© Encompassing content-to-consumer value chain. Zee has been investing heavily in new businesses and content. After restructuring, ZEEL now owns 12 channels (including general entertainment, music, movies, sports, etc.). Moreover, it has also acquired Ten Sports Channel. Company is expected to benefit from changing media landscape on account of implementation of CAS in metros and emergence of DTH as an alternate distribution platform.
© Indian television industry is going through a very interesting phase. Market will expand with lot many new channels in each genre launched or being launched which will have positive implication for all players in media value chain and ZEEL with its diversified genre of content offering, would be a big beneficiary of this change through unlocking of its revenue potential.
© TV advertising has also been seeing a sustained and accelerated growth as one of the most preferred media for FMCG, consumer durables, auto, financial services, and host of other industries to get thru their message across to consumers. Company has been able to successfully increase ad rates following growing popularity of its programmes.
© Its flagship channel Zee TV has emerged as a firm challenger to number one position in viewership share across all competing channels in General Entertainment Category (GEC) genre with its programs in each slot has started to record higher GRP. As on March 2008, Zee TV had 25 programs in “Top 50 program” from just 2 in 2005.
© It has launched Zee Next – new channel in General Entertainment Category (GEC) focusing on youth audiences thereby bridging missing link in GEC space. Launched in Q3 FY08 end, Zee Next is well received and is now planning to roll out fully with aggressive programming and marketing strategy in FY 2009. Break-even of this channel will be in FY 2012. ZEEL plans to de-merge this channel into a separate firm.
© Besides, company plans to re-enter film production thru an existing Mauritius based subsidiary, which would hold 80% stake in Zee Entertainment Studio. Subsidiary will have 2 divisions – Zee Motion Pictures producing Bollywood films with Rs. 50-60 crore budget and Zee Limelight, which will produce low cost movies in Hindi, Marathi, Bengali, Telugu, Tamil and Kannada. Foray into film production would add another dimension to media conglomerate and movies business will offer some synergies with its broadcasting business. .
© Subscription revenue is expected to grow faster at 30% as compared to advertising revenue as they are going to be more platforms to distribute channels in FY 2009. Company may also make ad-rate hike to monetize higher ratings. Besides, resurgence in Pay TV revenues from higher DTH, cable & international sales will increase revenues and profits substantially in future. Company expects to grow top-line @ 30% and bottom-line @ 25-30% (despite losses from Zee Next) in FY 2009.
For FY 2008, Consolidated revenues rose by 26.9% to Rs 1834.3 crore driven by 32.8% growth in advertising revenues of Rs.934.23 crore and 10.2% increase in subscription revenues of Rs.732.6 crore, while Other sales & services perked by 118% to Rs.167.50 crore. OPM% jumped to 29.4% (22.1%). After providing for higher interest cost of Rs.55.44 crore (includes forex loss of Rs.26.18 crore), PBT (after extra-ordinary expense) grew @ 66% to Rs 569.72 crore and PAT (after minority interest) spurted by 72.7% to Rs 383.7 crore.
Thursday, July 10, 2008
Supreme Industries (SIL):
© SIL, one of the largest plastic processors in the country with a well diversified product portfolio, is all geared to take advantage of encouraging prospects in fast growing plastic industry.
© Establishing mega plastic products complex (of 1.5 lakh TPA) at Gadegaon, Maharashtra, taking total capacity to 2.55 lakh TPA at cost of Rs 255 crore. Phase I has started since Feb. 2008, while total facility to be fully operational by FY 2010.
© With focus on growing value-added : high-margin products, company is going for corrugated pipes using technology from Wavin Plastics – Netherlands, setting up facility to produce protective packaging, increasing capacity of cross-linked film used to make fumigation sheets, sacks, canal covers, tarpaulins, etc., and expanding capacities in material handling systems and furniture along with introduction of new product range.
© All these initiatives, to double plastics products turnover in next 3 years with higher profit margins, as company is exiting from low-margin non-core businesses and increasing share of high-margin, value-added products addressing new markets and applications.
© Unlocking value in property at Andheri being developed as ultra-modern office complex consisting of 10 floors, company may be able to make net of tax gain of ~ Rs 290 crore (~ Rs 105/- share). Company is also in the process of unlocking value from divesting from none-core businesses and disposing off surplus assets to raise around Rs 76 crore (Rs 38 crore already realized) to part fund total capex programme of Rs 415 crore.
© SIL holds 30% stake in Supreme Petrochem (which manufactures polystyrene) is going in for massive expansion plans for value-added products. This will augur well for SIL. This investment works out to Rs 24/- per share.
For 9 months, Net sales were up by 8.8% to Rs. 868.31 crore. OPM% improved slightly to 10.6%. Further aided by 32% higher other income of Rs. 6.73 crore, PBT (before extra ordinary items) rose by 24.1% to Rs. 42.15 crore. However, extra ordinary income of just Rs. 2.16 crore (as against Rs. 10.38 crore) being profit accrued on non-refundable consideration towards sale of plot in Haryana, PAT declined marginally to Rs. 30.62 crore.
© Establishing mega plastic products complex (of 1.5 lakh TPA) at Gadegaon, Maharashtra, taking total capacity to 2.55 lakh TPA at cost of Rs 255 crore. Phase I has started since Feb. 2008, while total facility to be fully operational by FY 2010.
© With focus on growing value-added : high-margin products, company is going for corrugated pipes using technology from Wavin Plastics – Netherlands, setting up facility to produce protective packaging, increasing capacity of cross-linked film used to make fumigation sheets, sacks, canal covers, tarpaulins, etc., and expanding capacities in material handling systems and furniture along with introduction of new product range.
© All these initiatives, to double plastics products turnover in next 3 years with higher profit margins, as company is exiting from low-margin non-core businesses and increasing share of high-margin, value-added products addressing new markets and applications.
© Unlocking value in property at Andheri being developed as ultra-modern office complex consisting of 10 floors, company may be able to make net of tax gain of ~ Rs 290 crore (~ Rs 105/- share). Company is also in the process of unlocking value from divesting from none-core businesses and disposing off surplus assets to raise around Rs 76 crore (Rs 38 crore already realized) to part fund total capex programme of Rs 415 crore.
© SIL holds 30% stake in Supreme Petrochem (which manufactures polystyrene) is going in for massive expansion plans for value-added products. This will augur well for SIL. This investment works out to Rs 24/- per share.
For 9 months, Net sales were up by 8.8% to Rs. 868.31 crore. OPM% improved slightly to 10.6%. Further aided by 32% higher other income of Rs. 6.73 crore, PBT (before extra ordinary items) rose by 24.1% to Rs. 42.15 crore. However, extra ordinary income of just Rs. 2.16 crore (as against Rs. 10.38 crore) being profit accrued on non-refundable consideration towards sale of plot in Haryana, PAT declined marginally to Rs. 30.62 crore.
SKF India:
© SKF India, 53% subsidiary of SKF – Sweden, is market leader in bearings in India.
© Demand for bearings has been witnessing very high growth from all user segments like automobiles, capital goods, heavy industries, railways, textiles, cement, wind power, etc.
© Focus on 5 technology platforms across bearings, seals, lubricating systems, services (including application engineering and asset management for large customers) and mechatronics (huge future going head as Indian industries go for higher degree of automation); are going to place company in very high league in tandem with global developments such that these would constitute about 20% (10% at present) of its revenues by CY 2010-2011.
© In view of some slowdown in Indian two wheelers market, Rs 150 crore Greenfield plant in Uttarakhand was delayed. However, now company expects to start the same by March 2009.
© Besides this new plant and on-going expansion at existing sites in Pune and Bangalore, company will also benefit from the new Greenfield plant being set up in Ahmedabad by the parent company SKF – Sweden to manufacture large sized bearings (hitherto imported and sold to Indian companies). SKF – India will be marketing these bearings in India.
© SKF India is aiming at doubling the size of turnover in next 4-5 years, mainly from accelerated growth coming from other technology platforms referred above. For this purpose, company will be spending capex of Rs 100 crore every 18 months for up-gradation and capacity expansion of existing plants. Besides, it may also go for acquisitions giving new markets, new technologies and new products, especially in the newer technology platforms. These aggressive investment plans would be funded thru internal accruals (has cash in hand of Rs 236 crore as on Dec. 31, 2007).
For Q1 CY 2008, company has put up subdued performance. Net Sales grew @ 9% to Rs.392.1 crore. However, OPM% declined to 15.1% on back of spurt in steel prices – major component of raw materials. Interest income was higher at Rs.4.37 crore. Higher sales coupled with rise in interest income led to 3% increase in PAT to Rs.37.76 crore. In Q1 CY07, company had earned higher contribution on trading of imported bearings as it had not passed on reduction of customs duty to customers as a result of strong demand and thus got higher price.
© Demand for bearings has been witnessing very high growth from all user segments like automobiles, capital goods, heavy industries, railways, textiles, cement, wind power, etc.
© Focus on 5 technology platforms across bearings, seals, lubricating systems, services (including application engineering and asset management for large customers) and mechatronics (huge future going head as Indian industries go for higher degree of automation); are going to place company in very high league in tandem with global developments such that these would constitute about 20% (10% at present) of its revenues by CY 2010-2011.
© In view of some slowdown in Indian two wheelers market, Rs 150 crore Greenfield plant in Uttarakhand was delayed. However, now company expects to start the same by March 2009.
© Besides this new plant and on-going expansion at existing sites in Pune and Bangalore, company will also benefit from the new Greenfield plant being set up in Ahmedabad by the parent company SKF – Sweden to manufacture large sized bearings (hitherto imported and sold to Indian companies). SKF – India will be marketing these bearings in India.
© SKF India is aiming at doubling the size of turnover in next 4-5 years, mainly from accelerated growth coming from other technology platforms referred above. For this purpose, company will be spending capex of Rs 100 crore every 18 months for up-gradation and capacity expansion of existing plants. Besides, it may also go for acquisitions giving new markets, new technologies and new products, especially in the newer technology platforms. These aggressive investment plans would be funded thru internal accruals (has cash in hand of Rs 236 crore as on Dec. 31, 2007).
For Q1 CY 2008, company has put up subdued performance. Net Sales grew @ 9% to Rs.392.1 crore. However, OPM% declined to 15.1% on back of spurt in steel prices – major component of raw materials. Interest income was higher at Rs.4.37 crore. Higher sales coupled with rise in interest income led to 3% increase in PAT to Rs.37.76 crore. In Q1 CY07, company had earned higher contribution on trading of imported bearings as it had not passed on reduction of customs duty to customers as a result of strong demand and thus got higher price.
Savita Chemicals (SCL):
© SCL is primarily a base oil processor with product range comprising of Transformer Oils (65% of revenue), Liquid Paraffin/White Oils and Lubricating Oils. Transformer oil is predominantly used in transformer, utilized in power industry. Liquid Paraffins & white oils are used in cosmetics, pharmaceutical and personal care products. While automotive sector and industrial units constitute major markets for lubricants.
© With huge capacities planned in power generation, demand for transformer oil is expected to be strong (as 1 mw of new power generation capacity requires 7 mva of transformer capacity) and SCL which has 40% market share in transformer oils is expected to be a key beneficiary of capacity addition of 100,000 MW planned under 11th Five Year Plan. In addition to strong domestic presence, SCL is exporting transformer oil to South Africa, South East Asia, Australia & Middle East and is exploring newer markets to increase its exports.
© In lubricating oil segment, SCL is present in both automotive (85% of lubricant sales) and industrial (15% of lubricant sales) segment. Good growth in 2-wheelers, 4-wheelers and CVs is expected to drive demand for auto lubricants. SCL has tie-up with Idemitsu Kosan, Japan to market its lubricating oils under ‘Idemitsu’ brand name thru network of dealers and auto part shops. With increase in industrial activity, there is good scope for industrial lubricants too. Company has also launched its new brands in the market with good success.
© In liquid Paraffin, SCL’s major customer is Johnson and Johnson (J&J) along with others like HLL, Marico and Dabur. SCL is the only company in India to have J&J approval and is even supplying to J&J’s European outlets. Company’s exports to J&J are major contributor to overall exports. In international market, company is focusing on building long-term supply arrangements for various multinational customers for Transformer Oils and Liquid paraffin and expanding deliveries into newer territories.
© SCL is enhancing wind power generation capacity to 30.8 mw (26.3 mw in FY 2008) by putting up additional wind power projects to avail of tax benefits along with good realisations for power being sold to SEBs after captive consumption. As wind power makes company eligible to claim carbon credits, its encashment in near future, will improve profitability of the company further.
© To cater to increasing demand for all three product lines, company is working on a Greenfield project (@ capex of Rs. 15-20 crore) for petroleum products, augmenting capacity by ~ 30%.
© Cash rich company having surplus cash & cash equivalent worth Rs. 30 crore, i.e. Rs. 20/- per share as on March 31, 2008.
For FY 2008, Net Sales were up 13.1% to Rs. 918.98 crore. OPM% improved smartly to 9.8% (6.9%). Despite 24% lower other income of Rs. 11.91 crore and 88.5% higher interest cost of Rs. 2.86 crore, PBT soared up by 40.6% to Rs. 85.01 crore and PAT grew @ 31.1% to Rs. 61.97 crore.
© With huge capacities planned in power generation, demand for transformer oil is expected to be strong (as 1 mw of new power generation capacity requires 7 mva of transformer capacity) and SCL which has 40% market share in transformer oils is expected to be a key beneficiary of capacity addition of 100,000 MW planned under 11th Five Year Plan. In addition to strong domestic presence, SCL is exporting transformer oil to South Africa, South East Asia, Australia & Middle East and is exploring newer markets to increase its exports.
© In lubricating oil segment, SCL is present in both automotive (85% of lubricant sales) and industrial (15% of lubricant sales) segment. Good growth in 2-wheelers, 4-wheelers and CVs is expected to drive demand for auto lubricants. SCL has tie-up with Idemitsu Kosan, Japan to market its lubricating oils under ‘Idemitsu’ brand name thru network of dealers and auto part shops. With increase in industrial activity, there is good scope for industrial lubricants too. Company has also launched its new brands in the market with good success.
© In liquid Paraffin, SCL’s major customer is Johnson and Johnson (J&J) along with others like HLL, Marico and Dabur. SCL is the only company in India to have J&J approval and is even supplying to J&J’s European outlets. Company’s exports to J&J are major contributor to overall exports. In international market, company is focusing on building long-term supply arrangements for various multinational customers for Transformer Oils and Liquid paraffin and expanding deliveries into newer territories.
© SCL is enhancing wind power generation capacity to 30.8 mw (26.3 mw in FY 2008) by putting up additional wind power projects to avail of tax benefits along with good realisations for power being sold to SEBs after captive consumption. As wind power makes company eligible to claim carbon credits, its encashment in near future, will improve profitability of the company further.
© To cater to increasing demand for all three product lines, company is working on a Greenfield project (@ capex of Rs. 15-20 crore) for petroleum products, augmenting capacity by ~ 30%.
© Cash rich company having surplus cash & cash equivalent worth Rs. 30 crore, i.e. Rs. 20/- per share as on March 31, 2008.
For FY 2008, Net Sales were up 13.1% to Rs. 918.98 crore. OPM% improved smartly to 9.8% (6.9%). Despite 24% lower other income of Rs. 11.91 crore and 88.5% higher interest cost of Rs. 2.86 crore, PBT soared up by 40.6% to Rs. 85.01 crore and PAT grew @ 31.1% to Rs. 61.97 crore.
Reliance Communication
© Reliance Communications (R-COM) is leading integrated telecom providing entire gamut of telecom services including wireless, wireline, broadband, carrier, and data services. R-COM, India’s second largest wireless operator, offers both CDMA (21 circles) and GSM-based wireless services (in 8 circles) and operates in all 23 telecom circles in India. It also enjoys strong position in long distance and broadband segments. Company expects to commence IPTV and DTH services by the end of FY 2008 E.
