Sudar Industries Ltd: Buy

CMP: Rs.37.95

Introduction: Sudar Industries Ltd (SIL), formerly known as Sudar Garments, is a Raigad, Maharashtra, based (i) integrated garments producer with the capability to design and manufacture ready-made apparel and (ii) manufacturer of high-end fine chemicals servicing the pharmaceutical and agro-chemical industries. The company's capabilities include, in-house inspection of garments and accessories, cutting, body stitching, button hole, buttoning, washing, ironing, finishing and final packing. SIL is present in the fashion industry with the latest fashions

In 2012, Sudar Industries extended to the manufacture of pharmaceutical intermediaries and agro-chemicals following the acquisition of a chemical unit in Vadodara (Gujarat, India). The company specializes in the manufacture of shirts, trousers and other apparel for men, women and children.It markets apparels, under its own brand "Glory to Glory". The company is also engaged in contract manufacturing for Indian brands and merchant exporters. The core business (apparels) contributes approximately 62% to the company’s top line while the chemicals and intermediate business (specialty chemicals) accounts for the remaining 38%.

The Company has two manufacturing facilities as under :

• Integrated Apparel Manufacturing facility at Khalapur, Raigad District, Maharashtra employing state of the art technology and automated machineries to manufacture readymade garments, catering to men, women and children.
• Manufacture of high end fine chemicals at Baroda providing intermediate products for Pharmaceutical Industry and Agro Chemical Industry

Subsidiaries: The company has subsidiaries in United Kingdom, Dubai and Singapore under the names of Sudar Industries UK Ltd, Sudar Global Industries FZE and Averlin Industries PTE Ltd respectively.

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Shareholding Pattern: The promoters hold 32.94% while the general public holds 67.06%. The FIIs hold 0.38% of the shares of the company. The corporate bodies hold a whooping 39.79% of the shares of the company. Among the general public, Benzo Petro International Ltd holds 17.57% while Prudent Fintrade Pvt Ltd holds 4.90% shares of the company.

Financials: In FY14, the company came out with excellent set of numbers. The Net income of the company in FY14, zoomed to Rs.856.43 Cr as against Rs.440.02 Cr in the corresponding period previous year. The net profit of the company in FY14 came out to be Rs.41.07 Cr as against Rs.25.58 Cr in FY13. The EPS of the company for FY14 came out to be Rs.18.25 as against Rs.11.38, in the corresponding period previous year.

For Q2FY15, the total income of the company came out to be Rs.302.79 Cr as against Rs.223.04 Cr in the same period previous year.  The PBT of the company for Q2FY15 came out to be Rs.19.25 Cr as against Rs.7.02 Cr in Q2FY14. The net profit of the company almost tripled to Rs.13.01 Cr in Q2FY15 as against Rs.4.74 Cr in Q2FY14. Th H1FY15 EPS of the company stands at Rs.10.87. There were also marked improvements in the OPM and NPM.

Triggers:

It entered into the realm of specialty chemicals, not as a deviation

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from its core apparel business but to diversify. For the company, the chemical business represents, low-capital intensive and simultaneously cash generating vertical. Since it already possessed the infrastructure from Benzo Petro International Limited, it chose to embark on the business. Moreover, India being at the forefront of cost-quality benefit-providers globally, choosing to pursue this vertical made good business sense. 

SIL is authoring a paradigm shift in its future level of operations. A period of exponential  growth has been engineered, driven on the back of a multi-layer strategy. While simultaneous changes are being made, it is yet being seamlessly done, without either disturbing the existing business verticals or the delivery schedules to the customers--the work having started in the previous year, all these are going live in 2015.

There is improvement in raw material sourcing. The facilities are being made regulatory compliant. Marketing tie-ups being made in quality conscious developed markets, with objective of making SIL a significant world player. The present change is so enormous - SIL of yesterday cannot be extrapolated to assess the SIL of tomorrow. The Company is getting fast tracked.

The Company purchases cutting-edge equipments (replacing legacy equipments wherever possible) with the lowest material consumption norms. Not only that, it maximizes the effective use of equipments with the basic objective to reduce consumption.

The Company is proposing to diversify its activity to trading business of Iron ore, agro based commodities, other metals and minerals. The Company has obtained necessary approvals from the Shareholders of the Company through Postal ballot, and the expects good business deals in new markets.

The Company is in the process of implementing an integrated ERP package and enhance the information availability for informed decision-making. The company possesses two globally benchmarked manufacturing facilities.

The company is trying to create a strong product pipeline catering to customer needs and pursue inorganic growth opportunities. It is also creating marketing platforms in regulated markets and digging deeper into semi-regulated markets with existing products. It trying to enhance market share in areas where it is already present and consolidate the core business in domestic and emerging markets. Moreover, it is expanding its presence in South East Asian markets, UAE, London and European markets.

In FY13, it ventured into industrial uniforms, mainly for exports. In the industrial uniform category, the product comprised of industrial coveralls of various models, specially designed for oil fields and electro-mechanical industries. The company has also decided to include branded-designed-uniforms for taxi drivers, courier companies, hotels, hospitals etc. Nearly 60% of its output is exported indirectly through export houses, leveraging on the presence of the Jawaharlal Nehru Port only 30 kms away, from its location. 

The book value of the shares of the company is Rs.90.96. It  has a comfortable debt:equity ratio of 1.03, RoCE of 24.16% and RoNW of 24.49%. At the current market price of Rs.37.95, the company has a market capitalization of only Rs.85.39 Cr against FY14 revenues of Rs.856.43 Cr, indicating a very attractive Market-cap: Sales ratio. Moreover, though the FY14 was a challenging year amidst global economic uncertainties and recession, the company performed reasonably well which is evident from the results.

The company has been successfully engaged in manufacturing chemical products in a wide range of activities which includes 6 (six) Pharmaceutical Intermediates and 11 (eleven) Agro-chemical Intermediates. It has already added good clients for the business relating to chemical products. The export sales in chemical segment of the Company for financial year 2013-14 was Rs. 5,391.32 lacs against Rs. 2020 lacs in financial year 2012-13. The momentum is expected to be maintained in FY15, too. 

The Company has been rated 5A2 by Dun & Bradstreet indicating that it has a tangible networth as per the audited financial statements and indicates a fair overall status.

Conclusion: SIL is present in a competitive market with challenges from big and the small players in the industry. Due to this, the price sensitivities get tested where reliance is placed more on volume based business. This threat, however, does not affect Sudar because of its control over raw material sourcing. The company is a dominant player and has been able to control quality, save timelines, manage costs and deliver at a short notice. SIL enjoys a pricing power with an ability to get the price lower and yet manage to get higher returns than other competitors. The key strengths of the company include its manufacturing infrastructure and the ability to deal successfully in a complex market situation. Sudar has set ambitious goals for 2014-15 in expectation of an upward trend in the global economy. The senior leadership team has set in motion a set of strategic initiatives to enhance revenue and profitability. The focus will be expanding markets, portfolio profitability will be analyzed on a continuous basis. By implementing these strategies, Sudar aims to increase revenues and margins higher than the industry average. The company is targeting to emerge as cash flow positive, eliminate leverage and enhance shareholder returns.

The scrip seems to have formed a temporary bottom on last Friday. The investors can buy the shares of SIL at the CMP of Rs.37.95, for a short term target of Rs.47-48 and medium term target of Rs.61. 

ARSS Infrastructure Projects Ltd: Buy

CMP: Rs.44

Book Value: Rs.239.76

P/E: 1.58

Industry P/E: 27.69

Introduction: ARSS Infrastructure Projects Limited (the company) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The Company is engaged in execution of contracts of various infrastructure projects including road work, bridge work, railway tracking and irrigation projects
ARSS Infrastructure Projects Ltd is one of the fastest growing construction companies of India, focusing on infrastructure construction segment including highways, buildings and railways. Incorporated in 17th May 2000 by a group of professionals, it has completed 80 projects across India, with aggregate contract value of over Rs.7000 million, for various clients all over India.

ARSS has a unique business model, with proven expertise in innovative thinking, project and cost management. ARSS, as an industry leader in engineering construction, currently nurtures projects that span across such diverse segments as railways, real estate and highways.

Shareholding Pattern: The promoters hold 18.86% while the general public 81.08% of the shares of the company. The corporate bodies, own 21.11% of the shares of the company. Among the general category, SREI Equipments Finance Private Limited, holds 1.06% of the shares of the company.

