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Money Times Monday, September 8 - 14, 2008

 
Page 1
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and forfeit your subscription thereafter without any refund to you.
T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 43
Monday, September 8 - 14, 2008
Pages 18
No clear-cut direction
as market sentiment remains cautiously negative
By Sanjay R. Bhatia
The markets have displayed a rangebound trend with a negative bias on the back of negative global cues. Selling pressure
was witnessed at higher levels as markets once again failed to capitalise on the gains recorded on Tuesday, 2 September
2008. Traders and speculators were seen selling at higher levels and also going short. Incidentally, FIIs have remained net
buyers in the cash as well as the derivatives segments. Mutual Funds, too, were remained net buyers albeit their
purchases have been low.
1
The US economy continued to give out negative cues. Rise
in jobless claims and sluggish growth continued to fuel
fresh fears of a slowdown in the global economy. The
crude oil prices have also remained range bound after the
Tropical Storm Gustav passed away peacefully. Domestic
cues, meanwhile, have remained mixed. Inflation has
declined for the second consecutive week to 12.34% as on
23 August 2008, which is a positive sign. However, the
ongoing NSG meet has sent out negative signals. Any
favourable outcome for India would help improve the
sentiment in stocks that benefit from the US-India civil
nuclear deal. The markets continued to struggle to find a
clear-cut direction as participation was limited especially
at higher levels.
Now, it is important that the markets consolidate around current levels for them to stabilise and then witness an upside
breakout. With no major domestic triggers in sight, the markets would continue to take cues from global markets and
crude oil prices. The market sentiment continues to remain cautiously negative and the markets are likely to remain
rangebound. 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 and 13791 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.
Investors should stay away.
Light at the end of the tunnel
By Fakhri H. Sabuwala
The ray of hope with over 550 points rise in the BSE Sensex on Tuesday, 2 September 2008, and renewed FII buying of
over Rs.1000 cr. on that day dispersed the clouds of gloom from Dalal Street. Just last week, we had bid farewell to
terrible August 2008 and prayed for an auspicious September and it quite appeared so. May be the 'Kuber' up there is
opening his safe and distributing wealth albeit in small lots.
The new optimism generated by the fall in crude oil prices was, however, short-lived, going by the loss of 151 points on
Thursday, 4 September and 415 points on Friday, 5 September. But the inflation getting tamed is indeed a reason to rejoice
and cheer up. Slowly, the change of track by the market is evident. So brace your nerves for a snap poll by end 2008
without allowing any central or regional party to consolidate its position.
That GDP growth fell to 7.5% from 8% in such trying times in Q1FY09 is an achievement. Spreading this India shining
cheer to rural India may work wonders and it's only a matter of time before we see a race once again in infrastructure
scrips. Some such stocks that need a closer look are given hereunder and may be preferred for medium-to-long-term
investments.
Crompton Greaves Ltd. (CGL): India's leading player in power transmission & distribution (T&D) equipments and
service business. CGL is organized into 3 business groups – power systems, industrial systems and consumer products.
Of late, the company has taken a lead into power and industrial transformers, high tension circuit breakers, railway
signalling equipments, lighting products, fans, pumps, public switching, transmission and access products.
Government of India's 11
th
Five Year Plan envisages formation of a strong national power grid with a continued focus on
modernisation and upgradation of rural and urban power networks.
The acquisition of Pauwels (Belgium) and Ganz (Hungary) has catapulated CGL among the Top 10 T&D equipment
companies in the world.
CGL's EPS for FY09 is estimated at Rs.14, for FY10 at Rs.19 and for FY11 at Rs.26. With such robust growth in the coming
two years, the share could be a favourite of fund managers, portfolio managers and even retail investors.
BHEL: India's largest PSU engineering company caters to the power and infrastructure sectors. Its two major profit
centres are power (73% of FY08 revenue) and industry (27% of FY08 revenue). Viewed from FY03 to FY08, the company's
net sales and profits grew at 23% and 36% CAGR.
Today, BHEL's order backlog stands at Rs.87,500 cr., which is almost 4 times its FY08 revenue. From an EPS of Rs.34 in
FY06 to Rs.59 in FY08, the projected EPS for FY09 is Rs.73, Rs.88 for FY10 and Rs.107 for FY11. In a power deficit country
BHEL is a 'power'ful opportunity. How long can you neglect it?
GAIL: Successful passage of a 1:2 bonus and 100% dividend for shareholders of the country's largest gas transmission
company is a big trigger for a solid upmove. The increasing exposure of its gas pipeline business and doubling of capacity
at its petrochem plant, both at home and abroad, makes it a company to watch in coming days. The company till date has
7000 kms of pipeline in place and the HBJ pipeline is the lifeline for major gas consumers from the power and fertilizer
sectors. The company embarks on gas distribution to the kitchens in over 230 countries through its subsidiary Gail Gas.
An EPS of Rs.39 in the current year rising to Rs.45 by FY11E makes it a sure winner.
2
Sideways market
TRADING ON TECHNICALS
By Hitendra Vasudeo
Last week, the Sensex opened at 14412.95, attained a low of
14281.10 and moved up to 15106.15 before closing the week at
14483.83 and thereby showed a net fall of 80 points on a week-
to-week basis. Our profit booking level for the week was 15130
against which the Sensex attained a high of 15106 but fell to
close lower at 14483.33.
Resistance during the week will be at 14966-15167-15789.
Support will be at 14281-14000-13727.
Broadly, a sideways movement in the range of 15579-13727 is
likely to emerge. Last week, the Sensex tested the resistance of
15130 and reacted down. The current week could see it testing
the support levels.
For the time being, our strategy to sell or exit on rise and buy
on decline is bearing fruits and is associated with a sideways market. The gap down and gap up openings are a concern
on the daily charts creates a distortion for building trading strategies. Exit long on rise towards resistance is the key to
survive in this market. Overexcited trading and intention to carry positions might not pay off as the nature of the market
is sideways. A strong day might not result in a follow up. Similarly, a very weak day may not get translated in a follow
up downside move.
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
WEEKLY UP TREND STOCKS
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
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
CASTROL INDIA
342.20
298.1
327.1
341.1
356.1
385.1
78.5
325.6
18/07/08
NESTLE INDIA
1785.00 1707.0
1759.0
1785.0
1811.0
1863.0
72.1
1735.5
01/08/08
HERO HONDA MO 860.00
757.3
824.3
855.7
891.3
958.3
71.2
818.8
29/08/08
STERLING INT'L.
350.00
318.1
339.1
349.3
360.1
381.1
70.9
339.9
05/09/08
AIA ENGINEERING 1570.65 1352.1
1487.1
1538.6
1622.1
1757.1
70.8
1555.2
25/07/08
Wave III- Internals are as
WEEKLY DOWN TREND STOCKS
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
Wave X- 12514 to 15579
Wave Z- 15579 to 14002
(Not yet complete)
Another overall count
structure can be as
follows:
3
Wave I- 2594 to 3758
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
IDFC
91.20
76.8
87.1
93.2
97.4
107.7
24.64
92.84
16/05/08
UNITECH
157.25
132.1
150.4
162.0
168.8
187.1
29.02
161.09
22/08/08
INDBULLS REAL
278.65
207.6
259.5
292.3
311.4
363.3
29.35
288.65
22/08/08
INDIAN HOTELS
76.20
72.3
75.1
76.7
77.8
80.6
30.37
77.36
25/07/08
CENTRAL BANK
59.70
53.6
57.8
60.0
61.9
66.1
30.97
59.99
22/08/08
Wave II- 3758 to 2828
PUNTER'S PICKS
Note: Positional trade and exit at stop loss or target which ever is earlier. Not an intra-day trade. A delivery
based trade for a possible time frame of 1-7 trading days. Exit at first target or above.
Scrips
BSE
CODE
Last
Close
Buy Price
Buy On
Rise
Stop Loss Target 1 Target 2
Risk
Reward
ALLIED COMPUTERS
532919
23.00
22.50
23.90
21.10
25.6
28.4
1.38
BAJAJ HOLDING
500490 500.25
491.50
511.00
471.00
535.7
575.7
1.21
BLUE BIRD (I)
532781
34.30
33.75
35.90
31.05
38.9
43.8
1.41
BLUE STAR INFOTECH
532346
73.10
69.70
82.00
69.00
90.0
103.0
4.13
IBN18 BROADCAST
532800 112.95
112.20
115.45
105.30
121.7
131.9
1.15
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 12514
Wave V- 12514 to 15579 (current ongoing move)
Wave V can rally towards 17892-20596 provided 13727 is not violated
Internals of Wave V
Wave 1 or Wave A- 12514 to 15130
Wave 2 or Wave B- 15130 to 14002
Internals of Wave 2
Wave a- 15130 to 13727
Wave b-13727 to 15579
Wave c- 15579 to 14002
Wave 3 or Wave C – 14002 to 15106 (Not yet complete)
Conclusion
A sideways rangebound market is being witnessed in the wider band of 15800-13727 with bias shifting to alternate week.
