Welspun Gujarat Stahl Rohren is a part of high growth sector. The oil and energy sector is becoming very big in India and India is emerging as the pipe manufacturing hub due to its lower cost of production. Welspun is the largest player in this segment.
Welspun Gujarat Stahl Rohren Ltd
Welspun is a leading player in Steel Pipe and Tube manufacturing sector. It caters to the growing oil and energy industry, both domestically and overseas. It has shown spectacular growth and has also expanded and integrated its production capacities fast.
Financial Highlights:
For the first quarter of FY-2007-08 the company put up an impressive performance. While the revenues grew 50.5% to Rs 806.7 crores, the Net profit grew in a very robust fashion up 164% to Rs 69.3 crores. The operating margin went up a whopping 3.7% to 16.6% mainly due to the profitable global orders from Exxon Mobil and Kinder Morgan.
Reasons to buy:
- Part of high growth sector. The oil and energy sector is becoming very big in India and India is emerging as the pipe manufacturing hub due to its lower cost of production. Welspun is the largest player in this segment.
- Welspun can boast of an impressive client list which includes many overseas giants, apart from Indian majors.
- The company is completing a backward integration project with an installation of a plate mill. This will expand the margins and boost the bottom line for 2007-08.
- The company has commissioned a plant in the US to service that profitable market.
- The profit growth has not been fully discounted in the valuation on a forward PE basis. The company is attractively priced 16 times its 2007-08 earnings. This compares favourably with a profit growth of more than 100% which Welspun is witnessing.
Saturday, February 28, 2009
Sejal Architechtural Glass Ltd - Multibagger
Sejal Architechtural Glass Ltd (Rs 24 Buy)
Sejal Architectural Glass Ltd (SAGL) is in the business of processing glass and has processing facilities for insulating, toughened, laminated and decorative glasses. SAGL has an integrated processing unit, having processing lines for all specialty glasses (Insulating, Toughened and Laminated) under one roof.
SAGL has three distinct SBU’s i.e. Processing, Retail and Float glass manufacturing. Till FY07 the revenues were purely generated from the processing division. The retail division commenced its operations from April, 2007. Further the float glass plant which is the main inflexion point is under construction and would be operational in Q1FY10.
With this SAGL becomes a complete value chain providing company from manufacturing of glass to selling of high end lifestyle products for home décor (art & artifacts, lights & luminaries, sanitary - ware & bath fittings and glass products).
Investment Rationale
Net Profit to grow 11x by FY12
The 550tpd capacity float plant is likely to transform this Rs55 Crore company into a Rs450 crore company by FY12; i.e. a whopping 8x growth. As a result of backward & forward integration, bottom line is expected to grow over 11x by FY12 to Rs49 crore.
Trading at close to Book value
The book value per share of SAGL is currently Rs50. This translates into a P/BV ratio of 0.48, which is significantly lower than P/BV ratio of 3.6 for its peer. Moreover, if we consider the replacement cost, implied value per share turns out to be approx. Rs135.
First fully integrated Indian player in architectural glass
SAGL is currently having a processing unit and is now setting up a new float glass manufacturing facility. This initiative of backward integration would help the company in procuring raw material for its processing unit. This will reduce raw material cost, dependence on imports and other domestic players for glass, thereby improving operating margins from 16% in FY08 to 34% by FY12.
Demand for glass to remain robust
The per capita consumption of glass in India is about 0.55 kg, which is much lower than 11 kg in USA and 2-5 kg in South-East Asian countries. It clearly shows the growth opportunity in the under-penetrated market. The demand for processed glass has also grown by more than 35% annually, in last 2 years.
Financials and Valuation:
We initiate our coverage on SAGL with a BUY rating and twelve months price target of Rs124 based on our DCF model. The stock is currently trading at P/E of 5.63x its FY09 earnings of Rs 4.26. Company’s EV/EBITDA and EV/Sales of FY08 is 16.7x and 2.7x respectively.
Sejal Architectural Glass Ltd (SAGL) is in the business of processing glass and has processing facilities for insulating, toughened, laminated and decorative glasses. SAGL has an integrated processing unit, having processing lines for all specialty glasses (Insulating, Toughened and Laminated) under one roof.
SAGL has three distinct SBU’s i.e. Processing, Retail and Float glass manufacturing. Till FY07 the revenues were purely generated from the processing division. The retail division commenced its operations from April, 2007. Further the float glass plant which is the main inflexion point is under construction and would be operational in Q1FY10.
