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Tuesday, January 31, 2006

Motilal Oswal Reports


SBI

Bank of India

Ultratech Cement

Poweryourtrade.com Multibaggers


20th-Jan-2006

Zensar Technologies Rajen Shah, Angel Broking


Zensar Technologies is into IT services and belongs to RPG Goenka group. It is a strong buy. Most of the mid size software companies are trading at a PE mutiple of 18-20, on the basis of that Zensar will trade at Rs 400. Even, a conservative PE Multiple of 15 is taken, Zensar's price will go to Rs 300, which is an upside of 15% from its current level of Rs 195. Having its presence across the world it has opened a world class development centre in Pune and a BPO centre in Hyderabad. The BPO centre will add to the company's topline and bottomline next year. Business is expected to grow by 30% plus in FY07. The company is expected to give a consolidated turnover of Rs 500 crore, profit of Rs 47 crore and EPS of Rs 20 in FY07.



Multibaggers 05th-Jan-2006


Upper Ganges Sugar

S.P.Tulsian, Investment Advisor

A cheapest sugar stock .
Introduction: - Upper Ganges Sugar Industries Ltd. is a KK Birla
Group company having two sugar units and one distellery. One sugar
mill is at Seohara in U P with 10,000 TCD and a Distellery of 55
KL/Day (capacity being enhanced to 100 KL/Day ) and second sugar
mill is at Sidhwalia in Bihar of 2,500 TCD (expandable to 5,000
TCD). The company is also setting up a Greenfield Sugar Mill at
Kushinagar in UP with capacity of 7,000 TCD, which will be
commissioned for sugar season 2006-07 (to be completed by Sept'06).
The company is also setting up 24 MW co-generation project to be
operational by Feb'07 with an outlay of Rs.100 crores. Total capex
plans of the company is in excess of Rs.350 crores which will
qualify the company for UP state subsidy scheme.
FY 05, Results: - The Company has recently extended its financial
year from June ending to December end and results for 18 months
ended 31.12.05 shall be presented very soon. However, during 15
months ending 30.9.05 (1.7.04 to 30.9.05) the total sales was Rs.422
crores while EBITDA was Rs.86.96 crores. Interest for the period was
Rs.20.29 crores while depreciation was Rs.9.69 crores. Profit before
exceptional items & tax was at Rs.56.98 crores. While all other
major sugar companies in UP have charged cane-arrear liability of
sugar seasons 96-97, 02-03 and 03-04 to Reserves and Surplus, this
company charged this liability of Rs.33.26 crores to the Profit &
Loss account.
Due to this, PBT for the period was placed at Rs.24.68 crores .
After providing tax liability of Rs.6.96 crores (including deferred
tax of Rs.3.03 crores) net profit was at Rs.17.72 crores translating
into an EPS of Rs.25.30 (annualised Rs.20.25).The company has
already declared and paid interim dividend of 40% for the year
04-05.
New Units in Bihar: - The Company has taken over a sugar mill in
Bihar from its group company New India Sugar Mill, with a capacity
of 2,500 TCD (expandable to 5,000 TCD) for which legal process has
been completed. With Mr.Nitish Kumar, assuming charge of Bihar as
CM, he is very keen to develop and revive sugar industry in Bihar.
At one time, Bihar and UP had almost equal sugar production , but
over a period (in last 25 years) Bihar now produces about 5% of
sugar produced in UP. So, an incentive package is assured by the CM
to Sugar Mills in Bihar to set up new units as also to improve the
productivity and increase sugar production. KK Birla Group is a
prominent player in Bihar with Oudh Sugar, another group company
also having its unit in Bihar. So, the earlier plan of Upper Ganges,
to shift unit from Bihar (of New India Sugar) to UP has been kept on
hold and the same is being made operational in Bihar. Even sugar
mills located in Eastern UP are keen to set up mills in Bihar, due
to its logistic advantage, as also access to Pakistan, which is a
big market in time to come.
Rights Issue: - To meet the finance requirement of capex plans of
Rs.350 crores, the Board of the company has in principle approved a
rights issue for which basis, price and terms have not yet been
approved. The net worth of the company as at 30.9.05 was about Rs.84
crores (equity of Rs.7 crores Free Reserves Rs.77 crores) while term
loan as at that date was about Rs.40 crores. Hence, the company may
meet its capex requirement by term loan and rights issue at a
premium, which will be investor friendly.
Sugar Season 04-05 working:-
Though the company has not yet released its accounts the summarised
working of the company for Sugar season 04-05 is assumed to be as
under :-
1) Opening Stock 1-07-04 11.28 lakh Qtl.@ Rs.11.95/kg
Rs.13484 lakhs
2) Production 04-05 16.07 lakh Qtl.@Rs.15/kg
Rs.24100 lakhs
27.35
lakh Qtl. Rs.37584 lakhs
3) Cost of goods sold in 04-05 23.60 lakh Qtl.
Rs.31800 lakhs
(upto 30.9.05 at selling price of approx
Rs.16.70/kg for Rs.394 crores)
4) Closing stock on 1.10.05 3.75 lakh Qtl. Valued @
Rs.15.40/kg Rs. 5784 lakhs


