Balmer Lawrie - Small Cap Growth With High Dividend Yielding Stock

THE Rs 730-crore Balmer Lawrie (BLL), a staterun unit with mini-ratna status, is a mid-cap with long-term promise. Headquartered in Kolkata, BLL is a debt-free company with rising dividends every year. It has a healthy record of sales and profits growth, which makes it an ideal investment candidate for long-term investors.

Business:
BLL operates in eight distinct strategic business units including industrial packaging, greases & lubricants, logistics services, engineering & technology, logistics infrastructure, travels & tours, leather chemicals and tea.

The company is India’s largest producer of metal drums used in packaging chemicals and lubricants. Travel & tours services bring in the major share of revenues, while the logistics services account for the highest profits. The company has a wholly-owned subsidiary in the UK carrying out logistics business.

Balmer Lawrie Investments (BLIL), which is 59.67% owned by the government of India, holds a 65.7% stake in the company. It was created in 2001 with a view to divest the government’s stake in Balmer Lawrie. The new UPA government, which is considering selling stakes in profitmaking PSUs, may look at BLL as a divestment candidate as it is a non-core, but profitable, public sector firm.

Growth Drivers:
Balmer Lawrie is a debt-free, steadily growing company with strong presence in all the industries in which it operates. The company has plans to grow inorganically by acquisitions in the areas of travels & tours and logistics and has a budget of Rs 100 crore for this.

During the past five years, the company has grown at a cumulative annual growth rate of 12.6% at topline to Rs 2,007 crore for the year ended March 2009, with the PAT growing at a CAGR of 28.8%. BLL has a strong track record of paying dividends, and during the period its dividend payout has increased at a CAGR of 41.7%

Financials:
The global financial slowdown hasn’t left Balmer Lawrie untouched. Its operating performance stagnated in FY09 and the net profit was propped up by a spurt in nonoperative income. Revenues went up 13.7% in FY09 at Rs 2,007 crore and profits grew by 9.3% to bring in Rs 109 crore.

The services sector did well during the year with travels and tours posting 19% growth and logistics services growing at 21%. Both these businesses posted healthy improvement in profits as against a fall in profit for manufacturing businesses such as industrial packaging and lubricants. With established businesses and very low annual capex, the company has maintained its return on employed capital to beyond 40% for last four years.

Market Cap 756.90
EPS (TTM) 62.39
P/E 7.45 * P/C 6.75
* Book Value 261.85
Price/Book 1.77
Div(%) 170.00
Div Yield(%) 3.66
Market Lot 1.00
Face Value 10.00
Industry P/E 20.03

Valuations:
The company’s current market capitalization of Rs 728.5 crore is just 6.7 times its annual profit of the year ended March 2009, out of which Rs 150 crore is represented by cash equivalent. The dividend yield works out to 4.5%. We expect the company to post an EPS of Rs 77 in FY10, which discounts the current market price by 5.7 times.

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Federal bank - Mid Cap Banking Stock To Buy For Long Term Investing

Federal Bank is the country’s fourth-largest private bank by balance sheet size. This oldgeneration private bank was set up at Travancore (modern-day Kerala) in 1931, six decades before the bigger newgeneration private banks came up post-reforms. A major chunk of its business is concentrated in the south and Kerala contributes almost half to its loan book.

The bank has 624 branches in 24 states and is now increasing its presence in neighbouring states like Tamil Nadu, Andhra Pradesh and Karnataka. A market capitalisation of just over Rs 4,000 crore and a balancesheet size of Rs 39,000 crore make Federal Bank one of the smaller banks in the country, but it ranks high on many key parameters. The bank’s net interest margin (NIM) — which is a measure of spread between the cost of borrowing and yield on loans — was 4.1% in 2008-09, the highest reported by a small bank. Only Kotak Mahindra Bank and HDFC Bank fare better on this count. In fact, the bank has maintained an NIM of about 3.5% for seven years now.

Federal Bank has managed to reduce its non-performing assets (NPA) to one of the lowest within a decade. Its net NPAs formed 0.3% of net advances in 2008-09, bettered by only three other banks. In contrast, the bank was struggling with higher NPAs at the start of this decade as these unrecovered loans formed 10% of its advances in 2000-01.

A dose of capital infusion in 2007-08 improved the bank’s capital adequacy ratio (CAR) to 20.1%. As per the Reserve Bank of India norms, banks have to maintain a minimum CAR of 9%. This shows that Federal Bank has a sufficient capital base. However, the capital infusion has resulted in dilution of return on equity (RoE), which fell from 21.3% in 2006-07 to 12.1% in 2008-09. At the current levels of CAR, the bank does not need to raise capital like other banks and no further dilution is expected in near future. Federal Bank’s net profit has risen at an average rate of 30% in the last three financial years, making it one of the fast-growing banks in the country. A diversified loans portfolio places the bank in a better position to tackle economic slowdown compared to its peers. Loans to corporate, retail and small and medium enterprises segments comprised 37%, 31% and 32% of the total loan portfolio in 2008-09. In the last five years, the bank has increased the share of retail loans in total lending. In 2003-04, retail loans formed only 19% of the loan book.

In a country that continues to face a shortage of housing units, Federal Bank’s strategy of focusing on home loans can not be better timed. In FY 2009 housing loans formed 59% of retail loan book. In fact, secured lending like mortgages helps maintain high asset quality.

The bank also holds 26% stake in life insurance company, which is a joint venture with IDBI Bank and Fortis Insurance Co.

Beta 0.8
Institutional Holding 70.1%
Dividend Yield 1.6%
P/E 8.4
M-Cap Rs 4143 cr
CMP Rs 245.7

Market Cap 4,357.32
EPS (TTM) 29.28
P/E 8.71
P/C 8.71
* Book Value 258.55
Price/Book 0.99
Div(%) 40.00
Div Yield(%) 1.57
Market Lot 1.00
Face Value 10.00
Industry P/E 20.80

Valuation:
Federal Bank is trading at a price-to-earnings multiple (P/E) of 8.4 and a price-to-book value (P/BV) of less than one. The bank has always traded at a huge discount to other private banks because of its chequered history of high NPAs.

In terms of P/BV, the bank is trading at the levels at which many other public sector banks are trading. However, Federal Bank is more efficient than its state-owned rivals. Therefore, there is a scope of upside and an investor looking at longterm gains can invest in this stock.
Source: EconomicTimes Investor's Guide

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Small Cap Stock Investigation - Vakrangee Softwares Limited - MoneyLife Investigates Stock Crash..

What is behind the recent price and profit crash of Vakrangee and now the huge trading volumes in the counter? Checkout this MoneyLIFE Investigation report. Try making a guess if there could be a good opportunity to buy stocks and make money in this counter.

Domestic software development is turning out to be a lucrative area, especially the computerisation of government processes and records, even though the margins are much lower than those in offshore software development. These projects are attracting large software companies, such as Tata Consultancy Services (TCS), HCL and Wipro, among others. But it is a rather murky business, especially getting state government contracts. One needs to be able to cut through bureaucratic red tape and ‘take care’ of government officials and their political masters. Since large software companies don’t want to soil their hands, a set of smaller, third-tier companies seem willing to step forward as their fronts. They then walk away with e-governance contracts for a variety of smart cards, e-licences, registration cards, etc.

According to some market-watchers, Mumbai-based Vakrangee Softwares Limited (VSL) is skilled at handling things at the local level, making it an invaluable partner for large software companies. Set up in 1990, VSL has quickly become a force to reckon with in the e-governance sector. It provides specific BPO operations for government departments and private clients and is already working with major industry players like TCS/CMS, C-DAC, Godrej & Boyce and many more. Its experience in executing government contracts can be judged from the fact that it has handled manuscripts of around 75,000 polling booths of Maharashtra and the voters’ database of the village panchayats in Uttar Pradesh, India’s most populous state. Though primarily focused on e-governance projects, VSL is gradually moving towards the private sector and has bagged contracts from companies like ICICI Pru and Airtel. What has been its performance in recent times?

VSL had been reporting phenomenal numbers until the December 2008 quarter. Its operational income has been rising by an average 69% over the past five quarters while its operating profit was up 65% over the same period. Even its margins have been stupendous, averaging a healthy 43% over the past five quarters. The company ended FY08 with a 92% rise in operational income while operating profit nearly doubled to Rs101.66 crore from Rs51.69 crore in FY07. Its net profit had zoomed from Rs24.39 crore in FY07 to Rs49.96 crore in FY08. These phenomenal numbers probably helped it maintain a decent stock price, despite a bearish market sentiment until August 2008. Thereafter, the price went into a long decline, dropping all the way from Rs216 to Rs21. What happened to the company which was performing so well until then? The problem began in the December quarter. Its operational income for the quarter-ended December 2008 was up a mere 9% over the corresponding year-ago quarter, while operating profit actually declined 18% over the same previous period. Worse, its net profit was down as much as 70% to Rs4.03 crore from Rs13.53 crore during the corresponding previous period. Can the profits of a software company nosedive so dramatically?

