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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 8
Monday, January 7 – 13, 2008
Pages 22
Markets at a new high
as broader market outperforms frontliners
By Sanjay R. Bhatia
The markets have displayed a positive trend. It succeeded in touching a new historic high amidst intermediate bouts of
volatility and choppiness. The volumes recorded have been high along with the positive advance-decline ratio, which has
displayed strength and the broader markets have outperformed the frontline stocks. FIIs remained net sellers in the cash
as well as the derivative segments. Domestic institutional investors, on the other hand, remained net buyers.
Global cues have remained mixed with crude oil price once again
spiking to touch the $100 level before it cooled off marginally. The
global markets remained in a range due to the festive holidays while
the rupee remained flat. FII fund flows have remained negative due
to the holiday season and are likely to remain so till the first
fortnight of 2008. Mutual funds, however, have supported the
markets well.
The Q3 result declarations will start from the middle of next week
and is likely to set the pace and trend of the markets, especially the
Infosys results, which will make or break the technology stocks. So
far, the expectations are not very euphoric and this is a positive for
the markets. Stock specific action will continue amid intermediate
bouts of volatility and choppiness. In the meanwhile, the markets
would continue to take cues from global markets and crude prices along with the rupee-dollar equation. With a few big
IPOs lived up this month, liquidity is likely to dry up to some extent.
Technically, on the upside, if the Sensex manages to sustain above the 20,500 level, it is likely to test the 20,800 followed
by 21,200 level. The Sensex has support at the 20,375 level followed by the 20,000 level. On the upside, if the Nifty can
sustain above the 6250 level, it is likely to test the 6300 followed by 6450 level. The 6159 level followed by 5742 are the
important support levels for the Nifty.
Traders and speculators could buy Chennai Petroleum with a stop loss of Rs.388 and a target price of Rs.490-515.
1
2008: Year of mid-caps
By Fakhri H. Sabuwala
Last year saw the rally in large cap stocks thanks to the overall FII interest and the high growth momentum. The stocks
that form a part of BSE Sensex or NSE Nifty were the apple of marketmen's eyes. Mid-caps, except for the last two
months, were considered a risky bet. But whether you love them, hate them or even ignore them, this is a class of stocks
that rebounded with a vengeance. The mid-cap indices have already outperformed the broader benchmark indices. The
reason for this is not far-fetched or difficult to comprehend. In fact, what seems certain, at this moment is that 2008 will be
a year of mid caps and we have solid reasons for it.
First, during late 2006 and most part of 2007, the large caps remained the dominant theme. The inflow of FII funds
focused only on the first 25 stocks by way of market cap on the Sensex or the Nifty. Easy entry and exit was given priority
over better fundamentals. Thus, large caps really had a ball and the mid-cap story remained unsung.
But the subprime crisis, fears of US recession and the US Federal rate cut has compelled the FIIs to book profits and
review their workings especially in the backdrop of the losses suffered back home due to the subprime crisis. The large
cap stocks had by then gone too high to warrant a re-look. The gap in valuations between large caps and mid-caps
appears so large and unreasonable that has mid-caps made very promising and lucrative.
The first half results for the mid-caps recorded a 29% earnings growth vis-à-vis 24% growth in Nifty companies. This
statistical reality has made investors switch their funds from large caps to the mid-caps. And since the FIIs were net
sellers, this made large caps look hopelessly weak. Local funds, however, respecting their growth kept alive their interest
in small caps and mid-caps and so did the operators, who were aided by the new F&O list and could bring life to counters
like Ispat, JP Hydro, Gitanjali, Nagarjuna Fertilizers etc.
While the start of the mid-cap rally remains circumstantial, it is fuelled by the mutual funds and their mid-cap dedicated
NFOs hitting the street. It is believed that eight new NFOs in this segment may well garner nothing less than Rs.20,000 cr.,
which is a mammoth sum to keep the fire in the mid-caps on.
Everything in mid-caps does not go up and in case you are a smart angler you better concentrate on scrips enjoying the
following characteristics:
(i)
Companies enjoying niche positioning.
(ii)
Companies that can withstand global competition.
(iii)
Companies in secure industries or segments.
The old notion that FIIs are indifferent to mid-cap stocks is also unfounded if one goes by the statistics of FII holdings in
this segment. Of the 195 stocks in the BSE mid cap index, 114 have recorded a rise in FII holdings in the last twelve
months and a neat 121 companies record the rise in FII holdings if over the 24 months.
But over the last three months, the rise in mid-caps has been steep and the scrips are getting closer to their values intrinsic
values as the gap between price and value narrows down. Nevertheless, scripwise opportunities still exist and a micro
focus may be the winning strategy here rather than a macro focus. It's time to pick up select stocks from capital goods,
banking, infrastructure, energy, mining, retail, auto ancilliary, media and entertainment.
The mid-cap story needs to be rediscovered and a thorough review of some of them could give you scrips, which promise
a 100% growth rate p.a. over the next three to four years. It's just a matter of discovering tomorrow's gems today. Some
such diamonds are Gremach Infrastructure, HFCL, Kaveri Telecom, KEI Industries, Paramount Communications, Finolex
Industries, Finolex Cable, Asian Electronics, Sterlite Opticals, Surana Telecom, First Source Ltd., 3i Infotech, Nahar
Industrial Enterprises, Opto Circuits, Jaiprakash Associates, RDB Industries, RAP Media and GEI Industrial Systems.
2
Follow up rise needed
TRADING ON TECHNICALS
By Hitendra Vasudeo
In last week's update, we had indicated that the Sensex was likely to offer a breakout. The breakout point was placed at
20500. The Sensex was struggling to offer a breakout and oscillated around it before moving higher on Friday. The high
registered on Friday was 20762.80 to close the week at 20686.89. A breakout was thus witnessed on Friday above 20500.
Now, what's next? A follow up rise to the breakout is going to take the overall market, especially the frontline stocks to
new highs. Stocks that would move are the one's that have higher relative strength. Indices and stocks that make a new
52-week high and historical highs are the ones with
strength and that's where the money flow has
shifted.
In the weekly snap shot, the Sensex opened the week
at 20323.28, attained a low at 20077.40 and moved to
a high of 20762.80 to close the week at 20696.98. The
Sensex thereby showed a net rise of 406 points on a
week to week basis.
The weekly trend has turned up last week for which
a breakout above 20500 was a must. Now that it has
happened, the weekly trend can turn down on fall
and weekly close below 20000.
Weekly support will be at 20439-20255- 20000.
Weekly resistance will be at 20940 and 21626. If all
goes well and the Sensex manages to hold above the
20000 mark, then expect a rise ultimately towards 22000.
Remaining above few bearish candles is important and to some extent the Sensex has managed to do it. The earlier peak
of 20238 was followed by bearish candlestick pattern which offered correction down to 18182 ultimately. Once again, after
making new high at 20498, the Sensex developed a bearish candlestick pattern,
which led to a minor fall down to 18886, which did not fall below its earlier 18182 level. The Sensex has created a higher
bottom at 18886. At the higher range of 20300-20500, a cluster of resistances was visible and that has been crossed now.
But the weekly rise and breakout was not comprehensive. Therefore, a follow up rise to the last week's moment is
required and for that the Sensex must maintain above 20000.
Wave Analysis
Wave I-2594 to 3758
WEEKLY UP TREND STOCKS
Wave II-3758 to 2904
Wave III- Internals as
follows:
Wave 1- 2904 to 6249
Wave 2-6249 to 4227
Wave 3-4227 to 12671
Wave IV- 12671 to 8799
Wave V- Internals as
follows:
Wave 1-8799 to 14724
Wave 2- Internals as
follows:
Wave A- 14724 to 12316
Wave B-12316 to 15868
Wave C-15868 to 13779
3
Wave 3-
13799
to
20762.80 (current ongoing
move)
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
VIDEOCON INDS
765.00
611.3
724.3
796.7
837.3
950.3
75.1
697.8
16/11/07
JINDAL STEEL
16475.00 13826.7 15476.7 16128.3 17126.7 18776.7
75.0
15335.8 04/01/08
POWER TRADING 191.80
120.9
165.4
183.6
210.0
254.5
75.0
160.3
28/12/07
MOTILAL OSWAL
2157.95 1378.6
1868.6
2069.3
2358.6
2848.6
74.7
1834.7
04/01/08
HMT
148.35
91.1
125.5
136.9
159.8
194.2
74.0
113.3
28/12/07
WEEKLY DOWN TREND STOCKS
Internals of Wave 3 as
follows:
Wave i-13799 to 20238
Wave ii-20238 to 18886
Internals of wave ii
Wave a-20238 to 18182
Wave b-18182 to 20498
Wave c-20498 to 18886
Wave iii – 18886 to
20762.80 (Wave iii- would
have begun)
The above internals of
wave iii will hold true till
the prices are above
20000. If it falls below
20000, the internal moves
and wave count will
change.
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
I-FLEX SOLUTIONS 1483.00 1313.7
1427.7
1486.3
1541.7
1655.7
23.02
1506.75 20/12/07
AUROBINDO PHAR 533.55
500.7
524.7
539.9
548.7
572.7
23.85
538.36
04/01/08
PATNI COMPUTER 319.90
291.0
312.3
326.1
333.7
355.0
24.46
323.24
20/12/07
TCS
1005.10 857.5
964.4
1030.7
1071.3
1178.2
27.83
1043.71 04/01/08
MARUTI SUZUKI
965.00
896.3
946.3
977.7
996.3
1046.3
28.67
995.75
20/12/07
PUNTER'S PICKS
If the above wave count
holds true, then the first
month of the new
calendar
year would
prove to be beneficial to
investors.
Broad Market Review
On daily and weekly
charts, the relative strength top honours goes to the BSE Oil & Gas sector index. BSE Oil & Gas is likely to move higher
and would remain as outperformer. BSE Small Cap index is emerging at the leading out performer on daily and weekly
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
J.L.MORISON (INDIA)
506522 450.25
445.00
490.00
425.00
530.2
595.2
3.17
KEYNOTE CORPORATE
512597 216.00
215.95
217.55
187.00
236.4
267.0
0.70
PANACEA BIOTEC
531349 413.90
390.00
420.00
386.00
441.0
475.0
0.97
SHOPPER STOP
532638 579.55
550.00
628.90
531.00
689.4
787.3
2.26
SURYALATA SPINNING
514138
53.90
51.00
56.95
48.00
62.5
71.4
1.45
relative strength. BSE
Small Cap index would
continue to do well and
move from 13883 to 18800
in time to come. All is
good for BSE Small Caps
till it is above 12900.
BUY LIST
Scrip
Last Close Buy Price Buy Price Buy Price Stop Loss Target 1 Target 2
Monthly
RS
BOMBAY DYEING & MFG.
980.00
886.11
850.00
813.89
697.00
1192.1
1498.1
62.87
CANARA BANK
399.60
387.80
377.40
367.00
333.35
475.9
564.0
62.30
HINDUJA TMT
844.00
804.16
779.50
754.84
675.00
1013.2
1222.2
61.92
RELIANCE IND. INFRAS
2660.00
2484.28 2430.00 2375.72
2200.00 2944.3
3404.3
53.57
Broader market indices
like BSE 500 and CNX
Mid-Cap
200
are
showing
strength.