© Recently, RCOM has received requisite Government approvals and spectrum to roll-out GSM services in additional 14 circles wherein it expects to launch GSM services by end of CY 2008, making it the only player in the country offering both GSM and CDMA (Dual Technology) services on nationwide basis.
© R-COM’s global division is leveraged on strong network platform comprising pan-India optic fiber network of 100,000 km (another 30,000 km to be added in FY 08) and global network comprising FLAG & FALCON spanning ~ 40 countries across Europe, North Africa, Middle-East and Asia. R-COM intends to spend additional US $ 1.5 billion over next 3 years to build IP-overlay on FLAG’s sub-sea cable network (FLAG NGN) adding 50,000 km of additional undersea optic fibre cable. On completion, FLAG network will span over 115,000 km and increase coverage to 60 countries.
© R-COM acquired Yipes (San Francisco) providing it with high-speed data network access to 1,000 customers in 14 US cities, operating optic fiber network of more than 22,000 km. Yipes has operating margin of 55% and is cash positive.
© Company has hived off its passive infrastructure (mainly 14,000 towers) into a separate subsidiary called Reliance Infratel. Infratel had filed prospectus for IPO of 8.92 crore equity shares of face value of Rs 5/- amounting to 10% of its post-issuance paid-up equity capital. Company also plans to list its global subsidiary FLAG in couple of quarters. This is expected to unlock huge value for R-COM.
© Company has acquired Anupam Global Soft, Uganda, a company holding Public Infrastructure Provider License (PIPL) & Public Service provider License (PSPL), under which, R-COM to offer mobile, fixed line, internet, national and international long distance services in addition to Wi-Max and Wi-Fi services.
© Company is consolidating its overseas business under one umbrella – Reliance Globalcom, 100% subsidiary of R-COM - bringing under its fold, Flag Telecom, Yipes Communications and R-COM’s international business; all put together addressable revenue potential of US $ 285 billion annually. Reliance Globalcom has acquired UK based eWave World, offering wireless telephony services using Wi-Max technology. Globalcom plans to invest Rs. 2,000 crore over next few years to build and acquire Wi-Max networks in emerging markets in different continents.
© R-Com has submitted a bid to acquire US $ 9.2 billion MTN, South African telecom company.
For FY 2008, RCOM recorded 31.8% increase in its consolidated net revenues at Rs.190.7 billion. OPM% saw marked improvement from 39.5% to 43.1% during the period. Consequently, net profit surged by 70.8% to Rs. 54.0bn (Rs. 31.6 billion).
© Recently, RCOM has received requisite Government approvals and spectrum to roll-out GSM services in additional 14 circles wherein it expects to launch GSM services by end of CY 2008, making it the only player in the country offering both GSM and CDMA (Dual Technology) services on nationwide basis.
© R-COM’s global division is leveraged on strong network platform comprising pan-India optic fiber network of 100,000 km (another 30,000 km to be added in FY 08) and global network comprising FLAG & FALCON spanning ~ 40 countries across Europe, North Africa, Middle-East and Asia. R-COM intends to spend additional US $ 1.5 billion over next 3 years to build IP-overlay on FLAG’s sub-sea cable network (FLAG NGN) adding 50,000 km of additional undersea optic fibre cable. On completion, FLAG network will span over 115,000 km and increase coverage to 60 countries.
© R-COM acquired Yipes (San Francisco) providing it with high-speed data network access to 1,000 customers in 14 US cities, operating optic fiber network of more than 22,000 km. Yipes has operating margin of 55% and is cash positive.
© Company has hived off its passive infrastructure (mainly 14,000 towers) into a separate subsidiary called Reliance Infratel. Infratel had filed prospectus for IPO of 8.92 crore equity shares of face value of Rs 5/- amounting to 10% of its post-issuance paid-up equity capital. Company also plans to list its global subsidiary FLAG in couple of quarters. This is expected to unlock huge value for R-COM.
© Company has acquired Anupam Global Soft, Uganda, a company holding Public Infrastructure Provider License (PIPL) & Public Service provider License (PSPL), under which, R-COM to offer mobile, fixed line, internet, national and international long distance services in addition to Wi-Max and Wi-Fi services.
© Company is consolidating its overseas business under one umbrella – Reliance Globalcom, 100% subsidiary of R-COM - bringing under its fold, Flag Telecom, Yipes Communications and R-COM’s international business; all put together addressable revenue potential of US $ 285 billion annually. Reliance Globalcom has acquired UK based eWave World, offering wireless telephony services using Wi-Max technology. Globalcom plans to invest Rs. 2,000 crore over next few years to build and acquire Wi-Max networks in emerging markets in different continents.
© R-Com has submitted a bid to acquire US $ 9.2 billion MTN, South African telecom company.
For FY 2008, RCOM recorded 31.8% increase in its consolidated net revenues at Rs.190.7 billion. OPM% saw marked improvement from 39.5% to 43.1% during the period. Consequently, net profit surged by 70.8% to Rs. 54.0bn (Rs. 31.6 billion).
Rallis India
ñ Rallis India, a Tata Enterprise, is one of India’s leading agrochemical player with 13% share in domestic market. Company is engaged in manufacture, trading and export of pesticides, plant growth nutrients (PGN) & seeds and seeds chemicals in India and internationally. Rallis is known for its quality agrochemicals, branding, marketing expertise and its strong and comprehensive product portfolio catering to a wide variety of crops. Its biggest strength is connection with farmers. Company has excellent manufacturing capabilities and ability to develop new processes and formulations supported by capability to register new products. On institutional side, Rallis provides technical and bulk of various molecules to leading companies like Bayer, Syngenta, Excel, UPL, Gharda, Cheminova, Dhanuka, Nagarjuna and other Agrochemical manufacturer.
ñ Shortage of area under cultivation, increasing population, higher demand from emerging markets, usage of land to produce biofuels and feeds for animals etc. has led to food shortage. To improve food output, there will be increased focus on improving crop nutrition as well as crop protection. Moreover as food prices continue to remain high, farmers will invest more in fertilisers and agrochemicals. Agrochem industry, which is ~ Rs.4,000 crore, has good scope to grow. Rallis has taken a number of initiatives for sizeable growth in domestic as well as export sales of agrochemicals and high margin seeds / PGN segments and is all set to take advantage of emerging opportunities in growing agrochem industry.
ñ In line with its thrust on new product development, Rallis has introduced 3-4 new products every year since last 3-4 years. In FY08, company launched 5 new products including Takumi, Sedan, Ishaan, Royal and Tebuconazole which were well received. New products constituted 30% of FY 2008 turnover. Company has obtained registration for 5 new products, of which 4 has been commercialised. 3 dossiers have been submitted for registration. Several products are at various stages of development and improvement plans for exiting products are also underway to improve company’s competitiveness.
ñ It has entered into strategic long term alliances with research based MNC agrochemical companies and Japanese companies like FMC, Nihon Nohyaku, DuPont, Syngenta, Makhteshim Chemical Works and Bayer India, Borax International for bringing in new molecules and new formulation technologies for commercialization in India. Going ahead Rallis will continue to focus on growing and building its existing alliances which will enable it to continuously enrich its product offering based on changing market needs and enhancing value of its service to customers.
ñ Company has around 25-28% stake in Advinus Therapeutics Pvt. Limited, a TATA group company engaged in Pharma and Agro Chemicals R&D. Advinus will be undertaking business of Drug Discovery and Pharmaceutical Development Services. There are major products under development.
ñ To de-risk its domestic business, Rallis is focusing on growing its international business and aims to invest in registrations, which will bring more scalability. In FY 08, Rallis broke new grounds and obtained a joint registration for one of its key product in the US market. In FY 2008 exports were Rs 160 crore (Rs 153 crore) which represents ~23% of Net Sales. In next 5 years, Rallis aims to increase exports to ~50% of sales. Further company is strengthening its international presence and establishing new capacities for contract manufacturing.
ñ Company is planning to set up formulations unit in Jammu & Kashmir @ capex of Rs. 20-30 crore and agrochemical facility in Dahej. This is a big project where Rallis plans to manufacture pesticide intermediates. New facility at Dahej may also act as a contract manufacturer for overseas agrochemical makers as well as for manufacturing pharmaceutical ingredients.
ñ Rallis is planning to enter household pest control market, estimated at Rs 1,600 crore, and is dominated by companies like Godrej Sara Lee, Reckitt Benckiser, SC Johnson and Jyothi Laboratories. Earlier, company use to market insecticides under “Tik20” brand. Now it has stopped selling Tik20 and Moosh Moosh, rodent controller in the market. However, it does contract manufacturing for leading house hold pest control companies and recently launched Termex (insecticide for white ants control), Sentry (for mosquito control) and Ralli Gell (for cockroaches) catering to government institutions.
Company has posted fantastic results for FY 2008. Net sales increased by 7.6% to Rs. 692.15 crore. OPM% improved significantly to 11.5% (5.8%) driven by higher volumes of its key brands during the year along with continued focus on value creating processes. Higher Sales, improved margins coupled with lower interest cost of Rs.3.66 crore, led to 300.2% spurt in PBT (before extraordinary items) of Rs 63.79 crore. After accounting for higher exceptional income (net of accelerated depreciation) due to profit on sale of land of Rs. 82.38 crore (Rs.39.07 crore), PAT zoomed to Rs.125.19 crore.
ñ Shortage of area under cultivation, increasing population, higher demand from emerging markets, usage of land to produce biofuels and feeds for animals etc. has led to food shortage. To improve food output, there will be increased focus on improving crop nutrition as well as crop protection. Moreover as food prices continue to remain high, farmers will invest more in fertilisers and agrochemicals. Agrochem industry, which is ~ Rs.4,000 crore, has good scope to grow. Rallis has taken a number of initiatives for sizeable growth in domestic as well as export sales of agrochemicals and high margin seeds / PGN segments and is all set to take advantage of emerging opportunities in growing agrochem industry.
ñ In line with its thrust on new product development, Rallis has introduced 3-4 new products every year since last 3-4 years. In FY08, company launched 5 new products including Takumi, Sedan, Ishaan, Royal and Tebuconazole which were well received. New products constituted 30% of FY 2008 turnover. Company has obtained registration for 5 new products, of which 4 has been commercialised. 3 dossiers have been submitted for registration. Several products are at various stages of development and improvement plans for exiting products are also underway to improve company’s competitiveness.
ñ It has entered into strategic long term alliances with research based MNC agrochemical companies and Japanese companies like FMC, Nihon Nohyaku, DuPont, Syngenta, Makhteshim Chemical Works and Bayer India, Borax International for bringing in new molecules and new formulation technologies for commercialization in India. Going ahead Rallis will continue to focus on growing and building its existing alliances which will enable it to continuously enrich its product offering based on changing market needs and enhancing value of its service to customers.
ñ Company has around 25-28% stake in Advinus Therapeutics Pvt. Limited, a TATA group company engaged in Pharma and Agro Chemicals R&D. Advinus will be undertaking business of Drug Discovery and Pharmaceutical Development Services. There are major products under development.
ñ To de-risk its domestic business, Rallis is focusing on growing its international business and aims to invest in registrations, which will bring more scalability. In FY 08, Rallis broke new grounds and obtained a joint registration for one of its key product in the US market. In FY 2008 exports were Rs 160 crore (Rs 153 crore) which represents ~23% of Net Sales. In next 5 years, Rallis aims to increase exports to ~50% of sales. Further company is strengthening its international presence and establishing new capacities for contract manufacturing.
ñ Company is planning to set up formulations unit in Jammu & Kashmir @ capex of Rs. 20-30 crore and agrochemical facility in Dahej. This is a big project where Rallis plans to manufacture pesticide intermediates. New facility at Dahej may also act as a contract manufacturer for overseas agrochemical makers as well as for manufacturing pharmaceutical ingredients.
ñ Rallis is planning to enter household pest control market, estimated at Rs 1,600 crore, and is dominated by companies like Godrej Sara Lee, Reckitt Benckiser, SC Johnson and Jyothi Laboratories. Earlier, company use to market insecticides under “Tik20” brand. Now it has stopped selling Tik20 and Moosh Moosh, rodent controller in the market. However, it does contract manufacturing for leading house hold pest control companies and recently launched Termex (insecticide for white ants control), Sentry (for mosquito control) and Ralli Gell (for cockroaches) catering to government institutions.
Company has posted fantastic results for FY 2008. Net sales increased by 7.6% to Rs. 692.15 crore. OPM% improved significantly to 11.5% (5.8%) driven by higher volumes of its key brands during the year along with continued focus on value creating processes. Higher Sales, improved margins coupled with lower interest cost of Rs.3.66 crore, led to 300.2% spurt in PBT (before extraordinary items) of Rs 63.79 crore. After accounting for higher exceptional income (net of accelerated depreciation) due to profit on sale of land of Rs. 82.38 crore (Rs.39.07 crore), PAT zoomed to Rs.125.19 crore.
Punj Lloyd (PLL)
© PLL is the 2nd largest Engineering and Construction (E&C) company in India providing integrated design, engineering, procurement, construction and project management services for energy and infrastructure sector projects with operations spread across many regions in Middle East, Caspian, Asia Pacific, Africa and South Asia. Its services include laying pipelines, building roads, construction of refineries & tankages, power plants and other infrastructure facilities. PLL is aggressively expanding its business offerings and spreading its reach in newer markets thru inorganic and organic route. Further a vibrant domestic infrastructure, ongoing global energy capes and rising industrial capex poise for higher growth.
© In FY 2007, PLL acquired 100% stake in Sembawang Engineering & Construction (SEC) - Singapore, to scale up its global presence as well as expertise in upstream oil & gas, airports, jetties, MRT / LRT and tunneling amongst others, in infrastructure domain, pre-qualifying PLL for larger and more complex project bids. Simon Carves (SC) is 100% subsidiary of SEC specializing in design, engineering and construction of manufacturing plants for Pharma, Petrochemicals downstream products and Industrial chemicals such as Sulphuric Acid, etc.
© PLL has also entered into joint ventures with Saudi Arabia (for on shore & off shore projects), Germany (developing innovative insulation solutions) and with Swissport International (for foraying into aviation sector in India), all of which will further enhance its scale and competitive position globally.
© Company has acquired 22.23% stake in Pipavav Shipyard. As PLL also works as EPC contractor in exploration & production of oil & gas area, it would gain access to facilities at Pipavav Shipyard for fabrication of vessels for petrochemicals and refineries. Growth in shipyard industry is expected to be over 30% p.a. in next few years. To finance this acquisition, company has placed 2.96 crore shares at Rs 275/- each with private equity funds aggregating Rs 814 crore. Post placement, equity capital has increased to Rs 58.18 crore (Rs 52.25 crore).
© It has also signed MOU with Ramprastha group for development of large real estate projects in National Capital Region, where it can leverage Sembawang’s expertise in master planning, design and construction of residential complexes & townships and use advanced integrated pre-cast systems for faster project execution.
© In FY 2008, Punj Lloyd Upstream (PLUL) was incorporated for providing on-shore integrated drilling services to exploration & production companies in domestic oil & gas sector. Drilling requirements under NELP coupled with high crude oil prices have resulted in substantial increase in requirements of Integrated Drilling Services (IDS). The new subsidiary will address huge demand : supply gap with deployment of two onshore drillings rigs by early 2008 and fleet shall be periodically increased for PLUL to become a significant player in IDS space.
© Punj has acquired 74% stake in UK firm Technodyne International, a specialist engineering, design and consultancy company specializing in large scale cryogenic and high pressure tanks. With projects executed across the world, Technodyne carries out basic design & detailed engineering for complete steel and steel plus concrete tanks including associated piping, instrumentation and electrical systems. Technodyne also has track record in designing of test rigs. Acquired capabilities enable Punj Group to provide end-to-end solutions for complete delivery of complex cryogenic, high pressure LNG, LPG, ethylene, ammonia and other similar storage tanks, significant growth area in Oil & Gas sector. The capabilities will also be leveraged for design of refinery and petrochemical projects.
