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T
I
M
E
S
A TIME COMMUNICATIONS PUBLICATION
VOL. XVII No. 46
Monday, Sept. 29 – Oct. 5, 2008
Pages 19
Weakness to persist
as follow-up buying remains elusive
By Sanjay R. Bhatia
The weakness in the markets continued to persist last week as the Nifty slipped below the 4000 mark. Follow-up buying
remained elusive after the previous Friday's smart rally. Selling pressure was evident at higher levels as buying remained
thin. Traders and speculators were seen selling and also going
short. Incidentally, FIIs remained net sellers in the cash market
but were net buyers in the derivatives segment. Mutual Funds,
too, were net sellers during the week.
1
The global cues continued to remain weak. The markets have
still not given the thumbs up to the US Government's bailout
package for the big financial institutions, which are reeling
under heavy losses due to the sub prime crisis. Crude oil
continued to display volatility as it touched the $130 level intra-
day on the day of the September Futures expiry.
On the domestic front, inflation rate remained unchanged. The
market sentiment is negative due to lack of follow up buying
support at higher levels. Further fall is likely as participation has
remained dull on the buying side. Any negative news is likely to
witness a sell-off. Meanwhile, the markets are likely to keep a eye on global cues before the Q2 results start from the
second week of October when stock specific action will be witnessed.
On the upside, the Sensex faces resistance at 13454, 13791, 14141 and 14677 levels but it has support at 12961, 12575 and
12400 levels. On the upside, the Nifty faces resistance at 4016, 4074, 4108, 4189 and 4482 levels while 3816 and 3608 are its
important support levels.
Investors should abstain from taking long positions as regular profit booking will be witnessed.
The million dollar question
By Fakhri H. Sabuwala
Whenever the market goes through a lull, the most pertinent question that surfaces is: Why did we not sell when the
going was good? This question and predicament of not selling haunts us further and acutely so when the markets do not
appear in a mood for reversal and turn volatile with a downward bias.
Booking profits is always prudent but selling a growth scrip albeit too early robs one of the thick fat wealth, which
otherwise would accrue with time. Booking profit would have been fatal in the whole of 2007 as the market was in the
grip of bulls and there was an upbeat mood all around. But it is not so in the current times. Today, the market is
rangebound and with no big upside trigger over the horizon. Hence booking profits is not only important but also
prudent too.
Any serious trader at Dalal Street must indulge in booking profits regularly as this alone can make your trading
disciplined and a sustainable activity over a long time frame. By booking profits in a market that lacks secular direction
one cuts short the risk of an overnight stay in a scrip.
Every stock has a systemic risk or market risk that is associated with it. And given the current state of the market, there is
no guarantee whether the markets will favour the bulls or bears next. Manish Sonthalia of Motilal Oswal explains this
when he says "if the markets fall, the stocks will fall even if they are of good value". There are two ways of mitigating
risks in such times. First is by curtailing losses by adopting the strategy to sell now and buy later. This way, one cushions
oneself against imminent losses. The second way of hedging your risk is by diversifying your portfolio. It should not be
sector wise of industry wise. Instead, you must go overweight in value stocks and go underweight on momentum stocks.
The hedging of risks from momentum to value can be made by shifting to large caps that can withstand the currents
rather than less sensitive stocks.
Booking of profits, too, has ways and means of neat execution. Some experts believe that 7% to 10% movement in a stock
in less than a fortnight may signal such booking of profits. The higher the beta factor of a stock the rapid must be the
booking of profits.
It may be very simple to book profits in a market with a one way trend but in a volatile rangebound market of today, the
averaging strategy does not work. The only way out is to adopt a disciplined approach and take decisions on a case by
case basis. It is prudent to have a risk reward ratio for traders in a directional market at around 1:5 but can be 1:2.5 or 1:3
in a rangebound, volatile market.
Despite all the prudence, there exists one school of thought (may be the Buffet types), which does not recommend
booking of profits as long as the stock enjoys the high growth story. What's the point in losing out an infinite gain by
safeguarding a 5% to 25% capital erosion in such times. They believe in staying invested in growth stocks. 'What's the
need to pull down the shutters of a prospering business?' they ask.
So at the end of the day, the answer to this million dollar question is – Think before you act. That's the bottomline.
Sideways volatile moves persist
TRADING ON TECHNICALS
2
By Hitendra Vasudeo
Last week, the Sensex opened at 14251.33, attained a high at
14221.04 and fell throughout the week to a low of 13054.42 to
finally close the week at 13102.18. It thereby showed a net
fall of 940 points on a week-to-week basis. As a result of the
last week's movement and closing, the Sensex gave a lowest
weekly close of the entire fall from the peak of 21206 till date.
The Sensex on the weekly chart also formed an Engulfing
Bear candlestick pattern.
Support will be at 12822-12558-12316. Resistance will be at
13459-13864-14221.
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
Wave V- 8799 to 21206
Wave W-21206 to 14677
Wave X-14677 to 17735
Wave Y- 17735 to 12514
Wave X- 12514 to 15106
Internals of Wave X
Wave a- 12514 to 15130
Wave b-15130 to 13727
Wave c-13727 to 15579
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
HINDUSTAN UNIL. 252.50
231.2
244.6
250.1
258.0
271.4
77.0
247.9
26/09/08
SPICE COMMUN.
76.30
75.5
76.0
76.3
76.6
77.1
76.1
75.7
08/08/08
GLAXO SMITHKLIN 1199.00 1021.3
1129.3
1167.7
1237.3
1345.3
75.4
1183.3
01/08/08
ITC
192.25
167.5
183.9
192.0
200.3
216.7
68.5
191.1
05/09/08
TATA COMMUN.
466.10
395.9
441.6
462.8
487.3
533.0
68.4
443.0
05/09/08
Wave d-15579 to 14002
WEEKLY DOWN TREND STOCKS
Wave e-14002 to 15106
Wave Z- 15106 to 12558
(not yet complete)
Wave Z could test the
lower range 12558-12316.
The termination of Wave
Z is likely from the range
of 12558-12316. If that
happens, then one leg of
the corrective cycle will
be complete and it can
slide down to 10940-9875
to an outer extent.
Conclusion
Some weakness could still
be witnessed to complete
one leg of the corrective cycle. Recovery from the lower support range cannot be ruled out as the nature of market is
sideways and volatile.
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 11.05
7.8
10.2
11.8
12.7
15.1
8.22
13.96
29/08/08
SOBHA DEVELOP
189.75
144.8
178.4
200.5
211.9
245.5
17.58
235.11
12/09/08
INDBULLS REAL
184.95
102.3
161.7
197.9
221.1
280.5
20.42
235.11
22/08/08
UNITECH
111.05
75.9
101.8
118.4
127.7
153.6
21.93
137.44
22/08/08
IDFC
73.40
57.8
69.3
76.6
80.7
92.2
21.96
84.28
16/05/08
Strategy for the week
Overall strategy remains to exit long positions on spurt to resistance levels of 13459-13864-14221 as the opportunity arises.
* The corporate raider who was eyeing Hindalco a year and a half back may again turn active as the share is available at
half the price together with Novelis.
TOWER TALK
* FIIs continue to offload and the market continues to bleed with many scrips making new daily lows irrespective of their
intrinsic worth.
* ITC & HUL are the only scrips standing rock solid in the carnage since January 2008. This means that big players are
bullish on the domestic consumption story.
* Time and again, the market goes to extremes on either side and even surprises retail investors, who hold on to scrips in
the belief that share prices can't fall further.
* Distress selling by FIIs on the Indian bourses has put domestic investors in distress!
* Hats off to Indian punters, jobbers and operators! They still exist and are melodiously humming "Jeena yahan, Marna
yahan…iske siva jaana kahaan?". That's the spirit.
* West Bengali's loss in Uttarakhand's gain – Nano style. The comrades lose one more vote of confidence, this time from
the industrialists.
* Sterlite Tech's recent acquisition of Brand-Rex of UK, a cabling company shall enable it to increase its cable wire
solutions in world markets to 8% from 4%.
* Cement prices are likely to go up by Rs.3 to Rs.5 per bag in October 2008. Look out for cement majors in coming days.
* GAIL and L&T go ex-bonus in few days from now. Marketmen expect GAIL to touch Rs.400 and L&T Rs.2000 in a few
months from now.
* Gold sparkles on the back of a financial crisis in the West. Experts see it cross Rs.15000 for 10 gms by March 2009.
* United Phosphorous has announced 31 October as record date for 1:1 bonus issue. It makes sense to pick up this cum
bonus stock at current low prices.
* Ranbaxy is a decent medium-term pick as it has corrected heavily. With the promoters increasing stake and the US
problems getting resolved, the stock is bound to appreciate.
* JMC Projects is being fancied as a decent stock with good order book and cheap valuation.
