PICK OF THE WEEK:

Subros Ltd

BSE Code: 517168

Face Value: Rs.2

CMP: Rs.40.45

Book Value: Rs.34.53

EPS: Rs.4.96

P/E: 8.96

Industry P/E: 10.07

Dividend: 35%

Short Term Target: Rs.45-46.

Introduction: Subros Limited is India's largest auto air conditioning manufacturing company. The company has partnered with Denso & Suzuki and today Subros Limited has the capacity to manufacture upto 10, 00,000 A/C systems per annum. Subros Ltd has emerged as an integrated manufacturer of air-conditioners as it has in-house facilities to produce Compressors, Condensers, Heat Exchangers and all connecting system to complete the AC Loop. Spread over 3 plants, Subros Ltd is the largest supplier of air-conditioners to all major OEMs including Maruti Suzuki Ltd, Tata Motors Ltd, Force Motors Ltd, M & M Ltd, etc.

Shareholding Pattern: The promoters hold 40.01% while the general public holds 59.99%. Out of the public holding, Denso Corporation holds 7,800,000 shares or 13 %; while Suzuki Motors Corporation holds 7,800,000 shares or 13 % shares of the company. Hence out of 59.99% public holding 26% is blocked for trade—this gives premium value to the shares of the company. Moreover DIIs hold 1.48% of the shares of the company.

Financials: For FY10, the company came out with wonderful set of numbers. The total income of the company for FY10 came out to be Rs.906.61 Cr as against Rs.696.38 Cr. The net profit of the company for FY10 came out to be Rs.27.73 Cr as against Rs.13/17 Cr in the same period previous year. The EPS of the company for FY10, on a very small equity of Rs.12 Cr came out to be Rs.4.62 as against Rs.2.20 in the same period previous year. Moreover, both the NPM and GPM improved in FY10 when considered on Y-o-Y basis.

For Q2FY10 the total income of the company came out to be Rs.278.71 Cr as against Rs.218.50 Cr in the same period previous year. However, the net profit of the company decreased to Rs.4.87 Cr in Q2FY10 as against Rs.6.68 Cr in the same period previous year.

Triggers:

· During FY10, the Company scaled new heights and set several new benchmarks in terms of sales and overall operations. The company has sold 747,707 number of A.C. systems as against 618,752 number, in the previous year giving an increase of 21%. The Company was also able to increase its profitability by successfully implementing various cost reduction programs in areas of Material Cost through Global Sourcing / Value Engineering and reduction in manufacturing costs.

· The Company has also started the process of setting up its facility in Sanand, Gujarat for effecting supplies to Tata Motors Ltd, for its new low cost Car Nano. The sales to Tata Motors Ltd for Nano will commence during the current financial year.

· The Company is further expanding into newer segments relating to Thermal Engineering Products for Automobiles Sector or for other industrial uses like radiators, Engine cooling modules, Bus A/C, Rail A/C etc. Trial sales for Radiators have already commenced.

· The Company has finalized for setting up a design Joint venture Company in India with its collaborator Denso Corporation for carrying out application design services for the development of new products for the satisfaction of its ultimate customers with low cost and less lead time in product development.

· During FY10, THAI SUBROS LIMITED subsidiary Company in Thailand, achieved a turnover of THB 268.40 Lacs as against THB 9.42 Lacs during the last financial year, the sales has increased substantially and the Company was having Profit before tax of THB 19.35 Lacs as against loss of THB 12.11 Lacs during the previous year.

· We can expect PV segment to post a healthy CAGR of ~14% over FY2010–12E. Given the company’s dependence on the PV segment, we can expect it to gain from India’s small car growth story. The company’s volumes would also get a push due to the continuous capacity ramp-up by new and existing players.

· As a market leader and largest player in the domestic car AC market, Subros enjoys more than 40% market share. The company has managed to garner high market share on the back of its strong technological expertise backed by Denso and Suzuki. Further, in view of growing PV volumes, the company has ramped up its capacity to 1 (one) mn units per annum and proposes to expand capacity to 1.5 mn units per annum in the first phase and further to about 2 mn units per annum in the next two-three years. The capacity expansion will enable Subros Ltd to assure volume to its OEM customers and to capture increased demand, as it is already operating at ~93% of its enhanced capacity.

· The Company, considering the growth in the Automobile sector in general, has planned its capacity expansion, to cater to the increased demand from existing as well as new Automobiles manufacturers in India. The company is planning to set up a new facility in Chennai to meet the increasing OEM demand in the domestic market. As per management, the new plant is being set up to cater to auto manufacturers in Chennai. The company will also be investing about Rs.100 Cr in the next two years to expand the production capacities of its existing three facilities in Noida, Manesar and Pune. Further, the company is looking at opening a plant in Sanand to supply parts to Nano.

