Essar Port Ltd: Breaking out of its current trends
CMP: Rs.56.70

Essar Ports Limited (EPL) develops and operates ports and terminals and is one of the largest private sector port companies in India by capacity and throughput. 

Essar Ports is part of the multinational Essar Group, and holds the Group's entire ports business. Essar Ports develops and operates ports and terminals for handling liquid, dry bulk, break bulk and general cargo, with an existing aggregate capacity of 104 MTPA across two facilities located at Vadinar and Hazira in the state of Gujarat on the west coast of India and one iron ore terminal at Paradip in the state of Orissa on the east coast of India.

The facilities at Vadinar and Hazira are used primarily by affiliated customers for the receipt of raw materials such as crude oil, iron ore / pellets, limestone, dolomite and coal, and for the despatch of finished goods such as petroleum products and steel products.

Financials: 

• H1 FY14 Net Profit up 33% to Rs 198.90 Cr
• Q2 FY14 Net profit up 21% at Rs 97.5 cr
• H1 FY14 Earnings per Share at Rs 4.65 

Highlights of consolidated results:

1. Net Profit for Q2 FY14 increased by 21% to Rs. 97.5 crore from Rs.80.5 crore in Q2 FY13. For H1 FY14, the Net Profit increased by 33% to Rs.198.9 crore from       Rs 149.1 crore in H1 FY13.

2. Earnings Per Share as at H1 FY14 were at Rs 4.65 as against Rs 3.53 for H1 FY13.

3. Revenue for Q2 FY14 excluding trade revenues to fulfill export obligations increased by 14% to Rs 398.1 crore from Rs 348.3 crore in Q2 FY13. For H1 FY14, the Revenue excluding trade revenues to fulfill export obligations increased by 18% to Rs 801.8 crore from Rs 677.8 crore in H1 FY13.

4. EBITDA for Q2 FY14 increased by 13% to Rs 324.2 crore from Rs 287.1 crore in Q2 FY13. For H1 FY14, EBITDA increased by 17% to Rs 652.1 crore from Rs 558.4 crore in H1 FY13.

5. 13.01 million tonnes of cargo handled during Q2 FY14 as against 12.70 million tonnes of cargo handled during Q2  FY13.

Speaking on the key highlights for the quarter, Mr. Rajiv Agarwal, Managing Director, Essar Ports Ltd. said: "Our performance is consistent with the growth targets we have set for ourselves and we are confident of delivering good performance in the coming quarters. We will further strengthen our performance once we execute the projects in hand and third party terminals at Paradip and Vizag."

Eventful First Half:

• Company achieved 25% minimum public shareholding requirements of SEBI by successfully completing dilution through Offer for Sale.
• Won the bid for 23 MMTPA Iron Ore terminal at Vizag. Project will significantly enhance third party mix of the Company and gives strategic presence on the east coast after Paradip.
• The Company declared dividend of 5% for FY 2012-13.
• Salaya Jetty construction completed.

Operations on track:

• 13.01 million tonnes of cargo handled during Q2 FY14 as against 12.70 million tonnes of cargo handled during Q2 FY13..
• 27.08 million tonnes of cargo handled during H1 FY14 as against 25.36 million tonnes of cargo handled during H1 FY13.
• Company has earned trade revenues and incurred purchase expenses of Rs 301.92 cr each during the quarter on account of fulfilling export obligations under EPCG.
• Vadinar terminal completed 2500 Loss Time Injury free days during the quarter and also completed over 1 million accident free man hours reflecting the QHSE of the terminal operations.
• Vadinar terminal won the safety Award in Lloyds List Middle East and Indian Subcontinent Awards 2013.
• Hazira expansion project obtained Consent to Establish (CTE) from GPCB for the Expansion Project.
• Hazira Terminal received Gold Award in the Greentech Safety Awards 2013.

About Essar Ports (in brief):

Essar Ports Ltd is one of the largest port companies of India, with a current capacity of 104 MMTPA. The capacity is being expanded to 181 MMTPA over the next few years.

Essar Ports has three operational terminals at Hazira, Vadinar and Paradip. The Hazira port is an all-weather, deep-draft port with 30 MMTPA of dry bulk and break bulk cargo handling capacity. Vadinar is also an all-weather, deep-draft port with 58 MMTPA of liquid cargo handling capacity. Paradip dry bulk terminal was commissioned in December 2012 and is an all-weather, deep-draft port with 16 MMTPA of dry bulk cargo handling capacity.

Essar Ports is currently developing one terminal at Paradip, which will be a coal berth of 14 MMTPA. The company is also setting up a dry bulk terminal at Salaya with a capacity of 20 MMTPA. Additionally, the company plans to expand its Hazira port capacity by 20 MMTPA – taking its capacity to 50 MMTPA. Essar Ports has won the bid for the development of three iron ore berths totaling 23 MMTPA at Visakhapatnam port. 

