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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 44
Monday, September 15 - 21, 2008
Pages 17
Further fall likely
as market sentiment negative
By Sanjay R. Bhatia
The markets displayed a negative bias on the back of negative global cues and sustained selling pressure, especially by
FIIs last week. Broad based selling pressure was witnessed as the markets traded with heavy losses during the week.
Traders and speculators were seen selling and also going short. Incidentally, FIIs have remained net sellers in the cash as
well as the derivatives segment. Mutual Funds, too, were net
sellers during the week.
1
The global cues continued to remain weak. The failure of
Lehman Bros to raise fresh capital and renewed concerns of a
global slowdown continued to impact the market sentiment
negatively. Even though the US Government bailed out
Freddie Mac and Fannie Mae, it does not signal an end to the
credit crisis woes in USA. Crude oil prices continued to fall
with the Indian crude basket falling below the $100 level.
However, the impact of this fall in crude prices did not make a
significant impact due to the strengthening of the US dollar
against all major currencies. The Indian rupee depreciated
against the US dollar and touched the 45.7650 level.
Technically, if the Re-US dollar sustains above the 45.50 level,
then it is likely to touch the Rs.47 level. This could happen in the next few months. The current rupee depreciation is
likely to neutralise the fall in the Indian crude basket and even negatively impact Indian oil marketing companies.
Now, it is important that the markets witness improved participation especially on the buy side, which so far has
remained elusive. It is also important that markets witness FII buying if a sustainable rally is to unfold.
The market sentiment is likely to remain negative. Occasional bouts of relief rally could be witnessed if any positive cues
are witnessed and the markets would continue to take cues from the global markets. Stock specific action will be
witnessed amidst intermediate bouts of volatility and choppiness.
On the upside, the Sensex faces resistance at the 14141, 14677 and 15000 levels but has support at 13791, 13454 and 12961
levels. On the upside, the Nifty faces resistance at the 4482, 4647 and 4899 levels whereas 4189, 4108 and 4074 are its
important support levels.
Investors should avoid taking long positions.
Greenback gains, market loses
By Fakhri H. Sabuwala
Markets are in a one way drive and Dalal Street is a one way lane. What else can be said about the share market today?
Inflation being reined under control and interest rates peaking out may have been a solace but the deteriorating rupee vis-
à-vis the US dollar dealt a rude shock. Touching Rs.46 on Friday, 12 September, 2008 and the simultaneous weakness in IT
stocks sums up the vulnerability of the situation. The major positive of the fall in crude oil prices is almost washed away
with the sudden spurt in the dollar value. How the government tackles this in the next few weeks will determine the
momentum of economic growth. The new RBI Governor may not sacrifice growth to curb inflation but all this is easier
said than done. So the only way out for investors and traders is to endure this painful journey a little longer and sell at
every rise as this rise does not last long.
It would be prudent to select stocks on the basis of their growth stories. The market on its own accord will not help you to
make money and only individual scrips with fire within shall deliver returns. No amount of old theories and other
economic fallacies that surprisingly work. In fact, times have changed so much that it is best be a proactive investor only.
At times simple economic rules also do not work in Dalal Street and this is one such time.
In such a situation, it is imperative to monitor the rupee - dollar rate and the underlying reasons for it. The decline in
capital inflows and the growing demand for US dollars from oil companies and delaying the receipts of exporters weigh
heavily on this rising demand. It's not only the rupee - dollar equation alone because the greenback is also consolidating
itself against the UK pound when it breached $1.8 mark against the pound. It is displaying strength against the Euro,
Swiss Franc, Yuan etc. Although partially true, it could be fears of sovereign capital flows into US Securities declining
sharply from earlier levels. Such fears have now been allayed, thanks to the unexpectedly robust second-quarter
performance of the US economy and the strong signal from the US administration that it would put its full weight behind
the tottering financial institutions. Last but not the least, the RBI must fully address the volatitility in the rupee - dollar
rate rather than influence its direction. A strong dollar may ease oil price and gold prices, improve exports but lend a
deadly blow to importers whose margins are already under pressure. It is indeed a tightrope walk for the government on
the eve of general elections!
Ready for a breakdown?
TRADING ON TECHNICALS
2
By Hitendra Vasudeo
After two weeks of sideways movement, the Sensex
prepared for a breakdown on Friday, 12 September 2008,
as it had test the support of 14000-13727. Last week, the
Sensex opened at 14978.24, attained a high at 15107.01 and
fell to a low of 13933.87 before it closed the week at
14000.81 and thereby showed a net fall of 483.02 points on
a week-to-week basis.
Thus the support of 14000-13727 was tested last week as it
made a low of 13933. This support of 13727 will be tested
again in days to come. If this support of 13727 is violated,
then expect a slide down towards the 12822-12514 range at least. A breakdown and close above 13727 will also confirm a
head and shoulder (H&S) pattern, which has a bearish implication. A false breakdown will be witnessed if after violating
13727 its crosses 14433 and closes above it.
As a result of last week's candle movement, an engulfing bear candlestick pattern was formed which has bearish
implication. The H&S pattern formation confirmed this week and engulfing bear candlestick pattern suggest that stock
prices will drift down.
Resistance will be at
14347-14760-15106.
Support will be at 13737-
13587. On further fall
below the support, expect
low of 12514 to be tested.
Sensex Wave Analysis
Normal Count
Wave I-2594 to 3758
Wave II-3758 to 2904
Wave III- Internals are as
follows:
Wave 1- 2904 to 6249
Wave 2-6249 to 4227
Wave 3-4227 to 12671
Wave IV- 12671 to 8799
WEEKLY UP TREND STOCKS
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
347.45 320.4
338.1
346.5
355.9
373.6
81.3
333.9
18/07/08
AIA ENGINEERING 1620.70 1472.1
1567.1
1608.6
1662.1
1757.1
76.7
1572.3
25/07/08
NESTLE INDIA
1782.00 1663.0
1738.0
1769.0
1813.0
1888.0
75.1
1767.3
01/08/08
HINDUSTAN UNIL.
248.90 233.2
243.6
248.8
254.0
264.4
74.1
246.1
18/07/08
SPICE COMMUN.
75.95 73.0
74.8
75.5
76.7
78.5
73.0
74.8
08/08/08
Wave V- 8799 to 21206
WEEKLY DOWN TREND STOCKS
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
BRAHMANAND HIM 15.30
12.1
14.5
16.0
16.8
19.2
8.53
16.90
29/08/08
SOBHA DEVELOP. 260.40
215.8
248.5
269.2
281.1
313.8
23.30
266.55
12/09/08
INDBULLS REAL
252.80
183.5
234.9
268.5
286.4
337.8
27.00
275.86
22/08/08
HCL INFOSYSTEM 105.35
88.2
101.0
109.4
113.8
126.6
27.87
113.61
01/08/08
AMTEK AUTO
173.15
154.2
167.7
175.9
181.3
194.8
28.64
177.30
16/05/08
Wave W-21206 to 14677
Wave X-14677 to 17735
Wave Y- 17735 to 12514
Wave X- 12514 to 15579
Wave Z- 15579 to 13933
(Not yet complete)
Conclusion
The
overall
strategy
remains to exit long on
rise and sell on rise to the
resistance
levels.
A
bearish pattern formation
is in sight and a sustained
breakdown now could
lead to a panic fall
situation.
3
Strategy for the week
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
KUSHAL SOFTWARE
590090 108.65
101.00
108.90
93.10
118.7
134.5
0.64
SUDARSHAN CHEMICALS 506655 147.10
140.50
160.00
135.00
175.5
200.5
2.34
UNIPRODUCTS (INDIA)
507856
39.90
38.50
39.90
36.15
42.2
46.0
0.62
Sell at resistance levels
with a stop loss of 15106.
Expect lower support to
be tested.
* Reliance industries stock dipping below Rs.2000 and expected to even touch Rs.1880 in a hit-and-run fear driven
market may be the ultimate turning point of the market sentiment.
TOWER TALK
* Suzlon's buying 22.5% in RE Power Systems makes it a strong global player in wind power generation industry.
