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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 30
Monday, June 9 – 15 , 2008
Pages 16
Global cues will determine market sentiment
By Sanjay R. Bhatia
The markets continued to display weakness on the back of sustained FII selling and fresh fears of inflation touching the
two-digit mark. Traders and speculators were seen creating fresh short positions while buying at lower levels. The
advance:decline ratio remained negative on the back
of lower volumes. Incidentally, FIIs remained net
sellers in the cash market but were net buyers in the
derivatives segment. Mutual Funds, too, were net
buyers using lower levels as a value buying
opportunity.
The global cues have remained more or less positive.
Crude oil prices had corrected to around $123 but
have once again bounced back to above $130 level.
Other global cues were mixed with the US economy
continuing to emit mixed economic signals. Fresh
economic concerns surfaced after the US Federal
Reserve Chairman, Ben Bernanke, stoked inflation
worries. The government finally managed to hike fuel
prices but this has raised concerns about inflation
touching the two digit mark and the RBI taking fresh
stringent steps (like a further CRR hike or interest rate hike) to arrest the inflation rate.
Now, it is important that institutional participation improves especially from the FIIs who have been seen unwinding at
higher levels and follow up buying emerges at higher levels. With no domestic triggers except the monsoon the domestic
markets would continue to take cues from the global markets and crude 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 15699 and 16372 levels but has support at the 15332 and 14800 levels. On
the upside, the Nifty faces resistance at 4647 and 4899 levels whereas 4482 and 4074 are its important support levels.
Investors should stay away.
1
Great Depression again?
By Fakhri H. Sabuwala
After the Great Depression of the late Twenties and early Thirties, it is for the first time that the world is experiencing a
near economic break down. What started with the Gulf crisis of yesteryears, the sub-prime boom, ease of Yen loans,
dramatic upswings in the emerging world is now ending with a crash in the US housing sector, sub-prime loan defaults
and a near bankruptcy among players, soaring crude oil prices, slowdown of economic growth, rising commodities
prices, inflationary fire, food shortages etc.
All these years, the problems leading to the reactionary and corrective phase were finite in nature. They could be
quantified, reasoned out and a practical solution was arrived at. The falls due to Harshad Mehta's scam, cooling off by
FIIs, the foreign currency crisis of the Far East in 1997, the IT bubble of 1999-2000, the trimming of Indian corporates
between 2000-03 were problems of a finite class, which were within human and economic means to resolve.
But what the world is going through now is something that is so acutely painful the medicine for which is yet to surface.
To make matters worse, the politicians have complicated the problem further either by not biting the bullet in time or just
being defensively populist to safeguard their political ends. In USA, the continuous interest rate cuts is a prescription that
is now counterproductive and may do more harm than good. No wonder, US Fed Chief, Ben Bernanke, said 'No cuts,
anymore!'
What is the prescription for the economic crisis in India? The rise in petrol and diesel prices although delayed was a
prudent move. But it did not go well with the broad sections of politicians. Except for the Congress MPs, every other
member criticised the move but could not give an alternate solution. Despite this being a sane beginning, the market lost
over 750 points in the last couple of sessions.
This highlights the market's worry in tackling fiscal deficits arising out of it. Also the worries of rising inflation and the
rising interest rates coupled with the likely rise in CRR and other limits that may shrink the purchasing power and
corporate toplines. Political overdrives by marginal players is making up a new wave of thinking and calling such a move
as anti-people makes the treasury benches nervous.
All this is causing a pressure in the market with no respite in sight. How long and how deep will the breach be? Your
guess is as good as mine.
When such times engulf us it's the time to think of value investing says the Father of stock investments, Benjamin
Graham, a man who could anticipate the problems of tomorrow and look beyond his time. His three magical word
principle: 'Margin of Safety' is so universally accepted as it believes that every security has an intrinsic value that the
market may not necessarily recognise at a point in time. He swore by rigorous analysis, which he said had the power to
reveal the true value of the underlying assets and the earning power of the company. This allows investors to judge
whether the market was undervaluing or overrating a particular stock. If a stock is undervalued, buying is advocated and
holding it until the market recognises its true worth.
By his line of thinking, the current market scenario may bring oil refining and marketing companies to the near collapse
levels. But herein lies an opportunity to buy great stocks and make tonnes of money when the tide turns. Buy BPCL,
HPCL, IOL, GAIL, SAIL, GMR Infrastructure, Cairn India, ONGC, SBI, BoI, HUL, Tata Motors, M&M and Asian
Electronics.
Further weakness possible
TRADING ON TECHNICALS
By Hitendra Vasudeo
We did see a directional move last week as indicated in the previous week. Our last headline was 'Expect directional
move' and we witnessed one moment when the Sensex violated
the support of 16185.
The Sensex opened at 16591.46 last week and maintained the same
as the high for the week. Further, the Sensex crashed down to a
low of 15314.02 and closed at 15572.18
The week in which the Sensex attained 17735, it had formed an
Engulfing Bear candlestick pattern, which has bearish
implications. Also, the Sensex formed 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
15314 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 last week. The trend
line value was around 15300 and the low registered was 15314. If we see a sustained fall and close below 15297, then we
could find the Sensex testing the low of 14677. If that happens, then we could see the formation of Head and Shoulder
pattern with neckline breakdown. The Head and Shoulder pattern gets confirmed only when we see a breakdown and
close below the neckline.
2
If we don't see a breakdown below 15297, then we could see a pull-back of the fall from 17735 to 15297 on the daily chart.
The pull-back level in that will be placed at 16239-16524-16810.
On the weekly charts, the Sensex has taken support of the long-term moving average. The 89 W EMA and 100 W SMA are
laced at 15489-15150. Last time when the Sensex attained 14677, the 89 W EMA and 100 W SMA were placed at 15202 and
14535 respectively. The support was taken at these
averages at that time. The same averages can and are
likely to offer support.
It is possible that we could find a minor pull-back to
16239 or more and subsequently surrender the pull back
gains to violate 15297 and move down towards 14677.
In short, till the Sensex manages to remain above 15297,
we could have some trading up move. If the bulls are to
remain in control, then it must move higher and cross
17735. Another way of looking at it is a sell on rally till
17735 is not crossed. By this process, traders could get
an opportunity to trade long on the pull back rise if any.
But it needs to be handled with stop loss. Otherwise,
avoid and watch the market like a cricket match.
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 15314.
WEEKLY UP TREND STOCKS
Major
medium-term
support level and range is
14677-14141-13779. If the
market crashed further
below 15297, then each of
these levels will be
gradually tested with
minor bounces on each of
them.
Weekly resistance will be
at
15839-16365-16666.
Weekly support will be at
15297-15046-14677-14141-
13779-13727.
Sensex Wave Analysis
3
Wave I-2594 to 3758
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
671.00 591.0
642.0
664.0
693.0
744.0
80.5
655.3
30/05/08
GLAXO SMITH.
752.00 673.0
721.0
738.0
769.0
817.0
76.0
727.8
28/03/08
INFOSYS TECH.