Future Retail Ltd: Strong Upmove Expected
CMP: Rs.76.80

The Company has posted a net (loss) of Rs.9.86 Cr for the quarter ended September, 30, 2013, where as the net profit for the quarter ended September 30, 2012 stood at Rs.8.6 Cr. However, inspite of higher other expendicutes, the company could eke out a profit of Rs.13.84 Cr before Finance Cost in Q2FY14 as against Rs.8.79 Cr in Q2FY13. The market has given a thumbs up to such results, which has somewhat beat the market expectations; inspite of disappointing topline of around 5.3% (against expectation of 10-15%).  

Also, the numbers for the September quarter cannot be compared with the year-ago figures due to the demerger of its lifestyle fashion businesses that included Central, Brand Factory and Pantaloons, among other, the first said yesterday.

The total income of th company's largest subsidiary, Future Value Retail Ltd (FVRL)--which operates the Big Bazaar and Food Bazaar chains was up 6.5% in Q2FY14, considering Y-o-Y values.

Positives: Future Retail is in the process of merging its wholly owned subsidiary FVRL with itself and is awaiting regulatory approval, it said. Its stand alone business primarily includes its home and consumer durables retailing business.

During the September quarter, Big Bazaar added a store each in Kolkata, Mumbai, Agartala and Kochi. It also opened eZone in Bangalore, Ahmadabad, Mumbai and Mysore. The company also added HomeTown Express stroes in Hyderabad and Lucknow. 

Reducing Debts: Earlier there were media reports that the Kishore-

Biyani controlled Future Group may sell off more assets from its portfolio of brands and stores in a bid to manage its debt better and undertake further expansion.

Speaking to Express, Future Retail Ltd’s joint managing director Rakesh Biyani said, “After a period of consolidation, we do continue to hold investments for sale purposes. If we get the right market valuations and we feel the need to use the proceeds for debt management as well as expansion, we could consider leveraging our investments”.

Currently, the Future Group has three key retail subsidiaries, Future Retail and Future Lifestyle Fashions (FLFL) and Future Ventures, all of which own the group’s retail ventures as well as joint ventures with international brands.

For instance, Future Retail owns the supply chain, the Big Bazaar, Food Bazaar, the furnishing store Hometown, the electronics chain eZone and Capital First while the listed FLFL owns Central, Planet Sports and brands like Turtle and Celio while Future Ventures owns the foods business, fast moving consumer goods (FMCG) and KB’s Fair Price shops. The group’s debt is approximately Rs 4,500 crore, said Biyani.

Earlier, the company’s chief financial officer C P Toshniwal was quoted in the media as saying that the group would consider offloading a stake in two fashion brands-Celio and Turtle-over the past one year. The group holds a  50% stake in French apparel company Celio while it has 26% stake in menswear brand Turtle.

Recently, Future Group has also sold a stake in Biba and And, two other fashion brands targeted at women, to private equity players. While the Biba sale has been concluded, the And transaction in the last stages, said Biyani.

Future Group has been restructuring itself for the past two years to cut debt and align its businesses.

The company sold its majority stake in Pantaloons format to Aditya Birla Nuvo that brought down its debt by Rs.2,800 crore and got out of non-core businesses like insurance.

“Now is the time to introspect. Future Group is in a period of consolidation as is the industry. When the market improves, retailers will do a much better job on return to shareholders,” added Biyani.

Courtesy: With inputs from Live Mint and The New Indian Epress

Infinite Computer Solutions (I) Ltd: Ready To Move Up

Infinite Computer Solutions (India) Limited is a global provider of software solutions in the areas of Application Management, Infrastructure Management, Product Engineering and Mobility and Messaging with focus on the Telecom, Healthcare, Media & Content, Energy & Utilities and Banking & Finance verticals. 

With a global team of over 5000, Infinite partners with Fortune 500 companies from Telecom, Healthcare, Energy & Utilities, Media & Content and Banking & Finance industries to provide Application Management, Infrastructure Management and Product Engineering Services including Mobility & Messaging Products and Solutions.

Shareholding Pattern: The promoters hold 67.47%, while the general public holds a mere 32.53% of the shares of the company. The FIIs hold 10.28% of the shares of the company while the DIIs hold 0.50%. The corporate bodies hold 2.24% of the shares of the company leaving very low floating stocks in the market.  

Financials: For FY13, the total income of the company came out to be Rs.Rs.435.61 Cr as against Rs.370.93 Cr in FY12. The PBT of the company jumped to Rs.136.11 Cr in FY13 as against Rs.99.60 C in FY12. The Net Profit of the company for FY13 came out to be Rs.106.28 Cr as against Rs.75.22 Cr in the same period previous year. The EPS of the Company for FY, came out to be Rs.24.97 as against Rs.17.48 in the same period previous year.

Conclusion: Buy the shares of the company at Rs.85.95--Rs.86, for a target of Rs.94-97-104, in the coming days. The company is coming up with a share buy back issue.

