Sharekhan Investor's Eye dated February 06, 2008

Ratnamani Metals and Tubes
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,440
Current market price: Rs1,070

Steady growth momentum

Result highlights

For Q3FY2008, Ratnamani Metals and Tubes Ltd (RMTL) reported a growth
of 14.3% year on year (yoy) in the net sales to Rs214.4 crore. The net
sales were however marginally below our expectation.
The operating profit grew by 13.9% to Rs48.1 crore and the operating
profit margin (OPM) remained flat at 22.5%. The OPM remained flat on
the back of stable raw material prices and improved operational
efficiency.
The other income showed a steep increase on a year-on-year (y-o-y)
basis and came in at Rs3.3 crore. The increase in other income is
attributed to the foreign exchange (forex) gain.
The interest cost was up 28.1% to Rs4.4 crore, while the depreciation
charge jumped by 85.9% to Rs6.2 crore.
The net profit increased by 25.7% to Rs27.3 crore inline with our
expectation of Rs28.5 crore.
The order book stood at Rs532 crore executable over the next six-month
period. Orders worth Rs132 crore came in from direct exports.

Canara Bank
Cluster: Apple Green
Recommendation: Hold
Price target: Rs315
Current market price: Rs308

Margins continue to remain under pressure

Result highlights

Canara Bank reported a profit after tax (PAT) growth of 26.4% year on
year (yoy) to Rs458.8 crore. The PAT growth was mainly due to a 92.4%
year-on-year (y-o-y) jump in the non-interest income driven by higher
treasury profits. The core-operating performance was however
disappointing with the net interest income (NII) down by 10% (which is
a slight improvement over Q2FY2008, when it was down 19.8% yoy).
The NII was down by 10% yoy, but up 18.7% quarter on quarter (qoq) to
Rs934.4 crore. Canara Bank is perhaps the only public sector bank
(PSB), which reported a y-o-y decline in its NII. The calculated net
interest margin (NIM) for Q3FY2008 stood at 2.2%, down 63 basis points
yoy from 2.83% for the year ago period. The significant y-o-y
contraction in the NIM was mainly due to the higher cost of funds
offsetting the yield improvement.
However, the reported non-interest income increased by a whopping
92.4% yoy though down 4.5% qoq to Rs554.6 crore. The rise in the
non-interest income was mainly from higher treasury income and cash
recoveries.
The operating expenses grew by 13.5%, as the bank has not yet provided
for the revised AS-15 transitional liability expenses. Hence the AS-15
related costs are likely to keep the operating costs high in Q4FY2008.
Overall the operating performance remained weak with the operating
profit up by only 10.5% yoy to Rs757.8 crore.
The business growth moderated with the advances up by 8.7% yoy
compared with 24% for FY2007. The deposit growth was also moderate at
9.4%. The management has put in place a strategy of repaying the
high-cost deposits and reducing the low-yield advances.
Asset quality levels showed some marginal improvement with the gross
non-performing assets (GNPA) in percentage terms down by 12 basis
points to 1.54% sequentially (and down from 2.06% in December 2007).
The net NPA (NNPA) were down by 10 basis points to 0.89% sequentially
(and down from 0.96% in December 2006). The coverage ratio of the bank
continued to remain low at 42.8%.
The core operating performance of the bank was disappointing during
Q3FY2008 with pressure on NIM and slowdown in the growth of deposits
and advances. However the directors have put in place a strategy of
repaying the high-cost deposits and reducing the low-yield advances.
This strategy is likely to show results after a few quarters. The
pressure on NIM is also likely to continue for a couple of quarters
before the same stabilises. The operating expenses are likely be back
ended, as the bank is expected to provide for the revised AS-15
transitional expenses during FY2008, which would restrict the earnings
growth in the fourth quarter.
At the current market price of Rs308, the stock is trading at
inexpensive valuations of 7.1x its FY2009E earnings per share (EPS),
3.6x pre-provisioning profit (PPP) and 1x book value (BV). We don't
foresee a major downside for the stock considering its inexpensive
valuations. We therefore continue with a Hold recommendation with a
price target of Rs315.

Mahindra Lifespace Developers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,096
Current market price: Rs629

Q3FY2008 results—in line with expectation

Result highlights

Please note that Q3FY2008 numbers are standalone numbers, which does
not give a complete picture, as the company's major SEZ projects
(Chennai and Jaipur SEZ projects) are executed through its
subsidiaries. The consolidated numbers are eported on an annual basis.
Mahindra Lifespace Developer's (MLD) revenues grew by 3.8% year on
year (yoy) to Rs43.4 crore in Q3FY2008. During the quarter, the
revenues were booked from Mahindra Eminente in Goregaon, Mahindra
Royale in Pune and Sylvan County in Chennai. In M9FY2008, MLD's
revenues declined by 7.4% yoy to Rs112.5 crore, due to delay in the
projects launches for the standalone properties in the previous
quarters.
The operating profit margin (OPM) contracted by 329 basis points yoy
to 19.1%. Consequently, the company's operating profit declined by
11.5% yoy to Rs8.3 crore.
MLD's net income grew by 17.6% yoy to Rs11.2 crore primarily due to
the increase in the other income to Rs5.2 crore in Q3FY2008 from Rs3.1
crore in Q3FY2007. The other income rose on account of higher interest
income generated on cash surplus. In M9FY2008, MLD's net income grew
175.8% yoy to Rs10.6 crore primarily due to higher other income on
account of dividend income received from its subsidiary, Mahindra
World City Developers.

