance should remain healthy. At Rs 169.30, the stock is trading at 16 times its estimated FY10 earnings, and can deliver 20-22 per cent returns in the next one year.

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DR. REDDY'S LAB - For Long Term

2008-12-22T02:05:00.000-08:00

Its presence in key markets of the US, Germany and CIS is helping Dr Reddy’s to ramp up revenues and profits.

While FY2008 was a forgettable year for Dr Reddy’s Laboratories, the current fiscal should see its revenues and profits grow at a robust rate on the back of product launches and expansions in key markets of US, Germany and CIS.

To add to a good second quarter performance across its business segments of APIs, formulations, generics and pharma services, the company has recently won a part of the euro 2.3 billion tender for 64 products from Germany’s largest public health insurer, AOK.

AOK win
Through its German subsidiary, Betapharm, Dr Reddy’s will be the sole supplier of 8 products (out of 47 for which it bid) to different regions in Germany. While it is difficult to quantify the gains for the company, since neither the molecules nor the size of contract is known, analysts estimate that there would be a 90 per cent (Rs 720 crore) revenue upside from current Betapharm revenues of Rs 800 crore.

It is estimated that aggressive bidding would lead to a price erosion (of up to 30 per cent) from current prices and might crimp gross margins to around 25 per cent. While the company might not have been very successful vis-à-vis generic players like Teva, Dr Reddy’s has a low cost base that will help to keep a tight control on costs.

The transfer of a major part of Betapharm’s requirement to facilities in India (about 70 per cent of requirements have been transferred) will help Betapharm be cost competitive vis-à-vis other generic players. While some integration issues might still need to be sorted out, a low cost base, registration of new products for launch in the German market and volume growth will help Betapharm improve on its 3 per cent share of the German generics market.

It is on the back of above mentioned strengths that the German company could register a 68 per cent increase in revenues to Rs 280 crore in the second quarter of 2009. While the AOK deal will significantly enhance its share in Dr Reddy’s consolidated revenues, which currently stands at about 16 per cent, there is however a risk of litigation by other parties (with regards the AOK deal). A clarity on this issue would emerge over the next three months.

Gains in the US market
North America is a key market for Dr Reddy’s APIs and generic products and accounts for about 23 per cent of its consolidated revenues. Last month, the company launched the authorised generic version of GlaxoSmithKline’s Imitrex, a medication to treat migraine with US sales of $1.29 billion in CY2007. Analysts believe that the launch will add about $60 million to Dr Reddy’s revenues in FY09.

The revenue flow from US operations is, however, erratic. For example, while in FY07, North America accounted for 71 per cent of the generic revenues due to the authorised and exclusive launches of Zocor, Proscar, Zofran and Allegra, FY08 accounted for just 45 per cent as there were no new products.

GENERIC GAINS
in Rs crore FY 2008 FY 2009 (E) FY 2010 (E)
Net sales 5,000.0 6,250.0 7,813.0
Operating profit 336.0 750.0 938.0
Net profit 468.0 531.0 664.0
P/E (x) 15.9 14.0 11.3
E: Estimates

In addition to launching generics, the company has been focussing on the $2 billion US dermatological market. It has set up a subsidiary, Promius Pharma, to launch three branded dermatological products in the current fiscal. The company faces less competition vis-à-vis other therapeutic categories as the market is small and these products require dedicated facilities.

CIS business
Dr Reddy’s is the largest Indian generic player in CIS and this geography contributes about 11 per cent (Rs 552 crore) to the company’s consolidated sales. Brands such as Nise, Ketorol (both for pain management) and Cetrine (anti-allergic) are among the top selling drugs in their respective categories and have helped push up revenues by 36 per cent and 63 per cent y-o-y in Russia and CIS, respectively in the second quarter.

Russia and CIS countries are important for Dr Reddy’s as formulations have grown the fastest in the last fiscal across segments and the geography contributes about 37 per cent of its total formulation sales. Unlike the severe competition in generics, which hamper margins (gross profit of 47 per cent), formulation sales (both in the CIS and India) have much higher margins (gross profit of 73 per cent). The concern for the company in these markets could be delays in receivables due to liquidity problems at the distributor or supplier levels.

Investment rationale
Unlike the 23 per cent decline in revenues in FY08 due to the lack of generic launches in the US market, the company is on course to achieve 25 per cent revenue growth in FY09. On the back of new generic launches in the US (sales growth 53 per cent) and the launch of seasonal in-license vaccines in Germany through Betapharm helped Dr Reddy’s improve sales by 26.5 per cent in the second quarter of FY09.

The problem area for the company has been domestic (India) business, which has grown in single digits due to API supply issues from China and matured products. While the company experienced forex (translation) losses of about Rs 30 crore in Q2, FY09, a weakening rupee (against dollar/euro) should add to its bottomline in the current fiscal.

With the AOK tender likely to boost revenues in FY10 and FY11, an investment with 1-2 year view at the current rate of Rs 444 (FY10 PE at an attractive 11.3 times) should fetch about 19 per cent returns over the next one year.

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HDFC - A SAFE BET

2008-12-22T01:42:00.000-08:00

Strong risk management systems, a diversified loan portfolio and an impeccable track record make HDFC a safe bet.

The trend reversal in interest rates and the recent policy incentives given to housing loans is a positive for Housing Development Finance Corporation (HDFC), which commands a majority share (around half) in the housing mortgage market. In the long run, growing urbanisation, rising disposable incomes and favourable demographics, will ensure that demand for housing would continue to remain robust. HDFC’s diverse loan portfolio along with superior lending practices de-risks its business model. Lower operating costs along with stable margins and high asset quality also ensure sustainable profitability. The company’s track record of successfully withstanding tough times provides comfort, which along with the value from its subsidiaries make HDFC a decent choice for long-term investors.

Diverse loan book
HDFC lends broadly to two categories, namely Retail and Wholesale. While higher interest rates as well as real estate prices have led to a decline in housing demand, tight liquidity conditions and lower demand raised the probability of defaults from real estate companies. In this background, it assumes importance of how HDFC is safeguarding against possible deterioration in its business.

Retail mortgage accounts for around two-thirds of the total loan book. But, since most of the retail portfolio comprises of individual borrowers (more than 90 per cent of them borrow funds to purchase house for self-occupation), the default rates are minimal. The majority of the loan disbursals are to middle class -salaried employees along with greater focus in Tier 2 and 3 cities also ensures that the retail portfolio is well diversified. In the home mortgage market, HDFC has been increasing its market share, and further share can be garnered as most of the leading banks are going slow in lending.

In the Wholesale segment, advances to developers (about 12 per cent of total loan book) are in the focus, in the aftermath of weakness in the real estate sector. The falling demand for developed properties and lack of liquidity has put pressure on the developers, thereby increasing the chances of defaults. Thus, HDFC being a financier to real estate developers is also in the spotlight. To its credit, the disciplined approach by the company in these disbursals will ensure that HDFC is better placed compared to others. Among stringent norms include a low loan-to- value (LTV) ratio (proportion of loan value to property value) of less than 65 per cent and providing funds for property development rather than land acquisition. The rest comprises of funding to highly rated corporate and loans for acquisition of property in IT parks and industrial zones.

GROWING STRONGER
in Rs crore FY08 FY09E FY10E
Net Interest income 2,640 3,359 3,724
Operating profit 3,410 3,430 4,030
Net profit 2,440 2,524 3,045
EPS (Rs) 86.0 89.0 107.0
P/E (x) 17.7 17.1 14.2
P/BV (x) 3.6 3.1 2.8
E: Estimates

Disbursals moderating, funding decent
While disbursements have grown 27 per cent in the last five years, it slowed in the high-interest rate environment to 23 per cent in Q2 FY09. A part of this deceleration is due to HDFC moderating disbursements to guard against tight liquid conditions along with slowing exposure to real estate developers. However, as property prices are correcting, the disbursement growth should pick up in conjunction with declining interest rates in the future. Housing finance qualifies for priority sector lending and in addition with superior track record, HDFC has easier access to funds to grow its business. But, in the present scenario of higher interest rates, bank lending has become expensive, and thus, HDFC has shifted its focus towards deposit mobilisation. The indication of this effect is the increase in share of deposits from around 17 per cent in FY08 to around 20 per cent as on date. However, debt instruments like bonds and debentures continue to be the major source of funding (around half). The key point is that most of HDFC bonds are of AAA rating, which means raising funds wouldn’t mean a problem in the future. The fact that it has been able to mobilise retail deposits at competitive rates also indicates HDFC’s strong brand equity and distribution reach.

Strong financials
HDFC has delivered high profit growth of around 30 per cent, on an average, in the five years. Its profitability, too, has been driven by stringent lending norms (among lowest NPAs), a tight tab on operating costs and strong volume growth, over these years. For instance, its cost-to-income ratio has improved from around 14 per cent in FY05 to around 8.5 per cent in FY08.

Although higher interest rates put pressure on the repayment ability of the borrower (customer), HDFC has been able to curtail any possible slippages (NPAs at around one per cent) through strict monitoring and lower LTV allowed to borrowers. The strong risk management systems and the recent decline in interest and property rates should help sustain lower NPAs, going forward. On the margins front, HDFC has been able to maintain at around 3.5 per cent (net interest margins) on the back of decent spreads, reflecting its ability to revise lending rates (nearly 90 per cent of its loan book is floating rate) as well as source funds at relatively cheaper rates.

Investment rationale
While the demand from real estate developers would remain strong, with the growing risk aversion shown by the banks, HDFC has also been cautious and judicious in terms of its lending to real estate even as it provides higher margins.

Notably, the recent policy measures suggest that the pressure for companies like HDFC should start receding. The moves by RBI like reducing the risk weights on the loans and advances to commercial real estate, along with cut in CRR and repo rate would lead to lower lending rates. Additionally, RBI’s has increased the limit for classification of housing loans as a priority sector advance to Rs 20 lakh. Since HDFC’s average ticket loan size is around Rs 15 lakh, this should further ease liquidity.

In the long run, HDFC’s track record of sustaining earnings in all the business cycles, an underpenetrated mortgage market, would ensure healthy returns for long-term investors.

