March 19, 2007
Market View
The markets witnessed yet another volatile week with stocks and indices going down further. At the current sensex level of 12400, we may be close to a short term bottom as far as the markets are concerned. As mentioned in our report last week, we believe that in a bad scenario, the sensex may go down to around 12000 levels, however drop below 12000 in the short term atleast looks unlikely.
We had so many negative news all of a sudden - terminologies which was unheard of earlier - Yen Carry Trade, US Sub-prime Home Loan problem. Moreover, The Economist carrying the cover story "India Overheats" and Business Week carrying the cover story " The Trouble with India" took their toll on the already not so good sentiment.
Apart from this, March being generally a month when speculators like to be light on their positions and the brokerages reduce their leverage positions to clients, there is a complete absence of any major buying. The major force FIIs are also shying to make investments, primarily on account of global factors and may be looking for further falls to make an entry.
So, as of now, the sentiment looks hugely negative with no one willing to make major financial commitments to Equities.
The stock prices however have reached attractive levels. Investors may choose to buy selectively - however on a staggered basis. We feel the markets may consolidate around these levels for a while and may go up starting mid April.
Here are a few investment ideas :-
Bambino Agro
CMP - Rs. 12.50 BSE Code -519295
Bambino Agro is into food processing and manufactures Pastas, Macroni and Vermicilli. The company has been facing a tough time over the past few years, primarily on account of huge debt on its balance sheet, which it found difficult to service. The company has reached a settlement with the lenders and the debts have been restructured. The promoters have also agreed to bring in fresh funds into the company.
What we like about the company is its strong Brand and excellent distribution network. Infact, we could find the product occupying shelf space at not just big malls and supermarkets but was available at the neighbourhood "Kirana" stores too. (atleast in Delhi)
In the recent past, we have seen deals happening in the food processing sector at good valuations. Orkla Foods, Norway deal to buy MTR Foods is rumoured to have valued MTR at around Rs.400 crores. Similarly, Private equity players have taken stakes in Capital Foods (manufacturing Ching's Secret brand of sauces & Noodles), and Cremica Foods and these have received rich valuations.
Bambino has already achieved Sales of Rs.100 crores for first 9-months (Incidentally MTR Foods does Sales Revenue of Rs.150 crores).
Bambino with its market cap at just Rs. 8 crores looks attractive. The company of course had been bogged down with its own problems but now seems to be recovering. A stock for someone with High Risk appetite - however a potential multibagger.
Hind Industries
CMP - Rs. 24 BSE Code -526307
Hind Industries was recommended to our subscribers earlier is available at around Rs. 24. Even though the volatility in company's earnings on a quarter to quarter basis is a cause of concern, the potential of the business looks good.
The company being the largest and one of the only organized players and the huge scales on which the company (alongwith its subsidiary) operates has the potential to attract the Institutional Investor at a later stage.
CMP - Rs. 98 BSE Code -523007
The smallest of the three construction companies from the Ansal stable, Ansal Buildwell is undertaking housing & commercial projects primarily in Gurgaon and Kochi with the bulk of its revenues currently coming from Gurgaon.
Some of the projects of the company include Florence Marvel, Florence Elite, Navkriti Arcade, Royal Casa, Club Florence to name a few. The company's ability to acquire land banks at attractive rates is the key strength. Besides, the company is also doing projects in Nepal and Moradabad.
With revenues in excess of Rs.75 crores and PAT of Rs.6.4 crores for first 9-months, the stock looks attractive at the current market cap of Rs.75 crores and is available close to its 52-week low.
Eldeco Housing
CMP - Rs. 200 BSE Code -523329
Another small cap stock from the Housing construction space, Eldeco Housing is undertaking development of housing projects primarily in Lucknow. As per the Balance Sheet of 31.3.2006, the company has an inventory of Rs. 228 crores. This inventory will eventually get translated into sales in the coming years.
In the latest Annual report, the management also talks about having tied up new projects in Lucknow with an estimated value of more than Rs. 500 Crores.
