Pick of the Week:

Linc Pen and Plastics Ltd

BSE Code: 531241

CMP: Rs.66.85

Book Value: Rs.32.58

EPS: Rs.6.06

P/E: 11.02

Industry P/E: 32.32

Dividend Yield: 2.69%

Market Cap: Rs.85.41 Cr

Introduction: Linc Pen & Plastics Ltd was incorporated in 1994 by Mr. S M Jalan and listed on the stock exchanges (BSE and CSE) in 1995. The Company is a leading manufacturer, marketer and exporter of writing instruments and stationery products. It is one of the largest manufacturers of ballpoint and gel pens, refills, pencils and stationery accessories in India. At present it sells more than 1.5 million pens a day. Its product portfolio comprises over 50 products. It provides mass pens, premium pens, pencils, erasers and allied stationery products.

Its manufacturing units are certified for ISO 9001:2008. It also market products manufactured by Mitsubishi Pencil Co. Ltd, Japan (‘Uniball’ brand). It market products manufactured by C. Joseph Lamy GmbH, Germany (‘Lamy’ brand). It is headquartered in Kolkata, West Bengal. The company has five offices across India, catering to dispersed national needs. Its products enjoy a presence in more than 30 countries. Its manufacturing units are located in Falta SEZ and Serakole in West Bengal. The company’s operations are supported by a strong network of around 49 exclusive channel partners, 2,591 distributors and 194 sales representatives. Its products are also available across 12 direct retail fronts (‘Office Linc’ and ‘Just Linc’ stores). The bulk of its revenues come from Pen (75%) refill (11-12%) sections. In 2003 Linc entered the global market through private label supplies to Wal-Mart, the retail giant of USA. Linc introduced a gel pen – ‘Ocean gel’ at Rs.5, a first of its kind in India.

Shareholding Pattern: The promoters hold 69.14% of the shares of the company while the general public holds 30.86% of the shares of the company. The corporate bodies hold 12.13% of the shares of the company.

Financials: For FY11, the company came out with good set of numbers: the total income of the company for FY11 came out to be Rs.225.65 Cr as against Rs.192.38 Cr in the same period previous year. The net profit of the company came out to be Rs.8.39 Cr as against Rs.5.04 Cr in the same period previous year. This is on an expanded equity of Rs.12.79 Cr. The EPS of the company for FY10 came out to be Rs.6.57 as against Rs.6.30 in the same period previous year. Moreover, both the net and operating profit margins increased during this period comparing on Q-o-Q basis.

For Q3FY11, the total income of the company came out to be Rs.67.48 Cr as against Rs.56.06 Cr in the same period previous year. The net profit of the company for Q3FY11 came out to be Rs.1.82 Cr as against Rs.2.49 Cr in the same period previous year. The net profit got affected due to higher price of raw materials.

Industry Overview: The global writing instrument market is estimated at US$12.3 billion. The Indian writing instrument industry is estimated at Rs.24 billion (organized presence Rs.19 billion). Since the industry is price-sensitive, brand recall is critical. The Indian stationery market is expected to grow 10% annually till 2012. With the Indian government laying an emphasis on education, more schools are being built, which will drive the offtake for stationery products. India is also emerging as an outsourcing hub of multinational companies, resulting in an attractive growth in stationery offtake.

The low-priced pen segment (Rs.2 to 5) accounts for a large proportion which is marked by the absence of brands; where consumer loyalties shift in response to marginal price shifts. The premium/super premium writing instruments extend beyond functional utility, serving as style statements. The Indian writing instrument industry is competitive with low entry barriers and a large presence of unorganized players beyond tax and other statutory obligations. The share of the organized sector is increasing owing to stronger innovation, better style, enhanced quality, brand association, pride of use, better packaging and wide distribution. Foreign brands dominate the premium segment (above Rs.50 each). The small-scale industry (SSI) reservation, restricting high capital investment in the writing instruments industry, was removed in 2007-08, making it possible for organized players to enhance capacity and investments.

The industry structure is characterized by the following:

(i) Fragmented, marked by several small local and regional brands

(ii) Industry growth of 5-10% between FY2006-08; 10% growth in 2009-10

(iii) Growing production automation in line with the international industry

(iv) China enjoys a market share of 10% of the US$12.3 billion global writing instrument industry; India’s share is inching upwards following improving product quality

(v) Most Indian players enjoy alliances with global players for marketing their value-added products in India

(vi) Strong competition among brands like Reynolds, Cello, Linc, Montex, Today’s, Lexi, Rotomac, Flair, Stic and small scale players

(vii) Growing incidence of endorsements by celebrities like Sachin Tendular (Reynolds), Shahrukh Khan (Linc), Mahendra Singh Dhoni (Cello) and Yuvraj Singh (Classmate)

(viii) Entry of large multinational companies into India with stakes in Indian companies (French multinational BIC apparently acquired a 40% stake in Cello, valuing the Indian company at around Rs.2000 Cr, significantly higher than the prevailing industry market capitalization)

(ix) Marketing of mass products and high value pens through distributors who cater to the requirement of outlets; Companies like Linc Pen also have direct retail outlets (Office Linc Stores) that market its own products.

(x) Marketing of premium products through multi-brand high-end lifestyle outlets and exclusive shops; these outlets stock watches and accessories with a separate corner for premium brands. Occasionally, these products are supplied directly by manufacturers to the outlets.

