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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 32
Monday, June 23 – 29 , 2008
Pages 22
Nervous & negative sentiment prevails
By Sanjay R. Bhatia
The markets have moved in a rangebound trend with a negative bias. Selling pressure was evident on the back of weak
global cues, inflation worries and political uncertainty. Traders and speculators were seen creating fresh short positions.
The volumes recorded remained low amidst negative breadth. Incidentally, FIIs remained net sellers in the cash segment
but were net buyers in the derivatives segment.
Mutual Funds, too, were net sellers during the
week.
The global cues have remained mixed. Crude oil
continued to remain volatile but corrected from its
recent high of around $140 per barrel, which it
touched during this week. The US economy
continued to give out mixed signals while global
markets continued to react to the crude prices.
Even though the advance tax collection was above
expectation, the inflation numbers continued to
move up with the latest figures touching 11.05% -
a thirteen year high! More stringent monetary
measures are likely to be announced by the RBI to
cool down the inflation rate very soon.
The market sentiment is likely to remain nervous
and negative, especially with the political
uncertainty over the nuclear deal looming large.
The Communists have one more ammunition in inflation to derail the current UPA government. With no major domestic
triggers due till next month when quarterly results will be announced, the markets would continue to take cues from
global markets and crude prices. The markets need to witness follow-up buying, especially with FII participation at
higher levels, which is necessary for the markets to move out of the present rut. Overall, it would be difficult for the
markets to move higher and a further downfall is likely especially on expectations of stringent RBI measures.
Interest sensitive sectors like banking and reality would continue to remain subdued. However, 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.
On the upside, the Sensex faces resistance at the 14677, 14800 and 15332 levels but has support at the 14141 and 13989
levels. On the upside, the Nifty faces resistance at the 4482, 4647 and 4899 and 5025 levels but 4108, 4074 and 3750 are its
important support levels.
Investors should avoid taking long positions.
1
Oil bubble! Is it?
By Fakhri H. Sabuwala
Crude oil prices by the time this despatch reaches you may have touched US $140 a barrel on the high side and may
appear to be heading further north. Goldman Sachs in its report of 5 May 2008 has forecast that crude oil could touch US
$150 to $200 a barrel over the next 6 months and this factor alone could derail the best of the economies. So far, prophecies
of high fuel prices affecting economies have come true but the more it happens the stronger is our conviction that such a
sharp surge is only an aberration thanks to the speculative interest and excessive liquidity in this commodity.
The oil shocks of yesteryears were an outcome of political events. Egypt and Syria getting together to attack Israel in 1973
trebled the per barrel price to $12 triggering a crisis. The Iranian revolution of 1979 and the Iran-Iraq war in 1980 saw
crude oil jumping to US $38 from an interim high of US $14 a few years back. The Gulf War of 1990 sent it to US $40. A
steep climb was again witnessed after the US invasion in Iraq. And now it is the aftermath of all this and a possible US-
Iran conflict, which is looming large on the horizon. But the present surge in crude oil is not solely due political strife and
has something more to it than meets the eye. Reasons for the same are listed under:
(i)
Government Subsidies: That day is not far off when world economic forums will compel India, China and
other third world countries to do away with subsidies by way of oil bonds and sell petrol, diesel etc. at a
much higher price. The demand in China rose 8% year on year (YoY) basis and 11% in India despite the sharp
rise in fuel prices. Consumers here go on guzzling fuel without feeling guilty or the pinch of higher prices
and let the subsidy burden be shared by the exchequer and oil marketing companies or let it contribute to our
fiscal deficit.
(ii)
Shrinkage in supplies: The supply is already lower by 100,000 barrels a day thanks to the lower production
in the North Sea, Africa and Russia. And the brewing political crisis between Iran and USA jeopardises the
supply situation further.
(iii)
Costlier production: The cost of exploration and production is rising and cheap reserves are on the decline.
Oil production today is viable at US $60 a barrel. Refining and transportation costs add up to make it a
costlier venture.
(iv)
Lack of capacity expansion: The increase in oil exploration and production capacities call for huge
investments and long gestation periods. Worse still, most OPEC members do not want to raise output and
enjoy the high prices.
(v)
Export tax: Countries like Russia levy an oil export duty of 60%.
(vi)
Speculative Zeal in Crude Futures: Almost every penny of private equity fund, hedge funds, sovereign
wealth funds and pension funds has brushed through speculative deals in crude. Since 2006, such funds
tracking commodities have gone up by 200%.
These funds could be the basic reason for the rise in demand. But if viewed statistically, the demand is almost stagnant
over the last 18 months. The doubling in crude price since last August 2007 has more to do with other factors than the
ones furnished by economists. No significant change in demand and supply has occurred to warrant the doubling of price
in just 9 months. Although the Chinese and Indian demand was high, it did not rise commensurate to the price rise
experienced.
In fact, China was consuming an extra 0.9 million barrels per day (mbd) in 2004 and is consuming just an extra 0.3 mbd
today. In the last 3 years, the global demand growth too has slowed from 3.6 mbd to 0.7 mbd. The Gulf shores are surely
crowded by super tankers chartered by oil producing countries in holding inventories, which they are unable to sell in the
spot market at the current prices! Does this mean that the world has more buyers of pieces of paper called 'oil futures'
than oil itself? Does this not remind us of a similar situation experienced by the West where there were no buyers of sub-
prime mortgage bonds at the spot rates but a robust demand for instruments betting on the future value of such bonds?
It is worthwhile to note the steady rise in energy prices and the explosion of the number of players in the futures of the
energy market. It's a 'chicken and egg' syndrome where one is unsure of which of the two preceded the other! Not more
than 180 energy hedge funds existed in 2004 but that number is nearly three and a half times today. Of these more than
200 such funds are solely energy commodity funds trading in oil, oil futures and oil options. They do not even touch oil
majors like Exxon, Chevron etc. Increasing hype created by the economists employed
by investment bankers like Goldman Sachs or Morgan Stanley and their prophecies of
a oil boom and economic doom have created a scare on the bourses . Last but not the
least, oil is now treated as a safe hedge against inflation and the falling US Dollar.
What gold experienced some twenty years back, black gold is experiencing now. So
beware of this 'Oil Bubble' that is sure to burst sooner than later.
Errata
In last week's article titled
'The
pain
persists',
the
inflation rate for in the third
para should have read as 'two
digits' and not '1000 digits'.
We regret the typographical
error.
- Editor
Bets on Dalal Street
Early last week, the market gulped down the bad news and closed at higher levels, The
Repo rate hike, crude oil touching US $140 and fears of a CRR hike are factors, which
the market has already discounted. Technically, the markets may look to have
2
bottomed out. But that's only price-wise. The time-wise pain shall persist for some more time. Till then, just pick up
growth stories that are on sale at a discount of over 50% to 75%. Rush and pick up a trolley full of such scrips as quality
stocks are never available cheap for long. Even the 11% inflation rate makes equity, as an asset class, look cheap.
Lower ranges to be tested
TRADING ON TECHNICALS
By Hitendra Vasudeo
In last week's update, we had indicated that the resistance was a gap at 15537-15572. The resistance gap was crossed for
one day but failed to sustain the next day and for the rest of the week. The Sensex last week opened at 15333.07 attained a
high at 15789.62 and crashed to a low of 14519.27. The Sensex closed the week at 14571.29 and thereby showed a net fall of
596 points on a week-to-week basis.
As a result of the price movements last week, the
Sensex has formed an Engulfing Bear candlestick
pattern which has bearish implication. Though, the
placement is not perfect but still it was formed after a
pull back and formed a lower top.
On the daily chart as well on 18
th
June, we saw a Dark
Cloud Cover candlestick pattern which has bearish
implication. Further, on 19
th
June we saw the Sensex
moving gap down and then a further follow-up fall on
20
th
June which further combined to form a weekly
engulfing bear candlestick pattern that can bring
about further weakness.
Following was the view mentioned last week "On the
daily chart, the Sensex has a gap at 15337-15572. A
breakout and close above this gap will confirm a 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 levels 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 Sensex attained the pull-back to 15734 by forming a high of 15734. We had indicated that the pull-back can get
erminated at either of the pull-back levels and whenever that happens, the Sensex was supposed to slide back down to
test 14600. We experienced a similar happening last week and the market performed as per our expectations.
On the daily chart, the Sensex has an unfilled gap on its rally towards 21000+. The gap on the daily chart is placed at
14581-14424. The gap can offer temporary support at this range. The Zig Zag pattern formation is in place and is also in
the last leg of the Zig-Zag pattern formation. The price implication of the A-B-C pattern is 14466 and 13696. The level of
14466 coincides with the gap on daily chart which is at 14581-14424. The level of 13696 coincides with one of the higher
bottoms of 13779. Important support ranges for
this week on the basis of the above points are
placed at 14581-14424 and 13696-13779
The weekly pivot lower level this week is placed
at 14131 and 12862. On the upside, upper
resistance level is placed at 14960, 15400 and
15789.
Past Observations
The week in which the Sensex attained 17735, it
had formed an Engulfing Bear candlestick pattern,
which had bearish implications. Also, the Sensex
formed a Dark Cloud cover pattern in the month
of May 2008 and this too had bearish implications.
As a result of these formations, the slide was
obvious and we did see the Sensex making low of
14520 last week.
3
On the monthly chart, the Sensex has taken support of the trend line taken from the low of 12316 and 14677 two weeks
back. We saw that trend line getting violated and close below it as well. Since the pattern formation is on the monthly
chart, the closing on the monthly chart will confirm the monthly Head and Shoulder breakdown. It looks that the
formation of monthly charts is here to stay and its price implication could be seen over the next few months, unless some
miraculous rise to cross 17735 comes into existence. For the time being such a happening is a very remote possibility.
Another observation on weekly charts: 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 14520.
Sensex Wave Analysis
Wave I-2594 to 3758
Wave II-3758 to 2904
Wave III- Internals as
follows:
WEEKLY UP TREND STOCKS
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 14520
(current ongoing move)
Internal of Wave C
Wave i- 17735 to 16546
Wave ii-16546 to 17497
Wave iii- 17497 to 14645
Wave iv- 14645 to 15789
Wave v- 15789 to 14520
(current ongoing move)
Let the price move below Center Point or Level 2 and when it move back above Center Point or Level 2 then buy
with what ever low registered below Center Point or Level 2 as the stop loss. After buying if the price moves to
Level 3 or above then look to book profits as the opportunity arises. If the close is below Weekly Reversal Value
then the trend will change from Up Trend to Down Trend. Check on Friday after 3.pm to confirm weekly reversal
of the up Trend.
