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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 19
Monday, March 24 - 30, 2008
Pages 18
Intermediate flare-ups
amidst bouts of volatility likely
By Sanjay R. Bhatia
The markets opened the week on a very weak note on back of negative global cues. A major sell off was witnessed on
Dalal Street as the Sensex and Nifty recorded their second lowest closing since 27
th
August 2007 and 6
th
September 2007
respectively. Traders and speculators were seen unwinding positions and going short even as the Bear Stearns Indian
subsidiary sold everything, which saw the markets plummet by 900 points. However, the decision of the US Federal
Reserve of cutting the Fed rate by 75 bps on Tuesday was cheered
across all the global markets. The Indian market, too, opened with
a gap up and sustained buying was witnessed. Incidentally, FIIs
remained net sellers in the cash segment but were buyers in the
derivatives segment. Mutual funds remained net buyers during
the week supporting the markets at lower levels.
Global cues remained mixed on JP Morgan Chase & Co.'s
government-backed buyout of the stricken investment bank Bear
Stearns & Co. and the US Federal Reserve's decision to cut
discount rates by 25 bps on Sunday and the Fed rate by 75 bps.
Crude oil prices remained rangebound and have cooled off after
the rate cut. The inflation rate continues to remain a cause of
concern. In the meanwhile, the markets are likely to keep a close
watch on the global markets, crude prices and the rupee dollar
and yen dollar equations as the latter could give rise to the Yen-trade crisis. Intermediate bouts of flare-ups amidst bouts
of volatility will be witnessed due to the derivatives segment expiry next week. However, a rise in funds flow and
increase in volumes is needed if a sustainable rally has to unfold.
Technically, the benchmark indices are still form a positive divergence pattern on the daily charts. A few of good days
accompanied with good volumes would complete this pattern, which will give an impetus to a short-term rally. The
Sensex has support at the 14,141 level. On the upside, the Sensex faces resistance at the 15,332 and 15,699 levels. The 4482
and 4074 are important support levels for the Nifty. On the upside, the Nifty faces resistance at the 4899 and 5025 levels.
Investors should wait and watch.
1
Fed up of bears!
By Fakhri H. Sabuwala
Bear Stearns, the fifth largest investment banker going up for sale at a paltry sum of $240 million! That's the casualty
charts for the sub prime woes. The pain is so acute that it brought President Bush on television to pacify US citizens that
'all is not so bad'. The situation remained bad for most part of the week till investment bankers Lehman Brothers and
Goldman Sachs assured that they will report dark bottomlines. The situation was later salvaged by 75 basis points cut in
the Fed rate and 25 bps discount rate which resulted in a big jump of over 420 points in the Dow Jones and over 90 point
leap in the Nasdaq. Will such a dose a steroid work in the medium to long-term? Or, is it a matter of just cooling the fever
for now without treating the ailment? Is the USA coming close to the 1929 recession? Only time will tell.
In view of the global meltdown, crude oil price is heading to the sky, gold is reaching new highs, the Yen is gaining
strength and with the slowing down of the Indian industry, the Sensex is hardly on a good wicket. Consider every flip on
the upper side as an opportunity to get out and lighten your position. It would not be out of place or out of context to
study the highs and lows of the Sensex during the trying times of yesteryears.
Given below is the tabulated data of the Sensex high, Sensex low, points lost, percentage fall and the year when it
occurred. Such a study could prepare your nerves for another round of such a fall yet maintain our cool.
The best case scenario and the worst
case scenario may prepare us for a
fall of 8000 points to 12000 points
from the high of 10
th
January 2008.
How the global situation and
domestic politics shape up needs to
be closely monitored.
All eyes are glued on the Q4 and
yearly results that will follow in
three weeks from now. Will the results denote a slowdown on YoY basis or in the sequential pattern? Well, the slowdown
ensures persistence of pain and anything better ensures the arrest of the market fall. If the 15
th
March advance tax figures
of the main companies are anything to go by, there is not much reason to worry.
Year
Sensex High
Sensex Low
Absolute Fall
Fall (%)
1992
4546
1980
2566
56%
1994
4643
2966
1677
36%
1996
4131
2713
1418
34%
1997
4605
2741
1864
40%
2000
6150
2594
3556
57%
2004
6248
4227
2022
24%
2006
12671
8799
3872
30%
2008 (expected)
21207
13229 (best case)
7977
(37.6%)
2008 (expected)
21207
8944 (worst case)
12262
(58%)
The arrest of the free fall will be a great help for the confidence and trust to return. Recovery is a long and painful process.
Yet, we have to undergo the same.
The long weekend ahead allows us enough time to ponder over the world events prepare us with strategies to keep our
head cool, expenses under a tight leash and stay with conviction on where we are headed. Last but not the least, such
movements are a part of the market. Take them in your stride and the ultimate jackpot is yours.
Lower range to be tested
TRADING ON TECHNICALS
By Hitendra Vasudeo
Last week, the Sensex opened at 15326.93 attained a high of
15465.81 and fell to a low of 14677.24 to finally close the week at
14994.83 and thereby showed a net fall of 772 points on a week-to-
week basis.
In last week's update, the following strategy was outlined: Sell
below 15228 with high of the week stop loss or 16552, whichever is
higher at the point of breakdown. Alternatively, wait for a rise
above 16552 during the week and when it falls down below 16552,
sell with high above 16552 as the stop loss.
The low registered last week was 14677 and the Sensex closed at
14994. Traders who had sold on fall below 15228 had the
opportunity to benefit.
The weekly trend is down and can turn up on rise above 16683 or if the Friday weekly close is above 16077. Weekly
resistance will be at 15045-15414-15465. Weekly support will be at 14677-14626 and 14100-14000.
On a further sustained fall and close below 14600, expect the Sensex to slide down to 14489 and 14102. The level of 14102
is the 0.382 level of the entire rise from 2594 to 21206.
On the daily chart, we had two important trading lower tops created on the back of strong gap up opening of 500+ points.
These trading lower tops are 15465 and 16683. If we have to get the first signs of a pull-back rally then first it must cross
and close above 15465 and then move on to close above 16683. If the Sensex is able to meet the said conditions, then only
the rise could be meaningful from the short-term perspective.
Sensex Wave Analysis
Wave I-2594 to 3758
Wave II-3758 to 2904
Wave III- Internals as follows:
Wave 1- 2904 to 6249
Wave 2-6249 to 4227
Wave 3-4227 to 12671
2
Wave IV- 12671 to 8799
WEEKLY UP TREND STOCKS
Wave V- 8799 to 21206
Wave A-21206 to 14677
(Not yet complete. Or, if
complete no confirmation
as yet)
The Wave A could have
an impulse in it or a
corrective move inbuilt.
When the Wave A is
complete, we will have a
pull-back to Wave B,
which will have an up
direction.
Conclusion
The falling leg is likely to
get completed in the
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
CAIRN INDIA
222.40
190.1
211.4
221.7
232.7
254.0
76.2
222.1
14/03/08
RANBAXY LABS
450.20
396.8
431.8
448.4
466.8
501.8
74.7
448.8
08/02/08
CIPLA
206.00
187.0
199.4
205.1
211.8
224.2
64.6
204.6
22/02/08
GAIL
417.20
385.9
405.6
413.6
425.3
445.0
63.6
413.4
14/03/08
COLGATE-PALMOL 400.10
354.7
384.5
398.6
414.2
444.0
61.5
387.7
07/03/08
WEEKLY DOWN TREND STOCKS
3
current fall or the fall
towards 14700-14500 or at
14100-14000. If the falling
leg Wave A is complete,
then it must first cross
15465 and then 16683. The
first
leg
of
the
intermediate bear market
could
get
complete
shortly in the range of
14700-14000
Strategy for the week
Traders holding short
positions can look for fall
down to 14700-14500 or to
14100-14000 for cover
short positions. Keep a tight short stop loss at 15465 for existing short positions.
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
EDELWEISS CAP.
