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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 41 Monday, August 25 - 31, 2008
Pages 18
Global cues to impact market trend
By Sanjay R. Bhatia
As indicated last week, the markets remained negative on the back of negative global cues. Crude oil witnessed a pull-
back rally and was trading at $121.30 per barrel. Traders and speculators were seen selling at higher levels and going
short. Incidentally, FIIs have remained net sellers in the cash as well as derivative segments. Mutual Funds, too, turned
net sellers booking profits at higher levels.
1
Global cues have largely remained negative last week.
The US continued to emanate weak economic data
and fresh concerns were raised over the credit crisis as
the likelihood of the US Government bailing out
Freddie Mac and Fannie Mae increased. The crude
prices have once again risen on the back of fresh
geopolitical concerns and short covering. It could even
move higher till the $125.50 level, which would be a
33.33% retracement from its recent low. The OPEC is
likely to meet on 9 September 2008 and Venezuela is
likely to propose a cut in oil production.
Inflation continued its northward march and touched
a 16 year high of 12.63% for 9 August 2008. There are
expectations of the Reserve Bank of India (RBI) taking
further monetary tightening measures to arrest the
rising inflation rate. The participation in the markets continued to remain lacklustre at higher levels. The NSG meet is also
likely to remain inconclusive and another round of meeting is likely to be called. Regular bouts of profit booking were
witnessed at higher levels, which displayed lack of confidence and tentativeness. The FII inflows have remained negative,
which is a cause for concern.
It is important that the markets witness higher participation at higher levels especially from the FIIs. With no immediate
domestic triggers, the markets would continue to take cues from the global markets, crude prices and of course domestic
inflation rates. The markets are likely to remain rangebound with a negative bias unless we have some positive cues.
Stock specific action will be witnessed amidst intermediate bouts of volatility and choppiness.
On the upside, the Sensex faces resistance at the 14677, 15000 and 15332 levels but has support at 14141, 13791 and 13454
levels. On the upside, the Nifty faces resistance at the 4482, 4647 and 4899 levels while 4189, 4108 and 4074 are its
important support levels. Traders and speculators can sell NTPC with a stop loss of Rs.178 for a target of Rs.158.
Tough days!
By Fakhri H. Sabuwala
Dalal Street is more often than not a 'one way street'. Navigating it without getting perturbed is a long call. Ultimately,
each one of us is here to make hay, whether in sunshine or rain, our efforts are aimed at this. You just can't keep on losing
money endlessly. And if it is so, it's time to realise that you have not been long enough in the stock market or that you are
getting the most expensive education of your life.
Today, there are investors who have portfolios earning Rs.5 lakh dividend annually against investors who began with
Rs.5 lakh and owe their brokers about Rs.3 lakh. These may be the two extremes but most of us could be somewhere in
between. Go back in time and review the passage of the journey. When the Sensex moved from 4000 to 7000 points many
of us thought it to be a bubble and sold out almost everything by the 9000 mark. All such investors lost out in the run
from 9000 to 16000. Realising their folly, many of them entered around 17000 to 18000 in the next couple of months and
saw a remarkable rise in a very short time, thanks to the unchecked greed and wanton speculation. As it assumed
dangerous proportions, it shattered a million dreams in the Sensex fall from 21000 to 12000 within the first 6 months of
2008.
Despite all this, if you feel cheated and left out from making money, then its time for some introspection. It begins with a
hard look at yourself, your holdings and temperament. It's time to be patient and be with growth sectors and growth
companies. It's time to shift business models, which have stood the test of time for decades. Shift to companies whose
business models make sense to you. While doing so, understand the current scenario and economic factors like inflation,
interest rate, government policies, polity etc. Take a closer look at economic cycles and without getting confused any
further please believe in this simple adage, "Good and bad times oscillate". So be prepared for it.
What one needs to do now is:
# Utilise profits and prepay loans. Time to lighten the high interest debts.
# Invest aggressively: In case one has liquidity after paying off the debts, partially or fully. This is the time to buy select
counters despite the analysts' hesitancy. The same analysts will want to you to buy such scrips when the market has taken
off.
# Keep your financial goals in perspective always. Remember any investment that earns 5% to 7% above the inflation rate
is just ideal.
Patience, financial discipline and resilience shall always be rewarded.
Major weakness below 13,727
TRADING ON TECHNICALS
By Hitendra Vasudeo
In the last week's update, we had indicated about
the Dark Cloud Cover pattern on the weekly
charts, which had put a question mark on the
uptrend and pull-back rise. Last week, the Sensex
opened at 14681.14, attained a high at 14824.92
and fell to a low of 14136.86. The Sensex recovery
on Friday, 22 August 2008 from the weekly low to
close higher at 14401.49 thereby showed a net fall
of 322 points on a week-to-week basis.
2
On daily charts, support was visible at 14153-
13727. The low of 14136 registered last week
attained the support range and recovered to close
higher.
The support range of 14153-13727 holds the key to
the overall market. A minor pull-back of the fall
from 15579 to 14136 is possible. The retracement levels are placed at 14686-14888-15013. A pull-back to these levels will be
witnessed possibly to create a lower top and later surrender the gains. If not this week, it may happen in the next week.
A fall and close below 13727, will take the Sensex down to 12514 at least and to an outer extent to 10692.
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
Wave 2- 6249 to 4227
Wave 3-4227 to 21206
Wave 4- 21206 to 12514
Wave 5- 12514 to 15579 (valid till 13727 is not violated)
If that holds, then the logical target can be 17964-20568, which is the 5
th
Wave failure range targets.
Normal Count
Wave I-2594 to 3758
Wave II-3758 to 2904
Wave III- Internals as follows:
Wave 1- 2904 to 6249
WEEKLY UP TREND STOCKS
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
Wave X- 12514 to 15579
Wave Z- 15579 to 141436.
Another overall count
structure can be as
follows:
Wave I- 2594 to 3758
Wave II- 3758 to 2828
Wave III- 2828 to 21206
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
CIPLA
237.25 222.8
232.4
237.0
241.9
251.5
72.0
231.3
11/07/08
CASTROL INDIA
306.05 273.3
296.9
311.5
320.6
344.2
71.8
305.3
18/07/08
LUPIN
738.00 658.3
714.3
746.7
770.3
826.3
70.3
737.5
11/07/08
HINDUSTAN UNIL.
244.85 224.6
236.9
241.2
249.2
261.5
70.1
240.2
18/07/08
SPICE COMMUN.
74.10 70.3
72.6
73.5
75.0
77.3
70.0
74.2
08/08/08
Internal of Wave III
WEEKLY DOWN TREND STOCKS
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
3
Wave c- 14723 to 12316
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. 264.80
230.8
255.1
269.8
279.4
303.7
19.89
271.80
22/08/08
PARSVNATH DEV. 114.35
103.3
111.1
115.8
119.0
126.8
23.80
118.98
14/08/08
OMAXE
122.55
105.8
117.7
124.8
129.7
141.6
25.34
129.11
22/08/08
INFRA DEV FINAN. 92.20
82.2
89.3
93.4
96.3
103.4
25.37
97.09
16/05/08
MOSER-BAER IND. 91.70
77.4
87.5
93.4
97.6
107.7
26.28
95.40
22/08/08
Wave v- 12316 to 21206
PUNTER'S PICKS
Wave IV- 21206 to 12514
Wave V- 12514 to 15579
(current ongoing move)
Wave V can rally towards
17892-20596
provided
13727 is not violated.
Conclusion
Expect major weakness
below 13727.
Note: Positional trade and exit at stop loss or target which ever is earlier. Not an intra-day trade. A delivery
based trade for a possible time frame of 1-7 trading days. Exit at first target or above.
Scrips
BSE
CODE
Last
Close
Buy Price
Buy On
Rise
Stop Loss Target 1 Target 2
Risk
Reward
PROCTOR & GAMBLE
500459
750.00
741.00
754.00
730.00 768.8
792.8
0.94
TAKE SOLUTIONS
532890
595.25
558.00
600.00
521.00 648.8
727.8
0.72
WINSOME YARNS
514348
17.95
16.80
18.80
15.20
21.0
24.6
1.12
Strategy for the week
Overall strategy remains to exit long and sell on rally towards the pull back levels: 14686-14888-15013.
* Videocon's Dhoot and his Datacom Solutions' partner, Mahendra Nahata, are locking horns over the violation of
shareholders' agreement by the former.
TOWER TALK
* Grasim, India Cement, UltraTech and ACC are on the buy list of HNI and FII clients of a large investment banker.
* In case you are lost in the market as to what shares to pick up for the medium-term, select some ripe cherries from the
latest F&O list of 29 scrips.
* The firming up of the dollar has not done wonder for IT stocks. May be they are losing out on the fresh orders.