Apart from the housing loans business, HDFC has presence in the financial services space through its subsidiaries and associates, namely HDFC Bank (banking), HDFC Standard Life (life insurance) and HDFC Mutual Fund. With a combined value of around Rs 625-725 per share for HDFC from these businesses and any move on the proposed merger of HDFC Bank with HDFC should prove positive for the stock. Currently, the stock trades at around 14 times its estimated FY10 earnings and price-to-book value of 2.8 times its FY10 standalone book value (excluding subsidiaries), and can deliver 20-25 per cent in a year’s time.

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KARUTARI GLOBAL - ROSY???

2008-12-21T23:27:00.001-08:00

Karuturi Global has obtained an annual contract for supply of 50 million roses, starting January ’09, from one of the largest supermarket
networks in Germany, named Edeka. The company has secured a price hike between 20% and 33% on the earlier contract, which priced the roses between 9 and 20 euro-cents . This contract is expected to generate over Rs 50 crore over the next one year for the company, constituting around 12% of its annual consolidated turnover. The company has the capacity to produce 650 million stems annually.

Karuturi is investing heavily in expanding its capacities and has entered new businesses such as food processing and retail. The company plans to sell at least 15% stake in its Dubai subsidiary, Karuturi Overseas, to a private equity
player to raise $100 million for investing in its agricultural sites in Ethiopia, where it has commenced operations over 30,000 acres.

The company also plans to foray into bottling of baby corn, jalapenos and green ball pepper. Under its retailing plans, it has set up one boutique store at the new Bangalore International Airport and plans to set up 50 more such shops over the next couple of years.

The company’s business is seasonal in nature due to higher demand for flowers on occasions like Valentine’s Day, Mother’s Day etc. Hence, the second quarter is usually slack for the company. Karuturi’s operating profit margin (OPM) stands at around 40%, while its net profit margin (NPM) hovers around 30%.

During the 12-month period ended September ’08, the company generated a net profit of Rs 123 crore on net sales of 426 crore on a consolidated basis. At the current price of Rs 13.6, this translates into a P/E of 3.8.

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LIC HOUSING FINANCE - BUY

2008-12-21T23:24:00.000-08:00

LIC Housing Finance’s stock has outperformed the broader market. The company is the one of the best-managed non-banking finance companies (NBFCs) in the country and longterm investors can accumulate the stock at its current level.

BUSINESS:

LIC Housing Finance provides housing loans mainly to individuals. It is the second-largest housing finance company in the country after Housing Development Finance Corp (HDFC). Its balance sheet size has nearly trebled in the five years from FY03-08.

During this period, it has been one of the fastest growing NBFCs. This is due to the strong economic growth seen in India and the rising level of disposable incomes, which has fuelled the demand for housing loans. Also, since last year, LIC Housing Finance has stepped up its promotional activities, which has improved its share in housing loans from 5% to 7%.

This is commendable as much larger players like HDFC and commercial banks, which have a significant presence in housing loans, dominate this market. Since the beginning of the current financial year, the financial sector has been facing the brunt of rising interest rates and slow disbursements.

LIC Housing Finance has been able to weather the storm, which is visible from its growth in interest income. The company’s interest income grew by more than 30% year-on-year for the six months ended September ’08. In fact, even its disbursements were up 30% during this period, which is in line with its performance last year.

NBFCs typically face delinquency risks, which surface during times of a slowdown, when borrowers are not able to make the interest payments (EMIs) on their loans. LIC Housing Finance’s net non-performing assets (NPAs) stood at less than 1% of its net advances as of end-September ’08, compared to 1.65% a year ago. This shows that the company’s quality of loan book has improved tremendously in the past one year and it has been efficient in managing delinquency risks.

The company is also efficient in managing liquidity risks. This is evident as the proportion of assets maturing in one year is similar to the proportion of liabilities maturing within one year. This aspect is extremely vital as NBFCs which have financed long-term assets through short-term sources of finance face tremendous pressure in a scenario of tightening liquidity. Hence, it is clear that LIC Housing Finance has been able to efficiently manage all kinds of risks during testing times.
VALUATIONS:

The stock is trading at a price-to-earnings (P/E) multiple of 3.9 times. Hence, the stock appears to be cheap considering its high earnings growth, as its net profit in the past 12 months has grown by more than 40%.

Though it is a known fact that in the case of finance companies, the stock trades at a lesser multiple than earnings growth, we feel this is overdone in the case of LIC Housing Finance, as the P/E multiple is just a fraction of its earnings growth.

The market seems to have already factored in a worst-case scenario for all NBFCs, including LIC Housing Finance. The company’s current low valuations appear to be attractive for longterm investors, as LIC Housing Finance’s stock price has fallen as much as that of other NBFCs, even though its fundamentals are much better than theirs.

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ULTRATECH CEMENT - HOLD

2008-12-21T23:11:00.001-08:00

Shareholders of Ultra Tech Cement can continue to hold the stock, as the current valuations have already factored in the prospect of a slowdown in earnings. The quarters beginning March 2009 are likely to reflect cost savings by the company on the fuel front. A 60 per cent fall in international coal prices since July, a slump in shipping rates and a cut in domestic fuel rates are all set to lower the company’s costs and strengthen margins. The stock trades at an attractive enterprise value per tonne of Rs 2645 (estimated) and a price-earning ratio of five times, the lowest among the large cement players.

The cement sector, as a whole, has seen positive news flow over the last few weeks. Cost pressures, which have dented the profits over the last two quarters, look set to ease with the correction in input and energy costs. The sharp interest rate cut on housing loans of less than Rs 20 lakh and the Rs 20,000-crore stimulus package for infrastructure companies are also expected to support revival of demand for cement in key pockets — the north and west — helping players such as Ultra Tech.
Business overview

Ultra Tech’s total cement capacity stands at 23.1 million tonnes after its recent capacity-addition at the Tadpatri project at Andhra Pradesh. Many of the company’s thermal power plants are also to commence operations in 2009. Apart from being a major player in the west, with plants at West Bengal, Maharashtra and Gujarat, the company also has a presence in the South in Andhra Pradesh, Karnataka and Tamil Nadu, helping diversification.
Cost pressures ease

Coal and diesel, the two most significant cost elements, are cooling off from their highs, relieving the company from the cost pressures of the last quarter. Thermal coal, which traded at $193 in July in the Australia’s New South Wales port had fallen to $78 in December. The landed prices of coal have corrected even more sharply given the fall in shipping rates.

The latter appears unlikely to recover significantly, given the prospect of global recession. Ultra Tech, which imports 40 per cent of its coal requirements, is likely to be among the key beneficiaries of these trends.

Fuel (with power) costs for the company were 28 per cent of sales in the September, higher by 6 per cent over the corresponding previous quarter. The other boost to margins may come from the recent cut in diesel prices, which can lead to distribution costs savings.

There may be no margin benefits to the company from the excise duty cut of 4 per cent. Of the excise duty savings of about Rs 10 per bag, about Rs 2.5 per bag may be taken away by the hike in railway freight. The remaining savings have been passed by way of cuts in cement prices. Given that the declines in fuel and distribution costs have been recent, the impact of the cost savings may reflect mainly in the March quarter numbers. It may also be a couple of quarters before the recent reduction in lending rates filters down to Ultra Tech’s financials. With the company in a capex phase, interest expenses for the September quarter were higher by 52 per cent year-on-year.

While margins may stage an improvement, realisations may not witness any significant improvement. Even before the excise duty cuts, the southern and northern regions saw a fall of Rs 2-3 per bag in November on signs of reduced demand. Prices remained flat in the western and eastern pockets.

While the prospect of new supply from ongoing capex plans of cement companies does exist, possible delays in the commissioning of this capacity due to the funds crunch, appears possible. Demand may also revive following the home loan package that makes low-cost housing more attractive and the re-financing package for infrastructure companies.

The company’s entrenched position in the west and south, also offers it an edge over others. The demand outlook for South continues to be bright; the region witnessed a growth of 12 per cent last October.

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GATEWATY DISTRIPARKS - SELL

2008-12-21T23:09:00.001-08:00

The slowdown in domestic freight movement and the clearly visible signs of a prolonged slump in export and import activity are likely to take a toll on the domestic logistics players, who may now have to grapple with a considerable fall in volumes.

This suggests that investors can exit the stock of Gateway Distriparks (GDL), which trades at a valuation premium. In the business of providing logistics solutions, GDL too may suffer from significant fall in volumes over the next year.

However, the company’s presence (through container freight stations) in ports that enjoy high volumes, strategic location of its inland container depot and presence in container rail logistics business, make for good long-term prospects, once the current phase of slowdown is behind.
Valuations

At current market price of Rs 88, the stock trades at about 13 times its likely FY09 per share earnings, at a premium to the market. This may limit the stock’s participation in any upside over the next year or so. This is because the recent de-rating in the stock has been based on company-specific concerns — expectations of a considerable slowdown in GDL’s CFS business and a longer period to break even for its rail logistics business.

In the last four years, GDL managed a compounded revenue and profit growth of over 46 per cent and 40 per cent, respectively. EBITDA margins in the same period, however, dropped to 43.1 per cent in FY08 from 47.3 per cent four years ago. In the year ended March 2008, while the company managed a 68 per cent growth in revenues, its net profits declined by 5 per cent. The profit growth has trailed revenue growth in the last couple of years due to higher depreciation cost (due to addition of rakes to its container rail division).

That, by nature of the rail logistics business, is capital intensive and will need periodic capital injections to further growth. This also highlights the near-term concerns for the stock, given the ongoing credit crunch and slowdown in economies.
Tepid growth in port volumes

Port volumes, which are a good lead indicator of the volumes handled by logistics players, have, of late, moderated. GDL has a significant presence in JNPT and Chennai.

While JNPT saw 6 per cent growth in TEUs handled in April-November 2008, Chennai posted a 12 per cent growth. This tepid growth in port volumes may soon get reflected in the company’s revenues as well. Given the high competition and excess capacity at JNPT, low growth in port volumes may also mean curtailed realisations. This suggests that the coming few quarters may present more challenges for the company. The sharp slippage in both export and import growth for October also presages a slowdown.

But that said, GDL may emerge as a key beneficiary of any reversal in domestic and global trade trends, by virtue of its presence in key Indian ports such as JNPT (Mumbai), Chennai, and Visakhapatnam, as it certainly has an edge over its peers.

