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Wednesday, March 29, 2006

Emkay Share and Stock Brokers - IPO


The small-sized company is dependent on stock-market-sensitive brokerage revenue

Emkay Shares and Stock Brokers (ESSB) was founded as a private limited company in January 1995. It converted into a public limited company in October 2005. The promoters and managing directors of the company, Krishna Kumar Karwa and Prakash Kacholia, are chartered accountants with more than 30 years of experience in the capital market operations between them. Kacholia leads Emkay's derivatives business and has served on BSE's governing board and on the advisory derivatives committee of Sebi when derivatives trading was launched in India.

ESSB's revenue predominantly comprises brokerage income from equities and derivatives on BSE and NSE. It also undertakes distribution of third-party products, portfolio management service (PMS) and demat services. However, their contribution to income is very small. The company now plans to become a full service brokerage outfit providing comprehensive advisory services to its clients.

The gross proceeds of Rs 75 crore from the higher price band of the fresh issue will be deployed for expansion of operations and branch network (both in India and overseas), from current 41 to 100, in the next two years. ESSB will upgrade its technology to support its increasing business volumes and scale up the online trading business. Investment in subsidiaries, involved in share financing (Rs 20 crore from IPO as long-term working capital for the subsidiary) and commodity trading (Rs 5 crore), are also on the cards. The company plans to augment its working capital base to meet the enhanced margin requirements after the increase in business volumes.

Strengths

*The primary focus of ESSB is on institutional broking, which generates almost 55% of its income. This part of the business provides a good base for the company.

*The company is virtually debt-free.

Weaknesses

*Almost 90% of the total income of ESSB is composed of equity brokerage income. Revenues from its depository, PMS and other segments are insignificant. The commodity broking business is yet to take off in a significant way. ESSB doesn't have a well-diversified revenue model and the risks of a pure stock market play are high

*Compared to its peers, the reach of ESSB is limited to 41 centers, mostly concentrated in the western and southern states of India. It has a few offices in the northern and eastern zones. Its peers are way ahead in the retail segment. We feel it would be quite a challenging task for the company to increase the retail business without any differentiation strategy from its peer group, as the product offerings are very homogenous in nature.

The company needs to optimally, and speedily utilize the IPO proceeds to overcome the above in a cut-throat competitive environment.

Valuation

The industry composite PE is about 18x. At the offer price band of Rs 100 – Rs 120, consolidated annualised EPS of Rs 5.8 based on post-issue equity (Rs 24.15 crore) is discounted 17.3 to 20.8 times. Only IL&FS Investsmart commands a higher PE of 22.6 times. The other comparable and larger listed players such as Geojit Financial trades at a PE of 14.5x, India Infoline at a PE of 20x and India Bulls at 15.9x. .

At the same time, it is noteworthy that Emkay, like Geojit, is a debt-free company, while Infoline had Rs. 36 cr debt (equivalent to its networth), at the time of its IPO. Also, the considerable weightage of institutional business in its portfolio will stand it in good stead if and when the markets tank. In our opinion, at a lower decibel level, Emkay stands for greater stability.

R Systems International IPO


Focused on offshore product development services

Unnatural growth in profit in FY 2005 and unexciting acquisitions are disheartening

Promoted by Satinder Singh Rekhi in 1993, R Systems International is a New Delhi-based software product development company. It helps companies bring products and services to market quickly by using its different products and services comprising the pSuite framework, which is an execution framework for PLM (product lifecycle management) services. Other services include building and supporting software products in diverse areas like Internet security, Internet music delivery, Internet IP TV, banking applications, supply chain management, ERP solutions, and knowledge management. These software products and services find application across industry verticals such as banking and finance, government, health care, high technology and independent software vendors.

R Systems's marquee clientele includes a variety of Fortune 1000, government and mid-sized organizations like GE, Intel, and ABN Amro.

Of its five large centers for software excellence, R Systems has one center in El Dorado Hills, CA, one center in Singapore, and the other three in India (Pune, Chennai and Noida). It also has a significant presence in the ASEAN area with its local headquarters in Singapore and seven regional offices. Singapore is also its Center for Supply Chain Management (SCM) excellence.

Other than the two 100% subsidiaries, R Systems Inc California and R Systems in Singapore, it has acquired two companies, Indus and ECnet, to cater to the banking, finance and manufacturing and logistics verticals. Indus Lending Solutions Business products cater to the retail lending industry and the ECnet suite of products offer supply chain collaboration solutions.

In February 2002, R Systems acquired a 44.75% stake in Indus from GE. In the transaction, GE received 2,983,475 shares of R Systems for giving up its shares in Indus. As of December 2005, GE was entitled to receive 445,000 warrants under the shareholders' agreement. On January 2006, GE assigned its rights to such warrants to GE Strategic Investment India. On 30 January 2006, GE Strategic Investment India exercised the right of converting such warrants into equity shares and 445,000 equity shares of Rs 2 each in the company were subsequently issued to GE Strategic Investment India.

The objects of the issue is to raise finance for up-gradation and expansion of its existing infrastructure at an estimated cost of Rs 31.50 crore coupled with repayment of outstanding loans of Rs 3.65 crore and financing the general working capital requirements of Rs 17.95 crore. 

Strengths

  • In the last few years, software products companies have seen an exponential growth. The year 2005 saw the rise of offshore product development (OPD) players due to the need for more specialised skills across the product development lifecycle. R System is well positioned to take advantage of these opportunities going forward, with its strong domain expertise in this area.
  • R Systems has a marquee clientele in its kitty including big names GE, Intel, ABN Amro, and Microsof. Around 34% of the company's revenue comes from its top 5 clients.

Weaknesses

  • R Systems's acquisition of Indus Software and ECnet does not seem to be successful and has led to the diversion of attention from core focus area of OPD to developing and selling products, where it cannot scale up. On a consolidated basis, the company went into the red in FY 2003 because of these acquisitions. Even now, these acquisitions are not contributing any profit.
  • On standalone basis, R Systems's sales have grown consistently in the last four years. But the bottom line has been fluctuating between Rs 43 lakh to Rs 2.9 crore. It was only in FY 2005 that the company saw a massive rise in net profit to Rs 12.46 crore.

Valuation:

On an expanded equity of Rs 13.54 crore, FY 2005 EPS of R Systems works out to Rs 9.2. Based on this, PE stands at 23 and 27 at the price band of Rs 210 and Rs 250. Comparable companies like Aztec and Geometric are trading at a TTM PE of 28 and 25 times.

Just ahead of the IPO, R Systems dramatically improved its performance in the year ended December 2005. An overnight wonder, will it still keep shining at noon?


Godawari Power and Ispat - IPO


A small steel company using captive power

Godawari Power and Ispat (GPIL) is part of the Hira group, which manufactures steel long products in central India. GPIL produces sponge iron, steel billets and captive power generation.

