| Page 1 |
T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 31
Monday, June 16 – 22 , 2008
Pages 16
Market at crucial level
Could sway sentiment either way
By Sanjay R. Bhatia
The markets continued to display weakness and volatility on the back of sustained FII selling and the spike in crude oil
prices. Intermediate bouts of short covering took the
markets up but because of lack of conviction and
confidence at higher levels, the markets failed to
capitalize on these gains. Traders and speculators
were seen creating fresh short positions while buying
at lower levels. The volumes recorded remained low.
Incidentally, FIIs remained net sellers in the cash
segment but were net buyers in the derivatives
segment. Mutual Funds, too, were net buyers using
lower levels as a value buying opportunity but were
seen booking profits at higher levels.
The global cues have remained mixed. Crude oil
continued to remain volatile on supply constraints
and speculative positions as the US economy
continued to emanate mixed signals and fresh
concerns about inflation after the crude price hike. The
IIP numbers have been above market expectations
while the RBI's decision to hike the repo rate was on expected lines as we have been mentioning in the past few issues.
Now, it is important that FII participation improves and follow-up buying emerge at higher levels. Only then will the
markets show any signs of bottoming out. With no domestic triggers except the monsoon, the domestic markets would
continue to take cues from global markets and crude oil prices. Stock specific activity will be witnessed amidst
intermediate bouts of volatility and choppiness. The market sentiment is likely to remain cautiously tentative and every
rise is likely to meet with selling pressure unless some positive news flow is witnessed. Any negative news would trigger
a sell-off.
On the upside, the Sensex faces resistance at the 15332 and 15699 levels but has support at the 14800 and 14677 levels. On
the upside, the Nifty faces resistance at the 4647 and 4899 levels while 4482 and 4074 are its important support levels.
Traders and speculators can buy Bharat Electronics with a stop loss of Rs.1090 and target price of Rs.1225.
1
The pain persists
By Fakhri H. Sabuwala
Fire fighting by most countries is on as the pain in the global capital market persists despite the pain killers given. The
fight of every government barring a blessed few is against the rising crude oil prices, rising interest rates, a sudden
shrinkage of their currency, rising fiscal deficits and the rising inflation. Ripples of caution and warnings are touching all
the economies and fire fighting is on.
The U.S. Federal's Big Ben (Chief Ben Bernanke) was clear about resisting inflationary pressures, which was correctly
interpreted as a signal of an interest rate hike. The heads of the central banks in Europe have signalled the same for the
Euro zone too. India's Dr. Reddy has already upped the repo rate by 25 bps to 8% signalling a rise in the bank deposit
rates and prime lending rates. This move will have a far reaching impact on the toplines and bottomlines of corporates -
the impact of which is yet to be fully discounted by the share prices on Dalal Street.
The RBI Governor's sudden move of raising the repo rate is considered as a pre-emptive step to tame the inflationary fire,
the impact of which will be known on Friday, 20
th
June 2008 incorporating the recent petrol and diesel price hikes.
Knowledgeable circles aver that the inflation rate on that day will touch two digits and raise a big furor in political circles.
With all these factors weighing heavily on the market, both the equity and bond markets tumbled with no respite in sight.
Not even the mega takeover of Ranbaxy by Daaichi of Japan could help save the sentiment. Momentarily, the share prices
of Ranbaxy and its group companies jumped by 5% to 15% but this could not sustain and served an opportunity to book
profits or even go short!
The oil refining & marketing companies continue to bleed profusely amidst the volatility of the crude prices with no signs
of a substantial fall in demand. The earlier the government adopts some remedial measures like rationing fuel or raising
prices further the better it would be. It should not get blackmailed by the politics of its Left alliance or the BJP and must
ensure that the steps taken to combat the consumption and pricing of energy fuels does not upset the transport and
distribution of essentials to the weaker sections of society.
Our oil import bill to GDP is the highest and is the single
most worrying factor for our government. A distant
second is Japan with half our ratio! Till some remedial
steps are not taken, the country's economy along with the
capital market is heading for the worst deterioration in its
fundamentals. Fear of future corporate numbers leading to
high P/E multiples is taking a toll and the country's rating
at every level is under severe threat.
2
The problem gets acute as 2008-09 is the year of polls. The
Treasury benches are hell bent on keeping the fire under
control while the Opposition is screaming at the top of its
voice about the deteriorating economy. None of them have
the will to bell the cat and look at the problem squarely in
the face, since it is more of a global phenomenon than
Indian.
It is believed that only after the elections, will the new
government have the courage to bite the bullet and cure
the ills. If the Congress and its allies return to power, they
shall lose no time in sorting out the issues as they are
assured the driver's seat for the next five years. And if the
BJP and allies win, such remedial measures become easy
for them as they will just be cleaning the mess created by
the previous government! The only factor that needs close
scrutiny is how strong are the Congress and the BJP in
their respective coalitions. Because if the head count goes
against the main constituent, Ram alone can save
'Bharatvarsh'!
Inflation headed for 10.23%
If the Inflation data is plotted on the chart and treated
like stock price data, then we can visibly see a breakout
formation after a sideways consolidation.
Support is at 7.57%. If the support is not violated then
expect a breakout rally to take a strong footing for targets
of 10.23% and 14.69%.
Overall, Inflation can move towards 14.69% in weeks and
months to come.
The greed, fear and hope syndromes will provide enough opportunities sector wise and scrip wise to make money. Buy
on deep decline to sell on any rise. Human emotions will come into play and compulsive addiction to trading everyday
will give the prudent enough opportunities to make a living at the cost of the weak-hearted, weak-kneed and the false.
Life has to go on even in this pain for nothing lasts forever.
15537-15572 gap offers resistance
TRADING ON TECHNICALS
By Hitendra Vasudeo
In last week's update, we had indicated that further weakness was possible. The Sensex was expected to test the low of
14677 and the same was witnessed.
The Sensex opened last week at 15115.97, fell to a low of 14645.31
and moved up to register a high at 15337.10 before finally closing
the week at 15189.62. It thereby showed a net fall of 2.46% on
week-to-week basis.
As a result of the last week's move, the Sensex has formed an
indecisive doji formation. Its support range of 14677-14645
contains the immediate trigger points. On a fall and close below
14600, the Sensex may slide down to 13779.
Resistance during the week will be at 15337-15572. Rise and close
above 15572 will initiate a pull-back rise to the last corresponding
fall from 17735 to 14645 assuming at this point that 14645 is not
violated.
In case of fall and close below 14600, the Sensex can slide to 13779 -
13345-12671-12316. On the immediate front, the cluster of support
ranges are 14700-14600, 13779-13345 and 12671-12316.
On the daily chart, the Sensex has a gap at 15337-15572.
A breakout and close above this gap will confirm an
near term reversal from the falling trend. The reversal
can be for a pull back of the fall from 17497 to 14645. The
pull back of the fall from 17497 to 14645 are placed at
15734-16071-16407. We could see a pull back to create a
lower top against 17497 only to surrender the gains later
and test the low of 14600 again and move below it.
The week, in which the Sensex attained 17735, it had
formed an Engulfing Bear candlestick pattern, which has
bearish implications. Also, the Sensex formed a Dark
Cloud cover pattern in the month of May 2008 and this
has bearish implication. As a result of these formations,
we have seen the Sensex slide down to the 14645 level. The effects of these patterns were certainly witnessed as also the
directional move that was expected.
On the monthly chart, the Sensex has taken support of the trend line taken from the low of 12316 and 14677 two weeks
back. And last week, we saw that trend line getting violated and closes below it as well. Since the pattern formation is on
the monthly chart, the closing on monthly chart will confirm the monthly Head and Shoulder breakdown.
