By G. S. Roongta
After ten consecutive days of rise in stock prices – perhaps the longest, the stock market made a halt on Thursday, 4th
October 2007, having witnessed a very volatile session a day earlier on Wednesday, 3rd October 2007, resulting in a record
two way movement of nearly 1500 points with the BSE Sensex touching a new high of 17953.07 only to fall to 17288.41
and rise again to close at 17847.04 through intra-day swings.
Despite such never before witnessed volatility fuelled by record buying by FIIs over the last few days, there was no
specific reason for the market to turn so bullish as far as the CNX Nifty was concerned. Going by detailed analysis, there
were hardly 40 stocks that participated in fuelling the bull sentiment. Prominent among them were the Reliance Group
shares: RIL, Reliance Energy, Reliance Communications, Reliance Petroleum, Reliance Capital, Reliance
Natural Resources followed by capital goods, realty and bank stocks like ICICI Bank, SBI and HDFC
Bank.
G.S. Roongta
As such, trading was very restricted and at times very narrow. Even the advance-decline ratio was
stretched without showing any specific positive bias vis-à-vis the grand rise of the Sensex stocks.
In the A Group, 119 stocks rose while 101 declined. In the B1 & B2, 526 stocks rose while 983 declined. In
the small-caps, 466 stocks rose while 611 declined.
Dividend: GIL has rewarded shareholders fairly well with 100% as interim dividend and another 50% as special and final
dividend taking together as dividend totalling 150% for FY07.
Market Price: GIL’s share price, which had touched over Rs.300 in early 2005-06 for Rs.10 paid-up share is still hovering
around or below its two years high. Since its price has fully consolidated for quite a long time and the major shareholding
lies in strong hands, there is no reason why the stock should lie low any further.
The current share price of Rs.56 to Rs.58 looks very attractive in the above context and readers may take a position based
on their ability and power to hold on till they reap a good harvest.
I may mention here that I had earlier recommended Modern Steels Ltd. at cum bonus price of Rs.76 in the issue dated
Aug. 27 – Sept. 2, 2007.
The price of this stock at ex-bonus is now ruling around Rs.54-56 and means cum-bonus price at Rs.140, a fair gain of
nearly 100% in just one month. Those who wish to book profit may do so without blaming later on that its share price has
come down. It is the readers’ choice to hold or book profit. It may also be noted that Modern Steels when recommended
witnessed an upper lock for weeks together and is again in the upper lock now for the last three trading sessions.
Monday, August 18, 2008
Graphite India Ltd. looks attractive
Sunday, June 22, 2008
Ferro alloys Stocks
* Ferro alloys prices have further firmed up in the current year. As silicon manganese is now around Rs.78,000 per tonne, ferro chrome around Rs.94,000 per tonne, ferro manganese around Rs.80,000 per tonne, Navbharat Venture, Ferro Allloys, Rohit Ferro Tech, Impex Ferro may get good benefit.
,nse
NCL Industries
NCL Industries
BSE Code: 502168
NSE Symbol: NCLIND
Last Close: Rs.40
NCL Industries Ltd., an ISO 9001:2000 company, made its debut in the Indian industrial scene way back in 1983 by setting up a 200 TPD cement plant at Simhapuri in Nalgonda District, Andhra Pradesh. The plant was expanded in stages to 1800 TPD with a split grinding unit at Kondapally. With this, the present capacity increased from 2,97,00 TPA to 6,30,000 TPA. The company has started identifying building materials which are best suited for the Indian construction industry. Several units have been established with proven technologies from Europe. The company is also interested in Construction, Power Generation and Manufacture of Chemicals.
It has an equity of Rs.32.50 cr. and the promoters hold 40.24% stake in the company. It has shown very good results for March 2008 quarter. Net sales jumped 103.77% to Rs.66.98 cr. and PBT jumped 634.22% to Rs.13.73 cr. Due to high tax outgo, its net profit jumped 15.48% to Rs.8.95 cr. On a yearly basis, net sales of the company jumped 29.97% to Rs.192.73 cr. while profit before tax jumped 45.33% to Rs.42.93 cr. The company has recorded an EPS of Rs.9.32 on a yearly basis. At current levels, the stock is available at P/E ratio of just 4.3. The company has declared 25% dividend for this year compared to 20% last year. At current levels, the stock looks safe for investors and is available with an attractive dividend yield. Buy at every decline with stop loss of Rs.37. On the upper side, the stock can go up to Rs.52 level in a short time and to Rs.65 level in the medium-term. Its 52-week high/low is Rs.94.50/34.75.
Friday, June 20, 2008
Infosys Technology LTD
The Infosys Annual Report 2007-08 contains a human touch with the key theme being various company initiatives towards attracting, training, retaining and empowering talent. FY08 was another watershed year for Infosys with robust business performance (industry-leading dollar growth), judicious expenditure management and strengthened financial position. Infosys, the behemoth, continues to move from strength to strength. Our analysis of the Annual Report revealed following interesting findings.
ä Income Statement – robust growth and unparalleled size and profitability
ä Special dividend and increase in payout ratio reflects company’s confidence in growth
ä Balance Sheet – strong, debt-free and highly liquid
ä Superior return ratios generate positive EVA
ä Cash Flows – more than sufficient to cover growth, dividends and contingencies
ä Corporate Governance – leading across industries
ä Re-organization to sustain competitiveness
However, we maintain SELL on Infosys as current valuations are above fair value. Our target price of Rs1,670 represents 10% downside.
Wednesday, June 18, 2008
Jayswal Neco
Jayswal Neco (Rs. 48.00) (Code 522285) :-
Stock price of the
Monday, June 16, 2008
Wednesday, June 11, 2008
Opto Circuits India
Opto Circuits India
Cluster: Emerging StarRecommendation:
BuyPrice target: Rs460
Current market price: Rs338
A growth monitor
Key points
Opto Circuits India’s (Opto) non-invasive business is expected to grow at a compounded annual growth rate (CAGR) of 39.5% over FY2007-10E to Rs550.7 crore on the back of rising demand for its sensors and patient monitoring systems, coupled with an increasing market penetration and innovative new launches.
The invasive business would be driven by the increasing acceptance of the company's stents due to superior technology and better pricing. Further, the growing revenues from DIOR in Europe and the semi-regulated markets due to limited competition would also fuel the growth of the invasive segment. We expect the invasive segment (EuroCor) to contribute ~43% to the company's total revenues by 2010.
Opto has recently completed its $70 million acquisition of Criticre Systems (Criticare), a US-based publicly listed company specialising in vital signs and gas monitoring instruments. We estimate the Criticare acquisition to generate incremental earnings of Rs0.60 per share in FY2009E and Rs1.80 per share in FY2010E. We will incorporate the impact of the acquisition after the announcement of Opto's FY2008 results.