With this SAGL becomes a complete value chain providing company from manufacturing of glass to selling of high end lifestyle products for home décor (art & artifacts, lights & luminaries, sanitary - ware & bath fittings and glass products).
Investment Rationale
Net Profit to grow 11x by FY12
The 550tpd capacity float plant is likely to transform this Rs55 Crore company into a Rs450 crore company by FY12; i.e. a whopping 8x growth. As a result of backward & forward integration, bottom line is expected to grow over 11x by FY12 to Rs49 crore.
Trading at close to Book value
The book value per share of SAGL is currently Rs50. This translates into a P/BV ratio of 0.48, which is significantly lower than P/BV ratio of 3.6 for its peer. Moreover, if we consider the replacement cost, implied value per share turns out to be approx. Rs135.
First fully integrated Indian player in architectural glass
SAGL is currently having a processing unit and is now setting up a new float glass manufacturing facility. This initiative of backward integration would help the company in procuring raw material for its processing unit. This will reduce raw material cost, dependence on imports and other domestic players for glass, thereby improving operating margins from 16% in FY08 to 34% by FY12.
Demand for glass to remain robust
The per capita consumption of glass in India is about 0.55 kg, which is much lower than 11 kg in USA and 2-5 kg in South-East Asian countries. It clearly shows the growth opportunity in the under-penetrated market. The demand for processed glass has also grown by more than 35% annually, in last 2 years.
Financials and Valuation:
We initiate our coverage on SAGL with a BUY rating and twelve months price target of Rs124 based on our DCF model. The stock is currently trading at P/E of 5.63x its FY09 earnings of Rs 4.26. Company’s EV/EBITDA and EV/Sales of FY08 is 16.7x and 2.7x respectively.
VBC Ferro Alloys Ltd - Multibagger
VBC has invested Rs 135 crores for 30% stake in Konaseema Gas Power project which has put up a 445 MW Natural Gas based power project at a total investment of over Rs 1400 crores. Start of commercial production of Konaseema project will lead to substantial benefits to the shareholders of VBC Ferro given its small Equity Capital of Rs 4.2 crores & may lead to an upward rerating of VBC Ferro stock.
VBC Ferro Alloys Ltd.
VBC has invested Rs 135 crores for 30% stake in Konaseema Gas Power project which has put up a 445 MW Natural Gas based power project at a total investment of over Rs 1400 crores. Start of commercial production of Konaseema project will lead to substantial benefits to the shareholders of VBC Ferro given its small Equity Capital of Rs 4.2 crores & may lead to an upward rerating of VBC Ferro stock.
VBC Ferro Alloys Ltd. (VBCFAL) was incorporated in 1981 and set up a plant for production of 10,000 TPA of Ferro Silicon at Rudraram Village, Medak District, Andhra Pradesh in the year 1984. The plant went into commercial production in April 1985. VBCFAL is currently operating a Ferro Alloy Plant comprising of 2 nos. sub-merged arc furnaces of 16.5 MVA capacities each having a installed capacity to produce 10,000 MTPA of Ferro Silicon, 31,500 MTPA of Ferro Chrome and 27,000 MTPA of Silicon Manganese /Ferro Manganese.
The factory premise is situated on land measuring 80 acres (approx.) at Rudraram. The factory premises has all the facilities like raw material handling system, pollution control system, Pump House, Laboratories, fully automated control system for furnaces & weighing-batching, EOT Cranes, and In-house Power Sub-station with 25 MVA Power Transformer etc. It is situated close to 132 KVA power line of AP Transco; the raw materials required are available within radius of 200/250 KM.
The Company is currently selling its products directly through its own sales depot located at Kolkata, New Delhi and Chennai and through its agents. The Company sells its products through direct tendering process where it has been enlisted as registered vendors. The Company is presently exporting to countries like China, Japan, Korea, Singapore, Canada, Itly, Taiwan, Turkey, Abu Dhabi, Germany, Mexico, Greece etc.
Some of the major Indian clients of VBCFAL include Panchamahal Steel Limited, Baroda, Sunflag Iron & Steel Limited, Nagpur, Mahindra & Mahindra Limited, Mumbai, Shah Alloys Limited, Ahmedabad, Jindal Steel & Power Limited, Raigarh, Jayaswals Nico Limited, Nagpur, Bharat Heavy Electrical Ltd., Hyderabad, Mishra Dhatu Nigam Ltd., Hyderabad, Visakhapatnam Steel Plant, Visakhapatnam, Indo German International Pvt. Ltd., New Delhi and Nilion Exports Limited, Mumbai.