For FY 2008, consolidated turnover was Rs 7,753 crore (+ 51.2%). OPM% expanded to 8.26% (7.3%). Consequently, PAT shot up by 82% to Rs 358.42 crore. Going ahead outlook continues to be strong driven by robust order book at Rs 19,596 crore as on May 30, 2008 and group’s strong presence in key geographies especially Asia and Middle East.
© In FY 2007, PLL acquired 100% stake in Sembawang Engineering & Construction (SEC) - Singapore, to scale up its global presence as well as expertise in upstream oil & gas, airports, jetties, MRT / LRT and tunneling amongst others, in infrastructure domain, pre-qualifying PLL for larger and more complex project bids. Simon Carves (SC) is 100% subsidiary of SEC specializing in design, engineering and construction of manufacturing plants for Pharma, Petrochemicals downstream products and Industrial chemicals such as Sulphuric Acid, etc.
© PLL has also entered into joint ventures with Saudi Arabia (for on shore & off shore projects), Germany (developing innovative insulation solutions) and with Swissport International (for foraying into aviation sector in India), all of which will further enhance its scale and competitive position globally.
© Company has acquired 22.23% stake in Pipavav Shipyard. As PLL also works as EPC contractor in exploration & production of oil & gas area, it would gain access to facilities at Pipavav Shipyard for fabrication of vessels for petrochemicals and refineries. Growth in shipyard industry is expected to be over 30% p.a. in next few years. To finance this acquisition, company has placed 2.96 crore shares at Rs 275/- each with private equity funds aggregating Rs 814 crore. Post placement, equity capital has increased to Rs 58.18 crore (Rs 52.25 crore).
© It has also signed MOU with Ramprastha group for development of large real estate projects in National Capital Region, where it can leverage Sembawang’s expertise in master planning, design and construction of residential complexes & townships and use advanced integrated pre-cast systems for faster project execution.
© In FY 2008, Punj Lloyd Upstream (PLUL) was incorporated for providing on-shore integrated drilling services to exploration & production companies in domestic oil & gas sector. Drilling requirements under NELP coupled with high crude oil prices have resulted in substantial increase in requirements of Integrated Drilling Services (IDS). The new subsidiary will address huge demand : supply gap with deployment of two onshore drillings rigs by early 2008 and fleet shall be periodically increased for PLUL to become a significant player in IDS space.
© Punj has acquired 74% stake in UK firm Technodyne International, a specialist engineering, design and consultancy company specializing in large scale cryogenic and high pressure tanks. With projects executed across the world, Technodyne carries out basic design & detailed engineering for complete steel and steel plus concrete tanks including associated piping, instrumentation and electrical systems. Technodyne also has track record in designing of test rigs. Acquired capabilities enable Punj Group to provide end-to-end solutions for complete delivery of complex cryogenic, high pressure LNG, LPG, ethylene, ammonia and other similar storage tanks, significant growth area in Oil & Gas sector. The capabilities will also be leveraged for design of refinery and petrochemical projects.
For FY 2008, consolidated turnover was Rs 7,753 crore (+ 51.2%). OPM% expanded to 8.26% (7.3%). Consequently, PAT shot up by 82% to Rs 358.42 crore. Going ahead outlook continues to be strong driven by robust order book at Rs 19,596 crore as on May 30, 2008 and group’s strong presence in key geographies especially Asia and Middle East.
Merck Limited
© Merck India, 51% subsidiary of Merck KGaA – Germany, operates in Pharmaceutical formulations and Chemical (bulk drugs, pigments and life science products) segments. It has manufacturing facility at Goa, where it manufactures bulk drugs, soft gelatin capsules and injectables. Merck is the only manufacturers of Vitamin E and Guaiazulene (cosmetic color additive) in India.
© Changing demographics, rising health consciousness, product patent protection and expanding health insurance sector are some key drivers for growth of pharmaceutical industry and company intends to capitalise on this potential thru aggressive marketing strategies, foray in new therapeutic segments and new product launches over next few years.
© MIL is giving more thrust to top-line growth to achieve significant scale. Company is trying to increase share of non-vitamin formulations in its product mix by launching products in fast growing therapeutic categories like cardiovascular, hematinics, topical anti-inflammatory, diabetes and dermatology. It plans to launch 10-12 products in CY 2008, of which ~ 20% will be OTC products. Just recently, company launched Electrobion SIP (Apple and Lemon flavour). These new products, mostly out of DPCO preview, will help company not only to increase volume but also to improve profitability over a period of time.
© Company set up separate CHC division in pharmaceutical business to focus on certain therapeutic segments in CY 2007. These measures should result in tangible improvements in operating results, beginning with 2008. Has aggressive plans for CHC business
© Merck is pursuing aggressive marketing strategy. Towards this end, it has 700 recruited outsourced field force to own / existing force of 400 reps. to ensure deeper penetration with doctors and chemists. Besides, company will also be penetrating in rural and semi-urban areas. Increased field force has not only led to faster growth of new launches but also growth of old matured products.
© In chemicals business, company is setting up bulk chemical (Oxynex) plant at Goa @ capex Rs. 27-30 crore in CY 2008, which will enhance Oxynex ST capacity to 150 TPA (22 TPA). This 100% EOU is expected to commence production in Sep–Oct 2008. The plant is expected to generate revenues of Rs 22-25 crore at full capacity by CY 2009 with gross margin of 20%.
© Some concerns are 1) ~ 58 % of turnover (i.e. vitamins) is under DPCO. However, more contribution from value-added new products will lower this concentration. 2) Parent company has 100% subsidiary - Merck Development Centre Pvt. Ltd. in India, which could to some extent, pare interest of the listed entity.
© It is cash rich company with liquidity of ~ Rs 350 crore (Rs 206/- per share) as on Dec. 31, 2007. This available surplus will afford greater opportunities to acquire good businesses / brands.
For Q1 CY 2008, Net sales grew @ 18.4% to Rs 83.36 crore. OPM% dropped to 17.11 % (21.67%) because of 30% increase in staff cost of Rs. 10.5 crore (Rs. 8 crore ) and also in Other expenses of Rs. 26 crore (Rs. 20 crore). Nevertheless good sales growth coupled with 15.5% higher Other income of Rs. 10.8 crore led to 1.6% rise in PAT of Rs 16.2 crore (Rs. 15.9 crore).
© Changing demographics, rising health consciousness, product patent protection and expanding health insurance sector are some key drivers for growth of pharmaceutical industry and company intends to capitalise on this potential thru aggressive marketing strategies, foray in new therapeutic segments and new product launches over next few years.
© MIL is giving more thrust to top-line growth to achieve significant scale. Company is trying to increase share of non-vitamin formulations in its product mix by launching products in fast growing therapeutic categories like cardiovascular, hematinics, topical anti-inflammatory, diabetes and dermatology. It plans to launch 10-12 products in CY 2008, of which ~ 20% will be OTC products. Just recently, company launched Electrobion SIP (Apple and Lemon flavour). These new products, mostly out of DPCO preview, will help company not only to increase volume but also to improve profitability over a period of time.
© Company set up separate CHC division in pharmaceutical business to focus on certain therapeutic segments in CY 2007. These measures should result in tangible improvements in operating results, beginning with 2008. Has aggressive plans for CHC business
© Merck is pursuing aggressive marketing strategy. Towards this end, it has 700 recruited outsourced field force to own / existing force of 400 reps. to ensure deeper penetration with doctors and chemists. Besides, company will also be penetrating in rural and semi-urban areas. Increased field force has not only led to faster growth of new launches but also growth of old matured products.
© In chemicals business, company is setting up bulk chemical (Oxynex) plant at Goa @ capex Rs. 27-30 crore in CY 2008, which will enhance Oxynex ST capacity to 150 TPA (22 TPA). This 100% EOU is expected to commence production in Sep–Oct 2008. The plant is expected to generate revenues of Rs 22-25 crore at full capacity by CY 2009 with gross margin of 20%.
© Some concerns are 1) ~ 58 % of turnover (i.e. vitamins) is under DPCO. However, more contribution from value-added new products will lower this concentration. 2) Parent company has 100% subsidiary - Merck Development Centre Pvt. Ltd. in India, which could to some extent, pare interest of the listed entity.
© It is cash rich company with liquidity of ~ Rs 350 crore (Rs 206/- per share) as on Dec. 31, 2007. This available surplus will afford greater opportunities to acquire good businesses / brands.
For Q1 CY 2008, Net sales grew @ 18.4% to Rs 83.36 crore. OPM% dropped to 17.11 % (21.67%) because of 30% increase in staff cost of Rs. 10.5 crore (Rs. 8 crore ) and also in Other expenses of Rs. 26 crore (Rs. 20 crore). Nevertheless good sales growth coupled with 15.5% higher Other income of Rs. 10.8 crore led to 1.6% rise in PAT of Rs 16.2 crore (Rs. 15.9 crore).
Larsen & Toubro (L&T):
© L&T is India’s premier engineering and construction (E&C) conglomerate serving entire capex cycle in infrastructure and industrial projects. E&C caters to infrastructure, power, oil & gas, roads, ports and irrigation projects, offering total turnkey EPC services. L&T is well entrenched to benefit from investment taking place in all these segments.
© Company has entered into JVs with leading global players to offer EPC services for power plants (Sargent & Lundy), hydrocarbon (Chiyoda), and barges / sub-sea pipe laying (Sapura Crest Petroleum). Company is gearing up to enhance its business canvas further by getting into areas like ship building, coal mining, aviation, nuclear, power generation, water treatment and defense, which have immense potential.
© Order backlog at Rs 51,000 crore as on Mar. 31, 2008 (~ 2 times FY 2008 sales) continues to give strong visibility for the near future. Order book split indicates increasing shift to non-construction projects, which should yield better margins in future. Besides, business portfolios of subsidiaries (including in IT and several SPVs implementing / managing BOOT type projects) will provide additional leg-up with consolidated earnings growing at a faster pace. Even on stand-alone basis, L&T to sustain growth @ CAGR of 25% in near to medium term.
© L&T’s subsidiaries will provide unlocking of value thru public offering, as it plans to list its Infotech subsidiary, L&T Infrastructure Development Projects (IDPL) and its financial services business by FY 2010.
© L&T has suffered a loss of ~ Rs 200 crore on account of hedging contracts in metals entered into by its wholly owned UAE subsidiary in FY 2008. However, management has clarified that loss of subsidiary would be offset by higher profitability in the parent company due to subdued prices of some commodities. Despite this adverse development, company is maintaining its guidance for growth in order booking and would see improvement in EBIDTA margin.
© L&T’s property development division will develop Integrated Commercial Complex at Seawoods railway station, Navi Mumbai over 40 acres of land at project cost of Rs 3,500 crore. Project has potential to develop 4- 5 Million Sq. ft. of usable space. Development will consist of modern railway station, large format retail and entertainment space, multiplexes, office complex, premium category hotel and service apartments. It will also develop state-of-art Seawoods-Darave Railway station over next three years.
© L&T and Tamil Nadu Industrial Development Corporation Ltd (TIDCO) have signed joint venture agreement to set up an integrated Shipyard Complex of global standards with port facility and total investment of about Rs 3,000 crore near Ennore in Tamil Nadu. Proposed Shipyard complex will include facilities for commercial ship building including very large Cargo carriers, specialized cargo ships for liquid / gas transportation and cruise vessels. It will also have capability to build vessels for Defence sector, off-shore platforms & floating production cum storage facilities for the Oil & Gas sector.
© As a part of its plan to exit from non-core businesses, L&T has sold its ready mix concrete business to Lafarge SA for Rs. 1,480 crore. Company plans to utilize this sum for expanding shipping, power and infrastructure projects. It has also decided to transfer the medical equipment and systems business to a subsidiary or to sell it off.
For FY 2008, company has reported superb performance. Standalone sales grew @ 41.5% to Rs. 24,855 crore (Rs. 17,567 crore). Further aided by notable improvement in OPM% to 11.3% (9.9%) despite rising material costs and higher extra ordinary income of Rs. 87.23 crore (Rs. 22.88 crore), PAT shot up by 54.9% to Rs. 2173 crore (Rs. 1403 crore). In view of excellent result, L&T has also declared 1:1 bonus. Company expects robust business momentum to continue even in FY 2009 with revenue growth of 30-35% and stable margin.
© Company has entered into JVs with leading global players to offer EPC services for power plants (Sargent & Lundy), hydrocarbon (Chiyoda), and barges / sub-sea pipe laying (Sapura Crest Petroleum). Company is gearing up to enhance its business canvas further by getting into areas like ship building, coal mining, aviation, nuclear, power generation, water treatment and defense, which have immense potential.
© Order backlog at Rs 51,000 crore as on Mar. 31, 2008 (~ 2 times FY 2008 sales) continues to give strong visibility for the near future. Order book split indicates increasing shift to non-construction projects, which should yield better margins in future. Besides, business portfolios of subsidiaries (including in IT and several SPVs implementing / managing BOOT type projects) will provide additional leg-up with consolidated earnings growing at a faster pace. Even on stand-alone basis, L&T to sustain growth @ CAGR of 25% in near to medium term.
© L&T’s subsidiaries will provide unlocking of value thru public offering, as it plans to list its Infotech subsidiary, L&T Infrastructure Development Projects (IDPL) and its financial services business by FY 2010.
© L&T has suffered a loss of ~ Rs 200 crore on account of hedging contracts in metals entered into by its wholly owned UAE subsidiary in FY 2008. However, management has clarified that loss of subsidiary would be offset by higher profitability in the parent company due to subdued prices of some commodities. Despite this adverse development, company is maintaining its guidance for growth in order booking and would see improvement in EBIDTA margin.
© L&T’s property development division will develop Integrated Commercial Complex at Seawoods railway station, Navi Mumbai over 40 acres of land at project cost of Rs 3,500 crore. Project has potential to develop 4- 5 Million Sq. ft. of usable space. Development will consist of modern railway station, large format retail and entertainment space, multiplexes, office complex, premium category hotel and service apartments. It will also develop state-of-art Seawoods-Darave Railway station over next three years.
© L&T and Tamil Nadu Industrial Development Corporation Ltd (TIDCO) have signed joint venture agreement to set up an integrated Shipyard Complex of global standards with port facility and total investment of about Rs 3,000 crore near Ennore in Tamil Nadu. Proposed Shipyard complex will include facilities for commercial ship building including very large Cargo carriers, specialized cargo ships for liquid / gas transportation and cruise vessels. It will also have capability to build vessels for Defence sector, off-shore platforms & floating production cum storage facilities for the Oil & Gas sector.
© As a part of its plan to exit from non-core businesses, L&T has sold its ready mix concrete business to Lafarge SA for Rs. 1,480 crore. Company plans to utilize this sum for expanding shipping, power and infrastructure projects. It has also decided to transfer the medical equipment and systems business to a subsidiary or to sell it off.
For FY 2008, company has reported superb performance. Standalone sales grew @ 41.5% to Rs. 24,855 crore (Rs. 17,567 crore). Further aided by notable improvement in OPM% to 11.3% (9.9%) despite rising material costs and higher extra ordinary income of Rs. 87.23 crore (Rs. 22.88 crore), PAT shot up by 54.9% to Rs. 2173 crore (Rs. 1403 crore). In view of excellent result, L&T has also declared 1:1 bonus. Company expects robust business momentum to continue even in FY 2009 with revenue growth of 30-35% and stable margin.
Ingersoll Rand (IRIL):
© IRIL, 74% subsidiary of Ingersoll Rand – USA, is on strong growth momentum in its only continued Air Solutions (compressors) business on back of high growth in user segments like steel, cement, pharma, petrochemicals, food processing and automotive & auto components. Company has full access to new contemporary products from portfolio of its parent company - a global leader in air solutions business.
