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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 13
Monday, February 11 - 17, 2008
Pages 17
Markets in turmoil!
Are we headed for a crisis?
The BSE Sensex, which had closed with a loss of 119 points on week to week basis at 18,242.58 for the week before last
appeared to make a fast recovery on the very first day of last week i.e. Monday, 4
th
February 2008 with a splendid gain of
417.74 points to close at 18,660.32. The intra-day recovery was as high as 653 points that gave an impression that the worst
may be over.
Nobody expected it to be as elusive as it proved on the following days of last week when it took a heavy
toll of 524 points on Wednesday, 6
th
February 2008 retracing all the gains of Monday and with greater
force. The intra-day peak loss on Wednesday at 658 points was almost equal to the intra-day high of
Monday. But the net loss on Wednesday exceeded the gains of Monday by 106 points, which was almost
equal to the total loss of the past seven days till Wednesday, 6
th
February 2008.
These negative moves cost the bulls heavy but it was not the end of the falling market as distress selling
continued on Thursday, 7
th
February 2008 when it lost 626 points on the Sensex. This has brought the
market once again in a turmoil as the sharp fall on just two days amounted to 1150 points, which would
have been sufficient to trigger the lower circuit filter and bring about a halt in trading had it been the loss of a single
trading day.
G.S. Roongta
Mind you, all this happened with no adverse news on the political or economic front nor any panic in financial markets.
These losses were triggered by weak global cues especially with regard to the US economy that shows no sign of
improvement. The US service sector, which is the dominant sector of the US economy, is reportedly witnessing the worst
ever decline over the past decade despite the US manufacturing index having shown signs of improvement and helped
the Dow Jones index rise on the 1
st
& 5
th
February 2008 and which in turn was reflected in financial markets the world
over. But the decline in the services sector together with reports about job cuts renewed fears of a recession and
neutralized the gains of the earlier days. Bears are now in command and are strengthening their positions to take full
revenge on the bulls who had slaughtered them without any respite over the past three years. As mentioned last week, he
bulls seemed to have weakened and cannot even hold on to the rise of a single day as evident by the 653 point intra-day
rise on Monday, 4
th
February 2008, which was cent per cent neutralized and exceeded on Wednesday, 6
th
February 2008
itself. This really speaks poorly about the 3-year old bull run that seems to have surrendered so easily within just two
without any development in the domestic economy.
Investors and marketmen are really at a great loss to figure out whether it is a
bull liquidation or a bear hammering. As far as FIIs are concerned, it can be
fairly assumed that it was a bull liquidation because they divested nearly US
$3 billion in stocks against the total investment of US $12 billion that they
made in 2007.
1
It looks so strange and funny that the number of stocks that were ruling at
their 52-week high are today replaced by an equal number of stocks quoting at
their 52-week low. All within just two weeks from 15
th
January 2008 to 31
st
January 2008! This is really strange and it has never ever happened before that
100% gains are wiped out in such a short span of time.
Touch of the 11
th
9/11: New York Twin Tower attack
7/11: Mumbai local train blast
5/11: Reliance Petroleum listing
2/11: Reliance Power listing
…Keep your fingers crossed!
- Nayan Patel
In my last article, I had sought various explanations from the watchdog body, the stock markets and the intermediaries
about this historic fall. But nothing seems to be forthcoming even though this fall is far more severe than the earlier two
falls, which were labeled as scams and reportedly engineered by the reigning bulls, the Late Harshad Mehta and Ketan
Parekh respectively.
SEBI must investigate the F&O transactions that triggered this fall and which should rightly be called the 'F&O scam'.
This is because 6/7 leading brokerages like Indiabulls, India Infoline, Motilal Oswal, Anand Rathi Securities etc. lured
investors to play the F&O segment of the market and offered them liberal trading facilities to play the market. It was these
traders who were butchered overnight on 19
th
, 21
st
& 22
nd
January 2008 as these brokers squared up their future lots
without any notice or demand or time to them. By this mass scale liquidation without any stop or filter circuit, lakhs of
investors suffered huge losses overnight and there is no one who is willing to own up the responsibility for the same. It
was a systemic failure as declared in the earlier two scams of 1992 by the then Finance Minister and the current Prime
Minister.
If SEBI issues a notification that investors/victims of this F&O scam should register their complaints with their respective
brokerage house with a copy to it, I am sure that SEBI will receive no less than 2 lakh such complaints. But alas, our laws
and systems have so many loop holes that nothing will happen and leave lakhs of investors to weep or curse their luck
and abort the market as they did during 1996 to 2000 and again between 2001 to 2003.
The government's boast of making the stock markets foolproof, therefore, is an empty boast as this recent F&O scam
proves. It has taken a toll of many more investors than the earlier scams and several more hundreds of crores of rupees
have been lost because of it.
The Finance Minister should be more concerned as the government stands to lose thousands of crores by way of taxes as
investors set off their huge losses against income due to this systemic failure in the F&O market.
The Investors' Grievance Cell should not sit idle overlooking such a grave situation and must come forward to investigate
this F&O scam and provide future stability to the stock market and save it from being nicknamed 'the slaughtering den'!
Had the situation been so simple, then the rise in the share prices and the Sensex by 864 points on a single day and a
record 1140 points on 25
th
January 2008 would have to proved to be so short-lived and make a mockery of the bull market.
Again, the single day rise of 653 points on 4
th
February proved disastrous when it fell with greater force on the
Wednesday, 6
th
February 2008. This deep problem in the market point to a systemic payment problem that may have
occurred or is about to occur. Clear signs of which have emerged with this drastic fall or liquidation by bulls to save their
skins. Let this column warn readers well in advance about an impending crisis that may emerge sooner than later. I
foresee this problem and express my apprehension about the state of the market well ahead of the TV channels and other
print media or for that matter by the stock exchanges or SEBI.
My premise is based on the fact that several securities firms had provided terminals all over the country and lakhs of
investors have lost their lifesavings with their respective brokers and are not in a position to show their faces as their
losses exceed their networth.
It is interesting to note that while there is T+1 day payment cycle in cash market transactions, there is a one month
payment cycle and further renewal after paying margin money in the F&O segment.
Let the print media and TV channels who were cheering the good part of the bull run also depict the poor side of this
story and awaken the government authorities and watchdog body, which had allowed huge outstanding positions of
Rs.1,30,000 cr. in the F&O segment, so that this scam can be investigated and the matter discussed and debated in an open
forum. It is a very serious matter that an investor's right has been trampled by this forceful squaring up and is a clear
violation of the democratic spirit. There is every reason for investors being compensated for this infringement of their
democratic right.
SEBI should also investigate the statements made by a well-known bear on a leading TV channel when he confessed to
having changed his opinion and forecast a bull market in 2008 and indicated a Sensex target of beyond 25K but short sold
heavily in the past few weeks in his normal bearish trait. He should be investigated for such false expression, which has
misled lakhs of investors. The channel, too, should own up responsibility for propagating the put on opinions in a fancy
manner.
If matters are not set right after proper investigations, the innocent small investors will desert the market once again and
the authorities will have no one else but themselves to blame for this lack of faith.
Decoupling?
By Fakhri H. Sabuwala
The USA is the single most dominating factor in the world economy today. The 75 bps cut by the US Federal on January
22 and the subsequent 50 bps cut is hardly an action to cure the ills of the US economy. But it is a sure shot market–
2
friendly action on its own. Will such a remedy work? This question was hotly debated at Davos and the answer to which
lies in the unique character of this recession.
If viewed microscopically, two triggers are at work. A bursting of the US house price bubble and a bursting of the credit
bubble. The aggressive Fed rate cuts shall not resolve the extreme imbalance between the demand and supply in the US
property market that will push housing prices lower for some time. Nor do the recent Fed steps restore the functioning of
credit markets to their pre-crisis state. As a result, pressures will remain on the housing and credit-dependent US
consumers – a sector that accounts for 72% of the US real GDP.
Will such moves arrest the recessionary dynamics now unfolding? Of course not, it could well set the stage for the next
asset bubble in America's bubble-prone economy. Has the US learnt anything from its past seven years mess?
Decoupling is a word coined recently which is dancing in the air. Yes, 'decoupling' is the latest macro fad – a scenario
where the world no longer sneezes when the US catches a cold! Is decoupling real or just a phrase coined by strategists?
