ABAN OFFSHORE - High Risk High Returns Investment

Aban Offshore is highly leveraged and this status makes it a better fit for investors with a high risk appetite
Beta: 0.49
Institutional Holding: 21.2%
Dividend Yield: 0.2%
P/E: 51.3
M-Cap: Rs 7,938 cr
CMP: Rs 2,100
ABAN OFFSHORE is India’s largest company in the offshore drilling industry. Its market capitalisation (m-cap) trebled year-on-year to Rs 20,000 crore in January ’08 on expectations of a sharp jump in its revenues and profits. Ironically, just when these expectations are about to turn into reality, its m-cap has lost more than 60% of its value. Considering the attractive rates at which Aban’s fleet of offshore rigs is deployed and the strength in the global market for such equipment, its valuations look attractive in the long term.

BUSINESS: Aban owns a fleet of 16 jack-up rigs, four drill ships and one floating production unit used in the offshore petroleum production industry. The company, which acquired Norway-based Sinvest in March ’07, is currently ranked 11th in the global offshore drilling industry. Aban added two new rigs in FY08 and will be adding four more in FY09. With these, the company will have nine brand new rigs in its total fleet of 21.

It set up a subsidiary in Singapore in ’05 for tax benefits, which now owns most of the company’s vessels. Aban has also ventured into wind power generation, which contributed revenues worth Rs 12 crore in FY08. The company offers a number of its vessels on longterm charters, while offering others on short charters to benefit from trends in the spot market. At present, the company has seven vessels chartered for over three years or more, while nine vessels will complete their contracts in the next 12 months.

Also Read: gem worth investing - ABAN OFFSHORE

GROWTH DRIVERS: With the spurt in global exploration and production (E&P) activities over the past few years, the demand for offshore drilling assets has gone up substantially. This has not only boosted the daily charter rates for such assets, but their utilisation rates have also increased. Aban Offshore is in a sweet spot to benefit from this boom. The company, which had consolidated revenues of just Rs 3,230 crore in the preceding 36 months, already has firm contracts worth Rs 7,400 crore for the next 36 months. At present, three of its vessels are yet to be deployed, while several others will complete their current contracts and get redeployed over these 36 months, further boosting the company’s revenues.

Global offshore drilling expenditure, which was $30 billion in ’07, is expected to rise to $55 billion by ’11, thanks to the sustained increase in oil prices. This is increasing pressure on oil companies globally to accrue new reserves, while the viability of marginal fields has increased.

The company plans to raise funds to retire its debt, while financing its plans to boost deepsea capabilities. It also plans to add more floating production units to support new oilfields, which can be chartered for long durations.


FINANCIALS: At the time of the acquisition of Sinvest in FY07, Aban had to raise substantial finances, which the company managed to do without diluting equity capital. Instead, it issued preference shares and raised heavy debt. This led to a spurt in its debt-toequity ratio to 20 last year on a consolidated basis, which came down to 16 for the year ended March ’08. The interest coverage ratio has also improved marginally to 1.6 in FY08 from 1.1 in FY07. Aban’s strong cash flows and future visibility thereon are helping the company to sustain such high leveraging. During FY08, the company’s consolidated operating cash flows jumped 2.6 times to Rs 834 crore from Rs 319 crore last year. For the year ended March ’08, Aban posted a consolidated net profit of Rs 123 crore on revenues of Rs 2,021 crore.

Its profit was affected by a mark-to-market loss of Rs 194.4 crore on its outstanding loans. However, it is a net foreign exchange earner, which provides a natural hedge against repayments of foreign loans.

VALUATIONS: At the current price of Rs 2,100, the company is trading at 51.3 times its consolidated profit for the year ended March ’08. However, it is expected to more than double its revenue to Rs 4,240 crore in FY09 on a consolidated basis, maintaining its operating margin above 60%. The consolidated net profit is expected to touch Rs 936 crore, translating into earnings per share (EPS) of Rs 248. The current market price is just 8.5 times the expected FY09 earnings. Given its growth prospects at one end and highly leveraged business strategy at the other end, the scrip can be considered by investors who have high risk appetite.
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Stocks Analysis-Power grid corp-SESA GOA-Bharati Airtel-Reliance Capital

POWER GRID CORP
RESEARCH: INDIABULLS SECURITIES
RATING: BUY
CMP: RS 89
INDIABULLS Securities initiates coverage on Power Grid Corporation with a ‘buy’ rating. Power Grid is a central transmission utility engaged in inter-state and inter-regional power transmission business. Over a period of 16 years, it has emerged as one of the largest and best-managed transmission utilities in the world. Currently, it operates around 67,000 circuit km of transmission lines, along with 111 sub-stations and transmits 40-45% of the power generated in the country. The company has around 45 projects in hand, which will drive its revenues and earnings in the medium term. Indiabulls estimates that Power Grid’s net sales and net profit will witness a CAGR of 20.5% and 19.5%, respectively, by ’10 on the back of significant investment opportunities. At the current market price (CMP), the stock is trading at a price-to-book (P/B) multiple of 2.7x. Based on the valuations, the target P/B multiple of the stock is 3.29x, resulting in a fair value price of Rs 110. This implies a potential upside of 21% from the CMP.

BHARTI AIRTEL
RESEARCH: HSBC
RATING: BUY
CMP: RS 776
HSBC retains ‘overweight’ rating on Bharti Airtel with a target price of Rs 1,002. The investment thesis expects sharp growth in the domestic wireless market, outstanding execution of a low-leverage, low-cost business model with high return on invested capital, and continued alignment of majority and minority shareholder interests. Principal risks will be upward revision of subscriber-based criteria for additional spectrum, hike in spectrum charges, aggressive international expansion and higher capital expenditure (capex) than HSBC’s estimates. Receipt of 3G spectrum should aid Bharti in consolidating market leadership. If the new entrants are able to manage roll-outs, players like Tata Teleservices, Reliance Communications and BSNL will be more vulnerable. The impact on Bharti will be the least. Bharti was willing to pay the government an additional Rs 2,600 crore for 4.4 MHz to start up 2G spectrum.

RELIANCE CAPITAL
RESEARCH: MOTILAL OSWAL
RATING: NEUTRAL
CMP: RS 1,173
MOTILAL Oswal downgrades Reliance Capital to ‘neutral’ with a revised target price of Rs 1,340. Reliance Capital’s management has reiterated its objective to emerge as one of the leaders in all business verticals of financial services. The strategy is to create ‘a difficult-to-replicate’ distribution reach across the country, a mass retail customer base and exploit cross-sell opportunities. However, the larger businesses are linked to capital markets, which pose growth uncertainty in the current environment. Life insurance premiums are growing rapidly and Reliance Capital is fast gaining market share. The company has rapidly built its consumer finance book, which stood at Rs 8,100 crore as of June ’08. Motilal expect profits and return ratios to remain low in this business. The general insurance business witnessed strong topline growth in FY08, but is likely to continue reporting losses in FY09. Profitability is expected only in FY10. The broking and distribution venture is scaling up fast and has gained ~3.5% market share in the first year of operation from purely retail business. Motilal has reduced its fair valuations for general insurance, broking and consumer finance businesses due to bleak outlook on either business growth and/or profit growth.

ONMOBILE GLOBAL
RESEARCH: MACQUARIE
RATING: OUTPERFORM
CMP: RS 485
MACQUARIE initiates coverage on OnMobile Global with an ‘outperform’ rating and a target price of Rs 650, implying 42% upside from current levels. Macquarie is excited about the opportunities in the mobile value-added services (VAS) sector in domestic and emerging markets. It recommends that investors should accumulate OnMobile shares to benefit from the robust growth in the mobile VAS space, which is likely to play out over the next 2-3 years. OnMobile Global is the leader in the evolving domestic telecommunications’ VAS and software products sector. The company is a white-label VAS player for mobile, fixed-line and media service providers, with a dominant presence in India and a growing presence in emerging markets. Its promoters include OnMobile Systems (OMSI, unlisted) and the company’s top management. Argo Capital Management (unlisted) is the majority holder (62%) in OMSI.

SESA GOA
RESEARCH: KOTAK SECURITIES
RATING: BUY
CMP: RS 117
KOTAK Securities reiterates a ‘buy’ rating on Sesa Goa with a target price of Rs 300 per share for an investment horizon of eight months. The stock price has been tumbling continuously over the past few weeks. It has now fallen more than 50% from its peak and is even trading at a discount to the price Vedanta paid last year to acquire the company from Mitsui.
At that time:
(i) iron ore prices were half that of the present levels;
(ii) sales volumes were considerably lower,
(iii) cash levels were also much lower; and
(iv) other competitors had shied away from bidding due to imposition of Rs 300/tonne export duty on iron ore just before the process.