* Apart from its robust order book in power generation, BHEL is also setting up a greenfield project to manufacture of
locomotives and is in talks with Alstom, Bombardier, Siemens and General Electric.
* Bajaj Auto's new bike 'Platina', a 125 DTS-SI electric vehicle, is to hit the market soon.
* Bilpower has bagged an EPC contract for transmission & distribution in Ghana worth Rs.125 cr. for rural electrification
in Brong Ahafo and Ashanti regions of Ghana. Keep a close track of this scrip.
* EPIC Energy has successfully commissioned a 140 kVA energy saving project for BEST, Mumbai, which will lead to a
minimum saving of 25% of energy costs of the transport terminal. Scrip may see some action in the near future.
* As if the competition from the Tatas was not enough, Reliance ADAG has entered the race to capture the DTH market.
Stay away from Dish TV.
* SAAG RR is sitting on a huge order book position to be executed in coming years. At the current market cap of merely
Rs.60 cr., it is worth a punt.
* ANG Auto has initiated a buy-back of shares through market purchases. The rising dollar would also contribute to the
bottom line of the company. A value buy.
* Jhunjhunwala Vanaspati has huge earnings and has started paying dividend regularly. A growth stock to accumulate
at declines.
* With the nuclear deal getting sealed companies in capital goods like BHEL, L&T could benefit.
* Rolta could be one of the beneficiaries of the nuclear deal since it has software catering to nuclear applications.
By Saarthi
BEST BETS
Indag Rubber Ltd. (Code: 509162)
Rs.55.05
Established in 1978, Indag Rubber Ltd. (IRL) was formed as a joint venture company between Khemka group and Bandag
Inc-USA for the manufacture and marketing of pre-cured retreads. Today, it is one of the largest players in tyre retreading
business and operates through franchisee business model offering technology, specialized equipment, retreading
material, technical back-up etc. to the franchisee. It also sets up captive retreading plants for various state road transport
corporations. Retreading is basically a process of bonding a new flap of pre-vulcanized rubber in place of the worn-out
flap, which increases the life of the tyre. Retreading can be done either by conventional hot process or the new advanced
precured cold process. The cold process has various advantages: mainly improving the fuel efficiency and increased tyre
life & performance in comparison to the hot process. Notably, IRL is among the few offering 'genuine' cold process
precured retreads in India.
IRL has a state-of-the-art manufacturing unit at Bhiwadi, Rajasthan to produce precured tread rubber along with allied
items like rubber cement, cushion gum, extrusion gum, envelopes, other accessories and specialized equipment for
retreading. Of late, it has set up a new plant in Nalagarh, Himachal Pradesh, to enhance its market share. Presently, the
company has capacity to produce nearly 800 tonnes of pre-cured rubber per month. It supplies the pre-cured tread
regularly to over 100 franchisee outlets, which eventually carry out the retreading operations. The company is working on
to utilize the full potential of the existing franchisee network and is appointing new franchisees in unrepresented areas to
create a larger and more efficient network of franchisees. It also has a training centre to impart high quality on-the-job
training to its licensed customers. As there are very few organised players in this business, IRL enjoys a good branding
and a dominant position especially in northern India. Recently, the joint venture between the Indian promoters
(Khemkas) and foreign promoters (Bandag Inc, USA) has been mutually terminated and accordingly the Khemkas have
acquired the latter's stake taking their total holding to 81%.
Due to the high prices of tyres, retreading of tyres is becoming a necessity. Tyres retreaded with quality material and
retread process give about the same mileage as new tyres at a much lower cost per mile and are environmental friendly.
Not only do they consume two-third less petroleum products but every retreaded tyre also saves a tyre from going into a
landfill. Moreover, due to increasing radialisation in tyres, increase in share of multi-axle trucks and aggressive road
infrastructure development, tyre retreading in the commercial vehicles segment holds huge potential. However, the sharp
increase in basic raw material prices such as PBR, natural rubber, carbon black and rubber chemicals have put pressure on
both the tyre industry as well as the retreading business. Despite this, IRL is expected to do well in coming years.
Financially, the company made a smart turnaround in FY07 and continued its strong growth in FY08 as well. It reported
20% growth in topline at Rs.74 cr. whereas PAT doubled to Rs.8.30 cr. thereby posting an EPS of Rs.16 for FY08 and it
declared its maiden dividend of 20%. For Q1FY09, it registered double digit growth and is expected to clock a turnover of
Rs.85 cr. with PAT of Rs.7.50 cr. on a conservative basis. This translates into an EPS of Rs.14 on its equity of Rs.5.25 cr.
That means at the current market cap of Rs.29 cr., the scrip is trading at a P/E ratio of less than 4. Investors are
recommended to buy it at current levels as its share price can appreciate 50% in a year.
Tanfac Industries Ltd. (Code: 506854)
Rs.54.15
Incorporated in 1972, Tanfac Industries Ltd. (TIL) is a joint sector company promoted by Tamilnadu Industrial
Development Corporation (TIDCO) (26%) and Aditya Birla Group (25%). Today, TIL is among the largest suppliers of
fluorine chemicals and is mainly engaged in the manufacture of inorganic chemicals and fluorine based chemicals such as
aluminium fluoride (ALF3), anhydrous hydro fluoric acid (AHF), sodium silico fluoride, ammonium bifluoride, sulphuric
acid, potassium fluoride, gypsum, cryolite and various chemicals. These products have vital applications in industries as
varied as aluminium smelting, petroleum refining, refrigerant gases, steel re-rolling, glass, ceramics, sugar, fertilizers,
heavy water, etc. Besides, it also produces organic fluorides & speciality fine chemicals that are used as intermediates in
the manufacture of pharmaceuticals and agrochemicals.
TIL's manufacturing plant and facilities are spread over 60 acres in the chemical complex of SIPCOT at Cuddalore near
Pondicherry. It has technical collaborations with Davy Process (formerly BUSS AG), Switzerland for ALF3 and Chenco,
Germany, for Hydrofluoric Acid. Currently, the company has an installed capacity of 15,600 TPA each for ALF3 & AHF,
75,000 TPA for Sulphuric Acid and 3400
tonnes for speciality fluorides. It also has ISO
9001, 14001, & TPM certifications. Being an
Aditya Birla group company, Hindalco is its
major customer apart from NALCO. Besides,
nearly 30% of the production is exported to
USA, Europe, Australia, New Zealand,
Singapore, Thailand and Middle East etc.
Notably, the aluminium industry worldwide
has been growing at a fast pace, which has led
to a significant improvement in the demand
for aluminium fluoride. Since 60% of the
company's revenue comes from ALF3, this
augurs well for TIL. Further, it is expected to
maintain its growth momentum in coming
years as it has undertaken new market
4
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initiatives, new product launches, capacity expansion of existing production and cost savings from process improvement
schemes. In the current year, the company plans to launch four new value added products. Meanwhile, one of its projects
has been already registered under CDM and the company expects to start trading in carbon credits from this fiscal, which
will generate additional revenue.
Financially, after making a strong turnaround in FY07, TIL maintained its growth in FY08 as it registered 35% increase in
sales to Rs.165 cr. and 80% jump in PAT at Rs.12.25 cr. thereby posting an EPS of Rs.12. It declared 17.50% dividend for
FY08. Importantly, the company was able to improve its OPM in FY08 to 12% against 5% in FY06. For Q1FY09 as well, it
reported a stunning performance. Sales grew by 50% to Rs.47 cr. and net profit shot up by 150% to Rs.3.30 cr. Accordingly
for FY09, it may clock sales of Rs.200 cr. with profit of Rs.13.50 cr. i.e. an EPS of Rs.14 on its equity of Rs.9.98 cr. Besides,
the company has significantly reduced its total debt to Rs.16 cr. from Rs.42 cr. in 2005. It is currently available fairly cheap
at an EV/EBIDTA of less than 3 times. The scrip can shoot up 50% as and when the market sentiment improves. Also, in
case the Tamil Nadu government opts for divesting its stake, the share price can shoot up sharply.