In such as event, the company’s increased container handling capacities and new inland container depots (ICDs) and container freight stations (CFSs) at Kochi, Ludhiana and Faridabad may also contribute.
Container rail – key to long-term growth

But what perhaps holds the key to the company’s long-term growth is its presence in container rail logistics business. Containerisation as an idea is expected to find more takers as port infrastructure and hinterland connectivity are set to improve in the foreseeable future.

While there is no denying that Container Corporation will be the primary gainer from such a trend, GDL may also benefit, given its increasing stronghold in the northern hinterland through its ICD in Garhi.

The company’s presence in Garhi will also help it consolidate its double-stack container business on the high-traffic exim route between National Capital Region (NCR) and western ports such as JNPT, Mundra and Pipavav. It currently has 12 rakes and plans to add 22 more over the next few years.

GDL had earlier indicated at tapping private equity money to fund the incremental capex in the rail division.

But given the current funding crisis, it needs to be seen how the company sources funds for its expansion. And since adding wagons holds the key to furthering growth of this division, any delays in such expansion may push its breakeven farther.

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PVR - BUY

2008-12-21T23:07:00.001-08:00

Investors with a two-year horizon can consider buying the shares of PVR, a player in the multiplex movie exhibition space, considering its good business prospects and relatively better positioning among peers.

At Rs 85, the stock trades at eight times its likely 2008-09 per share earnings. This is at a discount to the multiple that Inox Leisure enjoys, despite PVR having a bigger scale of operation in terms of the number of screens operated and better profit margins (over eight per cent), the highest among listed movie exhibition players.

Improving average ticket price, strength in food and beverages sales and continuing strength in garnering advertising revenues are key positives for PVR.

Other positives are increasing spend per head of visitors, improving contribution of revenues from its screens to movies leading to a higher share for PVR and profits to be booked from runaway hit Jaane Tu Ya Jaane Na, which its subsidiary co-produced.

A decline in occupancy levels, largely due to lower footfalls on the back of terror attacks and threats, and a slowdown in the real-estate market, forcing developers to decrease pace of development in malls and multiplexes, are areas of concern.

PVR has 101 screens across 25 locations in 14 cities in the country. Its performance in 2005-08 has been impressive with revenues growing at a compounded annual rate of 57.3 per cent to Rs 265.9 crore and profits at 79.2 per cent to Rs 21.6 crore. The potential for the film industry and, ipso facto, box-office collections is high for a country such as India, where there is a lack of alternative sources of cheap entertainment.

A recent report of PWC-FICCI on Indian entertainment and media, expects the film industry to grow annually at 13 per cent to Rs 17,550 crore by 2012, while domestic box-office collection is set to grow at 11 per cent to Rs 12,250 crore.

PVR appears well-placed with its dual model of super high-priced tickets in key metros and low-priced ones in tier-I and tier-II cities.
Ticket pricing and other businesses expand

One of the key parameters of cinema screens is the average ticket price level. Ticket sales and revenue share from screens (franchisee developers) operations contribute over 60 per cent of revenues.

PVR has seen its average ticket price (ATP) improve continuously over the last five quarters to Rs 140 currently.

This has been made possible by a hybrid pricing model adopted by the company, depending on the location where it operates. In places such as Saket in Delhi, its ATP is as high as Rs 225. This represents its pricing power on the back of patronage that it enjoys.

The spending per head on other utilities such as food and beverages has also been impressive.

This stands at Rs 39 currently, up 25 per cent over last year. This is a relatively high-margin business, which has increased its contribution to revenues to nearly 21 per cent currently, and is growing by over 30 per cent annually.

Advertising, the other key contributor to revenues (13 per cent) has seen increasing growth rates. From 59 per cent growth in 2008-09, it has improved to over 65 per cent in the first half of this year.

As a more easily accountable form of viewer-ship compared to television or radio, advertisers may be less inclined to cut spends on this medium.

However, concerns may stem from the fact that PVR’s occupancy has declined to 36.5 per cent compared to above 40 per cent levels in 2007.

Footfalls have also declined, on the back of terror threats. However, there is a seasonality associated with movie screens as the December and June quarter are the usually stronger ones. This may also prompt advertisers to tailor budgets accordingly.
Movies and distribution look good

PVR has consistently accounted for over 10 per cent of collections of movie revenues from its screens. In movies such as the hits Jab We Met and Taare Zameen Par this figure went to over 18 per cent.

This movie-screening and distribution has a twin effect for the company. One, it improves revenue share for itself. 0Two, its success and wider reach means that it can pay a lower share to the distributor. In fact, the share paid to distributors has been falling consistently. This, in turn, would improve margins for PVR as it is the chief cost component.

PVR Pictures, a subsidiary, is in the business of producing and distributing films. It has co-produced films such as Taare Zameen Par and , both of which were runaway hits. The latter movie was launched in the second quarter of this fiscal and waits booking of profits.

This division has received a shot in the arm with an investment of Rs 120 crore from JP Morgan and ICICI Venture. PVR Picture hopes to produce 8-10 films over the next year.

Improving average ticket price, strength in food and beverages sales and in garnering advertising revenues are key positives for PVR.

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3I INFOTECH - BUY

2008-12-21T23:06:00.000-08:00

3i Infotech: Buy

Investors with a two-year horizon can buy the shares of 3i Infotech, considering its strong business prospects and very attractive valuation. At Rs 40, the share trades at just three times its likely 2008-09 earnings.

Concerns over the IT sector in general and worries about 3i Infotech’s BFSI (banking, financial services and insurance)-centric business model has caused the stock to be beaten down considerably to the point of being quite undervalued. However, the company’s lower US dependence, focus on basic banking and insurance operations, and inorganic growth prospects render it attractive.

3i Infotech has a robust business model comprising a blend of products, services and transaction processing offerings. The service-mix features near-equal contribution from IT products, services and transaction processing. Transaction processing is a low-margin service, yet it may be less prone to a cut in discretionary spends of clients.

Its inorganic moves are also targeted at expanding share in basic areas such as payment processing, mutual funds, insurance payments and core banking operations.

A lower dependence on the US and a presence in the critical aspects of the BFSI industry has led to 3i Infotech being minimally affected, certainly less than its mid-tier peers, due to the credit or mortgage crisis and the recession in the US.

The company’s 96.8 per cent growth in revenues and 56 per cent growth in first-half profits is evidence of this.

The acquisition of Regulus — an independent remittance provider — in April also strengthens prospects. Regulus delivers document processing services in the US for clients in insurance, telecom, healthcare and finance sectors, giving a broad vertical-mix. Apart from giving 3i Infotech access to 150 clients, Regulus presents an opportunity to up-sell and cross-sell its IT services and products as well.

3i’s dependence on the US is a little over 40 per cent, with India and the Asian countries contributing to a bulk of its revenues, making for a sound geographic-mix away from the pain points.

The company derives over 60 per cent of its revenues from fixed price contracts, a more efficient way of billing clients and also being demanded of vendors in current times. This is higher than all mid-tier companies and even top-tier companies, paving way for optimum resource allocation and planning and better realisations.

This apart, the company’s strong presence in the e-governance space also offers opportunity. The government is expected to increase spends on the economy in general and the IT enablement is a key focus area with increasing budgetary spends. 3i Infotech appears well placed to tap into this space.

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IFCI - Multibagger

2008-12-21T23:03:00.000-08:00

IFCI: Multi-Bagger

The deal to privatise IFCI has been truncated twice during CY08. However, with the PM now heading the Finance Ministry decks are being cleared for a politically acceptable solution. The solution cobbled together by North Block is to divest 26 per cent of the GOI stake to IDFC and then proceed with a massive effort to bring IFCI back to its feet.

Those in the know claims that the Assets held by IFCI including sizeable stakes in many organisations like the NSE and shares held either as investments or as collateral for loans granted to Indian Industry, substantially exceed the market capitalisation of IFCI. What is needed however, is the will to make IFCI realise the value on its books and bring back the venerable institution back to a stage where it can play a meaningful role in the rapid industrialisation of the country.

Here the extraordinary record of IDFC will come to the fore as would the fact, that IDFC is a pseudo GOI entity and its management control of IFCI would be acceptable to politicians of all hues and the labour unions. Investors would recall that IDFC had competed earlier in the year with the likes of Blackstone Group LP and General Electric Capital Corp. for a stake in the state-run project financier.

The bidders had included Blackstone, US billionaire Wilbur Ross and Vedanta owner Anil Agarwal. The deal had failed at the last moment on the issue of pricing and management control and a final phase-out of the GOI holding in IFCI over a period of time. These issues are now believed to have been resolved. The winner of the 26 percent IFCI stake will gain access to a market where lending grew 28 percent last year, and where the central bank limits foreign banks' ownership of local private rivals to 5 percent. IFCI, was bailed out by
the government in 2003 because of bad debts, in July announced plans to sell a stake to a local or overseas investor to bolster its capital.

Other bidders including a group led by billionaire Wilbur Ross and comprising Goldman Sachs Group Inc., Standard Chartered Plc and India's Housing Development Finance Corp., alongside Cargill Financial Services Corp., Natixis SA and Newbridge Asia for the stake. However, most bidders had dropped out by the time the final bids were to be opened.

In the wake of the cancellation of the bidding process IFCI had seen its stock plunge from a high of Rs 140 early on in CY08 to a low of Rs 15.25. On last Friday it closed slightly higher at Rs 23.20, still down 84 per cent from the peak. GOI which has been grappling with means to finance a projected $ 550 bn in infra spend over the next 5 years needs all resources at its disposal to work so as to maintain a 8 per cent plus annual GDP growth, in an environment that has plunged from Euphoria to Gloom.

Analysts however claim that funds are available to the right projects and to the right institutions, only the GOI has to show its resolve and some form of urgency. Some of the $ 550 billion of roads, ports and power stations the government wants built by 2012 could take off in the coming months and years. The potential returns in India spurred Blackstone, Citigroup Inc. and 3i Group Plc to start infrastructure funds this year. Infrastructure Development is partnering Blackstone and Citigroup for a $5 billion infrastructure fund in India and its taking over IFCI will further the aims of the GOI. The IFCI stock can be a multi-bagger of CY09.