* People are buying scrips just because they been included in the F&O list. And they call themselves investors!
* Lokesh Machines is looking extremely bullish on the chart. It seems some serious accumulation is happening after
which it can shoot up 20-30% in the short-term.
* Artson Engineering has seen a smart rally in the last few weeks. Take this opportunity to exit as it will take long to
turnaround despite the Tata management.
* Sunil Hitech has massive orders in hand to be executed in coming years. Keep accumulating at declines as risk:reward
favours bulls.
* Some analysts recommend Roman Tarmat since it is hitting new lows. But fundamentally, it is working at very low
margins and still looks reasonably valued. Instead buy Gujarat Apollo.
* Asian Oilfields has taken 20% stake in a Singapore oil exploration company with exploratory blocks around the world.
The company is clearly looking beyond oilfield seismic services.
* Ranbaxy's open offer is tempting and hence investors may avail it and hold the remaining shares for long term or exit
fully at current market price.
* Sarup Tanneries is a low priced stock with huge book value and consistent dividend. Besides the tannery business, it
has interests in real estate in a joint venture with the MGF group.
* South India Paper Mills is a high dividend yield stock with consistent performance. Stock is a safe bet for good future
prospects.
* Indsil Electrosmelt will benefit by the monsoon revival and steady ferro silicon alloy prices. Stock to watch for.
By Saarthi
BEST BETS
Gontermann Peipers (India) Ltd. (Code: 504701)
Rs.47.50
Established in 1966, Gontermann-Peipers (India) Ltd. (GPIL) was promoted in technical and financial collaboration with
Gontermann-Peipers GmbH-Germany, a front-ranker in the manufacture of rolls since 1825. In 1981, the company was
taken over by the Ispat Group and has since grown by leaps and bounds. It is the leading producer of cast iron rolls and
forged rolls commanding a major share in the domestic market. Cast rolls find application in making of hot rolled steel
while forged rolls are used for cold rolled steel. GPIL is among the top 10 roll manufacturers globally and the only
company in South-East Asia manufacturing rolls for both cold and hot rolled mills under a single roof. Segment wise, the
company derives three fourth of its sales from cast rolls while the balance one fourth comes from forge rolls. On the
export front, its products are widely appreciated in Japan, USA, Canada, China, South Africa, Taiwan, South Korea,
Thailand, Indonesia and 25 other countries. Thus the company has been able to generate more than 50% of revenue from
exports.
GPIL's plant is located in West Bengal with an installed capacity of 12,000 MTA of cast rolls and 3300 MTA of forged rolls.
Incidentally, Tayo Rolls is its only competitor in India. But as India's roll production capacity is greater than its captive
demand, GPIL focuses on the global market and is constantly exploring untapped areas to ramp up exports. It has
successfully established new export market in Malaysia, Italy, Spain and other European countries. Importantly, to
mitigate the rising input costs, GPIL has taken up necessary steps and introduced the price variation clause in its pricing
policy in new business dealings wherever possible. Considering the future trend of the business, GPIL has given special
thrust to new product developments i.e. enhanced carbide rolls in ICDP (Indefinite Chill Double Poured) segment. The
R&D Centre of the company has taken adequate steps to develop the product indigenously. These are premium rolls with
higher profit margin and
also known as Hi-Speed Rolls and Semi-Hi-Speed Rolls. On the other hand,
GPIL has drawn
an expansion-cum-modernisation plan of Rs.40 cr. to enhance production capacity and produce value
added cast rolls for the steel industry. This capex is expected to be completed by end of this calendar year where after the
company will have a capacity of about 18300 MTA of finished rolls. Notably, GPIL is among the few companies to have
taken modern management initiatives like TQM, Six Sigma, TPM, SCM, ERM, ABC, PMS, JIT etc.
Rolls being integral to steel production, its demand is directly linked to the growth of the steel industry. With reputed
global steel manufacturers planning entry into the Indian steel market as well as the aggressive expansion by domestic
steel majors, the rise in demand for rolls is fairly evident. For FY08, GPIL registered 20% growth in sales at Rs.174 cr.
whereas net profit improved by 25% to Rs.15 cr. recording an EPS of Rs.11 on its equity of Rs.13.90 cr. It declared 15%
dividend against 10% last year. However for Q1FY09, it reported disappointing results as it's PAT declined by nearly 15%
to Rs.3.20 cr. Accordingly, it is expected to maintain its bottomline at Rs.15 cr. on sales of Rs.185 cr. for FY09. This again
translates into an EPS of Rs.11 on its current equity. Hence at a P/E ratio of less than 5, the scrip is trading reasonably
cheap at an EV of Rs.125 cr., which is even less than its gross block of Rs.178 cr. Its estimated EV/EBIDTA ratio and
Market Cap/Sales ratio for FY09 are also very low at 3.5 and 0.35 times respectively. As the scrip has corrected 60% from
4
its high and trading at its 52-week low level, investors are strongly recommended to buy at the current level with a price
target of Rs.75 in 9-12 months.
India Glycols Ltd. (Code: 500201)
Rs.213.50
Belonging to the Delhi based Bhartia family, the promoters of Jubilant Organosys group, India Glycols Ltd. (IGL)
manufactures glycols, ethylene oxide and its derivatives, performance chemicals, ethanol, ethyl alcohol (potable), ENA,
guar gum powder, and industrial gases like oxygen, nitrogen, argon etc. Remarkably, it is the first and only company in
the world to produce ethylene oxide/mono ethylene glycol (MEG) from molasses as against the conventional route from
crude oil. Hence in the context of current crude oil prices, IGL is the cheapest producer of MEG in the world. Almost 50%
of its total revenue is derived from the sale of glycols. The current domestic demand for MEG stands around 12 million
tonnes with total domestic supplies pegged at 9 million tonnes with the balance being imported. Catering to over 1000
customers in diverse industries such as textiles, agrochemicals, oil & gas, personal care, pharmaceuticals, brake fluids,
detergents, emulsion polymerisation paints etc., IGL also exports to South East Asia, Middle East, Europe, Australia and
USA accounting for nearly 20% of its revenue. Recently, the company ventured into purification and marketing of carbon
dioxide (CO
2
), a distillery by-product, which has application in food processing, beverages and other industrial usage. It
has also diversified into herbal extraction to meet the requirements of a growing global market for high value
nutraceutical herbal extracts used in pharmaceuticals, food and food supplements. Incidentally, IGL is also among the
largest producers of Ethanol in the country but the same is consumed for the captive production of glycols. Lately, the
company has shifted its focus from commodity chemicals to speciality chemicals, wherein the margins are comparatively
higher compared to MEG margins.
IGL has two manufacturing plants in Uttar Pradesh – one at Kashipur and the other at Gorakhpur. After the recent
debottlenecking at its Kashipur plant, IGL has enhanced its installed capacity by 20% to 150,000 MTPA of MEG. Due to
the special process technology, IGL boasts of being an integrated manufacturer with all in-house facilities for converting
molasses into MEG. To further integrate backward and reduce its dependence on purchasing molasses from outside, IGL
has recently acquired Shakumbari Sugar & Allied Industries (SSAI) with a crushing capacity of 3,200 tonnes per day
(TCD) along with a modern distillery of 40 kilo litres per day and a bagasse-fired co-generation plant of 3 MW. Now, IGL
plans to expand this crushing capacity to 5500 TCD initially within calendar 2008 and then eventually to 10,000 TCD by
2010-11. This means by December 2008, 25% of IGL's molasses requirement will be met by captive production at SSAI,
whereas 40% will be met by 2010-11. At the same time, IGL is also expanding SSAI's distilling capacity to 240 KLPD by
March 2009. To supplement its entire increased power requirement, IGL is putting up two power plants – 20 MW at SSAI
and 22 MW at Kashipur and Gorakhpur combined to be operational by end of this fiscal. From this, the company hopes to
sell around 10 MW of power and
consume the balance for captive use.