· Angel Broking has reportedly recommended a ‘Buy’ on Subros Ltd with a price target of Rs.57 as against the market price of Rs.40.45 in its report dated Nov 2, 2010. On the other hand, Sharekhan (in its report dated Nov. 18, 2010) has also recommended a `Buy` on Subros Ltd with a price target of Rs.53 as against the market price of Rs.40. 45.

Caution: Any upward movement in the commodity prices and further appreciation in the yen against the rupee could affect the margin going forward.

Chart Check and Conclusion: We can expect the company’s volumes to post a CAGR of 17% over the next couple of years, considering the increasing requirements of its OEM customers such as Maruti and Tata Motors and potential new client wins from the PV and CV segments. Moreover, the realizations are expected to be stable or decline marginally due to the aggressive pricing adopted by OEMs. The Q2FY2011 results were below the market expectations on account of a much lower than expected margin during the quarter. The operating profit margin for Q2FY11 declined by 227 basis points sequentially to 6.9%---the sharp dip in the margin was primarily on account of a high raw material cost. The company imports about 50% of its raw material from Japan. Consequently, the appreciating yen vis-Ã -vis the rupee dented the contribution margin by 370 basis points sequentially. This caused the operating profit to decline by 18% YoY to Rs.192 billion. Apart from the subdued operating performance, Q2FY11 also saw a 16% sequential jump in the interest cost. This was on account of an increased debt requirement due to higher working capital and capital expenditure. This coupled with a 7% sequential increase in the depreciation cost led to a 32% sequential decline in the net profit to Rs.49 million.

However, the company is likely to see a robust volume growth on account of a strong demand in the passenger car segment and the de-bottlenecking of capacities of its major client, Maruti Suzuki. Besides, the company is also contemplating increasing supplies to Tata Nano, General Motors and Ford, which will bring in incremental volumes going forward. It is expected that the company would increase product localization and reduce its yen-denominated imports in H2FY2011. Higher localization in face could lead to margin expansion.

From the charts it has been found that most of the parameters are in buy mode. The scrip has a support around Rs.39-40 range, which will be difficult to break on the downside. Investors should buy the scrip around this support range and wait for a short term target of Rs.45-46. In the medium to long term the scrip could touch Rs.55-57. It is for those investors who do not want to take too much risk in the markets, but want to earn a steady income over a period.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: The scrip was recommended to the Paid Groups on 20-12-2010 at Rs.40.45. The scrip already gave good returns to the Paid Members.

PICK OF THE WEEK:

Jupiter Bioscience Ltd (JBL)

BSE Code: 524826

CMP: Rs.105.30 (and later it was recommended at Rs.92-93-94)

Book Value: Rs.200.85

EPS: Rs.19.75

P/E: 5.33

Industry P/E: 23.59

Market Cap: Rs.169.89

Dividend: 20%

52 Week H/L: Rs.149/73.60

Introduction: The Company was established in 1985 by Mr. K.S.Sarma a technocrat of repute and a respected entrepreneur in the Indian pharmaceutical industry. Jupiter Bioscience Limited is one of the few companies in the world to have competency in synthesis of peptides starting from the basic stage to finished peptides. JBL ranks among global top 10 players in the peptide chemistry and the only one in India with a distinction of integrated model of peptide pharmaceuticals. The company’s product portfolio further includes specialty and fine chemicals, drug intermediates, bulk drugs and nutraceuticals. With expertise on multiple technology platforms and processes based on advanced organic chemistry, chiral chemistry, peptide chemistry and biotechnology the company is geared to provide solutions for the global pharmaceutical and the biotechnology industry.

Shareholding Pattern: The promoters hold 17.88%, while the public holding is 82.12%. Among the public DIIs hold 1.72%, while FIIs hold 0.045. Angel Broking Ltd holds 1.23% of the shares of the company.

Financials: On a standalone basis, for FY10, the total income of the company came out to be Rs.184 Cr as against Rs.142.79 Cr in the same period previous year. The PBDT of the company inspite of higher interest came out to be Rs.72.49 Cr as against Rs.53.52 Cr in the same period previous year. The profit before tax of the company inspite of higher interest and depreciation came out to be Rs.37.28 Cr as against Rs.36.39 Cr in the same period previous year. The net profit of the company for FY10 came out to be Rs.30.82 Cr as against Rs.31.98 Cr in the same period previous year. This is on a very small equity capital of Rs.16.13 Cr. The reserves of the company as of 31^st March, 2010, stood at a healthy figure of Rs.307.90. However, though the OPM remained flat, the NPM dipped considerably when comparing on Q-o-Q basis. On consolidated basis, EPS of the company for FY10 came out to be whooping Rs.23.22.

