Monday, 1 December 2008

Arshiya International Ltd
BSE Code: 506074
Face Value (FV): Rs.2
CMP: Rs.86.8
EPS: Rs.3.58 (Rs.17.9, for Rs.10, FV Scrip)
Book Value: Rs.77.78
Market Cap: Rs.509.97
Company Background: ARSHIYA INTERNATIONAL LIMITED is an integrated logistics player providing wide range of supply chain solutions. The company plans to expand its operations and has recently raised Rs.350 crores. It is setting up FTWZs for expanding operations, has joined hands with overseas majors of the industry and has thus gained a competitive advantage over other players. Its major operations are in India and Gulf region. It is in a knowledge driven logistics solution business which is in its nascent stage in India. The potential for growth arises from the need of the corporate to delegate warehousing and transporting of products and focusing on the core competency of themselves.
Industry Overview: Indian logistics sector is largely dominated by unorganized players operating on a very small scale, majority owning not more than five trucks. Such players account for almost 80% of the business of the industry. The trend is changing and inclination towards outsourcing the business needs of warehousing and transportation is increasing. Prior to the popularity of the concept of outsourcing of logistics, Indian corporate invested heavily on setting up warehousing and distribution channels.
Logistics outsourcing has gained popularity as the companies are able to reduce their overall cost of distribution by utilizing services of specialized players in the industry. Thus, the business of integrated logistics players is set to expand manifold in the coming years. To ensure core competency in the business, integrated logistics players are also focusing on end to end solutions and other value added services. The sector remains largely untapped in India offering significant growth potential.
Financials: For Q1FY09, the company came out with very good set of numbers. The total income of the company came out to be Rs.77.96 Cr as against Rs.45 Cr in the same period previous year. The profit before tax and depreciation increased to Rs.8.41 Cr as against Rs.2.92 Cr in the same period previous year.
Even after providing for higher tax and higher depreciation, the net profit of the company for Q2FY08, came out to be a whooping Rs.5.5 Cr as against Rs.1.91 Cr in the same period previous year. The EPS of the company fell in Q2FY09, fell due to increase in equity capital from Rs.8.74 Cr to Rs.11.75 Cr in the same period previous year. Another interesting point is that both the operating and net profit margins increased substantially in Q2FY09 as compared to the same period previous year.
Investment Rationale:
• Fully integrated solution player: The Company is a fully integrated logistics solution provider. It has joined hands overseas with BDP International, Cyberlog and Genco to cater to the clients in India and Gulf region. This provides a competitive advantage to the company. It renders wide range of services and is expanding its operations rapidly across the business segments.
• Setting up FTWZs: The Company has decided to set up Free Trade Warehousing Zones (FTWZs) in India at two locations viz. JNPT near Mumbai and Delhi. Another FTWZ will be set up at Sohar (Oman). The FTWZs will be first of their kind in India and will facilitate the company to cater basic and value added services to the clients.
• Fancy for Railway Sector-related stocks in the current market scenario: Off late it has been seen that a sudden fancy has arisen amongst the investors/traders, for the Railway Sector, related stocks. In case of Arshya International Ltd what is interesting is that the ongoing Containerized Rail Operation Project has been transferred to a Special Purpose Vehicle viz. Arshiya Rail Infrastructure Ltd a wholly owner subsidiary of the Company. The total project expenditure incurred till the date of incorporation of Special Purpose Vehicle and License to operate Containerised Rail has been transferred to Arshiya Rail Infrastructure Ltd at Cost. Moreover, out of net proceeds of Rs.341.87 Cr received by the company on placement to QIBs and Rs.17.49 Cr on conversion of warrants, Rs.258.97 Cr has been utilised for payment of Capital
advance and Capital expenditure for ongoing FTWZ Projects and Rs.100 Cr have been invested by subscribing to equity capital of wholly owned subsidiary viz - Arshiya Rail Infrastructure Ltd, a Special Purpose Vehicle for Containerized Rail Project. Thus this stocks could move up if its considering the current trend for the shares of the companies more or less connected to the railway sector.
• Positive on Charts: If we look at the daily charts of the company we see that the stock has made a permanent bottom at around Rs.78 and then a higher bottom at around Rs.82. The MACD is showing positive divergence pattern and could soon move in the positive territory. Moreover, the other chartical parameters like Bollinger Bands, Stochastic, and RSI are in buy mode. The Candle Stick chart pattern however does not give a definite trend for the days ahead.
• Broad array of services: The Company’s alliance with specialists in the sector both in India and abroad has helped to develop wide spectrum of services for the clients. The major services offered by the company are:
1. International freight transporting, global logistics management and consulting services by using the expertise of BDP India.
2. Providing of supply chain management technology solutions in collaboration with Cyberlog.
3. Logistics services in the retail warehousing sector by supplying products to large brand stores through Genco. Thus, the company offers all variety of services in the sector and has been catering in the 3PL format (third party logistics).
Downsides:
• Dependence on corporate: The company is in a services related business of handling products manufactured by others, warehousing and transporting of such products on time and in a proper manner. Deficiency in services can lead to loss of market share for the company.
• Regulatory clearances: The Company is setting up infrastructure to render services in India and Gulf region. Any delay in the clearances for such set up will dampen the operations and viability of business.
• Expansion spree significant; fund raising concerns: The Company has successfully raised Rs.350 crores by issuing equity capital at the rate of Rs.310 per share. But the company may not be able to do so, on a regular basis. To expand the operations, the company needs funds to the extent of Rs.1900 crores. Thus the company may leverage its balance sheet for expansion and face interest burden in the future.

