Friday 30 May 2014

Marg Ltd  (Rs.19.75): Will Slowly Move towards Rs.89-90
Book Value: Rs.180.91
Market Cap: Rs.75.28 Crore only
MARG Limited (formerly MARG Constructions Ltd) is one of the leading Infrastructure & Real estate Company in south India. MARG was awarded with the prestigious "Excellence in Infrastructure" award at the Construction Industry Awards 2012, Chennai. MARG is focused on achieving holistic regional development, unlocking economic prosperity and creating inclusive & sustainable growth models. 
The Company, by itself and through its subsidiaries, is undertaking the development and operation of infrastructure projects in the areas of marine infrastructure, urban and industrial infrastructure, thereby pioneering the development of economic growth centers. It owns and operates a port at Karaikal, Puducherry with handling capacity of 28 MTPA and is also developing a 612 acre special economic zone (SEZ), as a part of MARG Swarnabhoomi - 'The Land of New Thinking' on the scenic East Coast Road between Chennai and Puducherry. 
MARG’s EPC division provides integrated turnkey solutions by offering a plethora of services including integrated design, engineering, material procurement, field services and construction & project management services for infrastructure sector and real estate projects for its various subsidiaries as well as external customers. The Company also offers quality residential spaces, predominantly catering to the mid segment and affordable segment categories and commercial spaces as developing a multi-use commercial building, in the heart of Chennai's IT corridor, comprising retail space (mall & multiplex), office space, hotel and service apartments. Besides this, the Company is developing and executing various commercial & residential projects in other states, which have gained momentum in recent years.
Positives  
Though concerns continue to exist over the current account deficit scenario, prevailing supply side constraints, inadequate infrastructure investments and long term policy directions, but with INR appreciating against the USD and the newly elected NDA Government likely to give greater impetus to infrastructure development and planning (to double investments in the infrastructure sector, over the period of next five years), is expected to give a major boost to the construction and infrastructure activities. The NDA Government is focused to make major amendments to land acquisition laws, which is hoped to accelerate the process of Land acquisitions.
EPC VERTICAL
The FY12-13 was a challenging phase and emerged as a year of consolidation for project execution and other business aspects. It has an unexecuted EPC order book is at Rs.3,800 Crores as of March 2013 constituted by 19% for Group assets like Port, Mall and others and 81% for external customers including 45% for civil work for group’s projects for residential and external customers and 36% for Government, PSU and other Corporate EPC customers. It is participating in fresh tenders in FY15. 
MARG EPC division has signed agreement with Momentum Group, an Irish-registered Company established in 1983 with its headquarters in Dubai, which qualifies MARG to foray into off and on-shore oil & gas sector. The Momentum Group actively markets well drilling and program engineering services providing total drilling operations management for jack-up, land drilling and pipeline projects all over the world. Some of their most recent projects and services being in the Caspian region (Azerbaijan, Russia, Turkmenistan), Far East (Malaysia), Middle East (UAE, Iraq, Kuwait), Turkey and North Africa (Egypt).
MARG is in the process of building a healthy pipeline of additional EPC contracts - bidding for mega contracts in the specialized areas like marine, industrial projects, urban infrastructure and solar & alternate energy sector.
Apart from this, recent approvals obtained for residential projects, infusion of funds into MARG Junction; Launch of Service Apartments will increase the EPC division’s turnover from MARG in the forthcoming years.
The EPC division which was catering to the need of in-house and external projects has successfully handed over Pushpadrum Residential Project and is in the process of handing over its other residential project MARG Vishwashakthi at Tirupathi. Twin Disk project is completed and full-fledged development of MARG Institute of Technology Science is being done in Swarnabhoomi. 
On completion of Berths & allied Infrastructure, Edible Oil & Molasses Tank farms, Marine Loading & Unloading arms, Truck loading system execution is now focused and is nearing completion on construction of break waters, Stacker Cum Reclaimer, Wagon Loading System, Ship Unloaders and Conveying System in Karaikal Port. 
The external project team has completed wagon fabrication work for Braithwaite Company Limited, Jhansi I & II for Northern Central Railways. Multi Storied Residential project for BHEL is completed & Residential project for HUDA in Rewari, Haryana, as well as 200 bedded Cardiothoracic Hospital for Military Engineering Services is nearing completion in Northern Region.
MARG EPC has been appreciated for safety practices, a notable achievement as the present accident frequency across all project sites is 0.25, as per Indian Standard: 3786-1983.
Some of the prestigious projects include construction of head quarters for Bureau of Police Research & Development (BPR&D), National Crime Records Bureau (NCRB) and allied works at Mahipalpur, New Delhi from NBCC. Other projects include medium format assignments like construction of a school and miscellaneous city beautification work at Mahe, awarded by Government of Puducherry and Construction of Facilities for Research in Experimental Nuclear Astrophysics (FRENA) laboratories for Dept. of Atomic Energy, at Kolkata. 
Port
Karaikal Port – a deep draft, all weather port is owned and operated by Karaikal Port Private Limited - a subsidiary of MARG Limited. The Port is now in the fifth successful year of operations. The Port has handled 6.61 MMT of cargo in Financial Year 2013 as against 6.01 MMT in Financial Year 2012, which is a straight 9.98% increase. Revenue for the Financial Year 2013 went up by 25.14%, from Rs.221.35 crores to Rs.277 Crores. EBIDTA for the Financial Year Rs.2013 is Rs.133 Crores and Rs.100 crores for Financial Year 2012, recording a rise of 33%. 
During FY13, it handled 1,231 rakes as against 1,087 rakes handled in FY12. A total of 3,090 rakes have been handled since the commencement of railway operations. The company has entered into contracts with many major cement companies like Chettinad Cement, Dalmia Cement, Madras Cements and The India Cements for handling their coal imports. 
