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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 36
Monday, July 21 - 27, 2008
Pages 16
Stock specific action likely
till the outcome of Trust Vote
By Sanjay R. Bhatia
The markets continued their uptrend on the back of short covering and selective value based buying. Early during the
week, they displayed weakness but the fall in crude oil price helped improve the market sentiment. Crude prices
continued to correct as they traded below the $140 level
triggering a rally in global markets. Traders and speculators
were seen covering their short positions and going long. FIIs,
however, continued to remain net sellers in the cash market
but were net buyers in the derivatives segment. Mutual Funds,
too, remained net sellers during the week.
The global cues have mostly remained positive. Crude prices
have corrected to trade below the $140 per barrel after
statements by the US Federal Reserve that the US was heading
for a slowdown and the higher crude inventory. Global
markets have welcomed this fall as most of them have rallied
even though the US economy continued to present a mixed
picture.
On the domestic front, inflation continued to move higher to
touch 11.91% but was lower than the market expectation of 12% plus. The Q1FY09 results were on expected lines. Now, it
is important that markets witness follow up buying at higher levels if the markets have to sustain the current rally. The
markets would be keenly watching the Trust vote motion on Tuesday, 22 July 2008. If the UPA Government wins the
confidence vote, the markets will rally.
The markets would continue to take cues from the Q1 results, global markets and crude prices and the political
developments. Stock specific action will be witnessed amidst occasional bouts of volatility and choppiness.
The silver lining for the markets is that the BSE Sensex did not test the 12300 level. On the upside, the Sensex faces
resistance at 13779 and 13989 levels but has support at the 12884 and 12300 levels. On the upside, the Nifty faces
resistance at the 4108 and 4482 levels but 3750 and 3550 are its important support levels.
Investors are advised to wait and watch till the outcome of the Vote of Confidence is known.
Is it (un)clear or (nu)clear deal?
By Fakhri H. Sabuwala
Last few days have brought all our parliamentarians to life. Suddenly, they have realised that being a MP is worth Rs.25
cr. on a 'D-day' and the rate can even go higher, depending on one's tact and public relations. This estimate of Rs.25 cr.
comes from a public statement of the CPI Secretary and Rs.30 cr. comes from a revelation made by Amar Singh about an
offer that his party men have received. So next time a small fry anywhere seeks a few grand to expedite a matter at a
government office, don't be caught unaware. Where the Gangotri is 'mailee', Ganga cannot be clean!
1
The vote of confidence sought by Prime Minister Manmohan Singh has raised a storm in political circles. Never before has
the ruling front sought votes from MPs who are in jail serving a lifer. Never has the government promised a ministerial
berth on demand to the convicted. Never have brokers amongst MPs taken sides with corporate houses and openly
sought favours. Never before have MPs sought demanded statehood in exchange for votes. Never before was parliament
house treated as a 'dukaan' and the MPs as a 'dukaandaars'.
Manmohan Singh would be better off losing the vote of confidence than to go through this painful and expensive grind.
The display of the fragility of the Indian parliamentary system and people's lack of faith in MPs shall jeoparadise all the
good work done in the last four years.
The market is closely monitoring the developments in New Delhi and is factoring the uncertainties that can crop either by
winning or losing the vote of confidence confidence. Either way, the country and its people will be losers at the hands of
the rulers. The market is not nursing any hopes of a speedy reform process in the wake of the Left's absence from the
coalition nor is it practical too in the dying months of this Lok Sabha. On the contrary, the market is scared of populist
moves, which will be undertaken to build a strong base of new allies who shall be seeking re-election in the next round.
The confidence move is aimed at clearing the nuclear deal. But of late, there is hardly any talk of it. Also the inflation,
crude prices, gold prices, Sensex, deficient rainfall have gone into the background. It's only the numbers on either side
that are being written about or talked about. The market taking the cues from global developments is showing little
strength but the return of investors, both individual and institutional, is a distant possibility.
So far, whatever results have been announced have not gone down well with the market. Be it Infosys, Satyam or TCS the
guidance is not very favourable to induce investors at current valuations. Results from corporate dealing in commodities
and services will also show a sharp shrinkage both in the topline and the bottomline. The fate of the steel industry is an
indication of how politics and poll management disrupt the growth of the sector. Windfall profits for Reliance, Cairns,
Essar Oil etc. may be a suicidal blow and set a wrong precedent.
The Sensex can take a dive in case of the failure of the confidence motion and create panic. But on safe passage a rally, if at
all, may come handy to go short. By all means, the pain shall persist for some more months and an announcement of early
elections may provide the healing touch.
Need to sustain at higher level
TRADING ON TECHNICALS
By Hitendra Vasudeo
Our expectation last week was that the Sensex would
test the lower range of 12717-12344. The Sensex last
week opened at 13360.34 attained a low at 12514.02
and moved up to a high of 13684.72 and finally closed
the week at 13635.40 and thereby showed a net rise of
165 points on a week-to-week basis.
The Sensex took support from the important support
zone and the recovery to show positive gains on a
week-to-week basis for the second week in succession.
In the earlier week, the Sensex was very marginally
positive by an inch on a week-to-week basis.
As a result of the recovery, we have formed a
hammer. Alternatively, the last week's body has
engulfed its previous week's small body. Therefore, it
is likely that the Sensex will test the resistance of 13731-14066. If the Sensex is able to cross and close above the resistance
of 14066 then expect a pull-back of the fall from 21206 to 12514.
The pull-back gets extended towards 0.382-level of 15835. On its way towards it, the Sensex will have 23.6% retracement,
which is placed at 14552 and its earlier bottom range is at 14677.
Support will be at 13049-12822-12514-12344. If the low of 12344 gets violated, then expect a slide down towards 11900 at
least and to an outer extent to 9745-8799 range.
A rise and close above 14066 can confirm an intermediate bottom for pull-back towards 15835 at least.
Sensex Wave Analysis
Wave I- 2594 to 3758
Wave II- 3758 to 2828
Wave III- 2828 to 21206 (Not yet complete)
Internals of Wave III
Wave 1- 2828 to 6249
2
Wave 2- 6249 to 4227
Wave 3-4227 to 21206
Wave 4- 21206 to 12514 (Appears to be completed but confirmation is needed - A close above 14066 can confirm it)
If we allow the liberty of channel violation to test the 0.500 and 0.618 levels of 12717 and 10713, then it must close the
quarter ending 30 September 2008 above and back into the channel. Alternately, it must not fall and close below the range
of 12717-12344. If it does fall, then hopes of a recovery back into the channel will be less.
Normal Count mentioned last week
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
Wave IV- 12671 to 8799
Wave V- 8799 to 21206
Wave W-21206 to 14677
Wave X-14677 to 17735
Wave Y- 17735 to 12514
(current ongoing move)
WEEKLY UP TREND STOCKS
Internal of Wave Y
Wave i- 17735 to 16546
Wave ii-16546 to 17497
Wave iii- 17497 to 14645
Wave iv- 14645 to 15789
Wave v- 15789 to 12515
(current ongoing move)
Alternative option of
Wave Y
Wave a-17735 to 16535
Wave b-16535 to 17497
Wave c-17487 to 14645
Wave x-14645 to 15789
3
Wave a-15789 to 12822
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
JAYBHARAT TEX.
251.05 236.4
245.9
250.2
255.4
264.9
79.4
248.7
18/07/08
SPICE COMMUN.