For Q1FY10, the total income of the company came out to be Rs.51.37 Cr as against Rs.33.52 Cr in the same period previous year. The PBDT of the company for Q1FY10 came out to be Rs.19.15 Cr as against Rs.13.35 Cr in the same period previous year. The profit before tax for Q1FY10 came out to be Rs.10.08 Cr as against Rs.8.27 Cr in the same period previous year. The net profit of the company for Q1FY10 increased by around 14% to Rs.8.37 Cr, as against Rs.7.34 Cr, in the same period previous year. The EPS of the company for June, 2010 quarter alone came out to be Rs.5.19 as against Rs.4.55 in the same period previous year. The OPM of the company came out to be Rs.51.20% in Q1FY10 as against 55.68% in Q1FY09. The NPM also fell to 16.31% as against 21.94% in the same period previous year, which is of some concern.

Triggers:

• The Company is focused at providing high cost effective standardized peptides and peptide building blocks and also developed a peptide Library which can support customers for their project.
• Moreover, the company is also expanding its business and technological focus on non-peptide generic drug and intermediates based on organic and chiral chemistry by adding products to its existing list. The manufacturing operations in USA are being set up to focus on solid phase peptide synthesis while the operations in Switzerland are directed towards building capabilities on solution phase synthesis. The manufacturing facilities in India will focus on manufacturing the reagents and the building blocks. Manufacture of generic peptide and non–peptide APIs for the un-regulated market has commenced in 2009.
• The company is continuing to add capacity and extend its product range to meet the growing market demands. The company proposes to manufacture a range of fast moving non-peptide generics ranging from proton pump inhibitors, anti-allergy, anti-depressant, anti-AIDS segments, and antibiotics. It has developed cost effective processes for the products. It has also added the products in the veterinary API segment especially anti- helmentics.
• The company has marketing offices in USA, Switzerland and Japan. The Company has established representative offices and business development offices in Germany, Singapore, Middle East, Denmark and Spain. The company has started to expand marketing and business development operations in the following countries viz. Latin America, Central America, Malaysia, UK, France and Korea. The above initiative will definitely result in higher foreign exchange earnings in the coming years.
• Its subsidiary company Sven Genetech Limited has already made rapid strides in synthesis of specialty peptides, launch of new formulations and development of its capabilities in the diagnostics and enzymes areas. Sven Genetech Limited proposes to enter new business segments in the coming years, these include: (i) Formulations–Oncology (ii) Biopharmaceuticals (iii) Biosimilars (iv) Enzymes, (v) Neutraceutical APIs. During FY10, the Company approved to disinvest its stake through offer of sale of shares as per the resolution passed in the Extraordinary General Meeting held on 09th December, 2009, for achieving a strategic advantage to both the companies, while the Company would benefit out of the disinvestments, the subsidiary could access the capital market for its long-term resources.
• The Company’s 100% subsidiary in USA, Jupiter Bioscience Inc. is gearing up for manufacture of custom peptides and generic peptide APIs by the solid phase peptide synthesis. The company is also currently discussing with major contract manufacturing companies in USA and Europe to discuss business opportunities covering the entire expertise of Jupiter. The company has initiated business development effort of contract research business.
• Jupiter Bioscience Ltd earlier informed BSE that a meeting of the Board of Directors of the Company will be held on August 24, 2010, inter-alia, to consider the following offer, issue and allotment of the securities of the Company on Preferential basis, pursuant to the approval of the members of the Company obtained at the Annual General Meeting held on August 09, 2010, subject to the in-principle approval of the Stock Exchange and such other approvals as may be required in this connection.
• Jupiter Bioscience Ltd earlier concluded the placement of 11, 30,000 Global Depository Receipts at US$ 19 per Global Depository Receipt (Representing 1, 13, 00,000 equity shares of Rs.10 each) amounting to U5$ 21.47 million. Accordingly, the Board has approved and allotted 11, 30,000 Global Depository Receipts underlying 1, 13, 00,000 equity shares of Rs.10 each representing the said GDR's. The company proposes to utilize the GDR issue proceeds basically for the following purposes: (i) Setting up/acquisition of new manufacturing facilities (ii) Up-gradation/Modernization of existing manufacturing facilities (iii) Investment in subsidiaries, (iv) Augmenting long term working capital needs, (iv) Part retirement of high cost debt, (v) To meet the capital requirements of ongoing research and process development, etc.

Chart Check and Conclusion: The Company introduced a range of new products in the peptide business, the last fiscal, the significant one being the launch of pseudoproline peptides which are spurring the growth of the peptide synthesis industry. The Company is consistently working towards improving the yields in its manufacturing processes. During the last year, the focus was also directed towards improving the yields and process optimization for manufacturing many of the existing products which have provided it significant savings in its manufacturing costs.