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BASF - Hold

2008-12-18T21:35:00.000-08:00

Continues to look good

A part of the giant conglomerate, BASF India made big news a few months when it made its open offer. The open offer was not the big news but the fact that the its parent company, which was buying back the share revised the price from Rs 274 to Rs 300 a share after the offer opened on July 9. The offer price was hiked on July 14, two weeks ahead of the closing. And this strategy worked very well for the company. As against the target of acquiring 22.31% in the opne offer, it managed to acquire 18.49% of the shares. After this offer, which closed on 14th August, promoters holding - BASF Societas Europaea and BASF Aktiengesellschaft, stands increased at 71.18% from 52.69% and the floating stock has gone down from 47.31% to 28.82%.

The company has done so-so for the second quarter ended 30th September 2008. In absolute terms, there has been a YoY increase but when looks at the margins, there comes evidence of pressure. Net sales was up 27% at Rs.255.12 crore and operating expenses rose equally by 30%. EBITDA was up 10% at Rs.44.70 crore and PAT was up by just 8.34% at Rs.26.10 crore. OPM was down from 15.94% to 13.77% and NPM was down from 9.44% to 8.04%. On an equity of Rs.28.19 crore, its basic EPS currently stands at a very healthy Rs.9.26.

Compared to the first quarter,this has been a tepid performance and main reason for this is the overall drop in sales. Infact the Agricultural Solutions business which helped the Q1 performance was down in Q2- YoY and also QoQ. But the company has forewarned during the Q2 performance that contribution from this division was seasonal, so it may or may not contribute as significantly in Q2.

In September, its parent company made an open offer to acquire to acquire Ciba Holding AG, Basel, Switzerland, [CIBN], and was expected to make a public takeover offer to Ciba’s shareholders. BASF will pay CHF 50.00 in cash for each nominal share in Ciba.

Currently quoted at Rs.230, stay invested. It is one of those stocks, which are just to be held on to, not speculated upon.

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MUNDRA PORT

2008-12-18T00:53:00.000-08:00

Mundra Port And Special Economic Zone having gone public in November 07 had issued 402.50 lakh equity shares of Rs 10 each at Rs 440 per share. Share got listed on 27.11.07 and closed at Rs 962 on that day. Its 52 week high low is at Rs 1,324 and Rs 250 and is now ruling at Rs 282.

Mundra Port spread over 32,000 acres of land has deep water draft ranging from 15 meters to 32 meters in depth and has concession agreement valid upto 17.2 .2031. The port is presently offering port services for bulk cargo, container cargo, crude oil cargo and is setting up automobile terminal, coal terminal. Maruti Suzuki and Nissan would start exporting cars to Europe from January 09 with estimated volume of about 2 lakh cars per annum. 8,600 MW of coal-based power generating capacity is coming up near the por,t for which, imported coal shall be handled by the port. Apart from this, the port shall be having liquid cargo storage and handling facility and shall be handling dedicated crude sourcing and supply for some of the refineries. Though concession agreement for the port is valid upto February 2031, it is only in respect to 3,404 acres of land along with the right to use foreshore land and waterfront while the company has acquired over 32,000 acres of land with ancillary and related services being offered.

So even on termination of port contract in 2031, the company would own the land and related facilities which will have huge capital value coupled with income generating thereof.

It is like Mumbai Port Trust owning huge land in Mumbai near Mumbai Port Trust which has value running into thousands of crores of rupees.

The present equity of the company is at Rs 400 crores and market capitalization is just at Rs 11,200 crores. Even adding debt of Rs 1,800 crores thereto, the enterprise value works out to a mere Rs 13,000 crores. As the port is already operational, it had an income of Rs 550 crores for six months ended 30th September 08 with net profit of Rs 209 crores, translating into an annualized EPS of Rs 10.50.Though the operations of the company are stll at very low scale, this would reach to its full capacity in the next three years when one could expect an EPS of over Rs 40. Majority of the fund requirements of the company is already tied up and hence current credit crunch will not affect its future growth plans.

The share had its 52 week low of Rs 250 having seen on 28.11.08 and now ruling at 282 which is close to its all time low. Promoters stake of 81% also instills confidence and even Pre –IPO investors of 9% continue to remain invested in the company, inspite of shares having gone out of lock in.

We have recommended investment in the stock at 440 levels in IPO and investors got good opportunity of making huge gain. Those who have missed an opportunity to acquire the stock in the past or have booked profit are advised to buy it now at 282 levels, but with 12 months view. Share is now available at such a low valuation, due to depressed market conditions, coupled with negative outlook on realty and infrastructure stocks.

The working of such companies would not hamper as they are catering to the growth of the economy being core sectors and would continue to grow with the backing of its owned assets.

Those holding the stock having acquired in IPO are advised to remain invested and even further buying can be made at 282 levels. These stocks are truly eligible to enjoy the fruits of the growing Indian economy.

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ANDHRA CEMENT

2008-12-18T00:48:00.000-08:00

Investment Advisor, SP Tulsian is of the view that Andhra Cement could be held as a good buy because, if deal goes through definitely there will be open offer and the acceptance ratio will be quite high to the extent of 100% and under any conditions the deal is not likely to happen below Rs 50.

Tulsian told CNBC-TV18, 'There has been a talk that GP Goenka Group is interested in divesting their entire 73% stake and the valuation has been taken anywhere between Rs 60-75 per share because the company has 1.5 million operational capacity and 2 million is on the verge of completion by September or may be by June 2009. So, the valuation of about USD 60 million per tonne has been given for the capacity under creation and USD 75 per tonne for the capacity operational because it is a profit making company.'

He further said, 'But because there has been no news, the share prices have started correcting since yesterday and we have seen the share price having softened by about Rs 3-4. But if deal goes through definitely there will be open offer and the acceptance ratio will be quite high to the extent of 100% and under any conditions the deal is not likely to happen below Rs 50. So if you have the confirmation on the deal going through, it could be held as a good buy.'
Andhra Cement had touched an intraday high of Rs 22.46 and an intraday low of Rs 22.46. At 10:04 am, the share was quoting at Rs 22.46, up Rs 3.74, or 19.98%. Global giants Lafarge, CRH, Intacementi is eyeing stake in Andhra Cement, reports The Economic Times. It was trading
with volumes of 35,997 shares.

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GANESH HOUSING

2008-12-18T00:40:00.000-08:00

THE RISE OF BHUMIPUTRA
Ganesh Housing-The Rise Of The Bumiputras

Ahmedabad based Ganesh Housing sits upon 615 acres of City based land, with plans to deliver built up area in excess of 9 mn sqft per annum by the year 2014. At Rs 29 lakh per acre, Ganesh Housing is the most under-valued stock in the Indian Real Estate space. Colossal investments that exceed Rs 5 lakh crore planned for Gujarat would mean a massive shift in demography for key cities of Gujarat resulting into substantially higher demand for Residential and Commercial Real Estate space. Surprisingly public ownership is a mere 9 per cent in the company Equity.

The word "Bumiputra" means the "Sons Of The Soil" in the Indonesian language "Bahasa". Hailing from Ahmedabad, Govindbhai Patel and his 37 year old son Shekhar Patel-promoters of Ganesh Housing are doing to the Real Estate space what other Gujarati industrialists have done to the manufacturing space.

For the year ending March 2008, Ganesh Housing reported Revenues of Rs 157 crore with after tax profits of Rs 108 crore. This works out to an EPS of Rs 32, and a PE of 1.5. Considering that Ganesh paid out a dividend of Rs 4.50 per share the stock offers a dividend yield of roughly 10 per cent. Ganesh Housing had a Book Value of Rs 128 per share with a Debt Equity ratio of 0.19 as of March 2008. At today's CMP the company carries a market cap and an enterprise value of a mere Rs 180 crore, which seems like an under-valuation and possibly builds into the current stock price all the prevailing negatives.

Unlike most other Real Estate developers in India, Ganesh did not join the rush to build up land bank in the CY07. Instead it selectively picked up parcels of land in Ambavadi, SG Road, Thaltej, Ognaz, Godhani, Adalaj, Sola and Paldi concenterating its focus on the City of Ahmedabad and the unraveling growth potential. Total Land Holdings now exceed 615 Acres, all located within Ahmedabad, with the possibility of another 400 acres coming in should Ganesh Plantations get merged with Ganesh Housing. Investment in Fixed Assets was just Rs 43 crore, with close to Rs 190 crore being put into Inventories and Advances implying activity of Building Real Estate rather than the acquisition of Land.

Two Residential projects Mahalaya and Shangri La will be completed in FY09, alongside one Mall. It is the future that seems more exciting.

Ahmedabad-The Premier Investment Destination

Over the next decade Ahmedabad is likely to emerge as the premier investment destination in India. At the Vibrant Gujarat summit 2007, Industrialists from across the World pledged Rs 460,000 crore as Investments dedicated to Gujarat.

The State Government is doing its best in pulling in these investments. For instance the Indo-Japanese Dedicated Freight Corridor that links Delhi with Bombay will have about 40 per cent of its stretch passing through Gujarat. A Dedicated Delhi-Bombay Industrial corridor stretching 150 kms on either side of the DFC will be developed for setting up new industrial units that will involve an amount of $ 15 bn.

Ahmedabad, the 7th largest city in the country will see increased focus with the building up of the Rs 33,000 crore Gujarat International Finance and Technology City. Alongside which would come up the Sabarmati Water Front Development, that would involve paving the 11.5 km stretch of the Sabarmati river that passes through the City, retaining fresh water in Sabarmati for use all around the year and commercial real estate development on either side of the river.

The development of the Dholera port will give Ahmedabad city the port status in addition to hosting an International Airport. A 25000 acre Special Economic Zone is proposed to be built between Ahmedabad and Dholera, which along with Kandla and Pipavav will handle close to 40 per cent of the cargo traffic emanating from the country.

This massive development with the core centre in Ahmedabad would not only mean the creation of millions of jobs in Gujarat, but an unforeseen migration of civilians to the twin cities of Gandhinagar and Ahmedabad. This would mean creation of a huge number of Residential Apartments, Villas and Gated Complexes alongside dedicated Malls, a job to which Ganesh Housing is particularly attuned.

THE COMPANY HAS APPROVED A BUYBACK AT RS.101. BUY AT CURRENT MARKET PRICE OF 62.