74.20 72.5
73.7
74.3
74.9
76.1
78.9
73.4
04/04/08
GLENMARK PHAR
636.35 551.0
603.9
624.5
656.9
709.8
78.8
626.2
18/07/08
CIPLA
215.25 188.1
205.2
212.3
222.4
239.5
73.9
211.3
11/07/08
STERLING BIOTEC 190.00 171.5
183.0
187.5
194.5
206.0
72.4
184.2
18/07/08
Wave b-12822 to 14063
WEEKLY DOWN TREND STOCKS
Wave c- 14063 to 12514
(current ongoing move-)
Whenever Wave c- gets
complete in the range of
12822-12344, then we
could begin the next leg
of corrective cycle, which
has an upward direction.
Currently, we are into a
high probability that we
could have completed
Wave c. But confirmation
will be witnessed only on
close above 14064
The completion of W-X-Y
can get translated into
Wave A and the rise can
be for Wave B or Wave X
to once again emerge for
a Double Zig-Zag.
Let the price move above Center Point or Level 3 and when it move back below Center Point or Level 3 then sell
with what ever high registered above Center Point or Level 3 as the stop loss. After selling if the prices moves to
Level 2 or below then look to cover short positions as the opportunity arises. If the close is above Weekly Reversal
Value then the trend will change from Down Trend to Up Trend. Check on Friday after 3.pm to confirm weekly
reversal of the Down Trend.
Last
Center
Relative
Weekly Down
Close
Point
Strength Reversal Trend
Scrips
Level 1 Level 2
Level 3 Level 4
Value
Date
Cover
Short
Cover
Short
Sell
Price
Sell
Price
Stop
Loss
SOBHA DEVELOP
257.10
194.2
236.1
257.0
278.0
319.9
13.75
292.43
09/05/08
PARSVNATH DEV
115.10
93.3
108.7
117.6
124.1
139.5
21.79
129.16
09/05/08
WOCKHARDT
182.00
161.2
175.7
183.8
190.2
204.7
23.38
197.16
30/05/08
OMAXE
130.35
95.2
119.2
132.1
143.2
167.2
24.37
140.23
09/05/08
SHREE CEMENT
529.70
446.2
504.0
536.0
561.7
619.5
25.61
590.58
25/04/08
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target
Monthly Relative
Strength (RS)
REI AGRO
986.00 1099.05 1152.50
1205.95
1379.00 646.1
36.57
SUN PHARMACEUTICAL I
1317.00 1328.86 1345.50
1362.14
1416.00 1187.9
45.36
Another overall Count
Structure can be as
follows:
Wave I- 2594 to 3758
Wave II- 3758 to 2828
Wave III- 2828 to 21206
Internal of Wave III
Wave 1-2828 to 3416
Wave 2- 3416 to 2904
Wave 3-2904 to 6249
Wave 4- 6249 to 4228
5
th
Wave in Extension
Wave 5 from 4228 to 21206
Internals of Wave 5
Wave i- 4228 to 6954
Wave ii-6954 to 6069
Wave iii-6069 to 12671
Wave iv- 12671 to 12316
Internals of Wave iv
Wave a- 12671 to 8799
Wave b-8799 to 14723
Wave c- 14723 to 12316
Wave v- 12316 to 21206
Wave IV- 21206 to 1514 (current ongoing move)
Weekly pivotal support levels are placed at 13277-12871-12514. Weekly resistance will be at 14041-14064.
Conclusion
A rise towards 14066 could be attempted but sustainability above its would be the key issue. Continuation of the rally
would depend on whether we are able to test and cross to close above 14066. Failure to sustain and a poor close or a
strong negative a week-to-week closing can upset hopes for a near term pull-back.
Strategy for the week
Look for a rise to 13700-14100 to book profit on earlier trading long positions as the opportunity arises. Re-enter long on
index based stocks if Sensex closes above 14100. Traders can trade long to exit at or around 14000 and re-enter if the
weekly close is above 14100.
* Anil and Mukesh Ambani don the war paint for legal battle. In the bargain, MTN may fall in Sunil Mittal's lap!
TOWER TALK
* A big dent in Ranbaxy's share price is on the cards. However much the CMD assures about the Daiichi deal, it may be
jettisoned by the latter.
* CNG is the in thing as most small cars have it as an inbuilt option to petrol or diesel. It is said that M&M's Bolero and
Scorpio shall have a CNG kit.
* Siemens, BHEL and ABB will be the beneficiaries of the nuclear power generation projects, which shall come through
after the confidence motion.
* Reliance Mutual Fund is picking up BHEL in bulk for its different equity investment schemes as it sees an early rise to
Rs.2300.
* The dip in oil is temporary as crude may cross $150 mark soon. If that happens gold shall touch Rs.14,500 to Rs.15,000
per 10 gm.
* Exit Selan Exploration as once crude oil price corrects, this scrip will tumble down to Rs.175-180 levels. Shift to
SEAMEC instead.
* Panoramic Universal has shot up smartly even though other mid caps continue to fall. Exit this stock as the
management is not reliable.
* Repro India has come out with excellent Q1FY09 results. The scrip may continue its upward movement in the coming
week as well.
* Like Mastek, ANG, DLF earlier, Jindal Polyfilms has announced to buy-back its shares up to Rs.350 per share and its
share price shot up from Rs.180 to Rs.250 within a week. Is a buy-back announcement good enough for any management
to boost the share price?
* Royal Orchid Hotels has declared Rs.6 as dividend, which gives a yield of 7% at CMP. Scrip goes ex-dividend on 23
rd
July. After that the scrip may see some selling pressure.
* Many small cap companies are available at P/E level of 3. Decolight Ceramics is available at a P/E of 2.5.
4
* Parsvanath Developers has over 200 million sq. ft. area under development for various projects. Share has fallen
dramatically and is considered a decent bet at the current level.
* Karuturi Global is witnessing stable buying at current levels in anticipation of rapid growth. However, the share is fully
priced and future investment should be based on its Q1 results.
* Rainfall in Kerala has been muted, which may dampen the spirits of Indsil Electrosmelts, which derives major profit
from hydro-electric power generation.
* Southern Online Biotechnologies has initiated the process to get carbon credits and list the demerged Southern Online
Services.
5
By Saarthi
BEST BETS
KLG Systel Ltd. (Code: 531269)
Rs.319.65
Incorporated in 1985, KLG Systel Ltd. (KLG) offers knowledge solutions to key industries like Oil & Gas, Process, Power,
Metal, Manufacturing, Infrastructure sectors etc. by providing a unique mix of domain expertise, software solutions,
consultancy and training. Broadly, KLG has classified its revenue model into following two business units:
I. Power System Solutions (60%): The basic objective of this unit is to provide hardware/software solutions and services
at the design, implementation and operational stages of power generation and the downstream sector - transmission, sub-
transmission and distribution. The unit provides on-line IT solutions to distribution utilities, using its self-developed
software and solutions with the backing from world renowned companies for determining the Transmission &
Distribution (T&D) losses, fixing the areas of power theft, on-the spot billing and cheque collection, increasing revenue
collection efficiency of the utilities and addressing consumer grievances. This unit is divided into following five sub units.
Distribution Management Solutions (SG61 Technology) – It is an equipment, which provides information in
real time over an IP network and has been jointly developed with IBM and SAP. This system provides real
time energy reconciliation.
Revenue Management Operations (Vidushi) – It is a transactional system that allows a utility complete
management of its assets, management of consumers, carry out billing, metering and energy reconciliation. It
uses a GIS as front end and normal application and also does connection management.
Engineering Procurement Construction - The State Electricity Utilities have taken proactive steps to improve
the distribution efficiency under an ambitious Feeder Renovation Programme. Accordingly, KLG has won
huge construction contracts under competitive bidding. It has also won various tender orders under the Rural
Electrification Scheme from the Rajasthan Government. Moreover over the last decade, KLG has gained
engineering design domain-expertise in various industry verticals, the benefit of which it is reaping now by
providing Engineering Services Outsourcing (ESO).