Conclusion:Given the growth visibility of the sector, the competitive advantage of the company in the industry and past performance, it is expected that Arshiya International Ltd, will be able to multiply its revenues and profits manifold in the next three years to four years.
I recommend a BUY on the stock at the CMP of Rs.86.8 for a short to medium term target of Rs.130. The stock has to move above Rs.100 to show some momentum in its movements. Any crossover could take the stock above Rs.130 in the next few months time frame, provided the market condition improves a bit. The resistances for the scrip are Rs.95, Rs.100, Rs.112, Rs.125 and Rs.135 where some booking should be done. Keep a SL of Rs.77.5 (exit) for any short term trade. This stock is suitable for investors who need a steady income, but with less risk.

Note: The stock was recommended to the Paid Groups on 23rd November, 2008.
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Pick of the Week:

Kernex Microsystems India Ltd: Basking on Huge land Holdings:

BSE Code: 532686
CMP: Rs.82.6

Book Value: Rs.105.43

Market Cap: Rs.103.25 Cr

 

Introduction: Established in 1991 and registered as 100% Export Oriented Unit with Software Technology Parks of India, Department of Electronics, Govt. of India, New Delhi, it is a ISO 9001:2000 certified company with expertise in Software, Hardware development and Systems Integration. It is presently engaged in the business of manufacturing, installing and maintaining of anti-collision systems as well as conceptualizing, designing, and developing certain railway safety and signal systems for Konkan Railways Corporation Ltd. These safety and signal systems are suitable for medium to low speed & density railway tracks like in India and other developing countries.

The company entered into a technology partnership with Konkan Railway Corporation Ltd, Navi Mumbai for design, engineering and development of anti-collision systems which provides safety to trains in Railways. It holds exclusive license for manufacturing, installation, commissioning and maintenance of anti-collision systems in India. It also has an outsourced facility for the Konkan Railways Corporation Ltd for manufacture and supply of ACDs and related accessories. It is also a technology partner for the development and implementation of ADDs for Metro Sky-Bus Urban Transportation System, Advanced Railway Signal Systems and other safety systems. It holds exclusive marketing rights of ACD systems all over the world except India.

Based on the concept and domain knowledge provided by Konkan Railway Corporation Ltd, it has developed the networked Anti-Collision Devices, using Global Positioning System, Radio Data Communication, Application Logics and Inter facing these with an Auto Breaking System developed by KRCL. With operations in USA and planned operations in Far East, Africa and Middle East, Kernex is truly a global player in the offing.

 

Shareholding Pattern: The promoters hold 55.74% while the general public holds 44.26%. Moreover FII hold 1.55%, while mutual funds/UTI holds 1.11%.

 

Shareholding belonging to the category
"Public" and holding more than 1% of the Total No.of Shares

 

Sl. No.

Name of the Shareholder

No. of Shares

Shares as % of Total No. of Shares

1

SMS Holdings Pvt Ltd

273,181 

2.19 

2

Somerset Emerging Opportunities Ltd

193,217 

1.55 

3

Enam Investment Services Pvt Ltd

137,500 

1.10 

4

UTI Mid Cap Fund

139,156 

1.11 

5

Vinaya Kumar Gavini

160,267 

1.28 

6

Challa Subrahmanay Sarma

186,212 

1.49 

 

 Total

1,089,533 

8.72 

 

 

Financials: For Q1FY10, the company came out with flat topline and a slightly subdued bottomline. The total income of the company for Q1FY10 came out to be Rs.5.82 Cr as against Rs.5.97 Cr in the same period previous year. The net profit of the company for Q1FY10 dipped due to higher interest and tax component to Rs.52.3 lakhs as against Rs.1.07 Cr in the same period previous year.

 

Triggers:

  1. The company would benefit from the Indian Railway’s move to focus more on signal modernization and increased usage of automated signaling systems. Kernex Microsystems (India), the Hyderabad-based railway safety product manufacturer is the only player in anti-collision devices for the Railways and is set to capitalize on the public sector transporter’s thrust on ‘safety’.
  2.  Kernex Microsystem last year announced to foray into infrastructure projects and power sector, the two most happening sectors of today.
  3. The company has redrawn its plans to carry on the expansion programme, wherever required, as against plans mentioned in the prospectus dated December 6, 2005 in regard to scheduled time of completion. However, establishment of new manufacturing centre for ACID, ADDS and Advanced Signal Systems, construction of various buildings, including machinery & external services, electrical supply, roads, sewage &  compound  walls, gates  and  other related security arrangements and also training centre, cafeteria and transit accommodation for trainees, R&D Block, administration and  manufacturing  facility is nearing completion.
  4. The Phase-1 of development of ACD systems has been completed and pilot project commissioned in the Q1FY10. Railways have accepted the ACD system for deployment in all the Railways. Orders are expected through Konkan Railways Corporation for Southern, South Central and South Western Railways in the near future.
  5. Honourable Railway Minister during the Railway Budget speech on 26th February, 2008, stated that ACD is found working satisfactory and therefore, proposed to be deployed in South Central and South Western and Southern Railways.  According to Railways Corporate Safety Plan, ACD deployment is to be completed all over Indian Railways by 2013-2014. This is music to the investors in Kernex Micro Systems.
  6. The Company has signed a contract in November, 2008 with Egyptian National Railways, Egypt for development and supply of 136 Semi-Automatic Level crossing Gates. The Contract is under execution.
  7. Its unique product, Multi-Section Digital Axle Counter has been developed under technical collaboration on schedule time and is under cross approval by RDSO, Lucknow, Indian Railways. It is to be noted that the company earlier dropped the product called TAWD, consequent to the dropping of the same by the Indian Railways, in view of anticipated huge demand for the product called 'Digital Axle Counter’.
  8. Its R&D Division has done number of improvements and changes in the application software and hardware as required by the Konkan Railway Corporation. This includes AMSS, upgradation of ACD Reporting System & ACD survey automation system.
  9. The company’s International Marketing division continued marketing operation for selling the ACD and related systems in Egypt, South Africa, Brazil, Pakistan, Australia and South Asian countries. Consequently the ACD System is short listed as one of the viable system for Egyptian Railways. South African Railways is also examining the possibility of integrating the ACD system with OBC system already installed in South African Railways, spoornet.
  10. The company has also been working on development of 'Multi Section Digital Axle Counter’ in collaboration with M/s Altpro, Zerob, Croatia.  Complete test data, technical details, company details and Safety case has been submitted to RDSO, Indian Railways. Discussions with Altpro, to jointly manufacturing the product and KMIL to Market the product to Indian Railways is in progress. Meanwhile M/s Altpro, Croatia has appointed Kernex as their Sole technology partner  / Altpro Agent / Joint Venture partner in Indian subcontinent  for their  product  range like Digital Axle Counter,  Train  detection  System, ATPS, SIFA, incident recorder and for other safety system.
  11. The company has entered into technology partnership with Tiffien Batch, Germany for providing Automatic & Semi Automatic Level crossing system, up to Sit 3 levels. This  should  help  Kernex  to  enter  into International markets in semi developed and under developed countries  like Africa  and South Fast Asia and Australia for the supply a  Level  Crossing Systems.
  12. The  company  has so far purchased over 243 Acres of land at  the  Warangal highway  near  Yadagirigutta and has also acquired over 157 Acres  land  at Amanagul,  Mehboobnagar  district and acquisition of further Land,  in  the area  is planned.  All equipments required for this project have been fully acquired. In case of SPAD, planning is in progress and the project is expected to be completed by Dec, 2009 as against the revised scheduled month of June, 2008. This is due to delay in finalization of specifications and requirements by Indian Railways.
  13. The development of Hot Box and Wheel Vibration Detection systems is in progress and is expected to be completed by 31st Dec, 2009 as against the revised scheduled month of Nov, 2008. This is due to delay in finalization of specifications. Another opportunity waiting in the wings is the provision of ATP system for Metro Trains that are planned in major cities of the country.  With technological collaboration, the company can become one of the important players in this field too.
  14. New Offices of the company are being established in Delhi, Chennai.  Guntakal and Hubli based on the release of new orders and also central survey centre at Hyderabad. Other  locations  will  be  taken up  in  phased  manner  as  per  the commencement of work ordered by Indian Railways. Kernex Microsystems (India) set up a 100% subsidiary in the US in September 2000 to implement software products of the company in that country. It is now engaged in developing and implementing software for the US corporate hospitals.

 

Concerns:

  • The biggest threat the company faces is from Multi Nationals, who want to sell their equipment in India. To gel over this competition, the Company is upgrading the technology at a fast pace.
  • Any delay in decision making, administrative and departmental procedures could delay the receipt of orders, making its facilities idle and under productive.

 

 

Chart Check and Conclusion: Considering the points mentioned above the stock could be purchased at the CMP of Rs.82.6 for 6 months to 9 months time frame for at least 50% appreciation from the current price. Moreover, an encouraging fact is that the promoters are technocrats and have wide experience in electronics/software industries, both in India and abroad and hence they possess a deep understanding of the business of the company. Another point which is worth noting is that the stock is trading below its book value of Rs.105.43

Now from the charts it has been found that the stock is in highly oversold territory and a small bounce cannot be ruled out in the short term. Though Bollinger bands are in buy mode however, other momentum parameters are still not giving an immediate buy for the scrip. Also, though the MACD is not giving an immediate buy signal but it could slowly drift towards the buy mode. The stock needs to close above Rs.85 on closing basis, to start rising again. If it crosses Rs.95 which looks probable the stock could touch as high as Rs.130. Please keep a SL of Rs.67 for any short term trade.