Therefore,
mid-cap
outperformance is more
on the cards. Expect the
CNX Mid Cap to move towards 13169 from the current level of 9637. All is good for the CNX Mid-Caps till it is above
8900. Following is the Top Ten order of weekly relative strength for the indices: BSE Oil & Gas, BSE Small Cap, BSE 500,
S&P CNX 500, CNX Mid Cap 200, BSE 200, BSE National, BSE Metal, and BSE Mid Cap.
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly Relative
Strength (RS)
CRISIL (CREDIT RATIN
3428.00
3499.15 3537.50
3575.85
3700.00 3174.2
39.42
SUN PHARMACEUTICAL I
1108.00
1146.46 1160.50
1174.54
1220.00 1027.5
43.64
CUMMINS INDIA
405.75
407.40
410.00
412.60
421.00
385.4
46.41
GLAXO SMITH.CONS.HEA
689.00
700.63
707.00
713.37
734.00
646.6
50.88
Strategy for the week
The frontliners are likely to participate now on the back of the broad market indices but the rise will be slower in the front
line indices. The general strategy remains to be on the buying side and identify buying opportunities. Look for buying
opportunities in the mid-cap segment.
* Speciality Papers is rapidly scaling up with new acquisitions. The company board has also met for a bonus issue and
offer preferential warrants. This was one of TT stocks recommended at very low levels.
TOWER TALK
* ANG Auto is recommended as a risk-free buy as the company management is planning to buy back 25% equity of up to
Rs.215 in open market purchase. The share could move up sharply due to this aggressive buy back.
* Grauer & Weil and VST Tillers may be the sleeping giants as most other stocks have run up quite a bit. There is value
built in these two stocks, which will see them doing well in coming days.
* Madhav Marbles & Realty is subdued in this bull market. The stock has the potential to reach Rs.130 levels soon.
* Consolidated Securities has performed consistently quarter after quarter and has strategic stake in many promising
small cap stocks like Asian Oilfield, Bihar Tubes, Moving Pictures and other stocks that have appreciated sharply.
Accumulate in small quantities at declines.
* Coral India Housing is a good long-term bet in the realty sector. It can be accumulated in declines.
* Remson Industries, Sarup Tanneries, Cybele Industries are rising in view of their land sale/joint venture realty
ventures. Value unlocking of realty is driving these stocks.
* Macmillan is a good long term bet among educational stocks.
* Prithvi Information is in the process of acquiring a foreign software company and its new offshore development centre
in Hyderabad will soon begin operation. With a likely EPS of Rs.65, the share may touch Rs.400 in the near future.
* Celestial Labs is being accumulated by knowledgeable persons as its Rs.40 cr. expansion project including an enzyme
plant is likely to commence production from Q2FY09. The share has the potential to touch Rs.100.
* Varun Shipping is the cheapest share in the shipping space with a likely EPS of Rs.18 and could see a major spurt in
coming days.
* Polyplex Corp is likely to register EPS of Rs.57 in FY09 and Rs.90 in FY10 respectively after the completion of its major
expansion. The share is heading towards the Rs.500 mark.
* Mid-caps have shot up like crazy in the last few days. Investors are strongly advised to keep booking profits and play
safe.
* Bilpower is making preferential allotment of 20 lakh warrants at Rs.350 to promoters and others and is also planning an
FCCB issue. Scrip can touch Rs.400 in the short-term.
* Crew Bos has given a strong technical breakout and is tipped to cross Rs.180 in the short-term.
* As per a technical analyst, Lokesh Machines is looking extremely good on the charts and expected to touch Rs.175 in
the coming week.
* In the real estate and construction space, Kamanwala Housing is still trading cheap and has the potential to give 50%
return in a year's time. Keep accumulating at declines.
* Finolex Industries is likely to touch Rs.350-400 by FY09 when its private jetty at Ratnagiri is leased out and a new
company floated.
* Kaveri Telecom is a likely multi-bagger from hereon for very soon fund managers are looking at a by entry into it.
4
* Nahar Industrial Enterprises is a big retail play and is likely to be a mini Pantaloon Retail.
* Ind Swift Labs is aiming high on the CRAMS segment after the recent approval of USFDA for its latest unit and is likely
to regain its lost territory.
* Ind Swift Ltd., too, is likely to emerge stronger in the coming days. Goldman Sach raising its holding in it to beyond 5%
in December'07 signals its imminent re-rating.
* GMR Infra is demerging its wholly owned power business as GMR Energy Ltd. with plans for an IPO. This move may
unlock value for GMR Infra.
* The grey market premium on IPOs were stable last week with Reliance Power at Rs.430/435, Futura Capital at
Rs.525/550Aries Agro at Rs.26/28 and Precision Pipes at Rs.21/22.
* Proxy IPO application forms for Rs.1 lakh retail application are quoting Rs.10,200/10,300 for Reliance Power and
Rs.3100/3200 for Futura Capital.
By Saarthi
BEST BETS
3i Infotech Ltd. (Code: 532628)
Rs.143.05
Established in 1993 by ICICI Bank, 3i Infotech Ltd. (3i) has progressed over the years from a back office processing unit of
the ICICI group to a technology company providing IT services and solutions to over 500 clients in more than 50 countries
through 10 offices worldwide and 10 development centres in India. In fact, it has emerged as the fourth largest Indian
software products company offering a comprehensive range of software products & solutions primarily for banking,
insurance, capital markets, mutual funds, telecom, manufacturing, retail & distribution industries. In addition, it offers a
broad range of software services such as custom software development, IT consulting, enterprise application integration
(EAI), business process outsourcing (BPO), managed IT Services, and specialized services such as product re-engineering,
compliance consultancy, data warehousing, business intelligence etc. Besides, 3i is recognized as one of the major national
players in the e- Governance consultancy space in India. Importantly, 3i derives revenues from products and services in a
1:1 ratio which differentiates it from other IT companies. Premia, Kastle, Amlock, iBoss, Data Scan, Awacs, Mfund, Veda,
Xroadz etc are a few of its popular software products for core banking, insurance, stock exchange surveillance, treasury,
risk & wealth management, mutual funds etc. It also has an ERP product suite providing solutions for the retail,
manufacturing, distribution, trading, fashion, automotive, pharmaceutical and chemical industries. Interestingly, 3i
provides complete end-to-end outsourcing solutions to various industries mainly in the domestic market and specialises
in non-voice based BPO services. This division is doing extremely well with nearly 15% of the total revenue coming from
it. 3i's quality certifications include SEI CMMI Level 5 for software business and ISO 9001:2000 for infrastructure services
and BPO operations.
Geographically, 3i derives around 30% revenue from India, 25% from USA, 20% from Western Europe, 15% from Middle
East & Africa and the balance 10% from Asia Pacific region. Apart from the ICICI group being its largest customer, 3i
boasts of serving international biggies like Prudential Assurance, Finansa, AIG, Emirates Bank, RAK Bank, Hong Leong
Bank, SBI Factors, Oriental Insurance, HP, GSK, Al Ansari, Solidarity Islamic Insurance, Commercial America Insurance,
Standard Chartered, Deutsche Bank, Pidilite Industries etc. In order to beat the competition and grow at a rapid pace, the
company is betting high on the inorganic route and has adopted an acquisition-led strategy to acquire new capabilities
and foray into new geographies in the BFSI space. It has made over 20 acquisitions globally in the last few years and is
looking further for acquisition opportunities in China, North America, Brazil and Spain market. At the same time, it is
growing organically and has launched its first International Data Centre in Chennai, which will offer managed hosting
services for application and disaster recovery solutions. Additionally, it has introduced its remote IT infrastructure
management services through its global network and security operations centre. Meanwhile, it also setting up mini
centres of excellence for operating systems (Microsoft, Red Hat Linux, AIX, Solaris), databases (Oracle, MS SQL, MySQL,
DB2), messaging solutions and IT security labs for ethical hacking and vulnerability assessments and niche application
infrastructure solutions.
Importantly, with net dollar inflows of less than 10%, 3i is hardly affected by the rupee appreciation compared to its
peers. In short, the company has a well diversified and a de-risked business model in terms of offerings
(products/services nearly 1:1 with coverage of the entire BFSI spectrum), geography (no region >30% of revenues) and
customers (ICICI Bank and other Top 10 clients' concentration has been on a decline). To fund its various acquisitions, the
company raised nearly Rs.175 cr. and Rs.400 cr. in April 2007 & July 2007 respectively through the FCCB route. These are
convertible into equity shares at Rs.154 & Rs.166 respectively leading to an equity dilution of approx 30% going forward.
On the back excellent H1FY08 results and considering its strong order book position, the company may post total revenue
of Rs.1200 cr. with net profit of Rs.175 cr. This translates into an EPS of Rs.13.50 on its current equity of Rs.130 cr. But on
its fully diluted equity of around Rs.175 cr., the EPS works out to Rs.10. Due to the strong economic growth in India and
5
its acquisition led strategy 3i has the potential to post an EPS of about Rs.13 for FY09. Hence at a reasonable discounting
by 18x against its FY09 earnings, the scrip can move up to Rs.230 i.e. 60% appreciation in 12-15 months.
Bihar Tubes (Code: 590059)
Rs.201.05
Incorporated in 1986, Bihar Tubes Ltd. (BTL) is primarily engaged in manufacturing steel pipes & tubes. It has broadly
divided its product range into four segments – galvanized pipes, ERW pipes, pre-galvanized pipes and hollow pipes. The
first two categories are the most common type of pipes manufactured by several organized as well as unorganized
players under stiff competition with low margin. But for the third segment i.e. pre-galvanized pipes, BTL is the pioneer
and the only company in India producing it. Although a new product in India, pre-galvanized pipes & tubes are very
successful in international markets due to savings on zinc cost as they have a zinc coating of 80-120 gm/mt while that for
galvanized tubes is 400 gm/mt. And for the last segment viz. square and rectangular hollow pipes, BTL is the second
largest manufacturer in the country after Tata Steel. Hollow pipes are mainly used by the construction and infrastructure
industry as cement concrete structures are being replaced by steel sections. Today BTL, possesses the capability to
provide nearly 150 kinds of tubes across thickness, layering, treatment and chemical composition and has thus emerged
as a one-stop shop for customers with varied requirements. To summarize, the company's products are used in diverse
sectors linked closely to India's growth like oil & gas, water management, mass rapid transportation, construction,
engineering, automobiles, sugar, power and agricultural equipment industries. Moreover, around 10% of its revenue
comes from export to over 35 countries like US, Colombia, Nigeria, Ireland, Middle East, Africa and Germany.
BTL currently has four tube production mills in Sikandarabad, UP out of which three have their technology imported
from Kusakabe, Japan. To cater to the rising demand, the company has increased its overall capacity of steel pipes and
tubes from 60,000 to 125,000 MTPA in FY07. BTL has a network of 100 distributors throughout the country with a strong
presence in north and south India, where it markets products under the popular 'APL Apollo' brand name. It also sells
directly to various institutional customers from the engineering & construction space such as L&T, BHEL, Reliance,
Nagarjuna Construction, BSNL, Suzlon Energy, Era Construction, Simplex Infrastructure. Indian Railways, Tata Motors,
Gammon, BL Kashyapn, Triveni Engineering are among others. As a step towards backward integration, BTL took over a
small company called Apollo Metalex having a capacity of 24,000 MTPA for galvanising sheets. Besides to improve its
profit margin, it is shifting its product mix in favour of hollow sections and pre-galvanized products since they fetch
relatively higher realizations. It is also aggressively setting up branches across India with a view to have a pan-India
presence. For future growth, BTL is foraying into the automobile sector by creating a capacity of 35,000 MTPA for boiler
tubes, air heated and shock absorber tubes. It is setting up a facility in Maharashtra to manufacture infrastructure pipes,
API grade pipes and precision tubes. The company is also looking to scale up the value chain via the manufacture of 20"
diameter tubes and is currently setting up a tube mill for this purpose. With a view to curtail input costs, the company is
undertaking backward integration via the set up of a fully integrated 100,000 MTPA HR skelp plant at Sikandarabad.