* Indian Hume Pipes, which caters to water infrastructure projects, has yet to utilize its huge surplus land bank. A value
stock.
* With a likely EPS of over Rs.16 in FY09, Bharat Gears is a good buy.
* Major expansion will trigger decent growth in the bottomline of Amara Raja Batteries. Some analysts strongly
recommend the share for decent gain in the medium term.
* With massive investments of over Rs.175 cr. in the last two years, the shares of Hanung Toys & Fabrics are an excellent
buy.
* Knowledgeable investors are acquiring the shares of VST Tillers & Tractors as it may relocate its plant from its highly
valued Bangalore property. With a likely EPS of over Rs.30, the share is going cheap.
3
* Having bagged Rs.1100 cr. order for its pipes, Man Industries is a value buy and can fetch over 50% returns in the long-
term.
* A mutual fund analyst recommends Rolta, which is a major beneficiary of the nuclear deal. Its sales may exceed Infosys
if things work as per plan.
* Market grapevine has it that Austin Engineering is likely to post an EPS of Rs.24 in the current year and may even
surprise the market with a liberal bonus.
* Som Distilleries is reportedly faring well and can post an EPS of Rs.8 in FY09 and Rs.12 in FY10. Long-term investors
can pick up this scrip.
* Celestial Labs has been attracted good investment buying. Knowledgeable persons project an EPS of Rs.11 in FY09 and
a share price of Rs.45.
* In this nervous market, Godawari Power can be bought for decent appreciation in the long-term. It has been allotted
coal and iron ore mines, which will push up earnings significantly. Sources expect an EPS of Rs.60 in FY09 and Rs.80 in
FY10.
* With an estimated consolidated EPS of Rs.10, the shares of Lumax Auto Tech are an excellent buy. Sources expect a gain
of 50% in the medium-to-long-term.
4
By Saarthi
BEST BETS
KEI Industries Ltd. (Code: 517569)
Rs.28.05
Founded in 1968, KEI Industries Ltd. (KEI) is a complete cable solutions company with the widest range of cables
encompassing high tension & low tension power cables, control and instrumentation cables, rubber cables, flexible &
house wires, submersible cables, OVC/poly wrapped winding wires, and stainless steel wires etc. It is also one of the few
companies in country to manufacture speciality cables including braided cables, fire survival and Zero halogen cables. In
fact, KEI is ranked among the top three cable companies in India. It has the capabilities to address the demand across a
cross-section of sectors such as power, oil refineries, railways, automobiles, cement, steel, fertilizers, textile, real estate and
the retail segment. The company derives major revenue through institutional sales to industry stalwarts like L&T, BHEL,
NTPC, ABB, Alstom, Jindals, Tatas, Reliance ADAG, GAIL, Suzlon, SAIL, Power Grid Corpn., various State Electricity
Boards and ONGC to name a few. Of late, KEI has started focusing on the lucrative retail segment through aggressive
advertising and marketing of house wires & flexible wires. Since FY08, it has also ventured into power EPC segment
(Engineering, Procurement and Construction) and has already been awarded breakthrough orders. To execute them, it
has set up an exclusive EPC Division and has hired key manpower to scale up this new business multifold in the next
couple of years.
Currently, KEI has four manufacturing
facilities spread across Delhi, Silvassa,
Bhiwadi (Rajasthan) & Chopanki
(Rajasthan) with combined installed
capacity of 47,000 km of LT cables, 3000
km of HT cable and 25000 km of house
wire. It commissioned its Chopanki
plant,
a
100% Export
Oriented
Undertaking (EOU) with an installed
capacity of 10,000 kms of LT power
cable in FY08 only. KEI has been
exporting its products to Canada, South
Africa, Australia, USA, France, Italy,
Germany, UK, Abu Dhabi, Malaysia,
Mauritius, Sri Lanka, etc. and its new
EOU unit will further boost exports. On
the back of the robust demand, all its
plants are working at 100% capacity
utilisation and the company has an all
time high order book position of more
than Rs.400 cr. To cash in on the
buoyancy in the industry, KEI is
expanding its LT cable capacity by 7000
km at its Bhiwadi plant and is also
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5
adding 1500 kms of HT cable capacity at the Chopanki unit. The expansion project is near completion and is expected to
commence production shortly. Further, it is upgrading the HT cable capacity up to 132 kV, of which testing of 66 kV has
been already successfully completed. To widen its product range, KEI is considering a technical collaboration or a joint
venture for the Extra High Voltage (EHV) cable project. The EHV cables will receive an excellent response as massive
demand exists from underground cabling as cities across the country move from overhead cabling to underground
cabling options.
KEI's focused advertising campaign has not only helped it to increase visibility and retail sales but also helped it to
further strengthen its dealer network and enhance the vendor approval status from contractors to ensure repeat sales.
The management is confident of expanding the export market, retail market and EPC segment besides maintaining the
sales momentum to institutions. It has taken steps to grow the export market by enlarging the international marketing
team and by participating in international fairs and exhibitions and by filing for certifications to sell in new geographies
and by opening a marketing office in Dubai. For FY08, it recorded 45% growth in sales to Rs.875 cr. with nearly 10% rise
in net profit to Rs.43.50 cr. posting an EPS of more than Rs.7 on its equity of Rs.12.20 cr. In FY07, the company had raised
around Rs.150 cr. via FCCB, which can be converted into equity at Rs.81 per share. Out of the 7200 bonds, only 670 bonds
have been converted till date and the chances of the balance 6530 bonds getting converted is bleak considering the current
market price. Although KEI has reported lower profit margins over the last two quarters due to increase in raw material
costs and other expenditure, it is still expected to clock a turnover of Rs.1200 cr. with PAT of Rs.45 cr. for FY09. This
translates into an EPS of more than Rs.7 on its current equity. Despite higher interest cost & high debt:equity ratio, KEI is
trading fairly cheap at a current enterprise value of around Rs.500 cr. Investors are advised to buy the stock at current
levels as its share price can easily appreciate by 50% within a year.
Man Industries (India) Ltd. (Code: 513269)
Rs.58.95
Established in 1988 as an aluminium extruder, Man Industries India Ltd. (MIIL), today, is one of the largest producers
and exporters of large diameter Longitudinal submerged arc welded (LSAW) pipes and Helically submerged arc welded
(HSAW) pipes. These pipes are made from steel plates and steel coils. LSAW line pipes are generally used in
transportation of oil and natural gas under high temperature and pressure in refineries and petrochemical units apart
from finding application in fertilizers and the dredging industry. On the other hand, HSAW pipes are used under low
pressure conditions for transportation of oil, water, sewerage, agriculture and in the construction sector. The company has
the capability to manufacture LSAW pipes with outer diameter ranging from 16-60 inches and wall thickness of 6-38 mm
upto a maximum pipe length of 12 mtrs. Whereas for HSAW, it can make pipes having 16-84 inches of outer diameter
upto maximum length of 18 mtrs. In fact, it is the only company in India to manufacture 18 mtrs long HSAW pipes. MIIL
is also a leading provider of anti-corrosion coatings and cement mortar coatings for SAW pipes. Besides, it is a significant
size player in spirally welded pipes as well.
Currently, MIIL has two manufacturing plants – one at Pithampur, MP, and the other at Anjar, Gujarat having combined
installed capacity of 500,000 MTPA of LSAW pipes and 300,000 MTPA of HSAW pipes. Out of this, a new production line
of 200,000 MTPA of HSAW pipes was commissioned only in September 2007. Importantly, a couple of days back, MIIL
has started another production line for HSAW pipes with a name plate capacity of 200,000 MTPA thereby equalising the
total production capacity to 500,000 MTPA each. Along with this, the company has bagged new orders to the tune of
Rs.1100 cr. (domestic Rs.700 cr. & export Rs.400 cr.) taking the current order book position to Rs.1500 cr. It has recently
bagged a single order worth nearly Rs.1000 cr. from a single US client, which speaks of its strong credentials and
execution capability. With a vision to become a true global player, MIIL has acquired 155 acres of land in Little Rock,
USA, for putting up state-of-the-art HSAW pipe manufacturing plant having capacity of 300,000 MTPA at an estimated
investment of Rs.400-450 cr. This project is expected to commence operation by FY10 if things worked out as per plan.
The demand for SAW pipes is significantly dependent upon the level of exploration activities and transportation of oil
and natural gas in India and globally, which is currently being driven by strong crude oil prices. Incidentally, the
concentration of sources of crude oil in the Middle East augurs well for Indian pipe manufacturers as they have the
advantage of being in close proximity compared to other major pipe manufacturers in Japan or Europe. A recent entrant
in the growth drivers of pipes is the demand arising from the replacement of old pipelines, predominantly in the USA
and Russia. Moreover, the domestic demand is also high as various organisations have put up plans to lay the pipeline
infrastructure for oil transportation. To conclude, the easing of steel availability post Beijing Olympics and the downward
trend in the metal prices globally and the significant correction in shipping freight will have a positive impact on the
MIIL's bottomline going forward.