Some fundamentals and vital statistics shall explain the matter simply.
Asia a developing region is a place where growth dynamic is the strongest and hopes of resilience the deepest, remains
very much an externally-dependent economy. For this region as a whole, exports hit a record high of 46% of GDP in 2007
– more than double the 19% share of 1980. At the same time, private consumption fell to a record low of 48% of pan-
regional GDP in 2007 – down sharply from 66% in 1980. If the fast growing economies of East Asia were truly decoupled,
this trend could reverse – exports would be falling and domestic consumption rising.
The decoupling dreamers talk of alternative sources of global consumption rising from Asia's two giants, China and
India, which would be more than sufficient to offset a shortfall in US consumption. Better not count on this since the US
consumed over $9.5 trillion in 2007 – fully six times the combined consumption totals for China ($1 trillion) and India
($650 billion). Going by such statistics, it is almost impossible for 'CHINDIA' to fill this void that is likely to be left by a
consolidation of the American consumer. Therefore, for externally-led developing Asia, the proverbial sneeze in the face
of the US cold is what the recent correction or a meltdown is all about.
The world is talking and practicing globalisation as the economic mantra of today. This is all about increased integration
of the global economy through trade and capital flows. So the bottomline is you either believe in globalisation or
decoupling – but not both.
So wait for the total recessionary eclipse to clear the US economy. Till then, Asia shall not only sneeze but even have its
nose running too. Await the prescription from Dr. Manmohan Singh.
Only a miraculous rise can save the market
TRADING ON TECHNICALS
By Hitendra Vasudeo
Last week, the Sensex opened at 18496.03, attained a high of
18895.34 and fell to a low of 17203.6 before closing the week at
17464.89 and thereby showed a net fall of 805 points on a
week-to-week basis.
As a result of last week's movement on the weekly charts, the
Sensex has formed an Engulfing Bear candlestick pattern
which has bearish implications. Only a breakout and close
above the high of the engulfing bear candlestick pattern can
negate the bearish effect which we may see in days to come.
At times after the formation of the pattern, we tend to get a
pull back to 50% of the candle or more surrendering the gains
to violate the lows again. The 50% of the last week's candle is
around 18000.
Interestingly, on the daily chart, the Sensex has formed an
island reversal pattern. Although, it is not a perfect classical
mould but surely its visibility on the charts shows an island
reversal pattern, which has bearish effect if it occurs around the top or lower tops. In the year 2000 after the peak of 6150,
the Sensex for its next lower top had formed an island reversal pattern. That was almost to perfection but still it was not
the best by text book style. The same pattern gave the effect and the market got into a bear phase of couple of years. This
time, the pattern is not as near to the pattern after the peak of 2000 but once again it could show its effect in days to come.
In order to negate the significant pattern formation mentioned above which has bearish implication, the Sensex must
cross and close above 19000 on a sustained basis at any cost or by hook or crook. In short, the Sensex needs a miraculous
move to save the market from another round for bloodbath.
3
For the entire rise of the Sensex from the low of 2828 to 21206, I would give important to two major crashes in this rising
phase. First, the fall from 6250 to 4227 and Second from 12671 to 8799. Both these falls had significant impact and it took
time to cross them. In the first instance, it took almost 1 year to cross the top of 6250 and in the second instance it took
about 5-6 months to cross it. Both these falls were of the magnitude of 32% and 30% respectively. The current fall from
the high of 21206 to 15532 was 27%. So, in terms of matching the intensity of the fall, it still has some room. The 32% and
30% of 21206 would be in the range of 14800-14400 approximately.
If the high of 19000 is not crossed at the earliest, then gradually we could slide towards 14800-14400. A close below the
lowest daily closing point of 16729 would confirm a slide to 15532 and 14800-14400 range.
The 200 day EMA and 200 day SMA are placed at 17212 and 16841 respectively. The lowest closing point is at 16729.
Therefore, a close below 16729 would also mean a close below the 200 day moving average and a sustained closing below
it could further damage the investors/trader's mind and dent their financial capabilities. The 200 day averages lend good
support to the markets every time and has not disheartened the market.
The Yearly Level generated in the first week of 2008, indicates that Level 2- placed at 14900 and the Centre Point is placed
at 17700. The Sensex went down to 15532 and recovered but could gradually slide to 15532 once again and then meet the
Yearly Level 2 of 14900, which coincides with the 30-32% fall from the historical peaks.
Sensex Wave Analysis
WEEKLY UP TREND STOCKS
Wave I-2594 to 3758
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 2-14724 to 12316
Wave 3-12316 to 21206.
Wave 4-21206 to 15532
(current ongoing move)
4
Internal of Wave 4
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
REI AGRO
1150.00 908.0
1054.0
1104.0
1200.0
1346.0
84.3
1036.5
28/12/07
HDFC
2796.00 2285.7
2650.7
2870.3
3015.7
3380.7
66.8
2831.8
01/02/08
M&M FINANCE
312.00
261.2
294.1
309.0
327.0
359.9
65.8
307.0
01/02/08
S.KUMARS NAT.
146.65
119.6
137.0
144.9
154.5
171.9
63.2
139.3
08/02/08
TULIP IT SERV.
975.45
812.0
917.0
963.5
1022.0
1127.0
60.4
965.7
08/02/08
Wave A-21206 to 17203
(current ongoing move)
WEEKLY DOWN TREND STOCKS
Wave i-21206 to 2505
Wave ii-2505 to 20985
Wave iii-20985 to 15332
Wave iv-15332 to 18895
Wave v- 18895 to 17203
(current ongoing move)
If the Wave v ends into a
failure, then that could
provide relief to investors
and traders. If Wave v
ends at or near 15532 or
below towards 14800-
1400, then it would
terminate a correction
and start new Wave V for
long-term upward direction or Wave A is complete and pull back rise would once again be witnessed.
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
SPICE COMMUN.
35.80
28.6
33.7
36.6
38.8
43.9
27.20
38.37
11/01/08
TECH MAHINDRA
716.50
577.6
680.4
747.2
783.3
886.1
28.09
775.12
28/12/07
MOSER-BAER
189.15
150.1
178.7
196.9
207.3
235.9
29.40
219.36
11/01/08
OMAXE
269.35
196.3
249.3
282.1
302.2
355.2
32.14
326.24
11/01/08
TITAN INDUSTRIES 1062.00 688.0
958.0
1124.0
1228.0
1498.0
33.40
1225.25 18/01/08
Alternate Count for Wave 4 from 21206 to 15332
Wave A-21206 to 15532
Wave B-15532 to 18895
Wave C- 18895 to 17203 (current ongoing move)
Weekly resistance will be at 17854-18505-19000. Weekly support will be at 16813-16729-15332.
Conclusion
The 200 day averages hold the key for the market and only a miraculous rise and close above 19000 can save the market
from gradually moving and testing the lower range of 15532-14800-14400. What next if all these levels are attained. It is
expected that when all these lower levels are attained we could climb back to the top once again but the big question is
when. On previous occasions, the recovery had taken 5-6 months and 1 year. Therefore, expect a similar time frame. We
could head back to the new highs but not before breaking the hearts of die hard investors and traders. Cool and calm
investors could make hay in the 15532-14400 range when we get to it for long-term investing. Investors with holding
capacity and a calculative mind would benefit. Leverage players are meant to die, leverage players are like front line army
soldiers. All cannot become gladiators.
Strategy for the week
Exit on rally is the only slogan. Get into cash whenever the market given big surprising upmoves of 500-1000 points or
more. Even after that move, it looks difficult to cross 19000 in the immediate future. The high ought to be crossed but it
will be in some distant time to come.
* A leading investment broker is bullish on International Travel House and has recommended it to his HNI clients and
also included it in his portfolio scheme.
TOWER TALK
* Ratnamani Metals & Tubes may touch Rs.1400 plus says an analyst's report from a leading broking house.
* Whether realty shares move up or not Mahindra Life Space shall double from hereon going by the response its every
project fetches.
* Bank of India may issue shares from government through the QIP route at Rs.440 plus. Technical analysts believe it can
cross Rs.580 mark in coming months.
* Abhishek Industries, Paramount Communications, Bhagyanagar Industries, Nahar Industries., FSL, Finolex
Industries and Arvind Mills are the best mid-cap bets favoured by the mid-cap mutual fund schemes too.
