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T
I
M
E
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A TIME COMMUNICATIONS PUBLICATION
VOL. XVI No. 39 Monday, August 13 - 19, 2007
Pages 17
Volatility to continue
on regular bouts of short covering
By Sanjay R. Bhatia
Global meltdown continues to haunt the Indian markets. Even though the Indian markets had shown signs of recovery on
the back positive of global cues, the recovery was shortlived as the US subprime mortgage continued to take its toll
globally. The markets witnessed intermediate bouts of volatility and choppiness during the course of the week.
Traders and speculators were seen active in index heavyweights, banking, capital goods, FMCG, realty, telecom and IT
stocks. Incidentally, FIIs remained net sellers in the cash segment but were
net buyers in the derivatives segment. However, domestic institutional
investors remained net buyers using lower levels for value based buying.
The US sub prime problem is taking its toll globally across all asset
classes. Bullion and crude oil prices have also started taking a beating. The
sell-off could be severe post 15
th
August when the hedge funds receive
redemption requests. If large numbers of redemption requests are received
we could have liquidity problems. The Yen factor is also raising its head.
Any fall in the Yen below the 117-116 levels could again bring about the
Yen Carry Trade crisis and liquidity problems especially in the emerging
markets.
So far, the domestic markets have risen mainly on the back of short covering. Global cues would continue to impact the
market. The sentiment continues to remain nervous and tentative especially at higher levels. Any sell-off on global
bourses will only make things worse and would have a trickle down effect on all asset classes while problems like the Yen
carry trade and margin pressures would add to the woes of the market. This would, in turn, affect emerging markets, as
hedge funds would start booking profits in such markets where they are still making profits.
Technically, as we had indicated, the markets failed to witness a sustainable rally. Regular bouts of short covering would
be witnessed as futures trade at a discount. The markets would remain volatile and choppy in the truncated trading week.
Fresh long positions should be avoided till the situation stabilizes. The Sensex has support at the 14538 followed by the
14000 level. On the upside, the Sensex faces resistance at the 14900 and 15450 levels. The 4187 level followed by the
4100 are important support levels for the Nifty, while it faces resistance at the 4387 and 4560 level.
Investors should stay away.
Guru mantras to tame volatility
By Fakhri H. Sabuwala
If the stock exchange were to be a temple and its gurus the pundits or poojaris, then the creation of wealth would not be a
daunting task. How could it be when guru mantras for the safe traverse are available and to be followed not only in
making money but also in taming the wild volatility? If you think arithmetic and statistics is all it deals with, you are sadly
mistaken. Most guru mantras are plain and simple common sense and an exercise in regulating one's behaviour and the
control of one's nerves. Fundamentals alone do not underwrite success here…it takes a lot more to do that.
When volatility is at its peak and the smart rise and sharp falls are so frequent, then an investor needs much more than
prayers for a smooth ride in these torrid, turbulent times. Some of the investment mantras propagated and exercised by
1
successful fund managers and investment gurus come in very handy for a smoother navigation. Lets ponder over them and
try taming the volatility.
"Be fearful when others are greedy and be greedy only when others are fearful". Who else but the prophet of boom,
Warren Buffet could come up with this panacea of all investment ills. So well said so easy to read and yet so difficult to
practise. These words come not only as a great consolation on days of big falls but also come handy to avoid bug ticket
purchases in euphoric times.
It is a common experience that no soul would advise you to buy when there is blood on the street. These words pasted on
your mirror may glare at you and compel you to be a contrarian, gather courage and see the silver lining in the dark
clouds. Once again, it is these words, which will not let you buy on days when greed is at its zenith. Either way, a prudent
exercise!
Peter Lynch, another successful fund manager of yesteryears is very candid when he says, "stop listening to professionals!
Twenty years in this business convinces me that any normal person using the customary three per cent of his brain can
pick stocks, just as well, if not better, than the average Wall Street expert". Volatility is an outcome of herd mentality and
there are three reasons to ignore the masses or popular beliefs or the operator. Ignore the operator for he might be wrong.
Even if he is right, you will never know when he's changed his mind about a stock and sold. Last but not the least, you've
got better sources and they are all around you. What makes them better is that you can keep tabs on them, just as an
operator keeps a tab on his sources.
In case you don't agree with Peter Lynch, so far, look what more he has to say in his book on Wall Street. "What stock
market? The market ought to be irrelevant. If I could convince you of this one thing, I'd feel this book has done its job.
And if you don't believe me, believe Warren Buffet". "As far as I am concerned", writes Warren Buffet " the stock market
does not exist. It is there only as a reference to see if anybody is offering anything foolish".
Parag Parikh, a seasoned investor and analyst apart from being a member of BSE says, "Equanimity, not genius, leads to
riches". Market is a difficult place to be and a place where enchanted play is more important than anything else. Let the
market ups and downs not carry you over. Do not get sentimental about the market. Be a successful investor as there is no
one called genius at the markets. You may be right at a particular point but you just cannot be right at all times in every
aspect.
Let volatility not get the better of you and let not the investment gurus, pundits or analysts misguide you for they have the
most secure job in the world. This is because we always need someone to come up with an excuse as to why an event
happened. Don't we know the laws of ups and downs? A bull phase is always followed by a bear phase.
In case even all this does not convince you, look what Rakesh Jhunjhunwala believes in. Women and stocks are his
passion. Both are volatile and each one's volatility makes him understand the other better. That's wishful thinking and
thanking too!
2
Sensex favours bears
TRADING ON TECHNICALS
By Hitendra Vasudeo
In the last weekly review, we had mentioned that Bulls and
Bears lay traps for each other. The volatile moves of last week
was the proof of it. The reason for the rise and falls witnessed
last week can be anything but it all got triggered when the
Sensex opened down with a gap of 293 points and went to lose
544 points on Friday, 27
th
July 2007. Subsequently, the Sensex
was not able to cross the gap till date.
Attempts to test the gap of 15776-15487 were made but it
failed to cross and close above it. On 31
st
July, the Sensex
recovered to attain a high of 15568. That only reduced the gap
and the net effective gap now is 15568-15776. On 9
th
August 2007 another strong recovery was witnessed when it attained
a high of 15542 but crashed down to close at 15001 showing a loss of 207 points. One again, the Sensex opened down
with a gap from15100 to 14674 on Friday, 10
th
August 2007 but recovered marginally to keep the net effective new gap at
14901-15100. The Sensex now has two major gaps that act as hurdles.
The Sensex high of 15868 can be called as the intermediate top for the time being and the lower top is placed at 15542. At
this point, one thing is clear: till the Sensex top of 15868 is not crossed, the entire rise will lead to a bull trap and will
make potential lower tops unless a confirmation of the correction completion is witnessed.
Following was the strategy for last week mentioned in our last weekly update: "Exit long positions or sell at 15268-
15383-15497. Re-enter long positions on rise and close above 15868. Re-enter long positions in index based stocks that
make new highs only. First priority is to reduce long positions and then think to re-enter. Traders who are willing to take
risk can sell at the current level and on rally to 15565 with a stop loss of 15868 to cover short positions at 14833-14724-
14513." High/Low registered last week was 15542/14570. The week finally closed at 14868. Investors who have managed
to exit long positions/or book profit must have been pleased, as the forecast was bang on target benefiting the investors.
Traders who were able to short at the
indicated levels to the point of 15565, against which the Sensex made 15542 to crash to a low of 14868, have benefited
significantly. The reasons for the fall can be anything that lead to it but the indications and strategy was well outlined by
us in advance.
Last week, the Sensex
opened at 14892.68, moved up to a high of 15542.4 and crashed down to a low of 14570.89 to close the week at 14868.25
and thereby showed a net fall of 259 points on a week-to-week basis.
The weekly trend is down and can turn up on rise above 15568 and if the weekly close is above 15201.
Weekly resistance will be at 15160-15295-15565-15683-15868. Weekly support will be at 14724-14500. On fall and close
below 14500, expect a further slide to 14096-13673.
Review of the Elliot Wave Count to get the broad market picture:
First Count:
Wave 1- 2594 to 3758;
Wave 2- 3758 to 2828;
Wave 3-2828 to 12671;
Internals of Wave 3
Wave i- 2904 to 3416
Wave ii- 3416 to 2904
Wave iii- 2904 to 6249
Wave iv- 6249 to 4227
WEEKLY UP TREND STOCKS
Wave v- 4227 to 12671
Wave 4
Wave a -12671 to 8799
Wave b-8799 to 14723
Wave c-14723 to 12316
Wave 5- 12316 to 15868
Internals of Wave 5
Wave 1- 12316 to 13386
Wave 2- 13386 to 12425
Wave 3- 12425 to 14384
Wave 4-
Wav a- 14384 to 13554
Wave b- 13554 to 14683
Wave c- 14683 to 13946
3
Wave 5- 13946 to 15868
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
G.E.SHIPPING
335.45 292.5
322.7
340.0
352.8
383.0
64.4
333.1
10-08-07
FEDERAL BANK
331.20 251.1
307.1
339.1
363.1
419.1
63.1
338.4
15-06-07
EXIDE INDUSTRIES
55.15 44.2
51.6
55.5
59.1
66.5
62.4
55.3
29-06-07
TATA POWER CO.