G S Auto International Ltd.: Buy on declines
ANALYSIS
By Devdas Mogili
GS Auto International Ltd. (GSAIL), a 35-year old Ludhiana based company established in 1973, specialises in the
manufacture of suspension components including machined, forged and cast for commercial vehicles like LCVs, MCVs
and HCVs and passenger cars of various makes/models. Its plant is located at Ludhiana, Punjab. Jasbir Singh Ryait is the
chairman while Surinder Singh Ryait is the managing director of the company.
Export Markets: The company has also forayed into exports and has presence in over 20 countries including UK,
Germany, Holland, Malaysia, Saudi Arabia, Iran, UAE, USA, Morocco, Egypt, Phillipines, Afghanistan, Singapore,
Bahrain, Kuwait and Kenya.
Clientele: GSAIL supplies components to various Indian OEMs. Its clients include Tata Motors, Swaraj Mazda, Eicher
Motors, Volvo India, Ashok Leyland, Mahindra & Mahindra, Maruti Udyog, Punjab Tractors and Hindustan Motors.
The company is planning to raise funds aggregating Rs.50 cr. for its expansion plans for establishing a new
manufacturing unit and enhancing its product portfolio.
Performance: During FY08, the company posted sales of Rs.81.36 cr. with a net profit of Rs.1.92 cr. netting a basic/diluted
EPS of Rs.10.93.
Financial Highlights:
(Rs. in lakh)
Latest Results: GSAIL has reported highly
encouraging results for Q1FY09. It clocked a net
sales income of Rs.24.99 cr. with a net profit of
Rs.0.85 cr. netting a basic/diluted EPS of Rs.4.98.
The annualised EPS works out to Rs.19.92 on
Rs.10 face value share and Rs.9.96 on its Rs.5
face value.
Equity: During Q1FY09, the company issued
24,300 forfeited equity shares of Rs.10 each at a
premium of Rs.80.25 per share on preferential
basis. As a result, its equity base rose from
Rs.1.68 cr. to Rs.1.70 cr. with a book value of
Rs.50. It has a low debt equity ratio of 0.50.
Particulars
Q1FY09
Q1FY08
FY08
Net Sales/Income
2498.70
1911.75
8136.28
Other Income
9.44
5.10
19.74
Total Income
2508.14
1916.85
8156.02
Total Expenditure
2372.83
1864.03
7776.87
Interest
35.32
26.31
117.98
Profit Before Tax
99.79
26.51
261.17
Tax Expense
15.25
12.30
78.00
Net Profit from ord active
84.54
14.21
183.17
Extraordinary Income
0.00
0.00
8.78
Net Profit
84.54
14.21
191.95
Paid up equity share (FV: Rs.10)
170.00
167.57
167.57
Res Exc Rev Reserves
1502.26
Basic/Diluted EPS (Rs)
4.98
0.85
10.93
Selection Criteria
Time Communications (India) Ltd, the publishers of MONEY TIMES and its directors are in no way connected with the share trading business.
Equity analysts, investment advisors, chartists market observers and other specialists who contribute to MONEY TIMES are individual free-lancers
who may or may not have a position in the scrips recommended.
— Editor
Share Profile: Recently, the share's face value was split from Rs.10 to Rs.5. The company's shares with a face value of Rs.5
are listed and traded on the BSE under the B group. Its share price touched a 52-week high/low of Rs.105/10.70. At its
current market price of Rs.81, it has a market capitalisation of Rs.26.66 cr. Its RoCE is 12.49% while RoNW is 7.38%.
Dividends: With a view to conserve resources for its expansion plans, the company has not paid any dividend.
Shareholding Pattern: The promoter holding in the company is 51.79% while the balance 59.21% is held by non corporate
promoters and the investing public.
5
Prospects: The prospects of automotive sector is linked with the growth of the Indian economy in general and the
automobile sector in particular. The sales of passenger vehicles has increased due to the higher disposable incomes of
households and easy availability of loans at reasonable terms.
The excise duty cuts on compact cars and import duty cuts on components has resulted in decrease in prices, which led
to a higher demand. Entry of new manufacturers and introduction of new models by the existing manufacturers has
helped to sustain the high level of demand. All this augurs well for companies engaged in automotive parts and more so
for companies like GSAIL.
Conclusion: G S Auto is an existing and profit making company supplying automotive parts with a strong presence in
the domestic and export markets.
At its current market price of Rs.81, its share price is discounts its projected earnings less than 10 times. The company has
been posting consistently good results for the last 3 quarters. In view of its good working, leadership status, and noted
clientele, the scrip may be added on declines with a medium to long term perspective.
Market sentiment dampens on intense selling
MARKET REVIEW
By Ashok D. Singh
The BSE Sensex lost 483.02 points or 3.33% to close at 14,000.81 for the week ended Friday, 12 September 2008. The NSE
Nifty fell 123.85 points or 2.84% to 4228.45. Weak global cues pulled the market sharply lower. The key indices surged on
the first day of the week on positive news on the Indo-US nuclear deal. But weakness in the US market hit investor
sentiments as the week proceeded. The sentiments were so weak that a steep slide in crude oil prices and a softening of
India's inflation for the third consecutive week were unable to take the markets higher.
The 45-nation Nuclear Supplier Group (NSG) on 6 September 2008, lifted a 34-year-old embargo on nuclear trade with
India. The NSG's acceptance of the US proposal to drop a ban on nuclear trade with India will now put the Indo-US
nuclear deal on the fast track.
However, the nuclear deal still needs to be ratified by the US Congress before it could take force. The Congress must act
before adjourning in late September 2008 for US presidential elections. If that does not happen, the deal could be left to an
uncertain fate under a new US administration that takes office next year.
The BSE Mid-cap index declined 216.58 points or 3.76% to 5,537.14. The BSE Small-cap index slipped 193.68 points or
2.80% to 6,711.54.
US crude for October 2008 delivery rose 45 cents to $101.37 a barrel on 12 September 2008 as the markets kept a watchful
eye on the path of Hurricane Ike that could disrupt refineries and production in the United States for weeks. It lost $1.71 a
barrel on Thursday, 11 September 2008
after falling to $100.10, its lowest level
in 5-month in intra-day trade.
6
9% from 11.91%.
eptember 2008).
Inflation based on the wholesale price
index rose 12.10% in the 12 months to
30 August 2008, below the previous
week's annual rise of 12.34%, data
released by the government on 11
September 2008, evening showed.
Inflation for the week ended 5 July 2008
was revised up to 12.1
FIIs sold shares worth Rs.1525.40 cr. in
September 2008 (till 10 September
2008). FIIs sold shares worth
Rs.30039.10 cr. in the calendar year 2008
so far. Mutual funds bought shares
worth Rs.61.70 cr. in September 2008
(till 10 S
Industrial output rose 7.1% in July 2008
from a year earlier, above the previous
month's 5.4% rise, data released by the
government today, 12 September 2008,
afternoon showed. The figure was
above market expectations of a 6.5%
growth. Manufacturing rose 7.5% in
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NEW
July 2008 from a year earlier.
Passenger car sales fell for the second straight month in August 2008, the Society of Indian Automobile Manufacturers
said. Car sales declined 4.4% to 94,584 units in August 2008 over August 2007. Sales of trucks and buses fell 6.3% to 34,294
units in August 2008 over August 2007.
Key benchmark indices surged on Monday, 8 September 2008, after the 45-nations Nuclear Supplier Group on Saturday, 6
September 2008, lifted a 34-year-old embargo on nuclear trade with India. Strong Asian and European markets, too,
supported the domestic bourses. The Sensex jumped 461.14 points or 3.18% at 14,944.97. The Nifty jumped 130 points or
2.99%, to settle at 4482.30.
On Tuesday, 9 September 2008, the key benchmark indices ended a choppy session lower weighed down by weak Asian
markets. The Sensex declined 44.21 points or 0.3%, to settle at 14,900.76. The Nifty slipped 13.60 points or 0.3%, to end at
4468.70.
Weak global markets weighed heavily on the domestic bourse on Wednesday, 10 September 2008. Nevertheless, the key
benchmark indices cut losses in late trade led by recovery in banking stocks. Volatility was high throughout the session.