Utility Distribution Franchising – By
better synergies and leveraging its
expertise, KLG plans to venture into the
power distribution business through the
franchisee model.
Demand
Response
(www.connectgaia.com) - Building on
its deep power domain expertise and
relentless R&D, KLG has developed a
solution that empowers consumers to
manage their electricity consumption.
This unique web based solution has
been named as www.connectgaia.com
which makes it possible for users to
view, visualise, measure, optimise and
manage the energy consumption in
their domestic, commercial, industrial,
government and semi-government
establishments.
II. Business Life Cycle Solutions (40%):
The
balance 40% of KLG's revenue comes from this unit
which specialises in providing technology life cycle
solutions right from concept and creation, through
Workshop on Technical Analysis
By Hitendra Vasudeo
Orientation of Technical Analysis and its application
On Saturday, 26
th
July 2008, from 9 am to 6 pm.
Fees: Rs.6000 per participant
Enroll for the workshop and get 1 month of Profitrak Weekly
& Top Trades absolutely free
Venue:
Hotel Bawa International
Nehru Road, Near Domestic Airport
Vile Parle (East), Mumbai – 400 099
For bookings contact:
Time Communications (India) Ltd.
Goa Mansion (Gr. Flr.), 58, Dr. S. B. Path (Goa Street), Fort,
Mumbai – 400 001
Tel: 022-2265 4805, Telefax: 022-2261 6970
E-mail: moneytimes@vsnl.com
product design and engineering, plant design, project execution, plant automation, management operations &
optimisation to expansion/revamp. KLG has the 'first-mover' advantage of focusing on Indian industry's requirements
for automated business life cycle solutions. Further, this unit has been divided into following four strategic business units
(SBU).
Computational Engineering and Sciences – This is the main SBU as its strategic focus area includes CAD,
CAM, CAE, GIS, rapid prototyping and reverse engineering technologies. Expectedly, majority of all oil
refineries, petrochemical/fertilizer complexes and power plants that were designed, erected or revamped in
the last ten years have used KLG solutions for mechanical design analysis of steel structure, pressure vessels,
heat exchangers, piping systems, etc.
Enterprise Project Management – In this SBU, KLG offers end-to-end solutions ranging from consulting,
solution customisation, solution deployment, user acceptance, training & support to maintenance. It has
developed significant IP in terms of developing a web based Enterprise Project Management System using
best practices provided by Project Management Body of Knowledge (PMBOK) areas.
Automation and Manufacturing - Under this KLG offers integrated solution for industrial automation and
supply chain planning and optimisation. It works closely with Wonderware a division of Invensys PLC,
Microsoft, IBM, Oracle and SAP to deliver solutions and integrates diverse automation platforms from ABB,
Allen Bradley, Areva, Foxbro, Honeywell, Siemens, Yokogawa and Sensor manufacturers.
Enterprise Business - Through this KLG has put together a basket of solutions, a result of in-house R&D and
strategic alliances that cater to the special needs of enterprises like the Supply Chain Optimisation software
called 'Chaos', emerging technologies of RFID technology for retailing solutions and SAP Business One.
Importantly, KLG has a healthy order book position of around Rs.350 cr. to be executed in the next 18 months. Moreover,
it is the lowest bidder (L1) in contracts worth Rs.550 cr. and has a bidding order book of close to Rs.4,500 cr., which
includes a large 5 year contract of Rs.2,500 cr. KLG has an enviable clientele comprising the top 500 Indian companies
(government & private) and the Indian arms of Fortune 500 companies. It has also partnered with leading international
technology partners such as Autodesk, COADE, IBM, Microsoft, Oracle, Primavera, SAP and OTI etc. On the
infrastructure front, it has its own R&D centre spread across 75,000 sq. ft. in Gurgaon whereas another facility of 500,000
sq. ft. is under construction. It has set up an ultra-modern manufacturing unit for the production of Connectgaia.com in
Dehradun with a production capacity of 10,000 units a month. To meet the growing demand, especially for Automatic
Meter Reading units, the group is contemplating to establish a state-of-the-art manufacturing plant at Davni, near Baddi
in Himachal Pradesh, with an installed capacity of 25,000 units per month
Earlier in August 2007, KLG acquired 51% stake in Atlantis Lab, which caters to automobile and aerospace segments.
Further, it is looking at inorganic growth in engineering services and enterprise business solutions. KLG has recently
demerged the power systems solutions business into a new subsidiary named KLG Power by transferring assets worth
Rs.125 cr. TGP Growth India has conditionally planned to invest nearly Rs.200 cr. in this subsidiary for up to 20% holding
on a diluted basis. Meanwhile, an IBM group company has just invested Rs.12 cr. for 1.2% stake thereby valuing KLG
Power Ltd. at a whopping 1000 cr. Ironically against this, KLG - the parent company, which holds the balance 98.80% is
available at a market cap of merely Rs.350 cr.!
Financially, for FY08, the company recorded 120% growth in sales to Rs.269 cr. and net profit zoomed by 140% to Rs.52 cr.
recording an EPS of Rs.45 on its equity of Rs.11.70 cr. During FY07, KLG had raised nearly Rs.100 cr. through the FCCB
route to be converted into equity shares at Rs.400 per share. Out of this more than Rs.80 cr. is yet to be converted into
equity shares. Considering all these factors, KLG is estimated to clock a turnover of Rs.400 cr. with PAT of Rs.65 cr. on a
consolidated basis for FY09. This will translate into an EPS of Rs.45 on diluted equity of Rs.14.50 cr. Investors are strongly
recommended to buy at current levels and add on every declines for a price target of Rs.550 i.e. 85% appreciation within
15 months.
Buy Marico Ltd. for the medium-term
By Devdas Mogili
Marico Ltd., formerly known as Marico Foods and subsequently named as Marico Industries, is a 20-year old Mumbai-
based company established in 1988. The company's name was again changed to the present one in May 2005. The
company took over the consumer products division of Bombay Oil Industries. In 1990, it entered into an agreement with
Bombay Oil for the use of Parachute coconut oil and the Saffola brand of cooking oil.
Marico also purchased a manufacturing unit at Jalgaon, Maharashtra, belonging to Rasoi Ltd. and now has plants in Goa,
Pondicherry, Kanjikode, Jalgaon, Saswad, Daman and Dehradun. It has also set up a unit at Daman for manufacturing
personal care products and the commercial operations commenced in March 2002. Its coconut oil unit at Pondicherry also
ANALYSIS
6
commenced commercial operations in March 2002. Harsh Mariwala is the chairman and managing director of the
company.
The company has enhanced the installed capacity of Raw/Refined Oils by 25,680 MT taking the total installed capacity to
150,000 MT. Further, it has installed a new capacity of hair oils of 13,200 KL. The company's skin care services business
under the brand name 'Kaya' has grown to 34 clinics across 11 cities in India and the UAE with 90 dermatologists.
The company has expanded its basket of new products and services across a broad range while strengthening its flagship
brands, Parachute and Saffola. Some of the new products in the consumer products business include Silk-n-Shine,
Parachute Sampoorna, Parachute Advanced and Saffola Gold in the domestic market and Parachute Cream, Parachute
Gold and Beliphool in the international markets. In FY05, it introduced Mediker Plus, Anti-Lice oil, in the southern
markets.
