From: Rajiv Malik [mailto:rajivhtc@
Sent: 23 July 2007 17:46
To: Rajiv Malik
Subject: Fwd: $$ DreamGains !! $$ SANJAY CHHABRIA's WEEKLY STOCK IDEA(S) -23rd July 2007
SANJAY CHHABRIA's WEEKLY STOCK IDEA(S) -23rd July 2007
Vol IV No 45
Please read the disclaimer at the end of this page.
"Most 'hot tips' and 'must buys' or 'great opportunities' turn out to be disasters. Thus, only take very few investment decisions, which you have carefully analyzed and thought about in terms of risk and potential reward". - Dr. Marc Faber
"You don't want analysts in a bear market and you don't need them in a bull market".- Gerald M. Loeb
"The foolishness of the many is the opportunity of the few". - Dickson G. Watts
"Those players who do not learn from experience, will not learn at any other school"l. - Victor Niederhoffer
This Week's Stock Idea(s)- Asahi India Glass Ltd(Rs 107) & Mysore Cements Ltd(Rs 55)
Given the current market conditions, Investors would do well to accumulate gradually on declines.
Asahi India Glass Ltd(Rs 107(Rs 1 paid up)(BSE Code- 515030 NSE Code-ASAHIINDIA)- Asahi India Glass (AIG) is a joint venture between Asahi Glass Co.of Japan, B.M.Labroo & Associates and Maruti Udyog. Maruti Udyog holds 11.11% stake, Asahi Glass Co. (AGC), Japan holds 22.21% stake and the Indian promoters hold 22.25% stake in the company. AGC has presence in float glass, automotive glass, electronic and display operations, chemicals and ceramics. It is the world leader (No. 1 or No.2) in all the businesses. AIG is a major player in the automotive glass market where it claims to have a 85% market share. AIG is the largest manufacturer of automotive safety glass in the country. It caters to almost all automobile producers. Its clientele includes auto majors such as Maruti, Hyundai, Ford, Mahindra & Mahindra, Tata Engineering and Toyota. AIG has a pan India presence with manufacturing facilities, sales and marketing offices, warehouses and service centres located across India. Globally, the top three global players (Saint Gobain (France), Asahi (Japan) and Guardian (UK)) control almost 75% of the automotive and architectural revenues (the same is the case in India as well). AIG is one company, known to be making most of the auto and construction boom. The two sectors, in turn, have been riding the crest of a growing domestic economy.
AIG India is the sole glass supplier to almost the entire Indian car business. From being a sole supplier to Maruti Udyog, the company has come a long way to emerge as a leading glass company in the country. It has around 85% market share in the automotive glass industry and 25% market share in the float glass industry. Recently, the company has entered into the architectural business in order to diversify its business model. For this purpose, it has incorporated a wholly-owned subsidiary, AIS Glass Solutions. This subsidiary will act as a front-end for its foray in architectural glass process and rendering services. AIG has three Strategic Business Units (SBUs), the first is Automotive Glass Unit - AIS Auto Glass: AIS Auto Glass is India's largest manufacturer of world class automotive safety glass. The second is Float Glass Unit - AIS Float Glass: AIS Float Glass is the premier manufacturer of international quality float glass in India with a manufacturing capacity of 1200 TPD (after expansion). The third SBU is AIS Glass Solutions Ltd - AIS Glass Solutions: AIS Glass Solutions provides end to end solutions in the different kinds of architectural glass including toughened glass, laminated glass, insulated glass and glass products. It is also launching a wide range of revolutionary products like windows, shop fronts, shower enclosures, washbasins, tabletops, partitions and shelves. It could be the next growth driver for the company.
AIG's net profit declined 86.6% to Rs 8.94 cr. in Q4 March 2007 whereas Sales soared 46.9% to Rs 234.92 cr.. The net profit declined 51.2% to Rs 42.08 cr. in the year ended 31 March 2007. Sales soared 32.7% to Rs 784.47 cr. in FY 2007. The consolidated net profit declined 49.8% to Rs 43.32 cr. in FY 2007 and Sales rose 32.7% to Rs 789.4 cr. in FY 2007. On a equity of 15.99 cr. the EPS on a Rs 1 paid up share comes to Rs 2.72 and the dividend declared is 65%(Rs 0.65 per share).. The years FY06 and FY07 were bad years for the company as in 2005, AIG's plant at Taloja was severely affected by the Mumbai floods. In FY07, the prices of soda ash shot through the roof, which adversely affected the performance of the company. The management expects the prices of soda ash to stabilize at the current levels. FY08 is anticipated to be a relatively better year for the company on account of the additional float glass capacities kicking in.
