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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 1 Monday, November 19 - 25, 2007
Pages 22
Markets to remain rangebound
unless follow up buying emerges
By Sanjay R. Bhatia
The markets continued to witness a range bound trend in the absence of fund flows and positive triggers for the market.
They did witness a smart rally on the back of positive statement from CPM, but this was short lived as selling pressure
and profit booking emerged at higher levels. Traders and speculators were active in oil & gas, mid-caps, small-caps,
banking, realty, capital goods, telecom, IT and power stocks. The volumes recorded during the week have been good
along with positive breadth. Incidentally, FIIs remained net sellers in the cash as well as the derivatives segment.
Domestic institutional investors, on the other hand, remained net buyers during the week.
The global cues have remained mixed. Crude oil prices have softened.
The US markets have, however, displayed mixed trend on the back of
mixed economic data emancipating from the US economy. The markets
thus continue to lack triggers for a rally. The only positive statements
over the nuclear issue came from the Left parties and gave some solace to
the market. But in the absence of strong fund flows, it was not enough for
them to stage a sustainable rally. Meanwhile, the Rupee continued to
appreciate against the dollar.
Now, it is important that the markets consolidate at the present level. It is
also important that the FII fund flows improve and follow up buying
emerges at higher levels for the markets to witness a sustainable rally. In
the meanwhile, the markets are likely to remain range bound with a
negative bias. The markets would take cues from global markets, crude oil prices and the rupee-dollar equation. Stock
specific movements will be witnessed amidst intermediate bouts of volatility and profit booking at higher levels.
Technically, the market sentiment is tentative due to lack of fund flows and follow-up buying at higher levels. Unless
strong fund flows are witnessed the markets are unlikely to display a run away rally. The overall trend is likely to remain
rangebound with stock specific activity. On the upside, if the Sensex manages to sustain above the 19650 level, it is likely
to test the 20157 followed by the 20576 level. The Sensex has support at the 18737 level followed by the 18419 level. If the
Nifty manages to sustain above the 5887 level, then it is likely to test the 6063-6082 level followed by the 6245 level. 5617
followed by the 5520 are important support levels for the Nifty.
Traders and speculators can buy MTNL with a stop loss of Rs.172 and a target price of Rs.200.
1
SEBI's proactive moves
By Fakhri H. Sabuwala
The father of "CHANGE", M. Damodaran's proactive moves provides the much needed support to erase any
apprehensions about the India growth story as reflected in Dalal Street. After tactfully handling the shrinkage of
Participatory Notes and restoring the confidence of both domestic and foreign investors, this SEBI chief is readying to
leave his imprint on the Indian capital market before he hangs his boots.
It is understood that SEBI is considering a proposal to introduce a uniform face value of Re.1 per share of all listed
companies. This proposal was mooted by SEBI's Primary Market Advisory Committee and shall come up for discussion
and approval at SEBI's next board meeting. The uniform face value of shares will make the on screen comparison between
scrips more meaningful. It will not only increase liquidity but also enhance the growth of the market by adding on values.
This move alone will give wings to hundreds of scrips which are
of Rs.10 face value today and are quoting at prices beyond Rs.500.
What a chance to improvise on your net worth!
SEBI in consultation with the Ministry of Finance is also planning
to introduce half a dozen new products in the derivatives segment.
Some of the new products are mini-contracts in equity indices,
equity derivatives and equity futures, a volatility index, a bond
index and an options contract with a life of three to five years
instead of the current three months.
Currently, the contract size is Rs.2,00,000 but the government is
likely to reduce it to Rs.40,000 to enable small investors to
participate in the derivatives segment. The volatility index, which
measures the fluctuation in the market, is also used to assess the
market risk. It will help participants to develop a sense of the
market whether there is too much optimism or fear in the market
and expectations of future volatility in the market over the next
one month. It seems that whenever the sentiment reaches an
extreme, the market typically reverses course. With the volatility index in place, investors can get a feel of the forthcoming
volatility.
While these contracts may see the light of day sometime later, the day is not far off when futures and options (F&O)
contracts will be settled by physical delivery of the underlying security or asset and not squared monetarily like today.
All these may make our bourses the first in the world to introduce so many variations with such a high degree of
transparency, making India a world class market.
The mid week surge in the Sensex to the highest ever single day rise could be attributed to the Left's right thinking and
resulting in the softening of their stance on the nuclear deal. It seems that the deal will get through with minor cosmetic
changes to save the face of the comrades. The impact of this development was immediately visible on NTPC, BHEL,
Areva, ABB, Siemens etc. which will be the key companies in developing nuclear power projects.
Although the India story looks good despite the politics and elections in some key states, the data coming from the
confederation of Indian Industries (CII) warrants us to think otherwise. Monetary tightening, an appreciating rupee and
an adverse effects of free trade agreements have pulled down industrial growth in as much as 17 sectors during the first
six months of the current fiscal.
The following is the broad summary of growth registered by respective segments/sectors.
Excellent growth (20% plus): Scooters, mopeds, electric fans, sponge iron, circuit breakers and transformers.
High growth (10% to 20%): Asbestos cement, pig iron, power cables, industrial valves, textile machinery, transmission
line towers, air conditioners and microwave ovens.
Moderate growth (10% or less): Cement, energy meters, ball and roller bearings, polymers, utility vehicles, refrigerators,
rubber footwear, bus and truck tyres.
Negative growth: Fertilizers, machine tools, capacitors, motorcycles and edible oils.
Balancing macro economics with micro happenings at Dalal Street, caution needs to be exercised and a partial booking of
profits and keeping cash ready for entry at declines and correction would be a prudent approach. Till then, ride the
volatility happily.
Baton passed on to mid-caps & small-caps
TRADING ON TECHNICALS
By Hitendra Vasudeo
The weakness that had loomed over the Mahurat Session last week
was shortlived. The Sensex dipped to 18333 on Monday and rallied
almost to its top. The recovery brought about a relief from a possible
scary fall.
2
The small-cap and mid-cap stocks took over comprehensively for the
first time during the calendar year 2007. The large cap and index stocks
had dominated for 3 quarters of the calendar year. The small-caps and
mid-caps made up for their underperformance of 3 quarters in a
Sixteen going on Seventeen!
This issue marks the advent of our 17
th
year.
In the sixteen years that Money Times has been
in existence, we have tried to be a Timely,
Tropical & Trusted guide to investors.
Whether we have been successful in meeting this
objective or not is for you to decide. It will be our
endeavour, however, to make Money Times more
meaningful and improve our coverage this 17
th
year. This is our pledge to you, dear reader.
- R. N. Gupta
Editor & Publisher
fortnight. Now, the small-
caps and mid-caps appear
to be at par with the out
performance of large-caps
and Index stocks as they
have receded in some
kind of a shell in the last
few days.
WEEKLY UP TREND STOCKS
The momentum battalion
was taken over by mid-
cap stocks and the broad
market indices, CNX
Nifty Junior and CNX
Midcap200 rallied to
make new highs whereas
Sensex
and
Nifty
struggled to make new
highs in spite of recovery
from
Let the price move below Center Point or Level 2 and when it move back above Center Point or Level 2 then buy
with what ever low registered below Center Point or Level 2 as the stop loss. After buying if the price moves to
Level 3 or above then look to book profits as the opportunity arises. If the close is below Weekly Reversal Value
then the trend will change from Up Trend to Down Trend. Check on Friday after 3.pm to confirm weekly reversal
of the up Trend.
Last
Center
Relative
Weekly
Up
Close
Point
Strength Reversal Trend
Scrips
Level 1 Level 2
Level 3 Level 4
Value
Date
Stop
Loss
Buy
Price
Buy
Price
Book
Profit
Book
Profit
JSW STEEL
970.00 724.3
877.3
937.7
1030.3
1183.3
58.9
942.5
08/31/07
UNITED SPIRITS
1958.00 1618.7 1833.7
1924.3
2048.7
2263.7
58.8
1902.5
10/26/07
INDIAN OIL CORP
618.15 378.4
528.7
589.5
678.9
829.2
58.8
518.5
11/02/07
INFO EDGE (INDIA) 1361.45 1185.3 1298.3
1348.2
1411.3
1524.3
58.6
1277.4
10/12/07
GUJ STATE PETRO
78.90 45.1
66.4
75.1
87.6
108.9
58.5
65.0
11/02/07
WEEKLY DOWN TREND STOCKS
Let the price move above Center Point or Level 3 and when it move back below Center Point or Level 3 then sell
with what ever high registered above Center Point or Level 3 as the stop loss. After selling if the prices moves to
Level 2 or below then look to cover short positions as the opportunity arises. If the close is above Weekly Reversal
Value then the trend will change from Down Trend to Up Trend. Check on Friday after 3.pm to confirm weekly
reversal of the Down Trend.
Last
Center
Relative
Weekly
Down
Close
Point
Strength Reversal Trend
Scrips
Level 1 Level 2
Level 3 Level 4
Value
Date
Cover
Short
Cover
Short
Sell
Price
Sell
Price
Stop
Loss
AVENTIS PHARMA 980.00
857.3
944.3
995.7
1031.3
1118.3
14.36
1045.75 07/13/07
I-FLEX SOLUTIONS 1415.00 1005.0
1265.0
1375.0
1525.0
1785.0
15.72
1466.25 10/12/07
AUROBINDO PHAR 522.70
424.1
495.6
540.1
567.1
638.6
16.05
548.36
11/08/07
SPICE TELE
49.25
41.6
46.5
48.8
51.5
56.4
17.81
49.82
11/08/07
INFOSYS TECHNO 1624.00 1362.7
1554.7
1677.3
1746.7
1938.7
17.90
1774.25 10/19/07
the low 18333 and 5477
for the Sensex and the
Nifty respectively.
The
weekly
trend
managed to remain up
last week. The Sensex last
week opened at 18640.52
and attained a low at
18333.21 and move up to
a high of 19887.71. It
finally closed the week at
19698.36 and thereby
showed a net gain of 756
points on a week to
week
PUNTER'S PICKS
basis.
The weekly trend is up
and will turn down on
fall below 18333 or if the
Friday weekly close is
below 19698.
Resistance will be at
19976-20350.
Expect
continuation of the
upmove on a further
breakout and close
above 20350. If that
happens, then expect a
rise towards 22000 at
least.
In case of a fall and
close below 18333, we
can expect a deeper
correction down to
17200-17000 at least.
Till the Sensex is above 18333, there is nothing to worry in the short-term apart from the volatility.
Note: Positional trade and exit at stop loss or target which ever is earlier. Not an intra-day trade. A delivery based
trade for a possible time frame of 1-7 trading days. Exit at first target or above.