Acquisitions: The company has adopted the inorganic route for its expansion. Since April 2005, the group has carried out
7 acquisitions including two each in India, Bangladesh and Egypt. During FY08, the company completed the acquisition
of the consumer products division of Enaleni Pharmaceuticals, marking its entry into South Africa. In June 1999, it
acquired the Anti-Lice Treatment business under the brand name 'Mediker' from Procter & Gamble. In March 2000, it
acquired from Kanmoor Foods its facilities at Saswad for manufacture of jams, sauces and other fruit & vegetable
products. In FY01, Marico acquired the Parachute and Saffola brands from Bombay Oil Industries and now owns nine
brands viz. Parachute, Saffola, Sweekar, Hair & Care, Revive, Sil, Oil of Malbar, Mediker and Shanti and also their brand
extensions. But, at present, it is highly dependent on its three flagship brands, Parachute, Saffola and Sweekar. During
April 2005, the company's subsidiary, Marico Bangladesh Ltd., acquired the toilet soap brands 'Camelia' and 'Magnolia'
from Marks and Allys Ltd.
Subsidiaries: The subsidiaries of the company are Marico Bangladesh Ltd., MBL Industries Ltd., Kaya Skin Care Ltd.,
Sundari LLC and Sundari SPA LLC.
Marketing: Marico has marketing and distribution alliance with Indo Nissin Foods for Top Ramen noodles and a
distribution agreement with Proctor & Gamble for distribution of some of their products in India. Marico itself has an
excellent distribution network. During Q4FY03, Marico acquired a controlling equity interest in Sundari LLC, USA,
owning the Sundari line of luxury Ayurvedic skin care products.
Exports: The company has established its products and services in 24 countries. The company exports its products largely
to the Middle East and SAARC countries. Marico is also present in Bangladesh through its wholly-owned subsidiary,
Marico Bangladesh.
Performance: For FY08, the company reported a net sales income of Rs.1906.69 cr. with a net profit of Rs.205.02 cr. netting
an EPS of Rs.2.78 on its equity share with a paid-up value of Re.1 per share.
Financial Highlights:
(Rs. in lakh)
Latest Results: For Q4FY08, the company has
posted net sales of Rs.467.53 cr. (Rs.396.96 cr.) with
net profit of Rs.44.68 cr. (Rs.32.61 cr.) recording a
basic/diluted EPS of Rs.0.67 as against Rs.0.46 in
Q4FY07.
Particulars
Q4FY08
Q4FY07
FY08
Net Sales/Income from operations
46753
39696
190669
Other Income
370
870
668
Total Income
47123
40566
191337
Total Expenditure
42990
35686
7
Financials: The company has an equity base of
Rs.60.90 cr. with a book value of Rs.5.2 (FV: Re.1)
and a debt:equity ratio of 1.2. It has recorded a
RoCE of 39.8% and RoNW of 66.7% for the FY08.
169130
Interest
726
468
2766
Exceptional Items
-1061
-1061
Profit before tax
4468
3261
20502
Tax Expense
390
449
3595
Net Profit after Tax
4078
2812
16907
Paid up Share Capital (FV: Rs.1)
6090
6090
6090
Share Profile: The shares of Marico with a face
value of Re.1 are listed and traded on the BSE and NSE under the B group. Its share price touched a 52-week high/low of
Rs.83.25/Rs.47. At its current market price of Rs.54, the share has a market capitalisation of Rs.3054 cr. and a beta value of
0.6 indicating relatively low volatility.
Basic/Diluted EPS (Rs)
0.67
0.46
2.78
Dividends: The company has been paying dividends as shown below:
FY08 - 65.50%, FY07 - 65.50%, FY06 - 62%, FY05 - 53.50%, FY04 - 85%, FY03 - 55%, FY02 - 140%.
In May 2004, the company issued bonus equity shares to its shareholders in the ratio of 1:1.
Shareholding Pattern: The promoters hold 63.45% stake while the balance 36.55% is held by non-corporate promoters,
institutions, mutual funds and the Indian public. A host of mutual funds like Franklin India, Pru ICICI, Morgan Stanley,
Birla Sun Life, UTI, ING Vysya, Sahara Mutual Fund and Fidelity have been adding the company's share to their various
schemes.
Prospects: India's fast moving consumer goods (FMCG) sector is the fourth largest sector in the economy. Its principal
constituents are foods, personal care, fabric care and household products. The total FMCG market exceeds US $17.36
billion and is set to treble from US $11.6 billion in 2003 to US $33.4 billion by 2015.
On the domestic front, rising disposable incomes are leading to a change in mindset towards indulgence and
'consumerism'. Better affordability has fuelled increased trading in branded products from unbranded ones and further to
premium aspirational products.
Conclusion: Marico, over the last three years, has achieved a topline CAGR of 29%, making it amongst the fastest
growing FMCG companies in India. It was amongst eight Indian companies in Standard & Poor's list of 'Global
Challengers of 2007'.
At its current market price of Rs.54, which is close to its 52-week low of Rs.48, the share is discounted less than 18 times
its FY08 earnings against the industry average P/E multiple of over 25 times. The share is discounted much below its
peers. Marico is a major player in the FMCG space with excellent brand portfolio. Besides, the FMCG sector is considered
to be a defensive sector in the present turbulent times. Thus the Marico scrip is a good defensive bet and can be
accumulated at every decline with a medium-to-long-term investment horizon.
Government survival will set the direction
MARKET REVIEW
By Ashok D. Singh
The BSE Sensex rose 165.55 points or 1.23% to 13,635.40 for the week ended Friday, 18 July 2008. The NSE Nifty edged up
43.25 points or 1.06% to 4,092.25 for the week. Equities were battered at the start of the week owing to the weak sentiment
caused by political uncertainty, soaring crude oil prices and higher inflation. The market saw renewed buying as global
markets surged in response to a fall in crude oil prices below $130 mark after hitting record high recently. The Sensex
gained more than 1050 points in the last two days of the week. The government is seeking a vote of confidence in
parliament early next week which would set the direction for the market.
The BSE Mid-Cap index shed 125.95 points or 2.35% to 5,239.39. The BSE Small-Cap index fell 257.77 points or 3.84% to
6,455.89.
The Sensex lost 139.34 points or 1.03% at 13,330.51 on Monday, 14 July 2008. Stocks ended a volatile session with losses for
the second straight day on sustained selling in IT and select blue-chip stocks due to the cautious outlook by Infosys
announced with its Q1FY09 results on Friday, 11 July 2008.
The Sensex plunged another 654.32 points or 4.91% to 12,676.19 on Tuesday, 15 July 2008. The key benchmark indices
collapsed under the combined weight of weak global markets and domestic political uncertainty. The Sensex hit its lowest
level in more than 15 months. Shares from banking, capital goods and metal sectors collapsed. The Sensex was down
again 100.39 points or 0.79% to 12,575.80 on Wednesday, 16 July 2008. Key benchmark indices suffered losses to register
fresh 15-month low on unabated selling pressure in blue-chip stocks. This was despite a firm start triggered by a sharp
fall in crude oil prices.
But the Sensex bounced back and
gained 536.05 points or 4.26% at
13,111.85 on Thursday, 17 July 2008.
Frenzied buying in battered pivotals
along with short covering after four
straight days of catastrophic fall
triggered a solid rally on the bourses.
Strong global markets and a savage cut
in crude oil for the second straight day
on 16 July 2008 triggered the rally.
8
The Sensex added another 523.55 points
or 3.99% at 13,635.40 on Friday, 18 July
2008. Buying in index pivotals led by
Reliance Industries, ICICI Bank and
Bharti Airtel coupled with short
covering triggered a solid rally on the
bourses. A sharp fall in crude oil prices
for the third day in a row on Thursday,
17 July 2008, boosted the sentiments.
FIIs sold shares worth Rs.2,235.70 cr. in
July 2008, till 17 July 2008. FIIs sold
shares worth Rs.27,701 cr. in the
calendar year 2008. Mutual funds have
bought shares worth Rs.522.90 cr. in
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July 2008 so far, till 17 July 2008.