Triggers:

• The Company is presently concentrating on major projects and abandoning small and non remunerative projects. Conducive political environment and stable government would be helpful for the industry to revive and gain momentum.
• The Company has an order book of more than Rs.2000 core in hand. The company is one of the major player in infrastructure sector in Eastern India and is expected to be a major beneficiary of the current set of the REFORMS undertaken by the NDA government.
• During the financial year FY14, the turnover of the Company has gone up to Rs.901.42 Cr from Rs.770.98 Crores in the previous financial year with a profit margin of Rs.1.67 Crores as against a loss of Rs.64.59 Crores in the previous year. The financial result of FY14 were marginally better due to strict adherence to cost cutting, abandonment of loss making projects and proper utilization of resources. Moreover, the company achieved turnaround in business even though the infrastructure industry all over India is passing through a very tough phase. Now with favourable government policies and NDA Government's thrust on the infrastructural development, the management is hopeful of better performance in FY15.
• The Company has an order book of more than Rs.2000 Crore, which includes the following major works:
  a) Supply and installation of track (excluding supply of rails) Signaling and overhead equipment (OHE) & associated equipment for 25 KV AC traction, in connection with doubling of railway line between Barang - Rajatgarh (25 KM) Cuttack Barang (12KM) and 3rd line between Barabg Khurda Road (35KM) in the State of Orissa, India with a contract value of Rs.210.69 crores.
  b)  Construction of new 2 lane Highway from Km 38.00 to Km 71.00 (Length=33 Km.) in Mizoram in Phase “A” of SARDP-NE (Package-II), having a contract value of Rs.190.18 crores.
  c) Balance work of construction of Roadbed including Minor and Major Bridges, facilities and General Electrification for doubling of Railway line between Barang-Rajatgarh (excluding Ghantikal-Naraj Section), Cuttack- Barang and 3rd line between Barang- Bhubaneswar in the State of Orissa, having a contract value of  Rs.158.47 crores.
  d) Widening to 2-lane and improvement in km 0.00 to 102.9 of Paralakhumundi -R. Udayagiri-Mohana Road (S.H.-34) under LWE Scheme, with a contract value of Rs.153.91 crores.
  e) Construction  of  BRTS  Corridor  and  development  of  road  Contract  for  Package  No.  IIB: Sanganer  Airport  to 22Godam Via Rambagh crossing including Elevated Road at Durgapura (10.50 Km). (NCSL) with a contract value of  Rs.130.00 crores.
  f) Construction of earthwork, bridges, supply of P-way material, supply of ballast and P-way linking for proposed private railway siding taking off from Chacher railway station to in plany yard and including inplant yard of NTPC Mauda (but excluding works within railway boundary and excluding rail over rail bridge) Dist Nagpur (M.S.) with a contract value of  Rs.114.49 crores.
  g) Improvement of existing intermediate lane of NH-44 Rathachera - Chauraibari section to two lane with paved shoulder from Km 230/200 to Km 247/000, Km 260/109 to 261/761 & Km 271/00 to 284/053 (Aggregating to = 30.279 Km) under SARDP-NE in Assam under Silchar NH-Division in State of Assam with a contract value of  Rs.104.04 crores.
  h) Earthwork in formation (excluding Blanket), minor bridges between Km 19.000 to Km. 47.000 and 3 nos. of Steelgirder bridges, 8 no.s of Road Over Bridges between Km 19.000 to Km 67.000 in connection with Angul-Sukinda new railway BG line in the state of Odisha, India. With contract value of Rs.144.00 crores.
  i) Contract Package 3: “BOLANGIR (Excl) - TITLAGARH (Incl) section (63.193 Kms) part of SAMBALPUR-TITLAGARH Doubling in SAMBALPUR Division of East Coast Railway in the states of ORISSA, India with a contract value of  Rs.106.52 crores.
  j) Widening & Strengthening of Parvatipur - Laxmipur road (SH-51) from 12/600 to 42/830 Km, 44/280 to 53/900 Km, 54/900 to 59/200 Km and 65/180 to 68/380 Km on EPC mode with a contract value of Rs.96.50 crores.
• The Company is well on its course to meet its growth targets despite increase competition. Effective business strategies have allowed the Company executing projects in a timely manner and economies on critical resources though joint venture in large projects. The foray into high potential business of railways, roads and bridges has been successful during the year FY14 and boosted the order in flow. The Company is strengthening its manpower for execution of high value projects and adding assets for development of infrastructures to complete all contracts in time.
• The Indian Infrastructure sector is poised for growth with the present political machinery taking charge in New Delhi. Moreover, the Company does not have any accumulated losses at the end of the financial year FY14 nor has it incurred any cash losses in the financial year H1FY15.  

Financials: For FY14, the company clocked a turnover of Rs.908.34 Cr as against Rs.780.50 Cr in the same period previous year. The PBDT of the company for FY14, cam out to be Rs.36.39 Cr against a loss of Rs.24.42 Cr showing turnaround in the year under review. The net profit of the company came out to be Rs.1.67 Cr against a net loss of Rs.64.59 Cr in FY13. The total Reserves and Surplus  at the end of FY is Rs.3,410,349,527 (or Rs.341.04 crores).

ARSS Infrastructure Projects Ltd, also came out with decent set of numbers for the Q2FY15. The total income of the company for Q2FY15 came out to be Rs.165.16 Cr as against Rs.187.85 Cr in Q2FY14. The net profit of the company came out to be Rs.2.23 Cr as against a net loss of Rs.16.17 Cr in the same period previous year. This gives a basic EPS of Rs.1.50 as against a negative EPS of 10.90 in the corresponding period previous year. For the whole year, FY15 the company is likely to garner an EPS of Rs.6.

Conclusion: The company is a major player in the Indian Railways Sector and is expected to be a major beneficiary of the current set of the REFORMS undertaken by the NDA government. The book value of the shares of the company is Rs.239.76, while the market cap is only Rs.68.28 Cr. The P/E of the company is 1.58, against the industry P/E of 27.69. The traders can buy the scrip of the company at the CMP of Rs.44, for a short term target of Rs.53.

Prajay Engineers Syndicate Ltd: Buy

CMP: Rs.10.43

Book Value: Rs.94.92

Market Cap: Rs.72.94 Cr
All Time High: Rs.440-plus. 

Prajay Princeton Towers Hyderabad

Introduction: Prajay Engineers a Hyderabad based Construction & Contracting company in the housing sector. Prajay has been transforming the Hyderabad landscape for the last two decades by developing landmark residential and commercial properties in the twin cities. The company has also made its mark in handling Hospitality projects. In its 20 years experience, Prajay has delivered over 75 projects and developed and area, over 5 million square feet. As on 31.3.2014, the company has 3 subsidiaries viz. Prajay Holdings Private Limited, Prajay Developers Private Limited (step-down subsidiary), Prajay Retail Properties Private Limited.
Hospitality:
Prajay’s involvement in the hospitality sector began with addressing a growth in business travel to the Hyderabad region and the subsequent demand for hotel rooms. Today, Prajay operates two hotels in Hyderabad – the Celebrity Boutique Hotel and the Celebrity Holiday Retreat and Club.

Celebrity Holiday Retreat Shamirpet

The Celebrity Boutique Hotel is located in Begumpet, it is 35-40 km from the Rajiv Gandhi International Airport and about 5 km away from the Secunderabad Railway Station, and has 30 premium hotel rooms and fine dining restaurant, gymnasium and discotheque.

The Celebrity Holiday Retreat and Club is located in Shamirpet. The 12.5 acre property features 70 theme
cottages and 4-star category rooms and a premier club situated within the retreat premises.

Shareholding Pattern: The promoters hold 32.87% while the general public holds 67.13% stake in the company. In the general category, the FIIs hold 4.94% while the corporate bodies hold 16.68% of the shares of the company. Apart from this some of the key person in the company like Sumit Sen, Wholetime Director, Marketing & Sales holds 2.10% and Vijay Kishore Mishra, Non-Executive Independent Director holds 1.52% shares pf the company.