586.80
462.9
550.9
602.9
638.9
726.9
19.08
709.29
18/01/08
MOSER-BAER
130.85
107.6
124.6
135.3
141.6
158.6
23.17
152.37
11/01/08
PURAVANKARA PR 204.60
116.1
181.7
224.3
247.2
312.8
24.67
265.26
18/01/08
ALSTOM PROJECT 489.70
347.8
451.8
517.9
555.8
659.8
25.43
622.43
22/02/08
FINANCIAL TECH
1383.00 1198.7
1333.7
1419.3
1468.7
1603.7
25.79
1686.50 11/01/08
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly Relative
Strength (RS)
RELIANCE INDUSTRIES
2159.00
2243.00 2281.00
2319.00
2442.00 1921.0
28.22
BLUE STAR
378.90
405.93
420.08
434.22
480.00
286.1
28.69
LARSEN & TOUBRO
2839.00
2953.07 3057.50
3161.93
3500.00 2068.1
29.38
INDIABULLS FIN. SERV
389.35
479.83
509.15
538.47
633.40
231.3
31.50
YES BANK
137.15
167.90
182.52
197.15
244.50
44.0
32.96
HDFC (HOUSING DEV.FI
2213.00
2389.76 2470.00
2550.24
2810.00 1709.8
33.43
SINTEX INDUSTRIES
338.55
362.58
381.35
400.12
460.90
203.5
34.35
JAIN IRRIGATION SYST
553.00
615.50
645.00
674.50
770.00
365.5
34.54
KARNATAKA BANK
197.60
221.36
229.50
237.64
264.00
152.4
34.78
AXIS BANK
747.00
839.32
870.00
900.68
1000.00
579.3
34.85
BANK OF INDIA
238.30
279.05
293.00
306.95
352.10
160.9
34.93
S.KUMARS NATIONWIDE
114.25
125.50
131.80
138.10
158.50
72.1
35.11
EIH
129.75
146.33
151.98
157.62
175.90
98.5
35.12
WELSPUN-GUJARAT STAH
318.90
362.70
377.08
391.45
438.00
240.9
36.07
SAIL (STEEL AUTHORIT
197.55
207.67
215.75
223.83
250.00
139.2
36.99
STATE BANK OF IN(NEW
1603.00
1776.06 1836.00
1895.94
2090.00 1268.1
37.08
SIMPLEX INFRASTRUCTU
493.85
531.69
549.20
566.71
623.40
383.3
39.44
TATA POWER CO.
1052.00
1164.05 1207.00
1249.95
1389.00
800.1
42.92
SHRIRAM TRANSPORT FI
318.10
340.64
351.00
361.36
394.90
252.8
43.01
ING VYSYA BANK
275.25
295.37
304.75
314.13
344.50
215.9
43.19
ESSAR OIL
199.70
218.97
227.93
236.88
265.85
143.1
47.36
EVEREST KANTO CYLIND
243.90
268.18
278.40
288.62
321.70
181.6
47.71
GUJARAT NRE COKE
124.50
139.61
145.32
151.04
169.55
91.2
48.69
ESSAR SHIPPING
138.30
161.18
169.55
177.92
205.00
90.3
49.22
EDUCOMP SOLUTIONS
3309.70
3438.86 3605.00
3771.14
4309.00 2030.9
49.84
B L KASHYAP & SONS
1494.20
1504.54 1576.68
1648.81
1882.35
893.2
61.10
* The marwari cartel that is pulling down the market is more active on trapping weak bulls and settling scores rather than
a play of fundamentals.
TOWER TALK
* SEBI's examination of RPL transaction records may not lead to any results as the complete play was well insulated
against insider trading or any similar provisions!
* Sell shares of broking outfits as they are overpriced even at current levels.
* Partial profit booking in gold is in order since the rate is likely to fall to 12500 per 10 gms.
* Pantaloon's foray into rural retail outlets in the form of 'Aadhaar', a JV with Godrej, may take on the 'Chaupals' of ITC.
* Did Tata Steel borrow Yens to finance the Corus deal? If it did, it will be in greater trouble.
* HDFC and LIC Housing may suffer due to the cool demand for housing finance but they are safer bets than commercial
banks.
* SBI sinks below its rights offer price, Fed Bank sinks below its rights issue price. At this rate, who will subscribe to any
rights or IPOs for that matter?
* Share price of construction companies can still go down further going by the slowdown in the commercial real estate
sector.
* ICICI Bank has hit new lows on the US sub prime factor and provides a wonderful opportunity for long-term investors
to start accumulating. Soon it will demerge its various businesses, which will lead to tremendous unlocking of value.
* Share price of Adlabs Films, belonging to the Anil Ambani group, has become one fourth in just two months. This is the
power of sentiment and liquidity.
* In spite of the bearish sentiment, HUL & ITC are holding rock solid. They corrected merely 1020% from their recent
highs in Jan'08 and are a safe bet in these conditions.
* Shares of Polyplex Corporation (Rs.146) are being acquired by persons in the know, who expect a consolidated EPS of
Rs.60.
* The share of Micro Technologies (Rs.192) is an excellent buy in view of its likely EPS of Rs.50.
* The share of IVR Prime (Rs.170) is available at a discount of almost 70% and is good for the long-term.
* Savera Industries, which is likely to achieve an EPS of Rs.14 in the current year is a good pick for decent gains.
* Orient Abrasives (Rs.18/19) which set up captive power plant at a cost of Rs.36 cr. can be picked up for sizeable gains of
over 50%.
* MSP Steel, which has been allotted captive coal mines, has chalked out major expansion and diversification plans can
be grabbed at every decline.
* With a likely EPS of Rs.36, the shares of Ramsarup Industries (Rs.137) can be accumulated for steady appreciation.
* Jindal Poly Films (Rs.166) is likely to achieve an EPS of Rs.60 in the current year and shrewd investors have lined up
the counter. It is near completing its Rs.350 cr. expansion, which would take its EPS to Rs.70 in FY09 and to Rs.90 in FY10.
* Orchid Chemicals has crashed on FII selling and is a good buy for the medium term. Its management has messed up
the finances by high leveraging but it has a string R&D success and good pharma products.
* Bodal Chemicals is a safe hold at Rs.45 ex-rights considering its good dividend payout and diversified product mix.
* Now is the time to buy into mutual funds that raised funds in February and March and have cash to deploy. Select
funds with minimal administration charges.
* With crude oil prices hitting the roof, oil exploration stocks should perk up. Ironically, there are no takers for low P/E
oil exploration stocks like Asian Oilfields or Selan Exploration, which will be grabbed on change in sentiment.
* Don't buy any property as real estate may drop by 20%-30%.
* If Sensex breaks 14,200 it may go down to 13300/12400/8800 says a technical analyst.
By Saarthi
BEST BETS
Avaya GlobalConnect Ltd. (Code: 500463)
Rs.159
Incorporated in 1986, Avaya GlobalConnect Ltd. (AGCL), the erstwhile Tata Telecom Ltd., is India's leading provider of
intelligent communications solutions, systems and services focused on meeting the needs of organizations large and
4
5
small. It offers a comprehensive suite of solutions for Contact Centres, Business Process Outsourcing and end-to-end
converged communications. By designing, building and managing some of the world's most advanced communications
solutions, AGCL is helping its customers achieve sustained advantage through superior business results. Notably, it has
initiated strong branding on Intelligent Communications covering IP Telephony, Contact Centres, Unified
Communications and Communications Enabled Business Processes (CEBP) Solutions. In fact, the company continues to
command leadership position across various market segments in the Convergence and Contact Centre domain. In order
to provide best-in-class converged communications products and solutions, AGCL has partnered global technology
leaders such as Polycom- the worlds leading video-conferencing solutions provider and NICE Systems-the Israel-based
customer experience management specialist. It also has strategic alliances with systems integrators such as IBM, HP,
Netsol and Servion.
With strength of around 800+ professionals, AGCL has over 30 offices spread across the country from Jammu to
Trivandrum to Ahmedabad to Siliguri. The company has an extensive distribution network comprising over 50 systems
integrators, channel partners and dealers. With over 6,000 customers, it provides world-class service support through a
remote maintenance integration (RMI) system. It has a state-of-the-art Lab and a world class Customer care centre in
Gurgaon, Customer studio in Mumbai and Development & Solutions support centre in Pune. Today, the role that
communications networks play extends far beyond basic connectivity. The effective use of communication tools can have
a major impact on any company's success by enabling delivery of better customer service, help empower key decision
makers and enhance the brand image. To remain competitive, enterprises are looking at emerging technologies to utilise
the common infrastructure for voice, data and multimedia applications and also expect to deploy Modular Messaging,
Unified Communications and high-end Video conferencing Solutions in the near future. This all augurs well for AGCL,
which is uniquely positioned to offer solutions of convergence for such customers. Accordingly, the company has been
expanding its focus on `3C' strategy of converged communications, contact centers and customer services to address
specific industry verticals. The industry verticals approach helps it to differentiate its products and solutions in a highly
competitive market environment.
Last year, AGCL launched new products and solutions like customer interaction express solution to address the needs of
domestic call centre customers, high definition video end point (HDX) and IP based high definition multi conferencing
unit (RMX) for video conferencing and wireless infrastructure and handheld devices for mobile computing to address the
needs of key vertical segments like retail, hospitality, etc. It is also planning to develop domain knowledge of Banking &
Financial Services, retail & manufacturing and Travel & Logistics. Its endeavour is to tap large investments in these
sectors by developing and deploying new applications/solutions and thereby create an experiential selling environment.
On the other hand, its WOS in Australia has expanded its geographical/customer base and now has presence in Sydney,
Melbourne, Adelaide, Brisbane and Perth with over 100 customers. Financially, the company reported disappointing
results for last the 2-3 quarters. Yet, on a conservative basis it is estimated to clock a turnover of Rs.550 cr. with PAT of
Rs.30 cr. for FY08 ending 30
th
September 2008. This translates into an EPS of Rs.21 on its current equity of Rs.14.20 cr.
Investors are advised to buy at current levels with a target price of Rs.250 (i.e. 55% appreciation) in 12-15 months.