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Summary only...

Natural Resources: Stock Up For 2008

At this very moment, we are witnessing a natural resource explosion of massive global dimensions ...

 

Nearly every resource under the sun is surging in value — gold busting through the $800 level ... silver up 18% ... platinum, 33% ... oil nearly reaching $100, its highest level ever ... and more.

 

Nearly every stock linked to natural resources is powering higher.

 

Every natural resource-based stock market — Brazil, Canada , Australia, New Zealand and more — is enjoying spectacular gains. Every natural resource-based foreign currency and every commodity-driven ETF is surging in tandem.

 

In sum, we have a natural resource explosion of massive, global dimensions.

Of course, corrections — sometimes moderate, sometimes sharp — are inevitable. But they're bound to be short-lived as three megaforces come together to drive the biggest natural resources boom of all time ...

 

Megaforce #1
Massive, Rapid Growth of the World's Largest and Most Populous Continent

 

Imagine a continent five times larger than the lower 48 states with thirteen times the population.

 

Then imagine a socio-economic transformation that combines the Industrial Revolution, the Information Age, and the rapid birth of fervent entrepreneurial spirit, all concentrated into one short generation.

 

That's the phenomenon called Asia today — steam­rolling ahead, overtaking the world's leading industrial powers and leaving many in the dust. Here are just the most recent results:

 

* China's third-quarter growth was an astonishing 11.5%, four times faster than ours, with spending on factories and property surging 26.4%, industrial production expanding 17.9%, and the country's trade surplus up 70% in the first nine months.

 

* India is not far behind. Economy — up 8.9% in the third quarter. Money flooding into the Indian stock market — $19 billion so far this year, already double last year's record $9.5 billion. Money to be spent on infrastructure and manufacturing — more than $500 billion in the next three years.

 

* Singapore's economy surged 9.4%, the longest expansion since 1991. Factories, financial services, construction — all booming.

 

* South Korea, Malaysia , Hong Kong, even traditionally troubled sisters like Indonesia and the Philippines — all following a similar path.

 

End result: A megaforce of unprecedented dimensions driving the demand for energy, metals, foods and more. Some examples ...

 

Aluminum consumption is rising at nearly 30% annually, hitting a record 14.6 million metric tons this year.

 

Nickel, used to make aluminum, is in such intense demand that inventories monitored by the London Metal Exchange have plunged a whopping 89% in the past 12 months to 3,702 tons. That's less than enough to last two meager days of global consumption.

 

Zinc stockpiles just hit their lowest level since 1991 due to overwhelming demand.

 

And despite the U.S. housing bust, copper demand has exploded to more than 18 million metric tons annually.

 

Gold demand is jumping 20% annually. In the third quarter, which ended August 31, India alone consumed more than half the world's total production.

 

Platinum demand is growing at the highest rate of all time.

 

Demand for coffee, wheat, corn, soybeans, even palm oil is off the charts.

And don't forget crude oil. OPEC nations are pumping at near capacity.

 

Mother Earth is straining to pony up the black gold. But it's still not nearly enough to satisfy the spiraling demand from Asia.

 

Result: The highest crude oil prices of all time in nominal terms, and very close to the highest of all time even in inflation-adjusted terms.

Megaforce #2
The Plunging U.S. Dollar

 

The U.S. dollar has now crossed a landmark that will go down in history as the turning point of our era: The greenback has plunged below its all-time low in 1992 to its lowest level of all time.

 

With this single, landmark event, the dollar has crossed from a period of slow, orderly declines ... to a new era of rapid, chaotic declines; from a time when its impact could be ignored ... to a time when its impact will be felt everywhere, especially on those assets that rise the most when the dollar falls — natural resources.

 

And as the greenback sinks, foreign currencies soar:

 

The euro is on a rampage, surging by more than 10 U.S. cents just since August and up 11.5% since the beginning of the year.

 

The Canadian dollar surpassed par with the dollar for the first time in 30 years — and then kept right on going. It now buys around $1.00 U.S., the most since 1960.

 

The Australian dollar, which bought 78 U.S. cents just two and a half months ago, now buys 88 cents ...

 

The Brazilian real has set a seven-year high ... the South Korean won and the Singapore dollar just hit their highest levels in a decade ... even the Chinese yuan, forcibly held down by the Chinese authorities, has jumped to a new high.

 

The impact on natural resources is both immediate and long term.