A market insider tells us that the pathetic performance of its stock price between August 2008 and February 2009 was due to the souring of its relationship with one of its largest partners, a blue-chip IT company that had bagged a big passport computerisation contract from the Government of India (GoI). The order was worth Rs1,500 crore and it was supposed to sub-contract a part of it to Vakrangee because of its skill in ‘bagging’ government contracts. A financial website had even reported that the two companies had won the bid together. Vakrangee was probably in on the deal because of the IT company’s unwillingness to handle the “sundry expenses” involved in bagging government projects. The understanding, says our source, was that Vakrangee would recover what it spent by charging appropriate margins on the sub-contracted order.

Vakrangee reportedly spent almost Rs12 crore to Rs14 crore to bag the order, but it needed to invest another Rs150 crore for the necessary infrastructure to execute the contract. It was to raise this money through the market by placing its shares at around Rs250 each. But the market tanked and it was unable to do so. It was also reluctant to raise the funds through debt. Vakrangee’s failure to create infrastructure apparently led to the IT major cancelling the contract to Vakrangee.

MoneyLIFE wrote to the IT company through its PR firm, and specifically asked about Vakrangee’s role in ‘facilitating’ the bid. It flatly denied having “selected Vakrangee as a subcontractor for the Passport project” and claimed that our “subsequent questions” were not relevant. Since this article is not about the IT major, but about Vakrangee, we have kept its name out of the report. The story does not end there. According to our source, Vakrangee’s promoters had allegedly tried to ramp up the stock by acquiring eight lakh shares in the price range of Rs150–Rs180 in benami transactions. The shares were acquired through margin funding. Far from lifting the stock price, the shares declined further leading to margin calls from the broker, who finally sold the shares. This led to a loss of Rs8 crore–Rs10 crore. The stock market losses as well as the “expenses” incurred on the failed passport contract caused the promoters to suffer a loss of Rs22 crore–Rs25 crore in a very short period.

This did not worry the promoters. Instead, they saw the depressed stock price as an opportunity to shore up their holding from the current 18% to around 40%–50%. In line with this plan, the financial performance of the company nosedived in the third quarter of 2008. It also helped the company reduce its tax liability. Interestingly, while the stock prices tumbled, trading volumes in the counter have surged. Our sources attribute this to the promoters mopping up shares, not necessarily in their own name. Sources expect that the financial performance will improve dramatically once the “interested parties” have mopped up substantial shares. This is expected to help the promoters recover losses on their stock gamble and the failed contract.

"We cannot divulge any information"
When contacted by us, VSL denied many of our queries. VSL’s president, corporate affairs, Prem Meiwal, responded as follows to the various issues:

ML: Was the passport computerisation project to be sub-contracted to Vakrangee Softwares? If so, did the contract go through or not? If not, why wasn’t it offered to Vakrangee?
Meiwal: We have a strict Non-Disclosure Agreement (NDA); hence, we cannot divulge any information.

ML: What were the margins at which Vakrangee expected to work for this contract? Were they within the normal limits?
Meiwal: Our policy about press communication does not allow us to make public our internal decision and working.

ML: Was Vakrangee to pay amounts to government officials and politicians to secure the contract and later on recoup the money through fatter margins?
Meiwal: We are strictly following the code of conduct laid down by the company which does not allow us to adopt such kind of practices.

ML: Market rumours have it that Rs12 crore-Rs14 crore was paid in cash to facilitate the contract. Is this true?
Meiwal: These are baseless; we follow the code of conduct strictly.

ML: How much money did Vakrangee need for creating infrastructure to implement the passport project?
Meiwal: Our NDA with vendors does not allow us to disclose this type of information.

ML: Did the promoters of Vakrangee buy shares under margin funding and, if so, at what price?
Meiwal: Promoters of Vakrangee have not bought any shares under margin funding from any of the brokers.

ML: Were these shares sold off on margin calls at a loss? How much of loss was incurred by promoters on the same?
Meiwal: The question does not arise in view of the above.

ML: Why is Vakrangee’s Q3 PAT at such a low level of Rs4 crore from Rs19 crore in the preceding quarter?
Meiwal: The nature of our business is such that quarter-to-quarter results are not comparable.
ML: Despite a fall in the PAT, why are volumes at the counter so huge?
Meiwal: These are all market dynamics; we are in no way concerned with the volume of our scrip on bourses.
Source: MoneyLife

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Shreyans Industries Limited - Small Cap Stock To Buy With Huge Upside Potential

This year’s cash flow of Shreyans Industries is more than its market-cap! have a look at Shreyans Industries Limited (SIL), a stock which looks extremely attractive at its current valuations & decide wheather it's a stock to buy or not.

India currently consumes 8.50 million tonnes of paper; this is expected to go up to 10 million tonnes by 2010 and 15 million tonnes by 2015, a growth driven by increased spending on education, higher literacy levels, improved standards of living, an expanding retail sector and increase in packaging and advertise-ment expenditure. Paper manufacturing is, however, a very capital-intensive business with a long gestation period. This gives the already established units an upper hand when the economy emerges from a slowdown.

SIL has a capacity to manufacture 60,000 tonnes of writing & printing paper at its two facilities, Shreyans Papers and Shree Rishabh Paper. It also manufactures soda ash but has only a small capacity for this.

SIL is basically an agro-based company. Its main raw material is straw/grass. Its financial performance has been improving consistently over the past three years. In FY08, it produced a total of 61,122 tonnes of paper as against 58,954 tonnes manufactured in the preceding year. Its turnover was up 11% at Rs238.64 crore as against Rs214.33 crore during the preceding year. Better realisations in paper as well as soda ash have improved its margins and profitability. It reported a 7% rise in its operating profit during FY08. A marginal increase in depreciation and 7% saving in interest cost enabled it to record 51% increase in its profit before tax. Despite a one-time provision of Rs5.80 crore (amount paid to banks for debt restructuring), net profit was up 82%. The company has commissioned a 3.5MW co-generation plant at one of its plants last fiscal. Its earning per share for FY08 was Rs10.88 and, since it carries forward its previous losses, its tax provision is limited to only the deferred taxes that it has to pay. The result was Rs23.90 crore of cash profits translating into cash EPS (earning per share) of Rs21.60.

Now look at its recent performance. For the first nine months of the current year, its sales were up 11% compared with the corresponding year-ago period while its profit before tax shot up 41% to Rs21.32 crore. Its profit after tax was up 52% to Rs13.22 crore from Rs8.67 crore during the corresponding period last year. In fact, its nine-month profit for the current fiscal has already surpassed its full-year profit for the last year.

The company is setting up another 5MW co-generation power plant (estimated cost: Rs25 crore) at its second factory. This plant, likely to be commissioned by April 2009, is expected to bring about significant energy savings. Its power plant is also entitled to carbon credits. It has recently issued 6.90 lakh warrants to promoters and 20.60 lakh warrants to non-promoters which will be converted into equity shares @ Rs32.50 in FY10.

What can you expect from this company? For FY09, Shreyans is likely to achieve a turnover of Rs270 crore and earn a net profit of Rs18.50 crore translating into an EPS of Rs16.70. The June quarter is expected to be even better as it would save on its power costs significantly when its second co-generation plant gets commissioned and the resultant carbon credits that it would begin to earn by then.

Market Cap 35.38
EPS (TTM) 16.36
P/E 1.95
P/C 1.42
* Book Value 42.47
Price/Book 0.75
Div(%) 0.00 Div Yield(%) -
Market Lot 1.00
Face Value 10.00
Industry P/E 6.28

According to our estimates, the company could register a 20% growth in profit in FY10. Currently trading at Rs18, the stock is priced at just 1.50 times its FY09(E) EPS making it extremely attractive even under the present market conditions. Its market-cap currently stands at Rs20.04 crore – a level which is less than its annual cash profit! This means that the stock is currently trading at less than one time its FY09 cash EPS. An excellent low-priced stock to buy for decent appreciation in the medium term.
Source: MoneyLife

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Hidden Gem - Gruh Finance (GFL) - Mid Cap Stock To Buy With Growth Potential

One of the unsung companies in the financial services sector is Gruh Finance (GFL), set up by HDFC to replicate its home financing business model in semiurban and rural areas. GFL provides long-term finance to individuals for construction, purchase, extension, repair and renovation of homes.

GFL also offers loans for purchase of non-residential properties like office premises and shops. HDFC holds a 61.49% stake in the company. GFL has been a major housing finance company operating in the semi-urban and rural areas of Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Karnataka, Chhattisgarh and Tamil Nadu. It has dominated this market where, for years, aggressive private sector banks had not penetrated to tap the hidden demand. The market for housing loans in semi-urban areas was being serviced by a few public sector banks, cooperative banks and LIC Housing Finance. Mahindra & Mahindra Financial Services also plans to offer various kinds of home loans to its customers of auto loans in this market. But GFL has specialised in this business and is well-entrenched with various innovative products and flexible repayment options to suit consumers.

GFL complements HDFC’s operations. It has 89 branches – a majority of these in areas where HDFC does not have a presence. The main strategy of the company is to penetrate into places that are avoided by large housing finance companies. Its main aim is to establish a presence first at the district headquarters and, later, enter the adjoining areas after gathering enough information about the local markets.

