The present market capitalization of the company is at Rs 725 crore while the enterprise value is close to Rs 2,000 crore. With the repurchase of FCCB, the company would get vastly re-rated. Share now ruling around Rs 19 is witnessing huge volume, on expectations of stake sale. If that happens, it is likely to rise to Rs 30 per share, which is expected to be atleast the stake sale price.
Firstsource Solutions (FSL)Firstsource Solutions (FSL) is a global BPO company, providing services across the banking and financial services sector, telecom, media and healthcare industries. It provides services throughout the customer lifecycle, including customer acquisition, customer care, billing and collections, transaction processing and business research and analytics.
FSL has global clients with over 20 Fortune Global 500, Fortune 500 and FTSE 100 companies and includes over 800 leading hospitals in US, 3 of top 5 global healthcare insurance companies, 2 leading Indian mobile service providers, 2 of the world’s top 10 telecom companies and one of the largest Indian bank.
FSL acquired MedAssist Inc, the largest provider of revenue cycle management services to hospitals in USA. For acquiring this, FSL issued FCCB of US$ 275 million, which are due for redemption in Dec 2012 or convert at Rs 92.29 per share. As share price is ruling at Rs 17, conversion seems unlikely.
Due to the FCCB concern, share price has taken a beating and had its 52-week high/low of Rs 51/Rs 9.50. The share is now ruling at Rs 19.10.
The company has started buying back FCCB in March 2009 and had repurchased FCCB of US$ 49.70 million till date, which is commendable, as after this, the outstanding FCCB is just at US$ 225 million.
FSL, for the year ended 31/03/08 had a total income of Rs 1,334 crore with a PBT of Rs 143 crore and PAT of Rs 132 crore.
The present equity of the company is at Rs 428 crore, with face value of Rs 10 each. Of this, ICICI Bank, being the promoters, hold 26.74% while 50.77% is held by 4 OCBs and 7.04% by FIIs and Foreign Venture Capital Investors. This is thus leaving low float of about 15% with the public.
In the past, Warburg Pincus wanted to acquire the company and even ICICI Bank is keen to divest its stake and exit from the company at a proper price.
The company does not have much debt except the FCCB. As at 31/03/08, it had a total debt of Rs 1,225 crore with FCCB being at Rs 1,103 crore. However, the company has intangible assets of Rs 1,888 crore being Goodwill on various acquisitions but no write offs will be required as there is no impairment.
The present market capitalization of the company is at Rs 725 crore while the enterprise value is close to Rs 2,000 crore. With the repurchase of FCCB, the company would get vastly re-rated.
In case ICICI Bank, opts to sell, which is most likely, open offer for 20% would be made, resulting in 100% acceptance, as 4 OCBs holding 51% may not participate. In that case, share price will rise to stake sale price.
Share now ruling around Rs 19 is witnessing huge volume, on expectations of stake sale. If that happens, it is likely to rise to Rs 30 per share, which is expected to be atleast the stake sale price.
Considering all these factors, share qualifies as a risk free bet at Rs 19.10, which is likely to give close to 50% return in next six months.
Showing posts with label stock advice. Show all posts
Showing posts with label stock advice. Show all posts
Wednesday, April 15, 2009
JVL Agro Industries - Multibagger
With a massive scale up through expansion projects & acquisitions, and growth visibility in coming years, JVL Agro with revenues of Rs.1155 crores, expected EPS of Rs.50 for FY 09 and a market cap of Rs.58 crores looks undervalued, in an industry unlikely to go out of fashion.
JVL Agro Industries Ltd.JVL Agro Industries Ltd. was incorporated in 1989 under the name of Jhunjhunwala Vanaspati Limited. The company set up its unit at Jaunpur, close to Varanasi in the year 1990 with the production capacity of 25 tpd. From a 25 tdp capacity in 1990, the company has grown substantially and now claims to be India’s largest unit for manufacture of vanaspati with a capacity of 72,000 tpa at Jaunpur. The company besides Vanaspati now produces various Refined Oils and Mustard Oil and has recently diversified its business activities into fertilizers and other agro based products.
The company has its manufacturing facilities at Jaunpur, close to Varanasi and at Alwar, Rajasthan. The company has a capacity to produce 72,000 tpa of Vanaspati, 1,14,000 tpa Refined Oils and 81,000 tpa Mustard Oil.
