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  1. 1. Disclaimer: Please note that your copy/access to our website is for your exclusive use only. Any attempt to share your access to our website or forwarding your copy to a non-subscriber will disqualify your membership and we will be compelled to stop your supply and forfeit your subscription thereafter without any refund to you. I T M E S A TIME COMMUNICATIONS PUBLICATION VOL. XVII No. 3 Monday, December 3 - 9, 2007 Pages 23 FII funds needed for a sustainable rally By Sanjay R. Bhatia The markets displayed a range bound trend due to lack of follow-up buying at higher levels. Traders and speculators were active in metals, oil & gas, mid-caps, small-caps, banking, realty, capital goods, telecom, IT and power stocks. The volumes recorded have been low along with the negative market breadth for the week. Incidentally, FIIs remained net sellers in the cash segment but were net buyers in the derivative segment. Domestic institutional investors, on the other hand, remained net buyers during the course of the week. Global cues have remained mixed. Crude oil prices remained volatile ahead of the OPEC meeting on December 5. The global markets also displayed a mixed trend. The Rupee has continued to depreciate against the U.S. dollar. The market trend continues to remain tentative at higher levels on lack of follow-up buying. FII fund flows have remained lacklustre. Now, it is important that the markets consolidate at the present level to form a good base. It is also important that fund flows improve especially from the FIIs if a sustainable rally has to be witnessed. In the meanwhile, the markets would take cues from the global markets, crude prices and the rupee-dollar equation. Stock specific movement will be witnessed amidst intermediate bouts of volatility and profit booking at higher levels. Technically, the market sentiment is tentative due to lack of fund flows and follow-up buying at higher levels. Unless strong fund flows are witnessed, the markets are unlikely to display a sustainable rally, even though it has shown a firm closing on Friday. On the upside, if the Sensex manages to sustain above the 18,737 level, then it is likely to test the 19,650 level. The Sensex has support at the 18,737 level followed by the 18,419 level. If the Nifty manages to sustain above the 5,617 level, then it is likely to test the 5,887 level. The 5,520 followed by the 5,428 are important support levels for the Nifty. Traders and speculators could buy HCL Tech with a stop loss of Rs.299 and a target price of Rs.349. BAZAR.COM Politically speaking… By Fakhri H. Sabuwala The finance minister’s reply in parliament concerning the ailing textile segment and the remedial measures announced to safeguard the jobs of workers is a warm response from a politician rather than an economist. All these days, the FM justified the Rupee’s strength and asked exporters to come to terms with it. But the political winds compelled him to safeguard his vote bank. No wonder, the relief package in the form of cuts in custom duties and other sops is only the beginning of what is to follow in coming months. Suddenly, the common man is at the centre of all political thoughts and may be the theme of the ensuing budget too! Is the market factoring such thinking in the values of today? Perhaps not! 1
  2. 2. Union Railway Minister, Lalu Prasad, too, was categorical in his statement that there shall be no hike in railway fares and this time the railway budget will be the ‘aam janta’s budget’. Will the industry foot the bill for reliefs to the janta? Politically, the answer is not far-fetched. The government’s inaction to raise petrol, diesel, kerosene and LPG prices is a proof of the paralysis in thinking due to political compulsions. How long will it take to wipe out the networth of oil PSUs is anybody’s guess. Sanity will prevail but before that a big jolt is not ruled out. Under such circumstances, investors must prepare themselves for a downward push and pray that the macro fundamentals do not get derailed in the bargain. The government, too, understands the price it may have to pay in derailing the momentum of growth. Treat such jolts as opportunities to pick up large cap blue chips. Till then, keep a close tab on political expressions of ministers and the outcome of the Gujarat polls. Stocks to be picked at declines * Tata Motors: Although the auto segment may be experiencing a slowdown, this company by virtue of being the largest automobile maker has rolled out its one millionth Indica last week and achieved this target in a span of just eight years. The milestone of the first lakh was achieved in March’01, half a million in February’05 and the journey from 9 lakh to a million in matter of just seven months. Backed by a steady sale in trucks and multi-utility vehicles and the renewed promise to launch Rs.1 lakh car on the road soon lends ‘jaan’ to its growth story. * IGL: Gas is the in thing and the fuel of tomorrow. Hence, gas distributors like Indraprastha Gas Ltd. (IGL) come out as winners. A joint venture of GAIL and BPCL, this company operates mainly in National Capital Territory (NCT). Over the years, IGL has set up 153 CNG stations including 67 mother stations, 42 online stations, 38 daughter booster stations and six daughter stations. It also supplies piped natural gas (PNG) connections to over 75000 domestic and 300 commercial/industrial establishments such as hotels, hospitals, embassies, restaurants etc. it also supplies re-gasified liquefied natural gas (R-LNG) to industrial consumers in NCT. During FY07, IGL’s net sales grew 17% at Rs.614 cr. and net profit jumped 30% at Rs.138 cr. During HIFY08, its net sales are higher by 16% at Rs.336 cr. and net profit by 30% at Rs.82 cr. The demand for CNG is likely to go up with the introduction of CNG based cars and LCVs apart from the incremental demand from new users such as Northern Railway and introduction of radio taxis and high capacity buses for the Commonwealth Games. And hike in petrol and diesel will make CNG an economical fuel necessitating consumers to convert their vehicles to CNG. The company’s initiatives in making CNG available on the highways too through ‘Mobile CNG Dispensing Schemes’, will also encourage CNG conversions. TRADING ON TECHNICALS Testing the Top is the test By Hitendra Vasudeo Support for the time being looks to have been held. The Sensex weekly movement was narrower in comparison to the earlier few weeks. The Sensex had opened with a gap up from 18852.87 to 19171.25. This gap was covered as the Sensex later dipped to a low of 1884.20 to finally close the week at 19363.19 and thereby showed a net rise of 510 points on a week-to-week basis. Resistance will be at 19698-19976-20238. Support will be at 18907-18852-18333-18182. The weekly trend has turned up but is unlikely to be sustained and the trend will oscillate and provide alternative week buy or sell signals unless a breakout and close above 20238 is witnessed. Overall, the Sensex can move sideways in a wider band of 20238-18100. Expect significant directional move on a breakout above 20238 or on fall and close below 18100. As the Sensex has done well last week and held on to the support levels, it will now be under test for the resistance levels. How well the Sensex sustains at the resistance range and will it give a breakout and close above 20238 needs to be seen in the days to come. Broad Market Indices Review Across the board on the indices, we have seen week to week gains. The top gainer last week was the BSE Realty Index notching 8.6% gains on a week-to-week basis. A breakout and close above 10900 can bring about movement and momentum in the Realty space. BSE Metal Index was the next top gainer with 6.90% on a week-to-week basis. BSE Metal has series of resistances in the band of 17900-18600 range. A comprehensive breakout above 18600 can bring about an all round movement in front-line metals stocks. BSE Consumer Durables was the 3rd top weekly gainer with a rise of 5.20%. Its support of 4939 is important and must not get violated but must cross and sustain above 5564. The CNX Mid Cap 200 needs to maintain above 3030 and cross 3504 to close the week above it as well for a sustained mid cap rally. BSE IT 2
  3. 3. gained by 4.5% but could WEEKLY UP TREND STOCKS offer only a pull-back rise. Let the price move below Center Point or Level 2 and when it move back above Center Point or Level 2 then buy Support of 4068-4017- with what ever low registered below Center Point or Level 2 as the stop loss. After buying if the price moves to 3929 are its important Level 3 or above then look to book profits as the opportunity arises. If the close is below Weekly Reversal Value then the trend will change from Up Trend to Down Trend. Check on Friday after to confirm weekly reversal support levels. On a fall of the up Trend. and close below 3929, the Last Center Relative Weekly Up BSE IT will dig a deeper Scrips Close Level 1 Level 2 Level 3 Level 4 Strength Reversal Trend Point hole. Nifty Junior Index Value Date has been showing strength for some time. It Stop Buy Buy Book Book approached its important Loss Price Price Profit Profit target of 10800 to witness CENTURY TEXTIL 1112.00 967.7 1066.7 1120.3 1165.7 1264.7 65.7 1088.3 03/08/07 an extended form of rally. DLF 943.90 814.8 893.7 922.3 972.6 1051.5 65.7 915.8 30/11/07 The Nifty Junior needs to BALAJI TELEFILMS 345.95 263.3 321.3 354.7 379.3 437.3 65.4 322.6 26/10/07 cross and close the week JSW STEEL 1009.00 820.0 938.0 985.0 1056.0 1174.0 65.0 950.3 16/11/07 above 10800. The earlier IDFC 204.55 149.1 184.8 200.8 220.6 256.3 64.9 190.2 31/08/07 performing index BSE WEEKLY DOWN TREND STOCKS Cap Good Index will be Let the price move above Center Point or Level 3 and when it move back below Center Point or Level 3 then sell under sideways with what ever high registered above Center Point or Level 3 as the stop loss. After selling if the