India Stock Market Gems

Why Law of Average does not work at all times?

noreply@blogger.com (Srivatsan) — Mon, 08 Sep 2008 16:11:00 +0000

We always tend not to book loses on any investment even if the investment has eroded our substantial capital and even if the company is no longer an attractive investment. We always tend to average out on falls in order to find an opportunity to exit out of the stock without any loses.

Is averaging stock price always good enough?

Today we will talk about two big US financial firms which have been a star performer for more than 2 decades now, Fannie Mae and Freddie Mac and the fate of top investment firm holding positions on to this securities.

Big investors in Fannie Mae and Freddie Mac face a brutal Monday. Shares in the mortgage giants, which have already lost 90% of their value over the past year, are likely to plunge anew in the wake of the government's announcement Sunday that it is taking control of the companies and ending the payment of common and preferred dividends.

Given that both Fannie and Freddie have posted billions of dollars in losses during the past year, and that billions more are expected while house prices continue their historic decline, it's not likely that the market will accord much value to shares that give holders no right to select board members or otherwise oversee management.

Bill Miller, the Legg Mason mutual fund manager, was Freddie Mac's largest shareholder as of July 31, with 12% of the company's stock.

The government intervention comes just over a month after Legg Mason's Miller reported a sizeable purchase of Freddie shares. Miller came to fame with a 15-year run of beating the S&P 500. But that streak ended in 2006, and since then his Legg Mason Value Trust has lagged far behind the market.

Miller's run of poor results hasn't made him any less aggressive, however. He has owned Freddie shares for some time but has been doubling down on the company as its shares plunged over the past year. Legg Mason owned 15 million shares at the end of 2007, when Freddie stock was fetching $34 a share in the market. He then boosted that figure to 50 million in the first quarter, as shares dropped into the teens in the wake of the collapse of Bear Stearns, and 80 million at July 31, when the price was below $10.

Freddie Mac and Fannie Mae shares at the time of writing this article is trading at around 1$ each. The fate of investors who have taken position couple of months back when it was trading at around $40 is unknown at this point in time. If this is a case with a multi billion dollar firm think of Indian investors who try to average out positions in small and mid cap stocks. Investors should always experiment caution and do a detailed analysis on the prospects of the company growth before re-investing in the stock at lower levels. It is always good to investigate the reason for the fall in stock price before adding on the shares to the existing portfolio.

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Stocks for Nuclear India

noreply@blogger.com (Srivatsan) — Sun, 07 Sep 2008 16:51:00 +0000

“Don’t let the perfect be the enemy of the good” is a catch-phrase often used by negotiators trying to conclude a deal and it applies to this week’s agreement signed in New Delhi by President Bush and Indian Prime Minister Manmohan Singh.

Now, the question is: is "good" good enough?

The pact will open India's civilian nuclear program to international inspection and safeguards and "remove a basic irritant" in U.S.-Indian relations over the past 30 years.

American businesses stand to reap huge profits from the expected sale of equipment, nuclear technology and nuclear fuel as India expands its civilian nuclear program to help fill its demand for more power to meet the needs of its expanding population and economy.

According to the agreement, Only 14 of India’s 22 nuclear reactors will come under international safeguards, allowing India to pursue the military side of its nuclear program without scrutiny.

The momentous outcome has energised Indian trade and industry bodies as an eventual ratification of the deal by the US Congress could see the country attracting as much as $40 billion in foreign investment over the next 10-15 years. This, primarily because the private sector may be allowed to enter the nuclear power sector in a big way by the government.

The go-ahead to the nuclear deal will signal the building of scores of nuclear plants in India on assured fuel supply. This will trigger the participation of 200 firms with capabilities to operate, and maintain nuclear plants.

Nuclear development will provide opportunity for Indian manufacturers to supply spares and components to the global manufacturers of nuclear power plants besides providing business opportunities for Indian power plant construction companies.

This definitely is going to provide a positive impact on the Indian Stock Market on the opening bell tomorrow. The market outlook still looks bearish with a certainty of the US and other major economies falling into a recession. Below are five stocks which are set to be benefited with the nuclear deal. Investor with a long term view can look at accumulating the stocks at current level

1) Hindustan Construction Company (HCC) - CMP Rs. 97/-
2) Larsen & Toubro (L&T) - CMP Rs. 2616/-
3) National Thermal Power Corporation Limited (NTPC) - CMP Rs. 173/-
4) Bharat Heavy Electricals Limited (BHEL) - CMP Rs. 1731/-
5) Power Grid Corporation of India Limited - CMP Rs. 92/-

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Indian Equity Markets - Outlook and Stock Recommendation

noreply@blogger.com (Srivatsan) — Thu, 28 Aug 2008 07:59:00 +0000

Equity markets were unsettled during the second quarter as investors faced two challenges: a deflationary crisis in global credit markets and the inflationary thrust of soaring food and energy prices around the world. Neither challenge has been ‘resolved’ and the implications of each are likely to set the tone of financial markets during the second half of the year.

Mounting inflation threatens to complicate an already challenging situation by constraining consumers’ spending power, eroding corporate profit margins and encumbering the operations of the world’s central banks. Pricing pressures should abate as economies slow.

There is every prospect of a period of sluggish economic activity as the end of the ‘cheap money’ era coincides with an escalation in the global prices of energy and food. However, the long suffering investor should persevere. Threats are obvious but, as sentiment in markets deteriorates, changes in economic and financial landscapes are likely to present attractive opportunities for investment.

It is nearing a year we have been asking our investors to book money out from markets and sit on cash (Our Nov'07 article asking investors to book profit from the market: http://profitfromshortterm.blogspot.com/2007/11/what-to-do-this-diwali.html). We are one of the few market analyst who predicted the market fall at the beginning of the credit crisis. Our recommendation portfolio during this period has delivered a positive growth of 2% as compared to a negative 23% return by the sensex. Neyveli Lignite, Orchid Chemicals, Novartis India, Rallis India, TNPL, Chennai Petroleum have been the star portfolio performer beating the sensex return.

Is it a right time to re-enter stock markets?

Further credit market crisis cannot be ruled out and this converging into a full blown recession looks a high probability. Albeit to this with the recent correction seen in Indian markets quiet a good number of stocks looks undervalued. We are advising our investors to sit on partial cash and invest in frontline stocks with a long term outlook. We also have picked five stocks from the small and Mid cap space that has a potential to deliver extra ordinary returns over the course of next 3
years.

Large Cap Picks

1) Mahindra and Mahindra Ltd (CMP Rs. 572/-)
2) Jaiprakash Associates (CMP Rs. 156/-)
3) Indian Oil Corporation -IOC - (CMP Rs. 396/-)
4) Sterlite Industries (CMP Rs. 618/-)
5) HDFC Bank (CMP Rs. 1215/-)

Mid Cap Picks

1) Chennai Petroleum (CMP Rs. 254/-)
2) Ruchi Soya (CMP Rs. 78/-)
3) Shriram Transport (CMP Rs. 335/-)
4) Gujarat Mineral Development Corporation Ltd - GMDC - (CMP Rs. 247/-)
5) Hindustan Construction - HCC - (CMP Rs. 91/-)

Small Cap Picks

1) Abhishek Industries (CMP Rs. 14/-)
2) Tata Metalinks (CMP Rs. 138/-)
3) Novartis India (CMP Rs. 294/-)
4) Deepak Fertilizers (CMP Rs. 91/-)
5) Hitachi Home & Life Solutions (CMP Rs. 110/-)

A Question of Answers - Mail replies

noreply@blogger.com (Srivatsan) — Thu, 07 Aug 2008 15:44:00 +0000

I am holding SAIL at Rs. 230/- and Gujarat Ambuja Cement at Rs. 118/-. Do you see any recovery in short term?

With cooling commodity prices, I would stay away from metal stocks in the current market. Cement inspite of predicted decrease in Infrastructure growth looks positive.
Investors can take fresh long position in sugar stocks with surging sugar prices. Stocks like Sakthi Sugars and Triveni Engineering looks good.
With falling prices of zinc and lead one can look for fresh investments in battery manufactures like Eveready and Amara Raja.