GFL’s financial record has been as fantastic as its business model. Between the years ended March 2005 and March 2008, the company has enjoyed a rise in its net profit by an average 37%. Even in a difficult quarter, like March 2009, it has posted 53% rise in its operating income and 41% rise in its operating profits over the corresponding year-ago period. In fact, GFL’s operating profit jumped from Rs14.18 crore in December 2008 to Rs30.76 crore in the March 2009 quarter. GFL has registered a growth of 18% in loan assets during 2008-09, rising from Rs1,769.61 crore for FY08 to Rs2,085.61 crore for FY09. Over the past five quarters, the company has posted an average growth of 43% in revenues and 28% in profits. Its RoE is 23% and, at the current market price, the PE ratio is a low 8.26. The company has been posting an amazing profit margin of 25% over the past five quarters.

Currently trading at Rs121, its marketcap is 1.45 times its five-quarter average annualised sales and 5.77 times its operating profit. But the price trend of this stock has not been as sound as its financials. The stock price is driven more by the market than its fundamentals. When the Sensex fell 59% (from December 2007 up to 6 March 2009), GFL declined 60%. However, since the Sensex bounced back in mid-March 2009, GFL has been on an uptrend and its excellent March-quarter results have pushed the stock up sharply.

Market Cap 702.74
EPS (TTM) 14.51
P/E 13.98
P/C 13.71
Book Value 63.74
Price/Book 3.18
Div(%) 48.00
Div Yield(%) 2.37
Market Lot 1.00
Face Value 10.00
Industry P/E 25.40

GFL’s growth prospects are great because the government’s policies, bumper farm production, migration of rural folk to urban areas and improved communications favour a faster and higher transfer of wealth to semi-urban and rural areas. There is no reason why, with excellent management, access to low-cost funds and steady business, GFL cannot sustain its healthy profit growth. Buy stocks on declines.

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Dish TV - Can This Be A Good Investment?

Dish TV has more than doubled since last November. It seems to be a blind bet. This stock is risky.

There are 13 million TV viewers in the country who are served by cable and direct-to-home (DTH) services. DTH providers hope to convert a lot of them to their technology platform. Dish TV India is one of them. DTH offers superior viewing pleasure and for long it was assumed to be a growth business. Dish TV is one of the five DTH service providers and has 75 lakh customers; it wants to add another 25 lakh in FY10. The revenue is expected to grow to Rs1,000 crore by then. Dish TV, which currently offers 240 channels, plans to increase that number to 400 by the end of this fiscal.

The expansion story sounds attractive but the facts on the ground are different. Well, growth in DTH services has declined almost 35% in Q4 2009 compared to the same year-ago quarter. Moreover, Dish TV has not made even a paisa of operating profit in the past eight quarters. The huge operating expenses of this business will continue to affect profitability. Transponder lease, licence fees, uplink charges, programming and other costs are very high. In the early days of DTH business, the players, including Dish TV, had kept the entry price low to wean away cable TV customers. However, DTH is not yet a superior value proposition, despite low entry prices.

Cable still dominates. Currently, Dish TV has three monthly plans -- @ Rs113, Rs190 and Rs283 (plus taxes). Such low charges should have led to a massive subscriber base to ensure a healthy business. However, there has been an alarming decline in the rate of customer addition by the sector in the Q4 2009. If low customer addition is the result of the economic slowdown affecting purchase decisions of DTH Vs cable, DTH cannot be a growth story and Dish TV’s 128% gain in the stock since November last year looks speculative.
Source: MoneyLife

Few facts:
** Cable operators are not sitting quite just looking at their business going away from them. At many places cable operators have reduced their monthly fees to such lows that even DTH operators can not fight with them. At my new home in Mumbai suburb, cable operator is offering subscription at Rs. 50 per month (Yes Rs. FIFTY only). How? Our builder have provided us with the common cable system. So cable operator just needs to provide an amplifier with one high frequency connection instead of laying down the cables for every flat. Calrity is good enough, signal is not distorted at all. Who needs to buy a DTH paying few thousand bucks for system and installation with restricted chanel at lower end recharges. If you observe carefully, you get very few channels in lower end packages and all channel packages would cost you more than Rs. 300 in any DTH.

Another big competitor for DTH services is IP TV. Internet Protocol TeleVision. IP TV service is distributed along with broadband internet connections. Companies like MTNL and BSNL have already started providing this service through their vast existing distribution network. Such services are on the way from other two big players Reliance and AIRTEL.

Considering this competition, DTH companies may fail to live upto expectated growth that is being anticipated from investors.

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Manugraph India - Value Stock But Lacking Growth Momentum

The printing industry is booming but the leading printing machinery manufacturer, and the only such company to be listed, is not doing well. Manugraph India (MIL) is a supplier to all leading print media like Times of India, The Hindu, Indian Express etc.

Manugraph is a cheap stock but it must show some growth momentum before you buy the stock.

Media companies are expanding and the strong economic growth is creating more demand for printing. As a proxy to this growth, MIL should have been doing well and, being the only listed company in this space, its stock should have been in demand. But its fundamentals are surprisingly poor.

MIL’s sales grew by an average 11% over the past five quarters, but its operating profit growth has been poor. Operating profits have declined by an average 18% over the past five quarters even though its average OPM was 19%. Does the stock have a future? Being the only supplier of printing presses in India gives MIL an edge, but technologically it lags behind the better imported machinery (faster, lesser wastage) being favoured by large media groups. MIL has also been looking at inorganic growth through acquisitions. Last year, it bought Dauphin Graphics Machines Inc, a US-based company, to get a foothold in the US market and expand its global reach.

Market Cap 143.71
EPS (TTM) 11.80
P/E 4.00
P/C 3.18
* Book Value 80.27
Price/Book 0.59
Div(%) 200.00
Div Yield(%) 8.47
Market Lot 1.00
Face Value 2.00
Industry P/E 14.07

A slowdown in the US market has been hampering its growth there, but MIL’s management is optimistic about the future and believes that the benefits of the acquisition will accrue in FY08. Rising material cost has been eating into its margins and a rising wage bill (it recently negotiated and signed a new wage agreement effective April 2007) is reducing margins further. The stock is reasonably valued with its market-cap discounting its five-quarter average sales (annualised) by 1.02 times and its operating profit by 5.46 times. It is a value stock but you can buy only after it shows some growth momentum.

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Ingersoll-Rand India Ltd - Value Stock To Buy From Infrastructure Sector

The booming Indian economy has provided companies in various sectors with a huge growth opportunity. Engineering companies, especially those associated with infrastructure development, have done extremely well, thanks to the massive government thrust on this sector.

Why is this engineering scrip languishing?

The capital goods and engineering sector has been one of the biggest gainers in the bull run.

One company from the engineering sector which has been beaten down, even as stocks of other companies in the same sector scale new all-time highs, is Ingersoll-Rand India Ltd. Part of the Ingersoll-Rand Company, US, this engineering outfit has been present in India since 1921. Its recent performance has been impressive; revenues have risen by an average 22% over the past five quarters while its operating profit grew by 264%, although operating margin is thin at 9%. Yet the stock has not been in the spotlight during this humungous bull run.

Market Cap 935.20
EPS (TTM) 21.57
P/E 13.73
P/C 12.94
Book Value 243.78
Price/Book 1.22
Div(%) 60.00
Div Yield(%) 2.03
Market Lot 1.00
Face Value 10.00
Industry P/E 14.24

One reason for this is the concentrated shareholding of the company. Some 74% of its equity is held by the parent company; another 6% is held by financial institutions. The remaining shareholders are probably waiting for a buy-back which may be on the cards.

Or are we witnessing an accumulation at lower levels before the stock takes off? Either way, this stock is reasonably valued with a market-cap to sales ratio of 1.67 and a market-cap to operating profit ratio of 19.10. The parent company’s stock price has been zooming and has touched a 52-week high in the US.

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Stock Market Trading - How To Trade Stocks? 5 Rules For Short-Term Trading

Want to be a full-time trader? Here are some principles to bear in mind before you take the plunge.

We are witnessing tremendous public interest in equity as investment and a tool for wealth creation. However, trading as a full-time profession is relatively rare. As interest in and knowledge about markets spreads, we will see the growth of a community that will want to trade for a living, as has happened in the West. What is the key to success as a trader? In trading, as in any other field, knowledge is essential to success. An important component of that knowledge is mental preparation. As an amateur investor climbs the learning curve, losses are inevitable, but even more than the initial accumulated capital loss, what the rookie trader’s undoing is the blow to his psyche. It prevents him from building up his confidence and in most cases, results in his quitting. At this point, he will tend to justify his defeatist behaviour by blaming the market itself. And once the damage is done, very rarely can an amateur find his feet again.

People living on trading typically tend to be short-term traders. Short-term trading is essentially trading on price swings in a short time horizon, lasting anywhere between 2-10 days, sometimes a bit more.

