MARKET VIEW
Year - 7 Issue No. 1
By SANJAY CHHABRIA
Market-View enters 7th year
With this Issue, Market View enters its seventh year and thanks all its Readers/Subscribers. Market View will continue with its objective of providing information to investors, to help them take an informed investment decision.
OUTLOOK FOR THE MARKETS
April 16, 2007
The market settled with gains for the week, after posting losses for the previous two weeks, as buying resumed. A decline in inflation, firm global markets, steady industrial production data also were the key factors contributing to the rally. As per data released on 11 April, industrial production rose 11% in February 2007 from a year earlier, slightly lower than upwardly revised annual growth of 11.4% in January 2007. Manufacturing production, which represents more than 75% of industrial output, rose 12.3% in February from a year earlier, compared with a revised 12.1% annual growth in January. The BSE Sensex surged 528 points (4.11%) for the week to end at 13,384.08. The earnings season has just began and Q4 results are expected to be strong. Stock-specific buying is likely to continue during the earnings season. On 24 April 2007, the RBI will announce an Annual Policy Statement for FY 2007-08. There are concerns among market men that interest rates may go up further since inflation remains above the RBI's target range of 5 - 5.5%. Higher interest rates raise borrowing costs and impact corporate profits. Global liquidity still remains strong. It has helped global markets recover quickly from recent steep corrections. However, there are concerns that too much money will lead to inflated prices of assets and volatility.
The key Q4 results scheduled next week are TCS, HCL Tech and Wipro. TCS announces results on 16 April, followed by HCL Tech on 17 April and Wipro on 20 April. The board of Tata Steel meets on 17 April 2007, to consider proposals for raising equity funds to finance its investment in a special purpose vehicle (SPV) for the acquisition of steel maker Corus Group.
INVESTMENT QUOTES
When your views are truly contrarian, they are inevitably uncomfortable. Courage and the ability to withstand pain are required.- Michael Steinhardt
It's important to us to be invested in companies that have proven themselves to be the best capital allocators. That's in no way meant to diminish the importance of operating excellence, but my experience has been that the best investments result from having both great execution and great capital allocation." - Robert Jaffe
Fools try to prove that they are right. Wise men try to find when they are wrong. - Dickson G. Watts
When in doubt, do nothing. Don't enter the market on half convictions; wait till the convictions are fully matured.- Dickson G. Watts
Sanjay Chhabria is an equity analyst and investment consultant. At the time of writing this, he may have had positions in any stocks mentioned. Under no circumstances does the information in this newsletter represent recommendations to buy or sell stocks. He welcomes comments and feedback at valueinv@sify.com . You should consult with your advisors before making any investment decision.
To Subscribe to Market view please contact Sanjay Chhabria at 0771- 2427069 or at his e-mail address.
This week– Company Reports on Welspun India & Indoco Remedies.
COMPANY REPORTS
Welspun India Ltd(Rs 74)- Welspun India(WIL) is Asia 's largest and world's fifth largest manufacturer of terry towels (accounted for 79% of FY06 revenues). A wide product range, fully integrated capacities and the ability to offer value added products make the company a preferred supplier to major retailers in the EU and the US . Welspun also has marketing licences for the 'Nautica' and 'Tommy Hilfiger' brands and owns the 'Spaces' brand in India . The company's foray into bed linen is a step towards positioning itself as a single-point vendor in home textiles. It is a flagship company of the Welspun Group, with promoters holding a 34% stake. In Q1 ended June 2006, Welspun India bought 85% stake in CHT Holdings Limited, the holding company of UK 's leading towel brand Christy. Founded in 1851, Christy is the world's oldest towel manufacturer and is the UK 's leading towel brand with an annual turnover of £ 35 m (Rs 3 bn). It is UK 's leading producer of branded terry towels and bed linen products. The company supplies to a wide range of retailers in the UK and overseas and is the sole supplier to Wimbledon Tennis Championships.
