Gitanjali Gems Ltd: Buy

CMP: Rs.57.80

Book Value: Rs.287.39

Market Cap: Rs.567.14 Cr
Target: Rs.72

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Introduction:  Founded as a single company cutting and polishing diamonds for the jewellery trade at Surat, Gujarat, in 1966, the Gitanjali Group became, many times over, a pioneer among major diamond and jewellery houses. Gitanjali is a vertically integrated player in the jewellery industry and is engaged in diamond and jewellery manufacturing, jewellery branding and retailing. Its presence across the entire value chain gives it the scale that it enjoys. It is engaged in the entire process from sourcing rough diamonds, cutting and polishing them to manufacturing jewellery. The diamond cutting and polishing process is labour-intensive and requires a special skill set. The Group’s factories are strategically located in surat and Hyderabad where the diamond industry thrives. The branded jewellery that Gitanjali manufactures includes diamond studded and other precious stones studded jewellery. The Group has produced branded jewellery in India for over 20 years. During FY14, Gitanjali upgraded all its diamond and studded jewellery manufacturing facilities based 

in Hyderabad, Mumbai, Jaipur, China and has also added the Thailand facility - which is one of the largest of its kind. Gitanjali is looking to further strengthen its manufacturing capabilities to enable it to constantly innovate and adapt to changing consumer trends. The Group is present across in the top five global diamond jewellery markets – USA, Japan, Middle East, China and India.

Shareholding Pattern: The promoters hold 35.78% whil the general public  holds 64.22%.  The FIIs hold 16.45% while the DIIs hold 4.97% of the shares of the company. The corporate bodies hold 24.98% of the shares of the company.

Financials: For FY14, the total income of the company  came out to be Rs.7343.09 Cr as against Rs.10, 399.79 Cr in FY13. The company came out with a net loss of Rs.22.65 Cr as against Rs.265.16 Cr profit in FY13.  The loss is mainly due to higher interest outgo, which jumped from 238.74 Cr in FY13 to Rs.414.19 Cr in FY14. It was one of the toughest years for the Indian economy with the GDP growth falling below 5%. Gitanjali Gems Ltd also faced a challenging time during the year 2013-14. Customer sentiments were affected by the inflation and uncertain economic conditions. Moreover, Reserve Bank of India initiated measures to contain the Current Account Deficit by imposing restrictions on gold import for domestic consumption. At the same time customs department increased the import duty on gold to 10%. Further, the
Indian Rupee weakened considerably during the year, 2013-14. It can be seen from the above that in the trying times also, percentage level of gross margins has been maintained. However, the company has taken a number of measures, whose positive effect would be seen in the coming months.

Triggers: 

• Having introduced the first diamond jewellery brand “Gili” in India in 1994, Gitanjali has pioneered the branded jewellery revolution in the country. It has changed the way jewellery was viewed in India. Ever since then, Gitanjali added a plethora of brands such as Nakshatra, Asmi, Sangini, D’damas to name a few to cater to diverse age groups, occasions, price points and geographies.Recently Gitanjali made a foray into affordable fine jewellery with its Viola Italia range of jewellery. Gitanjali’s brands enjoy tremendous recall and the group has leveraged upon this by extending its brands to include lifestyle categories such as apparels under the Gili and Diya brands which have been reasonably successful ventures.
• The Group has actively pursued not only product and design innovations but also channel innovations. Currently the company distributes its jewellery through around 360 distributors, who cater to more than 3000 retailers. The company also enjoys a significant retail presence through around 239 Own Stores, 305 franchisees and 640 Shop-in-shops. Gitanjali is also strongly exploring newer channels such as e-commerce and has launched exclusive as well as multi-brand portals and has also created an online market place. The Group’s retail operations are supported by a strong inventory management system.
• The company came out with better standalone numbers in Q1FY15, speaking sequentially. The total income of the company in Q1FY15 came out to be Rs.1534.39 Cr as against Rs.1158.35 Cr in Q4FY14 and Rs.2565.24 Cr in Q1FY14. The net profit of the company came out to be Rs.7.97 Cr in Q1FY15 as against Rs.5.94 Cr in Q1FY14 and a loss of Rs.34.94 Cr in Q4FY14. This shows that the company is slowly coming out of its blues. 
• While the company is contemplating a new customer profile and is therefore revamping its product portfolio, it has also halved its marketing spend as part of the Rs.100-crore cost rationalisation drive. Till recently, Mehul C Choksi, the promoter & managing director of Gitanjali Gems, was easily India's best known jeweller. He had a host of brands (Nakshatra, Gilli, Asmi and d'Damas, among others), endorsed by a bevy of celebrities, in his portfolio. Problems started to arise in May 2013 when the RBI, in an attempt to contain the current account deficit, imposed severe restrictions on the gold business. This caused a crash in share prices of jewellers and triggered margin calls. Choksi, who had mortgaged shares to lenders, saw the Gitanjali Gems stock fall 90 per cent: it is currently trading at Rs.57.80, down from Rs.649 in April 2013. The slide in share price was followed by a sharp fall in profit, which impacted the cash flows and increased significantly the Mumbai-based company's dependence on working capital. Meanwhile, the Rating agency Care (Credit Analysis and Research) downgraded the debentures and long-term bank facilities of Gitanjali Gems Ltd on July 5, 2013, on "account of strained liquidity" and the impact of RBI's new policies to curb gold imports. The rating of long-term loan was lowered to BBB- from A and that of short term loan to A3 from A2. Later that month, Care suspended the ratings altogether because the company failed to furnish the information required by the agency for monitoring the rating. The company has since attempted to change the business model of Gitanjali Gems, which does annual business of around Rs.10,000 crore, from domestic to greater focus on exports (he has already raised the contribution of exports to total revenues to 60 per cent from 40 per cent earlier), accompanied by a switch from gold to diamond jewellery. Apparel also figures in the plan: jewellery brands like Gilli and Diya have been extended to apparel. In addition, Gitanjali Gems is starting an "affordable jewellery segment and paying more attention to ultra HNIs (high networth individuals)", according to the management. 