In a bid to ramp up its capacity and expand its geographical reach, BTL is making an acquisition in western India and is
in the final stages of negotiation. In future, company intends to have total installed capacity of 300,000 MTPA along with
its own coating plant. Moreover, BTL has recently entered into 80:20 joint venture agreement with Kusakabe to set up a
12,000 MTPA facility for manufacture of stainless steel pipes and tubes with an investment of Rs.20 cr. To fund its growth
plans, the company has already issued 31.75 lakh warrants to be converted at Rs.140 per share. Further, the company is
contemplating to come out with an FCCB issue to the tune of US $20 million. On the back of strong performance for the
first two quarter, BTL is expected to end FY08 with sales of Rs.260 cr. and net profit of Rs.16 cr. This leads to an EPS of
Rs.25 on its current equity of Rs.6.40 cr. whereas the diluted EPS works out to Rs.17 on an equity of Rs.9.60 cr. Investors
are advised to buy at sharp declines with a target price of Rs.300 (i.e. 50% returns) in 12-15 months.
JSW Steel Ltd.: For a steely future
ANALYSIS
By Devdas Mogili
JSW Steel Ltd., formerly known as Jindal Vijayanagar Steel Ltd., and a part of the O.P. Jindal group, is a 13-year old
Mumbai based company established in 1994. The company is jointly promoted by Jindal Iron and Steel Company (JISCO)
and other associate companies of the Jindal group together with the Karnataka State Industrial Investment and
Development Corporation (KSIIDC). Savitri Devi Jindal is the chairman while Sajjan Jindal is the Vice Chairman &
Managing Director of the company. Y.Siva Sagar Rao is the Joint Managing Director & CEO of the company.
JSW Steel is primarily engaged in the manufacture and sale of Iron & Steel products. It has identified two primary
business segments viz., steel and power. However, the power generated will be mainly used for captive consumption.
The company has a number of subsidiaries which include JSW Natural Resources Ltd., JSW Steel (UK) Ltd., JSW Steel
Processing Centres, JSW Energy (Vijayanagar) Ltd., Jindal Praxair Oxygen Pvt. Ltd., Vijayanagar Minerals Pvt. Ltd.,
6
The company made a modest beginning around a decade ago and has grown multi-fold through organic and inorganic
routes into a multi-product, multi-locational organization. The company has manufacturing plants located in Vasind and
Tarapur in Maharashtra and Vijayanagar in Karnataka. It was set up as an integrated steel plant to manufacture 1.65
million TPA (MMTPA) of hot-rolled coils at Torangallu in the Bellary District at an estimated cost of Rs.3300 cr., which
includes a pellet plant at an estimated cost of Rs.300 cr.
2005-06 has been a landmark year for the company with the implementation of its Scheme of Amalgamation
providing the benefit of captive coke and power and expansion of ding the crude steel capacity from 1.6 MMTPA to
2.5 MMTPA.
The company has also successfully commissioned 1.3 MMTPA crude steel capacities together with the expansion and
modernisation of the Hot Strip Mill raising the capacity from 2 to 2.5 MMTPA and expanding the capacity of the pellet
plant from 4.2 MMTPA to 5 MMTPA.
Projects under Implementation: The company's 1 MMTPA Cold Rolling Mill complex is expected to be operational by
now and Phase II Modernization of Hot Strip Mill enhancing the capacity from 2.5 to 3.2 MMTPA and the modernisation
of the Blast Furnace - I to increase capacity from 0.9 to 1.2 MMTPA is expected to be ready by 2009.
It is also setting up of new Hot Strip Mill with 2 MMTPA expandable at a marginal investment to 5 MMTPA, which is
expected to be commissioned by end September 2009. Further, the expansion of Crude Steel capacity by 2.8 MMTPA to
reach 6.8 MMTPA by March 2009 is under way.
Expansion: The company has announced plans of injecting Rs.7525 cr. in four different projects in Tamil Nadu over the
next three years. The capacity expansion to 7 MMTPA is under-way and is planned to be completed by March 2009.
Meticulous planning is being carried out to accomplish the vision of making the company a 10 MMTPA by 2010 at
Vijayanagar.
Other Plans: Company has signed a Memorandum of Understanding with the State Govt. of Jharkhand for setting up a
10 MMTPA greenfield steel plant in phases at an investment of Rs.35,000 cr. It has also applied for allocation of captive
coking coal blocks to the Ministry of Coal for the captive consumption of coal at its existing steel plant at Vijayanagar
as well as the proposed steel plant at Jharkhand.
The Ministry of Coal, Government of India, has allotted the Rohne Coal Block in Jharkhand with geological reserves of
410 million tonnes and 250 million tonnes of mineable reserves of Medium and High grade Coking Coal jointly to JSW
Steel and two other allottees in the ratio of 69%, 24% and 7% respectively. The annual capacity of the mine will be 8
MMTPA and the output will be divided among the three companies in the ratio of their allotment.
The company has also executed a Development in January 2007 with the Government of West Bengal, West Bengal
Industrial Development Corporation (WBIDC) and the West Bengal Mineral Development & Trading Corporation
Ltd. (WBMDTC) for setting up a 10 MMTPA steel plant in West Bengal in suitable phases at an estimated cost of
Rs.35,000 cr. within 12 years from the date of execution of the Development Agreement.
Performance: For 2006-07, the company clocked a net turnover of Rs.8594.44 cr. for 2006-07 with a net profit of Rs.1292 cr.
registering a basic EPS of Rs.80.11 and diluted EPS of Rs.78.88.
Financial Highlights:
(Rs. in cr.)
Latest Results: For the quarter, it
recorded crude steel production
of 7.83 lakh tones, which was up
by 21% and sold 7.30 lakh tones,
which represents an increase of
12%. The company clocked a net
turnover of Rs.2494 cr., a rise of
14% with EBIDTA at Rs.961 cr.
representing a growth of 29%.
PBT grew by 45% to Rs.711 cr.
while PAT shot up by 48% to
Rs.511 cr. The diluted EPS of
Rs.29.85 rose by 48%. The
annualised diluted EPS works
out to Rs.119.40. It is pertinent to
note that the company was able
to realise Rs.111.11 cr. from the
sale of carbon credits. The
future, therefore, looks quite
promising on the carbon credits
Particulars
QE 30/09/07
QE 30/06/06
YE 31/03/07
Domestic Turnover
1856.00
1336.90
5743.70
Export Turnover
778.17
1034.47
3593.64
Sale of Carbon Credits
111.11
-
-
Total
2745.88
2371.37
9337.34
Less: Excise Duty
251.79
174.74
742.90
Net Turnover
2494.09
2196.63
8594.44
Other Income
124.68
8.39
105.15
Total Income
2618.77
2205.02
8699.59
Inc/Dec in stock
(78.00)
10.13
66.54
Raw Materials
1204.47
957.28
3963.41
Power & Fuel
119.76
111.00
393.10
Employee cost
58.44
41.68
175.47
Other Expenditure
353.53.
340.15
1179.10
Total
1658.20
1460.24
5777.62
PBID & Misc Exp written off and tax
960.57
744.78
2921.97
Interest & Fin Charg
68.07
96.73
399.54
Depreciation etc
135.39
116.44
498.23
Misc Exp W/off
46.37
39.88
109.02
PBT
710.74
491.73
1915.18
Tax Expense
199.51
145.43
623.18
Net profit after tax
511.23
346.30
1292.00
Paid up equity (FV: Rs.10)
163.98
163.98
163.98
Reserves
-
-
4873.38
EPS Basic (Rs)
30.68
21.55
80.11
Diluted (Rs)
29.85
21.48
78.88
7
front for the company.
Financials: The company has an equity base of Rs.163.98 cr. with reserves of Rs.5068.25 cr. and the book value of its share
works out to Rs.319.10. The ROCE of 26.24%, RONW was 26.98% and the debt:equity ratio a mere 0.83. It has a beta value
of 1.2, which indicates that the share is highly volatile.
Share Profile: The JSW Steel share with a face value of Rs.10 is listed and traded on BSE under the A group. Its share
price touched a 52-week high of Rs.1389 and a low of Rs.373. At its current market price of Rs.1335 it has a market
capitalization of Rs.21,607 cr.
Dividends: The company has paid dividends regularly as shown below:
FY07 - 125%; FY06 - 80%; FY05 - 80%
In view of its excellent performance, the company hiked the dividend by 45% from 80% to 125% for 2006-07.
Shareholding Pattern: As on 30
th
September 2007, the promoter holding in the company was 56.34% while the balance of
53.66% is with non-corporate promoters and the Indian Public. However, there is substantial institutional interest in the
counter. Mutual Funds like Reliance, SBI Magnum, UTI, Sundaram, Tata, Kotak, LICMF, Birla, Taurus, GIC, Canequity,
Sahara, Cholamandalam, Fidelity etc. have been adding the company's shares to their various schemes since October
2007.
Prospects: India is the second fastest growing economy in the world and steel consumption last year grew by 12%.
The automotive, consumer durables, auto components, infrastructure, construction and housing sectors are showing
double digit growth, which drives up the steel demand. The total consumption of steel in India is expected to reach 70
million tonnes by 2011 even assuming a conservative growth rate of 10%.
The buoyancy in the Indian economy picked up momentum and has pushed up GDP growth to over 8% of which the
manufacturing sector clocked a growth of around 10%. Major steel consuming sectors namely housing, automobiles,
white goods and infrastructure are also growing rapidly, which in turn augurs well for the steel sector. The increased
outlay on infrastructure development and the emphasis on urban and rural infrastructure in the current union budget are
expected to create a favourable environment to achieve targeted GDP growth rate of 10%.
The global steel industry is passing through an interesting phase with a spate of mergers with the theme of
consolidation. Another change driving the world steel industry is shifting of basic steel making capacities to emerging
economies endowed with natural resources namely iron ore. The Indian steel sector is upbeat with these developments
due to availability of large iron ore reserves attracting new investments for creating incremental capacities.
Conclusion: Today, India is a preferred global destination for various international steel players owing to its growing
economy, rich mineral resources, young demographics and cheap labour. Going ahead, India's domestic demand for
steel is at an inflection point driven by strong internal developments. The forthcoming Commonwealth Games
scheduled for 2010 in New Delhi will further boost the demand for steel and steel products significantly.
At its current market price of Rs.1335, the JSW Steel share price is discounted less than 11 times against the industry
average P/E multiple of over 15 times. In view of the fast growing economy, rising GDP, forthcoming Commonwealth
Games, robust performance and bright outlook of the steel industry, the company's future growth prospects are not fully
factored into its current share price. The share could be added to one's portfolio for a steely future.
The market may extend its gains
MARKET REVIEW
By Ashok D. Singh
The BSE Sensex rose 479.94 points or 2.38% to 20,686.89, a record closing high, for the week ended 4 January 2008 in
anticipation of good Q3 results. The NSE Nifty gained 135.70 points or 2.21% to 6274.30, a record closing high too, for the
week. The BSE Mid-Cap index rose 538.49 points or 5.62% to 10,113.06 in the week. The BSE Small-Cap index surged
982.82 points or 7.62% to 13,884.11 for the week.