Are you taking any fresh look into your earlier recommended stocks?

Yes. We are positive on Tamil Nadu Newsprint Limited (TNPL), JK Lakshmi Cement, Rallis India and Orchid Chemicals from our earlier recommendation.

With Neyveli Lignite almost available in half the price from it's peak is it advisable to take a fresh position into this stock?

New power additions are not progressing satisfactorily. Also the current quarter results are way below expectation. Will wait and watch for couple of more quarters.

I have brought Alembic at Rs. 42/-. Is it a worth hold for long term?

Seems to me yes. Pharma sector looks to be a good bet in the current market. Alembic looks good with strong presence in domestic market. We are also positive on Orchid Chemicals and Novartis India.

I have huge position in textile stocks like Arvind mills and Alok Industries? Can I book losses or hold it?

I am not sure about Arvind mills. Alok seems to me a good bet from a longer term. I think government control on curbing cotton exports is set to benefit domestic textile firms.

Can I buy Teledata Informatics, Phoenix Mills at current level?

Sorry I am not tracking both of these companies.

A portfolio for your retirement savings

noreply@blogger.com (Srivatsan) — Thu, 31 Jul 2008 16:21:00 +0000

"Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria". Legendary investor John Templeton one of the contrarians believed that the best bargains are available when the investing public is fearful. Not to mention another contrarian investor Warren Buffet whose key to investment success is to be greedy when others are fearful and fearful when others are greedy.

The current financial year saw Indian markets bull run coming to a halt and the financial markets correcting almost 40% from it's peak. Lot of pessimism is surrounding the market regaining it's lost glory with crude oil trading way above the three digit mark and the inflation number touching 2 digit mark. People are surprised to see bank deposits giving two digit return after a gap of almost 7 years. High inflation weakens investor sentiments as it slow downs industrial growth and also brings down the mega expansion plan the Indian corporate world is undertaking.

Taking a optimistic view of tomorrow we have selected 10 stocks which is set to benefit from the India growth story. We have picked these companies with strong balance sheet, corporate governance, business model, Good dividend yield and it's market position. Investors with a horizon of 3 to 5 years can consider investment in to the below stocks.

1) Shipping Corporation of India (SCI) - CMP Rs. 230/-
2) Indian Oil Corporation (IOC) - CMP Rs. 400/-
3) Hindustan Construction Company (HCC) - CMP Rs. 87/-
4) Ashok Leyland - CMP Rs. 28/-
5) Bharti Airtel - CMP Rs. 799/-
6) Bharat Heavy Electrical Limited (BHEL) - CMP Rs. 1679/-
7) Tata Steel - CMP Rs. 630/-
8) Rural Electrification Corporation Ltd (RECL) - CMP Rs. 87/-
9) Oil and Natural Gas Corporation (ONGC) - CMP Rs. 996/-
10) LIC Housing Finance - CMP Rs. 321/-

Detailed recommendation to follow for the above stocks. Due to time constraint we were not able to post recommendations regularly. We have lot of unanswered e-mails from our subscribers which we are trying to attend at the earliest convenience. We will try to clear the e-mail backlog soon.

Ruchi Soya - An Healthy Investment

noreply@blogger.com (Srivatsan) — Sat, 19 Apr 2008 06:12:00 +0000

Ruchi Soya is one of the largest agribusiness companies in India. Ruchi is one of the largest producers and suppliers of vegetable oil and Soya food in India. Ruchi is also the highest exporter of soya meal and lecithin from India and it's brand Nutrela being the largest selling Soya food brand in the country. Ruchi currently has capacities of 2 MTPA of refining and over 2.6 MTPA of crushing spread over 12 strategic locations.

Ruchi Soya distribution reach covers around 5,83,000 retail outlets which includes strong brand portfolio such as Nutrela, Ruchi Gold, Ruchi Star, Mahakosh, Sunrich. As of Dec' 07 edible oil accounts for 72% of the revenue, Followed by Soya products 17% and vanaspati 9%. Ruchi currently accounts for 19% market share of edible oil business in India. Currently branded portfolio accounts for 29% of the business.

The company is the highest exporter of Oil meals from India with it's export presence in most of the south east Asian countries, Middle East and Europe.

Positives

1) Ruchi has entered into national tie-ups with celebrated players like Pantaloon retail, Subhiksha, Reliance Retail, Aditya Birla Group for sale of it's product through the growing modern retail outlet in India.

2) Soya being one of the best source of Vitamins and Proteins, Ruchi is well positioned in growing wellness and health food products. The company is planing to introduce Soya based flours like multi blend flour and also 100% soya flour. Ruchi is also diversifying into mustard products.

3) The company recent venture in to protein drink N'rich is expected to add on to the topline going forward. Apart from the branded products the company is also a manufacturer for pantaloon's private label - Fresh and Pure.

Risks

1) Government current measure to curb inflation by cutting import duty on edible oil.

2) Falling Oil prices in the international market.

At the current market price of Rs. 91/- the stocks trades at around 8 times it's FY09E EPS of 11. The earnings are considerate of the government recent impact to cut import duty. Investor with medium to high risk profile can consider investment into this stock with a horizon of 12 months and a target of Rs. 130/-. Ruchi currently operates in a low margin segment and any further duty cut by government can severely impacts it's margin unless they are able to procure raw materials at a lower cost. This remains a key risk to our recommendation.

West Coast Paper Mills Ltd

noreply@blogger.com (Srivatsan) — Tue, 08 Apr 2008 02:12:00 +0000

West Coast Paper Mills manufacturers writing, printing, wrapping and packing papers. West Coast paper division currently has an installed capacity of 1,63,750 MTPA. FY2006-07 the production at their capacities were running over 100%. West Coast also has a telecom cable manufacturing plant which produces armoured and aerial typed of Optical fiber cables and JFTC cables used in telecommunication network. Currently paper constitutes 96% of the revenue and the remaining by the cable division.

West Coast Paper Mills currently enjoys 7% market share in the domestic paper market. The telecom division of West Coast enjoys 4% market share. Some of the major clients for the cabling division includes BSNL, Reliance, VSNL, CATV among others.

The company currently exports 7 to 8% of its paper products to around 25 countries mainly to middle eastern and african countries. The export order book for the cabling division stands at Rs. 5 crores for FY08.

Positives

1) West Coast is investing around Rs. 1,100 crores in Expansion whereby it is increasing its pulp and paper capacity from 1,63,750 MTPA to 3,20,000 MTPA. The benefits of this project is expected to be realized in FY2009-10.

2) Over a period of 5 years, the company contrives to have 18,000 acres under management for its raw material supply. These initiatives are expected to meet about 25% of its raw material requirement.

3) West coast is leader in production of MICR/Non-MICR cheque paper and Ledger Paper.

4) Step down of excise on paper and its products in the 2008-09 budget.

Negatives

1) High debt leverage for the ongoing expansion program to impact the bottomline due to high interest cost.

2) Paper consumption is directly tied to the GDP growth. Any deterioration in GDP growth can dent the performance of the company.

3) Any further increase in raw material prices which the company is not able to pass on to the end customer. This can happen due to the inflation control program launched by the government.

At the current market price of Rs. 65/- the stock trades at around 4 times it's FY08E EPS of 16. Investor with medium risk profile can consider investment into this stock with a horizon of 18 months and a target of Rs. 118/-. With the government primary thrust to education and the booming textiles and manufacturing exports the demand for paper products is expected to remain strong. With rising raw material prices we expect the topline of the company to be flat until the expected capacity expansion is in place. At the same time with the operation efficiency initiatives taken by west coast we expect the Operating margins to remain robust and deliver a bottomline growth of 20% y-o-y.

A Question of Answers - Mail replies

noreply@blogger.com (Srivatsan) — Sun, 06 Apr 2008 02:01:00 +0000

I am holding Tata Motors at an average price of Rs.815. Do you see any recovery possible in near term?