Last
Center
Relative
Weekly
Up
Close
Point
Strength Reversal Trend
Scrips
Level 1 Level 2
Level 3 Level 4
Value
Date
Stop
Loss
Buy
Price
Buy
Price
Book
Profit
Book
Profit
SUN PHARMA
1472.00 1371.3
1440.3
1477.7
1509.3
1578.3
76.7
1441.3
30/5/08
CADILA HEALTH
320.35 289.2
310.2
321.1
331.2
352.2
76.2
305.8
13/6/08
TULIP IT TELECOM 1101.15 882.0
1021.1
1080.3
1160.3
1299.4
76.2
1043.0
17/4/08
LUPIN
690.00 610.7
667.7
702.3
724.7
781.7
74.3
688.5
13/6/08
TRANSWORLD INF 294.90 213.8
265.2
286.8
316.6
368.0
72.7
269.4
13/6/08
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 DEVELOPE 360.95
280.7
340.2
378.8
399.6
459.1
17.98
423.89
9/5/08
BGR ENERGY SYS 271.80
200.4
252.9
286.4
305.4
357.9
22.18
301.54
9/5/08
BAJAJ HOLDING
483.95
431.2
469.5
493.4
507.8
546.1
27.25
550.81
9/5/08
PARSVNATH DEV
152.10
119.1
143.6
159.6
168.1
192.6
27.26
172.98
9/5/08
ABG SHIPYARD
374.75
286.0
351.9
395.0
417.8
483.7
27.72
448.86
23/5/08
The current falling move
can get terminated at
either of the following
ranges:
14581-14424,
13696-13779 and 12671-
12316.
It is possible that if Wave
v- of Wave C gets
completed, then we could
very well complete Wave
1 of Wave C and then we
could have pull-back for
Wave 2 of Wave C. Now,
it depends what is the
intensity of the fall from
hereon.
4
The deeper the fall from
hereon, then the pattern
formation would change
from the Corrective Zig-
Zag
pattern
to
an
Impulsive
downward
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
ALKA SECURITIES
532166
19.40
18.90
19.45
17.85
20.4
22.0
0.67
APOLLO HOSPITALS ENT 508869 503.80
492.30
509.00
479.50
527.2
556.7
0.96
KOFFEE BREAK PICTURE 531602
27.45
26.20
28.30
24.65
30.6
34.2
1.11
For the time being, if any
recovery comes into
5
existence don't expect the
Sensex
crossing
the
important
lower top
17735.
Conclusion
A fall to the lower range
is possible and we could
see a relief rise from
either of the ranges of 14581-14424, 13696-13779 and 12671-12316. The relief rise overall is expected to create a lower top.
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly Relative
Strength (RS)
SESA GOA
3503.00 3785.94 3886.00
3986.06
4310.00 2937.9
41.83
NATIONAL ALUMINIUM C
428.50
468.67
483.15
497.63
544.50 346.0
44.72
SHIV-VANI OIL & GAS
548.00
570.33
586.50
602.67
655.00 433.3
45.05
GUJARAT NRE COKE
131.50
132.38
136.20
140.02
152.40 100.0
45.51
NESTLE INDIA
1670.00 1697.22 1711.50
1725.78
1772.00 1576.2
50.02
PROVOGUE (INDIA)
1102.80 1119.27 1137.55
1155.83
1215.00 964.4
51.6
Intermediate reversal confirmation can happen on rise and close above 15789.
Strategy for the week
The overall strategy still remains to exit on a rally to Weekly resistance levels. Sell at 14960 and 15400 with a stop loss of
15789. Traders can wait for a weekly rise above 14960 or 15400 and when it falls below 14960 or 15400, then sell with high
above 14960 or 15400 as the stop loss. Expect lower levels of 14581-14424, 13696-13779 and 12671-12316 to be tested one by
one. Each of these levels would provide a short covering rise without any significant meaning.
* A massive boycott of Sundaram BNP Paribas Mutual Fund by brokers and financial planners is on since it discourages
fund subscription through such intermediaries.
TOWER TALK
* Next on the pharma takeover list are Nicholas Piramal and Lupin. Expect fireworks in both these counters as world
majors are eyeing them to get a foothold in India.
* Brokerages have flooded the market with secured/unsecured debentures, redeemable after 15 or 36 months tied to the
Nifty. Will SEBI look into this before the size of such papers become too large for anyone to control?
* Last month, it was KGN Industries and Sylph Technologies that skyrocketed on relisting. This month it is Griffin
Chemicals. Are vested interests back playing the rigging game?'
* While most shipping companies are trading at very low P/E levels, Shipping Corporation is richly discounted by 8
times. Sell immediately as the scrip appears overvalued.
* Ratnamani Metals has provided a huge loss of Rs.28 cr. for just one quarter on the mark to market basis in derivatives.
To overcome this negative sentiment, it has announced a stock split. Sell now and buy later.
* Kohinoor Foods has shot up sharply on anticipation of a takeover by Temptation Foods. Sell immediately as
fundamentally the company is not on a strong footing.
* Rohit Ferro is totally an operator driven scrip. Exit immediately as such scrips will tumble down sharply in the current
sentiment.
* Flat Products has tumbled down sharply to Rs.300 after the closure of its open offer. Investors can still exit the counter
as the scrip may further corrrect to below Rs.200 level.
* Jayaswal Neco has put in a stellar performance with profit of Rs.86 cr. in FY08 and is available at very attractive
valuation due to the depressed market.
* MSP Steel is a dark horse and has massive expansion plans. The stock is a decent buy at current levels for the medium-
term.
* ANG Auto has been quoting near its 52-week low for some time. The stock is a value buy for a one year horizon.
* Sturdy Industries is on track with the amalgamation of Swati Storewel, which is into drip irrigation. The stock has
potential considering the importance given to irrigation by the government.
* Cosmo Films will complete its expansion by 2009, which would increase its earnings. With a likely EPS of Rs.30 in FY09,
the share is an excellent buy.
* An analyst strongly recommends Numeric Power, which is all set to post an EPS of Rs.80+. With a tiny equity of Rs.5
cr., it is an ideal bonus candidate.
* The shares of Kamanwala Housing cum 1:1 bonus is worth buying. Its EPS of Rs.43 gives a P/E of just 2.6.
* Some analysts recommend the shares of IVR Prime, which is likely to post an EPS of Rs.45 in FY09.
* KIC Metaliks is likely to register an EPS of Rs.18 or above in FY08. Persons in the know have bought a good chunk with
a target price of Rs.65.
* IFB Agro, maker of vodka, has posted an EPS of Rs.10. The share is going cheap at Rs.62.
* GM Breweries has recorded an EPS of Rs.16 is available at a P/E of 4.5 against the industry P/E of 35. A safe bet for the
medium-term.
* A reputed brokerage house strongly recommends buying Goa Carbon and projects a share price of Rs.140 by the time
Q1FY09 results are published in July 2008. Given the firm prices of calcined petroleum coke, it is all set to register an EPS
of Rs.25+ in FY09.
* The counter of Mount Shivalik, the manufacturer of beer, has attracted good investment buying. There is a buzz that it
would be acquired by a foreign liquor company.
* With a likely EPS of Rs.45 in FY09, the shares of Surya Pharma are an excellent buy. It posted an EPS of Rs.32 in FY08.
* With a likely EPS of Rs.34 for FY08, the share of Ramsarup Industries offers good potential at a P/E of just 4 at Rs.136.
* With the expansion completed in September 2007, Insecticides India is doing well. With a projected EPS of Rs.12, the
share can be bought for steady appreciation.
* Deep Industries and IDFC are being accumulated by punters.
* Godawari Power posted an EPS of Rs.35 and analysts project an EPS of above Rs.55 in FY09 and Rs.70 in FY10.
* Polyplex Corporation is all set to post a consolidated EPS of Rs.50 in FY08. Post expansion, its EPS would increase to
Rs.70 in FY09. The share is available at dirt cheap with a forward P/E of just 2.7.
* The grey market premium for Avon Weighings Systems was quoted at Rs.6, Sejal Architectural Glass at Rs.19 and
KSK Energy Ventures at Rs.22-25.
* Proxy IPO application form for Rs.1 lakh retail application was quoted at Rs.1500-1600 for KSK Energy Ventures.
By Saarthi
BEST BETS
Prime Property Development Corpn. (Code: 530695)
Rs.65.75
Incorporated in 1992, Prime Property Development Corporation Ltd. (PPDCL) is small real estate developer based in
Mumbai. It made a late entry and started its real estate activity only in 2002. PPDCL is led by Shri Padamshil L Soni who
has a rich experience of nearly two decades in construction. Apart from his two sons, the company has eminent
personalities on its board including Shri Y. C. Pawar, Shri K. Nalinakshan, Dr. B. Samal to name a few. Under their
leadership, the company has now positioned itself as a unique company catering to the niche segment of the property
market. Within a short span of time, the company boasts of constructing landmark residential and commercial buildings
for high end customers in Mumbai. 'Prime Beach' and 'Prime Centre' constructed in Santracruz by the company are
among the most luxurious apartments and also well known for its modern and elegant architecture. On the other hand, its
'Prime Plaza' is a 100% commercial project with ultra modern facilities in Santacruz was a huge success. 'Prime Avenue' –
a 100,000 sq. ft. residential cum commercial project in Vile Parle was the flagship project of the company comprising
residential flats and large commercial units like showrooms, shops and offices.
Currently, PPDCL is developing two projects that are nearing completion. Of these, 'Prime Down Town Mall' project is
much bigger being a 270,000 sq ft luxurious composite Mall with multiplexes. The mall is at the prime location of Hughes
Road, Mumbai and is being constructed in partnership with others. Once operational it will be among the largest malls in
Mumbai with hi-tech elevation and an international feel. 'Prime Tech Park', the other project is a 90,000 sq ft commercial
building in Vile Parle mainly for IT /ITES companies. It is just next to the Western Express highway and barely a few kms
away from the domestic and international airports. Apart from these two projects, the company has undertaken two more
projects, of which both are shopping malls – one in Mumbai and the other in Pune. The Mumbai mall name 'Prime
Square' is a four storey, 70,000 sq ft mall located on, S.V. Road, in Goregaon – a flourishing suburb of Mumbai. The Pune
mall called 'Prime Pune Mall' will be a gigantic 430,000 sq. ft. state-of-the-art mall with anchor shops, multiplexes, food
courts, entertainment area and a hotel. In short, the company is estimated to generate more than Rs.500 cr. of revenue
over the next 2-3 years.
PPDCL has also finalised a location in Vile Parle (W) to construct a 60,000 sq ft shopping mall and has even created a blue
print for the same. It is also planning to develop a residential project in Pimpri, Pune. The plan is still on paper and yet to
be finalized. Financially, due to sale of units in 'Prime down Town Mall' and 'Prime Tech Park', PPDCL has ended FY08
on quite a buoyant note. It recorded a topline of Rs.105 cr. and bottomline of Rs.32.70 cr. Importantly, it has made the
highest tax provisioning of Rs.17.50 cr., which ensures the integrity of its real profit. This translates into an EPS of Rs.16
on its equity of Rs.10 cr. with face value of Rs.5 per share. It is expected to declare Rs.2.50 as dividend which gives a yield
of nearly 4%.