The market posted modest gains on Monday, 31
st
December 2007 led by gains in telecom stocks and in select
heavyweights. The 30-share BSE Sensex rose 80.04 points or 0.40% to 20,286.99. The broader CNX S&P Nifty rose 58.90
points or 0.97% to 6,138.60.
The market posted marginal gains on Tuesday, 1
st
January 2008. Trading for the day began on a firm note. The market
slipped into the negative zone in mid-afternoon trades before recovering from lower levels. The 30-share BSE Sensex rose
13.72 points or 0.07% to 20,300.71. The broader CNX S&P Nifty gained 5.75 points or 0.09% to 6,144.35.
The market recovered from lower level in highly volatile trades to end at higher levels on Wednesday, 2
nd
January 2008.
The 30-share BSE Sensex surged 164.59 points or 0.81% to settle at a record closing peak of 20,465.30. The broader CNX
S&P Nifty was up 35.05 points or 0.57% at 6179.40.
The market edged lower on Thursday, 3
rd
January 2008 dragged by decline in IT and cement stocks and a fall in select
index heavyweights. The 30-share BSE Sensex settled 120.10 points or 0.59% lower at 20,345.20. Nifty declined marginally
by 0.85 points or 0.01% to 6178.55.
8
The 30-share BSE Sensex surged 341.69 points or 1.68% at 20,686.89 on Friday, 4
th
January 2007. The broader CNX S&P
Nifty rose 95.75 points or 1.55% at 6274.30. Sensex, Nifty, BSE Mid-Cap and BSE Small-Cap indices struck all-time highs.
FIIs bought shares worth Rs.5579.10 cr. in the month of December 2007. FIIs had sold shares worth Rs.5,849.90 cr. in the
month of November 2007. FII inflow in calendar year 2007 totalled Rs.71,486.50 cr. as compared to Rs.36,539.70 cr. in 2006.
Mutual funds were net buyers of shares worth Rs.3203 cr. in the month of December 2007.
Merchandise exports grew 26.82% to US $12.42 billion in November 2007 from US $9.79 billion in November 2006.
However, export growth was slower than a 35% increase in October 2007. Exports decelerated 22.08% in April-November
2007 over a 26.6% rise in April-November 2006.
Inflation based on the wholesale price index moved up to 3.50% for the week ended 22 December 2007 as compared with
3.45% in the week ended 15 December 2007 primarily due to the increase in prices of manufactured goods and fuel items.
On 30 December 2007, the Finance Ministry ruled out raising interest subsidy beyond 2% for short term crop loans.
Earlier, the minister of state for agriculture Kanti Lal Bhuria had said that his ministry was trying to ensure that farmers
get short-term crop loans at 5%. Moreover, the Standing Committee on Finance observed that the 2%subsidy is
inadequate, considering the requirements of the farming community.
The Securities and Exchange Board of India on Wednesday, 2 January 2008 announced that institutional investors would
be permitted to commence short-selling on the bourses from next month. Short-selling — in effect, selling shares without
owning them — was banned in 2001 in the wake of the Ketan Parekh stock market scam. After a six-year gap, the Reserve
Bank of India gave the go-ahead to foreign institutional investors (FIIs) earlier this week to enter into this mode of blank
transactions on the bourses. And now it is the market regulator's turn to permit short-selling by all institutional investors
from 1 February 2008.
Reliance Industries advanced 3.02% to Rs.2985.85 for the week. NTPC surged 12.57% to Rs.271.75 in the week. Bharti
Airtel rose 0.80% to Rs.948.25.
Reliance Energy surged 16.47% to Rs.2510.35. Reliance Power (RPL), in which REL holds 50% stake, plans to raise as
much as $3 billion in the nation's biggest initial public offering. Reliance Power will sell 26 cr. shares at a price band of
Rs.405 to Rs.450 per share. The ICICI Bank rose 4.75% to Rs.1285.35.
Reliance Capital (RCL) soared 5.74% to Rs.2766.05 in the week. Earlier on 22 December 2007, some reports suggested that
Reliance Capital's unlisted subsidiary Reliance Technology Ventures (RTVL) had invested in US-based telecom solution
provider Stoke Inc. for an undisclosed sum. The US-based firm enables telecom operators to solve security services
problems across different broadband access.
HDFC rose 6.41% to Rs.3111.30. HDFC agreed to sell 7.15% stake in its life insurance joint venture - HDFC Standard Life
Insurance Company - to its foreign partner, Standard Life (Mauritius Holdings), for about Rs.201 cr.
ITC jumped 6.84% to Rs.219.55. As per reports, ITC's subsidiary Fortune Park Hotels plans to invest around Rs.130 cr. in
three or four hotels in Bangalore, Coimbatore and Kolkata.
Maruti Suzuki India fell 2% to Rs.964.50 in the week after the company said it will raise prices of some vehicles by 2-3% in
January 2008 because of higher raw material costs.
Unitech spurted 7.66% to Rs.520.85 in the week on reports the company is making an aggressive entry into the booming
realty market in the south. It is on the verge of announcing two joint development deals, involving over 1,400 acres of
prime land in Hyderabad and Chennai.
Infosys Technologies declined 5.62% to
Rs.1694.80 in the week. Infosys will be one of
the first among India's big companies to
report Q3 December 2007 earnings on 11
January 2008.
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Burnpur Cement settled at Rs.46.35 on BSE, a
premium of 286.25% over the fixed IPO price
of Rs.12, on 3 January 2008. The stock debuted
at Rs.18.45, a premium of 53.75% over the IPO
price.
The BSE Sensex rose 479.94 points or 2.38% to
close at 20,686.89 last week. The market may
extend gains on expectations of good Q3
December'07 results. However, concerns over
slower global growth and record high crude
oil prices may cap gains. Inflow from foreign
institutional investors (FIIs) holds the key.
Crude oil closed lower on Thursday, 3 January
9
2008 after hitting another record high of $100.09 earlier in the session. Light sweet crude for February delivery finished at
$99.18, down 44 cents on the NYMEX. Of late, global markets have come under selling pressure on concerns that the
credit market crisis may intensify further. Any major sell-off there may cast its shadow here as well. The influential US
non-farm payrolls data for December 2007 which is due on Friday, 4 January 2008, will set the tone for global markets. IT
bellwether Infosys Technologies will announce results on 11 January 2008.
Mid-caps dominate market sentiment
MARKET
By G. S. Roongta
Throughout last week, the stock market moved in a very narrow range till Thursday, 3
rd
January 2008 belying all
expectations of a northward march in the New Year 2008. And just as everyone had reconciled to a dull week, it sprang a
surprise by gaining 342 points on Friday, 4
th
January'08, to close at 20,687 after hitting an intra-day low of 20,368. But this
was mainly contributed by the Reliance family of stocks, L&T and ICICI Bank while all other Sensex stocks were in the
red.
Just as the negative outlook for the Christmas holiday season proved wrong after the Sensex rose by 1044 points, so also
the high hopes for the New Year were unfounded as the Sensex struggled hard throughout the week without any
significant gain.
Last week, the FIIs did not show any appreciable interest and were in fact net sellers. Because of this,
punters did not take any fresh position as they feared fresh unloading by institutional players prior to the
Q3 corporate results. Thus they were not keen to take any fresh positions despite no negative
fundamentals prevailing to justify this pessimism.
10
Despite the narrow range at the Sensex level, banking stocks were quite in the limelight. ICICI Bank,
HDFC, PNB, Canara Bank, State Bank of India, Central Bank, IDBI Bank and others have achieved new
highs.
HDFC hit a new 52-week high at Rs.3215, HDFC Bank at Rs.1800, ICICI Bank at Rs.1350, SBI at Rs.2476,
PNB at Rs.717. Other B1 and B2 category bank stocks, too, rallied on an upward march. Central Bank hit a new high,
Canara Bank closed at Rs.394, Allahabad Bank at Rs.140, J&K Bank at Rs.932, Oriental Bank of Commerce at Rs.305,
Andhra Bank at Rs.120, Lakshmi Vilas Bank at Rs.140 etc. on Wednesday, 2
nd
Jan'08.
G.S. Roongta
Against banking stocks, capital goods stocks like ABB, BHEL, L&T and others have taken a beating. Cement stocks, too,
were beaten heavily after the Andhra Pradesh government threatened to nationalise cement companies in AP if they did
not behave properly and abide by the government ruling. Grasim, ACC, Ambuja Cement, Shree Cement together with
other cement stocks faced heavy liquidation. Not only the Andhra Pradesh government but also the Ministry of Industries
together with the Ministry of Finance at the Centre is at loggerheads with cement manufacturers ever since the last
budget on the question of pricing of cement bags. There is a sharp difference of opinion on fair market pricing of cement
bags especially in a free market economy ruled purely by the dynamics of demand and supply. The Tamil Nadu
government, too, has threatened cement manufacturers by mass import of cement and supplying the same to consumers
even at a loss! Having lost out twice in the past, the government is once again poking its nose in the production
economics to win public sympathy and consumers at large.
Steel companies, which had also hiked the price of their products between Rs.800 to Rs.1500 per tonne with effect from
January 2008, were also beaten down. But no one knows the reason why. It is really strange that most Steel stocks suffered
last week with a modest fall in heavyweights like Tata Steel and SAIL followed by other steel stocks. Only Mukand Ltd.
rallied sharply touching a dizzy Rs.150.
Taking a broader look, we find that the stock market is now operator driven wherein a few stocks occupy the front seat
for a few days while some other stocks face selling pressure without any reason or change in the working fundamentals
of either of them. Thereafter, there is a shuffle and a new set of stocks rise while a new set of stocks fall again without any
justification for the change.
Just as there was no justification for the markets to retreat by 1300 points some 4/5 weeks back or to bounce back by 1500
points thereafter displaying excess volatility, so also there was no justification for the fall last week and in the poor
performance of steel stocks.
Investors and marketmen should, therefore, learn this new technique and join the race with smart players, who ignore
any good or bad developments as per their fancy and push stocks in the opposite direction and fool the investing public
in the bargain.
Money Times readers may recall that I had taken the lead through this column well in advance to recommend mid-cap
and small-cap stocks and have been reiterating this for the past 2/3 weeks. It is, therefore, quite heartening to note that
frontline stocks are now sidelined whereas mid-cap and small-cap stocks are galloping ahead.
This trend is now well set ever since SEBI announced its goal of standardizing the face value of all stocks to Re.1 per
share. This will prove a real boon for the mid-caps and small-caps, which explains why smart investors have started
chasing them to catch them young. Everyday, hundreds of such stocks are locked in upper circuits immediately as the
market opens. Nearly 500 such stocks have doubled and hundreds have trebled over the past 3/4 weeks. This SEBI move
will have a psychological impact as mid-caps and small-caps will appear very attractive apart from enhancing their
liquidity.
This sudden fancy for mid-caps and small-caps has really surprised investors as they wonder what has suddenly
happened in the market to justify this sharp upmove.
To site an example, I enumerate some of the stocks recommended earlier in this column that have risen by 100% to 400%
in the last 4 weeks or so and have remained in upper circuit ever since.
MID-CAPS
Company
Appreciation
Growth (%)
Mukund Engg.