The company sells its products under ‘Jhoola’ brand which commands a market share of 35% of the Uttar Pradesh vanaspati market, 23% share of Bihar, 5% of Jharkhand, 9% of Maharashtra, 6% of Madhya Pradesh and 8% of Gujarat. (Source : Company’s Annual Report March 08)
Expansion and Diversification Projects:
The company has undertaken various expansion and diversification projects which will add substantially to its scale of operations leading to higher revenues and profitability.
• Greenfield Project in Bihar - The Company has acquired around 10 acres at Dahri-on-sone in Bihar to set up a 750-tpd capacity refinery/vanaspati unit. The project is in the final stages of implementation and the first phase for 500 tpd is expected to go on stream in May 2009.
• Expansion at Varanasi Plant - The company has set up a new refinery at Varanasi with a capacity of 400 tpd which has gone on stream in December 2008. This has doubled the production capacity at its Varanasi plant. (from 72,000 tpa before the expansion.)
• Greenfield Project at Haldia - The Company has acquired around 8.5 acres at Haldia to set up a 1000-tpd capacity refinery. The project is under implementation and is expected to go on stream in 2010-11.
• Expansion Project at Alwar - The Company is setting up an edible oil refinery of 100 tpd at Alwar, Rajasthan, to manufacture refined and soybean oil.
• Acquisition of Fertilizer PSU - The Company acquired the assets and properties of 318-acres factory unit of M/s Pyrites Phosphates & Chemicals Limited (a PSU in liquidation) at Amjhore, Bihar, through auction to venture into fertilizers. The unit besides land of 318 acres also has captive pyrite mines, which is the main raw material for manufacture of sulphuric acid used for manufacture of Single Super Phosphate (SSP). The unit has over 250 acres of surplus land which can be utilised for expansion of the unit in future.
• Multi Services SEZ – The group had acquired a stake in Hari Fertilizers Ltd. located in Varanasi and plans to develop a 333 Acre SEZ on the land of Hari Fertilizers Ltd., for which the company has received State and Central Government approvals.
Investment Rationale:
JVL Agro is one of the most attractive proxies of India’s cooking media sector. The company possesses a product basket extending from vanaspati to various refined oils. With a market share of 35% in Uttar Pradesh and 23% in Bihar in Vanaspati, the company commands leadership position across two of India’s most densely populated states. The company has established a strong foothold in these markets, without spending much on advertising. The company has a brand that is visible, attractive and available; has a scale that is imposing and economical and enjoys a reach that is extensive and penetrated.
The various expansion projects undertaken by the company will add substantially to the topline and bottomline of the company in the years to come. The group has plans for Real Estate development on 333 acres in Varanasi in which it proposes to develop a Multi-services SEZ for which approvals from Central and State Government has been obtained.
The market cap of the company at the current price is Rs 58 crores. The entire debt of Rs 70 crores (Term Loans of Rs 7.16 crores and the balance as Working Capital) is against Cash Credit Limit (against Rs 85 crores which the company holds as Fixed Deposits). For the first 9 months of FY 08-09, the company has reported PAT of Rs 28 crores. For full year, it is expected to be around Rs 36-38 crores, resulting in an EPS close to Rs 50. The stock thus trades at a PE of just 1.5 at its CMP. Moreover, out of the total turnover of Rs 1155 crores in FY 08, the revenue from Trading is just Rs 281 crores, majority of revenues coming from refining/ manufacturing activity.
With a few expansion projects having gone on stream and the others expected to be on stream soon, we expect a significant scale up of its operations in the coming years with significant growth in Sales and Profitability.
Consider this :-
• The company has a Book Value of Rs 105 (expected to increase to over Rs 150 in Mar 09),
• Generates healthy ROCE of 29%
• The company has a receivable cycle of just 10 days, which talks of prudent financial management & controls
• The impact of expansion projects and acquisitions on the company’s Sales and Profitability will show in the coming years.
• The revenue and profit potential of its 333 acres SEZ in Varanasi as and when the active implementation takes place,
With the roadmap of growth chalked out by the management by way of various expansion projects and acquisitions, the capacities of the company in various segments will go up significantly than the current capacities.
The stock trading at Rs 77 with a PE of 1.5 and a market cap of Rs 58 crores looks grossly undervalued. The growth in the company is clearly visible which we believe could be atleast 25-30% each year for the next few years.
The extent of undervaluation of the company becomes even more evident when compared with the peer group.
Investors can choose to accumulate the stock at the current price and on declines.