Another observation on
weekly chart: A trend line
taken from 2904 and 4227
on the log scale chart. The
Sensex took support when
it had fallen down to 8799
and bounced up from the
same trend line. Later,
when the Sensex fell
below 14667, the same
trend line was violated. A
recovery and pull-back
rise was witnessed later.
The Sensex pulled back to
the
same
trend-line,
crossed it for one week
and next week it formed
an
Engulfing
Bear
candlestick pattern to
surrender the pull-back gains to the low of last week at 14644.
WEEKLY UP TREND STOCKS
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
GLENMARK
PHARMA
708.00 606.0
669.0
693.0
732.0
795.0
83.9
665.3
30/05/08
RANBAXY
LABORATORIES
566.90 408.3
508.6
550.7
609.0
709.3
78.1
524.7
13/06/08
GLAXO SMITH
737.00 628.3
699.3
732.7
770.3
841.3
76.3
729.5
28/03/08
STERLING
BIOTECH
206.70 174.3
194.8
203.4
215.3
235.8
76.2
204.2
13/06/08
CHAMBAL
FERTILISERS
91.15 59.1
78.7
85.8
98.3
117.9
75.8
82.7
16/05/08
3
From a weekly traders
outlook, traders can cover
short positions at the
current level of 14777. Sell
further on fall and close
below 14600 with high of
the week as stop loss or
15469,
whichever
is
higher at the point of
breakdown.
WEEKLY DOWN TREND STOCKS
Let the price move above Center Point or Level 3 and when it move back below Center Point or Level 3 then sell
with what ever high registered above Center Point or Level 3 as the stop loss. After selling if the prices moves to
Level 2 or below then look to cover short positions as the opportunity arises. If the close is above Weekly Reversal
Value then the trend will change from Down Trend to Up Trend. Check on Friday after 3.pm to confirm weekly
reversal of the Down Trend.
Last
Center
Relative
Weekly Down
Close
Point
Strength Reversal Trend
Scrips
Level 1 Level 2
Level 3 Level 4
Value
Date
Cover
Short
Cover
Short
Sell
Price
Sell
Price
Stop
Loss
SOBHA
DEVELOPERS
398.45
337.9
380.5
405.3
423.2
465.8
19.43
467.64
09/05/08
BGR ENERGY
SYSTEMS
287.60
222.5
265.9
287.7
309.3
352.7
22.51
342.39
09/05/08
SHREE CEMENT
663.00
537.0
624.0
672.0
711.0
798.0
25.48
761.50
25/04/08
PATEL
ENGINEERING
381.05
270.8
350.7
400.4
430.7
510.6
26.36
462.64
16/05/08
SYNDICATE BANK
59.00
53.3
57.3
59.7
61.3
65.3
27.03
66.25
23/05/08
Sensex Wave Analysis
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
PUNTER'S PICKS
Wave IV- 12671 to 8799
Wave V- 8799 to 21206
Wave A-21206 to 14677
Wave C- 17735 to 14645
(current ongoing move)
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
HIKAL
524735
473.00
489.00
425.00
528.6
592.6
0.79 HIKAL
Internal of Wave C
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly Relative
Strength (RS)
NATIONAL ALUMINIUM C
489.40
492.28
502.25
512.22
544.50 407.8
51.7
SESA GOA
3751.00 3795.21 3893.50
3991.79
4310.00 2962.2
43.82
SHIV-VANI OIL & GAS
554.00
570.33
586.50
602.67
655.00 433.3
45.77
Wave i- 17735 to 16546
Wave ii-16546 to 17497
Wave iii- 17497 to 14645
Wave
iv-
14645 to
15337.10
(current
ongoing move)
Conclusion
Minor pull back is possible before a further downward move.
Strategy for the week
The overall strategy still remains to exit on a rally to Weekly resistance levels. Traders can benefit from trading
opportunities to trade long but ensure to exit on minor pull-backs at weekly resistance levels.
* Takeover of Ranbaxy by Daiichi will boost pharma scrips, which will outperform the broader index in coming months.
TOWER TALK
* Once all negative factors like rising crude oil price, inflation rate, US slowdown, subprime issue, hardening interest rate,
FII outflow etc. fade out, bears will pop up the issue of political uncertainity to keep the market low.
* While most mid caps are trading at their 52-week low or at their March 2008 low levels, Panoramic Universal is trading
at 100% premium to its March low of Rs 45. Something is cooking in this counter.
* In the current market sentiment, investors will do well by accumulating scrips with good dividend yeild like
Bongaingaon Refineries, Royal Orchid Hotels, Cosmo Films, Syndicate Bank, ZF Steering, TNPL, Chemfab Alkalies,
Sundaram Brakes etc.
* As expected, Hind Rectifiers has decided to declare a bonus on 24th June. Scrip may move up sharply in the short-
term. Take this opportunity to book profit at higher levels.
* Ramon Tarmat is quoting at its 52-week low at around Rs.61 and at a steep discount to its IPO price. A stock to watch.
* GHCL has gone up on speculative buying on reports of a stake purchase by a strategic investor. The news may not be
entirely correct as the company is non-commital on the issue.
* L G Balakrishnan's chain unit is being eyed by Reynolds, which is set to purchase 75% stake in the chain manufacturing
unit.
* IT & ITES companies will be least affected by the crude oil price hike as the only fuel they use is diesel for their
generators in case of a power failure. A good sector to invest in.
4
* Oil exploration and services industry may post poor results due to increased operational costs and inflation but it has a
bright future compared to others. Watch out for Selan Exploration, Asian Oilfield Services and Hindustan Oil
Exploration from the mid and small cap space.
* Fortis Healthcare will move full steam and plan world class care centres now that its promoters are flush with money.
The scrip already shows signs of glory and may shape up well to take on Apollo Hospitals.
* Neuland Laboratories is filing ANDA for two new drugs. Although this is a small beginning, the company research is
world class.
* Will the Ranbaxy promoters pick up a higher stake in Orchid Chemicals and place it at Daiichi's lap for a fat price?
* IOC, BPCl and HPCL are fighting for survival. Only if they had a broader public holding, their share prices would have
been multifold of the current value. Will the new government privatise them?
* Glenmark Pharma, Dr.Reddy's, Cipla and Piramal Healthcare are the next takeover targets for global pharma giants.
* The grey market premium for Avon Weighings Systems was quoted at Rs.8, Sejal Architectural Glass at Rs.25,
Archidply Inds. at Rs.7 and Lotus Eye Care Hospitals at Rs.4.
* Proxy IPO application form for Rs.1 lakh retail application was quoted at Rs.1500 for Archidply Inds. and Rs.1400 for
Lotus Eye Care Hospitals.
By Saarthi
BEST BETS
Decolight Ceramics Ltd. (Code: 532858)
Rs.18.95
Incorporated in 2000 by Shri Girishkumar Pethapara, Decolight Ceramics Ltd. (DCL), a part of the Gujarat based Deco
group, is mainly engaged in production of vitrified ceramic tiles and porcelinato tiles. It specialises in manufacturing all
types of vitrified tiles in sizes of 605 x 605 mm and 807 x 807 mm and in many variants like mono colours, special colours,
marble prints, matt finish, granite (salt and pepper), full body multicharge) etc. Since its products are approved by
various entities, the company has direct sales to builders, contractors, corporates, housing boards etc. It also markets its
product in the retail segment under the brand name 'Granolite'. In the near future, DCL plans to set up its own retail
outlets to improve margins. Vitrified tiles have become extremely popular over the years due to the ease in laying,
strength, durability, hygiene and most importantly they are available at one fourth the cost of Italian marble. Hence they
are widely used as floor tiles in residential complexes, commercial complexes (SEZ, IT parks, airports, hotels, call centres
etc.) and retail spaces (shopping malls, multiplexes etc.). Today, with more than 5000 dealers in India and exports to more
than 20 countries, Granolite is rapidly becoming a well-known and reputed brand.