Considering the company's current projects on hand and that too at prime locations, it may report total revenue of Rs.150
cr. with net profit of Rs.40 cr. for FY09 i.e. an EPS of Rs.20 on its current equity. Hence, the scrip is available fairly cheap at
a current P/E ratio of merely 4 times. At the same time, adverse profiling of the sector coupled with higher input prices,
imposition of service tax on rentals of commercial property & hardening interest rates are bound to dampen the sentiment
and affect the demand for certain categories of properties. Yet, the company is largely insulated from the downturn and
investors can buy the scrip at current levels with a price target of Rs.100 in 9-12 months.
6
Pondy Oxides & Chemicals Ltd. (Code: 532626)
Rs.20
Incorporated in 1995, Pondy Oxides & Chemicals Ltd. (POCL) is one of India's leading integrated metallic oxides and
plastic additives producers. It manufactures zinc oxide, litharge (Lead monoxide), grey oxide (lead sub oxide) red lead
and solid/liquid stabilizers of PVC. Metallic Oxides are largely used in batteries and the automobile sector whereas
plastic additives are primarily used for the manufacture of PVC stabilizers. POCL has even promoted a subsidiary
company, M/s. Baschem Pharma Ltd. to manufacture liquid stabilisers, epoxy oil and paint dryers. Besides, it also has a
facility to manufacture lead acid batteries, which manufactures stationary batteries used for uninterrupted power supply
(UPS), inverters, emergency lamps, photovoltaic batteries and automobile batteries. But recently, the company decided to
dispose-off the same so that it can concentrate on its core business. Importantly, POCL boasts of being an integrated
producer with in-house production facility of lead metal for captive consumption.
POCL's has four manufacturing plants spread across Pondichery & Tamil Nadu with an installed capacity of 4680 MTA
for lead sub oxide, 2880 MTA for zinc oxide, 1800 MTA for litharge and 360 MTA for red lead. To sum up, it has the
capability to produce 9720 MTA of metallic oxides and 4200 MTA of PVC stabilizers. In addition it has a name plate
capacity to manufacture 96,000 units of lead acid batteries at its Madurantagam plant, which the company is looking to
sell off. Incidentally, lead is the major raw material for production of metallic oxides followed by zinc. Hence in order to
reduce its dependence on suppliers and ensure regular and economical supply, POCL undertook backward integrated in
late 2006 to manufacture lead and lead compounds. It has established a state-of-the-art manufacturing plant with a rated
capacity of 14,4000 MTA for lead and lead alloys and another 3600 MT for lead compounds. The company is also engaged
in the smelting, refining and alloying of lead metal and specialises in manufacturing lead alloys like lead tin calcium, lead
tin, lead selenium alloy, lead antimony selenium alloy and others, which find use in the battery industry for grid casting
for lead-acid batteries. Meanwhile, POCL is also looking to venture into the manufacture of refined Zinc and the project is
under consideration. Another significant step recently finalized by the company is to acquire 51% stake in M/s. Lohia
Metals Pvt. Ltd. at an investment of around Rs.2.25 cr. and make it a subsidiary. Lohia Metals is an associate company
with a turnover of roughly around Rs.25-30 cr. and is engaged in the process of refining and alloying of lead metal with
an installed capacity of 12,000 MTA.
To fund its backward integration project, POCL had raised Rs.7.35 cr. in August 2006 through a 2:3 rights issue Rs.4 per
share on the face value was Rs.2 per share. Subsequently, the company also issued 1:10 bonus and later consolidated all
the equity shares on 20
th
January 2007 from the face value of Rs.2 to Rs.10 per share. On better capacity utilisation of the
lead smelter and higher price realisation for metallic oxides, POCL's sales shot up 60% to Rs.170 cr. and net profit jumped
up 55% to Rs.4.50 cr. for FY08. It is expected to announce 15% dividend, which will give a yield of mind-boggling 7.5% at
CMP. With robust metallic oxide prices and being an integrated producer as far as lead is concerned, POCL is expected to
clock a turnover of Rs.200 cr. with PAT of Rs.5 cr. for FY09 i.e. EPS of Rs.5 on its equity of Rs.10 cr. So despite its low
profit margin and low promoter holding, investors can buy this scrip at current levels as it can give 50% return in 12-15
months.
Sundram Fasteners: A low risk, high-return investment
ANALYSIS
By Devdas Mogili
'Support good managements during depressed times and reap rich dividends in the long-term': This principle applies
aptly to Chennai based Sundram Fasteners Ltd. (SFL), which is the flagship company of the TVS group.
The company is engaged in the manufacture of automotive and engineering components. Its product range comprises of
high-tensile fasteners, powder metal components, cold extruded parts, hot forged components, radiator caps, automotive
pumps, gear shifters, gears and couplings and iron powder. Over the years, the company has acquired cutting-edge
technological competencies in forging, metal forming, close-tolerance machining, heat treatment, surface finishing and
assembly. Mr. Suresh Krishna is the chairman & managing director of the company.
SFL has global manufacturing facilities that span India, China, United Kingdom, Malaysia and Germany. Its product
range includes high tensile fasteners, cold extruded parts, powder metal parts, iron powder, radiator caps, gear shifters,
hot forged parts, precision forged differential gears, water pumps, oil pumps, fuel pumps, belt tensioners, rocker arm
assemblies, bearing housings together with other engine components and valve train parts.
Subsidiaries: The company has acquired the 100% capital of Sundram Fasteners (Zhejiang) Ltd., China (SFZL), and
Upasana Engineering Ltd. (UEL), which manufactures spokes & nipples, tools and other components at its units located
in Chennai and Hosur, both in Tamil Nadu. Its other subsidiaries include Sundram Fasteners Investments Ltd., Sundram
Non-Conventional Energy Systems Ltd., Sundram Bleistahl Ltd., Sundram International Inc., Cramlington Precision
Forge Ltd., Sundram RBI Sdn. Bhd, Peiner Umformtechnik GmbH.
Expansion: The company plans to increase further capacities across various units in the near term to meet customer
requirements. It commenced construction of buildings for setting up a plant at Pantnagar, Uttarakhand, for
7
manufacture of high tensile fasteners, powder metal parts, water pumps and oil pumps and has so far spent Rs.19.63
cr. The plant will cater to the requirements of Tata Motors, Bajaj Auto, Mahindra & Mahindra and other customers
located in the northern region, besides serving the after-market requirements.
The company is also setting up a plant in the Special Economic Zone (SEZ), Mahindra World City near Chennai and has
so far spent Rs.11.06 cr. The project will initially manufacture gears and shafts for exports and is expected to commence
trial production by Q2FY08.
R&D: The company's R&D facility at Padi, Chennai continues to develop new varieties of special fasteners and new
manufacturing processes for the same. In view of the non-availability and high cost of steel, efforts are being made to
develop alternative/cost-effective raw material. All its major divisions have their respective R&D departments and their
programmes have been recognised by the Department of Science and Technology. The company has also filed several
applications for grant of patents that are pending at different stages.
Performance: The company posted consolidated net sales of Rs.1626.26 cr. with a net profit of Rs.71.08 cr. registering an
EPS of Rs.3.44 on the face value of Rs.1 paid-up share.
Financial Highlights:
(Rs. in lakh)
Latest
Results:
For
Q4FY08, the profits seem
to be under pressure
owing to its capex plans
and
other
ongoing
projects. It clocked net
sales of Rs.311.93 cr. with
a net profit of Rs.5.41 cr.
netting a basic/diluted
EPS of Rs.0.26.
Particulars
Financials:
The
company's current equity
is Rs.21.01 cr. and its Re.1
paid-up share has a book
value of Rs.20.09.
Share
Profile:
The
company's share, listed on
the BSE and NSE under
the B group, touched a 52-
week
high/low
of
Rs.73/26. At its current
market price of Rs.27.30, it
has
a
market
capitalisation of Rs.583 cr.
8
Dividends: The company
has
been
paying
handsome dividends and has declared a second interim dividend of 45% for FY08.
Q4FY08
Q4FY07
FY08
Consolidated
FY08
Domestic Sales
25468
24979
100899
124826
Less: Excise Duty
3453
4196
14499
14811
22015
20783
86400
110015
Exports
9178
8294
34192
52611
Total Net Sales
31193
29077
120592
162626
Other Income
107
38
184
820
Total Income
31300
29115
120776
163446
Expenditure
a. Inc/Dec in Stock
(793)
(1131)
(1179)
(1957)
b. Raw Materials
14606
13925
54394
70970
c. Employee Cost
2789
2785
10932
22243
d. Stores & Tools
3786
3596
14141
17029
e. Depreciation
953
757
3423
4752
f. Other Expenditure
7761
7285
27431
37633
Total Expenditure
29102
27217
109141
150669
Int & Fin Charges
1514
(72)
1387
1652
Profit Before Tax
684
1971
10248
11125
Tax Expense
342
877
3499
3944
Share of losses/(Profits)of assoc. company
-
-
-
73
Net Profit after tax
342
1094
6749
7108
Extraordinary items(net of tax)
(199)
348
(199)
-
Net Profit
541
746
6948
7108
Paid up equity (FV: Re.1)
2101
2101
2101
2101
Res Exc Rev Reserves
-
-
40110
39267
Minorities share of profit
-
-
-
(101)
Basic/Diluted EPS (Rs)
0.26
0.35
3.31
3.44
FY07 – 130%, FY06 – 170%, FY05 – 170%, FY04 – 140%, FY03 – 120%, FY02 – 100%.
Shareholding Pattern: The promoter holding in SFL is 49.53% while the balance 50.47% is held by non-corporate
promoters, institutions, mutual funds and the investing public. Among mutual funds, Franklin India, UTI, Canbank,
HDFC have been adding the company's shares to their various schemes.
Prospects: The Indian Automobile industry enjoyed an excellent financial year driven by high growth of the economy.
Increased spending on infrastructure projects and completion of highways had a positive impact on the road transport
sector. Viewed in context of improved performance of Indian Railways over the last few years, the growth of this sector is
indeed commendable.
After a lacklustre performance in 2005-06, the medium & heavy commercial vehicle segment has performed creditably.
Increased usage of multi-axle vehicles, enforcement of pollution control regulations and the Supreme Court ban on
overloading of vehicles were some of the factors that contributed to improved performance. The light commercial vehicles
segment grew rapidly on the introduction of new products to cater to the short haulage requirements and to aid the 'hub
and spoke' operations of large transporters.
Sales of passenger vehicles increased due to higher disposable incomes of households and easy availability of loans on
reasonable terms. Excise duty cuts on compact cars and import duty cuts on components in the Union Budget of FY07
resulted in a decrease in prices and led to higher demand. Entry of new manufacturers and introduction of new models
by most manufacturers helped sustain the high level of demand.