Now from the charts it has been found that the stock could be purchased above Rs.104.50, for a target of Rs.173, in the medium to long term. Please keep a SL of Rs.97 for any short term trade. The other chartical parameters are more or less in the buy mode. Hence considering the above, it would be safe to buy the stock for short to medium term perspective. In the short term the stock could touch Rs.120—125, if the bullish trend continues.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: This scrip was recommended to the Paid Groups on 20-09-10, after which the scrip made a high of Rs.106.40. The stock was again recommended to the Paid Groups at Rs.92-93-94.

Avon Corporation Ltd

BSE Code: 532995

CMP: 5.70

Book Value: Rs.12.70

Price/Book: 0.45

EPS: Rs.2.12

P/E: 2.69

Industry P/E: 161.85

Dividend yield: 5.26%

52-Week High/Low: Rs.11.45/Rs.5.5

Market Cap: Rs.36.81 Cr

Introduction: Avon Corporation Ltd an ISO 9001:2008 Certified company, is a manufacturer of weighing scales under the “Avon” Brand such as - Mechanical Scale, Stylish Digital Glass Scales, Wooden Scales, Wireless Digital Glass Scaled, Digital Super Slim Scales, Digital Body Fat Scales, Digital BMI Scales, Digital Body Analysis Scales, Ultra Slim Body Fat Scales, Digital Kitchen Scales, Digital Baby Scales, High Resolution Platform Scales, Ultra Low Profile Platform Scales, Weighbridges and Auto-Vibrator Feeder System with SQC. These are manufactured in its plant located at Baddi, Himachal Pradesh. The company also develops software like Body Composition Analyzer, Analytical balance, Precision balance, Moisture Balance and Pipette Calibration.

It is also handling high end products for Body composition Analyzers & Blood pressure monitors and also deals in Laboratory balances (Analytical, Precision, and Moisture Balance), Industrial balances, Test Weights and DKD Calibration. First-generation entrepreneur, Pankaj Saraiya, established Avon Enterprises in the year of 1995. Company was listed with Bombay Stock Exchange on 3rd July, 2008.

For growth and advancement of technology and to manufacture varieties of products, Avon Corporation Ltd, has joined hands with Kern & Sohn GmbH, Germany. Currently Avon is authorized distributors of Kern & Sohn GmbH, and Jawon Medical, Korea.

Shareholding Pattern: The promoters holding in the company has increased from 11.67% in Q4FY10 to 13.68% in Q1FY11 and also when compared on Q-o-Q basis. General public holds 41.78% of the shares of the company, while shares held by custodians and against which Depository Receipts have been issued is 44.54%. The corporates hold 10.20% (increase from 9.74% considering sequentially) of the shares of the company. FIIs hold 7.55% of the shares of the company. The reputed brokerage house, Angel Broking Ltd has increased their stake to 1.49% in Q1FY11 as compared to 1.14% in Q4FY10.

Financials: For FY10, the company came out with good set of numbers. The total income of the company for FY10 came out to be Rs.117.04 Cr as against Rs.78.08 Cr in the same period previous year. The net profit of the company for FY10, came out to be Rs.11.90 Cr as against Rs.7 Cr in the same period previous year—a jump of nearly 70% over FY09. The reserves of the company increased to Rs.19.08 Cr in FY10, as against Rs.2.18 Cr in the same period previous year. However, both the OPM and NPM remained flat when considered on Q-o-Q basis.

For Q1FY11, the total income of the company remained almost flat at Rs.23.44 Cr as against Rs.26.03 Cr in the same period previous year. The PBDT of the company increased to Rs.5.4 Cr as against Rs.4.02 Cr in the same period previous year. The PBT of the company for Q1FY11 jumped to Rs.5.23 Cr as against Rs.3.86 Cr in the same period previous year. Moreover, the OPM increased to 27.10% in Q1FY11, as against 17.79% in the same period previous year. The NPM also increased to 23.77% in Q1FY11 as against 13.09% in Q1FY10. This indicates improvement in the fundamentals of the company on Q-o-Q basis.