GPIL's current sponge iron, steel billets and captive power capacity is 2,35,000 tonnes, 2,50,000 tonnes, and 28 MW, respectively. The company intends to set up another unit near its existing facility to manufacture 2,60,000 tonnes of sponge iron, 1,50,000 tonnes of steel billets, and generate 25 MW of power through waste heat flu gases. After expansion the total capacity of sponge iron, steel billets and captive power plant will be 4,95,000 tonnes, 4,00,000 tonnes, and 53 MW, respectively. The expanded capacity is likely to be commissioned in the last quarter of FY 2007.

The project cost (excluding general corporate and issue expenses) is Rs 173.32 crore, which is estimated to be financed through a term loan of Rs 113.5 crore, issue proceeds from the Initial Public Offering and internal accruals.

Strengths

  • Along with a consortium of four other corporate bodies (including group companies), GPIL was allotted rights for captive coal mining in January 2006. GPIL's share is 106.5 million tonnes. In September 2005, the ministry of mines granted an iron-ore mining lease for 106.6 hectares in Ari Dongir and 110 hectares in the Boria Tibbu. Normally, a timeframe of 27 months is required for commencement of commercial exploration of captive coal and iron ore mines. The company has not allocated any funds for developing these mines.

Weaknesses

  • The promoters have few more group companies in the steel business, which can lead to conflict of interest and diversion of attention.
  • Though highly dependent on its group companies for sale of its products, GPIL has not entered into any firm tie-up with group companies. The company supplies 40% of the billet requirement of some of its group companies, constituting about 75-80% of its current production.
  • GPIL has not yet placed orders for equipment to produce sponge iron and steel billets and generate power, which may delay the implementation of the project. The company has still to apply for registrations for the expansion project including excise and commercial tax.
  • Due to its cyclical nature, the dynamics of the steel industry keep changing, depending on factors such as demand-supply in China and cost of vital inputs including iron ore and coal. Currently, the steel industry is facing pressure on prices on a high base of last year, as China has become a net exporter. Also, on account of rising input costs, the margin of players has crumbled.

Valuation

At a price band of Rs 70 – 81, GPIL's PE works out to 7.2 – 8.3 times FY 2005 earning and 12.3 – 14.2 times six-month FY 2006 annualised earning on post-diluted equity. Notably, the sponge iron industry fared badly in the first half of the current fiscal, and GPIL's performance was also affected. Jindal Steel and Power, which is an established player, commands a TTM P/E of 9.1, while Monnet Ispat is trading at a TTM P/E of 7.4. The sector TTM P/E is around 6.3.

Tantia Constructions - IPO


Established in 1964, the Tantia family promoted Tantia Constructions (TCL) caters to the Indian Railways. Its services include earthwork and ballast, rail track linking and welding, bridges and tunnels, electrification and signalling. It is among the five Indian companies capable of providing 'foundation to finish' for mega railway bridges spanning 2 km.

TCL has its own steel fabrication unit and is the only Indian company to have fabricated a 100-meter span steel girder on site, 400 metres above sea level. The company's other areas of construction services include roads, bridges, water sewerage, girders fabrication, jetties, tunnels and power transmission lines.

Apart from projects in India, TCL has also executed projects in Bangladesh, Bhutan and Nepal. The company's clientele includes almost all zonal railways, Central and state PWDs, Kolkotta metro rail, Hoogly River & Bridge Commission, NEEPC, Indian Oil Corporation, Ircon International, DSIDC, and PIDB. It had made an initial public offering of 1.44 lakh equity shares in 1982 (listed on the Calcutta Stock Exchange and the Delhi Stock Exchange).

TCL proposes to use the proceeds of the current issue for (a) investment in capital equipment; (b) enhancement of long-term working capital; (c) repayment of unsecured loan; (d) repayment of public deposit; (e) investment in BOT/BOOT projects and joint ventures.

Strengths

* TCL's current order book (on 20 March 2006) is about Rs 880 crore with a backlog of about Rs 650 crore, i.e., 6.3 times FY 2005 revenue. Rail projects and urban development account for 56% of the current order book

* The government is giving a major thrust to improving the railway infrastructure. Plans for building rail freight corridor projects (connecting Delhi with other metros), port connectivity projects, and up-gradation of projects under the national rail Vikas Yojana are in the pipeline. The Railway Budget 2006-07 has emphasised major technological up-gradations; completion of up-gradation and repair of over-aged tracks, bridges and track circuiting work on all stations on A, B and C routes by March 2007; and public-private partnership in rail projects. Targets for 2006-07 include over 550 km of new lines, over 1,100 km of gauge conversion and 435 km of doubling; and 23 new lines, one gauge conversion, and eight doubling. As it has been associated with the Indian Railways for the last four decades, these new projects hold a major opportunity for the company.

Weaknesses

* TCL has been generating a negative cash flow at the operating level: Rs 7.99 crore (FY 2003), Rs 7.90 crore (FY 2004), Rs 1.67 crore (FY 2005), Rs 5.32 crore (nine months of FY 2006). Debtors outstanding for more than six months stood at Rs 18.40 crore end December 2005.

* The debt-equity ratio of TCL on 31 March 2005 and 31 December 2005 (nine months) stood at an abnormally high level of 5.1 and 3.9, respectively.

* TCL's claim of Rs 16.86 crore for extra work from the Tamil Nadu Agricultural Development Project is disputed and unpaid.

Valuation

At the offer price band of Rs 45 – Rs 50, TCL's PE works out to 37.6- 41.7 x FY 2005 EPS on a post-issue equity and 12.9 – 14.3 x 9-month FY 2006 annualised earning on the post-issue equity. TTM PE for the construction sector is abnormally high at 37.

BRICS - Reliance Industries - BUY


BRICS Recommends BUY

CMP      > 777
Target   > 868

Sharekhan - Investor's Eye


Hindustan Lever 
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs300
Current market price: Rs268

It is just getting better
HLL has increased the prices of a few of its products in the soap and detergents segment like Surf Excel, Lifebuoy, Rin Advanced and also in the personal care products segment like shampoos. Besides this the company has also decreased the pack size of Vim Bar & Rin Shakti thus increasing its realisations.

This is the second time in the last five months that the company has increased the prices of Surf Excel (see our note HLL increases Surf Excel prices dated November 29, 2005). Unlike the last time, where the price increase was restricted to the premium segment, this time it is across the entire detergent segment.