1993.00 1729.3
1892.3
1954.7
2055.3
2218.3
74.2
1912.0
17/04/08
MONNET ISPAT
563.40 501.9
544.9
569.5
587.9
630.9
74.1
561.1
07/03/08
SUN PHARMAI
1419.00 1199.3
1344.3
1414.7
1489.3
1634.3
70.8
1383.3
30/05/08
Wave II-3758 to 2904
WEEKLY DOWN TREND STOCKS
Wave III- Internals as
follows:
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
DEVELOPER
437.30
333.9
410.9
461.4
487.9
564.9
21.35
507.73
09/05/08
BGR ENERGY SYS 302.15
182.0
270.1
326.1
358.1
446.2
22.95
380.55
09/05/08
MADRAS
CEMENTS
2462.00 1990.3
2329.3
2535.7
2668.3
3007.3
23.63
2719.75 02/05/08
SHREE CEMENT
723.00
581.7
684.7
749.3
787.7
890.7
27.49
817.00
25/04/08
Wave 1- 2904 to 6249
Wave 2-6249 to 4227
Wave 3-4227 to 12671
Wave IV- 12671 to 8799
Wave V- 8799 to 21206
Wave A-21206 to 14677
Wave B-14677 to 17735
Wave C- 17735 to 15314
(current ongoing move)
Internal of Wave C
Wave i- 17735 to 16546
Wave ii-16546 to 17497
SYNDICATE BANK
61.85
46.6
57.6
64.3
68.6
79.6
28.35
70.89
23/05/08
Wave iii- 17497 to 15314
Wave iv- 15314 to 15970
(current ongoing move)
PUNTER'S PICKS
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
P & G HYG
500459 781.45
785.00
800.00
732.00
842.0
910.0
0.77
Conclusion
Minor pull back is
possible before a further
downward move.
4
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.
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly Relative
Strength (RS)
SESA GOA
3679.00
3795.21 3893.50
3991.79
4310.00 2962.2
43.2
SHIV-VANI OIL & GAS
559.00
570.33
586.50
602.67
655.00
433.3
46.41
GUJARAT NRE COKE
133.75
135.47
138.70
141.93
152.40
108.1
46.64
MONNET ISPAT & ENERG
563.40
567.43
572.50
577.57
594.00
524.4
51.7
NATIONAL ALUMINIUM C
491.30
495.40
504.77
514.15
544.50
416.0
52
* Aftek is going cheap at a market cap of Rs.400 cr. Considering its 25% stake in Seekport alone works out to more than
Rs 400 cr. This cash rich company is worth a punt.
TOWER TALK
* After the recent stock split, Compucom Software is again in the limelight for bagging a massive Rs.150 cr. order
in the last two weeks.
* Micro Technologies has launched another innovative product called Micro Buddy Tracking System (MBTS), which
automatically updates the location of user's buddies and displays it on his cell using GPS technology.
* The rise in petrol price will have a positive impact on the sale on electric 2- wheelers. Watch out for Electrotherm as it
intensifies the promotion of YO bikes.
* Share price of mid-cap IT scrips may witness a smart recovery as the rupee holds above Rs.42 against the US dollar.
Look out for Zylog Systems, Zensar Technologies, Geodesic Info, Sasken etc.
* Bodal Chemicals has completed the rights issue successfully and is available at Rs.52, which is attractive considering its
growth potential.
* Asian Electronics has lost over 70 % in a month and is poised for a bounce back. It can be accumulated in small
quantities for decent appreciation.
* Decolight Ceramics has posted an EPS of over Rs.5.5 in the vitrified tiles business. It has also set up a plant to
manufacture Aluminium Composite Panels used in the construction industry.
* Bio diesel producer Southern Online Biotechnologies will be a beneficiary of the hike in diesel prices.
* The grey market premium for Avon Weighings Systems was quoted at Rs.5-7, Sejal Architectural Glass at Rs.23-25,
First Winner Inds. at Rs.13-15, Archidply Inds. at Rs.7-9 and Lotus Eye Care Hospitals at Rs.4-5.
* Proxy IPO application form for Rs.1 lakh retail application was quoted at Rs.1800-1900 for Sejal Architectural Glass,
Rs.1700-1800 for First Winner Inds., Rs.1600-1700 for Archidply Inds. and also for Lotus Eye Care Hospitals.
By Saarthi
BEST BETS
Shree Ganesh Forgings Ltd. (Code: 532643)
Rs.38.15
Established in 1982, Shree Ganesh Forgings Ltd. (SGFL) is a well-known manufacturer and exporter of flanges, fittings
and automotive components. It specializes in producing the complete line of stainless steel, carbon steel and alloy steel
forgings for industries like oil, gas, petrochemicals, food, dairy, breweries, nuclear, automobiles & earth moving, defence,
railways etc. Over the years, it has developed special grades of stainless steel, duplex steel, special chrome molly, special
alloy steel, carbon steel etc. SGFL boasts of making more than 2500 specialised items in piecemeal production and
manufactures different variety of flanges & fittings such a weld neck, slip on blind, lap joint, threaded, socket weld,
forged vales etc. weighing from 0.5 kg to 1000 kg. It also manufactures hot forged components such as gears, shafts,
crankshafts, crown wheels & pinions, propeller shaft components like sleeve yokes, flange yokes, universal joint crosses,
connecting roads, steering knuckle arms etc. for 4-wheelers, 2-wheelers etc. Interestingly, it has capabilities to supply the
vast range of steel forged finished products like eye, shank, single, double, and swivel hooks for the lifting industry.
SGFL's manufacturing plant located in the industrial belt of Pawane in Navi Mumbai is well equipped with facilities from
raw materials, cutting section, die making, upset forging, ring rolling, heat treatment, shot blasting up to machining and
5
testing. Importantly, its products have been qualified, approved and certified by numerous foreign agencies across the
globe. Its products are regularly exported to USA, Canada, UK, Ireland, Germany, Netherlands, Belgium, Denmark,
Spain, France, Greece, Austria and the Middle East. Of late, the company has shifted its focus back on high value stainless
steel products as against the low value carbon steel products and is trying to restore its exports to 70% total sales as in the
past. SGFL is also a preferred supplier to biggies like Alfa Laval, BEML, Greaves, L&T, Voltas, BARC, Kirloskar, KSB
Pumps, Godrej, M&M etc. and undertook to double its forging capacity from 11000 MTA to 22800 MTA by installing two
new press lines of 2500 MT and 4000 MT together with 48 automated CNC robotic machines in late 2005. The project is
almost complete and is expected to start commercial production soon, which will give a great fillip to its financials in
FY09.
Last year, SGFL acquired 100% stake in two European companies - Hertecant N V, a manufacturing unit located in
Belgium, and ELFE, a distribution company located in France from Outo Kumpu to increase its global presence. This was
the best deal and turning point for the company as it paid only Rs.23 cr. for a company which generates sales of Rs.100 cr.
with PAT of around Rs.10 cr. Further, it has established a successful joint venture with Geldbach (UK) Ltd. - a marketing
unit that services all its main customers. Accordingly, on a consolidated basis, SGFL is estimated to clock a turnover of
Rs.225 cr. with PAT of Rs.17 cr. This works out to an EPS of Rs.14 on its current equity of Rs.12.50 cr. Unfortunately, the
scrip has corrected more than 75% from its high of Rs.135 and is now available at an EV of less than Rs.125 cr. Despite
volatile & rising input costs, investors are strongly recommended to buy this scrip at current levels with a price target of
Rs.75 (100% return) in 15-18 months.
Quintegra Solutions Ltd. (Code: 532866)
Rs.76.90
Established in 1994, Quintegra Solutions Ltd. (QSL) is a global IT services & consulting company delivering measurable
business results for clients through innovative and customised solutions. It delivers the full range of application
development and enterprise solutions, business process consulting, systems integration and staffing services as well as
pre-defined solution frameworks. Leveraging its proven global delivery model, QSL provides the full range of custom
software development solutions, focused software products as well as consultancy services in IT on various platforms and
technologies. Its strategy is to focus on the high-growth, high-value segments of the IT industry. Thus its capabilities
broadly include application management, product engineering, enterprise solutions such as SAP, testing & validation,
technology consulting, professional services and proprietary product suites. Presently, the company focuses on six main
business verticals including BFSI, Heatlhcare, Education & Training, Engineering Services, Logistics and Telecom. Unlike
other companies, QSL has invested in creating products in its chosen verticals. This underlines its business knowledge of
those verticals and allows it to provide value added services in these business domains.