Kudos to Tata Motors for making the world most luxurious car brand come under the Indian portfolio. Having said that tata's have surely got a brand image but only to harm it's bottomline. The acquisition is a difficult to be turnaround with the terms and conditions these acquisition has been negotiated on. I would wait for atleast 3 quarters to see how things move on the integration front. As of now we have a Sell on tata motors. Their domestic brands are as well losing market share to hyundai, maruti etc.

I would rather bet on Mahindra and Mahindra in automobile sector for a term of 2 years. This brand is gaining good global presence. Again with high inflation rate and a possible rate increase the outlook of automobile sector looks very gloomy at this point.

Your views on Abhishek Industries and vesuvius India?

Both are one of the few market leaders in the business they operate in.

On Abhishek Industries

I would say Invest in this stocks if you have patience and also believe in the company. Abhishek is definitely one of my favorites. The company as such has seen a strong topline growth of around 20 to 30% y-o-y. The bottomline has been dented mainly due to high interest cost and depreciation due to the huge capex the company is undergoing.

Two negatives to the companies

1) Rupee appreciation and a possible US recession
2) High interest rate would adversely affect its bottomline due to its huge debt leverage.

I would advise investors to use any fall from the current level as an opportunity to enter into Abhishek and take advantage of its aggressive capex returns.

On Vesuvius India

Vesuvius India is one of the largest manufacturers of refractories which is used in the steel Industry. With huge capacity expansion in the domestic steel sector the order book is expected to remain strong for Vesuvius. Moreover Vesuvius is almost doubling its unshaped refractories capacity and this is expected to be done by FY09. Add on to this the company is debt free which makes it a nice hedge to the rising inflation and interest cost. The stock at current market price of Rs. 208/- trades at around 13 times it's trailing 12 months EPS of 16 which provides a room for around 30% return in and around a year.

I have been following your blog continuously and you have been having a bearish view of the market for almost 6 months now. With most of the stocks correcting more than 40% has your view changed on the Indian Markets?

The global outlook still looks negative with the US seems to be already in a recessionary phase. As of Indian markets are concerned I would be cautious and go for stock specific buying. I would look for undervalued stocks with strong fundamentals. I will still hold some amount of Cash in hand for the worst.

With the Inflation rate touching 7% and a possible rate hike in place it is advised to Invest in companies with fewer debt in place at the same time having good business model to sustain with.

Thanks for your recommendation on Neyveli Lignite, I made a hefty profit on that stock. At the same time I had brought JK Lakshmi Cement on your recommendation and it is down almost 40% from my purchase price. What is your view on that?

I am still holding JK Lakshmi cement and positive on this stock from a term of 18 to 24 months. True the correction has really hurt the stock to a larger extent but the business fundamentals still look solid.

You seem to be too much positive on Orchid Chemical. After the promoter sale their holding has come down to almost 14% now. Do you not see that as a negative sign?

I don't think so. The promoters of Infosys are holding only 16% in the company. This does not make Infosys a non promoter friendly company. Still as I reiterated earlier there has been some negative news on Ochid and to add on to this lot of liquidity has been floating on the market. I feel time will heel the Investors negative bias on the company and Orhcid will regain it's lost glory.

Stocks that can double from current level

noreply@blogger.com (Srivatsan) — Mon, 31 Mar 2008 01:25:00 +0000

Hitachi Home & Life Solutions (India)

Hitachi Home & Life Solutions (India) Ltd., a subsidiary of Hitachi Home & Life Solutions, Inc., Japan, is headquartered in Ahmedabad, Gujarat, the company's manufacturing facility at Kadi is among the seven Hitachi room air conditioner facilities worldwide. The Indian plant also exports Hitachi room air conditioners to the SAARC, Middle East and other tropical countries in addition to catering to the Indian market.

It has a nationwide sales, distribution and service network. It has 14 Branches, 250 Sales and Service Dealers, more than 800 Showroom Dealers and 350 Service Points. Hitachi currently has a market share of around 45% in the Indian split AC segment market. Apart from air conditioners the company also sells Chillers, Refrigerators and Washing machines in the Indian market. The Refrigerators and Washing machines are imported and were introduced during the financial year 2005-06. These products are well received and expected to have a annual growth of 35%.

At the current market price of Rs. 110/- the stock trades at around 6.4 times it's trailing 12 month EPS of 17. With new product range and Increasing domestic and Infrastructure spending we expect the demand for Hitachi products to continue and expect the company to clock a annual turnover growth of 30 to 35% for the next two years. Investor with medium risk profile can enter into this stock with a target of Rs. 195/- over the next 12 to 18 months.

Ramsarup Industries

Ramsarup Industries manufactures low relation precast steel wires, galvanized wires and TMT bars. The company caters mainly to power and Infrastructure. Power transmission sector accounts for around 40% of ramsarup revenues and the rest from construction and infrastructure.

At the current market price of Rs. 143.65/- the stocks trades at less than 5 times it's expected FY08E earnings. With repeat orders from the existing client tele and the expected capacity expansion in place we expect the revenues to grow at an annual rate of 35 to 40%. We recommend the stock to investors with medium risk appetite and a possible target of Rs. 295/- with a horizon of 18 to 24 months.

Orchid Chemicals - A Retrospective Analysis

noreply@blogger.com (Srivatsan) — Sun, 23 Mar 2008 02:48:00 +0000

Lot of mails and speculation has been offlate floating around Orchid Chemicals. The stock had its market cap wiping off by half in just two trading sessions.

Orchid had topped our recommendation List for quiet sometime now. We initiated a Buy at Rs. 222/- last year, after which it hit a high of Rs. 328/- almost near our recommendation target and then it has all the way crashed to current market price of Rs. 116/-. Let us take a retrospective analysis of what happened and what looks ahead of Orchid Chemical.

Most of you by this time know the reason for the steep fall, Bear Stearns which was acquired by JP Morgan offloaded its stake in Orchid Chemical to ease its liquidity crunch. Sudden liquidity in this stock was even more aggravated when the margin call on a particular portion of promoters stock got triggered of selling another 7.9% stake in the firm.

Question remains

1) Is it legal to increase the stake through borrowed funds on margin?

We do not see anything wrong in that. Looking at the brighter part the promoters had faith in growth of the firm and so increased stake in the company through the route of borrowing money.

2) What is the future of the company?

The company is fundamentally strong and will remain so with lot of USFDA filing waiting for approval. Secondly many of major drugs going off-patented in the years to come is expected to benefit Orchid.

3) What to look ahead and when is the recovery possible?

We need to watch for the upcoming shareholding pattern for more information and also the current quarter results. We need to look at share holding pattern to see if any other institution had sold its stake. If so the liquidity floating the market can make it a speculators den.

Let us just understand that this is a huge personal loss for the promoter K Raghavendra Roa and going by the success story of Orchid he is not a guy who will get visibly rattled. Yeah true it will take him sometime to recover out of this loss. K Raghavendra Roa has scripted the success story of Orchid Chemical for almost 14 years now and let us hope he will continue to do so.

At the current market price the stock is available at less than 6 times its FY08E fully diluted EPS of 22. Also Orchid market cap is around 0.56 times it expected FY08 sales.

Orchid Chemicals also has unutilised foreign currency convertible bonds (FCCBs) amounting to US$193mn. With the stipulated conversion price for these FCCBs now at a significant premium to the current stock price, it is highly unlikely that the holders will exercise the option. This may leave Orchid with a significant loan obligation to be serviced in 2012.

KEI Industries - Growing with Economy

noreply@blogger.com (Srivatsan) — Sun, 16 Mar 2008 20:59:00 +0000

KEI is one of the leading cables manufacturers in India offering a comprehensive range of power cables and housing wires. KEI Manufactures variety of cables namely High Tension (HT) and Low tension (LT) power cables, Control and Instrumentation Cables, other specialty cables, rubber insulated power, control & instrumentation cables. KEI cables are used in a wide variety of industrial sectors, including power and transmission, refining and petrochemicals, oil and gas, cement, metals, telecommunication and fertilizer. KEI also manufactures and sell wide range of steel wires, which have various applications such as manufacturing of springs and fastenings.