prices moves to movement and can Level 2 or below then look to cover short positions as the opportunity arises. If the close is above Weekly Reversal Value then the trend will change from Down Trend to Up Trend. Check on Friday after to confirm weekly therefore underperform reversal of the Down Trend. in the short-term due to Last Center Relative Weekly Down possible Close Point Strength Reversal Trend sideways/corrective Scrips Level 1 Level 2 Level 3 Level 4 Value Date moves. Review of the Elliot Wave Cover Cover Sell Sell Stop Short Short Price Price Loss Count to get the broad market picture SPICE TELE 48.50 44.2 46.9 48.1 49.6 52.3 17.73 48.39 09/11/07 Preferred First Count: AVENTIS PHARMA 988.00 938.7 970.7 985.3 1002.7 1034.7 18.34 988.00 13/07/07 Wave 1 – 2594 to 3758; INFOSYS TECH 1604.00 1498.7 1565.7 1594.3 1632.7 1699.7 19.55 1622.25 19/10/07 Wave 2 – 3758 to 2904; LUPIN 525.55 490.4 515.4 530.2 540.4 565.4 20.20 538.25 02/11/07 Wave 3 – 2904 to 20238 GLAXO SMITHKLIN 948.00 770.3 900.3 982.7 1030.3 1160.3 20.74 1006.25 30/11/07 Internals of Wave 3 PUNTER'S PICKS Wave i – 2904 to 6249 Wave ii – 6249 to 4227 Note: Positional trade and exit at stop loss or target which ever is earlier. Not an intra-day trade. A delivery based trade for a possible time frame of 1-7 trading days. Exit at first target or above. Wave iii – 4227 to 12671 Wave iv - 12671 to 13799 BSE Last Buy On Risk Wave a- 12671 to 8799 CODE Close Rise Reward Scrips Buy Price Stop Loss Target 1 Target 2 Wave b- 8799 to 14724 ARIHANT FOUNDATIONS 531381 649.95 636.10 651.00 625.10 667.0 692.9 0.69 Wave c- 14724 to 12316 BRUSHMAN INDIA 590061 74.30 67.50 74.30 64.00 80.7 91.0 0.62 Wave d- 12316 to 12316 CREATIVE EYE 532392 25.70 25.10 26.50 24.00 28.1 30.6 1.38 Wave b –12316 to 15868 FAG BEARINGS INDIA 505790 619.35 603.00 624.00 539.20 676.4 761.2 0.71 Wave e – 15868 to 13799 Wave v-13799 to 20238 GARNET CONST. 526727 68.05 66.00 70.60 61.40 76.3 85.5 1.24 Wave 4-20238 to 18182 KHANDWALA SEC. 531892 53.15 51.00 61.80 48.25 70.2 83.7 3.47 (Current on going move) KSL AND INDUSTRIES 530149 201.00 196.00 205.60 190.10 215.2 230.7 1.30 Confirmation of MANGALAM TIMBER PRO 516007 34.30 32.25 34.85 30.15 37.8 42.5 0.83 termination of Wave 4 yet RELIABLE VENTURES IN 532124 41.85 40.60 41.95 36.05 45.6 51.5 0.65 to be received and only a breakout and close above R SYSTEMS INTERNATIO 532735 92.65 90.00 94.50 83.05 101.6 113.0 0.93 20238 can confirm the SUPREME TEX MART 531934 40.00 39.15 41.00 37.00 43.5 47.5 1.16 termination of Wave 4. VISHNU CHEMCIALS 516072 145.55 139.00 149.55 131.25 160.9 179.2 1.07 If the top of 20238 is not ZODIAC CLOTHING CO. 521163 479.55 458.50 485.00 440.00 512.8 557.8 0.84 crossed immediately then we are leaving the door open for deeper 3
  4. 4. correction. Therefore, it is very BUY LIST important the we give a Monthly Scrip Last Close Buy Price Buy Price Buy Price Stop Loss Target 1 Target 2 RS breakout and close above ESSAR OIL 241.95 174.90 151.32 127.75 51.45 374.7 574.4 70.58 20238 at the earliest. JINDAL STAINLESS 217.70 204.94 195.38 185.81 154.85 286.0 367.0 68.94 If the breakout is not R.C.F.(RASHTRIYA CHE 75.00 72.92 69.12 65.33 53.05 105.1 137.2 64.65 witnessed then we can go VSNL (VIDESH SANCHAR 626.60 573.44 552.17 530.91 462.05 753.7 933.9 59.69 through a corrective INDIAN OVERSEAS BANK 164.45 153.01 149.00 144.99 132.00 187.0 221.0 56.52 phase of the entire rise EXIT LIST from 2904 to 20238. The Monthly Relative 23.6% correction is at Scrip Last Close Sell Price Sell Price Sell Price Stop loss Target Strength (RS) 16166 and 38.2% ZEE ENTERTAINMENT 287.65 302.86 309.95 317.04 340.00 242.8 41.28 correction is at 13662. UNITED BREWERIES 331.35 334.81 342.48 350.14 374.95 269.9 42.27 The level of 1336-2 is JUBILANT ORAGANOSYS 302.40 315.19 320.50 325.81 343.00 270.2 44.54 very near the wave IV 3M INDIA 1975.00 2028.59 2095.50 2162.41 2379.00 1461.6 45.13 level of 13779. The NESTLE INDIA 1321.00 1439.90 1482.50 1525.10 1663.00 1078.9 46.3 reverse retracement of RELIANCE IND. INFRAS 1889.00 2289.48 2434.50 2579.52 3049.00 1060.5 50.1 the fall from 20238 to 18182 is placed at 17385-16900. In case of a fall and close below 18100, expect a slide down to 17385-16900 at least. Further levels down will be 16166 and 13662. On the immediate front, the focus is to monitor whether the top will get crossed in the current up move. Strategy for the week Exit long positions in frontline stocks when the Sensex hits the resistance range of 19698-19976-20238. Signs of weakness can be witnessed on fall below 18900 and the weakness gets aggravated on a further fall below 18100. A breakout and close above 20238 can continue its dream run without further interruption. TOWER TALK * A leading FII is accumulating shares of Vakrangee Software from the open market. Scrip may see a vertical rise in coming days. * Despite FIIs exiting El Forge, the scrip is buzzing on Dalal Street. A well-known domestic broking firm has accumulated a good chunk and is tipped to take it to a new orbit. * Artson Engineering is on fire and making new highs. Company may make some positive announcement in the near future. Accumulate at declines * Bilpower is looking extremely strong on the charts. After a long consolidation, it has given a good breakout and is heading to make a new high in coming days. Hold on to it. * Some informed buying is taking place in Indo Asian Fusegear as well as Syncom Formulations. Both may continue their upward movement in coming week as well. Sit tight on your holdings. * Avantel Softech is the only manufacturer of Pico Repeaters, which have been mandatory for both GSM and CDMA telecom operators to enhance usage of the allotted spectrum bandwidth. Scrip may touch Rs.120 in the near term. * PG Foils at Rs.85 is attractive as it has allotted warrants convertible to equity at Rs100 per share. * Asian Oilfield is expected to report EPS of over Rs.40 in FY09 according to an analyst. A leading group known for identifying multi-baggers is reported to be taking stake at a price of Rs.190. * Macmillan India is at a low and is a good accumulation pick for patient investors. * Coral India Housing is a good pick as it has sizeable real estate in Mumbai and also runs health resorts. * The grey market premiums on recent IPOs have again firmed up with Kolte Patil Developers at Rs.48-52, Renaissance Jewellery at Rs.28, BGR Energy at Rs.395/405, Jyothy Labs at Rs.230-235, Edelweiss at Rs.735/750, Burnpur Cement at Rs.4/6, e-Clarx at Rs.65/70 and Kaushalya Infrastructure at Rs.12-13. * Proxy IPO application forms for Rs.1 lakh retail application are quoting Rs.3200 for BGR Energy and Rs.2500 for eClerx. BEST BETS Wanbury Ltd. (Code: 524212) Rs.135 Wanbury Ltd. (Wanbury) came into existence with the merger of two diverse companies, Wander and Pearl Organics. These two entities are now functioning as the independent business units of Wanbury. While Wander Ltd. became the formulations division catering to the domestic market, Pearl Organics manufactures bulk drugs for the international market under its API division. Ironically, Wanbury is the world’s largest producer of Metformin Hydrochloride - a diabetes management product and Salsalate, an anti-inflammatory drug. Presently, more than 50% of its revenue comes 4
  5. 5. from exports to over 50 countries serving 200 customers including three of the top five generic players in USA. Notably, 65% of the total export is to regulated markets like USA, UK, Europe etc. The key bulk drugs manufactured are ibuprofen, glucosamine, promethazine, tramadol, atenolol, sertraline etc. In the formulations business, the company’s product profile comprises of anti diabetic, neutraceuticals, antibiotics, cough & cold solutions, anti- inflammatory & analgesics with specialization in gynaecology, orthopaedic pediatrics, nutrition etc. Wanbury also offers telemedicine and video conferencing services, which is a new revolution in the healthcare industry. After its recent amalgamation with Pharmaceutical Products India and Doctors Organic Chemicals (DOCL), Wanbury now boasts of three world class large scale plants spread across Patalganga & Tarapur in Maharashta and Tanuku in Andhra Pradesh. Of these, its Patalganga and Tanuku facilities are USFDA approved for multi-products and compliance to EDQM standards. Apart from its corporate office in Vashi, Navi Mumbai, it has set up two hi-tech R&D centres - one in Turbhe-Navi Mumbai for API and another at Chembur I in Mumbai for formulations. Currently, Wanbury has 23 DMFs with USFDA and is looking to file another 4~5 DMFS in the near future. Of late, it has introduced 2 new brands ‘C-Pink’ and ‘Rabiplus’ in the domestic market and both are doing exceedingly well. As a part of its growth strategy, the company has launched a super specialty research division `Osteolife' catering to orthopaedic health issues such as osteoporosis, osteoarthritis and pain management. Besides, with the acquisition of DOCL, Wanbury has got into CRAMS business also and does contract manufacturing for leading MNCs like Pfizer etc. Importantly, Wanbury has recently acquired the generic ethical formulation business division of Industrial Farmaceutica Cantabria, Spain for approx Rs.250 cr. through its wholly owned subsidiaries. Interestingly, only 40% payment is to be made upfront while the balance 60% is to be paid in two years and the assets of the Spanish firm will be used as collateral to raise loans to fund the acquisition. Cantabaria, which owns 17 brands in various therapeutic segments like traumatology, pain management, asthma, anti depressants, anti eplileptics, anti ulcerants, cephalosporins, beta blokers etc is targeting a revenue of Euro 33 million (i.e. Rs.200 cr.) with an EBITDA of Euro 8-10 million (i.e. Rs.50-60 cr.). Moreover, it has product development worth Euros 6 million in the pipeline for the next year and is expected to grow at CAGR of 15~20% over a five year period. In short, its first overseas acquisition has