On the other hand, its CO
2
purification
plant of 80 TPD capacity at Kashipur
has started commercial production
from April 2008 while another 80
tonnes plant at Gorakhpur is to start
shortly. Also, its 100% EOU herbal
extraction
project
at
Dehradun
(Uttarakhand) is slated to be completed
by October 2008. For this, IGL has
acquired 47 acres of land on lease from
the Uttarakhand Government and is
looking forward to grow a wide variety
of medicinal plants, which will be
processed at its supercritical fluid
extraction facility. Meanwhile, its RAB
(concentrated sugarcane juice) unit to
supplement the ethanol requirement
turned fully operational last fiscal. On
the back of robust demand, IGL has
also diversified into value added guar
gum derivatives used in the oilfield
industry and textiles. Another positive
is that IGL owns around 3.25 acres of
5
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6
income.
land in Noida, which is being developed into 270,000 sq. ft. of commercial space and is expected to get ready within this
financial year. Out of this, IGL intends to lease out approx 2 lakh sq. ft. thereby generating around Rs.15 cr. from next year
as rental
For all the above expansions, IGL has chalked out a capex plan of nearly Rs.500 cr., of which more than 50% has already
been spent in the current year. The benefit of this will start accruing from FY10. Meantime, the company underwent a
planned shutdown of its Kashipur facility for 21 days in May 2008 to carry out a change in catalyst, debottlenecking and
the stabilisation of the facility. Accordingly, its Q1FY09 performance was considerably affected. Moreover, it also faced an
unrealised forex loss of Rs.15.50 cr. due to re-statement of foreign currency borrowings, which it did not provide for in the
books. Another concern is that the price of molasses has increased in the recent past putting pressure on input costs. On
the other hand, despite crude oil price having shot up sharply in the last 6 months, MEG price is on a continuous
downfall globally since November 2007. While in November 2007 it was trading above US $1500 per tonne, currently it
has cooled off to US $900 per tonne. Hence full FY09 figures may not be encouraging as it may clock a turnover of Rs.1350
cr. with PAT of Rs.140 cr. i.e. an EPS of Rs.50 on its equity of Rs.27.90 cr. But with the benefit of backward integration and
expansion kicking in from FY10, the situation will improve going forward. Although the company's financials may not be
robust in the coming quarters; investors are advised to accumulate this scrip at sharp declines below Rs.200 levels. With
crude oil anticipated to stabilised around US $100-110 per barrel, this scrip can shoot up to Rs.280-300 levels in 15 months.
Insecticides India Ltd.: Buy and forget
ANALYSIS
By Devdas Mogili
Insecticides India Ltd. (IIL) is a 12 year old Delhi based company established in 1996 as Insecticides (India) Pvt. Ltd.
Subsequently, it was converted into a public limited company. Its commercial operations, however, commenced only
from 2002 onwards. The company is engaged in the manufacture of agrochemicals and household pesticides. It has three
plants, two of which are located at Chopanki, Bhiwadi, Rajasthan and the third unit is at Samba, Jammu & Kashmir. Mr.
H. C. Aggarwal is the chairman while Mr. Rajesh Aggarwal is the managing director of the company.
IIL had entered the capital market in May 2007 with an IPO of 32,10,000 equity shares at Rs.115 each, which was fully
subscribed.
The company's product range includes more than 80 types of insecticides, fungicides, weedicides, herbicides and plant
growth regulator for all types of crops and household pesticides. The company's largest selling brands are Lethal, Victor,
Thimet, Indan 4g and Kaiser.
The company's current manufacturing capacity is 60 lakh litres of Emulsifible Concentrate (EC), 2900 MT of Wettable
Dispersable Powder (WDP) and 10,500 MT of granules per annum.
IIL has a technical collaboration with global giants like AMVAC, USA, for Thimet, which is India's most popular generic
insecticide. It also has a wholly-owned subsidiary called Advance Crop Solutions Ltd.
Performance: During FY08, the turnover of the company increased to Rs.222 cr. as against Rs.184 cr. in FY07 registering a
growth of 20% and earned a net profit of Rs.14.3 cr. against Rs.8.6 cr. in FY07, recording a growth of 66%. The company
posted an EPS of Rs.11.80 for FY08.
Financial Highlights:
(Rs. in million)
Latest Results: The company has posted
excellent results for Q1FY09 as it clocked
a turnover of Rs.85.9 cr. with a net profit
of Rs.6.29 cr. as against a turnover of
Rs.42.7 cr. with net profit of Rs.2 cr. in
Q1FY08. The company has recorded a
basic and diluted EPS of Rs.4.96. Going
forward, the annualised EPS works out to
Rs.19.76. The company has thus shown all
round improvement
in sales and
profitability margins.
Particulars
Q1FY09
Q1FY08
FY08
Net Sales
858.65
427.38
2219.56
Other Income
3.99
2.5
17.90
Total Income
862.65
429.88
2237.46
Expenditure
783.81
400.17
2047.17
Depreciation
2.66
1.66
7.85
Interest
6.67
4.43
21.58
Profit Before Tax
72.17
23.63
168.71
Tax
9.32
3.43
25.40
Net Profit after tax
62.85
20.2
143.31
Equity capital (FV: Rs.10)
126.83
126.83
126.83
Basic/Diluted EPS
4.96
1.58
11.80
Financials: IIL has an equity base of Rs.12.68 cr. with a book value of Rs.65.45. It has a low debt equity ratio of 0.25 and
RoCE of 26.66% and RoNW of 24.39%.
Share Profile: The shares of IIL are listed and traded on the BSE and NSE under the B group. Its share price touched a 52-
week high/low of Rs.106/Rs.33. At its current market price (CMP) of Rs.59, it has a market capitalisation of Rs.65 cr. The
share has a beta value of 1.
Dividends: Post IPO, the company has paid its maiden dividend of 15% for FY08.
Shareholding Pattern: The promoter holding in the company is 74.69% while the balance 25.31% is held by non-corporate
promoters and the investing public.
Prospects: The Indian Agrochemicals industry is the fourth largest in the world after USA, Japan, and China. India enjoys
22% share of the worldwide generic market due to its technical expertise and cost advantage.
Of late, India has experienced rapid economic growth as the GDP grew at 8.1%, 8.4% and 9.3% in FY05, FY06 and FY07
respectively. According to the report of the Standing Committee on Petroleum and Chemicals in 2002, losses from pests,
insects and diseases in India amount to Rs.90, 000 cr. a year. This calls for the enhanced and effective use of pesticides to
cut down the crop losses and increase production of food grains.
To achieve this, there is a need for high quality pesticides. Among the significant changes brought by globalisation, the
opportunity for the Agrochemicals industry in India has increased manifold. Further, various agrochemicals are getting
off patent in the next 5 years, which will provide huge opportunities for those having the required process technology
and manufacturing facilities.
Conclusion: IIL is the fastest growing insecticides formulation company in the country armed with world-class next
generation products with advanced technology.
At its CMP of Rs.59, the share is discounted less than 5 times its FY08 earnings against the industry average P/E multiple
of over 25 times. In fact, the United Phosphorous share is discounted at around 60 times its earnings. The share of IIL is
available at less than its book value and lower than its IPO price of Rs.115 and its dividend yield works out to 3%. The
share can be bought for decent appreciation in the medium-to-long-term. Once the market sentiment improves, the share
is likely to be on the radar of savvy investors. Buy and forget.
Market may remain under pressure
MARKET REVIEW
By Ashok D. Singh
The Sensex declined 322.69 points or 2.19% to 14,401.49 for the week ended Friday, 22 August 2008. The NSE Nifty lost
103.25 points or 2.33% at 4327.45 in the week. Weak global cues kept the market under pressure throughout the week.
Shares in the interest rate sensitive sectors like banking, real estate and automobile witnessed selling pressure. A bounce
back in crude oil prices also kept investors on the edge.
The Sensex is down 5885.50 points or 29.01% in calendar year 2008 so far from its close of 20,286.99 on 31 December 2007.
It is 6805.28 points or 32.09% away from its all-time high of 21,206.77 struck on 10 January 2008.
The BSE Mid-Cap index fell 96.57 points or 1.66% to 5,726.85 in the week. The BSE Small-Cap index slipped 184.59 points
or 2.60% to 6,925.85 in the week.
The wholesale price index rose 12.63% in 12 months to 9 August 2008, above the previous week's annual rise of 12.44%,
government data released on 21 August 2008, showed. Inflation for the week ended 14 June 2008 was revised upwards to
11.80% from 11.42%.
A further rise in crude oil prices may act as a dampener for the stock markets. Light, sweet crude for September 2008
delivery surged $5.62 to $121.18 a barrel on Thursday, 21 August 2008 on the New York Mercantile Exchange (NYMEX)
on a weaker dollar and worries about tightening output by OPEC countries.
The Union Cabinet on Thursday, 21 August 2008 cleared the policy guidelines for the commercial rollout of Internet
Protocol TV services, a new cable TV delivery system that would benefit both telecom players and consumers. The
Cabinet also gave its approval to amend the policy guidelines for downlinking of television channels to allow
broadcasters to provide content to IPTV
service providers. Currently, downlinking
norms allow broadcasters only to share their
channels with cable and direct-to-home
platforms. IPTV involves delivery of
television and video signals over a broadband
network.