Several factors have collectively led to this fall. The key negatives are:
(i) seasonal weakness;
(ii) lower import demand from China, given curtailed steel production due to Olympics and Paralympics;
(iii) global commodities sell-off as financial institutions pull out funds to enhance liquidity amidst the global financial crisis; and
(iv) higher coke prices in China causing weakness in low-grade iron ore prices.
However, these negatives are fading away and this will result in a dramatic shift in sentiment, going forward.

Glodyne Technoserve - Attractive long term investment

Beta: 0.52
Institutional Holding: 0.23%
Dividend Yield: 0.19%
P/E: 16.1
M-Cap: Rs 613 cr
CMP: Rs 675

THE GLOBAL remote infrastructure management services (RIMS) business has grown more than three times over the past two years to $7 billion in ’08. According to a recent McKinsey-Nasscom report, the RIMS opportunity can be as big as $13-15 billion for domestic companies by ’13. Glodyne Technoserve, which is present in the RIMS segment, is poised to gain from this opportunity, given its thrust on inorganic growth and strong order book.

BUSINESS: Mumbai-based Glodyne is mainly into infrastructure management services (IMS). Currently, it derives around 65% of its revenue from IMS and the rest from software services. The company’s strategy is to increase its focus on IMS and push up the contribution of this segment to 90%.

At present, over three-fourths of Glodyne’s revenue comes from the domestic market, while the rest comes from the US. Over a period of time, the company wants the US, European and Indian markets to contribute equally to its revenue. As Glodyne has grown over the past few years, it has consistently dropped smaller clients. Its strategy is to create relationship with those clients who have the potential to grow in size. Hence, in future, while the company’s client list will reduce further, the contract size per customer will increase.


FINANCIALS: The company’s net sales has grown by five times over the past three years. Its net profit has increased by around eight times during the same period. It has improved its operating margins in the past few years through better management of resources and by offering high-end infrastructure services.

Though the company’s debt has increased by around three times compared to last year, the debt-equity ratio is still at a lower level of 0.38 and the interest coverage ratio is more than 20. This will give it enough leverage while undertaking acquisitions in future. Glodyne’s current operating margin stands at 18%, which is lower than that of its peers like Allied Digital Services and Omnitech Infosolutions.


GROWTH DRIVERS: The company has been targeting new markets through inorganic acquisitions. It recently acquired two companies in the US — Front Office Technologies and Links Group International — to increase its client base.

It also plans to increase its proportion of RIMS within the IMS space. Currently, 20% of clients’ infrastructure problems are resolved from remote locations. The company plans to increase this figure to 60% in the next 2-3 years.

The first step will help to improve the company’s topline, while the second one will increase its operating margin in the next two years. Recently, it also won an order worth Rs 284 crore from the Bihar government for infrastructure management and smart card solutions management.

VALUATIONS: The stock is currently trading at a trailing 12-month (TTM) price-earnings (P/E) multiple of 16.1. Glodyne’s recent acquisitions and strong order book will help it to maintain a high growth rate, in line with last year’s growth.

Its operating margin is likely to improve in a phased manner to 25% by ’10-11. The earnings per share (EPS) for FY09 and FY10 are estimated at Rs 71 and Rs 130, respectively.
At the current price of Rs 647, the forward P/Es for FY09 and FY10 work out to 8.6x and 4.7x, respectively. Its historical P/E is 11.2. Further, any new acquisitions in the near future will boost the company’s earnings potential. Investors with a time horizon of 2-3 years can consider the stock.
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NTPC - ideal pick for long-term investors

NTPC’s existing operations, ongoing expansion plans and high profitability make it an ideal pick for long-term investors

Beta: 0.3

Institutional Holding: 6.7%

Dividend Yield: 2%

P/E: 21.2

M-Cap: Rs 143,554.2 cr

CMP: Rs 174.10

NATIONAL THERMAL Power Corporation (NTPC) is the largest power generation company in India and is currently the fourth most valuable company on the stock exchange. The stock has declined 35% from its January ’08 high, mirroring the fall in the Bombay Stock Exchange (BSE) Sensex. While the going has been tough for the equity market as a whole, this stock is among the few which provided decent returns to shareholders. This has been possible because of its strong operating capability, projects under execution and existing cash flows, which reduce NTPC’s dependence on borrowed funds. While the short-term outlook of the market continues to remain uncertain, investors can take exposure in the stock with a medium to long-term view.

BUSINESS: NTPC has a total capacity of about 30,000 mw, which includes 2,000 mw in joint ventures (JVs) and 5,500 mw in gas-based plants. The company is developing three hydel power plants, totalling 2,000 mw, as a diversification move.

NTPC is developing coal mines to shield itself from fluctuations in coal prices. It has been allotted coal blocks for captive use with reserves of three billion tonnes. Although the progress on this front is slow because of land and other related issues, in the medium term, this will provide definite gains to the company. NTPC will be able to internally source fuel worth about Rs 8,000 crore at current prices.

An important element of its operations is that it is selling power at Rs 1.84 per unit, as per the rules laid down by the power regulator, which is much lower than the spot price. As the market is freed up over a period of time, the company stands to gain the most.

Apart from seeking a diversification in fuel sources, NTPC is looking at both backward and forward integration. It is moving into the power equipment space through JVs with existing players, including Bharat Heavy Electricals (Bhel).

It has also acquired a 45% stake in a transformer manufacturing company. This is a significant strategic move, considering the shortage of equipment. The company has also launched an initiative to benchmark its operations with global peers. This move is likely to improve productivity and save costs. NTPC is also in talks with Kerala Industrial Development Corporation, for retail distribution of electricity in the state. This will mark its entry into the distribution segment.

NTPC has been on a rapid expansion spree over the past few years, during which, it invested around Rs 23,000 crore in fixed assets. Since it also generated cash of Rs 24,000 crore from operations, it did not have to raise extra cash from other sources. The company plans to invest nearly Rs 13,600 crore during FY09, over and above an investment of Rs 8,200 crore in FY08. Currently, a capacity of 16,180 mw is under construction, including 3,750 mw in JV companies, which will be completed by FY12. Of this, 2,800 mw will be completed in FY09, which can add about Rs 700 crore to the bottomline.

While such expansions may require high leveraging, NTPC looks well-placed with a reasonable debt-equity ratio of 0.52. This contrasts with a debt-equity ratio of 2.3, which is allowed for a generation company. This leaves enough room for the company to raise debt, if required. FINANCIALS: The June ’08 quarter was rather sluggish for NTPC, with sales growing at a modest pace of 6.4%, whereas net profit (PAT) dropped by 27%. However, the decline in PAT was due to a number of adjustments related to foreign exchange (forex) variation, sales adjustment and wage revision. Excluding these items, PAT has actually shown a growth of 5.3%.
While raw material costs rose 15%, other expenses shot up by 24%, leading to a decline of 18% in operating profit. Depreciation has gone up by 12%, with the commissioning of one of its plants.
For the full year ended March ’08, NTPC recorded sales growth of 13.7%, while profit growth was restricted to 8%, because of a sharp rise in employee cost and tax provisions.

OUTLOOK: With its existing operations, ongoing expansion plans and high profitability, NTPC is favourably placed in the generation space. The project execution experience has greater significance in a capital-intensive and long gestation business like this.

Further, the shortage in power supply, which is expected to remain in the medium term, will keep the capacity utilisation of power plants at a high level.

Given its initiative to become an integrated player, there is limited downside for the company in the current slowdown. Long-term investors can take an exposure in this stock.

CHALLENGES: Concerns regarding fuel supply — both coal and gas — remain. Further, issues related to land acquisition, especially affecting the development of coal mines and hydel plants, can delay the projects.

Why TCS n Satyam hit 52 week lows?

Effect of USA Turmoil have shown up it's effect on these Indian IT Biggies since they derive huge chunk of their income from Banking and Financial sector clients in USA.

Shares of Tata Consultancy Services fell 8.4 per cent to Rs 619.65 on Monday, slightly off the 52-week low of Rs 612.1 touched intra-day.

Analysts at foreign brokerage houses point out that TCS generated nearly 43.6 per cent of its FY 08 revenues of Rs 22, 861.4 crore from the banking, financial and insurance sector (BFSI).

In addition, TCS exposure to the financial sector in terms of generating revenues is the highest amongst the top 5 Indian IT companies, with Satyam Computer at the lowest.

And given the current uncertainties in the global financial system due to the collapse of several iconic American institutions, market sources point out that punters are exiting from stocks like TCS in droves.

Even companies like Satyam, which derived 21.4 per cent of their June 2009 revenues of Rs 2620 crore from the BFSI segment, saw its stock reach an intra-day 52-week low of Rs 289. The stock closed at Rs 292.55, down 9.1 per cent.
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Analyst's Picks:BARTRONICS-ONMOBILE GLOBAL-HDFC

BARTRONICS INDIA
CMP: RS 154.55
TARGET PRICE: RS 234
HDFC Securities has initiated coverage on the stock with a ‘buy’rating saying the fast growing AIDC (Automatic Identification and Data Capture) technology in India will further boost the company’s order book and topline. “The company’s market share of around 90-95% in smart card and RFID (radiofrequency identification) segments offers all AIDC solutions under one roof. The company’s early entry into smart card manufacturing, will help retain its dominance in the area,” said HDFC in a note to its clients.