(xi) Relative insulation from economic cyclicality and environmental

Triggers:

• In FY10, the Interest cost was down by 40.6% at Rs.1.70 Cr from Rs.2.86 Cr in 2008-09. The Interest / Turnover was 0.8% and Interest Cover was 9.6 in 2009- 10, which were 1.5% and 4.5 respectively in 2008-09. The Company retained its PI rating as regards to Rs.100 Million Commercial Paper Programme of the Company--this rating indicates that the degree of safety with regard to timely payment of interest and principal on the instrument is very strong.
• Linc is on aggressive advertising of its product which is going to deliver good result in the near future, though a short term impact on profitability is seen. Company is rolling out outlets for office stationery under the brand name Justlinc and Officelinc. These retail outlets are based on idea of providing all stationery items under one roof. It has already set up few stores in Kolkata and has started a nationwide rollout.
• The company applied for the registration of its brand in over 30 countries; the company is marketing its products in over 20 countries. The company grew its exports from Rs.39.43 Cr in 2008-09 to Rs.52.18 Cr in 2009-10. The company increased export proportion from 21% of revenues in 2008-09 to 23.5% in 2009-10. The company was also able to penetrate the markets in the Middle East, Africa and Southeast Asia. The Company continued to supply products to demanding international buyers like Sanford, Wal-Mart, TESCO and Poundland, among others.
• In the recent budget there are talks of increasing the allocation for the education sector. Any upward thrust of the government on education sector in the recent budget announcement this week, will benefit the company in getting good orders. Moreover, with the start of new academic sessions of schools and colleges there is already an increased demand of the company’s products.
• In the past, the company had generally focused on exporting under private label brands, relieving it of the pressure to find markets. In 2009-10, 66.8% of its exports were made in its own brand name. In the past, it had focused on capturing a larger share of the mass market marked by low realizations. In 2009-10, the company introduced value-added products and raised the proportion of value-added products (in excess of Rs.10 per writing instrument) from 13% of revenues in 2008-09 to 19% in 2009-10.
• In FY10, the company took four broad initiatives. The company understood that re-branding starts when consumers associated a product with a bigger idea. In view of this the company associated with an icon like Shahrukh Khan for a broad organizational and product sheen that would translate into a higher visibility. The company invested up to 4.4% of its net sales in promotional and visibility exercises, which covered the Shahrukh Khan endorsement and the tie-ups with Kolkata Knight Riders and Rajasthan Royals. The result was that its products began to rise above the clutter of a competitive marketplace. The company also recognized that no brand association can be effective without a change in the product mix. In view of this, the company introduced five major products during the last financial year. The launch of these products did two things for it: they excited the trade, strengthening its reputation as a company that provides retailers a wider product range to market—moreover, it also resulted in additional sales.
• The company has chalked out the following strategies to accelerate growth in 2010-11: (i) widen its international presence further, (ii) increase the volume of its product lines to drive revenue growth, (iii) increase the production of value-added products to strengthen margins, (iv) increase production capacity, (v) invest in promotional activities to enhance brand exposure, (iv) deliver better designs and innovative packaging.
• Linc aims to increase its market share by about 2% in 2010-11, of an estimated industry size of around Rs.24 billion (Rs.19 billion for the organized sector). The company believes that this is achievable, owing to changing lifestyle and consumption patterns on the one hand and increasing literacy on the other. There is a fundamental basis for this optimism: the pen cost, as a proportion of the wallet, is lower today than ever before. Consequently, the company sees the prospects of sustained growth leading to a Rs.5-billion turnover and a five million production mark by 2012-13, with a higher proportion of value-added products.
• Linc enjoys marketing alliances with leading international brands like Uniball (Mitsubishi Pencil Co Ltd, Japan) and Lamy (C. Joseph Lamy GmbH, Germany) for value added products. Linc is among the top three brands in the writing instrument industry in India with a 11-12% market share. In eastern India and UP, Linc’s market share is estimated to be over of 25%.
• Even though OEM supply is declining, Linc’s products were outsourced by global retail giants like
• Walmart, Tesco, Sanford, W. H. Smith and Poundland for their private labels. Linc addresses mass (below Rs.20) and class (above Rs.20) preferences across writing instruments and other related stationery products. There is a strong correlation between the growth in literacy and a growth in the size of India’s writing instrument industry. Hence with the increase in literacy percentage of population, there would be greater sell of company’s products. India’s per capita increased from Rs.40,141 in 2008-09 to Rs.44,345 in 2009-10, creating a basis for enhanced literacy and widening the market for writing instruments.
• Literacy in the 15-19 age groups is expected to increase to 85% by the end of 2011, taking the number of literates in this age group to 103.4 million. According to a 'Status of Adult Literacy in India' study brought out by the National Literacy Mission, literacy rate in the age group of 15 and above, is slated to increase from 61% in 2001 to 67.8% by 2011. The total number of literates in the country is projected to climb from 405.5 million in 2001 to 573.2 million in 2011, an increase of 168 million. Thanks to the Government's programmes for the education sector, including the Sarva Siksha Abhiyan, overall literacy increased 4.5% during the seven years from 1998-99 to 2005-06. "At this rate, about 40 million adult illiterates are estimated to become literate through adult literacy programmes during 2001-11. With this, the literacy rate for age group 15 and above will be around 73% by 2011," the study states. The Eleventh Five Year Plan (2007-12) allocated unprecedented funds for education, outlining the greatest expansion in apex higher education institutions in decades. The Right to Education Bill, which makes primary education a fundamental right, was approved by a parliamentary panel. The new scheme would thus benefit an additional 25 million children, taking the total coverage to about 140 million children. Secondary education also received a major boost for 2008-09, as the sector received an all-time high allocation of Rs.4, 554 Cr. All these are positive for the growth of the company and its products.