Segment wise– Product wise performance:
Today, Prajay Engineers Syndicate is amongst the largest real estate developers in Telangana with millions of

Celebrity Club Shamirpet

square feet of developable area under it; featuring residential, commercial and retail projects. Throughout its operations, Prajay has aimed to deliver superior value to all stakeholders through extraordinary and imaginative spaces created out of deep customer focus and insight. A detailed status of projects undertaken/proposed to be undertaken by the company is briefed below:

• Prajay Waterfront City situated at Murharpally Village, Shamirpet – Water front City is spread across 72 acres of premium property, overlooking a large natural lake offers an alluring lifestyle and is nearby Genome Valley. This property is well developed and approved by DTCP with all gated community features and nearest to Alexandria, a multi crore Biotechnology SEZ. This project work is completed 90% in all respects and got 5% bookings during the year thereby aggregating to 80% of the first phase of the project.
• Prajay Virgin County (SPV Project) situated at Baghmankhal Village, Maheshwaram Mandal, R.R. District – due to its proximity to International Airport, ORR, Hi-tech city / Gachibowli Financial District and other companies like FAB city, TATA aerospace, Adibatla, the project, since its launching, has achieved 90% of sales in villa segment. Due to the political and economic scenario prevailing in the country and especially in the State after bifurcation, only a little portion in the apartment segment is sold so far. All the infrastructure works in the villa parcel are completed and around 40 villas have been handed over and few families have started living therein. The civil structure for 10 towers consisting of 432 flats in phase I of apartments is completed and the balance work is taken up at a slow pace considering the present market offtake.
• Prajay Megapolis (SPV Project) situated at Hafeezpet Village, Serilingampally mandal, R.R.District– it is one of the prestigious projects of the company spread across 21 acres and will comprise around 3200 plus flats with 5762778.44 sq.ft built up area including parking comprising of 3 cellars, ground + 18 upper floors with all gated community facilities. First phase of the project consists of three blocks 9 towers consisting 1113 flats of different sizes. During the year under review only 20 flats have been sold (after accommodating the cancellations in second phase). Construction work in Three Blocks (comprising of 9 Towers) is in an advanced stage and it is planned to hand over possession of one block by June 2015 and rest of the blocks with a time gap of 6 months each.
• Prajay Gulmohar situated at Kuntloor, Hayathnagar Mandal – a gated community project with 198 independent plots, out of which 73 are independent houses, 89 duplex houses and 36 being villas, is set on 21 acres of land. This project is completed in terms of construction of villas and construction of apartments is in progress. All the villas have been handed over and 50% of the apartment’s portion is sold already.
• Prajay Princeton Towers situated at L.B. Nagar, Saroornagar Mandal, R.R. District – Princeton Towers project is one of its kind business opportunity in the heart of Saroornagar, LB Nagar with 13 floors – Ground+ 4 floors are meant for commercial purpose, 5th for office space and the rest 7 floors for hotels rooms, restaurant and banquet halls. The project has been funded by a consortium lead by State Bank of India. Part of the commercial space in ground floor and fifth floor is sold. Third & fourth floors are occupied by Future Lifestyle (Brand Factory), first & second floors are being occupied by Bharti Retail Limited (Easy Day) on lease basis. Part of office space in fifth floor is leased to different firms/clients.
• Prajay Blue Hope (Joint Development with Legend) situated at Abids Road, Hyderabad – Prajay Blue Hope is a commercial cum residential project with 8 floors on 4032 sq. yards and situated at the heart of the city at Abids. Ground and First floor are meant for retail purpose, 2-4 floors earmarked for Office space and the rest 5-8 floors are meant for residential purpose – the construction work is in progress.

Triggers: 

• The company has a comfortable land land bank of  around 738 acres, most of which were acquired

  

  Celebrity Boutique Hotel Begumpet

  by the company at low prices long back. Almost whole of the land bank is fully paid, which gives it an edge over its peers. Prajay has currently extended its presence to Vishakhapatnam too, where it is developing over 35 projects with 18 million square feet under construction. The company's emphasis lies on: developing residential, commercial, retail and hospitality projects, aggregating to around 37.57 million square feet over the next five years.
• During FY14, subdued sales, increased unsold inventory levels and high leverage undermined the real estate/construction sector's overall performance. Moreover, political uncertainty, slow economic growth, sustained weakening of the Indian Rupee, rising inflation and hardening interest rates were the key barriers which cut the demand for the company's products, during that period. Besides this, division of the state of Andhra Pradesh into two, most talked about elections after bifurcation, the forming of new governments, immensely affected the sentiments of the home buyers in the state especially in Hyderabad and its surroundings, where the company still has a major presence. This has made the investors choose wait and watch policy. Hence the overall performance of the company was affected and the revenues were reduced by around 40% in FY14 when compared to FY13's revenues. However, although the financial year 2013-14 was a difficult year for the real estate sector the long term potential for the sector remains intact.. With the real estate markets and customers sentiments closely correlated to the overall growth in the Indian economy, the company  hopes to show better performance in the coming quarters. 
• As the political uncertainty in the city ended with the formation of Telangana state and installation of a new government, the company believes that the market has turned positive. With World class international airport, outer ring road and metro, Hyderabad is in the forefront to emerge as a global city. Telangana government is committed to improve brand Hyderabad.
• The company has a market cap of only Rs.72.94 Cr, against a mammoth land  bank and an array of projects on the anvil. Moreover, as of 31st March, 2014, the company has a reserve of Rs.587.07 Cr on its books, which is expected to provide it the necessary cushion, in case of any adverse circumstance.  
• Hyderabad has already emerged as one of the best Tier-II cities in terms of being an IT/IT-enabled services outsourcing hub. This has led to soaring land values and demand for residential and commercial space in the city. Prajay has the advantage of being a `local player' with a comfortable land bank accumulated over time, thus averaging the cost. This may give the company an edge over bigger players from the North that are foraying into this city. 
• Further, being an IT hub, has also increased the air passenger traffic in Hyderabad, which is likely to Translate into higher demand for hotel rooms. Also PESL has raised adequate funds for the purpose of setting up / acquire Hotels, Resorts or properties of similar nature.
•  IT/ITeS, financial and services segments continued to drive demand for office space in India’s leading cities, like Hyderabad. In the long term, commercial real estate is expected to witness robust demand with an increasing number of companies looking to expand operations and setting up offices in suburban locations. Issuance of new banking licenses has already stimulated the demand from the BFSI sector. The market is likely to further pick up momentum with more corporate houses looking at buying property instead of leasing.
• As india’s retail industry aggressively expands itself, great demand for real estate is being created. Favorable demographics, increasing urbanization, nuclear families, rising affluence amid consumers, growing preference for branded products and higher aspirations are other factors which will drive retail consumption in India. Net supply of retail space in shopping malls in india’s top 7 cities including Hyderabad is expected to more than double in 2014. Cities such as Delhi, Hyderabad and Bangalore will witness good supply of retail space, largely around the expanding city peripheries. Due to the limited supply of modern retail spaces in those areas, this new supply will meet with reasonably favourable pre-commitments.
• In the real estate space, the Company expects demand from the mid income residential segment to remain strong as it believes that there is significant demand in this category across the country and state as well. Moreover,  the recent relaxation of norms for the FDI in construction sector, by the NDA government, increasing disposable incomes, rapid urbanization and strong demographics are some of the trends which are likely to shore up the financials of the companies like Prajay Engineers Syndicate Ltd.
• Some of the developments that have taken place and being taken up in the State after bifurcation that is likely to help real estate sector and the companies like Prajay Engineers Syndicate Ltd to develop rapidly in the next few years are:
  (i) Centre has approved an ITIR for Hyderabad to promote IT, ITeS and electronic hardware manufacturing units.
  (ii) State government is inviting Adlabs to set up an international theme park and Adibatla is currently being considered as the location.
  (iii) A team from Hero Motocorp has visited Hyderabad, in look out for suitable location to put up a manufacturing facility in south India and short listed 360 acres of land in Adibatla.
  (iv) Department of Electronics and Information Technology at the centre has approved setting up of two Greenfield Electronic Manufacturing Clusters (EMCs) in Hyderabad with an outlay of 940 crores of which the first cluster will come up at outskirts of Hyderabad beside Tukkuguda and second at Maheshwaram, R.R. District near Prajay Virgin County Project. With the Telangana government announcing plans to develop Hyderabad as a global city, the real estate developers expect 40-50% increase in the prices over next six to 8 months. Redevelopment in Hyderabad offers a tremendous opportunity with a significant number of buildings to be redeveloped in the next decade.
• The real estate sector performance is directly bound by a country’s economic fundamentals and monetary policies. Monetary easing initiatives which are likely to commence from February, 2015 will provide an impetus to housing demand. Even a nominal roll-back in rates can positively impact sentiments and encourage home buyers and real estate developers. Moreover, Real Estate Regulation and Development Bill, 2013, aims to bring in a high level of transparency in real estate transactions in India and implementation of projects. State Governments, along with the Ministry of Consumer Affairs, the Competition Commission of India, the Tariff Commission among others have backed the Bill. Foreign Direct Investment (FDI) in Real Estate Currently up to 100% FDI was earlier allowed in the real estate sector through the automatic route. With an increased need of meeting the growing housing demands in India in the affordable category, the Ministry of Housing and Urban Poverty Alleviation made proposals in August 2013 to ease FDI norms in real estate projects; which was implemented by the present NDA government. 
• Real Estate Investment Trusts (REITs) primarily invest in completed real estate assets that generate revenue and the majority of their earnings are distributed among investors. REITs are thus a low-risk investment avenue providing regular income. To attract foreign investment SEBI released draft guidelines on REITs in 2013. This move is expected to attract retail investments. Moreover, due to a shortfall of bank funding, the real estate sector has benefited strongly from Private Equity (PE) investments. Entry of PE participants has led to higher efficiency, execution and transparency. In the coming years, India’s real estate sector is expected to gain healthy transaction from a PE perspective.
• The prospects of India’s real estate sector are closely linked with the state of the economy. The overall economy has been weakened in the recent years with GDP growth, fiscal deficit, current account deficit and inflation being at unfavorable levels. This has impacted consumer and business sentiment adversely affecting demand across residential, commercial and retail segment. Besides, unfavorable changes in government policies and the regulatory environment has also adversely impact the performance of the sector. There were substantial procedural delays with regards to land acquisition, land use, project launches and construction approvals during the last few years. However, all this is likely to improve in the coming months, with the coming of a new government at the center. 