Triggers:

• The company very recently received bulk orders of Rs.14.5 Cr from two reputed companies, Wockhard Hospitals Ltd and BARC; while it received a total of order of another Rs.1.5 Cr from other smaller companies--so in total bulk orders of value Rs.16 Cr was received recently. The company has a good order book position as of now and expects an order book of Rs.135—140 Cr plus in FY11. The company is expected to get another bulk order from a reputed company/organization soon.
• The company has launched a new software in this quarter (Q2FY11) which will cater to the large organizations having 50--1000 desktop computers. This software is used for various internal monitoring purposes of corporates/large business organizations. The company launches products in every quarter and this quarter was no exception.
• Though the company is facing competition from the unorganized sector and cheap imports but due to its product quality, this is not a main issue. It is one of very few reputed companies listed in Bombay Stock Exchange, in this space. The company hopes to show an impressive performance in Q2FY10.
• The company is in the process of expanding its production capacity by setting up a new plant in Baddi, Himachal Pradesh. The company has an investment outlay of around Rs.125 Cr for the upcoming plant. It hopes that by setting up the new production facility it will have a cutting edge over its competitors in terms of pricing and quality. The company hopes to recoup the investment by generating higher and efficient production, thus allowing it to derive higher profits. Since Baddi is a tax free zone with no income tax or excise it will allow Avon Corporation Ltd to drastically reduce its production costs by such huge margin as 35%. Thus, lesser production cost will allow it to charge competitive prices with far superior quality. The company is doing well and hopes that 1^st phase of expansion would be completed by March, 2010, which is just a few months away.
• The company has its own land in Baddi where the 2^nd unit will be set up and hence it would save on the cost of purchase of the land.
• The company hopes to generate an EPS of around Rs.4 in FY11. Since the 1^st phase of expansion is expected to be completed by March, 2011, hence most of the benefits of expansion would be obtained in FY12 and FY13.
• The book value of the shares of the company is Rs.12.70 as against the CMP of Rs.5.70. Moreover, even if we consider a decent P/E of 10, and then giving some discounting, the share price should not trade below Rs.15. Avon Corporation Ltd earlier informed BSE that the Register of Members & Share Transfer Books of the Company will remain closed from October 08, 2010 to October 10, 2010 (both days inclusive) for the purpose of Payment of Dividend & Annual General Meeting (AGM) of the Company. Avon Corporation Ltd earlier informed that its Board of Directors at its meeting held on May 20, 2010, inter alia, has declared dividend of Re.0.30 i.e. 3% per equity share of Rs.10 each for the year ended March 31, 2010. The dividend yield at the CMP is also quite attractive.
• The company is expected to launch its new product range of Table Top Scales and Jewellery Scales very soon. It has esteemed list of clients like Wockhard Hospitals Ltd, Home Solution Retail (I) Ltd, Department of Atomic Energy Ltd (BARC), etc.
• The weighing and measurement industry in India is growing at a brisk pace and hence it is expected that the demand for weighing application in various industries, would shoot up in the days to come. The company has been emerging as one of the largest and the fastest aggrandizing Weighing Scale manufacturing and Selling Company. The company has their product presence all over India, from Metro Cities to Small Cities to Rural areas. The essence that makes it reach every corner of India is through strong and affirmed Brand Power and huge spread of dealers across the country.
• If we look at the BSE’s announcement section, then we would find that the promoters have been continuously increasing their stake in the company, during the last few months.

Conclusion and Chart Check: From the charts it has been found that the stock is in the oversold territory and a bounce could be expected very soon. The other chartical parameters are more or less in the buy mode.

Investors can invest in the scrip at the CMP of Rs.5.60-5.70, for a target of Rs.6.95 in the short to medium term; if it is able to break Rs.6.25 on the upside. In the long term the scrip could touch Rs.12-15, considering lot of positives in the company. Please keep a SL of Rs.5.48 if one is playing for the short term.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

PICK OF THE WEEK:

Balasore Alloys Ltd

BSE Code: 513142

CMP: Rs.26.75

Face Value: Rs.5

Book Value: Rs.156.29

EPS: Rs.3.11

P/E: 8.6

Industry P/E: 13.28

Market Cap: Rs.171.98

Introduction: Balasore Alloys Ltd (BAL), formerly Ispat Alloys Limited is part of the renowned Ispat group of Companies, promoted by the Mittals. The group’s companies are spread across six countries including Libya, Bosnia, Philippines, Azerbaijan and Uzbekistan. The Other Group Companies in India are Ispat Industries Limited, Ispat Metallics India Ltd., Ispat Profiles India Ltd., Gontermann Peipers India Ltd, etc.

Balasore Alloys Ltd was incorporated in the year 1984 at Balasore, Orissa and at present it has 5 furnaces with total capacity of 57 MVA to produce 95,000 MT bulk Ferro Alloys per annum. With multiple furnaces of different capacities, the company has the flexibility to produce different types of Ferro Alloys as per market dynamics. This adds to the competitive advantage of the organization as different product mix can be maintained at the same time even with low quantity. The company has captive mines in different locations like Chromite ore mines in Sukinda Valley at Jajpur Road (Orissa), Manganese Ore Mines in Hathoda (M.P.). The mines take care of the Chrome ore requirement of the company.

BAL is one of the very few Ferro Alloys manufacturing companies in the country having captive mines and this is a major competitive advantage since availability of Chrome ore is very uncertain and the price is also exorbitant. Other raw materials are sourced from both Domestic and International Markets. The products of the company enjoy international reputation.