We expect Opto's fully diluted earnings (without Critcare) to grow at a CAGR of 35% over FY2007-10E on the back of a 57% CAGR in revenues. We estimate earnings of Rs20.0 per share in FY2009E and Rs29.9 per share in FY2010E.
We have valued the stock using the dividend discount model and the P/E mutiple, arriving at price targets of Rs453 and Rs470 per share respectively. Using the average of the two, we fix our price target at Rs460 per share, an upside of 36% from the current levels.
Opto is trading at attractive valuations of 16.9x FY2009E fully diluted earnings and 11.3x FY2010E fully diluted earnings. Hence, we initiate coverage on Opto with a Buy recommendation and a price target of Rs460. Our current estimates do not incorporate the Criticare acquisition, which could yield incremental earnings of Rs1.8 per share in FY2010E, implying an upside of Rs28-30 per share to our target price.
Friday, June 6, 2008
Lehman Brothers
Lehman Brothers May Have to Put Itself Up for Sale
2008-06-04 03:43 (New York)
Lehman brothers Indian Share Market Holding
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| Percentage Stake |
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| Stock Fall | |
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| Co_Name |
| Holder's Name ( 31/03/2008) | 31/03/2008 | No of Shares | Cmp | Weekly |
| 1 | Develop.Cr.Bank | 31/03/2008 | Lehman Brothers Asia Ltd | 3.04 | 5301900 | 65.3 | -18.88% |
| 2 | Spice Mobiles | 31/03/2008 | Lehman Brothers Asia Ltd | 4.41 | 3289474 | 24.65 | -18.78% |
| 3 | Prajay Engg. | 31/03/2008 | Lehman Brothers INTL Europe | 1.15 | 457701 | 192 | -17.28% |
| 4 | Edelweiss Cap | 31/03/2008 | Lehman Brothers Netherlands Horions BV | 1.8 | 1350000 | 652 | -10.78% |
| 5 | KPIT Cummins Inf | 31/03/2008 | Lehman Brothers Asia Ltd | 1.11 | 862823 | 68.2 | -10.44% |
| 6 | Anant Raj Inds. | 31/03/2008 | Lehman Brother Asia Ltd | 1.82 | 5362500 | 204.65 | -10.24% |
| 7 | Pion. Embroider. | 31/03/2008 | Lehman Brothers Intl Europe | 3.23 | 394356 | 77.85 | -10.21% |
| 8 | GTC Inds. | 31/03/2008 | Lehman Brothers Asia Ltd | 1.56 | 275000 | 188 | -9.68% |
| 9 | Prithvi Info | 31/03/2008 | Lehman Brothers Asia Ltd | 2.63 | 476160 | 150.1 | -7.12% |
| 10 | Champagne Indage | 31/03/2008 | Lehman Brothers Asia Ltd | 1.62 | 236574 | 480 | -5.63% |
| 11 | Orbit Corporatio | 31/03/2008 | Lehman Brothers Asia Ltd | 4.69 | 1700000 | 471 | -3.25% |
| 12 | Godawari Power&I | 31/03/2008 | Lehman Brothers Asia Ltd | 1.47 | 413832 | 188 | -3.09% |
| 13 | IOL Netcom | 31/03/2008 | Lehman Brothers Asia Ltd | 1.68 | 447032 | 108 | -2.70% |
| 14 | Aztecsoft | 31/03/2008 | Lehman Brothers Asia Ltd | 4.85 | 2180308 | 70.6 | -2.55% |
| 15 | West Coast Paper | 31/03/2008 | Lehman Brothers Asia Ltd | 4.37 | 2504774 | 66.9 | -1.11% |
| 16 | Indo Asian | 31/03/2008 | Lehman Brothers Asia Ltd | 1.66 | 254450 | 90 | -0.99% |
| 17 | Consolidated Con | 31/03/2008 | Lehman Brothers Asia Ltd | 1.36 | 503000 | 601 | -0.17% |
| 18 | IVRCL Infrastruc | 31/03/2008 | Lehman Brothers Asia Ltd | 1.2 | 1600000 | 386 | 1.65% |
| 19 | Spice Commun. | 31/03/2008 | Lehman Brothers Opportunity Ltd | 1.33 | 9203339 | 52.5 | 6.1 |
Tuesday, May 27, 2008
Monday, May 26, 2008
Bajaj Fin Serv
Bajaj Fin Serv
Price target: Rs737
Current market price: Listing on May 26, 2008
Key points
The activities of Bajaj Finserve include the wind farm business and the financial services business. It has two insurance subsidiaries, dealing in life insurance and general insurance. For FY2008, Bajaj Finserve has reported consolidated sales of Rs12,225 crore and a consolidated net loss of Rs32.7 crore.
* The gross written premiums of Bajaj Allianz Life Insurance grew by 82% from Rs5,340 crore to Rs9,730 crore in FY2008. The new business premiums achieved a growth of 56%. The New Business Achieved Profit margin was maintained at 20%. The loss after transferring Rs295 crore to the policyholders account stands at Rs214 crore.
* The gross written premiums of Bajaj Allianz General Insurance grew by 43% to Rs258 crore.
* The growth in the New Business of Life Insurance has been lower than our expectations. We expect the slow down to continue in the current year also and consequently we are downgrading our estimates from the insurance business.
* We except the company to get listed at around Rs700per share.
Bajaj Fin Serv.s valuation table
Life Insurance 612.9 At 26% stake
General Insurance 53.6 At 50% stake
Auto Financing 15.3 At CMP with 50% holding co. discount
Cash 55.3
Value (Rs) 737.0
Friday, May 23, 2008
Aban Offshore Ltd
Increased E&P investments warrants strong demand for rigs Crude oil prices have sky rocketed from US$25/bbl in 2002 to US$135/bbl today.
The humongous run up has been on the back of rising demand especially from emerging economies. With no new major discoveries over the last few years, the reserve accretion rate has slumped below 100% mark. This has warranted huge commitments towards E&P activities leading to burgeoning demand for rigs.
Rig rates to remain strong on firm operating rates Between 2005 and 2007, day rates for rigs have more than doubled. With demand for rigs increasing, shipyards have been booked with rig construction orders for the next three years. This has caused acute shortage in availability of EPC contractors causing delay in rig deliveries. The demand is also fueled by ageing of rigs, which now need replacements. Supplies are lined up over the next three years, but delays in delivery would enable the industry to absorb the supply and keep operating rates at higher levels. This will lead to further increase in day rates. Aban well poised to leverage on industry dynamics
Aban Offshore Ltd (Aban) has been a key player in the Indian offshore rig market. With the acquisition of Sinvest, it has entered into the big league of international players and will now have a global presence. Along with Sinvest, it will have 22 rigs by the end of FY09. Recently, Aban has been able to take substantial hikes in day rates and six more assets are due for renewal in the next 10 months. Also, addition of assets to the fleet will fuel volume growth.