Scrips
BSE
CODE
Last
Close
Buy Price
Buy On
Rise
Stop Loss Target 1 Target 2
Risk
Reward
AEGIS LOGISTICS
500003
216.85
211.00
220.50
176.10 247.9
292.3
0.76
ANDHRA PRADESH PAPER
502330
95.35
92.50
97.00
83.55 105.3
118.8
0.84
ANDHRA SUGAR
590062
89.55
87.80
93.40
82.60 100.1
110.9
1.51
APAR INDUSTRIES
532259
261.60
254.00
268.00
245.00 282.2
305.2
1.24
ASTRAL POLY TECHNIK
532830
139.05
130.50
144.80
123.00 158.3
180.1
1.20
BANCO PRODUCTS
500039
155.90
147.50
160.00
139.00 173.0
194.0
1.01
CITY UNION BANK
532210
242.90
237.10
246.35
234.55 253.6
265.4
1.29
EMAMI
531162
303.45
289.90
306.00
273.15 326.3
359.2
0.75
EXCEL CROP CARE
532511
117.20
115.00
124.70
107.00 135.6
153.3
1.81
IND-SWIFT
524652
29.15
28.45
30.10
26.05
32.6
36.7
1.11
KADAMB CONSTRUCTIONS 531784
40.95
40.90
42.90
37.10
46.5
52.3
1.44
KRBL
530813
90.20
89.10
92.50
82.50
98.7
108.7
1.10
UNIVERSAL CABLES
504212
104.70
98.60
109.70
92.00 120.6
138.3
1.26
3
For the CNX Nifty Junior,
the level of 10020 is an
important support and
similarly for CNX Midcap
200, 7178 is an important
support. Till these levels
are in tact, we can expect
the mid-cap rally to
continue. The gains
registered by mid-cap
in the last fortnight are
significant and have
made up for their
underperformance
in
the first 3 quarters of 2007 as compared to the large caps.
BUY LIST
Scrip
Last Close Buy Price Buy Price Buy Price Stop Loss Target 1 Target 2
Monthly
RS
BALLARPUR INDUSTRIES
163.00
154.16
149.93
145.69
132.00 190.0
225.9
64.37
DABUR INDIA
110.40
108.40
107.00
105.60
101.05 120.3
132.2
51.79
UCO BANK
51.35
47.85
46.10
44.35
38.70
62.7
77.5
66.28
UNION BANK OF INDIA
185.35
184.52
180.60
176.68
164.00 217.7
250.9
59.55
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly RS
AMTEK AUTO
447.90 454.7
466.0
477.3
514.00 358.7
46.25
NESTLE INDIA
1371.00 1454.1
1494.0
1533.9
1663.00 1116.1
48.54
TITAN INDUSTRIES
1517.00 1598.9
1629.5
1660.1
1759.00 1339.9
47.42
UNITED BREW.(HOLDING
1042.00 1122.4
1152.5
1182.6
1280.00 867.4
50.1
Fresh update on the Elliot Wave Count to get the broad market picture will be communicated next week.
Strategy for the week
Corrective dips to 19058 can be used for buying with a stop loss of 18333. For Nifty Futures the buying point will be 5709
or below with a stop loss of 5460. In case of a breakout and close above 6005, buy Nifty Future with low of the day as the
stop loss at the point of breakout. If that happens, then expect a rise towards 6581 at least in Nifty Futures.
The Sensex can go all the way to 22000 on a breakout and close above 20238. Select mid-caps with higher relative strength
and which offer a fresh breakout can be considered for buying. Monitor the CNX Midcap 200 low of 7178 as stop loss for
mid-cap stocks and 10020 for CNX Nifty Junior stocks.
* Kamanwala Housing may consider a bonus at its next board meeting and convert FCCBs at Rs.300 per share.
TOWER TALK
* Cinemax Ltd. will be completing 62 screens by December 2007 and extend its gaining zones to Tier-II cities.
* Ferro Alloys Corporation has started mining platinum and is in talks with the Platinum Corporation of India.
* K Sera Sera Productions may soon undergo a re-rating after a block deal in the offing materialises.
* Reliance Industries may face difficulties in executing projects in Iraq because of its pro-Kurdish approach.
* BPCL, HPCL, IOC, Chennai Petroleum, Bongaigaon Refineries, GAIL, ONGC have taken wings on likely
restructuring of duties on petroleum products. They are the most underpriced PSUs in today's market!
* FIIs rising interest in Ispat Industries shall see the counter cross the century mark.
* A record redemption of Rs.12500 cr. in October 2007 was due to the high volatility and festival season. This money will
flow back into the mutual fund industry soon.
* TCS and TECH Mahindra are the best contrarian plays form the tech segment recommends an investment banker.
* A domestic broking firm is known to be buying Bihar Tubes for their portfolio clients and has put a price target of
Rs.210 in a couple of months.
* Something is cooking in the Syncom Formulations counter. Scrip has hit three consecutive circuits of 20%. Don't exit in
a hurry.
* After hitting an all time high of Rs.13,000, the share price of Bombay Oxygen has again tumbled to Rs.8500 level
presenting a good opportunity to those who missed it earlier.
* After long, National Steel & Agro is showing strength on the charts. Scrip may zoom past Rs.50 mark in the short term.
Keep a close track.
* Some action is again building up in the cement sector. Anjani Portland is among the best bets and has the potential to
appreciate 50% from the current levels.
* ANG Auto is likely to clock an EPS of Rs.20 in the current year. With the management planning a buy back up to Rs.215,
there is lot of steam left for appreciation. A value buy.
* Cybele Industries (Qflex Cables) is up after a long time. The company has a joint venture with Vijayshanti Builders for
real estate development.
* I-flex Solutions is a value buy considering it has not put all its eggs in the US market and earns over 30% from the
European Market. Expect some pleasant surprises now that it has completed a major roll out of Citi's global market across
60 countries.
* The grey market premiums on forthcoming IPOs has again firmed up with Reliance Power at Rs.68, Mundra Port at
Rs.535, Varun Inds. at Rs.36, Barak Valley Cements at Rs.30, Kolte Patil at Rs.125, Religare at Rs.335, Empee Distilleries
at Rs.40, Renaissance Jewellery at Rs.35, Jyothy Labs at Rs.425, Kaushalya Infra at Rs.10 and Edelweiss at Rs.800.
4
* Proxy IPO application forms for Rs.1 lakh retail application are quoting Rs.7600 for Reliance Power, Rs.2500 for
Kaushalya Infra, Rs.3300 for Kolte Patil, Rs.2800 for Renaissance Jewellery, Rs.3400 for Jyothy Labs and Rs.4200 for
Edelweiss.
Vakrangee Software (Code: 511431)
Rs.156.35
BEST BETS
Incorporated in 1990, Vakrangee Software Ltd. (VSL) is a leading provider of complete document and data management
solutions encompassing large-scale data capturing & management, scanning, digitization and printing. It has three
business segments, viz. - document management services, printing management services and IT enabled services catering
to various verticals like the central and the state governments, banking and financial services industry, telecom, power,
retail, aviation and others. Importantly, VSL has the largest scanning and variable data printing capacity in India with 5.6
million pages per day and 2.4 million pages per day respectively. Besides, the company is a pioneer in multi-lingual
application software and has developed versatile document management software, which can be used in 13 regional
languages. After its Voters Identity Card software, Electoral Roll software, Voters Data entry package, Cyber Saver etc,
the company is now in an advanced stage of developing Human Capital Management software and School ERP software,
which have a tremendous potential in the domestic market. Currently, VSL derives 75% of its revenue from government
business while the balance comes from the private sector. Thus, its clientele comprises various election divisions,
government & semi-government organizations, public authorities & local bodies, business associates and other private
organizations.
Earlier, VSL was mainly into election commission work and database management but now the focus of the company is
on e-Governance including document management projects and printing management projects. It boasts of successfully
completing the land record digitization project of Ghaziabad Development Authority (GDA), digitization of patent
records at the Indian Patent Office, Public Facilitation Office under MCA-21 and various other election projects for the
states of Maharashtra, Rajasthan, Chhattisgarh, Gujarat & UP. It has around 25 delivery centres in major cities across
India. Apart from being an outsourcing partner to TCS & CMC, it has a tie up with Godrej & Boyce for jointly executing
large election related projects at the national and state level. In December 2006, VSL imported the world's fastest printing
system - Kodak Versamark VT3000, which can print customized design from page to page. This machine has not only
helped the company to execute all election commission related work in house but also enabled it to attract business from
the emerging opportunities like printing documents (including bills) for telecom companies, electricity supply companies,
retail groups etc. Recently, it has entered into a strategic alliance with Eastman Kodak company to offer mass
customisation & personalization of customer communication practices in India and has been granted with the Kodak
Gold Plus accreditation status. Maintaining records and issue of voter's identity card for Maharashtra, MP, UP, Gujarat
etc is an ongoing process for the company. For TCS, it is doing Registrar of Companies database management at 32
locations. VSL presently has an order book of Rs.175 cr. to be executed over the next one year.
Today, e-Governance is the fastest growing business opportunity as well as a major social responsibility initiative in
India. It is further fuelled by the implementation of Right to Information Act (RTI) by the Government of India, which
makes it mandatory for all government departments to have all the information in digital form. This includes not only
conversion of historical data but also to keep present as well as future information in digital form. In view of the
innumerable ministries, departments, offices at centre and state levels and other authorities, e-Governance has emerged
as a huge opportunity for the IT industry in general and for VSL in particular. On the back of stunning performance for
Q2FY08, it may end FY08 with total revenue of Rs.200 cr. and PAT of Rs.40 cr. i.e. EPS of Rs.19 on its fully diluted equity
of Rs.21.40 cr. Interestingly, despite doing low skill work, the company enjoys an OPM of more than 40% and NPM of
20% consistently. Accordingly, for FY09 it can post an EPS of Rs.26-28. So at a reasonable discounting by 12 times against
the FY09 earnings, the scrip has the potential to touch Rs.320 (i.e. 100% return) in 15-18 months.
Stone India (Code: 522085)
Rs.135.35
Incorporated in 1931 and a part of well known Duncan Goenka group, Stone India Ltd (SIL) is a multi-product
engineering company serving the Indian railroad industry for over seven decades. Being a pioneer in the brake systems
and train lighting alternators, SIL is the undisputed leader in locomotive brakes systems and has a huge range of
mechanical and electrical products for the railroad industry. It also manufactures few critical products for defence tanks
and armoured vehicles. Currently, it generates about 90% of its revenue from the railways and has a market share of
about 25-30%. Broadly, the company has segmented its product profile into the following three categories:
Carriage Business Group: SIL manufactures and deals in pneumatic equipments like distributor valves, brake cylinders,
angle cocks, dirt collectors, hoses, slack adjuster apart from compact air braking system of carriage & freight stock for
railway rolling stock operation. Recently it has developed its own patented beam mounted brake system for all types for
freight wagons.
5
Locomotive Business Group: Produces & markets brake systems, centrifugal lube oil filter and regenerating type
'Vaporid' air dryers for Diesel and Electric Locomotives. In addition, it specializes in conversion of vacuum to air brake
system in locomotives.
Train Power Business Group: Manufactures and supplies brushless alternators, electronic rectifier regulators and
pantographs. Alternators are actually power generators used in coaches and pantographs are used in the electric
locomotives & electric multiple units (EMUs) to draw power from the overhead traction.
To diversify its product portfolio, it has set up a greenfield facility at Nalagarh, Himachal Pradesh, which is likely to go
on stream in this fiscal itself. Besides, it intends to put up a third plant somewhere in the South. As the company
manufactures sophisticated and critical components involving high precision and accuracy, it has collaborated with
several global industry leaders for its high technology products. Faiveley S.A. of France, SAB of Sweden, WABTEC
Corporation of USA, SAB WABCO of France etc are some to name a few. Of late, SIL has also ventured into railway
electronics with the introduction of a slew of high value power electronic products like inverters, converters and power
supply system for coaches, locomotives, EMUs and metros. Accordingly, it has launched a technical collaboration with
SMA Technologies AG, Germany for producing 180 kilovolt-amps (KVA) auxiliary power converters for railways. The
other product of this new division viz. end of train telemetry device has also been approved by the railways. Earlier, SIL
had entered into an exclusive understanding with ZRJC, Guangzhou, China for manufacturing & supply of air
conditioning system along with microprocessor based control systems for passenger coach rolling stock and metro
coaches.