propelled Wanbury into new dimension. In April 2007, the company issued FCCB aggregating Euro 15 million in order to fund PROFITRAK POWER the Cantabaria acquisition, organic expansion, related diversifications and new A product for Trading and Investments R&D activities. Out of this, Euro 8 million is A new offering based on the Power of Relative Strength fully paid up whereas only 10% is paid-up for the balance 7 million. These FCCBs can be Per month – Rs.2500 per month (1 month subscription by email only) converted into equity shares at approx Rs.140 What you get: per share. Apart from modernising and * One buy and one sell every trading day expanding its manufacturing capacity, the * One weekly buy- every week before the week starts * One monthly buy- every month before the month starts company is also in the process of acquiring domestic ethical brands. Moreover, the rise in Per quarter – Rs.6000 per quarter (3 months subscription by email only) outsourcing of pharma activities to low-cost What you get: offshore destinations like India bodes well for * One buy and one sell every day * One weekly buy every week before the week starts Wanbury as the company is now in a unique * Three monthly buys every month before the month starts position to offer a single point of contract for * One quarterly buy every quarter before the new quarter starts R&D, process development and commercial production. For FY08, on a consolidated basis Per half year – Rs.12000 per half year (6 months subscription by email only) What you get: including the Cantabaria business, it is * One buy and sell every day expected to clock a turnover of Rs.375 cr. with * One weekly buy every week before the week starts PAT of Rs.35 cr. This will lead to an EPS of * Six monthly buys every month before the month starts * Two quarterly buy-every half year before the new quarter starts Rs.26 on its current equity of Rs.13.60 cr. However, on its fully diluted equity of Rs.21 Per full year Rs.20000 for 1 year subscription (by email only) cr. (post conversion of all warrants and What you get: FCCBs) the EPS works out to Rs.17. This can * One buy and sell every day * One weekly buy every week before the week starts move up to Rs.20 for FY09. Hence at a * Twelve monthly buys every month before the month starts reasonable discounting by 12 times against its * Four quarterly buys every half-year before the new quarter starts FY09 earning, the scrip has the potential to * One yearly pick on the first of January cross Rs.240 in 12-15 months. At the same time, if the rupee appreciation continues, its To subscribe contact Money Times on or 022-22616970 bottomline may get affected to some extent. 5
  6. 6. Linc Pen & Plastics (Code: 531241) Rs.44.25 Established in mid 70’s and founded by Mr. S. M. Jalan, the Linc group has over the past three decades established itself as one of the market leaders in the writing instruments industry. Today, Linc Pens & Plastics Ltd (LPPL) boasts of a product portfolio of over 200 SKUs including stationery equipment. It offers a wide range of writing instruments from ball pens to gel pens and markers to pencils. Its products are primarily targeted at the mass markets, schools and offices. The USP of the company has been quality product at reasonable price i.e. value for money through economically priced products with a great price-to-performance ratio. It was the first company to launch a gel pen at Rs.10 when the prevailing price of other brands was over Rs.15. Subsequently, it was again the only one to introduce gel pen at Rs.5, which helped it to become brand leader in the gel pen segment and increase its market share considerably. Incidentally, it is also the sole marketer for premium international brands like Lamy, UniBall and Bensia. Lamy is not only the market leader in Germany but has also become one of the renowned brands for fountain pens, ball point pens, roller ball pens, multi system pens and mechanical pencils across the world. On the other hand, Uniball is the most popular brand of Mitsubishi, Japan, and Bensia is a well known manufacturer of non-sharpening pencils. LPPL has three large state-of-the-art manufacturing facilities with two in Goa and one near Kolkata. Apart from having ISO 9001:2000 certification, its plants are also approved by some of the world's leading retail chain stores like M/s. Walmart Stores Inc, Tesco International, W.H. Smith etc. Presently, 20% of its revenue comes from exports to over 30 countries. The primary focus of the company has been on private label contracts with top chain stores like Steadtler, Liquimark, Poundland, ICO, Stypen, Dollar Tree, Office Works, CVS, John Lewis, Coop Norden etc to name a few. Here in India, LPPL has ventured into lucrative retailing business with two format stores namely – ‘Just Linc’ and ‘Office Linc’. While the former stocks only ‘Linc’ products, the latter is one-stop shop for all kinds of stationery products required in an office, from pins to laptops. ‘Office Linc' has roped in channel partners like Airtel, DHL, Blue Dart, Microsoft, Music World, Book Cellar, Anderson Printing, Presto, Aqua Java, SKP Moneywise and Talk, who will stock their products and provide after-sales services as well. Two stores of ‘Office Linc’ and 10 shops of ‘Just Linc’ are already operational and the company intends to have a pan India presence in future. Importantly, LPPL has appointed Rediffusion DYR, the fourth largest ad agency for brand building and has allotted more than Rs.7 cr. for an ad campaign. Last fiscal, the company revamped its product mix by phasing out couple of high volume low value brands due to which the average realization per pen increased from Rs.2.25 to Rs.2.60. It was also successful in increasing the average realization per refill from Rs.0.82 to Rs.1.16. In order to develop better information system, LPPL is implementing ERP system from SAP and has chosen M/s. Price Waterhouse Coopers as its implementation partner. The increasing working population, growing level of literacy, burgeoning middle class, huge retail revolution etc – all these augurs well for the growth of LPPL. After reporting flat performance for FY07, the company is now growing at healthy pace and has registered 20% and 30% growth in sales and net profit respectively for H1FY08. Thus it is expected to clock a turnover of Rs.175 cr. and PAT of Rs.5.50 cr. for FY08 i.e. EPS of Rs.7 on an equity of Rs.8 cr. With a 52-week high/low as Rs.52/28, a book value of Rs.36, dividend yield of nearly 4% and specially considering its brand value, the company is available fairly cheap at an enterprise value of Rs.60 cr. At a reasonable discounting by 8 times, the scrip has the potential to touch Rs.60 (i.e. 50% appreciation) in 12-15 months. However, investors should keep in mind that the company is in a very price sensitive business with cut throat competition and is operating at very low net margin of 2-3%. ANALYSIS Hawkins Cookers Ltd.: For cooking decent profits By Devdas Mogili Hawkins Cookers Ltd. (HCL) is a 48-year old Mumbai based company established in 1959. It was formerly known as Pressure Cookers and Appliances and before it re-christened itself after its popular brand name, Hawkins. The company manufactures pressure cookers, cookware, idli stands and both hard anodised and non-stick range of cookware. Brahim Vasudev is the chairman and managing director of the company. HCL is a leading manufacturer of cookers and has carved out a good 32% market share despite severe competition from both the organised and unorganised sectors with more than 100 models of cookers. It has an extensive product range consisting of pressure cookers, cooker accessories, non-stick cookware, cuisinettes etc., which are marketed in the domestic market under the brand name ‘Hawkins’. HCL also successfully launched the 2 litre Hard Anodized Contura and 8 litre Ekobase Pressure Cookers. In cookware, the company launched six items viz. Futura Hard Anodised Sauce Pan (Handi) with two short handles; Futura Hard Anodised Kadhai 2.75 litre; Futura Hard Anodised Cook-n-Serve Stewpot 5 litre with glass lid; Futura Non-stick Cook- n-Serve Stewpot 3 litre and 5 litre with glass lid and Futura Hard Anodised Ezee Pour Sauce Pan 1.5 litre. Exports: The company exports its products to the US under the brand name ‘Hawkins’. It is sold in some of the top departmental stores in Europe and America. HCL also exports to Yugoslavia, Japan, Panama, Mexico, Finland and the Netherlands. 6