686.00 598.3
659.3
693.7
720.3
781.3
61.8
688.0
22-06-07
IDBI
116.15 84.8
105.3
114.9
125.8
146.3
61.3
110.9
10-08-07
Internal Structures would
change if the Sensex
crosses the top.
WEEKLY DOWN TREND STOCKS
Corrective
Wave
Structure
Wave A -15868 to
147505
Internal structure
Wave a-15868 to 15572
Wave b-15572 to 15812
Wave c-15812 to 15135
Wave x-15135 to 15568
Wave a-15568 to 14896
Wave b-14896 to 15235
Wave c-15235 to 14705
Wave B- 14705 to 15542
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
CIPLA
184.75
171.6
180.8
186.1
190.0
199.2
20.87
190.32
20-07-07
BHARAT FORGE
273.60
242.8
263.8
274.9
284.7
305.7
23.48
283.69
20-07-07
WIPRO
480.25
431.8
461.8
473.4
491.8
521.8
28.02
487.25
15-06-07
VIDEOCON INDS
365.45
331.6
355.6
369.8
379.6
403.6
28.31
379.16
15-06-07
HMT
63.40
57.0
61.5
64.0
65.9
70.4
29.12
65.95
27-07-07
Wave C -15542 to
14570 (the current
move)
PUNTER'S PICKS
The internal structure
and corrective phase
could change depending
on
the
movement.
Further counts will be
indicated as the market
progresses.
The overall conclusion
at this point is that we
have completed one
Note: Positional trade and exit at stop loss or target which ever is earlier. Not an intra-day trade. A delivery based
trade for a possible time frame of 1-7 trading days. Exit at first target or above.
Scrips
BSE
CODE
Last
Close
Buy Price
Buy On
Rise
Stop Loss Target 1 Target 2
Risk
Reward
ALFA TRANSFORMERS
517546
62.40
60.10
65.50
56.50
71.1
80.1
1.47
AMBALAL SARABHAI ENT
500009
24.55
24.45
25.65
22.25
27.8
31.2
1.39
KRISHNA LIFESTYLE TE
514221
2.12
2.08
2.16
1.92
2.3
2.6
0.94
LLOYDS METALS & ENGG
512455
72.25
69.80
73.25
65.45
78.1
85.9
0.86
MAARS SOFTWARE INTNL
531528
4.16
4.01
4.35
3.56
4.8
5.6
1.13
SKY INDUSTRIES
526479 103.75
98.65
105.50
95.10
111.9
122.3
0.95
major leg of bull phase
and we could be in a
correction/consolidation
phase in order to
prepare for the new leg
of the bull phase. It can
happen that in the
correction
and
consolidation phase, we
could exceed the top but
only to surrender the
gains. It all depends on
what kind of corrective
pattern develops. At this
point, it is not the Zig
Zag pattern and we can
develop a Flat or
Double/Triple Zig Zag. If it's Flat, then we can exceed the top for some time to surrender all the gains. If it's
Double/Triple Zig Zag then the bulls will be in trouble.
EXIT LIST
Scrip
Last Close Sell Price Sell Price Sell Price Stop loss Target 1 Target 2 Monthly RS
PRAJ INDUSTRIES
189.00
193.99
198.00
202.01
215.00
160.0
126.0
38.09
MAHARASHTRA SEAMLESS 575.45
579.60
588.08
596.55
624.00
507.8
435.9
39.08
GLENMARK PHARMACEUTI
631.00
644.83
652.50
660.17
685.00
579.8
514.8
42.88
GODREJ INDUSTRIES
185.85
194.17
197.57
200.98
212.00
165.3
136.5
44.65
MICO (MOTOR IND.CO.)
4202.00 4250.33 4287.50 4324.67 4445.00
3935.3
3620.3
45.97
SKF INDIA
402.60
425.95
435.12
444.30
474.00
348.2
270.5
46.53
STERLITE INDUSTRIES
592.90
600.98
609.00
617.02
643.00
533.0
465.0
46.87
UTI BANK
590.05
600.55
607.97
615.40
639.45
537.6
474.7
48.37
CESC
449.10
450.34
456.00
461.66
480.00
402.3
354.3
49.51
ZEE ENTERTAINMENT
304.95
311.08
314.50
317.92
329.00
282.1
253.1
50.02
NDTV (NEW DELHI TELV
353.65
361.11
367.00
372.89
391.95
311.2
261.3
52.13
MOSER-BAER INDIA
279.70
284.98
289.42
293.87
308.25
247.3
209.7
52.16
BANK OF INDIA
240.30
243.28
246.45
249.62
259.90
216.4
189.5
52.25
JINDAL SAW
627.00
646.62
657.00
667.38
701.00
558.6
470.6
53.18
JSW STEEL
628.00
653.48
670.00
686.52
740.00
513.5
373.5
53.9
Strategy for the week
Exit long positions at 15160-15295-15565. Re-enter long positions on rise and close above 15683. Re-enter long positions
in index based stocks that make new highs only. First priority is to reduce long positions and then think to re-enter.
Traders who are willing to take risk can sell at the current level and on rally to 15295-15565 with a stop loss of 15683 to
cover short positions at 14500-14096-13673.
* Grauer and Weil, a Tower Talk pick, at Rs.80 levels has been standing tall even in a falling market. Investors may add
at current levels for good appreciation.
TOWER TALK
* PBM Polytex, a textile company, has been lying low despite good results and wind energy expansion plans. The stock
is a value buy.
* Indsil Electrosmelts has found favour with discerning investors and the stock is steadily moving up as monsoon rains
pound Kerala. Good results are expected in the second quarter.
* Asian Oilfield Services is being accumulated by market players on expectations of good results. On an expected EPS of
Rs.10 for FY08, the stock has good potential given the high valuations in the oil services sector.
* The great Indian bull run is not over. So just be with the volatile times, which are labour pangs for an angelic delivery.
* Pension fund reforms will be initiated in the next budget. This shall open new vistas of inflows to mutual funds that are
into conservative investment pratices.
* India is still in the nascent stage of its growth cycle and has a long road ahead. This is no tower talk, it is talk from the
tower's top. Believe in it and make money.
* Subprime lending and mortgages may face miscarriages, it may bust a lot may hedge funds, banks etc. FII inflows may
cool off but can all this reverse India's growth? Its large population, rising income and higher spending underwrites and
insures against the negatives.
4
* IFCI could be a multi-bagger after the arrival of a strategic investor. Can you predict what it will quote five years hence
with Barclays holding its reins?
* Petronet LNG is a scrip heading for the three digit mark. Switch your Arvind Mill and Alok Textiles to it.
* Tourism and Finance Corporation Ltd. is being eyed by a lot of Indian funds and FIIs. Insiders believe the scrip can
double from these levels.
* Switch your ICICI Bank and HDFC Bank to Kotak Bank, Yes Bank and a handful of PSU banks as the appreciation
here could be greater.
* Himachal Futuristic may have come down to Rs.17 but the company remains on its high growth path. Treat the current
fall as an opportunity to invest.
* BHEL's overflowing order book and rising share price could well take it to Rs.2500 when the government may just
think of splitting it into Re.1 face value.
* Once its SEZ hassles are over, it is only a matter time before till Reliance Industries splits the face value of its Rs.10
paid-up share.
* Some positive news is expected from Silverline this week. Punters are betting for a short-term target of Rs.20. Keep a
close watch.
* As per marketmen, IDBI can also shoot up like IFCI. It has hidden value, which may unfold in coming days.
* A Mumbai based operator is again active in Shivalik Global. Scrip may hit a few circuits.
* A leading Fund Manager is bullish on Escorts Ltd. Scrip is tipped to rally 10-15% in the near future.
* Honda Siel Power is a pure investment grade share. Long-term target is Rs.350/375.
* IFB Agro is going cheap considering its target of Rs.120/125.
* Menon Bearings has strong support level around Rs.59 and has broken out of its resistance level with volumes. Buy
with stop loss of Rs.67 for an upper target of Rs.83.