Conclusion: India’s gripping urbanization growth story has been fascinating global investors so far. Now, with the new NDA government taking charge, we can look forward for a rapid economic growth which might  give a kick to the  much talked about Indian consumption story. Moreover, a shift in business mix to hospitality sector would lend further support to the margins.

Chartically speaking, at the CMP of Rs.10.43, the scrip is above all the major averages (21D, 50D, 100D, 150D and 200D), which gives the much necessary ammunition to the bulls. Moreover, MACD, RSI and other parameters are more or less, in the buy mode. The investors can buy the scrip at the CMP of Rs.10.43 for a short term target of Rs.14 and medium term target of Rs.21.. 

Hilton Metal Forging Ltd: Buy

CMP: Rs.19.55

Book Value: Rs.48.97

P/E: 10.80

Industry P/E: 36.62

Introduction: Hilton Metal Forging Ltd (HMFL) is one of the technology leaders in the forging industry providing the highest quality products and services for a one stop solution to cater to all your forging needs. With an enviable reputation for quality products we are fully equipped to carry our reputation as "FORGING LEADER". It stands among the elite along with its engineers and application experts. HMFL caters to: Oil & Gas Sectors, Petrochemical & Refineries, Marine & Ship Building, Paper & Pulp and Agricultural Sectors. HMFL has got imported as well as indigenously developed machinery and manufacturing facilities to produce all kinds of its products. The company has got in house capability and facilities to meet the forging process, Heat treatment, Machining Process and Testing Laboratory. HMFL has been recognized in the World Wide Market for the supply of Flanges, Stub Ends, Elbows, Bonets,Valve body and other Forged products and also has been appreciated by various customers for not only the good quality products but also timely deliveries. HMFL is maintaining a very good relation with its customers since past decades. It has also achieved certifications like ISO 9001:2000 from RWTUV-GERMANY and was also successful to get a Certification from Defence Ministry as a Preferred Vendor Supplier for supply of forged components.

Shareholding Pattern: The promoters hold 52.61% (or controlling stake) while the general public  holds 47.39% shares of the company. In the general category, the FIIs hold 4.69% and the corporate bodies 3.60% shares of the company.

Financials: The total turnover over the company for FY14 came out to be Rs.129.33 Cr and net profit of Rs.3.4 Cr. The EPS of the company for FY14, came out to be Rs.2.44 Cr. It is a dividend paying  company at the CMP of Rs.19.55, the dividend yield is 2.58%. Moreover it is trading at a P/E of only Rs.10.80 while the industry P/E is 36.62. In the June, 2014 quarter, both the top and bottomlines came as flat, when compared on Y-o-Y basis. The company should end FY15, with an EPS of Rs.3-3.5. Now let  us take a look at the Peer Group companies along with some financial data:

The Future Outlook :
The fortunes of the forging industry are on a rise - it has consistently recorded a notable increase in production, Capacity utilization and exports. Among the various segments of the forging business, it is the auto, mobile-related segment that is being talked about the most these days. Global automotive giants are looking at India as a competent supply base and are shopping for their components here. The industry, clearly, is one of our best bets to garner a substantial market share in the manufacturing sector, which as of now, is regarded as China’s stronghold. But while launching his 'Make in India' programme, Prime Minister of India announced a string of measures that can transform India into a manufacturing hub.  This is positive for companies, like HMFL.

Indian forging industry is hoping for a revival in demand over the next two years after a prolonged slowdown in the market. The industry is expecting sales to increase by 8-10 per cent for FY15. Demand from exports and diversification into sectors such as oil & gas, defence and railways will drive sales said the Association of Indian Forging Industry’s (AIFI) annual report. Currently, the commercial vehicle segment is the highest contributor, (around 70%) in terms of revenues for the Indian forging industry, followed by tractor and multipurpose vehicles.

The estimated turnover of the Indian forging industry fell almost by 10% at Rs.18,500 crore in financial year 2014 from Rs.20,200 crore in the previous year with an overall capacity utilisation of around 57%. Automobile sector accounts for 70% of the forgings sales in the country. But in future it is likely to come down to 55%. Also, the revival of the mining sector in Orissa, Goa, Karnataka, and Andra Pradesh would immensely benefit the forging industry. The sector is also trying to reduce its dependency on the auto sector.

As the growth is visibly noticed and already having foot forward, Hilton Metal has decided to strengthen the following areas:
(i) Focus for increase in productivity and technology up gradation and modernization of the units to comply with global quality standards.
(ii) Acquire latest technologies with added emphasis on IT, CAD/CAM, and other forms of computer-based technologies to produce quality forgings conforming to international standards with best yields.
(iii) In order to reduce consumption of costly oil and power, as also to make industry environment-friendly, the company has decided to opt for energy audit.

Also, another point which is worth highlighting is: more than half of the turnover of the company is achieved through Exports and with INR now pegged at around Rs.61.36 per USD, the company would get benefited, a lot. Besides, the company is taking initiative and putting major thrust on exports. The company has policy to take part in exhibitions on or for Forging Products and Steel products held world-wide. This has helped the company since it could include quite a few new customers in its client base. The Company intends to explore the possibility of stock and sell in the US market especially in Oil and Gas sector. Various persons / agencies have been recruited to prepare the feasibility report.

Conclusion:  Considering the points mentioned above, the scrip looks attractive at the CMP. Moreover, the market cap of the company is only Rs.24.33 Cr as against, FY14 turnover of Rs.129.33 Cr or in other words almost one fifth of its FY14 turnover---this gives much room for appreciation of its share price. The investors can buy the scrip at the CMP of Rs.19.55, for a medium term target of Rs.32-33.

Rohit Ferro Tech Ltd: Buy

CMP: 9.70 
Book Value: Rs.50.94

Target: R.14 

Introduction: Rohit Ferro-Tech Limited was incorporated on 7th April, 2000 and is amongst India’s largest Ferro-Chrome manufacturing Company. The Company is engaged in manufacturing of chromium and manganese-based ferro alloys, such as High Carbon Ferro Chrome (H.C.FeCr), Silico Manganese (SiMn) and Ferro Manganese (FeMn) through Submerged Arc Furnace (SAF) route. The Company has three manufacturing facilities located at Bishnupur in West Bengal, Jajpur in Orissa and Haldia in West Bengal. The Company has commenced its commercial production of High Carbon Ferro Chrome (H.C.FeCr.) in October, 2003.

The Company has acquired 60% equity stake in a coking coal mine in Indonesia owned by M/s. PT Bara Prima Mandiri through its subsidiary M/s. SKP Overseas Pte. Ltd., Singapore. The mine located in Central Kalimantan Province of Indonesia has an estimated coking coal reserve of 10 MN Tonnes. The Company is also having 60% economic interest in a thermal coal mine in Indonesia owned by M/s PT Palopo Indah Raya through its aforesaid Subsidiary. The mine located in Central Kalimantan Province of Indonesia has an estimated thermal coal reserves  of 20 MN Tonnes. The group now has a total installed capacity of 2,74,583 mtpa of ferro alloys.

Shareholding Pattern: The Promoters  hold a whooping 72% stake in the company while the general public  holds 28%. The high promoter  holding, makes the stock look even more attractive. Moreover, the corporate bodies hold 7.26% of the shares of the company.