IVRCL Ltd: Huge Returns Expected

CMP: Rs.18.45

S Ramachandran, Director of IVRCL Ltd

Infra player IVRCL currently has an order book of Rs.26,000 crore. However, of the total, orders worth Rs.18,000-20,000 crore are executable, Business Development & Corp Strategy S Ramachandran, Director told CNBC-TV18. The company has been performing well in segments like buildings, irrigation but orders from the transmission line segment are at nascent stage, he informed. Ramachandran is hopeful that the company will perform well in FY14. Further, the company is looking at reducing Rs.1,000 crore debt via stake sale in special purpose vehicles (SPVs) this year, he added.  

Below is the verbatim transcript of his interview on CNBC-TV18  

Q: Could you just walk us through how FY14 is looking in terms of order book visibility and which big projects do you think will come on board and show through for the course of FY14?  
A: We have an order book of about Rs 26,000 crore but out of them few of them are non starters for various reasons. So, effectively we can say anywhere between Rs 18,000 crore to Rs 20,000 crore is the order book which can be implemented now. As far as FY14 goes, it should be a much better year because we have done a little bit of reworking in terms of our overheads and people cost, lot of unwanted stuff has also been removed. I would say that, we definitely would have an upside from here. In terms of the sectors, buildings’ are doing quite well. We have a fairly good order load of about Rs 4,500 crore on buildings. Irrigation and water is also pretty strong. We have moved to different states such as Madhya Pradesh, Chhattisgarh and now something is coming up in Orrisa, and Gujarat was always there. In terms of transmission lines still remains at a nascent stage and last is our highway sector. Our turnover would come from basically these four sectors and in addition we do have some orders from railways. So, things are looking up for FY14. The only constrain here that is actually for all of us infrastructure companies is financing. We did have problems, I presume it is with everybody and this is the time we expect the bankers to come forward and hold us or at least support us, which even what the finance minister has been telling the bankers that you must treat them differently and should not be fair-weather friends. All these years we have been giving them fairly good amount of business but when we are in a little bit of trouble they should support us. Some of them are supporting, I guess the others also will come forward.

Q: The analyst community has gotten quite positive on your company ever since you made clear your intent to exit some of your assets and reduce your debt can you give us a definitive guideline of how much you plan to reduce your debt by from this current Rs 3,000 crore figure that you are sitting at. What are the tools that you guys will use in this calendar year itself either in the form of unlocking value in your special purpose vehicles (SPVs) or any other asset sales?
A: It has to be the SPVs only. After having signed this definitive agreement with Tata Realty for the three roads, some others are also seriously looking at some of our roads, which are under construction like in Indore-Jabhuva, Phaltan-Baramati, Chandrapur, these are all under construction. Some of them can go on stream anywhere between six to nine months from now. In addition, we also have the Chennai desalination plant which is doing very well this whole year. It has been hitting over 95 percent capacity. Things have really fallen for good for us and it is all going to be trying to divest. Now, that the government has also formed three member committee consisting of finance minister, planning commissioner, and the minister of highways, there is some news about them recommending divestment of our equity immediately after financial closure. We need it to be able to sustain ourselves. In that process all the SPV debts will come out. I would be happy if we can get another Rs 1,000 crore out of the SPV off, and maybe pare about Rs 300 crore of IVRCL debt during the year. We are working in that direction, it is not very easy but we are hopeful now this year we should be better off.  

Q: What is the experience been with regards to road projects, it is less competitive or is it still quite cut throat in terms of bidding and are margins still quite low for some of these projects?
A: On the concession front there are hardly any bidders. Very few roads have actually been bid out or people have come forward with any offer. The concession needs to be revised in the sense that there is no control over escalation which is a big disaster. If this is how the rupee is going to go up, this is how the crude oil prices are going to go up, automatically it will reflect on diesel and petrol etc and that in turn will reflect on transportation cost, cement, steel etc. It is very difficult for anybody to factor in such an unpredictable and very-very high rate of escalation. There is a talk also going on to see how some elements of this escalation can be factored in new concession. Unless the concession is modified and made more fair to both the concessionaire as well as the government, things are going to be non starters for some time to come.  

Q: Just to throw some more light on the cost overruns that IVRCL is seeing this quarter you did see some improvement in your margins to about 9 percent or so, but the fear is that your cost overruns will prevent margins from improving further going ahead. What would your sustainable trajectory be in terms of margins in FY14?  
A: In additions to cost overruns, we also have a threshold overhead. Essentially, in any infrastructure project unless the top-line improves drastically it is not able to sustain the threshold overheads which are there. It has to do with cost of finance because the interest rates are very high, it has to do with people cost, and all costs of administration. So, the magic only lies in increasing the turnover so that the overheads can be absorbed. To that extent we have taken some definitive action to see how we can reduce our overhead costs in all ways but what is most crucial is to be able to work on our receivables. Typically, when we closed the project the final bill hangs on - that money is due, retention money hangs on - that money is due. Then there are bank guarantees and bank guarantees is as good as money. So, unless we have improvements in these directions, they are definitely going to bite into our margins. At the gross level we would still be anywhere between 9 to 11 percent.