SMALL-CAPS
Company
Rs.27 to Rs.78
189%
Essar Shipping
Appreciation
11
Growth (%)
Anil Modi
Rs.40 to Rs.185
363%
Sarda Plywood
Rs.3 to Rs.15
400%
Ashirwad Steel
Rs.32 to Rs.68
113%
Garden Silk
Rs.7 to Rs.35
400%
Penta Media
Rs.70 to Rs.120
71%
WPIL
Rs.7 to Rs.14
100%
Steel Tubes
Rs.40 to Rs.105
163%
Pearl Poly
Rs.3 to Rs.15
400%
Shiv Vani Sugar
Rs.22 to Rs.36
64%
Mukund Ltd.
Rs.3 to Rs.10
233%
Pasupati Acrylon
Rs.70 to Rs.148
111%
National Steel & Agro
Rs.4 to Rs.10
150%
Jet
Rs.24 to Rs.50
108%
Satvahana Ispat
Rs.8 to Rs.16
100%
Rs.38 to Rs.100
163%
When all my recommended stocks have risen so smartly, then investors should not be astonished if hundreds of other
mid-cap and small-cap stocks are shining equally bright.
Shri Dinesh Mills recommended last week has been in the upper circuit right from 31
st
December 2007 because of which
readers could not take advantage of the recommendation. This is a great disadvantage of the upper circuit, which
sometimes leads us to withhold recommending such as all readers rush to buy at the same time. However, I still advise
readers to wait for an opportunity to acquire this quality stock for their portfolio as its current ruling price is not an end
for long-term investors.
Sarda Plywood, National Steel & Agro, Garden Silk Mills, which have been recommended for their strong fundamentals,
high book values have started yielding fruits having crossed their short-term targets while the long-term targets have yet
to be achieved.
The only one stock that is not yet bounced back to its two years' high price of Rs.210 is Modern Steels whose ex-bonus
(2:1) price is currently ruling around Rs.45 to Rs.48. Those who wish to catch it young should buy it immediately as it may
start rising on its fundamental strength after its Q3 results are announced or the annual guidance is issued by the
company. It may be difficult to buy it cheap then. The stock pertains to the steel sector and is a worthy pick. When
Mukand Ltd. And National Steel & Agro can rise 200%, then why not Modern Steels?
FUND ANALYSIS
MUTUAL FUNDS
Promising Tax Savings Schemes
By Devangi Bhuta
With the fiscal year end round the corner, most investors would be looking forward to tax savings schemes to reduce
their tax liabilities.
Prior to the Union Budget 2005-06, investments for the purpose of tax deductions were subject to upper limits. For
example, the cap on tax-saving funds was placed at Rs.10,000. Once these caps were removed, a level-playing field has
been created for investments eligible for tax benefits in the debt and equity asset class. Tax-saving funds, unlike typical
diversified equity funds, are subject to a mandatory 3-year lock-in period.
Tax-saving funds are similar to diversified equity funds in terms of risk profile but have the added advantage of good
capital appreciation as compared to Public Provident Fund (PPF), National Savings Certificate (NSC) and Life Insurance
policies. Thus investors enjoy the dual benefit of having a tax shield as well as an investment opportunity which can give
them good returns.
Some of tax savings scheme that appear promising are:
HDFC Long Term Advantage Fund (LTAF) & HDFC Tax Saver: HDFC AMC provides two schemes under this category.
Their exposure to sectors is similar to Industrial Capital Goods, Banks and Software space. The former appears to be more
bullish on Consumer non-durables.
HDFC LTAF has been holding Reliance Industries, ICICI Bank, Thermax, Container Corporation and SBI for a long time
and although it increased its exposure to frontliners, it may provide stable returns to the scheme. The churn ratio here has
been low at 60%, which augurs well for this scheme.
HDFC Tax Saver appears to have a more aggressive approach with a higher churn ratio at 91% as per the November Fact
Sheet. It appears to be having higher risk with 33% of the portfolio exposed to capital goods space (L&T, Crompton
Greaves, BHEL etc). It holds ICICI Bank and SBI. It has been steadily reducing its exposure in Telecom and Media stocks
over the last 6 months.
Kotak Tax Saver Fund: The Kotak Tax Saver Fund has a well diversified portfolio with top three sector exposures being
Construction, Banks and Capital Goods. SBI and Reliance Industries dominate the portfolio while recently it increased the
exposure to Jindal Steel & Power and Aditya Birla Nuvo Limited.
The scheme is not skewed towards index stocks and appears to have invested in companies promising sectors like pipes,
media and transportation.
The fund manager's strategy appears to be pick potent stocks and hold on, which augurs well for the scheme. It is been
amongst the top ten performers under this category in the last one year and still appears to have steam left.
Reliance Tax Saver Fund: The primary objective of the scheme is to generate long-term capital appreciation from a
portfolio that is invested predominantly in equity and equity-related instruments.
It has gradually increased its exposure to Industrial Capital Goods space and is holding Areva T&D, Alstom Projects
within the top ten stocks. The exposure to banks has been increased over the months with stocks like PNB and ICICI
Bank. It has recently bought into Deccan Aviation which appears to be a good move. The portfolio is well diversified
across sectors and scrips and at the same time is not focused on large cap stocks to a great extent.
The churn rate stands at 1.59% while the expense ratio is 1.89%, which passes muster. Surprisingly, interesting stocks like
Suzlon have been exited while exposure to Reliance Communication seems to have reduced.
The scheme has underperformed in the past. But with the current portfolio and a good investment strategy, the prospects
appear promising.
For those with a decent risk appetite, a balanced diversification in Debt instruments and these equity schemes, this
appears to be an optimal strategy.
12
By Saarthi
STOCK WATCH
JK Lakshmi Cement Ltd. (Code: 500380) (Rs.202.65) is expected to report very encouraging numbers for the December
2007 quarter on the back of saving in power costs coupled with higher price realisation for cement. The company has fully
commissioned both its captive thermal power plants of 18 MW each thereby ensuring significant saving in power costs,
which will boost its bottomline. Secondly, the company has replaced high cost debts by cheaper funds to the extant of
Rs.325 cr., which will reduce interest costs going forward. On the other hand its expansion project for enhancing its
capacity from 3.4 million to 5 million MTPA is progressing as per schedule and is expected to be commissioned by
October 2008. It also plans to set up a new greenfield plant in Chhattisgarh with a capacity to produce 2.5 million MTPA
of cement. Moreover, it is operating 5 RMC (ready-mix concrete) plants and hopes to add another 5 to 6 plants more in the
near future. On the back of a terrific September 2007 quarter, it recorded 50% growth in sales to Rs.534 cr. and net profit
increased by 130% to 142 cr. for H1FY08. Hence even on a conservative basis, it may clock a turnover of Rs.1100 cr. with
PAT of Rs.210 cr. for FY08, which translates into EPS of Rs.37 on its current equity of Rs.57 cr. and Rs.34 on its diluted
equity Rs.61.20 cr. Investors can buy the scrip at current levels for a target price of Rs.280 in six months or so.
****
Although the share price of all companies with prime real estate tag has shot up dramatically, Bombay Oxygen
Corporation Ltd. (Code: 509470) (Rs.7,650) led by Mr. Shyma Ruia is trading at 40% discount to its recent high of
Rs.13,000. the company produces gases like
oxygen, nitrogen, argon, acetylene etc.
Recently, the company has completely shifted
its manufacturing plant from LBS Marg,
Mulund in Mumbai to Kalwe in Thane
thereby making the 14 acre land totally free
for development. This is prime property just
opposite famous Nirmal Lifestyle mall and
can be utilized for commercial as well as
residential purpose. Ironically, the company is
available at an enterprise value of only Rs.130
cr. although the value of its Mulund land
alone is worth Rs.300 cr. at the current market
price. If the company decides to develop it as
a joint venture, it can easily generate Rs.500-
600 cr. in a couple of years. Being a 50-year
Daily Fresh Buy
(for the busy investor)
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old company, it has a huge gross block Rs.71 cr. with Rs.11 cr. debt on a very tiny equity of Rs.1.50 cr. having face value of
Rs.100 per share. On the back of healthy reserves of Rs.37 cr. its book value stands at Rs.2550. The promoters holding 59%
stake of which 20% is under litigation because of which the company fetches a very poor valuation. Still, it's a value buy
as its share price can quadruple once the matter is sorted out.
****
Although the share price Liberty Phosphate Ltd. (Code: 530273) (Rs.31.40) has shot up smartly in the recent past, it's still
trading cheap compared to other fertilizer scrips. The company is the largest manufacturer of Single Super Phosphate
(SSP) commanding more than 14% market share. Presently, it has four manufacturing units with a total installed capacity
of 463,000 MTPA of SSP fertilizer. Against this, its production was only 280,000 MT for FY07 i.e. capacity utilization of
merely 60%. In the current fiscal, the company is estimated to produce and sell around 3,50,000 MT representing 25% rise
in volume terms compared to FY07. In order to fund its higher working capital requirements and improve its operating
efficiency, the company had raised Rs.10 cr. through preferential allotment of equity shares and redeemable preference
shares. By this placement, the promoters have raised their stake to 43% from 36% in December 2006. Now, the company is
meeting on 11
th
January 2008 to consider raising further capital through another preferential allotment of equity shares to
the promoters. Hence the company is now on a strong footing and may end FY08 with sales of Rs.175 cr. with PAT of Rs.3
cr. This works out to an EPS of Rs.5 on its diluted equity of Rs.6.13 cr. At its current market cap of a mere Rs.20 cr., this
scrip has the potential to appreciate 50% from the current levels. Accumulate at declines.
****
Once again GM Breweries Ltd. (Code: 507488) (Rs.142.35) has come out with very encouraging set of numbers for the
December 2007 quarter. Although sales improved by only 10% to Rs.49 cr., its net profit shot up 85% to Rs.4.40 cr. on the
back of lower raw material cost. It recorded a healthy OPM of 14% against 10% last year. It is the single largest
manufacturer of country liquor in Maharashtra and enjoys virtual monopoly in the districts of Mumbai, Navi Mumbai
and Thane. With the installation of additional bottling lines in FY07, the company now has the capacity to process 8.26 cr.
bulk litres of country liquor per annum. Hence it is expected to end FY08 with sales of Rs.190 cr. with net profit of
Rs.15.50 cr. This works out to an EPS of Rs.17 on its equity of Rs.9.40 cr. With a gross block of a whopping Rs.68 cr., low
debt:equity ratio, strong cash flow, decent margins etc., the company deserves much better discounting. With 68%
holding, the promoters are investor friendly and it has an uninterrupted record of dividend payment from the day of
listing. At a modest discounting by 12 times, the scrip has the potential to cross the Rs.200 mark in 3-6 months. Long-term
investors can expect a price target of Rs.325 in 15-18 months.
By Kukku
FIFTY FIFTY
Investment Calls
* Grauer & Weil (Rs.164.25) - The main business of the company is to manufacture and sell:
a. Chemicals required for metal finishing, their intermediates and other specialty chemicals.
b. Electroplating plants, their components, effluent treatment plants and other engineering products.
c. Development and management of properties.
In FY07, it recorded a healthy all round growth in sales & profits. Aggregate revenues rose by 20% and Net Profit rose
79% from Rs.63.644 million to Rs.113.660 million. Work on the second phase commenced last year on a total area of 2.5
lakh square feet, which is likely to be completed in the last quarter of FY08. Thus full revenue from lease rental will come
next year, which will be a big trigger for investment buying in this stock. After completion, the company will go in for the
Third phase of the project.