Indag Rubber Ltd. (Code: 509162)
Rs.40.60
BEST BETS
Established in 1978, Indag Rubber Ltd. (IRL) was formed as a joint venture company between the Khemka group and
Bandag Inc. of USA for the manufacture and marketing of pre-cured retreads. Today, it is a reputed player in tyre
retreading business and operates through franchisees offering technology, specialized equipment, retreading material,
technical back up etc to the franchisees. It also sets up captive retreading plants for various state road transport
corporations. Retreading is basically a process of bonding a new flap of pre-vulcanized rubber in place of the worn-out
flap, which increases the life of the tyre. Retreading can be done either through the conventional hot process or the new
advanced precured cold process. Cold process has various advantages like improving the fuel efficiency and increased
tyre life together with better performance in comparison to the hot process. IRL is among the very few offering the
'genuine' cold process precured retreads in India.
IRL has a state-of-the-art manufacturing unit at Bhiwadi, Rajasthan, to produce precured tread rubber along with allied
items like rubber cement, cushion gum, extrusion gum, envelopes, other accessories and specialized equipment for
retreading. To increase its market share, it has set up a new plant in Nalagarh, Himachal Pradesh last year. IRL supplies
the precured treads regularly to over 100 franchisee outlets, which eventually carry out the retreading operations. The
company is concentrating on utilizing the full potential of the existing franchisees and is setting up new franchisees in
unrepresented areas so as to have a larger and more efficient network. It also has a training centre to impart high quality
on-the-job training to its licensed customers. As there are very few organized players in this business, IRL enjoys a good
branding and a dominant position especially in northern India. Last year, the joint venture between the Indian promoters
and the US promoter was mutually terminated. Accordingly, the Khemkas acquired the foreign stake thereby taking their
total holding to 81%.
Retreading as a business finds greater acceptance. Apart from being a cost saving concept, it is also environment friendly
as it prevents millions of tyres from getting into landfills and tyre piles. However in India there is a possibility of
retreading getting bad name, as there is mushrooming growth of parties not conforming to any standards both in the
manufacture of tread rubber as well as in retreading. Since, the growth of the retreading industry is directly linked to the
growth of road transport, IRL has a huge potential to grow. Financially, the company has made a smart turnaround in
FY07 with sales shooting up by 60% to Rs.61 cr. and registering a profit of Rs.4.20 cr. inclusive of extraordinary income
against a net loss of Rs.0.40 cr. in FY06. For the latest June'07 quarter, sales increased by 25% to Rs.17 cr. but net profit
shot up 185% to Rs.1.75 cr. registering an EPS of Rs.3.30 for the quarter. Importantly, it recorded a very healthy OPM of
15% for the quarter. Accordingly for FY08, it is expected to clock a turnover of Rs.70 cr. with PAT of Rs.5 cr. i.e. an EPS
of Rs.10 on its equity of Rs.5.25 cr. Investors are recommended to buy at the current level as the share price can
appreciate 50% in a year's time.
5
Orient Paper & Industries Ltd. (Code: 502420)
Rs.430.55
Incorporated in 1936, Orient Paper & Industries Ltd (OPIL), the flagship company of the renowned CK Birla Group, is a
diversified company with interest in paper, cement and electric fans.
Cement Division:- OPIL's main cement plant is located at Devapur, Andhra Pradesh, and a split grinding unit is in
Jalgaon, Maharashtra, leveraging the proximity to limestone, coal and fly ash sources on the one hand and the fast-
growing markets of Maharashtra, Andhra Pradesh and Gujarat on the other. With total installed capacity of 2.40 million
tonnes, it manufactures and markets portland pozzolana cement under the brand 'Birla A1' and ordinary portland cement
under the brand name of 'Orient Gold'. Although cement contributes 55% to its total revenue, 90% of the company's profit
comes from this division only. Hence to take advantage of the market growth and success of its brands and distribution
network, it is implementing aggressive expansion plan to double the cement capacity from 2.4 million to 5 million TPA. It
is also setting up a 50 MW captive power plant at Devapur to achieve further economy in the cost of energy consumed.
These projects are scheduled to be completed before end of FY09 with 1 million TPA additional capacity becoming
operational before March 2008. Moreover, the cement division has already received 96,310 units of CERs for activities
undertaken up to 31st March 2006 and will be entitled to further CERs each year until 2012 based upon its performance
under the CDM project.
Paper Division:- OPIL manufactures a wide range of writing and printing paper, specially photocopying and office paper,
apart from having a dominant market share in tissue paper segment. Its paper mill is located at Amlai in M.P having an
installed capacity of 95,000 TPA. To provide sustainability in raw material availability, the company has been
undertaking farm-forestry programmes across 18 proximate districts of Madhya Pradesh and Chhattisgarh. It is also
expected to cover over 160 hectares during the planting season of 2007 under captive plantation. For this division, the
company is enhancing its pulping capacity along with setting up of additional tissue paper capacity of 20,000 tonnes to be
operational by FY09. The paper division contributes around 25% to total sales. Incidentally, its second plant in Orissa at
Brajrajnagar is non-operational since 1999 and the company is looking to dispose it off. As per unconfirmed news, the
plant area is 880 acres and is expected to fetch more than Rs.150 cr.
Electrical Appliances:- OPIL is India's largest manufacturer of electric fans in terms of in-house manufacturing capacity
with its two plants at Kolkata and Faridabad having an installed capacity of 30 lakh fans per year. It offers the entire
product range including fans, portable fans and exhaust fans - across price points, colours and designs with its 'Orient
PSPO' brand as one of the most visible and respected names. Last fiscal, it launched 7 new products including a new
children's segment fan under the name 'Fantoosh'. Having global presence across 20 nations such as USA, Egypt, South
Africa, Saudi Arabia etc. The company enjoys the status of being the largest fan exporter with a brand share of 44.5% of
total exports from India. Although 20% revenue comes from this division, it hardly contributes to the bottomline due to
cutthroat competition and low margin. Still, the company is adding balancing facilities to increase the fan manufacturing
capacity to 35 lakh fans per year.
To fund its expansion plan, the company is raising around Rs.160 cr. via a rights issue in the ratio of 3:10 at Rs.360 per
share. The scrip has already become ex-right with equity getting diluted by 30% to Rs.19.30 cr. For FY07, it recorded
30% growth in topline to Rs.1102 cr. but its net profit multiplied 6 times to Rs.131 cr. on the back of higher cement price
realization and better operating efficiency. Hence it reported an EPS of Rs.88 and gave Rs.10 as dividend. Importantly,
the company has brought down its total debt to Rs.325 cr. against Rs.435 cr. last year. For the latest June'07 quarter, its
sales grew by 13% to Rs.293 cr. but PAT shot up by 75% to Rs.44.50 cr. registering an EPS of Rs.30 on its equity of
Rs.14.84 cr. With cement price expected to remain robust for a couple of years and considering the company's expansion
plan, it may end FY08 with sales of Rs.1250 cr. and PAT of Rs.165 cr. i.e. EPS of Rs.86 on its expanded equity of
Rs.19.29 cr. Investors are recommended to accumulate at dips with a price target of Rs.575 (35% appreciation) in 9-12
months.
Phillips Carbon Black Ltd. records sharp improvement
ANALYSIS
By Devdas Mogili
Philips Carbon Black Ltd. (PCBL) is a 47 year old Kolkata based company belonging to the RPG (RP Goenka) Group
incorporated on 30
th
March 1960. The company is a leading manufacturer of various grades of Carbon Black in India. It
has technical collaboration with Columbian Chemical Corporation of USA, a leading international producer of rubber
blacks. Its manufacturing facility is located in Durgapur, West Bengal. Sanjiv Goenka is the chairman while Ashok Goyal
is the managing director of the company.
The company's present installed capacity is 270,000 MTPA. It is not only the largest exporter of Carbon Black from India
but also one of the largest in Asia in this field. Carbon Black is broadly classified into two categories viz. Hard Black
6
(Tread Black) and Soft Black (Carcass Black). Hard Black is generally used in applications demanding high abrasion
resistance while Soft Black is used for applications demanding high modulus. PCBL enjoys the highest share of the Indian
Carbon Black market
PCBL is the largest manufacturer and supplier of Carbon Black in the country catering to the needs of elastomer, plastic,
paints and ink manufacturing industries. Carbon Black is the main raw material in the production of automotive tyres is
produced using Carbon Black feedstock (CBFS) and tar oil. PCBL is the first Carbon Black company in the world to
receive carbon credits.
The rubber industry uses 95% of the Carbon Black production while the rest is consumed by plastics, paints and dry cells.