Karaikal Port added new cargos to the portfolio like Fire clay, Lime Stone, Iron Ore, Wheat and Maize and efforts will continue to bring in additional cargos to the port. With the iron ore mining ban in Karnataka, JSW has started importing domestic iron ore in the forms of fines and lumps for its Mecheri Plant through Karaikal Port. The cargo is expected to continue through the next year as well. 
With the UPA government’s decision to export the surplus  wheat, it has contributed a total volume of 172,000 MT in FY13 and significant volumes is likely to flow in this year (FY15) as well. Maize is another significant addition to the cargo portfolio in the recent times and is expected to add traffic to the port in FY15 too. Terminalisation opportunities are being explored for Coal Terminal, Liquid cum General Cargo Terminal, LNG Terminal and Container Terminal. Port has created lot of interest among national and international bulk cargo traders.
SEZ
MARG is developing two special economic zones in the field of Engineering Services and Multi Services spread over 612 acres as part of ‘MARG Swarnabhoomi – The Land of New Thinking’.  This Project is developed by New Chennai Township Private Limited, a wholly owned subsidiary.  MARG Swarnabhoomi is located on the scenic East Coast Road, midway between Chennai and Puducherry.
Engineering Services SEZ is promoted at MARG Swarnabhoomi with the objective of attracting clients in various segments like Auto Components, Fasteners, Valves, Pumps, Power components, Electronic components, Electronic meters, Renewable Energy, etc. M/s Grundfos Pumps, M/s Virgo Engineers, M/s P.H. Hydraulics and Pneumatics, M/s Eswari Electricals, M/s Kwik patch Ltd and M/s Twin Disc (Far East) Pte Ltd are operating in Engineering services SEZ. M/s Tecpro Energy Systems has registered lease deed and is in advanced stages of setting up their premises in MARG Swarnabhoomi. 
Total exports from the engineering SEZ in FY-12-13 was Rs.52.69 Crores The Multi Services SEZ is promoted in MARG Swarnabhoomi to attract clients in various segments like IT/ITES, Knowledge Hub, BPO, KPO, Animation, Medical Tourism, R&D, Publishing etc. 
M/s Biophenolika Polymers Private Limited, an Indian unit of Italian firm Cimteclab, a research and development company with international manufacturing facilities specialized in the field of high performance polymers, biopolymers, protective coatings, and flame retardants have signed an agreement to set up their premises at the Multi Services SEZ.  Swarnabhoomi Academy of Music (SAM) is the first professional college of music in India offering a range of programs in contemporary music that includes rock, jazz, classical and world music. The students from 6 countries have been in enrolled in SAM. SAM has signed the Initial twining partner agreement with McNally Smith an international music school based out of Minnesota. SAM is also awaiting the international experience agreement from McNally. The construction of the Science & Technology Park with world class amenities is in full swing and 80% of the project is completed.
On the education front, ‘Swarnabhoomi Academic Institutions’ (SAI) is functioning in MARG Swarnabhoomi. The Knowledge based ecosystem is a unique differentiator for MARG Swarnabhoomi wherein it houses institutions catering to basic education, higher education and vocational skills training institutes. 
MARG Navjyothi Vidyalaya School is operational in Swarnabhoomi with a count of 400 students. The school is affiliated with CBSE and fully equipped with Audio/Science and Math lab and offers courses up to 10th Std.  MARG Institute of Design and Architecture Studies (MIDAS) operating in Swarnabhoomi offers two-five year undergraduate programs - Bachelor of Architecture and Bachelor of Architecture Interior Design and is affiliated to Anna University. 80 students have enrolled in the course offered by MIDAS in 2012-13. MOU with Central Institute of Technology, Australia and ITEES, Singapore is signed for multidisciplinary vocational and and hospitality programs respectively. 
As part of 300 acres Educity- new institutions and programs will be introduced by 2014-15, which include a Management College, an AICTE approved engineering College and an Arts and Science degree college.
Real Estate Development
MARG ProperTies – residential arm of MARG, since its inception from October 2009 has emerged as one of the leading real estate developers in Chennai. MARG’s residential development is moving forward as lot of infrastructure growth is happening in Tamilnadu and the company has a strong presence in Chennai where there is a huge demand for residential space.
To cater to the housing demand and leverage the economic growth drivers, the company has a strong project pipeline and land bank near the suburban micro-markets. The company’s project portfolio is primarily skewed towards mid and low income segment which forms the bulk of the residential demand.
As the South & West Chennai is getting developed rapidly, MARG ProperTies projects which are located in these areas are benefitted more. Second phase of Nemmeli Desalination Plant and the proposed Country’s longest elevated corridor (45km) in OMR augurs well for South Chennai residents. The upcoming industrial parks and the proposal of doubling the Sriperumbudur – Guduvanchery rail line adds spur to the West Chennai residents. Planned satellite cities, improved connectivity and social infrastructure will further drive growth.
MARG ProperTies has further created an avenue to get closer to its customers through ProperTies Shoppe at Kottivakkam, OMR and Ashok Nagar. It is the first of its kind in the real estate industry to create more touch points and offer the company’s wide range of products to customers through experience and consultative selling. Interactive touch screen kiosk is another unique innovation from MARG ProperTies to touch base with its customers.
In FY2012-13 MARG ProperTies registered residential sales of 0.39 million sq ft (369 units) at a sale value of Rs.132 Crores, total sales (ITD) till March 2013 was 1966 units (2.12 million sq ft) at sales value of Rs.552 Crores.
With the revival of the Indian economy, the real estate sector is booming. Families are shrinking and relocating to cities, creating a demand for urban residential space. As per CMDA estimate, the demand for housing in Chennai is estimated to be at 4.0 lakhs in 2011 and it is expected to reach 6.6 lakhs by 2016.  To capitalize the residential demand and with a clear understanding of the real estate business backed by scale, people, process and technology coupled with innovation, MARG ProperTies is poised to garner a large market share across a wide product range. 