The rate of growth of two-wheelers recorded a decline due to the larger base for comparison and a fall in demand in the
second half of the year. Sales of tractors increased substantially for the second consecutive year on account of a good
monsoon and greater focus by the government in providing subsidies to the agricultural sector.
Exports of vehicles improved in FY07 as also exports of auto-components as also exports of auto components.
Increased cost of steel of all varieties and has been a cause for concern for the Company and its subsidiaries. Cost of
inputs rose continuously, touching new highs. Availability and quality of steel was also a problem. Consequently, the
company had to resort to higher imports, resulting in a high level of inventory.
Conclusion: SFL has an established track record of leadership of over 40 years. With a diversified product line and world-
class facilities spanning five countries, it has become a supplier of choice to leading customers in the automotive and
industrial segments worldwide.
At its current market price of Rs.27.30, the share is discounted less than 8 times its FY08 earnings while the P/E multiple
of the industry is hovers around 9 times. However, the company's share is lying low owing to pressure on margins led by
its overseas expansion plans. Considering the pedigree of the promoters its excellent track record, its bright future
prospects, and a dividend yield of 4.8%, the SFL share is reasonably priced at the current level. But taking a long-term
view, it offers tremendous scope for appreciation with a 2 to 3 years perspective. The share offers a low risk, high-return
investment opportunity. Buy for the long-term.
Sensex closes below 15,000
MARKET REVIEW
By Ashok D. Singh
The soaring crude oil prices, high inflation and sustained selling by foreign institutional investors pulled the market
down to its lowest level in calendar 2008. Political concerns over the nuclear deal with USA also weighed on the market
sentiment. The Sensex declined in 3 out of 5 trading sessions for the week ended Friday, 20 June 2008. The Sensex
declined 618.33 points or 4.07% to close at 14,571.29 for the week. NSE Nifty lost 169.55 points or 3.75% to close at 4,347.55
for the week.
The BSE Mid-Cap index declined 195.74 points or 3.14% to 6,032.43. The BSE Small-Cap index slumped 184.06 points or
2.43% to 7,397.66.
Interest rate sensitive sectors bore the major brunt of selling. BSE Bankex (down 3.56% to 6,804.78), BSE Auto index (down
2.1% to 4,042.86) and BSE Realty index (down 5.05% to 5,383.81) edged lower in the week.
The infrastructure sector output rose 3.6% in April 2008 from a year earlier but much lower than an unrevised 9.6%
growth in March 2008.
The direct tax collections recorded strong growth in the first two months of this fiscal. As per the Finance Ministry data,
direct tax collections jumped 71.28% to Rs.22840 cr. in April-May 2008 over April-May 2007.
The wholesale price index rose 11.05% in the 12 months to 7 June 2008. This rate was above market expectation of about
10%. This reading was the highest in 13 years since 6 May 1995, when it was 11.11%.
FIIs pressed heavy sales in the backdrop of a weakening rupee against the US dollar. In June 2008, FIIs dumped shares
worth Rs.7,477.80 cr. till 19 June 2008. FII outflow in calendar 2008 totalled Rs.22,847.20 cr. till 19 June 2008. On the other
hand, mutual funds were net buyers of shares to the tune of Rs.1,820.20 cr. in the month of June 2008, till 19 June 2008.
The BSE Sensex rose 206.20 points or 1.36% at 15,395.82 on Monday, 16 June 2008. The market ended on a firm note on the
back of firm global markets and gained 301.08 points or 1.96% at 15,696.90 on Tuesday, 17 June 2008. Bulls had an upper
hand over bears for the second day in a row with market sentiment boosted by reports of higher advance tax payment by
top Indian firms in the first installment of 15 June 2008.
But the Sensex lost 274.59 points or 1.75% at 15,422.31 on Wednesday, 18 June 2008 as bears struck back with a vengeance
on the back of weak European markets and
political uncertainty on the nuclear deal.
The BSE Sensex lost 334.32 points or 2.17% at
15,087.99 on Thursday, 19 June 2008 on
political concerns and weak Asian markets.
All the sectoral indices on BSE ended in the
red.
The BSE Sensex declined 516.70 points or
3.42% to 14,571.29 on Friday, 20 June 2008.
The two key indices, the Sensex and the Nifty
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9
hit their lowest level of calendar year 2008 on that day. The market tumbled after the latest data showed India's inflation
soared to a 13-year high early this month. High inflation sparked fears of tighter monetary policy by the RBI.
Sustained selling by foreign funds, rising inflation, high crude oil prices and political uncertainty will weigh on the
sentiment of the investors in the near term. However, expectations of good Q1FY09 results may trigger a recovery from
lower levels after the recent steep fall in share prices.
The quarterly monetary policy review of RBI is scheduled on 29 July 2008. But it may take a call much earlier with
inflation hitting the roof. RBI had on Wednesday, 11 June 2008, hiked repo rate by 25 basis points to 8% with immediate
effect in an effort to contain rising inflation.
A further hike in rates would impact bottomline of Indian companies. Also high interest rates may delay expansion plans
of corporates, which in turn may impact future earnings growth.
The market will also closely watch the policy statement of the US Federal Reserve to gauge the outlook on US interest
rates on Tuesday, 24 June 2008.
Market tumbles on inflation woes
MARKET
By G. S. Roongta
For the week ending Friday, 6
th
June 2008, we saw round panic as the BSE Sensex hit a bottom of 14,645 and a leading
business TV channel was busy projecting the viewpoints of bear operators and added to the gloom that had set in. The
print media too followed suit. Those who read the Economic Times and Business Line between 14 - 16 June 2008 may
have hardly come across any good news about the market for the week ahead as most analysts hinted of a fresh
meltdown.
Crude oil and inflation have been the hot topics of discussion and the basis for a gloomy forecast after the US sub-prime
crisis. With the sharp rise in prices of petroleum products, analysts forecast a double digit inflation, which has created a
panic among investors. The inflation rate has already touched double digits at 11.05% for the 52-week ending Saturday,
7
th
June 2008 and as forecast by Money Times in the last issue. This was a 13-year high since May 1995.
Thus there was no good news for the week ending Friday, 13
th
June 2008. Everyone talked about crude price touching US
$200 and inflation rate of over 10.5% to 10.75% overlooking any good news in the economy. And just as
the stock market is moved by the action of bulls and bears, so also there is great speculation in crude oil
in commodity markets, which is influenced by players on an hourly basis depending on the strength and
positions of the bull and bear traders.
G.S. Roongta
The oil basket game is currently very hot and is dominated by a bear lobby of the stock market as a
hedge against its short sale in the stock market. Both the bubble of oil speculation and bear hammering in
the stock market is about to burst as no speculative game can ever be permanent and is always of short
duration. The speculative game is played for short-term gains and to make a fast buck. But when a
bubble is created and made bigger and bigger, there is no alternative for it but to burst.
Under such panic conditions, investors were in need of some silver lining, which was provided by none other than
Money Times, which alone provided the morale booster to investors through this column in the issues dated 9
th
& 16
th
June 2008 and speak out boldly against a popular TV channel that was frightening investors with its biased coverage.
Against this picture of gloom painted by the TV channels and the business papers, readers of this column must have
noticed that the market rallied early last week by 206.5 points on Monday, 16
th
June 2008 and 301 points on Tuesday, 17
th
June 2008. This gain of 500 points on the Sensex in the beginning of the week was in sharp contrast to what the business
media had projected. It was, therefore, very interesting to listen to the analysts when queried about the rally. They had no
option but to admit saying that there was short covering as the market was over sold and investors at large were bottom
fishing for good stocks. Some referred to it as a pull-back rally whereas others dubbed it as a relief rally.
The viewing public, which gets mesmerised by the high profile analysts featured on the electronic media has to suffer in
silence as they have no other way of knowing otherwise. Despite the channels proving to be wrong on Monday &
Tuesday, it projected one Mr. Shankaracharya, an expert in oil & fuel, who apprised viewers about the looming oil crisis
and projected our GDP growth slackening to 7% or 7.5%. This feature, which was telecast over a dozen times during
market hours, sent shivers down marketmen's spines and killed the sentiment that had just built up and resulted in the
Sensex tumbling over the next four days to a new low of 14,571.29 by the end of the week.
True crude oil is a matter of concern and it could play havoc with our economy unless we take steps to counter its impact.
The government is seized of the matter and did finally raise the price of petrol, diesel and cooking gas after much
hesitation thanks to the compulsion of coalition politics. It is equally alert about the inflation that has set in as a result of
high crude oil prices and the RBI will adopt measures to ensure that our economy does not break down as a result of the
inflation monster. But one must also realise that oil does not contribute more than 1.5% to 2% of our overall economy to
10
derail it as feared by many. Also it can be countered by some other positive factors in the broader economy. Then what is
the rationale or motive behind the repeated telecasts, which created the fear psychosis?
The media plays a very important role in socio-economic development and must play its role seriously and with
responsibility. In many far flung areas, it is the only link between the authorities and the performers at one end and the
public at large at the other. It is, therefore, the most influential in forming public opinion and susceptible to manipulation
by vested interests. Media owners and media managers must, therefore, take the utmost precaution and ensure that their
media platform is not misused. They are no less than a trustee of public confidence and faith and are the true rulers of
modern society as the government, corporate world, entertainment sector, sports & health buffs, religious & spiritual
gurus as also the police and underworld rely on it and use it for their own means. Hence if the media fails in presenting a
fair and objective picture of the events at hand and plays into the hands of a powerful few, it has failed in its mission. And
if credibility is lost, everything is lost.
It may be pertinent to note that the BSE Sensex was hovering around 4000 to 4500 level when crude oil was quoting
around US $38 per barrel. But when crude prices soared to US $80 per barrel, the Sensex shot upto 21,000 level almost in
direct proportion to the hike in oil prices. Does this
not indicate that crude oil price is not the soul
reason that will slacken our growth prospects?
Another piece of irony is that the direct tax
collection has soared by 72% for April – May 2008
when we are supposed to have been hit by high
commodity prices, an economic slowdown and low
investments after the sub-prime crisis in the USA
and the weakening rupee apart from the bear
market phase that has set in since 21
st
January 2008.
Where is the correlation? There is, therefore, no hard
and fast rule as there are several factors that go to
build an economy and one should not get carried
away by any single factor weakening or
strengthening
and
draw
disproportionate
conclusions.
It will not be out of place to mention that the interest
rate during Mr. P. V. Narasimha Rao's premiership
was over 15-18% and inflation equally high. But it
was during this time that the Indian economy really
blossomed and has continued to grow ever since.
The monsoon this year has been good and will have
a positive impact on the economy and help it to
maintain the growth rate of 8.5%.
