PICK OF THE WEEK:

Samtel Colour

CMP: Rs.16.80

Book Value: Rs.30.23

Market Cap: Rs.90.03

P/E: 1.18

Introduction: Samtel Color is the flagship company of the Samtel group, and manufactures the widest range of Colour TV tubes in India and has a capacity of over 10 million picture tubes per annum. The company was incorporated in 1986 with a technical collaboration with Mitsubishi Electric, Japan to manufacture 14” and 21” Color Picture Tubes (CPTs). With a market share of over 60%, Samtel is India’s largest integrated manufacturer of a wide range of displays for television, avionics, industrial, medical and professional applications, TV glass, components for displays, machinery and engineering services. The group employs 6,000 people in nine world-class factories and has an annual turnover of Rs.1,200 crore. Its clients include leading domestic and international TV manufacturers.

Integrated backwards with its component divisions at Ghaziabad and Parwanoo, Samtel Color also manufactures electron guns and deflection yokes for colour picture tubes.

Shareholding Pattern: The promoters hold 49.61% while the general public holds 50.39% of the shares of the company. The FIIs hold 1.32% while the DIIs hold 2.35% of the shares of the company. Also Life Insurance Corporation of India, holds 2.23% of the shares of the company, which is a very good positive indicator for the shareholders of the company.

Financials: For Q4FY10, the company came out with very good numbers. The total sales of the company for Q4FY10 came out to be Rs.275.65 Cr as against Rs.251.07 Cr in the same period previous year. The PBDT of the company for Q4FY10 came out to be whooping Rs.23.27 Cr as against a loss of Rs.14.90 Cr in the same period previous year. The net profit of the company for Q4FY10 came out to be Rs.7.74 Cr as against a loss of Rs.26.92 Cr in the same period previous year.

Triggers:

• The market for color picture tubes (CPT) continued to grow in India although it is declining globally. The domestic CPT market is expected to show growth of around 5-10% over the next two years as the benefit of GDP growth percolate in the Indian economy. Imports which had surged has now started declining after imposition of Anti-dumping duties, by the GOI.
• The company has submitted a further debts restructuring proposal to ease the liquidity constraints which has been approved by the Lenders under the CDR mechanism. The Scheme, envisages inter-alia restructuring of principal, conversion of debts into fresh equity shares of the Company, infusion of funds by promoters etc. This is expected to further work wonders for the company.
• The committee of the Board of Directors of the Company in its meeting held on January 25, 2008 had allotted 23,25,581 warrants having optional right of conversion into against each Equity share of face value of Rs10.00 each at a premium of Rs.11.50 per share to M/s. CEA Consultants Pvt. Ltd. (promoter Company). The Company has informed that, the committee of the Board of Directors of the Company in its meeting held on July 24, 2009 considered and approved the conversion of Warrants into equity shares and allotted 23,25,581 equity shares of face value of Rs.10.00 each at a premium of Rs.11.50 per share to M/s. CEA Consultants Pvt. Ltd, (the promoter Company)" in pursuant to the preferential issues under SEBI (DIP) guidelines, 2000 as amended from time to time (conversion of warrants within 18 months from the date of allotment of warrants).
• It has a series of 1sts (firsts) to its credit: (a) 1st to introduce Digital Color Monitor in India (b) 1st to launch 12", 14" and 17" B&W picture tubes in India (c) 1st to launch 14" and 21" FST tubes in India (d) 1st to launch Mono Display Tubes in India (e) 1st to assemble and seal glass shells in India (f) 1st to offer the largest range of 14", 21" FST and 21" F&FST color picture tubes in India (g) 1st to establish itself as the largest regular exporter of tubes (h) 1st to manufacture specialty tubes for industrial, military and medical applications, from the private sector (i) 1st public-private partnership in the area of defense avionics.
• The TV brands on shop shelves have changed over the years–in the eighties, it was Weston, Crown, Texla and Uptron; in the nineties, BPL, Videocon and Onida; and today, it’s LG, Samsung and Sony. The TVs too have changed–B&W made way for colour, the 14-inch and 20-inch screens gave way to the 21-inches, now we have superflat screen TVs, tomorrow perhaps 34-inches and then plasma TVs. Despite all this churning, one company that has survived and grown is Samtel Color. Samtel is today India’s largest colour picture tube (CPT) manufacturer. Its competitors– Hotline, JCT Electronics and BPL in the domestic picture tubes market are fighting financial constraints just to survive in this volume-driven market where the agility and ability to manage and make the most of a fast-changing market are critical.
• Prices of TVs, and thus picture tubes, drop sharply (4-5 per cent a year) as volumes scale up; the key to profitability is improved productivity and cost-control as well as the ability to move on to new growing segments where net realisations are higher. Samtel is doing just that. In March 2002, the company set up a third line for 21-inch superflat picture tubes (SFTs) for colour TVs and colour display tubes (CDTs) for PC monitors; two more lines have come up at the same site. Work on the fourth line (for 29-inch tubes) is also completed. So, volumes and net realizations are set to look up in the next few years as the company expands capacity to more than 9 million–more than the total industry size today. Its CDR package is expected to bring new lease of life for the company.
• The Indian avionics leader, Samtel Display Systems (SDS), was awarded the Frost & Sullivan ‘Hot Investment Opportunity Award 2009′ in the Indian Aviation Suppliers Market. This award recognizes the Company’s outstanding business model based on unique and differentiated products, continuous upgrades of systems, long-term client contracts and industry certifications such as SAE/AS 9100 Rev-B. This is the first time that Business Financial Services (BFS) at Frost & Sullivan has awarded an Indian participant in Aerospace Sector. It is worth mentioning here that, Samtel Display Systems is the only privately owned company manufacturing high-end avionics products in the country. Moreover, the deal between Samtel and HAL for Sukhoi runs for the entire lifetime.
• Samtel Display Systems (SDS) is a key Indian player in high-technology products for avionics and military applications in both domestic and international markets. SDS straddles the entire value chain from design, development, manufacture, testing, qualification, repair & maintenance and obsolescence management of avionics products and equipment for military as well as commercial aircraft. Its products include Color Avionic Tubes (CAT), Multi Function Displays (MFD), Head Up Displays (HUD), Helmet Mounted Displays (HMD), Automated Test Equipments (ATE) and IADS, as well as Control Displays for Armored Military Vehicles. SDS is a part of the Samtel Group, India’s largest integrated manufacturer of a wide range of displays for television, avionics, industrial, medical and professional applications, TV glass, components for displays, machinery and engineering services.
• Earlier in 2010, Samtel Display Systems (SDS), one of India’s leading private sector aerospace companies, has inked a memorandum of understanding (MoU) with Swedish major Saab to jointly develop, manufacture and market a new generation head-up display (HUD) for helicopters. RIGS is a new-generation advanced lightweight HUD designed by Saab to provide helicopters with a cost-effective display solution. RIGS gives all-weather capability, ideal for flying and landing helicopters in challenging conditions, by presenting landing information and images from enhanced vision sensors, enabling pilots to see through darkness, smog, smoke and various levels of snow, rain and fog. SDS is already in advanced stages of developing HUDs for fighter aircraft. Subsequent to this MoU, SDS will now also be involved in the development of RIGS HUD together with Saab. SDS and Saab will jointly market RIGS in India to potential Indian customers for the Indian commercial and military airborne market. SDS will be involved in the development of RIGS electronics and software and will also develop and manufacture parts of the RIGS HUD. Initially, the parts manufactured by SDS will be for the Indian market, with the potential of serving international market in the long run. SDS may also, at a later stage, leverage its relationship with HAL (Hindustan Aeronautics Limited) for the joint marketing activities of RIGS. The company hopes that this collaboration will extend to other international markets as well over the next few years. This is the second MoU to be signed between Saab and SDS. This collaboration marks its next step towards consolidating its position in the Indian aerospace and defense market. Samtel Display Systems (SDS), earlier announced the opening of its office in San Jose, California, as part of its international expansion programme. This development marks a significant foray of SDS into the international market, thus facilitating close liaison with existing and potential customers, while helping SDS pursue business development activities in this geography. Since the creation of SDS, the company has received overwhelming response from the US market. The new venture is expected to minimize constraints due to long distances and time differences and enable it to reach out to wider-set of clients. SDS is a frontrunner in India’s private sector defence industry, having joint ventures and memorandums of understanding with Thales, Airbus, Honeywell, Lockheed Martin and Boeing, as well as Indian government defense organizations, the Defence Research and Development Organisation (DRDO) and Hindustan Aerospace Limited (HAL). It aims to grow from an expected turnover of Rs.100 Cr in 2010-11 to Rs.600 Cr in 2014-15 through expansion into the head-up displays, helmet mounted displays, automated testing equipment and OLED (organic LED) technologies. The only Indian company to manufacture cockpit displays for the Airbus family, it is also the chosen supplier of cathode ray tubes for Honeywell’s EFIS40 electronic flight instrument system. This segment was previously monopolised by Sony.

Chart Check and Conclusion: In a major turnaround, Samtel Color, the flagship company of electronics giant Samtel group, posted a net profit of Rs.76 Cr ($17.11 million) for fiscal 2009-10 (FY10) against a loss of Rs.75 Cr for the nine month period ended March 31, 2009. For the fiscal ended March 31, the company has declared a consolidated revenue of Rs.1, 114 Cr as compared to Rs.717 Cr during the nine-month-period ended March 31, 2009.

The consolidated revenue for the quarter ending March 31 increased by 10 percent to Rs.269 Cr in comparison to Rs.245 Cr for the corresponding quarter of the previous year. The company’s net profit after tax increased by 129 percent to Rs.8 crore in comparison to a loss of Rs.27 Cr for the corresponding quarter in the previous year, “thus showing a complete turnaround of the result”.

Samtel Color’s EBIDTA has shown an increase of 1,336 percent during the quarter by rising to Rs.31 crore in comparison to a loss of Rs.2 Cr in the previous year. Samtel Color manufactures the widest range of colour TV tubes in India from 14-inch to 29-inch and has a capacity of over 10 million picture tubes per annum.

From the charts it has been found that most of the parameters are in buy mode. One can accumulate the scrip at the CMP of Rs.16.80, for a target of Rs.21-25 in the short term. Please keep a SL of Rs.12-13 for any short term play.

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 stock recommended on 13th June, 2010, to the Paid Group members in the Sunday Report.