Season 05-06 working:-
Due to better crop availability and more crushing days available
Seohara is likely to produce 16 lakh Qtl. Sugar and Sidhwalia in
Bihar about 2.40 lakh Qtl. with aggregate sugar production of 18.40
lakh Qtl. in season 05-06. Due to reduction in the working capital,
interest burden is also likely to fall to about Rs.12 crores
annually. Interest burden has been falling quarter on quarter for
the last six quarters. Interest for 12 months ending 30.06.04 was
Rs.22.73 crores which fell to Rs.17.41 crores for 12 months ended
30.6.05. Interest for quarter ended 30.9.05 was Rs.2.89 crores.
Hence working for sugar season 05-06 is likely to improve vastly
because of reduction in interest, increased production and better
product realisation.
Financial Performance: - As stated, net profit for 15 months ending
30.9.05 was Rs.17.72 crores. If cane-arrear liability of Rs.33.26
crores is added back, this would have been Rs. 51 cores translating
in an EPS of Rs.72. However in next 12 months (1.10.05 to 30.9.06 )
the company is likely to have PBT of Rs.54 crores (excluding
interest of Rs.12 crores). After providing for tax of Rs.12 crores
PAT should be Rs.42 crores resulting in an EPS of Rs.60. However,
post expansion, post rights though equity will increase but
profitability will also improve.
Lowest Market cap per TCD:-
Upper Ganges probably has the lowest market Cap per MT crushing per
day, as revealed from the Table below: -
Sl. No Company Name Capacity TCD Equity Rs./Crores Share Price
Rs. Mkt Cap Rs./Crores Rs.Lakh Per TCD
1. Bajaj Hindustan54000 TCD 12.00 317 3800 7.04
2. Balrampur Chini48000 TCD 23.18 120 2780 5.80
3. Triveni Engg40000 TCD 25.80 81 2090 5.20
4. Dhampur Sugar 30000 TCD 34.85 213 750 2.50
5. Mawana Sugar18000 TCD 42.50 140 600 3.33
6. KCP Sugar 15000 TCD 11.34 595 675 5.87
7. Oudh Sugar 15000 TCD 18.18 119 216 1.44
8. Upper Ganges 12500 TCD 6.98 274 190 1.52

Conclusion: -
Since the company has not yet published its annual accounts as also
due to charging of cane arrears to P & L A/c. the results were not
understood correctly by the market . Also the company has
investments in listed stocks having market value of Rs.75 crores .
This translates into value per share at Rs. 107. Even giving
discount of 50 per cent to group company investment net value of
investment works out to above Rs.50. Current year EPS is likely to
be above Rs.60. Hence share at Rs. 275 is an excellent buy with a
potential to rise by 100 % in next 12 months.
Disclosure - Writer may deemed to be concerned or interested in this
investment.