Attractively valued compared to international peers Historically, Aban has clocked the highest operating margins in the industry at a global scale. Further, the growth rate expected for Aban over the next couple of years is higher than most of its peers. Our estimates are based on current day rates existing in the market. With strained demand supply scenario for rigs, upsides to our estimates cannot be ruled out. Also, listing of the Singapore subsidiary could unlock value for the company. At CMP of Rs4,047 the stock is trading at a P/E multiple of 8.1x and 6.9x FY09E and FY10E respectively compared to international average of 12.6x and 10.5x on CY08E and CY09E. We believe the stock should trade at 9x FY10 estimated earnings of Rs583. We recommend a BUY with a target price of Rs5,247, an upside of 29.6%.
Thursday, May 22, 2008
SASKEN COMM
SASKEN COMM. Buy Rs 158.40
1st Target: Rs 191 2nd Target: Rs 212 Stoploss: Rs 144
Sasken Comm. peaked by posting an intra-day high of Rs 386.95 on 07.04.06, but couldn't sustain these levels for long and finally declined to bottom out by posting an intra-day low of Rs 240.15 on 14.06.06 where strong support prevented further downside. The scrip finally posted an intra-day low of Rs 251.35 on 24.07.06 and these levels have not been seen since. Sasken Comm. commenced a medium term uptrend from here (this time around there wasn't enough clarity on the long term front), struggled but eventually overcame the 55-day EMA, posted a series of progressively higher tops and bottoms, started moving within the confines of an upward sloping channel, almost gave a throwover from this channel and finally peaked by posting an intra-day high of Rs 594 on 08.01.07. The scrip almost gave a downward key reversal from here, couldn't sustain these levels for long, entered a corrective downmove, declined to post an intra-day low of Rs 86.65 on 19.03.08, recovered sharply from here, posted a smart but slightly unsustainable upmove to post a high of Rs 193.90 on 21.04.08. Currently, Sasken Comm. is in process of starting a short-term uptrend, while it seems to have exhausted its weekly correction (has just about overcome the 55-day EMA) and with the mechanical indicators looking positive, a further upside from these levels cannot be ruled out.
Wednesday, May 21, 2008
Western India Shipyard
Western India Shipyard (Rs.20.20), which was re-listed after restructuring at Rs.21 level is likely to report a good turnaround over the next few quarters under the management of ABG Shipyard. Investors can accumulate this stock on reaction around Rs.17/18. Earlier, profit booking was advised in this stock at Rs.45+ level.
Repro
* Repro India is being accumulated by the circles close to the management in anticipation of excellent results. It is poised to touch Rs.150 soon.
Tuesday, May 20, 2008
Dabur India
Dabur India
We believe sales traction will return in FY09e with Foods and CHD recovering after FY08 results were below expectations
Dabur is one of the least expensive consumer stocks in India and trades at an 18% discount to peers on PEG basis
We move away from SOTP to headline PE valuation; our new TP of INR118 (INR125) gives total return potential of 20.1%
Cost inflation will be passed on: We estimate EBITDA margin expansion of 30 bps (20 bps decline after factoring in retail losses) in FY09e, slower than last year due to cost inflation. We lower our EPS estimates 9% in FY09e and 10% in FY10e to account for retail losses (not built in earlier), lower FY08 base and cost pressure. We still expect net profit to grow 17.6% in FY09e and 18.9% in FY10e.
Still, one of the cheapest consumer stocks available: Dabur is trading at 22.1x FY09e at a PEG ratio of 1.17, while peer average PE is 24.5x at a PEG of 1.43. We believe multiples have corrected and downside risk is priced in. We move from SOTP valuation to a headline PE basis, valuing Dabur on 22x March 2010e EPS of INR5.35 (including INR0.17 loss on retail business) giving 20.1% total return potential.
GVK Power and Infrastructure (BUY)
Set to take off
While availability of gas supply will boost its power business in the short-term, long-term prospects of its airports and other infrastructure business remain exciting
Buy GVK Power & Infrastructure
BSE Code 532708
NSE Code GVKPIL
Reuter GVKP.BO
52-week High/Low Rs 94 / Rs 33
Current Price Rs 53 (as on 14th May 2008)
GVK Power & Infrastructure (GVK) is a holding company of its infrastructure business. The company has interest in various types of Power Generation viz., Gas, Hydel and Thermal, Roads & Expressways, Airports, Aviation, Ports, SEZ, etc. The company is a listed entity which operates in the above said sectors through its Subsidiary / Associate Companies.
GVK’s portfolio of assets includes the Mumbai International Airport, a toll road, six power plants, one coal mine and one Special Economic Zone. With an increasing proportion of India's infrastructure capex now happening via the Public/Private Sector Participation route, the opportunity landscape for the infrastructure developers is expanding. GVKPIL looks well placed to capitalize on this opportunity.
GVKPIL presently owns 53.96% stake in GVK Industries, which operates the 216 MW gas based Jegurupaddu CCPP I in AP and 220 MW Jegurupaddu CCPP II which is ready for commercial operations. It also owns 51% in Gautami Power, which is setting up a 464 MW CCPP Plant, which is also ready for commissioning. The commencement of operation of 220 MW Jegurupadu CCPP and 464 MW Gautami Power Project was delayed due to non availability of gas. The road business of the company consists of Jaipur–Kishangarh BOT road project, part of Goldel Quadrilateral of NHAI. The company in consortium with Airports Company of South Africa and Bidvest has been mandated to modernize Chhatrapati Shivaji International Airport at Mumbai. The company holds 74% stake in the SPV formed for this purpose.
Availability of Natural Gas is a major booster
The most critical input required by its power generation plants to generate electricity is fuel (Natural Gas). Reliance Industries is expected to start the supply of KG Basin gas during the second half of calendar year 2008 which will be initially of 40 mmscmd of gas which can be increased to 80 mmscmd at peak level (thus doubling the gas production in India from around 80 mmscmd in FY 2008 to around 160 mmscmd by FY 2010), within one year from the date of commercial production.
Mumbai Airport is a jewel in the crown
The top 7 airports in India handle more than 75% of passenger and freight traffic. Of these, Mumbai is the busiest, handling ~25% of India’s air passenger traffic. Mumbai is the commercial capital of India and serves as an important destination and transit point for both domestic and international passengers and freight traffic.
In January 2006, a consortium led by GVK was awarded the mandate to modernize the Mumbai Airport. Mumbai International Airport Pvt. Ltd. (MIAL), a joint venture company owned by the GVK-led consortium (74%) and Airports Authority of India (26%) was formed in March 2006 to manage and develop the airport.
MIAL is structured on the build–own–operate (BOO) basis with an initial concession term of 30 years with an option of an extension of 30 years at the option of MIAL.