Real Estate – Retail & Commercial, MARG Junction, a 1.8 million sqft. integrated mixed use commercial project comprising of a mall (6.76 lacs sqft), Serviced Apartments (2 towers - 3.2 lacs sqft with 295 keys) and Club (50,000 sq.ft) is being developed by the company’s subsidiary, Riverside Infrastructure (India) Private Limited (RIPL).
As on 31st March 2013 around 267,705 sq.ft of mall space has been leased and received EOI’s from brands for around 119,803 sqft. Over 57%(both signed & EOI’s) of the Gross Leasable Area (GLA) is now finalized, Apart from the anchors signed in FY10-11, EOI’s were obtained from key mini-anchor brands like Blu-O, Time zone, Reliance Trends & Reliance Digital during the year, Top Vanilla brands like Levis, Titan, Nike, Puma, Lee, Wrangler were signed. The average rental achieved of Signed & EOI agreements as on 31st March 2013 is Rs.76/- psft p.m.The hotel component is now being converted to Serviced Apartments with 295 keys along with 50,000 sq.ft business center and 65,000 sq.ft of banquet facility.
Highlights
  • MARG Ltd's FY13, Revenue Stands at Rs.762 Crore, including EPC revenue of Rs.748 Crores, with Current order book at around Rs.3,800 Crores-plus. Its 9M-Income comes at Rs.233.47 Crore. It is expected to end FY14, with a total revenue of Rs.300-310 crores. 
  • Karaikal Port Private Limited (KPPL), a subsidiary of the Company has successfully handled 6.61 MMT of  multi-cargo in FY12-13 and reported a top line of Rs.277 Crores and EBITDA Rs.133 Crores. The Port has handled 19MMT of Cargo since its commencement.
  • MARG Swarnabhoomi has sold 402 apartments (0.4 million sqft) with sale value of Rs.74 Crores during FY12-13, taking cumulative sale booking to 2042 apartments (2.02 million sqft) with sale value of Rs.341 Crores. In FY14, the company is expected to generate around Rs.85-90 crores from the sale of apartments. 
  • MARG ProperTies Limited, the real estate arm of MARG has sold 369 units (0.4 million sq ft) in FY12-13, with sale value of Rs.132 Crores, taking cumulative sale booking to 1966 apartments (2.12 million sqft) with sale value of Rs.552 Crores. In FY14, also, the numbers will be along the expected lines. 
  • MARG bagged a double at CIDC Vishwakarma Awards 2013: G R K Reddy, CMD – MARG Group was chosen as ‘Industry Doyen’ & MARG Ltd, as the ‘Best Professionally Managed Company’.
  • MARG Karaikal Port was Chosen as the ‘Innovative Port of the Year’ at South East CEO Conclave & Awards, 2012.  
  • Two awards at 'Construction Week Awards 2012' at Mumbai: (i) Excellence in CSR (Winner) (ii) Infrastructure Company of the year (Runner up).
  • Marg Ltd has total of 58 Subsidiaries as on 31st March 2013, out of which 5 Non Wholly-Owned Companies and 53 Wholly-Owned Companies, including 25 Step-down Subsidiaries.
  • JOINT VENTURE: The Company has following major joint venture companies:
  • (i) M/s. Future Parking Private Limited (in which MARG holds 51% of paid-up share capital), is a joint venture with M/s. Apollo Hospitals Enterprise Limited for the development of Multi Level Car Parking (MLCP) at Wallace Garden, Chennai on BOT basis, with a provision of right for development of commercial complex along with the MLCP facility for the entire BOT period. (ii) Signa Infrastructure India Limited (in which MARG holds 74% of paid –up share capital), is a joint venture with M/s. Housing and Urban Development Corporation Limited (HUDCO) for Techno-Financial collaboration. (iii) M/s. Rajakamangalam Thurai Fishing Harbour Private Limited (in which MARG holds 39% of paid-up share capital), is into joint venture with M/s. Rajakamangalam Thurai Development Trust to develop a fishing Harbour at Rajakamangalam Thurai in Kanyakumari District of Tamil Nadu.
Outlook The infrastructure industry is expecting a MAJOR IMPROVEMENT, this year (FY15), after suffering a repeated setbacks, during the last three fiscals (FY12, FY13 and FY14). 
The outgoing UPA Government of India had taken measures to stabilize the economy and revive the sentiments which are expected to have positive effects for the economy in medium to long term. The slow growth in the infrastructure sector was primarily driven by a range of sector-specific issues, such as land acquisition, environmental clearances, high interest rate regime and macro-economic factors. Marg Ltd is prepared to capture the growth in the high end, focused to meet the challenges and is committed to deliver the best in adding value to the company. Marg Ltd is known for ‘Innovative Thinking’, enjoys strong brand image due to the past performance which will act as a catalyst in ensuring a sustainable growth in future. In addition, the new affordable housing scheme, steady growth in port activities, industrial urban infrastructure services and increased opportunities for EPC shall drive growth prospects to the Company’s business.
The infrastructure sector in India is still in its nascent stage and a lot of development is required in logistics, ports, railways, road connectivity, communications and power. This opens up newer opportunities for the companies like Marg Ltd.  Caution & Conclusion
While the assets created by MARG are poised for growth and value creation in the long run, due to the present economic situation and allied reasons, there is a temporary cash-flow mismatch. This has put some pressure on the current liquidity situation in MARG and its ability to service debts. Managing this temporary cash-flow mismatch will go a long way in ensuring that the value creation envisaged by all the projects in the mid and longer term are intact.
As part of the initiatives to achieve this, the Company has discussed with all the bankers and bilaterally renegotiated most of the loans with principal / interest moratorium and extended repayment period, matching the cash flow generation capabilities of the Company. Further, Management has also tightened up more the cost monitoring initiatives by ensuring that optimum levels of resources are deployed, leveraging maximum efficiency. These measures have improved the cash flow position and has also allowed the Management to concentrate on the business development and execution. Marg Ltd (Rs.19.95) is a huge company and slowly its share price would move towards Rs.89-90 mark or may be even higher. Hence, buy the shares of the company whenever it comes out of the circuits and keep holding. Moreover, if SEBI order on OPEN OFFER is enforced in future by the honourable Supreme Court of India, then it could move towards Rs.300 plus mark in the coming days. It is Mega-Bagger in the making, therefore, it is a must for every portfolio. 
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Sunday 11 May 2014