It expects the revenues and profits of the company to grow at CAGR of 72% and 78% over FY08 to FY10E (estimated). “The stock is trading at 6.5 times and 3.8 times its FY09 (estimated) and FY10 (estimated) FDEPS (fully diluted earnings per share),” said the note.

ONMOBILE GLOBAL
CMP: RS 484.90
TARGET PRICE: RS 650
MACQUARIE Research has initiated coverage on OnMobile Global with an ‘outperform’ rating saying the stock has a 42% upside from current levels. “We are excited about the opportunities in the Indian mobile value-added service (VAS) sector as well as in emerging markets. OnMobile is India’s No 1 mobile VAS provider, with around 30% share of India’s VAS market (ex-SMS),” said Macquarie in a note to its clients. The brokerage expects a 2 year FY3/08–10E EPS CAGR of 42.5% for the company, led by topline CAGR of 58%, marginally offset by one-time dip in margin in FY3/09E.

According to Macquarie, recent M&A transactions have opened the door for OnMobile to tap the potential offered by the international VAS market. “OnMobile’s international revenues are likely to grow at a faster pace (FY3/08–13E CAGR of 63%) than growth of its domestic revenue (35.5%),” said the note. The brokerage feels that change in business model and large premiums for future acquisitions could result in value destruction for On-Mobile.

HDFC
CMP: RS 2088.80
TARGET PRICE: RS 2,330
CLSA Research has maintained a ‘buy’ rating on the stock saying HDFC has not seen deterioration in asset quality due to rise in rates and its plans to list a couple of subsidiaries in CY09 may act as a catalyst. “HDFC expects its growth to sustain at +20% for next three years, as housing affordability remains high and it continues to gain market share from banks. Spreads might contract in short term due to liquidity crunch, however estimated to remain around 2.2%,” said CLSA in a note to its clients.

According to CLSA, most of HDFC subsidiaries continue to scale up with better profitability amongst their competitors. “HDFC standard life (HDFC’s life insurance subsidiary) has a persistency rate of +85% which is the highest amongst all players; HDFC Mutual funds have much higher net margins than any other asset manager in India (2nd largest player) and HDFC bank is the most profitable banking franchise in India,” the note said. “Adjusting for the value of subsidiaries, HDFC is trading at 4.2x FY09CL (calendar year), with an estimated ROE of 25% in FY09CL,” the note added.
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Charlie Munger..the Right Hand Of Warren Buffet..

Had Warren Buffett never been born, there's a good chance we'd award the "world's greatest investor" honor to his right-hand man, Charlie Munger. Not only is Berkshire Hathaway's (NYSE: BRK-A) co-chairman a phenomenally talented investor, but he'd probably school almost anyone in a debate about philosophy, biology, physics, or just about any other topic. The man's disturbingly smart.I'd continue this introduction, but as Munger might bluntly say, "Nobody would listen." Without further ado, here are five Munger quotes you should study before making another investment decision.

1. "This is really crucial: Warren [Buffett] is one of the best learning machines on this earth. The turtles who outrun the hares are learning machines. If you stop learning in this world, the world rushes right by you."Investing is so much more than a game of numbers. If you've mastered Microsoft (Nasdaq: MSFT) Excel and can tear apart an annual report like it's no one's business, you're on the right track, but that's hardly the end of the road. You're probably just as likely to catch Munger reading the biography of a Roman emperor as you are The Wall Street Journal. Why? Because he's intently curious about all aspects of life. He wants to learn everything. It's his and Buffett's intense desire to probe into everything they find -- to ask, "Why is that? Tell me more!" -- that ultimately drives their quest to find spectacular investments

Read: Top secrets of Warren Buffett's Success

2. "I think that one should recognize reality even when one doesn't like it -- indeed, especially when one doesn't like it."There's a big difference between not swaying into the madness of crowds and not realizing when the facts have changed and adjusting accordingly. Unfortunately, it's incredibly hard to come to terms with this when your investments are gushing red ink. Not to pick on a battered soul, but Crocs (Nasdaq: CROX) provides a good example. Its raging popularity and surging stock price were nearly impossible to ignore, especially in the wake of soaring inventory levels and expectations a Romanian gymnast couldn't keep up with. The reality was that Crocs was a good company with a dramatically unrealistic stock price. Those who didn't recognize reality paid dearly.

3. "To me, it's obvious that the winner has to be very selective. It's been obvious to me since very early in life. I don't know why it's not obvious to very many other people."It's easy to get caught up in grandiose dreams about successful investments, which typically leads to rushing out and putting your hard-earned money to work as soon as possible. But think about it: If, every time you sat down at your computer in search of a winning investment, you actually found one, the good ideas would quickly be exploited and outsized returns would never exist. The big winners -- like buying Amazon (Nasdaq: AMZN) after the dot-com crash or Google (Nasdaq: GOOG) on its IPO day -- come around very, very seldom.

Also Read: Want to earn like Warren Buffett? 24 tips

4. "Mankind invented a system to cope with the fact that we are so intrinsically lousy at manipulating numbers. It's called the graph."Got that, chartists? If the past were a road map to the future, your high school history teacher wouldn't be driving a 1979 Volvo wagon. To pull a quote from Buffett, "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer." Seems simple enough, but the amount of people trying to foretell the future with squiggly lines is downright bewildering. When Devon Energy (NYSE: DVN) shot up almost 40% in the last year, it had nothing to do with its 200-day moving average. When Sirius XM Radio (Nasdaq: SIRI) fell 55% in the past 9 months, it had nothing to do with a "head-and-shoulders" pattern. Honestly. It didn't.

5. "Some people seem to think there's no trouble just because it hasn't happened yet. If you jump out the window at the 42nd floor and you're still doing fine as you pass the 27th floor, that doesn't mean you don't have a serious problem. I would want to address the problem right now."This quote reminds me of one thing: investors who know darn well a stock is overvalued, but insist on holding it because "it's still going higher." I guess it's only natural: The thought of selling something, only to watch it climb ever higher, can be a miserable one. The problem is that you'll never know for certain exactly when a stock either bottoms out or tops out. Those who hold out for the last drops of success are the ones who end up getting slaughtered.
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Stocks you can invest in - LUPIN, OPTO CIRCUITS

Lupin
CMP: Rs 721
Target Price: Rs 938
Citigroup Global Markets has maintained its ‘buy’ recommendation on the stock saying the company’s initiative to build a global presence through small acquisitions and the buyout of a majority stake in Pharma Dynamics of South Africa would boost inorganic growth.

“This is the company’s third acquisition in FY09 after Hormosan (Germany) and a minority stake in Generic Health (Australia). We believe the small size has kept valuations reasonable & expect all deals to be EPS and RoI accretive from FY10,” said Citi in a note to its clients.

Citi has rated Lupin as ‘medium risk’ citing generic competition in Suprax (around 5% & 16% of sales & PBT) as the key reason. According to Citi, rising input costs due to Chinese government’s crackdown on environmentally unfriendly plants could hurt profitability. “Inability to effectively integrate the Kyowa acquisition could take a heavy toll on profitability as well as return ratios,” added the Citi note.


Opto Circuits
CMP: Rs 287.25
Target Price: Rs 463
Kotak Securities has maintained a ‘buy’ rating on the stock saying the valuations are very attractive considering the strong market positioning, potential introduction of new products, front end R&D set up (with the Criticare acquisition) and strong management.

The brokerage expects OCIL to register a 56.7% and 43.7% compounded growth in revenues and earnings, respectively over the next two years. It expects revenue growth of 73.9% to Rs 8.1 billion and net profit growth of 43.5% to Rs 1.9 billion in FY09.

“The key growth drivers for topline would likely to be stents business which is expected to grow at about 80% while non-invasive segment is expected to grow at 77%, mainly due to Criticare acquisition,” said the Kotak note. According to Kotak, net profit margin is likely to decline to 23.8% in FY10 as against 28.3% in FY08 mainly due to higher interest cost.

“The company has raised $52 million debt to fund the Criticare acquisition. We expect 43% and 44% growth in EPS in FY09 and FY10, respectively. In FY09, we expect EPS of Rs.20.2 while in FY10 we expect EPS of Rs.29,” the note added.
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Punj Lloyd - Multibagger stock

CMP: 300
TARGET: 532
Research: Sharekhan

Sharekhan has maintained ‘buy’ on Punj Lloyd with a 12-18 month price target of Rs 532. The company has won an order to engineer, procure, install and commission a 211km pipeline with associated stations and infrastructure in Qatar.

The contract is valued at Rs 3,636 crore (US Dollar 800 million). This is the fourth engineering, procurement and construction order bagged by the company in Qatar alone.