In order to de-risk its business model, SIL is looking to increase its revenue from projects & services for which it is
executing a huge order for refurbishment and upgradation of 1115 wagons from the Ministry of Defence. Notably, it is the
only private company selected to execute this order, which was earlier done by the Indian Railways. Moreover, the
company has already entered the Asian rail market and has appointed Telewira Tegas SDN BHD, Malaysia, as an
exclusive agent for turnkey project work relating to freight car, passenger coach and locomotive upgradation and
maintenance for Malaysian Railways. It has also been exporting air brake systems to an internationally reputed wagon
manufacturer in China. And importantly, SIL has recently partnered with the Sumitomo group of Japan to gain technical
know-how for manufacturing of air springs which are technically far superior to the existing mechanical suspension
system.
To conclude, the ongoing major restructuring of Indian Railways and large capacity expansion of its network augurs well
for SIL which is well poised to take on all the future opportunities in line with its strength & core competencies. Hence,
SIL will continue to grow at a scorching pace in future as well. For H1FY08, sales grew by 60% to Rs.41 cr. and net profit
increased by 70% to Rs.6.90 cr. Despite such excellent performance, its share price has tumbled down sharply from a high
of Rs.220 in December 2006 to the current level. This may be because of the delay in commencement of its new plant in
HP and also due to the fact that in April 2006 warrants holders didn't exercise their right to convert 14,32,000 warrants
even at a low of price of Rs.97 after the allotment in 2005. For FY08, the company is expected to register sales of Rs.100 cr.
with PAT of Rs.13.50 cr. i.e. EPS of Rs.18 on its equity of Rs.7.60 cr. Investors are strongly recommended to buy at current
levels with a price target of Rs.220 (i.e. 60% appreciation) in a year's time.
Ramsarup Industries Ltd.: Wired for growth
ANALYSIS
By Devdas Mogili
Ramsarup Industries Ltd. (RIL), a 28-year old Kolkata based company belonging to the Ramsarup Group was established
in 1979. The other group companies include Ramsarup Loh Udyog Ltd. and Ramsarup Vyapaar Ltd. The company has
five units - Ramsarup Industrial Corporation, Ramsarup Utpadak, Ramsarup Vidyut, Ramsarup Infrastructure and
Ramsarup Nirman Wires.
RIL's manufacturing facilities are located at Kalyani, Durgapur and Shyamnagar in West Bengal. Ashish Jhunjhunwala is
the chairman and managing director of the company.
With a view to consolidate its position in the power and infrastructure sector, the group is enhancing the capacity of its
Steel Wire division and the TMT division. The group already has an established brand 'Ramsarup', which is widely
accepted in the power and infrastructure sector for its consistent quality.
RIL primarily caters to Power, Housing & Construction, Roads & Bridges, Water Management, Railways and Defence
sectors. Power, however, is its major thrust area with almost 40% of the topline coming from this sector; Housing &
Construction contributes 20%, Roads & Bridges 10%, Water Management 10%, Railways 5%, Defence 5% and others 10%.
RIL manufactures a complete range of G1 wire from 4 to 24 gauge. It is the only company that offers the complete range
from 8 mm to 40 mm manufactured by the Thermex Technology. The company has plans to invest in the manufacture of
low relaxation, pre-stressed concrete (LRPC) stranded wires with a production capacity of 30,000 MTA.
6
Project Execution: RIL is already executing orders in Rajasthan and West Bengal for power transmission. Its
infrastructure division derives revenue from execution of laying of power transmission lines in Rajasthan and contracts of
Indo-Bangladesh border fencing, which is expected to grow significantly.
Capex Plans: RIL is in the process of increasing its wire capacity from 2,35,000 MTA to 6,00,000 MTA by 2010 consisting
of LRPC and other special grades of wires. The Ramsarup Group is planning to produce various downstream wire
products by way of value addition in the power and infrastructure sector. The capex for the project is expected to be
approximately Rs.375 cr. (US $18.88 million) and the company has acquired 60 acres land in West Bengal. The major plant
and machinery is being imported from Italy. The company is also in the process of increasing the production of TMT bars
from 87,000 MTA to 1,80,000 MTA to cater to the growing demand.
During FY07-08, the company will commence the manufacture of Low Relaxation Prestressed Concrete wires with an
installed capacity of 30,000 MTPA. This product expansion strategy will enable the company to derive increased
business from its existing wires and TMT clientele.
Low Relaxation PC Stranded wires are extensively used in pre-stressed concrete girders for roads, river and railway
bridges and flyovers, pre-stressed atomic reactor domes, slabs, silos, hangars, aqua ducts, high rise buildings,
viaducts and railway sleepers.
Projections: RIL is on track to produce 6,00,000 MT of steel wires by 2010 from the current level of 2,25,000 MTA.
Performance: The company has reported very encouraging results for FY07. It posted a sales turnover of Rs.1306.03 cr.
with a net profit of Rs.43.56 cr. netting an EPS of Rs.24.76.
Financial Highlights:
(Rs. in lakh)
Latest Results: For Q2FY08, sales rose
21.99% to Rs.331.96 cr. as against
Rs.272.12 cr. during Q2FY07. Net profit
shot up by 80.17% to Rs.14.72 cr. in
Q2FY08 as against Rs.8.17 cr. during
Q2FY07. The company recorded a
basic/diluted EPS works of Rs.8.38 and
the annualized EPS works out Rs.33.52.
Particulars
QE 30/09/07
QE 30/06/06
YE 31/03/07
Sales/Contract Receipts
33195.94
27212.14
130602.75
Other Income
-
-
3.57
Total Income
33195.94
27212.14
130606.33
Expenditure
a. Dec/Inc in Stock
(6489.02)
(394.52)
(6801.34)
b. Raw Material
33721.21
24192.27
120801.67
c. Emp Cost
340.46
265.87
1117.44
d. Power & Fuel
608.23
506.80
1938.98
e. Other Exp
1454.56
808.70
4147.25
Financials: RIL has an equity base of
Rs.17.50 cr. with supporting reserves of
Rs.164.71 cr. and the book value of the
share works out to Rs.104.
f. Total Expenditure
29635.44
25379.12
121204.00
Operating Profit
3560.50
1833.02
9402.31
Interest (Net)
909.06
414.10
2111.88
Depreciation
388.44
271.00
1134.33
7
Share Profile: The shares with a face
value of Rs.10 are listed and traded on
the BSE and NSE under the B1 segment.
Its share price touched a 52-week high of
Rs.250 and a low of Rs.105. At its current
market price of Rs.232, it has a market
capitalisation of Rs.407 cr.
PBT
2253.00
1147.92
6156.10
Prov for taxation
- Current year tax
775.00
440.00
1955.00
- FBT
2.75
4.00
8.32
- Deferred tax
3.00
(113.00)
(163.40)
PAT
1472.25
816.92
4356.19
Paid up equity capital
1750.44
1750.44
1750.44
Reserves Exc Rev Reserves
-
-
16471.31
Basic/Diluted EPS (Rs)
8.38
4.64
Dividends: The company has been paying dividends as shown below:
24.76
FY07 - 20% and FY06 - 20%.
Prospects: The Ministry of Power, Government of India (GoI) has envisioned 'Power for all by 2012'. Again, the GoI
initiative to provide housing for all by 2020 augurs well for infrastructure players like RIL. Following the ambitious plans
of the GoI, India is likely to generate additional 1,00,000 MW of power by 2012 and Power Grid Corporation of India
(PGCIL) to add 60,000 ckm of Transmission Network in India by 2012, which will result in India's power capacity to
double by 2012.
The company will soon undertake projects for laying down transmission lines through its fourth division 'Ramsarup
Infrastructure'. The company is already registered with PGCIL, APRDP and with almost every State Electricity
Board in the country.
Moreover, as the company is already producing wires for transmission lines and TMT and has plans for manufacturing
structurals, it will be logical to commence the fabrication of transmission towers and laying down transmission
lines.
In addition, the company has undertaken Feeder Renovation Works under Jodhpur Discom, which would enable inter
regional transfer of power and will eventually lead to power trading and will require major transmission line network.
About one-third (30,000 MW) of the power generated in India is transmitted through PGCIL. It is the central
transmission utility of the country, the nerve centre of the power sector in India and one of the largest transmission
utilities in the world. As of March 2006, Power Grid had operations in more than 55,000 ckt km of transmission
lines and 93 substations with a transmission system availability of more than 99 per cent consistency through the
deployment of best operation and maintenance practices at par with international utilities. Power Grid is likely to
invest Rs.700 billion till 2012 to support an additional generating capacity of 1,00,000 MW, adding 60,000 ckm of
transmission network during the period.
Further under the Accelerated Power Development and Reforms Programme (APDRP) APDRP scheme, the government
plans to invest Rs.40,000 cr. to strengthen the country's transmission and distribution systems.
Conclusion: The Ramsarup group is among the fastest growing catering to the power and infrastructure sector in India
and aims to consolidate its position in power and infrastructure sector by initiating steps towards organic and inorganic
growth. The total group turnover was over Rs.1600 cr. (US $390 million) in 2006-07 which is expected to be over Rs.2000
cr. (US $488 million) during 2007-08 with net worth of Rs.400 cr. (US $98 million) and Rs.500 cr. (US $122 million)
respectively.
The share at its current market price of Rs.219 is discounts earnings less than 7 times against the industry average P/E
multiple of 12. Assuming a modest P/E multiple of 10, the scrip has the potential to race towards the Rs.335 mark in the
short-to-medium-term. With the power and infrastructure sectors being the current flavour of the season, the discount
seems to be very conservative and one can easily expect higher discounting going forward. The RIL scrip is wired for
growth and investors can expect decent profits in the medium-to-long-term.
8
The Sensex bounces back
MARKET REVIEW
By Ashok D. Singh
The Sensex jumped 790.76 points or 4.18% to 19,698.36 for the week ended Friday, 16 November 2007. The NSE Nifty rose
243.6 points or 4.3% to 5,906.85 for the week.
Disappointing industrial production data for September 2007 pulled down the markets at the start the week. But they
rebounded with a bang on easing political worries and gained 893.58 points or 4.69%, the highest ever single day gain on
Wednesday, 14
th
November'07. It later pared gains on profit-bookings as the US sub-prime mortgage crisis continued to
haunt global equity markets.
The BSE Small Cap index rose 623.85 points or 6.39% to 10,380.73. BSE Mid Cap advanced 498.75 points or 6.22% to
8,512.38.
The BSE Auto index up 1.47% to 5,284.01, BSE IT down 2.21% to 4,159.12, BSE Metal index up 3.76% to 17,498.20 and BSE
Realty up 4.07% to 10,521.84 underperformed the Sensex.
The BSE Bankex (up 7.74% to 11,003.05), BSE Capital Goods index (up 5.02% to 20,643.71), BSE Power index (up 4.66% to
4,591.97) and BSE Oil & Gas (up 7.26% to 12,479.56) outperformed the Sensex.
The BSE Sensex ended down 170.33 points or 0.90% to 18,737.27 on Monday, 12 November 2007. Disappointing industrial
production data for September 2007 and weak global markets weighed on sentiments. Realty, IT and oil & gas stocks were
major contributors in decline. FMCG, power and PSU stocks ended higher.
The 30-share BSE Sensex rose 298.21 points or 1.59% to 19,035.48 on Tuesday, 13 November 2007. The market surged on
value buying after a sustained slide over the past six days in a row. Reports that the Left front may allow the government
to negotiate safeguards for a civilian nuclear agreement with the USA aided the surge. Volatility was high throughout the
trading session. Infosys edged lower in volatile trade. Banking, capital goods and power stocks edged higher.