If the triple zig-zag count still holds, then the bias is for a weaker market. To establish a stronger market needs more hard
work and repair job by bulls. Actually the market is in no man's land.
Strategy for the week
Exit long positions on rise to 14966-15579 range as the opportunity arises. Choppy and sideways market makes it difficult
to take a trading bias.
* Mobile Telecommunications is trading around Rs.20 and the company is going in for stock split to face value of Rs.1
per share from Rs.10. The intentions of the management are obvious.
TOWER TALK
* 3i Infotech has formed a 51% joint venture with a Chinese company that will localise the financial technology software
of 3i Infotech and cater to China's diversified financial services sector. A safe bet with minimal downward risk.
* Kavveri Telecom plans to invest Rs.100 cr. in infrastructure development through its subsidiary, Kavveri Telecom
Infrastructure Ltd., over a period of two years. Keep accumulating at sharp declines.
* Fundamentally, Satra Properties is still trading at rich valuation with a market cap of whopping Rs.1200 cr. Exit
immediately and invest in Tantia Constructions instead.
* LT Overseas is going cheap with a likely EPS of Rs.24 for FY09.
* Celestial Labs to undertake expansion & diversification in the near future. Some interested parties are constant buyers
in the counter and it is all set to post an EPS of Rs.11 for FY09 and Rs.16 in FY10. The share is poised to touch Rs.80 in the
medium-to-long-term.
* The shares of Jindal Poly Films are being cornered by the management in its buy-back scheme. With an expected EPS of
Rs.65 in FY09, the share is set to touch Rs.300 shortly.
* Ajanta Pharma is nearing completion of its expansion and R&D for about Rs.18 cr. Sources expect consolidated EPS of
Rs.22 in FY09 and Rs.28 in FY10. The share is likely to spurt to Rs.120 in the near term.
* Supreme Infrastructure is being eyed by punters. According to inside sources, the share is likely to touch Rs.100 with a
likely EPS of Rs.30 in FY09 and Rs.40 in FY10.
* With 7% equity stake of Patel Engineering, KNR Constructions is all set to garner an EPS of Rs.18 in FY09 and Rs.26 in
FY10.
* Mazda Ltd. is likely to post an EPS of Rs.22 on its small equity of Rs.4.3 cr. The share can easily touch the 3-digit mark.
* Ador Fontech, an Ador Welding group company, is expected to clock an EPS of Rs.35 in FY09. The share can appreciate
by at least 40%.
* Manugraph Industries is doing well after the acquisition of an US company. Sources close to the management expect an
EPS of Rs.26 and a share price of Rs.125.
* Circles close to the management of Sudarshan Chemicals expects a liberal bonus and an EPS of Rs.22.
* Micro Technologies is progressing well with its undergoing expansion. EPS of Rs.75 is expected. The share is good for
long-term and can fetch 100% return.
* Hariyana Ship Breaking, which registered Q1EPS of Rs.8, is all set to register an EPS of Rs.18 in FY09. The share may
cross the Rs.60 mark.
* Goa Carbon is bullish about its future prospects. It is expected to clock sales of Rs.500 cr. with a net profit of Rs.40 cr.
EPS could work out to Rs.43. The share is heading towards Rs.175 mark.
* A leading brokerage house strongly recommends Surya Pharma for long-term with a target of Rs.150. SPL is likely to
post an EPS of Rs.45 in FY09.
* Some analysts are bullish on Core Projects. The shares are being bought by circles close to the management and expect
the share price to cross the Rs.350 mark in the short-term.
By Saarthi
BEST BETS
Vakrangee Software Ltd. (Code: 511431)
Rs.202.80
4
Incorporated in 1990, Vakrangee Software Ltd. (VSL) is a leading provider of complete document and data management
solutions encompassing large-scale data capturing & management, scanning, digitization and printing. It has three
business segments, viz. document management services, printing management services and IT enabled services catering
to various verticals like the Central and the State governments, banking & financial services industry, telecom, power,
retail, aviation and others. Importantly, VSL has the largest scanning and variable data printing capacity in India with 5.6
million pages per day and 2.40 million pages per day respectively. Besides, the company is a pioneer in multi-lingual
application software and has developed versatile document management software, which can be used in 13 regional
languages. After its Voters Identity Card software, Electoral Roll software, Voters Data Entry Package, Cyber Saver etc.,
the company is in an advanced stage of developing Human Capital Management software & School ERP software which
have a tremendous potential in the domestic market. Currently, VSL derives 75% of its revenue from government
business while the balance comes from the private sector. Hence its clientele comprises various electioning offices,
government & semi-government organisations, public authorities & local bodies, business associates and other private
organisations.
Earlier, VSL was mainly into election commission work and database management but now the focus of the company is
on e-Governance including document management projects and now to print management projects. It boasts of
successfully completing the land record digitization project of Ghaziabad Development Authority, digitization of patent
records at Indian Patent Office, Public Facilitation Office under MCA-21 and various other electioning projects for
Maharashtra, Rajasthan, Chhattisgarh, Gujarat & UP. It has around 25 delivery centres in major cities across India. Apart
from being an outsourcing partner of TCS and CMC, the company has a tie-up with Godrej & Boyce for jointly executing
large election related projects at the National and State level. In December 2006, VSL imported the world's fastest printing
system - Kodak Versamark VT3000, which can print customized design from page to page. This machine has not only
helped the company execute all election commission related work in-house but also enabled it to fetch more business
from emerging opportunities like printing documents (including bills) for telecom companies, electricity supply
companies, retail groups etc. Recently it has
entered into a strategic alliance with
Eastman Kodak Company to offer mass
customization
&
personalization
of
customer communication practices in India
and has been granted the Kodak Gold Plus
accreditation status. Maintaining records
and issue of voters' identity card for
Maharashtra, MP, UP, Gujarat etc. is an
ongoing process for the company. For TCS,
it is doing Registrar of Companies database
management at 32 locations. Couple of
months ago, it bagged a prestigious project
from the chief election commission,
Maharashtra unit for the Delimitation
exercise, which consists of redrawing the
boundaries of the Lok Sabha and assembly
constituencies to maintain an equitable
distribution
of
population
across
constituencies. This project involves
preparation of the new electoral rolls in
multiple copies of more than 7 cr. voters in
the state.
October – December 2007
EBG Quarterly Performance:
100% once again
During October – December 2007, which is the first quarter of the fifth
year of 'Early Bird Gains' (EBG) – the investment newsletter that spots
multi-baggers, it has scored 100% success with all 15 recommendations
recording an appreciation.
EBG has, therefore, consistently, maintained quality while the bonus
issues in excess of 30% highlight the confidence of its recommendations.
Issue
Dated
Scrip
Buy
Price
Highest
price since
recom.
Growth
%
Tyche Peripherals Sys.
64.15
116.4
03/10/07
81
10/10/07
Hilton Metal Forging Ltd.
35.00
72.5
107
17/10/07
Hind Aluminium Inds.
5
Today, e-Governance is the fastest growing
business opportunity as well as a major
social responsibility initiative in India. It is
further fuelled by the implementation of
Right to Information Act (RTI) by the
Government of India (GOI), which makes it
mandatory for all government departments
to have all the information in digital form.
This implies not only conversion of
historical data but also to maintain present
60.10
102
70
24/10/07
62.25
114
Kamdhenu Ispat Ltd.
29.00
18.30
37.4
104
31/10/07
CHD Developers Ltd.
31/10/07
G M Breweries Ltd.
99.00
160
62
07/11/07
Asian Granito India Ltd.
94.00
135
44
14/11/07
Mudra Lifestyle Ltd.
78.85
114.9
45
21/11/07
Lumax Auto Technologies
80.75
115.65
43
36.95
73.9
100
28/11/07
Vybra Automet Ltd.
Avantel Softech Ltd.
96.85
138.5
05/12/07
43
12/12/07
Micro Forge (India) Ltd.
26.65
36.9
38
19/12/07
Mayur Uniquoters Ltd.
57.45
74
30
26/12/07
Arvind Remedies Ltd.
4.35
6.68
54
26/12/07
Relaxo Footwear Ltd.
68.75
88.65
29
EBG for sure profits
as well as future information in digital form. In view of the innumerable ministries, departments, offices at the Central
and State levels and other authorities, e-Governance has emerged as a huge business opportunity for the IT industry in
general and for VSL in particular. Besides, it has started focusing on the private sector and intends to enhance the share
from this segment to more than 50% of its total revenue. Given its rich experience and excellent track record, it is all set to
capitalize on this huge opportunity in coming years.