The global home textile industry is estimated at US$ 70 bn with the US and the EU together accounting for US$ 30 bn. India is the second largest supplier of terry towels (16% market share) and third largest vendor of bed linen (13% market share) to the US. Although, India lost market share to Pakistan and China (post quotas) due to aggressive shipments at low prices, it continued to enjoy healthier realisations as compared to peers. Given Indian companies' focus on quality, increased share in value added products, strong relationships with global retailers and aggressive capacity expansion plans, India is expected to garner a better share of growth going forward.
In Q3 ended December 2006, WIL's revenues were up 65% at Rs. 255.4 cr. and PAT up 115% at Rs.15.92 cr.. WIL's reported mixed bag results for Q3FY07. While it reported a phenomenal 115% growth in net profits on the back of its capacity expansions, the operating margin was considerably lower YoY, on account of delay in ramping up of its bed linen production. Higher other income during the quarter also aided the strong profit growth. The customer and product mix continue to improve, with premium designer brands constituting 7.5% of the sales as compared to 6.6% during the full year FY06, leading to improved realisations. For the half year ended September 2006, WIL posted 61.6% rise in net sales to Rs 475.3 cr. and net profit increased 10% to Rs 25.8 cr.. WIL's Phase-II expansion at Anjar is on schedule and revenue contribution is expected in second quarter of FY08. WIL's retail initiative Spaces; now part of a subsidiary Welspun Retail is targeting a healthy 50% YoY growth for the full year. The company plans to consolidate the venture only after it attains the scale at which it can sustain itself. The revenue target set for the full year is Rs.40 cr. and the retail space targeted is 70,000 sq ft. With rising income levels and growing urbanisation, WIL has tried to capture the growing demand in the domestic market with its retail outlets. The company has set up 38 outlets, including 11 under its own 'Space's brand, 20 factory outlets and seven outlets under the Tommy Hilfiger brand (for which it has a marketing license)
WIL is in the last leg of its investment and going forward it will reap the benefits of the capex undertaken. The on-going capacity expansion, foray into new product lines and acquisition of stake in 'Christy' is yet to filter into its numbers. By 4QFY07, WIL's and Christy's distribution operations will get integrated. The inorganic initiative undertaken with the acquisition of Christy has been EPS accretive and WIL is open to any such venture in the future as well. This is a good strategy for the company as it is widening its product mix and moving towards becoming a complete Home textile company from a terry towel player. Having built global scale capacity base, WIL's strategy to become an integrated and focused home textile player with a retail presence in the export markets would drive its strong growth over the medium term. At the current price of Rs 74, the WIL stock is trading at a P/E of 9.2 times expected FY07 earnings(Rs 8) and at 7.6 times expected FY08 earnings (Rs 9.5-10). Keeping in mind the company's strong presence in the home textile industry, global markets and capacities (through Christy) and future growth prospects, Investors can accumulate the WIL stock at this level and add more on declines in the range of Rs 65- Rs 70 for a target of Rs 110-Rs 115 in the medium-long term. Equity-73.6 cr. (Promoters' stake- 37%)
Indoco Remedies Ltd(Rs 272)- Indoco Remedies(IRL), incorporated in 1947, is a Mumbai-based pharmaceutical company that focuses on formulations, with some presence in contract manufacturing and research. IRL has four divisions viz., Indoco, spade, warren and radius. Top three brands in Indoco's basket include Febrex Plus, Cyclopam and Vepan, and are amongst the top 250 brands in the country (7 brands are part of the top five categories of drugs). Indoco's product portfolio remains well diversified, with top 18 products accounting for about 65% of the total revenue. Most of the new product introductions have been in high priced super speciality lifestyle and cardiovascular segments. IRL's entry into the lifestyle segment with a strong presence in the prescription segment would augur well for the higher- than-average industry growth. IRL also trades some active pharma ingredients (APIs) manufactured by a group company. Currently, Indoco has a presence in the therapeutic segments including anti-infective, anti-cold preparation, opthalmic, anti-spasmodic, stomatology, anti-inflammatory and anti-fungal.