The stock market has already fallen substantially and is currently fighting at the Sensex 15,000 or Nifty 4500 levels. There
is huge speculation in Nifty Futures and investors must observe that Nifty and the Sensex have a ratio of 3 or 3.5 but the
difference between them is widening. On Thursday, 19
th
June 2008, the Nifty was negative by 75 points, which when
multiplied by 3 amounts to 225 or if multiplied by 3.5 it comes to 262. Yet the Sensex was down by 350 points, which
indicates that there is huge speculation in Nifty Futures. This will be revealed shortly as I had pointed out the inside
speculation in Reliance Petroleum in January 2008.
According to me, the stock market has been hammered down badly by the bears and must rebound shortly as there is not
much room to pull it down further. The fall in the market in terms of indices may look high but in reality there may not be
a great fall. Investors should, therefore, stay on the sidelines or indulge in bottom-fishing for the time being.
11
By Saarthi
STOCK WATCH
Workshop on Technical Analysis
By Hitendra Vasudeo
Orientation of Technical Analysis and its application
On Saturday, 5
th
July 2008, from 9 am to 6 pm.
Fees: Rs.6000 per participant
Enroll for the workshop and get 1 month of Profitrak Weekly
& Top Trades absolutely free
Venue:
Hotel Bawa International
Nehru Road, Near Domestic Airport
Vile Parle (East), Mumbai – 400 099
For bookings contact:
Time Communications (India) Ltd.
Goa Mansion (Gr. Flr.), 58, Dr. S. B. Path (Goa Street), Fort,
Mumbai – 400 001
Tel: 022-2265 4805, Telefax: 022-2261 6970
E-mail: moneytimes@vsnl.com
Last week, Ind-Swift Labs Ltd. (Code :524652) (Rs.26) came out with encouraging Q4FY08 results. Although sales
declined marginally to Rs.123 cr., its net profit shot up 70% to Rs.11.25 cr. on the back of higher operating margin.
Surprisingly, it recorded the highest OPM of 21% for Q4FY08 against an average of 18% in the preceeding three quarters.
For FY08, it recorded 30% growth in sales to Rs.455 cr. and 60% increase in PAT at Rs.31 cr. thereby posting an EPS of
Rs.13 on its equity of Rs.24 cr. But the company declared only 10% dividend, which shows a investor unfriendly attitude
of the pomoters and makes market experts doubt the genuineness of the company's financials. However, last year, the
company received the USFDA approval for its API manufacturing facility at Derabassi Punjab for Clarithromycin. As of
now, it has successfully filed over 72 DMFs with the US, Canadian, UK and European Drug Authorities. To fund its
growth plan, the company made a preferential allotment of 28 lakh warrants at Rs.70 in March 2007 and lately allotted
another 25 lakh warrants at Rs.70 to the promoter group. With a book value of a whopping Rs.100 and a CEPS of Rs.20,
the scrip is trading reasonably cheap.
******
NCL Industries Ltd. (Code: 502168) (Rs.40.35), the flagship company of the NCL group is engaged in four business
segments viz. cement, cement bonded particle boards, prefab and hydel power. Presently cement contributes 75% of the
revenue, board and prefabs contribute 20% and the balance comes from hydel power. On the back of aggressive
expansion, the company has doubled its cement manufacturing capacity to 630,000 TPA and is further looking to triple it
to 20 million TPA within a couple of years. It has also set up a new particle board manufacturing facility in Himachal
Pradesh thereby taking its total capacity to 80,000 TPA. On the other hand, its prefabricated structures division is
witnessing good demand and has bagged huge orders worth Rs.50 cr. a couple of months back. Fundamentally, it
recorded 30% growth in sales to Rs.193 cr. whereas PBT grew by 45% to Rs.43 cr. Due to high tax provisioning, its net
profit improved marginally by 7% to Rs.29.50 cr. to post an EPS of Rs.9 on its current equity of Rs.32.50 cr. With rising
input costs and the interference of the government in cement pricing, the company is estimated to report a topline of
Rs.275 cr. and maintain its profit of around Rs.30 cr. i.e. an EPS of Rs.9 on its fully diluted equity of Rs.34.90 cr.
******
For Q4FY08, Godawari Power & Ispat Ltd. (Code :532734 ) (Rs.194.30) registered a growth of 140% in sales as well as
profit to Rs.263 cr. and Rs.28.80 cr. respectively posting an EPS of Rs.10 for the quarter. For FY08, its sales was up by 90%
to Rs.829 cr. and net profit increased by 80% to Rs.95 cr. This translates into an EPS of Rs.34 on its current equity of Rs.28
cr. Notably, the company has completed its Phase-II expansion in September 2007 and presently boasts of having an
installed capacity of 495,000 TPA for sponge iron, 400,000 TPA for steel billets, 120,000 TPA for HB wire rod along with 53
MW of captive power plant. Importantly, the company has been awarded two iron ore mines in Chattisgarh with
estimated reserves of 15 million tonnes and coal mines with its share of reserves of 63 million tonnes. Recently, it was
allotted a prospective licence for iron ore mines over 754 hectares. For future growth, the company is planning to build an
iron ore crushing plant, a beneficiation plant and a pelletisation plant at a cost of Rs.235 cr. For FY09, it is expected to
clock a turnover of Rs.1200 cr. with PAT of Rs.125 cr. i.e. an EPS of Rs.45 on its current equity.
******
South India Paper Mills Ltd. (Code : 516108) (Rs.61) announced disappointing Q4FY08 results as sales remained flat at
Rs.29 cr. and PAT fell by 25% to Rs.2.10 cr. But for entire FY08, it registered 10% growth in its topline to Rs.122 cr. and
15% rise in net profit to Rs.11.90 cr. Hence it posted an EPS of Rs.16 on its equity of Rs.7.50 cr. and maintained the
dividend at 30%, which gives a yield of nearly 5% at CMP. The company has a strong presence in packing paper and
paper boards apart from manufacturing writing and printing paper. On the back of robust demand, the company is
implementing a brown field expansion at an investment of about Rs.110 cr. under which it will more than double its
paper manufacturing capacity to 115,000 TPA from 55,000 TPA currently. It will also be augmenting its captive power
generation capacity by 3.50 MW. Besides expansion, the company is going in for forward integration into high quality
corrugated boards and intends to have at least one 100% owned facility and possibly one facility under joint venture near
Chennai. With its new paper capacity expected to be commissioned by early 2009 and corrugated boards facility to start
within this calendar year, its future prospects look very promising. It can report an EPS of Rs.18 for the current year. Buy
with a price target of Rs.100 in 9-12 months.
"We are very optimistic about the future"
INTERVIEW
- Upal Roy, Chief Strategy Officer, Cosmo Films Ltd.
Cosmo Films Ltd. (CFL) is a leading manufacturer and exporter of Bi-axially Oriented Polypropylene (BOPP) Films in
India. The company promoted by Ashok Jaipuria is also one of the largest manufacturers of
thermal lamination films exported to Europe and USA. It won the Top Exporter award from Dun
& Bradstreet (D&B India) and Export Credit Guarantee Corporation of India Ltd. (ECGC) in the
chemicals, petrochemicals and plastics sector under the large Indian exporters' category.
Upal Roy, Chief Strategy Officer, Cosmo Films Ltd, is responsible for formulating the company's
strategy for the medium and long-term. He is also responsible for Marketing and IT.
Speaking to India Infoline, Upal Roy says, "The challenge is now operational excellence as
technology and finance are no longer entry barriers."
Do you see a trend where package sizes are shrinking in food packets? What impact would it
have on companies like yours?
India is a unique market. The packaging requirements are generally over specified as food has to be packed keeping in
mind different temperatures as they are sent to different parts of the country. There is a trend in reducing the size of
12
13
packages to bring down the unit cost per pack. There is also a shift to thinner films to reduce the amount of packaging
consumed. Abroad, the shelf life for food products is much lower. In India, the shelf life is around 6 months for most
products. These over-specifications are now coming down.
In the packaging cycle, where is your entry point?
Polypropylene resin is a product of the petrochemical industry. We convert this polypropylene (or PP) resin into a film.
We then sell it to a converter who does the printing, lamination and pouching, which is a separate industry. The converter
then sells it to the end customer which could be a large FMCG company. We come in where the resin is converted into a
film. Cosmo Films is one of the leading players in production of biaxially oriented polypropylene (BOPP) films. The
product is used mainly by FMCG players. It is mostly used for biscuit packaging, potato chips, textile packaging and
cigarette packaging.
What is the size of the industry in India and abroad?
The packaging industry globally is around US $450-500 billion. This includes all substrates such glass, plastics, paper,
metals etc. and the converted products. It is growing at 3-4% annually. Globally, flexible packaging (eg. plastics) is
growing at a much faster rate than other substrates. Within the flexible packaging space, Biaxially oriented polypropylene
(BOPP) is the material of choice and is consumed around twice as much as other materials like polyester.
In India, the consumption of BOPP is the same as polyester. Traditionally, India has been a polyester market and is slowly
switching over to BOPP. The yield is much higher in BOPP as it is a lighter material compared to polyester.
The market in India for BOPP is 160,000 to 170,000 MTPA while globally it is 4.7 million tonnes and growing at 6%.
What growth is being witnessed?
There is a lot of capacity expansion happening. Around four years ago, the capacity utilisation globally was around 72-
73%. Because of strong demand globally, over the last two years, it has risen to around 77%. As is the case with most
commodities, when utilisation levels start increasing, people are willing to add more capacities.
In India, the BOPP market is growing at around 15-20%. The trigger here has been wide growth in the organised retail
industry. Globally, 70% of BOPP consumption is by the food sector. In India, it is only around 40% because food
packaging is still unorganised. As more organized retail players come into India, the growth of BOPP will only increase as
food packaging drives the growth for BOPP.
You are also in the thermal lamination space.
In wet lamination, which is most common in India, solvents are used. Some of these solvents are not good for the
environment. In thermal lamination, which is dry lamination, heat and pressure is used. Thermal lamination is more
environmentally friendly and the yield is much higher. Globally, there is a trend towards dry lamination.
What is your current capacity and what are your expansion plans?
We recently announced an investment of Rs.15 cr. for buying 2400mm wide metallizer for further capacity addition in our
metallizing business.
At present, our capacity is around 56,000 TPA for BOPP. Thermal lamination is currently at 21,000 TPA. In our
metallizing business, the capacity is 3,600 TPA while for coated products it stands at 1800 TPA.
Going ahead, BOPP would be 96,000 TPA early next calendar year. By the end of 2009, we see our BOPP capacity at
136,000 TPA. Thermal lamination would be around 25,000 TPA by the end of this calendar year. Metallization would be
9,600 TPA by middle of next year and our coating capacity would remain the same at 1,800 TPA for some time.
What is the capex plan for the expansion? How is it being funded?
The capex plan for BOPP's first line would be Rs.135 cr. while for metallization, the spend would be Rs.15 cr. Around
Rs.100-101 cr. would be debt. The promoters would bring in additional equity by warrants, which is around Rs.30-35 cr.
The rest would come from internal accruals. Our exports are close to 60% in value terms with sales amounting to around
Rs.332 cr. for FY08.