Plethico Pharmaceuticals Ltd: Highlights
CMP: Rs.39.05 Book Value: Rs.160.60 & Market Cap: Rs.133.03 crore (Only)
Incorporated in 1963 as a small partnership firm, the company has now transformed into a fully integrated pharmaceutical and nutraceutical company with strong research and development capabilities coupled with a robust manufacturing platform. 
Today the Company manufactures and markets variety of pharmaceutical formulations, nutraceuticals, herbals, lozenges, candies, food supplements, dietary supplements and many other consumer and healthcare products in India and internationally to several key markets across the globe. Company's manufacturing facilities are complying with world class specifications backed by an in-house R&D Center. Plethico possesses core competence in finished formulations and herbal preparations since last four decades. The existing activities are spread globally with product portfolio of about 500 formulations in more than 20 therapeutic segments. The company has significant presence worldwide with strategic tie-ups and alliances and a very strong global marketing and distribution network in CIS, African continents and third front including Latin American Countries, Middle East, South East Asia and GCC. With significant presence across the globe, Plethico is committed to become an innovative and integrated partner to the global pharmaceutical industry by creating a profitable enterprises with due respect to the stockholders' interests, corporate governance and social responsibilities.
About Natrol, USA
Natrol is synergistically operating in the Herbal and Nutraceutical sphere, predominantly present in USA. It has a portfolio of healthcare and wellness brands representing quality nutritional supplements, functional herbal teas and sports nutritional products. Established in 1980, Natrol's portfolio of brands includes Natrol®, MRI®, BioSil™, Laci Le Beau®, Promensil®, Trinovin®, Nu Hair® and Shen Min®, which are household names in USA. It distributes products nationally through more than 54,000 retail outlets as well as internationally in over 40 other countries through distribution partners and subsidiaries in UK and Hong Kong. The company pledges to deliver nutritional products with uncompromised service, quality, and innovation through the best that science, nature, and technology can offer as consumer needs are central to Natrol's focus.
Indian Operations
For more than 48 years, Plethico has been at the forefront of providing top-notch healthcare products for curing critical and chronic diseases worldwide. With its apt chemistry skills and low cost advantage both in research and manufacturing coupled with skilled manpower, Plethico has emerged as an excellent healthcare institution committed to deliver high quality sustainable healthcare products. Social transformation, lifestyle changes, higher disposable incomes, health consciousness and regulatory changes have boosted the consumer healthcare segments significantly in India. Plethico has forayed in these market segments and identified consumer healthcare as a major growth area. The Consumer Product Division today has an established range of products in sports nutrition, confectionary, lozenges, pharma OTC and herbal supplements marketed across the country with a vibrant supply-chain network. Plethico is swiftly moving towards basic research driven undertaking with a vast portfolio of quality products and healthcare services. 
Global Operations
At Plethico believes that going forward a successful global company will be the one that enters into business-enhancing alliances and acquisitions with International companies that have established competencies. Recognizing this philosophy, the company had made initial beginnings of entering the International market through acquisitions, joint ventures and strategic alliances that has led to quicker growth, better capital allocation and plugging of business gaps. In 2003-04, the company decided to stretch its wings into new geographies and acquired controlling stake in CIS based Rezlov Group of Companies. In early 2008, the company acquired US$100million US based leading nutraceutical company Natrol Inc. having a portfolio of premium health and wellness brands with predominant presence in the US, UK and Hong Kong. Within the course of five years, the company has concluded major acquisitions across the globe that enabled the company better positioning in the global markets. Plethico has evolved from an Indian pharmaceutical company to a global organization with an international footprint in terms of outlook, focus, presence, customers and employment. The acquisitions gave the company a strong foothold not only in CIS, Africa, South East Asia, Latin America and GCC but also in other regulated markets like US, Europe, Australia, New Zealand and Hong Kong. 
Today, Plethico has operations in 25 countries, exports to over 40 countries and presence in almost 20 therapeutic segments with more than 500 product approvals. The extensive distribution and marketing network successfully established the company as a dominant player in many regions across the globe. Internationally, the company is now on an exponential growth path, continuously expanding the target markets to add new countries to its operational business map.