JVL Agro Industries Ltd.JVL Agro Industries Ltd. was incorporated in 1989 under the name of Jhunjhunwala Vanaspati Limited. The company set up its unit at Jaunpur, close to Varanasi in the year 1990 with the production capacity of 25 tpd. From a 25 tdp capacity in 1990, the company has grown substantially and now claims to be India’s largest unit for manufacture of vanaspati with a capacity of 72,000 tpa at Jaunpur. The company besides Vanaspati now produces various Refined Oils and Mustard Oil and has recently diversified its business activities into fertilizers and other agro based products.
The company has its manufacturing facilities at Jaunpur, close to Varanasi and at Alwar, Rajasthan. The company has a capacity to produce 72,000 tpa of Vanaspati, 1,14,000 tpa Refined Oils and 81,000 tpa Mustard Oil.
The company sells its products under ‘Jhoola’ brand which commands a market share of 35% of the Uttar Pradesh vanaspati market, 23% share of Bihar, 5% of Jharkhand, 9% of Maharashtra, 6% of Madhya Pradesh and 8% of Gujarat. (Source : Company’s Annual Report March 08)
Expansion and Diversification Projects:
The company has undertaken various expansion and diversification projects which will add substantially to its scale of operations leading to higher revenues and profitability.
• Greenfield Project in Bihar - The Company has acquired around 10 acres at Dahri-on-sone in Bihar to set up a 750-tpd capacity refinery/vanaspati unit. The project is in the final stages of implementation and the first phase for 500 tpd is expected to go on stream in May 2009.
• Expansion at Varanasi Plant - The company has set up a new refinery at Varanasi with a capacity of 400 tpd which has gone on stream in December 2008. This has doubled the production capacity at its Varanasi plant. (from 72,000 tpa before the expansion.)
• Greenfield Project at Haldia - The Company has acquired around 8.5 acres at Haldia to set up a 1000-tpd capacity refinery. The project is under implementation and is expected to go on stream in 2010-11.
• Expansion Project at Alwar - The Company is setting up an edible oil refinery of 100 tpd at Alwar, Rajasthan, to manufacture refined and soybean oil.
• Acquisition of Fertilizer PSU - The Company acquired the assets and properties of 318-acres factory unit of M/s Pyrites Phosphates & Chemicals Limited (a PSU in liquidation) at Amjhore, Bihar, through auction to venture into fertilizers. The unit besides land of 318 acres also has captive pyrite mines, which is the main raw material for manufacture of sulphuric acid used for manufacture of Single Super Phosphate (SSP). The unit has over 250 acres of surplus land which can be utilised for expansion of the unit in future.
• Multi Services SEZ – The group had acquired a stake in Hari Fertilizers Ltd. located in Varanasi and plans to develop a 333 Acre SEZ on the land of Hari Fertilizers Ltd., for which the company has received State and Central Government approvals.
Investment Rationale:
JVL Agro is one of the most attractive proxies of India’s cooking media sector. The company possesses a product basket extending from vanaspati to various refined oils. With a market share of 35% in Uttar Pradesh and 23% in Bihar in Vanaspati, the company commands leadership position across two of India’s most densely populated states. The company has established a strong foothold in these markets, without spending much on advertising. The company has a brand that is visible, attractive and available; has a scale that is imposing and economical and enjoys a reach that is extensive and penetrated.
The various expansion projects undertaken by the company will add substantially to the topline and bottomline of the company in the years to come. The group has plans for Real Estate development on 333 acres in Varanasi in which it proposes to develop a Multi-services SEZ for which approvals from Central and State Government has been obtained.
The market cap of the company at the current price is Rs 58 crores. The entire debt of Rs 70 crores (Term Loans of Rs 7.16 crores and the balance as Working Capital) is against Cash Credit Limit (against Rs 85 crores which the company holds as Fixed Deposits). For the first 9 months of FY 08-09, the company has reported PAT of Rs 28 crores. For full year, it is expected to be around Rs 36-38 crores, resulting in an EPS close to Rs 50. The stock thus trades at a PE of just 1.5 at its CMP. Moreover, out of the total turnover of Rs 1155 crores in FY 08, the revenue from Trading is just Rs 281 crores, majority of revenues coming from refining/ manufacturing activity.
With a few expansion projects having gone on stream and the others expected to be on stream soon, we expect a significant scale up of its operations in the coming years with significant growth in Sales and Profitability.
Consider this :-
• The company has a Book Value of Rs 105 (expected to increase to over Rs 150 in Mar 09),
• Generates healthy ROCE of 29%
• The company has a receivable cycle of just 10 days, which talks of prudent financial management & controls
• The impact of expansion projects and acquisitions on the company’s Sales and Profitability will show in the coming years.