Multibaggers 19th-Jan-2006


Reliance Industrial Infrastructure

S.P. Tulsian, Investment Advisor

Reliance Industrial Infrastructure - Rs.330.
An excellent Infrastructure Play.
Reliance Industrial Infrastructure Ltd. (RIIL) became Reliance
Industries Ltd.(RIL), (Mukesh Group) group company about a week
ago.
RIL holds 46.23 % stake while erstwhile promoters Mr.Satyapal Jain
(Brother of Mr.Anand Jain) holds 19.87% stake. Hence total
Promoters stake works out to 66.10%.
Total paid up equity capital of the company is Rs.15.10 crores and
book value as at 31.3.05 was Rs.62.10 per share (net off
Revaluation Reserve)
During FY05 the total income of the company was Rs.68.67 crores
while net profit was Rs.17.47 crores resulting in an EPS of
Rs.11.57 Dividend of 32% was declared for the year.
During H1 of FY 06 total income was Rs.38.05 crores while net
profit was Rs.8.88 crores resulting in an EPS of Rs.5.88 for the
period.
During FY 06 total income is expected to be Rs.80 crores and net
profit of Rs.20 crores giving an expected EPS of Rs.13.25.
Reliance Group is setting up Special Economic Zones (SEZ's) near
Navi Mumbai (Maharashtra) as also in Haryana and Andhra Pradesh on
land Area of approx. 25,000 Acres for each SEZ. This type of SEZ's
are also likely to come up in other states. All these SEZ's are
likely to be put up by this company which will improve the
business profile of the company.
Reliance Group is also foraying into Realty and Retail sector and
these business may also be taken up by this company.
After splitting up Telecom, Energy and Finance Business by Mukesh
Group to Anil Group, this remains the only company in Mukesh Group
after RIL (as IPCL is likely to be merged with RIL very soon)
which may take up infrastructure related projects.
KG Basin gas pipeline from east coast to west coast may also be
taken up by this company.
As RIL is holding entire Promoters stake, total funding for these
projects will come from RIL, which may also increase its stake in
the company beyond 51% to enable RIL to make the company as its
subsidiary. By this relationship, RIL shall be able to consolidate
the company's working in its financials.
FY07 EPS could be over Rs.20, and in view of huge discounting
enjoyed by peers (Mahindra Gesco P/E of above 100) the share can
touch four digit marks in next 12 months.
The Reliance Group's huge and massive plans in Infrastructure
Sector with Investments of over Rs.25,000 crores lined up in next
3 years, major flow of this will come to this company.
One can safely buy this share for over 100 % gain in next one
year. The share is presently available at forwarding earning
multiple of about 17 while peers command an average P/E of above
40 and Industry P/E of above 30.
S.P.TULSIAN
19.1.06.
Disclosure:- The writer may deemed to be concerned or interested in
this recommendation as he and his clients are invested in this
scrip.



Multibaggers 12th-Dec-2005


Crew B.O.S Products Ltd - In vogue

Nirmal Jain, India Infoline.

Crew B.O.S products is one of India's leading exporter of fashion
and home accessories. The company earns more than 95% of its
revenues from the US and the European market. Its clientele include
some of world's big retailers namely Next, GAP, Fossil, Chico,
Tesco, Laura Ashley and many others among its clientele.
The company has performed consistently in the past with revenue CAGR
of 46% and earnings CAGR of 44%over the last five years. Post its
recent GDR issue, the company is poised to expand its operations and
also enter the leather-finishing segment.
We expect the company to post revenue CAGR of 55% and earnings CAGR
of 60% during FY05-08. We initiate coverage on the company with a
buy rating with a 12-15 month horizon and a price target of Rs251.
This implies a potential upside of around 50% from the current
market price of Rs167


Courtesy : DP Visitor - Sarvar

Sharekhan Investor's Eye


State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs950
Current market price: Rs884

Weak operating performance

Result highlights

  • State Bank of India's (SBI) adjusted net interest income (NII) grew by only 0.6% year on year (yoy) in Q3FY2006 as the total earning assets (advances plus investments) declined due to the redemption of India Millennium Deposits (IMDs).
  • The adjusted operating profit declined by 44.8% yoy due to the lower NII and the lower other income. Consequently the adjusted net profit also declined by 34.0% yoy.
  • At the current market price of Rs884 the bank's stock is quoting at 7.5x its FY2007E stand-alone earnings per share (EPS) and 1.2x its consolidated book value. We maintain our Buy recommendation on SBI with a price target of Rs950.