QSL has over a dozen offices spread across USA, UK, India, Germany & Africa with five world class offshore
development centers in India, Singapore and Malaysia. The company's strongest advantage is its excellent pool of skilled
resources recruited from the finest clan of professionals in the industry. It enjoys long-term business relationships with
clients across diverse sectors including some of the best-known global corporations like Walmart, E-bay, E-trade,
Citigroup, Capgemini, Hitachi, Sun Microsystems, IBM, LG CNC, TIBCO etc. Being a SEI CMM 4 level assessed company,
it believes that operations cannot be separated from technology and therefore provides holistic service to its clients using
its Operations-as-a-Service (Oaas) methodology, which combines shared KPO services with its products run in a
Software-as-a-Service (SaaS) model. This OaaS-SaaS methodology is unique in the industry as it provides operational
benefits to its clients by focusing on operations and technology simultaneously. Moreover, the company has recently
ventured into Knowledge Process Outsourcing Services by setting up an additional 70,000 sq. ft. of IT space in Chennai. It
plans to focus its KPO services on the telecommunications, healthcare and the BFSI space to begin with.
Importantly, as its strategy to grow inorganically QSL acquired M/s. PA Corporation, Virginia, USA (PAC) for a
consideration of Rs.148 cr. (US $37 million) in an all-cash deal in Oct 2007. QSL will pay Rs.80 cr. (US $20 million) upfront
and the balance over a period of 3 years depending on PAC meeting certain performance milestones. PAC specialises in
high end IT consulting and leadership in middle-space IT services such as enterprise application services, data
architecture & data validation, audit compliance documentation, business process management, integration architecture
& deployment and testing & configuration management. With this acquisition, QSL's global headcount now stands at
over 1,000 professionals.
Financially on a consolidated basis, QSL posted satisfactory Q4FY08 results. But for the entire FY08, its topline as well as
bottomline zoomed 5 times to Rs.390 cr. and Rs.35 cr. respectively and it registered an EPS of Rs.13 on its current equity of
Rs.26.80 cr. To fund its inorganic growth, the company made preferential allotment of approx. 26 lakh warrants to be
converted at Rs.135 per share. Although there is a risk of the rupee appreciating again the company is still expected to
earn a PAT of Rs.42 cr. on a revenue of around Rs.600 cr. i.e. EPS of Rs.14 on its diluted equity of Rs.29.50 cr. At a modest
discounting by 12 times, the scrip can shoot upto Rs.175 (100% appreciation) in 12-15 months. It's a screaming buy at the
current market cap of a mere Rs.200 cr.
Rural Electrification Corporation: Attractive on declines
ANALYSIS
By Devdas Mogili
Rural Electrification Corporation Ltd. (REC) is a 39-year old wholly-owned Government of India (GoI) Public Sector
Enterprise (PSE) promoted with the objective to finance and promote rural electrification projects all over the country. Its
corporate office is located in New Delhi with 17 project offices spread across the country. P. Uma Shankar is the chairman
& managing director of the company.
In March 2008, the company issued fresh equity of 78,060,000 equity shares of Rs.10 each at a premium of Rs.95 per share
aggregating to Rs.819.63 cr. to the public. The issue was reasonably oversubscribed.
REC provides financial assistance to State Electricity Boards (SEBs), State Government Departments, utilities and Rural
Electric Cooperatives for rural electrification projects sponsored by them. REC is associated with power generation,
transmission & distribution and global co-operation and development to service rural electrification.
REC currently finances thermal energy power generation projects in the public sector, joint sector and private sector.
Thermal energy power generation projects include coal based power plants, gas based combined cycle power plants,
captive cogeneration power plants and biomass based power plants. Since 2002, REC has financed over 26 thermal energy
power generation projects in various states.
REC also finances hydro energy power generation in the public sector, joint sector and private sector. Hydro energy
power generation comprise projects of various sizes from large to small and mini hydro power plants. Since 2002, REC
has financed over 41 hydro energy power generation projects in various states.
It has signed a MoU with Tamil Nadu Electricity Board (TNEB) to provide project finance support of Rs.16,000 cr. for
TNEB's proposed 3000 MW generation capacity addition and related transmission & distribution network development
schemes proposed to be implemented during the 11th Five Year Plan. The project is coming up at Kuruvimedu village,
Ennore, near Chennai. The first unit is expected to be commissioned in 2010-11, which will be the first 500 MW Thermal
Unit in Tamil Nadu.
Orders: As on December 2007, REC received an order from Punjab State Electricity Board (PSEB) for consultancy work for
selection of a developer through the international bidding process for supply of 1800 MW power to PSEB through its
fully-owned subsidiary, REC Power Distribution Company Ltd. (RECPDCL) and to assist project implementers in
formulation of project proposals as per requirement of MoP/MoF and external agencies.
Financial Highlights:
(Rs. in cr.)
Performance:
During FY08, its
sanctions rose by 85% to Rs.60,764
cr. while disbursements increased
by 19% to Rs.16,303 cr. Its
consolidated income leapt by 24% to
Rs.3541 cr. while PAT shot up by
31% to Rs.862 cr. REC recorded a
consolidated EPS of Rs.10.96 for
FY08 whereas its standalone EPS is
Rs.10.94.
Financials: The company has an
equity base of Rs.858.66 cr. and with
reserves and surplus of Rs.4509.04
cr. the book value of its share works
out to Rs.62.51.
Share Profile: Its share with a face
value of Rs.10 is listed and traded on
the BSE and NSE under the B group
w.e.f. 12
th
March 2008. The share
price touched a high of Rs.128 and a
low of Rs.93 since listing. At its current market price of Rs.101.85, the share has a market capitalisation of Rs.9200 cr. It has
a beta value of 0.9.
Particulars
Standalone
Consolidated
YE 31/03/08
YE 31/03/07
YE 31/03/08
Net Sales/Income
3378.22
2651.70
3378.22
Other Income
159.44
202.30
163.03
Total Income
3537.66
2854.00
3541.25
Expenditure
a. Staff Cost
92.30
49.82
92.74
b. Other Expenditure
18.81
11.04
18.95
c. Interest
2072.76
1764.78
2073.07
d. Prov for bad & doubtful debts
39.99
21.04
39.99
e. Depreciation
1.38
1.13
1.38
Total Expenditure
2225.24
1847.81
2226.13
Profit Before Tax
1312.42
1006.19
1315.12
Prov for taxation
a. Current tax incl FBT
374.86
215.49
375.78
- Income tax for earlier years
-
14.15
-
b. Deferred tax – current year
77.41
116.29
77.41
Deferred tax – earlier year
-
448.17
-
Less: Tfd from Gen Reserve
-
(448.17)
-
Net Profit
860.15
660.26
861.93
Paid up equity share capital
FV: Rs.10
858.66
780.60
858.66
Reserves & Surplus (Exc Rev)
4509.04
3232.11
4510.82
Basic/Diluted EPS (Rs)
10.94
8.46
10.96
Dividends: Post IPO, the company declared its maiden dividend of 30% for FY08.
Shareholding Pattern: GoI is the major shareholder with 81.82% equity and the balance of 18.18% is held by non-
corporate promoters, institutions and the Indian public. The total public holding is a miniscule 5.24%, because of which
the floating stock is limited. Mutual funds like Reliance Mutual Fund, DSP ML India, Kotak, Sundaram, Stanchart, Birla
6
Sunlife, Magnum, JM Equity, Tauras and India Excel Offshore Fund have added the company's shares to their schemes
recently.
Prospects: In May 2006, the GoI launched the National Programme of Franchisees under the Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY). For this REC acted as the nodal agency for implementation of RGGVY with the aim of
creating electricity infrastructure in rural areas for providing access to electricity to all villages. The RGGVY was launched
by GoI in April 2005 to attain the National Common Minimum Programme (NCMP) objective of providing access to
electricity to all households in five years.
The overall power generation in India has increased from 301 billion units (BUs) during 1992-93 to 659 BUs in 2006-07.