7
A 2-day meeting of the 45 countries of the
Nuclear Suppliers Group (NSG) began in
Vienna on Thursday, 21 August 2008. A green
signal by the NSG is required for the deal to
proceed to the US Congress for final
ratification. As per reports, the nuclear
supplier nations at a meeting on Thursday, 21
August 2008, proposed conditions for lifting a
global ban on fuel and technology exports to
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India, a step required to implement a US-India nuclear cooperation deal. Market will closely watch the developments on
the Indo-US nuclear deal
FIIs sold shares worth Rs.1109.50 cr. in August 2008 (till 21 August 2008). FIIs sold shares worth Rs.28,411.50 cr. in the
calendar year 2008. Mutual funds sold shares worth Rs.983.50 cr. in August 2008 (till 21 August 2008).
The market extended its previous week's losses on Monday, 18 August 2008. The Sensex lost 78.52 points or 0.53% to
14,645.66. The NSE Nifty was down 37.65 points or 0.85% to 4,393.05.
Fears of more losses from the US mortgage crisis globally hit domestic bourses on Tuesday, 19 August 2008. The market,
however, recovered from the lower level in late trade. The Sensex lost 101.93 points or 0.7% to 14,543.73. The NSE Nifty
was down 24.80 points or 0.56% to 4,368.25.
The market posted decent gains on Wednesday, 20 August 2008, snapping losses made in the five successive trading
sessions. However, it came off from an intra-day high hit in late trade. The Sensex rose 134.50 points or 0.92% to 14,678.23.
The NSE Nifty rose 47.50 points or 1.09% to 4,415.75.
Bears took charge on Thursday, 21 August 2008 as caution prevailed ahead of the weekly inflation data to be released
after the trading hours on that day. Rate sensitive realty and banking stocks took a beating. The Sensex lost 434.50 points
or 2.96% to 14,243.73. The NSE Nifty was down 131.90 points or 2.99% to 4,283.85.
On Friday, 22 August 2008, key benchmark indices clocked decent gains after posting steep losses in the previous trading
session. The Sensex gained 157.76 points or 1.11% to 14,401.49. The NSE Nifty gained 43.60 points or 1.02% to 4327.45.
Ranbaxy Laboratories rose 4.61% to Rs.522.80. Japan's Daiichi Sankyo's open offer to buy a 20% stake in Ranbaxy at Rs.737
per share commenced on 16 August 2008. The offer closes on 4 September 2008.
Tata Steel fell 3.53% to Rs.594.45 in the week. Anglo-Dutch steelmaker Corus, which is controlled by Tata Steel, has
entered into exclusive negotiations with Klesch & Company to sell its two aluminium smelters in the Netherlands and
Germany. It follows an unsuccessful attempt in December 2007 to sell the smelters.
Ambuja Cements fell 5.55% to Rs.80. As per reports, Ambuja Cements plans to expand in the south Indian market by
transporting cement by the sea route. It is one of the few domestic cement makers having expertise in using sea routes for
transporting cement.
State Bank of India fell 7.86% to Rs.1,346.25. The bank's staff and its seven subsidiaries went on strike on 18 August 2008,
protesting the merger of subsidiary State Bank of Saurashtra with the bank.
ICICI Bank fell 4.27% to Rs.644.50. The bank has reportedly sold about $275 million from its credit derivative portfolio of
its foreign branches. The transaction, closed a few weeks ago, will enable ICICI Bank to cut its mark-to-market losses,
reports suggested.
Maruti Suzuki (India) fell 2.87% to 631.85. The company reportedly plans to increase its vehicle exports to 2,00,000 units
annually by 2010-11.
Tata Motors fell 1.54% to 425.60. The company scrapped its plan to raise Rs.3000 cr. by issuing convertible preference
shares due to adverse market conditions. However, the plan to sell rights shares worth Rs.4200 cr. remains unchanged.
The Sensex declined 322.69 points to close at 14,401.49 last week. The market may remain under pressure next week after
inflation recorded the fastest rise in more than 16 years in early August 2008, increasing the likelihood of the Reserve
Bank of India raising interest rates again. On 29 July 2008, the Reserve Bank of India (RBI), at its quarterly policy review,
raised repo rate by 50 basis points to a seven-year high of 9% to curb inflation and dampen inflationary expectations. RBI
also raised the cash reserve ratio (CRR), the proportion of funds that banks must keep on deposit with it, by 25 basis
points to 9%.
With no major key events scheduled in the forthcoming week, the market will closely watch global stock market cues. But
it may turn volatile on account of expiry of August 2008 derivatives contracts on Thursday, 28 August 2008.
8
Market to improve
MARKET
By G. S. Roongta
When the stock markets' 5-day losing streak was broken on Wednesday, 20 August 2008, marketmen breathed a sigh of
relief on the assumption that the correction of the current rally upto Sensex 15579 was over. But this gain
of 134.5 points proved to be short-lived as the loss of 434.5 points the very next day on Thursday, 21
August 2008 was too severe especially as there were no negative factors either political or economic to
justify this jolt.
G.S. Roongta
This was perhaps on fears of sharp inflation numbers beyond 13%, which may have triggered the short-
selling in the market prior to the formal announcement. There was no other negative factor was likely as
crude oil, gold, metals and other commodities displayed a downward trend and should have logically
boosted the markets. But the speculation on inflation numbers propelled the short-sell.
9
The fact that it was 12.63%, which is lower than what was anticipated, led to a reversal on Friday, 22 August 2008, as the
market gained 157.76 points to close at 14401.49 on the BSE Sensex and a gain of 43.6 points to close at 4327.45 on the
Nifty.
Last week began with narrow fluctuations of about 100 points on the Sensex on the first 2 days. On Monday, 18 August
2008, the Sensex closed at 14646 with a loss of 78.52 points and 100.93 points on Tuesday, 19 August 2008, as it closed at
14544. But the loss on the first 2 days was almost made up by the gain of 135 points on Wednesday, 20 August 2008 as the
Sensex closed at 14678. The marginal loss of 45 points in 3 days was negligible and gave the impression of rangebound
trading.
This was obviously not acceptable to the bears as they once again tried to create a panic on Thursday, 21 August 2008, and
hammered the market trying to break its support levels. As Friday's (22 August 2008) close was heart warming and the
inflation figures were below 13%, I think the market will remain good and improve hereafter.
As far as fundamentals are concerned, they seem to favour the bulls. And if they remain positive, then there is no reason
why the market should go down even while punters are speculating about the correction to continue for some time to test
the Sensex 13000-13500 level in the current corrective phase.
The only major worry is on the interest front on account of the Reserve Bank's rigid move to check money supply even at
the cost of growth leading to hard monetary measures. Industry is, therefore, affected not only by lack of funds for
ongoing expansion but also faces cost escalation and additional costs, which will affect project payout projections.
An increase in interest by banks has definitely affected the sale of consumer durables, auto loans and home loans, which
is bound to have a negative impact on housing and real estate, automobiles & ancillaries and the white and brown goods
industry. This will hamper sales and adversely impact the corporate sector unless it is rectified. Because of this, stocks
from these sectors have been beaten down.
Last week, we had recommended Elecon Engineering but due to the weak market sentiment it was traded in the limited
range of Rs.100-118 throughout the week. This amply suggests that the retail investors' tempo is still very low and no one
is in the mood to invest. Even if Money Times readers make some investment, they do not stand to gain much nor are
encouraged by the stock price, which remains sluggish.
Despite this and keeping in mind the right spirit of recommending for the medium and long-term, this week's
recommendation is Tata Tea Ltd. (TTL).
Tata Tea Ltd.
BSE Code: 500800
NSE Code: TATATEA
TTL is a leader in the Tea & Beverages sector that is welcomed by one and all every morning with his/her cup of tea or
coffee.
With its strong global brand portfolio in the black tea business together with several other products, TTL is a major global
player in the tea business.
In India, its agenda for growth is to meet consumer demand along the beverages value chain. Thus TTL innovates to
develop convergence across tea, coffee and water and enhanced its beverage offerings by developing alternative channels
to access consumers.
Currently, the major contribution to its revenue and profit comes from its black tea brands. Its growth options in other
beverages and alternate formats are being prioritised.
Brands:
(1) Tata Tea Premium – Today, it is the single largest brand in the country enjoying market leadership with a
market share of 9.2%.
(2) Tata Tea Agni – It is the largest brand in the economy segment of the packet tea market. Its extra strong blend at
a favourable price has made the brand very accessible and popular choice.
(3) Tata Tea Gold – A superior blend of 85% CTC and 15% long leaf tea. This has always been the forefront of
innovation.
(4) Life – It is TTL's foray into the health and wellness space. A unique blend with natural flavours of brahmi,
cardamom, tulsi and ginger.
(5) Tetley – It is a global tea brand and No. 1 tea bag brand challenging Unilever's leadership.