© High margin after sales service and spares sale business accounting for 20-25% of air solutions business will grow at higher rate with increase in population of company’s products.
© Company used to incur losses on toll manufacturing of drilling solutions business for Atlas Copco (sold to them 3 years back). These toll manufacturing has been discontinued from December 2007.
© Going ahead, company expects to keep growing at around 25% per annum and reach sales of Rs 1,000 crore by FY 2012.
© Company now has surplus cash of ~ Rs 600 crore, which works out Rs 190/- share. Company may come out with buy back offer or distribute surplus cash.
For FY 2008, Sales from Continuing business of Air Solutions grew @ 26.2% to Rs.394.86 crore (Rs.312.97 crore). PBIT% was almost stable at 12% (11.8%). On reported basis, PBT (before extraordinary items) grew @ 28.4% to Rs.95.32 crore. After accounting for extraordinary income of Rs 211.69 crore realised from sale of Road development business and Utility Equipment & Bobcat business, PBT (after extraordinary items) spurted to Rs.307.01 crore and PAT zoomed to Rs.280.53 crore.
© High margin after sales service and spares sale business accounting for 20-25% of air solutions business will grow at higher rate with increase in population of company’s products.
© Company used to incur losses on toll manufacturing of drilling solutions business for Atlas Copco (sold to them 3 years back). These toll manufacturing has been discontinued from December 2007.
© Going ahead, company expects to keep growing at around 25% per annum and reach sales of Rs 1,000 crore by FY 2012.
© Company now has surplus cash of ~ Rs 600 crore, which works out Rs 190/- share. Company may come out with buy back offer or distribute surplus cash.
For FY 2008, Sales from Continuing business of Air Solutions grew @ 26.2% to Rs.394.86 crore (Rs.312.97 crore). PBIT% was almost stable at 12% (11.8%). On reported basis, PBT (before extraordinary items) grew @ 28.4% to Rs.95.32 crore. After accounting for extraordinary income of Rs 211.69 crore realised from sale of Road development business and Utility Equipment & Bobcat business, PBT (after extraordinary items) spurted to Rs.307.01 crore and PAT zoomed to Rs.280.53 crore.
Honda Siel Power Products (HSPP):
© 67% subsidiary of Honda Motor Corporation (HMC), Japan, HSPP manufactures portable generators, water pumping sets, general purpose engines (GPE), lawn mowers and brush cutters. Company benefits from rich experience of HMC, 2nd largest engine manufacturer in the world, because of their strong emphasis on R&D and in-house technical innovation. India’s first LPG based generator along with super silent key start generator, portable kerosene generators are some of the products which exemplify Honda’s pursuit of technological excellence.
© Continuing Power deficit in various parts of the country, coupled with increased infrastructure spending and computerization will lead to significant growth in power back-up solutions such as gensets. Need for good stable, quality power will increase with new opportunities like power for ATMs, higher capacity gensets for running air conditioners, etc., auguring well for the company. Towards this end, HSPP plans introduce 5 KVA genset for home & commercial use in Q1 FY 2009. It may also go for multi-fuel i.e. kerosene, gasoline, LPG, CNG gensets.
© Focus of government on agriculture and waiver of farmers’ loans will provide big thrust to demand for its water pumps. With increased mechanization in agriculture and horticulture / floriculture, demand for engines, water pumping sets, harvesting rippers, sprayers, planters, etc. will escalate.
© Significant investments in infrastructure development projects will perk up demand for engine–based construction equipments. HMC is in engines for auto, aeroplane, agri products etc. To start with, company will import products and then start manufacturing in India when volume rises.
© With a view to improve its profitability, HSPP has been has been continuously undertaking indigenization program. Besides, it has started relocating its manufacturing facilities from Rudrapur to Greater Noida (expected to be completely over by Q2 FY 2009) so as to consolidate its operations under one roof and thus save cost. Once, this restructuring is over, there will be considerable reduction in cost of production which will in turn improve margins. Besides, Rudrapur plant land (40 acres) will be available for disposal once relocation is over.
© To take advantage of emerging opportunities, company plans to expand capacity to ~ 300,000 units (175,000 units) once the restructuring is over. With all these initiatives, HSPP hopes to double its size in next 3-4 years.
HSPP has put up commendable performance for FY 2008. Net Sales were up by 10.1% to Rs. 252.36 crore. OPM% improved slightly to 11.4% (11.1%). Higher sales coupled with improved margins and substantially higher other income of Rs. 15.55 crore, led to 35% spurt in PBT (before extraordinary items) of Rs. 38.85 crore. Further aided by lower extraordinary expenses of Rs. 58 lakh (Rs.1.75 crore), PAT spurted up by 42.3% to Rs. 24.73 crore. Company hopes to double its size in next 3-4 years
© Continuing Power deficit in various parts of the country, coupled with increased infrastructure spending and computerization will lead to significant growth in power back-up solutions such as gensets. Need for good stable, quality power will increase with new opportunities like power for ATMs, higher capacity gensets for running air conditioners, etc., auguring well for the company. Towards this end, HSPP plans introduce 5 KVA genset for home & commercial use in Q1 FY 2009. It may also go for multi-fuel i.e. kerosene, gasoline, LPG, CNG gensets.
© Focus of government on agriculture and waiver of farmers’ loans will provide big thrust to demand for its water pumps. With increased mechanization in agriculture and horticulture / floriculture, demand for engines, water pumping sets, harvesting rippers, sprayers, planters, etc. will escalate.
© Significant investments in infrastructure development projects will perk up demand for engine–based construction equipments. HMC is in engines for auto, aeroplane, agri products etc. To start with, company will import products and then start manufacturing in India when volume rises.
© With a view to improve its profitability, HSPP has been has been continuously undertaking indigenization program. Besides, it has started relocating its manufacturing facilities from Rudrapur to Greater Noida (expected to be completely over by Q2 FY 2009) so as to consolidate its operations under one roof and thus save cost. Once, this restructuring is over, there will be considerable reduction in cost of production which will in turn improve margins. Besides, Rudrapur plant land (40 acres) will be available for disposal once relocation is over.
© To take advantage of emerging opportunities, company plans to expand capacity to ~ 300,000 units (175,000 units) once the restructuring is over. With all these initiatives, HSPP hopes to double its size in next 3-4 years.
HSPP has put up commendable performance for FY 2008. Net Sales were up by 10.1% to Rs. 252.36 crore. OPM% improved slightly to 11.4% (11.1%). Higher sales coupled with improved margins and substantially higher other income of Rs. 15.55 crore, led to 35% spurt in PBT (before extraordinary items) of Rs. 38.85 crore. Further aided by lower extraordinary expenses of Rs. 58 lakh (Rs.1.75 crore), PAT spurted up by 42.3% to Rs. 24.73 crore. Company hopes to double its size in next 3-4 years
Gonetrmann Peipers (GPIL) :
© GPIL, an Ispat group engineering company, manufactures high precision cast iron and high-tech forged (high speed) steel rolls used by hot and cold steel rolling mills and for capital goods industry. Massive expansion in production of steel planned by all major players to ensure robust demand for rolls.
© High cost of production of European, American and Japanese roll makers and environmental issues there have opened-up good export prospects. GPIL, the only other major player apart from Tata group’s Tayo Rolls, is operating in sellers’ market.
© To take advantage of growing demand, company is enhancing capacity from 15,000 TPA to 18,000 TPA in FY 2009.
For FY 2008, Net sales increased by 17.8% to Rs 174 crore, led by 21.3% increase in sales of Forge Roll division to Rs 49.20 crore (Rs 40.57 crore). Cast Roll division’s Net Sales were up by 16.1% to Rs 142.22 crore (Rs. 122.50 crore). OPM% contracted to 19.76% (21.6%). Strong sales growth and 14% decline in interest of Rs. 6.4 crore led to 23.7% increase in PAT of Rs 15.1 crore.
© High cost of production of European, American and Japanese roll makers and environmental issues there have opened-up good export prospects. GPIL, the only other major player apart from Tata group’s Tayo Rolls, is operating in sellers’ market.
© To take advantage of growing demand, company is enhancing capacity from 15,000 TPA to 18,000 TPA in FY 2009.
For FY 2008, Net sales increased by 17.8% to Rs 174 crore, led by 21.3% increase in sales of Forge Roll division to Rs 49.20 crore (Rs 40.57 crore). Cast Roll division’s Net Sales were up by 16.1% to Rs 142.22 crore (Rs. 122.50 crore). OPM% contracted to 19.76% (21.6%). Strong sales growth and 14% decline in interest of Rs. 6.4 crore led to 23.7% increase in PAT of Rs 15.1 crore.
Fulford India:
© A subsidiary of Schering Plough–USA, which upped its holding in FIL from 40% to 50.77% by subscribing to 700,000 new equity shares at Rs 575/- per share and in subsequent open offer, further increased its stake to 53.93%.
© Company would use these funds (Rs 83 crore on Dec 31, 2007) to strengthen its position in market and act on strategic business growth opportunities, including participating in conducting clinical trials (at present conducting phase III trials for some of the global brands of the parent company) and for external collaborations / in-licensing opportunities in the post-product patent regime.
© Increasing commitment of the parent is indicative of likely larger involvement of Fulford India in global scheme of things and also considering that Schering Plough has recently acquired pharma and animal health businesses of Akzo-Nobel’s Organon Bio Sciences globally.
© FIL is present in therapeutic segments of allergy & respiratory, arthritis & immunology, anti-cancer, cardiovascular, hepatitis, sun care, skin disorders and systemic anti-infectives and is involved in developing advanced therapies for management of rheumatoid arthritis and psoriasis, while strengthening its position in hepatitis therapy.
© Company plans to grow top-line aggressively with new launches from the parent and from possible in-licensing opportunities of non-Schering Plough products and / or brand acquisitions. Thus, over next 3 years, company’s top-line will grow at accelerated pace than industry (may be ~ 20% p.a.) with launch of new products and operating leverage will help to improve profitability (operating margin).
In Q1 CY 2008, Net sales were up by 4% to Rs 31.37 crore. OPM% dropped to -1.24% (+1.16%) because of 35% increase in Other expenses of Rs. 12.56 crore. Consequently, PAT dipped to Rs 40 lakh (Rs. 1 crore). FIL is cash rich company with surplus cash on hand of Rs 214/- share.
© Company would use these funds (Rs 83 crore on Dec 31, 2007) to strengthen its position in market and act on strategic business growth opportunities, including participating in conducting clinical trials (at present conducting phase III trials for some of the global brands of the parent company) and for external collaborations / in-licensing opportunities in the post-product patent regime.
© Increasing commitment of the parent is indicative of likely larger involvement of Fulford India in global scheme of things and also considering that Schering Plough has recently acquired pharma and animal health businesses of Akzo-Nobel’s Organon Bio Sciences globally.
© FIL is present in therapeutic segments of allergy & respiratory, arthritis & immunology, anti-cancer, cardiovascular, hepatitis, sun care, skin disorders and systemic anti-infectives and is involved in developing advanced therapies for management of rheumatoid arthritis and psoriasis, while strengthening its position in hepatitis therapy.
© Company plans to grow top-line aggressively with new launches from the parent and from possible in-licensing opportunities of non-Schering Plough products and / or brand acquisitions. Thus, over next 3 years, company’s top-line will grow at accelerated pace than industry (may be ~ 20% p.a.) with launch of new products and operating leverage will help to improve profitability (operating margin).
In Q1 CY 2008, Net sales were up by 4% to Rs 31.37 crore. OPM% dropped to -1.24% (+1.16%) because of 35% increase in Other expenses of Rs. 12.56 crore. Consequently, PAT dipped to Rs 40 lakh (Rs. 1 crore). FIL is cash rich company with surplus cash on hand of Rs 214/- share.
Esab India:
© Esab India, 55.56% subsidiary of Charter Plc, UK (hiked stake from 37.3% thru open offer at Rs 505/- share), is into welding consumables to equipments to automated solutions for engineering, automotive, shipbuilding, transport, energy, petrochemicals, construction, repair & maintenance, infrastructure, fabrication shops, etc., all of which have been growing at high rates.
© Technology backup from parent provides competitive edge and also be able to address growing area of oil & gas pipelines.
© Welding industry growth is directly linked to steel consumption and infrastructure, both of which are growing, auguring well for company.
© With increasing demand potential for its products on back of buoyant prospects of user industries, introduction of high value high margin products and strong backing of the parent company, Esab is on a firm growth path. Company expects to grow sales at CAGR of 20%+ for next 3 years with improvement in profitability.
© Pursuant to an open offer to the shareholders, promoters have increased its shareholding in company from 37.3% to 55.56%. As a result of this, there is now unrestricted technology transfer in a more transparent manner for launching new sophisticated products from basket of the parent.
© Newly introduced Flux Cored Wired plant at Irungattukottai has started commercial production during 2007. Equipment plant at Irungattukottai also had full year of operation in 2007. Besides, company is undertaking expansion of capacities at Nagpur and Khardah plants for Wires and Electrodes. It is planning to incur Capex of Rs 30 crore over CY 08 and CY 09.
During Q1 CY 2008, Net Sales grew @ 24% to Rs 100.65 crore [20.3% increase in Consumables business (71% of Net Sales) to Rs 71.45 crore. Equipment business (29% of Net Sales) grew @ 34% to Rs.29.2 crore]. Equipment plant at Irungattukottai, which had full year of operation, has also enabled increase in volumes and better profitability for equipment division. OPM% declined slightly to 23.9% due to increase in staff cost to 7.8% of Net Sales (6.9%). Raw Material cost as a % of Net Sales remained almost constant despite steep rise in steel prices as company was able to pass on steel price increase to its customers. Consequently, PBT rose by 25.2% to Rs 23.53 crore and PAT was up by 25.1% to Rs.15.41 crore.
© Technology backup from parent provides competitive edge and also be able to address growing area of oil & gas pipelines.
© Welding industry growth is directly linked to steel consumption and infrastructure, both of which are growing, auguring well for company.
© With increasing demand potential for its products on back of buoyant prospects of user industries, introduction of high value high margin products and strong backing of the parent company, Esab is on a firm growth path. Company expects to grow sales at CAGR of 20%+ for next 3 years with improvement in profitability.
© Pursuant to an open offer to the shareholders, promoters have increased its shareholding in company from 37.3% to 55.56%. As a result of this, there is now unrestricted technology transfer in a more transparent manner for launching new sophisticated products from basket of the parent.
© Newly introduced Flux Cored Wired plant at Irungattukottai has started commercial production during 2007. Equipment plant at Irungattukottai also had full year of operation in 2007. Besides, company is undertaking expansion of capacities at Nagpur and Khardah plants for Wires and Electrodes. It is planning to incur Capex of Rs 30 crore over CY 08 and CY 09.
During Q1 CY 2008, Net Sales grew @ 24% to Rs 100.65 crore [20.3% increase in Consumables business (71% of Net Sales) to Rs 71.45 crore. Equipment business (29% of Net Sales) grew @ 34% to Rs.29.2 crore]. Equipment plant at Irungattukottai, which had full year of operation, has also enabled increase in volumes and better profitability for equipment division. OPM% declined slightly to 23.9% due to increase in staff cost to 7.8% of Net Sales (6.9%). Raw Material cost as a % of Net Sales remained almost constant despite steep rise in steel prices as company was able to pass on steel price increase to its customers. Consequently, PBT rose by 25.2% to Rs 23.53 crore and PAT was up by 25.1% to Rs.15.41 crore.
Engineers India Limited:
© EIL, 90.4% owned by government (becomes preferred vendor by oil & gas PSUs), provides high-end engineering services under Project Management Consultancy and Lump Sum Turnkey Contracts to refineries, petrochemical complexes, offshore oil & gas, pipelines, fertilisers, power, ports & terminals and metallurgy.
