Thursday 13 November 2014

ARSS Infrastructure Projects Ltd: Buy
CMP: Rs.44
Book Value: Rs.239.76
P/E: 1.58
Industry P/E: 27.69

Introduction: ARSS Infrastructure Projects Limited (the company) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The Company is engaged in execution of contracts of various infrastructure projects including road work, bridge work, railway tracking and irrigation projects
ARSS Infrastructure Projects Ltd is one of the fastest growing construction companies of India, focusing on infrastructure construction segment including highways, buildings and railways. Incorporated in 17th May 2000 by a group of professionals, it has completed 80 projects across India, with aggregate contract value of over Rs.7000 million, for various clients all over India.
ARSS has a unique business model, with proven expertise in innovative thinking, project and cost management. ARSS, as an industry leader in engineering construction, currently nurtures projects that span across such diverse segments as railways, real estate and highways.

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

Triggers:
  • The Company is presently concentrating on major projects and abandoning small and non remunerative projects. Conducive political environment and stable government would be helpful for the industry to revive and gain momentum.
  • The Company has an order book of more than Rs.2000 core in hand. The company is one of the major player in infrastructure sector in Eastern India and is expected to be a major beneficiary of the current set of the REFORMS undertaken by the NDA government.
  • During the financial year FY14, the turnover of the Company has gone up to Rs.901.42 Cr from Rs.770.98 Crores in the previous financial year with a profit margin of Rs.1.67 Crores as against a loss of Rs.64.59 Crores in the previous year. The financial result of FY14 were marginally better due to strict adherence to cost cutting, abandonment of loss making projects and proper utilization of resources. Moreover, the company achieved turnaround in business even though the infrastructure industry all over India is passing through a very tough phase. Now with favourable government policies and NDA Government's thrust on the infrastructural development, the management is hopeful of better performance in FY15.
  • The Company has an order book of more than Rs.2000 Crore, which includes the following major works:
    a) Supply and installation of track (excluding supply of rails) Signaling and overhead equipment (OHE) & associated equipment for 25 KV AC traction, in connection with doubling of railway line between Barang - Rajatgarh (25 KM) Cuttack Barang (12KM) and 3rd line between Barabg Khurda Road (35KM) in the State of Orissa, India with a contract value of Rs.210.69 crores.
    b)  Construction of new 2 lane Highway from Km 38.00 to Km 71.00 (Length=33 Km.) in Mizoram in Phase “A” of SARDP-NE (Package-II), having a contract value of Rs.190.18 crores.
    c) Balance work of construction of Roadbed including Minor and Major Bridges, facilities and General Electrification for doubling of Railway line between Barang-Rajatgarh (excluding Ghantikal-Naraj Section), Cuttack- Barang and 3rd line between Barang- Bhubaneswar in the State of Orissa, having a contract value of  Rs.158.47 crores.
    d) Widening to 2-lane and improvement in km 0.00 to 102.9 of Paralakhumundi -R. Udayagiri-Mohana Road (S.H.-34) under LWE Scheme, with a contract value of Rs.153.91 crores.
    e) Construction  of  BRTS  Corridor  and  development  of  road  Contract  for  Package  No.  IIB: Sanganer  Airport  to 22Godam Via Rambagh crossing including Elevated Road at Durgapura (10.50 Km). (NCSL) with a contract value of  Rs.130.00 crores.
    f) Construction of earthwork, bridges, supply of P-way material, supply of ballast and P-way linking for proposed private railway siding taking off from Chacher railway station to in plany yard and including inplant yard of NTPC Mauda (but excluding works within railway boundary and excluding rail over rail bridge) Dist Nagpur (M.S.) with a contract value of  Rs.114.49 crores.
    g) Improvement of existing intermediate lane of NH-44 Rathachera - Chauraibari section to two lane with paved shoulder from Km 230/200 to Km 247/000, Km 260/109 to 261/761 & Km 271/00 to 284/053 (Aggregating to = 30.279 Km) under SARDP-NE in Assam under Silchar NH-Division in State of Assam with a contract value of  Rs.104.04 crores.
    h) Earthwork in formation (excluding Blanket), minor bridges between Km 19.000 to Km. 47.000 and 3 nos. of Steelgirder bridges, 8 no.s of Road Over Bridges between Km 19.000 to Km 67.000 in connection with Angul-Sukinda new railway BG line in the state of Odisha, India. With contract value of Rs.144.00 crores.
    i) Contract Package 3: “BOLANGIR (Excl) - TITLAGARH (Incl) section (63.193 Kms) part of SAMBALPUR-TITLAGARH Doubling in SAMBALPUR Division of East Coast Railway in the states of ORISSA, India with a contract value of  Rs.106.52 crores.
    j) Widening & Strengthening of Parvatipur - Laxmipur road (SH-51) from 12/600 to 42/830 Km, 44/280 to 53/900 Km, 54/900 to 59/200 Km and 65/180 to 68/380 Km on EPC mode with a contract value of Rs.96.50 crores.
  • The Company is well on its course to meet its growth targets despite increase competition. Effective business strategies have allowed the Company executing projects in a timely manner and economies on critical resources though joint venture in large projects. The foray into high potential business of railways, roads and bridges has been successful during the year FY14 and boosted the order in flow. The Company is strengthening its manpower for execution of high value projects and adding assets for development of infrastructures to complete all contracts in time.
  • The Indian Infrastructure sector is poised for growth with the present political machinery taking charge in New Delhi. Moreover, the Company does not have any accumulated losses at the end of the financial year FY14 nor has it incurred any cash losses in the financial year H1FY15.  
Financials: For FY14, the company clocked a turnover of Rs.908.34 Cr as against Rs.780.50 Cr in the same period previous year. The PBDT of the company for FY14, cam out to be Rs.36.39 Cr against a loss of Rs.24.42 Cr showing turnaround in the year under review. The net profit of the company came out to be Rs.1.67 Cr against a net loss of Rs.64.59 Cr in FY13. The total Reserves and Surplus  at the end of FY is Rs.3,410,349,527 (or Rs.341.04 crores).

