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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 28
Monday, May 26 – June 1, 2008
Pages 16
Stay away
as sentiment turns negative
By Sanjay R. Bhatia
The markets displayed weakness on the back of the
rising crude oil prices, which touched a historic high of
$135. The spike in crude prices came on the back of
weak US inventory data and OPEC's statement about
speculation in global markets. Traders and speculators
were seen unwinding long positions and creating fresh
short positions. Incidentally, FIIs remained net sellers in
the cash as well as the derivatives segment. Mutual
Funds, too, were net sellers exiting at higher levels to
book profits.
The global cues have remained negative. Global markets
reacted negatively to the rise in crude prices and the US
economy continued to decimate weak economic signals.
The Indian rupee continued to depreciate against the
green buck, which is a double whammy for the Indian
economy in the rising crude oil scenario. The government has still not agreed to a hike fuel prices, which is a negative for
oil marketing companies who are already in deep financial trouble. In fact, Indian Oil has sought shareholders'
permission to mortgage its assets for raising loans to keep the company going. The rupee is likely to depreciate further
unless the RBI intervenes, which it is likely to do.
Now, it is important that global cues turn positive, especially the crude prices. It is important that institutions turn
positive if we have to get out of this weakness. Stock specific activity will be witnessed amid intermediate bouts of
volatility and choppiness. The market sentiment is likely to remain negative 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 17300 and 17600 levels but has support at the 16608 and 16372 levels. On
the upside, the Nifty faces resistance at the 5025, and 5156 levels while 4899 and 4647 are its important support levels.
Investors are advised to stay away.
1
Fuel fuels a crisis!
By Fakhri H. Sabuwala
Recently, petrol pumps in North India displayed a scary poster. 'No Diesel' was what the petrol pumps announced for
the whole day. And more recently, public sector oil refining and marketing companies slowed down the issue of new gas
connections. Private sector refiners and marketers like Reliance Petroleum and Essar have shutdown their gas stations
and are exporting both petrol and diesel to keep afloat. The story of kerosene, the poor man's fuel, is no better as the
public distribution system (PDS) has no stocks. Even in the open market at three times the PDS rate, this fuel is scarce. In
case you think these are stray cases, think again and take a close look at the whole issue as the three major oil PSUs viz.
IOL, BPCL and HPCL are looking at a collective loss of Rs.2,00,000 cr. in FY09. At this rate, how long can they survive the
crunch?
It is just a book entry for the Finance Minister who will transfer this loss to the exchequer. And if he does so, the fiscal
deficit would bloat to more than 5% of the GDP and ruin all his calculations. But turning a blind eye to the situation just
to win votes will be suicidal for the ruling coalition particularly the Congress party.
A fuel shortage looms large and in a matter of a few days the oil marketing companies shall be broke and bankrupt after
exhausting their borrowing limits of Rs.90,000 cr. Already, Rs.70,000 cr. of borrowings have been notched up and the
saving grace is that they are government companies. By early June, each of these three companies will have no cash to run
their business or even pay salaries. It's only a matter of time before each of them sinks beyond a trace!
When crude oil is hovering around $135 and is likely to cross $150 a barrel, no global supplier will honour supply
contracts unless the money is paid upfront. This means that the country may experience a situation of scarce fuel or just
'no fuel' in coming months. The rising crude prices and the depreciating rupee against the dollar are a dangerous
combination for the government.
Although the government denies taking any drastic steps to curb fuel consumption, petrol & diesel rationing together
with a sharp price rise is inevitable to stop matters from getting bad to worse. The political compulsions are running our
economic balance and wiping out all the good work of the last few years.
By ignoring the economic realities when the world is on the brink of an unprecedented food & fuel crisis, which is as
grave what the world faced during the world wars.
What does an investor do at such times? While the government may put up a brave front and say that this crisis, too, shall
pass, the reality is that it may or it may not. The loud speaking politicians may be voted out of power but the large
economic damage it will impart will last long and take years to heal. If it lasts longer, then no political play anywhere can
save the world from this crisis.
Just hope and pray that the crude shock is in its last phase of an upswing and shall come down as quickly as it has risen.
Till then, just book profits and keep liquidating your portfolio. In such times, 'Cash is King'.
2
Bears have the edge
By Hitendra Vasudeo
For the week ended on 9
th
May 2008, the Sensex formed an
Engulfing Bear candlestick pattern. Whenever such a pattern
occurs after a rise then it tends to an intermediate reversal or
results in an important wave pattern getting terminated. The
pattern indicates a strong control by the bears and till the
high of this pattern is not crossed a subsequent rally is
unlikely. At times or on many occasions, we find that the
subsequent trading day or week or next trading session can
see a pull back rise trying to negate the bearish candle.
In the week ended Friday, 16
th
May, the Sensex attempts to
negate it by forming a Piercing Line candlestick pattern. A
follow up last week to the Piercing candlestick pattern was
not witnessed. A negative bear candle was formed last week
suggesting that bears still have control of the market in spite
of Piercing Line candlestick pattern for the week ended on 16
th
May. More importantly, the bearish candlestick pattern
formed for the week ended on Friday, 9
th
May has still not yet been crossed.
The Sensex has support at 16546-16481. If the Sensex falls and closes below 16481, then we can confirm the termination of
the pullback rally of the fall from 21206 to 14677.
Last week, the Sensex opened at 17366.05 and registered a high at 17367.13 and fell down to 16626.11 during the week. It
finally closed the week at 16649.64 and thereby showed a net fall of 801 points on week-to-week basis.
Weekly resistance will be at 16880-17135-17434-17735. Weekly support will be at 16481.
On the daily chart, the Sensex has violated a trend-line taken from the lows of 14677 and 15321. Earlier, the Sensex had
taken support when it made a low of 16546. It has moved up from the same trend-line to 17497. Now, it has violated and
closed below the trend-line on the daily chart. As a result of such a trend line violation, the general trend should be down
unless we see a miraculous rise and close above 17735.
Sensex Wave Analysis
TRADING ON TECHNICALS
Wave I-2594 to 3758
WEEKLY UP TREND STOCKS
Wave II-3758 to 2904
Wave III- Internals as
follows:
Wave 1- 2904 to 6249
Wave 2-6249 to 4227
Wave 3-4227 to 12671
Wave IV- 12671 to 8799
Wave V- 8799 to 21206
Wave A-21206 to 14677
Wave B-14677 to 17735
If the high of 17735 is
crossed,l then the above
wave count will not be
applicable. A fall and
close below 16481 will
confirm Wave iii.
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
306.45 239.2
286.8
314.6
334.3
381.9
77.5
282.9
09/05/08
BOMBAY RAYON
389.90 338.0
374.8
396.4
411.5
448.3
73.6
385.9
28/03/08
JAYBHARAT TEX.
255.95 238.6
250.1
255.8
261.7
273.2
71.5
254.4
28/03/08
SHIP.CORP.OF IND 288.40 236.1
270.0
285.4
303.9
337.8
70.8
267.9
04/04/08
LUPIN
684.00 615.7
658.7
676.3
701.7
744.7
69.8
620.5
11/04/08
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
Cover
Short
Cover
Short
Sell
Price
Sell
Price
Stop
loss
Alternate Wave count
will be as follows:
Wave A-21206 to 14677
Wave B-14677 to 17735
Wave a-14677 to 17735
(Current ongoing move)
3
Internals of Wave a
SOBHA DEVELOP
535.95
480.7
520.7
545.3
560.6
600.6
26.50
571.76
09/05/08
Wave i-14667 to 16452
MADRAS CEMENT 2805.00 2550.0
2740.0
2865.0
2930.0
3120.0
27.29
2971.75 02/05/08
Wave ii-16452 to 15464
Wave iii-15464 to 17735
THERMAX
453.60
424.3
445.9
459.9
467.6
489.2
29.37
472.31
07/03/08
Wave iv-17735 to 16626
(Current ongoing move)
BGR ENERGY SYS 435.20
359.8
414.1
447.2
468.3
522.6
30.18
443.15
09/05/08
ULTRATECH CEM. 665.65
585.4
645.4
685.2
705.4
765.4
30.58
701.05
17/04/08
Below 16452 this wave
count may not be
applicable.
