Tuesday 1 March 2011

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.

Monday 14 February 2011

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).

Sunday 26 December 2010

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.

Thursday 30 September 2010

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 31st 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.

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.