PCBL is a regular supplier to all the major tyre manufacturers and has a market share of around 40% and continues to be
the undisputed leader in India.
Expansion Plans: PCBL has embarked upon a greenfield project at Mundra, Gujarat, and a brownfield project at Kochi,
Kerala. At Mundra, the expected annual capacity of Carbon Black and power generation will be 75,000 MTPA and 14
MW respectively whereas at Kochi, it will be 50,000 MTPA and 12 MW.
Power: The company has taken advantage of the newly introduced Electricity Act of 2003 to set up a 12 MW co-
generation power plant at Baroda using waste gas. After meeting the internal demand for production of carbon black, the
surplus power of around 7 – 7.5 MW was sold to GEB Grid from FY06.
Encouraged by the success of the Baroda co-generation power plant, the company is setting up a 30 MW co-generation
power plant at its Durgapur plant utilizing waste gas for generation of power. The internal consumption would be around
6 MW and the surplus power would be sold to interested consumers.
Joint Venture: PCBL plans to enter into a joint venture (JV) with Vietnam National Chemical Corporation (Vinachem)
in September 2007 to set up a $45 million and 50,000 TPA Carbon Black facility there. It proposes to hold 80% stake in
the JV through a special purpose vehicle (SPV) while Vinachem is likely to pick up 20% stake.
The expansion of Carbon Black capacity at Mundra and Kochi will also result into an increase in power generation
capacity by 26 MW. Post expansion, the total generation capacity will be 74.50 MW.
Performance: PCBL has been reporting a chequered performance during the last few years. In fact, the company was in
the red during 2005-06. However, it made a smart turnaround during 2006-07 and posted a net profit of Rs.23.54 cr.
netting an EPS of Rs.11.75 for the year.
Financial Highlights:
(Rs. in lakh)
Latest Results: During Q1FY08,
PCBL reported revenues of Rs.266 cr.
showing a jump in PAT to Rs.22 cr.
from Rs. 14 lakh in the Q1FY07. The
basic EPS works out to Rs.6.68 while
the annualized EPS is very attractive
at Rs.34.72. Currency gains alone
contributed Rs.7.57 cr. towards the
bottomline.
7
Financials: The company has an
equity base of Rs.25.25 cr. with a
book value of Rs.63.89.
Share Profile: PCBL's share with a
face value of Rs.10 is listed and
traded on the BSE under the B1
segment. The share touched a 52-
week high of Rs.194 and a low of
Rs.46. At its current market price of
Rs.158, it has a market capitalization of Rs.403 cr.
Particulars
QE 30/06/07
QE 30/06/06
YE 31/03/07
Net Sales/Income from operat
26566
25601
112331
Other Income
44
19
409
Total Expenditure
a. Inc/Dec in Stock
(31)
364
599
b. Raw Material
14051
15634
67262
c. Staff Cost
878
583
2508
d. Selling Expenses
3612
1420
9925
e. Excise Duty
3085
2891
12469
f. Other Expenditure
1532
3312
10226
Interest (Net)
474
839
3260
Depreciation
505
509
2036
Profit before tax
2504
68
4455
Provision for taxation
Current tax
449
8
525
Deferred tax charge (Release)
(155)
28
1502
FBT
17
18
74
Net Profit
2193
14
2354
Paid up equity share capital
2525
1775
2525
Reserves
13608
Basic EPS (Rs)
8.68
0.08
11.75
Diluted EPS (Rs)
8.68
0.08
11.47
Dividends: The company has been paying dividends as shown below. It skipped dividend in FY06 owing to lacklustre
performance. However, following good performance in FY07, the company declared a dividend of 20%.
September 2002 - 15%, September 2003 - 25%, March 2005 - 10%, March 2006 – 0, March 2007 - 20%.
Shareholding Pattern: As on 30
th
June 2007, the promoters stake was 51.17% while 49.83% was held by non-corporate
promoters, public and others. Recently, seeing the smart turnaround in PCBL's performance, several mutual funds like
ABN Amro, PRU ICICI, Magnum, Taurus and Sundaram have been adding the company's scrip to their various schemes.
Prospects: The Asia/Pacific region of the world accounts for nearly 4.50 million tonnes out of 10.10 million tonnes of
global capacity of Carbon Black. It is also the fastest growing region with an expected growth of 4.35% versus the global
demand growth of 3.15% during the next 4 years. India, with a capacity of 0.59 million tonnes is the third largest producer
in Asia, after China and Japan.
Domestic demand grew by 7.5% during the year. The domestic industry is globally competitive as most of the capacity is
modern and product quality matches international standards. The capacity utilization being over 90%, domestic players
including PCBL have embarked upon capacity expansion to meet the growing demand in the domestic as well as export
markets.
Growth Drivers: The domestic automobile industry is growing at a significant pace, which should translate into higher
demand for Carbon Black. The current thrust on road infrastructure will further increase the demand for tyres and
consequently for Carbon Black. Further, the likely emergence of India as an auto sector hub for smaller cars will have a
favourable impact on demand for Carbon Black. Finally, the company can convert lean gases (which are currently flared)
to generate electricity and boost profitability.
Another emerging growth driver is the shift of Carbon Black manufacturing facilities from developed nations to Asia-
Pacific and Latin America. The company has taken various measures to improve yield, increase production and optimise
logistics costs, the impact of which will be reflected during 2007-08.
Further, during the current quarter, the company is likely to raise the price of carbon black. Very recently, Dunlop has
settled old dues to the tune of Rs.2.25 cr., which will have a positive effect on the topline and bottomline for the July-
September 2007 quarter.
Conclusion: The company's vision is to become a global player manufacturing 4,50,000 MT of Carbon Black by 2008.
And in view of its smart turnaround, the stock is on the radar of several mutual funds.
At its current market price of Rs.158, the share price is discounted less than 5 times its estimated earnings against the
industry average P/E multiple of 18. Exposures to this scrip may be contemplated with a medium to long-term
perspective.
The Sensex witnesses heavy resistance around 15K
MARKET REVIEW
By Ashok D. Singh
The Sensex lost 270.15 points or 1.78% to settle at 14,868.25 for the week ended 10 August 2007. The NSE Nifty lost
68.20 points or 1.5% to settle at 4,333.35 for the week. Global markets dictated the trend on Indian bourses last week. The
domestic markets rose when equities rose globally and vice-versa. Global bourses witnessed alternate bouts of buying and
selling caused by risk aversion or risk appetite, which in turn was driven by concerns about US subprime mortgage woes.
BSE Small-Cap index outperformed the market gaining 12.59 points or 0.16% to settle at 7,904.13 in the week. BSE Mid-
Cap index lost 97.62 points or 1.48% to settled at 6,507.62 in the week.
Weakness in Asian stocks pulled the Sensex down 235 points on Monday, 6 August 2007. Nevertheless, it came sharply
off the lower level from an intra-day 433 points fall. Asian stock markets slumped after downbeat US economic data,
including the influential non-farm payrolls report, adding to fears of the US subprime mortgage crisis. The market
recovered the next day amid mixed Asian markets. However, it came off at a higher level and the Sensex rose 30 points. It
had risen as much as 239 points at one point of time during the day.
The market surged on Wednesday, 8 August 2007, tracking rally across global markets. IT stocks led the rally as the rupee
eased against the US dollar after the government on Tuesday, 7 August 2007, tightened overseas borrowing norms in a bid
to check the rupee's rise. Stocks rose across the globe after the US Federal Reserve's positive outlook for the US economy
helped soothe concerns about a global credit squeeze arising from US subprime mortgage woes. The market lost ground
on Thursday, 9 August 2007, in what was a complete reversal of trend during the day. Holding firm till afternoon trade,
the market lost ground later following weak opening of European markets. The Sensex lost 208 points. European shares
slipped as BNP Paribas suspended redemptions from three funds citing problems in US subprime mortgages. The news
came just at a time when worries about global credit problems arising from US subprime mortgatge woes appeared to be
easing. The market lost further ground the next day as markets fell across the globe. The Sensex lost 232 points on Friday,
10 August 2007. Yet, it made a strong rebound from an intra-day 529 points fall.
BSE decided to transfer a total of 32 stocks to trade-to-trade segment to be effective from Friday, 10 August 2007. The
stocks transferred to trade-to-trade segment include Adarsh Derivatives, BCC Fuba India, Bihar Sponge Iron, Garware
Polyesters, Ras Propack Lamipack and Tanu Health Care, among others.
A SEBI committee on launch of dedicated infrastructure funds (DIFs) has suggested that the proposed DIFs should
operate as a closed-ended scheme with a maturity period of seven years. The committee has also suggested listing options
for DIFs to provide liquidity to investors in the fund.