Chart Check and Conclusion: From the charts it has been found that the stock has made a rock solid bottom above Rs.64, which is near the 52-week low price of Rs.60.60. The MACD, RSI and Stochastics are more or less in buy mode. The scrip should be accumulated over one year period for a target of Rs.85-90. In these volatile markets it is better to have these kinds of scrips which gives slow but steady returns. However, there is good thrust in the education sector, the stock could shoot upto Rs.85-86, where profit book should be done for the short term.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: This stock was recommended to the Paid Groups on 27th February, 2011. Hence the chartical patterns were based on last week's parameters.

Pick of the Week:

Linc Pen and Plastics Ltd

BSE Code: 531241

CMP: Rs.66.85

Book Value: Rs.32.58

EPS: Rs.6.06

P/E: 11.02

Industry P/E: 32.32

Dividend Yield: 2.69%

Market Cap: Rs.85.41 Cr

Introduction: Linc Pen & Plastics Ltd was incorporated in 1994 by Mr. S M Jalan and listed on the stock exchanges (BSE and CSE) in 1995. The Company is a leading manufacturer, marketer and exporter of writing instruments and stationery products. It is one of the largest manufacturers of ballpoint and gel pens, refills, pencils and stationery accessories in India. At present it sells more than 1.5 million pens a day. Its product portfolio comprises over 50 products. It provides mass pens, premium pens, pencils, erasers and allied stationery products.

Its manufacturing units are certified for ISO 9001:2008. It also market products manufactured by Mitsubishi Pencil Co. Ltd, Japan (‘Uniball’ brand). It market products manufactured by C. Joseph Lamy GmbH, Germany (‘Lamy’ brand). It is headquartered in Kolkata, West Bengal. The company has five offices across India, catering to dispersed national needs. Its products enjoy a presence in more than 30 countries. Its manufacturing units are located in Falta SEZ and Serakole in West Bengal. The company’s operations are supported by a strong network of around 49 exclusive channel partners, 2,591 distributors and 194 sales representatives. Its products are also available across 12 direct retail fronts (‘Office Linc’ and ‘Just Linc’ stores). The bulk of its revenues come from Pen (75%) refill (11-12%) sections. In 2003 Linc entered the global market through private label supplies to Wal-Mart, the retail giant of USA. Linc introduced a gel pen – ‘Ocean gel’ at Rs.5, a first of its kind in India.

Shareholding Pattern: The promoters hold 69.14% of the shares of the company while the general public holds 30.86% of the shares of the company. The corporate bodies hold 12.13% of the shares of the company.

Financials: For FY11, the company came out with good set of numbers: the total income of the company for FY11 came out to be Rs.225.65 Cr as against Rs.192.38 Cr in the same period previous year. The net profit of the company came out to be Rs.8.39 Cr as against Rs.5.04 Cr in the same period previous year. This is on an expanded equity of Rs.12.79 Cr. The EPS of the company for FY10 came out to be Rs.6.57 as against Rs.6.30 in the same period previous year. Moreover, both the net and operating profit margins increased during this period comparing on Q-o-Q basis.

For Q3FY11, the total income of the company came out to be Rs.67.48 Cr as against Rs.56.06 Cr in the same period previous year. The net profit of the company for Q3FY11 came out to be Rs.1.82 Cr as against Rs.2.49 Cr in the same period previous year. The net profit got affected due to higher price of raw materials.

Industry Overview: The global writing instrument market is estimated at US$12.3 billion. The Indian writing instrument industry is estimated at Rs.24 billion (organized presence Rs.19 billion). Since the industry is price-sensitive, brand recall is critical. The Indian stationery market is expected to grow 10% annually till 2012. With the Indian government laying an emphasis on education, more schools are being built, which will drive the offtake for stationery products. India is also emerging as an outsourcing hub of multinational companies, resulting in an attractive growth in stationery offtake.

The low-priced pen segment (Rs.2 to 5) accounts for a large proportion which is marked by the absence of brands; where consumer loyalties shift in response to marginal price shifts. The premium/super premium writing instruments extend beyond functional utility, serving as style statements. The Indian writing instrument industry is competitive with low entry barriers and a large presence of unorganized players beyond tax and other statutory obligations. The share of the organized sector is increasing owing to stronger innovation, better style, enhanced quality, brand association, pride of use, better packaging and wide distribution. Foreign brands dominate the premium segment (above Rs.50 each). The small-scale industry (SSI) reservation, restricting high capital investment in the writing instruments industry, was removed in 2007-08, making it possible for organized players to enhance capacity and investments.

The industry structure is characterized by the following:

(i) Fragmented, marked by several small local and regional brands

(ii) Industry growth of 5-10% between FY2006-08; 10% growth in 2009-10

(iii) Growing production automation in line with the international industry

(iv) China enjoys a market share of 10% of the US$12.3 billion global writing instrument industry; India’s share is inching upwards following improving product quality

(v) Most Indian players enjoy alliances with global players for marketing their value-added products in India

(vi) Strong competition among brands like Reynolds, Cello, Linc, Montex, Today’s, Lexi, Rotomac, Flair, Stic and small scale players

(vii) Growing incidence of endorsements by celebrities like Sachin Tendular (Reynolds), Shahrukh Khan (Linc), Mahendra Singh Dhoni (Cello) and Yuvraj Singh (Classmate)

(viii) Entry of large multinational companies into India with stakes in Indian companies (French multinational BIC apparently acquired a 40% stake in Cello, valuing the Indian company at around Rs.2000 Cr, significantly higher than the prevailing industry market capitalization)

(ix) Marketing of mass products and high value pens through distributors who cater to the requirement of outlets; Companies like Linc Pen also have direct retail outlets (Office Linc Stores) that market its own products.