 

The reasons: Nearly all of the world's resources are priced in dollars. So almost as soon as the dollar falls, their prices have to adjust upward to compensate for the dollar's decline.

 

Meanwhile, international investors, still stuck with trillions in falling U.S. dollars, are not standing still. They see what's happening. And they're running for cover, switching from dollars to any and every contra-dollar asset they can lay their hands on — foreign currencies, gold, silver, other natural resources.

 

Buying contra-dollar investments has been the core of our strategy, and we certainly hope you've followed our lead. If so, you already own what millions of investors around the world now crave — investments that go up when the dollar goes down. If not, it's certainly not too late to start, thanks to ...

 

Megaforce #3
Central Banks Flooding The World With Paper Money And With Wild Abandon

 

The world's monetary authorities see the U.S. housing market in its worst downturn of modern times. They see hundreds of mortgage lenders going broke or on the brink.

 

And they see financial firms reeling from tens of billions of dollars in losses.

 

So they're panicking. Running the printing presses overtime.

 

In the U.S., the Fed has been injecting the most money into the banking system since the 9/11 attacks.

 

In Europe, the supply of money is exploding at its fastest pace in 28 years. In Asia, it's even more extreme — money pouring out of every nook and cranny and flooding into the global markets.

 

Meanwhile, interest rates — normally driven higher by surging economies and soaring commodity prices — are, instead, being held down or even pushed sharply lower.

 

Just in the last two months, the U.S. Fed has slashed its discount rate by 1.25 percentage points and its fed funds rate by .75!

 

The European Central Bank, hell bent on hiking its official rates just three months ago, abruptly stopped. And central banks all over the world did the same.

 

 

No Time Left! Take Action Now ... or Never

 

Look. We're not talking about a long-forgotten event or even a soon-to-come storm on the horizon. This is it! These megaforces are here now. Either you do something to adapt ... or you could be left behind.

 

These are opportunities that can change your life and secure your future ... while the pitfalls could erode — and ultimately destroy — your earnings, your savings and your retirement.

 

And if you're thinking the bulk of the commodity-price rises are behind us, think again. Measured in today's dollars, the price of almost every natural resource on the planet is still far, far below the peak price levels established the last time central banks did what they're doing today.

 

Just to match that peak, the price of aluminum would have to surge by over 2.2 times from its recent peak and the price of tin would have to jump by nearly 2.4 times.

 

If gold rises to the same level as it did back in 1980, measured in today's dollars, it would go to $2,271 per ounce — almost triple its most recent peak.

And for some commodities, the undervaluation today relative to their prior peaks is even more extreme: Cocoa, now in rising demand in Asia, would have to sextuple in price. Sugar would have to go up by more than eleven times!

 

Silver, meanwhile, would have to surge to $145, nearly 10 times today's peak.

No one can say with certainty that they will go that far. Nor can anyone be sure their rise will be contained to those levels. But one thing is obvious: There is no evidence that commodities are peaking ... and there's abundant evidence that they have much more upside potential.

 

Ditto for ETFs that track commodity-sensitive economies ... shares of companies profiting from the resources boom ... and foreign currencies that are rising in value as the dollar sinks.

 

What would it take to end this boom?

 

Almost three decades ago, Fed Chairman Paul Volcker ended the last commodity boom with Draconian money-tightening actions — jacking up interest rates by three full percentage points in one single announcement, slapping credit controls on the entire economy, sucking up the world's excess money like a giant vacuum cleaner.

 

Think about that scenario for a moment. Even in your wildest dreams, could you see today's Fed Chairman, Ben Bernanke , doing something similar?

 

If your answer is "no," then you can rest assured that the end of the natural resource boom is not today or any time in the foreseeable future.

 

So ... stick with it. Ride this boom as far as it will take you. When we see the opportunity, we will have you take profits along the way. But for the most part, our strategy is to guide you to opportunities that are still in their pre-take-off stage ... and use every subsequent correction as a buying opportunity.

 

This South American country's GDP surged 6.1% in the second quarter. It's where we're seeing the biggest gains in decades in employment, consumer spending, and investment ... where the single largest export is booming ... and where the currency is rising steadily against the U.S. dollar.

 

So how can a conservative investor participate in that country's stable-but-rapid growth?

 

Alternative energy company with soaring profits

 

A torrent of forces have converged to create the perfect storm for skyrocketing oil prices:

• Surging worldwide demand ...
  
  
• A new string of Fed rate cuts ...
  
  
• The U.S. dollar teetering on the verge of collapse ...
  
  
• New tensions between Turks and Kurds ...
  
  
• New attacks on oil-producing facilities ...

And no matter what you may already own in this sector, the time is right to branch out into alternative energy, fast becoming a national — and global — priority. One of our favorites: Solar energy.

 

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Summary only...