8
The committee, which submitted its report on Monday, 6 August 2007, also suggested that retail investors investing in
DIFs be given tax incentives. The committee has, however, added that such tax benefits should be available only to the
original investors.
The Sensex lost 270.15 points to close at 14,868.25 last week. Market posted third straight weekly loss for the week. If
this is any indication of future trend, then the Nifty August 2007 futures continue to trade at discount as compared to spot
closing. On Friday, 10 August 2007 it settled at 4303, a discount of 30.35 points as compared to spot closing of 4,333.35.
FIIs who are considered key drivers of the recent rally, have turned sellers as they sold net equity worth Rs.1492.70 for
this month, till 9 August 2007. Crude oil prices have been hovering around the $70 a barrel amid concerns over the US
economy. Any sharp rise in oil price may dampen the sentiment further.
9
Markest is bullish
MARKET
but short-term volatility continues
By G. S. Roongta
The stock markets have been extremely volatile amid global cues both bull and bear operators intensified their operations
taking advantage of global developments that best suited them.
The market opened weak last week on Monday, 6
th
August 2007 followed by heavy fluctuation leading to a fall of 235
points on the BSE Sensex piercing the Sensex 15,000 level to close at 14,903.03. With this fall the market sentiment
turned weak as analysts focused their attention to popular business channels propagating that the market sentiment might
melt further citing the weak US economy and the ballooning crude oil prices.
But the market surprised everyone when it suddenly bounced back on Wednesday, 8
th
August 2007 as the Sensex zoomed
as high as 15,340.24 recording an intra-day gain of over 400 points before it closed the day at 15,307.98
with a final gain of 375.21 points.
The reason attributed for this overnight recovery was the Rupee depreciation vis-Ã -vis the US Dollar with
the government tightening external commercial borrowing (ECB) norms. This led to a sharp recovery in
IT stocks, which had been on the decline ever since the Indian Rupee registered an appreciation against
the US Dollar. The curbs on ECBs also had a salutary effect on banking stocks in the realization that
corporates will now be forced to borrow from banks and this would help release the large liquidity locked
up in the banking system. Corporates, of late, had begun to find ECBs an attractive proposition leaving
the banking system idle with huge funds. This anomaly will now be rectified as Indian corporates once again source loans
from domestic banks. This, in turn, will lead to better utilization of bank funds and improve the profitability of banks.
Accordingly, the BSE Bankex gained 1.86% at 806.32 with ICICI Bank, HDFC Bank, State Bank, Bank of Baroda etc.
zooming to new peaks. HDFC hit a new high of Rs.1172 while SBI touched a high of Rs.1705.
G.S. Roongta
With the flow of dollars cut down by the new ECB norms, the US Dollar appreciated against the Indian Rupee, which in
turn flared up the IT stocks with Infosys gaining nearly Rs.100 followed by other shares spread over the IT spectrum.
The sharp fall on Thursday, 9
th
August 2007 by 207 points after a very strong opening of 15,452.44 was attributed to both
profit booking and weakening financial
markets across the globe. News flowed in
that the leading French bank, BNP Paribas,
was facing trouble and had refused to bail
out its two investment subsidiaries that
were facing redemption pressure on account
of sharp currency fluctuations. This trend
continued till Friday afternoon when the
Sensex touched a low of 14,570 before
closing the week at 14,868.25 with a loss of
231.9 points.
While global cues have been made out as
the villain of the peace, I think the
overbought position in the market is more
to blame. This is because currency
fluctuation is a matter of routine and should
not have impacted the bourses to such a
large extent. If currency fluctuation was the
only reason, 415 stocks out of 2790 traded
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Fresh calls given an opportunity to get into new performing stocks
THERMAX - Recommended on 4th June'07 at Rs.497.75, touched a high of
Rs.668 thereafter. It closed at Rs.641.60 on 10th Aug.'07 giving a return of
34.20% after recommendation.
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26.41% after recommendation.
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on the BSE, would not have hit the upper circuit filter and only 51 facing lower circuit filters. This is specially surprising
when one takes into account that the stock markets had faced a great turmoil in the previous week i.e. week before last,
and again on the first two days of last week.
The reason for this great volatility, as observed in this column last week is that the market is in a process of consolidation
to absorb the 1000 points gain from 14K to 15K and the 800 points gain thereafter over two weeks, which led to an
overbought position. With this huge overbought position and speculation in the F&O segment of the market leading to an
open position of Rs.80,000 cr., which was unheard of till now. This sharp drive delivered some severe jolts since the
speed breakers had failed to control the speed of the upward move and the drivers seemed to have lost control!
Let the analyst furnish any reason for the sake of post-mortem, but the real reason for the market volatility is on account
of the huge outstanding positions of which the bears are trying to take advantage and gain the control from the bulls.
The rise and fall is, therefore, on account of the intense fight between the bulls and the bears based on political cues
favouring one or the other on a daily basis. Had this not been so, why did the market lose 208 points on Thursday, 9
th
August with 400 points volatility in intra-day trade after the superb opening? The story continued on Friday, 10
th
August
2007 as the market opened with a sharp downward gap of 400 points but recovered equally sharp intra-day to close. This
appeared to be a game of the bulls who connived on this very weak opening to gather good stocks at lower prices.
This volatility is quite unlike what we have seen before as leading blue chips are fluctuating between 50-100 points on a
daily basis. Larsen & Toubro, Grasim, Bajaj Auto fluctuated between 80-100 points followed by Reliance Industries,
State Bank of India, Infosys and several others which fluctuated between 50-80 points on a daily basis. The daily Sensex
fluctuations of 300-500 points conveys the message of huge built-up positions which need to consolidate and need 3-4
weeks to settle down in normal conditions whereas the last week witnessed more than 1600 points of volatility, which is
high by all standards.
In view of these sharp fluctuations, investors should buy stocks in panic in small quantity for investment on a delivery
basis and take advantage of the volatile behaviour of the market.
The Q1 results season seems to be ending and the market which welcomed the corporate performance throughout July by
scaling new highs naturally needs to cool down. This after effect is also one of the reasons for the volatility in the market
spread across all sectors.
The stocks recommended earlier in this column have been faring very well. Elecon Engineering was recommended twice
with the specific pointer a year back that once the stock crosses its previous high of Rs.478, it will do wonders. Readers
may please observe that Elecon Engineering has just doubled from its recommended price within the last 2-3 months
making a new high at Rs.680. Elecon Engineering is now going to be ex-bonus after book closure in the next 3-4 weeks.
Existing shareholders will get a bonus of two shares against every share held and its ex-bonus price might settle anywhere
between Rs.225-250. If this happens, the current price of Rs.615 is still attractive for obtaining the ex-bonus gains. L&T
was also recommended more than once and it too has doubled since then.
Cement stocks recommended in this column earlier off and on, too, have gained. Grasim gained nearly 15% from the
Rs.2000 level to Rs.3000. ACC from Rs.680 level to a high of Rs.1150. And all these recommendations were reiterated
even when cement stocks had turned untouchables after the government intervention in pricing of cement bags. In the
Cement sector, besides ACC and Grasim, India Cement and Shree Cements look very attractive at their current market
price looking to their huge expansion plans, which are likely to be completed in the next 6-8 months. With demand
remaining strong till end 2008, their working in FY08 will be superb.
Under Steel sector, SAIL at Rs.150, Modern Steels at Rs.80, Mukand Ltd. at Rs.80 look quite attractive and are likely to
hit new highs.
Few weeks back, Chowgule Steamship was recommended around Rs.26. It has more than doubled at Rs.54. Shipping
shares now look attractive because the Baltic Freight Index is on the rise with huge demand for vessels for commodity
shipments. Shipping Corporation, Essar Shipping and Chowgule may record spectacular gains as a result of this boom.
Lastly, I will advise readers that B Group shares are still worth buying while Sensex shares maybe avoided because of the
high volatility. The market will remain bullish but short-term volatility cannot be ruled out.
By Saarthi
STOCK WATCH
Belonging to the reputed BC Jindal group, Jindal Polyfilms Ltd. (Code: 500227) (Rs.193.35) is India's largest
manufacturer of flexible packaging films like polyester films (BOPET), polypropylene films (BOPP), metallised films and
coated films. It has expanded capacity by setting up a greenfeild plant in Silvassa that recently became fully operational.