• The revenue and profit potential of its 333 acres SEZ in Varanasi as and when the active implementation takes place,
With the roadmap of growth chalked out by the management by way of various expansion projects and acquisitions, the capacities of the company in various segments will go up significantly than the current capacities.
The stock trading at Rs 77 with a PE of 1.5 and a market cap of Rs 58 crores looks grossly undervalued. The growth in the company is clearly visible which we believe could be atleast 25-30% each year for the next few years.
The extent of undervaluation of the company becomes even more evident when compared with the peer group.
Investors can choose to accumulate the stock at the current price and on declines.
Sunday, March 15, 2009
South Indian Bank - Multibagger
South Indian Bank has its presence in 23 states with 500 branches and 26 extension counters and 225 ATM Networks. The bank, during FY 08 had opened 25 new branches, upgraded 8-extension counter, and opened 50 ATMs. The bank holds licence to open 15 new branches and plans to open 30 branches in the year FY 09.
The bank, as at 31-03-08, had total deposits of Rs 15,156 crores while advances were at Rs 10,754 crores with total business of the bank being placed at Rs 25,910 crores. Capital Adequacy ratio of the bank as at 31-03-08 was at 13.80% while net NPAs were at 0.33%. Gross NPAs of the bank, as at 31-03-08 were at Rs 188.48 crores against Rs 321.21 crores as at 31-03-7. During FY 08, the bank had recovered NPAs of Rs 172.31 crores against the target of Rs 130 crores.
During FY 08, the total income of the bank was placed at Rs 1,434 crores with profit after tax of Rs 151.62 crores, resulting in an EPS of Rs 18.77 while book-value per share as at 31-03-08 was placed at Rs 128.43.
During FY 08, the bank had issued 2 crores equity shares at Rs 163 per share (premium of Rs 153 per share) to Qualified Institutional Investors. Due to this issue, paid-up equity of the bank increased to Rs 90.41 crores while net worth improved of Rs 1,161 crores.
For quarter ending June 08, the bank had a total income of Rs 406 crores with profit after tax of Rs 38.62 crores, resulting in an EPS of Rs 4.27 for the quarter. FY09 is likely to have an income in excess of Rs 1,800 crore with estimated PAT of Rs 175 crores, which should translate into an EPS of Rs 19.50. Expected book-value on 31-03-09 of the bank would be over Rs 140.
The bank had proposed to issue bonus in the ratio of 1 share for every 4 shares held and the record date for the same has been fixed at 17-10-08 and share would go ex-bonus from 16-10-08. The present market price of the stock at Rs 106 is cum-bonus.
The bank has total investments of Rs 4,572 crores as at 31-03-08, of which government securities are of Rs 3,590 crores while Rs 982 crores are in Debentures, shares and other investments.
The bank has strong presence in NRIs and as 31-03-08, the bank had total NRI Deposit of Rs 3,085 crores being 20.35% of the total deposit of the bank.
Even Bank is holding 4.99% stake of Dhanlakshmi Bank, which implies an intention to acquire the bank, if feasible, at an appropriate time.
Share now ruling at Rs 98.60, had its 52 week high low of Rs 285 and Rs 87 and is now ruling at a PE of less than 6 on historic and expected earnings. Even it is available at cum-bonus and price to book-value of 0.80 : 1. All this shows great scope of appreciation in the investments in the time to come. The present market capitalization of the bank is close to Rs 950 crores, translating per branch valuation of less than Rs 2 crores.
The share qualifies a good buy at Rs 45.00, which has potential to rise to Rs 140 in the next 12 months with minimum downside.
The bank, as at 31-03-08, had total deposits of Rs 15,156 crores while advances were at Rs 10,754 crores with total business of the bank being placed at Rs 25,910 crores. Capital Adequacy ratio of the bank as at 31-03-08 was at 13.80% while net NPAs were at 0.33%. Gross NPAs of the bank, as at 31-03-08 were at Rs 188.48 crores against Rs 321.21 crores as at 31-03-7. During FY 08, the bank had recovered NPAs of Rs 172.31 crores against the target of Rs 130 crores.
Kirloskar Electric Company - Multibagger
During FY 08, the total income of the bank was placed at Rs 1,434 crores with profit after tax of Rs 151.62 crores, resulting in an EPS of Rs 18.77 while book-value per share as at 31-03-08 was placed at Rs 128.43.
During FY 08, the bank had issued 2 crores equity shares at Rs 163 per share (premium of Rs 153 per share) to Qualified Institutional Investors. Due to this issue, paid-up equity of the bank increased to Rs 90.41 crores while net worth improved of Rs 1,161 crores.