The 30-share BSE Sensex ended up 893.58 points or 4.69% to 19,929.06 on Wednesday, 14 November 2007 and registered
the highest intra-day absolute gains on the
back of strong global cues and huge gains in
index heavyweights Reliance Industries and
ICICI Bank. Banking, oil & gas, IT and metal
stocks were star performers. The market
spurted as worries about the US credit crisis
eased after several top US executives
reassured investors that the US banking
system could withstand shocks from credit-
related losses.
The 30-share BSE Sensex lost 144.17 points or
0.72% to 19,784.89 on Thursday, 15 November
2007. The market sentiment was cautious due
to persistent worries that more fallout from
the US housing downturn and US credit
crunch lies ahead, as stocks dropped across
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Asia. Weakness in banking, IT and power stocks pulled the Sensex down 205.86 points for the day at one point of time in
the day to a low of 19,723.20.
The 30-share BSE Sensex ended down 86.53 points or 0.44% at 19,698.36 on Friday, 16 November 2007. The market
swayed between gains and losses throughout the trading session.
Annual inflation, based on the wholesale price index, moved up 3.11% in the week ended 3 November 2007 compared to
a rise 2.97% in the week ended 27 October 2007. The market estimate was 2.97%. The annual inflation rate was 5.45% in
the corresponding week of the previous year.
The government on Tuesday, 13 November 2007 estimated India's growth to be 8.5% in FY 2008 as its macro-economic
fundamentals were favourable for a sustained, rapid and more inclusive economic growth.
The Index of Industrial Production rose 6.4% in September 2007 compared to 12% growth in September 2006. IIP growth
was 9.2% in April-September 2007 compared with 11.1% growth in April-September 2006.
Six core infrastructure industries edged up 6% in September 2007 as against 10.6% in September 2006. The growth rate
slowed down 6.6% in April-September 2007 from 8.7% in in April-September 2006.
The Centre's excise duty collections rose 14% at Rs.10293 cr. in October 2007 from Rs.9066 cr. in October 2006. Customs
duty collections jumped 25% at Rs.9353 cr. in October 2007 as against Rs.7503 cr. in October 2006.
Finance Minister P Chidambaram, in Economic Editors' Conference in New Delhi (Tuesday, 13 November 2007),
cautioned that the pressures on consumer prices continued due to rising international oil, food and commodity prices.
The sharp deceleration in the consumer goods segment has pulled down the overall industrial output.
The board of Securities & Exchange Board of India (Sebi) on 14
th
November 2007 approved launch of a number of new
derivative products to provide investors a wide range of risk mitigation products and create more activity in the onshore
market. The products will relate to mini-contracts on equity indices, options with longer life, volatility index and F&O
contracts, options on futures, bond indices and F&O contracts, foreign exchange F&O and introduction of exchange-
traded products.
US Futures Exchange has entered into an exclusive licensing agreement with Bombay Stock Exchange (BSE) to list the
dollar-denominated Sensex futures on the BSE, which will allow US investors to directly trade in India's equity market.
Foreign institutional investors resumed buying in the equities after being heavy sellers initially in the month. They bought
shares worth net Rs.788.40 cr. on Thursday, 15 November 2007, compared to their buying of Rs.952 cr. on Wednesday, 14
November 2007.
On the political front, the Left has allowed the USA coalition government to speak to the International Atomic Energy
Association (IAEA). However, the Left wants its prior approval before signing the safeguards. The nuclear deal will be
discussed in the Lok Sabha on 27 November 2007.
Banking and Power stocks declined. Cement and consumer durables stocks were in demand. ITC surged and rose 21.46%
to Rs.205.15 in the week on reports that it has approached Parle Products to buy out the latter's confectionery business.
Reliance Industries rose 5.12% to Rs.2,875.70 in the week after it executed two production sharing contracts covering
petroleum exploration activities in the Kurdistan region of Iraq. Further, its wholly owned subsidiary signed a production
sharing agreement with the government of Oman for offshore block number 41 in Oman.
HDFC was up 7% to Rs.2,700 on reports that the company has received a premium commitment of Rs.170 cr. from
German insurer Ergo for the latter's 26% stake in its non-life insurance company.
State Bank of India rose 7.54% to Rs.2,325.60 in the week on reports that the Union Cabinet is likely to take a call by 22
November 2007 regarding the bank's proposed plan to raise about Rs.18,000 cr. through a rights issue. HDFC Bank (up
9.68% to Rs.1,687.15) and ICICI Bank (up 6.69% to Rs.1,219.45) also gained among the Sensex pack.
Tata Steel gained 1.1% to Rs.843.20. The company is raising Rs.9135 cr. from a rights issue of equity shares and convertible
preference shares. The rights issue of equity shares is in the ratio of 1:5 priced at Rs.300 per share. The issue opens on 22
November 2007 and closes on 21 December 2007.
Larsen & Toubro soared 5.98% to Rs.4,375.85 after its consortium won an order worth Rs.580 cr. from state-run SAIL to
rebuild one of its blast furnaces.
The Sensex gained 790.76 points to close at 19,698.36 last week. The market has been volatile over the past few days on
concerns over the impact of the US sub-prime mortgage problems on the US economy. These concerns may continue to
cast their shadow on the markets in the weeks to come. On the thither side, foreign institutional buyers are showing signs
of renewed buying. The outcome of the government-Left front nuclear deal will dictate the trend on the bourses in the
start of the week.
It's time for mid caps and small caps
MARKET
By G. S. Roongta
9
The stock market bounced back on Wednesday, 14
th
November 2007 after making the kind of correction that I was
looking for over the past 2/3 weeks as expressed in my earlier articles.
In last week's article, I had observed that both the corrections as well as the bull market are likely to
continue. Both things happened simultaneously as the BSE Sensex completed its corrective phase by
shedding nearly 1900 points from its peak of 20,238 on 30
th
October 2007 to as low as 18,333 on Monday,
12
th
November 2007 and the first trading day of last week. This indicates that the market volatility is very
high as the Sensex has seen an up and down movement of 4000 points in just 12 trading sessions. This
sharp volatility, unseen ever before, in week traders whereas day traders found it fun as they had plenty
of trading opportunities everyday.
In my last article, I had summed up the situation in one paragraph, which encapsulates the current market situation and
is reproduced below:
"By all means let us be bullish but not foolish to keep on adding 1000 points at each successive interval so fast that the
market is unable to digest properly."
Had the 1000 point journey of the Sensex from 19K to 20K been not so brisk, no panic would have set in like last Monday
for it to nosedive equally sharp by nearly 2000 points so soon. Thus the rise of 2200 points from 18K to 20.2K was
corrected by nearly 100%. This is what prompted me to headline my article two weeks back as 'Prepare for jerks and jolts'
after the sharp rise of the BSE Sensex to 20K and keeping in mind the fast pace at which it achieved this high point.
Since the market has fully corrected its rise upto 20K, its single day, intra-day rise of 952 points on Wednesday, 14
th
November 2007, which is a new record for a single day rise, has convinced me that the ongoing 3-year old bull market is
likely to continue and we are sure to see new intermediate peaks.
G.S. Roongta
Readers should be happy at my prognosis about the need for the bull sentiment to spread to mid-cap and small-cap
stocks for a real bull market. This has come to pass as both the mid-cap and indices are now racing fast neck to neck and
definitely much stronger than the benchmark Sensex or Nifty in percentage terms. The table highlighting the
performances of the different indices underscores what I have indicated earlier and has come to pass.
The advance-decline ratio on
14
th
November 2007 was 8:1 and
as high as 3:1 on subsequent
days. With 3 times more
advances than declines also
suggests that the mid-cap and small-cap stocks have started reviving. The list of upper circuits in both these segments has
started widening. This is the true bull market that I had envisioned even though the large-caps have taken a backseat of
late. But since they have already enjoyed a sharp run up and led the bull charge, its only natural that they take respite
while the energy flows in to the lower ranks, which are far more in numbers and identified with common investors. They
can be analysed sectorwise but space does not permit to go into all of them and I will confine myself to a few select
sectors.
Date
S&P CNX Nifty
BSE Sensex
CNX Nifty Junior
CNX Nifty Mid Cap
12/11/07
5617
18737
10304
7309
13/11/07
5695
19035
10557
7453
14/11/07
5938
19929
10850
7689
15/11/07
5912
19785
11015
7855
16/11/07
5906
19698
11131
7949
In the steel sector, Uttam Galva, Sunflag, Essar Steel, Ispat Industries, National Steel & Agro and Sathvahana Ispat have
each hit a new 52-week high. Readers may recall that all these stocks were recommended for investment in this column
earlier.
Groupwise, Essar Oil has been a star performer while Essar Shipping has also recorded good gains. Hence those who
were dissatisfied with my recommendations of Essar Steel and Essar Shipping can now relax and book profits if they wish
to although I foresee higher share price levels, as indicated earlier based on the prevailing fundamentals.
Eimco Elecon hit a new high of Rs.680 appreciating by over 250% in just six months. Graphite India hit a new high of
Rs.80 and was recommended in this column about a month back. Both Essar Steel and Essar Shipping were in the 20%
upper circuit lock and hit an all time high over the past decade. These movements only confirmed what I have been
strongly observing all through viz. that good fundamentals and strong book values are bound to prevail one day and
cannot be ignored for long.
Uttam Galva, Essar Steel, Essar Shipping, National Steel & Agro etc. will fall in line with Jaypee Associates, Orient Paper
etc. as referred by me in my article a week back and no one can deny them their legitimate place in the market if they keep
on repeating their performance year after year.
All stocks were neglected so far because of the rise in crude oil prices but are reviving now because of the reaction in
crude oil prices and the restructuring of duties on petroleum products levied by the government. This has led to re-rating
of the sector. HPCL, BPCL, IOC, Chennai Petroleum, Bongaigaon Refineries etc. have risen sharply gaining 5% to 6% rise
while the BSE Sensex remained in the red.
Cement stocks are down and available 10% to 25% cheaper from their recent peak values despite the Sensex reverting to
its recent peak. I think it's a good opportunity to buy cement stocks and strongly recommend it to investors to buy them
this week for a quick gain. Those who book profit in cement stocks can also buy back for further gains.
10
ACC, which had hit a high of Rs.1319 is now traded between Rs.1015 to Rs.1050. Grasim which had hit a high of Rs.4051
is available 10% cheaper at Rs.3600. Shree Cement which had hit a high of 1700 is cheaper by 20% and traded between
Rs.1350 to Rs.1400. Similarly, India Cements, Ultra Tech, Kesoram and all other Cement stocks in B1 and B2 categories are
available at attractive prices today.
Automobile stocks are also available below 20% to 25% of their peak values. Bajaj Auto, Hero Honda in two-wheelers,
M&M, Tata Motors, Maruti in four-wheelers look cheap and a good bargain at current prices.
Tata Tea is yet another good pick. So also, Greaves Ltd. which is available 30% lower to its all time high of Rs.480.
Elecon Engineering is now ex-bonus and is a good buy at the current rate of Rs.250.
One should, therefore, make a study of all mid cap and small cap stocks to review one's investment. Those who were
feeling uncomfortable in mid caps and small caps must bring their investment back in these segments and profit by
letting them run to higher prices.
DSP Merrill Lynch Fund Review – Part II
By Devangi Bhuta
This week we will undertake a fundamental check on DSPML Opportunities Fund and DSPML India T.I.G.E.R Fund.