INVESTMENT IN POWER PROJECTS
VBC Ferro has invested substantial amounts in Power Projects of the group.
Konaseema Gas Power Ltd. – VBC Ferro has invested Rs 135 crores towards Equity Capital of Konaseema Gas Power Ltd. and holds approximately 30% of the Equity of Konaseema. Konaseema has set up a 445 MW Gas Based power project. The total project cost of around Rs.1400 crores has been funded through Equity of Rs 440 crores and the balance as debt. The project has been commissioned, however it is not operational due to non availability of Natural Gas. The plant is expected to be operational by Mar 2009 with new gas availability from ONGC & Reliance.
Orissa Power Consortium Ltd. – The company has invested Rs 6.17 crores towards Equity of Orissa Power Consortium Ltd., which is setting up a 20MW Dam based Hydro Power project in Orissa.
CONCLUSION
Investment in the shares of VBC Ferro is recommended for investors with High Risk appetite in view of various risks and uncertainties attached, however the stock holds potential for high returns.
First the Risks
The fortunes of company’s core business of Ferro Alloys is dependent to a great extent on global prices of raw material and finished products and in the event of any adverse movement in the price of either, the financials of the company may get affected.
The company has made substantial investments in Konaseema Gas Power Ltd.. The power project which has not been operational till date due to non availability of Natural Gas is expected to be operational by March 2009 with new gas availability from ONGC and Reliance in the KG Basin. However in the event of delays in availability of Natural Gas, the financials of Konaseema may be adversely impacted which will impact valuations of VBC Ferro.
The other major risk is the contingent liabilities in the form of various corporate guarantees given by VBC Ferro Alloys for various group companies.
Coming to the positive side
VBC Ferro Alloys is involved in the manufacture of Ferro Alloys. The company has its plant located at Medak Distt. Of Andhra Pradesh on land area of around 80 acres.
The company has made investments of Rs 135 crores in the Equity Capital of Konaseema Gas Power Ltd. and holds approximately 30% of the Equity of Konaseema. Konaseema has set up a 445 MW Gas Based power project. The total project cost of around Rs 1400 crores has been funded through Equity of Rs 440 crores and the balance as debt.
The power project which has not been operational till date to non availability of Natural Gas is expected to be operational by March 2009 with new gas availability from ONGC and Reliance in the KG Basin. The start of commercial operations of Konaseema Gas Power project would be a big positive for shareholders of VBC Ferro since further value unlocking can happen when Konaseema goes public or inducts a financial investor.
The management’s optimism is evident from the fact that Konaseema has embarked upon further expansion of its capacity to 1265 MW by setting up additional capacity of 820 MW in Stage-II. The financial closure of Stage-II is at an advanced stage.
VBC Ferro has a small Equity of Rs 4.20 crores and high Book Value of Rs 322. The company has a market cap of around Rs 97 crores and Unsecured loans of Rs 27 crores, the enterprise value of the company is less than the investments of Rs 144 crores that it has made in Associate companies namely Konaseema (Rs 135 crores) and Orissa Power Consortium Ltd. (Rs 6.17 crores).
The benefits to the shareholders of VBC Ferro will be immense after the operation of Konaseema plant given a very small Equity Capital of Rs 4.20 crores.
VBC Ferro Alloys Ltd.
VBC has invested Rs 135 crores for 30% stake in Konaseema Gas Power project which has put up a 445 MW Natural Gas based power project at a total investment of over Rs 1400 crores. Start of commercial production of Konaseema project will lead to substantial benefits to the shareholders of VBC Ferro given its small Equity Capital of Rs 4.2 crores & may lead to an upward rerating of VBC Ferro stock.
VBC Ferro Alloys Ltd. (VBCFAL) was incorporated in 1981 and set up a plant for production of 10,000 TPA of Ferro Silicon at Rudraram Village, Medak District, Andhra Pradesh in the year 1984. The plant went into commercial production in April 1985. VBCFAL is currently operating a Ferro Alloy Plant comprising of 2 nos. sub-merged arc furnaces of 16.5 MVA capacities each having a installed capacity to produce 10,000 MTPA of Ferro Silicon, 31,500 MTPA of Ferro Chrome and 27,000 MTPA of Silicon Manganese /Ferro Manganese.