* BHEL may be sulking for now but very soon it will renew its upmove with vengeance and cross the earlier top of
Rs.2900 plus. How can anyone go wrong on its robust fundamentals and more than robust order book?
* At a current Enterprise Value of Rs.60-65 cr., Rama Papers is available for a song. Promoters themselves have bought
about 20 lakh equity shares at Rs.35 per share through preferential allotment.
* Bombay Oxygen has sold only the development rights of its Mulund property to HDIL for a consideration of Rs.200 cr.
Ironically, the company is available at an enterprise value of Rs.150 cr. although the land itself is worth Rs.300-350 cr. Just
grab this scrip and forget it for a year.
* As per reliable sources, Panoramic Universal is getting lot of strategic offers at Rs.150 per share but the management is
looking to raise capital above Rs.200 per share. Hence retail investors shouldn't miss this opportunity to buy at Rs.110
from the open market.
* Prithvi Information Solutions has bagged an order of Rs.309 cr. from BSNL for supply of transmission equipment that
will help us increase its network bandwidth. Accumulate it at declines.
* Promoters of Ind Swift Labs are again making preferential allotment of 25 lakh warrants to themselves and others at
Rs.70 per share. A risk free bet at current levels.
* Small caps and mid caps have been battered and investor morale shattered. However, in these difficult times good
dividend yield stocks are a defensive play. Zenith Fibres, South India Paper Mills are such stocks with such value.
* California Software has maintained its strength despite the market volatility. With good earnings potential and
acquisitions, the stock can be added in small quantities for medium-term appreciation.
* Just as the market is recovering from the
Reliance Power tsunami, which blew away
the positive sentiment, Reliance Infratel is
coming up for an IPO. But investors will be
wiser this time.
* Keep watch on Decolight Ceramics. This
company produces vitrified tiles which have
better margins. Stock is available at discount
to its IPO price.
* The lowering of price bands and extensions
sought by the Wockhardt Hospitals and
Emaar MGF IPOs only to pull out later clearly
establishes the greed and nexus between
promoters and merchant bankers in looting
investors.
* The grey market premium on IPOs
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5
weakened last week with Rural Electrification Corporation at Rs.27/29, Reliance Power at Rs.100/110, Tulsi Extrusions
at a discount of Rs.5, On Mobile quotes at a discount of Rs.15 and Infrastructure Developers at a discount of Rs.10.
* Proxy IPO application form for Rs.1 lakh retail application is quoting Rs.2200 for Rural Electrification Corporation.
6
By Saarthi
BEST BETS
Simplex Castings Ltd. (Code: 513472)
Rs.76.55
Incorporated in 1980, Simplex Castings Ltd. (SCL) belongs to the well-diversified Simplex group of Industries which has
interests in Simplex Forgings (in forging business), Simplex Engineering (Blast Furnace, Coke Oven projects etc), Signum
Fire Pvt. Ltd. (manufacturers of fire-proof doors made of steel and timber) etc. However, SCL is engaged in
manufacturing heavy engineering castings in various grades for industries like steel, rail, mining, cement, power and
other engineering sectors. It produces various castings such as grey cast iron castings, S.G iron castings, stainless steel
castings, steel castings, ingots, valve castings etc. It can make castings from 350 kg to 32,000 kg weight in a single piece. It
specialises in developing different castings for steel plants and also valve/cone castings for supplying the same to valve
and pump manufacturers. Incidentally, the company has been supplying casnub bogies, coco bogies and bolsters
assemblies (used in railway wagons) to Indian Railways for a long time. Apart from the railways, all major steel
companies including Tata Steel, Jindals, SAIL, Essar Steel, Bhushan Steel etc. are its clients. Besides, the company derives
15-20% revenue by exporting its products to countries to Spain, France, Belgium, Egypt, Korea etc.
SCL has two manufacturing plants, one in Bhilai and another in Raipur, both in the iron ore rich state of Chattisgarh. The
main raw material for the company is steel, scrap, iron ore & sponge iron which are all available near to its location.
Notably, it manufactures all types of castings at its plants, which have an installed capacity of 15,000 MTPA each.
However, the actual production depends upon the product mix and the size of the orders. Importantly, SCL can also
operate its plant at even 125% of its installed capacity. To derisk its business model, the company is moving up the value
chain and is venturing into machined castings. For that, it has imported machineries from Spain worth Rs.8 cr. This will
improve its margins going forward and will also lead to addition of new clients who seek the machined components.
Interestingly, due to volatility in input cost and to safeguard its profit margin, the management has worked out a
backward integration strategy of raw material pricing while quoting a tender. This has, of course, restricted volume
growth but has provided the company the margin of safety for execution of orders. Meanwhile, it has bagged a
prestigious order worth Rs.12 cr. from Indian Railways for supply of coco bogies and it expects to get more such orders in
future. Currently it has a very healthy order book position of Rs.120 cr., which includes export orders worth Rs.30 cr. from
its valued clients like Indu Steel - France, Arcellor - Spain, Ingersoll Rand - Italy, Sandvik Asia - Pune, Al-Nasar - Egypt,
Hyundai Corporation - Korea.
Since it already manufactures valve casting, it intends to forward integrate into valve manufacturing business, which is a
very high margin business. For this, it has planned a capex of Rs.60-70 cr. to be funded by debt and internal accruals. It
also plans to venture into project execution and turnkey business of steel plants. So far it manufactures huge castings that
are used to build and lay blast furnaces, coke oven plants, slag pots etc. But now it has started laying out and constructing
such plants. It has already entered into collaboration with BHEL and a Chinese company and has even executed one such
contract of Bhillai Engineering Company
worth Rs.2.5 cr. and is executing another such
contract with it. It has also bid four such
contracts for Indian Iron and Steel Company,
which are of Rs.80 cr. each in size.
Fundamentally as well as financially, the
company is doing quite well. For the nine
months ending 31
st
December 2007, it
recorded 10% growth in sales to Rs.106 cr. but
net profit increased by 55% to Rs.5.40 cr. due
to better profit margin. Considering the
massive expansions
planned by
steel
companies and increased spending by Indian
Railways on infrastructure development
coupled with the strong economic growth and
the company's diversification/integration
plan, the future prospects of SCL look very
encouraging. For FY08, it is estimated to clock
a turnover of Rs.145-150 cr. with PAT of Rs.8
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cr. i.e. EPS of Rs.13 on its equity of Rs.6 cr. For FY09, SCL can post an EPS of Rs.16-17. Hence, investors are recommended
to buy the stock at current levels at a reasonable discounting by 8 times against FY09 earnings as the scrip has the
potential to touch Rs.130 (70% appreciation) in 12-15 months time.
Amar Remedies Ltd. (Code: 532664)
Rs.31.65
Established in 1984, Amar Remedies Ltd. (ARL) was originally promoted by Mr. P. Shah as Swami Aushadhalaya Pvt.
Ltd. to develop ayurvedic medicines. In 1988, it made its first breakthrough in oral care products with the development of
an ayurvedic toothpowder. Two years later, it developed and launched an effective ayurvedic vegetarian toothpaste (i.e.
gelatine-free formula), which is the only toothpaste of its kind. Subsequently, it research developed several different
ayurvedic medicines, which were approved by FDA. In 2001, ARL developed and commercially launched two healthcare
products namely AMAR Get-Up - a pain relieving ointment and AMAR Balm for cold, headache & bodyache. Since then,
ARL has established itself as a well-known manufacturer of ayurvedic, herbal and cosmetic dental care, personal care,
skin care, beauty care & health care products like tooth paste, tooth powder, shampoo, creams, lotions, shaving gel, balms
and pain relieving ointments. In fact, it boasts of making twenty different variants of toothpaste under 12 brands for sale
to intermediate traders for export and nine variants of toothpaste under 3 brands for the domestic market. Till now, ARL
has successfully developed 24 different ayurvedic and herbal medicines and has obtained FDA approval for the
manufacture and sale of these medicines, which include medicines for hypertension, diabetes and heart ailments.