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

Conclusion: The company is a major player in the Indian Railways Sector and is expected to be a major beneficiary of the current set of the REFORMS undertaken by the NDA government. The book value of the shares of the company is Rs.239.76, while the market cap is only Rs.68.28 Cr. The P/E of the company is 1.58, against the industry P/E of 27.69. The traders can buy the scrip of the company at the CMP of Rs.44, for a short term target of Rs.53.
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Tuesday 4 November 2014

Prajay Engineers Syndicate Ltd: Buy
CMP: Rs.10.43
Book Value: Rs.94.92
Market Cap: Rs.72.94 Cr
All Time High: Rs.440-plus. 

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

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

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

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

Segment wise– Product wise performance:
Today, Prajay Engineers Syndicate is amongst the largest real estate developers in Telangana with millions of
Celebrity Club Shamirpet
square feet of developable area under it; featuring residential, commercial and retail projects. Throughout its operations, Prajay has aimed to deliver superior value to all stakeholders through extraordinary and imaginative spaces created out of deep customer focus and insight. A detailed status of projects undertaken/proposed to be undertaken by the company is briefed below:
  • Prajay Waterfront City situated at Murharpally Village, Shamirpet – Water front City is spread across 72 acres of premium property, overlooking a large natural lake offers an alluring lifestyle and is nearby Genome Valley. This property is well developed and approved by DTCP with all gated community features and nearest to Alexandria, a multi crore Biotechnology SEZ. This project work is completed 90% in all respects and got 5% bookings during the year thereby aggregating to 80% of the first phase of the project.
  • Prajay Virgin County (SPV Project) situated at Baghmankhal Village, Maheshwaram Mandal, R.R. District – due to its proximity to International Airport, ORR, Hi-tech city / Gachibowli Financial District and other companies like FAB city, TATA aerospace, Adibatla, the project, since its launching, has achieved 90% of sales in villa segment. Due to the political and economic scenario prevailing in the country and especially in the State after bifurcation, only a little portion in the apartment segment is sold so far. All the infrastructure works in the villa parcel are completed and around 40 villas have been handed over and few families have started living therein. The civil structure for 10 towers consisting of 432 flats in phase I of apartments is completed and the balance work is taken up at a slow pace considering the present market offtake.
  • Prajay Megapolis (SPV Project) situated at Hafeezpet Village, Serilingampally mandal, R.R.District– it is one of the prestigious projects of the company spread across 21 acres and will comprise around 3200 plus flats with 5762778.44 sq.ft built up area including parking comprising of 3 cellars, ground + 18 upper floors with all gated community facilities. First phase of the project consists of three blocks 9 towers consisting 1113 flats of different sizes. During the year under review only 20 flats have been sold (after accommodating the cancellations in second phase). Construction work in Three Blocks (comprising of 9 Towers) is in an advanced stage and it is planned to hand over possession of one block by June 2015 and rest of the blocks with a time gap of 6 months each.
  • Prajay Gulmohar situated at Kuntloor, Hayathnagar Mandal – a gated community project with 198 independent plots, out of which 73 are independent houses, 89 duplex houses and 36 being villas, is set on 21 acres of land. This project is completed in terms of construction of villas and construction of apartments is in progress. All the villas have been handed over and 50% of the apartment’s portion is sold already.
  • Prajay Princeton Towers situated at L.B. Nagar, Saroornagar Mandal, R.R. District – Princeton Towers project is one of its kind business opportunity in the heart of Saroornagar, LB Nagar with 13 floors – Ground+ 4 floors are meant for commercial purpose, 5th for office space and the rest 7 floors for hotels rooms, restaurant and banquet halls. The project has been funded by a consortium lead by State Bank of India. Part of the commercial space in ground floor and fifth floor is sold. Third & fourth floors are occupied by Future Lifestyle (Brand Factory), first & second floors are being occupied by Bharti Retail Limited (Easy Day) on lease basis. Part of office space in fifth floor is leased to different firms/clients.