Orchid Chemicals & Pharmaceuticals 
Cluster: Emerging Star
Recommendation: Buy 
Price target: Rs460
Current market price: Rs363

Price target revised upwards by 30% to Rs460

Key points

  • The entry into the generic non-antibiotic business in the USA by Orchid Chemicals & Pharmaceuticals is expected to result in a significant increase in the bottom line for FY2008.
  • The company is expected to benefit from the sale of non-antibiotic big molecules along with antibiotics like Cefdinir, Ceftiofur and Zosyn in FY2008. We expect the US generics business to provide a substantial upside as we expect the consolidated net profit to increase by 33% in FY2008 on a year-on-year basis.
  • We estimate the company's FY2008 earnings at Rs27.8 per share. At the current market price of Rs363, the stock is trading at 13.1x its FY2008 earnings estimate. We reiterate our Buy recommendation on Orchid Chemicals with the revised price target of Rs460

Sharekhan - Investor's Eye


ITC 
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs220
Current market price: Rs193

Price target revised to Rs220
We have been frequently mentioning that we like the way ITC has successfully channelised the strong cash flows generated from its cigarette business into new businesses of non-cigarette fast moving consumer goods (FMCG), hotels, paper and paperboard, and agri-products. Despite being capital intensive and having a long gestation period, all these businesses are highly profitable over a long period. We expect ITC's capital expenditure in these businesses to continue over the next couple of years. With timely investment in these businesses, we expect ITC's revenues to grow at a compounded annual growth rate (CAGR) of 17.3% over FY2006-08E. The company's net profit should grow at a CAGR of 22% over the same period. We are revising our price target to Rs220 based on the sum-of-parts valuation method, which discounts ITC's FY2008E earnings per share (EPS) by 25.6x. 

Infosys Technologies 
Cluster: Evergreen
Recommendation: Buy 
Price target: Rs3,325
Current market price: Rs2,882

Citigroup may divest stake in Progeon
According to a media report, Infosys Technologies could buy out Citigroup's stake in its business process outsourcing subsidiary, Progeon. The business is valued at around $600 million as per the news report. Thus, the Citigroup's stake of over 26% can fetch around $160 million. This amounts to astronomical returns for the Citigoup that had invested $20 million (or Rs93.8 crore) for 8,750,000 cumulative convertible preference shares (issued in two tranches of 4,375,000 each in June 2002 and March 2004). The preference shares were converted into 87.5 lakh equity shares in June 2005.

Monday, March 27, 2006

IPO Updates


Tantia Constructions - INVEST

Godavari Power  - AVOID

R Systems International  - INVEST

Powersoft Global - AVOID

Birla Power (FPO) - INVEST


Sharekhan Investor's Eye


Information Technology

Multi-million dollar orders
Satyam and HCL Technologies (HCLT) have announced multi-million dollar outsourcing order wins. While Satyam further enhanced its dominance in the manufacturing vertical by winning an outsourcing order from Nissan (North America), HCLT will roll out a complete suite of Oracle applications at a leading US-based company, MSC Software Corporation.

Though the deal size has not been disclosed in both the cases, the nature of work and the manpower requirements indicate that both the orders are likely to be worth over $100 million.


Banking

The family rejoices
The Union Cabinet approved the draft amendment to the State Bank of India (Subsidiary Banks) Act. The amendment will make it easier for SBI to sell its stake in these subsidiaries in case it decides to do so. The amendment to the act will also help SBI to unlock the value of the unlisted subsidiaries, as it will become easier to float the public offering of these subsidiaries.

Thursday, March 23, 2006

Birla Power Solutions


Will not light up your portfolio

Birla Power Solutions(BPS), the BSE-listed Yash Birla group company, was earlier known as Birla Yamaha, before Yamaha moved out. BPS is raising Rs 50.4 crore (issue of 120 lakh shares of Rs 10 each at Rs 42) from public to finance its expansion plans. The Rs 91-crore company was one of the first to manufacture portable generators in India in 1986. It has the expertise to manufacture two- and four-stroke engines. Presently, producing a wide range of generators catering to the power requirement of 500 W to 5.5 KW, it was the first to launch self-start gensets in the country. Recently, BPS pioneered the launch of emission complaint generators under the brand name Birla Ecogen. The company enjoys a 32% market share for its existing range of products.

The proposed expansion project, which is to be entirely financed from the issue proceeds, will simultaneously augment capacities and improve BPS’s existing products including diesel gensets, multipurpose engines, alternators and fuel tank and will also finance the setting up of a new plant to manufacture LPG/CNG gensets, invertors, engines and acoustic hoods. Till 28 February 2006, BPS had spent Rs 2.28 crore from internal accruals for the plant and building of the new project.

Strengths

*The proposed plans to manufacture higher KVA gensets will enable BPS to cater to high value institutional customers and export demand. The manufacture of LPG/CNG gensets will open new avenues.

*Currently, there are 619 direct dealers well versed with BPS’s products. This also helps the company to provide good after-sales services to its customers. It has entered into a marketing and distribution tie-up with the leading Chinese engine and gensets manufacturing company, Kipor, to distribute its products in India. BSP has also a co-branded agreement with Hindustan Petroleum Corporation to sale gensets and irrigation pumps.

*The proposed plant will be located in the tax heaven state of Uttaranchal and will enjoy complete tax exemption for five years. Further, the manufacturing facility will reduce BPS’s dependence on traded products, resulting in improved margin.

Weaknesses

*The power genset business requires large amount of working capital. Moreover, the track record of BPS’s working capital management is far from adequate. Debtors stood at Rs 88.31 crore on September 2005, almost equal to its sales. Around 43% of debtors are more than six months old. Loans and advances stood at Rs 40.21 crore. A significant portion is overdue for many years. Naturally, cash flow from operating activities has been negative since the past three years.

*The auditors have consistently qualified the accounts of the company for inadequate records and lack of reconciliation of receivables, advances and inventories. In fact, there is a long list of auditors’ qualifications covering many aspects of the accounting and record keeping. The list lengthens every year.

*Quarterly reviews have been filed late with stock exchanges. The review for the September 2005 quarter has still not been filed.

*The inverter market is highly competitive. Unorganised players have a dominant (40%) presence. Also, due to the involvement of low technology, many organised players have developed good presence in the market through their network. Therefore, the pressure on prices will remain a concern for BPS’s product line despite the migration of the company from trading to manufacturing. Also, due to the stiff competition from China, the margin on exports of inverters is lower than in the domestic markets.

*BPS’s proposed high capacity multipurpose engines will compete with low value products of leading engine and equipment manufacturers like Kirloskar Brothers, Greaves and TAFE. It will take some time to gain competitive advantage in this segment.

*The rise in the prices of raw material like steel, copper and zinc is likely to put pressure on the margin.