Brief us on your financials.
PAT has increased by 79.3%. Total income FY08 was Rs.591 cr. as against Rs.539 cr. during FY07. EPS improved to
Rs.22.89 from Rs.12.77.
What are the entry barriers in this business?
The challenge is now operational excellence as technology and finance are no longer entry barriers. BOPP is not easy to
manage and you need to be efficiently running your lines to be most cost effective.
What is the cyclicality in this industry? How do you hedge against the cycle?
The industry becomes cyclical when people start expanding capacity without understanding the demand. The cyclicality
is also linked to oil prices as there is 60-70% correlation of resin prices with oil. So far, we have been able to pass on the
higher input costs.
One way of hedging is by product diversification and that is why we have thermal lamination. We are adding value
added products like labels. The other hedge is diversifying the customer base which is something that we have been able
to do successfully. We have an equal split between our domestic and export revenue (export 57%, domestic 43% for
FY08).
Is there a slowdown in the western countries in BOPP?
There is no downward trend in consumption. But there is some migration happening in the BOPP manufacturing base.
Many units in North America, Europe and Japan (earlier in 1990 almost 70% of BOPP manufacturing was concentrated in
these countries, now it has dropped to under 40%) are being shutdown as it is not very cost-effective to run them. This is
where companies like ours benefit and that explains our higher exports too.
What is your message to shareholders?
We are very optimistic about the future and are going ahead with capacity expansions. Packaging will remain a key
growth story in India given the changing trends.
Cosmo Films has a lot of inherent strengths. One of our key strengths has been our strong R & D and ability to innovate.
Thermal Lamination is an example of this. We also work very closely with our immediate transactional as well as with the
end customer to jointly develop packaging solutions.
We participated in Interpack 2008, the largest global exhibition for packaging at Dusseldorf held every 3 years and
another exhibition related to printing. The response was very encouraging. European countries are looking at emerging
markets for sourcing their needs and Cosmo Films is geared to meet this demand.
(Courtesy: www.indiainfoline.com)
By Kukku
FIFTY FIFTY
Investment Calls
* TIL (Rs.361) is India's leading provider of technology intensive, application specific heavy engineering equipment for
use in core infrastructure sectors.
Its product profile consists of material handling equipment, earth moving equipment, industrial generator sets and diesel
engines. The product line-up represents some of the finest international brands.
TIL was set-up in 1944 and has a track record of over 5 decades with significant contributions to Indian infrastructure
development.
As a market leader, TIL manufactures the largest range of mobile cranes from 5 to 100 tonnes in technical collaboration
with world leaders. It is fast emerging as the most reliable manufacturing source of total material handling solutions in
technical collaboration with world leaders in their respective fields. Its material handling solutions division has secured a
Rs.43 cr. order for two manitowoc crawler cranes of 450T. The order includes supply and commissioning at BHEL sites.
Construction Equipment Group: In this division, it manufactures hydraulics excavators, dumpers, skid steer loaders. All
these products are said to be in good demand.
Power Systems Group: This division brings the global concept of Power on Rent. TIL has positioned generator sets of
various capacities powered by world class Caterpillar Diesel Engines that provide uninterrupted and quality power at
most economical rates.
The generators on rent are maintained by TIL personnel for smooth and trouble-free operations and Reliable
Uninterrupted Power Supply Diesel Generator Sets powered by Caterpillar engine Made in India (180 KVA - 2250 KVA).
TIL's, net profit rose 103.48% to Rs14.61 cr. in Q4FY08 against Rs.7.18 cr. during Q4FY07, while sales rose 28.30% to
Rs.217.02 cr. in Q4FY08 as against Rs.169.15 cr. in Q4FY07.
For FY08, net profit rose 75.50% to Rs.32.24 cr. as against Rs.18.37 cr. in FY07. Sales rose 26.65% to Rs.724.87 cr. in FY08 as
against Rs.572.32 cr. during FY07.
Consolidated net profit was Rs.44.28 cr. on total consolidated sales of Rs.970 cr. giving an attractive EPS of Rs.44.28.
The government estimates an investment of Rs.1, 450,001 cr. on infrastructural development during the 11
th
Five Year
Plan. With large projects coming in the core infrastructure sectors, business opportunities would see a significant
upswing and the company is fully committed for seizing such opportunities and increase its market share by meeting
customer requirements through its technology intensive range of mining, construction, earthmoving, material handling
equipments and power systems.
Long-term investors can accumulate this stock on dips for good long-term growth. The stock has reacted from its high of
Rs.822.
Risk Factor: Rising input costs like manpower cost, steel prices, foreign exchange fluctuation remains a cause for concern.
* For FY08, Gontermann Peiper India (Rs.55.50) reported 18% increase in net sales at Rs.173.99 cr. Its net profit rose
23.65% to Rs.15.11 cr. in FY08 as against Rs.12.22 cr. in FY07. Its performance would have been better had it not been
affected by flood caused by heavy rains during July-August 2008.
The company lays major thrust on exports. During the year, 53% of its turnover was through exports. It has entered new
markets like Spain, Taiwan and South Korea, besides strengthening its existing markets like USA, Canada, Bulgaria,
China, Italy, Philippines, Egypt, Malaysia and Indonesia. The company is gearing up to take advantage with increasing
exports
14
The implementation of ongoing modernisation/expansion project envisaging enhancement of its plant capacity from
15300 MTA to 18300 MTA is expected to be completed by end of second quarter of the current fiscal.
Since demand in the steel industry is growing worldwide and domestic steel production is estimated around 200 million
tonnes p.a. over the next 10 years, the demand for rolls is good because it is integral to steel production and directly
linked to the capacity growth of the steel industry. Its order book position is quite healthy and offers good scope of
growth.
Book value of the share is around Rs.43 and the EPS is around Rs.11. The stock is trading at a P/E multiple of less than 6.
Market cap is just Rs.73 cr. The stock had touched a high of Rs.126.
Investors can add this stock on dips around Rs.52/53 as it has the potential to reach target of Rs.80 over the next one year.
* Rishi Laser (Rs.73) is moving from a flat steel part supplier towards becoming a fabrication subcontractor. Substantial
portion of the fabrications and assemblies are for the Construction Equipment industry and the Electricals & Power sector
equipment manufacturers. This sector is growing at 40% annually. With infrastructure spending expected at Rs.15,00,000
cr. In the 11
th
Five year Plan (April 2007 – March 2012), the order book of every major infrastructure equipment supplier
is growing massively.
The company has nine plants spread over Haryana, Gujarat, Maharashtra & Karnataka. It has 11 Laser Cutting Machine
(LCM), 13 Press Brakes and 2 Turret Punch Press (TPP). This was likely to go up by 50% in FY08. The company's first
Robotic Welding System (RWS) went into production in early FY08 and it had planned to add another four RWS in the
same year.
For the first nine months ended 31
st
December 2008, the company has earned net profit of Rs.3.52 cr. against Rs.1.97 cr. in
the corresponding period last year on sales of Rs.69 cr. against Rs.37 cr. last year. FY08 estimated profit is likely to be
around Rs.5 cr. on estimated sales of Rs.100.
With benefits of expansion to come in 2008-09, sales is likely to go up to Rs.175 cr. and net profit is likely to be around
Rs.10/11 cr.
On 7
th
March 2008, the Board allotted 6,70,000 convertible warrants of Rs.10 each at a premium of Rs.90 per warrant for
business expansion & working capital requirements.
The stock looks attractive at the current price as benefit of expansion will come in the next few years. Its book value is
around Rs.52 while the market cap is around Rs.63 cr. Since the stock has reacted from its high of Rs.206, the downside is
very limited.
Investors are advised to accumulate this stock on dips around Rs.75 level for good long-term growth.
Market Guidance
* Sugar Stocks - There is news that sugar production fell 25% in Central South region of Brazil due to weather disruption
and 64% cane diversion for ethanol
production during April to mid-May
2008. This will further lead to rise in
sugar prices benefiting sugar companies.
Long-term investors can accumulate
Bajaj Hindusthan, Renuka Sugar,
Shakthi Sugar.
Kesar Enterprises,
Andhra Sugar, Rajshree Sugar, too, are
looking good as d
15
efensive stocks.
* Ferro alloys prices have further firmed
up in the current year. As silicon
manganese is now around Rs.78,000 per
tonne, ferro chrome around Rs.94,000 per
tonne, ferro manganese around Rs.80,000
per tonne, Navbharat Venture, Ferro
Allloys, Rohit Ferro Tech, Impex Ferro
may get good benefit.
* Yuken India (Rs.160) results are in line
with expectation. But margins are likely
to be under pressure in the current year
because of spurt in raw material prices
and weakening of the rupee as company
imports some of the bought out items.
* Atlas Copco (Rs.1120) is to meet in the
near future on delisting offer. The stock
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NEW
flared up from low of Rs.800 to Rs.1422 last week. Book partial profit in case stock goes up above Rs.1400 level.
* Paper Industry - Although realisation has improved, there is an increase in input costs like caustic soda, pulp etc., which
may affect margins sharply. Only efficient units will do well. Investors should take note of it while investing in this sector.
Note: With the inflation rate shooting up to 11% and interest rate to rise further, industry is already facing a tight money
situation as recovery period is longer, which has further increased the working capital requirements. Manpower cost, too,
has gone up sharply in the last few years, Raw material has already gone up sharply. Thus all these factors will lead to a
further sharp fall in margins.
Investors are advised to keep booking part profits on every pull back rally.
Market is most likely to come down to 12700 levels or so. Investors need to be very selectively in investment. There will
be scope of shares outperforming like what we have discussed on shares like Cairns, Rohit Ferro Tech, Ranbaxy.
Investors need to give more importance to preserving capital or the gains that they have made over the last few years
rather than look for sharp gains in the short-term. As discussed earlier, keep locking part of profits in FMP till the
situation in the market becomes clear.
Avoid all speculative stocks & avoid buying on tips.
Buying should always be done on dips and sell part of the same when the share moves up sharply.
The market situation will become clear when crude oil slips below $110 levels or when the raw material situation becomes
more comfortable.
By V. H. Dave
EXPERT EYE
The share of Simplex Castings Ltd. (SCL) (Code: 513472) (Rs.54.10) has come off its high of Rs.113 and provides a good
investment opportunity to discerning investors. The share is available at a P/E of just 4.9 on its FY08 EPS of Rs.12.3.
Registered as a partnership firm in 1971, Simplex Castings was incorporated in 1980 and went public in 1993. It was
promoted by the Simplex Group a leading manufacturer of a wide range of engineering products, castings and equipment
for all core industrial sectors. SCL manufactures heavy castings in grey cast iron, alloy cast iron. It has two major units:
one heavy grey iron unit and the other heavy steel-casting foundry. The total capacity of Simplex Castings's Bhilai and
Raipur units in Madhya Pradesh is around 30,000 MTPA.