The Sensex slipped 238.15 points or 1.6%, to settle at 14,662.61. The Nifty slipped 68.45 points or 1.53% at 4400.25.
Bears ruled the roost for the third day in a row on Thursday, 11 September 2008. Weak global markets triggered fall on
the domestic bourses on that day. The markets remained weak throughout the trading session. The Sensex lost 338.32
points or 2.31% to 14,324.29. The Nifty slipped 109.95 points or 2.5% to 4,290.30.
On Friday, 12 September 2008, heavy selling in index pivotals like ICICI Bank and Reliance Industries pulled the BSE
Sensex below 14,000 mark in late trade. The Sensex ended down 323.48 points or 2.26% to 14,000.81. The Nifty slipped
61.85 points or 1.44% to 4228.45.
Reliance Industries slumped 7.11% to Rs.1931.40 in the week. As per reports, the Prime Minister's Office may recommend
levy of export tax or even ban petroleum product exports from Reliance's export oriented refineries in Jamnagar.
Infosys Technologies fell 4% to Rs.1644.10. Foreign brokerage house UBS said a sharp and sudden appreciation of the
dollar against the British Pound and the Euro would hit IT firms' revenue in dollar terms by 1-2%.
The Sensex lost 483.02 points or 3.33% to close at 14,000.81 last week. The market may remain under pressure next week
as US financial sector woes continue to weigh on the investor sentiment. Problems at US investment bank, Lehman
Brothers, reminded jittery investors that the global credit woes were yet to run their full course, triggering worries of
more withdrawals by foreign funds who had already pressed heavy sales on the domestic bourses this year.
According to reports, the US Treasury and the Federal Reserve have been working on prospects of Lehman Brothers' sale.
Potential suitors include several big banks including Bank of America, HSBC, Nomura, Credit Suisse, Barclays and
Deutsche Bank, as well as several private equity companies. The deal may be announced before Asian markets open on 15
September 2008. Software stocks will be closely watched. According to reports, IT businesses in developed countries have
cut their IT budgets by 40%.
7
Market under consolidation
MARKET
By G. S. Roongta
The stock market, which had bounced back by over 461.14 points on the first day of last week, Monday, 8 September 2008
with the BSE Sensex crossing the 15000 mark in intra-day trading before closing at 14944.97, provided the bulls an
opportunity to take it ahead. This hope, however, proved to be short-lived as the entire gains of the day
was washed out over the next three days till 11 September 2008 as the market appeared to be heading for
a negative closing at 14324.29 as against the previous week's closing at 14483.83 thereby losing 160 points
despite the good opening. Friday's movement confirmed this trend as the Sensex lost 323.48 points after
touching a low of 13933.87 in intra-day trade.
Such price movement was indeed baffling as economic fundamentals were quite positive during the
week. The price of crude oil has been falling continuously from its peak of $147 per barrel in July 2008
and has lost almost 45% in just two months. It is indeed ironical that crude oil prices were rising when
the stock market was bottoming out on fears of higher input costs. But now that crude price has fallen so sharply, the
stock market is still going down negating this major positive factor.
G.S. Roongta
Besides commodity prices of steel, copper, aluminium, zinc, etc. too have plummeted by 20-30% from their peak levels of
July 2008. Yet the market does not exhibit any signs of gain but instead keeps on losing steadily and has wiped out all the
gains of the first day of last week.
The depreciating value of the Indian rupee should also have been a cause of celebration for exporters especially from the
IT & ITES sector but this was nowhere to be seen. When the rupee had appreciated to almost Rs.40 against the US dollar,
it was widely feared that the exports from India are bound to suffer and many EOUs were readying to down the shutters.
But now when the rupee has touched a historical high of two years at Rs.45.72 to a dollar, it has failed to cheer the market
in any manner.
It is indeed like a vicious circle when in the face of economic positives, the market takes a negative turn and some lame
excuses are given out to justify the market move. But when crude oil was rising along with other commodity prices, it was
the sole justification for the inflation and the prime reason for the fall. But now that inflation rate seems to have been
contained and interest rates too likely to soften, as hinted by RBI, the market is negative and displays no signs of
improvement.
In fact, the stock market is facing problems of liquidity, which is mainly on account of the heavy sales mounted by FIIs
who have been selling stocks since the third week of January 2008 and have sold worth Rs.30,000 cr. till 10 September
2008 of which over Rs.1500 cr. was sold in the first seven trading sessions of September 2008. The question of FII
divestment is linked to their internal cash flow problems and traced back to the sub-prime crisis in USA. To keep
themselves afloat, they have no option but to divest in overseas markets.
And just as the US reported some encouraging numbers and that the sub-prime crisis had been tackled by the US Federal
Reserve, we get news that the two largest housing mortgage institutions, Freddie Mac and Fannie Mae, had to be bailed
out by the US government to save them from collapsing. Barely had this news been digested, in came the news of Lehman
Brothers reporting a loss of $4 billion in its latest quarterly working and recreated the gloom once again.
Retail investors, as reported earlier, are already out watching the situation carefully but quite unsure about the trend of
the market. In such a situation, the '1-day positive followed by a 2-day negative' market does not provide any hope or
fresh incentive to them. They are fully aware that falling commodity prices will help keep inflation under check and soft
interest rates will boost consumer demand. Yet they are unprepared to move as the market does not respond to such
positive signals.
Let us, however, not be pessimistic and consider such day-to-day factors as bygones to help the market consolidate fully
and thereby fill up the gaps of uncertainty brought about earlier by the massive US sub-prime crisis followed by the
severe setback to the real estate business that has taken away the sheen from the markets in the world's largest economy
of USA.
According to me, the stock market is in a consolidation phase and may remain in a narrow range for some time before it
bounces back to cross the Sensex 15500 level. If it crosses this strong resistance level, a rally of 1500 to 2000 points appears
quite imminent on the back of declining inflation and interest rates.
Readers should, therefore, take advantage of picking up good fundamental stocks in the panic that might follow rather
than sell their good stocks as the time ahead looks quite positive and the worst seems to be over. The indices may fall
further for technical reasons or lack of participation/liquidity but the panic created may not last and prove to be short-
lived.
Idea Cellular Ltd.
For the last two weeks, we have been discussing the deteriorating capital market image of the Aditya Birla Group in
relation to its flagship company, Hindalco Industries Ltd. We have already highlighted that despite its robust
performance year after year and hefty investment income together with huge reserves, the company ha singled out the
shareholder, its principal stakeholder, for a miserable payout whereas the directors and employees are well rewarded.
While Hindalco is one of the oldest companies of the Aditya Birla Group, a new generation company like Idea Cellular
Ltd. (ICL) seems to be following Hindalco's footsteps. This company came out with a public issue about a year and a half
back and issued shares at Rs.75 with a premium of Rs.65 for a Rs.10 paid-up share. The share was listed on 9 March 2007
and was quoted at Rs.98.40 on the BSE Sensex and Rs.103 on the NSE on 31 March 2007.
Its share price ruled as high as Rs.160 in January 2008 and has plummeted to a low of Rs.74 and is currently traded at
Rs.82.60 washing away all the gains.
ICL is now hunting to acquire Spice Communication at an offer price of Rs.77.3 per share for a total consideration of
Rs.2176 cr., which is almost equal to its own market price. In such a hunt, the group's fund flow remains tight; this will
lead to extra borrowings and high cost of interest payouts. Its stock price will, therefore, remain under pressure.
So if investors cannot make money from a 4-decade old Hindalco and they cannot make money from a new generation
stock like ICL, then why should they remain loyal to the Aditya Birla Group, which shows little care or concern for
shareholders?
