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 .......

Gitanjali Gems Ltd: Buy

CMP: Rs.61.90

Book Value: Rs.287.39

Key world markets for Gems and Jewelry

Introduction: Gitanjali Gems is one of the largest integrated diamond and jewelry manufacturers and retailers in India. Its presence across the entire value chain gives it the scale that it enjoys. Founded as a single company, cutting and polishing diamonds for the jewelry trade at Surat, Gujarat, in 1966, the Gitanjali Group became, many times over, a pioneer among major diamond and jewelry houses. Business model now integrates all operations, from rough diamond sourcing, cutting, polishing and distribution, and jewelry manufacture, to jewelry branding and retail, as well as global lifestyle brands, in India and abroad. It is the first to offer diamond studded jewelry at affordable prices, of standardised designs, quality and pricing across locations – progressively precision-producing replicable designs using the latest CAD and CAM processes and equipment. The Group’s  factories  are  strategically located in Surat and Hyderabad where the diamond industry  thrives. It has won over 50 awards from the Ministry of Commerce, India for outstanding exports of diamond and jewelry, is today over $3000 million multinational group, and a publicly listed entity. Its operations span, all the way from USA, UK, Belgium, Italy and the Middle East to Thailand, South East Asia China, and Japan.

Shareholding Pattern: The promoters hold 36.08%, while the general public holds 63.92% of the shares

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of the company. The institutions hold 20.31% shares of the company. The FIIs hold 15.35% while the DIIs hold 4.97% of the shares of the company.

Results: For Q1FY15, the total revenues of the company came as Rs.1534.39 Cr as against Rs.1158.35 Cr in Q4FY14 and Rs.2565.64 Cr in Q1FY14.  The net profit of the company for Q1FY15 came out to be RS.7.97 Cr as against  a loss of Rs.34.97 Cr in Q4FY14 and Rs.5.94 Cr in Q1FY14. On a Y-o-Y, the company's EPS has also improved in Q1FY15. Sequentially speaking the interest cost has come down to Rs.109.89 Cr in Q1FY15 as against Rs.112.78 Cr in Q4FY14, showing initial signs of a turnaround.
On a consolidated basis the net profit of Gitanjali Gems Ltd declined 71.11% to Rs.10.15 crore in the quarter ended June 2014 as against Rs.35.13 crore during the previous quarter ended June 2013. Sales declined 47.11% to Rs.2072.87 crore in the quarter ended June 2014 as against Rs.3919.18 crore during the previous quarter ended June 2013.

Triggers: 

• The company significantly rationalized its operations costs: primarily the manpower and administration

  