The firm has four manufacturing plants in New Delhi, Bhiwadi in Rajasthan and Silvassa along with eight marketing offices across India and one marketing office in Dubai.

With huge capex in the power and infrastructure capacity by the end of twelveth planing commission the order book of domestic cables and wires demand is expected to remain strong. Opportunities for the cabling sector are also ripe in Africa, West Asia and the Gulf region which are poised to make significant investments in the power sector.

Expansion Plans

1) The company HT cables upgradation and LT cables expansion at Bhiwadi is in the final phase of construction and is expected to be operational by April 2008.
2) KEI new manufacturing facility at Chaupanki commenced commercial production in January 2008. The HT cable unit of the Chaupanki facility is in the final phase of construction and is expected to be commissioned by May 2008.
3) KEI is in the process of performing feasibility study to manufacture cables of 132 KV and 220 KV from the existing upto 66 KV. The company has also acquired land for the same.
4) KEI expansion in housewire segment is complete to 2,50,000 kms of capacity. The company revenue during the coming year is expected to increase exponentially.

KEI is in the process of massive brand building and visibility exercise to make “KEI” a household name. This along with the enhanced capacity in the house wire segment is expected to Increase KEI topline significantly.

Positives

1) Strong order demand from middle east, Africa and domestic companies.
2) Increased marketing presence in europe and south africa.
3) Strong business demand and low supply risk.

Risks

1) Increase in raw material prices.
2) Higher interest expense due to ongoing capital work in progress to impact the bottomline.
3) Further equity dilution can reduce shareholders return.

At the current market price of Rs. 63/- the stocks trades at less than 12 times it's fully diluted FY08E EPS of 5.6. We expect the commodity prices to cool down during FY09 with a possible US recession. This together with the full expansion in place is expected to fuel in KEI's bottomline and topline growth. Based on it's FY09E the stock trades at less than 7 times it's expected EPS of 10. Investor with medium risk profile can consider investment into this stock with a horizon of 24 months and a target of Rs. 120/-.

Alembic Limited - Contrarian View

noreply@blogger.com (Srivatsan) — Sun, 09 Mar 2008 16:23:00 +0000

Alembic is a vertically integrated pharmaceutical company with over 100 years of presence in the domestic and international market (Russia, Africa and South East Asia). Alembic USFDA approved facility is involved in the research, development, manufacturing and to effectively market pharmaceutical products and services.Offlate Alembic is focusing on tapping the rapidly expanding generics markets in US and Europe. Global sales currently contribute approximately 20% of Alembic's revenues.

On the international front, Alembic recently entered into a licensing agreement with the Brussels-based UCB for its Novel Drug Delivery Platform for Keppra(Levetiracetam Extended Release Tablets). Under the terms of the agreement, Alembic will receive milestone payments of $11 million and royalty on future worldwide net sales of Keppra.

On the Domestic front, Alembic consolidated its leadership in the acute therapies. Rekool, Roxid, Azithral and Cepime all 4 brands retained or gained the No.1 brand rank amongst their category.

Xceft (Ceftiofur Sodium), part of the Alembic's Veterinary Division achieved the No. 1 position in its category.

Alembic made a foray into the hi-growth lifestyle therapeutic segments of Cardiovascular, Diabetic, Gastrointestinal and Gynaecology by acquiring Dabur Pharma's non-oncology domestic formulations business comprising of 24 brands which are active in the market. This provides Alembic an entry in new segments and reduce dependency on anti-infectives.

The company offlate is focusing on development of non-infringing processes for high value Active Pharmaceutical Ingredients (APIs) with a clear aim to gain a firm foothold in the international generics segment in the developed markets. Alembic filed Six US DMFs last year taking the cumulative figure to 14.

At the current market price of Rs. 45/- the stocks trades at less than 6 times it's trailing 12 month EPS of 8.35. We expect the API segment and Dabur Acquisition to be the key driver going forward and add to it's topline along with the domestic formulation which is expected to grow at 10% y-o-y. Investor with a medium to high risk profile can consider investment into this stock with a horizon of 18 to 24 months. Alembic valuation at the current price seems to be attractive in comparison to it's peers with a marketcap well below it's trailing 12 month sales. Alembic stays top on our multibagger list with a possibility of the stock doubling from the current levels over the next 18 months.

Positives

1) Opening up of health insurance sector and expected growth in per-capita income are key growth drivers from a domestic sales perspective.
2) Large number of drugs is going off-patent in Europe and US between 2005 and 2009. This offers a big opportunity for the Indian companies to capture this market.

Threats

1) Threats from other low cost countries like China and Israel exist.
2) High Crude Oil prices. This would affect bulk drug units due to increase in prices of solvents and energy cost.

Budget and Sector outlook

noreply@blogger.com (Srivatsan) — Sat, 08 Mar 2008 05:03:00 +0000

Automobile

Budget Highlights

* Reduction in excise duties from 16% to 12% on manufacturing of 2&3 wheelers and small cars
- Excise duty reductions will help lower prices and stimulate demand for 2&3 wheelers and small cars

* Reduce in excise duty on buses and their chassis from 16 per cent to 12 per cent
- Excise duty reductions will help lower prices and stimulate demand for buses
- Increased demand for new buses from STUs (State Transport Undertakings) as well as private players

* Agricultural credit outlay increased to Rs 2,80,000 crore
- Higher agricultural credit outlay will help boost demand for tractors

* 10% increase in defence sector allocation to Rs 1,05,600 crore
- Higher defence allocation will spur investment in new vehicles

* Higher allocation towards road development programme such as the NHDP.
- Increased thrust on road infrastructure is a positive for all the automobile manufacturers especially passenger vehicles and CVs

Major stocks:
Ashok Leyland
Bajaj Auto Ltd.
Tata Motors
Maruti
Mahindra and Mahindra

Hospitality Sector

Budget Highlights

* An amount of Rs 624 crore to be allocated for the Commonwealth Games.
- This would help bring in additional supply of rooms in the North India region

* Five year holiday from income tax is granted to two, three or four star hotels established in specified districts having UNESCO-declared 'World Heritage Sites'. The hotel should be constructed and start functioning during the period April 1, 2008 to March 31, 2013.
- This will help promote tourism in the country.

Major stocks:
Indian Hotels Company Ltd
Hotel Leela Venture Ltd
EIH Associated Hotels Ltd
ITC Hotels Ltd

Among other sectors, healthcare did receive some mention. Allocation towards healthcare spending has been increased by 15% for FY09. Apart from increased outlay for the National Aids Control Programme and eradication of polio, customs duty was also reduced on specified life saving drugs and on bulk drugs used for their manufacture.

Budget 2008 Highlights

noreply@blogger.com (Srivatsan) — Sat, 01 Mar 2008 05:20:00 +0000

Banking cash transaction tax withdrawn from April 1, 2009.

Commodities Transaction Tax to be introduced on the lines of Securities Transaction Tax.

Five year tax holiday for promoting cultural tourism.

Five year tax holiday for setting up hospitals in tier II and tier III regions for providing healthcare in rural areas from April 1, 2008.

For women, the income tax limit goes up from Rs 1.45 lakh to Rs 1.80 lakh. In case of senior women citizens, it increases from Rs 1.95 lakh to Rs 2.25 lakh.

Securities Transaction Tax is a deductible expenditure from now on

New tax slabs will be: 10 per cent for Rs 1,50,000 to Rs 3,00,000, 20 per cent for Rs 3,00,000 to Rs 5,00,000 and 30 per cent above Rs 5,00,000.

Short term capital gains tax increased to 15%

Changes in IT slab. Threshold of exemption for all Income Tax assesses raised from from 1,10,000 to 1,50,000.

NO CHANGE IN CORPORATE INCOME TAX, NO CHANGE IN SURCHARGE

General Centvat on all goods to be reduced from 16 per cent to 14 per cent. Excise duty reduced from 16 per cent to eight per cent on all pharmaceutical goods manufacture.

Excise duty on small cars reduced to 12 per cent from 16 per cent and hybrid cars to 14 per cent.

Duty on crude and unrefined sulphur reduced from five to 2 per cent to help raise domestic fertiliser production.