In order to fund its expansion, MIIL had raised around Rs.200 cr. in May 2007 through the FCCB route to be converted
into equity shares at 143.50 per share. Since then, not a single bond has been converted and considering the CMP the
chances of conversion in the near future is minimal despite downward revision in the conversion price. For FY08, its sales
as well as net profit increased by 30% to Rs.1500 cr. and Rs.71 cr. respectively. Thus it posted an EPS of Rs.13 on its equity
of Rs.26.65 cr. having a face value of Rs.5 per share and declared 30% dividend. Although the company posted
disappointing Q1FY09 results, still on the back of the expanded capacity it may report a topline of Rs.1750 cr. with a
bottomline of Rs.75 cr. i.e. an EPS of Rs.14 on its current equity. Moreover, the company's share price has drastically
corrected by 70% from its high of Rs.177 in January 2008. Investors can safely buy this scrip at current levels for a price
target of Rs.90 within 9-12 months.
Sanwaria Agro Oils Ltd.: Add on declines
ANALYSIS
By Devdas Mogili
Sanwaria Agro Oils Ltd. (SOAL) is a 17-year old Madhya Pradesh based company established in 1991, is a part of the
Sanwaria Group. Its production facilities are undergoing expansion both organically and inorganically leading to a total
combined capacity of 2000 - 2200 MT per day in the next two years from 1000 MT to 3000 MT. Mr. Ram Narayan Agarwal
is the chairman of the company.
The company is focused on the retail branded products and the expansion of its retail product basket by inclusion of
mustard oil, cotton seed oil, soya flour and other value added soya based products. SAOL also plans to venture into the
production and marketing of value added soya based products by setting up a soya flour plant, soya nuggets, soya
granules and protein isolates.
Soya bean has varied uses and finds its way into food products and industrial products. The edible uses of soybean
includes baby foods, bakery ingredients, breakfast cereals, cooking oils, dietary supplements, emulsifying agents, food
drinks, salad dressings and soups. It has many industrial uses such as adhesives, animal care products, anti-corrosion
agents, antibiotics, asphalt emulsifier, cleaning products, cleansing agents, dust control agents, hair care products,
paper coating, pesticides, stabilizing agents and varnishes.
Wind Power: The company has forayed into Infrastructure & Energy and has planned a 6 MW Wind Power Generation
project at Dewas (M.P.). Phase I of 2.4 MW was commissioned in March 2007 and is being used captively. The wind
power generated in Phase II will be first put to captive use and the balance power, if any, will be sold.
Biodiesel: The company also plans to venture into bio-diesel, which will be produced from the bye-products of edible
oils, other derivatives and origins of plant oils. The bio-diesel so produced shall be utilised captively and the surplus, if
any, will be sold.
Performance: The company notched up an impressive performance in FY08. On net sales income of Rs.938.60 cr., it
clocked a net profit of Rs.54.31 cr. netting an EPS of Rs.6.21.
Financial Highlights:
(Rs. in lakhs)
Latest Results: The company posted a net
sales income of Rs.274.34 cr. with net profit
of Rs.20.81 cr. registering a basic EPS of
Rs.2.39. The annualised EPS works out to
Rs.9.56.
Financials: SAOL has an equity base of
Rs.8.70 cr. and with reserves of Rs.80.90 cr.,
the book value of the share works out to
Rs.8.72.
Share Profile: In FY07, the company had
split its fully paid-up equity share of face
value of Rs.5 each into a fully paid-up
equity share of face value of Rs.2 each. Its
share is listed on the BSE under the B
group. The share price touched a 52-week
high/low of Rs.111/29.50. At its current
market price of Rs.92, it has a market
capitalisation of Rs.800 cr.
Particulars
Q1FY09
Q1FY08
FY08
Net Sales/Income
27433.54
14897.44
93859.97
Other Income
26.78
2.04
260.67
Total Expenditure
a. Inc/Dec in Stock
-528.54
-722.42
-1757.14
b. Raw Material
22952.60
12564.58
79403.13
c. Staff Cost
56.64
11.73
152.18
d. Other Mfg Exp
770.03
529.94
2808.41
e. Other Expenditure
1230.98
1276.31
5699.80
Finance Charges
361.25
146.45
1126.15
Depreciation
132.12
57.11
250.94
Profit Before Tax
2485.24
1035.78
6437.17
Prov for taxation
Current
298.23
124.29
772.46
Deferred
105.64
41.68
234.06
Net Profit
2081.37
869.81
5430.65
Paid up equity
Share Capital
870.13
870.13
870.13
Preference share capital
200.00
200.00
200.00
Res Exc Rev Reserves
-
-
8089.89
EPS (not annualized)
2.39
0.99
6.21
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
Dividends: The company has been paying dividends as shown below:
6
March 2008 - 20%, March 2007 – 0, March 2006 - 5%, March 2005 - 30%, March 2004 - 30%.
Shareholding Pattern: The promoter holding in the company is 70.04% while the balance 29.96% is held by non-corporate
promoters and the investing public.
Prospects: Soya Industry is an agro based industry. Soya beans are a major source of vegetable proteins and edible oils.
India is a leading producer of oilseeds and this sector occupies an important position in the Indian economy.
India is a leading producer of oilseeds, which contribute a lot to the national income of the country. India has price
advantage in soya bean as compared to the American and the Brazilian soya bean, which cost around US $275-300 per
metric tonne, while the Indian soya meal costs around US $260-270 per metric tonne. No other country produces cheaper
soya meal than India, which contains high protein of around 48%.
Currently, soya bean is the most popular oilseed after groundnut and is also the largest produced oil meal in the country.
The prominence of soya bean is increasing due to its numerous advantages. It is considered as a premium product
because of its high digestibility, high energy content and consistency. Soya and its derivative products are valued more in
terms of human consumption and provide higher margins to the farmers in India.
The Soya Industry scenario is bright as India is one of the major exporters of soyameal to Vietnam, Japan, South Korea,
Thailand, Philippines and Indonesia. It typically exports around 65% of the country's soya meal production. Soya meal
accounted for 84% of the total edible oilseed meal exports from the country. The consumption of soya refined oil has
increased and the demand for soya meal is growing and about 98% of soya meal is used as an animal feed ingredient with
the remainder used in human foods such as bakery ingredients and meat substitutes. On crushing soya beans and solvent
extraction yield soya oil at 18% recovery and soya meal.
In addition, various consumer products like meal maker, soya milk, tofu, nuggets, flour and extruded proteins are made
from soya beans. The soya bean oil-based industrial solvents can be used to remove tar, grease, oil, adhesives, asphalt and
oil-based paints from equipments and tools. Soya bean oil based products are also used to spray the insides of asphalt
trucks to prevent sticking. Earth-friendly, soya release is biodegradable, less flammable and non-toxic unlike petroleum-
based lubricants, which are harmful for the environment and plant workers. Soya release is also less expensive to use.
Conclusion: SAOL is a profit-making and dividend-paying company with a good track record. It is an agro based solvent
extraction and refining company and one of India's leading soya bean processors and refined soya bean oil makers.
At its current market price of Rs.92, the SAOL share is discounted around 15 times its FY08 earnings. Considering its
excellent working and bright prospects going ahead, the share may be added to one's portfolio on declines with a
medium-to-long-term investment horizon.
Uncertainty and poor sentiment to prevail
MARKET REVIEW
By Ashok D. Singh
The indices suffered a severe setback on account of weak markets across the globe. The BSE Sensex lost 940.14 points or
6.69% to settle at 13,102.18 for the week ended Friday, 26 September 2008. The Nifty shed 260 points or 6.12% at 3985.25
for the week. Sustained selling by FIIs and the impasse over the proposed $700 billion bailout deal for the US financial
sector weighed on the market sentiment. The market posted losses in four out of five trading sessions during the week.
The NSE Nifty fell below the psychological 4,000 level yet again. Among index pivotals, Ranbaxy Laboratories and
Hindalco Industries hit 52-week lows on BSE.
The BSE Sensex is down 7184.84 points or 35.41% in the calendar year 2008 so far from its close of 20,286.99 on 31
December 2007. It is 8104.59 points or 38.21% below its all-time high of 21,206.77 struck on 10 January 2008.
A financial crisis engulfed the global markets earlier this month with the US investment banking giant Lehman Brothers
filing for bankruptcy, Merrill Lynch being bought over by the Bank of America and the US Government bailout of
American Insurance Group (AIG) for $85 billion in return for 80% stake.
The US Congress on Thursday, 25 September 2008 struggled to hammer out an agreement for modifying the Bush
proposal to attack the housing market crisis. On 19 September 2008, the Bush administration had proposed a $700 billion
financial rescue package aimed at staving off the collapse of the US financial system. Meanwhile, a group of conservative
Republican lawmakers proposed an alternative mortgage insurance plan.