(x) Marketing of premium products through multi-brand high-end lifestyle outlets and exclusive shops; these outlets stock watches and accessories with a separate corner for premium brands. Occasionally, these products are supplied directly by manufacturers to the outlets.

(xi) Relative insulation from economic cyclicality and environmental

Triggers:

• In FY10, the Interest cost was down by 40.6% at Rs.1.70 Cr from Rs.2.86 Cr in 2008-09. The Interest / Turnover was 0.8% and Interest Cover was 9.6 in 2009- 10, which were 1.5% and 4.5 respectively in 2008-09. The Company retained its PI rating as regards to Rs.100 Million Commercial Paper Programme of the Company--this rating indicates that the degree of safety with regard to timely payment of interest and principal on the instrument is very strong.
• Linc is on aggressive advertising of its product which is going to deliver good result in the near future, though a short term impact on profitability is seen. Company is rolling out outlets for office stationery under the brand name Justlinc and Officelinc. These retail outlets are based on idea of providing all stationery items under one roof. It has already set up few stores in Kolkata and has started a nationwide rollout.
• The company applied for the registration of its brand in over 30 countries; the company is marketing its products in over 20 countries. The company grew its exports from Rs.39.43 Cr in 2008-09 to Rs.52.18 Cr in 2009-10. The company increased export proportion from 21% of revenues in 2008-09 to 23.5% in 2009-10. The company was also able to penetrate the markets in the Middle East, Africa and Southeast Asia. The Company continued to supply products to demanding international buyers like Sanford, Wal-Mart, TESCO and Poundland, among others.
• In the recent budget there are talks of increasing the allocation for the education sector. Any upward thrust of the government on education sector in the recent budget announcement this week, will benefit the company in getting good orders. Moreover, with the start of new academic sessions of schools and colleges there is already an increased demand of the company’s products.
• In the past, the company had generally focused on exporting under private label brands, relieving it of the pressure to find markets. In 2009-10, 66.8% of its exports were made in its own brand name. In the past, it had focused on capturing a larger share of the mass market marked by low realizations. In 2009-10, the company introduced value-added products and raised the proportion of value-added products (in excess of Rs.10 per writing instrument) from 13% of revenues in 2008-09 to 19% in 2009-10.
• In FY10, the company took four broad initiatives. The company understood that re-branding starts when consumers associated a product with a bigger idea. In view of this the company associated with an icon like Shahrukh Khan for a broad organizational and product sheen that would translate into a higher visibility. The company invested up to 4.4% of its net sales in promotional and visibility exercises, which covered the Shahrukh Khan endorsement and the tie-ups with Kolkata Knight Riders and Rajasthan Royals. The result was that its products began to rise above the clutter of a competitive marketplace. The company also recognized that no brand association can be effective without a change in the product mix. In view of this, the company introduced five major products during the last financial year. The launch of these products did two things for it: they excited the trade, strengthening its reputation as a company that provides retailers a wider product range to market—moreover, it also resulted in additional sales.
• The company has chalked out the following strategies to accelerate growth in 2010-11: (i) widen its international presence further, (ii) increase the volume of its product lines to drive revenue growth, (iii) increase the production of value-added products to strengthen margins, (iv) increase production capacity, (v) invest in promotional activities to enhance brand exposure, (iv) deliver better designs and innovative packaging.
• Linc aims to increase its market share by about 2% in 2010-11, of an estimated industry size of around Rs.24 billion (Rs.19 billion for the organized sector). The company believes that this is achievable, owing to changing lifestyle and consumption patterns on the one hand and increasing literacy on the other. There is a fundamental basis for this optimism: the pen cost, as a proportion of the wallet, is lower today than ever before. Consequently, the company sees the prospects of sustained growth leading to a Rs.5-billion turnover and a five million production mark by 2012-13, with a higher proportion of value-added products.
• Linc enjoys marketing alliances with leading international brands like Uniball (Mitsubishi Pencil Co Ltd, Japan) and Lamy (C. Joseph Lamy GmbH, Germany) for value added products. Linc is among the top three brands in the writing instrument industry in India with a 11-12% market share. In eastern India and UP, Linc’s market share is estimated to be over of 25%.
• Even though OEM supply is declining, Linc’s products were outsourced by global retail giants like
• Walmart, Tesco, Sanford, W. H. Smith and Poundland for their private labels. Linc addresses mass (below Rs.20) and class (above Rs.20) preferences across writing instruments and other related stationery products. There is a strong correlation between the growth in literacy and a growth in the size of India’s writing instrument industry. Hence with the increase in literacy percentage of population, there would be greater sell of company’s products. India’s per capita increased from Rs.40,141 in 2008-09 to Rs.44,345 in 2009-10, creating a basis for enhanced literacy and widening the market for writing instruments.
• Literacy in the 15-19 age groups is expected to increase to 85% by the end of 2011, taking the number of literates in this age group to 103.4 million. According to a 'Status of Adult Literacy in India' study brought out by the National Literacy Mission, literacy rate in the age group of 15 and above, is slated to increase from 61% in 2001 to 67.8% by 2011. The total number of literates in the country is projected to climb from 405.5 million in 2001 to 573.2 million in 2011, an increase of 168 million. Thanks to the Government's programmes for the education sector, including the Sarva Siksha Abhiyan, overall literacy increased 4.5% during the seven years from 1998-99 to 2005-06. "At this rate, about 40 million adult illiterates are estimated to become literate through adult literacy programmes during 2001-11. With this, the literacy rate for age group 15 and above will be around 73% by 2011," the study states. The Eleventh Five Year Plan (2007-12) allocated unprecedented funds for education, outlining the greatest expansion in apex higher education institutions in decades. The Right to Education Bill, which makes primary education a fundamental right, was approved by a parliamentary panel. The new scheme would thus benefit an additional 25 million children, taking the total coverage to about 140 million children. Secondary education also received a major boost for 2008-09, as the sector received an all-time high allocation of Rs.4, 554 Cr. All these are positive for the growth of the company and its products.