The factory premise is situated on land measuring 80 acres (approx.) at Rudraram. The factory premises has all the facilities like raw material handling system, pollution control system, Pump House, Laboratories, fully automated control system for furnaces & weighing-batching, EOT Cranes, and In-house Power Sub-station with 25 MVA Power Transformer etc. It is situated close to 132 KVA power line of AP Transco; the raw materials required are available within radius of 200/250 KM.
The Company is currently selling its products directly through its own sales depot located at Kolkata, New Delhi and Chennai and through its agents. The Company sells its products through direct tendering process where it has been enlisted as registered vendors. The Company is presently exporting to countries like China, Japan, Korea, Singapore, Canada, Itly, Taiwan, Turkey, Abu Dhabi, Germany, Mexico, Greece etc.
Some of the major Indian clients of VBCFAL include Panchamahal Steel Limited, Baroda, Sunflag Iron & Steel Limited, Nagpur, Mahindra & Mahindra Limited, Mumbai, Shah Alloys Limited, Ahmedabad, Jindal Steel & Power Limited, Raigarh, Jayaswals Nico Limited, Nagpur, Bharat Heavy Electrical Ltd., Hyderabad, Mishra Dhatu Nigam Ltd., Hyderabad, Visakhapatnam Steel Plant, Visakhapatnam, Indo German International Pvt. Ltd., New Delhi and Nilion Exports Limited, Mumbai.
INVESTMENT IN POWER PROJECTS
VBC Ferro has invested substantial amounts in Power Projects of the group.
Konaseema Gas Power Ltd. – VBC Ferro has invested Rs 135 crores towards Equity Capital of Konaseema Gas Power Ltd. and holds approximately 30% of the Equity of Konaseema. Konaseema has set up a 445 MW Gas Based power project. The total project cost of around Rs.1400 crores has been funded through Equity of Rs 440 crores and the balance as debt. The project has been commissioned, however it is not operational due to non availability of Natural Gas. The plant is expected to be operational by Mar 2009 with new gas availability from ONGC & Reliance.
Orissa Power Consortium Ltd. – The company has invested Rs 6.17 crores towards Equity of Orissa Power Consortium Ltd., which is setting up a 20MW Dam based Hydro Power project in Orissa.
CONCLUSION
Investment in the shares of VBC Ferro is recommended for investors with High Risk appetite in view of various risks and uncertainties attached, however the stock holds potential for high returns.
First the Risks
The fortunes of company’s core business of Ferro Alloys is dependent to a great extent on global prices of raw material and finished products and in the event of any adverse movement in the price of either, the financials of the company may get affected.
The company has made substantial investments in Konaseema Gas Power Ltd.. The power project which has not been operational till date due to non availability of Natural Gas is expected to be operational by March 2009 with new gas availability from ONGC and Reliance in the KG Basin. However in the event of delays in availability of Natural Gas, the financials of Konaseema may be adversely impacted which will impact valuations of VBC Ferro.
The other major risk is the contingent liabilities in the form of various corporate guarantees given by VBC Ferro Alloys for various group companies.
Coming to the positive side
VBC Ferro Alloys is involved in the manufacture of Ferro Alloys. The company has its plant located at Medak Distt. Of Andhra Pradesh on land area of around 80 acres.
The company has made investments of Rs 135 crores in the Equity Capital of Konaseema Gas Power Ltd. and holds approximately 30% of the Equity of Konaseema. Konaseema has set up a 445 MW Gas Based power project. The total project cost of around Rs 1400 crores has been funded through Equity of Rs 440 crores and the balance as debt.
The power project which has not been operational till date to non availability of Natural Gas is expected to be operational by March 2009 with new gas availability from ONGC and Reliance in the KG Basin. The start of commercial operations of Konaseema Gas Power project would be a big positive for shareholders of VBC Ferro since further value unlocking can happen when Konaseema goes public or inducts a financial investor.
The management’s optimism is evident from the fact that Konaseema has embarked upon further expansion of its capacity to 1265 MW by setting up additional capacity of 820 MW in Stage-II. The financial closure of Stage-II is at an advanced stage.
VBC Ferro has a small Equity of Rs 4.20 crores and high Book Value of Rs 322. The company has a market cap of around Rs 97 crores and Unsecured loans of Rs 27 crores, the enterprise value of the company is less than the investments of Rs 144 crores that it has made in Associate companies namely Konaseema (Rs 135 crores) and Orissa Power Consortium Ltd. (Rs 6.17 crores).
The benefits to the shareholders of VBC Ferro will be immense after the operation of Konaseema plant given a very small Equity Capital of Rs 4.20 crores.