FIIs have been consistently pressing sales to pull out their investments from India and other emerging markets in an
attempt shore up resources to beat the global liquidity crunch. In India, FIIs sold shares worth a net Rs.8,061 cr. (till 25
September 2008). FII outflows reached Rs.36,574.90 cr. in calendar 2008.
Inflation remained steady, the latest data showed. Inflation based on the wholesale price index rose 12.14% in 12 months
to 13 September 2008, unchanged from the previous week's annual rise, government data released after trading hours on
Thursday, 25 September 2008, showed. Inflation for the week ended 19 July 2008 was revised upwards to 12.54% from
11.98%.
7
On 22 September 2008, the Indian government eased overseas borrowing rules for infrastructure companies, increasing
the ceiling amount they can bring in to $500 million from $100 million.
On Thursday, 25 September 2008, JPMorgan Chase acquired the banking assets of Washington Mutual after the troubled
thrift company was seized by federal regulators marking the biggest bank failure in the US.
The BSE Mid-Cap index lost 287.96 points or 5.50% to 4,940.82 for the week ended Friday, 26 September 2008. The BSE
Small-Cap index slipped 354.21 points or 5.69% to 5,861.78 in the same week.
Trading for the week started on a subdued note as rise in crude oil prices weighed on the market sentiments on Monday,
22 September 2008. The Sensex fell 47.36 points or 0.34% to 13,994.96 and the Nifty fell 22.20 points or 0.52% to 4223.05 on
that day.
Key benchmark indices suffered sharp losses on Tuesday, 23 September 2008, mirroring a fall in global stocks on
uncertainty about the potency of the US Government's $700 billion bank bailout. The Sensex was down 424.65 points or
3.03% to 13,570.31 and the Nifty fell 96.15 points or 2.28% to 4,126.90 on that day.
Domestic bourses saw a relief rally on Wednesday, 24 September 2008, posting decent gains to snap the two days of
losses. The Sensex rose 122.21 points or 0.9% to 13,692.52 and the Nifty gained 34.35 points or 0.83% to 4,161.25 on that
day.
On Thursday, 25 September 2008, key benchmark indices ended the volatile session in the red. The Sensex shed 145.34
points or 1.06% to 13,547.18 and the Nifty was down 50.70 points or 1.22% to 4110.55 on that day.
The indices tumbled on Friday, 26 September 2008, as Washington Mutual's failure and uncertainty over the fate of the
US Government's $700 billion rescue plan for the financial sector haunted investor sentiment. First-time jobless claims in
the US rose to the highest in seven years pointing to a slowdown. The Sensex lost 445 points or 3.28% to 13,102.18 and the
Nifty fell 125.30 points or 3.05% to 3,985.25 on that day.
Banking shares were hard hit on fears that local banks may reportedly suffer losses on their exposure to the US financial
giants that had collapsed recently. ICICI Bank (down 10.64% at Rs.561.25), HDFC Bank (down 4.12% at Rs.1245.70), and
State Bank of India (down 8.33% at Rs.1434.20) dipped.
Real estate heavyweights were not spared either. India's largest real estate developer in terms of market capitalization,
DLF, lost 13.45% to Rs.369.50. Unitech, the country's second largest real estate developer in terms of market capitalisation
fell 30.59% to Rs.111.05, after sliding to a 52-week low of Rs.109.10 on 26 September 2008.
Software firms also fell on lingering concerns about the economic prospects of the US, their biggest export market. Satyam
Computer (down 13.01% to Rs.321.95), Infosys Technologies (down 10.85% to Rs.1447.10), Wipro (down 17.54% to
Rs.343.75) slipped. India's largest software exporter by sales, TCS, lost 11.69% at Rs.676.45 after hitting a 52-week low of
Rs.666.20 on 26 September 2008.
Reliance Industries Ltd. (RIL) lost 4.43% at Rs.1960.90. It began production of crude oil at KG-D6 block of the Krishna
Godavari basin on 17 September 2008, the company said on 22 September 2008. RIL holds 90% participating interest in the
block while the balance is being held by Niko Resources.
ONGC dropped 3.45% to Rs.1035.10. As per reports, ONGC Videsh, the overseas investment arm of ONGC, may take a $1
billion short-term loan to partly fund the $2.8 billion acquisition of London Stock Exchange-listed Imperial Energy.
Sterlite Industries fell 4.36% to Rs.447.20. The company's parent Vedanta Resources dropped a restructuring plan. As per
a restructuring plan proposed earlier, the Vedanta group was to create three units focused on commodities: copper, zinc
and lead; aluminium and energy; and iron ore.
Ranbaxy Laboratories tumbled 23.67% at Rs.272.40 on reports the Canadian drug regulator, Health Canada, issued a
notice to Ranbaxy saying it will be
particularly cautious about drug marketing
applications from Ranbaxy after the US drug
regulator blocked the sale of more than 30
generic medicines made in two factories by
the company. The stock hit a 52-week low of
Rs.269.05 on 26 September 2008.
8
Hindalco Industries slipped 12.19% at 99.10
after hitting a 52-week low of Rs.98.50 on 26
September 2008. The company's Rs.5,050 cr.
rights share offering for subscription Monday,
22 September 2008. The sale in a ratio of three
shares for every seven held at Rs.96 a share
will close on 10 October 2008. The company
aims to use the funds to repay a bridge loan it
had taken to buy Canada's Novelis in 2007.
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The Sensex lost 940.14 points to close at 13,102.18 last week. The market sentiment may continue to be influenced by
movements in global indices. Q2FY09 results are the next major trigger for the markets. IT giant Infosys Technologies will
kickstart the earnings season when it unveils its Q2 September 2008 results on 10 October 2008. Analysts opine that with
the dollar appreciating sharply against other currencies, including the Euro and the British Pound, most IT pivotal may
miss their dollar revenue guidelines. Foreign brokerage CLSA said in its recent research note to clients that Infosys may
not be able to meet its dollar guidance for the second quarter and the full fiscal.
9
Market faces liquidity crisis
MARKET
Hindalco stock falls as forecasted
By G. S. Roongta
The ongoing crisis in the global financial markets shows no signs of abating and each day brings about some bad news or
the other indicating that the crisis is far deeper than imagined. This has led to some panic reactions, which is evident by
the fact that short selling was temporarily suspended in the US markets and EU markets. In such a scenario, it is not
surprising that no big player or set of players are able to make a confident move in the equity markets
and many expect a further downturn in coming days.
The US $700 billion bail out plan for the financial system by the US Government is also being questioned
by the opposition and it is justly worried how to get it passed in the US Senate at the earliest. As a result,
there is little hope at this juncture for a revival in global markets, which will necessarily impact Indian
bourses that have witnessed a downward journey last week.
Market experts and technical analysts are also perplexed at the sharp volatility and the lack of confidence
in equity markets even after everyone agrees that Indian markets are relatively safe in relation to the
western markets. Understandably, most experts on the TV channels have taken a very cautious view and some do not
rule out the BSE Sensex sliding to 12000 or 10000 mark or even lower. The not so pessimistic ones talk about the CNX
Nifty touching 4300 or 4500 level in a medium-term rally. This song is being repeated day in and day out with the result
that it has become boring and fails to make an impact.
G.S. Roongta
Actually, the trend in the market is totally disturbed and investors are totally confused by a sharp rise of 700 points one
day, as witnessed on Friday, 19 September 2008, and followed by a larger fall last week. Such erratic movements of 1000
to 1500 points on the Sensex have been seen week after week for the past 3 months. And if we look at the stock prices, we
find that they are moving in a narrow range compared to a larger range over the last 2/3 months. Hence, if the market is
within the range of the last 2/3 months, why should one panic by day to day news.
Throughout last week there wasn't any good news for the markets to breathe a sigh of relief. Let us review some of the
major events affecting the equity markets last week:
(a) Vendant Group drops its restructuring plans in the face of opposition by investors.
(b) Dabur fails to conduct its AGM on protest by investors and a court order.
(c) Ranbaxy faces heat from export markets and its share price drops by 11% to Rs.308 on Tuesday, 23 September
2008.
(d) The US financial crisis is far deeper
than imagined as evident by the huge
rescue packages.
(e) Hindalco's share price rapidly drifts
to the rights offer price of Rs.96,
which opened on Monday, 22
September 2008.
The Aditya Birla Group may be happy to see
the Hindalco share break its 2-year low as it
will enable them to apply for more shares to
enhance their equity stake. Common investors
may now choose to buy the share from the
open market rather than apply for rights,
which is available against full payment of a
premium of Rs.95 for a Re.1 paid-up share.
The company's management has, of course,
got the issue underwritten 40% as a matter of
precaution. But while the promoters may
subscribe to 50% of the issue, it also opens the
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doors for a corporate raider who can corner the stock at this throwaway price. Thus while the issue may close, it is a sad
reflection on the capital market image of the flagship company of one of India's largest industrial groups.