Starting with a production capacity of 3,000 sq. mt. per day of vitrified tiles, DCL today boasts of having a capacity of
12,000 sq. mt. Of these 6,000 sq. mt. was added last year only. Based on Chinese technology, the company's plant is
located at Ceramic City 'Morbi' in Gujarat, which fulfills 70% needs of the ceramic industry in India apart from having
ample supply of clay. As power constitutes the major cost, DCL has put up a coal gas plant, which ensures efficient fuel
consumption and substantial savings compared to conventional fuel costs. Further, the company has taken trials of Pet
coke firing system which is slated to be even cheaper than coal gas technology. Moreover, it has installed 1.25 MW Wind
Turbine Generator and is in the midst of installing another two turbine aggregating to 3.35 MW from Suzlon.
Recently, DCL has diversified into Aluminium Composite Panels (ACP) and has set up a plant with an installed capacity
of 25,000 sq. ft. per day which started commercial production in end May 2008 only. In future, the company intends to
take this capacity to 35,000 sq. ft. per day. ACPs are used primarily as exterior covering of commercial buildings and
corporate houses. While adding to the aesthetic beauty of the structure, it also provides good thermal as well as sound
insulation. It is also used in the inner surface and walls of buildings. The product has recently been introduced in the
Indian market and has significant market potential with less competition. Incidentally, DCL can use its established
distribution network to market this product as ACP is also a construction material.
In May 2007, DCL raised nearly Rs.45 cr. through the IPO route at Rs.54 per share. This was largely to fund its capacity
expansion of vitrified tiles, set up a plant for ACPs and install wind turbine generators. It has fully utilised the funds as
per projections and will benefit in the current fiscal. For FY08, it has registered excellent performance as sales increased by
60% to Rs.81 cr. and net profit shot up 75% to Rs.8.80 cr. even after making high tax provisions of Rs.5.80 cr., which is 40%
of PBT. This translates into an EPS of Rs.5 on its expanded equity of Rs.18.30 cr. Accordingly for FY09, it can report a
topline of Rs.100 cr. and bottomline of Rs.10.50 cr. i.e. an EPS of Rs.6. Hence the share is available fairly cheap at an
EV/EBIDTA of less than 3 times. Besides, there is a remote possibility that in future the promoters may think of merging
group companies like Deco Ceramic Industries, Decogold Glazed Tiles Ltd. with DCL. Investors are advised to buy at
current levels with a price target of Rs.30 in 12-15 months. However, investors should keep in mind that there is a stiff
pricing war in the ceramic industry from the local unorganised segment and from Chinese players as well.
Associated Alcohols & Breweries Ltd. (Code: 507526)
Rs.42.50
5
Incorporated in 1989, Associated Alcohols & Breweries Ltd (AABL) is one of the largest distilleries in India and the
flagship company of the Associated Kedia Group with interests in liquor manufacturing and bottling. It is among the few
companies with presence in every aspect of the value chain from potable alcohol, country liquor, Extra Neutral Alcohol
(ENA), grain spirit (extra fine grade, triple distilled), rectified spirit, Indian Made Foreign Liquor (IMFL) to bottling scotch
whisky. It has its own IMFL brands across an entire range of whisky, rum, gin and vodka to cater to Indian customers and
even boasts of having a strong portfolio of popular brands such as Red & White, James McGill and Bombay Special in
whisky, London Bridge in gin and Jamaican Magic in rum. Besides, AABL is a leader in Madhya Pradesh and sells
country liquor in 10 districts through the government and sells approx 2.5 million cases annually. Apart from marketing
its own brands, AABL also manufactures and bottles IMFL and Scotch Whisky for many Indian and international
companies. Broadly, it derives 25% of its revenue from country liquor, 25% from the IMFL segment and balance 50%
comes from bulk supply of ENA and grain spirit.
AABL has a sophisticated manufacturing facility at Khodigram in Indore-Madhya Pradesh, with rare operational
flexibility to manufacture alcohol through the grains and molasses route and is thus insulated against raw material, price
or supply volatility. With record grain prices, most of its alcohol is produced from molasses. Presently, it has an installed
production capacity of 42 million litres per annum. However, plant is working at 70% capacity utilisation as it produced
30 million litres in FY08. In addition, the company has 10 bottling lines in two different sections equipped to pack around
1,00,000 cases per month. Remarkably, AABL is a sole supplier of triple distilled fine grade grain spirit to Diageo for
Smirnoff Vodka in India. It is also the only liquor company in India bottling Glen Drummond single malt Scotch Whisky
for Mason & Summers, a leading liquor company. It also manufactures and bottles reputed international brands like Haig
Scotch Whisky, Captain Morgan Rum, Master Stroke Royal Classic Whisky etc. At the same time, it is looking to market
its own brand in the international market.
To capture domestic and global demand and increase its share, AABL has chalked out a huge greenfield expansion plan
under a capex of Rs.50 cr. to re-configure its production process to extract greater efficiency. Accordingly, it is setting up a
multi-pressure ENA plant to replace the older plant and increase the installed capacity to 65 million litres per annum. It
also intends to put up a 2 MW bio-gas fuelled cogeneration captive power plant with a new 20 tonnes per hour boiler.
Further, a Reverse Osmosis water treatment plant with a 1,650 cubic mt. capacity per day is being set up and a plant to
collect, pressurise and sell carbon dioxide is being considered. However, all of the above projects are expected to complete
by mid-2009.
Meanwhile, AABL has been able to
improve its profit margin due to strict
cost control. It has recorded 200 bps
increase in OPM to 8% in FY08 from 6%
in FY07 and is further slated to register
10% OPM for FY09. Its sales increased
by 50% to Rs.120 cr. and PAT zoomed
up 140% to Rs.5.60 cr. for FY08 posting
an EPS of Rs.8 on its current equity of
Rs.6.80 cr. However, the company has
allotted 35 lakh warrants in June 2007,
which will get converted by December
2008 at Rs.24 per share and will dilute
its equity by 50% to Rs.10 cr. So for FY09
on the back of better capacity
utilization, AABL may clock a turnover
of Rs.150 cr. and with PAT of Rs.7 cr.,
which translates into EPS of Rs.7 on its
fully diluted equity of Rs.10 cr. At a fair
valuation by 8 times, the scrip can shoot
up to Rs.60 within a year. But equity
dilution is a concern as to fund its capex
the company is looking to raise Rs.30 cr.
by equity, route which may further
dilute the equity to Rs.15 cr. Also as the
promoters are not investor friendly, it is
not recommended for long-term
investment.
For F&O Traders
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NEW
6
Shriram Transport Finance: A medium-term pick
ANALYSIS
By Devdas Mogili
Shriram Transport Finance Company Ltd. (STFCL) is a 29-year old Chennai based company established in 1979. It is the
largest vehicle financing company in the country for new and pre-owned commercial vehicles. STFCL has recently shifted
its headquarters from Chennai to Mumbai to give a major thrust to its operations in western India.
The company has countrywide presence through an unmatched and extensive network of offices and has emerged as an
undisputed leader in the segment. It has pan-India presence with 4 regional, 50 divisional and 327 branch offices. Arun
Duggal is the chairman while R. Sridhar is the managing director of the company.
The company continues to maintain its leadership position in the pre-owned commercial vehicles segment and enjoys
about 25% market share. This total market size is estimated around Rs.22,500 cr. and is reportedly growing over 10%
annually.
STFCL is engaged mainly in commercial truck financing. It also has the unique distinction of having a vast fund base in
its lease portfolio management scheme in which several corporates, including other finance companies, invest their funds.