Financials: In the June, 2014 quarteer, the company came out with a little subdued topline and a better bottomline when speaking sequentially. The total income of the company for Q1FY15 came out to be Rs.438.32 Cr as against Rs.668.26 Cr in Q4FY14. The net loss of the company decreased to 96.56 Cr  as against Rs.117.54 Cr in Q4FY14. However, this is expected to improve considerably in the coming days as Captive Power Plant of 67.5 MW and 33 MVA Furnace are about to start operation within a very short time:

CORPORATE DEBT RESTRUCTURING:
During the financial year FY15, at the request of the Company, the Corporate Debt Restructuring Proposal (CDR Proposal) was referred to CDR Empowered Group (CDR EG) by the consortium of lenders led by State Bank of India (SBI). The CDR Proposal as recommended by SBI was approved by CDR EG on March 24, 2014 and communicated vide Letter of Approval dated 28th March, 2014, as amended / modified from time to time. Under CDR package, the Company’s debts were restructured / rescheduled and additional credit facilities have been sanctioned as set out in the said Letter of Approval. The cut off date for CDR package was September 30, 2013 and the implementation is under progress. Pending implementation, the financial effect thereof has been taken into accounts.
The CDR Package includes reliefs / measures such as reduction in interest rates, funding of interest, rearrangement of securities etc. The key features of the CDR Proposal are as follows:
(i) Repayment of Rupee Term Loans (RTL) (except term loan for Captive Power Plant of the Company) after moratorium of 2 years from the cut-off date in 32 structured quarterly installments commencing from December 31, 2015 to September 30, 2023.
(ii) Repayment of Rupee Term Loans for Captive Power Plant of the Company after moratorium of 2 years from the cut-off date in 38 structured quarterly installments commencing from December 31, 2015 to March 31, 2025.
(iii) Conversion of various irregular/outstanding/devolved financial facilities into Working Capital Term Loan (‘WCTL’).
Repayment of WCTL after moratorium period of 2 years from cut-off date in 32 structured quarterly installments commencing from December 31, 2015 to September 30, 2023.
(iv) Restructuring of existing fund based and non fund based financial facilities.
(v) Interest on RTL and WCTL during the moratorium period of 2 years from cut-off date and interest on Cash Credit limit for a period of 9 months from the cut-off date shall be converted to FITL. Repayment of FITL would be done in 18 equal quarterly installments commencing from December 31, 2015 to March 31, 2020.
(vi) The rate of interest on RTL, WCTL, FITL and Fund Based Working Capital Facilities shall be 11% (linked to the base rate of SBI) with the right to reset the rate of the Term loan(s) and FITL every year with the approval of CDR-EG.
(vii) Waiver of penal interest for irregularities in the Cash Credit accounts for the period from cut-off date to the date of implementation of the package.
(viii) Contribution of ` 5,664 lacs in the Company by the promoters in lieu of bank sacrifices and ` 8,577 lacs to meet the additional cost over run towards the Captive Power Plant project of the Company. The contribution is to be brought initially in the form of unsecured loan by September 30, 2014 and the same is to be converted into equity by March 31, 2015.
(ix) The CDR Package as well as the provisions of the Master Circular on Corporate Debt Restructuring issued by the Reserve Bank of India, gives a right to the CDR Lenders to get a recompense of their waivers and sacrifices made as part of the CDR Proposal. The recompense payable by the Company is contingent on various factors, the outcome of which currently is materially uncertain and hence the proportionate amount payable as recompense has been treated as a contingent liability. The aggregate present value of the outstanding sacrifice made/ to be made by CDR. Lenders as per the CDR package is approximately Rs.69,987 lacs.

Investment Rationale:

• Revamped it operations: The Company undertook several steps to lowering the overheads and aligning resources with current level of operations. The Company is focusing on cost competitiveness. The Company is brought under the Corporate Debt Restructuring (CDR) Scheme for nursing it to profitability. The management has adopted focused and aggressive business strategies and functions to improve the sales and profitability of the Company. Considering the present sign of improvement in overall business environment, the Company is expecting an increase in its revenue and profitability. The Management is confident of higher growth future. 
• Expansion Projects under Implementation: The basic engineering and civil and structural work of Captive Power Plant of 67.5 MW & 33 MVA Furnace is completed. Due to delay in delivery of the some major equipment’s having long lead time the project is not completed in its schedule time. The Company expects to commence the commercial operation of the said projects by the end of December, 2014. 
• Coal Mines:  In FY14, the coking coal mine in Indonesia owned by M/s. PT Bara Prima Mandiri through the Subsidiary SKP Overseas Pte. Ltd., Singapore has started commercial production. The mine located in Central Kalimantan province of  Indonesia has an estimated coking coal reserve of 10 MN Tonnes. The Company is also having 60% economic interest in a thermal coal mine in Indonesia owned by M/s PT Palopo Indah Raya through its aforesaid Subsidiary. The mine located in Central Kalimantan province of Indonesia has an estimated thermal coal reserves of 20 MN Tonnes.
• Credit Rating: The Company’s credit rating for Long-Term debts/facilities is BB- (Double B minus), for Long-Term/Short-Term debts/facilities is BB-/A4 (double B minus/A Four) and Short-Term facilities is A4 (A Four), rated by the Credit Analysis & Research Limited (CARE).
• Government relaxes FDI norms for construction, real estate sector: In a boost to cash-starved real estate industry, the NDA government yesterday relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and easing the exit norms.The proposal to amend the FDI policy in construction development sector was approved by the Union Cabinet. In view of depleting FDI inflow in construction and real estate sector in last couple of years, the Cabinet decided to reduce the minimum floor area to 20,000 sq mt from the earlier 50,000 sq mt. It also brought down the minimum capital requirement to USD 5 million from USD 10 million. This is likely to boost the demand for steel and other construction materials. 
• Indian Growth Story to stoke demand: The demand for ferro alloys is driven by steel production, which in turn depends on growth from the infrastructure, housing, automobile and consumer durable industries. The Industry has tremendous potential for growth as the per capita steel consumption in the country is one of the lowest in the world. With burgeoning population, drive towards industrialisaton and focus on better quality of life, the steel demand in the country is expected to rise significantly which will in turn, drive Ferro-alloys demand as these are key input resources for iron and steel manufacture. Electrical energy is one of the major input in production of ferro alloys and high power tariff is a threat for the Ferro alloys industry. To mitigate the increasing power cost risk the ferro alloys producers are now focusing on setting up their captive power units. This will help to reduce the input cost and ensures continuous supply of power to the downstream project. The usage and application of Stainless Steel is likely to expand in various fields like house ware, hardware, furniture, machinery, railways, building, construction, and automotive industry, due to the pro-active measures of the new NDA Government. The per capita consumption of stainless steel in India is around 2 kg. The low per capita consumption of stainless steel, provides ample opportunity for growth at domestic level. 
• Prudent Cost Management to shore up bottomline: The cost-effective availability and quality of essential raw material is a global challenge. The volatility in prices of raw materials including the mismatch between the prices of raw materials and ferro alloys as well as limitation on and disruption in the supply of inputs could adversely affect the profitability of the Company.The Company is maintaining a healthy position for key raw materials having arrangements with domestic and international ore suppliers. The Company continues to closely monitor market conditions and seek to put in place contractual arrangement to ensure security of key inputs. The Company has access to coking and thermal coal mine owned through its wholly owned subsidiary Company. Electricity comprises a key cost component in the total operating cost structure and the high administered prices of this essential input impact the competitiveness of ferro alloy and iron and steel industry. The ferro-alloys producers are now focusing on making their units self reliant by setting up their own power units. This not only reduces the input cost but also ensure continuous supply of power. The 67.5 MW captive power plant, under implementation shall enable the Company to emerge self-reliant in its power needs and reduce dependence on the expensive grid electricity. The untapped potential of increasing the consumption, even to reach at the comparable position of developing economy, a quantum jump in the iron and steel will be required. The Company’s sales are well-spread to key consumption centers at the domestic and international level. The Company is developing new market segment and enhancing value added services to its customers. 
• Debt Restructuring: The Corporate Debt Restructuring Scheme (CDR) of the Company was approved by the CDR -EG in their meeting held on 24th March, 2014. A debt of Rs.1,854.56 Crores has been restructured, additional fund provided and future interest funded. The re-structuring was based on the Techno-Economic Viability study which was conducted by an independent third party consultants appointed by the Monitoring Institute, State Bank of India (SBI). The Company has executed the Master Restructuring Agreement (MRA) and other documents with the lender bankers on 31st March, 2014 and also fulfilled the pre-requisite conditions for the implementation of the CDR Scheme. This is expected to have a positive effect on both the top and bottomlines of the company. 
• Positives from the Union Budget, 2015: Rohit Ferro-Tech Ltd, gained from the rise in the custom duty from 5% to 7.5% in the budget FY15. The proposed duty structure has already eased muh of the worries of companies like Rohit Ferro, which has a 274,000-tonne capacity to produce ferro alloys used in stainless steel making. Also, it will benefit because of its forward integration, which includes 100,000-tonne stainless steel capacity.
• Benefits from exports, due to rupee depreciation: It is one of the major ferro alloys manufacturer in India as well as having an important presence in the international arena with exports contributing 70% of its produce. With the demand for Indian steel expected to rise to about 110 million tons by FY19-20, the ferro alloys sector is expected to remain buoyant, in the coming days as the government of India gives more impetus to the construction sector. The steel industry is likely to grow on the back of heavy investment in infrastructure projects and auto. The company exports its products to China, Russia, Japan, South Korea, Taiwan, Vietnam, the Philippines, Indonesia, Thailand, Daman, Abu Dhabi, Kuwait, the United Arab Emirates, Turkey, Ukraine, Italy, Greece, Nigeria, Spain, Austria, the Netherlands, Germany, Sweden, the Czech Republic, Slovakia, Brazil, Argentina, Peru, and the United States.
• Backward Integration: Acquisition of coal mines in Indonesia. Setting up of captive power plants. Through these measures the operating margins of the company are expected to improve over a period of time Setting up of a 100,000 MTPA stainless steel facility in Bishnupur, West Bengal. It is an attempt to forward integrate and to work extensively on the front of end use of the Ferro Alloys.