For quarter ending June 08, the bank had a total income of Rs 406 crores with profit after tax of Rs 38.62 crores, resulting in an EPS of Rs 4.27 for the quarter. FY09 is likely to have an income in excess of Rs 1,800 crore with estimated PAT of Rs 175 crores, which should translate into an EPS of Rs 19.50. Expected book-value on 31-03-09 of the bank would be over Rs 140.
KSB Pumps- Multibagger
The bank had proposed to issue bonus in the ratio of 1 share for every 4 shares held and the record date for the same has been fixed at 17-10-08 and share would go ex-bonus from 16-10-08. The present market price of the stock at Rs 106 is cum-bonus.
The bank has total investments of Rs 4,572 crores as at 31-03-08, of which government securities are of Rs 3,590 crores while Rs 982 crores are in Debentures, shares and other investments.
The bank has strong presence in NRIs and as 31-03-08, the bank had total NRI Deposit of Rs 3,085 crores being 20.35% of the total deposit of the bank.
Buy McNally Bharat Engineering Company
The present equity of the bank is at Rs 90.41 crores with face-value of Rs 10 each. FIIs are holding 43% while 12% are held by banks, insurance companies, FIs, and MFS and 45% is held by the general public. Prominent shareholders of the bank are Federal Bank (4.94%) IFC, Washington (4.80%) Goldman Sachs (3.93%) LIC (1.77%) Union Bank (1.06%) and SBI 1.02%.Even Bank is holding 4.99% stake of Dhanlakshmi Bank, which implies an intention to acquire the bank, if feasible, at an appropriate time.
Share now ruling at Rs 98.60, had its 52 week high low of Rs 285 and Rs 87 and is now ruling at a PE of less than 6 on historic and expected earnings. Even it is available at cum-bonus and price to book-value of 0.80 : 1. All this shows great scope of appreciation in the investments in the time to come. The present market capitalization of the bank is close to Rs 950 crores, translating per branch valuation of less than Rs 2 crores.
The share qualifies a good buy at Rs 45.00, which has potential to rise to Rs 140 in the next 12 months with minimum downside.
Stocks To Watch of The Week - 16 March 09
Mahindra and Mahindra- Short Term Investments
M&M derives about 65 per cent of its automotive revenues from utility vehicles (UVs), where it has steadily improved market share from 45 per cent in 2004 to 53 per cent now. Interest from institutional buyers such as small and medium businesses and cab operators has helped the company manage the slowdown better than most other vehicle-makers. Backed by sales of Scorpio and Bolero, M&M’s UV sales volumes were flat in 2008, after averaging a 14 per cent growth in the preceding three years.
Though the segment did witness deceleration in the December quarter, growth has picked up to 20 per cent in the first two months of 2009, driven by launches. LCVs and three-wheelers constitute 20 per cent of M&M’s automotive revenues (though it is not a prominent player in this segment) and this segment relies largely on rural demand.
Introduced in January 2009, Xylo, targeted at retail buyers, infused the much-needed buoyancy to M&M’s sales (4,000 units sold until February). Since it is strategically priced below other sedans and MUVs such as Toyota Innova and Chevrolet Tavera, Xylo appears well-positioned against competition.
Apart from this, the company launched an upgraded model of Scorpio this month. M&M has recently passed on to consumers the excise duty cuts, which , may be visible from the next quarter. The demand for SUVs usually accelerates ahead of elections and that may deliver a short-term boost to sales as well.
Farm equipment
M&M holds 40 per cent market share in the farm equipment segment. After sustaining growth in the first half of this fiscal, the segment witnessed a 7 per cent decline in volumes during October-December 2008. Going by favourable factors such as adequate monsoon and increased credit availability in the hands of farmers, the segment appears well-placed to sustain sales growth this year. Punjab Tractor’s amalgamation with M&M, which is to take effect from this quarter, may add market share and strengthen M&M’s presence in the Northern market, though it is unlikely to have a material near term impact on the per share earnings.
Financial Aspects
After a sustained net profit growth of 25-30 per cent (excluding exceptional gains) in the five years to 2006-07, M&M saw a sharp deterioration in the profit picture in the first nine months of 2008-09, concentrated mainly in the December quarter. While revenues on a consolidated basis grew 13.2 per cent to Rs 21,652 crore, net profit after minority interest declined by 26 per cent to Rs 809.5 crore from Rs.1095 crore.