The market cap of the company - just Rs.40 crores. Besides the value which is available at the current price, a big trigger for the stock could be that incase the management decides to merge its unlisted group company - Eldeco Infrastructure, which is several times bigger than Eldeco Housing - this would lead to formation of a much bigger entity and the interest of large market players in the company's stock.
(We wish to clarify here that there has been no confirmation or communication from the management regarding the merger of Eldeco Housing & Eldeco Infrastructure)
One of the negatives in the housing construction stocks however is the uncertainty regarding Sales numbers quarter on quarter since as per the accounting norms being followed by most of them, Sales are booked when possession of the unit is handed over. So in one quarter the company may hand over possession of hundreds of units and in the next quarter none, which leads to confusion in the minds of investors as to why the Sales have dropped or gone up suddenly. This may lead to huge buying and selling and hence huge price volatility in these stocks.
Jolly Board
CMP - Rs. 1000 BSE Code -502335
The company's 2 million square feet IT Park coming up at Kanjur Marg in Mumbai could ring in cash registers for the company. The company has entered into an agreement with Lodha Developers and out of the 2 million square feet of construction, the company's share would be 50%. Assuming the most conservative rental estimate for the space at Rs.30-40 per sq.ft., this would lead to a rental income of Rs.3-4 crore every month for the company. (not to mention the value of the property which could be between Rs.600-800 crores assuming a rate of Rs.6000 to 8000 per square feet).
The company currently trades at a market cap of Rs.90 crores, which is less than three years of its expected rental income. The downside looks restricted from here. The catch here is liquidity since the Equity Capital is just Rs.91 lacs out of which 90% is held by the promoters.
Electrotherm India
CMP - Rs. 435 BSE Code -526608
Electrotherm , our old favourite seems to be now getting the attention it deserves. Recently, India Advantage Fund (through its Investment Manager ICICI Venture) has taken close to 14% stake in the company at Rs.600 per share. The promoters have also taken warrants convertible into shares at Rs.600 per share, which shows the confidence of the management in the future of the company.
Having started as a manufacturer of Induction Heating furnaces, the company went on into backward integration and set up facilities for manufacture of Stainless Steel, Construction Steel/ TMT Bars, Structural & Alloy Steel, Ductile Iron Pipes, and has set up an automotive division manufacturing
The company's journey from Steel to Wheels is definitely exciting and augurs for its Shareholders. With the launch of Yo-Bykes, the company is now gearing up for the launch of Electric Three-Wheelers and Hybrid Buses.
With the world's focus on Alternative Energy, the products would have potential not just in India but also overseas.
Cement Sector
As regard, Cement sector, the entire cement pack is looking good for investment. Most of these stocks have given up almost 30-50% in the last 2 months. Many analysts have started comparing cement sector with the sugar sector arguing what government interference did to sugar can happen to cement too and we see more SELL reports today rather than BUY reports. We believe the comparison is unfair on account of the demand supply mechanics and the fact that the International Trading mechanics for the two commodities are entirely different.
I believe that for an investor having cement stocks in his portfolio, this is certainly not the time to get out. These sell reports are coming in after the event has happened and most cement stocks have already lost significantly.
With ACC near Rs.700, Ultratech at Rs.750, Gujarat Ambuja at close to Rs.100 levels, Birla Corp at Rs.200 & Mangalam at Rs.150, these could be levels to rather buy into these stocks. We feel what Mr. Chidambaram has done has been out of political compulsions rather than economic sense. We feel the decision could see a reversal once the Delhi Municipal Corporation Elections & UP Elections are out of the way. The fundamentals of the sector remain robust and the demand supply situation favours the manufacturers, atleast for the next 2-3 years. Even if the price of cement is frozen at the current levels, the companies would continue to make healthy profits. Another thing the market has probably forgotten is the fact that the whole production by cement companies is not sold in 50kg bags. A large part of the production goes to the Institutional or the bulk buyers. For long term investors, this could be an opportunity though a further fall from these levels not ruled out. If at all there is a further fall, it could be on account of the other factors and the extent of fall from these levels may not be large (5 to 10% at the maximum) .
BigGains !!
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