Conclusion: Considering the points mentioned above, the scrip could be bought at the CMP of Rs.9.70 for a price target of Rs.14, in the short term. The fact that the scrip is near its 52-week low price, makes it a safe bet, at the present moment.

Gitanjali Gems Ltd: Buy

CMP: Rs.57.80

Book Value: Rs.287.39

Market Cap: Rs.567.14 Cr
Target: Rs.72

Please  Click on the Image to Expand

Introduction:  Founded as a single company cutting and polishing diamonds for the jewellery trade at Surat, Gujarat, in 1966, the Gitanjali Group became, many times over, a pioneer among major diamond and jewellery houses. Gitanjali is a vertically integrated player in the jewellery industry and is engaged in diamond and jewellery manufacturing, jewellery branding and retailing. Its presence across the entire value chain gives it the scale that it enjoys. It is engaged in the entire process from sourcing rough diamonds, cutting and polishing them to manufacturing jewellery. The diamond cutting and polishing process is labour-intensive and requires a special skill set. The Group’s factories are strategically located in surat and Hyderabad where the diamond industry thrives. The branded jewellery that Gitanjali manufactures includes diamond studded and other precious stones studded jewellery. The Group has produced branded jewellery in India for over 20 years. During FY14, Gitanjali upgraded all its diamond and studded jewellery manufacturing facilities based 

in Hyderabad, Mumbai, Jaipur, China and has also added the Thailand facility - which is one of the largest of its kind. Gitanjali is looking to further strengthen its manufacturing capabilities to enable it to constantly innovate and adapt to changing consumer trends. The Group is present across in the top five global diamond jewellery markets – USA, Japan, Middle East, China and India.

Shareholding Pattern: The promoters hold 35.78% whil the general public  holds 64.22%.  The FIIs hold 16.45% while the DIIs hold 4.97% of the shares of the company. The corporate bodies hold 24.98% of the shares of the company.

Financials: For FY14, the total income of the company  came out to be Rs.7343.09 Cr as against Rs.10, 399.79 Cr in FY13. The company came out with a net loss of Rs.22.65 Cr as against Rs.265.16 Cr profit in FY13.  The loss is mainly due to higher interest outgo, which jumped from 238.74 Cr in FY13 to Rs.414.19 Cr in FY14. It was one of the toughest years for the Indian economy with the GDP growth falling below 5%. Gitanjali Gems Ltd also faced a challenging time during the year 2013-14. Customer sentiments were affected by the inflation and uncertain economic conditions. Moreover, Reserve Bank of India initiated measures to contain the Current Account Deficit by imposing restrictions on gold import for domestic consumption. At the same time customs department increased the import duty on gold to 10%. Further, the
Indian Rupee weakened considerably during the year, 2013-14. It can be seen from the above that in the trying times also, percentage level of gross margins has been maintained. However, the company has taken a number of measures, whose positive effect would be seen in the coming months.

Triggers: 

• Having introduced the first diamond jewellery brand “Gili” in India in 1994, Gitanjali has pioneered the branded jewellery revolution in the country. It has changed the way jewellery was viewed in India. Ever since then, Gitanjali added a plethora of brands such as Nakshatra, Asmi, Sangini, D’damas to name a few to cater to diverse age groups, occasions, price points and geographies.Recently Gitanjali made a foray into affordable fine jewellery with its Viola Italia range of jewellery. Gitanjali’s brands enjoy tremendous recall and the group has leveraged upon this by extending its brands to include lifestyle categories such as apparels under the Gili and Diya brands which have been reasonably successful ventures.
• The Group has actively pursued not only product and design innovations but also channel innovations. Currently the company distributes its jewellery through around 360 distributors, who cater to more than 3000 retailers. The company also enjoys a significant retail presence through around 239 Own Stores, 305 franchisees and 640 Shop-in-shops. Gitanjali is also strongly exploring newer channels such as e-commerce and has launched exclusive as well as multi-brand portals and has also created an online market place. The Group’s retail operations are supported by a strong inventory management system.
• The company came out with better standalone numbers in Q1FY15, speaking sequentially. The total income of the company in Q1FY15 came out to be Rs.1534.39 Cr as against Rs.1158.35 Cr in Q4FY14 and Rs.2565.24 Cr in Q1FY14. The net profit of the company came out to be Rs.7.97 Cr in Q1FY15 as against Rs.5.94 Cr in Q1FY14 and a loss of Rs.34.94 Cr in Q4FY14. This shows that the company is slowly coming out of its blues. 
• While the company is contemplating a new customer profile and is therefore revamping its product portfolio, it has also halved its marketing spend as part of the Rs.100-crore cost rationalisation drive. Till recently, Mehul C Choksi, the promoter & managing director of Gitanjali Gems, was easily India's best known jeweller. He had a host of brands (Nakshatra, Gilli, Asmi and d'Damas, among others), endorsed by a bevy of celebrities, in his portfolio. Problems started to arise in May 2013 when the RBI, in an attempt to contain the current account deficit, imposed severe restrictions on the gold business. This caused a crash in share prices of jewellers and triggered margin calls. Choksi, who had mortgaged shares to lenders, saw the Gitanjali Gems stock fall 90 per cent: it is currently trading at Rs.57.80, down from Rs.649 in April 2013. The slide in share price was followed by a sharp fall in profit, which impacted the cash flows and increased significantly the Mumbai-based company's dependence on working capital. Meanwhile, the Rating agency Care (Credit Analysis and Research) downgraded the debentures and long-term bank facilities of Gitanjali Gems Ltd on July 5, 2013, on "account of strained liquidity" and the impact of RBI's new policies to curb gold imports. The rating of long-term loan was lowered to BBB- from A and that of short term loan to A3 from A2. Later that month, Care suspended the ratings altogether because the company failed to furnish the information required by the agency for monitoring the rating. The company has since attempted to change the business model of Gitanjali Gems, which does annual business of around Rs.10,000 crore, from domestic to greater focus on exports (he has already raised the contribution of exports to total revenues to 60 per cent from 40 per cent earlier), accompanied by a switch from gold to diamond jewellery. Apparel also figures in the plan: jewellery brands like Gilli and Diya have been extended to apparel. In addition, Gitanjali Gems is starting an "affordable jewellery segment and paying more attention to ultra HNIs (high networth individuals)", according to the management. 

MORE COMING UP...........SOON...............