The Middle-East has been one of the key business markets for the company and 27 per cent of its current order backlog constitutes of orders from this region. Sharekhan believes the investments planned in the Gulf Cooperation Council countries over 2006-12 spell a great opportunity for the company.

Punj Lloyd's increased foothold in these geographies will further enhance the company's capability to win larger and more important projects in the Gulf Cooperation Council nations.

The current order backlog of Rs 24,063 crore, which is 3.1x its 2007-08 earnings, imparts ample visibility to the company’s future revenues.

At the market price, the stock is trading at 16.6x and 12.6x FY2009E and FY2010E fully diluted earning per share respectively. Sharekhan believes the stock is attractively valued at these levels given that the company’s earnings are estimated to grow at a compounded annual growth rate of 51.2 per cent over FY2008-10E.
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Did your home loan just get more expensive?

Home loans with floating interest rates can be tricky; the moment you take the loan, the rate seems to start climbing upwards.

We outline some smart tips to help folks like Jaidev get the best deal.

Step 1: negotiate with your bank
Before taking business to another bank, negotiate for a lower rate with your current vendor. They mya have a better plan.

Clayton Scott, the Director of Ecompare.co.in, a financial products comparison web site suggests, “There are banks that allow switching at the time of annual review of accounts, at no extra cost. There are others that allow such switches but at a cost of around 1.5% of the outstanding loan amount.”

This is a good option for refinancing your home loan, as it's quick and involves fewer formalities.

Step 2: negotiate for lower charges
If your bank lets you switch to a lower interest rate plan for no charge, you are in luck. But if they do charge a fee, you should negotiate for a lower rate.

These charges, however, come with clauses like this one: the pre-payment fee is waived only if you are repaying the loan from your own pocket. In other words, you have to shell out a pre-payment fee if another bank refinances you.

Read: Tips to lower your Home Loan EMI Burden

Step 3: compare banks
It's a smart idea to compare the charges offered by your bank and other bank. This will help you negotiate better interest rates, processing fees and charges levied by other banks on refinanced loans.

Other charges by a new bank include a processing fee of about 0.5 to 1% of the loan amount. Ask for this percentage to be further reduced or waived.

Harsh Vardhan Roongta, CEO of apnaloan.com says, “Generally, it works out better if you have about 10 or more years of the repayment period left. Opt for the switch only if the new loan rate is cheaper by at least 0.5% and the pre-payment fee is not more than 2%.”

Step 4: evaluate your position
If you have many years of repayment (say 10 - 15 or more) tenure remaining and even if the new rate is 1% cheaper than current interest rate it is definitely beneficial. The processing fee is not high. The new lender has agreed to lower his pre-payment fee to only 1% of the outstanding principal. Overall, it makes sense for you to make the switch.

Step 5: the refinancing process
Make sure you hand over all original documents of the house to your new lender. The bank’s lawyer will then scrutinise your papers for a fee. This fee could be anywhere between Rs 1,500 and Rs 2,000.

The new bank may want to revaluate your property based on the location and condition of your property. The revaluation charge is approximately Rs 1,500, but can vary from bank to bank.

The refinancing process could take between seven to 10 working days depending on the bank you’re dealing with.

Here's a look at charges at a glance.
Type of charge Approximate cost
Processing fee 0.5 to 1% of the loan amount
Documentation fee Rs 1,500 to Rs 2,000
Revaluation fee Rs 1,500

Can the new lender up the interest rate, again?

“Yes, then the consumer has no option really. If your bank revises the rates it will be for all the consumers and not for you alone. You’ll share the fate of thousands of other consumers,' says Roongta.

Scott asks all consumers to exercise caution, “Never assume that a bank will help you switch to the most favourable interest rate prevailing in the market. It's your responsibility to stay abreast with current market rates and switch when it is in your best interest and when permitted to do so under the terms of the loan agreement.”

Tips to lower your Home Loan EMI Burden

THE flipside of taking a home loan with a floating interest rate is that when rates go up, you land up shelling more bucks!

Expert Harsh Roongta tips off a borrower on how to manage his loan.

I took a home loan of Rs 23 lakh at an interest rate of PLR plus 1 per cent margin, that is, 7.75 per cent plus 1 per cent margin, which comes to 8.75 per cent. I took the loan from ICICI Bank on November 30, 2004. The loan tenure was 180 months and I was paying an Equated Monthly Installment (EMI) of Rs 22,987 per month, which was due on the 7th of every month. At present, the interest rate on my loan stands at 13.25 per cent, the tenure has been increased from 15 to 25 years, and the EMI amount has gone up from Rs 22,987 to Rs 25,109. For new customers, the bank is giving the same loan at a much lower rate but has not revised our interest rate. We have raised questions but the bank says this is due to an RBI ruling. What's the solution?

Option 1: Bargain for a lower rate-- If you have maintained a good repayment track record, you could get an interest rate of around 10 to 10.50 per cent from other lenders. So, you could consider shifting to another lender.

For instance, if you take a home loan of Rs 23 lakh at 10.5 per cent for a period of 20 years, your EMI will be around Rs 22,900. That way, you can go back to paying your initial EMI.

Option 2: Prepay-- You could prepay a part of the home loan if you have surplus money. Many banks do not charge a pre-payment penalty on partial prepayment. So, find out if your bank levies a penalty before you consider prepaying it.
Prepaying helps because:
-- It reduces the EMI burden since you can bring down the EMI amount.
-- You save on high interest costs on the portion of the loan that you prepay.

The flipside: When you prepay your loan, you might lose out on the Section 80 C tax break for principal and interest repaid. Hence, it can lead to a higher tax outgo.

Also, a prepayment penalty may be applicable.

Smart tip: Clear high interest loans first

However, before you prepay a home loan, remember to clear all unsecured debt such as credit card dues and personal loans. Also, do set aside some money to meet emergency expenses.

Bigger bull run yet to come: Rakesh Jhunjhunwala

Here is a verbatim transcript of Investor and Trader, Rakesh Jhunjhunwala's exclusive interview with Mitali Mukherjee on CNBC TV18's Wealth Creators show.

Rakesh Jhunjhunwala is India’s most successful investors; one of the stock market’s most successful stories. The sometimes maverick, often mercurial but always a respected voice. He is a wealth creator and a man who anyone who enters the stock market wants to be.

Q: You are the first Individual Wealth Creator we are chronicling. I am curious to know, what does the term mean to you?
A: I don't know when I started on in life, I had some ambitions. My parents never liked the idea that I should go to the stock market. I started life financially with just USD 100 or only Rs 5000 and my first thought was that when I went to the markets, I had just come from Chartered Accountancy; used to earn Rs 150 a month. So my first concept in life was that I should be financially independent. I never started with the idea that I will be a great wealth creator and I will have some great wealth or anybody will know me. I thought I must be able to earn my daily bread. I loved the markets. I thought India was in a very initial stage and this would be one of the places which will develop and the opportunity would be huge.

Q: Do you also find it odious sometimes because you are a wealth creator in your own right and I don't think you have taken on the mantle of leading a lot of people with you. But you get that. A stock that you would pick up will be picked up by others. They would want to know why Rakesh bought it - why he is buying so much or why he wants to buy more?
A: I think these are all misconceptions. When you buy stocks, you should be ensured that other people will buy stocks. Then only you should buy the stocks. I have a different concept in life. If a stock is beautiful, the suitor will come. If a girl is beautiful a suitor will come. If a stock is beautiful, a suitor will come. So I don't search for suitors when I buy the stock.

Q: Tell me where you have to be the most patient with the market?
A: I think my greatest patience with the market was in 2001 September to April 2003. That was because I was a lone bull. I wrote an article in the Economic Times in June 2002 that India is on the threshold of a structural secular bull market and people said, he has bought stocks and he is caught and now he is asking us also to come into the cage. People didn’t just believe what I thought or what my opinion was. That was a testing period.

Checkout: Rakesh Jhunjhunwala's Latest Portfolio-September 2008

Q: Did it bring confidence down to its knees for you?
A: You have your conviction and I always staked what I could afford. So say, when markets went down in August 2002, I had no problems there. In spite of my opinion, I did not stake so much that if markets did not go up in the manner that I thought, I would be on the roads. I was well-off absolutely. So you know it was a trying time. But then there was a great dividend; the kind of bull market we had - 3000 to 21000.

Q: And you really rode it didn’t you? There are so many terms people use about you - The young tiger, pin up boy of the bull market, India’s Warren Buffet. Do you find it pointless? Do you find it flattering? How do you take it?
A: I don't know. I have learnt two things about the press and wives. When they say something – don’t react.

Q: Are you the same guy that you were? Are you the same guy you were 15-years back?
A: Why are you asking me? Ask my friends, if I have changed in any way.

Peer View:
N Jayakumar, CEO, Prime Securitie says, “As earthy as it comes, he is as raw as it can be and he is as direct as it can hurt. He is all of this and I think at the end of the day it is not because he is a wealth creator, he is all of this, but he has been that since the time I have known him and he has just remained much of the same.”