On a standalone basis, the December quarter saw the company report a loss of Rs 26 crore (before other income, interest and exceptional items), compared to a profit of Rs 280 crore in the same period last year. However, profits were depressed to a significant extent by forex losses of Rs 182 crore (gain of Rs 13.9 crore last year) taken this quarter. This pertains to cancellation of forward contracts and revaluation of foreign currency borrowings. Of this, Rs 136 crore may be of a one-time nature and is unlikely to impact profitability in the coming quarters.
While forex losses did play a role in depressing the profit picture, lower production and revenues — the company sold mainly from inventories — higher raw material costs and possible inventory losses on excise duty cuts also contributed to the decline in profit margins. However, with the company substantially drawing down its inventories in the December quarter and raw material costs (steel, aluminium and paint) easing significantly, profit margins may stage a sharp improvement, from here on. A recovery in sales volumes and the recent excise duty cut will also help improve revenues, helping better recovery of fixed costs. Going forward, though forex losses on existing loans (due from 2011) will remain a drag, lower interest rates on working-capital borrowings may help lower financing costs.
Expansion plans
Fairly ambitious capex plans have also weighed on the M&M stock’s valuations. The company had previously lined up a capex of around Rs 7,500 crore. Due to the overall slowdown in the sector, the company has revised its plans downward to Rs 5,000 crore, phased out over the three years to 2012.
M&M appears to have funded the major portion of this by means of FCCBs and ECBs and is setting up a new UV plant in Chakan with a capacity of 3,50,000 vehicles. This plant would be operational from FY 2010. Debt-equity ratio, which stood at 0.6 at end-March 2008, continues to be at the same level.- HBL
Though the segment did witness deceleration in the December quarter, growth has picked up to 20 per cent in the first two months of 2009, driven by launches. LCVs and three-wheelers constitute 20 per cent of M&M’s automotive revenues (though it is not a prominent player in this segment) and this segment relies largely on rural demand.
Buy McNally Bharat Engineering Company
Introduced in January 2009, Xylo, targeted at retail buyers, infused the much-needed buoyancy to M&M’s sales (4,000 units sold until February). Since it is strategically priced below other sedans and MUVs such as Toyota Innova and Chevrolet Tavera, Xylo appears well-positioned against competition.
Apart from this, the company launched an upgraded model of Scorpio this month. M&M has recently passed on to consumers the excise duty cuts, which , may be visible from the next quarter. The demand for SUVs usually accelerates ahead of elections and that may deliver a short-term boost to sales as well.
Farm equipment
Buy Jaiprakash Associates Ltd - Short Term
M&M holds 40 per cent market share in the farm equipment segment. After sustaining growth in the first half of this fiscal, the segment witnessed a 7 per cent decline in volumes during October-December 2008. Going by favourable factors such as adequate monsoon and increased credit availability in the hands of farmers, the segment appears well-placed to sustain sales growth this year. Punjab Tractor’s amalgamation with M&M, which is to take effect from this quarter, may add market share and strengthen M&M’s presence in the Northern market, though it is unlikely to have a material near term impact on the per share earnings.
Financial Aspects
After a sustained net profit growth of 25-30 per cent (excluding exceptional gains) in the five years to 2006-07, M&M saw a sharp deterioration in the profit picture in the first nine months of 2008-09, concentrated mainly in the December quarter. While revenues on a consolidated basis grew 13.2 per cent to Rs 21,652 crore, net profit after minority interest declined by 26 per cent to Rs 809.5 crore from Rs.1095 crore.
Buy GVK Power & Infrastructure Ltd - Short Term
On a standalone basis, the December quarter saw the company report a loss of Rs 26 crore (before other income, interest and exceptional items), compared to a profit of Rs 280 crore in the same period last year. However, profits were depressed to a significant extent by forex losses of Rs 182 crore (gain of Rs 13.9 crore last year) taken this quarter. This pertains to cancellation of forward contracts and revaluation of foreign currency borrowings. Of this, Rs 136 crore may be of a one-time nature and is unlikely to impact profitability in the coming quarters.
While forex losses did play a role in depressing the profit picture, lower production and revenues — the company sold mainly from inventories — higher raw material costs and possible inventory losses on excise duty cuts also contributed to the decline in profit margins. However, with the company substantially drawing down its inventories in the December quarter and raw material costs (steel, aluminium and paint) easing significantly, profit margins may stage a sharp improvement, from here on. A recovery in sales volumes and the recent excise duty cut will also help improve revenues, helping better recovery of fixed costs. Going forward, though forex losses on existing loans (due from 2011) will remain a drag, lower interest rates on working-capital borrowings may help lower financing costs.