AIG' strategy is to encompass each element of the auto glass and architectural glass value chain. Its business strategy aims to captively consume over 60% of AIg's total float glass production for value-added auto glass and architectural glass products. It has recently installed a capacity of 700 TPD at Roorkee, which would be providing glass to Automotive Glass Unit. This would significantly improve profitability due to reduction in the cost of raw materials which were initially sourced from outside, savings in packing and freight costs, which would lead to high operating profits, coupled with fiscal incentives in the form of exemptions from excise duty, income tax and sales tax. It is looking out for alternate power sources by setting up a power plant which would incur a capex of 150-200 cr. It is planning for a brownfield expansion at Chennai in the near future. It is also planning to incur a capex of 150 cr in Chennai in FY08 to increase its windsheild capacity by 0.5 mn units which would boost its top line. Once the new plants come on stream, cost benefits will manifest themselves in the form of improved margins. Given the leadership position of the company and relative under penetration of the Indian market, topline growth will also continue to be robust. Investors can accumulate the AIG stock at this level and add on declines (in the range of Rs 92- Rs 102) for a price target of Rs 150-155 over the medium-long term.
Mysore Cements Ltd(Rs 55)(BSE Code- 500292 NSE Code- MYSORECEM)- Mysore Cements Ltd (MCL) , formerly a S K Birla group company is now controlled by Germany based HeidelbergCement AG(Stake- 54.89%). MCL is a subsidiary of Cementrum I. B.V.( a Company incorporated under the laws of The Netherlands, which is 100% controlled by HeidelbergCement AG). The sharply growing Indian cement industry - second only to China - has attracted many foreign cement majors, which see great demand for the commodity in a country hungry for infrastructure. Heidelberg Cement is the fourth global cement giant to enter India after Lafarge, Italcementi and Holcim. Heidelberg's Group Revenues for CY06 were 10 bn Euros, approximately Rs 55,000 cr.. Euro MNC Heidelberg is one of the three biggest cement producers in the world along with Holcim (which owns ACC , Ambuja) and La Farge which has an unlisted presence in the country. HeidelbergCement, with its core products being cement, ready mixed concrete, aggregates and related activities, is one of the leading producers of building materials worldwide, and it employs around 46,000 people in more than 50 Countries. In December 2006, Heidelberg made an offer to the shareholders of MCL to acquire 22.15% stake at Rs 58 per share.
After taking over, Heidelberg replaced the Board of Directors of Mysore Cement with its own team of German directors, and infused a sum of Rs 360 crore by making a preferential allotment of 6.5 crore shares to itself at a price of Rs 54 per share. This sum has been utilised to make a one-time settlement of the long term debt of the company. Thus not only has Mysore Cements become debt free, it has come out of the purview of the BIFR as well. Within a short period of 3 months the Heidelberg led team accompolished a clean turn around at MCL, with long term institutional and bank debts paid off, the board of directors been reconstituted, the Registered Office moved from Bangalore to the plant at Ammasandra, Dist. Tumkur in the State of Karnataka, announcement of capacity expansion by 1 million tonnes, change in accounting year from March to December
Mysore Cements has two units - one at Ammmsandara in Mysore and another at Damoh in Madhya Pradesh. With upgradation and balancing at Damoh, the total capacity of MCL increased to 23 lac tpa in 2004-05. The company also runs a grinding unit at Jhansi in Uttar Pradesh and has a 36,000-tonne sponge iron plant. The Damoh and Ammasandra Units cater to the strongest consuming centres of Western and Southern India. For the Q1 ended March 2007, MCL posted net profit of Rs 31.79 cr.(up 166%) on net sales of Rs 145.3 cr.(flat). The EPS for the quarter stood at Rs 2 on a equity of 158 cr.. For the nine months ended December 2006, MCL had posted net loss of Rs 9.8 cr. on net sales of Rs 417 cr.
Going forward, more measures for efficiency increase and cost reduction will be implemented, and focus will be on further, gradual expansion in capacities. At Rs 56 per share and a majority control with Heidelberg, Mysore Cement fetches a price of $ 106 per MT-a steep discount to large players like Grasim, Ultratech and Ambuja which are valued at $ 140 per MT. The financials, debt free status of the company and its parentage should help the stock going into the future. Based on Q1 results, CY07 Earnings per share is likely to be in the range of Rs 8-Rs 9 implying a P/E of 6.5 at the current price. Investors can accumulate the MCL stock at this level and add more on declines (in the range of Rs 47- Rs 52 ) for a price target of Rs 85-Rs 88 in the medium-long term
Sanjay Chhabria is an equity analyst and investment consultant based at Raipur (Chhattisgarh)
Disclaimer- Sanjay Chhabria (Author), does not accept any liability arising from the use of this report. Under no circumstances does the information in this report represent a recommendation to buy or sell stocks. This report has been prepared solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments. Though all care is taken in preparing this report, subscribers are cautioned that prices of equity shares may rise or fall in a manner not foreseen. Subscribers and readers using the information contained herein are solely responsible for their actions and shall not hold the Author liable for any investment decisions/ actions based on the Content provided. Investment in stock market is risky and volatile.
--
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