© High quantum of capex in hydrocarbon sector - oil & gas exploration & production, pipelines, refineries, petrochemicals, etc. going to be growth drivers.
© EIL will be leveraging knowledge / designing / engineering base and project management skills in India & overseas thru 30 : 70 JV with Technimont, Italy for UAE (from FY 09) and 50 : 50 JV with Tata Projects to undertake EPC work in India and abroad in areas of oil & gas, fertilizers, power, infrastructure, etc.
© These JVs to enable EIL to bid and execute large LSTK assignments exceeding US $ 500 million overseas.
© Company has strong order book of Rs 5,500 crore (incl. Rs 2,000 crore of LSTK) executable over 3 years and with two JVs, there will be a step-change in its operations.
© Rising crude oil prices globally but without increase in selling price of petrol, diesel and LPG has resulted in oil R&M companies witnessing severe financial crisis and hence, these companies are / may be delaying their expansion projects. This would adversely impact EIL as these companies are major its clients.
For FY 2008, sales were up by 29.2% to Rs. 737.75 crore. OPM% enhanced smartly to 27%. Other income rose by 25.8% to Rs. 135.57 crore. Consequently, PBT (before extra ordinary items) surged by 33.2% to Rs. 323.8 crore. Further boosted by 22% lower extra ordinary expenses of Rs. 30.21 crore, PAT grew @ 36.1% to Rs. 194.6 crore.
© High quantum of capex in hydrocarbon sector - oil & gas exploration & production, pipelines, refineries, petrochemicals, etc. going to be growth drivers.
© EIL will be leveraging knowledge / designing / engineering base and project management skills in India & overseas thru 30 : 70 JV with Technimont, Italy for UAE (from FY 09) and 50 : 50 JV with Tata Projects to undertake EPC work in India and abroad in areas of oil & gas, fertilizers, power, infrastructure, etc.
© These JVs to enable EIL to bid and execute large LSTK assignments exceeding US $ 500 million overseas.
© Company has strong order book of Rs 5,500 crore (incl. Rs 2,000 crore of LSTK) executable over 3 years and with two JVs, there will be a step-change in its operations.
© Rising crude oil prices globally but without increase in selling price of petrol, diesel and LPG has resulted in oil R&M companies witnessing severe financial crisis and hence, these companies are / may be delaying their expansion projects. This would adversely impact EIL as these companies are major its clients.
For FY 2008, sales were up by 29.2% to Rs. 737.75 crore. OPM% enhanced smartly to 27%. Other income rose by 25.8% to Rs. 135.57 crore. Consequently, PBT (before extra ordinary items) surged by 33.2% to Rs. 323.8 crore. Further boosted by 22% lower extra ordinary expenses of Rs. 30.21 crore, PAT grew @ 36.1% to Rs. 194.6 crore.
Ciba Specialty Chemicals (CSCIL):
© 69.3% subsidiary Ciba - Swiss, CSCIL is present in base polymers, coating effect chemicals, water & paper treatment chemicals, colours, etc. There are vast growth opportunities in these business lines.
© In India, significant investments are being made in base polymer by Reliance, Haldia, and Gail etc. This is very positive for Ciba India. Reliance, Moser Baer, Asian Paints are few of the large customers of Ciba.
© Over a period of time water treatment should be a big business as shortage of drinking water is one of the major concern.
© Company has recently commenced new services division to meet customer needs for product innovation and development. Presently size is very small but potential is there for growth.
Moreover, Parent’s increased focus on growing Indian market will translate into increasing outsourcing opportunities for CSCIL.
© Its 100% subsidiary Diamond Dye-Chem (DDCL) is Asia’s largest manufacturer of cellulose optical brighteners enjoying > 45% domestic market share. Company has set up color former and thermal developer project @ capex of Rs 65 crore. This facility is primarily for exports. Parent company has closed color formers and thermal developer plant at UK. Thus, higher utilisation of this plant is expected to give big jump in sales / profits.
© Its 51% subsidiary - Virchow Drugs manufactures highly profitable API - Triclosan (anti-microbial ingredient used in toothpaste, soap, deodorants, etc.) with focus on Asia-Pacific region including India. There are plans to expand this facility for Triclosan and parent company is also evaluating new products.
© In view of all these initiatives, company is poised for good growth in top-line and bottom-line.
Company has reported mediocre performance for FY 2008. As company divested its Textile Effects business from June 30, 2006, operating results are not strictly comparable. For FY 2008, Standalone Turnover from continuing business was up by 8.5% to Rs. 468.2 crore (Rs. 431.6 crore excl. textile sales of Rs. 79.43 crore in FY 2007) and PBIT% of continuing business improved to 9.2% (7.5%). On Consolidated basis, comparable net sales increased by 12.4 to Rs. 637.70 crore (Rs. 567.55 crore excl. textile sales of Rs. 91.47 crore from consolidated FY 2007 sales).
© In India, significant investments are being made in base polymer by Reliance, Haldia, and Gail etc. This is very positive for Ciba India. Reliance, Moser Baer, Asian Paints are few of the large customers of Ciba.
© Over a period of time water treatment should be a big business as shortage of drinking water is one of the major concern.
© Company has recently commenced new services division to meet customer needs for product innovation and development. Presently size is very small but potential is there for growth.
Moreover, Parent’s increased focus on growing Indian market will translate into increasing outsourcing opportunities for CSCIL.
© Its 100% subsidiary Diamond Dye-Chem (DDCL) is Asia’s largest manufacturer of cellulose optical brighteners enjoying > 45% domestic market share. Company has set up color former and thermal developer project @ capex of Rs 65 crore. This facility is primarily for exports. Parent company has closed color formers and thermal developer plant at UK. Thus, higher utilisation of this plant is expected to give big jump in sales / profits.
© Its 51% subsidiary - Virchow Drugs manufactures highly profitable API - Triclosan (anti-microbial ingredient used in toothpaste, soap, deodorants, etc.) with focus on Asia-Pacific region including India. There are plans to expand this facility for Triclosan and parent company is also evaluating new products.
© In view of all these initiatives, company is poised for good growth in top-line and bottom-line.
Company has reported mediocre performance for FY 2008. As company divested its Textile Effects business from June 30, 2006, operating results are not strictly comparable. For FY 2008, Standalone Turnover from continuing business was up by 8.5% to Rs. 468.2 crore (Rs. 431.6 crore excl. textile sales of Rs. 79.43 crore in FY 2007) and PBIT% of continuing business improved to 9.2% (7.5%). On Consolidated basis, comparable net sales increased by 12.4 to Rs. 637.70 crore (Rs. 567.55 crore excl. textile sales of Rs. 91.47 crore from consolidated FY 2007 sales).
Bayer Crop Science (BSCL)
© BCSL, 71% subsidiary of Bayer Ag – Germany, is the largest player in domestic agrochemicals, environmental science, and seeds.
© From CY 2007, has commenced marketing and distribution of seeds for the group companies, thus providing complete “seeds to harvest” solutions to customers. Initial investments in expanding marketing for seeds business has impacted profitability in short-term. Govt. focus on agriculture and improvement of yield, provide huge potential for business in medium to long-term.
© Bayer Ag plans to increase its penetration in Indian market by introducing globally renowned 2-3 new products from parent company’s portfolio.
© Parent company may make India an outsourcing hub (exports account for 16% of total sales).
© Company has closed down its Thane Plant in 2007 and has given VRS to its workforce. Company will unlock value of 108 acres surplus land at Thane plant by FY 2009, which could be more than current market cap.
For 15 months ended March 2008 (Company has changed its year-end from December to March and hence FY 2008 is of 15 months), Net Sales increased by 27.7% (on annualized basis) Rs 1,238.32 crore (Rs. 775.74 crore). However, decline in OPM% to 8.5% (as this period includes 3 weal quarters (as against 2 weak quarters in CY 2007) and Net Extra ordinary expenses of Rs 11.26 crore (net income of Rs 3.33 crore) dragged PAT down by 31.4% to Rs 49.10 crore.
© From CY 2007, has commenced marketing and distribution of seeds for the group companies, thus providing complete “seeds to harvest” solutions to customers. Initial investments in expanding marketing for seeds business has impacted profitability in short-term. Govt. focus on agriculture and improvement of yield, provide huge potential for business in medium to long-term.
© Bayer Ag plans to increase its penetration in Indian market by introducing globally renowned 2-3 new products from parent company’s portfolio.
© Parent company may make India an outsourcing hub (exports account for 16% of total sales).
© Company has closed down its Thane Plant in 2007 and has given VRS to its workforce. Company will unlock value of 108 acres surplus land at Thane plant by FY 2009, which could be more than current market cap.
For 15 months ended March 2008 (Company has changed its year-end from December to March and hence FY 2008 is of 15 months), Net Sales increased by 27.7% (on annualized basis) Rs 1,238.32 crore (Rs. 775.74 crore). However, decline in OPM% to 8.5% (as this period includes 3 weal quarters (as against 2 weak quarters in CY 2007) and Net Extra ordinary expenses of Rs 11.26 crore (net income of Rs 3.33 crore) dragged PAT down by 31.4% to Rs 49.10 crore.
ABC Bearings:
© ABC Bearings is one of the largest Indian players in Roller Bearings in technical collaboration with NSK of Japan – No. 1 in Japan & 3rd in world in bearings.
© Company is entering in new markets like railway bearings with wheel bearings for freight wagons (Rs 100 crore market), slewing bearings (mainly goes for windmill gears) and hub bearing market. These new markets are expected to be major growth drivers going forward.
© It has set up a JV with NSK – Japan (ABC – 25%: NSK – 75%) to cater to Japanese customers of passenger cars in India. JV, (with project size of Rs 60 crore) will start production by Q1 FY 2009. Thus, company is expected to grow top-line @ ~ 20% and bottom-line @ ~ 30% with improved profitability.
For FY 2008, Sales declined by 8.9% to Rs 165.9 crore (Rs 182.1 crore). OPM% fell to 21.7% (24.6%). Consequently, Net Profit decreased by 21% to Rs 15.92 crore.
© Company is entering in new markets like railway bearings with wheel bearings for freight wagons (Rs 100 crore market), slewing bearings (mainly goes for windmill gears) and hub bearing market. These new markets are expected to be major growth drivers going forward.
© It has set up a JV with NSK – Japan (ABC – 25%: NSK – 75%) to cater to Japanese customers of passenger cars in India. JV, (with project size of Rs 60 crore) will start production by Q1 FY 2009. Thus, company is expected to grow top-line @ ~ 20% and bottom-line @ ~ 30% with improved profitability.
For FY 2008, Sales declined by 8.9% to Rs 165.9 crore (Rs 182.1 crore). OPM% fell to 21.7% (24.6%). Consequently, Net Profit decreased by 21% to Rs 15.92 crore.
Abbott India (AIL)
© AIL, 65.14% subsidiary of Abbott, USA, provides healthcare solutions through its four business units -
1. Primary Care - markets products in the areas of Pain Management and Gastroenterology.
2. Specialty Care – Metabolic & Urology provides solutions in areas of Thyroid, Obesity, Diabetes (around half of company’s sales comes from insulin, which is sourced from Novo Nordisk – non Abbott entity and marketed in India) and Benign Prostatic Hyperplasia.
3. Specialty Care - Neuroscience, with specialty products in the Neurology and Psychiatric segments.
4. Hospital Care - offers products in the field of anaesthesiology and neonatology namely Forane, Sevorane and Survanta.
© AIL’s parent company – Abbott Inc., USA (2007 sales US $ 26 billion) is focused on pharmaceutical & nutritional segment besides offering diagnostic, medical and surgical devices. Abbott has strong product pipeline to support its growth and research base which will help it to launch new products on regular basis. However, AIL’s parent is waiting for further clarity on product patent regime in India and once this is in place, it should act as a major trigger for the Indian arm MNC pharma companies as a whole as they may to launch new products in India.
AIL will be launching new products in segments like CNS, gastro-intorology, pain management, metabolism, areas in which company has expertise and are the strategic growth segments. In CY 2008, it has launched “Aluvia” - anti HIV-Aids drug. It is Abbott Inc.’s product globally marketed as “Kaletra”.
© Going ahead, focus is more on revitalizing existing matured but well known big brands like Digene, Ganaton, etc. Such revitalization reverses declining trend in sales of such products. Such revitalization and deeper penetration of these brands will be driving volume growth for the company. These products are earning much higher margin than insulin, where it earns just distribution margins.
© Another focus area would be Hospital Care business. This is very niche and growing business with sales of ~ Rs. 60 crore (accounting for ~ 10% of sales). Here, company is targeting corporate chains of hospitals and world-class facilities like Fortis Healthcare, Apollo Hospital, etc. Such corporate hospital segment is growing @ CAGR > 20%, driven by increasing demand from high and medium affordability segments of population. These changes present increased opportunities for AIL and to capitalize on the same, it set up independent cross divisional field structure.
© Thus, new product launches from parent’s portfolio and revitalization of existing popular brands (which in turn results in increasing focus on non-insulin products) is expected to drive both topline as well as bottomline growth as.
© Its cash rich company with surplus cash & cash equivalent > Rs. 165 crore, i.e. Rs. 115/- per share. To utilize the cash efficiently, AIL bought back equity shares @ Rs 650/- reducing equity share capital to Rs 14.47 crore (Rs 15.28 crore) in CY 2007 and has proposed to undertake another buy-back at same price reducing its equity capital further to Rs 13.67 crore, if successful. This would enhance shareholder value.
AIL has reported not so encouraging performance for Q2 CY 2008. Net Sales increased by 9.1% to Rs. 168.1 crore. However, OPM% dipped to 11.2% (13.5%) mainly due to sharp increase in staff cost to 6.7% (5.9%) of sales as company is spending a lot on HR development, staff training, etc. Material cost also increased to 70.4% (69.5%) of sales. Consequently, PBT declined by 8.6% to Rs. 24.85 crore Nevertheless, lower tax rate of 26.9% (32.7%) saved the day and PAT remained stagnant at Rs. 18.17 crore.
1. Primary Care - markets products in the areas of Pain Management and Gastroenterology.
2. Specialty Care – Metabolic & Urology provides solutions in areas of Thyroid, Obesity, Diabetes (around half of company’s sales comes from insulin, which is sourced from Novo Nordisk – non Abbott entity and marketed in India) and Benign Prostatic Hyperplasia.
3. Specialty Care - Neuroscience, with specialty products in the Neurology and Psychiatric segments.
4. Hospital Care - offers products in the field of anaesthesiology and neonatology namely Forane, Sevorane and Survanta.
© AIL’s parent company – Abbott Inc., USA (2007 sales US $ 26 billion) is focused on pharmaceutical & nutritional segment besides offering diagnostic, medical and surgical devices. Abbott has strong product pipeline to support its growth and research base which will help it to launch new products on regular basis. However, AIL’s parent is waiting for further clarity on product patent regime in India and once this is in place, it should act as a major trigger for the Indian arm MNC pharma companies as a whole as they may to launch new products in India.
AIL will be launching new products in segments like CNS, gastro-intorology, pain management, metabolism, areas in which company has expertise and are the strategic growth segments. In CY 2008, it has launched “Aluvia” - anti HIV-Aids drug. It is Abbott Inc.’s product globally marketed as “Kaletra”.
© Going ahead, focus is more on revitalizing existing matured but well known big brands like Digene, Ganaton, etc. Such revitalization reverses declining trend in sales of such products. Such revitalization and deeper penetration of these brands will be driving volume growth for the company. These products are earning much higher margin than insulin, where it earns just distribution margins.