ARL has two manufacturing facilities located at Surat & Daman. The Surat plant manufactures ayurvedic and herbal
medicines whereas the sophisticated Daman plant manufactures tooth paste and other FMCG products. Last fiscal, the
company expanded the installed capacity of oral care and health care products from 12,400 MTA and 595 MTA to 13,400
MTA and 645 MTA respectively at its Daman plant. As a part of its expansion plan, the company recently set up a new
state-of-the-art manufacturing plant spread over 1 lakh sq. ft. of constructed area at Dehradun in Ultarakhand. It has
installed ultra modern machinery to manufacture FMCG and ayurvedic products. It has also set up a fully integrated
R&D and quality control department to ensure quality of existing products and development of new products. But it is
unable to commence commercial production due to delay in obtaining permission from the pollution control authorities.
However, it is likely to get the clearance certificate sooner than later and the plant is expected to start in next couple of
months. Once fully operational, it will give a good fillip to the company's topline as well as bottomline. Notably, ARL has
appointed 13 super-stockists for domestic sales, who in turn have more than 700 sub-stockists spread in western,
northern, and eastern regions of India. Besides, it has recently selected 2 super-stockists, who in turn have 130 sub-
stockists in the southern region but are yet to contribute to its turnover. Meanwhile, after capturing a major share of the
Indian domestic market, ARL has started tapping the international potential of FMCG markets. It is currently exporting to
various countries across the globe from Europe through Middle East & from Asia to Far East countries. Accordingly it is
contemplating to form a wholly-owned subsidiary at Ras-AL-Khaimah-Free Trade Zone, UAE.
To protect its intellectual property, ARL has of late applied for trade mark registration for 9 toothpaste brands and
intends to apply for process patent of all 24 ayurvedic medicines after commencement of their commercial production.
For future growth, ARL's focus is to change the perception of consumers towards ayurveda from an age-old science to a
remedy for various new age ailments and diseases by changing the delivery system of the medicine. It also propose to
start a unique concept of consultation over toll free phone lines for ayurvedic treatment through sales and service offices
in select cities of India. Financially, for FY08 ending June 2008, the company is expected to register sales of Rs.300 cr. with
PAT of Rs.20 cr. i.e. EPS of Rs.8 on its equity of Rs.26.20 cr. And for FY09, it has the potential to post an EPS of Rs.10-11.
Considering its all time high/low of Rs.102/26 and commencement of its Dehradun plant in the near future, ARL is one
of the cheapest pharma scrips trading at a P/E multiple of hardly 3 times against its FY09 earnings. Investors are strongly
recommended to buy it at current levels as it can easily appreciate 50% in 9-12 months.
XL Telecom & Energy Ltd.: Bright prospects
ANALYSIS
By Devdas Mogili
XL Telecom & Energy Ltd. (XLTEL), formerly known as XL Telecom Ltd., is a 22-year old Secunderabad, Andhra Pradesh
based company established in 1985. The company changed its name from XL Telecom Ltd. to the present one in March
2007. XLTEL is partnered by Corning, Inc. and Kyocera Inc. of USA. Its manufacturing facility is located at Cherlapally on
the outskirts of Hyderabad. Dr. R. Srinivasan is the chairman while Dinesh Kumar is the managing director of the
company.
The company entered the capital market with an IPO of equity shares through book building process and issued and
allotted 39,58,224 equity shares of Rs.10 each at a premium of Rs.140 per equity share. The issue evoked a good response
from the investing public and was oversubscribed about 9 times.
7
XLTEL manufactures telecom products such as cable jointing kits, mechanical closures, CDMA phones, fusion splicing
machines, SMPS systems, solar photovoltaic systems and ethanol.
XLTEL's operations can be broadly classified into two divisions i.e. telecom and energy. It operates in the infrastructure
accessory space in fixed line telephony and in consumer hardware space in wireless telephony. It also operates in fixed
wireless phones (FWP) segment in the telecom sector currently in association with Axesstel, a NASDAQ listed US
based company.
Solar Division: The Solar division of the company produces solar modules from solar cells imported from a number of
global suppliers. These modules are supplied within India and exported mainly to Europe. Further, the company used the
IPO proceeds to establish a 100% Export Oriented Unit (EOU) for the manufacture of Solar Photovoltaic Modules with an
annual capacity of 24 MW at a capital expenditure of Rs.8 cr.
The company has also decided to expand the production capacity of solar modules further from 24 MW to 64 MW by
setting up a new, fully automated module line of 40 MW at a capital outlay of Rs.45 cr. in view of the huge global
opportunity for solar energy.
Ethanol Division: The company produces Ethanol from molasses and de-natured spirit sourced from distilleries in the
sugar belt in South Western Maharashtra. It has secured firm orders for its existing ethanol production from oil
companies for the 3 year period ending 31
st
March 2010.
As a part of its backward integration project, the company plans to produce Special Denatured Spirit from molasses
feedstock and the project is expected to go on stream in the last quarter of 2007-08.
Solar Farms: XLTEL decided to enter into the power generation segment with initial investments in Spain, the current
global destination for Grid Connected Solar Energy. Its subsidiary, Saptashva Solar, will set up a series of solar farms in
Spain and Portugal at an investment of Rs.1,000 cr. Spain offers significant opportunities in Solar Power Generations for
1,200 MW solar farms every year. The Spanish Government supports investments in solar energy by offering land on a
long lease basis and subsidised long-term bank loans.
The target capacity for the first year is 28 MW and the project will have a 25-year power purchase agreement with a local
utility company. The first solar farm of 2.3 MW will be implemented before 31
st
March 2008 and the balance before 31
st
March 2009. The medium term target is to install close to 200 MW of these farms. Other countries are also being explored
for establishing such farms to avail of the benefits offered and to go up the solar value chain.
Orders: The company has received fresh orders valued over Rs.65.8 cr. for 40 MW of solar panels to EU. This solar energy
company has been focusing on the non-conventional energy sector since 1994 and has recently refocused on export
market for solar panels of higher capacity for the niche Grid Connected Segment.
It has recently executed 1 MW Solar Panel orders valued over Rs.16 cr. in Q2FY08.
The total pending order book for the export of solar panels with this order stands at Rs.263.5 cr., which is equal to 16 MW
Solar Panels. The company is bullish about enrolling as a vendor with a large power utility company in Europe and is
confident and is hopeful of multiple repeat orders.
Performance: The company reported impressive results for FY07. It registered a net sales income of Rs.523.14 cr. with a
net profit of Rs.20.09 cr. netting an EPS of Rs.13.91 for the year.
Financial Highlights:
(Rs. in cr.)
Latest Results: Sales rose 16.70% to Rs.150.45
cr. in Q3FY08 as against Rs.128.92 cr. during
Q3FY07. Net profit shot up by 55.20% to
Rs.8.66 cr. in Q3FY08 from Rs.5.58 cr. during
Q3FY07 and it recorded a basic EPS of Rs.5.97
and diluted EPS of Rs.4.38. The annualized
basic EPS works out to Rs.23.88 and
annualized diluted EPS of Rs.17.52.
8
Financials: The company has an equity base
of Rs.15.69 cr. with a book value of Rs.117.45.
Share Profile: The share of XLTEL with a face
value of Rs.10 is listed and traded on the
BSE/NSE under the B1 segment. Its share
price touched a 52-week high of Rs.595 and a
low of Rs.94. At its current market price of
Rs.315.60, it has a market capitalisation of
Rs.457.66 cr.
Particulars
QE 31/12/07
QE 31/12/06
YE 31/03/07
Net Sales/Income
150.45
128.92
523.14
Other Income
0.31
0.16
01.42
Total Income
150.76
129.08
524.56
Expenditure
a. Inc/Dec in Stock
-3.29
-7.16
-04.91
b. Raw Materials
131.37
117.66
456.22
c. Pur of traded goods
0.00
0.00
0.00
d. Employees Cost
1.70
1.40
5.05
e. Depreciation
0.50
0.39
1.62
f. Other Expenditure
5.41
4.95
2.26
g. Total
135.69
117.24
485.01
Interest
4.58
4.47
13.93
Exceptional items
-
-
0.08
Tax Expense
1.80
1.74
5.43
Net Profit
8.66
5.58
20.09
Paid up equity
14.50
14.50
13.88
Basic EPS (Rs)
5.97
3.85
13.91
Diluted (Rs)
4.38
-
-
Dividend: The company paid a dividend of 10% in 2006-07.
Shareholding Pattern: The promoter holding in the company is 38.86% while the balance of 71.14% is held by the non-
corporate promoters, institutions and the investing public. During the last one year, mutual funds like JM Mutual Fund
and Canequity have added the company's shares to their various schemes.