Valuation

In spite of perennial power shortages, the market for portable genesets has stagnated. BPS has tried to report growth through trading in inverters, pump sets, sprayers, vibrators, and lawn mowers. In the year ended September 2005, the company reported a net profit of Rs 3.56 crore on a turnover of Rs 91.02 crore.EPS on an expanded equity base of Rs 22.48 crore works out to Rs 1.6. TTM EPS, after factoring the December 2005 quarter results, is Rs 1.8.

The share currently trades at Rs 54 on BSE, which is at a 29% premium to the offer price of Rs 42. However, the last three- and six-month average price is around Rs 48. The offer price discounts the TTM EPS 23 times. The nearest comparable company, Honda Siel Power, in which Honda, Japan controls a 66.6% equity stake, trades at TTM P/E of 18.5. However, in view of the large overdue debtors and advances and many auditors’ qualifications, the reported financials and discounting of BPS really have no meaning

Sharekhan - HLL


Hindustan Lever
Cluster: Apple Green
Recommendation: Buy
Price target: Rs300
Current market price: Rs256

Price target revised to Rs300
We expect the home and personal care (HPC) product business of Hindustan Lever Ltd (HLL) to grow at a compounded annual growth rate (CAGR) of 18.5% over CY2004-07E for three reasons.
  1. The consumption of HPC products is rising due to a rise in the personal disposable income of Indians and the increased demand for such products from the rural markets.
  2. Shampoos and deodorants are the fastest growing segments in the fast moving consumer goods (FMCG) sector (both growing at 30%+) and HLL has a significant presence in both the categories.
  3. HLL has restructured its major brands, eg Fair and Lovely and Lakme, which are expected to perform better as a result

SSKI - Amforge Industries - BUY


Recommends BUY > Demerger Benefits > Tie up with Mahindra

Google Finance !


Nice - check

Wednesday, March 22, 2006

Powersoft Global Solutions - IPO


Background :
  • Powersoft Global Solutions Ltd. (PGSL) was originally incorporated in November 1992 as Bhandari Food Flavours Ltd. Its name was changed to the present in March 2000.
  • PGSL provides IT solutions and services like application development, maintenance and integration, software product development, engineering outsourcing, Radio Frequency Identification (RFID) solutions, research and development services and Business Process Outsourcing.
  • It provides business solutions to manufacturing, logistics, retail, consumer electronics, pharmaceuticals, aerospace, defense and utilities industries in North America, Europe and the Asia-Pacific.
  • PGSL is a subsidiary of Nirvann Corp, North America and has also entered into the agreement with Nirvann Corp. to market and promote the services and solutions developed by the company.
Objects of Issue :
  • Upgradation of existing infrastructure facilities with an investment of Rs. 262 lakhs.
  • To set-up an R&D center, an investment of Rs. 80 lakhs
  • To meet the expenses of Overseas Marketing with an investment of Rs. 251 lakhs.
  • To meet the costs of strategic acquisitions with an investment of Rs. 3 lakhs.
  • To meet the Working Capital requirement of Rs.222 lakhs and the issue expenses of Rs.75 lakhs.
Strengths :
  • The Company is one of the few Indian IT providers to offer comprehensive RFID solutions, which is one of the fastest growing industries in the world today.
  • PGSL is a debt free company; and whole project cost is being funded by equity proceeds alone hence it will be easy for the company to raise loans in event of any further expansions.
  • PGSL is expanding its operations and has acquired CADGIS Consultants in March 2005 for Rs. 96 lacs to be payable partly by issuing 3,00,000 shares of PGSL and balance Rs. 30 lacs by cash. It specializes in geospatial solutions and has strength of 50 professionals having specific domain expertise.
  • PGSL’s sales have grown from Rs.73 lakhs in 2000-01 to Rs.667 lakhs in 2004-05 at a compounded annual growth rate (CAGR) of 55.4%. While the net profit of the company has been increasing at a CAGR of 488.9% from Rs. 0.10 lakhs in FY02 to Rs. 120 lakhs in FY05.
Weakness :
  • The company had made a public issue during 1996 but did not receive the money due on calls and that project failed badly. Against a projected income of Rs. 1300 lakhs in 1999 the company could only earn 7.34 lakhs. The profitability was hit and the company made losses in 1998 and 1999.
  • The ‘Objects of the Issue’ for which the funds are being raised has not been appraised by any Bank or Financial Institution. Fund requirement is the company estimates and the funds received from the issue will be deployed at the sole discretion of the Management.
  • PGSL, a small player in the IT space with only 70 professionals on rolls, is exposed to intense competition from existing large players as well as global players like IBM and Accenture deciding to enter the Indian market and emulate the Indian business model.
  • Compared to its competitors like 3i Infotech Ltd., Geodesic Information Systems Ltd., Hinduja TMT Ltd. iGate Global Solutions Ltd., Logix Microsystems Ltd., Onward Technologies Ltd. PGSL’s pre issue EPS is the lowest at 1.85 For FY05. Its return on net worth (RONW) as on FY05 is amongst the lowest at 6.05%. Its select peer group RONW ranges from 4% to 66.57% and EPS ranges from Rs.4- Rs.10 for FY05.
Valuation :
  • Company has shown 30% YOY growth in FY05 from Rs.513 lakhs to RS.667 lakhs. Also, company’s net profit margins have improved from 16.3% in FY04 to 18.02% in FY05.
  • PGSL’s year ended Sept 05 RONW was 6.05%. The company’s net worth as on 31st Dec.2005 is Rs. 2013 lakhs. Its book-value per share as on 31/12/2005 is Rs.30.96.
  • Post issue EPS for FY05 is Rs. 1.01 per share. The shares are being offered at the price of Rs. 22. At P/E multiple of 29.75, the average industry P/E is 30.24.

Bajaj Auto - Karvy - BUY


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US Economics


Business Conditions: Forward Looking Signs point to Improvement

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Sharekhan - Cadila Healthcare


Cadila Healthcare
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs850
Current market price: Rs595

Just what the doctor ordered

Key points

  • US generic business to grow exponentially: Cadila Healthcare (Cadila) has made a big entry into the regulated markets of US formulations this year. In the coming years its revenues from the high-margin regulated markets are expected to increase exponentially. It has a strong research and product pipeline with 30 products expected to receive generic approval by FY2007.
  • Strong and steady domestic formulation business to provide a solid base: Cadila is ranked number five in the domestic formulation business in India. It plans to introduce over 40 products in the Indian market in the next two years. We expect the formulation business to be a steady revenue source in the future, showing a higher-than-industry growth rate.
  • Key subsidiaries to start adding value: Cadila has subsidiaries in France, the USA and Brazil, and these were making losses till this year. The French business, earlier expected to break even in FY2009, is now expected to do so even earlier, in FY2008. The US subsidiary is expected to earn good profits for Cadila from FY2007 onwards. We expect these subsidiaries to collectively make a profit of over Rs32 crore in FY2008 as compared with a loss of over Rs30 crore in FY2005.
  • Buy with a price target of Rs850: A strong research-based, integrated pharma player, Cadila is now spreading its wings to the high-margin regulated markets. We expect its consolidated profit after tax (PAT) to grow from Rs117.9 crore in FY2005 to Rs293.8 crore in FY2008, at a 36% CAGR. Considering its strong growth prospects, we initiate our Buy recommendation on Cadila with a 12-month price target of Rs850, which is a 43% upside to the current market price of Rs595.