By Saarthi
STOCK WATCH
Aegis Logistic Ltd. (Code: 500003) (Rs.150.95) owns and operates one of India's largest private sector liquid terminals
located on a 20-acre plot in Trombay having a storage capacity of 165,000 KL. With two other terminals, it boasts of
having a total storage capacity of around 290,000 KL. Considering the robust future outlook, it is setting up a third
terminal in Trombay with a capacity of nearly 55,000 KL by FY10. On the other hand, it also imports, markets and
distributes bulk propane, propylene and LPG to a variety of industrial customers in the western region and is one of the
8
largest private sector suppliers in India. Lately, the company has ventured into the lucrative business of marketing and
retailing of LPG through auto gas dispensing stations under the brand name 'AEGIS Autogas'. From the present 38 retail
outlets across 5 states, the company intends to open 100-150 more such stations in the next couple of years. Recently, it
took over Hindustan Aegis LPG and became the owner of a 20,000 MT fully refrigerated LPG terminal. For FY09, it may
clock a turnover of Rs.475 cr. with profit of Rs.35 cr. i.e. an EPS of Rs.18 on its equity of Rs.19.90 cr. Accumulate at
declines.
******
Being Asia's largest manufacturer of air compressors Elgi Equipments Ltd. (Code: 522074) (Rs.48.50) is involved with the
design, development and production of an exhaustive range of electric and diesel powered, centrifugal, reciprocating,
borewell, railway air compressors etc. Since air compressors have a wide range of applications, the company caters to
almost all sectors of industry. Besides, it also derives 20% revenue by providing total service station solutions through the
supply of a range of equipment and tools for two, three & four-wheelers. Importantly, the company manufactures/deals
in over 128 equipments required by a full-fledged garage. Of late, the company has also started offering end-to-end
mechanical engineering solutions and contract manufacturing services of precision engineered parts to clients who are
looking for cost-effective, subcontracting solutions. For FY09, it is expected to report a topline of Rs.485 cr. with net profit
of Rs.36 cr. i.e. an EPS of Rs.6 on its equity of Rs.6.30 cr. having face value of Re.1 per share. To concentrate on each
business segment, the company is hiving off its automotive equipment business into a separate wholly-owned subsidiary
called ATS-Elgi Ltd. Keep accumulating at sharp declines.
******
Part of the B. M. Thapar group, Greaves Cotton Ltd. (Code: 501455) (Rs.158.50) is engaged in the production of
diesel/petrol/LPG engines for power generation, agro equipment and automotives apart from manufacturing gensets,
agro equipment and construction equipment. Besides, it is also engaged in marketing high technology systems for
marine, aviation and electronic applications. Last year, it acquired Bukh Farymann Diesel GmbH (renamed as Greaves
Farymann Diesel GmbH), which is engaged in the manufacture and marketing of single cylinder diesel engines and parts
for Rs.25 cr. to enhance its presence in global markets. For FY08, it may clock a turnover of Rs.1400 cr. with PAT of Rs.115
cr. i.e. an EPS of Rs.24 on its current equity of Rs.48.80 cr. Recently, Piaggio Group's Indian subsidiary has signed an 8-
year agreement with the company for purchase of mono-cylinder diesel engines for application on the three-wheeler
vehicles manufactured by them. This implies that the company will continue to be a single source supplier of such mono-
cylinder diesel engines to Piaggio. A few months ago, it inaugurated its new manufacturing facility for compaction
equipment at Gummidipoondi, Tamil Nadu and has also formed a 100% subsidiary to take up some new businesses. For
FY09, it may clock a turnover of Rs.1500 cr. with net profit of Rs.100 cr. i.e. an EPS of Rs.20 on its equity of Rs.48.85 cr.
Only long-term investors are advised to buy at declines.
******
Hind Rectifiers Ltd. (Code: 504036) (Rs.145.30) is one of the leading manufacturers of locomotive transformers, rectifiers,
inverters, and power electronics like diodes and thyristors (types of semiconductor devices) etc., which are basically used
in converting the AC current to DC and vice versa. Incidentally, it derives more than 50% of its revenue from the railways
and 20% from the power industry. Of late, the company has set up two new units in the tax-free zone of Uttarakhand,
which started commercial production from June 2008. In October 2007, the company signed a technical collaboration
agreement with M/s. Infineon Technologies AG, Germany, for manufacturing of IGBT based primeSTACK, which will
complement its existing products. Although the company did not report encouraging Q1FY09 results, it is still expected to
register sales of Rs.125 cr. with profit of Rs.15 cr. i.e. an EPS of Rs.20 on its tiny equity of Rs.1.51 cr. with face value as Rs.2
per share. The company has recently declared 1:1 bonus and the scrip is still trading cum bonus. Investors can buy at
current levels as it can appreciate 50% in 12-15 months.
By Kukku
FIFTY FIFTY
Investment Call
* Andhra Sugars Ltd. (ASL) (Rs.97.10) manufactures sugar at its 5000 TCD capacity plant at Unit-I in Tanuku, a 2500 TCD
capacity plant at Unit-II in Taduvai and a 1600 TCD capacity plant at Unit–III in Bhimadole. Molasses, which is a
byeproduct of sugar manufacture, is the raw material for ASL's continuous process distillery at Tanuku that produces 30
KL per day of industrial alcohol, which is the raw material for ethanol and other organic chemicals manufactured at its
chemical plants in Tanuku. Bagasse, which is the residual waste of sugar cane crushing after extraction of juice is used to
fuel its power cogeneration. Carbon Dioxide which is a byeproduct of fermentation at the distillery is purified and
used as a raw material to produce Salicylic Acid which goes into the manufacture of Aspirin and Potassium Carbonate.
Keeping in view the future needs and to have a viable sized plant, the crushing capacity at Unit II and III is being
expanded. Unit-II is being expended to 5500 TCD and has a 7 MW co-gen plant. And with the commissioning of the 70
tonne boiler and 8.9 MW turbine at Tanuku, the company would have around 3 MW surplus power to sell to the grid.
9
Since all ASL plants located in the rich Godavari basin it ensures continuous supply of good quality sugarcane and
transportation costs are also kept under check. With a recovery of 11.45% its Unit II stood first in Andhra Pradesh while
Unit-III stood second with 10.89% recovery.
Caustic Soda: ASL company has an integrated Inorganic Chemical Complex at Kovvur and Saggonda, manufacturing a
wide range of Chlor-alkali products and other inorganic chemicals needed to produce caustic soda. Hydrogen and
Chlorine are the byeproducts of caustic soda manufacture and are used to produce Hydrochloric Acid while the
byeproducts of its Sulphuric Acid and Hydrochloric Acid plants are used to produce Chlorosulphonic Acid.
Keeping in mind future diversification, ASL has purchased land at the Jawharlal Nehru Pharma City, Visakhapatnam to
manufacture bulk drugs.
Having obtained USFDA and EDQM approvals for its Aspirin plant, the company has begun exports.
Power: Since Chlor-Alkali is power intensive, ASL has invested in the equity capital of the Andhra Pradesh Gas Power
Corporation Ltd. (APGPCL) to avail of cheaper power to make its caustic soda manufacture competitive. ASL already
delivers caustic soda to the bulk customers through its own railway wagons to affect deliveries at an economical price.
Keeping in view the future expansion programme, ASL proposes to set up a 120 MW coal based power plant at Saggonda
and is setting up a Poly Aluminium Chloride plant and a Monochloride Acetic Acid plant. Both these plants will utilise
the chlorine generated its caustic soda and caustic potash plants as a raw material.
The company has established a 6.60 MW wind farm in Tirunelveli District of Tamil Nadu, which has started generating
power. Since wind energy is classified as clean energy and is eligible for Carbon Emission Reduction Trading benefits,
steps have been initiated to avail these benefits.
ASL's gross assets were Rs.649.25 cr. as on 31/03/08 compared to Rs.619.32 cr. in FY07 and its networth was Rs.299.39 cr.
in FY08.
For FY08, its subsidiary, Jocil Ltd., recorded a PBT of Rs.12.26 cr. against Rs.8.67 cr. in FY07 and declared a dividend of
70% against 60% in FY07.
With integrated sugar manufacture and firm sugar prices ASL is likely to report sharp jump in profits in the future.
Export of sugar is profitable due to the weakening or rupee at Rs.44 to the US dollar whereas import of sugar is not viable
even at no import duty.