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Jindal Saw: Buy

CMP: Rs.75.95

Book Value: Rs.140.54

Market Cap: Rs.2097.92 Cr

Introduction and Rationale for buying: 

• Jindal Saw, a part of the $16.5 billion O.P. Jindal Group, is a leading production hub of saw pipes primarily used for transportation of oil and gas. It is India’s most diversified manufacturer and supplier of pipe products for the energy, water industry and other industrial applications. Its subsidiary Jindal ITF is surging towards new milestones in its enterprises with respect to water management, waterborne transportation, waste-to-energy and rail infrastructure. The small-cap company has equity capital of Rs.55.24 crore. Face value per share is Rs 2. 
• Investments in oil and gas exploration and production, which are influenced by prevailing crude oil & gas prices, have a considerable impact on the demand for LSaw and HSaw Pipes. Resurgent world economy and consequent increase in the demand  for  industrial  natural  gas is expected  to drive up momentum of the welded pipes market. Now that the price of crude oil has again start to move up after a temporary slump, the scrips related to this space are likely to do well, in the immediate future. Moreover, the demand is likely to escalate in the coming years, as several mega-projects are set to be taken  up across  the world,  particularly  in  regions  such  as Southeast Asia, Australia, Middle East, Africa, and West Asia.
• The Company has operations through subsidiaries in India and offshore. In India, the company has presence and operations in Infrastructure space through its subsidiary company named JITF Infrastructure  Limited. Besides, the Company  also  has another  subsidiary named, IUP Jindal Metals and Alloys Limited which is engaged in manufacturing of re-rolling of stainless steel. The Company has operations in Abu Dhabi (UAE) and Italy (Europe) through 100% subsidiaries designated  as special purpose vehicles. 
• As  per  a  comprehensive  global  report  by  Global  Industry Analyst INC (GIA) on the Seamless Pipes and Tubes markets, the global market for Seamless Pipes and Tubes is projected to reach 113.8  million  tons  by  2018,  with  demand  growth mirroring the dynamics of the energy sector and gains led by the  rise  in  rig  count  and  increasing  prices  of  oil  and  gas, particularly  in  North America,  the  Middle  East  and  Latin America. As per the report, Asia-Pacific represents the largest regional market  worldwide  with  the  energy  sector  accounting  for significant proportion of the sales. Increased activity in various end-use sectors such as oil and gas, power, and refineries, and resurgent growth in automobile sector is expected to fuel demand for steel pipes and tubes in the region.  
• Global  demand  for  water  pipe  is  forecast  to  increase  6.8 percent per year through 2017 to almost 14 billion meters, an acceleration  from  the  pace  of  the  2007-  2012  period. Advances will result  from  two  key  factors:  in  developing nations, access to water supply and sanitation will be increased; in developed nations, a rebound in construction spending will boost demand for building pipe. In India, the water-piping sector mainly caters to the irrigation and drinking purposes, as water requirement is the highest for these two sectors. Various schemes of Government of India have opened new avenues and opportunities in this sector where there is already an urgent requirement of developing water  infrastructure. The country’s  vast population makes infrastructure and sewage system development a necessity, supporting demand by households that previously did not have a piped water supply.
• The company's customers  include  most  of  the world’s leading oil and gas companies, municipal corporations as well as engineering companies engaged in constructing oil and gas gathering, water transportation system, power and automobiles facilities. Its principal products include (a) large diameter SAW pipes (Longitudinal Submerged Arc Welded (LSAW) and  Helically Submerged Arc Welded  (Spiral/ HSAW), (b) Seamless Tubes, and (c) Ductile Iron (DI) pipes. Its manufacturing facilities are located in western, northern and southern parts of India. 
• JITF Ecopolis has set new benchmarks of municipal solid waste management by successfully running India's first and largest Waste-to-Energy facility in New Delhi. Registered with the United Nations Framework Convention on Climate Change (UNFCCC), the project is processing one-third of Delhi’s municipal solid waste into power that lights up 6 lakh homes. Furthermore, two additional urban integrated waste management projects in Punjab are also helping regenerate compost in a sustainable and eco-friendly way. 
• To unleash the immense potential of India’s huge coastline and a significant demand-supply gap, JITF Vector has navigated the Indian coastline and the Inland  waters  very  well.  JITF Vector is rapidly changing the face of cargo transportation along the Indian coastline and inland waterways. Through innovative logistics solutions, it is meeting the growing challenges of fuel inkages, especially coal, for the ever growing power generation base of India. Operating a versatile fleet of vessels, which includes three container ships; three bulk including one panamax size vessel and twenty three barges, Jindal Vector offers break bulk and short sea shipping operations. This, along with a multi-modal transportation approach promises consistency in delivery schedules. 
• The development of the India Maritime Technology Park in Gujarat as the state’s first maritime industry cluster has set JITF Shipyards firmly on the course of new frontiers in the shipping industry.
• Jindal Rail has set up a world class facility at Vadodara, Gujarat using state-of-the-art robotic cells and special purpose machinery to manufacture 3000 wagons per annum for Indian Railways and private players in the industry. Made of aluminum and steel, which are much lighter in weight, these wagons offer far more spacious interiors. The wagons made are used for specific purposes, which include Open (BOXNHL type) Wagons for transportation of Coal, Iron Ore etc., Container flat Wagons (BLC type) for containers, Covered (BCNHL) Wagons for cement, food grain and Special Purpose commodity specific Wagons for the bulk movement of cement, fertilizers, fly ash etc. Therefore, FDI in Railways is a positive for the company. 
• With many manufacturing facilities across the globe and an extensive range of products, Jindal SAW has traversed different continents and made an indelible mark in world markets. Furthermore, with the added advantage of plants at strategic locations, including ports, the company meets critical deadlines for international orders. 
• Ductile Iron (DI) pipes segment is witnessing smart improvement in performance which is likely to continue, as the government of India gives more thrust on Infrastructure. Small DI pipe facility with blast furnace capacity of approx. 2,00,000 MTPA was put to commercial operation in the quarter ended 31st March 2013. Production has started and the capacity is being slowly ramped up. The Coke Oven facility and the incremental captive power  generation  facility  related  to the DI  plant has been commissioned.
• It has secured Iron Ore Mines in Rajasthan on a 30 years lease and has set up facilities at the mine head for preparation of Iron Ore Concentrate and production of Iron Ore Pellets. Iron Ore Pellets are currently in demand for manufacture of Sponge Iron and other products. Mining, operations of the company have commenced in FY 2012-13 and it produced 212,487 MT of concentrate, a part of which was used captively. The benefaction has resulted in improvement in Fe content. Mining operation along with pellets expected to bring benefits from the year FY15.
• Pipelines are the backbone of a nation’s infrastructure. Pipes are used in Automobiles, airports, metros, malls, Oil exploration, crude oil, product  &  gas  transportation and for water & sanitation purposes. Owing to growing energy demand and cost of transporting hydrocarbons through other sources like rail and road becoming expensive, pipeline networks are laid to make hydrocarbons reach  its  users let it be domestic or industrial. These pipes see a varied application across various Oil &  Gas and Non Oil  sectors. With  robust  economic  recovery expected  to continue in China, India, and other non-OECD nations, it is no surprise the Asia/ Pacific accounts for the highest number of new and planned pipeline miles. India has announced plans to double its natural gas pipeline network over the next five years including development of a national gas grid by 2017. Middle East is also seeing substantial increases in energy demand which could lead to more pipelines.
• Jindal SAW last year set up a Ductile Iron pipe manufacturing plant at Abu Dhabi, UAE with an installed capacity of 350,000 MT per annum.  To shore up its capacity further, the company is setting up a  Ductile Iron Fittings plant at Solapur, Maharashtra with an annual   production capacity of 18000 MT per annum. 
• The current market cap of the company, is less than half of FY14 annual turnover of Rs.5594.24 Cr. Moreover, its Q1FY15 EPS is Rs.1.99 as against only Re.0.55 in Q1FY14. It has a price to book of only 0.54. Jindal Saw's net profit jumped 260.9% to Rs.54.90 crore on 5.1% decline in net sales to Rs.1145.11 crore in Q1 June 2014 over Q1 June 2013, i.e. on Y-o-Y basis. 
• Jindal Saw Ltd recently informed BSE that the Board of Directors of the Company at its meeting held on October 10, 2014, has approved the issuance of Compulsorily Convertible Debentures (CCDs) on preferential basis to M/s. Four Seasons Investments Ltd., a Promoter Group Company subject to the necessary approvals in this regard. The Board of Directors have also convened an extraordinary general meeting of the shareholders of the Company on November 09, 2014 at the registered office of the Company for seeking the approval of shareholders by way of special resolution for the above issuance of CCDs.
• On September, 19, 2014, Van Eck Associates Corporation A/C Market Vectors-Vietnam purchased 16,27,754 equity shares (0.6% stake) of  Jindal Saw  at Rs.90.45.