Manufacturing
The company has two ultra-modern, fully integrated, state of the art, WHO-GMP certified units located in the lush green, pollution free surroundings of Indore, in the state of Madhya Pradesh, in Central India. Both the plants conform to the regulatory requirements of USFDA, UKMHRA & the CEU guidelines. The manufacturing unit at Kandla also complies with the WHO-GMP specifications. In order to expand its manufacturing capacities, the Company plans to setup an ultra-modern manufacturing unit at UAE. All the plants are well equipped with the most modern and validated manufacturing and analytical equipment and detailed SOPs are in place, with respect to Quality management, Personnel, Premises, Equipment, Documentation, Production, Complaints and Self Inspection / Audits. All the plants are eco-friendly in design and operations, in conformity with Indian and International standards for effluent treatment.
Product Portfolio
Sustained growth is the quest of every enterprise, more so in pharmaceuticals, where newer product registrations and effective marketing of products, adds buoyancy to the product stability. In order to widen the product spread, Plethico has successfully diversified its product profile over pharmaceutical formulations, OTC drugs, nutraceuticals, herbals and sports supplements. A coordinated effort between market research, product development and product launch teams, ensures a continuous flow of new products in our pipeline thereby feeding the respective market segments to ensure sustained growth in volumes and margins. 
With over 400 different formulation in more than 20 therapeutic segments, Plathico has a strong presence in Cardiac, Anti--Malarial, Anti-tubercular, Anti-infectives, Pain, Gastro, Cough  & Cold and other nutraceutical segments. Identification of new therapeutic categories, products, innovation in Novel Drug Delivery Systems & Patient compliance is the basis of its product selection. A range of clinically proven herbal products, developed from scientifically validated herbal extracts offers a safe and natural alternative in treating lifestyle related disorders like diabetes, high cholesterol, sleep disorders, digestive disorders and pain management. 
Research and Development
Its R&D is a manifestation of its belief in quality and innovation. Commitment of channelizing substantial revenues into R&D has always made sound business sense of Plethico. "As we sow, so shall we reap", is the research and development philosophy it follows. Over 400 product approvals and an innovation team of 40 research personnel in two separate R&D centers, is testimony to its focus on R&D. The company's team consists of committed scientists with expertise in botany, pharmacognosy, analytics and pharmacology as well as consultants having long associations with the herbal drug industry. Procuring authentic material, pharmacological evaluation in laboratory models, formulation development and modern clinical trials are integral processes of the herbal product development cycles. It is presently strengthening development in the areas of effervescent products, finger printed herbal extracts, range of medicated/center filled lozenges, sustained release formulations, fast melt tablets and use of pelletization technology.
Key Developments during 2009-12
  • Company's Kalaria - Indore Unit got approval from the Medicine andHealthcare Products Regulatory Agency of UK (UKMHRA).
  • Company's Kandla SEZ Unit have been awarded highest export  award consecutively for the fifth year.
  • Formation of a new step-down subsidiary in UAE - Natrol Global FZE, LLC to strengthen marketing of nutraceutical and herbal brands in UAE, CIS, south East Asia and African Countries.
  • Successful business integration with Tricon LLC, UAE in which company acquired 20% equity stake during 2008.
  • Successful commencement of business operation by UAE subsidiary Plethico International Limited through outsourcing at large scale.
  • Company's Kalaria-Indore Unit got approval from TGA Australia.
Financials
On a consolidated basis, in Q3FY14, the total income of the company came out to be Rs.364.04 Cr as against Rs.471.63 Cr in the same period previous year. The net profit of the company for Q3FY14 came out to be Rs.44.07 Cr as against a net loss of Rs.75.23 Cr in Q3FY13. The EPS of the company came out to be Rs.12.94 in Q3FY14 as against Rs.(-) 22.09 in the same period previous year. 
The consolidated financial results comprise unaudited results of its wholly owned subsidiary Plethico International Ltd and Plethico Global Holdings B.V., Netherlands having different step-down subsidiaries particularly Plethico US Holding KFT Hungary, Natrol Inc., USA. and Natrol Global UAE., The financial results of subsidiary companies have been regrouped and / or rearranged wherever necessary due to Indian GAPP audit conducted.
Conclusion  Buy the scrip of Plethico Pharmaceuticals Ltd at the CMP of Rs.39 .05, for a target of Rs.47-48 in the short term. Now, HUGE MONEY is likely to chase good companies, whose shares fell due to some extraneous factors. The 52-week high and low of the scrip are Rs.236 and Rs.31.25.
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Friday 2 May 2014