It must be recognised at the outset that short-term trading is an altogether different game from general investment practices, and one that has to be played by an entirely different set of rules. Each of these principles is equally important and following one to the exclusion of another will not result in success. Money Management.

The first rule for making money through short-term trading is to avoid losing money.
One must calculate beforehand the amount of money one is willing to commit and lose in each trade. This helps to take some of the psychol-ogical pressure off, and keeps one from operating out of greed or fear. Losing too much means having to earn much more just to break even. Also, once the stop-loss level is reached, the trader must be willing to exit. Following this one rule itself will result in lesser depletion of capital over the long term. To sit back when the trade goes against one, in the hope that things will come back in one’s favour, is the road to ruin. This can be avoided by a mechanical system of stop loss.

What is the trading time-horizon?
This is the most important aspect of success in this game though it may seem like a basic question to answer. It is extremely difficult for any trader to answer this correctly because it requires a thorough and correct psycho-logical evaluation of oneself. Investment with longer term time horizons imparts a comfort level, which is absent in short-term trading. In longer- term trading one can sit back and wait for the stock to come back above one’s purchase price, should it have nosedived below it. Short-term trading gives traders no such margins for errors, and a small series of losses can result in substantial loss of capital. It will make sense for a trader to carry out a few short-term trades and see whether he is comfortable if the trade goes against him and how he reacts in that situation - most notably, whether he comforts himself by conveniently stretching his time-horizon.

Trading plan or a system.
Success depends on developing a plan - and following it ruthlessly. For this, the trader will need to have full confidence in the reasonable efficacy of his chosen method. He will have to repeatedly carry out back-tests on stock charts. He will also have to carry out the tests in all possible market conditions - rising, falling and range-bound, and he will have to continue doing so until he has the confidence that he can put his money on the line based on this system. Sometimes he will suffer a series of losses. He must be prepared to ride it out, confident that his system will ultimately show result. If he changes his mind frequently or in the middle of trades, he is setting himself up for certain defeat. The more mechanical he gets in his trading, the more his chances of success. It would be a good idea for the short-term trader to specialise in trading particular types of patterns. For example, suppose he is trading the market when it is essentially in a long-term uptrend. In this case, even though he is trading short-term, it is generally a good idea to trade in the direction of the larger trend. In doing this, he greatly increases his chances of success. For example, Cadila Healthcare has recently broken out of a symmetrical triangle, on the upside. It would have been most prudent to wait for Cadila to form the entire pattern and set itself up for an upside breakout, in the direction of the major trend, before pulling the trigger. One would have lost some of the initial move, but it would have been worth it.
Source: MoneyLife

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Infrastructure Sector - Best Sector To Invest For Next Atleast 10 Years

I was reading through a news article on one site about Mutual funds buying stocks of Infrastructure companies in India. Here are my thoughts on the same and the original news article as well.

Infrastructure as a whole is big story in India looking at the growth trajectory country has been experiencing in past few years. To sustain this growth and even achieve higher numbers, what India now needs is the best of infrastructure that we can have. And the government formed by Congress in Delhi knows it well. It is obvious that country is going to witness increasing number of infrastructure projects being announced for execution in next few years to build world class infrastructure in India for sustained growth and to attract more and more foreign investments. Have you seen those metro rails being built? Or the expressways being built? Or the flyover network Or New national highways Or New Airport terminals? If Yes, You have seen the growth in infrastructure sector. Question is, if you should become the part of this growth and ride the infrastructure story to mint money from your investments in next few years!

Infrastructure shares are hot commodities to buy for mutual funds in India after the recent elections, and their attraction is only set to grow as the new government lays out plans to improve the country's overburdened roads and bridges in next month's budget.

Fund managers are hoping the new government will bolster spending on infrastructure, remove policy bottlenecks by easing land acquisition rules and environmental clearances, amend labour laws and simplify procedures for project approvals.

Fund managers are also betting on a pick-up in earnings for such firms later this year, helped by lower interest rates and commodity prices and a revival in economic growth.

"Basically the opportunity is very big," said Sankaran Naren, equity chief investment officer at ICICI Prudential. All that is required is for everything to be lubricated properly. I am interested in clarity," Naren, who manages about $780 million in India's biggest infrastructure mutual fund, added.

Engineering firms Bharat Heavy Electricals, Larsen & Toubro, Crompton Greaves and Reliance Infrastructure, were among the 20 most popular stocks for domestic fund managers in May.

The shopping list also included construction firms Jaiprakash Associates and Punj Lloyd, as funds sought exposure to sectors such as power and construction.

India's biggest fund firm, Reliance Capital, is raising money for a new infrastructure offering, while rival Tata Mutual Fund sought approval this month to launch its fourth such fund.

SBI Funds Management, French insurer AXA, Sundaram BNP Paribas, Franklin Templeton and Deutsche Bank have also sought approval for infrastructure funds in June.

Fund managers are excited by the prospects for reforms after India gave the Congress-led coalition the most decisive election mandate in two decades, freeing it from the support of the Left and communist parties, which had stalled planned reforms.

India estimates it needs $500 billion over the five years to 2012 to upgrade its overwhelmed airports, potholed roads and inadequate utilities but has lagged in making critical reforms needed to do so, holding back potential gains for investors.

The sector suffered a blow last year as the economy slowed from 9 per cent in 2007/08 to less than 7 per cent and a global credit crunch starved infrastructure firms of funds.

But the gloom seems to be diminishing.

India is expected to expand at 8 per cent in 2010, the fastest among major economies in the world, and 8.5 per cent the year after, matching China's growth rate, according to a World Bank report released on Monday.

An improvement in growth prospects is likely to boost fund flows, especially to the high-beta infrastructure sector.

The sector could also get a lift later this week when the S&P CNX Nifty index shifts to a free-float market cap methodology, giving higher weight to some infrastructure stocks.

However, India faces plenty of execution risk.

"While there is always a fear of disappointment when expectations are very high, in our view, the government could focus on low hanging fruit and still deliver a lot," JPMorgan's domestic fund unit said in its latest fact sheet.

HUGE POTENTIAL
Few would doubt the opportunity in domestic infrastructure.

India's peak power capacity is nearly 14 per cent short of demand, while its transmission and distribution losses are a staggering 40 per cent, according to Planning Commission data.

Only 2 per cent, or 65,590 kilometres, of roads are national highways but carry 40 per cent of traffic, while less than half of agricultural land is irrigated, it said.

Ports are running at 95 per cent of capacity with demand rising at 10 per cent annually, Tata Asset Management data showed.

But to grow at 9 per cent India needs to invest 9 per cent of its GDP to boost infrastructure from less than 6 per cent now.

For a graphic on planned investment by sector, click here

"Achievements in the past five years will pale in comparison with what we will see in the next five years because of the scale at which these activities are going to be happening," said Sanjay Sinha, chief executive of DBS Cholamandalam Asset Management.

Infrastructure funds are the most popular in India by sector, with 18 of them managing nearly Rs 16000 crore ($3.3 billion) at the end of May, according to fund tracker ICRA Online.

"This is a 10 to 20-year catch-up story, years of servicing and supplying, and then another cycle of upgrading and replacing," said Seth R. Freeman, chief investment officer of US money manager EM Capital Management.

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Galaxy Entertainment - A Lifestyle Stock To Buy That Can Grow Exponentially

This is one company which has been a very early entrant in the organised leisure and entertainment business -- running restaurants, a bowling alley and gaming centres. Galaxy was already into these businesses when they were just about picking up momentum in 2004.

Over the next few years, thanks to favourable demographics, economic expansion, changing lifestyle and an increasingly prosperous younger generation, lifestyle, leisure and entertainment sectors have boomed. An overwhelming majority of the companies in this segment is unlisted. Galaxy is one of the rare ones which is listed and must attract attention.

The business consists of several properties; all, except one, are in Mumbai. The biggest is The Bowling Company, a bowling concourse and video-game arcade spread across 30,000 sq ft which claims to offer “multiple, novel and unique leisure and entertainment options in an international setting with quality services in a secure environment”. Galaxy also runs the Sports Bar, which features a giant screen as well as regular TV sets screening sports events, pool tables and memorabilia of famous sports personalities; the Brew Bar, a premium beer lounge; the Rain Bar + Eatery, famous for its cocktails and exotic menu; a restaurant business at Regal Theatre, Lush, a restaurant and Chamosa, a chain of snack foods. Galaxy has also launched its first venture outside Mumbai - F-123 Leisure & Entertainment Centre at Indore which houses four bowling lanes, a video-game arcade and a café.

However, despite a head start and ambitious growth plans, Galaxy has not been able to grow at all. In the monster bull run of the past five years, the stock has been falling and is hitting new lows even as the broader market scales new highs every day. One of the reasons for this was the lack of management focus. The company was controlled by Purnendu Chatterjee and run by Satish Chunder a former banker from Citibank. Unfortunately, Chunder died suddenly and the company became rudderless.