CIGARETTES TO BE TAXED MORE. Duty on non filter cigarettes to be raised.

Tax to GDP ratio increased from 9.2 per cent in 2004-05 to 12.5 per cent 2007-08.

Excise duty on two-wheelers cut from 16% to 12%

Duty withdrawn on naptha for production of polymers.

Special Countervailing Duty on power imports.

No excuse duty on wireless data cards, composting machines. Excise duty reduced from 16 to 8 per cent on water purification items.

Customs duty on specified sports goods machinery down from 7.5 per cent to five per cent.

Customs duty on specified life saving drugs reduced from ten per cent to five per cent.

CUSTOMS DUTIES TO BE REDUCED ON SOME POWER PROJECTS, STEEL MELTING SCRAP, ON SOME LIFE-SAVING DRUGS.

Rs 624 crore allocated for Commonwealth Games.

DEFENCE: Allocation to be increased by 10%

PAN NEEDED FOR ALL MARKET TRANSACTIONS.

GOOD NEWS FOR TEXTILES: Allocation for Textile Upgradation Fund to be more than doubled.

75 lakh people to be covered by health insurance schemes, says FM.

OIL EXPLORATION: Foreign investment of $3.5 billion to $8 billion expected for exploration and development of new oil blocks.

Rs 800 crore for accelerated power reforms programme.

Agricultural loans given by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and due for December 31 that year will be covered under the waiver scheme to address the problem of indebtedness.

COMPLETE WAIVER OF ALL LOANS FOR SMALL AND MARGINAL FARMERS.

A target of Rs 2.80 lakh crore for agriculture credit set for the coming year.

Rice production estimiated at 94.08 million tonnes, maize 16.78 mt, soyabean 9.45 mt and cotton 23.38 million bales.

Services and manufacturing sectors expected to grow by 10.7 per cent and 9.4 per cent, says Chidambaram.

Govt will monitor foreign fund inflow, the FM said.

Growth rate of agricultre extimated at 2.6 per cent during the current year.

Agriculture growth was disappointing at 2.6% only, hurting the economy. The rise in global oil prices too has hurt us, say the FM.

Indian economy, like all developing economies, are beinghurt by these global upheavals in prices.

India's growth will be at 8.7% according to the CSO, but FM optimistic India will attain 8.8% growth at least.

Budget Factor - Don't get carried away

noreply@blogger.com (Srivatsan) — Sun, 24 Feb 2008 11:01:00 +0000

One more year passed by with India sustaining the 8+% GDP growth. The stage this week is set for one more dream budget to be delivered by finance minister.

The question remains if India can going forward sustain the 8+% GDP growth and also how the budget addresses the following concerns

1) Impact of Indian economy on US, Other major economy slowdown and the high probability of US economy entering into recession.

2) Rising raw material and crude oil prices. This leaves no room for Interest rate cut due to rising inflation.

3) Hard hit export intensive sector due to dampening of US consumer spending and appreciating rupee, especially textiles which is the major source of employment in India.

4) Losses booked by Oil Marketing and Oil Exploration PSU's due to Subsidy burden related to high crude oil prices.

5) Widening trade deficit.

6) Increase rural infrastructure spending and open up new employment opportunity. Widening gap between state's economic growth has resulted in a divergence in national per capita income.

Even though most of the concerns above is expected to be addressed in the budgetary note this week, We suggest our subscribers to take a cautionary view on the market and not get carried away by movements of stock on the back of Budget benefits.

The two key factors which we look forward to guide the Indian stock market are

1) Q4' 08 earnings. This will give us a clear picture on Impact of margins due to increase in raw material and oil prices. Also will help us gauge the repercussion of US economy slowdown on export intensive Indian firms.

2) US Economy outlook. With losses from subprime lending mounting to around $350 billion, US is admist a major economy slowdown. The US housing market as well is not showing any sign of recovery and the deteriorating consumer spending shows negative signal on consumer confidence with the economy.

Our Budget Wishlist

1) Increase rebate u/s 80c from 1 lakh to 1.5 lakh. Out of which make 30K mandatory in Infrastructure bond/GOI tax saving bonds.

2) Keep corporate tax unchanged and reduce excise duty and freight charges for Metals, Cement sector. This will keep the inflation at lower levels.

3) Tax FII's on short term capital gain. This will help market fundamentals on a longer term basis.

4) Extend tax benefit under 80 1 B (8 A) for pure research and development-based companies. This will help India move from a Order Taker outsourcing country to a Solution/Product Innovator country in the global arena.

5) Work on pension fund flavors. Protected - Existing. Dynamic pension fund - Choice of Investing 30% of the total pension money in Stocks (Namely Sectoral Index). Individuals can invest in any of the Exchange sectoral index and switch between indexes as and when required. This will help pension fund individuals to cash in from the growing economy.

Rural Electrification Corporation - Compelling Valuation

noreply@blogger.com (Srivatsan) — Thu, 21 Feb 2008 11:40:00 +0000

Rural electrification Corporation (REC) is one of the leading public financial institutions in Indian power infrastructure. REC is engaged in the financing and promotion of transmission, distribution and generation projects throughout India. The company has come out with a IPO of 15.61 crore shares at a price band of 90-105 Rs.

This Issue has been assigned CRISIL IPO GRADE 3/5, indicating that the fundamentals of the issue are average, in relation to other listed equity securities.

At the upper price band of Rs. 105/- the stock is available at 13.65 times it FY07 EPS of 7.69 on a post-diluted equity base. In the first half of FY08 the company topline grew by 30% and the bottomline by around 25%. Based on the annualized FY08E EPS of the 9.32 the stock at the upper price band is valued at around 11.26 times it's earnings on a post-diluted equity base.

At the upper price band the IPO is priced attractively compared to its peer Power Finance Corporation (PFC). PFC is currently trading at 16.7 times it's FY08E EPS against REC offer of 11.26 times.

REC gross non-performing assets (NPA) stand at well under 2.39 percents of its total outstanding loan assets. It also posted a healthy net interest margin of 3.30 per cent in FY07 on par with leading banking and financial services.

We recommend Invest on REC IPO with a horizon of one year. Those looking for listing gains can do so at their own risk. Our recommendation is based on the compelling valuation at the current price band and to profit from the huge Investment required by the power sector as part of the 12th planning commission.

Fundamentals

1) Robust Financial Performance.
2) Availability of cheap funding.
3) India huge investment plan in Power and Infrastructure sector by the terminal year 2012.

Risks

1) Continued access to cheap funds through tax free capital gain bonds.
2) Delay in payments from SEBs and rural electricity cooperatives.

Stocks we love

noreply@blogger.com (Srivatsan) — Sun, 10 Feb 2008 05:28:00 +0000

Gift your valentine a House. Among Indians real estate is considered to be the best Investment avenue where the returns are always secured. But with soaring real estate prices it has been difficult for even an decent Income earner to afford buying a property.

So, Forget flowers and chocolates. Gift your valentine stocks in real estate and Infrastructure sector which are available in cheap valuation and can secure your future returns. Check out our picks for this year's most lovable stocks in real estate and Infrastructure Sector.

How we chose the stocks

In honor of Valentine's Day, we carefully selected two stocks in the booming Indian Real estate and Infrastructure Sector that will make your portfolio swoon.

We screened thousands of stocks to come up with the most appealing combination of earnings and sales growth, reasonable valuations and having huge land bank or Order Book.

But we know how easy it is to get your heart broken in a market as volatile as this. So we picked stocks that we think you'll want to commit to for the long term.

If you want some financial love this Valentine's Day, look no further. Invest right away.

1) Omaxe Limited (CMP Rs. 269/-)

Omaxe is one of the largest Real Estate Development company in India. The company currently has 52 projects under development. These include 21 group housing projects,16 integrated townships,14 shopping malls and commercial complexes and 1 hotel. The company is at present developing over 150 million sq ft of saleable area across 30 towns in 9 states in Northern and Central India. The total valuation of the land bank stands at around Rs. 13,000 crores.