Courtesy: www.moneycontrol.com

A2Z Maintenance & Engineering Services Ltd: Some Points Worth Considering

Buy: CMP: Rs.19.10

(i) In 2006, the ace investor, Rakesh Jhunjhunwala paid Rs.20 crore for a 21% stake in A2Z Maintenance & Engineering Services Ltd, an engineering, procurement and construction (EPC) company engaged in power distribution and facility management services (FMS) among other interests. 

(ii) In 2010, it went public, raising Rs.776 crore (fresh issue of Rs.675 crore and offer for sale of Rs.101.25 crore). Under the offer for sale, Jhunjhunwala sold over 1 million shares at Rs.400 a share, pocketing over Rs.40 crore.

(iii) Though the analysts had panned the IPO at aggressive multiples [26 times, against the then-industry multiple of 15x for EPC companies], on the first of listing the stock tanked. To soothe frayed nerves, Big Bull bought 1.375 million shares at Rs.350.77 a share, forking out Rs.48 crore. At the end of the quarter his 19.11% stake was still worth a respectable Rs.450 crore. But the stock continued to head southward. Again on May 22, 2012, Jhunjhunwala bought 2.65 million shares for Rs 26 crore at Rs 100 a share, thus pumping in an additional Rs.75 crore in the company and raising his stake to 22.68%.

(iv) Today, the stock has come off more than 90% to Rs 20.20 as on  May 10, 2013. Though Jhunjhunwala sold part of his stake in March, but still at 18.03% he is the biggest non-promoter shareholder and the stock remains the biggest bet, in percentage holding terms, within his portfolio; though its value is now  is just a little above Rs.27 Cr. This means the ace investor will do all possible to recover his money back. 

(v) The company recently through a postal voting decided to revise the utilization of the proceeds from the IPO of equity shares made in pursuance of the Prospectus and have got approval from the shareholders to utilize the proceeds  other than those mentioned in the Prospectus.

(vi) The company which started off as an FMS provider, moved on to installing power distribution lines and sub-stations, too fast, bringing in problems for the company. However, now with the talks of restructuring of "discoms" and efforts made to solve the coal issue, the power sector outlook has improved, than it was a couple of months back. Moreover, the management referred the company to the corporate debt restructuring cell. It remains to be seen when the company gets bailed out. Meanwhile, we can take positions due to improved sentiment in the sector and also due to new initiave taken by the management to turnaround the company. Moreover, as long as we have Rakesh Jhunjhunwala to force the management to do things in order to improve the fundamentals, we do not have to worry much. For more on the company please, CLICK HERE.

Concern:  An eye-sore is that though A2Z allocated a chunk of the IPO proceeds for its biomass plants of 60 MW, but still it is facing delays in execution and signing of power purchase agreements. The IPO of the company came in Dec’10 at a price of range of Rs.400-410. The company listed on 23 Dec’10 at a price of Rs.398, which was a tad below the IPO price. Since, then it has never touched the IPO price and Rs.398 remains the all-time-high traded price.