Some of the prominent corporates who have invested in this scheme include the IDBI, ITC Classic and Videocon etc.
The company plans to undertake financing of 3-wheelers, tractors and passenger commercial vehicles such as buses
and vans, which occupy the top position in its agenda for the short-term. In FY07, it undertook the financing of tractors in
South India and has tied-up with UTI Bank, Ashok Leyland and several private financiers.
Performance: For full FY08, sales rose 74.68% to Rs.2439.06 cr. as against Rs.1396.30 cr. in FY07. Net profit shot up
104.74% to Rs.389.82 cr. in FY08 as against Rs.190.40 cr. in FY07 and it registered a diluted EPS of Rs.19.71 and a basic EPS
of Rs.20.26 for FY08.
Financial Highlights:
(Rs. in lakh)
Latest Quarterly Results: Sales
increased by 77.60% to Rs.749.73 cr.
in Q4FY08 as against Rs.432.07 cr.
during Q4FY07. Net profit rose
131.29% to Rs.111.85 cr. in Q4FY08
as against Rs.48.36 cr. during
Q4FY07. The company recorded a
basic EPS of Rs.5.51 and a diluted
EPS of Rs.5.22 for Q4FY08. The
annualized basic and diluted EPS
work out to Rs.22.04 and Rs.20.88
respectively.
Particulars
Q4FY08
Q4FY07
FY08
FY07
Income from operations
74973
43207
243906
139630
Other Income
1478
507
5508
1922
Total Income
76451
43714
249414
141552
Total Expenditure
a. Employee Cost
4024
2119
12519
7249
b. Raw Materials
94
-
258
-
c. Depreciation
2059
200
3706
985
d. Prov & Write off
6665
5338
23174
16649
e. Brokerage & Discount
2099
1740
6528
4323
f. Other Expenditure
4443
2858
12984
9591
Total
19384
12255
59169
38797
Interest
39339
24541
129662
7
Financials: The company's current
equity is Rs.203.16 cr. and with has
reserves of Rs.1571 cr., the book
value of its share works out to
Rs.87.33. It has a high
73833
Profit Before Tax
17728
6918
60583
28922
Tax Expenses (incl. deferred tax & FBT)
6543
2082
21601
9882
Profit After Tax
11185
4836
38982
19040
Paid up equity share capital (FV: Rs.10)
20316
18418
20316
18418
Reserves (Exc Rev Res)
157072
88223
EPS Basic (Rs)
5.51
2.76
20.26
11.01
debt:equity ratio of 7.
Share Profile: The company's share
with a face value of Rs.10 is listed and traded on the BSE under the B group. Its share price touched a 52-week high/low
of Rs.433/Rs.150. At its current market price of Rs.303.90, it has a market capitalisation of Rs.6697 cr. As on 31
st
March
2007, it had a RoCE of 13.46% and RoNW of 20.44%.
EPS Diluted (Rs)
5.22
2.64
19.71
10.51
Dividends: The company has been giving good dividends for the past several years as shown below. In view of its good
performance, the company stepped up the dividend by 10 points to 40% for FY08.
FY08 – 40%, FY07 – 30%, FY06 – 30%, FY05 – 25%, FY04 – 25%, FY03 – 18%, FY02 – 18%.
Shareholding Pattern: The promoters hold 42.03% stake in the company while the balance 57.97% is held by non-
corporate promoters, institutions, mutual funds and the Indian public. Several mutual funds like HDFC, Standard
Chartered, HSBC, UTI, Principal and Pru ICICI have added the STFCL share to their various schemes during the last
several months.
Prospects: The growth of the commercial vehicle (CV) segment is directly linked to the growth of the economy. An
increase in industrial production naturally drives up the sales of CVs. An upbeat economy and growth in infrastructure
has pushed up the sales of CVs and the truck financing industry has emerged as a lucrative business opportunity
unearthing a potential of Rs.45,000 cr. The used truck financing market alone is projected at Rs.22,500 cr.
As transportation is universally linked to all industries, a vibrant economy is indicative of a flourishing transport
industry. With India encompassing 31,66,414 sq. km. of the world's land mass, it has to have a large and extensive
transportation system. The country boasts of one of the world's largest railway and roadway networks, transporting huge
amounts of people and cargo every year. Today, CV sector is accountable for transportation of more than 60% of the total
freight in the country.
Since India has emerged as the tenth largest economy in the world, the country's Banking & Financial Services sector has
emerged as vital support system to sustain this growth and STFCL plays its role in the CV segments.
Conclusion: STFCL is an established player in the truck financing business with an excellent track record and
performance.
At its current price of Rs.303.90, the share discounts its Q4FY08 annualised EPS of Rs.20.26 by a P/E multiple of 16.23
against the industry average of over 23 times. Considering its sparkling performance, consistent and growing dividend
distribution and bright futures prospects, STFCL is good scrip for acquisition. The share may be added at every decline
with a medium-to-long-term investment horizon.
Sensex closes lower for fourth straight week
MARKET REVIEW
By Ashok D. Singh
The market tumbled to register its lowest level in calendar year 2008. The BSE Sensex lost 382.56 points or 2.45% to
15,189.62 for the week ended 13 June 2008. The NSE Nifty fell 110.70 points or 2.39% to 4,517.10 for the week. The Sensex
is already down 6,017.15 points or 28.37% from its all-time high of 21,206.77 hit on 10 January 2008.
Soaring crude oil prices, spiralling inflation and weak global cues dampened the sentiment. Heavy offloading by FIIs led
the market to register its fourth straight weekly loss. The key benchmark indices settled lower in three out of the five
trading sessions. The BSE Mid-Cap and BSE Small-Cap indices outperformed the Sensex.
FIIs pressed heavy sales in the backdrop of a weakening rupee against the US dollar, accentuating the fall in share prices.
They dumped shares worth Rs.5,321.50 cr. whereas FII outflow in calendar 2008 totalled Rs.20,690.90 cr. till 11 June 2008.
On the other hand, domestic funds were net buyers to the tune of Rs.894.89 cr. in June 2008 till 11 June 2008.
Inflation based on wholesale price index rose 8.75% in the 12 months to 31 May 2008, above the previous week's annual
rise of 8.24%. The reading is the highest since 10 February 2001 when it was 8.77%. Inflation for the week ended 5 April
2008 was revised to 7.71% as against 7.14% reported earlier.
The RBI on Wednesday, 11 June 2008 raised short-term lending rate viz. the repo rate by 25 bps to 8% to contain inflation
expectations.
Industrial production rose 7% in April 2008 from a year earlier, rebounding strongly from the previous month's
provisional 3% rise. Manufacturing production rose 7.5% in April 2008 from a year earlier, compared with a provisional
2.9% growth in March 2008.
On 9 June 2008, Finance Minister, P Chidambaram, said that the Indian economy is expected to grow 8.5% in FY09 and
that the government's target for direct tax receipts for FY09 would be revised upwards from the current Rs.3,65,000 cr.
Trading for the week started on a bearish note as key indices slumped on Monday, 9 June 2008, as surging global crude
oil prices along with a setback in US stocks played the spoilsport. The BSE Sensex tumbled 506.08 points or 3.25% at
15,066.10 and the NSE Nifty shed 126.85 points or 2.74% at 4,500.95 on that day.
The market extended losses on Tuesday, 10 June 2008, as weakness in global markets once again weighed on the domestic
bourses. The BSE Sensex lost 176.85 points or 1.17% at 14,889.25 and the NSE Nifty was down 41.25 points or 1.14% at
4,449.80, on that day. On that day, both the key indices Sensex and Nifty hit their lowest levels in 2008, with Sensex
hitting a low 14,645.31 and the Nifty 4369.80.