Prospects: The demand for FWPs is increasing exponentially and the actual growth in the Fixed Line business is only due
to these phones during the last two years.
The growth in demand going forward will be in the FWP business and the company has aggressive plans in this segment
including FWP with GSM Technology, which is being introduced in India in FY08.
Furthermore, with the ever increasing demand for renewable energy power generation across the globe, the demand for
Solar Photovoltaic Systems is growing by the day. It is understood that 40,000 MW of new energy generation capacity
between 2007 and 2015 will come from solar technology.
In addition, the global ethanol scenario depicts a robust industry and an increasing emphasis on the use of ethanol as a
substitute for fossil fuels. Current ethanol production is 33 billion litres, which is likely to grow to 60-70 billion litres by
2012.
The blending requirement of ethanol with petrol is expected to increase to 10% from the current 5% level. This policy is to
be made mandatory all over India from its current application in 9 states.
Conclusion: XLTEL has declared pleasing results for the last few quarters. In fact, it has grown about 100% CAGR in the
telecom segment over the last five years.
At its current market price of Rs.315.60, its share price is discounts it's earning less than 13 times against the industry
average P/E of 23. Since, the company caters to both the telecom and energy sectors, the prospects look promising going
ahead. The share may be added to one's portfolio for ringing in profits.
Market may lose further ground
MARKET REVIEW
By Ashok D. Singh
The Sensex closed down losing 777.69 points or 4.26% at 17,464.89 for the week ended Friday, 8 February 2008. The NSE
Nifty lost 196.90 points or 3.70% to 5,120.35, for the week. The market suffered losses for the fourth straight week and
slipped on three out of five trading sessions as selling pressure continued in the index stocks. Volatility was high
throughout the week. So far the Sensex has lost 3,741.88 points or 17.64% from a record high of 21,206.77 hit on 10 January
2008. Small-cap and mid-cap indices outperformed the Sensex for the week. The BSE Mid-Cap index declined 128.27
points or 1.65% to 7,633.27. The Small-Cap index lost 151.97 points or 1.51% to 9,920.35 in the week.
Trading for the week started on an upbeat note with the Sensex surging 417.74 points or 2.29% at 18,660.32 on Monday, 4
February 2008. On the same day, the broader Nifty gained 146.25 points or 2.75% at 5,463.50.
On Tuesday, 5 February 2008, the Sensex rose a meagre 2.84 points or 0.02% at 18,663.16, after a weak start. The broader
based Nifty was up 20.4 points or 0.37% to 5,483.90 on the same day.
The Sensex slumped 523.67 points or 2.81% at 18,139.49 on Wednesday, 6 February 2008. On the same day, the broader
Nifty declined 161.35 points or 2.94% at 5,322.55. Weak Asian markets played the spoilsport.
The Sensex plunged 612.56 points on Thursday, 7
th
February or 3.38% at 17,526.93 following late sell-off in index pivotals.
The broader Nifty lost 189.30 points or 3.56% at 5,133.25.
On Friday, 8 February 2008, the Sensex declined 62.04 points or 0.35% to 17,464.89, after seeing volatile swings throughout
the day. The broader Nifty slipped 12.90 points or 0.25% at 5,120.35.
The Bank of England on Thursday, 7 February 2008, cut its key interest rate by a quarter percentage point to 5.25% to help
shore up the economy but policymakers remained worried about inflation, dampening hopes of rapid-fire rate cuts. The
European Central Bank kept euro-zone rates unchanged at 4% on the same day.
On 4 February 2008, the International Monetary Fund, in a report summarising its annual consultation on India's
economic policy, estimated India's growth at 8.75% for 2007-08 as a result of rising productivity and investment.
On 7 February 2008, the Central Statistical Organisation released the advance estimates of national income for 2007-08.
GDP growth is estimated at 8.7% compared with 9.6% in 2006-07. Agriculture is expected to advance 2.6% in 2007-08 as
against 3.8% in 2006-07. Manufacturing is expected to gain 9.4% in 2007-08.
Annual inflation based on the wholesale price index rose 4.11% in the week ended 26 January 2008 from 3.93% in the
week ended 19 January 2008, government data released on Friday, 8 February 2008 showed.
The BSE has decided to change the eligibility criteria for inclusion of scrips in 'A' group. The revised list will be
announced on 18 February 2008 and will come into effect from 3 March 2008. A total of 200 companies will find place in
'A' group. BSE has also discontinued the division of group 'B' into group 'B1' and 'B2'. All companies not included in
group 'A', 'S' or 'Z', will constitute group 'B', according to a BSE circular.
9
Depressed secondary market hit IPOs in the week. Emaar MGF Land became second victim of the depressed secondary
market conditions as the company withdrew its IPO on Friday, 8 February 2008 due to poor response to the issue, a day
after Wockhardt Hospitals on Thursday, 7 February 2008, pulled out its IPO for the same reason.
Q3FY08 results season has come to end. Most of the results were in line with market expectations. A total of 3321
companies reported 26.80% rise in net profit on 19.20% rise in net sales for Q3FY08 over Q3FY07. The net profit was
boosted by 72.5% jump in other income.
The Sensex lost 777.69 points to close at 17,464.89 last week. The market is expected to see volatile swings as has been the
trend in the recent past. Of late, markets across the globe were inflicted by high volatility due to fears of a recession in
USA, the world's biggest economy. Forthcoming events including the Railway Budget and the Union Budget for 2008-09
to be presented at the fag end of February 2008, may dictate the trend on the bourses in the near term.
MUTUAL FUNDS
Mutual Funds – Time to rebalance the portfolio?
By Devangi Bhuta
As witnessed over the last one month, equity markets have suddenly stopped featuring as the best investment avenue as
equity investors have burnt their fingers!
What appears to be a good strategy at this point is to book profits in equity schemes and wait on the sidelines till the
market gets some direction. Unlike the cash markets, where investors have a choice of parking funds in fundamentally
sound stocks after getting out of momentum stocks, it appears that mutual funds do not really offer this option.
Investors may be better off considering avenues like Gold ETFs or Liquid BeEs and wait in the sidelines. Balanced equity
schemes may also be considered seriously albeit with a long term horizon in mind.
The table indicates ETF returns over a 3 month horizon and over a 1 year horizon.
Returns %
Sr. No.
ETF Schemes
3 Months
I Year
1
UTI Gold Exchange Traded Fund
8
NA
2
Gold BeES
8
NA
3
Kotak Gold ETF
8
NA
4
PSU Bank Benchmark Exchange Traded Scheme
1
NA
5
Bank BeES
-2
47
6
Junior BeES
-5
32
7
ICICI SENSEX Prudential Exchange Traded Fund
-9
20
9
Nifty BeES
-11
22
10
Kotak PSU Bank ETF
NA
NA
Interestingly, ETFs have delivered returns commensurate with the risk they bear and appear to be a good avenue for
diversification.
Scheme Analysis
Birla Balanced Fund
The objective of this Open-ended scheme is to balance income requirements with growth of capital through a balance mix
of investments in equity and debt at relatively moderate levels of risks through a diversified research based investment
approach.
Its portfolio has around 30% in cash and debt market instruments while the remaining is parked in equities as on 31
st
December 2007. The scheme holds 16% in consumer non durables and within this space it has high exposure to liquor
companies. 12% is in pharmaceuticals and barring Nicholas Piramal, the other stocks are pharma MNCs.
The scheme has, over the last quarter bought into Software and Construction companies like Punj Lloyd and Brigade
Enterprises. It has also bought into Inox Leisure in the Media space.
Although the fund's strategy appears to hold on to certain stocks for long-term returns, the timing and purchase of some
companies does not inspire too much especially in the last quarter.
Resultantly, it has been an underperformer and as per the December 2007 fact-sheet, it has posted returns of 32% versus a
return of 37% in the last one year.