  7. 7. Performance: The company posted impressive figures for FY07. It clocked net sales of Rs.173.24 cr. with a net profit of Rs.7.49 cr. netting an EPS of Rs.14.17 for FY07. Financial Highlights: (Rs. in lakh) Latest Results: HCL has come out with Particulars QE 30/09/07 QE 30/09/06 YE 31/03/07 Sales Inc Excise dty 5281.1 4663.4 18459.6 highly encouraging results for Q2FY08. It Less: Excise Duty 290.2 301.5 1135.4 registered net sales of Rs.49.91 cr. with a net Sales net of ex duty 4990.9 4361.9 17324.2 profit of Rs.2.70 cr. posting a basic/diluted Other Income 37.5 14.1 52.9 EPS of Rs.5.10. The annualized EPS works Total Income 5028.4 4376.0 17377.1 Expenditure out to Rs.20.40. a. Inc/Dec in stock (147.9) 235.5 33.8 Financials: The company has an equity base b. Raw Materials 1828.2 1588.0 6291.0 of Rs.5.29 cr. and with reserves of Rs.11.37 c. Pur of traded gds 556.5 395.3 1862.3 cr., the book value of its share works out to d. Emp cost 643.5 581.8 2478.9 Rs.31.49. As on 31st March 2007, it had e. Depreciation 36.0 37.7 154.5 f. Other Exp 1630.9 1317.2 5216.6 RONW of 49.67% while ROCE is at 47.84%. Total Expenditure 4547.2 4155.5 16037.1 It has a debt equity ratio of 0.86. Interest 35.8 53.9 175.1 Share Profile: The company’s share with a PBT 445.4 166.6 1164.9 face value of Rs.10 is listed on the BSE under Prov for taxation the Indo Next (S) segment. Its share price For the year 152.0 56.1 396.3 FBT 23.6 4.2 19.2 touched a 52-week high of Rs188 and a low Net Profit 269.8 106.3 749.4 of Rs.79. At its current market price of Paid up equity 528.8 528.8 528.8 Rs.177, it has a market capitalization of Rs.93 Res Ex Rev Resres 1137.2 cr. Basic/Diluted EPS (Rs) 5.10 2.01 14.17 Dividends: The company has a good distribution policy as can be seen from its impressive dividend payouts as shown below: FY2007 - 70%; FY2006 - 50%; FY2005 - 30%; FY2004 - 10%; FY2003 - 0%; FY2002 - 10%. Shareholding Pattern: As on 30th September 2007, the promoter holding was 56.03% while non-corporate promoters and the Indian public held the balance of 43.97%. Prospects: As per market research reports, the total pressure cooker market in the country is growing at 7.3% per annum and HCL continues to be the Number One brand in pressure cookers in India. The outlook for the company’s business is, therefore, good and it is well-positioned to take advantage of the growth of demand in domestic and export markets to increase its sales and profits. Conclusion: HCL is a profit-making, dividend paying company with an impressive track record. It is a market leader in the pressure cookers and cookware market. At its current market price of Rs.183, its share price is discounted around 8 times against the industry average P/E multiple of 10.41. Considering its excellent performance, good brand image and bright prospects going ahead and a low beta of 0.5, the share is a good addition to one’s portfolio for cooking decent profits. MARKET REVIEW The Sensex is hovering around 19K By Ashok D. Singh The Sensex rose 510.32 points or 2.70% to end at 19,363.19 while the NSE Nifty rose 154.15 points or 2.74% to close at 5762.75 for the week ended Friday, 30 November 2007. Although the market posted decent gains as the buying momentum picked up in the latter half of the week, the volatility was high due to alternate bouts of buying and selling by FIIs caused by redemption pressure in their home countries and fears of a US recession arising from US housing slump and credit crisis. The market advanced in three out of five trading sessions in the week. Trading for the week started on a strong note with the 30-share BSE Sensex surging 394.67 points to 19,247.54 on Monday, 26 November 2007 tracking firm global markets. On Tuesday, 27 November 2007, the Sensex lost 119.81 points to 19127.73. Losses in the US market on renewed worries over the fallout from the US subprime mortgage crisis dampened the sentiment Selling continued on Wednesday, 28 November 2007 as the BSE Sensex declined 188.86 points to 18,938.87. The market reversed its early gains in the latter part of the day on unwinding of positions by traders ahead of the expiry of derivatives contracts. On Thursday, 29 November 2007, the market witnessed high volatility and came sharply off the higher level in late trades due to expiry of November 2007 derivatives contracts. It, however, settled at 19,003.26, up 64.39 points for the day. The 30-share BSE Sensex surged 359.93 points or 1.89% to 19,363.19 on Friday, 30 November 2007. Robust Q2 GDP growth data and healthy rollover of derivative contacts from November 2007 series to December 2007 series aided the surge. 7
  8. 8. As per data released on Friday, 30 November 2007, the GDP rose 8.9% in the second quarter ended 30 September 2007, which was below a robust 9.3% growth recorded in the first quarter ended June 2007. The wholesale price index rose 3.21% in the 12 months to 17 November 2007, above the previous week's rise of 3.01%, government data released showed. The annual inflation rate was 5.56% during the corresponding week of the previous year. The NSE on 28 November 2007 said it has decided to add 15 stocks to the F&O segment with effect from Friday, 30 November 2007. The 15 new inclusions for trading in F&O segment include Jindal Saw Pipes, KPIT Cummins Infosystems, Development Credit Bank, Hindustan Zinc, MICO, Info Edge, NIIT, Great Offshore, Wire & Wireless India, Redington (India), Network18 Fincap, Global Broadcast News, Ispat Industries, Hindustan Oil Exploration and Gitanjali Gems. On Tuesday, 27 November 2007, the BSE announced that it will shift 414 scrips from trade to trade to normal rolling settlement effective from Monday, 3 December 2007. Among the stocks being shifted back to normal rolling settlement from trade to trade include ABG Heavy Industries, Aksh Optifibre, Ambalal Sarabhai Enterprise, Andrew Yule & Company, Assam Company, Birla VXL, BPL, Cable Corporation of India, Dhanalakshmi Bank, Emkay Share & Stock Brokers, Jai Corp, Jhunjhunwala Vanaspati, L.M.L., Ramkrishna Forgings. Reliance Industries gained 1.40% to Rs.2850.75 in the week. The company sold 4.01% equity stake in its subsidiary Reliance Petroleum by transactions through the stock exchanges. The aggregate sale consideration was Rs.4,023 cr. and post-sale RIL’s stake in RPL has come down to 70.99% from 75%. Reliance Communications slipped 1.05% to Rs.674.85 in the week. The company reportedly plans to sell another 5% stake in its wireless tower business in the second such transaction in this calendar year. Reliance Energy gained 0.75% to Rs.1738.10 in the week. The company has entered into a joint venture with the country’s main transmission utility, Power Grid Corporation of India, to execute about 300 kilometre transmission lines from Parbati to Koldam and Koldam to Ludhiana. DLF rose 8.66% to Rs.943.90 after the company said on Tuesday, 27 November 2007 that it had partnered the founder of Aman Resorts for a stake in the luxury hotel chain. Aman Resorts is one of the world's leading hospitality and lifestyle business and currently owns and operates 22 luxury hotels, many with residences in 12 countries. Tata Steel rose 0.63% to Rs.825.70 in the week. The company may reportedly pick up a 35% stake in its newly formed Mozambique joint venture for a consideration of Australian $100 million. L&T closed higher to Rs.4117 on reports that it had opened its third factory in China to manufacture industrial valves. The new facility in China, envisaged with a built-up area of 30,000 square meters, would manufacture gate, globe, check and ball valves. The unit has been opened in Yancheng in the Jiangsu Province. On 21 November 2007, L&T signed an agreement with Raytheon for the US defence major's multi-role fighter jet programme besides co-operation in defense projects. On 19 November 2007, L&T secured a contract worth Rs.275 cr. from Delhi Metro Railway Corporation in consortium with Shanghai Urban Construction. On 15 November 2007, L&T in consortium with Paul Wurth won an order worth Rs.580 cr. from the state-run Steel Authority of India to rebuild one of its blast furnaces. On 18 October 2007, L&T bagged four contracts valued at Rs.452 cr. for projects in Andhra Pradesh. Of the four orders, one order worth Rs.226 cr. is from NTPC for the Simhadri Coal Handling Plant. The project is to be completed in 39 months. Three more contracts aggregating Rs.226 cr. are from Public Health & Municipal Engineering Department, Government of Andhra Pradesh. L&T’s net profit rose 73% to Rs.348.02 cr. on 47.4% growth in net sales to Rs.5499.94 cr. in Q2 FY08 over Q2FY07. The company manufactures a wide range of engineering products like earthmoving, industrial and chemical machinery, switchgears, valves and welding alloys. IT stocks advanced as the Indian rupee weakened against the US dollar. TCS rose 5.62% to Rs.1013.95, Wipro gained 4.13% to Rs.460.30, Satyam Computers advanced 5.57% to Rs.439.95 while Infosys Technologies rose 2.96% to Rs.1604.45. Infosys Technologies expects to maintain margins in coming quarters and the US subprime crisis has not hit IT spending by US clients, the company said on Thursday, 29 November 2007. On 27 November 2007, Mundra Port and Special Economic Zone settled at Rs.961.70 on BSE, a premium of 118.56% over the IPO price of Rs.440. The BSE Sensex rose 510.32 points to settle at 19,363.19 last week. At the current 19,363.19, the Sensex trades at a PE multiple of 18.44 to 19.36 based on projected FY09 EPS of Rs.1000-to-Rs 1050 for 30 Sensex companies. Any sharp outflow of funds by foreign institutional investors (FIIs) may dampen the sentiment. Their selling may continue in the near term as they may resort to year-end profit taking. FIIs follow calendar year as their accounting year. FII outflows in the spot market in November 2007 till 28 November 2007 reached Rs.4872.30 cr. FIIs had made heavy purchases in September 2007 and October 2007. They bought shares worth a net Rs.16132.60 cr. in September 2007 and Rs.20590.90 cr. in October 2007. The European Central Bank and Bank of England meet on 6 December 2007 to consider interest rates decisions. 8