Ispat to fund expansion plans via equity route

Source : CNBC-TV18

Ispat Industries has a debt of about Rs 6500 crore. However, the company has plans for expansion, for which it wants to take the equity route. Speaking to CNBC-TV18, Anil Sureka, ED Finance said that they expect debt to come down by close to Rs 800 crore over the next four quarters. He added that they will finance their capex plans via promoters, internal accruals and convertible instruments.


Talking about the company’s expansion plans, Sureka said they will up their HR coil capacity to 3.6 mt and will also add a blast furnace. A 4.5 mt pellet plant and a one mt coke over battery has also been planned. They will also be setting up a 1200 MW power plant costing about Rs 5000-5500 crore in Chhatisgarh

Sureka clarified that LN Mittal has showed no interest in Ispat Industries. According to him, steel prices will improve further on raw material pressures.

Excerpts of CNBC-TV18’s exclusive interview with Anil Sureka:



Q: Before we talk about your expansions, just talk to us a little bit about what you are doing on the capital side. You’ve got nearly Rs 7,000 crores of debt. How much of that are you in a position to repay over the next four quarters? Would you need to raise any equity to finance some of these expansion plans? Just give us a layout.
A: Today you must have seen that our company has given a notice to the stock exchange for giving a warrant to the sponsors and that meeting will be taking place on December 22. This is basically to raise the equity side and the expansion scheme which of which we are now are in the implementation process, most of the money will be raised through the equity rated instrument only. That is also the way we are going to correct our debt equity ratio.



Q: Could you throw some numbers here? How much money would be pumped in by the promoters specifically, what their stake would go up to, whether you would issue any equity to non-promoter shareholders and what the debt will come down to in the next four quarters?
A: In the next four quarters the debt will come down by close to Rs 800 crore. How much equity we allot to sponsors will be decided in the board meeting only. Normally in a year we can give 5% equity voting rights to the sponsors. So it will be within that range.



Q: Where does your total debt stand at right now?
A: It is actually Rs 6500 crore.


Q: There are all kinds of rumours circling the market and you would be the best person to address them. Is it true that the Mittal family is showing any kind of interest in Ispat and you are in any sort of talks with them for some kind of stake sale?
A: This company belongs to the Mittal family only, Pramod and Vinod own the company.



Q: We are talking about Lakshmi Mittal’s family out here?
A: No I don’t thinkso, there is no such thing.



Q: Along with the debt reduction, what kind of capacity addition plan is it that Ispat has over the next four-six quarters?
A: We have planned that we’ll increase the HR coil capacity to 3-3.6 million tonne and we are also adding a blast furnace to support the capacity. We have also planned a pellet plant of roughly 4.5 million tonne. These are the major capex plan we have launched.

In addition to these, we have also launched a coke oven battery of 1 million tonne capacity. That will be in a separate SPV and it will be in a joint venture. All other projects will be in Ispat Industry.


Q: Could you give us a timeline of when this coke oven and the pellet plant would be up and running? What is the total investment that is required for all these expansions that you are talking about?
A: The coke oven will cost roughly Rs 900 crore and the pellet plant and the 3.6 million tonne blast furnace it will cost roughly Rs 1600 crore. The timeline for the pellet plant is roughly 27-months, coke oven is about 24-months and the other project between 12-16 months time.



Q: What kind of pricing do you see steel holding over the next four-six months as you go through the process of cleaning out debt and expanding capacity as well?
A: The steel prices will further improve, that is the industrial view because there is a lot of pressure on raw materials also. Raw material prices are going up and everybody knows that next year, the way things are happening in the iron ore business, industrially also the prices will go up.

Everybody is expecting that there will be a bit of upward movement in the raw material and that it should be the same in the HR finish goods also.



Q: Give us some details on the power project in Chhattisgarh. What kind of investment it would entail, by when you expect to commence work out there and what the capital investment structure is out there?
A: First I would like to address the 110-megawatt power plant which is already in the construction. This will be commissioned by November 2008. This is based on the blast furnace gases at Dolvy and it will meet roughly 30% of the requirement of the steel plant. So that will bring down the cost of power substantially.

Now coming to Chhattisgarh, we have signed an MoU with the government of Chhattisgarh for setting up a power plant of 1200 megawatt. It should cost around Rs 5000-5500 crore. Presently we are in the process of tying up the fuel, once that is tied up, then we will do the other activities too like the environmental clearances of the sector, etc parallel to that. But this will all be in a separate company, not in Ispat Industry.



Q: Just to ask that question again, since it keeps cropping up, are you sure that Lakshmi Mittal and Vinod Mittal have had no discussions about any kind of a joint development plan or expansion plan under the Ispat umbrella in India?
A: To my knowledge I am 100% sure.



Q: One word as well on what exactly you might look at in this equity route to raise finances?
A: One, we are talking to the sponsors. This week we will have a meeting for the allotment of warrant to them and the Board will decide. The other is we are raising finances for this Rs 1600 capex that we have planned. This will be mostly support by the sponsors, it will be a combination - sponsors, intellectuals or maybe some convertible instruments.