By Saarthi
STOCK WATCH
10
India Glycols Ltd. (Code: 500201) (Rs.304.30) is the first and only company in the world to produce ethylene oxide
(EO)/mono ethyl glycol (MEG) via the renewable agro route based on molasses instead of the conventional route of
producing them from crude oil. For the December 2007 quarter, it reported stunning results as sales shot up by 70% to
Rs.388 cr. and profit jumped up 560% to Rs.67.50 cr. posting an EPS of a whopping Rs.24. Importantly, it recorded an
OPM of 27% against 10% in the last fiscal. As a step towards backward integration, it has set up a new distillery with an
annual production capacity of 66,000 KBL, at Gorakhpur in eastern U.P. and has also recently taken over a sugar company
called M/s. Shakumbari Sugar. It's newly set up RAB (concentrated sugarcane juice) unit to supplement ethanol
requirement is completely operational now. Further, the company is diversifying into herbal extraction through a 100%
EOU at Dehradun, Uttarakhand, for high value nutraceutical herbal extracts used in pharmaceuticals, food and food
supplements. Moreover, it is adding an Extra Neutral Alcohol (ENA) facility at Gorakhpur to cater to the domestic and
international markets. For FY08, it is estimated to clock a turnover of Rs.1350 cr. and PAT (excluding extraordinary
income of forex gain) of Rs.165 cr. i.e. an EPS of Rs.59 on its current equity of Rs.27.88 cr. On including the forex gain, its
EPS could work out to Rs.68. A solid bet.
*****
Indag Rubber Ltd. (Code: 509162) (Rs.84.50) came out with excellent results for the December 2007 quarter. Sales
improved by 25% to Rs.20.50 cr. but net profit jumped 125% to Rs.2.60 cr. on the back of increased capacity, higher
realisation and better operating efficiency. Importantly, for the nine months ending 31
st
December 2007, it registered an
OPM of 15% against 10% in the previous corresponding period. It is one of the reputed players in the tyre retreading
business and operates through the franchise model offering technology, specialized equipment, retreading material,
technical back up etc. to the franchisee. It has a state-of-the-art manufacturing unit to produce precured tread rubber
along with allied items like cushion gum, repair gum, envelopes, other accessories and specialised equipment for
retreading. Notably, the operations at its new plant at Nalagarh, Himachal Pradesh, have stabilised at a high level of
efficiency. To maintain its growth, the company is looking to increase its market share in Tamil Nadu, Karnataka and
Kerela, which constitute 30% of the Indian retreading market. Besides, on termination of its joint venture agreement with
Bandag Inc., USA, the company is now exploring the export markets of Middle East, Africa etc. Accordingly, it is
expected to clock a turnover of Rs.75 cr. with a PAT of Rs.8 cr. i.e. an EPS of Rs.15 on its equity of Rs.5.25 cr. for FY08. Buy
at declines.
*****
Cosmo Films Ltd. (Code: 508814) (Rs.110.55) is the pioneer and among the largest manufacturers of Bi-axially Oriented
Polypropylene (BOPP) Films with an installed capacity of 77,000 MTPA. It also manufactures thermal lamination film, an
export oriented product with higher margins. For the December 2007 quarter, its sales improved marginally to Rs.147 cr.
but PAT shot up by 170% to Rs.11.60 cr. on the back of better operating efficiency. To maintain future growth, the
company is expanding capacity by adding two BOPP lines of 40,000 MTPA each. The first line is expected to be
commissioned before March 2009 for which orders have been placed with all major equipment suppliers. In addition, it is
also adding two new lines of thermal lamination and increasing capacity from 13,500 to 19,500 MTPA. To fund this
expansion, it recently placed 31 lakh warrants to be converted at Rs.107 per share. It has also taken the approval for issue
of 10 lakh equity shares under ESOP. For FY08, it is estimated to clock a turnover of Rs.600 cr. with PAT of Rs.40 cr. i.e. an
EPS of Rs.20.50 on its current equity of Rs.19.40 cr. At a modest discounting by 7 times, the scrip can touch Rs.150 in 6-9
months.
*****
Roto Pumps Ltd. (Code: 517500) (Rs.60.25) is a reputed manufacturer of progressive cavity pumps and twin screw
pumps, which have very wide application in agriculture, domestic and industrial sector. For the December 2007 quarter,
its sales improved by 15% to Rs.10.40 cr. but net profit shot up 40% to Rs.0.80 cr. due to higher operating efficiency.
Besides, it has a warehouse cum marketing office in Australia and U.K. and a good network of distributors spread across
the globe. On the back of strong industrial growth and robust demand for its products, the company has undertaken an
expansion cum modernisation plan at its manufacturing facilities. Accordingly, it may register a topline of Rs.40 cr. with a
bottomline of Rs.3 cr. for FY08. This translates into EPS of Rs.10 on its small equity of Rs.3.09 cr. Since, the promoters hold
70% stake, the floating stock is very low. This means the scrip can see a vertical rise if it catches market fancy. Moreover
for FY09, the company has the potential to post an EPS of more than Rs.12-13. At the current enterprise value of around
Rs.25 cr., the scrip is trading fairly cheap. Long-term investors should keep accumulating at declines for a price target of
Rs.120 in 12-15 months.
By Kukku
FIFTY FIFTY
Note - Investors are advised to avoid buying in stocks where fundamentals do not support at higher price levels. They
should also avoid high premium issues, which is the main reason for the weakened market sentiment.
Retail participation in the market is very low. Market sentiment can improve only if retail participation improves.
Investment Call
* Kalpana Industries Ltd. (KIL) (Rs.125) operates in single segment catering to the following four sectors- Power Cable
Industries, Compound for packaging, Compound for pipe industries and footwear industries.
11
It has three well-equipped plants at Kolkata, Daman and Silvassa and has been expanding capacities across segments to
cater to the growing demand of the user industries. KIL has a wide ranging product basket to suit the varied needs of user
industries ranging from simple residential cables to core projects in the industrial and power transmission sector.
In the power cable sector, it expects robust demand from the Power Transmission & distribution business and the steel
and petrochemical sectors. In packaging, it expects sustainable growth whereas the footwear sector may not witness
much growth as it is in the unorganized sector and in house capacity utilization is available. In the piping sector, the
market is currently dominated by imports but the company is engaged in import substitution and making inroads into
this market.
The company has reported encouraging results for the Q3FY08 as net profit flared up to Rs.6.61 cr. on sales of Rs.109 cr.
against Rs.2.84 cr. on sales of Rs.68 cr. in the previous corresponding period posting an attractive quarterly EPS of Rs.5.8
while the EPS for the first nine months was Rs.13.12. For the current full year, EPS is likely to be Rs.18/19 which is
expected to go up to around Rs.30 in coming years as the company is into high growth sectors like Power Distribution
and Packaging. The stock has reacted from the high of Rs.205 to the current level of Rs.130, which is attractive at a P/E
ratio of 7 against the projected earning of the current year. Investors can keep watch to add this stock at current level or
on reactions.
Market Guidance
* Market had shot up on very high speculative positions and due to high liquidity brought about by placement at
unjustifiably high levels and IPO prices which is now correcting itself to more realistic levels. Investors should reduce
exposure to high priced real estate stocks or stocks that just shot up because of their land bank story.
* GTL (Rs.256.80) and Ericsson of UK have announced a strategic alliance to jointly address the managed network
infrastructure services market in the UK. The partnership marks Ericsson's first ever partnership to offer managed
network infrastructure dervices (MNIS) to network operators and service providers in the UK.
GTL will be incurring Rs.250-260 cr. as capital expenditure for expanding its facilities in Mahape, Navi Mumbai. Post buy-
back, the promoters' shareholding in the
company has gone up from 32% to 34.70%,
which the promoter group intends to
increase to over 51%.
April – June 2007
EBG Quarterly Performance:
100% once again
During April – June 2007, which is the third quarter of the fourth year of
'Early Bird Gains' (EBG) – the investment newsletter that spots multi-
baggers, it has scored 100% success with all 15 recommendations
recording an appreciation.
EBG has, therefore, consistently, maintained quality while the bonus
issues in excess of 30% highlight the confidence of its recommendations.
12
Investors are advised to stay invested and
keep watch to add on further dips.
* Ramsarup Industries Ltd. (Rs.188.70),
producer of steel wires, has taken over
Balasore Minerals Co., which has iron ore,
limestone and dolomite mines located in
neighbouring Orissa.
The acquisition will ensure regular and
long-term availability of raw material for
Ramsarup Lohh Udyog Ltd. (RLUL), the
steel producer in the Group. RLUL has also
received confirmation of a long term coal
linkage from the Union Ministry of Coal.
Issue
Dated
Scrip
Buy
Price
Highest
price since
recom.