Chart Check and Conclusion: From the charts it has been found that the stock has made a rock solid bottom above Rs.64, which is near the 52-week low price of Rs.60.60. The MACD, RSI and Stochastics are more or less in buy mode. The scrip should be accumulated over one year period for a target of Rs.85-90. In these volatile markets it is better to have these kinds of scrips which gives slow but steady returns. However, there is good thrust in the education sector, the stock could shoot upto Rs.85-86, where profit book should be done for the short term.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: This stock was recommended to the Paid Groups on 27th February, 2011. Hence the chartical patterns were based on last week's parameters.

PICK OF THE WEEK

Entegra Ltd

BSE Code: 530419

CMP: Rs.29

Book Value: Rs.26.12

Market Cap: Rs.309.89

Introduction: Entegra Ltd is a pioneer in the global arena with an integrated approach to Renewable Energy Development, Solutions, Products and Services. With a portfolio that spans the entire gamut of renewable energy solutions, Entegra Ltd's endeavour is to energies the future with clean, green, sustainable and cost-effective renewable energy solutions. Entegra Ltd in order to create an integrated clean energy portfolio to cater to our ever increasing requirements without endangering nature and restore it for our future generations, is harnessing energy from natural elements - wind, water, sun and earth.

The following are the subsidiary companies of Entegra Ltd:

(i) Maheshwar Hydel Power Corporation Limited (SMHPCL),

(ii) Ennertech Biofuels Limited (EBL) and

(iii) Nevaa Solar Power Company Private Limited (NSPCPL). Nevaa Solar Power Company Private Limited was incorporated as subsidiary company w.e.f. 10.11.2009 to implement the Solar Power Projects in the state of Rajasthan.

Shareholding Pattern: The promoters hold 74.38% while the general public holds 25.62%.

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	Padmini Mercantile Pvt Ltd	4,221,008	3.95
2	Durvish Mercantile Pvt Ltd	2,061,222	1.93
3	Panther Fincap & Management Services Ltd	1,955,000	1.83
4	Ani-Abhi Investment Private Ltd	1,183,462	1.11
5	Anjani Finvest Pvt Ltd	1,439,462	1.35
6	Vidhi Holdings Pvt Ltd	1,439,462	1.35
	Total	12,299,616	11.51

Industry Outlook: India today has one of the largest programmes in renewable energy but still has far to go, as about 70% of its total energy requirements are still imported. Shortages remain chronic across the country despite concerted efforts to narrow it down for the past 15 years. According to a McKinsey report, India’s demand for power will soar to a whopping 3, 15,000 MW by 2017, requiring an investment of $600 billion if the economy keeps its pace of growth at 8%. The current average power deficit of the country stands at 77,708 MW, with a 13.8 % peak time deficit in February, 2009. (Source: KSEB Officer’s association portal). But what is lamenting is that despite India’s abundant natural resources, renewable energy sources contribute only 7% of the total installed capacity of 1,47,965.51 MW. (Data Source: CEA, As on March 31, 2009).

Trigger:

• Entegra is emerging as a big player in Renewable energy segment. With effect from 01.04.2009, the Company started to focus fully on the Renewable Energy Business.
• In FY10, as per the scheme of merger of SKG Power Ventures Pvt. Ltd. with Entegra Ltd, approved by the Hon’ble High Court of Bombay, Shree Maheshwar Hydel Power Corporation Limited became a Subsidiary Company of the company with 68.73 % equity holding. The Maheshwar Project work is Project is ready for generation of electricity. Sree Maheshwar Hydro is implementing a 400 mw run of the river hydro power project in which Entegra Ltd holds 68.73% stake, as mentioned earlier, which will increase to 85.6%. Entire generation will be sold to MPEB and hence company won’t pay any royalties for usage of water. The project has three-tier build in security mechanism to secure its payments from MPEB. The company has obtained income tax holiday for a period of any 10 years from the block of first 15 years. The Project has potential to earn an incremental ROE of 16.3% (over and above 15.5% base ROE) at 99% utilization and generation of 1370mn units onwards making an effective ROE of 31.8%. Project is expected to generate 50% higher energy levels considering the water flow from the upstream projects-1000mw Indira sagar and 520mw Omkareshwar. The Company has also signed MOU with Gujarat Energy Development Agency for 50 mw CSP project in Kutch region under 25 years PPA with government.
• The EnnerGreen Solutions division has completed 2 Wind Solar Hybrid Projects of 12 KW each at Rajiv Gandhi Proudyogiki Vishwavidyalaya (RGPV) in Bhopal, Madhya Pradesh and 10 KW Off-grid Wind - Solar Hybrid system at VRDE in Ahmednagar, Maharashtra. Further, 4 Energy parks have been established at Ujjain, Sehore, Shahdole & Datia in Madhya Pradesh.
• The 10 MW CSP Project & 1 MW SPV Power projects are being set up in Jodhpur district in the state of Rajasthan. The land for the same has been acquired. Tariff of both the projects has been approved by the CERC with Power Purchase Agreement (PPA) signing expected by end of January, 2011. The financial closure is expected to be achieved by the first quarter of FY12.
• The Company is planning development of a 30 MW CSP project in Rajasthan using the same technology under the JNNSM program. This project, if selected, will follow on the heels of the 10 MW CSP project and will achieve commercial operation in 2013. Under the same JNNSM program, the Company may also propose a 5 MW SPV project in Rajasthan for development and completion in late 2011.
• The Company is looking out for development opportunities for new Hydro Power Projects in the North and North East region. With the experience of hydro power team and assured cash flow from Maheshwar Project, the company is well positioned to take up development of more hydro power projects.