For H1FY08, net profit of the company rose 55% to Rs.8.8 cr. as against Rs.3.86 cr. in H1FY07. Sales rose by 30% to Rs.88
cr. as against Rs.68 cr. during H1FY07 while operating margins improved from 13.15% to 15.08%. There are indications
that the 2nd half growth rate is likely to be maintained at the same level as of the first half. As per unconfirmed reports, a
group company having with good real estates is likely to be merged with the company.
The company's 100% subsidiary, Poona Bottling Company, which was a bottler for Coca-Cola with its plant on Mumbai-
Pune Highway, discontinued operations a few years back. Poona Bottling Company has 4 acres of prime land opposite
Alfa Laval in Pune. The company intends to develop this Pune property as an IT Park. The company has a good track
record regular dividend payment and liberal bonus issues. Seeing to its past track of growth record and current
valuations of its real estate worth, its market cap of around Rs.217 cr. is very low. Even on a conservative basis, its market
cap should be around Rs.450/500 cr. Thus, the scrip has good scope for the upside. Investors can keep accumulating this
stock for target of Rs.500 over the next two years.
* Oriental Hotels (Rs.401.10) was incorporated in the year 1970 and is affiliated to the Taj Group. The company's hotel
units consist of the following:
•
Taj Coromandel, Chennai, Luxury - 5 Star Deluxe
13
•
Fisherman's Cove, Chennai, Leisure - 5 Star Deluxe
•
Taj Malabar, Kochi, Leisure - 5 Star Deluxe
•
Taj Residency, Vizag, Business - 5 Star Deluxe
•
Taj Garden Retreat, Madurai, Luxury - 5 Star
•
Taj Garden Retreat, Conoor, Leisure - 2 Star
•
Hotel Manjarun, Mangalore, Business - 4 Star
The stock is selected for investment as the sector is likely to be re-rated for the following reasons:
Strong tourist arrivals reflect the strong sense of business and investment confidence in India inspired by our growing
GDP, increasing ties with the developed world and the opening of sectors of the economy to private sector and
foreign investments.
India is also becoming a major destination for tourists who come for medical treatment. As per the study of McKinsey and
Confederation of Indian Industry (CII), healthcare tourism at its current pace of growth can rake over US $1.7 billion
additional revenues by 2012. Medical tourism is now a US $299 million industry as about 1,00,000 patients come each
year.
Hotel occupancy in India exceeds that of most other Asian countries. The growth of India's middle classes has spurred the
development of low cost
airlines, which has helped
boost domestic travel by
making it more affordable.
* High real estate costs and
lack of availability of land
in prime locations.
14
* High cost of construction.
* High break-even levels for
new hotels, due to higher
investment costs
* Time taken in acquiring
loyalty of customers/ brand
building costs.
* Increasing expectations of
customers in terms of product
and service.
The performance of the
company is consistent &
encouraging since last many
years.
Its equity is Rs.17.86 cr. and
the current share price of
Rs.361.70 discounts Q2FY08
annualized EPS of Rs.18.03 by
a P/E multiple of 20.06.
Promoters currently hold
54.87% stake in the company
(as at 30
th
September 2007).
It posted 14.5% rise in net
profit to Rs.14.86 on 13.30%
growth in net sales to Rs.90
cr. in H1FY08 over H1FY07.
This
is
despite
major
renovations
in
Taj
Coromandel (64 Rooms and
two major restaurants being
closed for renovations). These
results are on a standalone
basis.
The company has unquoted
investments worth of Rs.67 cr.
Winners of 2008!
All the 'Winners of 2007' released on 2nd January 2007 have gained from their recommended
levels to their respective highs.
Their performance till 31
st
December 2007 is also given.
The 3rd edition of 'Winners of 2008' has been released.
Get 'WINNERS of 2008' with yearly levels and quarterly updates for Rs.2000 by email or as a
print publication. Add Rs.100 extra if needed by courier. Book your copy now and remit your
subscription to 'Time Communications (India) Ltd.' C/A No.623505381145. ICICI Bank, Fort,
Mumbai – 400 001 or C/A No. 10043795661, State Bank of India, Fort Market Branch,
Mumbai – 400 001, under email advice us at moneytimes@vsnl.com.'
Scrip
Close
29/12/06
High After
Recco
% Gain
to High
Close
31/12/07
% Gain/Loss
on closing
Reliance Capital
606.40
2649.00
336.84
2589.00
326.95
Bhushan Steel
374.25
1655.00
342.22
1557.00
316.03
SAIL
89.20
292.50
227.91
284.35
218.78
Sesa Goa
1411.00
3941.00
179.31
3799.00
169.24
Jain Irrigation Syst
382.80
339.80
11.98
755.00
148.81
Champagne Indage
551.10
499.00
98.13
477.35
89.54
J.B.F.Industries
122.75
766.00
100.10
645.00
68.50
Subash Projects & Ma
251.85
208.45
69.82
204.00
66.19
Century Text.& Ind.
740.00
1200.00
62.16
1170.00
58.11
India Cements
235.10
320.00
52.85
297.20
41.96
Suashish Diamonds
209.35
981.00
78.01
764.00
38.63
N.C.L.Industries
59.95
83.65
39.53
82.90
38.28
Ashok Leyland
45.45
333.00
41.64
310.30
31.99
Elder Pharmaceutical
366.50
122.00
21.49
121.30
20.79
Kesoram Industries
546.95
470.00
28.24
420.85
14.83
Ipca Laboratories
593.75
55.10
21.23
52.00
14.41
Finolex Cables
100.42
794.00
33.73
678.00
14.19
Mphasis
303.45
675.00
23.41
588.00
7.51
Bombay Dyeing & Mfg.
766.00
1002.00
10.60
861.00
-4.97
Lupin
612.05
560.00
4.09
507.35
-5.70
Classic Diamonds (I)
538.00
782.00
6.11
691.00
-6.24
Mahindra & Mahindra
906.00
755.00
23.36
567.95
-7.21
Hinduja TMT
737.00
803.00
4.83
633.70
-17.27
Infosys Technologies
2241.00
2439.00
8.84
1768.00
-21.11
K.S.B. Pumps
676.00
679.00
0.44
465.30
-31.17
Sundaram Clayton
1394.00
1400.00
0.43
861.00
-38.24
Hexaware
Technologies
199.65
204.00
2.18
85.85
-57.00
in some of the associate companies of the group whose present value may be very high. It also has some quoted
investments whose market value is Rs.7 cr. while its investment was just Rs.2.5 cr.
If H1FY08 results are any indication, the company is likely to report a full year EPS of around Rs.22 for the current year.
Reliance Mutual Fund recently purchased 10,65,053 shares of the company in a block deal, which is a very positive factor
for an uptrend in the stock.
Investors can keep watch to accumulate this stock on every dips for good long term growth.
* Tata Metaliks (Rs.207.25), a leading foundry grade pig iron manufacturer, has two manufacturing units of nearly the
same size in the eastern and western parts of the country. Its one year old acquired Redi plant produced 180,845
tonnes of pig iron during FY07. The refurbishment work at the plant is on schedule. It is expected that the three blast
furnaces of the Redi unit will enhance its production capacity to over 650,000 MTPA of hot metal in FY08. This increased
volume would help it strengthen its national and global presence and make it the largest producer among the foundry
grade pig iron manufacturers in the world.
The pig iron industry has increased prices in the last 4/5 months sharply to pass on the increase in input costs, mainly
coal prices. The company is expected to achieve full year sales of above Rs.1100 cr. and there are indications that
profits margins are likely to be better. With improved margins full year net profit is likely to be between Rs.70/75 cr. on
its capital of Rs.25.29 cr. The stock looks attractive at Rs.217 level for good investment. The stock is attracting the attention
of mutual funds. Investors are advised to add this stock on reactions for a target price of Rs.350/400 over the next 6/8
months.
Market Guidance
* Investors are advised to stay invested in GTL / EMAMI Ltd. for better targets in these stocks.
* After long accumulation MTNL likely to see higher levels in next few months.
* Eltro Steel Casting, Satvahana Ispat, Kirloskar Ferrous are the other stocks to benefit from the increase in pig iron
prices.
* After long consolidation Parsvnath (Rs.529.10) is likely to do well. Stay invested for better times ahead.
* Surana Telecom (Rs.48) management is said to have increased its holding by 2.5% to around 55% in the last few
months. Stay invested for still better targets.
* Hind Dorr Oliver (Rs.185.25) is under accumulation by some funds. Stock has given a breakout for an upmove.
* Fundamental analysts are very bullish on HCC (Rs.255). Few analysts are said to be visiting its lavasa project in the near
future. Stay invested.
* Kilburn Engineering (Rs.70.15) - Full year sales are expected to be around Rs.80 cr. while full year profit is likely to be
around Rs.5 cr. Land sale value to come in the next accounting year.
* MTNL (Rs.207.30) is attracting speculative cum investment buying. Fundamentals are strong as book value is
Rs.185, P/E ratio is lower than industry average P/E ratio of 37. Stay invested for higher targets.
* Cairns Energy is attracting investment cum speculative buying. Informed sources project a higher price in the next few
weeks.
* S E Investment - Keep a watch for an upmove.
* P G Foils (Rs.112) has closed at a new high of Rs.112. Its merger plan will get through in the near future.
* Gujarat Glass (Kojam Finance) to get listed by the 3rd week of this month.
* Atlas Copco (Rs.1523.90) - is said to be doing exceedingly well. There is indication of strong growth in sales & profits.
Hold on to the scrip.
* Positive reports are pouring in about Garware Wall Ropes (Rs.232.80). Investors are advised to hold for target of Rs.400
level over the next one year.
* Stocks like Nile Ltd. (Rs.338), Fortis Financial Services (Rs.123), Ion Exchange (Rs.273) have given a good breakout for
a further upside.
* Investors are advised to book part profits in Western India Shipyard (Rs.48), Ferro Alloys (Rs.51), Asian Oilfield
(Rs.401), Ruby Mills (Rs.1951) as these stocks have gone up sharply and can be switch from.
By V.H. Dave
EXPERT EYE
Originally set up as a partnership firm between M.R. Jaishankar and Gita Shankar in 1990, Brigade Enterprises was
converted into a private company in 1995 and a public company in July 2007. Brigade Enterprises Ltd. (BEL)
(Code:532929) (Rs.381.65) develops residential, commercial and retail properties primarily in Bangalore and Mysore and
has also developed and manages around 115 serviced apartments under the brand 'Brigade Homestead'.
Since 1990, BEL has completed and delivered around 67 projects aggregating about 6.7 million sq ft of space comprising
residential (71% of the total developed area), commercial (IT parks/office buildings constituting 26% of the total
developed area), and hospitality ventures (3%).
15
BEL tapped the capital markets very recently in December 2007 with an offer of 166.24 lakh shares of Rs.10 each at an IPO
price of Rs.390 per share aggregating Rs.648.3 cr. to fund the Rs.48-cr. acquisition of 41.85 acres of land in Bangalore and
Kottayam, the Rs.512-cr. construction and development cost of ongoing and forthcoming projects and general corporate
expenses.
BEL's land reserves stood at 403.45 acres with an estimated developable area of 44.16 million sq ft as on 23rd November
2007. The reserves consist of land owned directly/indirectly: 112.13 acres (27.8% of the total land reserves)/14.2 million sq
ft (32.2% of the developable area), land with sole development rights: 102.91 acres (25.5%)/4.83 million sq ft, land for
which MoU for acquisition has been inked: 133.10 acres (33%)/16.38 million sq ft (37.1%), and land under joint
development: 55.31 acre (13.7%)/8.75 million sq ft (19.8%).