GVK holds 37% in the Mumbai Airport. The airport is now being upgraded to handle 40mn passengers and 1mn tonnes of cargo.
At present, the Mumbai Airport caters to 25mn passengers and handles around 520,000 tonnes of cargo annually. The master plan has been designed to expand and upgrade the infrastructure at CSIA to cater to traffic of 40mn passengers per year and 1mn metric tonnes of cargo per year.
While the aero revenues of the airport are regulated by a price cap formula, Non-aero revenues comprising duty free, advertising and retail revenues are value drivers for the airport. The biggest contributor to the value of the airport is the proposed nearby real estate development of 20mn sqft, which is allowed as a part of the concession.
Navi-Mumbai Airport is another huge potential opportunity
The proposed greenfield airport at Navi Mumbai would come up by 2012 and have a capacity to handle nearly 55mn passengers annually. It is proposed to be developed with 74% equity participation by the private sector. The Airports Authority of India, the Government of Maharashtra and CIDCO will hold the remainder.
The central government has already given its in-principle approval to the project, which is expected to ease overcrowding at the existing Mumbai Airport.
GVK has a right of first refusal over the proposed Navi Mumbai Airport. GVK has the right to match the highest bidder, provided it bids within a 10% range of the highest bid. Winning the Navi Mumbai Airport would be vital for GVK since it would remove any threat of competition for the Mumbai traffic.
Non-aeronautical activities of the airport will generate further revenues
The Airports Authority of India which managed the Mumbai International Airport earlier did not focus on developing the non-aeronautical activities of the airport. Once the handover of the airport to MIAL was completed, MIAL has explored various means to increase the non-aeronautical revenues of the airport. These are:
Duty-free revenues: MIAL had earlier awarded a concession to a consortium of ITDC and Aldeasa, Spain, for setting up retail duty free outlets at the Mumbai Airport, with a minimum guarantee of Rs 549 crore in concession fees. However, the concession agreement was mutually terminated by both parties and MIAL has subsequently, in November 2007, awarded the duty free concession to DFS Ventures Singapore (Pte) Ltd., with a minimum guaranteed concession fee of Rs 260 crore over the three-year term of the concession.
Advertising revenues: MIAL awarded the contract for advertisement rights at the airport to Times Innovative Media (P) Ltd (TIMPL) in March 2007. Times Innovative Media will design, develop and maintain all advertisement locations inside the terminals and in the outdoor premises of CSIA for the next three years. The contract, which covers static advertising sites, aerobridges, baggage trolleys, plasma and LCD screens, is expected to generate Rs 240 crore for MIAL.
Opportunities by way of real estate projects on Mumbai Airport land is mindblogging
The Mumbai International Airport is located on land measuring 1,976 acres, of which land to the extent of 10%, i.e. 197 acres, can be utilized for commercial development. MIAL plans to build 20mn square feet of commercial property on these 197 acres. The land has been given on a long-term lease of 30 years extendable by another 30 years contiguous to the concession agreement for the airport.
About 276 acres of land out of the total 1,976 acres of Mumbai Airport land is encroached by slums. This poses a significant obstacle to the upgrading of the airport as well as blocks of prime real estate. MIAL has recently awarded the slum rehabilitation contract to HDIL. This contract would entail no cash outflow for MIAL.
MIAL has around 100 acres of land under its control that it can use immediately for commercial development. Further, it has around 52 acres of land which is leased out that can be brought under development. So to develop the 197 acres of land, MIAL only needs ~45.6 acres of land to be freed from slums out of a total of 65 acres that it will get post rehabilitation.
Setting up another thermal power plant costing Rs 12,000-14,000 crore
GVK, which is setting up a 660 Mw thermal power project at Goindwal Sahib, Amritsar, at a project cost of about Rs 3,000 crore, has also plans to set up a thermal power plant at Talwandi Sabo (1,800 Mw) and another coal-based thermal power plant near Rajpura (1,200 Mw). These projects are likely to attract an investment of Rs 12,000-14,000 crore.
Good consolidated FY 2008
For the fiscal ended Mar ’08, the consolidated net revenue of GVKPIL increased 18% to Rs 469.99 crore. Revenue of power segment stood at Rs 320.49 crore, a rise of 17% and account for 69% of total sales. The revenue from roads was higher by 18% to Rs 136.86 crore (or 29% of sales) and that of others which includes the revenue from airports, investments and SEZ stood at Rs 12.63 crore (or 2% of total sales).
Operating profit stood declined by 7% to Rs 186.10 crore as the segment margin of power business shrunk by whopping 900 basis points to 11.2% (due to gas supply cosntraints) . The segment margin of roads and others have expanded to 60.2% and 81.6% from 58.3% and 52.5% respectively. The segment profit of power business declined by 35% to Rs 35.88 crore. While the segment PBIT of roads and others was higher by 22% (to Rs 82.42 crore) and 117% (to Rs 10.30 crore).
Other income was higher by 152% to Rs 62.16 crore and PBIDT was higher by 10% to Rs 248.26 crore. The interest cost was lower by 34% to Rs 41.37 crore and similarly the depreciation was lower by 4% to Rs 77.57 crore. EO income was Rs 58 lakh compared to Rs 40 lakh in the corresponding previous period. Thus the PBT after EO was higher by 57% to Rs 128.74 crore. The taxation was higher by 4% to Rs 23.85 crore thus leaving the PAT before minority interest and share on P/L from associates at Rs 104.89 crore, a rise of 84%. Share of profits from associates was higher by 21% to Rs 40.67 crore and minority interest was lower by 69% to Rs 10.09 crore. Finally the net profit was higher by 134% to Rs 135.47 crore.
Increasing stake in subsidaries
GVKPIL has increased its stake in the following subsidiaries thus making all of them as its wholly owned subsidiaries effective Feb 1, ’08. They are - 1.Alaknanda Hydro Power Company - Previous Holding: 99.97% - Current Holding: 100% 2. Name of the Subsidiary: GVK Power (Goindwal Sahib) - Previous Holding: 98.60% - Current Holding: 100% 3. Name of the Subsidiary: GVK Coal (Tokisud) Company - Previous Holding: 99.00% - Current Holding: 100% 4. Name of the Subsidiary: GVK Airport Developers - Previous Holding: 99.00% - Current Holding: 100% 5. Name of the Subsidiary: Goriganga Hydro Power - Previous Holding: 99.00% - Current Holding: 100% 6. Name of the Subsidiary: GVK Aviation - Previous Holding: 99.50% - Current Holding: 100% 7. Name of the Subsidiary: GVK Infratech - Previous Holding: 99.00% Current Holding: 100%.
The company has incorporated GVK Energy effective Feb 18, ’08. The name of the company was subsequently changed into GVK Oil & Gas.