Performance Snapshot:
(Source: October 2007 Factsheet)
DSPML Opportunities Fund:
FUND ANALYSIS
Schemes
DSPML Opportunities Fund
The fund's objective is to generate
long term capital appreciation. Its
sector wise allocations, the top three are Industrial Capital Goods, Banking and Software, of which the last segment
appears to be the reason for its underperformance as software stocks have largely underperformed the market. The
scheme is holding onto most of the stocks while looking for new opportunities. For example, it has invested in Power
Grid Corporation and Motilal Oswal Financial Services of late. That apart, majority of its portfolio appears to be in large
cap stocks. This scheme is less risky compared to sectoral funds although it appears at this point in time that there are
better managed funds in the diversified equity category.
DSPML India T.I.G.E.R Fund
1 year Returns
54.32%
81.31
Benchmark Returns
57.60% (S&P CNX Nifty)
57.36% ( BSE 100)
DSPML India T.I.G.E.R (The Infrastructure Growth and Economic Reforms) Fund:
One of the better performing schemes amongst the entire spectrum of Mutual Fund offerings, this scheme appears to be
deriving its high performance from the capital goods sector (17.87% allocation) and the construction space. Besides, stocks
from sectors in which it is invested like banks, petroleum products, ferrous metals and power have performed well. Very
clearly, it is a proxy to the India growth story as the sectors it invests in are directly dependent on the macroeconomic
parameters.
The scheme is diversified across large and mid-cap companies and has a well-diversified portfolio across sectors and
stocks. It holds on to the stocks and appears to have good picks. To site an example, it has recently invested in the
financial services space like Motilal Oswal and Reliance Capital, which are the current flavour of the market.
Those with a strong conviction in the macroeconomic parameters of Indian economy may consider an exposure albeit at
declines. Investors also need to keep in mind that investments hereon, will be at a higher risk considering the sharp run
up in the markets.
"We have consistently outperformed the industry"
CORPORATE
- Bhagirath Arya, CMD, JBF Industries Ltd.
JBF Industries Ltd. began operations in 1982 as JBF Synthetics, a private limited company, by installing
just two Texturising units at Silvassa. The company went public in the year 1986 and rechristened itself
JBF Industries in the year 1989. Continuous capacity additions led to it emerging as one of the largest
independent texturising units in 1996. JBF then embarked upon two major backward integration
projects for the production of its main feed raw materials viz Polyester Partially Oriented Yarn [POY]
in the year 1995 and Polyester Chips in the year 1998.
Mr. BC Arya, Chairman and Promoter, JBF Industries is a technocrat with over three decades of
experience in the textile industry. A BTech (Electrical) by qualification, he takes all key strategic and
policy decisions in the company.
In an interview with India Infoline, Mr. Arya strikes an optimistic note.
Brief us on your latest financials.
The financial results have met our internal expectations.
The Company achieved net turnover of Rs.1026 cr., EBIDTA was Rs.137 cr. and PAT stood at Rs67.38 cr. for the first half
ended 30th September 2007. The EBIDTA is 13.4% and net profit is 6.5% of the net sales turnover.
11
Tell us more about your exports.
The company has achieved substantial growth in export sales turnover of Rs115 cr. for the first six months as against
Rs.44 cr. for the corresponding period in the previous year. This trend is expected to continue during second half of the
year. However, our total exports is not more than 8 – 10% of total revenue as the domestic market is remunerative and
growing at about 12% pa.
What is your current market share in the polyester chip segment?
We command a market share of over 55%
What is your current capacity and utilization? Besides UAE, any other global plans?
We are working at an average of over 90% capacity at our Sarigam and Silvassa plants. Our UAE plants have recently
started commercial production for PET Grade chips. We expect the second phase to commence production by December
2007 / January 2008. The company will consolidate its working in UAE and then look at further opportunities in the
international market.
By when do you plan to increase stake in your UAE venture. How would it be funded?
We will increase stake over a period of time.
Power and fuel are among the known advantages in UAE. What are the other advantages in UAE?
The three major advantages are:
a) Ras Al Khaimah (RAK) is the first port of call for shipping lines entering the Gulf region and it has a robust shipping
infrastructure which is accessible for exports to USA and European markets.
b) Raw materials are available in plenty in the region as all the major MEG, PTA plants are in and around the area.
c) No tax.
In your Sarigam plant you switched to gas. What kind of savings has it brought?
We expect power cost to be Rs.3 per unit as against government power of above Rs5 per unit.
What trends do you see in raw material prices? Are you worried by these price movements since you manage to pass on
the costs to your customers?
With the decrease in excise duty and increase in cotton prices there is enough room in POY pricing to pass on any
increase to customers. Typically, POY prices match increase in raw material prices. Margins remain the same.
12
What growth do you see for the textile
sector, especially in the synthetic market?
The potential is immense. There is a
growing demand for fabrics in the domestic
market as well as for exports. With the
increasing cost of cotton and limitation to
its cultivation, POY is the only synthetic
fibre that is viable in the Indian market. We
see a growth of 12 to 13 %.
Tell us more about your subsidiary JBF
Global Pte. You had an investment from
Citigroup Venture Capital.
JBF Global Pte is a Special Purpose Vehicle
(SPV), a subsidiary of JBF Industries created
with the specific purpose of being a holding
company for our initiatives in the global
market. To begin with, JBF- RAK will be a
part of JBF Global.
How does India compare with other
countries like China in the segments you
operate?
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* Four quarterly buys every half-year before the new quarter starts
* One yearly pick on the first of January
We are way behind China in every aspect
be it consumption or capacity. We have a
lot of catching up to do. China has capacity
of 20 MMTA as against India's capacity of
about 3 MMTA.
Do you see an increasing shift towards
non-cotton textiles? What trends are you
witnessing in the industry?
It is a necessity. There is a limit to arable
land available for cotton production. The
To subscribe contact Money Times on moneytimes@vsnl.com or 022-22616970
increasing demand for clothing and the newer usages will have to be met by synthetics and more so by POY. Synthetic
has advantage as it is more durable than cotton and easy to maintain. With the reduction in excise and customs duties, it
has now become cheaper than cotton.
To what extent are you impacted by currency fluctuations and crude oil prices?
Present currency fluctuations do not affect us adversely while the crude price effects us secondarily not directly. The
prices of raw materials are on international parity and depend on availability.
Is there a demand supply mismatch in polyester chips still? How long do you expect it to continue?
Yes. There is a significant demand supply mismatch. We are closing that mismatch soon and hence gaining market share.
We hope to bridge the complete gap.
What are the constraints to increasing capacity? How long do you expect capacity constraints to last?
There are no constraints in increasing capacity. It is planned on the basis of market needs. We have recently increased the
capacity of all our plants.
In Partially Oriented Yarn you had around 7% market share. What is it at present? How much do you hope to increase it
to?
It is around the same. The pie size is increasing and hence we are growing and happy with the growth
Tell us more about your expansion drive?
Our domestic expansion involved increasing capacities in POY and polyester chips. Our Polyester Chips expansion in
Sarigam should be completed by the second half of 2008. We are doubling capacity by adding 216,000 MTA our existing
capacity of 2,16,000 MTA.
What is your dividend policy and message to shareholders?
The company intends to distribute at least 25 – 35% of available profit by way of dividend. We thank our shareholders for
their support and will work hard to be true to their faith in us. We have consistently outperformed the industry through
judicious use of resources, good project management and focus on core competence. We have delivered as per
expectation and are happy to see our shareholders generate wealth through their investments in our company. We look
forward to their continued support.
(Courtesy: www.indiainfoline.com)
By Saarthi
STOCK WATCH
A few months back, Ind-Swift Labs Ltd. (Code: 532305) (Rs.56.95) received the USFDA approval for its active
pharmaceutical ingredient (API) Clarithromycin manufacturing facility at Derabassi in Punjab. For the other APIs, the
FDA inspection is expected to be done shortly. Presently, exports constitute around 45% of sales with the company
having presence in 45-50 countries principally in Europe, Asia countries, Latin America and the Middle East. For future
growth, the company has a robust product pipeline of 25 products which includes blockbuster drugs like Clopidogrel
(Anti-Cholestrol), Pioglitazone (Anti-Diabetic), Letrozole & Anastrozole (Anti-Cancer), Venlafaxine (Anti-Depressants)
and Quetipine & Aripirazole (Anti-Pshychotic). It has successfully filed over 72 drug master files (DMFs) with the US,
Canadian, UK and European drug authorities. These DMF filings will facilitate its launch of drugs upon the patent expiry
in those countries. Hence, the company has been aggressively expanding its capacity and has quadrupled its gross block
to nearly Rs.400 cr. from Rs.100 cr. two years back. Considering the robust half yearly numbers, it may end FY08 with
sales of Rs.450 cr. and PAT of Rs.22 cr. This translates into an EPS of Rs.9 on its fully diluted equity of Rs.25.25 cr. With a
book value of whopping Rs.93 and expected CEPS of Rs.16-17, the scrip is trading extremely cheap at a P/E ratio of
merely 6. A screaming buy as it has the potential to double in 12-15 months.
*****
Orient Ceramics & Inds. Ltd. (Code: 530365) (Rs.52.05) produces wall and floor tiles under the brand name Orient and
offers one of the largest range by way of designs, colours, sizes, choice of surface finishes etc. It also makes special tiles
under various collections branded as Artline, Midline, Vivaldi, Novista, Goemetricos & Egyptian Rustic collection, which
are unique and based on some theme, finish, pattern, cost etc. Besides, the company has created a niche for itself through
'Rangoli' - its designer collection, which is fusion of tradition with modernity. With the installation of latest machinery, it
has started producing high value glazed and polished vitrified tiles from current fiscal. Further, it has converted all
manufacturing lines to the fuel saving single fast firing technology. To increase its presence in the South, it has opened a
regional distribution centre in Bangalore apart from strengthening its dealership network. Fundamentally also, the
company has been successful in maintaining its profit margin despite intense competition. On the back of its expanded
capacity to 2,20,000 TPA, it is estimated to clock a turnover of Rs.240 cr. and net profit of Rs.13 cr. i.e. EPS of Rs.12 on its
equity of Rs.10.50 cr. This means that the scrip currently discounts its earning multiple hardly 4 times. Moreover, a
company having a gross block of Rs.157 cr., is available at an enterprise value of merely Rs.115 cr., which is extremely
cheap by any standard. An indirect bet on the infrastructure play.
*****
13
FCS Software Solutions Ltd. (Code: 532666) (Rs.76.15) basically provides customized software solutions to its clients
based in US. Its revenue model is segmented into four divisions viz. IT consulting (55%), e-learning & digital consulting
(25%), application support (10%) and infrastructure management services (10%). Apart from Sun Microsystems, it is also a
Microsoft certified solution provider. As US firms feel more secure in doing legal contracts with a full US entity and in
order to service its client more effectively, the company has set up a subsidiary called FCS Software Solutions America
Ltd., incorporated in America in 2006. Here in India, the company is increasing its overall capacities by putting up world
class development centres at Chandigarh, Dehradun and two new centers in Noida at Sector 73 and Noida Special
Economic Zone (SEZ). To summarise, it currently has 32,000 sq. ft. of space with 850 seats and additional 45,500 sq. ft. is
under construction that would provide 1125 seats. To fund this expansion, the company is also looking to raise capital
through the equity route in the near future. On the flip side, it does not have any protection for the US Dollar fluctuations
against the Rupee as it doesn't provide for any hedging. Hence conservatively, on an estimated OPM of 14% (although it
has registered 20% for H1FY08) it can earn a net profit of Rs.20 cr. on a topline of Rs.200 cr. for FY08 on a consolidated
basis. This works out to an EPS of Rs.14 on its equity of Rs.14.25 cr. With a promoter holding of 69%, dividend yield of
more than 3%, the book value of Rs.64 and P/E ratio of 5, it's a value buy at current levels.