The company changed hands in early 2006; one of the largest and most experienced organised retailing chains, Pantaloon, bought 15.73% stake in it. A large chunk of equity is owned by the Ruias of Phoenix Mills, where several of Galaxy’s restaurants are located. This association at least gives Galaxy a chance to achieve its true potential. It recently amalgamated Pan India Restaurants with itself which has food courts in Pantaloon malls, especially in southern India. Galaxy’s financial performance has not been great. Revenues have been rising by an average 58% over the past five quarters, but it continues to make operating losses. It reported a marginal profit of Rs0.55 crore in the June quarter at a margin of 8%. If Pantaloon starts taking interest, which it should, the company will record exponential growth.
Source: MoneyLife

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Value Stock To Buy - Asian Hotels - Restructuring Is In Lines

An average sales growth of 25% over the past five quarters, average operating profit growth of 38% over the same period and operating margin of 42%. These are the kind of numbers that would probably be expected of a software company. Instead, these are the growth indicators of Asian Hotels.

This stock may benefit shareholders after restructuring

Hotels have been doing extremely well for the past four years, thanks to a boom in all segments of tourism – domestic and international – and business travel. The sudden boom has created a supply gap and has ensured high occupancy levels at higher average room rates.

However, despite its strong fundamentals, the stock of Asian Hotels Limited (AHL), which operates the Hyatt brand of hotels in Delhi, Mumbai and Kolkata, is not doing well. This is partly because of the uncertainty surrounding a major restructuring AHL is undergoing. The company is being re-arranged into three undertakings based on the recommendations of the corporate restructuring committee appointed by the board. Each promoter will be assigned to run a locational area of its operations (Delhi, Mumbai and Kolkata). Will this help the stock?

The trifurcation of the company will probably give an opportunity for each of the promoter groups to enhance shareholder value for the three new entities. The three main promoters have been running the three hotels independently for some time. The split in the company formalises this. The question is: will the restructuring go more in favour of the promoters rather than the shareholders? The presence of a smart player like Infrastructure Development and Finance Company, a new significant shareholder, will probably ensure that the split creates value. The stock, however, continues to languish and has underperformed the broader market.

For now, the stock is reasonably valued with its market-cap discounting its five-quarter average sales (annualised) by 3.55 times and its operating profit by 8.29 times. There is extraordinary value in it, provided the restructuring is not anti-investor. After all, hotel companies are expected to continue to do extremely well, since the gap in demand-supply is likely to continue for some time.

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Best Large Cap Stocks To Buy From Top Sectors Now

Current stock market rally is led by sectors (real estate, metals and IT) that are yet to see a significant pick-up in demand. Stock market analysts are slightly sceptical about the rally in stock market as a whole but they are not completely pessimistic. Money today magazine had recently interviewed stocks research teams & analysts from top stock broking firms. Have a look at five sectors that are the most preferred by analysts and the hottest stocks to buy in each sector.

"Our recommended strategy is to be overweight in sectors focused on the domestic market," says Nischal Maheshwari, head of research, Edelweiss Capital.

Automobiles
Last year was challenging for the Indian auto industry. High commodity prices in early 2008 squeezed margins, and by the end of the year, shrinking sales began to hurt. However, the industry has hit a smooth patch, with the government reducing excise duties and lowering rates on consumer loans. This has helped revive the demand for cars and two wheelers.

"We expect the passenger car industry to continue to improve due to the excise duty benefit and rural market demand, but the requirement for commercial vehicles is likely to witness pressure," says Umesh Karne, analyst, Reliance Money. Hero Honda and Maruti Suzuki reported very good numbers in April 2009. The two-wheeler major has seen a 15.1% rise in sales volumes, while Maruti has registered a robust 29.5% growth. Maruti, in particular, is expected to benefit when the economy revives, despite the fact that the company’s fourth quarter earnings have taken a beating. "We think that the company is better placed than its peers to take advantage of any kind of revival in the passenger car industry to maintain its leadership position in the segment," states a report by the Mumbai-based brokerage firm, Sharekhan.

Capital goods
Rising commodity prices hurt the margins of capital goods and auto companies. Like the auto industry, capital goods were also hit by a decreasing order inflow due to the slowing capital expenditure. However, according to the February index of industrial production, the segment posted a robust year-on-year growth of 10.4%. Analysts seem cautiously optimistic, though some companies are yet to see a definite revival of order inflows. Most analysts expect new orders to come from capacity additions in the power transmission and distribution sector as tendering activity for the Power Grid Corporation gathers pace. Analysts recommend that investors stick to firms with robust order inflows and a substantial order backlog. Large-cap companies such as Bhel and Larsen & Toubro are good options. In 2008-9, Bhel’s year-on-year order inflow grew by 18.7% to Rs 59,687 crore. With a total order backlog of Rs 1.17 lakh crore, the management expects the company to clock a robust revenue growth of 20-25%. "Bhel would be one of the few Indian large-cap stocks to have an earnings upgrade cycle in 2009-10, which would drive the next leg of outperformance," says Inderjeet Singh Bhatia, an analyst at Macquarie Securities.

Pharmaceuticals
Although the pharma sector has been a relative outperformer in the past one year compared to the broader market, analysts have some concerns. The last quarter saw a mixed bag of results largely due to forex losses, says Sarabjit Kour Nangra, vicepresident, research, Angel Broking. "Having said that, one could take a stock-specific approach, as the sector makes for a good defensive bet. Look at the companies in the contract research and manufacturing services space, which is likely to grow at 25-30% for the next few years," she says. Large generics players can also be considered. The swine flu pandemic could benefit companies like Cipla and Ranbaxy in the short term, as these have the technological capabilities to manufacture Tamiflu, the drug required to treat the disease.

"Cipla will benefit significantly from the sharp rupee depreciation. Its core earnings are expected to witness a 34% cumulative annual growth rate during 2008-11. The stock is a good buy considering that it is a strong player in the generics market with a foothold in developed markets," states a report by India Infoline. On the domestic front, a burgeoning middle class and changing disease profile are expected to fuel the growth of the pharmaceutical market by more than 12% a year.

Consumer goods (FMCG)
Popularly seen as a safe haven in times of trouble, FMCG companies continue to attract investors. The BSE FMCG index has lost only 10%, while the benchmark Sensex has lost 30% in the past one year. Historically, the sector has been resilient during economic downturns. According to research house Noble, in the previous downturn between 2001 and 2004, diversified FMCG companies such as Marico, Dabur and Godrej Consumer fared well. Personal care companies like HUL, Colgate-Palmolive and Dabur are expected to benefit from the correction in palm oil and packaging material prices. A decline in copra prices is expected to help improve Marico’s operating margin. "We expect volume growth to remain robust and margins to expand for most FMCG companies," says Abneesh Roy, an analyst at Edelweiss Securities.

Colgate-Pamolive is the most preferred FMCG stock. "The company comes across as an allround performer with strong brands in oral care, leading distribution in the sector, shareholder-friendly dividend policy and a track record of boosting margins in times of top-line slowdown. We do not expect any weakness in revenues from a cyclical slowdown," says Jaibir Sethi, an analyst at the Noble group.

Telecom
Always a competitive industry, the telecom sector is beginning to see an intense struggle after the entry of Reliance Communications in the GSM arena. Despite competition putting pressure on margins, the industry has reported a robust growth rate in a slowing economy. According to analysts at Macquarie, GSM operators reported the highest net subscriber additions of 10.85 million in March 2009; between October 2008 and March this year, operators have seen a breathtaking increase in new customers. "The trend supports our bullish stance on wireless subscriber growth in India," says Shubham Majumder, an analyst at Macquarie.

Bharti Airtel, which has added 2.81 million subscribers in March this year, is seen as the best bet. Analysts say that the management is now focusing on revenue market share. "Superior subscriber profile, a healthy balance sheet and higher visibility of cash flows makes Bharti our top pick in the telecom sector," says Nishna Biyani, an analyst at Prabhudas Lilladher.
Source: Money Today

Also Read: Stock Market in 2009 - Stocks to Buy

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How To Buy Life Insurance by Paying Minimum Insurance Premium

When should you buy life insurance so you have to pay least possible insurance premium? Let's find out what are the situations in which you can have maximum insurance cover at minimum premium.


Rule: You should buy life insurance when you are young because it is cheaper.

Exception: Don’t buy a long-term policy if you are very young. Most companies offer cover for a maximum of 30 years. If you take a 30-year policy in your early twenties, the insurance will end in your early fifties.

30 yrs is the maximum period for which most companies offer term insurance plans to individuals. The minimum insurance term is usually 10 years.

65 yrs is the maximum age till which most insurance companies offer life cover under term plans. The minimum age required to take a term plan is 18 years.

Instead of taking a long-term insurance plan early in life, it is better to take a short plan of around 10 years initially and buy a 30-year term plan before you turn 35. This will ensure that you don’t have to take a fresh cover when you are 55 years old. At that age, the premium is very high.

Here are the calculations of two strategies for a cover of Rs 10 lakh. The second option is more cost-effective.