The products of SCL go mainly to steel plants, railroad equipment, wind mills, mining, power plants, cement plants,
sugar plants, pumps & valves industry, material handling, Defence and the Railways.
SCL has adopted the latest technology because of its earlier technical tie-up with a number of companies for its products.
Some of the firms, which provided technology are Nippon Steel Corporation, Japan; Ikio Iron Works, Japan; Dango &
Dienenthal, Germany; China Metallurgical, China and Schalker, Germany.
All major steel companies like Tata Steel, the Jindal Group, SAIL, Essar Steel, Bhushan Steel etc. are its clients. Its overseas
clients are Indu Steel (France), Arcellor (Spain), Ingersoll Rand (Italy), Sandvik Asia (Pune), Al-Nasar Company for coke
& chemicals (Egypt), Hyundai and Posco (Korea). Exports constitute around 11% of its sales.
During Q4FY08, sales declined by 9% to Rs.44.3 cr. and net profit slipped by 7% to Rs.2 cr. During FY08, although sales
moved up by 7% to Rs.150 cr., net profit shot up by 33% to Rs.7.4 cr. while the EPS was Rs.12.2.
Its equity capital is Rs.6 cr. and with reserves of Rs.27.4 cr., the book value of the share works out to Rs.45.6.
The promoters hold 56.4% in the equity capital, foreign holding is 2.7%, PCBs holding is 10% leaving 30.9% with the
investing public.
The company has chalked out expansion & diversification plans. It has incurred a capex of Rs.13 cr. for modernisation
and machining to improve its product mix to shore up margins. SCL wants to enter new areas like hydro and gas turbine
castings, fabrication and equipment building projects on turnkey basis for various steel plants and automobiles. The
company is planning to get into manufacture of valves where margins are high.
SCL recently got a prestigious order worth Rs.14 cr. from the Ministry of Railway for supply of coco bogies (chassis for
electrical locomotive). It has export orders of Rs.30 cr. from clients like Indu Steel, Arcellor, Ingersoll Rand, Sandvik Asia
etc.
India is the fifth largest producer in terms of total casting production in the world, after USA, China, Russia, and
Germany. Of its 5000 units in actual production, more than 250 units directly export castings all over the world including
USA, Canada, Australia, Japan, Russia, Germany, UK, France, Italy and Asian and African countries.
The global production of ferrous and non-ferrous castings is estimated at 80 million tones of value exceeding US $100
billion. The global trade in metal castings is estimated at US $10 billion and is expected to multiply in coming years.
Advanced countries are confronting a marked change in the business climate and rise in production costs. As a result,
they are opting for large scale outsourcing to countries such as India and China.
SCL's modernisation, its improved product mix, repeat orders from the Indian Railways, large orders on hand, increasing
exports and improving margins give good visibility to revenue & profits in the future.
16
For FY09, sales are expected to advance by 15% to Rs.175 cr. with net profit up by 20% to Rs.9 cr. This would give an EPS
of Rs.15.
At CMP of Rs.54.10, the share is trading at a P/E of 4.8 on its FY08 EPS of Rs.12.3 and 4 times its FY09 estimated EPS of
Rs.15. The share is recommended with a target price of Rs.80 in the medium-term. The 52-week high/low of the share has
been Rs.113/55.
******
The robust results of Ajanta Pharma Ltd. (APL) (Code: 532331) (Rs.86.80) went unnoticed by marketmen. APL posted a
consolidated EPS of Rs.18.6 against Rs.12.4 last year. With further expansion to be completed this year, its EPS is expected
to be around Rs.24 in FY09. But the APL share is available at a forward P/E of just 3.6 against the industry average of 18.
Headquartered in Mumbai, APL was incorporated in 1973 as a small pharmaceutical repackaging proprietary concern. It
came out with an IPO for its formulation plant and expansion. Its core therapeutic segments are Nutraceuticals,
Cardiovascular, Anti-microbial, Anti-tubercular and Ortho-Rheumatologic range.
APL has been catering to various voluntary organizations and governmental institutions like UNICEF, UNHCR,
Government Health Departments, Defence Services and Hospitals. Its manufacturing plants are replete with state-of-the-
art equipments in compliance with all the Good Manufacturing Practices (GMP) laid down by WHO. The company has
set up world-class manufacturing facilities in India, Mauritius and Turkmenistan equipped with state-of-the-art
infrastructure.
It manufactures and markets a number of OTC and ethical products to Asia, Africa, Latin America, Middle East and CIS.
Its presence spans across 50 countries in these regions. About 41% of its sales are accounted by exports.
APL has entered into an agreement to licence the technology for its highly successful anti-scar product 'Vaniza' to Orient
Europharma (OE), a leading pharma company of Taiwan. Under this agreement, APL will transfer the technology to OE
for marketing in Taiwan, Macau, Hong Kong, Singapore and Malaysia.
During FY08, consolidated sales advanced by 19% to Rs.316 cr. and net profit by 49% to Rs.21.9 cr. Operating profit and
net profit margins improved to 14.6% and 6.9% from 13.4% and 5.5% respectively in FY07. Export earnings in FY08 stood
at Rs.129 cr. or 41% of sales. Consolidated EPS for FY08 stood at Rs.18.5 against Rs.12.4 in FY07 and its Board has
recommended a dividend of 25%.
During FY08, a new state-of-the-art, global standard R&D centre was set up at Kandivli, Mumbai and part expansion of
its manufacturing facility at Paithan in Aurangabad district of Maharashtra. Phase II of this expansion would be fully
commissioned by Q2FY09. The R & D facility is concentrating on Contract Research and Manufacturing Services
(CRAMS) activity for ANDA besides marketing operations. It has also commissioned a large, well equipped warehouse
admeasuring 36,510 sq. ft. in Aurangabad. This would facilitate smooth and fast movements of its products in the world.
Its equity capital is Rs.11.8 cr. and with reserves of Rs.123 cr., the consolidated book value works out to Rs.114. APL's
gross block including the capital work-in- progress has gone up by 83% to Rs.165.5 cr. in FY08 from Rs.90 cr. in FY06.
The promoters hold 62% in the equity capital, institutions hold 2%, 7% is held by PCBs, leaving 29% with the investing
public.
APL is in the process of tying up for CRAMS with US companies. The ANDAs filing will be accelerated in the coming
years with the new R&D shaping up during the next financial year.
The company has taken a strategic stake in
Gencrest to develop innovative biotechnology
based pharmaceuticals. Gencrest has tied up
with a leading US University for technology
transfer and is carrying out research in
biotechnology. APL will have exclusive rights
for marketing the products developed by
Gencrest in India.
APL is also setting up a small bulk drug
facility to be completed by March 2009 for
captive requirement at Aurangabad. It is also
in the process of acquiring an existing facility
near Aurangabad to augment capacities,
which would enable it to become fully
integrated in terms of
infrastructure
requirement and well equipped to support its
growth.
It has plans to set up a pharmaceutical and
biotech special economic zone (SEZ) in
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17
Aurangabad, Maharashtra and is in talks with international generic companies to invest in the project. About 250 acres
belonging to Maharashtra Industrial Development Corporation (MIDC) has been handed over by the State Government
to the company. It will also set up an export oriented unit (EOU).
The recent announcement of Daiichi Sankyo of Japan to takeover 35% stake of the promoters Ranbaxy certainly opens a
new opportunity as far as M&A deals outside of India are concerned. The news of the Daiichi-Ranbaxy has left the entire
pharma sector buzzing.
In view of the high growth of the pharmaceutical industry, good outlook of the company the expansion at hand
increasing sales and profitability coupled with the consolidation in the pharma industry, the shares of APL can be bought
for decent appreciation in the long term.
At CMP of Rs.86.80, the share is trading at a P/E of 4.6 on its FY08 EPS of Rs.18.5 and 3.6 on its FY09 estimated EPS of
Rs.24. The share is recommended with a target of Rs.125 in the medium-term. The 52-week high/low of the share has
been Rs.130/65.
******
The prospects for housing finance companies appear extremely bright in view of the sustained boom in the demand for
housing loans. Within this segment, the shares of LIC Housing Finance Ltd. (LICHFL) (Code: 500253) (Rs.279) are
recommended for steady appreciation in the long-term.
LICHFL is a leading player in the Indian housing finance sector. Incorporated in 1989, LICHFL was promoted by Life
Insurance Corporation of India with equity participation from UTI, ICICI and IFCI. LIC and National Housing Bank
(NHB) have been its major sources of finance. The company came out with a Rs.113 cr. IPO in September 1994 at a
premium of Rs.50 per share followed by a GDR issue in 2004. It has recently promoted wholly-owned subsidiaries
namely, LICHF Care Homes, LICHFL Financial Services, LICHFL Trustee Company Pvt. Ltd. and LICHFL Asset
Management Co. Pvt. Ltd.
LICHFL is the second largest housing finance company in India and its core business is providing housing finance to
individuals, corporates, developers and co-operative societies for the purchase, construction, development and repair of
houses, flats, commercial property and undeveloped plots of land.
LICHFL has a pan-India presence with 115 offices covering almost 450 locations. The company's marketing and
distribution channels, which comprise 4,525 home loan agents, 794 direct sales agents (DSAs) and 449 customer relations
agents (CRAs) coupled with the strong brand identity LIC helps it seize business opportunities and build good volume
growth with a large client base.
During Q4FY08, it recorded 33% higher net profit at Rs.118 cr. on 38% higher revenue of Rs.630 cr. For FY08, it posted
39% higher net profit of Rs.391.5 cr. on 23% increased revenue of Rs.2165 cr. while EPS was Rs.46 on its equity capital of
Rs.85 cr. and paid a total dividend of 100%.
Gross NPAs were lower at 1.70% in FY08 as against 2.57% in FY07, as also the net NPA at 0.64 % (1.26%). The gross NPA
remained at Rs.373 cr. while the net NPA remained at Rs.141 cr. Recovery was Rs.80 cr. for the full year.
LICHFL outstanding mortgage portfolio spurted 25% to Rs.21936 cr. in FY08 as against Rs.17563 cr. in FY07. Loan
sanctions rose 41% to Rs.8618 cr. and disbursement 38% to Rs.7071 cr. respectively in FY08.
Its capital adequacy ratio (CAR) stood at 14% with the tier I capital at 10% in FY08. Source of funds were term loans
(42%), NHB (6%), non-convertible debenture (NCD) (40%), others (6%), and LIC term loan (8%).
LICHFL's equity capital is Rs.85 cr. and with reserves of Rs.1747 cr., the book value of the share works out to Rs.215. The
promoters hold 41% in the equity capital, FIIs hold 30.5%, FIs holds 10.2%, non-promoter corporates hold 4.5% leaving
13.8% with the investing public.