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.
Conclusion
A sustained fall below
16400 will aggravate the
fall. If the hope for the
bulls is to remain intact,
then the Sensex must
jump up without wasting
time to first move
sideways and consolidate
before making further
attempts to test 17735.
But it appears that the bulls may be sinking.
Scrips
BSE
CODE
Last
Close Buy Price
Buy On
Rise
Stop Loss Target 1 Target 2
Risk
Reward
SHRIRAM TRANSPORT FI 511218
333.35
322.00
341.00
317.5
355.5
379.02
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly Relative
Strength (RS)
RELIANCE INDUSTRIES
2555.00 2566.71 2593.50
2620.29
2707.00 2339.7
37.3
WELSPUN-GUJARAT STAH
376.80
383.63
390.00
396.37
417.00 329.6
40.11
SUN PHARMACEUTICAL I
1327.00 1359.87 1383.00
1406.13
1481.00 1163.9
47.62
SESA GOA
4066.00 4071.73 4132.50
4193.27
4390.00 3556.7
47.86
Strategy for the week
The overall strategy still remains to exit on a rally to Weekly resistance levels of 17135-17434-17735. Traders can benefit
from trading opportunities to trade long but ensure to exit on the rally to weekly resistance levels.
* Because of serious buying and talk of bonus, Kamanwala Housing is hitting non-stop upper circuits. Still investors are
advised partial profit-booking as the scrip can correct once the bonus ratio is announced.
TOWER TALK
* The market cap of Bombay Oxygen, a debt-free company is Rs.115 cr., which is less than its FY08 net profit of Rs.159 cr.
In February 2008, it has sold only the development right of its Mulund property to HDIL for Rs.200 cr. Don't miss this
golden opportunity.
* Volumes in Rama Paper suggest that some big game is being planned in this counter. Keep a close watch. Once the scrip
closes above Rs.28-30 resistance level with good volumes, just buy it.
* The share price of Flat Products is holding strong only because of the open offer. Further, 100% of your share may not
be accepted in the open offer. So exit immediately from the open market as scrip may fall vertically from 4
th
June, which is
the closing date of the offer.
* After consolidating for quite some time, Bhagyanagar India seems to have bottomed out and is poised for a sharp
breakout in coming days.
* Macmillan India has embarked on a restructuring exercise. The company has publishing and InfoTech arms as
subsidiaries/group companies and real estate in many cities. What is in store for shareholders?
* Micro Forge is witnessing substantial volumes its near 52-week low levels. The company's earnings are good and
valuations are attractive. But rising input costs are a cause for concern.
* Agro Dutch has been fancied by value investors as it benefits significantly by the dollar appreciation as it derives
significant income from exports.
* Cairn India may be the largest beneficiary of the boom in crude oil. This scrip may emerge as the momentum scrip of
tomorrow.
* Opto Circuits India is the star recommendation of a large broking house with a target price of Rs.460+. Going by its
fundamentals this is a conservative estimate.
* XL Telecom & Energy is a performer and in a sector that is evergreen.
* Logistics is the segment to look at when the country is moving. Look out for All Cargo Global, Gateway Distriparks
and Container Corporation.
* Two-wheeler and cycle manufacturers will be the biggest beneficiaries of the rise in price of petrol and diesel.
* Ennore Coke Ltd. is expected to start heating of its plant from around 1
st
June and production will start thereafter.
* In the grey market, the unofficial premium of Gokul Refoils was quoted around Rs.15-20 and Anu's Labs at Rs.18-22.
By Saarthi
BEST BETS
Pitti Lamination Ltd. (Code: 513519)
Rs.49.50
Established in 1983 and promoted by Mr. Sharad Pitti, Pitti Laminations Ltd. (PLL) is primarily engaged in manufacture
of electrical steel laminations and stampings which form a critical part in all types of industrial motors, alternators, pump
sets, aeronautics, windmill generators and DG sets. Besides, it also manufactures die cast rotors, press tools, progressive
tools, jigs, fixtures and moulds as per customer requirements. It even produces small laminations on its High Speed Press
for compressors. It supplies not only laminations but also value added sub-assemblies involving several operations using
castings, aluminium, copper etc. On the domestic front, the company caters to some of the biggest and best names in the
industry like Siemens, Areva T&D, Crompton Greaves, ABB, BHEL, KSB Pumps, Bharat Bijlee, Kirloskars, Suzlon etc. On
the other hand, exports contribute more than 40% of its revenue with GE (USA) being one of its major customers. To
broaden its customer base in overseas markets, PLL is regularly participating in exhibitions and negotiations are on with
a few prospective customers in Europe and USA.
PLL's manufacturing facilities at Hyderabad is equipped with all modern support equipment for press shop, notching
shop and tool room. After regular expansion and modernisation, the company's total installed capacity currently stands
at 25,000 MTPA. For FY08, it is estimated to have sold 18,000 MTPA. Meanwhile, to leverage its expertise and
competitiveness and move up the value chain, the company has implemented certain forward integration measures.
Earlier, it was outsourcing the fabricated and casted stator bodies and was also outsourcing the machinings. But now
under Phase III expansion of Rs.48 cr. it has put up a project for fabrication of steel stator bodies, machining of stator
bodies and dropping of assembled stator core into the stator body. However, it will continue to outsource the casted
bodies. These forward integration activities were quite complex and demanded a high degree of precision. Now it will
result in value addition and significant improvement in margins. Notably, this Phase-III expansion was completed only in
January 2008 and was done to cater its GE (USA) client and other big domestic customers. The company has taken
approval of shareholders to diversify into power generation by way of wind energy, solar energy, thermal energy, hydro
energy, bio energy or any other form or source of energy.
Earlier, to fund its expansion, the company had raised around Rs.14 cr. through preferential allotment of 12 lakh equity
shares at Rs.120 per share. Now, PLL has no capex plan for the next two years as it has sufficient capacity to meet
customer demands. For FY08, it is expected to post sales of Rs.160 cr. with net profit of Rs.7.50 cr. This translates into an
EPS of Rs.8 on its equity of Rs.9.45 cr. Because of the sharp rupee appreciation last year, the company took a hit of almost
300 basis points on its operating margin. But on the back of forward integration with increased volumes and management
taking various steps to avoid forex losses, it can report better margins for FY09 and is estimated to clock sales of Rs.200 cr.
with PAT of Rs.11 cr. i.e. an EPS of Rs.12. Considering its book value of Rs.55 and market cap of merely Rs.45 cr., the scrip
is available fairly cheap at a P/E ratio of 4 times against its FY09 earnings. Also since the company has entered into its
4
silver jubilee year, it may reward shareholders with a bonus or special dividend. Investors are recommended to buy this
scrip with a price target of Rs.75 (i.e. 50% returns) within a year.
Shakti Met-Dor Ltd. (Code: 526510)
Rs.171
Incorporated in 1988, Shakti Met-Dor Ltd. (SMDL) has established itself as India's leading manufacturer of Performance
Steel Doors. It offers a total door set solution, which includes designing, manufacturing, supply and installation of steel
door sets. It primarily caters to infrastructure industry, information technology, power, textile, hotel, ITES, BPO, pharma,
food processing and healthcare sectors. The company's product line includes complete range of general doors, scientific
doors, fire doors, pure stainless steel doors, commercial doors and other special application doors that have been
developed in consultation with leading architects, consultants and specifiers. By effective use of vision panels, hardware,
ironmongery and unlimited range of paint finishes, SMDL products are far superior to other doors using traditional
materials. Its special stainless steel doors are designed to meet harsh environmental exposure to chemicals, water, steam,
laboratories, bottling plants, food processing plants, hospital surgery rooms and all humid environments. On the other
hand, its scientific doors surpass the most stringent requirements associated with industries like pharmaceuticals,
hospitals and are aesthetic also. This is evident by the fact that Shakti doors are installed in the plants/offices of corporate
biggies like Pfizer, Cadilla, Shanta Bio, Dr. Reddy's, Cipla, GE Shipping, Nuclear Power Corp, HSBC, Citibank, DLF
group, British High Commission, Oberoi Hotels, Holiday Inn, Bank of America etc. Incidentally, it has also been exporting
Shakti Doors to other countries in the Middle East, Sri Lanka, Madagascar, Kenya, Cyprus etc.