Q: Is It tough to be tight with people from the same community - the stock markets? Can you be close to some one who is part of the same?
A: I am close to a lot of people from the stock market. Actually, my best friend and whom I consider my guru, Mr. Radhakrishna Damani - he is from the stock market. Actually he has taught me so much in life and we are the best of friends. We can discuss anything. We go on holidays together. We’ve done so many things together and my other friends - they are from the stock market. Also let me not pretend. I don't have much interest in life other than the stock market.

Did you know:
The name of Rakesh’s organisation is actually a combination of his initials and his wife’s initials. So, Rakesh plus Rekha equals RARE Enterprises. As Rakesh says, she is the only one he likes being answerable to.

Tips on Investment by Rakesh Jhunjhunwala

Rakesh Jhunjhunwala's View On Indian Stock Market

Peer View:

Samir Arora, Helios Capital says, ” I am very impressed with Rakesh not because he has done so well in the stock market which itself is very impressive but to have done that without raising any controversy, without creating enemies, which is a problem in India for successful people.”

Q: You are very much into the individual behind the business. Who runs it and how well it is run. Tell me how carefully you look at that when you look at a business that you wanted to be a part of?
A: I look at the situation. I look at the possible outcomes and then I think what could be the outcome? For example, when I invested in Titan, my thinking was, can Titan become India’s largest specialist retailer? That was the question I asked myself. Will it always occupy a 50-60% share in branded jewellery? Will it always remain a leader in Indian watch industry? Will it enter into other areas of retailing? I asked myself all these questions and the answer I thought was yes.

So this is the basic analysis I did. Then I went to the office - Titan office was like a young advertising agency. So I thought marketing is in their blood. I met their management team including their Managing Director. I was thoroughly impressed by them. I took the decision. I put my life behind it.

Q: What impressed you?
A: Their sheer approach. The Managing Director told me that the task is difficult. But we'll overcome it. We have to suck the capital and increase the profits and that's what they have done. So, when I take a decision there are three-four matters that I consider - opportunity. I am from the investment thought which says nobody can be bigger than the opportunity. Second, I look at the competitive ability. In a capitalist society, you cannot deliver product and make a profit unless you do it in a competitive manner and competitive does not mean the most expensive. Then I look at scalability. Scalability is very important. When I invested in Pantaloons, the biggest idea was can ten stores become five-hundred? It was written behind a Maruti -- when I grow will I be a Mercedes?Great are the challenges of scalability.

Then what I look at is valuation. It’s important what you buy. It is more important what price you buy. Somebody bought Hindustan Lever at an Index of 2900 - the price was Rs 320. When the Index was 7000 - the price was Rs 145. You bought Hindustan Lever - best quality company, best pedigree and everything and I made lot of money by buying United Breweries and McDowell’s at a valuation of Rs 200 crore. There was no corporate governance. People told you you’re down the drain. I made five-times my money in two-years.

Q: Sometimes there are tough lessons to learn as well? Just on the subject of valuations, you would be watching the media space and there are a couple of howlers over there by way of stock performance, for example, MiD DAY (Multimedia) - have there been more tough lessons to learn?
A: Every mistake teaches you a lesson. There is always a risk in investing in midcap stocks because if they succeed, the gains are huge. If they don't succeed and scalability does not come, then the losses are also huge. I don't regret having invested in MiD DAY because I always allocate my assets and I don't do it in a planned manner. I don't put more than a certain percentage of my wealth in incomplete situations. So, I might have made a mistake. The decision is tough, but okay, the good comes with the bad.

Peer View:

Atul Suri, Rare Enterprise says,”I have known Rakeshji for over five-years and I have traded on his behalf. I use technical analyses but not once has he interfered in a single trade of mine and that is very special. For a very accomplished trader to see a different approach in trading and not interfere with him and that really comes from the basic thing I have noticed in him is that he respects other disciplines also to the markets.”

Q: You're very patient, though?
A: What is the choice?

Q: The choice is to book out.
A: Well, its not that I’m not booking out because I’m afraid to take a loss. I’m not booking out because I still think there is reason to believe that things can change.

Q: Were you surprised Rakesh - could anybody have seen where we are right now in January this year?
A: I have made presentations to show in October, that this is going to be an unprecedented fall. And I have reasoned out how much is the lending to subprime, and that this problem cannot be stopped by reducing interest rates. The American bull market has come to an end. It may be a long correction.

I’ve made these presentations in writing. I have them on record. I don't say I foresaw the failure of any particular organisation but I thought it'll be very tough and I didn't rule out in my mind that some organisations can fail.

Q: Is there any question in your mind that we as well are in a bear market?
A: In India?

Q: Yes.
A: What is a bear market, what is a bull market, I don't know. Numerically - surely, since we have broken the last lows that we had in August 2007, we'll have to term it as a bear market. But I don't think the long-term Indian stock bull market has ended. I think it’s in interruption mode.

This bull market is based on two factors. One is economic growth of India, which I think is based on factors that are irreversible, whether democracy, whether skills, whether demographics, whether cultural factors. They are irreversible. I think India’s economic growth will always trend upwards.

Then it is based on the platforms that we have created to attract money into the Indian markets -- the trading strategies, the regulation and the under-exposure of Indians to equity. I will surely say that it’s an interruption. How long? Nobody knows.

Q: You've been cautious, though, Rakesh, right till since last Samvat you've been striking a cautious note?
A: If the Index instead of going from 3,000 to 21,000 had gone from 3,000 to 13,000, and then back to 11,000 - would that not have been a bull market? Then it would have been termed a bull market correction. So at levels, where you saw the participation, the valuations, you saw what was coming in the Western world, you saw the sheer corporate greed in India; you saw the senselessness with which people in India just wanted to buy anything. They were all indicators - so what is wrong in being cautious?

Q: Are you feeling better about all those indicators? Do you think things have cooled down now?
A: I think now we've begun to reverse slowly. Now things will be overdone but that’s the way markets are. As I told you, markets are like the weather. Whether you like it or not, you have to bear it.

Q: There is courage of conviction as well, to be a wealth creator? If someone were to sit you down and ask you, do you think that over the next five years, Indian equities is still the place where you'll see the most significant wealth creation, would you say yes?
A: I would think so, as far as Indian assets are concerned. I don't have much knowledge about global assets. My good friend Mr. Shankar Sharma has said, equity has one quality - it is always an asset which trends upwards. India will remain in a phase of very good economic growth for the next 30 years.

Q: Do you feel we will have to be a lot more patient with it though, this time around?
A: As I told you markets are like women, you have to be patient.

Q: No, but you know we've had a fantastic run. We've had the mother of all bull runs in the past three years.
A: I disagree with you.

Q: You do?
A: The mother of bull runs is still to come

Q: Really?
A: In my opinion, yes. But it could start after one-year. It could start after eighteen-months or after six-months. But the next high and the next bull market will be far bigger and have far more participation and far more excesses than we had in the last one-year.

Peer View:

Ramesh Damani, Member, BSE says, “He is so free with his information. He will willingly share with you his ideas. He will willingly share with you his investment style or his thought processes with the market and there is almost leisurely number of young men or Turtles as we call them on the street who’ve benefited enormously and handsomely from his advice including myself. Earlier in my career he really helped open my eyes, showed me how to dream and allowed me how to take position with the market. So above all, we respect that – the ability to share that information in a business that is so secretive - he is an open book, always willing to help.”

Q: Do you see a lot of people who are part of the stock market, returning back some of the wealth creation? I know that you have a Jhunjhunwala Foundation. You're actually actively part of a lot of NGOs and you donate significantly amounts over there. Is that an important part of being a wealth creator for you - to spread it as well?

A: I cannot forget my late father, who has never asked me ever that what is your wealth? The only thing that he would ask is how much charity have you done this year, and are you going to continue it or not? So, I’m making my own efforts towards some good social cause that I’m supporting. I’ve built a Home for 400 boys in New Bombay. God has given me one daughter and I’m going up 400 children. I cannot give them absolutely what I’ve given my daughter but I’ll send them to English medium schools. I’ll see that they have all the needs of life and I want to bring them to a stage where they can get good jobs and they can contribute back to the Home.I think the greatest wealth is giving the person ability to learn. Then I’m supporting lots of causes with children like girls' education. I'm supporting other small causes for street children. We're building a temple in Lonavala. It is my target in life. This year by budget is Rs 10 crore, next year it should be Rs 12.5 crore and on my twenty-fifth wedding anniversary, which is on February 21, 2012, the gift I want to give my wife is - I’m going to give Rs 500 crore to her foundation.Q: Is this a bigger high than being part of the stock market?A: I don't think it is a high. It is a duty. To donate and to help others are very good attributes.

Urmila Jhunjhunwala, Rakesh Jhunjhunwala’s Mother says,” When he was a little boy, whenever our friends used to come, he used to tell them which shares are good to buy.