The stock currently trades at less than 10 times it's FY08E EPS of 28 and around 6 times it's FY09E EPS of 45. The stock is available at a extreme cheap valuation compared to it's peers (DLF, Parsvnath Developers etc)

Future Growth

1) The company is expecting to develop 40 million sq ft of land in FY09 double from 20 million sq ft in FY08.
2) The company has won 25 acre development land in Hyderabad for which the work is expected to commence in March' 08. The project value for the same is around USD 450 million.
3) The current project value for Omaxe is in excess of Rs. 28000 crores.

2) Hindustan Construction Company (HCC) (CMP Rs. 169/-)

HCC is a large private sector construction company with high value projects across segments like transportation, power, marine projects, oil and gas pipeline constructions, irrigation and water supply, utilities and urban infrastructure.

The stock currently trades at around 51 times it's FY08E EPS of 3.3. The stock valuation seems to be extremely attractive based on the current order book position and the revenue supposed to go on stream by the current fiscal from it's 100% subsidiary HCC Reality.

Future Growth

1) HCC current order book stands at around 9000 crore of which 2000 crore is pending High Court Decision. The current order book constitutes to around 2 times it's expected FY08 sales.
2) The first phase of Lavasa project a hill station developed by HCC at a hour drive from pune is expected to go on stream in the current year.
3) Mumbai's largest IT park constructed by HCC in Vikhroli is expected to be Operation by March' 09. This is supposed to earn a return of 100 crores yearly.

HCC has already booked losses to a tune of 350 crores in the much delayed Bandra-Worli sealink. We do not see any further loses due to the same.

Risk associated with both the firms are in similar lines

1) Reality price crashes.
2) Economical down trend.
3) Huge Interest Rate burden.

But considering the Huge Infrastructure and Urbanization growth in India for the next 20 years these stocks will be one of the few multibaggers in the reality space.

Buy Ashok Leyland - Compelling Growth ahead

noreply@blogger.com (Srivatsan) — Sun, 03 Feb 2008 12:46:00 +0000

Ashok Leyland Limited (ALL) is the Second largest commercial vehicle manufacturer in India, Mainly operating in Medium to Heavy Commercial Vehicle (CV) and Bus Segments. ALL currently exports to over 30 countries in Asia, Middle East and Africa.

Sector Outlook

At the beginning of the 11th planing commission period India has registered a GDP growth of close to 9%. The manufacturing sector has been a significant contributor to this growth. The government initiative of developing road infrastructure on par with developed economies translates into significant growth in Commercial Vehicle (CV) space.

The growth going forward in the CV space will also be attributed to exports of CV and the changing domestic dynamics. The domestic bus segment is seeing a change in product modernity. The city buses with low entry height, stepless entry, air suspension and pneumatic doors emphasized safety, comfort and a faster turnaround time is gaining demand. Ashok Leyland strong presence makes it a first few entrant in this modern buses arena.

Overloading restrictions imposed by most of the state governments on heavy vehicles is also expected to spur demand in CV procurement.

Ashok Leyland Outlook

FY08 did not start of in a good note for ALL. The company registered a 7% negative growth in the first 9 months of this fiscal. We expect the CV market to stabilize in the coming year. The upcoming capacity enhancement during the course of next 2 years and the increase in market share of higher margin business (Defence, Engines and Parts) is excepted to be the key driver for ALL. Currently Defence, Exports, Engines and Spare Parts contributes around 18% of revenue.

Capacity Enhancements

1) ALL is enhancing it's vehicle capacity production from the current 84,000 vehicles to 100,000 vehicles by the current financial year.
2) The capacity of Ennore facility is expected to be increased by 50,000 Vehicles by June' 08.
3) The Company has entered into a joint venture with Ras Al Khaimah Investment Authority (RAKIA) in the U.A.E. to put up a plant for building bus bodies in the U.A.E. This is expected to go on stream by March' 2008.
4) ALL Investment in Uttarakhand is expected to be EPS assertive in 2010. The company is setting up a plant to manufacture 70,000 vehicles.
5) The company JV with Nissan to manufacture and sell LCV range of vehicles is expected to be commenced in 2010.
6) ALL Engine volumes is expected to double in 2 yrs. The company has tied up with Chinese sources for procurement of 25 hp to 75 hp engines.

Acquisitions Progress

The acquisition of AVIA truck unit a czech company is expected to provide the Company with an entry into the East European and Mediterranean markets and will also offer benefit of synergy with the Company’s product development efforts, especially in respect of a modern cabin for the medium vehicles. The acquisition is already EPS assertive.

The Company has signed a Share Purchase Agreement to acquire the entire equity capital of Defiance Testing and Engineering Services, Inc, Michigan, USA. This Company is engaged in the business of providing testing services to automobile OE manufacturers in northern USA. This acquisition is expected to provide significant synergy to the existing business activities of Ashley Design and Engineering Services Division of Ashok Leyland. It will also help ADES to provide greater value-added services to various customers in the USA.

Valuation

At the current market price of Rs. 34/- the stock trades at around 11 times it FY08E EPS of 3.10. Investor with low to medium risk profile can consider investment into this stock with a horizon of 18 to 24 months. The company investment phase is in the verge of partial completion and the investment hereon is expected to get translated in revenues. We recommend a buy rating in this stock with a target of Rs. 68/- based on our FY10E EPS of 4.25.

Risks

1) Slow down in market demand.
2) Continuing increase in input costs.
3) High domestic Interest rates.
4) Margins under squeeze. The Company is pursuing plans to increase the market share of high margin business like exports, non-auto engines and sale to Defence sector to mitigate the impact of margin pressure.

Indian Stock Market Outlook

noreply@blogger.com (Srivatsan) — Sat, 26 Jan 2008 13:25:00 +0000

For the last two weeks I have been getting ample of emails on the outlook of Indian markets. Due to busy schedule I will not be able to for sometime reply most of the emails. I would like to use this post in answering most common market and stock questions posted by our subscribers.

1) What is the outlook of Indian markets after a deep crash last week?. Can the markets go down even further?

Last week saw market swinging down by around 4000 points, thanks to the end of week recovery.

We had cautioned our investors on several occasion to take a conservative call on the markets Click Here and to book partial profits.

Despite the recent sharp correction, Indian equities have delivered relatively good performance over a three months period compared to it's Asian and Global peers.

The strong performance of Indian markets compared to the Asian peers can be attributed to the money inflow from Domestic Institutions of around USD 1.5 Billion as against the FII outflow of USD 3.5 billion dollars.

As such with the global economy outlook, the chances of US entering to recession (or slowdown, whaterver name it) has become high. With FED cutting interest rates by almost 125 basis points in a week shows the impact of damage the current credit crisis has caused to US Economy. Though the Indian economy has come to stand on strong domestic factors we cannot rule out the fact that a more pronounced correction in the US economy is likely to have a repercussion on Indian economy as well.

As per data on SEBI website FII's have pumped in around 17 billion USD dollars in 2007 alone. The net outflow in Jan' 08 stands around 3.5 billion US dollars. Any further impact on global slowdown can see FII's pull out more money from the markets. The probability of market touching the recent low at this stage looks very high. Investors are requested to watch the global trends and take a call before taking position in the markets.

2) The US Credit crisis at this stage seems to have come to a stand still. Is it safe to say at this time the correction in Indian markets have been bottomed out?

You are right in one way saying the credit crisis as reported by financial institutions have come to a standstill. But not to forget there are lot of loan defaulters in this subprime market, many of those have already filed bankurpcy. Secondly, the current credit crisis in housing market can also trigger defaults in the US Credit card market. Not to forget the US credit card market is around 950 Billion US Dollars of money in credit. At this stage it is very difficult to say if the Indian markets have bottomed out or not. But if you are a long term investor you need not worry about this short to medium term volatility.

3) Which stocks are looking good at this stage after the correction?

As we had recommended earlier Orchid Chemicals and Tata Steel looks good from 12 to 18 months horizon. Currently we have initiated coverage on SCI and ONGC (Recommendation Follows) with a 24 months horizon. Hotel Leelaventure looks strong with all the expansion turning EPS assertive in the coming years. Keep watching our blog for multibagger recommendation.