Eros International Media Ltd: Looking to Cross Rs.200

Please Click on the Chart to Expand

It is a part of the Eros International Group. Eros International Media Ltd is a leading global company in the Indian film entertainment industry. It co-produces, acquires and distributes Indian language films in multiple formats worldwide including; theatrical, television syndication & digital platforms. .
Its success is built on the relationships that it has cultivated over the past 30 years with leading talent, production companies, exhibitors and other key participants in the industry. Leveraging these relationships, it has aggregated rights to over 1,900 films in its massive library, plus an additional 700-plus films for which it holds digital rights only.
The group has a distribution network that spans over 50 countries, with offices in India, UK, USA, Dubai, Australia, Fiji, Isle of Man and Singapore. In 2006, Eros International Plc, the holding company of the Eros Group, became the first Indian media company to list on the Alternative Investment Market (AIM) of the London Stock Exchange.
Shareholding Pattern: The Promoters hold 74.88% of the shares of the company, while the general public holds only 25.12%. Among the general public, 12.25% of the shares are held by institutions (FIIs--9.39% and DIIs--2.88%), so we have very little free shares available in the market for trade and this  adds to the premium of the shares. Moreover, the FIIs have increased their holdings both on Q-o-Q and Sequential basis. According to a market statistician, on April 11, 2013 Morgan Stanley Asia Singapore PTE bought 500,000 shares of Eros International Media Ltd at Rs.171 on the BSE and bought 500,000 shares at Rs.171 on the NSE.
Brokerage Firm, GE Capital Ltd's Views:   
(i) Deal with Endemol to open new content avenues for Eros: Eros and Endemol India (Endemol) have entered into an alliance to produce three feature films and co-produce original content programming for Television. An amount of  Rs.1bn has been earmarked for producing the three films. The deal with Endemol would allow Eros to access Intellectual Property belonging to the former. Endemol has a great track record of versatile content across various genres on television such as Bigg Boss, Fear Factor and so on. Hence, the brokerage firm believes that the deal is a step in the right direction to penetrate into the fast expanding Rs.500bn television industry.
(ii) Impressive releases during the quarter: During the quarter Q3FY13, Eros released 21 films in all; 18 in Hindi and 3 in Non-Hindi (Regional). Some of the films worth mention are English Vinglish, Son of Sardaar, Thupakki, Maatraan and Khiladi768. These films are also among the best performing films released in India during the quarter.
Huge slate of releases in FY14 with potential to garner sizeable revenues For this year (FY14), Eros has an impressive line-up of movies involving big names such as Amitabh Bachchan, Rajnikanth, Hrithik Roshan and so on. The release of Kochadaiyaan which was scheduled for Q4FY13 has been postponed to Q1FY14 along with several other movies, hence we expect sales growth for FY13 to slow down to 13% versus 20% estimated earlier. For FY14, Sales is expected to grow at 23% versus 19% estimated earlier.
(ii) Valuation & Viewpoint: At CMP of  Rs.165.85 Eros is trading at 7.61x its FY14E EPS of Rs.21.77. The brokerage house expects that FY14 would be a high growth year as revenues from the HBO deal will begin to trickle in. The enthusiastic response to Offer For Sale by promoter (4.4x over-subscription) showed considerable investor interest in the company’s growth story. The company paid its maiden dividend of Rs.1.50 per share during the quarter. The Brokerage house has valued the stock at its long term P/E multiple of 11x to arrive at the target price of Rs.238 with a BUY rating.
Conclusion: Apart from what is mentioned above, it is important to note: Eros International Plc & HBO Asia's joint announcement to launch two new premium advertising-free movie channels, HBO DEFINED and HBO HITS in India, which are expected to be money spinners in the coming days. Also, EIML has recently signed a licensing agreement with colors’ Viacom18 Media Pvt. Ltd. Besides this the analysts are expecting Net Sales and PAT of the company to grow at a CAGR of 20--22% in the coming years. 
The investors can therefore buy the scrip at the CMP of Rs.165.85, for a medium term target of Rs.230 and a short term target of Rs.192.  

Buy: Southern Online Bio Technologies Ltd

BSE Code: 532669

CMP: Rs.4.73

There is some mindless selling going on in the counter of Southern Online Bio Technologies Ltd, even as the company spoke of to raising an amount Rs.6.25 Crores by way of preferential issue of 62.50 lakh Equity shares to promoters and others at face value of Rs.10 per share.  Let us examine a bit of the company in the current context:

• The activities of the Company can be broadly classified into two segments, viz., Internet Service Provider (ISP) , Manufacturing of Bio Diesel, Used Cooking Oil trading and Contract. The ISP division provides Internet Bandwidth to the Corporate Clients, Educational Institutions, Cyber Cafes, & Individual etc.., The Bio Diesel division manufactures the Bio Diesel. The company does, Cross Country Trading of Used Cooking Oi, as is mentioned above and  which is often overlooked.
• Post Preferential Allotment, the Promoters' Holding in Southern Online Bio Technologies Ltd has shot up from 17.48% [6,049,479  shares of the company] to 24.96% [10197896 shares of the company]. This will be reflected in  the December, 2012, quarter's shareholding pattern in the website of Bombay Stock Exchange. Besides this, Foreign Institutional Investors hold 14.62% of the shares of the company while Private corporate Bodies hold 19.98% shares of the company. Also, NRI’s / OCB’s / Foreign Nationals hold 4.59% of the shares of the company. Post Preferential Allotment, the Public Shareholding has gone down from  36.24% to 35.84%.  This means ~64.15 % of the shares of the company is  on strong hands and hence this gives Premium Value to the share price, which is trading at a discount to both its book  value and face value
• The Company has two Biodiesel Units:
  1. One is at Samsthan Narayanpur Village & Mandal, Nalgonda District with 30,000 Liters per day capacity .
  2. The other unit is at APIIC-SEZ, Atchutapuram, Rambilli Mandal, Visakhapatnam with 2,50,000 Liters per day capacity.
  The Company has been supplying biodiesel to various well reputed customers like Kirloskar Oil Engines, Panama Petro Chem, Ipsa Texchem, Sovino foods Pvt Ltd, Real Bakers Pvt Ltd, Anand foods Pvt Ltd, Parle group, Evergreen Energy Inc., Witmans Industries, Biking Foods Pvt Ltd and other traders
• The Company has been providing a wide spectrum of services, which includes basic services like Internet access, E-mail etc. and value added services such as Add on hours. The Company presently provides Internet Services as a Licensed ISP. The Company’s services include the following: (i)Server Co-Location (ii) VOIP Services, (iii) Leased Line services (Terrestrial and RF links), (iv) Dedicated Servers, (v) Networking Solutions, (vi) Web Hosting.
• Plant at Vizag: All modifications have taken place and Raw Material supply & finished product contracts are signed and are in place. The unit is ready for production. Once the additional working capital is infused production will be commenced. in-principally agreed to fund the required additional working capital for Vizag Unit as per the TEV study done by the lead Banker, Bank of India. Accordingly proposal was sent to their respective consortium banks Head offices for approval of additional working capital
• Plant at Tondiarpet, Chennai: Having experience in setting up two Biodiesel units, now the company has got an order from
  Indian Railways Organization for Alternate Fuels (IROAF), Ministry of Railways to set up/construct, maintenance and operation of 30 tons per day capacity biodiesel unit at Tondiarpet, Chennai. The Company has started implementing the Biodiesel project for IROAF. The progress of execution of the project is satisfactory and it is expected to complete next year, i.e, 2014.
• Enhancement of Credit Facilities from Consortium of Banks: During FY12 the company has got additional sanction of Rs.24.52 crores towards the pending Capex creditors and addition of new equipment for the Capacity enhancement and operational flexibility. Also Additional Funded Interest Term Loan (FITL) of Rs.10.71 crores was sanctioned to provide Interest moratorium for the existing Term loan [Do you remember the Suzlon Energy Ltd story?]. Originally Rs.44.65 crores of working capital was sanctioned for both units Viz Nalgonda and Vizag units together and the same was eroded due to delay in stabilization of the Vizag Unit. As such eroded NWC of Rs.22.00 crores is converted to working capital Term loan (WCTL) based on the September 2011 current assets and the balance of Rs.22.65 Crores was only available as working capital limits for both the units, which was not sufficient to run the Vizag Plant.  Above additional facilities were sanctioned and joint documentation was executed by all the banks in the month of March 2012 without funding the eroded additional working capital limits. However in the recent consortium meeting held on 13th June 2012, all consortium banks have in-principally agreed to fund the required  additional working capital for Vizag Unit as per the TEV study done by the lead Banker, Bank of India. Accordingly proposal was sent to their
  respective consortium banks Head offices for approval of additional working capital. According to my sources, this in the final stages of processing
• The recent increase in prices of edible oils which are used as raw material for Bio Diesel in western countries presents cutting edge to the company which has designed its plant for non edible oils and animal fat. By using non edible oils as feed stock the company is far away from the growing criticism of diverting food for fuel upsetting the economies of various countries. 