Opto Circuits (I) Ltd: Stretched working Capital Cycle is being Addressed
CMP: Rs.33
Company Overview: Opto Circuits India Ltd (OCIL) is a multinational medical device Company headquartered out of Bengaluru, India. The Company is into designing, developing, manufacturing, marketing and distributing a range of medical products that are used by healthcare establishments in more than 150 countries. It is a vertically integrated group that specializes in primary, acute and critical care products for the global markets.
Opto’s Group companies such as Cardiac Science, Criticare, Eurocor, and Unetixs Vascular are leaders in emergency cardiac care equipment, vital signs monitors, sensing technologies and vascular treatments.
OCIL run facilities and o†ces in North America, Europe and Asia. The Company’s USFDA listed and CE marked products are marketed in - European Union, North and South America, Middle East, Asia and Asia-Pacific through a set of approximately 1,300 distributors which indicates a Strong Global Distribution network of the Company. The Company also sells through direct and indirect sales channels across many emerging and developing economies.
The Company has almost 100 certified products, over 20 internationally recognized brands, which together have an addressable market opportunity of over US$ 20 Bn.
Company’s competitive strength lies in its strong business model, low cost structure, strong IPs, wide product portfolio, highly respected internationally recognized brands, diversified geographical presence and de-risked manufacturing in three countries.
The Company acquired 11 companies in last decade which not only added to the revenue streams and contributed to growth but has increased the addressable market significantly and gave extremely lucrative opportunities to leverage the global distribution network.