Of the total land reserves, about 56.5% is in Bangalore, 18.7% in Mangalore, 12.2% in Chickmagalur and the balance in
Mangalore, Chennai, Hyderabad and Kottayam. On the land reserves, BEL is developing two integrated lifestyle enclaves
(Brigade Gateway and Brigade Millennium), 12 residential properties and two hospitality properties aggregating 13.84
million sq ft of developable area with a saleable area of 12.53 million sq. ft. as on 23rd November 2007.
Brigade Gateway Hospital, the hospital project, is part of the integrated lifestyle enclave of Brigade Gateway and will
become operational in another two-three months. The 200-bed hospital will be managed by Columbia Asia Hospitals and
bring diversity to the revenue stream. Moreover, 18 projects are in initial stages of development. About 55-60% is
residential, about 25-30% is commercial comprising retail, offices and IT parks. Hospitality would be about 15% or so.
Currently, BEL is constructing five hospitality properties in Bangalore including two service apartments and one hotel. In
addition, the company is also about to start work on two hotels: one each at Mysore and Devanahalli (Bangalore) and two
resorts: one each at Kottayam and Chickmagalur. The operation and management of these hospitality properties will be
through arrangement with international hotel operators such as Starwood, Intercontinental, Banyan Tree and Accor.
On the hotel side, BGEL is investing upwards of Rs.1000 cr. and has tied up with Starwood for Sheraton Bangalore and
Sheraton Mysore and with the Intercontinental group for a hotel at Bangalore International Airport. On the completion of
these projects, BEL is expected to directly/ indirectly own or manage over 1,500 keys. Besides Bangalore, BEL has taken
up a few projects in Mysore and has recently initiated some development activities in other parts of south India including
Mangalore, Hyderabad and Chennai.
It has also tied up with the Acer group for a 135 key-serviced residences in the heart of Bangalore and also with the
Banyan Tree for a 5-star Delux resort in Chikamagalur. BEL's wholly-owned subsidiary, Brigade Hospitality has recently
announced a management contract with the UK-based Intercontinental Hotels Group (IHG) Plc. BEL will construct a 250-
room hotel, Holiday Inn near Banglore Airport, which would be managed by IHG. The hotel will become operational by
FY2010.
During FY07, BEL achieved a consolidated income was Rs.417 cr. compared to Rs.203 cr. in FY06 and Rs.160 cr. in FY05
representing year over year increases of 105%, 27% and 109% respectively. The consolidated profit after tax was Rs.72 cr.
in FY07 as compared to Rs.42 cr. in FY06 and Rs.20 cr. in FY05 representing year over year increases of 69%, 113% and
85%, respectively.
Post IPO together with the green shoe option, its equity capital works out to Rs.113.3 cr. With reserves increasing to
Rs.822.3 cr., the book value of the share is Rs.82.6. Post-IPO, promoters and associates hold 56.7% in its equity capital, the
public holding is 16.9% and the balance 26.4% is held by QIPs, Mutual Funds and PCBs.
BEL engages external professionals for design and construction of projects and has in-house competency developed over
the years at every stage of the property lifecycle from land identification, project conceptualisation, construction
management, marketing and delivery.
Leveraging the external expertise to specific
tasks allows the company to focus on
identifying
appropriate
land,
project
conceptualisation and marketing. Currently,
majority of the aggregate developable area is
subcontracted to BE Billimoria & Company,
Simplex Infrastructure and Ahluwalia
Contracts India.
Among the commercial projects, it has built
Brigade Software Park, Brigade South Parade
and Brigade Techpark with clients like Cisco
Systems, Digi Captions India, Mahindra
Engineering
Design and Development
Company, Mindtree, Spice Communications,
Tata Coffee and TTK Prestige.
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16
BEL is an established player in the Bangalore realty market and has successfully executed and delivered around 67
projects aggregating around 6.7 million sq ft of space comprising residential, commercial and hospitality properties.
Though revenue from the management of serviced apartments is minimal currently, the development of five hospitality
properties will significantly diversify the revenue base in the medium term. The integrated lifestyle projects will fetch the
company a 5% - 10% premium over normal residential properties.
BEL is likely to generate consolidated revenue of Rs.800 cr. in FY08 with a net profit of Rs.175 cr., which would give an
EPS of Rs.15.5. The net profit is expected to be Rs.270 cr. in FY09 on revenue of Rs.1500 cr. giving an EPS of Rs.24.2.
During FY10 while income would rise to Rs.2500 cr., net profit would surge to Rs.400 cr. to fetch an EPS of Rs.35.
BEL's operations in multi real estate business domains,
innovative projects in the Bangalore region, end to end
competencies, leveraging expertise, an established brand
name and reputation for quality construction, a
significant portfolio of global clientele, focus on
profitable hospitality and related ventures, ongoing
plans and expansion into various cities in south India,
increased scale of operations with less capital
requirement etc. give clear visibility to an increased
topline & ballooned bottomline.
Corrigendum
This refers to the write-up on Bharat Gears Ltd. (BGL) in the
last issue wherein it was mentioned that the company belongs
to the Apollo Tyres group.
We have now received a rejoinder from the company stating
that BGL is not a part of the Apollo Tyres Group and is an
independent company managed by Mr. S. P. Kanwar.
At the CMP of Rs.382, the share is trading at a P/E of 16.5 times its FY09 estimated EPS of Rs.24.2 and 11.4 times on FY10
EPS of Rs.35 and is recommended for investment with a target price of Rs.600 in the medium-term. The industry average
for the construction & real estate space currently rules firm at staggering 48 making the BEL scrip highly attractive for
investment. The 52-week high/low of the share has been Rs.428/366. The share is listed in the 'A' group on the BSE and is
in the F&O and Option Contract.
*****
The share of Manugraph India Ltd. (MIL) (Code: 505324) (Rs.181.75) is recommended for decent appreciation in the
medium-to-long-term. This leader in the manufacture of web offset and sheet fed offset presses has recently produced
good Q2FY08 numbers. Going by the trend, MIL is all set to register an EPS of about Rs.20 (on face value of Rs.2) in FY08
may even consider liberal bonus in the current year.
Established in 1972 by its founder Sanat .M. Shah, MIL is India's largest manufacturer of web offset and sheet fed offset
presses. Over the years, MIL has emerged as a thriving, nimble, printing machinery enterprise given its ability to
transform itself rapidly to meet the challenges of a highly competitive global economy. Constant modernisation and
introduction of state-of-the-art technology has enabled it to stay ahead and surpass all expectations.
Domestic customers in the web offset segment include The Times of India, The Indian Express, The Statesman,
Chitralekha, Malayalam Manorama, Hind Samachar, Hindustan Times, Hindu, Sandesh, Mathrubhumi etc. In the sheet-
fed category, MIL's clientele consists of Magna Graphics Pvt. Ltd., PS Press, S T Reddier & Sons, Herneggar Offset Druck
(Austria), Benfoy Press (UK), 3E(USA), InterDruck (Belgium) and Physics Centre (Thailand).
During FY07, MIL registered 16% lower net profit of Rs.46.6 cr. on 16% higher sales of Rs.369 cr. yielding an EPS of
Rs.14.9 and paid a dividend of 150%. During Q2FY08 while sales advanced by 35% to Rs.110 cr. net profit surged by 56%
to Rs.19.7 cr. During H1FY08 while sales moved up by 12% to Rs.206 cr., net profit moved up by 9% by to Rs.32.5 cr.
In its relentless efforts to meet and exceed the needs and demands of its customers, MIL has made rapid progress in the
international market. Leading publishers from South America, Europe, Middle East, Asia and the CIS countries have all
invested in MIL's presses as its exports stood at Rs.123 cr. during FY07.
MIL is in sound financial health. Against its small equity capital of Rs.6 cr., reserves stood at Rs.155 cr., which gives its
share a book value of Rs.53 on its face value of Rs.2 per share. The debt-equity is 0.65:1.
The value of its gross block has gone up to Rs.119 cr. in the last two years from Rs.89 cr. in FY05. The value of its
investments, too, has gone up to Rs.165 cr. from Rs.26 cr. in the previous year mainly on account of acquisitions in USA.
Sensing an opportunity to enter the American market, MIL has successfully negotiated and purchased Dauphin
Graphics Machines Inc., a company at Harrisburg, USA, Pennsylvania at a cost of about Rs.88 cr. [renamed as
Manugraph DGM Inc. MDGM)]. The company is No. 1 in the US market in the four page segment complementing MIL's
product range.
The promoters hold 57% in MIL's equity capital. Foreign holding is 7.4%, mutual fund/institutions hold 12.4%, the non-
promoter corporate holding is 3.8%, FIIs hold 8% leaving 19.4% with the investing public.
MIL ranks as the number one in India with a whopping 70% market share. With presses having speeds ranging from
35,000 – 55,000 copies per hour, it can meet printers' needs efficiently. Its technical expertise and unrelenting thrust
towards continuous quality improvement are its principal strengths and owes its strong position to its technical
competence.
17
The printing industry in India has assumed growing significance during the last decade and it is one of the biggest and
fastest growing industries. More than 1,20,000 printing presses are in operation all over the country, with a capital
investment of over Rs.8, 000 cr. It provides direct employment to over 6,00,000 people and indirect employment to
another 2,00,000. It is natural that along with the growth of literacy, there is a commensurate rise in the demand for
publications. Due to a printing revolution all over the world, the prospects for the printing industry appear bright.
The continuous thrust on exports has resulted in establishment of new markets in Sweden, Netherlands and Indonesia
and expansion of business in existing markets in CIS countries, Middle East and Latin America. Over and above, the
company holds and maintains the major market share in India with the launch of several regional and English dailies. The
explosive growth in the newspaper business over the past couple of years has led to a substantial scaling up of revenues
and earnings for Manugraph. As the English and vernacular language papers are in the process of expanding their
footprint, the demand for its presses are likely to remain robust.
Based on the half yearly results, MIL is all set to register an EPS of Rs.20 on face value of Rs.2 per share. On its tiny equity
of just Rs.6 cr., the reserves are expected to cross the Rs.205 cr., which may tempt the management to declare a handsome
bonus apart from hefty dividend.
Currently, the shares of MIL are traded at Rs.182 at a P/E multiple of 8.3 on its estimated EPS of Rs.20 for FY08. Applying
a reasonable P/E of 12, the share has all the potential to breach the Rs.250-mark in six months yielding an absolute
appreciation of over 50%. The 52-week high/low of the share has been Rs.260/104.
*****
The shares of hotel industries are on the radar of shrewd investors including FIIs and big ticket clients. Within this
segment, the share of Savera Industries Ltd. (SIL) (Code: 512634) (Rs.133.40) is recommended for decent appreciation in
the long-term.
The Savera is one of the leading four star hotels. Strategically located in Chennai with an easy access to all parts of the
city, the hotel has a grand tradition to hospitality and service. The location inter connects the main arterial roads in the
city and the new highways leading to places like Mahabalipuram and Kanchipuram. Besides the Chennai hotel, the
company also owns a pub in Bangalore and a restaurant cum pub in Hyderabad.
The 260 air-conditioned rooms of Savera
are an example of elegance and function
with mini-bars, television. 71 of these 260
well appointed rooms overlook the pool, a
unique feature at the Savera. The hotel
provides various services and facilities like
a business centre, secretarial services,
private office space and boardrooms, access
to email, Internet, cellular phones, laptops,
conferences and banquet facilities, health
club, restaurants and car rental services to
business travellers.