Pick of the week

DECCAN CHRONICLE HOLDINGS LIMITED

BSE Code: 532608

Face Value: Rs.2

CMP: Rs.37.85

EPS: Rs.5.5

P/E: 6.88

Dividend: 150%

Book Value: Rs.43.58

Market Cap: Rs.926.86 Cr

52-Week High/Low: Rs.224/Rs.36.15

 

Introduction: Deccan Chronicle Holdings Ltd, erstwhile Deccan Chronicle was formerly engaged in weekly and daily journals in Andhra Pradesh. The company acquired a news paper publishing business in December 2002; post which it established a strong foothold in the state. The company aims to be the leading publishing house in the country.

Deccan Chronicle, the flagship newspaper of the company is the leading English daily in Hyderabad and Andhra Pradesh. It publishes seven editions of the Deccan Chronicle in Andhra Pradesh from their printing presses located at Hyderabad/Secunderabad, Vijayawada, Rajahmundry, Vishakapatnam, Anantapur, Karimnagar and Nellore. It is the fourth largest circulated and read English daily in India. Besides Deccan Chronicle, the Company also publishes Andhra Bhoomi in Telugu (daily, weekly and monthly).

Deccan Chronicle covers latest local, regional, national and international news. The newspaper also provides business, sports, weather, city culture, beauty, and health related news and information through its online portal.

 

Shareholding Pattern: The promoters hold 63% while the general public’s holding is 37%. Among the non-promoters are a number of Mutual Fund houses which holds substantial stake in the company.

Shareholding belonging to the category
"Public" and holding more than 1% of the Total No.of Shares

 

Sl. No.

Name of the Shareholder

No. of Shares

Shares as % of Total No. of Shares

1

 EQ Advisors Trust - EQ/VQN Kqmpen Emerging Markets

2,715,990 

1.11 

2

 Deutsche India Equity Fund

3,166,001 

1.29 

3

 Merrill Lynch India Equities Fund Mauritius Ltd

3,542,473 

1.45 

4

 Ward Ferry Management Ltd A/C WF Asian Smaller

4,268,064 

1.74 

5

 Morgan Stanley Investment Management Inc A/c Morgan

3,888,224 

1.59 

6

 Life Insurance Corporation of India

3,429,892 

1.40 

7

 Franklin Templeton Mutual Fund A/c Franklin India

3,200,000 

1.31 

8

 Morgan Stanley Mutual Fund A/c Morgan Stanley Growth

3,675,000 

1.50 

 

 Total

27,885,644 

11.39 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Financials: For Q3FY09, the company came out with almost flat topline and subdued bottomline, due to general downturn in the world economy.

The total income of the company for Q3FY09 rose to Rs.228.3 Cr as against Rs.226.5 Cr in the same period previous year. Deccan Chronicle Holdings’ third quarter net profit fell 75% to Rs25.67 crore over the corresponding period a year ago. The net profit of the company for Q3FY09 came out to be Rs.25.7 Cr as against Rs.102.94 Cr in the same period previous year. For the nine-month period ended 31 December, Deccan Chronicle posted a net profit of Rs131.92 crore, a 51% decline from Rs269.29 crore last year.

The operating and net profit margins of the company decreased considerably Y-o-Y. The net profit suffered due to high raw material price (Rs.129.04 Cr in Q3FY09 as against Rs.82 Cr], higher staff cost (Rs.13.53 Cr in Q3FY09 as against Rs.6.53 Cr), and almost doubling of other expenditure (Rs.17.73 Cr as against Rs.9.8Cr). However with the government expected to come out with special package for the media sector, the company’s top and bottomline could change dramatically on the positive side.

 

Investment Rationale:

  • Advertisement, the main growth driver: Advertisement is the key revenue driver in the Indian newspaper giant. DCHL’s advertisement revenue accounts for nearly 80%-90% of the total revenue. The media industry, both print and electronic, is facing the impact of the global financial crisis in the form of decline in advertisement revenue. However, representatives of the print media had already approached the I & B ministry seeking an upward revision in rates of government advertisements. The government has almost assured to some stimulus package to the media industry and to tide over the situation.
  • Foray into new business: The Deccan Chronicle group has floated an international cargo airline company “Flyington Freighters Ltd”. The new company, which will start services from July this year, has placed orders for purchase of six A330-200F cargo planes from Airbus at a cost of $175 million each. While the aircraft delivery is slated for 2009-2010, Airbus has agreed to lease two aircraft to the company in the mean time.
  • Launching New Editions: In the middle of last year, Deccan Chronicle Holdings Ltd launched its Mumbai Edition of "Financial Chronicle" in association with the "International Herald Tribune". During the year, 2008, DCHL entered the Business daily market by launching its newest print offering, Financial Chronicle simultaneously from Hyderabad and Chennai and extended its presence in Bangalore and Mumbai recently. Also, it announced a tie up with International Herald Tribune for launching its branded 'World Business Section' inside Financial Chronicle. The Mumbai edition of the Financial Chronicle would have four pages of IHT's World Business Section and its logo would be put on the front page of the daily. But one should remain cautiously optimistic on DCHL's foray into this space as it is already crowded with several offerings by other big Print Media houses. During May 2008, the company finally launched its much awaited Bangalore edition of Deccan Chronicle.
  • Strengthening its base in Southern India: The company had already launched the Bangalore edition of Deccan Chronicle and approved an initial investment of Rs.25 Cr in addition to the use of existing assets in other locations.
  • Inorganic expansion: The company is expanding its reach through inorganic expansions. It had acquired control of Asian age Holdings, which publishes newspaper “The Asian Age” in five cities. The acquisition will help strengthen the brand image of Asian Age at the back of increasing print run. The company had also acquired Odyssey India Ltd (Odyssey) for Rs.61.2 crore, in a cash deal. Odyssey is a growing leisure retail chain, is engaged in sale of books, music, toys, greeting cards and FMCG products. This move was intended to notch advertisement from FMCG giants.
  • Buy Back of Equity Shares: The Board approved the proposal for buy back of equity shares of Rs.2 each of the fully paid up equity share capital of the Company, at a price not exceeding Rs.100 per equity share aggregating to Rs.180 Cr from equity shareholders other than the Promoters and persons in control of the Company. The maximum number of shares to be bought back through the Stock Exchanges shall not exceed 3, 50, and 00,000 Equity Shares of Rs.2 each which represents 14.29% of the paid up capital of the Company. However the Promoter Holding in the Company shall not exceed 75% of the Paid up capital of the Company post buy back. The minimum number of Equity Shares (minimum buy back shares) to be bought back is 1,00,00,000 Equity Shares of Rs.2 each.
  • Stimulus Package for the Media Sector to boost growth: Taking note of the difficulties faced by the media industry due to the financial crisis, the government last week said it will shortly announce a stimulus package for the sector. The I & B ministry has already sent certain recommendations about the package to the Finance ministry and the government is expected announce it soon. Moreover, the good point is that the said package is mostly concerning the print media and hence the scrip is expected to be positively effected more than those in the electronic media.  
  • Indian Premier League (IPL)--Profitable in the first year itself: Deccan Chronicle had bagged the rights for the IPL team of Hyderabad for US $107mn payable over the next 10 years. The IPL Hyderabad rights would be a part of Sieger Solutions. DCHL named the team Deccan Chargers and spent around $5.9mn in annual fees to recruit players. While there is every chance that the venture would achieve breakeven only after a couple of years, management has indicated that the IPL venture turned profitable for the company in the first year itself. DCHL clocked around Rs107.5cr revenue and incurred expenses to the tune of Rs88cr during its first year of operations. Hence, it made a neat profit of Rs19.5cr from the venture. Also Deccan Chronicle Holdings Ltd will not sell its Indian Premier League cricket team, Deccan Chargers, as there were no buyers in the market, a top official said. Deccan will review the decision to sell Deccan Chargers in three years from now as this downturn cycle was likely to be extended till 2012. It is to be noted that, Deccan Chronicle had in 2008 paid $107.01 million for the Hyderabad team for Indian cricket board’s Twenty20 series for 10 years.
  • Sieger Solutions – Potential unlocking on the cards: Sieger Solutions, a wholly owned subsidiary of DCHL, was formed in July 2006 to handle media space selling for DCHL for a pre-defined commission. However, Sieger has stopped clocking revenues from this model and now houses all the internet portals – Deccanchronicle.com, Papyrusclubs.com and Mydigitalfce.com. For FY2008, Sieger Solutions registered revenues of Rs.72 Cr and PAT of Rs.35 Cr primarily driven by a subscription based model from a website called Papyrusclubs.com (student community forums) under which it has tied up with several institutes to publish and share campus news over the Internet. Recently, DCHL also entered into an outsourcing agreement with New York Times (NYT) to manage their internet properties out of India as well as some of the development activities connecting to the digital space. Sieger Solutions is expected to rake in incremental revenues of Rs.150 Cr from this arrangement in FY2009. DCHL is also in talks to sell 5% equity stake in Sieger Solutions to NYT.

 

Conclusion:  During FY2008-10, we can expect DCHL to post a CAGR growth of 16% in Revenue aided by 18% CAGR growth in advertising revenues and 8% CAGR in circulation revenues. On the Earnings front, we can expect DCHL to report a CAGR of 15% largely boosted by a decline in interest costs

However, on the operating front, the DCHL is expected to post a subdued growth owing to a sharp decline in Operating Margins on account of stiff competition in Chennai, initial losses on account of the Bangalore edition and the Financial Chronicle launch, and higher newsprint prices. Hence, we can expect DCHL to post a CAGR growth of 9% in EBITDA during FY2009-10.

However, there are valid concerned on DCHL owing to its poor quality of growth (funding working capital requirements through Balance Sheet), scalability issues (too much dependence on single region), poor corporate governance (management not delivering on promises made – buyback, un-locking in subsidiaries) and unsustainable Margins (60% OPM as against peer average of 20%). While management has addressed some of these concerns – reduced debtor days to 90 days by securitization with ICICI for a 12% discount, and initiated talks with NYT to unlock value in Sieger, still some more clarity on the same is expected. Moreover, depreciating rupee is negative for the company as it imports newsprints.