For the June'07 quarter, its sales jumped up 32% to Rs.289 cr. whereas net profit shot up by 360% to Rs.38.75 cr.
registering an EPS of Rs.14 for the quarter. Importantly, it recorded an OPM of more than 23% for the quarter, which is
very impressive. Hence for the current fiscal, it may report a topline of 1350 cr. with PAT of Rs.110 cr., which means an
EPS of almost Rs.40 on its small equity of Rs.28 cr. Incidentally, it is among the very few companies, available at an
10
enterprise value, which is lower than its gross block. Its share price is also trading at a deep discount against its FPO price
of Rs.360. The scrip can easily give 30-40% return in a year's time even from the current level.
*****
Goodyear India Ltd. (Code: 500168) (Rs.171.60), a 74% subsidiary of Goodyear Tire & Rubber Co-USA manufactures
automotive tyres mainly for medium commercial truck and farm tyres. It also trades in `Goodyear' branded tyres including
radial passenger and off-the-road bias tyres manufactured by Goodyear South Asia Tyres - Aurangabad. For the June'07
quarter, sales improved by 11% to Rs.241 cr. but PBT zoomed by 125% to Rs.19 cr. on account of better operating
margins due to fall in rubber prices. Accordingly for the six months ending 30
th
June 2007, sales grew by 16% to Rs.440
cr. and PBT increased by 60% to Rs.35.50 cr. However on account of higher tax provisioning, net profit increased by only
15% to Rs.22 cr. Notably, the company has repaid a substantial part of its debt and is planning to repay the balance soon
thereby making it a debt-free company by the end of this fiscal. For FY07 ending 31
st
December 2007, it may report a
topline of Rs.950 cr. and after making the highest tax provisioning. The PAT may be around Rs.50 cr. translating into an
EPS of Rs.22 on its equity of Rs.23 cr. With further fall in rubber prices, the company can report much better margins.
Accumulate at declines.
*****
Recently, Rama Papers Ltd. (Code: 500357) (Rs.31.85) has come out with encouraging results for the June'07 quarter.
Sales was almost flat at Rs.21 cr. whereas net profit increased by 10% to Rs.2.10 cr. registering an EPS of Rs.2.20 for the
quarter. But the encouraging part is the sharp improvement in operating margin. It recorded impressive 23% OPM against
17% last year. This improvement is partly on commencing its 6 MW co-generation power plant in March 2007. The
company's production capacity stands at 44,500 TPA and is expected to increase to nearly 60,000 TPA by March 2008.
Moreover, the company is putting up an additional line of paper manufacturing machine to produce tissue and post paper
with annual capacity of 18,380 TPA for which it has recently taken a term loan from banks. Last fiscal, it raised around
Rs.16 cr. through preferential allotment of equity to promoters and others at Rs.35. As of today, the promoters hold 41%
stake. Despite higher interest cost and depreciation, it may end FY08 with sales of Rs.100 cr. and PAT of Rs.7.50 cr. i.e.
EPS of Rs.8 on its diluted equity of Rs.9.70 cr. The scrip is trading cum dividend of 5%.
*****
Mazda Ltd. (Code: 523792) (Rs.73.45) manufactures very specialized & high technology products like vacuum system,
critical valves, air pollution control equipment, crystallizers and evaporators. It also has a biotechnology division dealing
in carbohydrates, rare sugars & miscellaneous bio-chemicals. Besides, it has recently diversified into manufacturing food
and drink concentrates in a small scale under the brandname 'BCooL'. Importantly, the company has a technical
collaboration with world-renowned Croll-Reynolds Inc. USA, which hold 12% stake in the company. To cater to the
increasing demand, it is setting up a third unit at an investment of Rs.5 to 6 cr. As the company has reported flat numbers
for the June'07 quarter, its share price has come down to Rs.70 level, which provides a good buying opportunity for long-
term investors. Presently under FII category, HSBC Financial is holding approx 8% stake, which it acquired at Rs.155 in
December 2006. For FY08, it may clock a turnover of Rs.60 cr. with net profit of Rs.5.50 cr., which means an EPS of
Rs.13 on its small equity of Rs.4.26 cr. With a 52-week high/low of Rs.236/58, the scrip is trading fairly cheap at the
current market cap of Rs.30 cr. A screaming buy.
11
By Kukku
FIFTY FIFTY
* Supreme Petrochem Ltd. (SPL) (Rs.25.75) owns and operates a state-of-the art Polystyrene (PS) facility with an
installed capacity of 2,72,000 TPA located at Nagothane in Raigad District, about 100 kms southeast of Mumbai. The
facility also includes a world-class colouring and compounding facility with an installed capacity of 17000 TPA.
Note – Although real estate stocks have given huge returns to investors, they should be cautious at these levels and
should keep booking part profits and lock the same in strong fundamental stories like Supreme Industries, GSFC,
Torrent Cables, Shanthi Gears, JMC Projects, Greaves Cotton etc. Investors should also be cautious about high
premium IPOs.
Investors should take all due care, as lot of analyst meets and presentations are being made, which help big investors
to exit by placing their holdings with FII or selling the same in the markets after such presentations.
Investors should also take all due care, as many unknown stocks are going up faster than the existing well-managed
company with a good track record. This shows that speculative activities are at a peak. Many innocent investors and
analysts, too, get trapped in this game.
The plant is based on technology from the erstwhile Huntsman Chemical Corporation (now NOVA Chemicals) USA with basic engineering by ABB Lummus Crest,
USA.
It is the leader in Polystyrene business in the Indian market place with a share of more than 50%. SPL is also the largest
exporter of PS from India exporting to over 80 countries around the globe. Currently, SPL exports over 1,00,000 TPA.
Net profit of Supreme Petrochem rose 222% to Rs.12.08 cr. for the quarter ended June'07 as against Rs.3.75 cr. during the
previous quarter ended June'06. Sales rose 7.32% to Rs.376.27 cr. as against Rs.350.60 cr. during the previous
corresponding quarter. For FY07, full year net profit was Rs.33.25 cr. as against Rs.16.5 cr. for FY06. The company has
declared 10% dividend. Full year EPS is Rs.3.41. if Q4 profit is any indication, outlook looks encouraging for the
medium-term.
Investors can keep a watch on this stock for investment on reactions for good long-term growth.
* TIL (Rs.295) wants to rev up the rental business by setting up about 30 rental outlets for its machines in two years.
TIL recently established its branch in Asansol, West Bengal, where it also set up its third rental store. Another store will
open in Udaipur, Rajasthan next week. This is in addition to the two rental outlets it already has in Sahibabad in
Ghaziabad district of U.P. and in Bhubaneswar in Orissa.
The company also intends to set up a component rebuilding centre certified by Caterpillar, the world's leading
manufacturer of construction and mining equipments and this should be ready sometime this month.
The factory would be set up on a 300 acre plot and manufacture coal handling equipment for steel plants and road
machinery equipment, which would supplement the Caterpillar equipment range.
* Emami (Rs.233) - With growth in all sectors viz. agriculture, industry and services, the Indian economy is on the rapid
growth path. The FMCG industry has also started looking up after a lull of four years due to the increased demand,
increasing disposable incomes, growing consumption and deepening of media and distribution penetration. Over the
years, the company has strengthened its competitive capabilities in all spheres of activities. This has enabled Emami
report better results. Almost all categories in which the company operates are growing. With a strong brand equity of
existing brands, launch of innovative and effective products and differentiated marketing and R&D capabilities, Emami is
poised for continuous business growth. Investors can keep watch on this stock for good long-term growth.
* Excel Industries (Rs.57) - If Q1 results are any indication, there is sharp improvement in the margins of the company.
For FY08, the company can achieve a turnover in the range of Rs.200/210 cr. with net profit in the range of Rs.7/8 cr. on
its small capital of Rs.5.45 cr.
12
Investors can add the stock if it reacts to
Rs.55 level. It faces strong resistance at Rs.72
level.
* D&H Welding (Rs.36) is consistently
performing well over the last two years. Last
year, it added around 1,200 tonnes capacity
now its capacity totaling 6,800 tonnes and
plans to add another 2,500 tonnes in the
current year. The company declared 10%
dividend for last year. It should be able to
achieve sales of around Rs.50 cr. with net
profit of Rs.4 to Rs.4.25 cr. on a capital of
Rs.5.61 cr. yielding an EPS of around Rs.7 to
7.5. The stock is likely to reach
Rs.65/70 level in the next 8-10 months time.
Accumulate on reactions.
*
Net
profit
of
Garware
Polyester (Rs.53.75) shot up by 161.39% to
Rs.2.64 cr. in the quarter ended 30
th
June
2007 as against Rs.1.01 cr. during the
previous quarter ended 30
th
June 2006. Sales
rose 12.14% to Rs.141.47 cr. in the quarter
ended 30
th
June 2007 as against Rs.126.16 cr.
during the previous quarter ended 30
th
June
2006. We had recommended this stock at
Rs.39 level and it flared up to Rs.60 level,
where it is advised to book part profit and
switch to Supreme Petro or Excel Industries.