All Aditya Birla Group shares are losing investor fancy as we have been highlighting for the last 3 weeks. This is evident
by the following:
(1) Grasim Industries has scaled down to a 52-week low of Rs.1625 in July 2008, from its peak of Rs.4074 losing over
60% in just 9 months and currently trades at Rs.1817.
(2) Aditya Birla Nuvo has scaled down to a 52-week low of Rs.975 on 18 September 2008 from its peak of Rs.2502
losing 61% in just 9 months and currently trades at Rs.1004.
(3) Hindalco has lost 55.6% as it is currently trading at Rs.99 against its 52-week high of Rs.223 (as per BSE) and is the
worst hit consider its peak price of Rs.250 over a year back.
(4) Idea Cellular hit a low of Rs.70 on 18 September 2008 falling below its issue price of Rs.75 and by 56% from its 52-
week high of Rs.161. This is despite the company recording a huge PBIDT of Rs.2269 cr. in FY08 and Rs.1486 cr. in
FY07 but it skipped the dividend.
The Aditya Birla Group management should review and re-rate their companies in the face of their bold claim of
enhancing shareholder value. We fail to understand how the shareholder value stands enhanced. Is it by the share price
or from the book-keeping point of view?
If the Aditya Birla Group companies seek to raise further funds from shareholders in quick succession like Hindalco
without rewarding them properly, who will like to stay invested especially at a time when there are better investment
opportunities in the market. The days of the Sixties, Seventies or even the Eighties are over when they commanded
investor fancy.
In comparison, take the example of Elecon Engineering, which recorded excellent profits like Hindalco or Grasim over the
last 3 years, but has cared to reward shareholders with 2:1 bonus and enhanced dividend distribution on increased
capital. Although it is very small compared to Hindalco or Grasim but it enjoys good capital market image and
commands the confidence of investors. Why should investors not switchover to such stocks rather than stick to an
unrewarding stock despite all its media hype and bold claims, which amount to nothing when it comes to the investors'
pockets.
In contrast, you can see the attitude of the Tatas when they reduced the quantum of issue to shareholders of Tata Motors
after its share prices fell down drastically after the ongoing Singur imbroglio and the crisis in the financial markets. Under
such market conditions, the management is not rigid like Hindalco to seek a hefty premium and full money on
subscription. This will obviously generate goodwill with investors and which is why the Tata Group is always considered
investor friendly.
Even PSUs like BHEL or independent professionally managed companies like L&T are perceived to be more investor
friendly as they have rewarded shareholders with a liberal 1:1 bonus in the recent past. In fact, L&T made two 1:1 bonus
issues in quick succession as against Hindalco made two rights issues at hefty premium even though its financial strength
and reserves were far greater than L&T!
What is the point if Hindalco's reserves keep on ballooning year after year without benefiting the shareholders? It has no
meaning and shareholders will naturally prefer to switch over from Hindalco or Grasim to L&T, BHEL, Tata Group
companies or Elecon Engineering.
By the above illustrations, I have sketched out the approach of managements, which record growths in the companies but
care to reward shareholders, who are the principal stakeholders in the company, as compared to the Aditya Birla Group,
which chooses to neglect shareholders and just milks them dry. History has proved that companies that share their
growth with shareholders always fetch better valuations in the long run. Is this not evident in the case of Hindalco or
Grasim as their share prices languish despite their better fundamentals.
This is a reflection the attitude of promoters who demand more from shareholders rather than reward them. Look at the
spate of IPOs over the last 2 years as almost all of them are quoting below the issue price. This clearly indicates the greed
of the promoters who lure investors at the time of the offers and dump them after pocketing the unjustified premium.
Quite unlike the past when IPOs were made at a fraction of the book value, today's IPOs are made at a multiple of book
value and promoters take full advantage of the market mechanism and loot the unsuspecting investing public. Thus
instead of being the trustees and custodians of the funds of common shareholders, they have turned swindlers and do so
openly playing within the ambit of law.
Investors must, therefore, be very selective and switchover to companies whose promoters are genuinely investor friendly
if they really want to reap investment rewards.
By Saarthi
STOCK WATCH
W S Industries (India) Ltd. (Code: 504220) (Rs.45.80) is a leading manufacturer of high voltage electro-porcelain
transmission insulators and sub-station insulators. It deals in other products such as well like dropout fuses, isolators,
10
lightning arresters, coupling capacitors, capacity voltage transformers, instrument transformers, line traps and
reactors. To cater to the rising demand, the company is setting up a greenfield plant in Visakhapatnam to double the
manufacturing capacity of substation insulators to 16,000 tonnes. The project is almost complete and is expected to
commence shortly. Besides, its transmission insulator unit with installed capacity of 8,000 tonnes is running at full
capacity. Lately, the company has also ventured into turnkey projects for designing, execution and construction work of
transmission lines of below 220 KV. Meanwhile, its subsidiary company has completed the construction of the 1st phase
(300,000 sq. ft.) of the Software Technology Park in association with TCG group. Hence from the current year it will start
generating additional lease rental of approx Rs.3 cr. With an order book of nearly Rs.135 cr., the company is expected to
post a turnover of Rs.275 cr. with profit of Rs.16.50 cr. i.e. an EPS of Rs.8 for FY09. A good bet in the power ancillary
space.
******
Tantia Constructions Ltd. (Code: 532738) (Rs.58.35) has a presence in roads and highways, railways, tunnels, bridges and
flyovers, urban infrastructure, sewage & drainage, civil & housing construction etc. Lately, it has also ventured into the
lucrative marine infrastructure space, power transmission & distribution infrastructure and aviation infrastructure. In
fact, it is among the five Indian companies capable of providing 'foundation-to-finish' for mega railway bridges spanning
2-km or more. Importantly, the company has a very strong presence in the eastern and north-eastern regions, which give
it a distinct edge since very few players are interested in bidding for prospects in these regions due to the difficult terrain.
Presently, it has diversified and massive order-in-hand position of more than Rs.1000 cr. to be executed in the next 24
months. In the near future, the company intends to foray into BOT & BOOT projects to boost up its margin. For Q1FY09, it
recorded a 40% rise in the topline as well as bottomline to Rs.99 cr. and Rs.5 cr. respectively. Hence for entire FY09, it may
clock a turnover of more than Rs.450 cr. with profit of Rs.20 cr. i.e. an EPS of Rs.12 on its diluted equity of Rs.16.30 cr. A
relatively safer bet in the infrastructure space.
******
Austin Engineering Ltd. (Code: 522005) (Rs.59.60) is the leading manufacturers of all types of antifriction bearings
namely ball, tapered roller, spherical roller, needle roller and thrust bearings. Despite its small size, it offers the widest
range of bearings from 50 gms to over half a tonne. In fact, it is among a handful of customised bearing manufacturers
worldwide to produce bearings with 1200 mm diameter. It supplies bearings to different category of buyers like
automobiles, defence, state road transport corporations, steel plants, thermal plants, cement plants, sugar and paper
industries, fan and pump industries and material handling equipments. For FY08, it registered 10% growth in sales to
Rs.73 cr. and 20% increase in net profit to Rs.6.50 cr. recording an EPS of Rs.18. Incidentally, the company derives 40%
revenue from exports to most quality conscious markets like USA & European countries. It has even set up 100%
subsidiaries in USA and Italy, which act as its marketing front-end. In the near future, the company intends to venture
into manufacturing of geared slewing rim bearings for heavy earth moving and construction equipment and special
bearings for aerospace applications. For FY09, it may report sales of Rs.75 cr. with profit of Rs.5.50 cr. i.e. an EPS of Rs.16
on its small equity of Rs.3.50 cr.
******
Cera Sanitaryware Ltd. (Code: 532443) (Rs.117.85) is the third largest company in the organized sanitaryware segment
with over 20% market share in the domestic market. Notably, in the last couple of years, the company has evolved itself
into a total bathroom solutions provider with a wide range of products including WCs, wash basins, whirlpools, bath
tubs, shower panels, shower cubicles, shower temples, bath fittings, kitchen sinks, tiles etc. In line with today's high
technology, it also provides automatic electronic flushing system, automatic water flow sensor tap, automatic hand
dryers/soap dispensers, perfume sprayer etc. It even has a strategic tie-up with Pozzi-Ginori, an Italian designer
sanitaryware, for importing premium sanitaryware and marketing it in India. To cater to the high demand, it has recently
expanded its production capacity from 16,500 MTPA to 24,000 MTPA. To boost its retail sales, it came up with novel idea
of setting up live CERA bath studio where consumers, architects, interior designers etc can actually see how the premium
products will look, feel and function in their homes. It has already set up eight such studios across India and is now
putting up Cera Bath Galleries with its retail partners. Further, the company is planning a major foray into taps as there is
only one strong Indian brand, followed by mediocre brands. For FY09, it may register sales of Rs.160 cr. with PAT of Rs.11
cr. i.e. an EPS of Rs.18 on its current equity. Worth taking a look at.