Investment Triggers:
(1) The management is liberal in dividend payout. With expected sharp jump in profits the company may step up
dividend to around 65/70% in FY09 against 50% in FY08. Since dividend yield is attractive, its stock price likely to
get strong support around Rs.105/110 levels.
(2) Ethanol blending is to go up from 5% to 10% and ethanol price may rise by 20/25% from the current level of
Rs.21. This will result in re-rating of the sugar sector.
Seeing to the current trend in prices, ASL may report an EPS of around Rs.22/25 in FY09. With the likely re-rating of the
sugar sector and the chlor alkali faring very well, investors can accumulate this stock around its book value of Rs.110 for
price target of Rs.175 over the next one year.
At the CMP of Rs.97, the stock is trading at a P/E of 7.6 its FY08 EPS of Rs.12.6.
Stock is available at P/BV of 0.88 its FY08 book value of Rs.110.
Market Guidance
* Over the years, First Leasing (Rs.44.40) supported the growth of windmill energy and is presently in serious discussions
to lease oil rigs. Last year, the company installed its fourth wind mill in Gujarat. As on 31 March 2008, the company has
nil non-performing assets. Two credit rating agencies Fitch & Care have given AAA rating to the company. The stock is
trading at a P/E multiple of 3.5 on projected earnings of FY09. Investors can continue to hold the stock for good long-term
growth.
* Positive reports are pouring in about the current working of Supreme Industries (Rs.200.40). The company has
expanded capacity and is now fully operational. Knowledgeable investors are said to be accumulating the stocks.
* Around 50% of total sales of Atul Ltd. (Rs.65.55) were exports last year. The weakening rupee will help the company to
improve margins sharply in FY09. In FY08, the company exported $124 million and imported $42 million (net receivables
of $82 million). The sharp appreciation of rupee vs. the US dollar drastically affected profitability to the extent of Rs.41 cr.
in FY08. The company overcame it through a dedicated focus on yield improvement and volume growth. Despite the
general rise in interest rate, the company managed to maintain its average interest cost. Accumulate this stock on dips for
good growth over the next one year.
* Sunil Hitech Engineers (Rs.176.65) provides different types services to players in the power and steel sectors. For
thermal power plants, the company fabricates and erects super structures up to 660 MW. It also takes up civil works for
thermal power stations up to 500 MW. Besides, the company fabricates and erects steel chimney flues and undertakes
turnkey contract for fuel-oil systems including tanks.
10
Sales for Q1FY09 was higher by 145% at Rs.111.21 cr. PAT was higher by 86% at Rs.6.39 cr. The order position of the
company is around Rs.1376 cr.
Long-term investors can accumulate this stock for a share price target of Rs.275 over the next one year.
* JMC Projects (Rs.178.20) - The net value of new orders booked was approx. Rs.18.41 cr. and the value of orders on hand
as on 31 March 2008 stood at Rs.20.88 cr. The company has been successful in getting major orders from prestigious
clients such as BHEL, Wipro, MPRDC, NHAI, Prestige Group, EISAI Pharma, JP Greens, RGA Software etc in the current
year.
The strong order book position will enable the company to achieve healthy growth in terms of turnover and profitability
in the next financial year.
* Sakthi Sugar (Rs.99.35) is expected to come out with encouraging results for the September 2008 quarter. Investors can
keep a watch to add the stock on dips.
Note: Price of molasses has shot up in the last 6 months, which is likely to affect the profits of companies like India Glycol
using molasses as raw material. Alcohol prices, too, have shot up, which will reduce the profits of user industries. Short-
term investors can avoid these stocks.
The market has closed weak at Sensex 14000 level in spite of comparatively better fundamentals compared to the start of
July 2008. Investors are advised to be cautious and should avoid metal, steel and other commodity stocks except sugar.
Investors can keep a watch on strong fundamental stocks in the capital goods sector as the appreciation in the dollar may
give them a competitive edge over imported goods.
Investors can add good banking stocks on dips as inflation seem to have peaked out. Thus we may see interest rate
coming down in future.
By V. H. Dave
EXPERT EYE
Incorporated in 1990, Bartronics India Ltd. (BIL) (Code: 532694) (Rs.163.75) offers automatic identification and data
capture (AIDC) solutions. It has implemented a number of projects, which involving inventory & logistics management,
time management & attendance, and asset tracking systems. AIDC is seen as an enhancing technology automating the
data collection for the main systems. Currently, BIL offers a diverse range of AIDC technologies: barcode, biometrics,
radio frequency identification (RFID), radio frequency data communications (RFDC), and electronic article surveillance
(EAS). Its chip-manufacturing facility was commissioned in January 2008.
Among the first organised players to provide end-to-end AIDC solutions with more than 1,600 clients, BIL has the first-
mover advantage. Strong technical know-how has helped it move up the value chain from barcode to RFID solutions and
increase the realisation per client. It has 5 global distribution centres centering to the growing AIDC demand in Malaysia,
Sri Lanka, Bangladesh and Dubai.
During FY08, BIL achieved 320% higher consolidated sales of Rs.270 cr. and posted 260% higher net profit of Rs.48.4 cr.
and its EPS stood at Rs.17.7 on its expanded equity of Rs.27.7 cr. resulting from the conversion of bonds at Rs.140 per
share. During Q1FY09, sales shot up by 167% to Rs.68 cr. and net profit by 220% to Rs.15.3 cr. from Q1FY08. The reserves
of Rs.245 cr. gives the share a book value of Rs.98.6.
The promoters hold 37.3% in the equity capital, foreign holding is 10.8%. Mutual Fund/Institutional holding is 6.8%,
PCBs holding of 18.7% leaving 26.4% with the investing public.
BIL recently launched four products based on smart cards useful in different segments. They include BIL-Blue Ice – an
off-the-shelf generic smart cards operating system that can be used in applications ranging from financial inclusion,
loyalty application and mass transit applications. BIL-COS is an off-the-shelf smart card operating system useful for
driving licences, RC (registration certificate) books, National IDs and related applications. Another product relates to
campus applications, and the fourth is BIL-SIM – a SIM card-compliant product for GSM operators.
BIL has been awarded a Rs.400-cr. pan-India smart card project under the Rashtriya Swasthya Bima Yojana – project
covering beneficiaries of healthcare facilities of the ESIC (Employees' State Insurance Corporation) hospital network
encompassing 6.39 lakh villages across 609 districts in the country. This project is to be implemented over the next 2 to 3
years.
BIL is now targeting the fast-growing smart-card market, which is a nascent stage with demand coming from various
sectors such as banking, retail, telecom, healthcare and government organisations, which are likely to witness an
exponential growth over the next three years with most companies looking at data security and collection.
The company plans to capture around 70% of the smart-card market. A further fillip to the smart-card market is expected
from the proposed multipurpose national-identity card to be implemented by the Central government. BIL is among the
companies shortlisted and the pilot project in underway.
It has contract for 56 million smart cards p.a. for the next two years from Giesecke & Devrient (G&D), Germany, which
supplies smart cards with SIM technology to Indian telecom players and to the South-East Asian market.
11
The management of BIL believes that the government projects would kick off in a big way in FY10 and has bid for 11
contracts. The total order book from the government is Rs.220 cr. The price per smart card is Rs.65-70. These smart cards
are different than the usual smart cards but the company will not incur any additional capex as it has only to change the
software.
The AIDC industry is rapidly moving towards RFID in a number of high value and high volume market segments. The
RFID market is expected to grow from $1.4 billion annually to $6.1 billion in 2010. RFID and biometric solutions are
growing at an exponential rate with the retail and manufacturing growth in India.
BIL's total debt excluding FCCBs is Rs.100 cr. at average interest cost of 10.25%. US$ 10 million old FCCBs and US$ 50
million recently issued FCCBs are pending conversion. Its diluted equity post conversion of FCCBs and preferential
allotment would be Rs.37 cr.
Its tax rate for FY09 would be 18%. From FY10-11, the effective tax rate would be 20-22%. Currently, BIL attracts STPI
benefit for its software services. The smart card business has 100% EOU status for the next 9 years and there is differential
tax structure in USA and Singapore.