Inflation based on the wholesale price index rose 11.91% in 12 months to 5 July 2008, just above the previous week's
annual rise of 11.89%, government data released on 17 July 2008, showed. It is the highest reading since annual numbers
in the current series became available in April 1995.
The monsoon rains are likely to remain subdued in central, western and southern parts of the country over the next week,
the government said on 17 July 2008. Rainfall between 1 June 2008 to 15 July 2008 was 6% above the normal long-period
average, the government said.
Fitch Ratings on 15 July 2008, lowered India's domestic rating outlook to negative from stable due to the central
government's worsening fiscal position. The change in outlook was also partly due to a notable increase in government
debt issuance to finance subsidies not reflected in the budget.
The Sensex rose 165.55 points to close at 13,635.40 last week. The market will take cues from the outcome of the
government's vote of confidence in parliament scheduled on 21 July 2008 and 22 July 2008. Survival of the government
will boost the bourses. Movement of crude oil prices also holds the key. Fears of further monetary tightening by the RBI
continues to haunt the bourses.
The Q1 results season is on. The overall corporate earnings are seen rising about 15% in Q1FY09 over Q1FY0, which is
well below the 20-25% growth seen over the past few years.
Industrial production rose 3.8% in May 2008, much lower than revised 6.2% growth in April 2008, which itself was
revised downwards to 6.2% from the earlier 7%.
Despite the recent sharp fall, crude oil is still up about 35% in calendar 2008 so far. Being an oil dependent economy with
over 70% of oil imports, any increase in oil prices will worsen the balance of payment position of the country.
9
A week full of surprises
MARKET
By G. S. Roongta
The stocks nosedived on Tuesday, 15
th
July 2008 last week as the BSE Sensex slipped below its strong level of 13,000
without any negative news in support. It hit a new low of 12,605 but closed slightly higher at 12,676 after recording a
heavy loss of 654 points for the day. Thus it revisited a level last seen in April 2007 or 15 months back.
G.S. Roongta
The bears seemed to have used their last trump card and were hoping to drag the Sensex below the
12,000 mark and the CNX Nifty below 3650 going by the hot rumours doing the rounds of the market.
But they could not succeed despite all negative factors like rising inflation, soaring crude oil prices, the
depreciating rupee value, the scanty monsoon that may lead to a economic slowdown, the poor index of
industrial production (IIP) growth rate and the rising interest rates. These negative factors were the ones
that led to the bear market but their further deterioration could not bring down the Sensex below 12,000,
which was the fond hope of the bear operators.
Is it not surprising that while the woes and worries of the market have been multiplying continuously ever since March
2008 after the first signal on 21
st
January 2008. Yet corporate earnings have been impacted only slightly but nowhere in
relation to the extent of the share prices of stocks, which are down by 50-80% from their peak levels and the indices were
nearing their 52-week lows. This is also the case in some individual stocks. Several blue chip stocks are traded at forward
earning (P/E ratio) of 5 to 8 as against a P/E multiple of 20 to 25 a year ago. The Sensex, too, has fallen to a P/E multiple
of 16.5 against a multiple 22 to 24 a year ago.
There were more shocks last week on a day to day basis instead of any comfort on reports of crude oil prices falling from
US $144 to US $137 but the Sensex hitting a new low of 12,514.02 and the Nifty below the 3800 level as 3790. This was
clearly an attempt by the bears to pull down the market despite the positive news flow on the crude oil front. Was it not
surprising for the popular media and the TV channels, which had been tracking the rise and fall on the bourses and
linked it with the crude oil price that was a major factor of inflationary pressure?
Had the crude oil market closed higher on 16
th
July 2008, there was a fair chance of the stock markets losing further
ground. But the media kept mum as the BSE Sensex had already lost 100 points and the CNX Nifty was down by 45
points. However, the usual post mortem was missing or purposely ignored to justify the reason for the market going
down that day when in fact it should have gone up!
There was yet another surprise the next day as the Sensex opened higher by 480 points on Thursday, 17
th
July 2008. But
after facing a slight let up, it bounced back to close the day near its intra-day high at 13,111.85 with a gain of 536 points.
Correspondingly, the Nifty closed at 3747 with a gain of 130 points.
This trend continued in Friday, 18 July 2008 as the Sensex opened with a gain pf over 120 point and touched an intra-day
high of 13684.27 before it closed the day and the week at 13635.40 with a gain of 523 points.
Was it, therefore, not a surprise for those who were so nervous on 15
th
July 2008, expecting the market to crack the Sensex
12,000 level and were bluntly let down and reverted back to the 13000 level once again? Technical analysts have once
again repeated their pet song of a pull-back rally/short covering to justify the day's rally. What is their justification for the
523 points rise on Friday, 18
th
July 2008?
My dear readers, how many times would you like to be misled and repeatedly hear the same song over and over again
without digesting what I have been saying for the past few weeks viz. that the market is refusing to go below these levels
and if someone tries to push it down, it always bounces back. The bear lobby is averse to call it a 'bounce back' and
instead asked its supporters to refer to it as a pull-back or a short covering even though the market was in a state of
oversold.
There is little doubt about the oversold position of the market and who is there to dispute it. It, therefore, calls for a smart
bounce back but this game of cats and dogs of beating and bouncing in quick succession will not help and the reality is
bound to surface sooner than later and expose the game rampant in Nifty Futures. Thereafter, the bears will rush to cover
their short positions, which is a safe but positive trigger. This trigger is enlarging itself and will provide the bulls an
opportunity for a direct hit with the stocks picked up at lower levels in large quantities. There is already a re-rating of
such stocks in this oversold market.
If you are not tired or fed up of surprises, then you may also consider that the Sensex today is quoted in the same figure
as the price of gold as both of them are around 13,000. When gold was Rs.9000 the Sensex was hovering between 18,000 to
21,000 levels. Is it, therefore, surprising that gold has hit a new high of above Rs.13,000 per 10 gm while the Sensex has hit
a new low below 13,000? Since the equity indices have an inverse relationship with gold, this is not surprising.
Btu what are economists advising? They are advising people to sell gold and buy the Nifty or Sensex stocks or hedge one
against the other to make tonnes of profit just as some made hefty gains by selling Nifty Futures since January 2008 and
are now booking profits to buy into crude oil and commodity baskets.
Financial services sector, financial institutions, FIIs and banks that made huge profits the world over are now getting
ready to sell gold at this level and invest again in blue chip stocks whose fundamentals are yet not disturbed. Likewise,
property dealers are thinking on similar lines as real estate prices may not sustain higher and they should start switching
to other avenues like equity and Nifty Futures.
This is the reason why I have been repeatedly stating that the Nifty Futures game will soon be exposed. It is due to the
huge speculation in Nifty that the ratio between the BSE Sensex and the CNX Nifty has narrowed down to 3:1 or 2.5:1
instead of the standard ratio of 3.51:1 established over all these years. This means that somebody is buying Sensex stocks
in cash and selling Nifty in the F&O market. Those who track the market very closely must have seen this erratic
fluctuation.
If the inflation rate falls below 11% in the next few weeks and crude oil prices also recede and Indian politics is back on
track after the vote of trust next week, we will witness how sharply the market chemistry changes. The present fearful
atmosphere covered with deep black clouds on the back of rumours spread by the bear lobby that the BSE Sensex is likely
to fall below Sensex 9000 will disappear thereafter and look at brighter days ahead.
Readers of this column may have got some solace by my repeated advice to enjoy bottom-fishing and selling on bounce
back as many shares are up once again like L&T up by Rs.285, HDFC by Rs.350, ICICI Bank by Rs.116, Reliance Industries
by Rs.177, State Bank of India by Rs.188, BHEL by Rs.153 and HDFC Bank by Rs.130 within a matter of two days. Those
who followed my advice and bought in a panic on 15
th
& 16
th
July and sold on Friday, 18
th
July have earned over 12%.