  9. 9. MARKET Promoters short change small investors! By G. S. Roongta Once again, the stock market proved to be lacklustre last week. After recording some improvement on Monday, 26th November 2007 with positive innings of nearly 393 points, which helped the BSE Sensex close over 19K at 19,245 and the CNX Nifty closed at 5,731. Thereafter, however, it witnessed selling pressure on Tuesday and Wednesday as traders preferred to book profits before the expiry of the F&O contracts ending on Thursday, 29th November 2007 due to resistance at higher levels. Thus the BSE Sensex lost 120 points on Tuesday, 27th November and 188 points on Wednesday, 28th November thereby losing nearly all the gains recorded on Monday. On Thursday, 29th November, the day of the F&O settlement, the Sensex opened strongly up by 200 points and was up by 300 points at 19,297 and the Nifty 90 points up at 5,725 but could not sustain itself at this high level. The profit booking that followed washed out almost all intra-day gains leaving it with just 64 points in the plus on the Sensex while closing at 19,003.26. The corresponding close on the Nifty was 5,634.60 up by 17 points. Our performance was, therefore, lacklustre in relation to the past performance of the markets as well as other markets that performed quite well that day with the Dow Jones gaining 331 points. With the end of November 2007 derivative contracts in the F&O market, automobile stocks as I had G.S. Roongta stated two weeks back, displayed a positive trend. Ashok Leyland, Hero Honda, Tata Motors, Bajaj Auto and Maruti Suzuki all gained good grounds. Bajaj Auto gained nearly 300 points last week and 500 points from the recommended price. Hero Honda gained nearly 100 points while Tata Motors advanced to over Rs.740 that day. Cement shares were comparatively weak as most counters such as ACC, Grasim, Shree Cement, India Cement, etc. faced heavy liquidation shedding 5% to 10% even though 70% of the contracts in these counters were rolled over during the F&O settlement. This happened despite rumours of a price hike in cement bags from December 2007. This was because traders had built up heavy long positions on the hope that the sector would continue to perform well. Next day, however, cement stocks perked up as the business channels also gave credence of an immediate price hike of Rs.5 per 50 kg bag. According to the TV channels, a price hike has already been effected in the South and was due for implementation in the other regions of the country. If this price hike turns true, I am of the opinion that cement stocks will bounce back in coming days. Presently, ACC at Rs.1065, Grasim at Rs.3650 and Shree Cement at Rs.1365 are at most attractive levels to take a position in. In the Steel sector, the B and B1 group of shares were distinctively strong, Bhushan Steels and Ispat Industries made a good headway while Tata Steel, SAIL and other leading stocks faced resistance. Going by the overall trend in the market last week, it appears that the market may remain in the trading zone in December 2007 as the big players including the FIIs will be in a holiday mood. Besides, the pressure of tax payment and year end considerations for some may affect the ongoing bullish trend and turn into a sideways market within a range of 400 points up or down. I do, however, see a turnaround in the fortunes of the Tea sector, which has been lacklustre over the past two years. It may see better days as the world tea production is likely to be lower. This is because many tea producing countries like Kenya have suffered on account of bad weather. Also, the demand for tea has risen sharply in India. Given this mismatch of higher demand and lower supply globally, there is every likelihood that tea stocks will shoot up. While reviewing the market, I cannot help but observe about the games that promoters play in short changing the common investors after having dumped them with stocks at heavy premium. While the Ispat Group and the Modi Group come to mind but there is none to beat the Essar Group, which has failed to reward investors for over two decades while its promoters have built themselves fancy bungalows worth hundreds of crores and a skyscraper office tower in Central Mumbai. Not only has the group failed to reward shareholders despite good working, there is a deliberate attempt by the promoters to privatize their companies and delist the same with measly compensation to shareholders. They had earlier attempted to delist Essar Steel but their failed do so as it was stoutly resisted by common shareholders and institutions as the compensation was less than peanuts. Now they are attempting to short change shareholders having compulsorily converted 40% of its equity into redeemable preference shares at 0% interest and offering to buy it back at Rs.12.5 per share! The irony is that the investors were forced to reduce their holding by 40% when its share was ruling over Rs.70 and also two weeks back. But the offer of the buyback of redeemable preference shares has been made when Essar Steel quotes around Rs.47 against a book value of Rs.37 and an EPS of Rs.5.5 for the trailing twelve months (TTM)! This clearly smacks of the game plan of the management to acquire the company now that it is rich with assets and is performing well 9
  10. 10. without the slightest consideration for common investors. It is, therefore, in the interest of the management that the company’s share price languishes on the bourses and investors are compelled to sell. This management had again resorted to jugglery in recording the sale of a ship in Essar Shipping and suppress its profitability as the share would have zoomed otherwise. Today it quotes around Rs.54 around its book value of Rs.51 with an EPS of over Rs.3. Can anyone believe that such an old shipping company with such fundamentals is quoting so low? Is it not in the interest of the management keen to delist its shares to keep the share price low so that they can buy it back for a song? By adopting such tactics, they were able to their stake in group companies to over 70% but are still greedy for the balance as the companies are rich in assets and faring very well. Once their game plan succeeds, the shares of Essar Group will zoom as also witnessed recently in Essar Oil. What is strange is that in days when corporate governance is being propagated, shrewd promoters manipulate the company’s working and play around with the sentiment of common investors using their brute majority. Such kind of looting in broad daylight should be resisted by one and all and the watchdog body along with the Company Law Board (CLB) should take such managements to task. If the concerned authorities were to do a due diligence of the group’s working and trace out the management resources as to how the promoters cornered the public shares at throw away prices by issuing convertible debentures, reduction in equity capital and issuing 0% preference shares, the game plan of the promoters will stand exposed. But if the authorities keep quiet, other promoters will be encouraged to adopt the same strategy and enrich themselves at the cost of common shareholders. A clear cut policy should be made to allow company management to enhance their shareholding in a more fair and just manner. Investors, on their part should be vigilant about the intention of such promoters and take a lesson from the Essar Oil shares shooting up after they were cornered by the promoters. The same will happen now with Essar Steel as the promoters want to acquire over 90% through an open offer. Hence investors should not part with their holding in a hurry or be discouraged by the current ruling prices, which are deliberately kept low. If the share of Ispat Industries is shooting up daily, why is Essar Steel locked around Rs.47-48 for the past two weeks. The zooming share price of Bhushan Steel, Ashok Leyland, Graphite India and Ispat Industries gives a fair clue to the promoters’ game plan to corner their company holding in view of the better days ahead. Another area that needs to be checked out is the land bank story, which is the centre of attraction in all corporate presentations. Investors do not know how much freehold land exists with the company as they are no norms of disclosure in the printed balance sheet. No qualitative or quantitative details are show under the head ‘Land’. The CLB should therefore frame the rule and ask company managements to give a detailed schedule of land that a company possesses in sq. mts. and the area where it is located along with the original purchase price and the notional market value today. Why should this information be available to a few interested persons? As it is, real estate deals are rarely transacted fully by cheque payment and the promoters/management are the sole beneficiaries of the cash component. Last week there were reports that Escorts Ltd. had put up for sale a large piece of land for Rs.1500 cr. It was said to be one of the biggest land deals in recent times. But the Escorts share price has been going up for quite some time and has appreciated by over 50% in the last few weeks. This clearly establishes that some FOR WEEKLY GAINS knowledgeable persons were buying the scrip Fast...Focused…First before the news was made public. Power of RS Weekly This unfair advantage by insiders could be checked if a prime asset like land and building Adding to its range of trading products, PROFITRAK is pleased to is enumerated in the balance sheet. announce its new offering ‘Power of RS Weekly’ – a product designed While a great deal of checks & balances have for short-term trading. Singling out one stock to focus upon. Power of RS Weekly will identify been introduced and there is greater the stop loss, buy price range and profit booking levels along with its transparency after the arrival of SEBI, the relative strength, weekly reversal value and the start date of the authorities need to investigate into the games trend or the turndown exit signals. of promoters who manage to stick to the letter This recommendation will be followed up in the subsequent week with of the law but whose intention in short the revised levels for each trading parameter. changing small holders needs to be curbed. Available only by email before the beginning of the week. (This column was written after the closing of the market Subscription: Rs.1500 per month or Rs.12000 per annum. on Thursday, 29th November 2007as Mr. Roongta had to For a sample copy visit or call Money Times on leave for Kolkata. Interested readers who wish to contact 022-22654805 or email at him in Kolkata can do so on 9867669362.) 10