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DABUR INDIA LTD

2008-12-17T03:52:00.000-08:00

Clearing The Real Hurdles
Diverse range of products, new launches and growth momentum in key categories make Dabur India a sound buy

Dabur India, with popular brands such as Vatika, Real, Hajmola and Dabur Chyawanprash, is a prominent player in the fast moving consumer goods (FMCG) space. The company has a well-diversified portfolio of over 350 products spread over segments such as consumer products, health products and foods. With very little presence in the luxury or premium segments (which are the first to bear the brunt of any slowdown in consumer spending), Dabur is fairly insulated from slowdown pressures. Further to this, new launches and brand extensions, growth in key categories such as hair oils, shampoos and baby and skin care and strong growth in the international market make Dabur a good, long-term investment.

Business performance. During the September 2008 quarter, Dabur’s consumer care division (CCD), which forms almost 77 per cent of the revenues, grew by 18.86 per cent. Its renewed focus on ayurvedic over-the-counter (OTC) products saw consumer healthcare division grow by over 21 per cent in the same quarter.

Within CCD, hair oils grew by 20 per cent in the quarter while baby and skin care business saw 18 per cent growth. Shampoos grew by over 36 per cent in the quarter. A recent report by AC Nielsen ORG Marg says Vatika shampoo’s sales (volumes) grew by 38 per cent during the April-September 2008 period compared to the industry average of 10 per cent. In terms of value, it grew by 33 per cent while the industry average was 15 per cent.

Financial performance. Dabur registered a compounded annual growth rate (CAGR) of 14 per cent in revenues and 25 per cent in net profit, over the last five years. Sustained growth rate in its key categories has helped it register 18.32 per cent growth in sales in the September 2008 quarter as against the previous year’s quarter. Its international business (19 per cent of the total revenue) saw a good growth of 40.5 per cent led by robust performance in GCC (Gulf Cooperation Council), Egypt, Nigeria, Yemen and North African markets.

Its operating margin, however, slipped by 179 basis points on higher commodity prices, advertising cost and loss (Rs 5 crore) from its retail venture. But, cost management measures and pricing strategy helped net profit grow by 12 per cent for the September 2008 quarter. The health and beauty retail venture (which the company entered last fiscal) has also slowed down the pace of growth in earnings. This could continue to drag the profitability for a few more quarters as this business has long gestation period.

Growth plans. Dabur plans to strengthen its presence in the shampoo (revamped Vatika packaging and introduced Vatika black shine shampoo) and skin care categories. It is also strengthening its OTC portfolio (plans to launch ayurvedic skincare range) and is expanding its homecare portfolio (launched hard surface cleaner Dazzl). It is planning to launch fruit juices at different price points and is making packaging changes to the entire chyawanprash range. The new launches will be growth drivers over the next few years. The ayurvedic and herbal association is a plus.

Valuation. Going forward, if the current softening seen in the commodity prices continues, then the pressure on operating margins will ease. The price hikes seen during the previous quarter is also likely to improve the margins. At the current market price, the stock is trading 20.91 times its earnings, low when compared to players like Hindustan Unilever (25.9 times) and Nestle (27 times). Invest for steady returns and low downside risk.
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SUN PHARMA

2008-12-17T03:36:00.000-08:00

Unhurt And Going Strong
Sun Pharma has managed the present hostile economic situations well and emerged unscathed where many others have stumbled
Economists are placing bets on how far the current global meltdown will go. Economic environment has become extremely challenging for businesses, and equities are no longer the favourite destination for savings. No business is recession proof, but some businesses are recession resistant, and the pharmaceutical sector tops the list.

In India, Sun Pharmaceutical (Sun Pharma), the country’s largest pharma company by market capitalisation, with its strong fundamentals offers a long-term growth opportunity. Since January, equity markets have taken a beating but Sun Pharma, with its stiff resistance on the downside, managed to move up in a falling market till September. The stock, however, lost momentum due to general lack of confidence in the markets, and is now trading around its January levels of Rs 1,100.

Background. Sun Pharma is present in over 30 markets and has a portfolio of 1,000 registered and marketed products. It has 17 manufacturing units, including three in the US, for formulations and active pharmaceutical ingredients (API) for the domestic and international market. In financial year 2008, international markets’ share in revenues was 57 per cent (41 per cent from the US).

Financials. Revenues for the company have doubled and net profits tripled, in the last four years. In the September quarter, sales on a consolidated basis went up by 76 per cent and net profits by 135 per cent, against the same quarter last year. In the US generics market, after growing at 70 per cent (three-year CAGR) at the end of FY08, sales were up 195 per cent, year-on-year (y-o-y), in the September quarter. In the first half of FY09, net sales went up by 71 per cent and net profits by 128 per cent on a y-o-y basis.

Sun Pharma’s debt position is comfortable. It raised Rs 180 crore as external commercial borrowing in FY05, of which Rs 100 crore has been repaid and the rest will be paid back by end of this fiscal. This isn’t a big concern as the company has about Rs 1,085 crore cash balance.

Investment rationale. In an environment where businesses are struggling to survive, especially in markets like the US, the biggest overseas market for Sun Pharma, revenue from the US generic market went up by around 200 per cent in the September quarter. Recently, Caraco Pharma, a Sun Pharma subsidy in the US received a Food and Drug Administration (FDA) warning regarding quality. The FDA may withhold approval of new drugs in the short term, but this does not affect the sale of existing products, or Sun Pharma’s exports from India.

Despite its current weakness, the US markets will continue to drive growth in pharma. US President elect Barack Obama plans to make health insurance affordable and has also argued for low-cost generic drugs. The first will increase demand for pharma products while the second will help Indian generic companies in general and Sun Pharma in particular.

Sun Pharma has spent about Rs 950 crore on research and development since 1993. It now has 72 patents and has brought out 40 new products in the Indian market every year. In the September quarter, it launched nine products, taking the new product tally to 16 in the first six months of this fiscal.

While macroeconomic events will continue to drive the broader markets, we believe a strong business like Sun Pharma will continue to grow at its own pace. Enter the stock with a long-term view, and buy in small quantities to take advantage of any price correction.
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SATYAM COMPUTERS

2008-12-16T22:22:00.000-08:00

Angel Broking has recommended a buy rating on Satyam Computer Services in its December 17, 2008 research report. "We believe steps being taken by the management of Satyam were definitely not in shareholders’ interests. After the shrill opposition to the deal by shareholders, the management has backed out and called it off. It should be noted that though the ADR was down over 50%, a recovery was witnessed in after-hours trading on the NYSE. We believe the calling off of the deal is a positive and any major fall in the stock today would be an opportunity to Buy the stock," says Angel's research report.

MY TAKE :
No need to be emotional, there was a storm, now i has passed... promoters have learned their lesson, buy satyam now.. while these prices still last.
I guess its the perfect time to pick up Satyam stocks. The fall that happened yesterday and partially today will revert to an upward trend for sure. Even brokerage houses are giving a buy signal.
Satyam`s current market price of Rs. 169 is the good perhaps best price anyone can get. Today Satyam`s price exactly reflects the best valuations of IT companies. It is only IT company which should be bought while all other look some 30-40% costlier.

SP Tulsian is also bullish and has a Short Term target of 200. Clink on the link
http://news.moneycontrol.com/india/news/stocks-views/satyam-computer-can-touch-rs-200-tulsian/13/24/371456

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AGRO DUTCH INDUSTRIES

2008-12-16T22:15:00.000-08:00

Agro Dutch Industries-On A Strong Footing
BSE 519281; CMP Rs 13.64

-Pioneers in Mushrooms.

-A Rs 210 crore corporation, selling for roughly Rs 37 crore.

-Stock Available at a PE of 2 based upon expected 2009 earnings.

-Controls 25 per cent of the US market for Button and Diced Mushrooms.

-Mushrooms carry zero calories, ideal for people who are Diet and Weight conscious.

-Integrated operations from growing mushrooms to producing Cans and packaging under one roof.

-No Land restrictions for growth, huge quantities can be grown in controlled environment and limited space.

-Practically weather proof growth, as Mushrooms need controlled moisture to grow.

-Expansion completed, to see major Revenue growth in FY 2009.

Agro Dutch Industries Limited is the first large company to bring the concept of integrated, year round, climate controlled Mushroom production to India, with complete traceability.

The company processes and markets a range of sizes of canned and frozen mushrooms, conforming to international quality standards. Agro Dutch was and remains continually focused to be the most efficient Mushroom Company in the world. From a mere 3,000 Tons per annum capacity, today it has grown to a capacity of 50,000 Tons per annum. The company is now 14 Mushroom Years and 5 CAN years old.

-Agro Dutch is the world’s largest integrated mushroom producer, with an average daily production of 125MT. It is also India’s finest and largest food-can maker, the first in India to manufacture FP Easy Open Ends at a speed of 1500 ends per minute, a bold and pioneering initiative by a 5-year-old company.

-With 10000 Tons chilling capacity, 200 Tons boiler capacity, and 10MW captive power plants, serves a key food segment globally. It earned a reputation as a reliable, quality can maker and enjoy “partnership relationships” with suppliers of equipment and raw material.

-Over the past 13 years, Agro Dutch has developed expertise in composting and growing operations. that allowed to control the product throughout the entire production process, processing as well as warehousing and delivery solutions.

In the process, it has become :

Become World's largest integrated Canned Mushroom company, selling a range of different pack sizes and different style of mushrooms around the globe.

Become India’s finest food can maker, with world class quality standards.
Positioned as the best leverage the integrated advantage - 12 months, 24x7 growing, lowest cost and world-class quality; Leadership position in most markets.

-In fourteen years of continuous growth in its major markets, especially the United States, Agro Dutch now forms nearly a quarter of all canned mushroom imports into the US.

Satisfied customers include:

Canada: In a short span of two years since shifting focus on the relatively small but highly quality conscious Canadian Market & now formed more than twenty per cent of the canned mushrooms imports.

Mexico: Agro Dutch forms the major portion of all canned mushroom Import into Mexico
Israel. A surprisingly high per capita consumption of mushroom makes Israel a very large consumer of canned mushrooms. This tightly controlled “Kosher” market allows only “Agro Dutch” mushrooms into the country from Asia.

Russia: One of the fastest growing markets for canned mushrooms, Russia is a large consumer of this company.