Conclusion: On the charts the stock seems to have formed a temporary bottom today. The price of the scrip is above its 50, 150 and 200 DEMAs. Considering all the factors mentioned above, the investors are suggested to buy the scrip above Rs.75, for a short term target of Rs.82-84. The stop loss can be kept at Rs.71.40.

Note: This Report was sent to the Premium (Paid) Group members on 17 October, 2014. The scrip is already moving towards its first target of Rs.82, today. Join the Paid Service and get such calls on a regular basis. 

Jaiprakash Power Ventures Limited

BSE Code: 532627

CMP: Rs.12.43

Book Value: Rs.22

Market Cap: Rs.3,651.94 crore

Introduction: Jaiprakash Power Ventures Limited (JPVL), is the largest Hydro Power generating Company in the Private Sector in the country. The Company today has operating capacity of 1791 MW (Hydro) and 500 MW (Thermal). Currently it is operating three Hydro Power Plants and one Thermal Power Plant, namely:

i) 300 MW Jaypee Baspa-II Hydro Power Plant in Himachal Pradesh;

ii) 400 MW Jaypee Vishnuprayag Hydro Power Plant in Uttarakhand; 

iii) 1091 MW Jaypee Karcham Wangtoo Hydro Power Plant in Himachal Pradesh; and

iv) 500 MW Jaypee Bina Thermal Power Plant in Madhya Pradesh.

The  implementation  of  1320  MW  (2  X  660  MW)  Jaypee  Nigrie Super Thermal Power Project at Nigrie, Distt. Singrauli in Madhya Pradesh is progressing satisfactorily. And commissioning of first unit has already been done on 3rd September, 2014 and second unit would be done by December, 2014. Steam Generator and Steam Turbine Generator have been supplied by L&T- MHI Boilers Private Limited and Larsen & Toubro Limited. All major statutory approvals are in place. Entire requirement of 5 Million MTPA coal for the Project will be met from dedicated coal mines at Amelia (North) and Dongri Tal-II.  The Financial Closure of the Project has already been achieved. For  400  kV  D/C  Transmission  Line,  Forest  Clearance,  including approval  of  Hon’ble  Supreme  Court  of  India  for  Wild  Life  Son-Ghariyal Sanctuary has been obtained. The Line profile of entire 161 kms route has been completed. Approval for the energisation of 400 kV Bays at Satna Substation has been received from Central Electricity Authority (CEA). The overall progress of implementation of the Project continues to be satisfactory. The first unit of the Project has been successfully synchronised with the grid on 7th May, 2014.  Moreover, to effectively use the fly ash from the Thermal Power Plant and to make the plant environment friendly, a 4 MTPA Cement Grinding Unit at Nigrie, Distt. Singrauli in Madhya Pradesh with its Project Cost estimated at Rs.550 crore is being set up which is expected to be commissioned by March 2015 (Line I) and July, 2015 (Line II) of 2 MTPA each.

Subsidiary Companies: The Company has following subsidiaries :

i) Jaypee Powergrid Limited: It is a joint venture of Jaiprakash Power Ventures Limited and Power Grid Corporation of India Limited (a Central Government Power Utility Undertaking) has set up 217 kms long 400 Kv Quad Bundle Conductor Double Circuit Transmission Line for evacuation of Power from the pothead yard of 1091 MW Karcham Wangtoo Plant in the State of Himachal Pradesh to Abdullapur in the State of Haryana and LILO with the existing Baspa-Jhakri Double circuit line.

ii) Jaypee Arunachal Power Limited: It is a  wholly  owned subsidiary of the Company is implementing 2700 MW Lower Siang and 500 MW Hirong H.E. Projects in the State of Arunachal  Pradesh. The  Company along with its associates will ultimately hold 89% of the Equity of JAPL and the balance 11% will be held  by the Government of Arunachal Pradesh. For  the  2700  MW  Lower  Siang  Hydro-Electric Project, CEA approval was obtained in February, 2010 and revalidation of DPR is in process with CEA. Land acquisition is in progress. In-principle Approval has been granted and Power Purchase Agreements (PPAs) are to be submitted for final approval with respect to the grant of Mega Power status of the project. Draft Rehabilitation & Resettlement Plan has been submitted to the State Government. For 500 MW Hirong Hydro Power Project, CEA has accorded Techno-Economic Concurrence on 10th April, 2013. For the Environmental/Forest Clearance of the Project, the EIA & EMP Reports have been submitted to MoEF

iii) Prayagraj Power Generation Company Limited: It was acquired from Uttar Pradesh Power Corporation Limited through competitive bidding  process. It is implementing  1980  MW  (3x660  MW) Thermal Power Project (with permission to add two additional generation  units  of  660MW  each)  in  Tehsil  Bara  of  District Allahabad, Uttar Pradesh. Fuel Supply Agreement between PPGCL & Northern Coalfields Limited has been executed on 29th August, 2013, for Phase-I. All Statutory/Regulatory approvals required for the current stage of the Project are in place. Financial Closure has already been achieved and for the revised project costs, steps are being taken to fund the additional financial assistance. The supplies from BHEL for Boiler, Turbine and Generator for Phase-I of the Project are in progress. All major packages have been awarded. Supply of materials is in progress. The progress on the implementation of the Project is satisfactory.  An expenditure of approximately Rs.9372 crore has been incurred on the implementation of the Project upto 30th June, 2014.