Crompton Greaves

Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,008
Current market price: Rs880

Price target revised to Rs1,008

Result highlights
  • The revenues of Crompton Greaves (Crompton) grew by 37.3% in Q3FY2006 to Rs647.9 crore. The growth was achieved on the back of the strong performance of power systems (revenues up 60.6%) and consumer products (revenues up 21.5%).
  • The operating profit margin (OPM) improved by 90 basis points year on year (yoy) and by 140 basis points quarter on quarter (qoq) to 10.9%. The OPM improved owing to the benefit of operating leverage during the quarter.
  • The power system and consumer product divisions were the key drivers of the company's good performance in Q3FY2006. The profit before interest and tax (PBIT) margin of these divisions improved by 250 basis points and 60 basis points yoy to 9.7% and 8.8% respectively.
  • The net profit (before exceptional) of Crompton grew by 73.3% yoy in the quarter to Rs54.7 crore. There was an extraordinary expense of Rs11.5 crore on account of a voluntary retirement scheme (VRS). Adjusting for the same, the profit after tax (PAT) grew by 36.8% yoy to Rs43.2 crore, in line with our estimates.
  • Its subsidiary, Pauwels, reported a strong performance in the quarter with a profit before tax (PBT) of Rs19.8 crore. Its PBT as a percentage of sales also increased sharply by 300 basis points to 4.3%.
  • The current consolidated order backlog of Crompton stands at Rs2,950 crore (including Pauwels' order book of Rs1,450 crore) and is equivalent to 1x the FY2005 consolidated revenues.
  • Crompton is currently trading at 14.0x FY2008E consolidated earnings. A healthy compounded annual growth of 44% in the earnings over the FY2005-08 period, the strong visibility of the earnings and the improving financial ratios of the company make the stock an attractive investment. We maintain our Buy recommendation on the stock and roll over our earnings multiple to FY2008E with a price target of Rs1,008, discounting the FY2008E consolidated earnings by 16x.



Orient Paper and Industries

Cluster: Vulture’s Pick
Recommendation: Buy
Price target: Rs335
Current market price: Rs250

Strong pick-up in cement and paper businesses

Result highlights
  • Orient Paper and Industries Limited (OPIL) recorded revenues of Rs207.7 crore in Q3FY2006, a growth of 19.5% year on year (yoy), aided by the cement as well as paper divisions. The cement and paper divisions registered a top line growth of 28.1% and 8.1% respectively.
  • The operating profit, however, increased by 112.2% to Rs24.3 crore due to margin expansion. The operating profit margin (OPM) improved from 6.6% in Q3FY2005 to 11.7% in Q3FY2006. The OPM was primarily driven by the improvement in the performance of the cement division which is back on its growth trajectory.
  • The profit before tax (PBT) during the quarter increased by 425% to Rs9.8 crore yoy. However, the net profit increased by 72.9% in Q3FY2006 to Rs5.84 crore, primarily due to the deferred tax to the tune of Rs3.28 crore (as compared to the deferred tax write back of Rs1.5 crore in Q3FY2005). We, therefore, believe the numbers should be viewed on a PBT basis to get a clear picture about the performance of the company.
  • OPIL has registered a PBT of Rs17.3 crore in M9FY2006, as compared to our FY2006 estimate of Rs25.7 crore. We expect the company to achieve our FY2006 numbers as we expect Q4FY2006 to be better than Q3FY2006.
  • OPIL trades at 10.5x its FY2007 earnings and FY2007 enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBIDTA) of 7.8x. At the current market price, the cement business of the company is valued at US$59 per tonne, which is the cheapest in the cement sector. We maintain our sum-of-part valuation target of Rs335.


Ratnamani Metals and Tubes
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs375
Current market price: Rs333

All fired up

Result highlights

  • The Q3FY2006 results of Ratnamani Metals and Tubes Ltd (RMTL) are above our expectations. Its revenues grew by 121.9% to Rs118.5 crore over last year. The massive growth in the top line was achieved on the back of a strong order book.
  • The operating profit grew by 168.5% to Rs20 crore in Q3FY2006 year on year (yoy). The operating profit margin (OPM) improved by 293 basis points to 16.9% during the quarter. We had earlier stated that we expected the OPM to improve owing to the easing of the raw material prices going forward.
  • RMTL's profit before tax (PBT) increased by 157% to Rs1,498 crore yoy. The net profit increased by 146% to Rs9.86 crore yoy. However the provision for tax for the quarter included the Rs1.73 crore paid for the previous year. Excluding this, the profit after tax (PAT) increased by 190% to Rs11.6 crore.
  • RMTL has reported a net profit of Rs20.9 crore for M9FY2006 as compared with our FY2006 estimate of Rs24.5 crore. Given the company's robust order book position, we are upgrading our FY2006 and FY2007 estimates. We expect the company to earn a net profit of Rs26.3 crore and Rs36.1 crore in FY2006 and FY2007 respectively. The stock trades at 11.3x the FY2006 and 8.3x the FY2007 earnings estimates. We maintain our Buy recommendation on the stock with the price target of Rs375.