Likewise, many other shares have also gained by Rs.30 to Rs.60 over the last two days.
By Saarthi
STOCK WATCH
Pitti Laminations Ltd. (Code: 513519) (Rs.35.75) is primarily engaged in the manufacture of electrical steel laminations
and stampings, which form a critical part in all industrial motors, alternators, pump sets, aeronautics, windmill
generators and DG sets. It even produces small laminations on its High Speed Press for compressors. With an installed
capacity of 25,000 MTPA, it is operating at 70% capacity utilisation leaving ample scope for future growth. Besides in
January 2008, it has completed its forward integration plan and 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. This will result in value addition
and considerable improvement in the margin. However due to the rupee appreciation during FY08, it reported lower
OPM of 12% against 14% in FY07. Accordingly, its sales improved by 15% to Rs.170 cr. but PAT declined by 35% to
Rs.6.50 cr. after huge tax provisioning of Rs.4 cr. equivalent to 40% of PBT. It declared 20% dividend, which gives a yield
of nearly 6% at CMP. With the rupee stable above Rs.42 it has the potential to clock a turnover of Rs.200 cr. with PAT of
Rs.9 cr. i.e. an EPS of Rs.10 on its equity of Rs.9.50 cr. for FY09. A strong buy.
******
Cosmo Films Ltd. (Code: 508814) (Rs.83.60) is the pioneer and one of the largest manufacturers of Bi-axially Oriented
Polypropylene Films (BOPP) with an installed capacity of 77,000 MTPA. It also manufactures thermal lamination film, an
export focused product with higher margins. For future growth, the company is expanding its capacity by adding two
BOPP lines of 40,000 MTA each. The first line is expected to be commissioned before March 2009 for which orders have
10
been placed for all major equipments. In addition, it is also adding two new lines in thermal lamination and increasing its
capacity from 13,500 to 19,500 MTA. To fund all this, it recently placed 31 lakh warrants to be converted at Rs.107 per
share. It has also taken the approval for issue of 10 lakh equity shares under ESOP. For FY08, it sales improved by 10% to
Rs.585 cr. but the net profit zoomed by 80% due to better operating margin, lower interest and lower depreciation. It
reported an EPS of Rs.23 and declared 50% dividend, which gives a yield of more than 6% at CMP. However this year, it
may face margin pressure due to rise in crude oil prices with polypropylene being its main raw material. Hence it may
clock a turnover of Rs.625 cr. with profit of Rs.35 cr. i.e. an EPS of Rs.16 on its diluted equity of Rs.22.50 cr.
******
Accurate Transformers Ltd. (Code: 530513) (Rs.94.15) manufactures power and distribution transformers ranging from 1
MVA to 40 MVA - in up to 220 KV class. It is looking to venture into manufacturing of higher capacity Power
Transformers of 160 MVA from FY10. It also carries out rural electrification projects, which involve setting up of
electricity distribution in remote areas including the laying of lines, poles and substations. Unfortunately, despite its
installed capacity of over 8000 MVA, it is working at very low capacity utilisation of less than 50% due to high working
capital requirement and shortage of funds. As its preferential allotment of 31 lakh warrants at Rs.56 to the promoters has
been shelved by the SEBI, the company is scouting for strategic investors to fund its working capital requirement and
capex for 160 MVA transformers. For FY08, its sales improved by 15% to Rs.197 cr. and PAT grew by 25% to Rs.7.90 cr.
This translates into a healthy EPS of Rs.27 on its very tiny equity of Rs.2.97 cr. On the back of the huge investments in the
power sector in coming years, it can report an EPS of over Rs.35 for FY09. It's a screaming buy at an enterprise value of
merely Rs.50 cr.
******
3i Infotech Ltd. (Code: 532628) (Rs.94.10) 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 up 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 spanning across the country with cost efficient delivery capabilities and it is
into processing of credit cards, insurance applications, contact point verification, soft collections, cheque clearing services,
reconciliations, etc. As on date, the company has a very healthy order book position of Rs.865 cr. For entire FY08, it
recorded 80% and 75% growth in sales and net profit to Rs.1223 cr. and Rs.183 cr. respectively. This translates into an EPS
of Rs.14 on its current equity of Rs.130.50 cr.
However, the EPS works to Rs.11 on its fully
diluted equity (conversion of all FCCB) of
Rs.165 cr. Recently the company has acquired
a strategic stake of 26% in the 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.
11
By Kukku
FIFTY FIFTY
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Investment Calls
* ABG Shipyard (Rs.337), India's largest private sector shipbuilder, engaged in shipbuilding and ship repairs, builds a
wide range of specialised and sophisticated vessels.
Its Q4FY08 net profit was Rs.461 million (up 40% YoY) on revenue of Rs.2.78 billion (up 43% YoY). The OPM was 32.8%
compared to 25.7% in the previous-year. Higher subsidy booked during the quarter was the reason for the margin spurt.
Net profit slipped below estimates owing to higher interest and tax outgo for the quarter. The jump in interest cost was
mainly on account of short-term loans taken to build the inventory for jack-up rigs. The company expects to secure orders
for more rigs prior to capacity expansion scheduled in December 2008.
The company is currently implementing a Rs.1570 cr. capex plan spread over FY08-10, most of which would be
operational by FY10. The stock is currently trading at 13.94 times FY08 EPS of Rs.31.56. On account of its robust order
book of Rs.8500 cr. its revenue target stands revised to Rs.1955 cr. for FY09E with net profit of Rs.293.25 cr. and PAT
margin of 15%.
Investors can accumulate this stock around current levels as it has already reacted sharply from peak of Rs.1050. The
stock can go up by 50% over the next 18 months.
Risk factor is the rising input costs, mainly steel.
* Hindustan Dorr-Oliver (Rs.83) with a strong presence in Mineral Beneficiation, Pulp & Paper and Phosphate fertilisers
is going in for new projects or major expansions. Its projects with huge investments in Aluminium & Steel industries are
12
in an advanced stage of finalisation. The Environmental Engineering sector is witnessing phenomenal growth due to
increased spending in Water & Waste Water Treatment by Central & State Governments and funding by external agencies
like World Bank and Asian Development Bank.
The company has done well for FY08 and is expected to repeat a sharp jump in sales by 60-80% in the current year with
improved margins. It is important to note that it has no long-term debts.
Its order book position is around Rs.900 cr. and it is bidding for about Rs.1000 cr. orders for Mineral Beneficiation and
around Rs.400 cr. orders for Environmental Engineering, where the margins are far better.
Investors can take advantage of the current sharp reaction and accumulate this stock for good long-term growth. The
stock can go up by 100% over the next one year.
* Western India Shipyard Ltd. (WISL) (Rs.12) - ABG Shipyard took operational control of WISL in September 2007. It
was a sick company with a capacity to repair ships of up to 60,000 DWT. The yard can accommodate ships of 225m in
length and 32.5m in breadth. WISL has Rs.2.5 billion outstanding debt on its books. As per the arrangement, the lenders
have agreed reduction of debt and to convert debt into equity. Post-restructuring, its outstanding debt would be Rs.1.2
billion to be paid over seven years. ABG has also infused Rs.300 million as working capital and would provide the
operational expertise. After restructuring, its equity is expected to rise from Rs.220 million to Rs.600 million, in which
ABG would have a 61% stake.
The company can breakeven by FY09 and could generate revenue of Rs.3 billion at the peak.
Investors can accumulate this stock on dips for good long-term growth.
Market Guidance
* TRF (Rs.689) said it has bagged an order worth Rs.413.85 cr. from Damodar Valley Corporation to set up a coal
handling plant for its Raghunathpur power project. Investors can accumulate this stock on dips as it has already reacted
from a high of Rs.2100 while its outlook is encouraging.