Valuation
In FY 2009 we expect the company to register sales and net profit of Rs 950.65 crore and Rs 221.20 crore respectively. On equity of Rs 140.58 crore and face value of Re 1 per share, EPS works out to Rs 1.6. The share price trades at Rs 53. P/E works out to 33.
Thursday, May 15, 2008
Ferro Alloys Corporation (FACOR Group)
Facor Alloys has an installed Cr alloys capacity of 75,000tpa at Shreeram Nagar, AP. The company
does not have Cr ore linkage and depends on Ferro Alloys Corporation for processed ore or takes
conversion work from the likes of Tata steel.
Another group company, Facor Steel is the steel manufacturing company with an installed capacity
of 50,000tpa of alloy steel at Nagpur, Maharashtra. Apart from producing own steel from SS scrap,
the company also takes conversion work from MNCs. To achieve raw material security, Facor steel
has entered into long term agreements with SS scrap suppliers based out of Canada. Moreover, to
move a step closer to end customers (automotive mfrs), Facor Steel has taken a forward integration
program wherein the company is setting up a forging unit at a capex of Rs350mn, which is expected
by Dec '08.
Future outlook for Facor group
Ferro Alloys Corporation has recently come out of the grip of BIFR, which would enable the company
in undertaking capacity expansion plans. With the commissioning of 45MW of power plant, the
company would be completely backward integrated. This will help the company in reducing input
cost and at the same time securing uninterrupted power supply. Action on Rs25.0bn capex plan to
set up an integrated stainless steel plant would provide further upside potential.
Ferro Alloys Corporation (FACOR Group)
Ferro alloys corp - Moving towards complete backward integration .
The flagship company of the group, Ferro alloys corporation has limited backward integration in the form of captive Cr ore mines with reserves of 6mn tonnes and Cr ore processing facility of 300,000tpa. However, 50% of the processing facility is dedicated to conversion of Cr ore from Tata Steel into processed ore, as company is able to extract only 200,000tpa of Cr ore from its mines due to technical reasons.
To move towards complete backward integration, the company is planning to set up a 45MW by Sep '09. Capital requirement of Rs2.0bn for the project is to be funded by way of DER of 4:1, out of which debt to the tune of Rs1.0bn has been tied up with rural electrification..
Ferro alloys corporation has mega expansion plans to set up an integrated stainless steel plant of capacity 0.5mntpa along with 250MW of coal-based power plant. However, capital requirement of Rs25.0bn for the project, which the company want to fund by the way of Rs17.0bn of debt andRs8.0bn of equity, is to be tied up
Friday, May 9, 2008
WS Industries
WS Industries
BuyPrice target: Rs108
Current market price: Rs82
High input cost hurts bottom lineResult highlightsFor Q4FY2008 WS Industries (WSI) has reported a 47.9% growth in its revenues to Rs66.3 crore. The revenue growth was led by a robust growth in both project and insulator sales. The operating performance of the company was disappointing with the operating profit margin (OPM) declining by 20 basis points year on year (yoy) on account of a rising input cost. The raw material cost as a percentage of sales increased by 840 basis points to 52.2%. The interest cost declined by 13.5% to Rs1.5 crore whereas the depreciation charge rose by 16.9% to Rs1.0 crore during the quarter. The net profit increased by 36.8% to Rs3.1 crore and was below our expectations on account of the lower than expected operating performance and a higher than expected tax rate. The tax rate in the current quarter came in at 44.9% on account of a high deferred tax provisioning. At the end of FY2008, the unexecuted orders of the company stood at Rs180 crore against Rs150 crore in Q3FY2008. The promoters have subscribed to 925,000 warrants of the company at Rs107 per warrant; the same on conversion would result in a 4.2% dilution of the equity. WSI is in the process of drawing up a concrete plan for the utilisation of the funds raised through this issue. The company's additional capacity in the Andhra special economic zone (SEZ) is expected to come on stream by mid FY2009. In our view this capacity would be the growth driver for the company going forward. A healthy order book of Rs180 crore and increased production capacity provide visibility to the future earnings of the company. We have revised our FY2009 earnings estimate to Rs7.5 per share owing to the higher input cost. We have also introduced our FY2010 earnings estimate in this report--we expect WSI to report compounded annual growth rate (CAGR) of 17.8% and 26.5% in the revenues and profits respectively over FY2008-10. We maintain our positive outlook on the stock and maintain our Buy recommendation on it with a price target of Rs108. We have valued WSI on the basis of the sum-of-the-parts (SOTP) method. We have rolled forward the target multiple for the core business and valued the same at Rs80.2 per share. We have valued the real estate subsidiary at Rs27.9 per share. At the current market price the stock trades at 7.3x and 5.5x our fully diluted earnings per share (FDEPS) estimates for FY2009 and FY2010 respectively.
Friday, May 2, 2008
2-May-2008 Trading Tips
- Buy Maruti with Target-750-759
- Crompton Greaves
Growing well
The company remains well-placed to capitalise on opportunities thrown up by growth in power, industrial and consumer electrical industries
Buy
Crompton Greaves
BSE Code
500093
NSE Code
CROMPGREAV
Bloomberg
CRG@IN
Reuter
CROM.BO
52-week High/Low
Rs 454/ Rs 208
Current Price
Rs 267 (as on 23rd April 2008)
Crompton Greaves a BM Thapar Group Company is mainly engaged in the manufacture, distribution and sale of electrical and electronic equipment/ systems for power, industry and consumer segments.
The company is organized into three business groups viz. Power Systems, Industrial Systems, Consumer Products. Nearly, two-thirds of it's turnover accrues from products lines in which it enjoys a leadership position. Presently, the company is offering wide range of products such as power & industrial transformers, HT circuit breakers, LT & HT motors, DC motors, traction motors, alternators/ generators, railway signaling equipments, lighting products, fans, pumps and public switching, transmission and access products. In addition to offering broad range of products, the company undertakes turnkey projects from concept to commissioning. Apart from this, CG exports it's products to more than 60 countries worldwide, which includes the emerging South-East Asian and Latin American markets.
Thus, the company addresses all the segments of the power industry from complex industrial solutions to basic household requirements.
In Power Systems business, Crompton Greaves is one of the largest power T&D equipment manufacturers and the largest transformer manufacturer in India. With the acquisition of Pauwels and Ganz, CGL has achieved a global footprint. The acquisitions have also helped the company to have a presence across the value chain of T&D equipment and services. Today, it is one of the few manufacturers in the country to have access to 765 KV transformer technologies. Hence, it has capability to compete with large companies such as ABB and Areva for a share of incremental investment in T&D sector, which will come largely in high-voltage products. CGL also provides turnkey project execution and retrofitting services.
In the Industrial Systems business, Crompton Greaves is one of the largest manufacturers of industrial motors in the country. Demand for industrial equipment such as motors usually follows industrial capex trends.