The company has ISO-9002, ISO-14001 Certification for its Plant and ISO-9002 for its Mines in Jajpur, Orissa. Various modern management initiatives like Six Sigma, TPM, Supply Chain Management and Performance Management Systems are in place to promote excellence in all areas and improve the overall efficiency of the company.

Shareholding Pattern: The promoters hold 46.56% while the general public holds 53.44%. Among the general public FIIs hold 9.15% and DIIs hold 0.94%, while corporate bodies hold 8.66% 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	Somerset Emerging Opportunities Fund	3,495,369	5.44
2	Emerging India Focus Funds	1,513,973	2.35
3	India Focus Cardinal Fund	871,442	1.36
	Total	5,880,784	9.15

Financials: For Q1FY11, the company came out with very good numbers. The total income of the company for the period came out to be Rs.143.37 Cr as against Rs.93.53 Cr in the same period previous year. The PBDT of the company for Q1FY11 came out to be Rs.22.30 Cr as against Rs.9.97 Cr in the same period previous year. The EPS of the company for Q1FY11 came out to be Rs.1.81 as against Re.0.65 in the same period previous year. While the OPM remained flat, the NPM almost doubled in Q1FY11 as against same period previous year.

For FY10, the company came out with diminished bottom and an encouraging topline. The total sales of the company for FY10, came out to be Rs.431.31 Cr as against Rs.649.97 Cr in the same period previous year. The net profit of the company for FY10 came out to be Rs.12.55 Cr as against Rs.94 lakhs in the same period previous year. The EPS of the company for FY10 came out to be Rs.1.95 as against Re.0.15 in the same period previous year. The OPM improved to 16.78% in FY10 as against 9.21% in FY09. The NP also improved to 2.91% in FY10 as against 0.14% in the same period previous year. The reserves of the company almost remained flat at Rs.209.28 Cr in FY10 as against Rs.208.06 Cr in the same period previous year.

Triggers:

• Balasore Alloys Ltd is one of the largest Ferro Alloys producer and supplier in India. The company is also exporting its products since 1991-92 and continues to supply to most quality conscious countries like Japan, China, Taiwan, Korea, USA, Canada, Brazil, Mexico etc. The export base has increased from 4 countries in 1991-92 to 12 Countries in 2007-08 to over 26 Countries in 2010.
• Balasore Alloys Ltd, a major player in the international Ferro Chrome market, has notched up an impressive growth of 178.53% in its PAT for Q1FY11 as compared to Q1FY10. This shows that the company has been able to sustain the momentum of its accelerated growth chiefly on account of judicious product mix, improved capacity utilization, better realizations and improved cost efficiencies, despite rising of power and other input costs.
• As per growth estimates stainless steel is one of the fastest growing basic materials with a growth in production of 14.5% in 2010 followed by further 8.9% in 2011. In spite of the severity of the global recession, high carbon ferro-chrome survived remarkably well in 2009. Largely due to the resilience of China’s stainless steel industry, world HCFeCr demand fell just by 2.2% in the past year. HCFeCr consumption is likely to grow steadily throughout 2010. In the medium term China would continue to be the main driver of growth for HCFeCr, accounting for an estimated 58.5% growth of the overall increase in global consumption. The improvement in operating performances was triggered by increased volumes adoption of aggressive cost reduction measures, higher plant productivity and improvement in major techno-economic parameters. The company has taken a number of measures to mitigate the associated business risks. This is expected to bring about a long term growth of the company.
• All the growth/expansion projects which were put on hold due to global meltdown, were given a re-look, the board has decided to resume some of the projects. The company is in the process of finalizing strategic partners for the said projects. After the completion of the said projects, it is expected that the company would be ranked among the top ranked ferro alloy players of the world.
• Export of Ferro Chrome constitutes 77% of the total turnover of the Company. With the improvement in world economies, this is expected to give a further push to the company’s fundamentals.
• The stimulus packages initiated by various governments have focused on development of infrastructure. The growing usage of stainless steel in architecture, building and infrastructure fuels the demand in the long term. Huge de-stocking of Ferro Chrome throughout the world has led the stainless steel mills in China, India and Korea to start fresh buying. This amplified buying in the tight supply situation has given an upward swing to price which is expected to be stable through this year.
• Ferro Chrome is a power intensive industry and power contributes about 45% of the variable cost of production. The Company at present is totally dependent on the state power supply company, where the quality and consistent supply of power remains a concern area. Considering the present monopolistic situation of power in the state, the company has decided in setting up of captive power plant for its long term survival. Substantial progress like acquiring of land, tie-up of the coal linkage and various Government clearances/approvals, has already been made in this regard. The Company is in the process of obtaining necessary approvals from Government Agencies and Financial Institutions and securing financial tie-up for the project.
• The Company is having chromate ore mines located at Sukinda velley, Jajpur, Orissa, manganese ore mines located at Hathoda, Balaghat, Madhya Pradesh and at Joda, Keonjhar district, Orissa.
• The Company approached the lenders for second restructuring of its financial liabilities and in response State Bank of India (SBI), the lead lender of the Company, has approved and implemented the restructuring package under CDR mechanism on 30th June, 2009. The above restructuring package has also enabled the Company to improve its cash flow and avoid its account from becoming a NPA. With the above CDR package, coupled with the supportive market conditions, financial performance of the Company has shown turnaround in Q1FY11.
• Last year, the Company acquired shares of Milton Holdings Limited (MHL), a Company incorporated in Mauritius, resulting in MHL becoming a Wholly-owned Subsidiary of the Company. MHL, the wholly-owned subsidiary, shall be implementing, through joint-venture, the proposed Manganese-ore mining projects in Brazil.