Taiwan: A small but regular customer.

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NU TEK INDIA LTD

2008-12-16T07:06:00.000-08:00

Nu Tek India Ltd came out with a Public Issue in July 2008 at a price of 192.
The company is a Telecom infrastructure service provider offering infrastructure rollout solutions for both mobile and fixed telecommunications networks by offering services to Telecommunication Equipment Manufacturers, Telecom Operators and third party infrastructure leasing companies.
Among Telecom Equipment Manufacturers, the company clients are Nokia, Ericsson, Motorola and Nortel while amongst Telecom Operators are Tata Tele, R-Com, Bharati, Idea, Vodafone and Tata Communications. Presently, the company is executing works of Rs.137 crores for its various clients.
For FY 08 the total income of the company was at Rs.97 crores with EBITDA of Rs.32 crores, giving a margin of 33.66%. PBT was placed at Rs.30.29 crores while PAT was at Rs.21.27 crores, resulting in an EPS of Rs.15.50 on present equity base of Rs.13.76 crores. FY 08 the company has posted a growth of 50% in topline while 100% in bottomlines.
Due to rapid increase in telecom subscribers which are now at 308 million of which 269 million are wireless subscribers, service providers and equipment makers need to focus on network quality as a competitive necessity. As the company is an end to end solution provider with track record of over 12 years of project management for all type of customers with 1,083 permanent employees, enjoys a strong position in the
domestic market. The company now has estimated a capex of Rs.89 crores, of which, Rs.21 crores is for overseas acquisitions to enable the company to have overseas foothold. Also, Rs.44 crores is for capital expenditure. Though presently, the company is debt free but has Rs.50 crores, projects for Customers Under Progress and Rs.47 crores as Sundry Debtors. These are partly financed by current liabilities of
Rs.34 crores, which if curtailed, could improve the operating margins of the company, by procuring the materials at the competitive rates.

Due to huge growth potential of the telecom sector, the company should be able to have a CAGR of 40% in topline and bottomline for the next three years.

GROWING ORDER BOOK TO BOOST THE REVENUES : Nu Tek has a current order book of about 230 crores and has also recd a LOI of 700 crores from Indus Towers to be completed in about 4 years. It has also recd orders for deploying 150 sites in TN and 125 sites in Delhi. This robust order book provides visibility to the future earnings and promises steadiness in the Topline Growth.
GROWING TOPLINE AND ATTRACTIVE MARGINS:
The company has reported a 80.15% growth in PAT for Q2FY09 at Rs.9.71crs. On a equity base of 17.24 crores, Nu Tek reported an EPS of 5.63, without adding Turkey operations.
HDFC Securities expects the company to post an EPS of 22 for FY09 which means the company is quoting at a ridiclous PE of 2.3.
The Book Value of the Company stands at 93.7.
BUY

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SINTEX INDUSTRIES

2008-12-16T06:47:00.000-08:00

Sintex (earlier known as Bharat Vijay Mills) has two key divisions: textiles and plastics. In the recent past the company has diversified into high growth businesses like monolithic structures, pre-fabricated products and composite plastics. In the last few years the company has acquired seven companies and now has a manufacturing base of 35 facilities.
Key points

* Monolithic business to drive revenue growth: Sintex Industries (Sintex), known for its water tanks, has pioneered the concept of monolithic construction in India and is the market leader in this segment. The business of monolithic structures, used in low-cost housing, is expected to drive Sintex’ revenue growth in future, on the back of the rising need for affordable and mass housing in India. This business division currently has orders of close to Rs1,400 crore and its revenues are estimated to grow at a CAGR of 98% over FY2008-10E.
* Acquisitions strengthen portfolio of plastic products: Sintex has acquired five companies since May 2006, spread across geographies and catering to niche markets. These acquisitions have been timely and would help Sintex to absorb latest technologies as well as expand its reach and customer base in the composite plastic business. The integration of all these companies can lead to substantial benefits in terms of leveraging of the acquired assets and expansion of the client base.
* Prefabs, another feather in the cap: Sintex’ pre-fabricated products are gaining fast acceptance in the country. There is a huge demand for these products which are increasingly finding use in primary school buildings, toilets and telecom tower shelters. Logistics remain a key to success here. Sintex is also increasing its prefabs capacity to 100,000 sq ft per day. The business is expected to grow at a CAGR of 45% over FY2008-10E.
One can consider BUYING Sintex Industries Ltd (Sintex)as it is a well diversified company having strong domain expertise in range of plastics and concentrates on the niche segment of textiles business. Sintex is a market leader in the plastics processing industry, which has been growing at scorching pace through both organic and inorganic route, with net profit CAGR of around 36% for FY06-08A. Sintex, over the years, leveraged its established market dominance in water tanks (~70% share) to tap other higher-margin segments. Going forward, we expect Sintex's revenue and profit would grow at a CAGR of 46% and 43% respectively during FY08-FY10E, boosting EPS to Rs 25.2 in FY09 and Rs 32.6 in FY10 from Rs 15.7 in FY08.

SHAREKHAN VIEW
Valuations and view
We have valued Sintex using two valuation methods: (1) discounted cash flow (DCF) and (2) sum of the parts (SOTP). For the DCF method, we have built a ten-year, three-stage growth model and derived a fair value of Rs453 for the stock. Under the SOTP method, we have valued the various businesses of the company on the basis of enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). Our SOTP valuation method has yielded a fair value of Rs346. Hence, our price target is the average of the two fair values: Rs400.

Over the years, Sintex has emerged as a key player in the plastic specialties business in the country. The various acquisitions carried out in the past two years have helped the company gain immediate access to desired technology and enter into some of the largest markets in the composite business. Sintex has time and again displayed its ability to pioneer new technologies (prefabs and monolithic structures) as well as proven its strong execution capabilities.

We like the company’s business model which is spread across various segments (plastics, prefabs, monolithic construction, textiles etc) and geographies. All these business are expected to witness stable to strong growth over the next few years. The ability of the company’s management to acquire companies and scale up their operations further justifies our confidence in the company. We are convinced that the company can grow inorganically as well and create value for not only itself but also for its shareholders. We reinitiate coverage on Sintex in this report. We recommend a Buy on the stock with a price target of Rs400. At the current market price the stock is trading at 13.7x and 9.2x FY2009E and FY2010E fully diluted EPS respectively. On EV/EBIDTA basis, the stock is quoting at 6.8x FY2009 and 4.8x FY2010 estimates.

RELIANCE MONEY VIEW
We expect Sintex's revenues and the net profits to grow at 46% and 43% CAGR respectively over the period FY08-10E, on account of robust growth prospects available across the plastics segment and the international acquisitions. The key driver however would be a significant opportunity coming from the inorganic front alongside its expertise in the monolithic (order book - Rs.1.45bn), prefabs and custom molding segments. Also capacity expansion seen across its plastics and textile segments will boost its performance both domestically and internationally. Looking at the strong revenue traction to come out of its acquisitions, we initiate coverage on Sintex with a Buy rating. Our target price of Rs. 364 implies an upside of 30% from current levels. At the target price, the stock would discount FY10E EPS and EV/EBITDA by 11x and 7.7x respectively.

RELIGARE VIEW
Using Discounted Cash Flow basis, we arrived on a target of 587 for Sintex and maintain a BUY
ANGEL BROKING has initiated an accumulate rating on Sintex Industries with a 12-month target price of Rs 230 in its December 15, 2008 research report.

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MUNDRA PORT

2008-12-15T20:23:00.000-08:00

Remains special with investors

Mundra Port And Special Economic Zone having gone public in November 07 had issued 402.50 lakh equity shares of Rs 10 each at Rs 440 per share. Share got listed on 27.11.07 and closed at Rs 962 on that day. Its 52 week high low is at Rs 1,324 and Rs 250 and is now ruling at Rs 282.

Mundra Port spread over 32,000 acres of land has deep water draft ranging from 15 meters to 32 meters in depth and has concession agreement valid upto 17.2 .2031. The port is presently offering port services for bulk cargo, container cargo, crude oil cargo and is setting up automobile terminal, coal terminal. Maruti Suzuki and Nissan would start exporting cars to Europe from January 09 with estimated volume of about 2 lakh cars per annum. 8,600 MW of coal-based power generating capacity is coming up near the por,t for which, imported coal shall be handled by the port. Apart from this, the port shall be having liquid cargo storage and handling facility and shall be handling dedicated crude sourcing and supply for some of the refineries. Though concession agreement for the port is valid upto February 2031, it is only in respect to 3,404 acres of land along with the right to use foreshore land and waterfront while the company has acquired over 32,000 acres of land with ancillary and related services being offered.

So even on termination of port contract in 2031, the company would own the land and related facilities which will have huge capital value coupled with income generating thereof.

It is like Mumbai Port Trust owning huge land in Mumbai near Mumbai Port Trust which has value running into thousands of crores of rupees.

The present equity of the company is at Rs 400 crores and market capitalization is just at Rs 11,200 crores. Even adding debt of Rs 1,800 crores thereto, the enterprise value works out to a mere Rs 13,000 crores. As the port is already operational, it had an income of Rs 550 crores for six months ended 30th September 08 with net profit of Rs 209 crores, translating into an annualized EPS of Rs 10.50.Though the operations of the company are stll at very low scale, this would reach to its full capacity in the next three years when one could expect an EPS of over Rs 40. Majority of the fund requirements of the company is already tied up and hence current credit crunch will not affect its future growth plans.

The share had its 52 week low of Rs 250 having seen on 28.11.08 and now ruling at 282 which is close to its all time low. Promoters stake of 81% also instills confidence and even Pre –IPO investors of 9% continue to remain invested in the company, inspite of shares having gone out of lock in.

Those who have missed an opportunity to acquire the stock in the past or have booked profit are advised to buy it now at 282 levels, but with 12 months view. Share is now available at such a low valuation, due to depressed market conditions, coupled with negative outlook on realty and infrastructure stocks.

The working of such companies would not hamper as they are catering to the growth of the economy being core sectors and would continue to grow with the backing of its owned assets.

Those holding the stock having acquired in IPO are advised to remain invested and even further buying can be made at 282 levels. These stocks are truly eligible to enjoy the fruits of the growing Indian economy.