In the packaging film sector, Polyplex, Jindal
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polyester too came out with better results and this sector is said to be doing very well as per industry sources.
* Traders looking for risky speculative gains can think of adding Glory Polyfilms (Rs.57.55), Indiabulls Financial
(Rs.542.55), Adani Enterprise (Rs.345), NEPC India (Rs.18.2), Western India Shipyard (Rs.16.1) and Gandhimathi
Appliances (Rs.20.7).
* Uni Abex (Rs.106.50) has reported very encouraging results for the first quarter. It should benefit from the sharp fall in
nickle prices in the remaining quarters. In the first quarter, EPS is around Rs.5.73 whereas last full year EPS was around
Rs.20. If the Q1 earning is any indication, full year EPS is likely to be around Rs.30 level. The stock is likely to touch
Rs.200 in next 8-10 months. Stay invested.
* Era Construction (Rs.597) net profit soared 163.77% to Rs.33.13 cr. on 104.60% rise to Rs.247.87 cr. in sales in
Q1FY08 over Q1FY07. The stock has already reached a new high of around Rs.600. As per market sources, analysts and
fund managers are bullish on the stock and it is likely to remain in action. Stay invested.
* Net profit of Jaihind Projects (Rs.83.50) rose 200% to Rs.1.27 cr. in the quarter ended 30
th
June'07 as against Rs.0.42
cr. during the quarter ended 30
th
June'06. Sales rose 21.31% to Rs.27.04 cr. as against Rs.22.29 cr. during the previous
corresponding quarter. The stock has reached an all time high at Rs.83. Investors can think of booking partial profit at this
level and lock it in Supreme Industries (Rs.240) or Torrent Cables at Rs.197.
* New developments are said to be taking place in STELCO (Rs.50) and it seems speculative position is being built up in
the counter. The stock is at a new high. Stay invested. Book part profit around Rs.58/60 level.
* GKW (Rs.35) has a huge real estate. After restructuring, its outlook will change for the better. Investors with a long-
term view can take small exposure at the current level of Rs.35.
* PG Foils (Rs.41) is engaged in the manufacture of foils of various qualities and thickness e.g. tagger foil, pharma foils,
laminated foils, blister foils, paper laminated board and printed foils. The company has undertaken expansion plan. In
view of this, the company is likely to skip the dividend. The book value of the stock is Rs.70. The stock seems to have
caught the attention of investors and is trading at its 52-week high.
* Shanthi Gears (Rs.70) – The product of the company is like Elecon Engineering but the stock has not caught fancy
among investors as most investors think that it is in to automobile gears. Fundamentals of the company are very strong
and the management has rewarded very well those investors who are holding since long. The stock has not participated
in the recent bull run and is still available at the price when Sensex was around the 9,000 level. At the current level, there
is hardly any downward risk and investors can take small exposure in this stock for good long-term growth.
* After long wait, long-term investors are likely to see better times ahead in Futura Polyester (Rs.26.5). Stay invested.
* There is expectation of a liberal bonus in Walchandnagar Industries (Rs.2635). Earlier, investors have seen such a
liberal bonus issue in Unitech. There are also expectations of stock split for creating more liquidity in the stock. The stock
has already given multiplied growth to investors, as stock was recommended from Rs.80/90 level in this column with
regular updates from time to time.
* In spite of bad market conditions, many of our recommended stocks like Walchandnagar Industries (Rs.2635), Vijaya
Shanthi Builders (Rs.190), Khoday (Rs.349), Jaihind Projects (Rs.83), TRF (Rs.1020), Stelco (Rs.50), Tayo Rolls
(Rs.285) and ERA Construction (Rs.605) have reached all time high last week.
By V.H. Dave
EXPERT EYE
This scrip was earlier recommended in Early Bird Gains (EBG), our investment newsletter specializing in multi-
baggers, at Rs.243 on 18
th
July 2006. Since then it has touched a high of Rs.630 giving a gain of 159%. The share is
once again recommended at the current price of Rs.590 as it has the potential to appreciate further by over 50% in one
year.
An analyst with a reputed mutual fund strongly advises investment in the shares of Amara Raja Batteries Ltd. (ARBL)
(Code: 500008) (Rs.577.05) with a price target of Rs.900 in the medium-to-long term. The analyst projects an EPS of
Rs.60 in FY08 and Rs.75 in FY09.
ARBL is a prominent player in the storage & automotive battery industry. It was promoted by R N Galla. Johnson
Controls Inc., a Fortune 500 company with sales of US $22 bn. holds 26% in the equity capital of ARBL.
ARBL initially set up a plant for the manufacture of sealed maintenance-free lead-acid stationary batteries for industrial
applications with an installed capacity of 1 lakh units a year. Its plant is located in Karakambadi, a village 12 km from the
temple town of Tirupati in Andhra Pradesh.
It manufactures a wide range of industrial and automotive batteries under the brand 'Amaron' and is a major player in the
valve regulated lead acid (VRLA) batteries that are used in industrial applications such as telecom, power and information
technology among others. In the automotive batteries segment, ARBL manufactures batteries only for passenger cars and
commercial vehicles. The existing facility is ISO9001, QS9000 and TS 16949 certified by RWTUV Germany.
13
In India, ARBL is the preferred supplier to major telecom MNCs like Siemens, Lucent, Alcatel, Ericsson, Motorola,
Nokia, VSNL, BSNL, MTNL, Air Tel, and Indian Railway besides a host of companies in industries such as power, oil &
gas and UPS systems. ARBL supplies automotive batteries exclusively to Ford, General Motors- Opel diesel vehicles,
Daimler Chrysler; and preferentially to Hindustan Motors, Telco, Mahindra & Mahindra, Ashok Leyland, Honda, Fiat and
Swaraj Mazda.
ARBL's aftermarket retail network has been further expanded and now comprises over 135 franchisees from 125 at the
end of the previous fiscal. It currently has a pan India sales and service network with 135 franchisees, 99 pitstops and over
12000 active retailers. It has recently unveiled a novel initiative, PowerZone, a completely new retail experience in the
power solutions sector for the semi-urban and rural consumers. This concept will bring to the consumers in the rural
pockets a hitherto unavailable combination of world class quality and local prices.
In the telecom sector, there was increased demand for VRLA batteries from both private and public sector telecom
companies. Amaron, is the preferred supplier to Daimler Chrysler, GM and Ford in India. That it is one of the market
leaders in Singapore and has a sizeable presence in the quality conscious Japanese market are testaments to its claim of
being a high quality product. Domestic automotive battery volumes registered a strong growth over the previous year.
ARBL has a market share of 26% in the automotive OEM segment and 20% in the organized segment of aftermarket.
Sales during FY07 went up by 52% to Rs596 cr. Net profit after tax of Rs.47 cr. jumped by 96% to Rs.47 cr. resulting into
an EPS of Rs.41.3. Cash earning per share (CEPS) worked out to a whopping Rs.56. During Q1FY08, sales advanced by
73% to Rs.215 cr. whereas net profit moved up by 91% to Rs.18 cr. Q1FY08 EPS alone works out to Rs.15.9.
ARBL is in sound financial health. It has a small equity of Rs.11.4 cr. and with reserves of Rs.232.6 cr., the book value of
the share works out to Rs.214. The value of its gross block as on 31
st
March 2007 stood at Rs.258 cr. as against Rs.191 cr.
in FY06 and the debt-equity ratio was 0.57: 1.
The promoters hold 52% in its equity capital, FIIs hold 1.6%, mutual funds hold 11.9%, PCBs hold 8.5% leaving 26%
with the investing public.
ARBL's expansion of its capacity of automotive battery to to 3.6 million units per annum and industrial 2 Volt VRLA
Battery capacity by nearly 50% from 240 million AH to 400 million AH per annum were completed in FY07. Its
investment of Rs.200 cr. to increase automotive battery capacity by 50% from 3.6 mm units per annum to 5.4 mm units
per annum and establishment of two-wheeler and SVRLA battery facility at Tirupati with an initial capacity of 5.74
million units a year is progressing as per schedule.
The price variance with OEM customers, timely revision of prices, better utilization and rationalization of lead usage
through better process technology and continuous improvements and timely expansions will help protect ARBL from
price shocks in the topline & bottomline.
ARBL is all set to increase its sales by about 75% to Rs.1040 cr. with net profit improving by about 45% to Rs.68 cr.,
which will result in an EPS of Rs.60 in FY08. EPS could increase to Rs.75 in FY09 on the back of expansion and the
booming economy and industrial growth.