Chart Check and Conclusion: Though there is as no so strong buy signals but then the stock is in the highly oversold territory and hence can be accumulated around the current levels with a SL of Rs.27.90. The targets could be as high as Rs.70, because of the obvious reasons.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: This Research Report was sent to the PAID GROUPS on 16th January, 2011. The scrip should give 100% from the CMP of Rs.26.60 (Today's price).

PICK OF THE WEEK:

Subros Ltd

BSE Code: 517168

Face Value: Rs.2

CMP: Rs.40.45

Book Value: Rs.34.53

EPS: Rs.4.96

P/E: 8.96

Industry P/E: 10.07

Dividend: 35%

Short Term Target: Rs.45-46.

Introduction: Subros Limited is India's largest auto air conditioning manufacturing company. The company has partnered with Denso & Suzuki and today Subros Limited has the capacity to manufacture upto 10, 00,000 A/C systems per annum. Subros Ltd has emerged as an integrated manufacturer of air-conditioners as it has in-house facilities to produce Compressors, Condensers, Heat Exchangers and all connecting system to complete the AC Loop. Spread over 3 plants, Subros Ltd is the largest supplier of air-conditioners to all major OEMs including Maruti Suzuki Ltd, Tata Motors Ltd, Force Motors Ltd, M & M Ltd, etc.

Shareholding Pattern: The promoters hold 40.01% while the general public holds 59.99%. Out of the public holding, Denso Corporation holds 7,800,000 shares or 13 %; while Suzuki Motors Corporation holds 7,800,000 shares or 13 % shares of the company. Hence out of 59.99% public holding 26% is blocked for trade—this gives premium value to the shares of the company. Moreover DIIs hold 1.48% of the shares of the company.

Financials: For FY10, the company came out with wonderful set of numbers. The total income of the company for FY10 came out to be Rs.906.61 Cr as against Rs.696.38 Cr. The net profit of the company for FY10 came out to be Rs.27.73 Cr as against Rs.13/17 Cr in the same period previous year. The EPS of the company for FY10, on a very small equity of Rs.12 Cr came out to be Rs.4.62 as against Rs.2.20 in the same period previous year. Moreover, both the NPM and GPM improved in FY10 when considered on Y-o-Y basis.

For Q2FY10 the total income of the company came out to be Rs.278.71 Cr as against Rs.218.50 Cr in the same period previous year. However, the net profit of the company decreased to Rs.4.87 Cr in Q2FY10 as against Rs.6.68 Cr in the same period previous year.

Triggers:

· During FY10, the Company scaled new heights and set several new benchmarks in terms of sales and overall operations. The company has sold 747,707 number of A.C. systems as against 618,752 number, in the previous year giving an increase of 21%. The Company was also able to increase its profitability by successfully implementing various cost reduction programs in areas of Material Cost through Global Sourcing / Value Engineering and reduction in manufacturing costs.

· The Company has also started the process of setting up its facility in Sanand, Gujarat for effecting supplies to Tata Motors Ltd, for its new low cost Car Nano. The sales to Tata Motors Ltd for Nano will commence during the current financial year.

· The Company is further expanding into newer segments relating to Thermal Engineering Products for Automobiles Sector or for other industrial uses like radiators, Engine cooling modules, Bus A/C, Rail A/C etc. Trial sales for Radiators have already commenced.

· The Company has finalized for setting up a design Joint venture Company in India with its collaborator Denso Corporation for carrying out application design services for the development of new products for the satisfaction of its ultimate customers with low cost and less lead time in product development.

· During FY10, THAI SUBROS LIMITED subsidiary Company in Thailand, achieved a turnover of THB 268.40 Lacs as against THB 9.42 Lacs during the last financial year, the sales has increased substantially and the Company was having Profit before tax of THB 19.35 Lacs as against loss of THB 12.11 Lacs during the previous year.

· We can expect PV segment to post a healthy CAGR of ~14% over FY2010–12E. Given the company’s dependence on the PV segment, we can expect it to gain from India’s small car growth story. The company’s volumes would also get a push due to the continuous capacity ramp-up by new and existing players.