Growth
%
04/04/07
Panama Petrochem
129.00
270
109
The board has also approved the merger of
RLUL with itself and the necessary
regulatory approvals from the authorities
are awaited. The merger is expected to
come into effect retrospectively from 1
st
April 2007 and the share swap ratio has
been fixed at 10 equity shares of Ramsarup
Industries for 25 equity shares of RLUL.
Investors are advised to stay invested in
this stock for good long-term growth.
11/04/07
Rolta India
335.90
780
132
18/04/07
Metalman Industries
18.19
47
158
25/04/07
* Khoday India Ltd. (Rs.237) has come out
with encouraging Q3FY08 results as sales
shot up from Rs.22.9 cr. to Rs.66.5 cr. and
net profit flared up from Rs.2.13 cr. to
Rs.10.99 cr. on its equity of Rs.37.9 cr. The
stock has shot up from its recent low of
Indag Rubber
31.00
113
264
02/05/07
Paradyne Infotech
116.45
440
279
09/05/07
Pochiraju Inds. Ltd.
22.60
64
183
16/05/07
Asian Oilfield Services
73.95
446
503
23/05/07
Hanung Toys & Textiles
165.50
300
81
23/05/07
XL Telecom & Energy
119.30
595
400
30/05/07
Bharat Gears
73.00
89
22
06/06/07
Kanpur Plastipack
22.75
34
49
13/06/07
Deepak Fertilisers
89.30
178
99
13/06/07
MSP Steel & Power Ltd.
19.15
89
365
20/06/07
Bihar Tubes Ltd.
103.65
222
114
27/06/07
Astral Poly Technik Ltd.
105.00
235
123
EBG for sure profits
Rs.180 to Rs.237. Investors should continue to hold or buy in panic conditions if it comes down to Rs.200 level again.
Wall street finance' new developments are said to be taking place. Stay invested.
* Gammon India (Rs.520) is under accumulation by smart investors with a long-term view.
* D&H Welding (Rs.25.85) - Margins in this company are under pressure. Avoid this stock. Profit booking was advised
earlier at higher levels.
* Stocks like IFCI, Hind Oil Exploration, Garware Wall Ropes, Titan, Oswal Chemicals came down to almost half to 1/3
value from their peaks. This indicates how big market players trade on high leveraged position in stocks. Investors
should avoid buying commitments at higher levels which is always stressed in this column from time to time.
* Sectors likely to outperform are banking, engineering capital goods, infrastructure turnkey executions companies like
HCC, Hind Dorr, JMC Projects, Jaihind Projects, Pratibha Industries, Gammon India, Madhucon Projects to name a
few.
* Steel stocks are likely to fare well as China's per-capita consumption was 291 kg, an 82% increase in five years while
India's per-capita consumption was 42 kg which increased by 50% over the last five years. Thus there is good scope in
India. Investors can keep watch to add Ramsarup Inds., Jayaswal Neco, Rohit Ferro, Ferro Alloys Ltd. on reactions.
* Steel prices have gone up sharply and will affect user industries which do not enjoy a price escalation clause and have
thin profit margins like auto ancillaries and white goods industry. Investors should avoid investment in these stocks for
the time being.
* Simplex Castings (Rs.76.55) which was recommended in this column from time to time from much lower levels, has
come out with encouraging results. Stay invested in this stock for further gains.
* Net profit of ECE Industries (Rs.448) rose 48% to Rs.2.46 cr. in Q3FY08 as against Rs.1.66 cr. during Q3FY07. Although
the results are somewhat below expectations, investors can continue to hold the stock.
* Kirloskar Electric's (Rs.244.90) Q3 results are encouraging as net profit is Rs.6.78 cr. on higher sales of Rs.192 cr. against
Rs.4.46 cr. on sales of Rs.151 cr. Stay invested or add on dips.
* With a likely reduction in interest rates, banking stocks are likely to do well. Keep a watch to add on reactions -
Karnataka Bank (Rs.254.85), Central Bank (Rs.106), IOB (Rs.169.60) and other good banking stocks.
* Although Revathi Equipments' (Rs.935.80) Q3 are flat, it is expected that its 4
th
quarter will be much better with sharp
growth in top line. The company is said to have got good orders from Coal India. Those who booked profits above
Rs.1500 level can think of adding at Rs.800/850 level for good long-term growth.
* Atlas Copco (Rs.1215.65) and Kirloskar Pneumatics (Rs.618) are also good long-term growth stocks that investors can
keep an eye on and buy on reactions.
* Investors should avoid high priced brokerage stocks given the sharp reduction in volumes and likely provisions for bad
debts in the recent fall. Sustaining their high price game may not last for long. Book part profits in all such stocks at every
rise.
One analyst strongly recommends investment in Polyplex Corporation Ltd. (PCL) (Code: 524051) (Rs.210) with a target
price of Rs.350 in the medium-term. The company has announced highly encouraging Q3FY08 results. PCL is setting up a
polyester film line at its existing site in Turkey at a cost of Rs.200 cr. and another expansion at its Indian facilities. The
expansion would push up its EPS to Rs.85 in FY10 on its small equity of Rs.16 cr.
EXPERT EYE
PCL is the world's 5th largest producer of thin polyester film. With manufacturing facilities in India and Thailand, it
meets the PET film needs of its global customers. It is one of India's leading manufacturers and exporter of Biaxially
Oriented Polyester (BOP) Film for packaging, electrical and other industrial applications.
With its headquarters in Noida, New Delhi, PCL has three PET Film manufacturing facilities – one in Khatima,
Uttarakhand another at Rayong province in Thailand owned and operated by Polyplex (Thailand) Public Company Ltd.
(PTL), its subsidiary, and the latest facility at Çorlu in Tekirdag in Turkey that is owned and operated by Polyplex Europa
Polyester Film San. ve Tic. A.S. (PE) and which is a wholly-owned subsidiary of PTL.
The total capacity of its PET chips is 1,18,000 TPA, metalliser 26,200 TPA and silicon coating facility 10,700 TPA. PET film
is a high performance film made from polyethylene terephthalate resin (generally known as Polyester Chips), which in
turn is produced from Dimethyl Terephthalate (DMT)/Purified Terephthalic Acid (PTA) & Mono-Ethylene Glycol
(MEG).
PE is currently implementing another polyester film line at its existing location in Turkey at an estimated cost of US $50
million (including working capital). This line is expected to commence commercial production in Q1FY09.
PCL has established itself as one of the most profitable producers of PET Film given its cost-efficient operations resulting
from high productivity and low overheads. Its products have gained wide acceptance in the global markets such as USA,
Europe, South-East Asia, South America, North America and Australia, where the company has been consistently
exporting about 75% of its production.
13
During FY07, PCL achieved consolidated sales of Rs.767 cr. and earned a net profit of Rs.32 cr. after minority interest of
Rs.12.7 cr. During Q3FY08, income surged by 31% to Rs.256 cr. and net profit after minority interest jumped by 171% to
Rs.20 cr. and the quarterly EPS for Q3FY08 works out to Rs.12.7. For the first three quarters of FY08, while consolidated
sales advanced by 34% to Rs.744 cr., net profit after minority interest zoomed up by 314% to Rs.63.7 cr.
The company has allotted 13.50 lakh shares at Rs.152 per share and 16.50 lakh warrants with an option to apply for an
equal number of shares at Rs.152 per share within 18 months to the promoter group companies. Consequently, its equity
capital stands enhanced to Rs.16 cr. and will further increase to Rs.17.7 cr. by FY09. With reserves of Rs.392 cr. as on 31
st
March 2007, the consolidated book value of its share stood at Rs.278.
The promoters hold 47% in PCL's equity capital, foreign holding is 9%, PCB holding is 14% leaving 20% with the
investing public.
The sector with the highest global demand for thin PET film is packaging, followed by industrial and electrical films
respectively. The combined demand from these segments accounted for 74% of the total demand in 2001 going up to 91%
in 2006. This represents a growth of 65% during 2001-2006. The electrical segment recorded the highest growth of 119%
followed by packaging (61%) and industrial (49%). The CAGR for these segments 10.6% between 2001 and 2006.
Historically, the demand for thin film has grown at a much higher rate. Since Asia, particularly China and India,
accounted for the increased share of the global demand with higher growth rates than the developed world, it is
reasonable to assume that the global demand would grow faster than historic rates in the medium-term.