Strategy I

A. Age: 25 Term: 30 yrs
Annual premium: Rs 2,563
Rs 2,563 x 30 yrs = Rs 76,890

B. Age: 55 Term: 10 yrs
Annual premium: Rs 11,209
Rs 11,209 x 10 yrs = Rs 1,12,090

Total cost (A + B): Rs 1,88,980

Strategy II

A. Age: 25 Term: 10 yrs
Annual premium: Rs 2,342
Rs 2,343 x 10 yrs = Rs 23,430

B. Age: 35 Term: 30 yrs
Annual premium: Rs 4,268
Rs 4,268 x 30 yrs = Rs 1,28,040

Total cost (A + B): Rs 1,51,470

As a person grows older, his health deteriorates. If by the age of 55, the individual has developed a medical condition, the insurance premium will be much higher than what has been assumed here. Worse, the insurance firm may refuse to insure him if he hasn’t been keeping good health.

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Mahindra Holidays and Resorts IPO Is Expensive

Mahindra Holidays and Resorts India's IPO (initial public offering) has opened for subscrption with an initial public offering of 92,65,275 equity shares of Rs 10 each, at a price band of Rs 275-325 a share.

The IPO (initial public offering) of Mahindra Holidays is quite expensive if we compare this either as a resort or a hotel company or maybe travel and tourism. I don’t think that the past track record of the resort companies has been very great, if you go by Country Club, Suman Motels etc. I agree that you cannot compare those companies with the group who owns this but ultimately the valuation matters.

In case of five star hotels also if you take their properties, even the net present value of their properties, they are estimating at about Rs 2200-2,300 crore while it is given at Rs 2,700 valuations at the upper band. I don’t think you can have really that kind of stretch valuations. You need to leave atleast 15% on the table and there has to be difference between primary and secondary market valuations to that extent.

Coming to a comparable resort or travel and tourism none of the shares are ruling at a PE multiple of 20 whether you take hotels or even a company like Thomas Cook; it is not strictly comparable. So overall, valuations are quite stretched and it shouldn’t have been more than anywhere between Rs 200-240 on the upper band and Rs 200 on the lower side.

Verdict:
Looking at the fact that none of the tourism and hotel companies are running at the PE Multiple of more than 20, Mahindra holidays is offering stocks at the lower end of the price band of Rs.275 where the stock quotes a PE of 29x its FY09 EPS of Rs.9.1. On the lower band also stock would quote at 29X multiple of earnings which is quite expensive and so it would not be wise to subscribe to this issue at even lower band. It is quite possible that stock might be hammered below it’s IPO price looking at current stock market trend. Wait and watch till the stock gets listed in markets would be my advice to investors.

Checkout details of Mahindra Holiday IPO

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Sesa Goa Ltd - Stock Analysis With Current Updates

Sesa Goa has acquired the mining assets of Goa based Dempo group in the all cash deal worth Rs 17.5 bn. The acquisition comes in the times when the Global Steel Industry to which the Iron ore industry supplies raw material is recovering from the cyclical downturn following the Global Financial Crisis.

(CMP : Rs.203, FY11E - P/E : 3.4x, Buy stocks with a target price of Rs. 263)
Acquisition has been done quite cheap
Sesa Goa has signed an agreement to pay Rs 17.5 bn for acquiring all the outstanding shares of the unlisted VS Dempo & Co. (VSD) which owns 100% of Dempo mining and a 50% stake in Goa Maritime. The deal also includes VSD’s net working capital of Rs 1.45 bn. The transaction has been funded from the internal accruals of Sesa Goa. Considering the ownership or the rights to mineable reserves and resources estimated at 70 mmT of Iron ore that Sesa Goa has acquired for Rs 17.5 bn, the deal was done at the rate of Rs 250 per tonne of Iron ore reserves, while the Sesa Goa itself was valued at Rs 630 per tonne on the day the deal was announced i.e. 240 mmT of reserves at Rs 192 per share on June 11,’09.

Acquisition to be EPS accretive from the first year
As the acquired assets are in and around Goa, a lot of synergies exist in the operations of the two companies and considering the 43% EBIDTA margins earned by VSD and no debt in the books the acquisition would be EPS accretive to the combined entity.

Sesa Goa had an ideal cash of Rs 41.43 bn as on Mar. 31, ’09 yielding a return of around 12% p.a. With the acquisition, the cash has been put to right use as it will be yielding a return of around 50% plus considering the track record of Sesa Goa for past 3 years (Avg RoE for last 3 years = 54.4%).

Acquisition is well timed
The Dempo acquisition is well timed and comes when the Global Steel industry is reviving and Iron ore prices are bottomed out. The annual Iron ore contracts are shaping up with Japanese and Korean Steel makers having accepted 33% cut in the Iron ore fines’ price although Chinese Steel makers still demanding a higher cut.

The Iron Ore (Spot) prices in China have been rising lately after the deal between BHPB and Japanese Steel makers and are currently quoting at $75/tonne (CFR) although the port inventory has been rising and currently at 71 mmT. The prices are expected to be robust and with rise in the total exported volume (with the acquisition of Dempo), Sesa Goa will show better topline and bottomline. The management has shown a renewed enthusiasm by guiding to raise the total volume to 50 mmT by next 3-4 years though we are skeptical about the same and expect them to achieve the same by FY2015.



Valuation:
At CMP, the scrip is quoting at an EV/EBIDTA of 1.2x FY11E earnings (Revised Estimate).

Considering the rightful canalizing of the cash available yielding better return over what it used to earlier and the improved pricing power due to enhanced volume at disposal, we would like to attribute a better multiple than we had put in our earlier estimates. We recommend a Buy with a price target of Rs 263 at which the scrip will quote at an EV/EBIDTA of 2x.
Source: Reliance Money Equity Research

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Rakesh Jhunjhunwala On Future Of Indian Stock Markets

Here is an interview taken on CNBC TV18 of veteran investor in Indian stocks, Rakesh Jhunjhunwala. He is speaking about future of Indian stocks in next few years in this interview.

“If the Nifty breaks 4650 decisively and holds for a week or so, it could hit 5900-6000,” Jhunjhunwala said. The markets would consolidate between 4,000-5,000 for three-four years, he added.


The correction seen in the latter part of 2008, he said, was a part of a major bull run that continues and which started in September 2001. “The bull market started in September 2001. We had the first leg up to September 2002 after which there was a correction. Then it started from April 2003, that leg lasted till 21,000,” the ace investor said. “That gets corrected back now to 7,500-8,000 and now we have resumed that bull market. So we can go to 20,000 and again come back to 16,000-15,000, make a range and then make a move which goes above 21,000.”

Q: We spoke on the day after the election results. I do not think even we imagined the market would be here. What is the screen telling you now?
A: The screen is telling me that the bear correction of the larger bull market in India is over. If the markets do not break below 4,000 levels in the next six-nine months — and the screen is telling us they won’t — then surely the fall from 6,000 to 2,500 for the Nifty and from 21,000 to 7,500-8,000 for the index was just a correction in the longer-term bull market in India. Actually, in my opinion, the correction started in September 2001 because the real bottom the market made was post-September 11, 2001 and then the market went up to 3,500 and had a historic correction back from April 2003.

Despite people’s apprehension and doubts about the economic scenario worldwide, it could be that the fall [in 2008] was just a correction. I also feel so because of the way the [subsequent] rise took place with its tremendous breadth, tremendous pace with good volumes — but with a lot of cynicism and lack of participation among the larger people.

Q: You do not agree with the consensus feeling right now that we should be scared by the pace of the rise. That we are now approaching a mini bubble kind of a situation?
A: You first asked what the screen was saying, you never asked me what my opinion was.

Just like others, there is a fair amount of doubt in my mind too. Internationally, things are not clear at all and I do not think that the downturn in the western economies — even if there is some kind of an improvement in the next 12-24 months — has really peaked. So with that knowledge about the world economy, it clouds the judgement of what can happen in India.

However, If you look at the other side of the story, I see no reason why — if Indian software exports grow by 10-15%, commodity prices hold at reasonable levels and we have good government policies — India cannot grow at double digits. We have large internal savings. If we do well, the world capital will be at our doorsteps, there will be no lack of capital if the government is able to facilitate investments. So those are the two sides but I am more tilted towards the second side because in the initial stages, they say, bull markets always go up on a wall of worry and bear markets always go down on a ray of hope.

The fact is that market is just going up in an unexpected pace and everybody is worrying. Surely I am also apprehensive about the valuation and the pace but markets are markets.

Q: When you look at the screen, what worries you? Does it worry you that valuations are far ahead of fundamentals or do you see the kind of participation or mania that you saw in 2007 or that is not visible just yet?
A: Not at all, not even 5%. I don’t go to any cocktail party where stock markets are even talked because everybody is totally left out. And the futures positions are indicative, the number of calls you get, the apprehension that people have in the buy stocks — I don’t know where the buyers are coming from but I don’t think there is even 20% of the participation of that what was in 2007.

Q: Will they all get sucked in you think before this rally tops out, people who have been sitting out?
A: It is very difficult to leave a burning cigarette in a rising market. Everybody will ultimately join. I don’t know how many calls I got when we made a 52-week high. Normally, a lot of channels call me, no channel called me to get an opinion when the market was at a 52-week high. I don’t even know how many people know we were at a 52-week high.