Shilchar Technologies Ltd. (Code: 531201)
Rs.123
From a modest beginning of manufacturing only R core transformers in 1989, Shilchar Technologies Ltd. (STL), erstwhile
Shilchar Electronics Ltd., today boasts of manufacturing various types of transformers and cores catering to a wide cross
section of the industry segments ranging from highly competitive consumer goods to the tech savvy industrial segment,
both at home and abroad. Backed by a state of the art manufacturing facility in Vadodara, Gujarat, and its competitive
pricing strategy, STL holds a dominant position and is recognised as a world class manufacturer of transformers and
cores. It has UL and CSA approvals for its products and caters directly to the market requirement as well through its
franchisees in different parts of the country. Notably, it serves a wide range of industrial segments which can be gauged
from the product profile mentioned below.
•
Power Transformers: STL can manufacture and test transformers upto 66 KV Class and 15 MVA capacity. It
makes Three Phase oil cooled transformers with and without OLTC and with or without RCC Panel. Presently, it
has an installed capacity of 1000 MVA for power transformers alone.
•
Distribution Transformers: Under this division, STL can manufacture and test transformers up to 33 KV Class
and 10 MVA capacity with an installed manufacturing capacity of 200 MVA per annum. It specialises in
producing single phase oil cooled up to 100 KVA, three phase oil cooled transformer up to 2 MVA, 33 KV class
and three phase dry type transformers up to 1 MVA, 11 KV class.
•
Linear Transformers: STL manufactures new age power rangers for all electrical needs. Be it for
computers/peripherals, telefax/copiers, audio/video equipment, medical or communication equipments, STL
has an extensive range from R core transformers to El Transformers and Toroidal to Current transformers used in
electronic energy meters. These transformers are supplied according to customer requirement of different class of
thermal insulation, cut-offs, static-magnetic shielding, special mounting, epoxy moulding, vaccum impregnation
etc.
•
Telecom Transformers: With engineering support from Custom Magnetics-USA, STL manufactures telecom and
data transformers with the highest quality standard for all sorts of telecom equipments. Its ferrite transformers
are exported regularly and used by leading telecom giants of the world.
•
Core & Laminations: STL manufactures various types of cores including R-Cores, R-Toroid cores, rectangular
cores, cut C cores, split cores etc on SPM Japanese winding machine and using M2H/M4 grade CRGO material.
On the other hand, it produces EI lamination using M6 grade CRGO material of 0.35 mm.
•
Bobbins: STL has set up its own Plastic Bobbins manufacturing unit to support the needs of the industry for high-
grade quality bobbins. This division also makes plastic parts for the transformer industry using all engineering
plastics viz. Nylon 6, PBT, Ploycarbonate, ABS, Glass filled Nylon 6, Nylon 66 etc depending on the requirement.
The Indian transformer market is estimated at Rs.10,000 cr. and is likely to grow by 8% to 10% annually in the coming 10
years. The growth is mainly due to large power generation projects coming up in various parts of the country. The
electrification of rural areas all over the country will require many transformers and the present capacity in the country is
not enough to meet the growing demand. Hence to cash in on this opportunity, STL is in the midst of expansion and
modernisation of its plant and has also enhanced the existing production capacity up to 20 MVA Transformers from 15
MVA earlier. Last year, the company bought land, installed modern plant and machinery and completed the construction
of a new building for manufacturing of power & distribution transformers up to 500 KVA. It also merged its wholly
owned subsidiary called Shilchar Payton Technology Ltd. with itself. For FY08, it is expected to clock a turnover of Rs.75
cr. with PAT of Rs.4.25 cr. i.e. an EPS of Rs.11 on its equity of Rs.3.80 cr. The considerable rise in steel and copper wire
prices is, however, a cause of concern. Still for FY09 the company has the potential to register a topline of more than
Rs.100 cr. with profit of around Rs.6 cr. i.e. an EPS of Rs.16. This means that the company is currently available at a P/E
ratio of less than 8 times its FY09 earnings. Investors are advised to accumulate this scrip at sharp declines for a price
target of Rs.190 (i.e. 50% appreciation) within a year.
Indsil Electrosmelts Ltd.: Smelting profits
ANALYSIS
By Devdas Mogili
Indsil Electrosmelts Ltd. (IEL) is an 18-year old Coimbatore, Tamil Nadu-based company established in 1990. The 'Indsil'
Group manufactures manganese alloys with captive power generation plants. Its operations are spread across Kerala and
Chattisgarh. IEL is a part of the ferro alloys industry and its products are consumed by the steel industry primarily by the
stainless steel industry. S.N. Vardarajan is the chairman and managing director of the company.
IEL entered the capital market with a public issue aggregating Rs.2.85 cr. in July 1993 to set up a Rs.12-cr unit to
manufacture 7800 TPA of ferro silicon, which is its major product.
In addition to ferro silicon, it also manufactures aluminium ferro silicon and has signed MOUs with state electricity
boards (SEBs) for establishing a 71-MW hydel power projects for captive consumption to ensure full power supply. The
company's operations can, therefore, be broadly classified into two segments i.e. Ferro Alloys and Hydel Power.
Its 21 MW power project is situated at Kuthungal in Kerala. The first phase of this Hydro Electric Power plant involving
one generator with a capacity of 7 MW was commissioned in May 2000 and is the largest private hydel scheme in Kerala.
Its electro smelter unit with a capacity of 14,000 TPA and steel melt shop with capacity of 30,000 TPA moulded steel
ingots at Palakkad, Kerala was commissioned in 1994. Its Hydro Electric Works is at Rajakkad, Idukki District, Kerala and
Indsil Energy and Chemicals at Raipur, Chattisgarh, manufactures low carbon silico manganese with a capacity of 12,000
TPAs.
Joint Venture: IEL has entered into a joint venture (JV) agreement with the Good Earth group at Nagpur to jointly
operate an already acquired manganese ore mine in Indonesia. The mine is spread across 5000 hectares and has rich
resources of high grade manganese estimated at 3 million tones of medium and high grade ore. Detailed geological
surveys are being conducted for purposes of accurate assessment and the estimated production from it is expected to be
around 3,00,000 tonnes per annum.
The JV has a 100% subsidiary in Indonesia to operate the acquired mine and the manganese produced would be sold to
the group companies for captive use and the surplus ore would be marketed across the globe.
Performance: The company has come out with decent results for the year ended 30
th
June 2007. On net sales of Rs.66.51
cr., it registered a net profit of Rs.4.90 cr. posting an EPS of Rs.5.18.
6
Financial Highlights:
(Rs. in lakh)
Latest Results: The company came out
with impressive results for the quarter
ended 30
th
December 2007. It recorded
net sales of Rs.26.71 cr. with a net
profit of Rs.5 cr. posting a
basic/diluted EPS of Rs.5.29. The
annualised EPS works out to Rs.21.16
Financials: It has an equity base of
Rs.9.45 cr. with a book value of
Rs.31.33 and a debt:equity ratio of 1.31,
ROCE of 13.35% and RONW of
17.51%.
Share Profile: The company's share
with a face value of Rs.10 is listed on
the BSE under the B1 segment. It
touched a 52-week high of Rs.102.80
and a low of Rs.25. At its current
market price of Rs.41, it has a market
capitalisation around of Rs.45 cr.
Particulars
QE 31/12/07
QE 31/12/06
YE 30/06/07
Gross Sales
Smelter
2316.51
1510.74
5884.13
Power
608.49
537.14
1408.77
Total
2925.00
2047.88
7292.90
Less: Excise Duty
254.14
195.99
641.43
Net Sales
2670.86
1851.89
6651.47
Less: Inter divl sale of power
608.49
537.14
1408.77
Other Income
8.34
17.36
50.06
Total Expenditure
1409.63
863.15
4083.93
PBIDT
661.08
468.96
1208.83
Interest
72.93
81.00
348.57
Depreciation
86.90
86.48
346.27
PBT
501.25
301.48
513.99
Prov for taxation
-
-
46.00
Def tax asset
-
-
-27.48
FBT
1.00
1.00
5.70
Net Profit
500.25
300.48
489.77
Paid up equity
FV: Rs.10
944.91
944.91
944.91
Res Ex Rev Reserv
-
-
2015.60
Basic/Diluted EPS (Rs)
5.29
3.10
5.18
Dividends: The company has been paying dividends as shown below:
June 2007 - 15%; June 2006 - 10%; June 2005 - 7.5%.
Shareholding Pattern: As on 31/12/07, the promoter holding in the company was to the tune of 48.77% while the balance
51.23% relates to non promoter shareholding and the Indian Public.
Prospects: The ferro alloys industry has seen a major upward rise, both in demand and price realisation in FY07. The
manganese alloy industry, in particular, has seen a major bull run in the prices of its respective commodities
starting with pure manganese metal stretching across the entire gamut of manganese alloy products.
All time high prices were reached during the last part of the year due to tightening supplies from China after the Chinese
Government imposed various export taxes on the export of manganese alloy products. The Chinese Government's stated
policy is to restrict exports of manganese alloy products thereby forcing the Chinese industry to concentrate on domestic
supplies.