Over the last 3 years, VSL's topline and bottomline has been growing at an impressive CAGR of 90% and 160%
respectively. Moreover, the company has consistently registered an OPM of more than 40% and NPM of 20%. For FY08,
its revenue jumped up 90% to Rs.224 cr. while the its PAT more than doubled to Rs.50 cr. posting an EPS of Rs.23 on its
equity of Rs.21.40 cr. Incidentally, despite a substantial fall in the stock market coupled with bearish sentiment in the
stock market, warrant holders (including promoters) exercised the conversion option and got 22.50 lakh warrants
converted into shares at Rs.241 per share in March 2008. Further, the company is contemplating to come out with right
issue in near future. For Q1FY09 as well, VSL reported encouraging result and is expected to end FY09 with a total
revenue of Rs.300 cr. and net profit of Rs.60 cr. i.e. an EPS of Rs.28. Thus at a reasonable discounting by 10 times of its
FY09 earnings, the scrip has the potential to touch Rs.280 (i.e. 40% return) in 12-15 months. Although, promoters hold
only 19% and do not enjoy a good reputation in the stock market it's still a good bet as the company has bid for new high
value private sector orders through its alliance with Eastman Kodak Co. Investors can buy this stock at sharp declines
around Rs.180-190 level.
Liberty Phosphate Ltd. (Code: 530273)
Rs.20.85
Established in 1977, Liberty Phosphate Ltd. (LPL) is the flagship company of the Liberty Group engaged in
manufacturing Single Super Phophate (SSP) and NPK fertilizers. The company is the largest manufacture of SSP
commanding nearly 10% market share in the country. Its 'Double Horse' brand is very popular among farmers and has
the highest sales in India. SSP is a multi-nutrient fertilizer that contains phosphate as the primary nutrient and sulphur &
calcium as secondary nutrients along with magnesium, zinc, boron, manganese, copper, etc. Considering the deficiency in
the Indian soil, use of SSP has been recommended by Fertilizer Ministry, State Agriculture Departments, State Agriculture
Universities as well Agriculture Scientists. Accordingly the SSP fertilizer is a subsidized product, which is affordable and
preferred by small and marginal farmers. In various crops that require more of sulphur and phosphate like oilseeds,
pulses, sugarcane, fruits, vegetables, tea etc., SSP is an essential fertilizer. However, SSP is under the indirect control of
the Central and State Governments under the Concession Scheme of de-controlled phosphatic and potassic fertilizers.
Presently with 6 plants across India, the group has a total manufacturing capacity of 725,000 MTPA of SSP fertilizer and
165,000 MTPA of NPK fertilizer. If these, 4 manufacturing facilities at Udaipur & Kota in Rajasthan, Nandesari in Gujarat,
Pali in Maharashtra belonging to LPL have a combined installed capacity of 463,000 MTPA of SSP. Because of its multi-
locational establishments, LPL has the advantage of proximity to raw materials and/or markets and is one of the lowest
cost producers of SSP. However in FY08, it produced only 194,827 MTA against 280,288 tonnes in FY07 of SSP
representing merely 40% capacity utilisation and 4374 MTA of NPK due to unfavourable business conditions. Actually,
the price of sulphuric acid, an important raw material, had shot up substantially in FY08 and could not be passed on to
the farmers and made the production economically unviable. To compensate for this rise in cost of production, the
Central Government has recently w.e.f. 1 May 2008, increased the subsidy amount to manufacturers of SSP from Rs.1125
per tonne to Rs.3600-5600 per tonne. Despite this increase in subsidy, SSP manufacturers still find it difficult to meet the
cost of production as the prices of sulphuric acid and rock phosphate are still ruling high. The government has, therefore,
incorporated an escalation/de-escalation clause in the subsidy of SSP correlated to the prices of sulphur and rock
phosphate.
To summarize, LPL is going through a difficult phase that may improve either by raw material prices cooling off or by
further increase in subsidy or by resetting its selling price. Meanwhile, to fund its working capital requirement, LPL
raised nearly Rs.7 cr. through issue of preferential shares and equity shares last year. It is now raising Rs.5 cr. through
allotment of 28 lakh equity shares to promoters and others at Rs.18 per share. Incidentally for FY08, despite a decline of
30% in sales to Rs.102 cr., its PAT increased by 15% to Rs.1.60 cr. recording an EPS of Rs.2.40 on its equity of Rs.6.70 cr.
Against this, LPL entered the current year with a bang doubling its sales for Q1FY09 to Rs.67 cr. and net profit zoomed up
1000% to Rs.4.60 cr. thereby recording an EPS of Rs.7 for this quarter alone. Even in such conditions, LPL has targeted a
production and sales volume of 300,000 MTPA of SSP in the current year. Thus it can register sales of Rs.175 cr. with
profit of Rs.4.50 cr. for FY09 i.e. an EPS of Rs.5 on its diluted equity of Rs.9.50 cr. Investors can hold or even buy at
declines as the scrip can appreciate 50% once the market sentiment turns positive.
Nitin Fire Protection: Good medium-term pick
By Devdas Mogili
ANALYSIS
6
Nitin Fire Protections Industries Ltd. (NFPIL), a 13-year old Mumbai based company established in 1995, manufactures
fire protections systems, high pressure seamless cylinder and refueling systems. Mr. Nitin M. Shah is the chairman of the
company.
NFPIL made a successful IPO of 3,390,000 equity shares of Rs.10 each at a premium of Rs.180 per share. The issue was
oversubscribed 49 times.
The company took over the erstwhile business of 'Nitin Industries', which manufactured fire extinguishers. The company
has two manufacturing cum warehousing units situated at T.T.C. Industrial Area, Vashi, and MIDC, Taloja near Mumbai.
Subsidiaries: NFPIL has several wholly-owned subsidiaries in India, which include Alert Fire Protections Systems,
Eurotech Cylinders, Logicon Building Systems, Nitin Cylinders, Nitin Ventures FZE and an associate company, New Age
Company LLC. All subsidiaries are engaged in the business of fire protection systems and allied products with advanced
technology, manufacturing and dealing in high pressure seamless cylinders. The manufacturing of cylinders is considered
as backward integration. Fire detectors and other products manufactured or assembled by the subsidiaries form part of
forward integration of the business of the company.
NFPIL manufactures the complete range of portable fire fighting equipment at its factory situated at Vashi, Maharashtra.
Apart from this, it undertakes turnkey projects for designing, manufacturing, installing, commissioning and supply of
complete fire detection and suppression systems using the latest techniques.
Tie-Ups: The company has tie-ups with leading international players in fire alarm and security systems such as Air Sense
Technology Ltd., U.K., for smoke detection equipments; Kerr Fire Fighting Chemicals, U.K., for fire fighting foams and
dry powder Ceodeux Extinguisher Valves Technology S.A.; and Newtex Industries Inc., for their Zetex Plus safety
clothing.
In 2004, the company ventured into the business of high pressure seamless cylinders. It had a tie-up with BTIC for getting
high pressure seamless cylinders contract manufactured to specifications in China and for sale in India. It also started the
business of design, manufacture and supply of CNG cascades, compressors and dispensers.
Acquisitions: In April 2005, the company acquired the entire paid-up-capital of Alert Fire Protection Systems Pvt. Ltd.,
which was engaged in the business of fire detection, alarm systems and supply of high pressure seamless cylinders.
In January 2006, it acquired Logicon Building Systems Pvt. Ltd. engaged in security solutions business. In October 2006, it
took over 95% share holding in a partnership concern Eurotech Corporation, which manufactures fire extinguishers and
has a plant in Parwanoo, Himachal Pradesh.
Exploration: In March 2007, under NELP VI of Government of India, NFPIL along with Gujarat State Petroleum
Corporation Corporation Ltd., Gail (India) Ltd., Hindustan Petroleum Corporation Ltd., Bharat Petroleum Corporation
Ltd., Hallworthy Shipping Ltd. SA, and Silverware Energy Pte. Ltd. entered into a Production Sharing Contract with the
Government of India for the exploration and prospecting of crude oil block in Rajasthan admeasuring a contract area of
4613 sq km.
Performance: NFPIL has posted highly encouraging results for FY08. It recorded a net sales income of Rs.132.42 cr. with
net profit of Rs.20.18 cr. registering a basic/diluted EPS of Rs.16.72.
Financial Highlights:
(Rs. in lakh)
Latest Results: NFPIL notched up consolidated net sales
of Rs.57.14 cr. with net profit of Rs.8.39 cr. for Q1FY09
netting a basic/diluted EPS of Rs.6.66. The annualised
EPS works out to Rs.26.64. The company has reported all
round improvement in sales and profitability margins.
Particulars
Q1FY09
Q1FY08
FY08
Net Sales
5714.17
2729.99
13242.17
Other Income
65.75
33.06
305.63
Total Income
5779.92
2763.05
13547.80
Total Expenditure
4611.12
2293.93
10839.67
Int. & Fin. Charges
142.92
15.17
80.96
Net Profit Bef. Tax
1025.88
453.95
Financials: The company has an equity base of Rs.12.60
cr. with a book value of Rs.91.30. It has a very low debt
equity ratio of 0.03 while RoCE is 20.62% and RoNW is
16.43%.