Rekha Jhunjhunwala, Rakesh Jhunjhunwala’s Wife, says, “I think the market is only first priority for him. His first wife is only market. When he started, he had nothing, absolutely nothing. Everyone used to say, what will you do in stock market? But he wanted to do that only.”

Q: What's your biggest faith?

A: Myself. I am confident of myself and I don’t rely on anybody.

Q: What's the big dream for Rakesh Jhunjhunwala - the wealth creator because we have had entrepreneurs who say I want my business to go to XYZ level, I want my turnover to double, triple, four-times?

A: I have two-three dreams in life. The first dream is that when I die and only truth of life is death, how many people come to my funeral and say, a good man has died. That is the greatest ambition in my life. Second thing is I want to earn the greatest wealth of the world in the most legitimate manner; practical legitimate manner and leave the largest part of it to charity.

Rapid Fire:

Q: Favourite trade – long or short?

A: Long.

Q: Rank the following companies on a scale of 1 to 10:

Q: Reliance.

A: I would rank it 2.

Q: Infosys

A: 1.

Q: RNRL

A: 9.

Q: Titan.

A: 8.

Q: Answer the following questions with just bullish or bearish:

Q: Crude.

A: Bearish.

Q: Gold.

A: Neutral.

Q: The S&P 500.

A: Bearish.

Q: The Indian bond market.

A: I expect the yields to go down. I am bullish on the bond market.

Q: The Nifty 50

A: I am bullish.

Q: If you weren’t a man of the market, what would you be?

A: I never think about it because being man of the market is so good and exciting.

Q: The worst advice someone has ever given you about the market.

A: You can never earn money in the market. You will go bankrupt.

Q: And the best advice someone has ever given you about the market.

A: Be careful. Be responsible. It’s fire.

Q: You have told me what you want to be remembered as. But what's the one piece of advice you would give someone who wants to get into the stock market?

A: First advice is respect the market. Have an open mind. Know what to stake. Know when to take a loss. Be responsible.

Lessons to be learnt from Lehman Crisis

The stunning collapse of Lehman Brothers and the crisis engulfing Wall Street is having an impact across the world. There could be several more developments over the next few months that might make things more difficult.

For investors, this is an important period to learn from such developments. This will ensure that they are not in a tough situation in the future. Here are five such important lessons.

Every investment has risk:
Typically, during good times, investors tend to ignore the risk element in a paper and focus only on returns. Investors in equities stand to lose their entire money, if the company goes down. The plunging shares prices of Lehman Brothers, Freddie Mac and Fannie Mae to one dollar proves that entire market capitalisations can simply get wiped out. Even debt market products get badly hit on account of the write-down of the debt that they hold. So, a portfolio needs to be as diversified as possible to insulate a person for such situations.

Everything is interlinked: From the price of a stock to an insurance policy, everything is linked. A fall in the price of a particular stock in Europe could mean the overseas mutual fund, where you have invested, is likely to see a fall in its net asset value. Even an insurance policy with a domestic company, which has a foreign partner, can be adversely impacted. The latter implies you will lose your premiums as well as your cover. While such risks cannot be avoided, a portfolio that contains only domestic stocks or an insurance company may sound safe, but there is no guarantee that it will not be impacted adversely.

Diversify, the only mantra for retirement planning:
The result of all the financial planning is gauged by the final corpus that you are able to create for retirement. A sufficiently-big nest will ensure that there are adequate funds during the sunset years. Many people, even those who are in the financial sector, make the basic mistake of putting all their eggs in one basket. Many a time, employees buy shares of their own companies thinking that being an insider they are privy to the most-sensitive information. This could lead to a great risk, if suddenly something were to go wrong.

The solution again is diversification. Having exposure to local equities, international equities, debt, commodities together would be a better idea to create a sound portfolio that will weather tough times. And even within each of these areas, spread the money across investment options.

Treat your career like an investment:
Most people do not pay the right amount of attention to their career or working life. Just like an investment that needs constant monitoring and analysis, there is a need to monitor the career in the same manner. Most people are shocked when they lose their jobs. The better way is to be prepared for the worst. That will help to insulate you from any career related problem. Also, concentration on issues like upgrading skills through training, attending conferences and seminars and networking will help to improve your career. Yes, all these cost money. However, the returns over the years are much more.

Save during good times:
Most importantly, when the earnings are high, save well. Good times are not for ever. Creating a meaningful portfolio or a simple savings corpus would be of great help during bad times. Proper investments will ensure that there are reserves that can be used during emergencies. A sum of Rs 10,000 saved each month for 25 years growing at 15 per cent annually will give rise to a corpus of Rs 2.55 crore (Rs 25.5 million). All this money can be rather useful when the cash flow actually stops
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Gateway Distriparks - Multibagger stock

Gateway Distriparks
Cluster: Cannonball
Recommendation: Buy
Price target: Rs 236
Current market price: Rs 87

Annual report review : Key points

*
Financial year 2008 proved to be a mixed year for GDL as the companys top line saw a strong growth in this period on the back of an excellent volume growth. However, a change in the revenue mix in favour of the new businesses and the lower-margin container freight station (CFS) of Punjab Conware led to a decline in the profitability of the company during the year.

*
Despite challenges, the company expects the growth in the container traffic to continue in FY2009 and is in the process of expanding the capacity at its CFS at Visakhapatnam and setting up a new CFS at Kochi. Its inland container depots (ICDs) at Ludhiana and Faridabad are also expected to become operational in the next couple of years. Besides, the company would continue to aggressively expand its fleet in the rail business and has already placed orders for ten more trains.

*
The net cash flow from operations after working capital adjustments remained healthy for the company at Rs80.75 crore. The working capital management has improved as the net working capital cycle reduced to a negative 17.5 days in FY2008 as against a positive 14.6 days last year. On account of a strong capital expenditure (capex) owing to its entry into new businesses and a decline in its profitability, the return ratios dipped during the year. The return on capital employed (RoCE) dropped by 1.9% to 12.5% while the return on net worth (RoNW) dipped by 1.3% to 11.1% during FY2008. The current debt/equity ratio is comfortable at 0.3x and despite its big capex plans, we expect the ratio to be maintained going forward.

*
Increased volumes in the core business, combined with the deployment of more rails on the export-import (EXIM) route, are expected to strengthen the performance of GDL going forward. At the current levels, the GDL stock is trading at 9.3x FY2010E earnings. We maintain our Buy recommendation on the stock with a price target of Rs236.

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Nagarjuna Construction Company (NCC) - safe money earning investment opportunity

looking at Diversification plans, infrastructure involvement, good order booking size & strong financials of company, it can be one of the safe money earning mid term investment opportunity

Nagarjuna Construction Company (NCC)
Research: Angel Broking
Rating: Buy
CMP: Rs 113

NCC is on track to emerge as a diversified infra heavyweight with SPVs and real estate accounting for 20% of our sum-of-the-parts (SOTP) target price.

It is also diversifying into the metals, oil and gas and power sectors. We believe our new business model allows it to capitalise on the substantial ongoing infrastructure capex in the country. We expect to clock a CAGR of 31% in topline over FY2008-10E.

However, we expect bottomline to witness subdued growth to a mere 16%, over the mentioned period, primarily due to higher interest costs.

At Rs 113, the stock is trading at valuations of 7.7x FY2010E EPS of Rs9.5 post adjusting for the BOT projects and real estate, which is attractive in view of the good order book position (Rs14,500cr) and positive outlook on the infrastructure sector.

We maintain a buy on the stock, with a revised 12-month target price of Rs 154.
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How to invest in share markets?