Outlook for the Industry:
A. ISP Division: The internet is allowing a greater flexibility in working hours and locations especially with the spread of unmetered high speed connections and web applications. The internet can now be accessed almost any where by numerous means especially through mobile internet devices Mobile phones, data cards, cellular routers allow users to connect to the internet from any where. The low cost and nearly instantaneous sharing of ideas, knowledge and skills have made collaborate software. Internet  significantly facilitates the process of development of nations and its citizens in all  respects be it economic, social or cultures.

B. BIODIESEL Division: The global market for Biodiesel is entering a period of rapid transitional growth, creating both uncertainty and opportunity. A fundamental transition in global fuel
production is now happening. India is an energy deficient nation by global standards, with global demand and global energy prices likely to increase in the medium to long term, the macro economic impacts, especially in terms of balance of payments, could adversely effect the country’s future development. This grim energy prospect for India has forced policy makers to intensify their efforts to search for alternative fuel options. In this context, biofuels may offer options for meeting part of India’s energy needs.
India’s total biodiesel requirement is projected to grow to 3.6 Million Metric Tons in 2011-12, with the positive performance of the domestic automobile industry. Analysis from Forst & Sullivan, Strategic Analysis of the Indian Biofuels Industry, reveals that the market is an emerging one and has a long way to go before it catches up with global competitors. The Government is currently implementing an ethanol-blending program and considering initiatives in the form of mandates for biodiesel. Due to these strategies, the rising population and the growing energy demand from the transport sector, biofuels can be assured of a significant market share in India. Jatropha incentives in India is a part if India’s goal to achieve energy independence by the year 2012. Moreover, the Indian Railways has started using the oil (blended with diesel fuel in various ratios) from the Jatropha plant to power its diesel engines which was great success. Currently the diesel locomotives that run from Thankavur to Nagore section and Tiruchirapalli to Lalgudi, Dindigul and Karur sections are using Biodiesel (petro blend of jatropah oil). In one of the biggest initiatives for bio-fuels production in the country, India Railways is
poised to setup four bio-diesel plants costing around Rs.120 crores. While two bio-diesel esterification plants are going to becommissioned at Raipur and Chennai by 2013 the other units will be set up subsequently.
Our country is in an enviable position to become a world leader in biofuel sector and there by ensuring a multi dimensional micro and macro benefits for the economy in the medium to long term. In the long run the growth of biofuel sector in our country will directly and positively impact our trade deficit by reducing oil imports and foreign exchange outflows while enhancing energy security. In addition the revenues from carbon credit to the industry earnings will further improve its viability. By 2020 India will become largest
biodiesel processing, blending, consuming nation. Biodiesel will be viewed as an integral component of national energy security which
will increasingly relies on clean indigenous renewable fuels.
Capital work in Progress: Capital Work in Progress includes additional equipment for enhancement & modification of Estrification unit / Distillation unit and LLE.
Financials: For Q2FY13, the company came out  with flat topline and a much better bottomline. The Net Loss of the company decreased from Rs.15.57 Cr in Q2FY12 to Rs.5.44 Cr in Q2FY13. Even there was improvement in the OMP and NPM. In face NPM turned out to be positive [3.90%]  in  Q2FY13 as against  -34.74%  in Q2FY12.  In fact if  you closely look at the Q3FY13, results then  your would find that:
Total Income: Rs.27.74 Cr
Totall Expenditure: Rs.26.66 Cr
This gives a clear profit of Rs.1.08 Cr, instead of a loss. Hence, at EBIDTA levels it is making profit, with a single plant in operation.  Now consider what will  happen when the other two plants will start working, within a short time? According to my sources,  even in Q3FY13, the company is expected to show better financial performance and the Net Loss is expected to come down. It is therefore a turnaround case and should be bought into in all declines, before it starts  hitting upper circuits once again. For more on the company please, CLICK HERE. 
Note: This report was placed on the blog: www.sumanspeaks.blogspot.in on 25 th January, 2013. 