However, the growth has not kept pace with the growth in demand or the growth of the economy generally. According to
the Central Electricity Authority, during India's total energy shortage was 68,341 million units or 9.90% of its total
requirements in FY07 and the peak shortage was 13,610 million units or 13.50% of the peak demand requirements.
At the end of the 10
th
Five Year Plan, the total installed generation capacity stood at 132,330 MW. Over the course of the
11
th
Five Year Plan, the industry is expected to add an additional 78,577 MW to meet the increasing power demands.
REC has significantly enlarged its business portfolio over the years with continued support of the government. As a
result, its outstanding loan portfolio is well diversified in Rural Electrification, Power Generation, Transmission &
Distribution. The future outlook for REC is quite bright given the 11th Plan targets, power sector reforms, policy
notifications, and the targets for completion of Rural Electrification. All these will enable REC to participate further in the
development of the policy and regulatory framework of the Indian power sector.
Conclusion: REC is a highly profitable PSU enjoying a Navaratna status. The overall power shortage in the country and
the government's emphasis on electricity for all by 2012 augurs well for term lending institutions like REC.
At its current market price of Rs.101.85, the share P/E ratio is discounted less than 10 times against the industry average
P/E multiple of 12. Further, the share is available at its IPO price of Rs.105 and becomes attractive on declines.
Considering its Navaratna status, excellent performance and dividend payout of 30% makes REC a low-risk investment.
Moreover, with the markets currently on a downward bias, it is better to go with scrips like REC, which have a low
downward risk while chances of appreciation are high when the buoyancy returns to the market. It is a good buy for the
medium-to-long-term investment.
Market to remain subdued
MARKET REVIEW
By Ashok D. Singh
About 10% hike in fuel prices announced by the Union government on Wednesday, 4 June 2008, triggered the possibility
of a surge in inflation to double digit levels, which eventually hampered the market sentiment.
The BSE Sensex declined 843.39 points or 5.14% to 15,572.18 for the week ended 6 June 2008. The S&P CNX Nifty fell 242.3
points or 4.97% to 4627.80 for the week. The BSE Mid-Cap index fell 410.39 points or 6.07% to 6,350.15. The BSE Small-Cap
index slumped 436.99 points or 5.37% to 7,696.05.
The government on Wednesday, 4 June 2008, raised petrol by Rs.5 a litre and diesel price by Rs.3 a litre in an attempt to
curb mounting losses of state-owned refiners and thereby stoking inflation.
ONGC jumped 8.58% to Rs.938.50 for the week. The stock spiralled higher after the Union government on Wednesday, 4
June 2008, halved the state-owned upstream company's subsidy burden in fiscal 2009. Reliance Industries, however,
slipped 6.76% to Rs.2239.35.
Inflation, already running at a 4-year high of 8.24%, is likely to rise further following the fuel price hike. The immediate
impact of the fuel price hike on wholesale prices could be as high as 65 basis points in the near term. If the inflation cannot
be controlled, interest rates may go up as a result of the cascading impact of the fuel price hike.
The wholesale price index rose 8.24% in the 12 months to 24 May 2008, above the previous week's annual rise of 8.1%,
government data released on 6 June 2008 showed. The reading was the highest since 28 August 2004, when it stood at
8.74%. Inflation for the week ended 29 March 2008 was revised upwards to 7.75% from 7.41%.
FIIs sold shares worth Rs.3291.20 cr. so far in June 2008. They sold shares worth Rs.18660.60 cr. in calendar year 2008 till 5
June 2008. Domestic funds sold shares worth Rs.144.20 cr. in June 2008 till 4 June 2008.
The BSE Sensex plunged 352.39 points or 2.15% to 16,063.18 on Monday, 2 June 2008. The NSE Nifty declined 130.5 points
or 2.68% to shut shop at 4,739.60.
On 3 June 2008, the market staged a smart intra-day rebound in second half of the day's trading session led by recovery in
Reliance Industries. The BSE Sensex settled 100.62 points or 0.63% lower at 15,962.56. The NSE Nifty fell 23.70 points or
0.5% at 4,715.90.
The market witnessed a sell-off on 4 June 2008 after the government announced hike in fuel prices during trading hours.
The BSE Sensex tumbled 447.77 points or 2.81% at 15,514.79. The NSE Nifty was down 130.3 points or 2.76% at 4,585.60.
7
On 5 June 2008, frenzied buying coupled with short covering after three straight days of fall triggered a solid rally in late
trades. The BSE Sensex gained 254.93 points or 1.64% at 15,769.72. The NSE Nifty was up 91.35 points or 1.99% to 4,676.95.
On 6 June 2008, local benchmark indices underperformed their global peers hit by rumours that the Reserve Bank of India
may hike cash reserve ratio (CRR) or interest rate later in the day to tame runaway inflation. The BSE Sensex declined
197.54 points or 1.25% to settle at 15,572.18. The NSE Nifty was down 49.15 points or 1.05% to 4,627.80.
Maruti Suzuki India dropped to Rs.752.95 despite reports the company has launched a new LPG variant Maruti 800 Duo
of its once flagship model Maruti 800, in the price range between Rs.2.05 lakh and Rs.2.26 lakh. The stock hit a high of
Rs.774 and a low of Rs.750 so far during the day. The stock had a 52-week high of Rs.1252 on 29 October 2007 and the
stock hit a 52-week low of Rs.700 on 22 January 2008.
The mid-cap company had outperformed the market over the past one month till 5 June 2008, declining 1.59% compared
to the Sensex's decline of 9.05%. It had underperformed the market in the past one quarter, declining 18.30% compared to
Sensex's decline of 1.29%. The company's current equity is Rs.144.46 cr. Face value per share is Rs.5. The current price of
Rs.752 discounts its Q4 March 2008 annualised EPS of Rs.41.21, by a P/E multiple of 18.25.
Maruti 800 Duo will have dual fuel option of petrol as well as liquid petroleum gas (LPG). The company has sold almost
1.25 lakh cars that are powered by LPG and compressed natural gas (CNG) fuels. Besides the Maruti 800 Duo, the
company offers Omni and WagonR in dual fuel options (LPG-cum-petrol).
The Sensex lost 843.39 points to close at 15,572.18 last week. The market is likely to remain subdued this week. High
inflation numbers and a possible continuation of the high-interest rate environment may continue to weigh on the market
sentiment. Global equity market sentiments may remain weak due to high crude oil prices.
Bears engineer panic & chaos
MARKET
Keep on bottom-fishing
By G. S. Roongta
Last week, the stock market was dominated by the oil crisis that had been hovering over the past two months and had
kept the market in a bind. At long last, the Central Government took a call on imposing a price hike in the price of petrol
by Rs.5 per litre and Rs.2 per litre for diesel together with cuts in duties and taxes to soften the blow on the consumers.
By this measure, it was able to rescue the oil marketing companies that had been sinking into the red ever since the price
of crude oil started soaring in the international market. Had they been permitted to hike the price of fuel earlier, they
would have been in much better financial health. But the UPA government did not have the guts to implement this hike
as its Left partners were thoroughly opposed to it and are still protesting this hike. Predictably, other
opposition parties have also jumped on the bandwagon and derive political mileage from this economic
compulsion.
Given the noises made and the reactions countrywide, there is some fear in certain sections that the
inflation that has set in will become uncontrollable and take a toll of the government. Thus a murky
politico-economic atmosphere prevails, which has cast doubts about the state of the economy in general
and about the market in
particular going by
the
behaviour of the stock market last week.
G.S. Roongta
But the government needs to be congratulated
for the bold and sensible step to overcome the
oil crisis as otherwise we would have been
sucked by a sub-prime like crisis that hit the
USA last year. This would have slowed down
the economy and hurt us even more. By this
bold step, the inflation may rise by 1% to the
level of 9% or 9.5% but it will be shared by all
sectors of the economy rather than one sector
alone that was about to go bankrupt.