By Kukku
FIFTY FIFTY
* Sugar stocks: Every 1000 kgs of cane crushed give 100 kg of sugar at a recovery rate of 10%, 40 kgs of molasses, which is
converted in to 10 ltrs of alcohol, 300 kgs of baggase, which is converted into 100 units of steam/power generation, plus
300 kgs of mud, which is converted in 30 kgs of bio-fertilizer. Since prices of molasses/alcohol have shot up sharply in the
last one year and taking into account the sugar cost at around Rs.17 per kg., power Rs.5 per unit of overall realisation
(including income from alcohol & power) the realization comes between Rs.22 to Rs.27 per kg of sugar produced
11
depending on the recovery rate and the power & alcohol rates on a state to state basis. Most of the big sugar plants are
well integrated and will benefit from the upswing in the sugar price cycle. Investors are advised to accumulate good
sugar stocks like Renuka Sugar, Sakthi Sugar, Andhra Sugar, Oudh Sugar, Kesar Enterprises, Bannari Aman for good
long-term growth.
Risk Factors: Being a commodity stock, the upmove will depend on the price of sugar. Except Bannari Aman, most
companies have high debts and thus their interest costs will be high.
* W S Industries (Rs.45.80) order book presently stands at Rs.138 cr. With the thrust given to the power sector in the 11
th
Five Year Plan as well as the global interest in construction, rehabilitation and upgradation of electricity networks, the
ongoing demand for its products continues to remain strong both in the domestic and export markets.
Construction of its new production facility at Visakhapatnam for the manufacture of Sub-station Insulators is nearly
complete and commercial production is expected to commence shortly.
Phase I of the construction of its 3 lakh sq. ft. Software Technology Park, promoted by its subsidiary, W S Electric Ltd., in
association with TCG Group, is almost complete and is being leased out. The construction work for Phase II has
commenced.
The company will benefit from exports due to the firm US dollar.
Investors are advised to stay invested in this stock or add on dips. Its book value is Rs.38 while the stock is available at
almost its 52-week low. Its 52-week high is Rs.140. Thus the downside is limited in this investment.
* Gujarat Apollo Industries (Rs.155) manufactures and designs various road construction equipments. This includes
manufacturing asphalt plants, sensor paver finishers, bitumen pressure distributors and kerb pavers, indirect heating
equipment, asphalt batch mix and drum mix plants. The prospects of its user industries are encouraging.
The company does not foresee any slowdown in demand as the projects in the pipeline are from the roads sector to which
it caters to. There are strong orders from both NHAI and the State highways. However, the BOT road projects are faced
with escalation costs of borrowing and rise in prices of construction materials making a mockery of the initially planned
payback periods.
Its consolidated sales for the June 2008
quarter were Rs.61.30 cr. and the
operating profit was Rs.10.94 cr. The net
profit after minority interest is Rs.7.14
cr. Full year FY09 consolidated EPS is
likely to be around Rs.30 or even more.
Investors can accumulate this stock for
good long-term growth.
12
* Jetking (Rs.221.60) is now trading ex-
bonus at a P/E ratio of just 11/12
compared to industry average of
around 55. The stock has given strong
growth to long-term investors. Stay
invested or accumulate on dips. It is one
of the safe investment bets as the
dividend declared for last year was
160%. Thus the dividend yield itself is
good.
* STG Technology (Rs.13.80) is doing
well in the last few quarters. While its
yearly high is Rs.44, the stock is
available at a low of Rs.14/15 against a
book value of around Rs.19 and
promoters' stake of 61%. Investors with
long-term view can accumulate on dips.
*
Gontermann
Peipers
(Rs.37),
incorporated in 1966, manufactures iron
& steel base rolls with an initial capacity
of 3000 TPA in technical and financial
collaboration with Gontermann Peipers,
Siegen, West Germany.
The implementation of the ongoing
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modernisation/expansion project envisaging enhancement of the plant capacity from 15,300 MTA to 18,300 MTA is
expected to be completed by Q3FY09. The company expects to derive the full benefit of the expansion by Q2FY10.
On the export front, too, prospects appear promising. Its order book is healthy and various long-term supplies are in
place. Further, the high cost of production of European, American & Japanese roll makers offer a good opportunity for
Indian rolls in the export market, especially in South East Asia, China, Middle East, Africa, East Europe & USA. Export of
forged rolls was 565 MT compared to 381 MT in the previous year registering a growth of 48.29%. With the continued
thrust on exports, the company expects to increase the export share to total sales in FY09. Firmness of the US dollar will
improve its margins.
With the expected benefit of expansion, the company can safely achieve an EPS of around Rs.9/10 in the current year,
which may go up to Rs.13/14 by next year.
With a book value of around Rs.44, dividend of 15%, 52-week high/low Rs.140/34, the stock looks safe for investment
around Rs.37 levels or on dips.
* Yuken India (Rs.113.70) - There is a slowdown in the user industry like the machine tools industry and its margins are
likely to be affected in the current year.
Note: Although we have recommended the above stocks for buying but looking at the current market sentiment,
investors are advised to keep a watch on these stocks for buying only at lower levels. We may see a correction in real
estate property market which may lead to some defaults. Investors are advised to avoid all high priced stocks that have
given multifold returns in the last few years and/or where the promoters are unknown or do not have a proven track
record.
Avoid private equity/broking firm/financial sector stocks for the time being.
Sugar and Tea sectors are likely to do well in the medium-term.
Construction equipments manufacturers may not report encouraging results due to slowdown in the sector and high
borrowing costs. Avoid this sector.
Many companies that came out with unjustified high premium in the last few years may see a further downside as there
is no track record of the promoters to justify the premia.
Avoid all such stocks where promoters holding coming down in the last few years in the rising market. We have seen
how Prajay Engineers Syndicate has fallen.
Be careful in high priced stocks where there are high FII holdings.
We may see more realistic levels. Hence be extremely careful in buying.
By V. H. Dave
EXPERT EYE
Reliance Petroleum Ltd. (RPL) (Code: 532743) (Rs.147.50), incorporated on 24 October 2005 and promoted by Reliance
Industries Ltd. (RIL), is a subsidiary of RIL. It also benefits from the strategic alliance with Chevron India Holdings Pte.
Ltd., Singapore, a wholly-owned subsidiary of Chevron Corporation USA (Chevron). RPL entered the capital market with
an IPO of 135 cr. equity shares of Rs.10 each at a premium of Rs.50 per share in April 2006.
The company was set up with the objective of creating significant value by harnessing the emerging opportunities in the
global energy sector arising out of several years of under investment in refining capacity.
RPL has set up a 5,80,000 barrels per day (BPD) of crude oil per stream greenfield petroleum refinery and a 0.9 million
tonnes per annum polypropylene plant in a special economic zone (SEZ) at Jamnagar at a cost of Rs.27, 000 cr. The
refinery is located adjacent to the existing refinery and petrochemicals complex of RIL. The company will step up
production gradually from November 2008 to reach 85% capacity of 4,93,000 BPD. It is the world's sixth largest refinery
and commissioned earlier than expected.
In a landmark development in FY07, RIL and Chevron embarked on a strategic partnership in RPL with a view to
optimally leverage their mutual strengths and exchange best values. Through a well-executed global syndication, RPL
raised foreign currency loans of US $2 billion, making it the 'largest foreign currency financing for any single project in
India'.
RPL's equity capital is Rs.4500 cr. and with reserves of Rs.9000 cr., the book value of the share works out to Rs.30. RIL
holds 70.4% in its equity capital, Chevron holds 5%, foreign holding is 2%, mutual funds/institutions hold 4.9%, PCBs
hold 5% leaving 12.7% with the investing public.
The refinery was partially commissioned in September 2008 ahead of schedule and full production will be reached
gradually. The refinery can process heavy and sour crude and can produce value added products meeting the highest
quality specifications in the world.
Going by prospects, Asia and Middle East will be contributing 60-70% of the incremental demand. Europe appears to be
the most attractive export market for diesel, which is in high demand at the moment. The most important markets for
gasoline will be USA, Africa and the Middle East.
13
14
Although RPL's exports to US are lower than the originally envisaged 30-40%, they should be significantly higher than
7% in FY08. This is because only 10% of RIL's product mix is gasoline against 30% originally planned.
However, RPL has better refining margins that RIL's margin of US $15/bbl. This could be higher due to more stringent
specifications than Indian buyers and the heavier grade crude processed implying lower feedstock cost.
During FY09, production will be gradually increased to reach 85% capacity of 5,80,000 BPD according to some analysts
tracking RPL.