iv) Sangam Power Generation Company Limited: It was  acquired from Uttar Pradesh Power Corporation Limited (UPPCL) through competitive bidding process, for the implementation of 1980 MW (3 x 660 MW) Thermal Power Project in Tehsil Karchana of District Allahabad, Uttar Pradesh. It executed Deed of Conveyance with Uttar Pradesh Power Corporation Limited (UPPCL) but the district administration could not hand over physical possession of land to the Company due to local villagers agitation. As such, no physical activity could be started on the ground.The company has written to UPPCL and all procurers that the Power Purchase Agreement is rendered void and cannot be enforced. As such, the Company’s claims be settled amicably for closing the agreement(s). Necessary supporting documents in support of the Company’s claim have been furnished to UPPCL which is under their review.

v) Jaypee Meghalaya Power Limited: It was incorporated by the Company  as  its  wholly-owned subsidiary  to  implement  two Hydro-electric  Projects  i.e.  270  MW  Umngot  H.E.P.  in  the Umngot River Basin and 450 MW Kynshi-II H.E.P. in the Kynshi River Basin both in Meghalaya  on BOOT (Build, Own, Operate and Transfer) basis. The Company along with its associates will ultimately hold 74% of the Equity of JMPL and the balance 26% will be held by the Government of Meghalaya. With respect to 450 MW Kynshi-II H.E.P., the field work of survey & investigation and EIA studies have already been completed. Drilling and drifting in Power house area have been completed. The revised proposal with involvement of lesser forest area has been submitted to the State Government and Ministry of Environment and Forest. The control levels i.e. FRL & TWL have been approved by the State Government. Approval of CEA has been accorded to the water availability series for power potential studies. With respect to 270 MW Umngot H.E.P, the State Government has advised that the project will not be operationalized as per MoA till further orders. The matter is being pursued with the State Government for permission to resume the works.

vi) Himachal Baspa Power Company Limited and Himachal Karcham Power Company Limited: These companies were incorporated as a sequel to the proposed transaction of divestment of Baspa-II & Karcham Wangtoo Hydro Power Projects.

With a view to  deleverage the Company’s Balance Sheet  and also to enhance Shareholders’ value, the Board in its meeting held on 1st March, 2014 approved a Scheme of Arrangement, subject to statutory and regulatory approvals and sanction of the Scheme by the relevant High Court, for hiving off 300 MW Baspa-II HEP and 1091 MW Karcham Wangtoo HEP to two separate wholly owned subsidiaries and eventual transfer of ownership of the said wholly owned  subsidiaries  to  a  consortium  led  by  TAQA  India  Power Ventures  Private  Limited  (TAQA).  However,  the  Company  has received a notice from TAQA in July, 2014 intimating their withdrawal from the said transaction as a result of a change in the business strategy and priorities of their group. With withdrawal of TAQA, the Acquisition Agreement dated 1st March, 2014 automatically stands terminated.  Further,  this  withdrawal  makes  TAQA  liable  to  make payment of break fee of US $ 9 million in terms of the said Agreement for which necessary notice has been issued to TAQA. Meanwhile, JSW Energy Limited said that it had agreed to buy 3 operating power plants from Jaiprakash Power Ventures Limited, as it looks to expand its portfolio beyond coal and lignite-based plants. The company in a statement said that JSW Energy, controlled by billionaire Mr Sajjan Jindal, will acquire two of Jaiprakash's three hydropower plants in Himachal Pradesh and a thermal power plant in Central India.According to the statement, the three plants together have a combined capacity of 1,891 MW. Mr Jindal said that the financial terms of the deal were still being worked out, but the deal was probably the largest in India's power sector to date. The Company  in  line  with  publically  stated  policy  of Jaypee Group, remains focused and committed on reduction of debt through sale of some of its assets, to deleverage its Balance Sheet and enhance Shareholders’ value.

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Gitanjali Gems Ltd: Buy

CMP: Rs.61.90

Book Value: Rs.287.39

Key world markets for Gems and Jewelry

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

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

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

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

Triggers: 

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

  