This shortage of material from China in the global markets had to be made up by countries like India. The heightened
demand from the steel industry in India too had a significant bearing on the overall demand for manganese alloy
products. Thus, a severe shortage in the availability of manganese alloy was witnessed worldwide especially in India and
the industry saw a major upward correction, which has since been sustained.
Manganese ore is a key input in the production of manganese alloys. The company is one of the market leaders in the
production and supply of Low carbon silico manganese. The global manganese alloy industry continues to grow and is
showing signs of improved price realisation and growth in demand. The company has secured lucrative medium term
and long term contracts for supply of Low carbon silico manganese till 1
st
quarter of 2008.
Conclusion: IEL with business interests in speciality alloys and power generation is a fast growing group with well
integrated manufacturing plants and a well diversified geographical base.
At its current market price of Rs.41, its share price is discounted less than 3 times its estimated earnings. The share is
available at very attractive valuations and could be added to one's portfolio for mining gains in the medium-to-long-term.
Markets close lower third week in a row
MARKET
By Ashok D. Singh
The Sensex lost 765.69 points or 4.85% to 14,994.83 for the week ended Wednesday, 19 March 2008. The NSE Nifty slipped
171.85 points or 3.62% to 4573.95 for the week.
Market closed lower for third straight week. Weak global markets and heavy selling by foreign institutional investors and
lack of any buying support at lower levels led the market to suffer losses. Volatility was high in the truncated week with
only three trading sessions. The market remains closed on Thursday (20 March 2008) on account of Id-E-Milad and on
Friday (21 March 2008) on account of Good Friday.
The BSE Mid-Cap index lost 619.35 points or 9.40% to 5,964.10 for the week ended Wednesday, 19 March 2008. The BSE
Small-Cap index slumped 857.30 points or 10.61% to 7,222.20 in the week.
7
The Finance Minister (FM), P. Chidambaram, said on Monday, 17 March 2008, there is tremendous pressure on the
government to fight inflation. The government's intention is to ensure and make all efforts to sustain growth of more than
8% and close to 9% in 2007/08, he added.
On the global front, the fifth-largest US investment bank Bear Stearns said on Friday, 14 March 2008, that its liquidity
position had deteriorated significantly and a cash crunch forced it to turn to the Federal Reserve and JP Morgan Chase for
emergency funds. JP Morgan said on Sunday, 16 March 2008, it would buy Bear Stearns in an all-stock deal, and that the
Fed would fund up to $30 billion of Bear Stearns' liquid less assets.
The US Federal Reserve on Tuesday, 18 March 2008 cut its key interest rate by 0.75%. Wall Street expects the Fed to cut
interest rates further next month but future cuts are likely to be smaller.
Trading for the week began on a bearish note as global markets suffered setback with the benchmark index BSE Sensex
posting its biggest ever single-day point fall since 21
st
January'08n on Monday, 17 March 2008. The Sensex lost 951.03
points or 6.03% at 14,809.49 and the broader based Nifty tumbled 242.70 points or 5.11% at 4,503.10 on that day.
On Tuesday, 18 March 2008, the market registered small gains in highly choppy trade. The BSE Sensex rose 23.97 points
or 0.16% at 14,833.46 and the broader based Nifty ended up 29.9 points or 0.66% at 4,533. Higher advance tax paid by top
corporates in the fourth installment of 15 March 2008, indicating robust Q4FY08 results provided support to the market.
The market pared most of its early gains on Wednesday, 19 March 2008, as selling pressure emerged at higher levels. The
market registered modest gains on that day. The BSE Sensex rose 161.37 points or 1.09% at 14,994.83. The broader based
Nifty was up 40.95 points or 0.90% at 4,573.95. The market rose as fears of a global turmoil in credit markets eased after a
steep 0.75% interest rate cut by the US Federal Reserve and following better-than-expected results from two major
investment banks -- Goldman Sachs Group and Lehman Brothers Holdings.
Foreign institutional investors (FIIs) sold shares worth Rs.15,892.27 cr. in the calendar year 2008 so far till Tuesday, 18
March 2008. Domestic mutual funds, on the other hand, pumped Rs.6,638.30 cr. during the same period.
Reliance Industries declined 9.14% to Rs.2159.05 in the week. The company has paid advance tax of Rs.443 cr. in Q4FY08
as against Rs.118 cr. paid in Q4FY07.
Reliance Energy tumbled 9.17% to Rs.1207.50 in the week. As per reports, the company is close to inking an agreement
with Indiabulls Real Estate (IBREL) to jointly develop a 6,000-acre multi-product SEZ in Maharashtra's Raigad district.
Reliance Communications slipped 6.14% to Rs.506.45. The company is reportedly planning to acquire a European WiMax
operator in a $300-400 million deal.
Larsen & Toubro lost 3.44% to Rs.2839 in the week. L&T has paid Rs.170 cr. as advance tax in the fourth installment this
fiscal as against Rs.80 cr. for the last quarter of the previous fiscal.
ICICI Bank slumped 12.90% to Rs.766.35 in the week. The company has paid Rs.250 cr. as advance tax in Q4FY08 as
against Rs.125 cr. in Q4FY07.
State Bank of India was down 11.34% to Rs.1602.85 in the week. SBI has paid Rs.1,148 cr. advance tax in Q4FY08 as
against Rs.690 cr. in Q4FY07.
Tata Motors rose 5.55% to Rs.650.45 in the week. Tata Motors' advance tax outgo declined to Rs.75 cr. in Q4FY08
compared to Rs.190 cr. advance tax it paid in Q4FY07.
The world's sixth largest steel maker Tata Steel declined 16.85% to Rs.637.30 in the week. The company paid advance tax
of Rs.300 cr. in Q4FY08 compared to Rs.350 cr. in Q4FY07.
Among the side counters, Orchid Chemicals & Pharmaceuticals (down 48.66% to Rs.116.15), Bajaj Holdings &
Investments (down 69.22% to Rs.644.15), and Yes Bank (down 26.52% to Rs.137.15), slumped.
The Sensex lost 765.69 points to close at 14,994.83 last week. The Sensex is down 6,211.94 points or 29.29% from its all time
high of 21,206.77 on 10 January 2008. A set of bad news such as meltdown in global markets, earnings downgrade
recently by brokerages of ICICI Bank and Larsen & Toubro, lower-than-expected industrial production data for January
2008 and a surge in inflation created havoc on the bourses recently. Inflation has risen above the Reserve Bank of India's
caution limit of 5%. Annual inflation rate based on the wholesale price index increased to 5.11% for the week ended 1
March 2008. Inflation rate stood at 6.51% for the corresponding week in the previous year.
Market is bottoming out
MARKET
Good opportunity to invest
By G. S. Roongta
The stock market is still not breathing any sigh of relief as it sinks deeper and deeper into the bear clutches as even the
slightest news on the US subprime crisis makes the market jittery.
A fresh crisis hit the market on Monday, 17
th
March 2008 when a leading investment bank, Bear Stearns went belly up and
8
landed into the fold of JP Morgan who bought it at one tenth its recent valuation for just US $240 million. About 90% of its
value evaporated in just one week against its 85-year old standing and counted among the five largest securities firm on
Wall Street in USA.
9
If such a big and old firm can lose all its wealth within a week, is it any surprise that Indian investors,
too, lost their wealth in just two days on 21
st
and 22
nd
January 2008 when the markets collapsed and went
in for a freefall never ever witnessed before. Thus the tragedy of the US subprime crisis has engulfed the
whole world like a chronic disease. Whether any country is directly or indirectly concerned with the US
economic crisis or not, it is hit badly if it has FII presence on its shores.
Although we have experienced many financial crises created by both domestic and global factors in the
past, we have never experienced such a deep rooted and widespread malaise, which does not seem to
end and takes a fresh toll week after week. Thus last Friday, 14
th
March 2008 when the BSE Sensex rose smartly by 403
points, we thought that the worse was over and the market was set to stage a pull-back rally and accordingly forecast the
same.
G.S. Roongta
Our prognosis was not incorrect as the strong move on Friday and the anticipated cut in US Fed rates scheduled on
Tuesday, 18
th
March 2008 logically pointed to a recovery. And this was indeed the case if one observes the Sensex
movements on Tuesday and Wednesday – the day after the announcement of the Fed Rate cut. The only exception was
Monday, 17
th
March 2008 when the markets took a severe beating on the sad news of a leading US investment bank
becoming a victim of the subprime crisis. This untoward event intervened and upset our calculations as it took a toll of
971 points and the Sensex plunged below the 15,000 level for the first time after its peak at 21,200 on 10
th
January 2008.
The untimely shock and its magnitude unnerved all and sundry and created a panic once again. Most marketmen lost
hopes of survival as the US Fed rate cut had already been fully discounted. This is also confirmed by the negligible gain of
24 points on Tuesday, 18
th
March 2008 and a gain of 161 points on Wednesday, 19
th
March 2008 in sharp contrast to the
632-point rise in the opening hour. This was on the back of the 75 bps cut announced by the Federal Reserve and the
smart upmoves staged by global markets led by the Dow Jones Index. But this sharp rise, too, stood reduced to nearly one
fourth by the end of the day.