Because of this political uncertainty, the stock
market continued to drift lower and the bears
mustered strength to destabilize the market
further on Wednesday, 4
th
June 2008 despite
the industry chambers hailing the government
decision earlier that day.
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8
Ironically, a leading business channel projected the viewpoint of the bears thereafter, which created a fear psychosis that
prevailed till the end of the week. As a result, stock prices tumbled on Wednesday, 4
th
June 2008 in panic and the BSE
Sensex lost 448 points while closing at 15514.79 and the CNX Nifty lost 130 points at 4585.60.
Even the Money Times' editor panicked that day when the Sensex lost 500 points during intra-day trades and telephoned
me to get my opinion. I bluntly replied that it was the renewed strength of the bears on the issue of the petrol price hike
and the scare created by the TV channels that had led to this panic. I stated that it will soon be contained or take a u-turn
after testing the rockbottom below Sensex 15000 that it had established in the recent crisis after 21
st
January 2008. After his
call, the Sensex recovered somewhat from its low for the day but made a distinct u-turn the next day as it gained 255
points to close at 15769.72 on Thursday, 5
th
June 2008.
This vindicated my viewpoint that expressed the week before when I advised readers to go in for bottom-fishing
irrespective of the movement of the indices.
Another interesting observation is that the real problem lies in the USA but the trouble is being created in our country.
Why? While the Dow Jones has hardly lost 700 – 800 points since January 2008, the Sensex has lost over 5000 points
although the sub-prime crisis surfaced in the USA, which led to the slowdown in housing out there. The collapse of Bear
Stearns or the hits taken by Citibank, Merrill Lynch, Lehman Brothers, HSBC or other banking institutions on the back of
the US sub-prime crisis does not have any direct relevance with us. Yet we are affected.
I do not know why we should panic when it should be the headache of USA but unfortunately we display too much
concern as we are dependent on FII investments. This is because of the government's wrong policies in allowing FIIs to
spread their wings and invest in companies in excess of 50%. Had their exposure to Indian stocks been confined to 40% or
less, we would have been spared this anguish. Today when they are playing a game along with the bears, we are silent
spectators and helpless.
The FIIs have divested almost US $4 billion since the beginning of 2008. Do our domestic institutions and mutual funds
not have any power and strength to counter the divestment of the FIIs beyond reasonable limits? Should they really act
like common investors when it is fairly evident that the USA is envious of our rising economy and shrewd and powerful
enough to put a brake on our growth?
It is high time that the government along with the institutions and other bodies goes into the depth of the current market
situation and takes corrective measures to ensure that our growing economy is not destabilized in this manner as visible
from the stock market. Or, am I wrong and is the Indian economy going down compared to USA or UK?
The bears are definitely in command and have roped in the FIIs on a merry hunt of fundamentally good stocks at
throwaway prices, which is possible only when there is lack of confidence and panic and chaos prevails. This will suit
certain shrewd investors who know that India's economic growth cannot be hampered and the timely arrival of the
monsoon only strengthens our growth story.
L&T has been beaten down despite 1:1 bonus and extraordinary numbers. Automobile shares are losing ground despite
no slowdown and have maintained their bottom lines despite higher input costs. Real estate stocks have lost 60-70% from
their peak. Is it justified?
Cement and steel stocks, too, are reported to be enjoying good health because of good demand and hike in prices. Yet
they have lost more than 50% from their peak!
Banking, engineering and capital goods stocks have also been beaten down heavily.
Sugar, fertilizers and textiles were already suffering and have yet to come out of the woods.
But all these sectors have not been hit by any major domestic developments. The downslide in January 2008 began after
the US sub-prime crisis surfaced and the FIIs who are affected by the US problems are seeking to encash their profits in
India and will re-enter at lower prices knowing full well that there is not alternative to India and China where growth is
concerned.
Equity Mutual Fund: A status check
9
By Devangi Bhuta
All is not hunky dory in the equity markets. The government has announced one of the sharpest price hikes in fuel prices
with close to 10% increase in diesel and petrol and a sharp hike in the cooking gas too. The inflationary pressures are
already on with inflation at 8.24% for the week ended 24
th
May 2008. To control the inflationary pressures, a logical
progression of a CRR hike by the RBI is being feared.
Marketmen now await the rains and some other triggers for direction to the market. In the meanwhile, a sneak peak at the
performance of Mutual Funds may give some insights.
Top 5 Mutual Funds:
Performance in %age
Rank
Scheme Name
1 Mth
3 Mths
6 Mths
MUTUAL FUNDS
1
UTI Spread Fund - Growth
0.67
2.04
4.80
2
HDFC Arbitrage Fund - IP - Growth
0.56
1.51
4.56
3
ICICI Prudential Blended Plan - Option A - Growth
0.51
1.44
4.43
4
HDFC Arbitrage Fund - Retail - Growth
0.53
1.44
4.42
5
JM Arbitrage Advantage Fund - Growth
0.58
1.60
4.32
Most funds are in the negative zone over a 6 months period.
Balanced Schemes:
Performance in %age
Rank
Scheme Name
1 Mth
3 Mths
6 Mths
1
Birla Balance Fund - Growth
-5.64
-1.65
-11.78
2
HDFC Balanced Fund - Growth
-6.60
-4.25
-12.14
3
DSP Merrill Lynch Balanced Fund - Growth
-5.78
-1.87
-14.17
4
Reliance RSF - Balanced - Growth
-5.29
-2.78
-15.15
5
-8.84
-5.94
-15.49
Sector Specific Funds:
Performance in %age
Rank
Scheme Name
1 Mth
3 Mths
6 Mths
1
JM Healthcare Sector Fund - Growth
-2.05
9.44
12.22
2
UTI Growth Sector Fund - Pharma and Healthcare - Growth
0.38
8.89
8.15
3
Franklin Pharma Fund - Growth
-1.56
8.18
5.33
4
Franklin Infotech Fund - Growth
5.66
19.25
4.67
5
SBI Magnum Sector Umbrella - Pharma - Growth
-0.96
0.50
-1.75
The IT segment is on an uptrend of late due to the weakening of the rupee and this may be a short term phenomenon.
Pharma segment has emerged as a defensive fund as it has not participated in the bull run in recent months.
Top 5 Debt Schemes:
Performance in %age
Rank
Scheme Name
1 Mth
3 Mths
6 Mths
1
DBS Chola Monthly Income Plan - Growth
-0.99
2.69
15.83
2
Franklin India International Fund
3.76
5.30
8.33
3
Birla DBF - Retail - Growth
0.62
2.36
5.96
4
IDFC D B F- Plan A - Growth
0.42
2.22
5.83
5
ING Income Fund - Regular Plan - Growth
0.12
1.49
5.67
Our Recommendation dated 24
th
March 2008
Investors may park their money in safer avenues like debt schemes for now and wait and watch on the sidelines till there
are some signs of a trend reversal. How much time that would take is anyone's guess but given key points would help
them invest in debt schemes.
Our Recommendation dated 31
st
March 2008
Only for those with a favourable risk appetite and surplus funds, buying hereon in a staggered manner and over a longer
time frame in blue chip equity schemes may augur well. The downside as already mentioned last time may be a poor
rainfall or unexpected political developments remain. Finally, the asset allocation principle of investments in gold and
debt along with equities must never be overlooked.
Although the status of equity markets as the best asset class holds less meaning now, our recommendation status remains
the same.