* Rajratan Global Wire (Rs.94) - There are indications of improved price realisation. The company is likely to report
better results. Good developments are said to be taking place. Book profit around Rs.120 level.
* Mather & Platt Pumps' (Rs.97) June 2008 quarter results are expected to be better.
* Excel Industries (Rs.54) is likely to report better results. Stay invested.
* Jaihind Projects (Rs.101) is an engineering, procurement & construction (EPC) company focused on hydrocarbons,
water & infrastructure sectors. The overall outlook of the oil & gas pipeline industry seems positive and the company has
orders worth around Rs.220 cr. and expects orders of above Rs.200 cr. in the near future.
* Piramal Glass (Rs.157) – As per recent annual report, PAT margins are thin at 3.31% on a standalone basis. Debts are
high at Rs.732 cr. and the company paid interest of Rs.43 cr. against Rs.21 cr. last year. This is likely to go up further in
FY09 due to the prevailing higher interest rates. (3) Staff costs have shot up sharply from Rs.39 cr. in FY07 to Rs.56 cr. in
FY08. Its raw material cost, which had shot up last year, has gone up further. Soda Ash, which is almost 46% of the total
raw material cost, has shot up.
Investors are advised to exit on pull-backs and think of switching to Kalpana Industries, which is expected to report an
EPS of around Rs.28 plus for FY09.
* Rohit Ferro Tech (Rs.114) - Since upward movement was very sharp, part profit-booking was advised at above Rs.170
level. Those who booked profits can re-enter around current levels as results are expected to be encouraging.
* Impex Ferro Tech (Rs.23.25) is also expected to report encouraging results in view of firm ferro alloy prices.
Note: High inflation-hit Indian consumers have put discretionary spends like eating out and home delivery of food on a
tight leash, shows a three-city ET consumer survey by market research agency Synovate. Over 70% of consumers across
Mumbai, Delhi and Bangalore say they have cut down on eating out. And over half (52%) say they have even curtailed
home delivery orders. India's Silicon Valley, Bangalore - home to India's young, suave and outgoing technology
professionals seems to be the worst hit with almost all participants reporting a cut down on eating out and around three-
fourths on reducing occasions to order home delivery.
Air passenger traffic has fallen by 4% YoY in June 2008. July is likely to see a further cut.
Builders are borrowing funds at high interest rates as there is a slowdown in the real estate business and indications of a
reaction.
There are clear indications of a slowdown in capex.
But in current valuations most of these factors are already discounted as most of the infrastructure stocks have already
reacted to 1/3 to 1/4 values from their peak levels.
It is time for investors to start accumulating good growth oriented stocks slowly at every fall.
High commodity prices like that of crude oil may not remain high for long due to the slowdown in the economy. Steel
prices, too, are likely to come down slowly.
It is possible that we may see good short term rally from hereon. Investors can accumulate above discussed stocks on
every dip.
13
By V. H. Dave
EXPERT EYE
The shares of Facor Alloys Ltd. (FAL) (Code: 532656) (Rs.9.73) are steady even in the current volatile market. The
grapevine has it that FAL is all set to garner an EPS of Rs.4.8 in FY09, which has led discerning investors evince keen
interest in the counter.
Belonging to the Facor Group, FAL has already turned the corner on robust demand for its products and is now on the
path to profits. The strong demand for ferro chrome on the back of the robust demand in the stainless steel industry will
drive FAL's growth. FAL is, therefore, in the process of expanding capacity.
The Facor Group of companies consist of Ferro Alloys Corporation (FACOR), Facor Alloys Ltd (FAL), Facor Steels (FSL)
and Facor Power (FPL), a subsidiary of Facor Alloys Ltd.
FAL was formed as a trifurcation of Facor Corporation and is engaged in the manufacture of 72,500 TPA high carbon
ferro chrome at its plant in Andhra Pradesh and it exports nearly 40% of its products. The company has initiated further
expansion & backward integration for which it has decided to raise Rs.100 cr.
In FY08, its sales moved up by 38% to Rs.225.2 cr. (Rs.162.9 cr.) and net profit grew by 447% to Rs.70.8 cr. (Rs.12.9 cr.) and
its EPS was Rs.3.6 (Rs.0.7). Its operating profit (OP) and net profit margins (NP) stood at 31.3% and 29.1% against 11.1%
and 7.9% respectively in FY07.
During Q4FY08, its sales advanced by 32% to Rs.67.2 cr. (Rs.51 cr.) and net profit by 300% to Rs.26 cr. (Rs.6.5 cr.). The OP
& NP margins for Q4FY08 stood at 42.7% and 38.6% against 15.7% and 12.7% respectively in FY07. FAL had sold its
surplus captive power plant for Rs.5.3 cr. during Q1FY08. Hence, OP & NP margins for FY08 are calculated excluding
Rs.5.3 cr. being one time income.
FAL's equity capital is Rs.19.6 cr. and with reserves of Rs.33.88 cr., the book value of its share is Rs.2.7 against its face
value (FV) of Re.1.
The promoters hold 48.7% in FAL's equity capital, NRIs hold 1.5%, institutions hold 2.5%, PCBs hold 8.7% leaving 38.6%
with the investing public.
The Facor Group is planning to invest Rs.2,500 cr. in a phased manner by 2010 on a major expansion plan. The expansion
plan includes setting up a stainless steel plant of 0.5 million tonnes per annum and a coal-based power plant of 250 MW.
The group plans to use the entire production of 1,40,000 tonnes of ferro alloys from its plants in Orissa and Andhra
Pradesh for use in the proposed steel plant. It already has a 60,000 tonne facility for producing stainless steel and carbon
steel. The Group is also eyeing wind power and has made a beginning by setting up a 12 mw unit with an investment of
Rs.60 cr. It is also looking at setting up a forging unit.
FAL's product, ferro chrome, is one of the raw materials used in the production of stainless steel. The demand and prices
of ferro chrome interalia depends largely on the global production and consumption of stainless steel.
For FY09, FAL is likely to record sales of Rs.300 cr. with net profit of Rs.95 cr., which would result in an EPS of Rs.4.8.
At the CMP of Rs.9.73, the share is trading at a P/E of 3.2 times its FY08 EPS of Rs.3.6 and 2.3 times its estimated EPS of
Rs.4.8 for FY09. The share has all the potential to touch Rs.20 in the medium-to-long-term, which could fetch a decent gain
of over 80%. The 52-Week high/low of the share has been Rs.22/Rs.2.
******
The share of Frontier Springs Ltd. (FSL)
(Code: 522195) (Rs.11.98) is recommended for
decent gains in the long-term. FSL serves the
locomotive and auto ancillary sectors, the
prospects of which are highly promising.
Promoted by the Frontier Group of Kanpur,
FSL manufactures coil springs for cars, diesel
locomotives and rail coaches made by the
Indian Railways and heavy and light coil
springs for earth moving equipments and
boiler plants. It also manufactures metal
bonded rubber components and all types of
U-bolts.
The turnover of the Frontier Group is about
Rs.50 cr. and it has projected a turnover of
Rs.120 cr. in sales next year. It has already
developed coil springs for various global car
manufactures like Ford, Opel, Diamler, Benz,
BMW and exports its products to Netherlands also.
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The largest supplier of coil springs in the Indian market, it has established another assembly line for the manufacture of
heavy and light-coiled springs at a cost of Rs.4 cr. The main plant was imported from Cogan Constructions, USA, while
the subsidiary components were procured locally. The plant has gone on stream and its advantages will be seen over the
next 2-3 quarters.