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  costs. The company has identified opportunities of growth, by bringing about significant changes in the business model. It has now decided to focus more on studded jewelry which is not only margin accretive but has also been its core competency, while offering better value additions--the focus is also segments like alternative metals and low carat gold. With its strong portfolio, manufacturing capabilities, and wide-spread distribution, the company is very well positioned to undergo this transformation. 
• During FY14, the company also further strengthened and consolidated its international presence in markets like the US, Middle East, Japan and China. The recent regulations attributed to the company, shifting focus to its international market which grew to contribute to around 60% of the group's revenue in FY14.  
• The branded jewelry that Gitanjali manufactures includes: diamond  studded  and other  precious stones studded jewelry. The Group has produced branded jewelry in India for over 20 years. During FY14, Gitanjali upgraded all its diamond and studded  jewelry  manufacturing  facilities  based in Hyderabad, Mumbai, Jaipur, China and has also added the Thailand facility - which is one of the largest of its kind. Gitanjali is looking to further strengthen its manufacturing capabilities to enable it  to constantly  innovate  and  adapt  to  changing consumer trends.
• Gitanjali over the years has graduated through the various stages of the value chain to move from the diamond manufacturing business to jewelry manufacturing and retailing to unlock maximum value which  accrues  through  downstream expansion. Having introduced the first diamond jewelry brand “Gili” in India in 1994, Gitanjali has pioneered the branded jewelry revolution in the country. It has changed the way jewelry was viewed in India. Ever  since  then,  Gitanjali  added a plethora of brands such as Nakshatra, Asmi, Sangini, D’damas to  name  a  few  to cater  to  diverse  age groups, occasions, price points and geographies. Recently Gitanjali made a foray into affordable fine jewelry with its Viola Italia range of jewelry. This  vibrant  new  collection  is  the  company’s endeavour to cater to a wider audience and ensure that need-gaps in the market are addressed. Gitanjali’s brands enjoy  tremendous  recall  and the group has leveraged upon this by extending its brands to include lifestyle categories such as apparels under the Gili and Diya brands which have been reasonably successful ventures. 
• The company intends to increase its international business with complementary categories like platinum, precious stones and silver jewelry. The focus is on capitalizing on the high margin mature markets such as the US and Japan and also on the rapidly growing markets like Middle East. As a step in this direction, the company recently entered into a strategic alliance with Paris Gallery, Dubai to retail its jewelry brands to the Indian diaspora in UAE. The also intends expanding in emerging markets such as Russia, Africa and South East Asia through its distribution channels.
• Currently  the  company  distributes  its  jewelry through around 360 distributors, who cater to more than 3000 retailers. The company also enjoys a significant retail presence through around 239 Own Stores,  305  franchisees  and  640  Shop-in-shops. Gitanjali is also strongly exploring newer channels such as e-commerce and has launched exclusive as well as multi-brand portals and has also created an online market place. The Group’s retail operations are supported by a strong inventory management system.
• As mentioned earlier, the Group is present across in the top five global diamond jewelry markets – USA, Japan, Middle East, China and India. The USA is the largest diamond jewelry market in the world. Gitanjali enjoys a retail presence through over 104 doors of its retail chain Samuels Jewels Inc. The  Samuels  chain  has  exclusive designer jewelry  collections  and  a  large  selection  of loose and mounted diamonds under brands such as  “Samuels Jewelers”,  “Schubach  Jewelers”, “Samuels Diamonds”,  “Rogers  Jewelers”  and “Andrews Jewelers” which are primarily targeted at middle and upper middle class consumers in the United States. Samuels’ retail chain is positioned as a wedding jeweler with category focus on bridal collections in the United States. The Group also distributes its jewelry to other local players in the US. The Group’s US business has been witnessing a steady growth of around 10-12% on year on year basis. The US  being  the largest diamond jewelry market with superior margins, is one of the most ambitious markets for Gitanjali.
• The UAE is another significant market for jewellery in the world. Gitanjali retails its Jewellery from the bouquet  of  Gitanjali’s  Indian  brands  such as  “Nakshatra”, “Gili”, “Asmi”,  as  well  as  the collection  of  Italian  brands  such  as  “Stefan Hafner”,  “Nouvelle  Bague”,  “IO  SI”,  “Porratti” and “Valente”. Gitanjali also recently entered into a tie-up with Paris Gallery to retail its jewelry throughout UAE. The Group currently distributes its jewelry through 4 retail stores and over 50 SIS in local jewellers as well as through duty free stores at Dubai airport.  Japan  is also one of the largest consumers of diamond jewellery in the world. The Group has a minority stake in a listed Japanese entity – Verite and supplies to over 100 stores of Verite in Japan. The Group also has 20% stake in Gems TV which is a jewellery selling TV channel in Japan. The Group incorporated Leading Jewels of Japan KK (LJJ)  which sources jewellery from Gitanjali Group’s manufacturing facilities in India, China and Thailand and distributes this jewellery to some of the largest customers in Japan. The large team of Jewellery designers from India, China and Thailand supports to customize  according  to local  tastes and requirements of Japan. LJJ also distributes the Group’s Italian brands “Stefen Hafner”, Nouvelle Bague”,  “IO  SI”,  “Porrati”  and  “Valente”  to customers in Japan.
• Other  International  Markets-  The  Company distributes  its  jewelry  internationally  through its subsidiaries  in  USA,  Hong  Kong,  Thailand, Belgium, Italy and China. These subsidiaries supply within their local markets as well as other global markets such as Australia, Russia, UK and other parts of Europe. Its customers include jewelry manufacturers, wholesalers and large retailers.
• With INR more or less stabilizing against the USD, adverse effects due to this factor, has been reduced considerably. Moreover, Gold demand will get a boost as festivals such as Diwali approaches. Also, owing to Thanksgiving, Christmas and New Year celebrations in the coming months, the group’s retail arm in the USA, Samuels Jewels Inc  is likely to witness good rise in sales. Besides, the overdue installment of ECB as at of March 31, 2014 was paid in June 2014. The delay was due to liquidity challenges which Company is facing.
• The branded retail jewelry market is growing at a robust rate and going forward, many domestic and international brands would capture substantial market size given number of factors like increased urbanizations and changing demographics. As a matter of on-going practice, the masses still prefer to purchase jewelry from their tried and trusted jewelers but the constant exercise of ‘branding’ through advertising and other sales promotional activities has ensured steady inflow of new customers in this segment of organised retailing. India’s small and independent jewelers are starting to organize themselves and expand in size to share a common brand identity and marketing strategy.
• It has in-house manufacturing capacity of nearly half a million pieces of finished jewelry per month ensures consistent supply, economies of scale and flexibility to adapt to changing consumer needs rapidly.
• Indian diamond jewelry manufacturers and exporters are currently witnessing a rebound on consumer sentiment both India and abroad ahead of the festive seasons. Jewelry sales in the domestic markets are expected to remain robust during the ongoing festive season beginning Dussehra. The festive glitter was added with a decline in food inflation which left more disposable income at the hands of consumers. The upbeat business sentiment is likely to add glitter to the festive jewelry demand. Also, the steep fall in gold and silver prices has made investment in diamond jewelry attractive. The long term fundamental of the diamond industry remains strong and robust despite liquidity squeeze because of the closure of Antwerp Diamond Bank. Diamonds sales are growing in emerging markets including China and India. In fact the Indian diamond processors have seen a robust consumers trend after months of lull sales.Both Domestic and global markets show a positive sign in the coming festive, wedding and thanksgiving season which comprises over a third of annual sales. The economic uptrend in the United States has increased jewelry orders to India. Experts estimate 10-15% jump orders for this festive season which will reflect in October's gems and jewelry export figures..

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

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

Pipavav Defence and Offshore Eng Ltd (PDO): Buy

Company Overview:
1. Pipavav is India‟s first world class Defence, Ship Building & Offshore Infrastructure Company.

2. Pipavav is India‟s first private company to get License and Contracts to build warships for the Indian Navy.

3. Pipavav is the first company in the country to have been approved as a partner of choice by Mazagon Docks to build frontline warships, to help them liquidate their multi billion dollar contracts.

4. Pipavav owns the country‟s first and only Modular Shipbuilding Facility with the largest Dry Dock, armored with the country‟s first fully scalable and expansion accommodating capacity.

5. Pipavav owns the country‟s only facility capable of accommodating the largest Aircraft Carriers and other strategic vessels for docking, maintenance and repair.

6. Pipavav has an undisputed upper hand in terms of Infrastructure, Team on the ground and critical Technology & Strategic tie-ups.

Caution:

(i) Margins might continue to remain under pressure due to increased raw material cost.

(ii) Commercial order book execution remains under a cloud. 
(iii) Poor shipbuilding market has resulted into deteriorating revenues and profitability over the last few quarters for PDO. Order book on paper worth around Rs.12, 000 Cr looks strong, but a large part of the order book may be vulnerable to cancellation. 
(iv) Currently the shipbuilding market is precariously placed with: a) Demand levels falling below the construction capacity, 
b) Contract cancellations and 
c) Lack of financing options for buyers. 

Profitability of PDO might therefore, be under pressure due to poor shipbuilding market, high interest cost and increasing contingent liabilities. 