Tuesday, March 21, 2006

India Cements - Morgan Stanley - Attractive


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Motilal Oswal - Reliance Industries - BUY


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Morgan Stanley - Technicals


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Midcaps.in Recommendations


Bhuwalka Steel 513333 31.9 40

Deepak Spinners 514030 34.1 43

Bharat Rasayan 590021 42.3 53

Sh. Ganesh Forgings 532643 52.6 66

Ahlcon Parenterals 524448 64.75 81

Monday, March 20, 2006

Kewal Kiran Clothing - IPO - Capitalmarket


Expanding retail chain

To increase the K Lounge stores to 143 from 29 by FY 2008

Kewal Kiran Clothing (KKCL) is a branded apparel player designing, manufacturing, branding and selling ready-made men’s apparels and other accessories under its various brands. Its brands range from the high fashion premium segment such as ‘Killer’ denim wear and ‘Easies’ casual wear to the middle and economy segment brands such as ‘Lawman’ and ‘Integriti’. The company has an in-house design team that keeps abreast emerging fashion trends and category developments. Through the introduction of new brands, KKCL intends to extend its presence from men’s casual wear to other categories such as men’s formal wear, women’s wear and kids wear.

With the proceeds of the issue, KKCL plans to increase its K Lounge stores to 143, from the current 29, by FY 2008. The company will set up a new manufacturing unit, ramping up capacity to four million pieces per annum, from the present two million. The proceeds will also be utilised to furnish its corporate office.

KKCL will spend around Rs 34.67 crore to set up K-Lounge outlets, Rs 32.39 crore on the new manufacturing facility, and Rs 5 crore to furnish the corporate office.

Strengths

  • Demographic and economic trends currently favour a fast growth of the organized branded garments industry. Moreover, KKCL has four brands positioned to cater to different classes of customers.
  • KKCL plans to diversify its product line by entering other segments like men’s formal wear, women’s wear and kids’ wear and become a one-stop shop for the entire family.

Weaknesses

  • The ‘Killer’ denim brand contributes 53% of the revenue. Denim is a highly competitive segment, which will witness intensified competition post-liberalisation of FDI guidelines.
  • Under a franchisee agreement, KKCL allowed a subsidiary to use the trademark `K-Value’. Now the subsidiary has been sold to the promoters at book value.
  • KKCL sells its own brands in the export market (predominantly in the UAE). But the share of exports is just 8% in the revenue. Besides, this share has been declining since FY 2004. The expansion plans are also not focused on the export market.
  • Sales for the nine months ended December 2005 have shown an unnatural growth of over 200% (on an annualised basis), which might be partly attributed to the acquisition of the washing unit of Kewal Kiran Enterprises, a group company. The FY 2005 performance was lakluster.
  • The retailing sector has yet to witness churning. But this could be sooner than later due to the mindless pace of expansion, with big foreign and Indian players tipped to jump into the fray.

Valuation

KKCL made a net profit of Rs 3.72 crore in FY 2005. EPS on post- issue equity works out to Rs 3.0. The shares are being offered in a band of Rs 250 to Rs 275 at a PE of 83 to 91 times. After factoring in the unnatural growth in the nine months of FY 2006, PE stands at 30 to 33 times the annualised EPS of Rs 8.3. Provogue India, a peer, currently trades at Rs 280, which is at 38 times its nine-month annualised EPS of Rs 7.2. Zodiac Clothing, another peer, trades at Rs 268, giving a PE of 24 times its nine-month annualised EPS of Rs 11.1.

Kotak Logistics Report


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Sharekhan Investor's Eye - March 20


Reliance Industries
Cluster: Evergreen
Recommendation: Buy
Price target: Rs870
Current market price: Rs775

Price target revised to Rs870
Reliance Petroleum Ltd (RPL) has filed the red herring prospectus for its initial public offering (IPO) of 90 crore shares. The IPO proceeds are to be used to set up a greenfield refinery with a capacity of refining 580,000 barrels a day or 33 million tonne per annum of crude oil. The project is to be funded through a mix of debt and equity.

We believe that the RPL public issue will be value accretive for RIL, as it will add Rs75-110 per share to RIL (based on the issue price of Rs47.5-60 per share). Based on that we are raising our price target to Rs870 per share.



Balmer Lawrie & Company
Cluster: Cannonball
Recommendation: Book Profit
Current market price: Rs641

Book profit
We had initiated coverage on Balmer Lawrie & Company on August 11, 2005 at Rs400. The stock has appreciated by 60.3% since then and achieved our price target of Rs600. We recommend investors to book profit.

Thursday, March 16, 2006

Tuesday, March 14, 2006

Reliance Communicatin Ventures - ENAM


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Sharekhan Investor's Eye - March 13


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Shivalik Global: Avoid


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Adhunik Metaliks - IPO - AVOID


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Adhunik Metaliks


Adhunik Metaliks (AML) is part of the Adhunik group, promoted by the Kolkata-based Agarwal family. Its current product portfolio includes sponge iron, pig iron and alloy billets. The company has also initiated rolling of its billets through third party arrangements to meet the current requirement of rolled products in various segments.

AML is setting up an integrated steel plant, with complete backward and forward linkages, at a cost of Rs 437.36 crore. The entire project is to be completed by March 2008. This will cater to user segments like the automobile, engineering and forging sectors. The company proposes to fund the project outlay through an IPO (Rs 100 crore), consortium of term loans (Rs 284.29 crore) and internal accruals (Rs 53.07 crore).

Strengths

  • AML will have significant control over its production cost on account of:
  • Charging of hot ferro chrome in steel making is expected to reduce energy cost.
  • Charging sinter in blast furnace will reduce coke consumption and improve productivity.
  • Usage of blast furnace gas in rolling mill and SMS will replace/reduce the consumption of expensive petroleum fuel, cutting down the cost of production
  • Captive oxygen plant will replace the expensive liquid oxygen purchased from external sources.
  • Captive power plant using blast furnace gas, waste heat/char from DRI, and middlings from washery will reduce the cost of electric energy
  • AML plans to consolidate its business model into an integrated value chain with end-to-end capabilities, i.e., from iron-ore and coal to auto-grade special steel and stainless steel; to cater to the rapidly growing automotive components and engineering segment; and compete in the market place by way of effective cost control measures.