© Another focus area would be Hospital Care business. This is very niche and growing business with sales of ~ Rs. 60 crore (accounting for ~ 10% of sales). Here, company is targeting corporate chains of hospitals and world-class facilities like Fortis Healthcare, Apollo Hospital, etc. Such corporate hospital segment is growing @ CAGR > 20%, driven by increasing demand from high and medium affordability segments of population. These changes present increased opportunities for AIL and to capitalize on the same, it set up independent cross divisional field structure.
© Thus, new product launches from parent’s portfolio and revitalization of existing popular brands (which in turn results in increasing focus on non-insulin products) is expected to drive both topline as well as bottomline growth as.
© Its cash rich company with surplus cash & cash equivalent > Rs. 165 crore, i.e. Rs. 115/- per share. To utilize the cash efficiently, AIL bought back equity shares @ Rs 650/- reducing equity share capital to Rs 14.47 crore (Rs 15.28 crore) in CY 2007 and has proposed to undertake another buy-back at same price reducing its equity capital further to Rs 13.67 crore, if successful. This would enhance shareholder value.
AIL has reported not so encouraging performance for Q2 CY 2008. Net Sales increased by 9.1% to Rs. 168.1 crore. However, OPM% dipped to 11.2% (13.5%) mainly due to sharp increase in staff cost to 6.7% (5.9%) of sales as company is spending a lot on HR development, staff training, etc. Material cost also increased to 70.4% (69.5%) of sales. Consequently, PBT declined by 8.6% to Rs. 24.85 crore Nevertheless, lower tax rate of 26.9% (32.7%) saved the day and PAT remained stagnant at Rs. 18.17 crore.
Wednesday, July 9, 2008
G8 SUMMIT 2008 – The happenings of the day…..Stage set for India tomorrow
The G8 summit 2008 is being held in Japan at the island of Hokkaido. Discussions include themes such as Climate change, soaring food & fuel prices and African development. The G8 countries include United States of America, United Kingdom, Italy, France, Japan, Canada, Germany and Russia.
On the first day, the leaders talked with the presidents of Algeria, South Africa, Nigeria, Senegal, Ghana, Tanzania, Ethiopia and UN Secretary-General Ban Ki-moon on doubling the aid to Africa by 2010 as promised in 2005. At the same press conference, leaders held discussions on a system in order to track that the commitments were honored.
On Tuesday, the second day of the talks, the G8 rich countries expressed their desire to work with 200 states associated with the U.N. climate change talks. They have an aim of halving greenhouse gas emissions by 2050. This move has been welcomed by the European Union. Though the Group of Eight leaders did not give precise targets, they said that mid term goals would be essential to achieve the goal set for 2050. U.S. President George Bush insisted that developing economies, China and India must keep their emissions in check as well. He further urged the G8 to encourage nuclear energy as a means of reducing the world's dependency on oil and also help in reducing greenhouse gas emissions.
In another statement released today, the leaders noted the risk that sharp rise in oil prices pose to the world economy. It was agreed to bring together major oil producers and consumers in a world energy forum to discuss output and prices.
The three-day summit culminates on Wednesday, 9 July with a meeting constituting the G8 and five Heiligendamm
outreach countries, Brazil, China, India, Mexico and South Africa. Following this session, there will be a meeting of the major economies, that is, G8, plus the five Heiligendamm outreach countries, plus Australia, Indonesia and South Korea.
On the first day, the leaders talked with the presidents of Algeria, South Africa, Nigeria, Senegal, Ghana, Tanzania, Ethiopia and UN Secretary-General Ban Ki-moon on doubling the aid to Africa by 2010 as promised in 2005. At the same press conference, leaders held discussions on a system in order to track that the commitments were honored.
On Tuesday, the second day of the talks, the G8 rich countries expressed their desire to work with 200 states associated with the U.N. climate change talks. They have an aim of halving greenhouse gas emissions by 2050. This move has been welcomed by the European Union. Though the Group of Eight leaders did not give precise targets, they said that mid term goals would be essential to achieve the goal set for 2050. U.S. President George Bush insisted that developing economies, China and India must keep their emissions in check as well. He further urged the G8 to encourage nuclear energy as a means of reducing the world's dependency on oil and also help in reducing greenhouse gas emissions.
In another statement released today, the leaders noted the risk that sharp rise in oil prices pose to the world economy. It was agreed to bring together major oil producers and consumers in a world energy forum to discuss output and prices.
The three-day summit culminates on Wednesday, 9 July with a meeting constituting the G8 and five Heiligendamm
outreach countries, Brazil, China, India, Mexico and South Africa. Following this session, there will be a meeting of the major economies, that is, G8, plus the five Heiligendamm outreach countries, plus Australia, Indonesia and South Korea.
Monday, July 7, 2008
Media - Quarterly Results Preview (April-June 2008)
Deceleration in advertising growth would reflect in Q1FY09 results, owing to slowdown in the economy while print companies would witness cost pressures due to rising newsprint prices. We expect Jagran Prakashan, HT Media and Entertainment Network India (ENIL) to witness deceleration in ad growth. Pay TV revenue growth is likely to be muted with no significant developments in CAS extension and lack of entry of new DTH players. However, rupee depreciation is likely to benefit international subscription revenue growth of Zee Entertainment Enterprises (ZEEL). We expect Zee News (ZNL) and Jagran Prakashan to show strong earnings momentum. We maintain ZNL and ENIL as our top picks and re-include Jagran Prakashan as one of our top picks, post the steep correction in stock price. TV Today, trading at FY09E EV/EBITDA of 4.2x, is our value pick.
· Newsprint prices on the rise. Newsprint prices continue to boil, with landed cost rising up to US$920/te, driven by supply reduction and rising crude price as well as rupee depreciation further adding to costs. We expect newsprint prices to rise in the short term and correct in ’09 on account of exports from China.
· Q1FY09 results – Minor slowdown in advertising. We expect Q1FY09 to mark the slowdown in ad revenues across mediums due to overall slowdown in the economy. However, the impact is likely to be moderate and we are confident of a 16-18% growth in advertising in CY08. Newsprint cost impact would be muted in Q1FY09 as the major impact will be felt only in H2CY08 on account of FIFO (first-in-first-out) inventory valuations. Subscription revenue growth is likely to be slow owing to lack of any development on CAS extension and entry of new DTH players. We expect ZNL and Jagran Prakashan to witness strong earnings momentum.
· Factors to watch for in Q2FY09: i) Rise in newsprint prices as a further rise of US$60/te announced for the quarter ii) Launch of Colors – the Hindi GEC from the TV18-Viacom stable iii) Further fragmentation in the Hindi GEC space and performance of a number of programmes to be launched post IPL.
· Newsprint prices on the rise. Newsprint prices continue to boil, with landed cost rising up to US$920/te, driven by supply reduction and rising crude price as well as rupee depreciation further adding to costs. We expect newsprint prices to rise in the short term and correct in ’09 on account of exports from China.
· Q1FY09 results – Minor slowdown in advertising. We expect Q1FY09 to mark the slowdown in ad revenues across mediums due to overall slowdown in the economy. However, the impact is likely to be moderate and we are confident of a 16-18% growth in advertising in CY08. Newsprint cost impact would be muted in Q1FY09 as the major impact will be felt only in H2CY08 on account of FIFO (first-in-first-out) inventory valuations. Subscription revenue growth is likely to be slow owing to lack of any development on CAS extension and entry of new DTH players. We expect ZNL and Jagran Prakashan to witness strong earnings momentum.
· Factors to watch for in Q2FY09: i) Rise in newsprint prices as a further rise of US$60/te announced for the quarter ii) Launch of Colors – the Hindi GEC from the TV18-Viacom stable iii) Further fragmentation in the Hindi GEC space and performance of a number of programmes to be launched post IPL.
Sugar update-triggers
Over the last two years, the sugar sector has been witnessing hard times. Excess production across major producing countries has led the sugar prices to crash. Raw sugar prices were down 14% YoY till November 2007. However, in the last quarter, the sugar industry has been on an upturn given the lower production and depleting inventory. Global sugar prices have moved up by 30% in the past six months.
After increasing by 7.2% in 2005-06, production was up by 10.4% in 2006-07. However as indicated by the table below, the production is expected to fall thereby bringing some relief to the sugar companies.
The Indian side
�For SS06-07, the sugar production was estimated at 22 MT, while actual production was 28 MT. The previous year on account of deficit, the sugar prices were very high. This led to higher cane prices and massive crop switching from other crops to sugarcane. Also capacity expansions were taken. This all led to higher cane production in the sugar season 2006-07. Further, higher global production too added to the fury.
However in recent times, domestic sugar production may not be as abundant as previously estimated. It is estimated to be around 26 MT, as compared to the earlier estimates of 31 to 32 MT. Lower production is mainly on account of expected fall in sugarcane acreage and lower yield due to huge cane arrears of the last season. This lower production would leave inventory of 3.6 months at the end of season 2008/09. Lower inventories will lead to a rise in average domestic sugar prices over next two seasons.
Also, recently some positive developments were announced in the favour of the sugar companies.
1. Allahbad High Court Order: It quashed the SAP (State Government) price for 2006-07 and 2007-08 of Rs 125/qtl. Further, it has passed the order to form a Committee of Experts to re-fix cane price for 06-07 based on transparent norms. This Committee will recommend a mechanism for fixing a fair SAP within three months. Till then, the High Court has ordered sugar companies to pay the SMP declared by the Central Government for sugarcane, which is significantly lower at Rs 81.18 a quintal at a base recovery of 9%. Excess sugarcane payments made in 2006-07 will be adjusted against outstanding arrears and future cane payments if the ruling comes in favour.
2. Supreme Court Interim Order:
In an interim order fixing the price for crushing season 2006-07, the Supreme Court recently stated that sugar mills in Uttar Pradesh would have to pay cane-growers between Rs 115 and Rs 123 per quintal, depending on the quality of the produce. Also, for payments that had been made according to a price that was more than what was fixed recently, no recovery would be made by the mill-owners and no interest would be paid to the farmers for delay in payments. However, this judgement pertains only to arrears for 2006-07 whereas issues pertaining to arrears 2007-08 are still in court. The Supreme Court passed the order on a bunch of petitions filed by the farmers and the Uttar Pradesh government challenging an Allahabad High Court order quashing the government�s decision to fix the price at Rs 125 to Rs 130 per quintal.
3. Ethanol Blending Program: 5% blending has been made mandatory from October 2007 at Rs 21.5/litre for two years. 10% blending would be made mandatory from October 2008. This would enable companies to diversify their revenues.
4. Supreme Court Judgment on molasses sales: The order was passed in favour of the companies having sufficient captive consumption. These companies need not compulsorily sell 20% of molasses production to liquor manufacturers, which they were required to sell earlier. This would have a positive impact on revenues to the tune of Rs 150 to Rs 200 m.
Going forward
�Around 3 MT of raw sugar is likely to be exported in SS 2007-08. Lower production and exports would lead to lower sugar inventories. As a result, sugar prices would firm up and this is already being witnessed in recent weeks. Even the decision on molasses and ethanol seems to be positive for the companies. However, with elections likely to be held in the near future, the decision on cane prices would hold the key for the financial performance of sugar companies
After increasing by 7.2% in 2005-06, production was up by 10.4% in 2006-07. However as indicated by the table below, the production is expected to fall thereby bringing some relief to the sugar companies.
The Indian side
�For SS06-07, the sugar production was estimated at 22 MT, while actual production was 28 MT. The previous year on account of deficit, the sugar prices were very high. This led to higher cane prices and massive crop switching from other crops to sugarcane. Also capacity expansions were taken. This all led to higher cane production in the sugar season 2006-07. Further, higher global production too added to the fury.
However in recent times, domestic sugar production may not be as abundant as previously estimated. It is estimated to be around 26 MT, as compared to the earlier estimates of 31 to 32 MT. Lower production is mainly on account of expected fall in sugarcane acreage and lower yield due to huge cane arrears of the last season. This lower production would leave inventory of 3.6 months at the end of season 2008/09. Lower inventories will lead to a rise in average domestic sugar prices over next two seasons.
Also, recently some positive developments were announced in the favour of the sugar companies.
1. Allahbad High Court Order: It quashed the SAP (State Government) price for 2006-07 and 2007-08 of Rs 125/qtl. Further, it has passed the order to form a Committee of Experts to re-fix cane price for 06-07 based on transparent norms. This Committee will recommend a mechanism for fixing a fair SAP within three months. Till then, the High Court has ordered sugar companies to pay the SMP declared by the Central Government for sugarcane, which is significantly lower at Rs 81.18 a quintal at a base recovery of 9%. Excess sugarcane payments made in 2006-07 will be adjusted against outstanding arrears and future cane payments if the ruling comes in favour.
2. Supreme Court Interim Order:
In an interim order fixing the price for crushing season 2006-07, the Supreme Court recently stated that sugar mills in Uttar Pradesh would have to pay cane-growers between Rs 115 and Rs 123 per quintal, depending on the quality of the produce. Also, for payments that had been made according to a price that was more than what was fixed recently, no recovery would be made by the mill-owners and no interest would be paid to the farmers for delay in payments. However, this judgement pertains only to arrears for 2006-07 whereas issues pertaining to arrears 2007-08 are still in court. The Supreme Court passed the order on a bunch of petitions filed by the farmers and the Uttar Pradesh government challenging an Allahabad High Court order quashing the government�s decision to fix the price at Rs 125 to Rs 130 per quintal.
3. Ethanol Blending Program: 5% blending has been made mandatory from October 2007 at Rs 21.5/litre for two years. 10% blending would be made mandatory from October 2008. This would enable companies to diversify their revenues.
4. Supreme Court Judgment on molasses sales: The order was passed in favour of the companies having sufficient captive consumption. These companies need not compulsorily sell 20% of molasses production to liquor manufacturers, which they were required to sell earlier. This would have a positive impact on revenues to the tune of Rs 150 to Rs 200 m.
Going forward
�Around 3 MT of raw sugar is likely to be exported in SS 2007-08. Lower production and exports would lead to lower sugar inventories. As a result, sugar prices would firm up and this is already being witnessed in recent weeks. Even the decision on molasses and ethanol seems to be positive for the companies. However, with elections likely to be held in the near future, the decision on cane prices would hold the key for the financial performance of sugar companies
Neyveli Lignite
NLC: Owns the largest mines in India
Neyveli Lignite Corporation Limited (NLC), a 93.6% government owned company, was incorporated in 1956. It is engaged in lignite mining and power generation. The company owns the largest open cast mechanised mines in India, all situated around Neyveli in Tamil Nadu.
Investment argument
l NLC holds the maximum reserves of lignite in the country, handling as much as 90% of the total reserves. It currently has a mining capacity of 24 million tonnes of lignite, which is used to fuel its 2,490 MW of power generating capacity. It also sells about 10% of the raw lignite it mines to small-scale industries.
l The cash-rich NLC plans to expand its power capacity by almost 5 times to 11,990 MW and its lignite mining capacity by two and a half times to 61.9 million tonnes by the end of the XII Plan (FY15-FY17).
l Lignite, also known as 'brown coal,' is a cheaper alternative to coal. Considering the current global shortage of coal and the surge in coal prices, and the huge capex planned for thermal power plants in India, we expect lignite to emerge as the most cost-effective alternate fuel in India.
l NLC is better placed to consistently expand its power capacity by sourcing scarce fuel captively without any uncertainty in the long run. It is also well positioned to reap the benefits of higher realisations from merchant sales of lignite.
Valuation
We expect NLC's expansion across the country and diversification into multiple fuels to lead to steady and substantial growth in both revenue and profits for several years commencing from FY10. Banking on the twin benefits of availability of scarce fuel for its power generation for decades to come and significant rise in realisation from merchant sales of lignite, we consider NLC as a stock worth preserving for the next generation. Therefore, we reiterate BUY on Neyveli Lignite Corporation for long-term investors at CMP of Rs 113, which is 12.8x FY10 EPS, with a price target (for medium term) of Rs 250
Neyveli Lignite Corporation Limited (NLC), a 93.6% government owned company, was incorporated in 1956. It is engaged in lignite mining and power generation. The company owns the largest open cast mechanised mines in India, all situated around Neyveli in Tamil Nadu.