As I have repeatedly observed in this column, our government and authorities are so slow or unconcerned with such
massive loss of the country's wealth by way of market capitalization running into thousands of crores of rupees. This is in
sharp contrast to the US authorities who seem seized of the problems in their financial markets and take repeated
remedial actions to stabilize them and stem the rot from spreading. While they have cut the Fed rate four times, our
authorities are still to come to grip with the problems!
Readers might remember that I had anticipated some sort of insider trading in Reliance Petro some two and a half months
back but the watchdog body has awakened to it now quite like the gatekeeper who rushes to close the stable door after
the horse has bolted! Now that the issue has been raised in Parliament, they are making some noises but in all probability
it will be given a quiet burial after some meaningless post mortem reports.
The question that arises from the current market crisis or the Reliance Petro episode is why the authorities don't act on
time. Why did SEBI not initiate any action when rampant speculation was rife in Reliance Petro for weeks together and
several traders were trapped and the NSE was forced to suspend trading?
Similarly, I have repeatedly observed in the
last seven issues that the culprits who have
fuelled the current meltdown on the Indian
bourses should be brought to book. But it is
close to six weeks that neither the SEBI nor the
government has taken a cognizance of the
issue. Only when a scam, like the Reliance
Petro insider trading issue, surfaces that they
will fumble and make lofty announcements,
which rarely deliver the results. They are still
asleep even when millions of investors have
fled the market and many more are winding
up their operations after finding themselves
deep in debts with worthless papers in hand!
But the movements on the last four trading
days indicates that the market is in the grip of
bears when any negative news has great
impact while all positive news is discounted
fully or discarded. This is what we referred to
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the coupling and decoupling theory in the last article and quite in sharp contrast to what the Finance Minister has been
advocating.
How long this will continue depends on the remedial action being initiated. SEBI can definitely put heavy margins on
short sellers or reduce the filter circuit to a minimum level of 5% as it did in the bull market. To contain the bull operators,
it had reduced the circuit filters from 20% to 5% on any single day. Why is this not being implemented now as markets
seem to fall in a bottomless pit?
Again as mentioned earlier, promoters who feel that the price of their share has fallen below intrinsic value should come
back with buyback proposal to generate enthusiasm in the market and put the wheels back on track.
If neither the SEBI nor the government nor the corporates initiate any remedial actions, the confidence of investors cannot
be expected to return even as stock prices have fallen by 80% from their peak in many cases and this is the opportune time
for fresh investments.
Last but not the least, the manipulation of the media, especially the TV channels, should be investigated as operators
misguide millions of investors by propounding a view on a particular day and taking quite the opposite view after
sometime as it suits their trading positions.
The Finance Minister maybe in for a rude shock as those who paid Advance Tax till the third quarter might come forward
with huge refund claims in the fourth quarter having suffered huge losses. So the ball is clearly in the government's court
and it is for it to act play it in the right direction at this crucial and critical moment on the bourses.
Undoubtedly, the market sentiment is currently at its lowest level and the only trigger left now are the Q4 results next
month, which can surely change the mood of the market for the better. By then, investors will start re-rating their stock
values, dividend deals, etc. And when that happens and the markets stage a rally, it maybe too late to pick up good
stocks, which are lying asunder and available at throwaway prices. Pick up these stocks before the trend turns.
Time to switch to debt funds
MUTUAL FUNDS
By Devangi Bhuta
Equity markets have corrected by 19% in the last one month and along with it, many equity scheme NAVs have tanked.
On the last trading day of the week, it recovered marginally led by the better than expected Q1 results of Goldman Sachs
and Lehman Brothers, which were as such poor but not as bad as anticipated on Wall Street. Further the US Fed cut
interest rates by 75 bps.
This move has further widened the interest rate differentials between the USA and other Asian countries including India
making them attractive investment distributions. However, the recessionary trends in the US are a cause of concern.
Mutual Funds, dedicated to IT companies may witness further trouble especially if these companies are dependent on the
US economy. Since a majority of their clients are from Banking and Financial Services Sector, which is in troubled waters.
Moreover, this appears to be just the tip of the iceberg and many more financial companies are headed for trouble in USA.
This will directly impact IT companies dependent on US business besides enhancing their exchange rate risks. In short,
caveat emptor or buyers beware.
Returns
Scheme Name
(Source: mutualfundsindia.com)
1 mnth
3 mnths
6 mnths
1 yr
3 yrs
DSP Merrill Lynch Technology.com Fund – Growth
-13.28
-25.96
-15.74
-0.32
31.23
SBI Magnum Sector Umbrella - Infotech
-16.67
-24.91
-24.21
-27.62
21.44
Kotak Tech Fund
-18.49
-28.86
-26.1
-29.58
6.61
Franklin Infotech Fund - Growth
-12.87
-21.48
-24.4
-35.2
6.33
UTI Growth Sector Fund - Software – Growth
-13.68
-26.7
-29.48
-37.39
8.91
BSE Sensex
-17.81
-22.26
-5.33
19.16
30.3
Back home, strong advance tax numbers by Indian corporates helped lift the market to an extent. As such despite some
slowdown in the macroeconomic numbers India continues to remain one of the better performing economies. Barring a
bad monsoon and unexpected political upheaveals, it appears that fundamentally the going should be good.
Funds betting on companies that rely on domestic markets should do well in the long-term given the depth of the markets
and their scalability prospects.
Investors may park their money in safer avenues like debt schemes for now and wait and watch on the sidelines till there
are some signs of trend reversal. How much time it would take is anyone's guess. But the following key points would
help while investing in debt schemes.
Check the track record of the fund manager and the fund house in debt market dedicated schemes and returns
generated so far. Average returns vary between 6-8% for most schemes in the last one year.
10
A comparison of similar schemes across fund houses should also help identify the better performers.
Investments in Government Securities (G-Sec) are the least risky and funds dedicated to these are the safest albeit
generating lower returns.
Certain schemes invest in debt instruments of corporates and their quality of needs to be looked into. They
provide higher returns as compared to a G-Sec dedicated fund but are at a comparatively higher risk.
11
By Saarthi
STOCK WATCH
Accurate Transformers Ltd. (Code: 530513) (Rs.86.50) is engaged in manufacturing of power and distribution
transformers ranging from 1 MVA to 160 MVA - in up to 220 KV class. It also carries out rural electrification project,
which involve electrification in remote areas including the laying of lines, poles and substations. Unfortunately, despite
having installed capacity of more than 8000 MVA, the company is working at very low capacity utilization of less than
50% due to mounting debtors and shortage of funds. However, on the back of the ongoing boom in the power sector and
the robust demand for transformers, the situation has improved considerably. Due to better operating efficiency and
higher realization, the company is expected to improve its profit margin going forward. It may even grow at CAGR of
50% over the next three years as far as its bottomline is concerned. On a conservative basis, it can clock a turnover of more
than Rs.200 cr. with PAT of Rs.8 cr. for FY08. This works out to an EPS of Rs.27 on its current equity of Rs.2.96 cr. As per
unconfirmed reports, SEBI has stalled its preferential issue of 31 lakh warrants at Rs.56 and it may have to go in for fresh
fund raising programme as per SEBI guidelines. The scrip has reduced to nearly one third from its high of Rs.240. A
screaming buy.
******
Spanco Telesystems & Solutions Ltd. (Code: 508976) (Rs.165) offers core competency telecom systems integration, which
includes implementation of multi-location, multi-services converged networks for carrying diverse multimedia traffic
(voice, data & video) based on latest technologies like ATM, MPLS, Frame Relay, TCP/IP etc. On the other hand, it has
bagged a 10-year contract to set up, operate and maintain Interactive Voice Response System (IVRS) and Regional Call
Centres (RCC) for the Indian Railways in a joint venture with the Spice Group. Moreover, it has ventured into the RFID
space by acquiring 51% stake in Skandsoft Technologies - a pioneering software solutions company, which is dedicated to
revolutionize the upcoming world of automated business processes through technologies like Radio Frequency
Identification (RFID) & Automatic Identification and Data Capture systems (AIDC). It has even formed a joint venture
'Spanco-GKS' with Golden Key Solutions of Oman to replicate its Indian business in the Gulf region as well. For FY08, it
may clock a turnover of Rs.625 cr. with profit of around Rs.48 cr. on a standalone basis i.e. an EPS of Rs.23 on its current
equity of Rs.20.65 cr. A solid bet.
******
ANG Auto Ltd. (Code: 530721) (Rs.94.45) is among the few companies in the world to be completely integrated – from
the manufacture of components to sub-assemblies and assemblies and finally to vehicles. Today, it is the largest trailer
manufacturing company in India with a capacity of 3600 trailers per year and will soon be No. 1 in Asia as it is
augmenting the capacity to 6000 trailers. Notably, the company has entered into a 5-year contract with Ashok Leyland for
trailers, which is valued at Rs.1500-1800 cr. Secondly, its patented automatic stack adjuster and the single piece dummy
axle is witnessing strong demand from all over the world. Going ahead, it intends to manufacture suspension systems
and is also setting up a forging unit at Bhiwadi, Rajasthan, at capex of Rs.37 cr. To consolidate its operations, the company
has merged ANG Auto Tech, its 75% subsidiary with itself. On a standalone basis, it is expected to clock a turnover of
Rs.120 cr. and profit of Rs.16 cr. for FY08 i.e. an EPS of Rs.13.50 on its current equity of Rs.11.90 cr. Since the conversion
price is high at Rs.325, its FCCB of Rs.50 cr. may not get converted into equity. Moreover, finding its valuation very cheap,
the management has obtained the approval to buy back equity shares up to 24.30% of the total paid-up equity capital at a
maximum price of Rs.215 per share. A golden opportunity to buy at such low price levels.