Q: But no more debt will be loaded on balance sheet, right?
A: The debt burden will not be much, we are trying to bring down the debt.

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Summary only...

New Multibagger: Shiv-Vani Oil

Shiv-Vani Oil-Drilling Profits

BSE 522175;

CMP Rs 551

Target: 1000 in 12 months

 

Shiv-Vani Drilling is likely to become one of the prime beneficiaries of the near $ 3 bn Oil Exploration Budget of Ongc over the next 2-3 years. The hunt for Crude Oil is on in right earnest, as the GOI opens ever more larger blocks to foreign and domestic oil explorers both on-shore and off-shore. The Key Mantra these days is Oil Security and beyond Mukta, Panna, Tapti, Lakshmi, Aishwarya and Cairns Mangala on-shore prospects, only the Deen Dayal and Dhirubhai fields in AP offshore have discovered either oil or gas, since Crude was discovered in the Assam-Arakan belt before independence and in the Bombay High segments in then early 70s.

 

Shiv-Vani has 25 onshore rigs under operation with one more getting added in FY08. Additionally, it has 4 offshore vessels and is seeking to acquire jack-up rigs and PSVs, which would diversify its Revenues from just onshore oil exploration to the Offshore Oil, Pipeline Construction, Gas Compression and Allied Services segment especially development of Coal Bed Methane blocks and gasification and re-gasification of Natural Gas as more gas becomes available for transport, in about 8 months from now from the Krishna-Godavari fields. Shiv-Vani is the biggest private sector rig owner and operator in India for on-shore operations with 4 seismic data acquisition equipment, 4 crew boats, 7 compressors, 233 drilling rigs, 425 logistic supply vehicles, that include cranes, bunk houses, trailers, prime movers and forklifts.

 

Shiv-Vani is undergoing a CAPEX of Rs 600 crore, a part of which has been financed through private equity placed with Citigroup Internationational Growth Partnership Mauritius at Rs 375 per share. This CAPEX is being made to prepare Shiv-Vani for the NELP VII which will offer 80 to 85 blocks covering an area of 352,000 sq kms.

 

While Ongc has been accounting for nearly 60 per cent of Shiv-Vani's Revenues, it is the entry of Cairn, Reliance, Videocon and GSPC which is making the field bigger and wider. Earlier this year Ongc had made an attempt to acquire 25 onshore rigs from UPET of Romania, which ultimately did not work out. Now Ongc is trying to acquire 17 Rigs for exploration in the Assam-Arakan Oil belt. Shiv-Vani is likely to be the prime beneficiary of this effort as it possesses the largest number of onshore drilling rigs in the country. Any newsflow on this count will work as a price trigger for Shiv-Vani.

 

Even though FY09 will turn out to be a year of massive growth for Shiv-Vani, but at 16 times FY08 forecast earnings Shiv-Vani Oil appears to be amongst the cheapest plays in the sector when compared to marginal oil drilling players like Garware Offshore and Jindal Drilling which offer just OSVs and 2 Oil Drilling Rigs between themselves.

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Summary only...

Sharekhan Investor's Eye dated December 03, 2007

STOCK UPDATE

Jindal Saw            
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs1,018
Current market price: Rs898

Price target revised to Rs1,018

Key points

• Jindal Saw Ltd (JSL), the largest pipe manufacturer in the country, continues to benefit from the huge opportunity in the sector due a surge in E&P activities globally and a strong domestic and export demand.
• At the end of the last quarter, JSL's order book stood at $715 million, which is executable by May/June 2008. Of this, $565 million orders are for Submerged Arc Welded (SAW) pipes while the remaining orders were for ductile iron (DI) and seamless pipes.
• The performance of the company is set to improve further going forward. The US operations had been a drag on company's earnings in the past. With the US division being hived off along with a better product mix due to higher contribution from seamless and DI pipes, the overall profitability of the company is set to improve.
• JSL has a big investment book with investments in various group companies, particularly Jindal Steel & Power and JSW Steel. The total investment value works out to Rs403 per share for JSL. We believe JSL has strong potential for value unlocking and the same is likely to trigger a re-rating of its stock. We value the core business of the company at 11x CY2009E earnings and take the investment value at a 75% discount to its current value.
• The company has an aggressive capital expenditure (capex) plan, as it is expanding its Longitudinal Submerged Arc Welded (LSAW) capacity by another 200,000 tonne by September 2008 and is adding 350,000 tonne to its Horizontal Submerged Arc Welded (HSAW) capacity. The total capex for the same would be Rs250 crore by the end of CY2008. The capacity expansion of the seamless pipes to 250,000 tonnes is also on schedule.
• We maintain our positive outlook on the company considering its leadership position in the industry and the scope for margin expansion. With the sale of the US operations, the company would also be sitting on a huge cash pile, which would partly be used for debt repayments and capacity expansions. We believe the stock is trading at attractive valuations at 17.1x its CY2008E earnings and 10.8x its CY2009E earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs1,018.