So I think crowd psychology-wise or sentiment-wise, I don’t think at all we are anywhere near any kind of a top.

Q: Are you trading yourself with a bit more caution because you were saying you are also in two minds right now or are you trading the kind of volumes you were trading in the big momentum of 2007?
A: I don’t think I am trading the way II was in 2007. After all, I am a human too and I am also affected by what my thoughts are. However, I am far surer about the [country’s] longer-term growth prospects and the strength than most people.

Q: Why did you pick out the level 4,000? Any significance or do you think below that…
A: Instead of 4,000, I would say 3,800 or maybe even 3,600 — no level is sacrosanct — but I would say the level where this market made a gap, that should not be violated on the downside. If it breaks 4,650 decisively, that’s what my technical analyst tells me, that market will make or at least challenge the previous high of 6,100.

Q: Do you think 6,100 is possible in 2009?
A: Did you think 4,500 was possible?

Q: I am asking you.
A: Ok. What the technical analyst says — and I also think — if it breaks 4,650 decisively on a weekly basis and holds it for a week or two, then surely we can go to 5,800-5,900-6,000 levels. We could go there, then come back to 5,000-5,200 or maybe 4,800-4,500, make a range and consolidate for a year or so and then make a new high. Another scenario: we break 4,650, we are going to go to 5,850-5,900-6,000, come back to somewhere around 3,300-3,400 and maybe spend three-four years there.

Q: Do you think that’s also possible — that the market goes there, halves from there and then spends a big…
A: It happened in 1991. So at this moment, I won’t rule out any of the scenarios but I am more inclined towards the first that we will reach 5,800-5900-6000 and then we consolidate — maybe in the 4,500-5,000 or 4,600-5,200 or even 4,000-5,000 range for the next 12-18 months. Then we go into a new high — 6,100 — and go upwards or we go back to 3,000 to 4,000 where we spend two-three years to resume higher.

Q: What is your best guess for the rest of 2009? Do you think we will actually go to 5,800-5,900 in 2009?
A: I have put a lot of caveats there — that the index should cross 4,650 decisively on a weekly basis, hold for a week or two, then I think it should. I don’t know where and what range the markets go into, but they will go into a range, spend time and only then are we going to see a big move. We have already seen a big move, we don’t know whether this move will end at: 4,800, 5,800, 5,900, 6,000? I think it will surely end before 6,000.

I do not think the Sensex will cross 21,000 in a straight line. We have to correct and we have to make a range and only then we can have the next move.

Q: Range in terms of price or time?
A: Price.

Q: And that range according to you is?
A: Who knows where it will be.

Q: What is your best case?
A: I think it will be anywhere between 3,800 and 5,000.

Q: That big a range?
A: The range could be narrower but 3,800 would be the bottom and 5,000 would be the top in that range. The range could be 4,000 to 4,500, it could be 4,500 to 5,000.

Q: After that you think a bigger bull market will commence, which goes to a new high?
A: The bull market, which has started in September 2001. We had a bull market up to 2008, we had the first leg up to September 2002 after which there was a correction. Then it started from April 2003, that leg lasted till 21,000.

That gets corrected back now to 7,500-8,000 and now we have resumed that bull market. So we can go to 20,000 and again come back to 16,000-15,000, make a range and then make a move which goes above 21,000.

Q: Right now what sums up your state of mind: wildly optimistic, terribly and totally bullish or cautiously bullish?
A: All three.

Q: With an accent on what, the caution or the bullishness?
A: I am cautious.

Q: Why? You said yourself that nobody is participated; the gaon is not into stocks.
A: I am also part of the gaon.

Q: You are a sophisticated member of the gaon.
A: Even the sophisticated ones are caught.

Q: What is making you cautious? You said valuations are not crazy and who are we to say valuations are excessive? Is it global cues which you think may turn?
A: Yes, it is the sheer psychology of the fact that the global economy is in a terrible downturn. That is put into our brains.

Q: It is not the experience of the horrific 2008?
A: No, not all that. We have had more horrific experiences.

Q: Have you? 60% down in one year?
A: Yes, why not? ‘92, though I made a lot of money back then by shorting but we also 2000, which was the worst year when from 6,000, you came back to 2,900.

Q: So the fear is global, nothing else?
A: Yes, the fear is global.
Source: MoneyControl.com

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Mahindra Holidays IPO - Analysis

Mahindra Holidays & Resorts India is a leading leisure hospitality provider in India. The company provides family holidays primarily through vacation ownership memberships.

Its members can choose to stay and holiday at resorts in a range of holiday destinations for a pre-determined number of days in a year for a fixed number of years.

Currently, Mahindra Holiday & Resorts has 11 owned resorts with 937 cottages/apartments, 12 resorts with 252 cottages/apartments on long-term lease, and five with 72 cottages/apartments on short-term lease (less than two years). Of the long-lease resorts, two resorts are in Thailand. Currently, the occupancy is 75%, of which 6% are non-members.

Club Mahindra is the flagship product. Started in 1997, Club Mahindra Holiday membership entitles members the choice of holidaying at any of its 23 resorts for seven days each year in a season and in an apartment type of their choice for 25 years. The membership is divided into four seasons: Purple, Red, White and Blue. In addition, its members can choose to access a range of resorts globally through the company's affiliation with Resort Condominiums International (RCI). The company has 91,997 Club Mahindra Holiday vacation ownership members end May 2009.

Zest, based on the concept of short breaks, was introduced in November 2006, and is targeted at young urban families. The Zest member is entitled to six days of holidays every year within the allotted season, Verve, Buzz and Pep, at any Zest resort for a membership period of 10 years. Currently, five resorts have been earmarked for Zest. The company had sold 4,070 Zest vacation ownership memberships end May 2009.

Club Mahindra Fundays, introduced in October 2006, is targeted at corporate customers. The scheme is based on point system, where different season and apartment combinations are valued at points per day as specified from time to time. A corporate customer purchases a specific number of points that are credited to its account every year of the 10-year term of the membership. A corporate member may offer family holidays to its employees. The company had sold 20,16,018 Club Mahindra Funday points end May 2009.

In July 2008, Mahindra Homestays was launched to market Indian Homestays to overseas travelers wishing to experience the real India by lodging with a host family in India. In April 2009, Mahindra Homestays began promoting homestays to Indian customers. A homestay provides no more than eight rooms to in a private home, run by the homeowner. The company had approximately 71 homestays affiliated with Mahindra Homestays end May 2009.

The revenue model is as follows: Mahindra Holiday & Resorts takes membership fee of Rs 250000. This is split into non-refundable admission fee of 60%, i.e., Rs 150000, and the balance 40% is recognised equally over 25 years. The member is also charged annual subscription fees for maintenance of properties. Currently this subscription fee is close to Rs 8000 and is adjusted to the Consumer Price Index.

The proceeds of the issue, net of offer for sale and funds for corporate purposes, will be utilised to upgrade existing facilities and construct new resorts, thereby adding 408 new rooms/apartments.

Strengths
** Has a strong parentage of the Mahindra group, which is among the top 10 industrial houses in India. Club Mahindra has the highest brand equity among timeshare companies in India. In terms of market share, accounted for 72% of the total active members across the vacation ownership industry in India with Resort Condominiums International (RCI) up to end May 2009.

** The number of memberships including all brands had a CAGR of about 34% over the last four years from 2,8491 members end of the fiscal ending March 2005 (FY2005) to 92,825 members end FY 2009 and further to 96,067 members end May 2009. The number of members for Club Mahindra had a CAGR of 33% over the last four years from 28,491 members end FY 2005 to 88,998 members end FY 2009 and further to 91,987 members end May 2009.

Weaknesses
** Has 1,261 apartments/cottages, meaning it can serve 63,050 (1261x50 weeks) members if all its cottages are occupied. However, there are 96,067 members. As per the management, of these, about 63,000 members are eligible for vacation. The logic being that members who have chosen EMI payment (94% of the new members) would be eligible for vacation only 12-18 months from the date of membership. Nevertheless, there is not enough capacity to properly service all its members. The holiday traffic would not be throughout the year but during specific periods. This compounds the unavailability problem. This may lead to dis-satisfaction of members. Currently, there are 105 consumer cases pending.

** Though new members are being added, the reputation of the business is not encouraging. The vacation ownership industry in India has suffered from loss of consumer confidence by virtue of inappropriate business practices by certain companies, resulting in a general disgruntlement against the vacation ownership industry.

** Sales grew 11% to Rs 393.19 crore in FY 2009 as against more than 50% growth in earlier years. Net profit dipped 5% to Rs 79.80 crore as against close to 100% growth in the earlier years. The new member addition has also seen a dip in FY 2009 due to economic slowdown.

Valuation
At the price band of Rs 275 – 325, PE works out to 28.9 – 34.2 times on consolidated FY 2009 EPS of Rs 9.5, The market capitalisation to sales ratio comes to about 5.9 – 7 times, whereas that of the hotel Industry on a trailing 12-month (TTM) basis is 2.4 times. Thus, the offer price is very high.