******
Part of the B. M. Thapar Group, Greaves Cotton Ltd. (Code: 501455) (Rs.192.50) is engaged in the production of
diesel/petrol/LPG engines for power generation, agro equipment and automotives apart from manufacturing gensets,
agro equipment and construction equipment Besides, it is also engaged in marketing high technology systems for marine,
aviation and electronic applications. Last year, to enhance its presence in the global market, it acquired Bukh Farymann
Diesel GmbH (renamed as Greaves Farymann Diesel GmbH), which is engaged in the manufacture and marketing of
single cylinder diesel engines and parts for Rs.25 cr. For FY08, it may clock a turnover of Rs.1400 cr. with PAT of Rs.115 cr.
i.e. an EPS of Rs.24 on its current equity of Rs.48.80 cr. More importantly, few weeks back Piaggio Group's Indian
subsidiary signed an 8 year agreement with the company for purchase of mono-cylinder diesel engines for application on
the three-wheeled vehicles manufactured by it. This implies that the company will continue to be a single source supplier
of such mono-cylinder diesel engines to Piaggio. A solid bet for long-term.
FIFTY FIFTY
By Kukku
* Lakshmi Electrical Control (Rs.263.95) manufactures contactors, thermal overload relays, control relays, electrical
control panels and industrial plastic components.
Its Fy07 EPS was Rs.31 while FY08 EPS is likely to be around Rs.40/42 level.
The stock has reacted from a high of Rs.589 to CMP of Rs.263. The market cap is just Rs.66 cr.
Risk factor is the rising raw material and manpower costs along with a slowdown in industry, which will affect margins.
Investors can benefit from this reaction and accumulate this stock on dips for good long-term growth.
* Patel Airtemp (Rs.46.80) is engaged in the manufacture and sale of extensive range of Heat Exchangers such as Shell &
Tube type, Finned tube type and Air cooled Heat Exchangers, Pressure Vessels, Air-conditioning and Refrigeration
equipments and Turnkey HVAC Projects in India and exports. The company has technical collaboration with M/s. TEK
FINS Inc. USA for design and manufacture of Air cooled Heat Exchangers. All these products are supplied to leading
industrial sectors like Power Projects, Refineries, Fertilizers, Cement Plants, Petrochemicals, Pharmaceuticals, Textiles and
Chemical Industries.
The order position of the company is good and it is performing well in the current year. If its first 9 months working is
any indication company, it should report an EPS of around Rs.9 in the current year.
The stock has reacted from high of Rs.145 to the current level where its market cap is just Rs.25 cr. Accumulate at current
levels or at dips.
* Nava Bharat Ventures (Rs.193.55) is into sugar, ferro alloys and power generation. It is said to be doing well. The stock
has reacted from a high of Rs.352 to the current level. Investors can keep a watch to add this stock on reactions.
* PAE Ltd. (Rs.19.25) is in the automotive and non-automotive (industrial) segments of batteries and
components/systems The power segment presents its new growth opportunities as PAE has launched power back-up
devices and systems and sees excellent growth potential for them. It is a profit making and dividend paying company. In
the current year expected EPS is around Rs.5/6. Last dividend was around 10%, which is likely to rise to 12% in the
current year. At present, market cap is just Rs.19 cr. The stock has reacted from a high of Rs.54 to the current level of Rs.19
where it looks very attractive for investment.
* Torrent Cables (Rs.180) - Those who booked profits at higher levels can add this stock at the current level of Rs.180 or
on dips. Full year expected EPS is Rs.38/40.
*ABG Shipyard (Rs.595) is another fundamentally strong stock, which investors can add on reaction.
* Sesa Goa (Rs.3160.95) - Firm iron ore price may give a good push to this stock.
* Investors should take advantage of this free fall of mid-caps and accumulate fundamentally strong stocks with good
dividend yield like PNB Gilts, First Leasing, Tata Metalik, Central Bank, Andhra Bank, Oriental Hotels, Supreme
Industries to name a few.
Note: Several companies that have issued FCCBs face the prospect of not having these bonds converted into equity unless
the stock markets stage a strong comeback.
This implies that these corporations may have to pay back the amounts they borrowed together with the interest.
Investors need to be careful of all such stocks.
Tata Motors has made lower provision for tax for Q4, which indicates much lower profits. Auto ancillaries, too, are likely
to suffer and may not post good results. This is in line with our warning about this sector.
The market is likely to bottom out by the end of this month. Strong support level is expected to be around 14,000 or 12,700
in the worst case.
Although 15
th
March 2008 Advance Tax
collections appear encouraging, it is possible
that many companies may not have made
provisions for deferring tax or the full extent
of FBT. Or they may have paid less tax in the
first three quarters. This may be the reason for
more taxes in the 4
th
quarter in some cases.
Just see the case of First Leasing Company. It
did not make any provision last year in the
first three quarters for deferred tax but paid
Rs.8.15 cr. as deferred tax in Q4, which
reduced its profit at the net level last year. But
in the current year, it has made provision for
deferred tax of Rs.2.55 cr. in each quarter,
which is as good as cash profit.
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Hence investors need to be cautious about tax
12
numbers and must understand them case by case.
By V. H. Dave
EXPERT EYE
This share was recommended in Early Bird Gains (EBG), our investment news on 15
th
August 2007 at Rs.125. It touched, a
high of Rs.429 on 8
th
January 2008 fetching a gain of 206%. The share has come down on bad market sentiment and offers
good opportunity for medium-to-long-term gains.
The share of Jindal Photo Ltd. (JPL) (Code: 532624) (Rs.126) is attracting the interest of investors. The buzz is that JPL is
in the process of setting up a 1000 MW power plant in Orissa for which it has already been allotted coal mines. The
management is meeting on 27
th
March 2008 to invest Rs.300 cr. in the equity of Jindal India Powertech, a company formed
to execute the power project. The power plant is expected to come up by 2012.
Incorporated in 1986, JPL, from the Rs.2000 cr. BC Jindal stable is a manufacturer of photographic and allied products. Its
product range includes colour film rolls, analog and digital cameras, photographic colour paper, medical X-ray films and
equipment, photo processing equipment, cine colour positive films, photographic chemicals, etc.
It markets its products under the brand name 'Fujifilm' in a technical and marketing tie-up with Fuji Photo Films, Japan
and a technical tie-up with Fuji Hunt Photographic Chemicals, Singapore (a subsidiary of Fuji, Japan) to manufacture
photo chemicals. This ISO 9002 certified company has its manufacturing plants in Dadra & Nagar Haveli and Jammu.
JPL has over 36% market share in the colour paper and colour film rolls while its other products have market share of
about 25%.
To integrate the technology change in the photography processing, JPL has set up over 400 Fuji Digital Imaging (FDI)
laboratories as an extension of the Fuji Imaging Services (FIS) already available throughout the country. JPL has also
launched a series of cameras in the digital segment and lays emphasis on developing a consumer-friendly retail sector in
the amateur film market by opening up FDIs throughout. These outlets are equipped with world-class digital Minilabs -
the Frontier series.
Some years back, JPL acquired a strategic stake in Coheris SA, listed in France, through its group special purpose vehicle
(SPV), Jindal France SAS. It has spent Euro 3.5 million together with loan to acquire the stake in the software publishing
firm. The acquired entity is in customer relationship management (CRM) as well as business intelligence and occupies a
leadership position in Europe.
For FY07, although sales declined by 5% to Rs.361 cr., its net profit advanced by 43% to Rs.26.5 cr. yielding an EPS of
Rs.25.7.
JPL, however, reported a phenomenal jump in net profit of 2.91 times for Q3FY08 at Rs.10.5 cr. against Rs.3.6 cr. in
Q3FY07 on 19% higher sales of Rs.96 cr. During the first three quarters of FY08, its sales moved up by 7% to Rs.267 cr. and
net profit jumped by 97% to Rs.35.5 cr.
JPL's small equity of Rs.10.3 cr. with reserves of Rs.121 cr. gives its share a strong book value of Rs.128. The promoters
hold 72% in its equity capital, PCBs hold 7% leaving 21% with the investing public.
The Tata Power Company (TPC), Monnet Ispat & Energy and Jindal Photo Films are forming a joint venture company to
develop a 290 MT coal mine at Mandakini in Orissa. These companies, which are each building a 1000 MW power plant in
the state will hold an equal stake in the JV mining company and consume the coal in equal proportion.