---

SECTOR UPDATE

Automobiles

Four-wheelers sales continue to be robust
Sales of two-wheelers for November 2007 were slightly below our expectations. Production constraints are restricting the industry growth, which is witnessing a revival in sales after almost one year followed by new launches and festive season. The declining sales trend on a year-on-year (y-o-y) basis is poised to turn positive. The four-wheelers sales continue to be robust due to successful new launches. The growth rate of four wheelers is expected to decelerate in the second half due to high base of second half of last year.  

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Summary only...

Sharekhan Investor's Eye dated November 23, 2007

 

STOCK UPDATE

Grasim Industries        
Cluster: Apple Green
Recommendation: Buy
Price target: Rs3,950
Current market price: Rs3,627

Price target revised to Rs3,950

Result highlights

• Grasim reported a 25.3% yoy topline growth to Rs2,519.2 crore during Q2FY2008 on the back of robust realisations of the VSF division as well as pick up in the sponge iron and chemicals division.
• The overall EBITDA jumped by 51.3% yoy to Rs805.5 crore driven by a whopping 81% yoy growth in VSF profits which stood at Rs316 crore. The cement division's profits grew by 24.2% yoy to Rs442 crore whereas the sponge iron and chemicals division's profits jumped by 292% to Rs269 crore.
• Overall margins expanded by 550 bps to 32% mainly as the VSF margins expanded by 900 bps to 40%. The cement margins expanded by 110 bps to 32.3%.
• Interest expenses were up 13% yoy to Rs27.2 crore due to higher borrowings in the quarter whereas the depreciation increased by 15.8% yoy to Rs87.5 crore due to part commissioning of VSF expansion in FY2008.
• The other income increased by 14% yoy to Rs57.3 crore thanks to deployment of surplus cash. Consequently, the PAT was up 48.1% yoy to Rs500 crore, beating our expectations
• As we mentioned in our earlier reports, Grasim is expanding its cement capacity by 10.4 MMT including a 4.4 MMT plant at Shambhupura and 4.5 MMT Greenfield plant at Kotputli. The capex is progressing as per schedule whereby the facility at Shambhupura is expected to get commissioned by Q4FY2008 and at Kotputli by Q1FY2009.
• The company is expanding its VSF capacity by 94875 tonne to 366000 tonne including a 63875 tonne expansion at Kharach, Gujarat and 31000 tons at Harihar in Karnataka. Additionally, the company also has announced an Rs.840 crore Greenfield plant of 88000 tons at Vilayat,in Gujarat which is expected to be commissioned in the next 24 months. 
• The VSF division is peaking at the right time for the company in the wake of an expected downturn in the cement cycle in the next one-year. Going ahead the strong volume growth for the VSF business coupled with better realisations and cost control, will drive the cashflows of the company more than offsetting the fall in the cashflows of the cement business. Also, any surprise on the cement prices will only be positive for the company. Consequently, we believe this is one of the most comfortably placed companies in our cement pack. At the current valuations, the stock trades at 13.7x its FY2008E EPS and 15.7x its FY2009E EPS. The company's cement business is trading at valuation of USD 125 on the expanded capacity which is cheap considering the fact that benchmark valuations have gone up as mentioned in earlier reports. Taking cognizance of the cheap valuations of the cement business coupled with the positive outlook for the VSF business, we are upgrading our SOTP price target to Rs3,950 per share.

ICI India        
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs581
Current market price: Rs530

Diwali sales deferred to Q3

Result highlights

• The Q2FY2008 results of ICI India are not comparable on a yoy basis due to divestment of several businesses in FY2007. The net sales for the quarter stood at Rs239.1crore.
• The paints business revenue grew by 5.6% yoy to Rs202.2 crore in Q2FY2008. The growth appears subdued due to high base effect as the festive sales on account of Diwali got deferred to Q3 as against most of it being registered in Q2 of FY2007. Thus we expect the paints division to record handsome growth in Q3FY2008.
• The continued chemical business grew by 21.9% yoy to Rs36.8 crore. Thus the overall revenues of the continued businesses grew 7.8% to Rs239 crore. The discontinued business (surfactant and advanced refinish) had contributed Rs22.8 crore to the company's total revenues in Q2FY2007.
• The PBIT in the paint business declined by 3.8% yoy with a 90 basis-point contraction in the margin to 9%. The PBIT in the continued chemical business grew 41.9% yoy with the margin expanding by 234 basis-points to 16.6%. After the sale of the Uniqema business, the chemical business now contributes only 15.4% to the top line as against 21.7% in Q2FY2007.
• Overall, the operating margin stood at 12.5% against 13% in Q2FY2007. With a higher other income at Rs6.5 crore for the quarter against Rs3.9 crore in Q2FY2007 the adjusted net profit grew by 3.5% yoy to Rs21.3 crore.
• Pursuant to the scheme of buy back, till the end of the quarter the company has bought back 15.87 lakh shares against a target of buying back ~36.7 lakh shares (worth Rs211.06 crore). 
• The outlook for the business remains positive with the company following a strategy of divesting non-paint businesses and focusing more on growing the paints business. Further a cash pile of ~Rs700 crore leaves open inorganic growth opportunities for the company. 
• We have realigned our estimates for FY2008 and FY2009 considering H1FY2008 performance. The buyback of shares and the expected open offer by Akzo make the stock attractive for investors. Thus we expect the stock to remain an outperformer. We shall revisit our numbers and target price on further moves by Akzo Nobel. At the current market price of Rs530, the stock trades at 18x its FY2008E adjusted EPS of Rs29.4 and 16x its FY2009E adjusted EPS of Rs33.1. We maintain our Buy recommendation on the stock with a price target of Rs581.