(6) There are host of other brands namely Chakra Gold, Gemini, Kanan Devan, Temptation known for their taste,
holistic healing, hydrating, fruity, slimming properties.
Review of 2007-08:
(1) During the year, TTL has spread its wings into mineral water by taking over Mount Everest Mineral Water Co.
Ltd. and its brand 'Himalayan', which has good market potential.
(2) It sold and transferred 24 of its tea estates comprising its North India Plantation Division (NIPD) to
Amalgamated Plantations Pvt. Ltd. (APPL).
(3) TTL sold its 30% stake in Energy Brands Inc. to Coca Cola and recorded a windfall gain of Rs.1607.52 cr.
Financial Highlights:
(Rs. in cr.)
From the above table, it can be observed that the company is in strong
financial health with enormous Reserves & Surplus of Rs.1742.21 cr.
on its equity capital of just Rs.62 cr., which provides a good
opportunity for generous capitalisation through liberal bonus issues.
Dividend: The company has paid liberal and robust dividend at Rs.35
per share on Rs.10 paid-up share.
Preferential Issue: On 2 May 2007, TTL issued 28.10 lakh shares of
Rs.10 each to the promoters, Tata Sons, which also gives a clue of its
future being very good.
Performance: TTL's international branded Tetley Tea has a robust
market share with sales growth of about 6%.
The company's consolidated sales including Tetley and all its
subsidiaries amounted to Rs.4432 cr. as against its standalone turnover of Rs.1264 cr.
Particulars
2007-08
2006-07
Equity
61.84
59.03
Reserves
1742.21
1484.69
Loans
757.51
797.00
Net Fixed Assets
98.09
246.58
Investments
2193.77
2045.92
Revenue
Income
1263.29
1146.11
Profit after Int. & Dep.
542.07
482.95
Exceptional Income
156.21
133.18
Profit Before Tax
385.86
349.77
Taxation
73.00
43.20
Profit After Tax
312.86
306.57
Dividend (%)
350
150
Restructuring: Its NIPD's work was completed in FY08 as mentioned earlier, which will relieve the company from any
labour hurdles.
Future Plans: With more projects and product development with a global focus will be undertaken to fit into the
company's strategic growth plans.
Market Price: During FY08, the TTL share hit Rs.1015 in January 2008 and touched a low of Rs.545 thereafter. Currently, it
is traded at Rs.725 in a sluggish market but has the potential to touch Rs.1000 near its earlier top any time in 2008-09.
Conclusion: TTL being a world renowned company has great upside potential at the current market price in every aspect
right from its small equity base, leadership in product categories, possibility of liberal bonus, generous dividend
distribution, capacity for future growth through acquisition, merger and expansion of activities.
Readers who wish to add this stock to their portfolio can do so without any risk and with at least 40-50% appreciation in
10-12 months.
Tough times for IPOs
PRIMARY MARKET
By Prithvi Haldea
History surely repeats itself. Every time the secondary market tanks, the primary market goes into a slumber. Since end-
January this year, when the Sensex first tumbled, the IPO market has been hit badly. Between February and August 2008,
only 25 IPOs, all small ones, have hit the market, raising a meagre Rs.4,345 cr. In 2007, these seven months had seen 65
IPOs raising Rs.32,993 cr.
In good times, the last hurdle is the SEBI approval and a company would typically hit the market as soon as it receives the
approval. Not any more. In recent months, as many as 22 companies, planning to collectively raise Rs.16,539 cr., have
allowed their IPO approvals to lapse. They include some big names like Jaiprakash Ventures (Rs.4000 cr.), Reliance
Infratel (Rs.4000 cr.), UTI Asset Management (Rs.2000 cr.), Acme Telepower (Rs.1200 cr.), MCX (Rs.600 cr.) and Vascon
Engineers (Rs.350 cr.).
There is more bad news. As many as 8 companies, collectively planning to raise Rs.4,772 cr. have withdrawn their offer
documents since January 2008. This includes JSW Energy (Rs.4000 cr.).
Also in the limbo could be another 12 companies, collectively aiming to raise Rs.3,643 cr. and currently hold the valid
SEBI approval. But it appears that given the dull sentiment, they too would allow their approval to expire. (A company is
required to enter the market within 90 days of receiving the SEBI approval). This list includes some big names like
Mahindra Holiday Resorts (Rs.1000 cr.), DB Corporation (Rs.1000 cr.), Cox & Kings (Rs.400 cr.) and RITES (Rs.350 cr.).
Clearly, all these companies are unwilling to compromise significantly on their valuations, which are badly hit based as
they were on peer group comparisons. The demand for new paper is obviously very weak in a market like this; when
there are no buyers for already listed stocks which have a proven track record in the public domain. Why would any one
risk his money on untested stocks? For companies, IPO is once-in-a-lifetime event and none would dare push his luck and
face the prospect of a disaster. Emaar and Wockhardt had earlier dared the market and bitten the dust.
Another 32 companies are planning to collectively raise Rs.18,175 cr. They have already filed with SEBI and are awaiting
approval. Surely, most of these would be hoping that the approval does not come in early! This list includes some big
names like Adani Power (Rs.5630 cr.), Future Ventures (Rs.2660 cr.), Bharat Oman Refineries (Rs.2400 cr.), NHPC
(Rs.1670 cr.) and Oil India (Rs.1400 cr.) as well as some prominent names like Godrej Properties (Rs.750 cr.) Pipavav
Shipyard (Rs.700 cr.) and Ramky Infrastructure (Rs.400 cr.).
10
In summary, at least 74 companies who were close to making an IPO and collectively raise a huge Rs.43,129 cr. are now
awaiting better times.
Then there are over 500 companies in the IPO pipeline. They had announced their IPO intention and would have been
getting ready to file with SEBI but have now put their plans on hold. They include companies like Avesthagen, Bhilwara
Energy, BPTP, Clarisis Lifesciences, Ennore Port, Essar Power, GMR Energy, ICICI Securities, Indian Railway Catering,
Lodha Builders, Microsec, Percept, Sahara Infrastructure, SRL Ranbaxy, Sterlite Energy, TCG Lifesciences and Vatika
Group.
What does this mean for India Inc? For companies whose IPOs were linked to project financing, the present market spells
bad news. They either go for expensive debt, that too in case their balance sheets still allows for more debt. Or they look
for private equity which is not easy to come by and again there is a problem of low valuations. However, companies who
were planning IPOs just because the market was giving money, or they wanted market validation of their wealth, or who
wanted money and subsequently use the money and/or their shares for acquisitions would, and can, simply wait for
better times. Companies where IPO was a disinvestment - by the promoters, government or private equity funds- can also
afford to wait.
Sectorally, the worst affected are companies in the real estate and financial services sector, courtesy the huge meltdown in
the valuations of such listed stocks. Also in problem would be power companies, given the bitter experience with the
Reliance Power IPO.
Abhishek Corporation: A worthy buy
STOCK SCAN
By Ankita Jain
BSE Code: 532831
NSE Code: ABHISHEK
Recommended Price: Rs.30
Current Price: Rs.44.60
Target Price: Rs.100 in 1 year
Abhishek Corporation Ltd. (ACL) was formerly known as Abhishek Mills Ltd. The Company's principal activity
is textiles and construction. It is a 100% export-oriented unit (EOU).
ACL is setting up an integrated facility of yarn dyeing, weaving, and process house in Tamgaon, Kolhapur-
Hupari road, district Kolhapur adjacent to its existing premises.
The company is entering higher segments of the textile value chain. It is forward integrating by setting up
facilities for yarn-dyed shirting fabrics from finer count yarn manufactured by it. ACL is foraying into the lifestyle
segment.
The company's project 'Yarn Dyed Shirting Fabric' is progressing and is in the final lap of its implementation. It
involves Dyeing, Warping, Weaving and Processing unit. During March 2008, trial runs of Dyeing, Warping and
Weaving have been successfully carried out. The installation of s process house was completed in July 2008.
Commercial production of the project is expected to commence by September 2008.
Following is the data of expansion plan:
Activity
Existing Capacity
Capacity to be installed in
Expansion Project
Capacity Post Expansion
from September 2008
Spinning
33120 spindles
12000 spindles
45120 spindles
Yarn Dyeing
Nil
1620 tonnes per annum
1620 tonnes per annum
Weaving
Nil
108 looms
108 looms
Processing
Nil
21.60 million mtrs per annum
21.60 million mtrs. per annum
The project has been partly financed by IPO of 41,00,000 equity shares at Rs.100 each constituting Rs.41 cr. The
total cost of the project is Rs.222.13 cr. of which banks funded a term loan of Rs.150 cr. The balance amount has
been funded through internal accruals by the promoters of the company.