Expansion plans
What is GDP ?
Fairly ambitious capex plans have also weighed on the M&M stock’s valuations. The company had previously lined up a capex of around Rs 7,500 crore. Due to the overall slowdown in the sector, the company has revised its plans downward to Rs 5,000 crore, phased out over the three years to 2012.
M&M appears to have funded the major portion of this by means of FCCBs and ECBs and is setting up a new UV plant in Chakan with a capacity of 3,50,000 vehicles. This plant would be operational from FY 2010. Debt-equity ratio, which stood at 0.6 at end-March 2008, continues to be at the same level.- HBL
Buy SAIL : Stock Investments
Investors can consider buying the Steel Authority of India (SAIL) stock (Rs 82), given its low valuation. The stock trades at a price-to-earnings multiple of 4.5 times the trailing 12 month earnings. Though the jury is still out on whether the recovery in steel demand seen so far in 2009 is sustainable, SAIL remains one of the better-placed companies in the steel sector to weather the challenging times. A sharp drop in contract prices for coking coal and iron ore, expected to be negotiated for the coming year, suggests scope for margin expansion, even if steel prices continue to soften.
Read Also : Buy McNally Bharat Engineering Company
Low dependence on international orders, a focus on orders from government agencies which may benefit from higher public spending and low leverage and strong cash flows, make the company a preferred exposure in the steel sector. Investors in the stock, however, should be prepared for high volatility, as the stock’s performance may continue to carry strong linkages to global commodity price trends.
Domestic focus helps
The prospect of slowing and even recessionary trends in much of the developed world has weakened the demand for steel from user industries such as forgings, castings, automotive and construction. Both the US and Europe have seen a decline in construction and industrial activity in the last two quarters of 2008. Falling demand prompted production and price cuts by the global steel majors, with players such as Corus, Tokyo Steel and many others cutting back output by up to 30 per cent in October-November ’08.
In India, however, demand has held up better than in the other regions, with the industry’s production still up by about a per cent in the April-December 2008 period. Higher infrastructure spending by the government as a part of its two stimulus packages and a pick up in construction activities following low interest rates could help stimulate growth.
CMIE expects domestic steel production to grow by 1.5 per cent in 2008-09 and achieve a growth of 6.5 per cent in 2009-10. Responding to softening demand, steel prices have been under pressure since last year; hot-rolled coil prices fell 20 per cent from a high of Rs 48,500 per tonne in June 2008 to Rs 39,200 in December 2008.
SAIL’s sales fell in the quarter ended December 31, 2008, given a 11 per cent cut in HRC prices in November. While the effect of price cuts may continue to show up on revenues, a revival in steel volumes (up 9 per cent y-o-y in February ’09), driven by automobile and construction demand, offers some hope. On the cost front, iron ore contracts for the coming year are expected to see a price correction of 30 per cent-plus and coking coal prices are also expected to be 40 per cent lower for the year. Lower input costs would bring substantial margin relief for SAIL, given its high reliance on imported coking coal.
In the December quarter of 2008, SAIL’s profits took a hard blow (down 56 per cent) following a substantial increase in raw material costs as international coking coal prices shot up from $98 per tonne in 2007 to $300 per tonne in 2008.
Resilient to current slowdown
SAIL also looks better placed than its peers to tackle an uncertain global demand environment. SAIL derives just 3 per cent of its revenues from overseas, even as peers such as Tata Steel and JSW Steel have a much larger global exposure.
Within the domestic market too, 40 per cent of the orders are from the government agencies. With the stimulus packages promising higher infrastructure spending by the government, the company may sustain healthy order inflows in the coming quarters.
A diversified customer base is also an advantage, with the company serving a wide range of industries from construction, engineering, power, railway, to automotive and defence. The company has also been realigning its product mix, with value-added products now accounting for 40 per cent of production.
Even as other steel companies are shelving their capex plans, SAIL appears well-placed to bankroll its own expansion. The company had Rs 13,760 crore in cash balances by end-FY08, following strong operating cash flows of over Rs 8,300 crore during the year.
The company’s debt-to-equity ratio of 0.18:1 (in FY08) is low, allowing room to increase borrowings for the planned capex. SAIL has outlined a capex of Rs 53,000 crore for expanding its capacity from 14 million tonnes to 26 million tonnes by 2010-11. Of this, the company has already spent Rs 3,230 crore and has placed orders for equipment worth Rs 36,000 crore. As there are certain equipment sourcing-related delays, the projected additions to capacity may be delayed.