SMDL's manufacturing plant is located at Gagillapuram, Andhra Pradesh. The company began operations with technical
assistance from Martin Roberts of UK. Since 1999, however, it has charted its own independent course. Today, it has
technical expertise, innovative design capability and manufacturing facilities to meet every customer requirement. To
maintain its leadership, the company is regularly expanding its manufacturing capacity. After doubling capacity to 40,000
units in FY06, the company further enhanced the installed capacity by 50% to 60,000 units in FY07. Due to the robust
outlook, it is contemplating to increase it to 200,000 units in a couple of years. Notably, this ISO 9001: 2000 certified
company is streamlining operations by implementing ERP from SAP. In FY08, it also commissioned its R&D and facilities
training centre. On the export front, the company is looking at South Asia among other regions as a possible growth area.
SMDL is also examining the feasibility of introducing new products for the building industry that are wood substitutes
and would complement the current products. Moreover, after developing expertise in various projects, the company now
provides consultancy recommending suitable ironmongery and accessories to others.
Given the Centre's special emphasis on infrastructure and the increased FDI expected in this area and other industry
segments will result in a large market for the company's products. Secondly, the aggressive growth plans of the pharma,
healthcare and Information Technology industries will also help in maintaining its growth over the next few
years. Considering its first three quarter results, it is expected to clock sales of Rs.70 cr. with PAT of Rs.12 cr. for FY08
which works out to an EPS of Rs.44 on its tiny equity of Rs.2.75 cr. Importantly, the company hasn't raised or diluted
capital since its public issue in 1994. At the
CMP, the scrip is trading at P/E ratio of
merely 4 times. With 52-week high/low as
Rs.378/160 and expected book value of
Rs.125, the scrip can easily shoot up Rs.275
(i.e. 60% appreciation) within a year. Besides,
it's a strong bonus candidate as well.
Investors
are,
therefore,
strongly
recommended to buy at current levels.
Jamna Auto Industries: For the medium-term
ANALYSIS
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By Devdas Mogili
Jamna Auto Industries Ltd. (JAIL) is a 43-year old Haryana based company established in 1965. The company
manufactures auto parts specialising in laminated springs mostly multi-leaf and parabolic leaf springs for automobiles. Its
other products include conventional springs, eye mounted springs, progressive springs, trailer springs and parabolic
springs. Its tapered leaf springs, parabolic springs, stabiliser bars and coil springs are used in the suspension system of
automobiles.
The company has five manufacturing facilities spread over Madhya Pradesh, Hariyana, Tamil Nadu, Jharkhand and
Uttarakhand. Bhupinder Singh Jauhar is the chairman and managing director while Randeep Jauhar is the executive
director of the company.
5
The company had entered into a joint venture with NHK Spring Co. Ltd. and Nissho Iwai Corporation of Japan and with
Allevard Resorts Automobile of France for manufacture of state-of -art coil springs and stabiliser bars primarily for cars
and started exports to General Motors Corporation, USA, in February 1998.
JAIL consolidated its position with the merger of Jai Parabolic Springs Ltd. (JPSL) and MAP Springs Ltd. (MSL) with itself
and has acquired Jai Suspensions Systems as a wholly-owned subsidiary. The subsidiary company would set-up a plant
in Uttarakhand for manufacture of leaf and parabolic springs. The company has also acquired the Tata Motors Spring
facility at Jamshedpur and proposes to set-up another manufacturing unit in Jharkhand.
Clientele: The company has a reputed clientele, which includes Tata Motors, Mahindra & Mahindra, Bajaj Tempo,
General Motors India, General Motors USA, Ford India, Maruti Suzuki, Ashok Leyland, Eicher Motors, Toyoto Kirloskar
and Swaraj Mazda to name a few.
Performance: The past performance of the company was lacklustre owing to difficult market conditions for auto
component manufactures. However, the company overcame the problems with a combination of mergers and
acquisitions. As a result, the company has reported impressive results for FY08 and has made a smart turnaround in its
performance.
Its sales rose 69.52% to Rs.471.22 cr. in FY08 as against Rs.277.98 cr. in FY07 and it reported a net profit of Rs.19.98 cr. in
FY08 as against a net loss of Rs.11.05 cr. in FY07.
Financial Highlights:
(Rs. in lakh)
Latest Results: Net sales rose 86.62% to
Rs.161.59 cr. in Q4FY08 as against Rs.86.59 cr.
in Q4FY07 and it reported a net profit of
Rs.9.40 cr. in Q4FY08 as against a net loss of
Rs.7.60 cr. in Q4FY07. It recorded a basic EPS of
Rs.2.89 and diluted EPS of Rs.2.58 for the
quarter. The annualised basic EPS works out to
Rs.11.56 while the annualised diluted EPS
amounts to Rs.10.32.
Particulars
Q4FY08
Q4FY07
FY08
FY07
Gross Sales
18557.15
10088.02
54502.63
32371.82
Less: Excise Duty
2398.69
1428.90
7380.99
4574.25
Net Sales/Income
16158.46
8659.12
47121.64
27797.57
Other Income
45.77
15.83
247.00
227.31
Total Income
16204.23
8674.95
47368.64
28024.88
Total Expenditure
14324.43
8305.62
42275.80
25900.47
PBIT
1879.81
369.33
5092.84
2124.41
Interest
806.97
337.26
2716.05
1243.47
Misc Exp w/off
97.95
169.66
334.33
169.66
Profit Before Tax
974.89
(137.59)
2042.46
711.28
Prov for taxation
Financials: The company has an equity base of
Rs.33.88 cr. and a high debt:equity ratio of 5.76.
Its RoCE is 13.51 and RoNW is 10.65.
Income Tax
-
-
-
17.08
FBT
6.71
9.75
28.31
15.36
Deferred Tax
-
-
-
Share Profile: The company's share with a face
value of Rs.10 is listed and traded on the BSE
and NSE under the B Group. Its shares touched
a 52-week high/low of Rs.92/41. At its current
market price of Rs.67.10, it has a market
capitalisation of Rs.224 cr. The share has a beta
value of 0.8.
46.40
Profit After Tax
968.18
(147.34)
2014.15
632.44
Tax adj for pre years
-
-
-
3.27
Adj of earlier years
28.17
612.34
15.82
1733.88
Profit/Loss for the Pd
940.01
(759.68)
1998.33
(1104.71)
Paid up Equity
3387.58
1770.18
3387.58
1770.18
Res Exc Rev Reserves
-
-
-
(260.60)
Basic EPS (Rs)
2.89
(0.83)
7.01
4.90
Diluted EPS (Rs)
2.58
(0.83)
6.15
4.90
Dividends: With a view to conserve resources for its expansion projects, the company has not declared any dividend.
Shareholding Pattern: The promoters hold 47.32% stake while the balance 52.68% is held by non- corporate promoters
and the Indian public. Recently, however, Clearwater Capital Partners made a strategic investment in the company.
Prospects: The future of the automotive component industry lies in the country becoming a global supplier. India is
emerging as a key auto components centre in Asia and is expected to play a significant role in the global automotive
supply chain in the near future. Considering the high GDP growth rate likely to be maintained by the Indian economy,
there are exciting times ahead for the auto components industry.
Conclusion: JAIL is the 7
th
largest manufacturer of springs in the world. Its strategic inorganic expansions with the
merger of JPSL and MSL along with the acquisition of Tata Motors' spring facility at Jamshedpur and new ventures are
expected to add to its topline and bottomline.