The market recovered on Wednesday, 11 June 2008, as investors resorted to bargain buying after the steep fall in share
prices taking a cue from firm Asian markets. The BSE Sensex rose 296.07 points or 1.99% at 15,185.32 and the NSE Nifty
jumped 73.8 points or 1.66% at 4,523.60, on that day.
Improved April 2008 industrial production data, firm European markets and higher US futures markets triggered gains
on domestic bourses on Thursday, 12 June 2008 after an earlier steep intra-day fall caused by the RBI's decision to raise
the repo rate - a short term interest rate by 25 basis points to 8% after trading hours Wednesday, 11 June 2008. The BSE
Sensex gained 64.88 points or 0.43% at 15,250.20 and the NSE Nifty rose 15.75 points or 0.35% at 4,539.35 on that day.
The market drifted lower on Friday, 13 June 2008 as inflation surged to a seven-year high. The 30-share BSE Sensex
declined 60.58 points or 0.40% at 15,189.62 and the NSE Nifty shed 22.25 points or 0.49% at 4,517.10
Fears of RBI further hiking interest rates to check soaring mutli-year high inflation, which could choke overall growth of
the economy, will continue to haunt investors.
8
9
Is the worst over?
MARKET
By G. S. Roongta
The stock market continued to be eclipsed by the worries of rising crude oil prices, which helped push the inflation rate to
a 4-year high of 8.75%.
The 50-share CNX Nifty slumped to an 8-month low and the BSE Sensex, too, dipped below the psychological level of
15000 unleashing fears of a further fall. Both the popular indices had breached their 21
st
January 2008 low levels because
of which marketmen were worrisome. Frontline stocks plunged rapidly as the bears shook hands with FIIs not only to
unwind their long positions in the F&O segment but also divest their portfolio investments in the cash market on account
of a bleak future on the back of rising crude oil prices and inflation.
Some of the market experts on the CNBC channel continued to emphasize that the chances of recovery were remote as the
market had not bottomed out yet and the intermediate phase correction was not over. But I feel that excess of everything
is bad and that the market had been beaten down sufficiently and could bounce back.
This is quite apparent if we look at the market behaviour over the past two weeks. Ever since the Nifty
breached the 4400 level and the BSE Sensex fell below its psychological support level of 15000, which
were breached on Monday, 9
th
June 2008, when weak global markets send a scare on our bourses too. But
after falling below these support levels in intra-day trades, the markets recovered to close above these
support levels.
On Tuesday, 10
th
June 2008, the Nifty made a low of 4369.8 and the Sensex drifted to a low of 14645.31
but they bounced back in the late trading sessions having recovered two-third of their initial losses. But
on Wednesday, 11
th
June 2008, the market displayed renewed strength and recovered further ground
well above their support levels to close with a gain of 73.8 points at 4532.60 on the Nifty and at 15185.32 on the Sensex
posting a gain of 296.07 points.
G.S. Roongta
In my last article, I had expressed my gut feeling that the bears are trying very hard to pull the market down below
Sensex 15000 and Nifty 4400 but were facing a tough fight. Last week, they got a befitting reply on more than two
occasions and their efforts to create the panic and chaos did not succeed.
Even though their efforts got a shot in the arm by the sudden hike in repo rates by 25 basis points (bps) on late
Wednesday evening after market hours and which led to a gap down opening by 228 points on the Sensex and to an
intra-day low of 14745, the market recovered the loss and closed at 15250.20 with a gain of 64.88 points. Thus the market
recovered more than 500 points from the day's low on a single day. Is this not unusual in a bear market? And does it not
indicate that the bears are losing their grip having beaten down the market to such low levels?
The May 2008 figures of index of industrial production (IIP) released on Thursday, derailed the 'Bear Express' as the
market bounced back with a vengeance despite the negative picture painted on CNBC by the prophets of doom. They
continued to alarm the market but nobody cared to listen even after they declared it to be a pull-back rally.
Marketmen averred that even if it is a pull-back rally, it will at least stop the bear hammering and pull the markets well
above their support levels and which they did on Thursday, 12
th
June 2008 as the Sensex closed at 15250.20 and the Nifty
at 4539.35. Thus the markets regained all the lost ground on a week-to-week basis to finally close the week on Friday, 13
th
June 2008 with the Sensex at 15189.62 despite the fall by 60.58 points and the Nifty at 4517.10 with a loss of 22.25 points on
the last trading day.
As I have stated earlier, excess of everything is bad and proves otherwise. The bears should have taken a big lesson from
the bulls who were pushing the Sensex relentlessly beyond the justified levels in late 2007 till it touched 21000 on 10
th
January 2008 when the bears made a determined entry and displayed their strength thereafter. Readers may remember
that I had been cautioning them about the then prevailing bull frenzy, which finally collapsed on Monday, 21
st
January
2008.
Likewise the bears have hammered the market down by one third from its peak level or by more than 15% if one
considers the loss of 6000 points from the Sensex level of 10000 in December 2005. Thus, half of the 30-month rise on the
Sensex has been washed out in just 5 months! Is this not enough or an excess? Stock markets, by their very nature, move
to extremes and swing back like a pendulum. I, therefore, think that we have neared the extreme of bear hammering and
it is time for course reversal.
According to me, all short-term negatives like the slowdown in the US economy, failure of US financial entities brought
about by the sub-prime crisis, the rise in crude oil prices and inflation have all been discounted at the current levels.
Hence any further hammering beyond this point may be futile and unfruitful. Also, the Asian market cues stand
discounted as our market lost 400 points on the Sensex on Thursday but still closed in the green by 65 points.
It is difficult to state with finality whether the worst is over or not. But the direction of the market definitely appears to be
changing to the positive side. This is because the timely arrival of the monsoon has yet to be factored in our economy,
which is still predominantly agricultural. Nobody can ignore the monsoon factor and if they overlook its positive impact,
they are bound to be caught on the wrong foot.
The Indian corporate growth story is intact and no one should confuse it with the passing corrective phase. That is why I
have repeatedly asked readers to indulge in bottom-fishing of growth oriented stocks that have fallen sharply in the
current market scenario. And those who have divested their blue chip stocks must slowly buy them back as they begin to
bounce back as evident from the movements on Thursday, 12
th
June 2008.
L&T, which was 60 points in the red made a
quick u-turn and ended with a gain of Rs.50.
Reliance Industries, which was down by 40
points on the day of its AGM that was telecast
live also flared up as the market turned
buoyant. Tata Steel, BHEL, ICICI Bank and
SBI also took a sharp positive u-turn, which
may signal the end of the bear market or the
return of the bull sentiment. Even a mid-cap
stock like Idea Cellular, which had plunged to
Rs.95 on Wednesday gained 15 points at Rs.110 i.e. a rise of nearly 20% on a single day. If this kind of sentiment prevails,
the loss of 40-50% in individual stocks can be recovered in just one month once the change in trend is confirmed.
This is the beauty of the stock market where both the risks and rewards are immense for those who read the market
correctly and act on time to reap the benefits. Readers may recall that I have been repeatedly hinting about the change in
sentiment over the past 2-3 weeks and they should take their investment decisions accordingly.