Jindal Saw: Buy

CMP: Rs.75.95

Book Value: Rs.140.54

Market Cap: Rs.2097.92 Cr

Introduction and Rationale for buying: 

• Jindal Saw, a part of the $16.5 billion O.P. Jindal Group, is a leading production hub of saw pipes primarily used for transportation of oil and gas. It is India’s most diversified manufacturer and supplier of pipe products for the energy, water industry and other industrial applications. Its subsidiary Jindal ITF is surging towards new milestones in its enterprises with respect to water management, waterborne transportation, waste-to-energy and rail infrastructure. The small-cap company has equity capital of Rs.55.24 crore. Face value per share is Rs 2. 
• Investments in oil and gas exploration and production, which are influenced by prevailing crude oil & gas prices, have a considerable impact on the demand for LSaw and HSaw Pipes. Resurgent world economy and consequent increase in the demand  for  industrial  natural  gas is expected  to drive up momentum of the welded pipes market. Now that the price of crude oil has again start to move up after a temporary slump, the scrips related to this space are likely to do well, in the immediate future. Moreover, the demand is likely to escalate in the coming years, as several mega-projects are set to be taken  up across  the world,  particularly  in  regions  such  as Southeast Asia, Australia, Middle East, Africa, and West Asia.
• The Company has operations through subsidiaries in India and offshore. In India, the company has presence and operations in Infrastructure space through its subsidiary company named JITF Infrastructure  Limited. Besides, the Company  also  has another  subsidiary named, IUP Jindal Metals and Alloys Limited which is engaged in manufacturing of re-rolling of stainless steel. The Company has operations in Abu Dhabi (UAE) and Italy (Europe) through 100% subsidiaries designated  as special purpose vehicles. 
• As  per  a  comprehensive  global  report  by  Global  Industry Analyst INC (GIA) on the Seamless Pipes and Tubes markets, the global market for Seamless Pipes and Tubes is projected to reach 113.8  million  tons  by  2018,  with  demand  growth mirroring the dynamics of the energy sector and gains led by the  rise  in  rig  count  and  increasing  prices  of  oil  and  gas, particularly  in  North America,  the  Middle  East  and  Latin America. As per the report, Asia-Pacific represents the largest regional market  worldwide  with  the  energy  sector  accounting  for significant proportion of the sales. Increased activity in various end-use sectors such as oil and gas, power, and refineries, and resurgent growth in automobile sector is expected to fuel demand for steel pipes and tubes in the region.  
• Global  demand  for  water  pipe  is  forecast  to  increase  6.8 percent per year through 2017 to almost 14 billion meters, an acceleration  from  the  pace  of  the  2007-  2012  period. Advances will result  from  two  key  factors:  in  developing nations, access to water supply and sanitation will be increased; in developed nations, a rebound in construction spending will boost demand for building pipe. In India, the water-piping sector mainly caters to the irrigation and drinking purposes, as water requirement is the highest for these two sectors. Various schemes of Government of India have opened new avenues and opportunities in this sector where there is already an urgent requirement of developing water  infrastructure. The country’s  vast population makes infrastructure and sewage system development a necessity, supporting demand by households that previously did not have a piped water supply.
• The company's customers  include  most  of  the world’s leading oil and gas companies, municipal corporations as well as engineering companies engaged in constructing oil and gas gathering, water transportation system, power and automobiles facilities. Its principal products include (a) large diameter SAW pipes (Longitudinal Submerged Arc Welded (LSAW) and  Helically Submerged Arc Welded  (Spiral/ HSAW), (b) Seamless Tubes, and (c) Ductile Iron (DI) pipes. Its manufacturing facilities are located in western, northern and southern parts of India. 
• JITF Ecopolis has set new benchmarks of municipal solid waste management by successfully running India's first and largest Waste-to-Energy facility in New Delhi. Registered with the United Nations Framework Convention on Climate Change (UNFCCC), the project is processing one-third of Delhi’s municipal solid waste into power that lights up 6 lakh homes. Furthermore, two additional urban integrated waste management projects in Punjab are also helping regenerate compost in a sustainable and eco-friendly way. 
• To unleash the immense potential of India’s huge coastline and a significant demand-supply gap, JITF Vector has navigated the Indian coastline and the Inland  waters  very  well.  JITF Vector is rapidly changing the face of cargo transportation along the Indian coastline and inland waterways. Through innovative logistics solutions, it is meeting the growing challenges of fuel inkages, especially coal, for the ever growing power generation base of India. Operating a versatile fleet of vessels, which includes three container ships; three bulk including one panamax size vessel and twenty three barges, Jindal Vector offers break bulk and short sea shipping operations. This, along with a multi-modal transportation approach promises consistency in delivery schedules. 
• The development of the India Maritime Technology Park in Gujarat as the state’s first maritime industry cluster has set JITF Shipyards firmly on the course of new frontiers in the shipping industry.
• Jindal Rail has set up a world class facility at Vadodara, Gujarat using state-of-the-art robotic cells and special purpose machinery to manufacture 3000 wagons per annum for Indian Railways and private players in the industry. Made of aluminum and steel, which are much lighter in weight, these wagons offer far more spacious interiors. The wagons made are used for specific purposes, which include Open (BOXNHL type) Wagons for transportation of Coal, Iron Ore etc., Container flat Wagons (BLC type) for containers, Covered (BCNHL) Wagons for cement, food grain and Special Purpose commodity specific Wagons for the bulk movement of cement, fertilizers, fly ash etc. Therefore, FDI in Railways is a positive for the company. 
• With many manufacturing facilities across the globe and an extensive range of products, Jindal SAW has traversed different continents and made an indelible mark in world markets. Furthermore, with the added advantage of plants at strategic locations, including ports, the company meets critical deadlines for international orders. 
• Ductile Iron (DI) pipes segment is witnessing smart improvement in performance which is likely to continue, as the government of India gives more thrust on Infrastructure. Small DI pipe facility with blast furnace capacity of approx. 2,00,000 MTPA was put to commercial operation in the quarter ended 31st March 2013. Production has started and the capacity is being slowly ramped up. The Coke Oven facility and the incremental captive power  generation  facility  related  to the DI  plant has been commissioned.
• It has secured Iron Ore Mines in Rajasthan on a 30 years lease and has set up facilities at the mine head for preparation of Iron Ore Concentrate and production of Iron Ore Pellets. Iron Ore Pellets are currently in demand for manufacture of Sponge Iron and other products. Mining, operations of the company have commenced in FY 2012-13 and it produced 212,487 MT of concentrate, a part of which was used captively. The benefaction has resulted in improvement in Fe content. Mining operation along with pellets expected to bring benefits from the year FY15.
• Pipelines are the backbone of a nation’s infrastructure. Pipes are used in Automobiles, airports, metros, malls, Oil exploration, crude oil, product  &  gas  transportation and for water & sanitation purposes. Owing to growing energy demand and cost of transporting hydrocarbons through other sources like rail and road becoming expensive, pipeline networks are laid to make hydrocarbons reach  its  users let it be domestic or industrial. These pipes see a varied application across various Oil &  Gas and Non Oil  sectors. With  robust  economic  recovery expected  to continue in China, India, and other non-OECD nations, it is no surprise the Asia/ Pacific accounts for the highest number of new and planned pipeline miles. India has announced plans to double its natural gas pipeline network over the next five years including development of a national gas grid by 2017. Middle East is also seeing substantial increases in energy demand which could lead to more pipelines.
• Jindal SAW last year set up a Ductile Iron pipe manufacturing plant at Abu Dhabi, UAE with an installed capacity of 350,000 MT per annum.  To shore up its capacity further, the company is setting up a  Ductile Iron Fittings plant at Solapur, Maharashtra with an annual   production capacity of 18000 MT per annum. 
• The current market cap of the company, is less than half of FY14 annual turnover of Rs.5594.24 Cr. Moreover, its Q1FY15 EPS is Rs.1.99 as against only Re.0.55 in Q1FY14. It has a price to book of only 0.54. Jindal Saw's net profit jumped 260.9% to Rs.54.90 crore on 5.1% decline in net sales to Rs.1145.11 crore in Q1 June 2014 over Q1 June 2013, i.e. on Y-o-Y basis. 
• Jindal Saw Ltd recently informed BSE that the Board of Directors of the Company at its meeting held on October 10, 2014, has approved the issuance of Compulsorily Convertible Debentures (CCDs) on preferential basis to M/s. Four Seasons Investments Ltd., a Promoter Group Company subject to the necessary approvals in this regard. The Board of Directors have also convened an extraordinary general meeting of the shareholders of the Company on November 09, 2014 at the registered office of the Company for seeking the approval of shareholders by way of special resolution for the above issuance of CCDs.
• On September, 19, 2014, Van Eck Associates Corporation A/C Market Vectors-Vietnam purchased 16,27,754 equity shares (0.6% stake) of  Jindal Saw  at Rs.90.45.

Conclusion: On the charts the stock seems to have formed a temporary bottom today. The price of the scrip is above its 50, 150 and 200 DEMAs. Considering all the factors mentioned above, the investors are suggested to buy the scrip above Rs.75, for a short term target of Rs.82-84. The stop loss can be kept at Rs.71.40.

Note: This Report was sent to the Premium (Paid) Group members on 17 October, 2014. The scrip is already moving towards its first target of Rs.82, today. Join the Paid Service and get such calls on a regular basis. 