Its full commissioning will beat the competition from other refineries being set up in West Asia and China as they are
delayed by the rising costs of steel and cement.
At the same time, the margins of refineries across the world have begun to fall as the difference between the prices of
petroleum products and crude oil is narrow and the demand for petroleum products is weak especially in USA and
Western Europe, the two largest consumers due to high fuel prices and slow economic growth. This slowdown in
demand may not spare RPL.
However, Mr. Mukesh Ambani, managing director of RPL, expects that the prospects for the refining sector to remain
encouraging because of the robust demand, tight product supplies and the slow growth of new capacities dogging an
already stretched refining system.
After full commissioning, Reliance's two Jamnagar units (one of RIL and one of RPL) will be the world's largest single-
location refining facility. The entire refinery complex will have a total processing capacity of 12,40,000 BPD.
The profits of RPL will depend mainly on two factors viz. global crude oil prices and fuel prices. As per an optimistic
view, RPL will have GRM (Gross Refining Margin) of over $14/15, the best it ever achieved last quarter.
Analysts expect RPL to achieve sales of Rs.13,000 cr. during FY09 with net profit of Rs.1,650 cr. and an EPS of Rs.3.66.
During FY10, sales would go up to Rs.65,000 cr. with net profit increasing to Rs.9,400 cr. and the EPS would be Rs.20.9.
The shares of RPL are traded at Rs.147, discounting its estimated FY10 EPS of Rs.20.9 by 7.2 times. One can buy the shares
at declines for long-term gains. The 52-week high/low of the share has been Rs.295/109.
******
The share of Sathavahana Ispat Ltd. (Code: 526093) (Rs.39.25) is recommended for decent gains in the long-term. Its
expansion will lift its earnings significantly in coming years.
Incorporated in 1989, SIL manufactures pig iron through the mini-blast furnace route with an installed capacity of
1,20,000 TPA. Since then, its capacity has been hiked to 2,10,000 TPA. It is spearheaded by Mr. K. Thanu Pillai as
Chairman and Mr. A. S. Rao as Executive Vice-Chairman. SIL operates in the Iron & Steel industry, which is considered as
core sector.
SIL's pig iron manufacturing capacity is 2,10,000 TPA and 3,00,000 TPA for metallurgical coke. Its coke plant commenced
commercial production in March 2007 and its 30 MW co-generation power plant in Bellary district of Karnataka was
commissioned on 31 July 2008. It is now enhancing its coke capacity to 4.5 lakh TPA and has signed a PPA (power
purchase agreement) worth Rs.3.25 cr.
During FY08, SIL posted 43% higher sales of Rs.358 cr. and earned 135% higher net profit of Rs.33 cr. the EPS was Rs.10.4
on its enlarged equity of Rs.31.8 cr. With reserves of Rs.121 cr., the book value of its share works out to Rs.48.
During Q1FY09, operating profit margin (OPM) has moved up to 30.5% from 17.8% and net profit margin (NPM) to 15.1%
from 4.6%. During FY08, OPM & NPM shot up to 23.3% and 9.2% from 14.6% and 5.6% respectively in FY07.
SIL issued 15.4% stake i.e. 49 lakh shares to Stemcor Holdings, a strategic investor, at a price of Rs.60 per share. Stemcor is
a $6 billion leading consultancy firm, which provides marketing, finance and logistic services to the steel industry. SIL
had also issued 6.25 lakh shares and 15.70 lakh warrants to the promoters at Rs.60 per share.
The funds raised are being utilised to meet the aforesaid coke capacity expansion and its 10 MW power plant. The total
capex for FY08 and FY09 is Rs.176 cr., which is expected to save SIL more than Rs.20 cr. in FY10. Market sources maintain
that the company would soon be allotted iron ore mines in Karnataka.
Pig Iron is the basic raw material used by the Engineering, Construction, Foundry and Capital Goods industries. With
significant growth in the main user industries like Automobiles, Construction, Foundries the demand for Iron & Steel has
increased considerably.
Metallurgical coke is the key input for iron making and given its own production of metallurgical coke, SIL has integrated
itself backward for this key input material. The surplus coke is sold in the market.
As SIL's pig iron enjoys brand value and it is one of the low cost producers of pig iron, there is an opportunity for
increasing the market share. The simultaneous modernisation of its plant will enhance efficiency, reduce process costs
and increase volumes.
There was robust growth in the global demand for Iron & Steel driven mainly by the Chinese appetite for steel for the
Olympics followed by USA and the European Union's demand push by virtue of the resurgence in their economies.
Given the capacity expansions nationwide, India is expected to become the second largest steel producer after China by
2015-16 from the fifth largest steel producer with a steel production of 55.27 million tonnes. Indian steel consumption also
grew from 52.26 million tonnes in the last year to 57.13 million tonnes in FY08 recording an impressive growth of 9.2%.
This augurs well for the prospects of pig iron manufacturers.
With its enhanced pig iron and coke capacity using the latest technologies together with the cogeneration of power at the
greenfield site, SIL can take full advantage of the current uptrend in the Iron & Steel industry.
For FY09, SIL is expected to clock a turnover of Rs.470 cr. up 33% from Rs.358 cr. in FY08 and a net profit of Rs.75 cr. The
EPS would work out to Rs.23.6.
At the CMP of Rs.39, the share is trading at a P/E of 1.8 on FY09E earnings. The share is recommended with a medium-
term target of Rs.60. The 52-week/low of the share has been Rs.111/38.
******
Twilight Litaka Pharma Ltd. (TLPL) (Code: 506985) (Rs.56.45) has been reporting good results over the last several
quarters and is all set to garner an EPS of Rs.13 on its FV of Rs.5 per share.
Incorporated as a private limited company in January 1974, Li Taka Pharmaceuticals was converted into a public limited
company in December 1985 and Li Taka Laboratories Pvt. Ltd. was amalgamated with it in 1986. The company came out
with a rights issue in April 1992 to meet its long-term working capital requirements and to part-finance its capital
expenditure including modernisation. The name of the company was changed from Li Taka Pharmaceuticals to the
present one with effect from 4 July 2006.
The company manufactures various drugs and pharmaceutical formulations at its manufacturing facilityies located at
Pimpri, Pune and Vasai in Maharashtra. In 2007-08, TLPL inaugurated its new factory at Baddi in Himachal Pradesh.
The company's products cover Analgesics, Anti Inflammatory, Anti-Asthmatic, Antibiotics, Anti-bacterial, Vitamins,
Haematinics and Cardiovascular drugs.
TLPL exports its products to over 30 countries across Africa, South America, South East and Central Asia.
In addition to the above, TLPL utilises its facilities for contract manufacturing on a loan license basis for several large
companies like Novartis, Wockhardt, Cipla, Pfizer, Lupin and Serum.
TLPL has a well-equipped, modern
manufacturing, testing and packaging
facilities at all its plants viz. Pimpri,
Vadgaon and Vasai. The Pimpri Plant has
been approved by the Department of
Science & Technology, Government of
India, for its R&D facilities. The plants at
Vadgaon and Pimpri are approved by the
Pune University for laboratory use by its
students pursuing the doctorate degrees.
15
Its facilities at Pimpri and Vadgaon are as
per the World Health Organisation (WHO)
guidelines and in conformity with Good
Manufacturing Practices (GMP) enabling
TLPL to register its products for export to
several countries.
TLPL also
has a well-established
distribution network all over India, except
in Delhi and Uttaranchal, with a customer
base of over 1,00,000 doctors for 120
formulations distributed through 1000
stockists. Its domestic marketing personnel
comprises a field force over 600 and it is
registered with various Central and State
agencies to cater to the requirements of
large hospitals, railways, ESIC, Post and
Telegraph Department, city contractors,
autonomous bodies and the armed forces.
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
The business mix also includes an exclusive
marketing arrangement with Cipla for
marketing its brands across 10 states in the
country.
During FY08, TLPL posted 49% increased
72.5
107
17/10/07
Hind Aluminium Inds.
60.10
102
70
24/10/07
62.25
114
Kamdhenu Ispat Ltd.
29.00
31/10/07
CHD Developers Ltd.
18.30
37.4
104
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
36.95
73.9
100
28/11/07
Vybra Automet Ltd.
05/12/07
Avantel Softech Ltd.
96.85
138.5
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
sales of Rs.295 cr. and earned 41% higher net profit of Rs.20 cr. The EPS was Rs.9.2 on the face value of Rs.5 per share.
During Q1FY09, profit has gone up by 41% to Rs.6.5 cr. on 35% higher sales of Rs.84 cr.
TLPL's equity capital is Rs.10.6 cr. and with reserves of Rs.34 cr., the book value of its share works out to Rs.21. The value
of its gross block is Rs.52 cr. The promoters hold 63.7% in the equity, foreign holding is 1.6%, PCB holding is 3% leaving
31.7% with the investing public.