10
By Saarthi
STOCK WATCH
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Kamat Hotels Ltd. (Code: 526668) (Rs.137) primarily operates a 245-room five star Ecotel hotel, 'The Orchid', near the
Mumbai domestic airport and 190 room service apartments, 'Lotus Suites' (now renamed as VITS) near Mumbai
international airport. In December 2007, the company opened another 100-room five star hotel called 'Garh Heritage' in
Pune and a 200-room 'Orchid Hotel' in Vaishnodevi. Besides, it runs around 10 highway restaurants, which contribute
less than 5% of its turnover. Notably, the company is adding 130 rooms to 'The Orchid' at an investment of Rs.80 cr. and
has a capex plans of Rs.250 cr. for setting up various properties under the VITS brand at Aurangabad, Nagpur, Pune,
Nashik, Goa, Baroda etc. To fund its expansion plans, the company raised a capital of Rs.80 cr. through FCCB route last
year. Each FCCB will be converted into an equity share at Rs.225 per share. For FY08, it reported 30% growth both in its
topline and bottomline at Rs.148 cr. and Rs.27 cr. respectively. This translates into an EPS of Rs.20 on its current equity of
Rs.13.80 cr. incidentally; foreigners contribute around 40% of its total revenue even though the company follows the
rupee tariff system. Although the company boasts of very aggressive expansion plans, it is actually slow in execution.
Hence on a conservative basis for FY09, it may report total revenue of Rs.175 cr. with net profit of Rs.30 cr., which works
out to an EPS of Rs.17 on its diluted equity of around Rs.18 cr. A strong buy for 50% gain in 12-15 months.
******
Blue Bird (India) Ltd. (Code: 532781) (Rs.36.55) is one of the leading manufacturers of paper based notebook products
and office stationery. Although notebooks form its core business, the company has also ventured into publishing
academic textbooks and self study books for children apart from general publications on subjects such as ayurveda and
biographies. It also offers end to end solutions in commercial printing. Its marketing and sales team supports the
distribution network of over 600 dealers and distributors spread across 18 cities in India and overseas representatives in
many countries. In order to cater the Central and South India markets efficiently, the company has put up two new plants
at Indore and Bangalore apart from its main plant in Pune. Financially, the company is weak in managing receivables as it
has very high debtors equivalent to four months of sales. This has led to huge debts and the company has privately
placed Rs.100 cr. Redeemable NCDs with LIC Mutual Fund for one year recently to fund its working capital
requirements. Hence, interest cost is the biggest drag on its financials. Despite healthy margins, it is estimated to report
total revenue of Rs.485 cr. and net profit of Rs.28 cr. for FY08 i.e. an EPS of Rs.8 on its equity of Rs.35. Still, it can easily
give 30-40% return within a year from current levels.
******
Kolte-Patil Developers Ltd. (Code: 532924) (Rs.86.65) is in the midst of developing 28 projects (24 in Pune and 4 in
Bangalore), with a total saleable area of around 18 million sq. ft. consisting of 10 residential complexes, 11 commercial
buildings, 5 IT parks, 1 integrated township and 1 service apartment. In addition, it has entered into a MoU or has
acquired development rights for another 22 million sq. ft. of saleable area in and around Pune and Bangalore. Although
the actual land bank owned by the company is less than 15 acres but the development rights is equivalent to whopping
755 acres of land. With this, the company has a total developable space of massive 40 million sq. ft. For FY08, its revenue
jumped by 60% to Rs.369 cr. and net profit shot up 55% to Rs.129 cr. after paying tax to the tune of Rs.37 cr. Hence it
reported an EPS of Rs.17 on its equity of Rs.75.30 cr. Assuming the company reports lower operating margin of 30% for
FY09 (against 43% in FY08), it is estimated to clock a turnover of Rs.650 cr. with PAT of Rs.150 cr. i.e. an EPS of Rs.20 cr.
on its current equity. In short, although the profit margin of company is incredibly high, the scrip can still give decent
returns in the medium-term.
******
Due to hardening of interest rate, rising CRR and recent hike in repo rate, the banking sector has taken a huge beating on
the bourses. Most banks are trading at their 52-week low levels and Allahabad Bank Ltd. (Code: 532480) (Rs.68.45) is no
exception. It is among the very few banks which are trading at a huge discount against their book values. Moreover,
Allahabad Bank is fundamentally a strong bank with Gross NPA at 2%, Net NPA at 0.80%, Capital Adequacy Ratio above
12%, Net interest margin at 2.80% and importantly with a book value of Rs.117. For FY08, it registered 20% growth in total
deposit and gross advance whereas its net profit shot up by 30% to Rs.975 cr. This works out to an EPS of a whopping
Rs.22 on its current equity of Rs.447 cr. Against this, it declared 30% dividend. Hence the scrip is currently trading at a
P/E ratio of less than 3 times and with a dividend yield of 5% at CMP. To maintain its growth momentum, the bank has
obtained approval for opening 116 more branches and has additionally applied for authorization of 180 more branches in
FY09. Besides, the bank is focusing to improve its fee based income and has made tie-ups with several organisations for
marketing of mutual funds and insurance products. A safe bet.
By Kukku
FIFTY FIFTY
Investment Call
* TRF Ltd. (Rs.799), formerly known as Tata-Robins-Fraser, was incorporated in 1962 and promoted by TISCO, ACC,
Hewitt-Robbins (US) and General Electric (UK). It services core industries like power, mining, coal, fertilisers, cement,
ports, etc. Since its inception, TRF has specialised in the manufacture of advanced systems for conveying, stacking,
blending, reclaiming and processing of bulk raw materials. TRF also undertakes turnkey contracts for total systems for
bulk material handling. Given the improvement in the economy leading to greater demand for steel, power and
investment in ports has resulted in increased investments in these sectors and the company bagged orders of over
Rs.881.31 cr. in FY08. The upward trend of investments in these sectors is expected to continue which would translate into
increased business opportunities for TRF.
Total Income of the company for FY08 was Rs.366.64 cr., an increase of 5% against Rs.349.36 cr. in FY07. Profit Before Tax
for FY08 was Rs.60.13 cr. against Rs.30.57 cr. in FY07. Profit After Tax increased by 109% in FY08 was Rs.42.17 cr. against
Rs.20.17 cr. in FY07.
The company earned forex worth Rs.76.40 cr. through exports including deemed exports of Rs.72.90 cr. as against
previous year's earnings through exports including deemed exports of Rs.71.47 cr.
In its quest to exploit new opportunities and expand its business, TRF looks forward to enter into agreements with
various domestic and foreign parties for technical tie-ups and to equip itself to meet stringent quality & performance
parameters.
TRF aims to become a Rs.2500 cr. enterprise over the next 5 years by focusing on material handling business and entering
new businesses areas and build a team that is passionate about serving all stakeholders.
With thermal power capacity addition of 50,000 MW during FY07-12E, TRF's material handling division has a market
opportunity of Rs.11200 cr. during the period. Its port equipment division also has an opportunity of Rs.5000 cr. on
account of the Rs.60,300 cr. investment envisaged by the National Maritime Development Programme to enhance India's
port capacity.
For the current year, sales are estimated to be around Rs.575 cr. with net profit of around Rs.45 cr. giving an attractive EPS
of Rs.81 on its small equity base of Rs.5.5 cr.
Investors can accumulate this stock at lower levels for target price of Rs.1500 over the next 18 months. This stock has been
recommended in this column from a very low level of Rs.87 and profit booking was advised between Rs.1800 to Rs.2100
levels. Those who booked profits can renter at current levels.
Risk Factor: Apart from the normal risks inherent in contracting and tender driven businesses in which TRF
predominantly operates, the other areas of concern are the increase in the cost of project inputs, especially Steel, Cement,
Petroleum based items and electrical equipment, which may affect margins.
Market Guidance
* Impex Ferro Tech (Rs.31) - Prices of ferro alloys which were around Rs.34, 397 per tonne in April 2007, flared up to
Rs.67,079 in April 2008. The full benefit of such a sharp rise is likely to come from the current quarter onwards.
11
Knowledgeable investors are project an EPS of around Rs.15 for FY09. In the last issue we had advised to buy on reaction
around Rs.26/28 level.