Surya Pharmaceuticals
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs205
Current market price: Rs147

Growing strongly

Result highlights

  • Surya Pharma's net sales were up 31% year on year (yoy) in Q3FY2006 to Rs60.2 crore as against Rs45.9 crore in Q3FY2005 on the back of good contract manufacturing orders.
  • The lower raw material costs as a percentage of the net sales resulted in the operating margins increasing by 203 basis points to 19.5%.
  • The operating profit stood at Rs11.7 crore, an increase of 46% yoy.
  • The net profit saw an increase of 67.2% yoy to Rs6.77 crore in Q3FY2006 as the net profit margin soared by 231 basis points on a year-on-year (y-o-y) basis. The quarterly earnings per share (EPS) stood at Rs6.11 in Q3FY2006 as against Rs3.87 in Q3FY2005.
  • At the current market price of Rs147 the stock is trading at 5.8x its FY2007 earnings estimate. We maintain our Buy recommendation on Surya Pharma with a price target of Rs205.



Grasim Industries

Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,525
Current market price: Rs1,462

Cement comes to rescue

Result highlights
  • Grasim Industries' Q3FY2006 stand-alone net profit of Rs162 crore is down by 25% year on year (yoy) and below our expectations. The dent in the net profit was caused by the poor performance of the sponge iron and viscose staple fibre (VSF) divisions. The company's net sales for the quarter grew by only 6%, driven by the good performance of the cement division.
  • A 580-basis-point drop in the operating profit margin (OPM) to 19.4% resulted in a 19% decline in the operating profit to Rs319 crore. The earnings before interest, depreciation, tax and amortisation (EBIDTA) of the sponge iron business fell sharply by 97% yoy mainly due to a sharp fall in the volumes (down 50% yoy). The volumes were hurt by an inadequate supply of natural gas and higher input prices. On the other hand, despite an 18% year-on-year (y-o-y) growth in the VSF volumes, the EBIDTA of the VSF business fell by 23% basis points yoy due to a 10% y-o-y fall in the realisations.
  • The cement division's performance improved significantly during the quarter. Higher volumes and realisations resulted in a 61% jump in its EBIDTA.
  • Grasim's consolidated results are much better than its stand-alone results, primarily because of the excellent performance of the consolidated cement division. The consolidated revenues are up 7% whereas the consolidated net profit is down 5%.
  • Grasim's Q3FY2006 results are below our expectations primarily because of the dismal performance of the sponge iron business. Consequently, we are downgrading our stand-alone FY2006 earnings estimates by 7.4% and the consolidated earnings estimates by 6.4%. Further we are downgrading our FY2007 earnings estimates by 4% to Rs120 per share. Our earnings downgrade reflects the deteriorating outlook for the company's sponge iron business and the rescheduling of the commissioning of captive power plant for UltraTech Cement from June 2007 to January 2008.



International Combustion (India)

Cluster: Cannonball
Recommendation: Buy
Price target: Rs450
Current market price: Rs355

Good results

Result highlights
  • The revenues of International Combustion India Ltd (ICIL) grew by a robust 29.3% year on year (yoy) to Rs16.3 crore in Q3FY2006 on the back of the strong performance of the heavy engineering division (HED).
  • The operating profit margin (OPM) of the company improved by 620 basis points yoy to 16.9% in Q3FY2006 mainly on account of the lower material cost and the leverage effect coming into play.
  • The robust performance on the operating profit front was reflected in the bottom line as the net profit grew 110.4% yoy to Rs1.4 crore. The earnings for the quarter stood at Rs6.5 per share, in line with our estimates.
  • The HED continued with its growth momentum in the quarter registering a strong revenue growth of 41.2% yoy to Rs12.9 crore. But the PBIT margins saw a marginal fall of 170 basis points yoy to 26.1% primarily on account of the change in the product mix.
  • ICIL has a healthy order book of Rs50 crore which is 1.1x its FY2005 revenues, thus imparting a strong visibility to its earnings. The order book grew by 56.0% on a quarter-on-quarter (q-o-q) basis.
  • We expect the company to report earnings of Rs22.9 per share in FY2006E and of Rs42.5 per share in FY2007E. ICIL is currently trading at a PER of 8.3X its FY2007E earnings and 4.9X its FY2007E enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs450.

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