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  costs. The company has identified opportunities of growth, by bringing about significant changes in the business model. It has now decided to focus more on studded jewelry which is not only margin accretive but has also been its core competency, while offering better value additions--the focus is also segments like alternative metals and low carat gold. With its strong portfolio, manufacturing capabilities, and wide-spread distribution, the company is very well positioned to undergo this transformation. 
• During FY14, the company also further strengthened and consolidated its international presence in markets like the US, Middle East, Japan and China. The recent regulations attributed to the company, shifting focus to its international market which grew to contribute to around 60% of the group's revenue in FY14.  
• The branded jewelry that Gitanjali manufactures includes: diamond  studded  and other  precious stones studded jewelry. The Group has produced branded jewelry in India for over 20 years. During FY14, Gitanjali upgraded all its diamond and studded  jewelry  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.
• Gitanjali over the years has graduated through the various stages of the value chain to move from the diamond manufacturing business to jewelry manufacturing and retailing to unlock maximum value which  accrues  through  downstream expansion. Having introduced the first diamond jewelry brand “Gili” in India in 1994, Gitanjali has pioneered the branded jewelry revolution in the country. It has changed the way jewelry 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 jewelry with its Viola Italia range of jewelry. This  vibrant  new  collection  is  the  company’s endeavour to cater to a wider audience and ensure that need-gaps in the market are addressed. 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 company intends to increase its international business with complementary categories like platinum, precious stones and silver jewelry. The focus is on capitalizing on the high margin mature markets such as the US and Japan and also on the rapidly growing markets like Middle East. As a step in this direction, the company recently entered into a strategic alliance with Paris Gallery, Dubai to retail its jewelry brands to the Indian diaspora in UAE. The also intends expanding in emerging markets such as Russia, Africa and South East Asia through its distribution channels.
• Currently  the  company  distributes  its  jewelry 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.
• As mentioned earlier, the Group is present across in the top five global diamond jewelry markets – USA, Japan, Middle East, China and India. The USA is the largest diamond jewelry market in the world. Gitanjali enjoys a retail presence through over 104 doors of its retail chain Samuels Jewels Inc. The  Samuels  chain  has  exclusive designer jewelry  collections  and  a  large  selection  of loose and mounted diamonds under brands such as  “Samuels Jewelers”,  “Schubach  Jewelers”, “Samuels Diamonds”,  “Rogers  Jewelers”  and “Andrews Jewelers” which are primarily targeted at middle and upper middle class consumers in the United States. Samuels’ retail chain is positioned as a wedding jeweler with category focus on bridal collections in the United States. The Group also distributes its jewelry to other local players in the US. The Group’s US business has been witnessing a steady growth of around 10-12% on year on year basis. The US  being  the largest diamond jewelry market with superior margins, is one of the most ambitious markets for Gitanjali.
• The UAE is another significant market for jewellery in the world. Gitanjali retails its Jewellery from the bouquet  of  Gitanjali’s  Indian  brands  such as  “Nakshatra”, “Gili”, “Asmi”,  as  well  as  the collection  of  Italian  brands  such  as  “Stefan Hafner”,  “Nouvelle  Bague”,  “IO  SI”,  “Porratti” and “Valente”. Gitanjali also recently entered into a tie-up with Paris Gallery to retail its jewelry throughout UAE. The Group currently distributes its jewelry through 4 retail stores and over 50 SIS in local jewellers as well as through duty free stores at Dubai airport.  Japan  is also one of the largest consumers of diamond jewellery in the world. The Group has a minority stake in a listed Japanese entity – Verite and supplies to over 100 stores of Verite in Japan. The Group also has 20% stake in Gems TV which is a jewellery selling TV channel in Japan. The Group incorporated Leading Jewels of Japan KK (LJJ)  which sources jewellery from Gitanjali Group’s manufacturing facilities in India, China and Thailand and distributes this jewellery to some of the largest customers in Japan. The large team of Jewellery designers from India, China and Thailand supports to customize  according  to local  tastes and requirements of Japan. LJJ also distributes the Group’s Italian brands “Stefen Hafner”, Nouvelle Bague”,  “IO  SI”,  “Porrati”  and  “Valente”  to customers in Japan.
• Other  International  Markets-  The  Company distributes  its  jewelry  internationally  through its subsidiaries  in  USA,  Hong  Kong,  Thailand, Belgium, Italy and China. These subsidiaries supply within their local markets as well as other global markets such as Australia, Russia, UK and other parts of Europe. Its customers include jewelry manufacturers, wholesalers and large retailers.
• With INR more or less stabilizing against the USD, adverse effects due to this factor, has been reduced considerably. Moreover, Gold demand will get a boost as festivals such as Diwali approaches. Also, owing to Thanksgiving, Christmas and New Year celebrations in the coming months, the group’s retail arm in the USA, Samuels Jewels Inc  is likely to witness good rise in sales. Besides, the overdue installment of ECB as at of March 31, 2014 was paid in June 2014. The delay was due to liquidity challenges which Company is facing.
• The branded retail jewelry market is growing at a robust rate and going forward, many domestic and international brands would capture substantial market size given number of factors like increased urbanizations and changing demographics. As a matter of on-going practice, the masses still prefer to purchase jewelry from their tried and trusted jewelers but the constant exercise of ‘branding’ through advertising and other sales promotional activities has ensured steady inflow of new customers in this segment of organised retailing. India’s small and independent jewelers are starting to organize themselves and expand in size to share a common brand identity and marketing strategy.
• It has in-house manufacturing capacity of nearly half a million pieces of finished jewelry per month ensures consistent supply, economies of scale and flexibility to adapt to changing consumer needs rapidly.
• Indian diamond jewelry manufacturers and exporters are currently witnessing a rebound on consumer sentiment both India and abroad ahead of the festive seasons. Jewelry sales in the domestic markets are expected to remain robust during the ongoing festive season beginning Dussehra. The festive glitter was added with a decline in food inflation which left more disposable income at the hands of consumers. The upbeat business sentiment is likely to add glitter to the festive jewelry demand. Also, the steep fall in gold and silver prices has made investment in diamond jewelry attractive. The long term fundamental of the diamond industry remains strong and robust despite liquidity squeeze because of the closure of Antwerp Diamond Bank. Diamonds sales are growing in emerging markets including China and India. In fact the Indian diamond processors have seen a robust consumers trend after months of lull sales.Both Domestic and global markets show a positive sign in the coming festive, wedding and thanksgiving season which comprises over a third of annual sales. The economic uptrend in the United States has increased jewelry orders to India. Experts estimate 10-15% jump orders for this festive season which will reflect in October's gems and jewelry export figures..

Caution: The  Company  is  passing  through  difficult  financial conditions due to extraneous factors beyond its control viz, restrictions imposed in revised gold policy and increase in import duty on gold. It is in discussion with LIC for realignment of outstanding debt obligations in respect of non convertible debentures and  the  management  is confident  that  the same will be realigned shortly. Once it is realigned, cash deposit will be created as required by circular 4/2013 dated February 11, 2013 issued by ministry of corporate affairs. LIC currently holds 4.59% of the shares of the company.

Conclusion: Gitanjali has 104 stores of Samuels in the USA, spread across the south-west coast, a minority stake in the 3rd largest chain in Japan (Verite) and a 20% stake in Gems TV (One of Japan’s largest jewelry selling TV channels). Gitanjali also supplies jewelry to 50 retail stores in China and is present via  50 points of sale in the Middle East. Its diversified presence across geographies helps in de-risking its portfolio. The Group is focused on retail expansion. In particular, the major focus for growth is expected to be through the franchise model with a number of flagship stores for support. Gitanjali intends to penetrate Tier 2 and Tier 3 markets in India primarily through franchising. The Group shall continue to increase its online presence through its own portals as well as through strategic tie-ups. In addition, there are plans to further strengthen and consolidate the international presence.
Meanwhile, the luxury jewelry exports from India and demand of luxury jewelry will grow given factors like talented pool of jewelry designers and artisans, low-cost but quality base and understanding the likes and dislikes of end-user market. The Indian luxury market is expected to jump from US$3.5 billion in 2010 to approximately US$30 billion by 2015 and a significant majority of about US$9 billion will be jewelry (Source: Solitaire Magazine - GJEPC, May 2011 issue). In India major driver for luxury jewelry is wedding related primarily bridal jewelry which forms over 50% of jewelry sales. The other major drivers are festivals and special occasions. With festival season continuing and wedding season about to begin, the company is expected to witness a jump in its sales.
Now at the CMP of Rs.61.90, the scrip seems to have formed a bottom of sorts. The investors are suggested to buy the scrip for a target of Rs.72-75, in the short term. The long term target for the scrip is Rs.500, plus. The point is that, when the company is taking all the measures to revamp its operations and the green shoots are already seen, this becomes a MUST BUY for the long term investors at the current price.