  11. 11. CORPORATE “We have been growing at 50-70% in the international business with our quality, reputation and strong relationships” - Mr. V. P. Mahendru, chairman & managing director, Indo Asian Fusegear Ltd. Indo Asian Fusegear has been recommended for investment in Money Times right since December 2004 at RS.88 under Stock Watch, Best Bets and Expert Eye by our analysts. Since then, the scrip recorded a high of Rs.320 in May 2006 and its current 52-week High/Low is Rs.157/88. Investors can now assess the future of the company from this interview with Mr. V.P. Mahendru, chairman & managing director. Background Indo Asian Fusegear Ltd. (IAFL) is among India’s leading manufacturer of electrical switchgears and compact fluorescent lamps. The company’s product range include wide range of electrical circuit protection equipment including distribution boards, switch boards, switch panels, fuse switches, MCCBs, HRC Fuses, MCBs, RCDs, etc. It is also the largest manufacturer of CFLs and MCB’s in India. It has grown to become the largest exporter of electrical equipments to like UK, Germany, Middle East and South Africa and is the only company in India to produce environment friendly Mercury less CFLs. The company is consistently developing and marketing smarter devices that manage electrical energy optimally and enable homes, industries and the eco- system to benefit the maximum. VP Mahendru, Chairman & Managing Director, promoted the Indo Asian Group for manufacturing and marketing Electrical Distribution and Safety Equipment in 1958. Mr. Mahendru is well-known in business and social circles. He is member of the Governing Body of the Bureau of Indian Standards (BIS/ISI) contributing to the strategic policies for formulation and implementation of Indian Standards for various electrical and electronic equipments. He is also an executive member of various policy-making bodies of Government of India including the Central Consumer Protection Council of India and National Productivity Council. With increasing investments in the power sector, what trends are you witnessing? The electrical equipment industry is a critical link between power generation and the end consumer, and hence is a key beneficiary of the multifold investments in the power sector by the government and private players. Government has recognized the pivotal role of electric power in economic development and also the urgent and critical need to invest heavily to reduce the growing gap. The government has initiated reforms such as the Accelerated Power Development and Reform Programme (APDRP), which has led to increased investments in the T&D sector. The Government has planned 100,000 MW capacity additions by 2012 totalling over 200,000 MW. This will also entail massive investments as Rs.4-5 cr. has to be spent on the T&D network for every 1MW of power. So, almost Rs.4–5 lakh crores of investments would be required in the T&D sector, if the capacity addition takes place as planned. This will boost the demand for power distribution equipments tremendously. The key growth drivers of the industry are increasing investment in the power sector; high growth in construction & real estate segments, increased consumer demand for value added, safe & technologically superior products; and increased international opportunities. Could you give us an idea about the retail electrical industry? The retail electrical industry is divided into two sub segments namely (a) the power distribution equipment segment which includes products such as switchgear, cables, wires and energy meters etc. (b) Consumer durables segment, which include energy saving Compact Fluorescent Lamps (CFLs), Fluorescent Tube lights, Light fittings and Luminaries Switches. The growth of the distribution equipment segment is primarily tied to the growth of the power Industry and the growth of consumer durables is directly linked to infrastructure development and construction projects like housing etc. What are the domestic and global opportunities that could positively impact the outlook of your company? As discussed, on the industry environment side there is increased demand for value added and technologically superior and energy efficient products. Also, Indo Asian has been aggressively increasing its manufacturing capacity and product portfolio to leverage the burgeoning demand. We have commenced operations in three new state-of-the-art plants in the last one year in the tax free areas of Haridwar, Uttaranchal, and will commence two new plants by Q4FY08. We will enjoy new revenue streams from the wires and cable business, home & building automation products and the power distribution business. 11
  12. 12. Moreover, there is larger global opportunity with Indian manufacturing turning competitive, technologically & quality focused. We have been registering strong growth of 50-70% in the international business with our quality, reputation and strong relationships in the international market, and this growth is expected to accelerate even more henceforth. You have a wide product range. Give a revenue break up of your top few products. Going ahead how is the mix likely to change? Our company has wide range of products, catering to the various requirements in the electrical equipment value chain. We consider our current business in 2 segments – Switchgear Division and Lighting Division. Switchgear business contributes around 80% of the revenues, and the balance is from the Lighting Division. The Switchgear business is expected to continue to grow aggressively. The Lighting business is also expected to increase its revenue and profit contribution with the growing market demand for energy efficient light sources and increase in Indo Asian’s manufacturing capacity. Any new segments you plan to enter? We have been aggressively expanding our product portfolio and adding new business lines to cash in on the burgeoning opportunities in the electrical industry. We have entered the Wire & Cable Business and expect it to contribute around Rs1.50 cr. of revenue in FY09. We have set up a JV (51:49) with Simon, Europe, to manufacture and market high quality wiring accessories, building automation and intelligent switching systems, especially for industrial and commercial use. We are also entering the power distribution business where we will undertake distribution projects on behalf of state electricity boards, corporations and utilities on a franchise basis leveraging our strong ties with SEBs for supply of Power Distribution Equipment. What are the factors that could trigger an increase in CFL? Do you feel the need for more regulations or strictures to be passed? Indo Asian was the first company to manufacture CFLs in India. CFLs are far superior in terms of power conservation, cost effectiveness and environment friendliness. With increasing awareness among consumers and governmental incentives towards CFLs, the demand for CFLs is rapidly growing. To further increase the usage of CFLs, the government should make it VAT free and support the industry in the CDM certification process. The government should also promote high quality CFLs by imposing anti dumping duty on import of low quality CFLs – either in the assembled form or otherwise. Globally, too, many countries have formulated complete migration plans from GLS to CFLs. India should also adopt it as it will help in conserving energy and saving the environment. Who are your close competitors domestic and global? What edge do you have over them? In the switchgear business, the key competitors are Legrand, L&T, Siemens, GE and Havells. In Lighting, the key competitors are Phillips, Havell’s, Crompton and Osram. Indo Asian has a strong market reputation of anticipating customer requirements and is developing unique products. In addition, we have strong in-house R&D, which has helped launch many products for the first time in India. This has built our strong position of innovation and customer friendliness in the market. Further, our products are tested and approved by internationally recognized labs including ASTA (UK), KEMA and TUV, Holland. You have around eight manufacturing units. How many more plants do you plan to set up? How is it being funded? We currently have 8 plants across Punjab, Haryana, HP and Uttrakhand – 5 for switchgear business, 2 for Lighting business and 1 for wires & cables. We are setting 2 more JV plants this year. One plant is for manufacturing home and building automation products for the first time in India, in Joint Venture with Simon, Europe. This plant is being set up in Uttrakhand at an initial project cost of Rs.30 cr. The second plant is in Saudi Arabia, in Joint Venture with Saudi National Glass, for manufacturing of Compact Fluorescent Lamps (CFLs) and High Intensity Discharge Lamps (HID Lamps), at an investment of Rs.20 cr. These are funded through internal accruals and incremental debt. Going forward, our investment plans will be as per the opportunities in the market. For this, we will explore both organic and inorganic growth options. Power distribution business is a new area for you. What kind of revenue do you expect from this business? Tell us more about the new company you are setting up for it. What would be the holding structure and investment? We are entering the power distribution business where we propose to undertake power distribution projects on behalf of state electricity boards, corporations and utilities on franchise basis. We have set up a wholly owned subsidiary “Indo Asian Power Distribution and Infrastructure Pvt. Ltd. (IAPDIL)”. The company has secured two contracts aggregating to Rs.50 cr. from the Madhya Pradesh Electricity Board for distributing power in Jabalpur. The contract has been secured for a period of three years and expects to earn Rs.50 cr. revenue over the next 2-3 years. The scope of the contracts will be to modify, improve and replace distribution network to reduce T&D losses. We will leverage our existing relations with state distribution companies and will seek to reduce technical and commercial losses through modifications of Distribution system at our cost and share the profit of saving T&D losses with the Discoms (distribution companies). You have undertaken an energy conservation drive with various parties. What is the response so far? 12