A total capacity of 8 million mtrs. fabric per annum will be established with the successful commissioning of the
new project. It is a vertical integration from cotton yarn to dyed and processed shirting fabric, which is expected
to lead to a substantial growth of turnover and profitability in the immediate future on account of higher value
addition and better margins.
The turnover of ACL is expected to touch Rs.220 cr. by next year compared to Rs.68 cr. in FY08. Profitability will
be seen increasing sharply with the start of the new project.
The EPS expected for 2009 is Rs.25 and for 2010 is expected to be Rs.40-45.
Its factory for the shirting project is built over a sprawling area of 44 acres with built-up area of 38,406 sq. mtrs.
with the most modern amenities such as air channels, humidification ducts, underground chambers to ensure
clean and healthy atmosphere with levels of humidity that adds to the quality of the products.
11
As on June 30, 2008, the company has imported machineries worth Rs.162 cr from various European countries
like Switzerland, Germany, Italy and Japan, etc.
The company intends to export the entire production of Yarn Dyed shirting Fabrics to Europe and USA. They are
in the process of streamlining their marketing set-up with the guidance and support of M/s. Werner
International.
Due to higher labour costs in Europe, it is becoming impossible to manufacture clothing fabrics. European
garment industries are, therefore, looking at Asian countries like India & China for outsourcing their need for
fabrics. India is preferable due to its excellent quality and service at a lower cost.
UAE based Blue Mark Mercantile Ltd. has acquired 9.68% in ACL. There is a strong possibility of shortage in
liquidity since about 91% of shareholding is with the top 100 shareholders.
The company's move up the textile value chain will result in higher margins on account of integrated operations,
cost advantages, better quality, and low turnaround time.
With the proposed expansion of its spinning capacity, the company is looking at adding new clientele in existing
and new geographies. Considering the potential for yarn dyed shirting fabric in US and Europe, it is targeting
these markets.
Generally, textile industry yields an operating margin of 20-22% with net profit of 7-8%. ACL being an EOU with
a newly build set-up can provide better quality and quantity at a lower cost. Hence its net profit could be much
higher.
We recommend ACL as worthy buy for long-term investment for 12-18 months.
12
By Saarthi
STOCK WATCH
After ending FY08 on quite a buoyant note, Patels Airtemp (India) Ltd. (Code: 517417) (Rs.57.25) clocked 60% growth in
sales at Rs.13.25 cr. whereas its net profit doubled to Rs.1.33 cr. for Q1FY09. It is engaged in the manufacture and sale of
an extensive range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure
vessels, air-conditioning and refrigeration equipments and turnkey HVAC projects in India and in marketing of
equipments abroad. It has technical collaboration with M/s. TEK FINS Inc., USA, for design and manufacture of air
cooled heat exchangers. It supplies to core industrial sectors like power, refineries, fertilisers, cements, petrochemicals,
pharmaceuticals, textiles and chemical Industries. For future growth, the company is concentrating more on high value
added engineering products some of which have won the coveted ASME 'U' Stamp authorisation. Accordingly, for FY09
it is expected to register a topline of Rs.60 cr. with profit of Rs.5.50 cr., which leads to an EPS of Rs.11 on its current equity
of Rs.5 cr. The scrip has the potential to appreciate 50% within a year from the current level. Buy on declines.
******
Although experts are skeptical about the future prospects of the real estate sector due to the low demand and high
supply, the stock of Kolte-Patil Developers Ltd. (Code: 532924) (Rs.68.15) can still be bought as a contrarian bet. It has
reported satisfactory results for Q1FY09 as it earned a PAT of Rs.31.50 cr. on total revenue of Rs.97 cr. on a consolidated
basis. The company is in the midst of developing 28 projects (24 in Pune and 4 in Bangalore) with a total saleable area of
around 18 million sq. ft. comprising 10 residential complexes, 11 commercial properties, 5 IT parks, 1 integrated township
and 1 service apartment. In addition, it has entered into a MoU or acquired development rights for another 22 million sq.
ft. of saleable area in and around Pune and Bangalore. Although the actual land bank owned by the company is less than
15 acres but the development right is equivalent to whopping 755 acres of land. With this the company has total
developable space of massive 40 million sq. ft. Importantly, it has chalked out a project cost of roughly Rs.3650 cr. to be
spent in coming 7-9 years. For funding these projects, it has entered into a joint venture agreement with ICICI Venture
Funds, K2 Properties etc. Despite the anticipated fall in real estate prices, the company hopes to maintain round same
bottomline for FY09 as in FY08. At the current market cap of Rs.500, the risk-reward ratio favours the bull.
******
Last week, Liberty Phosphate Ltd. (Code: 530273) (Rs.19.95) reported terrific performance for Q1FY09. Sales has more
than doubled to Rs.67 cr. and net profit
multiplied 10 times to Rs.4.60 against Rs.0.42
cr. last year. It recorded an all time high EPS
of Rs.7 for the single quarter. Incidentally,
even after the sharp rally post results, the
scrip is still trading at 50% discount to its 52-
week high of Rs.40. The company is the
largest manufacture of Single Super
Phosphate (SSP), commanding more than 14%
market share. Presently, it has four
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manufacturing units having total installed capacity of 463,000 MTPA of SSP fertilisers. In the last one and half years, the
promoters have increased their stake to 45% from 35% by preferential allotment at Rs.25. Recently to fund their working
capital requirements, the company is again making preferential allotment of 28 lakh warrants to the promoter/non-
promoter group, which will be converted at Rs.18 per share. With the good rainfall this season and the loan waiver
scheme for farmers, the company is expected to do well in the current year. For FY09, it can register sales of Rs.175 cr.
with profit of Rs.5.50 cr. i.e. an EPS of Rs.8 on its equity of Rs.6.70 cr. The scrip can, therefore, easily shoot up by 50%
within a year.
******
Royal Orchid Hotels Ltd. (Code: 532699) (Rs.79.45) operates in the hospitality sector with its major presence in
Bangalore. Currently, it manages 8 properties including 5 star hotels, budget hotels, resorts, serviced apartments etc. with
a total room strength of around 655 rooms. Interestingly, the company follows a unique 'Asset light' business model of
taking properties on lease or entering into a contract for managing & operating the existing hotels instead of owning them
outright. For Q1FY09, its revenue shot up 40% to Rs.38 cr. but due to high interest and depreciation costs, net profit was
up only 10% at Rs.6.80 cr. To cash in on the huge opportunity in the hospitality industry, the company has chalked out
some very aggressive expansion plans for developing/acquiring 5 star, 4 star and budget hotels. Of late, it bought 30
acres of property in Tanzania and has formed a joint venture with Parsvanath Developers to develop 10 hotels at an
investment of Rs.500 cr. Couple of months back, it acquired 50% stake in Galaxy Beach Resort (65 rooms) in Goa. For
FY09, it may report consolidated revenue of more than Rs.160 cr. with net profit of Rs.30 cr. i.e. an EPS of Rs.11 on its
equity of Rs.27.25 cr. In case the company successfully executes as per plan, then it can offer handsome returns over the
long run. Besides, it's an excellent dividend yield stock as well.
By Kukku
FIFTY FIFTY
Investment Calls
* The main business of Grauer & Weil (India) Ltd. (Rs.100.45) is manufacturing and sale of:
a) Chemicals required for metal finishing, their intermediates and other specialty chemicals.
b) Electroplating plants, their components, effluent treatment plants and other engineering products.
c) Pretreatment Processes and Industrial Oils.
d) Development and management of properties.
During FY08, a healthy all round growth was registered by the company in sales and profits. While aggregate revenues
have risen by 23.67%, the net profit has grown by 11.42% from Rs.11.37 cr. to Rs.12.69 cr. in 2008.
The company has diversified into allied fields of surface treatment/finishes e.g. Pre-Treatment Processes as also Oils &
Lubricants. Consequent to the industrial growth in the engineering sector, the demand for such products has excellent
prospects. The company has commenced construction of a new 4000 MTA manufacturing facility in Jammu, which is
expected to be operational soon. Jammu & Kashmir does not only offer a low cost base for manufacturing but also
offers important fiscal benefits, which will help it increase its competitive edge.
The second phase of Growel's 101, the shoppertainment mall at Kandivli in Mumbai is progressing fast and would be
completed by April 2009. This phase will add another 3,00,000 sq. ft. of space to the existing 1,25,000 sq. ft., which earned
revenues of Rs.5.22 cr. Since last month, lease rental rates have increased by 15%, which will result in better earnings in
the current year.
Investors are advised to stay invested or add below Rs.90 level as the current outlook is encouraging.
* Oudh Sugar Mills Ltd. (OSML) (Rs.58.40) belongs to the renowned K. K. Birla Group of companies. From a modest
beginning in 1932, OSML has grown to become the leader in the Sugar Industry.