  • Prajay Blue Hope (Joint Development with Legend) situated at Abids Road, Hyderabad – Prajay Blue Hope is a commercial cum residential project with 8 floors on 4032 sq. yards and situated at the heart of the city at Abids. Ground and First floor are meant for retail purpose, 2-4 floors earmarked for Office space and the rest 5-8 floors are meant for residential purpose – the construction work is in progress.
Triggers: 
  • The company has a comfortable land land bank of  around 738 acres, most of which were acquired
    Celebrity Boutique Hotel Begumpet
    by the company at low prices long back. Almost whole of the land bank is fully paid, which gives it an edge over its peers. Prajay has currently extended its presence to Vishakhapatnam too, where it is developing over 35 projects with 18 million square feet under construction. The company's emphasis lies on: developing residential, commercial, retail and hospitality projects, aggregating to around 37.57 million square feet over the next five years.
  • During FY14, subdued sales, increased unsold inventory levels and high leverage undermined the real estate/construction sector's overall performance. Moreover, political uncertainty, slow economic growth, sustained weakening of the Indian Rupee, rising inflation and hardening interest rates were the key barriers which cut the demand for the company's products, during that period. Besides this, division of the state of Andhra Pradesh into two, most talked about elections after bifurcation, the forming of new governments, immensely affected the sentiments of the home buyers in the state especially in Hyderabad and its surroundings, where the company still has a major presence. This has made the investors choose wait and watch policy. Hence the overall performance of the company was affected and the revenues were reduced by around 40% in FY14 when compared to FY13's revenues. However, although the financial year 2013-14 was a difficult year for the real estate sector the long term potential for the sector remains intact.. With the real estate markets and customers sentiments closely correlated to the overall growth in the Indian economy, the company  hopes to show better performance in the coming quarters. 
  • As the political uncertainty in the city ended with the formation of Telangana state and installation of a new government, the company believes that the market has turned positive. With World class international airport, outer ring road and metro, Hyderabad is in the forefront to emerge as a global city. Telangana government is committed to improve brand Hyderabad.
  • The company has a market cap of only Rs.72.94 Cr, against a mammoth land  bank and an array of projects on the anvil. Moreover, as of 31st March, 2014, the company has a reserve of Rs.587.07 Cr on its books, which is expected to provide it the necessary cushion, in case of any adverse circumstance.  
  • Hyderabad has already emerged as one of the best Tier-II cities in terms of being an IT/IT-enabled services outsourcing hub. This has led to soaring land values and demand for residential and commercial space in the city. Prajay has the advantage of being a `local player' with a comfortable land bank accumulated over time, thus averaging the cost. This may give the company an edge over bigger players from the North that are foraying into this city. 
  • Further, being an IT hub, has also increased the air passenger traffic in Hyderabad, which is likely to Translate into higher demand for hotel rooms. Also PESL has raised adequate funds for the purpose of setting up / acquire Hotels, Resorts or properties of similar nature.
  •  IT/ITeS, financial and services segments continued to drive demand for office space in India’s leading cities, like Hyderabad. In the long term, commercial real estate is expected to witness robust demand with an increasing number of companies looking to expand operations and setting up offices in suburban locations. Issuance of new banking licenses has already stimulated the demand from the BFSI sector. The market is likely to further pick up momentum with more corporate houses looking at buying property instead of leasing.
  • As india’s retail industry aggressively expands itself, great demand for real estate is being created. Favorable demographics, increasing urbanization, nuclear families, rising affluence amid consumers, growing preference for branded products and higher aspirations are other factors which will drive retail consumption in India. Net supply of retail space in shopping malls in india’s top 7 cities including Hyderabad is expected to more than double in 2014. Cities such as Delhi, Hyderabad and Bangalore will witness good supply of retail space, largely around the expanding city peripheries. Due to the limited supply of modern retail spaces in those areas, this new supply will meet with reasonably favourable pre-commitments.