  13. 13. We have got very encouraging response from the market to our various energy conservation drives. We had entered into a tie up with power distribution companies in New Delhi (BSES Rajdhani and Yamuna), Haryana (Dakshin and Uttar) and Rajasthan for spearheading wider use of CFLs and introduction of host of new products – like high energy efficient PLL lamps and FTLs, which was well received in the market. By when will your other JVs come on stream? What kind of topline and bottomline would they contribute? The two JV plants will become operational by Q4FY08. As these are yet to commence operations, it is premature to talk about their revenues. But, we expect them to contribute in a major way to our growth going forward. Brief us on your financials. We have been rapidly growing on the back of increased demand for technologically innovative and superior products, increased manufacturing capacity and product portfolio expansion. We achieved a turnover of Rs.22.4 cr. in FY07 as against Rs.155 cr. in FY06, registering an impressive growth of 44%. EBITDA grew to Rs.29.7 cr. in FY07 as compared to Rs.23.2 cr. in FY06, showing a growth of 28%. Net profit was at Rs17.4 cr. as against Rs.15.8 cr. in the previous year recording a growth of 10%. With the commissioning of 2 new plants in Q2FY07 and 1 in Q1FY08, there is substantial increase in interest and depreciation expenses. The full benefit of this addition in manufacturing capacity is expected to accrue from FY08 onwards. For the first half ended September 30, 2007, revenues recorded at Rs.134 cr., an increase of 33.90% as compared to Rs.100 cr. in the corresponding previous period. EBITDA for H1FY08 improved to Rs16.8 cr., an increase of 32.39% as compared to Rs.12.7 cr. in the corresponding previous period. What R&D do you do in-house? How many patents do you have for your devices? We have very strong in-house R&D capabilities. We were the first company in India to introduce Miniature Circuit Breakers (MCBs) in homes, Residual Current-operated Circuit Breakers (RCCBs) with internationally recognized CB certification, double action MCBs, energy efficient CFLs and then ROHS compliant (less mercury) CFLs. We also were the first to have fully integrated manufacturing of CFLs, mandatory BIS certification for switchgear/ MCB/ CFLs, inter-plant integrated ISO-9001 certification. What is your message to shareholders? Indo Asian is fully committed to leverage the increased local and global opportunities in the electrical sector and in the process, create high shareholder value. We are aiming at achieving a turnover of Rs.1000 cr. in the next few years from Rs.220 cr. in FY07. Overall, we will enhance our positioning of a strong technology based and customer oriented brand. (Courtesy: India Infoline) FUND HOUSE REVIEW HDFC Equity Schemes By Devangi Bhuta This week, we attempt to understand the strategy and future outlook for HDFC’s diversified equity schemes managed by this AMC. HDFC 1 year Returns Benchmark Returns (%) (%) Growth Fund 62 52 Equity Fund 51 54 Top 200 Fund 53 56 Capital Builder Fund 59 53 Risk Profiler Risk Ratio (for the 3-yr period ended October 31, 2007) Parameters Standard Deviation Beta Sharpe Ratio* Growth Fund 6.23% 0.943 0.78 Equity Fund 6.15% 0.8976 0.77 Top 200 Fund 6.03% 0.8881 0.78 Capital Builder Fund 6.33% 0.8824 0.75 * Risk Free Return is assumed to be 5% Source: October 2007 Fact sheet, returns as on 31st October 2007. Beta is the measure of the risk in a portfolio in relation to the rest of the market. A stock that swings more than the market over time has a beta above 1. If a stock moves less than the market, the stock's beta is less than 1. High-beta stocks are supposed to be riskier and thus provide higher returns whereas low-beta stocks pose less risk but also lower returns. Sharpe Ratio is a measure of the excess return (or Risk Premium) per unit of risk in an investment asset. A higher Sharpe ratio may indicate that returns are generated from a smart investment decisions and not by merely taking on additional risk. However other factors like correlation amongst asset classes/securities in a portfolio need to be analysed, too, while looking at the Sharpe Ratio. HDFC Growth Fund 13
  14. 14. The objective is to generate long term capital appreciation and the portfolio allocation is fairly divided between large cap and mid cap stocks. Industrial goods, pharmaceuticals and consumer non-durables are the top three sectors and this allocation has been held on to for a long time. The churn rate has increased over the last six months and as per the October 2007 fact sheet it stands as 92%. By and large, the fund manager’s strategy appears to be to hold on to fundamentally good stocks, although this has been exercised in respect to a few stocks only. Apparently, momentum stocks, too, are being played on. To elucidate, the company has been holding on to RIL, ITC, BHEL and Divi’s Laboratories since a long time. Further, it has added Suzlon in the last three months and this appears to be a good pick. Newer companies like Maytas Infrastructure have been bought into. This scheme appears to be a decent bet for those looking at stable returns. HDFC Equity Fund With the objective of achieving capital appreciation, the scheme has underperformed in the last one year. It has a higher turnover ratio of over 100% and appears relatively riskier. The top sector holdings are Industrial and capital goods with Suzlon being a new entrant. This is followed by Banks and Consumer Non–Durables. Pharmaceutical exposure has considerably increased since the beginning of the calendar year too. The strategy appears to be to hold on to certain stocks for a long term and riding some others on the momentum. Surprisingly, this scheme has exited Punj Lloyd, which appears to be a good long term stock and it has also cut its exposure in telecom stocks like Bharti Airtel. Hence the strategy deployed by the fund manager is not discernible and is probably the reason for its underperformance. HDFC Top 200 Fund The objective is to generate returns from companies in the BSE 200 index. The churn ratio has been high above 200% over the last few months. However, it came down in October 2007. This does not really inspire an investor to park his hard earned money. The sectoral allocation for Software has come down and like most mutual fund schemes is the highest in the industrial capital goods space. HDFC Capital Builder Fund The attractiveness of this scheme, whose objective is to generate capital appreciation, lies in the fact that it has a low churn ratio of its portfolio. While it continues to maintain its allocation in the industrial goods, products and metals segment, it has reduced its exposure to the transportation segment drastically as per the October fact sheet. Within this space, it has invested in GE Shipping. The scheme also has its fair share of mid-cap stocks. The strategy here appears to be to buy and hold and could be one of the reasons for its out-performance and may provide stable returns in future. Although the top holdings in these schemes are similar, the diversity is provided by the fund managers as each one had his own strategy. Besides, there is diversification in terms of large as well as mid cap stocks. As mentioned earlier, schemes with a low churn rate or those with a buy and hold strategy, may reward investors over a longer term horizon. STOCK WATCH By Saarthi South India Paper Mills Ltd. (Code: 516108) (Rs.73.20) has a strong presence in packing paper and paper boards apart from manufacturing writing and printing paper. On the back of robust demand for packaging grades of paper, the company is implementing a brown field expansion at an investment of about Rs.110 cr. This will more than double its paper manufacturing capacity to 105,000 TPA from 55,000 TPA. To support the enhanced energy requirements, it will also augment its captive power generation capacity by 3.50 MW. Besides expansion, the company is going in for forward integration into high quality corrugated boards and intends to have at least one 100% owned facility and possibly one facility under joint venture near Chennai. However, the new paper capacity is expected to be commissioned by December 2008 and the corrugated board facility will start by June 2008. Meanwhile, the company continues to report decent results and is expected to end FY08 with sales of Rs.125 cr. with net profit of Rs.12.50 cr. This translates into an EPS of Rs.17 on its equity of Rs.7.50 cr. Considering its aggressive expansion plan and strong fundamentals, its share price can move up to Rs.120 at a modest discounting by 7 times. A slow but steady performer. ***** Haldyn Glass Gujarat Ltd. (Code: 515147) (Rs.71.60) is engaged in mass production of clear glass bottles and containers with a furnace capacity of 160 TPD. It basically caters to industries such as liquor, pharmaceuticals, cosmetics, beverages, processed foods etc. Its brand name ‘Haldyn’ enjoys very good reputation for top quality at competitive prices with timely deliveries in the domestic market. Apart from having state-of-the-art manufacturing facility in Gujarat, it has full- fledged in-house design facilities and mould shop along with captive power plant and a waste heat recovery system. It has a coveted clientele with corporates like McDowells, Shaw Wallace, Reckitt & Coleman, Parke Davis, Glaxo, Pfizer, Ranbaxy, Cadilla, Novartis etc. To capture the increasing demand of the user industries, the company has installed a new furnace that is expected to go operational by early 2008. Notably, the liquor, FMCG and pharma industries who are the 14