· As a market leader and largest player in the domestic car AC market, Subros enjoys more than 40% market share. The company has managed to garner high market share on the back of its strong technological expertise backed by Denso and Suzuki. Further, in view of growing PV volumes, the company has ramped up its capacity to 1 (one) mn units per annum and proposes to expand capacity to 1.5 mn units per annum in the first phase and further to about 2 mn units per annum in the next two-three years. The capacity expansion will enable Subros Ltd to assure volume to its OEM customers and to capture increased demand, as it is already operating at ~93% of its enhanced capacity.

· The Company, considering the growth in the Automobile sector in general, has planned its capacity expansion, to cater to the increased demand from existing as well as new Automobiles manufacturers in India. The company is planning to set up a new facility in Chennai to meet the increasing OEM demand in the domestic market. As per management, the new plant is being set up to cater to auto manufacturers in Chennai. The company will also be investing about Rs.100 Cr in the next two years to expand the production capacities of its existing three facilities in Noida, Manesar and Pune. Further, the company is looking at opening a plant in Sanand to supply parts to Nano.

· Angel Broking has reportedly recommended a ‘Buy’ on Subros Ltd with a price target of Rs.57 as against the market price of Rs.40.45 in its report dated Nov 2, 2010. On the other hand, Sharekhan (in its report dated Nov. 18, 2010) has also recommended a `Buy` on Subros Ltd with a price target of Rs.53 as against the market price of Rs.40. 45.

Caution: Any upward movement in the commodity prices and further appreciation in the yen against the rupee could affect the margin going forward.

Chart Check and Conclusion: We can expect the company’s volumes to post a CAGR of 17% over the next couple of years, considering the increasing requirements of its OEM customers such as Maruti and Tata Motors and potential new client wins from the PV and CV segments. Moreover, the realizations are expected to be stable or decline marginally due to the aggressive pricing adopted by OEMs. The Q2FY2011 results were below the market expectations on account of a much lower than expected margin during the quarter. The operating profit margin for Q2FY11 declined by 227 basis points sequentially to 6.9%---the sharp dip in the margin was primarily on account of a high raw material cost. The company imports about 50% of its raw material from Japan. Consequently, the appreciating yen vis-Ã -vis the rupee dented the contribution margin by 370 basis points sequentially. This caused the operating profit to decline by 18% YoY to Rs.192 billion. Apart from the subdued operating performance, Q2FY11 also saw a 16% sequential jump in the interest cost. This was on account of an increased debt requirement due to higher working capital and capital expenditure. This coupled with a 7% sequential increase in the depreciation cost led to a 32% sequential decline in the net profit to Rs.49 million.

However, the company is likely to see a robust volume growth on account of a strong demand in the passenger car segment and the de-bottlenecking of capacities of its major client, Maruti Suzuki. Besides, the company is also contemplating increasing supplies to Tata Nano, General Motors and Ford, which will bring in incremental volumes going forward. It is expected that the company would increase product localization and reduce its yen-denominated imports in H2FY2011. Higher localization in face could lead to margin expansion.

From the charts it has been found that most of the parameters are in buy mode. The scrip has a support around Rs.39-40 range, which will be difficult to break on the downside. Investors should buy the scrip around this support range and wait for a short term target of Rs.45-46. In the medium to long term the scrip could touch Rs.55-57. It is for those investors who do not want to take too much risk in the markets, but want to earn a steady income over a period.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: The scrip was recommended to the Paid Groups on 20-12-2010 at Rs.40.45. The scrip already gave good returns to the Paid Members.

PICK OF THE WEEK:

Jupiter Bioscience Ltd (JBL)

BSE Code: 524826

CMP: Rs.105.30 (and later it was recommended at Rs.92-93-94)

Book Value: Rs.200.85

EPS: Rs.19.75

P/E: 5.33

Industry P/E: 23.59

Market Cap: Rs.169.89

Dividend: 20%

52 Week H/L: Rs.149/73.60

Introduction: The Company was established in 1985 by Mr. K.S.Sarma a technocrat of repute and a respected entrepreneur in the Indian pharmaceutical industry. Jupiter Bioscience Limited is one of the few companies in the world to have competency in synthesis of peptides starting from the basic stage to finished peptides. JBL ranks among global top 10 players in the peptide chemistry and the only one in India with a distinction of integrated model of peptide pharmaceuticals. The company’s product portfolio further includes specialty and fine chemicals, drug intermediates, bulk drugs and nutraceuticals. With expertise on multiple technology platforms and processes based on advanced organic chemistry, chiral chemistry, peptide chemistry and biotechnology the company is geared to provide solutions for the global pharmaceutical and the biotechnology industry.

Shareholding Pattern: The promoters hold 17.88%, while the public holding is 82.12%. Among the public DIIs hold 1.72%, while FIIs hold 0.045. Angel Broking Ltd holds 1.23% of the shares of the company.

Financials: On a standalone basis, for FY10, the total income of the company came out to be Rs.184 Cr as against Rs.142.79 Cr in the same period previous year. The PBDT of the company inspite of higher interest came out to be Rs.72.49 Cr as against Rs.53.52 Cr in the same period previous year. The profit before tax of the company inspite of higher interest and depreciation came out to be Rs.37.28 Cr as against Rs.36.39 Cr in the same period previous year. The net profit of the company for FY10 came out to be Rs.30.82 Cr as against Rs.31.98 Cr in the same period previous year. This is on a very small equity capital of Rs.16.13 Cr. The reserves of the company as of 31^st March, 2010, stood at a healthy figure of Rs.307.90. However, though the OPM remained flat, the NPM dipped considerably when comparing on Q-o-Q basis. On consolidated basis, EPS of the company for FY10 came out to be whooping Rs.23.22.