Investment argument
l NLC holds the maximum reserves of lignite in the country, handling as much as 90% of the total reserves. It currently has a mining capacity of 24 million tonnes of lignite, which is used to fuel its 2,490 MW of power generating capacity. It also sells about 10% of the raw lignite it mines to small-scale industries.
l The cash-rich NLC plans to expand its power capacity by almost 5 times to 11,990 MW and its lignite mining capacity by two and a half times to 61.9 million tonnes by the end of the XII Plan (FY15-FY17).
l Lignite, also known as 'brown coal,' is a cheaper alternative to coal. Considering the current global shortage of coal and the surge in coal prices, and the huge capex planned for thermal power plants in India, we expect lignite to emerge as the most cost-effective alternate fuel in India.
l NLC is better placed to consistently expand its power capacity by sourcing scarce fuel captively without any uncertainty in the long run. It is also well positioned to reap the benefits of higher realisations from merchant sales of lignite.
Valuation
We expect NLC's expansion across the country and diversification into multiple fuels to lead to steady and substantial growth in both revenue and profits for several years commencing from FY10. Banking on the twin benefits of availability of scarce fuel for its power generation for decades to come and significant rise in realisation from merchant sales of lignite, we consider NLC as a stock worth preserving for the next generation. Therefore, we reiterate BUY on Neyveli Lignite Corporation for long-term investors at CMP of Rs 113, which is 12.8x FY10 EPS, with a price target (for medium term) of Rs 250
Real Estate Quarterly Results Preview (April-June 2008)
We expect the I-Sec Real Estate universe to report benign 29% YoY and 11% YoY revenue and EBITDA growth in Q1FY09E; on QoQ basis, revenue and EBITDA will drop 31% and 38% respectively. In Q1FY09E, we expect companies to struggle given the difficult operating environment. Rising home loan rates, low liquidity and expectations of further property price dip have reduced transaction volumes significantly. Also, rising input costs, in terms of raw material, and financing cost have decreased margins. We expect realty companies to face difficulty in booking incremental sales; focus will shift towards executing ongoing projects. We believe there exists downside risk to earnings and NAV in FY09E. Our top picks in the sector are HDIL and Lanco Infratech in large-caps and Marg in mid-caps.
· Negative trend in transaction volumes and prices. The sector witnessed lacklustre transactions and drop in selling prices. Increasing interest rate scenario has further moderated demand from home buyers, who are deferring purchase plans. Further tightening of interest rates will dry up liquidity leading to additional downward pressure. Q1FY09 saw moderation in residential and retail demand, although office demand remained buoyant. We believe that additional supply expected in the next few quarters may further soften prices.
· Drop in revenues & margins. We expect real estate companies to post muted revenue and PAT growth owing to lower transaction volume and prices. On a sequential basis, we expect the companies to post an overall 31% and 38% drop in revenue and EBITDA respectively, given that real estate companies book higher revenues in the last quarters of a fiscal year. We also expect companies to report drop in operating margins owing to higher input cost and financing cost. Higher prices of steel, cement and labour have increased the average construction cost 300-500/sqft and developers are unable to increase prices in line with costs.
· New launches & project execution at risk. This quarter, we observed few project launches as most of them were extended to later dates. Higher costs and sluggish sales have also dented ongoing project execution. This could lead to further stress on cashflows.
· Compelling valuations. Real estate stocks have corrected significantly with most companies trading at 40-60% discount to NAV. At the current valuations; we believe that most concerns are priced in and reiterate our positive stance on the sector. We continue to prefer companies with diversified business segments, value-added offerings, comfortable cash situation, low land costs and transparent management. Our top picks in the large-cap space are HDIL and Lanco Infratech; in the mid-cap space, we prefer Marg.
· Negative trend in transaction volumes and prices. The sector witnessed lacklustre transactions and drop in selling prices. Increasing interest rate scenario has further moderated demand from home buyers, who are deferring purchase plans. Further tightening of interest rates will dry up liquidity leading to additional downward pressure. Q1FY09 saw moderation in residential and retail demand, although office demand remained buoyant. We believe that additional supply expected in the next few quarters may further soften prices.
· Drop in revenues & margins. We expect real estate companies to post muted revenue and PAT growth owing to lower transaction volume and prices. On a sequential basis, we expect the companies to post an overall 31% and 38% drop in revenue and EBITDA respectively, given that real estate companies book higher revenues in the last quarters of a fiscal year. We also expect companies to report drop in operating margins owing to higher input cost and financing cost. Higher prices of steel, cement and labour have increased the average construction cost 300-500/sqft and developers are unable to increase prices in line with costs.
· New launches & project execution at risk. This quarter, we observed few project launches as most of them were extended to later dates. Higher costs and sluggish sales have also dented ongoing project execution. This could lead to further stress on cashflows.
· Compelling valuations. Real estate stocks have corrected significantly with most companies trading at 40-60% discount to NAV. At the current valuations; we believe that most concerns are priced in and reiterate our positive stance on the sector. We continue to prefer companies with diversified business segments, value-added offerings, comfortable cash situation, low land costs and transparent management. Our top picks in the large-cap space are HDIL and Lanco Infratech; in the mid-cap space, we prefer Marg.
Oil&Gas and Petrochemicals - Quarterly Results Preview (April-June 2008)
We expect the I-Sec oil & gas universe to post 11.9% YoY earnings growth with 42.2% YoY revenue growth in Q1FY09E. Strong refining margins would lead to impressive earnings growth for Reliance Industries (RIL) while higher net realisations would support earnings of ONGC. Gas distribution companies, Gujarat Gas Company (GGCL) and Indraprastha Gas (IGL), would also post impressive earnings growth. Gross under-recoveries are expected to increase 3.2x led by 79% YoY rise in crude prices. We are positive on GAIL and GGCL (due to increased visibility on gas supply) as well as RIL (due to sustained uptrend in GRMs). OMCs as well as ONGC are likely to remain subdued due to uncertainty on the eventual subsidy sharing in FY09.
· Crude surprises for OMCs, ONGC. High crude prices have led to serious concerns on liquidity and profitability of OMCs as bonds are difficult to sell and these OMCs are forced to sell petroleum products at discount to consumers. Due to the
ad hoc nature of subsidy sharing and Rs400bn unresolved subsidy burden, as per the latest Government policy, we believe that ONGC would remain subdued as the additional burden may be borne by the company.
· GRMs improve, retail remains under pressure. GRMs improved 4% YoY to US$6.3/bl led by higher spreads on HSD & SKO. Rise in crude due to depreciating US dollar and geo-political tensions led to spurt in global product prices. This resulted in 321.2% rise in under-recoveries to Rs544bn despite Rs5/litre, Rs3/litre & Rs50/cylinder increase in MS, HSD & LPG prices respectively.
· Crude worries on horizon. We expect burgeoning crude prices to impact sector earnings and valuations. OMCs would suffer from increasing under-recoveries while upstream companies (ONGC, GAIL) would be impacted by higher share of subsidy burden. Refining & petrochemical margins are expected to decline further due to demand destruction at higher crude prices.
· Earnings growth to continue for now. We expect earnings for the I-Sec oil & gas universe to improve 11.4% YoY to Rs109bn (21% growth QoQ). RIL & ONGC are likely to lead the pack due to superior refining margins and favourable subsidy sharing scheme. Gas stocks (IGL & GGCL) would post impressive earnings growth on higher sales volumes & margins. We estimate Hindustan Petroleum Corporation (HPCL) to register marginal profit in the quarter and GAIL to register flat YoY earnings growth. However, future earnings are at risk due to risk to refining & petchem margins on account of demand destruction from high crude prices and uncertainty on subsidy sharing, especially if crude prices remain firm.
· We prefer GAIL & GGCL on the back of increasing gas supplies in the country and possible upside to earnings. We remain upbeat on RIL due to recent correction and improved profitability from the refining and E&P businesses. GGCL, though under a cloud of uncertainty regarding gas supplies, may be the key beneficiary of the proposed gas allocation policy and initial supplies from the KG Basin.
· Crude surprises for OMCs, ONGC. High crude prices have led to serious concerns on liquidity and profitability of OMCs as bonds are difficult to sell and these OMCs are forced to sell petroleum products at discount to consumers. Due to the
ad hoc nature of subsidy sharing and Rs400bn unresolved subsidy burden, as per the latest Government policy, we believe that ONGC would remain subdued as the additional burden may be borne by the company.
· GRMs improve, retail remains under pressure. GRMs improved 4% YoY to US$6.3/bl led by higher spreads on HSD & SKO. Rise in crude due to depreciating US dollar and geo-political tensions led to spurt in global product prices. This resulted in 321.2% rise in under-recoveries to Rs544bn despite Rs5/litre, Rs3/litre & Rs50/cylinder increase in MS, HSD & LPG prices respectively.
· Crude worries on horizon. We expect burgeoning crude prices to impact sector earnings and valuations. OMCs would suffer from increasing under-recoveries while upstream companies (ONGC, GAIL) would be impacted by higher share of subsidy burden. Refining & petrochemical margins are expected to decline further due to demand destruction at higher crude prices.
· Earnings growth to continue for now. We expect earnings for the I-Sec oil & gas universe to improve 11.4% YoY to Rs109bn (21% growth QoQ). RIL & ONGC are likely to lead the pack due to superior refining margins and favourable subsidy sharing scheme. Gas stocks (IGL & GGCL) would post impressive earnings growth on higher sales volumes & margins. We estimate Hindustan Petroleum Corporation (HPCL) to register marginal profit in the quarter and GAIL to register flat YoY earnings growth. However, future earnings are at risk due to risk to refining & petchem margins on account of demand destruction from high crude prices and uncertainty on subsidy sharing, especially if crude prices remain firm.
· We prefer GAIL & GGCL on the back of increasing gas supplies in the country and possible upside to earnings. We remain upbeat on RIL due to recent correction and improved profitability from the refining and E&P businesses. GGCL, though under a cloud of uncertainty regarding gas supplies, may be the key beneficiary of the proposed gas allocation policy and initial supplies from the KG Basin.
FII's Shifting to Singapore
Equities worth Rs 79,526 cr sold in India since October.
Foreign institutional investors have sold equities worth Rs 79,526 crore in the Indian markets since October as a series of regulations, including curbs on investments through participatory notes (P-notes) and turmoil in the domestic financial markets have made investments in India less attractive.
While the circular on P-notes is just one among several reasons for this heavy selling, at least some of the entities, which have unwound their positions in the Indian markets, have taken positions in the Singapore Exchange CNX Nifty futures, say experts.
Interestingly, the volume of trading in the Nifty futures shifting to the Singapore Exchange has gone up in the same period. The share of SGX Nifty, as a percentage of the total Nifty futures OI, rose from 5.6 per cent to 8 per cent immediately after the P-note curb and stood at a robust 31.5 per cent till April, a recent report by Edelweiss said.
"P-note holders, who have unwound their positions in the Indian markets, have taken fresh positions in the SGX CNX Nifty futures till the time they get registered as FIIs with Sebi. The transaction cost is also high especially for FIIs who run a long-short P-note book. These FIIs can roll over their Nifty positions at SGX or Nifty but they prefer SGX because of lower costs," said Yogesh Radke, research analyst at Edelweiss Capital. SGX Nifty transaction cost is as low as 2-3 basis points in the absence of the securities transaction tax.
FIIs trimmed their holding in the BSE 500 companies by nearly two percentage points to 17.8 per cent, bringing it back to June 2005 levels, according to a recent Citigroup report.
Domestic institutional investors (DIIs) have been buyers of equities worth Rs 56,448 crore in the same period. The data compiled by exchanges includes buying and selling transactions in the secondary markets as also block deals.
According to Sebi data, FIIs have sold equities worth Rs 25,054 crore in the cash market. The Sebi data considers all investments, which include FCCB conversions, investments in ADR/GDR and secondary market transactions.
In October last year, Sebi had restricted P-notes investments in the derivatives market, asking the investors to unwind their positions within 18 months. At the same time, the regulator permitted P-notes investment in the cash market up to 40 per cent of the FIIs' assets under custody. Experts said that part of it may be attributed to the Sebi's clampdown on P-notes.
"Nearly eight months have gone by since the P-note circular was brought out by Sebi. The markets are yet to see a lot of unwinding of positions which will happen in the next 10 months. This will definitely not help the markets," said the research head of a domestic broking house, who did not wish to be named.
However, there are differing views on this with some market participants feeling that the fundamental picture has changed for the Indian economy, thanks to soaring crude oil prices and a growing fiscal deficit, which have bothered FIIs
Foreign institutional investors have sold equities worth Rs 79,526 crore in the Indian markets since October as a series of regulations, including curbs on investments through participatory notes (P-notes) and turmoil in the domestic financial markets have made investments in India less attractive.
While the circular on P-notes is just one among several reasons for this heavy selling, at least some of the entities, which have unwound their positions in the Indian markets, have taken positions in the Singapore Exchange CNX Nifty futures, say experts.
Interestingly, the volume of trading in the Nifty futures shifting to the Singapore Exchange has gone up in the same period. The share of SGX Nifty, as a percentage of the total Nifty futures OI, rose from 5.6 per cent to 8 per cent immediately after the P-note curb and stood at a robust 31.5 per cent till April, a recent report by Edelweiss said.
"P-note holders, who have unwound their positions in the Indian markets, have taken fresh positions in the SGX CNX Nifty futures till the time they get registered as FIIs with Sebi. The transaction cost is also high especially for FIIs who run a long-short P-note book. These FIIs can roll over their Nifty positions at SGX or Nifty but they prefer SGX because of lower costs," said Yogesh Radke, research analyst at Edelweiss Capital. SGX Nifty transaction cost is as low as 2-3 basis points in the absence of the securities transaction tax.
FIIs trimmed their holding in the BSE 500 companies by nearly two percentage points to 17.8 per cent, bringing it back to June 2005 levels, according to a recent Citigroup report.
Domestic institutional investors (DIIs) have been buyers of equities worth Rs 56,448 crore in the same period. The data compiled by exchanges includes buying and selling transactions in the secondary markets as also block deals.
According to Sebi data, FIIs have sold equities worth Rs 25,054 crore in the cash market. The Sebi data considers all investments, which include FCCB conversions, investments in ADR/GDR and secondary market transactions.
In October last year, Sebi had restricted P-notes investments in the derivatives market, asking the investors to unwind their positions within 18 months. At the same time, the regulator permitted P-notes investment in the cash market up to 40 per cent of the FIIs' assets under custody. Experts said that part of it may be attributed to the Sebi's clampdown on P-notes.
"Nearly eight months have gone by since the P-note circular was brought out by Sebi. The markets are yet to see a lot of unwinding of positions which will happen in the next 10 months. This will definitely not help the markets," said the research head of a domestic broking house, who did not wish to be named.
However, there are differing views on this with some market participants feeling that the fundamental picture has changed for the Indian economy, thanks to soaring crude oil prices and a growing fiscal deficit, which have bothered FIIs
Friday, July 4, 2008
ICICI Prudential Banking and Financial Services Fund
The scheme is an open-ended equity scheme that aims to maximize long-term capital appreciation by investing in equity and equity related securities of companies engaged in banking and financial services. The fund shall look at opportunities in the universe of companies across market capitalisations.The Scheme seeks to capture the best opportunities that the various sectors related to the Banking and Financial Services present. Banking and Financial Services includes the following types of companies / industries:
The fund's focus will be on companies gaining market share in businesses through excellent customer service, product innovation and operating efficiency.