2627.17
Tax expenses
186.95
137.11
682.99
Minority Interest
-
0.04
3.46
Net Profit after tax
838.93
316.80
2018.24
Paid up equity (FV: Rs.10)
1260.31
1260.31
1260.31
Share Profile: The equity shares of NFPIL with a face
value of Rs.10 are listed on the BSE and NSE under the B
group. Its share price touched a 52-week high/low of Rs.667/276. At its current market price of Rs.320, it has a market
capitalisation of Rs.412 cr. The share has a beta value of 0.7.
Res Exc Rev Reser
-
-
10245.84
Basic/Diluted EPS (Rs)
6.66
2.51
16.72
Dividends: Post IPO, the company has paid its maiden dividend of 20% for FY08.
Shareholding Pattern: The promoter holding in the company is of 69.42% while the balance 30.58% is held by non-
corporate promoters and the investing public.
Prospects: The business outlook of NFPIL is bright and positive both in the short-term and the long-term owing to the
accelerated growth in the Indian economy. The long-term demand will be driven by increased usage in fire protection,
safety & security solutions propelled by expansion and new initiatives both in the government and private sectors.
7
Further, there is a strong emergence of new high growth verticals like malls, multiplexes, retail chains, manufacturing
plants, IT, BPOs and data centres.
Due to terrorist activities there is increasing need for fire protection, safety & security solutions from temples and other
religious institutions.
As a result, the security industry will grow manifold with customers demanding added features, end to end security and
turnkey jobs with package solutions.
Conclusion: NFPIL is a leading fire protection, safety, securities and intelligent building management systems company
manufacturing high pressure seamless cylinder and refueling systems with an excellent track record.
At its current market price of Rs.320, the share is discounted around less than 20 times its 2007-08 earnings. However,
going forward, it is discounted less than 13 times against the industry average P/E multiple of around 17. If the P/E of
Everest Kanto Cylinders is taken in to consideration, the share is steeply discounted. The NFPIL share may be considered
with a medium-to-long-term investment outlook.
Political concerns & weak global equities cast their shadow
MARKET REVIEW
By Ashok D. Singh
The Sensex lost 80.70 points or 0.55% to close lower at 14,483.83 for the week ended Friday, 5
th
September 2008. The NSE
Nifty lost 7.70 points or 0.17% to end at 4352.30. A sharp fall in crude oil price had triggered a solid rally on the bourses at
the early part of last week. The gains were, however, wiped out by a setback in global equities and on domestic political
concerns. The market declined in three out of four trading sessions in the week. The market was closed on Wednesday, 3
September 2008, on account of Ganesh Chaturthi.
Wall Street suffered its worst decline in more than two months on Thursday, 4 September 2008, hurt by more signs of
weakness in the labour market and fears of economic growth. Global stocks will react to the influential US non-farm
payroll data for August 2008 released on Friday, 5 September 2008. It is expected to post the eighth consecutive decline
with 75,000 jobs lost in a month. Asian shares were, therefore, sharply lower on Friday, 5 September 2008.
Sliding oil prices have calmed inflation concerns. Oil price declined sharply in response to less than expected damage
from Hurricane Gustav in New Orleans. Light, sweet crude for October 2008 delivery settled at $107.89 on Thursday, 4
September 2008, its lowest level in five months.
Small-cap and mid-cap indices nudged slightly higher. The BSE Small-Cap index rose 13.58 points or 0.2% at 6,905.22. The
BSE Mid-Cap index advanced 11.43 points or 0.2% to 5,753.72.
The Nuclear Suppliers Group (NSG) is reportedly inching towards forging a consensus on clearing a waiver to India for
nuclear commerce, a decision that can take the Indo-US nuclear deal forward.
The opposition BJP on Thursday, 4 September 2008 accused Prime Minister (PM), Manmohan Singh of misleading
Parliament and the country on the nuclear deal issue and demanded the resignation of his government. Senior BJP leader,
Yashwant Sinha has called for an immediate session of Parliament to enable the BJP to move a privilege motion against
the PM if the UPA did not quit. These demands were made in the wake of the disclosure of correspondence between the
Bush administration and US Congress that the Indo-US nuclear pact would be off if India conducted a nuclear test.
Domestic annual inflation rose 12.34% in the year through 23 August 2008, lower than the previous week's 12.40% rise,
data released by the government after trading hours on Thursday, 4 September 2008 showed. Food prices for staples like
lentils and vegetables eased while fuel prices remained flat. Inflation, however, remains far above central bank's target
level of 7% towards the year ending 31 March
2009.
8
The government on Monday, 1 September
2008, appointed Finance Secretary, Duvvuri
Subbarao as Governor of the Reserve Bank of
India in place of Y.V. Reddy. Reddy who
completed his term on 5 September 2008.
The BSE on Monday, 1 September 2008, said
trading timing at the exchange will change
from 24 September 2008 till 8 October 2008, as
VSAT services might get disrupted during
this period due to heavy solar activity.
Trading on BSE will start as usual at 9:55 IST
and close at 16:15 IST. There will be no
trading from 11:25 IST to 12:10 IST as there
will be signal problems during this time, BSE
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Foreign funds bought shares worth a net Rs.766.60 cr. in three trading sessions from 1 September 2008 to 4 September
2008. Mutual funds bought shares worth a net Rs.159.30 cr. during that period.
The market ended with small loss of 66.02 points or 0.45% at 14,498.51 on Monday, 1 September 2008, staging a smart
comeback from an intra-day fall of 283.43 points.
A sharp fall in crude oil price helped the key benchmark indices register strong gains on Tuesday, 2 September 2008 as
the Sensex jumped 551.35 points or 3.80% to 15,049.86.
Weak global cues pulled Sensex down 150.76 points or 1% to 14,899.10, on Thursday, 4 September 2008.
Intense selling in index pivotals pulled Sensex down 415.27 points or 2.79% to 14,483.83 on Friday, 5 September 2008.
Weak global markets weighed on the domestic bourses for the second day in a row.
The Sensex lost 80.70 points to close marginally lower at 14,483.83 last week. The way things are progressing at the NSG,
US and India are reportedly inching towards forging a consensus on clearing a waiver to India for nuclear commerce.
This is likely to boost the market sentiment in the coming week. Inflation is calming down a little, which is a good sign for
the economy. Food prices for staples like lentils and vegetables eased while fuel prices remained flat, the data showed.
The delay in the withdrawal of the monsoon is expected to benefit crops in the current kharif as well as in the ensuing
rabi season. The region-wise distribution of rains, was satisfactory for agriculture, till August 2008 end, reports suggest.
Hindalco stingy about returns to shareholders despite robust growth
MARKET
By G. S. Roongta
As stated in the last issue, the bears attempted to break the market sentiment prior to the announcement of inflation
figures on Thursday, 28 August 2008. This proved to be short-lived with the bounce back by 516 points on Friday, 29
August 2008, after the announcement of the inflation rates. The post inflation market bounce was a cause of concern for
bear operators and a big blow to their efforts. But despite this, the bears kept on demoralizing the market, which was only
to be expected.
Interestingly, the announcement of the low GDP growth rate and the increased crude oil price at $110 on Friday, 29
August 2008 could not dent the market sentiment because it had been factored in and was expected on account of
negative global cues for over 6 months. Since these factors had already been discounted by the stock prices, which are
already down by 50-60% from their recent peaks, any major attempt by the bears to break the market now may prove
futile.
According to me, the markets have already made their bottom at BSE Sensex of 12514.02 and CNX Nifty at 3790.20 and
the process of consolidation has set in the corrective phase, which was ushered in from Sensex 21206 to 12514 and Nifty
6357 to 3790 from January 2008 to July 2008.
Hence, Mr. Shankar Sharma, the head of First Global Finance, may, therefore, prove wrong in his forecast that the market
would fall below the Sensex 10,000 level in 4 digits. The Sensex is nearly 50% up from his forecast. I do not foresee such a
sharp fall unless something drastic happens on the poitico-economic front.
The CNBC TV channel, which featured him several times when the market sentiment was at a very low ebb and created a
panic should now question him of his failed forecasts. As regards the GDP growth of 7.9% for the April – June 2008
quarter reportedly the lowest in the last 14 quarters with manufacturing down to 5.6% from 10.9%, I have a different
perspective. This growth rate should be considered good taking into account the cumulative effect of the breakdown in
the US financial markets due to the sub-prime crisis leading to failure and bankruptcy of several lead players and the
overall slowdown in the global economy on account of a severe dip in real estate prices.
The sectors that were most affected are Manufacturing from 10.9% to 5.6%, Electricity, Gas & Water from 7.9% to 2.6%,
Finance, Insurance and Real Estate from 12.6% to 9.3%. But there is a silver lining in sectors like Mining & Quarrying that
have reported higher contribution from 1.7% to 4.8%, Construction from 7.7% to 11.4%, Community, Social & Personal
Services from 5.2% to 8.4%.