Crest Animation Studios Ltd: Buy

CMP: Rs.16.85

Introduction: Crest Animation is a full-service studio specializing in the development and production of digital animated properties for theatrical, television, home entertainment and interactive distribution for the global entertainment industry. Crest is the undisputed leader in the Indian animation industry, and one of the leading CGI animation studios in the world.

Crest Animation leverages its India advantages of highly-skilled talent and cost efficiencies, and the creativity of its Los Angeles arm to provide high quality CGI (computer generated imaging) animation product to the global animation industry. Through the Crest Advantage of Time-Cost-Quality, Crest has become a revenue differentiating player in the global animation industry.

Crest's state-of-the-art technology and world-class facilities, together with its depth and breadth of experience, has earned it an unparalleled reputation in global animation circles. Crest has delivered more than 200 half hours of television and home video titles in CGI animation, working for such clients as Mike Young Productions, Mark Brown, Classic Media, Nelvana, American Greetings, Marathon and Nickelodeon. Crest has produced animation for several international TV shows such as 'Jakers!' and 'Pet Alien' that have won many awards including Daytime EMMY, BAFTA, FICCI Frames 2005, Humanitas Prize for Children’s Animation, and a nomination for Annie Award.

Crest recently tied up with Lions Gate Family Entertainment to co-produce three movies. Crest has delivered its first feature film co-produced by Lionsgate USA. Alpha & Omega has been accepted for consideration in the Animated Feature Film category for the 83rd Academy Awards. It is the first animated film from India to appear on Oscar's list." 

Financials: For FY12, the net loss of the company came down to Rs.20.56 Cr to Rs.171.15 Cr in the same period previous year. For Q2FY13, the company came out with a net profit of Rs.26 lakhs as against a loss of Rs.3.17 Cr in the same period previous year. In terms of sequential values too, the company did well. The net loss of the company for Q1FY13, came out to be Rs.32 lakhs as against a net profit of Rs.26 lakhs in Q2FY13. Also, both on Q-o-Q and sequential basis, its OPM and NPMs increased substantially. This points towards a turnaround of the company.

Triggers:

(i) As on September 30, 2012, the company has invested Rs.74,464,890 in Norm LLC, a special purpose vehicle which is formed for the purpose of feature film Norm of the North. For Norm Financing LLC the company also has outstanding receivables of Rs.74,620,398, unbilled revenue of Rs.169,639,437 & Work in process of Rs. 60,247,558. In addition, Company has an Investment of Rs.1380.23 lacs in a subsidiary Company which has receivable as at March 31, 2012 of Rs. 1114.22 lacs due from norm Financing LLC. Work on this project was deferred during first quarter of Annual year 2011-12 due to the uncertainty prevailing on the financing arrangements of the same. However, based on discussions with alternate financier, the Company is confident of resumption of the project and has recommenced work on the same. A work-in-process of Rs.14,377,025 has been booked for the quarter ended September 30, 2012. There are some rumours that this work has actually started. In view of the intended recourse of the legal proceedings against the defaulted financier and developments for the alternate financier, the management is of the view that there is no diminution in the value of these investments, receivables & work in progress. These are considered to be recoverable and therefore no provision considered is necessary.

(ii) The company's operations are primarily funded from debtors realization, borrowings from private parties and promoters. Management has renewed / rescheduled its credit facilities with the banks and other private parties which are now falling due between the period from October, 2012 to July 2014. Management is confident of renewing the loans from banks and private parties on their due date. Further, management is in discussions with prospective Investors to raise funds from the liquidation of shares held by the CAS Benefit Trust (Treasury stock”) to meet its working capital requirements.