  • In the real estate space, the Company expects demand from the mid income residential segment to remain strong as it believes that there is significant demand in this category across the country and state as well. Moreover,  the recent relaxation of norms for the FDI in construction sector, by the NDA government, increasing disposable incomes, rapid urbanization and strong demographics are some of the trends which are likely to shore up the financials of the companies like Prajay Engineers Syndicate Ltd.
  • Some of the developments that have taken place and being taken up in the State after bifurcation that is likely to help real estate sector and the companies like Prajay Engineers Syndicate Ltd to develop rapidly in the next few years are:
    (i) Centre has approved an ITIR for Hyderabad to promote IT, ITeS and electronic hardware manufacturing units.
    (ii) State government is inviting Adlabs to set up an international theme park and Adibatla is currently being considered as the location.
    (iii) A team from Hero Motocorp has visited Hyderabad, in look out for suitable location to put up a manufacturing facility in south India and short listed 360 acres of land in Adibatla.
    (iv) Department of Electronics and Information Technology at the centre has approved setting up of two Greenfield Electronic Manufacturing Clusters (EMCs) in Hyderabad with an outlay of 940 crores of which the first cluster will come up at outskirts of Hyderabad beside Tukkuguda and second at Maheshwaram, R.R. District near Prajay Virgin County Project. With the Telangana government announcing plans to develop Hyderabad as a global city, the real estate developers expect 40-50% increase in the prices over next six to 8 months. Redevelopment in Hyderabad offers a tremendous opportunity with a significant number of buildings to be redeveloped in the next decade.
  • The real estate sector performance is directly bound by a country’s economic fundamentals and monetary policies. Monetary easing initiatives which are likely to commence from February, 2015 will provide an impetus to housing demand. Even a nominal roll-back in rates can positively impact sentiments and encourage home buyers and real estate developers. Moreover, Real Estate Regulation and Development Bill, 2013, aims to bring in a high level of transparency in real estate transactions in India and implementation of projects. State Governments, along with the Ministry of Consumer Affairs, the Competition Commission of India, the Tariff Commission among others have backed the Bill. Foreign Direct Investment (FDI) in Real Estate Currently up to 100% FDI was earlier allowed in the real estate sector through the automatic route. With an increased need of meeting the growing housing demands in India in the affordable category, the Ministry of Housing and Urban Poverty Alleviation made proposals in August 2013 to ease FDI norms in real estate projects; which was implemented by the present NDA government. 
  • Real Estate Investment Trusts (REITs) primarily invest in completed real estate assets that generate revenue and the majority of their earnings are distributed among investors. REITs are thus a low-risk investment avenue providing regular income. To attract foreign investment SEBI released draft guidelines on REITs in 2013. This move is expected to attract retail investments. Moreover, due to a shortfall of bank funding, the real estate sector has benefited strongly from Private Equity (PE) investments. Entry of PE participants has led to higher efficiency, execution and transparency. In the coming years, India’s real estate sector is expected to gain healthy transaction from a PE perspective.
  • The prospects of India’s real estate sector are closely linked with the state of the economy. The overall economy has been weakened in the recent years with GDP growth, fiscal deficit, current account deficit and inflation being at unfavorable levels. This has impacted consumer and business sentiment adversely affecting demand across residential, commercial and retail segment. Besides, unfavorable changes in government policies and the regulatory environment has also adversely impact the performance of the sector. There were substantial procedural delays with regards to land acquisition, land use, project launches and construction approvals during the last few years. However, all this is likely to improve in the coming months, with the coming of a new government at the center. 