The second half (September 2008 – March 2009) might fare well as per the optimistic views expressed by the Finance
Minister (FM), P. Chidambram, as he expects the GDP to end up close to 8% in FY09. His views should be complimented
as Agricultural, Forestry and Fishing, which reported 3% growth against 4.4% might exceed the previous year's growth in
as much as the monsoon, which was in deficit, has gained momentum and washed out the dry spell in many districts and
covered up not only the deficient rainfall but also exceeded the normal rainfall in some areas.
According to the Ministry of Agriculture, the area under rice cultivation has gone up to 344.8 lakh hectares from 329.5
lakh hectares a year ago and will result in record rice production exceeding 100 million tonnes. Similarly, record sowing
of soya bean and other oil seeds in place of some cash crops like sugar and cotton on the back of improved rainfall is sure
to cover up the shortfall in GDP growth. The real growth rate may thus exceed 8% as observed by the FM.
9
Given the sharp rise of 516 points on Friday, 29 August 2008, marketmen looked forward to Monday, 1 September 2008,
which marked the beginning of a new week and a new month. The week began on a weak note as the Sensex plunged by
283.43 points but recovered sharply to close with a loss of 66.02 points at 14498.51.
On Tuesday, 2 September 2008, it zoomed by 551.35 points to close at 15049.86 igniting fresh hopes.
But weak global cues on Thursday, 4 September 2008, led to a loss of 150.76 points when the market reopened after the
Ganesh Chaturthi holiday on Wednesday, 3 September 2008. This weakness was further aggravated by weaker global
markets and fresh concerns over the Indo-US nuclear deal, which knocked off 415.27 points on Friday, 5 September 2008,
as the Sensex closed at 14483.83. The Nifty lost 95.45 points to close the week at 4352.30.
Last week, I had observed how the top three industrial groups, which were considered investor friendly for years, now
seem to be ignoring investors in their thirst to become global leaders.
Looking at their shareholding pattern over the last decade or so, it is interesting to note that the holding of the
management, FIIs, foreign/domestic mutual funds are on the increase with a corresponding fall in pubic or individual
shareholders because of which they have begun neglecting common shareholders, who demand higher dividend payouts
or bonus issues. This explains Mr. Mukesh Ambani's blunt reply to a shareholder at the recent Reliance AGM that
anybody who is unhappy with the price of the company's share or the dividend payout can sell his holding. This was not
expected of an Ambani, who were known to cultivate common shareholders and acknowledge their success to them. But
this trend of ignoring the interests of minority shareholders will continue till a threat or blow from other majority
shareholders does not emerge. They feel that the days of small shareholders are over, which explains their turning
investor unfriendly now.
Hindalco Industries Ltd.
Last week I wrote about Hindalco Industries, which boasts of enhancing shareholders' wealth every year in its Annual
Report, but which in reality is totally missing. This week, I will elaborate and must do so in all fairness since Hindalco,
Grasim and Indian Rayon (now Aditya Birla Nuvo) have been my favourite stocks and we have been recommending
them periodically since 1986.
No doubt, Hindalco shareholders' wealth stands truly enhanced as far as book-keeping is concerned. But the ground
reality is that this wealth is totally missing from the experience of individual shareholders as far as dividend payout,
bonus or market price of the stock is concerned.
To prove my point, I invite readers' attention to Hindalco's latest Annual Report 2007-08. Its standalone financial
highlights are given page 8 of the report.
My observations are given below with a perspective of the last 5 years.
While the dividend payout in quantum appears to
have shot up, it is illusory. From Table A, it is evident
that the dividend distribution as percentage of net
profit stands reduced to less than half of that in 2003-
04. Is this the way of enhancing shareholders' wealth?
TABLE A
(Rs. in cr.)
Particulars
2003-04
2007-08
Increase %
Turnover/Net Sales
6208
19201
210
Other Income
240
493
1051
Interest & Finance
177
281
59
By adopting such an investor unfriendly attitude, the
Aditya Birla Group is slowly but surely losing its
capital market image. This is clearly reflected in
Hindalco's share price movements, which is lying low
since the last 4 years.
Its Rs.10 paid-up share had ruled over Rs.1300 several years ago and the Re.1 paid-up has ruled as high as Rs.251.40 in
May 2006. But despite the capital market super boom, when the Sensex pole vaulted 4 to 5 times crossing 21200, the
Hindalco stock took a beating despite adding a mammoth Rs.8411 cr. in profit in 4 years as shown below.
Depreciation
317
588
85
Profit Before Tax
1246
3026
143
Taxation
407
165
-
Profit After Tax
839
2861
241
Dividend
172
265
54
% Dividend of Net Profit
20%
9%
-55
Its standalone EPS of the last two years amounts to Rs.50 per share. And if this EPS is added
to its share price of Rs.251 two years back, then the legitimate share price, without taking into
account the market boom, should be nothing less than Rs.300-350 for Re.1 paid-up. But it is
currently traded as low as Rs.124 at much discount to its book value of Rs.142! Why should
the stock of an extraordinary profit making company listed in the 'A' group on BSE be ruling
below its book value? It ought to quote 3 to 5 times its book value looking at its extraordinary
fundamental value and strength in line with other industrial giants. Since its operational skills, growth or profitability are
superior, why is its market capitalisation so low especially as it has global ambitions?
The stock's performance has been lower than the Sensex as shown on page 45 and it has underperformed both the Sensex
and the Nifty by way of absolute returns or annualized returns over the past 5 years. Is this a sign of creating
shareholders' wealth?
TABLE B
Year
Profit
2004-05
Rs.1334 cr.
2005-06
Rs.1656 cr.
2006-07
Rs.2564 cr.
2007-08
Rs.2861 cr.
Total
Rs.8411 cr.
10
Readers will further observe from the above table that its revenue, PBT as well as PAT have been increasing at a galloping
speed at an average 30-40% per annum over the past 5 years while the dividend payout as a percentage of its net profit
has been falling in almost the same ratio!
The dividend payout in FY04, which was 20% of net profit was slashed down to 7.8% in FY07 and 9% in FY08 in spite of
the company claiming a tax benefit of Rs.541 cr. for the earlier adjustments reducing its tax payable to just Rs.165 cr. as
against Rs.940 cr. in FY07.
Is there then any justification for denying shareholders a reasonable return against such galloping profitability? Is it the
right and just policy of an investor friendly management? What is the meaning of Hindalco claiming to enhance
shareholders' value if it does not lead to shareholder returns? You cannot enhance shareholders' value by reducing their
returns? Shareholders must wake up and ask the Hindalco management as to why their dividend payout stands reduced
as a percentage of net profit the face of mounting profitability. How many years will the shareholders have to wait for
their rightful returns?
Ironically, the management has reduced the dividend distribution at a time when the shareholders were burdened to part
with additional funds by way of a rights issue as high as 95 times its face value i.e. Rs.95 per share for Re.1 paid-up – the
price it ruled 3 years ago. The latest dividend of 185% or Rs.1.85 per share works out to measly 1.9% yield for the rights
issue subscribers. Last year, it was even lower. And the management wants us to believe that it is creating wealth for us!
But while the real owners of the company are paid a pittance for their risk capital, just look at the growth in remuneration
of executives and directors. Chairman Kumarmangalam Birla's payout is reported at Rs.8.89 cr.; MD D. Bhattacharya's
payout is Rs.8.24 cr.; Mrs. Rajshree Birla's payout is Rs.1 cr. totalling Rs.18.13 cr. Is this not an anomaly that executive
compensation has doubled or trebled in the past decade but shareholders have yet to see any bonus for over two decades!
The observations of Table C are even more curious.
TABLE C
(Rs. in cr.)
On account of the rights issue, the equity capital increased
just fractionally by Rs.23.18 cr. while Reserves & Surplus
shot up enormously by Rs.2200 cr. Similarly, by the issue of
6,75,00,000 equity shares to the promoters, its equity capital
increased by just Rs.6.75 cr. but the reserves & surplus
further shot up by Rs.1166.87 cr., which strengthened the share premium a/c by as high as Rs.4268.10 cr. as on 31 March
2008.
Particulars
2003-04
2007-08
Increase %
Equity capital
92
123
34
Reserves/Surplus
6765
17174
154
Gross Assets
7126
13728
93
Investment
3377
14108
318
Book Value (Rs.)
74
142
92
By this exercise, the management holding moved up from 27.06% in FY07 to 31.42% in FY08 and it will shoot up further
with the latest rights issue in the ration 3:7. This whole exercise was planned by the management to escape any outside
threat for takeover after the rumour, which was hot in the market two years back.
Reserves are rising with galloping speed on account of extraordinary profitability year after year and on account of the
hefty premium collected from shareholders by issuing rights.