It is estimated that the domestic market for thin films grew by 15-20% p.a. over the last five years largely on account of
the increased demand for thin films for packaging.
The company's geographically diversified manufacturing locations, its enhanced servicing capabilities and availing
benefits of regional trading blocs, the strong global and domestic demand, its high operating efficiencies with low
overheads and strong customer relationships together with expansion plans give clear visibility to its revenue &
profitability in coming years.
For FY08, the company is estimated to clock consolidated revenues of about Rs.1050 cr. with PAT of Rs.85 cr. after minority interest,
which would yield an EPS of Rs.53.
Going forward, sales are expected to go up to Rs.1400 cr. in FY09 with a net profit after minority interest increasing to Rs.120 cr. EPS
would work out to Rs.68 on its enhanced equity of Rs.17.7 cr.
The current expansion plans will contribute fully from FY10, wherein its consolidated sales are likely to touch Rs.1800 cr. with a net
profit of Rs.150 cr. (after minority interest) when its EPS would go up Rs.85.
At CMP of Rs.210, the share is trading at a P/E of 4.4 on FY08E and 3.3 on FY09E and cane be bought with a target price
of Rs.350 in the medium-to-long-term. The industry P/E of the packaging industry currently rules firm at 23 leaving
scope for tremendous gain. The 52-week high/low of the share has been Rs.302/75.
14
By Nayan Patel
TECHNO FUNDA
HYDRO S&S
BSE Code: 524019
Last Close: Rs.59.40
This Chennai based WS Industires Group company is
engaged in plastic items manufacturing polypropylene
compounds for auto majors like Maruti Suzuki, Tata Motors,
Hyundai, Toyota etc. and many other furnishing and
electrical companies. Its new plant will start shortly at Jejuri
near Pune. It is the largest supplier of Tata Motors and has
also set up a new plant at Singur for the Nano car. Its equity
is only Rs.6.53 cr., promoters hold 65.34% stake, corporate
bodies hold 14.21% leaving only 19% with the investing public. The Company has posted excellent results for the
December'07 quarter. Net sales has grown by to 25.46% but profit has shot up by 645.45% to Rs.1.64 cr. For the first nine
months, its profit jumped 149.44% at Rs.4.49 cr. whereas last year's total profit was Rs.2.94 cr.
Company is paying 12% dividend and has now declared 5% interim dividend for which the record date is 15
th
February.
The share is available around Rs.60. From this level, stock price will go up to Rs.71 in the near future. Thereafter, it will go
up to Rs.95 in the next 4-6 months. Keep a stop loss of Rs.51 and buy this stock without fail.
GSS America Infotech IPO opens on 11
th
Feb.
MONEY FOLIO
Review
Last week, due to choppy markets we had given 4 short-
term trading calls but all 4 stocks almost achieved the
short-term targets...
Ador Fontech was recommended at Rs.116.65 and it shot
up to Rs.125.
Premier Auto Electric recommended at Rs.27.90 zoomed
up to Rs.36.50.
Hawkins Cooker recommended at Rs.187.45 kissed Rs.210.
Steel Strip Wheels recommended at 170.60 in bearish
sentiment kissed to Rs.204.70.
GSS America Infotech Limited, a total IT solutions provider specialising in IT Infrastructure Management Services and
Enterprise Application Integration, IT consulting proposes to enter the capital markets with a public issue of 34,97,495
equity shares of Rs.10 each through 100% Book Building process in the price band of Rs.400 to Rs.440 per equity share of
Rs.10 each. The issue opens for subscription on Monday, 11
th
February and closes on Friday, 15
th
February 2008 and will
be listed on the BSE and NSE.
IL&FS Trust Company Ltd. A/c IL&FS Pvt Equity Trust-Tara India Fund-III, a venture capital fund registered with SEBI
holds 12.77% stake, Kubera Cross-Border Fund (Mauritius) Ltd holds 10.20% stake and Minivet Ltd holds 3.57% stake in
the pre-Issue paid up capital of the Company.
The Company proposes to utilize the net proceeds of the Issue for setting up a state-of-the-art Global Delivery Centre
(GDC) at Hyderabad with 1000 seater capacity, setting up overseas offices, meeting working capital requirement and for
acquisitions. Presently, the company operates from its two GDCs in India, one at Jubilee Hills, Hyderabad and second at
Hitech City, Madhapur, Hyderabad. It also has two GDCs in Chicago, USA. It also plans to acquire/establish facilities in
Europe, Middle East and Far East.
Its total income on a consolidated basis rose from Rs.63.16 cr. in FY06 to Rs.164.63 cr. for FY07 and further to Rs.204.61 cr.
during the first 9 months of FY08. The net profit during these corresponding periods was Rs.10.93 cr., Rs.37.09 cr. and
Rs.43.75 cr. respectively.
Rural Electrification Corporation IPO opens on 19
th
Feb.
Rural Electrification Corporation Ltd. (REC), a leading public financial institution in the Indian power infrastructure,
proposes to enter the capital markets with an IPO of 156,120,000 equity shares of Rs.10 each through the 100% book
building process in the price band of Rs.90 to Rs.105 per equity share of Rs.10 each. The issue opens for subscription on
Tuesday, 19
th
February and closes on Friday, 22
nd
February 2008 and will be listed on the NSE and BSE.
REC is a leading public financial institution in Indian power infrastructure engaged in the financing and promotion of
transmission, distribution and generation projects throughout India. It occupies a key position in the GoI's plans for the
growth of the Indian power sector. Since inception in 1969, its mandate has evolved to permit it to finance all segments of
the power sector throughout the country. Its clients include public sector power utilities at the central and state levels and
private sector power utilities. Additionally, it finances power projects for its joint sector clients. It aims to capitalize on
the increasing private sector participation in the Indian power sector.
REC proposes to utilise the net proceeds from the fresh issue to augment its capital base to meet the future capital
requirements arising out of growth in its assets, primarily its loan and investment portfolio and for other general
corporate purposes including meeting the expenses of the issue.
Mirae Asset India Opportunities Fund
Mirae Asset Global Investment Managemant (India) Pvt. Ltd. (MAGIMIPL) has launched its first equity fund Mirae Asset
India Opportunities Fund. The Fund is an open-ended diversified equity fund that opens on February 11 and closes on
March 10, 2008. Units can be purchased during the NFO period at a face value of Rs.10/- plus applicable load.
The investment objective of the is to generate long-term capital appreciation by capitalizing on potential investment
opportunities by predominantly investing in equities and equity related securities. The fund would invest between 65% to
100% in Indian equities and equity related securities and 0% to 35% in money market instruments/debt securities
instruments: (including up to 25% of
corpus in securitized debt).
Morgan Stanley A.C.E.
Fund
Morgan Stanley Mutual
Fund
announced today launched an open-
ended equity scheme 'Morgan Stanley
A.C.E. (Across Capitalisations Equity)
Fund'. The investment objective of the
scheme is to generate long-term
capital growth from an actively
managed portfolio of equity and
equity-related securities, including
equity derivatives. The fund will be
benchmarked against the BSE 200.
The New Fund Offer priced at Rs.10
per unit (plus applicable entry load)
Swing
Trading Seminar
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Attend Swing Trading Seminar to develop your own signals of change in
stock trend and money management techniques for trading.
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Next seminar to be held in March 2008. Seminar fee: Rs.1200 per person.
Limited seats available. Call NOW to book your seat.
MONEY TIMES
Goa Mansion, 58, Dr. S.B. Path (Goa St.), Fort, Mumbai 400 001
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15
will be open for purchase from February 11, 2008 to March 10, 2008. The fund will reopen for ongoing transactions in
April 2008.
Morgan Stanley Investment Management has a unique investment team model, best described as a 'Community of
Boutiques', which aims to ensure that each investment strategy is managed by a dedicated team with specific experience
in that strategy.
Safari Industries turns around
Safari Industries (India) Ltd., a leading player in the organized travel goods industry made an impressive turnaround as it
reported substantial improvement for the nine months ended 31
st
December 2007 as total income has increased to Rs.45.05
cr. from Rs.39.95 cr. in the previous corresponding period. Net profit increased 670% to Rs.77 lakh from Rs.10 lakh for the
previous corresponding period.
The company has restructured its product portfolio and diversified into Soft Luggage and is in the process to bring world
famous luggage brand into India.
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.
16
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