To conclude, there is a saying that anyone can make money in a bull market, Investors are one who ride the bear market. Our portfolio has delivered an average return of 19% as against the sensex negative return of -2% over the 4 months period (Since our blog Inception).

JK Lakshmi Cement - Accumulate

noreply@blogger.com (Srivatsan) — Sat, 19 Jan 2008 09:50:00 +0000

JK Lakshmi Cement currently operates 3.5 million tonnes per year of cement capacity. The company is a leading player in north-west India with a wide network of 1500 dealers and 60 cement dumps. The company premium brand includes JK Lakshmiplast and JK Lakshmi Ready Concrete Mix (RMC).

JK Lakshmi Cement is planing to set up a greenfield cement plant operating around 2-2.5 MTPA capacity with a investment of around 650 Crores in the next three years. This is expected to widen it's presence in the eastern and southern states of India.

Expansion Details

1) The company is currently increasing it's cement capacity from 3.5 MPTA to 5 MTPA. This is expected to be operation by October 2008.
2) The company currently operates 5 RMC plant and expects to add 7 RMC units this fiscal.
3) The firm recently commissioned fully it's 36MW captive power plant. This is expected to improve it's Operating margin from the current quarter.

Investor with medium risk profile can consider investment into this stock with a horizon of 2 years. At the current market price of Rs. 168/- the stock valuations appears to be discounted compared to it's mid-cap peers. The stock currently trades at less than 4 times it's trailing 12 month EPS of 45. We initiate a buy call in this stock with a target of Rs. 320/- on it's current valuation. With the complete expansion in place which the company is undertaking, we expect the stock to be a potential multibagger.

The current quarter Q3' 07 results were below our expectation and also we saw a steep decline in Operating margins. We expect the margins to improve with the commission of Captive power plant. The bottomline of the company is also set to increase with the restructuring of it's 325 crore debt.

Risk

1) Cement imported from Asian counterparts like china and Thailand have become cheaper after goverment scrapping import duty.
2) Domestic cement prises are in it's peak, Possible reversal.
3) High Interest expense due to higher Debt ratio.

Result Snapshot and Analysis Q3' 07 (Dec' 07)

noreply@blogger.com (Srivatsan) — Sat, 12 Jan 2008 14:54:00 +0000

Till Date: 13-Jan-08

Largecap/Midcap/Smallcap Results Analysis

Hits

1)
GM Breweries Q3 net profit up 86.02%

Snapshot:
Net sales up 10.57% y-o-y
Operating margin at 14.85% as compared to 9.99%
EPS for current quarter at Rs. 4.69

Summary:
At the current market price of 121.15 the stock trades at 7.3 times it's trailing 12 months EPS of 16.7.

2)
ABG Shipyard net up 60.81% in Dec`07 qtr

Snapshot:
Net sales up 53.83% y-o-y
Operating margin at 30.39% as compared to 30.12%
EPS for current quarter at Rs. 9.25

Summary:
At the current market price of 936 the stock trades at 28 times it's trailing 12 months EPS of 33.

3)
Prism Cement net up 28.67% for Dec`07 qtr

Snapshot:
Net sales up 20.05% y-o-y
Operating margin at 41.23% as compared to 45.36%
EPS for current quarter at Rs. 2.16

Summary:
At the current market price of 63.30 the stock trades at 8.11 times it's trailing 12 months EPS of 7.8.

4)
Axis Bank net up 66.20% for Dec`07 qtr

Snapshot:
Interest Income up 51.50% y-o-y
Profit margin at 17.02% as compared to 15.52%
EPS for current quarter at Rs. 9.09

Summary:
At the current market price of 1167 the stock trades at 39 times it's trailing 12 months EPS of 30.

5)
Rajesh Exports net soars 2.18 times in Dec`07 qtr

Snapshot:
Net sales up 10.41% y-o-y
Operating margin at 5.07% as compared to 2.16%
EPS for current quarter at Rs. 16.56

Summary:
At the current market price of 881 the stock trades at 16.62 times it's trailing 12 months EPS of 53.

6)
Infosys consolidated net up 25% for Dec`07 qtr

Snapshot:
Net sales up 15.78% y-o-y
Profit margin at 29.66% as compared to 27.74%
EPS for current quarter at Rs. 20.70

Summary:
At the current market price of 1580 the stock trades at 20.51 times it's trailing 12 months EPS of 77.

7)
Tata Metaliks swings to profit in Q3

Snapshot:
Net sales up 83.74% y-o-y
Operating margin at 11.98% as compared to 2.47%
EPS for current quarter at Rs. 6.27

Summary:
At the current market price of 187 the stock trades at 8 times it's trailing 12 months EPS of 23.5.

Other notable Hits released till now includes Jaiprakash Hydro, Jaiprakash Associates, Aban Offshore, Indian Bank, Motilal Oswal, IGate Technologies, Mastek, Steel Exchange, Ushdev and Sintex Industries.

Misses

1)
Celestial Labs net dips 45.55% for Dec`07 qtr

Snapshot:
Net sales down 26.21% q-o-q
Operating margin at 37.26% as compared to 51.17%
EPS for current quarter at Rs. 1.34

Summary:
At the current market price of 58 the stock trades at 11 times it's annualized Q3 EPS of 5.2.

2)
Bilpower net down 5.92% in Dec`07 qtr

Snapshot:
Net sales up 31.91% y-o-y
Operating margin at 11.32% as compared to 11.71%
EPS for current quarter at Rs. 7.36

Summary:
At the current market price of 297 the stock trades at 9.78 times it's trailing 12 months EPS of 30.36.

For Live Result Analysis visit the Market News page @ http://profitfrommarketnews.blogspot.com

Note :
The information above is just an update on the current quarter results. This information is neither an offer to sell nor solicitation to buy any of the securities mentioned herein.Please perform your analysis before entering into these scripts.

Our Picks For the Year 2008

noreply@blogger.com (Srivatsan) — Mon, 31 Dec 2007 18:52:00 +0000

On the stocks which are already on our recommended list we feel Orchid Chemicals and Riddhi Siddhi Gluco Biols will emerge as clear winner in this new year.

On the large cap we like

ONGC (CMP Rs. 1236.50/-)

The stock currently trades at 12 times it's FY08E EPS of 105. At the current price the stock is an excellent value buy. Being an Oil Exploration company the high oil prices is set to benefit it's top line and bottom line growth. ONGC's aggressive gas discovery this year provides a positive outlook for re-rating in this counter.

On the Smallcap front our picks are

Shri Lakshmi Cotsyn Ltd (CMP Rs.197/-)

The stock currently trades at less than 6 times it's trailing 12 month EPS. With aggressive expansion plans and strong operating margins among textile stocks, the stock is a good value pick for the coming year.

Himalya International (CMP Rs. 27/-)

The stock currently trades at around 9 times it's trailing 12 month EPS. With growing domestic retail sector this food processing company is expected to see aggressive growth in both top line and bottom line earnings.

On the Midcap stocks we bet on

JK Lakshmi Cement (CMP Rs.198/-)

Coming soon...Watch out our blog for a detailed analysis on JK Lakshmi Cement

Wish you all a very happy and prosperous new year

noreply@blogger.com (Srivatsan) — Sun, 30 Dec 2007 08:10:00 +0000

Year 2007 has been yet another blockbuster year for the stock markets. The market saw a spectacular bull run for the fifth consecutive year.
The sensex this year was up by more than 45%. The broader indices (Midcap and Smallcap) this year posted exceptional returns outperforming the sensex returns.

Year 2008 can be challenging and as per analyst predictions can turn out to be a first bear market after 5 years of spectacular bull run. The questions remains whether the year forward can offset the global economy challenges and continue the bull market running streak.

The challenges that remain ahead in 2008 are

1) Impact due to US Credit Crisis.
2) Deteriorating Consumer Spending in developed economies.
3) Rising cost of commodities and crude oil.