Conservatively profits in a thermal power plant work out to Rs.1 cr. per MW per annum. Thus in 3 years from now JPL
could add as much as Rs.200 cr. tax-free to its bottomline, making the current price an attractive point to buy the stock.
The new merchant power policy allows tax free benefits for 10 years under the Income Tax Act and numerous other
concessions in State taxes.
The widespread availability of cameras in democratizing the practice of photography benefits amateur photography
leading to increased consumption of photographic films.
Although analogue products continue to have a good hold over the Indian market, there is a huge potential for digital
cameras and storage devices, which are making a mark in the industry. The accessibility and affordability of quality
cameras and films is the key demand driver. The colour film roll is the major constituent of the consumer-imaging
segment.
Current operations of JPL, based as they are lucrative in the tax haven of Goa. The photographic industry is perched for
significant growth due to constructive and favourable new advances in technological products, the tourism trends and
the socio-economic growth of the vast middle class.
The low per capita consumption of photographic products in India coupled with the growth in population and the
growing disposable income of the burgeoning middle-class offers good revenue potential in the future.
During FY08, JPL may post sales of Rs.390 cr. and earn a net profit of Rs.47 cr., which would give an EPS of Rs.45.6.
The JPL share traded at Rs.126 at a P/E of 2.87 on FY08E is recommended with a target price of Rs.228 (at conservative
P/E of 5) in the medium-term. The 52-week high/low of the share has been Rs.429/72.
13
******
Incorporated in 1985, the flagship of the Amtek Group, Amtek Auto Ltd. (AAL) (Code: 520077) (Rs.241.65) is an
integrated automotive component manufacturer of forgings, engine, transmission and suspension parts, assemblies and
sub-assemblies. It supplies over 300 components and assemblies to leading OEMs in India and abroad. Its subsidiaries
are: Ahmednagar Forgings – Pune; Amtek Ring Gears Inc., Amtek Crank Shaft India, Amtek Investments, GWK, Lloyds
Brierly Hill and Triplex – UK; and Smith Jones Inc., Midwest Manufacturing, Amtek Gears and Amtek Investments - US.
It earns 60% of its revenues from clients in the four-wheeler segment and the balance from the two-wheeler and
commercial vehicle segments.
Its current machining capacity is about 40 million parts and the forging capacity is about 2,80,000 TPA. Amtek Ring Gears
Inc., its subsidiary has set up a plant at Bay City near Detroit for manufacturing 9 million fly wheel ring gears per annum.
AAL has already invested over Rs.1200 cr. in the last two years for expansion across its existing facilities and has also set-
up greenfield facilities in Sanaswadi, Ranjangaon, Bhiwadi, Dharuhera, Coimbatore and Baddi. These expansions and
new capacities were expected to come on line in FY08 and FY09.
Its new forging facility in Dharuhera, near Gurgaon, is exclusively for heavier forgings and the first phase is expected to
be commissioned by June 2008 and will add a further 20,000 TPA. The forging capacity at its subsidiary, Ahmednagar
Forgings, is also being expanded by 55,000 TPA by next year end.
Recently, AAL ventured into an aluminium high pressure die casting and gravity casting through the greenfield (20,000
TPA) as well as the acquisition routes. Its UK subsidiaries GWK and Triplex are into aluminium machining and this foray
into aluminium casting was a backward integration for AAL. It also plans to shift JL French's manufacturing lines from
the UK to India over the next 2-3 years.
AAL is building a facility for supplies exclusively to Tata Motors' small car project, which will supply parts like balancer
shafts, crankshafts, connecting rods, cylinder block and head, spindles, front and rear brake drums and the steering
knuckle for the Nano.
AAL derives around 55% of revenues from overseas and given the increasing opportunities for outsourcing, exports are
likely to receive a fillip. Besides, a majority of its exports are to Europe with the USA contributing less than 5% thereby
minimising the risk of losses on account of depreciation of the US dollar against the Indian rupee.
For the year ended 30
th
June 2007, AAL posted consolidated sales of Rs.3721 cr. and earned a net profit of Rs.409 cr.
During H1FY08, it recorded a net profit of Rs.213 cr. on sales of Rs.2335 cr.
Its equity capital is Rs.26.8 cr. and with reserves of Rs.2436 cr., the book value of its share works out to Rs.148. The
promoters hold 31% in the equity capital, FIIs hold 50.3%, Mutual funds/Institutions hold another 12.2%, PCBs hold 2.9%
leaving 3.6% with the investing public.
AAL's first acquisition was a US-based ring gears manufacturer Midwest Manufacturing in 2002. After that, it acquired
UK-based companies GWK and Lloyds Brierly Hill, Sigmacast Iron, the aluminium casting facility of Germany-based
Zelter. It has recently acquired one of the largest automotive precision machining companies Triplex- Ketlon Group,
which was also Amtek's strongest competitor running close to 185 different machining lines and a multi-location presence
in the UK.
Its acquisition of the UK-based JL French (Witham) in June 2007 has added JLF's aluminium casting business to Amtek
and has given access to customers like Peugeot, Land Rover and Jaguar. Its acquisition of the precision machining
companies, Triplex Components and Kelton in November 2007 has also brought in customers like Dana Spicer,
Honeywell, Perkins, TRW, Honda UK, Ford, JCB and Toyota (UK).
The company has inked a strategically important 50:50 JV with VCST Industrial Products bvba of Belgium with
headquarters in SintTruiden, Belgium to set up a state-of-the-art manufacturing facility for powertrain components in
India. This JV will primarily focus on the manufacture of gears and shafts for automotive on-and off-road applications.
It has also inked a 50:50 JV with Canadian giant Magna Powertrain for establishing a manufacturing facility outside Delhi
for 2-Piece FlexPlate assemblies for automotive applications. The manufacturing operation is expected to be
commissioned by June 2008.
AAL has signed an MOU to set up a 50/50 JV with American Railcar Industries (ARI), a leader in railcars. ARI is a leading
designer, manufacturer and marketer of a
variety of railcars in North America and also
provides fleet management services.
The buoyancy in the automobile industry
coupled with the increased outsourcing by
global auto majors will be its key revenue
driver. Besides, its strategy of acquiring front-
end capacities near global OEMs in the US
and European markets will drive future
growth.
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14
15
Its proposed transportation division in JV with ARI, which includes railways, aerospace and surface transport will add
around Rs.1,500 cr. in sales in the next 4-5 years.
AAL has been gearing up for an aggressive expansion strategy as it recently raised further capital of Rs.1,012 cr. by way of
preferential allotment of shares and warrants to the promoter group. Leading private equity player, Warburg Pincus, has
also recently acquired a 9% stake each in AAL and Amtek India. The consolidation of AAL with Amtek India, a group
company manufacturing castings, is also on the cards. Synergies from the consolidation such as product line expansion,
economies of scale and settlement of issues relating to transfer pricing between the group companies (Amtek India and its
subsidiary, Sigmacast Iron, supply castings to two of Amtek Auto's subsidiaries), are expected to trigger a re-rating for
the stock.
For FY08, consolidated sales are expected to move up by 28% to Rs.4800 cr. with 17% higher consolidated net profit of
Rs.480 cr., which would give an EPS of Rs.35.8. During FY09, consolidated sales would go up to Rs.5760 cr. and net profit
to Rs.560 cr. leading to an EPS of Rs.41.8.
The Cenvat reduction by 2%, reduction in excise duty on small cars from 16% to 12% and hybrid cars from 24% to 14% in
the Union Budget 2008-09 are auto industry positives that augur well for AAL. Its product range, strong client base, thrust
on exports and foray into the high-margin aluminium castings business lend confidence to the growth prospects of its
revenue & earnings.
At the CMP of Rs.241.65, the share is trading at a P/E of 7 on FY08 estimated EPS of Rs.35 and 5.9 times on FY09 projected
EPS of Rs.41.8 and recommended with a target price of Rs.350 in the medium-term.
******
The share of Lokesh Machines Ltd. (LML) (Code: 532740) (Rs.55.40) is recommended for steady appreciation in the
medium-to-long-term.
Founded in 1984, Hyderabad-based LML has three divisions — special purpose machines (SPM), computerised
numerically controlled (CNC) machines and auto components. While SPMs are targeted at big automobile companies,
CNC machines are aimed at auto ancillaries. Its auto component division is an OEM supplier to Mahindra & Mahindra
and Ashok Leyland.
The company manufactures Horizontal Machining Centre, Vertical Machining Centre, Turning Centre and Transfer Lines,
Productivity and Cycle Time requirements and Auto Components-Cylinder Blocks that are optimally designed for clients.
Its total capacity has been enhanced to 1,60,000 machines.
In April 2006, LML came out with an IPO priced at Rs.140 per share raising Rs.42 cr. for setting up an additional facility
for machining and supply of 40,000 cylinder blocks and cylinder heads per annum to Ashok Leyland at Shahzadiguda
village in Ranga Reddy district of Andhra Pradesh and to meet the cost of modernisation and upgrade the existing
facilities for manufacture of CNC Machine Tools. The commercial production from this new facility commenced from
November 2006.