For Q1FY10, the total income of the company came out to be Rs.51.37 Cr as against Rs.33.52 Cr in the same period previous year. The PBDT of the company for Q1FY10 came out to be Rs.19.15 Cr as against Rs.13.35 Cr in the same period previous year. The profit before tax for Q1FY10 came out to be Rs.10.08 Cr as against Rs.8.27 Cr in the same period previous year. The net profit of the company for Q1FY10 increased by around 14% to Rs.8.37 Cr, as against Rs.7.34 Cr, in the same period previous year. The EPS of the company for June, 2010 quarter alone came out to be Rs.5.19 as against Rs.4.55 in the same period previous year. The OPM of the company came out to be Rs.51.20% in Q1FY10 as against 55.68% in Q1FY09. The NPM also fell to 16.31% as against 21.94% in the same period previous year, which is of some concern.

Triggers:

• The Company is focused at providing high cost effective standardized peptides and peptide building blocks and also developed a peptide Library which can support customers for their project.
• Moreover, the company is also expanding its business and technological focus on non-peptide generic drug and intermediates based on organic and chiral chemistry by adding products to its existing list. The manufacturing operations in USA are being set up to focus on solid phase peptide synthesis while the operations in Switzerland are directed towards building capabilities on solution phase synthesis. The manufacturing facilities in India will focus on manufacturing the reagents and the building blocks. Manufacture of generic peptide and non–peptide APIs for the un-regulated market has commenced in 2009.
• The company is continuing to add capacity and extend its product range to meet the growing market demands. The company proposes to manufacture a range of fast moving non-peptide generics ranging from proton pump inhibitors, anti-allergy, anti-depressant, anti-AIDS segments, and antibiotics. It has developed cost effective processes for the products. It has also added the products in the veterinary API segment especially anti- helmentics.
• The company has marketing offices in USA, Switzerland and Japan. The Company has established representative offices and business development offices in Germany, Singapore, Middle East, Denmark and Spain. The company has started to expand marketing and business development operations in the following countries viz. Latin America, Central America, Malaysia, UK, France and Korea. The above initiative will definitely result in higher foreign exchange earnings in the coming years.
• Its subsidiary company Sven Genetech Limited has already made rapid strides in synthesis of specialty peptides, launch of new formulations and development of its capabilities in the diagnostics and enzymes areas. Sven Genetech Limited proposes to enter new business segments in the coming years, these include: (i) Formulations–Oncology (ii) Biopharmaceuticals (iii) Biosimilars (iv) Enzymes, (v) Neutraceutical APIs. During FY10, the Company approved to disinvest its stake through offer of sale of shares as per the resolution passed in the Extraordinary General Meeting held on 09th December, 2009, for achieving a strategic advantage to both the companies, while the Company would benefit out of the disinvestments, the subsidiary could access the capital market for its long-term resources.
• The Company’s 100% subsidiary in USA, Jupiter Bioscience Inc. is gearing up for manufacture of custom peptides and generic peptide APIs by the solid phase peptide synthesis. The company is also currently discussing with major contract manufacturing companies in USA and Europe to discuss business opportunities covering the entire expertise of Jupiter. The company has initiated business development effort of contract research business.
• Jupiter Bioscience Ltd earlier informed BSE that a meeting of the Board of Directors of the Company will be held on August 24, 2010, inter-alia, to consider the following offer, issue and allotment of the securities of the Company on Preferential basis, pursuant to the approval of the members of the Company obtained at the Annual General Meeting held on August 09, 2010, subject to the in-principle approval of the Stock Exchange and such other approvals as may be required in this connection.
• Jupiter Bioscience Ltd earlier concluded the placement of 11, 30,000 Global Depository Receipts at US$ 19 per Global Depository Receipt (Representing 1, 13, 00,000 equity shares of Rs.10 each) amounting to U5$ 21.47 million. Accordingly, the Board has approved and allotted 11, 30,000 Global Depository Receipts underlying 1, 13, 00,000 equity shares of Rs.10 each representing the said GDR's. The company proposes to utilize the GDR issue proceeds basically for the following purposes: (i) Setting up/acquisition of new manufacturing facilities (ii) Up-gradation/Modernization of existing manufacturing facilities (iii) Investment in subsidiaries, (iv) Augmenting long term working capital needs, (iv) Part retirement of high cost debt, (v) To meet the capital requirements of ongoing research and process development, etc.

Chart Check and Conclusion: The Company introduced a range of new products in the peptide business, the last fiscal, the significant one being the launch of pseudoproline peptides which are spurring the growth of the peptide synthesis industry. The Company is consistently working towards improving the yields in its manufacturing processes. During the last year, the focus was also directed towards improving the yields and process optimization for manufacturing many of the existing products which have provided it significant savings in its manufacturing costs.

Now from the charts it has been found that the stock could be purchased above Rs.104.50, for a target of Rs.173, in the medium to long term. Please keep a SL of Rs.97 for any short term trade. The other chartical parameters are more or less in the buy mode. Hence considering the above, it would be safe to buy the stock for short to medium term perspective. In the short term the stock could touch Rs.120—125, if the bullish trend continues.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: This scrip was recommended to the Paid Groups on 20-09-10, after which the scrip made a high of Rs.106.40. The stock was again recommended to the Paid Groups at Rs.92-93-94.