Through organic and inorganic means the company has cautiously but consistently grown from a single manufacturing
unit to having three sugar manufacturing units with an aggregate crushing capacity of about 21,700 tonnes of sugarcane
per day (TCD), two Distilleries producing 75 kilo litre per day (KLPD) of industrial alcohol/ethanol, Bio-Compost plant
producing organic fertiliser and a fruit and vegetable canning factory.
Being an integrated company, it is in a position to exploit the better outlook in the sugar sector and has already reported a
net profit of Rs.16.69 cr. for Q4FY08. With more remunerative sugar prices, it is likely to report a very strong growth in
topline & bottomline for FY09.
This stock was strongly advised in 2004/05 and had touched a high of Rs.290.
OSML has now come out with right issue at Rs.50 premium, which is closing on 29 August 2007 while the stock is
available below right issue price. Investors can take small exposure with medium-term view in this stock.
Market Guidance
* Hindustan Dorr-Oliver (Rs.99) – The Environmental Engineering sector is witnessing phenomenal growth due to
increased spending in Water & Waste Water Treatment by Central & State Governments. The company has orders in
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hand worth Rs.1000 cr. Of these, 54% are from environment engineering, 27% from minerals, 14% from fertilizers and 5%
from pulp & paper.
India is emerging as global design & engineering hub as MNCs increasingly outsource industrial & engineering tasks for
diverse industrial sectors to India.
HDO Technologies Ltd., which is in knowledge process outsourcing (KPO) of such engineering services is likely to
become a growing business for the company.
Keep watch to add this stock on dips for good long-term growth.
* As on 31 March 2008, Hindustan Construction Company (HCC) (Rs.95.15) had a strong order book of Rs.10.16 cr.,
which is more than three times its revenue in FY08. The break-up of orders is power sector: 47% and water irrigation is
21%. Both are high margin yielding projects and constitute more than two-third of the order book.
HCC is developing a Corporate IT Park at Vikroli on a total saleable area of 1.8 million sq. ft., which has been acquired by
HCC Real Estate from the parent company at a total cost of Rs.40 cr. HCC plans to lease out the entire property and the
project is expected to be commissioned by April 2009.
The company is also developing Lavasa Hill station (near Pune) with a 63% stake. Spread across 12,500 acres (saleable
area 150 million sq. ft.) the project is scheduled to be completed in 3 phases with Phase 1 expected to start in FY10.
At the current level of Rs.97, the downside is less. Long-term investors can accumulate this stock.
* Sakthi Sugar (Rs.110.35), stock has attracted attention of strong investors & market players. Stay invested in this stock
for a good upside. Rajshree Sugars & Chemicals (Rs.70.80) is another stock in the sector likely to do well.
* Paper Industry - There are indications of a firm trend in paper prices and the industry is able to pass on the increase in
input costs. In India, the per capita consumption is just 7 kg against world average of 53 kg. Stay invested in the sector
with long-term view.
* Broking Firms - There are indications of cost cutting & restructuring of business in the sector. Many brokerage stocks
are still overpriced. Investors can avoid this sector for investment.
Note: There are clear signs of a slowdown in many sectors such as auto industry, housing sector and capital goods sector
like machine tools industry. Steel prices, too, are showing signs of weakness while copper & aluminium are trading at 6/7
months low prices.
Although most of these factors are already discounted in current stock prices but investors still need to be cautious before
buying stocks at higher levels as global factors, too, are not favourable.
BSE Sensex is likely to take good support around 13750 levels.
By V. H. Dave
EXPERT EYE
Promoted by the KPR Group in 1988, Balaji Amines Ltd. (BAL) (Code: 530999) (Rs.119) is a leading manufacturer of
speciality chemicals and derivatives.
Its plant is located at Tamalwadi Village, Tuljapur Taluka, Osmanabad District, Maharashtra. Its Unit-II at Hyderabad
focuses on natural products has a R&D Centre approved by the Department of Science & Technology, Government of
India, staffed by a highly qualified team of professionals. Mr. A. Prathap Reddy is the managing director of the company.
BAL has been consistently adding capacities and fine-tuning processes from time to time. Today, it has a capacity of
18,000 TPA of methyl amines, 3,000 TPA of ethyl amines and 13,000 TPA of intermediates.
It has recently developed and launched two new products, N-Methyl – 2–Pyrrolidone & Morpholine, which are import
substitutes are being manufactured first time in India. It has set up a totally dedicated plant at Solapur, Maharashtra, for
these products with a capacity 3,000 TPA & 2,000 TPA respectively. BAL is successfully running the plant of chlorine
chloride (Solutions & Solid) with a capacity of 5,000 TPA.
During FY08, its sales increased by 24% to Rs.218 cr. and net profit by 27% to Rs.13 cr. resulting in an EPS of Rs.20 on its
increased capital resulting from the 1:1 bonus issue.
During Q1FY09, sales have advanced by 49% to Rs.73 cr. whereas net profit shot up by 67% to Rs.5.2 cr. while the EPS
was at Rs.8.
BAL's equity capital is Rs.6.5 cr. and with reserves of Rs.37.5 cr., the book value of the share works out to Rs.69.
Promoters hold 54.3% in the equity capital, foreign holding is 2%, PCB holding is 5.4% leaving 38.3% with the investing
public.
The end uses of BAL products are in growth oriented industries across the globe like pharmaceuticals, agro chemicals,
water treatment chemicals, rubber chemicals, refineries and photography chemicals etc.
BAL has been introducing new products every year. Methyl and Ethyl amines plants revamped during the previous year
have resulted in increased capacity and better sales for this quarter and will result in better realisations for the future.
BAL is establishing a captive power plant of 2.5 MW at Unit-I, which will be operational from October 2008 and will save
its cost of power and fuel by around Rs.3 cr. per annum.
14
Based on the current going, for FY09, BAL is likely to register sales of Rs.350 cr. with net profit of Rs.20 cr. and an EPS of
Rs.30.
The BAL share traded at Rs.119 at a P/E of 4.1 on its FY09 estimated EPS of Rs.30 is recommended with a target price of
Rs.160 in the medium-term. The 52-week high/low of the share has been Rs.237/90.
******
Mazda Ltd. (ML) (Code: 523792) (Rs.63) has announced highly encouraging results during Q1FY09, which went
unnoticed by the market. It has posted a Q1FY09 EPS of Rs.4.9, which leads to an annualised EPS of Rs.23. As its products
find application in nuclear plants, the Nuke-deal signed with USA will change its fortunes. ML supplied its products to
the Nuclear Plant at Taropore.
ML was incorporated in 1990 and started its operations in 1992. In FY02, the company diversified into biotechnology and
set up a laboratory for research purposes. But it has slowed down its biotech activities and is concentrating on its core
business.
ML is into high tech engineering products manufacturing critical control valves for power plants and refineries and
makes other heavy duty machinery, besides boilers, condensers, cooling towers, recovery systems and large capacity
pumps, process control equipments, steam jet ejectors, condensers, turbine by-pass valves and systems, evaporators, and
pollution control equipment. ML has a strategic alliance with Croll-Reynolds Inc. USA (C-R), which is a shareholder in
ML having 12% equity stake.
ML applied tailor-made quality assurance programmes in deliveries to nuclear plants, together with special applications
and other highly demanding services. Only 3-4 companies globally have the technology and precision for manufacturing
hypercritical valves in power plants or nuclear power plants.
At its manufacturing in Ahmedabad, ML and Croll-Reynolds work together to design, manufacture and test high quality
equipments for sale to all the regions of the world.
Its products find application in the booming oil refineries, power plants, chemicals, fertiliser, pharmaceuticals, sugar, food
processing, pulp & paper industries and others.
In order to meet the high-quality demands of the power, petrochemical & fertiliser industries, ML has developed a quality
assurance programme in accordance with the requirements of ASME Boiler and Pressure Vessel Code as well as other
national and international standards like ANSI, ISA, TEMA and HEI.
ML's clients include Reliance Industries, Indian Oil Corporation (IOC), Siemens, Triveni Engineering, Aventis, Clariant
Group, Unilever, Kvaerner Gas Power, Transpek, United Phosphorus, Voltas, Atul, Aarti Group, Wockhardt, Jacobs,
Sterlite. Thermax, Shasun, Unilever, Atul, Vanavil and GHCL among others.
For FY08, ML posted 15% higher sales of Rs.60 cr. and earned 27% increased net profit of Rs.6.7 cr. and posted an EPS of
Rs.15.6. During Q1FY09 although sales advanced by 71% to Rs.17.4 cr., net profit shot up by 162% to Rs.2.1 cr. The Q1EPS
alone stands at Rs.4.9.