Weaknesses

  • Many players in alloy and special and stainless steel segments have lined up plans for capacity expansion, which may lead to an over supply in the market place.
  • Due to its cyclical nature, the dynamics of the steel industry keep changing, depending on factors such as the demand-supply scenario in China and the cost of vital input such as iron ore and coal. Currently, the steel industry is facing pressure on prices on a high base of last year, as China has become a net exporter. Also, on account of rising input costs, the margin of players has crumbled.
  • The promoters have few more group companies in the steel business, which can lead to conflict of interest and diversion of attention.

Valuation

AML reported net profit of Rs 9.56 crore in the quarter ended December 2005 as against Rs 7.25 crore in the six months ended September 2005 and Rs 7.1 crore in FY 2005. The jump in net profit was on account of the commissioning of steel melting shop (SMS) from November 2005, commencement of commercial production of the mini-blast furnace from September 2005, and expansion in >???(DRI) capacity from 1,20,000 tonnes per annum to 1,50,000 tonnes per annum, and increase in capacity utilisation of DRI kilns.

At a price band of Rs 37 – 42, AML’s PE works out to be 47.5 – 52.1 times FY 2005 earning and 15.1 – 16.5 times nine-month FY 2006 annualised earning on post-diluted equity. Kalyani Steels, which is an established player, commands a TTM P/E of 15.6, while the sector TTM P/E is 5.8. Most of the players in the special and stainless steel segment are trading at a PE well below 10.

Uttam Sugar Mills


Promoted by the Adlakha family, Uttam Sugar Mills commenced sugar-manufacturing operations in January 2001 by setting up a 2,500-tonne crushed per day (TCD) plant along with a 6-MW co-generation capacity in Libberheri, Uttaranchal. In the year ended September 2005, the company had a manufacturing capacity of 6,250 TCD and a co-generation capacity of 16 MW.

Uttam Sugar Mills is now coming out with a maiden public issue of 40,00,000 equity shares at a face value of Rs 10 in the price band of Rs 290 to Rs 340. With this issue, the company expects to collect proceeds anywhere in the range of Rs 116 crore to Rs 136 crore.

The object of the issue is to set up two greenfield units to manufacture premium quality white sugar with a capacity of 4,500 TCD and 5,000 TCD along with co-generation of power with a capacity of 15 MW and 30 MW at Muzzafarnagar and Saharanpur in Uttar Pradesh (UP), respectively. Both the units are expected to commence commercial production by October 2006. The units will employ a concept of single sulphitation and re-melt process that is expected to result in production of superior quality sugar as compared to sugar produced by the conventional double sulphitation process.

Uttam Sugar Mills has also received an approval from the Ministry of Commerce & Industry to set up a distillery unit with a capacity of 22,500 kilo liter per annum of alcohol at its Barkatpur facility. Out of the post-expansion co-generation capacity of 81 MW, the company is expected to have a surplus of more than 35 MW and is currently completing arrangements to sell excess power to the Uttar Pradesh State Electricity Board.

The total cost of the two new units is approximately Rs 270 crore and the working capital requirement is Rs 16.70 crore.

Strengths

  • Uttam Sugar Mills is one of the few players in the industry to employ the Defeco Remelt Phospho Floatation (DRP) process in its Libberheri unit that results in manufacture of sulphurless sugar. This sugar is preferred by industrial buyers and generally commands a premium over plantation white sugar. The proposed units, too, will employ the same process of manufacturing sugar.
  • The Libberheri unit (6250 TCD) is eligible for deduction from income tax under section 80 IC and is also entitled to exemption from payment of excise duties for 10 years with effect from December 2004. This is due to the fact that it is located in the industrially backward region in Uttaranchal.
  • Uttam Sugar Mills is also eligible to obtain certain incentives in the form of capital subsidy and reimbursement of the transportation cost of sugar from the UP government. This incentive is available to private entrepreneurs that incur expenditure to set up new production facility or expand the existing facility from FY 2005 to FY 2007. These plants need to commence production by March 2007. It has also set a minimum expenditure of Rs 350 crore to avail this facility. Combining the cost of the Barkatpur plant expansion and the proposed new capacities, Uttam Sugar Mills will also be eligible for the incentives. This is expected to save approximately Rs 1 per kg of sugar sold.

Weaknesses

  • Uttam Sugar Mills operates in the western and northern parts of UP and in Uttaranchal where the sugar mills are known to pay more to farmers, either in cash or kind, in excess of the state advised price (SAP) paid. SAP is higher than the statutory minimum price (SMP) fixed by the Central government. This is evident from the fact that for the 2005 sugar season, SMP stood at Rs 74.5 per quintal of sugarcane and SAP was Rs 112 per quintal. However, the actual cost for the company was more than Rs 128 per quintal. Going forward, this is likely to result in higher raw material cost.
  • There is a mad rush for setting up and expanding sugar mills in and around UP to avail of the state government’s incentives. This is bound to create excessive capacities and could lead to severe shortage of sugarcane especially when the sugarcane crop in the region falls.
  • The promoters have many companies engaged in diverse activities. Plant and machinery for major portion of the proposed units will be obtained from group companies.

Valuation

In the year ended September 2005, Uttam Sugar Mills posted net sales of Rs 187.94 crore and its net profit stood at Rs 26.71 crore. The resultant earning per share based on the post-issue equity capital of Rs 25.77 crore comes to Rs 10.4. The lower price band of Rs 290 discounts the same by 28 times and at the higher band PE ratio stands at just under 33. Compared to the average PE ratio for the sugar industry of around 20 times, the issue is richly priced.

Friday, March 10, 2006

Reliance Communicatin Ventures - NetworthStock


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Sharekhan Investor's Eye


Lupin
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,130
Current market price: Rs960

Making the right decisions

The recent events relating to Lupin are as follows:

  1. a joint venture with Aspen Pharmacare Holdings, South Africa,
  • request for conducting clinical trials of new anti-tuberculosis (TB) molecule,
  • the divestment of its stake in its Thai subsidiary,
  • the discontinuation of its Suprax marketing deal with Cornerstone and
  • the deal with Chester Valley Pharmaceuticals.
  • These are clear indications of the increased focus of the company on the high-revenue, high-margin regulated markets. We believe these events are important and pave the way for growth of the company in the future.