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VIEWPOINT 

Siemens        

Forex gain boosts profit

Result highlights

• In Q4FY2007, on a standalone basis, Siemens reported a 46.2% yoy growth in the net sales to Rs2,193.2 crore led by 90% growth in the revenues of the transport business and 65% growth in the revenues of the power business.
• Adjusting for the mark-to-market gain of Rs128.5 crore. The operating profit grew by 73% yoy to Rs216.7 crore, resulting in an OPM of 9.9%. The OPM improved by 150 basis points.
• The net profit before exceptional items grew by 24.3% to Rs170.1 crore. The reported net profit grew by 125.6% to Rs308.6 crore.
• For FY2007 the net sales grew by 70.7% to Rs7,753.7 crore. The operating profit grew by 47.7% to Rs600.7 crore. For the full year OPM declined by 130 basis points to 7.7%.
• For FY2007 the net profit (before extraordinary items) stood at Rs432.1 crore which was up 20% yoy basis. The reported net profit grew by 65.6% to Rs596.5 crore.
• The company has announced a bonus issue in the ratio of 1:1 and a dividend of 240% (Rs4.80 per share). 

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Next Multibagger : Himalya International adopted by Reliance Retail

CMP : Rs 23.09

Target: Rs 100 in 15 months

BSE:526899

 

Business Profile
Himalya International (HIL) was incorporated in the year 1992. The company is promoted by Manmohan Malik and Sanjeev Kakkar. It is engaged in mushrooms and vegetables. The plants of the company are located in Paonta Sahib (Sirmaur, Himachal Pradesh).

The company works in close cooperation with CFTRI (Central Food Technological And Research Institute) located in Mysore, India.

HIL provides variety of products including mushroom products, potato products, dairy products and various products related to this. The company sells its products only in Indian market and in the US market.

It is also certified by the United States Department of Agriculture as a member of National Potato Promotion Board.

The company has a wholly owned subsidiary namely, Global Reliance, which takes care of all the shipment work of the company. It started importing food products from US department of agriculture and will market these products in India.

Financials

Himalya International registered a 91.27% growth in net profits to Rs 25.40 million for the quarter ended in September 2007 from a profit of Rs 13.28 million for the quarter ended in September 2006

Net Sales rose 31.88% to Rs 107.68 million for the quarter ended September 2007 from Rs 81.65 million for the quarter ended September 2006.

Recent Developments
13-NOV-07
Himalya International entered into an agreement with Reliance Retail, the largest retail player in the country, for selling its products in domestic market.

09-NOV-07
Himalya International entered into a contract with Dr. Beyer of State College, Pennsylvania, USA for biological consulting for its mushrooms operations and new plans to augment capacity. Under the contract, the company will be provided with latest technology that will boost mushroom yields from current levels by atleast 50%. Dr. Beyer will be paid fixed fee besides rewards based on increased yields. Dr. Beyer will also assist the company for its mega expansion plans of mushroom facilities.


Future Plans
The company decided to convert 100% EOU into DTA under EPCG scheme of the government of India. It has targeted a turnover of Rs 1,000 million by the year 2010.

In order to meet growing demands of foreign food products in India, the company forayed into importing.

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Turnaround : Western India Shipyard Will Scale New Heights Again

CMP: 23.80

Target: Rs 150 in 15 months    

BSE Code: 531217

 

Business Profile :Western India Shipyard
Western India Shipyard (WISL) was incorporated in the Union Territory of Delhi May 1, 1992. WISL is a composite ship and rig repair facility in the private sector. The company has the most advanced multi-dimensional and multi-purpose yard offering modern, streamlined, sophisticated ship and rig repair facilities and services. WISL is strategically located at Goa along the west coast of India. The construction of the `Jock Up Barge` namely, PMC-1 of the value of about Rs 188.1 million by the company for PMC Projects (India), is proceeding smoothly and the vessel is expected to be delivered sometime in Jan-Feb. 2007. The operations of the company`s floating dry-dock of 20,000 TLC capacity was suspended during the period from Jan. 21, 2006 to Feb. 10, 2006 to carry out mandatory repairs for the purpose of maintaining its statutory classification certificates. This had a material impact on the company`s operation and performance for the year ended Mar. 31, 2006.