However, it can be compared with big yards in Japan and Korea as it has huge infrastructure and opportunities in defense. According to Live Mint, September, 23, 2014, the government of India, is likely to extend shipping subsidy period. The said Extension is likely to benefit shipyards that are still building ships under contracts signed when the scheme was on, and even for some which have already delivered ships but awaiting subsidy 

Kotak Securities in its June 25, 2014 research report has said that the company is planning to raise around $150 million through a listing on the London Stock Exchange or a strategic stake sale. The brokerage house, holds the view that the company is expected to utilize the proceeds, to convert its second wet dock into a dry dock, by end of CY17. This is likely to double the capacity for PDO from current Rs.60 bn to Rs. 100 bn in terms of revenues. 

According to the Business Standard, September, 15, 2014:

To promote shipping industry, the government plans to come out with a ship building scheme to encourage India ship yards to bag foreign ship building orders. A Cabinet note with this regards has been prepared, minister for Road Transport and Highways Nitin Gadkari said in his conference on 100 days of his ministry. 

At the CMP of Rs.38.75, it is a sure shot BUY for the long term (18 months perspective) with a price target of Rs.90.

Resurge Mines and Minerals Ltd

BSE Code: 533017

Resurgere Mines & Minerals India Limited (Formerly Exfin Shipping (India) Ltd.) is presently engaged in the business of extraction and processing of iron ore products ie lump ore and size ore, and is predominantly a manufacturer of calibrated lump ore (CLO) and Iron Ore Fines.

• Resurgere Mines is also engaged into merchant export of iron ore fines to China.

• Resurgere Mines is a member of CAPEXIL, FIEO and FIMI and is a recognized STAR TRADING HOUSE.

• Resurgere Mines also owns a bauxite mine in the state of Maharashtra with 60% ownership, through a wholly owned subsidiary and estimated reserves of 4.92 million tons.

Financials and other Statistics:

## CMP: Rs.2.66 in BSE and Rs.2.40 in NSE, as of 9th July, 2014.

## Face Value: Rs.10 (not Re.1),

## Book Value: Rs.26.49,

## Market Cap: Rs. 57.87 Cr, down from Rs.1500 Crore in 2008.

##  IPO Price Band: Rs.263 - Rs.272 Per Equity Share

## IPO Issue Date: Aug 11, 2008 - Aug 13, 2008

Major Triggers: 

(i) Mahalmiriya (Bauxite) Mines in Maharashtra, has got the approval from the authorities. The mining could start post monsoon, after some issues regarding the lease agreement gets solved.

(ii) The mining is already taking place in the Soapstone Mine, Dhelana, Rajashtan.

URL: http://www.resurgere.in/environmentalreport/dhelana-clearance30-3-2012.pdf

(iii Yelwan Jugai Bauxite Mine in Maharashtra and Satarda Iron Ore Mine are expected to get fast approvals from the  the current NDA government led by Narendra Modi.

(iv) The book value of the share of the company is Rs.26.49 and the market cap is only Rs.52.50 Cr. The market cap of the company is less than price of the machineries purchased by the company till now for the mining operations. So, you are getting the business of the company Free? 

Approvals==>> 

a) Environmental Clearances

(b) Forest Clearances, etc.

(v) The mining sector stocks are likely to boom in the coming days, after the recent landmark, Supreme Court verdict. At present even the stocks like SVC Resources Ltd (BSE Code: 512449), which are from the same sector is trading multiple times its face value of Re.1 (now Rs.10). Another stock, NMDC Ltd having face value of Re.1 is trading at Rs.173.65. Whereas Resurgere Mines and Minerals Ltd, having a face value of Rs.10 (not Re.1) is trading at Rs.2.40 in the NSE. Is it  not surprising? 

Clarifications of baseless Rumours: 
(a) The promoters holding came down due to GDR and other issues. It did not come down because they directly sold shares in the market. 
(b) At present there are three directors of the company and they are: 
## Subhash Sharma: Chairman & Managing Director
#  Mayur Shah: Ind. Non-Executive Director
## Alok Ambastha: Ind. Non-Executive Director
(c) One of the auditors did not want to sign the balance sheet, but the subsequent auditors had no problem. The said auditor, went to the media without informing the management of the company, which by any standard is a breach of trust and constitutes a type of criminal conspiracy; though the management decided not initiate any legal action against the said auditor. 
(d) The company during the last few years, was affected due to mining ban in many states of Indian union, besides, the UPA government had a very unfavorable policy towards the Iron Ore exporters and dealers. However, in future, as the mining policy gets changed the company hopes to do well.  
(e) Inspite of getting approvals, the company could not start the operations in Mahalmiriya (Bauxite) Mines in Maharashtra because of some problems in the lease agreement. Also, mining generally does not take place during the monsoon season, because they are open fields. 

Conclusion: Accumulate on dips and keep holding for a target of Rs.9-10 in the coming days. This is a turnaround story. On the downside, it can fall maximum upto Rs.2.30. In the NSE the price is already Rs.2.40. 
Also, note that some panic selling due to vested interest groups, is going on, which will not be sustained in the long run, due to sheer fundamentals of the company. 

Rohit Ferro-Tech Ltd: Buy on dips

CMP: Rs.11.90

Introduction: Promoted by Mr. S K Patni, Rohit Ferro-Tech Ltd (RFTL) started its journey in 2003 with a humble capacity of 24,000 TPA from its 2 x 9 MVA furnaces in Bishnupur, West Bengal. 

In 2006, RFTL also expanded its wings into State of Orissa by installing a 110,000 mtpa manufacturing unit with 4 nos. 16.5 MVA furnaces at Kalinganagar Industrial Complex in Jajpur to manufacture bulk ferro alloys.

Recently, the company added another feather in its cap by fully commissioning its Manganese alloys production facility of 100,000 mtpa with 6 nos. 9 MVA furnaces in Haldia, West Bengal. The unit has got a status of 100% EOU.

Presently, with the total installed capacity of 300,000 mtpa, RFTL exports nearly 70% of its production.

Furthermore the company is setting up an additional 33 MVA SAF at its jajpur unit. The company is also in the process of setting up a 67.5 MW Captive Power Plant at its jajpur unit.

In an attempt to forward-integrate, RFTL has set up a 100,000 mtpa Stainless Steel manufacturing facility at its Bishnupur unit. On the side of backward integration, RFTL has acquired economic interest in Coking coal and Thermal coal mines in Indonesia.

Since its inception, the Company has come a long way to position itself as a leading producer of High Carbon Ferro Chrome. RFTL has accreditation like ISO 9001:2000, a Four Star Export House Status, Membership of ICDA (International Chrome Development Association), IMNI (International Manganese Institute) etc. The company recently got an award from EEPC as “Star Performer In Product Group - Medium Enterprise” on all India basis.