Mahindra Lifespace Developers - Multibagger
Mahindra Lifespace Developers CMP : 94.80
Q1FY09 Results – Key highlights:
Subdued Quarterly Performance:
The top-line for the quarter grew by 38.4% y-o-y to Rs. 48.21 crore. The EBITDA margins were down by 130 bps y-o-y and 2,140 bps q-o-q, due to high construction cost and revenue booking from low margin properties. Net profit was Rs 9.75 crore, 20.1% lower y-o-y but when adjusted for one time gain of 4.87 crore (sale of investment) in Q1FY08 it is up 33.0% y-o-y.
SEZ Update:
1) Chennai SEZ, 20 companies have become operational as of Q1FY09 and current employee base is 8,870. MLL is likely to unlock value from its Chennai SEZ project through development and sales of premium residential and commercial properties. The project has reached an advanced stage of development with the projected employee base expected to be 44,550 in 2010 and this would provide a captive demand for its residential and commercial projects. MLL through its 51:49 JV with Arch capital would start development of ~750 homes over 55 acres in Q3FY09.
2) Jaipur SEZ The Jaipur SEZ is also undergoing rapid development with ~2,600 acre of total 3,000 acre already acquired. The company has received notification for its IT SEZ and operations would commence in Q2FY09. Jaipur SEZ land has been acquired at very attractive price and we believe the project would start contributing significantly to revenues in the next 1-2 years.
3) During 1QFY09, the company received notification for its 52-acre Biotech SEZ in Thane.
Residential Segment Going Strong- MLL launched residential projects in Mumbai and Faridabad in the quarter. MLL led consortium also won a bid to develop 1.6 msf of residential space at Mihan SEZ Nagpur for Rs 330 psf
Valuations:
At the CMP of Rs 467.80, Mahindra Lifespaces is trading at around 17.3x FY09E EPS. MLL had a subdued quarter with lower sales and margins. MLL has a debt of only Rs 285.5 crore in its consolidated books with Rs 246.6 crore being in Jaipur SEZ. It has a D/E ratio of only 0.3x which is a big positive especially in current high interest rate environment.
Looking at the strong growth prospects of all its verticals, we recommend a BUY with a target price of Rs 594. At the target price the stock would be valued at 21.8 x FY09E EPS of Rs 27.29, implying an upside potential of 26.2%.
Q1FY09 Results – Key highlights:
Subdued Quarterly Performance:
The top-line for the quarter grew by 38.4% y-o-y to Rs. 48.21 crore. The EBITDA margins were down by 130 bps y-o-y and 2,140 bps q-o-q, due to high construction cost and revenue booking from low margin properties. Net profit was Rs 9.75 crore, 20.1% lower y-o-y but when adjusted for one time gain of 4.87 crore (sale of investment) in Q1FY08 it is up 33.0% y-o-y.
SEZ Update:
1) Chennai SEZ, 20 companies have become operational as of Q1FY09 and current employee base is 8,870. MLL is likely to unlock value from its Chennai SEZ project through development and sales of premium residential and commercial properties. The project has reached an advanced stage of development with the projected employee base expected to be 44,550 in 2010 and this would provide a captive demand for its residential and commercial projects. MLL through its 51:49 JV with Arch capital would start development of ~750 homes over 55 acres in Q3FY09.
2) Jaipur SEZ The Jaipur SEZ is also undergoing rapid development with ~2,600 acre of total 3,000 acre already acquired. The company has received notification for its IT SEZ and operations would commence in Q2FY09. Jaipur SEZ land has been acquired at very attractive price and we believe the project would start contributing significantly to revenues in the next 1-2 years.
3) During 1QFY09, the company received notification for its 52-acre Biotech SEZ in Thane.
Residential Segment Going Strong- MLL launched residential projects in Mumbai and Faridabad in the quarter. MLL led consortium also won a bid to develop 1.6 msf of residential space at Mihan SEZ Nagpur for Rs 330 psf
Valuations:
At the CMP of Rs 467.80, Mahindra Lifespaces is trading at around 17.3x FY09E EPS. MLL had a subdued quarter with lower sales and margins. MLL has a debt of only Rs 285.5 crore in its consolidated books with Rs 246.6 crore being in Jaipur SEZ. It has a D/E ratio of only 0.3x which is a big positive especially in current high interest rate environment.
Looking at the strong growth prospects of all its verticals, we recommend a BUY with a target price of Rs 594. At the target price the stock would be valued at 21.8 x FY09E EPS of Rs 27.29, implying an upside potential of 26.2%.
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