Risk Factor: Outlook will remain good so long as price of ferro alloys remains high.
* Sirpur Paper (Rs.74) is now working on expanded capacity of 350 tonnes per day (TPD) it is said to have achieved
production so far 250 TPD against Rs.180/200 TPD in the last quarter. It is likely to reach the production of its rated
capacity over the next few months. The company is also likely to get carbon credit benefit of around Rs.2 cr. per year for
the next 6 years.
With book value around Rs.133, EPS of Rs.21, the stock looks good cum dividend (35%) as a defensive investment bet in
this uncertain market.
* Cords Cable (Rs.106) is getting strong support around Rs.100 level. The company had come out with an IPO at Rs.135.
and the company is said to be faring well. Investors can accumulate at Rs.98/100 levels for good long term growth.
Fundamentals details were discussed few issue back in this column.
* Andhra Sugar (Rs.89) - Caustic soda prices have gone up by 20/22% as this division contributes around 32% of its sale
while the sugar unit contributes around 45%. Besides, this company has a power division. The stock looks attractive
around Rs.88 level as the book value of its share is around Rs.111 and last year's dividend was 60%.
* Elecon Engineering (Rs.109) has reacted from a high of Rs.343 to the current level of Rs.108/110 on account of poor
sentiment and profit-booking from issue of bonus shares as its equity shot up from Rs.6.18 cr. to Rs.18.57 cr. There are
indications of manufacturing gear boxes for wind mills in the range of 1 MW to 2 MW. Fund managers too are said to be
showing keen interest in this stock at current levels as per informed market sources. Long-term investors can accumulate
this stock.
* Investors with long-term view can accumulate JMC Projects (Rs.219), Hind Dorr Oliver (Rs.100), Pratibha Industries
(Rs.269) at their current attractive prices or on further reactions.
* Ashiana Housing (Rs.67) at its current price market cap is equivalent to its profits over the next 2/3 years. Investors can
benefit from the current this attractive valuations as the management is sound and has good growth plans ahead.
* RPG Cables (Rs.33) – Profit-booking was advised when it went up above Rs.60 level. Those who booked profit can
accumulate at current level. It is very likely to turn around in the current year. Land sale of its Thane unit will bring in
good money which can make the company debt-free.
* Yash Paper (Rs.8) - There are indications of improvement in production in the current year and production from
expanded capacity is being stabilised. The company is likely to report improved performance in every quarter in future.
* P G Foils (Rs.60) is adding two rolling mills and allied facility to enhance rolling capacity from 500 to 1250 tonnes per
month and merger of group company, Prem Cable, shall be over in the next few months. As a result, the company will
report sharp jump in sales and profits over the next few years. Current share price level of around Rs.60 is good to
accumulate the stock with a long-term view.
Note: Although the Sensex closed at 15189 levels, many of the stocks are available at the Sensex levels of 8000 to 12000.
Thus, the downside in many fundamentally
strong stocks is limited to 5% to 15% but there
is every chance that all such stocks will go up
sharply once crude oil prices come down to
US $100/105 per barrel.
Many of the good realty stocks have come
down to 1/3 or 1/5 value from their peaks.
We may see a good bounce back in some of
the fundamentally good stocks in this sector.
Investors can start accumulating strong
fundamental stocks at every dip.
This is the best time to accumulate good
stocks when an extreme fearful situation
prevails in the market as valuations are very
attractive at such times. But buying should be
restricted to fundamentally strong stocks and
that too in small quantities at every dip.
12
Roongta is right
LETTER TO THE EDITOR
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(for the busy investor)
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is not met.
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Dear Sir,
We thank Money Times for the timely and factual presentations on the market. It is cruelly real that the bears had
managed to engineer panic and chaos at the market place and Mr. G S Roongta deserves accolades for the good article in
last week's Money Times. Even the global price of Crude Oil does not reflect the ground realities on demand and supply
positions of Crude Oil. Irresponsible and motivated reports from the global research houses on the prices of crude oil are
only serving the needs of commodities speculators and distorting the prices of Crude Oil, which is hurting the interests of
the global economy as a whole. May the almighty make them realise their folly sooner. The authorities from major oil
producing nations are repeatedly expressing that the present supply conditions do not warrant the current high price
levels. Hence unwinding of the present highly speculative positions in Crude Oil Futures positions may not be far off and
we may even see the Crude Oil prices easing to even below US $100 per barrel. Mr. Roongta is right in giving hope amidst
this turmoil.
Let us also talk about the distortions staring at us in our market place. Although the Pharma sector is getting its deserving
attention from the market, some high potential scrips are traded at ridiculous levels. North based mid-cap pharma
company; Ind-Swift Ltd. is traded around Rs.27 only at a ridiculous EPS level of Rs.3.5 against the industry average P/E
ratio of 18. Whereas South based newly listed small pharma company, Anu's Laboratories Ltd., commands a market price
of above Rs.320. Anu's Labs recorded a turnover of Rs.120 cr. for FY08 with a net profit of Rs.19 cr. commands a market
capitalisation of over Rs.390 cr. as on 12/06/2008. In sharp contrast, Ind-Swift, which recorded a turnover of Rs.503.cr.
with a net profit of Rs.28. cr. in FY08, commands a market cap of a mere Rs.101 cr. as on 12/06/2008. Such glaring market
distortions may not last long, especially after the recent Japanese buyout of Ranbaxy Labs. Market forces that fancying
Anu's Labs may not be able to ignore the tremendous wealth creation opportunities that such market distortions offer.
Even if Ind-Swift gets a fraction of the attention of Anu's Labs, its price may race past the Rs.100 mark. We request Money
Times to highlight such market distortions as well.
Dharanidhar Vidyani (via email)
Reader recommends Nacto Pharma
Dear Sir,
I had written to you regarding Natco Pharma earlier in November 2007 when it was quoting around Rs.130. Money Times
readers benefited from the last upside as the stock touched Rs.165 within a couple of days of publishing the report.
The stock has now corrected significantly from those levels and is ready for another upside. The results are expected to be
declared on 25
th
June and promise to be spectacular with a reported EPS of Rs.15 for FY08, which can go up to Rs.19 for
FY09.
Thus the stock is trading at a P/E multiple of 5 with respect to current year's earnings.
It's an excellent pick at current levels!
Dillip Sen (via email)
By V. H. Dave
EXPERT EYE
India Glycols Ltd. (IGL) (Code: 500201) (Rs.279.15) is a leading manufacturer of Glycols, Ethoxylates & Performance
Chemicals, Glycol Ethers & Acetates, Ethyl Alcohol (Potable), Guar Gum Powder & Derivatives and Industrial Gases.
IGL is the only producer of ethylene glycols and other petrochemicals through the agro route as against the traditional
production through crude oil. Its MEG capacity is 1,25,000 TPA and it has completely integrated its manufacturing
process from ethylene to ethylene oxide (EO) and to various derivatives of EO. Incorporated in 1983, IGL is part of the
Delhi-based Bhartia group headed by M L Bhartia.
IGL has now making cautious efforts to take one step further in backward integration by ensuring uninterrupted supply
of molasses, which is the basic feedstock for producing ethanol.
From June 2008, the de-bottlenecking at a cost of Rs.25 cr. at its Kashipur plant will result in capacity increase of MEG
from 1,50,000 MTA. Its cost of production of MEG/EO is very low compared to other producers who use crude oil and is
thus witnessing seeing significant margin expansion.
In order to de-risk its business from being a single product company and further expand margins through value addition,
IGL is expanding its portfolio of EO derivatives. It is making ethyxolates, glycol ethers/acetate and performance
chemicals, which are the building blocks for agro-chemicals, pharmaceuticals, textiles, personal care, oil & gas,
automobiles, paints and detergents.