The company carries a part of its business activity through a Wholly owned Subsidiary Company M/S SKP Overseas Pte. Ltd incorporated at Singapore. During FY13, the Wholly Owned Subsidiary Company has acquired 60% equity stake in a company M/S PT Bara Prima Mandiri of Indonesia, a Company in which M/S SKP Overseas Pte. Ltd already had 60% economic interest . By virtue of the acquisition of equity stake M/W PT Bara Prima Mandiri of Indonesia has become a subsidiary of M/S SKP Oversea Pte. Ltd.

Since its inception, the Company has come a long way to position itself as one of the leading producer of High Carbon Ferro Chrome. RFTL has accreditation like ISO 9001:2000, a Two Star Export House Status, award for Export Excellence by EEPC, Membership of ICDA (International Chrome Development Association), IMNI (International Manganese Institute), etc.

Shareholding Pattern: The promoters  hold 72% (controlling) stake in the company while the general public holds 28%. In the general category,  Shriramrathi Marketing Pvt Ltd, Anumati Stock Broking Pvt Ltd and Quest Financial Services Ltd holds more than 1% stake in the company. 

Triggers: 

• During FY13, the company had allotted 3, 35, 00, 000 equity shares at Rs.10 each on preferential basis at a premium of Rs.50 per share aggregating to Rs.201.00 Cr to the entities belonging to promoter group and strategic investors belonging to the non promoters group. 
• The company is expected to install 67.5 MW captive power plant at its Jajpur unit. The basic engineering, civil work and structural fabrication has progressed significantly. All major equipment having long lead time has been received at the site and erection work is at the final stages. Since, Ferro-alloy sector is power intensive, it will save a substantial part of the cost of production. 
• The basic engineering, civil and fabrication work of 33 MVA Arc Furnace at Jajpur unit is  under progress. The company has placed order for all major Plant and Machinery and the delivery of the plant and Machinery are as per Schedule. 
• The company has acquired 60% equity state in a coking coal mine in Indonesia owned by M/S PT Bara Prima Mandiri Through its Subsidiary M/S SKP Overseas Pte. Ltd, Singapore. The mine located in Central Kalimantan province of Indonesia has an estimated coking coal reserve of 10 MN tonnes. 
• The company is also having 60% economic interest in thermal coal mine in Indonesia owned by M/S PT Palopo Indah Raya through its aforesaid subsidiary. The mine located in Central Kalimantan Province of Indonesia has an estimated thermal coal reserve of 20 MN. 
• The Finance Minister in this budget could rationalize the tax and duty structures of the ferro-alloys sector. There are already talks of raising the import duty, so that foreign countries are not able to dump their cheap products in Indian markets, easily.  
• India enjoys a natural advantage as it has the fifth-largest in chrome ore with a 100 million tones estimated reserve and the sixth-largest in manganese ore with an estimated 176 million tones reserve.

Conclusion: Ferro Alloys are used in the production of steel as de-oxidant and alloying agents and act as an intermediate industry to the iron and steel sector. The demand and prices of ferro alloys depend on the production and consumption of steel which in turn depends upon its user industries. 

Many Ferro-alloys companies, has substituted iron ore with pallets.The UPA Government during their tenure introduced duty on export of Iron ore fines, which has resulted in reduction in export from 25 million tons earlier to 3 million tons. Due to this, there has been improvement in availability of Iron ore fines for conversion  to pellets. Further, there are many pellets plants which are expected to come online in the next 6-12 months. This will in turn reduce the dependence of industry on sized ore and will  in-fact be a new source of raw material, thus increasing the overall availability substantially. With this new source of raw  material not only the availability of will increase but prices will also come down to normal level. Most of these plants are either merchant plants or their capacity is more than what is required by them captively for their own consumption. This will further increase the availability of raw material. 

Moreover, this will in turn reduce the dependence of industry on sized ore and will in-fact be a new source of raw material, thus increasing the overall availability substantially. With this new source of raw material not only the availability of will increase but prices will also come down to normal level. Most of these plants are either merchant plants or their capacity is more than what is required by them for their own consumption. This will further increase the availability of raw material.

Due proactive steps taken by the State Governments and favourable Supreme Court verdict in Karnataka the mining sector is slowly limping back to its normal operational level. 
Further, Orissa Government has also taken proactive steps and has recently allowed restart of mining in some of the mines, which is expected to alleviate the scarcity of raw material. The yield from Pellets is higher than yield from poor quality material.

However, the UPA government also imposed a 5% export duty on iron ore pellets, an agglomerated form of the raw material. Now, while the Associated Chambers of Commerce and Industry of India was of the view that the government should raise the export duty on iron ore pellets even further to safeguard the interests of India’s steel industry, the Pellet Manufacturers’ Association of India has demanded that commerce ministry remove the duty, claiming it was choking the industry and would stunt growth. 

Insiders have told the media that the Steel and Mining Minister seems inclined to continuing allow the export tax to stand. When asked for his reaction, Tomar told news agency, the Press Trust of India (PTI), that a conciliation had to be reached on the two issues, and that his ministry was studying both demands.

Though the Steel demand was low in 2012-14 due to continuing economic crisis and fall in the Indian GDP growth, however, spurt in demand is expected in 2014- 15. The Government of India has planned to invest about Rs.56.32 lakh crore in infrastructure during the 12th Five Year Plan period 2012-17. This will augur well for the industry.

Besides, the market cap of the company is only Rs.136.30 Cr and the book value of the shares of the company is Rs.50.87, as compared to the CMP of Rs.11.90. 

Going forward, the demand for Ferro Alloys is excepted to improve due to increase in investment plan in road sector, expansion in railways, increase in volume by automobile sector, uses of special steel in power sectors and refocus on the manufacturing sector. 

The scrip should bounce from the oversold positions and move up on the optimism of new power plant coming up. The stock could be accumulated around the support region of Rs.11.70-12, for a target of Rs.16-17 in the coming days. 

Jai Balaji Industries Ltd: A Hidden Mining Story

CMP: Rs.23.80

Aditya Jajodia, CMD, Jai Balaji Group
Photo: Moneycontrol.com

Introduction: Jai Balaji Group is one of the largest manufacturers of steel in the private sector in Eastern India. It has integrated facilities for producing steel in its manufacturing units spread across the states of West Bengal, Chhattisgarh, Orissa and Jharkhand in India. 

The Group has a chain of value-added products which include DRI, Pig Iron, Ferro Alloys, Alloy and Mild Steel Billets, Reinforcement Steel TMT Bars, Wire Rods, Ductile Iron Pipes and Alloy and Mild Steel Heavy Rounds. Jai Balaji Industries Ltd continues to have three wholly owned subsidiaries namely:

• M/s. Nilachal Iron & Power Limited==> It is a wholly owned subsidiary of the Company since 26.10.2007, having its manufacturing plant located in Kandra near Jamshedpur, Jharkhand. It currently, manufactures sponge iron. Work on increasing its capacity by 60,000 tonnes per annum has been initiated.
  The company has been allotted the Dumri Coal Block for captive mining from the Government of India, about 300 kms from the plant. Mining of coal is expected to start shortly and a Coal Washery ill also be installed to improve efficiency of the raisings. 
• M/s. Jai Balaji Steels (Purulia) Limited
• & M/s. Jai Balaji Energy (Purulia)

The company also has 101.1 MW power plant, Sinter plant to utilize cheaper iron ore fines and have also put up Coke Oven Plant.