Conclusion and Chart-check: Considering the points mentioned above, the scrip can be purchased at the CMP of Rs.26.75 (or above Rs.25.5) for a medium term target of Rs.31. However, this stock might not give good appreciation in the short term. Hence those who want to buy should do it only for medium to long term perspective. Moreover, since it is from the Ispat Group, and hence please do not play in the scrip without keeping a Stop Loss which should be around Rs.25 (exit if it breaks). The stock is slightly in the overbought zone and could come to around Rs.25.5 before moving up.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: The stock was recommended to the Paid Groups on 5th September, 2010. The stock gave good returns to the patient investors.

PICK OF THE WEEK:

Gujarat Alkalies and Chemicals Ltd

BSE Code: 530001

CMP: Rs.120

EPS: Rs.20.83

P/E: Rs.5.79

Industry P/E: 13.92

Dividend Yield: 2.49%

Introduction: Gujarat Alkalies and Chemicals Ltd (GACL) was set up in the year 1973. From an initial capacity of 37,425 TPA Caustic Soda, it has grown to be the largest producer in India. Spread over 2 complexes at Vadodara and Dahej GACL has already started to diversify and expand its existing infrastructure to consolidate it's supremacy in Chlor-Alkali and other integrated downstream products. The location of both the plants 'Vadodara' and 'Dahej' has dual advantage of proximity to the raw material suppliers and the end users.

While the capacity utilization is about 70% in the Caustic Soda Industry, GACL's plants are working at almost 100% capacity.... thereby utilizing the assets to the fullest extent. Further the company takes pride in having honoured it's commitments without fail.

The company has made its presence felt across the globe even against stiff competition by exporting products to USA, Europe, Australia, Africa, Far & Middle East countries, China & South Asian Markets. GACL has adapted to the age of information technology for fast and uninterruptible information exchange. Both plants of Vadodara and Dahej are connected by VSAT and lease lines. This provides on-line information at any given point of time.

Shareholding Pattern: The promoters hold 36.72% while the general public holds 63.28%. Among the promoters, Gujarat Industrial Investment Corporation Ltd holds 9.69% 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	Life Insurance Corporation of India	6,560,594	8.93
2	Sundaram BNP Paribas Mutual Fund	4,681,473	6.37
3	Lok Prakashan Ltd	2,239,142	3.05
4	SBIMF Magnum Comma Fund	1,744,844	2.38
5	Gujarat State Fertilizers & Chem. Ltd	1,655,040	2.25
6	Shreyans Shantilal Shah	1,195,790	1.63
7	General Insurance Corporation of India	1,150,329	1.57
8	Gujarat Industries Power Comapy Ltd	1,103,360	1.50
	Total	20,330,572	27.68

Financials: For FY10, the total income of the company came out to be Rs.1, 339.91 Cr as against Rs.1,430.07 Cr in the same period previous year. In the same period what is encouraging is that the interest cost decreased to Rs.17.48 Cr as against Rs.24.59 Cr in the same period previous year. The net profit of the company for FY10 came out to be Rs.171.84 Cr as against Rs.192.27 Cr in the same period previous year. The EPS of the company for FY10 came out to be Rs.23.40 as against Rs.26.18 in the same period previous year. The EPS of the company is quite good for the current market price of the scrip, which means the scrip is undervalued if we consider the FY10 EPS of the company.

For Q1FY11, the total income of the company came out to be flat at Rs.329.90 Cr as against Rs.335.36 Cr in the same period previous year. The profit before tax in Q1FY11 came out to be Rs.22.12 Cr as against Rs.50.29 Cr in the same period previous year which is mainly due to market conditions and impact of erosion in price realizations for Caustic Soda and Caustic Potash Group products in Particular. The net profit of the company for Q1FY11 came out to be Rs.19.01 Cr as against Rs.37.91 Cr in the same period previous year. The EPS of the company decreased to Rs.2.59 as against Rs.5.16 in the same period previous year.

