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.

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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

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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.

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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.

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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.

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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.

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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

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).

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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.

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Buy Stocks For Long Term Investing : Investors Guide

Buying stocks has been a nightmare for many investors in the last one year. The world stock markets crashed and came down to almost one-third of the January 2008 levels. Almost every investor's equity portfolio went negative during the last one year.

The philosophy of equity investments is the valuation of stocks depends on the expected profitability of companies and risk levels. This expectation is a factor of investor sentiments and confidence, and that is why there have been huge swings in sentiments and expectations historically.
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Analysts believe you should invest in stocks
with a long-term horizon (at least 2-3 years). In the recent past, stocks crashed largely due to poor sentiments and then picked up after the crashes. For example, take the case of the slowdown in 2001 or crash seen in May 2004. Investors who held on to their positions or invested in stocks during these times have earned good returns in the markets.

Some tips for investors to identify

Understand risk profile
First of all, it is important to understand your risk profile . The risk profile of an investor depends on his age, disposable income, dependent members, other investments or assets, earning security and visibility.

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Identify stocks
The next step is to identify stocks that have fundamental value at current prices. Investing in a stock at the right price differentiates between a bad investment, good investment and a great investment. Investors should invest with a long-term outlook in fundamentally-good stocks.
Patience is the key in volatile market conditions. It is possible that the scrip you buy may further fall but you should not panic. Currently, the markets are going through a bearish phase. Investors should be even more careful while investing in a bearish phase. It is advisable to accumulate stocks by investing in small lots. In bearish market phase, even fundamentallygood stocks correct heavily at times. Therefore, it is very important to have patience and not panic.

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Invest risk capital only
Ideally, investors should invest their own risk money in the stock markets. It is not advisable to invest all your savings in the stock markets. Diversify into other investment instruments as well.

Maintain liquidity
Investors should have enough liquidity in hand after investing in the stock markets. A cash position is the key to success in a bearish market phase. Investors should never take a loan to invest in the stock markets.

Go for blue-chip companies
Investors with a low risk appetite should invest in blue chip (front runner) companies only. Investors with a high risk appetite should invest in large-cap as well as quality mid-cap companies with a good trading volume. Never invest in penny stocks with no fundamentals.

Research
The stock market requires constant study and research. Finding good stocks at the right prices is not a one-time exercise. Active investors in the stock markets should always monitor their stocks and other stocks with potential too.

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Source: Economictimes

Bharti Airtel - Buy Stocks Research Report

Latest (March 2009) buy stocks research report on Bharti Airtel with target price. Buying stocks of Airtel in current stock market scenario would be one of the best investments to make in year 2009.Sharekhan has maintained its buy rating on Bharti Airtel with a price target of Rs 789 in its March 09, 2009 research report.

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"The amended IUC regulations (effective 1 April 2009) will come as a relief for Bharti, despite a MTC (mobile termination charge) cut from Rs 0.3 to Rs 0.2 (in line with our expectations). It could have been worse: the rival lobby had been pushing for an MTC cut to zero, which would have significantly dented Bharti Airtel’s earnings. Besides, a cut to zero would have enabled Reliance Communications, RCOM and other start-up networks to price outgoing cross-network plans far more effectively, and possibly resulted in a congestion in Bharti’s network. On the other hand, the cut does represent a setback to Bharti’s rural expansion economics."

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IIFL has upgraded its rating on Bharti Airtel to buy with a target price of Rs 710 in its March 12, 2009 research report.

"Mobile-to-fixed termination charge has also been cut from Rs 0.3 to Rs 0.2, and this is favourable to wireless operators. Incoming TC on ILD has been raised only to Rs 0.4 from Rs 0.3, well below our expectation. We estimate that all these TC cuts -after factoring in licence fees, spectrum charges and service tax-will take 3.2% off Bharti’s EPS in FY10ii and FY11ii. We see the termination amendments as the termination of a lengthy period of uncertainty for Bharti. For the present, we see no significant regulatory threats, despite imminent change at the helm in TRAI. RCOM’s gains from this mild move will be limited, whereas Idea Cellular should be relatively unaffected. We upgrade Bharti to BUY with a target price of Rs 710," says IIFL's research report.

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"Given its large subscriber base, Bharti Airtel Ltd (BAL) receives a higher number of incoming calls from the networks of the other operators. Consequently, the reduction in TC for the domestic calls will have a negative impact of around 6.1% on BAL’s estimated earnings for FY2010. However, the negative impact would be partially mitigated by the positive impact of 1.6% on account of the increase of 10 paisa in TC for the ILD calls. Thus, the net impact of the changes in IUC regulation would be limited to 4.5% on BAL’s earnings for FY2010. We maintain our Buy recommendation on the stock with a revised price target of Rs 789," says Sharekhan's research report.