Financials
The company reported a loss of Rs 21.36 million for the quarter ended Sep. 2006 as against the loss of Rs 24.94 million during the corresponding quarter in the previous year. Sales for this period increased 11.76% to Rs 141.50 million from Rs 126.61 million. WISL, for the year ended Mar. 2006, had reported a 10.70% increase in sales to Rs 427.93 million as against Rs 386.56 million for year ended Mar. 2005. The company incurred a loss of Rs 233.68 million in FY06 as against a loss of Rs 244.22 million in FY05.

Recent Developments
The company wins a major contract from PMC Projects (India), a Adani Group Company, for the construction of `Multi Utility Craft` valuing about Rs 35 million, under the India Flag.

The company wins 3 minor and medium size orders for repairing of 3 vessels namely MV Swatirani, MT Maratha and Pyari Amma valuing Rs 70.00 million totally.

Future Plans
WISL plans for the improvement of systems and ship repair methodology. It also plans to improve interaction with research agencies involved with ship repair and rig repair technology.

 

 

News Item1:

Source: http://www.equitybulls.com/admin/news2006/news_det.asp?id=19146

Western India Shipyard announces Scheme of Compromise and Arrangement

Western India Shipyard Ltd has announced about the Scheme of Compromise and Arrangement between Western India Shipyard Ltd (the "Company") with its Secured Lenders and Shareholders u/s 391 - 394 of the Companies Act, 1956 with ABG Shipyard Ltd as a confirming Party, as under :

"Background and Rationale for the Scheme :

The Company is presently engaged in the business of repairing, servicing, assembling and fitting of merchant ships and other sea going vessels. The Company had obtained various financial assistances / facilities by way of secured and unsecured loans, debentures, overdrafts, guarantees, working capital, etc. from various lenders. The account of the Company is a non-performing asset in the books of some of its lenders in terms of the provisioning guidelines issued by Reserve Bank of India (RBI).

The Company continues to have poor physical and financial performance since inception in spite of various reliefs and concessions extended by its lenders. The Company has entered into a number of debt restructuring efforts with its lenders, including the most recent corporate debt restructuring package by way of the Restructuring Proposal dated January 28, 2005 proposed by the Corporate Debt Restructuring Cell, a voluntary mechanism for Corporate Debt Restructuring (CDR), set up under the aegis of the RBI (the "Debt Restructuring Package"), but continues to remain a non-performing asset in the book of a majority of is its lenders. It has failed to meet its projections, making the various restructuring packages unviable. The Company also does not enjoy working capital limits required for turnover of approximately Rs 70 Crores as per the Debt Restructuring Package. Due to its poor financial performance, the Company has not been able to retire its debts lending to a huge debt burden. As of March 31, 2006, total debts of the Company were Rs 250.1 Crores, against fixed assets of Rs 122.8 Crores. Due to continuous poor performance and recurring huge losses, the net worth of WISL, has completely eroded. The accumulated losses as on March 31, 2006 are Rs 187.1 Crores. The Company faces a real threat of winding up if it continues its current state of affairs.

The Company has 424 permanent employees and around 250 employees on contract basis, whose interests shall be adversely affected if W1SL, is not revived. Taking into consideration the Company's financial position, any revival would require infusion of funds, settlement of debts and resolution of ongoing litigations.

ABG is a company incorporated under the provisions of the Companies Act, 1956 having its registered office at Near Magttalla Port, Dumas Road, Surat - 395 007. ABC is engaged in the business of shipbuilding and ship-repair. ABG has the largest private-sector shipyard in the country and specializes in the construction of medium sized support and defense vessels. The ABG Group is a leading market player in the Indian marine and shipping industry. The group has interest in all major marine and shipping activities, viz. ship-building and ship-repair, owning and chartering of ships and port operations. Pursuant to discussions between the Company, its major secured lenders and ABG. ABG has evinced interest in being involved in a proposal to rehabilitate the Company. Accordingly, the Company is proposing this composite scheme of arrangement with its secured lenders, with ABG as a confirming party, with a view to rehabilitate the Company into a viable and profitable company, wherein ABG's involvement includes a combination of cash infusion into WISL, and acquiring a hares in the Company pursuant to the provisions of this scheme of arrangement. As a step towards rehabilitating the Company, and to demonstrate its commitment thereto, ABG shall, immediately upon filing of the Scheme with the High Court, provide a loan of Rs 25,00,00,000/- to the Company towards urgent business requirements of the Company, and has also agreed to provide technical and marketing expertise through a Service Provider Agreement, to be entered into between ABG and the Company simultaneously or contemporaneously to the filing of this Scheme.

The Scheme provides certain options for the restructuring / one time settlement of the debt of the secured lenders of the Company with the involvement of ABG, along with other matters connected with the compromise and arrangement, including reorganization of share capital of the Company."

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