At its current market price of Rs.67.10, the share is discounted less than 10 times its FY08 earnings against the industry
average P/E multiple of around 16. Considering its smart turnaround performance, the bright prospects of the auto
components industry and the benefits of mergers & acquisitions in the current year, the company is expected to do much
better in the days to come. Going forward, the company is expected to report an EPS of Rs.10 and assuming a
conservative P/E multiple of 10, the share should touch the magic three figure mark in a buoyant market and offers
decent returns in the medium-to-long-term.
Market may lose further ground
MARKET REVIEW
By Ashok D. Singh
6
The key stock indices closed lower for the week ended Friday, 23 May 2008 following concerns that soaring global crude
oil prices, which struck record high of over $135 per barrel and the spiralling inflation will affect growth. Earnings
downgrade amid rising input and interest costs, high inflation and drying up of global liquidity due to credit crisis
remains a major concern for the Indian stock market.
The Sensex slumped 785.30 points or 4.50% to 16,649.64 for the week ended Friday, 23 May 2008. The NSE Nifty declined
211.15 points or 4.09% to 4,946.55in the week.
The BSE Mid-Cap index fell 192.59 points or 2.70% at 6,937.11 and the BSE Small-Cap index shed 102.83 points or 1.19% at
8,510.88. Both these indices outperformed the Sensex.
Inflation based on the wholesale price index rose 7.82% in the year through 10 May 2008 marginally lower than 7.83% rise
in the previous week, government data released on 23 May 2008 showed. Meanwhile, inflation for the year through 15
March 2008 was revised upwards to 8.02% compared to the provisional figure of 6.68%.
Meanwhile, SEBI plans to keep in abeyance the imposition of upfront margins for institutional trades in the cash market
in the light of difficulties expressed by the market participants. SEBI had earlier asked institutional investors to pay
upfront margins from 16 June 2008.
On Wednesday, 21 May 2008, the US Federal Reserve cut its 2008 US economic growth forecast and signalled that
mounting concerns over inflation could not lead to interest rate cuts driving the three major US indices down over 1.5%.
Oil prices surged to a record high above $135 per barrel on Thursday, 22 May 2008, stoking fears of global inflation.
With parliamentary elections scheduled next year (May 2009), the government may leave no stone unturned in its attempt
to tame inflation. This is bad news for commodity shares from cement and steel sector. Forthcoming inflation data will be
closely watched as it remains as a major worry and hindrance for the domestic growth. High inflation may compel the
government to take more fiscal measures to rein in prices in addition to slew of measures taken recently.
Meanwhile, as per a recent study by CLSA, large amount of FCCBs issued by Indian companies are coming up for
redemption in the next 18-24 months. After the recent stock market volatility, many FCCBs are at risk of not converting
i.e. if the stock market remains subdued, the bond holders may not opt for equity conversion as it will be easier for them
to buy the stock from the open market instead of paying the agreed premium.
When the FCCBs come for redemption, some of these companies may have to take on more debt to redeem the FCCBs
and thereby raise their interest outgo. In the event that FCCBs don't get converted, companies have the option to lower
the conversion price in line with the market leading to higher equity dilution. If companies decide to issue fresh FCCBs to
finance the redemption of earlier FCCBs, it will be at lower premium than earlier.
With the rupee tumbling against the dollar in the last few days, the government may ease restrictions on overseas
corporate borrowing when it, together with the RBI, reviews the ECB policy later this month, reports suggest. Last year,
the government had imposed restrictions on ECBs in a bid to check the surge in the rupee against the dollar. There are
many Indian corporates who will eagerly seek cheap overseas funds if the RBI re-opens the ECB tap, analysts reckon.
FIIs sold shares worth Rs.673.40 cr. in this month, till 21 May 2008. They sold shares worth Rs.11,031.40 cr. in calendar
year 2008, till 21 May 2008. Domestic funds sold shares worth Rs.639.80 this month, till 14 May 2008. Mutual funds were
net sellers of shares worth Rs.578.30 cr. in this month, till 20 May 2008.
The Indian stock market remained closed on Monday, 19 May 2008, on account of Buddha Pournima.
Concerns about monetary tightening by the Reserve Bank of India following high inflation rate pulled the market lower
on Tuesday, 20 May 2008. The BSE Sensex lost 204.76 points or 1.17% at 17,230.18 and the broader based Nifty was down
52.75 points or 1.02% at 5,104.95, on that
day.
However the BSE Sensex rose 12.98 points
or 0.08% at 17,243.16 and the broader based
Nifty gained 12.7 points or 0.25% at
5,117.65, on Wednesday, 21 May 2008, due
to short covering at lower levels.
Sharp fall in US stocks overnight and record
breaking crude oil prices above $135 a
barrel triggered a broad based decline in
blue chips on Thursday, 22 May 2008. The
30-share BSE Sensex lost 336.05 points or
1.95% at 16,907.11 and the broader based
S&P CNX Nifty was down 92.2 points or
1.8% at 5,025.45 on that day.
On Friday, 23 May 2008, the BSE Sensex
settled 257.47 points or 1.52% lower at
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7
16,649.64 and the broader based Nifty declined 78.9 points or 1.57% at 4,946.55 as relentless selling in realty, oil & gas and
metal stocks spooked sell-off in late trade, erasing early gains.
The Sensex lost 785.30 points to close at 16,649.64 last week. The undertone of the market is subdued, which may continue
this week as well.
F&O settlement ushers volatility
MARKET
By G. S. Roongta
Influenced by weak global cues throughout last week, the Indian stock markets beat a retreat pairing most of the gains
recorded in the previous week. Factors leading to this scenario were the runaway crude oil price, which hit a high of US
$135 per barrel and the depreciation in the Indian rupee, which fell to a low of Rs.43 against the US dollar apart from
weak global markets, economic recession in the US and inflation raising its ugly head across the globe.
As a result, both the popular indices struggled hard at their strong support levels of 5050 on the CNX Nifty and 17000 on
the BSE Sensex. Both the bulls and bear fought fiercely at these respective levels throughout last week
but the bulls had to succumb at last as the worsening economic condition as painted on TV and print
media could no longer be ignored.
8
Since Monday, 19
th
May 2008 was a market holiday on account of Buddha Jayanti, the impact of weak
Asian markets was not felt till the next day i.e. Tuesday, 20
th
May 2008 when the Sensex followed suit
and lost nearly 300 points at one point of time. It, however, recovered by nearly 100 points at the close
creating an impression that there was nothing seriously wrong with our market.
Again on Wednesday, 21
st
May 2008, the Sensex opened lower by 200 points and hit a low of 17041.63.
But a fast recovery thereafter changed the sentiment from negative to positive one hour before close and the Sensex closed
with a gain of 13 points at 17243.16 discounting fears of the Sensex falling below 17000 or the CNX Nifty below 5050.
G.S. Roongta
These levels, however, were breached on Thursday, 22
nd
May 2008 after the sharp tussle between the bulls and bears from
the two previous days. It was, however, difficult to conclude whether these levels have been broken convincingly as there
was a lot of buying and selling at these levels throughout last week.
But Friday, 23
rd
May 2008 gave a decisive signal that the bulls were unable to sustain these levels as the Sensex fell by
248.32 points to close at 16658.79 while the CNX Nifty closed with a loss of 76.95 points at 4948.50 in tune with other
Asian markets.
Thus the struggle between the bulls and bears is likely to continue this week when the F&O transactions are due to be
settled on Thursday, 29
th
May 2008. Both possibilities are open viz. the bulls might pullback the market to these crucial
levels or that the bears would hammer the market further down to Sensex 16000 level.
If we look at individual stocks, however, we find that market players are concentrating on heavyweight stocks like
Reliance, ONGC, L&T, NTPC, BHEL, SAIL, Infosys, Tata Steel, HDFC and ITC as they influence the indices.
