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Friday, April 07, 2006

Sensex Journey

See here > Check the gainers list on the top of the page.

Kamdhenu Ispat

Background :
  • Kamdhenu Ispat Limited (KIL), incorporated in September 1994, is the flagship company of Kamdhenu Group. It is a manufacturer of cold twisted deformed (CTD) bars, thermo mechanically treated (TMT) bars with the plant capacity of 48,000 metric tonnes (MT) per annum and ingot manufacturing capacity of 22,500 MT per annum.
  • The company has franchisee arrangement with 22 entities to manufacture high strength deformed bars (HSD)/TMT bars, cement, stainless steel pipes under the brand name "Kamdhenu". The total combined capacity of all these units is 840,000 MT.
  • KIL's products are used in the construction of multistoried buildings, dams, bridges, flyovers, and power plants as a basic reinforcement material.
  • The Company derives its operating income from three different activities: by selling products manufactured by the KIL, by trading of products manufactured by Franchisees and through royalties received from Franchisees for using brand name of the company "Kamadhenu".
  • The Company has entered into an agreement with Centre De Rechercher Metallurgiques (CRM), Belgium for use of TEMPCORE trademark used for identification of high quality steel bars.
Objects of Issue :
  • To meet the long term working capital requirements of Rs.2,888.15 lakhs to establish ten stockyards across the country.
  • To meet the cost of setting up of corporate office with an investment of Rs.250 lakhs.
  • To meet the expenditure on lease deposits and miscellaneous fixed assets for setting up stock yards of Rs.59 lakhs.
  • To meet the issue expenses of Rs.180 lakhs.
Strengths :
  • KIL's key strength is its brand name. It sells all its products under brand name "Kamdhenu", at a premium ranging between Rs.300 to Rs.700 per metric ton.
  • The company has a network of more than 1750 distributors and dealers spread across the northern, central and eastern India.
  • KIL is operating through franchising due to which company is having the benefit of larger volumes turnaround across the country with minimum investment in fixed capital and reduced gestation period.
  • The Company and all its franchisee are using the "Tempcore Process". It produces steel bars at faster speed than normal plants.
  • KIL's capacity utilization has been constantly been increasing since FY01. It has increased to 107.3% in FY05 from 91.33% FY01 for steel bars.
Weakness :
  • KIL's FY05 operating profit margin and net profit margin are as low as 3.3% & 1.6% respectively.
  • Company has undertaken a project to erect sponge iron manufacturing facility but the project has halted, as company could not get mining rights in respect of Mines of Iron/ Manganese Ore.
  • KIL's biggest cost is raw material. It formed 52.4% of total expenses of the company. Increase in raw material prices and other inputs can affect the business operations adversely.
  • KIL is not a fully integrated company, thus will face margin pressure (company is already operating on thin margins), unlike Gallantt Metals & Godawari Power & Ispat ltd. These companies are operating in same industry, have come up with IPO to fully integrate their manufacturing operations.
Peer Group Comparison :

Financial Year 2005
NPM (%)
Debt/Equity Ratio
Interest Cover (times)
Rathi Ispat Ltd.
Kamdhenu Ispat Ltd.
Godawari Power&Ispat Ltd.

Valuation :
  • KIL's sales & PAT have grown at a CAGR of 34.8% and 61.2% respectively since FY01. Sales have grown from Rs.3,574.31 lakhs in FY01 to Rs.11,784.65 lakhs in FY05. Net Profit grew from Rs.25.61 lakhs to Rs.171.19 lakhs.
  • Operating profit margin of the company has nearly doubled from 2.6% in FY01 to 4.4% for 9 month ending December2005.
  • The company's net worth as on 31st March 2005 was Rs.772.06 lakhs which has increased to Rs.1,133.41 lakhs as on 31st December 2005.
  • Book Value per share as on 31st December 2005 is Rs.18.25
  • Post issue annualized EPS based on 31st December 2005 earnings is Rs.1.33 per share. The shares are being offered at a price of Rs.25, at P/E of 18.8

A Red Flag for India's Bull Market

Will India's bears come out of hibernation this spring to put an end to the bull market? Stocks are trading high, but earnings may be down

Forget the sacred cows, here come the bulls. Investors in India seem to be having a fit of exuberance, irrational or otherwise. Bombay's benchmark stock index, the Sensex, has broken records almost every day this year, moving from 9,390 on Jan. 2 to 11,747 on Apr. 5. At least $11 billion in foreign money has poured in over the past year seeking to capture the 50%-plus gains seen in 2005.

And big-ticket initial public offerings by the likes of Reliance Petroleum and low-cost airline Deccan Aviation are likely to pump up the excitement even further, attracting as much as $22 billion in new cash to the market this year. "India has moved from being a small car to a Ferrari," says Andrew Holland, Merrill Lynch's  head of research in India.