Given its relatively strong balance-sheet, we expect SAIL to reap benefits from recent interest rate cuts, though it may still contract higher borrowings for capex. - HBL
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Low dependence on international orders, a focus on orders from government agencies which may benefit from higher public spending and low leverage and strong cash flows, make the company a preferred exposure in the steel sector. Investors in the stock, however, should be prepared for high volatility, as the stock’s performance may continue to carry strong linkages to global commodity price trends.
Domestic focus helps
The prospect of slowing and even recessionary trends in much of the developed world has weakened the demand for steel from user industries such as forgings, castings, automotive and construction. Both the US and Europe have seen a decline in construction and industrial activity in the last two quarters of 2008. Falling demand prompted production and price cuts by the global steel majors, with players such as Corus, Tokyo Steel and many others cutting back output by up to 30 per cent in October-November ’08.
Buy Jaiprakash Associates Ltd - Short Term
In India, however, demand has held up better than in the other regions, with the industry’s production still up by about a per cent in the April-December 2008 period. Higher infrastructure spending by the government as a part of its two stimulus packages and a pick up in construction activities following low interest rates could help stimulate growth.
CMIE expects domestic steel production to grow by 1.5 per cent in 2008-09 and achieve a growth of 6.5 per cent in 2009-10. Responding to softening demand, steel prices have been under pressure since last year; hot-rolled coil prices fell 20 per cent from a high of Rs 48,500 per tonne in June 2008 to Rs 39,200 in December 2008.
SAIL’s sales fell in the quarter ended December 31, 2008, given a 11 per cent cut in HRC prices in November. While the effect of price cuts may continue to show up on revenues, a revival in steel volumes (up 9 per cent y-o-y in February ’09), driven by automobile and construction demand, offers some hope. On the cost front, iron ore contracts for the coming year are expected to see a price correction of 30 per cent-plus and coking coal prices are also expected to be 40 per cent lower for the year. Lower input costs would bring substantial margin relief for SAIL, given its high reliance on imported coking coal.
Buy GVK Power & Infrastructure Ltd - Short Term
In the December quarter of 2008, SAIL’s profits took a hard blow (down 56 per cent) following a substantial increase in raw material costs as international coking coal prices shot up from $98 per tonne in 2007 to $300 per tonne in 2008.
Resilient to current slowdown
SAIL also looks better placed than its peers to tackle an uncertain global demand environment. SAIL derives just 3 per cent of its revenues from overseas, even as peers such as Tata Steel and JSW Steel have a much larger global exposure.
Within the domestic market too, 40 per cent of the orders are from the government agencies. With the stimulus packages promising higher infrastructure spending by the government, the company may sustain healthy order inflows in the coming quarters.
A diversified customer base is also an advantage, with the company serving a wide range of industries from construction, engineering, power, railway, to automotive and defence. The company has also been realigning its product mix, with value-added products now accounting for 40 per cent of production.
Even as other steel companies are shelving their capex plans, SAIL appears well-placed to bankroll its own expansion. The company had Rs 13,760 crore in cash balances by end-FY08, following strong operating cash flows of over Rs 8,300 crore during the year.
The company’s debt-to-equity ratio of 0.18:1 (in FY08) is low, allowing room to increase borrowings for the planned capex. SAIL has outlined a capex of Rs 53,000 crore for expanding its capacity from 14 million tonnes to 26 million tonnes by 2010-11. Of this, the company has already spent Rs 3,230 crore and has placed orders for equipment worth Rs 36,000 crore. As there are certain equipment sourcing-related delays, the projected additions to capacity may be delayed.
Given its relatively strong balance-sheet, we expect SAIL to reap benefits from recent interest rate cuts, though it may still contract higher borrowings for capex. - HBL
Friday, March 13, 2009
Sejal Architectural Glass Ltd (BUY) - Multibagger
Sejal Architectural Glass Ltd (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.
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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).
ALSO READ : HBL Power Systems - Multibagger
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.
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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 Rs4.26. Company’s EV/EBITDA and EV/Sales of FY08 is 16.7x and 2.7x respectively.
ALSO READ : Using common sense to invest for the long term
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.
ALSO READ : Major Investment Mistakes made by Warren Buffet
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).
ALSO READ : HBL Power Systems - Multibagger
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.
ALSO READ : Patels Airtemp - Multibagger
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 Rs4.26. Company’s EV/EBITDA and EV/Sales of FY08 is 16.7x and 2.7x respectively.
ALSO READ : Using common sense to invest for the long term
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