L&T, BHEL, Reliance, HDFC, SAIL, SBI and ICICI Bank suffered heavily in the fight between the bulls and bears on
Thursday, 22
nd
May 2008 while other A group stocks were traded with minor fluctuations of 1-2%. Thus it is a struggle for
survival till the expiry of the F&O positions for May 2008. Till then, the market is likely to remain volatile.
Mid cap and small cap stocks are showing good strength as they gain grounds each day based on their fundamentals. For
example, Praj Industries gained Rs.218, HMT at Rs.85, Chambal Fertilizers at Rs.82, Harrisons Malyalam, Manali Petro,
Duncan Industries, Hilton Metal and Garware Wall Ropes rose by 20% each, ABC India was up 18% and Kirloskar
Brothers by 15% during the week. Hitherto a rise in stock value by 20% was very rare but now such a rise in specific
stocks based on their merit and working fundamentals has helped trigger the highest permissible lock-ins.
Tea & Plantation stocks attracted good enquiries and several stocks from this sector appreciated by 20-25% last week with
Tata Tea as the leader of the pack. Readers may recall that Tea stocks have been recommended over the past two weeks
with special emphasis on Tata Tea, which has hit an all time high.
It would not be out of place to mention that this paper is ahead of other print media to discover and identify promising
sector and specific stocks much before they are recommended in the pink papers or for that matter on the TV channels. It
was therefore no surprise to find the Hindu Business Line coverage on Tea stocks on Thursday, 22
nd
May 2008 with the
broad headline 'Tea plantation stocks jump on firm price trends' reporting exactly what we had mentioned earlier. Prices
at tea auction centres have risen by Rs.10-15 per kg. due to good demand from both domestic and export markets.
Actually, we had identified this sector over a month back when we had stated that Tea & Plantation stocks appear
promising in view of the failure of the Kenya crop.
Tata Tea is poised to cross Rs.1000 and a pleasant surprise from the company cannot be ruled out when its Board meets to
adopt the annual results shortly. A high dividend and a bonus gift is likely.
Last week, I had recommended Graphite India at Rs.61 based on its financial results and growth prospects. The stock
gained 20% at Rs.73 last week and has shot up by 75% from its low of Rs.40 two months back when it was first identified.
The stock still has much steam left and can cross the Rs.100 mark in one year. Readers can, therefore, buy it on reactions.
Another stock recommended last week was JK Lakshmi Cement. It did not fare well as analysts have not issued any
positive guidelines on cement stocks on account of the rise in input costs at one end and the government prevailing on
cement manufacturers not to hike prices at the other end. Besides, new capacities, which are in the pipeline, may add to
the excess supply. But what I observe is that even at 10% growth in demand; the extra capacity will get neutralized with
the soaring demand from infrastructure, housing, roads and rural development work.
Since the stock market is always rule by hopes and fears, those who think in the right direction win the game. Moreover,
at a low P/E multiple of 2/3 what can one lose by investing in JK Lakshmi Cement at a price of Rs.107-110. The stock had
hit Rs.200 before January 2008 and has already corrected by 50% since then. Can it lose any further ground from this
level? Hence I dismiss any such fear as far as this stock is concerned. Even ACC, Grasim, UltraTech are resisting hard to
lose any further ground despite the weak guidelines by analysts on cement stocks.
I rule out any further fears on cement stocks despite the government's interference in the matter of pricing and the new
capacity additions. Cement manufacturers are astute businessmen and know this cyclical game of demand and supply
and were not foolish to invest on expansion if they were not to gain by it. Cement prices are ruling at an all time high and
the curb imposed by the government will be removed sooner than later.
Sugar sector also looks good and will turn as attractive as Tea & Plantation sector once the excess stocks are liquidated
and the coming crop will be shorter than the expected consumption. This is because cane farmers have switched to other
cash crops due to low returns on cane. Investors should, therefore, accumulate sugar stocks on reactions.
NFO Analysis
MUTUAL FUNDS
Lotus India Banking Fund: How bankable?
By Devangi Bhuta
(NFO – Closes on 17
th
June 2008, Minimum Investment: Rs.5000)
Objective: Lotus India Banking Fund is an open-ended growth fund. The investment objective of the fund is to generate
long-term capital growth from a portfolio of equity and equity-related securities of companies engaged in banking &
financial services.
Analysis: The scheme intends to invest at least 65% of the portfolio in the constituents of CNX Bank Index in the same
proportion as the Index. This part of the portfolio will be passively managed and rebalanced and aligned with the CNX
Bank Index on a fortnightly basis. The remaining 35% of the portfolio will be invested in companies from the banking &
financial services sector, which may or may not form a part of the CNX Bank Index using the bottom-up approach. Debt
instruments may include securitised debt (excluding foreign securitised debt) upto 35% of the net assets. As a thematic
fund, stock picks will be restricted and will not be as diversified as a typical equity fund and this significantly enhances
the risk of the portfolio.
Given the market scenario, the 35% that will be invested in financial services companies may carry a very high risk. The
remaining investment in the benchmark index and the passive investment approach does not enthuse or inspire
confidence. Investors may be better off with other investment opportunities. Further, this fund house is comparatively
new and its performance has been average thus far. A look at its investment strategy and stock picks post listing before
taking the plunge may be more prudent.
Past Performance of Similar Schemes:
(Source: mutualfundsindia.com)
Scheme Name
1 mth %
3 mths %
6 mths %
1 yr %
3 yrs %
NAV
Reliance Banking Fund - Growth
-2.7
-10.33
-8.87
26.31
29.71
54.84
UTI Thematic Banking Sector Fund - Growth
-3.9
-17.82
-18.27
12.96
27.21
25.64
Average performance of similar category funds
-3.3
-14.08
-13.57
19.64
28.46
40.24
CNX PSU BANK
-5.43
-19.44
-19.9
14.24
20.75
--
By Saarthi
STOCK WATCH
Elgi Equipments Ltd. (Code: 522074) (Rs.58.75) is the market leader and Asia's largest manufacturer of air compressors
and automobile service station equipment. It has reported encouraging performance for Q4FY08. Sales improved by 20%
to Rs.126 cr. whereas PAT shot up 75% to Rs.10 cr. For FY08, it registered a Net profit of Rs.39.50 cr. on sales of Rs.421 cr.
resulting in an EPS of Rs.6 on its equity of Rs.6.30 cr. with an equity share face value of Re.1 each and declared a total
dividend of 120%. To concentrate on each business segment, the company is hiving off its automotive equipment business
9
into a separate wholly-owned subsidiary called ATS-Elgi Ltd. For FY09, it is expected to post an EPS of Rs.7. This means
the scrip discounts its FY09 earnings by less than 8 times. A solid buy for the medium-to-long-term.
******
3i Infotech Ltd. (Code: 532628) (Rs.123.10) is the fourth largest Indian software products company offering a
comprehensive range of software products & solutions primarily for banking, insurance, capital markets, mutual funds,
telecom, manufacturing, retail & distribution industries. For Q4FY08, its revenue increased by 70% to Rs.352 cr. and net
profit jumped by 60% to Rs.50 cr. With significant growth anticipated in the transaction services business in India, the
company has set up a hub and spoke model across the country with cost efficient delivery capabilities and is into
processing of credit cards, insurance applications, contact point verification, soft collections, cheque clearing services,
reconciliations, etc. and has a healthy order book position of Rs.865 cr. For FY08, it recorded 80% and 75% growth in sales
and net profit to Rs.1223 and Rs.183 cr. respectively. This translates into an EPS of Rs.14 on its current equity of 130.50 cr.
However, the EPS works to Rs.11 on its fully diluted equity on conversion of all FCCB of Rs.165 cr. Recently, it acquired a
strategic stake of 26% in Hyderabad-based Locuz Enterprise Solutions Ltd. for an undisclosed amount with a
commitment to acquire the remaining stake over a period. A strong and a safe bet.