Jaiprakash Power Ventures Limited

BSE Code: 532627

CMP: Rs.12.43

Book Value: Rs.22

Market Cap: Rs.3,651.94 crore

Introduction: Jaiprakash Power Ventures Limited (JPVL), is the largest Hydro Power generating Company in the Private Sector in the country. The Company today has operating capacity of 1791 MW (Hydro) and 500 MW (Thermal). Currently it is operating three Hydro Power Plants and one Thermal Power Plant, namely:

i) 300 MW Jaypee Baspa-II Hydro Power Plant in Himachal Pradesh;

ii) 400 MW Jaypee Vishnuprayag Hydro Power Plant in Uttarakhand; 

iii) 1091 MW Jaypee Karcham Wangtoo Hydro Power Plant in Himachal Pradesh; and

iv) 500 MW Jaypee Bina Thermal Power Plant in Madhya Pradesh.

The  implementation  of  1320  MW  (2  X  660  MW)  Jaypee  Nigrie Super Thermal Power Project at Nigrie, Distt. Singrauli in Madhya Pradesh is progressing satisfactorily. And commissioning of first unit has already been done on 3rd September, 2014 and second unit would be done by December, 2014. Steam Generator and Steam Turbine Generator have been supplied by L&T- MHI Boilers Private Limited and Larsen & Toubro Limited. All major statutory approvals are in place. Entire requirement of 5 Million MTPA coal for the Project will be met from dedicated coal mines at Amelia (North) and Dongri Tal-II.  The Financial Closure of the Project has already been achieved. For  400  kV  D/C  Transmission  Line,  Forest  Clearance,  including approval  of  Hon’ble  Supreme  Court  of  India  for  Wild  Life  Son-Ghariyal Sanctuary has been obtained. The Line profile of entire 161 kms route has been completed. Approval for the energisation of 400 kV Bays at Satna Substation has been received from Central Electricity Authority (CEA). The overall progress of implementation of the Project continues to be satisfactory. The first unit of the Project has been successfully synchronised with the grid on 7th May, 2014.  Moreover, to effectively use the fly ash from the Thermal Power Plant and to make the plant environment friendly, a 4 MTPA Cement Grinding Unit at Nigrie, Distt. Singrauli in Madhya Pradesh with its Project Cost estimated at Rs.550 crore is being set up which is expected to be commissioned by March 2015 (Line I) and July, 2015 (Line II) of 2 MTPA each.

Subsidiary Companies: The Company has following subsidiaries :

i) Jaypee Powergrid Limited: It is a joint venture of Jaiprakash Power Ventures Limited and Power Grid Corporation of India Limited (a Central Government Power Utility Undertaking) has set up 217 kms long 400 Kv Quad Bundle Conductor Double Circuit Transmission Line for evacuation of Power from the pothead yard of 1091 MW Karcham Wangtoo Plant in the State of Himachal Pradesh to Abdullapur in the State of Haryana and LILO with the existing Baspa-Jhakri Double circuit line.

ii) Jaypee Arunachal Power Limited: It is a  wholly  owned subsidiary of the Company is implementing 2700 MW Lower Siang and 500 MW Hirong H.E. Projects in the State of Arunachal  Pradesh. The  Company along with its associates will ultimately hold 89% of the Equity of JAPL and the balance 11% will be held  by the Government of Arunachal Pradesh. For  the  2700  MW  Lower  Siang  Hydro-Electric Project, CEA approval was obtained in February, 2010 and revalidation of DPR is in process with CEA. Land acquisition is in progress. In-principle Approval has been granted and Power Purchase Agreements (PPAs) are to be submitted for final approval with respect to the grant of Mega Power status of the project. Draft Rehabilitation & Resettlement Plan has been submitted to the State Government. For 500 MW Hirong Hydro Power Project, CEA has accorded Techno-Economic Concurrence on 10th April, 2013. For the Environmental/Forest Clearance of the Project, the EIA & EMP Reports have been submitted to MoEF

iii) Prayagraj Power Generation Company Limited: It was acquired from Uttar Pradesh Power Corporation Limited through competitive bidding  process. It is implementing  1980  MW  (3x660  MW) Thermal Power Project (with permission to add two additional generation  units  of  660MW  each)  in  Tehsil  Bara  of  District Allahabad, Uttar Pradesh. Fuel Supply Agreement between PPGCL & Northern Coalfields Limited has been executed on 29th August, 2013, for Phase-I. All Statutory/Regulatory approvals required for the current stage of the Project are in place. Financial Closure has already been achieved and for the revised project costs, steps are being taken to fund the additional financial assistance. The supplies from BHEL for Boiler, Turbine and Generator for Phase-I of the Project are in progress. All major packages have been awarded. Supply of materials is in progress. The progress on the implementation of the Project is satisfactory.  An expenditure of approximately Rs.9372 crore has been incurred on the implementation of the Project upto 30th June, 2014.

iv) Sangam Power Generation Company Limited: It was  acquired from Uttar Pradesh Power Corporation Limited (UPPCL) through competitive bidding process, for the implementation of 1980 MW (3 x 660 MW) Thermal Power Project in Tehsil Karchana of District Allahabad, Uttar Pradesh. It executed Deed of Conveyance with Uttar Pradesh Power Corporation Limited (UPPCL) but the district administration could not hand over physical possession of land to the Company due to local villagers agitation. As such, no physical activity could be started on the ground.The company has written to UPPCL and all procurers that the Power Purchase Agreement is rendered void and cannot be enforced. As such, the Company’s claims be settled amicably for closing the agreement(s). Necessary supporting documents in support of the Company’s claim have been furnished to UPPCL which is under their review.

v) Jaypee Meghalaya Power Limited: It was incorporated by the Company  as  its  wholly-owned subsidiary  to  implement  two Hydro-electric  Projects  i.e.  270  MW  Umngot  H.E.P.  in  the Umngot River Basin and 450 MW Kynshi-II H.E.P. in the Kynshi River Basin both in Meghalaya  on BOOT (Build, Own, Operate and Transfer) basis. The Company along with its associates will ultimately hold 74% of the Equity of JMPL and the balance 26% will be held by the Government of Meghalaya. With respect to 450 MW Kynshi-II H.E.P., the field work of survey & investigation and EIA studies have already been completed. Drilling and drifting in Power house area have been completed. The revised proposal with involvement of lesser forest area has been submitted to the State Government and Ministry of Environment and Forest. The control levels i.e. FRL & TWL have been approved by the State Government. Approval of CEA has been accorded to the water availability series for power potential studies. With respect to 270 MW Umngot H.E.P, the State Government has advised that the project will not be operationalized as per MoA till further orders. The matter is being pursued with the State Government for permission to resume the works.

vi) Himachal Baspa Power Company Limited and Himachal Karcham Power Company Limited: These companies were incorporated as a sequel to the proposed transaction of divestment of Baspa-II & Karcham Wangtoo Hydro Power Projects.

With a view to  deleverage the Company’s Balance Sheet  and also to enhance Shareholders’ value, the Board in its meeting held on 1st March, 2014 approved a Scheme of Arrangement, subject to statutory and regulatory approvals and sanction of the Scheme by the relevant High Court, for hiving off 300 MW Baspa-II HEP and 1091 MW Karcham Wangtoo HEP to two separate wholly owned subsidiaries and eventual transfer of ownership of the said wholly owned  subsidiaries  to  a  consortium  led  by  TAQA  India  Power Ventures  Private  Limited  (TAQA).  However,  the  Company  has received a notice from TAQA in July, 2014 intimating their withdrawal from the said transaction as a result of a change in the business strategy and priorities of their group. With withdrawal of TAQA, the Acquisition Agreement dated 1st March, 2014 automatically stands terminated.  Further,  this  withdrawal  makes  TAQA  liable  to  make payment of break fee of US $ 9 million in terms of the said Agreement for which necessary notice has been issued to TAQA. Meanwhile, JSW Energy Limited said that it had agreed to buy 3 operating power plants from Jaiprakash Power Ventures Limited, as it looks to expand its portfolio beyond coal and lignite-based plants. The company in a statement said that JSW Energy, controlled by billionaire Mr Sajjan Jindal, will acquire two of Jaiprakash's three hydropower plants in Himachal Pradesh and a thermal power plant in Central India.According to the statement, the three plants together have a combined capacity of 1,891 MW. Mr Jindal said that the financial terms of the deal were still being worked out, but the deal was probably the largest in India's power sector to date. The Company  in  line  with  publically  stated  policy  of Jaypee Group, remains focused and committed on reduction of debt through sale of some of its assets, to deleverage its Balance Sheet and enhance Shareholders’ value.

MORE COMING WAIT TILL TOMORROW............BUT IN BETWEEN DON'T FORGET TO BUY THE SCRIP .......