*****
Rajendra Mechanical Inds. Ltd. (Code: 513043) (Rs.95.30), part of the Mumbai based REMI group, is a pioneer in
manufacturing of stainless steel welded and seamless pipes & tubes. These pipes and tubes are used extensively in critical
process industries such as refineries, petrochemicals, paper & pulp, fertilizers, pharmaceuticals, nuclear plants, etc. IOCL,
IPCL, GNFC, IFFCO, Madras Refineries, Mangalore Refineries, Ranbaxy Laboratories are few of its reputed clients. It has
also developed specialised stainless steel tubings especially for the critical power industry. To cash in on the increasing
demand, the company has been constantly expanding its production capacity which now stands at 7500 MTPA from 4500
MTPA in 2005. Notably, the company has also ventured into power generation through wind mills and has total installed
capacity of 2.25 MW. With the expansion effect kicking in, the company has reported stunning numbers for Q1 and Q2 of
H1FY08. For the Sept.'07 qtr., sales jumped up 90% to Rs.55 cr. whereas net profit tripled to Rs.2.30 cr. Accordingly, it can
register a net profit of Rs.6.50 cr. on sales of Rs.200 cr. for FY08, which will lead to an EPS of Rs.14 on its equity of Rs.4.80
cr. However, this profit excludes extraordinary item of Rs.1.50 cr. - profit on sale of property. Otherwise, the EPS works
out to Rs.17. Moreover, it has the potential to earn an EPS of Rs.20 for FY09 from business operations only. A good bet for
the medium to long-term.
By Kukku
FIFTY FIFTY
Investment Calls
* Sharyans Resources Ltd. (SRL) (Rs.360.90) was incorporated on 16th October 1982 to carry on the business of leasing,
hire-purchase and investment in securities as its primary objectives. Its primary business is acquiring and investing in
financial assets and real estate. Its investment philosophy is to remain diversified in assorted of asset classes, with a view
to build a portfolio of businesses that generates value for all stakeholders.
Vijay Chiarra, a Chartered Accountant and Bachelor in General Law with over 18 years of experience in the Real Estate
and Financial Markets is the chairman. He is on the Board of several reputed companies including Marketa Arts Ltd.,
Sideband Cinevision Ltd., Whistling Woods International Ltd., MC Projects Ltd., etc.
Real Estate Finance and Development is a fund based activity that involves purchase of property & development rights
for residential/ commercial purposes either solely or jointly in partnership with the Owners/builders/investors. The
property is then developed in accordance with the plan approved by the statutory authorities' viz., local municipal bodies
etc. The developed property is then sold at various stages of completion in whole or in parts at the prevailing market
rates.
Project Management and Investments is also a fund based activity. It involves identifying the property for
development/restructuring, syndicating all resources required for executing the project and finally making arrangements
for sale/disposal of the same.
The company is said to have good private equity investment in many realty firms in Chennai and Mumbai. It has huge
real estate development plans with Phoenix and the Future Group and holds 40% in Edelweiss Real Estate. It has acquired
SAI Consulting Engineers recently for project execution and also has a stake in a merchant banking outfit. It has
distribution strength of over 100 centres across India.
The audited consolidated gross income of the company and its subsidiaries for FY07 was Rs.45.71 cr. as compared to
Rs.28.78 cr. in FY06. The PBT increased to Rs.22.48 cr. as against Rs.20.51 cr. in FY06. But due to an increase in
provisioning for tax, PAT was Rs.18.48 cr. as compared to Rs.18.75 cr. in FY06.
In the financial services business, the company earned Rs.14.13 cr. from brokerage and related services. In the Real Estate
business it earned Rs.2.56 cr. This includes a fee income of Rs.1.39 cr. earned from project related services.
14
15
In the current year, the company has earned Rs.15.59 cr. for H1FY08 against Rs.6.2 cr. in FY06. The outlook of the
company is very encouraging and it could report much better results. Investors can take small exposures at every reaction
for good long-term growth.
* Jaihind Projects (Rs.161.75) installs underground and over the ground pipelines of diameters ranging from 2" to 36".
The thickness of the pipes varies from 4mm. to 15 mm. The Company has installed cross country pipelines for
transportation of Oil, Gas & Water in as many as 10 states in India it is also in to corrosion coating, structural fabrication
& turnkey projects.
It had a huge backlog was orders worth Rs.214.2 cr. as on FY07, which is 179.4% higher than FY06. It has bid for Rs.200 cr.
till date and has L1 status in Rs.72 cr. worth of projects.
Average ticket size has improved to Rs.23.5 cr., from Rs.12.5 cr. in FY06. Shorter execution cycle of 8-12 months and
increasing ticket size will boost the revenue profitability of the company in coming years.
The company has been awarded order of Rs.14.85 cr. from Maharashtra Natural Gas Ltd. for CNG & City Gas
Distribution Project at Pune.
The company has decided to issue 10,00,000 equity shares of Rs.10 each at a premium of Rs.140 per share on preferential
basis as per SEBI guidelines. This will help the company bid for bigger projects to the tune of around Rs.1500 cr. or so.
The company has already reported very encouraging results for H1FY08 as sales went up to Rs.52 cr. against Rs.37 cr.
while net profit shot up to Rs.2.67 cr. against loss of Rs.86 lakh.
There are indications that the company will do very well in coming years and will benefit by its low equity base. Mutual
funds are showing a keen interest in the company. As per informed sources, there will be more placement of shares at
Rs.250/300 level over the next few months.
We recommended this stock at Rs.37 level onwards in this column. Investors holding it from lower levels can expect
good growth over the next one year. Stay invested and add on reactions.
Market Guidance
* The flagship brand 'Mansion House' of Tilaknagar Industries (Rs.228.95) has crossed sales of 1 million cases in 2006-07
and is the country's largest selling premium brandy. The company intends to expand and develop an all-India presence.
Sales in existing territories will be further enhanced by suitable sales and marketing inputs. Efforts are being undertaken
to further modernise the factory to increase production efficiencies and reduce input costs. The company has already
reported encouraging results in the first half of the current year as net profit shot up from Rs.91 lakh to Rs.631 lakh on its
capital of Rs.5.73 cr. It will become a good long term investment story. Keep a watch to add on reactions for target of
Rs.350 level over the next one year.
* Ferro chrome stocks like Ferry Alloys Ltd. (Rs.35), Root Ferry Tech (Rs.65), N B Venture (Rs.274) are said to be doing
well in view of firm prices of their products. Investors can continue to hold these stocks for better times ahead.
* Investors should continue to hold Kirloskar Electric (Rs.330) or keep watch to add on reactions around Rs.310/320. It
will be a mini Crompton Greaves in the making.
* Big investors are said to be tightening their grip on Shiv-Vani Oil (Rs.450.15). The stock has already given a good
breakout and may see higher levels in the next few months. The company is expected to record a sharp growth over the
next few years.
* Those who got stuck in the sugar stocks earlier boom can exit in the current upside and switch to Ion Exchange, Hind
Dorr Oliver, HCC as all these three companies are expected to do well in coming years.
* Atlas Copco (Rs.1225.95) - may announce some acquisition in the near future as good developments are said to be
taking place. If the stock closes above Rs.1320, it may give good breakout. Stay invested. A leading mutual fund is said o
have increased its exposure in the counter.
* Marketmen are talking of a target price of Rs.600 for Torrent Cable (Rs.300.85) in the next six months time.
* RPG Cables (Rs.65.05) - There is talk of land sale at Thane. Book part of profits around Rs.58/62 level.
* Ashiana Housing (Rs.446.75) - Those who booked profits at above Rs.500 levels can think of re entering at Rs.430/440
levels as we may see further improvement in working for Q3 & Q4.
* Fortis Financial Services (Rs.97) has given liberal allotment in its recent right issue at par while CMP is Rs.101.
Investors can continue to hold the stock for a good target in the next few months.
* Hindustan Construction Company (HCC) (Rs.200) was already covered a few issues back in detail. Like other
Walchand group companies, this company, too, has very strong fundamentals and there is likely value unlocking for its
lavasa project. Investors can see higher targets for this company.
* Sambandam Spinning (Rs.94.75) results are not good. Investors can exit as there are indications that margins will be
under pressure over the next few quarters too. The company is likely to get credit of Rs.2/2.5 cr. for carbon credit from
windmill project. Other stocks like Kandgiri Spinning, Sangam India, Ambica Cotton, too, may not fare well. Investors
may reduce exposure and switch to Ion Exchange, ECE Industries or P G Foils on reactions.
* Nile Ltd. (Rs.256.95) has already flared to Rs.270 after our buy call last week at Rs.211. investors are advised to wait for
reactions to buy. Long-term outlook is encouraging for the company.
* Balmer Lawrie (Rs.570) looks attractive on strong fundamentals like book value of Rs.165, dividend of 135%, last year
EPS of Rs.43 and current year expected EPS of around Rs.50/55. Since PSUs are in action these days, investors can take a
small exposure.
* Pratibha Inds. (Rs.295.35) is attracting buying from FII and leading domestic funds. There are indications of good
developments in the company. The stock has already given good upward breakout and may reach levels of Rs.450/500 in
line with other stocks like JMC Projects, Lanco Infra, Madhucon Projects.
* VST Tillers (Rs.222) has strong fundamentals encouraging outlook. Stay invested or add on reactions.
* Surana Telecom (Rs.32) looks attractive and may see higher levels. Add on reactions.
* India Bulls Finance (Rs.785) is under speculative grip and may see higher levels. Investors can hold on to the same.
Note: Investors should not get carried by good market sentiment and rumours. They should avoid big buying at higher levels. They
must keep in mind that there is slowdown in
certain sectors and margins are affected in
auto/technology/hotels/textiles/casting/forging due to sharp rise in input costs, with no price increase in end products or services
rendered by the weakening dollar and firm crude oil prices. Market cannot ignore such factors for long.
16
By V.H. Dave
EXPERT EYE
The shares of Phillips Carbon Black Ltd. (PCBL) (Code: 506590) (Rs.215.90) are being accumulated by big ticket clients in
view of its strong fundamentals and expansion plans, which would increase its revenue & profitability in coming years. It
is also in the process of setting up a greenfield facility in Vietnam as a joint venture with Vietnam National Chemical
Corporation (Vinachem) for 50,000 TPA carbon black facility at a cost of $45 million.
PCBL, a part of the RPG Group, pioneered the carbon black industry in India and is the leading producer of carbon black
in the country. It started production in December 1962 by the oil furnace technology – the most widely accepted
manufacturing process patented by its then collaborator and world leader, Phillips Petroleum Company, USA.
The collaboration ended in 1978. However, PCBL continued its progress by virtue of the ingenuity of its technologists,
engineers and sustained R&D activities. In 1988, PCBL entered into a technical agreement with Columbian Chemicals
Company, USA, and acquired access to the modern state-of-the-art Carbon Black technology. This resulted in the
company acquiring flexibility, wider product range and enhanced production capacity together with energy conservation.
Its plants are located at Durgapur in West Bengal, Baroda in Gujarat and Cochin in Kerala.
The company's clients in the domestic market include MRF, JK Group, Apollo Tyres, Ceat Tyres and BK Tyres. It is the
largest exporter of carbon black in the country constituting about 27% of its total revenue.