 Conclusion: India’s gripping urbanization growth story has been fascinating global investors so far. Now, with the new NDA government taking charge, we can look forward for a rapid economic growth which might  give a kick to the  much talked about Indian consumption story. Moreover, a shift in business mix to hospitality sector would lend further support to the margins.
Chartically speaking, at the CMP of Rs.10.43, the scrip is above all the major averages (21D, 50D, 100D, 150D and 200D), which gives the much necessary ammunition to the bulls. Moreover, MACD, RSI and other parameters are more or less, in the buy mode. The investors can buy the scrip at the CMP of Rs.10.43 for a short term target of Rs.14 and medium term target of Rs.21.. 
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Saturday 1 November 2014

Hilton Metal Forging Ltd: Buy
CMP: Rs.19.55
Book Value: Rs.48.97
P/E: 10.80
Industry P/E: 36.62
Introduction: Hilton Metal Forging Ltd (HMFL) is one of the technology leaders in the forging industry providing the highest quality products and services for a one stop solution to cater to all your forging needs. With an enviable reputation for quality products we are fully equipped to carry our reputation as "FORGING LEADER". It stands among the elite along with its engineers and application experts. HMFL caters to: Oil & Gas Sectors, Petrochemical & Refineries, Marine & Ship Building, Paper & Pulp and Agricultural Sectors. HMFL has got imported as well as indigenously developed machinery and manufacturing facilities to produce all kinds of its products. The company has got in house capability and facilities to meet the forging process, Heat treatment, Machining Process and Testing Laboratory. HMFL has been recognized in the World Wide Market for the supply of Flanges, Stub Ends, Elbows, Bonets,Valve body and other Forged products and also has been appreciated by various customers for not only the good quality products but also timely deliveries. HMFL is maintaining a very good relation with its customers since past decades. It has also achieved certifications like ISO 9001:2000 from RWTUV-GERMANY and was also successful to get a Certification from Defence Ministry as a Preferred Vendor Supplier for supply of forged components.

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

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

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

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

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

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

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

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