(iii) The Company continues to execute work on major hire projects. Considering the above and based on a detailed plan for meeting its cash flow requirements for the next 12 months prepared by management and approved by the Board of Directors, the company, despite the possible material uncertainty in this regard is confident of meeting its obligations as and when they fall due.

(iv) The Company has long-term Investments of Rs.7,140,500 in a joint SPV which is having film properties under development for more than 3 years. Pending the final outcome of the decision to be taken by the joint SPV partner on the development of the film properties held by the investee. Management is of the view that there is no permanent diminution in the value of this long term-Investment.

(v)  The Company continued work on the second feature film “Norm of the North” despite lack of financial closure, inviting qualification from the auditors. Alternate financing arrangements which the Company hoped to finalize this year were not successful in the period. The Company is working on financial closure in the coming 2-3 months.
(vi) The Company has taken Television contracts for execution like
Brown Bag, Gloe, Swan Princess-5 after the successful completion
and fine delivery of Swan Princess-4. Alpha & Omega, co-produced by the Company along with Lions Gate performed reasonably well with gross box office collection over US$ 50 million and sale of direct to video’s and television rights raising more than US$ 22 million in FY12. over US$ 50 million and sale of direct to video’s and television rights raising more than US$ 22 million.

(vii) The management believes that the worst seems to be well behind. The first quarter of 2012-13 has shown results on the work put in by the Company on different DVD/Television contracts, as the collections have been robust enough to take care of ongoing operational requirements as well retiring small portion of short term borrowings.

(viii) Continued negotiations and discussions are on for new contracts as well as for new Joint Venture initiatives for ensuring a robust and predictable future pipeline and guaranteed work for hire services.
(ix) The Direct to Video sales of “The Little Engine that Could”, coproduced by the Company with Universal Studios, are in line with their expectations and during the year, FY12, the US subsidiary received a total of US$ 300,000 from Universal Studios towards the subsidiary’s share. In line with the accounting practice followed by the US subsidiary, this amount has gone towards reducing the carrying value of the inventory.

(x) The Company’s information technology division known as “STG” i.e System and Technical Group which has been innovating and deploying technology successfully since past few years through
various means like high-performance storage, workflow and asset management tools, grid computing based render farm etc. These deployments have enhanced project delivery capabilities removed bottle necks related to transfer of files and approval delays. Currently the Company is working on next-generation computing based on “Hardware Accelerators” for visualization and computation to increase the productivity of the studio at highest level. Crest is the only studio in the Asia-Pacific region working on such technologies to enhance the performance of studio.

(xi) The Company has adequate positive net worth remaining after
adjusting losses and has not witnessed the loss of any of its critical clients nor the stoppage of work from them.

(xii) By Virtue of Amalgamation which came in to effect 26 July, 2011, the following downstream subsidiaries have become direct
 subsidiaries now.
1. Crest Animation Inc. (CAI)
2. Crest Animation Productions  Inc.(CAP)
3. Roop BDR Productions Inc. (RBP)
During the year FY12, the company entered into television contract with Moonscoop LLC for producing 13 episodes of 11 minutes each titled "Gloe". The company took television contract for Ireland based studio Brown Bag Films Ltd, for producing 52 episodes of television series titled "Octonauts".

(xiii) The company has successfully completed and delivered DVD project Swan princess 4 for Sony pictures. Due to success of fourth series of Swan Princess, the company has bagged the contract for the fifth series of Swan Princess.

(xiv) During the year, FY2,  the company entered into agreement with Snapdragon Inc for producing televised version of the movie "How to train you Dragon". The company started work on the project simultaneously along with the other projects which the company executed. However, due to technical complexities, the company  had to terminate the contract in order to concentrate on the delivery of other projects. But the things are expected to be streamlined in the Q3FY13.(xv) The company continued to work on the second feature film "Norm of the North" which is a part of Lionsgate deal. However, one of the financiers to this project defaulted their obligation to fund due to financial crisis in their region. The company is reviewing intended legal recourse to be initiated against the financier. Alternate  financing arrangements are also under negotiation.

(xvi) The company continued to work on "Ribbit", another CGI feature for limited release which the company is co-producing with KRU Capital Sdn. Bhd, Malaysia.

 Concerns:

(i) There have been delays and salaries to employees are outstanding. However, this has not impacted execution of work and in the past three months the Company has in fact, recruited additional artists to serve new contracts. The Company is not in default with respect to statutory dues and obligations except Tax deducted at source which have all since been paid with delays.
(ii) The Company has accumulated losses of Rs. 30.72 Cr as at September 30, 2012. However, the company is confident to cover up this loss within a short time, as the business is  picking up. Despite the overall negative sentiments prevailing in the business environment the Company was able to place a small portion of the treasury shares and is confident of completing additional placements in future.

Conclusion: Considering the points mentioned above, the investors can buy the scrip of Crest Animation Studios Ltd, a turnaround story, at Rs.16.85, for a target of Rs.27--29--32-37-41, in the coming days. 
Note: This report was posted on the blog: SumanSpeaks, on 8th January, 2013.