Shareholding Pattern: The promoters hold 54.57% of the shares of the company while general public holds 41.07% of the shares of the company. The corporate bodies hold 13.14% of the shares of the company while the FIIs hold 4.3% of the shares of the company. In fact the  FIIs' holdings have increased from 3.71% in October, 2013 quarter to 4.36% in March, 2014 quarter. 

Financials: Net Loss of Jai Balaji Industries came as Rs.123.49 crore in the quarter ended March 2014 as against net loss of Rs.63.46 crore during the previous quarter ended March 2013. Sales declined 14.62% to Rs 434.35 crore in the quarter ended March 2014 as against Rs.508.70 crore during the previous quarter ended March 2013.

For the full year,net loss reported to Rs.318.95 crore in the year ended March 2014 as against net loss of Rs.213.13 crore during the previous year ended March 2013. Sales rose 27.81% to Rs.1946.00 crore in the year ended March 2014 as against Rs.1522.58 crore during the previous year ended March 2013.

Due to the increase in the raw materials cost, such as Iron Ore and Coke/Coal as a percentage of net sales, post FY11 and inability to increase end product prices due to competitive environment, resulted in EBITDA margins of the company taking a hit. This is one of the prime reasons why the company is posting huge losses. 

Now, most of the established companies, like SAIL, Tata Steel, Jindal Steel and Power Ltd etc, have their own captive iron ore and coal mines which puts a lid on the costs. But Jai Balaji Industries Ltd has to procure this at market prices and under such circumstances, the going got tough for it. 
As a matter of fact the it was allotted both Coking and Non Coking in the past and have also formed joint venture companies for implementation. But due to some nagging issues surrounding coal block allotment, the things got unnecessarily delayed. However, off late Dumri Coal Block received Environmental clearance and Forest Go Certificate. Forest clearance stage one has been received and stage two is under process. This is expected to significantly reduce the cost of the production in the days ahead. 

Triggers: 

• Company has 1.1 mtpa steel manufacturing company with diversified product range including pig iron, sponge iron, TMT bars, ferro alloys, alloy bars etc. Replacement cost of assets is over Rs.5000 Cr. It has debts around Rs.2200 Cr. The NAV of the company therefore stands at Rs.2800 Cr. 
• The company is also hopeful of commencing work on its proposed steel plant at Raghunathpur in the Purulia district of West Bengal soon. According to information available on the company's Web site, it plans to set up 5-mt steel plant, 3-mt cement plant along with a 1,215-MW power plant at an estimated investment of Rs.16,000 crore.
• The company holds varying stakes in four coal blocks-Dumri and Rohne in Jharkhand and Andal and Jagannathpur in West Bengal. It posses 700 mt of high graded coal. 
• The DRI Plant of 60000 MT & coal washery in subsidiary company M/s Nilachal Iron & Power Limited started its commercial production during FY13. In FY13, the company’s project for expansion of 350000 MTPA Coke Oven Plant along with Waste Heat Recovery Boiler of 80 TPH was completed and capitalized. The said coke oven plant is presently running satisfactorily. These efforts are helping it to improve the margins. 
• The company completed a CDR-scheme where it got reliefs both in terms of interest rate and debt. It is estimated it will be able to save Rs.25-30 Cr annually through CDR mechanism only. Moreover, steel demand was low in FY14 due to continuing economic crisis, however, spurt in demand is expected in 2014-15. A sharp pullback in demand of steel in the third quarter has pushed up steel consumption in the fourth quarter of FY14. Also, with as the government talking tough on inflation, the raw material price are expected to come down albeit in a very tiny manner and very slowly. This is expected to give an upward push in its bottomline going forward. 
• Jai Balaji Industries Ltd has recently informed the BSE that the Board of Directors of the Company at its meeting held on May 29, 2014, inter alia, have converted the remaining 65,05,000 warrants which were allotted on July 04, 2013 to Hari Management Limited, Promoter Group Company of the Company into 65,05,000 equity shares of Rs.50 each (including premium of Rs.40 per equity share). Earlier the Company on 4th July, 2013, issued and allotted 10,000,000 warrants to promoter group companies namely M/s. Enfield Suppliers Limited (1,900,000 warrants) and M/s. Hari Management Limited (8,100,000 warrants) on a private placement basis at an issue price of Rs.50 each. Also, the number of pledged shares have come down from its peak level of 92%. Company has further plans to release more pledged shares in due course of time.
• A Joint Venture Company ‘M/s.Rohne Coal Company Private Limited’ was formed in 2008-09 with the Registrar of Companies, NCT of Delhi & Haryana, in which the company along with M/s. JSW Steel Limited & M/s. Bhushan Power & Steel Limited are venture partners. The said Joint Venture Company was formed in terms of allocation of Rohne-Coking Coal Block in the State of Jharkhand by Ministry of Coal, Government of India. Both the Joint Venture Companies are in the process of setting up coal mining facilities at respective coal blocks. The Ministry of Environment and Forest (MoEF) has already granted the first stage forest clearance the Rohne coking coal block in Jharkhand.

Conclusion: Persistent slowdown in demand for steel and falling steel prices has squeezed profitability of steel companies in India. This was reflected in the Financials of the company during FY14. However, the global steel demand is expected to grow over by 10% in the next five years. Steel industry is vital for overall economic development of every nation as it is one of the core sectors. India is the largest producer of sponge iron in the world. Despite all the headwinds and lingering difficulties, the steel industry is likely to deliver growth with the current NDA government focusing on infrastructure development. 

At present the Indian Steel industry is on the growth path due to growing domestic demand, unexplored rural market and rapid urbanization. The strong growth in automotive industry and power sectors would drive steel output and consumption, in future. With the improvement in the economic recessions in the west, the potential for increase in demand is high.

Moreover, the total revenue of Jai Balaji Industries Ltd for FY14, came out to be Rs.1990.78 Cr, plus its assets (Coal Blocks + NAV) are available at just Rs.175.60 Cr. The book value of the shares of the company is Rs.72.59 against the CMP of only Rs.23.80. 

Chartically speaking, the stocks seems to be at the end of downtrend and should find support around Rs.22.40--21.70 ranges. The investors are suggested to accumulate the scrip, if this level holds. In any case, in the short term, the scrip is not likely break Rs.19.70 on the downside. The short term target for the scrip is Rs.29-31.