BIL's order book stands at Rs.500 cr. executable over the next 12 months. Out of the order book, Rs.170 cr. is smart card
business. Other orders spread over 3 years are Rs.400 cr.
For FY09, it is targeting a revenue of Rs.500 cr. of which smart card business would contribute Rs.200 cr. A PAT margin of
about 17% will take its net profit to Rs.85 cr. resulting in an EPS of Rs.23 on its enhanced equity of Rs.37 cr. FY10 sales are
likely to be around Rs.800 cr. with net profit at Rs.120 cr. and its EPS would go up to Rs.32.4.
The shares of BIL are currently traded at Rs.164 discounting its estimated FY09 EPS of Rs.23 by 7.5 times and projected
FY10 EPS of Rs.32.4 by 5.4 times. Investment in this share has all the potential to appreciate by about 40% in the medium-
term. The 52-week high/low of the share has been Rs.295/125.
******
Incorporated in 1969, Rural Electrification
Corporation Ltd. (REC) (Code: 532955)
(Rs.86.65), a term lending institution and a
government mini-ratna
enterprise, is
engaged in the business of lending to
power projects and
promotion of
transmission, distribution and generation
projects throughout India. Its schemes are
aimed at extending and improving the
supply of electricity and the energisation of
agricultural pumpsets. REC was originally
mandated to fund projects for development
of rural power infrastructure - mainly
transmission
and distribution (T&D)
networks.
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
%
It has now been given the additional
mandate to lend to power projects. REC
operates under the administrative control of
the ministry of power and is wholly-owned
by the government. It services clients
through a network of 17 project offices.
03/10/07
12
REC came out with an IPO of 15.61 cr.
shares at a price of Rs.105 aggregating Rs.1,
638 cr. in February 2008 to augment its
capital base and meet future capital
requirements. The issue comprised a fresh
issue of up to 78,060,000 equity shares by
REC and an offer for sale of up to 78,060,000
equity shares.
Eventhough REC is a relatively new entrant
in funding of generation projects, this
power financing major is the lead
institution responsible for syndicating loans
in as many as 7 projects cumulatively
Tyche Peripherals Sys.
64.15
116.4
81
10/10/07
Hilton Metal Forging Ltd.
35.00
72.5
107
17/10/07
Hind Aluminium Inds.
60.10
102
70
24/10/07
Kamdhenu Ispat Ltd.
29.00
62.25
114
18.30
37.4
104
31/10/07
CHD Developers Ltd.
G M Breweries Ltd.
99.00
160
31/10/07
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
115.65
43
Lumax Auto Technologies
80.75
28/11/07
Vybra Automet Ltd.
36.95
73.9
100
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
adding up to 4,285 MW. REC has a higher leeway to fund generation projects promoted by public sector utilities.
During FY08, RECL's income grew by 25% to Rs.3538 cr. and net profit by 30% to Rs.860 cr. The EPS was Rs.10. It paid a
dividend of 30%. During Q1FY09 although income has gone up by 28% to Rs.1023 cr., net profit shot up by 58% to Rs.273
cr.
Post-IPO its equity capital stands at Rs.858.6 cr. with reserves of Rs.4508 cr., the book value of the share works out to
Rs.62.5. The government of India holds 82% in its equity, foreign holding is 8.5%, Mutual Funds hold 3.2% and the PCBs
1.5% leaving 5.1% with the investing public.
REC hopes to continue with its traditional sources where the funds are raised through the issue of capital gains bonds,
other taxable bonds, banks and ECBs.
The Indian economy is in a growth phase, in which power is a critical bottleneck. With greater private participation and
development of new models to cut T&D losses, the power sector is expected to put up an above-average performance and
REC will post good earnings growth.
REC is looking at the next 11
th
Five Year Plan with a likely addition of about 78,000 MW of capacity and further addition
of sub-transmission and distribution, investment in power generation is projected to be over Rs.8,00,000 cr.
An expected share of 20% of the debt portion of Rs.6,00,000 cr. of this investment would generate a business of Rs.1,20,000
cr. for REC.
REC has recently entered into an agreement with two other PSUs, IIFCL and Hudco for lending funds to greenfield
power projects of over 1000 MW proposed to be set up under public-private partnership. It has also signed an agreement
to provide a loan of Rs.3,796 cr. to NTPC Tamil Nadu Power Company, an equal joint venture between NTPC and the
Tamil Nadu Electricity Board (TNEB). According to TNEB officials, the electricity board will also seek a loan of Rs.2,175
cr. from REC for a 600-MW coal-based project it is putting up at North Chennai.
REC enjoys advantages as a government enterprise vis-a-vis tax and other exemptions, access to low-cost funding and its
ability to source foreign currency loans. It is currently administrating grants and providing loans as the nodal agency for
the
Rajiv
Gandhi
Grameen
Vidyutikaran Yojana (which is likely to
disburse Rs.40,000 cr. during the 11th
Plan, 10 % of which may fall in REC's
kitty), which is primarily aimed at the
electrification of villages in India.
13
The huge volume of business, the
steady cost of funds at around 7% and
mobilising funds at low cost through
capital gain bonds and other taxable
bonds give strong visibility to its
revenue & profitability in coming years.
Based on the ongoing trend in the
profitability, it is likely to register
revenue of Rs.4600 cr. in FY09 and post
a net profit of Rs.1150 cr., which would
fetch an EPS of Rs.13.4.
TECHNICAL TRADING GUIDES
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only.
Profitrak F&O: A daily selection of the trend in derivatives and profitable opportunities in the
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Going forward, its income is expected to
surge to Rs.5800 cr. in FY10 with net
profit increasing to Rs.1500 cr. Its EPS
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REC's forward P/E multiple on FY09E
works out to 6.7 and 5.1 on FY10E. A
reasonable P/E of 8, would take REC's
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and Rs.140 in the medium-to-long term.
The 52-week high/low of the share has
been Rs.128/73.
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******
Profitrak Daily Fresh Futures:
Vimal Oil & Foods Ltd. (VOFL) (Code:
519373) (Rs.40) is the cheapest share in
the solvent extraction industry with a
forward P/E of 2 on its estimated EPS of
One Buy Per Day, Follow up on an earlier Uptrend or 'Buy'.
Exit Long position indication, One Sell Per Day, Follow Up of earlier Downtrend or 'Sell' , Exit
Short indication.
For subscription rates & details please refer to the Subscription Form printed in this issue.
Rs.24 for FY09. The share is likely to fetch decent appreciation of over 50% in the medium term.
VOFL, the flagship company of the Rs.1000 cr. Vimal Group of Ahmedabad, was born way back in 1993 in Mehsana,
North Gujarat. While it is still headquartered at Mehsana, it has set-up offices at Delhi, Mumbai & Ahmedabad. What
started off with a small 50-tonne refinery, has today evolved into fully integrated, oil-processing complex that is into seed
crushing (200 TPD), solvent extraction (200 TPD) and oil refining (300TPD).
VOFL's earlier concentration on Gujarat has now expanded to North and Northeast India (covering 21 States in its fold),
which has contributed to its growth.
VOFL has an ISO 9001: 2000 certification. The fruits of increase in exports are a result of its policy to ensure that supplies
adhere to contractual specifications and satisfy the customer in terms of consistent quality and timely delivery. This was
quite easily achieved due to an effective distribution network comprising 26 depots, 950 distributors and over 6 lakh retail
outlets.
During FY08, while sales increased by 30% to Rs.635 cr., net profit jumped by 74% to Rs.7.3 cr. and the EPS worked out to
Rs.16. During Q1FY09, sales advanced by 46% to Rs.182 cr. and net profit by 21% to Rs.2 cr. Traditionally, VOFL fares
better in the remaining quarters.
VOFL has a consistent record of paying a decent dividend pay out. It has continuously paid decent dividend ranging
from 10-20% over the last 5 years. During FY07, it paid a dividend of 12.5% and marketmen expect 15% dividend for
FY09.