Triggers:

• The financial ratios improved at the end of the first quarter as compared to the year ended 31^st March, 2010:

(i) Price earning ratio—12.09 times from 5.27 times.

(ii) Debt equity ratio—0.14:1 from 0.17:1 and

(iii) Book value per share---Rs.187.98 from Rs.185.38

• In FY11, the company plans to commission 50 TPD Calcium Chloride Unit at Vadodara Complex and 50 TPD Stable Bleaching Powder Project and expansion of Hydrogen Peroxide Unit from 38 TPD to 80 TPD at Dahej complex, so as to improve upon the top line and bottomlines of the company.
• The company is committed to utmost customer satisfaction, which is the driving force for progress. Adhering to international standards, with no laxity in any sphere, it is a favoured supplier for its range of products. To consolidate this and to gain international credibility, it had earlier obtained quality system certificate under IS/ISO 9001:2000, ISO 14001:1996 and IS 18001:2000.
• The mercurial nature of the chemical industry demands continuous invention and innovation. The company has a well-equipped R & D centre, recognized by the department of Science and Technology, Government of India, working on new and safer processes/ technologies, value added products and import substitutes.
• It has started marketing toluene based products like Benzyl Chloride, Benzaldehyde, etc. The expansion activity of of Aluminium Chloride, is under pre-Commissioning and is expected to be on-stream by Mid-September, 2010. This will enable the Company to meet additional exports requirements. GACL aims to be a major player in the world with this expansion.
• Ethical and transparent operations have contributed to a very great extent in bringing a turnaround at GACL. Excellent labour relationship helped the company in achieving very high manpower production turnover per employee per annum. This is also a result of a thin and lean workforce, which is lead by the professional management.
• Caustic-Chlorine being its prime product, the company has diversified into value added products like Sodium Cyanide, Chloromethanes, Hydrogen Peroxide, Potassium Carbonate, Phosphoric Acid, etc. These value added products provide dual benefit to the organization by hedging against cyclical fluctuations in the Chlor-Alkali Industry. GACL sells 26 products today, maintaining it's leadership in Caustic-Chlorine industry with 16% market share and has emerged as a major player in the segment of value added products.
• Various factors that influence the success of any corporation, the self-sufficiency ranks the foremost. GACL has worked effectively in this direction. Cost effective natural gas was substituted as fuel in place of Naphtha for Captive Power Plant. The plant load factor has increased and surplus power is supplied to State grid. This has helped achieve economies of operations.
• Power, being a major input to the electrolytic Caustic Soda process, it promoted a joint captive power plant, Gujarat Industries Power Company Limited to meet its energy requirements for Vadodara Complex. Its complex at Dahej is also integrated with a captive co-generation plant of capacity of 90 MW.
• This state promoted unit has further developed three wind farms in Kutch with capacity of 84 MW to generate power from renewable source of Power wind, to broaden its view towards green environment. In the beginning of this year it sold second lot of 83000 CER's to a European buyer and has earned revenue of Rs.5.9 Cr in addition to revenue of Rs.16.5 Cr earned earlier by sale of CER's. The company expects cumulative revenue of about Rs.100 Cr from various projects in hand in next couple of years.
• GACL, the leader in Caustic – Chlorine in the country with a basket of 26 diversified products, and Dow Europe GmbH, have signed a Memorandum of Understanding for exploring a long term and strategic business relationship in the area of chlorinated organics based on the inherent strength of both the Companies.
• The company announced that projects viz, 90 MW captive power project, 600 TPD Chlor-Alkali expansion project, Hydrazine project and Polyols project involving an investment of about Rs.2, 600 Cr are progressing as scheduled and are expected to go on stream by FY 2013-14.

Chart-check and Conclusion: From the charts it has been found that most of the parameters are in buy mode. The scrip has made a very strong bottom at Rs.117-118, which will be difficult to break on the downside, unless there is a market crash. One can buy the scrip for a short term target of Rs.135, in view of the rise in Caustic prices due to short supply. Caustic soda prices rose by Rs.50 per 50 kg in New Delhi on account of firm demand from consuming industries amid short supply. Caustic soda flake rose by Rs.50 to Rs.950-1,000 per 50 kg. Marketmen said apart from good demand from detergent makers, tight supplies from producing belts also pushed up caustic soda prices in the wholesale chemicals market here. For short term play and in case of market sell off, one should keep a strict stop loss of Rs.116.4.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: This scrip was recommended to the Paid Groups on 22nd August, 2010 and the scrip already gave some returns to the subscribers of the Paid Service.