******
IMP Powers Ltd. (Code: 517571) (Rs.144.55) manufactures the entire range of power & distribution transformers,
electrical & digital measuring instruments, testing equipments etc. For the March 2008 quarter, it reported 45% rise in
sales to Rs.39 cr. whereas PAT increased by 30% to Rs.3.10 cr. To maintain its growth momentum, the company has
undertaken capex of Rs.28 cr. for expansion of its manufacturing facilities at Silvassa from the existing 3,600 MVA to 6,000
MVA. It is also contemplating to increase it meter manufacturing capacity by nearly 50% to 315,000 units. For FY08
ending June 2008, it is expected to report a topline of Rs.150 cr. and bottomline of Rs.12.50 cr. i.e. EPS of Rs.18 on its
current equity of Rs.6.80 cr. The EPS works out to Rs.15 on its fully diluted equity on conversion of all warrants and
CCRP of around Rs.8.50 cr. After hitting a high of Rs.330 in January 2008, the scrip has tumbled by 50% and is available at
an attractive valuation now. Keep accumulating at declines.
******
Few days back, Honda Siel Power Products Ltd. (Code: 522064) (Rs.232) announced decent quarterly results as sales
grew by 10% to Rs.84 cr. whereas PAT increased by 255% to Rs.8 cr. For FY08, it registered 10% growth in sales to Rs.252
cr. but the net profit shot up 40% to Rs.24.70 cr. on the back of higher 'Other Income' of Rs.15.50 cr. Hence it posted an
EPS of Rs.24 on its equity of Rs.10 cr. being a 67% subsidiary of Honda Motor Co., Japan, the company is the undisputed
leader in the field of portable generators with its 'HONDA' brand commanding more than 70% market share. In fact, the
company launched the first LPG run gensets, which are doing extremely well along with its super silent series. To
consolidate its manufacturing operations, the company is shifting its Rudrapur (Uttarakhand) plant to its factory at
Greater Noida in Uttar Pradesh. Hence apart from production loss, the company will incur substantial costs that it will
have to provide for in coming years. But it is estimated to clock an EPS of Rs.26 for FY09 on sales of Rs.300 cr. with PAT of
Rs.26.50. At a reasonable discounting by 12 times, the scrip can shoot upto Rs.320 in 9-12 months.
By Kukku
FIFTY FIFTY
Investment Call
* Yash Papers (Rs.9.80) located in Faizabad, U.P., is known for its machine-glazed varieties. The company manufactures
wrapping tissues in both brown and white varieties.
From an initial installed capacity of 1940 MTA in 1983, it has grown significantly to 39,100 MTA and is the largest
producer of wrapping grades in the country. Last year, it expanded the capacity of its captive power plant currently it is 6
MW.
The company's product mix includes hard tissue, wrapping grade and packaging/stationery grades. These varieties are
used in specialised downstream applications like soap wrapping, food wrapping, pharmaceutical covers, interleaving
sheets, laminating sheets, paper bags, bidi wrapping, gum tape, notebook covering paper, PE coating in mattress and tube
light packaging among others.
The company exported 1891 MT of paper in FY06 against 1242 MT in FY05 and exports accounted for 11.55% of total
paper sales compared to 8.03% in the preceding year.
The company has entered into an agreement with the Belgium Government for sale of Carbon Credits generated/to be
generated from its power plant during 2007 to 2012. In pursuance thereof, Rs.100 lakh has accrued under the head of
'Other Income' for the year.
The per capita consumption of paper in India is estimated at 8 kg, which is far lower than the world average of 55 kg.
Even in countries such as Thailand, it hovers around 30 kg. The US is the largest consumer with 300 kg per head.
Although India has the second largest population in the world, its per capita consumption of paper remains less than one-
sixth of the global average. However, this scenario will change with the demand for paper and paperboards in
10
India projected to grow at a compounded annual growth rate (CAGR) of over 6% to an estimated 7.4 million. This is
almost thrice the growth rate of the global paper industry. The domestic paper industry remains significantly under-
penetrated and thus offers enormous potential for growth.
At present, paper prices show a firm trend, which would improve margins of the sector.
Net profit of Yash Papers rose 973.08% to Rs.2.79 cr. in QE 31/03/08 as against Rs.0.26 cr. during QE 31/03/07 as sales
rose 68.21% to Rs.14.18 cr. in QE 31/03/08 against Rs.8.43 cr. during QE 31/03/07. For the full year ended 31
st
March
2008, net loss was reported at Rs.2.56 cr. on sales of Rs.51.43 cr. The company has changed its year-end from December to
March from this year. Hence the full year figures relate to a period of 15 months.
The company is said to have overcome the initial teething problems it faced from the expanded capacity and is expected
to reap the full benefit of expanded capacity in the current year. Sales for FY09 are likely to be around Rs.100 cr. when it
could report a net profit between Rs.6-8 cr. on its equity of Rs.22.57 cr.
With a book value around Rs.16.6, its current price market cap is less than Rs.21 cr. Investors can safely accumulate this
stock for price target of Rs.18/20 over the next one year.
Market Guidance
* Shree Bhawani Papers (Rs.10.51) Q3FY08 results were not good in view of the teething problems of the expansion
being implemented, which continued even in Q4FY08. It is possible that the company may skip the dividend. The stock, if
it reacts to Rs.8 level, can be a good investment. The company has already earned Rs.2 cr. by way of carbon credits and is
likely to get Rs.2 cr. over the next few years. Stay invested.
* Rainbow Paper (Rs.157) - Investors can take a small exposure to this stock. The company has a small equity base of
Rs.5.47 cr., expected EPS for FY08 is likely to be around Rs.16/17, which is likely to go up sharply with the benefit of
expansion in coming years.
* Net profit of Kesar Enterprises (Rs.67.20) rose 2925% to Rs.8.47 cr. in Q4FY08 as against Rs.0.28 cr. in Q4FY07. Sales rose
3.18% to Rs.44.80 cr. in Q4FY08 as against Rs.43.42 cr. during in Q4FY07. Its equity is just Rs.6.79 cr. and restructuring is
likely to create greater value for long-term investors.
* JK Paper (Rs.39) undertook a Rs.300-cr. capacity expansion last year. Its 60,000-tonne packaging board facility has
started production. The company has increased prices of its product by Rs.2000 per tonne recently.
Riding on the demand from sectors like media, manufacturing, retail and FMCG, JK Paper is upbeat on the growth of the
paper industry. The company is consolidating its presence in the packaging board segment, which is one of the fastest
growing categories.
The company has been paying 20% dividend over the last few years and its share has a strong book value of around
Rs.48. With the expected benefit of expansion in the current year, the stock looks attractive at Rs.39/40 level. It is a safe
investment bet at current levels.
* Sirpur Paper Mills (Rs.88.25) - The Income Tax Appellate Tribunal (ITAT) has accepted the company's claim for a tax
holiday on its power generation undertaking for FY01 to FY03. Therefore, excess provision for income-tax and deferred
tax amounting to Rs.5.5 cr. and Rs.13.29 cr. respectively provided in earlier years have been written back.
The Mill Development and Expansion project has been commissioned w.e.f. 1
st
May 2008.
For FY08, net profit rose 144.89% to Rs.32.62 cr. as against Rs.13.32 cr. in FY07. Full year EPS is around Rs.21. Dividend
declared is 35%. The stock looks attractive at
Rs.88 level.
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* Reliance Mutual Fund bought 3.73 lakh
shares of Kirloskar Pneumatic (Rs.433) at
Rs.421 per share on 13
th
May, which amounts
to 2.9% of the company's stake. It already
holds around 7.04% and its total holding is
now around 9.94%.
* Andhra Sugar (Rs.103.15) is into caustic
soda, sugar and power. Since caustic soda
prices have firmed up, investors can look for
better times ahead. The dividend yield is also
good in this stock.