Domestic challenges include

1) High crude oil prices which Indian markets has still not taken into consideration.
2) Continuing Rupee Appreciation.
3) High raw material prices.

Although major challenges are attributed towards developed economy like US, Europe and Japan, we cannot rule out the fact the correction in the developed economy is likely to have a repercussion on the rest of the world. Albeit the fact that the Indian economy has come to stand on stronger structural pillars, the growth trajectory is still highly dependent on the developed economy.

In the upcoming year inspite of the economical challenges we are positive on select pharma stocks, Infrastructure and Energy Sector, Select Automobile counter. We caution our subscriber and readers to take a conservative call on Textile and select metal stocks. We are expecting some revival in International Sugar prices and recommend a wait, watch and pick strategy on this counter. We see a consolidation phase in IT arena with more M&A, at the sametime expect this sector to underperform the broader indices.

Coming soon... Watch out our blog for top picks of the year 2008.

Our performance

As of today our blog completed four months, thanks to the continuing support of our subscribers and readers. Our subscriber feedback has been the main driver in Improving the content of our blog.

All of our recommended stocks have ended this year on a positive note. Neyveli Lignite (241%), Alok Textiles (64%), Chennai Petro (51%), Hotel Leela (46%), Dish TV (41%), Orchid Chemical (33%) and TNPL (27%) have been the star performers.

With this we wish you once again a very happy and prosperous new year and like to start the new year with the quote of Warren Buffet, the greatest investor of the era,
"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1"

Warm Wishes,
Srivatsan Srinivasan

Best Tax Saving Mutual Fund (ELSS)

noreply@blogger.com (Srivatsan) — Fri, 28 Dec 2007 17:36:00 +0000

With the Indian financial year around the corner, Tax planing is one activity which comes on everyone's mind. In this article we will cover one of the tax saving instrument, Equity Linked Saving Schemes (ELSS).

Equity Linked Saving Schemes are mutual funds that invest in the stock market and also give tax benefit under Section 80C. Apart from tax benefits these mutual funds have exploited the rally in equity markets very well.

For three years ended Nov'07 most of the top funds in this category have given an average yearly return of around 60%.

Funds like SBI Magnum tax gain, Principal personal tax saver fund, Sundaram BNP Paribas Tax Saver have generated sensation returns of more than 130% per annum during the last 5 years. Not to say most of this is attributed to the exceptional Bull run of the Indian Stock Market.

With the Global economy showing a steep slowdown, the question remains can these mutual funds continue the sensational returns. Below are out top ELSS mutual funds picks which we feel will continue to beat the Index return.

The parameters we have considered in evaluating these mutual funds are

1) Past performance for the last 5 years.
2) Funds Sectoral concentration.
3) Portfolio and Fund management dynamics.

1) SBI Magnum Tax Gain Scheme

NAV: 67.57 (Dividend), 67.62 (Growth)

Absolute Return

Duration Return (%)
2007....... 54
3 year..... 343.8
5 year..... 1,475.9

Top Investment Sectors - Engineering, Banking/Finance, Oil & Gas, Cement, Metal & Mining
Asset Allocation - Equity (87%), Debt (1.32%), Cash (11.15%)

2) Sundaram BNP Paribas Tax Saver

NAV: 21.77 (Dividend), 45.76 (Growth)

Absolute Return

Duration Return (%)
2007...... 65.2
3 year.... 251.3
5 year.... 939.9

Top Investment Sectors - Banking/Finance, Engineering, Metal & Mining, Oil & Gas, Cement
Asset Allocation - Equity (96.30%), Cash (3.70%)

3) Principal Personal Tax Saver Fund

NAV: 213.88

Absolute Return

Duration Return (%)
2007...... 81.8
3 year.... 237.3
5 year.... 674.6

Top Investment Sectors - Engineering, Metals & Mining, Oil & Gas, Banking/Finance, Conglomerates
Asset Allocation - Equity (93.47%), Cash (6.53%)

The returns in the above mutual fund are subject to market performance. These are high risk instrument as entire asset is allocated to equities.
Individuals with Low risk and moderate return can Invest in the below ELSS mutual fund. The fund has an excellent track record and is one of the few funds to withstand the 2000 market crash.

Templeton India Pension Plan

NAV: 18.02

Absolute Return

Duration Return (%)
2007....... 25
3 year..... 74
5 year..... 176.9

Top Investment Sectors - Banking/Finance, Engineering, Conglomerates, Oil & Gas, Telecom
Asset Allocation - Equity (40.59%), Debt (51.73%), Cash (7.68%)

The above stock (Templeton India Pension Plan) has a lock in period of 3 years and a Exit load of 3% if redeemed before the age of 58 years.
This fund can also be considered as an additional pension plan if vested till the age of 58. Consider for a person with average age of 30, Investing Rs. 10,000/- per year for 20 years (Rs. 2 Lakhs), with a average return of 12% per annum can yield you around Rs. 20 Lakhs at the terminal year of the policy.

For Individuals who have already exhausted their tax eligibility, watch out this page for multibagger stock recommendation.

Tata Steel - A fundamental play

noreply@blogger.com (Srivatsan) — Mon, 10 Dec 2007 11:09:00 +0000

Tata Steel is one of the lowest cost and most cost-efficient steel producing companies in the world.

After a series of acquisition, Tata steel this year acquired 100% shares of corus group, a 21 million tonne capacity steel producer with plants in UK and netherland. The acquisition of Corus has transformed Tata Steel from a domestic steel producer to an international steel company with global scale.

Even though the acquisition was a very high bid compared to it's initial offer the company seems to be doing things in the right manner. Raw material security is a significant imperative for the long-term sustainability of Steel company success. Tata Steel is actively exploring operations in resource-rich countries for iron ore and coal, as also seeking fresh leases for iron ore and coal at various locations in India. On this path tata recently entered in to JV with riversdale.

The company main challenges ahead is the integration of corus. Currently the combined entity Operating margin is around 13% in compared to it's standalone Operating margin of around 40%. The key is to improve the combined entity Operating margin to atleast around 28%.

Other risks we foresee in the medium term are

1) High debt instrument incurred on account of corus acquisition together with corus existing debts in place.
2) Increase in equity capital to fund the acquisition.
3) Commodities prices including steel has shot up enormously in the past few years. With the world economy seeing a recession the prices of commodity is expected to fall drastically.
4) Demand-Supply in steel seen neutral due to huge steel capacity expansion seen in china.
5) Raw material security has reduced to 17% from 80% with corus acquisition.

At the current market price of Rs. 833/- the stock trades at around 12 times it's fully diluted FY08E EPS of Rs. 68. We are not seeing any exceptional rise in the bottom line current year and at this price the stock seem to have a over run up. We expect the stock to correct and stabilize around Rs. 680/- in the medium term (6-8 months). At around Rs. 680/- we initiate a buy call on Tata Steel with a horizon of 3 years for investor with medium to high risk profile. The stock can turn on to be a potential multi bagger for long term investors.

Expansion Details

1) Tata Steel had initiated steps to establish three green field steel plants with captive iron ore mines in Orissa, Chattisgarh and Jharkhand, which would add an additional capacity of 23 million tonnes. In addition the company is planing to increase these capacities to 56 mpta by 2015.
2) The expansion project in it's Jamshedpur works to produce 6.8 mtpa is expected to complete by June 2008.
3) The company is subsequently increasing it's Jamshedpur crude steel production to 9.7 mtpa by FY2010.
4) The company is setting up a coke (main raw material for steel) making facility, with a production capacity of 1.6 mtpa. The production is expected to commence in 2008.

Other expansion details are not covered as part of our current analysis.

Positives

1) Tata Steel branded products Tata Pipes, Tata wiron, Tata Shaktee, Tata Tiscon, Tata structura, Tata bearings, Tata agrico to add exponentially to it's topline and bottom line growth.
2) Domestic steel demand to fuel up companies topline.
3) Tata Steel is the preferred supplier of steel to major auto manufactures including Toyota, Honda, Hyundai, Ford etc.
4) By 2015, the company plans to increase it's steel production capacity to 50 mpta which is around 8 times it's capacity on a standalone basis.