In FY08, TLPL's growth in the domestic formulation business was around 55% on the back of new product launches and
intensive marketing. This division accounts for more than 50% of its sales and profits. Another major sales contribution
came from contract manufacturing of pharmaceuticals and neutraceuticals for companies like Novartis, Wockhardt,
Serum Institute, Herbalife, Artlife and Elken.
TLPL is fetching more and more orders for CRAMs for both neutraceuticals and pharmaceuticals, which will boost the
capacity utilisation of its Baddi unit in the current year. Apart from CRAMs, TLPL earns a small revenue from
loan/license based manufacturing for companies like Pfizer, Lupin and Cipla.
TLPL recently inaugurated its new factory at Baddi in Himachal Pradesh. This plant is likely to increase its production
capacity by 35%. It already has three plants engaged in the manufacture of dietary food supplements and
pharmaceuticals. In FY08, the utilisation level of its new facilities was low at 35-40%, which can go up to 75-80% in FY09.
The company is expected to grow by over 50% in the coming years. Sales are expected to surge to Rs.425 cr. with higher
net profit of Rs.28 cr. yielding an EPS of Rs.13 on the face value of Rs.5 per share.
At the current market price of Rs.56, the TLPL share is trading at a forward P/E of just 4.2 against the industry average
P/E of 7.5. Investment in this share is likely to fetch a decent appreciation of 50% in the medium-to-long-term. The 52-
week high/low of the share has been Rs.108/35.
16
By Nayan Patel
TECHNO FUNDA
Swasti Vinayaka Gems Corporation Ltd.
BSE Code: 512257
Last Close: Rs.4.75
Swasti Vinayaka Gems Corporation Ltd. (SV Gems), a Podar Group company, manufactures statues valued from Rs.1
lakh to Rs.10 cr. It is also manufactures the latest fashionable diamond jewellery. The company has 3 showrooms in
Grand Hyatt Plaza, Mumbai and also participates in international auctions.
SV Gems has an equity of Rs.4 cr. The promoters hold 53.43%, corporate bodies hold 33.93% and the investing public
holds 12.64%.
In FY05 & FY06, the company issued bonus shares and has declared 1:3 bonus for the current year. It regularly pays 40%
dividend on the face value of Re.1 per share. At the current level, the stock is available dirt cheap. Buy at every decline
keeping a strict stop loss of Rs.3.50. On the upper side, the stock will zoom up to Rs.7.25 level in medium-term and will
cross Rs.10 mark in the next 12 months. Its 52-week high is Rs.8.97.
Twilight Litaka Pharma Ltd.
BSE Code: 506985
Last Close: Rs.56
Twilight Litaka Pharma Ltd. (TLPL) is a fast growing pharma company. It manufactures drugs and formulations in the
form of tablets, capsules, ointment and liquids for the following major therapeutic segments: Analgesics – Anti
Inflammatory, Anti-Asthmatic, Antibiotics, Anti-bacterials, Vitamins, Haematinics and Cardiovascular drugs.
The company exports its products to over 30 countries across Africa, South America, South East and Central Asia. In
addition to these activities, it utilises its facilities for contract manufacturing on a principal to principal or on Loan License
basis for several large companies like Novartis, Wockhardt, Cipla, Pfizer, Lupin and Serum. It has three manufacturing
plants in Pipari, Vadgao & Vasai.
It has an equity of just Rs.10.64 cr. in which promoter hold 63.74% while the investing public holds 31.70% stake. For the
June 2008 quarter, it posted marvellous numbers. Net sales jumped 34.68% to Rs.84.15 cr. while net profit jumped 41.43%
to Rs.6.52 cr. The company paid 20% dividend last year. Currently, the stock is available at a P/E ratio of just 6 and is
going dirt cheap. Investors can buy this stock at every decline for short-to-long-term investment. Stock will touch Rs.72 in
the short-term and can go up to Rs.110 level in next the 8-12 months. Its 52-week high is Rs.108.
Geojit & NSE workshops for managing currency risk
MONEY FOLIO
Geojit Financial Services, a leading retail financial services company in association with the National Stock Exchange of
India Ltd. (NSE) is conducting a series of workshops on managing Currency Risk across South India and Maharashtra.
The Currency Futures segment went live at NSE on the 29
th
of August 2008 and there is a need for participants to
understand the practical applicability of this new class of instrument.
To address this requirement, Geojit and NSE will be conducting workshops in the metros and other cities. The aim of
these workshops is to raise awareness amongst all participants on how they can practically manage their currency risk
and on how to take advantage of dollar-rupee fluctuations.
Apart from primary participants like exporters, importers, banks, corporates and commercial bodies, individual retail
investors will also be invited who receive remittances from abroad, want to fund their children's overseas education etc.
NSE experts will be making the presentations. Every workshop will conclude with an interactive session wherein
participants will be encouraged to clear
doubts.
17
Aviva Life launches IndiaBond
Aviva Life Insurance has launched
IndiaBond, a single premium, endowment
plan with guaranteed maturity benefits.
This plan offers a compounded return of 7%
per annum on maturity. For example, a
policyholder paying a single premium of Rs.1
lakh for a policy term of 10 years will get a total maturity benefit of Rs.1,96,715 plus life cover.
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
This plan offers a compounded return of 7.00% p.a. Maturity benefits are absolutely
tax free under Section 10(10D) of the Income Tax Act, 1961. The premiums paid are eligible for a tax deduction as per
Section 80C of the Income Tax Act 1961. The minimum Single Premium is Rs.50,000 and there is no limit on the
maximum. There is the option of a 5 year or a 10 year policy term and Death Benefit is 5 times of the Single Premium in
the first year, 4 times of the Single Premium in the second year, 3 times of the Single Premium in the third year and 2
times of the Single Premium thereafter. At the end of the policy term, the proposer gets a guaranteed maturity amount
depending upon the policy term and the Single Premium amount. To be eligible for IndiaBond, one has to be between 15
and 45 years of age. The maximum maturity age is 55 years.
G S Auto plans major expansion
GS Auto International Ltd., manufacturer & exporter of components for commercial vehicles, has received an export
order worth Rs.1 cr. from various customers such as Arvin Meritor, Hermann Peter Gmbh and Sieg Fried Templing
Gmbh of Germany, Rotakrk Gears B.V. Holland and Mast Trading Company in Dubai. With these orders, the company
has total export orders in hand are Rs.3.85 cr. The company's exports will also benefit by the weak Rupee.
The company is also at an advanced stage of raising Rs.50 cr. through FCCBs, which would be used for setting up a unit
at Jamshedpur to cater to Tata Motor's commercial vehicle division and to expand its unit at Ludhiana.
ICICI Prudential Life launches LifeStage Assure
ICICI Prudential Life has launched LifeStage Assure, a unique triple advantage wealth creation product. This unit linked
insurance plan will provide upto 450 % of first year premium guarantee on maturity, to enable consumers to dabble in
equities without any risk of the downside.
The premium from second year onwards will be invested after deducting a very low premium allocation charge, ensuring
benefit from the upside of equity investment in the long term. The additional advantage of LifeStage Assure includes the
benefit of a lifecycle based portfolio strategy that allocates the investor's money across various asset classes based on his
life stage and risk appetite.
Other features of LifeStage Assure include the option of cover continuance, which ensures continuance of life insurance
cover, even in a case of break in premium payment. Further, LifeStage Assure allows the option of withdrawing money
systematically over a period of 5 years on maturity of the policy. In addition the premium paid for the policy will be
eligible for tax benefit under section 80C and any benefit amount received under this policy will be eligible for tax benefit
under section 10(10D), as per the Income Tax Act 1961.
Arvind's Megamart to retail Cherokee apparels
Arvind Ltd., India's largest integrated textile manufacturer and a leading branded apparel & retailer operating across the
entire value chain from design to fabric to brands, has launched the world's largest family lifestyle brand 'Cherokee' in
India.
Brands that Cherokee Inc. owns and represents generate over $4 billion in annual retails sales worldwide. The company's
principal focus is global 'retail direct' licensing. The company has partnered with several of the best known retailers in the
world including Target Stores, Tesco Plc, TJX Companies, Zellers (Hudson Bay Company) and Pick'n Pay among others
in providing consumers with well understood brands, making them available on an exclusive basis with these retailers.
Cherokee is one of the fastest growing family brands worldwide and will be exclusively available at Megamart.
Hettich to establish over 100 Certified Kitchen Studios
Hettich, the world leader in furniture fittings, has chalked out an ambitious expansion plan in India with a view to service
its customer better by establishing over 100 Hettich Certified Kitchen Studios across the country. It has selected kitchen
studios given the rapid growth of housing industry offering apartments furnished with modular kitchens.
Hettich India has been set up as a joint venture with the K. K. Birla/S.K. Poddar Group, which controls Zuari Agro and
Chambal Fertilizers Ltd.
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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.
18
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