The value of the land in the books of SIL is
Rs.29 cr. During FY06 it added land of Rs.15
cr., which was acquired by the company in
the early Nineties. Given the way the real
estate prices have shot up, its current value
of the land would be many times over. The
value of its gross block is Rs.78 cr.
compared to Rs.55 cr. in FY06, which
suggests that the company is into a big
expansion.
SIL has a tiny equity of just Rs.6 cr. and
with reserves of Rs.15.6 cr., the book value
of the share works out to Rs.36.The
promoters hold 55.5% in the equity capital,
PCBs hold 13.5% leaving 31% with the
investing public.
Recognising the potential of two-tier cities
in Tamil Nadu, SIL acquired an existing
hotel property in Madurai and two
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properties at Coimbatore during FY07 to develop as hotel properties. The project at Madurai, the temple city of the
South, took off with the commencement of a speciality restaurant and a permit room during FY07. The upgradation of the
rooms is in progress. The projects at Coimbatore are in the planning stage.
The company has successfully launched two speciality restaurants at Hyderabad, one at Kukatpally and another at
Banjara Hills, which were well-received and patronised by its guests. SIL has also taken on lease a property at Toli
Chowki near the IT Corridor of Hyderabad, suitable to develop as a hotel property of 40 rooms and a restaurant
and is ready for operation.
While 2005-06 brought about buoyancy and further consolidation in 2006-07, there were significant growth trends
witnessed globally. The Travel and Tourism Industry grew by 8.2% in South Asia, 6.9% in Sub Saharan Africa, 6.6% in
North East Asia and by 6.3% in South East Asia. The trade volume in tourism equals or exceeds that of food products,
automobiles or even oil exports, making it one of the largest categories of international trade. South Asia, with India as
the single largest destination, is projected to receive 10 million visitors by 2010 and 19 million by 2020.
The outlook of the hospitality market in India is buoyant and is expected to grow. Major international and domestic
players in the hospitality industry are developing hotel properties in Chennai, in view of the growth in business travellers
and tourists. SIL is also in the race, looking for a bright future.
The company currently does not have a tie-up with any global hotel chain. However, given the kind of property that it
owns, a tie-up in the near future cannot be ruled out. This will give more visibility to the hotel and may work well for
better valuations of the stock on the bourses.
As a part of diversification, SIL acquired a floriculture business with effect from 21st July 2006 by investing 85% in the
equity shares of Elkhill Agrotech (P) Ltd. in Ooty, Tamil Nadu, which is a private limited company. After the farm
preparatory works, its commercial operation commenced from May 2007.
SIL is all set to achieve an income of Rs.51 cr. in FY08 with a net profit of Rs.9 cr. This would give an EPS of Rs.15. During
FY09, income is likely to surge to Rs.70 cr. with a net profit increasing to Rs.12.5 cr. and its EPS would go up to Rs.20.8.
The share is trading at a P/E of 6.9 on FY08E and 4.9 on FY09E against the industry average P/E of 21 for the hotel
industry. In view of its expansion, its improving performance and bright prospects of the hotel industry, the stock is
recommended with a target price of Rs.200 in the medium-to-long term. The 52-week high and the low of the share has
been Rs.133/56.
19
By Nayan Patel
TECHNO FUNDA
Sangam India
BSE Code: 514234
Traded at NSE also
Last Close: Rs.70.10
This Rajasthan based textile company is doing an excellent
job, the company has equity of Rs.39.42 cr. and promoters
hold 36.03%, corporate bodies hold 21.53%, government
financial institution hold 23.79%, foreign investors hold
6.43% while the Indian public hold only 12.21% stake in company. Net sales of the first six months jumped 37.30% to
Rs.338.69 cr.
Short-term trend of all textile stocks has turned positive. Buy with a strict stop loss of Rs.66.50. On the upper side, it will
zoom to Rs.76 level shortly.
Krypton Industries
BSE Code: 523550
Last Close: Rs.77.95
This tyre manufacturer paid 15% dividend last year. The company has an equity of just Rs.4.30 cr. and has posted
excellent results for H1FY08. Net sales in the first six months jumped 47.44% and net profit jumped more then 78% to
Rs.1.07 cr. in October 2007. The company has received Rs.4.40 cr. export order of tyres with wheels from Netherlands.
Buy with stop loss of Rs.72. On the upper side, it will go up to Rs.86. On cross and close above 86 will take it to Rs.100 in
coming days. Company's board will meet on 24
th
January for results and stock split.
Caution: Some mid-cap and small-cap stocks are highly overvalued and 'kabadi' operators are ready to take advantage of
this sentiment. Please be careful and stay away from overvalued or fundamentally unsound stocks.
Reliance Power IPO opens on 15
th
January
MONEY FOLIO
Review
- Avon Organics recommended last week at 43.85 hit the
upper circuit continuously and kissed Rs.55.85.
- Cera Sanitaryware recommended at Rs.176.10 last week
touched to Rs.228 in just 5 working days.
- Lokesh Machines recommended at Rs.115 on 24
th
December
2007 touched Rs.147.45 in just 2 weeks.
20
Reliance Power Ltd., part of the Reliance ADA group and established to develop, construct and operate power projects
domestically, is entering the capital market with its IPO of 26 crore equity shares of Rs.10 each for cash, at a price to be
decided through a 100% book-building process in the price band of Rs.405 to Rs.450 per equity share. A discount of Rs.20
to the issue price shall be offered to retail investors.
The Bid/issue will open on Tuesday, 15
th
January and close on Friday, 18
th
January 2008. The issue will be listed on the
BSE and NSE. This issue has been graded 4/5 by CRISIL, indicating that the fundamentals of the issue are above average
(in relation to other listed equity securities in India) and Grade 4 by ICRA Limited, indicating above average
fundamentals.
Reliance Power is developing 13 medium and large sized power projects with a combines planned installed capacity of
28,200 MW< one of the largest portfolios of power generation assets under development in India. Its 13 power projects are
planned to in diverse geographic locations, fuel types, fuel sources and off-take. Each project is planned to be strategically
located near an available fuel supply or load centre. The identified project sites are located in western India (12,220 MW),
northern India (9,080 MW), northeastern India (2,900 MW) and Southern India (4,000 MW). They include seven coal-fired
projects (14,620 MW) to be fueled by reserves from captive mines and supplies from India and abroad, two gas-fired
projects (10,280 MW) planned to be fueled primarily by reserves from the Krishna Godavari Basin (KG Basin) off the east
coast of India and four hydroelectric projects (3,300 MW), three of them in Arunachal Pradesh and one in Uttarakhand. It
intends to sell the power generated by these projects under a combination of long-term and short-term PPAs to state-
owned and private distribution companies and industrial consumers.
The proceeds of the issue will be used, amongst others, towards funding subsidiaries to part-finance the construction and
development costs of certain projects. These include: 600 MW Rosa Phase I (Uttar Pradesh), 600 MW Rosa Phase II (Uttar
Pradesh), 300 MW Butibori (Maharashtra), 3,960 MW Sasan (Madhya Pradesh), 1,200 MW Shahapur Coal (Maharashtra)
and 400 MW Urthing Sobla (Uttarakhand).
The company intends to develop additional power projects to help meet the significant demand in power. Seven other
projects – two gas-fired projects Dadri (7,480 MW) and Shahapur Gas (2,800 MW), two coal-fired projects MP Power
(3,960 MW) and Krishnapatnam (4,000 MW) and three run-of-the-river hydroelectric projects, Siyom (1,000 MW), Tato II
(700 MW) and Kalai II (1,200 MW) – are in various stages of development. Dadri, the 7,480 MW project to be located in
Uttar Pradesh, is expected to be the largest gas-fired power project at a single location in the world. Sasan, the 3,960 MW
coal-fired UMPP to be located in Madhya Pradesh, is expected to be the largest pithead coal-fired power project at a
single location in India.
Future Capital Holdings IPO
Future Capital Holdings Limited, the financial services arm of the Future Group, has fixed the price band between Rs.700
and Rs.765 per equity share for its IPO of 6,422,800 equity shares of Rs.10 each for cash at a price to be decided through a
100% book-building process. The issue is expected to hit the capital market in mid-January 2008.
Ramky Infrastructure plans IPO
Ramky Infrastructure Ltd., an integrated construction, infrastructure development and management company with
emphasis on environmental oriented projects, proposes to enter the capital market with IPO of equity shares of Rs.10 each
for cash at a price to be decided through a 100% book-building process and aggregating to Rs.400 cr.
Central Bank ties up with Reliance MF
Central Bank of India (CBI) has signed a MOU with Reliance Mutual Fund, the largest mutual fund in the country, for
distribution of mutual fund products.
Some of the new initiatives of the Bank are acceptance of web based on-line application of Education Loan, tie-up with
various Asset Management Companies for increasing the basket of Mutual Funds under cross selling and offering of the
technology enabled financial products & services. The Bank has launched Reverse Mortgage loan and Cent Bal Bavishya
Deposit Scheme on the occasion of the 97
th
anniversary of the Bank on 21
st
December 2007.
Diamond industry affected as DTC prunes sight holders
The Gem & Jewellery Export Promotion Council (GJEPC), the apex body of the Indian gem and jewellery trade in India
has expressed grave concern over De Beers Diamond Trading Company (DTC) eliminating 25 established sight holders –
some with many years standing including eight firms in India and three Indian-owned firms in Belgium and added six
new ones, including three from India. This means that 75 firms will receive regular supplies of rough diamonds for a
three-year period beginning next year down from the current 94.
Gamma Infoway Exalt plans new generation network
To position itself appropriately and take advantage of the emerging telecommunication environment, Gamma Infoway
Exalt has planned its 'Next Generation Networks' of packet-based networks where the packet switching and transport
elements (e.g. routers, switches and gateways) are logically and physically separated from the service/call control
intelligence. This control intelligence is used to support all types of services over the packet-based transport network from
basic voice telephony services to data, video, multimedia, advanced broadband and management applications.
RCF launches Rapidwall panels in India
Sensing the need for an alternative and efficient building material, Rashtriya Chemicals and Fertilizers Ltd. (RCF) has
developed an efficient, eco-friendly alternative building material that was first developed in Australia. Rapidwall
Building Systems (RBS), Australia, developed this technology and has been successful in producing the world's largest
load bearing building panels (12 x 2.85 mtrs. = 34 sq. mtrs.) called Rapidwall.
RCF, which manufactures chemical fertilizers and industrial chemicals, produces phosphogypsum as a by-product from
its Phosphoric Acid plant. The phosphor-gypsum will be used to manufacture Rapidwall panels, wall plaster & putty.
The use of phosphogypsum had been extensively tested by IIT, Madras also and approved by Building Material
Technology Promotion Council of Government of India for construction up to 10 storey load bearing housed. RCF plans
to manufacture wall panels, wall plaster & putty for high quality calcined gypsum. So far the byproduct gypsum was
used only in the cement industry to a small extent.
Asia Motor Works launches 4930 tractor
Asia Motor Works Ltd. (AMW), the latest entrant in the Heavy Commercial Vehicle (HCV) industry and the first to launch
the higher tonnage vehicle, consolidated its position as market leader in the 49 tonne segment by launching 4930 tractor
for heavy project cargo and Over Dimensional Cargo (ODC) segments.
Priced at approx Rs.27 lakh it aims to sell 10,000 HCVs in FY09 and capture more than 90% market share in the 49 tonnage
vehicles.
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.
21
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