  15. 15. main users of the company’s products are on an upswing due to strong economic growth. This has resulted in a substantial surge in demand for glass bottles, vials and containers. Moreover, Haldyn is looking to explore the untapped export market as well. For FY08, it is expected to report sales of Rs.65 cr. with PAT of Rs.6.50 cr. leading to an EPS of Rs.12 on its equity of Rs.5.40 cr. ***** ABC Bearings Ltd. (Code: 505665) (Rs.84) is India’s largest producer of taper roller bearing and the third largest producer of cylindrical roller bearings after FAG and NRB. It supplies to all auto majors including Tata Motors, M&M, Ashok Leyland, Eicher Motors, Toyota, Swaraj Mazda etc. Currently, it has a total installed capacity of 6.5 million bearings per annum which will soon be enhanced to 8 million through ongoing expansion plan. Due to stiff competition and in order to reduce its dependence on OEMs, it is planning to increase its sales in the replacement market as well. Few months back, it formed a 25% joint venture with NSK Ltd., Japan, to set up a new plant in Chennai for manufacturing of bearings mainly for Japanese and other transplant customers. For future growth, it intends to enter the railway bearings segment and supply wheel bearings for freight wagons. However, on the bourses, the share price has tumbled down sharply and has hit new lows due to dismissal performance by the company in the last two quarters. Still, it is expected to register a topline of Rs.175 cr. with profit of Rs.19 cr. excluding extraordinary expenses of Rs.4 cr. on VRS. Thus, on its equity of Rs.11.56 cr., the EPS works out to Rs.16. Moreover, the company may still be sitting on surplus land of around 18 acres in Lonavala. To conclude, at the current market cap of around Rs.100 cr. it’s a pure value buy. ***** KIC Metaliks Ltd. (Code: 513693) (Rs.66.05) is primarily engaged in the production of pig iron and iron casting with an installed capacity of 1,10,000 and 18,000 MTPA respectively. Notably, it has a coke oven plant with 1,44,000 MTA capacity for conversion of coking coal to met coke. On a small scale, it also produces and markets Portland slag cement under the brand name ‘Kajaria’ and has a capacity of 33,000 MTPA. Of late, the company has installed hot stoves in the blast furnace to bring down the consumption of met coke and is further looking to put up a sinter plant to use low priced iron ore fines. Besides, the company is looking to set up a 4 MW captive power plant using its waste blast furnace; it has plans to install electric steel making facility to produce steel billets initially and subsequently by putting up finishing rolling mills. Thus, the company intends to become a mini integrated steel manufacturer of sizeable capacity and produce steel at the cheapest cost. For H1FY08, it recorded 40% growth in sales at Rs.107 cr. with 55% increase in PBT at Rs.5 cr. Accordingly, it may end FY08 with sales of Rs.225 cr. and PAT of Rs.6.50 cr. i.e. EPS of Rs.12 on its fully diluted equity of Rs.5.60 cr. Keep accumulating at sharp declines. FIFTY FIFTY By Kukku Investment Calls * Paramount Communications (Rs.30.80) increased its business by 267% in Power Cables during FY07 and is confident of continuing its growth momentum in the power cables business in in view of its strong order book and its ongoing expansion in this segment. The second phase of expansion was planned to set up additional capacity of 30,000 km per annum of LT Power Cables and 2,000 km per annum of HT Power cables at the Khushkhera plant of the company. The implementation of this expansion project is progressing well and was expected to be completed by September 2007 as per last director’s report. By adding these capacities, the tentative turnover after the second phase of expansion will be around Rs.700 cr. During Q2FY08, the company acquired the business of AEI Cables, UK, in an all cash deal through its 100% wholly owned subsidiary. The consolidated results shall be published at the end of the financial year. The company has acquired 25 acres Industrial Land from RIICO in Khushkhera Industrial Area, Rajasthan for its third phase expansion. The Indian economy is booming above 9% growth rate which will lead to the overall development in the country. The cable industry in India is witnessing a good demand due to heavy investment in infrastructure, railways, IT sector, power sector and new industrial projects. This trend is expected to continue in the years to come. The company likely to benefit from timely expansions may report encouraging results in future. There is good consolidation in the stock and it is likely to go up once it closes above Rs.34 and can touch target of Rs.60 in the next 6 months. Earlier, we had recommended it at Rs.25 onwards for Rs.10 paid up values. * Patel Integrated Logistics (PIL) (Rs.64) is the merged company of Patel Roadways and Patel on Board Couriers (POBC). PIL provides unified solutions through door- to-door express cargo service, surface transport and air and sea transportation besides offering services in warehousing and secondary distribution. Its commitment to quality, uncanny ability to innovate and its fierce determination to protect the business interests of its customers gives it the cutting edge. The company is branched into 8 products to attain leadership position in its segment. It has entered the business of Express Cargo Deliveries only 6–9 months ago and has already, in a short period, clocked a turnover of nearly Rs.15 cr. annually and expects to take to nearly Rs.100 cr. in 3 years. 15
  16. 16. The company has announced the acquisition of 24 Line Haul Trucks as a part of its strategy to grow its Patel Retail (Express Operations & Time Definite Services). The new trucks acquired include 4 X 6.00 Tonners, 12 X 9.00 Tonners and 8 X 16.00 Tonners trucks. There are indications of new developments in the company. There is talk of inviting strategic investors. With its vast infrastructure, state-of-the-art technology, professional work force and variety of products, the company is well-poised to take advantage of such positives. The stock is catching the attention of market players. Stay invested for better times ahead. * First Leasing (Rs.49) distinguished itself by emphasizing Financial Assistance to Green Energy in the form of Windmill Leasing, recognizing that building a foundation of non toxic and renewable energy, is critically important. The company also placed emphasis on financing Software given its importance to the economic persona of India and as a business opportunity, since banks and financial institutions are unfriendly to financing software, given its intangibility. First Leasing holds Triple A ratings from two Credit Rating Agencies. Fitch and CARE apart from the relevant consideration that First Leasing consistently paid a dividend every year for 32 years, an enviable record for any company. The present dividend recommended by Directors amounts to a tax adjusted return of 33.91%. In this heated up market, valuations of this company look very attractive at Rs.48/49 levels as book value is around Rs.70 and expected EPS is around Rs.13/14 in the current year. It is one of the safest investment bet to park part of profits and also to get good long-term growth. When the index was around 7000 levels, this stock was around Rs.48/50 levels. So investors are getting this stock at fairly attractive valuations. The stock, if it catches attention of market makers, it can cross Rs.100 levels. Accumulate this stock. Market Guidance * Walchandnagar Industries (Rs.8621.35) has come out with encouraging results on sales of Rs.650 cr. Its EPS is Rs.118 against Rs.44 last year. There are indications that sale may grow by 50% to 60% in FY08. The management has declared a liberal 1:1 bonus issue and the stock is being split into five shares of Rs.2 each. Long-term investors can look forward to more favourable times over the next few years. Stay invested for better targets. * KCP Ltd. (Rs.556.20) there are indications that the company may come out with much better results. The engineering unit of the company has a good order book position while its cement division is also said to be doing well due to very remunerative prices. Full year EPS of the company is likely to be in the region of Rs.70/75. The product of engineering division is similar to that of Walchanagar Industries, which is trading at a P/E ratio of about 80. Seeing to the consistent track record of KCP, even if investors discount its P/E at 25, the stock can reach levels of above Rs.1500 over the next one year. The stock is attracting the attention of fund managers and market players. Any decisive closing above Rs.580 will give a good upward breakout. * Tips Industries (Rs.66.25) may report a strong turnaround in the current year. Investors can take a small exposure in this stock. * Saregama (Rs.277) - Knowledgeable investors are adding this stock and it may see much higher levels over the next few years. * Asian Oilfield (Rs.226.20) has shot from Rs.26 when we recommended buying it in March 2007 to Rs.236 level in less than 9 months. Long-term investors can stay invested for better time ahead. There is likely placement of shares to some strong investors. * Ashiana Housing (Rs.434) may touch Rs.600/650 levels on declaration of Q3 results. There is likely stock sale to some investors at higher levels as per informed sources. * Kirloskar Pneumatics (Rs.594) is expected to benefit from its gas compressor division. Daily Fresh Buy With a sharp upsurge in prices of Atlas Copco, this stock, too, is likely to see an (for the busy investor) upmove. PROFITRAK is pleased to announce the launch of ‘Daily Fresh Buy’ for * Shiv Vani Oil (Rs.489) is under investors/ traders who are keen to focus and gain from a single stock every accumulation by some fund managers. trading day. Marketmen talk of a target of Rs.1000 plus With just one daily recommendation selected from stocks in an uptrend, over the next 18 months time. you can now book profit the same day or carry over the trade if the target * Prime Textiles (Rs.47.95) has given strong is not met. breakout after long consolidation. The stock Our review over the next four days will provide new exit levels while the flared up from Rs.21 to Rs.45.5 level and may stock is still in an uptrend. see higher levels. Book part profits around This low risk, high return product for the busy investor is available for Rs.55 level. subscription at Rs.2000 per month. For details contact * Ramsarup Industries (Rs.214.40) - There are or phone on 022-22616970/ 22654805. indications of new developments. Investors 16