Growing awareness among the common mass is leading to the rise in the circulation of newspaper. The growth was triggered mainly by India and china. DHCL occupies second position in the print industry and caters to the most part of the Southern India. Its paper Deccan Chronicle is the most read newspaper in Andhra Pradesh, Chennai and Hyderabad. The company is also eying a substantial share in Bangalore and is expanding to newer geographies which include Mumbai and Pune. Revenues of the company will also be triggered, by the upcoming expansion plans of Odyssey.

At the CMP of Rs.37.85, the stock is trading at dirt-cheap valuations considering its future upsides from the Sieger Solutions deal with NYT and IPL’s good performance. The valuation can also be corroborated by the growing advertisement revenues and increasing subscription.

Note: This Report is from the Yesterday's (08-02-09) Sunday Report which was sent to the Paid Groups, Yesterday (8th February, 2009

Is Satyam Computers Services Ltd, a buy at Rs.39.95 ??!!

To understand this fact, let us consider the following points, a little meticulously .........

                         Satyam Computer Services Ltd

 

Scrip Code :  500376

Quarter ending :  September 2008

 

Shareholding belonging to the category
"Public" and holding more than 1% of the Total No.of Shares

 

Sl. No.

Name of the Shareholder

No. of Shares

Shares as % of Total No. of Shares

1

 Aberdeen Asset Managers Ltd A/C Aberdeeninternational India Opportunities Fund ( Mauritius ) Ltd

23,800,000 

3.53 

2

 Fidelity Management & Research Company A/C Fidelity Investment Trust - Fidelity Diversified International-Fund

23,000,000 

3.42 

3

 ICICI Prudential Life Insurance Company Ltd

16,621,682 

2.47 

4

 Lazard Asset Management LLC A/c Lazard Emerging Markets Portfolio

14,490,567 

2.15 

5

 Aberdeen Asset Managers Ltd A/C Aberdeen Global Asia Pacific Fund

10,680,500 

1.59 

6

 Life Insurance Corportion of India

9,959,281 

1.48 

7

 Citigroup Global Markets Mauritius Pvt

8,203,186 

1.22 

8

 JP Morgan Asset Management Europe SARL A/c Flagship Indian Investment Co Maurities Ltd

8,179,448 

1.21 

9

 LIC of India Money Plus

7,941,345 

1.18 

10

 Swiss Finance Corporation Mauritius Ltd

7,515,806 

1.12 

11

 Government of Singapore

7,128,885 

1.06 

12

 Morgan Stanley Mauritius Company Ltd

7,096,342 

1.05 

 

 Total

144,617,042 

21.47 

 

The following Fund Houses sold shares yesterday in the open market due to too much panic created  by the "Media Terrorists":

 

1. SWISS FINANCE CORP MAURITIUS LTD===> Sold 7786759 shares at Rs.74.61
2. ABERDEEN INTERNATIONAL INDIA OPPORTUNITIES FUND MAURITIUS LTD===>Sold 9830811 shares of the company at Rs.43.41
3. ABERDEEN ASSET MANAGERS LTD ABERDEEN GLOBAL ASIA PACIFIC FUND===>Sold 4179064 shares at Rs.43.41 

 

Hence it can be concluded from the above data that Majority of Fund Houses feel that Satyam Computers Ltd will be able to come out of the mess created by its Founder Chairman Mr. B Ramalinga Raju??!!

Moreover, Sukumar Rajah, chief investment officer (CIO) of equity in India at Franklin Templeton Investments, which manages $4 billion of assets in the country, said in an e-mail, “This unfortunate development will be a short-term negative for market sentiment,”. Still, by forcing regulators to improve oversight, the incident “should be a Long Term Positive,” Rajah said.

 

According to a well known and reputed financial web-site, developing-nation stocks are trading near their cheapest levels in a decade after the global economic slowdown and a slump in commodity prices sent the MSCI Emerging Markets Index down 54 percent in 2008. In comparison, the MSCI World Index dropped 42 percent. Shares in the MSCI emerging-markets index trade at 8.8 times reported earnings, while developed shares fetch 11.5 times profit. Sensex companies trade at 9.5 times earnings.

Aberdeen Asset Management Asia Ltd., Satyam’s largest institutional investor as of September, said its investment outlook for India hasn’t changed. Funds run by Aberdeen own at least 5.12 percent of Satyam, according the Hyderabad-based company’s filings for the quarter ended Sept. 31.

“People will grow a bit more dispassionate, but you can say the same for the U.S. and elsewhere,” said Hugh Young, managing director at Aberdeen’s Asian unit, which manages $37.3 billion. “India has great companies that do the right things. Hopefully this is a one off.” He declined to say how many Satyam shares Aberdeen holds, or whether any were sold recently.

India’s $1.2 trillion economy may grow 7 percent in the year ending March 31, the slowest pace since 2003, according to government forecasts. The economy may expand at close to that rate in the next fiscal year as the global recession cuts exports and domestic demand wanes, Junior Industry Minister Ashwani Kumar said in New Delhi yesterday.