By Saarthi
STOCK WATCH
From providing telecom integration services to MNCs, PSUs and Defence sector, Spanco Telesystems Ltd. (Code: 508976)
(Rs.132) has evolved to extend its expertise into the dynamic space of Business Process Outsourcing (BPO) and Radio-
frequency identification (RFID) services. Recently in March 2008, the company bagged huge orders to the tune of Rs.200
cr. from Maharashtra, Bihar and M.P. governments. On the other hand, it is executing a 10-year contract to set up, operate
and maintain Interactive Voice Response System (IVRS) and Regional Call Centres (RCC) for the Indian Railways in a
joint venture with the Spice group. For the first three quarters, it has already recorded an EPS of Rs.17, which is higher
than the entire FY07 EPS of Rs.16. Further, it is expected to clock a turnover of Rs.625 cr. with profit of around Rs.46 cr. on
a standalone basis. This will work out to an EPS of Rs.22 on its current equity of Rs.20.65 cr. and an EPS of Rs.19.50 on its
fully diluted equity of Rs.23.50 cr. At the same time, the company has decided to transfer all its BPO related businesses
10
including Respondez (international BPO), domestic call centre operations and the IRCTC project (a 50:50 JV with the Spice
Telecom Group) into a separate subsidiary. This may be a precursor to unlocking value by hiving-off or de-merging its
BPO business into a separate listed company in future. A screaming buy.
******
Royal Orchid Hotels Ltd. (Code: 532699) (Rs.101.45) has announced satisfactory Q4FY08 results with revenue of Rs.40 cr.
and profit of Rs.9 cr. on a consolidated basis. But the silver lining is the 60% dividend, which amounts to a yield of a
whopping 6% at CMP. For entire FY08, its total revenue increased 15% to Rs.130 cr. but net profit declined by 10% to
nearly Rs.32 cr. due to lower 'other income' and rise in interest and depreciation costs. The company manages eight
properties including five star hotels, budget hotels, resorts, serviced apartments etc. with a total room strength of around
655 rooms. In coming years it intends to open 4-star and 5-star hotels in Pune, Hyderabad, Mumbai, Bangalore and Delhi.
It is also planning to set up a chain of 50 budget hotels across India under the brand 'Pepper Mint' in the next 3 to 5 years.
It has formed a joint venture with Parsvanath to develop 10 hotels at an investment of Rs.500 cr. Of late, it has acquired
50% stake in Galaxy Beach Resort (65 rooms) in Goa. For FY09, it may report total revenue of Rs.160-170 cr. with net profit
of Rs.38 cr. on a consolidated basis i.e. an EPS of Rs.14 on its equity of Rs.27.25 cr.
******
After posting encouraging results for Q4FY08, Kamanwala Housing Construction Ltd. (Code: 511131) (Rs.122.65) has
announced 1:1 bonus along with 25% dividend for FY08. For Q4FY08, its topline shot up 120% to Rs.28.50 cr. and
bottomline surged by 85% to Rs.9.40 cr. posting a whopping EPS of Rs.17 for the quarter. But operating in the real estate &
construction sector and following the revenue model on sale of agreement basis, the company is bound to post erratic and
lumpy results on a quarterly basis. For full FY08, it reported total revenue of Rs.96 cr. and net profit of Rs.24.40 cr. i.e. EPS
of Rs.43 on its current equity of Rs.5.65 cr. Notably, the company paid a tax of Rs.8.50 cr., which substantiates the profit.
The company operates mainly in Mumbai and has a few good residential projects in Malad & Santacruz and a huge
commercial project in the Bandra-Kurla complex. It has several projects lined up for future in Andheri, Mahim, Goregaon
etc and even in Hydrabad. Lately, it also bought 10,000 sq. mt. land in Turbhe for Rs.15 cr. Recently, the company has
allotted nearly 20 lakh preferential warrant to promoters at Rs.98. At the current market cap of Rs.75 cr., the scrip is
trading fairly cheap and has the potential to cross Rs.200 level in the medium-term.
******
After posting a dismissal performance for the past two years, Tata Sponge Iron Ltd. (Code: 513010) (Rs.251) finally seems
to be on track with encouraging performance in FY08. On the back of better capacity utilisation and higher price
realisation, it registered a healthy OPM of 28% in FY08 compared to 12% in FY07 and 16% in FY06. Sales increased by 55%
to Rs.433 cr. whereas net profit has more than quadrupled to Rs.95.50 cr. recording an EPS of Rs.62 on its small equity of
Rs.15.40 cr. notably, the company has been allotted a coal block in Orissa where the development of mines is under
progress and the company will start getting coal from it by mid-2009 and is pursuing the government for acquiring iron
ore mines to secure its raw material requirement. The day it is allotted iron ore mines, the scrip will be re-rated as it will
emerge as a fully integrated sponge iron manufacturer. For long term growth, it plans to double its sponge iron
manufacturing capacity, install a fluidised bed boiler of 100 MW to produce power from char & coal fines and forward
integrate to steel making to produce 1.5 MTPA billets etc. Although iron ore and coal prices are ruling high, sponge iron
prices, too, are ruling firm. Thus it may post an EPS of Rs.60 again for FY09. Accumulate the scrip at sharp declines only.
By Kukku
FIFTY FIFTY
Investment Calls
* Impex Ferro Tech (Rs.32.95) was incorporated on 7
th
June 1995 to manufacture Silico Manganese and Ferro Manganese.
It is a company under the management of Rohit Ferro Tech, which was recommended in this column from significantly
lower levels.
Primarily used as alloying elements in the production of steel to modify its strength, ductility, hardness and corrosion
resistance, ferro alloys are also used to remove unwanted impurities from steel such as phosphorous or sulphur. The
growth of the ferro alloys industry is directly linked with the growth of the Iron & Steel industry, which in turn depends
upon the user industries i.e. infrastructures and construction, automobiles, consumer durables etc. About 90% of the
global ferro alloy production is consumed by the Iron & Steel industry while the balance 10% is consumed by the
Engineering sector.
The Indian Steel industry is progressing well over the past three years. During FY05 to FY07, the average compounded
annual growth rate of steel production in the country was 11.1% but the consumption growth during the same period was
11.3%. Thus the ferro alloys industry has registered a strong growth in tune with the trend of growth in the Iron & Steel
sector driven by its user industries.
11
The company has established itself as a leading ferro alloys manufacturer in India and established its presence in Europe,
the Far East and is now making inroads to USA, China, Latin America. This will widen the opportunity for the company
to expand its export base.
It has already reported encouraging results for the first nine months period with sales jumping from Rs.134 cr. to Rs.171
cr. while net profit shot up from Rs.2.46 cr. to Rs.3.79 cr. Investors may note that there was good improvement in Q3FY08
sales and profits. If the Q4FY08 results of Rohit Ferro, Navbharat Venture & Ferro Alloys are any indication, we may see a
further sharp improvement in its Q4FY08 results too.
With significant growth in automobiles, white goods, construction & infrastructure sectors the pace of production and
consumption of steel is expected to grow and the growth trend promises a bright outlook for the ferro alloys industry.
With the backing of Rohit Ferro Tech, the company is expected to record a sharp growth in sales and profit over the next
few years.
The stock has reacted after touching a high of Rs.42 to its current level of Rs.32. Investors can add the stock on further
reaction to Rs.26/28 levels for good long-term growth.
Risk factor: In the normal course of business the company is exposed to external risks such as fluctuation in demand for
its products. Softening in prices of ferro alloys can affect the performance of the company, which investors must take note
of before investing.
Market Guidance
* Torrent Cables (Rs.197) in order to capitalize on the growing demand, the company has embarked on an expansion
plan in HT cables with product capability ranging up to 132 KV cables, which is expected to begin from July 2009
onwards.
The company has paid off all its borrowings in 2008 and has invested around Rs.22.5 cr. in liquid funds.
The 11
th
Five Year Plan aims at 'Power for all by 2012' with the addition of 61,000 MW. There are significant investments
planned in the infrastructure segment, including non-conventional energy.
The company has continuously focused on improving operational efficiency through forward planning of raw material
purchase, efficient management of working capital and reduction in manufacturing costs.
The stock has a strong book value of Rs.124, EPS of Rs.40 and its market cap is just Rs.147 cr. The stock, which had
touched a high of Rs.440, is now available at Rs.197 and looks attractive for investment.