Is it not an irony that the ratio of asset addition as investment in sister and associate companies and in mutual funds has
increased disproportionately by which funds of the company are blocked in low income investments providing 2-3%
return while manufacturing profit margin through Fixed Assets investment is 15%? The dividend earned reported by the
company on page 87 is very negligible i.e. Rs.330 cr. on huge investments, which amounts to 2.5% and lower by 12%
against its manufacturing margin.
But the management does not even wish to pass on this investment income of Rs.330 cr. to its shareholders as the
dividend payout is lower at Rs.265 cr. leave aside the fruits of manufacturing profits, which is Rs.2531 cr. after deducting
Rs.330 cr. So, is it not ridiculous that after collecting nearly Rs.3367 cr. by way of premium on shares and a hefty profit of
Rs.2861 cr. the management shies away from a decent dividend payout of just Rs.265 cr.? Are these not mere crumbs that
the Hindalco management has thrown at shareholders?
There is nothing wrong in ploughing back substantial profits for growth. But if you don't care to share it with investors
who pay a handsome premium and wait patiently for rewards, your pronouncements will sound hollow however much
you may claim anything in the media.
In conclusion, poor shareholders have no voice as long as they behave individually. If they wish to have their fair share of
the cake out of the company's profit they must be united and speak with one voice at the forthcoming AGM at 3.30 p.m.
on Friday, 29 September 2008 at the Ravindra Natya Mandir Hall at Prabhadevi, Mumbai – 400025. Shareholders can
compel the management for their rightful share with one voice vote or at least awaken it not to take them for granted.
By Saarthi
STOCK WATCH
At a time where most of its peer companies are finding it difficult to maintain the topline as well as margin, Asian
Granito India Ltd. (Code: 532888) (Rs.51) came out with flying colours in Q1FY09. Thanks to its wall tile unit
commencing production, its sales zoomed by 70% to Rs.73 cr. and net profit shot up to Rs.9 cr. posting an EPS of more
than Rs.4 for the quarter on a standalone basis. The company is one of the largest producers of vitrified tiles in India
11
under the brand name 'Asian Tiles'. Recently, it expanded its vitrified tile capacity to 16,000 sq. mtrs. from 14,000 sq. mtrs.
tiles per day and also started new wall tile plant having a capacity of 9,300 sq. mt. per day. Besides, its 100% subsidiary,
Asian Tile Ltd., which it is merging with itself, is into the business of manufacturing ceramic floor tiles with a capacity of
7,000 sq. mtrs. per day. So on a consolidated basis, the company is estimated to register a turnover of Rs.350 cr. with PAT
of Rs.32 cr. for FY09. This works out to an EPS of Rs.15 on its equity of Rs.21 cr. Even by applying an average P/E ratio of
5, the scrip can appreciate 50% in a year.
******
Prime Property Development Corporation Ltd. (Code: 530695) (Rs.61.55) is a small real estate developer based in
Mumbai which boasts of constructing landmark residential and commercial buildings for high end customers in Mumbai.
Prime Avenue, Prime Centre, Prime Beach & Prime Plaza are few of its prestigious residential & commercial
developments in prime areas like Santacruz (West) & Vile Parle (West) in suburban Mumbai. Presently, the company is
focusing to complete its two ongoing projects in Mumbai namely 'Prime Down Town Mall' - a 270,000 sq. ft. luxurious
composite mall with multiplexes and 'Prime Tech Park', which is 90,000 sq. ft. commercial building. Besides these, the
company has started construction work on two more shopping malls called 'Prime Square' - 70,000 sq. ft. mall in
Goregaon Mumbai and 'Prime Pune Mall' - gigantic 430,000 sq. ft. state-of-the-art mall with an anchor shop, multiplex,
food court, entertainment area and a hotel in Pune. For FY08, it clocked an EPS of Rs.16 and declared a dividend of
Rs.1.50. It has announced excellent results for Q1FY09 and considering the company's current projects in hand in prime
locations, it may report total revenue of Rs.150 cr. with net profit of Rs.40 cr. for FY09 i.e. an EPS of Rs.20 on its current
equity. Only aggressive investors are advised to buy at current levels.
******
PBA Infrastructure Ltd. (Code: 532676) (Rs.64.60) is engaged in the execution of civil engineering projects and specialises
in construction of highways, dams, runways and heavy RCC structures, bridges and other infrastructure projects for
various government bodies. It is executing projects from Kashmir to Kanyakumari and has taken up new works like toll
collection and quarrying to augment its income. For FY08, it posted an EPS of Rs.11 with 30% rise in sales as well as PAT
to Rs.371 cr. and 14.60 respectively. However for Q1FY09, it reported de-growth as revenue fell by 15% to Rs.84.50 cr. and
profit decreased by 30% to Rs.3.35 cr. But the company has been regularly bagging new orders and its current order book
position is quite impressive at around Rs.700 cr. A couple of days back, it bagged a huge road construction order of Rs.122
cr. from the Muncipal Corporation of Pune. Fundamentally, the company has a huge debt of Rs.170 cr. because of which
its interest cost is very high. Hence to fund its working capital requirement and reduce the high cost debt, the company is
contemplating to make preferential allotment of 30 lakh warrants to the promoters and promoter group. Meanwhile for
FY09, it is estimated to clock a turnover of Rs.425 cr. with PAT of Rs.17 cr. This translates into an EPS of Rs.13 on its
current equity of Rs.13.50 cr. A good bet for the medium-term.
******
Associated Alcohols & Breweries Ltd. (Code: 507526) (Rs.37.40) is one of the largest distilleries in India with presence in
every aspect of the value chain from potable alcohol, country liquor, ENA, grain spirit (extra fine grade, triple distilled),
rectified spirit, IMFL and Scotch whisky for many Indian and international companies. Apart from being the leader in to
bottling scotch whisky. Notably, the company markets its own brands, as well as manufactures and bottles IMFL and
Scotch whisky for many Indian and international companies. Apart from being the leader in Madhya Pradesh, the
company boasts of having strong portfolio of popular brands such as Red & White, James McGill and Bombay Special
Whisky, London Bridge Gin and Jamaican Magic in Rum. For FY08, its sales increased by 50% to Rs.120 cr. and PAT
zoomed up 140% to Rs.5.60 cr. posting an EPS of Rs.8 on its current equity of Rs.6.80 cr. To increase its market share, the
company is the midst of expanding its capacity to 65 million litres from 42 million litres by setting up a multi-pressure
ENA plant along with 2 MW bio-gas fuelled cogeneration captive power plant. Hence it may clock a turnover of Rs.150 cr.
with profit of Rs.7 cr., which translates into an EPS of Rs.7 on its fully diluted equity of Rs.10 cr. Despite promoter
concerns and risk of further equity dilution, the scrip can bought on declines for reasonable return within a year.
By Kukku
FIFTY FIFTY
Investment Call
* Rishi Lasers (Rs.67.35) is moving from a flat steel part supplier towards becoming a fabrication subcontractor. A
substantial portion of the fabrications and assemblies are for the Construction Equipment industry and manufacturers of
electricals & power sector equipments. This sector is growing at 40% annually. With infrastructure spending expected at
Rs.15,00,000 cr. in the 11
th
Five Year Plan (April 2007 – March 2012), the order book of every major infrastructure
equipment supplier is growing massively.
It has 10 plants spread over 5 states. It has 15 Laser Cutting Machines (LCM), 13 Press Brakes and 2 Turret Punch Presses.
CNC LCMs are used to cut material such as mild steel, stainless steel and aluminium in a very economical and fast
manner. It provides accuracy and encourages designers to design any intricate shape.
12
In FY08, the company had focused on the fast growing Construction Equipment industry as the supply to this industry
constitutes 41% of total sales. The company is supplying to JCB, L&T Case Ltd., Caterpillar India, Ingersoll Rand and
BEML all of whom are manufacturers of Earthmoving machinery.
Rishi Lazer took up expansion of its Bangalore unit to double capacity, which will be completed in the near future. It has
installed a 5 Axis Laser Cutting Systems of 'Prima' make to cater to the prototype needs of the automotive sector, which
will increase its sales the automotive sector constitutes 17% of its total sales. The company is planning to enhance sales to
the Electricals & Power sector equipment from 9% to 25% over the next 2 years.
Large investments are expected to be made in the railways and metros. The company has orders for parts & assemblies
for metro coaches, which will commence in FY09 and is likely to grow sharply from next year onwards.
For FY08, its exports shot up from Rs.0.74 cr. to Rs.14.38 cr. and the company expects this trend to continue. Sales shot up
by 107% from Rs.50.6 cr. to Rs.104 cr. and gross fixed assets have gone up from Rs.56 cr. to Rs.89.73 cr.