The Fund features are as follows:
Type Open ended Equity SchemeInvestment Pattern Equity & equity related securities of companies engaged in Banking and Financial Services - 70% to 100%, Debt - 0% to 30%
Investment Objective Seeks to generate long-term capital appreciation to unitholders from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services.
Options Retail Option and Institutional Option ISub-Options Retail: Growth and Dividend (Payout and Reinvestment)
Institutional Option I: GrowthMin. Application Amount Retail: Rs.5000 and in multiples of Re.1 thereafterInstitutional Option I: Rs.10 crores and in multiples of Re.1 thereafter
Entry Load Retail: (i) For investments of less than Rs.5 Crores: 2.25% of applicable NAV
(ii) For investments of Rs.5 Crores and above: NilInstitutional Option I: Nil
Exit Load
Retail: (i) For investments of Rs.5 Crores and above: Nil
(ii) For investments of less than Rs.5 Crores made during the NFO period and redeemed before 6 months from the date of allotment: 1% of applicable NAV. Institutional Option I: NilRecurring Expenses Retail: Upto 2.5%Institutional Option I: Upto 2.5%NFO Period July 9, 2008 to August 7, 2008
- Banking Companies
- Broking Companies
- Asset Management Companies
- Wealth Management Companies
- Insurance Companies
- Non-Banking Financial Companies (NBFC)
- Investment Banking Companies
- Leasing and Finance Companies
- Term Lending Institutions
- Any other company engaged in providing banking and financial services.
The fund's focus will be on companies gaining market share in businesses through excellent customer service, product innovation and operating efficiency.
The Fund features are as follows:
Type Open ended Equity SchemeInvestment Pattern Equity & equity related securities of companies engaged in Banking and Financial Services - 70% to 100%, Debt - 0% to 30%
Investment Objective Seeks to generate long-term capital appreciation to unitholders from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services.
Options Retail Option and Institutional Option ISub-Options Retail: Growth and Dividend (Payout and Reinvestment)
Institutional Option I: GrowthMin. Application Amount Retail: Rs.5000 and in multiples of Re.1 thereafterInstitutional Option I: Rs.10 crores and in multiples of Re.1 thereafter
Entry Load Retail: (i) For investments of less than Rs.5 Crores: 2.25% of applicable NAV
(ii) For investments of Rs.5 Crores and above: NilInstitutional Option I: Nil
Exit Load
Retail: (i) For investments of Rs.5 Crores and above: Nil
(ii) For investments of less than Rs.5 Crores made during the NFO period and redeemed before 6 months from the date of allotment: 1% of applicable NAV. Institutional Option I: NilRecurring Expenses Retail: Upto 2.5%Institutional Option I: Upto 2.5%NFO Period July 9, 2008 to August 7, 2008
KAVVERI TELECOM PRODUCTS LTD.
CMP Rs.89, Maintain Buy, with reduced Target Price of Rs.185
Kavveri Telecom (KT) is a leading telecom products manufacturer, providing world class, hardware products and solutions for the telecom industry. With over 150 man-years of R&D experience, Kavveri Telecom is uniquely positioned to offer an array of world class products and solutions to meet all hardware requirements of telecom manufacturers, telecom service providers and telecom users.
KT has delivered disappointing performance for the quarter ended March 2008. However, its overall FY08 numbers appeared to be excellent with its Revenues growing by 195% & APAT growing by 168%.
Highlights of its performance for the quarter and year ended March 2008 are as follows:-
KT's standalone Revenues for Q4FY08 were Rs. 386.7 mn as against Rs. 233.8 mn for the corresponding quarter of FY07, a growth of 654 bps on a yearly basis.
Its EBITDA for Q4FY08 was Rs. 44 mn as against Rs. 32.2 mn during Q4FY07, a growth of 36% on a yearly basis; however its EBITDA margins declined from 13.8% for Q4FY07 to 11.4% for Q4FY08. Its expenses for the quarter included acquisition expenses worth Rs. 8 mn which are charged off to P&L account in FY08 itself.
Its APAT stood at Rs. 31.1 mn for Q4FY08 as against Rs. 19.2 mn for Q4FY07, a growth of 61.7% on a yearly basis. While the quarterly numbers did not include any provision for taxation, its full year numbers reflected a tax provision of Rs.40mn for FY08.
On the consolidated basis, for the full year ended FY08, KT reported Revenues, EBITDA and APAT of Rs. 1579 mn, Rs. 198 mn, and Rs. 123.6 mn as against Rs. 535.7mn, Rs. 67.5 mn and 46.2 mn respectively for FY07. Its EBITDA and APAT margins were at 12.5% and 7.8% for FY08 on a consolidated basis as against 12.6% and 8.6% respectively for FY07.
OUTLOOK & VALUATION
KT's performance during Q4FY08 was disappointing & below our expectations. A delay in execution of an order worth Rs. 150 mn due to late arrival of raw-materials from China was the main reason for the same. However, the business outlook for the company remains robust in the coming years on the back of new players entering into telecom markets, expected product (base station Antenna's) approval from vendors like Idea & Vodafone, company's strong market positioning and continuing strong growth in the Indian telecom space.
At the current market price of Rs.89, KT trades at 5.2x FY09E & 3.8x FY10E consolidated earnings of Rs.17 & Rs.23 respectively, which we believe is quite attractive. We maintain our "BUY" rating on the stock with a reduced price target of Rs.185 (8x FY10E consolidated earnings).
Kavveri Telecom (KT) is a leading telecom products manufacturer, providing world class, hardware products and solutions for the telecom industry. With over 150 man-years of R&D experience, Kavveri Telecom is uniquely positioned to offer an array of world class products and solutions to meet all hardware requirements of telecom manufacturers, telecom service providers and telecom users.
KT has delivered disappointing performance for the quarter ended March 2008. However, its overall FY08 numbers appeared to be excellent with its Revenues growing by 195% & APAT growing by 168%.
Highlights of its performance for the quarter and year ended March 2008 are as follows:-
KT's standalone Revenues for Q4FY08 were Rs. 386.7 mn as against Rs. 233.8 mn for the corresponding quarter of FY07, a growth of 654 bps on a yearly basis.
Its EBITDA for Q4FY08 was Rs. 44 mn as against Rs. 32.2 mn during Q4FY07, a growth of 36% on a yearly basis; however its EBITDA margins declined from 13.8% for Q4FY07 to 11.4% for Q4FY08. Its expenses for the quarter included acquisition expenses worth Rs. 8 mn which are charged off to P&L account in FY08 itself.
Its APAT stood at Rs. 31.1 mn for Q4FY08 as against Rs. 19.2 mn for Q4FY07, a growth of 61.7% on a yearly basis. While the quarterly numbers did not include any provision for taxation, its full year numbers reflected a tax provision of Rs.40mn for FY08.
On the consolidated basis, for the full year ended FY08, KT reported Revenues, EBITDA and APAT of Rs. 1579 mn, Rs. 198 mn, and Rs. 123.6 mn as against Rs. 535.7mn, Rs. 67.5 mn and 46.2 mn respectively for FY07. Its EBITDA and APAT margins were at 12.5% and 7.8% for FY08 on a consolidated basis as against 12.6% and 8.6% respectively for FY07.
OUTLOOK & VALUATION
KT's performance during Q4FY08 was disappointing & below our expectations. A delay in execution of an order worth Rs. 150 mn due to late arrival of raw-materials from China was the main reason for the same. However, the business outlook for the company remains robust in the coming years on the back of new players entering into telecom markets, expected product (base station Antenna's) approval from vendors like Idea & Vodafone, company's strong market positioning and continuing strong growth in the Indian telecom space.
At the current market price of Rs.89, KT trades at 5.2x FY09E & 3.8x FY10E consolidated earnings of Rs.17 & Rs.23 respectively, which we believe is quite attractive. We maintain our "BUY" rating on the stock with a reduced price target of Rs.185 (8x FY10E consolidated earnings).
Inflation in India touches 11.63
News has just 'flown in' that Inflation is up to 11.63 % !! With the world heading towards recession, and oil prices booming, inflation is bound to come. RBI responded last week by raising repo rate from 8% to 8.50%. The Reserve Bank also hiked the CRR (percent of deposits of banks kept with RBI) to 8.75% from 8.25%.
The G8 countries are to meet soon and obviously, this growing inflation will be on everyone's mind. Moreover, World Bank president Robert Zoellick has urged the G8 nations to work in tandem with OPEC countries to reach some decision/action to curb rising oil and commodity prices. ECB has already taken the bold step of raising interest rates from 4% to 4.25% to curb inflation(which has touched 4% in Europe - a high value, keeping in mind, their target of 2% inflation).
But are these measures enough?? Inflation has more factors than just a single-dimensional reason of interest rates. Take for instance, oil prices. Supply Demand are not the only essentials to it…even increased output did not push down prices, as I had written 2 weeks back.
Food crisis is also fueling rapid inflation. Prices of rice and wheat globally have gone up atleast by 2 times. Most developing countries were hit, with the African nations being the worst-hit victims. Food crisis was also not only triggered by increase in consumer demand in India and China, but by global practices of food use. Per capita food consumption have actually decreased in India and China.
Read more on the food crisis and also effects of truck strike on Indian economy and increasing inflation >>
This natural balance between demand and supply was hit primarily by using cereals like corn/maize and sugarcane for making bio-fuels like ethanol for use in petrol/diesel. USA use nearly a third of their maize production only for making bio-fuels. Adding bio-fuels enhances petrol/diesel in cars and vehicles and helps bringing down actual rates. Rising oil prices only mean that this figure[of usage of bio-fuels] is going to spiral up, as it already has since 2005-06 when it was just 6%.
I suggest that if countries are to protect themselves from food crisis, they are to isolate themselves from global markets in food and be self-sufficient in domestic production. Managing security of surplus of food-grains is really, really difficult for our Indian govt. since food grain production is increasing at a minuscule rate of 1 percent yearly.
The G8 countries are to meet soon and obviously, this growing inflation will be on everyone's mind. Moreover, World Bank president Robert Zoellick has urged the G8 nations to work in tandem with OPEC countries to reach some decision/action to curb rising oil and commodity prices. ECB has already taken the bold step of raising interest rates from 4% to 4.25% to curb inflation(which has touched 4% in Europe - a high value, keeping in mind, their target of 2% inflation).
But are these measures enough?? Inflation has more factors than just a single-dimensional reason of interest rates. Take for instance, oil prices. Supply Demand are not the only essentials to it…even increased output did not push down prices, as I had written 2 weeks back.
Food crisis is also fueling rapid inflation. Prices of rice and wheat globally have gone up atleast by 2 times. Most developing countries were hit, with the African nations being the worst-hit victims. Food crisis was also not only triggered by increase in consumer demand in India and China, but by global practices of food use. Per capita food consumption have actually decreased in India and China.
Read more on the food crisis and also effects of truck strike on Indian economy and increasing inflation >>
This natural balance between demand and supply was hit primarily by using cereals like corn/maize and sugarcane for making bio-fuels like ethanol for use in petrol/diesel. USA use nearly a third of their maize production only for making bio-fuels. Adding bio-fuels enhances petrol/diesel in cars and vehicles and helps bringing down actual rates. Rising oil prices only mean that this figure[of usage of bio-fuels] is going to spiral up, as it already has since 2005-06 when it was just 6%.
I suggest that if countries are to protect themselves from food crisis, they are to isolate themselves from global markets in food and be self-sufficient in domestic production. Managing security of surplus of food-grains is really, really difficult for our Indian govt. since food grain production is increasing at a minuscule rate of 1 percent yearly.
Sesa Goa Ltd.
CMP Rs.3,020, Buy, Target Price Rs.4,960
Sesa Goa Limited is one of India's largest exporters of iron ore in the private sector. For the past five decades, the Company has been involved in iron ore mining, beneficiation and exports, with a consolidated turnover of around Rs. 38,000 mn in FY08. Over the last decade, it has diversified into the manufacture of pig iron and metallurgical coke. It operates with a 1.3% market share of the overall sea-borne trade of iron ore in the world, and is a zero-debt company with a large cash reserve.
INVESTMENT RATIONALE
Substantial rise in contract prices in FY09 amid soaring demand for iron ore.
Capacity expected to double in next 3 years: Strategic Stake with Vedanta Resources, to leverage their mining abilities and boost de-bottlenecking programs.
Mineral Policy likely to increase FDI in the minerals and mining space.
EBIDTA per tonne to increase even after the imposition of Export Duty & the possible increase in Royalty.
Excellent FY08 results… aided by increased spot sales.
OUTLOOK & VALUATION
We believe the demand for iron ore will continue to remain strong in the short to medium term on the back of increasing global steel production led by China & India. Going by the current trend, the crude steel production in China is likely to grow by about 15%, touching the level of around 480 MT. On the back of buoyancy in demand, the international benchmark iron ore prices have gone up significantly in the recent times, and we expect them to stabilize at current levels (US$110 for FE content < 62%) in the medium term.
Average per tonne iron ore realization for the Company at the EBITDA level was US$44 in FY08. The Government recently increased the export duty on iron ore to 15% Ad-valorem from a specific duty of Rs. 50 (for low FE content) & Rs. 300 (for High FE content). Moreover, we believe that the Government could also increase the royalty rates on the iron ore mining to about 10%. Despite of these increased costs, we expect Sesa Goa's per tonne realization at the EBIDTA level to remain at a healthy US$44, during FY08 to FY2010.
At the current market price of Rs. 3,020, the stock is trading at a P/E multiple of 5.5x & 6.0x its FY09E & FY10E earnings respectively. We believe the Company is set to perform exceedingly well over the next few years on the back of increasing production & higher iron ore prices. We initiate our coverage on the stock with a 'BUY' rating and a target price of Rs. 4,96 0 (considering a P/E multiple of 9x for FY10E).
Sesa Goa Limited is one of India's largest exporters of iron ore in the private sector. For the past five decades, the Company has been involved in iron ore mining, beneficiation and exports, with a consolidated turnover of around Rs. 38,000 mn in FY08. Over the last decade, it has diversified into the manufacture of pig iron and metallurgical coke. It operates with a 1.3% market share of the overall sea-borne trade of iron ore in the world, and is a zero-debt company with a large cash reserve.
INVESTMENT RATIONALE
Substantial rise in contract prices in FY09 amid soaring demand for iron ore.
Capacity expected to double in next 3 years: Strategic Stake with Vedanta Resources, to leverage their mining abilities and boost de-bottlenecking programs.
Mineral Policy likely to increase FDI in the minerals and mining space.
EBIDTA per tonne to increase even after the imposition of Export Duty & the possible increase in Royalty.
Excellent FY08 results… aided by increased spot sales.
OUTLOOK & VALUATION
We believe the demand for iron ore will continue to remain strong in the short to medium term on the back of increasing global steel production led by China & India. Going by the current trend, the crude steel production in China is likely to grow by about 15%, touching the level of around 480 MT. On the back of buoyancy in demand, the international benchmark iron ore prices have gone up significantly in the recent times, and we expect them to stabilize at current levels (US$110 for FE content < 62%) in the medium term.
Average per tonne iron ore realization for the Company at the EBITDA level was US$44 in FY08. The Government recently increased the export duty on iron ore to 15% Ad-valorem from a specific duty of Rs. 50 (for low FE content) & Rs. 300 (for High FE content). Moreover, we believe that the Government could also increase the royalty rates on the iron ore mining to about 10%. Despite of these increased costs, we expect Sesa Goa's per tonne realization at the EBIDTA level to remain at a healthy US$44, during FY08 to FY2010.
At the current market price of Rs. 3,020, the stock is trading at a P/E multiple of 5.5x & 6.0x its FY09E & FY10E earnings respectively. We believe the Company is set to perform exceedingly well over the next few years on the back of increasing production & higher iron ore prices. We initiate our coverage on the stock with a 'BUY' rating and a target price of Rs. 4,96 0 (considering a P/E multiple of 9x for FY10E).
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