The company is implementing expansion in carbon black involving capital expenditure of Rs.230 cr. and setting up power
plants costing Rs.460 cr.
Its greenfield project located in Mundra, Gujarat, will have an initial capacity of 75,000 tonnes. This will be PCBL's 4th
plant in India after Durgapur (1,40,000 tonnes), Baroda (95,000 tonnes) and Kochi (35,000 tonnes). The capacity at Kochi is
being enhanced by 50,000 TPA to 85,000 TPA. This expansion of carbon black will enhance its total capacity by 1, 25,000
TPA to 3,95,000 TPA.
The company is also simultaneously implementing an additional co-generation power plant of 46 MW in two phases. The
first one is located at Baroda and has a capacity of 12 MW. It has a power trading agreement with Adani Power Trading
Corporation and has also entered into a power selling agreement with its sister concern CESC.
Its heat recovery power plant also makes it eligible for carbon credits under the Clean Development Mechanism (CDM) of
the United Nations Framework Convention on Climate Change.
PCBL has allotted 30 lakh convertible
warrants on preferential basis to the promoter
group companies and private equity investors
to be converted into equity shares at a price of
Rs.149 per share. Its equity capital which had
gone up to Rs.25.3 cr. will now go up to
Rs.28.3 cr. on account of this conversion. The
book value of its share can go up to Rs.110 by
March 2008.
The promoters hold 50.2% in its equity capital.
Mutual Funds/Institutions hold 12.2%
government holding is 2%, PCBs holding is
20.2% leaving only 14.4% with the investing
public.
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During FY07, PCBL posted 37% increased sales of Rs.999 cr. and earned a net profit of Rs.24 cr. against net loss of Rs.15 cr.
on sales of Rs.729 cr. in FY06 and paid a dividend of 20%. During Q2FY07, PCBL recorded 1451% higher net profit of
Rs.24 cr. on 3% increased sales of Rs.250 cr. In H1FY08, net profit is up 2620% to Rs.46 cr. on 3% higher sales of Rs.484 cr.
It is the largest manufacturer of carbon black in the country with a market share of about 44%. Its products find
application in the booming tyre, plastic, paints and construction industry. Its 30 MW power capacity expected to be
completed by FY08 and the balance 16 MW by September 2008 would substantially save its power costs in coming years.
The automobile sector is expected to grow by over 10% in the next five years on account of heavy expansion and the entry
of new models by foreign majors. The size of the Indian tyre industry is a whopping Rs.19, 000 cr. (US $4.75 billion) and is
about 4% of the global market.
With a growth of about 8-9% in FY07 and expected growth of about 12-13% in tyres in general on the back of the
automobile growth will lead to an increased demand for carbon black. This, along with renegotiation with clients on the
price front will increase its bottomline substantially.
Apart from the domestic market, there is vast demand of carbon black in the export market and the company is fully
geared to take the advantage of the same. The company's drastic cost cutting efforts to save on raw material costs and
other expenditure are quite visible in the margins that it has achieved during the first half of FY08. This trend is expected
to continue in the remaining period.
Its expansion plans leading to economies of scale, higher productivity, control on costs including savings on power costs,
improving margins, incremental earnings from the surplus power etc. give future visibility of revenues and earnings in
coming years.
During FY08, PCBL is likely to post a net profit of Rs.120 cr. on sales of Rs.1150 cr., which would result in an EPS of Rs.42.
Net profit is expected to advance further to Rs.140 cr. in FY09 on sales of Rs.1450 cr. and the EPS would stand enhanced to
Rs.50.
At the CMP of Rs.217, the shares are trading at a P/E multiple of 5.2 on FY08 EPS of Rs.42 and P/E multiple of 4.3 on
FY09 EPS of Rs.50. Investment in this share is recommended with a medium-term target of Rs.325. The 52-week high/low
of the share has been Rs.222/102.
17
By Nayan Patel
TECHNO FUNDA
Kulkarni Power
BSE Code: 505299
Last Close: Rs.189.15
This stock will give you unexpected returns in
coming days Kulkarni Power is a 31 year old
Kolhapur based company and has equity of just
Rs.1.70 cr. with reserves of Rs.10 cr. It is an
investor friendly company and has recorded
excellent growth in sales, profit and increased
dividend year after year. Last year, it paid 30%
dividend.
For H1FY08, sales was Rs.29.17 cr. (Rs.17.96 cr.) up
by 62.42%. With net profit of Rs.2.23 cr. (Rs.82 lakh) posting an EPS of Rs.13.12. In FY08, it is likely to touch sales of Rs.65
cr. with net profit of Rs.4.75-5 cr. As per annualized EPS of Rs.27-29, the share is available at P/E of just 7. Its valuation is
very low compared with others from the same segment. Promoters and corporate bodies hold around 56% stake in its
small equity and its board has approved the proposal of issues of shares warrant to the promoter on preferential basis on
31
st
October 2007.
If we consider a P/E of 15, then its share price can double from hereon. It is the best stock for investors. Keep a stop loss
of Rs.174 and buy on Monday above Rs.199. Share price will go up to Rs.212, Rs.235 levels in the near future.
Ferro Alloys
BSE Code: 500141
Last Close: 32.70
It is high-risk, high-profit stock for short term investors. Happy days are here again for this company. Net sales jumped
more than 112% in September'07 quarter and profit jumped by more than 203.06% for the same quarter.
Buy with a stop loss of Rs.29 for short term target of Rs.37.
FROM THE FUND MANAGER'S DESK
Review
- Shivalik Bimatel recommended at Rs.24 last week kissed Rs.31.95 on
Friday 16-11-07.
- Hydro S & S recommended at Rs.54 last week zoomed to Rs.61.90.
- Marg Construction recommended at Rs.156.85 on 1
st
Oct. closed in
upper freeze of Rs.316.15.
- VBC Ferro recommended at Rs.205.85 zoomed to Rs.483.
- Pioneer Distillieries recommended on 15
th
October'07 at Rs.48.35
kissed Rs.109.65 in just 1 month.
- Tanfac Industries recommended at Rs.49.95 on 29
th
October'07
zoomed to Rs.83.60 in just 15 days.
"We expect the rally in the market to become more broad-based
going forward"
says Harshad Patwardhan, Fund Manager Equity of JPMorgan Asset Management India Pvt. Ltd. in an exclusive interview
with Money Times (MT)
MT: With the current index levels, where they have touched new psychological highs, what would be your advice to retail
investors?
The Indian equity market has done very well over the last few years and it is fair to say that on an overall basis, the
market is not as cheap as it used to be a few years back.
However, it is important not to oversimplify the analysis by looking just at P/E (price to earnings) ratio in isolation to
judge whether a stock or the market is expensive. One should also look at the earnings/cash flow growth, sustainability
of that growth, and the spread between ROE and cost of equity delivered by Indian corporates to conclude whether a
stock is overvalued or undervalued. Using this rigorous framework, we find many stocks are
still reasonably valued. One also needs to remember that in the last several quarters in a row,
the reported profit for the BSE Sensex has surpassed analysts' expectations. This highlights the
ability of corporate India to convert the strong macro growth opportunity that India offers
today into strong and sustainable growth in earnings
18
We believe that retail investors need to be disciplined in their approach to equity investments
rather than trying to time the market. While re-balancing of one's portfolio periodically is a
good idea, retail investors should continue to have adequate exposure to equities as we
continue to be positive on Indian equities from a medium- to long-term perspective.
MT: What would be the investment strategy of JPMorgan India Equity scheme going forward
in terms of stock selection? Are you looking at a bottom up approach or the other way round at the current market
levels?
The investment strategy that we follow for the Pacific Regional Group has always been a research-based, bottom-up
approach and that is the method we follow both in the Asia Pacific region as well as in India.
Our investment strategy is as follows:
• Both the onshore and offshore (India dedicated) teams collaborate on research and ideas sharing for stock selection.
• We do intensive research on a wide range of companies before arriving at the stocks that we have conviction in.
• Given our global expertise and reach, we often use the perspective that our global colleagues have on industries to
help us build conviction. For instance, we know how issues panned out in the Chinese cellular industry and some of
those lessons can be directly applied to India.
• Once a stock has made it to our buy list, the capital allocation to that stock is decided on the basis of what makes
sense for different fund portfolios.
We also have an internal portal for fund managers called JFirst. Let me explain how that helps. We have a global
emerging markets team that works out of London. If one of them meets the management of an Indian company abroad,
the kind of perspective he/she can offer on that particular sector or company is invaluable. This information is shared on
the portal and basically helps every fund manager in the group leverage off the discussions or insights that another
member of the group had or gained. Needless to say, that is why we invest with so much conviction.
MT: In September 2007, JPMorgan India Equity seems to have added/increased their exposure to ICICI Bank (7.24% of the
total portfolio)? Any particular reasons for the same?
We regret but we cannot answer queries on specific stocks.
MT: As indicated in the scheme's fact sheet, it had been overweight on the technology space till July 31
st
and the latest
fact sheet indicates otherwise. Kindly site reasons for the same.
We believe that the climate for technology stocks has changed considerably since the middle of the year. Till mid-2007, it
appeared that while the operating environment was tough, large IT services companies could weather the rupee's
appreciation because they have significant levers that they could use to offset the currency impact. However, following
the recent information on the impact of sub-prime crisis on various US corporates, particularly in the banking and
financial services space, we have revised our view. We have now become more concerned about the prospects of these IT
services companies as we feel that they are now battling not just the currency appreciation but what could turn out to be a
fairly challenging environment for many of their key clients. Both these factors put together translate into a significantly
more challenging operating environment even for large IT services firms. Our reduced exposure to the IT services sector
reflects this change in business dynamics.
MT: The above scheme has been overweight on Telecom, Cement and Utilities, what are the key growth drivers and risks
for these three sectors?
Demand from the housing and infrastructure sectors will continue to be strong for the cement sector. While a lot of new
capacity addition is planned, we expect the actual supply to increase more gradually and stay behind demand. We also
expect imports to have only a limited and local impact. Overall, the operating economics of cement companies should
continue to be positive in the medium term.
With the government enabling rapid capacity expansion in the power sector, we expect utility companies to be able to
grow faster than before through new projects. In addition through merchant power capacity, utility companies can
potentially improve profitability. Faster execution of projects may face some problems due to supply constraints by
power equipment manufacturers and fuel linkages.
For the telecom sector, while growth in this sector will continue to be robust, we are a little concerned on the policy
changes and intensity of competition.
MT: Any other significant point/s you would like to make for the benefit of investors?
We believe the Indian economy and corporate sector continue to present an ideal investment environment of strong
sustained growth. On a selective basis valuations continue to look reasonable. In addition, we believe that demand for
Indian equities will continue to be strong both from international investors as well as domestic investors. Therefore, we
expect Indian equities to continue to perform well in the medium to long term. Retail investors need to continue to have
an adequate exposure to equities. Also, we expect the rally in the market to become more broad-based going forward.
Thus, we believe retail investors should aim to have some exposure to fast-growing smaller companies while still
maintaining exposure to larger and more stable ones.
The opinions/views mentioned above should not be construed as investment advice. JPMorgan Asset Management India Private Limited / JPMorgan
Mutual Fund India Private Limited / JPMorgan Mutual Fund shall not be liable for any act done by any person based on the opinions / views / data
mentioned above.