* Net profit of Karnataka Bank (Rs.186.75) rose 127% to Rs.60.78 cr. in Q4FY08 as against Rs.26.76 cr. during Q4FY07.
Total operating income rose 19.11% to Rs.420.70 cr. in Q4FY08 as against Rs.353.20 cr. during Q4FY07.
For the full FY08, net profit rose 36.55% to Rs.241.74 cr. in FY08 as against Rs.177.03 cr. during FY07. Total operating
income rose 25.04% to Rs.1570.81 cr. in FY08 as against Rs.1256.25 cr. during FY07.
Gross NPAs declined from 13% to 3.42% in the last five years, which has improved the assets quality of the bank.
The bank is meeting on 12
th
June 2008 to consider the proposal for issue of equity shares on rights basis and/or other
means. At Rs.187 level, the stock is good for long-term investment.
* Jetking (Rs.303.95) is a stock which investors can keep a watch on to accumulate for getting good dividend yields and
also long-term appreciation. It is a safe investment.
* Western India Shipyard (Rs.13.40) has reacted from Rs.22 to Rs.13 now after relisting, where it looks attractive for
investment.
* If market reports are to be believed, few FIIs are showing keen interest in purchasing shares of Rohit Ferro Tech
(Rs.159.70) from the market. Expected EPS for March 2008 is around Rs.18/20.
* Khoday India's (Rs.111.70) results are below expectations. The stock is of speculative nature and the management is not
reliable. Investors can think of exiting on pull-backs as many good stocks are available at the same discount compared to
peak prices. Few of them are JMC Projects, Pratibha Industries, Saregama, Kirloskar Pneumatic, Ashiana Housing etc.
* Revathi Equipment (Rs.910.10) is being
restructured. Long-term investors can
accumulate this stock on dips for good long-
term growth.
12
* Valuations are looking attractive in TRF
(Rs.805), Elecon (Rs.111) and TIL (Rs.367).
Investors can add on dips as their outlook is
encouraging.
Note: Auto sector production and sales
numbers for April & May 2008 are
encouraging. But investors need to be
cautious as there will be pressure on
margins in Q1FY09 results.
Daily Fresh Buy
(for the busy investor)
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investors/ traders who are keen to focus and gain from a single stock every
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moneytimes@vsnl.com or phone on 022-22616970/ 22654805.
Although we have discussed the above stocks, investors should buy in small quantities in stages at every lower level.
They should avoid buying if there is a sharp jump in prices as the sentiment is weak and one can get the same stock at
lower levels after a few days.
13
By V. H. Dave
EXPERT EYE
Tulsyan NEC Ltd. (TNEC) (Code: 513629) (Rs.93.40) was incorporated in 1974 as National Engineering Company and is
engaged in the manufacture of rolled steel products. It tapped the capital market in 1994 for implementing a
modernisation-cum-expansion project. Its steel products include finished steel (84,000 TPA), MS Ingots (36,000 TPA) and
MS billets (72,000 TPA). The company later diversified into the manufacture of packaging products such as HDPE/PP
woven sacks and flexible intermediate bulk containers (17,500 TPA).
The company's products viz. steel and TMT bars find application in housing & construction, power, Defence & Railways.
Its packaging products find application in the cement, sugar, chemicals & fertilizers and other bulk packaging
requirements.
TNEC has created additional capacities in steel and plastics. Its rolling mill with a production capacity of 1,50,000 MTA
was installed at Gummundipoondi, Tamil Nadu and commercial production commenced from July 2007. Its steel
products are used in the construction sector. The full effect of its rolling mill will be realized from this year onwards.
The capacity expansion of 10, 500 MTA in its plastic division comprising of FIBC, PP Bags and Fabrics in Bangalore,
Karnataka, is in progress. The commercial production started in September 2007 and TNEC spent Rs.21 cr. on these
expansions. Its plastic products cater to the packaging needs of the cement, fertilizers foodgrains and the sugar industry.
During Q4FY08, TNEC's net profit jumped by a whopping 2669% to Rs.4.4 cr. on 67% increased sales of Rs.209 cr. For
FY08, sales moved up by 24% to Rs.534 cr. and net profit by 11.8% to Rs.13.34 cr.
TNEC has a small equity of Rs.5 cr. and with reserves of Rs.41.3 cr., the book value of its share works out to Rs.93 making
it a bonus candidate. The promoters hold 64.8% in the equity capital, foreign holding is 1.8%, institutions/mutual funds
hold 1% and PCBs holds 4% leaving 28.4% with the investing public.
TNEC's exports around Rs.55 cr. amount to 10% of its net sales in FY08. The company is making every effort to increase
its export to 15% of sales this year.
Its subsidiary, Tulsyan Power, has signed a MoU with Power Trading Corporation (PTC) for developing a 125 MW power
plant in Tamil Nadu.
The booming Indian economy calls for massive investments in roads, ports, airports, railways, power, housing & retail
construction, which gives increased revenue visibility and profitability of the company.
With almost 3 decades' presence in industry, the company has earned a good name for its commitment to quality and
timely supply. With enhancement in production capacities, the company is well poised to cater to a bigger market.
The focus of TNEC has shifted to manufacturing and marketing of value added products. As a result, the sale of
FIBC/TMT Bars has been increasing year after year. The company has also enhanced its customer base and is catering to
the markets in Gujarat, Maharastra, Tamil Nadu, Andhra Pradesh, Goa, Kerala and Karnataka.
Going forward, steel prices are expected to remain firm on the back of a healthy demand scenario while the consolidation
process is expected to gain further momentum.
For FY09, sales are expected to further advance by 25% to Rs.665 cr. and net profit by 48% to Rs.20 cr. This would result in
an EPS of Rs.40.
At the CMP of Rs.93, the share is trading at a P/E of 3.5 on FY08 EPS of Rs.26.7 and 2.3 times its FY09 estimated EPS of
Rs.40. Considering a conservative P/E of even 4.5, the share has all the potential to appreciate sharply by over 60% in the
medium-to-long term. The 52-week high /low of the share has been Rs.143/44.
By Nayan Patel
TECHNO FUNDA
Market is looking highly dangerous in a negative mode at the current level. Day trading appears highly risky. Day traders
better stay away from the market for some time. Investors can, however, invest in good dividend paying, fundamentally
strong companies whose future looks bright.
Hawkins Cooker
BSE Code: 508486
Last Close: Rs.175.05
Hawkins Cooker is India's leading pressure cooker manufacturing company. It has an equity of just Rs.5.29 cr. Promoters
hold 56.03% stake in the company and the public holds 37.36% stake. It has posted very good numbers for FY08 as net
sales jumped 17.85% to Rs.204.16 cr. while net profit jumped 50.33% to Rs.11.26 cr. and it recorded an EPS of Rs.21.30. At
current level, the stock is available at a P/E ratio of just 8.
The company has declared 100% (Rs.10 per share) dividend.
At the current level, the stock is available with this great dividend yield. Investors can buy for 3-6 months with a stop loss
of Rs.160. On upper side, the stock can go up to Rs.192 level. Crossover will take it to Rs.225 level in the medium-term.
FCS Software
BSE Code: 532666
NSE Code: FCSSOFT
Last Close: Rs.97
FCS Software Solutions is a leading provider of IT services. In the past one decade of its existence, FCS has carved out a
niche for itself in core IT areas like e-learning, digital content services, IT consultancy and product engineering services.
The company has huge offshore centre in India that caters to a global clientele. Its Development Centre has state-of-the-art
facilities and a competent workforce consisting of programmers, IDs, visualizers, e-learning experts, writers and editors
who have worked extensively in the areas of e-learning, product training, sales training, support services, performance
and collaboration for several Fortune 500 companies.