Subsidiaries: As on 31st March 2013, your Company had nine direct subsidiary companies, listed as under:

Financials: On a consolidated basis, Opto Circuits (India) reported
net loss of Rs.6.79 crore in Q3 December 2013 compared with net profit of Rs.113.26 crore in Q3 December 2012. Net sales fell 42.7% to Rs.354.33 crore in Q3 December 2013 over Q3 December 2012. However, in FY15, the fundamentals of Opto Circuits is expected to improve, as the company plans to focus on both developed and emerging economies with its diverse product portfolio and organic growth initiatives, supported by its R&D team designing products for the developing economies. 

Triggers: 
(i) The company has an excellent order backlog that it enjoys from its loyal customers inspite of acute competition. 
(ii) The stretched working capital cycle is being addressed through aggressive debtor collections. Also, Opto Circuits (India) Ltd informed BSE that a meeting of the Board of Directors of the Company will be held on May 06, 2014, inter alia to discuss various options like FCCB/GDR/Preferential Allotment/Private Placement/issue of Convertible Debentures offering and any other form of raising funds for OPTO Circuits (India) Limited and/or for its Indian/Overseas Subsidiaries for its future expansion, growth, joint ventures, acquisition of technologies and Research and development activities. The funds thus raised will not only help in addressing the debts but will also help in completing the pending orders. Though on the flip side, it is expected to dilute the equity. 
(iii) It is  aggressively rationalising its distribution network to improve the working capital cycle further. The asset portfolios are actively reviewed to divest divisions which are not so profitable.
(iv) One of the positive side for the accumulated debts on the books is that, its  bankers have been extremely supportive through this diffi†cult phase and they working closely with the company management on the various short term and long term solutions to address the issues.
(v) Its R&D team in Bengaluru along with its global R&D team in the U.S are developing innovative low cost products, suitable for the developing economies. Since the low cost economies like Africa, parts of Asia, parts of Middle East & the Indian subcontinent are the fastest growing markets; these low cost products will bring in the highly sophisticated products at affordable prices to these markets. The management sees yet another avenue of growth in the new product launches in the Invasive and Non-Invasive segments of its business. Going ahead, its priority would be to consolidate and grow. 
(vi) In the last fiscal, one of its subsidiaries, Eurocor GmbH had entered into a licensing agreement with a leading manufacturer of stenting products to sell its Drug Eluting Balloon range of products through their distribution channels, thereby widening its footprint in these markets. Eurocor's partner - Micell Technologies has received CE Mark Approval for MiStent® SES - Sirolimus Eluting Absorbable Polymer Coronary Stent System. It is a thin - strut stent that features elimination of the coating from the stent in 45-60 days and the complete absorption of the polymer coating within 90 days.
(vii) The company has a robust business model backed by over 100 certified products and over 20 internationally recognized brands, which together have an addressable market opportunity of over US$ 20 Bn (Rs.120000 crores). This is likely to help the Company grow organically for the next few years and regain its past glory.
(viii) Going forward, the Company is aggressively working on cost 
cutting measures by integrating operations and relocating manufacturing to low cost centers like India and Malaysia. It has also tightened the credit policies to our distributors to shorten the working capital cycle

Conclusion: Buy the scrip at the CMP of Rs.33.30, for a  short term to medium term targets of Rs.37-45-50. Kindly keep a SL of Rs.30.70 for any short term trade. 
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Pick of the Week:

Kernex Microsystems India Ltd: Basking on Huge land Holdings:

BSE Code: 532686
CMP: Rs.82.6

Book Value: Rs.105.43

Market Cap: Rs.103.25 Cr

 

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

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

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

 

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

 

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

 

Sl. No.

Name of the Shareholder

No. of Shares

Shares as % of Total No. of Shares

1

SMS Holdings Pvt Ltd

273,181 

2.19 

2

Somerset Emerging Opportunities Ltd

193,217 

1.55 

3

Enam Investment Services Pvt Ltd

137,500 

1.10 

4

UTI Mid Cap Fund

139,156 

1.11 

5

Vinaya Kumar Gavini

160,267 

1.28 

6

Challa Subrahmanay Sarma

186,212 

1.49 

 

 Total

1,089,533 

8.72 

 

 

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

 

Triggers:

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

 

Concerns:

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

 

 

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

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

Pick of the week

DECCAN CHRONICLE HOLDINGS LIMITED

BSE Code: 532608

Face Value: Rs.2

CMP: Rs.37.85

EPS: Rs.5.5

P/E: 6.88

Dividend: 150%

Book Value: Rs.43.58

Market Cap: Rs.926.86 Cr

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

 

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

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

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

 

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

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

 

Sl. No.

Name of the Shareholder

No. of Shares

Shares as % of Total No. of Shares

1

 EQ Advisors Trust - EQ/VQN Kqmpen Emerging Markets

2,715,990 

1.11 

2

 Deutsche India Equity Fund

3,166,001 

1.29 

3

 Merrill Lynch India Equities Fund Mauritius Ltd

3,542,473 

1.45 

4

 Ward Ferry Management Ltd A/C WF Asian Smaller

4,268,064 

1.74 

5

 Morgan Stanley Investment Management Inc A/c Morgan

3,888,224 

1.59 

6

 Life Insurance Corporation of India

3,429,892 

1.40 

7

 Franklin Templeton Mutual Fund A/c Franklin India

3,200,000 

1.31 

8

 Morgan Stanley Mutual Fund A/c Morgan Stanley Growth

3,675,000 

1.50 

 

 Total

27,885,644 

11.39 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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

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

 

Investment Rationale:

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

 

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

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

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

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

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

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

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

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

                         Satyam Computer Services Ltd

 

Scrip Code :  500376

Quarter ending :  September 2008

 

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

 

Sl. No.