- Devangi Bhuta
Kaushalya Infra. Dev. Corp. IPO opens on 20
th
November
MONEY FOLIO
Kaushalya Infrastructure Development Corporation Ltd. (KIDCO), a diversified infrastructure development company
from eastern India, is entering the capital market with an IPO of 85,00,000 equity shares of Rs.10 each through the 100%
book building process in the price band of Rs.50 to Rs.60. The issue will open on Tuesday, 20
th
November and close on
Friday, 23
rd
November 2007.
KIDCO has three major business divisions – (1) Kaushalya Nirmān, which specialises in construction of roads, highways,
bridges and industrial infrastructure; (2) Kaushalya Grām, which specialises in electrification and irrigation projects
focused on development of rural India and (3) Kaushalya Parivār, which specialises in construction of commercial &
residential complexes. Its key clients include various government undertakings, State Public Works Departments (PWDs),
as well as State and Central Public Sector Undertakings.
The company intends to diversify into real estate development projects by developing residential/commercial projects in
land owned/proposed to be owned by the company/subsidiaries. KIDCO will mainly utilize funds for acquisition of
land, land development rights & real estate development (Rs.17.50 cr.), investment in BOT/BOOT projects and joint
ventures (Rs.12 cr.) and for the purchase of capital equipments comprising construction & infrastructure equipments for
execution of projects (Rs.5 cr.).
For Q1FY08, KIDCO posted income from operations of Rs.15.90 cr., income from hotel operations of Rs.6.10 lakh and Net
Profit after Tax (PAT) Rs.1.09 cr. In FY07, it posted income from operations of 54.08 cr., income from hotel operations of
Rs.17.40 lakhs and Net Profit after Tax (PAT) Rs.3.89 cr.
Jyothy Labs IPO opens on 22
nd
November
Jyothy Laboratories Ltd. (JLL), a fast moving consumer goods FMCG company well-known for its 'Ujala' brand of
whitener, is entering the capital market with an IPO of 4,430,260 equity shares of Rs.5 each through an Offer for Sale by
the Selling Shareholders through a 100% book-building process in the price band of Rs.620 and Rs.690 per equity share.
The Bid/Offer will open on Thursday, 22
nd
November and will close on Tuesday, 27
th
November 2007. The issue will be
listed on the BSE and NSE and the IPO has been graded 4/5 by CARE suggesting 'Above Average' fundamentals.
The company is a fast moving consumer goods (FMCG) company in the fabric care, household insecticide, surface
cleaning, personal care and air care segments of the Indian market and offer branded products including fabric whitener,
mosquito repellent, dishwashing, bath and incense products.
The offer constitute 30.52% of the fully diluted post-offer paid-up capital of the company. The Selling Shareholders
includes Canzone Ltd., ICICI Bank Canada, ICICI Bank UK PLC, South Asia Regional Fund and CDC Investment
Holdings Ltd. Not more than 50% of the offer will be available for allocation on a proportionate basis to Qualified
19
20
Institutional Buyers from which 5% will be reserved for Mutual Funds only and at least 15% will be available for
allocation to Non-Institutional Bidders and 35% for Retail Individuals.
For the year ending 30
th
June 2007, JL posted a total income of Rs.374.5 cr. with net profit of Rs.48.1 cr. as against an
income of Rs.314 cr. with net profit of Rs.46.6 cr. for FY06 ending 30
th
June 2006.
Renaissance Jewellery IPO opens on 19
th
November
Renaissance Jewellery Ltd. (RJL), among the largest exporters of studded gold and platinum jewellery, is entering the
capital markets with an IPO of 5,324,240 equity shares of Rs.10 each through a 100% book-building process along with
one detachable warrant for every two equity shares allotted by the company in the price band of Rs.125 and Rs.150 per
equity share. The Bid/ Offer will open on Monday, 19
th
November and will close on Wednesday, 21
st
November 2007.
The equity shares and warrants are proposed to be listed on the NSE and the BSE.
The issue of equity shares will constitute 29% of the fully diluted post-issue paid up equity share capital of the company
prior to exercise of detachable warrants and the Issue will constitute 37.99% of the paid-up equity share capital of the
company after exercise of detachable warrants, assuming full exercise of detachable warrants. The Warrant Exercise Price
will be the price, which is at a fixed premium of 25% over the issue price and exercisable after the completion of the 16th
month and open up to the completion of the 18th month from the date of allotment of the equity shares and warrants.
RJL has been in the studded precious stone jewellery business for over a decade. It operates through three manufacturing
units of which two units are located at SEEPZ-SEZ in Mumbai and one 100% EOU unit at Bhavnagar in Gujarat. Its
subsidiary, Renaissance Retail Venture (P) Ltd. has a manufacturing facility at MIDC, Andheri, Mumbai, for catering to
the domestic retail market. Its subsidiary, Verigold Fine Jewellery (P) Ltd. has a manufacturing facility for studded
jewellery at SEEPZ-SEZ in Mumbai.
It was also awarded a Certificate of Merit by GJEPC for being the second largest exporter of studded precious metal
jewellery from SEEPZ-SEZ for 2005-06. In 2004, the company was awarded 'International Supplier of the Year' by Wal-
Mart and Rio Tinto Diamonds conferred it with Business Excellence Model (BEM) certification in 2005.
The company will deploy the net proceeds of the issue for funding its capacity expansion at its Bhavnagar and Mumbai
units, investment in the foreign subsidiary and augmenting working capital requirements.
On a consolidated basis, RJL's sales increased to Rs.438.4 cr. in FY07 from Rs.122.3 cr. in FY03 growing at a CAGR of
37.59%. The sales for Q1FY08 were Rs.117.6 cr. Net profit FY07 increased to Rs.25.4 cr. from Rs.3.7 cr. in FY03, growing at
a CAGR of 61.66%. The net profit for Q1FY08 was Rs.7.2 cr.
ICICI Prudential MF launches Real Estate Securities Fund
ICICI Prudential AMC has launched ICICI Prudential Real Estate Securities Fund, a 3 year close ended debt fund
designed to invest in the real estate sector and real estate oriented sectors like cement, construction, metals, hotels, retail,
banks and finance companies etc. It will not directly own or hold real estate properties.
The Fund will predominantly invest (51% to 100%) in high yielding debt securities issued by companies that are
associated with or benefiting from the real estate sector. It will invest up to 49% in equity of companies, which are
engaged in industries that benefit from the real estate sector to have substantial investments oin property (incl. Land
holdings).
Speaking on the new fund, Mr. Nimesh Shah, Managing Director, ICICI Prudential Asset Management Company Ltd.
said, "Indian Real estate sector is growing rapidly and is expected to register a growth rate of over 30% p.a. in the next
five years. Thus, through this fund investors will get an opportunity to participate in this promising sector."
JPMorgan AMC launches 'Smaller Companies Fund'
JPMorgan Asset Management India Pvt. Ltd. (JPMAMIPL) has launched the JPMorgan India Smaller Companies Fund,
which is an open-ended equity growth scheme that aims to generate long-term capital appreciation from a portfolio
comprising equity and equity-related securities of smaller companies. Open for subscription from 9th November to 30th
November 2007, units in the fund will be issued at Rs.10 during the NFO.
JPMorgan AMC's flagship equity fund, the JPMorgan India Equity Fund, has performed well in the last three months as
its NAV shot up from Rs.10.61 on 1
st
August 2007 to Rs.14.18 on 31
st
October 2007. Since this fund focuses on top
companies with large market capitalization, it decided to focus on the next level of market capitalization and follow with
a smaller companies fund.
The fund will be benchmarked against the CNX Mid-cap Index.
Sundaram BNP Paribas Select Thematic Funds Energy Opportunities
Sundaram BNP Paribas Mutual has launched Sundaram BNP Paribas Select Thematic Funds Energy Opportunities,
which is a close-ended equity scheme that will invest in Indian companies in the energy sector and in beneficiary
industries and will convert automatically into an open-end scheme after three years.
This thematic scheme will primarily focus on opportunities in the energy sector and other sectors that are beneficiaries of
the developments in the energy sector. Energy sector encompassed sub-sectors such as gas production ad distribution, oil,
non-conventional-energy, power, refineries and related infrastructure service providers and thus participate in the energy
sector growth stories.
The investment objective of this thematic fund is to seek long-term capital appreciation by investing primarily in equity
and equity-related instruments of companies in the domestic market that predominantly focus on or benefit from, directly
or indirectly, the opportunities and developments in the energy sector.
The issue of units is at Rs.10 each for cash and there is no entry and exit load. This thematic scheme will be benchmarked
against BSE Oil and Gas Index, which will close on 11
th
December 2007.
Franklin Asian Equity Fund opens on 19
th
Nov.
Franklin Templeton Investments (India), one of the largest fund houses is launching Franklin Asian Equity Fund (FAEF),
a new open end equity fund that invests in companies in the Asian region (except Japan) and Asia-related companies
across market capitalization ranges. The New Fund Offer period will be from November 19, 2007 to December 18, 2007
during which, units will be available at Rs.10 per unit plus applicable load.
On the rationale for launching the new fund, Mr. Vivek Kudva, President, Franklin Templeton India said, "This fund will
not only help Indian investors in improving the diversification of their portfolio but will also have a long term return
potential similar to that of Indian markets. This product will help us take advantage of the recently enhanced overseas
investment limits for MFs."
Speaking about the fund's strategy, Sukumar Rajah, CIO – Franklin Equity and Principal Portfolio Manager for the fund,
added, "We will be following a growth investment style focused on companies with relatively better growth prospects
(could be high PE), return-on-equity, and/or return-on-capital employed ratios and also focus on mis-priced companies.
We believe that a cross-border fund such as this one needs to have a flexible approach to investing, not just across sectors
and market cap ranges, but also in terms of process."
Paras Petrofils Q2 improves
Paras Petrofils Ltd., a Surat based POY manufacturer, has reported a robust quarter-on-quarter revenue growth with total
income increasing by 70% at Rs.26.54 cr. as against Rs.15.56 cr. in the previous corresponding quarter. PBT was up by
895% at Rs.2.56 cr. compared to a loss of Rs.32.14 lakh in the previous corresponding quarter. The revenue and earnings
have shown positive signs both, year on year and sequential basis and it has returned a positive EBIDTA during the
current quarter.
The company also announced One Time Settlement (OTS) with the lending institutions, which will result in a waiver of
interest and the principal amount.
Shiva Cement improves, plans expansion
Shiva Cement is undertaking Phase-I expansion of up to 6,00,000 MTA at a capital outlay of about Rs.225 cr. this includes
acquisition and creation of infrastructures for Phase-II expansion also.
Further it was decided that the expansion plan up to 26,00,000 MTA shall be reviewed only after obtaining additional
mining lease.
In the said Board meeting allotment of 862777 nos. of Pref. Shares were allotted to Industrial Promotion & Investment
Corporation.of Orissa Ltd. (IPICOL), a state FIs.
Despite lower capacity utilization due to its marketing alliance with ACC, there was 7% increase in the total income from
Rs.13.3 cr. to Rs.14.3 cr. and operating profit increased to Rs.2.6 cr. from Rs.1.8 cr. in the previous corresponding period.
The net profit jumped by 350% from Rs.1 cr. to Rs.3.7 cr. during the half year period.
Disclaimer: Investment recommendations made in Money Times are for information purposes only and derived from sources
that are deemed to be reliable but their accuracy and completeness are not guaranteed. Money Times or the analyst/writer does
not accept any liability for the use of this column for the buying or selling of securities. Readers of this column who buy or sell
securities based on the information in this column are solely responsible for their actions. The author, his company or his
acquaintances may/may not have positions in the above mentioned scrip.
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