The company has an equity of Rs.14.27 cr. Promoters hold 67.92% stake in company while the investing public holds only
18.73%. For the first nine months ended 31
st
December 2007, the company has shown 50% growth in net profit at Rs.24.41
cr. v/s Rs.16.20 cr. and recorded an EPS of Rs.17.06. Against expected annual EPS, the stock is available at a P/E ratio of
just 4 and is the cheapest P/E in small cap IT companies. This 25% dividend paying IT company's stock is available dirt
cheap. Investors can buy with a stop loss of Rs.84. On the upper side, stock will go up to Rs.114 level and stock can go up
to Rs.145 level in the next one year.
Avon Weighing Systems IPO opens on 9
th
June
MONEY FOLIO
Avon Weighing Systems Ltd. (AWSL) engaged in the business of selling weighing systems proposes to enter the capital
markets with a public issue of 1,37,33,033 equity shares of Rs.10 each at par aggregating to Rs.13.73 cr. The issue opens on
Monday, 9
th
June and closes on Thursday, 12
th
June 2008. CARE has assigned 'IPO Grade 2' to the issue indicating below
average fundamentals and it will be listed on the BSE.
The company proposes to set up a facility for manufacturing a range of weighing systems at Baddi in Himachal Pradesh
to avail of fiscal incentives and tax exemptions, open four showrooms for display and sale of its weighing systems in
Mumbai, Delhi, Chennai and Hyderabad and purchase of additional office premises in Mumbai. This project of Rs.17.3 cr.
is proposed to be funded through IPO of Rs.9.83 cr., promoters contribution of Rs.4.36 cr., internal accruals of Rs.0.50 cr.
and a term loan of Rs.2.60 cr. from Bank of India.
Avon is the authorised dealer and distributor of 'Tanita' and 'A&D' products (weighing systems) in India since 1999.
Tanita Corporation (Tanita) and M/s A&D Company Ltd. (A&D), both from Japan, are weighing scale manufacturers and
are renowned for their precision and consistency. These balances are particularly used in industries such as gems and
jewellery, pharmaceuticals and chemicals, research and development laboratories, defense, etc, where precision weighing
is critical. Avon also provides consultancy to leading industrial houses on the latest weighing systems and applications
and is focused on software to enhance the applications of weighing scales.
Avon's total income in FY08 was Rs.52.14 cr. as against Rs.40.17 cr. for FY07 and PAT was at Rs.1.85 cr. in FY08 as against
Rs.1.37 cr. in FY07.
Sejal Architectural Glass IPO
opens on 9
th
June
Sejal Architectural Glass Ltd. (SAGL), a glass
processor, will enter the capital market with
an IPO of 91,94,155 equity shares of Rs.10
each through the 100% Book-Building process
in the price brand of Rs.105 and Rs.115 per
equity share. The issue opens on Monday, 9
th
June and closes on Thursday, 12
th
June 2008 and will be listed on the NSE and BSE. The IPO has been rated 'Grade I' by
CRISIL indicating poor fundamentals.
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Its processed glass has been used in well-know structures such as the Reliance Dhirubhai Ambani Corporate Centre (Navi
Mumbai), Inorbit Mall (Mumbai), Bharat Diamond Bourse (Mumbai), Chhatrapati Shivaji International Airport, Domestic
Terminal (Mumbai), New Bangalore International Airport and Raheja IT park (Hyderabad) amongst others.
Incorporated in 1998, SAGL started commercial operations in FY01 by setting up a processing facility for insulating glass
followed by another process for toughened glass. Since then, it has expanded operations by adding an automated
14
15
lamination line in January 2007 and has ventured into processing value added glass for exterior and interior applications,
including decorative glass.
Having acquired the skills and knowledge in processing and marketing of glass, SAGL propose to set up a new
manufacturing facility of 2,00,750 MTA for float glass in Bharuch district, Gujarat at cost of Rs.435 cr. The object of the
issue is to part finance the project and general corporate purposes.
For FY07, it recorded a turnover of Rs.38.24 cr. with PAT of Rs.2.74 cr. For the nine months period ended 31
st
December
2007, it had a turnover of Rs.41.66 cr. with PAT of Rs.4.69 cr.
First Winner Industries IPO opens on 9
th
June
First Winner Industries Ltd. (FWIL), which is engaged in the manufacture of grey fabrics and trading in textile fabrics that
are supplied to wholesalers, apparel and garment manufacturers, proposes to enter the capital market with an IPO of
55,00,000 equity shares of Rs.10 each through the 100% Book-Building Process in the price band of Rs.120-130 per equity
share The issue opens on Monday, 9
th
June and closes on Thursday, 12
th
June, 2008. CARE has assigned 'IPO GRADE 1' to
the IPO indicating poor fundamentals and the issue will be listed on the BSE and NSE.
Incorporated in 2003, FWIL started trading in textile fabrics and with set up its own weaving unit in FY07 by installing
100 looms at MIDC, Tarapur, District Thane, Maharashtra. The unit has an installed capacity of 108 lakh metres of grey
fabrics per annum.
Archidply Industries IPO price band Rs.70 to Rs.80
Archidply Industries Ltd. manufacturers of comprehensive engineered interior products, which include Plywood has
announced a price band of Rs.70 to Rs.80 for its forthcoming IPO of 66,15,720 equity shares of Rs.10 each for cash at a
premium, which will be open between June 11 - 12, 2008.
ICRA has assigned an 'IPO Grade 3' to the IPO.
Resurgere Mines & Minerals plans IPO
Resurgere Mines & Minerals (India) Ltd., engaged in extraction, processing and sale of mineral products and exploration
and development of mining assets, has planned an IPO of 50,00,000 equity shares of Rs.10 each through the book building
process. Its diverse product range includes various forms of iron ore such as Lump ore, Size ore, Calibrated Lump ore
(CLO) and iron ore Fines etc. and bauxite.
For FY08, the company recorded a turnover of Rs.400 cr. up by 143.90% as against Rs.164.23 cr. for FY07. The PAT also
increased substantially to Rs.60 cr. in FY08 as compared to Rs.31.60 cr. in FY07.
Resurgere is one of the few companies from the mining industry that has obtained ISO 9001:2000 and ISO 14001:2004
certification from UKAS. The company is also a recognised Star Trading House of India and is also member of various
business councils i.e. CAPEXIL, FIEO, FIMI etc.
Lotus Eye Care Hospital IPO opens on 12
th
June
Lotus Eye Care Hospital Ltd. (LECHL), the state-of-the-art-eye care hospital group from Coimbatore with specialisation
in super-specialty service, proposes to enter the capital markets with a public issue of 1,00,00,000 equity shares of Rs.10
each through the 100% book building process in the price band of Rs.38-42 per equity share. The issue opens on Thursday,
12
th
June and closes on Tuesday, 17
th
June 2008. CARE has assigned 'IPO Grade 3' to the issue indicating its average
fundamentals and the issue will be listed on the BSE and NSE.
LECHL, promoted by renowned eye surgeon Dr. S. K. Sundaramurthy, at present has a network of four eye care hospitals
based at Coimbatore (2), Salem (1) and Tirupur (1). These hospitals have hitec eye care equipments and ophthalmic
experts backed by well-trained paramedical and administrative team. All the centers have fully computerised modern set-
ups manned by medical and administrative staff. The network of eye care hospitals has 9 operation theatres and 3 lasik
laser equipments and total bed strength of all the centers is 120 beds excluding eye camp beds.
The company proposes to utilise the net proceeds of the issue to part finance its Rs.55 cr. expansion plan to set up 2
Primary Eye Care units in Bangalore and 1 unit in Chennai with focus on diagnosis and dispensation of simple eye
problems and optical sales. Further, Secondary Eye Care centers will be opened at R. S. Puram, Tirupur and Karur and a
Tertiary Eye Care center at Salem.
While it reported a total income of Rs.7.3 cr. with net profit of Rs.1.29 cr. for FY07, it recorded a total income of Rs.8.97 cr.
with net profit of Rs.1.59 cr. for the nine months period ended 31
st
December 2007.
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