By many measures, it appears the bulls may be onto something. They point to the likes of Infosys and Tata, which are among the best-managed companies in the emerging markets. The country's youthful, increasingly educated population is eager for work. Successive governments from opposite ends of the political spectrum have persistently backed economic reform. And local investors are starting to join the party, as Indian mutual funds raised nearly $4 billion in the first quarter, compared with $242 million for the previous year period.

TOO MUCH MONEY.  Some, though, wonder whether the bulls are being led to the slaughter. The 30 companies in the Sensex, or the Sensitive Index, are trading at an average of 20 times their expected 2006 earnings -- the highest multiple ever and even higher than the average of about 15 for the Standard & Poor's 500 index. Meanwhile, corporate profits are estimated to have climbed 15% in the fiscal year ended Mar. 31 -- well ahead of the Asian average of 6%.

Those IPOs in the pipeline should mop up much of the excess cash sloshing around, which could cut into demand for existing issues. "Right now, there's too much money chasing too few stocks," says Prithvi Haldea, director of researcher Prime Database, which follows the IPO market.

Then there's the problem of the foreigners. Overseas investments account for three-quarters of new funds flowing into the market. If the tide turns, they could quickly vanish. "Foreign institutional investors are supporting India's growth," says Ridham Desai, co-chief executive of JP Morgan Chase in Bombay. "If they twitch, India will dip. The market is disregarding this."

AWAITING RESULTS.  Interest-rate hikes could also hurt. In the past two years, India's central bank has raised rates three times, taking short-term rates to 6.5%, the highest level in two years, while U.S. rates are at a five-year high. "In an environment of rising rates, equity markets aren't the only alternative," says Mark Syn, executive director of Goldman Sachs Asset Management.

The first indication of a market slowdown could come this month, when results for the last fiscal year are made public. Earnings grew 15% in the quarter ended Dec. 31 -- half the 30% growth of the past three years. Analysts expect growth of 18% to 20% now, but with valuations as high as they are, there's little room for companies to make mistakes. "God help the market if earnings are lower than 15%," says Dinshaw Irani of Bombay investment advisory firm Artemis Advisors.

Still, such an outcome seems inevitable. Stars of previous quarters such as Tata Steel and petrochemicals giant Reliance are subject to commodity cycles and will surely see slower growth. Indian companies are investing in new capacity, but face an acute shortage of management talent to execute their plans. "India is a good 10-year play, but in the short term there are risks," says Madhav Bhatkully of Bombay's New Horizon Investments.

SPRING CHANGES?  Try telling this to investors, and "they roll their eyes and say it'll work out in the long run," says Manish Chokhani, director at Bombay brokerage Enam Securities. This year, Morgan Stanley reckons foreigners will invest $20 billion in India's stock market, nearly double last year's figure.

And at annual Indian investment conferences of Deutsche Bank , Citigroup , Merrill Lynch, and Morgan Stanley  in March, attendance was far higher than last year's levels. Sure, India has plenty of long-term potential. But this spring, it may be time for the bears to start pushing the cows -- and the bulls -- out of the way.


Plethico IPO News

Herbal company Plethico Pharma is planning to raise Rs 110 crore through initial public offering which will open for bidding on April 10.
 Of the proceeds, the company plans to use Rs 25.7 crore for upgrading the Kalaria plant, Rs 30 crore for organic farming and Rs 28 crore for brand buyouts. The price band for the issue has been fixed at Rs 280-300.
 Currently, the company caters to unregulated markets and is planning to expand its presence to the US through herbal medicines.
 "The demand for herbal products would touch $1.5 trillion by 2050. We are aiming at producing products which are of standard quality in the US, for which we have undertaken organic farming in India. It is believed that different fields produce different qualities of herbs," said ShashikantPatel, chairman & managing director, Plethico Pharmaceuticals.
 Plethico is a multi-product company, with a large global presence and has awide product range including herbal and allopathic formulations, consumer health care products and nutraceuticals, food supplements, disposables andhospital consumables.
 It has a portfolio of more than 400 formulations in more than 39 therapeutic segments and exports to more than 45 countries.
 The company also employs approximately 250 sales personnel across these markets, of which, 150 are employed in markets outside India.
 It has two fully integrated state of the art manufacturing units locatednear Indore, which serve as the backbone of the entire operations.
 These facilities are being upgraded as per the norms of UK MHRA, thecompany officials said.
 So far, Plethico has adopted the "branded generics" model for marketingallopathic formulations in India. "Branded Generics give a premium overother generics as their bio-availability is high as compared to othergenerics," said. The company proposes to extend this model to other semi-regulated  markets.