During Q4FY08, sales advanced by 62% to Rs.339 cr. and the net profit was Rs.27 cr. against a loss of Rs.2 cr. in Q4FY07.
For FY08, IGL posted 49% higher consolidated sales of Rs.1568 cr. and earned 336% increased net profit of Rs.179 cr.
yielding an EPS of Rs.64.
13
The promoters hold 50% in its equity capital, foreign holding is 8%, PCBs hold 10%, institutions/mutual funds hold 7%
leaving 25% with the investing public.
IGL has acquired a majority stake of 97% in Shakumbari Sugar & Allied Industries from the Jagaran Prakashan group for
Rs.47 cr. It would also invest Rs.180 cr. on expanding the capacity of the acquired unit.
IGL has diversified into herbal extraction through a 100% Export Oriented Unit (EOU) at Dehradun, Uttarakhand, to
meet the requirements of the growing international market for high value nutraceutical herbal extracts used in
pharmaceuticals, food and food supplements.
IGL has set up a Turbo Generator of 12 MW capacity, which will generate power using high pressure steam before it is
used at low pressure in the process. This would result in substantial power saving. It is also adding an Extra Natural
Alcohol (ENA) facility at Gorakhpur to meet the requirement of domestic and international markets.
Its Industrial Gases Division is diversifying to produce Carbon Di-oxide (CO
2
) both at Kashipur and Gorakhpur plants to
meet the growing domestic market, which will be operational soon.
IGL's major export markets are South East Asia, Middle East, Africa and China it has close proximity to these regions. It
exports to more than 20 countries worldwide and the thrust of its exports would be to the other regions in Europe, USA &
Latin America.
IGL has the distinct advantage of producing MEG through the agro route, which is at least 15-20% cheaper than MEG
produced through naphtha (based on crude oil). IGL thus enjoys a cost advantage over other MEG manufacturers. In
view of the current high crude oil prices, this differential will sustain in the future too providing IGL a unique advantage.
During FY09, sales are expected to advance by 25% to Rs.1960 cr. and net profit by the same percentage to 220 cr., which
would lead to an EPS of Rs.79.
At the CMP of Rs.279, the shares trades at a P/E of 4.4 on its FY08 EPS of Rs.64 and 3.5 on its estimated consolidated EPS
of Rs.79. The share is recommended with a target price of Rs.375 in the medium-term. The 52-week high /low of the share
has been Rs.510/132.
14
By Nayan Patel
TECHNO FUNDA
Sector of the week
Since the last 3 months only Pharma stocks are outperforming in the bearish market. Still, only Pharma stocks are looking
safe and strong for investment. Sun Pharma, Dr. Reddy's, Ranbaxy, Glenmark Pharma, Glaxo SmithKline Pharma,
Nicholas Pirmal are the frontline strong Pharma stocks for the short-term. Buy only Pharma stocks at every decline.
Here we recommend one small cap Pharma stock for investment.
Ind-Swift Ltd.
BSE Code: 524652
NSE Code: INDSWFTLTD
Last Close: Rs.27.65
Ind-Swift Ltd., a North India based pharmaceutical company, is part of a leading research driven pharmaceutical group
with presence in 45 countries across the globe. Presently, 30% of the group's turnover is contributed by exports.
The company has an equity just Rs.7.44 cr. (Rs.2 face value) with reserves of around Rs.150 cr. The promoters hold 36.43%
stake, corporate bodies hold 25.12%, government financial institutions hold 2.71% while the investing public holds 35.14%
stake. The company has shown very good results for the March 2008 quarter. Net sales jumped 37.12% to Rs.141.41 cr.
while net profit jumped 90.10% to Rs.9.41 cr.
For FY08, net sales jumped 33.28% to Rs.503.39 cr. while net profit jumped 34.29% to Rs.28 cr. and it recorded an EPS of
Rs.7.53. At the current level, the stock is available at a P/E ratio of just 3.7. It is the cheapest stock in mid cap pharma
stocks.
Investors can buy this 20% dividend paying stock with stop loss of Rs.23. On the upper side stock can go up to Rs.33 level
in the short-term up to Rs.45 level in next 6-9 months. Its 52-week high price is Rs.50.60.
Archidply Industries IPO Closes on 17
th
June
MONEY FOLIO
Archidply Industries Ltd. (AIL), a leading manufacturer of plywood, comprehensive engineered interior products
including Plywood, Block Board, Plain and Pre-Laminated Particle Board, Decorative Laminates and Decorative Veneers
is making an IPO of 66,15,720 equity shares of Rs.10 each through the 100% book building process in the a price band of
Rs.70 to Rs.80 per share. The issue opened on Wednesday, 11
th
June and closes on Tuesday, 17
th
June 2008. ICRA has
assigned an IPO Grade 3/5 indicating average fundamentals to the issue, which will be listed on the BSE and NSE.
AIL is the flagship company of the Archidply group, and its promoters have over 30 years experience in the Plywood
industry. AIL was incorporated in 1995 and is a modern state-of-the-art manufacturer of wood panel products and
decorative surfacing products in two locations, Rudrapur and Mysore, with a network of 16 branches, 61 distributors and
over 2500 dealers & sub-dealers across India.
AIL proposes to raise Rs.52.9 cr. through the IPO, which will be used to set up a new manufacturing facility of Plain
Particle Board (PPB), Pre-Laminated Board (PLB) and Decorative Plywood at Chintamani in Karnataka and to set up a
new manufacturing capacity for Medium Density Fibreboard (MDF) at Rudrapur in Uttarakhand and as margin money
for working capital.
AIL's total income for FY08 was Rs.142.82 cr. compared to Rs.100.62 cr. in FY07 and achieved A PAT of Rs.14.98 cr. in
FY08 compared to Rs.5.24 cr. in FY07. The company's operational income has grown at a CAGR of 49.6% in FY08 whereas
it's PAT has increased at a CAGR of 157%.
Indian banking sector outshines others in value creation
The financial crisis in USA took a heavy toll on banks worldwide in 2007 but some players proved to be more resilient
than others according to The Boston Consulting Group's (BCG) Sixth annual report on 'Creating value in banking'.
Overall, the global banking sector's average total shareholders return (TSR) plummeted by 93% to 1.7% in 2007 and was
well below the 15.2% average TSR of all industries. Globally, the banking sector's market capitalisation increased by a
mere 2.4% to $8.3 trillion – a stark change
from 2006 when market cap grew by 31%.
Since the end of 2007, shareholders returns in
the banking industry have deteriorated
rapidly: in less than three months, the sector's
market cap has dropped by more than 15%, to
$7 trillion from $8.3 trillion. Recent events
including the sudden collapse of Bear Stearns
provide evidence that the crisis is deep. The
report, which analyzes a sample of banks
representing more than 75% of the total
banking market capitalization, shows that
2007 was a year with two halves. In the first
half of 2007, the sector's market capitalization
grew by 5.7%. In the second half, as the crisis
spread, banks lost $269 billion in market
value.
A huge divide separates ten major developed
markets from the rest of the banking world.
Banking TSRs in these developed markets fell to an average of about 13% while the average TSR outside these markets
was about 27%. Emerging markets escaped the turmoil and provided a counterweight to the weak performance of
Western and Japanese banks. "Even among BRIC countries, the Indian banking sector outshone every one else in 2007 in
value creation" said Saurabh Tripathi, Partner & Director at BCG, Mumbai.
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Thomas Cook to offer Bajaj Allianz Life Insurance products
Thomas Cook, India's largest provider of integrated travel solutions will offer life insurance solutions of Bajaj Allianz Life
Insurance through its distribution network of 160 retail branches across the country, its e-business site and other locations.
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
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