Investment Triggers: (1) The benefit of large investments made in the last few years are likely to accrue now and in
coming years as the growth trend in sales is likely to be maintained; (2) The company has locational advantage as it has 10
units in 5 states; (3) All facilities are of global standards and demand for its products & services are very large; (4) The
market for steel assemblies and fabrications is growing at a very fast pace due to the robust growth in the engineering
industry; (5) Increasing trend of outsourcing by large companies due to need to concentrate on their core activities; (6)
Good export potential as many companies are looking to source these items from India as steel processing costs have
increased substantially in Europe; (7) Bottomline to go up sharply as initial burden of larger depreciation is already
provided in the last few years; (8) MoU with L&T Komatsu Ltd., L&T Capital Co. Ltd. to hold 26% shares in the said
subsidiary will also add value to the stock in the long run; (9) Leading investor, Rakesh Jhunjhunwala holds around
4.78%.
Market Guidance
* Jaihind Projects (Rs.121.10) is an engineering, procurement & construction (EPC) company focused on hydrocarbons,
water & infrastructure sectors. The company earned a net profit of Rs.6.3 cr. on sales of Rs.143 cr. for FY08. The present
order book position is said to be almost above 4 times the sales of FY08 as per knowledgeable unconfirmed sources. The
stock was recommended in this column from Rs.37 onwards. Those holding it can continue to stay invested for target of
above Rs.200 over the next one year.
* As per the recent AGM, Hind Dorr Oliver's (Rs.98.80) management has expressed confidence on maintaining margins
or even improving on it. The company is likely to achieve the sales target that we had projected a few weeks back. Stay
invested for target price of Rs.160 over the next 8-12 months.
* Last year, Nile Ltd. (Rs.90.95) made major profit in its Lead Division. The company is setting up a 20,000 MT recycling
unit near Tirupati, which is expected to
start from H2FY09. The company is in
the process of establishing a joint
venture in the Republic of Georgia. This
project will facilitate availability of raw
material at a concessional price on a
regular basis. As per the Directors
Report, FY09 should
result in
substantial growth in volumes of sales
for lead & lead alloys. Outlook for glass
lined equipment, too, is said to be
encouraging.
13
* Atul Ltd. (Rs.70.25), a Lalbhai Group
company formerly known as Atul
Products, was promoted by Kasturbhai
Lalbhai in 1947 and is engaged in the
business of manufacturing dyes and
dye intermediates, agro-chemicals,
aromatic like para-anisaldehyde, epoxy
resins and pharma intermediates
For FY08, profitability from operations
was affected mainly on account of two
adverse developments, viz. lower
export realisation arising from the
strengthening of the rupee against the
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US dollar by around 12% and an unprecedented rise in prices of several key raw materials.
With the weakening of the rupee, the company is expected to report sharp improvement in working in the current year.
Seeing to its huge assets base, strong book value of Rs.107, FY08 dividend of 30%, 52-week high/low of Rs.125/49,
investors can take small exposure on dips for target of Rs.125 over the next one year.
* Jetking (Rs.334.65) stock is under accumulation by knowledgeable investors. Stay invested.
Note: There is a reduction in prices of steel, copper, aluminium, lead and zinc along with a sharp reaction in crude oil
prices. This fall is likely to benefit the user industries. As a result, we may see inflation rate coming down slowly in the
next few weeks.
Investors are advised to accumulate good capital good stocks in this dip like Atlas Copco, Kirloskar Pneumatic, Gujarat
Appollo Industries, Mazda Ltd., TIL, TRF, Hind Dorr Oliver to name a few.
Auto ancillaries stocks like SKF India, ZF Steering, too, are good contra picks slowly in stages on dips.
A fall in crude based raw materials will benefit DIC Industries, Supreme Industries, Garware Wall Ropes, Kalpana
Industries among the stocks that were recommended in this column from time to time.
Diversified agro chemicals stocks like BASF, Excel Industries, Atul Ltd., too, are good long-term bets.
Buying should be done slowly on dips with a long-term view.
By V. H. Dave
EXPERT EYE
The share of Jhunjhunwala Vanaspathi Ltd. (JVL) (Code: 519248) (Rs.144) is recommended for decent appreciation in the
long-term although its Q1FY09 results went unnoticed by marketmen.
Incorporated in 1990 and promoted by Mr. S. N. Jhunjhunwala with its factory in Varanasi, JVL is in the production of
Vanaspati Ghee and Refined Oils. Its brand 'Jhoola' is a household name particularly in Bihar and U.P. JVL commands
nearly 30% share of the U.P. and Bihar markets, which are the biggest consuming centres of vanaspati in India. Its
products are sold in packing of 200 ML, 500 ML, 1 ltr. in pouches and 2 ltrs. Jar, 5 ltrs., 10 ltrs. and 15 ltrs. It has a
marketing network of 17 depots in U.P. with strong marketing links all over the country. The company also commenced
its 3 MW power plant in FY07.
During FY08, JVL posted 60% higher sales of Rs.1104 cr. and earned 181% increased net profit of Rs.26.2 cr. recording an
EPS of Rs.34.9. During Q1FY09, sales have further gone up by 59% to Rs.378 cr. and net profit by 102% to Rs.10.2 cr. The
EPS for Q1FY09 alone works out to a whopping Rs.13.6.
JVL has a tiny equity of Rs.7.5 cr. and with reserves of Rs.75.4 cr., the book value of its share works out to Rs.110. The
promoters hold 51.5% in the equity capital, foreign holding is 1%, PCBs hold 20.2% leaving 27.2% with the investing
public.
JVL is setting up another refinery at its existing factory with a capacity of 500 TPD at a cost of Rs.27 cr. The expansion is
likely to be completed by August 08 and commercial production would commence in September/October 2008.
JVL's recent foray includes entering the field of mustard refined oil with a purchase of an edible oil complex in Rajasthan
at a cost of just Rs.12 cr. JVL is also spending Rs.10 cr. at this factory for modernisation and capacity expansion of mustard
oil. The unit has already started earning revenue from FY08 and would add substantially to JVL's turnover in FY09. It is
also putting a tin manufacturing plant and large section for packaging.
JVL has already received SEZ approval for its 300 acres land in Uttar Pradesh and is reportedly initiating discussion with
developers to build the SEZ. Investment on this project may exceed Rs.1000 cr.
JVL is also setting up a new factory in Bihar at a capex of Rs.105 cr., which will involve facilities for production of 500
TPD refinery, 250 TPD of vanaspati, a captive power plant and Neutraliser for Soya 250 TPD. The land has been selected
and commercial production at this factory should commence by FY09.
JVL is also looking for a suitable location to set up a factory in Jharkhand for setting facilities for 500 TPD refinery, 300
TPD Fractionalisation plant, 200 TPD Vanaspati, Neutraliser for 250 TPD soya refining and captive power plant. The
capex will be approx Rs.110 cr. and the project is targeted to be completed by December 2009.
JVL is planning to go in for palm oil cultivation and is actively scouting for a partner in Indonesia to set up a JV. Once a
partner for the plantation is finalised, it will also set up a milling unit in Indonesia. This project envisages an investment
of about Rs.75 cr.
In order to save costs, JVL buys palm oil directly from Indonesia and Malaysia leading to savings by way of lower price
and without commission to middlemen etc.
The vegetable oil and ghee industry play a crucial and significant role in the growth of the Indian economy and the
economic upswing has created significant business opportunities. The production of vanaspati ghee is much less than the
demand in the country. The middle income and lower-income groups largely use vanaspati ghee and refined oil as a
cooking medium. Hence the growth of this industry is inevitable.
Recently, JVL issued 60 lakh warrants to be converted into equity in 2009. Hence next year, its equity will stand increased
to Rs.13.5 cr.
14
During FY09, JVL is likely to achieve sales of Rs.1650 cr. with net profit of Rs.42 cr. This would give an EPS of Rs.56. In
FY10, sales are expected to surge to Rs.3000 cr. after expansion and the net profit could go up to Rs.85 cr. leading to an
EPS of Rs.63 on its then expanded equity of Rs.13.5 cr.
At the current market price of Rs.144, the share is trading at a P/E of 2.7 on its FY09 estimated EPS of Rs.56 and a P/E of
just 2.4 on its projected EPS of Rs.63 for FY10. The average P/E of the solvent extraction industry, in which JVL is
operating, currently works out to 10, which leaves good scope for the share of JVL to rise in the future. Investment in this
share is likely to fetch a decent appreciation of over 30% in the medium term. The 52-week high/low of the share has
been Rs.233/67.
******
Shreyans Industries Ltd. (SIL) (Code: 516016) (Rs.29) was incorporated in 1979 to set up a 30-TPD paper project. In
February 1994, it took over the Paper Division of Zenith, a BIFR division of a Yash Birla Group company, which has since
contributed substantially to its turnover. In 1995-96, it set up a chemical recovery plant with power generation at Shreyans
Paper Mills, Ahmedgarh, at a cost of Rs.14.50 cr. In 2000-01, it undertook the expansion scheme for Rishabh Papers unit.