Prospects of the housing finance industry
appear encouraging mainly due to the fact
that the gap in demand and supply is not
adequately corrected. As per the current
estimates, India faces a shortage of about 45
million dwelling units and the backlog is
growing. To plug this gap, an estimated
Rs.4,00,000 cr. will be required including cost
of services like water supply, roads,
electricity, sewage systems etc. with only 20%
of this requirement expected to come from the
formal sector. The housing finance sector is
poised to post an impressive growth and will
be crucial to the country's economic growth.
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National Housing and Habitat Policy aims at
18
providing shelter for all by 2010. The government is committed to provide 2 million dwelling units per year. This is a
tremendous opportunity for real estate companies to encash. No income tax is levied under section 80(i)(b) of the Income
Tax Act for built up houses for lower and middle-income groups upto a certain specified built-up area. This is a good
motivation for builders to step in to meet the housing shortage in the country.
Growing urbanisation, the rise in nuclear families, stable property prices, tax benefits, changing demographics (28% of the
population in the age group of 25-44 years) and steady interest rates continue to drive the demand for home financing.
A leading player in the housing finance sector, LICHFL is benefiting from the boom in housing loan demand. It is likely to
post an EPS of Rs.58 in FY09. The attractive valuation of the scrip and lower NPAs could be the trigger for an uptrend in
the stock going ahead. The share is available at Rs.279 discounting its estimated EPS of Rs.58 for FY09 by 5.2 times and
projected EPS of Rs.72 for FY10 by 4.3 times. The share is likely to appreciate by more than 50% in about one year. The 52-
week high/low of the share has been Rs.403/168.
19
By Nayan Patel
NCL Industries
BSE Code: 502168
NSE Symbol: NCLIND
Last Close: Rs.40
NCL Industries Ltd., an ISO 9001:2000 company, made its debut in the Indian industrial scene way back in 1983 by setting
up a 200 TPD cement plant at Simhapuri in Nalgonda District, Andhra Pradesh. The plant was expanded in stages to 1800
TPD with a split grinding unit at Kondapally. With this, the present capacity increased from 2,97,00 TPA to 6,30,000 TPA.
The company has started identifying building materials which are best suited for the Indian construction industry.
Several units have been established with proven technologies from Europe. The company is also interested in
Construction, Power Generation and Manufacture of Chemicals.
It has an equity of Rs.32.50 cr. and the promoters hold 40.24% stake in the company. It has shown very good results for
March 2008 quarter. Net sales jumped 103.77% to Rs.66.98 cr. and PBT jumped 634.22% to Rs.13.73 cr. Due to high tax
outgo, its net profit jumped 15.48% to Rs.8.95 cr. On a yearly basis, net sales of the company jumped 29.97% to Rs.192.73
cr. while profit before tax jumped 45.33% to Rs.42.93 cr. The company has recorded an EPS of Rs.9.32 on a yearly basis. At
current levels, the stock is available at P/E ratio of just 4.3. The company has declared 25% dividend for this year
compared to 20% last year. At current levels, the stock looks safe for investors and is available with an attractive dividend
yield. Buy at every decline with stop loss of Rs.37. On the upper side, the stock can go up to Rs.52 level in a short time and
to Rs.65 level in the medium-term. Its 52-week high/low is Rs.94.50/34.75.
PAE Ltd.
BSE Code: 517230
NSE Symbol: PAEL
Last Close: Rs.29.60
PAE Ltd. is the Premier Group's largest auto ancillary marketing & distribution company established in 1950. The
company has an equity of just Rs.9.52 cr. wherein the promoters hold 45.98% and the public holds 46.43% stake in the
company.
For FY08, the company's net sales jumped 38.14% to Rs.229.75 cr. and net profit jumped 84% to Rs.5.98 cr. and the
company has recorded an EPS of Rs.6.28. It declared 15% dividend for FY08 instead of 10% in FY07. The stock is available
at a P/E ratio of just 4.8.
At current levels, the stock is available dirt cheap. Investors can buy at every decline with stop loss of Rs.25. On the upper
side, the stock will zoom up to Rs.35 in a short span of time and can go up to Rs.45-52 level in the next 6-9 months.
Performance Analysis – A Perspective
By Devangi Bhuta
Diversified v/s Tax Savings Schemes
Equity Diversified Fund – Top 15 Performers
Rank
Scheme Name
NAV (Rs.)
Last 12 Months %
Since Inception
1
32.56
28.96
30.84
2
20.74
23.88
27.12
TECHNO FUNDA
MUTUAL FUNDS
3
19.95
23.67
28.83
4
20.53
22.86
28.71
5
39.41
22.82
33.29
6
74.75
19.4
40.68
7
35.27
18.86
12.67
8
64.38
18.66
41.06
9
36.7
18.05
41.07
10
86.94
17.41
47.87
11
22.7
17.06
27.8
12
85.28
16.55
20.13
13
14.28
15.53
17.04
14
15.36
15.32
22.81
15
79.99
14.5
21.08
Tax Savings Funds – Performance Snapshot
Rank
Scheme Name
NAV (Rs.)
Last 12 Months %
Since Inception
1
25.3
32.36
14.55
2
12.71
16.31
10.88
3
32.17
13.57
18.26
4
12.49
11.86
16.99
5
11.17
7.8
7.8
6
33.45
7.16
17.71
7
23.53
7.1
29.89
8
82.91
6.16
29.22
9
34.67
5.32
18.53
10
141.46
5.11
33.37
11
15.09
4.24
9.11
12
93.56
2.83
28.78
13
48.59
2.74
21.48
21.51
2.71
12.99
14
Gold ETFs
Rank
Scheme Name
NAV (Rs.)
Last 12 Months %
1
1240.8628
41.7305
2
1238.2178
41.571
It appears that some of the tax savings fund have outperformed the diversified equity schemes in the last one year. Is it
because the former have a lock in period of three years? Further Gold schemes seem to have outperformed equity
schemes altogether. So, what does this mean?
Clearly only one thing – Asset allocation rules the roost over and above stock picking or fund selection. Investors need to
overcome momentary and monetary temptations while investing in the stock markets and need to allocate only that much
money in equity schemes as is commensurate with their risk appetite. For the rest consider debt and gold.
20
Somi Conveyor Beltings IPO opens 24
th
June
MONEY FOLIO
Somi Conveyor Beltings Ltd., a manufacturer of Rubber Conveyor Belts used for material handling of coal, lignite, iron
ore, limestone, fertilizers and sugar etc., and food grade belts for tea and salt, proposes to enter the capital market with an
IPO of 62,27,860 equity shares of Rs.10 each for Rs.35 including a premium of Rs.25 per equity share aggregating to
Rs.21.80 cr. The IPO has been rated 2/5 by Care Ltd. indicating below average fundamentals. The issue opens on
Tuesday, 24
th
June and closes on Friday, 27
th
June 2008. The issue comprises a contribution by promoters of 14,99,286
equity shares of Rs.10 each at a price of Rs.35 per equity shares aggregating to Rs.5.25 cr.
The company proposes to utilise the net proceeds of the issue to part finance its Rs.35. cr. expansion and modernisation
project of setting up of new manufacturing unit, purchase of land and building for office use, meeting margin money
requirement for enhanced working capital and meet the interest cost during the construction period. The project is
proposed to be funded through promoters contribution of Rs.10. cr., IPO proceeds of Rs.16.55 cr. and term loan from
Punjab National Bank of Rs.8.50 cr..
Earning profits since last 5 years, the company had commenced production with an initial capacity of 36,000 MPA and
has expanded to the present operating capacity of 1,67,660 MPA. Depending upon the width of the rubber conveyor belt
the capacity utilisation can be stretched up to 2,00,000 MPA. Considering the potential for growth, it intends to raise
production capacity to 4,00,000 MPA and also enlarge the belt width from the current 1200mm to 2000mm.
It proposes to reduce operational costs by adding new and latest technologies and processes to increase the margins and
remain competitive in the market. Its total income for FY07 was Rs.15.48 cr. with PAT at Rs.1.35 cr. as against total income
of Rs.7.47 cr. with PAT of Rs.10.84 cr. for FY05. Total income for the first 9 months of FY08 ended 31
st
December 2007 was
Rs.11.81 cr. and PAT at Rs.95.80 lakh.
KSK Energy Ventures IPO opens on 23
rd
June
KSK Energy Ventures Ltd., a company specialized in developing and operating power plants, proposes to enter the
capital markets with a public issue of 3,46,11,000 equity shares through the 100% book building process in the price band
of Rs.240 to Rs.255 per equity share of Rs.10 each. The issue opens on Monday, 23
rd
June and closes on Wednesday, 25
th
June 2008. Fitch Ratings India Pvt. Ltd. has assigned a grade of 3/5 indicating average fundamentals of the IPO, which
will be listed on the BSE and NSE.
The promoter company, KSK Energy Ltd., is incorporated and registered in Mauritius and is a wholly-owned subsidiary
of KSK Power Venture Plc, an Isle of Man incorporated entity listed on the London Stock Exchange's Alternative
Investment Market. The individual promoters of the company are Mr. K. A. Sastry and Mr. S. Kishore. KSK Energy Ltd.
holds 61.39% and LB India Holdings Mauritius I Ltd. holds 31.57% of the pre-issue equity share capital of the company.
KSK Energy Ventures Ltd. was established in 2001 to capitalize on emerging opportunities in the Indian power sector and
focus on developing, operating and maintaining power projects and generates 144 MW of power and 675 MW power
projects are under construction. It has entered into multiple Power Purchase Agreements (PPA) with captive consumers
and has three power projects under development and five planned projects for an aggregate capacity of 8,318 MW.
The net proceeds of the issue will be utilized to part fund its investment in Wardha Power Co. Pvt. Ltd., either directly or
through KSK Electricity Financing India Pvt. Ltd., to finance the equity component of the 1,800 MW coal-based thermal
power plant at Chhattisgarh. The company has received Rs.415.34 cr. by way of pre-IPO placement Rs.240 per share to
fund the Wardha Chattisgarh Project.
Sujana Towers acquires Telesuprecon in Africa
Sujana Towers Ltd. (STL), a part of the well-diversified Rs.3,000 cr. Sujana Group, has acquired 51% shareholding of
Telesuprecon Ltd. based in Mauritius with branches in various East and Central African countries. It is a Telecom
Infrastructure contracting firm providing services to telecom operators.
The equity subscription was made at par and STL will support the company by providing the required working capital
including guarantees.
Telesuprecon is in advanced negotiations for securing Telecom Infrastructure contracts of about US $40 million in various
East and Central African countries to be executed over the next 12-21 months.
Disclaimer: Investment recommendations made in Money Times are for information purposes only and derived from sources
that are deemed to be reliable but their accuracy and completeness are not guaranteed. Money Times or the analyst/writer does
not accept any liability for the use of this column for the buying or selling of securities. Readers of this column who buy or sell
securities based on the information in this column are solely responsible for their actions. The author, his company or his
acquaintances may/may not have positions in the above mentioned scrip.
21
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