Name of the Shareholder

No. of Shares

Shares as % of Total No. of Shares

1

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

23,800,000 

3.53 

2

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

23,000,000 

3.42 

3

 ICICI Prudential Life Insurance Company Ltd

16,621,682 

2.47 

4

 Lazard Asset Management LLC A/c Lazard Emerging Markets Portfolio

14,490,567 

2.15 

5

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

10,680,500 

1.59 

6

 Life Insurance Corportion of India

9,959,281 

1.48 

7

 Citigroup Global Markets Mauritius Pvt

8,203,186 

1.22 

8

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

8,179,448 

1.21 

9

 LIC of India Money Plus

7,941,345 

1.18 

10

 Swiss Finance Corporation Mauritius Ltd

7,515,806 

1.12 

11

 Government of Singapore

7,128,885 

1.06 

12

 Morgan Stanley Mauritius Company Ltd

7,096,342 

1.05 

 

 Total

144,617,042 

21.47 

 

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

 

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

 

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

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

 

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

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

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

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

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

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

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

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

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

 

Prajay Engineers Syndicate Ltd: Accumulate on all declines;

BSE Code: 531746

Face Value: Rs.10

CMP: Rs.17.70

Book Value: Rs.152.34

EPS: Rs.17.87

P/E: 0.99

Dividend: 25%

Market Cap: Rs.70.26 Cr

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

 

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

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

 

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

 

 

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

 

Sl. No.

Name of the Shareholder

No. of Shares

Shares as % of Total No. of Shares

1

Copthall Maritius Investment Ltd

1,808,085

4.55

2

Goldman Sachs Investment Mauritius Ltd

852,543

2.15

3

Citigroup Global Markets (Mauritius) Pvt Ltd

2,130,796

5.37

4

ABN Amro Bank N.V. London Branch

1,518,952

3.83

5

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

1,487,223

3.75

6

Morgan Stanley Investments Mauritius Ltd

617,200

1.55

7

Swiss Finance Corporation Mauritius Ltd

1,047,459

2.64

8

S Madhuri Reddy

410,000

1.03

9

N Ravinder Reddy

2,020,100

5.09

10

Merlin Securities Ltd

5,336,134

13.44

11

GRA Finance Corprate

457,701

1.15

12

Clsa Mauritius Ltd

1,361,942

3.43

13

ABN Amro Bank N.V. London Branch

424,211

1.07

14

 BSMA Ltd

760,000 

1.91 

15

 Deutsche Securities Mauritius Ltd

2,358,893 

5.94 

 

 Total

22,591,239 

56.91 

 

 

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

 

Standalone Result of Prajay Engineers Syndicate Ltd

 

Type

Un-Audited

Un-Audited

Un-Audited

Un-Audited

Un-Audited

Audited

 

Period Ending

30-Sep-08

30-Jun-08

31-Mar-08

31-Dec-07

30-Sep-07

31-Mar-08

 

No. of Months

3

3

3

3

3

12

 

Description

Amount (Rs. million)

 

Net Sales / Interest Earned / Operating Income

418.44

222.10

907.03

1,369.56

462.46

3,440.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income

1.92

1.78

6.83

0.96

0.91

9.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Income

420.36

223.87

913.86

-

463.37

3,450.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditure

-270.24

-144.32

-904.12

-

-200.17

-2,061.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

-27.06

-24.94

-11.61

-27.97

-27.69

-90.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit Before Depreciation and Tax

123.06

54.61

-1.87

-27.97

235.51

1,297.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

-9.11

-8.66

-7.89

-

-4.96

-22.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before Tax

113.95

45.96

-9.76

705.01

230.55

1,274.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax

-39.03

-15.92

-41.06

-49.75

-76.58

-246.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Profit

74.92

30.04

-50.82

655.26

153.97

1,028.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Capital

396.96

396.96

396.96

275.91

248.57

396.96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS after Extraordinary items

1.89

0.76

-1.85

25.47

6.58

37.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS after Extraordinary items

1.89

0.76

-1.85

17.32

4.05

37.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nos. of Shares - Public

33,178,576.00

33,178,576.00

33,178,576.00

22,473,112.00

20,017,152.00

33,178,576.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of Shares-Public

83.58

83.58

83.58

81.45

80.53

83.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit Margin

35.88

35.82

1.07

-

56.91

40.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Profit Margin

17.90

13.53

-5.60

47.84

33.29

29.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash EPS

2.12

0.97

-1.08

-

6.39

26.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

Notes

Notes

Notes

Notes

Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Detailed

Detailed

Detailed

Detailed

Detailed

Detailed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Highlights:

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

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

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

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

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

 

Investment Rationale:

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

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

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

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

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

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

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

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

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

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

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

 

Conclusion:

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

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

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

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

 

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