    Thursday, March 09, 2006

    India Telecommunications - The Growth Continues


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    Morgan Stanley Reports


    Nestle - Marico - ITC - IDFC

    Cipla - Morgan Stanley - Overweight


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    Sharekhan - Shriram Transport


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    Motilal Oswal Reports


    Nestle

    Dr Reddy's Labs

    The Indian Multinational


    Not a Videocon advertisement

    IT's big game: Indian breed much ahead of MNCs


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    Kajaria Ceramics - MidcapSelect


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    Tax Saving : Capital guarantee ULIPs: Get the real picture


    Source: Equitymaster

    Unit linked insurance plans (ULIPs) have been zooming up on the popularity charts with insurance seekers. ULIPs are life insurance plans whose returns are linked to the stock markets. So ULIP returns fluctuate with the ups and downs in the stock market. Given this scenario, there exists a category of ULIPs, which guarantees to give back (at least) the premiums to policyholders, irrespective of the market swings. These plans are called capital guarantee plans.

    Simply put, capital guarantee life insurance plans are unit linked plans that ‘promise’ to return at least the premium paid by the individual on maturity. This is in case the policy’s maturity value is below the total premium paid by the individual till maturity. This ‘promise’ is made keeping the market vagaries in perspective.

    However, one thing individuals need to understand is that the capital guarantee is not on the actual annual premium paid by the individual. It is on that portion of the premium, which is net of expenses (like mortality, sales and marketing, administration) plus declared bonuses (if any). Capital guarantee ULIPs have an expense structure that is similar to regular ULIPs with a comparable equity allocation.

    An illustration will help in understanding how capital guarantee ULIPs work.

    Capital Guaranteed? Think again
    Age (Yrs) Sum Assured (Rs) Annual
    Premium (Rs)
    Tenure
    (Yrs)
    Guaranteed Maturity
    Amount (Rs)
    30 400,000 12,000 30 287,000


    Let us take a 30-Yr individual who has opted for a ULIP with a capital guarantee for a 30-year tenure for a sum assured of Rs 400,000. The premium for the same is Rs 12,000. Over a period of 30 years, the total premium paid works out to Rs 360,000. From this figure, expenses (as applicable) are deducted and the net premium (plus bonuses as applicable), are payable to the individual on maturity. That is of course, assuming that the actual maturity value is lower than the ‘guaranteed amount’. In our example, the guaranteed amount works out to approximately Rs 287,000.

    Capital guarantee ULIPs invest a portion of their money in equities. Though the exact percentage varies across companies, it is usually in the 25%-30% range. The remaining 70%-75% is invested in debt instruments like bonds and gsecs. The higher debt portion helps in capital preservation, while the equity component provides a kicker to the overall returns of the ULIP portfolio. Investors who are aware of the asset allocation in a mutual fund monthly income plan (MIP), will relate to the asset allocation in a ULIP capital guarantee.

    However, ‘capital guarantee’ should not be ‘the’ reason for buying such products. The capital guarantee simply acts as a salvage act in a worst-case scenario. Several studies have established that equities are better equipped to deliver above average returns over the long term as compared to fixed income instruments like bonds and gsecs.

    Another factor which should be given due weightage is the fact that generally capital guarantee ULIPs can invest upto 30% of their monies in equities. Individuals should be aware of this fact in addition to the expenses structure before zeroing in on this product. It should make for a good fit in the risk averse individual’s financial and insurance portfolio considering his overall investments in equities.

    The Future of Technology


    Businessweek - See here

    Oracle and I-Flex - Not too close


    The software giant may own a big stake of the Indian company. But i-flex Chairman Rajesh Hukku says his company has seen "zero interference" from the larger outfit -- and it's working well that way

    Businessweek story

    IPO - Shivalik Global


    Sharp pricing

    The processor plans to increase focus on garment exports, but offers shares at PE comparable to the best garment exporters

    Shivalik Global (SGL) is engaged in dyeing, printing and processing of woven fabrics; knitting, dyeing and processing of knitted fabrics and yarn; manufacturing of readymade knitted garments, mainly T-shirts; and manufacturing of sewing threads at Faridabad, Haryana.

    SGL plans to raise readymade garment manufacturing capacity by 36 lakh pieces, from 24 lakh pieces to 60 lakh pieces, with a capex of Rs 16.60 crore; dyeing, printing and processing capacity of woven fabrics by 90 lakh meters, from 360 lakh meters to 450 lakh meters, with a capex of Rs 5 crore; fabric knitting capacity by 1,000 million tonnes, from 1,150 million tonnes to 2,150 million tones, with a capex of Rs 2.76 crore; dyeing and processing of knitted fabrics by 1,500 million tones, from 4,000 million tonnes to 5,500 million tones, with a capex of Rs 6.24 crore; dyeing and processing of yarn by 500 million tones, from 1,400 million tones to 1,900 million tones, with a capex of Rs 2.50 crore.

    Besides, the IPO will address additional working capital requirement of Rs 10 crore, and contingencies and issue expenses of Rs 2.90 crore and Rs 4 crore, respectively. Also proposed is repayment of term loans of Rs 10 crore. The entire project is to be completed by August 2007.

    Around 80% of SGL’s turnover comes from dyeing, printing and processing of knitted and woven fabrics. The balance is generated through the garment business. However, when the new garmenting facilities get fully operational in August 2007, the share of the garment business is expected to go up to 45%. The company exports its entire garment production to internationally renowned buyers.

    Strengths

    *After the completion of the project, SGL will become more evenly integrated and value addition will improve. Contribution from garment exports is targeted to reach 45%, from the current 18%.

    Weakness

    • The new garment capacities will be fully commissioned in August 2007. However, trade restrictions on China will also get lifted from 2008, thereby giving rise to severe competition that can impact margin.
    • Shyam Tex International (almost half the size of SZL) is a promoter (J P Agarwal) group company engaged in the same line of business as SGL. Therefore, conflict of interest is not ruled out. The promoter also has a number of companies engaged in variety of business. This could lead to diversion of attention.

    Valuation

    SGL made a net profit of Rs 6.09 crore on sales of Rs 176.66 crore in FY 2005. EPS on post- IPO equity works out to Rs 2.5. Even current nine months’ annualised EPS on post-IPO equity works out to Rs 3. The shares are being offered at a price of Rs 60 at a PE of 24 times FY 2005 EPS and 20 times annualised FY 2006 EPS.

    Only large and the best garment exporters can enjoy these kind of PEs. Near comparable company, Alok Industries, which is more than six times SGL’s size, is trading at a TTM PE of around 11 times. Even the industry composite TTM P/E is around 13, making the offer highly expensive

    IPO - Solar Explosives


    Holds good growth potential

    Increased investments in coal and metal mining, roads and other infrastructure projects will boost demand for explosives

    Solar Explosives (SEL) and its three 100% subsidiaries are among the largest manufacturers and suppliers of explosives and explosives accessories in India covering an entire range of products such as bulk and cartridge explosives, detonators, detonating cords, pentaerythritol tetranitrate (PETN) and cast boosters. It has six manufacturing facilities located in and around Nagpur.