The modernisation scheme for the chemical recovery plant and co-generation plant were also commissioned during the
year.
Its bio-methanation plant to treat raw materials and wash water at its Paper Division was commissioned during FY07.
The project has been registered under Clean Technologies Development Mechanism (CDM) of United Nations under the
Koyoto protocol on environment and shall be eligible for carbon credits, which can be freely traded in the international
market and shall contribute to its bottomline.
During FY08, SIL's sales surged by 10% to Rs.219 cr. and net profit by 82% to Rs.12.1 cr. yielding an EPS of Rs.11. During
Q1FY09, sales went up by 4% but net profit advanced by 43% to Rs.3.6 cr.
SIL's equity capital is Rs.11.1 cr. and with reserves of Rs.18 cr., the book value of the share works out to Rs.26.3. The
promoters hold 51.5% in its equity capital; PCBs hold 4.8% leaving 43.7% with the investing public.
The work on its 3.5 MW captive-cum-cogeneration plant at its Papers Division was commissioned in FY07. With a view to
make Shree Rishabh Papers also self-sufficient for its power requirements, work on 5.5 MW captive-cum-cogeneration
plant at an estimated project cost of Rs.24.6 cr. has already been undertaken and should be commissioned by Q2FY09.
Coming to its future prospects, the demand for paper, which is approx. 7.5 to 8.0 million tonnes at present is expected to
grow to 14 million tonnes by 2015 and 20 million tonnes till 2020 as per various estimates. Since the Indian GDP has
maintained a healthy growth of 8% p.a. and the demand for paper generally follows the GDP growth. Therefore, as per all
available estimates, the demand for paper will continue to outstrip supply barring some temporary mismatches.
During FY09, sales are expected to move up
to Rs.250 cr. with net profit by 35% at Rs.16 cr.
when the EPS would work out to Rs.14.4.
15
The shares of SIL are traded at Rs.29,
discounting its estimated FY09 EPS of Rs.14.4
by 2.1 times against the industry average P/E
of 6.2. Investment in this share is likely to
fetch a gain of over 40% in the medium-term.
The 52-week high/low of the share has been
Rs.71/23.
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By Nayan Patel
TECHNO FUNDA
Jay Ushin Ltd.
BSE Code: 513252
Last Close: Rs.72
Established in 1986, Jay Ushin Ltd. manufactures central locking, power
windows, stop lamps, remote locking and door handles for cars. The
company has a joint venture with U-Shin Ltd., Japan, for manufacture of
auto electrical, mechanical and electronic components for four wheelers. U-Shin Ltd. holds 25% stake in Jay Ushin Ltd.
Review
Last week, we recommended Real Strips at
Rs.82.85. In spite of the high volatility and
bearish tone last week, this stock zoomed up
to Rs.95 and closed at Rs.92.65 on Friday.
The company has an equity of just Rs.3.87 cr., Indian promoters hold 42.60%, corporate bodies hold 16.97% and the
investing public holds 12.94% (only around 5 lakh shares) and foreign holding is 27.46% including 25% of U-Shin Ltd.
For the June 2008 quarter, its sales jumped 11.96% to Rs.60.85 cr. while net profit was Rs.1.27 cr. and the EPS was Rs.3.29.
At the current market price, the stock is available at a P/E ratio of just 6.
The company has declared 20% dividend vs. 10% last year and its 52-week high share price is Rs.122. At the current level,
the stock is available dirt cheap with good dividend. Investors can buy this stock with stop loss of Rs.65. On the upper
side, its share price can go up to Rs.85 in the medium-term and can go up to Rs.110 level in 6-8 months. Book closure for
20% dividend is 19 September 2008.
20 Microns IPO opens on 8
th
Sept.
MONEY FOLIO
20 Microns Ltd. (20ML), a pioneer and leader in micronised minerals and use of ultrafine minerals for the Paints and
Plastic industries, will enter the capital market with an IPO of 43,50,632 equity shares of Rs.10 each through a 100% Book-
Building Process in the price band between Rs.50 to Rs.55 per equity share. The issue opens on Monday, 8 September and
closes on Thursday, 11 September 2008. The IPO has been assigned 'IPO Grade 3' by CARE Ltd. indicating average
fundamentals and will be listed on the BSE and NSE.
20ML is a multi product company producing non-metallic minerals like Natural Calcium Carbonate, China Clay/Kaolin,
Talc, Dolomite, Silica, Mica, Iron Oxide and Barytes catering to various industries such as plastics, paints, adhesives,
paper, ceramic and textiles.
20ML, an ISO 9001:2000 certified company, is one of the India's largest producers of white minerals with an annual
turnover of over 1,80,000 tonnes from plants and deposits in different regions producing functional fillers, speciality
chemicals and extenders which are supplied globally. It has 4 different captive mines and 8 manufacturing locations
spanning across the country with total mineral reserve of 60,00,000 metric tonnes. The mining resources and plants are
strategically located in the states of Rajasthan, Gujarat, and Tamil Nadu.
It has about 70 international customers based in 30 countries utilising 450 product grades in addition to 700 customers
spread across India. Its top 10 clients are Asian Paints Ltd., Berger Paints India Ltd., ICI India Ltd., Kansai Nerolac, Akzo
Nobel Coatings Ltd., Plastiblend India Ltd., Pidilite Industries Ltd., Kandui Fillerteknik, Finolex Cable Ltd. and Shriram
Polytech.
The company intends to utilise the proceeds of the fresh issue in the IPO towards the current ongoing expansion plans of
manufacturing capacities at various locations, invest in the sub-micron particle sizes required by end-market and general
corporate purposes.
Shemaroo partners with Israel Mobile & Communication Association
Shemaroo Entertainment, a leading entertainment conglomerate has been active in the fast emerging Digital Distribution
space for the last 2 years offering end to end expertise from aggregation to conversion. They have strong relationships
with all operators in India and are looking at overseas expansion. In the Mobile Space they have been a content player so
far providing exclusive audio and video content. Shemaroo is now entering the VAS solutions space in a big way.
Shemaroo Entertainment has partnered with the Israel Mobile and Communication Association (IMA) to explore new
business opportunities in India along with IMA's member companies. IMA is an organisation with 100+ members
companies, which serve as an innovation hub. The portfolio of companies offer a large number of VAS solutions as well
as infrastructure, network efficiency and optimisation solutions.
This partnership between Shemaroo & IMA aims to bring innovative products and solutions to the Indian Mobile Scene.
A number of activities are planned as part of this collaboration. Six Israeli companies will present their innovative ideas
and solutions to all service providers like Airtel, Vodafone, Reliance, Tata, Idea, and BPL among others.
Goldman Sachs to launch Mutual Fund
Goldman Sachs Asset Management L.P. (GSAM), has received SEBI approval to start a wholly-owned asset management
and mutual fund business in India. The approval has been granted to Goldman Sachs Asset Management Company
(India) Pvt. Ltd., a subsidiary of The Goldman Sachs Group Inc. (GSG, Inc.), to act as the Investment Manager of the
Goldman Sachs Mutual Fund.
Indofil Organic Industries' Rights issue opens on 19
th
Sept.
Indofil Organic Industries Ltd. through Indofil Chemicals Company is undertaking a project in the Special Economic
Zone (SEZ), Dahej, District Bharuch in Gujarat at an estimated cost of Rs.130 cr. to be partly financed by loans and partly
by issue of Rights Shares. It will be a state-of-the-art manufacturing facility for Fungicides/Formulations, which will
enhance the company's overall capacity to more than 38,000 MTA from its Thane and Dahej plants by the second quarter
of 2009-10.
The company is coming out with a Rights issue at Rs.70 per share on 19 September 2008 offering 3 shares for every 4
shares held.
BSE's new interface to facilitate IPO payments
The Bombay Stock Exchange Ltd. (BSE) has developed an interface for the banks to participate in the ASBA (Application
Supported by Blocked Amounts) process. This new initiative is to facilitate IPO payments as proposed by SEBI.
16
Using this interface the banks participating in the IPO process would be able upload the bids of to their customers into the
electronic book of BSE. The interface facilitates not only the controlling branch but also the designated branches of the
banks to directly upload the bids into the electronic book at BSE.
This interface has been successfully tested with 11 banks: Bank of Baroda, Corporation Bank, HDFC Bank, ICICI Bank,
IDBI Bank, Indus Ind Bank, Kotak Bank, Punjab National Bank, State Bank of India, State Bank of Bikaner and Jaipur and
Union Bank.
Disclaimer: Investment recommendations made in Money Times are for information purposes only and derived from sources
that are deemed to be reliable but their accuracy and completeness are not guaranteed. Money Times or the analyst/writer does
not accept any liability for the use of this column for the buying or selling of securities. Readers of this column who buy or sell
securities based on the information in this column are solely responsible for their actions. The author, his company or his
acquaintances may/may not have positions in the above mentioned scrip.
17
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