In Consumer Products, it manufactures household electrical appliances, such as fans, electric bulbs and pumps. The industry growth is directly linked to GDP growth. With the increase in disposable incomes and a move towards organized housing, the company will gain market share from unorganized and smaller players.
Its business operations consist of 22 manufacturing divisions spread across in Gujarat, Maharashtra, Goa, Madhya Pradesh and Karnataka, supported by well knitted marketing and service network through 14 branches in various states under overall management of four regional sales offices located in Delhi, Kolkata, Mumbai and Chennai. The company has a large customer base, which includes State Electricity Boards, Government bodies and large companies in private and public sectors.
Impressive December 2007 quarter results
Standalone sales grew by 13% to Rs 915.17 crore for the quarter with revenues from the Power systems growing by 13% to Rs 473.14 crore (or 47% of sales). Sale of Consumer Products division was higher by 15% to Rs 260.26 crore (or 26% of the total sales). And revenues from Industrial Products was higher by 14% to Rs 263.39 crore (or 26% of total sales). Others were down by 35% to Rs 8.91 crore (or 1% of total sales).
PBIT margin of power systems was higher by 250 basis points to 12.4% given the cushion of price variation clause as far as the supplies to SEBs / Utilities. PBIT margin of industrial systems expanded by 400 basis points to 18.3% with the company scaling up value engineering there by improving the realization and cutting down the material cost as proportion to sales value. Equally the PBIT margin of highly competitive Consumer Products division too improved by 110 basis points to 9.8%.
The company that went on acquisition spree have integrated the business globally and reaping the benefits. This together with pick and choose of orders in the power segment in domestic market and value engineering the company managed to improve the margin handsomely overriding the impact rupee appreciation. Operating profit margin increased by 260 basis points to 12.7%. Material cost as proportion to sales net of stocks was lower by 440 bps to 55.7%. Though the staff cost was flat at 5.0% and other cost up by 110 bps to 12.6%, that could not fully offset the gain in material cost thus allowing the OPM to expand by 260 bps.
At operating level, all segments except others have done well on the back of sharp improvement in margin over a decent sales growth. While segment profit of power systems was higher by 42% to Rs 58.85 crore (or 45% of PBIT) that of Industrial systems was up by 46% to Rs 48.23 crore (or 37% of PBIT) riding on higher sales and expanded margin. Similarly the segment profit of consumer durable was up by 29% to Rs 25.47 crore (or 20% of total PBIT). The others segment continues to be in red with its segment loss put at Rs 3.17 crore as against a loss of Rs 1.11 crore in the corresponding previous quarter.
Spurred by forex gain and lease rentals the other income doubled to Rs 14.44 crore. And with interest cost lower by 8% (to Rs 7.15 crore) and depreciation cost higher by just 15% (to Rs 11.50 crore), the PBT before EO was higher by 57% to Rs 111.74 crore. Extraordinary expenses during the quarter as well as corresponding previous quarter were nil.
Taxation including deferred tax and FBT was higher by 70% to Rs 43.84 crore in absolute terms and the tax incidence was higher at 39.2% compared to 36.3% in the corresponding previous period. Limited thus the growth at net-profit level was 49% to Rs 67.90 crore.
Standalone sales for the nine month ended Dec ’07 were higher by 14% to Rs 2716.23 crore. Operating profit was higher by 44% to Rs 327.24 crore with OPM improving to 12% from 9.6%. With gains at sales and operating level being backed by 50% growth in other income and lower interest cost the PBT was higher by 59% to Rs 319.82 crore. After accounting for taxation of Rs 108.97 crore (up 39%) the net profit eventually closed higher by 72% to Rs 210.85 crore.
For the nine month ended December 2007, sales of power systems have increased by 14% to Rs 1356.94 crore (or 45% of total sales) and its segment profit was higher by 53% to Rs 162.93 crore (or 43% of total PBIT). Segment sales of Consumer product were higher by 14% to Rs 814.64 crore and segment profit was higher by 31% to Rs 83.78 crore (22% of total PBIT). Similarly the segment sales of Industrial systems were higher by 19% to Rs 772.44 crore and segment profit was higher by 55% to Rs 139.76 crore.
Consolidated figures are much higher
Against the standalone revenues and PAT of Rs 915.17 crore and Rs 67.90 crore respectively, on consolidated basis, the company has registered revenues of Rs 1713.51 crore and PAT of Rs 82.71 crore respectively for the quarter ended December 2007
The company has four Indian subsidiaries viz CG Motors Private Limited (CGM), CG Capital & Investments Limited (CG Capital), CG-PPI Adhesive Products Limited (CG PPI) and Malanpur Captive Power Limited (MCPL). CGM, CG Capital and MCPL are subsidiaries of the Company, and CG PPI, being a subsidiary of CG Capital, in terms of the provisions of the Companies Act, 1956, is also the company's subsidiary. The Netherlands- based CG International B.V., a 100% subsidiary of the company, is the ultimate holding company of the Pauwels and Ganz Group, comprising 15 downstream subsidiaries. In totality, the company has 20 subsidiaries, 4 Indian and 16 foreign.
Encouraging business environment for all its business divisions
Increase in generation capacities has necessitated increase in transformer capacities. The Government of India (GoI) has set a goal of "Power for All" by FY12E. Investments in infrastructure, particularly in the power generation, and transmission & distribution (T&D) segments, are estimated to be at Rs 1400 billion for T&D alone in the XIth Plan (FY07-FY12). Transformers & switchgears are the key constituents for T&D. Every 1 MW of generation capacity added, entails an additional 7 MVA of transformer capacity to be added. India is set to commission 69,000 MW of generation capacity in the next 5-6 years, entailing an estimated 483,000 MVA of capacity requirement. Going forward, this is expected to create a huge demand for transformers.
This apart, replacement will drive the second round of demand for transformers. Old and outdated transformers are being used by utilities leading to huge T&D losses. Immediate replacement is the need of the hour and the government has been emphasizing on this through programmes like APDRP. Average life of a power transformer is about 25 years and that of a distribution transformer is 15-20 years. This should generate a replacement demand to the tune of 25,000 to 30,000 MVA p.a. in the next 4-5 years
Large industrial capex good for its industrial motors business
The company is also a major player in industrial motors. It manufactures both high tension (HT) and low tension (LT) motors. This segment is expected to grow robustly since there will be large industrial capex in India for the next few years. CGL’s consumer products division, which manufactures products such as household fans and pumps, should also reap benefits of high GDP growth.
Reaping benefits of past acquisitions
Crompton Greaves enjoys superior brand equity in the domestic markets. However, its products were not as widely accepted internationally. The company is now spreading its footprint across the globe with certain key acquisitions that have strong brand equity. Thereby the company has diversified its customer base and reduced its heavy dependence on the domestic market that had proved to be nemesis during FY 1999 to FY 2001.