To understand the mammoth-ness of Satyam Computers Services Ltd let us take note of the following facts: Satyam Computer Services Ltd, employs 53,000 people, operates in 65 countries and serves almost 700 companies, including 185 Fortune 500 companies. More than half of its revenue comes from the United States.

The most encouraging news came from www.cnn.com which writes: "Analysts say Satyam is ripe for a takeover, and the government is expected to submit a formal report on the matter Thursday".

Therefore, can we construe that those highly skilled stock market professionals, who have purchased some shares of Satyam Computers Ltd will have a field day in the next few months??!!

However, the most horrifying part of this event is that that cash balance that was non-existent got certified by one of most reputed auditors in the world map, PricewaterhouseCoopers LLP.  This reputed auditor of Satyam Computers Ltd’s, declined to comment on the scandal, according to an e-mail from the New York- based firm’s public relations adviser, Edelman.

I had earlier discouraged all my  Paid Clients not to enter Satyam Computers Ltd, when it fell to around Rs.179---I was anticipting something like this, from my exprience durring the dotocm boom-bust cycle in the 1990s and early 2000. But is it time to buy this stock at the CMP of Rs.39.95, for the short term gains??!!

 

Prajay Engineers Syndicate Ltd: Accumulate on all declines;

BSE Code: 531746

Face Value: Rs.10

CMP: Rs.17.70

Book Value: Rs.152.34

EPS: Rs.17.87

P/E: 0.99

Dividend: 25%

Market Cap: Rs.70.26 Cr

Buying Price: The scrip should be bought above Rs.18.5

 

Company Background: Prajay Engineers Syndicate Ltd (PESL) was promoted by Mr. Chandra Mohan Reddy. It’s a 25 years old partnership firm converted into a public limited company in the year 1994. It pioneers in construction activities in the twin cities of Hyderabad-Secunderabad. Its Key developments include residential flats, townships, shopping malls, office buildings and group housings.

The company has developed around 6.7 million square feet over the past twenty years across more than 75 projects and a further 10.7 million square feet of land is under various stages of development. Prajay has a significant presence in the hospitality segment also, with three landmark ventures in the city: Prajay's luxury resort, the Celebrity Holiday Retreat and the 30 room Celebrity Boutique Hotel (located 500 metres away from the airport). Prajay has been the leader in identifying new locations that are today of strategic importance, which has given it huge cost advantage.

 

Shareholding Pattern: The promoters hold 16.42% while the general public holds, 83.58%. Among the general public FIIs hold a whooping 58.78% of the shares of the company.

 

 

Shareholding belonging to the category "Public" and holding more than 1% of the Total No.of Shares

 

Sl. No.

Name of the Shareholder

No. of Shares

Shares as % of Total No. of Shares

1

Copthall Maritius Investment Ltd

1,808,085

4.55

2

Goldman Sachs Investment Mauritius Ltd

852,543

2.15

3

Citigroup Global Markets (Mauritius) Pvt Ltd

2,130,796

5.37

4

ABN Amro Bank N.V. London Branch

1,518,952

3.83

5

Merrill Lynch Capital Markets Espana S.A.S.V.

1,487,223

3.75

6

Morgan Stanley Investments Mauritius Ltd

617,200

1.55

7

Swiss Finance Corporation Mauritius Ltd

1,047,459

2.64

8

S Madhuri Reddy

410,000

1.03

9

N Ravinder Reddy

2,020,100

5.09

10

Merlin Securities Ltd

5,336,134

13.44

11

GRA Finance Corprate

457,701

1.15

12

Clsa Mauritius Ltd

1,361,942

3.43

13

ABN Amro Bank N.V. London Branch

424,211

1.07

14

 BSMA Ltd

760,000 

1.91 

15

 Deutsche Securities Mauritius Ltd

2,358,893 

5.94 

 

 Total

22,591,239 

56.91 

 

 

Financials:  Though for Q2FY09, the total income was almost flat the net profit of the company suffered due to higher expenditure and higher depreciation, as can be seen below. The fact that the interest cost was more or less flat comparing Q-o-Q was a good sign. Moreover, the tax component was also less in Q2FY09, as compared to the same quarter previous year. However, due to the downturn, the operating margin and net profit margin took a quantum hit. However, this is going to correct in the next few quarters, due to the fall in the price of raw materials, in the last few quarters and also due to seasonal demand.