* Ramsarup Industries (Rs.164.70), the second
largest steel wire manufacturer in the country
after Tata Steel, hopes to save an estimated
Rs.275 cr. per annum in raw material costs
after merging its group company Lohh Udyog
with itself as per the management. It will save
11
an additional Rs.200 cr. by sourcing one third of its power need of 60 MW from its new captive power plant at Kharagpur.
It generates unit will generate power from the gas emitted by blast furnaces and waste heat from the sponge iron unit.
It has also obtained the Clean Development Mechanism clearance and hopes to earn Rs.69 cr. over seven years by selling
carbon credits from its power plant.
These are very favourable factors for the company. Investors can look forward to good times ahead.
* IL&FS Investment (Rs.281.25) is under accumulation by informed sources. Stay invested as offer for purchase may get
revised to Rs.250 per share or higher.
* Ashiana Housing (Rs.76.70) - Fundamentals of the company are intact as per company sources and is said to be faring
very well. For FY08, profits are likely to be around Rs.40 cr., which may go up to Rs.50/55 cr. by FY09. Investors can
accumulate this stock as downside is 10/12% while there is good chance of 100% upside over the next 18 months.
* TIPS Industry (Rs.56.15) - Investors can continue to hold this stock or even add at current levels.
Note: Industries with raw material derived from crude oil are likely to suffer due to the sharp rise in crude prices and also
by the weakening rupee. Investors need to be cautious of such investments. Supreme Industries, Garware Wall Ropes,
DIC India are dependent on crude based raw materials.
Investors need to be cautious at higher levels. Nifty is likely to take support around 4920 to 4800 levels.
By V. H. Dave
EXPERT EYE
The shares of Vivimed Labs Ltd. (VLL) (Code: 532660) (Rs.100) are being acquired by knowledgeable sources on new
developments and expectations of good FY08 results.
Hyderabad-based VLL is a leading manufacturer and exporter of an API, viz. Triclosan and other Specialty Active
Ingredients such as Avis, Chlorophenesin, NDGA and CaGP (Calcium Glycero Phosphate) and caters to both the
domestic and export markets.
VLL had tapped the capital market in 2005 with an IPO of 25 lakh equity shares of Rs.10 each at a premium of Rs.60 per
share aggregating Rs.17.50 cr. to part finance its expansion project costing Rs.27 cr. Its five units are located at Hyderabad,
Bidar (Karnataka), Haridwar (UP), Bonthapally (Andhra Pradesh) and Kashipur (Uttarakhand). The company acquired
Creative Health Care Pvt. Ltd. from Uttarakhand State Financial Corporation, which has become its subsidiary.
Its various APIs products include Triclosan - an anti-bacterial drug used in toothpastes, soaps etc.; Chlorophenesin - an
anti-fungal preservative used in cosmetics, fibres and foodstuffs; Avis is an effective sunscreen chemical used in body
creams and lotions; NDGA - is a new anti-oxidant developed by the company that is used in cosmetics and in foods &
beverages while CaGP is used in oral care formulations for protecting dental enamel.
VLL's customers include Anchor Healthcare, Marico Industries, Unilever, Harmet International (USA), Collaborative
Laboratories Inc. (USA), Pharmed, Arnaud Group (France), Hindustan Unilever, Kreglinger Europe S. A., Belgium,
Engelhard USA, Benckiser (North America) etc.
The company had raised $12 million through FCCBs, which it intends to use along with internal accruals for acquiring a
speciality chemicals company abroad. VLL has decided to allot 18,80,000 convertible warrants to promoters and persons
other than the promoters on a preferential basis at an issue price of Rs.148 per warrant. It will also raise up to $75 million
by way of FCCBs/ADRs/GDRs in one or more tranches for further expansion and acquisitions.
VLL's contract manufacturing initiatives include speciality chemicals for biocides, plastics and water treatment, which
find application in the cosmetic and industrial segments. Due to its lower cost base, VLL provides contract manufacturing
facilities at competitive rates compared to companies in Europe or North America. In the contract-manufacturing space, it
is working with six global majors.
In FY07, its consolidated sales advanced by 73% to Rs.137 cr. and net profit by 46% to Rs.13.6 cr. The EPS was Rs.18.5 on
its equity capital of Rs.7.3 cr. During Q3FY08 sales moved up by 42% to Rs.51 cr. and net profit by 45% to Rs.4.8 cr.
During the first 9 months of FY08, sales surged by 47% to Rs.141 cr. and net profit by 45% to Rs.14 cr.
Its current equity capital is Rs.9.4 cr. and with reserves of Rs.57.3 cr., the book value of the share works out to Rs.71. The
promoters hold 47% in the equity, PCBs hold 8%, foreign holding is 10% leaving 35% with the investing public.
VLL recently acquired James Robinson, a company in Europe for $21.15 million to enhance its global reach and expand its
product portfolio. This acquisition would allow VLL to complement its portfolio of active ingredients in personal care
products and foray into the hair dye segment globally. The acquisition is in line with the company's corporate strategy of
achieving global leadership in the personal care industry. India offers a 20-25% cost advantage and the company will shift
its product manufacturing to India by September 2008.
The global market for active ingredients in health & personal care (H&PC) products is estimated to be about $25 billion
out of the total cosmetic care industry of about $250 billion. VLL plans to expand its presence to 50 countries by 2010 from
the existing 25-30. Japan, China, Korea and the Gulf are its new destinations.
12
VLL has lined up capacity addition at an investment of Rs.40 cr. It is setting up a new plant in Visakhapatnam, costing
Rs.50 cr. by 2009-end. This would increase its total capacity from 650 kilolitres to 1,000 kilolitres.
In the Speciality Pharma Division, which accounts for 30% of its revenue, VLL is working on anti-TB and anti-
hypertension drugs in addition to its existing anti-cancer range.
VLL's diversified product portfolio with stable margins caters to niche segments of the market. A large scale greenfield
chemical complex on 50 acres land worth Rs.200 cr. is also on the agenda.
The company's large product portfolio, its regulator approved manufacturing facilities, its ability to scale up production
of active ingredients quickly and tie-up with international logistics companies will help it grow fast in the booming
personal care industry, both in India and abroad.
VLL has a robust pipeline of at least 23 products such as Triclosan for oral care, Avo Benzone (sunscreen), and other skin
care and hair care products. It is the country's top producer of active ingredients that are necessary to manufacture health
& personal care as well as industrial products. With the market for these products growing substantially. VLL has set
itself on a consolidation and expansion mode.
For FY08, consolidated sales are likely to touch Rs.215 cr. with net profit to Rs.22 cr., which would give an EPS of Rs.23. In
FY09, sales could touch Rs.300 cr. with net profit increasing to Rs.31 cr. when its EPS would touch Rs.36.
The VLL a share is traded at Rs.100 discounting its FY08 estimated consolidated EPS of Rs.23 by 4.6 times and it's FY09
EPS of Rs.36 by just 2.9 times. Investment in this share is likely to fetch a decent appreciation of over 50% in the medium-
term and 100% in the long-term. The 52-week high/low of the share has been Rs.190/74.
13
By Nayan Patel
TECHNO FUNDA
KNR Constructions Ltd.
BSE Code: 532942
NSE Code: KNRCON
Last Close: Rs.113.55
KNR Constructions Ltd. is a premier construction company heavily into infrastructure development. Activities involve
national highways, state highways, irrigation projects. This Hyderabad based company came out with IPO in January
2008 at Rs.170.
Post IPO, the company has equity of Rs.28.12 cr. Promoters hold 71.52% stake in the company and HDFC Fund holds 18,
47,902 shares. Company has completed several joint ventures with Patel Engineering, which holds 19,42,574 shares (6.91%
stake) in it and may increase the stake in future.
The company has posted encouraging numbers for FY08. Net sales jumped by 80.40% to Rs.473.06 cr. in FY08 form
Rs.262.23 cr. in FY07. Net profit shot up 54.43% to Rs.30.70 cr. from 19.88 cr. in FY07 and the company posted an EPS of
Rs.14.37 for FY08. Based on this earning, the stock is available at a P/E ratio of just 8.