VOFL has a tiny equity capital of Rs.4.6 cr. and with reserves of Rs.17.7 cr., the book value of its share works out to Rs.48.
The promoters and associates hold 33% in the equity capital leaving 67% with the investing public.
The Indian food industry has an annual turnover of over Rs.1,40,000 cr. Having established a sound infrastructure
coupled with a widespread distribution network, VOFL is entering into high- growth, ready-to-eat foods segment.
Within the edible oil industry, there has been a marked paradigm shift. It is getting more organised and there is
consolidation as the players are fewer but bigger with large refining capacities. As a result of the growth in the economy,
health-conscious consumers are willing to pay more for quality products.
Over the years, the Vimal Group has not only expanded its business through integration & market penetration but also
branched out into various diversified sectors. Be it edible oil & de-oiled cakes, milk & milk products, electrical,
submersible pumps, paints & varnishes, wall tiles & micro minerals.
India accounts for 7% of the global oilseeds
and oil meal production and 10% of the
world's consumption of edible oil. Today,
organised edible oil constitutes just 15% of the
total edible oil market of India and offers
great opportunity for branded players.
Availability of local oil and oilseeds in Gujarat
has been improving owing to good rains in
the last couple of years and this year too.
14
The consumption of edible oil has been
increasing at 8% every year and has been around 12 million tonnes per year of which 5 million tonnes has been imported.
The demand for edible oil is projected to reach 15 million tonnes by 2010 and 21 million tonnes by 2015.
Domestic edible oil prices, in general, are expected to move in tune with international prices with India's increasing
dependence on imported oils, which now accounts for almost 50% of the total consumption. The focus of VOFL in
forthcoming years would be on improving yields, getting better quality oilseeds at competitive price and ensuring regular
supplies.
The per capita consumption of edible oil in India is 12.7 kg whereas the average per capita consumption in other countries
is 20 kg. Thus, there is a huge scope for a rise in the consumption of edible oil in India especially with the rise in
disposable income and rising population level. Going by the extremely bright prospects of the industry and outlook for
VOFL, it is likely to achieve sales of Rs.850 cr. with a net profit of Rs.11 cr. in FY09, which would give an EPS of Rs.24.
The share of VOFL is currently traded at Rs.40, discounting its estimated FY09 EPS of Rs.24, only 1.6 times against the
industry average P/E of 10. Investment in this share is likely to fetch over 50% return in 6-9 months. The 52-week
high/low of the share has been Rs.73/25.
By Nayan Patel
Precision Pipes & Profiles Company Ltd.
BSE Code: 532934
Last Close: Rs.69.85
TECHNO FUNDA
Live market intra-day calls
A running commentary of intra-day trading recommendations on
your mobile or Yahoo Messenger every trading day of the month
for Rs.3,000 per month.
For 1-day free trial call Money Times to register. Provide your
mobile number or Yahoo Id. Tel: 022-22616970, 22654805 or
Email: moneytimes@vsnl.com
Precision Pipes & Profiles Company Ltd. (PPPCL) is a leading manufacturer of high quality automotive sealing systems
and exterior products and has four state-of-the-art manufacturing facilities in New Delhi and Noida. Automotive sealing
systems, which are used to seal the vehicle body and glass from noise, dust and water. And exterior/interior products,
which are used to enhance the aesthetics of the vehicle as well as to prevent the body from damage.
Its customers include some of the best automotive manufacturers like Maruti Suzuki, Honda, Toyota and General Motors.
In December 2007, PPPCL came out with a public issue at Rs.150 per share. The issue was graded 4/5 by CRISIL,
indicating its strong fundamentals. But unlike other companies issuing equity at a hefty premium and trading
substantially below offer price and insulting investors with a measly dividend premium, this company is investor
friendly and declared 30% dividend.
It has an equity of Rs.14 cr. For June 2008 quarter, it posted net sales of Rs.30.03 cr. with net profit of Rs.4.46 cr. Promoters
hold 62.68% stake in its equity capital, foreign holding is 3.29%, corporate bodies hold 8.95% while the investing public
holds 23.57%. Its 52-week high/low is Rs.175/60. Currently the stock is available near its yearly low with 30% dividend at
a P/E ratio of just 4.5. It is one of the safest stocks at the current level in the falling market.
Investors can buy this stock with stop loss of Rs.64. On the upper side, it can zoom to kiss Rs.85 in a short span of time.
Thereafter, it will cross Rs.100 level. In good times, the stock will cross its IPO price of Rs.150 because the promoters are
investor friendly. Don't miss. Book closure for 30% dividend is from 23 September 2008.
IDBI Fortis Life Insurance collects record Rs.100 cr. premium in 5 months
MONEY FOLIO
IDBI Fortis Life Insurance has collected a premium of over Rs.100 cr. within just five months to become the fastest
growing new life insurance company in the private sector. The company has issued 25,428 policies with collected
premium of Rs.105.3 cr. and sum insured of Rs.827 cr., as on 31 August 2008.
The company has set up over 30 branches.
IDBI Fortis Life Insurance is a recently launched joint-venture of IDBI Bank Ltd., India's premier development and
commercial bank, Federal Bank, one of India's leading private sector banks and Fortis, Europe's banking and insurance
giant. The Fortis Group is headquartered in Belgium and the Netherlands.
Union Bank & Edelweiss offer Wealth Management Services
Union Bank of India has launched its Wealth Management Services for its High Networth clients. The bank has tied up
with Edelweiss Securities Ltd., part of the Edelweiss Group, which is one of the leading diversified financial services
companies with specialized offerings in the Wealth Management space for this initiative. With this offering, the bank
plans to offer a wider range of solutions to its customers.
SEL Manufacturing to set up Technical Textile Park in Himachal Pradesh
SEL Manufacturing Company Ltd., a part of 40 years old R.S. Saluja Group, has announced to set up a Technical Textile
Park in the state of Himachal Pradesh. It will be one stop solution for entire manufacturing process for the technical textile
products, which include hygiene products like wipes, diapers, sanitary napkins, panty shields and surgical clothing i.e.
gloves, masks, gowns etc.
The project will be set up with an overall investment of approx. Rs.500 cr. and would cover an area of approx. 100 acres
and is expected to generate employment for 10,000 people.
Somaiya Vidyavihar to set up International Business School
Somaiya Vidyavihar, an educational campus, is planning to set up an international business school (IBS) in its campus in
the near future. Somaiya Vidyavihar is celebrating its Golden Jubilee year.
Somaiya Vidyavihar comprises of a sprawling 60 acre campus at Vidyavihar and 35 acre campus at Sion both in Mumbai.
It is the largest private educational campus in Mumbai with 34 educational institutions, 27,000 students and 1700 teaching
staff. It adds one or two educational institutions every year and has applied for deemed university status to the
University Grant Commission.
Kohinoor Broadcasting teleport project on schedule
Kohinoor Broadcasting Corporation's teleport project at Rajpura, Punjab, is on schedule and has availed of frequency
assignment on INSAT 4A. It will shortly sign a MoU with Kaybee Ltd., London, a TV production company for Hollywood
and Bollywood content and engage it for broadcasting of Indian programmes in European languages, Teleshopping in
UK, setting up a play-out station and production studio in UK.
K Sera Sera Productions to issue of equity linked scheme to Yes Bank
K Sera Sera Productions Ltd. has informed BSE that the board at its meeting held on 29 August 2008 will issue equity
linked instrument to Yes Bank Ltd. on a preferential basis.
15
The company has commenced the production of a new movie titled 'Tara Sitara' and is expected to jointly produce 6 films
with Sahara Motion Pictures. Both the companies have reportedly signed a deal with valued at a little over Rs.100 cr.
Indo-US Jewellery Development Conference
The Second Indo-US Jewellery Business Relationship Development Conference, organized by the Gem & Jewellery
export Promotion Council (GJEPC) and sponsored by Rio Tinto Diamonds was held between September 8 – 11, 2008 in
Mumbai. The conference comprised two days of panel discussions, keynote speeches and 45 minutes speed dates between
eight prominent US retailers and wholesales and 11 major Indian jewellery manufacturers.
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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.
16
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