Crompton Greaves’ acquisitions (Pauwel, Ganz and Microsol), have given it the much-required brand name in the overseas market, access to superior technology and automation products, thus providing unique synergies to become a global T&D player.
In May 2005, Crompton Greaves acquired the Belgium-based loss-making Pauwel group that has five manufacturing facilities in three continents at an EV of Rs 191.4 crore. Since then Pauwel has turned around, partly due to superior European replacement demand and partly due to CGL's better management.
Pauwel group has manufacturing facilities in Belgium, Ireland, Canada, USA and Indonesia and well spread distribution network across the globe. The acquisition catapulted Crompton Greaves amongst top ten transformer manufacturers in the world.
Apart from strengthening it's foothold in the Indian market, Crompton Greaves’ acquisition of the Pauwels Group and it's transformer manufacturing facilities in five countries is expected to provide a significant impetus to the company's international presence.
The additional turnover of approximately Rs 1380 crore of Pauwels Group for it's last financial year is expected to increase Crompton Greaves’ International business to around 50% of it's turnover, making the company a force to reckon with, in the international market.
Apart from improving its geographical reach, the acquisition has given Crompton Greaves a new clientele to whom it can cross-sell its other products, and use its superior project management skills to position itself as a total solutions provider.
Crompton Greaves also successfully acquired Hungarian based Ganz (GTV) on 17th October, 2006. Ganz has added Gas Insulated Switchgears (GIS), Rotating Machines, and the supporting areas of design, erection, and commissioning to CGL's portfolio of products. This step makes high-end technology in switchgears required in EHV systems available to Crompton Greaves. Ganz Translator Villamossagi Zrt (GTV) and Transverticum kft (TV) located in Hungary, have been acquired at an EV of Rs 203 crore. TV is a subsidiary of GTV.
Crompton Greaves expects to ramp capacity utilization at Ganz by executing incremental orders of Pauwels, using Ganz’s facilities.
Crompton Greaves has 18 Foreign Subsidiaries resulting from Pauwels and Ganz Acquisition.
Pauwels and Ganz to benefit from the International replacement demand for transformers
International replacement demand for transformers has also helped in the transformation of Pauwels: The North American grid failure of 2005 caused a virtual blackout in USA & Canada, due to power transformer failure. A majority of transformers had been installed 20 - 40 years ago (transformers usually have a life span of 25 years). This has caused a sudden spurt in replacement demand for transformers apart from increased stress on integration of networks.
This market is expected to grow by 15-17% CAGR over the next three years, as against 3-5% CAGR growth for the last decade. Crompton Greaves, along with its acquisitions (Pauwels and Ganz), caters to the European, North American and Australian markets.
Acquisition Microsol would place CGL to a superior trajectory
Microsol acquisition would increase Crompton Greaves’ strengths in the area of high-end engineering and sub-station automation capabilities. Crompton Greaves will now move towards being a solutions provider from a product based company and market the same all over the world. The acquisition was done at an EV of Rs 57.8 crore.
Will likely acquire more businesses going forward
Crompton Greaves may opt for more acquisitions, especially in the industrial drives and relay automation segment, to expand its geographical reach as well as acquire further high-end technology. The move is well supported by its strong balance sheet and positive cash flows.
Acquisitions to further improve operating margin going forward
In FY 2006, Crompton Greaves’ operating margin was adversely affected because of its acquisition of Pauwel, a loss making entity. However, Crompton Greaves has managed to turnaround the financial health of Pauwel.
With increasing synergies among Crompton Greaves, Pauwel and Ganz expected to fully factor in by FY09E, the operating margin are bound to improve from the current levels. Also, its acquisition of Microsol would enable the company to foray into high-end solution projects, which yield superior margins.
Acquisitions take the company to the elite big league
Crompton Greaves’ acquisitions over the past two years have put the company in the league of large multinational companies such as ABB and Siemens, at least in terms of product portfolio. Apart from high-voltage direct current (HVDC) technology, Crompton Greaves now has access to a full suite of T&D products and services. This will help the company to tap large opportunities in high- and ultra-high voltage segments. Besides addressing the Indian market, CGL is well positioned to access the European and North American markets.
With the acquisition of Pauwels and Ganz, the company has the technology and resources to access these highly competitive markets. An ageing grid and stress on renewable energy has fuelled replacement demand in the European and North American markets. The size of these markets gives ample opportunity to Crompton Greaves to gain significant revenue from them. Pauwels, Ganz, and Microsol will help the company to address these markets.
Buoyant outlook
Strong investment splurge in the power sector along with strategic investment made by the company in technology and capacity to power strong growth momentum for Crompton Greaves going forward. Crompton Greaves continues to expand its product offering and moving up the value chain with both organic and inorganic route. The acquisition of Pauwels and Ganz while filled the product gap for the company apart from providing ready marketing and production footprints for access to European market, the recent acquisition of Microsol have resulted in the company turning fully integrated in the T&D value chain. Having filled the product gap and mustering presence across the value chain the company now turned its focus on improving profitability with right strategies to improve the utilization of resources at hand. On the competitive consumer products market of Fans, Luminaries etc the company is building strong brand recallability and reputation to sustain growth momentum along with right strategies of outsourcing and manufacturing. The new plant for Fans at Himachal Pradesh would bring in better volumes along with tax concessions for the division.
As demand preferences shift from a products to a solutions domain, the company has built capabilities to fulfill customer expectations with integrated solutions that combine information systems, people and processes, in contrast to its earlier emphasis, which was more product oriented.
The integration of the acquired companies has now entered more intricate arenas of information systems, organizational structure and governance. The company has already restructured its transformer, switchgear and engineering projects businesses of Crompton Greaves in India, and the power product and solution portfolios of Pauwels and Ganz into a new SBU-`CG Power', which will be the unified face for its ‘Transmission and Distribution’ business worldwide; this new SBU is expected to further realise benefits of co-ordinated sourcing, marketing and greater value extraction from larger scale synchronized operations in the long run. Though not as large as Power Systems, the company is steadfastly supported in its spirited journey of growth by a stable and profitable Industrial Systems business, and a low cost, high cash flow oriented Consumer Products business. With a unique combination of these three businesses, the company is well poised to capitalize on future global growth opportunities.
Valuation
In FY 2008, we expect the company to register standalone sales and net profit of Rs 3844.82 crore and Rs 302.01 crore respectively. On equity of Rs 73.31 crore and face value of Rs 2 per share, EPS works out to Rs 8.2. Consolidated EPS works out to Rs 10.1. In FY 2009, standalone and consolidated EPS are expected to rise to Rs 10.6 and Rs 12.8 respectively. The share price trades at Rs 267. P/E on FY 2009 consolidated EPS works out to 20.9.