Investors were shocked by the movements of stock markets in the last week. BSE Sensex moved from the 12,600 levels to 14,100 in just 2 days. Brave hearts who bought at Thursday morning earned 20% returns in just 2 days. That's way stock markets work. It is almost impossible to time the markets exactly. You always need to take some risk in stock markets. So plan your investments, according to your risk profile. It is waste of time to look for bottom. Easy to quote but difficult to implement: "Buy when others are selling and sell when others are buying". Believe in your convictions. I recommended and bought metal stocks for long term at throw away prices in the last week. Why? I believe in the long term story of India and China. Is it possible for these countries to grow without consuming the metals? I have not expected this kind of quick recovery in Sesa Goa and other metal stocks. I bought the company as it is trading at a forward P/E of 3 for FY2010 earnings. So it will at least give 150% returns in 2-3 years. 5 simple tips for stock market investors: 1. Investment is very easy if you approach stock markets with an open mind. Don't clutter your mind with numbers like support, resistance and volumes etc. Those are meant for traders. We are investors then why should we waste time in thinking about them. 2. Invest in good companies with sound business prospects at reasonable valuations and give management sufficient time. Treat every short term fall as an investment opportunity. Sincerely believe in fundamentals. 3. Read every good article on businesses and companies. Listen to every expert. Analyse them in your own way then invest in good stocks. Don't follow any one blindly. I daily spend 6-8 hours in reading and 1-2 hours in listening about stocks and companies. I am passionate about stocks and companies. So I enjoy every moment of reading. 4. Never follow herds and broker tips. Buy good companies when no one is talking about them and sell the scrip when all are buying it. Quarterly results and balance sheets will help you in picking good companies. I bought metal stocks, Bartronics and Tanla Solutions in the last week in spite of steep fall as I believe in their fundamentals and growth prospects. 5. Allocate 25% of money to buy emerging stocks and contra stocks. Those who bought sugar stocks? (Select companies) in 2007 got more than 100% returns in just 10 months. Emerging stocks will take 3-5 years but sometimes give more than 500% returns. Note: I don't recommend investments in penny stocks. Still I bought IKF technologies in significant amount at Rs 6. I did this as an experiment. I will put my money in the company for 6-7 years. I will see whether my experiment will succeed or not. I buy this stock as I am enthused by the plans of the young management of IKF Technologies. Will these young guys make IKF another Indiabulls? Will they succeed in implementing their business ideas? Management plans of IKF Technologies: FY2008 sales: Rs 29 crore. Target sales for FY2016: Rs 3,000 crore. Sectors: Bio Diesels, Wind and Solar Energy, VOIP and BPO services. How to invest in stock markets? Stock market investments= Economics + Mathematics/Statistics + Psychology. These 3 disciplines will play important role in the stock market movements. We need to keep an eye on all the three aspects. 1. Economics: You need to work hard to learn about companies and their business growth prospects. You need to track your companies regularly to know about latest good/bad news, quarterly results, organic/inorganic growth prospects and sector trends etc. You should never forget about fundamentals. Examples: A. Ranbaxy: It is a very good company but FDA allegations are stunning and unbelievable and will have severe consequences. They can change the company future in a dramatic way (negatively). B. RNRL: It rose to 250 without any significant news but now it is not moving much despite trend setting news. Its future over short term will depend on KG Basin court case but it is a must buy stock for long term investors who can hold it for 3-4 years. Anil Ambani has big plans for this company to make it a manufacturing giant. He is planning to invest more than Rs 30,000 crore in this company which may propel this stock to 500 levels within 3-4 years. So I bought RNRL for long term at around Rs 75. If it loses case in the court, stock may fall to below 40 levels in short term; It Anil wins the case, stock may move to above 150 levels. That's why I don't care about stock movement over short term. I believe in the long term story of RNRL. That's the way one should invest in stock markets. Advice to investors: A. Decide yourself whether you are a trader or investor or both. I am an investor. I will never do trading but invest for short term. See the difference. Ex. I first bought Gujarat NRE Coke at 82 in small quantities and bought in moderate quantities at 72. I used my money for these investments as I thought that this stock is a good buy for long term at these prices but it is a risky one for short term. At that time, I am sitting on huge cash from investment offers (I received good investments from 1 NRI and 2 north Indian investors just 4 days back). Suddenly, stock fell to 53 which is a steal. Here is a stock with bonus news, rights offer, good promoters and good quarterly results. Stock was trading at unreasonable valuations. Then I deployed my investment offers money. Why? I need to give just 40% returns in 6 months. Stock needs to reach just 75 to get that money in 6 months. As per fundamentals, I thought that it will easily reach that level by the time of bonus date (1 month). I don't believe in the technical details like moving averages, resistances and supports etc. I believe in fundamentals and psychology of investors only. If my company has good fundamentals and my entry price is reasonable, I don't care about its short term movements. B. Plan your investments for short, medium and long term. Allocate money accordingly. C. "Derivatives are weapons of financial mass destruction" – Warren Buffett. Never look at them as investment vehicles. Derivatives are responsible for most of the stock market suicides. Derivatives are invented by the brokers for the benefit of brokers.   2. Statistics: Go through the balance sheet and spend some time to get a complete idea on the company top and bottom lines. Keep an eye on OPM, debt, ROCE and expenses etc. Compare the company with peers in the same sector. Keep an eye on the stock moment over the last 1 year. Finally arrive at a reasonable price. 3. Psychology: This is the most crucial stage. Never chase hot stocks and broker tips. It is very easy to say that buy when others are selling and sell when others are buying. It is very difficult to implement this strategy. Herd mentality is responsible for most of the losses. This is the reason why good stocks are now trading way below their fundamentals still no one is accumulating them. They will buy them once Sensex crosses 16,000. Harshad Mehta scam, IT bust, Ketan Parekh scam and 2008 collapse etc will occur mainly due to these innocent investors. EX. Take GMR Infra and Bartronics. Both are growing on steroids. Both are sitting on huge orders if you compare their current turnover with orders of their respective companies. GMR Infra is a big company and is trading at a P/E of 100 while Bartronics is a small niche company and is trading at a P/E of 10. I invested in Bartronics while many of my readers are invested in GMR Infra. I am expecting 100% returns from my company (Bartronics needs to touch 300) in 15 months. Is it bad? I will buy more without hesitation on every fall. Single most reason for my decision for not investing in GMR Infra is herds along with high valuations. I may exit Bartronics if all are talking about it. About Moserbaer: Sometimes unexpected things happen. I invested in Moserbaer at 92 as a long term investment but it gave 35% returns in 1 month. I don't know why this stock is rising over short term. That's the way stocks move. Final note: Learn from failures. Be patient. Work hard on research. There are no shortcuts for success in stock markets. Read and analyse the data. Be responsible for your investment decisions. Enjoy every moment in stock markets. I cannot live without these unpredictable markets. I like the challenges posed by stock markets that's why I am in love with stocks and companies. Are you in love with stocks? Never neglect your lover. Two things that will ruin your investments: Fear and Greed. Please try to overcome them. Simple to say but difficult to master. Exerpts: Stockmarketguide ------------------------------------------------------------------------------------------------------------

EVEREST KANTO Cylinders (EKC) - Good long term investment

Everest Kanto Cylinders will be a key beneficiary of the increasing popularity of CNG as a transport fuel both in India and abroad. Long-term mid cap investors can consider the stock for investment

EVEREST KANTO Cylinders (EKC) is India’s largest producer of highpressure seamless cylinders for industrial and automotive applications. With increasing usage of compressed natural gas (CNG) globally as a transport fuel, the demand for seamless cylinders is rising rapidly. Considering EKC’s leading position in the industry and aggressive expansion plans, it is set to emerge as a key beneficiary of this boom. Long-term investors can consider this stock.

BUSINESS:
EKC has five manufacturing facilities located across India, Dubai and China, with a total installed capacity of 0.8 million cylinders per annum (cpa). The company caters to the demand for high-pressure cylinders and CNG cascades in India, as well as Iran, Pakistan, Bangladesh, Thailand, Malaysia, Egypt and CIS countries.

Also Read: Everest Kanto Cylinders : Multibagger to have (Our recommendation when stock was at Rs. 260; Now at 290)

EKC’s Chinese unit commissioned production at its 2,00,000-cpa plant in March ’08. The company, which is expected to achieve 100% capacity utilisation by the year end, is likely to get the regulatory approval to sell its products in China by the end of October. In April ’08, EKC acquired US-based CP Industries for $66 million, which is a world leader in high-pressure jumbo cylinders for storing and transporting industrial gases. This acquisition supplemented EKC’s product portfolio, while providing it the necessary knowhow to produce similar cylinders for the Indian market.

GROWTH DRIVERS:
EKC is setting up a 2,00,000-cpa facility at Gandhidham in Gujarat to manufacture industrial cylinders from billets, as well as another plant to manufacture large-sized jumbo cylinders. Both these projects are expected to be commissioned by December ’08. The company is also
setting up a 3,00,000-cpa plant in the Kandla SEZ in Gujarat, which will be commissioned by June ’09. EKC plans to increase its capacity in China five-fold to 1 million cpa in three years, taking its total cylinder capacity (industrial and CNG) to 2.3 million cpa by FY12 from 0.8 million cpa. Historically, the lack of infrastructure for storing, transporting and dispensing CNG has come in the way of its becoming a popular transport fuel. But the scene is changing rapidly, thanks to the spurt in crude oil prices. Globally, a number of countries are shifting to CNG as a transport fuel, which is cheaper and cleaner, compared to petrol and diesel. India, which has CNG available only in a few cities at present, has chalked out plans to launch city gas distribution (CGD) projects in over 230 cities.

Gail — India’s largest transporter of natural gas — now has a subsidiary to focus on its CGD business and has set up CNG stations along all major highways. At the same time, the availability of natural gas in India is set to double in the next three years. As more natural gas becomes available and CNG infrastructure improves across the country, the demand for CNG vehicles will also rise multifold, which, in turn, will boost demand for CNG cylinders. A similar scenario is unfolding across various other countries. As per the International Association of Natural Gas Vehicles, the number of natural gas vehicles (NGVs) globally has witnessed a CAGR of 30% in the past five years to reach 8.5 million vehicles at present, and is expected to see a CAGR of 20% till ’20 to 65 million vehicles.