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HINDUSTAN CONSTRUCTION

2008-12-15T20:10:00.000-08:00

Hindustan Construction Co-A Heady Mix Of Construction & Reality

For the year ended March 31, 2008, HCC posted Rs 30.82 billion (US$700 million) in net turnover compared with Rs23.58 billion (US$540 million) the previous fiscal year. Profit after tax in the financial year increased to Rs1.09 billion (US$20 million) from Rs79 million (US$1.8 million) in 2006-07 on strong book orders and greater business diversifications across its existing areas of competencies.

Total order book on hand for 2007-08 is at Rs101.58 billion (US$2.32 billion) and the company is currently executing 36 projects across the country which includes the 4.6km Bandra Worli Sea-Link in Mumbai, Godavari Lift Irrigation Scheme in Andhra Pradesh and the Delhi Metro and Kudankulam Breakwater in Tamilnadu.

In July 2008, HCC bagged a national highway project at Badarpur worth Rs3.4 billion (US$80 million), near Delhi, which will give relief to inter-state movement on the Mathura Road. Year-to-date, HCC has built nearly 173 road bridges, over 45 dams, barrages and 15 powerhouses in the Indian sub-continent.

Total Order Book exceeds Rs 14000 crore giving immense visibility. With the expected positive outcome in favour of HCC in as far as the cost over-run of the Bandra-Worli Sea Lin, the corporate will report FY09 EPS in excess of Rs 8. The stock should see PE valuations rise to 10, giving the stock a 12 month target of Rs 80.
BUY.

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Jhunjhunwala Vanaspati

2008-12-15T06:23:00.000-08:00

Jhunjhunwala Vanaspati: Attractive investment bet

A bearish market occasionally provides an opportunity to unearth some value stocks, which have been battered below their intrinsic worth.
Slick moves
Jhunjhunwala Vanaspati (JVL) is one such stock (which figured in the lead story titled ‘Cheaper By The Dozen’ in our edition dated December 1, ’08) whose market value is now lower than cash and other liquid investments net of long-term debt on its books.

Considering the company’s strong fundamentals and growth prospects, the stock is a good value pick for investors
interested in the small-cap space.

BUSINESS:

Varanasi-based JVL is principally engaged in the manufacture of vanaspati and refined edible oil. Vanaspati accounts for more than 58% of the company’s revenue, while the remainder comes from other oils like soya, palm and mustard oil. The company is in the high-turnover , low-margin business of solvent extraction. It markets its products under the ‘Jhoola’ brand, which is the market leader in Uttar Pradesh and Bihar, enjoying 35-40 % share each.

The brand commands 5-10 % premium over its competitors and is predominant in rural markets. On one hand, the company imports crude edible oil, while on the other hand, it exports de-oiled cakes to markets in South-East Asia. JVL has also entered into deals to import crude palm oil and soya bean oil directly from plantation owners in Malaysia, Indonesia, Argentina and Brazil.

The company has recently acquired a sick fertiliser company in Bihar, thus foraying into the fertiliser segment. It has also acquired 260 acres of land bank
as part of the deal. The company has proposed real estate development of 333 acres in Varanasi, and plans to develop this into a multi-services SEZ.

GROWTH OPPORTUNITIES:

India imports nearly 50% of its edible oil requirements. So, there are significant growth prospects for solvent extraction units. To take advantage of this, the company has expanded capacities at its existing facilities and planned new units in Bihar and West Bengal.

JVL aims to expand its total installed capacity from 2,67,000 tonnes per annum (tpa) in ’08 to 9,56,000 tpa by ’10. It plans to invest more than Rs 200-250 crore in capex via accruals and debt over the next three fiscal years. The company is decreasing its dependence on vanaspati by increasing manufacturing capacities of other refined oils.

Given the decreasing consumption of vanaspati , JVL intends to rationalise the proportion of vanaspati in its revenue to around 30% over the next two years. The company is looking at leveraging the strength of its brand to increase its market share in Bihar and penetrate new markets like Jharkhand, West Bengal , Orissa, MP and the North East.

FINANCIALS:

JVL’s net sales have seen a CAGR of 20.4% over the past five years to Rs 1,154.8 crore in FY08. Its net profit has posted a CAGR of 35% during the same period to Rs 23.6 crore in FY08. The company has seen rapid growth in the past three fiscal years, coinciding with the bull run in the edible oil market.

JVL has been paying dividends since the past four fiscal years at an average payout ratio of 9% of its profit. It expects to hike its dividends in line with its growth. Despite volatility in raw material prices, the company’s operating and net profit margins have improved over the past one year.

A cut in import duty on oil and the rupee’s appreciation also made it possible for the company to control input costs, which account for over 80-85 % of its total manufacturing cost. JVL commissioned a 3-mw agrobased captive turbine in FY07, which has helped it to reduce power costs. This has also enabled it to apply for sale of carbon credits.

VALUATIONS:

At its current valuations, JVL is one of the most attractive stocks among listed players in the solvent extraction business . Considering its growth prospects in the edible oil business, along with its foray into fertilisers and real estate, the company is an attractive investment bet in its segment.

Beta: 0.27

Institutional Holding: 0.1%

Dividend Yield: 2.8%

P/E: 1.5

M-Cap : Rs 54.1 cr

CMP: Rs 72.10
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EID Parry

2008-12-14T00:36:00.000-08:00

Sugar appears to be one of the few sectors that offers potential for strong earnings growth combined with good visibility over the next two years, as the economy enters a lean phase. With the sugar cycle likely to turn from a surplus to a deficit in the current season (Oct 2008-Sep 2009), sugar prices may sustain firm trends. The resulting jump in realisations may help sugar companies deliver strong growth in earnings from their beaten-down levels last year. EID-Parry, a South-based sugar producer, appears a good investment option in this context.

Value in subsidiary

Much smaller than leading sugar players such as Balrampur Chini Mills or Shree Renuka Sugars, EID-Parry appears less vulnerable to spikes in cane costs than the UP-based mills, due to the location of its units in Tamil Nadu. (UP-based mills are currently litigating on SAPs fixed by the State). EID-Parry’s integrated business model and a longer crushing season may also help offset the likely escalation in cane prices over the next year.

At the current market price of Rs 139, the stock’s valuation (trailing P-E multiple of about 23) appears expensive based on standalone earnings in comparison to larger players. But the stock valuation factors in the company’s 62 per cent equity stake in Coromandel Fertilizers, a fertiliser maker with good prospects. EID Parry’s equity stake in Coromandel Fertilizers alone translates into a value of Rs 84 per share at the current market price, valuing EID Parry’s core business at Rs 55 per share. That translates into a modest P-E of about nine times the trailing earnings; these reflect a depressed phase in the sugar cycle. The stock trades at 1.1 times its September 30 book value.
Stability from by-products

EID Parry owns cane crushing capacities of about 17,500 tcd spread over five locations in Tamil Nadu and is an integrated sugar producer, with a 40 kl per day distillery and capacity to cogenerate 65 MW of power from bagasse. Ongoing capital investments are expected to take up crushing capacity to 19,000 tcd over the next year, while adding additional distillery capacity and 20 MW of power.

The company also has a presence in bio pesticides and nutraceuticals. The nutraceuticals business has recently been strengthened through the acquisition of a 48 per cent stake in the US-based Valensa International, a product developer.

After de-merger of the farm inputs division to Coromandel Fertilizers in 2003-04, EID Parry has invested substantially in the sugar business, where it has expanded capacity from 14,000 tcd to 17,500 tcd and added significant facilities for processing by-products.

This has contributed to a changing product mix, with rising contributions from power and alcohol. 2007-08, a lean year for the sugar business, cogeneration and distillery operations contributed 16 per cent of EID Parry’s revenues and nearly 30 per cent of operating profits, partially offsetting segment losses from the sugar business.

Higher contract prices for ethanol, which could have bolstered margins, may not materialise now, given the steep correction in crude oil prices. But contributions from both these businesses may continue to grow on the back of higher volume sales. Tighter cane supplies may also aid better realisations from intermediary products such as molasses and industrial alcohol this year onwards.
Turnaround

EID Parry’s core sugar business saw its earnings (before interest and taxes) peak at Rs 79.6 crore in 2005-06 — the apex of the previous boom in the sugar cycle. Thereafter earnings fell steadily and slipped into losses of Rs 59.6 crore in 2007-08, on weakening sugar prices. A sharp turnaround in profitability is likely this year (FY09), as sugar prices rise in response to the emerging situation of a significant fall in production (from 270 lakh to 200 lakh tonnes), tight supplies and lower year-end inventories.

Sugar prices have already firmed up by 33 per cent over the last year and hold potential for further upside, should actual output during the ongoing crushing season be revised lower. With the inflation threat now receding sharply, policy intervention to curb any uptrend in sugar prices also appears less likely than it was a few months ago.
Comfortable on cash

Apart from the prospect of strong earnings growth, low levels of leverage in EID-Parry’s consolidated balance-sheet (1.5:1 as of March 2008) and improving cash flows from operations may help it fund its expansion plans over the next couple of years without significant increases in financing costs.

A cash consideration of Rs 747 crore received in July 2008 from the divestiture of equity holdings in Parryware Roca, also allows room to pay down debt and fund investment plans. This also leaves sufficient resources for the company to implement its recently announced buyback offer, expected to absorb a maximum of Rs 47 crore.
EID Parry’s investment book, strong cash coffers and locational advantages support valuations and offer an edge over larger peers.
The offer, set to open on December 15, intends to buy back 10 per cent of the outstanding equity through the open market at a maximum price of Rs 160 per share. The buyback may provide downside protection for investors in the stock.

ICICI Bank

2008-12-14T00:29:00.000-08:00

ICICI Bank may be one of the key beneficiaries of the recent RBI measures — the CRR reductions, interest rate cuts and more liberal provisioning and capital adequacy norms.
Shareholders can stay invested in the ICICI Bank stock, as it trades at compelling valuations. Exaggerated concerns about the bank’s financial troubles, rumours of promoter stake sales (which have been proved wrong) and its exposure to troubled assets (doubtful assets have been provided for) have depressed valuations.

At the current market price of Rs 411, the ICICI Bank stock trades below (0.94 times) its September book value and 11 times its trailing one-year earnings. Its peers — Axis Bank and HDFC Bank — trade at 12 times and 18.8 times respectively.