The share of ARBL is
currently
traded
at
Rs.577.05 discounting its
FY08E of Rs.60 by 9.8
times and FY09E by 7.9
times.
The
industry
average P/E of the electric
equipment segment, in
which ARBL operates
rules firm at about 38
leaving tremendous scope
for the ARBL scrip to rise
further. Investment in this
share is likely to fetch
decent appreciation of
more than 50% in about
one year. ARBL has
decided to sub-divide the
face value of the equity
share from Rs.10 to Rs.2.
The 52-week high and the
14
low of the share has been Rs.630/311.
*****
Vardhman Industries Ltd. (VIL) (Code: 513534) (Rs.24.50) is recommended for decent appreciation in the medium-to-
long-term. Dealers say, the share is attractively priced and can be bought as its major expansion & diversification was
successfully completed last year. Although its working is excellent, its profitability will improve substantially in the
coming quarters.
VIL, formerly Vardhman Steel, is into processing of Vanaspati Ghee/Refined Oil, manufacturing of steel ingots, GP/GC
Coils/Sheets and Oxygen Gas and galvanization of ERW Pipes. Mr. Kapil Jain heads the company.
VIL performed remarkably well during FY07, in line with the encouraging market scenario particularly in the steel
industry. It recorded 8% higher sales at Rs.270 cr. and posted 15% increased net profit of Rs.5.4 cr. yielding an EPS of
Rs.6.8. During Q1FY08, it achieved 380% higher net profit of Rs.2.6 cr. on 32% increased sales of Rs.75 cr. compared to
the previous corresponding quarter.
Its equity capital is Rs.8 cr. and with reserves of Rs.27.2 cr., the book value of the share works out to Rs.54. Promoters
hold 66% stake in the equity capital leaving 35% with the investing public.
Earlier, VIL's 10 MW power co-generation plant had been successfully commissioned at Jamshedpur in Jharkhand, and
production has also started. It has also successfully commissioned a colour coating plant at Rajpura in Punjab with a
capacity of manufacturing colour coated steel/ aluminum sheets of 41,250 MT a year. VIL's steel melting shop (SMS)
with a manufacturing capacity of 68,000 MT billets a year at Jamshedpur also contributes to sales.
Coming to future prospects, the iron and steel industry, as a whole, has staged a major turnaround on the back of
improved demand from the user segments and firming up of prices. But there has been a downtrend in the Vanaspati
Ghee/Refined Oil industry. However, due to its better management and optimum utilization of resources the company has
been doing well in this segment too.
The steel industry continues to witness buoyant trends. The overall increase in its production capacity, its diversified
product mix, the expected economies of scale and the highly responsive market conditions are compelling reasons for
VIL's optimistic outlook for substantial growth in its operating performance.
After expansion and the launch of new products, its sales are moving up steadily and the co-generation power plant takes
care of its power requirement, which will also result in substantial reduction in its power costs. This, in turn, will push up
profits sharply.
Based on the prospects of the steel industry, VIL is likely to register an EPS of Rs.10/11 in FY08, which is likely to move
up to Rs.13/14 in FY09. The share of VIL is available at a forward P/E of just 2.4. Investment in this share is likely to
yield an appreciation of more than 50% in about 6-9 months. The 52-week high/low of the share has been Rs.40/17.
DBS Chola Infrastructure Fund
MONEY FOLIO
DBS Chola Mutual Fund has launched DBS Chola Infrastructure Fund, a three year close-ended fund with automatic
conversion into an open ended scheme upon maturity. The fund seeks to generate capital appreciation by investing
predominantly in equity and equity related instruments of companies expected to benefit from infrastructure development.
The fund will adopt both Top – down and Bottom – Up investment approach to create a diversified portfolio of stocks.
The aim would be to select fundamentally sound companies having potential to deliver superior earnings growth in the
long term. The fund will have no market capitalization bias and will be multi-sectoral.
The NFO will close on 6
th
September 2007 and offers both cumulative and dividend options. Units will be offered at
Rs.10 per unit. The minimum application amount is Rs.5000 and in multiples of Re.1 thereafter.
ICICI Bank, IFC and IBM launch SME Toolkit in India
ICICI Bank, IBM and IFC, a member of the World Bank Group, have come together to provide India's small and medium
enterprises with an innovative SME Toolkit, online resource centre, to help them start, finance and grow their business.
The India SME Toolkit (www.india.smetoolkit.org) is a free resource centre that contains up-to-date information and tools
to enable small and medium enterprises in emerging markets learn how to increase their productivity, efficiency and
capacity, as well as improve their access to capital and new markets. The India toolkit is available as both online as well
as offline modules, which includes the portal, offline CDs, mobile alerts and classroom training. The online module is
available in both e\English and Hindi languages.
Rana Sugars ups sugar prices
Rana Sugars Ltd. has informed the BSE that the company has increased the price of its sugar by Rs.75 per qunital due to
the increased demand of sugar in the market. Further it expects that the upward trend in the sugar price will continue in
15
16
future. The company has a stock of about 4.50 lakh qtls. of sugar and could earn additional profit of about Rs.3.38 cr. due
to this price increase.
Sujana Universal Inds. to allot shares, warrants to promoters
Sujana Universal Ind Ltd. will issue and allotment of 4,000,000 equity shares of Rs.10 each and 4,900,000 warrants of
Rs.10 each at a premium of Rs.10.50 a share/warrant to the promoters group and others. The above decision was taken at
the board meeting held recently.
The company manufactures domestic appliances, bearings and castings. Two popular products from the company include
Padmini ceiling fans and Zephyre designer fans, which are exported to 15 countries. Its success has enthused the company
to enter into domestic appliances like exhaust, table and pedestal fans, ventilator fans, air coolers etc.
Principal Pnb Long Term Equity Fund 3 Year Plan – Series II
Principal Pnb Asset Management Company has launched Principal Pnb Long Term Equity Fund - 3 Year Plan - Series II,
a 3-year close-ended plan with the objective of achieving long-term capital appreciation by investing in equity and equity
related instruments. The NFO closes on August 31, 2007 and has a minimum investment amount of Rs.5,000/- for
Dividend Option and Growth Option. There is no entry or exit load for this fund.
IMP Power to expand & modernise
IMP Powers Ltd., manufacturer of Transformers, Electrical Measuring Instruments and Testing Equipments is embarking
on expansion and modernization and proposes to issue 1180000 Compulsorily Convertible Preference Shares (CCPS) to
India Business Excellence Fund – 1, based in Mauritius and India Business Excellence Fund and 2,00,000 warrants
convertible into equity shares within 12 months to Brescon Corporate Advisors Limited and 5,00,000 warrants to
promoter group companies convertible into 18 months to meet the fund requirements for the proposed expansion.
The Company has also got an order of Rs.18 cr. from Maharashtra State Electricity Board for supply of EHV rating
Transformers. The order will be executed in the next 6 months.
Speciality Papers improves
Speciality Papers Ltd. has recorded improved performance for the quarter ended 30
th
June 2007. the total income of the
company went up by 155% to Rs.12.50 cr. from Rs.4.91 cr. for the same quarter of the previous year. Profit before tax
increased to Rs.46.49 lakh from Rs.38.27 lakh for the same period last year. Net profit for Q1 rose to Rs.41.24 lakh from
Rs.35.27 lakh for the same quarter last year. Annualized EPS went up to Es.4.49 for the face value of equity share of
Rs.10 each.
Speciality Papers Ltd. has decided to acquire three companies through merger/amalgamation. These three companies
include Reliable Paper (India) Ltd., Prime Industries & Opel Paper Mill Ltd. the company will obtain approvals from
Bombay Stock Exchange and other appropriate authorities before filing the scheme with high court.
Soma Textiles introduces new range of denim fabrics
Soma Textiles & Industries will introduce soft and flat finishing range for denim fabrics keeping in view various future
market requirements. It is also planning to install polymerizer for developing specialty finishes on fabrics.
IKF Tech to develop buyers-sellers portal for bio-fuel
IKF Tech Ltd. developed a portal that serves as an exchange for trading between the buyers and sellers of the bio fuel,
Jatropha seeds etc.
The company has entered into a bipartite contract agreement with Forest Development Corp of Meghalaya Ltd. and will
constitute committee for the due diligence for merger of Gujarat Oleo Chem Ltd. for expansion in the bio-fuel production.
The company has also entered into a joint venture agreement with Salampuria Agrotech Pvt. Ltd for undertaking bio fuel
activity in Jharkhand.
________________
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