FINANCIALS:
EKC’s net profit has seen a CAGR of 90% over the past five years to reach Rs 104 crore in FY08. In the same period, its net sales have recorded a CAGR of 43%. The company’s operating margins have risen consistently over the past five years to touch 30% in the 12-month period ended June ’08. Since EKC has been in an expansion mode, its return on capital employed (RoCE) has halved in the past three years to 18.5%. Operating cash flows have stayed negative in the past two years due to an increase in inventory and debtors. Inventory was high as EKC stocked up on raw materials, expecting their prices to rise. High debtors on balance sheet result from high sales during March due to depreciation benefits available to buyers.

VALUATIONS:
At CMP of Rs 290.6, the scrip is trading at 24.8 times EPS for trailing 12 months. Going forward, we expect the company to post a net profit of Rs 183 crore for FY09 on sales of Rs 872 crore. Thus, based on the estimated EPS for FY09 the P/E works out to 16.3.

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Banco products - Good small cap stock for investment

A de-risked business model, low valuations and strong financials make Banco Products an attractive pick even for conservative small cap investors

BANCO PRODUCTS is one of the leading manufacturers of radiators and gaskets in India. The company supplies these products to the automotive industry. Its clientele includes companies like Maruti Suzuki, Tata Motors, Mahindra & Mahindra (M&M) and Ashok Leyland (ALL).
The company sells around four-fifths of its products to original equipment manufacturers (OEMs) and the remaining is targeted at the replacement market. There has been a slowdown in auto sales due to high interest rates, which has also impacted auto component manufacturers, and Banco is no exception to the slump. However, around onethird of Banco’s sales come from exports, which shows that the domestic auto slowdown will not be as harsh on the company as for other players in the industry.

Approximately 30% of its sales come from the non-auto segment like earth-moving equipment and industrial engines; the management expects this segment to do better and boost the company’s overall financials. This, in fact, de-risks Banco’s business model compared to those of auto manufacturers, which depend entirely on the auto industry.

FINANCIALS:
Banco’s net profit more than doubled in the quarter ended June ’08. Its performance was robust considering the pressures of slowing demand and high raw material prices on the industry. The company’s margins are showing improvement on a constant basis. Its operating margin improved to 17.8% in FY08 from 14.2% in FY06, largely due to the cost-control measures undertaken by the company.

Banco has also been passing on the increase in the price of raw materials to the end customer, which shows its bargaining power. The improvement in margins gave the company access to positive free cash flows in FY08, despite spending Rs 12 crore on capital expenditure. The company has very low debt levels, as it has a debt-equity ratio of only 0.16. This shows that in the event of a slowdown, it will not be burdened by fixed interest costs.

VALUATIONS:
The stock trades at a price-toearnings (P/E) multiple of 4.3 times on a trailing 12 months (TTM) basis. This is perhaps the lowest multiple compared to other auto component manufacturers like Omaxe Auto, Autoline Industries, Talbros Auto and JBM Auto, which compete in the same segment. The valuations seem cheaper considering the return on capital employed (RoCE) of 36.8% in FY08 vis-à-vis an average RoCE of 16% for other players. At the current prices, it has a dividend yield of 4%, which makes it attractive even for defensive investors.

SHREE RENUKA Sugars (SRSL) - Sweeten your portfolio

Shree Renuka Sugars has outperformed its peers in revenue and profit growth. Its focus on non-sugar businesses will give it a further leg-up. The stock’s a good long-term investment / money spinning bet

SHREE RENUKA Sugars (SRSL) is a South India based integrated sugar producer, which is set to emerge as a key beneficiary of the upturn in the sugar industry. The company has twin benefits of being an integrated sugar player and having access to cheaper sugarcane. Aggressive expansion plans, an integrated business model and improving efficiencies make SRSL a good long-term bet for investors.
BUSINESS:
Incorporated in 1995, SRSL is today India’s fifth-largest sugar company with a capacity of 29,000 tonnes of crushing per day (tcd) and is likely to end the year October ’07-September ’08 with sugar production of 6.7 lakh tonnes. It is also India’s largest ethanol producer, which is increasingly being blended with petrol. The company currently has six units in Karnataka and Maharashtra. Nearly 30% of its production capacity is leased, while the rest is owned.
SRSL is an integrated player with distillery capacity of 450 kilolitres per day (kl/day) and power generation capacity of 129 megawatts (mw). The company recently expanded its capacity in the ethanol and power businesses, which should help to increase its volumes and margins. It has also diversified into the sugar refining segment and is setting up two port-based refineries at Haldia and Mundra with capacities of 2,000 tonnes per day (tpd) each and one 2,000 tpd integrated refinery in Karnataka.

The company has also undertaken some acquisitions in the recent past. It acquired Ratnaprabha Sugars — which has a 1,250-tcd sugar plant and a 30 kl/day distillery — for about Rs 24 crore. It has also acquired 67% stake in KBK Engineering, which specialises in distillery construction.

GROWTH FACTORS:
The uptrend in the sugar cycle is likely to benefit SRSL as the company derives most of its revenue from sale of sugar. Further, its location in South India gives it the advantage of lower sugarcane cost than its competitors in the northern states, which have to pay higher prices due to government regulations. SRSL has embarked upon a major expansion plan with an investment plan of more than Rs 500 crore, to be completed in the next two years. This includes plans to increase the crushing capacity at two of its plants from the existing 10,000 tcd to 16,000 tcd by January ’09. Further, its new 2,000 tpd sugar refinery is coming up at Mundra SEZ at a cost of Rs 350 crore by March ’10. At the same time, the company will also augment its power generation capacity to 164 mw by October ’09.

To tap the ethanol market, SRSL has signed a memorandum of understanding (MoU) with Hindustan Petroleum Corp (HPCL) to set up an integrated sugar plant with associated facilities for production of ethanol in Maharashtra. The company’s 450 kl/day new distillery project may come up in FY10. This proposed expansion through the joint venture (JV) will cater to the huge market for ethanol and HPCL’s requirement for 10% blending with petrol.

In the power business, the company will utilise only 45% of the total generated power for captive consumption, while the rest will be sold in the open market. Thus, the power business alone can generate revenues of Rs 100 crore annually. This is assuming 35% capacity utilisation corresponding to the crushing season and sale price of Rs 4/unit.

To fund these expansion plans, SRSL plans to raise funds by issuing 2 crore warrants to promoters at a conversion price of Rs 114 per share (to be convertible in 18 months from the date of issue). Additionally, SRSL is considering issuance of American depositary receipts (ADRs) or gross depositary receipts (GDRs) worth Rs 900 crore.

FINANCIALS:
The company’s net sales have witnessed a compounded annual growth rate (CAGR) of 63% since ’04 to reach Rs 980 crore in the year ended September ’07, on a consolidated basis. Its profit has grown at a faster pace of 89% to touch Rs 83 crore in FY07. Further, it reported topline growth of 174% in the quarter ended June ’08 to Rs 701 crore, thanks to higher sugar trading. However, the company’s operating profit margins dipped by 980 basis points to 10% on the back of thin margins in the sugar trading business.
The reducing dependence on the sugar business has helped the company to outperform its peers in both revenue and profit growth. SRSL is increasingly focusing on distilleries and power generation.

VALUATIONS:
The current boom in sugar prices is expected to improve margins for the company’s sugar business. At the same time, SRSL’s increasing focus on the non-sugar businesses such as power, ethanol and distilleries will act as a catalyst for its growth. Although the share of the non-sugar businesses is currently small, these segments are likely to improve their contribution to the company’s topline and reduce the fluctuation in its revenues, arising due to sugar price fluctuation.

At the current market price of Rs 108, the scrip trades at 26 times its profit for the past 12 months on a consolidated basis. We expect the company to close FY08 with a profit of Rs 116 crore on a consolidated basis, and post a profit of Rs 162 crore in FY09. SRSL’s current market price is around 17.2 times the estimated forward earnings for FY09.

CANDY FLOSS
Shree Renuka Sugars has twin benefits of being an integrated sugar player and having access to cheaper sugarcane It is India’s fifth-largest sugar company with a capacity of 29,000 tonnes of crushing per day The company is likely to end the year Oct ’07-Sept ’08 with sugar production of 6.7 lakh tonnes SRSL is India’s largest ethanol producer It is also increasingly focusing on distilleries and power generation Post-expansion, the power business alone can generate revenues of Rs 100 cr p.a. The company has diversified into the sugar refining segment and is setting up two port-based refineries at Haldia and Mundra SRSL has signed an MoU with HPCL to set up an integrated sugar plant with associated facilities for production of ethanol in Maharashtra The uptrend in the sugar cycle is likely to benefit SRSL as it derives most of its revenue from sale of sugar The company reported topline growth of 174% in the quarter ended June ’08 to Rs 701 crore

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