Crompton Greaves: Financials - Bata India
Going places
The company is on an aggressive growth path on the retail front. The company’s massive realestate project is also progressing well
Buy
Bata India
BSE Code
500043
NSE Code
Not listed
Bloomberg
BATA@IN
Reuter
BATA.BO
52-week High/Low
Rs 296/ Rs 136
Current Price
Rs 152 (as on 16th April 2008)
Bata India (51% subsidiary of Bata, Netherland) is the largest footwear retailer and a leader (a 35% market share) in the footwear industry in India. Over the last couple of years, the company has posted massive improvement in financials. In FY 0512 to 0712, while sales have grown at above 10% pa, OPM has more than doubled to 7%.
This improvement in performance is a result of improvement of shoe line designs leading to higher Gross Margins, Opening of many new stores and remodeling of existing stores, Reduction in cash drain stores, Reduction in wholesale credit, Introduction of franchisee model, Reduction in Receivables, Repayment of debts leading to lower financial costs, Rebuilding a strong Management Team, strengthening Team work and efficiency and Introduction of Information technology for better control.
The Wholesale Business has been focused on the top 300 Wholesalers who are willing to do business on the Company's revised commercial terms. The Company has introduced a stringent credit policy in the Wholesale business as a result of which, Wholesale Credit has dropped. Business with Wholesalers who have defaulted in paying the Company in the past has been restricted or stopped. The Wholesale Business is showing overall improvement with the introduction of exclusive/distincti ve shoe lines with higher margins and by reducing the operating costs.
Consolidation of operations in Gurgaon, which is fast emerging as the Retail Capital of India, has also helped in the Company's turnaround.
The country is on the verge of another revolution - the emergence of an 'organized retail segment' also known as Modern Trade which is now already in existence in this country. The elements that will significantly influence this revolution are Supply Chain Management, Manpower Management and Real Estate. Manpower Management and best services will be the most important determinant factor for success. The Company has taken significant measures to rationalize existing manpower that includes designing specific training needs for employees, and extension of VRS. The goal is to bring down employee costs, which is exceedingly high in comparison with competitors.
Another factor that will contribute to the success of organized retail is 'Real Estate'. With traditional shops making way for departmental stores, hypermarkets and western style malls, presence in these happening places will give the much required edge over competitors. Although, the Company has a network of retail outlets spread across the country, it is opening up new outlets in these malls to further strengthen its retail network. With the old stores being renovated and refurbished in line with present needs, the Company is projecting itself as a contemporary and fashion conscious business which will create trends rather than follow it. The new and renovated stores follow international design and standards of Bata Stores worldwide.
Now the company is on an aggressive growth path and has implemented forward looking initiatives like investments in large format stores, trendy shoe collections and customer service programs. These initiatives have resulted in a healthy increase of 13% in turnover in FY 2007. Owing to the changing dynamics of the retail scenario in India and in order to stay ahead of competition, Bata has adopted an ambitious strategy of opening 70 stores every year for the next few years. The company has also introduced exclusive Hush Puppies Stores for the first time in India.With an aim to offer more choice and in-season designs to its consumers, Bata India introduces new collections on a half-yearly basis. The consumers can choose from a plethora of brands that includes trendy international brands like Marie Claire & Weinbrenner, sporty Power & North Star, comfortable Hush Puppies, Dr. Scholls, Comfit & Ambassador.
Bata India’s joint venture real estate project with Calcutta Metropolitan Group Ltd. to develop 262 acres land in Batanagar into a world class integrated township has also been progressing well. The Company is developing around 262 acres of land leased to it in Batanagar. For the purpose of developing this land a special purpose vehicle named Riverbank Holdings Pvt. Ltd. has been formed which is a 50:50 joint venture between the Company and Calcutta Metropolitan Group Limited. The estimated total investment in this Project will be around Rs.1300 crore, excluding the cost of land, school, hospital and hotel construction. The Company's proposal for setting up a Special Economic Zone (SEZ) catering to the IT Sector, which will be spread over a total area of 25 acres, with an approximate investment of Rs.333.5 crore, has been approved by the Central Government, with the full support of the Government of West Bengal. This SEZ will go a long way in making the economy of West Bengal stronger. The company has also been able to finalize with Reliance Group for their setting up a Hypermarket in the Project site. Besides residential, the Project involves the creation of an entertainment and shopping zone, and a golf course along with redevelopment of the river bank as a world- class attraction. The valuation accretion from this project will be substantial for Bata India.
In FY0712, the company's sales have increased 13% to Rs 867.48 crore, OPM rose from 5.5% to 7.1%. With not much increase in fixed costs, PBT before extraordinary items jumped 61%. The company earned EO income of Rs 17.13 crore in FY0612. Due to this growth in net profit in CY2007 moderates to 18% to RS 47.44 crore. For FY0812 we expect the company to report sales and net profit of Rs 971.58 crore and Rs 57.19 crore, giving an EPS of Rs 8.9. Current price of Rs 152 discounts the expected FY0812 EPS by 17 times. Considering the company’s strong brand equity, growth prospects and the potential value creation from the realestate project, the scrip offers sound investment opportunity.
Bata India: Financials
Thursday, May 1, 2008
JP Associate Report
JP Associate Target 350+
Jaiprakash (JAIA.BO)
Buy: India’s Infrastructure Capex Play at Stress-case Valuation
Target price cut to Rs300 — We are cutting our target price to Rs300 from
Rs462 to factor in (1) an EV/EBITDA of 12.0x (16.0x previously) for
Construction; (2) an EV/ton of US$120 (US$160 earlier) for Cement; (3) Jaypee
Power at a 60% discount to P/E valuations as we no longer value projects in the
initial planning stages; and (4) a 14% cut in realizations/sq ft for Jaypee
Infratech. We maintain our earnings estimates.
Stock looks compelling... — After a 50%-plus correction, the stock is close to
our stress-case value of Rs196.
...because — In 5 years JPA will be: (1) the third-largest cement company in
India by capacity; (2) one of the largest landbank holders in India; (3) a power
capacity holder of repute with a coal mine; (3) an E&C company without
dependence on external orders to grow; (4) a road asset holder with
expressways totaling 1,212km; and (5) an executor of India’s first F1 project.
Risks factored in — Our target price of Rs300 factors in (1) executions risks,
(2) capital risks, (3) interest-rate risks, and (4) de-rating of various sectors in
which JPA operates given current market conditions. The underlying
businesses remain intact and are not under stress, in our view.
Business value, not P/E value — Our view is based on business valuations, not
private-equity valuations, which is evident from the fact that we value (1)
Jaypee Power Ventures at a ~60% discount to P/E valuations, and (2) Jaypee
Infratech at a ~37% discount to P/E valuations.