The company exports nearly 15% of its products to Brazil, Taiwan, China, Korea, Germany, Malaysia, Denmark, Japan,
Philippines, Netherlands and Sri Lanka.
It has a tiny equity capital of just Rs.4.3 cr. with reserves of Rs.22.8 cr., the book value of the share works out to Rs.63. The
promoters along with Croll-Reynolds (12%) hold 44.3% in its equity capital, HSBC Financial Services Middle East holds
7.3%, PCBs hold 11.3% leaving 37.1% with the investing public.
Coming to its outlook, ML has a bright future
ahead. The industrial growth, particularly the
growth in power, petrochemicals, chemicals &
fertiliser and pharma industries augurs well
for the company. ML has already created a
distinct image and the surge in these above
industries will provide lucrative growth
opportunities. With significant investments in
the power and process industries, the outlook
for the company is very encouraging.
15
ML has significant presence in power
generation sector and will continue to witness
growth in this segment of the business. It sees
good growth for its vacuum systems to be
supplied for manufacturing of de-gassed steel
as there is an ever increasing demand for
special alloy steels.
FOR WEEKLY GAINS
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ML's sales and net profit are likely to jump
significantly in the coming years due to the demand for its precision products. Going forward, ML is likely to increase its
sales and profitability dramatically. During FY09, sales are expected to cross the Rs.80 cr. with net profit increasing to
Rs.10 cr., which would yield an EPS of Rs.23.3.
At the CMP of Rs.63, the share is trading at a P/E of 2.7 on its estimated EPS of Rs.23.3 for FY09. On such robust growth,
the share is likely to discount higher. The share is likely to appreciate by more than 50% in the next 6-9 months. The 52-
week high/low of the share has been Rs.120/42.
******
Honda Siel Power Products Ltd. (HSPPL) (Code: 522064) (Rs.220) was incorporated in September 1985 as Shriram
Honda Power, as a joint venture between Honda Motor Company, Japan, and Shriram Industrial Enterprises Ltd. (SEIL).
Honda Motor, Japan, holds 66.67% stake in the company. In 1998-99, it adopted the present name. Its works are situated
in Rudrapur (Uttarakhand), Pondicherry and at Greater Noida (UP).
It manufactures and markets portable generator sets, internal combustion engines pump sets, general-purpose engines
and spare parts. HSPPL also manufactures flywheels required for gensets, GP engines and water pumping sets and has a
pressure die-casting plant in Greater Noida.
HSPPL exports 45% of its production to over 35 countries through Honda's worldwide distribution network and has been
a recipient of the Export House status. Its key overseas markets are Japan, Korea, Australia, Malaysia, Africa, Europe,
South America etc.
With a strength of over 800 dealers and 15 area offices spread across India, HSPPL is the undisputed leader with 70%
market share in the field of portable generators.
During FY08, HSPPL posted 10% higher sales at Rs.252 cr. and earned 44% increased net profit of Rs.25 cr. Its EPS was
Rs.24.8 and a dividend of 40% was paid. During Q1FY09, sales have gone up by 27% to Rs.68.8 cr. and net profit
improved by 3% to Rs.5.7 cr.
Its equity capital is Rs.10.1 cr. and with reserves of Rs.173 cr., the book value of its share works out to Rs.181. The
promoters hold 66.7% in the equity capital, Foreign holding is 1.7%, PCB holding is 11.7% leaving 19.9% with the
investing public.
Debt-free HSPPL has cash of Rs.108 cr., which is invested in various schemes. The company has shifted its manufacturing
facility from Rudrapur (Uttarakhand) to Greater Noida, (U.P.). It may even sell its Rudrapur unit, which would generate
substantial cash for the company.
Based on early indicators, the power deficit scenario appears to be worsening. Inadequate generation and capacity
addition, escalating fuel prices and incremental consumer demands are the major contributors to the widening demand
and supply gap.
Its mass-market product is aimed at small and mid-size shops and establishments and lower and middle-income group
households.
Union Budget 2008-09, has once again reiterated the thrust on agriculture and power development, which firmly puts the
future of power equipment on the growth path.
Its thrust on reduction in manufacturing costs, increasing operational efficiency, efforts to penetrate in semi-urban areas
and rural markets and the growing institutional business on the back of massive investments in farm mechanisation and
infrastructure development, the business of HSPPL is expected to grow significantly and enhance its profitability.
The company is likely to post a net profit of Rs.30 cr. in FY09 on sales of Rs.290 cr., which would yield an EPS of Rs.29.7.
At the CMP of Rs.220, the share is trading at a P/E multiple of 7.3 on FY09 estimated EPS of Rs.29.7. The share is
recommended with a target price of Rs.290 in the medium-to-long-term at a reasonable P/E of 10. The 52-week high/low
of the share has been Rs.307/180.
16
By Nayan Patel
TECHNO FUNDA
Linc Pen & Plastics
BSE Code: 531241
Last Close: Rs.35
Linc Pen & Plastics Ltd. (LPPL) is a manufacturer of ball pens,
refills, pencils and other plastic products. Linc has now become a
global brand in the ball pen segment apart from a market leader in
the domestic market.
Review
Last week we recommended L G Balkrishna Bros at
Rs.14.65. During the week, the stock kissed Rs.16.89
level. We are still bullish on this stock as it is
available at dirt cheap.
Last year, it registered 47.60% growth in exports in the first five months. LPPL exports its products to SAARC countries,
Myanmar, Bangladesh, Nepal and underdeveloped and developing markets like Egypt, Tanzania, Brazil, Argentina,
Turkey etc.
The company has an equity of just Rs.8 cr. with reserves of around Rs.25 cr. Promoters hold 48.64% stake in the company,
corporate bodies hold 21.46% and the public holds 29.22%. After 66.67% hike in tax, LPPL has shown 10.53% growth in
net profit in the June 2008 quarter. At current level, the stock is traded at a P/E ratio of 5.4. This is a regular dividend
paying company. In FY08, the company enhanced the dividend from 12% to 15%, which indicates the promoters'
confidence about the company's bright future. The stock is available with good dividend yield and book closure for 15%
dividend is from 5 September 2008. The stock is available near its 52-week low. Investors can buy with stop loss of Rs.30.
On the upper side, stock will zoom to kiss Rs.43 level. Cross over will take it to Rs.55 level in coming days.
17
RCom launches BIG TV DTH
MONEY FOLIO
Reliance BIG TV Ltd., a wholly-owned subsidiary of Reliance Communications Ltd., has launched the first fully Digital
Home Entertainment Service on the most advanced MPEG4 Direct-To-Home (DTH) Platform.
At its launch stage, it would offer over 200 channels with digital quality picture and sound, better than any other DTH or
Cable Operator in India. The feature-rich BIG TV DTH Service would be available in over 1 lakh outlets across 6500
towns, making it by far the country's largest retail rollout of a Home Entertainment product & service.
Astec LifeSciences plans IPO
Astec LifeSciences Ltd., engaged in the manufacture and sale of active ingredients, intermediates and formulations for the
agrochemicals and pharmaceuticals segment, proposes to expand the existing manufacturing facilities at Mahad,
Maharashtra and its Research & Development facility at Dombivli near Mumbai.
The company proposes to enter the capital market with a public issue of 75,00,000 equity shares of Rs.10 each through
100% book building process to fund this proposed expansion along with registration expenses and long-term working
capital requirements.
NHPC plans IPO
NHPC Ltd., a hydroelectric power generating PSU formerly known as National Hydro Power Corporation, is entering the
capital market with an IPO of 1,67,73,74,015 equity shares to raise funds for expansion and to part finance the construction
& development costs of certain projects.
DBS Chola MF launches FMP Series 11
DBS Chola MF has launched DBS Chola Fixed Maturity Plan Series 11 (13 months). This close-ended fund seeks to
generate regular returns and capital appreciation by investing in debt (including securitised debt), Government and
Money Market securities maturing in line with the time profile of the respective plans. The benchmark for the fund will
be Crisil Short Term Fund Index.
The scheme has been developed taking into consideration requirements of investors who want a better post tax yield as
well as for investors who are risk averse and seek stable returns.
The maturity date of the scheme is 28 September 2009 and investors can opt between a Cumulative or Dividend options.
The scheme will not have any entry load but it will have a 2.00% exit load if redeemed before maturity.
Shiva Cement enhances efficiency
Shiva Cement's de-bottlenecking capex programme is in its last leg of completion.
Shiva Cement has also planned capacity expansion upto 2.6 MMTA in two phases for which the proposal has already
been submitted with the Orissa Government and Central Government for various statutory approvals. Its locational
advantage and alliance with ACC will facilitate the implementation of this expansion plan.
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 scrips.
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18