    The promoters of SEL, Satyanarayan Nandlal Nuwal and his associates, were one of the largest dealers of industrial explosives before setting up this company.

    SEL has a licensed capacity of 1,75,000 tonnes of explosives, which include bulk and cartridge explosives, 140 million detonators, 20 million meters of detonating cord, 250 tonnes of PETN and 60 tonnes of cast boosters. The current capacity utilisation is around 24%, which is supposed to be the best in the industry as there are huge costs involved in the transportation of explosives. Transportation can be carried out easily within 35-40-km radius of the manufacturing unit.

    SEL’s major clientele includes Coal India and its subsidiaries, Sail, Hindustan Zinc, and Singareni Collieries. It also supplies to national hydroelectric projects, the cement, infrastructure and construction sectors, and border road organisations. Its products are exported to Indonesia, Malaysia, Sri Lanka, Oman, Jordan, Syria, Lebanon, Ethiopia, Kenya, Tanzania and Nigeria.

    SEL intends to set up support and transfer plants for bulk explosives, mostly in the eastern parts of the country to cater to coal and iron ore mines in that region. The project (costing Rs 76.38 crore) is to be set up in two phases. Phase I will include the setting up of bulk support plants at Asansol, Talchar and Ramgarh and transfer plants at Dhanbad, Bokaro, Jharsuguda and Manindragarh.

    Phase I will also involve setting up manufacturing units of bulk and cartridge explosives and a magazine (storage) facility in Nigeria.

    Phase II envisages setting up of Bulk Support Plants at Ramagundam, and Transfer plants at Manuguru, Barbil, North Karanpura and Rajmahal.

    The expansion will allow SEL to capture the immense growth opportunities in the mining sector in the eastern parts of India, where most of the coal mines and big steel players are located.

    The industrial explosives industry earns around 60% of its revenue in the last two quarters of the financial year as, in the first half, mining operations halt in the rainy season and there are more chances of machinery breakdown in the summer. Around 65% of the market is controlled by five players and the rest by other small players.

    Strengths

    • SEL enjoys around 13% market share in the industrial explosives market, which is second only to the largest players, Indian Explosives, with a market share of around 18%.
    • Backward integration is one of the key strengths of SEL. The company has in-house manufacturing facility for emulsifiers, sodium nitrate, and calcium nitrate, which acts as a protection against raw material price fluctuations.
    • SEL is a one-stop shop for industrial explosives as it not only provides the entire range of products but also has the capability to develop special tailor-made products as per customer’s requirement.
    • Increased investments in coal and metal mining, roads and other infrastructure projects will boost demand for explosives, going forward.

    Weaknesses

    • SEL is dependent on the growth of other industries, specially mining and infrastructure. Any slowdown in these industries due to bureaucracy and delay in decision-making on the part of government can hamper the demand for the products of the company.

    Valuation:

    *SEL has set a price band of Rs. 170 to Rs. 190, which translates into a PE of 13x to 14x annualised EPS (Rs 13.2) for the half-year ended (consolidated) September 2005 on post-issue equity. However, the second half is generally better, so actual EPS can be higher than the annualised one and, accordingly, P/E can become more reasonable.

    Keltech Energies and Premier Explosives are the two prominent listed companies operating in a business similar to that of SEL. These companies are presently trading at TTM PE multiples of 7.6 and 21.2, respectively, on their annualised EPS. However, the operating profit margin and business model of SEL is better.

    IPO - Shivalik Global - AVOID


    Download Indiainfoline Analysis

    Capita Telefolio - DIC India


    BUY: DIC India at Rs 241
    BSE Code : 500089
    NSE Symbol: DICIND
    Market Lot: 1

    DIC India is a 65.7% subsidiary of DIC Japan, which is the world's largest
    manufacturer of printing inks and organic pigments. The company's products
    mainly cater to publishing and FMCG sectors, both of which are witnessing
    strong growth rates.

    Actual consolidated adjusted EPS for December 2004: Rs 13.9
    Actual consolidated adjusted EPS for December 2005: Rs 16.9
    Projected consolidated adjusted EPS for December 2006: Rs 20.1

    Sharekhan Investor's Eye


    Cipla
    Cluster: Cannonball
    Recommendation: Buy
    Price target: Rs670
    Current market price: Rs585

    Price target revised to Rs670
    Cipla is a bulk drug supplier to Roxane. We believe that Cipla has an alliance with Roxane for supplying the bulk drug for Flonase. This is expected to be a significant source of earnings for Cipla. We expect earnings of close to Rs32.6 crore in FY2007 (4.8% upside) and Rs14.7 crore in FY2008 (2% upside) from the sale of Flonase to accrue to Cipla.



    Tata Motors
    Cluster: Apple Green
    Recommendation: Buy
    Price target: Rs1,004
    Current market price: Rs880

    Upgrading estimates
    Tata Motors quotes at 16.8x its FY2007E and 13.9x its FY2008E on our consolidated earnings per share (EPS) estimates of Rs55.2 and Rs67.1 respectively. Based on the improving momentum in the sales volumes and the earnings growth outlook we maintain our BUY recommendation on the stock and are revising our target price to Rs1,004. With a bounce back in the heavy truck cycle and the strong duty cut benefit coming for diesel Indica, car volumes of the company would get a strong push ahead. This coupled with the strong earnings growth in the company's subsidiaries like Tata Daewoo, Tata Technologies, Telcon, etc and a strong possibility of value unlocking in HV Axles and HV Transmissions through an IPO would drive up the valuations.

    Monday, March 06, 2006

    IPO Updates


    Malu Paper - Avoid

    Rohit Ferro Tech - Avoid

    Gallant Metal - Avoid

    Solar Explosives - Invest for Long Term

    Kulkarni Power Tools - Poweryourtrade.com


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    Sharekhan Top Picks


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    Midcap/Smallcap Recommendations


    Newsletter Dated Monday, March 06, 2006

    5Paisa Newsletter

    S.No. Scrips BSE Code Recommended Rate Target Rate.
    1. Mangalore Chemicals 530011 13.75 18.00
    2. Oil Country 500313 15.75 20.00
    3. Cheslind Textiles 521056 21.05 27.00
    4. Shreyans Industries 516016 25.45 32.00
    5. UCO Bank 532505 26.55 34.00

    Newsletter Dated Monday, March 06, 2006

    Midcaps Newsletter

    S.No. Scrips BSE Code Recommended Rate Target Rate.
    1. Jagsonpal Pharma (FV Rs. 5) 507789 32.05 41.00
    2. Essar Steel Ltd. 500627 38.85 49.00
    3. Zodiac-JRD-MKJ 512587 50.05 64.00
    4. Su-Raj Diamonds 507892 63.35 80.00
    5. Neyveli Lignite 513683 76.15 96.00