Buy with a stop loss of Rs.103. On the upper side, the stock will go up to Rs.122. Cross over will take it to Rs.128 and
thereafter to Rs.150 level in medium-term.
Phoenix Lamps Ltd.
BSE Code: 517296
NSE Code: PHOENIXLMP
Last Close: Rs.166.55
Phoenix Lamps Ltd., an Indo Japanese joint venture, was promoted in 1991 in Noida. The company has set-up a fully
automatic state-of-the-art manufacturing facility for Automobiles Halogen lamps, Halogen lamps for General Lighting
and Compact Fluorescent Lamps. Company has 4 manufacturing plants located at Uttar Pradesh & Uttarakhand.
It has an equity of just Rs.28.02 cr. Promoters hold 66.06% stake in the company while the investing public holds only
19.07%. The company has posted encouraging very good results for Q4FY08r. Net sales jumped 39.24% to Rs.98.85 cr.
while net profit jumped 51.95% to Rs.14.80 cr. For FY08, net sales was up by 28.37% to Rs.356.65 cr. while net profit
jumped 52.53% to Rs.48 cr. and it recorded an ss
Niraj Cement Structurals IPO opens on 26
th
May
MONEY FOLIO
Review
Last week, Jay Ushin was recommended at Rs.83.
During the week it kissed Rs.94 level.
Niraj Cement Structurals Ltd., a road construction company will enter the capital markets with an IPO of 32,50,000 equity
shares of Rs.10 each via the 100% book building process in the price band of Rs.175 to Rs.190 per share. The issue opens
on Monday, 26
th
May and closes on Friday, 30
th
May 2008. Care has assigned 'IPO grade 1' to the issue, which will be
listed on the BSE.
Niraj executes various road construction projects and other infrastructure related works including providing EPC
services. Its major clients include the Orissa PWD, Indore Development Authority, Jaipur Development Authority, Kidco
and New Mangalore Port Trust. Its current order book stands at Rs.700 cr.
It will utilise the issue proceeds to finance purchase of capital equipment, fund long-term working capital and for general
corporate purposes. It will bid for road related infrastructure projects and participate in more complex projects including
projects on BOOT and BOT basis, which will enhance its core competence.
The company's total turnover for FY08 was Rs.92.86 cr. with PAT at Rs.6.52 cr.
Bafna Pharmaceuticals IPO opens on 27
th
May
Chennai based Bafna Pharmaceuticals Ltd. (BPL), a multi-product pharmaceutical formulations company in diverse
therapeutic segments, is entering the capital market with an IPO of 64,00,000 equity shares of Rs.10 each for cash at a
premium of Rs.30 per share. The issue will open on Tuesday, 27
th
May and close on Friday, 30
th
May 2008. The IPO has
been graded 2/5 by ICRA and the issue will be listed on the BSE.
BPL manufactures Betalactum and Non-Betalactum pharmaceutical formulation in tables, capsules and liquid forms and
has 126 formulations in various therapeutic segments. Its WHO-GMP certified manufacturing facility at Madhavaram is a
100% EOU. The company has obtained 336 product licences and has 65 products registered in countries such Sri Lanka,
Ukraine, Ghana and Laos.
BPL will now enter the more lucrative and regulated markets of Europe and has set up a new state–of-the-art facility at
Grantlayon village, near Chennai at a cost of Rs.26.30 cr. for manufacturing Non-Betalactum products in solid oral dosage
form. This European GMP compliant and 100% EOU will commence full-scale commercial production once it receives
Medicines & Healthcare Products Regulatory Agency (MHRA) approval.
The issue proceeds would be utilized for brand building, strengthen its R&D facility, and retire high-cost debts through
the IPO proceeds.
For FY07, BPL posted revenue of Rs.38.61
cr. with a PAT of Rs.96.85 lakh. For the first
nine months ended 31
st
December 2007, it
registered total income of Rs.24.69 cr. with a
PAT of Rs.1.29 cr.
14
Bank of Baroda net up 40%
Bank of Baroda (BOB) has recorded 25.41%
higher Operating Profit at Rs.3,028.55 cr. in
FY08 against Rs.2,415.01 cr. in FY07 Net
Profit for FY08 was Rs.1,435.52cr. up 39.85%
over of Rs.1,026.47 cr. in FY07.
The bank's Total Income was also up by
33.49% at Rs.13,864.51 cr. in FY08 from
Rs.10,385.88 cr. in FY07. Net Interest Income
of BOB has grown by 9.34% to Rs.3,911.80
cr. FY08 from Rs.3,577.53 cr. in FY07.
On a YoY basis, Total Business of the bank
increased by 24.07% to Rs.2,58,735.45 cr. in
FY08 from Rs.2,08,536.85 cr.
Gross NPAs of the bank have come down
to Rs.1,981.38 cr. as on 31
st
March 2008 from
Rs.2,092.14 cr. as on 31
st
March 2007
reflecting a reduction by 5.3%. Net NPAs,
too, declined from 0.60% at end-March 2007
to 0.47% at end-March 2008.
Genovate is Novell's first
Platinum Partner
July – September 2007
EBG Quarterly Performance:
100% once again
During July – September 2007, which is the fourth quarter of the fourth
year of 'Early Bird Gains' (EBG) – the investment newsletter that spots
multi-baggers, it has scored 100% success with all 15 recommendations
recording an appreciation.
EBG has, therefore, consistently, maintained quality while the bonus
issues in excess of 30% highlight the confidence of its recommendations.
Issue
Dated
Scrip
Buy
Price
Highest
price since
recom.
Growth
%
04/07/07
Gujarat Ambuja Exports
31.85
105
230
11/07/07
Superhouse Ltd.
51.00
57
12
18/07/07
Genovate, a leading high-end technology
company, has become Novell's first
platinum partner in India. Genovate
provides business applications, software
Uniflex Cables Ltd.
37.60
70
86
25/07/07
Innocorp Ltd.
35.55
70
97
01/08/07
Lokesh Machines Ltd.
111.35
166
50
08/08/07
Vinati Organics Limited
78.00
183
134
15/08/07
Jindal Photo Ltd.
124.95
429
243
15/08/07
Elegant Marbles & Grani
48.15
92
92
22/08/07
Pioneer Distilleries
51.70
139
169
29/08/07
Mahalaxmi Seamless Ltd
43.90
71
62
29/08/07
Idea Cellular Ltd.
116.75
161
38
05/09/07
Hindustan Tin Works Ltd
43.90
65
48
12/09/07
APW President Systems
140.40
217
55
19/09/07
Control Print (I) Ltd.
75.00
112
49
26/09/07
Spanco Telesystems
217.00
273
25
EBG for sure profits
solutions and consulting as well as value-added educational programmes and quality training services in the Asia-Pacific
region. It operates in 9 cities in India.
Future Generali launches 'Mallassurance'
Future Generali has announced the availability of Total Insurance Solutions at select malls across the country. This
'Mallassurance' initiative is designed to bring to Indian consumers the convenience and freedom to choose appropriate
and tailored insurance solutions in a format that is readily accessible.
Future Generali is a joint venture between the global insurance major, Italy-based Generali Group and India-based Future
Group. Future Generali is present in India in both the Life and Non-Life businesses as Future Generali India Life
Insurance Co.
Ltd. and Future Generali India Insurance Co. Ltd.
IDBI Fortis Life Insurance adopts 'Elixir' system
IDBI Fortis Life Insurance Co. Ltd., a joint venture between IDBI, Federal Bank and Fortis, has announced the launch of its
insurance business on Mastek's Elixir Policy administration system.
Mastek Ltd. is a leading IT solutions player with global operations in providing new technology and IP-led enterprise
solutions to insurance, government and financial service organizations worldwide. The second phase would enhance the
scope of Mastek to provide additional modules of Elixir™ covering Channel Management, Claims, Re-Insurance etc. in
addition to basic policy administration.
.
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.
15
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