Its technical partners are Fagima, Italy; SCMS, Japan; AVM Angelini, Italy; Wenig Wemas, Germanya and IMT Intermato,
Italy and its clients include Mahindra & Mahindra, Bajaj Auto, Ashok Leyland, Force Motors, Tata Motors, L T John Deer,
Escorts, Eicher, Honda Motor Cycles & Scooters, Kinetic, Tecumsheh, Bharat Forge and Rane Engine Valves.
During FY07 its sales advanced by 15% to Rs.90 cr. and net profit by 31% to Rs.8.2 cr. leading to an EPS of Rs.9. During
Q3FY08, sales surged by 3% to Rs.2.3 cr. on 10% increased sales of Rs.22 cr. During the first three quarters of FY08, sales
went up by 21% to Rs.61 cr. and net profit by 28% to Rs.8.6 cr.
LML's equity capital is Rs.11.8 cr. and with reserves of Rs.65.2 cr., the book value of its share works out to Rs.65. The
promoters hold 63% in the equity capital, institutions/mutual funds hold 5%, PCBs hold 8% leaving 24% with the
investing public.
LML hopes to earn 20% of its revenues through exports in FY08 and is targeting an export turnover of 40 % by 2010.
LML has kept up with the growth momentum by diversifying its customer base, adding auto components to its portfolio,
exploring export opportunities and coming up with innovative import-substitute products for the Indian market.
Its robust order book position and the strategic moves on the part of industry constituents in augmenting capacity,
upgrading technology, expanding product offering and moving up the value chain augurs well for the automobile and
capital goods industries both at the earning and revenue levels.
The capacity expansion in the automobile and auto component industry would be the key demand driver. The capex in
these two industries alone is expected to be about Rs.5,000 cr. and Rs.2,000 cr. p.a. respectively over the next three years.
With both multinationals and domestic companies expanding, the demand for machine tools is expected to be robust.
LML has delivered consistent performance over the last decade even when the entire machine tool industry was in dire
straits. Its ability to maintain growth during a slowdown when most engineering companies struggled to make profits
enthuses the confidence in its management.
LML has been able to build long-term arrangements with customers like Mahindra & Mahindra and Ashok Leyland for
machining & supplying critical components. Given the positive demand outlook for the commercial vehicle industry,
LML's gradual diversification and increasing capacities for cylinder blocks, supplies to big ticket clients and its increasing
focus on exports given its revenue visibility, which in turn confer earning potential in the coming years.
LML is likely to post a net profit of Rs.13 cr. on sales of Rs.95 cr. in FY08, which would give an EPS of Rs.11. Sales are
expected to move up to Rs.125 cr. in FY09 with net profit increasing to Rs.18 cr. and the EPS can increase to Rs.15.
The LML share traded at Rs.55 at a P/E of 5.3 on its FY08 estimated EPS of Rs.11 and 3.8 times its FY09 projected EPS of
Rs.15 is recommended with a price target of Rs.90 in the medium-term. The 52-week high/low of the share has been
Rs.166/57.
16
By Nayan Patel
TECHNO FUNDA
Small Cap index, which was 14,239 on 08/01/08 declined to 7222.20 on 19/03/08 which was a crash of 50% in only 2
months. Mid Cap index which was 10,245 on 08/01/08 declined to 5964.10 on 19/03/08 – a crash of 42% in only 2
months. In January 2008, we warned readers twice stating "Most mid cap-small cap stocks are highly overvalued and
'kabadi' operators are ready to take advantage of sentiment. Please be careful and stay away from overvalued as well as
fundamentally unsound stocks and book profit at every rise.
Now What???:- As per my opinion fundamentally sound small cap and mid-cap stocks may bottom out shortly and start
to go up from April 2008. Hence cash - rich investors can start buying slowly & gradually at every decline fundamentally
sound – solid and strong shares from next week in panic to get reasonable return in next few months. Sensex 14,200 is a
very, very, very strong support. Most probably, market will get support around Sensex 14,200 and a short-term relief rally
is likely in April 2008. But if 14,200 is broken then the next support level is at 13,300.
Tera Software
BSE Code: 590020
Last Close: Rs.44.70
As per informed sources, the company has bagged some big lucrative government contracts/orders. With an expected
EPS of Rs.12-13 in the current year and Rs.18 in 2008-09, the scrip has potential to go up by 100% within a year. The
company has surplus land in Hyderabad, the market value which works out to Rs.38-40 per share. The company may
develop an IT Park on this land and is not at all affected by the strong rupee as it has nil presence in the export market.
The company is paying attractive dividend of 20%. Buy with stop loss of Rs.34 to get good return in the medium-to-long-
term. P/E is only 4.
Confidence Petroleum enters JV with Energtek Inc.
MONEY FOLIO
Confidence Petroleum (India) Ltd. (CPIL), the flagship company of the Rs.400 cr. Confidence Group involved in LPG
Cylinder manufacturing, LPG Bottling, LPG Marketing, LPG Blending, Auto LPG Cylinder Manufacturing & Auto LPG
Dispensing for more than a decade. It also provides logistical support to PSU oil majors at the national level and has
entered into a joint venture with Energetek Inc., world leaders in NG & Adsorbed Natural Gas (ANG) Technology to
provide clean and affordable pipeless Natural Gas supply to Automotive and Industrial Consumers. Energetek Inc. is a
U.S. based company with subsidiaries in the U.S., India, Ukraine and Israel.
ANG technology provides cost-effective storage of Natural Gas by maximizing tank storage capabilities utilizing
activated carbons placed inside the tank to absorb greater quantities of gas similar to sponge. Use of ANG technology
creates two possibilities:
Similar volumes of gas can be stored in the same container at a lower pressure significantly reducing the costs of refueling
infrastructure and fuel costs for the driver. Plus, lower pressure allows greater flexibility in NG tank design (as opposed
to standard cylindrical NG tanks)
Larger volumes of NG can be stored in the same container, at the same pressure enabling vehicles to significantly increase
driving range, without increasing the size of the tank.
In the first phase of the JV, CPIL will make an investment of Rs.100 cr. for co-ownership of Enertek's subsidiary Primecyl
LLC. A new fully owned subsidiary of Primecyl LLC, 'Confi Energetek Asia Ltd.' will be established in India to carry the
JV businesses in India and throughout Southeast Asia, which includes Bangladesh, Indonesia, Thailand, Singapore,
Philippines and Pakistan. Primecyl LLC is also the owner of Ukcyl Ltd., a manufacturing facility for high-pressure
cylinders in Ukraine.
Lotus Eye Care Hospitals plans IPO
Lotus Eye Care Hospitals, a South based premier eye care hospital and research institute dedicated to eradicating
blindness and make eye care accessible to poor people will tap the capital market in FY09.
It is also setting new trends in eye care by carrying out extensive research and using the latest technology. It has been the
pioneer in inducting world-class technologies with the introduction of Multi-scan, Lasik, Epilasik and Zyoptix Z100.
Located in Coimbatore, Salem and Tirupur, Lotus Eye Care Hospitals not only provides treatment for various eye
diseases, but also offer comprehensive preventive measures and educational programs. These hospitals are equipped
with ultra modern fourth generation instruments required for critical ophthalmic surgeries and offer comprehensive
tertiary eye care.
LIC Housing Finance launches Reverse Mortgage for senior citizens
LIC Housing Finance Ltd. (LICHFL), a leading player in the Indian housing finance sector, has rolled out reverse
mortgage loans for senior citizens above 60 years of age. The loan will be given on single or on joint basis with spouse, if
the spouse is over 60 years.
The reverse mortgage loan will be offered at a fixed interest rate subject to reset every 5 years. Under the reverse
mortgage scheme, senior citizens can avail the loan on a monthly payment or a lump sum payment of a combination of
both. The property evaluated for the loan should have at least 20 years of residual life.
The maximum loan balance shall be restricted to 90% of the value of the property and the loan balance will include
interest till maturity. The amount of the loan will take into consideration the property value, age of the borrower, rate of
interest etc.
The loan will become due and payable only when the last surviving borrower dies or opts to sell the home or
permanently moves out of the home to an institution or to relatives.
Union Bank to provide online trading
Union Bank of India and IDBI Capital Market Services Ltd., a leading provider of financial services in India have
announced their strategic tie-up to offer IDBI's internet trading services platform www.IDBIpaisabuilder.in to its
customers.
The integrated portal IDBIpaisabuilder.in allows customers to seamlessly execute their transactions as per their needs and
demands. Thus any customer of Union Bank at any of its CBS branches can use this online trading platform from any
place with an internet connection. When the customer indicates intention to purchase any security, his account is
embarked with the amount and debited only when the transaction is put through his demat account credited in due
course. Similarly, when he sells securities, lien is marked on the securities and his demat account is debited and his bank
account is credited when the transaction is concluded.
This new alliance is in line with IDBI Capital's strategy of increasing its reach and penetration across the country. This
also facilitates the creation of new business opportunities and seamless customer centricity by leveraging the core
competencies of the both the organisations. It already has similar tie-ups with Punjab National Bank, IDBI, Oriental Bank
of Commerce, Bank of Rajasthan and Karur Vysya Bank.
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.
17
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