Brokerage Views:
There are a couple of brokerage views although the street is really divided on this front. A couple of brokerages say this is a good price at which they are raising money because in FY09, Mahindra Holidays reported a profit after tax (PAT) of Rs 83 core. So the EPS stands at about Rs 11-12. Thus, considering this, the price at which they have raised funds is good. But there are a couple of other disappointing news as well. Deutsche Bank says that they had a per value share of Rs 117. And now, if we actually do the numbers, it comes to Rs 66. So they feel it’s a little disappointing.

Giving the valuations from all the subsidiaries for Mahindra Holidays, it is Rs 66, Tech Mahindra its Rs 130, for financial services its Rs 50. So, Rs 246 of their entire share price, of M&M share price comes only from their listed subsidiaries. That is the kind of valuation from SOTC perspective.

Thus, as of now, the price band is disappointing—Rs 275-375 per share. So let’s see what it really comes at on June 23.

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Castrol India Ltd - Stable Mid Cap Stock To Buy

Castrol India is the Indian subsidiary of UK-based Burma Castrol and is engaged in manufacturing and marketing of automotive and industrial lubricants and specialty products.

It operates in the automotive as well as non-automotive segments. The former includes oils for heavy-duty vehicles, cars, motorcycles and bikes, while the latter includes industrial lubricants, marine and energy lubricants and the services segment.Public sector players like IndianOil, Bharat Petroleum (BPCL) and Castrol account for around 70% of the domestic lubricants market.

Several other players, including global majors, account for the balance share, resulting in a highly competitive market. Besides having technologically superior products, Castrol also has strong distribution network and brand recall. The company is the market leader in the retail segment with a share of around 21% in the total automotive lubricants market.Castrol has gained market share in a declining lubricants market.

The entry of new original equipment manufacturers (OEMs) offering new technology vehicles will provide additional opportunities for the company's products. Lube consumption is projected to grow strongly in cars, four-stroke bikes, as well as building and construction equipment segments. Gradual growth in personal mobility, as well as corresponding growth in demand for automotive services, are positive factors for the company in the long term.

Castrol seeks revenue and value growth through higher dependence on superior technology products relevant to new generation of vehicles, as well as focus on volume growth in the key growth sectors which it has identified. Rather than a broad volume growth strategy, the company is looking at building on profitability. In the past five years, there has been a dramatic increase in the number of cars and commercial vehicles on India's roads. This aftermarket is likely to be a big growth driver for the lubricant industry in general and Castrol in particular, over the next few years.Even amidst a slump in the automobile sector, the company's lubricants will still have a large potential market to tap.

Market Cap 4,647.02
EPS (TTM) 21.49
P/E 17.49
P/C 15.95
* Book Value 38.46
Price/Book 9.77
Div(%) 150.00
Div Yield(%) 3.99
Market Lot 1.00
Face Value 10.00
Industry P/E 16.93

A ROBUST balance sheet, sound business model and strong brand equity of its products is enabling Castrol India to churn out good cash flows year after year. The stock is fairly valued at current multiples. Besides, a high stock dividend yield, stable business and sound financials make the stock an attractive pick for the long term investing.

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Force Motors Ltd - Small Cap Today ... Large Cap Tomorrow?

Force Motors Limited, A Firodia Enterprise, is a Company that has reinvented itself. Four decades ago, Force Motors started production of the HANSEAT 3-Wheelers in collaboration with Vidal & Sohn Tempo Werke Germany and went on to establish a strong presence in the “Light Commercial Vehicles” (LCV) field with the MATADOR. The proverbial LCV in India.


Through the 80s and 90s, especially in the last 5 years with a major product development effort, Force Motors has introduced new Light Commercial Vehicles, a new family of Utility Vehicles, new state-of-the-art Tractors, and a new range of Three-Wheelers.

Today Force Motors stands on the threshold of a new era in the automobile industry in India, with a stake in Five Product segments :


TRACTORS - OX and Balwan - Modern Tractors , sporting synchromesh transmission , Bosch hydraulics, excellent ergonomics and fuel efficient engines. Designed for demanding farmers of developing countries.

THREE WHEELERS - Minidor . A family of new and beautifully engineered three- wheelers - economical, rugged and environment friendly - very efficient transport for people and goods.

LIGHT COMMERCIAL VEHICLES - Traveller and Excel range of passenger & goods carriers. Powered by a family of DI and IDI engines including the legendary Mercedes derived OM 616 engines. A range of high reliability axles and transmissions add value.

MULTI UTILITY VEHICLES - Complete range of multi utility vehicles including the Trax Judo, Trax GAMA, Trax Cruiser, Trax Kargo King, range of single cabin and double cabin pickups. And the 4X4 cross country vehicle - Trax Gurkha.

HEAVY COMMERCIAL VEHICLES - In technical collaboration with MAN AG, Germany, Force Motors will be introducing shortly a range of heavy commercial vehicles with a payload capacity ranging from 16 to 50 tonnes.

FORCE Motors' recent announcement to convert its joint venture (JV) with MAN Nutzfahrzeuge AG of Germany into an equal JV is a welcome break for the beleaguered shareholders of Force Motors. In the past five years, the company has failed to grow its topline despite a boom in the commercial vehicle segment.

Moreover, it has been posting losses since FY07. The earlier 70:30 JV with MAN-Man Force Trucks (MNF) is yet to show any significant activity, despite being three years old now. Its decision to allow MAN to raise its stake in MNF to 50% is likely to give a fresh lease of life to the JV, besides providing its parent company, Force Motors, with the much-needed cash.

Under the deal, Force Motors will sell 14.2% stake in MNF to MAN for a consideration of Rs 300 crore. MAN will acquire additional equity through a rights issue worth Rs 250 crore to raise its stake to 50%. The deal values MNF at over Rs 2,000 crore. In contrast, Force Motors' current market capitalisation is a little over Rs 140 crore. The move shows MAN's commitment to the JV and the importance it attaches to its success in the domestic market.

India is among the world's top four markets for commercial vehicles and MAN is seeking a significant pie of this growing cake. The Germany-based automotive and engineering major is one of Europe's leading truck makers. An equal stake will allow MAN to play a leading role in the company's management and may turn out to be a turning point for the fortunes of Force Motors' investors.

Market Cap 131.10
EPS (TTM) 104.83
P/E 0.95
P/C 0.74
Book Value 78.14
Price/Book 1.27
Div(%) 0.00
Div Yield(%) -
Market Lot 1.00
Face Value 10.00
Industry P/E 18.57

One must consider buying stocks of Force if he/she is long term investor in market and believes in concept of Turnaround story. This small cap could become mid cap and who knows a large cap tomorrow, though only in long term.

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Rallis India - Mid Cap Stock Idea

Rallis India is predominantly an agrochemicals manufacturer, which also sells other farm inputs such as hybrid seeds and specialty fertilisers. The company undertakes manufacturing work on contract for leading agrochemical majors.

This ensures that its plants works at higher capacity utilisation levels throughout the year besides providing a consistent cash flow. Apart from innovating agrochemicals business, Rallies India is also exploring new areas for growth.Through its contract manufacturing agreement with US-based Cytec Engineers, the company has emerged as the sole manufacturer of specialty polymer PEKK (poly ether ketone ketone), mainly used in aerospace industry, in the world.Last year, the company launched an enterprise value-creation programme "Disha" aiming at bringing in improvements in manufacturing and procurement, through plant modernisation, capacity de-bottlenecking, process improvements and cost reduction.

Its efforts towards targeted growth in its international business are also paying off well. Following the success of Disha phase 1, the company has initiated Disha phase 2 for creating value in sales and marketing.The global agriculture industry is facing challenges to improve productivity to cater to the food as well as the energy requirements of the ever-increasing population. This coupled with higher agro-commodity prices, is likely to maintain a healthy demand for pesticides in the coming years.

Rallies India has recently closed down its plant at Patancheru in Andhra Pradesh to unlock value in the land bank. Meanwhile, it is also setting up agrochemical plants in Dahej and Jammu, which will commence production in 2010. At Dahej, the company has secured land in special economic zone (SEZ) and notified chemicals zone (NCZ) and it also plans to spend over Rs 150 crore in two phases there. Besides, another captive power plant at Ankleshwar will also developed by the company.Rallies India's focus on specialty products is helping it earn better margins.

The company is expected to continue its new product launches to keep its innovative sales above 30% of its total revenues.

Rallis India has outperformed broader market and has maintained its price-to-earnings ratio (P/E) intact over the last one year. I expect the company to finish FY10 with EPS of Rs 71.3 excluding any extraordinary income.

Market Cap 710.21
EPS (TTM) 59.98
P/E 9.88
P/C 7.49
Book Value 217.51
Price/Book 2.72
Div(%) 160.00
Div Yield(%) 2.70
Market Lot 1.00
Face Value 10.00
Industry P/E 12.69

At the current market price, the scrip is trading at 9 times its expected net profits for estimated FY10 earnings.It paid Rs 16 per share as dividend in FY08 and is likely to maintain it in future. At its current price, the stock dividend yield works out to 2.7%, making it a safe mid cap stock to buy for risk adverse investors.

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