For Q4FY08, FSL posted a net profit of Rs.43 lakh against a net loss of Rs.1 lakh in Q4FY07. For FY08, its net profit of
Rs.1.4 cr. is higher by 55% on 4% increased sales of Rs.24.6 cr. and its EPS was Rs.3.6.
FSL's equity capital is Rs.3.9 cr. and with reserves of Rs.4.7 cr., the book value of the share works out to Rs.22. The
promoters hold 52% in its equity capital, PCBs hold 9.1% leaving 38.9% with the investing public.
FSL plans to venture into Air Suspension Springs for which it has approached Research Design & Standard Organization
(RDSO) of the Indian Railways for obtaining its approval. It is seeking foreign collaboration with some manufacturer in
Europe or China to obtain the technology.
It is also planning to set up a fabrication unit for manufacturing bogies for locomotive and coaches and has been
discussing it with RDSO, Lucknow. It may also import technology for the same.
FSL's major buyer of railway coil springs is the Indian Railways (75%) and other global railway companies (25%). Its other
products include laminated bearing springs, steel castings, fasteners, metal bonded rubbers etc.
FSL also caters to the lucrative auto ancillary sector where the demand for springs is mounting and exports are growing
at a fast pace from India. The auto component sector has been one of the fastest growing segments of the auto industry,
growing by over 20% p.a.
During FY09, FSL is likely to post a net profit of Rs.2.2 cr. on sales of Rs.28 cr., which would it give it an EPS of Rs.5.6.
Going forward, net profit is expected to shoot up by over 40% to Rs.3 cr. in FY010, which would yield an EPS of Rs.7.7.
At the current market price of Rs.11.98, the share is trading at a P/E of 2.5 on FY09 estimated EPS of Rs.5.6 and P/E of 1.8
on projected EPS of Rs.7.7 for FY10. The share has all the potential to appreciate by more than 50% in the medium-term.
The 52-week high/low of the share has been Rs.34/13.
14
By Nayan Patel
TECHNO FUNDA
Sensex 14,200 or 11,500 on Wednesday?
Battle lines are drawn between the UPA Government and the Opposition. Market is in the grip of fear and excitement. If
the government wins, the Sensex can go up to 14,200 on Wednesday itself and thereafter it will reach 15,000 to 16,000
within one month. But if the government fails, the Sensex will crash to 11,500 and thereafter it can slide up to 10,000 -
8,800 levels.
On Monday and Tuesday, the Sensex will be rangebound with high volatility. On these two days only high risk-high
profit players should play. It will be better to work in call-put. Only cash rich investors can invest 10-15% of their money
in sound and good scrips. Government wining the trust vote will see a bright future for companies like HCC, Areva, ABB,
BHEL, Crompton Greaves, Siemens, Gammon, L&T, Rolta, NTPC and Walchandnagar Industries. But make sure that you
invest only 10-15% of your money. What to do with the balance money can be decided by the government's next step.
Shyam Star Gems
BSE Code: 526365
Last Close: Rs.174
Shyam Star Gems is Mumbai based Diamond Cutting & Jewellery
Manufacturer and Exporter that has put in a very good
performance. It has equity of just Rs.6.95 cr. and the promoters
hold 40.91% stake in the company.
For Q4FY08, its net sales zoomed from Rs.2.24 cr. to Rs.32.52 cr., while net profit jumped 15500% to Rs.7.80 cr. For FY08,
net sales zoomed to Rs.86.40 cr. with net profit of Rs.19.79 cr. recording an EPS of Rs.29.95 and it declared 12% dividend.
The company will announce its Q1FY09 results and interim dividend on 21 July 2008 and the results are expected to be
excellent.
Shyam Star Gems will acquire 50% stake in Thamina Diamonds International DMCC, Dubai, for which it will company
allot 5 lakh convertible equity share warrants to the promoter group at Rs.135 per warrant.
When the Sensex & Nifty crashed heavily in the last few days, this stock had given accretive returns. Stock is available at
P/E ratio of just 5.8. Buy for short-to-medium-term investment with stop loss of Rs.160. On the upper side, the stock will
go up to Rs.205 in the short-term and can go up to Rs.225-250 levels in the medium-term.
Vishal Information Technologies IPO opens on 21
st
July
MARKET FOLIO
Review
Last week, we recommended Visaka Industries at
Rs.54.80. In spite of the highly volatile market the
stock zoomed up to Rs.60.80 level.
Vishal Information Technologies Ltd. (VITL), among the first few companies to venture into ITES/BPO services and a
subsidiary of Tutis Information Technologies Ltd. (formerly known as Amex Information Technologies Ltd), proposes to
enter the capital markets with a public issue of 27,90,000 equity shares of Rs.10 each through 100% book building process
in the price band of Rs.140-150 per equity share of Rs.10 each. The issue opens on Monday, 21
st
July and closes on
Thursday, 24
th
July 2008. The IPO has been assigned 'IPO Grade 3' by CARE and will be listed on the BSE and NSE.
Presently, VTIL operates from leased facilities in Chennai and Mumbai with approximately 475 workstations. As part of
the expansion plans, it intends to set up new facilities to support the increase in business from existing and new clients. It
proposes to buy an office space of approximately 15,000 sq. ft. at Special Economic Zone (SEZ) in Chennai.
IDBI Capital Market Services Ltd. has invested Rs.3.72 cr. in its equity capital by subscribing to 3,10,000 equity shares at
Rs.120 per equity share. VITL proposes to utilise the net proceeds of the issue to part finance the cost of the proposed
expansion of the facilities in Chennai and for setting up a Quality Assurance Centre and Marketing Office in Mumbai.
The expansion includes increasing Data digitalization seats from present 250 to 450, E-publishing seats from 150 to 250
and Digital Library seats from 75 to 100. The issue proceeds would also be utilized for setting up of subsidiaries in UK
and USA.
For FY08, VITL posted a consolidated PAT of Rs.12.36 cr. on a total income of Rs.40.88 cr. against a PAT of Rs.10.21 cr. on
a total income of Rs.31.44 cr. in FY07.
Indian investors are optimistic: Survey
The quarterly ING Investor Dashboard survey shows a minimal decline in investor sentiment in Q2 2008 despite market
volatilities, rising oil prices and inflation. The ING Investor Dashboard Sentiment Index for India continues to reflect the
highest level of investor optimism across Asia. Incidentally, a lot more investors claim that the economy has improved in
the last quarter.
In Q2 2008, India retains the position of being the most optimistic market; however there is a decrease in investor
sentiment by 3% as compared to Q1 2008. India's investor sentiment decreases to 163 for Q2 2008 from 168 for Q1 2008.
The overall pan-Asia ING Investor Dashboard sentiment index fell for the third consecutive quarter to 109 for Q2 2008
from 125 for Q1 2008 as internal and external economic factors and domestic political developments weigh on investors
in Q2 2008. The pan-Asia sentiment index registered 135 for Q4 2007 and 141 for Q3 2007.
Asia's overall decline is led by China and many Southeast Asian markets. This is the first time that the pan-Asia
sentiment index has moved into neutral sentiment from optimistic sentiment since the introduction of the investor
sentiment survey.
The ING Investor Dashboard is the first quarterly survey in the Asia Pacific region that provides a pan-Asia (ex-Japan)
investor sentiment index.
The data shows that Indian and other Asian investors appear fairly optimistic that markets will turn around in Q3 2008.
Panasonic launches new Alkaline batteries
Panasonic Battery India Co. Ltd., an associate company of the Japanese Matsushita Battery Industrial Co. Ltd., has
launched a range of long lasting Alkaline batteries in the Indian market.
These quality Alkaline batteries represent the progress and prowess of Panasonic's battery technology as evident in the
battery structure, materials and manufacturing process, making them longer lasting than the 2006 model.
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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