Indoco is ranked 34th as per AC Nielsen ORG-MARG Retail Audit, but ranked 23rd in terms of prescription generation, indicating the strength of its marketing network. Indoco had come out with an IPO in Dec. 2004 at Rs 245 per share to fund its Rs 83.23-cr. expansion. IRL manufacturers, markets & distributes Pharmaceutical products in the Domestic as well International Markets. Indoco has strong capabilities in Research & Development, Manufacturing and Allied functions. Its sprawling R&D center spread over an area of 70000 sq. ft. engages in synthetic chemistry research, API & Dosage development. The company acquired La Nova Chem's API manufacturing facility at Patalganga in July 2006 with USFDA approvable standards, as a 100 per cent subsidiary of Indoco, in a strategic step towards bulk drugs and drugs intermediates. Similarly, the company set up a formulations plant in Baddi and started a R&D center in Rabale in April 2006.
For the second quarter ended December 2006, IRL reported a 28% growth in net sales to Rs 79.42 cr. on a consolidated basis. PAT was up 24% to Rs 9.63 cr.. For the half-year ended December 2006, the net sales of the company were 32% higher at Rs 152.07 cr. on consolidated basis. The operating margins dipped by 90 basis points to 18.3% resulting in 26% growth in operating profits to Rs 27.82 cr.. Reduction in effective tax rate lead to 26% higher PAT at Rs 17.87 cr.. The R&D centre at Rabale has been fully operational during the quarter ended December 2006. The centre is working towards the development of non-infringing, eco-friendly process development for APIs (Active Pharmaceutical Ingredients) and is expected to file 2 DMFs by June 07 and additional 2 DMFs by December 07. The domestic formulations business registered a growth of 20% during the half year ended December 2006. The growth in turnover was mainly due to growth in Respiratory & Anti-Allergy, Anti-Infective and Alimentary segments. IRL's revenue from International business has grown by 84% for the half year ended December 2006. This can mainly be attributed to the sustained contract manufacturing operations to U.K and Germany . Regulated markets contributed 82% as against 69% for comparative period last year. The sterile ophthalmic manufacturing facility at Goa has been approved by US-FDA. The other plant at Goa , manufacturing tablets, capsules, creams & ointments has been approved by UK-MHRA & German Health Regulatory Authorities. During the quarter IRL has received formal approval from US-FDA for the first ANDA for its ophthalmic formulation.
Based on half yearly results. IRL's annualised EPS on a equity of 11.82 cr.(Promoters'stake- 58.9%) comes to Rs 30. At Rs 272, the IRL stock discounts this by a PE multiple of 9. Going forward, IRL has plans to increase its presence in the exports markets and is working on several products in collaboration with companies in UK . The basic strategy on this front will be to enter into long-term contracts for manufacturing formulations with international pharma companies. IRL is augmenting existing facilities as well as setting up new capacities for the same. The company is planning to file dossiers on its own behalf for the UK and the US markets. In view of the above developments, Investors can accumulate the IRL stock at this level and add more on declines in the range of Rs 240- Rs 260 for a target of Rs 380-Rs 400 in the medium-long term.
Disclaimer- The above report has been prepared solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments. 160407
SOME ATTRACTIVE BUYS
HITACHI HOME(Rs 83), SHRINGAR CIN(Rs 52) & GOLDIAM INTL(Rs 111)
AGROTECH FDS(Rs 85), KOHINOOR FDS(Rs 69) & NAVNEET PUB(Rs 53)
REPRO(Rs 98), MATRIX LABS(Rs 180), JB CHEM(Rs 81) & INDRA. GAS(Rs 97)
DIC IND (Rs 175), RAYMOND(Rs 334),CRANES SOF.(Rs 100) & PIRAMYD RETAIL (Rs 64)
ARCHIES (Rs 132), TIMKEN(Rs 119), RANE MADRAS (Rs 103) & INTL TRAV.(Rs 162)
Prices as on Friday, April 13, 2007. All the above stocks are meant for Investors with a medium-long term horizon. For more information on above stocks and for more stock picks in other sectors, kindly refer previous issues of 'Market View'. As usual Investors are advised to buy the stocks gradually on declines.
Regards
BigGains !!
BigGains !!
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch format to Traditional
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe
SPONSORED LINKS
.
__,_._,___
No comments:
Post a Comment