At its peak in January, the stock commanded a PEM of 36 and was trading at 3.6 times book value. Though further downside in the stock cannot be ruled out given the challenges to earnings growth over the next one year, prospects over a two-three year time-frame seem brighter. Investors can consider accumulating the stock on declines.

The bank has significant scope to expand corporate lending and step up fee income. As it consciously slows down retail lending and reduces costs by restructuring its deposit base, the risks associated with its operations may moderate.
Business mix

Exaggerated concerns about the bank’s financial troubles put it in a spot ...

ICICI Bank’s advances book is dominated by retail advances (55 per cent of total advances), followed by overseas advances (26 per cent), corporate advances (9 per cent), SME (3 per cent) and rural (6 per cent).

The bank has already discontinued small ticket personal loans and is going slow on other unsecured retail advances.

The corporate and SME advances portfolio of the bank is small vis-a-vis its peers. The focus on this segment can drive growth without compromising on asset quality.

Housing loans make up 28 per cent of total advances for the bank. Provisions relating to investments and defaults have been a key drag on the bank’s valuations in recent months. In this respect, ICICI Bank’s gross NPA/advance of 4.18 per cent, as of September, is among the highest in the sector. But provision coverage of 52 per cent helped it to contain net NPAs at 1.9 per cent. About 57 per cent of net NPA pertains to unsecured products, which remains a concern. In the coming quarters, write-backs in the gilts portfolio, may also reduce the provisioning requirements and bolster profits. However, the bank is well placed on capital adequacy, with the ratio at 14 per cent; reducing the need for raising capital in the near future.
Standalone Financials

After growing aggressively to capture market share, ICICI Bank has recently witnessed a significant slowdown. From 2004-2008, the bank’s advances grew at 40 per cent compounded annually, while profits grew at 26 per cent. But provisioning towards NPAs and investments have weighed on profit growth over the past two quarters.

In the first half of 2008-09, net interest income (NII) grew at 30 per cent, driven mainly by margins improving from 2.2 per cent to 2.4 per cent.

This was driven partially by the hike in lending rates in the September quarter, as also a lower cost of deposits. Going forward, NIMs may moderate, following the recent 1.5 per cent home loan rate cut and likely lending rate cuts, which the bank is expected to undertake in the near future. The bank’s efforts to curtail high-cost wholesale deposits may offset the impact of lower rates on NIMs to some extent. In the first half, the bank retired bulk deposits worth Rs 24,000 crore and improved its low-cost deposits ratio to 30 per cent.

It also made considerable progress in reducing operating costs with the cost-income ratio falling sharply from 52 per cent to 47 per cent in the first half. Fee income may be another key growth driver.

In the first six months of FY-09, non-interest income chipped in as much as 45 per cent of ICICI Bank’s net revenues, despite a massive treasury loss of Rs 747 crore. As ICICI Bank remains a leading distributor of third party products, even a moderate recovery in the investment markets over a two-three year time-frame, may drive fee income growth. A large branch network may give ICICI Bank an edge over competitors in this context.
Subsidiaries

Concerns about the bank’s exposure to toxic assets in overseas subsidiaries have also been a matter of concern. However, after taking a loss in its UK subsidiary and making additional provisions from its reserves for the entire sub-prime exposure, further risks from source appear unlikely. The Canada subsidiary (profits of CAD 21 million in the first half), focuses mainly on India-related investments.

A sharp improvement in earnings from the other subsidiaries (ICICI AMC, Ventures and Securities) or unlocking of value from a listing of these subsidiaries appears unlikely for now.
Outlook

Shareholders of ICICI Bank may require a three-year horizon to reap the full rewards of their investment. Steps initiated by the bank to reorient its focus — going slow on risky advances and stepping up exposure to corporates — may take time to pay off.

The next one year will be challenging for the bank, as further asset quality slippages and subdued earnings (on the back of slower advances growth and lower NIMs) cannot be ruled out.

The heightened risk perception relating to the bank may also peg up costs and could force the bank to raise capital at a stiff cost.

However, on the positive side, ICICI Bank may be one of the key beneficiaries of the recent RBI measures — the CRR reductions, interest rate cuts and more liberal provisioning and capital adequacy norms.

The bank’s housing finance company will also benefit from the recent RBI move of classifying the HFC loans also as priority lending sector.

Educomp Solutions

2008-12-14T00:26:00.000-08:00

Investors can buy the shares of Educomp Solutions, considering the bright growth prospects for its key verticals and the stock’s sizeable valuation discount to its historic levels.

At Rs 2,088, the stock trades at 26 times its likely 2008-09 earnings. This is not cheap under current market conditions. But Educomp has locked into most if its contracts where it licenses digital teaching content on long-term basis, typically over a five-year period.

Continuing triple digit growth in high-margin segments such as Smart Class and retail & consulting, a healthy order pipeline for its services that cater to IT-enablement of government schools, support the valuations. Educomp’s focus on the education sector also lends resilience against any broader slowdown as schools are unlikely to scale down investments in innovative teaching methods. With the Government’s IT-enablement programme continuing on course, the company appears well placed to ride out the present slowdown in the economy.

Smart Class, where Educomp provides teaching content and education solutions across classes, boards and subjects, accounts for nearly 70 per cent of its revenues and enjoys a an EBIT (earnings before interest and tax) margin of 60 per cent. This segment continues to add hundreds of schools under its fold, with a current roster of 1,267 schools and 1.43 million students using this service. For the past six quarters this segment has managed triple digit growth, over same periods in the preceding years.

The retail segment, a tutorial service led by the math Web site mathguru.com is growing at over 600 per cent, and from insignificant contribution a couple of years ago now contributes 11 per cent of its revenues. The business enjoys a 70 per cent margin and would contribute to higher margins as it adds users.

Educomp’s Information Communication Technology (ICT) business continues to win a string of Rs 50-100 crore orders and works with as many as 14 State governments. These projects are for a five-year duration and are mainly volume driven as they involve IT-enablement of Government schools. Given the present economic crisis and Government thrust on public spending, Educomp may continue to be well placed to tap into increased budgetary allocations on education. But Government deals may mean longer receivable cycles and expanding working capital requirement.

Most of Educomp’s projects involve upfront capex for which additional debt may be required. But the company has tied up loans for its capex requirements over the next few years. An increase in its debt-equity ratio, at 1.22 for 2007-08, would mean increasing interest costs.

Shashun Chem

2008-12-12T02:41:00.000-08:00

Shasun Chem-Things Can Only Get Better
BSE 524552; CMP Rs 12.34

Generic drugs and CRAMs producer Shasun Chem has been reduced to junk valuations. At the CMP of Rs 12.34, the entire company sells for Rs 60 crore. A valuation that reflects a virtually closed entity.

The fact however remains that the corporate is running 5 units, with three spread over Coimbatore and Puduchery and two units in Britain.

The Rs 400 crore entity has been impacted by a number of factors which include forex fluctuations and increase in price of chemical inputs imported from China. So much so that forex losses in FH2009 were Rs 20 crore and this was also the loss for the first half.

However, the very factors impacting negatively in the first half are now improving, with the Rupee falling against the dollar and Chinese exporters cutting price of chemical inputs.

The corporate has strengthened its contracts with Merck, Eli Lilly, Alpharma all innovator drug companies of the US. The Revenues from CRAMs will thus contribute substantially in the second half.

Significant improvement in growth outlook across segments. Indian pharma is now an integral part of global pharma value chain.

Generic exports to drive near term growth aided by significantly enhanced exclusivity period profits in US markets (~$1.5bn exclusivity profits over next 3-4 years).

CRAMS set to gain traction with increasing emphasis on outsourcing to low cost Asian destinations by global pharma companies despite near term challenges.

Revival in domestic business growth to support growth in generics and CRAMS.

Weakening of rupee further reinforces earnings momentum in this export heavy sector.

Strong growth, insularity to global slowdown, attractive valuations.

Investors with a one year view are unlikely to go wrong in this stock.

They would do well to consider the following points:

21% CAGR in revenues and 25% CAGR in earnings over FY08-10E.

Insulation to the global financial turmoil - minimal impact of the global slowdown on revenue growth and profitability; Slowdown might even spur greater use of low cost generics.

Well supported by strong balance sheets and high operating cash flows.

Modest valuation multiples.

GSPL

2008-12-12T02:23:00.000-08:00

GSPL - Oversold, Worth a Long Term Buy
Dear All,
Gujarat State Petronet Limited is first company in India to transport natural gas on open access basis and is a Pure Natural Gas Transmission Company.
The Gujarat State Petronet Ltd stock has undergone a drastic correction, more than halving in value from its high of Rs.110 currently quoting at around 26. The recent hammering was more pronounced due to the forced direction from the Gujarat Govt to contribute 30% of PBT for Social projects.
GSPL has a focussed business model as a transporter of natural gas in Gujarat without any exposure to commodity price risk. It would not matter for this company whether Gas prices are going up or down because they don`t own any gas. It is well-positioned in the Gujarat gas market with its pipelines connecting gas sources to existing and developing markets. GSPL is also venturing into city gas distribution through investment in group companies engaged in the lucrative and growing markets.
GSPL will see a doubling in pipeline capacities and quadrupling of Revenues over the next 4 years..the stock should become a core infrastructure play .
Gujarat-The Biggest Natural Gas Consumer :::Gujarat currently moves 18mmscmd of gas per day whereas demand is expected to shoot up to 95 mmscmd by 2010.
GSPL has picked up strategic stakes in group companies — GSPC Gas, Sabarmati Gas and Krishna Godavari Gas Network Ltd — that are setting up city gas businesses in Gujarat and Andhra Pradesh. City gas distribution, which includes supply of compressed natural gas for automobiles, will be a natural diversification for GSPL from its transportation business.
RISKS:
Tarrif Regulations, delay in Gas production from KG basin, 30% allocation to Social projects as mandated by Guj Govt and higher debt.
This is a simple business model which makes money
year in and year out without any glamor associated. Peter Lynch and Warren Buffet would love to invest in this one. And me too.
Investors can buy the stock with a medium to long term view. The Stock should be a steady performer and a Good Dividend play.
Best of luck,
Srikanth Shankar Matrubai,

Also visit my other blog goodfundadvisor.blogspot.com