 

Standalone Result of Prajay Engineers Syndicate Ltd

 

Type

Un-Audited

Un-Audited

Un-Audited

Un-Audited

Un-Audited

Audited

 

Period Ending

30-Sep-08

30-Jun-08

31-Mar-08

31-Dec-07

30-Sep-07

31-Mar-08

 

No. of Months

3

3

3

3

3

12

 

Description

Amount (Rs. million)

 

Net Sales / Interest Earned / Operating Income

418.44

222.10

907.03

1,369.56

462.46

3,440.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income

1.92

1.78

6.83

0.96

0.91

9.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Income

420.36

223.87

913.86

-

463.37

3,450.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditure

-270.24

-144.32

-904.12

-

-200.17

-2,061.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

-27.06

-24.94

-11.61

-27.97

-27.69

-90.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit Before Depreciation and Tax

123.06

54.61

-1.87

-27.97

235.51

1,297.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

-9.11

-8.66

-7.89

-

-4.96

-22.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before Tax

113.95

45.96

-9.76

705.01

230.55

1,274.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax

-39.03

-15.92

-41.06

-49.75

-76.58

-246.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Profit

74.92

30.04

-50.82

655.26

153.97

1,028.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Capital

396.96

396.96

396.96

275.91

248.57

396.96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS after Extraordinary items

1.89

0.76

-1.85

25.47

6.58

37.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS after Extraordinary items

1.89

0.76

-1.85

17.32

4.05

37.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nos. of Shares - Public

33,178,576.00

33,178,576.00

33,178,576.00

22,473,112.00

20,017,152.00

33,178,576.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of Shares-Public

83.58

83.58

83.58

81.45

80.53

83.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit Margin

35.88

35.82

1.07

-

56.91

40.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Profit Margin

17.90

13.53

-5.60

47.84

33.29

29.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash EPS

2.12

0.97

-1.08

-

6.39

26.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

Notes

Notes

Notes

Notes

Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Detailed

Detailed

Detailed

Detailed

Detailed

Detailed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Highlights:

            The company earns 95% of its revenue from Real Estate and from Hospitality segment.

            In March 2007 the company posted a turnover of over Rs.2,000 million and profits of around Rs.800 million. It achieved Rs.1,000 million turnover in one quarter.

            Last year the company signed a joint venture with Sunway Group, Malaysia for development of residential condominiums projects in Hyderabad.

            Prajay Engineers' Land bank stands at approximately 850 acres 80% of which is in and around Hyderabad

            In the last twenty years of its existence, PESL has delivered 75 projects and developed around 6.7 million square feet.

 

Investment Rationale:

            The increased demand for residential units and commercial, office space for the IT and ITES companies suggest that the spurt will continue for years to come. An estimated inflow of Rs.5,508 billion investments in this sector will usher in development at a remarkable pace.

            Government thrust on infrastructure spending has given a tremendous boost to construction sector in terms of market size resulting in higher demand across the sector.

            Prajay Engineers Syndicate's base in the twin cities of Hyderabad and Secunderabad offers it a myriad of opportunities in the real estate sector. The rapidly growing IT/ITES industry in Hyderabad has its roots in the proactive role of the state government pitching Hyderabad as the 'Hi-Tec' city of India.

            The Government's decision to launch Bio Tech Park and Fab City has further given a boost to technology driven growth in Hyderabad.

            The company currently has around 31 projects underway and plans to construct around 37.6 million square feet in the next four to five years. All projects have credit Rating of A+ by FIs.

            With its visionary approach and contemporary building practices, cutting edge management discipline, Prajay is at the forefront of imparting dynamism to infrastructure development industry.

            The company is foraying into Tier II cities of Andhra Pradesh like Vizag and Vijaywada, by FY10.

            The company want to invest around Rs.500-600 Cr in the coming years to develop the hospitality segment; to create 1000 room capacity by 2009 in the 5 star, 4-star and the 3- star business class categories; and to develop 31 projects including residential, commercial, retail and hospitality projects, aggregating to around 37.57 million square feet over the next five years.

            PESL’s 100% subsidiary Prajay Holdings, has received a commitment of FDI recently, to the tune of rupees equivalent of US $ 36 million for one of its prime projects at Hyderabad wherein a development of around 40 lac square ft has been planned by the company.

            The company is riding high on the real estate and infrastructure boom: it has set a target of reaching Rs.1000 crore turnover by FY10.

            Future Focus: Premium Apartments, Ultra-modern Townships, Development of Golf course, Independent premium bungalows, Development of 3 and 5 star hotels, Infrastructure development, Shopping Malls. These are all high volume and high margin activities.

 

Conclusion:

As the trend of spiraling growth continues, there are miles more to go, and further milestones to achieve. With 31 planned and ongoing projects, which will culminate into construction of around 38 million square feet and the residential segment comprising of about 84 percent of the total area under development, the company is expected to do well in future. The stock at the current market price provides an investment opportunity and one should invest in it taking a call for 12-15 months horizon for at least 50% from the CMP of Rs.17.7.

Chartical Indicators: For the short term, buy the scrip only if it closes above Rs.18.5 on a daily closing basis. The MACD and CCI are in perfect buy mode, while Stochastic, Bollinger Bands, and Williams%R are also in buy mode.

Moreover, in the Candle Stick Chart Pattern, the inverted hammer, formation indicates that a significant decline has taken place in the stock price and the shorts are beginning to cover their positions---a very bullish indicator.

With this Candle Stick Chart Pattern, it is imperative to watch the next day's trading action. If the stock opens strong and remains strong during the day, then a key Reversal is likely in progress—a perfect time to bag the scrip.

 

Note: This stock was recommended to the Paid Groups in the Sunday Report of 30-11-08.